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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-16760
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MGM GRAND, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 88-0215232
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
3799 Las Vegas Boulevard South Las Vegas, Nevada 89109
(Address of principal executive office) (Zip Code)
(702) 891-3333
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Registrant's Common Stock held by non-
affiliates (based on the closing price on the New York Stock Exchange-
Composite Transactions on March 11, 1999) was approximately $929.3 million. As
of March 11, 1999, 61,758,829 shares of Registrant's Common Stock, $.01 par
value, were outstanding.
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1998 are incorporated by reference into Part II of this Form 10-
K. Portions of the Registrant's Proxy Statement dated March 31, 1999 are
incorporated by reference into Part III of this Form 10-K.
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PART I
Item 1. Business
Safe Harbor Provisions
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-K contains statements that are forward-looking, such as statements
relating to plans for future expansion and other business development
activities, as well as other capital spending, financing sources, the effects
of regulation (including gaming and tax regulations) and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the MGM Grand, Inc. (the "Company"). These risks and
uncertainties include, but are not limited to, those relating to development
and construction activities, dependence on existing management, leverage and
debt service (including sensitivity to fluctuations in interest rates),
domestic or global economic conditions (including sensitivity to fluctuations
in foreign currencies), changes in federal or state tax laws or the
administration of such laws, changes in gaming laws or regulations (including
legalization of gaming in certain jurisdictions) and the requirement to apply
for licenses and approvals under applicable jurisdictional laws and
regulations (including gaming laws and regulations).
General
The Company was organized as a Delaware corporation on January 29, 1986.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company owns
and operates the MGM Grand Las Vegas, a hotel/casino entertainment complex
offering a full range of destination resort amenities. The resort is located
on approximately 116 acres at the northeast corner of Las Vegas Boulevard
South (the "Strip") and Tropicana Avenue, the "New Four Corners," in Las
Vegas, Nevada, across the street from New York-New York Hotel and Casino.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Australia, a hotel/casino resort in
Darwin, Australia. MGM Grand Australia is located on 18 acres of beachfront
property on the north central coast of Australia.
Through February 28, 1999, the Company and Primadonna Resorts, Inc.
("Primadonna Resorts") each owned 50% of New York-New York Hotel and Casino,
LLC. ("NYNY LLC"), which completed development of the $460 million
architecturally distinctive themed destination resort called New York-New York
Hotel and Casino ("NYNY") in December 1996. NYNY opened on January 3, 1997,
and is located on approximately 20 acres at the northwest corner of Tropicana
Avenue and the Strip, across from MGM Grand Las Vegas. On March 1, 1999, the
Company completed a merger with Primadonna Resorts, thereby acquiring the
other 50% of NYNY LLC as well as three hotel/casino resorts in Primm, Nevada
and two championship golf courses nearby in California. The merger provided
Primadonna Resorts' shareholders 0.33 shares of the Company's common stock for
each share of Primadonna Resorts common stock held, which resulted in the
issuance of a total of approximately 9.5 million shares of the Company's stock
on March 1, 1999.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages temporary casinos in Nelspruit, Witbank and Johannesburg in
the Republic of South Africa. The temporary casinos began operations on
October 15, 1997, March 10, 1998 and September 28, 1998, respectively. On July
30, 1996, the Company entered into an agreement with Tsogo Sun Holdings (Pty)
Limited ("Tsogo Sun"), a joint venture company formed by the Southern Sun
Group and Tsogo Investment Holding Company (Pty) Limited, to act as the
exclusive casino project developer and manager for the joint venture company,
which contemplates applying for up to 15 casino licenses in the Republic of
South Africa. Under the agreement, the Company will earn fees for the
development and management of all casino operations of Tsogo Sun. Tsogo Sun
will provide or procure
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all of the financing necessary for the hotel/casino projects. The National
Gambling Act was approved by the President of the government of the Republic
of South Africa on June 27, 1996.
Through its wholly-owned subsidiary, MGM Grand Detroit, Inc., the Company
and its local partners in Detroit, Michigan, formed MGM Grand Detroit, LLC to
develop a hotel/casino and entertainment complex ("MGM Grand Detroit") at an
approximate cost of $800 million. On November 20, 1997, MGM Grand Detroit, LLC
was chosen as a finalist for a development agreement to construct, own and
operate one of Detroit's three new casinos. On April 9, 1998, the Detroit City
Council approved MGM Grand Detroit, LLC's development agreement with the City
of Detroit. Construction of the project is subject to the receipt of various
governmental approvals. The plans for the permanent facility call for an 800-
room hotel, a 100,000 square-foot casino, signature restaurants and retail
outlets, a showroom and other entertainment venues. On July 22, 1998, the
Michigan Gaming Control Board adopted a resolution which allows the issuance
of casino licenses to conduct gaming operations in temporary facilities.
During November 1998, MGM Grand Detroit, LLC commenced construction activities
on its temporary casino which will consist of approximately 73,000 square feet
of casino space, 2,300 slot machines, 80 table games, as well as signature
restaurants and bars. Pending the receipt of its license, MGM Grand Detroit,
LLC anticipates the opening of the temporary facility in the third quarter of
1999.
Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc., the
Company intends to construct and operate a destination resort hotel/casino,
entertainment and retail facility in Atlantic City, New Jersey, at a minimum
approximate cost of $700 million, on approximately 35 acres of land on the
Atlantic City Boardwalk. Construction of the project is subject to the receipt
of various governmental approvals. On July 24, 1996, the Company was found
suitable for licensing by the New Jersey Casino Control Commission.
For certain information about the performance of the Company's properties,
see Note 19 to the Company's 1998 Annual Report to Stockholders which is
incorporated herein by reference.
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109. The Company's telephone number is
(702) 891-3333.
Hotels and Gaming
MGM Grand Las Vegas
MGM Grand Las Vegas, the Company's flagship property, is a multi-themed
destination resort, located on approximately 116 acres, which management
believes is a "must see" attraction for visitors to Las Vegas. The resort
opened on December 18, 1993, and has over 350 feet of frontage on the Strip
and 1,450 feet of frontage on Tropicana Avenue. The complex is easily
accessible from McCarran International Airport and from Interstate 15 via
Tropicana Avenue.
MGM Grand Las Vegas creates an exciting and unique gaming and entertainment
experience which is intended to appeal to all segments of the Las Vegas
market.
The casino is approximately 171,500 square feet in size, which management
believes is one of the largest casinos in the world. The casino has 3,669 slot
machines and 157 table games, a state of the art baccarat room, including
private premium play facilities, a poker room, a race and sports book, and a
keno lounge. The casino is themed with various entertainment features,
including well-known movie characters and settings, which enhance the
experience of the casino patron.
The hotel/casino, which management believes is one of the largest in the
world, has 5,005 rooms, including approximately 4,254 tastefully decorated
standard guest rooms. The hotel also has 751 luxury suites, ranging in size
from 650 to 6,000 square feet, representing a suite to room ratio which is one
of the highest among the Strip properties.
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In an effort to continue a legacy of providing exceptional entertainment
through the leveraging of its highly recognizable brand name, in mid-1996, the
Company embarked on an extensive Master Plan transformation of MGM Grand Las
Vegas into "The City of Entertainment." The Master Plan program was designed
to enhance the quality of the entertainment experience, through a series of
substantive improvements and additions throughout the 116 acre destination
resort. Master Plan projects which have been completed to date include a
380,000 square foot state-of-the-art conference center, a 6.6 acre pool and
spa complex, an approximately 50 foot tall polished bronze lion sculpture on a
25 foot pedestal, which is the resort's signature, and a re-themed
entertainment casino that includes a Rainforest Cafe and a Studio 54
nightclub. Also completed in the Master Plan is "Studio Walk," which portrays
a Hollywood sound stage and reflects an appearance that is inspired by a
number of Hollywood landmarks, including the Brown Derby restaurant, the
Farmers Market food court, and Griffith Park Observatory retail facilities.
The final elements of the Master Plan are nearing completion, including the
"Mansion at the MGM Grand" which will offer 29 exclusive suites and villas
ranging in size from 2,400 square feet to 12,000 square feet and is
anticipated to open in April 1999, the lion habitat which is anticipated to
open in May 1999, and significantly expanded and improved parking facilities
which are anticipated to open during the second half of 1999.
Other entertainment facilities include: an amusement zone including thrill
rides such as the 250 foot high SkyScreamer Skycoaster; an 11,700 square foot
arcade containing carnival games of skill and an extensive video arcade
including virtual reality simulators; a 660 seat showroom providing celebrity
entertainment; a 1,774 seat showroom specifically designed for the EFX
production show, the Company's original grand spectacle special effects stage
production; eleven restaurants and a food court; 36 retail shopping outlets,
including 19 owned and 17 leased facilities; and a special events center,
which seats a maximum of 16,766 patrons, providing mega entertainment such as
Barbra Streisand, Bette Midler, the Rolling Stones, Rod Stewart, Neil Diamond,
Elton John, Phil Collins, and Luther Vandross, as well as championship boxing
events and various other sporting events.
MGM Grand Las Vegas uses the unique characteristics of the property to
target the following segments of the Las Vegas market: (i) free and
independent travelers; (ii) tour and travel; (iii) special events/conventions;
(iv) high-end gaming; and (v) locals.
New York-New York
Construction of NYNY was completed in December 1996, and NYNY opened to the
public on January 3, 1997. The 47-story destination resort replicates many of
Manhattan's landmark buildings and icons, including the Statue of Liberty, the
Empire State Building, Central Park, the Brooklyn Bridge, a Coney Island-style
roller coaster, and is considered to be one of the most architecturally
distinctive and unique buildings in the world.
The casino is approximately 84,000 square feet in size and has approximately
2,400 slot machines and 70 table games. The casino features highly themed
interiors: Park Avenue with retail shops, The Financial District consisting of
the cashiers' cage, a Central Park setting in the central casino area, and
Little Italy with its traditional food court set inside a typical residential
neighborhood. NYNY features 2,033 guest rooms and suites as well as 7
specialty leased restaurants.
Primm Properties
Primadonna Resorts, which the Company acquired in a merger on March 1, 1999,
owns and operates, through its wholly-owned subsidiary, the Primadonna
Corporation ("Primadonna"), three hotel/casinos on both sides of Interstate 15
at the California/Nevada border in Primm, Nevada and the Primm Valley Golf
Club ("Golf Club") nearby in California.
Buffalo Bill's Resort & Casino ("Buffalo Bill's"), Primm Valley Resort &
Casino ("Primm Valley"), and Whiskey Pete's Hotel & Casino ("Whiskey Pete's")
(collectively, the "Primm Properties") form a major destination location and
offer, to the more than eleven million vehicles traveling through Primm on
Interstate 15,
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the first opportunity to wager upon entering Nevada, and the last opportunity
before leaving. Primadonna estimates that more than 27% of all passing
vehicles stopped at the Primm Properties in 1998.
The Primm Properties appeal to "tiered" market segments including the
family/entertainment-oriented Buffalo Bill's, the conference/leisure-oriented
Primm Valley, and the value-oriented Whiskey Pete's. These hotel/casinos
attract drive-by and overnight customers, and offer good values on dining and
lodging, with an emphasis on service, quality, cleanliness and comfort. The
Primm Properties offer an array of amenities and attractions, including
133,400 square feet of casino space, 2,642 hotel rooms, a 25,000 square foot
conference center, 10 restaurants, and a variety of amusement rides. The three
casinos include 4,494 slot machines, 101 table games, poker, keno, and race
and sports books. In addition, the Primm Properties offer swimming pools, a
movie theater, motion simulation theaters, a ferris wheel, a bowling center,
an interactive water flume ride, "The Desperado" roller coaster and the "Turbo
Drop" thrill ride. The 6,100-seat Star of the Desert Arena hosts top-name
entertainers, and has allowed the Primm Properties to use special events as
part of extended stay packages.
In February 1997, Primadonna opened a championship 18-hole Primm Valley Golf
Club, designed by Tom Fazio, located four miles south of Primm in California.
In the second quarter of 1998, the second championship 18-hole course and a
golf academy opened to the public.
Las Vegas Market
MGM Grand Las Vegas, NYNY and the Primm Properties operate in the Las Vegas
market. MGM Grand Las Vegas and NYNY are located on the Strip and the Primm
Properties are located approximately 40 miles south of Las Vegas on Interstate
15. Las Vegas is the largest city in Nevada, with a metropolitan area
population in excess of one million and is one of the most visited resort
destinations in the world.
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
7.3% from $1.9 billion in 1988 to $3.8 billion in 1998.
The hotel/casino industry in Las Vegas is highly competitive. Currently,
several new resorts are under construction on the Las Vegas Strip and two
other resorts have recently been completed. The Venetian, Paris and Aladdin
are in various stages of construction, while the recently opened Bellagio and
Mandalay Bay hotel/casinos provide additional competitive pressures. While
some of the large themed resorts pose direct competition to MGM Grand Las
Vegas, NYNY and the Primm Properties, the Las Vegas Convention and Visitors
Authority ("LVCVA") statistics show that tourism growth is increasing at a
rate which appears sufficient to absorb the increased room capacity, with
visitor volume having increased at a compound annual growth rate of 5.9% from
17.2 million in 1988 to 30.6 million in 1998. The Company's future operating
results could be adversely affected by excess room and gaming capacity.
MGM Grand Las Vegas, NYNY and the Primm Properties compete with gaming and
resort facilities in Las Vegas as well as gaming and resort facilities
elsewhere in the world. To some extent, state lotteries and state-authorized
and locally approved card rooms and Native American gaming facilities, such as
those operating in California, compete with the gaming and resort facilities
in Las Vegas. Gambling, with various limitations and conditions, is currently
legal in numerous locations throughout the United States. The proliferation of
such gaming facilities on riverboats and elsewhere is increasing. Also, as a
result of certain legislative and court decisions, casino-type operations are
being established at various Native American reservations throughout the
country. The development of full service casinos in California would likely
have a negative effect on MGM Grand Las Vegas, NYNY and the Primm Properties
operations in Nevada. Additionally, slot machines are operating in various
jurisdictions in California, the legality of which is the subject of dispute
between the State of California and various Native American tribes. See
"Competition."
The Company's business strategy at Primm is to capitalize on its unique and
advantageous location on the heavily traveled Interstate 15 corridor.
Approximately 11.7 million, 11.3 million, and 10.8 million vehicles traveled
through Primm on Interstate 15 in 1998, 1997, and 1996, respectively. The next
closest casino-hotel is
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located in Jean, Nevada, approximately eleven miles north towards Las Vegas.
Most of the land between Primm and Jean that is not owned, leased or subject
to the Company's exclusive gaming rights, is owned by the Federal Government.
The Primm Properties offer a convenient stop for Interstate 15 travelers, and
an attractive destination location for Southern California residents, and to a
lesser extent, visitors from Las Vegas and elsewhere.
Insurance
MGM Grand Las Vegas, NYNY and the Primm Properties carry insurance of the
type customary in the hotel and casino industry and in amounts deemed adequate
by management to protect the properties. The policies provide business and
commercial coverages, including workers' compensation, third party liability,
property damage, boiler and machinery, and business interruption.
Nevada Government Regulation
The ownership and operation of casino gaming facilities in Clark County,
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 Commission (the "Nevada
Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and
the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada
Commission, the Nevada Board, and the CCLGLB are collectively referred to as
the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices of licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues;
(iii) 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) providing a source of state and local
revenues through taxation and licensing fees. Any change in such laws,
regulations and procedures could have an adverse effect on the Company's
gaming operations.
MGM Grand Las Vegas, NYNY and Primadonna operate casinos and are required to
be licensed by the Nevada Gaming Authorities. The gaming licenses require the
periodic payment of fees and taxes and are not transferable. MGM Grand Las
Vegas is also licensed as a manufacturer and distributor of gaming devices, as
the operator of the racebook and sportspool at NYNY, and the Company and an
indirect wholly-owned subsidiary of the Company are the two managers of NYNY.
The Company is also required to be registered by the Nevada Commission as a
publicly traded corporation ("Registered Corporation") and as such, it is
required periodically to submit detailed financial and operating reports to
the Nevada Commission and furnish any other information that the Nevada
Commission may require. No person may become a stockholder or member of, or
receive any percentage of profits from, MGM Grand Las Vegas, NYNY or
Primadonna without first obtaining licenses and approvals from the Nevada
Gaming Authorities. The Company, MGM Grand Las Vegas, NYNY and Primadonna have
obtained from the Nevada Gaming Authorities the various registrations,
approval permits and licenses required in order to engage in gaming activities
in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, MGM Grand
Las Vegas, NYNY or Primadonna to determine whether such individual is suitable
or should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of MGM Grand Las Vegas, NYNY and
Primadonna must file applications with the Nevada Gaming Authorities and may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company who are actively and
directly involved in the gaming activities of MGM Grand Las Vegas, NYNY and
Primadonna may be required to be licensed or found
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suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may
deny an application for licensing for any cause they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability, or the
gaming licensee by whom the applicant is employed or for whom the applicant
serves, must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities, and in addition
to their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, MGM Grand Las Vegas, NYNY or Primadonna, such
company or companies would have to sever all relationships with such person.
In addition, the Nevada Commission may require the Company, MGM Grand Las
Vegas, NYNY or Primadonna to terminate the employment of any person who
refuses to file appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial review in
Nevada.
The Company, MGM Grand Las Vegas, NYNY and Primadonna are required to submit
detailed financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales or securities and similar
financing transactions by the Company, MGM Grand Las Vegas, NYNY and
Primadonna must be reported to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by MGM Grand Las
Vegas, NYNY or Primadonna, the gaming licenses they hold could be limited,
conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, MGM Grand Las Vegas, NYNY,
Primadonna, the Company and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed
by the Nevada Commission to operate the Company's gaming properties and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the gaming properties) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of
any gaming license or the appointment of a supervisor could (and revocation of
any gaming license would) materially adversely affect the Company's gaming
operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have their suitability as a beneficial holder of the
Company's voting securities determined if the Nevada Commission has reason to
believe that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the Company's voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
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
Company's corporate charter, bylaws, management, policies or operations of the
Company or any of its gaming affiliates, or any other action which the Nevada
Commission finds to be inconsistent with holding the Company's voting
securities for investment purposes only. Activities that 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
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made by securities analysts for informational purposes and not to cause a
change in its management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense. The
Company is subject to disciplinary action if, after it receives notice that a
person is unsuitable to be a stockholder or to have any other relationship
with the Company, MGM Grand Las Vegas, NYNY or Primadonna, and subsequently
the Company, MGM Grand Las Vegas, NYNY or Primadonna (i) pays that person any
dividend or interest upon voting securities of the Company; (ii) allows that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person; (iii) pays remuneration in any form to that
person for services rendered or otherwise; or (iv) fails to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
for cash at fair market value. Additionally, the CCLGLB has taken the position
that it has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file an application, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including through the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to
the unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada that
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to disclose
the identity of the beneficial owner to the Nevada Gaming Authorities. A
failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has
the power to require the Company's stock certificates to bear a legend
indicating that such securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make public offerings 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 24, 1997, the Nevada Commission granted the Company prior approval
to make public offerings for a period of two years, 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. The Shelf
Approval does not constitute a finding, recommendation or approval
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by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of
the prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by any person whereby he or she obtains control, may not occur without the
prior approval of the Nevada Commission. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and the Nevada
Commission concerning a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process of
the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of
voting securities above the current market price thereof and before a
corporate acquisition opposed by management can be consummated.
The Nevada Act also requires prior approval of a plan of recapitalization
proposed by the Company's board of directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by MGM Grand Las Vegas, NYNY and Primadonna
where certain entertainment is provided in a cabaret, nightclub, cocktail
lounge or casino showroom in connection with the serving or selling of food,
refreshments, or merchandise. Casino entertainment tax is also paid for
admission, food and refreshments at a bar located adjacent to a cabaret
nightclub, cocktail lounge or casino showroom if portions of the bar can
clearly see and hear the entertainment, or at a location adjacent to those
venues if such locations' primary purpose is to provide refreshment to patrons
viewing entertainment in the cabaret, nightclub, cocktail lounge or casino
showroom. Nevada licensees that hold a license as a manufacturer or a
distributor, such as MGM Grand Las Vegas, NYNY and Primadonna, also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside
of Nevada, is required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the expenses of
investigation of the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are also required
to comply with certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada Commission if
they knowingly violate any laws of the foreign jurisdiction pertaining to
foreign gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engage in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employ a person in
a foreign operation who has been denied a license or a finding of suitability
in Nevada on the ground of personal unsuitability.
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The sale of alcoholic beverages by MGM Grand Las Vegas, NYNY and Primadonna
are subject to licensing, control and regulation by the applicable local
authorities. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend or revoke any such
license, and any such disciplinary action could (and revocation would) have a
material adverse effect upon the Company's operations.
Pursuant to a 1985 agreement between the State of Nevada and the United
States Department of the Treasury (the "Treasury"), the Nevada Commission and
the Nevada Board have authority, under Regulation 6A of the Nevada Act, to
enforce their own cash transaction reporting laws applicable to casinos which
substantially parallel the federal Bank Secrecy Act. Under the Money
Laundering Suppression Act of 1994 which was passed by Congress, the Secretary
of the Treasury retained the ability to permit states, including Nevada, to
continue to enforce their own cash transaction reporting laws applicable to
casinos. The Nevada Act requires gaming licensees to file reports related to
cash purchases of chips, cash wagers, cash deposits or cash payment of gaming
debts, if any such transactions aggregate more than $10,000 in a 24-hour
period. Casinos are required to monitor receipts and disbursements of currency
in excess of $10,000 and until November 1, 1997, were required to report them
to the Nevada Board, who in turn reported them to the Treasury. As of November
1, 1997, the casinos were required to submit such reports directly to the
Treasury. Pursuant to amendments to the Nevada Act that became effective on
October 1, 1997, casinos also are required under certain circumstances to file
suspicious activity reports directly with an office of the Treasury and
provide copies thereof to the Nevada Board. Although it is not possible to
quantify the full impact of these requirements on the Company's business, the
changes are believed to have had some adverse effect on results of operations
since inception.
Regulation and Taxes
As stated above, the Company is subject to extensive regulation by the
Nevada Gaming Authorities. The Company will also be subject to regulation,
which may or may not be similar to that in Nevada, by the appropriate
authorities in any other jurisdiction where the Company may conduct gaming
activities in the future. Changes in applicable laws or regulations could have
an adverse effect on the Company.
The gaming industry represents a significant source of tax revenues to the
State of Nevada and Clark County. From time to time, federal and state
legislators and officials have proposed changes in tax law, or in the
administration of such law, affecting the gaming industry. Recent proposals
have included a federal gaming tax and increases in state or local gaming
taxes. They have also included limitations on the federal income tax
deductibility of the cost of furnishing certain complimentary promotional
items to customers, as well as various measures which would require tax
withholding on amounts won by customers. It is not possible to determine with
certainty the likelihood of possible changes in tax law or in the
administration of such law. Such changes, if adopted, could have a material
adverse effect on the Company's financial results.
Competition
The hotel industry is highly competitive. Hotels located on or near the
Strip ("Strip Hotels") compete primarily with other Strip Hotels and with a
few major hotels in downtown Las Vegas. Strip Hotels offering similar prices
compete with each other primarily on the basis of quality of rooms,
restaurants and facilities, entertainment offered, complimentary goods and
services given, credit limits and quality of personal attention offered to
guests and casino customers. The Company's hotel/casino operations also
compete with a large number of hotels and motels, and gaming facilities not
related to hotels or motels, located in and near Las Vegas. Some of the
Company's competitors may have greater resources.
According to the LVCVA, as of December 31, 1998, there were approximately
109,000 hotel and motel rooms in the Las Vegas area. During early March 1999,
the Mandalay Bay opened just south of Tropicana on the Strip adding
approximately 3,700 rooms. In addition, the LVCVA reports projects under
construction and/or proposed for future development of approximately 12,300
more hotel and motel rooms, including two themed hotel/casino properties
currently under construction on the Strip between Tropicana Avenue and
Flamingo Road
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and one major facility north of Flamingo Road. The Company cannot make any
prediction as to how many additional rooms will be constructed in Las Vegas.
The Company's future operating results could be adversely affected by excess
Las Vegas rooms and gaming capacity.
In addition to competing with hotel/casino facilities elsewhere in Nevada
(i.e., the Reno/Lake Tahoe areas and the Laughlin area) and in Atlantic City,
the Company competes with hotel/casino facilities elsewhere in the world and
with state lotteries. Certain states are currently considering legalizing
casino gaming in specific geographic areas, and several other states have
recently legalized casino gaming. This growth has been driven by the expansion
of traditional land-based casino destinations and the continued development of
new riverboat and Native American reservation casinos throughout the United
States. Currently, casinos are operating or are approved in 32 states.
Elsewhere in North America, nearly all of the Canadian provinces and
territories offer some form of casino gaming. Legalized casino gaming in other
states could adversely affect the Company's activities in Las Vegas,
particularly if such legalization were to occur in areas close to Nevada, such
as California. In addition, with respect to group bookings, the Company's
hotel/casino facilities in Las Vegas also compete with hotels and resorts,
which do not include casinos, throughout the United States. See "Las Vegas
Market."
Additionally, certain gaming operations are conducted or have been proposed
on federal Native American reservations, including those located in the
primary market to be served by MGM Grand Las Vegas, NYNY and the Primm
Properties. Approximately 29 California tribes, without approval from the
state or national government, offer various types of gaming activities, most
notably house-banked video gaming devices, which are illegal under the
California State Constitution and the California State Lottery Act. Last year,
the California State Senate and Assembly ratified 11 tribal-state compacts,
permitting tribes to move forward on developing limited scale casinos that
will offer pari-mutuel games. On November 3, 1998, Californians passed
Proposition 5, thereby potentially allowing expanded Nevada-style gaming on
tribal lands. The passage of Proposition 5, along with the election of a new
governor who is apparantly amenable to Native American causes, strongly
suggests that the governor's office could ultimately relax several
restrictions previously placed on tribal gaming. Within several weeks of the
passage of Proposition 5, two lawsuits were filed in the State Supreme Court
to preclude its implementation, claiming that Proposition 5 is
unconstitutional. It is likely that this matter will be litigated for at least
the next several years. The 11 tribes that have signed tribal-state compacts
will continue to offer pari-mutual games, while the 29 tribes without compacts
continue to operate what the state considers illegal devices. If Proposition 5
is ultimately upheld, the Company would anticipate a substantial increase in
competition from the Native American casinos in California.
The Company's Primm Properties compete primarily with two casino-hotels
located 11 miles north along Interstate 15 in Jean, Nevada, and with numerous
other hotel/casinos in the Las Vegas area and indian gaming facilities in
Southern California, principally on the basis of location, range and pricing
of amenities, gaming mix, and overall atmosphere. As mentioned previously, the
Las Vegas market will have increasing competitive pressures with regards to
room and gaming capacity with the opening of the resorts currently under
construction. This increase in capacity may increase competition for customers
at the Company's Primm Properties. Since many of the Company's current
customers stop at Primm as they are driving on Interstate 15 to and from major
casino-hotels located in Las Vegas, the Company believes that its success at
Primm is also favorably influenced by the popularity of the Las Vegas resorts.
To a lesser extent, the Company's Primm Properties also compete with gaming
establishments in or near Laughlin, Nevada, approximately 90 miles away in
Southern Nevada. Laughlin caters to moderate and middle income, value oriented
customers who travel primarily by car, bus, and recreational vehicle. The
addition of major gaming properties or the substantial expansion of existing
Laughlin resorts could have an adverse effect on the number of customers
visiting the Company's Primm Properties.
MGM Grand Australia
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia Pty Ltd., completed the acquisition of the MGM Grand Australia
in Darwin, Northern Territory, Australia. MGM Grand Australia is located on 18
acres of beachfront property next to the Arafura Sea on the north central
coast. The
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resort includes a public and private casino, 96 rooms, restaurants and other
facilities. Casino operations include approximately 32 table games, 360 slot
machines and a keno lounge. The Company has positioned MGM Grand Australia as
a multi-faceted gaming/entertainment facility for the local market and, to a
lesser extent, as an exclusive destination resort for international table game
customers.
Two casinos operate in the Northern Territory, including MGM Grand's
property in Darwin on the northern coast, and a small casino in Alice Springs
in the southern part of the Territory. Unlike the U.S., Australia has granted,
for the most part, regional casino monopolies in its provinces. Gaming
machines (i.e., slots or "poker machines") were installed in clubs and hotels
in 1996, and MGM Grand Australia will effectively receive 22.0% of the
revenues from these machines through 2005 in the form of a tax rebate.
Northern Territory Keno machines ("NT Keno") are also being installed in pubs,
hotels and clubs in the Northern Territory. NT Keno is a territory-wide keno
game that the Northern Territory Government has licensed to MGM Grand
Australia, whereby keno tickets are sold in pubs, hotels and clubs throughout
the Northern Territory. The pubs, hotels and clubs act as agents on behalf of
MGM Grand Australia and sell keno tickets in return for a commission paid by
MGM Grand Australia. NT Keno commenced operations on October 30, 1996.
The success of MGM Grand Australia will depend in part upon a balance of (i)
its ability to effectively serve the local community as well as (ii) its
ability to make efficient use of its strategic location to the South East
Asian gaming market. The Darwin International Airport is an average of 5.5
hours away from the major Asian cities. However, frequency of scheduled air
service is a limiting factor.
There exist 13 casinos in Australia competing for the Far East Market.
Australian casinos operate under exclusive arrangements, which create a
regional monopoly for a fixed term. As such, Australian casinos do not compete
among themselves for the regional middle to low end players. However, Far East
premium players have become an increasingly important source of revenues;
consequently, this market has become very competitive. Competition for the Far
East premium player is increasing, as evidenced by the gaming activity in
Kuala Lumpur and Macao, the recent growth in the number of casinos operating
in Australia, and an increase in the quantity of casino cruise ships. In an
effort to attract premium players, MGM Grand Australia completed a $15 million
capital improvement program in June 1996, which included renovation of all 96
rooms (including 16 suites), enhanced casino facilities, and additional
dining, entertainment and retail amenities. Due to the increasing competition
and the limitations on scheduled air service, the desired mixture of premium
players has not been attained at MGM Grand Australia. As a result, the
operating margins have been negatively impacted and future operating results
could be adversely affected if this trend continues. MGM Grand Australia
therefore revised its marketing efforts with an emphasis on the local
population and instituted cost reduction and revenue enhancement programs in
an effort to strengthen operating results. The results of the cost reduction
and revenue enhancement programs have resulted in improved operating margins
and increased revenues.
Australia Government Regulation
The Northern Territory of Australia, like Nevada, has comprehensive laws and
regulations governing the conduct of gaming. MGM Grand Australia's operations
are subject to the Gaming Control Act of 1993 and regulations promulgated
thereunder (the "Northern Territory Law") and to the licensing and general
control of the Minister for Racing and Gaming (the "Minister"). MGM Grand
Australia Pty. Ltd. has entered into a Casino Operator's Agreement with the
Minister pursuant to which MGM Grand Australia was granted a license (the
"License") to conduct casino gaming on an exclusive basis through June 30,
2005 in the northern half of the Northern Territory (which includes Darwin,
its largest city, where MGM Grand Australia is located). The License provides
for good faith negotiations to reach agreement on an extension of the License.
The License provides for a tax payable to the Northern Territory Government on
gross profits derived from gaming, including gaming devices. The License is
not exclusive with respect to gaming devices, and the Minister may permit such
devices to be placed in limited numbers in locations not operated by MGM Grand
Australia. However, under the License, a portion of the operators' win on such
gaming devices is to be offset against gaming tax otherwise payable by MGM
Grand Australia.
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The License may be terminated if MGM Grand Australia breaches the Casino
Operator's Agreement or the Northern Territory Law or fails to operate in
accordance with the requirements of the License. The Northern Territory
authorities have the right under the Northern Territory Law, the Casino
Operator's Agreement and the License to monitor and approve virtually all
aspects of the conduct of gaming by MGM Grand Australia.
Additionally, under the terms of the License, the Minister has the right to
approve the directors and corporate secretary of the Company and its
subsidiaries which own or operate MGM Grand Australia, as well as changes in
the ownership or corporate structure of such subsidiaries. The Company is
required to file with the Northern Territory authorities copies of all
documents required to be filed by the Company or any of its subsidiaries with
the Nevada Gaming Authorities. In the event of any person becoming the
beneficial owner of 10% or more of the outstanding stock of the Company, the
Minister must be so notified and may investigate the suitability of such
person. If the Minister determines such person to be unsuitable and following
such determination such person remains the beneficial owner of 10% or more of
the Company's stock, that would constitute a default under the License.
MGM Grand Detroit
The Michigan Gaming Control and Revenue Act (the "Michigan Act") provides
that not more than three casinos may be licensed by the State of Michigan
("Michigan") and that they be located only in the City of Detroit ("Detroit").
In November 1997, at the conclusion of a competitive selection process, the
Mayor of Detroit designated MGM Grand Detroit, LLC to develop one of the three
authorized hotel and casino complexes. MGM Grand Detroit, Inc., a wholly-owned
subsidiary of the Company, will hold a controlling interest in MGM Grand
Detroit, LLC and plans to provide a majority of the equity capital. A minority
interest will be held by Partners Detroit, LLC, a Michigan limited liability
company owned by ten individual residents of the Detroit metropolitan area. As
planned, the Detroit permanent facility is expected to include a 100,000
square foot casino, an 800 room hotel with ballroom, convention and meeting
rooms, restaurants, bars, entertainment and retail facilities. The total
project cost could exceed $800 million and development could take up to three
years. Development of the permanent facility will not proceed until after (i)
acquisition by MGM Grand Detroit of the permanent development site; and (ii) a
finding by the Michigan Gaming Control Board that MGM Grand Detroit, LLC is
suitable for licensing. The design, budget and schedule for development of the
permanent facility 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 develop a hotel/casino in Detroit, or if it does, as to its
ultimate size, configuration or costs. On July 22, 1998, the Michigan Gaming
Control Board adopted a resolution which allows the issuance of casino
licenses to conduct gaming operations in temporary facilities. During November
1998, MGM Grand Detroit, LLC commenced construction activities on its
temporary casino which will consist of approximately 73,000 square feet of
casino space, 2,300 slot machines, 80 table games, as well as signature
restaurants and bars. Pending the receipt of a license, MGM Grand Detroit LLC
anticipates the opening of a temporary gaming facility in the third quarter of
1999.
Detroit Market
An assessment prepared by independent consultants for the Company concludes
that the Detroit, Michigan and Windsor, Ontario casino gaming markets are
effectively one market, and that aggregate annual revenues of approximately
$1.1 billion will be generated by patrons living within 150 miles of downtown
Detroit. It is anticipated that the market will be divided among the three
casinos to be licensed under the Michigan Act and a fourth casino which is
currently operating in Windsor, Ontario. The Company anticipates that all four
casinos will have roughly comparable gaming areas.
Michigan Government Regulation and Taxation
The Michigan Act subjects the ownership and operation of casino gaming
facilities to extensive state licensing and regulatory requirements. The
Michigan Act also authorizes local regulation of casino gaming
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facilities by Detroit, provided that any such local ordinances regulating
casino gaming are consistent with the Michigan Act and rules promulgated to
implement it.
The Michigan Act creates the Michigan Gaming Control Board (the "MGCB") and
authorizes it to grant casino licenses to not more than three applicants who
have entered into development agreements with Detroit. The MGCB is granted
extensive authority to conduct background investigations and determine the
suitability of casino license applicants, affiliated companies, officers,
directors, or managerial employees of applicants and affiliated companies and
persons or entities holding a one percent or greater direct or indirect
interest in an applicant or affiliated company. Institutional investors
holding less than certain specified amounts of debt or equity securities are
exempted from meeting the suitability requirements of the Michigan Act,
provided such securities are issued by a publicly traded corporation, such as
the Company, and the securities were purchased for investment purposes only
and not for the purpose of influencing or affecting the affairs of the issuer.
The Michigan Act imposes the burden of proof on the applicant for a casino
license to establish its suitability to receive and hold the license. The
applicant must establish its suitability as to integrity, moral character and
reputation, business probity, financial ability and experience,
responsibility, and other criteria deemed appropriate by the MGCB. A casino
license is valid for a period of one year and the MGCB may refuse to renew it
upon a determination that the licensee no longer meets the requirements for
licensure.
The MGCB may, among other things, revoke, suspend or restrict a casino
license. Substantial fines or forfeiture of assets for violations of gaming
laws or rules may also be levied against a casino licensee. In the event that
a casino license is revoked or suspended for more than 120 days, the Michigan
Act provides for the appointment of a conservator who, among other things, is
required to sell or otherwise transfer the assets of the casino licensee or
former licensee to another person or entity who meets the requirements of the
Michigan Act for licensure.
The MGCB has adopted administrative rules (the "Rules"), which became
effective on June 23, 1998, to implement the terms of the Michigan Act. Among
other things, the Rules impose more detailed substantive and procedural
requirements with respect to casino licensing and operations. Included are
requirements regarding such things as licensing investigations and hearings,
record keeping and retention, contracting, reports to the MGCB, internal
control and accounting procedures, security and surveillance, extensions of
credit to gaming patrons, conduct of gaming, and transfers of ownership
interests in licensed casinos. The Rules also establish numerous MGCB
procedures regarding licensing, disciplinary and other hearings, and similar
matters. The Rules have the force of law and are binding on the MGCB as well
as on applicants for or holders of casino licenses.
The Detroit City Council recently enacted an ordinance entitled "Casino
Gaming Authorization and Casino Development Agreement Certification and
Compliance". The ordinance authorizes casino gaming only by operators who are
licensed by the MGCB and are parties to a development agreement which has been
approved and certified by the City Council and is currently in effect or are
acting on behalf of such party. The development agreement between MGM Grand
Detroit, LLC, the City and the City Economic Development Corporation has been
so approved and certified and is currently in effect. The ordinance requires
each casino operator to submit to the Mayor and to the City Council periodic
reports regarding the operator's compliance with its development agreement or,
in the event of non-compliance, reasons of non-compliance and an explanation
of efforts to comply. The ordinance requires the Mayor to monitor each casino
operator's compliance with its development agreement, to take appropriate
enforcement action in the event of default and to notify the City Council of
defaults and enforcement action taken and, if a development agreement is
terminated, it requires the City Council to transmit notice of such action to
the MGCB within 5 business days along with the City's request that the MGCB
revoke the relevant operator's certificate of suitability or casino license.
The Michigan Act effectively provides that each of the three casinos in
Detroit shall pay a wagering tax equal to 18% of its adjusted gross receipts,
to be paid 8.1% to Michigan and 9.9% to Detroit, a municipal services fee
equal to the greater of $4 million or 1.25% of adjusted gross receipts of each
casino to be paid to Detroit to defray its cost of hosting casinos and an
annual assessment (as adjusted based upon a consumer price index) in
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the initial amount of approximately $8.3 million to be paid by each casino to
Michigan to defray its regulatory enforcement and other casino-related costs.
These are in addition to the taxes, fees, and assessments customarily paid by
business entities situated in Detroit.
MGM Grand Atlantic City
The Company, through its wholly-owned subsidiary, MGM Grand Atlantic City,
Inc., intends to create a destination resort hotel/casino in Atlantic City,
("MGM Grand Atlantic City") that will be larger and more elaborate than any
other facility currently in existence in that market. The Company expects to
use similar entertainment themes from MGM Grand Las Vegas 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 also include the development of retail and food and beverage
facilities. The Company believes that the development of MGM Grand Atlantic
City could cost in excess of $700 million, and that the development could take
up to three years following the successful acquisition of land necessary to
complete the project. The design, budget and schedule for development of the
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
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. On July 24, 1996, the
Company was found suitable for licensing by the New Jersey Casino Control
Commission.
Atlantic City Market
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. The Atlantic City market
currently consists of 12 hotel/casinos which as of December 31, 1998 had
11,885 rooms, 1,211,451 square feet of casino space, 36,271 slot machines and
1,345 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. Most of the Atlantic City
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.
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 $4.03 billion in gaming
revenues in 1998, a 3.2% increase over 1997 gaming revenues of approximately
$3.91 billion. From 1990 to 1998, gross total annual gaming revenues in
Atlantic City increased 36.5%, while hotel rooms increased only approximately
28% during this period.
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 the 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 New Jersey Casino Redevelopment Authority ("CRDA").
Due principally to an improved regulatory environment, general improvements of
economic conditions and high occupancy rates, the majority of the Atlantic
City hotel/casinos have recently expanded, are in the process of expanding or
have announced plans to expand their facilities. In 1997 and 1998, other
gaming companies entered
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the Atlantic City market by acquiring hotel/casino facilities. In addition,
some companies have entered into an agreement with Atlantic City for the
development of the "H-Tract," a 170-acre site in the Atlantic City Marina.
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 and a tunnel connecting the
Atlantic City Expressway to the Marina. Construction of a new $254 million
Convention Center was completed and the facility opened in May 1997. The CRDA
is currently overseeing the development of the "tourist corridor" that will
link the Convention Center with the Boardwalk and will, when completed,
feature approximately 500,000 square feet of exhibit and pre-function space,
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.
New Jersey Government Regulation
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 order to operate a hotel/casino
facility in New Jersey, MGM Grand Atlantic City, Inc. must obtain a license
from the New Jersey Commission and obtain numerous other licenses, permits and
approvals from other states as well as local governmental authorities. 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 Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. The New Jersey Act and
Regulations concern primarily the good character, honesty, integrity and
financial stability of casino licensees, their intermediary and holding
companies, their employees, their security holders and others financially
interested in casino operations; financial and accounting practices used in
connection with casino operations; 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; and distribution of
alcoholic beverages.
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. On July
24, 1996, the Company and MGM Grand Atlantic City, Inc., and their then
officers, directors, and 5% or greater shareholders were found suitable for
licensing by the New Jersey Commission. These findings of suitability are
subject to review and revision by the New Jersey Commission based upon a
change in any material fact that is relevant to the findings.
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 are required to be qualified by the New Jersey
Commission. However, with respect to a publicly traded holding company such as
the Company, a waiver of qualification may be granted by the New Jersey
Commission, with the concurrence of the Director of the New Jersey Division,
if the New Jersey Commission determines that said persons or entities are not
significantly involved in the activities of MGM Grand Atlantic City, Inc. 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
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<PAGE>
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.
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 publicly traded
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.
The New Jersey Act requires the certificate of incorporation of a publicly
traded holding company to 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. Accordingly, the Company amended its
Certificate of Incorporation 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 amended 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 such a
company of the determination of disqualification, it shall be unlawful for the
disqualified holder (i) to receive any dividends or interest upon any such
securities, (ii) to exercise, directly or through any trustee or nominee, any
right conferred by such securities, or (iii) 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 (i) the holding company has the corporate charter provisions
concerning divestiture of securities by disqualified owners required by the
New Jersey Act, (ii) the holding company has made good faith efforts including
the pursuit of legal remedies to comply with any order of the New Jersey
Commission, and (iii) 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, after licensure, the New Jersey Commission determines 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 after issuance, 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.
The New Jersey Act imposes an annual tax of eight percent on gross casino
revenues (as defined in the New Jersey Act). In addition, casino licensees are
required to invest one and one-quarter percent of gross casino
16
<PAGE>
revenues for the purchase of bonds to be issued by the Casino Reinvestment
Development Authority 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 casino
revenues. The New Jersey Commission has established fees for the issuance or
renewal of casino licenses and casino hotel alcoholic beverage licenses and an
annual license fee on each slot machine.
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, and the operation of hotels.
Employees
As of December 31, 1998, the Company and its subsidiaries employed
approximately 6,671 full-time equivalent employees at the MGM Grand Las Vegas
and at the Company's corporate offices. Effective December 1, 1996, MGM Grand
Las Vegas and the International Union of Operating Engineers Local 501
finalized a collective bargaining agreement, running through December 1, 2001,
covering approximately 116 facilities and maintenance employees. On November
13, 1997, MGM Grand Las Vegas finalized a collective bargaining agreement with
the Local Joint Executive Board of Las Vegas, on behalf of the Hotel Employees
Restaurant Employee International Union, Local 226 and the Bartenders Union,
Local 165 as the exclusive bargaining representative of approximately 3,351
employees, running through December 12, 2000.
As of December 31, 1998, MGM Grand Australia employed approximately 350
full-time equivalent employees. Hourly employees are covered by collective
bargaining agreements.
As of December 31, 1998, NYNY employed approximately 2,053 full-time
equivalent employees. As of December 31, 1998, 760 of NYNY's employees were
covered by collective bargaining agreements.
As of December 31, 1998, the Primm Properties employed approximately 3,390
full-time equivalent employees. None of the Primm Properties' employees are
represented by a labor union, but there can be no assurance that this will
continue.
Item 2. Properties
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109, where it rents approximately 8,800
square feet from MGM Grand Las Vegas.
MGM Grand Las Vegas' principal executive offices are also located at 3799
Las Vegas Boulevard South, Las Vegas, Nevada, 89109. Certain other office and
warehouse space is leased by MGM Grand Las Vegas consisting of approximately
132,000 square feet located in Las Vegas, Nevada, for an annual rent of
approximately $525,000.
MGM Grand Las Vegas is located on approximately 116 acres on the Strip in
Las Vegas, Nevada. The property is subject to a first priority deed of trust
securing bank financing of up to $1.25 billion, on which there were no amounts
outstanding as of December 31, 1998, which bears interest based on LIBOR or
the bank reference rate, and which is due December 2002. The property is also
subject to a first priority deed of trust with respect to $500 million in
senior collateralized notes (secured on a pari passu basis with the bank
financing) issued on January 26, 1998 and February 6, 1998, in tranches of
$300 million and $200 million, respectively.
In January 1995, the Company contributed an 18-acre site, located at the
intersection of the Strip and Tropicana Avenue to the Company's New York-New
York joint venture. (See Item 1. Business.) This property, together with an
adjacent two-acre parcel, are subject to a first priority deed of trust
securing bank financing of up of $210 million, of which $178.5 million was
outstanding as of December 31, 1998, and which bears interest based on the
bank prime rate, federal funds rate or LIBOR rate, and is due December 2001.
17
<PAGE>
MGM Grand Australia's principal executive offices are located at Gilruth
Avenue, Mindil Beach, Darwin, Northern Territory 0801 Australia. In September
1995, the Company acquired MGM Grand Australia which is located on an 18-acre
beach front site on the north central coast of Australia (See Item 1.
Business.) This property is subject to a first priority deed of trust securing
bank financing of up to approximately $45 million, which bears interest based
on the Australian bank bill rate and is due December 2002.
The Primm Properties are located on approximately 143 acres of land on both
sides of Interstate 15 at the California/Nevada state line. Substantially all
of the land is leased from Primm South Real Estate Company, a corporation
owned by the Primm family. The lease has an expiration date of 2043 with an
option to renew for an additional 25 years. Rent for all properties covered by
the lease is approximately $469,000 per month. Rent increases each year by the
cost of living, but not more than eight percent in any one year. Every eight
years, the rent is to be reset by two appraisers, or, if they are unable to
agree, by another appraiser selected by the first two appraisers. The lease
provides for a fee of $100,000 per year, adjusted every 10 years by the cost
of living but not more than eight percent annually, for lessor's agreement not
to engage in or permit any gaming activity on any of the unleased acreage
owned by the lessor. In addition, the lessor has made available to Primadonna
acreage for a wastewater treatment plant operated by Primadonna and the
associated rapid infiltration basins. The wastewater treatment plant has
sufficient capacity to support the Primm Properties' requirements. The plant
was constructed, and is being expanded, in a manner to allow for expansion on
the site if additional capacity is needed in the future.
Primadonna owns approximately 16 acres immediately north of Buffalo Bill's
that are currently the site of 144 company-owned mobile homes rented to
employees. A subsidiary of the Company owns approximately 573 acres of land in
California, approximately four miles south of Primm, which is the location for
the Primm Valley Golf Club. Approximately 125 of these acres remain available
for future development.
Primadonna has rights to water in various wells located on federal land in
the vicinity of the Primm Properties, and has received permits to pipe the
water to the Primm Properties. The Company believes that there is adequate
water, and that Primadonna has the necessary permits to pipe sufficient
quantities of water, to meet present and ongoing needs of the Primm
Properties. Such permits and rights are subject to the jurisdiction and on-
going regulatory authority of the U.S. Bureau of Land Management, the States
of Nevada and California, and local governmental units. The Company believes
that adequate water for the Primm Properties is available, however, there can
be no assurances that the future needs will be within the current permitted
allowance. There can be no assurances that any future requests for additional
water will be approved, or that no further requirements will be imposed by
governmental agencies on the Primadonna's use and delivery of water to the
Primm Properties.
Primadonna Resorts and its properties are subject to a first priority deed
of trust securing bank financing of up to $350 million of which $233.7 million
was outstanding as of December 31, 1998, and which bears interest based on
LIBOR or the bank reference rate, and which is due June 2002.
Item 3. Legal Proceedings
On April 5, 1996, a lawsuit was filed in the Superior Court of California,
County of Los Angeles by Sheldon Gordon and Randy Brant against the Company.
The suit alleged that the Company breached an oral joint venture agreement to
have real estate developers Gordon/Brant design and develop a retail and
entertainment center at the portion of MGM Grand Las Vegas which fronts the
Strip. Plaintiffs claimed the alleged oral agreement was formed on essentially
the terms set forth in an earlier letter which provided it could not be relied
upon for any reason, and that no binding agreement would exist until an
Operating Agreement had been duly executed by the Company. They sued for
$350,000 in costs advanced in anticipation of the project being constructed,
as well as for damages of approximately $100 million from lost profits that
would have resulted upon completion, and damage to their reputations.
Management believes that the claims are wholly without merit and does not
expect that the lawsuit will have a material adverse effect on the Company's
financial condition or results of operations. On July 8, 1996, the
jurisdiction of the lawsuit was transferred to the U.S. District Court for the
District of Nevada. On June 13, 1997, the Company filed a motion for summary
judgment on the grounds that no
18
<PAGE>
enforceable contract exists between the parties. The District Court granted
the Company's motion for summary judgment and, in March 1998, entered judgment
in favor of the Company. The Plaintiffs appealed the judgment entered against
them to the U.S. Court of Appeals for the Ninth Circuit, and briefing on the
Plaintiffs' appeal was completed. On March 5, 1999, upon both parties'
stipulation, a voluntary dismissal of the appeal was granted by the U.S. Court
of Appeals.
A subsidiary of the Company is a defendant in an adversary proceeding
against MGM Dist. Inc., (formerly MGM Desert Inn, Inc.) in Bankruptcy Case,
pending in the United States Bankruptcy Court for the Central District of
California. The adversary complaint, which was filed on December 12, 1997,
alleges that the debtor, Ken Mizuno, transferred approximately $1.1 million to
MGM Desert Inn, Inc. in 1988 and 1989, in payment of casino debts of various
individuals. The complaint alleges these transfers were fraudulent conveyances
and seeks damages against the Company in an amount not less than approximately
$1.1 million. The Company answered the complaint on January 30, 1998, denying
the allegations thereof and asserting the complaint failed to state a claim
upon which relief could be granted. Also on January 30, 1998, the Company
filed a motion to transfer venue to the United States Bankruptcy Court in the
District of Nevada. On February 12, 1998, the Plaintiff indicated his intent
to file an amended adversary complaint asserting that Mr. Mizuno's payment of
his own casino debt at the Desert Inn in the approximate amount of $20 million
also constituted a fraudulent conveyance. On July 20, 1998, the Bankruptcy
Court entered an order granting the Company's motion for dismissal for failure
to state a claim based on statute of limitations grounds. The plaintiff's
motion for reconsideration in Bankruptcy Court was denied on November 11,
1998. The plaintiff has since filed a Notice of Appeal to the District Court
from the Bankruptcy Court's order granting the Company's motion for dismissal
and the Bankruptcy Court's denial of the motion for reconsideration. The
Company intends to vigorously defend this action.
On April 26, 1994, a purported class action lawsuit was filed in the United
States District Court, Middle District of Florida, against 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company ("Poulos"). On May 10, 1994, a complaint alleging
substantially identical claims was filed by another plaintiff in the United
States District Court, Middle District of Florida, against 48 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company and most of the other major hotel-casino companies
("Ahern"). On September 26, 1995, a complaint alleging substantially identical
claims was filed by another plaintiff in the United States District Court for
Nevada, against 45 operators, manufacturers, and distributors of video poker
and electronic slot machines, including the Company ("Schreier"). The
complaints allege that the defendants have engaged in a course of fraudulent
and misleading conduct intended to induce persons to play such games based on
a false belief concerning how the gaming machines operate, as well as the
extent to which there is an opportunity to win. The three lawsuits have been
consolidated into a single action, and discovery with respect to
jurisdictional issues is currently in progress ("Poulos/Ahern/Schreier"). On
December 9, 1994, the Florida Court ordered the case be transferred to the
United States District Court for the District of Nevada. On April 17, 1996,
the federal district court in Las Vegas, Nevada, dismissed the purported class
action suit, and gave the claimants until May 31, 1996 to file amended
complaints. On May 31, 1996 the plaintiffs filed an amended complaint, and
also filed a motion to substitute Brenda McElmore for Mr. Ahern as one of the
class representatives. The motion was not opposed by the Company. On July 12,
1996, the plaintiffs filed a motion seeking to lift the December 30, 1994 stay
of discovery and seeking leave to add additional defendants. The defendants
(including the Company) have opposed those motions, and no hearing date has
been set on these motions. By order dated August 17, 1996, the Case was
transferred to Judge Ezra of the United States District Court of Hawaii, and
assigned the new Case No. CV- S-94-1126-DAE (RJJ)-BASE FILE. The plaintiffs,
Poulos/Ahern/Schreier had until February 14, 1997 to file one consolidated
complaint, which was done. The defendants (including the Company) appointed a
steering committee to file consolidated pleadings in response to the
consolidated complaint. On February 14, 1997, the parties filed a case
management order. The defendants filed a motion to dismiss on March 21, 1997.
On December 19, 1997, the Court granted a motion to dismiss one of the
complaints, the balance of the motions were denied. A motion to dismiss
certain parts of the consolidated complaint was granted, and all other
remaining motions were denied. The plaintiffs filed a second consolidated
amended complaint of January 9, 1998, with essentially the same allegations as
in the earlier Consolidated Case. The defendants (including the Company)
19
<PAGE>
filed their answer on February 11, 1998. The parties have submitted an updated
case management order which has been approved, in part, by the court. On March
18, 1998, the plaintiffs filed a motion for class certification. On March 19,
1998, the Magistrate Judge granted the defendants' motion seeking to bifurcate
discovery into "class" and "merits" phases, and to stay merits discovery
pending a decision on plaintiffs motion for class certification. Class
discovery was completed on July 17, 1998; however, plaintiffs have filed a
motion to compel further discovery from the defendants. The Magistrate Judge
has recommended denial of that motion, and the plaintiffs have sought review
of that recommendation by the Judge. The defendants will oppose the review
sought by the plaintiffs. If that motion is granted, defendants could be
required to provide additional documents and information to plaintiffs. On
August 7, 1998, the defendants filed their opposition to the class
certification. The plaintiffs reply memorandum was filed on August 25, 1998,
and the matter has been submitted for decision. The stay of merits discovery
remains in effect until the court decides the motion for class certification.
On July 15, 1997, Yolanda Manuel, the non-custodial parent of Sherrice
Iverson, filed suit in the State of Nevada, in Case No. A375879, identifying
herself as the child's "personal representative." During the early morning
hours of May 25, 1997, Sherrice Iverson, a seven year-old female, was
assaulted and killed in the women's arcade restroom at Primm Valley Resort &
Casino. An eighteen year-old male, Jeremy Strohmeyer, has been convicted of
her murder. The complaint alleges negligence on the part of Primadonna Resorts
and seeks compensatory and punitive damages. On October 15, 1997, Primadonna
Resorts moved to dismiss the complaint and asked, in the alternative, for
partial summary judgment. While the motion was pending, Manuel filed for
letters testamentary regarding Sherrice Iverson on November 12, 1997 in Los
Angeles, receiving "Special Powers" to settle the lawsuit. On December 3,
1997, Ms. Manuel and Primadonna Resorts entered into a stipulation that would
allow for the withdrawal of the Primadonna Resorts' motion to dismiss in
exchange for dismissal of the second claim for relief, pertaining to
"Negligence Per Se," and for the substitution of the correct name of the
Primadonna Resorts. An answer to the Manuel complaint was filed on behalf of
Primadonna Resorts on February 3, 1998, together with a Crossclaim against
Jeremy Strohmeyer and a Third-Party Complaint against David Cash, a young man
who allegedly witnessed all or part of the murder and sexual assault of
Sherrice Iverson by Strohmeyer. On November 25, 1997, other heirs, Leroy
Iverson (father) and Harold Jordan (brother), filed a lawsuit in Department I
of the District Court, Clark County, Nevada. This second complaint was served
on March 31, 1998, but contained numerous errors which were brought to the
attention of Iverson's and Jordan's counsel. Thereafter, an Amended Complaint
was filed on behalf of Iverson and Jordan on August 5, 1998. Primadonna
Resorts responded by filing demands for Iverson and Jordan to post additional
non-resident security bonds in the amount of $500.00 per Defendant and per
Plaintiff. The Plaintiff subsequently filed their non-resident cost bonds in
the amount of $3,000.00. Primadonna Resorts filed an Answer, Counterclaims
against Iverson and Jordan, and Crossclaims against Strohmeyer and Cash. The
Crossclaims are currently in the process of being served upon Strohmeyer and
Cash. With respect to Primadonna's Crossclaim and Third-Party Complaint
against Strohmeyer and Cash in the Manuel case, Primadonna has taken a default
against Strohmeyer for his failure to respond to the Crossclaim. Cash
attempted to file an Answer, in proper person, to Primadonna's Third-Party
Complaint. However, Cash's "Answer" was filed after Primadonna had defaulted
him and, therefore, the court ruled that he must file an appropriate Motion to
lift the default before he is permitted to Answer the Third-Party Complaint.
To date, Cash has not filed a Motion and, therefore, he has not properly
answered in the Manuel case. There have been significant discussions for
Manuel and Iverson regarding mediation and possible settlement; however, no
agreements have been reached between the parties. Counsel for all parties have
exchanged lists of documents and possible witnesses that they believe will be
used or called at trial. On December 17, 1998, the Discovery commissioner
ordered both Primadonna and Manuel to produce additional documents that were
the subject of a dispute between these parties. Counsel for the Primadonna,
Manuel and Iverson have agreed to stipulate to consolidate the two lawsuits
into one action for the purpose of discovery and trial.
On January 4, 1999, Primadonna Resorts was served with a lawsuit in the
Eighth Judicial District Court of Clark County, Nevada entitled: Michael
Shapiro v. Primadonna Resorts, Inc., MGM Grand, Inc., Gary E. Primm, Robert E.
Armstrong, Michael B. Graves, Sigmund Rogich, Gary R. Sitzmann and George C.
Swarts (Case No. A395831). The complaint purports to be a class action filed
on behalf of holders of Primadonna common stock
20
<PAGE>
and alleges that the merger consideration is inadequate and did not result
from an auction process. The complaint seeks unspecified damages and
injunctive relief. On February 22, 1999, Primadonna Resorts was served with a
second lawsuit by Mr. Shapiro in the United States District Court, District of
Nevada entitled: Michael Shapiro v. Primadonna Resorts, Inc., MGM Grand, Inc.,
Robert E. Armstrong, Madison B. Graves II, Gary E. Primm, Sigmund Rogich, H.
Martin Rosa, Gary R. Sitzmann, Gregory B. Primm, Roger B. Primm, Janet Primm
Rosa, and George C. Swarts (Case No. CV-S-99-00199-JBR(RJJ)). The claim
purports to be a class action filed on behalf of holders of Primadonna Resorts
common stock and alleges sufficient information on which to base a vote for
merger was not provided, and that the information provided was false and
misleading. The complaint seeks unspecified damages and injunctive relief.
On February 18, 1999, Primadonna Resorts was served with a lawsuit in the
Eighth Judicial District Court of Clark County, Nevada entitled: Sharei
Yeshua, Inc. v. Primadonna Resorts, Inc., MGM Grand, Inc., Gary E. Primm,
Robert E. Armstrong, Michael B. Graves, Sigmund Rogich, Gary R. Sitzmann and
George C. Swarts (Case No. A398673). The complaint purports to be a class
action filed on behalf of holders of Primadonna common stock and alleges that
the merger consideration is inadequate and did not result from an auction
process. The complaint seeds unspecified damages and injunctive relief.
Item 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
J. Terrence Lanni (age 56) has served as Chairman of the Company since July
1995, 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 43) has served as President of the Company since July
1995 and as Chief Operating Officer of the Company since June 1995. He also
served as Chief Financial Officer of the Company from May 1994 to January
1998, 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 also served as an executive of Tracinda from January 1990 to
January 1997, and since February 1999.
Daniel M. Wade (age 46) has served as Executive Vice President of the
Company since October 1998, and for the five years prior thereto most recently
serving as President and Chief Operating Officer for MGM Grand Hotel, Inc.
James J. Murren (age 37) has served as Executive Vice President and Chief
Financial Officer of the Company since January 1998, and for the five years
prior thereto most recently serving as Managing Director and Co-Director of
research for Deutsche Morgan Grenfell.
Scott Langsner (age 45) has served as Secretary/Treasurer of the Company
since July 1987.
Edward J. Jenkins (age 54) 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.
21
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is listed on the New York Stock Exchange.
For price information with respect to such Common Stock, see page 51
of the Company's 1998 Annual Report to Stockholders, which information
is incorporated herein by this reference.
As of March 11, 1999, there were approximately 2,797 record holders of
the Company's Common Stock.
The Company has not paid any dividends to date on the Common Stock. The
declaration of dividends (which is within the discretion of the
Company's Board of Directors) will depend on the earnings, financial
position and capital requirements of the Company and other relevant
factors existing at the time. See the Company's 1998 Annual Report to
Stockholders which is incorporated herein by reference.
Item 6. Selected Financial Data
The information set forth on page 1 of the Company's 1998 Annual
Report to Stockholders is incorporated herein by this reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth on pages 23 to 28 of the Company's 1998
Annual Report to Stockholders is incorporated herein by this
reference.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets as of December 31, 1998 and 1997 and
the consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December
31, 1998 with the Report of Independent Public Accountants contained
on pages 29 to 49 of the Company's 1998 Annual Report to Stockholders
are incorporated herein by reference.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
22
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Information called for by PART III (Items 10, 11, 12, and 13) has been
omitted, as the Company intends to file with the Securities and
Exchange Commission not later than 120 days after the end of its
fiscal year, a definitive Proxy Statement pursuant to regulation 14A,
except that the information regarding the Company's executive
officers called for by Item 10 of PART III has been included in PART
I of this Form 10-K under the heading "Executive Officers of the
Registrant."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The financial statements and schedule listed in the accompanying
index to Financial Statements at Page 26 herein are filed as part of
this Form 10-K.
(b) Form 8-Ks filed on November 12, 1998 and December 9, 1998.
(c) Exhibits
The exhibits listed in the accompanying Exhibit Index on Pages 29 to
31 are filed as part of this Form 10-K.
(d) The financial statements for the Company's Unconsolidated
Affiliate are set forth in Exhibit 99 hereto and incorporated herein
by this reference.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MGM GRAND, INC.
By /s/ J. Terrence Lanni
_____________________________________
J. Terrence Lanni
Chairman and Chief Executive Officer
(Principal Executive Officer)
By /s/ Alex Yemenidjian
_____________________________________
Alex Yemenidjian
President and Chief Operating
Officer
Dated: March 18, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Terrence Lanni Chairman of the Board, Chief March 18, 1999
____________________________________ Executive Officer, and
J. Terrence Lanni Director
/s/ Alex Yemenidjian President, Chief Operating March 18, 1999
____________________________________ Officer, and Director
Alex Yemenidjian
/s/ James J. Murren Executive Vice President, March 18, 1999
____________________________________ Chief Financial Officer,
James J. Murren and Director
/s/ James D. Aljian Director March 18, 1999
____________________________________
James D. Aljian
/s/ Fred Benninger Director March 18, 1999
____________________________________
Fred Benninger
/s/ Terry N. Christensen Director March 18, 1999
____________________________________
Terry N. Christensen
Director March , 1999
____________________________________
Glenn A. Cramer
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director March , 1999
____________________________________
Willie D. Davis
Director March , 1999
____________________________________
Alexander M. Haig, Jr.
/s/ Kirk Kerkorian Director March 18, 1999
____________________________________
Kirk Kerkorian
Director March , 1999
____________________________________
Walter M. Sharp
/s/ Jerome B. York Director March 18, 1999
____________________________________
Jerome B. York
</TABLE>
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
<TABLE>
<CAPTION>
Annual
Report to Form
Stockholders 10-K
Page Page
------------ ----
<S> <C> <C>
Report of Independent Public Accountants.................... 49
Consolidated Statements of Operations--For the years ended
December 31, 1998, 1997, 1996.............................. 29
Consolidated Balance Sheets as of December 31, 1998 and
1997....................................................... 30
Consolidated Statements of Cash Flows--For the years ended
December 31, 1998, 1997, 1996.............................. 31
Consolidated Statements of Stockholders' Equity--For the
years ended December 31, 1998, 1997, and 1996.............. 32
Notes to Consolidated Financial Statements.................. 33
Selected Quarterly Financial Results (unaudited)............ 50
Report of Independent Public Accountants on Supplemental
Schedule................................................... 27
Schedule II--Valuation and Qualifying Accounts.............. 28
</TABLE>
All other schedules have been omitted either as inapplicable or not required
under the instructions contained in Regulation S-X, or because the information
is included in the financial statements or the notes thereto.
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To MGM Grand, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in MGM Grand, Inc.'s (the
"Company") Annual Report to stockholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 1, 1999. Our
audits were made for the purpose of forming an opinion on those statements
taken as a whole. The supplemental Schedule II as shown on page 28 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 1, 1999
27
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged Balance
at to Costs Amounts at End
Beginning and Written of
Description of Period Expenses Off Period
----------- --------- --------- ------- -------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts and
discounts............................... $27,023 $40,455 $30,647 $36,831
FOR THE YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts and
discounts............................... $35,432 $31,814 $40,223 $27,023
FOR THE YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts and
discounts............................... $33,072 $38,635 $36,275 $35,432
</TABLE>
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2 Agreement and Plan of Merger, dated as of December 2, 1998, among the
Company, MGM Acquisition Corp. And Primadonna Resorts, Inc.
(incorporated by reference to Appendix A to the Company's Proxy
Statement/Prospectus dated February 1, 1999).
3(1) Certificate of Incorporation of Company, as amended (incorporated by
reference to Exhibit 3(1) to Registration Statement No. 33-3305 and to
Exhibit 3(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (the "1997 10-K")).
3(2) Bylaws of Company, as amended (incorporated by reference to Exhibit
3(2) to Registration Statement No. 33-30337).
4(1) Indenture, dated as of February 2, 1998, among the Company, as issuer,
the Guarantor Parties thereto, as guarantors, and PNC Bank, National
Association, as Trustee (incorporated by reference to Exhibit 4(1) to
the Company's Current Report on Form 8-K, dated February 23, 1998 (the
"Form 8-K")).
4(2) Schedule setting forth material details of the Indenture, among MGM
Grand, Inc., as Issuer, the Guarantors Parties thereto and U.S. Trust
Company of California, N.A., dated as of February 6, 1998
(incorporated by reference to Exhibit 4(2) to the Form 8-K).
*10(1) MGM Grand, Inc. Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 10(1) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "1996 10-K")).
*10(2) MGM Grand, Inc. Incentive Stock Option Plan (incorporated by reference
to Exhibit 10(2) to the 1996 10-K).
10(3) Amended and Restated Loan Agreement, dated as of July 17, 1997, as
amended, between the Company, as Borrower, MGM Grand Atlantic City,
Inc., as Co-Borrower, Bank of America NT&SA, as Administrative Agent,
and the banks named therein (incorporated by reference to Exhibit 10
to the Company's Current Report on Form 8-K dated July 23, 1997,
Exhibit 10(3)(a) to the 1997 10-K and Exhibit 10(3)(b) to the 1997 10-
K).
*10(4) Letter Agreements, dated January 3, 1991 and February 9, 1993, between
the Company and Alex Yemenidjian (incorporated by reference to Exhibit
10(19) of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 (the "1992 10-K")).
*10(5) Letter Agreement, dated February 9, 1993, between the Company and Fred
Benninger (incorporated by reference to Exhibit 10(20) of the 1992 10-
K).
10(6) Operating Agreement of New York-New York Hotel, LLC by and between MGM
Grand, Inc. and PRMA Las Vegas, Inc. dated as of December 26, 1994
(incorporated by reference to Exhibit 10(16) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 (the
"1994 10-K")).
10(7) Contribution Agreement with Joint Escrow instructions by and among
PRMA Las Vegas, Inc. and the Company and New York-New York Hotel, LLC
dated as of December 26, 1994 (incorporated by reference to the 1994
10-K).
10(8) Construction/Revolving Loan Agreement dated as of September 15, 1995
among New York-New York Hotel, LLC and the banks named therein
(incorporated by reference to Exhibit 10(18) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (the
"1995 10-K").
