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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NUMBER 0-16760
MGM GRAND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0215232
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3799 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(702) 891-3333
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Registrant's Common Stock held by non-
affiliates (based on the closing price on the New York Stock Exchange--
Composite Transactions on March 15, 1995) was approximately $298.8 billion. As
of March 15, 1995, 47,941,010 shares of Registrant's Common Stock, $.01 par
value, were outstanding.
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1994 are incorporated by reference into Part II of this Form 10-K.
Portions of the Registrant's Proxy Statement dated March 30, 1995 are
incorporated by reference into Part III of this Form 10-K.
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PART 1
ITEM 1. BUSINESS
GENERAL
MGM Grand, Inc. (the "Company") was organized as a Delaware corporation on
January 29, 1986.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc. ("MGM Grand
Hotel"), the Company commenced operations on December 18, 1993 of the MGM Grand
Hotel and Casino, a large-scale integrated hotel/casino entertainment complex.
The resort is located on approximately 112 acres on Las Vegas Boulevard South
(the "Strip") in Las Vegas, Nevada, across the street from Excalibur and the
Tropicana Hotel/Casino. MGM Grand Hotel Finance Corp. ("MGM Finance"), a
wholly-owned subsidiary of the Company, was formed to issue First Mortgage
Notes to the public, to incur bank debt (the "Bank Loan"), and to lend the
aggregate proceeds thereof to MGM Grand Hotel to finance the construction and
opening of the MGM Grand Hotel and Casino.
In December 1993, the Company entered into an agreement with Bally's for the
joint development and operation of an elevated monorail linking the MGM Grand
Hotel and Casino with the corner of Flamingo Road and the Las Vegas Strip. The
project is a one-mile, high-capacity, transit-grade system with an estimated
cost of $25 million. The project costs are shared equally with Bally's. The
system is scheduled to be operational by June 1995.
On December 28, 1994, the Company and Primadonna Resorts, Inc. ("Primadonna")
executed the definitive agreement for their joint development of a $350 million
themed hotel casino called NEW YORK-NEW YORK. The project, which will be owned
equally by the Company and Primadonna, will be located on the northwest corner
of Tropicana Avenue and Las Vegas Boulevard, across from the MGM Grand Hotel.
The preliminary plans for NEW YORK-NEW YORK call for the destination resort to
include a 2,200-room hotel and casino, themed entertainment attractions and
restaurant/retail outlets. The Company and Primadonna will jointly own, develop
and operate NEW YORK-NEW YORK, which is expected to break ground during the
first quarter of 1995. The 18-acre site, located on the busiest intersection in
Nevada, was contributed to the venture by the Company during January 1995, and
in February 1, 1995, the venture acquired an adjacent two acre parcel.
The Company operated MGM Grand Air, a scheduled and charter airline service,
through its wholly-owned subsidiary, MGM Grand Air, Inc., from September 1987
until December 31, 1994, when MGM Grand Air was sold.
For certain information about the Company's industry segments, see Note 18 to
the Company's Consolidated Financial Statements.
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109. The Company's telephone number is
(702) 891-3333.
HOTELS AND GAMING
MGM Grand Hotel and Casino
MGM Grand Hotel opened the MGM Grand Hotel and Casino on December 18, 1993.
The new resort is located on approximately 112 acres on the Strip in Las Vegas
Nevada, across the street from Excalibur and the Tropicana Hotel/Casino.
MGM Grand Hotel and Casino is a multi-themed destination resort which
management believes is a "must see" attraction for visitors to Las Vegas. The
resort has over 350 feet of frontage on the Strip and 1,450 feet on Tropicana
Avenue. The complex is easily accessible from McCarran International Airport
and from Interstate 15 via Tropicana Avenue.
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MGM Grand Hotel creates an exciting and unique gaming and entertainment
experience which is intended to appeal to all segments of the Las Vegas
market. The entrance to the hotel and casino on the Strip is highlighted by a
seven story lion through which visitors proceed to a 70 foot high reproduction
of the Emerald City, inspired by "The Wizard of Oz".
The casino is approximately 171,500 square feet in size, and is one of the
largest casinos in the world. The casino has 3,500 slot machines and 155 table
games, a state of the art baccarat pit, a poker room, a race and sports book,
and a keno lounge. The casino features four separate themed areas which
enhance the entertainment experience of the casino patron: Emerald City,
Hollywood, Monte Carlo, and Sports.
The hotel, which management believes is the largest in the world, has 5,005
rooms, including approximately 4,254 typical guest rooms decorated in five
different themes: Deep South, Hollywood, Monte Carlo, Emerald, and Casablanca.
The hotel also has 751 luxury suites, more than any other Las Vegas hotel.
These suites range in size from 675 to 6,040 square feet. The hotel provides
guests with a state of the art health spa, a swimming pool, and four lighted
tennis courts.
MGM Grand Hotel has Las Vegas' only full scale theme park. Situated on 33
acres, the park has 12 rides and attractions, extensive food and beverage
outlets, ten retail shops, and a large craft area where visitors can view
handcrafts being made.
Other entertainment facilities include: a 31,000 square foot Midway
containing 30 carnival games of skill; an extensive video arcade including
virtual reality simulators; a 600 seat showroom providing celebrity
entertainment; a 1,700 seat showroom specifically designed for the EFX
production show, the Company's original grand spectacle special effects stage
production; eight restaurants and a food court; and a 15,200 seat special
events center, providing a venue for great entertainers such as Barbra
Streisand and Luther Vandross, as well as sporting events.
MGM Grand Hotel uses the unique characteristics of the property to target
the following segments of the Las Vegas market: (i) free and independent
travelers; (ii) tour and travel; (iii) special events/conventions; (iv) high
end gaming; and (v) local.
Las Vegas Market
The MGM Grand Hotel and Casino operates in the Las Vegas market, and is
located on the Strip. Las Vegas is the largest city in Nevada, with a
metropolitan area population in excess of approximately 1,000,000, and one of
the largest resort destinations in the world.
Gaming has continued to be a strong and growing business in Las Vegas. Since
1984, Las Vegas Strip gaming revenues have increased at a compound annual
growth rate of 9.8% from $1.4 billion in 1984 to $3.5 billion in 1994.
The hotel industry in Las Vegas is highly competitive. In 1993 two other
major themed resort hotels opened on the Strip; the Luxor with 2,500 rooms and
100,000 square feet of gaming space, and Treasure Island with 3,000 rooms and
90,000 square feet of gaming space. Several additional competing projects are
in various stages of development. While all of the large themed resorts pose
direct competition with the MGM Grand Hotel and Casino, Las Vegas Convention
and Visitors Authority ("LVCVA") statistics show that tourism growth more than
offset the increased capacity, as visitor volume for 1994 increased 19% over
1993 levels. Total visitors for 1994 topped 28 million.
MGM Grand Hotel competes with gaming and resort facilities in their
respective markets as well as gaming and resort facilities elsewhere in the
world. To some extent, state lotteries and state-authorized card rooms, such
as those operating in California, compete with the Company.
Gambling, with various limitations and conditions, is now legal in numerous
locations throughout the United States. The proliferation of such gaming
facilities on riverboats and elsewhere is increasing. Also, as a result of
certain legislative and court decisions, casino-type operations are being
established
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at various Native American reservations throughout the country. The development
of fully operating casinos in California would likely have a negative effect on
MGM Grand Hotel's operations in Nevada.
Insurance
The MGM Grand Hotel carries insurance of the type customary in the hotel and
casino industry and in amounts deemed adequate by management to protect the
properties. The policies provide customary business and commercial coverages,
including workers' compensation, third party liability, property damage, boiler
and machinery and business interruption.
Government Regulation
The ownership and operation of casino gaming facilities in Nevada are subject
to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"); and (ii) various local regulation.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada
State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor
and Gaming Licensing Board (the "CCLGLB"). The Nevada Commission, the Nevada
Board, and the CCLGLB are collectively referred to as the "Nevada Gaming
Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) to provide a source of state and
local revenues through taxation and licensing fees. Change in such laws,
regulations and procedures could have an adverse effect on the Company's gaming
operations.
MGM Grand Hotel operates the casino and is required to be licensed by the
Nevada Gaming Authorities. The gaming license requires the periodic payment of
fees and taxes and is not transferable. MGM Grand Hotel is also licensed as a
manufacturer and distributor of gaming devices. Another wholly-owned subsidiary
of the Company, MGM Dist., Inc. ("MGM Dist."), is also licensed by the Nevada
Gaming Authorities as a manufacturer and distributor of gaming devices, subject
to certain conditions and limitations imposed by the Nevada Commission. The
Company is required to be registered by the Nevada Commission as a publicly
traded corporation ("Registered Corporation") and as such, it is required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information that the Nevada Commission may
require. No person may become a stockholder of, or receive any percentage of
profits from, MGM Grand Hotel or MGM Dist. without first obtaining licenses and
approvals from the Nevada Gaming Authorities. The Company, MGM Grand Hotel and
MGM Dist. have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, MGM Grand
Hotel or MGM Dist. in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of MGM Grand Hotel and MGM Dist. must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company who are actively and directly
involved in the gaming activities of MGM Grand Hotel or MGM Dist. may be
required to be licensed or
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found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability or the
gaming license by whom the applicant is employed or for whom the applicant
serves must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, MGM Grand Hotel or MGM Dist., the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require the Company, MGM Grand Hotel or MGM Dist. to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
The Company, MGM Grand Hotel and MGM Dist. are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by MGM Grand Hotel and MGM Dist., must be reported to or approved by the Nevada
Commission.
If it was determined that the Nevada Act was violated by MGM Grand Hotel or
MGM Dist., the gaming licenses they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, MGM Grand Hotel, MGM Dist., the Company and
the persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate
the Company's gaming property and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable rental
value of the Company's gaming property) could be forfeited to the State of
Nevada. Limitation, conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the Company's
voting securities to report the acquisition to the Nevada Commission. The
Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails a written
notice requiring such filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10% but not
more than 15% of the Company's voting securities, may apply to the Nevada
Commission for a Waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities that
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are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common stock
of a Registered Corporation beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. The Company is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship with the
Company, MGM Grand Hotel or MGM Dist., the Company (i) pays that person any
dividend or interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pays remuneration in any form to that
person for services rendered or otherwise, or (iv) fails to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
for cash at fair market value. Additionally, the CCLGLB has taken the position
that it has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the
Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada that may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a legend indicating
that such securities are subject to the Nevada Act. However, to date, the
Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of any securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
On July 28, 1994, the Nevada Commission granted the Company prior approval to
make public offerings for a period of one year, subject to certain conditions
(the "Shelf Approval"). However, the Shelf Approval may be rescinded for good
cause without prior notice upon the issuance of an
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interlocutory stop order by the Chairman of the Nevada Board. The Shelf
Approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and the Nevada Commission
concerning a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process of the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and(iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
board of directors in response to a tender offer made directly to the
Registered Corporation's stockholders for the purposes of acquiring control of
the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by MGM Grand Hotel where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot machine route, a
manufacturer or a distributor, such as MGM Grand Hotel and MGM Dist., also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside
of Nevada, is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease in the discretion
of the Nevada Commission. Thereafter, Licensees are also required to comply
with certain reporting requirements imposed by the Nevada Act. Licensees are
also subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or a finding of suitability in Nevada on the ground of
personal unsuitability.
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The sale of alcoholic beverages by MGM Grand Hotel is subject to licensing,
control and regulation by the applicable local authorities. All licenses are
revocable and are not transferable. The agencies involved have full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect upon the
operations of MGM Grand Hotel.
Pursuant to a 1985 agreement between the State of Nevada and the United
States Department of the Treasury (the "Treasury"), the Nevada Commission and
the Nevada Board have authority to enforce their own cash transaction reporting
laws applicable to casinos which substantially parallel the federal Bank
Secrecy Act. Under the Money Laundering Suppression Act of 1994, which was
passed by Congress, the Secretary of the Treasury retained the ability to
permit states, including Nevada, to continue to enforce their own cash
transaction reporting laws applicable to casinos. The Nevada Act requires most
gaming licensees to file reports related to cash purchases of chips, cash
wagers, cash deposits or cash payment of gaming debts, if any such transactions
aggregate more than $10,000 in a 24-hour period. Casinos are required to
monitor receipts and disbursements of currency in excess of $10,000 and report
them to the Treasury. Although it is not possible to quantify the full impact
of these requirements on the Company's business, the changes are believed to
have had some adverse effect on results of operations since 1985.
On November 28, 1994, the Treasury enacted amendments (effective December 1,
1994) to the federal regulations under the Bank Secrecy Act. The amendments
require casinos subject to the Bank Secrecy Act to implement written programs
no later than June 1, 1995 to assure and monitor compliance with the Bank
Secrecy Act. Such programs must include "know your customer" and suspicious
transacting reporting components. It is anticipated that the Nevada Commission
will enact amendments to the Nevada Act which will parallel the amendments to
the Bank Secrecy Act. As a result, the Company will, in the future, be required
to implement such a program.
Competition
The hotel industry is highly competitive. Hotels located on or near the strip
(" Strip Hotels") compete primarily with other Strip Hotels and with a few
major hotels in downtown Las Vegas. Strip Hotels offering similar prices
compete with each other primarily on the basis of quality of rooms, restaurants
and facilities, entertainment offered, complimentary goods and services given,
credit limits and quality of personal attention offered to guests and casino
customers. The Company's hotel/casino operations also compete with a large
number of hotels and motels, and gaming facilities not related to hotels or
motels, located in and near Las Vegas. The Theme Park competes with all other
forms of entertainment, lodging and recreational activities, including other
theme parks, especially those located in southern California. Some of the
Company's competitors are larger than the Company and may have greater
resources.
According to the LVCVA, as of December 31, 1994, there were approximately
86,000 hotel and motel rooms in the Las Vegas area. In addition, the LVCVA
reports proposals to construct approximately 37,000 more hotel and motel rooms,
including proposals for three themed hotel/casino properties on the Strip
between Tropicana and Flamingo Avenues, one of which is the Company's NEW YORK-
NEW YORK project. The Company cannot make any prediction as to how many
additional rooms will be constructed in Las Vegas. The Company's future
operating results could be adversely affected by excess Las Vegas room and
gaming capacity.
In addition to competing with hotel/casino facilities elsewhere in Nevada
(i.e., the Reno/Lake Tahoe area and the rapidly expanding Laughlin area) and in
Atlantic City, the Company competes with hotel/casino facilities elsewhere in
the world and with state lotteries. Certain states have recently legalized, and
several other states are currently considering, legalizing casino gaming in
specific geographic areas, including Colorado, Illinois, Iowa, Louisiana,
Mississippi, Missouri, Oregon, South
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Dakota and Tennessee. Legalized casino gambling in other states could adversely
affect the Company's activities in Las Vegas, particularly if such legalization
were to occur in areas close to Nevada, such as California. Additionally,
certain gaming operations are conducted or have been proposed on federal Indian
reservations, including those located in the primary market to be served by the
MGM Grand Hotel. In addition, with respect to group bookings, the Company's
hotel/casino facilities in Las Vegas also compete with hotels and resorts,
which do not include casinos, throughout the United States.
MGM GRAND AIR
On December 31, 1994, in an effort to focus all the Company's efforts on the
conduct and expansion of its core entertainment, hotel and gaming business, the
Company completed the sale of MGM Grand Air, which it had operated since 1987
as a scheduled and charter airline service.
Summary Operating Data for Passenger Service
The following table (unaudited) sets forth selected operating data relating
to MGM Grand Air's passenger service for the periods indicated.
<TABLE>
<CAPTION>
1993 QUARTERS 1994 QUARTERS
----------------------------------- -------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------- ------- ------- -------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues (000) $ 4,938 $ 4,719 $ 4,732 $ 6,644 $4,144 $5,841 $ 4,889 $ 6,944
Depreciation and amorti-
zation (000) (1) $ 1,596 $ 1,567 $ 1,568 $ 1,641 $ 43 $ 106 $ 210 $ 233
Operating income (loss)
(000) (2) $(2,326) $(2,799) $(2,429) $(70,890) $ (280) $ 464 $(2,822) $(2,091)
Aircraft block hours
flown 1,066 964 813 1,004 703 935 1,190 2,315
Yield per block hour
flown (3) $ 4,632 $ 4,895 $ 5,820 $ 6,618 $5,895 $6,247 $ 4,108 $ 3,000
</TABLE>
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(1) Excludes 1993 fourth quarter depreciation/amortization adjustment--see also
(2).
(2) Includes 1993 fourth quarter depreciation/amortization expense adjustment
of $68,948,000.
(3) The average revenues per block hour flown.
EMPLOYEES
As of December 31, 1994, the Company employed approximately 7,120 full time
equivalent employees at MGM Grand Hotel and its corporate offices.
None of the Company's employees are covered by collective bargaining
agreements.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109, where it rents approximately 7,028
square feet from MGM Grand Hotel.
MGM Grand Hotel's principal executive offices are also located at 3799 Las
Vegas Boulevard South, Las Vegas, Nevada, 89109. Certain other office and
warehouse space is leased by MGM Grand Hotel consisting of approximately
132,000 square feet located in Las Vegas, Nevada, for an annual rent of
approximately $374,000.
Through the date of sale of MGM Grand Air on December 31, 1994, MGM Grand Air
maintained its headquarters at 1500 Rosecrans Avenue, Suite 350, Manhattan
Beach, California 90266. The purchaser of MGM Grand Air assumed all lease
liabilities, including a lease for approximately 12,300 square feet, 3,100 of
which is sublet to an unrelated party. MGM Grand Air's annual aggregate rent
payments for its office, terminal and other facilities were approximately
$405,000.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
FRED BENNINGER (age 78) has served as a Director of the Company since
February 1986, and as Chairman of the Board since August 1987. He also served
as President of the Company from August 1987 to March 1990. He served as
Chairman of the Executive Committee on the Board of Directors of MGM/UA
Communications Co. from July 1988 to January 1990. He was President of Tracinda
from March 1982 to July 1987 and Chairman of the Executive Committee of MGM
Grand Hotels, Inc. from 1971 to April 1986.
ROBERT R. MAXEY (age 57) has served as President, Chief Executive Officer and
Director of the Company since January 1991. Prior thereto, he was President and
Chief Executive Officer of MarCor Resort Properties, Inc. a hotel/casino
operator.
ALEX YEMENIDJIAN (age 39) has served as Chief Financial Officer of the
Company since May 1994, and Executive Vice President of the Company since June
1992, as Chairman of the Executive Committee from January 1991 to June 1992,
and as President and Chief Operating Officer of the Company from March 1990 to
January 1991. Since January 1990, he has also served as an executive of
Tracinda. Chairman of the Executive Committee and Director of MGM/UA
Communications Co. from January to November 1990. For more than five years
prior thereto, he served as managing partner of Parks, Palmer, Turner and
Yemenidjian, a public accounting firm.
K. EUGENE SHUTLER (age 56) has served as Executive Vice President and General
Counsel and Director of the Company since February 1991. For more than 5 years
prior thereto, he was a member of the law firm of Troy and Gould Professional
Corporation.
SCOTT LANGSNER (age 41) has served as Secretary/Treasurer of the Company
since July 1987.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange. For
price information with respect to such Common Stock, see page 42 of the
Company's 1994 Annual Report to Stockholders, which information is incorporated
herein by this reference.
As of March 15, 1995, there were approximately 2,827 record holders of the
Company's Common Stock.
The Company has not paid any dividends to date on the Common Stock. The
declaration of dividends (which is within the discretion of the Company's Board
of Directors) will depend on the earnings, financial position and capital
requirements of the Company and other relevant factors existing at the time.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth on page 1 of the Company's 1994 Annual Report to
Stockholders is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth on pages 26 to 27 of the Company's 1994 Annual
Report to Stockholders is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth on pages 28 to 42 of the Company's 1994 Annual
Report to Stockholders is incorporated herein by this reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by PART III (Items 10, 11, 12 and 13) has been
omitted, as the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the end of its fiscal year a
definitive Proxy Statement pursuant to Regulation 14A, except that the
information regarding the Company's executive officers called for by Item 10 of
PART III has been included in PART I of this Form 10-K under the heading
"Executive Officers of the Registrant."
10
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements and schedules listed in the accompanying Index
to Financial Statements at page 14 herein are filed as part of this Form 10-K.
(b) Exhibits
The exhibits listed in the accompanying Exhibit Index on pages 17-18 are
filed as part of this Form 10-K.
11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MGM GRAND, INC.
By: Robert R. Maxey
--------------------------------
Robert R. Maxey
President and Chief Executive
Officer
(Principal Executive Officer)
By: Alex Yemenidjian
--------------------------------
Alex Yemenidjian
Executive Vice President and Chief
Financial Officer
Dated: March 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Fred Benninger Chairman of the Board March 20, 1995
- -----------------------------------
Fred Benninger
Robert R. Maxey President and Chief March 20, 1995
- ----------------------------------- Executive Officer and
Robert R. Maxey Director
James D. Aljian Director March 20, 1995
- -----------------------------------
James D. Aljian
Terry N. Christensen Director March 20, 1995
- -----------------------------------
Terry N. Christensen
Director March , 1995
- -----------------------------------
Glenn C. Cramer
Director March , 1995
- -----------------------------------
Willie D. Davis
Director March , 1995
- -----------------------------------
Alexander M. Haig, Jr.
Director March , 1995
- -----------------------------------
Lee A. Iacocca
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director March , 1995
- -----------------------------------
Kirk Kerkorian
Walter M. Sharp Director March 20, 1995
- -----------------------------------
Walter M. Sharp
K. Eugene Shutler Executive Vice President and March 20, 1995
- ----------------------------------- Director
K. Eugene Shutler
Director March , 1995
- -----------------------------------
E. Parry Thomas
Alex Yemenidjian Executive Vice President, March 20, 1995
- ----------------------------------- Chief Financial Officer,
Alex Yemenidjian and Director
</TABLE>
13
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(ITEM 14(A))
<TABLE>
<CAPTION>
ANNUAL
REPORT TO FORM
STOCKHOLDERS 10-K
PAGE PAGE
------------ ----
<S> <C> <C>
Report of Independent Public Accountants...................... 41
Consolidated Statements of Operations--For the years ended
December 31, 1994, 1993 and 1992............................. 28
Consolidated Balance Sheets as of December 31, 1994 and 1993.. 29
Consolidated Statements of Cash Flows--For the years ended
December 31, 1994, 1993 and 1992............................. 30
Consolidated Statements of Stockholders' Equity--For the years
ended December 31, 1994, 1993 and 1992....................... 31
Notes to Consolidated Financial Statements.................... 32
Selected Quarterly Financial Results (unaudited).............. 42
Report of Independent Public Accountants on Supplemental
Schedule..................................................... 15
Schedule II--Valuation and Qualifying Accounts................ 16
</TABLE>
All other schedules have been omitted either as inapplicable or not required
under the instructions contained in Regulation S-X or because the information
is included in the financial statements or the notes thereto.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To MGM Grand, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in MGM Grand, Inc.'s Annual Report
to stockholders incorporated by reference in this Form 10-K, and have issued
our report thereon dated February 17, 1995. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
supplemental Schedule II as shown on page 16 is the responsibility of the
Company's management, is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Las Vegas, Nevada
February 17, 1995
15
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO COSTS AMOUNTS BALANCE
BEGINNING AND WRITTEN AT END OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
----------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1994:
Allowances for doubtful accounts...... $ 4,733 $17,166 $4,275 $17,624
======= ======= ====== =======
FOR THE YEAR ENDED DECEMBER 31, 1993:
Allowances for doubtful accounts...... $ 1,531 $ 3,855 $ 653 $ 4,733
======= ======= ====== =======
FOR THE YEAR ENDED DECEMBER 31, 1992:
Allowances for doubtful accounts...... $10,682 $ 238 $9,389 $ 1,531
======= ======= ====== =======
</TABLE>
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(1) Certificate of Incorporation of Company, as amended (incorporated by
reference to Exhibit 3(1) to Registration Statement No. 33-3305).
3(2) Bylaws of Company, as amended (incorporated by reference to Exhibit
3(2) to Registration Statement No. 33-30337).
4 Indenture, dated as of May 1, 1992, among MGM Grand Hotel Finance
Corp. ("MGM Finance"), as issuer, the Company, as guarantor, MGM
Grand Hotel, Inc. ("MGM Grand Hotel"), as obligor with respect to
certain covenants, and U.S. Trust Company of California, N.A., a
national banking corporation validly organized and existing under
the laws of the United States, as Trustee (the "Trustee"), relating
to First Mortgage Notes, including forms of First Mortgage Notes
(incorporated by reference to Exhibit (A)(IV) of the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1992).
10(1)* MGM Grand, Inc. Nonqualified Stock Option Plan (incorporated by
reference to Exhibit A to Proxy Statement dated March 30, 1990).
10(2)* MGM Grand, Inc. Incentive Stock Option Plan (incorporated by refer-
ence to Exhibit B to Proxy Statement dated March 30, 1990).
10(3) Credit Agreement among MGM Finance, MGM Grand Hotel and Bank of
America N.T. & S.A. ("Bank Agent") and the banks named therein (the
"Banks") (incorporated by reference to Exhibit 10(8) of the
Company's 1992 10-K), together with amendments.
10(4) Guaranty executed by the Company in favor of Bank Agent and the
Banks (incorporated by reference to Exhibit 10(9) of the Company's
1992 10-K).
10(5) Intercreditor Agreement by and among the Trustee, Bank Agent and
Continental Bank, N.A., a national banking association ("Secured
Lenders' Agent"), together with the consent thereto of MGM Finance
(incorporated by reference to Exhibit 10(10) of the Company's 1992
10-K).
10(6) Collateral Assignment by MGM Finance in favor of Secured Lender's
Agent, together with the consent thereto of the Company, MGM Grand
Hotel, and MGM Grand Movieworld, Inc., a Nevada corporation
("Movieworld") (incorporated by reference to Exhibit 10(11) of the
Company's 1992 10-K).
10(7) Stock Pledge Agreement by and between the Company and Secured Lend-
ers' Agent (incorporated by reference to Exhibit 10(12) of the
Company's 1992 10-K).
10(8) Loan Agreement between MGM Grand Hotel and MGM Finance (incorporated
by reference to Exhibit 10(13) of the Company's 1992 10-K).
10(9) Secured Promissory Note by MGM Grand Hotel in favor of MGM Finance
(incorporated by reference to Exhibit 10(14) of the Company's 1992
10-K).
10(10) Deed of Trust, Assignment of Rents and Security Agreement (the "Deed
of Trust") by MGM Grand Hotel to Nevada Title Company, a Nevada cor-
poration, as trustee, for the benefit of MGM Finance, as beneficiary
(incorporated by reference to Exhibit 10(15) of the Company's 1992
10-K).
10(11) Loan Guaranty by the Company in favor of MGM Finance (incorporated
by reference to Exhibit 10(16) of the Company's 1992 10-K).
10(12)* Letter Agreements, dated December 21, 1990 and February 9, 1993,
between the Company and Robert Maxey (incorporated by reference to
Exhibit 10(17) of the Company's 1992 10-K).
10(13)* Letter Agreements, dated December 13, 1990 and February 26, 1993,
between the Company and K. Eugene Shutler (incorporated by reference
to Exhibit 10(18) of the Company's 1992 10-K).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10(14)* Letter Agreements, dated January 3, 1991 and February 9, 1993, between the Company
and Alex Yemenidjian (incorporated by reference to Exhibit 10(19) of the Company's
1992 10-K).
10(15)* Letter Agreement, dated February 9, 1993, between the Company and Fred Benninger
(incorporated by reference to Exhibit 10(20) of the Company's 1992 10-K).
10(16) Operating Agreement of NEW YORK-NEW YORK HOTEL, LLC. by and between MGM Grand,
Inc. and PRMA Las Vegas, Inc. dated as of December 26, 1994.
10(17) Contribution Agreement with Joint Escrow Instructions by and among PRMA Las Vegas,
Inc. and the Company and NEW YORK-NEW YORK HOTEL, LLC dated as of December 26,
1994.
13** The Company's 1994 Annual Report to Stockholders.
21 List of Subsidiaries.
27 Financial Data Schedule
</TABLE>
- --------
* Management contract.
** Except for those portions which are expressly incorporated herein by
reference, such Annual Report is furnished for the information of the
Securities and Exchange Commission and is not to be deemed "filed" as part
of the Report.
18
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment") is
entered into as of October 30, 1992 by and among MGM Grand Hotel Finance Corp.
("MGM Finance"), a Nevada corporation, MGM Grand Hotel, Inc. ("MGM Hotel"), a
Nevada corporation, Bank of Scotland ("Scotland") and United States National
Bank of Oregon ("USNBO") (collectively, the "New Banks"), and Bank of America
National Trust and Savings Association ("BofA"), as a Bank and as agent for the
Banks (the "Agent") and amends that certain Credit Agreement dated as of May 13,
1992 among MGM Finance, MGM Hotel and BofA in its capacity as both the Agent and
a Bank (the "Agreement").
RECITALS
--------
The parties desire to amend certain provisions of the Agreement to,
among other things, revise the definition of "Majority Banks" and to add two
additional Banks as parties to the Agreement.
MGM Finance has also requested the Banks (including the New Banks) and
the Agent to waive certain delivery requirements relating to an environmental
report required under the Agreement and to make certain other provisions with
respect to such environmental report.
The parties are willing to make such amendments on the terms and
conditions set forth herein.
The Banks (including the New Banks) and the Agent are willing to grant
such waiver and agree to certain provisions with respect to the aforementioned
environmental report on the terms and conditions set forth herein.
TERMS AND CONDITIONS
--------------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as
-----
in the Agreement unless otherwise defined herein. All references to the
Agreement shall mean the Agreement as hereby amended.
2. Amendments. The parties hereto hereby agree to amend the
----------
Agreement as follows:
- 1 -
<PAGE>
2.1 The definition of "Majority Banks" in Section 1.01 of the
Agreement is hereby amended to read in its entirety as follows:
"'Majority Banks'" means: (a) at any time when there are two (2)
or fewer Banks party to this Agreement, Banks having at least 66-2/3%
of the Commitments, (b) at any time when there are three (3) or more
Banks party to this Agreement and one Bank has at least 66-2/3% of the
Commitments, Banks having at least 66-2/3% of the Commitments but in
no event less than two (2) Banks, and (c) at any other time, Banks
having at least 66-2/3% of the Commitments."
