As filed with the Securities and Exchange Commission on April 18, 2000.
Registration No. 333-30722

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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AMENDMENT No. 2 to
FORM S-1
REGISTRATION STATEMENT
under
the Securities Act of 1933

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ARTISAN ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)

Delaware 7822 04-3380164
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

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2700 Colorado Avenue, 2nd Floor
Santa Monica, California 90404
Telephone: (310) 449-9200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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Copies to:

Ken Schapiro Eva Herbst Davis Jonathan A. Schaffzin
Artisan Entertainment Inc. Kirkland & Ellis Cahill Gordon & Reindel
2700 Colorado Avenue, 2nd Floor 777 South Figueroa Street 80 Pine Street
Santa Monica, California 90404 Los Angeles, California 90017 New York, New York 10005
Telephone: (310) 449-9200 Telephone: (213) 680-8400 Telephone: (212) 701-3000

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

--------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

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CALCULATION OF REGISTRATION FEE

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

Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered(1) Per Share Price(2) Fee(3)
- ---------------------------------------------------------------------------------------

Common Stock,
par value $0.01 per share.. 6,900,000 Shares $18.00 $124,200,000 $32,788.80
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------

(1) Includes 450,000 shares that the underwriters have the option to purchase
from Artisan Entertainment Inc., and an additional 450,000 shares that the
underwriters have the option to purchase from the selling stockholders to
cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).

(3) Fee was paid with the previous filing of the Registration Statement.

--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion

Preliminary Prospectus dated April 18, 2000

PROSPECTUS

6,000,000 Shares

[LOGO OF ARTISAN ENTERTAINMENT]

Common Stock

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

This is Artisan Entertainment Inc.'s initial public offering of its common
stock. Artisan will offer 6,000,000 shares of common stock.

We expect the public offering price to be between $16.00 and $18.00 per
share. Currently, no public market exists for our common stock. After the
pricing of the offering, we expect that the common stock will be approved for
quotation on the Nasdaq National Market under the symbol "RTSN".

Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 6 of this prospectus.

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

Per Share Total
--------- -----

Public offering price............................. $ $

Underwriting discount............................. $ $

Proceeds, before expenses, to Artisan............. $ $

The underwriters may also purchase up to an additional 450,000 shares of
common stock from Artisan and 450,000 shares of common stock from some of our
existing stockholders identified in this prospectus at the public offering
price, less the underwriting discount, within 30 days from the date of this
prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

The shares of common stock will be ready for delivery on or about,
2000.

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

Merrill Lynch & Co. Bear, Stearns & Co. Inc.

ING Barings

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

The date of this prospectus is , 2000.

[GRAPHICS OF KEY ART FOR MOTION PICTURES AND VIDEO BOXES]

Table of Contents

Page
----

Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
The Reclassification..................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Historical Financial Data....................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
The Industry............................................................. 24
Business................................................................. 29
Management............................................................... 45
Specified Relationships and Related Transactions......................... 53
Principal Stockholders................................................... 57
Description of Selling Stockholders...................................... 61
Description of Capital Stock............................................. 64
Shares Eligible For Future Sale.......................................... 67
Underwriting............................................................. 69
Legal Matters............................................................ 72
Experts.................................................................. 72
Where You Can Find More Information...................................... 72
Index To Consolidated Financial Statements............................... F-1

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

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operation and prospects may have changed since that date.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully. The term "home entertainment," as used in this
prospectus, is limited to home video distribution and excludes all forms of
television distribution, including pay per view, pay and free television. The
term "independent," as used in this prospectus, is used to distinguish Artisan
Entertainment Inc. from entertainment companies that are members of the Motion
Picture Association of America and their affiliates.

Artisan Entertainment Inc.

We are a leading independent entertainment company that distributes
motion pictures in the home entertainment, theatrical and broadcast and pay
television markets. Our primary asset is our extensive library of over 3,300
feature length and 3,400 non-feature length titles for which we have
predominately United States and Canadian home entertainment distribution
rights. We believe that our ability to distribute video product directly to
over 12,000 retail stores in the United States is unique among independent
entertainment companies. We manage our library as a collection of brands and
seek to maximize revenues and cash flow from our library through retail direct
distribution and focused marketing. We intend to capitalize on high margin new
distribution technologies, for example, digital video disc, commonly known as
DVD, through early adoption and aggressive exploitation. Our library includes
distribution rights for:

. Box office successes including Terminator, Terminator 2: Judgment Day,
Dirty Dancing, the Rambo series, Basic Instinct, Total Recall, Young
Guns and Stargate;

. Classic movies including It's a Wonderful Life, High Noon and The
Quiet Man, as well as Academy Award winners including On Golden Pond,
The Last Emperor, The Piano, The Crying Game and Sophie's Choice; and

. Titles grouped within branded labels including Discovery, Hallmark and
Family Home Entertainment, including Merlin, Alice in Wonderland,
Gulliver's Travels, The Velveteen Rabbit, The Tales of Beatrix Potter
and other family entertainment programs.

We continually market and repackage individual titles within our library.
We seek opportunities to expand our library through acquisitions of individual
titles and catalogs and through distribution agreements and alliances. Since
our management team assumed control in July 1997, we have tripled the size of
our library, primarily through our exclusive home video distribution agreements
with Hallmark and Republic Pictures. We recently acquired home entertainment
distribution rights in the United States to the educational titles from the
Discovery Channel and in the United States and Canada to the award-winning
educational titles created by The Baby Einstein Company.

We are also a leading independent distributor of newly-produced films for
theatrical release worldwide, which complements our library distribution
business. Our recent films include The Blair Witch Project, Stir of Echoes and
The Buena Vista Social Club. We focus on selecting theatrical films that have
been independently produced outside of the major studios, and our marketing
expertise enables us to successfully distribute these films in wide release or
to specialized markets. Our strategic output agreements with domestic partners,
including Showtime Networks, and international partners, including Alliance
Atlantis, enhance our in-house distribution capabilities. As demonstrated by
The Blair Witch Project, we believe that we have significant growth
opportunities to capitalize on the films we distribute through various
channels, including theatrical, home entertainment and television, as well as
ancillary businesses including licensing, merchandising and publishing. We
believe our new theatrical releases enhance and refresh our library, maintain
our connections with the artistic community and increase our visibility among
retailers.

For the year ended December 31, 1999, we generated net sales of $383.3
million and earnings before interest, taxes, depreciation and non-film
amortization, which we refer to as EBITDA, of $38.1 million, as compared to
$173.5 million of net sales and $20.6 million of EBITDA during the same period
of the prior year.

Business Strategy

Our goal is to be the largest, most profitable independent distributor of
filmed entertainment product. To accomplish this goal, we intend to continue to
pursue the following strategies:

. Build and capitalize on our library. We believe our library can
continue to generate stable and growing cash flows. We intend to
expand the size of our library, exploit new growth opportunities and
technologies, for example DVD, and market titles to enhance sales and
capitalize on the key brands in our library.

. Continue our retail direct approach to marketing our library titles.
Through strategic arrangements, we have large-scale retail
distribution capabilities which we believe to be unique among
independent distributors. These capabilities enable us to control the
marketing process, increase penetration among retailers, improve our
retail shelf placement and seek economies of scale comparable to
those of the major studios.

. Establish brands that may be widely exploited. We intend to use our
library assets to develop and build brand identity. We believe that
the continued association of our Family Home Entertainment division
and Family Home Entertainment Kids trademarks with quality, parent-
approved programming will create opportunities for us to exploit
these brands beyond the home entertainment market. In addition, we
have established wide recognition through our merchandising of
diverse Blair Witch products on a worldwide basis.

. Customize our distribution and marketing strategy to best complement
our theatrical releases. We intend to release 10 to 12 theatrical
motion pictures annually in either wide release or to specialized
markets and to creatively market each individual film to reach the
appropriate target audience in the most cost-effective way.

. Acquire product for distribution in a manner that mitigates our
financial risk. We select product for theatrical release that is
typically produced for under $30 million in negative costs, and
predominantly for under $15 million. The decision to commit to the
financing of a motion picture is referred to in our industry and
throughout this prospectus as "greenlighting." We utilize a
conservative greenlighting process involving detailed financial
projections and our senior management team, and we have instituted
rigorous budgeting and cost control procedures. We believe that our
focus on economic aspects of financing and producing films mitigates
our financial risk associated with investing in new motion pictures.

We cannot assure you that we will be successful in implementing these
strategies. Achieving our goal will depend upon, among other things, our
ability to compete with larger, better capitalized companies, maintain our
retail direct distribution capability, maintain public interest in the titles
in our library and obtain sufficient financing.

Competitive Strengths

We intend to implement our business strategies by exploiting our
competitive strengths, which we believe include:

. a diverse and extensive library of titles, including brands which
have broad and favorable consumer recognition as providers of
entertainment and educational titles;

. the ability to distribute home entertainment products on a retail
direct basis to over 12,000 stores nationwide;

. a rigorous budgeting and approval process and ongoing cost control
procedures that enable us to enhance the profitability of our
portfolio of produced and distributed films; and

. a low overhead cost structure.

Corporate History

In July 1997, a group of private investors, led by Bain Capital, Inc. and
Mr. Alan D. Gordon of Richland, Gordon & Co., formed our company to acquire
LIVE Entertainment Inc., a publicly held company which owned an extensive
library of home video distribution rights. After this acquisition, the private
investors brought in a new management team, and Mr. Geoffrey S. Rehnert,
formerly of Bain Capital, Inc., who currently serves as the Chairman of our
board of directors and Chairman of our board's operating committee, was
instrumental in recruiting the key members of this management team. Mr. Rehnert
has also played an active role in developing our company's business strategy.
In April 1998, we changed our name to Artisan Entertainment Inc.

In July 1999, Messrs. Geoffrey S. Rehnert and Marc B. Wolpow left Bain
Capital and acquired an option to buy Bain Capital's interest in our company.
Subsequently, Messrs. Rehnert and Wolpow formed Audax Entertainment, L.P., a
special purpose partnership, which purchased Bain Capital's interest in our
company on September 30, 1999. Audax Entertainment currently controls our board
of directors. Mr. Alan D. Gordon of Richland, Gordon & Co. serves as Vice
Chairman of our board of directors. We believe that Audax Entertainment and
Richland, Gordon & Co. will continue to play active roles in developing and
implementing our company's strategy and working closely with the management
team to ensure effective operations.

Our principal executive offices are located at 2700 Colorado Avenue, 2nd
Floor, Santa Monica, California 90404, and our telephone number is (310) 449-
9200. Our website address is www.artisanent.com. The information contained on
our website is not part of this prospectus.

The Offering

Common stock offered by Artisan
Entertainment Inc. .................... 6,000,000 shares

Common stock offered pursuant to the
underwriters' over-allotment option:
By Artisan Entertainment Inc......... 450,000 shares
By the selling stockholders.......... 450,000 shares
--------------
900,000 shares

Common stock estimated to be outstanding
after the offering, assuming the
underwriters' over-allotment option is
exercised in full...................... 22,821,691 shares

Use of proceeds......................... We estimate that the net proceeds
after underwriting discounts and
estimated offering expenses to
Artisan from this offering will be
approximately $93.4 million. This
assumes an initial public offering
price of $17.00 per share. We
intend to use the net proceeds from
the offering:
. to redeem $15.0 million
aggregate principal amount of
our 13.5% senior subordinated
secured notes plus premium and
accrued and unpaid interest;
. to make a one-time payment of
$8.0 million to terminate a
management agreement prior to
its expiration; and
. to repay some of our borrowings
under our senior credit
facility.
See "Use of Proceeds."

Proposed Nasdaq National Market Symbol.. "RTSN"

Immediately prior to the closing of this offering, we will effect a
reclassification of our capital stock, which is described under "The
Reclassification." The share numbers in this preliminary prospectus assume an
initial public offering price of $17.00, an effective date of May 15, 2000, and
an issuance of 6,000,000 shares in this offering. The share numbers in this
preliminary prospectus, other than the 6,000,000 shares issued in this
offering, will vary depending on the timing and actual pricing of this
offering. See "The Reclassification."

The common stock to be outstanding after this offering does not include
4,873,901 shares issuable upon the exercise of all outstanding options, at a
weighted average exercise price of $2.59 per share, of which 2,545,042 will be
exercisable immediately after the offering. See "The Reclassification."

Unless we indicate otherwise, the information in this prospectus
reflects:

. the reclassification of our capital stock;

. a 1.397819593 to 1 stock split of our common stock to be effected
prior to the closing of this offering;

. no exercise by the underwriters of their option to purchase up to
450,000 additional shares of common stock from us and 450,000
additional shares of common stock from some of our existing
stockholders, whom we refer to in this prospectus as the selling
stockholders, to cover over-allotments; and

. no exercise of outstanding options.

Summary Historical Financial Data

The following table provides summary historical consolidated financial
data of Artisan Entertainment Inc., including our predecessor, LIVE
Entertainment Inc., for each of the years ended December 31, 1995, 1996, 1998
and 1999 and for each of the periods January 1 to July 9, 1997 and July 10 to
December 31, 1997. This data is derived from our audited consolidated financial
statements and notes to the financial statements.

The summary historical consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Selected Historical Financial Data" and the
consolidated financial statements and the related notes to the financial
statements included elsewhere in this prospectus.

Predecessor
------------------------------
Year Ended January 1- July 10- Year Ended
December 31, July 9, December 31, December 31,
------------------ ---------- ------------ ------------------
1995 1996 1997 1997 1998 1999
-------- -------- ---------- ------------ -------- --------
(in thousands, except share and per share data)

Statement of Operations
Data:
Net sales............... $140,112 $151,425 $53,698 $ 66,663 $173,504 $383,293
Cost of sales........... 113,025 127,560 47,680 50,309 131,030 313,975
Selling, general and
administrative
expenses............... 19,174 19,831 12,472 11,308 27,893 38,116
Gain on disposal of
subsidiary............. 2,913 -- -- -- -- --
-------- -------- ------- -------- -------- --------
Operating income
(loss)................. 10,826 4,034 (6,454) 5,046 14,581 31,202
Interest expense and
other income, net...... 565 529 516 (3,778) (13,429) (17,432)
-------- -------- ------- -------- -------- --------
Income (loss) before
income taxes........... 11,391 4,563 (5,938) 1,268 1,152 13,770
Provision for income
taxes.................. 600 8,000 -- -- -- --
-------- -------- ------- -------- -------- --------
Net income (loss) ...... $ 10,791 $ (3,437) $(5,938) $ 1,268 $ 1,152 $ 13,770
======== ======== ======= ======== ======== ========
Net income per class A
common share:
Basic.................. $ 0.03 ($ 0.13) $ 1.21
Diluted (1)............ 0.01 0.01 0.13
Weighted average number
of shares used in
computation of net
income per class A
common share:
Basic.................. 9,000 9,000 9,182
Diluted................ 91,342 96,894 110,179
Pro forma net income per
common share
(unaudited)(2):
Basic.................. $ 0.97
Diluted................ 0.84
Weighted average number
of shares used in
computation of pro
forma net income per
common share
(unaudited):
Basic.................. 11,504
Diluted................ 13,303

Other Data:
Cash flow provided by
(used for) operating
activities............. $ 32,682 $ (3,823) $(8,795) $(12,122) $(54,891) $ 31,779
Cash flow provided by
(used for) investing
activities............. (460) (510) (473) (162) (7,084) (4,427)
Cash flow provided by
(used for) financing
activities............. (6,999) (3,162) (9,601) 9,322 59,566 (27,042)
EBITDA (3).............. 17,890 10,613 (2,782) 8,381 20,640 38,086

Balance Sheet Data (at
end of period):
Film costs.............. 100,959 $108,821
Total assets............ 259,201 301,115
Total debt.............. 163,283 135,714
Stockholders' equity.... 18,977 34,396

- -------
(1) The diluted net income per class A common share is based on the assumed
conversion of class L common shares to class A common shares as of the
beginning of the respective period.

(2) Assumes conversion of class L common stock to class A common stock based
on an estimated fair market value at December 31, 1999 of $12.88 per share
after giving effect to the stock split and a conversion date of December
31, 1999.

(3) EBITDA or earnings before interest, taxes, depreciation and non-film
amortization is not intended to represent cash flow in accordance with
generally accepted accounting principles and does not represent the
measure of cash flow available for distribution. While we believe EBITDA
provides a more complete analysis of our operating performance, it should
not be used as an alternative to operating income or cash flows from
operating activities, as determined in compliance with generally accepted
accounting principles, and should not be considered an indicator of
overall financial performance. EBITDA does not reflect cash available to
fund cash requirements, and the items excluded from EBITDA, for example,
depreciation and non-film amortization, are significant components in
assessing our financial performance. Other significant uses of cash flows
are required before cash will be available to us, including debt service,
taxes and cash expenditures for various long-term assets. Our calculation
of EBITDA may be different from the calculation used by other companies
and, therefore, may not be comparable with other similarly titled measures
of other companies.

RISK FACTORS

You should consider carefully the following factors in addition to the
other information set forth in this prospectus before deciding to invest in our
common stock. Investing in our common stock involves a high degree of risk. Any
of the following risks could materially adversely affect our business,
financial condition and results of operations and could result in a complete
loss of your investment.

Risks Relating to Our Business:

Our business may be adversely affected by substantial competition from larger,
better capitalized companies.

Motion picture distribution, acquisition and production are highly
competitive businesses, and we cannot assure you that we will compete
effectively in this business. If we are unable to compete effectively, it will
have an adverse effect on our business. We compete with the major studios,
large diversified entertainment companies, independent motion picture and
television production companies and others. Most of our competitors are studios
that are part of large, diversified corporate groups with a variety of other
operations, including television networks and cable channels, which can provide
ways to distribute their products and stable sources of earnings to offset
fluctuations in the financial performance of their motion picture and
television operations. In addition, they may have more success in library or
script acquisition due to their greater name recognition and size. The number
of films released or distributed by our competitors, particularly the major
studios, in any given period may create an oversupply of product in the market
and that may reduce our revenues in the various markets in which we compete.
Whether distributing our products to the theatrical or home video market, we
compete for advertising space and time. In addition, television networks are
now producing more programs internally, potentially reducing networks' demand
for programming from other parties. All of our products, including our library
titles and new theatrical releases, compete for, among other things, viewers
and public interest with other filmed entertainment product in the marketplace.

A significant portion of our library revenues are derived from a small number
of titles and may be adversely affected if public interest in our key titles
wanes.

Our revenues depend on public interest in our library titles, which is
subject to change and is difficult to predict. We cannot assure you that our
titles will continue to maintain public interest. Generally, public interest in
a particular title wanes over time following its theatrical release. The
popularity of a given title depends on many factors, including the critical
acclaim it receives, the format of its initial release, for example, theatrical
or direct to video, public approval during its initial theatrical or other
release, its actors or other key talents, its genre and its specific subject
matter. Many of the titles in our library were not as successful on initial
release as other titles available in the market.

We depend upon a limited number of titles for the majority of the
revenues generated by our library. For titles originally released on home video
prior to January 1, 1999, our top ten titles accounted for approximately 35% of
our net revenues from our United States home video distribution of these titles
in 1999. Our top 30 titles accounted for approximately 59% of our net revenues
for these titles during the same period. In addition, most of the titles in our
library are not presently distributed and generate substantially no revenues.

To invigorate our library and reduce our dependence on key titles, we
strive to acquire new product and rights to popular titles through distribution
agreements, acquisitions, mergers, joint ventures or other strategic alliances.
We still depend on public interest in the new product we acquire, and there are
a limited number of quality titles and existing libraries available for
acquisition. Competition for these titles may be great and prices may be high.
We cannot assure you that we will be successful in acquiring new product, or
that we will be able to acquire rights to popular titles on terms that are
satisfactory to us.

Because we generally do not have the full right to exploit our library in all
media, across all territories, for an unlimited time, our ability to generate
revenues from our titles may be limited.

Our library consists predominately of United States and Canadian home
video distribution rights, which we hold for a limited duration. As a result,
our revenues derived from our titles are limited. We are not able to exploit
our library in other media, including television, cable and pay per view.
Consequently, our library competes with the same titles in other distribution
formats for which we do not have rights. In addition, we are generally unable
to exploit our library in markets outside of the United States and Canada,
where growth opportunities may be greater.

Because we generally do not have the full right to exploit our library for an
unlimited time, our business will be adversely impacted if we are unable to
renew our library rights.

We generally do not hold distribution rights for an unlimited time
period. Our United States home video distribution rights to two of our top ten
library titles originally released on home video prior to January 1, 1999
expire prior to the end of 2004. Our United States home video distribution
rights to eight of our top 30 library titles originally released on home video
prior to January 1, 1999 expire prior to the end of 2004. As our rights expire,
we will need to renew them or obtain new rights to maintain and improve our
financial performance. We cannot assure you that we will be able to renew our
library rights, or that we will be able to do so on terms that are favorable to
us.

We are subject to the risks of motion picture production, and, accordingly, our
business will be adversely impacted if we are unable to successfully manage
these risks in the future as we have in the past.

Motion picture production and distribution is highly speculative and
inherently risky. The production, completion and distribution of motion
pictures are subject to numerous uncertainties, including financing
requirements, personnel availability and the release schedule of competitive
motion pictures. We can give no assurances that our production and release
goals will be met in any period or that completion will occur in accordance
with the anticipated schedule or budget. There is a substantial risk that some
or all of our motion pictures will not be commercially successful, resulting in
costs not being recouped or anticipated profits not being realized. The
theatrical success of a motion picture is a key factor in generating revenues
from other distribution channels. If some or all of our motion pictures are not
commercially successful, film producers may look to our competitors to market
and distribute their films.

In 1999, our results of operations were significantly impacted by the
success of The Blair Witch Project. Increases in our theatrical revenues and
home entertainment revenues were primarily related to The Blair Witch Project.
As a result, our results of operations for 1999 include growth that would not
have existed without The Blair Witch Project and may not reflect what our
results of operations will be in the future absent a similar success. We cannot
assure you that we will continue to manage the production, acquisition and
distribution of future motion pictures as profitably as we have with The Blair
Witch Project or that we will produce or acquire motion pictures that will
possess commercial advantages comparable to those of The Blair Witch Project.
Without a newly released film with the level of success of The Blair Witch
Project, our revenues could be significantly lower than they have been in the
past.

Our results of operations may vary periodically depending on our ability to
project the potential revenues of our titles.

Our results of operations in the future years depend on our ability to
project the potential revenues of our titles. This is because, in accordance
with generally accepted accounting principles and industry practice, we
amortize film and video programming costs using the individual-film-forecast
method under which costs are amortized for each film or television program in
the ratio that revenues earned in the current period for a title bears to our
management's estimate of the total revenues to be realized from all media and
markets for that title. Our management regularly reviews, and revises when
necessary, our total revenue estimates on a title-by-title basis, which may
result in a change in the rate of amortization and/or a write-down of the film
or television asset to net realizable value. As a result, in the event our
initial total revenue estimates for a title are inaccurate, under the
industry's accounting method, we would immediately recognize the entire loss in

instances where we expect that a motion picture or television program will not
recover our investment. Comparatively, the profit of a successful motion
picture or television program must be deferred and recognized over the entire
revenue stream generated by the individual picture or television program.

Rapid and significant technological developments affect our industry and our
future success will depend on our ability to continue to meet the demands of
our consumers.

The entertainment industry in general, and the motion picture industry in
particular, continue to undergo significant changes, primarily due to
technological developments, shifting consumer tastes and the popularity and
availability of other forms of entertainment. As a result, it is impossible to
predict the overall effect these factors will have on our business.

Several major companies have announced that they are developing or have
developed other technologies, including video server and compression
technologies, which will provide movies "on demand" directly to consumer homes
over cable television lines, telephone lines or satellite transmission. If
these other new technologies are introduced on a wide-scale basis, our home
video revenues could be adversely impacted and we might be required to develop
and implement new operating strategies and distribution capabilities in order
for our business to remain viable.

If we are unable to distribute home videos on a retail direct basis, our
business will be adversely affected.

Our ability to distribute video product directly to over 12,000 retail
stores in the United States is dependent on our relationship with Twentieth
Century Fox Home Entertainment, Inc. In August 1998, we entered into a
distribution alliance with Fox enabling us to utilize their computerized retail
direct system to manage our distribution, billing and collection process. Fox
makes available its warehousing and logistics capabilities to us so that we can
achieve greater economies of scale in manufacturing and shipping. Our
distribution contract with Fox expires in December 2001 and provides for an
automatic two-year renewal. If this alliance ends prematurely or we are unable
to extend the alliance at its expiration, we can make no assurances that we
will be able to achieve the same economies of scale. To do so, we would have to
access a comparable retail direct distribution system through another major
distributor or build retail direct capabilities in-house. We cannot assure you
that we would be able to establish another retail direct distribution
arrangement.

Our library distribution revenues are concentrated among a few customers.
Accordingly, our business will be adversely impacted by the loss of, or reduced
purchases by, one or more of our significant customers.

Our revenues from distribution activities are heavily concentrated among
a few customers. We generated approximately 43% of our revenues in our sell-
through video distribution business during 1999 from K-Mart, WalMart and
Ingram. We cannot assure you that we will continue to maintain our
relationships with these customers or that these customers will continue to
carry current levels of our product. Additionally, if economic or other
conditions were to adversely affect one or more of these customers, it could
adversely affect our business and results of operations.

The consolidation of the video rental market and the adoption of revenue
sharing arrangements with video rental retailers may decrease our revenues
generated from our home video rental distribution activities.

Approximately 11% of our annual revenues for 1999 were generated by our
home video rental distribution activities. Our home video rental product
competes for limited shelf space in the video rental retail market. In recent
years, the home video rental retail market has become highly consolidated,
which means fewer businesses control the majority of available shelf space. In
1999, key video rental retailers, including Blockbuster Video and Hollywood
Video, accounted for approximately 33% of our home video rental distribution
revenues. If we do not maintain relationships with these key video retailers,
it could have a material

adverse effect on our home video rental sales. Additionally, these retailers
are moving into revenue sharing relationships with distributors. Under these
arrangements, we lease titles to video rental retailers for a percentage of
rental revenues rather than sell them to retailers at a fixed wholesale price.
This shifts our revenues from primarily fixed to primarily variable. Both the
recent consolidation of the industry and the move to revenue sharing could have
a material adverse effect on our home video rental sales.

Economic and other conditions in the international markets in which we
distribute our product can affect demand for our product and decrease our
revenues generated from foreign sources.

For the year ended December 31, 1999, we derived 14% of our revenues from
foreign sources. Our revenues derived from foreign sources have increased over
time, primarily because of our relationship with Summit Entertainment, our
international sales agent, and we believe our revenues derived from foreign
sources may continue to increase in the future. As a result, our business is
subject to risks inherent in international trade, many of which are beyond our
control, including:

. changes in laws and policies affecting trade, investment and taxes,
including tax laws and policies relating to the repatriation of
funds and to withholding taxes;

. differing degrees of protection for intellectual property; and

. the instability of foreign economies and governments.

Although we generally transact our foreign business in United States
dollars, fluctuations in foreign exchange rates may adversely affect our
results of operations because changes in the values of foreign currencies
relative to the value of the United States dollar can render our products
comparatively more expensive. These conditions could have a material adverse
effect on our international sales.

The success of our business strategy depends on financing available under our
credit facility and our ability to obtain other financing arrangements to fund
our operations and growth.

Our operations depend on our ability to obtain sufficient financing, and
there can be no assurance that we will be able to obtain any required financing
or that this financing will be available on terms satisfactory to us. In
particular, our theatrical motion picture production activities require the
upfront expenditure of significant funds, while revenues relating to films and
programs are typically not generated for some period of time after these
expenditures and may be received over an extended period of time. In addition,
we may require financing to grow or extend the life of our library in
connection with our home entertainment distribution business. We intend to
finance these expenditures through a combination of cash on hand, borrowings
under our credit facility and a variety of third party financing arrangements.
Borrowings under our credit facility and other financing arrangements are
subject to our continuing satisfaction of specific covenants and conditions.
The availability of funds from third parties may also be subject to conditions,
as well as the success of our production and distribution efforts generally.

Risks Related to Your Investment in Our Common Stock:

Audax Entertainment, L.P. will maintain control over our business and could
exercise this power in a manner that is adverse to the interest of our other
stockholders.

Upon completion of this offering, if the underwriters' over-allotment
option is not exercised, Audax Entertainment, L.P. will hold 5,878,876 shares
of our common stock representing approximately 26.28% of our voting power and
will also, pursuant to a stockholders agreement, have proxies to vote
approximately 46.90% of our company's voting power. As a result, Audax
Entertainment will have the ability to vote an aggregate of 73.18% of our
company's total voting power on any matters presented to our stockholders. If
the underwriters' over-allotment option is exercised in full, Audax
Entertainment will hold 5,690,030 shares of our common stock representing
approximately 24.93% of our voting power, and will also, pursuant to a
stockholders agreement, have proxies to vote approximately 44.83% of our
company's voting power. As a result, Audax Entertainment will have the ability
to vote an aggregate of 69.76% of our company's total voting power on any

matters presented to our stockholders. Two of our directors, Messrs. Rehnert
and Wolpow, are the sole members of the general partner of Audax Entertainment.
Under a stockholder's agreement, 9 of the 11 directors who will serve on our
board after this offering will be designated by Audax Entertainment. Other of
our existing stockholders will have the ability to elect the remaining two
directors. Under the stockholders agreement, these directors may not be removed
without the consent of the designating stockholders. Audax Entertainment will
continue to have control over all matters submitted to our stockholders and our
board of directors. This concentration of ownership could deter, delay or
prevent transactions that could result in a change in control, which could
cause the price at which our common stock trades to drop. Audax Entertainment's
interests may differ from those of our other stockholders. As a result, Audax
Entertainment may vote our stock or exercise its control in a manner adverse to
our other stockholders.

A third party could be prevented from acquiring your shares of stock at a
premium to the market price because of the anti-takeover effects of provisions
in our certificate of incorporation and bylaws.

A number of provisions that are in our certificate of incorporation and
bylaws could delay, deter or prevent a change in control, and make it more
difficult and expensive for a third party to acquire control. These provisions
allow our board of directors to issue preferred stock without any further vote
or action by the stockholders. Our board can determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares. The preferred stock may be issued with voting, liquidation, dividend
and other rights superior to those of the common stock. The issuance of
preferred stock could make it hard for a third party to acquire a majority of
our outstanding voting stock and dilute the voting power of our common stock.
In addition, these provisions provide that holders of our common stock may not
call a special meeting unless a majority of common stockholders agree and may
not act by written consent. As a result, the voting and other rights of the
holders of our common stock and the market price of our common stock may be
adversely affected.

Future sales could adversely affect the market price of our common stock.

The market price of our common stock could decline as a result of sales
of a large number of shares of common stock in the market after the offering,
the perception that these sales could occur or sales by us, our management or
our stockholders. These sales, or the possibility that these sales may occur,
also might make it more difficult for us to sell equity securities in the
future at a time and at a price that is acceptable to us.

We, our directors, executive officers, the selling stockholders and some
of our existing stockholders have entered into lock-up agreements with the
underwriters. The lock-up agreements restrict these individuals and companies,
subject to exceptions, from selling or otherwise disposing of any of our shares
of common stock or entering into any economically equivalent transaction for a
period of 180 days after the date of this prospectus without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Merrill Lynch
may, in its sole discretion and without notice, release all or any portions of
the shares of common stock from the restrictions in the lock-up agreements.

Merrill Lynch does not intend to release the shares from the restrictions
of the lock-up agreements. However, Merrill Lynch, if requested, will consider
releasing shares of common stock from the lock-up restrictions on a case-by-
case basis, taking into consideration factors including the potential impact of
any release on the price of the common stock. Upon the expiration of the lock-
up period, shares may be sold by us, the selling stockholders, our directors
and executive officers and the other existing stockholders, without
registration under the Securities Act to the extent permitted by Rule 144 or
any applicable exemption under the Securities Act. If the underwriters' over-
allotment option is not exercised, an aggregate of approximately 16,371,691
shares will be available for resale upon the expiration or complete waiver of
the lock-up agreement restrictions, subject to available exemptions from, or
registration under, the Securities Act. If the underwriters'

over-allotment option is exercised in full, an aggregate of approximately
15,921,691 shares will be available for resale upon the expiration or complete
waiver of the lock-up agreement restrictions, subject to available exemptions
from, or registration under, the Securities Act. In addition, all of these
shares have the benefit of registration rights in the circumstances specified
in the stockholders agreement.

In addition, options to purchase 4,873,901 shares of common stock will
also be outstanding after the offering and additional options may also be
granted in the future. After the offering, we intend to file one or more
registration statements to register shares of common stock subject to
outstanding stock options and common stock reserved for issuance under our
stock option plan. We expect any additional registration statement to become
effective immediately upon filing. We cannot predict whether our stockholders
with registration rights will exercise those rights following the lock-up
period.

Because our stock has not previously been traded on the public market, the
initial public offering price may not be indicative of the market price of our
common stock after this offering, and our stock price may fluctuate.

Prior to the offering, you could not buy or sell our common stock
publicly. We cannot assure you that a regular trading market for our common
stock will develop after the offering or, if developed, that a public trading
market can be sustained. The initial public offering price has been determined
through our negotiations with the underwriters. The initial public offering
price will not necessarily reflect, and may be higher than, the market price of
our common stock after the offering. As a result, you may not be able to resell
your shares at or above the initial public offering price. In recent years, the
stock market in general, and the entertainment industry in particular, have
experienced extreme price fluctuations, sometimes without regard to the
operating performance of a particular company. Factors which may have a
significant effect on the market price of our common stock include those that
generally affect other public companies as well as:

. the success of our theatrical or home entertainment releases;

. implementation of technological advancements in our industry;

. competition in the home entertainment and motion picture industries;

. our relationship with key customers and others with which we do
business; and

. economic conditions generally as they affect providers of leisure
activities, including participants in the home entertainment and
motion picture industries.

In addition, many of the risks described elsewhere in this "Risk Factors"
section could materially and adversely affect our stock price.

You will experience immediate and significant dilution.

The initial public offering price is substantially higher than the book
value per share of the common stock. Purchasers of our common stock in this
offering will be subject to immediate and substantial dilution of $15.04 per
share in the tangible book value of common stock from the initial public
offering price. This means that if Artisan were liquidated immediately after
the offering, there could be no assets available for distribution to public
stockholders after satisfaction of all creditors.

The forward-looking statements contained in this prospectus are based on our
predictions of future performance which may not occur.

Some of the statements contained in this prospectus contain forward-
looking information. These statements are found in the sections entitled,
including, without limitation, "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "The Industry" and "Business." They include, but are
not limited to, statements concerning:

. our business;

. our use of library assets to develop and build brand identity;

. the ability of our library to continue to generate stable and growing
cash flows;

. our intention to release 10 to 12 theatrical motion pictures per year
and use creative and innovative marketing techniques to promote each
film;

. our 2000 release schedule;

. our ability to distribute home entertainment products on a retail
direct basis;

. expansion of our library through acquisitions, distribution
agreements and our own production;

. our ability to renew, refresh and remarket our library titles;

. liquidity and capital expenditures;

. our future financial position and sources of revenues; and

. trends in the entertainment industry.