</TABLE>
29
<PAGE>
EXHIBIT INDEX--(Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10(9) Completion Guaranty dated as of September 15, 1995 by the Company and
Primadonna Resorts, Inc. (incorporated by reference to Exhibit 10(19)
to the 1995 10-K).
10(10) Keep Well Agreement dated as of September 15, 1995 by the Company and
Primadonna Resorts, Inc. (incorporated by reference to Exhibit 10(20)
to the 1995 10-K).
10(11) Agreement for Purchase of Shares between MGM Grand Australia PTY LTD
("MGM Grand Australia"), the Company and the Vendors (as defined
therein) dated as of June 30, 1995 (incorporated by reference to
Exhibit 10(21) to the 1995 10-K).
10(12) Loan Agreement between MGM Grand Australia and the banks named therein
dated September 6, 1995 (incorporated by reference to Exhibit 10(22)
to the 1995 10-K).
10(13) MGM Grand, Inc. Continuing Guaranty dated as of September 1, 1995
(incorporated by reference to Exhibit 10(23) to the 1995 10-K).
10(14) Option Deed dated as of June 30, 1995 between the Shareholders named
therein, the Company and the persons named therein (incorporated by
reference to Exhibit 10(24) to the 1995 10-K).
*10(26) Letter Agreement dated April 13, 1995 between the Company and J.
Terrence Lanni (incorporated by reference to Exhibit 10(26) to the
1995 10-K).
*10(27) Letter Agreement dated October 10, 1995 between the Company and Edward
Jenkins (incorporated by reference to Exhibit 10(27) to the 1996 10-
K).
*10(28) MGM Grand, Inc. 1997 Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (File No. 333-42729) (the "Form S-8")).
*10(29) MGM Grand, Inc. 1997 Incentive Stock Option Plan (incorporated by
reference to Exhibit 4.2 to the Form S-8).
*10(30) Annual Performance Based Incentive Plan for Executive Officers
(incorporated by reference to Appendix 1 to the Company's Proxy
Statement dated March 28, 1997).
*10(31) Letter Agreement dated April 22, 1997, between the Company and
Alejandro Yemenidjian (incorporated by reference to Exhibit 10(31) to
the 1997 10-K).
*10(32) Letter Agreement dated January 16, 1998, between the Company and James
Murren (incorporated by reference to Exhibit 10(32) to the 1997 10-K).
*10(33) Letter Agreement dated December 9, 1998, between the Company and Scott
Langsner.
*10(34) Letter Agreement dated April 1, 1998 between the Company and J.
Terrence Lanni.
*10(35) Amended and Restated Ground Lease Agreement dated July 1, 1993 between
Primm South Real Estate Company and The Primadonna Corporation
(incorporated by reference to Exhibit 10.11 to the Annual Report on
Form 10-K of Primadonna Resorts, Inc. for the fiscal year ended
December 31, 1997 (the "Primadonna 1997 10-K")).
*10(36) Amended and Restated Split-Dollar Agreement between The Primadonna
Corporation, Gary E. Primm and Robert E. Armstrong, Trustee of the
1992 Primm Children's Trust U/A dated December 22, 1992 (the
"Trustee") dated as of December 22, 1998.
*10(37) Split-Dollar Collateral Assignment, dated December 22, 1998, between
The Primadonna Corporation, Robert E. Armstrong, as trustee of the
1992 Primm Children's Trust U/A dated December 22, 1992, and John
Hancock, as insurer.
</TABLE>
- --------
* Management contract or compensatory plan.
30
<PAGE>
EXHIBIT INDEX--(Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10(38) Credit Agreement dated June 5, 1997 by and among Primadonna Resorts,
Inc. and The Primadonna Corporation as "Borrowers," and Wells Fargo
Bank, as "Agent Bank" for a consortium of sixteen participating banks
listed therein as "Lenders" (without schedules or exhibits)
(incorporated by reference to Exhibit 10.29 to the Form 10-Q of
Primadonna Resorts, Inc. for the period ended June 30, 1997).
*10(39) First Amendment to the Amended and Restated Ground Lease Agreement and
Consent and Waiver, dated August 25, 1997 by and among The Primadonna
Corporation and Primm South Real Estate Company (incorporated by
reference to Exhibit 10.31 to the Primadonna 1997 10-K).
10(39) Assumption and Consent Agreement, dated December 18, 1997, by and
among Primadonna Resorts, Inc. and The Primadonna Corporation, as
"Borrowers," and Wells Fargo Bank, as "Agent Bank" for a consortium of
sixteen participating banks listed therein as "Lenders" (without
schedules or exhibits) (incorporated by reference to Exhibit 10.32 to
the Primadonna 1997 10-K).
10(40) Assumption and Consent Agreement, dated June 3, 1998, by and among
Primadonna Resorts, Inc. and The Primadonna Corporation, as
"Borrowers," and Wells Fargo Bank, as "Agent Bank" for a consortium of
participating banks listed therein as "Assuming Lenders" (without
exhibit or schedules) (incorporated by reference to Exhibit 10.33 to
the Form 10-Q of Primadonna Resorts, Inc. for the period ended June
30, 1998).
10(41) Amended and Restated Development Agreement among the City of Detroit
and The Economic Development Corporation of the City of Detroit and
MGM Grand Detroit, LLC for the City of Detroit Casino Development
Project dated as of April 9, 1998.
10(42) First Amendment to the Amended and Restated Development Agreement
dated June 25, 1998.
10(43) Letter dated January 26, 1999 from MGM Grand Detroit, LLC to the City
of Detroit and The Economic Development Corporation of the City of
Detroit.
13 The Company's 1998 Annual Report to Stockholders.
21 List of Subsidiaries.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule for the period ending December 31, 1998.
99 Unconsolidated Affiliate Financial Statements.
</TABLE>
- --------
* Management contract or compensatory plan.
31
<PAGE>
EXHIBIT 10(33)
EMPLOYMENT AGREEMENT
This Employment Agreement (Agreement) is entered into on December 9, 1998, by
and between MGM GRAND, INC., Nevada corporation (Employer), and Scott Langsner,
("Employee").
1. Employment. Employer hereby employs Employee, and Employee hereby accepts
----------
employment by the Employer, as Employer's Secretary/Treasurer (which title
may be changed by Employer in its sole discretion) to perform such
executive, managerial or administrative duties as Employer may specify from
time to time. In construing the provisions of this Agreement, Employer
shall include all of Employer's subsidiary, parent and affiliated
corporations and entities.
2. Term. This Agreement shall commence on December 9, 1998, and continue for
----
a period for four (4) years until it terminates on December 9, 2002
(Specified Term).
3. Compensation. Employee shall receive a minimum annual salary of $200,000
------------
effective 1/1/1998. Employee shall also be eligible to receive fringe
benefits commensurate with Employer's other employees in comparable
executive positions, and reimbursement for all reasonable business and
travel expenses incurred by Employee in performing the duties hereunder,
payable in accordance with Employer's customary practices. Employee's
performance may be reviewed periodically. Employee is eligible for
consideration for a discretionary raise, annual bonus and/or promotion by
Employer in its sole and absolute discretion.
4. Extent of Service. The Employee agrees that the duties and services to be
-----------------
performed by Employee shall be performed exclusively for Employer.
Employee further agrees to perform such duties in an efficient, trustworthy
and businesslike manner. The Employee agrees not to render to others any
service of any kind whether or not for compensation, or to engage in any
other business activity whether or not for compensation, that is similar
to or conflicts with the performance of Employee's duties under this
Agreement, without the approval of the Executive Committee of the Board of
Directors of MGM Grand, Inc. However, this provision shall not be construed
to prohibit rendering services to the Monorail company.
5. Policies and Procedures. In addition to the terms herein, Employee agrees
-----------------------
to be bound by Employer's policies and procedures as they may be amended by
Employer from time to time. In the event the terms in this Agreement
conflict with Employer's policies and procedures, the terms herein shall
take precedence. Employer recognizes that it has a responsibility to see
that its employees understand the adverse effects that problem gambling and
underage gambling can have on individuals and the gaming industry as a
whole. Employee acknowledges having read Employer's policies, procedures
and manuals and agrees to abide by the same, including but not limited to
Employer's policy or prohibiting underage gaming and supporting programs
to treat compulsive gambling.
6. Licensing Requirements. Employee acknowledges that Employer is engaged in
----------------------
a business that is or may be subject to and exists because of privileged
licenses issued by governmental authorities in Nevada, Australia, New
Jersey and other jurisdictions in which Employer is engaged or has applied
or during the Specified Term may apply to engage in the gaming business. If
requested to do so by Employer, Employee shall apply for and obtain any
license, qualification, clearance or the like which shall be requested or
required of Employee by any regulatory authority having jurisdiction over
Employer. If Employee fails to satisfy such requirement, or if Employer is
directed to cease business
<PAGE>
with Employee by any such authority, or if Employer shall determine, in
Employer's sole and exclusive judgment, that Employee was, is or might be
involved in, or is about to be involved in, any activity, relationship(s)
or circumstance which could or does jeopardize Employer's business,
reputation or such licenses, or if any such license is threatened to be, or
is, denied, curtailed, suspended or revoked, this Agreement may be
terminated by Employer and the parties' obligations and responsibilities
shall be determined by the provisions of Paragraph 10(a).
7. Additional Consideration. Employee has received as consideration for this
------------------------
Agreement, in addition to the Compensation stated in Paragraph 3 above, the
sum of $25,000.00. Employee represents and warrants that such consideration
is reasonable, adequate and sufficient for Employee's agreement to the
terms contained herein, including but not limited to the undertakings
stated in Paragraphs 4, 6 and 8.
8. Restrictive Covenants
---------------------
a. Competition. Employee acknowledges that, in the course of Employee's
-----------
responsibilities hereunder, Employee will form relationships and
become acquainted with certain confidential and proprietary
information as further defined in Paragraph 8(b). Employee further
acknowledges that such relationships and information are valuable to
the Employer and that the restrictions on future employment, if any,
are reasonably necessary in order for Employer to remain competitive
in the gaming industry. In consideration for the Compensation and
Additional Consideration hereunder, and in recognition of Employer's
heightened need for protection from abuse of relationships formed or
information garnered before and during the Specified Term of the
Employee's employment hereunder, Employee covenants and agrees that,
except as set forth in subparagraphs 10(b)(ii)[b], 10(e)(v)[ii] and
Paragraph 10(c), in the event Employee is not employed by Employer for
the entire Specified Term, then for the twelve (12) month period
immediately following separation from active employment, or for such
shorter period remaining in the Specified Term should Employee
separate from active employment with less than twelve (12) months
remaining in the Specified Term (the "Restrictive Period"), Employee
shall not directly or indirectly be employed by, provide consultation
or other services to, engage in, participate in or otherwise be
connected in any way with any firm, person, corporation or other
entity which is either directly, indirectly or through an affiliated
company, engaged in non-restricted gaming in the State of Nevada, or
in or within a 150 mile radius of any other jurisdiction in which
Employer during the Restrictive Period is operating or has applied for
a gaming license ("Competitor"). The convenants under this Paragraph
include but are not limited to Employee's covenant not to:
i. Make known to any third party the names and addresses of any of
the customers of the Employer, or any other information
pertaining to those customers.
ii. Call on, solicit and/or take away, or attempt to call on, solicit
and/or take away, any of the customers of the Employer, either
for Employee's own account or for any third party.
iii. Call on, solicit and/or take away, any potential or prospective
customer of the Employer, on whom the Employee called or with
whom Employee became acquainted during employment (either before
or during the Specified Term) by the Employer, either for
Employee's own account or for any third party.
2
<PAGE>
iv. Approach or solicit any employee of the Employer with a view
towards enticing such employee to leave the employ of the
Employer to work for the Employee or for any third party, or
hire any employee of the Employer, without the prior written
consent of the Employer, such consent to be within
Employer's sole discretion.
b. Confidentiality. Employee further covenants and agrees that
---------------
Employee shall not at any time during the Specified Term or
thereafter, without Employer's prior written consent, disclose to
any other person or business entities any trade secret (as that
term is defined on Exhibit A attached hereto) proprietary or
other confidential information concerning Employer, including
without limitation, Employer's customers and its casino, hotel
and marketing practices, procedures, management policies or any
other information regarding the Employer which is not already and
generally known to the public. Employee further covenants and
agrees that Employee shall not at any time during the Specified
Term, or thereafter, without the Employer's prior written
consent, utilize any such trade secrets, proprietary or
confidential information in any way, including communications
with or contact with any such customer other than in connection
with employment hereunder. Not by way of limitation but by way of
illustration, Employee agrees that such trade secrets,
proprietary or confidential information specifically include but
are not limited to those documents and reports set forth on
Exhibit B.
c. Employer's Property. Employee hereby confirms that such trade
-------------------
secrets, proprietary or confidential information and all
information concerning customers who utilize the goods, services
or facilities of the MGM Grand Hotel/Casino and any other hotel
and/or casino owned, operated or managed by Employer constitute
Employer's exclusive property (regardless of whether Employee
possessed or claims to have possessed such information prior to
the date hereof). Employee agrees that upon termination of active
employment, Employee shall promptly return to the Employer all
notes, notebooks, memoranda, computer disks, and any other
similar repositories of information (regardless of whether
Employee possessed such information prior to the date hereof)
containing or relating in any way to the trade or business
secrets or proprietary and confidential information of the
Employer, including but not limited to the documents referred to
in Paragraph 8(b). Such repositories of information also include
but are not limited to any so-called personal files or other
personal data compilations in any form, which in any manner
contain any trade secrets or proprietary or confidential
information of the Employer
d. Notice to Employer. Employee agrees to notify Employer
------------------
immediately of any employers for whom Employee works during the
Specified Term or within the Restrictive Period. Employee further
agrees to promptly notify Employer, during Employee's employment
with Employer, of any contacts made by non-restricted gaming
licensees which concern or relate to an offer of future
employment (or consulting services) to Employee.
9. Representations. Employee hereby represents, warrants and agrees with
---------------
Employer that:
a. The covenants and agreements contained in Paragraphs 4 and 8
above are reasonable in their geographic scope, duration and
content; the Employer's agreement to employ the Employee and a
portion of the compensation and consideration to be paid to
Employee under Paragraphs 3 and 7 hereof, are in partial
consideration for such covenants; the Employee shall not raise
any issue of the reasonableness of the geographic scope, duration
or content of such covenants
3
<PAGE>
in any proceeding to enforce such covenants; and such covenants shall
survive the termination of this Agreement, in accordance with its
terms;
b. The enforcement of any remedy under this Agreement will not prevent
Employee from earning a livelihood, because Employee's past work
history and abilities are such that Employee can reasonably expect to
find work in other areas and lines of business;
c. The covenants and undertakings stated in Paragraphs 4, 6 and 8 above
are essential for the Employer's reasonable protection; and
d. Employer has reasonably relied on these representations, warranties
and agreements by Employee.
10. Termination.
-----------
a. This Agreement may be terminated by Employer at any time during the
Specified Term hereof for good cause. Upon any such termination,
Employer shall have no further liability or obligations whatsoever to
Employee hereunder except as provided under 10(a)(1)[a] and
10(a)(1)[b] and except that Employee shall be entitled to receive so
much of the stock from the Executive Stock Option Plan as had been
vested but unexercised as of the date of termination upon compliance
by the Employee with all the terms and conditions required to exercise
such options. Good cause shall be defined as:
i. Employee's death or disability, which is hereby defined to
include incapacity for medical reasons certified to by a
licensed physician which precludes the Employee from
performing the essential functions of Employee's duties
hereunder for a substantially consecutive period of six (6)
months or more;
[a] In the event of Employee's death during the term of
this Agreement, Employee's beneficiary (as designated
by Employee on the Employer's benefit records) shall
be entitled to receive Employee's salary for a three
(3) month period following Employee's death, such
amount to be paid at regular payroll intervals.
[b] In the event that this Agreement is terminated by
Employer due to Employee's disability, as provided
under sub paragraph 10(a)(i), Employer shall pay to
Employee an amount equal to Employee's salary for an
additional period of three (3) months such amount to
be paid at regular payroll intervals, net of payments
received by Employee from any Short Term Disability
Policy which is either self-insured by Employer or the
premiums of which were paid by Employer.
4
<PAGE>
ii. Employee's failure to abide by Employer's policies and procedures,
misconduct, insubordination, inattention to Employer's business,
failure to perform the duties required of Employee up to the
standards established by the Employer's Senior Management, or other
material breach of this Agreement; or
iii. Employee's failure or inability to satisfy the requirements stated
in Paragraph 6 above.
b. Except as set forth in subparagraph 10(e)(iv), this Agreement may be
terminated by Employer at any time during the Specified Term hereof, for
any or no cause deemed sufficient by Employer upon written notice to
Employee. Upon such termination, as its sole liability to Employee,
Employer shall:
i. Treat Employee as an inactive employee, pay Employee's salary and
continue Employee's benefits (excluding eligibility for flex time,
discretionary bonus and new stock option grants, but including the
continued vesting of previously granted stock options, if any, for
a period of up to twelve (12) months from the date Employee is in
an inactive Employee status, if Employee remains in such inactive
status for such period) for the period remaining in the Specified
Term; and
ii. Provide for Employee to receive so much stock from the Executive
Stock Option Plan as had been vested but unexercised as of the date
of termination of Employee's inactive Employee status upon
compliance by the Employee with all the terms and conditions
required to exercise such options.
Employee shall continue to be bound by the restrictions in Paragraph 8 above, as
modified by subparagraph 10(f).
Notwithstanding anything herein to the contrary:
[a] While Employee is in an inactive status Employee may be
employed by or provide consultation services to a non-
Competitor of Employer, provided that Employer shall be
entitled to offset the salary being paid by Employer during
the Specified Term by the compensation and/or consultant's
fee being paid to Employee by the non-Competitor of
Employer, and provided further, that Employer shall not be
required to continue to provide benefits from and after the
time that Employee is entitled to receive benefits from the
non-Competitor of Employer; and
[b] At any time after the end of the Restricted Period, if the
Employee is in an inactive status, Employee may notify
Employer in writing that Employee desires to terminate
Employee's inactive status and immediately thereafter
Employer shall have no further liability or obligations to
Employee hereunder, except that Employee shall be entitled
to receive so much stock from the Executive Stock Option
Plan as is vested but unexercised as of the date of
termination of Employee's inactive status upon compliance
by the Employee with all the terms and conditions required
to exercise such options.
For clarification, upon a Change of Control (as described in Paragraph
10(e), below), Employer may no longer terminate this Agreement pursuant to
this Paragraph 10(b).
5
<PAGE>
c. Employee may terminate this Agreement for good cause. For purposes of
this Paragraph 10(c), good cause shall mean:
i. the failure of Employer to pay Employee any compensation when
due, save and except a "Disputed Claim" to compensation; or
ii. material reduction in the scope of duties or responsibilities
of Employee or any reduction in Employee's salary save and
except a "Disputed Claim".
For any termination under this Paragraph 10(c), Employee shall give
Employer thirty (30) days advance written notice specifying the facts
and circumstances of Employer's breach. During such thirty (30) day
period, Employer may either cure the breach or declare that a dispute
exists with the breach claimed, in either of which case this Agreement
continues in full force until the dispute is resolved in accordance
with Paragraph 11. As a result of any termination under this Paragraph
10(c), Employee shall be entitled to receive so much of the stock from
the Executive Stock Option Plan as had been vested but unexercised as
of the date of termination, upon compliance by the Employee with all
the terms and conditions required to exercise such option. Employee
shall have no further claim against Employer arising out of such
breach.
d. Employee shall also have the right to terminate Employee's employment
without cause upon thirty (30) days advance written notice to
Employer. Upon any such termination Employer shall have no further
liability or obligations whatsoever to Employee hereunder, except that
Employee shall be entitled to receive so much of the stock from the
Executive Stock Option Plan as had been vested but unexercised as of
the date of termination, upon compliance by the Employee with all the
terms and conditions required to exercise such option. Upon any such
termination, Employee shall be subject to the undertakings contained
in Paragraph 8.
e. In the event that there is a change in control of MGM Grand, Inc.
("Parent"), if such change of control is a result of a sale or
exchange of outstanding common stock of Parent to a third party, as a
result thereof the ownership by Kirk Kerkorian, Tracinda Corporation
and/or their affiliates of the voting stock of the acquiring or
surviving entity (after completion of the transactions set forth in
the sale or exchange agreement documents, including without limitation
subsequent stock buybacks contemplated in such transactions),
represents in the aggregate less than twenty percent (20%) of the
voting power of the voting stock of such entity as distinguished from
a change in control resulting from the issuance of Treasury shares or
from any other transaction, ("Change of Control"), then upon the
effective date of the Change of Control ("Effective Date"):
i. All of Employee's unvested stock options shall become fully
vested, provided that Employee shall have the right to elect (by
notifying the Employer in writing as set forth on Exhibit C) that
all or any portion of Employee's unvested stock options shall not
become fully vested upon a Change of Control.
ii. If the Change of Control results from an exchange of outstanding
common stock as a result of which the Common Stock of Parent is
no longer publicly held, then upon the Effective Date of the
Change of Control all
6
<PAGE>
options held by Employee to purchase common stock of Parent shall
be exercisable at the time or times they would otherwise have
been exercisable for the consideration (cash, stock or otherwise)
which the holders of Parent common stock received in such
exchange. For example, if immediately prior to the Effective
Date, Employee has options to acquire 5,000 shares of Parent's
common stock and the exchange of stock is one share of common
stock of Parent for two shares of common stock of the acquiring
entity, then Employee's options shall be converted into options
to acquire, upon payment of the exercise price, 10,000 shares of
the acquiring entity's common stock.
iii. If the Change of Control results from a sale of Parent's
outstanding common stock for cash with the result that Parent's
common stock is no longer publicly held, then upon the Effective
Date all options held by Employee to purchase common stock of
Parent shall be exercisable at the time or times they would
otherwise have been exercisable for cash equal to the difference
between the price per share of common stock paid by the acquiring
entity for Parent's shares of common stock ("Purchase Price") and
the price per share at which the options were granted ("Strike
Price"). For example, if immediately prior to the Effective Date,
Employee has options to acquire 2,000 shares of Parent common
stock at a Strike Price of $35, and the Purchase Price was $40,
then upon the vesting of such options Employee would be entitled
to receive $10,000 in full satisfaction of such options (2,000
shares times $5 per share).
iv. Employer may terminate the Agreement only for good cause pursuant
to Paragraph 10(a) or pursuant to subparagraph 10(e)(v). Employee
may terminate the Agreement only for good cause pursuant to
Paragraph 10(c) or pursuant to Paragraph 10(d). and
V. Employer may terminate this Agreement for any or no cause upon
written notice to Employee. In the event of a termination
hereunder, as its sole liability to Employee, Employer shall:
[a] Treat Employee as an inactive employee, pay Employee's
salary, continue Employee's benefits (excluding eligibility
for flex time, discretionary bonus and new stock option
grants) and comply with the provisions of subparagraphs
10(e)(ii) and 10 (e)(iii) for the remainder of the Specified
Term.
Employee shall continue to be bound by the restrictions in Paragraph 8
above.
Notwithstanding anything herein to the contrary:
[i] While Employee is in an inactive status Employee may be
employed by or provide consultation services to a non-
Competitor of Employer, provided that Employer shall be
entitled to offset the salary being paid by Employer during
the Specified Term by the compensation and/or a
fee being paid to Employee by the non-Competitor of
Employer, and provided further, that Employer shall not be
required to continue to provide benefits from and after the
time that Employee is entitled to receive benefits from the
non-Competitor of Employer; and
[ii] At any time after the end of the Restrictive Period, if the
Employee is in an inactive status, Employee may be employed
by or provide
7
<PAGE>
consultation services to a Competitor of Employer,
provided that Employer shall be entitled to offset the
salary being paid by Employer during the Specified Term by
the compensation and/or consultant's fee being paid to
Employee by the Competitor of Employer, and provided
further, that Employer shall not be required to continue
to provide benefits from and after the time that Employee
is entitled to receive benefits from the Competitor of
Employer, and provided further that the obligations and
restrictions on Employee which are set forth in Paragraphs
8(b) and (c) shall still apply.
f. Notwithstanding anything contained in this Agreement to the contrary, the
undertakings contained in Paragraph 8 shall survive a termination of the
Agreement or of the Employee's employment, regardless of the reason for
such termination, except where termination occurs pursuant to
subparagraph 10(b)(ii)[b] or Paragraph 10(c). In the event the Agreement
is terminated pursuant to subparagraph 10(b)(ii)[b] the restriction
stated in Paragraph 8(a) on Employee accepting employment elsewhere
shall not apply; however, the obligations and restrictions set forth in
Paragraphs 8(b) and (c) shall still apply. For a termination under
Paragraph 10(c), the restriction stated in Paragraph 8(a) on Employee
accepting employment elsewhere shall not apply except that the
restrictions under subparagraphs 8(a)(i) - (iv) and Paragraphs 8(b) -(d)
shall still apply.
11. Disputed Claim/Arbitration A "Disputed Claim" occurs when Employee maintains
--------------------------
pursuant to Paragraph 10(c) that Employer has breached it duty to Employee
and Employer has denied such breach. In such event, the Disputed Claim shall
be resolved by arbitration administered by the American Arbitration
Association under its National Rules for the Resolution of Employment
Disputes. Any arbitration under this paragraph shall take place in Las
Vegas, Nevada. Until the arbitration process is finally resolved in the
Employee's favor and Employer fails to satisfy such award within thirty (30)
days of its entry, no "for good cause" termination within the meaning of
Paragraph 10(c) exists with respect to Employer's breach of a Disputed
Claim. Nothing herein shall preclude or prohibit Employer or Employee from
invoking the provisions of Paragraph 10(b), or of Employer seeking or
obtaining injunctive or other equitable relief, provided that upon a Change
of Control (as described in Paragraph 10(e), above, Employer may no longer
invoke the provisions of Paragraph 10(b), but may invoke the provisions of
subparagraph 10(e)(v).
12. Severability. If any provision hereof is unenforceable, illegal, or invalid
------------
for any reason whatsoever, such fact shall not affect the remaining
provisions hereof, except in the event a law or court decision, whether on
application for declaration, or preliminary injunction or upon final
judgment, declares one or more of the provisions of this Agreement that
impose restrictions on Employee unenforceable or invalid because of the
geographic scope or time duration of such restriction. In such event,
Employer shall have the option:
(A) To deem the invalidated restrictions retroactively
modified to provide for the maximum geographic scope and time
duration which would make such provisions enforceable and
valid; or
(B) To terminate this Agreement pursuant to Paragraph 12, in
which event neither party shall have any further obligation to
the other, except that Employee still shall be subject to the
restrictions contained in Paragraphs 8(b) and (c).
8
<PAGE>
Exercise of any of these options shall not affect Employer's right to
seek damages or such additional relief as may be allowed by law in
respect to any breach by Employee of the enforceable provisions of
this Agreement.
13. Attorneys Fees. In the event suit is brought to enforce, or to recover
--------------
damages suffered as a result of breach of this Agreement the prevailing
party shall be entitled to recover its reasonable attorneys fees and costs
of suit.
14. No Waiver of Breach or Remedies. No failure or delay on the part of
-------------------------------
Employer or Employee in exercising any right, power or remedy hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
of any such right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy hereunder. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
15. Amendment or Modification. No amendment, modification, termination or
-------------------------
waiver of any provision of this Agreement shall be effective unless the
same shall be in writing and signed by the Employer's President, and
Employee, nor consent to any departure by the Employee from any of the
terms of this Agreement shall be effective unless the same is signed by the
Employer's President. Any such waiver of consent shall be effective only in
the specific instance and for the specific purpose for which given.
16. Governing Law. The laws of the State of Nevada shall govern the validity,
-------------
construction and interpretation of this Agreement, and except for Dispute
Claims, the courts of the State of Nevada shall have exclusive jurisdiction
over any claim with respect to this Agreement.
17. Number and Gender. Where the context of this Agreement requires the
-----------------
singular shall mean the plural and vice versa and references to males shall
apply equally to females and vice versa.
18. Headings. The headings in this Agreement have been included solely for
--------
convenience of reference and shall not be considered in the interpretation
or construction of this Agreement.
19. Assignment. This Agreement is personal to Employee and may not be
----------
assigned.
20. Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of Employer.
21. Prior Agreements. This Agreement shall supersede and replace any and all
----------------
other employment agreements which may have been entered into by and between
the parties, including, but not limited to that certain letter agreement
dated NONE. Any such prior employment agreements shall be of no force and
----
effect.
IN WITNESS WHEREOF, Employer and Employee have entered into this Agreement
in Las Vegas, Nevada, on December 9, 1998.
EMPLOYEE - EMPLOYER - MGM GRAND, INC.
/s/ Scott Langsner By: /s/ Alexander Yemenidjian
- --------------------- ----------------------------
Cast Number: NONE Title: President & COO
--------- -------------------------
9
<PAGE>
EXHIBIT A
Trade secret means information, including a formula, pattern, compilation,
program, device, method, technique or process, that derives economic value,
present or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain any economic
value from its disclosure or use.
10
<PAGE>
EXHIBIT B
Name of Report Generated By
- -------------------------------------------------------------------------
Including, but not limited to:
Baccarat Pit Discrepancy Report Casino Marketing Analyst
Commission Summary Report Casino Marketing Analyst
Customer W/L Discrepancy Report Casino Marketing Analyst
Int l Marketing Detailed Budget Summaries Casino Marketing Analyst
Arrival Report International Marketing
Departure Report International Marketing
Daily Gaming Report Casino Audit
Department Financial Statement Finance
$10K Over High Action Play Report Customer Analysis Dept.
$50K Over High Action Play Report Customer Analysis Dept.
International Market Segment Report Customer Analysis Dept.
Collection Aging Report(s) Collection Department
Accounts Receivable Aging Finance
Marketing Report Finance
Daily Player Action Report Casino Operations
11
<PAGE>
EXHIBIT C
December 9, 1998
Dear Scott Langsner:
This letter will supplement the employment agreement, dated December
9, 1998, between you and MGM Grand, Inc. (the "Agreement"). Notwithstanding
anything contained in the Agreement to the contrary, if you so elect, all or any
portion of your unvested stock options shall not become fully vested upon a
Change of Control (as defined in the Agreement) of MGM Grand, Inc. Any such
election shall be effective upon written notice to MGM Grand, Inc. at or prior
to the Effective Date (as defined in the Agreement) of any such Change of
Control.
Except as specifically modified hereby, the terms and conditions of
the Agreement shall remain in full force and effect.
Sincerely,
MGM GRAND, INC.
By: /s/ Alex Yemenidjian
--------------------------
Title:
-----------------------
AGREED TO AND ACKNOWLEDGED
/s/ Scott Langsner Dated: December 9, 1998
- ------------------
<PAGE>
EXHIBIT 10(34)
As of April 1, 1998
Mr. J. Terrence Lanni
Chairman and Chief Executive Officer
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, NV 89109
Dear Terry:
This letter will amend the agreement between you and MGM Grand, Inc. ("MGMG")
dated April 13, 1995 (the "Agreement").
1. The Agreement shall terminate on April 1, 2000.
2. Paragraph 7 of the Agreement is hereby deleted. This amendment is intended
to memorialize our agreement that both you and MGMG have waived your option
to terminate the Agreement on thirty (30) days notice.
3. Paragraph 3(B) of the Agreement is hereby amended to change the vesting
schedule on the stock options granted to you under the Agreement to provide
that all unvested stock options will vest on April 1, 1999, assuming you
are employed by MGMG on that date, provided however, that if you are
terminated prior to April 2, 1999 without cause or terminate the Agreement
with cause, all such options shall vest immediately.
4. Paragraph 8A of the Agreement is hereby modified to provide that the Number
of Months Base Compensation (payout period) shall be the period from the
date of termination through and including March 31, 2000.
5. You agree that if for any reason your employment is terminated prior to
April 1, 2000, you will not, from the date of termination, through April 1,
2000 (the "Restricted Period"), engage in any activities which are in
competition with the business or reasonably anticipated business of MGMG.
While you could own under 5% of the stock of any publicly held company
which is in competition with MGMG without violating this Section 3, you
could not, during the Restricted Period, serve as an officer of director
of, consultant to, or otherwise have any active involvement in the
operations of any person or entity which is in competition with MGMG's
business or reasonably anticipated business. Because of the unique nature
of your services, MGMG will be entitled to injunctive relief to enforce
this Section 5.
<PAGE>
Mr. J. Terrence Lanni
As of April 1, 1998
Page 2
6. Except as expressly modified by this letter, the Agreement is hereby
reaffirmed.
Sincerely,
MGM GRAND, INC.
By: /s/ Scott Langsner
-------------------
AGREED TO AND ACKNOWLEDGED:
/s/ J. Terrence Lanni
- ----------------------
J. Terrence Lanni
Dated: 4/1/98
----------------
<PAGE>
EXHIBIT 10(36)
AMENDED AND RESTATED SPLIT-DOLLAR AGREEMENT
-------------------------------------------
THIS AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT is made and entered into
as of this 22nd day of December, 1998, by and between The Primadonna
Corporation, a Nevada corporation, with principal offices and place of business
in the State of Nevada (hereinafter referred to as the "Corporation"), Gary E.
Primm, an individual residing in the State of Nevada (hereinafter referred to as
the "Employee"), and Robert E. Armstrong, Trustee of the 1992 Primm Children's
Trust U/A dated December 22, 1992 (hereinafter referred to as the "Owner").
WITNESSETH THAT:
WHEREAS, the parties previously entered into two (2) split dollar
agreements, dated January 19, 1993 and January 19, 1994, respectively ("Existing
Agreements"); and
WHEREAS, the parties have substituted two (2) variable joint life policies
purchased by the Owner insuring the joint lives of Gary E. and Carolee Primm
("Insureds") in the aggregate face amount of $50,000,000 issued by John Hancock
(Policy No. 20, 023,115) and Pacific Life Insurance Company (Policy No. VP 605,
970,50) ("New Policies") for the $70,000,000 of joint and individual insurance
coverages set forth in the Existing Agreements ("Old Policies") and to credit
the cash value of the New Policies with cash values under the Old Policies; and
WHEREAS, the Corporation, the Employee and the Owner desire to amend the
Existing Agreement to reflect the substitution of the New Policies for the Old
Policies and to confirm, restate, and consolidate the terms and conditions of
the Existing Agreements by this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree to amend and restate the Existing
Agreements, in their entirety, as follows:
1
<PAGE>
1. Incorporation of Recitals and Definitions. The parties hereby
-----------------------------------------
incorporate by this reference the recitals set forth in the Existing Agreements,
but references to and definitions of the Policy, the Policies, Insurer and
Insurers shall mean respectively, the New Policies and the insurers under the
New Policies set forth above. All capitalized words and phrases used in the
Existing Agreements and not otherwise defined herein shall have the same
meanings such words and phrases have in the Existing Agreement.
2. Purchase of Policies. The Owner has purchased the Policies on the
---------------------
lives of the Insureds from the Insurers, each of which has a total Face Amount
of Insurance of $25,000,000. The parties hereto have taken all necessary action
to cause the Insurers to issue the Policies, and shall take any further action
which may be necessary to cause the Policies to conform to the provisions of
this Agreement. The parties hereto agree that the Policies shall be subject to
the terms and conditions of this Agreement and of the collateral assignments
filed with the Insurers relating to the Policies. All capitalized words and
phrases not otherwise defined herein shall have the same meaning such words and
phrases have in the Policies.
3. Ownership of Policies. The Owner shall be the sole and absolute owner
----------------------
of the Policies, and may exercise all ownership rights granted to the Owner
thereof by the terms of the Policies, including, but not limited to, the right
to elect and to change the Death Benefit Option, the Face Amount of Insurance,
and the investment options of the Policies, except as may otherwise be provided
herein.
4. Payment of Premiums.
--------------------
a. Thirty (30) days prior to the due date of each Policy anniversary
date, the Corporation shall notify the Employee and the Owner of the exact
amount due from the Employee hereunder, which shall be an amount equal to the
annual cost of current life insurance protection on the life of the Insureds,
measured by the lower of the PS 58 Table rate if one of the Insureds is living,
the US Life Table 38 rate if both Insureds are living or the current published
premium rate of the Insurer which issued such Policy for annually
2
<PAGE>
renewable term insurance for standard risks if one of the Insureds is living.
Either the Employee or the Owner, on behalf of the Employee, shall pay such
required contribution to the Corporation prior to the premium due date. If
neither the Employee nor the Owner makes such timely payment, the Corporation,
in its sole discretion, may elect to make the Employee's portion of the premium
payment which payment shall be recovered by the Corporation as provided herein.
b. On or before the due date of each Policy premium, or within the
grace period provided therein, the Corporation shall pay the full amount of the
planned periodic premium to the Insurer which issued such Policy, and shall,
upon request, promptly furnish the Employee evidence of timely payment of such
premium. Except with the consent of the Employee and the Owner, the Corporation
shall not pay less than such planned periodic premium, but it may, in its
discretion, at any time and from time to time, subject to acceptance of such
amount by such Insurer, pay more than such planned periodic premium or make
other premium payments on such Policy so long as the Policy remains a policy of
life insurance and not a modified endowment contract by or defined by I.R.C.
(S)7702A reason of such payment. The Corporation shall annually furnish the
Employee a statement of the amount of income reportable by the Employee for
federal and state income tax purposes, if any, as a result of the insurance
protection provided the Owner as the beneficiary of such Policy. Subject to the
foregoing paragraph, in the event the Corporation elects to prepay the remaining
premium payments under the Policy, the required contributions by the Employer,
or the Owner shall be paid directly to the Corporation in immediate reduction of
the amounts payable to the Corporation by the Owner for premiums previously paid
by the Corporation hereunder.
5. Collateral Assignment. To secure the repayment to the Corporation of
----------------------
the amount of the premiums on the Policies paid by it hereunder, the Owner has,
contemporaneously herewith, assigned both of the Policies to the Corporation as
collateral. The collateral assignments of the Policies to the Corporation
hereunder shall not be terminated, altered or amended by the Owner, without the
express written consent of the Corporation. The parties hereto agree to take
all action necessary to cause such collateral assignments to conform to the
provisions of this Agreement.
3
<PAGE>
6. Limitations on Owner's Rights in Policies. Except as otherwise
------------------------------------------
provided herein, the Owner shall not sell, assign, transfer, borrow against or
withdraw from the cash surrender value of either Policy, surrender or cancel
either Policy, change the beneficiary designation provision of either Policy,
decrease the Face Amount of Insurance, make or change the allocation of the
Policy Account established pursuant to the terms of either Policy among the
various investment options under such Policy, nor change the Death Benefit
Option provisions thereof without, in any such case, the express written consent
of the Corporation.
7. Collection of Death Proceeds.
-----------------------------
a. Upon the death of the Insureds, the Corporation shall cooperate
with the Owner to take whatever action is necessary to collect the death benefit
provided under the Policies; when such benefits have been collected and paid as
provided herein, this Agreement shall thereupon terminate.
b. Upon the death of the Insureds, with respect to each Policy, the
Corporation shall have the unqualified right to receive a portion of such death
benefit of such Policy equal to the total amount of the premiums paid by it
hereunder with respect to such Policy, reduced by any outstanding indebtedness
which was incurred by the Corporation and secured by such Policy, including any
interest due on such indebtedness. The balance of the death benefit provided
under such Policy, if any, shall be paid directly to the Owner, in the manner
and in the amount or amounts provided in the beneficiary designation provision
of such Policy. In no event shall the amount payable to the Corporation
hereunder with respect to any one Policy exceed the death benefit of such Policy
payable at the death of the Insureds. No amount shall be paid from such death
benefit to the Owner until the full amount due the Corporation hereunder has
been paid. The parties hereto agree that the beneficiary designation provisions
of the Policies shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the event
that, for any reason whatsoever, no death benefit is payable under a Policy upon
the death of the Insureds and in lieu thereof the Insurer refunds all or any
part of the premiums paid for such
4
<PAGE>
Policy, the Corporation and the Owner shall have the unqualified right to share
such premiums based on their respective cumulative contributions thereto.
8. Termination of the Agreement Before Last Insureds' Death.
---------------------------------------------------------
a. This Agreement shall terminate, before the last of the Insureds
death, without notice, upon the occurrence of any of the following events: (i)
total cessation of the Corporation's business; (ii) bankruptcy, receivership or
dissolution of the Corporation; (iii) termination of Employee's employment by
the Corporation (other than by reason of his death); (iv) the death of the
Employee; (v) mutual consent of the parties; or (vi) failure of both the
Employee and the Owner to timely pay to the Corporation the Employee's portion
of the premiums, if any, due hereunder, unless the Corporation elects to make
such payment on behalf of the Employee, as provided herein.
b. In addition, either the Employee or the Owner may terminate this
Agreement, while no premium under either Policy is overdue, by written notice to
the Corporation. Such termination shall be effective as of the date of such
notice.
9. Disposition of the Policies on Termination of the Agreement Before
------------------------------------------------------------------
Last Insured's Death.
- --------------------
a. For sixty (60) days after the date of the termination of this
Agreement prior to the last of the Insureds' death, the Owner shall have the
option of obtaining the release of the collateral assignments of either or both
of the Policies to the Corporation. To obtain such release with respect to a
Policy, the Owner shall repay to the Corporation the total amount of the premium
payments made by the Corporation hereunder with respect to such Policy, less any
indebtedness secured by such Policy which was incurred by the Corporation and
remains outstanding as of the date of such termination, including any interest
due on such indebtedness. Upon receipt of such amount, the Corporation shall
release the collateral assignment of such Policy, by the execution and delivery
of an appropriate instrument of release.
b. If the Owner fails to exercise such option within such sixty (60)
day period with respect to one or both of the Policies, then, at the request of
the Corporation, the
5
<PAGE>
Owner shall execute any document or documents required by the Insurer to
transfer the interest of the Owner in those Policies for which a release of the
collateral assignment was not obtained to the Corporation. Alternatively, the
Corporation may enforce its right to be repaid the amount of the premiums on any
such Policy paid by it from the cash surrender value of such Policy under the
collateral assignment of such Policy; provided that in the event the cash
surrender value of such Policy exceeds the amount due the Corporation, such
excess shall be paid to the Owner. Thereafter, neither the Owner nor the Owner's
successors, assigns or beneficiaries shall have any further interest in and to
any such Policy, either under the terms thereof or under this Agreement.
10. Insurers Not Parties. Each Insurer shall be fully discharged from its
---------------------
obligations under the Policy issued by it by payment of the insurance benefits
under such Policy to the beneficiary or beneficiaries named in such Policy,
subject to the terms and conditions of such Policy. In no event shall either
Insurer be considered a party to this Agreement, or any modification or
amendment hereof. No provision of this Agreement, nor of any modification or
amendment hereof, shall in any way be construed as enlarging, changing, varying,
or in any other way affecting the obligations of either Insurer as expressly
provided in the Policy issued by such Insurer, except insofar as the provisions
hereof are made a part of such Policy by the collateral assignment executed by
the Owner and filed with such Insurer in connection herewith.
11. Named Fiduciary, Determination of Benefits, Claims Procedure and
----------------------------------------------------------------
Administration.
- ---------------
a. Named Fiduciary. The Corporation is hereby designated as the named
fiduciary under this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this Agreement, and it
shall be responsible for establishing and carrying out a funding policy and
method consistent with the objectives of this Agreement.
b. (1) Claim. A person who believes that he or she being denied a
benefit to which he or she is entitled under this Agreement (hereinafter
referred to as a "Claimant")
6
<PAGE>
may file a written request for such benefit with the Corporation, setting forth
his or her claim. The request must be addressed to the President of the
Corporation at its then principal place of business.
(2) Claim Decision. Upon receipt of a claim, the Corporation
shall advise the Claimant that a reply will be forthcoming within ninety (90)
days and shall, in fact, deliver such reply within such period. The Corporation
may, however, extend the reply period for an additional ninety (90) days for
reasonable cause. If the claim is denied in whole or in part, the Corporation
shall adopt a written opinion, using language calculated to be understood by the
Claimant, setting forth: (a) the specific reason or reasons for such denial; (b)
the specific reference to pertinent provisions of this Agreement on which such
denial is based; (c) a description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation why
such material or such information is necessary; (d) appropriate information as
to the steps to be taken if the Claimant wishes to submit the claim for review;
and (e) the time limits for requesting a review under subsection (3) and for
review under subsection (4) hereof.
(3) Request for Review. With sixty (60) days after the receipt by
the Claimant of the written opinion described above, the Claimant may request in
writing that the Secretary of the Corporation review the determination of the
Corporation. Such request must be addressed to the Secretary of the Corporation,
at its then principal place of business. The Claimant or his or her duly
authorized representative may, but need not, review the pertinent documents and
submit issues and comments in writing for consideration by the Corporation. If
the Claimant does not request a review of the Corporation's determination by the
Secretary of the Corporation within such sixty (60) day period, he or she shall
be barred and estopped from challenging the Corporation's determination.
(4) Review of Decision. Within sixty (60) days after the
Secretary's receipt of a request for review, he or she will review the
Corporation's determination. After considering all materials presented by the
Claimant, the Secretary will render a written opinion, written in a manner
calculated to be understood by the Claimant, setting forth the specific reasons
for the decision and containing specific references to the pertinent provisions
of this Agreement on which the decision is based. If special circumstances
require that the sixty (60)
7
<PAGE>
day time period be extended, the Secretary will so notify the Claimant and will
render the decision as soon as possible, but no later than one hundred twenty
(120) days after receipt of the request for review.
12. Amendment. This Agreement may not be amended, altered or modified,
----------
except by a written instrument signed by the parties hereto, or their respective
successors or assigns, and may not be otherwise terminated except as provided
herein.
13. Binding Effect. This Agreement shall be binding upon and inure to
---------------
the benefit of the Corporation and its successors and assigns, and the Employee,
the Owner, and their respective successors, assigns, heirs, executors,
administrators and beneficiaries.
14. Notice. Any notice, consent or demand required or permitted to be
-------
given under the provisions of this Agreement shall be in writing, and shall be
signed by the party giving or making the same. If such notice, consent or
demand is mailed to a party hereto, it shall be sent by United States certified
mail, postage prepaid, addressed to such party's last known address as shown on
the records of the Corporation. The date of such mailing shall be deemed the
date of notice, consent or demand.
15. Governing Law. This Agreement, and the rights of the parties
--------------
hereunder, shall be governed by and construed in accordance with the laws of the
State of Nevada.
(The rest of this page has been left blank intentionally.)
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed multiple original
copies of this Agreement the day and year first above written.
Corporation: Employee:
The Primadonna Corporation,
a Nevada corporation /s/
-------------------------------------
Gary E. Primm, a married man
By: /s/
--------------------------------
Title:
----------------------------- Owner:
1992 Primm Children's Trust (u/d/t
Attest: December 22, 1992)
/s/ By: /s/
- ------------------------------------ ---------------------------------
John Shigley, Secretary Robert E. Armstrong, Trustee
9
<PAGE>
EXHIBIT A
---------
The following life insurance policies are subject to the attached Split-
Dollar Agreement:
<TABLE>
<C> <S> <C>
- --------------------------------------------------------------------------------
1. John Hancock Policy No. 20, 023,115
- --------------------------------------------------------------------------------
2. Pacific Life Insurance Company Policy No. VP 605, 970,50
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
EXHIBIT 10(37)
SPLIT-DOLLAR COLLATERAL ASSIGNMENT
FOR VALUE RECEIVED, the undersigned owner (hereafter the "Assignor"),
assigns, transfers and sets over to The Primadonna Corporation, a Nevada
corporation (hereafter the "Assignee"), its successors or assigns, certain
rights in and to policy number 20,023,115 (hereafter the "Policy"), and any and
all supplemental benefit riders or agreements issued under said Policy, issued
by John Hancock (hereafter the "Insurer"), insuring the lives of Gary and
Carolee Primm, subject to all the terms and conditions of the Policy and this
Assignment and to all superior liens, if any, which the Insurer or any prior
Assignee may have against the Policy. The Assignor by this instrument and the
Assignee by acceptance of the Assignment jointly and severally agree to the
conditions and provisions hereof. This Assignment is made and the Policy is to
be held as collateral security for any and all liabilities of the Assignor to
the Assignee either now existing or that may hereafter arise between the
Assignor or any successors or assigns and the Assignee under that certain Split-
Dollar Agreement, dated as of January 19, 1994, as amended and restated by that
certain Amended and Restated Split Dollar Agreement, dated December 22, 1998,
with regard to the Policy.
1. (a) It is expressly agreed that the Assignee shall have the following
rights in the Policy: (i) the right to make and receive loans against the Policy
(from the Insurer or otherwise), to the extent of the aggregate premiums paid by
the Assignee on the Policy; (ii) the right to release this Assignment to the
Assignor or its assigns; (iii) the right to surrender the Policy and to receive
the Policy cash value and any dividend credits outstanding (but not in excess of
the aggregate premiums paid by the Assignee on the Policy); and (iv) the right
to receive from the death proceeds of the Policy, and to elect an income
settlement option with respect thereto, an amount equal to the aggregate
premiums paid by the Assignee on the Policy, but reduced by any Indebtedness
(together with any unpaid interest) incurred by the Assignee on the Policy.
(b) Except as provided in Paragraph (a) above, all other rights in the
Policy, including but not limited to the right to designate and change the
beneficiary of the Policy and the right to make loans against or withdrawals
from the Policy and to receive any cash values and dividend credits outstanding
in excess of aggregate premiums paid by the Assignee on the Policy, and select
and modify investment options are expressly reserved to the Assignor and are
therefore excluded from this Assignment.
(c) For purposes of Paragraphs (a) and (b) above, the signature of
either the Assignor or the Assignee shall be adequate. Both the Assignor and the
Assignee acknowledge that, between themselves, they are bound by the limitations
of this Assignment and that the Insurer will recognize the signature of either.
2. This Assignment does not change the Insurer's right under the "Policy
Loan" provision of the Policy to charge Interest on any Policy loan. If interest
is not paid under the terms of the Policy, the Insurer has the right to add such
interest to the unpaid loan from whatever cash value remains regardless of who
is entitled to that cash value under the terms of this Assignment.
1
<PAGE>
3. For purposes of this Assignment, aggregate premiums paid by the
Assignee on the Policy shall exclude premiums for any extra benefit riders or
agreements issued under the Policy.
4. Any death proceeds of the Policy in excess of the amount payable to the
Assignee shall be paid by the Insurer directly to the beneficiary named under
the Policy.
5. All provisions of this Assignment shall be binding upon the executors,
administrators, successors or assigns of the Assignor.
6. All Policy options and designations in effect as of the date of this
Assignment shall remain in effect unless specifically changed by this Assignment
or by action taken thereafter consistent with this Assignment.
7. The Insurer is hereby authorized to recognize the Assignee's claim of
right hereunder without investigating the validity or amount thereof, the giving
of any notice, or the existence or amount of any liabilities of the Assignor to
the Assignee. Payment by the Insurer of any or all death proceeds of the Policy
to the Assignee in reliance upon an affidavit of any officer of the Assignee as
to the share of death proceeds due it shall be a full discharge of the Insurer
for such share and shall be binding on all parties claiming any interest under
the Policy.
Signed at Reno, Nevada on December 22, 1998.
1992 Primm Children's Trust (u/d/t
December 22, 1992)
/s/ By: /s/
- ------------------------------------- -------------------------------
Witness Robert E. Armstrong, Trustee
Acknowledged and Agreed to by: Acknowledged and Agreed to by:
The Primadonna Corporation, John Hancock, Insurer:
a Nevada corporation
By: /s/ By: /s/
---------------------------------- -------------------------------
John Shigley, Secretary Its:
2
<PAGE>
EXHIBIT 10(41)
AMENDED AND RESTATED
DEVELOPMENT AGREEMENT
AMONG
CITY OF DETROIT
AND
THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT
AND
MGM GRAND DETROIT, LLC
FOR THE CITY OF DETROIT CASINO DEVELOPMENT PROJECT
As of April 9, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
DEFINITIONS.........................................................................1
1.1 Definitions..............................................................1
1.2 Interpretation..........................................................20
1.3 Michigan Statutes.......................................................21
ARTICLE II
GENERAL PROVISIONS.................................................................21
2.1 Purpose.................................................................21
2.2 Findings................................................................21
2.3 Intent..................................................................22
2.4 Commencement of Rights and Obligations..................................22
2.5 Conveyance of Project Premises to Developer.............................24
2.6 Compliance with Other Commitments.......................................24
2.7 Obtaining Certificate of Suitability and Casino License.................28
2.8 Payment of Development Process Costs....................................28
2.9 Payment of Feehold Compensation.........................................29
2.10 Initial Financing.......................................................29
2.11 Failure to Pay..........................................................29
2.12 Condition of Project Premises...........................................29
2.13 Developer's Development Obligations.....................................29
2.14 Other Commitments of Developer..........................................30
2.15 Other Commitments of City and EDC.......................................30
2.16 Approval by City, EDC and PM............................................30
2.17 Prompt Responses........................................................30
2.18 Funding of Excess Costs.................................................30
2.19 Administration of this Agreement........................................31
ARTICLE III
FINANCING..........................................................................33
3.1 Initial Financing.......................................................33
3.2 Financial Covenants.....................................................34
3.3 Subsequent Financings...................................................34
3.4 Transfer by Mortgagee...................................................34
3.5 Sinking Fund Provision..................................................34
3.6 Financing Representations; Restrictions.................................35
3.7 Guarantee of Developer's Obligations....................................35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
<S> <C>
DESIGN; PROJECT SCHEDULING; INFRASTRUCTURE; QUALITY................................36
4.1 Schematic, Design and Construction Documents............................36
4.2 Architect(s) and Consultants............................................37
4.3 City or EDC Not Responsible for Design Documents........................37
4.4 Permits.................................................................37
4.5 Non-Material Deviations.................................................38
4.6 Material Deviations.....................................................38
4.7 Presentation Illustrations; Virtual Reality.............................38
4.8 Integrated Complex......................................................38
4.9 Developer's Representative and Program Manager..........................38
4.10 Utility Relocation......................................................39
4.11 Infrastructure Improvements.............................................39
4.12 Quality of Work and Materials...........................................39
ARTICLE V
SITE MATTERS.......................................................................40
5.1 Developer's Right of Entry Prior to Conveyance..........................40
ARTICLE VI
CONSTRUCTION PHASE.................................................................40
6.1 General.................................................................40
6.2 Performance of the Work.................................................40
6.3 Commencement and Completion of the Work.................................42
6.4 Contractor; Subcontractors..............................................42
6.5 Claims and Liens........................................................42
6.6 Construction Matters....................................................43
6.7 Failure to Complete by Agreed Upon Opening Date.........................43
ARTICLE VII
OTHER COVENANTS OF DEVELOPER.......................................................44
7.1 Casino Complex Operation................................................44
7.2 Hours of Operation......................................................44
7.3 Radius Restriction......................................................45
7.4 Casino Component Management Agreements..................................46
7.5 Inaugural Ceremonies....................................................47
7.6 Marketing Cooperation and Coordination..................................47
7.7 Capital Maintenance Fund................................................47
7.8 Maintenance and Repairs.................................................48
7.9 Memorandum of Agreement; Covenants to Run with the Land.................49
7.10 Financial Statements; Annual Business Plan..............................49
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.11 Alterations.............................................................49
7.12 Space Leases............................................................50
7.13 Negative Covenants......................................................50
7.14 Notification of Certain Events..........................................51
7.15 Veracity of Statements..................................................51
7.16 Certification of Performance Threshold; Financial Covenants.............51
7.17 Use of Project Premises.................................................52
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF DEVELOPER........................................52
8.1 Representations and Warranties of Developer.............................52
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS OF CITY AND EDC..........................57
9.1 Representations and Warranties of City..................................57
9.2 Representations and Warranties of EDC...................................58
9.3 Final Site Selection....................................................58
9.4 Delivery of Other Development Agreements................................58
ARTICLE X
EVENTS OF DEFAULT, REMEDIES AND TERMINATION........................................59
10.1 Events of Default.......................................................59
10.2 Remedies................................................................60
10.3 Termination.............................................................64
10.4 Liquidated Damages......................................................64
10.5 Limitation on Remedies..................................................64
ARTICLE XI
CITY'S RIGHT TO PERFORM DEVELOPER'S COVENANTS......................................65
ARTICLE XII
FORCE MAJEURE......................................................................66
12.1 Force Majeure...........................................................66
12.2 Extension of Time; Excuse of Performance................................67
ARTICLE XIII
INSURANCE..........................................................................67
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
13.1 Insurance...............................................................67
13.2 Form of Insurance and Insurers..........................................67
13.3 Other Policies..........................................................67
13.4 Insurance Notice........................................................67
13.5 Keep in Good Standing...................................................68
13.6 Blanket Policies........................................................68
ARTICLE XIV
TRANSFER AND ASSIGNMENT............................................................68
14.1 Transfer of Ownership...................................................68
14.2 Transfer of Agreement; Development......................................69
ARTICLE XV
ENVIRONMENTAL......................................................................70
15.1 Environmental Covenants.................................................70
15.2 Environmental Response..................................................70
15.3 Environmental Indemnity.................................................70
ARTICLE XVI
DAMAGE TO OR DESTRUCTION OF IMPROVEMENTS; CONDEMNATION.............................71
16.1 Damage or Destruction...................................................71
16.2 Use of Insurance Proceeds...............................................71
16.3 No Termination..........................................................73
16.4 Condemnation............................................................74
ARTICLE XVII
FINANCIAL AND ACCOUNTING RECORDS; AUDIT RIGHTS.....................................74
17.1 Financial and Accounting Records........................................74
17.2 Review and Audit........................................................75
17.3 Procedures..............................................................75
ARTICLE XVIII
INDEMNIFICATION....................................................................75
18.1 Indemnification by Developer............................................75
ARTICLE XIX
ENTRY UPON PREMISES; INSPECTION....................................................77
19.1 Access and Inspection...................................................77
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XX
<S> <C>
TEMPORARY CASINO...................................................................78
20.1 Developer's Temporary Casino Obligations................................78
20.2 Temporary Casino Site...................................................78
20.3 Temporary Casino Financing..............................................78
20.4 Temporary Casino Design Documents.......................................79
20.5 Approval Procedures.....................................................79
20.6 Construction of Temporary Casino........................................80
20.7 Temporary Casino Operations.............................................80
20.8 Restriction on Payments.................................................81
ARTICLE XXI
MISCELLANEOUS......................................................................81
21.1 Notices.................................................................81
21.2 Non-Action or Failure to Observe Provisions of this Agreement...........83
21.3 Applicable Law and Construction.........................................83
21.4 Submission to Jurisdiction..............................................83
21.5 Complete Agreement......................................................83
21.6 Holidays................................................................83
21.7 Exhibits................................................................84
21.8 No Brokers..............................................................84
21.9 No Joint Venture........................................................84
21.10 Governmental Authorities................................................84
21.11 Technical Amendments....................................................84
21.12 Unlawful Provisions Deemed Stricken.....................................84
21.13 No Liability for Approvals and Inspections..............................84
21.14 Time of the Essence.....................................................84
21.15 Captions................................................................85
21.16 Arbitration.............................................................85
21.17 Sunset Provision........................................................88
21.18 Compliance..............................................................88
21.19 Table of Contents.......................................................88
21.20 Number and Gender.......................................................88
21.21 Third Party Beneficiary.................................................88
21.22 Cost of Investigation...................................................88
21.23 Attorneys' Fees.........................................................88
21.24 Further Assurances......................................................89
21.25 Estoppel Certificates...................................................89
21.26 Most Favored Nations Provision..........................................89
21.27 Developer's Right to Terminate..........................................89
21.28 Counterparts............................................................89
</TABLE>
v
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
Exhibit Description
- ------- -----------
1.1(a)(19) Description of Casino Area and Public Land
1.1(a)(30) Form of Closing Certificates
1.1(a)(42) Form of Conveyance Agreement
1.1(a)(83) Form of Guaranty and Keep Well Agreement
1.1(a)(113) Form of Performance Guaranty
7.7(a) Description of Funding of Capital Maintenance Fund
8.1(c) Description of Developer's organizational structure, etc.
8.1(d) Description of Developer's capabilities, etc.
8.1(e) Cost Budgets for Casino Complex
8.1(f) Financial Projections for Casino Complex
8.1(g) Description of Developer's financing, etc.
8.1(h) Financial Statements for Developer's existing gaming operations
8.1(i) Description of Casino Complex, etc.
8.1(j) Developer's community contributions, etc. in the area of Development
8.1(k) Developer's plan for assisting businesses that may experience
employee shortages due to the Development
8.1(l) Description of the manner in which Development will enhance City
as a desirable destination for tourists
8.1(m) Developer's community contributions, etc. outside the area of the
Development
8.1(n) Developer's marketing plan, etc.
8.1(o) Description of staff positions, etc.
8.1(p) Developer's training programs
8.1(q) Developer's Equal Opportunity Employment Plan
8.1(r) Compliance with prevailing wage determinations
8.1(s) Commitment re: Detroit resident apprentices journeymen
8.1(t) Commitment re: Executive Order 22
8.1(u) Commitment re: local purchasing
8.1(v) Description of Developer's traffic and transportation plan
8.1(w) Description of Developer's plan for transportation management
8.1(x) Description of Developer's plan re: regional water facilities
8.1(y) Description of Developer's plan re: regional sewer facilities
8.1(z) Developer's commitment re: PLD
8.1(aa) Description of Developer's plan to improve fire protection services
8.1(bb) Description of Developer's plan to improve police protection services
8.1(cc) Description of Developer's plan re: child care services
8.1(dd) Description of Developer's plan re: compulsive behavior disorder
treatment services
8.1(ee) Description of Developer's plan re: underage gambling
13.1 Insurance Schedule
21.25 Form of estoppel certificate
</TABLE>
vi
<PAGE>
CROSS REFERENCE TABLE FOR
-------------------------
ARTICLE VIII EXHIBITS
---------------------
For informational purposes only, the covenants corresponding to the
Exhibits referred to in Article VIII of the Agreement may be found in the
------------
following Sections. The inclusion of this cross reference table in no way
expands, limits, alters or amends any right, obligation or remedy of the parties
hereto.
SECTION IN WHICH CORRESPONDING
EXHIBIT REFERENCE COVENANT MAY BE FOUND
- ----------------- ----------------------------------------
8.1(c) 7.13(a) and 7.13(b)
8.1(d) Not Applicable
8.1(e) 2.6(a)
8.1(f) Not Applicable
8.1(g) 2.10 and 2.6(b)
8.1(h) Not Applicable
8.1(i) 4.1(a)
8.1(j) 2.6(c)
8.1(k) 2.6(c)
8.1(l) 2.6(c)
8.1(m) 2.6(c)
8.1(n) 2.6(c) and 7.6
8.1(o) 2.6(d)
8.1(p) 2.6(c)
8.1(q) 2.6(c), 2.6(e), 2.6(f), 2.6(g), 2.6(h) and 2.6(i)
8.1(r) 2.6(c)
8.1(s) 2.6(c)
8.1(t) 2.6(i)
8.1(u) 2.6(c) and 2.6(u)
8.1(v) 2.6(c)
8.1(w) 2.6(c)
8.1(x) 2.6(c) and 4.11
8.1(y) 2.6(c) and 4.11
8.1(z) 2.6(c)
8.1(aa) Not Applicable
8.1(bb) Not Applicable
8.1(cc) 2.6(c)
8.1(dd) 2.6(c)
8.1(ee) 2.6(c)
vii
<PAGE>
AMENDED AND RESTATED
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT ("Agreement") as originally executed as of the
12th day of March, 1998 (the "Original Agreement"), is amended and restated as
of the 9th day of April, 1998, by and among the City of Detroit, a municipal
corporation ("City"), The Economic Development Corporation of the City of
Detroit, a Michigan public body corporate ("EDC"), having its principal place of
business at 211 West Fort, Suite 900, Detroit, Michigan 48226 and MGM Grand
Detroit, LLC, a Delaware limited liability company ("Developer") having its
principal place of business at 500 Woodward Avenue, Suite 4000, Detroit,
Michigan 48226-3425
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby amend and restate the Original Agreement
and agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
-----------
(a) The terms defined in Article I shall have the following meanings
---------
for purposes of this Agreement when initially capitalized herein:
(1) "Acceptable Guarantor" shall mean either (i) Parent Company
or such other Person provided that on the Closing Date in the case of the
Parent Company and on the date of delivery of the Performance Guaranty in
the case of any other Person, either (x) has a shareholders' equity,
determined in accordance with GAAP, of at least Seven Hundred Fifty Million
Dollars ($750,000,000) or (y)(A) has uncommitted credit available for
immediate draw under its primary credit facility plus (B) unrestricted
cash, which aggregates not less than Two Hundred Seventy-Five Million
Dollars ($275,000,000); and (C) has a primary credit facility which
contains a net worth or similar covenant of which it is not in violation or
(ii) such other Person or Persons as are reasonably acceptable to City;
(2) "Act" means the Michigan Gaming Control and Revenue Act,
being Sections 432.101 et. seq. of the Michigan Compiled Laws, as amended
--- ---
from time to time, together with all rules and regulations issued in
connection therewith or promulgated thereunder.
(3) "Addenda" means changes to the Design Documents made prior to
the execution of a Contractor Agreement.
<PAGE>
(4) "Adjusted Equity" means an amount equal to the sum of (i) the
Net Worth of Developer as reflected on the most recent audited financial
statements of Developer, provided that prior to Completion, all assets
shall be valued at cost, without allowance for depreciation or
amortization, all development and construction costs and expenses
(including construction loan interest) shall be capitalized, and the value
of goodwill shall be treated as zero, plus (ii) the "Valuation Adjustment"
as hereinafter determined. The Valuation Adjustment shall be determined as
follows:
(A) Until the first redetermination of the Valuation
Adjustment, the Valuation Adjustment shall equal the sum of (i) the
excess, if any, of the fair market value of Developer's tangible and
intangible assets as determined in the manner provided below, over the
value of such assets as determined in calculating Net Worth as of the
date of the Valuation Adjustment, in each case valuing goodwill at
zero, plus (ii) the excess, if any, of the "going concern value" of
Developer as determined in the manner provided below, over the value
of any goodwill as determined in calculating Net Worth as of the date
of the Valuation Adjustment.
(B) The going concern value shall be an amount equal to four
and one-half (4.5) times the Developer's trailing twelve (12) month's
EBITDA (provided that prior to the first anniversary of Completion,
for purposes of the foregoing computation, EBITDA shall be determined
from Completion and annualized).
(C) At any time, Developer may redetermine its Valuation
Adjustment. Once redetermined, the Valuation Adjustment shall remain
in effect until the next redetermination.
(D) In making a determination or redetermination of the
Valuation Adjustment, the fair market value of Developer's tangible
and intangible assets shall be determined by appraisal, and the value
of Developer's value as a going concern shall be determined by an
opinion of valuation. A real estate appraisal shall be performed by an
M.A.I. appraiser. An appraisal of other tangible property shall be
performed by a recognized appraiser of such types of property. An
appraisal of intangible assets shall be performed by a recognized
expert in valuing such property. The opinion of going concern value
shall be rendered by one or more recognized valuation expert(s) with
experience in valuing businesses similar to Developer's business. All
such appraisers and other experts shall be reasonably acceptable to
City and Developer.
(5) "Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by, or is
under common Control with, another Person. For purposes of clarification
Affiliates of Developer include, without limitation, Parent Company and
Partners Detroit, LLC, a Michigan limited liability company.
2
<PAGE>
(6) "Agreed Upon Opening Date" means the last day of the 36th
full calendar month following the issuance of the Building Permit, provided
however, the Agreed Upon Opening Date shall be extended by that period of
time by which the Submission Date is earlier than the Outside Submission
Date.
(7) "Allocable Share" means a fraction, the numerator of which is
one and the denominator of which is equal to the number of Land-Based
Casino Developments not yet open to the public for business, provided that
if City is notified in a writing signed by the Developer and the Other
Land-Based Casino Developers that the Allocable Share of Developer is a
specified percentage, then the Allocable Share of Developer shall equal
such specified percentage so long as the sum of the specified percentages
of Developer and the Other Land-Based Casino Developers equals one hundred
percent (100%).
(8) "Alteration" means any demolition, alteration,
reconstruction, addition, modification, renovation or improvement in or to
the Development but shall not include any refurbishment, remodeling or
rehabilitation.
(9) "Annual Business Plan" means collectively (i) a report for
the forthcoming Fiscal Year to be prepared by Developer and/or Casino
Component Manager/Operators consisting of an estimate of revenues, expenses
and payments into the Capital Maintenance Fund and (ii) a general summary
containing nonconfidential information about how the Casino Complex is
anticipated to be marketed and promoted, including the total amounts
budgeted and spent for the marketing program each year.
(10) "Annualized Cash Flow" means, as of the last day of any
fiscal quarter of Developer, EBITDA for the most recent four fiscal
quarters of Developer ended on that date, less (i) capital expenditures
(not otherwise deducted in determining EBITDA) in excess of long term debt
incurred to fund such capital expenditures and (ii) distributions made to
Developer's members in an amount estimated to be sufficient to pay federal,
state and local income tax payments of such members (or their respective
members) to the extent required or permitted under Developer's operating
agreement.
(11) "Architect" means an architectural firm retained by
Developer to prepare Design Documents and perform other Design Services.
(12) "Architect Agreement" means an agreement between Developer
and an Architect for the performance of Design Services.