2.2 The Agreement is further amended to add each of the New
Banks as a Bank under the Agreement and the initial address for notice, the
initial Domestic Lending Office, the initial Eurodollar Lending Notice or the
initial Lending Office for each such Bank shall be as set forth on the signature
pages of this First Amendment. Each New Bank agrees that its Commitment and
Revolving Commitment is as set forth on Schedule 2.01 as amended by this First
Amendment. Each New Bank agrees to be bound by the Agreement, the Loan Documents
and the Intercreditor Agreement. Each New Bank hereby appoints and authorizes
the Agent to exercise such powers under the Agreement as are delegated to the
Agent by Article X of the Agreement and by the Loan Documents and the
Intercreditor Agreement.
2.3 Schedule 2.01 of the Agreement is hereby amended in its
entirety to read as set forth in Exhibit A to this First Amendment and the
Commitment and the Revolving Commitment of each of the New Banks and of BofA as
a Bank shall be as set forth in said amended Schedule 2.01.
3. Waiver and Other Provisions Regarding Environmental Report. Each
----------------------------------------------------------
of the Banks (including the New Banks) and the Agent waive compliance with the
provisions of Section 5.02(c) of the Agreement requiring delivery of the
environmental assessment described therein no later than July 31, 1992 on the
conditions that (a) the final environmental assessment report is substantially
unchanged from the preliminary environmental assessment dated August 12, 1992, a
copy of which has been received by each of the Banks, and (b) a copy of such
final report is delivered to the Agent for delivery to the Banks not later than
November 30, 1992 and (c) MGM Hotel performs all recommended monitoring and
takes such other action in compliance with the recommendations of such report
and such recommendations as may be made from time to time on the basis of the
results of such continued monitoring. Furthermore, subject to the foregoing
conditions, the Banks, including the New Banks, confirm that such environmental
assessment is satisfactory to the Banks for the
- 2 -
<PAGE>
purposes of determining compliance by MGM Finance and MGM Hotel with the
provisions of Section 5.02(c).
4. Representations and Warranties of MGM Finance and MGM Hotel. MGM
-----------------------------------------------------------
Finance and MGM Hotel, each on its own behalf, and only with respect to itself,
represents and warrants to the Agent and to each Bank:
4.1 Authorization. The execution, delivery and performance of
-------------
this First Amendment have been duly authorized by all necessary corporate action
and has been duly executed and delivered by it.
4.2 Binding Obligation. This First Amendment is the legally
------------------
valid and binding obligation of such party, enforceable in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors
rights generally or by equitable principals relating to enforceability.
4.3 No Legal Obstacle to Agreement. Neither the execution of
------------------------------
this First Amendment, the making of any Borrowings under the Agreement, nor the
performance of the Agreement has constituted or resulted in or will constitute
or result in a breach of the provisions of any contract to which such party is a
party, or the violation of any law, judgment, decree or governmental order, rule
or regulation applicable to such party, or result in the creation under any
agreement or instrument of any security interest, lien, charge, or encumbrance
upon any of the assets of such party. No approval or authorization of any
governmental authority is required to permit the execution, delivery or
performance of this First Amendment, the Agreement, or the transactions
contemplated hereby or thereby, or the making of any Borrowing under the
Agreement.
4.4 Incorporation of Certain Representations. The
----------------------------------------
representations and warranties set forth in Article VI of the Agreement are true
and correct in all respects on and as of the date hereof as though made on and
as of the date hereof.
4.5 Default. No Default or Event of Default under the Agreement
-------
has occurred and is continuing.
5. Representations and Warranties of BofA. BofA represents and
--------------------------------------
warrants to each of the New Banks as follows:
5.1 As of the date hereof, immediately prior to the
effectiveness of this First Amendment, BofA, in its capacity as a Bank, holds
100% of the Commitment under the Agreement free and clear of any adverse claim.
- 3 -
<PAGE>
5.2 As of the date hereof no Loans have been made under the
Agreement.
5.3 BofA has full power and authority, and has taken all action
necessary, to execute and deliver this First Amendment and to fulfill its
obligations under, and to consummate the transactions contemplated by, this
First Amendment, and no governmental authorizations or other authorizations are
required in connection therewith.
5.4 This First Amendment constitutes the legal, valid and
binding obligation of the BofA.
BofA makes no representation or warranty and assumes no responsibility with
respect to the financial condition of MGM Finance, MGM Hotel or any affiliate of
either of them or the performance by MGM Finance, MGM Hotel or any affiliate of
either of them of the Obligations, and assumes no responsibility with respect to
any statements, warranties or representations made under or in connection with
the Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Agreement or any other documents under the
Agreement, other than as expressly set forth above.
6. Representations and Warranties of the New Banks. Scotland and
-----------------------------------------------
USNBO, each on its own behalf, and only with respect to itself, hereby
represents and warrants to BofA in its capacity as the Agent and as a Bank and
to each other as follows:
6.1 It has full power and authority, and has taken all action
necessary, to execute and deliver this First Amendment and to become party to
the Agreement, and any and all other documents required or permitted to be
executed or delivered by it in connection with this Agreement and to fulfill its
obligations under, and to consummate the transactions contemplated by, this
First Amendment, the Agreement, and the other Loan Documents and no governmental
authorizations or other authorizations are required in connection therewith.
6.2 This First Amendment constitutes the legal, valid and
binding obligation of such New Bank.
6.3 Such New Bank has independently and without reliance upon
BofA and based on such information as it has deemed appropriate, made its own
credit analysis and decision to enter into this First Amendment and to be bound
by the Agreement and other Loan Documents. It will, independently and without
reliance upon the Agent or any Bank, and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Agreement and the Loan
Documents.
- 4 -
<PAGE>
6.4 If such New Bank is organized under the Laws of a
jurisdiction outside the United States of America, attached hereto are the forms
prescribed by Section 4.01(f) of the Agreement certifying its exemption from
United States withholding taxes with respect to all payments to be made to it
under the Agreement or any Loan Document.
7. Conditions, Effectiveness. The effectiveness of this First
-------------------------
Amendment shall be subject to the delivery of the following to the Agent in form
and substance satisfactory to the Agent:
7.1 Corporate Resolution. A copy of a resolution or resolutions
--------------------
passed by the Board of Directors of each of MGM Finance and MGM Hotel, certified
by the Secretary or an Assistant Secretary of such party as being in full force
and effect on the date of this First Amendment, authorizing the amendments to
the Agreement herein provided for and the execution, delivery and performance of
this First Amendment and any note or other instrument or agreement required
hereunder.
7.2 Authorized Signatories. A certificate, signed by the
----------------------
Secretary or an Assistant Secretary of each of MGM Finance and MGM Hotel and
dated the date of this First Amendment, as to the incumbency of the person or
persons authorized to execute and deliver this First Amendment and any
instrument or agreement required hereunder on behalf of such party.
7.3 Reaffirmations. Reaffirmations from each of the Guarantors
--------------
in a form acceptable to the Agent and the Banks.
7.4 Other Evidence. Such other evidence with respect to MGM
--------------
Finance or MGM Hotel or any other person as the Agent and each Bank may
reasonably request to establish the consummation of the transactions
contemplated hereby, the taking of all corporate action in connection with this
First Amendment and the Agreement and the compliance with the conditions set
forth herein.
8. Payments. On the date when all conditions set forth in Section 7
--------
hereof have been satisfied and each New Bank has delivered to the Agent duly
executed copies of this First Amendment, BofA shall pay to each New Bank, in
immediately available funds, the fees set forth in a letter agreement among
BofA, Scotland and USNBO dated of even date herewith.
9. Miscellaneous.
-------------
9.1 Effectiveness of the Agreement. Except as hereby amended,
------------------------------
the Agreement shall remain in full force and effect.
- 5 -
<PAGE>
9.2 Waivers. This First Amendment is specific in time and in
-------
intent and, except as set forth in Section 3 of this First Amendment, does not
constitute, nor should it be construed as, a waiver of any other right, power or
privilege under the Agreement, or under any agreement, contract, indenture,
document or instrument mentioned in the Agreement; nor does it preclude any
exercise thereof or the exercise of any other right, power or privilege, nor
shall any future waiver of any right, power, privilege or default hereunder, or
under any agreement, contract, indenture, document or instrument mentioned in
the Agreement, constitute a waiver of any other default of the same or of any
other term or provision.
9.3 Counterparts. This First Amendment may be executed in any
------------
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This First Amendment shall
become effective as of the date first above written when the conditions set
forth in Section 4 of this First Amendment have been satisfied and all the
parties hereto shall have signed a copy hereof, whether the same or counterparts
and shall have delivered same to the Agent.
9.4 Further Assurances. The parties hereto further agree to
------------------
execute and deliver such other instruments, and take such other action, as the
Agent may reasonably request in connection with the transactions contemplated by
this First Amendment.
9.5 Jurisdiction. This First Amendment, and any instrument or
------------
agreement required hereunder, shall be governed by and construed under the laws
of the State of Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed and delivered as of the date first written above.
MGM GRAND HOTEL FINANCE CORP.
By: /s/ J.T. Murphy
Title: Chief Financial Officer
-------------------------
MGM GRAND HOTEL, INC.
By: /s/ Larry Woolf
-------------------------
Title: PRESIDENT
-------------------------
(Signatures continue)
- 6 -
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ David Price
-------------------------
Title: Vice President
-------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By: /s/ Jon Varnell
-------------------------
Title: Vice President
-------------------------
BANK OF SCOTLAND
By: /s/ J. Craig Wilson
-------------------------
Title: Vice President
-------------------------
Domestic and Eurodollar Lending
Office
Bank of Scotland
Grand Cayman Branch
c/o 380 Madison Avenue
New York, New York 10017
Telephone: (212) 490-8030
Telecopy: (212) 557-9460
UNITED STATES NATIONAL
BANK OF OREGON
By: Scott J. Bell
-------------------------
Title: Assistant Vice President
-------------------------
Domestic and Eurodollar Lending
Office
United States National
Bank of Oregon
309 S.W. 6th Avenue, BB-10
Portland, Oregon 97204
Telephone: (503) 275-6738
Telecopy: (503) 275 5428
- 7 -
<PAGE>
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment") is
made and dated as of September 17, 1993 among MGM Grand Hotel Finance Corp.
("MGM Finance"), a Nevada corporation, MGM Grand Hotel, Inc. ("MGM Hotel"), a
Nevada corporation, the several financial institutions parties to this Agreement
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
National Trust and Savings Association, as agent for the Banks (the "Agent") and
amends that certain Credit Agreement dated as of May 13, 1992 among the parties
hereto, as amended by a First Amendment to Credit Agreement dated as of October
30, 1992 (as amended, the "Agreement").
RECITAL
-------
MGM Hotel desires to enter into one or more lease transactions with
various Affiliates.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in
-----
the Agreement unless otherwise defined herein. All references to the Agreement
herein, in the Agreement and in the Notes shall mean the Agreement as hereby
amended.
2. Amendments to Agreement. MGM Finance, MGM Hotel, the Banks and
-----------------------
the Agent hereby agree to amend and restate Section 8.05 of the Agreement in its
entirety as follows:
"8.05 Lease Obligations. MGM Finance shall not create or suffer
-----------------
to exist any obligations for the payment by it of rent for any
property under lease or agreement to lease. MGM Hotel shall not, nor
shall it permit any Subsidiary to, create or suffer to exist any
obligations for the payment by it of rent for any property under lease
or agreement to lease, including Sale and Leaseback Transactions,
except that MGM Hotel may enter into:
(a) Operating leases involving personal property ordinarily
and customarily acquired through operating lease transactions;
- 1 -
<PAGE>
(b) Operating leases entered into in the ordinary course of
its business in an arm's length transaction with a Person other than
an Affiliate;
(c) Capital Lease Obligations otherwise permitted under
this Agreement; and
(d) Lease transactions with an Affiliate if such
transaction complies with Section 8.08."
3. Representations and Warranties. MGM Finance and MGM Hotel
------------------------------
represent and warrant to the Banks and Agent:
3.1 Authorization. The execution, delivery and performance of this
-------------
Second Amendment have been duly authorized by all necessary corporate action by
each of them and has been duly executed and delivered by each of them.
3.2 Binding Obligation. This Second Amendment is the legally valid
------------------
and binding obligation of MGM Finance and MGM Hotel, enforceable in accordance
with its terms against each of them respectively.
3.3 No Legal Obstacle to Agreement. Neither the execution of this
------------------------------
Second Amendment, the making by MGM Finance of any Borrowing under the
Agreement, nor the performance of the Agreement has constituted or resulted in
or will constitute or result in a breach of the provisions of any Contractual
Obligation to which MGM Finance or MGM Hotel is a party, or the violation of any
Requirement of Law, or result in the creation under any agreement or instrument
of any security interest, lien, charge, or encumbrance upon any of the assets of
any of them. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by MGM Finance or MGM
Hotel of this Second Amendment, the Agreement, or the transactions contemplated
hereby or thereby, or the making of any Borrowing under the Agreement.
3.4 Incorporation of Certain Representations. The representations
----------------------------------------
and warranties set forth in Article VI of the Agreement are true and correct in
all material respects on and as of the date hereof as though made on and as of
the date hereof.
3.5 Default. No Default or Event of Default under the Agreement has
-------
occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this Second
-------------------------
Amendment shall be subject to the compliance by MGM Finance and MGM Hotel with
their respective agreements herein contained, and to the delivery of the
following to the Agent in
- 2 -
<PAGE>
form and substance satisfactory to the Agent and the Majority Banks:
4.1 Corporate Resolutions. A copy of a resolution or resolutions
---------------------
passed by the Board of Directors of each of MGM Finance and MGM Hotel, certified
by the respective Secretary or an Assistant Secretary of such entity, as being
in full force and effect on the effective date of this Second Amendment,
authorizing the amendments to the Agreement herein provided for and the
execution, delivery and performance of this Second Amendment and any note or
other instrument or agreement required hereunder.
4.2 Authorized Signatories. A certificate, signed by the Secretary
----------------------
or an Assistant Secretary of each of MGM Finance and MGM Hotel dated the date of
this Second Amendment, as to the incumbency of the person or persons authorized
to execute and deliver this Second Amendment and any instrument or agreement
required hereunder on behalf of such entity.
4.3 Other Evidence. Such other evidence with respect to any MGM
--------------
Finance and MGM Hotel or any other person as the Agent or any Bank may
reasonably request to establish the consummation of the transactions
contemplated hereby, the taking of all corporate action in connection with this
Second Amendment and the Agreement and the compliance with the conditions set
forth herein.
5. Miscellaneous.
-------------
5.1 Effectiveness of the Agreement. Except as hereby expressly
------------------------------
amended, the Agreement shall remain in full force and effect, and are hereby
ratified and confirmed in all respects.
5.2 Waivers. This Second Amendment is specific in time and in intent
-------
and does not constitute, nor should it be construed as, a waiver of any other
right, power or privilege under the Agreement, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement; nor does it
preclude any exercise thereof or the exercise of any other right, power or
privilege, nor shall any future waiver of any right, power, privilege or default
hereunder, or under any agreement, contract, indenture, document or instrument
mentioned in the Agreement, constitute a waiver of any other default of the same
or of any other term or provision.
5.3 Counterparts. This Second Amendment may be executed in any
------------
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This Second Amendment shall
not become effective until each MGM Finance, MGM Hotel, MGM Grand, the Banks
- 3 -
<PAGE>
and the Agent shall have signed a copy hereof, whether the same or counterparts,
and the same shall have been delivered to the Agent.
5.4 Jurisdiction. This Second Amendment, and any instrument or
------------
agreement required hereunder, shall be governed by
- 4 -
<PAGE>
and construed under the laws of the State of Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed and delivered as of the date first written above.
MGM GRAND HOTEL FINANCE CORP.
By: /s/ J.T. Murphy
----------------------------
Title: Chief Financial Officer
-------------------------
MGM GRAND HOTEL, INC.
By: /s/ Larry Woolf
----------------------------
Title: CEO
-------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /s/ David M. Terrance
----------------------------
David M. Terrance
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ John Varnell
----------------------------
John Varnell
Vice President
BANK OF SCOTLAND
By: /s/ Catherine M. Oniffrey
----------------------------
Title: Vice President
-------------------------
UNITED STATES NATIONAL
BANK OF OREGON
By: /s/ Scott J. Bell
----------------------------
Title: Vice President
-------------------------
- 5 -
<PAGE>
CONSENT OF GUARANTOR
--------------------
The undersigned, as guarantor under that certain Continuing Guaranty dated as of
May 13, 1992, hereby consents to the foregoing Second Amendment to Credit
Agreement, dated as of the date hereof, and confirms that its Continuing
Guaranty remains in full force and effect.
MGM GRAND, INC.
By: /s/ K. Eugene Shutler
-----------------------------
Title: Executive Vice President
--------------------------
- 6 -
<PAGE>
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is made
and dated as of March 9, 1994 among MGM Grand Hotel Finance Corp. ("MGM
Finance"), a Nevada corporation, MGM Grand Hotel, Inc. ("MGM Hotel"), a Nevada
corporation, the several financial institutions parties to this Agreement
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
National Trust and Savings Association, as agent for the Banks (the "Agent") and
amends that certain Credit Agreement dated as of May 13, 1992 among the parties
hereto, as amended by a First Amendment to Credit Agreement dated as of October
30, 1992 and a Second Amendment to Credit Agreement dated as of September 17,
1993 (as amended, the "Agreement").
RECITAL
-------
MGM Hotel desires to repurchase First Mortgage Notes from time to time, and
the Banks and Agent are willing to amend the Agreement on the terms and
conditions set forth herein to permit such repurchases.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in the
-----
Agreement unless otherwise defined herein. All references to the Agreement
herein, in the Agreement and in the Notes shall mean the Agreement as hereby
amended.
2. Amendments to Agreement. MGM Finance, MGM Hotel, the Banks and the
-----------------------
Agent hereby agree to amend the Agreement as follows:
2.1 The definition of "Permitted Investments" in Section 1.01 of the
Agreement is amended by deleting "or" before clause (f) and inserting the
following at the end of such definition before the period:
"or, (g) First Mortgage Notes provided that no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence of an
Investment therein."
- 1 -
<PAGE>
2.2 Section 8.14 of the Agreement is amended by deleting "and" at the end
of subsection (d), inserting "and" at the end of subsection (e) before the
period, and inserting a new subsection (f) as follows:
"(f) MGM Hotel may repurchase First Mortgage Notes provided that no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence of such repurchase."
3. Representations and Warranties. MGM Finance and MGM Hotel represent
------------------------------
and warrant to the Banks and Agent:
3.1 Authorization. The execution, delivery and performance of this Third
-------------
Amendment have been duly authorized by all necessary corporate action by each of
them and has been duly executed and delivered by each of them.
3.2 Binding Obligation. This Third Amendment is the legally valid and
------------------
binding obligation of MGM Finance and MGM Hotel, enforceable in accordance with
its terms against each of them respectively.
3.3 No Legal Obstacle to Agreement. Neither the execution of this Third
------------------------------
Amendment, the making by MGM Finance of any Borrowing under the Agreement, nor
the performance of the Agreement has constituted or resulted in or will
constitute or result in a breach of the provisions of any Contractual Obligation
to which MGM Finance or MGM Hotel is a party, or the violation of any
Requirement of Law, or result in the creation under any agreement or instrument
of any security interest, lien, charge, or encumbrance upon any of the assets of
any of them. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by MGM Finance or MGM
Hotel of this Third Amendment, the Agreement, or the transactions contemplated
hereby or thereby, or the making of any Borrowing under the Agreement.
3.4 Incorporation of Certain Representations. The representations and
----------------------------------------
warranties set forth in Article VI of the Agreement are true and correct in all
material respects on and as of the date hereof as though made on and as of the
date hereof.
3.5 Default. No Default or Event of Default under the Agreement has
-------
occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this Third Amendment
-------------------------
shall be subject to the compliance by MGM Finance and MGM Hotel with their
respective agreements herein contained, and to the delivery of the following to
the Agent in
- 2 -
<PAGE>
form and substance satisfactory to the Agent and the Majority Banks:
4.1 Corporate Resolutions. A copy of a resolution or resolutions passed
---------------------
by the Board of Directors of each of MGM Finance and MGM Hotel, certified by the
respective Secretary or an Assistant Secretary of such entity as being in full
force and effect on the effective date of this Third Amendment, authorizing the
amendments to the Agreement herein provided for and the execution, delivery and
performance of this Third Amendment and any note or other instrument or
agreement required hereunder.
4.2 Authorized Signatories. A certificate, signed by the Secretary or an
----------------------
Assistant Secretary of each of MGM Finance and MGM Hotel dated the date of this
Third Amendment, as to the incumbency of the person or persons authorized to
execute and deliver this Third Amendment and any instrument or agreement
required hereunder on behalf of such entity.
4.3 Other Evidence. Such other evidence with respect to any MGM Finance
--------------
and MGM Hotel or any other person as the Agent or any Bank may reasonably
request to establish the consummation of the transactions contemplated hereby,
the taking of all corporate action in connection with this Third Amendment and
the Agreement and the compliance with the conditions set forth herein.
5. Miscellaneous.
-------------
5.1 Effectiveness of the Agreement. Except as hereby expressly amended,
------------------------------
the Agreement shall remain in full force and effect, and are hereby ratified and
confirmed in all respects.
5.2 Waivers. This Third Amendment is specific in time and in intent and
-------
does not constitute, nor should it be construed as, a waiver of any other right,
power or privilege under the Agreement, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement; nor does it
preclude any exercise thereof or the exercise of any other right, power or
privilege, nor shall any future waiver of any right, power, privilege or default
hereunder, or under any agreement, contract, indenture, document or instrument
mentioned in the Agreement, constitute a waiver of any other default of the same
or of any other term or provision.
5.3 Counterparts. This Third Amendment may be executed in any number of
------------
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument. This Third Amendment shall not become
effective until each MGM Finance, MGM Hotel, MGM Grand, the Banks and the Agent
shall have signed a copy hereof, whether the same
-3-
<PAGE>
or counterparts, and the same shall have been delivered to the Agent.
5.4 Jurisdiction. This Third Amendment, and any instrument or agreement
------------
required hereunder, shall be governed by and construed under the laws of the
State of Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed and delivered as of the date first written above.
MGM GRAND HOTEL FINANCE CORP.
By: /s/ J.T. Murphy
-----------------------------
Title: CEO
--------------------------
MGM GRAND HOTEL, INC.
By: /s/ J.T. Murphy
-----------------------------
Title: Secretary Treasurer
--------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /s/ Peggy Fujimoto
-----------------------------
Peggy Fujimoto
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Jon Varnell
-----------------------------
Jon Varnell
Vice President
BANK OF SCOTLAND
By: /s/ Catherine M. Oniffrey
-----------------------------
Title:
--------------------------
(Signatures continue)
- 4 -
<PAGE>
UNITED STATES NATIONAL
BANK OF OREGON
By: /s/ Scott J. Bell
-----------------------------
Title: Vice President
--------------------------
FIRST SECURITY BANK OF UTAH, N.A.
By: /s/ David P. Williams
-----------------------------
Title: Vice President
--------------------------
BANK OF AMERICA NEVADA
By: /s/ Alan F. Gerder
-----------------------------
Title: Vice President
--------------------------
-5-
<PAGE>
CONSENT OF GUARANTOR
--------------------
The undersigned, as guarantor under that certain Continuing Guaranty dated as of
May 13, 1992, hereby consents to the foregoing Third Amendment to Credit
Agreement, dated as of March 9, 1994, and confirms that its Continuing Guaranty
remains in full force and effect.
MGM GRAND, INC.
By: /s/ J.T. Murphy
-----------------------------
Title: VP
--------------------------
- 6 -
<PAGE>
FOURTH AMENDMENT TO
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Fourth Amendment") is made
and dated as of December 30, 1994 among MGM Grand Hotel Finance Corp. ("MGM
Finance"), a Nevada corporation, MGM Grand Hotel, Inc. ("MGM Hotel"), a Nevada
corporation, the several financial institutions parties to this Agreement
(collectively, the "Banks"; individually, a "Bank"), and Bank of America
National Trust and Savings Association, as agent for the Banks (the "Agent") and
amends that certain Credit Agreement dated as of May 13, 1992 among the parties
hereto, as amended by a First Amendment to Credit Agreement dated as of October
30, 1992, a Second Amendment to Credit Agreement dated as of September 17, 1993
and a Third Amendment to Credit Agreement dated as of March 9, 1994 (as so
amended, the "Agreement").
RECITAL
-------
MGM Hotel and MGM Finance have requested the Banks to make certain
amendments to the Agreement, and the Banks and Agent are willing to amend the
Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in the
-----
Agreement unless otherwise defined herein. All references to the Agreement
herein, in the Agreement and in the Notes shall mean the Agreement as hereby
amended.
2. Amendments to Agreement. MGM Finance, MGM Hotel, the Banks and the
-----------------------
Agent hereby agree to amend the Agreement as follows:
2.1 The definition of "Applicable Margin" in Section 1.01 of the
Agreement is amended and restated in its entirety as follows:
"'Applicable Margin" means the following rates per annum:
-----------------
-1-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Level Consolidated Funded Commitment Eurodollar Alternate
Indebtedness to Fee Rate Loans Base Rate
EBITDA Ratio Loans
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 less than 1.00:1 0.3500% 0.875% 0.000%
- --------------------------------------------------------------------------------------------------------------------------------
2 greater than or equal to 1.00:1 but less than 1.50:1 0.3750% 1.125% 0.000%
- --------------------------------------------------------------------------------------------------------------------------------
3 greater than or equal to 1.50:1 but less than 2.00:1 0.3750% 1.250% 0.000%
- --------------------------------------------------------------------------------------------------------------------------------
4 greater than or equal to 2.00:1 but less than 2.50:1 0.3750% 1.375% 0.125%
- --------------------------------------------------------------------------------------------------------------------------------
5 greater than or equal to 2.50:1 but less than 3.00:1 0.4375% 1.750% 0.500%
- --------------------------------------------------------------------------------------------------------------------------------
6 greater than or equal to 3.00:1 but less than 3.50:1 0.5000% 2.125% 0.875%
- --------------------------------------------------------------------------------------------------------------------------------
7 greater than or equal to 3.50:1 0.5000% 2.500% 1.250%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
"The Applicable Margin shall be based on the Consolidated Funded
Indebtedness to EBITDA Ratio as set forth in the most recent certificate
delivered pursuant to Section 7.02(b), and shall be effective from and
including the date the Agent receives such certificate to but excluding the
date on which Agent receives the next such certificate. Until the delivery
of the first certificate reflecting the Consolidated Funded Indebtedness to
EBITDA Ratio, the Applicable Margin shall be Level 4."
2.2 The definition of "EBITDA" in Section 1.01 of the Agreement is amended
and restated in its entirety as follows:
"'EBITDA' means, for any period, for any Person on a consolidated
------
basis, determined in accordance with GAAP, for the relevant
Determination Period, the sum of (a) the net income (or net loss) plus
----
(b) all amounts treated as expenses for depreciation and interest and
the amortization of intangibles of any kind to the extent included in
the determination of such net income (or loss), plus (c) all accrued
----
taxes on or measured by income to the extent included in the
determination of such net income (or loss); provided, however, that
-------- -------
net income (or loss) shall be computed for these purposes without
giving effect to extraordinary losses or extraordinary gains, plus,
----
the amount of management fees in respect of which a certificate has
been delivered pursuant to Section 7.02(b) that such amount of
management fees will be deferred to a date after the Termination Date.
For purposes of determining "Consolidated Funded Indebtedness to
EBITDA Ratio," management fees shall be added back to the extent
expensed in the determination of net income."
-2-
<PAGE>
2.3 The definition of "Termination Date" in Section 1.01 of the Agreement
is amended and restated in its entirety as follows:
"'Termination Date' means the earliest to occur of
----------------
"(a) December 31, 1999; and
"(b) the date on which the Commitments shall terminate in
accordance with the provisions of this Agreement.
2.4 Section 1.01 of the Agreement is amended by deleting the definitions
of "Determination Period," "Determination Period 1," "Determination Period 2,"
"Determination Period 3," and "Determination Period 4," and inserting the
following new definition in lieu thereof:
"'Determination Period' means for any calculation made as of
--------------------
September 30, 1994, the relevant calculation for the period of the two
fiscal quarters ending on such date, multiplied by two; for any calculation
made as of December 31, 1994, the relevant calculation for the period of
three fiscal quarters ending on such date, multiplied by 4/3; and for any
calculation made as of any date thereafter, the relevant calculation for
the period of four fiscal quarters ending on such date."
2.5 Section 1.01 of the Agreement is amended by inserting the following
new definitions in proper alphabetical order;
"'Consolidated Funded Indebtedness' means, for any Person on a
--------------------------------
consolidated basis in accordance with GAAP, an amount equal to the sum of,
without duplication, (a) all Indebtedness of such Person for borrowed
money, including letters of credit, plus (b) the principal portion of all
----
Capital Lease Obligations of such Person."
"'Consolidated Funded Indebtedness to EBITDA Ratio" means, as of any
------------------------------------------------
date of determination, the ratio of (i) Consolidated Funded Indebtedness as
of such date to (ii) EBITDA for applicable Determination Period."
--
2.6 Section 3.01(b) of the Agreement is amended by deleting "one-half
percent (1/2%) per annum" in the second sentence thereof and inserting "the
Applicable Margin" in lieu thereof.
