<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MGM GRAND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0215232
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3799 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
(702) 891-3333
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
---------------
SCOTT LANGSNER
MGM GRAND, INC.
3799 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
(702) 891-3333
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
JANET S. MCCLOUD, ESQ. JONATHAN K. LAYNE, ESQ.
CHRISTENSEN, WHITE, MILLER, GIBSON, DUNN & CRUTCHER LLP
FINK, JACOBS, GLASER & SHAPIRO, LLP 333 SOUTH GRAND AVENUE
2121 AVENUE OF THE STARS, 18TH FLOOR LOS ANGELES, CALIFORNIA 90071
LOS ANGELES, CALIFORNIA 90067
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest investment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value.................. 8,625,000(1) shares $39.25 $338,531,250 $116,735
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</TABLE>
(1) Assumes exercise of the Underwriters' over-allotment option to purchase up
to 1,125,000 shares of Common Stock.
(2)Estimated solely for the purpose of calculating the registration fee.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses. The first
prospectus relates to a public offering in the United States of an aggregate
of 6,000,000 shares of Common Stock (the "U.S. Offering"). The second
prospectus relates to a concurrent offering outside the United States of an
aggregate of 1,500,000 shares of Common Stock (the "International Offering").
The prospectuses for each of the U.S. Offering and the International Offering
will be identical with the exception of the alternate front and back cover
pages for the International Offering. Such alternate pages appear in this
Registration Statement immediately following the complete prospectus for the
U.S. Offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 15, 1996
7,500,000 SHARES
[LOGO] MGM GRAND, INC.
COMMON STOCK
----------
Of the 7,500,000 shares of Common Stock being offered hereby by MGM Grand,
Inc., a Delaware corporation ("MGM Grand" or the "Company"), 6,000,000 shares
are being offered initially in the United States (the "U.S. Offering") by the
U.S. Underwriters and 1,500,000 shares are being offered initially outside the
United States (the "International Offering" and together with the U.S.
Offering, the "Offering") by the International Underwriters (together with the
U.S. Underwriters, the "Underwriters"). See "Underwriting." The Common Stock is
listed on the New York Stock Exchange and trades under the symbol "MGG." The
last reported sale price of the Common Stock on the New York Stock Exchange on
May 13, 1996 was $41.00 per share.
Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian
("Tracinda"), and Mr. Kerkorian (together, the "Principal Stockholders") own
approximately 72.5% of the outstanding shares of the Common Stock. The
percentage of the outstanding shares of Common Stock owned by the Principal
Stockholders upon completion of the Offering made hereby will be approximately
62.9%.
FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, NOR
THE NEW JERSEY CASINO CONTROL COMMISSION HAS PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
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Total(3)..................................... $ $ $
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</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the several Underwriters an option to purchase up
to an additional 1,125,000 shares of Common Stock to cover over-allotments.
If all such shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
----------
Joint Global Coordinators
DEUTSCHE MORGAN GRENFELL OPPENHEIMER & CO., INC.
----------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York against payment therefor on
or about , 1996.
DEUTSCHE MORGAN GRENFELL OPPENHEIMER & CO., INC.
DEAN WITTER REYNOLDS INC. MONTGOMERY SECURITIES
----------
The date of this Prospectus is , 1996.
<PAGE>
MGM GRAND--DESCRIPTION OF PICTURES ON INSIDE COVER
Inside Back Cover:
- ------------------
. Picture of MGM Grand Australia property
. Map of Australia and Southeast Asia with lines connecting Darwin, Australia
to several key cities in the region
. Table of travel time between Darwin, Australia and several key cities in
the region
. Picture of MGM Grand Las Vegas
. Artist's rendering of New Lion Entry (part of MGM Grand Las Vegas master
plan)
. Artist's rendering of New Entertainment Casino (part of MGM Grand Las Vegas
master plan)
Inside Front Cover:
- -------------------
. Collage of entertainment events and several gaming and non-gaming amenities
at MGM Grand Las Vegas
Inside Gatefold Cover:
- ----------------------
. Aerial map of the intersection of Las Vegas Boulevard South and Tropicana
Avenue (the "New Four Corners") depicting key properties, including MGM
Grand Las Vegas and New York-New York
. Picture of scale model of New York-New York
MGM GRAND--TEXT FOR INSIDE COVER PICTURES
1. [Underneath MGM Grand Australia Picture]--MGM Grand Australia, acquired in
September 1995, is currently in the final stages of a major renovation
program.
2. [Underneath MGM Grand Las Vegas Picture]--The Company is embarking on a
$250 million enhancement project at MGM Grand Las Vegas to create The City
of Entertainment (see renderings below).
3. [Underneath MGM Grand Las Vegas--Lion Entry Picture]--The Lion Entry will
be reconstructed with a new six-story liquid-gold-colored lion and 80-foot
multimedia entertainment walls.
4. [Underneath MGM Grand Las Vegas--Entertainment Casino Picture]--The new
Entertainment Casino will be accessible through the Lion Entry and the
elevated pedestrian walkways from New York-New York and the Tropicana.
5. [Underneath Picture of New York-New York Model]--The New York-New York
Hotel/Casino is expected to open in the winter of 1996-1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus and in the documents and financial
statements incorporated herein by reference. Unless otherwise indicated, the
information in this Prospectus does not give effect to the exercise of the
Underwriters' over-allotment option described herein under "Underwriting."
THE COMPANY
MGM Grand is an entertainment, hotel and gaming company headquartered in Las
Vegas, Nevada. Through subsidiaries, the Company owns and operates the MGM
Grand Hotel/Casino in Las Vegas ("MGM Grand Las Vegas"), the largest
hotel/casino in the world, and the MGM Grand Darwin Hotel and Casino in Darwin,
Australia ("MGM Grand Australia"). The Company also owns a 50% interest in, and
will be the joint operator of, the New York-New York Hotel/Casino ("New York-
New York"), a $460 million architecturally distinctive destination resort
hotel/casino in Las Vegas which is under construction and is scheduled to open
in the winter of 1996-1997. The Company applied for a license with the New
Jersey gaming authorities in February 1996, and plans to develop a major
destination resort hotel/casino in Atlantic City ("MGM Grand Atlantic City").
The Company is considering a number of alternatives for its Atlantic City
project, and any entry into the Atlantic City market will be subject to
finalization and execution of such plans, as well as receipt of regulatory
approvals, including licensing of the Company and appropriate officers and
directors.
MGM Grand Las Vegas is a 112-acre multi-themed destination resort located at
the "New Four Corners" intersection of Tropicana Avenue and Las Vegas Boulevard
South (the "Strip"), across the street from New York-New York, Excalibur and
the Tropicana. Management believes that MGM Grand Las Vegas is the largest
hotel/casino in the world and, because of the quality and variety of its
entertainment amenities, is a "must-see" attraction for visitors to Las Vegas.
MGM Grand Las Vegas features 5,005 guest rooms and suites, a 171,500 square
foot casino with approximately 3,500 slot machines and 160 table games, nine
restaurants, the 16,700 seat MGM Grand Garden Arena and two large showrooms,
which feature celebrity entertainers and EFX, an approximately $40 million
musical and special effects extravaganza production show starring Michael
Crawford.
MGM Grand completed its first international acquisition in September 1995,
when it acquired what is now MGM Grand Australia for approximately $80 million.
The acquisition provides the Company with geographic diversification and direct
access to the lucrative Australian and Southeast Asian gaming markets.
In July 1995, the Company established a new management team, led by J.
Terrence Lanni, Chairman and Chief Executive Officer, and Alex Yemenidjian,
President, Chief Operating Officer and Chief Financial Officer, as well as a
revised organizational structure at both the corporate and operating levels and
selected expansion and enhancement of the management team. The new management
team was primarily responsible for developing a corporate vision which is based
on achieving increased profitability with growth through a refocusing of
marketing efforts and positioning of MGM Grand as a global location-based
entertainment company with tight cost control systems.
STRATEGY--OVERVIEW
MGM Grand's strategy is to create unique destination resorts worldwide in
selected gaming markets, which are designed to provide customers with a total
entertainment experience, including: first class accommodations, dining and
amenities; exciting shows, sporting events, concerts and shopping; and
attractive gaming facilities. The Company utilizes entertainment themed
attractions, including well
3
<PAGE>
known movie characters and settings, to create an exciting environment
appealing to all segments of the gaming market and also utilizes targeted
marketing programs to attract premium customers.
The Company's new management team embarked on an operational restructuring
program designed to enhance revenues and minimize volatility, significantly
reduce operating costs, create financial flexibility, promote the Company's
reputation for providing first class entertainment and position the Company for
growth by renovating and expanding existing properties and developing new
destination resorts. The Company's revenue enhancement and cost control
programs, implemented in the third quarter of 1995, resulted in income from
continuing operations in the fourth quarter of 1995 increasing by approximately
127% compared to the same quarter in 1994, while income from continuing
operations for the first quarter of 1996 increased by approximately 525%
compared to the first quarter of 1995. In addition, EBITDA (as defined)
increased by approximately 51% and 89%, respectively, for such periods. The
Company is also implementing a financial restructuring via a combination of the
Offering and new credit facilities, which will significantly lower the
Company's cost of capital while enhancing its financial flexibility. The
Company intends to use the proceeds of the Offering, cash on hand and certain
of the proceeds available under the new credit facilities and the Operating
Loan (as defined) to defease its First Mortgage Notes (as defined) and finance
the implementation of the Company's growth strategy. On a proforma basis,
earnings per share from continuing operations for 1995 would have increased by
$0.39. The cornerstones of the Company's growth strategy are the $250 million
enhancement of MGM Grand Las Vegas as "The City of Entertainment," the opening
of the $460 million New York-New York joint venture, the refurbishment of MGM
Grand Australia, the planned development of a major destination resort
hotel/casino in Atlantic City and the continued monitoring of gaming
opportunities outside of Nevada.
STRATEGY--EXECUTION
Provide First Class Entertainment. The Company continuously strives to
achieve a leading reputation for offering high quality entertainment at each of
its resorts. The Company focuses on entertaining its customers by providing a
full spectrum of destination resort amenities, including world-class concerts
and sporting events, highly acclaimed production shows and headliners, quality
dining facilities, luxurious accommodations and exciting recreational
facilities. MGM Grand Las Vegas has presented headliners such as Barbra
Streisand, the Rolling Stones, Rod Stewart, Phil Collins, Elton John, Billy
Joel, Gladys Knight, Tom Jones, Whitney Houston, Bette Midler and the Four Tops
and, in March 1995, introduced EFX. In addition, MGM Grand Las Vegas presents
many sporting events, including world championship boxing matches featuring,
among others, George Foreman and Mike Tyson, as well as tennis matches, ice
skating and rodeos.
Enhance Performance of Existing Properties. In order to facilitate its growth
strategy, during the third quarter of 1995, the Company introduced a major
restructuring program designed to position the Company for sustained long-term
growth and to enhance shareholder value. The program is comprised of the
following three components:
Revenue Enhancements. Management has initiated revenue enhancements in
each area of its operations. In casino operations, the revenue enhancements
consist primarily of a more selective approach to the high-end segment of
the casino business in order to reduce volatility of operating results,
while at the same time increasing marketing attention to middle market
customers. The Company is also seeking to adjust the hotel guest mix to
increase room revenues by reducing the tour and travel segment and
emphasizing free and independent travelers and casino customers. The
Company is also expanding its retail operations and repositioning its
restaurant, theme park and show operations to enhance profitability.
4
<PAGE>
Cost Reductions. The cost reduction component of the restructuring
program consisted of a number of actions designed to improve operating
efficiencies without sacrificing the quality of customer service, including
an employee head count reduction of approximately 14% to date, implemented
in part through the outsourcing of three restaurants to premier operators.
Capital Improvements and Additions. The Company has embarked on an
extensive capital improvement program designed to enhance the quality of
the entertainment experience at each of its properties, including the
addition of major gaming and non-gaming amenities. Implementation of the
$250 million master plan for MGM Grand Las Vegas is anticipated to begin in
the second quarter of 1996 and is expected to be funded out of existing
cash on hand and operating cash flow. The $15 million capital improvement
program at MGM Grand Australia is substantially completed.
Continue Growth Strategy. The Company plans to leverage its highly
recognizable brand name and entertainment themes through expansion and
enhancement of existing properties and development of new themed properties in
selected markets throughout the world. The Company's improvement and expansion
projects include the following:
Creation of The City of Entertainment at MGM Grand Las Vegas--The Company
is embarking on a $250 million enhancement and expansion project at its
flagship property to create The City of Entertainment, which will include a
300,000 square foot expansion of entertainment, restaurant and retail
shopping areas, construction of a new 300,000 square foot convention
center, a significant enhancement of the major entrances and exteriors and
an upgrade of certain of the property's luxury suites. The renovation and
expansion is expected to begin in June 1996 and be substantially completed
by the end of 1998. The project will be introduced in phases in order to
minimize disruption of operations. The Lion entry and exterior enhancements
will create theatrical multimedia projection and light shows designed to
increase foot traffic at the property. As part of the enhancement program,
the Company anticipates introducing a new Entertainment Casino area with
dramatic live entertainment, themed restaurants, a nightclub and an
increase in the number of gaming positions by approximately 500.
Renovation of MGM Grand Australia-- In June 1996, an approximately $15
million major renovation program at MGM Grand Australia will be completed.
The renovation includes upgrading room and suite accommodations and
expansion of the casino space to approximately 500 slot machines and 50
table games, including introduction of the Monte Carlo Room for middle
market customers and the Grand International Room for high-end customers.
Non-gaming amenities are being enhanced through the addition of new food,
beverage, entertainment and retail facilities.
Opening of New York-New York--The Company, in conjunction with Primadonna
Resorts, Inc. ("Primadonna"), is developing this 48-story destination
resort, which will replicate many of Manhattan's landmark buildings and
icons, including the Statue of Liberty, the Empire State Building, Central
Park, the Brooklyn Bridge, and a Coney Island-style roller coaster. The
84,000 square foot casino is expected to offer approximately 2,400 slot
machines and 75 table games. New York-New York is located on the Strip at
the "New Four Corners" directly across from MGM Grand Las Vegas. New York-
New York is expected to substantially increase foot traffic at the MGM
Grand Las Vegas since the two facilities will be connected by an extension
of the existing elevated pedestrian walkway, which will lead into a
dramatic new multimedia mezzanine level overlooking the atrium of the
Entertainment Casino at MGM Grand Las Vegas. Management believes that the
$460 million, 2,035 room and suite resort is architecturally the most
distinctive property ever built in Las Vegas. New York-New York is
scheduled to open in the winter of 1996-1997.
5
<PAGE>
Development of MGM Grand Atlantic City. The Company is reviewing a number
of alternatives for entering the Atlantic City market, including new
construction as well as acquisition and redevelopment of existing
properties. The Company intends to create a destination resort hotel/casino
in Atlantic City that will be larger and more elaborate than any other
facility currently in existence in that market. The Company expects to use
its entertainment themes at MGM Grand Atlantic City, and plans to offer a
wide array of gaming and non-gaming amenities to its prospective customers.
The Company's plans for MGM Grand Atlantic City may also include the
development of high energy retail, food and beverage facilities. The
Company believes that the acquisition and/or development of MGM Grand
Atlantic City could cost in excess of $700 million and that the development
or redevelopment could take up to three years. No assurance can be given
that the Company will acquire property or develop a hotel/casino in
Atlantic City, or if it does, as to its ultimate size, configuration or
cost. Any development or operation in Atlantic City will be subject to the
receipt of regulatory approvals, including licensing, acquisition of an
appropriate site or property and obtaining necessary financing.
Other Markets--The Company continues to evaluate growth opportunities in
other national and international locations which offer development
potential, including Argentina, Canada, Mexico and South Africa.
Refinancing. In order to significantly lower the Company's cost of capital,
enhance financial flexibility and position the Company to finance its
anticipated future growth, MGM Grand has arranged for a new $500 million bank
credit facility to replace its existing high cost public debt. In May 1996, the
Company received a commitment from BA Securities, Inc. ("BA Securities"), an
affiliate of Bank of America N.T. & S.A. ("B of A"), to arrange for a new $500
million senior reducing revolving credit facility (the "Credit Facility") as
well as a commitment from B of A for a $125 million interim facility. The bank
facilities will be used, together with cash on hand, proceeds from the Offering
and proceeds from the Operating Loan, to defease the outstanding secured debt
obligations of MGM Grand Hotel Finance Corp., a wholly owned subsidiary of the
Company ("MGM Grand Finance"), which consist of $220 million of 11 3/4% First
Mortgage Notes due May 1, 1999 and $253 million of 12% First Mortgage Notes due
May 1, 2002 (collectively, the "First Mortgage Notes"). On a proforma basis,
the Company's interest expense (net of tax benefits), would have decreased by
approximately $7.2 million for the quarter ended March 31, 1996 and $29.1
million for the year ended December 31, 1995, and proforma earnings per share
from continuing operations would have increased from $0.70 per share to $0.73
per share for the three months ended March 31, 1996 and from $0.96 per share to
$1.35 per share for the year ended December 31, 1995 (assuming that the
incremental earnings resulting from the defeasance were subject to tax at a
36.5% rate). In addition, the Company's proforma EBITDA to interest coverage
ratio would have increased to 15.1x and 12.6x from 4.2x and 2.9x for the
quarter ended March 31, 1996 and the year ended December 31, 1995,
respectively. The defeasance of the First Mortgage Notes will result in an
extraordinary charge of approximately $37.0 million, net of tax benefits, to
reflect the early discharge of the First Mortgage Notes and the expenses
related thereto.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial data set forth below are qualified in
their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
the Company's consolidated financial statements and notes thereto included or
incorporated by reference herein. The summary consolidated financial data
presented below as of and for the quarter ended March 31, 1995 and 1996 are
derived from unaudited consolidated financial statements; however, in the
opinion of the Company, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations for such period have been included.
Operating results for the quarter ended March 31, 1996 are not necessarily
indicative of the results that may be expected for future periods, including
the entire year ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
------------------ ------------------
1994 1995 1995 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA, PERCENTAGES AND ADR'S)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................... $742,195 $721,843 $161,885 $209,304
Operating income....................... 129,715 103,823 20,306 49,223
Income from continuing operations...... 73,540 46,565 5,525 34,528
Earnings per share from continuing
operations(1)......................... $1.50 $0.96 $0.11 $0.70
Proforma earnings per share from
continuing operations(2).............. $1.35 $0.73
OTHER DATA:
EBITDA (before corporate expense)(3)... $181,827 $169,837 $ 34,903 $ 65,950
EBITDA margin (before corporate
expense)(3)........................... 24.5% 23.5% 21.6% 31.5%
Interest expense, net of capitalized
interest.............................. $ 61,927 $ 59,329 $ 15,329 $ 15,797
Proforma interest expense, net of
capitalized interest(2)............... 13,508 4,376
MGM Grand Las Vegas Average daily room
rate ("ADR's")........................ $ 86.00 $ 98.00 $ 99.00 $ 103.00
MGM Grand Las Vegas Occupancy rate..... 92.0% 89.5% 87.5% 93.3%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------
PROFORMA
ACTUAL AS ADJUSTED(4)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 183,580 $ 98,666
Total assets.......................................... 1,334,871 1,248,621
Long term debt........................................ 555,131 232,131
Stockholders' equity.................................. 623,528 881,529
</TABLE>
- --------
(1) Earnings per share for the first two quarters of the year ended December
31, 1995 was a cumulative loss of $0.03. In the third quarter, the Company
announced a restructuring plan to enhance revenues and reduce operating
costs. Earnings per share for the third quarter was $0.33. Earnings per
share for the fourth quarter of 1995, which was the first full quarter in
which the benefits of the restructuring were realized, was $0.66.
(2) Proforma statement of operations data is presented assuming the following
occurred at the beginning of each period presented: (i) receipt of the
$295.0 million net proceeds of the Offering; (ii) borrowing of $150 million
under the new bank facilities and the Operating Loan (as defined); and
(iii) defeasance of the First Mortgage Notes. On a supplemental basis, net
income per share, including the extraordinary charge on extinguishment of
debt of $37.0 million, net of income tax benefit of $21.2 million, would
have been $0.69 per share and $0.08 per share for the periods ended
December 31, 1995 and March 31, 1996, respectively.
(3) EBITDA represents income from operations before interest expense, taxes,
depreciation, amortization and corporate expense. EBITDA should not be
construed as an alternative to net income or any other measure of
performance determined in accordance with generally accepted accounting
principles or as an indicator of operating performance, liquidity or cash
flows generated by operating, investing and financing activities of MGM
Grand Las Vegas and MGM Grand Australia. The Company has presented EBITDA
supplementally because the Company believes it allows for a more complete
analysis of such results of operations.
(4) Proforma as adjusted balance sheet data assumes: (i) receipt of $295.0
million net proceeds of the Offering; and (ii) defeasance of the First
Mortgage Notes using cash on hand of $78.4 million, net proceeds from the
Offering and borrowings of $150 million under the new bank facilities and
the Operating Loan and an extraordinary charge of $37.0 million, net of
income tax benefit of $21.2 million.
7
<PAGE>
THE OFFERING
Of the 7,500,000 shares of Common Stock initially being offered hereby by the
Company, 6,000,000 shares are initially being offered in the United States by
the U.S. Underwriters and 1,500,000 shares are initially being offered
concurrently outside the United States by the International Underwriters.
<TABLE>
<S> <C>
Common Stock offered by the
Company(1).................... 7,500,000 shares
Common Stock to be outstanding
after the Offering(1)......... 56,625,578 shares, of which approximately 62.9% will be
owned by the Principal Stockholders.
Use of Proceeds................ The net proceeds of the Offering, together with cash on
hand and certain of the proceeds from the bank facilities
and the Operating Loan, are intended to be used for
general corporate purposes, including defeasance of the
First Mortgages Notes. Upon defeasance of the First
Mortgage Notes, the Credit Facility will become available
for general corporate purposes, including acquisition,
development and/or construction of additional destination
resort hotel/casinos, including MGM Grand Atlantic City.
See "Use of Proceeds."
Listing........................ The Common Stock is listed on the New York Stock Exchange
under the symbol "MGG."
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an additional 1,125,000 shares of Common Stock. If such option is
exercised, total outstanding shares of Common Stock would be 57,750,578, of
which approximately 61.7% would be owned by the Principal Stockholders.
Does not include 2,940,081 shares of Common Stock underlying outstanding
stock options.
8
<PAGE>
RISK FACTORS
This Prospectus, including the documents incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended. Also, documents subsequently filed by the
Company with the Securities and Exchange Commission will contain forward-
looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
set forth below and the matters set forth or incorporated in the Prospectus
generally. The Company cautions the reader, however, that this list of factors
may not be exhaustive, particularly with respect to future filings. Before
making a decision to purchase any of the securities described in this
prospectus, prospective investors should carefully consider the following
factors.
COMPETITION. The Company faces significant domestic and international
competition from both established casinos and newly emerging gaming
operations. The Company believes that the legalization of casino gaming in
various domestic jurisdictions over the last several years and the opening of
gaming facilities operated by Native Americans have not, to date, had a
material adverse impact on its Las Vegas operations. However, proposals have
been made for a significant number of casinos, generally water-based, in a
number of other jurisdictions and several large metropolitan areas.
Legalization of gaming in additional domestic jurisdictions would also provide
opportunities for expansion by the Company's competitors, some of which have
greater financial resources than the Company, which could adversely affect the
Company's existing and proposed operations. The Company believes that the
adoption of legislation approving casino gaming in any jurisdiction near
Nevada (particularly California or the other southwestern states) or near New
Jersey (particularly New York or Pennsylvania) or the advent of full-scale
gaming on nearby Native American lands could have a material adverse effect on
its present and planned operations in Las Vegas and Atlantic City. The Company
also competes with other forms of legalized gaming, including state-sponsored
lotteries and pari-mutuel wagering. In markets in which the Company commences
operations or seeks to commence operations, it often faces intense competition
for licenses, desirable sites, qualified personnel and, ultimately, customers
from other companies in the gaming industry.
The Company believes that casino competition in the markets in which it
competes and plans to compete is based primarily on the location and physical
design of the casino and, where applicable, hotel accommodations, the extent
and quality of personalized service offered to guests and casino customers,
the price and quality of rooms and food and beverages, the number and quality
of restaurants, convention and other public facilities, promotional
allowances, the entertainment offered, the variety of table games and slot
machines, table limits, casino credit granted to customers and parking
availability. Management believes that the reputation of MGM Grand Las Vegas
as a first-class facility enhances its competitiveness in its market.
Las Vegas. Hotel/casinos located on 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. Some of the
Company's competitors may have greater resources. See "Business--MGM Grand Las
Vegas" and "Business--Las Vegas Market."
Australia. Australian casinos generally operate under exclusive licenses,
which create regional monopolies for a fixed term. Currently, MGM Grand
Australia has an exclusive operating license in the northern half of the
Northern Territory and a gaming tax rate guarantee through 2005, which are
subject to review in 2003. Because of these regional monopolies, Australian
casinos do not compete among themselves for local middle to low end players.
However, Far East premium players have become an increasingly important source
of revenue. Consequently, this market has become very competitive, as
evidenced by the gaming activity in Malaysia, Macau and the Philippines, the
recent growth in the number of casinos operating in Australia, and an increase
in the number of casino cruise ships.
9
<PAGE>
Effective January 1996, hotels and clubs were permitted to operate, in
limited quantities, cash jackpot slots ("poker machines") in the northern half
of the Northern Territory, creating increased competition in the Darwin market
for local middle to low end players. Through 2005, MGM Grand Australia will
participate in the win from these poker machines, thereby mitigating the
effect of such competition. MGM Grand Australia is remodeling its public
gaming floor, restaurant and retail stores in order to remain competitive and
improve local business. See "Business--MGM Grand Australia" and "Business--
Australia Market."
Atlantic City. Competition in the Atlantic City hotel/casino market is
intense. While no new hotel/casinos have commenced operations in Atlantic City
since 1990, there are several sites on the Boardwalk and in the Atlantic City
Marina area on which hotel/casinos could be built. In addition, various
applications for casino licenses have been filed and announcements with
respect thereto made from time to time, and all 12 of the existing Atlantic
City hotel/casinos have recently expanded, are in the process of expanding or
have announced intentions to expand, their facilities. Casinos in Atlantic
City must be located in approved hotel facilities which must have a prescribed
number of qualified sleeping units depending on the size of the casino space.
Competition among Atlantic City hotel/casinos is based primarily upon
promotional allowances, advertising, the attractiveness of the casino area,
service, quality and price of rooms, foods and beverages, restaurants,
convention and parking facilities and entertainment. "See Business--MGM Grand
Atlantic City" and "Business--Atlantic City Market."
RISKS OF DEVELOPMENT AND NEW CONSTRUCTION. Substantial progress has been
made in the construction of New York-New York, which management believes will
open in winter 1996-1997; however, no assurances can be given that the opening
will occur by that time or that the budgeted project costs of $460 million
will not be exceeded. Major construction projects, such as New York-New York,
entail significant risks, including shortages of materials or skilled labor,
unforeseen engineering, environmental and/or geological problems, work
stoppages, weather interference and unanticipated cost increases. As of May 1,
1996, the incurred costs and awarded fixed price contracts represent
approximately 82.9% of the $460 million project budget, and the total
construction costs incurred were approximately $226 million. See "Business--
New York-New York."
The Company has not acquired any property for the development of MGM Grand
Atlantic City. The design, budget and schedule for construction and opening of
the project are at a preliminary stage, and will be subject to the risks
described above attendant to large-scale new projects and may be subject to
additional costs and delays beyond preliminary estimates. No assurance can be
given that the Company will acquire property for, or develop, MGM Grand
Atlantic City. See "Business--MGM Grand Atlantic City."
The opening of New York-New York and MGM Grand Atlantic City will be
contingent upon completion of construction, hiring and training of sufficient
personnel and receipt of all necessary licenses, permits and authorizations.
The scope of the approvals required to construct and open New York-New York
and MGM Grand Atlantic City are extensive and the failure to obtain such
approvals or difficulties with construction or staffing could delay or prevent
the completion of construction or opening of all or part of such facilities or
increase the costs thereof. New York-New York has applied for and must obtain,
prior to commencement of gaming activities, approvals and licenses from the
Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board"), the Clark County Liquor and Gaming
Licensing Board (the "CCLGLB") and any other applicable governmental or
administrative state or local agency involved in the regulation of gaming and
gaming activities in the State of Nevada (collectively, the "Nevada Gaming
Authorities"). The ownership and operation of New York-New York will be
subject to extensive state and local regulation by Nevada Gaming Authorities.
MGM Grand Atlantic City will be subject to comparable
10
<PAGE>
stringent regulation by gaming authorities in New Jersey and other state and
local agencies. The grant of such licenses and approvals cannot be assured.
See "Regulation and Licensing."
EFFECT OF THE CITY OF ENTERTAINMENT MASTER PLAN ON OPERATIONS. The $250
million phased renovation of certain aspects of MGM Grand Las Vegas is
expected to begin in June 1996 and is scheduled to be completed by the end of
1998. The Company has designed the master plan to minimize construction-
related disruptions. However, the renovation and expansion project will
disrupt casino operations in the current Oz casino, which has underperformed
the other casino operations at MGM Grand Las Vegas. It is not expected that
any other casino areas will be closed. No assurance can be given that
operations at MGM Grand Las Vegas will not be adversely affected while the
renovation and expansion is in progress. In addition, no assurance can be
given that the renovation and expansion of MGM Grand Las Vegas will be
completed on schedule or as planned. See "Business--MGM Grand Las Vegas."
LEVERAGE AND RELATED DEBT SERVICE. The Company has substantial annual fixed
debt service requirements. In May 1992, MGM Grand Finance, a wholly owned
subsidiary of the Company, completed the sale of $473 million principal amount
of First Mortgage Notes and entered into a credit facility providing for a
bank operating line in the aggregate amount of $60 million (the "Operating
Loan"). The Company has guaranteed payment of principal and interest on the
First Mortgage Notes as well as any amounts borrowed pursuant to the Operating
Loan. There are no amounts outstanding under the Operating Loan.
The Company has received a commitment from BA Securities, an affiliate of B
of A, to arrange for a new $500 million senior reducing revolving Credit
Facility, as well as a commitment from B of A for a $125 million interim
facility. The bank facilities are expected to be used, together with cash on
hand, proceeds of the Offering and proceeds available under the Operating
Loan, to defease the First Mortgage Notes in accordance with the Indenture
pursuant to which they were issued (the "Indenture"). See "Defeasance of First
Mortgage Notes" for a description of the proposed terms of the new bank
facilities. No assurances can be given that the defeasance of the First
Mortgage Notes will be accomplished (in which case the covenants under the
First Mortgage Notes will continue to apply) or that the bank facilities will
be implemented on the terms described herein, or at all.
The Company has guaranteed a loan of approximately $82 million (Aus $105
million) incurred by its subsidiary MGM Grand Australia Pty Ltd. in connection
with its acquisition of what is now MGM Grand Australia.
In connection with the $225 million Construction/Revolving Loan Agreement
entered into by New York-New York Hotel, LLC, the Company and Primadonna,
which is the other 50% owner, have guaranteed completion of the project and
have entered into a "keep-well" agreement in connection with the operation of
New York-New York. As a result of these obligations, the Company may, under
certain circumstances, be required to make additional cash equity
contributions to New York-New York Hotel, LLC.
The Company expects to incur substantial indebtedness in connection with
developing and opening MGM Grand Atlantic City. The Company has not arranged
financing to cover all of the costs of the Atlantic City project, and
accordingly, the terms of any borrowings have not been determined. No
assurance can be given that the Company will be able to obtain such financing
or upon what terms. See "Business--MGM Grand Atlantic City."
The Company's ability to make interest and principal payments on its
outstanding indebtedness will depend on the generation of sufficient cash flow
from the operations of the MGM Grand Las Vegas, MGM Grand Australia and, after
their respective openings, New York-New York (which is expected to occur in
winter 1996-1997) and MGM Grand Atlantic City.
11
<PAGE>
Future operating results are subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond the control of the Company. No assurance can be given that the
Company's hotel/casinos will attract a sufficient number of guests, gaming
customers and other visitors to generate sufficient cash flow to meet such
debt service requirements.
SUSTAINABILITY OF RECENT IMPROVEMENTS IN OPERATING RESULTS. As a result of
its restructuring program, which commenced in the second half of 1995, the
Company has experienced a substantial improvement in EBITDA and EBITDA margins
for the last quarter of 1995 and the first quarter of 1996, as compared to the
comparable prior periods. No assurance can be given that this trend will
continue over the long term. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH HIGH-END GAMING AND KEY MARKETS. The Company
recognizes that there are business risks associated with high-end gaming and
the international patrons who comprise the principal part of this segment.