You can identify these statements by forward-looking words including
"believe," "expect," "goal," "plan," "estimate," "may," "will," "anticipate,"
"intend" and other similar expressions. Potential investors are cautioned not
to rely only on these forward-looking statements, which speak only as of their
dates. These forward-looking statements are based largely on our current
expectations and are subject to a number of risks and uncertainties, including,
without limitation, those identified under "Risk Factors" and elsewhere in this
prospectus and other risks and uncertainties. Actual results could differ
materially from these forward-looking statements. In addition, important
factors to consider in evaluating forward-looking statements include changes in
external market factors, changes in our business or growth strategy or an
inability to execute our strategy due to changes in our industry or the economy
generally, the emergence of new or growing competitors and various other
competitive factors. In light of these risks and uncertainties, there can be no
assurance that the matters referred to in the forward-looking statements
contained in this prospectus will in fact occur.

USE OF PROCEEDS

We estimate that our net proceeds from this offering, after underwriting
discounts and estimated offering expenses, will be approximately $93.4 million.
This assumes an initial public offering price of $17.00 per share. We will not
receive any proceeds from the sale by the selling stockholders of any shares in
the underwriters' over-allotment.

We intend to use approximately $16.1 million of our net proceeds to
redeem $15.0 million aggregate principal amount of our 13.5% senior
subordinated secured notes due 2004, plus premium and accrued interest on the
notes. We will record an extraordinary loss of approximately $2.9 million to
reflect the early discharge of our senior subordinated secured notes. We intend
to use an aggregate of $8.0 million of our net proceeds to make a one-time
payment to Audax Entertainment and Richland, Gordon & Co. to terminate our
management agreement with them prior to its expiration, resulting in an
extraordinary charge. From August 19, 1999, when Audax Entertainment acquired
its interest in Artisan, through December 31, 1999, we paid Audax Entertainment
$166,667 under the management agreement. For the year ended December 31, 1999,
we paid Richland, Gordon $333,333 under the management agreement. We intend to
use the balance of our net proceeds to temporarily repay some of our borrowings
under our senior credit facility, which bears interest at a rate of LIBOR plus
2.5% or, at our election, the prime rate plus 1.5%, and matures in July 2002.
At December 31, 1999, the weighted average interest rate on our borrowings
under our senior credit facility was approximately 8.5%.

DIVIDEND POLICY

We intend to retain all earnings for the foreseeable future for use in
the operation and expansion of our business and to repay existing indebtedness
and, accordingly, we currently have no plans to pay dividends on any of our
common stock. The payment of future dividends, if any, will be determined by
our board of directors in light of conditions then existing, including our
earnings, financial condition and capital requirements, restrictions in
financing agreements, business conditions and other factors. Under the terms of
some of the agreements governing our outstanding indebtedness, we are
prohibited or restricted from paying dividends on our common stock.

THE RECLASSIFICATION

Immediately prior to this offering, we will have eight classes of common
stock, designated as classes 1 through 7 of class A common stock and class L
common stock. The seven classes of class A common stock are identical, except
for variances in voting rights pertaining to election of directors. The class L
common stock is identical to the class A common stock, except that it does not
have voting rights, and each share of class L common stock is entitled to a
preferential payment upon any distribution by us to holders of our capital
stock, whether by dividend, liquidating distribution or otherwise, equal to the
original cost of that share, which was $16.07, plus an amount which accrues on
a daily basis at a rate of 12.5% per annum, compounded quarterly. This
preferential amount is referred to for convenience as the "preference amount."
As of December 31, 1999, the weighted average preference amount was $21.81 per
share of class L common stock. On May 15, 2000, the weighted average preference
amount will be $22.83 per share of class L common stock. The class L common
stock is otherwise identical to the class A common stock.

Prior to the closing of this offering, we will amend and restate our
certificate of incorporation to provide for a single class of common stock. In
addition, prior to the closing of this offering:

. each share of the seven classes of class A common stock will become
one share of common stock; and

. each share of class L common stock will become one share of common
stock, plus an additional number of shares of common stock determined
by dividing the preference amount by the value of a share of common
stock based on the initial public offering price, net of any expenses
incurred and underwriting commission paid in connection with the
offering.

As discussed above, the number of shares of common stock issuable upon
the conversion of the class L common stock depends on both the timing of that
conversion and the initial public offering price. The share numbers in this
prospectus have assumed a class L conversion date of May 15, 2000 and an
initial public offering price of $17.00 per share. We currently expect that the
class L common stock will convert on the effective date. Accordingly, if the
effective date is prior to May 15, 2000 and/or if the initial public offering
price is greater than $17.00 per share, then:

. a smaller number of shares of common stock will be issued upon the
conversion of the class L common stock,

. a smaller number of shares of common stock will be outstanding upon
the closing of this offering, and

. the shares of common stock issued in this offering will represent a
greater percentage of our outstanding common stock.

However, if the effective date is after May 15, 2000 and/or if the
initial public offering price is less than $17.00 per share, then:

. a greater number of shares of common stock will be issued upon the
conversion of the class L common stock,

. a greater number of shares of common stock will be outstanding upon
the closing of this offering, and

. the shares of common stock issued in this offering will represent a
smaller percentage of our outstanding common stock.

CAPITALIZATION

The following table sets forth our consolidated capitalization as of
December 31, 1999: (i) on a historical basis; and (ii) on an as-adjusted basis
giving effect to this offering, as if it had occurred on that date, including
the application of the estimated net proceeds to repay the senior subordinated
secured notes, to pay amounts due to terminate the management agreement prior
to its expiration and to temporarily repay borrowings under the revolving
credit facility. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes to the consolidated financial
statements included in this prospectus.

At December 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(in thousands,
except share and per
share data)

Notes payable............................................ $ 4,262 $ 4,262
Senior subordinated secured notes, net of original issue
discount of $1,837...................................... 13,163 --
Senior credit facility
Term loan.............................................. 15,789 15,789
Revolving line of credit............................... 102,500 33,265
-------- --------
Total debt............................................. $135,714 $ 53,316
======== ========
Stockholders' equity:
Class A common stock, $.001 par value; 13,412,404 and
60,000,000 authorized; 9,255,542 and 24,916,732 issued
and outstanding....................................... 9 249
Class L common stock, $.001 par value; 1,049,754 and
none authorized, issued and outstanding............... 1 --
Additional paid-in capital............................... 19,496 119,191
Stock subscriptions receivable........................... (1,300) (1,300)
Retained earnings........................................ 16,190 5,228
-------- --------
Total shareholders' equity............................. $ 34,396 $123,368
======== ========
Total capitalization................................... $170,110 $176,684
======== ========

DILUTION

If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the net tangible book value per share of our common stock
after the offering.

Our net tangible book value at December 31, 1999 was approximately
$(49,423,000). Net tangible book value represents the amount of our
stockholders' equity, less intangible assets. Pro forma net tangible book value
per share before the offering represents net tangible book value divided by the
number of common shares that the class A common stock and class L common stock
will convert into at the time of the offering. Net tangible book value dilution
per share represents the difference between the amount per share paid by
purchasers of shares of common stock in the offering and the as-adjusted net
tangible book value per share of common stock immediately after completion of
the offering. After giving effect to our offering of 6,000,000 shares of common
stock, at an assumed initial public offering price of $17.00 per share, and
after deducting the underwriting discount and estimated offering expenses, our
pro forma net tangible book value at December 31, 1999 would have been
approximately $43,937,000, or $1.96 per share. This represents an immediate
increase in pro forma net tangible book value of $4.98 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$15.04 per share to purchasers of common stock in the offering as illustrated
in the following table:

Assumed initial public offering price per share.............. $17.00
Pro forma net tangible book value per share before the
offering.................................................. (3.02)
Increase in net tangible book value per share attributable
to this offering.......................................... 4.98
Adjusted pro forma net tangible book value per share after
the offering................................................ 1.96
------
Net tangible book value dilution per share to new investors.. $15.04
======

The following table summarizes on a pro forma basis, as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the aggregate cash consideration paid and the average price per share
paid by existing stockholders and new investors purchasing shares of common
stock in the offering:

Shares Purchased Total Consideration
---------------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
-------------- ------- -------------- ------- -------------
(in thousands) (in thousands)

Existing stockholders... 16,372 73.2% $ 19,506 16.1% $ 1.19
New investors .......... 6,000 26.8 102,000 83.9 17.00
------ ---- -------- ---- ------
Total................. 22,372 100% 121,506 100% 5.43
====== ==== ======== ==== ======

The above discussion and tables assume no exercise of any stock options
outstanding as of December 31, 1999. As of December 31, 1999, there were
options outstanding to purchase a total of 4,873,901 shares of common stock
with a weighted average exercise price of $2.76 per share.

To the extent that any of these options are exercised, there will be
further dilution to new investors. See "Capitalization," "Description of
Capital Stock" and Note 8 of the notes to the Artisan Entertainment Inc.
audited financial statements included elsewhere in this prospectus.

SELECTED HISTORICAL FINANCIAL DATA

The following table provides selected historical consolidated financial
data of Artisan Entertainment Inc., including our predecessor, LIVE
Entertainment Inc., for each of the years ended December 31, 1995, 1996, 1998
and 1999 and for each of the periods January 1 to July 9, 1997 and July 10 to
December 31, 1997. This data is derived from our audited consolidated financial
statements and notes to the financial statements.

The selected historical consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
related notes to the financial statements included elsewhere in this
prospectus.

Statement of Operations
Data:
Net sales............... $140,112 $151,425 $53,698 $ 66,663 $173,504 $383,293
Cost of sales........... 113,025 127,560 47,680 50,309 131,030 313,975
Selling, general and
administrative
expenses............... 19,174 19,831 12,472 11,308 27,893 38,116
Gain on disposal of
subsidiary............. 2,913 -- -- -- -- --
-------- -------- ------- -------- -------- --------
Operating income
(loss)................. 10,826 4,034 (6,454) 5,046 14,581 31,202
Interest expense and
other income, net...... 565 529 516 (3,778) (13,429) (17,432)
-------- -------- ------- -------- -------- --------
Income (loss) before
income taxes........... 11,391 4,563 (5,938) 1,268 1,152 13,770
Provision for income
taxes.................. 600 8,000 -- -- -- --
-------- -------- ------- -------- -------- --------
Net income (loss) ...... $ 10,791 $ (3,437) $(5,938) $ 1,268 $ 1,152 $ 13,770
======== ======== ======= ======== ======== ========
Net income per class A
common share:
Basic.................. $ 0.03 $ (0.13) $ 1.21
Diluted (1)............ 0.01 0.01 0.13
Weighted average number
of shares used in
computation of net
income per class A
common share:
Basic.................. 9,000 9,000 9,182
Diluted................ 91,342 96,894 110,179
Pro forma net income per
common share
(unaudited)(2):
Basic.................. $ 0.97
Diluted................ 0.84
Weighted average number
of shares used in
computation of pro
forma net income per
common share
(unaudited):
Basic.................. 11,504
Diluted................ 13,303

Balance Sheet Data (at
end of period):
Film costs.............. 100,959 108,821
Total assets............ 259,201 301,115
Total debt.............. 163,283 135,714
Stockholders' equity.... 18,977 34,396

- -------
(1) The diluted net income per class A common share is based on assumed
conversion of class L common shares to class A common shares as of the
beginning of the respective period.

(3) EBITDA or earnings before interest, taxes, depreciation and non-film
amortization is not intended to represent cash flow in accordance with
generally accepted accounting principles and does not represent the
measure of cash flow available for distribution. While we believe EBITDA
provides a more complete analysis of our operating performance, it should
not be used as an alternative to operating income or cash flows from
operating activities, as determined in compliance with generally accepted
accounting principles, and should not be considered an indicator of
overall financial performance. EBITDA does not reflect cash available to
fund cash requirements, and the items excluded from EBITDA, for example
depreciation and non-film amortization, are significant components in
assessing our financial performance. Other significant uses of cash flows
are required before cash will be available to us, including debt service,
taxes and cash expenditures for various long-term assets. Our calculation
of EBITDA may be different from the calculation used by other companies
and, therefore, may not be comparable with other similarly titled measures
of other companies.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussions and analysis of our financial
condition and results of operations in conjunction with the financial
statements and the related notes to those statements appearing elsewhere in
this prospectus. This discussion contains forward-looking statements that
involve risks and uncertainties. Please see "Risk Factors."

Sources of Revenues

In managing our business, we look at revenues from all sources as a
single stream. This is consistent with the amortization of costs associated
with these revenues. To provide clarity for investor analysis, in this
prospectus, we have presented our revenues from our primary markets of
exploitation.

Theatrical revenues are derived from the domestic theatrical release of
our new product. Theatrical revenues are impacted substantially by the timing
of our releases. Release dates are determined by several factors, including
production schedules, timing of vacation and holiday periods and competition in
the marketplace. In addition, each motion picture is a separate and distinct
product with its financial success dependent upon many factors, including
audience acceptance.

Home entertainment revenues are derived from the video and DVD release of
our new product and from our library. Revenues from our new product are
generated in both the rental and sell-through markets and are dependent on our
release schedule, the popularity of our product and on the same factors which
affect theatrical releases. Revenues from the rental market are also impacted
by the transition to revenue sharing arrangements with video rental retailers,
which delay revenue recognition and change revenues from fixed to variable.
Revenues from our library are generated in the sell-through market and are
dependent on several factors, including the popularity of our library titles
and the acceptance of DVD as a new format for home video. Library sales are
seasonal in nature, with a large portion of annual revenues generated during
the third and fourth quarters of each year.

Television revenues are primarily derived from licensing of our new
product to the pay per view, pay television and free television markets.
Revenues from our product for television markets are dependent on our release
schedule and the popularity of our product.

International revenues are primarily derived from international pre-sales
of our new product. Foreign pre-sales depend on several factors including the
creative elements, the budget and the genre of a motion picture.

Cost Structure

Costs associated with the distribution of our films primarily include
acquisition, production and marketing costs. These costs are generally
capitalized and amortized over the associated projected revenue stream. See "--
Industry Accounting Practices."

Acquisition costs include advances payable in connection with the
acquisition of library titles as well as the acquisition of newly released
product. These costs generally become payable after titles are completed and
delivered to us by third parties.

Production costs include both "above-the-line" and "below-the-line" costs
of producing a film. Above-the-line costs are costs related to the acquisition
of picture rights and the costs associated with the producer, the director, the
writer and the principal cast. Below-the-line costs are the remaining costs
involved in producing the picture, including film studio rental, principal
photography, sound and editing.

In addition, in connection with the acquisition and production of our
titles, we generally grant contractual rights to actors, directors,
screenwriters, producers and other creative and financial contributors to share
in contractually defined revenues. These amounts include participations in
gross revenues, participations after recoupment of film costs and residuals
payable to guilds and unions including the Screen Actors Guild, the Directors
Guild of America and the Writers Guild of America. The amount of these
contractual obligations may have a significant impact on the profit generated
by any specific title.

Marketing costs for titles vary depending on the distribution plan for
each title. Costs associated with marketing our library depend on the promotion
plans related to our library of titles. Costs associated with marketing our
newly released product depend on the nature of the release. Advertising costs
associated with a wide domestic theatrical motion picture release are
significant and typically involve national and target market media campaigns.
Advertising costs associated with limited releases may be less significant,
involving the costs of trailer creation and newspaper advertising in local
markets.

Industry Accounting Practices

Revenue Recognition. Revenues from theatrical distribution of feature
motion pictures are recognized on the dates of exhibition. Revenues from home
video distribution are recognized in the period in which the product is shipped
for sale at the retail level. Revenues from television distribution are
recognized when the motion picture or television program is available to the
licensee for broadcast. Revenues from international presales are recognized
when the motion picture is available to the licensee for delivery.

Accounting for Filmed Entertainment Costs. In accordance with generally
accepted accounting principles and industry practice, we amortize capitalized
film costs using the individual-film-forecast method under which capitalized
film costs are amortized for each title in the ratio that revenues earned in
the current period for each title bear to our estimate of the total revenues to
be realized from all media and markets for each title. We regularly review, and
revise when necessary, our total revenue estimates on a title-by-title basis,
which may result in a change in the rate of amortization and/or a write-down of
the title to net realizable value. A typical newly released motion picture
recognizes a substantial portion of its ultimate revenues within the first two
years of release. By then, a film has been exploited in the domestic
theatrical, video, pay television and pay-per-view markets, and has been
delivered to international distributors under presale agreements. A similar
portion of the film's capitalized costs should be expected to be amortized
accordingly.

The commercial potential of individual motion pictures varies
dramatically, and is not directly correlated with acquisition or production
costs. Therefore, it is difficult to predict or project a trend of our income
or loss. However, the likelihood of reporting losses, particularly in the year
of a motion picture's release, is increased by the industry's method of
accounting which requires the immediate recognition of the entire loss, through
increased amortization, in instances where it is estimated the ultimate
revenues of a motion picture will not recover its costs. On the other hand, the
profit of a profitable motion picture must be deferred and recognized over the
entire revenue stream generated by that motion picture. This method of
accounting may also result in significant fluctuations in reported income or
loss, particularly on a quarterly basis, depending on our release schedule and
the relative performance of individual motion pictures.

Use of Earnings Before Interest, Taxes, Depreciation and Non-Film Amortization

While we consider EBITDA to be an important measure of comparative
operating performance, it should be considered in addition to, but not as a
substitute for or superior to, operating income, net earnings, cash flow and
other measures of financial performance prepared in accordance with generally
accepted accounting principles. EBITDA does not reflect cash available to fund
cash requirements, and the items excluded from EBITDA, which include
depreciation and non-film amortization, are significant components in assessing
our financial performance. Other significant uses of cash flows are required
before cash will be available to us, including debt service, taxes and cash
expenditures for various long-term assets. Our calculation of EBITDA may be
different from the calculation used by other companies and, therefore, it may
not be comparable with other similarly titled measures of other companies.

Results of Operations

Year Ended December 31, 1999 compared to Year Ended December 31, 1998

Our net sales increased $209.8 million from $173.5 million in 1998 to
$383.3 million in 1999 or 120.9% primarily due to an increase in theatrical and
video revenues resulting from our 1999 releases, including The Blair Witch
Project, which generated higher box office receipts than our 1998 releases.

Theatrical revenues increased $67.7 million from $12.5 million in 1998 to
$80.2 million in 1999 or 541.6% primarily due to an increase in the number of
theatrical releases in 1999, including The Blair Witch Project, which generated
higher box office receipts than our theatrical releases in 1998.

Home entertainment revenues increased $114.6 million from $117.4 million
in 1998 to $232.0 million in 1999 or 97.6% primarily due to significant
increases in home video and DVD sales. The increase in our home video sell-
through business was due primarily to the release of The Blair Witch Project in
1999, inclusion of the titles in the Republic library for a full year and
increased sales of the titles in the Hallmark library.

Television revenues increased $1.2 million from $17.9 million in 1998 to
$19.1 million in 1999 or 6.7% primarily due to the increase in the number of
titles released.

International revenues increased $26.3 million from $25.7 million in 1998
to $52.0 million in 1999 or 102.3% primarily due to the delivery of The Ninth
Gate, The Limey and A Stir of Echoes in 1999.

Our cost of sales increased $183.0 million from $131.0 million in 1998 to
$314.0 million in 1999 or 139.7%. As a percentage of sales, cost of sales
increased to 81.9% in 1999 compared to 75.5% in 1998. The increase in cost of
sales was due primarily to the increase in revenues, which includes the
successful release of The Blair Witch Project. The increase in cost of sales as
a percentage of sales was primarily due to the costs associated with our
theatrical releases, including increased amortization of film costs related to
adjustments in the projected value of some film properties in 1999.

Our selling, general and administrative expenses increased $10.2 million
from $27.9 million in 1998 to $38.1 million in 1999 or 36.6%. As a percentage
of sales, the amount decreased to 9.9% in 1999 compared to 16.1% in 1998. The
dollar increase was primarily a result of higher overhead costs associated with
the expansion of our business in all divisions. The decrease as a percentage of
sales was primarily due to the significant increase in sales.

Operating income increased $16.6 million from $14.6 million in 1998 to
$31.2 million in 1999 or 113.7%. The increase in operating income was primarily
due to the success of The Blair Witch Project. As a percentage of sales,
operating income decreased to 8.1% from 8.4%. The decrease in operating income
as a percentage of sales was primarily due to increased costs of sales.

Our interest expense increased $3.7 million from $14.1 million in 1998 to
$17.8 million in 1999 or 26.2%. The increase was due primarily to increased
borrowing under our credit facility necessary to support the increase in
theatrical releases and overall operations.

Our EBITDA increased $17.5 million from $20.6 million in 1998 to
$38.1 million in 1999 or 85.0%. This increase was primarily due to increased
revenues and profits associated with The Blair Witch Project, which was
released in theatres and on video and DVD.

Year Ended December 31, 1998 compared to Year Ended December 31, 1997

In July 1997, a group of private investors formed our company to acquire
LIVE Entertainment, our predecessor company. As a result, purchase price
adjustments were recorded. These adjustments are reflected in our results of
operations subsequent to July 9, 1997. The impact of the adjustments affecting
gross profit and EBITDA has been largely reflected in our results of operations
through December 31, 1998.

Our net sales increased $53.1 million from $120.4 million in 1997 to
$173.5 million in 1998 or 44.1% primarily due to the inclusion of the titles in
the Hallmark and Republic libraries and significant increases in DVD sales.

Theatrical revenues increased $5.7 million from $6.8 million in 1997 to
$12.5 million in 1998 or 83.8% primarily due to an increase in the number of
theatrical releases during 1998, including the release of Belly, The
Ringmaster, Caught Up and Pi.

Home entertainment revenues increased $38.6 million from $78.8 million in
1997 to $117.4 million in 1998 or 49.0% primarily due to significant increases
in home video and DVD sales. The increase in home video sell-through business
was due primarily to the inclusion of the Hallmark library in 1998 and the
inclusion of the Republic library during the fourth quarter of 1998. The
increase in DVD sales was due to the increase in the number of titles released
in 1998 and the emergence of the DVD market.

Television revenues increased $3.4 million from $14.5 million in 1997 to
$17.9 million in 1998 or 22.9% primarily due to the increase in the number of
titles released.

International revenues increased $5.4 million from $20.3 million in 1997
to $25.7 million in 1998 or 26.6% primarily due to an increase in the number of
pictures being released internationally, including Belly, Permanent Midnight
and Washington Square in 1998.

Cost of sales increased $33.0 million from $98.0 million in 1997 to
$131.0 million in 1998 or 33.7%. As a percentage of sales, cost of sales
decreased to 75.5% in 1998 compared to 81.4% in 1997. The increase in cost of
sales was primarily due to the increase in revenues. The decrease in cost of
sales as a percentage of sales was primarily due to the increase in home
entertainment revenues resulting from the addition of the titles in the
Hallmark and Republic libraries as well as increased DVD sales which generated
higher margins.

Our selling, general and administrative expenses increased $4.1 million
from $23.8 million in 1997 to $27.9 million in 1998 or 17.2%. As a percentage
of sales, the amount decreased to 16.1% in 1998 compared to 19.8% in 1997. The
dollar increase was primarily a result of higher overhead costs associated with
the expansion of our business in all areas and an increase in the amortization
of goodwill as a result of the acquisition. The decrease as a percentage of
sales was primarily due to the significant increase in sales.

Operating income increased $16.0 million from ($1.4) million in 1997 to
$14.6 million in 1998. The increase in operating income was primarily due to
lower costs of goods sold as a percentage of sales.

Our interest expense increased $8.6 million from $5.5 million in 1997 to
$14.1 million in 1998 or 156.4%. The increase was primarily due to increased
borrowing under our credit facility from our 1997 going-private transaction and
increased working capital necessary to support the increase in theatrical
releases and overall operations.

Our EBITDA increased $15.0 million from $5.6 million in 1997 to
$20.6 million in 1998 or 267.9%. The increase was primarily due to increased
revenues and profits in the home entertainment area resulting from the
inclusion of the titles in the Hallmark and Republic libraries and increased
DVD sales, which generated higher margins in 1998.

Liquidity and Capital Resources

We rely on cash flow from operations, bank borrowings and advances from
distributors under distribution agreements to finance our working capital and
other requirements. We believe that cash flow from operations, bank borrowings
and advances from distributors under distribution agreements will be adequate
to meet our obligations and commitments for the next twelve months. Debt
service requirements for the twelve months ending March 31, 2001 are estimated
to be $7.6 million, based on current outstanding

borrowings and current interest rates. We may need to modify our business
strategy if our cash flows are not sufficient. For the year ended December 31,
1999, we generated positive cash flow from operations of $31.8 million, due to
collections on theatrical and home entertainment revenues, which exceeded
related costs and expenses. Cash used for investing activities for the year
ended December 31, 1999 approximated $4.5 million and primarily related to the
acquisition of furniture and equipment for our facilities, and cash used for
financing activities approximated $27.0 million and primarily related to
reduction of debt.

On July 9, 1997, we entered into a $135.0 million credit facility with a
group of banks led by Chase Manhattan. The facility was comprised of a
$30.0 million term loan and a $105.0 million revolving credit facility.
Currently, our credit facility allows for a maximum borrowing of
$165.0 million. As of December 31, 1999, $45.7 million was available for
borrowing under the revolving credit facility. The maturity date of the credit
facility is July 9, 2002. Thereafter, we will consider alternate means of
financing. We can give no assurances that these alternate sources of financing
will be available on terms acceptable to us, if at all. If we are unable to
secure additional financing, it may have a material adverse effect on our
operations and financial position.

Both the revolving credit facility and the term loan bear interest at
either LIBOR plus 2.5% or the bank's prime rate plus 1.5%, at our election.
Quarterly principal payments of $1.6 million are due under the term loan. The
credit facility contains covenants which, among other things, require us to
adhere to a minimum ratio of earnings to interest expense, a maximum leverage
ratio and a minimum liquidity ratio. In addition, our credit facility includes
covenants which among other things, limit our indebtedness, capital
expenditures, leases, liens, guarantees and investments and limit our ability
to make specific restricted payments, merge, sell or purchase assets, enter
into sale and leaseback transactions, enter into transactions with affiliates
and limit to specified levels our unrecouped print and advertising expenses,
development costs and overhead expense. The credit facility is collateralized
by substantially all of our assets.

On July 9, 1997, we issued $15.0 million of senior subordinated secured
notes which bear interest at 13.5% per annum and are due in 2004. These notes
are collateralized by substantially all of our assets and will be repaid with
the net proceeds from this offering. We will record an extraordinary loss of
approximately $2.9 million to reflect the early discharge of these notes.

On October 20, 1998 we entered into a four-year $4.1 million loan to
finance the acquisition of furniture and equipment. The loan is payable
monthly, bears interest at 12.53%, and is collateralized by the furniture and
equipment and a $1.0 million letter of credit. On December 21, 1999, we entered
into a three and one-half-year $1.2 million loan with the same lender to
finance the acquisition of additional furniture and equipment. The loan is
payable monthly, bears interest at a 6.74% spread over treasury notes that
mature on or closest to the maturity date of the loans, and is collateralized
by the furniture and equipment and the same $1.0 million letter of credit.

We continually evaluate strategies for minimizing theatrical film
production and distribution costs to permit us to balance the risks of
investing in pictures with our capital needs. On October 13, 1999, we entered
into agreements with Artisan Film Investors Trust under which we have agreed to
share the risks associated with the production and distribution costs of motion
pictures that are acquired by Artisan Film Investors Trust. Under these
arrangements, we are required to present to Artisan Film Investors Trust the
opportunity to acquire all feature-length films that we control that meet
designated criteria including, but not limited to, criteria related to the
film's maximum negative costs, rating by the Motion Picture Association of
America and release dates. We have committed to provide a minimum of eight
qualifying films by October 13, 2002. In the event these requirements are not
met, we may be required to repurchase some or all of the Artisan Film Investors
Trust films and bear the production and distribution costs without Artisan Film
Investors Trust. This could have a material adverse effect on our liquidity.
Artisan Film Investors Trust has already acquired two of the eight films we are
required to present to them and we have currently identified potentially three
more films for delivery during 2000.

For the films which Artisan Film Investors Trust acquires, Artisan Film
Investors Trust has agreed to finance some of the production and distribution
costs and we are required to make an investment in, and provide financing for,
the remaining production and distribution costs. We also agreed to be actively
involved in the production of all films which Artisan Film Investors Trust
acquires and be the exclusive distributor of these films. Artisan Film
Investors Trust has arranged for debt and equity financing from third parties
to fund the film acquisitions and its share of the marketing costs of the
films, including $163 million of commitments for a revolving credit facility
with availability through October 13, 2002 that converts into a term loan
facility for up to an additional three years.

In exchange for our investment and financing and other involvement in
these arrangements, we receive an exclusive distribution agreement, a
distribution fee and a participation interest in each film Artisan Film
Investors Trust acquires. See "Specified Relationships and Related
Transactions."

Through our arrangement with Artisan Film Investors Trust, we will be
provided with an external source of capital willing to share in the risks of
producing and marketing feature films. As of December 31, 1999, The Ninth Gate
and Stir of Echoes were acquired by Artisan Film Investors Trust, and we expect
Artisan Film Investors Trust to acquire Way of the Gun, Soul Survivors and The
Blair Witch Project Sequel. We do not record any revenues or expenses from the
sale of pictures, at cost, to Artisan Film Investors Trust. As distributor of a
picture, we accrue amounts due to Artisan Film Investors Trust as
participations in the same manner as we have customarily amortized film costs
under SFAS No. 53.

The financing arrangements we have employed, including our arrangement
with Artisan Film Investors Trust, while reducing our risks of producing
feature films, reduce the potential earnings we may derive from a feature film
because our role is limited to earning revenue principally through distribution
fees. Our arrangements with Artisan Film Investors Trust and this offering,
which pays some of our high cost debt, represent the initial steps of our
continuing efforts to improve our liquidity and capital structure. We expect to
require further capital to fund planned growth, including potential further
investments in our library. We may finance these requirements through
additional debt or equity financing or through other arrangements that share
the risks and rewards of our production and distribution activities. Additional
issuances of equity would, however, cause dilution of existing ownership
interests.

Year 2000 Issues

Our business increasingly relies on sophisticated computer systems, and
we would suffer material adverse consequences if our systems malfunctioned due
to year 2000 issues. As of the date of this prospectus, we do not believe any
of our internal systems have suffered any material year 2000 compliance
problems. Our customers or potential customers may be affected by year 2000
issues that may, in part, cause a delay, reduction or cancellation of retailer
or customer orders or cause a delay in payments for products shipped. We have
not developed a contingency plan related to a failure of our, or a third
party's, year 2000 remediation efforts.

THE INDUSTRY

In this prospectus, we rely on and refer to information regarding our
industry and competitors from market research reports, including reports from
the Motion Picture Association of America and Paul Kagan Associates, Inc., and
other publicly available information. Although we believe this information is
reliable, we cannot guarantee the accuracy and completeness of the information
and have not independently verified it. We have not received consent from the
Motion Picture Association of America sources for the disclosure or use of its
data in this prospectus. We have received consent from Paul Kagan Associates
for the disclosure and use of its data in this prospectus.

General

The United States motion picture industry encompasses the production and
theatrical exhibition of feature-length motion pictures and the subsequent
distribution of these pictures in home video, television and other ancillary
markets. The industry is dominated by the "major studios," as defined by the
Motion Picture Association of America. The major studios include Universal
Pictures, Warner Brothers which includes New Line Cinema and Castle Rock
Entertainment, Twentieth Century Fox, Sony Pictures Entertainment which
includes Columbia Pictures and TriStar Pictures, Paramount Pictures, The Walt
Disney Company which includes Buena Vista, Touchstone and Miramax and MGM which
includes Metro Goldwyn Mayer Pictures, United Artists Pictures, Orion Pictures
and Goldwyn Entertainment Company. Filmed entertainment companies generate
revenues from the distribution and sale of both new production as well as
existing titles held in libraries.

The major studios historically have produced and distributed the majority
of theatrical motion pictures released annually in the United States. The major
studios generally own their production studios and have national or worldwide
distribution organizations. In recent years, however, "independent" producers,
unaffiliated with the major studios, have played an important role in the
production of motion pictures for the worldwide feature film market. The
independent producers generally do not have their own distribution
capabilities. Historically, independent distributors, unaffiliated with the
major studios, have distributed film for the independent producers.

According to Paul Kagan Associates Inc., a media and communications
research firm in Carmel, California, the independent distributors' box office
share has increased from an average of 5.4% for the five-year period 1989 to
1993 to 13.2% for the five-year period 1994 to 1998. In addition, the number of
domestic theatrical releases distributed by independent distributors has
outnumbered those distributed by major studios in recent years.

New Feature Distribution in the United States*

MPAA All Other
Year Affiliates Distributors
---- ---------- ------------

1998............................................. 221 269
1997............................................. 219 242
1996............................................. 215 205
1995............................................. 212 158
1994............................................. 166 244

- --------

* Source: Motion Picture Association of America (MPAA).

Independent producers typically create motion pictures at substantially
lower average production costs than major studios. Direct production costs
consist of acquiring or developing the screenplay, film studio rental,
cinematography, post-production costs and the compensation of creative and
other production personnel. Distribution expenses, which consist primarily of
the costs of advertising and releasing prints, are generally not included in
direct production costs. Major studios typically release films with direct
production costs ranging from $25 million to in excess of $100 million. From
1990 to 1998, the major studios' average production costs, including overhead
and capitalized interest, commonly referred to as "negative cost," have
increased from

$26.8 million to $52.7 million, representing a compound annual growth rate of
8.8%. According to the Motion Picture Association of America, from 1990 to
1998, the major studios' average combined prints and advertising costs have
increased from $12.0 million to $25.3 million, representing a compound annual
growth rate of 9.8%. According to Paul Kagan Associates, the trend on the part
of major studios toward wider-release blockbusters over the past ten years has
led to a decline in profitability, while the efficiency, which is measured by
Paul Kagan Associates as the ratio of a film's estimated revenues against
negative and releasing costs, and quality of smaller production films have been
on the rise.

Motion Picture Distribution

Motion picture distribution encompasses the licensing of pictures for
distribution or exploitation in various markets, both domestically and
internationally, pursuant to a release pattern. These markets include
theatrical exhibition, home video which includes rental and sell-through,
television which includes pay-per-view, pay television, first-run broadcast
television and syndication, licensing and merchandising. The distributor
typically acquires rights from the producer to distribute a motion picture in
one or more markets. For its distribution rights, the distributor typically
agrees to advance the producer a minimum royalty or guarantee, which is to be
recouped by the distributor out of revenues generated from the distribution of
the motion picture and is generally nonrefundable.