-3-
<PAGE>
2.7 The last proviso to Section 8.02(c) of the Agreement is amended and
restated in its entirety as follows:
"provided that, the aggregate principal amount of such FF&E Financings
--------
shall not, when aggregated with the principal amount of Indebtedness incurred
under Section 8.02(f), exceed $30,000,000 in the aggregate at any time
outstanding;"
2.8 Section 8.02(f) of the Agreement is amended and restated in its
entirety as follows:
"(f) Provided no Event of Default shall have occurred and be
continuing at the time of incurrence, Indebtedness incurred for Capital
Expenditures in an amount not to exceed $30,000,000 in the aggregate
outstanding at any time; and"
2.9 Section 8.10 of the Agreement is amended and restated in its entirety
as follows:
"8.10 Restricted Payments. MGM Finance may not make any Restricted
-------------------
Payment. MGM Hotel may not make, and may not cause or permit any Subsidiary
to make (other than to MGM Hotel, any Subsidiary of MGM Hotel or to MGM
Finance) directly or indirectly, any Restricted Payment prior to the
Termination of Construction Period. Subsequent to the Termination of
Construction Period (the "Determining Date"), MGM Hotel may not make, and
may not cause or permit any Subsidiary or any Person directly or indirectly
controlled by MGM Hotel to make (other than the MGM Hotel, any Subsidiary
of MGM Hotel or to MGM Finance), directly or indirectly, any Restricted
Payment (including for purposes of this Section 8.10 repurchases of First
Mortgage Notes other than pursuant to Sections 8.14(a), (b) or (f)) unless,
after giving effect to such Restricted Payment:
"(a) no Default or Event of Default shall have occurred and be
continuing, or would occur as a consequence thereof;
"(b) the Consolidated Adjusted Net Worth of MGM Hotel is greater than
$415,000,000 as of the last day of the calendar month ending prior to the
date of such Restricted Payment, and after giving effect to such Restricted
Payment;
"(c) after giving effect to such Restricted Payment the aggregate
amount expended (determined as set forth below) for all such Restricted
Payments
-4-
<PAGE>
subsequent to the Determining Date shall not exceed the sum of $25,000,000
plus the sum, if positive, of
"(i) 50% of the cumulative Consolidated Net Income of MGM Hotel
(or if such cumulative Consolidated Net Income shall be a loss, 100%
of such loss) accrued on a consolidated basis subsequent to the
Determining Date; plus
"(ii) the aggregate Net Proceeds in cash received by MGM Hotel
from the issue of sale (other than to a Subsidiary), subsequent to the
Determining Date, of Capital Stock of MGM Hotel (other than
Disqualified Capital Stock) other than in connection with the
conversion or exchange of any Indebtedness or Capital Stock; plus
"(iii) the aggregate Net Proceeds received by MGM Hotel
subsequent to the Determining Date, from the issue or sale (other than
to a Subsidiary) of any debt securities or Disqualified Capital Stock
of MGM Hotel that have subsequently been converted into or exchanged
for Capital Stock of MGM Hotel (other than Disqualified Capital
Stock); plus
"(iv) the aggregate amount of the Net Proceeds actually received
by MGM Hotel pursuant to the disposition of any Investment
constituting a Restricted Payment.
"(d) For purposes of any calculation pursuant to subsection (c) above
which is required to be made within 60 days after the declaration of a
dividend by MGM Hotel or any Subsidiary, such dividend shall be deemed to
be paid at the date of declaration, and the subsequent payment of such
dividend during such 60-day period shall not be treated as an additional
Restricted Payment.
"(e) For purposes of determining the amount expended for Restricted
Payments or aggregate Net Proceeds received by MGM Hotel, cash distributed
shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value such fair market value shall be
determined in good faith by the Board of Directors as evidenced by a Board
Resolution delivered to the Agent; provided, however, that the fair market
-------- -------
value of all property distributed in any transaction or series of related
transactions shall not exceed $15,000,000 for the purposes of such
subsection (c) unless MGM Hotel has received an appraisal from an
Independent Financial Advisor
- 5 -
<PAGE>
indicating that such property has a fair market value equal to or greater
than the fair market value determined by the Board of Directors.
"(f) Notwithstanding the foregoing, the provisions of this Section
8.10 will not prevent (i) the payment of any dividend within 60 days after
the date of declaration when the payment complied with the foregoing
provisions on the date of declaration, (ii) the retirement of any shares of
MGM Hotel's Capital stock by exchange for, or out of the proceeds of
the substantially concurrent sale (other than to a Subsidiary) of, other
shares of its Capital Stock (other than any Disqualified Capital Stock), or
(iii) any distribution or dividends that would otherwise be deemed a
Restricted Payment hereunder to the extent such payment is effected by the
distribution of an Investment which constituted a Restricted Payment.
Notwithstanding anything to the contrary in the foregoing, all of the
amounts referred to in clause (i) of this subsection (f) shall be included
as Restricted Payments in any computation made under this Section 8.10.
"(g) Prior to making any Restricted Payment, MGM Hotel will deliver to
the Agent a certificate signed by a Responsible Officer (dated the date of
such proposed payment) stating (i) that such proposed payment will be
in compliance with this Section 8.10 and (ii) no Default under this
Indenture has occurred or will occur as a result of such proposed payment."
2.10 Section 8.13 of the Agreement is amended and restated in its entirety
as follows:
"8.13 Capital Expenditures. MGM Finance shall not make any Capital
--------------------
Expenditures. Commencing with the Availability Date, MGM Hotel shall not
make or commit to make Capital Expenditures except:
"(a) Capital Expenditures and expenditures to purchase the common
stock with respect to Grand Laundry, Inc. not exceeding $10,000,000 in the
aggregate;
"(b) Capital Expenditures and commitments to make Capital
Expenditures with respect to EFXI and the theater not exceeding $44,000,000
in the aggregate;
"(c) Capital Expenditures and commitments to make Capital
Expenditures for the StarLane Mall not exceeding $12,000,000 in the
aggregate;
- 6 -
<PAGE>
"(d) Capital Expenditures and commitments to make Capital
Expenditures with respect to the termination of Bank of America operating
leases not exceeding $43,000,000 in the aggregate; and
"(e) Capital Expenditures or commitments to make Capital
Expenditures in addition to those permitted above, not exceeding
$15,000,000 in the aggregate in any fiscal year plus an amount equal to the
----
amount of unused availability under this subsection (e) from the prior
fiscal year not exceeding an additional $5,000,000."
2.11 Section 8.16, 8.17 and 8.18 of the Agreement are amended and restated
in their entirety as follows:
"8.16 Leverage Ratio. MGM Hotel will not permit its Leverage Ratio as
--------------
determined as of the last day of each of each fiscal quarter to be greater
than the ratio set forth below for the applicable Determination Period:
"Date Ratio
---- -----
December 31, 1994 4.00 to 1
March 31, 1995 -
December 31, 1995 3.40 to 1
March 31, 1996 and
thereafter 3.00 to 1"
"8.17 Debt Service Coverage Ratio. MGM Hotel shall not permit its
---------------------------
ratio of (a) EBITDA to (b) Debt Service determined as of the last day of
each fiscal quarter to be less than the ratio set forth below for the
applicable Determination Period:
"Date Ratio
---- -----
December 31, 1994 2.00 to 1
March 31, 1995 and
thereafter 1.15 to 1"
"8.18 Interest Coverage Ratio. MGM Hotel shall not permit its ratio
-----------------------
of EBITDA to Consolidated Net Interest Expense determined as of the last
day of each fiscal quarter to be less than the ratio set forth below for
the applicable Determination Period:
"Date Ratio
---- -----
December 31, 1994 2.15 to 1
- 7 -
<PAGE>
March 31, 1995 and
thereafter 2.30 to 1"
3. Representations and Warranties. MGM Finance and MGM Hotel
------------------------------
represent and warrant to the Banks and Agent.
3.1 Authorization. The execution, delivery and performance of this
-------------
Fourth Amendment have been duly authorized by all necessary corporate action
by each of them and has been duly executed and delivered by each of them.
3.2 Binding Obligation. This Fourth Amendment is the legally valid
------------------
and binding obligation of MGM Finance and MGM Hotel, enforceable in accordance
with its terms against each of them respectively.
3.3 No Legal Obstacle to Agreement. Neither the execution of this
------------------------------
Fourth Amendment, the making by MGM Finance of any Borrowing under the
Agreement, nor the performance of the Agreement has constituted or resulted in
or will constitute or result in a breach of the provisions of any Contractual
Obligation to which MGM Finance or MGM Hotel is a party, or the violation of any
Requirement of Law, or result in the creation under any agreement or instrument
of any security interest, lien, charge, or encumbrance upon any of the assets of
any of them. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by MGM Finance or MGM
Hotel of this Fourth Amendment, the Agreement, or the transactions contemplated
hereby or thereby, or the making of any Borrowing under the Agreement.
3.4 Incorporation of Certain Representations. The representations and
----------------------------------------
warranties set forth in Article VI of the Agreement are true and correct in all
material respects on and as of the date hereof as though make on and as of the
date hereof.
3.5 Default. No Default or Event of Default under the Agreement has
-------
occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this Fourth
-------------------------
Amendment shall be subject to the compliance by MGM Finance and MGM Hotel with
their respective agreements herein contained, and to the delivery of the
following to the Agent in form and substance satisfactory to the Agent and the
Majority Banks:
4.1 Corporate Resolutions. A copy of a resolution or resolutions
---------------------
passed by the Board of Directors of each of MGM Finance and MGM Hotel, certified
by the respective Secretary or an Assistant Secretary of such entity as being in
full force and effect on the effective date of this Fourth Amendment.
- 8 -
<PAGE>
authorizing the amendments to the Agreement herein provided for and the
execution, delivery and performance of this Fourth Amendment and any note or
other instrument or agreement required hereunder.
4.2 Authorized Signatories. A certificate, signed by a Responsible
----------------------
Officer of each of MGM Finance and MGM Hotel dated the date of this Fourth
Amendment, as to the incumbency of the person or persons authorized to execute
and deliver this Fourth Amendment and any instrument or agreement required
hereunder on behalf of such entity.
4.3 Title Insurance Endorsement. A title insurance company
---------------------------
acceptable to the Collateral Agent and the Banks shall have issued or committed
to issue endorsements to the ALTA Lender's coverage policy of title insurance
issued in connection with the Deed of Trust as requested by the Agent to reflect
this Fourth Amendment.
4.4 Amendment Fee. An amendment fee equal to 0.50% of the Aggregate
-------------
Revolving Commitments for the ratable benefit of the Banks.
4.5 Other Evidence. Such other evidence with respect to any MGM
--------------
Finance and MGM Hotel or any other person as the Agent or any Bank may
reasonably request to establish the consummation of the transactions
contemplated hereby, the taking of all corporate action in connection with this
Fourth Amendment and the Agreement and the compliance with the conditions set
forth herein.
5. Miscellaneous.
-------------
5.1 Effectiveness of the Agreement. Except as hereby expressly
------------------------------
amended, the Agreement shall remain in full force and effect, and are hereby
ratified and confirmed in all respects.
5.2 Waivers. This Fourth Amendment is specific in time and in intent
--------
and does not constitute, nor should it be construed as, a waiver of any other
right, power or privilege under the Agreement, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement; nor does it
preclude any exercise thereof or the exercise of any other right, power or
privilege, nor shall any future waiver of any right, power, privilege or default
hereunder, or under any agreement, contract, indenture, document or instrument
mentioned in the Agreement, constitute a waiver of any other default of the same
or of any other term or provision.
5.3 Counterparts. This Fourth Amendment may be executed in any number
------------
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and
- 9 -
<PAGE>
the same instrument. This Fourth Amendment shall not become effective until each
MGM Finance, MGM Hotel, MGM Grand, the Banks and the Agent shall have signed a
copy hereof, whether the same or counterparts, and the same shall have been
delivered to the Agent.
5.4 Jurisdiction. This Fourth Amendment, and any instrument or
------------
agreement required hereunder, shall be governed by and construed under the laws
of the state of Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed and delivered as of the date first written above.
MGM GRAND HOTEL FINANCE CORP.
By: /s/ J.T. Murphy
---------------------------
Title: CFO
------------------------
MGM GRAND HOTEL, INC.
By: /s/ J.T. Murphy
---------------------------
Title: Sr. VP
------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By:
--------------------------
Peggy Fujimoto
Vice President
(Signatures continue)
- 10 -
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
-------------------------
Jon Varnell
Vice President
BANK OF SCOTLAND
By:
-------------------------
Title:
----------------------
UNITED STATES NATIONAL
BANK OF OREGON
By:
-------------------------
Title:
----------------------
FIRST SECURITY BANK OF UTAH, N.A.
By:
-------------------------
Title:
----------------------
BANK OF AMERICA NEVADA
By:
-------------------------
Title:
----------------------
- 11 -
<PAGE>
CONSENT OF GUARANTOR
--------------------
The undersigned, as guarantor under that certain Continuing Guaranty dated as of
May 13, 1992, hereby consents to the foregoing Fourth Amendment to Credit
Agreement, dated as of December 30, 1994, and confirms that its Continuing
Guaranty remains in full force and effect.
MGM GRAND, INC.
By: /s/ Alejandro Yemenidjian
--------------------------
Title: CFO
----------------------
- 12 -
<PAGE>
EXHIBIT 10.16
- --------------------------------------------------------------------------------
OPERATING AGREEMENT
OF
NEW YORK - NEW YORK HOTEL, LLC
By and Between
MGM GRAND, INC.
and
PRMA LAS VEGAS, INC.
Dated as of
December 26, 1994
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
ORGANIZATION OF THE COMPANY........................ 1
1.1 Formation............................................................. 1
1.2 Name.................................................................. 1
1.3 Purpose............................................................... 1
1.4 Intent................................................................ 2
1.5 Term.................................................................. 2
1.6 Title to Property..................................................... 2
1.7 Payments of Individual Obligations.................................... 2
1.8 Independent Activities................................................ 2
1.9 Transactions with Affiliates.......................................... 3
1.10 Expenses of Members................................................... 3
1.11 Guarantee by PRMA..................................................... 3
1.12 Registered Office and Agent for Service of Process.................... 3
1.13 Definitions........................................................... 4
ARTICLE II
OWNERSHIP AND CAPITAL CONTRIBUTIONS.................... 4
2.1 Membership and Percentage Interests................................... 4
2.2 Initial Capital Contributions......................................... 4
2.3 Third Party Financing................................................. 4
2.4 Additional Capital Contributions...................................... 5
2.5 Other Matters......................................................... 5
ARTICLE III
ALLOCATIONS................................ 5
3.1 Profits............................................................... 5
3.2 Losses................................................................ 5
3.3 Special Allocations................................................... 5
3.4 Curative Allocations.................................................. 7
3.5 Other Allocation Rules................................................ 7
3.6 Tax Allocations: Code Section 704(c)................................. 8
i
<PAGE>
ARTICLE IV
DISTRIBUTIONS............................... 8
4.1 Net Cash Flow......................................................... 8
4.2 Tax Distributions..................................................... 8
ARTICLE V
MANAGEMENT................................ 9
5.1 Board of Directors.................................................... 9
5.2 Managers............................................................. 13
5.3 Warranted Reliance by Directors and Managers on Others............... 14
5.4 Business Plan........................................................ 14
5.5 Insurance............................................................ 16
5.6 Unanimous Consent.................................................... 17
5.7 Pre-development Matters.............................................. 17
5.8 Agreements Regarding Advent Lease and Related PRMA Loans............. 19
ARTICLE VI
INDEMNIFICATION............................ 20
6.1 Indemnification: Company Actions, Suits and Proceedings other than
by Company........................................................... 20
6.2 Indemnification: Actions, Suits and Proceedings by Company........... 21
6.3 Indemnifications: Scope and Authorization............................ 21
6.4 Maintenance of Insurance or Other Financial Arrangements............. 22
ARTICLE VII
REPRESENTATIONS AND WARRANTIES..................... 22
7.1 In General........................................................... 22
7.2 Representations and Warranties....................................... 22
ARTICLE VIII
ACCOUNTING, BOOKS AND RECORDS...................... 24
8.1 Accounting, Books and Records........................................ 24
8.2 Reports.............................................................. 25
8.3 Tax Returns; Information............................................. 25
8.4 Special Basis Adjustment............................................. 25
8.5 Tax Matters Member................................................... 25
ii
<PAGE>
ARTICLE IX
TRANSFERS OF INTERESTS......................... 26
9.1 Restrictions on Transfers............................................ 26
9.2 Permitted Transfers.................................................. 26
9.3 Distribution Among Members........................................... 28
ARTICLE X
WITHDRAWALS; ACTION FOR PARTITION.................... 28
10.1 Waiver of Partition.................................................. 28
10.2 Covenant Not to Withdraw or Dissolve................................. 28
ARTICLE XI
BUY-SELL................................ 29
11.1 Buy-Sell Offering Notice............................................. 29
11.2 Exercise of Buy-Sell................................................. 29
11.3 Closing.............................................................. 29
11.4 Tax Returns.......................................................... 31
ARTICLE XII
DISSOLUTION AND WINDING UP...................... 31
12.1 Liquidating Events................................................... 31
12.2 Winding Up........................................................... 32
12.3 Deemed Distribution and Recontribution............................... 33
12.4 Rights of Members.................................................... 33
12.5 Notices of Dissolution............................................... 33
ARTICLE XIII
MISCELLANEOUS.............................. 34
13.1 Notices.............................................................. 34
13.2 Binding Effect....................................................... 34
13.3 Construction......................................................... 34
13.4 Time................................................................. 34
13.5 Titles and Captions.................................................. 34
13.6 Severability......................................................... 34
13.7 Incorporation by Reference........................................... 35
13.8 Further Assurance.................................................... 35
13.9 Pronouns and Plurals................................................. 35
13.10 Governing Law........................................................ 35
iii
<PAGE>
13.11 Counterpart Execution................................................ 35
13.12 Loans................................................................ 35
13.13 No Third Party Rights................................................ 35
13.14 Estoppel Certificates................................................ 35
13.15 Usury................................................................ 36
13.16 Certain Terminology.................................................. 36
13.17 Business Days........................................................ 36
13.18 Proposing and Adopting Amendments.................................... 36
EXHIBITS
- --------
A - Description of Project
iv
<PAGE>
OPERATING AGREEMENT
OF
NEW YORK - NEW YORK HOTEL, LLC
______________________________________________________________________________
This OPERATING AGREEMENT (this "Agreement") is entered into and shall
be effective as of the ____ day of December, 1994, by and among MGM Grand, Inc.,
a Delaware corporation, ("MGM") as a Member, and PRMA Las Vegas, Inc., a Nevada
corporation ("PRMA-LV") as a Member. PRMA-LV is a wholly-owned subsidiary of
Primadonna Resorts, Inc., a Nevada corporation ("PRMA").
ARTICLE I
ORGANIZATION OF THE COMPANY
1.1 Formation. MGM and PRMA-LV hereby intend to form and operate a
limited liability company (the "Company") pursuant to the provisions of Chapter
86 of the Nevada Revised Statutes (the "Act") and in accordance with, the terms
and conditions of this Agreement and the Company's Articles of Organization.
The Company shall exist under and be governed by, and this Agreement shall be
construed in accordance with the laws of the State of Nevada including the
Nevada Gaming Control Act embodied at Chapter 463 of the Nevada Revised Statutes
(the "Gaming Act"). The Members shall promptly make, execute and deliver all
filings, disclosures, and other documentation that are required by law
(including the Gaming Act, and the regulations promulgated thereunder, and the
Act) to enable the Company to comply with all requirements for its continued
operation.
1.2 Name. The name of the Company shall be "New York - New York
Hotel, LLC" and all business of the Company shall be conducted in such name or
such other name as the Members, from time to time, shall select.
Notwithstanding the foregoing, the Members agree that such name shall be changed
to "New York - New York Hotel and Casino, LLC" promptly after the Company (and
the Members, as applicable) shall have received all approvals and licenses
required under the Gaming Act and the regulations promulgated thereunder for the
conduct by the Company of gaming at the Property.
1.3 Purpose. The purpose of the Company is to acquire, own, develop,
mortgage, encumber, hypothecate, lease, sell, maintain, improve, alter, remodel,
expand, manage, and otherwise operate and deal with part or all of the Project,
including obtaining financing and refinancing for the above purposes, selling,
exchanging, transferring, or otherwise disposing of all or any part of the
Project and investing and reinvesting any undistributed Company funds pursuant
to the terms of this Agreement. The Company shall be operated only for the
purpose specified in this Section 1.3. Except as otherwise provided
-----------
<PAGE>
in this Agreement, the Company shall not engage in any other activity or
business and no Member shall have any authority to hold itself out as an agent
of another Member in any other business or activity.
1.4 Intent. It is the intent of the Members that the Company be
operated in a manner consistent with its treatment as a "partnership" for
federal and state income tax purposes. It is also the intent of the Members
that the Company not be operated or treated as a "partnership" for purposes of
Section 303 of the Federal Bankruptcy Code. No Member shall take any action
inconsistent with the express intent of the parties hereto as set forth in this
Section 1.4.
- -----------
1.5 Term. The term of the Company shall commence upon the filing of
the Articles of Organization for the Company with the Nevada Secretary of
State's Office and shall continue until the earlier of (a) the thirtieth
anniversary of such filing, and (b) the date a statement of intent to dissolve
the Company is filed in such office. The Company shall dissolve and its affairs
shall be wound up in accordance with Section 12 hereof.
----------
1.6 Title to Property. All real and personal property owned by the
Company shall be owned by the Company as an entity and no Member shall have any
ownership interest in such property in its individual name or right, and each
Member's interest in the Company shall be personal property for all purposes.
Except as otherwise provided in this Agreement, the Company shall hold all of
its real and personal property in the name of the Company and not in the name of
any Member.
1.7 Payments of Individual Obligations. The Company's credit and
assets shall be used solely for the benefit of the Company, and no asset of the
Company shall be transferred or encumbered for, or in payment of, any individual
obligation of a Member.
1.8 Independent Activities. Each Member shall be required to devote
only such time to the affairs of the Company as may be necessary for the proper
performance of such Member's duties hereunder. Except to the extent expressly
provided to the contrary in this Agreement, neither the Company's Articles of
Organization nor this Agreement shall: (a) limit the rights of each Member and
its Affiliates, and such Member's and Affiliate's respective officers,
directors, employees and stockholders ("Related Persons") to serve other Persons
in any capacity, to own interests in other businesses and undertakings, to
pursue and engage in other investments, opportunities and activities, and to
derive and enjoy profits, compensation and other consideration in respect
thereof, whether or not such services, interests, businesses, undertakings,
investments, opportunities and activities (collectively, "Other Interests") are
similar to or competitive with the business or assets of the Company, (b) afford
any Member any right to share in the profits, compensation and other
consideration derived from the Other Interests of the other Member or the other
Member's Related Persons, or to participate in the Other Interests of the other
Member or the other Member's Related Persons, (c) require any Member to disclose
to the other Member or the
2
<PAGE>
Company the existence or nature of any such Other Interest, or (d) obligate any
Member to first offer any such Other Interest to the other Member or the
Company, or allow the other Member or the Company to participate therein.
1.9 Transactions with Affiliates. To the extent permitted by
applicable law and except as otherwise provided in this Agreement (including
Section 5.1(c) hereof), the Chief Executive Officer, when acting on behalf of
- --------------
the Company, is hereby authorized to purchase property and services from, sell
property and services to, or otherwise deal with any Member, acting on its own
behalf, or any Affiliate of any Member, provided that any such purchase, sale,
or other transaction shall be made on terms and conditions which are no less
favorable to the Company (including as to price, quality and payment terms) than
if the sale, purchase, or other transaction had been entered into with an
independent third party. It is anticipated that each Member (or Affiliate of
such Member) may possess products, services, or technology which is equal to or
better than comparable products, services, or technology available from third
parties. In the event the Company acquires such products, services or
technology from a Member (or Affiliate of such Member), the price and terms at
which the same are supplied shall not be less favorable to the Company in the
aggregate than the price and terms available from third parties for similar
products, services or technology (even though the Member's (or Affiliate's)
products, services or technology is or are superior).
1.10 Expenses of Members. Except as specifically provided in this
Agreement, no Member (or Affiliate of a Member) shall be paid for services
rendered to the Company by such Member or such an Affiliate. However, each
Member (or Affiliate of a Member) shall be entitled to reimbursement from the
Company for actual "out of pocket" expenses reasonably incurred by such Member
(or Affiliate) in the furtherance of the Company's business to the extent such
expenses are approved by the Board, or were contemplated by a budget approved by
the Board, in each case upon the presentation of reasonable supporting
documentation of the amount and purpose of such expenses. The legal,
accounting, due diligence and investigative fees and expenses relating to the
negotiation of this Agreement and gaming licensure fees and costs associated
with each Member's individual licensure investigation shall be borne by such
Member and not by the Company.
1.11 Guarantee by PRMA. The obligations of PRMA-LV hereunder are
guaranteed by PRMA pursuant to the Unconditional Guaranty executed and delivered
concurrently herewith.
1.12 Registered Office and Agent for Service of Process. The address
of the registered office and the principal place of business of the Company, and
the name and address of the Company's initial agent for service of process, are
as set forth in the Articles of Organization. Such office address and agent may
be changed from time to time by the Board. Notwithstanding the foregoing, upon
the opening of the completed Project for
3
<PAGE>
business, or upon such earlier date as the Board may determine, such address
shall be changed to the Project's street address, and the location of such
office (and all records that are required to be kept at such office pursuant to
the Articles of Organization or the Act) shall be at the Project. The Board
shall cause an appropriate certificate of amendment to the Articles of
Organization to be duly filed upon any such change of office address or agent.
1.13 Definitions. Attached to this Agreement immediately following
the signature page is a glossary of defined terms (the "Glossary of Defined
Terms"). Each capitalized term used in this Agreement either is defined in the
Glossary of Defined Terms, or the location of its definition is cross-referenced
in the Glossary of Defined Terms.
ARTICLE II
OWNERSHIP AND CAPITAL CONTRIBUTIONS
2.1 Membership and Percentage Interests. The names, addresses, and
Percentage Interests of the Members are as follows:
NAME AND ADDRESS PERCENTAGE INTEREST
----------------- -------------------
MGM Grand, Inc.
3799 Las Vegas Boulevard South 50%
Las Vegas, Nevada 89109
Telecopier No.: (702) 891-3334
PRMA Las Vegas, Inc.
P.O. Box 95997 50%
Las Vegas, Nevada 89193-5997
Telecopier No.: (702) 874-1554
2.2 Initial Capital Contributions. The initial Capital Contributions
of the Members shall be made in accordance with, and subject to, the terms and
conditions set forth in the Contribution Agreement being executed and delivered
concurrently herewith.
2.3 Third Party Financing. Except as otherwise provided herein to
the contrary, the Company will obtain, on its own behalf, all additional money
and funds necessary, at anytime, to develop, construct, acquire and operate the
Property (including the Project). The initial financing for the development and
construction of the Project is contemplated to be without recourse to any Member
or Related Person of a Member, in an amount not less than Two Hundred and Twenty
Million Dollars ($220,000,000.00), and secured solely by the assets of the
Company. No Member or Affiliate of a Member shall
4
<PAGE>
be required to guaranty or make any other financial commitment with respect to
any debt or other obligation of the Company.
2.4 Additional Capital Contributions. Additional capital
contributions may be called for by the Board (but only by the unanimous vote or
approval of all Directors), by written demand upon the Members from time to time
("Additional Capital Contributions"). Such Additional Capital Contributions
shall be payable in proportion to the Percentage Interests of the Members.
2.5 Other Matters.
(a) Except as otherwise provided in this Agreement, no Member shall
demand or receive a return of his Capital Contributions or withdraw from the
Company without the consent of all Members. Under circumstances requiring a
return of any Capital Contributions, no Member shall have the right to receive
property other than cash except as may be specifically provided herein.
(b) No Member shall receive any interest, salary, or draw with respect
to its Capital Contributions or its Capital Account or for services rendered on
behalf of the Company or otherwise in its capacity as Member, except as
otherwise provided in this Agreement.
ARTICLE III
ALLOCATIONS
3.1 Profits. After giving effect to the special allocations set
forth in Sections 3.3 and 3.4 hereof, Profits for any Fiscal Year shall be
--------------------
allocated among the Members in proportion to their Percentage Interests.
3.2 Losses. After giving effect to the special allocations set forth
in Sections 3.3 and 3.4 hereof, Losses for any Fiscal Year shall be allocated
--------------------
among the Members in proportion to their Percentage Interests.
3.3 Special Allocations. The following special allocations shall be
made for income tax purposes in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article III, if there is a net decrease in Company Minimum Gain during any
Fiscal Year, each Member shall be specially allocated items of Company income
and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Regulations Section
5
<PAGE>
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations.
This Section 3.3(a) is intended to comply with the minimum gain chargeback
--------------
requirements in the Regulations and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Article III, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Section 1.704-
2(i)(5) of the Regulations, shall be specially allocated items of Company income
and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4) and 1.704-2(g)(2).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 3.3(b) is
--------------
intended to comply with the minimum gain chargeback requirements in the
Regulations and shall be interpreted consistently therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
Year shall be specially allocated among the Members in proportion to their
Percentage Interests.
(d) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions
for any Fiscal Year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).
(e) Code Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
- - - -
into account in determining Capital Accounts as the result of a distribution to
a Member in complete liquidation of his interest in the Company, the amount of
such adjustment to the Capital Accounts shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section
6
<PAGE>
1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was
- -
made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
- -
(f) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulation paragraph (4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d), items of
Company income and gain shall be specially allocated to the Members in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of that Member as quickly as
possible.
3.4 Curative Allocations. The allocations set forth in Sections
--------
3.3(a), 3.3(b), 3.3(c), 3.3(d) and 3.3(e) hereof (the "Regulatory Allocations")
- -----------------------------------------
are intended to comply with certain requirements of the Regulations. It is the
intent of the Members that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with special
allocations of other items of Company income, gain, loss, or deduction pursuant
to this Section 3.4. Therefore, notwithstanding any other provision of this
-----------
Article III (other than the Regulatory Allocations), the Chief Financial Officer
shall make such offsetting special allocations of Company income, gain, loss or
deduction in whatever manner such officer reasonably determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all Company items were allocated pursuant to Sections 3.1 and 3.2
--------------------
hereof. In exercising his reasonable judgment and discretion under this Section
-------
3.4, the Chief Financial Officer shall take into account future Regulatory
- ---
Allocations under Sections 3.3(a) and 3.3(b) that, although not yet made, are
--------------------------
likely to offset other Regulatory Allocations previously made under Sections
--------
3.3(c) and 3.3(d).
- -----------------
3.5 Other Allocation Rules.
(a) The Members are aware of the income tax and economic consequences
of the allocations made by this Article III and hereby agree to be bound by the
-----------
provisions of this Article III in reporting their shares of Company income and
-----------
loss for income tax purposes.
(b) For purposes of determining the Profits, Losses, or any other
items allocable to any period, Profits, Losses, and any such other items shall
be determined on a daily, monthly, or other basis, as determined by the Members
using any permissible method under Code Section 706 and the Regulations
thereunder.
7
<PAGE>
(c) Solely for purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company, within the meaning of
Regulations Section 1.752-3(a)(3), the Members' interests in Company profits are
in proportion to their Percentage Interests.
(d) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Chief Financial Officer shall endeavor not to treat
distributions of Net Cash Flow as having been made from the proceeds of a
Nonrecourse Liability or a Member Nonrecourse Debt.