High-end gaming is more volatile than other forms of gaming, and variances
attributable to high-end gaming may have a positive or negative impact on cash
flow and earnings in a particular quarter. A downturn in economic conditions
in the countries in which these customers reside could cause a reduction in
the frequency of visits and revenues generated by such customers. In addition,
the collectability of receivables from international customers could be
adversely affected by future business or economic trends, or by significant
events in the countries in which such customers reside. The Company extends
credit to those customers whose level of play and financial resources warrant,
in the opinion of management, such extension.
Gaming debts may not be legally enforced in certain foreign jurisdictions or
in certain jurisdictions within the United States as being violative of public
policy. Judgments on gaming debts are enforceable in all other states under
the Full Faith and Credit Clause of the United States Constitution. Such
judgments, however, are not binding on the courts of foreign nations, although
the assets in the United States of foreign debtors may be reached to satisfy
such judgments.
A substantial portion of the Company's table game revenues is attributable
to the play of a small number of international customers. The loss or a
reduction in play of the most significant of such customers could have a
material adverse effect on the Company's future operating results. Management
believes that economic conditions in certain of the countries in which these
customers reside have caused a reduction in the frequency of visits by such
customers to its casinos in recent years, and the decline may continue. The
Company is broadening its marketing efforts, focusing on increasing its
penetration of the domestic market and expanding its efforts in key
international markets in order to reduce the volatility and expense associated
with certain segments of the high-end market. See "Business--Las Vegas Target
Market and Marketing Strategy."
DEPENDENCE ON KEY MANAGEMENT AND SINGLE PROPERTY. Historically, the Company
has operated only one property, and as such, the Company's operations are
presently primarily dependent upon the results achieved by MGM Grand Las
Vegas. With the addition of MGM Grand Australia and the anticipated addition
of New York-New York and MGM Grand Atlantic City, the Company will begin a new
phase of operations including multiple properties. The Company will face the
inherent risks associated with the change from managing a single property
enterprise to a multiple property enterprise. The Company instituted a
management change in mid-1995 when J. Terrence Lanni became Chairman of the
Board and Chief Executive Officer and Alex Yemenidjian became President and
Chief Operating Officer in addition to serving as Chief Financial Officer. In
addition, the Company has subsequently added several key executives to its
senior management team. The Company's future results will depend to a
substantial extent upon the success of its new management team. See
"Management."
12
<PAGE>
GOVERNMENT REGULATION. The Company's business is subject to comprehensive
and stringent government regulation. In addition, there have been in the past
and are currently a number of proposals which could adversely affect the
gaming industry and the Company, including excise taxes and certain other
matters affecting the industry. See "Regulation and Licensing."
CONTROL BY PRINCIPAL STOCKHOLDER. The Principal Stockholders own
approximately 72.5% of the outstanding shares of the Common Stock. After
completion of the Offering, the percentage of the outstanding shares of Common
Stock owned by them will be approximately 62.9% (61.7%, assuming exercise of
the over-allotment option). Because of their holdings, the Principal
Stockholders have, and after the Offering will continue to have, the ability
to elect all of the Company's directors and approve or disapprove any other
matter submitted to a vote of stockholders.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $295.0
million ($339.4 million if the Underwriters' over-allotment option is
exercised in full). The net proceeds of the Offering, together with cash on
hand and certain of the proceeds available under the bank facilities and the
Operating Loan, will be used for general corporate purposes, including the
defeasance of the Company's currently outstanding $220 million principal
amount of 11 3/4% First Mortgage Notes due May 1, 1999 and $253 million
principal amount of 12% First Mortgage Notes due May 1, 2002. Upon defeasance
of the First Mortgage Notes, the Credit Facility will become available for
general corporate purposes, including acquisition, development and/or
construction of additional destination resort hotel/casinos, including MGM
Grand Atlantic City. See "Defeasance of First Mortgage Notes" for a
description of the proposed terms of the Credit Facility. Pending utilization,
the net proceeds of the Offering will be invested in short-term, interest-
bearing investment grade securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the New York Stock Exchange (stock symbol--
MGG). The following table sets forth for the quarters indicated the high and
low composite per share closing sales prices as reported by the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter.............................................. $39 3/8 $27 3/4
Second Quarter............................................. 29 3/4 23 1/4
Third Quarter.............................................. 32 24 1/4
Fourth Quarter............................................. 32 1/4 24 1/8
1995
First Quarter.............................................. $30 3/4 $23 3/4
Second Quarter............................................. 32 1/4 26 3/4
Third Quarter.............................................. 28 23 3/4
Fourth Quarter............................................. 26 23
1996
First Quarter.............................................. $39 3/4 $22 3/4
Second Quarter (1)......................................... 44 3/8 38 1/4
</TABLE>
- --------
(1)Through May 13, 1996.
DIVIDEND POLICY
The Company has not paid any dividends to date and does not expect to pay
dividends in the foreseeable future. The Indenture governing the First
Mortgage Notes and the Operating Loan place restrictions on the ability of MGM
Grand Hotel, Inc. to make distributions or pay dividends to the Company. MGM
Grand Hotel, Inc. may make distributions or pay dividends subject to minimum
net worth requirements, debt service ratios and earnings. Such restrictions,
as a practical matter, limit the ability of the Company to pay dividends. The
bank facilities and any loan incurred in connection with MGM Grand Atlantic
City are expected to contain restrictions on the ability of MGM Grand to
declare and pay dividends. See "Risk Factors--Leverage and Related Debt
Service" and "Defeasance of First Mortgage Notes."
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 and on a proforma as adjusted basis to give
effect to (i) the offering of 7,500,000 shares of Common Stock at an assumed
offering price of $41.00 per share, the last reported sale price of the Common
Stock on the New York Stock Exchange on May 13, 1996, and (ii) the defeasance
of the First Mortgage Notes concurrent with the closing of the Offering. See
"Defeasance of First Mortgage Notes."
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
(IN THOUSANDS)
PROFORMA
ACTUAL AS ADJUSTED(1)
---------- --------------
<S> <C> <C>
Cash and cash equivalents............................ $ 183,580 $ 98,666
========== ==========
Current obligation, capital leases................... $ 2,772 $ 2,772
========== ==========
Long term debt (less current portion):
11 3/4% First Mortgage Notes due 1999.............. $ 220,000 $ --
12% First Mortgage Notes due 2002.................. 253,000 --
Australia Hotel/Casino Loan due 2000............... 82,131 82,131
Credit Facility.................................... -- 150,000
---------- ----------
555,131 232,131
Long term obligation, capital leases................. 9,613 9,613
Stockholders' equity:
Common stock, $.01 par value; 75,000,000 shares
authorized; 49,085,078 shares issued,
56,585,078 shares issued, as adjusted............. 491 566
Capital in excess of par value..................... 626,990 921,884
Note receivable stock sale......................... (5,000) (5,000)
Retained earnings (deficit)........................ 4,043 (32,925)
Currency translation............................... (2,996) (2,996)
---------- ----------
Total stockholders' equity........................ 623,528 881,529
---------- ----------
Total capitalization................................. $1,188,272 $1,123,273
========== ==========
</TABLE>
- --------
(1) Proforma as adjusted data assumes: (i) receipt of $295.0 million net
proceeds of the Offering; and (ii) defeasance of the First Mortgage Notes,
using cash on hand of $78.4 million, net proceeds from the Offering and
borrowings of $150 million under the new bank facilities and the Operating
Loan, and an extraordinary charge of $37.0 million, net of income tax
benefit of $21.2 million. See "Use of Proceeds."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below is qualified
in its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and notes thereto included or
incorporated by reference herein. The selected consolidated financial
information presented below as of and for the quarter ended March 31, 1995 and
1996 is derived from unaudited consolidated financial statements; however, in
the opinion of the Company, all adjustments, consisting of normal recurring
adjustments, necessary for the presentation of the Company's financial
position and results of operations for such period have been included.
Operating results for the quarter ended March 31, 1996 are not necessarily
indicative of the results that may be expected for future periods, including
the entire year ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
-------------------------------- --------------------------------
1994 1995 1995 1996
--------------- --------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA, PERCENTAGES AND ADR'S)
<S> <C> <C> <C> <C>
REVENUES:
Casino................. $ 434,297 $ 404,742 $ 91,326 $ 130,256
Rooms.................. 145,196 160,470 38,891 43,801
Food and beverage...... 91,566 89,299 22,795 20,094
Entertainment, retail
and other............. 122,758 123,307 22,649 29,109
--------------- --------------- --------------- ---------------
Less: Promotional
allowances........... 793,817 777,818 175,661 223,260
51,622 55,975 13,776 13,956
--------------- --------------- --------------- ---------------
742,195 721,843 161,885 209,304
OPERATING EXPENSES:
Casino................. 183,514 195,140 49,732 56,330
Rooms.................. 45,303 44,195 10,825 11,782
Food and beverage...... 65,043 57,293 14,712 12,273
Entertainment, retail
and other............. 115,443 92,667 19,009 22,621
Provision for doubtful
accounts and
discounts............. 44,181 57,683 8,176 15,626
General and
administrative........ 106,884 99,086 24,528 24,722
Depreciation and
amortization.......... 44,433 55,419 12,570 15,216
Restructuring costs.... -- 5,942 -- --
--------------- --------------- --------------- ---------------
Operating profit before
corporate expense...... 137,394 114,418 22,333 50,734
Corporate expense...... 7,679 10,595 2,027 1,511
--------------- --------------- --------------- ---------------
Operating income..... 129,715 103,823 20,306 49,223
NONOPERATING INCOME
(EXPENSE):
Interest income........ 5,544 2,896 548 1,581
Interest expense, net
of capitalized
interest.............. (61,927) (59,329) (15,329) (15,797)
Other, net............. 208 (825) -- (479)
--------------- --------------- --------------- ---------------
(56,175) (57,258) (14,781) (14,695)
--------------- --------------- --------------- ---------------
Income from continuing
operations............. $ 73,540 $ 46,565 $ 5,525 $ 34,528
=============== =============== =============== ===============
Weighted average shares
outstanding............ 48,988 48,544 48,555 49,604
Earnings per share from
continuing
operations(1).......... $ 1.50 $ 0.96 $ 0.11 $ 0.70
Proforma earnings per
share(2)............... 1.35 0.73
OTHER DATA:
EBITDA(3)............... $ 181,827 $ 169,837 $ 34,903 $ 65,950
EBITDA margin(3)........ 24.5% 23.5% 21.6% 31.5%
Proforma interest
expense, net of
capitalized
interest(2)............ $ 13,508 $ 4,376
MGM Grand Las Vegas
average daily room rate
("ADR's").............. $ 86.00 $ 98.00 $ 99.00 $ 103.00
MGM Grand Las Vegas
occupancy rate......... 92.0% 89.5% 87.5% 93.3%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
PROFORMA
ACTUAL AS ADJUSTED(4)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 183,580 $ 98,666
Total assets.......................................... 1,334,871 1,248,621
Long term debt........................................ 555,131 232,131
Stockholders' equity.................................. 623,528 881,529
</TABLE>
- -------
(1) Earnings per share for the first two quarters of the year ended December
31, 1995 was a cumulative loss of $0.03. In the third quarter, the Company
announced a restructuring plan to enhance revenues and reduce operating
costs. Earnings per share for the third quarter was $0.33. Earnings per
share for the fourth quarter of 1995, which was the first full quarter in
which the benefits of the restructuring were realized, was $0.66.
(2) Proforma statement of operations data is presented assuming the following
occurred at the inception of each period presented: (i) receipt of the
$295.0 million net proceeds of the Offering; (ii) borrowing of $150
million under the new bank facilities and the Operating Loan; and (iii)
defeasance of the First Mortgage Notes. On a supplemental basis, net
income per share, including the extraordinary charge on extinguishment of
debt of $37.0 million, net of income tax benefit of $21.2 million, would
have been $0.69 per share and $0.08 per share for the periods ended
December 31, 1995 and March 31, 1996, respectively.
(3) EBITDA represents income from operations before interest expense, taxes,
depreciation, amortization and corporate expense. EBITDA should not be
construed as an alternative to net income or any other measure of
performance determined in accordance with generally accepted accounting
principles or as an indicator of operating performance, liquidity or cash
flows generated by operating, investing and financing activities of MGM
Grand Las Vegas and MGM Grand Australia. The Company has presented EBITDA
supplementally because the Company believes it allows for a more complete
analysis of such results of operations.
(4) Proforma as adjusted balance sheet data assumes: (i) receipt of $295.0
million net proceeds of the Offering; and (ii) defeasance of the First
Mortgage Notes using cash on hand of $78.4 million, net proceeds from the
Offering and borrowings of $150 million under the new bank facilities and
the Operating Loan and an extraordinary charge of $37.0 million, net of
income tax benefit of $21.2 million.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since inception of operations in 1987, MGM Grand has transformed itself from
an owner/operator of medium sized hotel/casinos and a specialized first class
airline into a developer, owner and operator of world class destination
resorts providing first class entertainment and gaming. As a result,
management does not believe that the Company's results of operations for
periods prior to 1994 provide a meaningful comparison to more recent periods.
The Company sold the Sands Hotel and Casino in 1989, closed the Marina Hotel
and Casino in 1990 and sold the Desert Inn Hotel and Casino in 1991. In
addition, the Company sold its airline in 1994 and, as a result, reclassified
such results to discontinued operations. The Company began construction of the
$1 billion MGM Grand Las Vegas, the world's largest hotel/casino, in October
1991 and commenced operations in December 1993. In December 1994, the Company
entered into a joint venture with Primadonna for the joint development and
operation of the $460 million New York-New York hotel/casino. Construction of
New York-New York commenced in March 1995 and the facility is expected to open
in the winter of 1996-1997. In September of 1995, the Company commenced its
international expansion by acquiring what is now MGM Grand Australia for
approximately $80 million. The Company is finalizing a major renovation
program at MGM Grand Australia, which will be completed in June 1996.
In 1994, the first full year of operations at MGM Grand Las Vegas, the
Company experienced an unusually high table games hold percentage. In the
first half of 1995, the Company experienced significant volatility and an
unusually low table games hold percentage. In the third quarter of 1995, the
Company's new management team implemented more stringent policies designed to
reduce high-end gaming volatility. As a result, the Company had a more
normalized table games hold percentage during the second half of 1995, which
continued in the first quarter of 1996. Principally as a result of the table
games hold percentage fluctuations, partially offset by increased hotel
revenues, the Company experienced a $20.4 million decrease in net revenues
(2.7%) from $742.2 million for the year ended December 31, 1994, to $721.8
million for the year ended December 31, 1995. In order to increase revenues,
control costs and reposition the Company for sustained long-term growth, the
new management team introduced a comprehensive operational restructuring plan
in the third quarter of 1995. The restructuring program resulted in a non-
recurring restructuring charge of $5.9 million. As a result of implementation
of this plan, net revenues in the fourth quarter of 1995 increased by $21.5
million (12.5%) from $171.8 million in the fourth quarter of 1994 to $193.3
million in the fourth quarter of 1995. This revenue growth trend accelerated
in the first quarter of 1996, with net revenues increasing by $47.4 million
(29.3%) from $161.9 million in the first quarter of 1995 to $209.3 million in
the first quarter of 1996. The Company believes that the operating
efficiencies realized from the restructuring program should continue to
benefit the Company in the future.
Principally as a result of the positive impacts of the restructuring which
led to increased revenue, an improvement in customer mix and sharply lower
operating costs, operating income increased by $18.2 million (65.7%) to $45.9
million for the fourth quarter of 1995 from $27.7 million in the fourth
quarter of 1994. Income from continuing operations for the fourth quarter of
1995 increased by $17.8 million (127.1%) to $31.8 million from $14.0 million
in the 1994 fourth quarter. Earnings per share from continuing operations
increased by 127.6% from $0.29 to $0.66. The improving trend in operating
results continued in the first quarter of 1996, with operating income
increasing by $28.9 million (142%) from $20.3 million in the first quarter of
1995 to $49.2 million in the first quarter of 1996, net income increasing by
$29.0 million (525%) from $5.5 million to $34.5 million, and earnings per
share increasing from $0.11 per share to $0.70 per share.
During 1996, the Company (i) unveiled a $250 million master plan for the
enhancement of MGM Grand Las Vegas as The City of Entertainment, (ii) will
complete a $15 million refurbishment of MGM
17
<PAGE>
Grand Australia, (iii) is finalizing the construction and development of its
50% owned New York-New York destination resort and (iv) is pursuing the
acquisition and/or development of a destination resort casino/hotel in
Atlantic City, which is expected to cost at least $700 million. If the
Company, as expected, proceeds with the acquisition and/or development of MGM
Grand Atlantic City, it will likely require additional financing in 1998 which
could include, but not be limited to, expansion of the Credit Facility or
other forms of debt or equity financing. In order to increase financial
flexibility and significantly reduce interest expense, the Company expects to
complete defeasance of its First Mortgage Notes during the second or third
quarter of 1996. It is anticipated that the Company will incur an
extraordinary charge of approximately $37.3 million, net of income tax
benefit, as a result of the defeasance which will result in a reduction in
interest expense of approximately $29 million per year, net of income tax
benefit. The Company is currently evaluating the alternate use and/or
disposition of certain existing assets which could be affected by
implementation of the MGM Grand Las Vegas master plan. Although the specific
assets to be redeployed or disposed of in connection with the MGM Grand Las
Vegas master plan have not yet been determined, the write-down of the carrying
value of such assets is not currently expected to exceed $13 million, net of
income tax benefit.
RESULTS OF OPERATIONS
First Quarter Ended March 31, 1996 Compared to First Quarter Ended March 31,
1995
Net revenues for the first quarter of 1996 were $209.3 million, representing
an increase of $47.4 million (29.3%) compared to $161.9 million during the
same period in the prior year. The significant improvement for the first
quarter of 1996 over the prior year period reflects the Company's emphasis on
building the domestic customer base, improving the customer mix and reducing
revenue volatility. Casino revenues for the first quarter of 1996 were $130.3
million, representing an increase of $39.0 million (42.6%) compared to $91.3
million during the same period in the prior year. The increase is primarily
due to MGM Grand Las Vegas casino revenues of $122.8 million for the first
quarter of 1996 which increased $31.5 million (34.5%) compared to $91.3
million during the same period in the prior year. The increase was
attributable to improved overall volume and win percentages for table games
and slots, partially offset by a lower win in baccarat as a result of a
decreased volume when compared with the prior year. As a result of
management's more prudent approach to high-end gaming and renewed focus on
middle market customer growth, the volatile effects of liberal casino policies
with respect to high-end gaming which reduced hold percentages and, therefore,
significantly suppressed the 1995 first quarter results, have not affected the
1996 first quarter. MGM Grand Australia reported casino revenues for the
period of $7.5 million (data for the prior year period before the September
1995 acquisition of MGM Grand Australia is not applicable). MGM Grand
Australia was under renovation and construction for much of the quarter, which
adversely affected revenues and led to a quarterly loss. In addition, casino
revenues at MGM Grand Australia were adversely impacted by abnormally low win
percentages. The Company is implementing revenue enhancement, cost containment
and volatility reduction programs at MGM Grand Australia similar to those
adopted at MGM Grand Las Vegas.
Room revenues of $43.8 million for the first quarter of 1996 increased $4.9
million (12.6%) compared to $38.9 million in the prior period. MGM Grand Las
Vegas room revenues were $43.5 million, an increase of $4.6 million (11.8%)
compared to $38.9 million in the same period of the prior year. The increase
was principally due to an improved occupancy and room rate of 93.3% and $103,
respectively, in the quarter of 1996 compared to 87.5% and $99, respectively
in the same period in the prior year. Hotel occupancy and the improvement in
room rates at MGM Grand Las Vegas reflect a significant increase in
convention, special event and tour and travel customers during the first
quarter of 1996. MGM Grand Australia reported room revenues of $0.3 million on
a hotel occupancy of 54.6% for the first quarter of 1996, reflecting the
effects of the renovation and construction and the lower occupancy rates
typical for the "wet" season.
Food and beverage revenues were $20.1 million in the first quarter of 1996,
representing a decrease of $2.7 million (11.8%), compared to $22.8 million in
the first quarter of the prior year. MGM
18
<PAGE>
Grand Las Vegas food and beverage revenues of $18.9 million decreased $3.9
million (17.1%) in the first quarter of 1996 compared to $22.8 million in the
prior period. The decrease in the first quarter of 1995 was due to the
outsourcing of three restaurants to premier operators. MGM Grand Australia
reported food and beverage revenues of $1.2 million for the first quarter of
1996.
Entertainment, retail and other revenues were $29.1 million for the first
quarter of 1996, representing an increase of $6.5 million (28.5%), compared to
$22.6 million in the first quarter of 1995, consisting only of revenues
generated by MGM Grand Las Vegas. The increase in revenues for the first
quarter of 1996 was largely due to the EFX production show which commenced in
March 1995 and featured eleven shows in the first quarter of 1995, compared
with 166 shows in the first quarter of 1996, and the Star Lane Shops retail
mall which was not operational in the prior year's quarter. The overall
increase in revenue was partially offset by reduced revenues at the theme park
as a result of both a drop in attendance and reduced ticket prices and
decreases in revenues from the MGM Grand Garden which held three events in the
first quarter of 1996 compared to eight in the prior year's first quarter. The
number of Company sponsored events decreased in favor of "four-wall" venues,
which transfers the operating risk to the outside show producers.
Promotional allowances were $14.0 million in the first quarter of 1996 (6.7%
of revenues), an increase of $0.2 million (1.4%) from $13.8 million in 1995
(8.5% of revenues). MGM Grand Las Vegas reported $13.7 million for promotional
allowances for the first quarter of 1996, a decrease of $0.1 million compared
to the same period in the prior year, and MGM Grand Australia promotional
allowances were $0.3 million for the first quarter of 1996.
Casino expenses were $56.3 million for the first quarter of 1996 (43.2% of
casino revenues), an increase of $6.6 million (13.3%) compared to $49.7
million in 1995 (54.4% of casino revenues). MGM Grand Las Vegas reported
casino expenses of $50.5 million, an increase of $0.9 million (1.6%), compared
to the prior period. This increase was the result of increased gaming taxes
due to casino revenues and increased marketing costs related to special
events, which was offset by cost savings resulting from the Company's cost
containment program. MGM Grand Australia casino expenses were $5.8 million for
the first quarter of 1996.
Room expenses were $11.8 million for the first quarter of 1996 (26.9% of
room revenues), an increase of $1.0 million (8.8%) from the $10.8 million in
1995 (27.8% of room revenues). MGM Grand Las Vegas room expenses of $11.4
million, an increase of $0.6 million (5.7%) compared to the prior period, as a
result of higher payroll costs associated with increased occupancy. MGM Grand
Australia reported room expenses of $0.4 million for the first quarter of
1996.
Food and beverage expenses were $12.3 million for the first quarter of 1996
(61.1% of food and beverage revenues) a decrease of $2.4 million (16.6%)
compared to $14.7 million in 1995 (64.5% of food and beverage revenues). MGM
Grand Las Vegas reported food and beverage expenses of $10.9 million, a
decrease of $3.8 million (26.2%) compared to the prior period, primarily as a
result of the outsourcing of three Company operated restaurants in the first
quarter of 1996 as part of the restructuring plan. MGM Grand Australia
reported food and beverage expenses of $1.4 million for the first quarter of
1996.
Entertainment, retail and other expenses were $22.6 million in the first
quarter of 1996 (77.7% of entertainment, retail and other revenues), an
increase of $3.6 million (18.9%) from entertainment, retail and other expenses
of $19.0 million in 1995 (83.9% of entertainment, retail and other revenues).
The increase is primarily related to the operations of EFX which opened in
March 1995 and the operations of Star Lane Shops retail mall which opened in
September 1995, partially offset by a reduction in MGM Grand Garden Costs
reflecting fewer events held during the first quarter of 1996 compared to
1995.
Provision for doubtful accounts and discounts was $15.6 million for the
first quarter of 1996, an increase of $7.4 million (91.1%) from $8.2 million
in the prior period. MGM Grand Las Vegas increased
19
<PAGE>
the reserve for specific customer accounts based on aging of casino receivable
balances and other factors. MGM Grand Australia is restricted by law from
offering credit to its customers.
General and administrative expense was $24.7 million (excluding corporate
expense) for the first quarter of 1996, an increase of $0.2 million (0.8%)
from $24.5 million for the same period in 1995. MGM Grand Las Vegas reported
$23.0 million for general and administrative expense during the first quarter
of 1996, a decrease of $1.6 million (6.7%) from $24.6 million in the 1995
period. Contributing to the improvements in expenses were lower advertising
expenditures related to EFX in the first quarter of 1996, coupled with the
benefits of the cost containment efforts. MGM Grand Australia reported general
and administrative expense of $1.7 million.
Depreciation and amortization expense was $15.2 million in the first quarter
of 1996, an increase of $2.6 million (21.1%) from $12.6 million in the first
quarter of 1995. MGM Grand Las Vegas reported $14.2 million in depreciation
and amortization expense an increase of $1.6 million as a result of a full
quarter of depreciation for the EFX show equipment and Star Lane Shops mall,
which opened in September 1995, as well as other asset additions during the
1996 first quarter. MGM Grand Australia reported depreciation and amortization
expense of $1.0 million.
Corporate expense was $1.5 million for the first quarter of 1996, a decrease
of $0.5 million compared to $2.0 million in the prior year period. The
decrease was primarily attributable to a reduction of amortization related to
the Don King Productions, Inc. boxing promotion agreement.
EBITDA (excluding corporate expense) for the first quarter of 1996 was $66.0
million (31.5% margin), representing a $31.1 million increase over the first
quarter of the prior year of $34.9 million (21.6% margin). The increase was
primarily attributable to EBITDA improvement at MGM Grand Las Vegas of $31.8
million (91.2%) from $34.9 million in the prior year period to $66.7 million.
The EBITDA margin at MGM Grand Las Vegas rose to 33.2% in the first quarter of
1996 from 21.6% for the same period in 1995. MGM Grand Australia reported
EBITDA loss of $0.7 million for the first quarter of 1996 as a result of
renovations and construction related disruptions and the effects of the "wet"
season.
Operating income for the quarter ended March 31, 1996 was $49.2 million
representing an increase of $28.9 million (142%) over the same period of 1995.
MGM Grand Las Vegas operating income was $52.5 million for the first quarter
of 1996 representing an increase of $30.2 million (135.3%) from the prior
year's quarter. MGM Grand Australia incurred an operating loss for the period
of $1.8 million.
Interest income of $1.6 million for the period ended March 31, 1996
increased by $1.1 million from $0.5 million in the first quarter of 1995. The
increase was attributable to higher invested cash balances at MGM Grand Las
Vegas during the first quarter of 1996 reflecting the strong operating
activity and increased collections on casino receivables compared to the prior
year activity when cash balances were lower.
Interest expense in the first quarter of 1996 of $15.8 million (net of
capitalized interest) increased slightly by $0.5 million compared to $15.3
million in the same period of 1995. The increase in the first quarter of 1996
was primarily due to interest of $1.8 million related to the MGM Grand
Australia bank loan which was incurred in September 1995, partially offset by
capitalized interest of $1.1 million for the New York-New York construction
project. Additional interest expense was incurred in the first quarter of 1995
as a result of $8.0 million outstanding on the MGM Grand Las Vegas bank line
of credit which had been repaid by the first quarter of 1996.
Income before income taxes for the quarter ended March 31, 1996 was $34.5
million, representing an increase of $29.0 million (525%) over the 1995 period
of $5.5 million. MGM Grand Las Vegas reported income before income taxes of
$35.2 million for the current period, an increase of $30.7 million (682.2%)
versus $4.5 million in the prior year ended. MGM Grand Australia reported a
loss before income taxes of $3.6 million for the quarter.
20
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues for the year ended December 31, 1995 were $721.8 million,
representing a decrease of $20.4 million (2.7%) compared to $742.2 million for
the year ended December 31, 1994. The decrease in revenue was primarily due to
a reduction in casino revenue, offset by an increase in room revenue. The
change in revenue mix is reflected in the increase in room revenues as a
percentage of total revenues from 19.6% in 1994 to 22.2% in 1995. In addition,
promotional allowances increased from 7.0% of revenues in 1994 to 7.8% of
revenues in 1995.
Casino revenues for the year ended December 31, 1995 were $404.7 million,
compared to $434.3 million for the year ended December 31, 1994, a decrease of
$29.6 million (6.8%). MGM Grand Las Vegas casino revenues were $397.4 million
for the year ended December 31, 1995 compared to $434.3 million in 1994, a
decrease of $36.9 million (8.5%). This decrease in casino revenue was
primarily due to an unusually high table game win percentage in 1994 and a
marginal decrease in 1995 slot revenues, offset by an increase in table game
drop (excluding baccarat) for the year ended December 31, 1995. The increased
table game drop in 1995 was largely due to higher table game volume combined
with a more normal table game hold percentage, whereas the decrease in 1995
slot revenues resulted from a 13.5% reduction in slot play which was partially
offset by an increase in slot hold due to an improved mix and layout of slot
machines. The more normal table game hold in the 1995 period, as well as the
stronger slot hold, were consistent with the Company's plan to emphasize
middle market customer activity and reduce overall gaming volatility. MGM
Grand Australia casino revenues were $7.3 million for the period since its
acquisition on September 7, 1995 through December 31, 1995.
Room revenues for the year ended December 31, 1995 were $160.5 million,
compared to $145.2 million for the year ended December 31, 1994, representing
an increase of $15.3 million (10.5%). MGM Grand Las Vegas room revenues were
$160.1 million for the year ended December 31, 1995, an increase of $14.6
million (10.0%) from $145.5 million in 1994. The increase in room revenue was
primarily due to the increase in the average daily room rate from $86 in 1994
to $98 in 1995, partially offset by a slightly lower occupancy percentage of
89.5% for the year ended December 31, 1995 compared to 92.0% for the year
ended December 31, 1994. The increased room rates and change in occupancy
reflect the Company's yield management plan to improve the customer mix and
increase the casino and independent traveler segments, while de-emphasizing
the lower yielding tour and travel segment. MGM Grand Australia room revenues
were $0.4 million for the period since its acquisition through December 31,
1995.
Food and beverage revenues were $89.3 million for the year ended December
31, 1995, representing a decrease of $2.3 million (2.5%) from $91.6 million in
1994. MGM Grand Las Vegas food and beverage revenues were $4.2 million (4.6%)
lower for the year ended December 31, 1995 compared to the same period in
1994. This decrease was attributable to the Company's restructuring plan which
converted three restaurants into leased facilities during the third and fourth
quarters of 1995. As a result, the Company anticipates that until the new
facilities planned for MGM Grand Las Vegas become operational, food and
beverage revenues will be lower than previously attained, with corresponding
reductions in food and beverage expenses. The Company also anticipates that
other revenues will increase as a result of lease income from the food and
beverage tenants. MGM Grand Australia food and beverage revenues were $2.1
million for the period since its acquisition through December 31, 1995.
Entertainment, retail and other revenues were $123.3 million for the year
ended December 31, 1995, an increase of $0.5 million (0.4%) from $122.8
million in 1994. MGM Grand Las Vegas entertainment, retail and other revenues
increased $0.8 million (0.7%) for the year ended December 31, 1995 compared to
the same period in 1994. Entertainment, retail and other revenues increased in
1995 due to the opening of the EFX production show and the addition of the
Star Lane Shops retail
21
<PAGE>
mall, offset by lower revenue from the theme park as well as entertainment and
sports events in the MGM Grand Garden. As part of its restructuring plan and
in an effort to reduce volatility at MGM Grand Garden, the Company decreased
the number of Company sponsored events during 1995 in favor of "four-wall"
venues, which transfers the operating risk to the outside show producers.
Promotional allowances were $56.0 million for the year ended December 31,
1995 (7.7% of revenues), an increase of $4.4 million (8.5%) from $51.6 million
in 1994 (7.0% of revenues). MGM Grand Las Vegas promotional allowances were
$55.6 million for the year ended December 31, 1995 compared to $51.6 million
for the same period in 1994. This increase was attributable to increased
marketing efforts designed to attract national customers. MGM Grand Australia
promotional allowances were $0.4 million for the period since its acquisition
through December 31, 1995.
Casino expenses were $195.1 million for the year ended December 31, 1995
(48.2% of casino revenues), an increase of $11.6 million (6.3%) compared to
$183.5 million in 1994 (42.3% of casino revenues). MGM Grand Las Vegas casino
expenses were $192.4 million for the year ended December 31, 1995, an increase
of $8.9 million (4.9%) compared to casino expenses of $183.5 million in 1994.