Successful motion pictures may continue to play in theaters for up to six
months or longer following their initial release. Concurrent with their release
in the United States, motion pictures are generally released in Canada and may
also be released in one or more other foreign markets. After the initial
theatrical release, distributors seek to maximize revenues by releasing movies
in sequential release date windows, which are generally exclusive against other
non-theatrical distribution channels:

Movie Release Revenue Windows

Months After Approximate
Initial Release Approximate % of
Release Period Release Period Total Revenues*
- -------------- ------------ ------------ ----------------

Theatrical........................... -- -- 12%
Home video........................... 4-6 months 1-3 months 25
Pay-per-view......................... 6-9 months 3 months 1
Pay television....................... 10-18 months 12-21 months 5
Network or basic cable............... 30-36 months 18-36 months 6
Syndication.......................... 48-70 months 3-15 years 1
Licensing and merchandising.......... Concurrent Ongoing 2
All international releasing.......... Concurrent Ongoing 48%
---------
100%
=========

- --------
* Reflects 1998 industry data. Source: Paul Kagan Associates

Domestic Theatrical

Theatrical distribution of a motion picture involves the manufacture and
transportation of multiple prints of the motion picture, the promotion of the
picture through advertising and publicity campaigns and the licensing of the
motion picture to theatrical exhibitors. According to the Motion Picture
Association of America, the major studios had average combined prints and
advertising costs of $25.3 million per film in 1998, while we believe that
independents have prints and advertising costs generally ranging from $5
million to $15 million per film. The size and success of the promotional
advertising campaign can materially affect the revenues realized from the
theatrical release of a motion picture. Release strategies depend on the
particular genre of film and vary from wide releases, involving more than 800
screens, to specialized releases, whereby the film is first screened only in
selected cities.

The distributor and theatrical exhibitor generally enter into an
arrangement providing for the exhibitor's payment to the distributor of a
percentage of the box office receipts for the exhibition period, in some cases
after deduction of the theater's overhead or a flat negotiated weekly amount.
The distributor's percentage of box office receipts varies widely, ranging from
an effective rate of 35% to over 50%, depending primarily upon the success of
the motion picture at the box office. Revenues are typically collected 90 to
120 days after screening, although substantial delays in collection are not
unusual.

Home Video

Home video distribution involves the promotion and sale of videocassettes
and DVD to video retailers, which include mass merchants, video specialty
stores, convenience stores, record stores and other outlets, which then rent or
sell the videocassettes and DVDs to consumers for private viewing. Marketing
and distribution costs for individual titles are generally incurred by the
distributors of the titles rather than the retailers.

According to Paul Kagan Associates, the United States videocassette and
DVD rental and sales industry grew from $15.7 billion in revenue in 1997 to
$17.1 billion in 1998 and is expected to reach $21.5 billion in 2002. Paul
Kagan Associates estimates that in 1998, 83.5 million, or 81.5% of the 102.5
million total United States households owned a VCR and that 20.3 million VCRs
were sold in the United States, a 12.2% increase from 1997, which represents
the largest number of VCRs sold in any single year. In addition, Paul Kagan
Associates estimates that 900,000 DVD players were sold in the United States
during 1998. According to Paul Kagan Associates, the VCR and DVD markets will
continue to grow as the number of multi-VCR households is expected to increase
from 37.4 million in 1998 to 46.0 million by 2002 and the number of VCRs and
DVD players sold in 2002 is expected to reach 23.2 million.

Major feature films are usually scheduled for release in the home video
market within four to six months after theatrical release to capitalize on the
theatrical advertising and publicity for the film. Promotion of new releases is
generally undertaken during the nine to twelve weeks before the release date.
Videocassettes of feature films are typically sold to domestic wholesalers at a
high price point referred to as rental pricing, that generally discourages
purchase by individual consumers, and consumers rent these videos for fees
typically ranging from $1 to $5 per day. Wholesalers who meet established sales
and performance objectives may earn rebates, return credits and cooperative
advertising allowances. Selected titles, including some made-for-video
programs, family-oriented titles and some extremely large box-office successes
may be initially released at a price point which encourages direct purchase by
consumers and are supported by substantial consumer marketing campaigns. Direct
sale to consumers is referred to as the "priced-for-sale" or "sell-through"
market. Profit margins to video retailers on sell-through products are
generally lower than on rental products. Generally, those films which initially
are not released to the sell-through market are released to the sell-through
market at reduced sell-through pricing approximately four months to one year
after they have been released to the rental market.

Generally, owners of films have not shared in video rental income
because, according to industry custom, video distributors historically have
sold video cassettes to video rental stores. However, video distributors have
begun to enter into revenue sharing agreements with major video retail chains.
Under these arrangements, video cassettes are leased to video rental stores at
a lower up-front cost to the store, and a percentage of the video rental
revenues are then shared with the owners or licensors of the films. The
implementation of revenue sharing dramatically affects a retailer's cost of
sales and the distributor's revenues by changing the business model from a
primarily fixed to primarily variable cost approach. Movies priced for sell-
through are usually not subject to revenue sharing arrangements.

We believe the adoption of revenue sharing agreements by leading retail
chains and the advent of DVD present significant growth opportunities for the
home entertainment industry. Revenue sharing agreements provide retailers with
the opportunity to substantially increase the quantity and selection of newly
released video titles they stock due to the significantly lower up-front
payments by the retailers to the distributors. DVD

presents the opportunity for distributors of home video product to increase
revenues, as consumers replace existing titles currently on the VHS format, and
to earn higher margins on sales of new titles in DVD relative to the VHS
format. According to the Motion Picture Association of America, DVD has become
the fastest growing new format in history as shown on the following chart:

Length of Time to Reach One Million Units Shipped*

Technology Years
---------- -----

DVD Player....................................... 1.9
CD Player........................................ 2.7
Big-Screen TV.................................... 4.2
VCR.............................................. 4.6
Color TV......................................... 8.8

--------

* Source: Motion Picture Association of America

According to the Motion Picture Association of America, the number of DVD
software units shipped to retailers increased to 60 million in 1999 from 20
million in 1998, while the number of titles available on DVD increased to 4,500
in 1999 from 2,100 in 1998. Paul Kagan Associates estimates that DVD and VHS
sell-through revenues should reach parity in 2009, at approximately $8 billion
each, bringing the industry close to $16 billion in sales, as compared with $9
billion in 1998.

Pay-Per-View

Pay-per-view television allows cable and satellite television subscribers
to purchase individual programs, including recently released motion pictures
and live sporting, music or other events, on a "per use" basis. The subscriber
fees are typically divided among the program distributor, the pay-per-view
operator and the cable system operator.

Pay Television

Pay television allows subscribers to view premium channels, including
HBO/Cinemax, Showtime/The Movie Channel, and other pay television networks
offered by cable and satellite system operators for a monthly subscription fee.
The pay television networks acquire a substantial portion of their programming
from motion picture distributors. Films are licensed to pay networks for fees
which are usually based on the film's box office revenues, and most major
producers have long-term output deals with the major pay networks. New markets
may develop with the maturation of direct broadcast satellite systems, and
other digital television systems.

Broadcast and Basic Cable Television

Broadcast television allows viewers to receive, without charge,
programming broadcast over the air by affiliates of the major networks
including ABC, CBS, NBC and Fox, recently formed networks including UPN and the
WB Network and independent television stations and cable and satellite networks
including USA, F/X and the Sci-Fi Channel. In some areas, viewers may receive
the same programming via cable transmission for which subscribers pay a basic
cable television fee. Broadcasters or cable system operators pay fees to
distributors for the right to air programming a specified number of times. As
with pay-per-view and pay television, broadcast and basic cable networks
typically acquire a substantial portion of their programming through output
agreements.

Television networks, independent television networks, television stations
and cable system operators generally license television series, films and film
packages consisting of theatrically released feature films and made-for-
television movies pursuant to agreements with distributors or syndicators that
allow a fixed number of telecasts over a prescribed period of time for a
specified cash license fee or for barter of advertising time.

Pay/cable television services usually license pictures for initial
exhibition commencing approximately 10 to 18 months after initial domestic
theatrical release or six months after domestic home video release. Licensing
of these properties is generally accomplished pursuant to agreements which
allow a fixed number of telecasts over a prescribed period of time for a
specified license fee.

Foreign Markets

In addition to their domestic distribution activities, some motion
picture distributors generate revenues from distribution, directly or
indirectly through sublicensees, of motion pictures in foreign theaters, home
video, television and other foreign markets. There has been a dramatic increase
in recent years in the worldwide demand for filmed entertainment. This growth
is largely due to the privatization of television stations, introduction of
direct broadcast satellite services and increased home video and cable
penetration. Presales of international distribution rights are often used by
independent film companies to finance all or a portion of the direct production
costs of a motion picture. Presales consist of license fees paid by
international distributors in return for the right to exploit the completed
motion picture in theaters or to distribute it in home video, television,
international or other ancillary markets.

Licensing and Marketing

Revenues also may be derived from the non-theatrical distribution of
motion pictures to airlines, schools, libraries, hospitals and the military.
Soundtrack albums and licensing of rights to perform musical works from film
music can be a significant source of ancillary income. Other revenues may be
generated from the licensing of rights to manufacture and distribute games,
dolls, clothing and similar commercial articles derived from characters or
other elements of a motion picture.

BUSINESS

We distribute motion pictures in the home entertainment, theatrical and
broadcast and pay television markets. Our library includes home entertainment
distribution rights in the United States and Canada for over 3,300 feature
length titles and 3,400 non-feature length titles.

Our predecessor company, LIVE Entertainment, Inc., was originally formed
in 1988. In July 1997, our company was formed to acquire LIVE Entertainment,
and we have continued, with a new management team, to be engaged in
substantially the same types of business activities relating to the acquisition
and distribution of filmed entertainment.

Business Strategy

Our goal is to be the largest, most profitable independent distributor of
filmed entertainment product. To accomplish this goal, we intend to continue to
pursue the following strategies:

Build and capitalize on our library

We believe our library can continue to generate stable and growing cash
flows. We intend to maximize the value of our library by:

. refreshing our product by aggressively marketing and repackaging
titles from our diverse and extensive filmed entertainment library
through, among other things, limited release editions, special
editions with additional footage, cross promotion at the time of
nationwide theatrical releases, sales promotions and price
reductions; and

. continuing to obtain rights to smaller libraries and collections of
titles through acquisitions and strategic alliances, for example our
recent acquisitions of distribution rights to titles in the Discovery
library and titles created by The Baby Einstein Company.

Continue our retail direct approach to marketing our library titles

We intend to exploit our retail distribution system, which we believe to
be unique among independent distributors, by:

. increasing our market share by capitalizing on our ability to
distribute, through our arrangement with Fox, on a retail-direct
basis, rather than through a third party distribution center, to
12,000 stores nationwide;

. controlling the marketing process, increasing penetration among
retailers, improving retail shelf placement, managing inventory size,
and seeking economies of scale in manufacturing and shipping
comparable to those of the major studios; and

. maintaining direct relationships with our national retailers,
including Blockbuster, Hollywood Video, Wal-Mart, K-Mart and
Amazon.com.

Establish brands that may be widely exploited

We intend to use our library assets to develop and build brand identity.
We believe that the continued association of our Family Home Entertainment and
Family Home Entertainment Kids trademarks with quality, parent-approved
programming will create opportunities for us to exploit these brands beyond the
home entertainment market. Our Family Home Entertainment and Family Home
Entertainment Kids labels are a collection of our library titles selected for
the family and children's markets and involve some co-branding with the owners
of the films. Our goal is to develop these trademarks into trustworthy brands
with a strong reputation for delivering high-quality, family-oriented content
by delivering successful titles including It's a Wonderful Life, Alice in
Wonderland, The Velveteen Rabbit, The Tales of Beatrix Potter, Merlin and the
Christmas Classics series. We have also established relationships with other
name-brand family content providers including Hallmark, Discovery, Crayola and
Scholastic to further enhance brand identity.

We believe that strong brands will enable us to maintain a base of loyal
home entertainment customers as well as capture additional revenue
opportunities from the merchandising and licensing of products geared toward
children and families using recognizable characters and names featured in our
programming. We have also developed a branded presence on the Internet with two
websites -- one for Family Home Entertainment and one for Family Home
Entertainment Kids. Our sites offer interactive educational content to promote
and distribute our products and are designed to create a sense of community for
the family market.

We believe that our acquisition of a minority interest in The Baby
Einstein Company and distribution rights to the titles they have created will
enable us to further penetrate the family-oriented entertainment market, by
targeting families with infants using a branded series of developmental and
educational video and music products.

Customize our distribution and marketing strategy to best complement our
theatrical releases

We intend to release 10 to 12 theatrical motion pictures annually in
either wide release or to specialized markets and to use creative and
innovative marketing techniques to promote each individual film to reach the
appropriate target audience in the most cost-effective way. We intend to become
the preferred distributor of independently produced films. In the last year, we
have demonstrated our wide release abilities with films which include The Blair
Witch Project, Stir of Echoes and Black Mask, each of which played in over
1,500 theatres. A recent example of our customized distribution and marketing
strategies for specialized release is The Buena Vista Social Club which is
described under "Domestic Distribution" below.

Source product for distribution in a manner that mitigates our financial risk

We select product for theatrical release that is typically produced for
under $30 million in negative costs, and predominantly under $15 million.
Whether we produce or acquire films, we utilize a conservative "greenlighting
process" involving our senior management and our board of directors to ensure
that we maximize the net present value of our investment on a title-by-title
basis. We employ a variety of techniques to mitigate the financial risks
associated with investing in new motion pictures, including preselling
international rights, limiting the extent of our direct investment, entering
into strategic financing arrangements and compensating key talent through back-
end participations. We attempt to further mitigate our financial risk by:

. actively managing our production and release schedules to maximize
overall box office performance of those motion pictures through
counter programming and releasing films in less competitive time
periods;

. tightly controlling development and production budgets and
expenditures while maintaining the artistic integrity required to
develop and produce commercially successful feature films;

. involving top members of senior management and selected board members
in the greenlighting of films and in weekly meetings to provide
updates on the status of all production projects;

. maintaining a low overhead cost structure; and

. pursuing motion pictures which premiere on pay or basic cable
television or are released directly to video, due to their lower
production and marketing costs.

Library

Our library consists of over 3,300 feature length titles and 3,400 non-
feature length titles for which we hold primarily home entertainment
distribution rights in the United States and Canada. Our library includes
motion pictures from a wide range of genres, including dramas, comedies,
action-adventure movies, westerns and suspense thrillers, as well as exercise
and educational videos, syndicated television programs and other filmed
entertainment product. We intend to continue to produce and acquire new motion
pictures and acquire distribution rights to titles across a variety of genres
to refresh and enhance our library.

The following chart contains information regarding some of the major
titles in our library.

Major Library Titles

Library Title Key Talent
------- -------------------------------- ------------------------------------

Artisan On Golden Pond Henry Fonda, Katharine Hepburn, Jane
Fonda

Reservoir Dogs Harvey Keitel, Steve Buscemi, Tim
Roth, Quentin Tarantino

Sophie's Choice Meryl Streep, Kevin Kline, Peter
MacNicol

The Crying Game Stephen Rea, Forest Whitaker

The Last Emperor--Director's Cut John Lone, Joan Chen, Peter O'Toole

The Piano Holly Hunter, Sam Neill, Harvey
Keitel

The Terminator Arnold Schwarzenegger, Linda
Hamilton

Carolco Basic Instinct Michael Douglas, Sharon Stone

Rambo: First Blood Sylvester Stallone, Brian Dennehy,
Richard Crenna

Rambo: First Blood, Part II Sylvester Stallone, Richard Crenna

Rambo III Sylvester Stallone, Richard Crenna

Stargate James Spader, Kurt Russell

Terminator 2: Judgment Day Arnold Schwarzenegger, Linda
Hamilton

Total Recall Arnold Schwarzenegger, Sharon Stone

Hallmark Lonesome Dove Robert Duvall, Tommy Lee Jones,
Danny Glover

Sarah, Plain and Tall Glenn Close, Christopher Walken

Scarlett Timothy Dalton, Joanne Whalley-
Kilmer

The Secret Garden Gennie James, Jadrien Steele, Derek
Jacobi

Republic The Bells of St. Mary's Bing Crosby, Ingrid Bergman, Henry
Travers

High Noon Gary Cooper, Lloyd Bridges, Grace
Kelly

It"s a Wonderful Life James Stewart, Donna Reed, Henry
Travers

The Quiet Man John Wayne, Maureen O'Hara

Rio Grande John Wayne, Maureen O'Hara

Sands of Iwo Jima John Wayne, Forrest Tucker

Vestron Dirty Dancing Patrick Swayze, Jennifer Grey, Jerry
Orbach

Hamburger Hill Anthony Barrile, Michael Boatman,
Don Cheadle, Dylan McDermott

Young Guns Emilio Estevez, Kiefer Sutherland,
Lou Diamond Phillips, Charlie Sheen

Artisan

The Artisan library consists of titles acquired on a title-by-title
basis. The contractual terms, including rights and royalty provisions, for each
of the titles vary by contract. As of December 31, 1999, the Artisan library
consisted of approximately 1,200 titles.

Carolco

Pursuant to a series of agreements with Carolco Pictures, we acquired the
distribution rights for 38 titles for home entertainment in the United States,
and for some pictures, in Canada. For the Carolco titles, we predominantly hold
a 15-year distribution term commencing on the initial home video release for
each of the pictures, which occurred between September 1987 and February 1996.
In addition, we generally hold a right of first negotiation and a right of last
refusal with respect to the extension of the distribution term for the Carolco
titles. Under our agreements, recoupable advances were paid to Carolco in
connection with the acquisition of the Carolco titles, and we pay additional
sums, in accordance with the terms of the agreements, in the event that the
advances are fully recouped.

Hallmark

We have entered into agreements for the home entertainment distribution
in the United States and Canada of the Hallmark Home Entertainment and Hallmark
Hall of Fame libraries. We have the right to distribute both of the Hallmark
libraries through December 2003, unless Hallmark's rights in a particular
picture expire earlier. In addition, we have an option to extend our
distribution rights in the Hallmark Home Entertainment titles for an additional
two years subject to our satisfying a specified threshold of revenues from our
distribution of Hallmark Home Entertainment product. Under our agreements, we
pay recoupable advances for the Hallmark titles, and we will pay additional
sums, in accordance with the terms of the agreements, in the event that the
advances are fully recouped. As of December 31, 1999, the Hallmark libraries
consisted of over 800 titles.

Republic Entertainment

In September 1998, we entered into an agreement with Republic
Entertainment, a division of Spelling Entertainment, for distribution in the
United States and Canada of home entertainment of all productions of and
product for which home entertainment rights are controlled by Republic and its
affiliates. The agreement provides us with distribution rights to all Republic
library titles until November 2005, unless Republic's rights in a particular
title expire earlier. Under our agreement with Republic, we pay advances for
the Republic titles, and we will pay additional sums, in accordance with the
terms of the agreement, in the event that the advances are fully recouped. As
of December 31, 1999, the Republic library consisted of over 3,700 titles.

Vestron

In July 1991, our predecessor, LIVE Entertainment, Inc. acquired Vestron
Inc., an independent producer and distributor of motion pictures. We now own
the 38 titles that Vestron produced and may exploit those titles in all media
on a worldwide basis in perpetuity, subject to license and distribution
agreements previously entered into by Vestron. The remaining titles in the
Vestron library were acquired from other producers on a title-by-title basis
primarily for home entertainment distribution in the United States and Canada.
The contractual terms, including rights and royalty provisions for each of the
Vestron acquired titles, vary by contract. As of December 31, 1999, the entire
Vestron library consisted of approximately 500 titles.

Recent Additions to Our Library

Discovery Enterprises Worldwide

In October 1999, we entered into an agreement with Discovery Channel
Catalog to acquire the home entertainment distribution rights in the United
States to all titles for which rights are controlled by Discovery and its
affiliates. We will have these rights to approximately 250 titles until 2005.
In addition, the agreement covers all new releases and library product produced
for the purposes of broadcasting on cable services including Discovery Channel,
Animal Planet, and The Learning Channel through February 2005. Discovery has
committed to deliver to us a minimum of 40 new, full-length programs per year
for the term of the agreement, of which we are obligated to release at least 25
per year. We also hold a right of good-faith negotiation for a five-year
extension of the agreement. Under our agreement with Discovery, we pay an
advance for the Discovery titles, and we will pay additional sums, in
accordance with the terms of the agreement, in the event that the advance is
fully recouped.

The Baby Einstein Company

In February 2000, we acquired a minority interest, with an option to
acquire the remaining equity interest, which expires in March 2001, in The Baby
Einstein Company. We also obtained United States and Canadian home
entertainment distribution rights for three years to the educational titles
developed by The Baby Einstein Company. We did not pay an advance to the Baby
Einstein Company for the right to distribute its titles. Instead, we receive a
distribution fee and reimbursement of our distribution costs and pay the
remaining revenues to the Baby Einstein Company. The best-selling videos, which
are geared for infants ages 1 to 36 months, include the Baby Einstein, Baby
Mozart and Baby Bach videos. These "video board books(R)," which are based on
research about infant stimulation and visual preferences, combine music,
natural sounds, audio passages spoken by mothers in various languages, and
video sequences of patterns and photos of colorful toys and objects to
stimulate the development of greater brain capacity. The Baby Einstein
Company's products have been highly acclaimed among parents and educators, and
have won numerous awards, including the 1998 and 1999 Video of the Year Awards
from Parenting Magazine and the 1999 Video of the Year Award from Child
Magazine.

Repackaging and Marketing Our Library

We continually refresh our product by marketing and repackaging titles
from our diverse and extensive library through, among other things, limited
release editions, special editions with additional footage, cross promotion of
titles with similar genres and talent in conjunction with other nationwide
theatrical release events, sales promotions and price reductions. We believe
this has resulted in increased shelf space in retail stores and that this
increased visibility has led to increased sales.

Arnold Schwarzenegger Promotion

We recently implemented a new promotion strategy to refresh our
Arnold Schwarzenegger titles--The Terminator, Terminator 2: Judgment Day,
Total Recall, Red Heat and The Running Man. Prior to January 1, 1999, all
of these titles had been in release for an extended number of years and
the VHS version of each was carried at a suggested retail price of $9.98.
We sought not only to increase sales activity for these titles, but also
to return them to a premium price point, which delivers higher margins.
These five titles were taken off the market on January 1, 1999 in order to
sell any remaining product in the distribution system and at retail. While
the distribution of the titles was on moratorium, we redesigned the
packaging utilizing a new foil-like material to update the packaging and
to provide them with a similar "line look" which appeals to collectors who
want to own a set of pictures. On October 1, 1999, the titles were re-
released at a $14.98 suggested retail price. We placed point of purchase
displays specially designed for the line of titles in approximately 7,000
stores, and we supported them with a consumer advertising promotion. We
believe that the sale of 500,000 units from the re-release date though
December 31, 1999 demonstrates that the promotion has successfully
repositioned these titles at the $14.98 price point.

John Wayne Promotion

When we acquired the home entertainment distribution rights to the
Republic library, we saw a tremendous opportunity to repromote many of the
titles in that library. Among the most valuable candidates for this type
of program were the John Wayne pictures--The Quiet Man, Sands of Iwo Jima,
Flying Tigers, Fighting Seabees and Rio Grande. These pictures were all
repackaged, similar to the Schwarzenegger titles discussed above, with a
"line look" and were re-presented to retail in April of 1999. We
successfully increased sales of all of the titles. Unit sales and revenues
for these five titles increased over 200% during 1999, as compared to July
1997 to June 1998, the final twelve months during which the library was
distributed by Republic.

Dirty Dancing -- 10th Anniversary Promotion

Dirty Dancing has long been one of the top performers in our
library, occupying prominent shelf space position at key mass merchants
for several years. In addition, we own worldwide rights to the film in
perpetuity, including the right to make sequels and television productions
based on the film and to license the Dirty Dancing name.

In order to promote the film to a new generation, we re-released the
film theatrically on August 22, 1997 on the 10th anniversary of its
original release. The theatrical re-release created a renewed interest in
the film and as a result, VHS unit sales of Dirty Dancing increased 90% to
770,000 in 1997 from 406,000 in 1996. In 1998, VHS unit sales remained 37%
higher than 1996 levels without any reduction in suggested retail price.
In 1999, we updated the package design and ran a year-long re-promotion of
the VHS version of Dirty Dancing at the same suggested retail price, and
we sold 727,000 units for the year, a 79% increase above 1996 levels.

We recently released a "Special Edition" DVD version of Dirty
Dancing in January 2000. The Special Edition will feature footage from the
Dirty Dancing Concert Tour, a "behind the scenes making of" featurette and
music videos of three of the songs in the film. The Special Edition was
released at a suggested retail price of $29.98. In addition, we are
currently exploring the possibility of producing a sequel motion picture
for theatrical release.

DVD

We intend to capitalize on new distribution technologies, which include
DVD, a high-quality mass-produced delivery system for video and audio data. We
adopted this technology in its early stages of implementation by being among
the first to make titles available on DVD. We continue to be an ardent
supporter of this market, which is rapidly emerging as a new format for home
entertainment. DVD presents the opportunity for distributors of home video
product to increase revenues, as consumers replace existing titles currently on
the VHS format, and to earn higher margins on sales of new titles in the DVD
relative to the VHS format. DVDs generally command a higher price point than
videocassettes while the manufacturing costs are similar. In addition, the
format may be more attractive than videocassettes to consumers. We believe that
we are well positioned to benefit if DVD continues its successful growth
pattern because the high quality of DVD is expected to create additional demand
for the many classic or familiar "collectible" titles in our library. Our sales
of DVD represent approximately 7% of total domestic DVD unit sales in 1997
through 1999.

Improved Home Entertainment Distribution

We have undertaken several initiatives to enhance sales and operational
efficiency of our distribution operations. Specifically, in August 1998, we
entered into a distribution alliance with Twentieth Century Fox Home
Entertainment, Inc. The agreement extends through December 2001 and provides
for an automatic two-year renewal. Under the agreement, we are able to access
their computerized, retail direct system to manage our distribution, billing
and collection process. Fox makes available its warehousing and logistics
capabilities to us so that we can achieve greater economies of scale in
manufacturing and shipping. Through this alliance, we also have reduced our
distribution and manufacturing costs versus our prior distribution
infrastructure and shortened our working capital cycle to 60 days versus our
management's estimate for the industry average of 90 to 120 days. This alliance
also has enabled us to ship product directly to over 12,000 stores rather than
to warehouses, and has given us the ability to monitor inventory and sales
levels at each individual store. We believe that our ability to offer stores
retail direct VHS and DVD distribution of this scale is unique among
independent distributors. This enhances our ability to exploit opportunities to
grow the sell-through business through the consolidation of smaller retailers.
Our alliance has enabled us to achieve greater economies of scale, and has
increased our bargaining power with manufacturing and shipping companies.

In addition to our alliance with Fox, we have streamlined and
strengthened our distribution operations. We have added in-house operations and
customer service capabilities and improved the capabilities of our already
strong sales force through selective hiring and training to be more mass-market
oriented and retail-focused. As a result of these initiatives, we believe that
we have experienced an increase in sell-through sales of our core titles while
lowering our distribution costs.

New Motion Picture Product

We acquire new motion pictures for theatrical release and for direct
release to cable channels and the video rental market through acquisitions and
our own in-house development and production capabilities. Acquiring new product
enables us to refresh and enhance our library. Acquiring new product also
enables us to maintain links to the artistic community, enhance our
relationships with retailers and enhance our brands. Further, when we produce
new pictures, we generally own all rights in perpetuity, enabling us to exploit
each of the various release revenue windows, licensing and merchandising
opportunities, and the development of any sequels or television spin-offs.
There are risks inherent in investing in new motion pictures. We seek to
mitigate those risks by employing rigorous budgeting and cost control
techniques and by structuring the terms under which we acquire and finance
pictures to share the risks and rewards with third parties.

We have developed a rigorous greenlighting process that involves our
senior management in all phases of the acquisition and development process. All
decisions to approve the production or acquisition of a film are made by a
committee of senior management and selected members of our board of directors.
We believe that as a result of our senior management and board level focus on
budget and production and acquisition expenditure control, we will be able to
minimize cost overruns and excess expenditures. When we consider a project for
which we will bear any of the risks of production cost overruns, we control the
budgeting process. When we consider the acquisition of a project for which we
have no production cost risks, our creative executives negotiate acquisition
prices or minimum guarantee and distribution fee structures with the third-
party rights holders. In all cases, whether or not we bear production-related
risks, our corporate development and strategic planning group collaborates with
our production and acquisition executives to perform sensitivity analyses to
determine the net present value of the motion picture. We develop a net present
value range using a preliminary financial model based upon the picture's
production budget or acquisition cost, genre, cast, international appeal, our
targeted release and marketing strategy and other factors.

Our methods for sharing the risks and rewards of our investment in
pictures for theatrical release include:

. acquiring product from third parties that share a portion of the
distribution risk related to theatrical prints and advertising
spending;

. entering into strategic financing arrangements, including those with
Artisian Film Investors Trust, which reduce our investment in
acquisition and marketing costs;

. acquiring product in which we have had an active production role but
made only a limited investment and received only a limited
participation; and

. acquiring product through "negative pickups," a common method by
which film distributors enter into distribution agreements with
independent production companies for the rights to distribute
completed films to theaters in specific territories, as well as other
rights, for a specified fee. The fee is generally a lump sum payable
once the film is completed as an advance against a percentage of the
distributor's revenues.

Moreover, since we typically focus on lower budget and limited release pictures
involving newer talent, we are able to structure talent participations that are
paid after we recover our costs. Our production-related overhead costs are
insubstantial since we do not own any studio facilities or stages. Instead, we
lease facilities and sound stages on an "as-needed" basis for specific
projects.

We employ a staff of creative executives to manage the development and
physical production of motion pictures in which we invest. To minimize
development spending write-offs and abandonment costs, we seek to limit the
number of projects in development and concentrate on those projects with the
most favorable prospects.

The following table details our 1999 releases and our expected release
schedule:

Title Release Date Director Cast
- ----------------------- ------------------ --------------------- --------------------------------------

My Name is Joe January 22, 1999 Ken Loach Peter Mullan

Foolish April 9, 1999 Dave Meyers Master P, Eddie Griffin

Open Your Eyes April 16, 1999 Alejandro Amenabar Eduardo Noriega, Penelope Cruz
(Abre Los Ojos)

Black Mask May 14, 1999 Daniel Lee Jet Li

The Buena Vista Social June 4, 1999 Wim Wenders Ry Cooder
Club

The Blair Witch Project July 14, 1999 Daniel Myrick & Joshua Leonard, Heather Donahue,
Eduardo Sanchez Michael Williams

Illuminata August 6, 1999 John Tuturro Katherine Borowitz, Beverly D'Angelo,
Susan Sarandon, Rufus Sewell,
John Tuturro, Christopher Walken

Stir of Echoes September 10, 1999 David Koepp Kevin Bacon, Kathryn Erbe,
Illeana Douglas

The Limey October 8, 1999 Steven Soderbergh Terence Stamp, Peter Fonda

Felicia's Journey November 12, 1999 Atom Egoyan Bob Hoskins

The Ninth Gate March 10, 2000 Roman Polanski Johnny Depp, Lena Olin, Frank Langella

Ghost Dog: Way of the March 17, 2000 Jim Jarmusch Forest Whitaker, Cliff Gorman
Samurai

Chuck & Buck July 2000 Miguel Arteta Chris Weitz, Paul Weitz, Mike White

Cecil B. Demented August 2000 John Waters Melanie Griffith, Stephen Dorff, Milla
Jovovich, Ricki Lake

The Way of the Gun August 2000 Christopher McQuarrie Ryan Phillippe, Benicio del Toro,
Taye Diggs, James Caan

El Norte (reissue) September 2000 Gregory Nava David Villalpando, Zaide Gutierrez

Requiem for a Dream Fall 2000 Darren Aronofsky Jarred Leto, Marlon Wayans,
Ellen Burstyn, Jennifer Connelly

Soul Survivors Fall 2000 Steve Carpenter Melissa Sagemiller, Wes Bentley,
Casey Affleck

The Blair Witch Project Fall 2000 Joe Berlinger In production
Sequel

The Center of the World To be determined Wayne Wang Peter Sarsgaard, Molly Parker

Novocaine To be determined David Atkins Steve Martin, Laura Dern,
Helena Bonham Carter, Elias Kateas,
Kevin Bacon

We may revise the release date of a motion picture as the production
schedule changes or otherwise to maximize revenues. Additionally, there can be
no assurance that any of the motion pictures scheduled for release will be
completed, that completion will occur in accordance with the anticipated
schedule or budget or that the motion pictures will necessarily involve all of
the creative talent listed above.

In addition to theatrical product in which we have a financial
investment, we also distribute motion pictures which are fully financed by
third parties. Under these arrangements, we generally provide services for

a distribution fee equal to a percentage of net revenues and we do not make any
investment in the production or theatrical marketing costs for the pictures.
The costs for the theatrical marketing of these pictures, including the costs
of prints and advertisement, are advanced by the producers of the pictures, and
we advance the costs of distributing the picture in the home entertainment and
television markets. In 1999, we theatrically released the motion pictures 24
Hour Woman, The Minus Man and Frogs for Snakes under a servicing agreement with
The Shooting Gallery which expired on December 31, 1999. We have recently
concluded a servicing agreement with Black Entertainment Television, commonly
known as BET, that is intended to provide six pictures for theatrical and video
distribution in the United States and Canada. The agreement with BET covers all
pictures produced or acquired by BET which either commence principal
photography or become available for delivery to us prior to December 31, 2001.
Under the agreement, BET will fully finance the motion pictures and will
provide all theatrical marketing expenses.

We also distribute motion pictures which are not intended for theatrical
release and are initially released to television or the video rental market. We
acquire the product from independently funded producers and produce the films
in-house.

In 1997, as part of our acquisition of distribution rights to the
Hallmark Home Entertainment library, we acquired distribution rights to all new
product for initial home video release produced by Hallmark Home Entertainment
or its affiliates prior to 2003 with an option to extend for two years, subject
to our satisfying a specified threshold of revenues from our distribution of
Hallmark Home Entertainment's product. Hallmark is one of the leading producers
of network movies of the week and high profile mini-series including Merlin,
Moby Dick, Cleopatra and Alice in Wonderland. Our distribution rights for each
title are for a ten-year period following initial release on home video.

In addition, we produce and acquire individual titles intended for
television or video rental release based on genre, talent, cost and expected
profitability. Since the production costs of these films are generally
significantly lower than those of theatrical productions and since we often
secure television and licensing commitments prior to greenlight, we consider
these motion pictures to be of lower risk and more predictable return than
films produced for the theatrical marketplace. Pursuant to this strategy, we
have released The Second Arrival, Candyman 3, Substitute 2, Substitute 3 and
Wishmaster 2.

Through our Family Home Entertainment and Family Home Entertainment Kids
labels, we also distribute motion pictures which are targeted at the family and
children's markets. We generally acquire this product from or enter into
distribution deals with independently funded producers and produce the films
through producers-for-hire. Acquisition and production costs for this genre are
generally lower than those of feature length motion pictures due to the low
production costs for non-theatrical animated and live-action films.