3.6 Tax Allocations: Code Section 704(c). In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Company shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to the definition of Gross Asset Value contained in the Glossary of
Defined Terms, subsequent allocations of income, gain, loss, and deduction with
respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset Value in
the same manner as under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the Members in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 3.6 are
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solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Person's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provisions of this Agreement.
ARTICLE IV
DISTRIBUTIONS
4.1 Net Cash Flow. Except as provided in Section 12.2 hereof, the
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Chief Financial Officer shall cause all Net Cash Flow, if any, to be distributed
to the Members, in proportion to their respective Percentage Interests, not
later than the thirtieth (30th) day after the end of each fiscal quarter.
4.2 Tax Distributions. Within ninety (90) days after the conclusion
of each Fiscal Year, the Chief Financial Officer shall determine and provide
written notice to the Members of the amount (the "Tax Liability Shortfall
Amount"), if any, by which (a) the
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aggregate federal and Nevada state tax liability (if any) incurred by the
Members with respect to the net income of the Company for such preceding Fiscal
Year (which tax liability shall be determined by applying the highest effective
corporate tax rates then in effect for the Fiscal Year in question), exceeds (b)
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the aggregate cash distributions made by the Company with respect to such Fiscal
Year (including any distributions made to the Members with respect to the final
fiscal quarter of such Fiscal Year). Unless otherwise instructed by the Board,
the Chief Financial Officer shall use all reasonable efforts to obtain all
required lender's consents, or to cause the Company to borrow sufficient funds,
to enable the Company to distribute the Tax Liability Shortfall Amount to the
Members. Each such distribution shall be made to the Members in accordance with
their respective Percentage Interests as soon as practicable after such funds
have been obtained. Notwithstanding anything contained herein to the contrary,
in no event shall any such borrowing or distribution be obtained or made without
the approval of the Board if such action would cause a breach of or an adverse
change under any contract or undertaking by which the Company is bound, or to
which any of its Property is subject. It is the objective of the Members that
while the Tax Liability Shortfall Amount will be determined at the end of each
Fiscal Year, to the extent possible and subject to the foregoing, distributions
will be made in respect thereof on a quarterly basis to facilitate the Members'
ability to make quarterly estimated tax payments with respect to their net
income from the Company. At the end of each Fiscal Year as contemplated above,
final adjustments shall be made to reflect the actual results of such Fiscal
Year, and if required by any lender to the Company, each Member shall
immediately repay any excess amounts distributed to it with respect to the Tax
Liability Shortfall Amount for such Fiscal Year based on such final adjustment.
ARTICLE V
MANAGEMENT
5.1 Board of Directors. The Company shall at all times have a board
of directors (the "Board") composed of individuals ("Directors") selected by the
Members who shall vote on Major Decisions and elect, and oversee the performance
of, the Managers.
(a) Membership and Voting.
(i) Membership. The Board will consist of four (4) Directors
with two (2) Directors appointed by MGM, and two (2) Directors appointed by
PRMA-LV. One of the Directors shall be designated as the "Chairman of the
Board." Each Member shall cause its appointed Directors to comply with the
terms of this Agreement to be performed by such Directors. Each Member may, at
any time, appoint alternate Directors by prior written notice to the other
Directors and such alternates will have all the powers of a regular Director in
the absence or inability of a regular Director to serve. Each Member will have
the power to remove any Director or alternate Director of the Board appointed by
it. Vacancies on the Board will be filled by appointment by the Member which
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appointed the Director previously holding the position which is then vacant.
Each Member shall notify the other Member in writing of its initial appointments
to the Board within five (5) business days of the execution of this Agreement.
The Members may agree to increase or decrease the size of the Board
proportionately, from time to time.
(ii) Voting. Each Director shall have one vote on any decision of
the Board. A Director may give his written proxy to another Director to vote on
his behalf in his absence. Except as expressly provided to the contrary in this
Agreement, all actions of the Board must be approved, directly or by proxy, by a
majority of the Directors (whether or not present at the meeting at which such
vote occurs).
(b) Meetings of the Board; Time and Place. Unless otherwise agreed by
the Board, regular meetings of the Board shall be held monthly at such time and
at such place as the Board shall determine. At such regular meetings, the
Managers shall report on the financial performance and condition of the Company
on a year-to-date basis (including cash flows, reserves, outstanding loans, and
compliance efforts), progress reports on capital projects, including the
construction of the Project, and the Business Plan, material contracts entered
into, material litigation, marketing efforts and such other matters relevant to
the operation of the Company. Special meetings of the Board shall be held on
the call of any Director; provided that at least three (3) business days' notice
is given to all Directors (unless written waiver of this requirement by all
Directors is obtained). A quorum for any Board meeting shall consist of not
less than three (3) Directors present either in person or by proxy. The Board
may make use of telephones and other electronic devices to hold meetings,
provided that each Director simultaneously participates with all of the other
Directors with respect to all discussions and votes of the Board. The Board may
act without a meeting if the action taken is reduced to writing and approved by
the Board in accordance with the other voting provisions of this Agreement.
Written minutes shall be taken at each meeting of the Board. However, any
action taken or matter agreed upon by the Board shall be deemed final, whether
or not written minutes are ever prepared or finalized. Without limitation on
the voting and approval requirements set forth in this Article V, the Chairman
---------
of the Board shall be entitled to consult with and advise the Managers, from
time to time, and shall not be required to call a meeting of the Board to do so.
(c) Major Decisions. No action shall be taken, sum expended, decision
made or obligation incurred by any Manager or Member on behalf of the Company
with respect to any matter within the scope of any of the Major Decisions
enumerated below, unless approved by the Board. The "Major Decisions" shall
mean and consist of the following:
(i) The approval of each Business Plan and each revision or
amendment thereto;
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(ii) The approval of the architectural and engineering plans for
the Project and any material modifications thereof;
(iii) The selection of a firm of independent certified public
accountants to perform an annual audit and issue an opinion letter with respect
to the financial statements of the Company;
(iv) Granting to any individual other than a Manager the
authority to open and draw checks on bank accounts in the name of the Company,
or endorse checks for deposit to such accounts;
(v) The purchase, sale, lease or other disposition of Company
Property, other than as contemplated in the Business Plan, and other than in the
ordinary course of the Company's business;
(vi) Approving all capital expenditures, other than those
contemplated in the Business Plan;
(vii) The incurrence of any indebtedness for borrowed money by, or
the refinancing of any indebtedness of, the Company, or the granting of any
mortgage, lien or other encumbrance on any of the Company's Property, the giving
of any Company guaranty, other than construction guarantees, indemnities and
surety bonds given in furtherance of the construction or improvement of the
Project;
(viii) Approving transactions between the Company and a Member or
Related Person of a Member, other than those contemplated in the Business Plan;
(ix) Selecting and removing any Manager;
(x) Entering into employment agreements with and determining
the compensation of the Managers;
(xi) Filing for bankruptcy protection or similar proceedings;
(xii) Selecting any underwriter, broker, consultant or legal
counsel for the Company;
(xiii) Each other decision or action under this Agreement or the
Articles of Organization that requires the approval, consent, determination or
agreement of the Board;
provided, however, that a transaction of the type described in clause (v), (vi),
- -------- -------
(vii), (viii) or (xii) above (other than real property leases covering Company
Property, which shall always
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constitute Major Decisions) shall not be a Major Decision if the Chief Executive
Officer reasonably anticipates that such transaction will involve an aggregate
payment or liability of $300,000 or less; moreover the Chief Executive Officer
shall notify the Board if any transaction described in clause (v) is reasonably
anticipated to exceed $150,000. In addition, any action by the Company to
materially amend, modify, or supplement any document, instrument, transaction or
other matter described above as a Major Decision shall require the approval of
the Board if the same as so amended, modified or supplemented, would be
inconsistent with the terms previously approved with respect thereto by the
Board. Notwithstanding the above, the Chief Executive Officer shall have the
right and authority to take such actions as he or she, in his or her reasonable
judgment, deems necessary for the protection of life or health or the
preservation of Company assets if, under the circumstances, in the good faith
estimation of the Chief Executive Officer, there is insufficient time to allow
the Chief Executive Officer to obtain the approval of the Board to such action
and any delay would materially increase the risk to life or health or
preservation of assets. The Chief Executive Officer shall notify the Board of
each such action contemporaneously therewith or as soon as reasonably
practicable thereafter. Such authority shall lapse and terminate upon reduction
of such risk to life or health or preservation of assets or upon receipt by the
Chief Executive Officer of telephone, facsimile, or written notice from any
director on the Board of its disapproval of any or all of the proposed actions.
As used herein, "Buy-Sell Major Decision" shall mean any Major Decision of the
type described in one or more of clauses (i), (ii), (v), (vi), (vii), (viii),
(ix), (x) and (xi).
(d) Deadlock Resolution. In the event the Board is deadlocked over a
Major Decision that is not a Buy-Sell Major Decision, the Members shall promptly
select a mutually acceptable unrelated and independent individual who shall,
after good faith discussions with the Board with the objective of arriving at a
consensus on the issue in question that is acceptable to a majority of the
Directors, resolve the deadlocked matter (including, if necessary, by casting
his or her vote in favor of a proposed resolution in the event no such consensus
can be reached upon the conclusion of such discussions). In the event the
Members cannot agree on the selection of such individual, any Director shall be
entitled to request that an official of the local office of the American
Arbitration Association ("AAA") appoint such individual, and such Director shall
promptly give written notice to the other Directors that such request has been
made (whereupon no other Director shall be entitled to make a duplicative
request to the AAA). In such event, the official of the AAA shall be instructed
to use his or her best efforts to appoint an individual who (i) is of good
reputation and possesses a minimum of five (5) years of experience in Las Vegas,
Nevada as a senior executive of a gaming company, and (ii) has no prior
relationship with or to either Member or the Company. Notwithstanding the
foregoing, the Members agree that either of Mr. Thomas Hartley or Mr. Donald
McGhie shall be a mutually acceptable individual hereunder. Such appointed
individual shall, after good faith discussions with the Board with the objective
of arriving at a consensus on the issue in question that is acceptable to a
majority of the Directors, resolve the deadlocked matter (including, if
necessary, by casting his or her vote in favor of a proposed resolution in the
event no such consensus can be reached upon the conclusion of such discussions).
The
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Company shall indemnify and hold harmless any individual selected or appointed
in accordance with the foregoing to the same extent that such Person would be
indemnified under Article VI hereof if such Person were a Director of the
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Company. In no event, however, shall any such individual be designated or
construed to be a Director of the Company. The provisions of this Section 5.1
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shall be deemed automatically deleted, without the need for approval of any
further action to be taken by the Members, upon the date occurring six (6)
months after the opening of the Project (the "Deadlock Resolution Flip Date").
5.2 Managers.
(a) Management by Managers. The day-to-day management of the Company
shall be vested in two (2) or more Managers who shall be elected solely by the
Board. No debt may be contracted or liability incurred by or on behalf of the
Company, except by one or more of the Managers, subject to the restrictions on
its or their authority set forth in Section 5.1. No Director or Member, unless
-----------
also appointed as a Manager, shall participate in the day to day operation of
the business affairs of the Company, and if so appointed, shall participate only
within the scope of authority of such position as defined in this Agreement.
(b) Election of Managers by Board. The Company shall have two (2) or
more Managers, one of which shall be designated as General Manager and Chief
Executive Officer (the "Chief Executive Officer"), and another of which shall be
designated as Manager and Chief Financial Officer (the "Chief Financial
Officer"). The initial Managers are designated in the Articles of Organization.
Each Manager shall be selected by the Board and shall serve at the pleasure of
the Board. Any Manager may be removed by the Board at any time with or without
cause. Without limitation on the Board's right to select or remove a Manager at
any time, the Managers shall be elected at least annually by the Board.
Directors who are Managers or candidates to be Manager shall be entitled to vote
with respect to each such election, including their own. Each Manager shall
serve for a term expiring at the earlier of (i) the Board's determination to
terminate such Manager, (ii) the anniversary of such Manager's election, or
(iii) the date on which he or she resigns or becomes disabled and unable to
serve. The Members anticipate that the Board will select Managers to render
full-time and exclusive services to the Company within a reasonable time prior
to the opening of the Project. Until such time, the initial Managers designated
in the Articles of Organization shall serve on an interim and non-exclusive
basis as "Interim Managers" hereunder. Except for the Interim Managers, (A)
Managers shall be compensated solely by the Company, but may retain previously
granted stock options or other emoluments from either Member or its respective
Affiliates, in such Member's sole and absolute discretion; (B) the Managers,
while serving as Managers, shall not be eligible to receive new stock options or
other emoluments from either Member or its respective Affiliates; and (C) the
Managers are expected to render full-time, exclusive services to the Company,
subject only to such exceptions as the Board may approve in its discretion on a
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case by case basis. A Manager shall perform his duties as a Manager in good
faith, in a manner he reasonably believes to be in the best interest of Company,
and with such care as an ordinarily prudent person in a like position would use
under similar circumstances. A person who so performs his or her duties shall
not have any liability by reason or being or having been a Manager of the
Company.
(c) Duties of the Chief Executive Officer. The Chief Executive
Officer shall be generally responsible for overseeing and managing the business
and operations of the Company.
(d) Duties of the Chief Financial Officer. The Chief Financial
Officer shall have fiduciary responsibility for the safekeeping and use of all
funds and assets of the Company, whether or not in his immediate possession or
control. The funds of the Company shall not be commingled with the funds of any
other Person and the Chief Financial Officer shall not employ, or permit any
other Person to employ, such funds in any manner except for the benefit of the
Company. The bank accounts of the Company shall be maintained in such banking
institutions as are approved by the Board and withdrawals shall be made only in
the regular course of Company business and as otherwise authorized in this
Agreement on such signature or signatures as the Board may determine. All funds
of the Company shall be invested in accordance with the then applicable Business
Plan. The Chief Financial Officer shall also have the duties described in
Article VIII of this Agreement.
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5.3 Warranted Reliance by Directors and Managers on Others. In
exercising their authority and performing their duties under this Agreement, the
Directors and the Managers shall be entitled to rely on information, opinions,
reports, or statements of the following persons or groups unless they have
actual knowledge concerning the matter in question that would cause such
reliance to be unwarranted:
(i) one or more employees or other agents of the Company whom
the Director or Manager, as the case may be, reasonably believes to be reliable
and competent in the matters presented; and
(ii) any attorney, public accountant, or other person as to
matters which the Director or Manager, as the case may be, reasonably believes
to be within such person's professional or expert competence.
5.4 Business Plan.
(a) Preparation and Approval. Not later than forty-five (45) days
prior to the end of the then current Fiscal Year, the Managers shall prepare for
the approval of the Board a business plan (the "Business Plan") for the next
Fiscal Year. Within sixty (60) days of the date hereof, the Managers shall
prepare a Business Plan for the Company for Fiscal
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Year 1995. No material changes or departures from any item in an approved
Business Plan shall be made by the Managers without the prior approval of the
Board. Each Business Plan shall include the following:
(i) A narrative description of any activities proposed to be
undertaken including the physical development of the Project;
(ii) A projected annual income statement (accrual basis) on a
quarter-by-quarter basis for the upcoming Fiscal Year and the subsequent Fiscal
Year;
(iii) A projected balance sheet as of the end of the upcoming
Fiscal Year and subsequent Fiscal Year;
(iv) A capital budget and an operating budget for the Project,
including the establishment and amount of working capital, capital improvement,
and contingency reserves;
(v) A schedule of projected operating cash flow (including
itemized operating revenues, Project costs, and Project expenses) for such
Fiscal Year on a quarter-by-quarter basis, including a schedule of projected
operating deficits and capital calls for Additional Capital Contributions, if
any;
(vi) A marketing plan indicating the nature, type, timing and
cost of advertising, public relations, complementaries, and promotions
contemplated (e.g. print,television, food/beverage, billboard, signage, and
other media), contemplated distribution and amounts payable to contractors;
(vii) A personnel plan indicating executive and key employee
staff, organizational charts, employee census, hiring estimates, turnover,
payroll, schedule of benefits, and labor relations agreements;
(viii) An entertainment plan indicating the nature, type and cost
of entertainment to be conducted as part of the Project including special
events, and to the extent ascertainable, scheduled dates and entertainers;
(ix) A description of any material proposed construction,
capital expenditures, installations including projected dates for commencement
and completion of the foregoing;
(x) A development schedule identifying the projected
development periods as well as the times for completion of the various stages of
the Project and the costs attributable to each such stage;
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(xi) A narrative description of the proposed investment of any
funds of the Company which are (or are expected to become) available for
investment;
(xii) Such other information, plans, maps, descriptions of
contracts, or other materials necessary in order to inform the Board of all
matters relevant to the development, operation, management, and maintenance of
the Project, or to enable the Board to make an informed decision with respect to
its approval of such Business Plan or as may be desired by the Board;
(xiii) A schedule identifying proposed property (real or
personal) acquisitions and dispositions with a cost or sales price, as the case
may be, in excess of $250,000.00, the aggregate cost of all such acquisitions
and the aggregate sales price of all such dispositions; and
(xiv) A five year strategic plan for the further strategic
development, diversification and positioning of the Company so it remains
competitive in a dynamic marketplace.
(b) Implementation of Business Plan by Managers. The Managers shall,
subject to the limitations contained herein and the availability of operating
revenues and other funds, use all reasonable efforts to conduct the Company's
business in material compliance with the then applicable Business Plan.
5.5 Insurance.
(a) Coverage. The Chief Executive Officer shall procure and
maintain, or cause to be procured and maintained, insurance sufficient to enable
the Company to comply with applicable laws, regulations, and contractual
requirements (including the requirements of Persons providing financing to the
Company), including as a minimum and without limitation, the following:
(i) Comprehensive general liability insurance in the amounts
and upon terms customary for businesses and assets comparable to the Project;
(ii) With respect to completed improvements, fire and extended
coverage insurance (including earthquake coverage), and, whenever construction
of any improvement is taking place, builders' risk insurance, in each case, on a
replacement cost basis of not less than one hundred percent (100%) of the full
replacement cost of such improvements;
(iii) Worker's compensation insurance as required by law
including employer's liability;
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(iv) Fidelity insurance in an amount to protect against losses
due to employee dishonesty, theft by a property manager or any other third
parties, and mysterious disappearances; an d
(v) Such additional insurance against other risks of loss to
the Project as, from time to time, may be required by any lender making a loan
to the Company or which may be required by law.
The Chief Executive Officer shall furnish the Board, no less
frequently than annually, a schedule of such insurance and copies of
certificates evidencing the same. All Members must consent to the establishment
or modification of any self insurance or deductibles which exposes the Company
to uninsured liability. Each Director, Manager and Member shall be named as an
additional insured to the Company's comprehensive general liability insurance
policies.
5.6 Unanimous Consent. Notwithstanding anything to the contrary in
this Agreement, the Company may take any action contemplated under this
Agreement if approved by the unanimous consent of the Members, such consent to
be provided in the manner required by Section 13 hereof. Any Manager may
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require response to any request for approval within a specified time period, but
not less than ten (10) Business Days, which approval shall be deemed given by a
Member upon the expiration of such time period (but only if the applicable
request for approval specifically advised such Member that its failure to
respond within the specified time period would result in such deemed approval)
unless written notice to the requesting Manager has been earlier given
indicating such Member's approval or disapproval.
5.7 Pre-development Matters.
(a) Entitlements. The Managers shall promptly commence, and with due
diligence proceed, to use all reasonable efforts to obtain the issuance or
approval of each of the following (collectively, the "Entitlements"), to the
extent necessary for the development and construction of the Project, in
compliance with all applicable laws: environmental impact reports or negative
declarations, master plan/guide changes, Paradise Town specific plan changes,
zoning changes, variances, special or conditional use permits, acceptable
conditions to variance and to special use permits, all flood control approvals,
building permits, F.A.A. and McCarran Airport height approvals and
"determinations of no hazard," subdivision or parcel maps, dedications, special
assessment districts, and all similar items or arrangements (other than state
and local gaming licensure matters). Each Member shall diligently and in good
faith cooperate with the Managers in the Managers' efforts to
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obtain, on behalf of the Company, the Entitlements. The Company shall pay and
be solely responsible for any and all costs and expenses ("Entitlements Costs")
incurred with respect to the performance of the undertakings described in this
subsection (a) above.
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(b) Liquor and Gaming Approvals. The Managers shall promptly commence
and with due diligence proceed to use all reasonable efforts to obtain, on
behalf of the Company, all liquor and gaming licenses and approvals (the "Liquor
and Gaming Approvals") necessary for the contemplated use and operation of the
Project, including the execution, delivery and processing of all necessary or
appropriate applications, agreements, documents and other instruments. Each
Member shall diligently and in good faith cooperate with the Managers in the
Managers' efforts to obtain, on behalf of the Company, the Liquor and Gaming
Approvals. Any and all costs and expenses (including reasonable attorneys' fees
and costs) incurred by any Manager or Member in connection with obtaining the
Liquor and Gaming Approvals (the "Liquor and Gaming Costs") shall be paid by the
Company, except that each Member shall bear the costs and expenses incurred in
connection with its obtaining a gaming license and approval in its capacity as a
Member in the Company.
(c) Reimbursement of Shared Costs. As contemplated by that certain
Due Diligence and Cost-Sharing Agreement, dated October 13, 1994, by and among
the Members and PRMA (the "Cost-Sharing Agreement"), the Chief Financial Officer
shall promptly cause the Company to reimburse each Member for any and all
"Shared Costs" (as defined in the Cost-Sharing Agreement) that have been borne
by such Member upon the Chief Financial Officer's receipt of supporting
documentation evidencing that such costs have been paid and calculating such
Member's share thereof. All such Shared Costs that have accrued but remain
unpaid as of the date hereof shall be assumed and paid by the Company when due.
(d) Unwind Conditions and Procedures. At any time during the thirty
(30) day period following May 1, 1995, as such date may be extended from time to
time by the Board (the "Outside Date"), either Member, acting through its
respective Directors at a meeting of the Board, shall have the unilateral right
to cause the dissolution of the Company if all of the following conditions
precedent have not been satisfied by such Outside Date:
(i) The Company shall have received a written loan commitment for
construction financing for the Project, in an amount not less than
$220,000,000.00, which shall be without recourse to any Member or any
Member's assets and secured solely by the assets of the Company, and which
shall contain such other terms and conditions acceptable to each Member in
each such party's reasonable business judgement.
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(ii) Each Member shall be satisfied, in each such party's
reasonable business judgement, that the necessary Liquor and Gaming
Approvals and the Entitlements are obtainable by the Company.
If the Company is not dissolved in accordance with the foregoing
during such thirty day period, each Member shall be deemed to have waived its
rights under this Section 5.7, and thereafter the Company may be dissolved only
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upon the other dissolution events described in Section 12.1. If the Company is
------------
dissolved in accordance with this Section 5.7, the business of the Company shall
-----------
be wound up and liquidated, provided that, notwithstanding anything contained in
Section 12.2 to the contrary, the following liquidating distributions and
- ------------
payments shall be made after the payment and discharge of all of the Company's
debts and liabilities to creditors: (A) the "MGM Contribution Property" (as
defined in the Contribution Agreement) component of the Company's Property shall
be distributed solely to MGM, (B) the "Theme Rights" (as defined in the
Contribution Agreement) shall be reconveyed and assigned to PRMA-LV, (C) all
other components of the Company's Property shall be sold and reduced to cash,
(D) all of the Company's cash (including such cash that are generated by the
sales referred to in clause (C) above) shall be distributed solely to PRMA-LV,
and (E) MGM shall make a cash payment to PRMA-LV in an amount equal to one half
of the difference between (x) $40,000,000, and (y) the aggregate amount of cash
distributed to PRMA-LV pursuant to clause (D) above (which cash payment, for
income tax purposes only, shall be deemed to have been contributed to the
Company and then distributed to PRMA-LV), within fifteen (15) business days
after such aggregate amount is determined by the Chief Financial Officer.
5.8 Agreements Regarding Advent Lease and Related PRMA Loans. Prior
to the Close of Escrow (as defined in the Contribution Agreement), the Company
will receive an assignment of all of PRMA's right, title and interest in and to
the Advent Option Agreement, and will assume all of PRMA's obligations
thereunder (excluding, however, PRMA's obligations set forth in Paragraph 2(f)
thereof). PRMA has heretofore advanced a loan to Advent, and may hereafter
provide certain additional financing to Advent and/or guarantee certain
additional third party financing that may be obtained by Advent in connection
with the build-out, furnishing and fixturing of the Advent Lease Premises
(collectively, the "Advent/PRMA Obligations"). In the event of the termination
of the Advent Lease, the Company shall concurrently therewith purchase from PRMA
the Advent/PRMA Obligations for a purchase price equal to the PRMA Recoupment
Amount, provided that the entire purchase price shall be evidenced by an
unsecured promissory note given by the Company in favor of PRMA that shall be
repayable solely out of the Company receipts and revenues derived from its
ownership, operation and use of the Advent Premises. In the event that PRMA
forecloses on its collateral for the Advent/PRMA Obligations, or accepts a deed
and assignment in lieu of such foreclosure, the Company shall promptly
thereafter purchase PRMA's entire right, title and interest in and to such
collateral for a purchase price equal to the PRMA Recoupment Amount, provided
that the entire purchase price shall be evidenced by an unsecured promissory
note given by the Company in favor
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of PRMA that shall be repayable solely out of the Company receipts and revenues
derived from its ownership, operation and use of the Advent Premises. As used
herein, "PRMA Recoupment Amount" shall mean an amount, calculated on an after-
tax basis to PRMA (assuming the highest corporate rate of state, if any, and
federal taxation), equal to the amount PRMA would have received under the
Advent/PRMA Obligations at the time of such termination, foreclosure, or deed
and assignment in lieu of foreclosure (as the case may be) if the Advent/PRMA
Obligations had been satisfied in full; such amount shall accrue interest at a
per annum rate equal to the reference rate announced from time to time by Bank
of America, Nevada, which interest shall cumulate and compound monthly until the
entire PRMA Recoupment Amount has been repaid in full.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification: Actions, Suits and Proceedings other than by
Company. The Company shall, to the extent of its existing capital, its assets
and, if insured for such purposes, its insurance coverage for such purposes,
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action, suit or
proceeding by or in the right of the Company, by reason of the fact that such
person is or was a Director, Manager, Member, employee or agent of the Company,
or by reason of the fact that such person at the request of the Company is or
was serving as a manager, director, officer, employee or agent of another
limited-liability company, corporation, partnership, joint venture, trust or
other enterprise, against all expenses, including, without limitation,
attorneys' fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such Person in connection with such action, suit or
proceeding if such Person in relation to the facts, events and circumstances on
which such action, suit or proceeding is based (i) acted in good faith and in a
manner that such Person reasonably believed to be in or not opposed to the best
interests of the Company and (ii) with respect to a criminal action or
proceeding had no reasonable cause to believe that such Person's conduct was
unlawful. The Company shall pay for or reimburse the reasonable expenses
incurred by a Director, Manager, Member, employee or agent of the Company who is
a party to such an action, suit or proceeding in advance of its final
disposition if (a) such Person furnishes the Company with a written affirmation
of such Person's good faith belief that in relation to the facts, events and
circumstances on which such action, suit or proceeding is based such Person
satisfied all applicable standards of conduct described in this Agreement, (b)
such Person furnishes the Company with a written undertaking, executed
personally or on such Person's behalf, to repay in full to the Company all
amounts so advanced upon the ultimate determination by a court of competent
jurisdiction that in relation to the facts, events and circumstances on which
such action, suit
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or proceeding is based such Person failed to satisfy all applicable standards of
conduct described in this Agreement and therefore is not entitled to be
indemnified by the Company pursuant hereto and (c) a determination is made by
the Board that it knows of no fact or circumstance that would preclude
indemnification of such Person under applicable law and this Agreement. The
provisions of the immediately-preceding sentence hereof shall not affect any
other right to advancement of expenses to which personnel of the Company may be
entitled under any contract or otherwise by law. The termination of any action,
suit or proceeding by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, does not and shall not, of itself, create
a presumption that in relation to the facts, events and circumstances on which
such action, suit or proceeding was or is based (1) such Person did not act in
good faith and in a manner that such Person reasonably believed to be in or not
opposed to the best interests of the Company or (2) with respect to any criminal
action or proceeding, such Person had reasonable cause to believe that such
Person's conduct was unlawful.
6.2 Indemnification: Actions, Suits and Proceedings by Company. The
Company may indemnify any Person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
by or in the right of the Company to procure a judgment in its favor by reason
of the fact that such Person is or was a Director, Manager, Member, employee or
agent of the Company, or is or was serving at the request of the Company as a
manager, director, officer, employee or agent of another limited-liability
company, corporation, partnership, joint venture, trust or other enterprise,
against expenses, including amounts paid in settlement and attorneys' fees,
actually and reasonably incurred by such Person in connection with the defense
or settlement of such action, suit or proceeding if such Person, in relation to
the facts, events and circumstances on which such action, suit or proceeding is
based, acted in good faith and in a manner in which such Person reasonably
believed to be in or not opposed to the best interests of the Company.
Notwithstanding the immediately foregoing, the Company shall not provide
indemnification for any claim, issue or matter as to which such a Person has
been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the Company or for amounts paid in settlement
to the Company, unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction determines upon
application that in view of all of the circumstances of the case such Person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
6.3 Indemnifications: Scope and Authorization. To the extent that a
Director, Manager, Member, employee or agent of the Company has been successful
on the merits or otherwise in the defense of any action, suit or proceeding
described in this Article VI, or in the defense of any claim, issue or matter
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therein, the Company shall indemnify such Person against all expenses, including
attorneys' fees, actually and reasonably incurred in connection with such
defense. Any indemnification pursuant to this Article VI, unless ordered by a
----------
court of competent jurisdiction, shall be made by the Company only as
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authorized in the specific case upon a determination by the Board that
indemnification of the Director, Manager, Member, employee or agent of the
Company is proper in the circumstances. Notwithstanding anything to the
contrary provided in this Agreement or the Articles of Organization, the
Company's indemnity obligations hereunder shall be limited to the Company's
capital and assets and insurance existing as of the date on which the Company
receives a demand for indemnity. In furtherance of such indemnity obligations,
no Member shall be required to contribute any additional capital to the Company
or otherwise to fund the Company's indemnity obligations under this Article VI.