This increase was primarily due to increased national marketing promotional
expenses and expenses related to the Mike Tyson boxing event held at the MGM
Grand Garden. MGM Grand Australia casino expenses were $2.7 million for the
period since its acquisition through December 31, 1995.
Room expenses were $44.2 million for the year ended December 31, 1995 (27.5%
of room revenues), a decrease of $1.1 million (2.4%) from room expenses of
$45.3 million in 1994 (31.2% of room revenues). MGM Grand Las Vegas room
expenses were $43.7 million for the year ended December 31, 1995 compared with
$45.3 million for the year ended December 31, 1994, a decrease of $1.6 million
(3.6%). This decrease was principally due to the Company's continuing cost
containment efforts, of which labor cost reduction was a large component. MGM
Grand Australia room expenses were $0.5 million for the period since its
acquisition through December 31, 1995.
Food and beverage expenses were $57.3 million for the year ended December
31, 1995 (64.2% of food and beverage revenues), a decrease of $7.7 million
(11.8%) from food and beverage expenses of $65.0 million in 1994 (71.0% of
food and beverage revenues). MGM Grand Las Vegas food and beverage expenses
were $55.5 million for the year ended December 31, 1995, a decrease of $9.5
million or (14.6%) from food and beverage expenses of $65.0 million in 1994.
This decrease was primarily due to the outsourcing of three Company operated
restaurants in the second half of 1995. MGM Grand Australia food and beverage
expenses were $1.8 million for the period since its acquisition through
December 31, 1995.
Entertainment, retail and other expense was $92.7 million for the year ended
December 31, 1995 (75.2% of entertainment, retail and other revenues), a
decrease of $22.7 million (19.7%) from entertainment, retail and other
expenses of $115.4 million in 1994 (94.0% of entertainment, retail and other
revenues). This decrease was primarily attributable to the effect of the
Company's restructuring plan at its flagship MGM Grand Las Vegas property,
which led to lower theme park expenses and fewer MGM Grand Garden events
partially offset by the expenses of the EFX production show which opened
during March 1995. In addition, the Company is engaging more outside show
producers in the MGM Grand Garden and sponsoring fewer of its own events in
order to reduce its operating risk and expenses.
Provision for doubtful accounts and discounts increased $13.5 million
(30.6%) from $44.2 million in 1994 to $57.7 million in 1995. MGM Grand Las
Vegas increased reserves for specific customer accounts based on aging of
casino receivable balances and other factors.
For the year ended December 31, 1995, the Company incurred a one-time
restructuring charge against earnings of $5.9 million. This restructuring
charge consisted of one-time charges, primarily
22
<PAGE>
employee severance payments related to the Company's overall plan designed to
reduce costs and improve operating efficiencies at MGM Grand Las Vegas.
General and administrative expense was $99.1 million for the year ended
December 31, 1995 (13.7% of revenues), a decrease of $7.8 million (7.3%) from
general and administrative expenses of $106.9 million in 1994 (14.4% of
revenues). MGM Grand Las Vegas general and administrative expenses were $95.5
million of the year ended December 31, 1995 compared to $107.6 million for the
same period in 1994, representing a decrease of $12.1 million (11.2%). This
decrease was primarily attributable to the Company's continuing cost
containment efforts. MGM Grand Australia general and administrative expenses
were $3.6 million for the period since its acquisition through December 31,
1995.
Depreciation and amortization expense was $55.4 million for the year ended
December 31, 1995, representing an increase of $11.0 million (24.7%) compared
to depreciation and amortization expenses of $44.4 million in 1994. MGM Grand
Las Vegas depreciation and amortization expenses were $54.6 million for the
year ended December 31, 1995 compared with $44.3 million for the same period
in 1994, representing an increase of $10.3 million (23.3%). This increase was
primarily due to the addition of EFX production show equipment in the 1995
period, as well as the completion of construction of the Star Lane Shops
retail mall and general property improvements. MGM Grand Australia
depreciation and amortization expenses were $0.8 million for the period since
its acquisition through December 31, 1995.
Corporate expense was $10.6 million for the year ended December 31, 1995, an
increase of $2.9 million (37.7%) from corporate expense of $7.7 million in
1994. This increase was primarily due to the amortization of costs recognized
for the Don King Productions, Inc. boxing promotion agreement related to the
exclusive rights to all Mike Tyson fights.
EBITDA excluding corporate expense was $169.8 million (23.5% of net
revenues) for the year ended December 31, 1995 compared to $181.8 million
(24.5% of net revenues) for the year ended December 31, 1994. EBITDA at MGM
Grand Las Vegas was $168.1 million (23.6% of net revenues) in the 1995 period
compared with $179.5 million (24.2% of net revenues) in 1994. MGM Grand
Australia had EBITDA of $1.7 million (17.6% of net revenues) for the period
since its acquisition through December 31, 1995.
Operating income was $103.8 million for the year ended December 31, 1995
compared with $129.7 million for the year ended December 31, 1994,
representing a decrease of $25.9 million (20.0%). MGM Grand Las Vegas had
operating income of $113.6 million for the year ended December 31, 1995, a
decrease of $21.6 million (16.0%) from operating income of $135.2 million in
1994. MGM Grand Australia had operating income of $0.9 million for the period
since its acquisition through December 31, 1995.
Interest income was $2.9 million for the year ended December 31, 1995, a
decrease of $2.6 million from interest income of $5.5 million in 1994.
Interest income was higher in the 1994 period reflecting the earnings on the
remaining undisbursed MGM Grand Las Vegas construction funds.
Interest expense decreased $2.6 million (4.2%) from $61.9 million for the
year ended December 31, 1994 to $59.3 million for the year ended December 31,
1995. The decrease was primarily due to interest capitalization of $4.3
million in the 1995 period based on the Company's New York-New York and Star
Lane Shops retail mall construction projects, partially offset by interest
expense of $2.3 million incurred by MGM Grand Australia for the period since
its acquisition through December 31, 1995.
Net income for the year ended December 31, 1995 was $46.6 million compared
to net income of $74.6 million for the year ended December 31, 1994,
representing a decrease of $28.0 million (37.6%). Earnings per share were
$0.96 per share for the year ended December 31, 1995 compared to $1.52 per
share for 1994.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 and December 31, 1995, the Company held cash and cash
equivalents of $183.6 million and $110.0 million, respectively. Cash provided
by operating activities for the first three months of 1996 was $79.2 million
versus $7.7 million for the first three months of 1995.
Capital expenditures during the first three months of 1996 were $14.1
million consisting primarily of $8.1 million related to MGM Grand Las Vegas
for general property improvements, and $6.0 million at MGM Grand Australia for
the renovation program which includes enhanced guest accommodations and public
areas, and other property improvements.
The Company anticipates expenditures of approximately $523.4 million during
the second or third quarter of 1996 to fund the defeasance of the First
Mortgage Notes. The defeasance is expected to decrease the Company's interest
expense by approximately $29.1 million (net of tax benefits) annually and will
result in a one-time extraordinary charge in the quarter the defeasance is
funded of approximately $37.0 million, net of tax benefits.
SOURCES OF FUNDS FOR DEFEASANCE OF FIRST MORTGAGE NOTES
($ IN MILLIONS)
SOURCES OF FUNDS
<TABLE>
<S> <C>
Common Stock Offering(1)................................................ $295.0
Bank facilities and Operating Loan...................................... 150.0
Cash on hand............................................................ 78.4
------
Total sources....................................................... $523.4
======
USES OF FUNDS
Defeasance of First Mortgage Notes(2)................................... $523.4
------
Total uses.......................................................... $523.4
======
</TABLE>
- --------
(1) Gives effect to the offering of 7,500,000 shares of Common Stock at an
assumed offering price of $41 per share, the last reported sale price of
Common Stock on the New York Stock Exchange on May 13, 1996, net of fees
and expenses.
(2) Estimated based on the price of U.S. Government securities as of May 13,
1996.
Capital expenditures through 1997 are expected to aggregate approximately
$650 million, including: (i) $200 million of the approximately $250 million to
be expended to implement the master plan to transform MGM Grand Las Vegas into
The City of Entertainment; (ii) approximately $60 million for general property
improvements related to MGM Grand Las Vegas; (iii) approximately $5 million
for MGM Grand Australia; (iv) approximately $50 million additional investment
in New York-New York to fund the Company's share of capital expense to
complete and open the project; and (v) approximately $335 million toward the
development of MGM Grand Atlantic City.
In addition to the above capital requirements, New York-New York, which is
50% owned by the Company, is expected to incur up to $60 million in 1996 in
capital lease financing to finance furniture, fixtures and equipment for New
York-New York.
The Company anticipates that it will fund its financing and capital
requirements for the next eighteen months through cash on hand, cash flow from
operations, and borrowing under the $500 million Credit Facility. The
development of MGM Grand Atlantic City is likely to require additional
financing in 1998, which could include, but not be limited to, expansion of
the Credit Facility or other forms of debt or equity financing.
24
<PAGE>
BUSINESS
GENERAL
MGM Grand is an entertainment, hotel and gaming company headquartered in Las
Vegas, Nevada. Through subsidiaries, the Company owns and operates MGM Grand
Las Vegas and MGM Grand Australia. The Company also owns a 50% interest in,
and will be the joint operator, of New York-New York, a $460 million
architecturally distinctive destination resort hotel/casino in Las Vegas which
is under construction and is scheduled to open in the winter of 1996-1997. The
Company applied for a license with the New Jersey gaming authorities in
February 1996, and plans to develop a major destination resort hotel/casino in
Atlantic City. The Company is considering a number of alternatives for its
Atlantic City project, and any entry into the Atlantic City market will be
subject to finalization and execution of such plans, as well as receipt of
regulatory approvals, including licensing of the Company and appropriate
officers and directors.
In July 1995, the Company established a new management team, led by J.
Terrence Lanni, Chairman and Chief Executive Officer, and Alex Yemenidjian,
President, Chief Operating Officer and Chief Financial Officer, as well as
revised organizational structure at both the corporate and operating levels
and selected expansion and enhancement of the management team. The new
management team was primarily responsible for developing a corporate vision
which is based on achieving increased profitability with growth through a
refocusing of marketing efforts and positioning of MGM Grand as a global
location-based entertainment company with tight cost control systems.
MGM Grand's strategy is to create unique destination resorts worldwide in
selected gaming markets, which are designed to provide customers with a total
entertainment experience, including: first class accommodations, dining and
amenities; exciting shows, sporting events, concerts and shopping; and
attractive gaming facilities. The Company utilizes entertainment themed
attractions, including well known movie characters and settings, to create an
exciting environment appealing to all segments of the gaming market and also
utilizes targeted marketing programs to attract premium customers.
The Company's new management team embarked on an operational restructuring
program designed to enhance revenues and minimize volatility, significantly
reduce operating costs, promote the Company's reputation for providing first
class entertainment and position the Company for growth by renovating and
expanding existing properties and developing new destination resorts. The
Company's revenue enhancement and cost control programs, implemented in the
third quarter of 1995, resulted in income from continuing operations in the
fourth quarter of 1995 increasing by more than approximately 127%, compared to
the same quarter in 1994, while income from continuing operations for the
first quarter of 1996 increased by approximately 525% compared to the first
quarter of 1995. In addition, EBITDA increased by approximately 51% and 89%,
respectively, for such periods. See "Selected Consolidated Financial
Information." The Company is also implementing a financial restructuring via a
combination of the Offering and new credit facilities, which will
significantly lower the Company's cost of capital while enhancing its
financial flexibility. The Company intends to use the proceeds of the
Offering, cash on hand and certain of the proceeds available under the new
credit facilities and the Operating Loan to defease its First Mortgage Notes
and finance the implementation of the Company's growth strategy. On a proforma
basis, earnings per share from continuing operations for 1995 would have
increased by $0.39. The cornerstones of the Company's growth strategy are the
$250 million enhancement of MGM Grand Las Vegas as The City of Entertainment,
the opening of the $460 million New York-New York themed destination resort
hotel/casino joint venture, the refurbishment of the MGM Grand Australia and
the planned development of a major destination resort hotel/casino in Atlantic
City with an estimated cost of at least $700 million and the continued
monitoring of gaming activities outside of Nevada.
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MGM GRAND LAS VEGAS
Current Property
MGM Grand Las Vegas is a multi-themed destination resort located on
approximately 112 acres at the "New Four Corners" on the Strip, across the
street from New York-New York, Excalibur and the Tropicana. Management
believes MGM Grand Las Vegas is the largest hotel/casino in the world, and
because of the quality and variety of its entertainment options offered, is a
"must see" attraction for visitors to Las Vegas. The facility has over 350
feet of frontage on the Strip and 1,450 feet on Tropicana Avenue and is easily
accessible from McCarran International Airport ("McCarran") and Interstate 15
via Tropicana Avenue.
MGM Grand Las Vegas creates an exciting and unique gaming and entertainment
experience intended to appeal to all segments of the Las Vegas market. The
casino is approximately 171,500 square feet in size and is one of the largest
casinos in the world. The casino includes approximately 3,500 slot machines,
160 table games, a baccarat pit, a poker room, a race and sports book and a
keno lounge. The casino is divided into four themed casinos: Monte Carlo,
Hollywood, Sports and Oz, which enhance the total entertainment experience and
variety of gaming opportunities available to the casino patron. The Oz casino
is being replaced by the Entertainment Casino as part of the MGM Grand Las
Vegas master plan.
MGM Grand Las Vegas has approximately 5,005 guest rooms and suites,
including approximately 4,250 typical guest rooms decorated in five different
themes: Deep South, Hollywood, Monte Carlo, Emerald and Casablanca. Typical
guest rooms are approximately 450 square feet in size, which management
believes is significantly larger than the average standard room for Strip
Hotels. MGM Grand Las Vegas also has over 750 luxury suites, more than any
other Las Vegas hotel. These suites range in size from 650 to 6,000 square
feet. Parking is available for 9,000 cars, including 4,800 garage spaces and
valet parking for 1,200 cars. MGM Grand Las Vegas provides extensive
recreational facilities for its guests, including a state of the art health
spa, four lighted tennis courts and a swimming complex featuring a sandy
beach, waterfalls, a children's area and luxury cabanas.
The complex also features the MGM Grand Garden, the only large scale indoor
multi-purpose arena included in a Las Vegas hotel/casino complex, with seating
capacity for more than 16,700 patrons for sporting events and concerts. The
MGM Grand Garden has been designed so that within a period of as little as
four hours it can be transformed from a sporting facility to an exhibition
hall with over 130,000 square feet of convention and exhibition space.
Management believes that the MGM Grand Garden enables the Company to attract
sporting and special events which have not previously been held in Las Vegas
or have traditionally been held outdoors at other Las Vegas hotels. The MGM
Grand Garden has hosted major entertainers such as Barbra Streisand, the
Rolling Stones, Rod Stewart, Phil Collins, Elton John and Billy Joel as well
as world championship boxing matches, featuring, among others, George Foreman
and Mike Tyson, tennis matches, ice skating and rodeos. The Hollywood Theater,
which seats 660, has hosted "The Tonight Show" and has featured Gladys Knight,
Tom Jones, Whitney Houston, Bette Midler and the Four Tops. The Grand Theater
which seats 1,774 customers, features the approximately $40 million grand
spectacle EFX production show, starring Michael Crawford, the original
"Phantom of the Opera."
The Company and Bally's jointly own and operate a $25 million elevated
monorail linking MGM Grand Las Vegas with the corner of Flamingo Road and the
Strip. The monorail is a one-mile, high-capacity, transit-grade system, and
costs are shared equally with Bally's. The Company has had discussions with
neighboring properties and the Las Vegas Convention and Visitors Authority
("LVCVA") as to the possible extension of the monorail system, which has the
capacity to be extended from McCarran Airport to the Las Vegas Convention
Center. No assurance can be given that the monorail will be extended.
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Additional amenities of MGM Grand Las Vegas include nine restaurants,
offering a wide variety of dining experiences, including Emeril's New Orleans
Fish House, Wolfgang Puck Cafe, Gatsby's, Tre Visi-LaScala and Coyote Cafe,
and a food court area, with a combined seating capacity for over 3,000
customers. MGM Grand Las Vegas has an approximately 30,000 square foot Midway
area between the casino and the entrance to the 33-acre theme park, which
offers guests extensive non-gaming entertainment. The Midway area houses
approximately 30 carnival games of skill for individuals of all ages, as well
as an extensive video arcade. The 33-acre theme park is accessible only from
MGM Grand Las Vegas and has 11 major attractions, including rides, live
entertainment and shows, and retail shops. In the summer of 1996, the Company
plans to open its new Skycoaster ride, which is a 25-story part sky-diving,
part hang-gliding attraction. The Company has approximately 11 acres adjacent
to the theme park which are available for future expansion.
Description of Las Vegas Master Plan
In June 1996, the Company will embark on an approximately $250 million
master planned expansion and enhancement of MGM Grand Las Vegas to create The
City of Entertainment. The program will consist of extensive capital
improvements and additions to both the exterior and interior of the resort, as
well as the expansion of non-gaming amenities such as entertainment, theme
park, retail and restaurants, and an increase in the number of gaming
positions. In an effort to limit disruption of existing operations, the
construction will be phased over a 30-month period. The improvements are
expected to be financed out of cash on hand and cash flow from existing
operations. The plans, some of which are still preliminary, are designed to
enhance the appeal of the property, generate increased traffic and improve
operating results. Certain assets may be redeployed or disposed of in
connection with the MGM Grand Las Vegas master plan. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Projects currently included in the master plan are:
Refurbishment and Expansion of the "Studio Walk"--The enhancements and
changes to the current restaurant, food court and arcade promenade will begin
in June 1996. "Studio Walk," as the area will be named, will be themed to
portray a Hollywood sound stage and will feature a number of memorable
Hollywood landmarks. New and exciting retail and restaurant tenants will be
added to the present complement. Such notable Hollywood icons as The Brown
Derby, the Farmers' Market and Griffith Park Observatory will inspire the look
and feel of Studio Walk. It will comprise approximately 115,000 square feet
and, when completed, will incorporate five restaurants and a food court, six
retail stores, and an entertainment/night club. In an effort to bring the
retail stores into a higher traffic area, the Midway arcade will be placed on
the lower level where there will be additional room to enjoy all of the
excitement surrounding the arcade activities. Three major MGM Grand-owned
retail stores will be located on Studio Walk. Studio Walk is expected to be
completed in November 1996 at an estimated cost of $20 million.
Reconstruction of the Lion Entry--The current Lion Entry and exterior of MGM
Grand Las Vegas along the Strip and Tropicana Avenue will be reconstructed and
re-themed beginning in the fourth quarter of 1996. A new Lion will be erected
at the intersection of the Strip and Tropicana. This majestic, liquid-gold-
colored Lion will be part of a theatrical experience, rising more than six
stories. The building's exterior, featuring 80-foot entertainment walls, will
highlight a number of elements including statuary, lights, video, and water
features. Multimedia projection and light shows will run continuously. The
current overhead walkways at the "New Four Corners" will be extended and will
enter directly into MGM Grand Las Vegas at a new mezzanine level. Sightlines
on these walkways will include giant-screen video monitors.
Creation of the Entertainment Casino--The entertainment gateway area,
currently known as Emerald City, and the adjacent Oz Casino will each undergo
a face-lift beginning in the fourth quarter of this year. Guests will enter
from the overhead walkways and emerge on the new mezzanine level
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overlooking this area. They will descend on escalators, staircases or elevator
to the new Entertainment Casino floor that will also include a dramatic live
entertainment venue, themed restaurants and a night club. As a part of the
development of the Entertainment Casino, the number of slot machines and table
games will be expanded by approximately 400 and 12, respectively, resulting in
an increase in total gaming positions by approximately 500. This project is
expected to start in the fall of 1996 and be substantially completed by the
fall of 1997, at a cost of approximately $30 million.
Construction of a 300,000 Square Foot Convention Center--During the fourth
quarter of 1996, construction is expected to begin on a new 300,000-square-
foot convention center. The convention center will cost approximately $45
million and is expected to be completed in the fourth quarter of 1997. It will
contain the latest in meeting facilities and will be designed to provide both
indoor and outdoor environments that will be unique compared to any other
convention center in the world. It is anticipated that the convention center
will be located on a portion of the current site occupied by the MGM Grand
Adventures theme park.
Development of Entertainment and Retail Complex--An approximately $60
million entertainment and retail complex, which will highlight night club
entertainment, themed restaurants, retail stores and other attractions, will
be constructed adjacent to the MGM Grand Adventures theme park. The
approximately 300,000 square foot complex is expected to begin construction
during the fourth quarter of 1996.
Enhancement of Theme Park--The 33-acre MGM Grand Adventures theme park,
which includes exciting rides and shows for all ages, along with themed
restaurants and retail shops, will be enhanced to heighten the entertainment
experience. New rides, including the world's highest Skycoaster (a 25-story
high, part sky-diving, part hang-gliding attraction which includes a 100-foot
free fall at speeds of up to 70 miles per hour) are being added and certain
other rides are being moved or removed to increase the overall appeal of the
theme park. Approximately $8 million has been allocated for the master plan
programs involving the theme park. The project's estimated completion is the
first quarter of 1997.
Redesign of the Porte Cochere and Hotel Lobby--The porte cochere which
presently serves as the main vehicle entrance to MGM Grand Las Vegas will
feature an entertainment theme consistent with The City of Entertainment. A
detailed vehicle ingress and egress study is being commissioned before plans
are finalized. It is estimated that the porte cochere project will cost $17
million.
Addition of a Second Porte Cochere--The Company plans to build a second
porte cochere in close proximity to the proposed entertainment and retail
complex and convention center, thereby creating a second valet entrance to MGM
Grand Las Vegas. It is anticipated that construction will begin in the second
quarter of 1997 at an estimated cost of $5 million.
Upgrading of Luxury Suites--MGM Grand Las Vegas' penthouse floor, which
consists of 52 luxury suites and 24-hour butler service, will be reconfigured
along with complete new interior designs in order to maintain a leadership
position in the high-end market. An estimated $30 million has been designated
for this program, which is expected to be completed in the fourth quarter of
1998.
Additional Parking Spaces--The new components of the master plan will
generate a need for an additional parking complex which is estimated at 2,000
spaces, bringing total parking capacity at the MGM Grand Las Vegas to 11,000
spaces. Approximately $13 million has been allocated for the enhancement of
present parking and the addition of a new parking facility.
NEW YORK-NEW YORK
New York-New York is located at the intersection of Tropicana Avenue and the
Strip, the "New Four Corners," across the street from MGM Grand Las Vegas,
Excalibur and the Tropicana and
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adjacent to Monte Carlo and Luxor. New York-New York will include 2,035 guest
rooms and suites, approximately 2,400 slot machines and 75 table games, a
poker room, a race and sports book, a keno lounge and themed entertainment
attractions and restaurant/retail outlets. Ground breaking occurred on March
30, 1995, and the project is expected to open in the winter of 1996-1997. The
original 18-acre site, located on one of the busiest intersections in Las
Vegas, was contributed to the venture by the Company during 1995, and in
February 1995, the venture acquired an adjacent two-acre parcel. The new
resort will replicate many of Manhattan's landmark buildings and icons,
including the Statue of Liberty, the Empire State Building, Central Park and
the Brooklyn Bridge, making it one of the most distinctive properties ever
built in Las Vegas. New York-New York is expected to substantially increase
foot traffic into MGM Grand Las Vegas since the two facilities will be
connected by an elevated pedestrian walkway.
New York-New York is owned equally by the Company and Primadonna and is
managed by an experienced independent management team appointed by its six-
member board of directors consisting of three representatives from each
company. Accordingly, neither party will control the project. The operating
agreement for New York-New York contains a buy/sell provision allowing either
party, at any time after the project has been open for six months (or earlier
in the event of certain disputes), to make an offer for a stated price for the
other party's interest. The other party must either sell its interest or buy
the offering party's interest at the stated price. If MGM Grand and Primadonna
are unable to reach agreement on any joint venture decision, there is no
mechanism for resolving the dispute other than through the buy/sell provision.
The Company has made no provision for financing a purchase of Primadonna's
interest in New York-New York should the buy/sell provision be invoked, and no
assurance can be given that it will be able to do so should the situation
arise.
LAS VEGAS MARKET
MGM Grand Las Vegas targets (and on opening, New York-New York will target)
the large and expanding Las Vegas tourist and gaming market. Las Vegas is the
largest city in Nevada with a local population in excess of one million and is
Nevada's principal tourist center. Gaming and tourism are the major
attractions, complemented by warm weather and the availability of many year-
round recreational activities. Although Las Vegas' principal markets are the
Western region of the United States, most significantly Southern California
and Arizona, Las Vegas also serves as a destination resort for visitors from
all of North America. In addition, a significant percentage of visitors
originate from Latin America and the Pacific Rim countries such as Japan,
Taiwan, Hong Kong and Singapore.
Las Vegas is one of the largest and fastest growing entertainment markets in
the country. According to the LVCVA, the number of visitors traveling to Las
Vegas has increased at a steady and significant rate for the last ten years
from 15.2 million in 1986 to more than 29 million in 1995, a compound annual
growth rate of 7.5%. Gaming has continued to be a strong and growing business
in Las Vegas. Las Vegas Strip gaming revenues have increased at a compound
annual growth rate of 9.5% from $1.4 billion in 1986 to $3.6 billion in 1995.
Historically, Las Vegas has had one of the strongest and most resilient
hotel markets in the country. Starting with the opening of The Mirage in 1989
and Excalibur in 1990, the number of hotel and motel rooms in Las Vegas has
increased by 33.5% from 67,400 in 1989 to 90,000 in 1995, giving Las Vegas the
most hotel and motel rooms in the country. Despite this significant increase
in the supply of rooms, Las Vegas hotel occupancy rate exceeded 91% for each
of 1993, 1994 and 1995. There can be no assurance that this resiliency will
continue in the future. There are approximately 12,000 hotel rooms under
construction (which constitutes a 13.3% increase in the number of hotel and
motel rooms in Las Vegas) and the LVCVA estimates that approximately 43,000
additional hotel rooms are proposed for construction. As Las Vegas hotels have
experienced a significant increase in supply and a strong average occupancy,
Las Vegas motels, which are generally older and offer lower quality services
than Strip Hotels, have experienced a decrease in both their number of rooms
and their
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occupancy rate. As of December 31, 1995, there were over 15,800 motel rooms in
Las Vegas which may be vulnerable to displacement by the new hotels.
The Company believes that the growth in the Las Vegas market has been
enhanced as a result of a dedicated program by the LVCVA and major Las Vegas
hotels to promote Las Vegas as a major convention site, the increased capacity
of McCarran Airport and the introduction of large themed destination resorts
in Las Vegas. In 1986, approximately 1.5 million persons attended conventions
in Las Vegas and spent approximately $1.0 billion. In 1995, the number of
convention delegates had increased to 2.9 million, and the amount of non-
gaming convention revenue generated by convention delegates was approximately
$3.4 billion. According to the LVCVA, Las Vegas was the largest convention
market in the country in 1995.
During the past five years, McCarran Airport has expanded its facilities to
accommodate the increased number of airlines and passengers which it services.
The number of passengers traveling through McCarran Airport has increased from
12.4 million in 1986 to 28.0 million in 1995, a compound annual growth rate of
9.5%. In addition, McCarran Airport reported that during the first three
months of 1996, the number of passengers traveling through McCarran Airport
increased by 10% over the first three months of 1995. With the addition of a
new runway and a charter/international terminal in 1991, McCarran Airport is
positioned to meet future demand for passenger services. Construction is
currently underway on numerous roadway enhancements to improve access to the
airport. These additions are expected to give McCarran Airport the ability to
accommodate over 30 million travelers annually. The U.S. Customs Department
has also announced that it will open an office at McCarran Airport. The
airport has additional long-term expansion plans which will provide additional
runways, three new satellite concourses, 60 additional gates and other
facilities.
The vitality of the Las Vegas market and the relative position of MGM Grand
Las Vegas in such market is demonstrated by the following table derived from
1995 LVCVA and Company information:
<TABLE>
<CAPTION>
AS A %
STRIP HOTELS MGM OF STRIP HOTELS
------------ -------------- ---------------
<S> <C> <C> <C>
Number of Rooms.................. 56,335 5,005 8.9%
Average Daily Room Rate.......... $70.00 $98.00 NA
Occupancy Rate................... 93.4% 89.5% NA
Casino Space (Square feet)....... 2,323,000 171,500 7.4%
Number of Slot Machines.......... 50,772 3,500 6.9%
Number of Table Games............ 2,024 160 7.9%
Gaming Revenues.................. $3.7 billion $404.7 million 10.9%
Gaming Revenues per Position per
day(1).......................... $156.58 $240.02 NA
</TABLE>
- --------
(1)Assumes slot machines and table games are one and seven positions each,
respectively.
LAS VEGAS TARGET MARKET AND MARKETING STRATEGY
The Company uses the unique characteristics of MGM Grand Las Vegas to target
the following major segments of the Las Vegas market: (i) mid-level and high-
end gaming; (ii) free and independent travelers; (iii) special
events/conventions; (iv) tour and travel; and (v) local. It is anticipated
that New York-New York will follow a similar strategy (with additional
emphasis on lower to middle market gaming customers).
Mid-Level and High-End Gaming. Management believes it has been able to
target successfully high-end gaming patrons using the resort's elegant
surroundings, fine restaurants, approximately 750 luxury suites (ranging from
650 to 6,000 square feet) and extensive entertainment facilities to attract
and retain these discriminating customers. Use of unique attractions,
facilities and service as high-end
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marketing tools (as opposed to credit and discounts) is an integral part of
the Company's marketing plan. Additionally, the Company uses traditional
foreign and regional marketing offices to reach this market segment.
High-end gaming (which consists principally of baccarat but also includes
other high limit games), including the extension of credit to facilitate such
activity, is a significant, although not a predominant part of MGM Grand Las
Vegas' business. As part of a shift in marketing strategy, MGM Grand Las Vegas
has adopted a more selective approach to the high-end segment of the market in
order to reduce volatility of operating results, while at the same time
increasing marketing attention to guests and customers in the middle segments
of the market.
Free and Independent Travelers. This market segment consists of persons who
travel to Las Vegas from all areas of the world, many of whom originate from
the western region of the United States. These customers are not affiliated
with groups and make their reservations directly with the resort or through
independent travel agents. This market segment has a high growth potential due
to the continued increase in the acceptance of gaming among the general
population and attractive demographics.
Special Events/Conventions. This market segment consists of persons
attracted to MGM Grand Las Vegas to attend conventions and special events. The
Company believes that through careful selection of conventions and special
events, MGM Grand Las Vegas is able to attract visitors who are good gaming
customers.
Tour and Travel. The tour and travel segment of the market consists of
customers who utilize "packages" to reduce the cost of travel, lodging and
entertainment. These "packages" are produced by wholesalers and travel agents
and emphasize mid-week stays in Las Vegas. Tour and travel patrons often book
at "off-peak" periods thereby enabling the Company to maintain occupancy rates
at the highest levels year round.
Local. The Company believes that most Strip properties do not target Las
Vegas residents as part of their customer base. Although MGM Grand Las Vegas
does not emphasize this market, management believes that its extensive array
of non-gaming attractions including distinctive restaurants, makes MGM Grand
Las Vegas attractive to local customers and to out-of-town guests of local
residents.
In an effort to increase revenues from both casino and hotel operations, the
Company has begun to adjust its hotel guest mix, reducing the tour and travel
segment and emphasizing free and independent travelers and casino customers.
Free and independent travelers typically pay a higher room rate, and together
with casino customers, generally have a higher gaming budget compared to the
tour and travel customer.
New York-New York is expected to appeal to each of these markets, with a
greater emphasis on lower and middle market segments. Management does not
believe that New York-New York's opening will have an adverse effect on MGM
Grand Las Vegas. The Company believes that with the addition of three new
hotel/casinos in close proximity to the intersection of Tropicana Avenue and
the Strip, and 25,000 new hotel rooms, the south end of the Strip, and the
"New Four Corners" in particular, will become the new center of visitor
traffic in Las Vegas. Management believes that, as with the past openings of
mega-resorts on the Strip, the Las Vegas market, as a whole, will expand to
accommodate the new capacity.