(13) "Board" shall mean the Michigan Gaming Control Board, or its
successors.
(14) "Books and Records" means all revenue records and any other
accounting or financial documents or records, general ledgers, accounts
receivable records,
3
<PAGE>
accounts payable records, invoices, payroll records, expense records, or
income records, relating to or concerning the business operations of the
Developer and the Development. Books and Records shall not include any (i)
information Developer or Casino Component Manager/Operator is required by
law not to disclose; (ii) customer specific information; or (iii) any
information subject to written confidentiality undertakings with third
parties which: (x) were agreed to by Developer and/or any Casino Component
Manager/Operator in good faith and not for the purpose of avoiding
disclosure under this Agreement and (y) the exclusion of which information
from Books and Records would not cause the available Books and Records to
fail to fairly present the operations or financial results of the Developer
or the Development, taken as a whole.
(15) "Building Permit" means that document issued by the City
Department of Building and Safety Engineering authorizing commencement of
construction of the Casino Complex pursuant to Section 12-11-17.0 of
Ordinance 290-H, Chapter 12, Article 11, Administration and Enforcement
Provisions of the Official Building Code of the City.
(16) "Building Permit Submission" shall have the same meaning
ascribed to it in Section 4.4(b).
--------------
(17) "Business Days" or "Work Days" means all weekdays except
Saturday and Sunday and those that are official legal holidays of the City,
the State or the United States government. Unless specifically stated as
"Business Days" or "Work Days," a reference to "days" means calendar days.
(18) "Casino" means any premises wherein gaming is conducted and
includes all buildings, improvements, equipment and facilities used or
maintained in connection with such gaming.
(19) "Casino Area" means the real estate described on Exhibit
-------
1.1(a)(19), together with all rights, covenants, rights of way and
-----------
appurtenances belonging or in anywise appertaining thereto.
(20) "Casino Complex" means the Casino and all buildings, hotel
structures, recreational or entertainment facilities, meeting rooms and
conference centers, restaurants or other dining facilities, bars and
lounges, retail stores, parking, private bus, limousine and taxi parking
and staging areas, and other amenities that are connected with, or operated
in such an integral manner as to form a part of the same operation, whether
on the same tract of land or otherwise.
(21) "Casino Component Management Agreement" means any management
agreement between Developer and a Casino Component Manager/Operator
pertaining to the management and/or operation of one or more Covered
Components.
4
<PAGE>
(22) "Casino Component Manager/Operator" means the Person(s)
engaged, hired and/or retained by Developer to manage and/or operate one or
more Covered Components under a Casino Component Management Agreement.
(23) "Casino Gaming Operations" means any gaming operations
permitted under the Act and offered or conducted at or on the Development.
(24) "Casino License" means the license issued by the Board to
operate the Casino and engage in Casino Gaming Operations.
(25) "Casino Manager" means the Person engaged, hired or retained
by Developer to manage and/or operate the Casino and the Casino Gaming
Operations.
(26) "Certificate of Suitability" means the certificate issued by
the Board.
(27) "City" means the City of Detroit, a Michigan municipal
corporation.
(28) "City Contribution" means an amount equal to the sum of (i)
the cost of acquiring the Public Land not owned by the City prior to the
Execution Date and any improvements thereon at the fair market value
determined by appraisal, subject to Section 2.9 plus (ii) the relocation
-----------
payments pertaining to the Public Land, up to but not to exceed Fifty
Million Dollars ($50,000,000), payable at the election of the City in
either cash or land in the Casino Area valued in accordance with the
definition of Feehold Compensation.
(29) "City Council" means the Detroit City Council.
(30) "Closing Certificates" means the certificates to be
delivered by Developer in the form as attached hereto as Exhibit
-------
1.1(a)(30).
----------
(31) "Closing Date" means the date on which all of the conditions
set forth in Section 2.4(a)(1) through 2.4(a)(14) are satisfied and/or
------------------------------------
waived.
(32) "Commencement Date" means the date of commencement of the
Work.
(33) "Completion," "Completed" or "Substantial Completion" means
for the Casino Complex, the completion of the Work, as evidenced by the
issuance of a temporary certificate of occupancy by the appropriate
Governmental Authority for all Components to which a certificate of
occupancy would apply, and that the parking structure and not less than
ninety percent (90%) of the gaming area, ninety percent (90%) of the hotel
rooms, and fifty percent (50%) of the retail floor space and fifty percent
(50%) of the restaurant floor space are open to the public for their
intended use (and/or in the case of the retail and restaurant floor spaces,
are completed as shells and available for leasing).
5
<PAGE>
(34) "Completion Date" means the date on which Completion occurs.
(35) "Component" means, with respect to the Casino Complex, any
of the following: the hotel; Casino; restaurants; meeting and assembly
space; retail space; entertainment and recreational facilities; parking;
private bus, limousine and taxi parking and staging areas; the other
facilities described on Exhibit 8.1(i); and such other facilities that may
--------------
be added as Components by amendment to this Agreement.
(36) "Condemnation" means a taking of all or any part of the
Project Premises by eminent domain, condemnation, compulsory acquisition or
similar proceeding by a competent authority for a public or quasi-public
use or purpose, other than in connection with the Resolution of Necessity.
(37) "Construction Documents" means the drawings and
specifications, including Addenda and change orders, to be prepared by the
Architect(s) for the construction of the Casino Complex or the Temporary
Casino, as the context requires, which shall be in sufficient detail for
review by the appropriate Governmental Authority as necessary for the
issuance of a building permit and for review by the EDC as required in this
Agreement.
(38) "Consultants" means the Architect, engineers, planners and
other consultants retained by Developer to perform the Design Services, but
excluding any Contractor or subcontractor.
(39) "Contractor" means one or more firms licensed as a
contractor in the State, City or County as required by applicable law,
bonded to the extent required by applicable law and hired by Developer
pursuant to a Contractor Agreement or by a Contractor pursuant to a
subcontract, to construct all or part of the Development.
(40) "Contractor Agreement" means an agreement between Developer
and a Contractor or an agreement between a Contractor and a subcontractor
for construction of all or part of the Development.
(41) "Control(s)" or "Controlled" means the possession, direct or
indirect, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, as such terms are used by and
interpreted under federal securities laws, rules and regulations.
(42) "Conveyance Agreement" means the agreement to be entered
into by Developer, City and EDC for the purchase of the Project Premises by
the Developer, in substantially the same form as attached hereto as Exhibit
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1.1(a)(42); provided, however, that the parties acknowledge certain
---------
practical issues with Section 3.03 thereof and shall negotiate such changes
------------
as may be appropriate for the parties to realize the benefits thereof.
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(43) "County" means Wayne County, Michigan.
(44) "Covered Components" means the Casino, hotel and parking
Components.
(45) "Debt Service" means, as of the last day of any fiscal
quarter of Developer, required payments of all principal and interest
on all Indebtedness for the most recent four fiscal quarters of
Developer ended on that date.
(46) "Debt Service Coverage Ratio" means, as of the last day of
each fiscal quarter of Developer, the ratio of (i) Annualized Cash
Flow as of that date to (ii) Debt Service as of that date.
(47) "Default Rate" means a rate of interest at all times equal
to the greater of (i) the rate of interest announced from time to time
by Comerica Bank, or its successors ("Comerica"), at its City office,
as its prime, reference or corporate base rate of interest, or if
Comerica is no longer in business in the City or no longer publishes a
prime, reference or corporate base rate of interest, then the prime,
reference or corporate base rate of interest announced from time to
time by such local bank having from time to time the largest capital
surplus, plus four percent (4%) per annum or (ii) twelve percent (12%)
per annum, provided, however, the Default Rate shall not exceed the
maximum rate allowed by applicable law.
(48) "Design Development Documents" means the intermediate level
plans, drawings and specifications for the Casino Complex to be
prepared by the Architect(s) and other Consultants that set forth the
requirements for the construction of the Casino Complex in sufficient
detail to establish the size and character of the Casino Complex,
including architectural, structural, mechanical and electrical
systems, materials and other elements.
(49) "Design Documents" means, collectively, as applicable, the
Schematic Design Documents, the Design Development Documents, the
Construction Documents and Temporary Casino Design Documents.
(50) "Design Services" means those services to be provided by the
Architects and other Consultants in connection with the design of the
Casino Complex and the Temporary Casino and the periodic inspections,
reviews, approvals, disapprovals of the Work and any other services
customarily performed by an architect or design consultants.
(51) "Detroit-Based Business" means that term as defined in
Chapter 18 of the 1984 Detroit City Code.
(52) "Detroit Resident Business" means any business which employs
at least fifty-one (51%) percent Detroit residents. An individual
employee will be considered a Detroit resident once the business has
presented proof of such individual's
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payment of the City of Detroit Resident Income Tax in the previous
taxable year, or proof that the individual is now subject to payment
of Detroit Resident Income Tax. Additionally, to qualify as a Detroit
Resident Business, the firm or company must have at least four (4)
employees.
(53) "Developer" means MGM Grand Detroit, LLC, a Delaware limited
liability company, having its principal place of business in the
State, and its successors and assigns as may be permitted hereunder.
(54) "Developer's Representative" means the Person employed or
retained by Developer to be its duly designated, official and
authorized representative and to represent Developer in all matters
pertaining to this Agreement.
(55) "Development" means the Project Premises and the
Improvements, and/or, as applicable, the Temporary Casino Site.
(56) "Development Agreement" or "Agreement" means this
Development Agreement including all exhibits hereto, as the same may
be amended, modified, restated or supplemented from time to time.
(57) "Development Process Costs" means, to the extent not
otherwise payable by Developer hereunder, the aggregate amount of any
and all costs and expenses in good faith paid, or incurred by, City
and/or EDC to third parties (which aggregate amount is reduced by the
Two Million Three Hundred Thousand Dollars ($2,300,000) already
received by the City in connection with the RFP/Q process), in
connection with the Land-Based Casino Developments, beginning with the
planning and preparation of the RFP/Q including, without limitation,
(i) as and to the extent set forth in Section 6.2(a), the services of
--------------
the PM, the PM's staff and the cost of a field office; outside
counsel; consulting engineers; relocation consultants; urban planners;
financial advisors; and accountants; and (ii) any and all title
charges, survey and appraisal costs. Development Process Costs do not
include (x) Infrastructure Improvement costs; (y) Feehold
Compensation; (z) salaries, overhead and other costs related to
municipal or EDC employees performing their normal functions, except
as and to the extent set forth in Section 6.2(a)(1).
-----------------
(58) "Deviation" means any deviation prior to Completion from the
Schematic Design Documents.
(59) "EBITDA" means Developer's (i) earnings before (ii) pre-
opening expenses, interest, taxes, depreciation and amortization each
of which elements shall be determined in accordance with GAAP,
consistently applied.
(60) "EDC" means The Economic Development Corporation of the City
of Detroit, a Michigan public body corporate.
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(61) "EDC Plan" means a plan setting forth the information
required by Section 8 of the Economic Development Corporation Act, MCL
125.1601, et seq. including but not limited to information regarding
the location and extent of existing streets, the location, extent,
character and estimated cost of improvements for the project area, an
estimate of the number of persons that will be displaced, a statement
of the proposed method of financing the project, and a description of
the portions of the project area which will be sold, donated or
exchanged to or from the City.
(62) "Effective Date" means the date on which all of the
following have been accomplished: the Agreement has been executed by
all parties hereto and the City Council has duly approved and
certified the last of the following: (i) this Agreement; and (ii) the
development agreements of each of the Other Land-Based Casino
Developers.
(63) "Environmental Claim" means any demand, cause of action,
administrative, civil or criminal proceeding arising under
Environmental Law and the results thereof for (i) damages (actual or
punitive), losses, injuries to person or property, damages to natural
resources, fines, penalties, expenses, liabilities, interest,
contribution or settlement (including, without limitation, attorneys'
fees, court costs and disbursements), (ii) the costs of site
investigations, feasibility studies, information requests, health or
risk assessments, medical monitoring or Response actions, and (iii)
enforcing insurance, contribution, or indemnification agreements.
(64) "Environmental Law" means all federal, state and local
statutes, ordinances, regulations and rules relating to environmental
quality, health, safety, contamination and clean-up, including,
without limitation, the Clean Air Act, 42 U.S.C. Section 7401 et seq.;
the Clean Water Act, 33 U.S.C. Section 1251 et seq., and the Water
Quality Act of 1987; the Federal Insecticide, Fungicide, and
Rodenticide Act ("FIFRA"), 7 U.S.C. Section 136 et seq.; the Marine
Protection, Research, and Sanctuaries Act, 33 U.S.C. Section 1401 et
seq.; the National Environmental Policy Act, 42 U.S.C. Section 4321 et
seq.; the Occupational Safety and Health Act, 29 U.S.C. Section 651 et
seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
Section 6901 et seq., as amended by the Hazardous and Solid Waste
Amendments of 1984; the Safe Drinking Water Act, 42 U.S.C. Section
300f et seq.; the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., as
amended by the Superfund Amendments and Reauthorization Act, the
Emergency Planning and Community Right-to-Know Act, and Radon Gas and
Indoor Air Quality Research Act; the Toxic Substances Control Act
("TSCA"), 15 U.S.C. Section 2601 et seq.; the Federal Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et seq.; the
Atomic Energy Act, 42 U.S.C. Section 2011 et seq.; the Nuclear Waste
Policy Act of 1982, 42 U.S.C. Section 10101 et seq.; and the Michigan
Natural Resources and Environmental Protection Act ("NREPA"), MCL
324.3101-.21551, with implementing regulations and to the extent
legally enforceable, guidelines. Environmental Laws shall also
include all state, regional, county, municipal and other local laws,
regulations, rules
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and ordinances insofar as they purport to regulate human health, the
environment or Hazardous Materials.
(65) "Equal Opportunity Employment Plan" means a voluntary plan
for the employment of women and Minorities in the Casino Complex and
in the construction of the Casino Complex.
(66) "Event of Default" shall have the meaning ascribed to it in
Section 10.1.
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(67) "Execution Date" means March 12, 1998.
(68) "Exhibits" means those agreements, diagrams, drawings,
specifications, instruments, forms of instruments, and other documents
attached hereto on the date hereof or added to this Agreement and
designated as exhibits to, and incorporated in and made a part of,
this Agreement.
(69) "Feehold Compensation" means the (i) aggregate amount of any
and all costs, expenses and relocation payments in good faith paid, or
incurred by, City and/or EDC, excluding the cost of any land and any
improvements thereon, to third parties (i.e., "soft costs") in
connection with the acquisition, purchase, ownership, financing and
disposition of all or any part of the Casino Area and the Public Land;
and (ii) cost of acquiring the Casino Area, Public Land and any
improvements thereon at their fair market value determined by
appraisal, subject to Section 2.9. Feehold Compensation does not
-----------
include (x) Development Process Costs, (y) the cost of any land within
the Public Land area owned by the City prior to the Execution Date,
including without limitation Chene Park and St. Aubin marina; or (z)
the cost of any Response with respect to the Public Land. Vacated
streets and sidewalks shall be deemed to be included in the parcels to
which they are appurtenant and no Feehold Compensation shall be
payable with respect thereto.
(70) "Finance Affiliate" means any Affiliate created to
effectuate all or any portion of the Initial Financing.
(71) "Financial Statements" means a balance sheet and related
statements of income and cash flows of Developer.
(72) "Financing" means the act, process or an instance of
obtaining funds for the Development, whether secured or unsecured,
including but not limited to (i) issuing securities; (ii) drawing upon
any existing or new credit facility; or (iii) contributions to capital
by any Person.
(73) "Finish Work" refers to the finishes which create the
internal and external appearance of the Casino Complex and/or the
Temporary Casino, as the case may be.
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(74) "First Class Casino Complex Standards" means the standards
of quality established and maintained on the Effective Date at MGM
Grand Hotel and Casino, Las Vegas, Nevada, taken as a whole; provided
however, for the Temporary Casino due allowances shall be made to take
into account the temporary nature of the facility and the fact the
facility was not originally designed to be a casino.
(75) "First Mortgage" means the first priority Mortgage.
(76) "First Mortgagee" means the holder of the First Mortgage.
(77) "Fiscal Year" means the fiscal year that ends on the last
day of the fiscal year of the Developer. The first Fiscal Year shall
be the period commencing on the Effective Date and ending on the last
day of the fiscal year of the Developer in which the Effective Date
occurs. The term "Full Fiscal Year" means any Fiscal Year containing
not fewer than three hundred sixty-five (365) days. The partial Fiscal
Year commencing after the end of the last Full Fiscal Year and ending
with the termination of this Agreement shall constitute a separate
Fiscal Year.
(78) "Force Majeure" means those events described in Section
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12.1.
----
(79) "GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession for use
in the United States, which are applicable to the circumstances as of
the date of determination.
(80) "Gaming Authorities" means all agencies, authorities and
instrumentalities of the City, the State or the United States of
America, or any subdivision thereof, having jurisdiction over the
gaming or related activities at the Casino, including but not limited
to the Board, or their respective successors.
(81) "Governmental Authority" or "Governmental Authorities" means
any federal, state, county or municipal governmental authority,
including all executive, legislative, judicial and administrative
departments and bodies thereof (including, without limitation, any
Gaming Authority) having jurisdiction over the Developer and/or the
Development.
(82) "Governmental Requirements" means all laws, ordinances,
statutes, executive orders, rules, zoning requirements and agreements
of any Governmental Authority that are applicable to the acquisition,
remediation, renovation, demolition, development, construction and
operation of the Development including, without limitation, all
required permits, approvals and any rules, guidelines or restrictions
enacted or imposed
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by Governmental Authorities, but only to the extent that such laws,
ordinances, statutes, executive orders, zoning requirements,
agreements, permits, approvals, rules, guidelines and restrictions are
valid and binding on Developer and Developer would be required to
comply with the same without regard to this Agreement.
(83) "Guaranty and Keep Well Agreement" means that certain
agreement substantially in the same form as attached hereto as Exhibit
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1.1(a)(83).
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(84) "Hazardous Materials" means the following, including
mixtures thereof: any hazardous substance, pollutant, contaminant,
waste, by-product, or constituent regulated under CERCLA; the Michigan
Natural Resources and Environmental Protection Act, MCL 324.101-
.21551; oil and petroleum products, natural gas liquids, liquefied
natural gas and synthetic gas usable for fuel; pesticides regulated
under the FIFRA; asbestos and asbestos-containing materials,
polychlorinated biphenyls and other substances regulated under the
TSCA; source material, special nuclear material, by-product material
and any other radioactive materials or radioactive wastes, however
produced, regulated under the Atomic Energy Act or the Nuclear Waste
Policy Act; chemicals subject to the OSHA Hazard Communication
Standard, 29 C.F.R. (S)1910.1200 et seq.; solid wastes whether or not
hazardous within the meaning of RCRA; and any other hazardous
substance, pollutant or contaminant regulated under any other
Environmental Law.
(85) "Improvements" means all buildings, building additions,
structures, roads, roadways, mechanical devices, infrastructure
improvements (including without limitation, all water and sewer mains,
electrical transmission conduits and equipment and other utility
facilities not owned by public utilities or that are the obligation or
responsibility of a quasi-public or private utility), landscaping,
facilities and appurtenances constructed and situated now or at
anytime hereafter upon the Project Premises and the Temporary Casino
Site.
(86) "Indebtedness" means, without duplication (i) all
obligations, debts, or liabilities of Developer for borrowed money
which in accordance with GAAP would be shown on a balance sheet of
Developer as a liability; (ii) all obligations, debts or liabilities
for the deferred purchase price of property or services secured by any
lien on any property owned by Developer whether or not such obligation
has been assumed; and (iii) all rental obligations under leases
required to be capitalized under GAAP.
(87) "Infrastructure Improvements" means those matters set forth
on Schedule B, to be provided by City pursuant to Section 2.18,
------------
comprising streets, roads, roadways and other transportation and
roadway improvements, including, without limitation, traffic
signalization and intersection improvements; sidewalks and curbs;
water mains or lines; storm and sanitary sewers and drainage
improvements; electrical transmission conduits and equipment and other
utility facilities; the foregoing of which are located off-site (i.e.,
outside of, and leading to, the Development) and which in the City's
good faith judgment are necessary to operate the Development or to
mitigate or
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reduce the impact of the Development on existing infrastructure
improvements. In determining whether the City is exercising good faith
judgment, the City shall consider, among other relevant matters: (x)
the City's overall policies and practices concerning infrastructure
(y) available cost effective alternatives and (z) the best interests
of the City. For the avoidance of doubt: (i) an off-site improvement
shall be considered an Infrastructure Improvement if but for
construction of the Casino Complex such off-site improvement would not
have been required by City as of the Effective Date; (ii)
Infrastructure Improvements do not include maintenance or repair of
existing facilities; and (iii) subject to Section 2.18, under no
------------
circumstances shall City and/or EDC be responsible to pay for any
Infrastructure Improvements.
(88) "Initial Financing" has the meaning set forth in Section
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3.1.
---
(89) "Interior Leasable Space" means the floor area located in
the Casino Complex available for lease to third parties for retail or
service use.
(90) "Land-Based Casino Developments" means the Development and
the other casino projects being developed in the City by the Other
Land-Based Casino Developers.
(91) "Leverage Ratio" means Indebtedness divided by Adjusted
Equity.
(92) "Loan Default" means an event of default or default or event
or condition which, with respect to Developer or its Finance Affiliate
without further notice or passage of time, would entitle a mortgagee
to exercise the right to foreclose upon, acquire, possess or obtain
the appointment of a receiver or other similar trustee or officer over
all or a part of Developer's interest in the Development.
(93) "Local Partner(s)" means any Person who directly or
indirectly through an entity or series of entities owns an interest in
Partners Detroit, LLC.
(94) "Major Condemnation" means a Condemnation either (i) of the
entire Development, or (ii) of a portion of the Development if, as a
result of the Condemnation, it would be imprudent or unreasonable to
continue to operate the Casino Complex even after making all
reasonable repairs and restorations.
(95) "Manage" means to generate, manufacture, process, treat,
store, use, re-use, refine, recycle, reclaim, blend or burn for energy
recovery, incinerate, accumulate speculatively, transport, transfer,
dispose of or abandon Hazardous Materials.
(96) "Mandatory Sale" shall have the meaning ascribed to it in
Section 10.2(e).
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(97) "Material Alteration" means any Alteration or related series
of Alterations that: (i) materially changes the nature of the use of
the Covered Components
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and the retail Component, taken as a whole (provided that in making
such determination, up to ten percent (10%) of the retail Component
floor space shall be excluded); (ii) materially diminishes the
exterior quality of the Development taken as a whole, or materially
affects the exterior appearance or materially affects the exterior
signage of the Casino Complex; or (iii) subject to Section 7.11,
------------
increases or decreases the gaming floor area of the Casino.
(98) "Material Deviation" is a Deviation that: (i) delays the
Agreed Upon Opening Date in excess of thirty (30) Business Days; (ii)
materially changes the nature of the use of any Component; (iii)
materially diminishes the overall quality or size of a Component
(measured, in the case of size, by a reduction of more than ten
percent (10%) in the number of rooms, number of parking spaces,
aggregate square footage (other than gaming floor area), or other
appropriate measure); (iv) reduces the budget (as then approved) for
the Casino Complex by more than five percent (5%) of Total Cost; or
(v) subject to Section 4.6, increases or decreases the gaming floor
-----------
area of the Casino.
(99) "Mayor" means the duly elected Mayor of the City.
(100) "Memorandum of Agreement" shall mean a memorandum of this
Agreement in recordable form and otherwise satisfactory in form and
substance to City, EDC and Developer in the exercise of reasonable
judgment.
(101) "Minor Condemnation" means a Condemnation that is not a
Major Condemnation.
(102) "Minority" means that term as defined in Section 18-5-31 of
Chapter 18 of the 1984 Detroit City Code.
(103) "Mortgage" means a mortgage on all or any part of
Developer's interest in the Development.
(104) "Mortgagee" means the holder from time to time of a
mortgage on all or any part of Developer's interest in the
Development.
(105) "Municipal Services Fee" shall have the same meaning as
ascribed to it in the Act.
(106) "Net Worth" means the members' equity as reflected on
Developer's balance sheet, determined in accordance with GAAP.
(107) "Non-Material Alteration" means any Alteration which is not
a Material Alteration.
(108) "Non-Material Deviation" means any Deviation which is not a
Material Deviation.
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(109) "Ordinance" means ordinance number 17-97, Chapter 18 of the
1984 Detroit City Code, as amended from time to time, together with
all rules and regulations issued in connection therewith or
promulgated thereunder.
(110) "Other Land-Based Casino Developers" means Detroit
Entertainment, LLC and Greektown Casino, L.L.C., each a Michigan
limited liability company.
(111) "Outside Submission Date" means the first anniversary of
the Closing Date.
(112) "Parent Company" means MGM Grand, Inc., and its successors
and assigns.
(113) "Performance Guaranty" means a guarantee of performance of
Developer's obligations under this Agreement in substantially the same
form as attached hereto as Exhibit 1.1(a)(113).
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(114) "Performance Threshold" means EBITDA, as reduced by
interest expense and scheduled principal payments (other than balloon
payments on maturity to the extent refinanced), of at least Twenty-Two
Million Five Hundred Thousand Dollars ($22,500,000) for the most
recent trailing twelve (12) month period, provided that the first
trailing twelve (12) month period shall commence with the thirteenth
(13th) month after the Completion Date and shall end with the twenty-
fourth (24th) month after the Completion Date. For the avoidance of
doubt, Developer is deemed to be in compliance with the Performance
Threshold during the period commencing with the Effective Date through
and including the first full twenty-four (24) months following
Completion Date.
(115) "Permits" means all licenses, permits, approvals, consents
and authorizations that Developer is required to obtain from any
Governmental Authority to perform and carry out its obligations under
this Agreement including but not limited to permits and licenses
necessary to demolish, build, open, operate and occupy the
Development.
(116) "Permitted Affiliate Payments" means (i) payments which
represent compensation for goods and services purchased or acquired
from an Affiliate in the ordinary course of business; (ii)
distributions required under Developer's operating agreement to
satisfy tax payments; (iii) payments of interest or principal to any
Affiliate of Developer, with respect to money borrowed from such
Affiliate provided no acceleration of such payments shall be a
Permitted Affiliate Payment unless as and to the extent loans to such
Affiliate from third parties have been accelerated; (iv) payments to
any Casino Manager which are used by such Casino Manager to pay
compensation and benefits to its employees; (v) (1) at such times as
Developer meets or exceeds the Performance Threshold, or (2) so long
as a Performance Guaranty from an Acceptable
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Guarantor remains in full force and effect, payments for services
purchased or acquired from an Affiliate in the ordinary course of
business, including without limitation management fees, guaranty fees,
and compensation for the use of intellectual property; and (vi)
distributions to Developer's members in an amount equal to, and to be
used solely for the purpose of paying, principal and interest on money
borrowed to make capital contributions to Developer.
(117) "Person" means any individual, partnership, corporation,
limited liability company, association, unincorporated organization,
trust or other entity, including but not limited to, any government or
agency or subdivision thereof, and the heirs, executors,
administrators, legal representatives, successor and assigns of such
Person where the context so permits.
(118) "Pro Rata Share" means one-third, provided that if City and
EDC are notified in a writing signed by the Developer and the Other
Land-Based Casino Developers that the Pro Rata Share of Developer is a
specified percentage, then the Pro Rata Share of Developer shall equal
such specified percentage so long as the sum of the specified
percentages of Developer and the Other Land-Based Casino Developers
equals one hundred percent (100%).
(119) "Program Manager" or "PM" means the Person or Persons
designated by and retained by the EDC to be its authorized
representative, to represent EDC in all construction matters
pertaining to this Agreement and to facilitate the construction
process of the Development.
(120) "Project Site" means the Project Premises, the staging
areas, and temporary construction easements (if any), provided for
construction of the Development.
(121) "Project Premises" means the parcel or parcels of real
estate to be conveyed to Developer pursuant to the Conveyance
Agreement, together with all rights, covenants, rights of way and
appurtenances belonging or in anywise appertaining thereto.
(122) "Proceeds" means the compensation paid by the condemning
authority to the City and/or Developer in connection with a
Condemnation, whether recovered through litigation or otherwise, but
excluding any compensation paid in connection with a temporary taking.
(123) "Public Land" means the real estate described on Exhibit
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1.1(a)(19) attached hereto, together with all rights, covenants,
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rights of way and appurtenances belonging or in anywise appertaining
thereto.
(124) "Publicly Traded Corporation" shall have the same meaning
as defined in the Act.
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(125) "Radius" means the geographic area encompassed by a circle
having a radius of one hundred fifty (150) miles and the intersection
of Woodward and State Fair as its center.
(126) "Release or Released" means actual or threatened spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, presence, dumping, migration from adjacent
property or disposing of Hazardous Materials into the environment, as
"environment" is defined by the Environmental Laws or the abandonment
or discarding of barrels, containers or other closed receptacles
containing a Hazardous Material.
(127) "Resolution of Necessity" means a resolution of City
Council authorizing land acquisition in the project area as set forth
in the EDC Plan by or for the benefit of the public, the City and its
residents for the purposes set forth in PA 338 of 1974.
(128) "Response or Respond" means action taken in compliance with
Environmental Laws to correct, remove, remediate, clean up, prevent,
mitigate, monitor, evaluate, investigate, halt, assess or abate a
Release and includes, but is not limited to evaluation, interim
response activity, remedial action, demolition or the taking of other
actions necessary to protect the public health, safety, welfare or the
environment or any natural resources.
(129) "Restricted Party" has the meaning set forth in Section
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7.3.
---
(130) "RFP/Q" means the Phase I and Phase II Request for
Proposals and Qualifications issued by the City in connection with the
land-based casino development project for the City.
(131) "Schematic Design Documents" means a site plan; a schematic
design establishing the general scope, conceptual design, and scale
and relationships among the Components; preliminary specifications,
specifically including quality of materials to be utilized in
construction of the exterior of the Casino Complex; and elevations
prepared by the Architect(s).
(132) "Secured Debt" means a debt of Developer secured by a
Mortgage.
(133) "Site Preparation Work" means the following actions with
respect to the Project Premises or the Temporary Casino Site, as the
case may be: (a) demolition and removal of structures; (b) demolition
and removal of surface paving and sidewalks; (c) removal of
underground and overhead utility facilities, and capping of any
remaining lines as appropriate (including without limitation the
removal or capping of all sanitary sewer, storm and drainage
facilities); (d) removal of non-soil material, rubble and debris
resulting from the foregoing demolition activities and legal disposal
at landfills authorized by the State to accept such materials; (e)
removal and abatement, to the extent required
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by controlling applicable law, of all toxic or hazardous substances,
materials or wastes, including contaminated soil, if any disclosed by
any environmental assessment; and (f) grading of the Project Premises
to be level with the adjacent property line grades and proper
compaction of all soils, including backfill.
(134) "Small Business Concern" means that term as defined in
Section 18-5-1 of the 1984 Detroit City Code.
(135) "Space Lease" means any sublease, franchise, license or
other agreement that would permit or allow a Person to use and/or
maintain space as a tenant in or on the Development.
(136) "Space Tenant" means a tenant under a Space Lease.
(137) "State" means the State of Michigan.
(138) "Submission Date" means the date on which the Building
Permit Submission is made.
(139) "Suitable Lender" means:
(A) any insurance company as defined in Section 2(13) of
the Securities Act of 1933;
(B) any investment company registered under the Investment
Company Act of 1940;
(C) any business development company as defined in Section
2(a)(48) of the Investment Company Act of 1940;
(D) any small business investment company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958;
(E) any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a
state or its political subdivisions, for the benefit of its
employees;
(F) any employee benefit plan within the meaning of Title
I of the Employee Retirement Income Security Act of 1974;
(G) any trust fund whose trustee is a bank or trust
company and whose participants are exclusively plans of the types
identified in paragraph (E) or (F) of this section;
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(H) any business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(I) any investment adviser registered under the Investment
Advisers Act of 1940;
(J) any dealer registered pursuant to Section 15 of the
Securities and Exchange Act of 1934 or its Affiliate;
(K) any entity, all of the equity owners of which are, or
all debt securities of which are owned by, (i) "qualified
institutional buyers" as defined in Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") acting
for their own account or the accounts of other qualified
institutional buyers, and/or (ii) parties who have acquired such
equity interests or debt securities pursuant to Regulation S of
the Securities Act or pursuant to a public offering registered
pursuant to the Securities Act;
(L) any bank as defined in Section 3(a)(2) of the
Securities Act of 1933, any savings and loan association or other
institution as referenced in Section 3(a)(5)(A) of the Securities
Act of 1933, or any foreign bank or savings and loan association
or equivalent institution;
(M) any investor or group of investors purchasing debt
securities of Developer who are (i) purchasing such debt
securities of Developer in any public offering registered
pursuant to the Securities Act; (ii) "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act);
and/or (iii) purchasing such debt securities of Developer
pursuant to Regulation S of the Securities Act;
(N) Parent Company or any Affiliate of Parent Company;
(O) any Publicly Traded Corporation whose securities are
traded on a national exchange or are included for quotation on
the NASDAQ Stock Market; and
(P) any other lender approved by City in the exercise of
its reasonable judgment.
(140) Temporary Casino" shall mean that facility in which Casino
Gaming Operations shall be conducted by Developer until the Completion
Date in accordance with the provisions of Article XX.
----------
(141) Termination Date" means the date that this Agreement is
terminated pursuant to Section 10.3.
------------
19
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(142) "Total Cost" means all hard and soft costs and expenses of
Developer incurred through Completion for acquiring and developing the
Development (other than for the Temporary Casino), including without
limitation Developer's Allocable Share of Development Process Costs; Pro
Rata Share of Feehold Compensation, Infrastructure Improvements and Site
Preparation Work; and for designing and constructing the Improvements,
including but not limited to, land acquisition costs for the Development
(other than for the Temporary Casino), payments under the Contractor
Agreement(s), payments under the Agreement, fees and expenses of the
Architect(s) and other Consultants, overhead, and costs of bonds, taxes,
insurance, permits, licenses and inspections, interest and other financing
costs, legal fees and expenses and pre-opening and related marketing or
advertising expenses.
(143) "Transfer" means (i) any sale (including agreements to sell
on an installment basis), assignment, transfer, pledge, alienation,
hypothecation, merger, consolidation, reorganization, liquidation, or any
other disposition by operation of law or otherwise, and (ii) the creation
or issuance of new or additional interests in the ownership of any entity.
(144) "Wagering Tax" shall have the same meaning as ascribed to
it in the Act.
(145) "Work" means Site Preparation Work and/or construction of
the Improvements in accordance with the Construction Documents and includes
labor, materials and equipment to be furnished by a Contractor or
subcontractor pursuant to a Contractor Agreement.
(146) "Working Development Schedule" means the schedule to be
prepared by Developer outlining the events and estimated time periods
necessary for the completion of the Site Preparation Work and the
significant milestones for design, permitting, construction and Completion
of the Casino Complex, as modified from time to time.
(b) Any other initially capitalized terms defined within the text of
this Agreement shall have the meaning set forth therein for purposes of
this Agreement.
1.2 Interpretation. When a reference is made in this Agreement to an
--------------
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on any schedules and exhibits are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement or such schedules or exhibits. Words of the masculine gender shall be
deemed and construed to include correlative words of the feminine and neuter
genders. "Herein," "hereby," "hereunder," "hereof," "hereinbefore,"
"hereinafter" and other equivalent words refer to this Agreement and not solely
to the particular portion thereof in which any such word is used. Whenever the
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
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1.3 Michigan Statutes. All references herein to Michigan statutes are to
-----------------
the Michigan Compiled Laws, as amended.
ARTICLE II
GENERAL PROVISIONS
2.1 Purpose. The purpose of this Agreement is:
-------
(a) To set forth the relationship among Developer, City and EDC the
respective duties, responsibilities and obligations of each and the procedures
to be followed relating to the design, construction and operation of the
Development; and
(b) To provide a means by which the Development can be designed,
constructed and completed by Developer, with the cooperation of City and
EDC, and for the coordination of efforts on the part of each to ensure the
timely and expedited construction and Completion of the Development.
2.2 Findings. City and EDC do hereby ascertain, determine, declare and
--------
find that:
(a) The Development will provide or preserve gainful employment for
citizens of City, make a significant contribution to the economic growth of City
and serve a public purpose by, among other things, advancing economic
prosperity, helping to alleviate conditions of unemployment and underemployment
in the City and attracting new and improved commercial and industrial
enterprises to the City.
(b) The Development is in the best interests of the City and
accomplishes the purposes of Act 338, Michigan Public Acts of 1974, as
amended ("Act 338").
(c) The EDC is empowered under Act 338, to construct, acquire by gift
or purchase, reconstruct, improve, maintain or repair projects and acquire
necessary lands for the site of a project, and to sell and to convey a project
or any part thereof for a price and at a time which EDC determines, and to lend,
grant, transfer, or convey funds, all such powers being declared by Act 338 to
constitute the performance of essential public purposes and functions for the
State and its municipalities.
(d) The execution of this Agreement and the construction
implementation of the Development will enhance the public benefit and welfare
and therefore constitute public purposes in that they prevent and combat
community deterioration in the City; increase employment opportunities in the
City; help to alleviate conditions of unemployment and/or underemployment in the
City; promote the location, relocation, expansion and retention of commercial
and industrial enterprises in the City; increase and promote tourism and enhance
tourist amenities in the City; and preserve and improve the aesthetic quality
inuring to the
21
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economic health of the City. The above-cited items constitute important public
benefits to City and EDC. Further, additional public benefits of this Agreement
and the construction of the Development consist of increased taxes and other
revenues from the operation of the Development. Further, City hereby declares
and acknowledges that the entering into of this Agreement was done on a
competitive basis with a systematic evaluation of factors relating to the public
benefit and welfare, and the public purposes, hereinabove described, all in
accordance with the Ordinance.
2.3 Intent. It is the intent of the parties to this Agreement that:
------
(a) The Development is to be accomplished by Developer as provided
herein.
(b) This Agreement sets forth the duties, obligations, rights and
responsibilities of City, EDC and Developer with respect to the development,
design and construction of the Development and operation of the Casino Complex
and the Temporary Casino.
2.4 Commencement of Rights and Obligations.
--------------------------------------
(a) This Agreement shall confer no rights and impose no obligations
until the Effective Date. Notwithstanding the execution hereof and the
occurrence of the Effective Date, except as and to the extent set forth in
(i) Article I, (ii) Section 2.4, (iii) Section 2.5, (iv) Section 2.7, (v)
--------- ----------- ----------- -----------
Section 2.8, (vi) Section 2.10, (vii) Section 2.11, (viii) Section 2.17,
- ----------- ------------ ------------ --------
(ix) Article VIII, (x) Article IX, (xi) Article X, (xii) Article XIV,
------------ ---------- --------- -----------
(xiii) Article XVIII, (xiv) Article XX and (xv) Article XXI, each to the
------------- ---------- -----------
extent applicable, no right shall be conferred or obligation imposed, by or
under this Agreement unless and until each of the following conditions has
been fully met:
(1) The Board has issued its Certificate of Suitability pursuant
to the Act, granting to Developer the right to receive a Casino License
upon the conditions set forth in the Act and such Certificate of
Suitability contains only such other conditions as may be acceptable to
Developer in the exercise of its reasonable judgment.
(2) The Developer has paid its Pro Rata Share of the Feehold
Compensation, less its Pro Rata Share of the City Contribution.
(3) The Developer has furnished such documentation as City
reasonably requires to verify that the Initial Financing has been obtained
and is available for immediate disbursement or use.
(4) The Developer, City and EDC have duly executed and delivered
the Conveyance Agreement; the Conveyance Agreement has been approved by
City Council; and the Developer, City and EDC have duly executed, delivered
and recorded the Memorandum of Agreement and Developer has acquired title
to the Project Premises subject to such Memorandum of Agreement.
22
<PAGE>
(5) The Developer has delivered, and has caused Parent Company
to deliver, to the City and EDC an opinion of counsel in a form reasonably
satisfactory to City and EDC.
(6) The City and EDC each have delivered to Developer an opinion
of counsel in a form reasonably satisfactory to Developer.
(7) The Developer has paid to the City its Allocable Share of
the Development Process Costs then due.
(8) The City Council has (x) vacated all streets, sidewalks and
other land, the use of which is dedicated to the public as set forth in the
EDC Plan; (y) approved all zoning changes necessary to allow Developer to
operate the Casino Complex; and (z) enacted an ordinance authorizing casino
gaming in the City.
(9) There shall be no temporary restraining order, preliminary
injunction or permanent injunction enjoining the Developer from proceeding
to develop the Development.
(10) The Developer has delivered to City and EDC the Guaranty and
Keep Well Agreement executed by an Acceptable Guarantor.
(11) The Developer has delivered to City and EDC Closing
Certificates executed by Developer and an Acceptable Guarantor.
(12) The Developer has delivered to City the executed agreement
of Parent Company, any Casino Manager and each Restricted Party required
under Section 2.14.
------------
(13) The Developer has delivered to City certificates showing
that Developer, any Acceptable Guarantor and any Casino Manager are in good
standing and qualified to do business in the State, if required under the
law of the State, dated no earlier than five (5) days prior to the Closing
Date.
(14) The Developer has delivered to City copies of the
organizational documents of Developer, any Acceptable Guarantor and
each member of Developer, certified by an authorized officer of each
such respective entity as true and accurate as of the Closing Date.
(b) The definition of Effective Date as provided for herein and in the
development agreements entered in by the Other Land-Based Casino Developers may
not be modified except in an instrument executed by the City, EDC, Developer and
the Other Land-Based Casino Developers. The Other Land-Based Casino Developers
are intended third party beneficiaries of this Section 2.4(b) and are entitled
--------------
to enforce it as a direct party hereto.
23
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(c) Developer may waive, in whole or in part, any or all of those
conditions set forth in Sections 2.4(a)(6), (a)(8), or (a)(9) prior to the
-------------------------------------
satisfaction of such condition. City may waive, in whole or in part, in
writing any of those conditions set forth in Sections 2.4 (a)(2), (a)(5),
----------------------------
(a)(11), (a)(l2), (a)(13) or (a)(14) prior to the satisfaction of such
- ------------------------------------
condition. Developer and City may mutually waive, in whole or in part, the
conditions set forth in Sections 2.4(a)(3) and (a)(4) prior to th
-----------------------------
satisfaction of such condition. No waiver of any condition shall be
effective: (x) unless such waiver shall be in writing or (y) if the failure
to satisfy such condition would make performance of this Agreement illegal.
(d) Notwithstanding anything to the contrary contained in this
Agreement, this Agreement shall automatically terminate if all of the
conditions set forth in Sections 2.4(a)(1) through 2.4(a)(14) above are
-------------------------------------
not satisfied or waived on or before December 31, 1999.
2.5 Conveyance of Project Premises to Developer.
-------------------------------------------
(a) Provided that City is acquiring the Casino Area and Public Land
pursuant to financing from such sources and on terms and conditions (other than
amount) reasonably satisfactory to Developer and the Other Land-Based Casino
Developers and further provided that Developer's right to approve such sources
and such terms and conditions shall expire if Developer shall fail to respond
within fifteen (15) Business Days of its receipt in writing of such sources and
such terms and conditions, City and EDC shall notify Developer of their desire
to enter into the Conveyance Agreement. Upon receipt of such notice, and
provided that the proviso in the first sentence of Section 4.11 has been
------------
satisfied, City, EDC and Developer shall promptly execute and deliver to each
other the Conveyance Agreement and submit the Conveyance Agreement to City
Council for approval.
(b) Within five (5) Business Days following the approval of City
Council referred to in Section 2.5(a), Developer shall furnish EDC with a
--------------
letter of credit in an amount equal to its Pro Rata Share of Feehold
Compensation and in such form and upon such terms and conditions as are
reasonably necessary to allow City to acquire the Casino Area and the Public
Land.
(c) If Developer breaches its obligations to acquire the Project
Premises pursuant to the Conveyance Agreement, City and EDC shall have the
right to terminate this Agreement.
2.6 Compliance with Other Commitments.
---------------------------------
(a) Developer agrees that the Total Cost, exclusive of the Feehold
Compensation, shall not be less than Six Hundred Million Dollars
($600,000,000)
(b) As set forth on Exhibit 8.1(g), Developer agrees to use
--------------
commercially reasonable efforts to acquire all or some of its financing from a
Detroit-Based Business, a Detroit Resident Business and/or a Small Business
Concern and/or to utilize Detroit-based and/or Minority-owned financial
institutions in serving Developer's financial needs.
24
<PAGE>
(c) Developer agrees, to the extent permitted by applicable law, to:
(1) perform and comply in all material respects with the
commitments, promises and/or undertakings set forth on Exhibits
--------
8.1(j), (m), (r) and (s);
------------------------
(2) use good faith efforts to perform and comply in all material
respects with the commitments, promises and/or undertakings set forth
on Exhibits 8.1(k), (l), (v), (x), (y), (z), (cc) and (dd);
-------------------------------------------------------
(3) use reasonable best efforts to perform and comply in all
material respects with the commitments, promises and/or undertakings
set forth on Exhibits 8.1(p), (q), (u) and (ee), provided that
----------------------------------
Developer's obligations with respect to its commitments, promises and
undertakings set forth on Exhibit 8.1(q) are also subject to the
--------------
Developer's obligations set forth in Sections 2.6(e), (h) and (i); and
----------------------------
(4) use commercially reasonable efforts to perform and comply in
all material respects with the commitments, promises and undertakings
set forth on Exhibits 8.1(n) and (w).
-----------------------
(d) Developer agrees that no fewer than three thousand three hundred
(3,300) full-time equivalent employees will be employed at the Casino Complex
immediately following Completion, exclusive of construction workers, and
thereafter, subject to Section 7.17, will employ such number of employees as may
-------------
be appropriate in the exercise of Developer's reasonable judgment to operate the
Casino Complex in a manner consistent with First Class Casino Complex Standards
and in compliance with this Agreement.
(e) Developer agrees to use reasonable best efforts to attain the
goals of employment of Detroit residents set forth in Exhibit 8.1(q)
--------------
Whenever in this Agreement or the Exhibits, reference is made to "Detroit
residents," the first determination of whether an individual is a Detroit
resident shall be made on the Completion Date based on an individual's residence
on his or her date of hire. Subsequent to the Completion Date, the determination
of whether Developer has achieved its hiring goals with respect to Detroit
residents shall be made on each anniversary of the Completion Date (each, a
"Determination Date"). Such goal shall be deemed met if on each Determination
Date Developer either (i) met its hiring goals for Detroit residents since the
last Determination Date, based on an individual's residence on his or her date
of hire or (ii) Developer then employs no fewer than the number of Detroit
residents established by its hiring goal, based on each individual's most
current address on file with Developer.
(f) Developer agrees to comply with all federal, state and local laws
governing equal employment opportunity.
(g) The Developer agrees that it shall notify its Contractors and
Consultants of their obligations relative to non-discrimination under this
Agreement when soliciting same, shall include the provisions of Section
-------
2.6(f) in each contract with its Contractors and Consultants
- ------
25
<PAGE>
and require subcontract as well as provide the City and/or EDC a copy of any
such subcontract upon request. Developer shall have no obligation to enforce
such provision if City is given the direct right to enforce such provision in
any contract or subcontract.
(h) As set forth in Exhibit 8.1(q), Developer agrees to be committed
--------------
to affirmative action programs to increase the numbers of minority and women
employees in the workforce of the Developer, including professional and
management positions.
(i) As set forth in Exhibit 8.1(q), Developer voluntarily commits to
--------------
hire contractors who agree to implement an Equal Opportunity Employment Plan
conforming to all applicable laws and consistent with Executive Order No. 22,
dated August 29, 1983. Developer shall notify its Contractors of their
obligations relative to implementing such an Equal Opportunity Employment Plan
and shall include such a provision in each contract with its Contractors and
require that its Contractors include such provision in any subcontract.
Developer will not, however, be in default under this Agreement if any
contractor fails to comply with its agreement to implement its Equal Opportunity
Employment Plan provided, however, the City is given the direct right to enforce
such provision in any contract or subcontract.
(j) Developer shall use reasonable best efforts to ensure that at
least thirty percent (30%) of aggregate amounts expended by Developer under
contracts entered into by Developer for the construction of, or any material
additions, improvements or modification to the Casino Complex shall be paid to
Detroit-Based Businesses, Detroit Resident Businesses, Small Business Concerns,
minority business concerns or women-owned businesses. As set forth in Exhibit
-------
8.1(u), Developer agrees to use reasonable best efforts to purchase during each
- ------
Fiscal Year at least thirty percent (30%) of the total dollar value of all
purchases of goods and services from Detroit-Based Businesses, Detroit Resident
Businesses, Small Business Concerns, minority business concerns or women-owned
businesses.
(1) "Reasonable Best Efforts" to achieve the goals set forth in
this Section 2.6(j) may include, but are not to be limited to, the use
--------------
of Joint Venture arrangements; Mentor Ventures; outreach to Detroit,
minority and women business, trade and professional associations or
organizations; outreach to community organizations; and advertising through
media publications or other vehicles reasonably calculated to reach
Detroit, minority and women-owned businesses, including, but not limited
to, community newsletters.
(2) "Joint Venture" as used in this Section 2.6(j) means a
--------------
combination of separate business persons or entities, one of which is a
Detroit-Based Business, Detroit Resident Business, Small Business Concern,
minority business concern or women-owned business, which has been created
to perform a specific contract, and in which one or more of the latter
business entities (a) shares in profits and losses, (b) is substantially
involved in all phases of the contract, including, but not limited to,
bidding and staffing; (c) provides a substantial portion of the total
performance, responsibility and project
26
<PAGE>
management of a specific job; and (d) receives a substantial portion of the
total remuneration from a specific job.
(3) "Mentor Venture" as used in this Section 2.6(j) refers to a
--------------
combination of a business entity with a Detroit-Based Business, Detroit
Resident Business, Small Business Concern, minority business concern or
women-owned business for the purpose of providing the latter business
entity with training, expertise, skill, experience, market access or other
attributes in a business, trade or profession designed to enhance its
ability to compete in the marketplace.
(k) Developer agrees to comply in all material respects with all
Governmental Requirements.
(l) In the event Developer elects to construct a Temporary Casino
subject to and in accordance with the provisions of Article XX
----------
(1) Developer shall submit to the Mayor as exhibits to its
Temporary Casino Proposal (as that term is defined in Section
-------
20.5(b)), the information required by the following Sections, modified
--------
to address the Temporary Casino as applicable: 8.1(d), (e), (g), (i),
----------------------
(j), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w),
---------------------------------------------------------------------
(x), (y), (z), (aa), (bb), (cc), (dd) and (ee); and
----------------------------------------------
(2) Developer agrees that its obligations set forth in the
following Sections apply to the Temporary Casino as well as to the
Casino Complex: 2.6(b), (c), (e) (substituting "completion of the
-------------------------------------------------
Temporary Casino" for "Completion Date" and "anniversary of the
---------------------------------------------------------------
completion of the Temporary Casino" for "Determination Date"), (f),
-------------------------------------------------------------------
(g), (h), (i), (j) and (k), and substituting all references to the
--------------------------
exhibits therein to the exhibits furnished as part of the Temporary
Casino Proposal.
(m) Except as the Agreement or the context may otherwise require, each
of the Developer's obligations set forth in Sections 2.6(b)-(l),
-------------------
inclusive, are ongoing and shall commence as of the Closing Date and
performance thereof shall be determined annually.
(n) Joint Employment and Procurement Advisory Board
(1) The Joint Employment and Procurement Advisory Board (the
"JEPAB") will be a private entity acting in an advisory capacity to
Developer and the Other Land-Based Casino Developers. Developer shall
cooperate with the Other Land-Based Casino Developers to establish the
JEPAB within thirty (30) days after the Closing Date. Developer and each
of the Other Land-Based Casino Developers will appoint two (2) members to
the JEPAB, and the Mayor and the City Council will each be invited to
appoint two (2) members from the community at large. The public appointees
will be non-salaried, but will be entitled to expense reimbursement paid by
the JEPAB.
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(2) The purpose of the JEPAB will be to work closely with the
Developer and the Other Land-Based Casino Developers to evaluate the
effectiveness of, and recommend improvements to, Developer's and each of
the Other Land-Based Casino Developers' respective programs to achieve
their goals of not less than fifty-one percent (51%) Detroit resident
employment and not less than thirty percent (30%) procurement of goods and
services from Detroit-Based Businesses, Detroit Resident Businesses,
minority business concerns, women-owned businesses and/or Small Business
Concerns. The JEPAB will review Developer's and each of the Other Land-
Based Casino Developers' practices and programs aimed at achieving such
goals, review the success of such efforts, recommend improvements and
refinements to such practices and programs, and assist the Developer and
each of the Other Land-Based Casino Developers in involving local community
organizations and businesses in support of such efforts. Additionally, the
JEPAB may recommend to Developer and each of the Other Land-Based Casino
Developers the engagement of outside consultants to provide expert,
independent guidance as to how to make Developer's and each of the Other
Land-Based Casino Developers' programs more effective.
(3) Developer commits One Million Dollars ($1,000,000) to fund
the activities of the JEPAB. Such amount will be derived from funds
dedicated under Section 8.1(j) to promote development, economic growth and
--------------
jobs in the City. Developer shall fund the JEPAB according to the
following schedule: Two Hundred Thousand Dollars ($200,000) on the
formation of the JEPAB; Four Hundred Thousand Dollars ($400,000) on the six
(6) month anniversary of the Closing Date; and Four Hundred Thousand
Dollars ($400,000) on the twelve (12) month anniversary of the Closing
Date.
2.7 Obtaining Certificate of Suitability and Casino License. Promptly
-------------------------------------------------------
following the Effective Date, Developer agrees to submit to the Board a
completed application to obtain a Certificate of Suitability in the manner and
form prescribed by such Gaming Authorities and thereafter fully cooperate with,
and cause its members and their respective owners and investors to cooperate
with, the background investigation conducted by the Board. Based solely on the
information furnished by Developer to City in the RFP/Q, but without review of
such application, City agrees to support such application before the Board.
Developer shall diligently pursue the issuance of such Certificate of
Suitability on terms and conditions satisfactory to Developer. Upon obtaining
the Certificate of Suitability, Developer shall thereafter diligently pursue the
satisfaction of all conditions to obtaining a Casino License.
2.8 Payment of Development Process Costs. Upon the Effective Date,
------------------------------------
Developer shall pay to City the sum of One Million Dollars ($1,000,000) toward
its Allocable Share of the Development Process Costs. Thereafter, City and/or
EDC shall invoice Developer from time to time but no more frequently than
monthly for (i) its Allocable Share of Development Process Costs and (ii) to the
extent City and/or EDC in their respective reasonable discretion determines that
any Development Process Cost is directly attributable to a particular Land-Based
Casino Development, the entire amount of such Development Process Cost, in each
case incurred prior to the Completion Date. Subsequent to the Completion Date
but in no event later than six (6) months following completion of the Land-Based
Casino Developments, City and/or EDC shall
28
<PAGE>
invoice Developer only for such Development Costs as City and/or EDC reasonably
determine were incurred in connection with the Development. Developer shall pay
such invoiced Development Process Costs within fifteen (15) Business Days from
the date of the invoice. City and EDC, respectively, shall submit to the
Developer a summary of the charges set forth in such invoice containing such
detail as City and EDC, respectively, reasonably believes is necessary to inform
Developer of the nature of the costs and expenses and the basis for the
allocation amongst the Developer and the Other Land-Based Casino Developers. At
Developer's request, City and EDC shall consult with Developer on the necessity
for and allocation of such charges during the five (5) Business Days period
immediately subsequent to Developer's receipt of such summary. In addition,
prior to the Closing Date, City shall require each Other Land-Based Casino
Developer to enter into an agreement with Developer providing for arbitration of
any dispute concerning the allocation of any Development Process Costs amongst
Developer and each Other Land-Based Casino Developer.
2.9 Payment of Feehold Compensation. Provided that the proviso in the
-------------------------------
first sentence of Section 4.11 has been satisfied, Developer agrees to pay,
------------
without duplication, its Pro Rata Share of Feehold Compensation, less its Pro
Rata Share of the City Contribution, as and to the extent set forth in the
Conveyance Agreement. Developer hereby acknowledges that upon approval by City
Council, portions of the Casino Area and Public Land have been or will be
acquired by City through one or more acquisition activities including exercise
of the power of eminent domain, and that in some instances, a final cost of
acquisition particularly with respect to eminent domain actions ("Final Purchase
Price") may not be known for some period of time after the Effective Date. City
shall estimate the amount of compensation necessary to pay the Final Purchase
Price in accordance with law (the "Estimated Compensation"). In the event the
Final Purchase Price exceeds the Estimated Compensation, Developer shall pay to
EDC in immediately available funds within five (5) Business Days following
written notice thereof from the EDC, its Pro Rata Share of the difference
between the Estimated Compensation and the Final Purchase Price. If the Final
Purchase Price shall be less than the Estimated Compensation, the difference
shall be refunded by the City within ten (10) Business Days after the Final
Purchase Price has been determined.
2.10 Initial Financing. Upon the Effective Date, Developer shall have
-----------------
either obtained the Initial Financing or shall at all times thereafter
diligently pursue obtaining the Initial Financing.
2.11 Failure to Pay. All amounts, including, without limitation,
--------------
Development Process Costs and Feehold Compensation, owed by Developer to City
and/or EDC pursuant to any provision of this Agreement shall bear interest at
the Default Rate from the due date (but if no due date is specified, then
fifteen (15) Business Days from demand for payment) until paid.
2.12 Condition of Project Premises. Matters involving the condition of the
-----------------------------
Project Premises are set forth in the Conveyance Agreement.
2.13 Developer's Development Obligations. The Developer agrees to
-----------------------------------
undertake and complete the Development by the Agreed Upon Opening Date subject
to and in accordance with
29
<PAGE>
the terms of this Agreement. Except as otherwise provided herein, Developer
agrees, for itself and its successors and assigns, that, from and after the
Closing Date, it shall promptly begin, and thereafter shall diligently prosecute
or cause to be prosecuted to Completion, the Design Services and the Work
subject to and in accordance with the terms of this Agreement.
2.14 Other Commitments of Developer. By the Closing Date, Developer shall
------------------------------
deliver to City and EDC the following:
(a) The Guaranty and Keep Well Agreement, executed by an Acceptable
Guarantor.
(b) The opinions of counsel referred to in Section 2.4(a)(5).
-----------------
(c) The Memorandum of Agreement.
(d) The Closing Certificates.
(e) The executed agreement of Parent Company, any Casino Manager and
each Restricted Party requested by City, to abide by the Radius
Restriction.
2.15 Other Commitments of City and EDC. By the Closing Date, City and EDC
---------------------------------
shall deliver to Developer the opinions of counsel referred to in Section
-------
2.4(a)(6).
- ---------
2.16 Approval by City, EDC and PM. Wherever an approval is required of
----------------------------
City, EDC, or PM pursuant to the terms of this Agreement, the approval or
disapproval shall be given in writing, which in the case of disapproval, shall
set forth the reasons of disapproval. Whenever in this Agreement any consent or
approval of the City is required, such approval or consent shall be given or
withheld by the Mayor, any City official designated by the Mayor or appropriate
City department unless otherwise indicated. Prior to the Closing Date and from
time to time thereafter, City and EDC shall designate in writing to Developer
those individuals who have authority to grant any approvals or consents
hereunder on behalf of City and EDC. Developer shall be entitled to rely on any
writing signed by such designees.
2.17 Prompt Responses. The parties agree that the time limits and time
----------------
periods provided herein are of the essence in this Agreement. The parties
mutually agree to exercise their mutual and separate best efforts to consider
and respond promptly and as expeditiously as reasonably possible notwithstanding
any time period provided in this Agreement.
2.18 Funding of Excess Costs.
-----------------------
(a) As promptly as practicable, but in any event not later than one
hundred eighty (180) days following the Effective Date, the City shall
submit to Mayor and City Council: (1) Schedule A, specifying (i) the City's
best estimate of the aggregate of the Feehold Compensation including the
City Contribution; (ii) the cost of all Infrastructure Improvements; and
(iii) the costs of all of the above and below ground environmental Response
activity
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necessary in order to obtain a covenant not to sue in favor of the City, EDC,
Developer and the Other Land-Based Casino Developers issued by the Michigan
Department of Environmental Quality("MDEQ") with respect to the Casino Area and
the Public Land; and (2) Schedule B, identifying all of the Infrastructure
Improvements for which the Developer and the Other Land-Based Casino Developers
will be responsible. Developer shall cooperate with the City and EDC in the
preparation of such Schedules reflecting the nature and cost of the
Infrastructure Improvements and estimates of the cost of Response activity.
(b) If Schedule A reflects an estimate in excess of Two Hundred Fifty
Million Dollars ($250,000,000), the City, through the Mayor, may, subject to
approval of the City Council, within ten (10) Business Days thereafter,
determine whether the project described in the EDC Plan is suitable for public
purposes. In the event the City determines that such project is still suitable
for public purposes, the City shall proceed with the project described in the
EDC Plan. If the City determines otherwise, the City and the EDC shall use their
commercially reasonable efforts to locate a suitable alternate site for
Developer to develop, construct and operate the Casino Complex.
2.19 Administration of this Agreement.
--------------------------------
(a) The Mayor shall designate the City departments, agencies and/or
personnel who shall be responsible for the administration of this Agreement;
monitoring of the performance by the Developer of its duties and obligations
under this Agreement; and making recommendations to the Mayor concerning its
enforcement.
(b) Except to the extent set forth in any other certificate or report
delivered to the City that contains substantially the same information, not
later than ninety (90) days after the end of each Fiscal Year commencing with
the Fiscal Year in which the Closing Date occurs, Developer shall deliver to
City a report setting forth the following:
(1) a description of Developer's efforts to comply with the
requirements of Section 2.6(b) during such Fiscal Year, as they apply
--------------
to the Temporary Casino, if any, and the Casino Complex;
(2) a statement as to the number of employees (including the
total number of full-time, part-time and full-time equivalent) employed by
the Developer as of the completion of the Temporary Casino, if any, each
anniversary thereof, and on the Completion Date and each Determination Date
(as the term is defined in Section 2.6(e));
----------------
(3) a description of any administrative determination, binding
arbitration decision, or judgment rendered by a court of competent
jurisdiction finding a violation of any federal, state or local laws
governing equal employment opportunity during such Fiscal Year;
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(4) a description of Developer's efforts to comply with the
requirements of Sections 2.6(g), (h), (i) and (j) during such Fiscal
---------------------------------
Year, as they apply to the Temporary Casino, if any, and to the Casino
Complex;
(5) a statement setting forth material information adequate to
enable the City to determine compliance with Section 7.2;
-----------
(6) whether Developer is aware of any non-compliance with the
Radius Restriction, as that term is defined in Section 7.3(a), and a
--------------
description thereof if any has occurred during such Fiscal Year;
(7) a statement as to whether any agreement for the management
and/or operation of any Component has been entered into, amended in any
material respect, or assigned during such Fiscal Year, together with a copy
of any such agreement, amendment or assignment;
(8) a description of Developer's efforts to comply with the
requirements of Section 7.6 during such Fiscal Year;
-----------
(9) a description of any Material Alteration commenced during
such Fiscal Year;
(10) a description of Developer's efforts to comply with the
requirements of Section 7.13(a) during such Fiscal Year;
---------------
(11) whether Developer is aware of any non-compliance with the
requirements of Section 7.13(c) during such Fiscal Year;
---------------
(12) a description of Developer's efforts to comply with the
requirements of Section 7.17 during such Fiscal Year;
------------
(13) to the extent not otherwise covered in response to subparts
(b)(1)-(12) above, a description of any change during such Fiscal Year
in Developer's efforts to comply with the plans, measures,
commitments, undertakings and covenants set forth on the following
Exhibits: 8.1(c) (limited to the officers or managers of Developer and
------------------------------------------------------------
any Casino Manager), (g), (j), (k), (l), (m), (n), (p), (q), (r), (s),
----------------------------------------------------------------------
(u), (v), (w), (x), (y), (z), (cc), (dd) and (ee); and
------------------------------------------------------
(14) whether Developer is aware of any Transfer occurring during
such Fiscal Year.
No information need be included in such report as to any obligation of
Developer which has lapsed or which otherwise does not apply during such
Fiscal Year.
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ARTICLE III
FINANCING
3.1 Initial Financing.
-----------------
(a) Developer agrees to obtain Initial Financing from a Suitable
Lender on such terms and conditions as are acceptable to City and necessary and
sufficient in the reasonable opinion of City to:
(1) Fully perform its development obligations set forth in
Section 2.13.
------------
(2) Pay City and/or EDC for Developer's Pro Rata Share of the
Feehold Compensation.
(3) Fund the cost of Developer's portion of all Infrastructure
Improvements to be completed by City.
(4) Reimburse City and/or EDC, as applicable, for the Development
Process Costs.
(5) Provide adequate funds for all preopening activities and
initial working capital of the Casino Complex.
(6) Provide adequate funds and/or other financial guarantees or
assurances to enable the Casino Complex to continue operating in the event
that actual operations do not meet operating projections during the first
twenty-four (24) months subsequent to the Completion Date.
(7) Fully perform all of Developer's other commitments set forth
in Section 2.6, except for such commitments as are to be funded out of
-----------
operating cash flow of the Casino Complex.
(b) No portion of the Initial Financing may be derived from or be
dependent on the success of the Temporary Casino.
(c) Subject to Section 7.13(d), Developer may mortgage, pledge or
---------------
otherwise encumber all or part of Developer's interest in the Development
in connection with the Initial Financing.
(d) The terms and conditions of the Initial Financing as and to the
extent set forth on Exhibit 8.1(g) are acceptable to City, subject to
--------------
review by the City of the final documents incorporating such terms and
conditions.
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3.2 Financial Covenants. Subject to Section 3.7, Developer shall maintain
------------------- -----------
(i) at all times on and after the Completion Date a Leverage Ratio of not
greater than 3.35 to 1 or Net Worth of no less than $165 million; (ii)
commencing with the end of the fourth full fiscal quarter subsequent to
Completion, a Debt Service Coverage Ratio of at least 1.0 to 1; and (iii)
commencing with the end of the eighth full fiscal quarter subsequent to
Completion, a Debt Service Coverage Ratio of at least 1.2 to 1. The obligations
of Developer under this Section 3.2 shall lapse and be of no further force or
-----------
effect seven (7) years after the Execution Date.
3.3 Subsequent Financings. Subject to Section 3.7, after the Completion
--------------------- -----------
Date, Developer may mortgage, pledge or otherwise encumber Developer's interest
in the Development from time to time only after first obtaining City's prior
written consent which consent shall not be unreasonably withheld, provided that
City's consent shall not be required in connection with a Financing, or the
Mortgage or other security agreements as security therefor, in which each lender
is a Suitable Lender, so long as the principal amount of Secured Debt incurred
in the Financing does not (i) have a maturity date earlier than seven (7)
years subsequent to the Closing Date; and (ii) cause a violation of the Leverage
Ratio or Debt Service Coverage Ratio covenants set forth in Section 3.2. The
-----------
obligations of Developer under this Section 3.3 shall lapse and be of no further
-----------
force or effect seven (7) years after the Execution Date.
3.4 Transfer by Mortgagee. Developer agrees that it shall not enter into
---------------------
any Mortgage unless such Mortgage shall provide that (i) the Mortgagee shall not
transfer or assign its interest in any Mortgage without City's prior written
consent, except to a Suitable Lender; and (ii) if, as the result of a Loan
Default, the Mortgagee forecloses upon or otherwise acquires all or part of
Developer's interest in the Development, the Mortgagee (or the Nominee of the
Mortgagee) shall expressly accept and agree to assume all of the terms,
covenants and provisions of this Agreement contained to be kept, observed and
performed by the Developer and become bound to comply therewith. As used in
this Agreement, the word "Nominee" shall mean a Person who is designated by
Mortgagee to act in place of the Mortgagee solely for the purpose of holding
title to the Development and performing the obligations of Developer hereunder.
3.5 Sinking Fund Provision. Subject to Section 3.7, during the thirty-six
---------------------- -----------
(36) month period ending on the final maturity date of any Secured Debt
outstanding at any time, Developer shall make Sinking Fund Payments equaling, in
the aggregate, thirty-three percent (33%) of the original principal amount of
the Secured Debt less all Voluntary Sinking Fund Payments (as hereinafter
defined) made prior to or during such thirty-six (36) month period with respect
to any and all Financings. The Sinking Fund Payments, if any, required hereby
shall be made in semi-annual installments such that the total sum of Sinking
Fund Payments and Voluntary Sinking Fund Payments made (a) as of the date
twenty-four (24) months prior to such final maturity debt equals eleven percent
(11%) of the original principal amount of the Secured Debt, (b) as of the date
twelve (12) months prior to such final maturity debt equals twenty-two percent
(22%) of the original principal amount of the Secured Debt, and (c) as of the
final maturity debt equals thirty-three percent (33%) of the original principal
amount of the Secured Debt. The obligations of Developer under this Section 3.5
-----------
shall lapse and be of no further force or effect seven (7) years after the
Execution Date.
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"Sinking Fund Provisions" shall be defined as (i) the retirement of debt
under such Financing or Financings, or (ii) placement of funds in a segregated
Sinking Fund account. Funds in the Sinking Fund account shall, except for funds
overfunded which may be withdrawn by Developer, be applied to reduce or satisfy
Secured Debt outstanding under such Financing or Financings.