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6.4 Maintenance of Insurance or Other Financial Arrangements. In
compliance with applicable law, the Company (acting with the approval of its
Board) may purchase and maintain insurance or make other financial arrangements
on behalf of any Person who is or was a Director, Manager, Member, employee or
agent of the Company, or at the request of the Company is or was serving as a
manager, director, officer, employee or agent of another limited-liability
company, corporation, partnership, joint venture, trust or other enterprise, for
any liability asserted against such Person and liability and expenses incurred
by such Person in such Person's capacity as a Director, Manager, Member,
employee or agent, or arising out of such Person's status as such, whether or
not the Company has the authority to indemnify such Person against such
liability and expenses. The decision of the Company as to the propriety of the
terms and conditions of any insurance or other financial arrangement made
pursuant to the immediately-preceding sentence hereof and the Company's choice
of Person to provide such insurance or other financial arrangement is and shall
be conclusive, and such insurance or other financial arrangement is not and
shall not be void or voidable and does not and shall not subject any Director,
Manager or Member of the Company approving such insurance or other financial
arrangement to personal liability for such Person's action, even if such Person
approving such insurance or other financial arrangement is a beneficiary of such
approved insurance or other financial arrangement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 In General. As of the date hereof, each of the Members hereby
makes each of the representations and warranties applicable to such Member as
set forth in Section 7.2 hereof, and such warranties and representations shall
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survive the execution of this Agreement.
7.2 Representations and Warranties. Each Member hereby represents
and warrants that:
(a) Due Incorporation or Formation; Authorization of Agreement. It
is a corporation, duly organized, validly existing, and in good standing under
the laws of the
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jurisdiction of its incorporation or formation and has the corporate power and
authority to own its property and carry on its business as owned and carried on
at the date hereof and as contemplated hereby. Such Member is duly licensed or
qualified to do business and in good standing in each of the jurisdictions in
which the failure to be so licensed or qualified would have a material adverse
effect on its financial condition or its ability to perform its obligations
hereunder. Such Member has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and, the
execution, delivery, and performance of this Agreement has been duly authorized
by all necessary corporate action. This Agreement has been duly executed and
delivered by such Member and constitutes the legal, valid, and binding
obligation of such Member enforceable in accordance with its terms.
(b) No Conflict with Restrictions; No Default. Neither the execution,
delivery, and performance of this Agreement nor the consummation by such Member
of the transactions contemplated hereby (i) will conflict with, violate, or
result in a breach of any of the terms, conditions, or provisions of any law,
regulation, order, writ, injunction, decree, determination, or award of any
court, any governmental department, board, agency, or instrumentality, domestic
or foreign, or any arbitrator, applicable to such Member or any of its
Affiliates, (ii) will conflict with, violate, result in a breach of, or
constitute a default under any of the terms, conditions, or provisions of the
articles of incorporation, or bylaws of such Member or any of its Affiliates, or
any material agreement or instrument to which such Member or any of its
Affiliates is a party or by which such Member or any of its Affiliates is or may
be bound or to which any of its material properties or assets is subject, (iii)
will conflict with, violate, result in a breach of, constitute a default under
(whether with notice or lapse of time or both), accelerate or permit the
acceleration of the performance required by, give to others any material
interests or rights, or require any consent, authorization or approval under,
any indenture, mortgage, lease agreement, or instrument to which such Member or
any of its Affiliates is a party or by which such Member or any of its
Affiliates is or may be bound, or (iv) will result in the creation or imposition
of any lien upon any of the material properties or assets of such Member or any
of its Affiliates.
(c) Governmental Authorizations. Any registration, declaration or
filing with, or consent, approval, license, permit or other authorization or
order by, any governmental or regulatory authority, domestic or foreign, that is
required in connection with the valid execution, delivery and acceptance by such
Member under this Agreement has been completed, made or obtained on or before
the effective date of this Agreement. Each Member, at its own cost and expense,
shall apply for and obtain any equity licenses necessary to non-restricted
gaming by the Company.
(d) Litigation. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of such Member, threatened against
or affecting such Member or any of its Affiliates or any of their properties,
assets, or businesses in any court or before or by any governmental department,
board, agency, or instrumentality, domestic or foreign,
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<PAGE>
or any arbitrator which could, if adversely determined (or, in the case of an
investigation could lead to any action, suit, or proceeding, which if adversely
determined could) reasonably be expected to materially impair such Member's
ability to perform its obligations under this Agreement or to have a material
adverse effect on the consolidated financial condition of such Member; and such
Member or any of its Affiliates has not received any currently effective notice
of any default, and such Member or any of its Affiliates is not in default,
under any applicable order, writ, injunction, decree, permit, determination, or
award of any court, any governmental department, board, agency or
instrumentality, domestic or foreign, or any arbitrator which could reasonably
be expected to materially impair such Member's ability to perform its
obligations under this Agreement or to have a material adverse effect on the
consolidated financial condition of such Member.
(e) Investment Company Act; Public Utility Holding Company Act.
Neither such Member nor any of its Affiliates is, nor will the Company as a
result of such Member holding an Interest be, an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940. Neither
such Member nor any of its Affiliates is, nor will the Company as a result of
such Member holding an interest in the Company be, a "holding company," "an
affiliate of a holding company," or a "subsidiary of a holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935.
(f) Investigation. Such Member is acquiring its Interest based upon
its own investigation, and the exercise by such Member of its rights and the
performance of its obligations under this Agreement will be based upon its own
investigation, analysis and expertise. Such Member's acquisition of its
Interest is being made for its own account for investment, and not with a view
to the sale or distribution thereof.
ARTICLE VIII
ACCOUNTING, BOOKS AND RECORDS
8.1 Accounting, Books and Records. The Company shall maintain at its
principal place of business separate books of account for the Company which
shall show a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received, and all income derived in
connection with the operation of the Company business in accordance with
generally accepted accounting principles and casino industry guidelines
consistently applied and, to the extent inconsistent therewith, in accordance
with this Agreement. The Company shall use the accrual method of accounting in
preparation of its annual reports and for tax purposes and shall keep its book
accordingly. Each Member shall, at its sole expense, have the right, at any
time, without notice to any other Member, to examine, copy, and audit the
Company's books and records during normal business hours.
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8.2 Reports.
(a) In General. The Chief Financial Officer shall be responsible for
the preparation of financial reports of the Company and the coordination of
financial matters of the Company with the Company's accountants.
(b) Reports. Within sixty (60) days after the end of each Fiscal Year
and within thirty (30) days after the end of each of the first three (3) fiscal
quarters, and within twenty (20) days after the end of each calendar month, the
Chief Financial Officer shall cause each Member and each Board member to be
furnished with a copy of the balance sheet of the Company as of the last day of
the applicable period, a statement of income or loss for the Company for such
period, and a statement of the Company's cash flow for such period. Annual
statements shall also include a statement of the Members' Capital Accounts and
changes therein for such Fiscal Year. Annual statements shall be audited by the
Company's accountants, and shall be in such form as shall enable the Members to
comply with all reporting requirements applicable to either of them or their
Affiliates under the Securities Exchange Act of 1934, as amended.
8.3 Tax Returns; Information. The Chief Financial Officer shall
arrange for the preparation and timely filing of all income and other tax
returns of the Company. Within sixty (60) days after the end of each Fiscal
Year, the Chief Financial Officer shall cause the Company's accountants to
prepare and submit to the Board for its review and approval the Company's tax
returns. The Chief Financial Officer shall furnish to each Member a copy of
each approved return, together with any schedules or other information which
each Member may require in connection with such Member's own tax affairs.
8.4 Special Basis Adjustment. In connection with any Permitted
Transfer of a Company interest, the Chief Financial Officer shall cause the
Company, at the written request of the transferor or the transferee, on behalf
of the Company and at the time and in the manner provided in Regulations Section
1.754-1(b), to make an election to adjust the basis of the Company's property in
the manner provided in Sections 734(b) and 743(b) of the Code, and such
transferee shall pay all costs incurred by the Company in connection therewith,
including, without limitation, reasonable attorneys' and accountants' fees.
8.5 Tax Matters Member. PRMA-LV is specially authorized and
appointed to act as the "Tax Matters Partner" under the Code and in any similar
capacity under state or local law.
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<PAGE>
ARTICLE IX
TRANSFERS OF INTERESTS
9.1 Restrictions on Transfers. Except as expressly permitted or
required by this Agreement, no Member shall Transfer all or any portion of its
Interest without the unanimous prior written consent of the Members, which
consent may be withheld by a Member in its sole and absolute discretion. Any
Transfer or attempted Transfer by any Member in violation of the preceding
sentence shall be null and void and of no force or effect whatever. Each Member
hereby acknowledges the reasonableness of the restrictions on Transfer imposed
by this Agreement in view of the Company purposes and the relationship of the
Members. Accordingly, the restrictions on Transfer contained herein shall be
specifically enforceable. Each Member hereby further agrees to hold the Company
and each Member wholly and completely harmless from any cost, liability, or
damage (including liabilities for income taxes and costs of enforcing this
indemnity) incurred by any of such indemnified Persons as a result of a Transfer
or an attempted Transfer in violation of this Agreement.
9.2 Permitted Transfers.
(a) General. Subject to the conditions and restrictions set forth in
this Section 9.2, a Member shall have the right to Transfer all (but not less
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than all) of its Interest by means of a Permitted Transfer.
(b) Definition of Permitted Transfer; Permitted Transferees.
(i) A "Permitted Transfer" is any Transfer by a Member of all of
its Interest to a Permitted Transferee, provided that such Transfer otherwise
complies with the conditions and restrictions of this Section 9.2.
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(ii) A "Permitted Transferee" of a Member is any Person who is
sole shareholder of such Member, or a wholly owned subsidiary of such Member, or
any Person approved as a Permitted Transferee by the unanimous consent of the
Members.
(c) Conditions to Permitted Transfers. A Transfer otherwise permitted
under this Section 9.2 shall not be a Permitted Transfer and any attempted
-----------
Transfer of a Member's Interest to a Permitted Transferee shall be null and void
and of no force or effect whatever unless and until the following conditions are
satisfied:
(i) The transferor and transferee shall execute such documents
and instruments of conveyance and assumption as may be necessary or appropriate
in the opinion of counsel to the Company and counsel to the non-transferring
Member to effect such Transfer and to confirm the Permitted Transferee's
agreement to be bound by the
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<PAGE>
provisions of this Article IX and assumption of all obligations of the
----------
transferor Member with respect to the Interest being transferred.
(ii) The Company shall receive, prior to such Transfer, an
opinion of counsel satisfactory to the Company and the non-transferring Member
confirming that such Transfer will not terminate the Company for federal income
tax purposes.
(iii) The transferor and transferee shall furnish the Company and
the non-transferring Member with the transferee's taxpayer identification
number, sufficient information to determine the transferee's initial tax basis
in the Interest transferred, and any other information reasonably necessary to
permit the Company to file all required federal and state tax returns and other
legally required information statements or returns. Without limiting the
generality of the foregoing, the Company shall not be required to make any
distribution otherwise provided for in this Agreement with respect to any
transferred Interest until it has received such information.
(iv) The Transfer and Permitted Transferee have been approved by
the Nevada Gaming Commission to the extent such approval is required under
applicable law or regulations.
(v) A Member making a Permitted Transfer and the Permitted
Transferee shall pay all reasonable costs and expenses incurred by the Company
in connection with such Transfer.
(vi) A Member making a Permitted Transfer to a Permitted
Transferee that is a wholly owned Affiliate shall guarantee for the benefit of
the Company and the other Member all of such Permitted Transferee's contractual
undertakings hereunder pursuant to a guaranty in form reasonably satisfactory to
such other Member.
(d) Admission of Permitted Transferee as a Member. A Permitted
Transferee of an Interest shall be admitted as a Member in the Company only upon
the unanimous written consent of the Members. The rights of a Permitted
Transferee who is not admitted as a Member shall be limited to the right to
receive allocations and distributions from the Company with respect to the
Interest transferred, as provided by this Agreement. The transferor of such
Interest shall not be a Member with respect to such Interest, and, without
limiting the foregoing, shall not have the right to inspect the Company's books,
act for or bind the Company, or otherwise interfere in its operations unless and
until it is admitted as a Member in accordance with this Agreement.
(e) Effect of Permitted Transfer on Company. The Members intend that
the Permitted Transfer of an interest in the Company shall not cause the
dissolution of the Company.
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<PAGE>
9.3 Distribution Among Members. Upon the occurrence of a Permitted
Transfer of an Interest during any Fiscal Year, Profits, Losses, each item
thereof, and all other items attributable to such interest for such Fiscal Year
shall be divided and allocated between the transferor and the transferee by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 706(d), using any conventions permitted by law and selected by
the Chief Financial Officer. All distributions on or before the date of a
Permitted Transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Company shall recognize a Permitted Transfer
upon the Chief Financial Officer's receipt of written notice stating the date
such Interest was transferred and such other information as the Chief Financial
Officer may reasonably require. The Chief Financial Officer and the Company
shall incur no liability for making allocations and distributions in accordance
with the provisions of this Section 9.3, whether or not the Chief Financial
-----------
Officer or the Company has knowledge of any Transfer of ownership of any
interest in the Company.
ARTICLE X
WITHDRAWALS; ACTION FOR PARTITION
10.1 Waiver of Partition. No Member shall, either directly or
indirectly, take any action to require partition of any Company property, and
notwithstanding any provisions of applicable law to the contrary, each Member
hereby irrevocably waives any and all rights it may have to maintain any action
for partition or to compel any sale with respect to its Company interest, or
with respect to any assets or properties of the Company, except as expressly
provided in this Agreement.
10.2 Covenant Not to Withdraw or Dissolve. Each Member hereby
covenants and agrees that the Members have entered into this Agreement based on
their mutual expectation that all Members will continue as Members and carry out
the duties and obligations undertaken by them hereunder and that, except as
otherwise expressly required or permitted hereby, each Member hereby covenants
and agrees not to (a) take any action to file a certificate of dissolution or
its equivalent with respect to itself, (b) take any action that would cause a
Bankruptcy of such Member, (c) withdraw or attempt to withdraw from the Company,
(d) exercise any power under the Act to dissolve the Company, (e) Transfer all
or any portion of its interest in the Company (other than to a Permitted
Transferee), (f) petition for judicial dissolution of the Company, or (g) demand
a return of such Member's contributions or profits (or a bond or other security
for the return of such contributions or profits) without the unanimous consent
of the Members, or except as otherwise specifically allowed under this
Agreement.
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ARTICLE XI
BUY-SELL
11.1 Buy-Sell Offering Notice. Either Member may exercise its rights
under this Article XI at the following times: (a) prior to the Deadlock
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Resolution Flip Date, at any time after a deadlock over a Buy-Sell Major
Decision that is not resolved within thirty (30) days after the Board meeting at
which the same is voted upon, and (b) after the Deadlock Resolution Flip Date,
at any time during the Term as a Member shall desire to exercise such rights in
its sole and absolute discretion. At any time during the Term, either Member
(the "Initiating Member") may give written notice (the "Offering Notice") to the
other (the "Responding Member") of its intent to purchase all, but not less than
all, of the Responding Member's Interest. In such event, the provisions set
forth in this Article XI shall apply. The Initiating Member shall specify in
----------
its Offering Notice the all cash purchase price ("Purchase Price") at which the
Initiating Member would be willing to purchase all of the Responding Member's
Interest as of the date the Offering Notice is given ("Date of Value"). Once
given, an Offering Notice may not be revoked or withdrawn by an Initiating
Member without the written consent of the Responding Member, which consent may
be withheld in its sole and absolute discretion.
11.2 Exercise of Buy-Sell. Upon receipt of the Offering Notice, the
Responding Member shall then be obligated either:
(a) To sell to the Initiating Member its Interest for the Purchase
Price; or
(b) To purchase the Interest of the Initiating Member for the
Purchase Price.
The Responding Member shall notify the Initiating Member of its election within
thirty (30) days after the Date of Value. Failure to give notice within the
required time period shall be deemed an election to sell. For purposes of this
Section 11 the term "Purchasing Member" shall mean the Member who is obligated
- ----------
to purchase the other Member's Interest pursuant to either Section 11.2(a) or
---------------
Section 11.2(b) (whether such Member is the Initiating Member or the Responding
- ---------------
Member) and the term "Selling Member" shall mean the Member who is obligated to
sell its Interest to the Purchasing Member.
11.3 Closing.
(a) The Members shall meet and exchange documents and pay any amounts
due, and otherwise do all things necessary to conclude the transaction set forth
herein at the closing of such purchase (the "Closing"). The Closing shall occur
at the office of the Purchasing Member's legal counsel at 9:00 a.m., on the
first Wednesday after the ninetieth (90th) day after the Date of Value unless
that day is a national or state holiday
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<PAGE>
and, in that event, on the next business day. At the Closing, the Selling
Member shall deliver to the Purchasing Member a duly executed assignment of its
Interest and all Repayment Rights (as defined), if any, and shall also, upon the
request of the Purchasing Member, concurrently therewith (or at any time and
from time to time thereafter) execute and deliver such other documents and
records as the Purchasing Member determines are reasonably necessary or
desirable to conclude the Closing and to otherwise allow the Purchasing Member
to complete the Project or otherwise develop, use, sell, rent or dispose of the
Property. The Purchasing Member shall deliver to the Selling Member cash for
the full amount of the Purchase Price, and shall also, upon the request of the
Selling Member, concurrently therewith (or at any time and from time to time
thereafter) execute and deliver such other documents and records as the Selling
Member determines are reasonably necessary or desirable to conclude the Closing.
Further, on the Closing, the Selling Member and/or its Affiliates shall be
released from its liability under any third party loans to the Company and any
guarantees made in connection therewith. If a Company creditor refuses to so
release the Selling Member and/or its Affiliates, the Purchasing Member shall
indemnify the Selling Member and/or its Affiliates from liability under such
loans and guarantees. In addition, any and all outstanding loans, fees and
reimbursements owed by the Company or the Purchasing Member to the Selling
Member or any of its Affiliates ("Repayment Rights") shall be satisfied in full
by the Purchasing Member out of its own funds at Closing, and the satisfaction
of all Repayment Rights, if any, shall be a condition precedent to the Selling
Member's obligation to close hereunder. Without limitation on the foregoing, if
PRMA-LV is the Selling Member, upon the Closing the Purchasing Member shall
purchase the Advent/PRMA Obligations from PRMA, for an all cash purchase equal
to the outstanding balance thereof (together with all accrued and unpaid
interest and all other documents due thereunder), and PRMA shall be released
from its liability under any and all guarantees and loan documents relating
thereto (and if any party refuses to so release PRMA, the Purchasing Member
shall indemnify PRMA from liability under such guarantees and loan documents).
If the Selling Member's Interest is subject to any lien, claim or encumbrance,
the same shall constitute a default and the Purchasing Member may elect (a) to
cause the purchase price (or a portion thereof) to be applied to discharge such
lien, claim or encumbrance, (b) to take the Interest subject to such lien, claim
or encumbrance and to reduce the purchase price otherwise payable to the
Purchasing Member to the Selling Member by the amount of such lien, claim or
encumbrance, or (c) to terminate the buy-sell proceedings under this Article XI
----------
because of the existence of such lien, claim or encumbrance and in such event
pursue any and all remedies available at law and equity. Notwithstanding
anything in this Agreement to the contrary, (i) the Purchasing Member shall be
entitled to designate any Affiliate or third party to be the transferee of such
interest or obtain financing from any third party with respect to such purchase,
provided that the foregoing shall not delay the closing of any such transaction
and (ii) the Selling Member's appointments to the Board shall be automatically
terminated effective as of the Closing. The reasonable costs of the Closing
shall be divided equally between the Selling Member and the Purchasing Member,
provided that each such Member shall bear its own attorneys' fees and costs.
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(b) If for any reason the Purchasing Member fails to close as
aforesaid, in addition to any other remedies available under this Agreement or
at law or in equity by reason thereof, the Selling Member shall have the right,
exercisable by written notice to the Purchasing Member given within thirty (30)
days of the date set for the Closing, to purchase under this Section 11.3 the
------------
Interest of the Purchasing Member. If the Selling Member exercises such option,
the Purchase Price used for the purposes of this Section 11.3 shall be ninety
------------
percent (90%) of the Purchase Price then established by the Offering Notice
previously given.
(c) The Members acknowledge and agree that each Member's Interest is
extraordinary and unique, and the provisions of this Article XI shall be
----------
specifically enforceable.
11.4 Tax Returns. The Company's accountants shall deliver to the
Members prepared as of the date of Closing, all necessary state and federal tax
returns. The Purchasing Member shall execute (on behalf of the Company) and
file all such state and federal tax returns. The Selling Member shall continue,
after the Closing, to have access during normal business hours, to the books and
records of the Company to the extent reasonably necessary in connection with the
preparation, review or audit of the Selling Member's state and federal returns.
ARTICLE XII
DISSOLUTION AND WINDING UP
12.1 Liquidating Events. The Company shall dissolve and commence
winding up and liquidating upon the first to occur of the following
("Liquidating Events"):
(a) The thirtieth (30th) anniversary of the date of the filing of the
Articles of Organization;
(b) The sale of all or substantially all of the Property;
(c) The unanimous written agreement of all Members to dissolve, wind
up, and liquidate the Company;
(d) The death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member or the occurrence of any other event which terminates a
Member's continued membership in the Company, unless the business of the Company
is continued by the remaining Member under a right to do so stated in the
Articles of Organization;
(e) The election of a Member made in accordance with Section 5.7; and
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(f) The happening of any other event that makes it unlawful or
impossible to carry on the business of the Company.
The Members hereby agree that the Company shall not dissolve prior to
the occurrence of a Liquidating Event. If it is determined, by a court of
competent jurisdiction, that the Company has dissolved prior to the occurrence
of a Liquidating Event, the Members hereby agree to continue the business of the
Company without a winding up or liquidation.
12.2 Winding Up. Unless the business of the Company is continued
pursuant to Section 12.1, the provisions of this Section 12.2 shall apply upon
------------ ------------
the occurrence of a Liquidating Event (except as provided in Section 5.7 above).
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The Company shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members, and no Member shall take any action that is inconsistent
with, or not necessary to or appropriate for, winding up the Company's business
and affairs. To the extent consistent with this Article XII, all covenants and
-----------
obligations in this Agreement (including those relating to the control,
management and operation of the Company) shall continue in full force and effect
until such time as the Property has been distributed pursuant to this Section
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12.2 and the Company has terminated. The Chief Executive Officer shall be
- ----
responsible for overseeing the winding up and liquidation of the Company, shall
take full account of the Company's liabilities and Property, shall cause the
Property to be liquidated as promptly as is consistent with obtaining the fair
market value thereof. The Chief Executive Officer shall apply and distribute as
soon as practicable all Net Cash Flow and all other Company cash on hand in the
following order of priority, unless otherwise required by applicable law:
(a) First, to the payment and discharge of all of the Company's debts
and liabilities to creditors, in the order of priority as provided by law,
except to the Members in respect of their respective Percentage Interests; and
(b) The balance, if any, to the Members in accordance with their
respective Percentage Interests.
The Managers shall not receive any additional compensation for any
services performed pursuant to this Section 12. Each Member understands and
----------
agrees that by accepting the provisions of this Section 12.2 setting forth the
------------
priority of the distribution of the assets of the Company to be made upon its
liquidation, such Member expressly waives any right which it, as a creditor of
the Company, might otherwise have under the Act to receive distributions of
assets pari passu with the other creditors of the Company in connection with a
---- -----
distribution of assets of the Company in satisfaction of any liability of the
Company, and hereby subordinates to said creditors any such right.
32
<PAGE>
In the discretion of the Chief Executive Officer, a pro rata portion
of the distributions that would otherwise be made to the Members pursuant to
Section 12.2(b) hereof may be:
- ---------------
(a) distributed to a trust established for the benefit of the Members
for the purposes of liquidating Company assets, collecting amounts owed to the
Company, and paying any contingent or unforeseen liabilities or obligations of
the Company or of the Members arising out of or in connection with the Company.
The assets of any such trust shall be distributed to the Members from time to
time, in the reasonable discretion of the Chief Executive Officer, in the same
proportions as the amount distributed to such trust by the Company would
otherwise have been distributed to the Members pursuant to Section 12.2 hereof;
------------
or
(b) withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) provided that such withheld amounts shall be
distributed to the Members as soon as practicable.
12.3 Deemed Distribution and Recontribution. Notwithstanding any
other provisions of this Section 12, in the event the Company is liquidated
----------
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no
-
Liquidating Event has occurred, the Property shall not be liquidated, the
Company's liabilities shall not be paid or discharged, and the Company's affairs
shall not be wound up. Instead, the Company shall be deemed to have distributed
the Property in kind to the Members, who shall be deemed to have assumed and
taken subject to all Company liabilities, all in accordance with their
respective Capital Accounts. Immediately thereafter, the Members shall be
deemed to have recontributed the Property in kind to the Company, which shall be
deemed to have assumed and taken subject to all such liabilities.
12.4 Rights of Members. Except as otherwise provided in this
Agreement, (a) each Member shall look solely to the assets of the Company for
the return of its Capital Contributions, and (b) no Member shall have priority
over any other Member as to the return of its Capital Contributions,
distributions, or allocations.
12.5 Notices of Dissolution. In the event a Liquidating Event occurs
or an event occurs that would, but for provisions of Section 12.1 hereof, result
------------
in a dissolution of the Company, the Chief Executive Officer shall, within
thirty (30) days thereafter, (a) provide written notice thereof to each of the
Members and to all other parties with whom the Company regularly conducts
business (as determined in the discretion of the Chief Executive Officer), and
(b) comply, in a timely manner, with all filing and notice requirements under
the Act, the Gaming Act, or any other applicable law.
12.6 Reasonable Time for Winding Up. A reasonable time shall be
allowed for the orderly winding up of the business and affairs of the Company
and the liquidation
33
<PAGE>
of its assets in order to minimize any losses that might otherwise result from
such winding up.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. Notices may be delivered either by private messenger
service, by mail, or facsimile transmission. Any notice or document required or
permitted hereunder to a Member shall be in writing and shall be deemed to be
given on the date received by the Member; provided, however, that all notices
and documents mailed to a Member in the United States Mail, postage prepaid,
certified mail, return receipt requested, addressed to the Member at its
respective address as shown in the records of the Company, shall be deemed to
have been received five (5) days after mailing and provided further, that the
sender of any such notice or document by facsimile transmission shall bear the
burden of proof as to proper transmission and date of transmission of such
facsimile. The address and the telecopier number of each of the Members shall
for all purposes be as set forth at Section 2.1 hereof unless otherwise changed
-----------
by the applicable Member by notice to the other as provided herein.
13.2 Binding Effect. Except as otherwise provided in this Agreement,
every covenant, term, and provision of this Agreement shall be binding upon and
inure to the benefit of the Members and their respective successors,
transferees, and assigns.
13.3 Construction. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member.
13.4 Time. Time is of the essence in the performance of each and
every obligation herein imposed.
13.5 Titles and Captions. Section, and paragraph titles and captions
contained in this Agreement are for reference purposes only and are not intended
to describe, interpret, define, or limit the scope, extent, or intent of this
Agreement or any provision hereof.
13.6 Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
or legality of the remainder of this Agreement.
34
<PAGE>
13.7 Incorporation by Reference. The Glossary of Defined Terms and
every exhibit, schedule, and other appendix attached to this Agreement and
referred to herein is incorporated in this Agreement by reference.
13.8 Further Assurance. Each Member agrees to perform all further
acts and execute, acknowledge, and deliver any documents which are or may become
necessary, appropriate, or desirable to effectuate and to carry on the business
contemplated by this Agreement.
13.9 Pronouns and Plurals. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine, or neuter, singular or plural,
as the identity of the Person(s) may require.
13.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
13.11 Counterpart Execution. This Agreement may be executed in any
number of counterparts with the same effect as if all of the Members had signed
the same document. All counterparts shall be construed together and shall
constitute one agreement.
13.12 Loans. Any Member may, with the approval of the Board or as
otherwise provided by this Agreement, lend or advance money to the Company. If
any Member shall make any loan or loans to the Company, the amount of any such
loan or advance shall not be treated as a contribution to the capital of the
Company but shall be a debt due from the Company. Except as otherwise provided
herein, no Member shall be obligated to make any loan or advance to the Company.
13.13 No Third Party Rights. This Agreement is intended to create
enforceable rights between the parties hereto only, and creates no rights in, or
obligations to, any other Persons whatsoever. Without limiting the generality
of the foregoing, as to any third party, a deficit capital account of a Member
shall not be deemed to be a liability of such Member nor an asset or property of
the Company.
13.14 Estoppel Certificates. Upon the written request of a Member,
the other Member shall, within fifteen (15) days of its receipt of such request,
execute and deliver a written statement certifying: (a) that this Agreement is
unmodified and in full force and effect (or, if modified, that this Agreement is
in full force and effect as modified and, stating any and all modifications),
(b) that such Member is not in default hereunder and, to its actual knowledge,
the requesting Member is not in default hereunder, in each case except as
specified in such statement and, (c) that to its actual knowledge, no event has
occurred which with the passage of time or the giving of notice, or both, would
ripen into a default hereunder, except as specified in such statement.
35
<PAGE>
13.15 Usury. If any return, interest payment, or other charge
payable under this Agreement shall at any time exceed the maximum amount
chargeable by applicable law, then the applicable rate of return or interest
shall be the maximum rate permitted by applicable law.
13.16 Certain Terminology. Whenever the words "including", "include"
or "includes" are used in this Agreement, they should be interpreted in a non-
exclusive manner as though the words "but [is] not limited to" immediately
followed the same.
13.17 Business Days. Any reference in this Agreement to "business
days" shall mean all calendar days except Saturday, Sundays, and Nevada or
federal legal holidays.
13.18 Proposing and Adopting Amendments. Amendments to this
Agreement or the Articles of Organization may be proposed by any Director by his
or her submitting to the Board a verbatim statement of the proposed amendment,
and such Director shall include in any such submission a recommendation as to
the proposed amendment. A proposed amendment shall be adopted and be effective
as an amendment hereto or to the Articles of Organization, as the case may be,
upon the approval of the Board.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day first above set forth.
MGM Grand, Inc., PRMA Las Vegas, Inc.,
a Delaware corporation a Nevada corporation
By: /s/ Robert R. Maxey By: /s/ Gary Primm
--------------------------------- -----------------------------
Its: President/CEO Its:
--------------------------------- -----------------------------
36
<PAGE>
Accepted and Agreed to as to
Section 5.8.