MARKETING TECHNIQUES
The Company focuses on entertaining its guests by offering a full spectrum
of destination resort amenities. MGM Grand Las Vegas has three venues (the
16,700 seat MGM Grand Garden arena, the
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1,774-seat Grand Theater and the 660-seat Hollywood Theater) from which it
offers headliner entertainment for shows and concerts, world-class sporting
events and the musical and special effects extravaganza EFX. In addition, the
resort offers quality dining facilities, luxurious accommodations, a 33-acre
theme park and exciting recreational facilities.
The Company seeks to attract new customers through general advertising of
special events and promotions. In addition, the Company has recently begun
opening retail outlets located in high traffic locations which are designed to
enhance name recognition, raise general brand awareness and increase and
diversify revenues and cash flow.
The Company designs promotional offers targeted at certain patrons that are
expected to provide revenues based upon their historical gaming patterns, and
contacts customers through a combination of direct mail, telemarketing and
direct marketing from regional offices. The Company uses a specialized multi-
tiered marketing approach to attract customers in each of the major segments
to which it markets.
The Company believes the 16,700 seat MGM Grand Garden provides a venue to
attract prime customers to athletic events, such as boxing and tennis, and
concerts on a scale and style heretofore unavailable in the Las Vegas market.
Management also believes that industrial exhibits and trade shows find the
arena, which can be transformed into a 130,000 square foot exhibition center,
to be particularly attractive. In addition to the MGM Grand Garden, the
Company has traditional convention facilities and plans to build an
approximately 300,000 square foot convention center. Management believes that
the delegates attending conventions and special events at its facilities will
be more affluent and have better gaming customer and hotel guest demographics
than the traditional trade show delegate.
Mid-Level and High-End Gaming--In line with management's goals of enhancing
revenues, while simultaneously reducing volatility of operating results, the
Company has developed a more selective approach to the high-end of the casino
business. The Company has instituted a comprehensive program of controls
designed to temper the normal volatility in earnings typically associated with
certain types of high-end gaming, by not aggressively pursuing certain of the
largest players in this segment who typically request substantial perquisites,
expansion of credit and betting limits and relaxation of certain casino rules
to enhance their odds. In an effort to replace such casino patrons and expand
its mid and high-end gaming base, the Company has focused its marketing
efforts on expanding the number of mid range customers by increasing the
number of U.S. regional and international player development offices. The
Company contacts customers directly, offering personalized service, credit
availability and access to a variety of complimentary or reduced rate room,
dinner, entertainment and special event reservations. MGM Grand Las Vegas has
over 750 luxury suites (including 52 private two-story penthouse suites) which
are utilized for the Company's better gaming guests.
Free and Independent Travelers--Management has begun to focus additional
time and marketing resources toward expanding the middle market customer base.
The Company is currently developing a national marketing program that will
include opening of additional regional offices to directly market to potential
customers. In addition, the Company has developed many affinity programs
targeted to the middle market. Members of MGM Grand Las Vegas' slot club can
earn bonus points, based upon the amount of slot machine play, redeemable for
free gifts, complimentary amenities or cash rebates. The MGM Players Card will
be used in all of the Company's properties, in an effort to build an
international database of repeat gaming customers. In addition, the Company
runs an array of special events, including slot and table tournaments,
designed to attract customers for an extended stay.
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MGM GRAND AUSTRALIA
With the success of MGM Grand Las Vegas, the Company has been developing a
strategy to pursue growth opportunities in other localities. MGM Grand
Australia is the Company's first such expansion.
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia Pty Ltd., completed the acquisition of what is now known as
MGM Grand Australia. MGM Grand Australia is located on 18 acres of beachfront
property next to the Arafura Sea on the north central coast. The resort
includes a public and private casino, 97 rooms and suites, restaurants and
other facilities. Upon completion of a $15 million capital improvement program
in June 1996 casino operations will include approximately 50 table games, 500
slots ("poker machines") and a keno lounge in three distinct casino
environments. The capital improvement program includes renovation of all 97
rooms (including 17 suites), expansion of casino facilities, (including two
new gaming rooms for middle and high-end players) and addition of dining,
entertainment and retail amenities. The Company has positioned MGM Grand
Australia as a multi-faceted gaming/entertainment facility for the local
market and as an exclusive destination resort targeting premium international
table game customers.
MGM Grand Australia is expected to benefit from its strategic location in
the Southeast Asian gaming market. The Darwin International Airport is an
average of 5.5 air hours away from the major Asian cities. Darwin is well
located relative to the major Asian gaming markets of Indonesia, Malaysia,
Singapore and Hong Kong; it is approximately four hours flying time closer to
these markets than the major casinos in Perth, Melbourne and Sydney. For
example, Darwin is within 6.0, 7.7 and 4.7 and 4.0 air hours from Hong Kong,
Tokyo, Singapore and Jakarta, respectively. However, absent significant use of
air charters, limitations on scheduled air service may impede full
exploitation of this market. Approximately 210,000 international tourists
visited the Northern Territory in 1995; given its proximity to Asia, the
Northern Territory Ministry of Tourism expects the number of visitors to
continue growing at 10% or more per year, to almost 300,000 in 1998.
Because of its smaller size, geographic location and target market, high-end
gaming has constituted a large proportion of the gaming business of MGM Grand
Australia, thereby causing wider quarterly operating variances. In addition,
because weather conditions in the Darwin area vary from the "dry" season (June
through November), which is the most popular time for visitors, to the "wet"
season (December through May), MGM Grand Australia's business is expected to
be somewhat seasonal. Due to the increasing competition, the limitations on
scheduled air service to Darwin and significant construction associated with
the renovation of the property, MGM Grand Australia has not attained its
desired level of premium players. As a result, its operating margins have been
negatively impacted and future operating results could be adversely affected
if this trend continues. In an effort to attract premium players, MGM Grand
Australia has recently refurbished the private Monte Carlo Room casino and
guest suites, and has added the Grand International and private gaming rooms.
AUSTRALIA MARKET
The gaming industry in Australia is well developed, generating over $40
billion in gross wagering in 1995, including over $1.2 billion of wagering at
the country's thirteen licensed casinos, according to International Gaming and
Wagering Business. Australians spent nearly $400 per capita on gaming in 1995,
versus $170 in the U.S. and $370 in Hong Kong.
The Northern Territory has a population of 174,000 with approximately
210,000 international and 430,000 Australian tourists in fiscal 1995. Unlike
the U.S., Australia has granted, for the most part, regional casino monopolies
in its provinces. Two casinos operate in the Northern Territory, MGM Grand's
property in Darwin on the northern coast, and a small casino in Alice Springs
in the southern part of the Territory. Gross casino gaming revenue in fiscal
1995 for the Northern Territory was estimated at $35.2 million. Gaming
machines are being installed in clubs and hotels in 1996; the
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Darwin casino will effectively receive 22.5% of the revenues from these
machines through 2005 in the form of a tax rebate.
MGM GRAND ATLANTIC CITY
Atlantic City is, after Las Vegas, the second largest gaming destination in
the United States. The Company believes that it has the potential to
successfully expand its domestic base through developing and operating a
destination resort in Atlantic City. Management believes that Atlantic City
represents an attractive market for additional development due to its
proximity to areas with favorable demographics, including a large population
base with a high level of disposable income. In addition, management believes
that the market does not currently have a "must-see" destination resort, such
as the planned MGM Grand Atlantic City. The Company believes that destination
resorts will attract Atlantic City patrons from greater distances and for
increased lengths of stay and, with the addition of MGM Grand Atlantic City
and the proposed Mirage Resorts "H-Tract" development, that the Atlantic City
market will grow significantly. Additionally, as with the Las Vegas and Reno
markets, an increased room base often results in an increase in scheduled air
service, including regional shuttles. Historically, the Las Vegas and Atlantic
City markets have shown a strong correlation between hotel room inventory and
casino revenues. There can be no assurance that a Las Vegas-style destination
resort will be successful in the Atlantic City Market.
The Proposed Project
The Company is reviewing a number of alternatives for entering the Atlantic
City market, including new construction as well as acquisition and
redevelopment of existing properties. The Company intends to create a
destination resort hotel/casino in Atlantic City that will be larger and more
elaborate than any other facility currently in existence in that market. The
Company expects to use its entertainment themes at MGM Grand Atlantic City,
and plans to offer a wide array of gaming and non-gaming amenities to its
prospective customers. The Company's plans for MGM Grand Atlantic City may
also include the development of high energy retail, food and beverage
facilities. The Company believes that the acquisition and/or development of
MGM Grand Atlantic City could cost in excess of $700 million and that the
development or redevelopment could take up to three years. The Company has not
acquired any property for the development of MGM Grand Atlantic City. The
design, budget and schedule for development or redevelopment of a project are
at a preliminary stage, and will be subject to the risks attendant to large-
scale projects and may be subject to additional costs and delays beyond
preliminary estimates. No assurance can be given that the Company will acquire
property or develop a hotel/casino in Atlantic City, or if it does, as to its
ultimate size, configuration or cost. Any development or operation in Atlantic
City will be subject to the receipt of regulatory approvals, including
licensing, acquisition of an appropriate site or property and obtaining
necessary financing.
Atlantic City Market
The Atlantic City market currently consists of 12 hotel/casinos which as of
December 31, 1995 had 9,404 rooms, 959,000 square feet of casino space, 29,057
slot machines and 1,301 table games. According to the Atlantic City Department
of Planning and Development (the "ACDPD"), more than 58 million people
(approximately 23.5% of the United States population) live within 300 miles of
Atlantic City, and more than 17.8 million people live within 100 miles. The
ACDPD reports that Atlantic City receives approximately 5.5 million visitors
annually, who come on average 5.7 times per year. Most of these visitors are
"day-trippers," but there are a substantial number of overnight visitors, who
are believed to have a higher gaming budget. The Company believes that the
overnight visitor component will increase substantially as destination resorts
and "must see" attractions such as the proposed MGM Grand Atlantic City make
Atlantic City a more exciting and appealing attraction for the middle and
high-end gaming customer. According to the ACDPD, Atlantic City casinos
experience an average win per person per day approximately 269.0% higher for
overnight visitors ($295) as compared to day-trippers ($80).
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The Atlantic City gaming market has demonstrated continued growth despite
the recent proliferation of new gaming venues across the country. The 12
hotel/casinos in Atlantic City generated approximately $3.75 billion in gaming
revenues in 1995, a 9.5% increase over 1994 gaming revenues of approximately
$3.42 billion. Gaming revenue per position in 1995 was $269.03 per day. From
1990 to 1995, total gaming revenues in Atlantic City increased 27.3%, while
hotel rooms increased only approximately 6.5% during this period. Although
total visitor volume to Atlantic City remained relatively constant in 1995,
the visitor mix has become more favorable. The volume of bus customers dropped
to 9.6 million in 1995, continuing a decline from 11.7 million in 1990. The
volume of customers traveling by other means to Atlantic City has grown from
20.1 million in 1990 to 23.7 million in 1995.
Casino revenue growth in Atlantic City has lagged behind that of other
traditional gaming markets, principally Las Vegas, for the last five years.
Management believes that this relatively slow growth is partially attributable
to two key factors. First, prior to 1995 there had been no significant
additions to hotel capacity in Atlantic City since 1990. Las Vegas visitor
volumes have increased, in part, due to the continued addition of new hotel
capacity. Both markets have exhibited a strong historical correlation between
hotel room inventory and total casino revenues. Secondly, the regulatory
environment and infrastructure problems in Atlantic City had made it more
difficult and costly to operate. Total regulatory costs and tax levies in New
Jersey have exceeded Nevada since inception. Atlantic City has been less
attractive to the gaming customer due to infrastructure problems, manifested
by impaired accessibility of the casinos, downtown congestion and the
condition of the areas surrounding the casinos.
Total Atlantic City slot revenues increased 12.0% in 1995, continuing the
trend of increases over the last five years. From 1990 through 1995, slot
revenue growth in Atlantic City has averaged 8.5% per year. Total table
revenue increased 4.4% in 1995, while table game revenue from 1990 to 1995 has
decreased on average 0.7% per year. Management believes that slow growth in
table revenues is primarily attributable to two factors. First, the slot
product has been significantly improved over the last five years; dollar bill
acceptors, new slot machines, video poker and blackjack and other improvements
have increased the popularity of slot play among a wider universe of casino
patrons. Slot revenues increased from 58.3% of total casino revenues in 1990
to 68.7% in 1995. The second reason for historic slow growth is that table
game players are typically higher end players and are more likely to be
interested in overnight stays and other amenities. During peak season and
weekends, room availability in Atlantic City is currently inadequate to meet
demand, making it difficult for casino operators to aggressively promote table
play. In addition, casino operators in Atlantic City added slot machines in
favor of table games due to increased public acceptance of slot play and due
to slot machines' comparatively higher profitability as a result of lower
labor and support costs. Since 1990, the number of slot machines in Atlantic
City has increased 37.6%, while the number of table games has decreased by
4.2%.
According to announced hotel room expansion projects, room inventory at the
existing 12 hotel/casinos is expected to increase approximately 50% over the
next two years, from its current base of 9,404 to approximately 13,860. Since
1993, the average daily room rate in Atlantic City has decreased approximately
0.7% from $81.21 to $80.67, according to the New Jersey Casino Control
Commission, while the occupancy rate increased 3.4% from 88.9% to 91.9% over
the same period.
Despite generally lower overall growth rates than the Las Vegas market,
management believes that Atlantic City possesses similar revenue and cash flow
generation capabilities. The approximately $3.75 billion of gaming revenue
produced by the 12 hotel/casinos in Atlantic City in 1995 exceeded the
approximately $3.19 billion of gaming revenues produced by the 18 largest
(based on net revenue) Las Vegas Strip Hotels, for the same period, even
though the Atlantic City hotel/casinos have less than one-quarter the number
of hotel rooms as the Las Vegas Strip Hotels. Win per unit figures in Atlantic
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<PAGE>
City are at a significant premium to Las Vegas win per unit performance,
primarily due to the constrained supply of gaming positions in Atlantic City
compared to Las Vegas.
The regulatory environment in Atlantic City has improved significantly over
the last several years. New games, such as poker and keno, have been approved,
24-hour gaming has been permitted, registration of hotel employees has been
eliminated, license terms have been extended, and various operational
requirements have been relaxed. These regulatory changes have resulted in
reduced costs for the operators and created a more varied and attractive
environment for the gaming customer.
Management believes that recent gaming regulatory reforms will serve to
permit future reductions in operating expenses of casinos in Atlantic City and
to increase the funds available for additional infrastructure development
through the CRDA. Due principally to an improved regulatory environment,
general improvements of economic conditions in 1993, 1994 and 1995 and high
occupancy rates, all 12 of the Atlantic City hotel/casinos have recently
expanded, are in the process of expanding or have announced plans to expand
their facilities. In addition, Mirage Resorts has entered into an agreement
with Atlantic City for the development of the "H-Tract," a 170-acre site in
the Atlantic City Marina, and plans to construct a 2,000 room hotel/casino
with 100,000 square feet of casino space, and Hilton and Circus Circus have
each announced intentions to enter the Atlantic City market. Management
believes that these increases in hotel/casino capacity, together with
infrastructure improvements, and community revitalization programs, will be
instrumental in stimulating future revenue growth in the Atlantic City market
and increasing its appeal as a destination resort.
In addition to the planned casino expansions, major infrastructure
improvements have been proposed or have begun. These include, among other
projects, new housing and retail development, a tunnel connecting the Atlantic
City Expressway to the Marina and construction of a new $254 million
Convention Center. The CRDA is currently overseeing the development of the
"tourist corridor" that will link the new Convention Center with the Boardwalk
and will, when completed, feature approximately 500,000 square feet of exhibit
and pre-function space, 42 meeting rooms, food-service facilities and a 1,600
car underground parking garage. The new convention center will be the largest
exhibition space between New York and Washington, D.C. The tourist corridor is
scheduled to be completed in conjunction with the completion of the new
convention center, planned to open in January 1997.
Seasonality
The gaming industry in Atlantic City is seasonal, with the heaviest activity
usually occurring during the period from May through September, and with
December and January showing substantial decreases in activity. Due to the
dominance in the past of the "day-tripper" component of the visitor mix,
casino revenues have generally been significantly higher on Fridays, Saturdays
and holidays than on other days.
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REGULATION AND LICENSING
Gaming activities are highly and stringently regulated. For a description of
regulation of the Company's present activities in Nevada and Australia, see
the Form 10-K, "Item 1. Business-Hotels and Gaming--MGM Grand Las Vegas--
Nevada Governmental Regulation" and "--MGM Grand Australia-Australia
Government Regulation."
Nevada
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
regulations. The Company's gaming operations are subject to the licensing and
regulatory control of 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) the provision of a source of state
and local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on the Company's
gaming operations.
MGM Grand Hotel, Inc. operates MGM Grand Las Vegas and is required to be
licensed by the Nevada Gaming Authorities. 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.
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 be found suitable as a beneficial holder of the Company's
voting securities 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
the 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
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 or MGM Grand Hotel, Inc., 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 owing or
controlling the stock of any corporation controlling a gaming license.
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 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 27, 1995,
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 interlocutory stop order by the
Chairman of the Nevada Board. This Offering is made pursuant to such Shelf
Approval. 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 Common Stock
offered thereby. Any representation to the contrary is unlawful.
New Jersey
The ownership and operation of hotel/casino facilities and gaming activities
in Atlantic City, New Jersey are subject to extensive state regulation under
the New Jersey Casino Control Act (the "New Jersey Act") and the regulations
("Regulations") of the New Jersey Casino Control Commission (the "New Jersey
Commission") and other applicable laws. In general, the New Jersey Act and
Regulations arguably provide for more extensive controls over a broader scope
of gaming-related activities than does the Nevada regulatory system.
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The New Jersey Act and Regulations concern primarily the financial stability
and character of casino licensees, their intermediary and holding companies,
their employees, their security holders and others financially interested in
casino operations, the nature of hotel and casino facilities and a wide range
of gaming and non-gaming related operations. The New Jersey Act and
Regulations include detailed provisions concerning, among other things:
financial and accounting practices used in connection with casino operations;
residence and equal employment opportunities for employees of casino
operators, contractors for casino facilities and others; rules of games,
levels of supervision of games and methods of selling and redeeming chips;
manner of granting credit, duration of credit and enforceability of gaming
debts; manufacture, distribution and sale of gaming equipment; security
standards, management control procedures, accounting and cash control methods
and reports to gaming authorities; advertising of casinos and standards for
entertainment; and distribution of alcoholic beverages in casinos. A number of
these provisions require practices which are different from those in Nevada
and some of them result in casino operating costs being higher than those in
comparable facilities in Nevada.
The New Jersey Act also established the New Jersey Division of Gaming
Enforcement (the "New Jersey Division") to investigate all license
applications, enforce the provisions of the New Jersey Act and Regulations and
prosecute all proceedings for violations of the New Jersey Act and Regulations
before the New Jersey Commission. The New Jersey Division also conducts audits
and continuing reviews of all casino operations.
The Company's wholly owned subsidiary MGM Grand Atlantic City, Inc. has
applied to be licensed by the New Jersey Commission to operate a casino, and
the Company has applied to be approved as a qualified holding company. Such
applications are presently pending. Officers and directors of the Company and
MGM Grand Atlantic City, Inc. and employees who will work at the hotel/casino
facilities to be operated by MGM Grand Atlantic City, Inc. must also be
approved or licensed. In addition, all contracts affecting the facilities must
be approved, and all enterprises that conduct business with MGM Grand Atlantic
City, Inc. will be required to register with the New Jersey Commission and
those enterprises that conduct gaming-related businesses or that conduct
business on a regular and continuing basis, as defined by the Regulations,
must be licensed by the New Jersey Commission.
The New Jersey Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. Casino licenses are not
transferable. A hotel/casino facility must also continually satisfy certain
requirements concerning, among other things, the number of qualifying sleeping
units and the relationship between the number of qualifying sleeping units and
the square footage of casino space.
The New Jersey Act further provides that each person who directly or
indirectly holds any beneficial interest or ownership of the securities issued
by a casino licensee or any of its intermediary or holding companies, those
persons who, in the opinion of the New Jersey Commission, have the ability to
control the casino licensee or its intermediary or holding companies or elect
a majority of the board of directors of said companies, other than a banking
or other licensed lending institution which makes a loan or holds a mortgage
or other lien acquired in the ordinary course of business, lenders and
underwriters of said companies may be required to seek qualification from the
New Jersey Commission. However, because the Company intends to qualify as a
publicly traded holding company, in accordance with the provisions of the New
Jersey Act, a waiver of qualification may be granted by the New Jersey
Commission, with the concurrence of the Director of the New Jersey Division,
if it is determined that said persons or entities are not significantly
involved in the activities of MGM Grand Atlantic City and, in the case of
security holders, do not have the ability to control the Company or elect one
or more of its directors. There exists a rebuttable presumption that any
person holding 5% or more of the equity securities of a casino licensee's
intermediary or holding company or a person having the ability to elect one or
more of the directors of such a company has the ability to control the company
and thus must obtain qualification from the New Jersey Commission. The
Principal Stockholders, as the holders of more than a majority of the
Company's outstanding Common Stock, will be required to obtain such
qualification.
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Notwithstanding this presumption of control, the New Jersey Act provides for
a waiver of qualification for passive "institutional investors," as defined by
the New Jersey Act, if the institutional investor purchased the securities for
investment purposes only and where such securities constitute (i) less than
10% of the equity securities of a casino licensee's holding or intermediary
company or (ii) debt securities of a casino licensee's holding or intermediary
company representing a percentage of the outstanding debt of such company not
exceeding 20% or a percentage of any issue of the outstanding debt of such
company not exceeding 50%. The waiver of qualification is subject to certain
conditions including, upon request of the New Jersey Commission, filing a
certified statement that the institutional investor has no intention of
influencing or affecting the affairs of the issuer, except that an
institutional investor holding voting securities shall be permitted to vote on
matters put to a vote of the holders of outstanding voting securities.
Additionally, a waiver of qualification may also be granted to institutional
investors holding a higher percentage of securities of a casino licensee's
holding or intermediary company upon a showing of good cause.
If an institutional investor that has been granted a waiver subsequently
changes its investment intent, or if the New Jersey Commission finds
reasonable cause to believe that the institutional investor may be found
unqualified, no action other than divestiture shall be taken by the investor
with respect to the security holdings until there has been compliance with the
provisions of the New Jersey Act concerning interim casino authorization. The
provisions of the New Jersey Act concerning interim casino authorization
provide that whenever a security holder of either equity or debt is required
to qualify pursuant to the New Jersey Act, the security holder shall, within
30 days after the New Jersey Commission determines that qualification is
required or declines to waive qualification, (i) file a completed application
for qualification, along with an executed and approved trust agreement,
wherein all securities of the holding or intermediary company held by that
security holder are placed in trust pending qualification, or (ii) file a
notice of intent to divest itself of such securities as the New Jersey
Commission may require so as to remove the need for qualification, which
securities must be divested within 120 days from the date such determination
was made.
The New Jersey Act further requires that corporate licensees and their
subsidiaries, intermediaries and holding companies adopt certain provisions in
their certificates of incorporation that require certain remedial action in
the event that an individual owner of any security of such company is found
disqualified under the New Jersey Act. The required certificate of
incorporation provisions vary depending on whether the stock of the company
subject to the requirements of the New Jersey Act is publicly or privately
traded. Pursuant to the New Jersey Act, the certificate of incorporation of a
publicly held company must provide that any securities of such corporation are
held subject to the condition that if a holder is found to be disqualified by
the New Jersey Commission pursuant to the New Jersey Act such holder shall
dispose of his interest in such company. The certificate of incorporation of a
privately held company must create the absolute right of the company to
repurchase at the market price or purchase price, whichever is the lesser, any
security, share or other interest in the company in the event the New Jersey
Commission disapproves a transfer in accordance with the provisions of the New
Jersey Act.
The Company is a publicly held company and, accordingly, the Company's
Certificate of Incorporation will, in connection with licensing, be amended to
provide that a holder of the Company's securities must dispose of such
securities if the holder is found disqualified under the New Jersey Act. In
addition, the Company intends to amend its Certificate of Incorporation to
provide that the Company may redeem the stock of any holder found to be
disqualified.
If the New Jersey Commission should find a security holder to be unqualified
to be a holder of securities of a casino licensee or holding company, not only
must the disqualified holder dispose of such securities but, in addition,
commencing on the date the New Jersey Commission serves notice upon the
Company of the determination of disqualification, it shall be unlawful for the
disqualified holder (1) to receive any dividends or interest upon any such
securities, (2) to exercise, directly or
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<PAGE>
through any trustee or nominee, any right conferred by such securities, or (3)
to receive any remuneration in any form from the licensee for services
rendered or otherwise. If the New Jersey Commission should find a security
holder to be unqualified to be a holder of securities of a casino licensee or
holding company, the New Jersey Commission shall take any necessary action to
protect the public interest including the suspension or revocation of the
casino license except that if the disqualified person is the holder of
securities of a publicly traded holding company, the New Jersey Commission
shall not take action against the casino license if (1) the holding company
has the corporate charter provisions concerning divestiture of securities by
disqualified owners required by the New Jersey Act, (2) the holding company
has made good faith efforts including the prosecution of legal remedies to
comply with any order of the New Jersey Commission, and (3) the disqualified
holder does not have the ability to control the company or elect one or more
members of the company's board of directors.
If, at any time, it is determined that MGM Grand Atlantic City, Inc. has
violated the New Jersey Act or Regulations, or if any security holder of the
Company or MGM Grand Atlantic City, Inc. who is required to be qualified under
the New Jersey Act is found to be disqualified but does not dispose of the
securities, MGM Grand Atlantic City, Inc. could be subject to fines or its
license could be suspended or revoked. If MGM Grand Atlantic City, Inc.'s
license is revoked, the New Jersey Commission could appoint a conservator to
operate and to dispose of any hotel/casino facilities of MGM Grand Atlantic
City, Inc. Net proceeds of a sale by a conservator and net profits of
operations by a conservator (at least up to an amount equal to a fair return
on MGM Grand Atlantic City, Inc.'s investment which is reasonable for casinos
or hotels) would be paid to the Company.
In addition to compliance with the New Jersey Act and Regulations relating
to gaming, any facility built in Atlantic City by MGM Grand Atlantic City,
Inc. or any other subsidiary of the Company must comply with the New Jersey
and Atlantic City laws and regulations relating to, among other things, the
Coastal Area Facilities Review Act, construction of buildings, environmental
considerations, operation of hotels and the sale of alcoholic beverages.
The New Jersey Commission is authorized to establish fees for the issuance
or renewal of casino licenses and casino hotel alcoholic beverage licenses.
There is also an annual license fee on each slot machine. The New Jersey
Commission is also authorized by regulation to establish annual fees for the
issuance and renewal of licenses other than casino licenses.
The New Jersey Act imposes an annual tax of eight percent on gross revenues
(as defined in the New Jersey Act). In addition, casino licensees are required
to invest one and one-quarter percent of gross revenues for the purchase of
bonds to be issued by the CRDA or make other approved investments equal to
that amount. In the event the investment requirement is not met, the casino
licensee is subject to a tax in the amount of two and one-half percent on
gross revenues.
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MANAGEMENT
The following table sets forth the executive officers and directors of MGM
Grand and the principal officers of each of the Company's operating
subsidiaries as of May 14, 1996:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
J. Terrence Lanni Chairman of the Board and Chief Executive Officer
Alex Yemenidjian President, Chief Operating Officer, Chief Financial Officer and Director
Fred Benninger Vice Chairman of the Board
Scott Langsner Secretary/Treasurer
Kenneth A. Rosevear Senior Vice President-Development
T. Patrick Smith Vice President-Real Estate
Edward J. Jenkins Vice President
Gary Charters Vice President-Development
James D. Aljian Director
Terry N. Christensen Director
Glenn A. Cramer Director
Willie D. Davis Director
Alexander M. Haig, Jr. Director
Lee A. Iacocca Director
Kirk Kerkorian Director
Walter M. Sharp Director
Jerome B. York Director
Daniel M. Wade President and Chief Operating Officer of MGM Grand Hotel, Inc.
Robert V. Moon President of Destron, Inc.
Bob Bowman President of MGM Grand Merchandising, Inc.
Patricia Johnson General Manager and Chief Financial Officer of MGM Grand
Australia Pty Ltd.
</TABLE>
J. TERRENCE LANNI (age 53) has served as Chairman of the Company since July
1995, and as a Director, Chairman of the Executive Committee and Chief
Executive Officer of the Company since June 1995. He also served as President
of the Company from June 1995 to July 1995. Prior thereto, he was President
and Chief Operating Officer of Caesars World, Inc. from April 1981 to February
1995.
ALEX YEMENIDJIAN (age 40) has served as a Director of the Company since
December 1989, as President of the Company since July 1995, as Chief Operating
Officer of the Company since June 1995, and as Chief Financial Officer of the
Company since May 1994. He also served as Executive Vice President of the
Company from June 1992 to July 1995, 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. He has also served as an
executive of Tracinda since January 1990.
FRED BENNINGER (age 79) has served as a Director of the Company since
February 1986, and as Vice Chairman of the Board since April 1995. He was
Chairman of the Board from August 1987 to April 1995. He also served as Chief
Executive Officer of the Company from August 1987 to January 1991, and as
President of the Company from August 1987 to March 1990.
SCOTT LANGSNER (age 43) has served as Secretary/Treasurer of the Company
since July 1987.
KENNETH A. ROSEVEAR (age 46) has served as Senior Vice President-Development
of the Company since November 1995. From November 1993 to November 1995, he
served as President of Caesars World Gaming Development Corporation. For more
than five years prior thereto, he served as Chief Executive of Sun
International Group in South Africa.
42
<PAGE>
T. PATRICK SMITH (age 47) has served as Vice President-Real Estate of the
Company since September 1995. For more than five years prior thereto, he
served in a variety of positions with the Irvine Company, most recently as
Chief Executive Officer of Irvine Apartment Communities, Inc., a publicly
traded real estate investment trust of The Irvine Company.
EDWARD J. JENKINS (age 51) has served as Vice President of the Company since
October 1995. From July 1992 to October 1995, he served as Vice President,
Security, for Caesars World, Inc. He previously was a 30-year veteran of the
FBI, holding various management positions at Bureau offices throughout the
United States.
GARY CHARTERS (age 52) has served as Vice President Development of the
Company since April 1996. From June 1991, he served as Director of Corporate
Development of Boyd Gaming Corporation and prior thereto since August 1989,
served as a Senior Manager of the Management Consulting Services division of
Deloitte & Touche.
JAMES D. ALJIAN (age 63) has served as an executive of Tracinda since
October 1987 and is a director of Chrysler Corporation ("Chrysler").
TERRY N. CHRISTENSEN (age 55) has been a partner of the law firm of
Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP since May 1988
and is a director of GIANT GROUP, LTD.
GLENN A. CRAMER (age 74) served as a director of Transamerica Corporation
from 1968 to April 1994 and as Chairman of the Executive Committee of
Transamerica Airlines from 1983 to April 1994.
WILLIE D. DAVIS (age 61) is President and a director of All-Pro
Broadcasting, Inc., an AM and FM radio broadcasting company. Mr. Davis is a
director of Sara Lee Corporation, K-Mart Corporation, Johnson Controls, Inc.,
Alliance Bank, WICOR, Dow Chemical Company, Rally's Hamburgers, Inc. and LA
Gear, Inc.
ALEXANDER M. HAIG, JR. (age 72) is Chairman of Worldwide Associates, Inc.,
an international business advisory firm, and a director of America Online,
Inc. and Interneuron Pharmaceuticals, Inc. Mr. Haig has been a consultant to
the Company since May 1990.
LEE A IACOCCA (age 71) was a director of Chrysler from November 1978 to
September 1993 and also served in the following capacities with Chrysler:
Chairman of the Board from September 1979 until his retirement on December 31,
1992; and President from November 1978 to September 1979. Mr. Iacocca is
Chairman Emeritus of the Statute of Liberty-Ellis Island Foundation, Inc.,
Chairman of the Committee for Corporate Support for the Joslin Diabetes
Foundation, Founder and Chairman of the Advisory Board to the Iacocca
Institute at Lehigh University, Chairman of the Iacocca Foundation, a member
of the Advisory Board of Reading is Fundamental, honorary Chairman of the
National PTA since 1991, and an honorary trustee of Lehigh University. Mr.
Iacocca is a director of New World Communications Group, Inc. and Koo Koo Roo
Chicken, Inc.
KIRK KERKORIAN (age 78) is Chief Executive Officer, President and sole
director of Tracinda.
WALTER M. SHARP (age 79) is President of Walter M. Sharp Company (financial
consultants) and a consultant to Tracinda.