Domestic Distribution

Theatrical Distribution

Theatrical Release

We focus on theatrical films independently produced outside of the major
studios and utilize our ability to distribute films in both wide release and
specialized markets. We intend to strategically time the release of our motion
pictures throughout the year to reduce some of the risks posed when a motion
picture is released during the most crowded and competitive box office seasons.
As an independent studio, we pursue a "counter programming" theatrical
distribution strategy to avoid the typically expensive, marketing-intensive
titles with summer release dates. Our ability to release our filmed
entertainment product on both a wide release and a specialized release basis is
demonstrated by Stir of Echoes which we released nationwide on over
1,700 screens, and The Buena Vista Social Club which we initially released in
only 15 theaters in four markets and slowly rolled out to play in over 386
theaters in 174 markets.

The Buena Vista Social Club Theatrical Release Strategy

We sought to market the The Buena Vista Social Club as something
more than a documentary. The marketing goal was to have it appeal to a
wide audience as more of a "must see event" -- part concert film, part
documentary. While opening in the middle of the summer, we "counter-
programmed" the film by appealing to an adult audience looking for
something different from the typical summer studio releases. The
summertime release also captured the outdoor feeling of the picture and
highlighted its "feel good" atmosphere.

Our release pattern for the film followed the market trend that had
been established previously by the award-winning CD of the same name.
Initially, we widely publicized the film in those markets that showed the
strongest interest in the music, which were New York, Los Angeles, San
Francisco and Miami. Our goal was to open strongly in these markets so
that we would be able to create national attention for the film, allowing
us to introduce the film into new markets where awareness of the music was
not strong.

After a successful opening, the film gradually expanded from 15
theaters in the initial four release markets and has ultimately played in
over 386 theaters in 174 markets. Box office revenues for the film as of
December 31, 1999 were $6.9 million, making the film one of the highest
grossing documentary films to date.

Theatrical Marketing

Our theatrical marketing department's objective is to maximize the net
present value of each motion picture by designing and implementing a marketing
campaign tailored to appeal to the picture's most receptive audience. The
marketing process begins with research before a motion picture is completed.
Our research department determines, through audience screenings and focus
groups, a motion picture's appeal to its most likely target audience. Our
marketing group begins to develop media plans and marketing materials well in
advance of a motion picture's scheduled theatrical release. The media campaign
generally begins six months before release with the circulation of teaser
trailers, posters and exhibitor advertising materials. The campaign becomes
more aggressive one to two months before release as full-length trailers are
released in theaters and more significant materials are sent to exhibitors.
Finally, we launch a national or specialized campaign in the weeks before
opening day. This media campaign generally involves advertising a picture's
release on local and national television, including network prime time and
syndication markets, national cable and radio and in magazines, newspapers and
specific target markets including colleges. In addition, we arrange for a
picture's stars to make public appearances, including television talk shows, in
order to promote the film.

We believe that our marketing activities are innovative and cost-
effective, meaning that we are able to achieve a comparable level of marketing
at a lower overall cost than many of our competitors. We believe that we are
able to aggressively manage costs because the entire process is managed by our
in-house staff. We generally develop our key artwork, trailers and television
spots in-house. In addition, the genre-specific nature of our films allows us
to reach target demographics cost-efficiently through strategic media buys.
Moreover, we plan to capitalize on our success with The Blair Witch Project and
continue to aggressively exploit promotional opportunities on the Internet,
which are generally much less expensive than promotion through traditional
media.

The Blair Witch Project

"In October 1994, three student filmmakers disappeared in the woods
near Burkittsville, Maryland while shooting a documentary. A year later
their footage was found."

The success of The Blair Witch Project is attributable in large part
to our innovative marketing and distribution campaign. Our campaign
marketed the film as a "real" documentary which led the public to believe
that the actors in the film were indeed filmmakers who had disappeared in
the woods. In reality, all the elements of the film and the story are
purely fictional.

The film opened in a very limited release in only 21 markets. Our
strategy was to limit the number of theaters in which the film was playing
in order to break theater records and create further publicity surrounding
the release of the film. The innovative marketing campaign began at over
40 colleges in 13 cities where we posted "MISSING" fliers that depicted
the missing filmmakers. At the same time that we distributed the MISSING
fliers, we utilized a website, www.BlairWitch.com, to educate users in the
fictional history and complex mythology surrounding the legend of the
Blair Witch and the mystery behind the filmmakers' disappearance. The site
explains the history of the curse of the Blair Witch and explores the
events leading to the disappearance. We believe the site was the most
effective marketing tool used in piquing the public interest in the Blair
Witch phenomenon and is largely responsible for turning the release of the
movie into a "must see event."

During the national promotion of The Blair Witch Project, our
advertising intentionally did not indicate whether the movie and the curse
were true or purely fictional. To further promote the film, the producers
created a one-hour special entitled Curse of the Blair Witch for the Sci-
Fi Channel. The special featured interviews with parents, professors and
investigators to uncover more of the mystery of the students'
disappearance.

To promote the picture after release, we released a soundtrack and
companion book concurrently with the wide release of the picture. Although
there was no music in the film, we marketed the soundtrack as part of the
Blair Witch legend as songs found in the car of one of the missing
filmmakers. NAL, a division of Penguin/Putnam Books, released The Blair
Witch Dossier, a book providing further insight into the mystery of the
curse and investigation of the disappearance.

As a complement to our marketing efforts and as a means to exploit
the Blair Witch phenomenon, we developed licensing arrangements for
diverse merchandise through over 30 licensees worldwide. Our merchandising
goal was to create a deeper involvement with the Blair Witch phenomenon
and make audiences part of the mystery and mystique of the curse and
legend. In addition to the traditional categories of merchandise,
including apparel, posters, soundtrack and publishing, our product
included items that could have been used for the search for the Blair
Witch and the missing students, including compasses, flashlights,
backpacks, mystical candles, pendants, rings and "stick man" pins. In
addition, we created an "official" Blair Witch Project Store on-line which
is linked to the Blair Witch website. Further, to enhance the on-line
buying experience, we entered into an arrangement with iMedium whereby
iMedium provides its See!Commerce(C) technology to provide on-line
shoppers with a photo gallery with entertaining, engaging, embedded
commerce and advertising opportunities.

Home Video Distribution

Rental

We intend to release approximately three titles per month into the home
video rental market. In addition to our theatrically released films, we
anticipate producing or acquiring for home video rental distribution 24 to 26
titles which are not theatrically released per year. These non-theatrically
released titles are

selected from genres that in the past have demonstrated greater consumer
rentals, including action, thrillers, suspense and urban, or which have built-
in audience awareness, including sequels and pay television premieres. By
targeting our titles within those genres that perform well for rental
retailers, we believe that we have established strong relationships with our
key retailers.

We have developed several initiatives to increase our rental sales and
position ourselves for the potential advantages of home entertainment rental
revenue sharing. We have pursued additional shelf space through the
implementation of copy depth programs that allow retailers to receive
additional cassettes if they maintain or increase the number of copies that
they purchase. In addition, we have actively marketed our rental titles, not
just to video retailers but also to the renting public. For example, we will
often create new and distinct packaging for rental titles and obtain consumer
and retailer reactions to the packaging in advance of release. We also have
developed marketing programs that encourage rental transactions on our titles.
For example, to promote the rental of The Blair Witch Project, we developed a
companion product entitled Sticks and Stones that was given to customers as a
free rental when they rented the title at Blockbuster stores. Sticks and Stones
was created based on the Sci-Fi Channel special Curse of the Blair Witch, but
included exclusive new footage that was only available if The Blair Witch
Project was rented.

We recently entered into a revenue sharing agreement with Blockbuster,
and we are presently in discussions with other retailers regarding revenue
sharing arrangements. These arrangements typically involve retailers agreeing
to lease a pre-negotiated number of copies of a title based on theatrical box
office performance and to pay a pre-negotiated percentage of the rental
revenues generated from those titles. As revenue sharing programs are
implemented, we intend to reduce advertising directed to retailers and focus
our marketing to consumers in order to increase rental transactions. Although
no assurance can be given, in part because of the recent introduction of these
arrangements in the industry, we believe that revenue sharing arrangements have
the potential to increase our revenues from the home video rental market,
although these revenues may be received over a longer period of time, by
allowing us to participate in increased revenues from successful titles.

Sell-Through

After rental exploitation of titles takes place, we re-price and promote
titles directly for sale. New sell- through titles are marketed and distributed
along with our library utilizing our retail direct capabilities. See "Business
- -- Library -- Improved Home Entertainment Distribution."

We have recently begun distributing to Internet retailers, including
Amazon.com, Reel.com and BigStar.com, as well as through our own home site,
Artisanent.com. We intend to continue our aggressive push into online sales.

Domestic Pay Television

In July 1997, we entered into an agreement whereby Showtime Networks
licenses all of our theatrical releases for the domestic pay television window.
In December 1998, we extended the agreement with Showtime, granting them rights
to our product released theatrically prior to December 2003, and renegotiated
the economics of the agreement with terms that are more favorable to us than
the July 1997 agreement. Our pay television revenues are guaranteed through a
formula based upon United States performance of theatrical rentals.

Domestic Basic Cable and Free Television

We distribute our feature motion pictures to United States networks and
basic cable networks which include F/X, TNT and USA Network in exchange for a
licensing fee. We also generate revenues by granting syndication licenses on
cash and barter bases through sales agents. Barter syndication allows the
television stations to license our product in exchange for a portion of the
local commercial air time. Through our sales agents, we sell the inventory of
commercial air time to advertisers on a national basis, while the television
stations retain a portion of the commercial air time for local advertisers.

International Distribution

For 1999, we derived 13.6% of all of our revenues from international
distribution. We generally pre-sell our foreign rights to our current motion
pictures on a territory by territory basis through output agreements with third
parties, facilitated by our international sales agent, Summit Entertainment.

We have entered into output agreements for distribution in all media with
various distributors worldwide, including Alliance Atlantis Entertainment in
Canada and the United Kingdom, Highlight Communications in Germany and Austria,
and Laurenfilm in Spain. These agreements require the distributors to pay an
advance as a fixed percentage of the negative cost of an individual film to us
in exchange for the exclusive distribution rights to that film in that
distributor's local territory.

In March 1998, we entered into an agreement with Summit Entertainment,
which became the exclusive sales agent for our theatrical product for a five-
year period and receives an agency fee for its services. Pursuant to this
agreement, Summit Entertainment assists in the negotiation of foreign output
agreements for our product with sub-distributors, represents us at film
festivals and oversees our foreign sales, marketing and collection activities.
Sub-distributors pay us an advance and then recoup the advance and fees and
expenses from gross receipts. We pay Summit Entertainment a commission on all
cash collected from foreign territories, excluding Canada. Our relationship
with Summit Entertainment has historically reduced our financial exposure by
preselling 67% of our greenlighted budget prior to release. We also acquired a
minority equity interest in Summit Entertainment, as well as the option, which
expires in April 2003, to purchase the entire remaining interest.

Competition

Motion picture production and distribution are highly competitive
businesses. We compete with the major studios, large diversified entertainment
companies, independent motion picture and television production and
distribution companies, companies in other industries which create alternative
forms of leisure activities and other companies. Our principal competitors are
companies that are part of large diversified corporate groups with a variety of
operations, including studios, television networks and cable channels and
distribution divisions. These competitors include Universal Pictures, Warner
Brothers which includes New Line Cinema and Castle Rock Entertainment,
Twentieth Century Fox, Sony Pictures Entertainment which includes Columbia
Pictures and TriStar Pictures, Paramount Pictures, The Walt Disney Company
which includes Buena Vista, Touchstone and Miramax and MGM which includes Metro
Goldwyn Mayer Pictures, United Artist Pictures, Orion Pictures and Goldwyn
Entertainment Companies. We also compete with independent distribution
companies, including Destination Films Distribution Co., Inc., Lions Gate Films
Production and Trimark Pictures, and independent producers including New
Regency Productions, Spyglass Entertainment Group and Mutual Film Company.

All of our products, including titles in our existing library and our new
theatrical releases, compete for viewers and public interest with all other
filmed entertainment product in the marketplace. Whether distributing our
products to the theatrical or home video market, we compete for advertising
space and time. In particular, we face competition in our home entertainment
distribution business for:

. shelf space for our product at retail and video rental stores; and

. the acquisition of existing libraries and selected titles.

We face competition in our theatrical production and distribution
business for:

. the acquisition and exhibition of artistic properties, including
scripts, other literary material and independently produced films;

. hiring writers, directors and other key talents and technical
personnel; and

. exhibition outlets, including movie theaters, broadcast television
networks and cable television networks.

Our larger, more diversified competitors often have stronger business
relationships within the entertainment industry and significantly greater
financial resources than our company. These companies have both the means of
distributing their products and stable sources of earnings that offset
fluctuations in the financial performance of their motion picture production
operations. In addition, they may be more successful in library or script
acquisition. The number of films or programs released or distributed by these
or any of our other competitors in any given period may create an oversupply of
product that may result in the reduction of our revenues in the various markets
in which we compete.

In recent years, independent motion picture production companies, like
our company, have played an increasingly important role in the production of
motion pictures. Independent motion picture production companies typically do
not own production studios and typically produce fewer motion pictures at
substantially lower average production costs than major studios. We believe
that the diversity, quality and extensive size of our library provide us with
substantial competitive advantages over other independent entertainment
companies that do not receive significant cash flows from libraries. According
to Paul Kagan Associates, over the past ten years the trend on the part of the
major studios toward wide release blockbusters has led to a decline in
profitability, while the efficiency and quality of smaller companies, like our
company, has been on the rise. We believe this disparity is largely a result of
extensive distribution systems that the major studios are required to maintain,
which contributes to high cost structures.

Seasonality

Our revenues derived from our newly released motion pictures are impacted
substantially by the timing of our releases. Domestic theatrical release dates
are determined by several factors, including production schedules, timing of
vacation and holiday periods and competition in the marketplace. Historically,
we have experienced our best operating results in the third and fourth quarters
of each year. Home video retail purchases are generally highest during the
third and fourth quarters as a result of the holiday season. In addition, our
net sales and results of operations depend on the commercial success of the
video library product and motion pictures we distribute, none of which can be
predicted with certainty. Accordingly, our revenues and results of operations
may fluctuate significantly from period to period, and the results of any one
period may not be indicative of the results for any future periods.

Employees

As of December 31, 1999, we had approximately 220 full-time employees and
five temporary employees. Approximately 36 of our employees are currently
covered by employment contracts. None of our employees are covered by
collective bargaining agreements, and we believe that our employee relations
are good.

Properties

We currently have facilities in Santa Monica, California, New York, New
York and Dallas, Texas. Our executive offices are located at 2700 Colorado
Avenue in Santa Monica, California. Most of our employees are based out of the
Santa Monica, California office, which also houses our screening room. Our New
York offices are at 157 Chambers Street in the Tribeca district of Manhattan.
The leases on both of these facilities expire in 2008. Upon bringing
distribution in-house, we entered into a lease for our offices in Dallas, Texas
for the purpose of theatrical distribution. The lease on this office expires in
2003. We also lease studio facilities and stages from unaffiliated parties on
an as-needed basis in connection with the production of specific motion picture
projects.

We believe that our current facilities are adequate to conduct our
business operations for the foreseeable future.

Regulation

In 1994, the United States was unable to reach agreement with its major
international trading partners to include audiovisual works, which includes
television programs and motion pictures, under the terms of the General
Agreement on Trade and Tariffs Treaty. The failure to include audiovisual works
under the treaty allows many countries, including members of the European
Union, to continue enforcing quotas that restrict the amount of United States
produced television programming which may be aired on television in those
countries. The European Union Council of Ministers has adopted a directive
requiring all member states of the European Union to enact laws specifying that
broadcasters must reserve a majority of their transmission time, exclusive of
news, sports, game shows and advertising, for European works. The directive
does not itself constitute law, but must be implemented by appropriate
legislation in each member country. In addition, France requires that original
French programming constitute a required portion of all programming aired on
French television. These quotas generally apply only to television programming
and not to theatrical exhibition of motion pictures, but quotas on the
theatrical exhibition of motion pictures could also be enacted in the future.
There can be no assurance that additional or more restrictive theatrical or
television quotas will not be enacted or that countries with existing quotas
will not more strictly enforce those quotas. Additional or more restrictive
quotas or more stringent enforcement of existing quotas could materially and
adversely affect our business by limiting our ability to exploit fully our
motion pictures internationally and, consequently, to finance our motion
pictures.

Distribution rights to motion pictures are granted legal protection under
the copyright laws of the United States and most foreign countries, which laws
provide substantial civil and criminal sanctions for unauthorized duplication
and exhibition of motion pictures. We seek to take appropriate and reasonable
measures to secure, protect and maintain or obtain agreements to secure,
protect and maintain copyright protection for all of our motion pictures and
television programming under the laws of applicable jurisdictions. 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 Motion
Picture Association of America, 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 some
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 take steps to 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.
If enacted, these actions could impact the amount of revenues that we realize
from the international exploitation of our motion pictures, depending upon the
countries subject to that action and the duration of that action. If not
enacted or if other measures are not taken, the motion picture industry,
including that in the United States, may continue to lose an indeterminate
amount of revenues as a result of motion picture piracy.

The Code and Ratings Administration of the Motion Picture Association of
America assigns ratings indicating age-group suitability for theatrical
distribution of motion pictures. We have followed and will continue to follow
the practice of submitting our pictures for these ratings. As a substantial
number of our films are rated "R," under rules enforced by theatrical
exhibitors, children under seventeen years of age may attend the applicable
motion picture only if accompanied by an adult.

We are subject to the provisions of the so-called "trade practice laws"
in effect in 25 states relating to theatrical distribution of motion pictures.
These laws substantially restrict the licensing of motion pictures unless
theater owners are first invited to attend a screening of motion pictures and,
in some instances, also prohibit payment of advances and guarantees to motion
picture distributors by exhibitors. Further, pursuant to various consent
judgments, some motion picture companies are subject to specific restrictions
on their trade practices in the United States, including a requirement to offer
motion pictures for exhibition to theaters on a theater-by-theater basis and a
prohibition against the ownership of theaters.

United States television stations and networks as well as foreign
governments impose content restrictions on motion pictures which may restrict
in whole or in part exhibition on television or in a particular territory.
There can be no assurance that these restrictions will not limit or alter our
ability to exhibit some motion pictures in these media or markets.

Legal Proceedings

We are the named defendant in the matter entitled Barber v. Artisan
Entertainment Inc., et al., which was filed in United States District Court,
Central District of California in June 1999. The plaintiff has claimed over $10
million in monetary damages arising from, among other things, unfair
competition, breach of implied contract and fraud based on plaintiff's claimed
role as executive producer in connection with The Blair Witch Project. Pursuant
to the acquisition agreement for The Blair Witch Project, we are indemnified
for any losses arising from this claim, and our insurer has also agreed to
defend and indemnify us under a reservation of its rights. In connection with
the litigation, on March 13, 2000, the plaintiff filed for declaratory relief
asserting that he is entitled to exploit an alleged treatment upon which the
motion picture was allegedly based.

On April 9, 1998, we filed an application at the U.S. Patent and
Trademark Office to register "Artisan Entertainment" as a trademark and service
mark. On June 15, 1998, Ernest Schultz submitted an application to register
"Artisan Entertainment" in connection with an alleged video, motion picture and
television business located in New York State. Schultz claims that the date he
first used the mark "Artisan Entertainment" was February 19, 1997 in connection
with all the goods and services claimed in the application. On May 10, 1999,
Schultz filed a notice of opposition to our application for "Artisan
Entertainment" and commenced an opposition proceeding. Our final reply brief to
the opposition is required to be filed with the Trademark Trial and Appeal
Board by December 15, 2000. In the event that we do not prevail on the merits
or reach an amicable settlement, we may be restricted from using our current
trade name in the United States.

From time to time, we may be involved in litigation that arises in the
normal course of our business operations. As of the date of this prospectus,
other than as stated above, we are not a party to any other litigation that we
believe could reasonably be expected to have a material adverse affect on our
business, financial condition or results of operations.

MANAGEMENT

Directors and Executive Officers

The following table sets forth the name and position of each of the
persons who will serve as our directors and executive officers upon the
completion of this offering.

Name Age Position
------------------------ --- ----------------------------------------

Mark A. Curcio 40 Co-Chief Executive Officer and Director

Amir J. Malin 45 Co-Chief Executive Officer and Director

William H. Block 45 President

Ken Schapiro 35 Executive Vice President and Chief
Operating Officer

James E. Keegan 42 Executive Vice President and Chief
Financial Officer

Robert L. Denton 40 Senior Vice President, Finance and Chief
Accounting Officer

Nicolas A. van Dyk 31 Senior Vice President of Corporate
Development and Strategic Planning

Steve Beeks 43 President, Artisan Home Entertainment

Glenn Ross 52 President, Family Home Entertainment

Jeffrey Fink 42 President, Sales and Marketing, Artisan
Home Entertainment

Geoffrey S. Rehnert 42 Director, Chairman

Alan D. Gordon 43 Director, Vice Chairman

Marc B. Wolpow 41 Director

William S. Kirsch, P.C. 43 Director

Jeremy Hogue 27 Director

Mitchell R. Julis 44 Director

John H. Josephson 38 Director

Kevin Magid 36 Director

Joseph O'Donnell 55 Director

Mark A. Curcio was appointed Chief Executive Officer and director in July
1997 and was appointed Co-Chief Executive Officer in April 2000. From 1995 to
July 1997, he was Vice President of Bain & Company, a management consulting
firm.

Amir J. Malin was appointed Co-Chief Executive Officer in April 2000, and
has served as President since joining our company in July 1997. Mr. Malin will
be appointed a director prior to the completion of this offering. From 1992 to
1997, Mr. Malin was President of October Films. From 1994 to 1997, he served as
President and Chief Executive Officer of Millennium Pictures.

William H. Block was appointed President in July 1997. From 1992 to
1997, Mr. Block served as head of West Coast operations for International
Creative Management.

Ken Schapiro was appointed Chief Operating Officer in April 2000, and has
served as Executive Vice President in similar capacities since joining our
company in February 1998. From 1995 to 1998, he was the Executive Vice
President of Morgan Creek Productions and Morgan Creek International.

James E. Keegan joined our company as Executive Vice President and Chief
Financial Officer in 1998. Prior to joining Artisan, he was Chief Financial
Officer of Trimark Pictures, a position he held from 1989 to 1998.

Robert L. Denton has served as Senior Vice President of Finance and Chief
Accounting Officer since March 1996. He served as Vice President and Chief
Accounting Officer from July 1990 to March 1996.

Nicolas A. van Dyk has served as Senior Vice President of Corporate
Development and Strategic Planning of our company since April 1998. He joined
our company as Vice President of Corporate Development in July 1997. From 1995
to July 1997, Mr. van Dyk was an executive in the corporate strategic planning
department of The Walt Disney Company.

Steve Beeks joined our company as President of Artisan Home Entertainment
in January 1998. Prior to joining our company, Mr. Beeks started Hallmark Home
Entertainment as an independent home video distributor in 1994.

Glenn Ross joined our company as President of Family Home Entertainment
and Executive Vice President of Artisan Home Entertainment in January 1998.
From 1995 to 1997, he was Senior Vice President of Hallmark Home Entertainment.

Jeffrey Fink became President of Sales and Marketing for Artisan Home
Entertainment in February 1998, and has served as Executive Vice President and
Vice President in similar capacities since 1994.

Geoffrey S. Rehnert has been a director since July 1997 and Chairman
since January 2000. Mr. Rehnert is Co-Chief Executive Officer of the Audax
Group, which he co-founded in July 1999. Previously, he was a Managing Director
at Bain Capital, Inc., a leading private equity firm which he helped to start
in 1984, and where he is currently a Special Limited Partner. While at Bain
Capital, Mr. Rehnert helped to initiate the firm's leveraged acquisition
investment business, served on over 25 boards of Bain Capital's portfolio
companies, and was involved in most aspects of the firm's growth and evolution.
Mr. Rehnert is also a director of Kollmorgen Corporation.

Alan D. Gordon has been a director since July 1997 and Vice Chairman
since January 2000. Mr. Gordon is President of Richland, Gordon & Co., founded
in 1947, a nationally prominent private equity investment firm specializing in
the acquisition, recapitalization or leveraged buyout of successful middle
market companies. Mr. Gordon is also Chairman and Chief Executive Officer of
AmeriSports Companies, L.L.C., a holding company dedicated to acquiring
professional sports franchises and venues, as well as related leisuretime and
recreational companies. AmeriSports presently owns the Triple A Nashville
Sounds Baseball Club based in Nashville, Tennessee.

Marc B. Wolpow was appointed a director in January 2000. Mr. Wolpow is
Co-Chief Executive Officer of the Audax Group, which he co-founded in July
1999. Previously, he was a Managing Director of Bain Capital, Inc., where he is
currently a Special Limited Partner. From 1990 through 1997, Mr. Wolpow was
engaged primarily in Bain Capital's private equity investment business. In late
1997, Mr. Wolpow established Sankaty Advisors, Inc., an affiliate of Bain
Capital that invests in bank debt, high yield bonds, mezzanine loans and
special situations.

William S. Kirsch, P.C. was appointed a director in January 2000. He has
been a partner of Kirkland & Ellis since 1987, and has provided legal services
to our company and to the Audax Group. Mr. Kirsch is a member of Kirkland &
Ellis' Management Committee and Finance Committee.

Jeremy Hogue was appointed a director in January 2000. Mr. Hogue joined
the Audax Group in 1999. In 1999, Mr. Hogue worked as an associate at Lehman
Brothers. In 1998, he worked at the law firm of McDermott, Will & Emery.

Mitchell R. Julis has been a director since July 1997. He is a founding
partner and has been a managing director of Canyon Capital Advisors LLC since
1990.

John H. Josephson will be appointed a director prior to the completion of
this offering. Mr. Josephson has been a vice president and director of Allen &
Company Incorporated since 1992. Mr. Josephson, on behalf of Allen & Company
Incorporated, has provided consulting services to our company since 1998.
Mr. Josephson is also a director of SESAC Holdings, Inc., Norwood Promotional
Products, Inc. and Medical Resources, Inc. He served as a director of October
Films, Inc. following its initial capitalization in 1992 through 1998.

Kevin Magid will be appointed a director prior to the completion of this
offering. Mr. Magid joined the Audax Group as a Managing Director in January
2000. Since 1995, he worked as a Managing Director in the High Yield Group of
CIBC World Markets Corp.

Joseph O'Donnell will be appointed a director prior to the completion of
this offering. Mr. O'Donnell founded Boston Concessions Group, Inc. He also
owns Allied Advertising Agency. He serves as a director of Applied Extrusion
Technologies, Inc., Biddeford Textile Mills, Rochester Shoe Tree Company and
Suffolk Downs Raceway.

Our amended and restated articles of incorporation require us to have at
least seven but not more than eleven directors. On the date of this prospectus,
we have seven directors. Prior to the completion of this offering, we will
appoint four additional directors for a total of eleven directors. The four new
directors, as listed above, will be Messrs. Malin, Josephson, Magid and
O'Donnell. All directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or
renewal, and at present, all members of the board of directors were elected
pursuant to the terms of our stockholders agreement. See "Specified
Relationships and Related Transactions". There are no family relationships
between any of our directors or executive officers. Our executive officers are
elected by and serve at the discretion of the board of directors.

Committees of the Boards of Directors

We will be forming an executive committee of our board of directors, upon
the closing of the offering. The executive committee will make recommendations
to our board of directors on various matters and its recommendations will be
subject to the approval of our board of directors. The members of the executive
committee will be Messrs. Rehnert, Wolpow, Gordon, Curcio and Malin. Mr.
Rehnert will serve as chairman of the executive committee. The executive
committee will be a subcommittee of our board of directors and its members will
serve at the direction of and are designated by our board of directors.

We will be forming an audit committee of our board of directors upon the
closing of the offering. The audit committee will review, act on and report to
our board of directors with respect to various auditing and accounting matters,
including the recommendation of our independent auditors, the scope the annual
audits, fees to be paid to the independent auditors and our accounting
practices. The members of the audit committee will be Messrs. Kirsch and
Josephson and an additional member to be designated by Audax Entertainment.
Mr. Kirsch will serve as the audit committee chairman.

We will be forming a compensation committee of our board of directors
upon the closing of the offering. The compensation committee will determine the
salaries, benefits and stock options for our employees, consultants and
directors. The members of the compensation committee will be Messrs. Rehnert,
Wolpow and Gordon. Mr. Gordon will serve as the compensation committee
chairman.

Compensation of Directors

After the closing of the offering, employees of our company serving on
the board of directors will not be entitled to receive any compensation for
serving on the board. Following this offering, directors who are not employees
of our company or who are not otherwise affiliated with us or our principal
stockholders may receive compensation that is commensurate with arrangements
offered to directors of companies that are similar to our company.
Compensation arrangements for independent directors established by our board
could be in the form of cash payments and/or option grants. All directors will
be reimbursed for their out-of-pocket expenses incurred in connection with
these services.

Compensation Committee Interlocks and Insider Participation

We will be forming a compensation committee of our board of directors
upon the closing of the offering. The compensation arrangements for each of
our executive officers was established pursuant to the terms of the respective
employment agreements between us and each executive officer. The terms of the
employment agreements with Messrs. Curcio, Malin and Block were established
between representatives of the private investors who acquired us in July 1997.
The terms of the other employment agreements were negotiated with our company.
Upon closing of the offering, any changes in the compensation arrangements of
our executive officers will be determined by the compensation committee.

Executive Employment

We have entered into employment agreements with each of Messrs. Curcio,
Malin and Block. These agreements became effective in July 1997 and have terms
which end December 31, 2002. Under their respective employment agreements,
Messrs. Curcio, Malin and Block will receive:

. an annual base salary of at least the following, increasing for
inflation according to the terms of the agreements:

Executive Annual Base Salary
--------- ------------------

Mark A. Curcio........................................ $475,000
Amir J. Malin......................................... $425,000
William H. Block...................................... $425,000

. an annual bonus of up to 50% of the executive's base salary,
depending upon our achievement of operating targets as established
each year by the three executives acting together as an operating
committee and approved by our board of directors; and

. customary fringe benefits.

At the time of execution of his contract, Mr. Malin received a special
signing bonus of $400,000 as an advance against net profits we expected to
receive relating to films appearing on television.

Messrs. Curcio, Malin and Block have options that entitle each of them
to 873,637 shares of common stock at weighted average exercise prices of $2.88
per share. These options are exercisable in five percent increments every
quarter for five years beginning from July 10, 1997. Mr. Curcio also has
additional options that entitle him to 240,288 shares of common stock at an
exercise price of $0.001 per share.

We also entered into similar employment agreements with Messrs. Steve
Beeks and Glenn Ross. The agreements for Messrs. Beeks and Ross provide for
employment through the end of the year 2000, plus a two-year extension for
each executive at our option.

Under their respective employment agreements, Messrs. Beeks and Ross
have and will receive:

. an annual base salary of $250,000 in 1998, $275,000 in 1999, $302,500
in 2000, and if the agreements are extended two additional years,
$347,875 in 2001 and $382,662 in 2002.

. an annual bonus of up to 50% of the executive's base salary. The
first 60% of this bonus is based on a sliding scale between 15% to
30% of base salary depending on what percent of the company's
targeted EBIT is achieved as, established in advance by the board of
directors in good faith. Twenty percent of the bonus is based upon
achievement of a quantitative parameter decided upon annually by the
executive and the operating committee. Twenty percent is within the
sole discretion of the operating committee based upon the executive's
qualitative "teamplayer" capacity, management skills and other
criteria applied uniformly to other executives;

. signing bonuses of $200,000;

. profit sharing plans in their contracts to receive up to twenty
percent of our profits from our relationship with Hallmark, up to
$300,000 per year; and

. customary fringe benefits.

Additionally, we have granted these executives stock and stock options.
Messrs. Beeks and Ross were each granted the right to purchase $250,000 worth
of common stock at a price of $3.39 per share. In addition, each executive is
eligible for stock options which entitles him to purchase 101,339 shares of
common stock at a weighted average exercise price of $2.76 per share. These
options vest at a rate of 20% per year over a five-year period, and if the
agreements are not extended beyond the year 2000 as provided for, any unvested
options will vest immediately at the end of the term of the agreements.

Under each of the employment agreements with Messrs. Curcio, Malin,
Block, Beeks and Ross, if we terminate the executive's employment without cause
or the executive terminates for good reason, the executive will be entitled to
receive his then current base salary until the earlier of the remainder of the
current term of employment or until he commences other employment. The
executive has no duty to seek other employment, and if his new employer pays a
lower base salary, we must pay him the difference for the remainder of the
current term of our agreement. If the executive is terminated with cause, we
have no further obligation to him.

Further, under each of these employment agreements with Messrs. Curcio,
Malin, Block, Beeks and Ross, each executive has agreed to:

. not compete with us during his employment, and in the case of Messrs.
Curcio, Malin and Block, not to compete with us for two years after
the end of his employment with us;

. assign to us all his rights to intellectual property he creates while
employed by us;

. not disclose confidential information learned while employed by us;
and

. not solicit customers, vendors or employees from us after leaving our
employment and, in the case of Messrs. Curcio, Malin and Block, not
solicit customers, vendors or employees from us for two years after
leaving our employ.

We have entered into numerous other employment agreements with other
members of our management.

Executive Compensation

The following table sets forth the compensation for the fiscal year ended
December 31, 1999, to the Chief Executive Officer and the other four most
highly compensated executive officers serving as executive officers at December
31, 1999. For ease of reference, we refer to these executive officers
throughout this section collectively as our "named executive officers."

Summary Compensation Table for the Year Ended December 31, 1999

Fiscal Bonus Other Annual
Name and Position Year Salary ($) ($)(1) Compensation ($)(2)
- ----------------- ------ ---------- --------- -------------------

Mark A. Curcio................ 1999 523,688 1,000,000 --
Chief Executive Officer
Amir J. Malin................. 1999 468,563 1,000,000 --
President
William H. Block.............. 1999 468,563 500,000 --
President
Steve Beeks................... 1999 275,000 137,500 300,000
President, Artisan Home
Entertainment
Glenn Ross.................... 1999 275,000 137,500 300,000
President, Family Home
Entertainment

- --------
(1) Bonuses were paid to each named executive officer in January 2000 pursuant
to the terms of each officer's employment agreement, and additional
performance bonuses were also paid in January 2000 to Messrs. Curcio,
Malin and Block for their contributions to our company in 1999.
(2) Other annual compensation for Messrs. Beeks and Ross consists of 20% of
our profits from our relationship with Hallmark, up to $300,000 per year,
pursuant to their respective employment agreements.

Option Grants in Last Fiscal Year

We did not grant any employee stock options to any of the named executive
officers for the fiscal year ended December 31, 1999.

Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

The following table sets forth information for the named executive
officers concerning options outstanding at the end of the last fiscal year. No
named executive officer exercised any options during the last fiscal year.

Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-The-Money Options
YearEnd (#) at Fiscal Year End ($)
--------------------------- ---------------------------
Name Unexerciseable Exerciseable Unexerciseable Exerciseable
---- -------------- ------------ -------------- ------------

Mark A. Curcio...... 436,819 677,107 $4,367,055 $7,461,119
Amir J. Malin....... 436,819 436,819 4,367,055 4,367,055
William H. Block.... 436,819 436,819 4,367,055 4,367,055
Steve Beeks......... 60,804 40,535 615,057 410,025
Glenn Ross.......... 60,804 40,535 615,057 410,025

Limitation on the Deductibility of Compensation under Section 162(m)

Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a publicly held corporation for compensation in excess of $1
million paid in any fiscal year to the named executive officers. Section 162(m)
further provides, however, that compensation will not be subject to the
deduction limit if:

. the compensation is paid for the attainment of one or more
performance goals;

. the performance goals are determined by a compensation committee of
the board of directors comprised solely of two or more independent
directors;

. the material terms of compensation and performance goals are
disclosed to the shareholders and approved by a majority of the vote
in a separate shareholder vote before the payment of compensation;
and

. before the payment of compensation, the compensation committee
certifies that the performance goals and other material terms of
compensation have been satisfied.

Any compensation that meets the foregoing requirements is referred to as
"performance-based compensation."

In the case of a privately held corporation that undergoes an initial
public offering, the Treasury Regulations under Section 162(m) provide that the
deduction limit does not apply to any compensation paid during a specified
reliance period, pursuant to a plan or agreement that existed while the
corporation was privately held, if the prospectus accompanying the initial
public offering discloses these plans and agreements in accordance with the
applicable securities laws. The reliance period terminates on the earliest to
occur of:

. the expiration of the plan or agreement;

. the material modification of the plan or agreement;

. the issuance of all stock and other compensation allocated under the
plan; and

. the first meeting of the shareholders at which directors are to be
elected that occurs after the close of the third calendar year
following the calendar year in which the initial public offering
occurs.

In the case of stock options, the reliance period applies to the date of
grant and not exercise.

As this prospectus has disclosed, in accordance with the applicable
securities laws, the terms of any compensation plan or agreement applicable to
its executive officers and in effect prior to the offering, we believe any
compensation paid or options granted pursuant to these plans or agreements
during the reliance period will not be subject to the deduction limit of
Section 162(m). However, compensation paid and options granted after the
reliance period to a named executive will be subject to the limitations of
Section 162(m) unless it qualifies as performance-based compensation. In
general, any salary paid after the reliance period, including salary paid
pursuant to an employment agreement, will not qualify as performance-based
compensation and will be subject to Section 162(m). With respect to the bonus
interests, we believe we have structured them to qualify as performance-based
compensation. Therefore, we believe that any payments after the reliance period
pursuant to the bonus interests should not be subject to Section 162(m),
although there is no assurance that this conclusion may not be challenged by
the taxing authorities. Similarly, we intend to structure any options granted
under the 2000 Stock Option Plan to named executives after the reliance period
to qualify as performance-based.

We have the authority to award non-deductible compensation as we deem
appropriate. In addition, because of ambiguities and uncertainties as to the
application and interpretation of Section 162(m) and the Treasury Regulations
issued thereunder, we can give no assurance that compensation we intend to
satisfy the requirements for deductibility under Section 162(m) will so
qualify.

Employee Benefit Plans

1997 Stock Option Plan

Our board of directors adopted a stock option plan in July 1997 in
connection with our restructuring and acquisition by private investors. The
plan provided all employees designated by our board of directors the ability to
purchase shares of our common stock. The plan is administered by our board of
directors. The board may impose as a condition of exercise of the options, that
if the shares have not been registered under the Securities Act of 1933, as
amended, any restrictions on transfer that the board sees appropriate.

As of the date of this prospectus, 4,140,046 options for common stock had
been issued under this plan. Because our board of directors intends to adopt a
new stock option plan prior to the consummation of this offering, no further
options will be granted under this plan.

2000 Stock Option Plan

We intend to adopt a new stock option plan prior to the consummation of
this offering. The plan will provide all employees designated by our board of
directors the ability to purchase shares of our common stock. The plan will be
administered by our board of directors on the terms specified by our board of
directors and approved by our stockholders prior to the closing of this
offering.

SPECIFIED RELATIONSHIPS AND RELATED TRANSACTIONS

Amended and Restated Stockholders Agreement

Prior to the closing of this offering, our existing stockholders intend
to enter into an amended and restated stockholders agreement, modifying the
original stockholders agreement which bound all of our stockholders and was
made effective on July 9, 1997. The amended and restated stockholders agreement
will provide that it can only be amended, modified, waived or terminated by
written agreement signed by Audax Entertainment and that CanPartners
Investments IV, LLC must also consent to any amendment, modification, waiver or
termination in writing if its rights or obligations will be adversely affected.
The amended and restated stockholders agreement also will provide for, among
other things, the following provisions:

Voting Agreement

All of our existing stockholders have agreed to vote their shares for
nine directors as designated by Audax Entertainment, one director designated by
Alan D. Gordon, and one director designated by CanPartners. Subject to the
transfer restrictions described below, the obligation of each existing
stockholder to vote its shares for any particular director designee terminates
when the stockholder that has the right to appoint the director designee,
together with its affiliates, no longer owns at least 10% of our outstanding
capital stock. Removal of a director designated by Audax Entertainment, Mr.
Gordon or CanPartners shall only be with consent of the stockholder who had the
right to designate the director. All of our existing stockholders have also
agreed to vote their shares with Audax Entertainment on all other matters
presented to stockholders by granting Audax Entertainment a voting proxy for
all of the stockholders' shares. Subject to the transfer restrictions described
below, the obligation of the existing stockholders to provide Audax
Entertainment with a proxy to vote their shares terminates when Audax
Entertainment and its affiliates no longer own at least 10% of our outstanding
capital stock.

Transfer Restrictions

Throughout the term of the stockholders agreement, the stockholders may
only transfer their shares of common stock to permitted transferees. When a
stockholder transfers its shares of stock, its permitted transferees will be
entitled to the rights and subject to the obligations under the stockholders
agreement. In particular, if Audax Entertainment transfers its shares to a
permitted transferee, the permitted transferee will receive the benefit of
Audax Entertainment's rights and be subject to Audax Entertainment's
obligations under the stockholders agreement. Any person that is not a
permitted transferee that acquires common stock will not be entitled to receive
any of the benefits, rights or obligations under the agreement. Under the
stockholders agreement, a transfer includes any sale, pledge, assignment,
encumbrance or other transfer or disposition of any shares of our common stock
to any other person, whether directly, indirectly, voluntarily, involuntarily,
by operation of law, or otherwise. A change in majority control of Audax
Entertainment will be deemed a transfer for this purpose. Permitted transferees
include those persons or entities who directly or indirectly beneficially own
shares of our common stock immediately prior to the offering, and their
respective controlled affiliates, heirs, descendants and related trusts;
provided, however, that Audax Entertainment will be considered a permitted
transferee only so long as Messrs. Rehnert and Wolpow together beneficially own
a direct or indirect majority controlling interest in Audax Entertainment. In
addition, to the extent any commercial lenders (including those immediately
prior to this offering) have made a bona fide loan secured by Artisan common
stock, the foreclosure and sale of the common stock shall be a transfer to a
permitted transferee.

Lock-up Period

After a registration for a public offering, including this offering, all
stockholders who are bound by the stockholders agreement are prevented from
selling any of their shares of stock for the shorter of either 180 days after
the registration, or for the shortest period of time applicable to any
affiliate, as defined under the Securities Act of 1933, who is deemed a selling
stockholder pursuant to the registration statement. This is independent of any
lock-up period an underwriter may require.

Registration Rights

Demand Registration

In some circumstances, any stockholder or group of stockholders who owns
at least 25% of the shares that were held by Mr. Gordon or Audax Entertainment
on the date of the amended and restated stockholders agreement, may demand that
their stock be registered. However, we only have to honor that demand in
specific circumstances, including if we have not already effected five or more
of any form of registration or three or more of any form of registration other
than those on Form S-3. Any stockholder or group of stockholders who owns at
least 25% of the shares originally owned by CanPartners may demand that their
stock be registered, but we only have to honor that demand if we have not
previously effected three or more registrations. These demand registration
rights will expire five years after this offering.

Piggyback Registration

In some circumstances, the stockholders may be entitled to include all or
part of their shares in a registration we initiated. However, the stockholders
have no right to have their shares registered in connection with an employee
benefit plan or an acquisition or merger.

Management Agreement

In July 1997, we entered into a management agreement with Richland,
Gordon and Bain Capital. In connection with Audax Entertainment's acquisition
of Bain Capital's interest in Artisan, Bain Capital's rights and obligations
were assigned to Audax Entertainment on August 19, 1999. Under this agreement,
Audax Entertainment and Richland, Gordon advise us on agreements, financing and
other related matters, and provide us with financial, managerial, marketing and
operating advice in our day-to-day operations.

Under this agreement, we pay Audax Entertainment and Richland, Gordon an
annual aggregate amount, not to exceed $1.2 million each year. Of this
aggregate amount, two-thirds is paid to Audax Entertainment and one-third is
paid to Richland, Gordon. Furthermore, if Audax Entertainment assists in
providing us with senior financing for an acquisition or divestiture by us, it
is entitled to 1% of the gross purchase price as payment for its services. From
August 19, 1999, when Audax Entertainment acquired its interest in Artisan,
through December 31, 1999, we paid Audax Entertainment $166,667 under the
management agreement. For the year ended December 31, 1999, we paid Richland,
Gordon $333,333 under this agreement. The management agreement was to continue
until July 9, 2007. However, Audax Entertainment and Richland, Gordon have
agreed to terminate the agreement upon the closing of this offering in exchange
for a one-time aggregate payment of $8.0 million in cash.

Loans to Executive Officers

We have made loans to Messrs. Curcio, Malin and Block in connection with
our granting of stock pursuant to their employment agreements for principal
amounts of $600,000, $200,000 and $500,000, respectively. The loans bear
interest at a rate of 6% per annum and are secured by the stock issuable upon
the exercise of options. The loans mature on July 10, 2001, but may accelerate
if the executive attempts to transfer the stock collateral, enters into
bankruptcy, terminates his employment or is terminated by us for cause.
Messrs. Curcio, Malin and Block have each paid the accrued interest on the
loans annually, and none of them have made any prepayments of the principal
amounts. Therefore, the amounts outstanding as of December 31, 1999 were
$600,000, $200,000 and $500,000, respectively. The following table sets forth
the number of shares of stock each executive is using as security:

Name Common stock
---- ------------

Mark A. Curcio................................................ 702,776
Amir J. Malin................................................. 389,198
William H. Block.............................................. 887,903

Each executive has transferred the stock collateral to us to hold until
repayment of the loan. While each executive retains the right to vote his
shares as long as he has not defaulted on his loan, we retain any distributions
as additional collateral on the loans. None of the executives can transfer or
pledge or encumber any interest in this collateral, other than as collateral
for the loans, without our prior written consent.

If an executive defaults on his loan, we will have the right to vote the
stock ourselves after giving notice to the executive sue to collect the stock,
to sell the stock and/or to change it into our name. If we were to sell some of
the stock collateral upon a default by an executive, we would have to give that
executive five days notice before we sold it.

We have also made a loan to Mr. van Dyk in connection with the execution
of an addendum to his employment agreement on March 27, 2000. The loan, which
is for $125,000, is secured by the 23,663 shares of our common stock and
options exercisable for 67,559 shares of our common stock which Mr. van Dyk
holds.

Transactions with CanPartners Investments IV, LLC

After giving effect to the offering and assuming no exercise of the
underwriters' over-allotment option, CanPartners Investments IV, LLC will be a
beneficial owner of 12.01% of our common stock and will have appointed one
director, Mitchell R. Julis, to our board. Mr. Julis is a partner and managing
director of CanPartners. In July 1997, we entered into a note and stock
purchase agreement with CanPartners. Under this agreement, we issued senior
subordinated secured notes and 2,686,779 shares of our common stock to
CanPartners. We believe this transaction was made available to us on terms as
favorable to us as we would have obtained from unaffiliated third parties. In
addition, we agreed to make cash payments of approximately 20% of the annual
payments we make to Audax Entertainment and to Richland, Gordon under a
management agreement. For the year ended December 31, 1999, we paid CanPartners
an aggregate amount of $2,730,952 under the note and stock purchase agreement.

In October 1999, CanPartners acquired 12.5% of the outstanding equity
interests in Artisan Film Investors Trust, in a private placement of all equity
interests of Artisan Film Investors Trust. In connection with the formation and
private placement offering of Artisan Film Investors Trust, we entered into
agreements with Artisan Film Investors Trust in which we have agreed to invest
in and have an active distribution and production role in theatrical films
which Artisan Film Investors Trust acquires pursuant to these arrangements.
Artisan Film Investors Trust is a special purpose trust dedicated to the
theatrical film production and distribution financing and other arrangements it
has with our company.

Pursuant to these arrangements, we have agreed to:

. present Artisan Film Investors Trust with the opportunity to acquire
all feature length films that we control that meet detailed criteria,
with a commitment to provide a minimum of eight qualifying feature
length films by October 13, 2002;

. make an investment in, and provide financing for, some of the
production and distribution costs for films which Artisan Film
Investors Trust acquires; and

. be actively involved in the production of all films which Artisan
Film Investors Trust acquires and be the exclusive distributor of
these films.

In exchange for our investment and other involvement in these
arrangements, we receive an exclusive distribution agreement, a distribution
fee and a participation interest in each film Artisan Film Investors Trust
acquires. Through these arrangements with Artisan Film Investors Trust, we will
be provided with an external source of capital willing to share in the risks of
producing and marketing feature films. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." We believe this transaction was made available to us on
terms as favorable to us as we would have obtained from unaffiliated third
parties.

Transactions with Allen & Company

In February 1998, we entered into a consulting agreement with Allen &
Company. John H. Josephson, who will be appointed a director of our company
prior to the completion of this offering, is an owner of Allen & Company. Under
the consulting agreement, Allen & Company agreed to provide financial
consulting services to us in exchange for options for 698,910 shares of our
common stock, vesting at a rate of 20% per annum over five years. In July 1999,
we terminated the consulting agreement pursuant to its terms, and Allen &
Company's options immediately vested, 40% of which are currently exercisable
and the remaining 60% of which become exercisable in equal installments in
February of each of the next three years. We believe this transaction was made
available to us on terms as favorable to us as we would have obtained from
unaffiliated third parties.

In addition, in February 1998 we entered into an agreement with Mr.
Josephson under which we granted him options for 34,945 shares of our common
stock and he agreed to serve on our board of directors.

Other Transactions

William S. Kirsch, P.C., a partner of Kirkland & Ellis, is a member of
our board of directors. Kirkland & Ellis, from time to time, represented and
may continue to represent us, as well as Audax Entertainment, L.P., with
various legal matters. We believe this representation has been made available
to us on terms as favorable to us as we would have obtained from unaffiliated
third parties.

Some partners of Kirkland & Ellis are partners in Randolph Street
Partners, which owns 12,283 shares of our common stock.

PRINCIPAL STOCKHOLDERS

The following table provides information with respect to the beneficial
ownership of our common stock, as of March 15, 2000 and after giving effect to
the reclassification and this offering as if they occurred on May 15, 2000 by:

. each person, or group of affiliated persons, who is known by us to
own beneficially more than 5% of our common stock;
. each of our directors;
. each of our executive officers; and
. all directors and executive officers as a group.

The table includes the number of shares and percentage ownership
represented by the shares determined to be beneficially owned by a person in
accordance with the rules of the Securities and Exchange Commission. The number
of shares beneficially owned by a person includes shares of common stock that
are subject to options held by that person that are currently exercisable or
exercisable within 60 days of March 15, 2000. These shares are deemed
outstanding for the purpose of computing the percentage of outstanding shares
owned by that person. These shares are not deemed outstanding, however, for the
purposes of computing the percentage ownership of any other person. The
beneficial ownership referred to below also includes beneficial ownership by
virtue of the stockholders agreement. See "Specified Relationships and Related
Transactions."

All beneficial owners hold fractional shares of common stock and/or
options for the purchase of fractional shares. The share numbers in the column
entitled "Shares of common stock" and in the footnotes corresponding to such
column have been rounded up to the next whole number of shares for fractional
shares equal to or greater than .45 and have been rounded down to the next
whole number for fractional shares equal less than .45. The column entitled
"Percentage ownership after this offering" assumes no exercise of the
underwriters' over-allotment option.

Except as otherwise noted and subject to community property laws, the
persons or entities in this table have sole voting and investment power with
respect to all the shares of common stock owned by them. Unless otherwise
provided herein, the street address of each named beneficial owner is 2700
Colorado Boulevard, 2nd Floor, Santa Monica, California 90404.

Percentage ownership
Shares of prior to this Percentage ownership
Beneficial Owner common stock offering after this offering
---------------- ------------ -------------------- --------------------

Audax Entertainment,
L.P. (1)............... 16,371,691 100.00% 73.18%
Geoffrey S. Rehnert
(2).................... 16,371,691 100.00% 73.18%
Marc B. Wolpow (3)...... 16,371,691 100.00% 73.18%
Alan D. Gordon (4)...... 3,770,778 23.03% 16.86%
CanPartners Investments
IV, LLC (5)............ 2,686,779 16.41% 12.01%
Mitchell R. Julis (6)... 2,686,779 16.41% 12.01%
Mark A. Curcio (7)...... 1,423,564 8.33% 6.16%
William H. Block (8).... 1,368,404 8.12% 5.99%
Amir J. Malin (9)....... 869,698 5.16% 3.81%
Steve Beeks (10)........ 119,257 * *
Glenn Ross (11)......... 119,257 * *
John H. Josephson (12).. 119,257 * *
Ken Schapiro (13)....... 107,785 * *
Jeff Fink (14).......... 91,224 * *
Robert L. Denton (15)... 71,721 * *
Nicolas van Dyk (16).... 60,821 * *
James Keegan (17)....... 26,346 * *
Joseph O'Donnell (18)... 18,424 * *
William S. Kirsch, P.C.
(19)................... 12,283 * *
Jeremy Hogue (20)....... -- -- --
Kevin Magid (21)........ -- -- --
All directors and
executive officers as a
group (19 persons)..... 16,371,691 100.00% 73.18%

- --------
* Denotes ownership of less than one percent.

Footnotes to table appear on following page.

Footnotes to table from previous page.

(1) Represents 5,878,876 shares owned by Audax Entertainment, L.P. and
10,492,815 shares for which Audax Entertainment has a proxy, under a
stockholders agreement, to vote in connection with any matters presented
to our stockholders. See "Specified Relationships and Related
Transactions--Amended and Restated Stockholders Agreement." Audax
Entertainment, L.P. has pledged the 5,878,876 shares it owns to a
financial institution as security for a loan from that financial
institution, the foreclosure of which would result in ownership of these
shares by that financial institution and the transfer of the voting rights
under the stockholders agreement to that financial institution. The
address of Audax Entertainment, L.P. is 101 Huntington Avenue, Boston, MA
02199.

(2) Represents 5,878,876 shares of common stock owned by Audax Entertainment,
L.P. and 10,492,815 shares for which Audax Entertainment has a proxy to
vote in connection with any matters presented to our stockholders. See
"Specified Relationships and Related Transactions--Amended and Restated
Stockholders Agreement." Audax Entertainment, L.P. has pledged the
5,878,876 shares it owns to a financial institution as security for a loan
from that financial institution, the foreclosure of which would result in
ownership of these shares by that financial institution and the transfer
of the voting rights under the stockholders agreement to that financial
institution. Mr. Rehnert is one of two members of the general partner of
Audax Entertainment. The address of Mr. Rehnert is c/o Audax
Entertainment, L.P., 101 Huntington Avenue, Boston, MA 02199.

(3) Represents 5,878,876 shares of common stock owned by Audax Entertainment,
L.P. and 10,492,815 shares for which Audax Entertainment has a proxy to
vote in connection with any matters presented to our stockholders. See
"Specified Relationships and Related Transactions--Amended and Restated
Stockholders Agreement." Audax Entertainment, L.P. has pledged the
5,878,876 shares it owns to a financial institution as security for a loan
from that financial institution, the foreclosure of which would result in
ownership of these shares by that financial institution and the transfer
of the voting rights under the stockholders agreement to that financial
institution. Mr. Wolpow is one of two members of the general partner of
Audax Entertainment. The address of Mr. Wolpow is c/o Audax Entertainment,
L.P., 101 Huntington Avenue, Boston, MA 02199.

(4) Includes 85,979 shares of common stock beneficially owned by the Gordon
Dynasty Trust, which is a trust that Mr. Gordon established for the
benefit of his children. Mr. Gordon and the Gordon Dynasty Trust have
granted proxies to Audax Entertainment to vote all of their respective
shares in connection with any matters presented to our stockholders. Mr.
Gordon disclaims beneficial ownership of the shares held by the Gordon
Dynasty Trust. The address of Mr. Gordon is c/o Richland, Gordon & Co.,
233 South Wacker Drive, Suite 9330, Chicago, Illinois 60606.

(5) CanPartners Investments IV, LLC has granted a proxy to Audax Entertainment
to vote all of its shares in connection with any matters presented to our
stockholders. The address of CanPartners Investments IV, LLC is c/o Canyon
Capital Advisors LLC, 9665 Wilshire Boulevard, Suite 200, Beverly Hills,
CA 90212.

(6) Represents 2,686,779 shares of common stock beneficially owned by
CanPartners Investments IV, LLC. Mr. Julis has shared investment power
over the shares held by CanPartners Investments IV, LLC by virtue of his
position as a control person of Canyon Capital Advisers, LLC, a registered
investment adviser. CanPartners Investments IV, LLC has granted a proxy to
Audax Entertainment to vote all of its shares in connection with any
matters presented to our stockholders. The address of Mr. Julis is c/o
CanPartners Investments IV, LLC, c/o Canyon Partners, Inc., 9665 Wilshire
Boulevard, Suite 200, Beverly Hills, California 90212.

(7) Includes 720,788 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 393,137 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of March
15, 2000. Mr. Curcio has granted a proxy to Audax Entertainment to vote
all shares held by Mr. Curcio, including shares issuable upon the exercise
of any options, in connection with any matters presented to our
stockholders.

(8) Includes 480,500 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 393,137 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of March
15, 2000. Mr. Block has granted a proxy to Audax Entertainment to vote all
shares held by Mr. Block, including shares issuable upon the exercise of
any options, in connection with any matters presented to our stockholders.

(9) Includes 480,500 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 393,137 shares of common stock issuable upon the

exercise of stock options that are not exercisable prior to or within 60
days of March 15, 2000. Mr. Malin has granted a proxy to Audax
Entertainment to vote all shares held by Mr. Malin, including shares
issuable upon the exercise of any options, in connection with any matters
presented to our stockholders.

(10) Includes 45,602 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 55,737 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of
March 15, 2000. Mr. Beeks has granted a proxy to Audax Entertainment to
vote all shares held by Mr. Beeks, including shares issuable upon the
exercise of any options, in connection with any matters presented to our
stockholders.

(11) Includes 45,602 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 55,737 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of
March 15, 2000. Mr. Ross has granted a proxy to Audax Entertainment to
vote all shares held by Mr. Ross, including shares issuable upon the
exercise of any options, inc connection with any matters presented to our
stockholders.

(12) Includes 13,978 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000
which are held by Mr. Josephson and 69,891 shares of common stock
issuable upon the exercise of stock options prior to or within 60 days of
March 15, 2000 which are held by Allen & Company. Excludes 209,672 shares
issuable upon the exercise of stock options that are exercisable prior to
or within 60 days of March 15, 2000 and 314,510 shares that are not
exercisable prior to or within 60 days of March 15, 2000, all of which
are held by Allen & Company and with respect to which Mr. Josephson
disclaims beneficial ownership. Also excludes 20,967 shares of common
stock issuable upon the exercise of stock options that are not
exercisable prior to or within 60 days of March 15, 2000 which are held
by Mr. Josephson and excludes 104,836 shares of common stock issuable
upon the exercise of stock options that are not exercisable prior to or
within 60 days of March 15, 2000 which are held by Allen & Company. The
address of Mr. Josephson is c/o Allen & Company, 711 5th Avenue, New
York, New York 10022. Each of Mr. Josephson and Allen & Company has
granted a proxy to Audax Entertainment to vote all shares held by Mr.
Josephson and Allen & Company, as applicable, including shares issuable
upon the exercise of any options, in connection with any matters
presented to our stockholders.

(13) Includes 60,804 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 74,315 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of
March 15, 2000. Mr. Schapiro has granted a proxy to Audax Entertainment
to vote all shares held by Mr. Schapiro, including shares issuable upon
the exercise of any options, in connection with any matters presented to
our stockholders.

(14) Includes 55,737 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 45,602 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of
March 15, 2000. Mr. Fink has granted a proxy to Audax Entertainment to
vote all shares held by Mr. Fink, including shares issuable upon the
exercise of any options, in connection with any matters presented to our
stockholders.

(15) Includes 36,227 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 29,640 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of
March 15, 2000. Mr. Denton has granted a proxy to Audax Entertainment to
vote all shares held by Mr. Denton, including shares issuable upon the
exercise of any options, in connection with any matters presented to our
stockholders.

(16) Includes 37,158 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 30,401 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of
March 15, 2000. Mr. van Dyk has granted a proxy to Audax Entertainment to
vote all shares held by Mr. van Dyk, including shares issuable upon the
exercise of any options, in connection with any matters presented to our
stockholders.

(17) Includes 26,346 shares of common stock issuable upon the exercise of
stock options exercisable prior to or within 60 days of March 15, 2000.
Excludes 61,476 shares of common stock issuable upon the exercise of
stock options that are not exercisable prior to or within 60 days of
March 15, 2000. Mr. Keegan has granted a proxy to Audax Entertainment to
vote all shares held by Mr. Keegan, including shares issuable upon the
exercise of any options, in connection with any matters presented to our
stockholders.

(18) Represents 18,424 shares of common stock beneficially owned by Belmont
Navy LLC, which is owned by two trusts that Mr. O'Donnell established for
the benefit of his children, and which he maintains investment advisory
authority over. Belmont Navy LLC has granted a proxy to Audax
Entertainment to vote all of its shares in connection with any matters
presented to our stockholders. The address of Mr. O'Donnell is c/o Boston
Concessions Group, 111 Sixth Street, Cambridge, MA 02143.

(19) Represents 12,283 shares of common stock beneficially owned by Randolph
Street Partners. Randolph Street Partners has granted a proxy to Audax
Entertainment to vote all of its shares in connection with any matters
presented to our stockholders. William S. Kirsch is a partner of Kirkland
& Ellis and of Randolph Street Partners. The address of Mr. Kirsch is c/o
Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois 60601.

(20) The address of Mr. Hogue is c/o Audax Entertainment, L.P., 101 Huntington
Avenue, Boston, MA 02199.

(21) The address of Mr. Magid is c/o Audax Entertainment, L.P., 101 Huntington
Avenue, Boston, MA 02199.

DESCRIPTION OF SELLING STOCKHOLDERS

The underwriters may purchase up to 450,000 shares of common stock from
the selling stockholders to cover over-allotments. In addition, the
underwriters may purchase up to an additional 450,000 shares from us to cover
over-allotments. The shares being offered by the selling stockholders were
acquired from us pursuant to private placements, various employment and
consulting agreements and the 1997 Stock Option Plan. The following paragraphs
provide, as of December 31, 1999, information regarding our more significant
selling stockholders.

Audax Entertainment, L.P.

Audax Entertainment owns 5,878,876 shares of common stock prior to this
offering, and will offer 188,846 shares for sale only to cover over-allotments.

After this offering, Audax Entertainment will own:

. 5,878,876 shares of common stock, representing 26.28% of our
outstanding common stock, if the underwriters' over-allotment option
is not exercised, or

. 5,690,030 shares of common stock, representing 24.93% of our
outstanding common stock, if the underwriters' over-allotment option
is exercised in full.

Audax Entertainment acquired its shares of capital stock of our company
from affiliates of Bain Capital, Inc. which held stock on September 30, 1999,
pursuant to an arrangement that the principal unitholders of Audax
Entertainment, Messrs. Rehnert and Wolpow, had with Bain Capital upon their
departure from Bain Capital. Bain Capital was among the group of private
investors that formed our company to acquire LIVE Entertainment in July 1997.
Mr. Rehnert identified and sourced Bain Capital's private equity investment in
our company, and he managed that investment on behalf of Bain Capital, and now
with Mr. Wolpow, on behalf of Audax Entertainment. Mr. Rehnert is the Chairman
of our board of directors and Chairman of our board's executive committee, and
Mr. Wolpow is a member of our board of directors. Mr. Rehnert was instrumental
in recruiting the key members of our management team and has played an active
role in developing our company's business strategy. Messrs. Rehnert and Wolpow
are the sole members of the general partner of Audax Entertainment and are also
founders of the Audax Group, L.P., an alternative asset money management firm
based in Boston, Massachusetts. We believe that Audax Entertainment will
continue to play an active role in developing and implementing our company's
strategy and working closely with the management team to ensure effective
operations.

Alan D. Gordon

Alan D. Gordon owned 3,684,799 shares of common stock prior to this
offering, and will offer 118,366 shares for sale only to cover over-allotments.

After this offering, Mr. Gordon will own:

. 3,684,799 shares of common stock, representing 16.47% of our
outstanding common stock, if the underwriters' over-allotment option
is not exercised, or

. 3,566,433 shares of common stock, representing 15.63% of our
outstanding common stock, if the underwriters' over-allotment option
is exercised in full.

Mr. Gordon played an instrumental role in our company's July 1997
acquisition of LIVE Entertainment, Inc. on behalf of Richland, Gordon & Co.
Mr. Gordon is the President of Richland, Gordon & Co., founded in 1947, a
nationally prominent private equity investment firm specializing in the
acquisition, recapitalization or leveraged buyout of successful middle market
companies. Mr. Gordon is the Vice Chairman of our board of directors. Since
July 1997, Mr. Gordon has actively served as a business development arm and

strategic and operational consultant to us, and we believe he will continue to
play an active role in developing and implementing our company's strategy and
working closely with the management team to ensure effective operations.

The following table provides information with respect to the ownership of
our common stock by the selling stockholders, as of March 15, 2000 and after
giving effect to the reclassification and this offering as if they occurred on
May 15, 2000. The table reflects only those shares actually held by, and
offered for the account of, each selling stockholder, and does not reflect
beneficial ownership. The selling stockholders are offering shares for sale to
the underwriters only to cover over-allotment option. Accordingly, the table
assumes that the underwriters' over-allotment option has been exercised in
full.

All selling stockholders hold fractional shares of common stock and/or
options for the purchase of fractional shares. The share numbers in the
subcolumns entitled "Number" have been rounded up to the next whole number of
shares for fractional shares equal to or greater than .45 and have been rounded
down to the next whole number for fractional shares less than .45.

Shares owned
after the
offering assuming
exercise of the
Shares owned Shares underwriters'
prior to the being over-allotment
offering sold option
----------------- ------- -----------------
Selling Stockholder Number Percent Number Number Percent
------------------- --------- ------- ------- --------- -------

Audax Entertainment, L.P.(1)...... 5,878,876 35.91% 188,846 5,690,030 24.93%
Alan D. Gordon(2)................. 3,684,799 22.51% 118,366 3,566,433 15.63%
CanPartners Investments IV,
LLC(3)........................... 2,686,779 16.41% 86,307 2,600,472 11.39%
Sun Entertainment Partners,
L.P.(4).......................... 443,952 2.70% 14,261 429,691 1.88%
Allen & Company(5)................ 358,905 2.19% 1,426 357,479 1.57%
TCW Shared Opportunity Fund III,
L.P(6)........................... 189,473 1.16% 6,086 183,387 *
Caravelle Investment Fund,
LLC(7)........................... 149,912 * 4,816 145,096 *
TCW Leveraged Income Trust,
L.P.(6).......................... 145,748 * 4,682 141,066 *
TCW Leveraged Income Trust II,
L.P.(6).......................... 145,748 * 4,682 141,066 *
Film Investments LLC(8)........... 135,109 * 4,340 130,769 *
RGIP(9)........................... 88,790 * 2,852 85,938 *
TCW Shared Opportunity Fund II,
L.P.(6).......................... 87,449 * 2,809 84,640 *
Gordon Dynasty Trust(10).......... 85,979 * 2,762 83,217 *
TCW/Crescent Mezzanine Partners II
L.P.(6).......................... 46,925 * 1,507 45,418 *
Shared Opportunity Fund II-B,
L.L.C.(6)........................ 43,725 * 1,405 42,320 *
John H. Josephson(11)............. 38,544 * 789 37,755 *
Brown University Third Century
Fund(6).......................... 29,150 * 936 28,214 *
Belmont Navy LLC(12).............. 18,424 * 592 17,832 *
Rodger Krouse(13)................. 18,424 * 592 17,832 *
Marc Leder(14).................... 18,424 * 592 17,832 *
Barry Volpert(15)................. 18,424 * 592 17,832 *
Randolph Street Partners(16)...... 12,283 * 395 11,888 *
TCW/Crescent Mezzanine Trust
II(6)............................ 11,374 * 365 11,009 *

- --------

* Denotes ownership of less than one percent.

(1) The address of Audax Entertainment, L.P. is 101 Huntington Avenue, Boston,
MA 02199. Geoffrey S. Rehnert and Marc B. Wolpow, who are both members of
our board of directors, are members of the general partner of Audax
Entertainment.

(2) The address of Mr. Gordon is c/o Richland, Gordon & Co., 233 South Wacker
Drive, Suite 9330, Chicago, Illinois 60606. Mr. Gordon is a member of our
board of directors.

(3) The address of CanPartners Investments IV, LLC is c/o Canyon Capital
Advisors LLC, 9665 Wilshire Boulevard, Suite 200, Beverly Hills, CA 90212.
Mitchell R. Julis, a member of our board of directors, has shared
investment power over the shares held by CanPartners Investments IV, LLC
by virtue of his position as a control person of Canyon Capital Advisors,
LLC, a registered investment adviser.

(4) The address of Sun Entertainment Partners, L.P., is 5355 Town Center Road
Suite 802, Boca Raton, FL 33486.

(5) Includes 314,509 shares issuable upon the exercise of stock options that
are exercisable prior to or within 60 days of March 15, 2000 and excludes
384,400 shares that are not exercisable prior to or within 60 days of
March 15, 2000. The address of Allen & Company is 711 5th Avenue, New
York, New York 10022. John H. Josephson, a member of our board of
directors, is a co-owner of Allen & Company.

(6) The address of TCW Shared Opportunity Fund II, L.P., Shared Opportunity
Fund II-B, L.L.C., TCW Shared Opportunity Fund III, L.P., TCW Leverage
Income Trust, L.P., TCW Leverage Income Trust II, L.P., Brown University
Third Century Fund, TCW/Crescent Mezzanine Partners II, LP and
TCW/Crescent Mezzanine Trust II is c/o Darryl L. Schall, Trust Company of
the West, 1110 Santa Monica Blvd., Suite 2000, Los Angeles, CA 90025.