- -----------
PRIMADONNA RESORTS, INC.,
a Nevada corporation
By: /s/ Gary Primm
----------------------------------
Its:
---------------------------------
<PAGE>
GLOSSARY OF DEFINED TERMS
(a) "Act" means Chapter 86 of the Nevada Revised Statutes, as amended
from time to time (or any corresponding provisions of succeeding law).
(b) "Additional Capital Contribution" is defined in Section 2.4.
-----------
(c) "Adjusted Capital Account Deficit" means, the deficit balance, if
any, in a Member's Capital Account as of the end of the taxable year, after
giving effect to the following adjustments:
(i) credit to such Capital Account any amount which such Member is
obligated to restore under Treasury Regulation Section 1.704-1(b)(2)(ii)(c) or
is deemed obligated to restore pursuant to the penultimate sentences of Treasury
Regulation Sections 1.704-2(g)(1) or 1.704-2(i)(5); and
(ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of
the Treasury Regulations.
(d) "Advent" means The Advent Group, LLC, a Nevada limited-liability
company.
(e) "Advent Lease" means the lease to be executed by and between the
Company and Advent subject to the conditions and pursuant to the terms set forth
in the Advent Option Agreement.
(f) "Advent Leased Premises" means the premises covered by the Advent
Lease from time to time.
(g) "Advent Option Agreement" means that certain Option Agreement,
dated as of December 15, 1994, by and between PRMA and Advent.
(h) "Advent/PRMA Obligations" is defined in Section 5.8.
-----------
(i) "Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any officer, director, or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee, or holder of ten percent (10%) or more of the voting
interests of any Person described in clauses (i) through (iii) of this sentence.
In no event, however, shall the term "Affiliate" refer to the Company. For
purposes of this definition, the term "controls," "is controlled by," or "is
under common
1
<PAGE>
control with" shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person or
entity, whether through the ownership of voting securities, by contract or
otherwise.
(j) "Agreement" means this operating agreement of the Company, as
amended from time to time. Words such as "herein", "hereinafter", "hereof",
"hereto", and "hereunder" refer to this Agreement as a whole, unless the context
otherwise requires.
(k) "Articles of Organization" means the articles of organization filed
with the Nevada Secretary of State for the purpose of forming the Company
pursuant to the Act, as amended from time to time in accordance with this
Agreement and the Act.
(l) "Bankruptcy" means, with respect to any Person, the inability of
such Person generally to pay its debts as such debts become due, or an admission
in writing by such Person of its inability to pay its debts generally or a
general assignment by such Person for the benefit of creditors; the filing of
any petition or answer by such Person seeking to adjudicate it a bankrupt or
insolvent, or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of such Person or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking, consenting to, or acquiescing in the entry of an
order for relief or the appointment of a receiver, trustee, custodian, or other
similar official for such Person or for any substantial part of its property; or
corporate action taken by such Person to authorize any of the actions set forth
above.
(m) "Board" is defined in Section 5.1.
-----------
(n) "Business Day" is defined in Section 13.17.
-------------
(o) "Business Plan" is defined in Section 5.5.
-----------
(p) Buy-Sell Major Decision" is defined in Section 5.1(c).
--------------
(q) "Capital Account" means, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:
(i) To each Member's Capital Account there shall be credited such
Member's Capital Contributions, such Member's distributive share of Profits and
any items in the nature of income or gain which are specially allocated pursuant
to Section 3.3 or Section 3.4 hereof, and the amount of any Company liabilities
----------- -----------
assumed by such Member or which are secured by any Property distributed to such
Member.
(ii) To each Member's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Property distributed to such
Member
2
<PAGE>
pursuant to any provision of this Agreement, such Member's distributive share of
Losses and any items in the nature of expenses or losses which are specially
allocated pursuant to Section 3.3 or Section 3.4 hereof, and the amount of any
----------- -----------
liabilities of such Member assumed by the Company or which are secured by any
property contributed by such Member to the Company.
(iii) In the event any interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.
(iv) In determining the amount of any liability for purposes of
this definition, there shall be taken into account Code Section 752(c) and any
other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of the Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Chief Executive Officer
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Company or the Members), are
computed in order to comply with such Regulations, the Chief Executive Officer
may make such modification, provided that is not likely to have a material
effect on the amounts distributable to any Member pursuant to Section 12 hereof
----------
upon the dissolution of the Company. The Chief Executive Officer also shall (i)
make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Members and the amount of Company capital
reflected on the Company's balance sheet, as computed for book purposes in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any
-
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).
(r) "Capital Contributions" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the Company with respect to the Company interest held by
such Member pursuant to the terms of this Agreement.
(s) "Chief Executive Officer" is defined in Section 5.2.
-----------
(t) "Chief Financial Officer" is defined in Section 5.2.
-----------
(u) "Closing" is defined in Section 11.3.
------------
3
<PAGE>
(v) "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law.)
(w) "Company" means the limited liability company formed by this
Agreement and the company continuing the business of this Company in the event
of dissolution as herein provided.
(x) "Company Minimum Gain" has the meaning or "partnership minimum
gain" set forth in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
(y) Contribution Agreement" means that certain agreement being
executed and delivered concurrently herewith, by and among the Members and PRMA,
providing for the terms and conditions upon which the initial Capital
Contributions will be made.
(z) "Date of Value" is defined in Section 11.1.
------------
(aa) "Deadlock Resolution Flip Date" is defined in Section 5.1(d).
---------------
(ab) "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Chief Financial Officer.
(ac) "Directors" is defined in Section 5.1.
-----------
(ad) "Fiscal Year" means (i) the period commencing on the effective
date of this Agreement and ending on December 31st, (ii) any subsequent twelve
(12) month period commencing on January 1st and ending on December 31st, or
(iii) any portion of the period described in clause (ii) for which the Company
is required to allocate Profits, Losses and other items of Company income, gain,
loss or deduction pursuant to Article III hereof.
-----------
(ae) "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset, as
determined by the Members;
4
<PAGE>
(ii) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as reasonably
determined by the Chief Financial Officer, as of the following times: (a) the
acquisition of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis Capital Contribution; (b) the
----------
distribution by the Company to a Member of more than a de minimis amount of
----------
Property as consideration for an interest in the Company; and (c) the
liquidation of the Company within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (a) and
-
(b) above shall be made only if the Chief Financial Officer reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members in the Company;
(iii) The Gross Asset Value of any Company asset distributed to
any Member shall be adjusted to equal the gross fair market value of such asset
on the date of distribution as determined by the distributee and the Chief
Financial Officer, provided that if the distributee is the Chief Financial
Officer, the determination of the fair market value of the distributed asset
shall require the consent of a majority of the other Members; and
(iv) The Gross Asset Values of Company assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subsections (vi) in the
- ----------------
definition of "Profits" and "Losses" below and Section 3.3(e) hereof; provided,
--------------
however, that Gross Asset Values shall not be adjusted pursuant to this
subsection to the extent the Chief Financial Officer reasonably determines that
an adjustment pursuant to subsection (ii) of this definition is necessary or
---------------
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this subsection (iv).
---------------
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subsections(i),(ii), or (iv) of this definition of Gross Asset
----------------------------
Value, such Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing Profits
and Losses.
(af) "Initiating Member" is defined in Section 11.1.
------------
(ag) "Interest" shall mean the entire interest of a Member in the
Company, including all of such Member's rights, powers and privileges under this
Agreement and the Act.
(ah) "Liquidating Event" is defined in Section 12.1.
------------
(ai) "Major Decisions" is defined in Section 5.1.
-----------
5
<PAGE>
(aj) "Managers" means the managers of the Company elected pursuant to
Section 5.2.
- -----------
(ak) "Member Nonrecourse Debt" has the meaning of "partner nonrecourse
debt" set forth in Section 1.704-2(b)(4) of the Regulations.
(al) "Member Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
(am) "Member Nonrecourse Deductions" has the meaning of "partner
nonrecourse deductions" set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
(an) "Members" means those entities executing this Agreement as
Members.
(ao) "Net Cash Flow" means with respect to any period, the excess, if
------
any, of (a) all cash revenues and funds received by the Company from any and all
sources during such period, including reductions of Company reserves established
in accordance with this Agreement, but excluding security deposit and other
refundable deposits unless and until earned or applied, over (b) the sum
----
(without duplication) of all operating or other cash expenditures of the Company
paid during such period, plus all payments of principal, interest, fees and
related costs with respect to Company indebtedness made during such period, plus
all additions to Company reserves established in accordance with this Agreement.
"Net Cash Flow" shall not be reduced by depreciation, amortization, cost
recovery deductions, or similar non-cash allowances.
(ap) "Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
(aq) "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
(ar) "Percentage Interest" means, with respect to any Member, the
percentage interest set forth opposite such Member's name in Section 2.1. In
-----------
the event any Company interest is transferred in accordance with the provisions
of this Agreement, the transferee of such interest shall succeed to the
Percentage Interest of his transferor to the extent it relates to the
transferred interest.
(as) "Permitted Transfer" is defined in Section 9.2(b)(i) hereof.
-----------------
(at) "Permitted Transferee" is defined in Section 9.2(b)(ii) hereof.
------------------
6
<PAGE>
(au) "Person" means any individual, company (general or limited),
limited liability company, corporation, trust, or other entity.
(av) "PRMA Recoupment Amount" is defined in Section 5.8.
-----------
(aw) "Profits" and "Losses" means, for each Fiscal Year, an amount
equal to the Company's taxable income or loss for such Fiscal Year, determined
in accordance with Code Section 703(a) (for this purposes, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses pursuant
to this definition shall be added to such taxable income or loss;
(ii) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition shall be subtracted
from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to subsection (ii) or (iii) of the definition of Gross Asset
--------------- -----
Value above, the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Profits or
Losses;
(iv) Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the Property disposed
of, notwithstanding that the adjusted tax basis of such Property differs from
its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year;
(vi) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account
- -
in determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases the basis of the asset) from the
disposition of the asset and shall be taken into account for purposes of
computing Profits or Losses; and
7
<PAGE>
(vii) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Sections 3.3 and 3.4 hereof
--------------------
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.3 and 3.4 hereof
--------------------
shall be determined by applying rules analogous to those set forth in subsection
----------
(i) through (vi) of this definition above.
- --- ----
(ax) "Project" means the real property, development and business
activities described on Exhibit "A" attached hereto and incorporated by
-----------
reference herein.
(ay) "Property" means all real and personal property owned by the
Company from time to time, and shall include both tangible and intangible
property.
(az) "Purchase Price" is defined in Section 11.1.
------------
(ba) "Purchasing Member" is defined in Section 11.2.
------------
(bb) "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
(bc) "Regulatory Allocations" has the meaning set forth in Section 3.4
-----------
hereof.
(bd) "Related Person" is defined in Section 1.8.
-----------
(be) "Repayment Rights" is defined in Section 11.3.
------------
(bf) "Responding Member is defined in Section 11.1.
------------
(bg) "Selling Member" is defined in Section 11.2.
------------
(bh) "Tax Liability Shortfall Amount" is defined in Section 4.3.
-----------
(bi) "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, other disposition or hypothecation, and, as a verb, voluntarily
or involuntarily to transfer, sell, otherwise dispose of or hypothecate. The
term Transfer shall also include any voluntary or involuntary transfer, sale,
other disposition or hypothecation of any kind, or any other transaction
regardless of its form or structure, whereby MGM's or PRMA-LV's, as the case may
be, Interest ceases to be a 50% interest in the Company.
8
<PAGE>
Exhibit "A"
DESCRIPTION OF PROJECT
----------------------
An approximately 2000 room casino-hotel at the intersection of
Tropicana Avenue and Las Vegas Boulevard South.
Exhibit A-1
<PAGE>
EXHIBIT 10.17
CONTRIBUTION AGREEMENT
WITH JOINT ESCROW INSTRUCTIONS
by
and
among
PRMA LAS VEGAS, INC.,
a Nevada corporation
and
MGM GRAND, INC.,
a Delaware corporation
and
NEW YORK - NEW YORK HOTEL, LLC,
a Nevada limited liability company
Dated as of December 26, 1994
<PAGE>
CONTRIBUTION AGREEMENT
INDEX
-----
Page
----
1. IDENTIFICATION OF PARTIES............................................ 1
-------------------------
2. DESCRIPTION OF CONTRIBUTION PROPERTY................................. 1
------------------------------------
3. INTENTIONALLY DELETED................................................ 2
---------------------
4. REPRESENTATIONS AND WARRANTIES....................................... 2
------------------------------
5. COVENANTS............................................................ 5
---------
6. CONDITIONS PRECEDENT................................................. 7
--------------------
7. PRORATIONS AND ADJUSTMENTS........................................... 8
--------------------------
8. CLOSING.............................................................. 9
-------
9. TRANSACTION COSTS.................................................... 9
-----------------
10. DEFAULT.............................................................. 10
-------
11. INDEMNIFICATION...................................................... 10
---------------
12. ESCROW............................................................... 11
------
13. INTENTIONALLY OMITTED................................................ 13
---------------------
14. MISCELLANEOUS........................................................ 13
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SIGNATURE PAGE............................................................ 17
Exhibits
- --------
Exhibit A - Legal Description of the Real Property
Schedules
- ---------
Schedule 4(i) - Non-Compliance Matters
Schedule 4(ii) - Schedule of Contracts
i
<PAGE>
CONTRIBUTION AGREEMENT
WITH JOINT ESCROW INSTRUCTIONS
1. IDENTIFICATION OF PARTIES
-------------------------
THIS CONTRIBUTION AGREEMENT WITH JOINT ESCROW INSTRUCTIONS (this
"Agreement") is entered into as of December 26, 1994, by and among PRMA LAS
VEGAS, INC., a Nevada corporation ("PRMA-LV"), MGM GRAND, INC., a Delaware
corporation ("MGM"), and NEW YORK - NEW YORK HOTEL, LLC, a Nevada limited
liability company (the "Company"). PRMA-LV and MGM are the sole Members of the
Company. Initially capitalized terms that are not otherwise defined in this
Agreement shall have the meanings ascribed to such terms in the operating
agreement (the "Operating Agreement") of the Company being executed concurrently
with this Agreement.
2. DESCRIPTION OF CONTRIBUTION PROPERTY
------------------------------------
In consideration of the mutual undertakings of the parties set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, PRMA-LV and MGM agree to make the
following contributions to the Company, and the Company agrees to accept such
contributions from PRMA-LV and MGM, all upon the terms and conditions
hereinafter set forth in this Agreement:
(a) MGM Contribution Property. MGM shall contribute and convey, or
cause to be conveyed, to the Company upon the Close of Escrow:
(i) That certain real property located in Las Vegas, Nevada
consisting of approximately 17.6 acres of land, and more particularly
described on Exhibit A attached hereto and incorporated herein by this
---------
reference, together with all rights, privileges, easements and
appurtenances thereto, if any, including all mineral and water rights and
all easements, rights-of-way, and other appurtenances used or connected
with the beneficial use or enjoyment of said real property (collectively,
the "Real Property"); and
(ii) All of MGM's right, title and interest in and to, and MGM's
controlling shareholder's right, title and interest in and to, all contract
rights, licenses, approvals, certificates, permits, warranties,
indemnities, equipment, supplies, fixtures and other items of tangible or
intangible personal property used in connection with the Real Property to
the extent transferable and all of MGM's right, title and interest under
that certain letter agreement (the "Rodeway Agreement"), dated November 22,
1994, by and between Maria Brannon and Patricia L. Goldman, individually
and as trustees, as "Seller," and MGM as "Buyer" (collectively, the
"Personal Property").
1
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The Real Property and the Personal Property are hereinafter referred
to collectively as the "MGM Contribution Property". PRMA-LV and MGM have
determined, as the Members of the Company, that the fair market value of the MGM
Contribution Property will be on the Closing Date Forty-One Million Two Hundred
Thousand Dollars ($41,200,000), and PRMA-LV and MGM agree that MGM's Capital
Account in the Company shall be credited by such amount, without regard to any
prorations or closing adjustments made pursuant to this Agreement.
(b) PRMA-LV Contribution Property. Upon the Close of Escrow, PRMA-LV
shall contribute and convey to the Company the following property (the "PRMA-LV
Contribution Property"):
(i) By wire transfer of immediately available funds, cash in the
amount of Forty Million Dollars ($40,000,000); and
(ii) Certain rights (the "Theme Rights") to be conveyed pursuant
to the "Theme Rights Assignment" (as hereinafter defined).
PRMA-LV and MGM have determined, as the Members of the Company, that
the fair market value of the Theme Rights on the Closing Date will be One
Million Two Hundred Thousand Dollars ($1,200,000). PRMA-LV and MGM agree that
PRMA-LV's Capital Account in the Company shall be credited by an amount equal to
Forty-One Million Two Hundred Thousand Dollars ($41,200,000) as of the Closing
Date, without regard to any prorations or closing adjustments made pursuant to
this Agreement.
3. INTENTIONALLY DELETED
---------------------
4. REPRESENTATIONS AND WARRANTIES
------------------------------
(a) Representations and Warranties of MGM. As a material inducement
to PRMA-LV to execute this Agreement and make its contributions to the Company
contemplated hereby, MGM represents and warrants to PRMA-LV that the following
matters are true and correct as of the date of this Agreement:
(i) To the best knowledge of MGM, except as disclosed on Schedule
4(a)(i), the MGM Contribution Property is in compliance with all local,
state and federal laws and regulations applicable to the MGM Contribution
Property in its present state of development. Neither MGM nor MGM's
controlling shareholder has received any notice from any governmental
authority advising it of a violation of any such laws or regulations.
(ii) Schedule 4(a)(ii) is a true, correct and complete schedule
of all of the leases, contracts and other agreements (including traffic or
2
<PAGE>
pedestrian overpass participation agreements) known to MGM, whether written
or oral, with any third parties (other than PRMA or any of its affiliates)
(including governmental agencies and prior owners) affecting the MGM
Contribution Property, or the use or the development thereof (the
"Contracts"). To the best knowledge of MGM, the Contracts are in full
force and effect, and there has been no breach or default or event which,
with the giving of notice or the passage of time or both, would constitute
a breach or default by any party thereunder.
(iii) To the best knowledge of MGM, all of the documents and
information provided to PRMA-LV by or on behalf of MGM are true, correct
and complete in all material respects.
(iv) There are no actions, suits or proceedings pending or
threatened against or affecting MGM that could impair MGM's ability to
perform its obligations under this Agreement.
(v) MGM is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and neither MGM nor
any subsidiary or controlling shareholder of MGM is insolvent or bankrupt
under any applicable law. This Agreement and all of the documents that are
being executed by MGM or its controlling shareholder, as the case may be,
in connection with the transactions contemplated hereunder (1) have been
duly authorized, executed, and delivered by such party, (2) are legal,
valid, and binding obligations of such party enforceable against it in
accordance with their respective terms (except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium
and other principles relating to or limiting the rights of contracting
parties generally), (3) are sufficient to convey title (if they purport to
do so), and (4) do not violate any law, or any provision of any agreement
to which such party is a party or to which it is subject.
(vi) Except as disclosed in any environmental audit or report
heretofore obtained by or delivered to PRMA-LV, to the best of MGM's
knowledge: (1) no Hazardous Material has been generated, used,
manufactured, treated, released, or disposed of by any other party, or
presently exist, at, on or beneath the Real Property in violation of any
Environmental Law, and (2) the Real Property is in compliance with all
Environmental Laws. Neither MGM nor the controlling shareholder of MGM has
been notified by any governmental authority there is any liability or claim
relating to Hazardous Materials affecting the Real Property. For the
purposes of this Agreement, "Hazardous Material" shall mean any chemical,
compound, material, mixture or substance that is now defined or listed in
any Environmental Laws as a "hazardous substance," "hazardous material," or
"toxic substance", or the like, or any oil, petroleum or petroleum derived
3
<PAGE>
substance, or any underground storage tank. For the purposes of this
Agreement, "Environmental Laws" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S)
9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. (S)
1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. (S)
6901, et seq.; and any similar federal, state or local laws, ordinances,
rules or regulations, including the regulations and amendments adopted and
the publications promulgated pursuant to the statutes listed above.
(vii) Neither MGM nor its controlling shareholder is a "foreign
person" within the meaning of Section 1445(f)(3) of the Internal Revenue
Code of 1986, as amended (the "Code").
(viii) No brokerage commission, finder's fee or other similar
compensation is due or payable by reason of MGM's or its controlling
shareholder's actions in connection with the transactions contemplated
hereby, except for the Rodeway Agreement as disclosed therein, the payment
of which compensation shall be the responsibility of the Company.
(ix) The Rodeway Agreement is in full force and effect and has
not been amended or supplemented, and, to MGM's best knowledge, there has
been no breach or default or event which, with the giving of notice or the
passage of time, or both, would constitute a default by any party
thereunder. MGM has deposited $250,000 (the "Rodeway Earnest Money") in
escrow in accordance with the Rodeway Agreement, which amount shall be a
Shared Cost pursuant ot Section 9(c).
(b) Representations and Warranties of PRMA-LV. As a material
inducement to MGM to execute this Agreement and make its contributions to the
Company contemplated hereby, PRMA-LV represents and warrants to MGM that the
following matters are true and correct as of the date of this Agreement and will
also be true and correct as of the Close of Escrow:
(i) PRMA-LV is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada, and neither PRMA-LV
nor Primadonna Resorts, Inc. ("PRMA"), a Nevada corporation and the sole
shareholder of PRMA-LV, is insolvent or bankrupt under any applicable law.
(ii) This Agreement and all of the documents that are being
executed by PRMA-LV in connection with the transactions contemplated
hereunder (1) have been duly authorized, executed, and delivered by PRMA-
LV, (2) are legal, valid, and binding obligations of PRMA-LV
4
<PAGE>
enforceable against PRMA-LV in accordance with their respective terms
(except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium and other principles relating to or
limiting the rights of contracting parties generally), (3) are sufficient
to convey title (if they purport to do so), and (4) do not violate law, or
any provision of any agreement to which PRMA-LV is a party or to which it
is subject.
(iii) There are no actions, suits or proceedings pending or
threatened against or affecting PRMA-LV that could impair PRMA-LV's ability
to perform its obligations under this Agreement.
(iv) No brokerage commission, finder's fee or other similar
compensation is due or payable by reason of PRMA-LV's actions in the
transaction contemplated hereby.
(v) The "Advent Option Agreement" (as defined in the Operating
Agreement) is in full force and effect and has not been amended or
supplemented, and, to PRMA-LV's best knowledge, there has been no breach or
default or event which, with the giving of notice or the passage of time,
or both, would constitute a default by any party thereunder.
(c) Survival and other Limitations re Representations and Warranties.
In the event of the termination of this Agreement, all representations and
warranties made hereunder survive such termination for a period of one (1) year
from the date of such termination. In the event the Close of Escrow occurs
hereunder, all representations and warranties made hereunder shall survive the
Close of Escrow for a period of five (5) years. Whenever a representation or
warranty is made in this Agreement to the "best knowledge" of MGM, such
representation and warranty shall be limited to (A) facts and circumstances
within the actual and present knowledge of any senior officer of MGM or of the
controlling stockholder of MGM, and (B) facts and circumstances that were
disclosed in any written notice at any time received by MGM or the controlling
stockholder of MGM. Notwithstanding anything to the contrary herein, the
parties hereto acknowledge and agree that each party may have non-contractual
statutory and common law rights and remedies against the other parties for non-
disclosure or non-compliance with certain matters which are also the subject
matter of the representations and warranties contained in this Agreement and the
limited representations and warranties and limited survival periods set forth
herein shall not be deemed or construed as limiting, waiving or relinquishing
any such non-contractual statutory or common law right or remedy.
5. COVENANTS
---------
(a) MGM Covenants. MGM hereby covenants for the benefit of each of
PRMA-LV and the Company as follows:
5
<PAGE>
(i) At all times prior to the Close of Escrow, the MGM
Contribution Property shall be owned and maintained in a clean, safe and
orderly condition, and in accordance with all material laws, ordinances,
rules and regulations applicable to such property.
(ii) Subject to Section 9(c), MGM shall pay in full prior to the
------------
Close of Escrow all bills and invoices for labor, goods, materials and
services of any kind related to the MGM Contribution Property.
(iii) Upon PRMA-LV's request, for a period extending one year
after the Close of Escrow, MGM shall make all of its records with respect
to the MGM Contribution Property available to PRMA-LV or the Company for
inspection, and MGM shall cause its controlling stockholder to make all of
its records with respect to the MGM Contribution Property available to
PRMA-LV or the Company, for inspection, copying and audit by PRMA-LV's or
the Company's respective designated accountants.
(iv) MGM shall promptly after becoming aware of any fact or
circumstance that makes any representation or warranty under this Agreement
materially untrue or misleading, or any covenant or condition precedent
under this Agreement unlikely to be performed or satisfied, deliver written
notice of such fact or circumstance to PRMA-LV.
(v) Neither MGM nor its controlling stockholder shall market or
solicit any offers for the purchase, optioning, leasing or development of
the MGM Contribution Property so long as this Agreement is in full force
and effect.
(vi) Except as otherwise required by law and except for public
announcements or disclosures mutually approved by PRMA-LV and MGM, MGM
shall use all reasonable efforts to keep all due diligence materials
received herein, and all business and economic terms of the transactions
contemplated hereunder, confidential and will not disclose or discuss any
such due diligence information or materials or the details of such
transactions to any third parties, other than MGM's accountants, legal
counsel and other such parties who are involved from time to time in the
transactions contemplated in this Agreement.
(b) PRMA-LV Covenants. PRMA-LV hereby covenants for the benefit of
each of MGM and the Company as follows:
(i) PRMA-LV shall promptly after becoming aware of any fact or
circumstance that makes any representation or warranty under this Agreement
materially untrue or misleading, or any covenant or condition
6
<PAGE>
precedent under this Agreement unlikely to be performed or satisfied,
deliver written notice of such fact or circumstance to MGM.
(ii) Except as otherwise required by law and except for public
announcements or disclosures mutually approved by MGM and PRMA-LV, PRMA-LV
shall use all reasonable efforts to keep all due diligence materials
received herein, and all business and economic terms of the transactions
contemplated hereunder, confidential and will not disclose or discuss any
such due diligence information or materials or the details of such
transactions to any third parties, other than PRMA-LV's accountants, legal
counsel and other such parties who are involved from time to time in the
transactions contemplated in this Agreement.
6. CONDITIONS PRECEDENT
--------------------
(a) MGM Conditions Precedent. The following shall be conditions
precedent to MGM's obligation to consummate the transactions contemplated under
this Agreement:
(i) PRMA-LV shall have deposited into Escrow the items that it is
required to deposit pursuant to Section 12.
----------
(b) PRMA-LV Conditions Precedent. The following shall be conditions
precedent to PRMA-LV's obligation to consummate the transactions contemplated
under this Agreement:
(i) Nevada Title Company ("Title Company") shall be prepared to
issue its binder for an extended coverage ALTA owner's policy of title
insurance, in the form previously agreed to by the Members, subject only to
the exceptions previously approved by PRMA-LV in writing ("Permitted
Encumbrances"), together with such title endorsements as have been
heretofore requested by PRMA-LV (the "Title Policy"); and
(ii) MGM shall have deposited in Escrow the items that it is
required to deposit pursuant to Section 12.
----------
(c) Failure of Condition Precedent. In the event any condition
precedent set forth above in this Section 6 is not satisfied prior to the
---------
Outside Date (as defined in Section 8), any party whose obligation to consummate
---------
the transactions contemplated in this Agreement is conditioned upon the
satisfaction of such condition precedent may elect, in its sole and absolute
discretion, by giving written notice to the other party and to Escrow Holder, to
either (i) waive such condition precedent and consummate the transactions
contemplated hereby in accordance with the terms and provisions of this
Agreement, or (ii) terminate this Agreement by giving written notice to the
other parties of such termination and pursue any rights
7
<PAGE>
and remedies that such party may have at law or in equity as a result of
any then existing breach of this Agreement (it being acknowledged and agreed
that the failure of a condition precedent hereunder through no fault or breach
of any party shall not constitute a breach of this Agreement). In the event any
party elects to terminate this Agreement in accordance with the foregoing, the
provisions of the final sentence of Section 8 shall apply.
---------
7. PRORATIONS AND ADJUSTMENTS
--------------------------
(a) All real and personal property and ad valorem taxes, and all
other expenses relating to the MGM Contribution Property) shall be allocated and
prorated upon the Close of Escrow on the basis that MGM shall be responsible for
all such taxes and expenses accruing on or prior to the Closing Date, and the
Company shall be responsible for all such taxes and expenses accruing after the
Closing Date. If the amount of any installment of real property taxes is not
known as of the Close of Escrow, then a proration shall be made by the parties
based on a reasonable estimate of the real property taxes applicable to the Real
Property and the parties shall adjust the proration when the actual amount
becomes known upon the written request of either party made to the other.
(b) Subject to Section 9(c), all capital and other improvements
------------
(including labor and material) which have been performed or contracted for, by
or on behalf of MGM or its affiliates on or prior to the Closing Date shall be
paid by MGM and shall be subject to the indemnification provisions of Section
-------
11. Subject to Section 9(c), the Company shall furnish to MGM for payment any
- -- ------------
bills for such period received after the Closing Date, and the Company shall
have no further obligation with respect thereto.
(c) Subject to Section 9(c), MGM shall be responsible for all
------------
outstanding debt service payments, payroll expenses and insurance premiums and
costs, and there will be no proration for such items.
(d) Such other items that are customarily prorated in transactions of
this nature shall be ratably prorated.
(e) For purposes of calculating prorations, MGM shall be deemed to be
in title to the MGM Contribution Property, and, therefore, entitled to the
income therefrom and responsible for the taxes and expenses thereof, for the
entire Closing Date. All such prorations shall be made on the basis of the
actual number of days of the month which shall have elapsed as of the Closing
Date. Except as set forth in this Section 7, and subject to Section 9(c), all
--------- ------------
items of income and expense with respect to the MGM Contribution Property for
the period on and prior to the Closing Date will be for the account of MGM, and
all items of income and expense for the period after the Closing Date will be
for the account of the Company, all as determined by the accrual method of
accounting. Subject to Section 9(c), bills
------------
8
<PAGE>
received after the Closing Date which relate to expenses incurred, services
performed or other amounts allocable to the period on or prior to the Closing
Date shall be paid by MGM. In the event any allocation or computation made under
or in connection with this Section 7 shall prove to be incorrect or inconsistent
---------
with the intent of this Section 7 for any reason, then any party shall be
---------
entitled to a prompt adjustment to correct the same by providing written demand
on the one from whom it is entitled to such adjustment within one (1) year after
the Closing Date. No such adjustments may be requested or demanded after such
one year period has expired.