JEROME B. YORK (age 57) has served as Vice Chairman of Tracinda since
September 1995. Mr. York served as Senior Vice President and Chief Financial
Officer of IBM Corporation from May 1993 to September 1995, and director of
IBM Corporation from January 1995 to September 1995 and as Executive Vice
President Finance and Chief Financial Officer of Chrysler from May 1990 to May
1993, and director of Chrysler from April 1992 to May 1993.
43
<PAGE>
DANIEL M. WADE (age 44) has served as President and Chief Operating Officer
of MGM Grand Hotel, Inc. since July 1995. He also served as Executive Vice
President and Chief Operating Officer of MGM Grand Hotel, Inc. from January
1995 to July 1995, as Executive Vice President of Theme Park Operations from
September 1994 to January 1995, and as Senior Vice President and General
Manager of Theme Park Operations from September 1992 to September 1994. He
also served as Senior Vice President of Operations of the Marina Hotel and
Casino from December 1990 to September 1992.
ROBERT V. MOON (age 45) has served as President of Destron, Inc. (the
Company's marketing subsidiary) since June 1995 and as Senior Vice President
of Casino Marketing of MGM Grand Hotel, Inc. from September 1993 to June 1995.
Prior to that he served as Senior Vice President of Casino Marketing of
Caesar's Palace, Las Vegas from May 1990 to September 1993.
BOB BOWMAN (age 53) has served as President of MGM Grand Merchandising, Inc.
since January 1996. For the twenty-five years prior to that he served in a
variety of positions with The Walt Disney Company, most recently as Vice
President of Store Planning and Development.
PATRICIA JOHNSON (age 51) has served as General Manager and Chief Financial
Officer of MGM Grand Australia Pty Ltd. since November 1995. For the more than
two years prior to that she has held various positions with MGM Grand Hotel,
Inc., most recently as Vice President of Casino Marketing. Before joining the
Company, she served in numerous positions with the Las Vegas Hilton, most
recently as Casino Controller.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 75 million shares of
Common Stock. Holders of the Common Stock are entitled to dividends when and
as declared by the Board of Directors. Holders have one vote per share and the
right to the net assets in liquidation after payment of any amounts due to
creditors. Holders are not liable for further calls or assessments by the
Company. There are no sinking fund or redemption provisions relating to the
Common Stock. The Common Stock has noncumulative voting rights, which means
that holders of a majority of the shares voting for the election of directors
can elect 100% of the directors if they choose to do so.
The Transfer Agent and Registrar for the Common Stock is Mellon Securities
Trust Company, New York, New York.
44
<PAGE>
DEFEASANCE OF FIRST MORTGAGE NOTES
The Company has received a commitment from BA Securities, an affiliate of B
of A, to arrange a 5-1/2 year senior reducing $500 million revolving credit
facility (the "Credit Facility"), subject to the Company's right to accept,
with the consent of BA Securities and B of A, oversubscriptions of up to $100
million. B of A will commit an initial amount of $250 million to the Credit
Facility. The Company has also received a commitment from B of A to a $125
million interim facility.
The Company intends to utilize cash from operations, proceeds from the
Offering and proceeds available under the bank facilities and the Operating
Loan to fund the defeasance of the First Mortgage Notes in accordance with the
terms of the Indenture. In order to defease the First Mortgage Notes, the
Company will cause MGM Grand Finance to purchase and deposit with the Trustee
under the Indenture approximately $523.4 million of qualifying U.S. Government
securities (the "Defeasance Deposit"). The Defeasance Deposit will be used to
fund interest payments on the First Mortgage Notes through May 1, 1997, the
call as of such date of the First Mortgage Notes at 101.958% of the
outstanding principal amount in the case of the 11 3/4% First Mortgage Notes
and 105.33% of the outstanding principal amount in the case of the 12% First
Mortgage Notes, and related expenses. Upon MGM Grand Finance delivering the
Defeasance Deposit to the Trustee, the Defeasance Deposit will be held as
collateral for the First Mortgage Notes and, approximately 91 days following
such delivery, the Trustee will release its liens on the assets of MGM Grand
Hotel, Inc. and MGM Grand Finance.
Upon completion of the defeasance of the First Mortgage Notes, most of the
restrictive covenants contained in the Indenture applicable to MGM Grand
Hotel, Inc. and MGM Grand Finance will lapse and be of no further force and
effect. These covenants include the maintenance by MGM Grand Hotel, Inc. of
certain financial ratios and limitations on additional debt, dividends, stock
repurchases, disposition of assets, mergers and similar transactions. The
defeasance of the First Mortgage Notes will result in an extraordinary charge,
of approximately $37.0 million, net of tax benefits, to reflect the early
discharge of the First Mortgage Notes and the expenses related thereto.
The interim facility will be secured by a second lien on the stock of MGM
Grand Hotel, Inc. and MGM Grand Finance. The Credit Facility will be
unconditionally guaranteed by MGM Grand Hotel, Inc., MGM Grand Finance and MGM
Grand Atlantic City, Inc., and will be secured, among other things, by a
pledge of substantially all of the assets of the Company (including the stock
of MGM Grand Hotel, Inc., MGM Grand Finance and MGM Grand Atlantic City, Inc.,
but not the Company's interest in New York-New York or MGM Grand Australia).
MGM Grand Hotel, Inc., MGM Grand Finance and MGM Grand Atlantic City, Inc.
will pledge substantially all of their assets in support of the Credit
Facility. The guarantee of the Credit Facility by MGM Grand Hotel, Inc. and
MGM Grand Finance, the pledge by MGM Grand Hotel, Inc. and MGM Grand Finance
of their respective assets in support of the Credit Facility, will not be
effective until completion of the defeasance of the First Mortgage Notes.
MGM Grand Finance and MGM Grand Hotel, Inc. currently maintain a $60 million
Operating Loan, which is secured on a pari passu basis by the assets securing
the First Mortgage Notes. In connection with the defeasance, MGM Grand Finance
may draw on the Operating Loan, which will be refiinanced through and
terminated upon consummation of the Credit Facility.
The proceeds of the bank facilities will be available to fund the
defeasance, to finance initial development costs for MGM Grand Atlantic City
and for general corporate purposes. Availability under the Credit Facility
will decline in quarterly increments of $25 million, commencing on December
31, 1999, with the balance due on December 31, 2001. The Company may request
one year extensions subject to the consent of the Lenders, which would have
the effect of deferring scheduled reductions in availability.
45
<PAGE>
Interest on outstanding balances and commitment fees on unutilized
availabilities under the Credit Facility will be determined pursuant to a
formula based on the Company's leverage ratio (the ratio of total debt to cash
flow, each as defined), and in the case of interest rates, to the LIBOR or
base rate prevailing from time to time. As the Company's leverage ratio
declines, the interest rate and commitment fee will also decline. Interest on
outstanding balances under the interim facility will also vary with the
prevailing LIBOR or base rate. The Company will also pay certain underwriting
and agency fees in connection with the Credit Facility.
The interim facility and the Credit Facility will also require the Company
to comply with certain financial and operating covenants customary for such
facilities, including limitations on dividends, acquisitions and mergers.
While the Indenture covenants (which will terminate upon completion of the
defeasance) were in certain respects more restrictive than those expected to
be imposed under the Credit Facility, for the most part they applied only to
MGM Grand Las Vegas and MGM Grand Finance, and not to the Company. By way of
example, the Indenture limits dividends payable by MGM Grand Las Vegas to the
Company, but does not restrict dividends payable by the Company. The interim
facility and the Credit Facility will restrict dividends payable by the
Company. The Company has not paid and does not expect to pay dividends in the
foreseeable future. See "Dividend Policy."
It is anticipated that the defeasance of the First Mortgage Notes will be
effected in the second or third quarter of 1996. There can be no assurance
that the defeasance of the First Mortgage Notes will be accomplished or that
the terms of the interim facility or the Credit Facility will not be different
from the terms described above.
46
<PAGE>
UNDERWRITING
The U.S. Underwriters named below, for whom Deutsche Morgan Grenfell/C. J.
Lawrence Inc. and Oppenheimer & Co., Inc. are acting as representatives (the
"U.S. Representatives"), and the International Underwriters named below, for
whom Morgan Grenfell & Co., Limited and Oppenheimer International Ltd. are
acting as representatives (the "International Representatives," and together
with the U.S. Representatives, the "Joint Global Coordinators"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement (the form of which is filed as an exhibit to the
Company's Registration Statement, of which this Prospectus is a part), to
purchase from the Company the respective number of shares of Common Stock
indicated below opposite their respective names. The Underwriters are
committed to purchase all of the shares, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Deutsche Morgan Grenfell/C. J. Lawrence Inc. .......................
Oppenheimer & Co., Inc..............................................
Dean Witter Reynolds Inc............................................
Montgomery Securities...............................................
Subtotal.......................................................... 6,000,000
---------
<CAPTION>
INTERNATIONAL UNDERWRITERS
--------------------------
<S> <C>
Morgan Grenfell & Co., Limited......................................
Oppenheimer International Ltd. .....................................
Dean Witter International LTD. .....................................
Mongtomery Securities...............................................
Subtotal.......................................................... 1,500,000
---------
Total............................................................. 7,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions.
The U.S. Underwriters and the International Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed. The price of any shares of Common Stock so sold shall be the
initial public offering price, less an amount not greater than the selling
concession.
Under the terms of the Intersyndicate Agreement, the International
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are United States
persons or to persons they believe intend to resell to persons who are
47
<PAGE>
United States persons, and the U.S. Underwriters and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to any non-United States person or to persons they believe intend to
resell to non-United States persons, except, in each case, for transactions
pursuant to such agreement.
The Joint Global Coordinators have advised the Company that the Underwriters
propose initially to offer the Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Price to Public and
Underwriting Discount will be identical in the U.S. and International
Offerings. The Underwriters may allow to selected dealers (who may include the
Underwriters) a concession of not more than $. per share. The selected
dealers may reallow a concession of not more than $. to certain other
dealers. After the initial public offering, the price and concessions and re-
allowances to dealers and other selling terms may be changed by the Joint
Global Coordinators. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part. The Underwriters do not intend to
sell any of the shares of Common Stock offered hereby to accounts for which
they exercise discretionary authority.
The Company has granted an option to the Underwriters to purchase up to a
maximum of 1,125,000 additional shares of Common Stock to cover over-
allotments, if any, at the public offering price, less the underwriting
discount set forth on the cover page of this Prospectus. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in
the above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with the Offering.
Each International Underwriter has represented and agreed that (i) it has
not offered or sold and will not offer or sell any shares of Common Stock
offered hereby to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purpose of their business or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 (the "Regulations"), (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations
with respect to anything done by it in relation to the shares of Common Stock
offered hereby in, from or otherwise involving the United Kingdom, and (iii)
it has only issued or passed on and will only issue or pass on to any person
in the United Kingdom any document received by it in connection with the issue
of the shares of Common Stock offered hereby if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document
may otherwise lawfully be issued or passed on.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities including civil liabilities
under the Securities Act of 1933, as amended, or will contribute to payments
the Underwriters may be required to make in respect thereof.
In connection with the Offering, the Company, Tracinda and the directors of
the Company have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 120 days after the later of: (i) the date of
this Prospectus; and (ii) the first date on which shares of Common Stock
hereby are offered to the public, without the prior written consent of the
Joint Global Coordinators.
48
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the validity of the Common Stock
offered hereby will be passed upon for the Company by Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro, LLP, Los Angeles, California. Terry N.
Christensen, a director of the Company, is a partner of Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro, LLP. Certain legal matters will be
passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP, Los Angeles,
California.
The statements as to matters of law and legal conclusions concerning New
Jersey gaming laws included under the caption "Regulation and Licensing--New
Jersey" (other than the subcaption "Other Laws and Regulations") have been
prepared by Horn, Goldberg, Gorny, Daniels, Plackter, Weiss & Casiello, P.C.,
Atlantic City, New Jersey, New Jersey gaming counsel for the Company.
The statements as to matters of law and legal conclusion concerning Nevada
gaming laws included under the captions "Risk Factors--Risks of Development
and New Construction" and "Regulation and Licensing--Nevada" in this
Prospectus and "Item 1. Business--Hotels and Gaming--MGM Grand Las Vegas--
Nevada Government Regulation" in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 have been prepared by Lionel Sawyer &
Collins, Las Vegas, Nevada, Nevada gaming counsel for the Company.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus and incorporated by reference in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission ("the Commission"). Such periodic
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C., at its Chicago Regional Office at
500 West Madison, Suite 1400, Chicago, Illinois 60661, and at its New York
Regional Office at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 after payment of the rates prescribed by the
Commission. Copies of such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain items of which
are contained in schedules and exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. Reference is hereby
made to the Registration Statement and the exhibits thereto for further
information with respect to the Company. Any statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. For
49
<PAGE>
further information, reference is made to the Registration Statement,
including exhibits and schedules thereto. The Registration Statement can be
inspected and copied at the Public Reference Room of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed with the Commission, are
incorporated herein and specifically made a part hereof by this reference: (i)
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995; (ii) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996; (iii) the Company's Proxy Statement dated March
29, 1996; and (iv) the description of the Common Stock which is contained in
the Company's Registration Statement on Form 8-A dated April 20, 1988. In
addition, all documents filed by the Company pursuant to Sections 13(a), 14 of
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offering made hereby shall be deemed to be
incorporated by reference into this Prospectus and to be part hereof from the
date of filing of such documents with the Commission. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the documents incorporated herein by reference, other than exhibits to such
documents not specifically incorporated by reference therein. Such requests
should be addressed to Secretary/Treasurer, MGM Grand, Inc., as indicated
below.
The Company was incorporated in Delaware in January 1986. The executive
offices of the Company are located at 3799 Las Vegas Boulevard South, Las
Vegas, Nevada 89109. The Company's mailing address is P.O. Box 98655, Las
Vegas, Nevada 89199, and its telephone number is (702) 891-3333.
50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994
and 1993................................................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994.............. F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994
and 1993................................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993......................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1996 and 1995.................................................. F-21
Condensed Consolidated Balance Sheets as of March 31, 1996 and December
31, 1995................................................................. F-22
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995.................................................. F-23
Notes to Condensed Consolidated Financial Statements...................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders ofMGM Grand, Inc.:
We have audited the accompanying consolidated balance sheets of MGM Grand,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 31, 1996
F-2
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Revenues:
Casino................................... $ 404,742 $ 434,297 $ 26,702
Rooms.................................... 160,470 145,196 4,505
Food and beverage........................ 89,299 91,566 3,696
Entertainment, retail and other.......... 123,307 122,758 5,166
---------- ---------- ----------
777,818 793,817 40,069
Less: Promotional allowances............. 55,975 51,622 3,053
---------- ---------- ----------
721,843 742,195 37,016
---------- ---------- ----------
Expenses:
Casino................................... 195,140 183,514 9,341
Rooms.................................... 44,195 45,303 1,016
Food and beverage........................ 57,293 65,043 2,529
Entertainment, retail and other.......... 92,667 115,443 6,180
Provision for doubtful accounts and
discounts............................... 57,683 44,181 3,855
General and administrative............... 99,086 106,884 6,378
Restructuring costs...................... 5,942 -- --
Depreciation and amortization............ 55,419 44,433 1,647
Hotel preopening expenses................ -- -- 45,130
---------- ---------- ----------
607,425 604,801 76,076
---------- ---------- ----------
Operating Profit (Loss) Before
Corporate Expense..................... 114,418 137,394 (39,060)
Corporate expense........................ 10,595 7,679 5,486
---------- ---------- ----------
Operating Income (Loss)................ 103,823 129,715 (44,546)
---------- ---------- ----------
Nonoperating Income (Expense):
Interest income.......................... 2,896 5,544 12,231
Interest expense, net of amounts
capitalized............................. (59,329) (61,927) (6,596)
Other, net............................... (825) 208 16
---------- ---------- ----------
(57,258) (56,175) 5,651
---------- ---------- ----------
Income (Loss) Before Discontinued
Operations............................ 46,565 73,540 (38,895)
---------- ---------- ----------
Discontinued Operations:
Income (loss) from discontinued
operations.............................. -- (7,012) (78,691)
Gain on disposal of discontinued
operations.............................. -- 8,048 --
---------- ---------- ----------
-- 1,036 (78,691)
---------- ---------- ----------
Income (Loss) Before Provision (Benefit)
for Income Taxes.......................... 46,565 74,576 (117,586)
Provision (benefit) for income taxes..... -- -- --
---------- ---------- ----------
Net Income (Loss)...................... $ 46,565 $ 74,576 $ (117,586)
========== ========== ==========
Per Share of Common Stock:
Income (Loss) before discontinued
operations.............................. $ 0.96 $ 1.50 $ (0.82)
Discontinued operations.................. -- 0.02 (1.65)
---------- ---------- ----------
Net Income (Loss)...................... $ 0.96 $ 1.52 $ (2.47)
========== ========== ==========
Weighted Average Shares Outstanding........ 48,544,000 48,988,000 47,587,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1995 1994
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 110,017 $ 75,859
Accounts receivable, net............................. 78,559 95,432
Prepaid expenses..................................... 12,657 13,431
Inventories.......................................... 10,982 9,641
Notes receivable..................................... 529 14,325
---------- ----------
Total current assets............................... 212,744 208,688
---------- ----------
Property and Equipment, net............................ 903,906 880,023
---------- ----------
Other Assets:
Investment in unconsolidated affiliates.............. 53,611 10,955
Deposits............................................. 16,340 2,434
Excess of purchase price over fair market value of
net assets acquired, net............................ 40,662 --
Other assets, net.................................... 54,959 51,411
---------- ----------
Total other assets................................. 165,572 64,800
---------- ----------
$1,282,222 $1,153,511
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 20,746 $ 29,306
Current obligation, capital leases................... 2,170 2,145
Accrued interest on long term debt................... 9,368 9,429
Other accrued liabilities............................ 87,146 83,251
---------- ----------
Total current liabilities.......................... 119,430 124,131
---------- ----------
Deferred Revenues...................................... 8,568 8,505
Deferred Income Taxes.................................. 8,134 5,942
Long Term Obligation, Capital Leases................... 10,443 12,554
Commitments and Contingencies.......................... 551,099 473,000
Stockholders' Equity:
Common Stock ($.01 par value, 75,000,000 shares
authorized, 48,774,856 and 50,651,016 shares
issued)............................................. 488 507
Capital in excess of par value....................... 623,489 663,186
Note receivable stock sale........................... (10,000) --
Common stock in treasury (2,726,506 shares at
December 31, 1994).................................. -- (57,264)
Retained earnings (deficit).......................... (30,485) (77,050)
Currency translation adjustment...................... 1,056 --
---------- ----------
Total stockholders' equity......................... 584,548 529,379
---------- ----------
$1,282,222 $1,153,511
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)............................ $ 46,565 $ 74,576 $(117,586)
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......... 3,308 3,858 1,312
Depreciation and amortization............... 55,419 44,433 8,018
Aircraft overhaul amortization.............. -- -- 1,993
Provision for doubtful accounts and
discounts.................................. 57,683 44,181 3,855
Change in assets and liabilities:
Accounts receivable........................ (40,395) (93,311) (33,724)
Inventories................................ (3,784) (4,574) (12,508)
Prepaid expenses........................... 2,589 (1,677) (10,536)
Deferred income taxes...................... (2,034) -- --
Accounts payable, accrued liabilities and
other..................................... (5,863) 35,023 52,632
Currency translation adjustment............ 1,056 -- --
--------- --------- ---------
Net cash from operating activities........ 114,544 94,461 (37,596)
--------- --------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment, net..... (37,447) (65,976) (480,054)
Acquisition of MGM Grand Australia........... (71,942) -- --
Dispositions of property and equipment, net.. 488 691 684
Change in construction payables.............. (3,915) (92,740) 64,548
Notes receivable............................. 13,796 -- --
Deposits and other assets.................... (67,014) (34,930) 2,141
--------- --------- ---------
Net cash from investing activities........ (166,034) (192,955) (412,681)
--------- --------- ---------
Cash Flows From Financing Activities:
Borrowings from (repayments to) banks and
others...................................... 78,099 (10,000) 10,000
Borrowings under line of credit.............. 15,000 -- --
Repayment of line of credit.................. (15,000) -- --
Issuance of common stock..................... 7,549 822 71,619
Repurchase of common stock................... -- (27,774) --
--------- --------- ---------
Net cash from financing activities........ 85,648 (36,952) 81,619
--------- --------- ---------
Net Increase (Decrease) In Cash And Cash
Equivalents.................................. 34,158 (135,446) (368,658)
Cash And Cash Equivalents At Beginning Of
Year......................................... 75,859 211,305 579,963
--------- --------- ---------
Cash And Equivalents At End Of Year........... $ 110,017 $ 75,859 $ 211,305
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON CAPITAL IN NOTE RETAINED CURRENCY TOTAL
STOCK COMMON EXCESS OF RECEIVABLE TREASURY EARNINGS TRANSLATION STOCKHOLDERS'
OUTSTANDING STOCK PAR VALUE STOCK SALE STOCK (DEFICIT) ADJUSTMENT EQUITY
----------- ------ ---------- ---------- -------- --------- ----------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Adjustments to net sale
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
Issuance of common
stock for note
receivable............ 618,557 -- -- (15,000) 15,000 -- -- --
Payment received from
note receivable....... -- -- -- 5,000 -- -- -- 5,000
Issuance of common
stock pursuant to
employee
stock options......... 231,789 2 2,546 -- -- -- -- 2,548
Retirement of treasury
stock................. -- (21) (42,243) -- 42,264 -- -- --
Net income............. -- -- -- -- -- 46,565 -- 46,565
Currency translation
adjustment............ -- -- -- -- -- -- 1,056 1,056
---------- ---- -------- -------- -------- --------- ------ ---------
Balance at December 31,
1995................... 48,774,856 $488 $623,489 $(10,000) $ -- $ (30,485) $1,056 $ 584,548
========== ==== ======== ======== ======== ========= ====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<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 on
January 29, 1986. As of December 31, 1995, approximately 74% of the
outstanding shares of the Company's common stock was 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. ("MGM Grand
Hotel"), the Company owns and operates the MGM Grand Hotel/Casino ("MGM Grand
Las Vegas"), a fully integrated hotel/casino and entertainment complex in Las
Vegas, Nevada. MGM Grand Las Vegas commenced operations on December 18, 1993.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Diamond Beach Hotel/Casino in Darwin,
Australia ("MGM Grand Australia"), a hotel/casino resort. The results of
operations of MGM Grand Australia are included from September 7, 1995, the
date of acquisition (see Note 15).
On December 28, 1994, the Company and Primadonna Resorts, Inc.
("Primadonna") executed definitive agreements for the formation of New York-
New York Hotel, LLC ("NYNY Hotel"), a 50% joint venture between the Company
and Primadonna. The Company and Primadonna will jointly and equally own,
develop and operate NYNY Hotel, a themed hotel/casino, with an approximate
cost of $460,000,000, including construction costs, preopening costs and
capitalized interest. The project is located on the northwest corner of
Tropicana Avenue and Las Vegas Boulevard, across from MGM Grand Las Vegas.
Groundbreaking occurred on March 30, 1995. The plans for NYNY Hotel call for
the destination resort to include approximately 2,035 hotel rooms, a casino,
themed entertainment attractions, restaurants and retail outlets.
The Company and Bally's Las Vegas completed their joint development of the
elevated monorail linking MGM Grand Las Vegas with the corner of Flamingo Road
and the Las Vegas Strip. The monorail is a one-mile, high-capacity, transit-
grade system which cost approximately $25,000,000. The project costs were
shared equally with Bally's. The system began operations on June 14, 1995.
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 16).
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation--The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
Investments in unconsolidated affiliates which are 50% or less owned are
accounted for under the equity method. Significant intercompany accounts are
eliminated in consolidation.
b. Management's Use of Estimates--The preparation of the consolidated
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
c. Cash and Cash Equivalents--Cash and 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 approximate market value.
F-7
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
d. Receivables--Receivables are due within one year and are recorded net of
amounts estimated to be uncollectible.
e. Inventories--Inventories are stated at the lower of cost or market, which
is determined generally by the FIFO method.
f. 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 MGM Grand
Las Vegas was under construction, as well as during periods for other major
construction projects. 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>
g. Excess of Purchase Price Over Fair Market Value of Net Assets Acquired--
The excess of purchase price over fair market value of net assets acquired are
amortized on a straight-line basis over 40 years.
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. 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 related to the debt offering and bank financing are
being deferred and amortized over the debt repayment periods. Organizational
costs are amortized on a straight-line basis over 60 months.
i. Revenue Recognition--Casino revenue is the aggregate of 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 are included in other accrued liabilities.
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 $55,975,000,
$51,622,000 and $3,053,000 for the years ended December 31, 1995, 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,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Rooms.............................................. $ 8,512 $ 7,809 $ 659
Food and beverage.................................. 23,588 24,115 1,170
Other.............................................. 3,804 5,176 84
-------- -------- -------
$ 35,904 $ 37,100 $ 1,913
======== ======== =======
</TABLE>
F-8
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
k. Hotel Preopening Expenses--Hotel preopening expenses include direct
salaries and other costs incurred during the period prior to commencement of
operations of MGM Grand Las Vegas. Such costs were expensed in 1993 upon
opening of the facility.
l. Income Taxes--The Company adopted statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" effective January 1, 1993
(see Note 14).
m. Currency Translation--Assets and liabilities denominated in Australian
dollars are translated into U.S. dollars at year end exchange rates, and
related gains and losses, net of applicable deferred income taxes, are
reflected in stockholders' equity.
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
(48,544,000 in 1995, 48,988,000 in 1994, and 47,587,000 in 1993).
Supplementary unaudited information--On a supplemental unaudited basis, net
income per share assuming defeasance of the First Mortgage Notes as described
in the Registration Statement, would have been $.69 per share for the year
ended December 31, 1995.
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,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments made for:
Interest, net of amounts capitalized............ $ 55,750 $ 58,975 $ 3,535
======== ======== =======
State and federal taxes......................... $ 620 $ 755 $ 203
======== ======== =======
</TABLE>
On June 5, 1995, the Company retired all remaining shares of common stock
held in Treasury, which thereupon resumed the status of authorized unissued
shares, in a non-cash transaction in the amount of $42,264,000.
In 1993, the Company acquired property and equipment with capital leases
totalling $15,423,000. During the same year, 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 addition, $940,000 was
credited in 1993 to Capital in Excess of Par Value in connection with the 1991
sale of the Desert Inn Hotel/Casino.
F-9
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACCOUNTS RECEIVABLE
Components of receivables were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Casino................................................... $ 98,878 $ 97,254
Hotel.................................................... 12,509 14,194
Other.................................................... 246 1,608
-------- --------
111,633 113,056
Less: Allowance for doubtful accounts and discounts...... (33,074) (17,624)
-------- --------
$ 78,559 $ 95,432
======== ========
</TABLE>
Credit is issued in exchange for gaming chips at MGM Grand Las Vegas as
permitted by the regulations of the Nevada Gaming Commission and the Nevada
State Gaming Control Board. The Company extends credit to certain casino
patrons, a substantial portion of whom reside in countries other than the
United States, following evaluation of credit worthiness. The Company
maintains an allowance for doubtful accounts and discounts which is based on
management's estimate of the amount expected to be uncollectible considering
historical experience and the information management obtains regarding the
credit worthiness of the customer. The collectibility of these receivables
could be affected by future business or economic trends or other significant
events in the countries in which such customers reside. Although management
believes the allowance is adequate, it is possible that the estimated amount
of cash collections with respect to the casino accounts receivable could
change.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 99,625 $ 90,567
Buildings and improvements.............................. 669,227 621,835
Equipment, furniture, fixtures and leasehold improve-
ments.................................................. 202,508 194,756
Equipment under capital lease........................... 17,836 17,793
Construction in progress................................ 7,772 615
-------- --------
996,968 925,566
Less: Accumulated depreciation and amortization......... (93,062) (45,543)
-------- --------
$903,906 $880,023
======== ========
</TABLE>
F-10
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
New York-New York Hotel, LLC................................ $40,938 $ 1,455
MGM Grand-Bally's Monorail, LLC............................. 12,673 9,500
------- -------
$53,611 $10,955
======= =======
</TABLE>
NOTE 7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and related................................ $29,856 $28,740
Casino front money.......................................... 21,279 28,010
Casino chip liability....................................... 5,831 3,943
Advance deposits............................................ 5,113 3,521
Accrued gaming taxes........................................ 4,168 2,339
Other liabilities........................................... 20,899 16,698
------- -------
$87,146 $83,251
======= =======
</TABLE>
NOTE 8. LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<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
Australian Hotel/Casino Loan due December 1, 2000......... 78,099 --
-------- --------
551,099 473,000
Less: Current Maturities.................................. -- --
-------- --------
$551,099 $473,000
======== ========
</TABLE>
Total interest incurred during 1995, 1994, and 1993 was $63,646,000,
$61,927,000, and $59,472,000, respectively, of which $4,317,000 and
$52,876,000 was capitalized in 1995 and 1993, respectively. In 1994, the
Company did not capitalize any interest.
The First Mortgage Notes Indenture contains 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, 1995 and 1994, the fair value of the First
Mortgage Notes was $512,999,000 and $513,081,000, respectively.
F-11
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 7, 1995, the Company completed the acquisition of the Diamond
Beach Hotel/Casino in Darwin, Australia (see Note 15). The acquisition cost
was financed by an Australian bank facility which provides a total
availability of approximately $78,099,000 and includes funding for general
corporate purposes. Interest on the facility is based on the bank reference
rate or Eurodollar rate. The loan agreement contains various restrictive
covenants on MGM Grand Australia and the Company, including the maintenance of
certain financial ratios and limitations on additional debt, dividends, and
disposition of assets. It also restricts acquisitions and similar
transactions. The facility matures in December 2000. The indebtedness has been
wholly guaranteed by the Company.
Maturities of the Company's long term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------ (IN THOUSANDS)
<S> <C>
1996........................................................ $ --
1997........................................................ 67,087
1998........................................................ 67,087
1999........................................................ 125,806
2000........................................................ 101,370
Thereafter.................................................. 189,749
--------
$551,099
========
</TABLE>
On September 20, 1995, NYNY Hotel (see Note 1) completed its bank financing
for up to $225,000,000. The non-revolving construction line of credit converts
to a reducing revolver upon completion of construction and commencement of
operations. The Company and Primadonna have guaranteed completion of the
project as a condition to facility availability, and have executed a joint and
several unlimited Keep-Well Agreement which provides that in the event of
insufficient bank loan ratios by NYNY Hotel, the partners will make cash
infusions which are sufficient to bring NYNY Hotel into compliance with
covenants.
On June 16, 1993, Grand Laundry, Inc., a wholly-owned subsidiary of MGM
Grand Hotel, Inc. obtained a $10,000,000 loan from a financial institution for
a laundry facility. The loan was paid off on December 27, 1994.
On May 14, 1992, the Company secured a commitment from several banks for a
$60,000,000 line of credit for MGM Grand Las Vegas. The facility became
available on November 18, 1993, and expires on December 31, 1999. The Company
incurs a commitment fee ranging up to .5% for the unused portion of the line
of credit. No amounts were outstanding under the line of credit during 1994.
During 1995, the Company borrowed and repaid $15,000,000 under the bank line
of credit, and as of December 31, 1995, no amounts were outstanding under the
facility.
F-12
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries leased buildings and equipment under non-
cancelable operating lease agreements which expire through the year 2000. The
leases generally provide that the Company pay taxes, insurance and maintenance
expense related to the leased assets.
At December 31, 1995, the Company was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ --------- -------
(IN THOUSANDS)
<S> <C> <C>
1996...................................................... $ 3,512 $ 3,194
1997...................................................... 3,163 3,465
1998...................................................... 5,588 2,836
1999...................................................... 1,403 2,872
2000...................................................... 1,926 1,549
Thereafter................................................ 15,518 1,500
------- -------
Total Minimum Lease Payment............................... $31,110 15,416
======= -------
Amount Representing Interest.............................. (2,803)
-------
Total Obligation Under Capital Leases..................... 12,613
Less: Amount due within one year.......................... (2,170)
-------
Amount due after one year................................. $10,443
=======
</TABLE>
Rental expense on the above noted non-cancelable operating leases was
$3,552,000, $12,225,000 and $1,152,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
Through the date of sale of the airline on December 31, 1994 (see Note 16),
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.
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 for
approximately $42,000,000. In addition, during 1993, the Company entered into
capital leases for hotel/casino and theme park equipment in the amount of
$15,423,000.
NOTE 10. STOCKHOLDERS' EQUITY
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.