(7) The address of Caravelle Investment Fund, LLC is c/o Jason Block, 425
Lexington Avenue, 2nd Floor, New York, NY 10017.

(8) The address of Film Investors LLC is c/o Mr. Joe Pretlow, Bain Capital,
745 5th Street, 32nd floor, New York, New York 10151.

(9) The address of RGIP is One International Plaza, Boston, MA 02110.

(10) The address of Gordon Dynasty Trust is c/o Richland, Gordon & Co., 233
South Wacker Drive, Suite 9330, Chicago, Illinois 60606. The Gordon
Dynasty Trust is a trust established by Alan D. Gordon, a member of our
board of directors, for the benefit of his children.

(11) Includes 13,978 shares of common stock issuable upon the exercise of stock
options exercisable prior to or within 60 days of March 15, 2000. Excludes
20,967 shares of common stock issuable upon the exercise of stock options
that are not exercisable prior to or within 60 days of March 15, 2000.
Mr. Josephson's address is 711 5th Avenue, New York, New York, 10022. Mr.
Josephson is a member of our board of directors.

(12) The address of Belmont Navy LLC is c/o Boston Concessions Group, 111 Sixth
Street, Cambridge, MA 02143. Belmont Navy LLC is owned by two trusts which
Joseph O'Donnell, a member of our board of directors, established for the
benefit of his children.

(13) The address of Mr. Krouse is c/o Sun Entertainment Partners, L.P., 5355
Town Center Road, Suite 802, Boca Raton, FL 33486.

(14) The address of Mr. Leder is c/o Sun Entertainment Partners, L.P., 5355
Town Center Road, Suite 802, Boca Raton, FL 33486.

(15) The address of Mr. Volpert is c/o Goldman Sachs International,
Peterborough Court, 133 Fleet Street, London, England EC4A 2BB.

(16) The address of Randolph Street Partners is c/o Kirkland & Ellis, 200 East
Randolph Drive, Chicago, Illinois 60601. William S. Kirsch, a member of
our board of directors, is a partner of Randolph Street Partners and of
Kirkland & Ellis.

DESCRIPTION OF CAPITAL STOCK

General Matters

The following description of provisions of our certificate of
incorporation and our restated bylaws are summaries and are qualified by
reference to the provisions of our amended and restated certificate of
incorporation and our restated bylaws. Copies of these documents have been or
will be filed with the SEC as exhibits to our registration statement, of which
this prospectus forms a part. The description of our capital stock reflects our
capital structure upon the closing of this offering in accordance with the
terms our of amended and restated certificate of incorporation.

Upon completion of this offering, the total amount of our authorized
capital stock will consist of 60,000,000 shares of common stock with a par
value of $0.01 per share, and 10,000,000 shares of preferred stock with a par
value of $.01 per share.

After giving effect to this offering, assuming an initial public offering
price of $17.00 per share, we will have 22,371,691 shares of common stock
outstanding and no shares of preferred stock outstanding. As of the date of
this prospectus, we had 37 stockholders of record.

The amended and restated certificate of incorporation and restated bylaws
contain provisions which are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors and may have the
effect of delaying, deferring or preventing a future takeover or change in
control of Artisan unless that takeover or change in control is approved by our
board of directors. See "Specified Relationships and Related Transactions."

Common Stock

Subject to the prior rights of the holders of any series of preferred
stock, the holders of outstanding shares of common stock will be entitled to
receive dividends out of assets legally available therefor at the time and in
the amounts as the board of directors may from time to time determine. The
shares of common stock will not be convertible and the holders thereof will
have no preemptive or subscription rights to purchase any of our securities.
Upon liquidation, dissolution or winding up of Artisan, the holders of common
stock will be entitled to receive pro rata our assets which are legally
available for distribution, after payment of all debts and other liabilities
and subject to the prior rights of any holders of any series of preferred stock
then outstanding. Each outstanding share of common stock will be entitled to
one vote on all matters submitted to a vote of stockholders. There will be no
cumulative voting.

Application has been made to include the common stock on the Nasdaq
National Market under the symbol "RTSN."

Preferred Stock

Our board of directors may, without further action by our stockholders,
from time to time, direct the issuance of shares of preferred stock in a series
and may, at the time of issuance, determine the rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of preferred stock would reduce the amount of funds
available for the payment of dividends on shares of common stock. Holders of
shares of preferred stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of Artisan before any
payment is made to the holders of shares of common stock. The issuance of
shares of preferred stock may render more difficult or tend to discourage a
merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of our securities or the removal of incumbent management. Upon
the affirmative vote of a majority of the total number of directors then in
office, the board of directors, without stockholder approval, may issue shares
of preferred stock with voting and conversion rights which could adversely
affect the holders of shares of common stock. There are not other shares of
common stock outstanding, and we have no present intention to issue any
additional shares of preferred stock.

Anti-Takeover Effects of Provisions of Delaware Law and Our Amended and
Restated Certificate of Incorporation and Bylaws

Following the consummation of this offering, we will be subject to the
"Business Combination" provisions of the Delaware General Corporation Law. In
general, these provisions prohibit a Delaware corporation from engaging in
various "business combination" transactions with any "interested stockholder"
for a period of three years after the date of the transaction in which the
person became an "interested stockholder" unless:

. the transaction is approved by the board of directors prior to the
date the "interested stockholder" obtained that status;

. upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested
stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender
or exchange offer; or

. on or subsequent to the date the "business combination" is approved
by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66-2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder."

A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of a corporation's voting stock or within three
years did own 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to Artisan and, accordingly, may discourage attempts to acquire
Artisan.

In addition, provisions of our certificate of incorporation and bylaws
that will be in effect upon the closing of this offering and are summarized in
the following paragraphs, may be deemed to have antitakeover effects and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders. These
provisions may also have the effect of preventing changes in our management.

Our certificate of incorporation authorizes our board of directors to
fill vacant directorships. This may deter a stockholder from removing incumbent
directors and simultaneously gaining control of our board of directors by
filling the vacancies created by that removal with its own nominees. Our
certificate of incorporation and bylaws contain other provisions that may be
deemed to have anti-takeover effects, including the ability of Audax
Entertainment to call special meetings and limit the maximum number of
directors. These provisions could delay, deter or prevent a tender offer or
takeover attempt. In addition, based on the current ownership of our common
stock and the voting rights that attach to them, Audax Entertainment will be
able to exercise control over all matters requiring approval by our
stockholders, including the approval of significant corporate transactions.

The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or percentage.

Limitations on Liability and Indemnification of Officers and Directors

As permitted by applicable provisions of the Delaware General Corporation
Law, our certificate of incorporation contains a provision eliminating, to the
fullest extent permitted by Delaware law as it exists or may in the future be
amended, the liability of a director to us and our stockholders for monetary
damages for

breaches of fiduciary duty as a director. However, in accordance with Delaware
law, this provision does not limit the liability of a director for:

. any breach of the director's duty of loyalty to us or our
stockholders;

. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. payment of dividends, stock purchases or redemptions that violate
Delaware law; or

. any transaction from which the director derived an improper personal
benefit. This limitation of liability also does not affect the
availability of equitable remedies including injunctive relief or
rescission.

Prior to the closing of this offering, we intend to enter into
indemnification agreements with each of the persons who serves or will serve on
our board of directors after completion of the offering. Under these
agreements, we will agree to provide for indemnification of our directors to
the full extent permitted under Delaware law, including circumstances in which
indemnification is otherwise discretionary under Delaware law. We will also
agree to make mandatory advances of expenses incurred by any of our directors
in connection with any action taken against our directors in which we have
agreed to provide indemnification. We will also agree to provide reasonable
directors' and officers' liability insurance coverage. These agreements will be
binding agreements between us and each of our directors, and thus will prevent
us from modifying our indemnification policy in a way that would be adverse to
any director who is a party to any of these agreements.

We currently maintain insurance in the aggregate amount of $10 million on
behalf of our officers and directors against any liability which may be
asserted against any officer or director, subject to some customary exclusions.
We intend to obtain additional insurance for an aggregate total of $30 million
of coverage prior to consummation of this offering.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. The transfer agent's address is 40 Wall Street, New
York, New York 10005 and its telephone number is (718) 921-8200.

SHARES ELIGIBLE FOR FUTURE SALE

Shares Eligible for Future Sale

Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of our common stock in the
public market could adversely affect the market price of our common stock.
After this offering is completed, the number of shares available for future
sale into the public market will be subject to legal and contractual
restrictions, some of which are described below. The lapsing of these
restrictions will permit sales of substantial amounts of our common stock in
the public market or could create the perception that these sales could occur,
which could adversely affect the market price for our common stock. These
factors could also make it more difficult to raise funds through future
offerings of common stock.

Immediately after this offering, there will be 22,371,691 shares of our
common stock issued and outstanding, assuming that no option holder exercises
any outstanding stock options after the date of this prospectus and no exercise
of the underwriters' over-allotment option. If the underwriters' over-allotment
option is exercised in full, and assuming that no optionholder exercises any
outstanding stock options after the date of this prospectus there will be
22,821,691 shares of our common stock issued and outstanding immediately
following this offering. Of these shares, the 6,900,000 shares of common stock
to be sold in this offering if the underwriters exercise their over-allotment
option in full will be freely transferable and may be sold without restriction
or further registration under the Securities Act, except for any shares
acquired by an affiliate of our company as defined in Rule 144 under the
Securities Act. All of the remaining 15,921,691 shares of common stock
outstanding will be "restricted securities" within the meaning of Rule 144 and
may not be publicly resold, except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption from
registration, including that provided by Rule 144. All of the restricted shares
are subject to the 180-day lock-up agreements described below.

Rule 144

In general, under Rule 144, a person, or persons whose shares are
aggregated, who has beneficially owned "restricted securities" for at least one
year, including a person who may be deemed an affiliate, is entitled to sell
within any three-month period a number of our shares that does not exceed the
greater of:

. 1% of the then-outstanding shares of our common stock which will
equal approximately shares immediately after the offering; or

. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange
Commission.

Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Commencing
90 days after the date of this prospectus, 1,572,627 shares of our common stock
will be eligible for resale under Rule 144. All of these shares are subject to
the 180-day lock-up agreements described below.

A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years would be entitled to sell shares following this offering under Rule
144(k) without regard to the volume limitations, manner of sale provisions or
notice requirements of Rule 144.

Options

We intend to file one or more registration statements on Form S-8 under
the Securities Act to register all shares of our common stock subject to
outstanding stock options and our common stock issuable pursuant to our stock
option plans. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the 180-day lock-up
agreements described below, to the extent applicable.

Lock-up Agreements

For a period of 180 days after the date of this prospectus, we, our
executive officers, directors, the selling stockholders and substantially all
of our other stockholders, have agreed, with some exceptions specified in the
lock-up agreement, not to, without approval by Merrill Lynch, Pierce, Fenner &
Smith Incorporated:

. offer, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, pledge or
otherwise dispose of or cause us or our affiliates to dispose of,
file a registration statement under the Securities Act relating to,
establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16
of the Exchange Act and rules and regulations thereunder, or publicly
announce an intention to do any of the foregoing with respect to any
shares of our common stock or securities convertible into or
exercisable or exchangeable for our common stock; or

. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock
whether any swap or transaction is to be settled by delivery of our
common stock or other securities, in cash or otherwise. See
"Underwriting -- No Sales of Similar Securities."

Effect of Sales of Shares

No prediction can be made as to the effect, if any, that future sales of
shares of our common stock or the availability of shares for future sale will
have on the prevailing market price for our common stock. Sales of substantial
amounts of our common stock, or the perception that these sales could occur,
could adversely affect prevailing market prices for our common stock and could
impair our future ability to raise capital through an offering of equity
securities.

UNDERWRITING

General

We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc.
and ING Barings LLC are acting as representatives of each of the underwriters
named below. Subject to the terms and conditions set forth in a purchase
agreement among our company, the selling stockholders and the underwriters, our
company and the selling stockholders have agreed to sell to the underwriters,
and each of the underwriters severally and not jointly has agreed to purchase
from our company and the selling stockholders, the number of shares of our
common stock set forth opposite its name below.

Number
Underwriter of Shares
----------- ---------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
Bear, Stearns & Co. Inc..........................................
ING Barings LLC..................................................
---------
Total....................................................... 6,000,000
=========

In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth in that agreement, to purchase all of our
shares of common stock being sold pursuant to the agreement if any of our
shares of common stock being sold pursuant to the agreement are purchased.
Under the purchase agreement, in the event of a default by an underwriter, in
some circumstances, the purchase commitments of non-defaulting underwriters may
be increased or the purchase agreement may be terminated.

We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.

The shares of common stock are being offered by the underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
receipt of legal opinions and officers' certificates, or waiver of these
conditions, as specified in the purchase agreement. The underwriters reserve
the right to withdraw, cancel or modify offers and to reject orders in whole or
in part.

Commissions and Discounts

The representatives have advised our company and the selling stockholders
that the underwriters propose initially to offer our shares of common stock to
the public at the initial public offering price set forth on the cover page of
this prospectus, and to some dealers at that price less a concession not in
excess of $ per share of common stock. The underwriters may allow, and those
dealers may reallow, a discount not in excess of $ per share of common stock
on sales to some other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.

The following table shows the per share and total public offering price,
the underwriting discount to be paid by us and the selling stockholders to the
underwriters and the proceeds before expenses to us and the selling
stockholders. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.

Per Without With
Share Option Option
----- ------- ------

Public offering price............................... $ $ $
Underwriting discount............................... $ $ $
Proceeds, before expenses, to Artisan............... $ $ $
Proceeds, before expenses, to the selling
stockholders....................................... $ $ $

The expenses of this offering, exclusive of the underwriting discount,
are estimated at $1,500,000 and are payable by us.

Over-allotment Option

We have granted an option to the underwriters, exerciseable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 450,000
additional shares of our common stock from us at the initial public offering
price set forth on the cover page of this prospectus, less the underwriting
discount. Additionally, the selling stockholders have granted an option to the
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of 450,000 additional shares of our common stock
from the selling stockholders at the initial public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise these options solely to cover over-allotments, if
any, made on the sale of our common stock being offered. To the extent that the
underwriters exercise these options, each underwriter will be obligated,
subject to some conditions specified in the purchase agreement, including the
receipt of legal opinions and officers' certificates, to purchase a number of
additional shares of our common stock proportionate to each underwriter's
initial amount reflected in the above table.

Reserved Shares

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares being offered to be sold to some
of our directors, officers and employees and other persons with whom we have
specified relationships. The number of shares of our common stock available for
sale to the general public will be reduced to the extent that those persons
purchase these reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of this offering will be
offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.

No Sales of Similar Securities

We, our executive officers and directors, the selling stockholders and
substantially all of our other stockholders have agreed, with some exceptions,
not to directly or indirectly engage in the following activities for a period
of 180 days after the date of this prospectus, without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated:

. enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership
of our common stock whether any swap or transaction is to be settled
by delivery of our common stock or other securities, in cash or
otherwise.

Initial Public Offering Price

Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations between us and the representatives. The factors considered in
determining the initial public offering price, in addition to prevailing market
conditions, include the valuation multiples of publicly traded companies that
the representatives believe to be comparable to us, some of our financial
information, the history of, and the prospects for, us and the industry in
which we compete, and an assessment of our management, its past and present
operations, the prospects for, and timing of, our future

revenues, the present state of our development, and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to ours. There can be no assurance that an active
trading market will develop for our common stock or that our common stock will
trade in the public market subsequent to this offering at or above the initial
public offering price.

The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered under this prospectus.

Quotation on the Nasdaq National Market

After the pricing of the offering, we expect that the common stock will
be approved for quotation on the Nasdaq National Market under the Symbol
"RTSN."

Price Stabilization and Short Positions and Penalty Bids

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and some selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.

If the underwriters create a short position in our common stock in
connection with this offering, i.e., if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing our common stock
in the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.

The representatives may also impose a penalty bid on other underwriters
and selling group members. This means that if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares as part of this offering.

In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of these purchases. The imposition of a penalty
bid might also have an effect on the price of our common stock to the extent
that it discourages resales of our common stock.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representative
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.

Internet Distribution in Connection with the Offering

Merrill Lynch will be facilitating Internet distribution for this
offering to certain of its Internet subscription customers. Merrill Lynch
intends to allocate a limited number of shares for sale to its online brokerage
customers. An electronic prospectus is available on the website maintained by
Merrill Lynch. Other than the prospectus in electronic format, the information
on the Merrill Lynch website relating to this offering is not a part of this
prospectus.

Other Relationships with Underwriters

Some of the underwriters and their affiliates from time to time have
engaged in transactions with, and performed services for, our company and our
affiliates, in the ordinary course of business for which they have received
customary compensation, and may continue to do so in the future.

LEGAL MATTERS

Some of the legal matters in connection with the issuance of the common
stock will be passed upon for Artisan by Kirkland & Ellis, Los Angeles,
California and Chicago, Illinois. Some of the legal matters in connection with
the offering will be passed upon for the underwriters by Cahill Gordon &
Reindel, New York, New York. Kirkland & Ellis has, from time to time,
represented and may continue to represent, some of the underwriters in
connection with various legal matters, and Audax Entertainment, L.P., Artisan
Entertainment Inc. and other affiliates in connection with various legal
matters. William S. Kirsch, P.C., a partner of Kirkland & Ellis, Chicago,
Illinois, is also a member of Artisan's board of directors.

Some partners of Kirkland & Ellis are partners in Randolph Street
Partners, which owns 12,283 shares of common stock of Artisan.

EXPERTS

The consolidated financial statements of Artisan Entertainment Inc. for
the period July 10, 1997 to December 31, 1997 and as of and for the years ended
December 31, 1998 and 1999 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of LIVE Entertainment Inc. for the
period January 1, 1997 to July 9 , 1997 included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act, with respect to the common stock to be sold in the offering. This
prospectus, which forms a part of the registration statement, does not contain
all of the information set forth in the registration statement. For further
information with respect to us and the common stock offered in this prospectus,
we refer you to the registration statement, including the exhibits thereto, and
the financial statements and notes filed as a part of the registration
statement. With respect to each document filed with the Commission as an
exhibit to the registration statement, we refer you to the exhibit for a more
complete description of the matter involved.

We will be filing quarterly and annual reports, proxy statements and
other information with the Commission. Any reports or documents we file with
the Commission, including the registration statement, may be inspected and
copied at the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 (telephone number: 1-800-SEC-0330),
and at the Regional Offices of the Commission at 7 World Trade Center, 13th
Floor, New York, New York 10048, Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661, and 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036-3648. Copies of the reports or other documents may be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Commission maintains a website that contains reports and other information that
is filed through the Commission's Electronic Data Gathering Analysis and
Retrieval System. The website can be accessed at http://www.sec.gov.

We intend to furnish our stockholders annual reports containing financial
statements audited by an independent accounting firm, and to make available
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Artisan Entertainment Inc. Audited Consolidated Financial Statements

Report of Independent Accountants........................................ F-2

Consolidated Balance Sheets as of December 31, 1998 and 1999............. F-3

Consolidated Statements of Operations for the period July 10, 1997 to
December 31, 1997 and for the years ended December 31, 1998 and 1999.... F-4

Consolidated Statements of Stockholders' Equity for the period July 10,
1997 to December 31, 1997 and for the years ended December 31, 1998 and
1999.................................................................... F-5

Consolidated Statements of Cash Flows for the period July 10, 1997 to
December 31, 1997 and for the years ended December 31, 1998 and 1999.... F-6

Notes to Consolidated Financial Statements............................... F-7

LIVE Entertainment Inc. (predecessor to Artisan) Audited Consolidated
Financial Statements

Report of Independent Accountants........................................ F-19

Consolidated Statement of Operations for the period January 1, 1997 to
July 9, 1997............................................................ F-20

Consolidated Statement of Stockholders' Equity for the period January 1,
1997 to July 9, 1997.................................................... F-21

Consolidated Statement of Cash Flows for the period January 1, 1997 to
July 9, 1997............................................................ F-22

Notes to the Consolidated Financial Statements........................... F-23

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Artisan Entertainment Inc.:

The merger described in Note 1 to the financial statements has not been
consumated at February 14, 2000. When it has been consumated, we will be in a
position to furnish the following report:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders'
equity present fairly, in all material respects, the financial position of
Artisan Entertainment Inc. and its subsidiaries (the "Company") at December 31,
1998 and 1999, and the results of their operations and their cash flows for the
period July 10, 1997 to December 31, 1997 and for the years ended December 31,
1998 and 1999 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
Century City, California
January 28, 2000

F-2

ARTISAN ENTERTAINMENT INC.

CONSOLIDATED BALANCE SHEETS

December 31,
------------------
1998 1999
-------- --------
(in thousands)

ASSETS
Cash and cash equivalents................................. $ 451 $ 761
Accounts receivable, net of allowances of $15,580 and
$61,506 for 1998 and 1999, respectively.................. 39,517 67,716
Inventories............................................... 15,296 20,170
Property and equipment, net............................... 5,730 8,392
Film costs, net........................................... 100,959 108,821
Other assets.............................................. 8,640 11,436
Goodwill, net of accumulated amortization of $6,869 and
$11,658 for 1998 and 1999, respectively.................. 88,608 83,819
-------- --------
$259,201 $301,115
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable.......................................... $ 23,987 $ 23,774
Accrued expenses.......................................... 14,419 36,643
Deferred revenues......................................... 6,079 6,131
Notes payable............................................. 3,905 4,262
Senior Subordinated Secured Notes, net of original issue
discount of $2,227 and $1,837 for 1998 and 1999,
respectively............................................. 12,773 13,163
Term loan................................................. 22,105 15,789
Revolving line of credit.................................. 124,500 102,500
Film obligations payable.................................. 28,534 61,411
Income taxes payable and deferred income taxes............ 3,922 3,046
-------- --------
240,224 266,719
-------- --------
Stockholders' Equity
Class A Common Stock--$.001 par value; 11,671,902 (1998)
and 13,412,404 (1999) shares authorized; 9,000,000 (1998)
and 9,255,542 (1999) shares issued and outstanding....... 9 9
Class L Common Stock--$.001 par value; 1,000,000 (1998)
and 1,049,754 (1999) authorized, issued and outstanding.. 1 1
Additional paid-in capital................................ 17,847 19,496
Stock subscriptions receivable............................ (1,300) (1,300)
Retained earnings......................................... 2,420 16,190
-------- --------
18,977 34,396
-------- --------
$259,201 $301,115
======== ========

See accompanying notes to the consolidated financial statements.

F-3

ARTISAN ENTERTAINMENT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Period For the Years
July 10, 1997 Ended December
to 31,
December 31, ------------------
1997 1998 1999
-------------- -------- --------
(in thousands)

Net sales.................................. $66,663 $173,504 $383,293
Cost of sales.............................. 50,309 131,030 313,975
Selling, general and administrative
expenses.................................. 11,308 27,893 38,116
------- -------- --------
Operating income........................... 5,046 14,581 31,202
Interest and other income.................. 813 646 330
Interest expense........................... (4,591) (14,075) (17,762)
------- -------- --------
Income before income taxes................. 1,268 1,152 13,770
Provision for income taxes................. -- -- --
------- -------- --------
Net income................................. 1,268 1,152 13,770
------- -------- --------
Priority distributions due Class L Common
Shares.................................... 1,031 2,343 2,652
------- -------- --------
Net income allocable to Class A Common
Shares.................................... $ 237 $ (1,191) $ 11,118
======= ======== ========
Net income (loss) per Class A Common Share
Basic.................................... $ 0.03 $ (0.13) $ 1.21
Diluted.................................. 0.01 0.01 0.13

Pro forma net income per Common Share
(unaudited)
Basic.................................... $ 0.97
Diluted.................................. 0.84

See accompanying notes to the consolidated financial statements.

F-4

ARTISAN ENTERTAINMENT INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common Stock
---------------------------
Class A Class L Additional Stock
------------- ------------- Paid-In Subscriptions Retained
Shares Amount Shares Amount Capital Receivable Earnings Total
------ ------ ------ ------ ---------- ------------- -------- -------
(in thousands)

Balance at July 10,
1997................... 9,000 $ 9 1,000 $ 1 $17,847 $(1,300) $ -- $16,557
Net income.............. 1,268 1,268
----- --- ----- --- ------- ------- ------- -------
Balance at December 31,
1997................... 9,000 $ 9 1,000 $ 1 $17,847 $(1,300) $ 1,268 $17,825
Net income.............. 1,152 1,152
----- --- ----- --- ------- ------- ------- -------
Balance at December 31,
1998................... 9,000 $ 9 1,000 $ 1 $17,847 $(1,300) $ 2,420 $18,977
Stock issued............ 256 50 917 917
Compensatory stock
options................ 732 732
Net income.............. 13,770 13,770
----- --- ----- --- ------- ------- ------- -------
Balance at December 31,
1999................... 9,256 $ 9 1,050 $ 1 $19,496 $(1,300) $16,190 $34,396
===== === ===== === ======= ======= ======= =======

See accompanying notes to the consolidated financial statements.

F-5

ARTISAN ENTERTAINMENT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended
For the Period December 31,
July 10, 1997 to --------------------
December 31, 1997 1998 1999
----------------- --------- ---------
(in thousands)

Operating Activities:
Net income........................... $ 1,268 $ 1,152 $ 13,770
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization of
property and equipment............ 285 781 1,765
Amortization of goodwill........... 2,237 4,632 4,789
Amortization of loan fees and
original issue discount........... 511 1,645 2,342
Amortization of film costs......... 24,827 75,557 250,401
Compensatory stock options......... -- -- 732
(Increase) decrease in operating
assets:
Accounts receivable................ (4,477) (38,061) (28,199)
Inventories........................ (1,885) (4,414) (4,874)
Film costs......................... (41,565) (103,312) (258,263)
Other assets....................... 1,663 (2,214) (4,748)
Increase (decrease) in operating
liabilities:
Accounts payable, accrued expenses
and deferred revenue.............. 3,404 7,745 22,063
Income taxes payable and deferred
income tax........................ -- (1,186) (876)
Film obligations................... 1,610 2,784 32,877
-------- --------- ---------
Cash provided by (used for)
operating activities.............. (12,122) (54,891) 31,779
Investing Activities:
Investments.......................... -- (1,000) --
Acquisition of property and
equipment........................... (162) (6,084) (4,427)
-------- --------- ---------
Cash used for investing
activities........................ (162) (7,084) (4,427)

Financing Activities:
Issuance of notes payable............ -- 4,083 1,200
Capital contribution................. -- -- 917
Payments on refinanced debt.......... (42,046) -- --
Payments on term loan and notes
payable............................. (6,104) (11,017) (7,159)
Net borrowings under revolving credit
line................................ 57,472 66,500 (22,000)
-------- --------- ---------
Cash provided by (used for)
financing activities.............. 9,322 59,566 (27,042)
Increase (decrease) in cash and
cash equivalents.................. (2,962) (2,409) 310
Cash and cash equivalents at
beginning of period............... 5,822 2,860 451
-------- --------- ---------
Cash and cash equivalents at end of
period............................ $ 2,860 $ 451 $ 761
======== ========= =========
Supplemental Disclosure of Cash Paid
for:
Interest............................. $ 4,082 $ 12,073 $ 16,410
======== ========= =========
Taxes................................ $ 60 $ 1,294 $ 980
======== ========= =========

See accompanying notes to the consolidated financial statements.

F-6

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--Description of the Business and Summary of Significant Accounting
Policies

On July 9, 1997, Film Holdings Co. ("Holdings" or the "Company"), a
Delaware corporation, was formed with initial capitalization of $16,557,000 for
the purpose of acquiring all of the common and preferred stock and refinancing
certain debt of LIVE Entertainment Inc. ("LIVE"). LIVE, through its wholly
owned subsidiaries LIVE Film and Mediaworks ("LFM") and LIVE International, was
a diversified entertainment company engaged in the production and worldwide
distribution of motion picture films in the theatrical, home video, television
and ancillary markets and was also engaged in the production and distribution
of television programs. The acquisition of LIVE by Holdings was effected by the
merger of Film Acquisition Co., a wholly owned subsidiary of Holdings, into
LIVE with LIVE as the surviving corporation. The total purchase price of
$74,600,000 was funded through the initial equity capitalization and
$42,046,000 of borrowings, which were collateralized by the assets of LIVE and
acquired cash.

The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based on their fair values at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired was approximately $95,500,000 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 20 years.

Since April 1998, the Company has been doing business as Artisan
Entertainment Inc. Prior to the closing of this offering, Film Holdings Co.
will merge with Artisan Entertainment Inc., a wholly owned subsidiary, and will
change its name from Film Holdings Co. to Artisan Entertainment Inc.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries for the period July 10, 1997 to December 31, 1997 and for
the years ended December 31, 1998 and 1999. All significant intercompany
transactions have been eliminated.

Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable represent amounts billed and currently due from
customers, net of allowances for doubtful accounts, sales returns and
advertising credits.

Inventory Valuation

The Company's inventory of duplicated video cassettes and boxes is stated
at the lower of cost, determined by the first-in first-out ("FIFO") method, or
market. All other inventories, which consist of blank video cassettes and
accessories, are stated at the lower of cost, determined by using an average
cost which approximates the FIFO method, or market.

Property and Equipment

Property and equipment are stated at cost and are depreciated over their
estimated useful lives using the straight-line method. Leasehold improvements
are amortized over the lesser of their estimated useful lives or the terms of
the related leases.

F-7

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 1--Description of the Business and Summary of Significant Accounting
Policies (Continued)

Film Costs

Film costs include acquisition, production, print and exploitation costs
which benefit future periods as well as interest and production overhead. Such
costs are amortized, and participation expenses are accrued, in the proportion
that revenue recognized during the year for each film bears to the estimated
total revenues to be received from all sources under the individual film
forecast method. Estimated total revenue and costs are reviewed and revisions
to the amortization rates are recorded as necessary. Film costs are stated at
the lower of unamortized cost or estimated net realizable value.

Estimates of total revenues can change significantly due to a variety of
factors, including the level of market acceptance of film and television
products, advertising rates and subscriber fees. Accordingly, revenue estimates
are reviewed periodically and amortization is adjusted if necessary. Such
adjustments could have a material effect on results of operations in future
periods.

Debt Issue Costs

Costs associated with obtaining debt financing have been capitalized as
other assets and are amortized over the life of the related debt.

Goodwill

Goodwill, representing the excess of the purchase price over the fair
value of the net assets of the acquired entities, is amortized on a straight-
line basis over 20 years. The Company reviews its intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Impairment losses are recorded in
the event that net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets.

Income Taxes

Income taxes are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," whereby deferred tax
assets and liabilities are determined based on differences between the
financial reporting and tax basis 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.

Revenue Recognition

Revenue from theatrical distribution is recognized as the films are
exhibited. Revenue from home video distribution is recognized as products are
shipped to customers. Revenue from free television and pay television license
agreements are recognized when films are made available for exhibition.
Distribution of the Company's films in foreign countries is primarily
accomplished through the licensing of various distribution rights to
subdistributors. The terms of licensing agreements with such subdistributors
generally include the receipt of non-refundable guaranteed amounts by the
Company and revenue thereon is recognized when films are available for
exhibition. Cash collected in advance of the time of availability is recorded
as deferred revenue.

F-8

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 1--Description of the Business and Summary of Significant Accounting
Policies (Continued)

After completion, a typical theatrical film will generally be made
available for license as follows:

Months After Approximate
Initial Release
Marketplace Release Period
----------- ------------ ------------

Domestic theatrical.............................. -- 1-6 months
Domestic home video.............................. 4-6 months --
Domestic pay-per-view............................ 4-6 months 3 months
Domestic pay television.......................... 6-10 months 12-21 months
Domestic network/basic cable..................... 30-36 months 18-36 months
Domestic syndication............................. 30-36 months 3-15 years
Foreign home video............................... 6-12 months --
Foreign television............................... 18-24 months 18-30 months

Video Cassette and Disc Sales Revenue and Returns Recognition

Revenue from video cassette and disc sales is generally recognized upon
delivery to the customer. However, in accordance with industry practice,
certain sales are made with the right to return unsold items. An allowance is
provided for the gross profit impact of estimated future sales returns.

Concentration of Credit Risk

The Company licenses films and television programs and sells video
cassettes to wholesalers and retailers worldwide. Credit is extended to
wholesalers and retailers based on an evaluation of the customer's financial
condition, and generally collateral is not required. Estimated credit losses
are provided for in the financial statements.

The Company places its temporary cash investments with high credit-
quality financial institutions and limits the amount of credit exposure to any
one financial institution. Generally, such investments mature within 30 to 90
days and therefore are subject to little risk. Since its inception, the Company
has not incurred any losses related to these investments.

Fair Values of Financial Instruments

At December 31, 1999, the carrying value of the Company's financial
instruments, which consist primarily of debt, approximates the fair value due
to the variable nature of the interest on such debt.

Use of Estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and complies with
SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB 25,
compensation expense is recognized over the vesting period based on the
difference, if any, on the date of grant between the deemed fair value for
accounting purposes of the Company's stock and the exercise price on the date
of grant. The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force 96-18.

F-9

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 1--Description of the Business and Summary of Significant Accounting
Policies (Continued)

Earnings Per Share

Earnings per share is computed by dividing the net income allocable to
Class A common stockholders for the period by the weighted average number of
Class A Common Shares outstanding. Diluted earnings per share amounts are based
upon the weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares are excluded from the
computation in periods in which they have an anti-dilutive effect. The
difference between basic and diluted earnings per share for the Company is
attributable to stock options and assumes conversion of Class L Common Shares.
For the period July 10, 1997 to December 31, 1997 and for the years ended
December 31, 1998 and 1999, options for 1,050,000, 1,807,373 and 1,421,104,
respectively, were excluded from diluted earnings per share as their inclusion
would be antidilutive.

For the Years Ended
For the Period December 31,
July 10, 1997 to ----------------------------
December 31, Pro forma
1997 1998 1999 1999
---------------- ------- ------- -----------
(unaudited)
(in thousands, except share and per share
data)

Earnings per Share:
Basic:
Numerator:
Net income per Class A Common
Share....................... $1,268 $ 1,152 $13,770 $ 2,808
Priority distributions due
Class L Common Shares....... 1,031 2,343 2,652 2,652
------ ------- ------- -------
Net income allocable to Class
A Common Shares............. $ 237 $(1,191) $11,118 $11,118
====== ======= ======= =======
Denominator:
Weighted average Class A
Common Shares outstanding... 9,000 9,000 9,182 9,182
Conversion of Class L Common
Shares into Class A Common
Shares...................... -- -- -- 2,322
------ ------- ------- -------
9,000 9,000 9,182 11,504
====== ======= ======= =======
Diluted:
Numerator:
Net income................... $1,268 $ 1,152 $13,770 $11,118
====== ======= ======= =======
Denominator:
Weighted average Class A
Common Shares outstanding... 9,000 9,000 9,182 9,182
Conversion of Class L Common
Shares to Class A Common
Shares*..................... 81,350 86,450 99,198 2,322
Weighted average options
outstanding................. 992 1,444 1,799 1,799
------ ------- ------- -------
91,342 96,894 110,179 13,303
====== ======= ======= =======

- --------
* the number of shares into which Class L Common Shares will convert is
dependent on market price.