8. CLOSING
-------
As used herein, the term "Close of Escrow" shall refer to the
consummation of the contribution and conveyances of the MGM Contribution
Property and the PRMA-LV Contribution Property contemplated herein, and the term
"Closing Date" shall mean the date that the Deed is recorded in the Official
Records of Clark County, Nevada. The Close of Escrow shall occur through an
escrow (the "Escrow") with Title Company, as escrow agent in accordance with
Section 12 and the general provisions of the usual form of escrow agreement used
- ----------
by Title Company in similar transactions to the extent consistent herewith. The
parties shall use all reasonable efforts to cause the Close of Escrow to occur
as soon as practicable after the satisfaction of all conditions precedent
thereto, on a business day mutually acceptable to MGM and PRMA-LV. In addition
to the other termination rights and remedies afforded the parties under this
Agreement, if the Close of Escrow does not occur on or before the date that is
five (5) business days after the date hereof (the "Outside Date") by the reason
of the failure of any condition precedent hereunder, then at any time thereafter
either party shall have the right to terminate this Agreement by giving written
notice of such termination to the other parties, in which event this Agreement
shall become null and void with no further obligation on the part of either
party (other than for or with respect to any then-existing breach of this
Agreement) except that (i) any money or documents in Escrow shall be returned to
the party depositing the same, (ii) PRMA-LV and MGM each shall be responsible
for one-half of any title or escrow cancellation fee, and (iii) each provision
that this Agreement expressly provides shall survive the termination hereof
shall survive and remain in full force and effect, subject to any applicable
period set forth in this Agreement for its survival.
9. TRANSACTION COSTS
-----------------
(a) MGM Costs. MGM shall pay and be solely responsible for MGM's
attorney's fees and costs incurred in connection with the preparation and
negotiation of this Agreement and the consummation of the transactions
contemplated by this Agreement.
(b) PRMA-LV Costs. PRMA-LV shall pay and be solely responsible for
PRMA-LV's attorney's fees and costs incurred in connection with the preparation
9
<PAGE>
and negotiation of this Agreement and the consummation of the transactions
contemplated by this Agreement.
(c) Shared Costs. Upon the Close of Escrow the Company shall (i) pay
all "Shared Costs," as defined in the Due Diligence and Cost-Sharing Agreement,
dated October 13, 1994, by and among MGM, PRMA-LV and PRMA (the "Due Diligence
and Cost-Sharing Agreement"), that are due and payable, and shall assume and be
solely responsible for all other Shared Costs, (ii) reimburse each of PRMA-LV
and MGM for all Shared Costs that were borne by it prior to the Close of Escrow,
and (iii) pay any other closing costs not expressly provided for above or in the
Due Diligence and Cost-Sharing Agreement, all in accordance with a settlement
statement approved by PRMA-LV and MGM and delivered to Title Company.
(d) Survival of Termination. The provisions of this Section 9 shall
---------
survive any termination of this Agreement.
10. DEFAULT
-------
If either MGM or PRMA-LV breaches this Agreement, the nonbreaching
party shall be entitled to terminate the Escrow, by delivering written notice to
Title Company and the other party, and/or pursue all rights and remedies
available to it at law or in equity. No termination of the Escrow by MGM or
PRMA-LV following the breach by the other party shall be deemed to waive such
breach or any remedy otherwise available to the nonbreaching party. Upon any
such termination, Title Company shall return all funds and documents to the
party that deposited the same, and the breaching party shall bear all of Title
Company's escrow cancellation fees and costs.
11. INDEMNIFICATION
---------------
(a) Subject to Section 9(c), MGM shall hold harmless, indemnify and
------------
defend PRMA-LV, PRMA and the Company (with counsel acceptable to PRMA-LV in the
exercise of its reasonable judgment), from and against any and all obligations,
liabilities, claims, liens, losses, damages, costs and expenses (including
reasonable attorneys' fees and costs) which (i) are related to the ownership or
operation of the MGM Contribution Property and accrue on or before the Closing
Date, or (ii) arise from any breach of any representation, warranty or covenant
of MGM under this Agreement, or under any other document delivered by MGM
pursuant to Section 12(b).
-------------
(b) Subject to Section 9(c), PRMA-LV shall hold harmless, indemnify
------------
and defend MGM and the Company (with counsel acceptable to MGM in the exercise
of its reasonable judgment), from and against any and all obligations,
liabilities, claims, liens, losses, damages, costs and expenses (including
reasonable
10
<PAGE>
attorneys' fees and costs) which arise from any breach of any representation,
warranty or covenant of PRMA-LV under this Agreement, or under any other
document delivered by PRMA-LV pursuant to Section 12(c).
-------------
(c) The Company shall hold harmless, indemnify and defend MGM, PRMA
and PRMA-LV, from and against any and all obligations, liabilities, claims,
liens, losses, damages, costs and expenses (including reasonable attorneys' fees
and costs) which are related to the ownership or operation of the MGM
Contribution Property or the PRMA-LV Contribution Property and accrue after the
Closing Date, except for obligations, liabilities, claims, liens, losses,
damages, costs and expenses that are covered by the indemnification set forth in
Sections 11(a) or (b) above.
- ---------------------
12. ESCROW
------
(a) Escrow Instructions. On the date hereof, the parties have fully
executed three (3) originals of this Agreement and on the next day shall deliver
them to Title Company. Title Company shall execute all such originals of this
Agreement, and deliver one copy each to MGM and PRMA-LV, to evidence Title
Company's agreement to act as escrow agent ("Escrow Agent") hereunder and its
acceptance of this Agreement as its escrow instructions. This Agreement,
together with the general provisions of the usual form of escrow agreement used
by Title Company in similar transactions to the extent consistent herewith and
such further instructions, if any, as the parties shall provide to Title Company
by mutual written agreement, shall constitute the escrow instructions. In the
event of any inconsistencies between the terms and provisions of this Agreement
and the terms and provisions of any escrow agreement used by the Company, the
terms and provisions of this Agreement shall control.
(b) MGM's Closing Deposits into Escrow. Prior to the Close of Escrow,
MGM shall deliver or cause to be delivered to Title Company the following:
(i) A Grant, Bargain and Sale Deed (the "Deed"), in recordable
form, executed by MGM's controlling shareholder, conveying the Real
Property to the Company free and clear of all claims, liens and
encumbrances except the Permitted Encumbrances, in form heretofore mutually
approved by MGM and PRMA-LV.
(ii) Two fully executed copies of a Bill of Sale and Assignment
and Assumption of Contracts (the "Bill of Sale and Assignment and
Assumption of Contracts") by and among MGM and MGM's controlling
shareholder, collectively as transferor, and the Company, as transferee, in
form heretofore mutually approved by MGM and PRMA-LV.
11
<PAGE>
(iii) Two fully executed copies of an affidavit certifying that
neither MGM not MGM's controlling shareholder is a "foreign person" within
the meaning of Section 1445(f)(3) of the Internal Revenue Code (the "FIRPTA
Affidavit").
(iv) The additional amount of cash, if any, necessary to pay
MGM's share under this Agreement of the prorations.
(v) Reasonable proof of the authority of MGM's signatories.
Prior to the Close of Escrow, MGM shall deliver or cause to be
delivered any other documents, instruments or agreements reasonably necessary to
close the transaction as contemplated by this Agreement.
(c) PRMA-LV's Closing Deposits into Escrow. Prior to the Close of
Escrow, PRMA-LV shall deliver or cause to be delivered to Title Company the
following:
(i) PRMA-LV's cash contribution described in Section 2(b) above,
------------
by wire transfer of immediately available funds.
(ii) Two fully executed copies of an assignment of the Theme
Rights, by PRMA-LV, as transferor, to the Company, as transferee, in form
heretofore mutually approved by MGM and PRMA-LV (the "Theme Rights
Assignment").
(iii) Two fully executed copies of an unconditional guaranty,
executed by PRMA, as guarantor, in favor of MGM, as guaranteed party, in
form heretofore mutually approved by MGM and PRMA-LV (the "Guaranty").
(iv) Two fully executed copies of an Assignment and Assumption of
Advent Option Agreement (the "Assignment and Assumption of Advent Option
Agreement") by and among PRMA-LV, as transferor, and the Company, as
transferee, in form heretofore mutually approved by MGM and PRMA-LV.
(v) Reasonable proof of the authority of PRMA-LV's signatories.
Prior to the Close of Escrow, PRMA-LV shall deliver or cause to be
delivered any other documents, instruments or agreements reasonably necessary to
close the transaction as contemplated by this Agreement.
12
<PAGE>
(d) Close of Escrow. Provided that Title Company shall not have
received written notice from MGM or PRMA-LV of the termination of this Agreement
and Escrow in accordance with this Agreement above, and only if and when MGM and
PRMA-LV have deposited into Escrow the items required above, and Title Company
is irrevocably and unconditionally prepared to issue the Title Policy, Title
Company is authorized to and shall promptly:
(i) Cause the Deed to be recorded in the Official Records of
Clark County, Nevada.
(ii) Deliver to each of MGM and PRMA-LV, by personal delivery or
mail, one conformed copy of the Deed, and one fully executed original of
each of the Bill of Sale and Assignment and Assumption of Contracts, the
FIRPTA Affidavit, the Theme Rights Assignment, the Assignment and
Assumption of Advent Option Agreement, and the Guaranty, together with
copies of all other documents deposited in Escrow by the parties.
(iii) Disburse to the Company PRMA-LV's cash contribution
described in Section 2(b) above by wire transfer of immediately available
------------
funds, less the Company's share, if any, of any closing costs and net
----
proration credits due contributing Members pursuant to Section 7.
---------
Notwithstanding the foregoing, in the event that MGM and PRMA-LV instruct
Escrow Agent to pay any of the Shared Costs referred to in Section 9(c)
------------
above out of such amounts otherwise distributable to the Company, Escrow
Agent shall pay such Shared Costs to the parties entitled thereto as
directed in writing by MGM and PRMA-LV.
(iv) Deliver to each party any funds deposited by such party, and
any interest earned thereon, in excess of the amount required to be paid by
such party hereunder.
(v) Deliver the Title Policy to the Company.
13. INTENTIONALLY DELETED
---------------------
14. MISCELLANEOUS
-------------
(a) Except as expressly provided to the contrary in this Agreement,
the representations, warranties, indemnities and covenants of the parties made
in this Agreement shall not be merged into any instrument or conveyance at the
Close of Escrow and shall survive the Closing Date.
(b) This Agreement is the entire Agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements
13
<PAGE>
between the parties with respect to the matters contained in this Agreement,
provided that the Operating Agreement and the Due Diligence and Cost-Sharing
Agreement shall remain in full force and effect enforceable in accordance with
their respective terms. Any waiver, modification or consent with respect to any
provision of this Agreement shall be set forth in writing and duly executed by
the party to be bound thereby. No waiver by any party of any breach hereunder
shall be deemed a waiver of any other or subsequent breach. It is acknowledged
that the controlling stockholder of MGM is not a party to this Agreement and
shall have no liability or other obligation to any of the parties to this
Agreement arising from or in connection with this Agreement or the transactions
contemplated herein.
(c) Time is of the essence in the performance of and compliance with
each of the provisions and conditions of this Agreement.
(d) Any communication, notice or demand of any kind whatsoever which
either party may be required or may desire to give to or serve upon the other
shall be in writing and delivered by personal service (including express or
courier service), by electronic communication, whether by telex, telegram or
telecopying (if confirmed in writing sent by registered or certified mail,
postage prepaid, return receipt requested), or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
MGM: MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attn: Mr. Robert R. Maxey
Telefax No.: (702) 891-1114
With a
copy to: MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attn: K. Eugene Shutler, Esq.
Telefax No.: (702) 891-1114
With a
copy to: Christensen, White, Miller, Fink & Jacobs
2121 Avenue of the Stars
18th Floor
Los Angeles, California 90067
Attn: Gary N. Jacobs, Esq.
Telefax No.: (310) 556-2920
14
<PAGE>
PRMA-LV: PRMA Las Vegas, Inc.
c/o Primadonna Resorts, Inc.
P.O. Box 95997
Las Vegas, Nevada 89193-5997
Attn: Gregory Jensen, Esq.
Telefax No.: (702) 874-1554
With a
copy to: O'Melveny & Myers
1999 Avenue of the Stars, Suite 700
Los Angeles, California 90067-6035
Attn: Peter C. Kelley, Esq.
Telefax No.: (310) 246-6779
Company: c/o Primadonna Resorts, Inc.
P.O. Box 95997
Las Vegas, Nevada 89193-5997
Attn: Gregory Jensen, Esq.
Telefax No.: (702) 874-1554
With a
copy to: MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attn: K. Eugene Shutler, Esq.
Telefax No.: (702) 891-1114
Title
Company: Nevada Title Company
3320 W. Sahara, Suite 200
Las Vegas, Nevada 89102
Attn: Ms. Robbie D. Graham
Telefax No.: (702) 876-6108
Any party may change its address for notice by written notice given to the other
in the manner provided in this Section. Any such communication, notice or
demand shall be deemed to have been duly given or served (i) on the date
personally served, if by personal service, (ii) one (1) day after the date of
confirmed dispatch, if by electronic communication, or (iii) on the date shown
on the return receipt or other evidence of delivery, if mailed.
(e) The parties agree to execute such instructions to Title Company
and such other instruments and to do such further acts as may be reasonably
necessary to carry out the provisions of this Agreement.
15
<PAGE>
(f) The making, execution and delivery of this Agreement by the
parties hereto has been induced by no representations, statements, warranties or
agreements other than those expressly set forth herein.
(g) Wherever possible, each provision of this Agreement shall be
interpreted in such a manner as to be valid under applicable law, but, if any
provision of this Agreement shall be invalid or prohibited thereunder, such
invalidity or prohibition shall be construed as if such invalid or prohibited
provision had not been inserted herein and shall not affect the remainder of
such provision or the remaining provisions of this Agreement.
(h) The language in all parts of this Agreement shall be in all cases
construed simply according to its fair meaning and not strictly for or against
any of the parties hereto. Section and Paragraph headings of this Agreement are
solely for convenience of reference and shall not govern the interpretation of
any of the provisions of this Agreement. Whenever the words "including",
"include" or "includes" are used in this Agreement, they should be interpreted
in a non-exclusive manner as though the words "without limitation" immediately
followed the same.
(i) This Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada.
(j) If any action is brought by either party against the other party,
the prevailing party shall be entitled to recover from the other party
reasonable attorneys' fees, costs and expenses incurred in connection with the
prosecution or defense of such action. For purposes of this Agreement, the term
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees and
expenses of counsel to the parties hereto, which may include printing,
photostating, duplicating and other expenses, air freight charges, and fees
billed for law clerks, paralegals and other persons not admitted to the bar but
performing services under the supervision of an attorney.
(k) This Agreement shall not be transferred or assigned by either
party.
(l) All Exhibits or Schedules attached hereto are incorporated by this
reference.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
"MGM"
MGM GRAND, INC.,
a Delaware corporation
By: /s/ Robert R. Maxey
----------------------------
Its: PRESIDENT/CEO
-----------------------
"PRMA-LV"
PRMA LAS VEGAS, INC.
a Nevada corporation
By: /s/ Gary Primm
----------------------------
Its:
-----------------------
"THE COMPANY"
NEW YORK - NEW YORK HOTEL, LLC,
a Nevada limited liability company
By: /s/ Gary Primm
----------------------------
Its:
-----------------------
The undersigned escrow agent accepts the foregoing Contribution Agreement
with Joint Escrow Instructions and agrees to act as escrow agent under the
Agreement in strict accordance with its terms.
Nevada Title Company,
a Nevada corporation
By: ____________________________
Its: ___________________________
Date: ______________________
<PAGE>
EXHIBIT 13
MGM Grand, Inc and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1994 and 1993, the Company held cash and cash equivalents of
$75,859,000 and $211,305,000, respectively. Cash provided by operating
activities for 1994 was $94,461,000 versus cash used of $37,596,000 for 1993.
In May 1992, MGM Grand Hotel Finance Corp. completed a public offering of
$220,000,000 of seven year 11 3/4% First Mortgage Notes and $253,000,000 of ten
year 12% First Mortgage Notes, realizing net cash proceeds of approximately
$454,000,000 after underwriting and other related offering costs. Also in May
1992, MGM Grand Hotel Finance Corp. obtained a $60,000,000 bank line of credit
for the MGM Grand Hotel.
In October 1992, the Company completed a rights offering of common stock. Total
common stock sold was 5,785,918 shares at $17.50 per share, resulting in net
proceeds of approximately $100,000,000.
In June 1993, Grand Laundry, Inc., a wholly-owned subsidiary of MGM Grand
Hotel, obtained a $10 million loan from a financial institution for a laundry
facility constructed in North Las Vegas, Nevada. The facility was completed in
December 1993, and provides the laundry and dry cleaning services for the MGM
Grand Hotel. The loan was paid off on December 27, 1994.
In August 1993, the Company completed a public offering of common stock. Total
common stock sold was 1,955,000 shares at $37.75 per share, resulting in net
proceeds of approximately $70,600,000.
During 1993, the Company completed equipment lease financings for MGM Grand
Hotel equipment. In December 1994 and January 1995, the Company terminated
certain leases and purchased the equipment for approximately $42,000,000 (see
Note 13). During 1994, the Company completed equipment lease financings for the
production show.
Capital expenditures in 1994 were $65,976,000, consisting of $59,967,000 for
expenditures related to the MGM Grand Hotel, $5,552,000 for refurbishment of
aircraft and spare parts, $119,000 related to other hotel/casino activities,
and $338,000 related to furniture, fixtures and equipment.
Capital expenditures in 1993 were $480,054,000, consisting of $474,454,000 for
expenditures related to the MGM Grand Hotel, $5,568,000 for refurbishment of
aircraft and spare parts, and $32,000 related to furniture, fixtures and
equipment.
In addition to final construction expenditures of $4,104,000 accrued at
December 31, 1994, expenditures for 1995 are expected to be $18,000,000,
consisting of $15,000,000 at the MGM Grand Hotel for general property
improvements, and $3,000,000 for completion of construction of the MGM Grand-
Bally's monorail project. In addition, the Company acquired land for
approximately $36,500,000 (see Notes 1 and 17).
The Company and Primadonna Resorts, Inc. have entered into a limited liability
company, in which the Company has a 50% interest, to construct, own and operate
NEW YORK-NEW YORK, a New York themed hotel and casino resort facility to be
located across the Las Vegas Strip from MGM Grand Hotel. Ownership in the
venture will be equal between the two parties. During January 1995, the Company
contributed land, as noted above, to the limited liability company. Further
project funding is expected to be obtained by the limited liability company
from banks and financial institutions.
Planning and design of the monorail linking the MGM Grand Hotel and Bally's Las
Vegas is complete, and construction began during July 1994. The project is a
one-mile, high-capacity, transit-grade system with an estimated cost of
$25,000,000. The project costs are shared equally with Bally's Las Vegas. As of
December 31, 1994, each partner has contributed $9,500,000 to the joint
project. The system is scheduled to be operational by June 1995.
The Company expects to finance operations and capital expenditures through cash
flow from operations, cash on hand, and the bank line of credit.
Results of Operations
The Company operates in the Hotel/Casino industry segment through the
operations of the MGM Grand Hotel commencing on December 18, 1993.
26
<PAGE>
1994 Compared to 1993
Net revenues for the year ended December 31, 1994 were $742,195,000 compared to
$37,016,000 for the year ended December 31, 1993. Casino revenue for the year
ended December 31, 1994 was $434,297,000 compared to $26,702,000 for the 14 day
period ended December 31, 1993. Room revenue for the 1994 year was $145,196,000
on an occupancy of 91.6%, compared to the fourteen day period ended December
31, 1993 of $4,505,000 on an occupancy of 58%. In order to open the MGM Grand
Hotel three months ahead of schedule, the occupancy rates were affected by the
partial availability of hotel rooms during December 1993 and January 1994.
Entertainment, Retail, Food and Beverage and Other Revenue was $214,324,000 in
1994 compared to $8,862,000 in the prior year.
Operating income for 1994 was $129,715,000 compared to an operating loss of
$44,546,000 in 1993 which included a non-recurring charge of $45,130,000 for
hotel pre-opening costs. Pre-opening costs included direct project salaries,
advertising and other pre-opening services incurred during the pre-opening
period of the MGM Grand Hotel.
MGM Grand Air revenues for the year ended December 31, 1994, which have been
reclassified to Discontinued Operations due to the sale of the airline on
December 31, 1994, were $19,535,000 compared to $20,784,000 for the year ended
December 31, 1993. The operating loss for 1994 was $7,012,000 compared to
$78,691,000 in 1993. The operating loss in 1993 included an adjustment of
$68,948,000 resulting from the revaluation of the carrying value of aircraft
and related equipment.
Interest and other income. Interest and other income was $5,752,000 for the
year ended 1994 versus $12,247,000 for the year ended 1993. Interest was higher
during the 1993 period as a result of short term investment of construction
funds.
Interest expense. Interest incurred was $61,927,000 for the year ended 1994,
compared to $59,472,000 for the year ended 1993. Capitalized interest was
$52,876,000 in 1993.
1993 Compared to 1992
MGM Grand Hotel commenced operations on December 18, 1993. Net revenues for the
year ended December 31, 1993 were $37,016,000. Casino revenue for the 14-day
period ended December 31, 1993 was $26,702,000. Room revenue for the period was
$4,505,000 on an occupancy of 58%. In order to open the MGM Grand Hotel three
months ahead of schedule, only 3,500 rooms were available for rent.
Entertainment, Retail, Food and Beverage and Other Revenue was $8,862,000 for
the period. The operating loss of $44,546,000 in 1993 included a non-recurring
charge of $45,130,000 for pre-opening costs. Pre-opening costs included direct
project salaries, advertising and other pre-opening services incurred during
the pre-opening period of the MGM Grand Hotel.
MGM Grand Air revenues for the year ended December 31, 1993, which have been
reclassified to Discontinued Operations as a result of the sale of the airline
on December 31, 1994, were $20,784,000 compared to $50,005,000 for the year
ended December 31, 1992, representing a decrease of $29,221,000 (58%). The 1992
period included $29,488,000 of revenue from MGM Grand Air's scheduled service
which was terminated on December 31, 1992. Charter and other revenue increased
$514,000 (3%) due to the use of equipment from scheduled service for the
charter. Operating expenses (before non-recurring adjustments) decreased
$28,562,000 (48%) due to the termination of scheduled service offset by a
$241,000 (6% per gallon) increase in the cost of fuel. The 1992 operating
expenses included a $4,646,000 charge related to the termination of scheduled
service and the bankruptcy of a charter customer. The operating loss in 1993
included an adjustment of $68,948,000 resulting from the revaluation of the
carrying value of aircraft and related equipment.
Interest and other income. Interest and other income was $12,247,000 for the
year ended 1993 versus $16,455,000 for the year ended 1992. Interest was higher
during the 1992 period as a result of short term investment of net proceeds
from the issuance of the First Mortgage Notes and the rights offerings.
Invested fund balances decreased during 1993 due to construction requirements.
Interest expense. Interest incurred was $59,472,000 for the year ended 1993,
compared to $37,733,000 for the year ended 1992. Capitalized interest was
$52,876,000 in 1993 and $19,811,000 in 1992. The increased interest expense
resulted from a full year of interest on the First Mortgage Notes during 1993.
27
<PAGE>
MGM Grand, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
[In thousands, except share data] For the years ended December 31, 1994 1993 1992
................................................................................................................
<S> <C> <C> <C>
Revenues:
Casino $ 434,297 $ 26,702 $ --
Rooms 145,196 4,505 --
Food and beverage 91,566 3,696 --
Entertainment, retail and other 122,758 5,166 --
---------- ---------- ----------
793,817 40,069 --
Less: Promotional Allowances 51,622 3,053 --
---------- ---------- ----------
742,195 37,016 --
---------- ---------- ----------
Expenses:
Casino 183,514 9,341 --
Rooms 45,303 1,016 --
Food and beverage 65,043 2,529 --
Entertainment, retail and other 115,443 6,180 --
Provision for doubtful accounts and
discounts 44,181 3,855 --
General and administrative 106,884 6,378 --
Depreciation and amortization 44,433 1,647 --
Hotel preopening expenses -- 45,130 --
---------- ---------- ----------
604,801 76,076 --
---------- ---------- ----------
Operating Profit (Loss) Before Corporate
Expense 137,394 (39,060) --
Corporate expense 7,679 5,486 4,873
---------- ---------- ----------
Operating Income (Loss) 129,715 (44,546) (4,873)
---------- ---------- ----------
Nonoperating Income (Expense):
Interest income 5,544 12,231 16,549
Interest expense, net of amounts
capitalized (61,927) (6,596) (17,922)
Other, net 208 16 (94)
---------- ---------- ----------
(56,175) 5,651 (1,467)
---------- ---------- ----------
Income (Loss) Before Discontinued
Operations 73,540 (38,895) (6,340)
---------- ---------- ----------
Discontinued Operations:
Income (loss) from discontinued operations (7,012) (78,691) (13,732)
Gain (loss) on disposal of discontinued
operations 8,048 -- --
---------- ---------- ----------
1,036 (78,691) (13,732)
---------- ---------- ----------
Income (Loss) Before Provision (Benefit) for
Income Taxes 74,576 (117,586) (20,072)
Provision (benefit) for income taxes -- -- --
---------- ---------- ----------
Net Income (Loss) $ 74,576 $ (117,586) $ (20,072)
---------- ---------- ----------
Per Share of Common Stock:
Income (loss) before discontinued
operations $ 1.50 $ (.82) $ (.15)
Discontinued operations .02 (1.65) (.33)
---------- ---------- ----------
Net Income (Loss) $ 1.52 $ (2.47) $ (.48)
---------- ---------- ----------
Weighted Average Shares Outstanding 48,988,000 47,587,000 42,254,000
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
MGM Grand, Inc and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
[In thousands, except share data] As of December 31, 1994 1993
................................................................................
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 75,859 $ 211,305
Accounts receivable, net 82,674 30,516
Prepaid expenses 13,431 11,755
Inventories 17,236 12,662
Note receivable 14,325 --
---------- ----------
Total current assets 203,525 266,238
---------- ----------
Property and Equipment, net 880,023 867,284
---------- ----------
Other Assets:
Deposits 2,434 1,330
Licensed rights and trademarks, net 1,120 1,154
Deferred organizational costs, net 1,375 1,985
Other assets, net 52,276 22,132
---------- ----------
Total other assets 57,205 26,601
---------- ----------
$1,140,753 $1,160,123
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,202 $ 14,507
Accrued salaries and related 28,740 8,194
Current obligation, capital leases 2,145 1,830
Current maturities, long term debt -- 1,573
Accrued interest on long term debt 9,429 9,472
Construction payables 4,104 96,844
Other accrued liabilities 41,753 33,176
---------- ----------
Total current liabilities 111,373 165,596
---------- ----------
Deferred Revenues 8,505 10,784
Deferred Income Taxes 5,942 6,517
Long Term Obligation, Capital Leases 12,554 14,044
Long Term Debt, Net of Current Maturities 473,000 481,427
Commitments
Stockholders' Equity:
Common stock ($.01 par value, 75,000,000 shares
authorized, 50,651,016 and 50,579,537 shares issued) 507 506
Capital in excess of par value 663,186 662,365
Common stock in treasury (2,726,506 and 1,734,706
shares) (57,264) (29,490)
Retained earnings (deficit) (77,050) (151,626)
---------- ----------
Total stockholders' equity 529,379 481,755
---------- ----------
$1,140,753 $1,160,123
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
MGM Grand, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) For the years ended December 31, 1994 1993 1992
....................................................................................
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 74,576 $(117,586) $ (20,072)
Adjustments to reconcile net income (loss)
to net cash
from operating activities:
Gain on sale of airline (8,048) -- --
Aircraft carrying value adjustment -- 68,948 --
Amortization of debt offering costs 3,858 1,312 1,863
Depreciation and amortization 44,433 8,018 7,356
Aircraft overhaul amortization -- 1,993 2,423
Provision for doubtful accounts and
discounts 44,181 3,855 238
Change in assets and liabilities:
Accounts receivable (93,311) (33,724) 10,653
Inventories (4,574) (12,508) 583
Prepaid expenses (1,677) (10,536) (80)
Accounts payable, accrued liabilities, and
other 35,023 52,632 9,287
--------- --------- ---------
Net cash from operating activities 94,461 (37,596) 12,251
--------- --------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment, net (65,976) (480,054) (222,229)
Dispositions of property and equipment, net 691 684 1,206
Change in construction payables (92,740) 64,548 28,239
Deposits and other assets (34,930) 2,141 (5,156)
--------- --------- ---------
Net cash from investing activities (192,955) (412,681) (197,940)
--------- --------- ---------
Cash Flows From Financing Activities:
Borrowings from (repayments to) banks and
others (10,000) 10,000 --
Issuance of long term debt, net -- -- 455,906
Issuance of common stock 822 71,619 99,952
Repurchase of common stock (27,774) -- --
--------- --------- ---------
Net cash from financing activities (36,952) 81,619 555,858
--------- --------- ---------
Net Increase (Decrease) In Cash And Cash
Equivalents (135,446) (368,658) 370,169
Cash And Cash Equivalents At Beginning Of
Year 211,305 579,963 209,794
--------- --------- ---------
Cash And Cash Equivalents At End Of Year $ 75,859 $ 211,305 $ 579,963
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
MGM Grand, Inc and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended
December 31, 1994,
1993, and 1992
(Dollar amounts in Capital in Retained Total
thousands, except Common Common Excess of Treasury Earnings Stockholders'
share data) Stock Outstanding Stock Par Value Stock (Deficit) Equity
.................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1991 41,017,353 $428 $489,933 $(29,490) $ (13,968) $ 446,903
Issuance of common
stock 5,785,918 57 99,894 -- -- 99,951
Net loss -- -- -- -- (20,072) (20,072)
---------- ---- -------- -------- --------- ---------
Balance at December
31, 1992 46,803,271 485 589,827 (29,490) (34,040) 526,782
Issuance of common
stock 1,955,000 20 70,604 -- -- 70,624
Issuance of common
stock pursuant to
employee stock
options 86,560 1 994 -- -- 995
Adjustment to net
sales proceeds in
excess of Desert
Inn assets sold -- -- 940 -- -- 940
Net loss -- -- -- -- (117,586) (117,586)
---------- ---- -------- -------- --------- ---------
Balance at December
31, 1993 48,844,831 506 662,365 (29,490) (151,626) 481,755
Issuance of common
stock pursuant to
employee stock
options 71,479 1 821 -- -- 822
Repurchase of common
stock (991,800) -- -- (27,774) -- (27,774)
Net income -- -- -- -- 74,576 74,576
---------- ---- -------- -------- --------- ---------
Balance at December
31, 1994 47,924,510 $507 $663,186 $(57,264) $ (77,050) $ 529,379
---------- ---- -------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
................................................................................