On May 24, 1995, and as amended on November 27, 1995, the Company and MGM
Grand Hotel, Inc. entered into a Promotion Agreement with Don King
Productions, Inc. ("DKP"), pursuant to which, among other things: (i) MGM
Grand Hotel, Inc. has the exclusive right to present six of Mike Tyson's first
seven fights; (ii) MGM Grand Hotel, Inc. made a non-interest bearing working
capital advance of
F-13
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$15,000,000 to DKP, to be repaid on January 25, 1998; (iii) the Company sold
DKP 618,557 treasury shares of the Company's Common Stock for $15,000,000,
evidenced by a non-interest bearing promissory note to be repaid in three
$5,000,000 installments out of the proceeds of each of the first three Tyson
fights which occur in the MGM Grand Garden or at another site selected by MGM
Grand Hotel, Inc.; (iv) the Company guaranteed to DKP that the market value of
the shares will equal or exceed $30,000,000 ($48.50 per share) as of January
25, 1998; and (v) the Company and DKP entered into security agreements and a
registration rights agreement with respect thereto. Through December 31, 1995,
one fight had occurred pursuant to the agreement, and accordingly, the Company
expensed approximately $2,600,000, representing the accumulated "per fight"
amortization of the difference between the guaranteed share price and the
market price of $23.00 at December 31, 1995. The remaining balance outstanding
of $10,000,000 on the non-interest bearing promissory note is reflected as
note receivable stock sale and is included as a reduction to stockholders'
equity.
As of December 31, 1993, the Company had 1,734,706 shares of its common
stock held in treasury. On March 9, 1994, the Company announced that it
intended to acquire in open market purchases as many as 1,000,000 shares of
its common stock. Through December 31, 1994, the Company had acquired 991,800
shares of its common stock. No further purchases of shares have been made or
are anticipated. On June 5, 1995, the Company retired all of the remaining
2,107,949 shares of common stock held in treasury, which thereupon resumed the
status of authorized but unissued shares.
NOTE 11. 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 5,000,000 shares. In 1995,
1,985,250 options were granted at exercise prices ranging from $24.00 to
$30.25 pursuant to the nonqualified plan. During 1995, 231,789 nonqualified
stock options were exercised at prices ranging from $10.75 to $12.00. At
December 31, 1995, 3,106,232 options at exercise prices ranging from $10.25 to
$30.25 were outstanding of which 448,769 were exercisable. During the year,
certain stock options were amended to reduce the per share exercise prices to
$26.00 (the market price on the date of amendment) from exercise prices
ranging from $26.25 to $32.50. 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 1,975,000, of which 1,500,000
options become immediately exercisable, and the remaining 475,000 options
become exercisable if employment status is diminished within twelve months
following a change in control.
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% 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.
The Financial Accounting Standards Board issued its Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which
is effective for fiscal years beginning after December 15, 1995. This
statement recommends that the Company account for its stock option plans by
recognizing the fair value of stock options granted over the vesting period of
the option. If the Company does not change its accounting policy, the
statement requires, at a minimum,
F-14
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
that the Company disclose the pro forma impact on net income and earnings per
share as though the recommended accounting method had been used. The Company
has determined that it will not change from its current method of accounting
for stock options, but it will make the required disclosures in the future.
NOTE 12. EMPLOYEE PENSION AND SAVINGS PLANS
Effective February 1993, MGM Grand Hotel, Inc. adopted 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. MGM
Grand Hotel, Inc. matches 25% of employee contributions up to a maximum of 1%
of a participating employee's eligible gross wages. Additionally, MGM Grand
Hotel, Inc. makes contributions to the employees' savings plan based on length
of service which vest over a five year period. For the periods ended December
31, 1995 and 1994, MGM Grand Hotel, Inc. contributions under this arrangement
were $3,189,000 and $3,361,000, respectively.
Effective November 1994, the Company and MGM Grand Hotel, Inc. adopted a
Nonqualified Deferred Retirement Plan for 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 MGM Grand Hotel, Inc.
401(k) 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.
Effective with the September 1995 acquisition of the Diamond Beach Hotel and
Casino by MGM Grand Australia Pty Ltd., (see Notes 1 and 15), an Australian
employee retirement fund was acquired. The fund is subject to the
Superannuation Industry (Supervision) Act of 1993, imposing a legal obligation
on MGM Grand Australia to contribute to all employees. MGM Grand Australia
maintains two categories for the plan, depending on employment status:
category (A) for executive employees and category (B) for staff. Death and
Disablement benefits are provided for all members; however, category (A)
members receive increased coverages under both benefits. MGM Grand Australia
contributes 6% of salary to satisfy the Superannuation Guarantee Legislation,
and allows participants to defer, on a pretax basis, a portion of their salary
(minimum 3%) and accumulate tax deferred earnings as a retirement fund. The
full amount vested in members' retirement accounts is payable to the member
following termination of employment, or normal retirement. For the period
since acquisition on September 7, 1995, to December 31, 1995, MGM Grand
Australia contributions under these arrangements were $64,000 and $221,000 for
the executive employees and staff, respectively.
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. Administration of the savings plan was assumed by the
purchaser of the airline.
NOTE 13. COMPANY RESTRUCTURING PLAN
On August 1, 1995, the Company announced details of a comprehensive
restructuring plan designed to reduce costs and improve efficiency of
operations at MGM Grand Las Vegas. This restructuring resulted in a one-time
charge against earnings in the third quarter of 1995 totalling $5,942,000,
primarily related to employee severance payments.
F-15
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards 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.
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, 1995, the Company determined
that $18,013,000 of tax benefits did not satisfy the recognition criteria set
forth in the standard. Accordingly, a valuation allowance was recorded for the
applicable deferred tax assets.
The provision (benefit) for income taxes for the years ended December 31,
1995, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current--Federal.................................. $ 2,034 $ 575 $ --
Deferred--Federal................................. (2,034) (575) --
--------- ------- ------
Total........................................... $ -- $ -- $ --
========= ======= ======
</TABLE>
Reconciliation of the Federal income tax rate and the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax rate........................ 35% 35% 35%
Changes in valuation allowance................. (35) (35) --
Net operating loss--no benefit recorded........ -- -- (35)
-------- -------- --------
Effective tax rate............................. -- % -- % -- %
======== ======== ========
</TABLE>
F-16
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1995, after having given effect to SFAS 109, the major
tax effected components of the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Asset
Net operating loss carryforward..................... $ 45,871 $ 45,559
Bad debt reserve.................................... 8,034 6,302
Hotel preopening expenses........................... 8,860 12,448
Accruals, reserves and other........................ 3,479 1,924
Tax credit carryforwards............................ 5,606 1,410
--------- ---------
71,850 67,643
Less: Valuation allowance............................. (18,013) (32,150)
--------- ---------
53,837 35,493
--------- ---------
Deferred Tax Liability
Depreciation and amortization....................... (58,499) (37,963)
Capitalized interest................................ (3,472) (3,472)
--------- ---------
Total deferred tax liability...................... (61,971) (41,435)
--------- ---------
Net Deferred Tax Liability............................ $ (8,134) $ (5,942)
========= =========
</TABLE>
At December 31, 1995, the Company had a tax return net operating loss
carryforward of approximately $131,000,000 which will expire as follows:
<TABLE>
<CAPTION>
NET OPERATING
YEAR OF EXPIRATION LOSS CARRYWARD
------------------ --------------
(IN THOUSANDS)
<S> <C>
2006.......................................................... $ 14,500
2007.......................................................... 9,900
2008.......................................................... 28,100
2009.......................................................... 22,800
2010.......................................................... 55,700
--------
$131,000
========
</TABLE>
In addition, the Company has an alternative tax credit carryforward of
$3,400,000 which does not expire, and a general business tax credit
carryforward of $2,206,000 which expires in different periods through 2010.
F-17
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. AUSTRALIAN CASINO ACQUISITION
On September 7, 1995, the Company, through its wholly owned subsidiary, MGM
Grand Australia, Pty Ltd., completed the acquisition of the Diamond Beach
Hotel/Casino in Darwin, Australia, for approximately U.S. $75,971,000, subject
to certain adjustments. The acquisition costs include $59,972,000 for the
purchase of stock and $14,200,000 of debt assumption, and debt and
organization costs of $1,799,000. In addition, on October 24, 1995, the
Company expended approximately $3,774,000 to acquire the remaining 14.3%
interest not already owned in the Territory Property Trust, which owns the
land and buildings of MGM Grand Australia. MGM Grand Australia is located on
18 acres of beachfront property on the north central coast of Australia. The
resort includes a public and private casino, 97 rooms and suites, restaurants,
and other facilities. The Company financed the acquisition through an
Australian bank facility (see Note 8). The acquisition was accounted for using
the purchase method, whereby the assets acquired were recorded at their fair
market values. The purchase price allocation is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash......................................................... $ 7,803
Property, plant and equipment................................ 36,088
Excess of purchase price over fair market value of net assets
acquired.................................................... 40,980
Deferred income taxes........................................ (4,226)
Net liabilities.............................................. (900)
-------
$79,745
=======
</TABLE>
Concurrent with the closing of the transaction on September 7, 1995, the
Company granted to certain of the sellers an option to acquire 22.5% of the
stock of the Company's Australian subsidiary. The option, which was granted
for a nominal consideration, is exercisable at any time during the third and
fourth years following the closing, at an exercise price of approximately
$14,400,000 subject to certain adjustments. The option holders also granted to
the Company a two-year option to purchase 25% interests in each of Aspinall's
Club in London, U.K., and Aspinall Casino SA in Le Touquet, France, with an
exercise price in each case based on the amount of the owners' respective
investments in such casinos.
NOTE 16. DISCONTINUED OPERATIONS/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. As of December 31, 1995, the principal on the Note had
been reduced to approximately $432,000.
Prior year operating results of MGM Grand Air have been accounted for as
discontinued operations, and such financial statements have been restated.
Summary operating results of discontinued operations, excluding the above
noted gain, are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues............................................ $19,535,000 $20,784,000
Reduction in aircraft carrying value................ $ -- $68,948,000
Operating loss...................................... $ 7,012,000 $78,691,000
</TABLE>
F-18
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17. RELATED-PARTY TRANSACTIONS
In conjunction with the Company's 50% interest in the MGM Grand-Bally's
monorail joint venture, the Company, through its wholly-owned subsidiary, MGM
Grand Hotel, Inc., contributed approximately $750,000 to the joint venture as
part of its operating contribution during 1995.
In August 1995, the Company made a $5,000,000 working capital advance to
NYNY Hotel. The $5,000,000 advance, together with interest, was repaid during
September 1995. The Company and NYNY Hotel have entered into various other
transactions and arrangements which, individually and in the aggregate, are
not material.
During 1995, MGM Grand Las Vegas chartered a Boeing 727 aircraft and a
Challenger aircraft from Tracinda, which total lease payments of $147,000 and
$63,000, respectively. MGM Grand Las Vegas also leased Tracinda's Challenger
aircraft through a third party operator for $243,000 during 1995.
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 MGM Grand Las Vegas. 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. On January 6, 1995, the Company contributed
the property to NYNY Hotel (see Notes 1 and 6), as its share of the capital
contribution to the hotel/casino construction project.
In November 1993, MGM Grand Hotel, Inc. 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.
During the period from October 10, 1992, through January 20, 1993, MGM Grand
Air, Inc. leased a Boeing 757 aircraft from Tracinda, with lease and related
payments totalling $479,000. Also during 1993, payments by The Stars' Desert
Inn to MGM Grand Air for the charter of aircraft amounted to $67,000.
In August 1992, MGM Grand Las Vegas 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 Las Vegas also agreed to use The Stars' Desert Inn
casino to test certain gaming equipment from July to September 1993. MGM Grand
Las Vegas 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 years ended December 31, 1995, 1994 and 1993, the Company and
Tracinda have entered into various other transactions and arrangements which,
individually and in the aggregate, are not material.
F-19
<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 Las Vegas, which commenced operations on December
18, 1993, and MGM Grand Australia, which was acquired on September 7, 1995
(see Note 15). Airline operations have been reclassified for the years
presented to Discontinued Operations as a result of the sale of the airline
(see Note 16). Sales between industry segments are immaterial and generally at
prices approximately equal to those charged to unaffiliated customers.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues:
Hotel/Casino.......................... $ 721,843 $ 742,195 $ 37,016
---------- ---------- ----------
Operating income (loss):
Hotel/Casino.......................... $ 120,360 $ 137,394 $ 6,070
Corporate expenses.................... (10,595) (7,679) (5,486)
Hotel preopening expenses............. -- -- (45,130)
Restructuring costs................... (5,942) -- --
---------- ---------- ----------
$ 103,823 $ 129,715 $ (44,546)
---------- ---------- ----------
Identifiable assets:
Hotel/Casino.......................... $1,250,771 $1,088,767 $1,071,612
Discontinued operations--airline...... -- 2,618 2,501
Corporate............................. 31,451 62,126 86,010
---------- ---------- ----------
$1,282,222 $1,153,511 $1,160,123
---------- ---------- ----------
Capital expenditures:
Hotel/Casino.......................... $ 37,371 $ 60,086 $ 474,454
Discontinued operations--airline...... -- 5,552 5,568
Corporate............................. 76 338 32
---------- ---------- ----------
$ 37,447 $ 65,976 $ 480,054
---------- ---------- ----------
Depreciation and amortization:
Hotel/Casino.......................... $ 55,315 $ 44,346 $ 1,593
Corporate expenses.................... 104 87 54
---------- ---------- ----------
$ 55,419 $ 44,433 $ 1,647
========== ========== ==========
</TABLE>
F-20
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
REVENUES:
Casino.................................................. $130,256 $ 91,326
Room.................................................... 43,801 38,891
Food and beverage....................................... 20,094 22,795
Entertainment, retail and other......................... 29,109 22,649
-------- --------
223,260 175,661
Less: promotional allowances............................ 13,956 13,776
-------- --------
209,304 161,885
-------- --------
EXPENSES:
Casino.................................................. 56,330 49,732
Room.................................................... 11,782 10,825
Food and beverage....................................... 12,273 14,712
Entertainment, retail and other......................... 22,621 19,009
Provision for doubtful accounts and discounts........... 15,626 8,176
General and administrative.............................. 24,722 24,528
Depreciation and amortization........................... 15,216 12,570
-------- --------
158,570 139,552
-------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSE................. 50,734 22,333
CORPORATE EXPENSE......................................... 1,511 2,027
-------- --------
OPERATING INCOME.......................................... 49,223 20,306
-------- --------
OTHER INCOME (EXPENSE):
Interest income......................................... 1,581 548
Interest expense, net of amounts capitalized............ (15,797) (15,329)
Other, net.............................................. (479) --
-------- --------
(14,695) (14,781)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES.................. 34,528 5,525
Provision for income taxes.............................. -- --
-------- --------
NET INCOME................................................ $ 34,528 $ 5,525
======== ========
PER SHARE OF COMMON STOCK:
Net income.............................................. $ 0.70 $ 0.11
======== ========
Weighted average shares outstanding (000's)............... 49,604 48,555
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-21
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
------------------------
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 183,580 $ 110,017
Accounts receivable, net............................ 52,719 78,559
Prepaid expenses.................................... 16,311 12,657
Inventories......................................... 10,662 10,982
Notes receivable.................................... 247 529
---------- ----------
Total current assets.............................. 263,519 212,744
---------- ----------
PROPERTY AND EQUIPMENT, NET........................... 903,641 903,906
OTHER ASSETS:
Investments in unconsolidated affiliates............ 54,552 53,611
Deposits............................................ 15,366 16,340
Excess of purchase price over fair market value of
net assets acquired, net........................... 40,390 40,662
Other assets, net................................... 57,403 54,959
---------- ----------
Total other assets................................ 167,711 165,572
---------- ----------
$1,334,871 $1,282,222
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 16,841 $ 20,746
Current obligation, capital leases.................. 2,772 2,170
Accrued interest on long term debt.................. 23,421 9,368
Other accrued liabilities........................... 93,782 87,146
---------- ----------
Total current liabilities......................... 136,816 119,430
---------- ----------
DEFERRED REVENUES..................................... 9,783 8,568
DEFERRED INCOME TAXES................................. -- 8,134
LONG TERM OBLIGATION, CAPITAL LEASES.................. 9,613 10,443
LONG TERM DEBT........................................ 555,131 551,099
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 75,000,000 shares
authorized, 49,085,078 and 48,774,856 shares
issued)............................................ 491 488
Capital in excess of par value...................... 626,990 623,489
Note receivable from stock sale..................... (5,000) (10,000)
Retained earnings (deficit)......................... 4,043 (30,485)
Currency translation adjustment..................... (2,996) 1,056
---------- ----------
Total stockholders' equity........................ 623,528 584,548
---------- ----------
$1,334,871 $1,282,222
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-22
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 34,528 $ 5,525
Adjustments to reconcile net income to net cash from
operating activities:
Amortization of debt offering costs.................... 754 401
Depreciation and amortization.......................... 15,243 12,595
Provision for doubtful accounts and discounts.......... 15,626 8,176
Change in assets and liabilities:
Accounts receivable.................................. 10,214 (2,069)
Inventories.......................................... 230 651
Prepaid expenses..................................... (3,654) (3,326)
Deferred income taxes................................ (12,318) --
Accounts payable, accrued liabilities and other...... 18,567 (14,266)
Currency translation adjustment...................... (21) --
-------- --------
Net cash from operating activities................. 79,169 7,687
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of property and equipment...................... (14,120) (12,426)
Dispositions of property and equipment, net.............. 277 135
Note receivable.......................................... 282 9,285
Deposits and other assets, net........................... (549) (59,945)
-------- --------
Net cash from investing activities................. (14,110) (62,951)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under line of credit........................... 2,294 8,000
Repayment of line of credit.............................. (2,294) --
Issuance of common stock................................. 8,504 760
-------- --------
Net cash from financing activities................. 8,504 8,760
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 73,563 (46,504)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 110,017 75,859
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $183,580 $ 29,355
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand, Inc. (the "Company") is a Delaware corporation, incorporated on
January 29, 1986. As of March 31, 1996 approximately 72.5% 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. ("MGM Grand
Hotel") the Company owns and operates MGM Grand Hotel/Casino ("MGM Grand Las
Vegas"), a fully integrated hotel/casino and entertainment complex in Las
Vegas, Nevada. MGM Grand Las Vegas commenced operations on December 18, 1993.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Diamond Beach Hotel/Casino ("MGM Grand
Australia"), a hotel/casino resort in Darwin, Australia. MGM Grand Australia
commenced operations on September 7, 1995, the date of acquisition.
On December 28, 1994, the Company and Primadonna Resorts, Inc.
("Primadonna") executed definitive agreements for the formation of New York-
New York Hotel, LLC ("NYNY"), a 50% joint venture between the Company and
Primadonna. The project is located on 18 acres at the busiest intersection in
Nevada, the northwest corner of Tropicana Avenue and Las Vegas Boulevard
across from MGM Grand Las Vegas. Groundbreaking occurred on March 30, 1995.
The plans for NYNY call for the destination resort to include a 2,035-room
hotel and casino, themed entertainment attractions and restaurants and retail
outlets at an approximate cost of $460,000,000, including construction and
preopening costs, and capitalized interest. The Company and Primadonna will
jointly and equally own, develop and operate NYNY. Completion is scheduled for
December 1996.
The Company and Bally's Las Vegas jointly own and operate an elevated
monorail linking MGM Grand Las Vegas with the corner of Flamingo Road and the
Las Vegas Strip. The monorail is a one-mile, high-capacity, transit-grade
system, and costs are shared equally with Bally's Las Vegas.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the 1995 Annual Report
included in Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position as of March 31, 1996, and the results of operations for the three
month periods ended March 31, 1996 and March 31, 1995. The results of
operations for such periods are not necessarily indicative of the results to
be expected for the full year.
Certain reclassifications have been made to prior period financial
statements to conform with the 1996 presentation.
NOTE 2. STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 and March 31, 1995, cash payments
made for interest were $2,066,000 and $529,000, respectively.
Cash payments made for state and federal taxes for the three months ended
March 31, 1996 and March 31, 1995 were $2,027,000 and $500,000, respectively.
F-24
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<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
Australian Hotel/Casino Loan.......................... 82,131 78,099
-------- --------
$555,131 $551,099
======== ========
</TABLE>
Total interest incurred for the first three months of 1996 and 1995 was
$16,914,000 and $15,329,000, respectively, of which $1,117,000 was capitalized
in the 1996 period, related to construction of the Company's joint venture
project NYNY. No interest was capitalized in the first quarter of 1995.
The Company has a $60,000,000 line of credit with several banks for MGM
Grand Hotel. No amounts were outstanding under the line of credit during the
three months ended March 31, 1996, and $8,000,000 was outstanding as of March
31, 1995.
The First Mortgage Notes Indenture and the Bank Line of Credit contain
provisions which generally limit dividend and other restricted payments by MGM
Grand Hotel to the Company unless (1) no default shall have occurred
thereunder, (2) the consolidated net worth of MGM Grand Hotel is greater than
$415,000,000, (3) MGM Grand Hotel, Inc. meets its indebtedness tests and (4)
such dividends and other restricted payments do not exceed the sum of
$25,000,000 plus 50% of cumulative consolidated net income.
The Australian bank facility provides a total availability of approximately
$82,131,000 (AUS$105,000,000) and includes funding for general corporate
purposes. Interest on the facility is based on the bank reference rate or
eurodollar rate. The loan agreement contains various restrictive covenants on
the Company and MGM Grand Australia, including the maintenance of certain
financial ratios and limitations on additional debt, dividends, and
disposition of assets. It also restricts acquisitions and similar
transactions. The indebtedness has been wholly guaranteed by the Company and
matures in December 2000.
MGM Grand Australia has a $15,644,000 (AUS$20,000,000) uncommitted standby
line of credit, with a funding period of 91 days for working capital purposes.
During the three months ended March 31, 1996, $2,294,000 was borrowed and
repaid under the bank facility.
On September 20, 1995, NYNY, a joint venture between the Company and
Primadonna Resorts, Inc. (see Note 1) completed its bank financing for up to
$225,000,000. The non-revolving construction line of credit converts to a
reducing revolver upon completion of construction and commencement of
operations. The Company and Primadonna Resorts, Inc. (the "Partners") have
guaranteed completion of the project as a condition to facility availability,
and have executed a joint and several unlimited Keep-Well Agreement. The
agreement provides that in the event of insufficient bank loan ratios by NYNY,
the Partners will make cash infusions which are sufficient to bring NYNY into
compliance with covenants.
F-25
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ISSUANCE OF COMMON STOCK
On May 24, 1995, the Company and MGM Grand Hotel, Inc. entered into a
Promotion agreement with Don King Productions, Inc. ("DKP"), pursuant to
which, among other things: (i) MGM Grand Las Vegas will have the exclusive
right to present six of Mike Tyson's first seven fights; (ii) MGM Grand Hotel
made a non-interest bearing working capital advance of $15,000,000 to DKP, to
be repaid on January 25, 1998; (iii) the Company sold DKP 618,557 treasury
shares of the Company's common stock for $15,000,000, evidenced by a non-
interest bearing promissory note to be repaid in three $5,000,000 installments
out of the proceeds of each of the first three Tyson fights which occur in the
MGM Grand Garden or at another site selected by MGM Grand Hotel; (iv) the
Company guaranteed to DKP that the market value of the shares will equal or
exceed $30,000,000 ($48.50 per share) as of January 25, 1998; and (v) the
Company and DKP entered into security agreements and a registration rights
agreement with respect thereto. The remaining balance outstanding of
$5,000,000 on the non-interest bearing promissory note is reflected as a note
receivable from stock sale and is included in stockholders' equity.
NOTE 5. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents, if dilutive, outstanding during
each period (49,604,127 and 48,554,545 shares) for the three month periods
ended March 31, 1996 and 1995, respectively.
On a supplemental basis, net income per share assuming defeasance of the
First Mortgage Notes, as described in the Registration Statement, would have
been $.08 per share for the three months ended March 31, 1996.
NOTE 6. INCOME TAXES
The Company accounts for income taxes according to Statement of Financial
Accounting Standard No. 109, "Accounting for income Taxes" ("SFAS 109"). 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 deferred tax asset to the
extent that realization of such asset is more likely than not. Otherwise, a
valuation allowance is applied. As of March 31, 1996, the Company determined
that $4,741,000 of deferred tax assets did not satisfy the recognition
criteria set forth in the standard. Accordingly, valuation allowance was
recorded for the deferred tax assets.
The provision (benefit) for income taxes for the quarters ended March 31,
1996 and 1995, is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1995
------- ----
<S> <C> <C>
Current-Federal............................................ $ 9,811 $--
Deferred-Federal........................................... (9,811) --
------- ----
Total.................................................... $ -- $--
======= ====
</TABLE>
Reconciliation of the income tax rate and the Company's effective tax rate
is as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1995
----- -----
<S> <C> <C>
Effective income tax rate.................................. 35.0% 35.0%
Other...................................................... 1.5 --
Reduction in valuation allowance........................... (36.5) (35.0)
----- -----
Effective tax rate......................................... -- % -- %
===== =====
</TABLE>
F-26
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of March 31, 1996 and December 31, 1995, after having given effect to
SFAS 109, the major tax-effected components of the Company's net deferred
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS--FEDERAL......................... $ 71,533 $ 71,850
Less: Valuation allowance.......................... (4,741) (18,013)
-------- --------
Net deferred tax assets............................ 66,792 53,837
DEFERRED TAX LIABILITIES............................. (62,608) (61,971)
-------- --------
NET DEFERRED TAX ASSET (LIABILITY)................... 4,184 (8,134)
======== ========
</TABLE>
The net deferred tax asset at March 31, 1996, is included in other assets in
the accompanying condensed consolidated balance sheets.
At March 31, 1996, the Company had a net operating loss carryforward for
income tax purposes of approximately $95,100,000 which expires in different
periods through 2010, General Business Credit carryovers of $2,400,000 which
expires in different periods through 2010, and an Alternative Minimum Tax
credit carryover of $12,000,000 which does not expire.
F-27
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OF SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 14
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial Information............................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 25
Regulation and Licensing.................................................. 37
Management................................................................ 42
Description of Common Stock............................................... 44
Defeasance of First Mortgage Notes........................................ 45
Underwriting.............................................................. 47
Legal Matters............................................................. 49
Experts................................................................... 49
Available Information..................................................... 49
Documents Incorporated By Reference....................................... 50
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,500,000 SHARES
COMMON STOCK
[LOGO]
MGM GRAND, INC.
-----------------
PROSPECTUS
-----------------
DEUTSCHE MORGAN GRENFELL
OPPENHEIMER & CO., INC.
-----------------
DEAN WITTER REYNOLDS INC.
MONTGOMERY SECURITIES
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
{ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS}
SUBJECT TO COMPLETION, DATED MAY 15, 1996
7,500,000 SHARES
[LOGO] MGM GRAND, INC.
COMMON STOCK
----------
Of the 7,500,000 shares of Common Stock being offered hereby by MGM Grand,
Inc., a Delaware corporation ("MGM Grand" or the "Company"), 6,000,000 shares
are being offered initially in the United States (the "U.S. Offering") by the
U.S. Underwriters and 1,500,000 shares are being offered initially outside the
United States (the "International Offering" and together with the U.S.
Offering, the "Offering") by the International Underwriters (together with the
U.S. Underwriters, the "Underwriters"). See "Underwriting." The Common Stock is
listed on the New York Stock Exchange and trades under the symbol "MGG." The
last reported sale price of the Common Stock on the New York Stock Exchange on
May 13, 1996 was $41.00 per share.
Tracinda Corporation, a Nevada corporation wholly owned by Kirk Kerkorian
("Tracinda"), and Mr. Kerkorian (together, the "Principal Stockholders") own
approximately 72.5% of the outstanding shares of the Common Stock. The
percentage of the outstanding shares of Common Stock owned by the Principal
Stockholders upon completion of the Offering made hereby will be approximately
62.9%.
FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, NOR
THE NEW JERSEY CASINO CONTROL COMMISSION HAS PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
- --------------------------------------------------------------------------------
Total(3)..................................... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the several Underwriters an option to purchase up
to an additional 1,125,000 shares of Common Stock to cover over-allotments.
If all such shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
----------
Joint Global Coordinators
DEUTSCHE MORGAN GRENFELL OPPENHEIMER INTERNATIONAL LTD.
----------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York against payment therefor on
or about , 1996.
DEUTSCHE MORGAN GRENFELL OPPENHEIMER INTERNATIONAL LTD.
DEAN WITTER INTERNATIONAL LTD. MONTGOMERY SECURITIES
----------
The date of this Prospectus is , 1996.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OF SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 14
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial Information............................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 25
Regulation and Licensing.................................................. 37
Management................................................................ 42
Description of Common Stock............................................... 44
Defeasance of First Mortgage Notes........................................ 45
Underwriting.............................................................. 47
Legal Matters............................................................. 49
Experts................................................................... 49
Available Information..................................................... 49
Documents Incorporated By Reference....................................... 50
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,500,000 SHARES
COMMON STOCK
[LOGO]
MGM GRAND, INC.
----------------
PROSPECTUS
----------------
DEUTSCHE MORGAN GRENFELL
OPPENHEIMER INTERNATIONAL LTD.
----------------
DEAN WITTER INTERNATIONAL LTD.
MONTGOMERY SECURITIES
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is a statement of estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 116,735
Legal fees.................................................. 250,000
Accountants' fees........................................... 50,000
Printing and shipping....................................... 250,000
Blue Sky qualification fees and expenses.................... 5,000
Listing fees................................................ 31,000
Miscellaneous............................................... 297,265
----------
Total................................................. $1,000,000
</TABLE>
Item 15. Indemnification of Officers and Directors
Section 145 of the Delaware Corporation Law provides that a Delaware
corporation may indemnify any person against expenses, judgments, fines and
amounts paid in settlements actually and reasonably incurred by any such
person in connection with a threatened, pending or completed action, suit or
proceeding in which he is involved by reason of the fact that he is or was a
director, officer, employee or agent of such corporation, provided that (i) he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and (ii) with respect to any
criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. If the action or suit is by or in the name of the
corporation, the corporation may indemnify any such person against expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation, unless and only to the extent that the Delaware Court of Chancery
or the court in which the action or suit is brought determines upon
application that, despite the adjudication of liability but in light of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expense as the court deems proper.
Article II, Section 12 of the Registrant's Bylaws provides for
indemnification of persons to the extent permitted by the Delaware Corporation
Law.
In accordance with the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation, as amended, limits the personal liability of its
directors for violations of their fiduciary duty. The Certificate of
Incorporation eliminates each director's liability to the Registrant or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the section of the Delaware law
providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions, or (iv) for any transaction from
which a director derived an improper personal benefit. The effect of this
provision is to eliminate the personal liability of directors for monetary
damages for actions involving a breach of their fiduciary duty of care,
including any such actions involving gross negligence. This provision will
not, however, limit in any way the liability of directors for violations of
the Federal securities laws.
II-1
<PAGE>
MGM Grand carries Directors and Officers Liability Insurance Policies which
expire in October 1996.
Item 16. Exhibits and Financial Statement Schedules
(a) The following is a list of exhibits filed herewith as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1 Underwriting Agreement
*5 Opinion of Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro,
LLP, including the consent of such firm.
23 Consent of Arthur Andersen LLP
25 Power of Attorney (see p. II-3)
</TABLE>
- --------
* To Be Filed by Amendment.
Item 17. Undertakings
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expense incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement related to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Las Vegas, State of Nevada, on the 14th day of May,
1996.
MGM GRAND, INC.
By J. Terrence Lanni
---------------------------------
J. Terrence Lanni
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of MGM Grand, Inc. do hereby
constitute and appoint Alex Yemenidjian and Scott Langsner or either of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and behalf in our capacities as directors and officers and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorneys and agents, or either of them, may deem necessary
or advisable to enable said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated
below, any and all amendments (including post-effective amendments) to this
Registration Statement, or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended; and we do hereby ratify and confirm all that the said
attorneys and agents, or either of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
J. Terrence Lanni Chairman of the Board and May 14, 1996
____________________________ Chief Executive Officer
J. TERRENCE LANNI (Principal Executive Officer)
Alex Yemenidjian President, Chief Operating Officer and May 14, 1996
____________________________ Chief Financial Officer and Director
ALEX YEMENIDJIAN (Principal Financial and Accounting Officer)
Fred Benninger Vice Chairman of the Board May 14, 1996
____________________________
FRED BENNINGER
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
James D. Aljian Director May 14, 199
____________________________
JAMES D. ALJIAN
Terry N. Christensen Director May 14, 199
____________________________
TERRY N. CHRISTENSEN
Glenn A. Cramer Director May 14, 199
____________________________
GLENN A. CRAMER
___________________________ Director , 1996
WILLIE D. DAVIS
___________________________ Director , 1996
ALEXANDER M. HAIG, JR.