"Voluntary Sinking Fund Provisions" means (i) all voluntary, scheduled or
other principal repayments actually paid with respect to any Secured Debt
outstanding under such Financing or Financings; (ii) deposited in a Sinking Fund
Account established by any Mortgagee; or (iii) voluntary prepayment of unsecured
Financings during any period when they are callable and in fact called.
3.6 Financing Representations; Restrictions. In no event may Developer or
---------------------------------------
any Finance Affiliate represent that City and/or EDC are or in any way may be
liable for the obligations of Developer or any Finance Affiliate in connection
with (i) any financing agreement or (ii) any public or private offering of
securities. If Developer or any Finance Affiliate shall at any time sell or
offer to sell any securities issued by Developer or any Finance Affiliate
through the medium of any prospectus or otherwise that relates to the Casino
Complex or its operation, Developer shall (i) first submit such offering
materials to City for review with respect to Developer's compliance with this
Section 3.6 and (ii) do so only in compliance with all applicable federal and
- -----------
state securities laws, and shall clearly disclose to all purchasers and offerees
that (y) the City and/or the EDC shall not in any way be deemed to be an issuer
or underwriter of such securities, and (z) the City and/or the EDC and its
officers, directors, agents, and employees have not assumed and shall not have
any liability arising out of or related to the sale or offer of such securities,
including without limitation, any liability or responsibility for any financial
statements, projections or other information contained in any prospectus or
similar written or oral communication. Developer agrees to indemnify, defend or
hold the City and the EDC and their respective officers, directors, agents and
employees free and harmless from, any and all liabilities, costs, damages,
claims or expenses arising out of or related to the breach of its obligations
under this paragraph.
3.7 Guarantee of Developer's Obligations. So long as a Performance
------------------------------------
Guaranty from an Acceptable Guarantor remains in full force and effect, (i)
Developer's failure to comply with the financial covenants set forth in Section
-------
3.2 shall be excused and shall not be an Event of Default; (ii) Developer's
- ---
failure to meet or exceed the Performance Threshold shall (x) not give rise to
any obligation of Developer to deliver an Annual Business Plan under Section
-------
7.10(b); (y) not give rise to any obligation of Developer to notify City under
- -------
Section 7.12; and (z) not give rise to any obligation of Developer to make its
- ------------
Books and Records available to City under Section 17.1; (iii) Developer shall
------------
have no obligation under Section 3.3 to obtain City's consent to a Financing;
-----------
(iv) Developer shall have no obligation under Section 3.5 to make Sinking Fund
-----------
Provisions; (v) Developer shall have no obligation under Section 7.4 to seek the
-----------
approval of City to enter into an agreement or contract to operate or manage the
hotel Component or the parking Component, provided that at such time as the
Performance Guaranty is of no force or effect either (1) such agreement or
contract terminates and the operation or management of such Component reverts to
Developer or the Parent Company or (2) Developer seeks and receives City's
approval
35
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of the Casino Component Manager/Operator of such Component; (vi) Developer
shall have no obligation under Section 7.7 to establish or continue to
-----------
fund a Capital Maintenance Fund; (vii) Developer shall have no obligation under
Section 7.16 to deliver the certificate required thereunder; (viii) Developer
- ------------
shall have no obligation under Section 16.2 to deposit insurance proceeds into a
------------
trust account; and (ix) Developer shall have no obligation under Section 16.4 to
------------
deposit any Proceeds into an escrow account.
ARTICLE IV
DESIGN; PROJECT SCHEDULING; INFRASTRUCTURE; QUALITY
4.1 Schematic, Design and Construction Documents.
--------------------------------------------
(a) On or before one hundred twenty (120) days after the Closing Date,
Developer shall prepare and submit the Schematic Design Documents to PM for
review and approval as provided in Section 4.2, together with such othe
-----------
drawings, traffic plans, documents and other supporting information as may be
reasonably necessary to enable the PM to evaluate the Schematic Design
Documents, and as soon as practicable following its completion, a Working
Development Schedule. Developer covenants and agrees that the Schematic Design
Documents will substantially conform to representations and warranties set forth
in Section 8.1(i) except as and to the extent otherwise approved by the City.
--------------
(b) Upon receipt by PM of the Schematic Design Documents, PM shall
promptly and diligently review such items and submit them to the EDC. The EDC
shall either approve them as submitted or notify Developer in writing of its
disapproval and any proposed changes (including the reasons therefor) within
twenty-one (21) days after receipt thereof by the PM. Similarly, Developer shall
submit to PM any request for a Material Deviation, together with such supporting
information as reasonably required by PM. Upon receipt of such request and
information, PM shall promptly and diligently review such items and submit them
to the EDC. The EDC shall either approve the request as submitted or notify
Developer in writing of its disapproval and any proposed changes (including the
reasons therefor), within twenty-one (21) days after receipt thereof by the PM.
(c) As soon as practicable, Developer shall prepare and submit the
Design Development Documents to PM for review for compliance with the
Schematic Design Documents.
(d) As soon as practicable, Developer shall prepare and submit the
Construction Documents to PM for review for compliance with the Schematic Design
Documents. Developer may prepare and submit the Construction Documents in parts
in lieu of submitting all of such documents at one time. The Contractor
Agreement(s) should describe the methods of construction that are designed to
facilitate compliance with applicable Governmental Requirements relevant to the
reduction of the negative impact of construction on adjacent properties and on
businesses in the vicinity of the construction. These shall include policies
36
<PAGE>
regarding scheduling of certain activities (e.g., delivery of materials and
equipment) that disrupt vehicular and pedestrian traffic, such activities being
limited to off-peak hours to the extent possible and consistent with the Working
Construction Schedule; policies concerning the placement of temporary structures
(e.g., field offices, scaffolding, hoists); temporary utility connections (e.g.,
light, heat, power) that may adversely affect surrounding businesses; and
efforts to be undertaken to schedule public paving, sidewalks, sewers, curbs and
utility hookups.
(e) As soon as practicable, Developer shall submit any material
changes in the Design Documents or Working Development Schedule to PM.
(f) EDC acknowledges that Developer may phase its submission of Design
Documents and may "fast track" certain elements. EDC agrees that Developer may
do so as long as the Completion is not delayed beyond the Agreed Upon Opening
Date.
4.2 Architect(s) and Consultants.
----------------------------
(a) Neither the Architect(s) nor any other Consultants are agents,
either expressed or implied, of City or EDC.
(b) Upon their engagement, the resumes of the principals of the
Architect(s) and other Consultants working on the Development shall be promptly
provided in writing to PM. In the event that any of the principals of the
Architect(s) and other Consultants working on the Development are changed,
Developer shall notify PM as promptly as practicable upon learning of such
change.
4.3 City or EDC Not Responsible for Design Documents. Neither City nor
------------------------------------------------
the EDC shall be responsible for any error or omission in the Design Documents,
or for failure of the Design Documents, or a part thereof, to comply with
Governmental Requirements, or for Design Documents that result in or cause a
defective design or construction.
4.4 Permits.
-------
(a) Developer shall diligently prepare and file all applications for,
and pursue and use diligent efforts to obtain, the Permits. PM shall (x)
cooperate with and assist Developer in securing the Permits and (y) use
commercially reasonable efforts to expedite the issuance of the Permits;
provided, however, that nothing in this Agreement shall adversely affect, limit,
restrict or reduce the right of the City or the County, as Governmental
Authorities, to exercise their respective governmental powers and authority and
to act in regulatory matters in accordance with applicable Governmental
Requirements.
(b) Developer shall, not later than the Outside Submission Date,
submit to the City Department of Buildings and Safety Engineering all
documentation reasonably necessary for such Department to review and upon
completion of such review, (subject to such comments and changes requested by
such Department), issue the Building Permit.
37
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4.5 Non-Material Deviations. Developer shall have the right to make Non-
-----------------------
Material Deviations, including the right to issue Supplemental Instructions
ordering changes in the Work to accommodate Non-Material Deviations.
4.6 Material Deviations. Developer shall make no Material Deviations
-------------------
without the prior written approval of the City and the EDC. Notwithstanding the
foregoing, due to the imprecise ability to measure "gaming floor area," City and
EDC agree that if in good faith the Developer measures its gaming floor area in
a manner that differs from City's measurement of gaming floor area by ten
percent (10%) or less, such variance shall not be considered a Material
Deviation.
4.7 Presentation Illustrations; Virtual Reality.
-------------------------------------------
(a) The Developer shall deliver to the EDC and City as soon as
practicable following the Closing Date presentation-quality illustrations
of the Casino Complex, including interiors.
(b) The Developer, in coordination with the Other Land-Based Casino
Developers, shall deliver to EDC as soon as practicable a "virtual reality
illustration" of the Casino Complex showing first, vehicular traffic, next, the
massing of the facilities in the Casino Area and lastly, renderings of the
exteriors, which EDC shall make available to City. In no event shall such
illustration include the interiors of the Casino Complex.
4.8 Integrated Complex. Developer agrees that it shall design the Casino
------------------
Complex as an integrated complex. The goal of the Development is that the
buildings, landscaping and other pertinent improvements will blend together and
join pleasantly with adjacent properties to create an elegant environment,
compatible with City's urban context.
4.9 Developer's Representative and Program Manager.
----------------------------------------------
(a) Unless provided otherwise, whenever approval or action by
Developer is required by this Agreement with respect to construction matters,
such action or approval shall be taken or given by the Developer's
Representative. Written notice of the designation of Developer's Representative
(and any subsequent change in the Developer's Representative) shall be given by
the Developer to the other parties in the manner provided in Section 21.1.
-------------
Nothing herein is intended to impose personal liability on Developer's
Representative except as may exist by law or contract between a party and its
agent or authorized representative.
(b) As to construction related matters and approvals: (i) EDC agrees
that PM shall communicate with the Developer and any of its agents only through
Developer's Representative; and (ii) Developer's Representative agrees to
communicate with EDC through the PM. Any variation of this procedure must be
authorized in writing.
(c) Commencing on the Closing Date, the Developer's Representative and
the PM shall meet as necessary (no less often than monthly) to discuss and
coordinate all aspects of
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the Work ("Work Meetings"). The Work Meetings are, among other things, intended
to constitute the principal forum in which matters addressed in this Article IV
----------
and all other EDC approvals (outside of the normal approval, permitting and
inspection process associated with building projects generally in the City) are
to be discussed and resolved and in which the PM shall propose methods to
expedite the resolution of outstanding issues and the obtaining of necessary
Permits and inspections by the City and its subdivisions and instrumentalities.
With respect to any matter raised with the PM which under this Agreement
requires the approval of the EDC, unless otherwise provided in this Agreement,
the PM shall respond as promptly as practicable within fifteen (15) days of such
request. If the EDC refuses to approve such matter, the Developer's
Representative and the PM shall continue their discussions in good faith to
arrive at a resolution of the outstanding matter acceptable to Developer and EDC
in the exercise of their reasonable judgment.
(d) EDC agrees to use reasonable efforts to (i) retain a PM prior t
the Closing Date; (ii) advise PM of his or her obligation to maintain the
confidentiality of confidential information provided to him or her by Developer;
and (iii) obtain a post-employment restriction agreement restricting the PM from
becoming employed by the Developer or the Other Land-Based Casino Developers or
their respective Affiliates for a period of two (2) years after the Completion
Date.
4.10 Utility Relocation. Developer shall, at Developer's sole cost and
------------------
expense, be responsible for the location and identification of all active
utilities within the Development, including but not limited to electrical, gas,
water, steam, sewerage, telephone and cable. The cost of relocating any
utilities owned or operated by a private or quasi-public entity shall be the
responsibility of the private or quasi-public utility.
4.11 Infrastructure Improvements. Provided Schedule A reflects an
---------------------------
aggregate estimate of not more than Two Hundred Fifty Million Dollars
($250,000,000) or such higher number as shall have been approved in writing by
Developer, Developer shall pay City for Developer's Pro Rata Share of all
reasonable and documented hard and soft costs for Infrastructure Improvements
prior to the time that City pays any costs related thereto according to a draw
procedure having adequate safeguards to assure timely payments to the City to be
established by Developer, City and the Other Land-Based Casino Developers. Upon
receipt of such funds, City agrees to use such funds to construct the
Infrastructure Improvements. The Developer shall have no responsibility to
maintain or pay for the maintenance of any Infrastructure Improvements not owned
by Developer. Neither the City nor the EDC shall be responsible to pay for or
otherwise fund the construction of any Infrastructure Improvements, such costs
and expenses being the sole responsibility of the utility in the case of any
private or quasi-public utilities or the responsibility of Developer in all
other circumstances. City will advise and consult with Developer of its overall
plans for Infrastructure Improvements to or affecting the Casino Area.
4.12 Quality of Work and Materials. All Work shall be performed in a good
-----------------------------
and workmanlike manner and in accordance with good construction practices. All
materials used in
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the construction of the Development shall be of first class quality. The
quality of the Finish Work shall meet or exceed First Class Casino Complex
Standards.
ARTICLE V
SITE MATTERS
5.1 Developer's Right of Entry Prior to Conveyance. As City and/or EDC
----------------------------------------------
obtains a right of entry which permits Developer onto the Project Premises for
purposes of conducting tests and inspections, the City and/or EDC shall grant to
Developer (or shall cause Developer to be granted) a right of entry onto the
Project Premises to conduct preliminary or preparatory work, such as surveys
(including environmental surveys) and tests (including but not limited to core
sampling, test pits, monitoring wells, soil compaction and test pilings). City,
EDC and/or Developer shall use reasonable best efforts to cause any parties who
prepared such surveys or tests to issue a written statement that permits the
City, EDC and Developer, as applicable, to rely on such surveys and tests. To
the extent practical, City and/or EDC and Developer agree to share the results
of such testing and inspection activities so as to avoid a duplication of such
efforts. Developer shall not suffer or permit to be enforced against all or any
part of the Development any contractors', subcontractors' or materialmens' liens
arising from any of the aforesaid activities. Developer shall promptly pay,
bond out or cause to be paid or bonded out all of said claims, demands and liens
before any action is brought to enforce the same. Developer hereby agrees to
defend, indemnify and hold harmless City and EDC and each of their officers,
agents and employees from and against any and all liabilities, losses, damages,
costs, expenses, claims, encumbrances, obligations, charges, penalties and
causes of action (including without limitation reasonable attorneys' fees) that
City and EDC and each of their officers, agents and employees may suffer or be
required to pay which arise out of or relate in any manner to such activities
performed by or an behalf of Developer on or with respect to the Project
Premises. Developer shall cause any of Developer's contractors that conduct
such work and activities on the Project Premises to maintain insurance with
respect to liability to third parties in amounts reasonably specified by City
and/or EDC. The indemnity provisions of this Section 5.1 shall survive the
-----------
termination of this Agreement.
ARTICLE VI
CONSTRUCTION PHASE
6.1 General. Developer shall cause Contractor to construct the Casino
-------
Complex and perform the Work pursuant to the Contractor Agreements and the
Construction Documents under the supervision and control of Developer.
6.2 Performance of the Work.
-----------------------
(a) Developer shall cause Contractor(s) to:
40
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(1) Provide, furnish and maintain at its expense during the
construction period of the Casino Complex an appropriate separate facility
located at the project area for use by the PM and the PM's staff as a field
office. Developer shall pay or reimburse EDC for the reasonable cost of
furnishing and equipping such facility for the PM and the PM's staff. In
addition, until six (6) months following the Completion Date, Developer
shall pay or reimburse EDC for all documented fees and reasonable expenses
of EDC for the services of the PM and the PM's staff, to the extent the PM
and PM's staff are providing services to the Development. The EDC and
Developer shall agree no later than the Closing Date on a written budget
for the PM and the PM's staff.
(2) Deliver to the PM copies of the temporary and final
certificates of occupancy for the Casino Complex.
(b) Developer shall give all notices and comply, and shall use all
reasonable efforts to cause Contractor and all Consultants to comply, with all
Governmental Requirements applicable to the Work, and shall obtain, or use all
reasonable efforts to cause Contractors and/or all Consultants, as applicable,
to obtain, all licenses or other authorizations necessary for the prosecution of
the Work.
(c) Developer shall take reasonable precautions to protect from damage
caused by the Work, property adjacent to or in close proximity to the
Development and shall be responsible for damage or injury to adjacent public and
private property resulting from its construction operations. This applies, but
is not limited, to public utilities, trees, lawn areas, buildings, monuments,
fences, pipes and underground structures and public streets (except natural wear
and tear of streets resulting from legitimate use thereof by Developer) and,
wherever such property is damaged due to the activities of Developer, it shall
be restored promptly by Developer, at its own expense, to substantially the
condition which existed immediately before such damage. In case of failure on
the part of Developer to restore or take steps to restore and diligently
prosecute such restoration, or make good such damage or injury, EDC may, upon
thirty (30) days written notice to Developer, proceed to repair, rebuild, or
otherwise restore such property as may be necessary, and the cost thereof shall
be immediately due and payable to EDC.
(d) Developer shall confine the equipment, apparatus, materials and
supplies of Developer, the Contractor(s), the Architect(s), Consultants,
subcontractors and all employed by them to the limits of the Project Site or as
otherwise permitted by law or Permits.
(e) City acknowledges that certain temporary construction easements or
other rights may be necessary for the performance of the Work, and City agrees
to provide, if available to the City without cost, the necessary temporary
easements or other rights subject to its reasonable approval. Any delay in
providing or failure to provide such necessary easements that are available to
the City without cost shall extend the applicable schedules to the extent the
delay or failure delays the Work.
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6.3 Commencement and Completion of the Work. Time being of the essence,
---------------------------------------
Developer, after receipt of all required Permits, shall, subject to the terms
and provisions of this Agreement, prosecute the Work diligently, using such
means and methods of construction and sufficient employees as Developer
reasonably believes are necessary to maintain the progress of the Work
substantially in accordance with the Working Development Schedule and to
Complete the Casino Complex in accordance with the requirements of the
Construction Documents no later than the Agreed Upon Opening Date. Subject to
Section 7.2, Developer agrees to use commercially reasonable efforts to open to
- -----------
the public for their intended use no less than ninety percent (90%) of the
retail and ninety percent (90%) of the restaurant space within nine (9) months
following the Completion Date and the balance of the Casino Complex within a
commercially reasonable time following the Completion Date.
6.4 Contractor; Subcontractors.
--------------------------
(a) No later than the submittal of the Construction Documents to PM
pursuant to Article IV, Developer shall submit to EDC the name of the
----------
Contractor and the form of the Contractor Agreement, which agreement shall
contain a provision that, in the event of a default by Developer and upon a
request from EDC and City, the Contractor agrees to continue with the Work in
accordance with the Contractor Agreement provided that EDC pays the Contractor
for work performed pursuant to this Section 6.4(a). EDC shall furnish copies of
--------------
all Contractor Agreements to the City.
(b) Developer shall furnish to PM as promptly as practical after the
delivery of the Construction Documents a list of all known subcontractors
who will be performing the Work.
(c) Developer shall cause appropriate provisions to be included in all
Contractor Agreements and subcontracts pertaining to the Work to bind the
Contractor(s) and all subcontractors to the terms of this Agreement, as
applicable to the Work of the Contractor(s) or the subcontractor(s).
(d) Subject to Section 6.4(a), nothing in this Agreement or in the
--------------
Construction Documents, including any Contractor Agreements, shall (i) create
any contractual relationship between City and/or EDC and the Contractor(s) or
any subcontractor or (ii) liability against City and/or EDC for labor, services
or materials of a Contractor or a subcontractor. No Contractor or subcontractor
is an agent, either expressed or implied, of City and/or EDC.
6.5 Claims and Liens. Developer shall notify PM as soon as practicable
----------------
after Developer has actual knowledge of any filed construction lien arising from
any of the aforesaid Work.
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6.6 Construction Matters.
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(a) For the purpose of verifying compliance with this Agreement,
Developer and the Contractor(s) shall keep such full and detailed accounts as
shall be sufficient to verify the costs of the Casino Complex. Subject to
Article XVII, City and/or EDC shall be afforded access to Developer's Books and
- ------------
Records and Developer shall preserve all such Books and Records pertaining to
the Casino Complex for a period of six (6) years from creation of such Books and
Records, or for such longer period as may be required by law. Developer shall
cause the Contractor Agreement to contain a provision similarly binding
Contractor.
(b) Developer shall cause the Contractor Agreement to bind
Contractor(s) and subcontractors to comply with the applicable regulations of
the U. S. Department of Labor, safety and health regulations for construction
promulgated under the Occupational Safety and Health Act of 1970 (Pub.L. 91-596)
and any other safety and health regulations applicable to the Work. Nothing in
these laws shall be construed to supersede or in any manner affect any workers'
compensation law or statutory rights, duties or liabilities of employers and
employees under any law with respect to injuries, diseases or death of employees
arising out of, or in the course of, employment.
(c) The Developer and the Other Land-Based Casino Developers agree to
work together with the City in good faith to assure the availability of adequate
parking without expense to the City, for persons attending events at Chene Park,
both during construction of the Casino Complex and after Completion.
6.7 Failure to Complete by Agreed Upon Opening Date. Time is of the
-----------------------------------------------
essence, and a delay in Completion will result in substantial injury and
additional costs to City and/or EDC. If Completion occurs subsequent to the
Agreed Upon Opening Date, as it may be extended in accordance with the terms of
this Agreement, Developer shall pay to City as the sole remedy of the City and
EDC and as liquidated damages (and not as a penalty), an amount per calendar day
for each calendar day after the 30th calendar day following such Agreed Upon
Opening Date during which the Casino Complex is not Completed (the "Late
Period") equal to the lesser of (i) $118,290, or (ii) (A) during periods in
which two (2) other land-based casinos are open to the public within the City,
twenty-five percent (25%) of the City's share of the aggregate Wagering Tax and
Municipal Services fee derived from both such operations during the Late Period
and (B) during periods in which one (1) other land-based casino is open to the
public within the City, forty percent (40%) of the City's share of the Wagering
Tax and Municipal Services fee derived from such operation during the Late
Period, divided by the number of days in the Late Period in each case reduced by
(x) one hundred twenty percent (120%) of the City's share of the Wagering Tax
and (y) one hundred percent (100%) of the Municipal Services Fee derived from
the operation of Developer's Temporary Casino during the Late Period, provided
however during periods in which no Land-Based Casino Development is open to the
public within the City, the figure in clause (i) shall be used for purposes of
the computation. Developer shall under no circumstances have aggregate
liability hereunder and pursuant to Section 10.2(f) in excess of Fifty Million
---------------
Dollars ($50,000,000). The foregoing limitation on City's and EDC's remedies
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shall in no way limit or diminish City's or EDC's rights or remedies under the
Guaranty and Keep Well Agreement.
ARTICLE VII
OTHER COVENANTS OF DEVELOPER
7.1 Casino Complex Operation. Developer agrees to diligently operate the
------------------------
Casino Complex and all other support facilities directly, or through Casino
Component Manager/Operators or Component manager(s), in a manner consistent with
First Class Casino Complex Standards and in compliance with this Agreement.
7.2 Hours of Operation. Developer covenants that, from the Completion
------------------
Date and at all times thereafter, it shall operate the Casino Complex in
compliance with all Governmental Requirements concerning hours of operation.
Developer covenants that, from the Completion Date and at all times thereafter
to: (i) maintain the maximum allowable hours for Casino Gaming Operations; (ii)
continuously operate and keep open for business to the general public twenty-
four (24) hours each day, every day of the calendar year, the hotel Component
and the parking Component; and (iii) operate and keep open for business to the
general public all Components (other than hotel Component, parking Component and
Components where Casino Gaming Operations are conducted) in accordance with
commercially reasonable hours of operation. Notwithstanding the foregoing, but
subject to Developer's obligations to obtain City's approval for Material
Alterations, Developer shall have the right from time to time in the ordinary
course of business and without advance notice to City, to close portions of any
Component (x) for such reasonable periods of time as may be required for
repairs, Alterations, maintenance, remodeling, or for any reconstruction
required because of casualty, condemnation, governmental order or Force Majeure
or (y) during non-peak hours or as a result of seasonal demands in accordance
with usual and customary casino operating practices. The obligations of
Developer under this Section 7.2 shall lapse and be of no further force or
-----------
effect ten (10) years after the Execution Date.
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7.3 Radius Restriction.
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(a) For purposes of this Section 7.3, "Restricted Party" means any
-----------
Person who directly or indirectly owns any interest in Developer or in any
Casino Manager which is an Affiliate of Parent Company other than any Person who
is a Restricted Party due solely to that Person's ownership of (x) a direct or
indirect interest in a Publicly Traded Corporation or (y) five percent (5%) or
less direct or indirect interest in Developer. Commencing on the Execution Date
and continuing for the shorter of (x) such period as casino gaming activities
are permitted in the City; or (y) two (2) years after the Termination Date,
neither Developer, Parent Company, any Casino Manager which is an Affiliate of
Parent Company, Developer or any Restricted Party, nor any Restricted Party,
shall directly or indirectly (i) manage, operate or become financially
interested in any casino within the Radius other than the Casino Complex or the
Temporary Casino, (ii) make application for any franchise, permit or license to
manage or operate any casino within the Radius other than the Casino Complex or
the Temporary Casino or (iii) respond positively to any request for proposal to
develop, manage, operate or become financially interested in any casino within
the Radius (the "Radius Restriction") other than the Casino Complex or the
Temporary Casino, provided that with respect to any Casino Manager which is an
Affiliate of Parent Company, Developer or any Restricted Party, the period set
forth in clause (y) shall be two (2) years after the termination of its Casino
Component Management Agreement. Developer shall cause Parent Company, any Casino
Manager which is an Affiliate of Parent Company, Developer or any Restricted
Party and each Restricted Party requested by City, to execute and deliver to
City an agreement to abide by the Radius Restriction. The Radius Restriction
shall survive the termination of this Agreement.
(b) If Parent Company, Developer or any Restricted Party acquires or
is acquired by a Person such that, but for the provisions of this Section
-------
7.3(b), either Parent Company, Developer or any Restricted Party or the
- ------
acquiring Person would be in violation of the Radius Restriction as of the date
of acquisition, then such party shall have five (5) years in which to comply
with the Radius Restriction. In addition, if the laws of the State are amended
to allow more than three (3) casinos within the City, then neither Developer nor
any Restricted Party shall be deemed to be in violation of the Radius
Restriction solely by reason of an ownership or other interest in any such
additional casinos.
(c) Notwithstanding anything in Section 7.3(a) to the contrary,
--------------
Developer shall have the right to (i) make loans to the Other Land-Based Casino
Developers provided that (x) such loans are not secured, in whole or in part, by
the Casino Complex, any Component or any direct or indirect ownership interest
in Developer (other than by a Permitted Interest, as herein defined) and (y) the
Developer, as the result of such loans, is given no ability to control or manage
the affairs of the borrower; and (ii) purchase such ownership interest in any
other Land-Based Casino Development as and to the extent permitted under the Act
(a "Permitted Interest").
(d) It is the desire of the parties that the provisions of this
Section be enforced to the fullest extent permissible under the laws and public
policies in each jurisdiction in which enforcement might be sought. Accordingly,
if any particular portion of this Section shall ever be adjudicated as invalid
or unenforceable, or if the application thereof to any party or
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circumstance shall be adjudicated to be prohibited by or invalidated by such
laws or public policies, such section or sections shall be (i) deemed amended to
delete therefrom such portions so adjudicated or (ii) modified as determined
appropriate by such a court, such deletions or modifications to apply only with
respect to the operation of such section or sections in the particular
jurisdictions so adjudicating on the parties and under the circumstances as to
which so adjudicated.
(e) The obligations of Developer under this Section 7.3 shall lapse
-----------
and be of no further force or effect ten (10) years after the Closing Date.
7.4 Casino Component Management Agreements.
--------------------------------------
(a) Developer shall not enter into any agreement or contract for the
operation and/or management of the Casino or the Casino Complex without in each
case receiving the approval of City. Notwithstanding the foregoing, the
Developer shall have the right to enter into any agreement or contract for the
operation and/or management of any Component (other than the Casino) without the
approval of the City, provided that with respect to the hotel Component and/or
parking Component, Developer either first complies with Section 3.7 or the
-----------
agreement or contract is entered into with an Affiliate during such period as
Developer meets or exceeds the Performance Threshold. Once approved by City, no
Casino Component Manager/Operator Agreement for a Covered Component requiring
City's approval to be entered into may be assigned, and Developer shall not
accept the assignment of, any such Casino Component Manager/Operator Agreement
without the prior written consent of City.
(b) In the event that a Casino Component Manager/Operator shall desire
to assign or transfer a Casino Component Management Agreement and such transfer
requires City's consent, the Casino Component Manager/Operator shall first make
application to City, setting forth the name or names of the proposed assignee
and an affidavit from the proposed assignee identifying all Persons having
interests in the assignee (provided, however, that if the assignee is a Publicly
Traded Corporation only those Persons known to have an ownership interest in
assignee of five percent (5%) or more need be identified) and their respective
addresses and that the proposed assignee meets the following minimum
qualifications: (i) possesses or will possess within the time limits established
by the respective Governmental Authority, all required permits, approvals and
licenses to own and operate the applicable Component; and (ii) possesses at
least three (3) years prior experience in operating facilities of a character
comparable to the applicable Component in each of at least two (2) other
locations or otherwise demonstrates to the reasonable satisfaction of City that
it possesses comparable experience. Evidence of licensing by the State, if
applicable, and a resume of prior operating experience shall also be provided.
The foregoing are intended to establish minimum criteria for consideration and
City shall not be required to grant approval of an assignee solely because that
assignee satisfies the above criteria if City reasonably determines that such
assignee is not qualified. At such times as Developer fails to meet or exceed
the Performance Threshold, and unless a Performance Guaranty from an Acceptable
Guarantor is in full force and effect, Developer shall not amend or modify any
agreement or contract to operate and/or manage any Covered Component without in
each case receiving the prior written consent of City, which consent shall not
be unreasonably withheld.
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(c) Any consent by City under this Subsection shall apply only to the
specific transaction thereby authorized and shall not relieve the Casino
Component Manager/Operator from the requirement of obtaining any prior consent
of City for any future assignment.
7.5 Inaugural Ceremonies. Developer shall notify and consult with the
--------------------
Mayor and City Council with respect to planning inaugural ceremonies for the
Casino Complex.
7.6 Marketing Cooperation and Coordination. Developer shall use
--------------------------------------
commercially reasonable efforts to coordinate marketing efforts between City and
Developer, especially with reference to the Metropolitan Detroit Convention and
Visitors Bureau ("MDCVB") and the blocking of rooms for convention purposes.
Such marketing program may include direct sales, direct mail and joint media
advertising promotion, public relations and publicity efforts. Developer agrees
to construct, at its expense, a visitor information center (the "Center") in the
Casino Complex. The Center shall be located in a visible location and shall
consist of no less than one hundred (100) square feet. The plan and design of
the Center shall be subject to the reasonable review and approval of the MDCVB.
Developer shall maintain the Center but shall have no obligation to staff it.
7.7 Capital Maintenance Fund.
------------------------
(a) Subject to Section 3.7, Developer shall establish or cause to be
-----------
established a reserve for capital replacements and/or enhancements to be funded
in accordance with Exhibit 7.7(a) (the "Capital Maintenance Fund"). The Capital
--------------
Maintenance Fund shall be established as a segregated account as an assurance
fund to guarantee necessary capital replacements and shall be utilized first for
any necessary capital replacements to the Development. Any amounts remaining in
the Capital Maintenance Fund at the close of each Fiscal Year shall be carried
forward and shall be retained for use in subsequent Fiscal Years. If the amount
in the Capital Maintenance Fund is insufficient at the time the funds are
planned for expenditure as otherwise provided in subparagraph (b), Developer
shall supply or cause to be supplied such shortfall in order to complete the
capital expenditure. If an amount in excess of the Capital Maintenance Fund is
expended in any Fiscal Year it shall be credited to the Developer's obligation
to fund the Capital Maintenance Fund in future Fiscal Years or to cure a
shortfall in any prior Fiscal Year, as directed by Developer, provided that no
cure shall be permitted if, prior to such cure, City has delivered written
notice of default to Developer for failure to meet its obligations under this
Section 7.7. The obligations of Developer under this Section 7.7(a) shall lapse
- ----------- --------------
and be of no further force or effect seven (7) years after the Execution Date.
(b) Developer shall make all capital expenditures necessary to
maintain the Casino Complex up to First Class Casino Complex Standards
regardless of the amounts in the Capital Maintenance Fund. In the event City
determines in good faith that such standard is not being maintained, City shall
provide Developer with written notice thereof.
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7.8 Maintenance and Repairs.
-----------------------
(a) Developer shall, at its sole cost and expense, keep and maintain
the Development (other than Infrastructure Improvements not owned by Developer)
up to First Class Casino Complex Standards, ordinary wear and tear and
casualties excepted, and in conformity with all applicable Governmental
Requirements, including the following to the extent located within the
Development boundaries: the Improvements (other than Infrastructure Improvements
not owned by Developer), landscaping, parks, grassy areas, streets, driveways,
curbs, and sidewalks; and shall keep and maintain the entire Development and all
landscaping and undeveloped areas thereon, in a clean, sanitary, orderly and
attractive condition, free from weeds, rubbish and debris. Developer shall also
maintain all sidewalks that abut the Development even if not located within the
Development boundaries. Developer shall also adopt and maintain such standards
of property maintenance and housekeeping up to First Class Casino Complex
Standards.
(b) Upon acquisition of the Public Land by the City:
(1) The City shall pay and be responsible for the design and
improvement of the Public Land.
(2) The City shall consult with the Developer with respect to
such design and improvement and use reasonable efforts to coordinate its
efforts with those of Developer so as to avoid conflicts between the
scheduling of construction of the Public Land improvements and the Casino
Complex.
(3) The Developer, together with the Other Land-Based Casino
Developers, shall establish a "Maintenance Trust" or equivalent entity (the
"Trust") to which Developer will contribute funds upon establishing the
Trust and on each anniversary thereafter until termination of the
Agreement. The amount contributed shall be determined pursuant to good
faith negotiations among the parties applying the standard set forth in
Section 7.8(b)(4).
-----------------
(4) The Trust shall be responsible for the maintenance of the
Public Land (other than Chene Park or St. Aubin marina) in a clean,
sanitary, orderly and attractive condition, free from weeds, rubbish and
debris.
(5) The Trust shall engage third parties to satisfy its
maintenance obligations.
(6) The Trust shall be managed by designees of the City and by
designees of parties contributing to the Trust.
(7) The obligations imposed on Developer pursuant to this Section
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7.8(b) are Developer's sole obligations with respect to maintenance of the
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Public Land.
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(8) The obligations imposed on Developer pursuant to this Section
-------
7.8(b) shall not in themselves give rise to an obligation by Developer to
------
Respond to a Release or to indemnify or reimburse City or EDC with respect
to any cost incurred in connection with any Environmental Claim pertaining
to the Public Land.
7.9 Memorandum of Agreement; Covenants to Run with the Land.
-------------------------------------------------------
(a) The parties agree that the Memorandum of Agreement shall not in
any circumstances be deemed to modify or to change any of the provisions of this
Agreement.
(b) The restrictions imposed by and under Section 7.17 (collectively,
------------
the "Restrictions") will be construed and interpreted by the parties hereto as
covenants running with the land. Pursuant hereto the Developer, by accepting the
deed to the Project Premises accepts same subject to such Restrictions and
agrees for itself, its successors and assigns to be bound by each of such
Restrictions. The City shall have the right to enforce such Restrictions against
the Developer, its successors and assigns to or of the Project Premises or any
part thereof or any interest therein.
7.10 Financial Statements; Annual Business Plan.
------------------------------------------
(a) Upon the earlier of the completion of the Temporary Casino or the
Completion Date, Developer shall provide City with (i) unaudited Financial
Statements for each calendar quarter within sixty (60) days after the end of
each quarter certified as accurate in all material respects by Developer, and
(ii) audited Financial Statements prepared in accordance with GAAP within one
hundred twenty (120) days after the end of each Fiscal Year.
(b) Subject to Section 3.7, at such times as Developer fails to meet
-----------
or exceed the Performance Threshold, Developer shall, within thirty (30) days
thereafter, prepare and make available to City for review an Annual Business
Plan for the upcoming twelve (12) month period. The City shall be allowed to
review and make notes from the Annual Business Plan provided that City shall use
reasonable efforts to keep the information contained in the Annual Business Plan
confidential. City and other relevant representatives and the relevant Casino
Component Manager/Operators shall meet within thirty (30) days after
presentation of the Annual Business Plan to City to discuss those aspects of the
Annual Business Plan addressing marketing, revenue payments and other relevant
issues.
7.11 Alterations. After the Completion Date, Developer shall not make or
-----------
cause or permit the making of any Material Alterations in or to the Development
unless the City shall have given its prior written approval and consent which
shall not be unreasonably withheld. Notwithstanding the foregoing, due to the
imprecise ability to define "gaming floor area," City agrees that if in good
faith the Developer defines its gaming floor area in a manner that in City's
judgment varies from the Developer's commitment to have one hundred thousand
(100,000) square feet of gaming floor area by ten percent (10%) or less, such
variance shall not be considered a Material Alteration. In addition, if at any
time City authorizes either or both of the Other Land-Based Casino Developers to
increase the size of its respective gaming floor area (an
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"Authorized Increase"), Developer shall thereupon be authorized to increase the
size of its gaming floor area by the same number of square feet as set forth in
any Authorized Increase. The obligations of Developer under this Section 7.11
------------
shall lapse and be of no further force or effect ten (10) years after the
Execution Date.
7.12 Space Leases. Subject to Section 3.7, during such periods as
------------ -----------
Developer fails to meet or exceed the Performance Threshold, Developer shall
notify the City of any new Space Lease or any material amendment or modification
of any existing Space Lease.
7.13 Negative Covenants. Developer covenants that except as indicated or
------------------
as otherwise required by applicable law, at all times during the term of this
Agreement:
(a) So long as Developer is operating the Project Premises and the
primary business conducted thereon includes casino gaming activities: (i)
Developer will not, except as required by applicable law, make any change in its
organizational structure which would result in either (x) the Local Partner
having less than one-third (1/3rd) representation on the governing body of
Developer (which shall have no fewer than nine (9) members), or (y) the material
diminution of the powers of such governing body; and (ii) the composition of
such governing body shall include not less than a majority of African-Americans.
(b) Developer will not, upon an Event of Default or during the
continuance of any event which, with the giving of notice or passage of time or
both, could become an Event of Default, declare or pay any dividends or make any
other payments or distributions to any members of Developer or their respective
Affiliates, except for Permitted Affiliate Payments.
(c) During the Restricted Period Developer (i) will prohibit a
Transfer by Partners Detroit, L.L.C. directly or indirectly of its ownership
interest in Developer and (ii) will cause Partners Detroit, L.L.C. to prohibit a
Transfer by a Local Partner of any direct or indirect ownership interest in
Partners Detroit, L.L.C., except for a "Permitted Transfer." For purposes of
this Section 7.13(c), a "Permitted Transfer" means any Transfer by a Local
---------------
Partner of a direct or indirect ownership interest in Partners Detroit, L.L.C.
which meets any of the following: (1) the transferee of the interest is a
resident of the State; (2) the transferee of the interest is a Local Partner;
(3) the Transfer is being made due to the economic hardship of the Local
Partner; (4) the transferee of the interest is a spouse, child or parent
("Family Members") of a Local Partner; (5) the transferee of the interest is an
entity whose beneficial owners consist solely of Local Partners and/or Family
Members; (6) if the transferor is an entity, the transferees of the interest are
the beneficial owners of such transferor; (7) the Transfer is by operation of
law; (8) the Transfer is on account of a pledge to (x) an institutional lender
or (y) any Person who owns a direct or indirect interest in Developer; (9) the
transferee of the interest is Developer or any of its Affiliates and the failure
to purchase the interest would result in any Person who directly or indirectly
owns an interest in Developer becoming ineligible to hold a Certificate of
Suitability or Casino License as defined in the Act or otherwise suffering a
loss, suspension or inability to obtain a gaming license in any jurisdiction in
which Developer, such Affiliate or Person conducts or proposes to conduct gaming
operations; or (10) the transferee is the Developer or its Affiliate in the
circumstance in which the transferor is in default under its organizational
agreements and
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the Transfer is made thereunder. In addition, for purposes of this Section
-------
7.13(c), a "Permitted Transfer" includes a Transfer or series of related
- -------
Transfers by Partners Detroit, L.L.C. and/or Local Partners which, when
aggregated, equals forty-nine percent (49%) or less of the ownership interest of
Partners Detroit, L.L.C. in Developer.
(d) Developer shall not enter into any Financing unless all parties
under the Financing having a right to foreclose on all or part of the
Development execute an agreement in form and substance satisfactory to the City
in the exercise of its reasonable judgment which is consistent with Section 3.4.
-----------
7.14 Notification of Certain Events. As soon as practicable after
------------------------------
obtaining knowledge or notice thereof, Developer shall deliver to City, together
with copies of all relevant documentation with respect thereto:
(a) Notice of any matured event of default under the Initial Financing
and any other financing related to the Development.
(b) Notice of all summons, citations, directives, complaints, notices
of violation or deficiency, and other communications from any Governmental
Authority other than City or the Board, asserting a material violation of
Governmental Requirements applicable to the Development.
(c) Notice of any litigation or proceeding in which Developer is a
party if an adverse decision therein would, in Developer's reasonable opinion,
have a material adverse effect on Developer's ability to perform its obligations
hereunder.
(d) Notices received by Developer from the Board which in Developer's
reasonable opinion assert a material violation of the Act.
7.15 Veracity of Statements. Except (i) as otherwise indicated herein; and
----------------------
(ii) for statements of third parties (other than Affiliates) which Developer has
reasonable grounds to believe are accurate and for projections which Developer
has reasonable grounds to believe are reasonable, no representation or warranty
of Developer, or any certification or report furnished by Developer to City
and/or EDC pursuant hereto which, if not materially accurate, would have a
material adverse effect on the Development, when read in conjunction with the
other representations, warranties and certifications, contains or will contain,
any untrue statement of a material fact, or will omit any material fact that
would cause such representation, warranty, statement or certification to be
materially misleading, provided that representations, warranties and
certifications made as of a specified date shall reflect facts and circumstances
known to Developer as of such specified date.
7.16 Certification of Performance Threshold; Financial Covenants. By the
-----------------------------------------------------------
twentieth (20th) day of each month commencing with the twenty-fifth (25th) full
month subsequent to the Completion Date, Developer shall deliver to the City
Developer's certificate stating (i) whether the Performance Threshold, Debt
Coverage Ratio and Leverage Ratio have or have not each been
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met for the previous twelve (12) month period ending on the last day of the
preceding month; and (ii) the amount of Net Worth as of the last day of the
preceding month. If Developer shall fail to deliver such certificate within ten
(10) Business Days after Developer's receipt of written notice of City's failure
to receive such certificate, Developer shall be deemed to be in breach of
Section 3.2 and shall be deemed to have failed to meet the Performance
- -----------
Threshold. The obligations of Developer under this Section 7.16 shall lapse and
------------
be of no further force or effect ten (10) years after the Execution Date.
7.17 Use of Project Premises. So long as casino gaming activities would be
-----------------------
permitted by law to operate on the Project Premises (assuming the existence of a
valid Casino License), the primary business to be operated on the Project
Premises shall include casino gaming activities. The obligations of Developer
under this Section 7.17 shall lapse and be of no further force or effect thirty-
------------
five (35) years after the Execution Date.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
OF DEVELOPER
8.1 Representations and Warranties of Developer. Subject to Section 7.15,
------------------------------------------- ------------
Developer represents and warrants to City that each of the following statements
is true and accurate as of the Execution Date, except as otherwise indicated
herein or in the Exhibits referenced herein:
(a) Developer is a limited liability company duly organized and
validly existing under the laws of Delaware, and has all requisite power and
authority to enter into and perform its obligations under this Agreement and all
other agreements and undertakings to be entered into by Developer in connection
herewith.
(b) This Agreement and, to the extent such documents presently exist
in a form accepted by City and/or EDC and Developer, each document contemplated
or required by this Agreement to which Developer is a party has been duly
authorized by all necessary action on the part of, and has been or will be duly
executed and delivered by, Developer; is binding on Developer; and is
enforceable against Developer in accordance with its terms, subject to
applicable principles of equity and insolvency laws.
(c) Attached hereto as Exhibit 8.1(c), is a full and complete
--------------
description of the organizational structure of Developer and its Affiliates
including the names and general backgrounds of all officers, directors and
owners of Developer and any Person that Controls Developer, except that if
Developer or an Affiliate is a Publicly Traded Corporation, only the names and
general backgrounds of owners beneficially owning greater than five percent (5%)
of the shares of the Publicly Traded Corporation need be identified, including:
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(1) Whether and to what extent the officers, directors,
shareholders or members are a Minority, a Detroit resident, a Detroit-Based
Business, a Detroit Resident Business or a Small Business Concern.
(2) Whether Developer or an Affiliate holds a gaming license and
in which jurisdiction the license is held, and whether Developer or an
Affiliate has ever been denied a gaming license or withdrawn an application
for a gaming license.
(d) Attached hereto as Exhibit 8.1(d), is a full and complete
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description of Developer's capabilities, experience and key personnel to the
extent presently identified who Developer anticipates will be assigned to each
Component of the Casino Complex.
(e) Attached hereto as Exhibit 8.1(e), is a full and complete
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description of projected cost budgets for the financing, design, construction,
furnishing and equipping of each Component of the Casino Complex, including,
without limitation, all soft costs, fees, land acquisition costs, funding of
reserve requirements, costs of projected Infrastructure Improvements and all
material assumptions upon which the foregoing are based.
(f) Attached hereto as Exhibit 8.1(f), is a summary of certain
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projections of Developer's operations for the first five (5) years of
operations; provided, however, that specific projections of balance sheets,
income statements and cash flow statements are highly confidential and
proprietary to Developer and Parent Company and are not included in the Exhibit.
(g) Attached hereto as Exhibit 8.1(g), is a full and complete
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description of existing and anticipated sources of financing for the Casino
Complex, including the Initial Financing specified in Section 3.1 hereof,
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pertinent details such as terms, rates, and security covenants, whether
Developer has or will acquire all or some of its financing from a Detroit-Based
Business, a Detroit Resident Business or a Small Business Concern; and
Developer's plan, if any, for utilization of Detroit-based Minority-owned
financial institutions in servicing Developer's financial needs.
(h) Attached hereto as Exhibit 8.1(h), is a full and complete
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description of current detailed financial statements for each gaming operation
currently owned or operated by Developer.
(i) Attached hereto as Exhibit 8.1(i), is a full and complete
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description of Developer's concept for the proposed Development, including:
(1) The proposed development site or location for each Component
of the Casino Complex, a legal description of the property boundaries,
dimensions and total acreage for each such Component of the Casino Complex,
as well as any ancillary facilities proposed.
(2) The size of each Component of the Casino Complex detailing:
the number and types of gaming facilities; the number and types of
restaurants; a description of
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any hotel, including the number of rooms and whether such hotel will be
available for use by non-casino patrons; the number and types of lounges or
bars; the number and types of retail shops; the number and types of
ancillary entertainment or recreational facilities planned; a description
of any convention facilities; and a description of any other facilities
proposed.
(3) Architectural matters, including drawings, the name(s) of the
architect(s); the floor plans (discussing space allocations and major
functions such as gaming floor, back-of-house, circulation, accessibility
and exiting); building elevations (showing heights, relative scale and
compatibility with adjacent Components); landscaping; and design theme.
(4) Proposed plans for employee, patron and bus parking; tour bus
and valet drop-off facilities; service vehicle parking; satellite parking
facilities; and other infrastructure related to the Casino Complex.
(5) The proposed phasing plan, the proposed sequence of the
phases and the approximate dates of beginning and completion of development
of the entire project.
(6) Developer's commitment to adhere to applicable zoning
requirements adopted by City.
(j) Attached hereto as Exhibit 8.1(j), is a full and complete
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description of the amount and manner of investment or other contributions
Developer will make to promote economic growth and revitalize the district in
which the Development will be located; to create new jobs and contribute to the
support of existing employment opportunities; to attract new businesses,
tourists and visitors to City or to the district in which the Development will
be located.
(k) Attached hereto as Exhibit 8.1(k), is a full and complete
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description of Developer's plans for assisting current businesses that may
experience employee shortages due to their employees accepting employment
relating to the Development.
(l) Attached hereto as Exhibit 8.1(l), is a full and complete
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description of the manner in which the Development will enhance City as a
desirable location for tourists, conventions, families and urban life and the
manner in which the Development will encourage pedestrian linkages with other
business, economic and entertainment activities in the area in which the
Development is to be located.
(m) Attached hereto as Exhibit 8.1(m), is a full and complete
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description of the amount of investment or other contributions Developer will
make to promote economic growth and contribute to the revitalization of
economically depressed areas of City, other than the area in which the
Development is to be located; to create new jobs and contribute to the support
of existing employment opportunities; and to attract new businesses, tourists
and visitors to those other areas.
(n) Attached hereto as Exhibit 8.1(n), is a full and complete
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description of Developer's plan to market the Casino Complex and Developer's
intent to cooperate and consult
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with City, the Metropolitan Detroit Convention and Visitor's Bureau or other
regional tourism and marketing organizations to implement a comprehensive and
uniform system of marketing City as an entertainment destination.
(o) Attached hereto as Exhibit 8.1(o), is a summary of the presently
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projected key management and other staff for each functional area of operation
broken down by the number of full-time and part-time positions, and for each job
classification, its respective total estimated salaries and benefits.
(p) Attached hereto as Exhibit 8.1(p), is a full and complete
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description of Developer's program for staff training and development and staff
relations.
(q) Attached hereto as Exhibit 8.1(q), is a full and complete
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description of Developer's Equal Opportunity Employment Plan to recruit, train
and upgrade Detroit residents, Minorities and women for all employment
classifications, including but not limited to:
(1) How Developer will establish contacts in City to foster an
interest in casino careers among Detroit residents, Minorities and women,
and publicize and market the Casino Complex employment opportunities.
(2) Any proposed systematic training program to prepare Detroit
residents, Minorities and women, among others, with the life skills and the
employment skills necessary for responsible jobs within the Casino Complex.
(r) Attached hereto as Exhibit 8.1(r), is a full and complete
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description of Developer's commitment to hire construction contractors who agree
to include in their construction contracts an express term that the rates, wages
and fringe benefits to be paid to each class of construction mechanics and each
of their subcontractors shall be not less than the rates, wages and fringe
benefits prevailing in City as established by the most recent survey of the
Michigan Department of Labor for prevailing wage determination under Act 166,
P.A. 1965 (Act 166, P.A. 1965), MCLA 408.551 et. seq., MSA 17.256(a), et. seq.
-- --- -- ---
(s) Attached hereto as Exhibit 8.1(s), is a full and complete
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description of Developer's commitment to hire contractors who will commit to the
goal of maximizing to the greatest extent possible the number of Detroit
resident apprentices who advance to journeymen status by agreeing themselves,
and requiring their contractors to agree to, and to the greatest extent possible
utilizing unions that do or will, operate apprentice programs on the Development
construction sites that are open to all residents of City.
(t) Attached hereto as Exhibit 8.1(t), is a full and complete
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description of Developer's commitment to hire contractors who agree to implement
an Equal Opportunity Employment Plan conforming to all applicable laws and
consistent with City's Executive Order 22.
(u) Attached hereto as Exhibit 8.1(u), is a full and complete
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description of Developer's commitment to purchase goods and services from
Detroit-Based Businesses, Detroit
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Resident Businesses or Small Business Concerns, which to the greatest extent
possible should be not less than fifty one percent (51%) of the total dollar
value of all purchases of goods and services.
(v) Attached hereto as Exhibit 8.1(v), is a full and complete
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description of the proposed major transportation and circulation routes,
including:
(1) A plan for the proposed use of regional airports, and
specifically the Detroit City Airport;
(2) A plan for the proposed modifications and improvements to the
existing roads necessary to accommodate the anticipated number of trips to
and from the Casino Complex each day by employees, visitors and buses,
including the size of regional transportation facilities to be constructed
or implemented, the estimated period of construction, the approximate cost
and the proposed funding source.
(3) Developer's proposed plan for traffic control measures, such
as pedestrian-grade street crossing systems, traffic control devices, bus
and other large vehicle turnout facilities, drainage mitigation and street
lighting systems, the estimated period of construction, approximate cost
and the proposed funding source.
(w) Attached hereto as Exhibit 8.1(w), is a full and complete
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description of Developer's proposed measures for transportation demand
management and transportation supply management, including ride-sharing, mass
transit and other transportation conservation measures, which should be based on
City's requirements and City's traffic analysis studies conducted in conjunction
with casino development within City.
(x) Attached hereto as Exhibit 8.1(x), is a full and complete
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description of Developer's plan for any anticipated improvements to the existing
regional water facilities necessary to serve the Development, the estimated
period of construction and the approximate cost of such construction.
(y) Attached hereto as Exhibit 8.1(y), is a full and complete
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description of Developer's plan for any anticipated improvements to the existing
regional sewer facilities necessary to serve the Development, the estimated
period of construction and the approximate cost of such construction.
(z) Attached hereto as Exhibit 8.1(z), is a full and complete
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description of whether, and to what extent, Developer is willing to consider
contracting for power service with City of Detroit Public Lighting Department
("PLD"), provided that PLD furnishes such service at rates and quality
comparable to those otherwise charged by competing electric utilities.
(aa) Attached hereto as Exhibit 8.1(aa), is a full and complete
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description of Developer's plan for proposed improvement to City's existing fire
protection services that would serve the Development, including the number of
fire stations to be constructed or modified and their location, the estimated
period of construction and the approximate cost of such construction.
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(bb) Attached hereto as Exhibit 8.1(bb), is a full and complete
----------------
description of Developer's plan for proposed improvements to City's existing
police protection services that would serve the Development, including the
number of police precincts to be constructed or modified and their location, the
estimated period of construction and the approximate cost of such construction.
(cc) Attached hereto as Exhibit 8.1(cc), is a full and complete
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description of Developer's plan for providing for or enhancing existing child
care services to ensure that such services are reasonably affordable and
appropriate for its prospective employees, including any estimated period of
construction of such facilities, and the approximate cost of such construction.
(dd) Attached hereto as Exhibit 8.1(dd), is a full and complete
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description of Developer's plan for enhancing existing services for treatment of
compulsive behavior disorders to ensure that they are reasonably affordable and
appropriate for its prospective employees and their affected families and for
patrons with compulsive gaming behaviors and their affected families. The plan
should include the types of public education and problem gambling prevention
strategies and prevention and education strategies for employees that would be
implemented as part of the operation of the Casino or Casino Complex, the
estimated period of implementation of the plan and the approximate cost of the
plan.
(ee) Attached hereto as Exhibit 8.1(ee), is a full and complete
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description of Developer's plan to ensure that people under the age of 21 years
will be identified and prohibited from gambling or loitering in the casino.
(ff) Developer is not a party to any agreement, document or instrument
that has a material adverse effect on the ability of Developer to carry out its
obligations under this Agreement.
(gg) To the best of Developer's knowledge, it is unaware of any
condition or fact that would render Developer unsuitable to receive a
Certificate of Suitability and a Casino License.
(hh) Neither execution of this Agreement nor discharge by the
Developer of any of its obligations hereunder shall cause Developer to be in
violation of any applicable law, or regulation, its charter or other
organizational documents or any agreement to which it is a party.
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS OF CITY AND EDC
9.1 Representations and Warranties of City. City represents and warrants
--------------------------------------
to Developer that each of the following statements is true and accurate as of
the Effective Date:
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(a) City is a validly existing municipal corporation and has all
requisite power and authority to enter into and perform its obligations under
this Agreement, and all other agreements and undertakings to be entered into by
City in connection herewith.
(b) This Agreement and, to the extent such documents presently exist
in a form accepted by City and Developer, each document contemplated or required
by this Agreement to which City is a party has been duly authorized by all
necessary action on the part of, has been or will be duly executed and delivered
by City; is binding on City; and is enforceable against City in accordance with
its terms, subject to applicable principles of equity and insolvency laws.
(c) Neither execution of this Agreement nor discharge by the City of
any of its obligations hereunder shall cause City to be in violation of any
applicable law, or regulation, its charter or organizational documents or any
agreement to which it is a party.
9.2 Representations and Warranties of EDC. EDC represents and warrants to
-------------------------------------
Developer that each of the following statements is true and accurate as of the
Effective Date:
(a) EDC is a validly existing State public body corporate and has all
requisite power and authority to enter into and perform its obligations under
this Agreement, and all other agreements and undertakings to be entered into by
EDC in connection herewith.
(b) This Agreement and, to the extent such documents presently exist
in a form accepted by EDC and Developer, each document contemplated or required
by this Agreement to which EDC is a party has been duly authorized by all
necessary action on the part of, has been or will be duly executed and delivered
by EDC; is binding on EDC; and is enforceable against EDC in accordance with its
terms, subject to applicable principles of equity and insolvency laws.
(c) Neither execution of this Agreement nor discharge by the EDC of
any of its obligations hereunder shall cause EDC to be in violation of any
applicable law, or regulation, its charter or other organizational documents or
any agreement to which it is a party.
9.3 Final Site Selection. In the event that by the Closing Date the
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Developer and the Other Land-Based Casino Developers shall not have designated
the specific sites within the Casino Area on which the Land-Based Casino
Developments are to be located (the "Final Sites"), then Developer and the Other
Land-Based Casino Developers shall jointly submit the suggested Final Sites to
the Mayor who, through a blind drawing in the presence of the Developer and the
Other Land-Based Casino Developers, shall designate which of the Final Sites
shall be conveyed to which of the developers of the Land-Based Casino
Developments.
9.4 Delivery of Other Development Agreements. On the Execution Date, City
----------------------------------------
shall deliver to Developer a true and accurate copy of each of the development
agreements executed by the Other Land-Based Casino Developers.
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ARTICLE X
EVENTS OF DEFAULT, REMEDIES AND TERMINATION
10.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" under this Agreement:
(a) Subject to Force Majeure, if Developer shall fail to substantially
perform or comply with any commitment, agreement, covenant, term or condition
(other than those specifically described in any other subparagraph of this
Section 10.1) of this Agreement, including, but not limited to, those certain
- ------------
covenants set forth in Section 2.6 hereof, and in such event if Developer shall
-----------
fail to remedy any such default within thirty (30) days after Developer's
receipt of written notice of default with respect thereto from City provided,
however, that if any such default is reasonably susceptible of being cured
within one hundred eighty (180) days, but cannot with due diligence be cured by
Developer within thirty (30) days, and if Developer commences to cure the
default within thirty (30) days and diligently prosecutes the cure to
completion, then Developer shall not during such period of diligently curing be
in default hereunder as long as such default is completely cured within one
hundred eighty (180) days of the first notice of such default to Developer;
provided, however, that if the cure can be accomplished by the payment of money,
the failure to pay is not a diligent commencement of a cure;
(b) If Developer shall make a general assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts as they
become due;
(c) If Developer shall file a voluntary petition under any title of
the United States Bankruptcy Code, as amended from time to time, or if such
petition is filed against Developer and an order for relief is entered, or if
Developer shall file any petition or answer seeking, consenting to or
acquiescing in any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or any future
federal bankruptcy code or any other present or future applicable federal, state
or other statute or law, or shall seek or consent to or acquiesce to or suffer
the appointment of any trustee, receiver, custodian, assignee, liquidator or
similar official of Developer, or of all or any substantial part of its
properties or of the Development or any interest therein of Developer;
(d) If within ninety (90) days after the commencement of any
proceeding against Developer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy code or any other present or future
applicable federal, state or other statute or law, such proceeding shall not
have been dismissed; or if within ninety (90) days after the appointment,
without the consent or acquiescence of Developer of any trustee, receiver,
custodian, assignee, liquidator or other similar official of Developer or of all
or any substantial part of its properties or of the Development or any interest
therein of Developer, such appointment shall have not been vacated or stayed on
appeal or otherwise, or if within ninety (90) days after the expiration of any
such stay, such appointment shall not have been vacated;
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(e) If any representation or warranty made by Developer hereunder is
intentionally false or misleading in any material respect when made and such
false or misleading representation or warranty either (i) has a material adverse
effect on the Development or (ii) resulted in an unfair competitive advantage
materially benefitting Developer in the RFP/Q selection process considering
Developer's response to the RFP/Q in total;
(f) If any of the Closing Certificates or any certificate delivered
pursuant to Section 7.16 are intentionally false or misleading in any material
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respect when made and has a material adverse effect on the Development;
(g) If a default shall occur, which has not been cured within any
applicable cure period, under, or if there is any attempted withdrawal,
disaffirmance, cancellation, repudiation, disclaimer of liability or contest of
obligations (other than a contest as to performance of such obligations) under
any agreement which guaranties the payment or performance of any of the
obligations of Developer to City and/or EDC hereunder, other than as may be
permitted in such agreement;
(h) Subject to Force Majeure, if in accordance with Article XIII,
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Developer fails to maintain in full force and effect those policies of insurance
as set forth on Exhibit 13.1 and in such event Developer fails to remedy such
------------
default within five (5) Business Days after Developer's receipt of written
notice of default with respect thereto from City;
(i) If the construction of the Casino Complex at any time is
discontinued or suspended for a period of forty-five (45) consecutive calendar
days, subject to Force Majeure and is not restarted prior to Developer's receipt
of written notice of default hereunder;
(j) If the Completion Date does not occur within twelve (12) months
from the Agreed Upon Completion Date;
(k) If the Casino License, once obtained, is revoked by a final, non-
appealable order or Developer fails to renew its Casino License; or
(l) If Developer fails to comply with its obligations under Section
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3.2 within one hundred eighty (180) days after Developer's receipt of written
- ---
notice of default hereunder.
10.2 Remedies.
--------
(a) Subject to the limitations set forth in Section 10.5, upon an
------------
Event of Default, City shall have the right if it so elects: (i) to any and all
remedies available at law or in equity; (ii) to terminate this Agreement; (iii)
to receive liquidated damages as and to the extent set forth in this Agreement
and (iv) to institute and prosecute proceedings to enforce in whole or in part
the specific performance of this Agreement by Developer, and/or to enjoin or
restrain the Developer from commencing or continuing said breach, and/or to
cause by injunction the Developer to correct and cure said breach or threatened
breach (a "Specific Performance
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Proceeding"). Except as and to the extent set forth in Section 10.5, none of the
------------
remedies enumerated herein is exclusive and nothing herein shall be construed as
prohibiting City and/or EDC from pursuing any other remedies at law, in equity
or otherwise available to it under the Agreement.
(b) Subject to the limitations set forth in Section 10.5, the rights
------------
and remedies of the City and EDC, whether provided by law or by this Agreement,
shall be cumulative, and the exercise by the City and/or EDC of any one or more
of such remedies shall not preclude the exercise by it, at the same or different
times, of any other such remedies for the same default or breach, to the extent
permitted by law. No waiver made by the City and/or EDC shall apply to
obligations beyond those expressly waived in writing.
(c) If City and/or EDC fails to perform an act required under this
Agreement within the time specified in this Agreement (or if no time is
specified, within a reasonable time), Developer's sole and exclusive remedies
against City and/or EDC shall be to institute and prosecute proceedings to: (i)
enforce in whole or in part the specific performance of this Agreement by City
and/or EDC, and/or to enjoin or restrain City and/or EDC from commencing or
continuing said breach, and/or cause by injunction City and/or EDC to correct
and cure said breach or threatened breach; or (ii) reform this Agreement in such
respects as may be determined to be equitable in light of the failure of City
and/or EDC. Notwithstanding the foregoing, if City acquires the Project Premises
and/or if Developer acquires the Project Premises pursuant to the Conveyance
Agreement and this Agreement terminates solely by reason of the failure of the
condition set forth in Section 2.4(a)(8), (x) if Developer has not acquired the
-----------------
Project Premises, City shall (A) pay Developer amounts that Developer advanced
pursuant to Section 2.5(b), with interest at Developer's cost of funds from the
--------------
date of such advance, to the date of repayment by the City; (B) cause
Developer's letter of credit furnished thereunder to be returned; and (C)
reimburse Developer for the costs of acquiring such letter of credit and
Developer's Pro Rata Share of Infrastructure Improvements and the costs of
environmental remediation; and (y) if the Developer has acquired the Project
Premises pursuant to the Conveyance Agreement, the Conveyance Agreement shall be
rescinded and on such rescission, City shall (A) refund to Developer: all
payments to City thereunder and all sums advanced pursuant to Section 2.5(b),
--------------
each with interest at Developer's cost of funds from the date of such advance or
payment to the date of repayment by the City; (B) reimburse Developer for the
costs of any letter of credit provided pursuant to Section 2.5(b); and (C)
--------------
reimburse Developer for its Pro Rata Share of Infrastructure Improvements and
the costs of environmental remediation, and Developer shall deliver a quit claim
deed of the Project Premises to the City or the EDC as the City shall direct.
(d) If Developer acquires the Project Premises or any portion thereof
(the "Acquired Property") (x) but fails to obtain its Certificate of Suitability
prior to December 31, 1999 or (y) at the election of the City, upon the
occurrence of an Event of Default enumerated in Section 10.5(a) prior to
---------------
commencing construction, Developer agrees, upon written notice from the City (a
"Requested Resale Notice"), to reconvey the Acquired Property to or at the
direction of the City (a "Required Resale") provided EDC rescinds the Conveyance
Agreement and pays Developer its documented costs incurred in connection with
the development of the Acquired Property (other than design, architectural and
financing costs) from and after the date of
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conveyance of the Acquired Property plus Developer's Pro Rata Share of
Infrastructure Improvements and its costs of environmental remediation.
(e) If an Event of Default shall occur to which a Mandatory Sale is a
remedy available to the City (a "Significant Event of Default"), the following
procedures shall be applicable and shall constitute a Mandatory Sale:
(i) Following the occurrence of a Significant Event of Default
which has not been cured within the time provided by this Agreement (a "Matured
Significant Event of Default"), the City may, on written notice to Developer
delivered within sixty (60) days following the Significant Event of Default
becoming a Matured Significant Event of Default (the "Mandatory Sale Notice"),
institute the procedures set forth in this Section 10.2(e), provided however;
---------------
(i) if the City fails to deliver such Mandatory Sale Notice to Developer within
such sixty (60) day period, the City shall be deemed to have waived the
Mandatory Sale remedy with respect to that Matured Significant Event of Default,
and (ii) notwithstanding the expiration of the applicable cure period, if
Developer shall have cured the Matured Event of Default prior to the delivery of
such Mandatory Sale Notice, the remedy of Mandatory Sale shall not be available
with respect to that Matured Significant Event of Default.
(ii) Following receipt of a timely Mandatory Sale Notice,
Developer shall commence good faith efforts to dispose of the Casino Complex in
a manner consistent with this Agreement, including satisfying all the
requirements of Article XIV. In effecting such disposition, Developer shall be
-----------
entitled to seek to maximize its own economic return, subject to consultation
with the City and taking into account the findings set forth in Section 2.2.
-----------
Subject to Section 10.2(e)(iii), during the period in which Developer is
--------------------
endeavoring to effect the disposition of the Casino Complex in a Mandatory Sale
(the "Sale Period"), it shall continue to operate the Casino Complex pursuant to
and in accordance with this Agreement.
(iii) Notwithstanding anything to the contrary provided for in
Section 10.2(e)(ii) above, the Casino Complex shall be operated during the Sale
- -------------------
Period by a conservator qualified under the Act on the occurrence and for the
duration of any of the following events: (i) Developer's Casino License is
revoked by a final, non-appealable order or Developer fails to renew its Casino
License; (ii) at the election of City upon written notice to Developer, if the
disposition of the Casino Complex has not been completed within three (3) years
following delivery of a timely Mandatory Sale Notice; (iii) at the election of
City upon written notice to Developer, upon the occurrence of a Matured
Significant Event of Default other than the one giving rise to the Mandatory
Sale Notice.
(iv) Prior to completion of the disposition of the Casino
Complex pursuant to a Mandatory Sale, Developer and City may mutually agree to
terminate the disposition process, in which event the Mandatory Sale Notice
shall be deemed to have been withdrawn and to be of no force or effect.