MGM Grand, Inc. (the "Company") is a Delaware corporation incorporated January
29, 1986. As of December 31, 1994, approximately 74.3% of the outstanding
shares of the Company's common stock were owned by Kirk Kerkorian and Tracinda
Corporation ("Tracinda"), a Nevada corporation wholly-owned by Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company owns
and operates the MGM Grand Hotel, a hotel/casino and entertainment complex in
Las Vegas. The MGM Grand Hotel commenced operations on December 18, 1993.
In December 1993, the Company entered into an agreement with Bally's for the
joint development and operation of an elevated monorail linking the MGM Grand
Hotel with the corner of Flamingo Road and the Las Vegas Strip. The project is
a one-mile, high-capacity, transit-grade system with an estimated cost of $25
million. The project costs are shared equally with Bally's. The system is
scheduled to be operational by June 1995.
On December 28, 1994, the Company and Primadonna Resorts, Inc. executed the
definitive agreement for the development of a $350 million themed hotel/casino
called NEW YORK-NEW YORK. The project will be located on the northwest corner
of Tropicana Avenue and Las Vegas Boulevard, across from the MGM Grand Hotel.
The preliminary plans for NEW YORK-NEW YORK call for the destination resort to
include a 2,200-room hotel and casino, themed entertainment attractions and
restaurant/retail outlets. The Company and Primadonna Resorts will jointly own,
develop and operate NEW YORK-NEW YORK, which is expected to break ground during
the first quarter of 1995. The 18-acre site was contributed to the venture by
the Company during January 1995, and NEW YORK-NEW YORK acquired an adjacent
two-acre site in February 1995. Ownership of NEW YORK-NEW YORK is equal between
the Company and Primadonna Resorts.
The Company operated MGM Grand Air, a scheduled and charter airline service,
through its wholly-owned subsidiary, MGM Grand Air, Inc., from September 1987
until December 31, 1994, when MGM Grand Air was sold. (See Note 4).
Note 2. Significant Accounting Policies
................................................................................
a. Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany accounts are eliminated in consolidation.
b. Cash Equivalents--Cash equivalents consist of investments in bank
certificates of deposit and other interest bearing instruments with original
maturities of 90 days or less. Such investments are carried at cost, which
approximates market value.
c. Inventories--Inventories are stated at the lower of cost or market, which is
determined generally by the FIFO method.
d. Property and Equipment--Property and equipment are stated at cost.
Maintenance, repairs and renewals that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. The Company capitalized interest during the period that the
hotel/casino and entertainment complex was under construction. Gains or losses
on dispositions of property and equipment are included in the determination of
income. Depreciation and amortization are provided on a straight-line basis
over the estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings................................................... 15 to 40 years
Furniture, fixtures and equipment........................... 3 to 7 years
Land improvements........................................... 10 years
Leasehold improvements...................................... 5 to 20 years
</TABLE>
e. Debt and Equity Offering Costs--Direct costs incurred related to the sale of
common stock to the public were charged against common stock proceeds at the
time of the sale. Direct costs
32
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
related to the debt offering are being deferred and amortized over the debt
repayment period.
f. Licensed Rights and Trademarks--Licensed rights and trademarks are amortized
on a straight-line basis over periods not exceeding 40 years.
g. Deferred Organizational Costs--Organizational costs are amortized on a
straight-line basis over periods not exceeding 60 months.
h. Other Assets--The estimated cost of normal hotel operating quantities (base-
stock) of china, silverware, glassware, linen and utensils is recorded as an
asset and is not depreciated. Costs of base-stock replacements are expensed as
incurred.
i. Revenue Recognition--Casino revenue is recorded as gaming wins less losses.
Through the date of sale of MGM Grand Air on December 31, 1994, passenger
ticket sales and aircraft charter sales were recognized as revenue when the
transportation was rendered. Tickets sold but not used are refundable and
included in other accrued liabilities.(See Note 4).
j. Promotional Allowances--The retail value of accommodations, food, beverages,
and other services furnished to hotel/casino guests without charge is included
in gross revenue and then deducted as promotional allowances. The estimated
retail value of these promotional allowances was $51,622,000 and $3,053,000 for
the years ended December 31, 1994 and 1993, respectively. The estimated cost of
providing such promotional allowances was included in casino expenses as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C>
Rooms $ 7,809 $ 659 $ --
Food and beverage 24,115 1,170 --
Other 5,176 84 --
------- ------ ------
$37,100 $1,913 $ --
------- ------ ------
</TABLE>
k. Hotel Preopening Expenses--Hotel preopening expenses include direct project
salaries, advertising, and other pre-opening services incurred during the
preopening period of the MGM Grand Hotel. Such costs were expensed in 1993 upon
opening of the facility.
l. Aircraft Valuation Adjustment--The Company reduced the book value of its
aircraft and related equipment to their expected recoverable values, and
recognized an aircraft carrying value adjustment. (See Notes 4 and 11).
m. Income Taxes--The Company adopted statement of Financial Accounting Standard
No. 109, "Accounting for Income Taxes" effective January 1, 1993. (See Note
14). Prior to 1993, the Company accounted for income taxes in accordance with
Accounting Principles Board Opinion No. 11.
n. Net Income (Loss) per Common Share--Net income (loss) per common share has
been computed based upon the weighted average number of shares of common stock
and common stock equivalents, if dilutive, outstanding during each year
(48,988,000 in 1994, 47,587,000 in 1993, and 42,254,000 in 1992).
o. Reclassifications--Certain reclassifications have been made to conform the
prior year with the current year presentation.
Note 3. Statements of Cash Flows
................................................................................
The following supplemental disclosures are provided for the Consolidated
Statements of Cash Flows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
(In thousands) 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C>
Cash payments made for:
Interest, net of amounts capitalized $58,975 $3,535 $8,346
------- ------ ------
State and federal taxes $ 755 $ 203 $ 350
------- ------ ------
</TABLE>
33
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In 1993, the Company acquired property and equipment with capital leases
totalling $15,423,000. In 1993, amortization of deferred bond offering costs of
$1,705,000 was capitalized to property and equipment as a component of the
total capitalized interest. In 1993, $940,000 was credited to Capital in Excess
of Par Value in connection with the 1991 sale of the Desert Inn Hotel and
Casino.
Note 4. Sale of MGM Grand Air
................................................................................
On December 31, 1994, MGM Grand, Inc. completed the sale of MGM Grand Air for a
note receivable totalling approximately $14,325,000, realizing a pretax gain of
$8,048,000.
The operating results of MGM Grand Air have been accounted for as discontinued
operations, and prior years financial statements have been restated. Summary
operating results of discontinued operations, excluding the above noted gain,
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Revenues $19,535,000 $20,784,000 $50,005,000
Reduction in aircraft carrying value $ -- $68,948,000 $ --
Operating loss $ 7,012,000 $78,691,000 $13,732,000
</TABLE>
Note 5. Rights Offering
................................................................................
On October 15, 1992, the Company completed a common stock rights offering.
Total common stock issued at completion of the offering was 5,785,918 shares at
a subscription price of $17.50 per share, resulting in net proceeds of
approximately $100,000,000. The Company utilized the net proceeds to provide
partial financing for the Company's MGM Grand Hotel.
Note 6. Stock Offering
................................................................................
On August 17, 1993, the Company completed a common stock public offering. Total
common stock issued at completion of the offering was 1,955,000 shares at a
price of $37.75 per share, resulting in net proceeds of approximately
$70,600,000. The Company allocated such funds for general corporate purposes
including additions to property, plant and equipment, and the exploration of
other expansion opportunities.
Note 7. Treasury Stock
................................................................................
On March 9, 1994, the Company announced that it intended to acquire in open
market purchases, from time to time, as many as 1,000,000 shares of its common
stock. During the year ended December 31, 1994, the Company acquired 991,800
shares.
Note 8. Issuance of First Mortgage Notes
................................................................................
On May 14, 1992, MGM Grand Hotel Finance Corp. completed its public offering of
$220,000,000 of seven year 11 3/4% First Mortgage Notes and $253,000,000 of ten
year 12% First Mortgage Notes, realizing net cash proceeds of approximately
$454,000,000 after underwriting and other related offering costs. The Company
utilized the net proceeds to provide partial financing for the Company's MGM
Grand Hotel.
34
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9. Accounts Receivable
................................................................................
Components of receivables were as follows:
<TABLE>
<CAPTION>
At December 31,
---------------------
(In thousands) 1994 1993
---------------------------------------------------------------------
<S> <C> <C>
Casino $ 84,496 $27,095
Hotel 14,194 6,732
Airline 1,608 1,422
-------- -------
100,298 35,249
Less: Allowance for doubtful
accounts and discounts (17,624) (4,733)
-------- -------
$ 82,674 $30,516
-------- -------
</TABLE>
Credit is issued in exchange for gaming chips as permitted by the regulations
of the Nevada Gaming Commission and the Nevada State Gaming Control Board at
the MGM Grand Hotel.
Note 10. Other Accrued Liabilities
................................................................................
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
At December 31,
-------------------
(In thousands) 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Casino front money $15,252 $ 7,445
Casino chip liability 3,943 3,267
Advance deposits 3,521 10,549
Accrued gaming taxes 2,339 1,636
Other liabilities 16,698 10,279
------- -------
$41,753 $33,176
------- -------
</TABLE>
Note 11. Property and Equipment
................................................................................
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
At December 31,
---------------------
(In thousands) 1994 1993
---------------------------------------------------------------------
<S> <C> <C>
Land $ 90,567 $ 90,837
Buildings and improvements 621,835 660,612
Airframes, engines and other flight equipment -- 81,842
Equipment, furniture, fixtures and leasehold
improvements 194,756 103,518
Equipment under capital lease 17,793 16,987
Construction in progress 615 --
-------- --------
925,566 953,796
Less: Accumulated depreciation and amortization (45,543) (86,512)
-------- --------
$880,023 $867,284
-------- --------
</TABLE>
The accumulated depreciation and amortization at December 31, 1993 included the
$68,948,000 reduction in the carrying value of aircraft and related equipment.
Such assets were included in the sale of MGM Grand Air on December 31, 1994
(See Note 4).
35
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 12. Long Term Debt
................................................................................
Long term debt consisted of the following:
<TABLE>
<CAPTION>
At December 31,
---------------------
(In thousands) 1994 1993
-----------------------------------------------------------------
<S> <C> <C>
11 3/4% First Mortgage Notes due May 1, 1999 $220,000 $220,000
12% First Mortgage Notes due May 1, 2002 253,000 253,000
Laundry Facility Loan -- 10,000
-------- --------
473,000 483,000
Less: Current Maturities -- (1,573)
-------- --------
$473,000 $481,427
-------- --------
</TABLE>
The First Mortgage Notes contain various restrictive covenants including the
maintenance of certain financial ratios and limitations on additional debt,
dividends, stock repurchases, disposition of assets, mergers and similar
transactions. Based on the quoted market value of the First Mortgage Notes at
December 31, 1994, the fair value of the First Mortgage Notes was $513,081,000.
Maturities of the Company's long term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, (In thousands)
----------------------------------------------------------------
<S> <C>
1995 $ --
1996 --
1997 55,000
1998 55,000
1999 110,000
Thereafter 253,000
--------
$473,000
--------
</TABLE>
On May 14, 1992, the Company secured a commitment from several banks for a
$60,000,000 line of credit for the MGM Grand Hotel. The facility became
available on November 18, 1993. The Company incurs a commitment fee for the
unused portion of the line of credit. No amounts were outstanding under the
line of credit during 1994.
On June 16, 1993, Grand Laundry, Inc., a wholly-owned subsidiary of MGM Grand
Hotel, obtained a $10,000,000 loan from a financial institution for a laundry
facility in North Las Vegas, Nevada. As of December 31, 1993, $10,000,000 had
been drawn down under the loan, and construction of the facility was completed.
The loan was paid off on December 27, 1994. The facility provides the laundry
and dry cleaning services for the MGM Grand Hotel.
On April 1, 1994, MGM Dist., Inc., a wholly-owned subsidiary of the Company,
obtained a $4,000,000 loan from a financial institution for the acquisition of
certain signage equipment. The loan was repaid on December 30, 1994.
Total interest incurred during 1994, 1993, and 1992 was $61,927,000,
$59,472,000, and $37,733,000, respectively, of which $52,876,000 and
$19,811,000 were capitalized in 1993 and 1992, respectively.
Note 13. Lease Commitments
................................................................................
The Company and its subsidiaries lease buildings and equipment under non-
cancelable operating lease agreements which expire at various dates through the
year 2000. The leases generally provide that the Company pay taxes, insurance
and maintenance expense related to leased assets.
In 1993, the Company entered into a three year operating lease for hotel/casino
and theme park equipment in the amount of $48,000,000, with quarterly lease
payments of approximately $2,500,000. In December 1994 and January 1995, the
Company terminated the lease and purchased the equipment in the approximate
amount of $42,000,000. In addition, during 1993, the Company entered into
capital leases for hotel/casino and theme park equipment in the amount of
$15,400,000.
In December 1994, the Company entered into an operating lease for production
show equipment in the amount of $5,000,000.
36
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Through the date of sale of the airline on December 31, 1994 (see Note 4), MGM
Grand Air had a lease with the City of Los Angeles Department of Airports
covering terminal facilities at Los Angeles International Airport. The lease
was transferred with the sale of the airline.
At December 31, 1994, the Company was obligated under non-cancellable operating
leases and capital leases to make future minimum lease payments as follows:
<TABLE>
<CAPTION>
Operating Capital
Year Ending December 31, (in thousands) Leases Leases
----------------------------------------------------------------
<S> <C> <C>
1995 $ 2,598 $ 3,316
1996 2,573 3,151
1997 2,577 3,445
1998 4,697 3,010
1999 743 2,687
Thereafter 16,163 3,049
------- -------
Total Minimum Lease Payment $29,351 18,658
-------
Amount Representing Interest (3,959)
-------
Total Obligation Under Capital Leases 14,699
Less: Amount due within one year (2,145)
-------
Amount due after one year $12,554
-------
</TABLE>
Rental expense on the above noted non-cancellable operating leases was
$12,225,000 for the year ending December 31, 1994.
Note 14. Income Taxes
................................................................................
The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109") for the year ended December 31,
1993. The impact of adopting this new standard was not material to the
consolidated financial statements of the Company for 1993. Prior to 1993, the
Company accounted for income taxes in accordance with Accounting Principles
Board Opinion No. 11.
SFAS 109 requires the recognition of deferred tax assets, net of applicable
reserves, related to net operating loss carryforwards and certain temporary
differences. The standard requires recognition of a future tax benefit to the
extent that realization of such benefit is more likely than not. Otherwise, a
valuation allowance is applied. At December 31, 1994, the Company determined
that $32,150,000 of tax benefits did not satisfy the recognition criteria set
forth in the standard because of the Company's history of prior operating
results. Accordingly, a valuation allowance was recorded to reserve the
applicable deferred tax assets.
The provision (benefit) for income taxes for the years ended December 31, 1994,
1993 and 1992 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
---------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current--Federal $ 575 $ -- $ --
Deferred--Federal (575) -- --
----- ----- -----
Total $ -- $ -- $ --
----- ----- -----
</TABLE>
Reconciliation of the Federal income tax rate and the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 34%
Change in Valuation Allowance (35) -- --
Net operating loss--no benefit recorded -- (35) (34)
--- --- ---
Effective tax rate -- % -- % -- %
--- --- ---
</TABLE>
As of December 31, 1994, after having given effect to SFAS 109, the major tax
effected components of the Company's net deferred tax liability are as follows:
37
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Asset 1994 1993
-------- --------
Net operating loss carryforward $ 45,559 $ 22,490
Bad debt reserve 6,302 2,707
Aircraft carying value adjustment -- 24,132
Hotel preopening expenses 12,448 15,483
Accruals, reserves and other 1,924 4,496
Alternative minimum tax credit carryforward 1,410 827
-------- --------
67,643 70,135
Less: Valuation allowance (32,150) (51,235)
-------- --------
Total deferred tax asset 35,493 18,900
-------- --------
Deferred Tax Liability
Depreciation and amortization (37,963) (17,315)
Capitalized interest (3,472) (8,102)
-------- --------
Total deferred tax liability (41,435) (25,417)
-------- --------
Net Deferred Tax Liability $ (5,942) $ (6,517)
-------- --------
</TABLE>
At December 31, 1994, the Company had a tax return net operating loss
carryforward of approximately $130,200,000 which will expire as follows:
<TABLE>
<CAPTION>
Net Operating Loss Carryforward
Year of Expiration (In thousands)
------------------------------------------------------------------
<S> <C>
2005 $ 18,400
2006 9,900
2007 28,200
2008 23,500
2009 50,200
--------
$130,200
--------
</TABLE>
In addition, the Company has an alternative minimum tax credit carryforward of
$1,410,000 which does not expire.
Note 15. Stock Option Plan
................................................................................
The Company has adopted a nonqualified stock option plan and an incentive stock
plan which provides for the granting of stock options pursuant to applicable
provisions of the Internal Revenue Code and regulations. The aggregate options
available under the plans are 2,500,000 shares. In 1994, 273,750 options were
granted at exercise prices ranging from $24.25 to $32.50 pursuant to the
nonqualified plan. During 1994, 71,479 nonqualified stock options were
exercised at $11.50 each. At December 31, 1994, 1,875,850 options at exercise
prices ranging from $10.25 to $32.50 were outstanding of which 435,901 were
exercisable. The Company has agreements with eight executives which provide
that, upon a change of control, any unvested stock options covered by such
agreements become exercisable. The total number of stock options subject to
such agreements is 760,000.
The plans are administered by a compensation and stock option committee of the
Company's board of directors. Salaried officers and other key employees of the
Company and its subsidiaries are eligible to receive options. The exercise
price in each instance is 100 percent of the fair market value of the Company's
common stock on the date of grant. The options generally have ten-year terms
and are exercisable in four annual installments.
Note 16. Employee Pension and Savings Plans
................................................................................
MGM Grand Hotel has a 401(k) employee savings plan for all full time employees
not a part of a bargaining unit. The savings plan allows participants to defer,
on a pretax basis, a portion of their salary and accumulate tax deferred
earnings as a retirement fund. The Company matches employee contributions up to
a maximum of 1% of participating employee's gross wages. Additionally, the
Company makes contributions to employee's savings plans based on length of
service which vest over a five year period. Through December 31, 1994, the
Company contributions under this arrangement were $3,300,000.
Effective November 1994, the Company, and MGM Grand Hotel adopted a
Nonqualified Deferred Retirement Plan for
38
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
certain key employees not a part of a collective bargaining unit. The
Nonqualified Deferred Retirement Plan allows participants to defer, on a pretax
basis, a portion of their salary and accumulate tax deferred earnings, plus
interest, as a retirement fund. These deferrals are in addition to those
allowed under the Hotel Savings Plan. All deferred amounts vest immediately.
There are no employer matching contributions made under this plan. The full
amount vested in a participant's account will be distributed to a participant
following termination of employment, normal retirement or in the event of
disability or death.
Through the date of sale of the airline on December 31, 1994, MGM Grand Air
maintained a noncontributory 401(k) employee savings plan for employees not a
part of a bargaining unit. This savings plan allowed participants to defer, on
a pretax basis, a portion of their salary and accumulate tax deferred earnings
as a retirement fund. Maintenance of the savings plan was assumed by the
purchaser of the airline.
Note 17. Related-Party Transactions
................................................................................
In May 1992, Tracinda acquired $30,000,000 of the Company's First Mortgage
Notes (see Note 8) through an open market purchase.
The terms of the First Mortgage Notes (see Note 8) required that the Company's
obligation to obtain an additional $100,000,000 in equity be assured by the
issuance of an irrevocable bank letter of credit in that amount provided by the
Company's principal shareholder, Tracinda. The letter of credit was outstanding
from May to October 1992, when the rights offering was completed. Fees to the
bank issuer of the letter of credit were paid by the Company.
In August 1992, MGM Grand Hotel installed and commenced testing of a property
management computer software system at The Stars' Desert Inn which was then
owned by Tracinda. The system was used at The Stars' Desert Inn until September
1993. MGM Grand Hotel also agreed to use The Stars' Desert Inn casino to test
certain gaming equipment from July to September 1993. MGM Grand Hotel
reimbursed The Stars' Desert Inn for its estimated costs, which were
approximately $13,000 in 1993, and $229,000 in 1994. The Stars' Desert Inn did
not exercise an option to retain the computer software system. The Stars'
Desert Inn retained all revenues generated by the gaming equipment.
During the period from October 10, 1992 through January 20, 1993, MGM Grand
Air, Inc. leased a Boeing 757 aircraft from Tracinda. The lease and related
payments were $479,000. Also during 1992 and 1993, payments by The Stars'
Desert Inn to MGM Grand Air for the charter of aircraft, amounted to $221,000
and $67,000, respectively.
In November 1992, the Company was granted a no-cost two-year option from
Tracinda to purchase approximately 18 acres of undeveloped land across the Las
Vegas Strip from the MGM Grand Hotel. Effective September 1, 1994, the option
was extended to September 1, 1995. The option, which gave the Company the right
to acquire the property at Tracinda's purchase cost of $31,500,000, together
with its actual costs incurred in connection with the ownership of the
property, plus interest, was exercised on January 5, 1995, for a total cost of
approximately $36,500,000.
In November 1993, MGM Grand Hotel agreed to sell to Tracinda two unused parcels
of land (approximately .56 acres total) for $272,950. The Company, based upon
appraisals it received, believes that this sale was on terms comparable to what
it could have obtained for the land on an arms length basis in an equivalent
transaction with a third party. The acquisition was completed on March 1, 1994.
The Company and Tracinda have entered into various other transactions and
arrangements which, individually and in the aggregate, are not material.
39
<PAGE>
MGM Grand, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 18. Industry Segments
................................................................................
The Company operates in the Hotel/Casino industry segment through the
operations of the MGM Grand Hotel since December 18, 1993. Airline operations
have been reclassified for the years presented to Discontinued Operations as a
result of the sale of the airline (see Note 4). Sales between industry segments
are immaterial and generally at prices approximately equal to those charged to
unaffiliated customers. Revenues and assets of operations outside the United
States are not significant.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
Hotel/Casino $ 742,195 $ 37,016 $ --
---------- ---------- ----------
$ 742,195 $ 37,016 $ --
---------- ---------- ----------
Operating income (loss):
Hotel/Casino $ 137,394 $ 6,070 $ --
Corporate expenses (7,679) (5,486) (4,873)
Hotel preopening expenses -- (45,130) --
---------- ---------- ----------
$ 129,715 $ (44,546) $ (4,873)
---------- ---------- ----------
Identifiable assets:
Hotel/Casino $1,076,009 $1,071,612 $ 961,761
Discontinued operations--airline 2,618 2,501 73,773
Corporate 62,126 86,010 27,952
---------- ---------- ----------
$1,140,753 $1,160,123 $1,063,486
---------- ---------- ----------
Capital expenditures:
Hotel/Casino $ 60,086 $ 474,454 $ 217,207
Discontinued operations--airline 5,552 5,568 4,669
Corporate 338 32 353
---------- ---------- ----------
$ 65,976 $ 480,054 $ 222,229
---------- ---------- ----------
Depreciation and amortization:
Hotel/Casino $ 44,346 $ 1,593 $ --
Corporate 87 54 --
---------- ---------- ----------
$ 44,433 $ 1,647 $ --
---------- ---------- ----------
</TABLE>
40
<PAGE>
MGM Grand, Inc and Subsidiaries
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of MGM Grand, Inc.:
We have audited the accompanying consolidated balance sheets of MGM Grand, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1994.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MGM Grand, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Las Vegas, Nevada
February 17, 1995
41
<PAGE>
MGM Grand, Inc and Subsidiaries
SELECTED QUARTERLY FINANCIAL RESULTS
<TABLE>
<CAPTION>
For the years ended December 31, 1994 and 1993
(Unaudited)
(In thousands except share data)
Quarter
--------------------------------------
1994 First Second Third Fourth Total
................................................................................
<S> <C> <C> <C> <C> <C>
Net Revenues $174,958 $186,846 $208,558 $171,833 $ 742,195
Operating income (loss) 18,201 34,426 49,437 27,651 129,715
Income (loss) before
discontinued operations 3,876 20,258 35,399 14,007 73,540
Net income (loss) 3,354 20,195 31,785 19,242 74,576
Per share of common stock:
Income (loss) before
discontinued operations $ .08 $ .41 $ .72 $ .29 $ 1.50
Discontinued operations (.01) -- (.07) .11 .02
-------- -------- -------- -------- ---------
Net income (loss) $ .07 $ .41 $ .65 $ .40 $ 1.52
======== ======== ======== ======== =========
<CAPTION>
1993
................................................................................
<S> <C> <C> <C> <C> <C>
Net Revenues $ -- $ -- $ -- $ 37,016 $ 37,016
Operating income (loss) (1,184) (1,534) (4,601) (37,227) (44,546)
Income (loss) before
discontinued operations (416) 743 (2,093) (37,129) (38,895)
Net income (loss) (2,742) (2,056) (4,522) (108,266) (117,586)
Per share of common stock:
Income (loss) before
discontinued operations $ (.01) $ .02 $ (.04) $ (.76) $ ( .82)
Discontinued operations (.05) (.06) (.05) (1.46) (1.65)
-------- -------- -------- -------- ---------
Net income (loss) $ (.06) $ (.04) $ (.09) $ (2.22) $ (2.47)
======== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------------------- --------------------
Common Stock Prices High Low High Low
.............................................................................
For the year
ended December 31,
<S> <C> <C> <C> <C>
First quarter $ 39 3/8 $ 27 3/4 $ 28 5/8 $ 19 1/8
Second quarter 29 3/4 23 1/4 36 3/8 26 5/8
Third quarter 32 24 1/4 48 3/4 28 1/4
Fourth quarter 32 1/4 24 1/8 48 7/8 36
</TABLE>
The Company's Common Stock is listed on the New York Stock Exchange. Its symbol
is MGG.
42
<PAGE>
MGM Grand, Inc and Subsidiaries
CORPORATE INFORMATION
Directors and Officers
................................................................................
Fred Benninger
Chairman
Robert R. Maxey
President and Chief
Executive Officer
James D. Aljian
Executive, Tracinda Corporation
Las Vegas, Nevada
Terry N. Christensen
Partner, Christensen, White,
Miller, Fink & Jacobs
Los Angeles, California
Glenn A. Cramer
Willie D. Davis
President and Director,
All-Pro Broadcasting, Inc.
Los Angeles, California
Alexander M. Haig, Jr.
Chairman
Worldwide Associates, Inc.
Washington, D.C.
Lee A. Iacocca
Chairman
Iacocca Capital Group
Southfield, Michigan
Kirk Kerkorian
President and
Chief Executive
Officer,
Tracinda Corporation
Las Vegas, Nevada
Walter M. Sharp
President, Walter M. Sharp
Company
Beverly Hills, California
K. Eugene Shutler
Executive Vice President
and General Counsel
E. Parry Thomas
Consultant to
Bank of America--Nevada
Las Vegas, Nevada
Alex Yemenidjian
Executive Vice President
and Chief Financial
Officer
...................
Scott Langsner
Secretary/Treasurer
MGM Grand Hotel Senior Officers
................................................................................
Larry J. Woolf
Chairman, President and
Chief Executive Officer
Daniel M. Wade
Executive Vice President and
Chief Operating Officer
Robert V. Moon
Senior Vice President
Casino Marketing
Richard A. Sturm
Senior Vice President
Marketing and Entertainment
Joseph T. Murphy
Senior Vice President and Chief
Financial Officer
Addresses
................................................................................
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
MGM Grand Hotel, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Transfer Agent and
Registrar For Common Stock
Mellon Bank
85 Challenger Road
Ridgefield Park, NJ 07660
Independent Public
Accountants
Arthur Andersen LLP
3320 W. Sahara Avenue
Las Vegas, Nevada 89102
Form 10-K
................................................................................
A copy of the Company's annual report on Form 10-K, as filed with the
Securities and Exchange Commission, will be furnished without charge to any
stockholder upon written request to: Mr. Scott Langsner, MGM Grand, Inc., 3799
Las Vegas Boulevard South, Las Vegas, Nevada 89109.
43
<PAGE>
EXHIBIT 21
MGM GRAND, INC.
LIST OF SUBSIDIARIES
DECEMBER 31, 1994
STATE OF
NAME INCORPORATION
----------------------------- -------------
PARENT MGM Grand, Inc. Delaware
SUBSIDIARIES: MGM Grand Hotel, Inc. Nevada
MGM Grand Hotel Finance Corp. Nevada
MGM Grand Air, Inc. Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MGM GRAND,
INC. 1994 FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 75,859
<SECURITIES> 0
<RECEIVABLES> 100,298
<ALLOWANCES> (17,624)
<INVENTORY> 17,236
<CURRENT-ASSETS> 203,525
<PP&E> 925,566
<DEPRECIATION> (45,543)
<TOTAL-ASSETS> 1,140,753
<CURRENT-LIABILITIES> 111,373
<BONDS> 473,000
<COMMON> 507
0
0
<OTHER-SE> 528,872
<TOTAL-LIABILITY-AND-EQUITY> 1,140,753
<SALES> 793,817
<TOTAL-REVENUES> 793,817
<CGS> 0
<TOTAL-COSTS> (51,622)
<OTHER-EXPENSES> (568,299)
<LOSS-PROVISION> (44,181)
<INTEREST-EXPENSE> (61,927)
<INCOME-PRETAX> 74,576
<INCOME-TAX> 0
<INCOME-CONTINUING> 73,540
<DISCONTINUED> 1,036
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,576
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 0
</TABLE>