___________________________ Director , 1996
LEE A. IACOCCA
___________________________ Director , 1996
KIRK KERKORIAN
Walter M. Sharp Director May 14, 199
____________________________
WALTER M. SHARP
____________________________ Director , 1996
JEROME B. YORK
</TABLE>
II-4
<PAGE>
7,500,000 SHARES
MGM GRAND, INC.
COMMON STOCK, $0.01 PAR VALUE PER SHARE
UNDERWRITING AGREEMENT
_____________, 1996
<PAGE>
7,500,000 SHARES
MGM GRAND, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
______________, 1996
Deutsche Morgan Grenfell/C. J. Lawrence Inc.
Oppenheimer & Co., Inc.
c/o Deutsche Morgan Grenfell/C. J. Lawrence Inc.
31 West 52nd Street
New York, NY 10019
Morgan Grenfell & Co., Limited
Oppenheimer International Ltd.
c/o Morgan Grenfell & Co., Limited
[Address]
Ladies and Gentlemen:
MGM Grand, Inc., a Delaware corporation (the "Company"), proposes to
sell to the several United States underwriters named on Schedule I to this
Agreement (the "U.S. Underwriters") and the several international underwriters
named on Schedule II to this Agreement (the "International Underwriters") an
aggregate of 7,500,000 shares (the "Firm Shares") of the Company's Common Stock,
$0.01 par value (the "Common Stock").
It is understood that, subject to the conditions hereinafter stated,
6,000,000 Firm Shares (the "U.S. Firm Shares") will be sold to the U.S.
Underwriters in connection with the offering and sale of such U.S. Firm Shares
in the United States to United States Persons (as such term is defined in the
Agreement Between U.S. and International Underwriters of even date herewith, the
"Intersyndicate Agreement"), and 1,500,000 Firm Shares (the "International Firm
Shares") will be sold to the International Underwriters in connection with the
offering and sale of such International Firm Shares outside the United States to
persons other than United States Persons. Deutsche Morgan Grenfell/C. J.
Lawrence Inc. and Oppenheimer & Co., Inc. shall act as representatives (the
"U.S. Representatives") of the several U.S. Underwriters, and Morgan Grenfell &
Co., Limited and Oppenheimer International Ltd. shall act as representatives
(the "International Representatives" and, with the U.S. Representatives, the
"Joint Global Coordinators"). The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the "Underwriters."
Pursuant to the Intersyndicate Agreement, Deutsche Morgan Grenfell/C. J.
Lawrence Inc. and Oppenheimer & Co., Inc. have been appointed as joint global
coordinators (the "Joint Global Coordinators") for the offering of the Shares
(as defined below).
-1-
<PAGE>
In addition, the Company proposes to grant to the Underwriters an
option to purchase up to an additional 1,125,000 shares (the "Option Shares") of
Common Stock from it for the purpose of covering over-allotments in connection
with the sale of the Firm Shares. The Firm Shares and the Option Shares are
together called the "Shares." The U.S. Firm Shares and the Option Shares
purchased by the U.S. Underwriters pursuant to this Agreement are hereinafter
collectively referred to as the "U.S. Shares" and the International Firm Shares
and the Option Shares purchased by the International Underwriters pursuant to
this Agreement are hereinafter collectively referred to as the "International
Shares."
1. SALE AND PURCHASE OF THE SHARES. On the basis of the
-------------------------------
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at $_____ per share (the "Initial Price"), the number of Firm
Shares set forth opposite the name of such Underwriter on Schedules I and
II to this Agreement.
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares
at the Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the Joint Global
Coordinators to eliminate fractions) of the total number of Option Shares
to be purchased by the Underwriters as such Underwriter is purchasing of
the Firm Shares. Such option may be exercised only to cover over-allotments
in the sales of the Firm Shares by the Underwriters and may be exercised in
whole or in part at any time on or before 12:00 noon, New York City time,
on the second business day before the Firm Shares Closing Date (as defined
below), and only once thereafter within 30 days after the date of this
Agreement, in each case upon written or telegraphic notice, or verbal or
telephonic notice confirmed by written or telegraphic notice, by the Joint
Global Coordinators to the Company no later than 12:00 noon, New York City
time, on the second business day before the Firm Shares Closing Date or at
least three business days before the Option Shares Closing Date (as defined
below), as the case may be, setting forth the number of Option Shares to be
purchased and the time and date (if other than the Firm Shares Closing
Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares
--------------------
to the Joint Global Coordinators for the respective accounts of the
Underwriters, and payment of the purchase price by certified or official bank
check or checks payable in New York Clearing House (next day) funds to the
Company shall take place at the offices of ________________________ at
______________________________________________________________________, at 10:00
a.m., New York City time, on the third business day following the date of this
Agreement (or the fourth business day if permitted by Rule 15c6-1(c) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), or
at such time on such other date, not later than 10 business days after the date
of this Agreement, as shall be agreed upon by the Company and the Joint Global
Coordinators (such time and date of delivery and payment are called the "Firm
Shares Closing Date").
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<PAGE>
In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Joint Global
Coordinators for the respective accounts of the Underwriters and payment of the
purchase price by certified or official bank check or checks payable in New York
Clearing House (next day) funds to the Company shall take place at the offices
of ______________________________ specified above at the time and on the date
(which may be the same date as, but in no event shall be earlier than, the Firm
Shares Closing Date) specified in the notice referred to in Section 1(b) (such
time and date of delivery and payment are called the "Option Shares Closing
Date"). The Firm Shares Closing Date and the Option Shares Closing Date are
called, individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Joint Global Coordinators shall
request at least two full business days before the Firm Shares Closing Date or,
in the case of Option Shares, on the day of notice of exercise of the option as
described in Section 1(b) and shall be made available to the Joint Global
Coordinators for checking and packaging, at such place as is designated by the
Joint Global Coordinators, on the full business day before the Firm Shares
Closing Date (or the Option Shares Closing Date in the case of the Option
Shares).
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The
------------------------------------------------------
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No. 333-
_____), including a preliminary prospectus relating to the Shares. The
Registration Statement (as hereinafter defined) contains two prospectuses to be
used in connection with the offering and sale of the Shares; the U.S. prospectus
(the "U.S. Prospectus"), to be used in connection with the offering and sale of
Shares in the United States to United States Persons, and the international
prospectus (the "International Prospectus") to be used in connection with the
offering and sale of Shares outside the United States to persons other than
United States Persons. The International Prospectus is identical to the U.S.
Prospectus except for the outside front and back cover pages. The Company has
filed with the Commission the Registration Statement and such amendments thereof
as may have been required to the date of this Agreement. Copies of such
Registration Statement (including all amendments thereof) and of the related
preliminary prospectus have heretofore been delivered by the Company to you. The
term "preliminary prospectus" as used hereinafter means any preliminary
prospectus (as described in Rule 430 of the Rules) relating to the Shares
included at any time as a part of the Registration Statement. The Registration
Statement as amended at the time and on the date it becomes effective (the
"Effective Date"), including all exhibits and information, if any, deemed to be
part of the Registration Statement pursuant to Rule 424(b), Rule 430A and Rule
434 of the Rules, is called the "Registration Statement." The term "Prospectus"
means the U.S. Prospectus and the International Prospectus relating to the
Shares in the respective forms first used to confirm sales of the Shares
(whether such prospectus was included in the Registration Statement at the time
of effectiveness or was subsequently filed with the Commission pursuant to Rule
424(b) of the Rules).
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<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Joint Global
Coordinators deem advisable. The Company hereby confirms that the Underwriters
and dealers have been authorized to distribute or cause to be distributed each
preliminary prospectus and are authorized to distribute the Prospectus (as from
time to time amended or supplemented if the Company furnishes amendments or
supplements thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants to each Underwriter as follows:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
The Company is duly qualified and in good standing as a foreign corporation
in each jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its business makes
such qualification necessary, except for such jurisdictions where the
failure to so qualify would not have a material adverse effect on the
assets or properties, business, results of operations, prospects or
financial condition of the Company. Except in connection with the
operation of MGM Grand Australia Pty, Ltd. ("MGM Australia"), the Company
does not own, lease or license any asset or property or conduct any
business outside the United States of America. Each of MGM Grand Hotel,
Inc. ("MGM Hotel"), MGM Grand Finance Corp. ("MGM Finance"), Destron, Inc.,
MGM Australia, MGM Grand Merchandising, Inc. and MGM Grand Atlantic City,
Inc. ("MGM Atlantic City") (collectively, the "Subsidiaries"), has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of its state or other jurisdiction of incorporation. Each
Subsidiary is duly qualified and in good standing as a foreign corporation
in each jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its business makes
such qualification necessary, except for such jurisdictions where the
failure to qualify would not have a material adverse affect on the assets
or properties, business, results of operations or financial condition of
the Company. Except through the Company's interest in New York, New York,
LLC, the Company does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business organization
other than the Subsidiaries.
(b) The Company and each of the Subsidiaries has all requisite
corporate power and authority, and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits of and from all
governmental or regulatory bodies or any other person or entity, including
any and all licenses, permits and approvals required under any foreign,
federal, state or local law (including the Nevada Gaming Control Act, the
New Jersey Casino Control Act, the [Northern Territory Act] and the rules
and regulations thereunder and any similar laws and regulations governing
any aspect of legalized gaming in any foreign, federal, state or local
jurisdiction (collectively, the "Gaming Laws")), to own, lease and license
its assets and properties and to conduct its businesses as now being
conducted and as proposed to be conducted as described in the Registration
Statement and the Prospectus. The Company and
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<PAGE>
each of the Subsidiaries have fulfilled and performed in all material
respects all of their obligations with respect to such authorizations,
approvals, consents, orders, licenses, certificates and permits, and
neither the Company nor any Subsidiary is in violation of any term or
provision of any such authorizations, approvals, consents, orders,
licenses, certificates or permits, nor has any event occurred which allows,
or after notice or lapse of time would allow, revocation or termination
thereof or which could result in any material impairment of the rights of
the holder thereof. No such authorization, approval, consent, order,
license, certificate or permit contains a materially burdensome restriction
other than as disclosed in the Registration Statement and the Prospectus.
Neither the Company nor any of the Subsidiaries has any reason to believe
that any governmental or regulatory body is considering modifying,
limiting, conditioning, suspending, revoking or not renewing any such
authorizations, approvals, consents, orders, licenses, certificates or
permits of the Company or any of the Subsidiaries or that such governmental
or regulatory bodies are investigating the Company or any of the
Subsidiaries or related parties (other than normal overseeing reviews by
such bodies incident to the gaming activities and casino management
activities of the Company and the Subsidiaries).
(c) The Company and/or its Subsidiaries own, or have enforceable
rights to use, all trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, licenses, know-how and other
similar rights, technology and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of the business of the Company as
described in the Registration Statement and the Prospectus. Neither the
Company nor any of the Subsidiaries has received any notice of, and they
are not aware of, any infringement of, or conflict with asserted rights of
others with respect to, any Intangibles which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
material adverse effect upon the assets or properties, business, results of
operations, prospects or financial condition of the Company. The
Intangibles are free and clear of all liens and encumbrances of every
nature and kind. Except as disclosed in the Registration Statement and the
Prospectus, neither the Company nor any of the Subsidiaries has violated or
infringed any patent, trademark, tradename, trade secret or copyright held
by others or any license, authorization or permit held by them, in any
manner which may materially adversely affect the Intangibles or the
business of the Company. Except in connection with transactions entered
into in the ordinary course of business, neither the Company nor any of the
Subsidiaries has granted any licenses or other rights or has any
obligations to grant licenses or any other rights to any Intangibles.
Neither the Company nor any of the Subsidiaries has made any material claim
of violation or infringement by others of rights to, or in connection with,
the Intangibles, and the Company knows of no basis for making any such
claim. There are no interferences or other contested proceedings, either
pending or, to the knowledge of the Company, threatened, in the United
States Copyright Office, the United States Patent and Trademark Office or
any federal, state or local court or before any other governmental agency
or tribunal, relating to any pending application with respect to the
Intangibles.
-5-
<PAGE>
(d) The Company and each of the Subsidiaries has (i) good and valid
title to each of the items of personal property and good, marketable and
insurable fee title to all real property reflected in its financial
statements referred to in Section 4(s) or referred to in the Registration
Statement and the Prospectus as being owned by it and (ii) valid and
enforceable leasehold interests in each of the items of real and personal
property which are referred to in the Registration Statement and the
Prospectus as being leased by it, in each case free and clear of all liens,
encumbrances, claims, security interests, defects or rights of way, other
than Permitted Liens (as defined in the Credit Agreement dated as of May
13, 1992 by and among MGM Finance, MGM Hotel, Bank of America National
Trust and Savings Association, as Agent, and the other financial
institutions party thereto, as amended) and Permitted Encumbrances (as
defined in the Indenture dated as of May 1, 1992 by and among MGM Finance,
the Company, MGM Hotel and U.S. Trust Company of California, N.A., as
trustee). Other than with respect to Permitted Liens and Permitted
Encumbrances, no financing statement under the Uniform Commercial Code with
respect to any assets of the Company or the Subsidiaries has been filed in
any jurisdiction, and neither the Company nor any of the Subsidiaries has
signed any such financing statement or any security agreement authorizing
any secured party thereunder to file any such financing statement. All
real property of the Company and the Subsidiaries reflected in the
financial statements referred in Section 4(s) or referred to in the
Registration Statement and the Prospectus as being owned by the Company or
the Subsidiaries is in good condition and conforms in all material respects
with all applicable building, zoning, land use and other laws, ordinances,
codes, orders and regulations (other than environmental laws, which are
addressed in Section 4(f)) and the use of such real property conforms in
all material respects with such laws, ordinances, codes, orders and
regulations, and all necessary occupancy, certificates and permits for the
lawful use and occupancy thereof and the equipment thereof have been
issued. All notices of violations of laws, ordinances, codes, orders or
regulations issued by any governmental authority, having jurisdiction over
or affecting any such real property have been complied with by the Company
or the Subsidiaries, as applicable.
(e) Except as described in the Registration Statement and the
Prospectus, there is no pending or, to the knowledge of the Company,
threatened, lawsuit or claim with respect to the Company or any of the
Subsidiaries which (i) involves a claim by or against the Company or any of
the Subsidiaries, as applicable, of more than $50,000, (ii) seeks
injunctive relief that could have an adverse effect on the Company or (iii)
could materially and adversely affect the performance by the Company or any
of the Subsidiaries of their obligations pursuant to this Agreement or the
transactions contemplated hereby. Neither the Company nor any of the
Subsidiaries is in default under any judgment, order or decree of any
court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign, applicable to it or any of its
respective properties, assets, operations or businesses. There is no legal
or governmental or other proceeding or investigation before any court or
before or by any public body or board (including any gaming authorities
relating to compliance or non-compliance with any Gaming Laws) pending or,
to the Company's best knowledge, threatened (and the Company does not know
of any basis therefor) against or involving the assets,
-6-
<PAGE>
properties or business of the Company or the assets, properties or business
of any of the Subsidiaries, that would materially adversely affect the
value or the operation of any such assets or properties in the hands of the
Company or the Subsidiaries or the business, results of operations,
prospects or financial condition of the Company.
(f) Neither the Company nor any of the Subsidiaries has at any time
engaged in the handling, manufacture, treatment, storage, use or generation
of any Hazardous Materials (as defined below) upon any real property owned
or leased by it, except for such quantities handled, stored and used in
connection with the normal operation and maintenance of casinos in the
ordinary course of the business of the Company or the Subsidiaries, as
applicable. Neither the Company nor any of the Subsidiaries has been a
party to any litigation in which it is alleged, nor have any of them at any
time received written notice of any allegation or investigation of the
possibility, that any of them or any of their assets is or was subject to
any liability, clean-up or other obligation arising out of or relating to
any discharge, or the storage, handling or disposal, of any Hazardous
Material. There has been no discharge at any time by the Company or any of
the Subsidiaries of any Hazardous Material that the Company or any of the
Subsidiaries has reported or is or was obligated to report to any
governmental agency the occurrence of which may have a material adverse
effect on the Company. For the purposes of this Agreement, "Hazardous
Material" means any substance: (i) the presence of which requires
investigation or remediation under any foreign, federal, state or local
statute, regulation, ordinance, order, action, policy or common law; (ii)
that is or becomes defined as a "hazardous waste," "hazardous substance,"
pollutant or contaminant under any foreign, federal, state or local
statute, regulation, rule or ordinance or amendments thereto including,
without limitation the Comprehensive Environmental Response Compensation
and Liability Act (42 U.S.C. 9601 et seq.) and/or the Resource Conservation
------
and Recovery Act (42 U.S.C. section 6901 et seq.); (iii) that is toxic,
-- ----
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous and is or becomes regulated by any
governmental authority, agency, department, commission, board, agency or
instrumentality of the United States or of any state or any political
subdivision thereof; or (iv) which contains polychlorinated biphenyls
(PCBs), asbestos, urea formaldehyde foam insulation or radon gas.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
described therein, (i) there has not been any material adverse change in
the assets or properties, business, results of operations, prospects or
financial condition of the Company or the Subsidiaries, whether or not
arising from transactions in the ordinary course of business; (ii) neither
the Company nor any of the Subsidiaries has sustained any loss or
interference with its assets, businesses or properties (whether owned or
leased) from fire, explosion, earthquake, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree that would have a
material adverse effect on the Company; and (iii) and since the date of the
latest balance sheets included in the Registration Statement and the
Prospectus, except as reflected therein, neither the Company nor any of the
Subsidiaries has (A) issued any securities or incurred any liability or
obligation, direct or
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<PAGE>
contingent, for borrowed money, except such liabilities or obligations
incurred in the ordinary course of business, (B) entered into any
transaction not in the ordinary course of business or (C) declared or paid
any dividend or made any distribution on any shares of its stock or
redeemed, purchased or otherwise acquired or agreed to redeem, purchase or
otherwise acquire any shares of its stock.
(h) There is no document or contract of a character required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. Each agreement listed in the Exhibits to the Registration
Statement is in full force and effect and is valid and enforceable by and
against the Company or the Subsidiaries, as applicable, in accordance with
its terms, assuming the due authorization, execution and delivery thereof
by each of the other parties thereto, except for agreements that have
expired by their terms or have been fully performed. Neither the Company,
nor, to the Company's knowledge, any other party is in default, nor is any
Subsidiary party thereto in default, in the observance or performance of
any term or obligation to be performed by it under any such agreement, and
no event has occurred which with notice or lapse of time or both would
constitute such a default, in any such case in which a default or event
would have a material adverse effect on the assets or properties, business,
results of operations, prospects or financial condition of the Company. No
default exists, and no event has occurred which with notice or lapse of
time or both would constitute a default, in the due performance and
observance of any term, covenant or condition by the Company or any of the
Subsidiaries of any other agreement or instrument to which the Company or
any of the Subsidiaries is now a party or by which it or its properties or
business may be bound or affected which default or event would have a
material adverse effect on the assets or properties, business, results of
operations, prospects or financial condition of the Company.
(i) Neither the Company nor any of the Subsidiaries is in violation of
any term or provision of its charter or bylaws or of any judgment, decree,
order, statute, rule or regulation (including any Gaming Laws), where the
consequences of such violation would have a material adverse effect on the
assets or properties, business, results of operations, prospects or
financial condition of the Company.
(j) There is no labor strike, dispute or work stoppage or lockout
pending, or, to the knowledge of the Company, threatened, against or
affecting the Company or the Subsidiaries, and no such labor strike,
dispute, work stoppage or lockout has occurred with respect to any
employees of the Company, the Subsidiaries or any of the hotels or casinos
currently operated by the Subsidiaries during the two years prior to the
date of this Agreement. No union organization campaign is in progress with
respect to the employees of the Company or the Subsidiaries, and no
question concerning representation exists with respect to such employees.
No unfair labor practice charge or complaint against the Company or the
Subsidiaries is pending or, to the knowledge of the Company, threatened,
before the National Labor Relations Board or similar foreign authorities,
and no such charge or complaint against the Company or any of the
Subsidiaries has been filed during the past two years. There is no
pending, or, to the knowledge of the Company, threatened, grievance that,
if adversely decided, would have a
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<PAGE>
material adverse effect on the business, results of operations, prospects
or financial condition of the Company. No charges with respect to or
relating to the Company or the Subsidiaries are pending before the Equal
Employment Opportunity Commission or any state, local or foreign agency
responsible for the prevention of unlawful employment practices, and no
such charges have been filed with respect to the Company, any of the
Subsidiaries or any of the hotels or casinos currently operated by the
Subsidiaries during the past two years.
(k) Each of the Company and the Subsidiaries has correctly and timely
filed all necessary federal, state, local and foreign income, property and
franchise tax returns and paid all taxes required to be shown as due
thereon and all assessments received by it to the extent that the same are
material and have become due. Neither the Company nor any of its officers
has any knowledge of any tax deficiency of the Company or any of the
Subsidiaries or any tax proceeding or action pending or threatened against
the Company or any of the Subsidiaries that would materially adversely
affect the business, financial position, stockholders' equity or results of
operations, present or prospective, of the Company. There are no liens for
taxes on the assets of the Company or the Subsidiaries, except for taxes
not yet due. There are no audits pending of the Company's or any of the
Subsidiaries' tax returns (federal, state, local or foreign), and there are
no claims which have been or, to the best of the Company's knowledge, may
be asserted relating to any such tax returns which, if determined
adversely, would result in the assertion by any governmental agency of any
deficiency material to the Company. There have been no waivers of any
statute of limitations by the Company or any of the Subsidiaries relating
to tax returns (federal, state, local or foreign). The Internal Revenue
Service has not asserted or threatened to assert any assessment, claim or
liability for taxes due or to become due in connection with any review or
examination of the tax returns of the Company or any of the Subsidiaries
for any year.
(l) None of the Company, any Subsidiary or any officer or director
purporting to act on behalf of the Company or any Subsidiary has during the
past five years (i) made any contributions to any candidate for political
office, or failed to disclose fully any such contributions, in violation of
law; or (ii) made any payment to any foreign, federal, state or local
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or allowed by
applicable law; or (iii) made any payment outside the ordinary course of
business to any purchasing or selling agent or person charged with similar
duties of any entity to which the Company or such Subsidiary as applicable,
sells (or has in the past sold) or from which the Company, such Subsidiary
or any officer or director purporting to act on behalf of the Company or
any Subsidiary, as applicable, buys (or has in the past bought) products
for the purpose of influencing such agent or person to buy products from or
sell products to the Company or such Subsidiary, as applicable; or (iv)
engaged in any transaction, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds which have
been and are reflected in the normally maintained books and records of the
Company or such Subsidiary, as applicable.
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<PAGE>
(m) Each of the Company and the Subsidiaries has adequate liability
and other insurance policies insuring it against the risks of loss arising
out of or related to its businesses, as described in the Registration
Statement and Prospectus, issued by insurers of recognized financial
responsibility.
(n) The Company and each of the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is (or was) taken with respect to any differences.
(o) On the date the Registration Statement or any post-effective
amendment to the Registration Statement shall become effective, on the date
of the Prospectus, on the date any supplement or amendment to the
Prospectus is filed with the Commission and on each Closing Date, the
Registration Statement and the Prospectus (and any amendment thereof or
supplement thereto) will comply, in all material respects, with the
applicable provisions of the Securities Act and the Rules and the Exchange
Act and the rules and regulations of the Commission thereunder; on the
dates referred to above neither the Registration Statement nor the
Prospectus, nor any amendment thereof or supplement thereto, will contain
any untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein (in light of the circumstances in which they were made)
not misleading. When any related preliminary prospectus was first filed
with the Commission (whether filed as part of the Registration Statement or
any amendment thereto or pursuant to Rule 424(a) of the Rules) and when any
amendment thereof or supplement thereto was first filed with the
Commission, such preliminary prospectus as amended or supplemented complied
in all material respects with the applicable provisions of the Securities
Act and the Rules and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein (in light of the
circumstances in which they were made) not misleading. Notwithstanding the
foregoing, the Company makes no representation or warranty as to the
paragraph with respect to stabilization on the inside front cover page of
the Prospectus and the statements contained under the caption
"Underwriting" in the Prospectus. The Company acknowledges that the
statements referred to in the previous sentence constitute the only
information furnished in writing by the Joint Global Coordinators on
behalf of the several Underwriters specifically for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus.
(p) The Company has all requisite corporate power and authority to
enter into, deliver and perform this Agreement and to issue and sell the
Shares. All necessary corporate action has been duly and validly taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the issuance and sale of the Shares by the Company.
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<PAGE>
This Agreement has been duly and validly authorized, executed and delivered
by the Company and constitutes the legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except (A) as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles and (B) to the extent that rights to indemnity or contribution
under this Agreement may be limited by federal and state securities laws or
the public policy underlying such laws.
(q) Neither the execution, delivery and performance of this Agreement
by the Company nor the consummation of any of the transactions contemplated
hereby (including, without limitation, the issuance and sale by the Company
of the Shares) will give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or an event which with
notice or lapse of time or both would constitute a default) under, or
require any consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or assets
of the Company or any Subsidiary pursuant to the terms of, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party or by which it or any of its
properties or businesses is bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation applicable to the
Company or any Subsidiary or violate any provision of the charter or by-
laws of the Company or any Subsidiary, except for such consents or waivers
which have already been obtained and are in full force and effect.
(r) No authorization, approval, consent, order, license, certificate
or permit is required of or from any governmental or regulatory body under
any foreign, federal, state or local law (including any Gaming Laws) for
the execution, delivery and performance of this Agreement or for the
consummation of the transactions contemplated hereby, except such as have
been obtained. This Agreement has been presented to any and all
governmental agencies or authorities to the extent required by any Gaming
Laws, and this Agreement and the transactions contemplated hereby were
approved by or on behalf of such governmental agencies or authorities to
the extent required by any Gaming Laws, and such approvals have not been
revoked, modified or rescinded.
(s) The financial statements of the Company (including all notes and
schedules thereto) included in the Registration Statement and Prospectus
present fairly the financial position, the results of operations and cash
flows and the stockholders' equity and the other information purported to
be shown therein of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements and
pro forma financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied throughout
the periods involved, and all adjustments necessary for a fair presentation
of the results for such periods have been made.
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(t) Arthur Andersen LLP, whose reports are filed with the Commission
as a part of the Registration Statement and Prospectus, are and, during the
periods covered by their reports were, independent public accountants as
required by the Securities Act and the Rules.
(u) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus. All of the
outstanding shares of Common Stock have been duly and validly issued and
are fully paid and nonassessable and none of them was issued in violation
of any preemptive or other similar right. The Shares, when issued and sold
pursuant to this Agreement, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any
preemptive or other similar rights. Except as disclosed in the
Registration Statement and the Prospectus, there is no outstanding option,
warrant or other right calling for the issuance of, and there is no
commitment, plan or arrangement to issue, any share of stock of the Company
or any security convertible into, or exercisable or exchangeable for, such
stock. The Common Stock and the Shares conform in all material respects to
all statements in relation thereto contained in the Registration Statement
and the Prospectus.
(v) All of the outstanding shares of capital stock of the Subsidiaries
have been duly and validly issued. All of the outstanding shares of
capital stock of the Subsidiaries are owned by the Company, directly or
indirectly, free and clear of any liens, charges or encumbrances, such
shares of capital stock are fully paid and nonassessable, and none of them
was issued in violation of any preemptive or other similar right. Except
as disclosed in the Registration Statement and the Prospectus, there is no
outstanding option, warrant or other right calling for the issuance of, and
there is no commitment, plan or arrangement to issue, any share of capital
stock of any Subsidiary or any security convertible into, or exercisable or
exchangeable for, such stock.
(w) Except as described in the Registration Statement and Prospectus,
there are no persons with registration or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company or any Subsidiary under the Securities Act. Each
stockholder, director and executive officer of the Company has delivered to
the Joint Global Coordinators his enforceable written agreement that he
will not, for a period of 180 days after the date of this Agreement, offer
for sale, sell, distribute, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, or exercise any registration rights
with respect to, any shares of Common Stock (or any securities convertible
into, exercisable for, or exchangeable for any shares of Common Stock)
owned by him, without the prior written consent of the Joint Global
Coordinators.
(x) No transaction has occurred between or among the Company or any
Subsidiary and any of their officers or directors or any affiliate or
affiliates of any such officer or director that is required to be described
in and is not described in the Registration Statement and the Prospectus.
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(y) The Shares have been duly approved for quotation on the New York
Stock Exchange.
(z) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
(aa) None of the Company or any of its directors, officers or
controlling persons has taken or will take, directly or indirectly, any
action resulting in a violation of Rule 10b-6 under the Exchange Act, or
designed to cause or result under the Securities Act or otherwise in, or
which has constituted or which reasonably might be expected to constitute,
the stabilization or manipulation of the price of any securities of the
Company or facilitation of the sale or resale of the Shares.
(bb) Neither the Company nor any of the Subsidiaries has incurred any
liability for finder's or broker's fees or agent's commissions in
connection with the execution and delivery of this Agreement, the offer and
sale of the Shares or the transactions contemplated hereby.
(cc) The Company is not required to register as a "broker" or "dealer"
in accordance with the provisions of the Exchange Act or the rules and
regulations promulgated thereunder.
(dd) The Company has complied with all of the requirements and filed
the required forms, if any, as specified in Florida Statutes Section
517.075.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
-------------------------------------------
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(A)(a) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information
on the part of the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Joint Global Coordinators.
(c) The representations and warranties of the Company contained in
this Agreement and in the certificates delivered pursuant to Section 5(d)
shall be true and correct when made and on and as of each Closing Date as
if made on such date and the Company shall have performed all covenants and
agreements and satisfied all the conditions contained in this Agreement
required to be performed or satisfied by it at or before such Closing Date.
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(d) The Joint Global Coordinators shall have received on each Closing
Date a certificate, addressed to the Joint Global Coordinators and dated
such Closing Date, of the chief executive or chief operating officer and
the chief financial officer or chief accounting officer of the Company to
the effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company in this Agreement are true
and correct on and as of such Closing Date with the same effect as if made
on such Closing Date and the Company has performed all covenants and
agreements and satisfied all conditions contained in this Agreement
required to be performed or satisfied by it at or prior to such Closing
Date.
(e) The Joint Global Coordinators shall have received on the
Effective Date, at the time this Agreement is executed and on each Closing
Date, a signed letter from Arthur Andersen LLP addressed to the Joint
Global Coordinators and dated, respectively, the Effective Date, the date
of this Agreement and each such Closing Date, in form and substance
reasonably satisfactory to the Joint Global Coordinators, confirming that
they are independent accountants within the meaning of the Securities Act
and the Rules, that the response to Item 10 of the Registration Statement
is correct insofar as it relates to them and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Registration Statement
and the Prospectus and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Consolidated Financial Data" and "Selected Consolidated Financial and
Other Data," carrying out certain procedures (but not an examination
in accordance with generally accepted auditing standards) which would
not necessarily reveal matters of significance with respect to the
comments set forth in such letter, a reading of the minutes of the
meetings of the stockholders and directors of the Company, and
inquiries of certain officials of the Company who have responsibility
for financial and accounting matters of the Company as to transactions
and events subsequent to the date of the latest audited financial
statements, except as disclosed in the Registration Statement and the
Prospectus, nothing came to their attention which caused them to
believe that:
(A) the unaudited financial statements and supporting
schedules of the Company included in the Registration Statement
do not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
Rules or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with that of the audited financial statements included in the
Registration Statement;
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<PAGE>
(B) the amounts in "Summary Consolidated Financial Data,"
"Selected Consolidated Financial and Other Data" and ["Pro Forma
Consolidated Financial Statements"] included in the Registration
Statement and the Prospectus do not agree with the corresponding
amounts in the audited and unaudited financial statements from
which such amounts were derived; or
(C) with respect to the Company, there were, at a specified
date not more than five business days prior to the date of the
letter, any increases in long-term liabilities of the Company or
any decreases in net income or the stockholders' equity in the
Company, as compared with the amounts shown on the Company's
audited balance sheet dated December 31, 1995 and the unaudited
balance sheet dated March 31, 1996 included in the Registration
Statement; and
(iii) they have performed certain other procedures as a result
of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting,
financial or statistical information derived from the general
accounting records of the Company) set forth in the Registration
Statement and the Prospectus and reasonably specified by the Joint
Global Coordinators agrees with the accounting records of the
Company.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the date
of the letter.