F-10

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 1--Description of the Business and Summary of Significant Accounting
Policies (Continued)

Reclassification

Certain reclassifications were made to the 1997 and 1998 financial
statements to conform to the 1999 presentation.

Note 2--Film Costs

Film costs, net of amortization as of December 31, 1998 and December 31,
1999, consist of the following:

December 31,
-----------------
1998 1999
-------- --------
(in thousands)

Released................................................ $ 82,867 $ 97,779
Completed, not released................................. 1,344 8,416
In Process.............................................. 16,748 2,626
-------- --------
$100,959 $108,821
======== ========

Released film costs include costs associated with an acquired library
which are being amortized over 10 years. The Company estimates that 87% of its
film costs (exclusive of the library) recorded at December 31, 1999 will be
amortized during the three years ending December 31, 2002.

Note 3--Equipment

The components of property and equipment at December 31, 1998 and
December 31, 1999 are as follows:

December 31,
-----------------
1998 1999
-------- --------
(in thousands)

Property and equipment.................................. $ 4,867 $ 9,183
Leasehold improvements.................................. 1,786 1,782
Less accumulated depreciation and amortization.......... 923 2,573
-------- --------
$ 5,730 $ 8,392
======== ========

Note 4--Debt and Other Financing

Debt and other financing at December 31, 1998 and December 31, 1999 are
comprised of the following:

December 31,
-----------------
1998 1999
-------- --------
(in thousands)

Revolving line of credit................................ $124,500 $102,500
Term loan............................................... 22,105 15,789
13.5% Senior Subordinated Secured Notes due 2004,
including original issue discount of $2,227 and $1,837
for 1998 and 1999, respectively........................ 12,773 13,163
Notes payable for equipment financing................... 3,905 4,262
-------- --------
$163,283 $135,714
======== ========

F-11

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 4--Debt and Other Financing (Continued)

On July 9, 1997, Artisan Pictures Inc. entered into a $135,000,000 credit
facility with a group of banks. The facility was comprised of a $30,000,000
term loan and a $105,000,000 revolving credit facility. During 1999, the credit
facility was amended and as of December 31, 1999 allowed for a maximum
borrowing of $165,000,000. The maturity date of the credit facility is July 9,
2002.

Both the revolving credit facility and the term loan can bear interest at
either LIBOR plus 2.5% or the bank's prime rate plus 1.5%, at the election of
the Company. Quarterly principal payments of $1,579,000 are due under the term
loan. Substantially all of the borrowings under the facility as of December 31,
1999 were at LIBOR plus 2.5%. At December 31, 1999, LIBOR was 5.82%. The credit
facility contains covenants which, among other things, require adherence to
certain covenants, financial ratios and balances and impose limitations on film
acquisition and production costs, and general and administrative costs. The
credit facility is collateralized by substantially all of the Company's assets.

On July 9, 1997, Artisan Pictures Inc. entered into an agreement with
CanPartners Investments IV, LLC for $15,000,000 of Senior Subordinated Secured
Notes which bear interest at 13.5% per annum and which are due in 2004. Such
Notes are subordinated to the bank credit facility.

On October 20, 1998 and December 21, 1999, Artisan Pictures Inc. entered
into a four-year $4,083,000 loan and a three and one-half-year $1,200,000 loan,
respectively. The loans were used to finance the acquisition of property and
equipment. The loans are payable monthly, bear interest at 12.53% and 12.9%,
respectively, and are collateralized by the furniture and equipment and a
$1,000,000 letter of credit.

Annual maturities of long-term borrowings outstanding at December 31,
1999 are as follows:

(in thousands)
--------------

2000....................................................... $ 7,569
2001....................................................... 7,736
2002....................................................... 106,945
2003....................................................... 206
2004....................................................... 15,000
Thereafter................................................. --

Note 5--Leases

The Company leases office facilities and computer equipment, furniture,
fixtures and other equipment. Most leases require that the Company perform all
necessary repairs and maintenance, provide insurance and pay taxes assessed
against the leased property. The terms of these leases range from month-to-
month to ten years. Certain rents are adjusted based upon changes in the
Consumer Price Index. The leases are classified as operating leases in the
financial statements.

Future minimum operating lease payments as of December 31, 1999 are as
follows:

(in thousands)
--------------

2000....................................................... $1,859
2001....................................................... 1,887
2002....................................................... 1,957
2003....................................................... 1,995
2004....................................................... 2,044
Thereafter................................................. 7,682

F-12

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 5--Leases (Continued)

For the period July 10, 1997 through December 31, 1997 and for the years
ended December 31, 1998 and 1999, rent expense under all operating leases was
$617,000, $1,258,000, and $1,648,000, respectively.

The Company also has a capital lease related to equipment and furniture.
The lease obligation is classified as accrued expenses in the financial
statements.

Future minimum capital lease payments as of December 31, 1999 are as
follows:

(in thousands)
--------------

2000....................................................... $602
2001....................................................... 660
2002....................................................... 225
2003....................................................... 29
2004....................................................... --
Thereafter................................................. --

Note 6--Film Costs Obligations

At December 31, 1998 and December 31, 1999, the unrecorded future
obligations for undelivered film product were approximately $64,683,000 and
$19,439,000, respectively. Deposits made for guaranteed delivery of undelivered
film product are recorded as film costs. Certain agreements permit a reduction
in the amount of film right payments when stipulated conditions have not been
met. Many agreements also contain an obligation for the payment of
participations and royalties above the minimum guarantee if sales exceed a
stipulated amount. At December 31, 1998 and December 31, 1999, $6,864,000 and
$11,221,000, respectively, of royalties and participations payable are included
in film obligations.

In October 1999, the Company entered into agreements with a third party
under which the Company has agreed to finance a portion of production and
distribution costs of certain motion picture films acquired by the third party.
The Company is the exclusive distributor of these films. The Company further
provides acquisition services to this third party and is actively involved in
the production of the films acquired under the agreements. Additionally, the
Company is required to meet detailed criteria, including a commitment to
provide a minimum of eight qualifying feature-length films by October 2002.

In the event that these requirements are not met, the Company may be
required to repurchase all or some of the pictures acquired by this third
party. As of December 31, 1999, two films had been sold under these agreements
and no films had been reacquired. As a distributor, the Company recorded, in
its statements of operations, the revenues received from and the operating
expenses related to the exploitation of the films in all markets. Additionally,
amounts due to the purchaser under these agreements were included in film
obligations payable.

Note 7--Income Taxes

As discussed in Note 1, the Company computes its income tax provision in
accordance with SFAS No. 109. There was no provision for income taxes for the
period July 10, 1997 to December 31, 1997 and for the years ended December 31,
1998 and 1999.

F-13

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 7--Income Taxes (Continued)

At December 31, 1998 and December 31, 1999, the major tax effected
components of the net deferred tax liability are as follows:

December 31,
------------------
1998 1999
-------- --------
(in thousands)

Deferred tax assets
Sales returns and other allowances.................. $ 5,299 $ 19,561
Accelerated depreciation............................ 180 --
Accruals not currently deductible................... 6,724 3,311
NOL and capital loss carryforwards.................. 18,761 25,238
Deferred income..................................... 2,584 2,427
Other items and credits............................. -- 813
-------- --------
Gross deferred tax assets......................... 33,548 51,350

Valuation allowance................................. (26,765) (20,546)
-------- --------
Total deferred tax assets......................... 6,783 30,804
-------- --------
Deferred tax liabilities
Film costs.......................................... (6,943) (30,900)
Accelerated depreciation............................ -- (237)
Deferred state taxes................................ (867) (345)
-------- --------
Total deferred tax liabilities.................... (7,810) (31,482)
-------- --------
Net deferred tax liability............................ $ (1,027) $ (678)
======== ========

The difference between the reported tax provision and the statutory rate
is as follows:

1997 1998 1999
------ ------- ------

Statutory federal tax rate........................ 34.0% 34.0% 34.0%
State income taxes net of federal benefit......... 0.0% 0.0% 0.0%
Nondeductible amortization of goodwill............ 60.0% 136.7% 11.8%
Other............................................. 2.7% 7.2% (1.5%)
Net change in valuation allowance................. (96.7%) (177.9%) (44.3%)
------ ------- ------
Effective tax rate................................ 0.0% 0.0% 0.0%
====== ======= ======

On July 9, 1997, LIVE was acquired in a transaction which resulted in a
change of ownership as defined under Section 382 of the Internal Revenue Code.
Such change of ownership resulted in a limitation on the future utilization of
LIVE's net operating loss carryforwards beginning with the period ended
December 31, 1997. The annual limitation is approximately $750,000 per year
subject to certain increases relating to built-in gain items.

At December 31, 1998 and December 31, 1999, approximately $52,000,000 and
$69,000,000, respectively, of net operating loss carryforwards are available
for regular federal tax reporting purposes, of which $31,000,000 are subject to
annual limitations described above. The net operating loss carryforwards expire
between the years 2006 and 2019. At December 31, 1998 and 1999, state net
operating loss carryforwards of approximately $5,000,000 and $8,000,000,
respectively, are also subject to the annual limitations described above and
will expire between the years 2000 and 2004. For federal Alternative Minimum

F-14

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 7--Income Taxes (Continued)

Tax ("AMT") purposes, approximately $49,000,000 of net operating loss
carryforwards will expire between 2006 and 2019. Additionally, foreign tax
credits of $523,000, are available to offset future regular income tax
liabilities but are also subject to the limitations mentioned above.

At December 31, 1999, approximately $30,413,000 of the valuation
allowance for acquired deferred tax assets, if utilized, would result in a
reduction of goodwill.

Note 8--Stock Option Plan

On July 9, 1997, the Board of Directors approved the Company's 1997 Stock
Option Plan (the "Plan"). Under the provisions of the Plan, 2,965,421 Class A
Common Shares are available for grant with option prices ranging from $0.001 to
$10.12 per share. The options expire 10 years after the date of grant.

Options to purchase 171,902 shares vested on the grant date.
Additionally, options to purchase 1,875,000 and 914,886 shares vest at a rate
of 5% per quarter and 20% per annum, respectively, from the date of grant.

During the fiscal year ended December 31, 1998, options to purchase
25,000 and 500,000 Class A Common Shares were granted outside of the Plan to
certain directors and advisors of the Company, respectively. The 25,000 options
vest at 20% per annum and the 500,000 options vested 10% semi-annually from the
date of grant. The option prices range from $0.001 to $10.12 per share. During
1999, the Company discontinued a service agreement with an advisor and, as a
result, 500,000 options vested as of July 3, 1999.

SFAS No. 123, "Accounting for Stock Based Compensation," requires certain
disclosures for fiscal years beginning after December 15, 1995 for those
companies that will continue to use an intrinsic value based method for
measuring compensation cost in connection with employee stock compensation
plans in accordance with APB No. 25. The Company will continue to use such
method, under which $32,000 in compensation cost has been recognized in 1999.

The fair market value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model, with the following
assumptions used for grants in 1999: risk free interest rates in the range from
4.65% to 5.97%; expected dividend yields of zero; and expected lives in the
range from 3.83 to 5 years.

On a pro forma basis, compensation cost determined in accordance with
SFAS No. 123 has no material impact on net income or earnings per share in each
of the years presented.

A summary of the option activity is as follows:

Number of Option Price Weighted Average
Shares Per Share Exercise Price
--------- ------------- ----------------

Outstanding at December 31,
1996.......................... -- -- --
Granted........................ 2,046,902 $.001--$10.12 $3.69

Outstanding at December 31,
1997.......................... 2,046,902 $.001--$10.12 $3.69
Granted........................ 773,523 $.001--$10.12 $3.98

Outstanding at December 31,
1998.......................... 2,820,425 $.001--$10.12 $3.77
Granted........................ 141,363 $.001--$10.12 $3.86

Outstanding at December 31,
1999.......................... 2,961,788 $.001--$10.12 $3.77

F-15

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 8--Stock Option Plan (Continued)

Exercisable at:

December 31, 1997 December 31, 1998 December 31, 1999
----------------------- ------------------------ ------------------------
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------

203,152 $ .001 431,752 $ .001 676,289 $ .001
11,250 $ 2.98 73,643 $ 2.98 141,597 $ 2.98
20,625 $ 6.55 128,631 $ 6.55 243,892 $ 6.55
20,625 $10.12 133,602 $10.12 253,809 $10.12
------- ------- ---------
255,652 767,628 1,315,587

Outstanding at December 31, 1999:

Weighted Average
Number Exercise Remaining Life
Outstanding Prices (in years)
----------- -------- ----------------

1,391,421 $ .001 7.70
359,263 $ 2.98 7.79
605,552 $ 6.55 7.74
605,552 $10.12 7.74
---------
2,961,788

No options were exercised or cancelled during the period from July 10,
1997 to December 31, 1997, nor in the years ended December 31, 1998 and 1999.

The weighted average grant date fair value of options granted during the
year ended December 31, 1999 was $1.90 for those options whose exercise price
was less than the fair value of the stock on the grant date, and $0.79 for
those options whose exercise price was greater than the fair value of the stock
on the grant date.

Note 9--Stockholders' Equity

Common Stock

The two classes of common stock outstanding at December 31, 1998 and
December 31, 1999 were Class A Common Stock and Class L Common Stock. The Class
A Common Stock is divided into seven sub-classes. Holders of Class A Common
Stock are entitled to one vote per share held (except for holders of Class A-7
Common Stock, who are not entitled to vote in the election of directors but who
are entitled to vote on all other matters). Holders of Class L Common Stock are
not entitled to vote on any matter.

The holders of Class L Common Stock have first priority in receiving
distributions from the Company until there has been paid to such holders an
amount equal to $16.07 per share, plus an amount (the "Priority Amount")
sufficient to generate an internal rate of return thereon equal to 12.5% per
annum, compounded quarterly, through the date such distributions are made.
After such distributions have been made to holders of Class L Common Stock,
holders of Class A and Class L Common Stock are entitled to receive any
additional distributions, pro rata based on the number of shares of Class A and
Class L Common Stock outstanding on the date of such additional distributions.

F-16

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9--Stockholders' Equity (Continued)

At any time upon a public offering or upon a change of control of the
Company, the Board of Directors may elect to convert each share of Class L
Common Stock into a number of shares of Class A Common Stock equal to: (i) one
plus (ii) a fraction, the numerator of which is the remaining unpaid Priority
Amount and the denominator of which is the implied value of one share of Class
A Common Stock at the time of conversion.

Stock Subscriptions Receivable

On July 9, 1997 loans were granted to certain officers of the Company in
connection with the purchase of the Company's Common Stock. The loans bear
interest at 6% payable annually beginning on May 1, 1998 and are collateralized
by the Common Stock.

Note 10--Incentive Savings Plan

The Company has established the Artisan Incentive Savings Plan (formally
LIVE Incentive Savings Plan) (the "Plan"), a profit sharing and 401(k) savings
plan, in which eligible employees of the Company may participate. To be
eligible, employees must be 21 years of age or older and have completed one
year of service. Eligible employees become participants in the Plan on the
entry date immediately following the completion of the eligibility
requirements. Participants remain eligible for employer contribution as long as
they maintain the 1,000 hour annual service requirement. Employees may elect to
contribute up to 20% of compensation on a pre-tax basis, subject to certain
limits. The Company matches 25% of the first 6% of the employee's compensation
contributed to the Plan. With certain exceptions, contributions made by the
Company vest equally over four years. Contributions made by participants are
fully vested at all times. The Company, at the discretion of the Board of
Directors, may make annual profit sharing contributions to the Plan. Such
profit sharing contributions, if any, are allocated to participants' accounts
in proportion to their compensation. Company contributions to the Plan were
approximately $72,000 for each year ended December 31, 1998 and 1999.

Note 11--Major Customers, Suppliers, and Export Sales

During the period July 10, 1997 to December 31, 1997, one customer
accounted for 10.1% of net sales.

During the years ended December 31, 1998 and 1999, no one customer
accounted for more than 10% of net sales.

The Company was party to a license agreement which granted the Company
certain home video rights to certain Christmas and other seasonal video
programs. This agreement expired at the end of 1997. Programs under this
agreement provided 15.76% of total net revenue for the period ended December
31, 1997.

F-17

ARTISAN ENTERTAINMENT INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 11--Major Customers, Suppliers, and Export Sales (Continued)

Export revenue from the Company's United States operations to
unaffiliated customers for the period July 10, 1997 to December 31, 1997 and
for the years ended December 31, 1998 and 1999 were:

For the Period December 31,
July 10, 1997 to ---------------
December 31, 1997 1998 1999
----------------- ------- -------
(in thousands)

Europe................................... $5,190 $12,835 $30,870
Asia..................................... 2,527 4,478 8,431
Canada................................... 0 3,918 5,056
South America............................ 235 2,354 2,810
Other.................................... 384 1,986 4,821
------ ------- -------
Total.................................... $8,336 $25,571 $51,988
====== ======= =======

Note 12--Legal Proceedings

On June 23, 1997, a shareholder class action complaint was filed in the
Court of Chancery of the State of Delaware in Newcastle County. The complaint
alleges breach of fiduciary duty in connection with the sale of LIVE. The
complaint seeks certification as a class action, asks that the Court enjoin the
sale and seeks costs and expenses and such other relief as the Court deems
appropriate. On January 22, 1999, LIVE Entertainment Inc.'s Summary Judgment
motion was granted and all claims were dismissed. On March 8, 1999, plaintiffs
filed a second lawsuit claiming misrepresentations in the proxy statement
distributed in connection with the sale of LIVE in Federal Court in the
Southern District of New York. Management and counsel to the Company believe
that this lawsuit is without merit and intend to defend it vigorously. In the
opinion of management, this action, when finally concluded and the outcome
determined, will not have a material adverse affect upon the Company's
financial position, results of operations or cash flows.

Note 13--Related Party Transactions

The Company has entered into agreements with affiliates of certain
shareholders to provide management and other services to the Company in
exchange for a monthly fee of $100,000 payable quarterly. Management fees of
$1,200,000 were paid in each of the years ended December 31, 1998 and 1999.

In October 1999, the Company entered into agreements with a third party
for the production and distribution of certain films. A 16.44% Shareholder of
the Company is also a 12.5% owner of the third party.

Note 14--Employment Agreements

The Company has employment agreements with certain of its officers and
employees generally for terms of one to four years. Future minimum payments
under these agreements are approximately $6,946,000, $4,369,000, and $2,841,000
for the years ending December 31, 2000, 2001, and 2002, respectively.

F-18

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Artisan Entertainment Inc.:

The merger described in Note 1 to the Artisan Entertainment Inc.
consolidated financial statements has not been consumated at February 14, 2000.
When it has been consumated, we will be in a position to furnish the following
report.

In our opinion, the accompanying consolidated statements of operations,
of cash flows and stockholders' equity present fairly, in all material
respects, the results of operations and cash flows of LIVE Entertainment Inc.
and its subsidiaries (the "Company") for the period from January 1, 1997
through July 9, 1997 in conformity with generally accepted accounting
principles in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP
Century City, California
January 28, 2000

F-19

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

For the Period
January 1,
1997 to
July 9, 1997
--------------
(in thousands)

Net sales........................................................ $53,698
Cost of goods sold............................................... 47,680
Selling, general and administrative expenses..................... 12,472
-------
Operating loss................................................... (6,454)
Interest and other income........................................ 1,429
Interest expense................................................. (913)
-------
Loss before income taxes......................................... (5,938)
Provision for income taxes....................................... --
-------
Net loss......................................................... (5,938)
-------
Preferred dividends.............................................. 2,341
-------
Net loss allocable to common shares.............................. $(8,279)
=======

See accompanying notes to the consolidated financial statements.

F-20

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

1997
----------------
Shares Amount
------ ---------
(in thousands)

Series B Cumulative Convertible Preferred Stock
Balance at January 1, 1997.................................. 3,819 $ 3,819
----- ---------
Balance at July 9, 1997..................................... 3,819 3,819
----- ---------
Series C Convertible Preferred Stock
Balance at January 1, 1997.................................. 15 15
----- ---------
Balance at July 9, 1997..................................... 15 15
----- ---------
Common Stock
Balance at January 1, 1997.................................. 2,448 24
----- ---------
Balance at July 9, 1997..................................... 2,448 24
----- ---------
Additional Paid-in Capital
Balance at January 1, 1997.................................. $ 123,930
Series B Cumulative Convertible Preferred Stock dividend
accrual.................................................. (1,889)
Series C Convertible Preferred Stock dividend accrual..... (452)
---------
Balance at July 9, 1997..................................... 121,589
---------
Retained Deficit
Balance at January 1, 1997.................................. (99,321)
Net loss.................................................... (5,938)
---------
Balance at July 9, 1997..................................... (105,259)
---------
Total Stockholders' Equity.................................... $ 20,188
=========

See accompanying notes to the consolidated financial statements.

F-21

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Period
January 1, 1997
to July 9, 1997
---------------
(in thousands)

Operating Activities:
Net loss..................................................... $ (5,938)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization of property and equipment.... 281
Amortization of goodwill................................... 1,962
Amortization of film costs................................. 27,656
Income taxes payable and deferred income taxes............. 85
(Increase) decrease in operating assets:
Accounts receivable........................................ 9,660
Inventories................................................ (2,791)
Film costs................................................. (29,677)
Other assets............................................... (1,183)
Increase (decrease) in operating liabilities, net of
acquisitions:
Accounts payable, accrued expenses, and deferred revenue... (4,682)
Payments on film obligations............................... (4,188)
Other...................................................... 20
--------
Cash used for operating activities......................... (8,795)

Investing Activities:
Acquisition of property and equipment........................ (473)
--------
Cash used for investing activities......................... (473)

Financing Activities:
Payments on long-term obligations............................ (6,736)
Dividends paid on Series B Preferred Stock................... (2,865)
--------
Cash used for financing activities......................... (9,601)
Decrease in cash and cash equivalents...................... (18,869)
Cash and cash equivalents at beginning of period........... 41,992
--------
Cash and cash equivalents at end of period................. $ 23,123
========
Supplemental Disclosure of Cash Paid for:
Interest..................................................... $ 2,966
========
Taxes........................................................ $ 106
========

See accompanying notes to the consolidated financial statements.

F-22

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 9, 1997

Note 1--Description of the Business and Summary of Significant Accounting
Policies

LIVE Entertainment Inc. ("LIVE" or the "Company") was formed in 1988 and
its largest ongoing businesses are LIVE Film & Mediaworks Inc. ("LFM")
(formerly LIVE Home Video Inc.) and LIVE International ("LI"), which primarily
acquires rights to produce and distribute theatrical motion pictures,
children's films and special interest programs (including CD-ROM) which they
market and distribute in all media to wholesalers, retailers and consumers in
the United States and Canada (LFM) and internationally (LI). The Company's
operations are principally in a single business segment, the production,
distribution and retail sale of a broad variety of film related entertainment
software products.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries LFM and LI. All significant intercompany balances and
transactions have been eliminated.

Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash is cash required to be on reserve for film production
contingencies. Such restricted cash is expected to be available to the Company
within 12 months of the balance sheet date.

Inventory Valuation

LFM's inventory of duplicated video cassettes and boxes is stated at the
lower of cost, determined by the first-in first-out ("FIFO") method, or market.

Property and Equipment

Property and equipment are stated at cost and are depreciated over their
estimated remaining lives using accelerated and straight-line methods.
Leasehold improvements are amortized over the lesser of their estimated useful
lives or the terms of the related leases.

Film Costs

Acquisition, production, print and advertising costs (which benefit
future periods) are capitalized as film costs. Film costs are stated at the
lower of unamortized cost or estimated net realizable value. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 53, the individual
film forecast method is used to amortize film costs. Films costs 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 costs are amortized. Where film rights are acquired from producers for a
guaranteed minimum payment and the producer retains a participation in the film
profits, the film profits are allocated to the Company until the guaranteed
minimum payment is recovered, after which the producer's share is accrued.

F-23

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 1--Description of the Business and Summary of Significant Accounting
Policies (Continued)

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. Based on this review, if estimated future gross
revenues from a film are not sufficient to recover the unamortized film costs,
other direct distribution expenses, and participations, the unamortized film
cost is written down to net realizable value. In unusual cases, such as a
change in public acceptance of certain types of films or actual costs
substantially in excess of budgeted costs, a write-down to net realizable value
may be recorded before the film is released.

Goodwill

Goodwill represents both the excess of consideration paid for companies
acquired in purchase transactions over the estimated fair value of the net
assets of such companies and the application of pushdown accounting associated
with the purchase of LFM by Carolco Pictures Inc. ("Carolco") in 1986. Goodwill
is being amortized principally on a straight-line basis over 20 years. The
Company reviews its intangible assets for impairment whenever events or changes
in circumstances indicate the carrying amount of such assets may not be
recoverable. Impairment losses are recorded in the event that net book value of
such assets exceeds the future undiscounted cash flows attributable to such
assets.

Income Taxes

The Company records its income tax provision in accordance with the SFAS
No. 109, "Accounting for Income Taxes." Deferred income taxes are provided on
transactions which are reported in the financial statements in different
periods than they are for income tax purposes. Current and deferred taxes are
provided based on filing a consolidated tax return for federal income tax
purposes and combined state tax returns where permitted by state taxing
authorities.

Revenue Recognition

Minimum guaranteed amounts from theatrical exhibition and revenues from
home video, free television and pay television license agreements are
recognized in accordance with SFAS No. 53, when the license period begins for
each motion picture, the license fee and cost of each picture are known, such
motion pictures have been accepted and are available pursuant to the terms of
the noncancelable license agreements and the collectability of the full license
fee is reasonably assured. Revenues from theatrical exhibition in excess of
minimum guaranteed amounts are recognized during the period of exhibition. Cash
collected in advance of the time of availability is recorded as advance
collections on contracts.

After completion, a typical theatrical film will generally be made
available for license as follows:

Months After Approximate
Initial Release
Marketplace Release Period
----------- ------------ ------------

F-24

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 1--Description of the Business and Summary of Significant Accounting
Policies (Continued)

Video Cassette and Disc Sales Revenue and Returns Recognition

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

Net Loss Per Common Share

Loss per common share has not been presented for LIVE Entertainment Inc.
(the predecessor company), as such shares do not trade in the public market.

Concentration of Credit Risk

The Company sells film properties and video cassettes to wholesalers,
retailers and consumers worldwide. Sales by LFM are made to customers
nationwide. Sales by LI are made to customers in various territories worldwide.
Credit is extended to wholesalers and retailers based on an evaluation of the
customer's financial condition, and generally collateral is not required.
Credit losses are provided for in the financial statements and consistently
have been within management's expectations. Credit risk relating to the sale
and distribution of video cassettes by Warner-Elektra-Atlantic Corporation
("WEA") to LFM's customers has been assumed by WEA under the terms of a three-
year distribution agreement (see Note 3).

The Company places its temporary cash investments with high credit
quality financial institutions and limits the amount of credit exposure to any
one financial institution. Generally, the investments made mature within 30 to
90 days and therefore are subject to little risk. The Company has not incurred
any losses related to these investments.

Fair Values of Financial Instruments

At July 9, 1997, the carrying value of the Company's financial
instruments, which consist primarily of debt, approximates the fair value
thereof.

Use of Estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Stock Based Compensation

The Company accounts for its stock compensation arrangements under the
provision of Accounting Principals Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and intends to continue this method of
accounting.

Note 2--Series C Preferred Stock

On March 23, 1993, Pioneer Entertainment (USA) L.P., formerly Pioneer
LDCA, Inc., ("Pioneer") received 15,000 shares of the Company's Series C
Preferred Stock, par value $1.00 per share and in 1995 transferred these shares
to its parent company, Pioneer Electronic Corporation ("PEC").

F-25

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 2--Series C Preferred Stock (Continued)

The Series C Preferred Stock bears a cash dividend rate of 5% ($50 per
share) per annum, payable semi-annually on June 30 and December 31 of each
year. Although the June 30 and December 31 dividends were accrued by the
Company during 1993, 1994, 1995, 1996, and the period ended July 9, 1997,
dividends totaling approximately $3,530,000 ($235.33 per share) (including
dividends on the unpaid dividends) were not paid due to restrictions imposed on
the Company by the terms of the Series B Preferred Stock, which prohibit the
payment of dividends on the Series C Preferred Stock unless the aggregate
amount of such dividends, together with all cash dividends paid on the Series B
Preferred Stock, does not exceed the net income of the Company (adding back
specified net worth exclusions) since the March 23, 1993 date of issuance of
the Series C Preferred Stock and the Series B Preferred Stock. The Company has
realized cumulative consolidated net losses since the Series C Preferred Stock
and the Series B Preferred Stock were issued. Thus, pursuant to the terms of
the Series B Preferred Stock, the Company is prohibited from paying the June 30
and December 31, 1993, 1994, 1995, 1996, and June 30, 1997 cash dividends on
the Series C Preferred Stock.

The Series C Preferred Stock ranks junior to the Series B Preferred Stock
and senior to all other classes of stock of the Company. The Series C Preferred
Stock is convertible into 1,217,069 shares of common equity of the Company
(either Common Stock or Series A Common Stock) at July 9, 1997. The number of
shares into which the Series C Preferred Stock is convertible was determined by
dividing the $15,000,000 liquidation preference plus accrued dividends of
approximately $3,530,000 of the Series C Preferred Stock by $15.225, which was
140% of the average closing price of the Company's Common Stock for the ten
trading days ending March 18, 1993, the date that was three business days prior
to the completion of the Company's financial restructuring on March 23, 1993
("Restructuring"). Holders of the Series C Preferred Stock are entitled to vote
with the holders of Common Stock generally with each share entitled to as many
votes as the number of shares of Common Stock into which it may be converted.
The Series C Preferred Stock, in combination with the Company's Common Stock
owned by PEC, represents approximately 50% of the voting equity of the Company
(see Note 12). The Series C Preferred Stock may only be redeemed in certain
limited circumstances in the event of increases in the trading price of the
Company's Common Stock or in the event of a merger of the Company with another
entity.

Note 3--Debt and Other Financing

LIVE and its affiliates are a party to a three-year $30,000,000 revolving
credit facility with Foothill Capital Corporation (the "Foothill Credit
Facility") expiring November 14, 1997. In March 1997, an amendment was entered
into that extended the expiration date of the Foothill Credit Facility, under
the existing terms, to March 1, 1998. Borrowings available under the Foothill
Credit Facility are limited to $27,500,000 until additional participant lenders
are added to the Facility, at which time the borrowings available will be
increased to a maximum $30,000,000. Borrowings under the Foothill Credit
Facility are determined under a borrowing base calculation, which includes
certain allowable accounts receivable, film rights and inventory balances, and
are collateralized by substantially all of the assets of LIVE and its
subsidiaries. Outstanding borrowings under the Foothill Credit Facility bear
interest at the rate of 2% per annum above the highest of the Bank of America,
Mellon Bank or Citibank prime rate, payable monthly. In no event will interest
under the Foothill Credit Facility be less than 7% per annum. The Foothill
Credit Facility provided for a closing fee of $500,000, an annual facility fee
of 1/4 of 1% and a commitment fee of 1/4 of 1% on any unused amount. The
Foothill Credit Facility also requires LIVE to meet certain financial ratios,
and as of July 9, 1997, the Company was in compliance with all such financial
ratios. There were no amounts outstanding under the Foothill Credit Facility as
of July 9, 1997.

F-26

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 3--Debt and Other Financing (Continued)

On May 27, 1995, LFM entered into a three year extension of its
distribution agreement originally signed in May 1992 with WEA. Under the terms
of the extension, WEA advanced $10,000,000 to LFM ($20,000,000 had been
advanced under the original agreement and repaid entirely prior to the 1995
extension), recoupable from distribution revenues during the three year term
of the agreement at $277,778 per month, including interest at LIBOR, plus
0.2%. On October 21, 1996 LIVE amended the distribution agreement, to be
effective May 7, 1996, whereby LIVE assumed responsibility of all sales and
sales solicitation services which were previously the responsibility of WEA.
The amendment also included a reduction in certain distribution fees shared by
WEA, as a result of the shift in sales and sales solicitation responsibility,
and an additional advance to LIVE of $10,000,000. The additional advance is
recoupable from distribution revenues during the remaining term of the
agreement at $476,190 per month plus interest at LIBOR plus 0.2%. In order to
obtain the advances, LIVE granted WEA a second priority security interest in
substantially all of LIVE's assets. At July 9, 1997, there was $9,048,000
outstanding related to the WEA advances. The interest rate on the advance at
July 9, 1997 was 5.84%.

Note 4--Leases

The Company generally conducts its operations through leased office
facilities. The Company also leases automobiles, computer equipment,
furniture, fixtures and other equipment. Most leases require that the Company
perform all necessary repairs and maintenance, provide insurance and pay taxes
assessed against the leased property. The terms of leases range from month-to-
month to four years, some of which have renewal options. Certain rents are
adjusted for increases based upon the Consumer Price Index. The leases are
classified as operating leases.

The future minimum operating lease payments are as follows:

Twelve Months Ending July 9, (in thousands)
---------------------------- --------------

1998...................................................... $1,171
1999...................................................... 892
2000...................................................... 429
------
Total net minimum lease payments.......................... $2,492
======

For the period ended July 9, 1997, rent expense under all operating
leases aggregated $571,000.

Note 5--Film Cost Obligations

At July 9, 1997, the unrecorded future obligations for undelivered film
product approximates $31,479,000. Deposits made for guaranteed delivery of
undelivered film product are recorded as film costs. Certain agreements permit
a reduction in the amount of film right payments when stipulated conditions
have not been met. Many agreements also contain an obligation for the payment
of royalties above the minimum guarantee if sales exceed a stipulated amount.
At July 9, 1997, $6,878,000 of royalties payable are included in film
obligations.

F-27

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 6--Increasing Rate Senior Subordinated Notes Due 1999

On March 17, 1993, the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court") confirmed a prepackaged plan of
reorganization (the "Prepackaged Plan") for LIVE, providing for the issuance of
$40,000,000 in principal amount of Increasing Rate Senior Subordinated Notes
due 1999 (the "LIVE Increasing Rate Notes"). The LIVE Increasing Rate Notes
mature on March 23, 1999. Interest accrued on the LIVE Increasing Rate Notes
from September 1, 1992 at 10% per annum and was increased to 12% in November
1994 through an amendment to the Indenture between the Company and American
Stock Transfer & Trust Company, as Trustee (the "Indenture") that governed the
terms of the notes.

Payment of the LIVE Increasing Rate Notes is collateralized only by a
lien on the Common Stock of LFM, subject and subordinate to a lien under the
Foothill Credit Facility and is subordinated to all of the Company's present
and future senior debt. The LIVE Increasing Rate Notes are subject to mandatory
redemption of $20,000,000 of the principal amount on March 23, 1998 and are
redeemable at any time at par plus accrued interest.