(v) For purposes of Section 10.5(b)(ii), the term "Shortfall
-------------------
Amount" shall mean the amount, if any, by which the (x) City's share of the
Wagering Tax and (y)
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Municipal Services Fee derived from the operation of the Casino Complex during
the Sale Period is less than the lesser of (1) eighty percent (80%) of the (x)
City's share of the Wagering Tax and (y) Municipal Services Fee derived from the
operation of the Casino Complex for the full twelve (12) calendar months
immediately preceding the delivery of the Mandatory Sale Notice (or if the
Casino Complex has been open for fewer than twelve (12) months, for that number
of full calendar months that it has been opened) divided by twelve (12) (or such
fewer number of full months in which the Casino Complex has been open) and
multiplied by the number of full calendar months of the Sale Period; or (2)
eighty percent (80%) of fifty percent (50%) of the (x) City's share of the
Wagering Tax and (y) Municipal Services Fee derived from the operation of the
Other Land-Based Casino Developments during the Sale Period; provided however,
in no event shall the Shortfall Amount exceed Fifty Million Dollars
($50,000,000). By way of illustration, if: (i) the Sale Period is eighteen (18)
months; (ii) the (x) City's share of Wagering Tax and (y) Municipal Services Fee
derived from the Casino Complex during the twelve (12) month period preceding
the Sale Period is Twenty-Four Million Dollars ($24,000,000); (iii) the (x)
City's share of the Wagering Tax and (y) Municipal Services Fee derived from the
Sale Period is Twenty-Four Million Dollars ($24,000,000); and (iv) eighty
percent (80%) of fifty percent (50%) of the aggregate of the (x) City's share of
the Wagering Tax and (y) Municipal Services Fee derived from the Other Land-
Based Casino Developments during the Sale Period is Thirty Million Dollars
($30,000,000), then the Shortfall Amount computed under clause (1) would be Four
Million Eight Hundred Thousand Dollars ($4,800,000) ($1.6 million multiplied by
18, i.e. $28.8 million; reduced by $24 million), and the Shortfall Amount
computed under clause (2) would be Six Million Dollars ($6,000,000) ($30 million
reduced by $24 million). Since the computation under clause (1) produces a lower
number than the computation under clause (2), the Shortfall Amount computed
under clause (1) would apply.
(f) If the City elects to receive liquidated damages upon the
occurrence of an Event of Default enumerated in Section 10.5(a), Developer shall
---------------
pay to City as the sole remedy of the City and EDC and as liquidated damages
(and not as a penalty), an amount per calendar day for each calendar day during
the "Damage Period," as hereinafter defined, equal to the lesser of (i)
$118,290, or (ii) (A) during periods in which two (2) other land-based casinos
are open to the public within the City, twenty-five percent (25%) of the City's
share of the aggregate Wagering Tax and Municipal Services fee derived from both
such operations during the Late Period and (B) during periods in which one (1)
other land-based casino is open to the public within the City, forty percent
(40%) of the City's share of the Wagering Tax and Municipal Services fee derived
from such operation during the Late Period, divided by the number of days in the
Damage Period. Developer shall under no circumstances have aggregate liability
hereunder and pursuant to Section 6.7 in excess of Fifty Million Dollars
-----------
($50,000,000). For purposes of this Section 10.2(f), the Damage Period shall
---------------
commence on the date forty-eight (48) months from the date the City delivers
written notice to Developer of its election to receive liquidated damages
pursuant to Section 10.5(a) and shall continue until the date a casino having no
---------------
less than one hundred thousand (100,000) square feet of gaming space opens for
business on the Project Premises. The foregoing limitation on City's and EDC's
remedies shall in no way limit or diminish City's or EDC's rights or remedies
under the Guaranty and Keep Well Agreement.
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(g) EDC agrees that (1) it has no right to, and shall not attempt to
elect to exercise or exercise any remedy on behalf of the City under this
Agreement, Guaranty and Keep Well Agreement and Performance Guaranty and (2) it
shall not elect to exercise or exercise any remedy under this Agreement,
Guaranty and Keep Well Agreement and Performance Guaranty without the consent of
the Mayor.
10.3 Termination. Except for the provisions that by their terms survive,
-----------
this Agreement shall terminate as provided in this Agreement.
10.4 Liquidated Damages. City and Developer covenant and agree that
------------------
because of the difficulty and/or impossibility of determining City's damages
upon certain Events of Default and breaches of this Agreement as set forth in
Sections 6.7, 10.2(e) and 10.2(f), by way of detriment to the public benefit and
- ---------------------------------
welfare of the City through lost employment opportunities, lost tourism,
degradation of the economic health of the City and loss of revenue, both
directly and indirectly, Developer shall pay to City, as liquidated damages and
not as a penalty, the sum or sums set forth in Sections 6.7, 10.2(e)(v) or
---------------------------
10.2(f) that pertain to the specified Event of Default.
- -------
10.5 Limitation on Remedies. City's and EDC's remedies under Sections
---------------------- --------
10.2(a) and (b) for and only for the Events of Default enumerated below in this
- ---------------
Section 10.5, shall be limited as follows:
- ------------
(a) Upon an Event of Default arising under Section 10.1(a) due to the
---------------
breach by Developer of any of the following obligations specified in this
Section 10.5(a), City may elect either to (i) institute a Specific Performance
- ---------------
Proceeding; and/or (ii) (x) receive liquidated damages from Developer calculated
as set forth in Section 10.2(f); and/or (y) terminate this Agreement and request
---------------
a Required Resale: breach by Developer of its obligations under Section 2.5
-----------
(Conveyance of Project Premises to Developer); Section 2.7 (Obtaining
-----------
Certificate of Suitability and Casino License); Section 2.10 (Initial
------------
Financing); or Section 2.14 (Other Commitments of Developer).
------------
(b) Upon an Event of Default arising under Section 10.1(a) due to a
---------------
breach by Developer of any of the following obligations specified in this
Section 10.5(b), City may elect either to (i) institute a Specific Performance
- ---------------
Proceeding; and/or either (ii) require a Mandatory Sale and receive the
Shortfall Amount as liquidated damages from Developer; or (iii) receive actual
damages from Developer: Section 3.3 (Subsequent Financings); Section 3.5
----------- -----------
(Sinking Fund); Section 7.7 (Capital Maintenance Fund); Section 7.15 (Veracity
----------- ------------
of Statements); Section 7.17 (Use of Project Premises); failure of Developer to
------------
complete the Restoration as required under Article XVI (Damage to or Destruction
-----------
of Improvements; Condemnation); or upon an Event of Default arising under
Sections 10.1(b), (c), (d), (e), (f), (g), (i), (j), (k) or (l).
- ---------------------------------------------------------------
(c) Upon an Event of Default arising under Section 7.3 (Radius
-----------
Restriction) by Developer and/or Parent Company, City may elect either to (i)
institute a Specific Performance Proceeding and/or (ii) terminate this
Agreement.
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(d) Upon an Event of Default arising under Section 10.1(a) due to the
---------------
breach by Developer of any of its obligations under Section 7.1 (Casino Complex
-----------
Operations) or Section 7.8 (Maintenance and Repairs), City may elect either to
-----------
(i) institute a Specific Performance Proceeding and/or (ii) receive actual
damages from Developer, provided however, that if in a Specific Performance
Proceeding, the arbitrator or arbitrators determine that Developer is not
maintaining or operating the Casino Complex in a manner consistent with First
Class Casino Complex Standards, but are unable or unwilling to fashion a
specific performance remedy, in lieu thereof the arbitrator or arbitrators may
require Developer to increase its spending for capital improvements or
maintenance by Five Hundred Thousand Dollars ($500,000) over the ensuing twelve
(12) month period (the "Initial Period"). If during the twelve (12) month period
immediately following the Initial Period (the "Subsequent Period"), the City, by
reason of an additional Event of Default under Section 10.1(a) due to a breach
---------------
by Developer of any of its obligations under Section 7.1 or Section 7.8,
----------- -----------
initiates a Specific Performance Proceeding, and the arbitrator or arbitrators
determine that Developer is not maintaining or operating the Casino Complex in a
manner consistent with First Class Casino Complex Standards, but are unable or
unwilling to fashion a specific performance remedy, in lieu thereof the
arbitrator or arbitrators may require the Developer to increase its spending for
capital improvements or maintenance by One Million Dollars ($1,000,000) over the
ensuing twelve (12) month period.
(e) Upon an Event of Default arising under this Agreement not
otherwise specified in this Section 10.5, City may elect either to (i) institute
------------
a Specific Performance Proceeding and/or (ii) receive actual damages from
Developer.
The foregoing limitations on City's and EDC's remedies under Sections
--------
10.2(a) and (b) shall in no way limit or diminish any other right of City or EDC
- ---------------
under this Agreement or otherwise, including without limitation City's or EDC's
rights or remedies (x) under the Guaranty and Keep Well Agreement, Performance
Guaranty, or under any other guaranty, indemnity, instrument or agreement or (y)
under Sections 2.11, 6.7, 10.2(d), (e) and (f), Article XI, Article XV or
------------- --- -------------------- ---------- ----------
Article XVI.
- -----------
ARTICLE XI
CITY'S RIGHT TO PERFORM DEVELOPER'S COVENANTS
If Developer at any time shall fail to take out, pay any insurance premiums
for, maintain or deliver any of the insurance policies in the manner provided
for herein, or shall fail to pay any sums, costs, expenses, charges, payments or
deposits to be paid by Developer hereunder after notice and the expiration of
any applicable cure period, City, without waiving or releasing Developer from
any obligation of Developer contained in this Agreement or waiving or releasing
any rights of City hereunder, at law or in equity, may (but shall be under no
obligation to) pay any such sums, costs, expenses, charges, payments or deposits
payable by Developer hereunder. All sums paid by City and all costs and
expenses incurred by City in connection with the performance of any such
obligation, together with interest thereon at the Default Rate from the
respective dates of City's making of each such payment or incurring of each such
sum, cost,
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liability, expense, charge, payment or deposit until the date of actual
repayment to City, shall be paid by Developer to City on demand. Any payment or
performance by City pursuant to the foregoing provisions of this Section shall
not be nor be deemed to be a waiver or release of breach or default of Developer
with respect thereto or of the right of City to take such other action as may be
permissible hereunder, at law or in equity if an Event of Default by Developer
shall have occurred. The City's rights under this Article XI shall survive
----------
termination of this Agreement.
ARTICLE XII
FORCE MAJEURE
12.1 Force Majeure. An event of "Force Majeure" shall mean the following
-------------
events or circumstances, to the extent that they delay or otherwise adversely
affect the performance beyond the reasonable control of Developer, or its agents
and contractors, of their duties and obligations under this Agreement, or the
performance by City, EDC or the PM of their respective duties and obligations
under this Agreement:
(a) Strikes, lockouts, labor disputes, inability to procure materials,
failure of utilities, labor shortages or explosions on the Project Premises;
(b) Changes in Governmental Requirements applicable to the
construction of a Component, first effective after the submission and approval
of the Schematic Design Documents, and the orders of any Governmental Authority
having jurisdiction over a party, the Development or the Developer (however, not
including stop work orders due to a building or other code violation);
(c) Changes in Governmental Requirements by any Governmental
Authority, first effective after the Execution Date;
(d) Acts of God, tornadoes, hurricanes, floods, sinkholes, fires and
other casualties, landslides, earthquakes, epidemics, quarantine, pestilence,
and/or abnormal inclement weather;
(e) Acts of a public enemy, acts of war, terrorism, effects of nuclear
radiation, blockades, insurrections, riots, civil disturbances, or national or
international calamities;
(f) Concealed and unknown conditions of an unusual nature that are
encountered below ground or in an existing structure;
(g) Any temporary restraining order, preliminary injunction or
permanent inunction, unless based in whole or in part on the actions or failure
to act of Developer; and
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(h) Unreasonable delay by the State in licensing Persons under the Act
to the extent that any such delays are not based in whole or in part on the
actions or failure to act of such Persons.
12.2 Extension of Time; Excuse of Performance. Developer shall be entitled
----------------------------------------
to an adjustment in the time for or excuse of the performance of any duty or
obligation of Developer under this Agreement for Force Majeure events described
in Section 12.1, but only for the number of days due to and/or resulting as a
------------
consequence of such causes and only to the extent that such occurrences actually
prevent or delay the performance of such duty or obligation or cause such
performance to be commercially unreasonable.
ARTICLE XII
INSURANCE
13.1 Insurance. Developer shall maintain in full force and effect the
---------
types and commercially reasonable amounts of insurance as set forth on Exhibit
-------
13.1 to the extent available at commercially reasonable rates. Self insurance
- ----
shall be permitted in accordance with First Class Casino Complex Standards.
13.2 Form of Insurance and Insurers. Whenever, under the terms of this
------------------------------
Agreement, Developer is required to maintain insurance, City and EDC shall be
additional named insureds in all such insurance policies to the extent of their
insurable interest, if any. All policies of insurance provided for in this
Agreement shall be effected under valid and enforceable policies, in
commercially reasonable form issued by responsible insurers which are authorized
to transact business in the State, having a Best rating of not less than A+ or
its equivalent from another recognized rating agency. As soon as practicable
following the Closing Date, Developer shall deliver to City and EDC a copy of
each policy, together with proof reasonably satisfactory to City and EDC that
the full premiums have been paid or provided for at least the first year of the
term of such policies. Thereafter, as promptly as practicable prior to the
expiration of each such policy, Developer shall deliver to City and EDC an
Accord certificate, together with proof reasonably satisfactory to City and EDC
that the full premiums have been paid or provided for at least the renewal term
of such policies and as promptly as practicable, a copy of each renewal policy.
13.3 Other Policies. Developer shall not take out separate insurance
--------------
concurrent in form or contributing in the event of loss with that required in
this Agreement unless City and EDC are additional named insureds therein to the
extent of their insurable interest, if any, with loss payable as provided in
Section 13.2. Developer shall as promptly as practicable notify City and EDC of
- ------------
the taking out of any such separate insurance and shall cause copies of the
original policies in respect thereof to be delivered as required in Section
-------
13.2.
- ----
13.4 Insurance Notice. Each such policy of insurance to be provided
----------------
hereunder shall contain, to the extent obtainable on a commercially reasonable
basis, (a) a provision that no act
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or omission of Developer which would otherwise result in forfeiture or reduction
of the insurance therein provided shall affect or limit the obligation of the
insurance company to pay City or EDC the amount of any loss sustained to the
extent of its insurable interest, if any, and (b) an agreement by the insurer
that such policy shall not be canceled or modified without at least thirty (30)
days prior written notice by registered mail, return receipt requested, to City
and EDC.
13.5 Keep in Good Standing. Developer shall observe and comply with the
---------------------
requirements of all policies of public liability, fire and other policies of
insurance at any time in force with respect to the Development and Developer
shall so perform and satisfy the requirements of the companies writing such
policies.
13.6 Blanket Policies. Any insurance provided for in this Article may be
----------------
provided by blanket and/or umbrella policies issued to Developer covering the
Development and other properties owned or leased by Developer; provided,
however, that the amount of the total insurance allocated to the Development
shall be such as to furnish in protection the equivalent of separate policies in
the amounts herein required without possibility of reduction or coinsurance by
reason of, or damage to, any other premises covered therein, and provided
further that in all other respects, any such policy or policies shall comply
with the other specific insurance provisions set forth herein and Developer
shall make such policy or policies or a copy thereof available for review by
City and EDC at the Development.
ARTICLE XIV
TRANSFER AND ASSIGNMENT
14.1 Transfer of Ownership.
---------------------
(a) For purposes of this Section 14.1, "Restricted Owner" means (i)
------------
Developer and (ii) any Person who directly or indirectly owns or holds any
interest in Developer or any Casino Component Manager/Operator of a Covered
Component other than any Person who would be a Restricted Owner due solely to
that Person's ownership of (x) a direct or indirect interest in a Publicly
Traded Corporation or (y) a five percent (5%) or less direct or indirect
interest in (1) Developer unless, in the case of clause (y), upon completion of
any Transfer the transferee will in the aggregate own or hold a five percent
(5%) or more direct or indirect ownership interest in Developer, or (2) the
Casino Component Manager/Operator of a Covered Component. The covenants that
Developer is to perform under this Agreement for City's and EDC's benefit and
the services that each Casino Component Manager/Operator of a Covered Component
renders with respect to the Casino Complex are personal in nature. City and EDC
are relying upon Developer and the Casino Component Manager/Operators in the
exercise of their skill, judgment, reputation and discretion with respect to the
Casino Complex. From and after the Execution Date, any Transfer by a Restricted
Owner of (x) any direct ownership interest in Developer or any Casino Component
Manager/Operator of a Covered Component, whether held by virtue of partnership,
limited liability company, corporation or other form of entity; or (y) any
ownership interest in any Restricted Owner, whether held by virtue of
partnership, limited liability company,
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corporation or through other form of entity shall require the prior written
consent of City, provided that with respect to a Transfer by any Restricted
Owner other than a Transfer by Developer, any Affiliate of Developer or any
Affiliate of any Casino Component Manager/Operator of a Covered Component, City
shall not withhold its consent to any Transfer unless the transferee (i) is in
default on any debts due City, EDC or any other entity (a "Municipal Supported
Entity") that receives or received any City funding or subsidy to carry out its
activities; (ii) has defaulted on any other material obligations to City, EDC or
any Municipal Supported Entity whether or not such default has been cured; or
(iii) has engaged in any frivolous litigation or made any frivolous claims
against City as determined by a court, or has been found liable to the City for
abuse of process or malicious prosecution with respect to claims against the
City.
(b) Nothing contained in this Section 14.1 shall prevent a Transfer of
------------
(x) an ownership interest in a Restricted Owner by: (i) Parent Company or an
Affiliate of Parent Company to an entity which has succeeded to all or a
substantial portion of the assets of Parent Company or such Affiliate; or (ii)
any Person (1) to that Person's spouse, child or parent ("Family Members"); (2)
to an entity whose beneficial owners consist solely of such transferor and/or
the Family Members of the transferor; (3) to the beneficial owners of the
transferor if the transferor is an entity; (4) to any Person who owns any direct
or indirect interest in any Restricted Owner; (5) to any Person to whom the City
previously has consented to a Transfer; (6) by operation of law; and (7) to an
institutional lender on account of a pledge to such lender or (y) an ownership
interest in Developer or Restricted Owner or in any Affiliate of Developer or
Restricted Owner in connection with a public offering registered pursuant to the
Securities Act.
(c) All transferees shall hold their interests subject to the
restrictions of this Article XIV.
-----------
(d) Developer shall promptly notify City as promptly as practicable
upon Developer becoming aware of any Transfer.
(e) Developer agrees to (x) include in all Casino Component Management
Agreements of a Covered Component a transfer restriction provision substantially
similar to the transfer restriction set forth in this Section 14.1 and to cause
------------
the Casino Component Manager/Operator of a Covered Component to acknowledge that
City is a third-party beneficiary of such provision; and (y) cause each
Restricted Owner, other than a Publicly Traded Corporation, to (1) place a
legend on its ownership certificate, if any, or include in its organizational
documents, a transfer restriction provision substantially similar to the
transfer restriction set forth in this Section 14.1 and (2) either enforce such
------------
provision or acknowledge that City is a third-party beneficiary of such
provision.
14.2 Transfer of Agreement; Development. Developer shall not, whether by
----------------------------------
operation of law or otherwise, Transfer this Agreement, or, subject to Section
-------
3.3, the Development, without the prior written consent of the Mayor and City
- ---
Council; provided that the Mayor and City Council's right to consent to the
Transfer of the Development shall be of no further force or effect at such time
as the business operated on the Project Premises no longer includes casino
gaming activities.
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ARTICLE XV
ENVIRONMENTAL
15.1 Environmental Covenants. Developer covenants that (a) Developer shall
-----------------------
at its own cost comply, and cause its agents, employees, contractors, Space
Tenants or any other Person under the control and direction of Developer to
comply, with all Environmental Laws with respect to the Development; (b)
Developer shall Respond to any Release occurring on, under or adjacent to the
Development to the extent required by applicable controlling Environmental Laws;
(c) Developer shall not Manage any Hazardous Materials on the Development, nor
conduct nor authorize the same, except in compliance with all Environmental
Laws; (d) Developer shall not take any action that would subject the Development
to permit requirements under RCRA for storage, treatment or disposal of
Hazardous Materials; and (e) Developer shall obtain or cause to be obtained, at
no expense to City and/or EDC, any and all permits necessary or required under
Environmental Laws in connection with or arising out of Developer's demolition
and construction of Improvements at the Development.
15.2 Environmental Response. If Developer's Management of Hazardous
----------------------
Materials at the Development gives rise to liability or to an Environmental
Claim under any Environmental Law, Developer shall promptly take all applicable
action in Response to the extent required by law. City shall have the right,
but not the obligation, after providing Developer with notice and a reasonable
opportunity to cure, to enter onto the Development to perform any and all
legally required Response action(s) to cause the Development to comply with
Environmental Laws and to seek reimbursement for the cost of such Response from
Developer, together with interest at the Default Rate from the date same was
paid.
15.3 Environmental Indemnity. Developer shall indemnify, defend and hold
-----------------------
harmless City and the EDC from all Environmental Claims suffered or incurred by
any of the foregoing arising from or attributable to (a) any breach by Developer
of any of its warranties, representations or covenants in this Section; (b)
noncompliance of the Development or Developer with any Environmental Laws; (c)
the condition of the Development; (d) any actual or alleged illness, disability,
injury, or death of any person in any manner arising out of or allegedly arisen
out of exposure to Hazardous Materials or other substances or conditions present
at the Development, regardless of when any such illness, disability, injury, or
death shall have occurred or been incurred or manifested itself; and (e)
Hazardous Materials Managed or Released by Developer or otherwise located or
Released upon the Development. In the event any Environmental Claims or other
assertion of liability shall be made against City and/or EDC for which City
and/or EDC is entitled to indemnity hereunder, City and/or EDC shall notify
Developer of such Environmental Claim or assertion of liability and thereupon
Developer shall, at its sole cost and expense, assume the defense of such
Environmental Claim or assertion of liability and continue such defense at all
times thereafter until completion. Notwithstanding anything to the contrary
contained in this Section 15.3, Developer shall not indemnify and shall have no
------------
responsibility to City and/or EDC for any liability with respect to any part of
the Project Premises that was owned by City and/or EDC, as applicable,
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prior to the Effective Date and which liability arose as a result of the gross
negligence or willful misconduct of City and/or EDC, as applicable, during the
period of the City's and/or EDC's ownership. Developer's obligations hereunder
shall survive the termination or expiration of this Agreement.
ARTICLE XVI
DAMAGE TO OR DESTRUCTION OF IMPROVEMENTS; CONDEMNATION
16.1 Damage or Destruction. In the event of damage to or destruction of
---------------------
Improvements on the Project Premises or any part thereof by fire, casualty or
otherwise, Developer, at its sole expense and whether or not the insurance
proceeds, if any, shall be sufficient therefor, shall promptly repair, restore,
replace and rebuild (collectively, "Restore") the Improvements, as nearly as
possible to the same condition that existed prior to such damage or destruction
(subject to Developer's right to make Alterations in accordance with the terms
of this Agreement), using materials of an equal or superior quality to those
existing in the Improvements prior to such casualty. All work required to be
performed in connection with such restoration and repair is hereinafter called
the "Restoration." Developer shall obtain a permanent certificate of occupancy
as soon as practicable after the completion of such Restoration. If neither
Developer nor any Mortgagee shall commence the Restoration of the Improvements
or the portion thereof damaged or destroyed promptly following such damage or
destruction and adjustment of its insurance proceeds, or, having so commenced
such Restoration, shall fail to proceed to complete the same with reasonable
diligence in accordance with the terms of this Agreement, City may, but shall
have no obligation to, complete such Restoration at Developer's expense. Upon
City's election to so complete the Restoration, Developer immediately shall
permit City to utilize all insurance proceeds which shall have been received by
Developer, minus those amounts, if any, which Developer shall have applied to
the Restoration, and if such sums are insufficient to complete the Restoration,
Developer, on demand, shall pay the deficiency to City. Each Restoration shall
be done subject to the provisions of this Agreement.
16.2 Use of Insurance Proceeds.
-------------------------
(a) Subject to the conditions set forth below, all proceeds of
casualty insurance on the Improvements shall be made available to pay for the
cost of Restoration if any part of the Improvements are damaged or destroyed in
whole or in part by fire or other casualty. Subject to Section 3.7, all such
-----------
insurance proceeds, less the cost of collection, shall be paid into a trust
account to be created by an independent third party ("Insurance Trustee") to be
chosen by (i) the First Mortgagee if the Project Premises is encumbered by a
First Mortgage or (ii) Developer and City in the event there is no First
Mortgagee, within ten (10) days of when the proceeds are to be made available.
Nothing herein shall prohibit the First Mortgagee from acting as the Insurance
Trustee. If Developer or City for whatever reason, cannot or will not
participate in the selection of the Insurance Trustee, then the other party
shall select the Insurance Trustee. Developer shall name the Insurance Trustee
appointed pursuant to this Section 16.2 as the sole loss payee on Developer's
------------
casualty insurance. If those parties who participate in the selection process
cannot agree on the
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selection of the Insurance Trustee, either City or Developer may apply to the
Circuit Court for the County for the appointment of a local bank having a
capital surplus in excess of Two Hundred Million Dollars ($200,000,000) as the
Insurance Trustee. The Insurance Trustee shall hold the insurance proceeds in
trust to be disbursed in stages to pay for the cost of the Restoration, as
hereafter provided. The Insurance Trustee shall deposit the insurance proceeds
in an interest bearing account and any after tax interest earned thereon shall
be added to the insurance proceeds. All fees and expenses of the Insurance
Trustee shall be paid by Developer.
(b) Promptly following any damage or destruction to the Improvements
by fire, casualty or otherwise, Developer shall:
(1) give written notice of such damage or destruction to City and
each Mortgagee; and
(2) deliver an agreement by Developer to complete the Restoration
in a reasonable amount of time plus periods of time as performance by
Developer is prevented by Force Majeure events (other than financial
inability) after occurrence of the fire or casualty.
(c) After satisfaction of the conditions specified in paragraph (b)
of this Section, insurance proceeds shall be paid to Developer, or City, as the
case may be, from time to time thereafter in installments, but not more
frequently than once a month, upon application to be submitted from time to time
by Developer to Insurance Trustee showing the cost of work, labor, services,
materials, fixtures and equipment incorporated in the Restoration, or
incorporated therein since the last previous application, and paid for by
Developer or then due and owing. The amount of any installment to be paid to
Developer shall be such proportion of the total insurance proceeds as the cost
of work, labor, services, materials, fixtures and equipment theretofore
incorporated by Developer into the Restoration bears to the total estimated cost
of the Restoration by Developer, less all payments heretofore made to Developer
out of the insurance proceeds. Upon completion of and payment for the
Restoration by Developer, the balance of the insurance proceeds shall be paid
over to Developer, subject to the rights of any Mortgagee named as an insured.
If the estimated cost of any Restoration exceeds the insurance proceeds received
by Insurance Trustee, then prior to the commencement of such Restoration or
thereafter if at any time that the cost to complete the Restoration exceeds the
unapplied portion of such insurance proceeds, Developer shall from time to time
immediately deposit with Insurance Trustee cash funds in the amount of such
excess, to be held and applied by Insurance Trustee in accordance with the
provisions hereof. If City elects to make the Restoration at Developer's
expense, as provided in Section 16.1, then, as provided above with respect to
------------
Developer, Insurance Trustee shall pay over the insurance proceeds to City, from
time to time, upon City's application accompanied by a certificate containing
the statements required under clauses (i), (ii) and (iii) of Section 16.2(d)(1),
------------------
to the extent not previously paid to Developer pursuant to this Section 16.2(c),
---------------
and Developer shall pay to Insurance Trustee, on demand, any sums which City
certifies to be an estimate of the amount necessary to complete the Restoration,
less the undisbursed insurance proceeds.
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(d) The following shall be conditions precedent to each payment made
to Developer as provided in Section 16.2:
------------
(1) There shall be submitted to Insurance Trustee the certificate
of the Architect stating (i) that the sum then requested to be withdrawn
either has been paid by Developer or is justly due to contractors,
subcontractors, materialmen, engineers, architects or other Persons (whose
names and addresses shall be stated) who have rendered or furnished work,
labor, services, materials, fixtures or equipment for the work and giving a
brief description of such work, labor, services, materials, fixtures or
equipment and the principal subdivisions or categories thereof and the
several amounts so paid or due to each of said Persons in respect thereof,
and stating in reasonable detail the progress of the Restoration up to the
date of said certificate; (ii) that no part of such expenditures has been
or is being made the basis, in any previous or then pending request, for
the withdrawal of insurance money or has been made out of the proceeds of
insurance received by Developer; and (iii) that the balance of the
insurance proceeds held by Insurance Trustee will be sufficient, upon
completion of the Restoration, to pay for the same in full, and stating in
reasonable detail an estimate of the cost of such completion.
(2) There shall be furnished to Insurance Trustee appropriate
sworn statements and lien waivers (which comply with the mechanics' lien
laws of the State) from all Persons receiving payment under such draw.
(3) There shall be furnished to Insurance Trustee a title search,
or a similar certificate of a title insurance company reasonably
satisfactory to Insurance Trustee, showing that there are no liens
affecting the Development or any part thereof in connection with work done,
authorized or incurred at or relating to the Development which had not been
discharged of record, except such as will be discharged upon payment of the
amount then requested to be withdrawn.
(e) Notwithstanding anything in this Section 16.2 to the contrary,
------------
insurance proceeds for any fire or casualty of less than Forty Million Dollars
($40,000,000) shall not be paid to the Insurance Trustee to be disbursed as
provided in Section 16.2, but instead such proceeds shall be paid by the insurer
------------
directly into a segregated account established by Developer for the purpose of
funding the Restoration. This account is established as an assurance fund to
guarantee the completion of the Restoration. Developer retains the right to
withdraw funds from this account to pay for the Restoration and to any excess
funds in the account following completion of the Restoration. Upon receipt of
such proceeds in the account, Developer shall promptly undertake and complete
the Restoration in accordance with this Article.
16.3 No Termination. No destruction of or damage to the Improvements, or
--------------
any portion thereof or property therein by fire, flood or other casualty,
whether such damage or destruction be partial or total, shall permit Developer
to terminate this Agreement or relieve Developer from its obligations hereunder.
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16.4 Condemnation. If a Major Condemnation occurs, this Agreement shall
------------
terminate, and no party to this Agreement shall have any claims, rights,
obligations, or liabilities towards any other party arising after termination,
other than as provided for herein. If a Minor Condemnation occurs or the use or
occupancy of the Development or any part thereof is temporarily requisitioned by
a civil or military governmental authority, then (a) this Agreement shall
continue in full force and effect; (b) Developer shall promptly perform all
Restoration required in order to repair any physical damage to the Development
caused by the Condemnation, and to restore the Development, to the extent
reasonably practicable, to its condition immediately before the Condemnation.
If a Minor Condemnation occurs, subject to Section 3.7, any Proceeds in excess
-----------
of Forty Million Dollars ($40,000,000) will be and are hereby, to the extent
permitted by applicable law and agreed to by the condemnor, assigned to and
shall be withdrawn and paid into an escrow account to be created by an escrow
agent ("the Escrow Agent") selected by (i) the First Mortgagee if the
Development is encumbered by a First Mortgage; or (ii) Developer and City in the
event there is no First Mortgagee, within ten (10) days of when the Proceeds are
to be made available. If Developer or City for whatever reason cannot or will
not participate in the selection of the Escrow Agent, then the other party shall
select the Escrow Agent. Nothing herein shall prohibit the First Mortgagee from
acting as the Escrow Agent. This transfer of the Proceeds, to the extent
permitted by applicable law and agreed to by the condemnor, shall be self-
operative and shall occur automatically upon the availability of the Proceeds
from the Condemnation and such Proceeds shall be payable into the escrow account
on the naming of the Escrow Agent to be applied as provided in this Section
-------
16.4. If City or Developer are unable to agree on the selection of an Escrow
- ----
Agent, either City or Developer may apply to the Circuit Court for the County
for the appointment of a local bank having a capital surplus in excess of Two
Hundred Million Dollars ($200,000,000) as the Escrow Agent. The Escrow Agent
shall deposit the Proceeds in an interest-bearing escrow account and any after
tax interest earned thereon shall be added to the Proceeds. The Escrow Agent
shall disburse funds from the Escrow Account to pay the cost of the Restoration
in accordance with the procedure described in Section 16.2(b), (c) and (d). If
--------------- --- ---
the cost of the Restoration exceeds the total amount of the Proceeds, Developer
shall be responsible for paying the excess cost. If the Proceeds exceed the
cost of the Restoration, the Escrow Agent shall distribute the excess Proceeds,
subject to the rights of the Mortgagees. Nothing contained in this Section 16.4
------------
shall impair or abrogate any rights of Developer against the condemning
authority in connection with any Condemnation. All fees and expenses of the
Escrow Agent shall be paid by Developer.
ARTICLE XVI
FINANCIAL AND ACCOUNTING RECORDS; AUDIT RIGHTS
17.1 Financial and Accounting Records. Developer shall maintain and keep,
--------------------------------
or shall cause to be maintained and kept, full and accurate Books and Records at
the Casino Complex or at such other location as shall be approved by the Board
of all business conducted or transacted in, upon or from the Development,
including but not limited to all business operations conducted by the Casino
Component Manager/Operators. Subject to Sections 3.7 and 17.3, during such
------------ ----
periods as Developer fails to meet or exceed the Performance Threshold,
Developer shall make
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available and require each Casino Component Manager/Operator to make available
to City's third party consultants ("City's Consultants") for their review, full
and accurate Books and Records reflecting the results of the Casino Complex and,
if applicable, any Casino Component Manager/Operator's operation of the
applicable Component. If Developer maintains permanent records in a computerized
or microfiche fashion, Developer shall make available to City's Consultants,
upon request, a detailed index to the microfiche or computerized record, which
must be indexed in accordance with Developer's practices. The Books and Records
are subject to the record retention and storage policies required by this
Agreement and by applicable Governmental Requirements. Developer shall retain
and maintain or cause such Books and Records to be retained and maintained for
at least six (6) years or such longer period as may be required by law.
17.2 Review and Audit. Subject to Section 17.3, a third party auditor
---------------- ------------
designated by City ("City's Auditor") shall have the right to independently
examine, audit, inspect and transcribe the Books and Records of Developer and
the Casino Component Manager/Operators. Developer shall make or cause to be made
available Books and Records of the Casino Component Manager/Operators for the
aforesaid purpose. City agrees that any auditor that it designates as the City
Auditor shall either be knowledgeable in auditing casino operations or shall
joint venture the engagement with another auditor having such knowledge.
17.3 Procedures. Any Books and Records required to be disclosed to City's
----------
Consultants and City's Auditor pursuant to this Agreement shall be subject to
reasonable confidentiality restrictions and shall be available for review during
normal business hours on reasonable notice at the offices of the Developer or
such Casino Component Manager/Operator, as applicable, and may not be removed or
copied without the consent of Developer or such Casino Component
Manager/Operator, as applicable, which consent shall not be unreasonably
withheld. Such review shall be conducted in such a manner as to minimize, to
the extent practicable, disruption and inconvenience to Developer and all Casino
Component Manager/Operators and their respective staff. Internal control
standards and records required thereby shall be made available for review only
to City's Auditor. The reasonable costs and expenses of (x) City's Consultants
incurred pursuant to Section 17.1 shall be borne by Developer and (y) City
------------
incurred in connection with Section 17.2 shall be borne by City. The rights
------------
granted to City under Sections 17.1 and 17.2 shall be in addition to and not in
----------------------
limitation of any other inspection and/or audit rights that City and/or EDC may
have under law.
ARTICLE XVI
INDEMNIFICATION
18.1 Indemnification by Developer.
----------------------------
(a) On and after the Effective Date of this Agreement, Developer shall
defend, indemnify and hold harmless City, EDC and each of their officers, agents
and employees (collectively the "Indemnitees" and individually an "Indemnitee")
from and against any and all
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liabilities, losses, damages, costs, expenses, claims, obligations, penalties
and causes of action (including without limitation, reasonable fees and expenses
for attorneys, paralegals, expert witnesses and other consultants at the
prevailing market rate for such services) whether based upon negligence, strict
liability, absolute liability, product liability, misrepresentation, contract,
implied or express warranty or any other principal of law, that are imposed
upon, incurred by or asserted against Indemnitees or which Indemnitees may
suffer or be required to pay and which arise out of or relate in any manner to
any of the following occurring prior to the Termination Date: (1) the ownership,
possession, use, condition or occupancy of the Development or any part thereof
or any Improvement thereon; (2) the operation or management of the Development
or any part thereof; (3) the performance of any labor or services or the
furnishing of any material for or on the Development or any part thereof or
enforcement of any liens with respect thereto; (4) any personal injury, death or
property damage suffered or alleged to have been suffered by Developer
(including Developer's employees, agents or servants), the Casino Complex
Operator/Managers (including their employees, agents or servants) or any third
person as a result of any action or inaction of the Developer; (5) any work or
things whatsoever done in, or on the Development or any portion thereof, or off-
site pursuant to the terms of this Agreement; (6) the condition of any building,
facilities or Improvements on the Project Premises or the Temporary Casino Site
or any non-public street, curb or sidewalk on the Project Premises or the
Temporary Casino Site, or any vaults, tunnels, malls, passageways or space
therein; (7) any breach or default on the part of Developer for the payment,
performance or observance of any of its obligations under all agreements entered
into by Developer or any of its Affiliates relating to the performance of
services or supplying of materials to the Development or any part thereof; (8)
any act, omission or negligence of any Space Tenant, or any of their respective
agents, contractors, servants, employees, licensees or other tenants; and (9)
any claim by a third party relating to or arising from any failure of Developer
to comply with all Governmental Requirements. In case any action or proceeding
shall be brought against any Indemnitee based upon any claim in respect of which
Developer has agreed to indemnify any Indemnitee, Developer will upon notice
from Indemnitee defend such action or proceeding on behalf of any Indemnitee at
Developer's sole cost and expense and will keep Indemnitee fully informed of all
developments and proceedings in connection therewith and will furnish Indemnitee
with copies of all papers served or filed therein, irrespective of by whom
served or filed. Developer shall defend such action with counsel it selects
provided that such counsel is reasonably satisfactory to Indemnitee. Such
counsel shall not be deemed reasonably satisfactory to Indemnitee if counsel
has: (i) a legally cognizable conflict of interest with respect to City or EDC;
(ii) within the five (5) years immediately preceding such selection performed
legal work for City or EDC which in their respective reasonable judgment was
inadequate; or (iii) frequently represented parties opposing City or EDC in
prior litigation. Each Indemnitee shall have the right, but not the obligation,
at its own cost, to be represented in any such action by counsel of its own
choosing.
(b) Notwithstanding anything to the contrary contained in Section
-------
18.l(a) but further subject to Section 18.1(c) below, Developer shall not
- ------- ---------------
indemnify and shall have no responsibility to Indemnitees for: (i) any matter
involving the gross negligence or willful misconduct of any of the Indemnitees;
(ii) any matter giving rise to any liability of any of the Indemnitees prior to
the Effective Date, except for such liabilities arising from acts or omissions
undertaken by or at the request or insistence of Developer; (iii) any liability
arising with respect
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to portions of the Development owned or under the control of the City, the EDC,
or any instrumentality or subdivision thereof prior to Effective Date which
arises from any acts or omissions of any Indemnitee occurring prior to the
Effective Date; (iv) any liability arising with respect to any off-site
Infrastructure Improvements owned and under the control of the City which arises
from acts or omissions of the City; (v) any failure by the City or any
subdivision or instrumentality thereof to exercise its police and similar public
safety powers with respect to the Development, but only to the extent Developer
is not required to undertake or perform such services pursuant to the terms of
this Agreement; or (vi) any breach by City or EDC of its obligations pursuant to
this Agreement.
(c) The foregoing exclusions from Developer's obligation to indemnify
Indemnitees set forth in Section 18.1(b) above shall in no event apply to
---------------
Developer's environmental indemnity obligations set forth in Section 15.3.
------------
ARTICLE XIX
ENTRY UPON PREMISES; INSPECTION
19.1 Access and Inspection.
---------------------
(a) City and/or its representatives shall have the right at all
reasonable times, upon reasonable notice to Developer (except in the case of
emergency, in which event no notice shall be required), to enter the Development
for the purposes of (1) inspection, (2) making of such repairs or performing
such acts that City and/or EDC shall have the right to make or perform by the
Agreement provisions, or (3) determining whether Developer is complying with the
terms and conditions of this Agreement, including but not limited to compliance
with Environmental Laws.
(b) Developer may, during such inspection, have an employee or agent
of Developer escort any person so inspecting the Development and due precautions
shall be taken with respect to special security areas in the Development. City
and/or EDC shall be allowed to take all material into and upon the Development
that may be required for the inspections or repairs above mentioned as the same
is required for such purpose. In performing any such inspections or repairs,
City and/or EDC agrees to use reasonable efforts to minimize to the extent
practicable any disruption of or interference with occupancy, business or
operations of Developer or any Space Tenant, provided that nothing contained
herein shall require City and/or EDC to perform such work outside of normal
business hours.
(c) Notwithstanding the foregoing, the EDC's rights to enter the
Development for the purposes set forth in Section 19.1(a) and (b) shall be
-----------------------
limited to construction matters.
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ARTICLE XX
TEMPORARY CASINO
20.1 Developer's Temporary Casino Obligations. Subject to Developer
----------------------------------------
acquiring or leasing a Temporary Casino Site (as herein defined), Developer may
elect to design, construct, finance and operate a Temporary Casino subject to
and in accordance with the terms of this Article XX and the other provisions of
----------
this Agreement, as applicable. In the event Developer makes such election, the
following provisions in this Article XX shall apply.
----------
20.2 Temporary Casino Site.
---------------------
(a) Developer shall select a land-based location for the Temporary
Casino ("Temporary Casino Site"), which Temporary Casino Site shall be subject
to the approval of the City. Developer hereby acknowledges that Developer will
acquire or lease, and develop the Temporary Casino Site at its sole cost and
expense. Neither City nor EDC shall be required to contribute any funds or
perform any obligations in connection with Developer's acquisition or lease and
development of the Temporary Casino Site.
(b) At the time Developer submits the Temporary Casino Design
Documents in accordance with Section 20.4, Developer shall submit plans for the
------------
reuse of the Temporary Casino Site and the Improvements thereon subsequent to
Completion. Such plans may consist of using the Temporary Casino Site as a
training center or other purpose auxiliary to the operations of the Casino
Complex or such other use as the City may approve, which approval shall not be
unreasonably withheld. In no event shall Developer abandon the Temporary Casino
Site or allow the Improvements thereon to fall into a state of disrepair during
its ownership or lease of the Temporary Casino Site.
(c) Developer shall pay City for all reasonable hard and soft costs,
including, without limitation, personnel and labor costs (excluding salaries,
overhead and other costs of City employees performing their normal functions)
relating to the design and construction of any Infrastructure Improvements
necessary or required for the Temporary Casino prior to the time that City
incurs any costs related thereto. The Developer shall have no responsibility to
maintain or pay for the maintenance of any such Infrastructure Improvements once
installed. It is the intention of the parties that neither the City nor the EDC
shall be responsible to pay for or otherwise fund the construction of any such
Infrastructure Improvements, such costs and expenses being the sole
responsibility of the utility in the case of any private or quasi-public
utilities or the responsibility of Developer in all other circumstances. Upon
receipt of such funds, City agrees to use such funds to construct such
Infrastructure Improvements.
20.3 Temporary Casino Financing. Developer shall submit to City its plan
--------------------------
for obtaining funds to finance the acquisition of the Temporary Casino Site and
the design construction and operation of the Temporary Casino. Such funds shall
be on such terms and conditions as are acceptable to City in the exercise of its
commercially reasonable judgment. Any borrowed funds shall be from a Suitable
Lender.
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20.4 Temporary Casino Design Documents.
---------------------------------
(a) Developer shall prepare and submit schematic design drawings for
the Temporary Casino in sufficient detail to establish the size and character of
the Temporary Casino (the "Temporary Casino Design Documents"), to City for
review and approval, together with such other drawings, documents and other
supporting information as reasonable required by City in connection with City's
review of the Temporary Casino Design Documents.
(b) Developer covenants and agrees to cause the Temporary Casino to be
designed as close to First Class Casino Complex Standards as the Temporary
Casino Site will permit. Developer covenants and agrees that the Temporary
Casino shall have a gaming floor area of not less than thirty-five thousand
(35,000) square feet nor more than one hundred thousand (100,000) square feet.
(c) Neither City nor the EDC shall be responsible for any error or
omission in the Temporary Casino Design Documents, or for failure of the
Temporary Casino Design Documents, or a part thereof, to comply with
Governmental Requirements, or for Temporary Casino Design Documents that result
in or cause a defective design or construction.
20.5 Approval Procedures.
-------------------
(a) Provided that by May 1, 1998 the Developer has identified its
Temporary Casino Site and submitted to the City the information required
from Developer under Article XX (the "Temporary Casino Information"), the
----------
Mayor, within ten (10) Business Days of (i) being satisfied with the Temporary
Casino Information and (ii) reaching agreement with the Developer on funding law
enforcement training activities in connection with the Temporary Casino as a
partial advance against the first year's Municipal Services Fee, shall transmit
the Temporary Casino Information to the City Council for approval. The Mayor
shall act within a reasonable period of time under the circumstances.
(b) Provided that by May 1, 1998 the Mayor (i) receives information
from the Other Land-Based Casino Developers concerning their temporary
casinos as and to the extent required under the casino development
agreements with the City which information is satisfactory to the Mayor
(including but not limited to the information required by Section 2.6(l))
--------------
and (ii) reaches agreement with the Other Land-Based Casino Developers on
funding law enforcement training activities in connection with their temporary
casinos as a partial advance against the first year's Municipal Services Fee,
the Mayor shall submit the Temporary Casino Information and the comparable
information of any of the Other Land-Based Casino Developers who satisfy clauses
(i) and (ii) (collectively, the "Temporary Casino Proposals") to the City
Council for approval in a single transmission.
(c) Provided City Council approves all but not less than all of the
Temporary Casino Proposals submitted pursuant to Section 20.5(b), including
---------------
all necessary zoning changes therefor, Developer shall have the right to
commence construction of its Temporary Casino,
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subject to applicable provisions of this Agreement. Notwithstanding the failure
of any other Land-Based Casino Developer to have satisfied clauses (i) and (ii)
of Section 20.5(b), the Mayor shall submit the Temporary Casino Proposals of the
---------------
Developer and any other Land-Based Casino Developer who does satisfy clauses (i)
and (ii) of Section 20.5(b) to the City Council for approval.
---------------
(d) Nothing shall preclude the Developer from submitting its Temporary
Casino Information to the Mayor after May 1, 1998. Provided City Council
approves any such subsequently submitted Temporary Casino Proposals together
with all necessary zoning changes therefor, Developer shall have the right to
commence construction of its Temporary Casino, subject to applicable provisions
of this Agreement.
20.6 Construction of Temporary Casino.
--------------------------------
(a) Developer shall cause Contractor to construct the Temporary Casino
and perform the Work under the supervision and control of Developer. Developer
shall cause Contractor(s) to deliver to the City copies of the temporary and
final certificates of occupancy for the Temporary Casino. Developer shall give
notices and comply, and shall use all reasonable efforts to cause Contractor and
all Consultants to comply, with all Governmental Requirements applicable to the
Work, and shall obtain all permits, licenses or other authorizations necessary
for the prosecution of the Work.
(b) All Work shall be performed in a good and workmanlike manner and
in accordance with good construction practices. All materials used in the
construction of the Temporary Casino and the quality of the interiors and Finish
Work for the Temporary Casino, shall meet or exceed First Class Casino Complex
Standards. The quality of the materials utilized in the interior and the
exterior of the Temporary Casino shall be subject to the reasonable approval of
the City.
(c) Time being of the essence, Developer, after receipt of all
required Permits, shall, subject to the terms and provisions of this Agreement,
prosecute the Work diligently, using such means and methods of construction and
sufficient employees as Developer reasonably believes are necessary to maintain
the progress of the Work and to complete the Temporary Casino in accordance with
the requirements of the construction documents no later than the temporary
casino opening date.
20.7 Temporary Casino Operations.
---------------------------
(a) Developer agrees to exert all commercially reasonable efforts to
develop, operate and maintain the Temporary Casino in a manner consistent
with First Class Casino Complex Standards and all Governmental
Requirements.
(b) Developer agrees to cease all Casino Gaming Operations at the
Temporary Casino on the Completion Date.
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20.8 Restriction on Payments. Developer covenants and agrees that until
-----------------------
the Completion Date, Developer shall not declare or pay any dividends or make
any other distributions to any members of Developer or their respective
Affiliates except:
(a) for Permitted Affiliate Payments; or
(b) provided Developer is not otherwise then restricted in making
distributions under Section 7.13:
------------
(1) for distributions to Partners Detroit, LLC according to the
terms of Developer's operating agreement (without giving effect to any
amendments made to the copy of such operating agreement submitted in
connection with its RFP/Q), made subsequent to the payment by
Developer of its Pro Rata Portion of the Feehold Compensation due upon
the closing of the purchase of the Project Premises pursuant to the
Conveyance Agreement; and
(2) for distributions to Developer's members made subsequent to
the completion of the construction of the foundation for any Covered
Component.
ARTICLE XXI
MISCELLANEOUS
21.1 Notices. Notices shall be given as follows:
-------
(a) Any notice, demand or other communication which any party may
desire or may be required to give to any other party shall be in writing
delivered by (i) hand-delivery, (ii) a nationally recognized overnight courier,
(iii) telecopy, or (iv) mail (but excluding electronic mail, i.e., "e-mail")
addressed to a party at its address set forth below, or to such other address as
the party to receive such notice may have designated to all other parties by
notice in accordance herewith:
If to City: Mayor
City of Detroit
1126 City-County Building
Detroit, Michigan 48226
Telecopier No.: 313-224-4433
with copies to: Corporation Counsel
City of Detroit
First National Building
660 Woodward Avenue
Suite 1650
Detroit, Michigan 48226
Telecopier No.: 313-224-5505
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If to EDC: The Economic Development Corporation
of the City of Detroit
211 West Fort Street
Suite 900
Detroit, Michigan 48226
Telecopier No.: 313-963-9786
If to Developer: MGM Grand Detroit, L.L.C.
c/o MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: John Redmond, Senior V.P.
Telecopier No.: 702-891-3369
with copies to: Dickinson Wright PLLC
500 Woodward Avenue
Suite 4000
Detroit, Michigan 48226-3425
Attention: James N. Candler, Jr., Esq.
Telecopier No.: 313-223-3598
- and -
Christensen, Miller, Fink, Jacobs, Glaser,
Weil & Shapiro, LLP
2121 Ave. Of the Stars
18th Floor
Los Angeles, California 90067
Attention: Gary N. Jacobs, Esq.
Telecopier No.: 310-556-2920
- and -
Partners Detroit, LLC
c/o Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Birmingham, Michigan 48025-4503
Attention: Anthony S. Gramer
Telecopier No.: 248-644-7880
(b) Any such notice, demand or communication shall be deemed
delivered and effective upon the earlier to occur of actual delivery or, if
delivered by telecopier, the same day as confirmed by telecopier transmission or
the first Business Day thereafter if telecopied on a non-Business Day.
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21.2 Non-Action or Failure to Observe Provisions of this Agreement. The
-------------------------------------------------------------
failure of City, EDC or Developer to promptly insist upon strict performance of
any term, covenant, condition or provision of this Agreement, or any Exhibit
hereto, or any other agreement contemplated hereby, shall not be deemed a waiver
of any right or remedy that City, EDC or Developer may have, and shall not be
deemed a waiver of a subsequent default or nonperformance of such term,
covenant, condition or provision.
21.3 Applicable Law and Construction. The laws of the State shall govern
-------------------------------
the validity, performance and enforcement of this Agreement. This Agreement has
been negotiated by City, EDC and Developer, and the Agreement, including,
without limitation, the Exhibits, shall not be deemed to have been negotiated
and prepared by City, EDC or Developer, but by each of them.
21.4 Submission to Jurisdiction.
--------------------------
(a) Each party to this Agreement hereby submits to the jurisdiction of
the Wayne County Circuit Court, the appellate courts of the State and to the
jurisdiction of the United States District Court for the Eastern District of the
State, for the purposes of any suit, action or other proceeding arising out of
or relating to this Agreement, and hereby agrees not to assert by way of a
motion as a defense or otherwise that such action is brought in an inconvenient
forum or that the venue of such action is improper or that the subject matter
thereof may not be enforced in or by such courts.
(b) If at any time during the term of this Agreement, Developer is not
a resident of the State or has no officer, director, employee, or agent thereof
available for service of process as a resident of the State, or if any permitted
assignee thereof shall be a foreign corporation, partnership or other entity or
shall have no officer, director, employee, or agent available for service of
process in the State, Developer or its assignee hereby designates the Secretary
of State of the State, as its agent for the service of process in any court
action between it and City and/or EDC or arising out of or relating to this
Agreement and such service shall be made as provided by the laws of the State
for service upon a non-resident; provided, however, that at the time of service
on the Secretary of State, copy of such service shall be delivered to Developer
in the manner provided in Section 21.1.
------------
21.5 Complete Agreement. This Agreement, and all the documents and
------------------
agreements described or referred to herein, including without limitation the
Exhibits hereto, constitute the full and complete agreement between the parties
hereto with respect to the subject matter hereof, and supersedes and controls in
its entirety over any and all prior agreements, understandings, representations
and statements whether written or oral by each of the parties hereto.
21.6 Holidays. It is hereby agreed and declared that whenever a notice or
--------
performance under the terms of this Agreement is to be made or given on a day
other than a Business Day, it shall be postponed to the next following Business
Day.
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21.7 Exhibits. Each Exhibit referred to and attached to this Agreement is
--------
an essential part of this Agreement.
21.8 No Brokers. City, EDC and Developer hereby represent, agree and
----------
acknowledge that no real estate broker or other person is entitled to claim or
to be paid a commission as a result of the execution and delivery of this
Agreement.
21.9 No Joint Venture. City and EDC on the one hand and Developer on the
----------------
other, agree that nothing contained in this Agreement or any other documents
executed in connection herewith is intended or shall be construed to establish
City and/or EDC and Developer as joint venturers or partners.
21.10 Governmental Authorities. Notwithstanding any other provisions of
------------------------
this Agreement, any required permitting, licensing or other regulatory approvals
by any Governmental Authorities shall be subject to and undertaken in accordance
with the established procedures and requirements of such authority, as may be
applicable, with respect to similar projects and in no event shall the
Governmental Authority by virtue of any provision of this Agreement be obligated
to take any actions concerning regulatory approvals except through its
established processes.
21.11 Technical Amendments. In the event that there are minor
--------------------
inaccuracies contained herein or any Exhibit attached hereto or any other
agreement contemplated hereby, or the parties agree that changes are required
due to unforeseen events or circumstances, or technical matters arising during
the term of this Agreement, which changes do not alter the substance of this
Agreement, the respective officers of City and EDC, and the officers of
Developer, are authorized to approve such changes, and are authorized to execute
any required instruments, to make and incorporate such amendment or change to
this Agreement or any Exhibit attached hereto or any other agreement
contemplated hereby.
21.12 Unlawful Provisions Deemed Stricken. If this Agreement contains any
-----------------------------------
unlawful provisions not an essential part of this Agreement and which shall not
appear to have a controlling or material inducement to the making thereof, such
provisions shall be deemed of no effect and shall be deemed stricken from this
Agreement without affecting the binding force of the remainder. In the event
any provision of this Agreement is capable of more than one interpretation, one
which would render the provision invalid and one which would render the
provision valid, the provision shall be interpreted so as to render it valid.
21.13 No Liability for Approvals and Inspections. Except as may be
------------------------------------------
otherwise expressly provided herein, no approval to be made by City, EDC or the
PM under this Agreement or any inspection of the Work by City, EDC or the PM
under this Agreement, shall render City and/or EDC liable for failure to
discover any defects or non-conformance with this Agreement, or a violation of
or noncompliance with any federal, state or local statute, regulation, ordinance
or code.
21.14 Time of the Essence. All times, wherever specified herein for the
-------------------
performance by Developer of its obligations hereunder, are of the essence of
this Agreement.
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21.15 Captions. The captions of this Agreement are for convenience of
--------
reference only and in no way define, limit or describe the scope or intent of
this Agreement or in any way affect this Agreement.
21.16 Arbitration.
-----------
(a) Matters Subject to Arbitration. In case of a dispute between
------------------------------
Developer, on the one hand, and either City and/or EDC on the other, with
respect to any disagreement under this Agreement other than a disagreement with
respect to any of the following items, the parties shall in good faith attempt
to resolve such dispute through informal negotiations ("Negotiations"). In the
event the parties reach a resolution during Negotiations such resolution shall
be set forth in a writing signed by all parties and may be enforced in any court
of competent jurisdiction as if it were an arbitration award, pursuant to
Section 21.16(j). In the event either party determines in its sole discretion
- ----------------
that a resolution cannot be reached during the Negotiations, such party may
deliver to the other party written notice to terminate the Negotiations and to
refer the disagreement to binding arbitration consistent with the procedures set
forth below. The decision of the arbitrator or arbitrators shall be final and
binding upon the parties, and a judgment may be rendered thereon in any court of
competent jurisdiction. The matters not subject to arbitration hereunder are as
follows:
(1) Any dispute arising under Section 2.6.
-----------
(2) Any dispute asserted by City and/or EDC which could give
rise to an Event of Default to which a Mandatory Sale is a remedy available
to City.
(b) Commencement. The Negotiations shall be initiated by the
-----------
claiming party serving written notice upon the other party requesting
commencement of informal negotiations. If either party determines that
Negotiations should be terminated and arbitration shall be commenced, said party
shall initiate arbitration proceedings by serving written notice upon the other
party requesting that the dispute be resolved by arbitration. All notices sent
pursuant to this Section 21.16, shall set forth a statement of claim from the
-------------
claiming party indicating with specificity the nature and extent of the matter
in dispute, together with the relief requested.
(c) Situs of hearing. Any Negotiations and/or hearings held
----------------
pursuant to this Section 21.16 shall be conducted in Detroit, Michigan, or at
-------------
such other place as may be selected by mutual written agreement of the parties.
(d) Selection of Arbitrator.
-----------------------
(1) Within fifteen (15) days of being served with the statement
of claim the parties to the arbitration shall appear by counsel and meet to
attempt to agree on a single arbitrator to decide the subject claim. If the
parties to the arbitration cannot agree on a single arbitrator within
fifteen (15) days after the appearance of counsel, then each party shall
select an arbitrator, and the two (2) arbitrators so selected shall together
select
85
<PAGE>
a third (3rd) arbitrator within fifteen (15) days. The three (3)
arbitrators so selected shall thereafter decide the matter in dispute. In
the event both the City and EDC are parties to the arbitration, then the
City and EDC, collectively, shall select one arbitrator and Developer shall
select the second arbitrator.
(2) In order to expedite any arbitration regarding construction
matters, the parties shall, within ninety (90) days of the Closing Date,
select an arbitrator or if the parties cannot agree on a single arbitrator
within such ninety (90) days, then each party shall select an arbitrator,
and the two (2) arbitrators so selected shall select a third (3rd)
arbitrator within thirty (30) days, which arbitrator or panel shall be
available to hear any dispute concerning construction matters arising under
this Agreement during the period of construction of the Casino Complex. In
the event both the City and EDC are parties to the arbitration, then the
City and EDC shall collectively, select one arbitrator and Developer shall
select the second arbitrator. With respect to any dispute concerning
construction matters, the arbitrator or arbitrators selected shall be
knowledgeable in construction disputes involving major projects.
(3) With respect to any dispute concerning gaming matters, the
arbitrator or arbitrators selected shall be knowledgeable in casino gaming
matters and selected in the same manner as set forth in Section 21.16(d)(1).
-------------------
(4) If the parties are unable to agree on a single arbitrator,
and thereafter if either party fails to select an arbitrator within fifteen
(15) days, then the arbitrator or arbitrators shall be chosen, on the
application of any party, by any court of competent jurisdiction.
(e) Rules and Procedures. The statement of claim and all subsequent
---------------------
proceedings in the arbitration shall be governed by the Commercial Arbitration
Rules of the American Arbitration Association, as amended from time to time, but
the arbitration itself shall not be administered by or proceed before the
American Arbitration Association. Any subject claim that a party has breached
this Agreement by failing to pay any money when due and payable or has failed to
perform a duty or obligation hereunder, which is presented in accordance
herewith, shall proceed expeditiously and, to the extent applicable, the
Commercial Arbitration Rule's Expedited Procedures (other than as to appointment
of the arbitrator) shall apply.
(f) Modification of Rules and Procedures. The parties to any
-------------------------------------
arbitration subject to this Agreement may on an ad hoc basis stipulate in
writing to modify the rules and procedures set forth herein that will govern the
particular arbitration to which they are the parties; provided, however, that no
such stipulation and modification shall govern, or have any precedential value
whatsoever for, any other or subsequent arbitration or shall affect in any way
the construction or interpretation of this Agreement.
(g) Scope of Authority. Except as otherwise provided in this
------------------
Agreement, including but not limited to the provisions set forth in Article
-------
X and Section 6.7, the Arbitrator or Arbitrators shall have the authority
- - -----------
to award any and all legal and equitable remedies that a
86
<PAGE>
court of this state could order or grant, including, without limitation,
specific performance of any obligation created under the Agreement, the issuance
of an injunction or the imposition of sanctions for abuse or frustration of the
arbitration process.
(h) Interim Relief. Either party may, without inconsistency with this
--------------
Agreement, seek from a court of competent jurisdiction any interim or
provisional relief that may be necessary to protect the rights or property of
that party and to preserve the status quo, pending the establishment of the
arbitral tribunal. If a party is successful in achieving such interim or
provisional relief, the arbitral tribunal, once established, is authorized to:
(x) continue such relief pending the arbitral tribunal's determination of the
merits of the controversy; (y) modify such relief as deemed equitable by the
Arbitrator(s) pending the arbitral tribunal's determination of the merits of the
controversy; or (z) immediately terminate such relief and proceed with a
resolution of merits of the controversy.
(i) Costs of Arbitration. The costs of the arbitrator shall be split
--------------------
equally by the parties to an arbitration, but the arbitrator shall provide in
the award that if City and/or EDC is the prevailing party, such party shall
recover its share of such costs as well as its reasonable attorneys' fees and
other costs from Developer. If the Developer is the prevailing party, the
Developer shall have no obligation to pay the attorney's fees and costs of City
and/or EDC and the Developer shall recover its share of costs and reasonable
attorney's fees if and only if the arbitrator finds that the claims of the City
and/or EDC are frivolous and that City and/or EDC are subject to sanctions
therefor.
(j) Enforcement. If either party refuses to participate in
------------
arbitration of any dispute subject to arbitration under the terms of this
Agreement, a party may seek to compel arbitration in accordance herewith in any
court of competent jurisdiction. If any party fails to comply with a final award
or order of arbitration, a party may seek an order from any court of competent
jurisdiction confirming, vacating or modifying any such final arbitration award
or order obtained in accordance with this Agreement and enforcing any judgment
upon such confirmed or modified award.
(k) Parties Subject to Arbitration. This Section 21.16 is applicable
------------------------------ -------------
to disputes arising between the Developer, on one hand, and either the City
and/or EDC on the other, regarding disputes, claims, questions, or
disagreements arising out of or relating to each parties' rights, duties
and/or obligations established pursuant to this Agreement. Section 21.16
-------------
shall in no way limit the right of the City or its agencies, authorities and/or
instrumentalities or Developer to institute proceedings in any court of
competent jurisdiction from disputes, claims, questions, or disagreements
arising between Developer and the City or its agencies, authorities and/or
instrumentalities while the City or its agencies, authorities and/or
instrumentalities are acting pursuant to their normal City functions such as,
without limitation, disputes arising from the permitting and/or inspection
processes.
(l) Confidentiality. Subject to applicable law, the parties and the
---------------
arbitrator(s) agree to maintain the substance of any proceedings hereunder
in confidence.
87
<PAGE>
21.17 Sunset Provision.
----------------
(a) The obligations imposed on Developer by and under the following
provisions of this Agreement shall lapse and be of no further force or
effect seven (7) years after the Execution Date: Sections 3.2, 3.3, 3.5 and
--------------------------
7.7.
- ---
(b) The obligations imposed on Developer by and under the following
provisions of this Agreement shall lapse and be of no further force or
effect ten (10) years after the Execution Date: Sections 7.2, 7.11 and
----------------------
7.16.
- ----
(c) The obligations imposed on Developer by and under Section 7.17
------------
shall lapse and be of no further force or effect thirty-five (35) years
after the Execution Date.
(d) The obligations imposed on Developer by and under Section 7.3
-----------
shall lapse and be of no further force or effect ten (10) years after the
Closing Date.
21.18 Compliance. Any provision that permits or requires a party to take
----------
action shall be deemed to permit or require, as the case may be, the party to
cause the action to be taken.
21.19 Table of Contents. The table of contents is for the purpose of
-----------------
convenience only and is not to be deemed or construed in any way as part of this
Agreement or as supplemental thereto or amendatory thereof.
21.20 Number and Gender. All terms used in this Agreement, regardless of
-----------------
the number or gender in which they are used, shall be deemed to include any
other number and any gender as the context may require.
21.21 Third Party Beneficiary. Except as set forth in Section 2.4(b),
----------------------- --------------
there shall be no third party beneficiaries with respect to this Agreement.
21.22 Cost of Investigation. If as a result of the Agreement, City or any
---------------------
of their directors or officers, the Mayor, or any City Council members, or any
employee, agent, or representative of City is required to be licensed, or
approved by the Board, one-third (1/3) of all reasonable costs of such
licensing, approval or investigation shall be paid by Developer within five (5)
Business Days following receipt of a written request from City.
21.23 Attorneys' Fees. Developer shall pay all of City's and EDC's costs,
---------------
charges and expenses, including court costs and attorneys' fees, incurred in
enforcing Developer's obligations under this Agreement or incurred by City or
EDC in any action brought by Developer in which City or EDC is the prevailing
party. If the Developer is the prevailing party, the Developer shall have no
obligation to pay the attorneys' fees and costs of City and/or EDC and the
Developer shall recover its share of costs and reasonable attorneys' fees if and
only if the court finds that the claims of the City and/or EDC are frivolous and
that City and/or EDC are subject to sanctions.
88
<PAGE>
21.24 Further Assurances. City, EDC and Developer will cooperate and work
------------------
together in good faith to the extent reasonably necessary and commercially
reasonable to accomplish the mutual intent of the parties that the Development
be successfully completed as expeditiously as is reasonably possible.
21.25 Estoppel Certificates. City and EDC shall, at any time and from
---------------------
time to time, upon not less than fifteen (15) Business Days prior written notice
from any lender of Developer, execute and deliver to any lender of Developer an
estoppel certificate in the form attached hereto as Exhibit 21.25.
-------------
21.26 Most Favored Nations Provision. City and EDC agree that in the
------------------------------
event: (i) either of the development agreements of either Other Land-Based
Casino Developer are amended in any material respect, City and EDC shall offer
to Developer the same amendment to this Agreement with such conforming changes
as may be reasonably required, provided, however, that City's and EDC's
obligation under this Section 21.26 shall end thirty-five (35) years subsequent
-------------
to the Closing Date with respect to any amendment to Section 7.17 and ten (10)
------------
years subsequent to the Closing Date with respect to all other amendments to
this Agreement; and (ii) they waive any of the conditions imposed by Sections
--------
2.4(a)(1), (2), (4) or (7) under either of the development agreements of either
- --------------------------
Other Land-Based Casino Developer, they shall offer to waive such condition for
Developer.
21.27 Developer's Right to Terminate. Upon written notice delivered by
------------------------------
Developer to City and EDC within ten (10) Business Days from the Execution Date,
Developer may terminate this Agreement if Developer's Board of Directors fails
to approve this Agreement.
21.28 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original document and together shall
constitute one instrument.
[Signatures on next page]
89
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and had their
seals affixed on the dates set forth after their respective signatures.
CITY OF DETROIT, a municipal
corporation
By: /s/
----------------------------------------
Its:
------------------------------------
THE ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY OF
DETROIT, a Michigan public body
corporate
By: /s/
----------------------------------------
Its:
------------------------------------
By: /s/
----------------------------------------
Its:
------------------------------------
MGM GRAND DETROIT, LLC, a Delaware
limited liability company
By: /s/
----------------------------------------
Its: Chief Financial Officer
90
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and had their
seals affixed on the dates set forth after their respective signatures.
CITY OF DETROIT, a municipal
corporation
By: /s/
----------------------------------------
Its:
------------------------------------
THE ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY OF
DETROIT, a Michigan public body
corporate
By: /s/
----------------------------------------
Its:
------------------------------------
By: /s/
----------------------------------------
Its:
------------------------------------
MGM GRAND DETROIT, LLC, a Delaware
limited liability company
By: /s/
----------------------------------------
Its: Chief Financial Officer
<PAGE>
EXHIBIT 1.1(a)(19): DESCRIPTION OF CASINO
AREA AND PUBLIC LAND
-----------------------------------------
WATERFRONT RECLAMATION & CASINO
DEVELOPMENT PROJECT AREA
[MAP OF PROJECT AREA]
<PAGE>
EXHIBIT 1.1(a)(19): DESCRIPTION OF CASINO
AREA AND PUBLIC LAND
-----------------------------------------
WATERFRONT RECLAMATION & CASINO
DEVELOPMENT PROJECT AREA
[MAP OF PROJECT AREA]
<PAGE>
EXHIBIT 1.1(a)(19): DESCRIPTION OF CASINO
AREA AND PUBLIC LAND
-----------------------------------------
WATERFRONT RECLAMATION & CASINO
DEVELOPMENT PROJECT AREA
[MAP OF PROJECT AREA]
<PAGE>
EXHIBIT 1.1(a)(30): FORM OF PARENT COMPANY'S CLOSING CERTIFICATE
-----------------------------------------------------------------
CLOSING CERTIFICATE
Pursuant to Section 2.14 of that certain development agreement dated as of
________________, 1998 (the "Development Agreement"), by and among the City of
Detroit (the "City"), the Economic Development Corporation of the City of
Detroit ("EDC") and ________________________________, a ____________ limited
liability company (the "Company"), ______________ , a ____________ corporation
(the "Parent Company") hereby certifies to the City and EDC that:
(i) No Defense to Performance. There is no fact, event or condition
-------------------------
which exists as of the date hereof which, if asserted by Company or Parent
Company, would excuse Parent Company from performing its obligations under
that certain guaranty and keepwell agreement, dated _______________ (the
"Guaranty Agreement") being delivered pursuant to Section 2.14 of the
------------
Development Agreement.