(f) The Joint Global Coordinators shall have received on each Closing
Date from Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP,
counsel for the Company, an opinion, addressed to the Joint Global
Coordinators and dated such Closing Date, and stating in effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware. The Company and the Subsidiaries are in good standing as
foreign corporations in all jurisdictions in which the nature of their
businesses requires them to be qualified to do business as a foreign
corporation.
(ii) The Company has all requisite corporate power and authority
and all necessary authorizations, approvals, consents, orders,
licenses, certificates and permits required under federal law to own,
lease and license its assets and properties and to conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectus. The Company has all requisite corporate
power and authority and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits to enter into,
deliver and perform this Agreement and to issue and sell the Shares,
other than those authorizations, approvals, consents, orders licenses,
certificates and permits required under state and foreign securities
laws.
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Except for the Company's interest in New York-New York, LLC, to
such counsel's knowledge, the Company does not control, directly or
indirectly, any corporation, partnership, joint venture, association
or other business organization other than the Subsidiaries.
(iii) The Company has authorized and issued capital stock as set
forth in the Registration Statement and the Prospectus; the
certificates evidencing the Shares are in due and proper legal form
and have been duly authorized for issuance by the Company; all of the
outstanding shares of Common Stock of the Company have been duly and
validly authorized and have been duly and validly issued and are fully
paid and nonassessable and none of them was issued in violation of any
preemptive or other similar right. The Shares, when issued and sold
pursuant to this Agreement, will be duly and validly issued,
outstanding, fully paid and nonassessable and none of them will have
been issued in violation of any preemptive or other similar right. To
such counsel's knowledge, except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding subscription,
option, warrant or other right calling for the issuance of any share
of stock of the Company or any Subsidiary or any security convertible
into, exercisable for, or exchangeable for stock of the Company or any
Subsidiary. The Common Stock and the Shares conform in all material
respects to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(iv) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares.
This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except (A) as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent transfer or
conveyance, reorganization, receivership, moratorium or other similar
laws then or thereafter in effect relating to or affecting the rights
of creditors generally and by general equitable principles regardless
of whether enforcement is considered in proceedings at law or in
equity (including the possible unavailability of specific performance
or injunctive relief and the general discretion of the court or
tribunal considering the matter) and (B) to the extent that rights to
indemnity or contribution under this Agreement may be unenforceable
under certain circumstances under law or court decisions with respect
to a liability where indemnification or contribution is contrary to
law or public policy.
(v) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will give rise to a
right to terminate or accelerate the due date of any payment due
under, or conflict with or result in the breach of any term or
provision of, or constitute a default (or any event which with notice
or lapse of time, or both, would constitute a default) under, or
require a consent or waiver under, or result in the execution or
imposition of
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any lien, charge or encumbrance upon any properties or assets of the
Company, pursuant to the express terms of any indenture, mortgage,
deed of trust, note or other agreement or instrument filed as an
exhibit to the Registration Statement and to which the Company is a
party or by which it or any of its properties or businesses is bound,
or any franchise, license, permit, judgment, decree, order, statute,
rule or regulation binding upon or applicable to the Company.
(vi) Except as described in the Registration Statement and the
Prospectus, to such counsel's knowledge, no default exists, and no
event has occurred which with notice or lapse of time, or both, would
constitute a default in the due performance and observance of any
express term, covenant or condition by the Company of any indenture,
mortgage, deed of trust, note or any other agreement filed as an
exhibit to the Registration Statement, where the consequences of such
default would have a material and adverse effect on the assets,
properties or business of the Company.
(vii) To such counsel's knowledge, neither the Company nor any
of the Subsidiaries is in violation of any term or provision of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation under federal law, where the consequences of such violation
would have a material adverse effect on the assets, properties or
businesses of the Company.
(viii) No authorization, approval, consent, order, license,
certificate or permit or order of any court or governmental agency or
body is required under federal law for the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby or any other transaction described in the
Registration Statement to be entered into prior to or
contemporaneously with the sale of the Shares, except (a) as disclosed
in the Registration Statement, (b) such as have been obtained and (c)
such as are required under state and foreign securities laws.
(ix) To such counsel's knowledge, there is no litigation or
governmental or other proceeding or investigation before any court or
before or by any public body or board pending or threatened against
the Company or any of the Subsidiaries which is required to be
disclosed in the Prospectus and which is not so disclosed.
(x) The statements in the Prospectus under the captions
"____________", insofar as such statements constitute a summary of
documents referred to therein or matters of law, are fair summaries in
all material respects and accurately present the information called
for by the Securities Act and the Rules with respect to such documents
and matters. To such counsel's knowledge, all contracts and other
documents required to be filed as exhibits to, or described in, the
Registration Statement have been so filed with the Commission or are
fairly described in the Registration Statement, as the case may be.
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(xi) The Registration Statement, all preliminary prospectuses and
the Prospectus and each amendment or supplement thereto (except for
the financial statements and schedules and other financial and
statistical data included therein, as to which such counsel expresses
no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules.
(xii) The Registration Statement has become effective under the
Securities Act, and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
threatened, pending or contemplated.
(xiii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended.
(xiv) The Shares have been duly approved for quotation on the
New York Stock Exchange.
(xv) To such counsel's knowledge, there are no persons with
registration or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the
Company under the Securities Act, except as disclosed in the
Registration Statement and the Prospectus.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of officers of the Company and public
officials and on the opinions of other counsel satisfactory to the Joint
Global Coordinators as to matters which are governed by laws other than
the laws of the State of Delaware and the federal laws of the United
States; provided that such counsel shall state that in their opinion that
they believe the Underwriters and they are justified in relying on such
other opinions. Copies of such certificates and other opinions shall be
furnished upon request to the Joint Global Coordinators and counsel for
the Underwriters.
In addition, such opinion shall include a statement to the effect
that, although such counsel has not verified, and is not passing upon and
does not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus (except as specified in the foregoing opinion), no facts have
come to the attention of such counsel which lead such counsel to believe
that, under the Securities Act and the Rules, the Registration Statement at
the time it became effective contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not
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misleading, or that, as of the date of the Prospectus, as amended or
supplemented, the Prospectus as so amended or supplemented contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in each case
except with respect to the financial statements and notes and schedules
thereto and other financial and statistical data, as to which such counsel
need make no statement).
(g) The Joint Global Coordinators shall have received on each Closing
Date from _____________________________, Nevada counsel for the Company, an
opinion, addressed to the Joint Global Coordinators and dated such Closing
Date, and stating in effect that:
(i) Each of MGM Hotel, MGM Finance, Destron, Inc. and MGM Grand
Merchandising, Inc. (the "Nevada Subsidiaries") has been duly
incorporated and are validly existing corporations in good standing
under the laws of the State of Nevada. All of the issued and
outstanding shares of capital stock of each of the Nevada Subsidiaries
have been duly authorized and validly issued, are fully paid and
nonassessable and are directly owned of record by the Company.
Assuming that the Company acquired such shares in good faith and
without knowledge of any adverse claim, to the best of such counsel's
knowledge, the Company holds such shares free and clear of any
security interest, lien, encumbrance or other adverse claim. To such
counsel's knowledge, except as disclosed in the Registration Statement
and the Prospectus, there is no outstanding subscription, option,
warrant or other right calling for the issuance of any share of stock
of any of the Nevada Subsidiaries or any security convertible into,
exercisable for, or exchangeable for stock of any Nevada Subsidiary.
(ii) Each of the Nevada Subsidiaries has all requisite corporate
power and authority to own, lease and license their assets and
properties and to conduct their businesses as now being conducted and
as described in the Registration Statement and Prospectus.
(iii) To such counsel's knowledge, none of the Nevada
Subsidiaries is in violation of any term or provision of its charter
or bylaws. Except as disclosed in the Registration Statement and the
Prospectus, to such counsel's knowledge, no default exists and no
event has occurred which with notice or lapse of time, or both, would
constitute a default in the due performance and observance of any
express term, covenant or condition by any of the Subsidiaries of any
indenture, mortgage, deed of trust, note or any other agreement or
instrument to which any of the Subsidiaries are parties or by which
they or any of their assets or properties or businesses may be bound
or effected, where the consequences of such default would have a
material adverse effect on the assets, properties, business, results
of operations, prospects or financial condition of the Company.
(iv) Each of the Company and the Subsidiaries has all
authorizations, approvals, consents, orders, licenses, certificates
and permits required of or from any governmental or regulatory body
under Nevada law (including the Nevada Gaming Control Act and the
rules and regulations thereunder (the "Nevada Gaming Laws"))
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(each, a "Nevada Permit") to own, lease and license its assets and
properties and to conduct its business as now being conducted and as
proposed to be conducted as described in the section of the
Registration Statement and the Prospectus entitled "Business." To such
counsel's knowledge, the Company and each of the Subsidiaries have
fulfilled and performed in all material respects all of their
obligations with respect to Nevada Permits, and neither the Company
nor any Subsidiary is in violation of any term or provision of any
such Nevada Permits, nor has any event occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof
or which could result in any material impairment of the rights of the
holder of any such Nevada Permits.
(v) No Nevada Permits are required for the performance of this
Agreement or for the consummation of the transactions contemplated
hereby or any other transaction described in the Registration
Statement to be entered into prior to or contemporaneously with the
sale of the Shares, except as disclosed in the Registration Statement
and except for such Nevada Permits that have been obtained. This
Agreement, the Registration Statement and the Prospectus have been
presented to any and all governmental agencies or authorities to the
extent required by any Nevada Gaming Laws, and such documents and the
transactions contemplated hereby or thereby have been approved by or
on behalf of such governmental agencies or authorities to the extent
required by any Nevada Gaming Laws, and such approvals have not been
revoked, modified or rescinded.
(vi) The statements in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (the "Annual Report")
under the captions "Hotels and Gaming - MGM Grand Las Vegas - Nevada
Government Regulation" and "--Regulation and Taxes," incorporated by
reference into the Prospectus, and the statements under the caption
"Regulation and Licensing--Nevada" included in the Prospectus insofar
as such statements constitute a summary of matters of Nevada law, are
correct in all material respects.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of officers of the Company and public
officials. Copies of such certificates shall be furnished to the Joint
Global Coordinators and counsel for the Underwriters.
(h) The Joint Global Coordinators shall have received on each Closing
Date from _____________________________, Australia counsel for the Company,
an opinion, addressed to the Joint Global Coordinators and dated such
Closing Date, and stating in effect that:
(i) MGM Australia has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
[Australia]. All of the issued and outstanding shares of capital
stock of MGM Australia have been duly authorized and validly issued,
are fully paid and nonassessable and are directly owned of record by
the Company. Assuming the Company acquired such shares in good faith
and without
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knowledge of any adverse claim, to the best of such counsel's
knowledge, the Company holds such shares free and clear of any
security interest, lien, encumbrance or other adverse claim. To such
counsel's knowledge, except as disclosed in the Registration Statement
and the Prospectus, there is no outstanding subscription, option,
warrant or other right calling for the issuance of any share of stock
of any of MGM Australia or any security convertible into, exercisable
for, or exchangeable for stock of such Subsidiary.
(ii) MGM Australia has all requisite corporate power and
authority to own, lease and license its assets and properties and to
conduct its businesses as now being conducted and as described in the
Registration Statement and Prospectus.
(iii) To such counsel's knowledge, MGM Australia is not in
violation of any term or provision of its charter or bylaws. Except
as disclosed in the Registration Statement and the Prospectus, to such
counsel's knowledge, no default exists and no event has occurred which
with notice or lapse of time, or both, would constitute a default in
the due performance and observance of any express term, covenant or
condition by such Subsidiary of any indenture, mortgage, deed of
trust, note or any other agreement or instrument to which such
Subsidiary is a party or by which it or any of its assets or
properties or businesses may be bound or effected, where the
consequences of such default would has a material adverse effect on
the assets, properties, business, results of operations, prospects or
financial condition of the Company.
(iv) Each of the Subsidiaries has all authorizations, approvals,
consents, orders, licenses, certificates and permits required of or
from any governmental or regulatory body under Australia law
(including the [Northern Territory] Gaming Control Act and the rules
and regulations thereunder (the "Australia Gaming Laws")) (each, an
"Australia Permit") to own, lease and license its assets and
properties and to conduct its business as now being conducted and as
proposed to be conducted as described in the section of the
Registration Statement and the Prospectus entitled "Business." To
such counsel's knowledge, the Company and each of the Subsidiaries
have fulfilled and performed in all material respects all of their
obligations with respect to such Australia Permits, and neither the
Company nor any Subsidiary is in violation of any term or provision of
any Australia Permits, nor has any event occurred which allows, or
after notice or lapse of time would allow, revocation or termination
thereof or which could result in any material impairment of the rights
of the holder of any such Australia Permits.
(v) No Australia Permits are required for the performance of this
Agreement or for the consummation of the transactions contemplated
hereby or any other transaction described in the Registration
Statement to be entered into prior to or contemporaneously with the
sale of the Shares, except as disclosed in the Registration Statement
and except for such Australia Permits that have been obtained. This
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Agreement, the Registration Statement and the Prospectus have been
presented to any and all governmental agencies or authorities to the
extent required by any Australia Gaming Laws, and such documents and
the transactions contemplated hereby or thereby have been approved by
or on behalf of such governmental agencies or authorities to the
extent required by any Australia Gaming Laws, and such approvals have
not been revoked, modified or rescinded.
(vi) The statements in the Annual Report under the caption
"Hotels and Gaming - MGM Grand - Australia Government Regulation,"
incorporated by reference into the Prospectus, insofar as such
statements constitute a summary of matters of Australia law, are
correct in all material respects.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of officers of the Company and public
officials. Copies of such certificates shall be furnished to the Joint
Global Coordinators and counsel for the Underwriters.
(i) The Joint Global Coordinators shall have received on each Closing
Date from _____________________________, New Jersey counsel for the
Company, an opinion, addressed to the Joint Global Coordinators and dated
such Closing Date, and stating in effect that:
(i) MGM Atlantic City has been duly incorporated and is validly
existing as a corporation in good standing under the laws of New
Jersey. All of the issued and outstanding shares of capital stock of
MGM Atlantic City have been duly authorized and validly issued, are
fully paid and nonassessable and are directly owned of record by the
Company. Assuming the Company acquired such shares in good faith and
without knowledge of any adverse claim, to the best of such counsel's
knowledge, the Company holds such shares free and clear of any
security interest, lien, encumbrance or other adverse claim. To such
counsel's knowledge, except as disclosed in the Registration Statement
and the Prospectus, there is no outstanding subscription, option,
warrant or other right calling for the issuance of any share of stock
of any of MGM Atlantic City or any security convertible into,
exercisable for, or exchangeable for stock of such Subsidiary.
(ii) MGM Atlantic City has all requisite corporate power and
authority to own, lease and license its assets and properties and to
conduct its businesses as now being conducted and as described in the
Registration Statement and Prospectus.
(iii) To such counsel's knowledge, MGM Atlantic City is not in
violation of any term or provision of its charter or bylaws. Except
as disclosed in the Registration Statement and the Prospectus, to such
counsel's knowledge, no default exists and no event has occurred which
with notice or lapse of time, or both, would constitute a default in
the due performance and observance of any express term, covenant or
condition by such Subsidiary of any indenture, mortgage, deed of
trust,
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note or any other agreement or instrument to which such Subsidiary is
a party or by which it or any of its assets or properties or
businesses may be bound or effected, where the consequences of such
default would has a material adverse effect on the assets, properties,
business, results of operations, prospects or financial condition of
the Company.
(iv) Each of the Subsidiaries has all authorizations, approvals,
consents, orders, licenses, certificates and permits required of or
from any governmental or regulatory body under New Jersey law
(including the New Jersey Casino Control Act and the rules and
regulations thereunder (the "New Jersey Gaming Laws")) (each, an "New
Jersey Permit") to own, lease and license its assets and properties
and to conduct its business as now being conducted and as proposed to
be conducted as described in the section of the Registration Statement
and the Prospectus entitled "Business." To such counsel's knowledge,
the Company and each of the Subsidiaries have fulfilled and performed
in all material respects all of their obligations with respect to such
New Jersey Permits, and neither the Company nor any Subsidiary is in
violation of any term or provision of any New Jersey Permits, nor has
any event occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or which could result
in any material impairment of the rights of the holder of any such New
Jersey Permits.
(v) No New Jersey Permits are required for the performance of
this Agreement or for the consummation of the transactions
contemplated hereby or any other transaction described in the
Registration Statement to be entered into prior to or
contemporaneously with the sale of the Shares, except as disclosed in
the Registration Statement and except for such New Jersey Permits that
have been obtained. This Agreement, the Registration Statement and
the Prospectus have been presented to any and all governmental
agencies or authorities to the extent required by any New Jersey
Gaming Laws, and such documents and the transactions contemplated
hereby or thereby have been approved by or on behalf of such
governmental agencies or authorities to the extent required by any New
Jersey Gaming Laws, and such approvals have not been revoked, modified
or rescinded.
(vi) The statements in the Prospectus under the caption
"Regulation and Licensing" insofar as such statements constitute a
summary of matters of New Jersey law, is correct in all material
respects.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of officers of the Company and public
officials. Copies of such certificates shall be furnished to the Joint
Global Coordinators and counsel for the Underwriters.
(j) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Joint Global Coordinators and
their counsel and the Underwriters shall have received
-23-
<PAGE>
from Gibson, Dunn & Crutcher a favorable opinion, addressed to the Joint
Global Coordinators and dated such Closing Date, with respect to the
Shares, the Registration Statement and the Prospectus, and such other
related matters, as the Joint Global Coordinators may reasonably request,
and the Company shall have furnished to Gibson, Dunn & Crutcher such
documents as they may reasonably request for the purpose of enabling them
to pass upon such matters.
(k) The Company shall have furnished or caused to be furnished to the
Joint Global Coordinators such further certificates and documents as the
Joint Global Coordinators shall have reasonably requested.
6. COVENANTS OF THE COMPANY. (A) The Company covenants and agrees
------------------------
as follows:
(a) The Company shall prepare the Prospectus in a form approved by the
Joint Global Coordinators and file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of business
on the second business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act, and shall promptly advise the Joint
Global Coordinators (i) when any amendment to the Registration Statement
shall have become effective, (ii) of any request by the Commission for any
amendment of the Registration Statement or the Prospectus or for any
additional information, (iii) of the prevention or suspension of the use of
any preliminary prospectus or the Prospectus or of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding
for that purpose and (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company shall not file or prepare any amendment of the
Registration Statement or supplement to the Prospectus unless the Company
has furnished the Joint Global Coordinators a copy for its review within a
reasonable amount of time prior to filing or use and shall not file or use
any such proposed amendment or supplement to which the Joint Global
Coordinators reasonably object. The Company shall use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain as
soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act and the Rules, any event
occurs as a result of which the Prospectus as then amended or supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with the
Securities Act or the Rules, the Company promptly shall prepare and file
with the Commission, subject to the second sentence of paragraph (a) of
this Section 6(A), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such compliance.
-24-
<PAGE>
(c) The Company shall make generally available to its security holders
and to the Joint Global Coordinators as soon as practicable, but not later
than 45 days after the end of the 12-month period beginning at the end of
the fiscal quarter of the Company during which the "effective date" (as
defined in Rule 158 of the Rules) occurs (or 90 days if such 12-month
period coincides with the Company's fiscal year), an earnings statement
(which need not be audited) of the Company, covering such 12-month period,
which shall satisfy the provisions of Section 11(a) of the Securities Act.
The Company may satisfy this requirement by complying with Rule 158 of the
Rules.
(d) The Company shall furnish to the Joint Global Coordinators and
counsel for the Underwriters, without charge, three signed copies of the
Registration Statement (including all exhibits thereto and amendments
thereof) and to each other Underwriter a copy of the Registration Statement
(without exhibits thereto) and all amendments thereof and, so long as
delivery of a prospectus by an Underwriter or dealer may be required by the
Securities Act or the Rules, as many copies of any preliminary prospectus
and the Prospectus and any amendments thereof and supplements thereto as
the Joint Global Coordinators may reasonably request.
(e) The Company shall cooperate with the Joint Global Coordinators
and their counsel in endeavoring to qualify the Shares for offer and sale
under the laws of such jurisdictions as the Joint Global Coordinators may
designate and shall maintain such qualifications in effect so long as
required for the distribution of the Shares; provided, however, that the
-------- -------
Company shall not be required in connection therewith, as a condition
thereof, to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction or subject itself to
taxation as doing business in any jurisdiction. In each jurisdiction in
which the Shares have been so qualified, the Company will file such
statements and reports as may be required by the laws of such jurisdiction
to continue such qualification in effect for a period of not less than one
year from the Effective Date.
(f) For a period of five years after the date of this Agreement, the
Company shall supply to the Joint Global Coordinators, and to each other
Underwriter who may so request in writing, copies of such financial
statements and other periodic and special reports as the Company may from
time to time distribute generally to the holders of any class of its
capital stock and to furnish to the Joint Global Coordinators a copy of
each annual or other report it shall be required to file with the
Commission (including the Report on Form SR required by Rule 463 of the
Rules).
(g) Without the prior written consent of the Joint Global
Coordinators, for a period of 180 days after the date of this Agreement,
the Company shall not issue, sell or register with the Commission (other
than on Form S-8 or on any successor form), or otherwise dispose of,
directly or indirectly, any equity securities of the Company (or any
securities convertible into or exercisable or exchangeable for equity
securities of the Company), except for the issuance of the Shares pursuant
to the Registration Statement and the issuance of shares pursuant to the
Company's existing stock option plan. In the event that, during this
period,
-25-
<PAGE>
(i) any shares are issued pursuant to the Company's existing stock option
plan or (ii) any registration is effected on Form S-8 or on any successor
form, the Company shall obtain the written agreement of each grantee or
purchaser or holder of such registered securities who obtains 50,000 or
more shares or rights to purchase shares that vest within such 180 day
period that, for a period of 180 days after the date of this Agreement,
such person will not, without the prior written consent of the Joint
Global Coordinators, offer for sale, sell, distribute, grant any option
for the sale of, or otherwise dispose of, directly or indirectly, or
exercise any registration rights with respect to, any shares of Common
Stock (or any securities convertible into, exercisable for, or exchangeable
for any shares of Common Stock) owned by such person.
(h) On or before completion of this offering, the Company shall make
all filings required under applicable securities laws and by the New York
Stock Exchange (including any required registration under the Exchange
Act).
(i) Prior to a Closing Date, the Company will not issue, directly or
indirectly, without the Joint Global Coordinators' prior written consent
which shall not be unreasonably withheld, any press release or other
communication or hold any press conference with respect to the Company or
its activities or this offering, other than press releases issued in the
ordinary course of the Company's business with respect to the Company's
operations.
(j) The Company will comply with all of the provisions of any
undertakings contained in the Prospectus or the Registration Statement.
(k) The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus.
(l) Except as stated in this Agreement and in the Prospectus, the
Company will not take, directly or indirectly (except for any action taken
by the Underwriters), any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price
of the Common Stock to facilitate the sale or resale of the Shares.
(m) The Company will not make any payments or distributions to its
shareholders for the purpose of funding, directly or indirectly, any tax
liabilities of its shareholders.
(B) The Company agrees to pay, or reimburse if paid by the Joint
Global Coordinators, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident to
the public offering of the Shares and the performance of the obligations of the
Company under this Agreement including those relating to: (i) the preparation,
printing, filing and distribution of the Registration Statement including all
exhibits thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and the
printing, filing and distribution of this Agreement; (ii) the preparation and
delivery of certificates for the Shares to the Underwriters to the Joint Global
Coordinators; (iii) the registration or qualification of the Shares for offer
and sale under the
-26-
<PAGE>
securities or Blue Sky laws of the various jurisdictions referred to in Section
6(A)(e), including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Joint Global Coordinators and to the Underwriters
of copies of each preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required by this
Section to be so furnished, as may be reasonably requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold; (v) the filing fees of the National Association of
Securities Dealers, Inc. in connection with its review of the terms of the
public offering; (vi) the furnishing (including costs of shipping and mailing)
to the Joint Global Coordinators and to the Underwriters of copies of all
reports and information required by Section 6(A)(f); (vii) inclusion of the
Shares for quotation on the New York Stock Exchange; and (viii) all transfer
taxes, if any, with respect to the sale and delivery of the Shares by the
Company to the Underwriters. Subject to the provisions of Section 9, the
Underwriters agree to pay, whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, all costs and expenses incident
to the performance of the obligations of the Underwriters under this Agreement
not payable by the Company pursuant to the preceding sentence, including,
without limitation, the fees and disbursements of counsel for the Underwriters.
7. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter, each of their respective officers, directors, partners,
employees, agents and counsel, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all losses, claims, damages
and liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Securities Act,
the Exchange Act or other foreign, federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any amendment
thereof or supplement thereto, or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
-------- -------
benefit of any Underwriter (or any officers, directors, parties, employees,
agents, counsel or any person controlling such Underwriter) on account of
any losses, claims, damages or liabilities arising from the sale of the
Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus, or
such amendment or supplement, in reliance upon and in conformity with the
information furnished in writing to the Company by the Joint Global
Coordinators on behalf of any Underwriter specifically for use therein as
described in Section 4(s). This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
-27-
<PAGE>
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, each director of the Company, and each officer of
the Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only insofar
as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission which was made in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment thereof or supplement
thereto, in reliance upon and in conformity with information furnished in
writing to the Company by the Joint Global Coordinators on behalf of such
Underwriter specifically for use therein; provided, however, that the
-------- -------
obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) shall be limited to the
net proceeds received by the Company from such Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7(a) or 7(b) shall be available to
any party who shall fail to give notice as provided in this Section 7(c) if
the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice but the omission so to notify such indemnifying
party of any such action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party for contribution or
otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party
shall not be liable to such indemnified party for any legal or other
expenses, except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to
employ its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in
writing by the indemnifying parties, (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest between the
indemnifying parties and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying parties shall not
have the right to direct the defense of such action on behalf of the
indemnified party) or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable
time after notice of the commencement thereof, in each of which cases the
-28-
<PAGE>
fees and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement of
any action, suit, proceeding or claim effected without its written consent;
provided, however, that such consent has not been unreasonably withheld.
-------- -------
8. CONTRIBUTION. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 7(a) is due in accordance with its terms but for any reason is held to
be unavailable from the Company, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the Underwriters, such as persons who control
the Company within the meaning of the Securities Act, officers of the Company
who signed the Registration Statement and directors of the Company, who may also
be liable for contribution) to which the Company and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as (x) the total proceeds from the offering (net of
underwriting discounts but before deducting expenses) received by the Company,
as set forth in the table on the cover page of the Prospectus, bear to (y) the
underwriting discounts received by the Underwriters, as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company or the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact related to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall any Underwriter (except as
may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder, and (ii) the Company shall be liable
and responsible for any amount in excess of such underwriting discount;
provided, however, that no person guilty of fraudulent misrepresentation (within
- -------- -------
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any,
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<PAGE>
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to clauses
(i) and (ii) in the immediately preceding sentence of this Section 8. Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this
Section, notify such party or parties from whom contribution may be sought, but
the omission so to notify such party or parties from whom contribution may be
sought shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have hereunder or otherwise than under
this Section, except to the extent of any material prejudice resulting from such
failure to notify. No party shall be liable for contribution with respect to any
action, suit, proceeding or claim settled without its written consent; provided,
- --------
however, that such written consent has not been unreasonably withheld. The
- --------
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to their respective underwriting commitments and not joint.
9. TERMINATION. This Agreement may be terminated with respect to
-----------
the Shares to be purchased on a Closing Date by the Joint Global Coordinators
by notifying the Company at any time
(a) in the sole and absolute discretion and judgment of the Joint
Global Coordinators at or before any Closing Date: (i) if the Company
shall have sustained a material or substantial loss by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act which, whether or not said loss shall have been insured, will
make it inadvisable to proceed with the offering; (ii) if there has been,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in
the business, operations, earnings, prospects, properties or financial
condition of the Company, whether or not arising in the ordinary course of
business; (iii) if on or prior to such date, any domestic or international
event or act or occurrence has materially disrupted, or in the opinion of
the Joint Global Coordinators will in the future materially disrupt, the
securities markets; (iv) if there has occurred any new outbreak or material
escalation of hostilities or other calamity or crisis the effect of which
on the financial markets of the United States is such as to make it, in the
judgment of the Joint Global Coordinators, inadvisable to proceed with the
offering; (v) if there shall be such a material adverse change in general
financial, political or economic conditions or the effect of international
conditions on the financial markets in the United States is such as to make
it, in the judgment of the Joint Global Coordinators, inadvisable or
impracticable to market the Shares; (vi) if trading in the Shares has been
suspended by the Commission or trading generally on the New York Stock
Exchange, Inc. or on the American Stock Exchange, Inc. has been suspended
or limited, or minimum or maximum ranges for prices for securities shall
have been fixed, or maximum ranges for prices for securities have been
required, by said exchanges or by order of the Commission, the National
Association of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (vii) if a banking moratorium has been declared by
any state or Federal authority, or
-30-
<PAGE>
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as required
by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Joint Global Coordinators or the Underwriters because of
any failure, refusal or inability on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, the Company will
reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees and disbursements of their counsel) incurred by them in
connection with the proposed purchase and sale of the Shares or in contemplation
of performing their obligations hereunder and (z) no Underwriter who shall have
failed or refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation or
termination of its obligations under this Agreement, shall be relieved of
liability to the Company or to the other Underwriters for damages occasioned by
its failure or refusal.
10. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
-----------------------------
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Joint Global Coordinators may find one or more substitute
underwriters to purchase such Shares or make such other arrangements as the
Joint Global Coordinators may deem advisable or one or more of the remaining
Underwriters may agree to purchase such Shares in such proportions as may be
approved by the Joint Global Coordinators, in each case upon the terms set
forth in this Agreement. If no such arrangements have been made by the close of
business on the business day following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to an additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Joint Global Coordinators to purchase such
Shares upon the terms set forth in this Agreement.
In any such case, either the Joint Global Coordinators or the Company
shall have the right to postpone the applicable Closing Date for a period of not
more than five business days in
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<PAGE>
order that necessary changes and arrangements (including any necessary
amendments or supplements to the Registration Statement or Prospectus) may be
effected by the Joint Global Coordinators and the Company. If the number of
Shares to be purchased on such Closing Date by such defaulting Underwriter or
Underwriters shall exceed 10% of the Shares that all the Underwriters are
obligated to purchase on such Closing Date, and none of the nondefaulting
Underwriters or the Company shall make arrangements pursuant to this Section
within the period stated for the purchase of the Shares that the defaulting
Underwriters agreed to purchase, this Agreement shall terminate with respect to
the Shares to be purchased on such Closing Date without liability on the part of
any nondefaulting Underwriter to the Company and without liability on the part
of the Company, except in both cases as provided in Sections 6(B), 7, 8 and 9.
The provisions of this Section shall not in any way affect the liability of any
defaulting Underwriter to the Company or the nondefaulting Underwriters arising
out of such default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations,
-------------
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any indemnification made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(B), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters and the Company and their respective successors and assigns, and,
to the extent expressed herein, for the benefit of persons controlling any of
the Underwriters or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Joint Global Coordinators, c/o
Attention: [________________], and (b) if to the Company, to its agent for
service as such agent's address appears on the cover page of the Registration
Statement.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
-32-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
MGM GRAND, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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<PAGE>
Confirmed, __________________, 1996
DEUTSCHE MORGAN GRENFELL/C. J. LAWRENCE INC.
OPPENHEIMER & CO., INC.
Acting severally on behalf of themselves
and as Joint Global Coordinators of the
several Underwriters named in Schedule I
annexed hereto.
By: DEUTSCHE MORGAN GRENFELL/C. J. LAWRENCE INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By: OPPENHEIMER & CO., INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
MORGAN GRENFELL & CO., LIMITED
OPPENHEIMER INTERNATIONAL LTD.
Acting severally on behalf of themselves
and as Joint Global Coordinators of the
International Underwriters named
in Schedule II annexed hereto.
By: MORGAN GRENFELL & CO., LIMITED
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By: OPPENHEIMER INTERNATIONAL LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-34-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares to
Name Purchased
- ---- --------------
<S> <C>
TOTAL ___________
===============
</TABLE>
-35-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares to
Name Purchased
- ---- --------------
<S> <C>
TOTAL ___________
===============
</TABLE>
-36-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated January 31, 1996 included or incorporated by reference in this
Registration Statement and to all references to our Firm included in or made a
part of this Registration Statement.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
May 14, 1996