The Indenture restricts the ability of the Company and its Restricted
Subsidiaries (as defined) to incur additional senior debt and subsidiary senior
debt, to make restricted payments and restricted investments, to merge,
consolidate or sell assets of the Company or its Restricted Subsidiaries, to
create liens other than to collateralize senior debt, subsidiary senior debt
and certain other permitted debt, or to enter into certain transactions with
affiliates of the Company.

Interest to maturity of the LIVE Increasing Rate Notes of $6,963,000 at
July 9, 1997 has been included in the carrying value of the LIVE Increasing
Rate Notes, in accordance with SFAS No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings," and will not be recognized as
interest expense in current and future years.

Note 7--Income Taxes

As discussed in Note 1, the Company records its income tax provision in
accordance with SFAS No. 109. There was no provision for income taxes for the
period January 1, 1997 to July 9, 1997.

Components of Deferred Tax Assets and Liabilities (Tax Effected)

Deferred tax assets:
Sales returns and other allowances............................ $ 3,796
Accelerated depreciation...................................... 234
Accruals not currently deductible............................. 10,801
NOL and capital loss carryforwards............................ 10,989
Deferred income............................................... 1,719
--------
27,539
Valuation allowance........................................... (30,413)
--------
Total deferred tax assets..................................... (2,874)
--------
Deferred tax liabilities:
Amortization of film costs and other.......................... (11,987)
Deferred state taxes.......................................... (1,570)
--------
Total deferred tax liabilities.............................. (13,557)
--------
Net deferred tax liability...................................... $(16,431)
========

F-28

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 7--Income Taxes (Continued)

Reconciliation of Effective Rate of Income Taxes

Federal statutory rate............................................. (34.0%)
State income taxes net of federal benefit.......................... 0.0%
Nondeductible amortization of goodwill............................. 11.2%
Other.............................................................. 0.7%
Net change in valuation allowance.................................. 22.1%
-----
Effective tax rate............................................... 0.0%
=====

On July 9, 1997, LIVE was acquired in a transaction which resulted in a
change of ownership as defined under Section 382 of the Internal Revenue Code.
Such a change of ownership resulted in a limitation on the future utilization
of LIVE's net operating loss carryforwards beginning with the period ended
December 31, 1997. The annual limitation is approximately $750,000 per year
subject to certain increases relating to built-in gain items.

At July 9, 1997, approximately $31,000,000 of net operating loss
carryforwards are available for regular federal tax return purposes and are
subject to annual limitations described above. The net operating loss
carryforwards will expire between the years 2006 and 2011. State net operating
loss carryforwards are approximately $1,400,000, of which $1,000,000 are also
subject to the annual limitations described above. Net operating losses for
state tax purposes will expire between the years 1999 and 2001. For federal
Alternative Minimum Tax ("AMT") purposes, approximately $13,000,000 of net
operating loss carryforwards will expire between 2006 and 2011. Additionally,
foreign tax credits of $274,000 are available to offset future regular federal
income tax liabilities but are also subject to the annual limitations described
above. State capital loss carryforwards are $15,000,000 which expire in 1999.

The Company is under examination by the Internal Revenue Service ("IRS")
for the years ended 1993 and 1994. The Company believes, that with the
additional provision for income taxes recorded in 1996, it has provided
adequate reserves to cover its income tax liabilities at July 9, 1997.

Note 8--Stockholders' Equity

The Series B Preferred Stock has a liquidation value of $10.00 per share.
Holders of the Series B Preferred Stock are entitled to an annual dividend,
payable quarterly, which accrued from September 1, 1992 at 5% ($0.50 per share)
if paid in cash or 8% if paid in kind ("PIK") and increased on May 1, 1996 to
10% ($1.00 per share) if paid in cash and 12% if PIK. In the period ending July
9, 1997 dividends of $1,889,000 ($0.50 per share) were accrued on the Series B
Preferred Stock. Dividends were paid beginning in March 1993 and quarterly
thereafter. The Company may redeem the Series B Preferred Stock at any time at
100% of the liquidation value, plus accrued dividends.

Although LIVE has no obligation to redeem any Series B Preferred Stock,
subject to the availability of funds and the prior approval of its Board of
Directors and its lenders, LIVE may acquire shares of its Series B Preferred
from time to time, either through private purchases or through open market
purchases.

Holders of the Series B Preferred Stock are entitled to elect four
members, or under certain circumstances, a majority of the Company's Board of
Directors. No other voting rights exist. In addition, commencing May 1, 1996,
holders can convert the Series B Preferred Stock into LIVE Common Stock. The

F-29

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 8--Stockholders' Equity (Continued)

conversion price per share is obtained by dividing the liquidation value by
either the market price of the Common Stock or the "Floor Price." The Floor
Price is initially $20.00 per share of Common Stock, decreasing $1.25 per share
at the end of each three month period thereafter. A conversion feature includes
the conversion price to be reset to the lower of the market price or $5.00 per
share on September 1, 1998, resulting in the potential issuance of a minimum of
approximately 7,600,000 shares of the Company's Common Stock based upon the
number of Series B Preferred Stock shares outstanding as of July 9, 1997.

See also a description of the Company's Series C Preferred Stock in Note
2.

The Company's Stock Option and Stock Appreciation Rights Plan (the
"Plan") provides for the granting of incentive stock options, non-qualified
stock options and stock appreciation rights ("SARs") to its officers,
directors, key employees, consultants and other persons. Options to purchase a
maximum of 700,000 shares of the Company's Common Stock, of which 120,000 may
be granted as SARs, are available under the Plan. The options vest over varying
periods and expire in 10 years.

During 1996 the Stock Option Committee of the Board of Directors granted
to certain current employees of LIVE and LFM a total of 274,400 options of
which 6,750 were subsequently exercised or canceled at an average exercise
price of $3.50, the closing price of the Common Stock on The Nasdaq Stock
Market's National Market on the day of the grants. The options vest ratably
over periods ranging from two to three years.

On March 6, 1995, the Stock Option Committee of the Board of Directors
granted to all current employees and Directors of LIVE and LFM (other than
members of the Stock Option Committee) who were holders of options pursuant to
the Company's 1988 Stock Option and Stock Appreciation Rights Plan, as amended
(the "1988 Plan"), the option to agree to cancel certain options (the "Canceled
Options") and to receive in return therefore new options (the "New Options")
pursuant to the 1988 Plan, all on the following terms and conditions: (i) the
exercise price for the New Options would equal $3.50, the closing price of the
Common Stock on the SmallCap Market on March 6, 1995, (ii) fifty percent (50%)
of the New Options would vest on March 6, 1996; the remainder would vest on
March 6, 1997, provided that no New Options would vest earlier than the
scheduled vesting date for the corresponding Canceled Options, and (iv) all New
Options would expire on the expiration date of the corresponding Canceled
Options.

A summary of stock option transactions from January 1 to July 9, 1997 is
as follows:

Number of Option Price Weighted Avg
Shares Per Share Exercise Price
--------- --------------- --------------

Stock options outstanding at:
December 31, 1996............... 507,420 $2.75 -- $14.38 $3.69
Canceled...................... (23,366) $2.75 -- $14.38 $6.55
Exercised..................... -- -- --
Granted....................... 196,276 $3.75 -- $ 4.75 $3.81
July 9, 1997.................... 680,330 $2.75 -- $ 6.75 $3.62

At July 9, 1997, 233,530 options were exercisable, at an average exercise
price of $3.53 per share respectively. No stock appreciation rights were
outstanding. Options to purchase 196,276 shares of the Company's Common Stock
were available for grant under the Plan.

F-30

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 8--Stockholders' Equity (Continued)

At July 9, 1997, 680,330 shares of Common Stock were reserved for future
issuances related to options and 3,370,128, shares of Common Stock were
reserved for future issuances related to the conversion of Preferred Stock.

Warrants to purchase 7,000 shares of the Company's Common Stock were
issued during 1990 and were outstanding as of July 9, 1997. These warrants are
currently exercisable at $72.50 per share (fair market value at the date of
grant) and expire in 2000.

In 1993, the Company issued warrants to purchase 266,666 and 200,000
shares of the Company's Common Stock at a price of $10.00 and $13.60 per share,
respectively. The warrants are exercisable until March 1998 and the holders
have been granted demand and piggyback registration rights for the Common Stock
underlying the Warrants.

The Company has elected to follow APB No. 25 and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation," requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

The 1988 Plan, as amended, has authorized the grant of options to
management personnel for up to 700,000 shares of the Company's common stock.
All options granted have 10 year terms, vest and become fully exercisable at
the end of three years of continued employment.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions for the period ended July 9, 1997: risk-free interest rate
of 6.45%; dividend yield of 0%; volatility factor of the expected market price
of the Company's Common Stock of 0.687; and an expected life of the option of
five years. The weighted average fair value of options granted during the
period was $2.39.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable measure of the fair value of its employee stock options.

If compensation expense for the options had been determined based on the
fair value at the grant dates for awards consistent with SFAS No. 123, the
Company's net loss and net loss allocable to Common Stock would be $6,123 and
$8,464, respectively, for the period ended July 9, 1997.

Since compensation expense associated with option grants is recognized
over the vesting period, the initial impact of applying SFAS No. 123 on pro
forma net loss and pro forma net loss attributable to Common Stock is not
representative of the potential impact on pro forma amounts in future years,
when the effect of the recognition of a portion of compensation expense from
multiple awards would be reflected.

F-31

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 8--Stockholders' Equity (Continued)

The following table summarizes information about stock options
outstanding at July 9,1997:

Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Remaining
Range of Number Contractual Life Weighted Avg Number Weighted Avg
Exercise Prices Outstanding (in years) Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------

$2.75 --$3.50 313,054 7.98 $3.42 216,530 $3.44
$3.75 --$4.75 364,276 9.44 $3.78 14,000 $4.50
$5.00 --$6.75 3,000 8.89 $6.17 3,000 $6.17
------- -------
680,330 233,530
======= =======

Note 9--Stockholders' Rights Plan

In July 1990, and as amended as of April 1, 1992 and August 13, 1996, the
Board of Directors of LIVE adopted a Stockholders' Rights Plan and declared a
dividend of one preferred stock purchase right (a "Right") for each outstanding
share of Company Common Stock. Among other provisions, each Right may be
exercised to purchase one one-hundredth share of LIVE's Series R Junior
Participating Cumulative Preferred Stock at an exercise price of $90, subject
to adjustment (the "Exercise Price"). The Rights may only be exercised after a
party, exclusive of LIVE, Pioneer, or an approved 20% stockholder, or their
affiliates, has acquired or obtained the right to acquire 20% or more of the
Company's Common Stock or in the event certain mergers or sales of assets by
LIVE occur. The Rights, which do not have voting rights, expire on July 19,
2000 and may be redeemed by the Company at a price of $.01 per Right at any
time prior to their expiration or the acquisition of 20% of the Company's
Common Stock by any person other than LIVE, Pioneer or their affiliates.

In the event a party other than LIVE, Pioneer, or an approved 20%
stockholder, or their affiliates, acquires 20% or more of the Company's
outstanding Common Stock in accordance with certain defined terms, each Right
will entitle its holder to purchase, at the Right's then Exercise Price, a
number of shares of Company Common Stock having a market value of twice the
Right's Exercise Price. The independent directors of LIVE may elect to exchange
the Rights at an exchange ratio of one share of Company Common Stock per Right
upon the occurrence of certain defined acquisition events. If certain mergers
or sales of assets by LIVE occur, each Right shall entitle the holder to
purchase, at the Exchange Price, a number of shares of common stock of the
surviving corporation or purchaser (so long as it is not LIVE) having a market
price of two times the Exercise Price.

Note 10--Related Party Transactions

Pursuant to an agreement dated October 1995, which amended and extended
an original agreement dated October 1991, LFM granted Pioneer a license for
United States laser videodisc rights to LFM's library of motion pictures
(subject to certain reserved rights) for a term ending in September 1998.
Pioneer paid LFM a total of $4,600,000 ($2,300,000 in March 1996 and $2,300,000
in August 1996) under this agreement as a non-returnable advance recoupable on
a cross-collateralized basis from all royalties payable to LFM under the
agreement.

In September of 1996, as part of an employment agreement, an employee was
advanced fees of $400,000 reflecting commitments by the employee in connection
with existing films to which the Company is acquiring distribution rights. The
advance is to be repaid, plus interest, out of fees earned from future revenues
from these films. The employee is to guaranty the repayment of this advance.

F-32

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 10--Related Party Transactions (Continued)

On February 8, 1996, the Company and Pioneer LDC, Inc. ("PLDC") entered
into an Output Deal Agreement (the "Pioneer Output Agreement") for the
distribution of the Company's theatrical production in Japan. The three year
agreement includes all theatrical films that LIVE produces and acquires over
the period, excluding two of LIVE's features released in 1996, The Substitute
and The Arrival. PLDC has agreed to pay a specified percentage of the
applicable film's production or acquisition cost to obtain such Japanese
distribution rights. PLDC is an affiliate of the Company's controlling
shareholder, Pioneer Electronic Corporation.

The Company and the former Chairman of the Board are parties to an
agreement dated December 1993, pursuant to which the Company agreed, for a
term ending in June 1997, to pay the former Chairman $25,000 per month, plus
normal directors expenses and other out-of-pocket expenses he may incur in
connection with his services to the Company, in return for the former Chairman
making himself available to the Company or any video subsidiary thereof to act
as a consultant for the period ending June 30, 1997. Such compensation is
payable as long as the former Chairman makes himself available for such
purpose, whether or not the Company actually utilizes his services and whether
or not any particular Chief Executive Officer is in the Company's employ.

Note 11--Incentive Savings Plan

The Company has established the LIVE Incentive Savings Plan, a profit
sharing and 401(k) savings plan, in which eligible employees of LIVE and LFM
may participate. Each employee who has attained the age of 21 may become a
participant as of the beginning of each calendar quarter when such employee
has completed 1,000 hours of service in the relevant one-year computation
period. The Company, at the discretion of the Board of Directors, may make
annual contributions to the LIVE Incentive Savings Plan. The Company's profit
sharing contributions are allocated to individual accounts of participants in
proportion to their compensation. A participant is fully vested in his or her
tax-deferred employee contributions at all times. A participant whose
employment terminates for any reason other than death or disability is
entitled only to the vested portion of the contributions made by the Company
on behalf of the plan participant. The LIVE Incentive Savings Plan permits
tax-deferred voluntary employee contributions of an amount equal to not more
than 10% of compensation, to be matched by a LIVE contribution in an amount
equal to 50% of the employee's voluntary contributions which do not exceed 6%
of his or her compensation. With certain exceptions, contributions made by the
Company vest equally over a period of four years. Company contributions to the
LIVE Incentive Savings Plan were $50,000 for the plan year ended December 31,
1997.

Note 12--Major Customers, Suppliers, and Geographic Areas

During the period ended July 9, 1997, one customer accounted for 16.4%
of net sales of LIVE.

Export revenue by geographic area for the period ended July 9, 1997
consists of:

Europe.......................................................... $4,630
Asia............................................................ 2,297
Latin America................................................... 435
Australia/New Zealand........................................... 515
Other........................................................... 165
------
Total........................................................... $8,042
======

F-33

LIVE ENTERTAINMENT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

July 9, 1997

Note 13--Commitments and Contingencies

Employment and Separation Agreements

The Company has employment agreements with certain of its officers
generally for a term of one to four years. Future minimum payments under these
contracts are approximately $4,133,000, $4,300,000 $2,274,000, and $706,000 for
the twelve months ending July 9, 1998, 1999, 2000 and 2001.

Legal Proceedings

A breach of contract claim was filed in New York on March 22, 1995
against a subsidiary of the Company (Vestron, Inc., which was purchased by LIVE
in July 1991), claiming nonpayment of royalties from licensing of films in
foreign territories and deprivation of royalty payments as a result of
misallocation of certain values asserted with licensed film properties. By
order dated June 21, 1996 and filed on June 25, 1996, the Court in this action
determined that the action should be maintained as a class action under the
provisions of (S)901(a) of the New York Civil Practice Law and Rules. This
matter was fully settled and dismissed during 1999 with no material impact on
the Company's financial position, results of operations, or cash flows.

Other than as described above, there were no material legal proceedings
to which LIVE or any of its subsidiaries were a party other than ordinary
routine litigation in the course of business.

F-34

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

Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

6,000,000 Shares

[LOGO OF ARTISAN]

Common Stock

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

PROSPECTUS

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

Merrill Lynch & Co.

Bear, Stearns & Co. Inc.

ING Barings

, 2000

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following is a statement of estimated expenses, to be paid solely by
Artisan, of the issuance and distribution of the securities being registered
hereby:

Securities and Exchange Commission registration fee........... $32,788.80
NASD filing fee............................................... 14,500
Nasdaq National Market listing fee............................ *
Blue Sky fees and expenses (including attorneys' fees and
expenses).................................................... *
Printing expenses............................................. *
Accounting fees and expenses.................................. *
Transfer agent's fees and expenses............................ *
Legal fees and expenses....................................... *
Miscellaneous expenses........................................ *
----------
Total....................................................... $ *
==========

- --------
* To be filed by amendment.

Item 14. Indemnification of Directors and Officers.

General Corporation Law

We are incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (the "General Corporation Law"), inter
alia, provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, with respect
to any criminal action or proceeding, had no reasonable cause to believe that
his conduct was illegal. A Delaware corporation may indemnify any persons who
are, were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reasons of
the fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable
to the corporation. Where an officer, director, employee or agent is successful
on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.

Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.

II-1

Amended and Restated Certificate of Incorporation and Bylaws

Our amended and restated certificate of incorporation and bylaws provides
for the indemnification of officers and directors to the fullest extent
permitted by the Delaware General Corporation Law.

Item 15. Recent Sales of Unregistered Securities.

During the last three years, Artisan has issued the following securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act") (the following information does not reflect the stock split
and reclassification described in the registration statement):

(1) Artisan was acquired through a leveraged buyout by private investors
on July 9, 1997. In connection with the acquisition, Artisan issued:

(a) an aggregate of (i) 5,040,000 shares of class A common stock; and
(ii) 559,999.98 shares of class L common stock to a private
investor group, whose shares were subsequently transferred to
Audax Entertainment, L.P., for an aggregate of $10.0 million.

(b) an aggregate of (i) 2,520,000 shares of class A common stock; and
(ii) 280,000 shares of class L common stock to Alan D. Gordon for
an aggregate of $5.0 million.

(c) an aggregate of (i) 1,440,000 shares of class A common stock; and
(ii) 160,000 shares of class L common stock to CanPartners
Investments IV, LLC for an aggregate of $2.86 million.

(2) To finance a portion of the leveraged buyout, Artisan sold an
aggregate of $15.0 million aggregate principal amount of 13.5%
Senior Subordinated Notes due 2004 to CanPartners Investment IV, LLC
pursuant to a Note and Stock Purchase Agreement dated July 9, 1997.
The Company received cash of $12.1 million.

(3) During the year ended December 31, 1999, we sold an aggregate of (i)
201,542 shares of class A common stock; and (ii) 49,754 shares of
class L common stock pursuant to various Employment Agreements. In
accordance with the terms of those agreements, employees purchased
their shares for $0.9 million in cash.

(4) Artisan's board of directors adopted a Stock Option Plan in 1997.
Pursuant to that plan, Artisan has issued the following stock
options which vest over time and have exercise prices ranging from
$0.001 to $10.12:

(a) in 1997, options for an aggregate of 2,046,902 shares of common
stock.

(b) in 1998, options for an aggregate of 773,523 shares of common
stock.

(5) Artisan has also issued to following stock options:

(a) in 1998, options for an aggregate of 50,854 shares of common
stock to Wachsberger at a weighted average exercise price of
$3.86 per share.

(b) in 1998, options for an aggregate of 30,516 shares of common
stock to Hayward at a weighted average exercise price of $3.86
per share.

(c) in 1998, options for an aggregate of 20,344 shares of common
stock to Garrett at a weighted average exercise price of $3.86
per share.

(d) in 1998, options for an aggregate of 25,000 shares of common
stock to John J. Josephson pursuant to a consulting agreement
entered into in February 1998, at an exercise price of $0.001 per
share.

(e) in 1998, options for an aggregate of 500,000 shares to Allen &
Co. at an weighted average exercise price of $4.13 per share.

The sales and issuances listed above in paragraphs (1)(a), (1)(b), (1)(c)
and (2) were deemed exempt from registration under the Securities Act by virtue
of Section 4(2) thereof, as transactions not involving a

II-2

public offering. The issuances of securities listed in paragraph (3) and (4)
above were deemed exempt from registration under the Securities Act by virtue
of Rule 701. The issuances of securities listed in paragraph (5) above were
deemed exempt from registration under the Securities Act by virtue of Section
4(2), as transactions not involving a public offering. Certain defined terms
used therein not otherwise defined have the meanings ascribed to them in the
prospectus, which forms a part of this registration statement.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

Exhibit
No. Description
------- -----------

*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of Artisan
Entertainment Inc.
*3.2 Amended and Restated Bylaws of Artisan Entertainment Inc.
*4.1 Specimen of Common Stock.
*4.2 Amended and Restated Stockholders Agreement, dated as of ,
2000, by and among Film Holdings Co., Audax Entertainment, Alan D.
Gordon, CanPartners Investments IV, LLC and other stockholders.
*4.3 Option Certificate and Agreement granted by Film Holdings Co. to Mark
A. Curcio, dated as of July 10, 1997.
*4.4 Option Certificate and Agreement granted by Film Holdings Co. to Amir
J. Malin, dated as of July 10, 1997.
*4.5 Option Certificate and Agreement granted by Film Holdings Co. to
William H. Block, dated as of July 10, 1997.
*4.6 Promissory Note and Stock Pledge Agreement (recourse), dated as of
July 10, 1997, by and between Film Holdings Co. and Mark A. Curcio.
*4.7 Promissory Note and Stock Pledge Agreement (recourse), dated as of
July 10, 1997, by and between Film Holdings Co. and Amir J. Malin.
*4.8 Promissory Note and Stock Pledge Agreement (recourse), dated as of
July 10, 1997, by and between Film Holdings Co. and William H. Block.
*4.9 Promissory Note and Stock Pledge Agreement (nonrecourse), dated as of
July 10, 1997, by and between Film Holdings Co. and Mark A. Curcio.
*4.10 Promissory Note and Stock Pledge Agreement (nonrecourse), dated as of
July 10, 1997, by and between Film Holdings Co. and Amir J. Malin.
*4.11 Promissory Note and Stock Pledge Agreement (nonrecourse), dated as of
July 10, 1997, by and between Film Holdings Co. and William H. Block.
*4.12 Note and Stock Purchase Agreement, dated as of July 9, 1997, by and
between LIVE Film and Mediaworks Inc., Film Holdings Co. and
CanPartners Investments IV, LLC.
*4.13 Amendment Number One to the Note and Stock Purchase Agreement, dated
as of July 9, 1997, amended as of August 10, 1998, by and among LIVE
Film and Mediaworks Inc., Film Holdings Co. and CanPartners
Investments IV, LLC.
*4.14 Amended and Restated Amendment Number Two to the Note and Stock
Purchase Agreement, dated as of July 9, 1997, amended as of April 28,
1999, by and among LIVE Film and Mediaworks Inc., Film Holdings Co.
and CanPartners Investments IV, LLC.
*4.15 Amendment Number Three to the Note and Stock Purchase Agreement, dated
as of July 9, 1997, amended as of September 29, 1999, by and among
LIVE Film and Mediaworks Inc., Film Holdings Co. and CanPartners
Investments IV, LLC.
5.1 Form of Opinion of Kirkland & Ellis.
*10.1 Employment Agreement, dated as of July 10, 1997, by and between Film
Holdings Co. and Mark A. Curcio.

II-3

Exhibit
No. Description
------- -----------

*10.2 Employment Agreement, dated as of July 10, 1997, by and between
Film Holdings Co. and Amir J. Malin.
*10.3 Employment Agreement, dated as of July 10, 1997, by and between
Film Holdings Co. and William H. Block.
*10.4 Employment Agreement, dated as of January 1, 1998, by and between
LIVE Film and Mediaworks Inc. and Steve Beeks.
*10.5 Employment Agreement, dated as of September 8, 1998, by and between
Artisan Entertainment Inc. and Glenn Ross.
*10.6 Employment Agreement, dated as of March 23, 1998, by and between
Artisan Entertainment Inc. and Nicolas van Dyk.
*10.7 Addendum to Employment Agreement, dated as of April 8, 1999, by and
between Artisan Entertainment Inc. and Nicolas van Dyk.
*10.8 Addendum to Employment Agreement, dated as of June 14, 1999, by and
between Artisan Entertainment Inc. and Nicolas van Dyk.
*10.8.1 Addendum to Employment Agreement, dated as of March 27, 2000, by
and between Artisan Entertainment Inc. and Nicholas Van Dyk.
*10.9 Employment Agreement, dated as of September 8, 1998, by and between
Artisan Entertainment Inc. and James A. Keegan.
*10.10 Employment Agreement, dated as of April 1, 1998, by and between
LIVE Film and Mediaworks Inc. and Robert L. Denton.
*10.11 Amended and Restated Employment Agreement, dated as of February 1,
1999, by and between Artisan Entertainment Inc. and Ken Schapiro.
*10.12 Employment Agreement, dated as of August 1, 1997, by and between
LIVE Film and Mediaworks Inc. and Jeffrey Fink.
*10.13 Film Holdings Co. 1997 Stock Option Plan.
*10.14 Artisan Entertainment Inc. 2000 Stock Option Plan
*10.15 Lease, dated as of November 18, 1997, by and between 2700 Colorado
Partners, L.P. and LIVE Entertainment, Inc.
*10.16 Lease, dated as of December 1, 1999, by and between Hudson-Chambers
Company and Artisan Properties Inc.
**10.17(1) Distribution Services Agreement Term Sheet by and between Artisan
Home Entertainment, Inc. and Twentieth Century Fox Home
Entertainment, Inc.
**10.18 Amended and Restated Mutual Confidentiality and Non-Disclosure
Agreement, dated as of March 1, 1998, by and between Artisan Home
Entertainment, Inc. and Twentieth Century Fox Home Entertainment,
Inc.
**10.19 First Amendment to Distribution Services Agreement Term Sheet,
dated as of August 1, 1998, by and between Artisan Home
Entertainment, Inc. and Twentieth Century Fox Home Entertainment,
Inc.
**10.20(1) Omnibus Agreement, dated as of March 31, 1998, by and among Patrick
Wachsberger, Robert Hayward, David Garrett, The Franco/Kiwi
Alliance, Inc., Summit Entertainment, L.P., Artisan Entertainment
Inc. and Film Holdings Co.
**10.21(1) Purchase Agreement, dated as of February 4, 2000, by and among The
Baby Einstein Company, LLC, Julie Aigner-Clark, William Clark and
Artisan Entertainment Inc.
**10.22 Loan and Security Agreement, dated as of October 20, 1998, by and
between Artisan Pictures Inc. and Finova Capital Corporation.
**10.23 Loan and Security Agreement, dated as of December 21, 1999 by and
between Artisan Pictures Inc. and Finova Capital Corporation.
**10.24 Amended and Restated Credit Guaranty Agreement, dated as of July 9,
1997, as amended and restated as of August 10, 1998, by and among
Artisan Pictures Inc. and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank.

II-4

Exhibit
No. Description
------- -----------

**10.25 Amendment Number One dated as of April 2, 1999 to the Amended and
Restated Credit Guaranty Agreement, dated as of July 9, 1997, as
amended and restated as of August 10, 1998, by and among Artisan
Pictures Inc., the guarantors named therein, the lenders named
therein and The Chase Manhattan Bank, as Administrative Agent and
Fronting Bank.

**10.26 Amendment Number Two dated as of April 2, 1999 to the Amended and
Restated Credit Guaranty Agreement, dated as of July 9, 1997,
amended and restated as of August 10, 1998, by and among Artisan
Pictures Inc., the guarantors named therein, the lenders named
therein and The Chase Manhattan Bank, as Administrative Agent and
Fronting Bank.

**10.27 Amendment Number Three dated as of August 18, 1999 to the Amended
and Restated Credit Guaranty Agreement, dated as of July 9, 1997,
as amended and restated as of August 10, 1998, by and among
Artisan Pictures Inc., the guarantors named therein, the lenders
named therein and The Chase Manhattan Bank, as Administrative
Agent and Fronting Bank.

**10.28 Amendment Number Four dated as of September 30, 1999 to the
Amended and Restated Credit Guaranty Agreement, dated as of July
9, 1997, as amended and restated as of August 10, 1998, by and
among Artisan Pictures Inc., the guarantors named therein, the
lenders named therein and The Chase Manhattan Bank, as
Administrative Agent and Fronting Bank.

**10.29 Amendment Number Five dated as of December 17, 1999 to the Amended
and Restated Credit Guaranty Agreement, dated as of July 9, 1997,
as amended and restated as of August 10, 1998, by and among
Artisan Pictures Inc., the guarantors named therein, the lenders
named therein and The Chase Manhattan Bank, as Administrative
Agent and Fronting Bank.

**10.30 Credit and Security Agreement dated as of October 13, 1999 among
Artisan Film Investors Trust as borrower and the lenders named
therein and The Chase Manhattan Bank as Administrative Agent and
Fronting Bank, and Fleet Bank as Waiver Agent.

**21.1 Subsidiaries of Artisan Entertainment Inc.

23.1 Consent of PricewaterhouseCoopers LLP.

*23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).

**23.3 Consent of Kevin Magid.

**23.4 Consent of Joseph O'Donnell.

**23.5 Consent of John H. Josephson.

**23.6 Consent of Amir Malin.

**23.7 Consent of Paul Kagan Associates, Inc.

27.1 Financial Data Schedule.
27.2 Financial Data Schedule.

- --------
* To be filed by amendment.

** Previously filed.

(1) Confidential treatment has been requested for certain portions of these
exhibits.

(b) Financial Statement Schedule.

Index
-----

Report of Independent Accountants on Financial Statement Schedule.. S-1
Report of Independent Accountants on Financial Statement Schedule.. S-2
Schedule II--Valuation and Qualifying Accounts..................... S-3

All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore has
been omitted.

II-5

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.

(2) For purposes of determining any liability under the Securities Act
of 1933 (the "Securities Act"), the information omitted from the
form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed
by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Film Holdings
Co. (to be renamed Artisan Entertainment Inc.) has duly caused this
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica, State of
California, on April 14, 2000.

Film Holdings Co.
(to be renamed ARTISAN ENTERTAINMENT
INC.)

By: /s/ Mark A. Curcio
---------------------------------
Mark A. Curcio
Chief Executive Officer

* * * *

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

* Chairman of the Board and April 14, 2000
____________________________________ Director
Geoffrey S. Rehnert

* Vice Chairman of the Board April 14, 2000
____________________________________ and Director
Alan D. Gordon

* Director April 14, 2000
____________________________________
Marc B. Wolpow

/s/ Mark A. Curcio Co-Chief Executive Officer April 14, 2000
____________________________________ and Director (Co-Principal
Mark A. Curcio Executive Officer)

/s/ Amir J. Malin Co-Chief Executive Officer April 14, 2000
____________________________________ (Co-Principal Executive
Amir J. Malin Officer)

* Director April 14, 2000
____________________________________
William S. Kirsch, P.C.

II-7

Signature Title Date
--------- ----- ----

* Director April 14, 2000
____________________________________
Jeremy Hogue

* Director April 14, 2000
____________________________________
Mitchell R. Julis

/s/ James E. Keegan Executive Vice President and April 14, 2000
____________________________________ Chief Financial Officer
James E. Keegan (Principal Financial
Officer)

* Senior Vice President of April 14, 2000
____________________________________ Finance and Chief
Robert L. Denton Accounting Officer
(Principal Accounting
Officer)

* The undersigned, by signing his name hereto, does hereby sign and execute
this Amendment No. 2 to Registration Statement on Form S-1 on behalf of the
above named officer and/or director.

*By: /s/ Mark A. Curcio April 14, 2000
---------------------------
Mark A. Curcio
Attorney-In-Fact

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Mark Curcio, William Block, Ken Schapiro and
James Keegan, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this registration statement (and any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1993, as amended, for the offering which this Registration Statement
relates), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Signature Title Date
--------- ----- ----

/s/ Amir J. Malin Co-Chief Executive Officer April 14, 2000
____________________________________ (Co-Principal Executive
Officer)

II-8

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
Artisan Entertainment Inc.:

Our audits of the consolidated financial statements of Artisan Entertainment
Inc. referred to in our report dated January 28, 2000 appearing in this
Registration Statement on Form S-1 also included an audit of the accompanying
financial statement schedule. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Century City, California
January 28, 2000

S-1

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
Artisan Entertainment Inc.:

Our audit of the consolidated financial statements of LIVE Entertainment Inc.
referred to in our report dated January 28, 2000 appearing in this Registration
Statement on Form S-1 also included an audit of the accompanying financial
statement schedule. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Century City, California
January 28, 2000

S-2

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

LIVE ENTERTAINMENT INC.

Additions
-------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
----------- ---------- ---------- ---------- ----------- ----------
(in thousands) (1)-(4)
-------------- -------

Period from January 1,
1997 to July 9, 1997
Reserves and allowances
deducted from asset
accounts:
Allowance for Doubtful
Accounts............. $ 840 $ 84 $ -- $ 89 $ 835
Allowance for Sales
Returns.............. 15,262 8,134 -- 16,065 7,331
Allowance for
Advertising Credits.. 4,777 3,444 -- 6,713 1,508
Reserve for Inventory
Obsolescence......... 3,184 406 -- 810 2,780

- --------
(1) Uncollectible accounts written off, net of recoveries.

(2) Actual home video returns.

(3) Actual advertising expenditures, net of adjustments.

(4) Obsolete inventory written off.

S-3

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

ARTISAN ENTERTAINMENT INC.

Period from July 10,
1997 to December 31,
1997:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts............. $ 835 $ 568 -- $ 561 $ 842
Allowance for sales
returns.............. 7,331 16,285 -- 5,842 17,774
Allowance for
advertising credits.. 1,508 1,449 -- -- 2,957
Reserve for inventory
obsolescence......... 2,780 322 -- 440 2,662

Year ended December 31,
1998:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts............. $ 842 $ 2,159 -- $ 1,511 $ 1,490
Allowance for sales
returns.............. 17,774 30,304 -- 36,556 11,522
Allowance for
advertising credits.. 2,957 13,455 -- 13,843 2,569
Reserve for inventory
obsolescence......... 2,662 5,689 -- 2,207 6,144

Year ended December 31,
1999:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts............. $ 1,490 $ 1,134 -- $ 974 $ 1,650
Allowance for sales
returns.............. 11,522 91,763 -- 55,539 47,746
Allowance for
advertising credits.. 2,569 19,035 -- 9,495 12,109
Reserve for inventory
obsolescence......... 6,144 600 -- 6,344 400

- --------
(1) Uncollectible accounts written off, net of recoveries.

(2) Actual home video returns.

(3) Actual advertising expenditures, net of adjustments.

(4) Obsolete inventory written off.

S-4