(ii) No Event of Default. There is no event or condition, which with
-------------------
the passage of time or the giving of notice or both, is or would give rise
to an Event of Default (as that term is defined in the Development
Agreement).
(iii) Resolutions. Attached hereto as "Exhibit A" is a true and
----------- ---------
correct copy of the resolutions approving the execution, delivery and
performance of the obligations of the Parent Company under the (x) Guaranty
Agreement and (y) agreement to abide by the radius restriction being
delivered pursuant to Section 2.14 of the Development Agreement
------------
(collectively with the Guaranty Agreement, the "Agreements"), that have
been duly adopted at a meeting of, or by the written consent of, the Parent
Company, and none of such resolutions have been amended, modified, revoked
or rescinded in any respect since their respective dates of execution, and
all of such resolutions are in full force and effect on the date hereof in
the form adopted.
(iv) Ownership of Shares. As of the date hereof, Parent Company owns
-------------------
all of the issued and outstanding capital stock of ______________________.
(v) No Violation. Neither execution of the Agreements nor discharge
------------
by the Parent Company of any of its obligations thereunder shall cause
Parent Company to be in violation of any applicable law or regulation, its
charter or other organizational documents of any agreement to which it is a
party.
Dated:__________________________ [NAME OF PARENT COMPANY]
By:____________________________
Its:______________________
<PAGE>
EXHIBIT 1.1(a)(30): FORM OF DEVELOPER'S CLOSING CERTIFICATE
-----------------------------------------------------------
CLOSING CERTIFICATE
Pursuant to Section 2.14 of that certain development agreement dated as of
------------
__________, 1998 (the "Development Agreement"), by and among the City of Detroit
(the "City"), the Economic Development Corporation of the City of Detroit
("EDC") and ___________________ _______________, a __________ limited liability
company (the "Company"), the Company hereby certifies to the City and EDC that:
(i) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Company in Sections 8.1(a), (ff) and (gg) of the
------------------------------
Development Agreement is true and correct in all material respects as of
the date hereof, with the same force and effect as though such
representations and warranties had been made as of the date hereof.
(ii) Satisfaction of Obligations. The Company has performed and
---------------------------
complied with all of its obligations required by the Development Agreement
to be performed or complied with at or prior to the date hereof;
(iii) No Event of Default. There exists no event or condition, which
-------------------
with the passage of time or the giving of notice or both, is or would give
rise to an Event of Default (as that term is defined in the Development
Agreement).
(iv) Certificate of Incorporation. Attached hereto as "Exhibit A" is
---------------------------- ---------
a true, correct and complete copy of the Certificate of Limited Liability
Company of the Company, together with any and all amendments thereto, as on
file with the any and all amendments thereto, as on file with the Secretary
of State of __________, and no action has been taken to amend, modify or
repeal such Certificate of Limited Liability Company, the same being in
full force and effect in the attached form as of the date hereof;
(v) Operating Agreement. No action has been taken to amend, modify
-------------------
or repeal Developer's Operating Agreement, the same being in full force and
effect in the form previously delivered to City by Developer in connection
with the RFP/Q (as that term is defined in the Development Agreement).
(vi) Resolutions. Attached hereto as "Exhibit B" is a true and
----------- ---------
correct copy of the resolutions approving the execution, delivery and
performance of the obligations of the Company under the Development
Agreement that have been duly adopted at a meeting of, or by the written
consent of, the Company, and none of such resolutions have been amended,
modified, revoked or rescinded in any respect since
1
<PAGE>
their respective dates of execution, and all of such resolutions are in
full force and effect on the date hereof in the form adopted.
(vii) Incumbency. Attached hereto as "Exhibit C" is an incumbency
---------- ---------
certificate of the officers of the Company, which individuals are duly
elected, qualified and acting officers of the Company, each such individual
holding the office(s) set forth opposite his or her respective name as of
the date hereof, and the signature set forth beside the respective name as
of the date hereof, and the signature set forth beside the respective name
and title of said officers and authorized signatories are true, authentic
signatures.
(viii) Good Standing. Attached hereto as "Exhibit D" are original
------------- ---------
certificates dated as of a recent date from the Secretary of State or other
appropriate authority of each jurisdiction in which the Company was,
respectively, incorporated or qualified to do business, such certificate
evidencing the good standing of the Company in such jurisdictions.
Dated:_________________________ [NAME OF DEVELOPER]
By:____________________________
Its:______________________
2
<PAGE>
EXHIBIT 1.1(a)(42): FORM OF CONVEYANCE AGREEMENT
------------------------------------------------
CONVEYANCE AGREEMENT
BY AND AMONG
THE CITY OF DETROIT,
THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT
and
(________________________)
THIS CONVEYANCE AGREEMENT (this "Agreement"), entered into this ______ day
of _______________, 1998, by and among the City of Detroit, a Michigan municipal
corporation ("City"), The Economic Development Corporation of the City of
Detroit, a Michigan public body corporate ("EDC") , whose address is 211 West
Fort, Suite 900, Detroit, Michigan 48226 and _________________________________
("Developer") whose address is _______________________________________________.
WITNESSETH:
WHEREAS, Developer has agreed to purchase and develop the land described in
Exhibit "A" attached hereto and made a part hereof, together with any
- -----------
improvements thereon (the "Property") in accordance with the terms, covenants
and conditions of that certain Development Agreement dated _______________, 1998
(the "Development Agreement"), by and among City, EDC and Developer; and
WHEREAS, the Development Agreement requires Developer to purchase the
Property pursuant to the terms, covenants and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual obligations
of the parties hereto, each of them does hereby covenant and agree with the
others, as follows:
1. DEFINITIONS
-----------
1.01 Each capitalized term used in this Agreement shall have the meaning
ascribed to it in the Development Agreement, unless otherwise expressly defined
herein.
2. PURCHASE AND SALE OF PROPERTY
-----------------------------
2.01 Purchase and Sale of Property. The City hereby agrees to acquire the
-----------------------------
Property pursuant to the Development Agreement and the Resolution of Necessity
and to convey the Property to EDC. EDC agrees to sell the Property, as and when
acquired from City, to Developer and Developer hereby agrees to purchase the
Property from Seller on the terms, conditions and
<PAGE>
covenants contained herein. Developer agrees to develop the Property in
accordance with the terms, conditions and covenants of the Development
Agreement.
2.02 Conveyance. EDC shall sell, transfer and convey the Property to
----------
Developer either at a single closing or, at the option of Developer, in a series
of closings (a "Closing") at which EDC shall convey any portion of the Property
which has been acquired by City and/or EDC that Developer shall from time to
time designate (the "Designated Parcel"). The Closings shall take place in the
manner set forth in Article IV below.
2.03 Payment of Purchase Price. The purchase price for all of the Property
-------------------------
shall be an amount equal to Developer's Pro Rata Share of Feehold Compensation
less its Pro Rata Share of the City Contribution (the "Purchase Price"). In the
event Developer elects to acquire the Property on a parcel by parcel basis,
Developer shall pay at each Closing an amount equal to that portion of the
Purchase Price allocable to the Designated Parcel. Since the Property has been
or will be acquired by City through one or more acquisition activities,
including exercise of the power of eminent domain, the total amount of Feehold
Compensation or that portion attributable to the Designated Parcel, as the case
may be, may not be known at the time of the Closing, in which event the amount
to be paid at the Closing shall be the portion of the Estimated Compensation
which is fairly attributable (based on the appraisal for the Designated Parcel
obtained by City in connection with the Resolution of Necessity) to the
Designated Parcel, subject to adjustment after the Closing as provided in
Section 2.9 of the Development Agreement; provided, however the amount to be
paid at Closing for the remainder of the Property shall be the difference
between the aggregate amount paid at prior Closings and the Developer's Pro Rata
Share of the total Estimated Compensation. The obligation of Developer or EDC,
as the case maybe, to make payments in the form of post-Closing adjustments as
provided in Section 2.9 of the Development Agreement shall survive termination
of this Agreement and shall continue in effect unless and until Developer
reconveys the acquired Designated Parcel or Parcels to EDC.
3. CONDITION OF TITLE
------------------
3.01 Evidence of Title. As soon as possible after the Effective Date, EDC
-----------------
shall deliver to Developer a commitment for an owner's title insurance policy
for the Property (the "Commitment") issued by a responsible title insurance
company selected by EDC, licensed to do business in the State of Michigan, and
reasonably acceptable to Developer (the "Title Company") together with an ALTA
survey (the "Survey") of the Property prepared by a licensed surveyor reasonably
acceptable to Developer. The Commitment shall set forth the state of title to
the Property together with all exceptions, conditions, reservations, and
encumbrances. If Developer is dissatisfied with any matter shown on the Survey
or the Commitment, EDC and Developer shall work together to remedy any
deficiency disclosed by the Survey or the Commitment. At Closing, Developer
shall pay and be responsible for all premiums for the cost of the Survey and for
all policies issued pursuant to the Commitment and any endorsements thereto.
2
<PAGE>
3.02 Conveyance. At Closing, EDC will deliver to Developer a quit claim
----------
deed in substantially the form as attached hereto as Exhibit "B" (the "Deed")
-----------
conveying title to the Property subject only to such matters as may be
acceptable to Developer in its reasonable discretion.
3.03 Surveying and Testing. EDC shall permit Developer and its Associates
---------------------
to enter the Property for purposes of site investigation and testing, in the
manner and subject to the limitations set forth in Section 5.1 of the
Development Agreement. Developer shall have a period of time commencing on the
date EDC grants a right of entry to the entire Property and expiring one hundred
(100) days thereafter, or whatever longer period of time may be required to
satisfy the requirements of the Michigan Department of Environmental Quality for
issuance of an Administrative Order By Consent And Covenant Not To Sue in favor
of City, EDC, Developer and the Other Land-Based Casino Developers (the "Due
Diligence Period") in order to satisfy itself as to the condition of the
Property. Developer shall submit to EDC a copy of each survey or report
generated as a result of such activities.
3.04 Developer's Right to Terminate. If Developer's review of the
------------------------------
Commitment or inspection of the Property during the Due Diligence Period reveals
a defect in title or a physical or geotechnical condition which renders it
commercially impracticable for Developer to construct and operate the Casino
Complex in accordance with the Development Agreement, then Developer may, at its
option, upon giving EDC written notice thereof, together with an opinion of
counsel describing the defect in title or copies of the tests disclosing said
condition, at any time on or before the expiration of the Due Diligence Period,
elect to terminate this Agreement. If Developer should terminate this Agreement
for any reason, Developer shall immediately surrender and furnish to City and
EDC copies of any and all surveys, reports and studies which have been prepared
by Developer or any of its consultants with respect to the Property. Subject to
the foregoing right of termination and to Section 18.1(b) of the Development
Agreement, Developer agrees to accept the Property in an "as is", "where is"
condition and Developer waives any and all rights and remedies it might have
against City and EDC as a result of the condition thereof.
4. REPRESENTATION AND WARRANTIES
-----------------------------
4.01 Time and Place of Closing. Developer will notify EDC of the
-------------------------
prospective date for any Closing not less than ten (10) calendar days prior
thereto, unless otherwise agreed between the parties, provided that the Closing
on all Parcels shall occur no later than ten (10) calendar days after the
conditions precedent set forth in Section 2.4(a) of the Development Agreement
--------------
have been satisfied or waived. Each Closing shall take place at the office of
the Title Company, or other location in downtown Detroit designated by EDC.
4.02 Conditions to EDC's Performance. The obligation of EDC to convey the
-------------------------------
Property shall be subject to the following conditions precedent:
a. Payment of Purchase Price and Closing Costs. At each Closing, Developer
-------------------------------------------
shall have tendered payment of the amount specified in Section 2.03 to be
paid at Closing in respect of the Designated Parcel.
3
<PAGE>
b. No Default. There shall be no existing Event of Default by Developer under
----------
this Agreement.
4.03 Conditions to Developer's Performance. The obligation of Developer to
-------------------------------------
purchase the Property shall be subject to the following conditions precedent:
a. Satisfaction of Certain Development Agreement Conditions. The conditions
--------------------------------------------------------
precedent set forth in Sections 2.4(a)(6), (8) and (9) of the Development
-------------------------------
Agreement have been satisfied or waived.
b. Developer Approval of City Financing Arrangement. All of the conditions set
------------------------------------------------
forth in Section 2.5(a) of the Development Agreement have been satisfied or
waived in accordance with the provisions thereof.
c. Condition of Title. The Title Company shall have marked-up (or reissued)
------------------
the Commitment as of the date of the Closing to indicate that all
conditions of issuance of the policy and endorsements provided for in the
Commitment have been satisfied and that the Designated Parcel is not
subject to any federal or state tax liens or real property taxes or
assessments which are due and payable, unpaid water bills or other
encumbrances of record.
4.04 Delivery of Deed and Possession. EDC will deliver the Deed to the
-------------------------------
Designated Parcel and the possession thereof to Developer at Closing provided
that Developer has complied with all conditions precedent as specified herein.
Developer shall be responsible for recording the Deed and paying all recording
costs including county and state transfer taxes, if any.
4.05 Closing Statement. At each Closing, Developer and EDC shall each
-----------------
execute and deliver to the other a closing statement setting forth the amount
paid at Closing in respect of the Designated Parcel and reflecting all
adjustments provided for in this Agreement.
5. DEFAULTS AND REMEDIES
---------------------
5.01 Default by Developer. The occurrence of any one or more of the
--------------------
following events shall constitute an Event of Default under this Agreement:
a. If Developer does not pay for and take title to the Property, as required
by this Agreement, upon tender of conveyance by EDC.
b. If any Event of Default occurs under the Development Agreement.
Upon an Event of Default, EDC shall have the right to exercise any and all
remedies available to EDC under the Development Agreement.
5.02 Default by EDC. In the event EDC does not tender the conveyance of the
--------------
Property or any part thereof in the manner provided in this Agreement, and any
such failure shall not be cured
4
<PAGE>
within thirty (30) days after written demand by Developer, then, provided
Developer is not in Default under this Agreement, Developer, as its sole and
exclusive remedy, shall be entitled to obtain specific performance of this
Agreement and seek actual damages, if any, arising from delay or failure of
performance; provided, however, that if the nature of EDC's obligation is such
that more than thirty (30) days are reasonably required for performance, then
EDC shall not be in default if EDC commences performance within such thirty (30)
day period and thereafter diligently pursues such performance to completion.
6. NOTICES
-------
6.01 Notices. Any notice, demand or other communication which any party may
-------
desire or may be required to give to any other party shall be given as provided
in the Development Agreement.
6.02 Severability. If any one or more provisions of this Agreement or in
------------
any instrument or other document delivered pursuant to this Agreement or the
application thereof to any person or circumstance shall to any extent be
declared or determined to be invalid or unenforceable, the validity, legality
and enforceability of the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected or impaired thereby, and each
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
6.03 Complete Agreement This Agreement and the Development Agreement and
------------------
all the documents and agreements described or referred to herein and therein,
including the Exhibits hereto and thereto, constitute the full and complete
agreement between the parties hereto with respect to the subject matter hereof
and thereof, and supersede and control in their entirety over any and all prior
agreements, understandings, representations and statements, whether written or
oral, by each of the parties hereto. The parties hereto acknowledge and agree
that this Agreement shall implement, and is not intended to supersede, the
Development Agreement, and therefore the terms of the Development Agreement
shall control in the event of any conflict between this Agreement and the
Development Agreement.
6.04 Terminology. Unless the context otherwise expressly requires, the
-----------
words "herein", "hereof", and "hereunder", and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section,
or other subdivision. As used herein, the singular includes the plural, the
plural the singular, and the use of any gender shall be applicable to all
genders.
6.05 Covenants and Conditions. All the terms and provisions of this
------------------------
Agreement shall be deemed and construed to be "covenants" and "conditions" as
though the words specifically expressing or imparting covenants and conditions
were used in each separate term and provision.
6.06 Captions. The headings of the Articles, Sections and other
--------
subdivisions in this Agreement are for convenience of reference only and shall
not be used to construe or interpret the scope or intent of this Agreement or in
any way affect the same.
5
<PAGE>
6.07 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original document and together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
WITNESSES: CITY OF DETROIT,
a Michigan municipal corporation
By:
- --------------------------- --------------------------------------
Print: Its:
--------------------------------
- ---------------------------
Print:
WITNESSES: ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY OF
DETROIT, a Michigan public body corporate
- --------------------------- -----------------------------------------
Print: By:
--------------------------------------
Its: Authorized Agent
- ---------------------------
Print:
WITNESSES: DEVELOPER:
- --------------------------- -----------------------------------------
Print:
-----------------------------------------
- --------------------------- By:
Print: --------------------------------------
Its:
--------------------------------
6
<PAGE>
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
The foregoing instrument was acknowledged before me on _________________,
1998, by _________________, the duly authorized agent of the City of Detroit, a
Michigan municipal corporation, on behalf of said corporation.
-----------------------------------
Print:
-----------------------------
Notary Public, Wayne County,
Michigan
My commission expires:________
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
The foregoing instrument was acknowledged before me on _________________,
1998, by _________________, the duly authorized agent of The Economic
Development Corporation of the City of Detroit, a Michigan public body
corporate, on behalf of said corporation.
-----------------------------------
Print:
-----------------------------
Notary Public, Wayne County,
Michigan
My commission expires:________
7
<PAGE>
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
The foregoing instrument was acknowledged before me on ____________1998, by
_____________________________________, the _____________ of
_____________________ a Michigan _______________, on behalf of said
_____________________.
-----------------------------------
Print:
-----------------------------
Notary Public, Wayne County,
Michigan
My commission expires:________
Drafted by and when recorded return to:
8
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
[TO BE PROVIDED IN THE MANNER SET FORTH IN SECTION 9.3 OF THE
DEVELOPMENT AGREEMENT]
A-1
<PAGE>
EXHIBIT B
QUIT CLAIM DEED
The Economic Development Corporation of the City of Detroit, a Michigan
public body corporate (the "EDC"), quit claims to ____________________, whose
post office address is ____________________ the premises located in the City of
Detroit, County of Wayne, and State of Michigan, described on Exhibit A attached
hereto and made a part hereof, together with any and all tenements,
hereditaments and appurtenances thereunto belonging or in anywise appertaining,
for the sum of ____________________ ($_____________).
This Deed is given subject to the terms, covenants and conditions of
[Identify Restrictive Covenant Document] which is incorporated herein by
reference and recorded on ____________________, ____________________ in the
Office of the Register of Deeds for the County of Wayne in Liber ______________
on Pages ___________ through ___________ inclusive, none of the terms, covenants
and conditions of which shall be deemed merged in this Deed. The covenants
therein recited to be covenants running with the land are hereby declared to be
covenants running with the land enforceable by EDC as therein set forth.
Dated this _______ day of ____________________, 19__.
IN WITNESS WHEREOF, the Economic Development Corporation of the City of
Detroit has caused this instrument to be executed by its duly authorized officer
and sealed with its corporate seal, the day and year first above written.
WITNESSES: ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY OF
DETROIT, a Michigan public body corporate
- ---------------------------------- -----------------------------------------
Print: By:
--------------------------------------
Its: Authorized Agent
- ----------------------------------
Print:
[If any parcels are unplatted, add the statements required by the
Land Division Act.]
B-1
<PAGE>
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
The foregoing instrument was acknowledged before me on _________________,
1998, by _____________, the duly authorized agent of The Economic Development
Corporation of the City of Detroit, a Michigan public body corporate, on behalf
of said corporation.
-----------------------------------
Print:
-----------------------------
Notary Public, Wayne County,
Michigan
My commission expires:________
This instrument was drafted by and after recording return to:
B-2
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
GUARANTY AND KEEP WELL AGREEMENT
--------------------------------
This GUARANTY AND KEEP WELL AGREEMENT ("Guaranty") is made as of this _____
day of __________, 1998, by ______________________, a _____________
("Guarantor"), having its office at ____________________, to and for the benefit
of the Economic Development Corporation of the City of Detroit, a Michigan
public body corporate ("EDC"), having an office at 211 West Fort, Suite 900,
Detroit, Michigan 48226.
W I T N E S S E T H
-------------------
WHEREAS, _____________, a _____________ ("Developer"), the City of Detroit,
a municipal corporation ("City") and EDC have executed that certain Development
Agreement dated of even date herewith ("Development Agreement," with capitalized
terms herein having the same meaning as therein defined, unless expressly
otherwise defined herein), which Development Agreement sets forth the terms and
conditions upon which Developer has agreed to undertake and complete
construction of the Casino Complex; and
WHEREAS, Guarantor being the ________________ of Developer, will directly
and indirectly benefit from the financial success of Developer; and
WHEREAS, EDC has declined to enter into the Development Agreement unless
this Guaranty is executed by Guarantor and delivered to EDC.
NOW, THEREFORE, in consideration of the foregoing premises and in order to
induce EDC to execute and deliver the Development Agreement, Guarantor,
acknowledging that but for the execution and delivery of this Guaranty EDC would
not have consented to the Closing of the Development Agreement with Developer,
hereby covenants and agrees as follows:
1. Guarantor hereby absolutely, unconditionally and irrevocably guarantees
to EDC the following (collectively, the "Obligations"): (i) the full and
faithful performance of each and every one of the covenants and obligations in
the Development Agreement on Developer's part to be kept and performed with
respect to the construction, equipping and completion of the Casino Complex on
or before the Agreed Upon Opening Date in accordance with the terms, covenants
and conditions of the Development Agreement (including, without limitation, the
payment of socalled "hard costs" of construction and socalled "soft costs" of
construction such as fees and charges of architects, engineers, consultants,
surveyors, attorneys and others and the costs of all Permits, licenses and other
matters); (ii) Developer's prompt payment as and when due of all amounts of
every kind or nature whatsoever, including without limitation, Feehold
Compensation, Developer's Allocable Share of Development Process Costs,
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
Developer's portion of all Infrastructure Improvements to be paid by Developer
to EDC and/or City under the Development Agreement; and (iii) with respect to
any mechanic's or materialman's lien filed against or attaching to all or any
part of the Project Premises as a result of the Work, the removal or release of
such lien, provided that nothing herein shall preclude Developer or Guarantor
from contesting in good faith any such lien by appropriate proceedings.
Notwithstanding the foregoing, Guarantor shall have no obligation to obtain the
Certificate of Suitability and/or Casino License for or on behalf of Developer.
2. During the twenty-four (24) months following the Completion Date
(the "Keep Well Period"), Guarantor agrees to fund to Developer all amounts
necessary to allow Developer to operate the Casino Complex and keep the Casino
Complex open for business in the ordinary course during the Keep Well Period
(the "Keep Well Obligation"), but only to the extent that Developer's cash flow
from operations which is used to operate the Casino Complex and keep the Casino
Complex open for business in the ordinary course during the Keep Well Period is
insufficient to accomplish such purpose.
3. Guarantor will maintain continuously in full force and effect and
available to it resources, including unused lines of credit in its favor, in an
amount reasonably sufficient to fund all amounts necessary to allow Guarantor to
perform all of its obligations hereunder, including, without limitation, the
Keep Well Obligation.
4. Upon notice to Guarantor from EDC that Developer has failed to
perform any of the Obligations, Guarantor agrees to:
(a) assume full responsibility for, and to cause the Casino Complex
to be constructed, equipped and Completed on or before the Agreed Upon
Opening Date in accordance with terms, covenants and conditions of the
Development Agreement;
(b) remove any mechanic's or materialman's lien filed with respect to
the Development by reason of construction of the Casino Complex, provided
that nothing herein shall preclude Developer or Guarantor from contesting
in good faith any such lien by appropriate proceedings.
(c) perform and pay each and every one of the Obligations on demand
of EDC;
(d) indemnify and hold EDC harmless from and against any and all
loss, cost, damage, injury, liability, claim or expense EDC may suffer or
incur by reason of any nonpayment or nonperformance of any of the
Obligations; and
(e) fully reimburse and repay EDC promptly on demand for all outlays
and expenses including interest thereon at the Default Rate, that EDC may
make or incur by
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
reason of any nonpayment or nonperformance of any Obligations, including,
without limitation, all outlays and expenses that EDC may make or incur if
EDC, in its sole discretion, elects to complete the Casino Complex with
such changes or modifications to such of the Design Documents as the EDC
deems necessary or appropriate, provided that no such changes or
modifications shall constitute a Material Alteration or Material Deviation.
5. Upon any Event of Default hereunder, EDC shall have the following
rights and remedies:
(a) If EDC in its sole discretion chooses to do so, it may perform
any or all of Guarantor's obligations to be performed hereunder on
Guarantor's behalf. In such event, Guarantor shall reimburse EDC within ten
(10) days of demand for all costs and expenses, including reasonable
attorneys' fees, that EDC may incur in performing those obligations,
together with interest thereon at the Default Rate from the dates they are
incurred until paid.
(b) In addition, EDC may bring any action at law or in equity or
both, to compel Guarantor to perform its obligations hereunder and to
collect compensation for all loss, cost, damage, injury and expense which
may be sustained or incurred by EDC as a direct or indirect consequence of
Guarantor's failure to perform those obligations, including interest
thereon at the Default Rate.
6. Guarantor authorizes EDC to perform any and all of the following
acts at any time in its sole discretion, all without notice to Guarantor and
without affecting Guarantor's obligations under this Guaranty:
(a) With the consent of Developer, EDC may alter any terms of the
Development Agreement, including renewing, compromising, extending or
accelerating, or otherwise changing the time for performance thereunder.
(b) With the consent of Developer, EDC may alter, amend or modify all
or any part of the Design Documents.
(c) EDC may take and hold security for the Obligations, accept
additional or substituted security therefor, and subordinate, exchange,
enforce, waive, release, compromise, fail to perfect and sell or otherwise
dispose of any such security.
(d) EDC may direct the order and manner of any sale of all or any
part of any security now or later to be held for the Obligations and may
also bid at any such sale.
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
(e) EDC may apply any payments or recoveries from Developer,
Guarantor or any other source, and any proceeds of any security, to
Developer's Obligations in such manner, order and priority as it may elect,
whether or not those obligations are guaranteed by this Guaranty or secured
at the time of the application.
(f) EDC may release Developer of all or any portion of its liability
under the Obligations and the Development Agreement.
(g) EDC may substitute, add or release any one or more guarantors.
(h) EDC may consent to any assignment or successive assignments of
the Development Agreement by Developer.
7. Guarantor expressly agrees that until the Obligations are fully
satisfied and each and every term, covenant and condition of this Guaranty is
fully performed, including, without limitation, the Keep Well Obligation,
Guarantor shall not be released by or because of:
(a) Any act or event which might otherwise discharge, reduce, limit
or modify Guarantor's obligations under this Guaranty;
(b) Any waiver, extension, modification, forbearance, delay or other
act or omission of EDC, or any failure to proceed promptly or otherwise as
against Guarantor or any collateral, if any;
(c) Any action, omission or circumstance which might increase the
likelihood that Guarantor may be called upon to perform under this Guaranty
or which might affect the rights or remedies of Guarantor as against
Developer; or
(d) Any dealings occurring at any time between Developer or EDC,
whether relating to the Development Agreement or otherwise.
Guarantor hereby expressly waives and surrenders any defense to its liability
under this Guaranty based upon any of the foregoing acts, omissions, agreements,
waivers or matters. It is the purpose and intent of this Guaranty that the
obligations of Guarantor under it shall be absolute and unconditional under any
and all circumstances.
8. Guarantor waives:
(a) All statutes of limitations as a defense to any action or
proceeding brought against Guarantor by EDC to the fullest extent permitted
by law;
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
(b) Any right it may have to require EDC to proceed against
Developer, proceed against or exhaust any security held from Developer, or
pursue any other remedy in its power to pursue;
(c) Any defense based on any claim that Guarantor's obligations
exceed or are more burdensome than those of Developer;
(d) Any defense based on: (i) any legal disability of Developer, (ii)
any release, discharge, modification, impairment or limitation of the
liability of Developer under the Development Agreement from any cause
(other than the performance of the Obligations by Developer), whether
consented to by EDC or arising by operation of law or from any bankruptcy
or other voluntary or involuntary proceeding, in or out of court, for the
adjustment of debtor-creditor relationships ("Insolvency Proceeding"),
(iii) any rejection or disaffirmance of the Development Agreement in any
such Insolvency Proceeding;
(e) Any defense based on any action taken or omitted by EDC in any
Insolvency Proceeding involving Developer, including any election to have a
claim allowed as being secured, partially secured or unsecured, any
extension of credit by EDC to Developer in any Insolvency Proceeding, and
the taking and holding by EDC of any security for any such extension of
credit; and
(f) All presentations, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices
of acceptance of this Guaranty and of the existence, creation, payment or
nonpayment of the Obligations and demands and notices of every kind and
nature.
9. EDC shall not be required, as a condition precedent to making a
demand upon Guarantor or to bringing an action against Guarantor upon this
Guaranty, to make demand upon, or to institute any action or proceeding at law
or in equity against, Developer, any other guarantor or anyone else, or exhaust
its remedies against Developer, any other guarantor or any one else, or against
any collateral, if any, given to secure the Obligations. All remedies afforded
to EDC by reason of this Guaranty are separate and cumulative remedies and it is
agreed that no one of such remedies, whether exercised by EDC or not, shall be
deemed to be exclusive of any of the other remedies available to EDC and shall
not limit or prejudice any other legal or equitable remedy which EDC may have.
10. Until the termination of this Guaranty in accordance with its
terms, Guarantor hereby waives all rights of subrogation, contribution and
indemnity against Developer, now or hereafter arising, whether arising
hereunder, by operation of law or contract or otherwise, as well as the benefit
of any collateral which may from time to time secure the Obligations, and
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
to that end, Guarantor further agrees not to seek any reimbursement,
restitution, or collection from, or enforce any right or remedy of whatsoever
kind or nature in favor of Guarantor against, Developer or any other person or
any of their respective assets or properties for or with respect to any payments
made by Guarantor to EDC hereunder or in respect of the Obligations or the Keep
Well Obligation. EDC may, in the course of exercising any remedies available to
it under the Development Agreement, at its sole option elect which remedies it
may wish to pursue without affecting any of its rights hereunder. EDC may elect
to forfeit any of its rights, even if such actions shall result in a full or
partial loss of rights of subrogation which Guarantor, but for EDC's actions,
might have had.
11. If, at any time, all or any part of any payment previously
applied by EDC to any of the Obligations is rescinded or must otherwise be
restored or returned by EDC for any reason, including, without limitation, the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Developer,
or upon or as a result of the appointment of a receiver, intervenor, custodian
or conservator of, or trustee or similar officer for, Developer or any
substantial part of its property, Guarantor shall remain liable for the full
amount so rescinded or returned as though such payments had never been received
by EDC, notwithstanding any termination of this Guaranty or the cancellation of
the Development Agreement evidencing the Obligations of Developer.
12. Before signing this Guaranty, Guarantor investigated the
financial condition and business operations of Developer, the present and former
condition, uses and ownership of the Project Premises, and such other matters as
Guarantor deemed appropriate to assure itself of Developer's ability to
discharge its obligations under the Development Agreement. Guarantor assumes
full responsibility for that due diligence, as well as for keeping informed of
all matters which may affect Developer's ability to pay and perform the
Obligations. EDC has no duty to disclose to Guarantor any information which it
may have or receive about Developer's financial condition or business
operations, the condition or uses of the Project Premises, or any other
circumstances bearing on Developer's ability to perform under the Development
Agreement.
13. Except for Permitted Affiliate Payments, any rights of Guarantor,
whether now existing or hereafter arising, to receive payment on account of any
indebtedness (including interest) owed to it by Developer, or to withdraw
capital invested by it in Developer, or to receive distributions from Developer,
shall, to the extent and in the manner provided herein, be subordinate as to
time of payment and in all other respects to the full and prior payment and
performance of Developer's Obligations to EDC (to the extent then due).
Following and during the continuance of an Event of Default, Guarantor shall not
be entitled to enforce or receive payment of any sums or distributions from
Developer other than Permitted Affiliate Payments, until the Obligations have
been paid and performed in full (to the extent then due) and any such sums
received in violation of this Guaranty shall be received by Guarantor in trust
for EDC.
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
14. Guarantor hereby represents and warrants that:
(a) it is duly organized, validly existing and in good standing under
the applicable laws of the jurisdiction of its formation, with full power
and authority to execute and deliver this Guaranty and consummate the
transactions contemplated hereby;
(b) the execution and delivery of this Guaranty and the consummation
and performance by it of the transactions contemplated hereby: (1) have
been duly authorized by all actions required under the terms and provisions
of the instruments governing its existence ("Governing Instruments"), the
---------------------
laws of the jurisdiction of its formation and the laws of the State; (2)
create legal, valid and binding obligations of it enforceable in accordance
with the terms hereof; (3) subject to applicable law do not require the
approval or consent of any Governmental Authority having jurisdiction over
it, except those already obtained; and (4) do not and will not constitute a
violation of, or default under, its Governing Instruments, any Government
Requirements, agreement, commitment or instrument to which it is a party or
by which any of its assets are bound;
(c) subject to applicable gaming laws, neither it nor any of its
property has any immunity from any legal process (whether through service
or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) or the jurisdiction of any court of the United
States sitting in the State or any court of the State;
(d) the financial statements of Guarantor dated _______________, 199_
(the "Financial Statements") heretofore delivered to EDC by Guarantor, are
--------------------
true and correct in all material respects as of the date thereof, have been
prepared on the accounting basis adopted by Guarantor for federal income
tax purposes consistently applied (except insofar as any change in the
application thereof is disclosed in such Financial Statements), and fairly
present the financial condition of Guarantor as of the date thereof, and no
materially adverse change has occurred in the financial condition reflected
in such Financial Statements since the date thereof and no material
additional borrowings have been made or guaranteed by Guarantor since the
date thereof, in either case, which individually or in the aggregate
materially adversely affects the ability of Guarantor to pay and perform
its obligations hereunder;
(e) none of the Financial Statements or any certificate or statement
furnished to EDC by or on behalf of Guarantor in connection herewith, and
none of the representations and warranties in this Guaranty, contains any
untrue statement as of its date of a material fact or omits to state a
material fact necessary in order to make the statements contained therein
or herein not misleading;
(f) other than as disclosed in Guarantor's Form 10Ks and 10Qs filed
pursuant
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
to the Securities and Exchange Act of 1934, there are no actions, suits or
proceedings pending, or, to the knowledge of Guarantor, threatened against
or affecting Guarantor, or to Guarantor's knowledge which involve or to
Guarantor's knowledge may individually or in the aggregate materially
adversely affect the ability of Guarantor to perform any of its obligations
under this Guaranty, and Guarantor is not in default with respect to any
order, writ, injunction, decree or demand of any court, arbitration body or
Governmental Authority, which default materially adversely affects the
ability of Guarantor to pay and perform its obligations hereunder; and
(g) all permits, consents, approvals, orders and authorizations of,
and all registrations, declarations and filings with, all Governmental
Authorities (collectively, the "Consents"), if any, that are required in
--------
connection with the valid execution and delivery by Guarantor of this
Guaranty have been obtained and Guarantor agrees that all Consents, if any,
required in connection with the carrying out or performance of any of the
transactions required or contemplated thereby (including, but not limited
to, all authorizations, approvals, permits and consents) will be obtained
when required in order to satisfy the obligations hereunder in accordance
with the terms of this Guaranty.
15. Guarantor covenants with EDC as follows:
(a) Guarantor will furnish to EDC the following:
(i) No later than sixty (60) days after the end of each fiscal
quarter of Guarantor an unaudited balance sheet and income statement,
certified as true and correct by the chief financial officer of
Guarantor or by any other duly authorized representative of Guarantor
reasonably acceptable to EDC, which shall be prepared on the
accounting basis adopted by Guarantor for federal income tax purposes
consistently applied (except insofar as any change in the application
thereof is disclosed in such financial statements).
(ii) No later than one hundred twenty (120) days after the end of
each fiscal year of Guarantor an audited balance sheet and income
statement prepared in accordance with GAAP.
None of the aforesaid financial statements or any certificate or statement
furnished to EDC by or on behalf of Guarantor in connection with the
transactions contemplated hereby, and none of the representations and
warranties in this Guaranty, shall contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements contained therein or herein not misleading.
(b) Guarantor shall give notice to EDC promptly upon the occurrence
of:
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
(i) any known default or Event of Default; and
(ii) any (A) material default or event of default by Guarantor
under any contractual obligation of Guarantor or (B) litigation,
investigation or proceeding which may exist at any time between
Guarantor or any Person or Governmental Authority which could have a
material adverse effect on the ability of Guarantor to pay its
obligations hereunder.
Each notice pursuant to this paragraph shall be accompanied by a statement
setting forth details of the occurrence referred to therein and stating
what action Guarantor proposes to take with respect thereto.
(c) Guarantor agrees, upon the reasonable request of EDC, to do any
act or execute any additional documents as may be reasonably required by
EDC to accomplish or further confirm the provisions of this Guaranty.
16. EDC may declare Guarantor to be in default under this Guaranty
upon the occurrence of any of the following events ("Events of Default").
(a) If Guarantor fails to pay any amounts required to be paid or
expended under this Guaranty and such nonpayment continues for ten (10)
Business Days after written notice from EDC;
(b) If Guarantor fails to comply with any covenants and agreements
made by it in this Guaranty (other than those specifically described in any
other subparagraph of this paragraph 16) and such noncompliance continues
for fifteen (15) days after written notice from EDC, provided, however,
that if any such noncompliance is reasonably susceptible of being cured
within thirty (30) days, but cannot with due diligence be cured within
fifteen (15) days, and if Guarantor commences to cure any noncompliance
within said fifteen (15) days and diligently prosecutes the cure to
completion, then Guarantor shall not during such period of diligently
curing be in default hereunder as long as such default is completely cured
within thirty (30) days of the first notice of such default to Guarantor;
(c) If any representation or warranty made by Guarantor hereunder was
false or misleading in any material respect as of the time made;
(d) If any of the following events occur with respect to Guarantor:
(i) by order of a court of competent jurisdiction, a receiver, liquidator
or trustee of Guarantor or of any of the property of Guarantor (other than
non-material property and with respect to which the appointment hereinafter
referred to would not materially adversely affect the
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
financial condition of Guarantor) shall be appointed and shall not have
been discharged within ninety (90) days; (ii) a petition in bankruptcy,
insolvency proceeding or petition for reorganization shall have been filed
against Guarantor and same is not withdrawn, dismissed, canceled or
terminated within ninety (90) days; (iii) Guarantor is adjudicated bankrupt
or insolvent or a petition for reorganization is granted (without regard
for any grace period provided for herein); (iv) if there is an attachment
or sequestration of any of the property of Guarantor and same is not
discharged or bonded over within ninety (90) days; (v) if Guarantor files
or consents to the filing of any petition in bankruptcy or commences or
consents to the commencement of any proceeding under the Federal Bankruptcy
Code or any other law, now or hereafter in effect, relating to the
reorganization of Guarantor or the arrangement or readjustment of the debts
of Guarantor; or (vi) if Guarantor shall make an assignment for the benefit
of its creditors or shall admit in writing its inability to pay its debts
generally as they become due or shall consent to the appointment of a
receiver, trustee or liquidator of Guarantor or of all or any material part
of its property;
(e) If Guarantor ceases to do business or terminates its business for
any reason whatsoever or shall cause or institute any proceeding for the
dissolution of Guarantor;
(f) Except on satisfaction of the Obligations and expiration of the
Keep Well Obligation, if Guarantor attempts to withdraw, revoke or assert
that the Guaranty is of no force or effect.
17. If any of the provisions of this Guaranty, or the application
thereof to any Person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Guaranty, or the application of such
provision or provisions to Persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of this Guaranty shall be valid and enforceable to the fullest
extent permitted by law.
18. This writing is intended by the parties as a final expression of
this Guaranty, and is intended to constitute a complete and exclusive statement
of the term of the agreement among the parties hereto. There are no promises or
conditions, expressed or implied, unless contained in this writing. No course of
dealing, course of performance or trade usage, and no parol evidence of any
nature, shall be used to supplement or modify the terms of this Guaranty. No
amendment, modification, termination or waiver of any provision of this
Guaranty, shall in any event be effective unless the same shall be in writing
and signed by EDC, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No waiver
shall be implied from EDC's delay in exercising or failing to exercise any right
or remedy against Developer, Guarantor or any collateral given to secure the
Obligations.
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
19. Any notice or communication required or permitted hereunder shall
be in writing and shall be deemed properly given if delivered by messenger,
Federal Express or other recognized overnight courier, or if sent by United
States mail, postage prepaid, registered or certified mail, addressed as set
forth below. All notices shall be deemed to have been given upon delivery, if
delivered by messenger or overnight courier, or five (5) Business Days after the
date of mailing if mailed.
If to Guarantor:
_________________________
_________________________
_________________________
_________________________
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
If to EDC:
_________________________
_________________________
_________________________
_________________________
or, as to such party or address as shall be specified by like notice.
20. Time is of the essence in performance of this Guaranty by
Guarantor.
21. Guarantor's obligations under this Guaranty are in addition to
its obligations under any other existing or future guaranties, each of which
shall remain in full force and effect until it is expressly modified or released
in a writing signed by EDC. Guarantor's obligations under this Guaranty are
independent of those of Developer under the Development Agreement.
22. The terms of this Guaranty shall bind and benefit the legal
representatives, successors and assigns of EDC and Guarantor; provided, however,
that Guarantor may not assign this Guaranty, or assign or delegate any of its
rights or obligations under this Guaranty, without the prior written consent of
EDC in each instance.
23. This Guaranty shall be governed by, and construed in accordance
with, the local laws of the State of Michigan without application of its law of
conflicts principles.
24. If any lawsuit or arbitration is commenced which arises out of,
or which relates to this Guaranty or the Development Agreement, the prevailing
party in such lawsuit or arbitration shall be entitled to recover from each
other party such sums as the court or arbitrator may adjudge to be reasonable
attorneys' fees (including reasonably allocated costs for services of in-house
counsel) in the action or proceeding in addition to costs and expenses otherwise
allowed by law. In any bankruptcy, reorganization, receivership, or other
proceedings affecting creditor's rights involving a claim under this Guaranty,
Guarantor agrees to pay all of EDC's reasonable costs and expenses, including
attorneys' fees (including reasonably allocated costs for services of in-house
counsel) which may be incurred in any effort to collect on or enforce any term
of this Guaranty, but only to the extent permitted by the court having
jurisdiction over such proceedings. From the time(s) incurred until paid in
full, all sums shall bear interest at the Default Rate.
25. Guarantor acknowledges that it expects to benefit from the
extension of the Development Agreement to Developer because of its relationship
to Developer, and that it is executing this Guaranty in consideration of that
anticipated benefit.
<PAGE>
EXHIBIT 1.1(a)(83): FORM OF GUARANTY
AND KEEP WELL AGREEMENT
------------------------------------
26. The obligations of Guarantor under this Guaranty with respect to
the Obligations set forth in paragraph 1 hereof, shall terminate and be of no
further force or effect (subject to reinstatement pursuant to paragraph 11
hereof) upon the satisfaction of such Obligations set forth in paragraph 1
hereof and with respect to the Keep Well Obligation, shall terminate and be of
no further force or effect upon the expiration of the Keep Well Period.
27. EDC shall not issue a written release of Developer, other than as
it may be compelled to do so by court order unless it issues a similar release
of Guarantor.
28. EACH PARTY TO THIS GUARANTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THE
DEVELOPMENT AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DEALINGS OF THE PARTY HERETO OR ANY OF THEM WITH RESPECT TO THIS GUARANTY,
THE DEVELOPMENT AGREEMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, this Guaranty has been duly executed as of the day
and year first above written.
[SIGNATURE BLOCK]
<PAGE>
EXHIBIT 1.1(a)(113): FORM OF PERFORMANCE
GUARANTY
-----------------------------------------
PERFORMANCE GUARANTY
--------------------
This PERFORMANCE GUARANTY ("Guaranty") is made as of this _____ day of
__________, 1998, by ______________________, a _____________ ("Guarantor"),
having its office at ____________________, to and for the benefit of the
Economic Development Corporation of the City of Detroit, a Michigan public body
corporate ("EDC"), having an office at 211 West Fort, Suite 900, Detroit,
Michigan 48226 and the City of Detroit, a municipal corporation ("City", and
together with EDC collectively the "Beneficiaries").
W I T N E S S E T H
-------------------
WHEREAS, _____________, a _____________ ("Developer") and Beneficiaries
have executed that certain Development Agreement dated of even date herewith
("Development Agreement," with capitalized terms herein having the same meaning
as therein defined, unless expressly otherwise defined herein), which
Development Agreement sets forth the terms and conditions upon which Developer
has agreed to build and operate the Casino Complex; and
WHEREAS, Guarantor being the ________________ of Developer, will directly
and indirectly benefit from the financial success of Developer; and
WHEREAS, pursuant to Section 3.7 of the Development Agreement, Developer
-----------
may deliver this Guaranty to Beneficiaries in consideration of Beneficiaries's
forbearance from exercising certain rights and remedies under the Development
Agreement as a result of Developer's nonperformance of, and noncompliance with,
certain covenants, conditions and provisions as more particularly set forth
therein.
NOW, THEREFORE, in consideration of the foregoing premises, Guarantor,
acknowledging that but for the execution and delivery of this Guaranty,
Beneficiaries would be entitled to exercise certain rights and remedies under
the Development Agreement with respect to Developer's nonperformance of, and
noncompliance with, certain covenants, conditions and provisions therein, and
in consideration of Beneficiaries's forbearance from exercising such rights
and remedies and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, hereby covenants and
agrees as follows:
1. Guarantor hereby absolutely, unconditionally and irrevocably guarantees
to Beneficiaries the full, complete and punctual payment, observance,
performance and satisfaction of all covenants, terms, conditions, debts,
liabilities, obligations, duties and agreements of Developer under the
Development Agreement, however created, arising or evidenced, whether direct or
<PAGE>
indirect, absolute or contingent, now or hereafter existing, due or to become
due, known or unknown to Guarantor at the time of the execution of this Guaranty
(collectively, the "Obligations").
2. The obligations of Guarantor under this Guarantor shall terminate
and be of no further force or effect (subject to reinstatement pursuant to
paragraph 11 hereof) upon Guarantor's delivery to Beneficiaries of written
notice of such termination and the concurrent satisfaction of all of the
following:
(a) no Event of Default or event which, with the giving of notice or
passage of time or both, could mature into and Event of Default exists
hereunder or under the Development Agreement;
(b) Developer is in compliance with the financial covenants set forth
in Section 3.2 of the Development Agreement;
-----------
(c) Developer is in compliance with the Performance Threshold;
(d) there shall have been deposited in the Sinking Fund account
sufficient funds to comply with the Sinking Fund Provisions set forth in
Section 3.5 of the Development Agreement;
-----------
(e) there shall have been deposited in the Capital Maintenance Fund
sufficient funds to comply with the reserve requirements for capital
replacements set forth in Section 7.7 of the Development Agreement;
-----------
(f) to the extent insurance proceeds and any other funds are required
to be deposited into a trust account in accordance with Section 16.2 of the
------------
Development Agreement, the full amount of such deposits have been
deposited; and
(g) To the extent Proceeds and any other funds are required to be
deposited into an escrow account in accordance with Section 16.4 of the
------------
Development Agreement, the full amount of such deposits have been
deposited.
3. Guarantor will maintain continuously in full force and effect and
available to it resources, including unused lines of credit in its favor, in an
amount reasonably sufficient to fund all amounts necessary to allow Guarantor to
perform all of its obligations hereunder.
4. This is an absolute, irrevocable, present and continuing guaranty
of payment and performance and not merely a guaranty of collection. Upon notice
to Guarantor from either Beneficiary that Developer has failed to perform any of
the Obligations, Guarantor agrees, on demand by either Beneficiary to:
2
<PAGE>
(a) perform and pay each and every one of the Obligations in
accordance with the terms, covenants and conditions of the Development
Agreement;
(b) indemnify and hold Beneficiaries harmless from and against any and
all loss, cost, damage, injury, liability, claim or expense Beneficiaries
may suffer or incur by reason of any nonpayment or nonperformance of any of
the Obligations; and
(c) fully reimburse and repay Beneficiaries for all outlays and
expenses including interest thereon at the Default Rate, that Beneficiaries
may make or incur by reason of any nonpayment or nonperformance of any
Obligations, including, without limitation, all outlays and expenses that
Beneficiaries may make or incur if Beneficiaries, in their sole discretion,
elect to pay or perform any of the Obligations on Developer's or
Guarantor's behalf.
5. Upon any Event of Default hereunder, Beneficiaries shall have the
following rights and remedies:
(a) If Beneficiaries in their sole discretion choose to do so, they
may perform any or all of Guarantor's obligations to be performed hereunder
on Guarantor's behalf. In such event, Guarantor shall reimburse
Beneficiaries immediately on demand for all costs and expenses, including
reasonable attorneys' fees, that Beneficiaries may incur in performing
those obligations, together with interest thereon at the Default Rate from
the dates they are incurred until paid.
(b) In addition, Beneficiaries may bring any action at law or in
equity or both, to compel Guarantor to perform its obligations hereunder
and to collect compensation for all loss, cost, damage, injury and expense
which may be sustained or incurred by Beneficiaries as a direct or indirect
consequence of Guarantor's failure to perform those obligations, including
interest thereon at the Default Rate.
6. Guarantor authorizes any Beneficiary to perform any and all of the
following acts at any time in its sole discretion, all without notice to
Guarantor and without affecting Guarantor's obligations under this Guaranty:
(a) With the consent of Developer, Beneficiaries may alter any terms
of the Development Agreement, including renewing, compromising, extending
or accelerating, or otherwise changing the time for performance thereunder.
(b) Beneficiaries may take and hold security for the Obligations,
accept additional or substituted security therefor, and subordinate,
exchange, enforce, waive, release, compromise, fail to perfect and sell or
otherwise dispose of any such security.
3
<PAGE>
(c) Beneficiaries may direct the order and manner of any sale of all
or any part of any security now or later to be held for the Obligations and
may also bid at any such sale.
(d) Beneficiaries may apply any payments or recoveries from Developer,
Guarantor or any other source, and any proceeds of any security, to
Developer's Obligations in such manner, order and priority as it may elect,
whether or not those obligations are guaranteed by this Guaranty or secured
at the time of the application.
(e) Beneficiaries may release Developer of all or any portion of its
liability under the Obligations and the Development Agreement.
(f) Beneficiaries may substitute, add or release any one or more
guarantors.
(g) Beneficiaries may consent to any assignment or successive
assignments of the Development Agreement by Developer.
7. Guarantor expressly agrees that Guarantor shall not be released by
or because of:
(a) Any act or event which might otherwise discharge, reduce, limit or
modify Guarantor's obligations under this Guaranty;
(b) Any waiver, extension, modification, forbearance, delay or other
act or omission of Beneficiaries, or any failure to proceed promptly or
otherwise as against Guarantor or any collateral, if any;
(c) Any action, omission or circumstance which might increase the
likelihood that Guarantor may be called upon to perform under this Guaranty
or which might affect the rights or remedies of Guarantor as against
Developer; or
(d) Any dealings occurring at any time between Developer or
Beneficiaries, whether relating to the Development Agreement or otherwise.
Guarantor hereby expressly waives and surrenders any defense to its liability
under this Guaranty based upon any of the foregoing acts, omissions, agreements,
waivers or matters. It is the purpose and intent of this Guaranty that the
obligations of Guarantor under it shall be absolute and unconditional under any
and all circumstances.
8. Guarantor waives:
4
<PAGE>
(a) All statutes of limitations as a defense to any action or
proceeding brought against Guarantor by Beneficiaries to the fullest extent
permitted by law;
(b) Any right it may have to require Beneficiaries to proceed against
Developer, proceed against or exhaust any security held from Developer, or
pursue any other remedy in its power to pursue;
(c) Any defense based on any claim that Guarantor's obligations exceed
or are more burdensome than those of Developer;
(d) Any defense based on: (i) any legal disability of Developer, (ii)
any release, discharge, modification, impairment or limitation of the
liability of Developer under the Development Agreement from any cause
(other than the performance of the Obligations by Guarantor), whether
consented to by Beneficiaries or arising by operation of law or from any
bankruptcy or other voluntary or involuntary proceeding, in or out of
court, for the adjustment of debtor-creditor relationships ("Insolvency
Proceeding"), (iii) any rejection or disaffirmance of the Development
Agreement in any such Insolvency Proceeding;
(e) Any defense based on any action taken or omitted by Beneficiaries
in any Insolvency Proceeding involving Developer, including any election to
have a claim allowed as being secured, partially secured or unsecured, any
extension of credit by Beneficiaries to Developer in any Insolvency
Proceeding, and the taking and holding by Beneficiaries of any security for
any such extension of credit; and
(f) All presentations, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices
of acceptance of this Guaranty and of the existence, creation, payment or
nonpayment of the Obligations and demands and notices of every kind and
nature.
9. Beneficiaries shall not be required, as a condition precedent to
making a demand upon Guarantor or to bringing an action against Guarantor upon
this Guaranty, to make demand upon, or to institute any action or proceeding at
law or in equity against, Developer, any other guarantor or anyone else, or
exhaust its remedies against Developer, any other guarantor or any one else, or
against any collateral, if any, given to secure the Obligations. All remedies
afforded to Beneficiaries by reason of this Guaranty are separate and cumulative
remedies and it is agreed that no one of such remedies, whether exercised by
Beneficiaries or not, shall be deemed to be exclusive of any of the other
remedies available to Beneficiaries and shall not limit or prejudice any other
legal or equitable remedy which Beneficiaries may have.
10. Until the obligations of Guarantor shall terminate pursuant to
paragraph 2 hereof, Guarantor hereby waives all rights of subrogation,
contribution and indemnity against
5
<PAGE>
Developer, now or hereafter arising, whether arising hereunder, by operation of
law or contract or otherwise, as well as the benefit of any collateral which may
from time to time secure the Obligations, and to that end, Guarantor further
agrees not to seek any reimbursement, restitution, or collection from, or
enforce any right or remedy of whatsoever kind or nature in favor of Guarantor
against, Developer or any other person or any of their respective assets or
properties for or with respect to any payments made by Guarantor to EDC
hereunder or in respect of the Obligations. EDC may, in the course of exercising
any remedies available to it under the Development Agreement, at its sole option
elect which remedies it may wish to pursue without affecting any of its rights
hereunder. EDC may elect to forfeit any of its rights, even if such actions
shall result in a full or partial loss of rights of subrogation which Guarantor,
but for EDC's actions, might have had.
11. If, at any time, all or any part of any payment previously applied
by Beneficiaries to any of the Obligations is rescinded or must otherwise be
restored or returned by Beneficiaries for any reason, including, without
limitation, the insolvency, bankruptcy, dissolution, liquidation or
reorganization of Developer, or upon or as a result of the appointment of a
receiver, intervenor, custodian or conservator of, or trustee or similar officer
for, Developer or any substantial part of its property, Guarantor shall remain
liable for the full amount so rescinded or returned as though such payments had
never been received by Beneficiaries, notwithstanding any termination of this
Guaranty or the cancellation of the Development Agreement evidencing the
Obligations of Developer.
12. Before signing this Guaranty, Guarantor investigated the financial
condition and business operations of Developer, the present and former
condition, uses and ownership of the Project Premises, and such other matters as
Guarantor deemed appropriate to assure itself of Developer's ability to
discharge its obligations under the Development Agreement. Guarantor assumes
full responsibility for that due diligence, as well as for keeping informed of
all matters which may affect Developer's ability to pay and perform the
Obligations. Beneficiaries have no duty to disclose to Guarantor any information
which it may have or receive about Developer's financial condition or business
operations, the condition or uses of the Project Premises, or any other
circumstances bearing on Developer's ability to perform under the Development
Agreement.
13. Except for Permitted Affiliate Payments, any rights of Guarantor,
whether now existing or hereafter arising, to receive payment on account of any
indebtedness (including interest) owed to it by Developer, or to withdraw
capital invested by it in Developer, or to receive distributions from Developer,
shall, to the extent and in the manner provided herein, be subordinate as to
time of payment and in all other respects to the full and prior payment and
performance of Developer's Obligations to Beneficiaries to the extent then due.
Following and during the continuance of an Event of Default, Guarantor shall not
be entitled to enforce or receive payment of any sums or distributions from
Developer other than Permitted Affiliate Payments until the Obligations have
been paid and performed in full to the extent then due and any such sums or
6
<PAGE>
distributions received in violation of this Guaranty shall be received by
Guarantor in trust for Beneficiaries.
14. Guarantor hereby represents and warrants that:
(a) it is duly organized, validly existing and in good standing under
the applicable laws of the jurisdiction of its formation, with full power
and authority to execute and deliver this Guaranty and consummate the
transactions contemplated hereby;
(b) the execution and delivery of this Guaranty and the consummation
and performance by it of the transactions contemplated hereby: (1) have
been duly authorized by all actions required under the terms and provisions
of the instruments governing its existence ("Governing Instruments"), the
---------------------
laws of the jurisdiction of its formation and the laws of the State; (2)
create legal, valid and binding obligations of it enforceable in accordance
with the terms hereof; (3) do not require the approval or consent of any
Governmental Authority having jurisdiction over it, except those already
obtained; and (4) do not and will not constitute a violation of, or default
under, its Governing Instruments, any Government Requirements, agreement,
commitment or instrument to which it is a party or by which any of its
assets are bound;
(c) subject to applicable gaming laws, neither it nor any of its
property has any immunity from any legal process (whether through service
or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) or the jurisdiction of any court of the United
States sitting in the State or any court of the State;
(d) the financial statements of Guarantor dated _______________,
19_____ (the "Financial Statements") heretofore delivered to Beneficiaries
--------------------
by Guarantor, are true and correct in all material respects as of the date
thereof, have been prepared on the accounting basis adopted by Guarantor
for federal income tax purposes consistently applied (except insofar as any
change in the application thereof is disclosed in such Financial
Statements), and fairly present the financial condition of Guarantor as of
the date thereof, and no materially adverse change has occurred in the
financial condition reflected in such Financial Statements since the date
thereof and no material additional borrowings have been made or guaranteed
by Guarantor since the date thereof, in either case, which individually or
in the aggregate materially adversely affects the ability of Guarantor to
pay and perform its obligations hereunder;
(e) none of the Financial Statements or any certificate or statement
furnished to Beneficiaries by or on behalf of Guarantor in connection
herewith, and none of the representations and warranties in this Guaranty,
contains any untrue statement as of its date
7
<PAGE>
of a material fact or omits to state a material fact necessary in order to
make the statements contained therein or herein not misleading;
(f) other than as disclosed in Guarantor's Form 10Ks and 10Qs filed
pursuant to the Securities and Exchange Act of 1934, there are no actions,
suits or proceedings pending, or, to the knowledge of Guarantor, threatened
against or affecting Guarantor, or to Guarantor's knowledge which involve
or to Guarantor's knowledge may individually or in the aggregate materially
adversely affect the ability of Guarantor to perform any of its obligations
under this Guaranty, and Guarantor is not in default with respect to any
order, writ, injunction, decree or demand of any court, arbitration body or
Governmental Authority, which default materially adversely affects the
ability of Guarantor to pay and perform its obligations hereunder; and
(g) all permits, consents, approvals, orders and authorizations of,
and all registrations, declarations and filings with, all Governmental
Authorities (collectively, the "Consents"), if any, that are required in
--------
connection with the valid execution and delivery by Guarantor of this
Guaranty have been obtained and Guarantor agrees that all Consents, if any,
required in connection with the carrying out or performance of any of the
transactions required or contemplated thereby (including, but not limited
to, all authorizations, approvals, permits and consents) will be obtained
when required in order to satisfy the obligations hereunder in accordance
with the terms of this Guaranty.
15. Guarantor covenants with Beneficiaries as follows:
(a) Guarantor will furnish to Beneficiaries the following:
(i) No later than sixty (60) days after the end of each fiscal
quarter of Guarantor an unaudited balance sheet and income statement,
certified as true and correct by the chief financial officer of
Guarantor or by any other duly authorized representative of Guarantor
reasonably acceptable to Beneficiaries, which shall be prepared on the
accounting basis adopted by Guarantor for federal income tax purposes
consistently applied (except insofar as any change in the application
thereof is disclosed in such financial statements).
(ii) No later than one hundred twenty (120) days after the end of
each fiscal year of Guarantor an audited balance sheet and income
statement prepared in accordance with GAAP.
None of the aforesaid financial statements or any certificate or statement
furnished to Beneficiaries by or on behalf of Guarantor in connection with
the transactions contemplated hereby, and none of the representations and
warranties in this Guaranty, shall contain any
8
<PAGE>
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein or herein not
misleading.
(b) Guarantor shall give notice to Beneficiaries promptly upon the
occurrence of:
(i) any known default or Event of Default; and
(ii) any (A) material default or event of default by Guarantor
under any contractual obligation of Guarantor or (B) litigation,
investigation or proceeding which may exist at any time between
Guarantor or any Person or Governmental Authority which could have a
material adverse effect on the ability of Guarantor to pay its
obligations hereunder.
Each notice pursuant to this paragraph shall be accompanied by a statement
setting forth details of the occurrence referred to therein and stating
what action Guarantor proposes to take with respect thereto.
(c) Guarantor agrees, upon the reasonable request of Beneficiaries, to
do any act or execute any additional documents as may be reasonably
required by Beneficiaries to accomplish or further confirm the provisions
of this Guaranty.
16. Beneficiaries may declare Guarantor to be in default under this
Guaranty upon the occurrence of any of the following events ("Events of
Default").
(a) If Guarantor fails to pay any amounts required to be paid or
expended under this Guaranty and such nonpayment continues for ten (10)
Business Days after written notice of such nonpayment;
(b) If Guarantor fails to comply with any covenants and agreements
made by it in this Guaranty (other than those specifically described in any
other subparagraph of this paragraph 16) and such noncompliance continues
for fifteen (15) Business Days after written notice of such nonperformance,
provided, however, that if any such noncompliance is reasonably susceptible
of being cured within thirty (30) Business Days, but cannot with due
diligence be cured within fifteen (15) Business Days, and if Guarantor
commences to cure any noncompliance within said fifteen (15) Business Days
and diligently prosecutes the cure to completion, then Guarantor shall not
during such period of diligently curing be in default hereunder as long as
such default is completely cured within thirty (30) Business Days of the
first notice of such default to Guarantor;
(c) If any representation or warranty made by Guarantor hereunder was
false or misleading in any material respect as of the time made;
9
<PAGE>
(d) If any of the following events occur with respect to Guarantor:
(i) by order of a court of competent jurisdiction, a receiver, liquidator
or trustee of Guarantor or of any of the property of Guarantor (other than
non-material property and with respect to which the appointment hereinafter
referred to would not materially adversely affect the financial condition
of Guarantor) shall be appointed and shall not have been discharged within
ninety (90) days; (ii) a petition in bankruptcy, insolvency proceeding or
petition for reorganization shall have been filed against Guarantor and
same is not withdrawn, dismissed, canceled or terminated within ninety (90)
days; (iii) Guarantor is adjudicated bankrupt or insolvent or a petition
for reorganization is granted (without regard for any grace period provided
for herein); (iv) if there is an attachment or sequestration of any of the
property of Guarantor and same is not discharged or bonded over within
ninety (90) days; (v) if Guarantor files or consents to the filing of any
petition in bankruptcy or commences or consents to the commencement of any
proceeding under the Federal Bankruptcy Code or any other law, now or
hereafter in effect, relating to the reorganization of Guarantor or the
arrangement or readjustment of the debts of Guarantor; or (vi) if Guarantor
shall make an assignment for the benefit of its creditors or shall admit in
writing its inability to pay its debts generally as they become due or
shall consent to the appointment of a receiver, trustee or liquidator of
Guarantor or of all or any material part of its property;
(e) If Guarantor ceases to do business or terminates its business for
any reason whatsoever or shall cause or institute any proceeding for the
dissolution of Guarantor; or
(f) Except pursuant to Section 2, if Guarantor attempts to withdraw,
revoke or assert that the Guaranty is of no force or effect.
17. If any of the provisions of this Guaranty, or the application
thereof to any Person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Guaranty, or the application of such
provision or provisions to Persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of this Guaranty shall be valid and enforceable to the fullest
extent permitted by law.
18. This writing is intended by the parties as a final expression of
this Guaranty, and is intended to constitute a complete and exclusive statement
of the term of the agreement among the parties hereto. There are no promises or
conditions, expressed or implied, unless contained in this writing. No course of
dealing, course of performance or trade usage, and no parol evidence of any
nature, shall be used to supplement or modify the terms of this Guaranty. No
amendment, modification, termination or waiver of any provision of this
Guaranty, shall in any event be effective unless the same shall be in writing
and signed by Beneficiaries, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
10
<PAGE>
waiver shall be implied from Beneficiaries's delay in exercising or failing to
exercise any right or remedy against Developer, Guarantor or any collateral
given to secure the Obligations.
19. Notices. Notices shall be given as follows:
-------
(i) Any notice, demand or other communication which any party may
desire or may be required to give to any other party shall be in
writing delivered by (i) hand-delivery, (ii) a nationally recognized
overnight courier, (iii) telecopy, or (iv) mail addressed to a party
at its address set forth below, or to such other address as the party
to receive such notice may have designated to all other parties by
notice in accordance herewith:
If to City: Mayor
City of Detroit
1126 City-County Building
Detroit, Michigan 48226
Telecopier No.: 313-224-____
with copies to: Corporation Counsel
City of Detroit
First National Building
660 Woodward Avenue
Suite 1650
Detroit, Michigan 48226
Telecopier No.: 313-224-5505
If to EDC: _______________________
_______________________
_______________________
_______________________
with copies to: _______________________
_______________________
_______________________
_______________________
_______________________
11
<PAGE>
If to Developer: _______________________
_______________________
_______________________
_______________________
with copies to: _______________________
_______________________
_______________________
_______________________
(ii) Any such notice, demand or communication shall be deemed
delivered and effective upon the earlier to occur of actual delivery
or, if delivered by telecopier, the same day as confirmed by
telecopier transmission or the first Business Day thereafter if
telecopied on a non-Business Day.
20. Time is of the essence in performance of this Guaranty by
Guarantor.
21. Guarantor's obligations under this Guaranty are in addition to its
obligations under any other existing or future guaranties, each of which shall
remain in full force and effect until it is expressly modified or released in a
writing signed by Beneficiaries. Guarantor's obligations under this Guaranty are
independent of those of Developer under the Development Agreement.
22. The terms of this Guaranty shall bind and benefit the legal
representatives, successors and assigns of Beneficiaries and Guarantor;
provided, however, that Guarantor may not assign this Guaranty, or assign or
delegate any of its rights or obligations under this Guaranty, without the prior
written consent of Beneficiaries in each instance.
23. This Guaranty shall be governed by, and construed in accordance
with, the local laws of the State of Michigan without application of its law of
conflicts principles.
24. If any lawsuit or arbitration is commenced which arises out of, or
which relates to this Guaranty or the Development Agreement, the prevailing
party in such lawsuit or arbitration shall be entitled to recover from each
other party such sums as the court or arbitrator may adjudge to be reasonable
attorneys' fees (including reasonably allocated costs for services of in-house
counsel) in the action or proceeding in addition to costs and expenses otherwise
allowed by law. In any bankruptcy, reorganization, receivership, or other
proceedings affecting creditor's rights involving a claim under this Guaranty,
Guarantor agrees to pay all of reasonable costs and expenses of Beneficiaries,
including attorneys' fees (including reasonably allocated costs for services of
in-house counsel) which may be incurred in any effort to collect on or enforce
any term of this Guaranty, but only to the extent permitted by the court having
jurisdiction over such proceedings. From the time(s) incurred until paid in
full, all sums shall bear interest at the Default Rate.
12
<PAGE>
25. No amounts shall be due hereunder unless and until Guarantor has
received notice pursuant to paragraph 4 hereof.
26. EACH PARTY TO THIS GUARANTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THE
DEVELOPMENT AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DEALINGS OF THE PARTY HERETO OR ANY OF THEM WITH RESPECT TO THIS GUARANTY,
THE DEVELOPMENT AGREEMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, this Guaranty has been duly executed as of the day
and year first above written.
[SIGNATURE BLOCK]
13
<PAGE>
EXHIBIT 7.7(a)
- --------------
The Capitalized Maintenance Fund will be determined as follows:
a. During the first two full Fiscal Years after Completion, one percent
(1%) of net revenues of the Casino Complex; and
b. During the subsequent Fiscal Years, one and one-half percent (1 1/2%)
of net revenues of the Casino Complex.
-1-
<PAGE>
EXHIBIT 21.25: FORM OF ESTOPPEL CERTIFICATE FROM THE CITY
---------------------------------------------------------
__________, ____
[Name of Financial Institution] ("Addressee")
[Address of Financial Institution]
Attn: ________________________
Re: Development Agreement between the City of Detroit, the Economic
Development Corporation of the City of Detroit and [Developer]
("Developer") for the City of Detroit Casino Development Project (the
"Agreement"), dated _______________, 1998
Ladies and Gentlemen:
The undersigned, the City of Detroit, a municipal corporation ("City"),
provides this Estoppel Certificate ("Certificate") to you with respect to those
matters and only those matters set forth herein concerning the above-referenced
Agreement:
As of the date of this Certificate, the undersigned hereby certifies that
to the undersigned's actual knowledge:
1. Attached hereto as Exhibit A is a true, accurate, and complete copy of the
---------
Agreement. The Agreement has not been amended except as set forth in
Exhibit A.
---------
2. The Agreement has not been terminated or canceled. The City has/has not
sent to Developer notice in accordance with the terms of the Agreement
alleging that the Developer is in default under the Agreement. [If a notice
has been sent, a copy is attached].
3. The City has/has not received notice from Developer in accordance with the
terms of the Agreement alleging that the City is in default under the
Agreement. [If a notice has been sent, a copy is attached].
4. The Effective Date, as such term is defined in the Agreement, was
__________, 1998. The Closing Date, as such term is defined in the
Agreement, [was __________, 1999/has not occurred].
Notwithstanding the representations herein, in no event shall this
Certificate subject the City to any liability whatsoever, despite the negligent
or otherwise inadvertent failure of the City to disclose correct or relevant
information, or constitute a waiver with respect to any act of Developer for
which approval by the City was required but not sought or obtained, provided
that, as between the City and Addressee, the City shall be estopped from denying
the accuracy of this Certificate. No party other than Addressee shall have the
right to rely on this Certificate. In no event shall this
<PAGE>
Certificate amend or modify the Agreement, and the City shall not be estopped
from denying the accuracy of this Certificate as between the City and any party
other than the Addressee.
CITY OF DETROIT,
a municipal corporation.
By: __________________________________
Name: __________________________________
Title: __________________________________
2
<PAGE>
EXHIBIT 21.25: FORM OF ESTOPPEL CERTIFICATE FROM THE EDC
--------------------------------------------------------
, 1998
-----------
[Name of Financial Institution] ("Addressee")
[Address of Financial Institution]
Attn:
----------------------
Re: Development Agreement between the City of Detroit, the Economic
Development Corporation of the City of Detroit and [Developer]
("Developer") for the City of Detroit Casino Development Project (the
"Agreement"), dated , 1998
-------------
Ladies and Gentlemen:
The undersigned, Economic Development Corporation of the City of Detroit, a
Michigan public body corporate ("EDC"), provides this Estoppel Certificate
("Certificate") to you with respect to those matters and only those matters set
forth herein concerning the above-referenced Agreement:
As of the date of this Certificate, the undersigned hereby certifies that
to the undersigned's actual knowledge:
1. Attached hereto as Exhibit A is a true, accurate, and complete copy of the
---------
Agreement. The Agreement has not been amended except as set forth in
Exhibit A.
---------
2. The Agreement has not been terminated or canceled. The EDC has/has not sent
to Developer notice in accordance with the terms of the Agreement alleging
that the Developer is in default under the Agreement. [If a notice has been
sent, a copy is attached].
3. The EDC has/has not received notice from Developer in accordance with the
terms of the Agreement alleging that the EDC is in default under the
Agreement. [If a notice has been sent, a copy is attached].
4. The Effective Date, as such term is defined in the Agreement, was
, 1998. The Closing Date, as such term is defined in
-----------
the Agreement, [was , 1999/has not occurred].
-----------
Notwithstanding the representations herein, in no event shall this
Certificate subject EDC to any liability whatsoever, despite the negligent or
otherwise inadvertent failure of EDC to disclose correct or relevant
information, or constitute a waiver with respect to any act of Developer for
which approval by the EDC was required but not sought or obtained, provided
that, as between EDC and Addressee, EDC shall be estopped from denying the
accuracy of this Certificate. No party other than Addressee shall have the right
to rely on this Certificate. In no event shall this Certificate
<PAGE>
amend or modify the Agreement, and EDC shall not be estopped from denying the
accuracy of this Certificate as between the EDC and any party other than the
Addressee.
ECONOMIC DEVELOPMENT CORPORATION,
a Michigan public body corporate.
By: /s/
------------------------------
Name:
----------------------------
Title:
---------------------------
2
<PAGE>
EXHIBIT 10(42)
FIRST AMENDMENT TO THE
AMENDED AND RESTATED DEVELOPMENT AGREEMENT
BY AND AMONG
THE CITY OF DETROIT, THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT
AND MGM GRAND DETROIT, LLC
THIS FIRST AMENDMENT (the "First Amendment") to that certain Amended and
Restated Development Agreement, dated as of April 9, 1998, by and among the City
of Detroit, the Economic Development Corporation of the City of Detroit and MGM
Grand Detroit, LLC for the City of Detroit Casino Development Project (the
"Development Agreement") is made on this 25th day of June, 1998 by and among the
City of Detroit, the Economic Development Corporation of the City of Detroit and
MGM Grand Detroit, LLC.
WHEREAS, the City, EDC and Developer have previously entered into the
Development Agreement; and
WHEREAS, it is the desire of the parties to enter into this First
Amendment to amend certain provisions of the Development Agreement and to
provide for an advance of certain fees.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants herein contained, the parties agree as follows:
1. All capitalized terms not otherwise defined herein shall have the same
meaning as set forth in the Development Agreement.
2. Section 2.4(a) of the Development Agreement is hereby amended by deleting
--------------
the existing language of such section and substituting the following in its
place:
(a) This Agreement shall confer no rights and impose no obligations until
the Effective Date. Notwithstanding the execution hereof and the
occurrence of the Effective Date, except as and to the extent set
forth in (i) Article I, (ii) Section 2.4, (iii) Section 2.5, (iv)
--------- ----------- -----------
Section 2.7, (v) Section 2.8, (vi) Section 2.10, (vii) Section 2.11,
----------- ----------- ------------ ------------
(viii) Section 2.17, (ix) Article VIII, (x) Article IX, (xi) Article
------------ ------------ ---------- -------
X, (xii) Article XIV, (xiii) Article XVIII, (xiv) Article XX and (xv)
- ----------- ------------- ----------
Article XXI, each to the extent applicable, no right shall be
-----------
conferred or obligation imposed, by or under this Agreement until the
first to occur of: (x) the Temporary Casino Opening Date, as that term
is defined in Section 20.6, or (y) the Closing Date. Notwithstanding
------------
the foregoing, Developer shall have no right to commence construction
of the Casino Complex (other than Site Preparation Work on those
parcels within the Project Premises to which Developer has acquired
title) until the Closing Date, unless such condition is otherwise
waived, in writing, by the City. The Closing Date for the Casino
Complex shall occur when each of the following conditions has been
fully satisfied:
1
<PAGE>
[Remainder of Section 2.4(a)(1)-(a)(14) remains unchanged.]
-------------------------
3. Section 2.5(b) of the Development Agreement is hereby amended by deleting
--------------
the existing language of such section and substituting the following in its
place:
(b) Within five (5) Business Days following the date the last of the
following occurs: (i) City Council approves the Conveyance Agreement;
and (ii) the Due Diligence Period, as defined in the Conveyance
Agreement has expired, Developer shall furnish the EDC with a letter
of credit in an amount equal to the Letter of Credit Amount (as
hereinafter defined) and in such form and upon such terms and
conditions as are reasonably necessary to allow City to acquire the
Casino Area and the Public Land. For purposes hereof, the "Letter of
Credit Amount" shall be equal to Developer's Pro Rata Share times an
amount equal to (A) the sum of (x) Feehold Compensation plus (y) a
reasonable reserve as agreed to by Developer, the City, the EDC and
the Other Land-Based Casino Developers, less (B) the appraised value
of any land owned by the City in the Casino Area determined in
accordance with the definition of Feehold Compensation.
4. Section 5.1 of the Development Agreement is hereby amended by deleting the
-----------
first sentence of the existing language of such section and substituting
the following in its place:
As City and/or EDC obtains a right of possession to the Project Premises
which permits Developer onto the Project Premises for purposes of
conducting tests and inspections, the City and/or EDC shall grant to
Developer (or shall cause Developer to be granted) a right of entry onto
the Project Premises to conduct preliminary or preparatory work, such as
surveys (including environmental surveys) and tests (including but not
limited to core sampling, test pits, monitoring wells, soil compaction and
test pilings).
[Remainder of Section 5.1 remains unchanged.]
-----------
5. Exhibit 1.1(a)(42) (Conveyance Agreement), Paragraph 3.03 is hereby amended
------------------
by deleting the existing language in such paragraph and substituting the
following in its place:
3.03 Surveying and Testing. EDC shall permit Developer and its Associates
---------------------
to enter the Property for purposes of site investigation and testing,
in the manner and subject to the limitations set forth in Section 5.1
-----------
of the Development Agreement. Developer shall have sixty (60) days
(the "Due Diligence Period") commencing on the date the last of the
following occurs: (i) the City and EDC deliver the cost estimates set
forth on Schedule A, as referred to in Section 2.18 of the Development
------------
Agreement ("Schedule A"), together with all reports, analyses, and
other material relied upon by City and EDC in developing Schedule A
(the "Supporting Material"), including, without limitation,
appraisals, estimates of relocation payments and other costs included
in Feehold Compensation (other than information which the City is
restricted from disclosing pursuant to Section 5(2) of the Uniform
Condemnation Procedures Act, MCL 213.55(2)), Phase I and Phase II
environmental site
2
<PAGE>
assessments, laboratory analysis, reports, estimates of the cost of
environmental Response activity and underlying assumptions and
calculations, geotechnical reports, estimates of the cost of
Infrastructure Improvements and underlying assumptions and
calculations, and (ii) the City and EDC deliver the Commitment and the
Survey in order to: (x) satisfy itself as to the physical condition of
the Property and title thereto, or (y) determine the feasibility of
the issuance of an Administrative Order By Consent And Covenant Not To
Sue in favor of the City, EDC, Developer and the Other Land-Based
Casino Developers, or (z) determine the feasibility of Developer and
the Other Land-Based Casino Developers preparing an acceptable
baseline environmental assessment; provided, in any event, the City
shall not be obligated to acquire any portion of the Property until
the Due Diligence Period has expired.
6. Exhibit 1.1(a)(42) (Conveyance Agreement), Paragraph 3.04 is hereby amended
------------------
by deleting the existing language in such paragraph and substituting
the following in its place:
3.04 Developer's Right to Terminate. If Developer's review of the
------------------------------
Commitment, Schedule A, and/or the Supporting Material during the Due
Diligence Period reveals a defect in title or a physical or
geotechnical condition which renders it commercially impracticable for
Developer to construct and operate the Casino Complex in accordance
with the Development Agreement, then Developer may, at its option,
upon giving EDC written notice thereof, together with an opinion of
counsel describing such defect in title or copies of the reports,
analyses and other material pertaining to such condition, as the case
may be, at any time on or before the expiration of the Due Diligence
Period, elect to terminate this Agreement. If Developer should
terminate this Agreement for any reason, Developer shall immediately
surrender and furnish to City and EDC copies of any and all surveys,
reports and studies which have been prepared by Developer or any of
its consultants with respect to the Property. Subject to the
foregoing right of termination and to Section 18.1(b) of the
---------------
Development Agreement, Developer agrees to accept the Property in an
"as is", "where is" condition and Developer waives any and all rights
and remedies it might have against City and EDC as a result of the
condition thereof.
7. Exhibit 1.1(a)(83) (Guaranty and Keep Well Agreement), Paragraph 1 is
------------------
hereby amended by deleting the existing language in such paragraph and
substituting the following in its place:
1. Guarantor hereby absolutely, unconditionally and irrevocably
guarantees to EDC the following (collectively, the "Obligations"): (i)
the full and faithful performance of each and every one of the
covenants and obligations in the Conveyance Agreement on Developer's
part to be kept and performed in accordance with the terms, covenants
and conditions of the Conveyance Agreement; (ii) the full and faithful
performance of each and every one of the covenants and obligations in
the Development Agreement on Developer's part to be kept and performed
with respect to the construction, equipping and completion of the
Casino Complex on or before
3
<PAGE>
the Agreed Upon Opening Date in accordance with the terms, covenants
and conditions of the Development Agreement (including, without
limitation, the payment of so-called "hard costs" of construction and
so-called "soft costs" of construction such as fees and charges of
architects, engineers, consultants, surveyors, attorneys and others
and the costs of all Permits, licenses and other matters); (iii)
Developer's prompt payment as and when due of all amounts of every
kind or nature whatsoever, including without limitation, the Advance
(if applicable), Feehold Compensation (net of the City Contribution),
Developer's Allocable Share of Development Process Costs, Developer's
portion of all Infrastructure Improvements to be paid by Developer to
EDC and/or City under the Development Agreement; and (iv) with respect
to any mechanic's or materialman's lien filed against or attaching to
all or any part of the Project Premises as a result of the Work, the
removal or release of such lien, provided that nothing herein shall
preclude Developer or Guarantor from contesting in good faith any such
lien by appropriate proceedings. Notwithstanding the foregoing,
Guarantor shall have no obligation to obtain the Certificate of
Suitability and/or Casino License for or on behalf of Developer.
8. Section 20.1 of the Development Agreement is hereby amended by deleting the
------------
existing language of such section and substituting the following in
its place:
20.1 Developer's Temporary Casino Obligations.
----------------------------------------
(a) Subject to Developer acquiring or leasing a Temporary Casino Site (as
herein defined), Developer may elect to design, construct, finance and
operate a Temporary Casino subject to and in accordance with the terms
of this Article XX and the other provisions of this Agreement, as
----------
applicable. In the event Developer makes such election, the following
provisions in this Article XX shall apply.
----------
(b) Nothing in this Article XX shall in any way affect, limit, or modify
----------
Developer's obligations contained in any other provision of this
Agreement.
9. Section 20.3 of the Development Agreement is hereby amended by deleting the
------------
existing language of such section and substituting the following in its
place:
20.3 Temporary Casino Financing.
--------------------------
(a) Developer shall submit to City its plan for obtaining funds to finance
the acquisition or leasing of the Temporary Casino Site and the
design, construction and operation of the Temporary Casino. Such funds
shall be on such terms and conditions as are acceptable to City in the
exercise of its commercially reasonable judgment. Any borrowed funds
shall be from a Suitable Lender.
(b) Developer represents and warrants that the funding described under its
plan submitted to the City pursuant to Section 20.3(a) will be
---------------
available to Developer and is sufficient to acquire or lease the
Temporary Casino Site and to construct, develop,
4
<PAGE>
equip and operate the Temporary Casino in accordance with the terms of
this Agreement.
10. Section 20.4(b) of the Development Agreement is hereby amended by deleting
---------------
"one hundred thousand (100,000) square feet" in the last sentence and
substituting in its place "seventy-five thousand (75,000) square feet."
11. Section 20.5(a) of the Development Agreement is hereby amended by deleting
---------------
the existing language of such section and substituting the following in its
place:
(a) Provided that by May 1, 1998 the Developer has identified its
Temporary Casino Site and submitted to the City the information
required from Developer under Article XX (the "Temporary Casino
----------
Information"), the Mayor, within ten (10) Business Days of being
satisfied with the Temporary Casino Information, shall transmit the
Temporary Casino Information to the City Council. The Mayor shall act
within a reasonable period of time under the circumstances.
12. Section 20.5(b) of the Development Agreement is hereby amended by deleting
---------------
the existing language of such section and substituting the following in its
place:
(b) Provided that by May 1, 1998 the Mayor receives information from the
Other Land-Based Casino Developers concerning their temporary casinos
as and to the extent required under the casino development agreements
with the City which information is satisfactory to the Mayor
(including but not limited to the information required by Section
-------
2.6(l)), the Mayor shall submit the Temporary Casino Information and
-------
the comparable information of any of the Other Land-Based Casino
Developers who satisfy this Section 20.5(b) (collectively, the
---------------
"Temporary Casino Proposals") to the City Council in a single
transmission.
13. Section 20.5(c) of the Development Agreement is hereby amended by deleting
---------------
the existing language of such section and substituting the following in its
place:
(c) Provided City Council approves all zoning changes necessary to
accommodate all of the Temporary Casino Proposals submitted pursuant
to Section 20.5(b), Developer shall have the right to commence
---------------
construction of its Temporary Casino, subject to Section 20.5(f) and
---------------
all other applicable provisions of this Agreement. Notwithstanding the
failure of any Other Land-Based Casino Developer to have satisfied
Section 20.5(b), the Mayor shall submit the Temporary Casino Proposals
---------------
of the Developer and any Other Land-Based Casino Developer who does
satisfy Section 20.5(b) to the City Council in a single transmission.
---------------
14. Section 20.5 of the Development Agreement is hereby amended by inserting as
Section 20.5(e) the following:
(e) Unless the Board shall have indicated in writing its intention not to
approve
5
<PAGE>
Temporary Casinos, within seven (7) Business Days following the date
the last of the following occurs: (i) the First Amendment is effective
(as set forth in paragraph 26 of this First Amendment); and (ii) City
Council has approved all zoning changes necessary to permit casino
gaming operations to be conducted at, and Developer's development and
site plan for, the Temporary Casino, Developer shall pay to the City a
non-refundable sum of Three Hundred Thirty Three Thousand Three
Hundred Thirty-Three and 34/100 Dollars ($333,333.34) (the "Early
Advance"). The Early Advance shall be credited against Developer's
first year's Municipal Services Fee obligation and will be used to
assist the City in defraying the cost of hosting casinos. Except as
set forth in Section 20.5(f), the City shall have no obligation to
---------------
Developer to pay interest on the Early Advance or to reimburse
Developer for the Early Advance in the event the Municipal Services
Fee obligation never becomes payable. Developer's failure to pay the
Early Advance in accordance with the above terms shall be deemed an
Event of Default as set forth in Section 10.1(a) of the Development
---------------
Agreement and shall be subject to the Default Rate as set forth in
Section 2.11 of the Development Agreement.
------------
15. Section 20.5 of the Development Agreement is hereby amended by inserting as
------------
Section 20.5(f) the following:
---------------
(f) No later than seven (7) months prior to the Temporary Casino Opening
Date, (as defined in Section 20.6(d)), Developer shall pay to the City
---------------
a non-refundable sum of Three Million Six Hundred Sixty Six Thousand
Six Hundred Sixty-Six and 66/100 Dollars ($3,666,666.66) (the
"Advance"). The Advance shall be credited against Developer's first
year's Municipal Services Fee obligation and will be used to assist
the City in defraying the cost of hosting casinos. Except and to the
extent set forth in the next succeeding sentence, the City shall have
no obligation to Developer to pay interest on the Advance or to
reimburse Developer for the Advance in the event the Municipal
Services Fee obligation never becomes payable. In the event the
Temporary Casino Opening Date does not occur because the Board does
not issue a Casino License for the Temporary Casino Site, the Early
Advance and the Advance shall bear interest at a per annum rate equal
to the rate paid from time to time by the Governmental Cash Investment
Fund (Comerica Investment Fund J) or if such fund no longer exists at
the time such interest is calculated, at the rate paid from time to
time by such other governmental investment fund in which the City
maintains short term investments, which amount shall be credited
against Developer's first and subsequent years' Municipal Services Fee
obligation until fully applied.
16. Section 20.6(c) of the Development Agreement is hereby amended by
---------------
capitalizing the reference to "temporary casino opening date."
17. Section 20.6 of the Development Agreement is hereby amended by inserting as
------------
Section 20.6(d) the following:
---------------
(d) For purposes of Article XX, "Temporary Casino Opening Date" shall mean
----------
the first
6
<PAGE>
day the Temporary Casino is open to the public for its intended use.
The Temporary Casino Opening Date shall not occur until and unless all
of the following conditions have been fully satisfied or have been
waived in accordance with Section 20.6(e):
---------------
(1) The Board has issued its Certificate of Suitability pursuant to
the Act, granting to Developer the right to receive a Casino
License upon the conditions set forth in the Act and such
Certificate of Suitability contains only such other conditions as
may be acceptable to Developer in the exercise of its reasonable
judgment.
(2) The Developer, City and EDC have duly executed and delivered the
Conveyance Agreement and the Conveyance Agreement has been
approved by City Council.
(3) The Developer has delivered to the EDC a letter of credit in the
Letter of Credit Amount and in such form and upon such terms and
conditions as are reasonably necessary to allow City to acquire
the Casino Area and the Public Land.
(4) The Developer has delivered, and has caused Parent Company to
deliver, to the City and EDC an opinion of counsel in a form
reasonably satisfactory to City and EDC.
(5) The City and EDC each have delivered to Developer an opinion of
counsel in a form reasonably satisfactory to Developer.
(6) The Developer has paid to the City its Allocable Share of the
Development Process Costs then due.
(7) The Developer has paid to the City the Advance, in accordance
with Section 20.5(f).
---------------
(8) The City Council has approved all zoning changes necessary to
allow Developer to operate the Temporary Casino and enacted an
ordinance authorizing casino gaming in the City.
(9) There shall be no temporary restraining order, preliminary
injunction or permanent injunction to enjoin the Developer from
proceeding to develop the Temporary Casino.
(10) The Developer has delivered to City and EDC the Guaranty and Keep
Well Agreement executed by an Acceptable Guarantor.
7
<PAGE>
(11) The Developer has delivered to City and EDC Closing Certificates
executed by Developer and an Acceptable Guarantor.
(12) The Developer has delivered to City the executed agreement of
Parent Company, any Casino Manager and each Restricted Party
required under Section 2.14(e).
---------------
(13) The Developer has delivered to City certificates showing that
Developer, any Acceptable Guarantor and any Casino Manager are in
good standing and qualified to do business in the State, if
required under the law of the State, dated no earlier than five
(5) days prior to the Temporary Casino Opening Date.
(14) The Developer has approved, in writing, Schedule A as referred to
in Section 4.11.
------------
(15) The Developer has furnished such documentation as City reasonably
required to verify that the Initial Financing to be obtained by
Developer is in substantially the same form as set forth in
Exhibit 8.11(e) or is otherwise satisfactory to the City, and is
---------------
still in effect.
Notwithstanding satisfaction of the foregoing conditions, in no event shall
the Temporary Casino Opening Date occur prior to seven (7) months following
Developer's payment of the Advance.
18. Section 20.6 of the Development Agreement is hereby amended by inserting as
------------
Section 20.6(e) the following:
---------------
(e) Developer may waive, in whole or in part, any or all of those
conditions set forth in Section 20.6(d)(5) prior to the satisfaction
------------------
of such condition. City may waive, in whole or in part, any of those
conditions set forth in Sections 20.6(d)(2), (d)(3), (d)(4), (d)(6),
--------------------------------------------
(d)(7), (d)(10), (d)(11), (d)(12), (d)(13) and (d)(14) prior to the
------------------------------------------------------
satisfaction of such condition. No waiver of any condition shall be
effective: (x) unless such waiver shall be in writing or (y) if the
failure to satisfy such condition would make performance of this
Agreement illegal.
19. Section 20.7(b) of the Development Agreement is hereby amended by deleting
---------------
the existing language in such section and substituting the following in its
place:
(b) Developer agrees to cease all Casino Gaming Operations at the
Temporary Casino on the Completion Date but in no event later than
forty-eight (48) months from the Temporary Casino Opening Date.
Developer's obligation to cease Casino Gaming Operations at the
Temporary Casino Site under this Section 20.7(b) is not subject to
---------------
Force Majeure.
8
<PAGE>
20. Section 20.8 of the Development Agreement is hereby amended by inserting as
------------
Section 20.8(c) the following:
---------------
(c) Notwithstanding and in addition to the limitations imposed by Section
-------
20.8(b), distributions to Developer's members (other than those
-------
permitted by Section 20.8(a)) shall be suspended during any period in
---------------
which either of the following conditions exists: (i) Developer's
Schematic Design Documents have not been submitted to the PM for
review or approval, provided that such distributions shall not be
suspended under this Section 20.8(c)(i) during the one hundred twenty
------------------
(120) day period after the Closing Date; or (ii) construction of the
Casino Complex is not at least fifty percent (50%) completed, as
certified by Developer's architect, provided that such distributions
shall not be suspended under this Section 20.8(c)(ii) during the
-------------------
twenty-four (24) month period after issuance of the Building Permit.
21. Section 20.8 of the Development Agreement is hereby amended by inserting as
------------
Section 20.8(d) the following:
---------------
(d) For purposes of Section 20.8(b) and (c), "distributions" shall include
-----------------------
any loans or advances made to Developer's members.
22. Article XX of the Development Agreement is hereby amended by inserting as
----------
Section 20.9 the following:
------------
20.9 Certain Limitations on Remedies. Notwithstanding any other provision
-------------------------------
in this Agreement to the contrary, upon an Event of Default arising under
Section 10.1(a) due to the breach by Developer of any of Developer's
---------------
obligations specified in Article XX, it being understood that Article XX
---------- ----------
does not obligate Developer to develop or operate a Temporary Casino, City
and EDC's remedies under Sections 10.2(a) and (b) shall be limited to the
------------------------
City electing to (i) institute a Specific Performance Proceeding and/or
(ii) receive actual damages from Developer. The foregoing limitation on
City's and EDC's remedies under Sections 10.2(a) and (b) shall in no way
limit or diminish any other right of City under this Agreement or
otherwise, including without limitation, City's or EDC's rights or remedies
under the Guaranty and Keep Well Agreement, under any other guaranty,
indemnity or agreement or under Section 2.11 or Article XI.
------------ ----------
23. Section 1.1(a)(4)(B) of the Development Agreement is hereby amended by
--------------------
inserting at the beginning of that section the following: "Until the first
redetermination of the Valuation Adjustment,".
24. By execution of this First Amendment, the Mayor hereby approves Developer's
Temporary Casino Proposal, subject to: (i) all necessary approvals by City
Council; and (ii) all approval, permitting, and inspection processes
associated with building projects generally in the City and within the
zoning classification pertaining to the Temporary Casino.
25. Except as amended by this First Amendment, the Development Agreement is
reaffirmed in
9
<PAGE>
all respects, and shall remain in full force and effect.
26. This First Amendment shall become effective on the date on which all of the
following have been accomplished: the First Amendment has been executed by
all parties hereto and the City Council has duly approved the last of the
following: (i) this First Amendment; and (ii) the first amendment to the
amended and restated development agreements of each of the Other Land-Based
Casino Developers.
27. This First Amendment may be executed in counterparts, each of which shall
be deemed to be an original document and together shall constitute one
instrument.
[SIGNATURES ON NEXT PAGE]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and had their
seals affixed on the dates set forth after their respective signatures.
CITY OF DETROIT, a municipal
corporation
By: /s/
-----------------------------------
Its: /s/
--------------------------------
THE ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY OF
DETROIT, a Michigan public body
corporate
By: /s/
-----------------------------------
Its: /s/ Authorized Agent
--------------------------------
By: /s/
-----------------------------------
Its: /s/ Authorized Agent
--------------------------------
MGM GRAND DETROIT, LLC, a Delaware
limited liability company
By: /s/
----------------------------------
Its: Chief Financial Officer
11
<PAGE>
EXHIBIT 10(43)
Mayor\City of Detroit
1126 City-County Building
Detroit, MI 48226
Corporation Counsel
City of Detroit
First National Building
660 Woodward Avenue
Suite 1650
Detroit, MI 48226
The Economic Development Corporation
of the City of Detroit
211 W. Fort Street
Suite 900
Detroit, MI 48226
Reference is made to the Amended and Restated Casino Development Agreement
among the City of Detroit ("City"), the Economic Development Corporation of the
City of Detroit ("EDC") and MGM Grand Detroit, L.L.C. ("Developer") for the
City of Detroit Development Project, dated as of April 9, 1998, as amended as of
June 25, 1998 (the "Development Agreement"). Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Development
Agreement. To induce the City Administration to submit to the City Council for
their approval, a Conveyance Agreement amended in the form set forth on
Exhibit A attached hereto, the Developer agrees, subject to satisfaction of the
- ---------
conditions set forth below, as follows:
1. Approval of Revised Schedules A and B. In reliance upon the
-------------------------------------
representation by City and EDC that Developer or its consultants have been
furnished with all Supporting Material (as defined in Section 3.03 of the form
------------
of Conveyance Agreement annexed to the Development Agreement) reasonably
required by Developer or its consultants to make an informed decision as to the
accuracy of Revised Schedules A and B in the form attached hereto ("Revised
Schedules A and B") which will be submitted as contemplated by Section 2.18 of
------------
the Development Agreement, Developer hereby approves and accepts Revised
Schedules A and B.
2. Developer Waiver Regarding Revised Schedules A and B. Developer
----------------------------------------------------
hereby waives any and all rights that it may have to claim or assert that the
information set forth on Revised Schedules A and B, or the Supporting Material
on which they are based, is incomplete, inaccurate or requires further revision
in any respect. Developer hereby acknowledges that the amounts set forth on
Revised Schedules A and B are estimates and agrees that Developer's waiver shall
not be affected if final costs exceed such estimates.
3. Agreement To Amend Conveyance Agreement. Developer agrees that the
---------------------------------------
form of Conveyance Agreement to be submitted by the City Administration to City
Council for its approval shall be amended in the form set forth on Exhibit A
---------
attached hereto.
<PAGE>
4. Agreement to Complete Legal Description. Developer agrees that
---------------------------------------
within two weeks of the date hereof, it will reach agreement with the Other
Developers as to the correct legal description of the Property, as that term is
defined in the Conveyance Agreement (the "Legal Description").
5. Conditions to Developer's Agreements. Developer's agreements
------------------------------------
hereunder are expressly subject to and conditioned upon the following:
A. The Conveyance Agreement being amended in the form of Exhibit A
---------
attached hereto, and such Conveyance Agreement, as so amended, being duly
approved by the City, the City Council and the EDC.
B. The City not amending or revising Revised Schedules A or B to add any
new matter.
C. The accuracy of the City's and EDC's representation in paragraph 1
above, provided that such representation shall not be deemed inaccurate if
Developer's or its consultant's failure to receive any Supporting Material would
not have reasonably resulted in a conclusion that Revised Schedules A and B are
inaccurate or incomplete.
D. The City not having withheld from Developer any information which, in
the exercise of its good faith judgment, would have been reasonably required to
make an informed decision as to the accuracy of Revised Schedules A and B.
E. The City not including as the cost of a Response activity on a
revised Schedule A a matter that reasonably could be classified as an
Infrastructure Improvement.
F. Receipt by the Developer of an ALTA boundary survey of the land to be
included in the Land-Based Casino Developments together with
currently-effective title insurance commitments sufficient to assure the
Developer, in the exercise of its reasonable judgment, that it will acquire all
the Property pursuant to the Conveyance Agreement subject to no restrictions or
encumbrances which would materially prevent or impede the development of the
Casino Complex.
January 26, 1999
MGM GRAND DETROIT, LLC, a Delaware
limited liability company
By: /S/
-------------------------------
Its: Vice Chairman
<PAGE>
Revised Schedule A*
------------------
(i) The City's best estimate of the aggregate of the
Feehold Compensation $ 151,801,800
(ii) The cost of all Infrastructure Improvements 88,694,880
(iii) The costs of all of the above and below ground
environmental Response activity necessary in order
to obtain a covenant not to sue in favor of the City,
EDC, Developer and the Other Land-Based Casino Developers
issued by the Michigan Department of Environmental
Quality with respect to the Casino Area and the Public
Land. 9,187,647
-----------
Total of (i), (ii) and (iii) $ 249,684,327
===========
*Capitalized terms have the same meanings ascribed to them in the Agreements
<PAGE>
Revised Schedule B
------------------
<TABLE>
<S>
I. St. Aubin Corridor <C>
- --------------------------------------------------------------------------------------------
A. Reconstruct Jefferson Ave. Bridge for 6-lane roadway section. $1,520,000
- --------------------------------------------------------------------------------------------
B. Roadway Section from South line of Jefferson to Antietam
bridge, including utility relocations, four-lane roadway with future
rail provision, new bridges at Jefferson, Larned, Lafayette and
Antietam and one pedestrian bridge. 29,710,000
- --------------------------------------------------------------------------------------------
C-1. Gratiot/I-75 intersection at grade including utility relocation
and signage to prohibit left turns onto St. Aubin and Chene. 11,387,200
- --------------------------------------------------------------------------------------------
C-2. PLD ducts and related work for signals and lights. 1,340,000
- --------------------------------------------------------------------------------------------
D. Environmental remediation on land at Gratiot and in corridor. 3,041,030
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
II. Roadways
- --------------------------------------------------------------------------------------------
A. Atwater 5 land roadway from Rivard to Chene along existing
alignment widened to north from Riopelle to Chene and to south
from Riopelle to Rivard; 15 foot sidewalk on north to be on private
property with utility easement. 4,400,000
- --------------------------------------------------------------------------------------------
B. Atwater same as above from Rivard to New Boulevard. 931,000
- --------------------------------------------------------------------------------------------
C. Riopelle from Jefferson to Atwater widened and reconstructed
with public sidewalks both sides. 710,000
- --------------------------------------------------------------------------------------------
D. Chene from Jefferson to Atwater widened and reconstructed
with public sidewalks both sides. 819,000
- --------------------------------------------------------------------------------------------
E. Upgrade existing traffic signal at Chene & Jefferson
intersection. 228,000
- --------------------------------------------------------------------------------------------
F. New traffic signals for:
- --------------------------------------------------------------------------------------------
1. I-375 (New Boulevard) & Atwater 202,000
- --------------------------------------------------------------------------------------------
2. Atwater & Riopelle 157,000
- --------------------------------------------------------------------------------------------
3. Atwater & Dequindre 202,000
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4. New Street (N-S) & Atwater 202,000
- --------------------------------------------------------------------------------------------
5. Jefferson & Riopelle 187,000
- --------------------------------------------------------------------------------------------
6. Atwater & Chene 187,000
- --------------------------------------------------------------------------------------------
G. Traffic signal feed extension and traffic signal intra connect
extension. 634,000
- --------------------------------------------------------------------------------------------
H. Roadway trail blazing signs on City streets and on MDOT
freeways. 712,000
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
III. Other
- --------------------------------------------------------------------------------------------
Purchase of trolley buses for Atwater route: 2 natural gas fueled
decorative "trolleys" at $250,000 each. 500,000
- --------------------------------------------------------------------------------------------
Contingency 25,000,000
- --------------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------
Detroit Based Enterprise Premium (2%) 883,420
- --------------------------------------------------------------------------------------------
Wage escalation for labor (3%) 1,325.130
- --------------------------------------------------------------------------------------------
GMP Expense, overhead and profit (10%) 4,417,000
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Grand Total $88,694,880
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 13
Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 23 Normal
---------------------------------------------
RESULTS OF OPERATIONS
---------------------
The Company, through its wholly-owned subsidiaries, owns and operates the MGM
Grand Hotel/Casino in Las Vegas, Nevada ("MGM Grand Las Vegas"), which commenced
operations on December 18, 1993, and MGM Grand Hotel/Casino in Darwin, Australia
("MGM Grand Australia"), which was acquired on September 7, 1995, and manages
three casinos throughout various provinces of the Republic of South Africa (see
Note 1). The Company also owns a 50% interest in the New York- New York Hotel
and Casino in Las Vegas, Nevada ("NYNY"), which commenced operations on January
3, 1997 (see Notes 1 and 20). Additionally, the Company's wholly-owned
subsidiaries, MGM Grand Detroit, Inc. and MGM Grand Atlantic City, Inc. are in
the development stage, with plans to construct hotel/casino and entertainment
facilities in Detroit, Michigan and Atlantic City, New Jersey, respectively (see
Notes 1 and 6).
1998 COMPARED WITH 1997
-----------------------
Net revenues for the year ended December 31, 1998 were $773.9 million,
representing a decrease of $53.7 million (6.5%) when compared with $827.6
million during the prior year. The decrease in net revenues was largely due to
lower income from the Company's 50% ownership in NYNY and decreased casino
revenues largely due to unusually low table game hold percentages, partially
offset by higher food and beverage revenues.
Consolidated casino revenues for the year ended December 31, 1998 were
$410.6 million, representing a decrease of $46.6 million (10.2%) when compared
with $457.2 million during the prior year. MGM Grand Las Vegas casino revenues
were $383.3 million, representing a decrease of $46.6 million (10.8%) when
compared with $429.9 million during 1997. The reduction in casino revenues at
MGM Grand Las Vegas was primarily a result of lower table games and baccarat win
percentages. MGM Grand Australia reported casino revenues of $27.3 million,
which were flat when compared with the prior year.
Consolidated room revenues for 1998 were $171.3 million, which were flat
when compared with the prior year. MGM Grand Las Vegas room revenues were $169.7
million in 1998, representing an increase of $.4 million (.2%) when compared
with $169.3 million in the prior year. The increase was due to higher occupancy
of 95.3% in 1998 when compared with 94.5% in 1997, offset by a slightly lower
average daily room rate of $99 in 1998 versus $100 in 1997. MGM Grand Australia
room revenues were $1.8 million for the year ended December 31, 1998,
representing a decrease of $.4 million (18.2%) when compared with $2.2 million
for the prior year. The decrease was due to a lower average daily room rate for
1998 of $61 compared with $89 for 1997 resulting from a lower average exchange
rate in the current year when compared with the prior year, somewhat offset by a
higher occupancy of 74.8% for 1998 compared with 60.5% in 1997.
Consolidated food and beverage revenues for 1998 were $105.9 million,
representing an increase of $13.3 million (14.4%) when compared with $92.6
million for the prior year. The increase was attributable to MGM Grand Las Vegas
which had food and beverage revenues of $100.3 million during 1998, an increase
of $14.2 million (16.5%) when compared with $86.1 million in 1997. This increase
resulted from additional banquet revenues generated from the MGM Grand
Conference Center (the "Conference Center"), which opened on April 16, 1998, and
the operation of the Studio 54 nightclub, which opened in late December 1997.
MGM Grand Australia reported food and beverage revenues of $5.7 million,
representing a decrease of $.9 million (13.6%) when compared with $6.6 million
during the prior year as a result of the lower average exchange rate in the
current year.
Consolidated entertainment, retail and other revenues decreased $2.6
million (2.3%) from $116.5 million in 1997 to $113.9 million in 1998. The
decrease was attributable to MGM Grand Las Vegas which had lower theme park
revenues due to management's decision to change the theme park's operational
schedule from a year-round park to a seasonal park. The theme park closed on
September 8, 1998. These decreases were partially offset by increases in
entertainment revenues from MGM Grand Garden Arena and EFX, conference revenue
23
<PAGE>
from the opening of the Conference Center and management and development fees
from MGM Grand South Africa, Inc. ("MGM Grand South Africa").
Income from unconsolidated affiliate, representing the Company's 50% share
of NYNY's operating income, for 1998 was $38.4 million representing a decrease
of $15.4 million (28.6%) when compared with $53.8 million during the prior year.
The reduction in earnings from NYNY is a result of the unprecedented public
response NYNY received during its first year of operations.
Consolidated operating expenses (before Master Plan asset disposition and
Corporate expense) for 1998 were $631.6 million, representing an increase of $27
million (4.5%) when compared with $604.6 million for 1997. The increase was
attributable to MGM Grand Las Vegas, offset by decreases at MGM Grand Australia.
The increases at MGM Grand Las Vegas were due primarily to increased room
expenses associated with the higher occupancy and increased food and beverage
expenses associated with the addition of the Studio 54 night club and the
additional banquet expenses for the Conference Center. Additionally, the
provision for doubtful accounts and discounts increased by $8.6 million at MGM
Grand Las Vegas due to possible changes in anticipated collectibility of
receivables given uncertain economic conditions in Asia, along with higher
depreciation expense due to Master Plan assets placed in service. These
increases were partially offset by lower casino expenses due to a reduction in
casino taxes and the absence of a championship boxing event in the current year.
MGM Grand Australia operating expenses decreased $4.4 million (14.5%) from $30.4
million in 1997 to $26 million in 1998 as a result of continuing cost
containment efforts and a lower average exchange rate in the current year.
Corporate expense was $10.7 million in 1998 compared with $3.4 million in
1997, representing an increase of $7.3 million. The increase was due to higher
operating expenses in the current year and the $5.9 million reversal of stock
price guarantee amortization that occurred in the prior year (see Note 11).
Master Plan asset disposition relates to the write-off of various assets
related to the transformation of MGM Grand Las Vegas into "The City of
Entertainment." The prior year charge of $28.6 million (pre-tax) resulted from
the increase in the transformation scope from $250 million to approximately $570
million (see Note 16).
Interest income of $13 million for the year ended December 31, 1998,
increased by $11.7 million from $1.3 million in 1997. The increase was
attributable to higher invested cash balances primarily from the proceeds of the
Senior Collateralized Notes (see Note 9).
Interest expense for the year ended December 31, 1998 of $24.6 million (net
of amounts capitalized) increased by $23.4 million when compared with $1.2
million in 1997. The increase in 1998 was primarily due to the issuance of the
Senior Collateralized Notes (see Note 9). Also, the Company recognized interest
expense from its unconsolidated affiliate of $8.4 million during 1998 compared
with $9.9 million during the same period in 1997. The decrease of $1.5 million
was due to the reduction of debt at New York-New York Hotel and Casino, LLC
("NYNY LLC").
Income tax provision of $40.6 million has been recorded at a rate of 37%
for the year ended December 31, 1998, compared with $65 million in 1997 at a
rate of 36.1%. At December 31, 1998, the Company believes that it is more likely
than not that its deferred tax assets are fully realizable because of the future
reversal of existing taxable temporary differences and future projected taxable
income. Accordingly, there is no valuation allowance at December 31, 1998.
Extraordinary loss of $4.2 million in 1997, net of income tax benefit,
reflects the write-off of unamortized debt costs from the Company's previous
$600 million Senior Reducing Revolving Credit Facility (see Note 9).
1997 COMPARED WITH 1996
-----------------------
Net revenues for the year ended December 31, 1997 were $827.6 million,
representing an increase of $27.4 million (3.4%) when compared with $800.2
million during the prior year. The increase in net revenues was largely due to
income from the Company's 50% ownership in NYNY and higher food and beverage
revenues partially offset by decreased casino, room, entertainment, retail and
other revenues and increased promotional allowances.
Consolidated casino revenues for the year ended December 31, 1997 were
$457.2 million, representing a decrease of $19.5 million (4.1%) when compared
with $476.7 million during the prior year. MGM Grand Las Vegas casino revenues
were $429.9 million, representing a decrease of $15.5 million (3.5%) when
compared with $445.4 million during 1996. The reduction in casino revenues at
MGM Grand Las Vegas was a result of lower table games win percentages despite an
increase in volume, partially offset by higher slot volume and win. MGM Grand
Australia reported casino revenues of $27.3 million, which decreased $4 million
(12.8%) when compared with $31.3 million during the prior
24
<PAGE>
year, primarily attributable to lower baccarat volume and win, partially offset
by an increase in slot volume and win, along with the addition of Northern
Territory Keno, a territory-wide Keno game in local pubs, hotels and clubs,
which was not operational in the prior year.
Consolidated room revenues for 1997 were $171.3 million compared with
$174.4 million for 1996, representing a decrease of $3.1 million (1.8%). MGM
Grand Las Vegas room revenues were $169.3 million in 1997, representing a
decrease of $3.1 million (1.8%) when compared with $172.4 million in the prior
year. The decrease was due to a lower occupancy of 94.5% for 1997 when compared
with 94.7% in 1996, as well as a lower average daily room rate for 1997 of $100
compared with $101 in 1996. MGM Grand Australia room revenues were $2.2 million
for the year ended December 31, 1997, representing an increase of $.1 million
(4.8%) when compared with $2.1 million for the prior year.
Consolidated food and beverage revenues for 1997 were $92.6 million,
representing an increase of $14.2 million (18.1%) when compared with $78.4
million for the prior year. The increase was attributable to MGM Grand Las Vegas
which had food and beverage revenues of $86.1 million during 1997, representing
an increase of $14.1 million (19.6%) when compared with $72 million in 1996.
This increase reflects the Company's decision to operate the previously leased
Studio Cafe coffee shop. MGM Grand Australia reported food and beverage revenues
of $6.6 million, representing an increase of $.1 million (1.5%) when compared
with $6.5 million during the prior year.
Consolidated entertainment, retail and other revenues decreased $10.4
million (8.2%) from $126.9 million in 1996 to $116.5 million in 1997. The
decrease was attributable to MGM Grand Las Vegas which had lower theme park and
midway/arcade revenues due to the downsizing of the facilities. These decreases
were partially offset by increases in MGM Grand Garden Arena revenues and
increased revenues from the Sky- Screamer thrill ride which opened in September
1996.
Income from unconsolidated affiliate was $53.8 million for the year ended
December 31, 1997, representing the Company's 50% share of NYNY's operating
income which commenced operations on January 3, 1997.
Consolidated operating expenses (before Master Plan asset disposition,
Preopening and Corporate expense) for 1997 were $604.6 million, which were
consistent when compared with $603.6 million for 1996. The increase was
attributable to MGM Grand Las Vegas, offset by decreases at MGM Grand Australia.
The increases at MGM Grand Las Vegas were due primarily to increased casino,
food and beverage, advertising and depreciation expenses offset by lower
expenses related to EFX and midway/arcade operations. Additionally, the
provision for doubtful accounts and discounts increased by $6.7 million at MGM
Grand Las Vegas as a result of reduced casino revenues, changes in anticipated
collectibility, and collections made on previously reserved receivable balances.
MGM Grand Australia operating expenses decreased $6.9 million (18.5%) from $37.3
million in 1996 to $30.4 million in 1997 as a result of continuing cost
containment efforts.
Master Plan asset disposition relates to the write-off of various assets
related to the transformation of MGM Grand Las Vegas into "The City of
Entertainment." The prior year charge of $49.4 million (pre-tax) was recognized
when the plan was announced, and the current year charge of $28.6 million (pre-
tax) resulted from the increase in the transformation scope from $250 million to
approximately $570 million (see Note 16).
Corporate expense decreased from $10 million in 1996 to $3.4 million in
1997, primarily due to the reversal of $5.9 million in previously expensed stock
price guarantee amortization (see Note 11).
Interest income of $1.3 million for the year ended December 31, 1997
decreased by $2.9 million from $4.2 million in 1996. The decrease was
attributable to lower invested cash balances at MGM Grand Las Vegas during 1997.
Interest expense for the year ended December 31, 1997 of $1.2 million (net
of amount capitalized) decreased by $32.6 million when compared with $33.8
million in 1996. The decrease in 1997 was primarily due to the defeasance of the
MGM Grand Hotel Finance Corp. First Mortgage Notes ("FMN") in the prior year,
(see Note 9) along with greater capitalization of interest in the current year
from continuing construction and development projects. Also, the Company
recognized interest expense from its unconsolidated affiliate of $9.9 million
during 1997, which had been capitalized in the prior year as a result of the
NYNY construction project.
Income tax provision of $65 million has been recorded at a rate of 36.1%
for the year ended December 31, 1997, compared with $24.6 million in 1996 at a
rate of 24.8%. The 1996 rate was lower than 1997, reflecting no provision in the
first quarter of 1996. During 1996, the Company determined that it was more
likely than not that it would fully realize its deferred tax assets.
25
<PAGE>
Extraordinary loss of $4.2 million, net of income tax benefit, reflects the
write-off of unamortized debt costs from the Company's previous $600 million
Senior Reducing Revolving Credit Facility (see Note 9) in 1997. The
extraordinary loss of $30.8 million, net of income tax benefit, in the prior
year represented the loss on defeasance of the FMN (see Note 9).
IMPACT OF THE YEAR 2000 ISSUE
-----------------------------
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year, which may result
in system failures and disruptions to operations at January 1, 2000. The Company
is assessing its Year 2000 readiness through an ongoing Year 2000 Remediation
Program that addresses information technology systems, as well as systems
outside of the information technology area. The Year 2000 Remediation Program
takes into consideration all locations where the Company has operations. The
Year 2000 Remediation Program includes continuing assessment of the Company's
Year 2000 issues, contacting suppliers of certain systems to determine the
timing of applicable upgrades, and implementing applicable Year 2000 upgrades,
which are currently available.
The Company has initiated formal communications with its significant
suppliers to determine the extent to which the Company is vulnerable to third
party failure to remediate their own Year 2000 issues. In conjunction with this
effort, the Company is assessing the potential impact of such third party Year
2000 issues. There can be no guarantee that the systems of third parties on
which the Company's systems rely will be timely converted, or that a failure to
convert by another company or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The Company's Year 2000 Remediation Program may require enhancements to
ensure there is no disruption to the Company's operations, however, the
financial impact of making such enhancements is not expected to be material to
the Company's financial position or results of operations. During the current
year, the Company has not incurred material costs to modify existing computer
systems, however, it is estimated that approximately $.7 million will be
incurred in 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of December 31, 1998 and 1997, the Company held cash and cash equivalents of
$82 million and $34.6 million, respectively. Cash provided by operating
activities for 1998 was $171.7 million, compared with $184 million for 1997.
On May 6, 1996, MGM Grand Las Vegas announced details of a 30-month, $250
million Master Plan designed to transform the facility into "The City of
Entertainment." The Master Plan, which on June 3, 1997 was enhanced and
increased to approximately $570 million, is nearing completion with the "Mansion
at the MGM Grand" offering 29 exclusive suites and villas, anticipated to open
in April 1999; the lion habitat anticipated to open in May 1999; and expanded
parking facilities which will be completed during the second half of 1999. The
Company's 380,000 square foot state-of-the-art Conference Center opened in April
1998, and the 50-foot tall polished bronze lion sculpture along with the
"Entertainment Casino" (previously known as the Emerald City casino) were
completed during the first quarter of 1998 which includes a Studio 54 night club
and the Rainforest Cafe. Additionally, the new 6.6-acre pool and spa complex was
completed and opened for operations in July 1998 and a new 3,800 space employee
parking garage opened in July 1998.
During the year ended December 31, 1998, capital expenditures totaled
$361.9 million, consisting of $304.8 million related to the Master Plan project
and $32 million related to general property and equipment improvements at MGM
Grand Las Vegas. MGM Grand Australia expended $1.8 million for general property
and equipment improvements. MGM Grand Detroit, LLC expended $5 million for the
construction of its temporary casino facility. MGM Grand Atlantic City continued
the development of its planned new destination resort by expending $5.5 million
for land acquisitions and pre-construction activities. The Company also expended
$12.8 million primarily for the purchase of a corporate jet.
The Company made no capital contributions to NYNY LLC during 1998. As a
lender requirement for the project financing, both the Company and its joint
venture partner, Primadonna Resorts, Inc. ("Primadonna"), were required to enter
into a joint and several unlimited Keep-Well Agreement (see Note 9). The Company
received $4.1 million in distributions from NYNY LLC during 1998 to pay taxes on
its allocated share of income.
During the year ended December 31, 1997, capital expenditures totaled
$227.8 million, consisting of $174.1 million related to the Master Plan project
and $35.3 million related to general property and equipment improvements at MGM
Grand Las Vegas. MGM
26
<PAGE>
Grand Australia expended $1.9 million for general property and equipment
improvements. MGM Grand Atlantic City continued the development of its planned
new destination resort by expending $16.5 million for land acquisitions and pre-
construction activities.
Capital expenditures are expected to increase in 1999 to approximately
$510.9 million as a result of the completion of the transformation of MGM Grand
Las Vegas into "The City of Entertainment," as well as the Company's development
of premier destination resorts in Detroit and Atlantic City. MGM Grand Las Vegas
expenditures for 1999 are expected to be approximately $225 million, consisting
of $89.5 million related to the Master Plan project and approximately $135.5
million for general property additions and improvements including room
remodeling and a championship golf course. MGM Grand Australia plans to expend
approximately $.1 million for general property improvements. Approximately
$285.8 million is anticipated to be expended for construction, land acquisitions
and pre-construction activities relating to the Company's planned development of
hotel/casino and entertainment facilities, including $285.4 million for MGM
Grand Detroit, LLC's temporary and permanent facilities and $.4 million for the
MGM Grand Atlantic City project.
On July 1, 1996, the Company secured a $500 million Senior Reducing
Revolving Credit Facility with BA Securities (the "Facility"), an affiliate of
Bank of America NT&SA. In August 1996, the Facility was increased to $600
million. In July 1997, the Facility was amended, extended and increased to $1.25
billion (the "New Facility"), with provisions to allow an increase of the New
Facility to $1.5 billion as well as to allow additional pari passu debt
financing up to $500 million. As a result of the New Facility, the Company
recognized an extraordinary loss of approximately $4.2 million, net of tax
benefits, due to the write-off of unamortized debt costs from the Facility
during 1997. The New Facility contains various restrictive covenants on the
Company which include the maintenance of certain financial ratios and
limitations on additional debt, dividends, capital expenditures and disposition
of assets. The New Facility also restricts certain acquisitions and similar
transactions. Interest on the New Facility is based on the bank reference rate
or Eurodollar rate and as of December 31, 1998, the Company's borrowing rate was
approximately 5.8%. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one-year periods. During 1998,
$31 million was drawn down and repaid against the New Facility and no amounts
remained outstanding as of December 31, 1998.
During July 1997, the Company filed a Shelf Registration Statement with the
Securities and Exchange Commission which became effective on August 4, 1997,
allowing the Company to issue up to $600 million of debt and/or equity
securities. On February 2 and February 6, 1998, the Company completed public
offerings totaling $500 million of Senior Collateralized Notes in tranches of 7
and 10 years. The 7-year tranche of $300 million carries a coupon of 6.95%,
while the 10-year tranche of $200 million carries a coupon of 6.875% (see Note
9). The Company received net proceeds of approximately $294.1 million and $197.1
million on the 7-year and 10-year tranches, respectively, after underwriters
discount and issuance costs. The Senior Collateralized Notes are pari passu with
the New Facility and contain various restrictive covenants as does the New
Facility.
On July 2, 1996, the Company completed a public offering (the "Offering")
of 8.6 million shares of common stock (including an underwriters' over allotment
option to purchase 1.1 million shares of common stock). Based upon the Offering
price of $39.50 per share and associated costs incurred, the net proceeds were
approximately $327 million. On July 3, 1996, the Company drew down $40 million
(including loan origination fees) on the Facility (see Note 9), and used the net
proceeds of the Offering together with cash on hand of $161 million to fund the
defeasance of the FMN (see Note 9).
On September 15, 1995, NYNY LLC completed its bank financing for up to $225
million, which was increased to $285 million during September 1996. The non-
revolving construction line of credit converted to a 5-year reducing revolver
upon completion of construction and commencement of operations of NYNY on
January 3, 1997. The Company and Primadonna (the "Partners") 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 cash flow from NYNY to comply with financial
covenants, the Partners will make cash infusions which are sufficient to bring
NYNY LLC into compliance with the financial covenants. On October 8, 1998, the
NYNY LLC's five-year reducing revolver was amended and reduced to $210 million.
During 1998, $66.6 million in principal repayments were made by NYNY LLC. The
first draw down occurred on September 30, 1995, and as of December 31, 1998,
$178.5 million was out-
27
<PAGE>
standing under the reducing revolver. On January 21, 1997, NYNY LLC completed an
additional $20 million equipment financing with a financial institution. As of
December 31, 1998, $14.4 million remained outstanding related to the equipment
financing.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia. The
acquisition cost was financed by an Australian bank facility which provided a
total availability of approximately $64.4 million (AUD $105 million) and
includes funding for general corporate purposes. During 1998, the facility was
reduced by principal payments totaling $9.7 million (AUD $15.6 million) made in
accordance with the terms of the bank facility, and as of December 31, 1998,
$44.9 million (AUD $73.2 million) remained outstanding. Interest on the
Australian facility is based on the bank bill rate and was approximately 5.3%
and 5.8% as of December 31, 1998 and 1997, respectively. The facility matures in
December 2002, and the indebtedness has been guaranteed by the Company.
MGM Grand Australia has a $12.3 million (AUD $20 million) uncommitted
standby line of credit, with a funding period of 91 days for working capital
purposes. During the year ended December 31, 1998, no amounts were borrowed
under the line of credit and no amounts were outstanding as of December 31,
1998, and 1997, respectively.
On June 23, 1998, the Company announced a $35.00 per share cash tender
offer for up to 6 million shares of Company common stock as part of a 12 million
share repurchase program. The offer commenced on July 2, 1998 and expired on
July 31, 1998. Based upon the final results, 10.8 million shares of the
Company's common stock were tendered, and accordingly, the shares were prorated.
The total acquisition cost of the 6 million shares was approximately $210.6
million. The Company anticipates that, depending on market conditions, the
remaining 6 million shares in the repurchase program may be acquired in the open
market, in private transactions, through a tender offer, offers or otherwise.
During December 1998, the Company and Primadonna entered into a definitive
merger agreement whereby MGM Grand, Inc. would acquire Primadonna in an all
stock transaction plus the assumption of debt. On March 1, 1999, Primadonna
stockholders received 0.33 shares of the Company's common stock for each share
of Primadonna stock held, or a total of approximately 9.5 million shares of the
Company's common stock. On March 1, 1999, the outstanding long-term debt of
Primadonna was approximately $315 million which includes Primadonna's 50% share
of NYNY LLC's long- term debt (see Notes 9 and 20).
The Company expects to finance capital expenditures, existing debt
obligations and future share repurchases through cash flow from operations, cash
on hand, the bank lines of credit, and the Shelf Registration Statement (see
Note 9).
SAFE HARBOR PROVISION
---------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Annual
Report contains statements that are forward-looking, such as statements relating
to plans for future expansion and other business development activities, as well
as other capital spending, financing sources, the effects of regulation
(including gaming and tax regulations) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service (including
sensitivity to fluctuations in interest rates), domestic or global economic
conditions (including sensitivity to fluctuations in foreign currencies),
changes in federal or state tax laws or the administration of such laws, changes
in gaming laws or regulations (including the legalization of gaming in certain
jurisdictions) and application for licenses and approvals under applicable
jurisdictional laws and regulations (including gaming laws and regulations).
28
<PAGE>
Consolidated Statements
-----------------------
of Operations
-------------
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
CASINO ............................................................. $ 410,605 $ 457,206 $ 476,685
ROOMS .............................................................. 171,292 171,272 174,440
FOOD AND BEVERAGE .................................................. 105,875 92,594 78,438
ENTERTAINMENT, RETAIL AND OTHER .................................... 113,948 116,458 126,875
INCOME FROM UNCONSOLIDATED AFFILIATE ............................... 38,362 53,800 -
----------- ----------- -----------
840,082 891,330 856,438
LESS: PROMOTIONAL ALLOWANCES ....................................... 66,219 63,733 56,249
----------- ----------- -----------
773,863 827,597 800,189
----------- ----------- -----------
Expenses:
CASINO ............................................................. 221,439 225,896 221,268
ROOMS .............................................................. 47,767 45,848 46,639
FOOD AND BEVERAGE .................................................. 67,101 55,124 46,590
ENTERTAINMENT, RETAIL AND OTHER .................................... 75,192 79,605 88,214
PROVISION FOR DOUBTFUL ACCOUNTS AND DISCOUNTS ...................... 40,455 31,814 38,635
GENERAL AND ADMINISTRATIVE ......................................... 103,362 102,246 100,062
DEPRECIATION AND AMORTIZATION ...................................... 76,284 64,104 62,196
----------- ----------- -----------
631,600 604,637 603,604
----------- ----------- -----------
OPERATING PROFIT BEFORE MASTER PLAN ASSET DISPOSITION,
PREOPENING AND CORPORATE EXPENSE ........................... 142,263 222,960 196,585
MASTER PLAN ASSET DISPOSITION ...................................... - 28,566 49,401
PREOPENING AND OTHER - UNCONSOLIDATED AFFILIATE .................... - - 7,868
CORPORATE EXPENSE .................................................. 10,689 3,424 10,022
----------- ----------- -----------
OPERATING INCOME ........................................... 131,574 190,970 129,294
----------- ----------- -----------
Nonoperating Income (Expense):
INTEREST INCOME .................................................... 12,997 1,268 4,247
INTEREST EXPENSE, NET OF AMOUNTS CAPITALIZED ....................... (24,613) (1,242) (33,778)
INTEREST EXPENSE FROM UNCONSOLIDATED AFFILIATE ..................... (8,376) (9,891) -
OTHER, NET ......................................................... (2,054) (804) (612)
----------- ----------- -----------
(22,046) (10,669) (30,143)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM .............. 109,528 180,301 99,151
PROVISION FOR INCOME TAXES ......................................... (40,580) (65,045) (24,634)
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM ............................... 68,948 115,256 74,517
Extraordinary Item:
LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME
TAX BENEFITS OF $ 2,333 AND $ 17,710 ........................... - (4,238) (30,811)
----------- ----------- -----------
NET INCOME ......................................................... $ 68,948 $ 111,018 $ 43,706
=========== =========== ===========
Basic Income Per Share of Common Stock:
INCOME BEFORE EXTRAORDINARY ITEM ................................... $ 1.24 $ 2.00 $ 1.41
EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT ............................. - (0.07) (0.58)
----------- ----------- -----------
NET INCOME PER SHARE ............................................... $ 1.24 $ 1.93 $ 0.83
=========== =========== ===========
Weighted Average Shares Outstanding .................................... 55,678,000 57,475,000 52,759,000
=========== =========== ===========
Diluted Income Per Share of Common Stock:
INCOME BEFORE EXTRAORDINARY ITEM ................................... $ 1.22 $ 1.96 $ 1.38
EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT ............................. - (0.07) (0.57)
----------- ----------- -----------
NET INCOME PER SHARE ............................................... $ 1.22 $ 1.89 $ 0.81
=========== =========== ===========
Weighted Average Shares Outstanding .................................... 56,342,000 58,835,000 54,257,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
Consolidated Balance
--------------------
Sheets
------
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31, 1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
CASH AND CASH EQUIVALENTS ...................................... $ 81,956 $ 34,606
ACCOUNTS RECEIVABLE, NET ....................................... 69,116 78,977
PREPAID EXPENSES ............................................... 11,829 10,452
INVENTORIES .................................................... 11,081 16,462
DEFERRED TAX ASSET ............................................. 34,098 30,294
----------- -----------
TOTAL CURRENT ASSETS ................................... 208,080 170,791
----------- -----------
Property and Equipment, net ............................................ 1,327,722 1,032,708
Other Assets:
INVESTMENT IN UNCONSOLIDATED AFFILIATES ........................ 134,025 108,121
EXCESS OF PURCHASE PRICE OVER FAIR MARKET VALUE
OF NET ASSETS ACQUIRED, NET ............................ 37,574 38,598
DEPOSITS AND OTHER ASSETS, NET ................................. 66,393 48,156
----------- -----------
TOTAL OTHER ASSETS ..................................... 237,992 194,875
----------- -----------
$ 1,773,794 $ 1,398,374
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
ACCOUNTS PAYABLE ............................................... $ 23,931 $ 20,484
CONSTRUCTION PAYABLE ........................................... 17,403 33,376
INCOME TAXES PAYABLE ........................................... 2,457 --
CURRENT OBLIGATION, CAPITAL LEASES ............................. 5,086 6,088
CURRENT OBLIGATION, LONG TERM DEBT ............................. 10,077 10,589
ACCRUED INTEREST ............................................... 14,630 --
OTHER ACCRUED LIABILITIES ...................................... 115,781 110,953
----------- -----------
TOTAL CURRENT LIABILITIES .............................. 189,365 181,490
----------- -----------
Deferred Revenues ...................................................... 5,219 4,743
Deferred Income Taxes .................................................. 77,165 58,831
Long Term Obligation, Capital Leases ................................... 2,867 4,447
Long Term Debt ......................................................... 534,797 47,241
Commitments and Contingencies
Stockholders' Equity:
COMMON STOCK ($.01 PAR VALUE, 75,000,000 SHARES AUTHORIZED,
58,033,094 AND 57,984,873 SHARES ISSUED AND OUTSTANDING) 580 580
CAPITAL IN EXCESS OF PAR VALUE ................................. 968,199 966,487
TREASURY STOCK, AT COST (6,000,000 SHARES) ..................... (210,589) --
RETAINED EARNINGS .............................................. 193,187 124,239
OTHER COMPREHENSIVE INCOME ..................................... 13,004 10,316
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ............................. 964,381 1,101,622
----------- -----------
$ 1,773,794 $ 1,398,374
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
Consolidated Statements of
--------------------------
Cash Flows
----------
<TABLE>
<CAPTION>
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
NET INCOME .......................................................................... $ 68,948 $ 111,018 $ 43,706
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
FROM OPERATING ACTIVITIES:
LOSS ON EARLY EXTINGUISHMENT OF DEBT ................................ -- 6,571 48,521
MASTER PLAN ASSET DISPOSITION ....................................... -- 28,566 49,401
AMORTIZATION OF DEBT OFFERING COSTS ................................. 1,849 1,127 2,191
DEPRECIATION AND AMORTIZATION ....................................... 76,712 64,244 62,323
PROVISION FOR DOUBTFUL ACCOUNTS AND DISCOUNTS ....................... 40,455 31,814 38,635
PREOPENING AND OTHER - UNCONSOLIDATED AFFILIATE ..................... -- -- 7,868
DEFERRED INCOME TAXES ............................................... 14,530 48,100 (27,696)
UNCONSOLIDATED AFFILIATE, EARNINGS IN EXCESS OF DISTRIBUTIONS........ (25,866) (28,749) --
CHANGE IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE ......................................... (30,594) (30,262) (40,605)
PREPAID EXPENSES ............................................ (1,377) 2,756 (551)
INVENTORIES ................................................. 4,314 (4,035) (3,283)
INCOME TAXES PAYABLE ........................................ 2,457 (23,653) 21,302
ACCOUNTS PAYABLE, ACCRUED LIABILITIES, AND OTHER............. 20,799 (24,185) 43,209
CURRENCY TRANSLATION ADJUSTMENT ............................. (547) 700 130
--------- --------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES ......................... 171,680 184,012 245,151
--------- --------- ---------
Cash Flows from Investing Activities:
PURCHASES OF PROPERTY AND EQUIPMENT ......................................... (361,942) (227,756) (84,775)
DISPOSITIONS OF PROPERTY AND EQUIPMENT, NET ................................. 599 202 322
CHANGE IN CONSTRUCTION PAYABLES ............................................. (15,973) 32,418 (809)
INVESTMENT IN UNCONSOLIDATED AFFILIATES ..................................... (800) (7,190) (27,153)
DEPOSITS AND OTHER ASSETS ................................................... (27,617) 548 (8,400)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES ............................... (405,733) (201,778) (120,815)
--------- --------- ---------
Cash Flows from Financing Activities:
DEFEASANCE OF FIRST MORTGAGE NOTES .......................................... -- -- (523,231)
ISSUANCE OF LONG TERM DEBT .................................................. 500,000 -- --
REPAYMENTS TO BANKS AND OTHERS .............................................. (9,720) (11,839) --
BORROWINGS UNDER LINES OF CREDIT ............................................ 31,000 25,500 65,262
REPAYMENTS OF LINES OF CREDIT ............................................... (31,000) (25,500) (65,262)
PURCHASE OF TREASURY STOCK .................................................. (210,589) -- --
ISSUANCE OF COMMON STOCK .................................................... 1,712 2,799 350,290
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................... 281,403 (9,040) (172,941)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ................................ 47,350 (26,806) (48,605)
Cash and Cash Equivalents at Beginning of Year ...................................... 34,606 61,412 110,017
--------- --------- ---------
Cash and Cash Equivalents at End of Year ............................................ $ 81,956 $ 34,606 $ 61,412
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
Consolidated Statements
-----------------------
of Stockholders' Equity
-----------------------
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS) COMMON CAPITAL IN RETAINED TOTAL
FOR THE YEARS ENDED DECEMBER 31, STOCK COMMON EXCESS OF TREASURY EARNINGS STOCKHOLDERS'
1998, 1997, AND 1996 OUTSTANDING STOCK PAR VALUE STOCK (DEFICIT) OTHER EQUITY
----------- ------ ---------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............... 48,774,856 $ 488 $ 623,489 $ - $ (30,485) $ (8,944) $ 584,548
PAYMENT RECEIVED FROM NOTE RECEIVABLE...... - - - - - 10,000 10,000
ISSUANCE OF COMMON STOCK
PURSUANT TO EMPLOYEE STOCK OPTIONS..... 413,670 4 4,929 - - - 4,933
ISSUANCE OF COMMON STOCK................... 8,625,000 86 326,735 - - - 326,821
EMPLOYEE STOCK INCENTIVE ACCRUAL........... 70,240 1 2,817 - - - 2,818
TAX BENEFIT FROM STOCK OPTION EXERCISES.... - - 5,718 - - - 5,718
NET INCOME................................. - - - - 43,706 - 43,706
CURRENCY TRANSLATION ADJUSTMENT............ - - - - - (5,162) (5,162)
----------- ------ ---------- --------- ---------- -------- ------------
Balance at December 31, 1996............... 57,883,766 579 963,688 - 13,221 (4,106) 973,382
ISSUANCE OF COMMON STOCK PURSUANT
TO EMPLOYEE STOCK OPTIONS.............. 72,302 1 1,093 - - - 1,094
EMPLOYEE STOCK INCENTIVE ISSUANCE...... 28,805 - 1,142 - - - 1,142
TAX BENEFIT FROM STOCK OPTION EXERCISES.... - - 564 - - - 564
NET INCOME................................. - - - - 111,018 - 111,018
CURRENCY TRANSLATION ADJUSTMENT............ - - - - - 14,422 14,422
----------- ------ ---------- --------- ---------- -------- ------------
Balance at December 31, 1997............... 57,984,873 580 966,487 - 124,239 10,316 1,101,622
ISSUANCE OF COMMON STOCK PURSUANT TO
EMPLOYEE STOCK OPTIONS................. 48,221 - 1,315 - - - 1,315
TREASURY STOCK............................. - - - (210,589) - - (210,589)
TAX BENEFIT FROM STOCK OPTION EXERCISES.... - - 397 - - - 397
NET INCOME................................. - - - - 68,948 - 68,948
CURRENCY TRANSLATION ADJUSTMENT............ - - - - - 2,688 2,688
----------- ------ ---------- --------- ---------- -------- ------------
Balance at December 31, 1998............... 58,033,094 $ 580 $ 968,199 $(210,589) $ 193,187 $ 13,004 $ 964,381
=========== ====== ========== ========= ========== ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
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, 1998, approximately 73% of the outstanding
shares of the Company's common stock were owned by Kirk Kerkorian and Tracinda
Corporation ("Tracinda"), a Nevada corporation wholly owned by Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company
owns and operates the MGM Grand Hotel/Casino ("MGM Grand Las Vegas"), a
hotel/casino and entertainment complex in Las Vegas, Nevada. MGM Grand Hotel
Finance Corp. ("MGM Finance"), a wholly-owned subsidiary of the Company, was
formed to issue First Mortgage Notes ("FMN") to the public, to incur bank debt
and to lend the aggregate proceeds thereof to MGM Grand Hotel, Inc. to finance
the construction and opening of MGM Grand Las Vegas. See Note 9 regarding
defeasance of the FMN.
Through its wholly-owned subsidiary, MGM Grand Australia Pty Ltd., the
Company owns and operates the MGM Grand Hotel/Casino in Darwin, Australia ("MGM
Grand Australia"), which is located on 18 acres of beachfront property on the
north central coast of Australia. The Company acquired MGM Grand Australia on
September 7, 1995.
The Company and Primadonna Resorts, Inc. ("Primadonna") each owned 50% of
New York-New York Hotel and Casino, LLC ("NYNY LLC"), which completed
development of the $460 million themed destination resort called New York-New
York Hotel and Casino ("NYNY") in Las Vegas, Nevada in December 1996. NYNY
commenced operations on January 3, 1997, and is located on approximately 20
acres at the northwest corner of Tropicana Avenue and Las Vegas Boulevard,
across from MGM Grand Las Vegas.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages three temporary casinos throughout various provinces of the
Republic of South Africa. The casino in Nelspruit began operations on October
15, 1997, the casino in Witbank began operations on March 10, 1998 and the
casino in Johannesburg began operations on September 28, 1998. The Company
receives development and management fees from its partner, Tsogo Sun Gaming &
Entertainment, which is responsible for providing all project costs.
Through its wholly-owned subsidiary, MGM Grand Detroit, Inc., the Company
and its local partners in Detroit, Michigan, formed MGM Grand Detroit, LLC to
develop a hotel/casino and entertainment complex at an approximate cost of $800
million. On November 20, 1997, MGM Grand Detroit, LLC was chosen as a finalist
for a development agreement to construct, own and operate one of Detroit's three
new casinos. On April 9, 1998, the Detroit City Council approved MGM Grand
Detroit LLC's development agreement with the City of Detroit. Construction of
the project is subject to the receipt of various governmental approvals. The
plans for the permanent facility call for an 800-room hotel, a 100,000 square-
foot casino, signature restaurants and retail outlets, a showroom and other
entertainment venues. On July 22, 1998, the Michigan Gaming Control Board
adopted a resolution which allows the issuance of casino licenses to conduct
gaming operations in temporary facilities. Pending receipt of a license, MGM
Grand Detroit, LLC anticipates the opening of the temporary gaming facility,
which will contain approximately 73,000 square feet of casino space, 2,300 slot
machines, 80 table games and signature restaurants and bars, in the third
quarter of 1999.
Through its wholly-owned subsidiary, MGM Grand Atlantic City, Inc., the
Company intends to construct, own and operate a destination resort hotel/casino,
entertainment and retail facility in Atlantic City, New Jersey, at an
approximate cost of $700 million, on approximately 35 acres of land on the
Atlantic City Boardwalk. Construction of the project is subject to the receipt
of various governmental approvals. On July 24, 1996, the Company was found
suitable for licensing by the New Jersey Casino Control Commission.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------
a. Principles of Consolidation-- The consolidated financial statements
include the accounts of the Company and its subsidiaries. Investments in
unconsolidated affiliates which are 50% or less owned are accounted for under
the equity method. All significant intercompany balances and transactions have
been eliminated in consolidation.
b. Management's Use of Estimates-- The consolidated
33
<PAGE>
financial statements have been prepared in conformity with generally accepted
accounting principles. Those principles require 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 initial maturities of three months or less. Such investments
are carried at cost which approximate market value.
d. Accounts Receivable-- Accounts receivable 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.
Cost is determined by the first-in, first-out method.
f. Property and Equipment -- Property and equipment are stated at cost.
Maintenance and repairs that neither materially add to the value of the property
nor appreciably prolong its life are charged to expense as incurred. 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:
Buildings and improvements ..................................... 15 to 40 years
Equipment, furniture and fixtures .............................. 3 to 7 years
Land improvements .............................................. 10 years
Leasehold improvements ......................................... 5 to 20 years
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 is amortized on a straight-line basis over 40 years.
h. Other Assets-- The cost of normal hotel operating quantities of china,
silverware, glassware and utensils is recorded as an asset and is depreciated.
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. Casino Revenues and Promotional Allowances --Casino revenue is the
aggregate of gaming wins and losses. The retail value of accommodations, food
and beverage, 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 $66.2 million, $63.7
million and $56.2 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The estimated cost of providing such promotional allowances was
included in casino expenses as follows:
PROMOTIONAL ALLOWANCES
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
ROOMS ............................................ $11,304 $ 9,841 $ 9,487
FOOD AND BEVERAGE ................................ 26,826 28,436 23,224
OTHER ............................................ 4,011 2,235 2,175
------- ------- -------
$42,141 $40,512 $34,886
======= ======= =======
</TABLE>
j. Currency Translation -- The Company accounts for currency translation
in accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." The Australian results of operations and the balance
sheet are translated from Australian dollars to US dollars. Certain fixed assets
and intangibles are valued at historical exchange rates, while other balance
sheet accounts are translated at the exchange rate in effect at each year end.
Income accounts are translated at the average rate of exchange prevailing during
the year.
k. Net Income Per Common Share-- Basic income per share of common stock
is computed based on the weighted average number of shares of common stock
outstanding during the period. Diluted income per share of common stock is
computed based on the assumption that options
34
<PAGE>
issued to employees are exercised and repurchased at the average price for the
periods presented (see Note 13).
l. Capitalized Interest -- The Company capitalizes interest costs
associated with debt incurred in connection with major construction and
development projects. The Company capitalizes interest on amounts expended on
the project at the Company's weighted average cost of the borrowed funds (see
Note 9), and based upon the weighted average amount of the Company's outstanding
borrowings. Capitalization of interest ceases when the project is completed.
m. Corporate Expense -- Corporate expense represents unallocated payroll
costs, professional fees, and various other expenses not directly related to the
Company's hotel/casino operations. In addition, corporate expense includes the
costs associated with the Company's evaluation and pursuit of new business
opportunities, which are expensed as incurred until development of a specific
project has become relatively certain.
n. Reclassifications-- The consolidated financial statements for prior
years reflect certain reclassifications to conform with the current year
presentation, which have no effect on previously reported net income.
o. Recently issued Statement of Position - In April 1998, the American
Institute of Certified Public Accountants issued SOP 98-5, "Reporting on the
Costs of Start-up Activities." The new standard requires that all companies
expense costs of start-up activities as those costs are incurred. The term
"start-up" includes pre-opening, pre-operating and organization activities.
Previously, the Company had capitalized these items until the development of the
property was substantially complete and ready to open, at which time the
cumulative costs were expensed. As of December 31, 1998, the Company capitalized
"start-up" costs of $.7 million related to Atlantic City and $11.6 million
related to Detroit. The Company will adopt SOP 98-5 in the first quarter of
fiscal year 1999.
NOTE 3. STATEMENTS OF CASH FLOWS
--------------------------------
The following supplemental disclosures are provided for the Consolidated
Statements of Cash Flows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, ........................ 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash payments made for:
INTEREST, NET OF AMOUNTS CAPITALIZED ....... $23,680 $ 7,916 $48,155
======= ======= =======
STATE AND FEDERAL INCOME TAXES ............. $15,900 $43,159 $ 3,660
======= ======= =======
</TABLE>
During 1997, the Company completed equipment lease financing for approximately
$3.1 million at MGM Grand Las Vegas.
NOTE 4. ACCOUNTS RECEIVABLE
---------------------------
Components of accounts receivable were as follows:
(IN THOUSANDS)
AT DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
CASINO .................................................... $89,681 $87,442
HOTEL ..................................................... 12,679 11,229
INCOME TAX RECEIVABLE ..................................... - 6,776
OTHER ..................................................... 3,587 553
------- -------
105,947 106,000
LESS: ALLOWANCE FOR DOUBTFUL ACCOUNTS AND DISCOUNTS ....... (36,831) (27,023)
------- -------
$69,116 $78,977
======= =======
</TABLE>
35
<PAGE>
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, following an evaluation
of credit worthiness, to certain casino patrons, a substantial portion of whom
reside in countries other than the United States. 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, NET
-----------------------------------
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
AT DECEMBER 31, 1998 1997
---------- ----------
<S> <C> <C>
LAND.............................................................. $ 107,613 $ 105,813
BUILDINGS AND IMPROVEMENTS........................................ 929,980 663,832
EQUIPMENT, FURNITURE, FIXTURES AND LEASEHOLD IMPROVEMENTS......... 304,239 217,723
EQUIPMENT UNDER CAPITAL LEASE..................................... 18,053 18,053
CONSTRUCTION IN PROGRESS.......................................... 223,772 216,898
---------- ----------
1,583,657 1,222,319
LESS: ACCUMULATED DEPRECIATION AND AMORTIZATION................... (255,935) (189,611)
---------- ----------
$1,327,722 $1,032,708
========== ==========
</TABLE>
NOTE 6. DEVELOPMENT PROJECTS
----------------------------
The Company, along with its local partners in Detroit, Michigan, plans to
develop a permanent hotel/casino and entertainment complex at an approximate
cost of $800 million. On November 20, 1997, MGM Grand Detroit, LLC was chosen as
a finalist for a development agreement to construct, own and operate one of
Detroit's three new casinos. On April 9, 1998, the Detroit City Council approved
MGM Grand Detroit, LLC's development agreement with the City of Detroit.
Construction of the project is subject to the receipt of various governmental
approvals. The plans for the permanent facility call for an 800-room hotel, a
100,000 square-foot casino, signature restaurants and retail outlets, a showroom
and other entertainment venues. On July 22, 1998, the Michigan Gaming Control
Board adopted a resolution which allows the issuance of casino licenses to
conduct gaming operations in temporary facilities. During November 1998, MGM
Grand Detroit, LLC commenced construction activities on its temporary casino
which will consist of approximately 73,000 square feet of casino space, 2,300
slot machines, 80 table games, as well as signature restaurants and bars at an
approximate cost of $200 million. Pending the receipt of its license, MGM Grand
Detroit, LLC anticipates the opening of the temporary facility in the third
quarter of 1999. Through December 31, 1998, approximately $26.3 million was
expended and capitalized by the Company for licensing, design and construction
costs for the permanent and temporary facilities.
The Company plans to develop a hotel/casino and entertainment complex in
Atlantic City, New Jersey, at a minimum approximate cost of $700 million, on
approximately 35 acres of land on the Atlantic City Boardwalk. Construction of
the project is subject to the receipt of various governmental approvals. On July
24, 1996, the Company was found suitable for licensing by the New Jersey Casino
Control Commission. Through December 31, 1998, the Company has expended and
capitalized approximately $53.1 million relating primarily to land acquisition
and pre-construction activities.
36
<PAGE>
NOTE 7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
------------------------------------------------
On December 28, 1994, the Company and Primadonna formed a joint venture to
construct, own and operate the New York-New York Hotel and Casino (see Note 1).
The hotel/casino opened to the public on January 3, 1997. The Company holds a
50% interest in the joint venture (see Note 20). As of December 31, 1998, the
Company has contributed land valued at $41.2 million with a cost basis of $37.6
million on which the property is located and cash totaling $29.5 million. During
the years ended December 31, 1998, and December 31, 1997, the Company received
distributions of $4.1 million and $15.2 million, respectively from the joint
venture to pay taxes on its allocated share of income. The joint venture secured
bank financing of $285 million, which was subsequently amended and reduced to
$210 million, and term loan financing of $20 million (see Note 9). In addition,
the joint venture Partners' executed a joint and several unlimited Keep-Well
Agreement in conjunction with the financing.
Summary condensed financial information for New York-New York Hotel and
Casino, LLC is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998 1997
-------- --------
<S> <C> <C>
NET REVENUES................................................... $219,107 $255,253
======== ========
OPERATING INCOME............................................... $ 76,628 $107,431
======== ========
INTEREST EXPENSE, NET.......................................... $(16,562) $(19,425)
======== ========
NET INCOME..................................................... $ 60,066 $ 88,006
======== ========
(IN THOUSANDS)
AT DECEMBER 31, 1998 1997
-------- --------
TOTAL ASSETS................................................... $451,496 $470,252
======== ========
LONGTERM DEBT.................................................. $189,361 $246,403
======== ========
MEMBERS' EQUITY................................................ $235,176 $183,350
======== ========
</TABLE>
Effective December 10, 1993, the Company through its wholly owned subsidiary,
MGM Grand Hotel, Inc., and Bally's Grand Inc. ("Bally's") formed a 50/50 joint
venture, MGM Grand-Bally's Monorail, LLC. The joint venture was intended to
construct, own and operate the MGM Grand-Bally's Monorail. The Company
contributed $2 million, $1.5 million, and $1.3 million to the joint venture as
part of its operating contribution during 1998, 1997 and 1996, respectively.
The Company has investments in unconsolidated affiliates that are accounted
for under the equity method. Under the equity method, original investments are
recorded at cost, and are adjusted by the Company's share of earnings, losses
and distributions received from and made to these companies. The investment
balance also includes interest and certain development costs capitalized during
construction. Investments in unconsolidated affiliates consisted of the
following:
(IN THOUSANDS)
AT DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
NEW YORK - NEW YORK HOTEL AND CASINO, LLC........................ $122,861 $ 96,949
MGM GRAND - BALLY'S MONORAIL, LLC................................ 11,164 11,172
-------- --------
$134,025 $108,121
======== ========
</TABLE>
37
<PAGE>
The changes in the Company's investments in unconsolidated affiliates were as
follows:
(IN THOUSANDS)
New York - New York Hotel and Casino, LLC 1998 1997
---------- ---------
INVESTMENT AT JANUARY 1,............................ $ 96,949 $ 60,943
EARNINGS............................................ 30,032 44,003
DISTRIBUTIONS RECEIVED.............................. (4,120) (15,160)
ADDITIONAL INVESTMENTS.............................. - 7,000
OTHER, NET.......................................... - 163
---------- ---------
INVESTMENT AT DECEMBER 31,.......................... $ 122,861 $ 96,949
========== =========
(IN THOUSANDS)
MGM Grand-Bally's Monorail, LLC 1998 1997
---------- ---------
INVESTMENT AT JANUARY 1,............................ $ 11,172 $ 11,953
COSTS OF OPERATIONS................................. (808) (808)
ADDITIONAL INVESTMENT............................... 800 27
---------- ---------
INVESTMENT AT DECEMBER 31,.......................... $ 11,164 $ 11,172
========== =========
NOTE 8. OTHER ACCRUED LIABILITIES
---------------------------------
Other accrued liabilities consisted of the following:
(IN THOUSANDS)
AT DECEMBER 31, 1998 1997
---------- ---------
ACCRUED SALARIES AND RELATED........................ $ 38,422 $ 35,115
CASINO FRONT MONEY.................................. 24,945 26,393
CASINO CHIP LIABILITY............................... 12,198 17,204
OTHER LIABILITIES................................... 40,216 32,241
---------- ---------
$ 115,781 $ 110,953
========== =========
NOTE 9. LONG TERM DEBT
-----------------------
Long term debt consisted of the following:
(IN THOUSANDS)
AT DECEMBER 31, 1998 1997
-------- --------
6.95% SENIOR COLLATERALIZED NOTES DUE FEBRUARY 1, 2005.... $300,000 $ -
6.875% SENIOR COLLATERALIZED NOTES DUE FEBRUARY 6, 2008... 200,000 -
AUSTRALIAN HOTEL/CASINO LOAN DUE DECEMBER 1, 2002......... 44,874 57,830
SENIOR REDUCING REVOLVING CREDIT FACILITY................. - -
-------- --------
544,874 57,830
LESS: CURRENT MATURITIES.................................. (10,077) (10,589)
-------- --------
$534,797 $ 47,241
======== ========
Total interest incurred during 1998, 1997 and 1996 was $40.1 million, $9 million
and $40.8 million, respectively, of which $15.5 million, $7.8 million and $7
million were capitalized in 1998, 1997 and 1996, respectively.
On July 3, 1996, the Company deposited $523.2 million (the "Defeasance
Deposit") with the Trustee, U.S. Trust of California, to fund the defeasance of
FMN in accordance with the terms of the bond indenture. The Defeasance Deposit
was made in the form of U.S. Government securities and was used to fund interest
payments on the FMN through May 1, 1997, at which date the 11.75% and 12% FMN
were called at 101.958% and 105.333% of their outstanding principal,
respectively. On October 29, 1996, the liens on the assets of MGM Grand Hotel,
Inc. were released and accordingly, the defeasance was finalized. The early
extinguishment of
38
<PAGE>
the FMN resulted in an extraordinary loss of approximately $30.8 million, net of
income tax benefits.
On July 1, 1996, the Company secured a $500 million Senior Reducing
Revolving Credit Facility with BA Securities (the "Facility"), an affiliate of
Bank of America NT&SA. In August 1996, the Facility was increased to $600
million. In July 1997, the Facility was amended, extended and increased to $1.25
billion (the "New Facility"), with provisions to allow an increase of the New
Facility to $1.5 billion as well as to allow additional pari passu debt
financing up to $500 million. As a result of the New Facility, the Company
recognized an extraordinary loss of approximately $4.2 million, net of income
tax benefits, due to the write-off of unamortized debt costs from the Facility
during 1997. The New Facility contains various restrictive covenants on the
Company which include the maintenance of certain financial ratios and
limitations on additional debt, dividends, capital expenditures and disposition
of assets. The New Facility also restricts certain acquisitions and similar
transactions. Interest on the New Facility is based on the bank reference rate
or Eurodollar rate and as of December 31, 1998, the Company's borrowing rate was
approximately 5.8%. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one-year periods. During the
year ended December 31, 1998, $31 million was drawn down and repaid against the
New Facility and no amounts remained outstanding as of December 31, 1998.
The Company filed a Shelf Registration Statement with the Securities and
Exchange Commission which became effective on August 4, 1997. The Shelf
Registration Statement allows the Company to issue up to $600 million of debt
and equity securities. On February 2 and February 6, 1998, the Company completed
public offerings totaling $500 million of Senior Collateralized Notes in
tranches of 7 and 10 years. The 7-year tranche of $300 million carries a coupon
of 6.95%, while the 10-year tranche of $200 million carries a coupon of 6.875%.
Both tranches are initially secured equally and ratably with the New Facility
and security may be removed equally with the New Facility at the Company's
option, and upon the occurrence of certain events, including the maintenance of
investment grade ratings. These Senior Collateralized Notes are pari passu with
the New Facility and contain various restrictive covenants as does the New
Facility. The Senior Collateralized Notes and the New Facility are
collateralized by substantially all the assets of the Company except for assets
of certain unrestricted subsidiaries. Based on the quoted market value of the
Senior Collateralized Notes at December 31, 1998, the fair value of the 7-year
and 10-year tranches were $280.5 million and $179.9 million, respectively.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia. The
acquisition cost was financed by an Australian bank facility which provided a
total availability of approximately $64.4 million (AUD $105 million) and
includes funding for general corporate purposes. During 1998, the facility was
reduced by principal payments totaling $9.7 million (AUD $15.6 million) made in
accordance with the terms of the bank facility, and as of December 31, 1998,
$44.9 million (AUD $73.2 million) remained outstanding. Interest on the
Australian facility is based on the bank bill rate and was approximately 5.3%
and 5.8% as of December 31, 1998 and 1997, respectively. The facility matures in
December 2002, and the indebtedness has been guaranteed by the Company.
MGM Grand Australia has a $12.3 million (AUD $20 million) uncommitted
standby line of credit, with a funding period of 91 days for working capital
purposes. During the year ended December 31, 1998, no amounts were borrowed
under the line of credit and no amounts were outstanding as of December 31,
1998, and 1997, respectively. Maturities of the Company's long-term debt are as
follows:
(IN THOUSANDS)
YEARS ENDING DECEMBER 31
1999.................................. $ 10,077
2000.................................. 10,077
2001.................................. 10,151
2002.................................. 14,569
THEREAFTER............................ 500,000
--------
TOTAL................................. $544,874
========
39
<PAGE>
On September 15, 1995, NYNY LLC completed its bank financing for up to $225
million (see Note 1), which was increased to $285 million during September 1996.
The non-revolving construction line of credit converted to a five-year reducing
revolver upon completion of construction and commencement of operations of NYNY
on January 3, 1997. On October 8, 1998, the NYNY LLC five-year reducing revolver
was amended and reduced to $210 million. The Company and Primadonna (the
"Partners") 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 cash flow from NYNY
to comply with financial covenants, the Partners will make cash infusions which
are sufficient to bring NYNY LLC into compliance with the financial covenants.
The first draw down occurred on September 30, 1995, and as of December 31, 1998,
$178.5 million was outstanding under the facility. During 1998, $66.6 million in
principal repayments were made by NYNY LLC. On January 21, 1997, NYNY LLC
completed an additional $20 million equipment financing with a financial
institution. As of December 31, 1998, $14.4 million remained outstanding related
to the equipment financing.
As of December 31,1998, the Company was in compliance with all covenant
provisions associated with the aforementioned obligations.
NOTE 10. COMMITMENTS AND CONTINGENCIES
---------------------------------------
The Company and its subsidiaries lease buildings and equipment under non-
cancelable operating lease agreements which expire at various times through the
year 2003. The leases generally provide that the Company pay taxes, insurance
and maintenance expenses related to leased assets.
At December 31, 1998, the Company was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDING DECEMBER 31, OPERATING CAPITAL
LEASES LEASES
--------- ----------
<S> <C> <C>
1999................................................ $ 643 $ 5,372
2000................................................ 519 3,047
2001................................................ 429 -
2002................................................ 429 -
2003................................................ 429 -
THEREAFTER - -
--------- ----------
TOTAL MINIMUM LEASE PAYMENT......................... $ 2,449 8,419
=========
AMOUNT REPRESENTING INTEREST........................................ (466)
----------
TOTAL OBLIGATION UNDER CAPITAL LEASES............................... 7,953
LESS: AMOUNT DUE WITHIN ONE YEAR................................... (5,086)
----------
AMOUNT DUE AFTER ONE YEAR........................................... $ 2,867
==========
</TABLE>
Rental expense on the non-cancelable operating leases was $1.7 million, $2.5
million and $3.7 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
40
<PAGE>
NOTE 11. STOCKHOLDERS' EQUITY
------------------------------
On July 2, 1996, the Company completed a public offering (the "Offering") of 8.6
million shares of commom stock (including an underwriter's over allotment option
to purchase 1.1 million shares of commom stock). Based on an Offering price of
$39.50 per share and associated costs incurred, the net proceeds were
approximately $327 million. The net proceeds from the Offering were used for the
defeasance of the MGM Grand Hotel Finance Corp. FMN (see Note 9).
On May 7, 1996, the Company made a commitment to grant 15 shares of
Company common stock to each of its employees in exchange for continued active
employment through the one-year anniversary date of the commitment. As a result
of the stock grant commitment, deferred compensation was charged to
stockholders' equity and amortized monthly to compensation expense over the one-
year commitment period. On May 7, 1997, 99,045 shares were issued to employees
as a result of the commitment. Over the life of the commitment, approximately $4
million was amortized to expense, of which $1.2 million and $2.8 million of such
expense were recognized during the years ended December 31, 1997 and 1996,
respectively.
On May 24, 1995, and as amended, the Company entered into an agreement
with Don King Productions, Inc. ("DKP") to present six of Mike Tyson's fights.
Pursuant to the agreement, the Company made a non-interest bearing working
capital advance of $15 million to DKP, sold to DKP 618,557 treasury shares of
the Company's Common Stock (the "Shares") for $15 million in exchange for a non-
interest bearing promissory note which was repaid, and provided a guaranteed
future share price of $48.50. The original agreement was amended by a Trust
Agreement dated October 23, 1996, in which the Shares were placed in the name
of, and held by, an independent trustee, pending disposition at the direction of
the Company. The Company and DKP determined to terminate the agreement, and on
September 25, 1997, after solicitation of competitive bids, the Shares held by
the Trustee were sold to Tracinda at the price of $44.50 per share for an
aggregate consideration of $27.5 million. The Company was repaid the $15 million
working capital advance and the remaining consideration in the amount of $12.5
million was paid to DKP. As a result of this transaction, the Company reversed
approximately $5.9 million of previously expensed stock price guarantee
amortization during 1997.
On June 23, 1998, the Company announced a $35.00 per share cash tender
offer for up to 6 million shares of Company commom stock as part of a 12 million
share repurchase program. The offer commenced on July 2, 1998 and expired on
July 31, 1998. Based upon final results, 10.8 million shares of the Company's
common stock were tendered, and accordingly, the shares were prorated. The total
acquisition cost of the tendered shares was approximately $210.6 million. The
company anticipates that, depending on market conditions, the remaining 6
million shares in the repurchase program may be acquired in the open market, in
private transactions, through a tender offer, offers otherwise.
NOTE 12. COMPREHENSIVE INCOME
------------------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income, requires that the Company disclose comprehensive income
and its components. The objective of SFAS 130 is to report a measure of all
changes in equity of a company that result from transactions and other economic
events of the period other than transactions with stockholders. Comprehensive
income is the total of net income and all other non-stockholder changes in
equity ("Other Comprehensive Income").
The Company has recorded currency translation adjustments as Other
Comprehensive Income in the accompanying financial statements. Comprehensive
income is calculated as follows:
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998 1997
--------- ---------
NET INCOME ................................. $ 68,948 $ 111,018
CURRENCY TRANSLATION ADJUSTMENT ............ 2,688 14,422
--------- ---------
COMPREHENSIVE INCOME ....................... $ 71,636 $ 125,440
========= =========
41
<PAGE>
NOTE 13. EARNINGS PER SHARE
----------------------------
The Company accounts for Earnings per Share according to Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
presents two EPS calculations: (i) basic earnings per common stock which is
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the periods presented, and (ii) diluted earnings
per common share which is determined on the assumption that options issued
pursuant to the Company's stock option plans (see Note 14) are exercised and
repurchased at the average price for the periods presented.
(IN THOUSANDS EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 1998 1997 1996
--------- --------- ---------
NET INCOME ............................... $ 68,948 $ 111,018 $ 43,706
========= ========= =========
WEIGHTED AVERAGE BASIC SHARES ............ 55,678 57,475 52,759
========= ========= =========
BASIC EARNINGS PER SHARE ................. $ 1.24 $ 1.93 $ 0.83
========= ========= =========
WEIGHTED AVERAGE DILUTED SHARES .......... 56,342 58,835 54,257
========= ========= =========
DILUTED EARNINGS PER SHARE ............... $ 1.22 $ 1.89 $ 0.81
========= ========= =========
Weighted average diluted shares include the following: options to purchase
approximately 664,000, 877,000, and 962,000 shares issued pursuant to the
Company's stock option plans (see Note 14) for the years ended December 31,
1998, 1997 and 1996, respectively; employee grant shares of approximately 29,000
and 22,000 for the years ended December 31, 1997 and 1996, respectively (see
Note 11); and DKP shares of approximately 454,000 and 514,000 for the years
ended December 31, 1997 and 1996, respectively (see Note 11).
NOTE 14. STOCK OPTION PLANS
---------------------------
The Company has adopted nonqualified stock option plans and incentive stock
plans which provide for the granting of stock options pursuant to the applicable
provisions of the Internal Revenue Code and regulations. The aggregate options
available under the plans are 6.5 million shares. The Company had granted
options of approximately 5.6 million shares through December 31, 1998.
The plans are administered by the Compensation and Stock Option
Committee of the 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 have ten-year terms and
are exercisable in four and five annual installments.
On March 26, 1996, the Compensation and Stock Option Committee of the
Board of Directors determined to adjust the vesting provision of the Company's
Non-Qualified Stock Option Plan and Incentive Stock Option Plan to provide for
the vesting of future stock option grants under the plans at 20% on each of the
first four anniversary dates of the grant, with full vesting on the fifth
anniversary date of the grant. The Compensation and Stock Option Committee also
determined that pro-rata vesting at times other than successive anniversary
dates of the date of the grant are no longer applicable. Stock option holders
with grants dated prior to March 26, 1996 were given the opportunity to accept
or decline the new vesting provisions with regard to their existing grants.
On June 22, 1998, the Compensation and Stock Option Committee of the
Board of Directors approved an offer to employees to reprice their out-of-the-
money options (covering an aggregate of 1,820,950 shares). The original options
had exercise prices ranging from $33.1875 to $44.125, and the new options have
an exercise price of $26.625. For holders who accepted the new price, certain
conditions were adopted including (1) commencement of a new holding period for
vesting of options (whether or not the initial options had vested) and (2) a
one-year extension of employee employment contracts, at the Company's option,
where applicable. The repricing offer was not made to the Company's outside
directors. Such repricing did not affect options held by the Chairman or the
President of the Company.
Had the Company accounted for these plans under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
42
<PAGE>
(IN THOUSANDS) 1998 1997 1996
---------- ----------- ----------
Net income:
AS REPORTED ................. $ 68,948 $ 111,018 $ 43,706
========= ========== ==========
PRO FORMA ................... $ 66,047 $ 110,235 $ 34,981
========= ========== ==========
Basic earnings per share:
AS REPORTED ................. $ 1.24 $ 1.93 $ 0.83
========= ========== ==========
PRO FORMA ................... $ 1.19 $ 1.92 $ 0.66
========= ========== ==========
Diluted earnings per share:
AS REPORTED ................. $ 1.22 $ 1.89 $ 0.81
========= ========== ==========
PRO FORMA ................... $ 1.17 $ 1.87 $ 0.64
========= ========== ==========
A summary of the status of the Company's fixed stock option plan for each of the
years in the period ended December 31, 1998, 1997 and 1996 is presented below
(there are no options outstanding under the Incentive Stock Option Plan):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- --------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
-------- ----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING OF THE YEAR.. 3,642 $28.82 3,213 $27.26 3,102 $22.67
GRANTED....................... 3,167 $29.21 727 $36.26 765 $35.12
EXERCISED..................... (49) $27.11 (72) $15.09 (414) $11.92
FORFEITED..................... (2,059) $36.41 (226) $35.19 (240) $26.35
EXPIRED....................... - $ - - $ - - $ -
------- ----- -----
OUTSTANDING AT END OF THE YEAR........ 4,701 $25.78 3,642 $28.82 3,213 $27.26
======= ===== =====
EXERCISABLE AT END OF THE YEAR........ 1,359 $23.89 783 $24.24 220 $14.38
======= ===== =====
WEIGHTED AVERAGE FAIR VALUE
OF OPTIONS GRANTED............ $13.61 $16.98 $22.89
====== ====== ======
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/1998 LIFE (YEARS) PRICE AT 12/31/1998 PRICE
-------------- ------------ --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$10.25 -$20.00 ........... 241,700 2.5 $ 12.82 233,700 $ 12.61
$20.01 -$25.00 ........... 626,350 8.0 $ 24.41 144,900 $ 24.40
$25.01 -$30.00 ........... 3,639,800 8.2 $ 26.39 945,100 $ 26.09
$30.01 -$35.00 ........... 109,100 8.6 $ 32.99 4,000 $ 34.25
$35.01 -$40.00 ........... 56,425 7.9 $ 35.49 14,825 $ 35.63
$40.01 -$45.00 ........... 27,400 6.1 $ 40.84 16,200 $ 40.95
---------- -------- -------- --------- --------
4,700,775 7.9 $ 25.78 1,358,725 $ 23.89
========== -------- ======== ========= ========
</TABLE>
43
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively; risk-free
interest rates 6%, 6%, and 6.1%, respectively; no expected dividend yields for
the years presented; expected lives of 6 years for all years; and expected
volatility of 36% for 1998, 38% for 1997, and 39% for 1996.
The Company has agreements with 138 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 4.7 million, of which 4.6 million options become immediately exercisable, and
the remaining .1 million options become exercisable if employment status is
diminished within twelve months following a change in control.
NOTE 15. EMPLOYEE PENSION AND SAVINGS PLANS
-------------------------------------------
Participation in the MGM Grand Hotel, Inc. 401(k) employee savings plan is
available for all full time employees. The savings plan allows participants to
defer, on a pre-tax 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 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, 1998, 1997 and 1996, MGM Grand Hotel, Inc.
contributions under this arrangement were $4.1 million, $3.4 million, and $3.1
million, 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 pre-tax 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 MGM Grand Australia
(see Note 1), 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 pre-tax basis, a portion of their salary
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, under certain circumstances or normal retirement.
During 1998, MGM Grand Australia contributed under these arrangements $269,000
and $547,000 for the executive employees and staff, respectively. During 1997,
MGM Grand Australia contributed under these arrangements $154,000 and $458,000
for the executive employees and staff, respectively. During 1996, MGM Grand
Australia contributed under these arrangements $196,000 and $617,000 for the
executive employees and staff, respectively.
44
<PAGE>
NOTE 16. MASTER PLAN ASSET DISPOSITION
--------------------------------------
During 1997, the Company enhanced and increased the Master Plan to approximately
$570 million, and wrote off assets with a net book value of $28.6 million (pre-
tax) which included the original swimming pool facility, to be replaced by the
Mansion at the MGM Grand consisting of 29 exclusive suites and villas, and
certain theme park assets. During September 1996, the Company determined to
write off various assets with a net book value of $49.4 million (pre-tax) as a
result of the MGM Grand Las Vegas $250 million Master Plan property construction
enhancements associated with the transformation of the facility into "The City
of Entertainment." The affected areas included certain assets related to the
theme park which totaled approximately $39.6 million to make way for the newly
completed Conference Center and pool and spa complex; approximately $8.6 million
related to the removal of the lion entrance and Emerald City which has been
replaced with a new mezzanine entry, a Rainforest Cafe, Studio 54 nightclub and
a remodeled Entertainment casino among other attractions; and approximately $1.2
million representing certain food court and midway/arcade areas which have been
transformed into the Studio Walk, a replica of a sound stage featuring Hollywood
landmarks.
NOTE 17. INCOME TAXES
---------------------
The Company accounts for Income Taxes according to Statement of Financial
Accounting Standards 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 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, 1998, the Company believes that it is more
likely than not that its deferred tax assets are fully realizable because of the
future reversal of existing taxable temporary differences and future projected
taxable income. Accordingly, there is no valuation allowance at December 31,
1998.
The provision for income taxes and income from continuing operations
before extraordinary item for the years ended December 31, 1998, 1997 and 1996
is as follows:
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998 1997 1996
---------- ----------- ----------
CURRENT - FEDERAL.................. $ 24,791 $ 14,207 $ 31,014
DEFERRED - FEDERAL................. 15,789 50,838 (6,380)
---------- ----------- ----------
PROVISION FOR INCOME TAXES..... $ 40,580 $ 65,045 $ 24,634
========== =========== ==========
Reconciliation of the Federal income tax rate and the Company's effective tax
rate is as follows:
YEARS ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
FEDERAL INCOME TAX RATE ........... 35.0% 35.0% 35.0%
PERMANENT AND OTHER ITEMS.......... 2.0 1.1 6.2
CHANGES IN VALUATION ALLOWANCE..... - - (16.4)
---- ---- ----
EFFECTIVE TAX RATE................. 37.0% 36.1% 24.8%
==== ==== ====
45
<PAGE>
As of December 31, 1998, the major tax affected components of the Company's net
deferred tax liability are as follows:
(IN THOUSANDS) 1998 1997
------ --------
Deferred Tax Assets
NET OPERATING LOSS CARRYFORWARD.... $ - $ 1,929
BAD DEBT RESERVE................... 12,234 6,586
HOTEL PREOPENING EXPENSES.......... - 2,781
TAX CREDIT CARRYFORWARDS........... 29,492 27,219
-------- --------
41,726 38,515
-------- --------
Deferred Tax Liabilities
DEPRECIATION AND AMORTIZATION...... (75,532) (65,144)
ACCRUALS, RESERVES AND OTHER....... (9,261) (1,908)
-------- --------
(84,793) (67,052)
-------- --------
Net Deferred Tax (Liability) Asset......... $(43,067) $(28,537)
======== ========
For U.S. Federal income tax return purposes, the Company has an alternative
minimum tax credit carryforward of $26 million which does not expire, and a
general business tax credit carryforward of $3.5 million which expires in
different periods through 2012.
NOTE 18. RELATED-PARTY TRANSACTIONS
-----------------------------------
In conjunction with the Company's 50% interest in the MGM Grand-Bally's
Monorail, LLC, the Company, through its wholly-owned subsidiary, MGM Grand
Hotel, Inc., contributed approximately $2 million, $1.5 million, and $1.3
million to the joint venture as part of its operating contribution during 1998,
1997 and 1996, respectively.
The Company, through its wholly-owned subsidiary MGM Grand Hotel, Inc.,
has entered into an agreement to lease space in NYNY to operate a race book and
sports pool. The terms of the lease are for ten years from the commencement date
of January 3, 1997, with an option for an additional term of ten years. MGM
Grand Hotel, Inc. is obligated to pay to NYNY the greater of a minimum annual
rent of $.2 million or percentage rent based upon gross revenue, as defined by
the Nevada Gaming Authorities. The percentage rent is based on a graduated scale
of gross revenue at percentages ranging from 12 to 15%. During 1998 and 1997,
approximately $.4 million and $.5 million, respectively, were paid under this
agreement. Additionally, MGM Grand Hotel, Inc. leased office facilities to NYNY
during 1996 for which it received rental payments of approximately $.1 million,
and provided various other hotel goods and services for which NYNY paid
approximately $.1 million and $.2 million during 1998 and 1997, respectively. On
September 4, 1996, the Company also entered into an agreement with NYNY to
provide exclusive floral services through its wholly-owned subsidiary, MGM Grand
Merchandising, Inc., at rates generally comparable to those offered by third
parties. Payments were made by NYNY totaling $.1 million under the floral
service contract for each of 1998 and 1997. The Company and NYNY have entered
into various other transactions and
46
<PAGE>
arrangements which, individually and in the aggregate, are not material.
For the years ended December 31, 1998, and 1997, the Company and its
subsidiaries rented aircraft from Tracinda for various business purposes. The
aggregate amount of rental payments were $.3 million and $.5 million,
respectively, and the rent payments were at rates which management believes are
generally below those offered by third parties. The Company and Tracinda have
entered into various other transactions and arrangements which, individually and
in the aggregate, are not material.
During 1998, the Company made no additional contributions to NYNY LLC,
compared with $7 million during 1997. The Company received approximately $4.1
million and $15.2 million in distributions from NYNY LLC during 1998 and 1997,
respectively, to pay taxes on its allocated share of income.
In August 1998, Tracinda agreed to sell its building and land
(approximately .56 acre located in Las Vegas, Nevada) to the Company's
subsidiary, MGM Grand Hotel, Inc., for $1.8 million. The Company, based on
appraisals it received, believes that this purchase was on terms comparable to
what it could have obtained for the land and building on an arms-length basis in
an equivalent transaction with a third party.
Pursuant to an agreement dated December 23, 1996, between MGM Grand Hotel,
Inc. and MGM Home Entertainment, Inc. ("MGM-HE"), a California-based motion
picture studio in which Tracinda has an approximate 89.6% ownership interest,
MGM Grand Hotel, Inc. can utilize key art and still photographs from certain
Metro Goldwyn Mayer, Inc. and United Artists Corporation motion pictures for the
period commencing on December 27, 1996 and ending on July 1, 1997, which was
subsequently extended to December 31, 1997. In exchange, MGM Grand Hotel, Inc.
agreed to promote MGM-HE motion picture video cassettes for availability in one
or more retail venues. During 1998 and 1997, MGM Grand Hotel, Inc. purchased
video cassettes and other MGM-HE merchandise of approximately $.1 million and
$.3 million, respectively, at rates which management believes are generally
comparable to those offered to third parties. In addition, MGM Grand Hotel, Inc.
provided various goods and services during 1998 to MGM-HE which, individually
and in the aggregate, are not material.
Pursuant to a License Agreement between a predecessor in interest to the
Company and Metro Goldwyn Mayer Film Co. dated February 29, 1980, the Company
has an exclusive royalty-free license in perpetuity to use certain trademarks,
trade names and logos in and in connection with the Company's hotel/gaming
business and other businesses, excluding the film entertainment business.
During the three-year periods ended December 31, 1998, 1997 and 1996, the
Company and MGM-HE have entered into various other transactions and arrangements
which, individually and in the aggregate, are not material.
NOTE 19. PROPERTY PERFORMANCE
-----------------------------
The Company operates in the hotel/casino industry through the operations of MGM
Grand Las Vegas, which commenced operations on December 18, 1993, MGM Grand
Australia, which was acquired on September 7, 1995 (see Note 1), its 50%
interest in NYNY LLC, which commenced operations on January 3, 1997 (see Notes 1
and 20), MGM Grand South Africa manages three temporary casinos one each in
Nelspruit (opened on October 15, 1997), Witbank (opened on March 10, 1998) and
Johannesburg (opened on September 28, 1998) (see Note 1). Sales between
properties are immaterial and generally at prices approximately equal to those
charged to unaffiliated customers.
47
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
HOTEL/CASINO............................................ $ 735,501 $ 773,797 $ 800,189
INCOME FROM UNCONSOLIDATED AFFILIATE.................... 38,362 53,800 -
----------- ----------- -----------
$ 773,863 $ 827,597 $ 800,189
=========== =========== ===========
Operating income (loss):
HOTEL/CASINO............................................ $ 103,901 $ 169,160 $ 196,585
INCOME FROM UNCONSOLIDATED AFFILIATE.................... 38,362 53,800 -
MASTER PLAN ASSET DISPOSITION........................... - (28,566) (49,401)
CORPORATE EXPENSE....................................... (10,689) (3,424) (10,022)
PREOPENING AND OTHER - UNCONSOLIDATED AFFILIATE......... - - (7,868)
----------- ----------- -----------
$ 131,574 $ 190,970 $ 129,294
=========== =========== ===========
Identifiable assets:
HOTEL/CASINO............................................ $ 1,719,436 $ 1,390,215 $ 1,254,602
CORPORATE............................................... 54,358 8,159 33,087
----------- ----------- -----------
$ 1,773,794 $ 1,398,374 $ 1,287,689
=========== =========== ===========
Capital expenditures:
HOTEL/CASINO............................................ $ 349,131 $ 227,658 $ 84,544
CORPORATE............................................... 12,811 98 231
----------- ----------- -----------
$ 361,942 $ 227,756 $ 84,775
=========== =========== ===========
Depreciation and amortization:
HOTEL/CASINO............................................ $ 76,284 $ 64,104 $ 62,196
CORPORATE............................................... 428 140 127
----------- ----------- -----------
$ 76,712 $ 64,244 $ 62,323
=========== =========== ===========
</TABLE>
NOTE 20. SUBSEQUENT EVENTS (UNAUDITED)
--------------------------------------
During December 1998, the Company and Primadonna entered into a definitive
merger agreement whereby MGM Grand, Inc. would acquire Primadonna in an all
stock transaction plus the assumption of debt. The terms of the merger provided
for Primadonna's stockholders to receive 0.33 shares of the Company's common
stock for each share of Primadonna stock held, or a total of approximately 9.5
million shares of MGM Grand, Inc. common stock.
On March 1, 1999, the merger with Primadonna was completed making
Primadonna a wholly-owned subsidiary of the Company. Primadonna owns and
operates three hotel/casino resorts on both sides of Interstate 15 at the
California/Nevada border in Primm, Nevada (Whiskey Pete's, Buffalo Bill's and
the Primm Valley Resort), a 50% interest in NYNY LLC (which now becomes 100%
owned by the Company) and two championship golf courses located four miles south
of Primm in California. The Primm, Nevada hotel/casinos are located on
approximately 143 acres of leased land. Primadonna owns approximately 16 acres
of land in Nevada immediately north of Buffalo Bill's and approximately 573
acres of land in California where the golf courses are located. Approximately
125 of these acres are available for future development.
As of March 1, 1999, the Company assumed approximately $315 million of long
term debt related to the Primadonna acquisition, which includes Primadonna's 50%
share of NYNY LLC's long-term debt.
On February 24, 1999, the Company, along with its Detroit partners,
received commitments from a consortium of banks for a new five-year $230 million
credit facility. Approximately two-thirds of the commitments are from Michigan-
based banks, mostly from the greater metropolitan Detroit area. The facility may
be increased to $250 million at the Company's discretion. Proceeds from the new
facility will be used to finance the development and construction of the
temporary and permanent casino complexes and for general working capital. The
facility will be secured by substantially all of the assets of MGM Grand
Detroit, LLC's temporary facility and will be guaranteed by the Company.
48
<PAGE>
Report of Independent
---------------------
Public Accountants
-------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MGM GRAND, INC.:
--------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of MGM Grand, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 1, 1999
49
<PAGE>
Selected Quarterly
------------------
Financial Results
-----------------
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED) QUARTER
--------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
NET REVENUES......................................... $ 179,847 $ 185,365 $ 193,707 $ 214,944 $ 773,863
OPERATING PROFIT BEFORE NON-RECURRING
ITEMS AND CORPORATE EXPENSE..................... 30,609 30,040 34,896 46,718 142,263
OPERATING INCOME..................................... 28,158 27,103 34,182 42,131 131,574
INCOME BEFORE INCOME TAXES........................... 25,409 23,515 26,643 33,961 109,528
NET INCOME........................................... 16,262 14,399 17,052 21,235 68,948
BASIC INCOME PER SHARE OF COMMON STOCK:
NET INCOME........................................... $ 0.28 $ 0.25 $ 0.31 $ 0.41 $ 1.24
========== ========== ========== ========== ==========
DILUTED INCOME PER SHARE OF COMMON STOCK:
NET INCOME........................................... $ 0.28 $ 0.25 $ 0.31 $ 0.41 $ 1.22
========== ========== ========== ========== ==========
1997
NET REVENUES......................................... $ 197,498 $ 209,085 $ 208,399 $ 212,615 $ 827,597
OPERATING PROFIT BEFORE NON-RECURRING
ITEMS AND CORPORATE EXPENSE..................... 53,038 57,368 56,419 56,135 222,960
OPERATING INCOME..................................... 51,549 54,079 31,319 54,023 190,970
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM.......................... 48,077 51,437 28,984 51,803 180,301
NET INCOME........................................... 30,150 32,999 14,456 33,413 111,018
BASIC INCOME PER SHARE OF COMMON STOCK:
INCOME BEFORE EXTRAORDINARY ITEM..................... $ 0.52 $ 0.57 $ 0.32 $ 0.58 $ 2.00
EXTRAORDINARY ITEM................................... - - (0.07) - (0.07)
---------- ---------- ---------- ---------- ----------
NET INCOME........................................... $ 0.52 $ 0.57 $ 0.25 $ 0.58 $ 1.93
========== ========== ========== ========== ==========
DILUTED INCOME PER SHARE OF COMMON STOCK:
INCOME BEFORE EXTRAORDINARY ITEM..................... $ 0.51 $ 0.56 $ 0.32 $ 0.57 $ 1.96
EXTRAORDINARY ITEM................................... - - (0.07) - (0.07)
---------- ---------- ---------- ---------- ----------
NET INCOME........................................... $ 0.51 $ 0.56 $ 0.25 $ 0.57 $ 1.89
========== ========== ========== ========== ==========
</TABLE>
50
<PAGE>
Investor Information
--------------------
The following table represents the high and low trading prices of the Company's
common stock:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- -------- -------
<S> <C> <C> <C> <C>
FIRST QUARTER 39 7/8 33 1/4 41 32 3/8
SECOND QUARTER 35 3/4 26 9/16 40 3/8 32 1/8
THIRD QUARTER 33 1/2 23 1/16 44 32 3/8
FOURTH QUARTER 29 3/4 22 5/8 46 11/16 34
</TABLE>
The Company's Common Stock is listed on the New York Stock Exchange.
The symbol is MGG.
TRANSFER AGENT AND INDEPENDENT PUBLIC
REGISTRAR FOR COMMON STOCK ACCOUNTANTS
ChaseMellon Shareholders Services, LLC Arthur Andersen LLP
Overpeck Centre 3773 Howard Hughes Parkway
85 Challenger Road Suite 500 South
Ridgefield Park, NJ 07660 Las Vegas, NV 89109
www.chasemellon.com
Form 10-K
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commision, will be furnished without charge to any stockholder upon
written request to:
Mr. Scott Langser
Secretary/Treasurer
MGM Grand, Inc.
3799 Las Vegas Blvd South
Las Vegas, NV 89109
51
<PAGE>
MGM GRAND, CORPORATE. FROM LEFT TO RIGHT:
DANIEL M. WADE, JAMES J. MURREN, JOHN T. REDMOND,
RICHARD A. STURM, SCOTT LANGSNER, ROBERT V. MOON
Directors and Officers
----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
J. TERRENCE LANNI WILLIE D. DAVIS DANIEL M. WADE
DIRECTOR DIRECTOR EXECUTIVE VICE PRESIDENT
CHAIRMAN OF THE BOARD AND President and Director
CHIEF EXECUTIVE OFFICER All-Pro Broadcasting, Inc. SCOTT LANGSNER
SECRETARY/TREASURER
ALEX YEMENIDJIAN ALEXANDER M. HAIG, JR.
DIRECTOR DIRECTOR EDWARD J. JENKINS
PRESIDENT Chairman VICE PRESIDENT
CHIEF OPERATING OFFICER Worldwide Associates, Inc.
JIM FOX
FRED BENNINGER KIRK KERKORIAN VICE PRESIDENT
DIRECTOR DIRECTOR
Executive President and MGM GRAND HOTEL
Tracinda Corporation Chief Executive Officer
Tracinda Corporation WILLIAM J. HORNBUCKLE
JAMES D. ALJIAN PRESIDENT AND
DIRECTOR JAMES J. MURREN CHIEF OPERATING OFFICER
Executive DIRECTOR
Tracinda Corporation EXECUTIVE VICE PRESIDENT AND JOSEPH BRUNINI
CHIEF FINANCIAL OFFICER SENIOR VICE PRESIDENT
CASINO OPERATIONS
TERRY N. CHRISTENSEN
DIRECTOR WALTER M. SHARP CYNTHIA KISER MURPHEY
Partner DIRECTOR SENIOR VICE PRESIDENT
Chistensen, Miller, Fink, Jacobs, President HUMAN RESOURCES AND
Glaser, Weil & Shapiro, LLP Walter M. Sharp Company ADMINISTRATION
GLENN A. CRAMER JEROME B. YORK THOMAS A. PETERMAN
DIRECTOR DIRECTOR SENIOR VICE PRESIDENT
Former Chairman Vice Chairman GENERAL COUNSEL
Transamerica Airlines, Retired Tracinda Corporation
</TABLE>
MGM GRAND, LAS VEGAS, FROM LEFT TO RIGHT:
THOMAS A. PETERMAN, FELIX A. RAPPAPORT,
JOSEPH BRUNINI, WILLIAM J. HORNBUCKLE, DON WELSH
CYNTHIA KISER MURPHEY, COREY SANDERS
<PAGE>
NEW YORK-NEW YORK. FROM LEFT TO RIGHT
THOMAS J. MCCARTNEY, SCOTT B. SNOW,
WILLIAM F. HARLAND, DAVID L CACCI
FELIX A. RAPPAPORT DAVID L. CACCI BARRIE BOROVSKY
SENIOR VICE PRESIDENT PRESIDENT AND VICE PRESIDENT
HOTEL OPERATIONS CHIEF OPERATING OFFICER FOOD SERVICES
COREY SANDERS SCOTT B. SNOW THOMAS BOYD
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT VICE PRESIDENT
CHIEF FINANCIAL OFFICER FINANCE AND TREASURER SURVEILLIANCE
RICHARD A. STURM THOMAS J. MCCARTNEY JOELLE MATHIS
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT VICE PRESIDENT
MGM WORLDWIDE HOTEL OPERATIONS FINANCE
ENTERTAINMENT
WILLIAM F. HARLAND JACK MCGINTY
DON WELSH SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
SENIOR VICE PRESIDENT CASINO OPERATIONS CASINO OPERATIONS
SALES AND MARKETING
MGM GRAND DETROIT DANA NAPIER
MGM GRAND MARKETING VICE PRESIDENT
LYN BAXTER TABLE RESOURCES
ROBERT V. MOON PRESIDENT AND
PRESIDENT CHIEF OPERATING OFFICER NANCY ZIOLKOWSKI
VICE PRESIDENT
MGM GRAND AUSTRALIA PATRICIA JOHNSON MARKETING
VICE PRESIDENT
JAY DEE CLAYTON COMPLIANCE PRIMADONNA RESORTS
GENERAL MANAGER
LISA WICKER JOHN T. REDMOND
NEW YORK-NEW YORK VICE PRESIDENT PRESIDENT AND
HOTEL AND CASINO HUMAN RESOURCES CHIEF OPERATING OFFICER
MGM GRAND, DETROIT, FROM LEFT TO RIGHT
PATRICIA JOHNSON, LISA WICKER, BARRIE BOROVSKY,
THOMAS BOYD, JOELLE MATHIS, LYN BAXTER,
JACK MCGINTY, DANA NAPIER, NANCY ZIOLKOWSKI
<PAGE>
Corporate Directory
-------------------
MGM GRAND, INC.
3799 LAS VEGAS BLVD SOUTH
LAS VEGAS, NEVADA 89109
1-702-891-3333
MGM GRAND LAS VEGAS
3799 LAS VEGAS BLVD SOUTH
LAS VEGAS, NEVADA 89109
1-702-891-1111
reservations
1-702-891-7777
1-800-929-1111 (OUTSIDE NEVADA)
www.mgmgrand.com
MGM GRAND AUSTRALIA
GILRUTH AVE
MINDIL BEACH
DARWIN, NORTHERN TERRITORY
0801 AUSTRALIA
international number
011-61-8-89438888
NEW YORK-NEW YORK
HOTEL AND CASINO
3790 LAS VEGAS BLVD SOUTH
LAS VEGAS, NEVADA 89109
1-702-740-6969
reservations
1-702-740-6900
1-800-693-6763 (OUTSIDE NEVADA)
www.nynyhotelcasino.com
MGM GRAND DETROIT
65 CADILLAC SQUARE
SUITE 3000
DETROIT, MI 48226
1-313-393-7777
www.mgmgrand.com
PRIMADONNA RESORTS
P.O. BOX 95997
LAS VEGAS, NEVADA 89183
1-700-382-1212
reservations
1-800-FUN-STOP
1-800-386-7867
www.primadonna.com>>
54
<PAGE>
EXHIBIT 21
MGM GRAND, INC.
LIST OF SUBSIDIARIES
DECEMBER 31, 1998
STATE OF
NAME INCORPORATION
------------------------------- -------------
PARENT MGM Grand, Inc. Delaware
SUBSIDIARIES: MGM Grand Hotel, Inc. Nevada
Destron, Inc. Nevada
MGM Grand Australia Pty, Ltd. Australia
MGM Grand Merchandising, Inc. Nevada
MGM Grand Monorail, Inc. Nevada
MGM Grand Atlantic City, Inc. New Jersey
MGM Grand Development, Inc. Nevada
MGM Grand Detroit, Inc. Delaware
MGM Grand Detroit, LLC Delaware
MGM Dist., Inc. Nevada
MGM Grand Diamond, Inc. Nevada
MGM Grand Acquisition Corp. Nevada
Primadonna Resorts, Inc. Nevada
New York-New York Hotel and Casino, LLC Nevada
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 1, 1999, included or incorporated by
reference in this Form 10-K, into MGM Grand, Inc.'s previously filed
Registration Statements File Nos. 33-35023, 33-38616, 333-00187, 333-22957,
333-31845, 333-42729 and 333-73155.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 18, 1999
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MGM GRAND,
INC. 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 81,956
<SECURITIES> 0
<RECEIVABLES> 105,947
<ALLOWANCES> (36,831)
<INVENTORY> 11,081
<CURRENT-ASSETS> 208,080
<PP&E> 1,583,657
<DEPRECIATION> (255,935)
<TOTAL-ASSETS> 1,773,794
<CURRENT-LIABILITIES> 189,365
<BONDS> 500,000
0
0
<COMMON> 580
<OTHER-SE> 963,801
<TOTAL-LIABILITY-AND-EQUITY> 1,773,794
<SALES> 840,082
<TOTAL-REVENUES> 773,863
<CGS> 0
<TOTAL-COSTS> 631,600
<OTHER-EXPENSES> 10,689
<LOSS-PROVISION> 40,455
<INTEREST-EXPENSE> 32,989
<INCOME-PRETAX> 109,528
<INCOME-TAX> 40,580
<INCOME-CONTINUING> 68,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,948
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.22
</TABLE>
<PAGE>
EXHIBIT 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
New York - New York Hotel & Casino, LLC:
We have audited the accompanying balance sheets of New York - New York
Hotel & Casino, LLC (the "Company") as of December 31, 1998 and 1997, and
the related statements of income, changes in members' equity, and cash
flows for the three years then ended. 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 New York New
York Hotel & Casino, LLC as of December 31, 1998 and 1997, and the
results of its operations and cash flows for the three years then ended,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 25, 1999
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
BALANCE SHEETS
As of December 31, 1998 and 1997
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,747 $ 7,296
Accounts receivable, net of allowance for
doubtful accounts of $1,184 and $872, respectively 3,368 4,266
Inventories 559 460
Prepaid expenses and other 4,567 5,999
-------- --------
Total current assets 18,241 18,021
-------- --------
Property and equipment:
Land 63,342 63,223
Building and improvements, furniture,
fixtures and equipment 408,844 405,418
-------- --------
472,186 468,641
Accumulated depreciation and amortization (43,163) (21,768)
-------- --------
429,023 446,873
Other assets 4,232 5,358
-------- --------
Total assets $451,496 $470,252
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
BALANCE SHEETS
As of December 31, 1998 and 1997
(Dollars in Thousands)
LIABILITIES AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current liabilities:
Swing line loan $ 1,000 $ 5,600
Current portion of long-term debt 3,048 11,273
Current portion of capital lease 193 179
Accounts payable 1,024 1,314
Retention payable 322 318
Accrued expenses 21,372 21,815
-------- --------
Total current liabilities 26,959 40,499
Long-term capital lease 502 718
Long-term debt 188,859 245,685
-------- --------
Total liabilities 216,320 286,902
-------- --------
Members' equity:
Members' contributions 141,400 141,400
Members' distributions (38,560) (30,320)
Retained earnings 132,336 72,270
-------- --------
Total members' equity 235,176 183,350
-------- --------
Total liabilities and members' equity $451,496 $470,252
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF INCOME
For The Years Ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Casino $117,535 $143,953 $ -
Hotel 61,559 69,400 -
Beverage 12,675 13,983 -
Roller Coaster 11,781 9,910 -
Retail and other 26,092 28,058 345
-------- -------- --------
229,642 265,304 345
Less: promotional allowances (10,535) (10,051) -
-------- -------- --------
Net revenues 219,107 255,253 345
-------- -------- --------
Costs and expenses:
Casino 49,437 51,710 -
Hotel 21,852 23,852 -
Beverage 4,279 4,719 -
Roller Coaster 2,413 2,079 -
Retail and other 5,475 6,072 413
Selling, general and administrative 21,670 24,691 -
Property costs 12,877 12,410 -
Depreciation and amortization 23,391 22,289 -
Loss on disposal of equipment 1,085 - -
Pre-opening expenses - - 15,762
-------- -------- --------
Total costs and expenses 142,479 147,822 16,175
-------- -------- --------
Operating income (loss) 76,628 107,431 (15,830)
Interest income (expense), net (16,562) (19,425) 147
-------- -------- --------
Net income (loss) $ 60,066 $ 88,006 $(15,683)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MGM PRMA LAS
GRAND, INC. VEGAS, INC. TOTAL
------------ ------------ ---------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 41,173 $ 41,174 $ 82,347
MEMBERS' CONTRIBUTIONS 22,500 22,500 45,000
NET LOSS (7,841) (7,842) (15,683)
-------- -------- --------
BALANCE, DECEMBER 31, 1996 55,832 55,832 111,664
-------- -------- --------
MEMBERS' CONTRIBUTIONS 7,000 7,000 14,000
MEMBERS' DISTRIBUTIONS (15,160) (15,160) (30,320)
NET INCOME 44,003 44,003 88,006
-------- -------- --------
BALANCE, DECEMBER 31, 1997 91,675 91,675 183,350
-------- -------- --------
MEMBERS' DISTRIBUTIONS (4,120) (4,120) (8,240)
NET INCOME 30,033 30,033 60,066
-------- -------- --------
BALANCE, DECEMBER 31, 1998 $117,588 $117,588 $235,176
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME/(LOSS) $60,066 $ 88,006 $ (15,683)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 23,391 22,289 -
LOSS ON DISPOSAL OF ASSETS 1,085 - -
AMORTIZATION OF DEBT ISSUANCE COSTS - 384 -
ALLOWANCE FOR DOUBTFUL ACCOUNTS (312) (872) -
PRE-OPENING EXPENSES - - 15,762
CHANGE IN CURRENT ASSETS AND LIABILITIES
DUE TO OPERATING ACTIVITIES:
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE 1,210 (3,024) (340)
INCREASE IN INVENTORIES (99) (110) (304)
DECREASE (INCREASE) IN PREPAID EXPENSES AND OTHER 1,432 (1,902) (4,097)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (290) (11,369) 12,496
INCREASE (DECREASE) IN ACCRUED EXPENSES (443) 2,293 18,257
------- -------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 86,040 95,695 26,091
------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF LAND, BUILDING AND IMPROVEMENTS,
FURNITURE, FIXTURES AND EQUIPMENT (5,589) (52,367) (262,211)
(DECREASE) INCREASE IN RETENTION PAYABLES 4 (12,625) (2,365)
DECREASE (INCREASE) IN RESTRICTED CASH - 10,868 (10,868)
INCREASE IN OTHER ASSETS (371) (2,012) (1,070)
PRE-OPENING EXPENSES - - (14,976)
------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,956) (56,136) (291,490)
------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Decrease in deferred financing fees, net 460 499 -
Proceeds from issuance of long-term debt - 25,600 225,999
Members' contributions - 14,000 45,000
Members' distributions (8,240) (30,320) -
Principal payments of long-term debt (69,853) (48,146) -
-------- -------- --------
Net cash provided by (used in) financing activities (77,633) (38,367) 270,999
-------- -------- --------
Net increase in cash and cash equivalents 2,451 1,192 5,600
Cash and cash equivalents, beginning of year 7,296 6,104 504
-------- -------- --------
Cash and cash equivalents, end of year $ 9,747 $ 7,296 $ 6,104
======== ======== ========
Supplemental disclosures:
Cash paid for interest, net of capitalized interest $ 17,100 $ 19,988 $ -
======== ======== ========
Capital lease for equipment $ - $ - $ 1,001
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
MGM Grand, Inc. ("MGM"), a Delaware corporation, and PRMA Las Vegas, Inc.
("Primadonna"), a Nevada corporation, entered into an operating agreement
(the "Agreement") dated December 23, 1994 (inception) to establish New
York-New York Hotel & Casino, LLC, a Nevada limited liability company (the
"Company"), which developed and operates the New York-New York Hotel &
Casino (the "Hotel-Casino") located at the intersection of Las Vegas Blvd.
South and Tropicana Avenue. The Agreement will expire on December 23, 2024.
New York-New York Hotel & Casino opened to the public January 3, 1997, at
an approximate cost of $460,000,000. MGM contributed, to the Company, land
with a fair market value of $41,200,000 to comprise its total initial
equity investment. Primadonna contributed to the Company theme rights with
a fair market value of $1,200,000 and cash of $40,000,000 for a total
initial equity investment of $41,200,000. Each member contributed cash of
$22,500,000 and $7,000,000 during fiscal years 1996 and 1997, respectively.
Each member has a 50% ownership interest in the Company.
Profits and losses, quarterly net cash flow payments, and additional
capital contributions are allocated to each member at their 50% ownership
interest. MGM and Primadonna are not responsible for debts or obligations
of the Company, except as it relates to the $225,000,000
Construction/Revolving Loan (the "Bank Credit Facility") (see Note 7).
2. Summary of Significant Accounting Policies
a) Use of Estimates
The preparation of 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.
b) Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with original maturities of three months or less. Such
investments are carried at cost, which approximates market value.
7
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
c) Casino Revenues and Promotional Allowances
Casino revenue is the aggregate of gaming wins and losses. The retail
value of beverage, hotel rooms and other goods and services provided
to customers without charge is included in gross revenues, and then
deducted as promotional allowances. The estimated departmental costs
of providing such promotional allowances is included in casino costs
and expenses as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Beverage $ 3,668 $ 4,367 $ -
Hotel 1,727 1,001 -
Other 86 197 -
-------- -------- ---------
$ 5,481 $ 5,565 $ -
======== ======== =========
</TABLE>
a) Inventories
Inventories are valued at the lower of cost or market as determined on
the first-in, first-out method. Inventories consist primarily of
beverage and retail products.
b) Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are provided for on the straight-line method over the
following estimated useful lives:
Buildings and improvements 10 to 40 years
Furniture, fixtures and equipment 3 to 12 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are
capitalized.
c) Capitalized Interest
The Company capitalizes interest cost associated with debt incurred
during active construction and development as well as in connection
with major renovation projects. Interest was not capitalized for the
years ended December 31, 1998 and 1997.
8
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
d) Pre-Opening Expenses
Pre-opening expenses include direct incremental project salaries and
other expenses incurred during the pre-opening phase of the project.
All pre-opening costs directly related to gaming and hotel operations
are capitalized as incurred and charged to expense in the period the
project is ready for its intended use.
e) Income Taxes
The Company is not subject to income taxes. Therefore, no provision
for income taxes has been made as the members include their respective
shares of the Company's income or loss in their individual income tax
returns.
f) Valuation of Land
The land contributed by MGM has been included in property and
equipment at a value of $41,200,000 (see Note 1). This amount exceeds
MGM's original cost basis and represents the valuation which has been
agreed upon by the members.
g) Reclassifications
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
3. Prepaid Expenses and Other
Prepaid expenses and other at December 31, 1998 and 1997 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Prepaid taxes and licenses $2,567 $2,885
Deposits 317 148
Other 1,683 2,966
------ ------
$4,567 $5,999
====== ======
</TABLE>
9
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
4. Other Assets
Other assets at December 31, 1998 and 1997 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred financing fees $ 2,485 $ 2,485
Intangible assets 2,357 2,290
Organization costs 614 614
Cost of chips and tokens 1,272 988
------- -------
Subtotal 6,728 6,377
Less: amortization (2,496) (1,019)
------- -------
$ 4,232 $ 5,358
======= =======
</TABLE>
Deferred financing fees relate to the Company's long-term debt facility
being amortized to interest expense on a straight-line basis over the
period of the loan.
Intangible assets represent certain rights related to the "New York Theme,"
contributed by Primadonna, in accordance with the Agreement. This amount
is being amortized over the life of the Agreement (30 years).
Organization costs consist primarily of professional and legal fees
incurred to establish the Company, and obtain requisite gaming licenses.
These costs are being amortized over 5 years.
Chips and tokens consist of the cost of purchasing the gaming chips and
tokens used in the Hotel-Casino. These costs are being amortized over 3
years.
5. Accrued Expenses
Accrued expenses at December 31, 1998 and 1997 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accrued interest $ 1,331 $ 1,809
Advance deposits 3,993 3,393
Accrued accounts payable 444 385
Accrued payroll and related 5,130 6,791
Accrued gaming liability 3,220 3,290
Accrued taxes 1,898 1,866
Other accruals 5,356 4,281
------- -------
$21,372 $21,815
======= =======
</TABLE>
10
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
6. Swing Line Loan
The Company has a Swing Line Credit Facility (the "Swing Line") with a
bank, bearing interest rates based on the prime rate plus between zero and
1.00% depending on the Guarantor Funded Debt Ratio (as defined). Interest
on the Swing Line ranged from 7.5% to 8.5% during 1998. This loan is
payable on demand or with a maturity date of March 31, 2002.
At December 31, 1998 and 1997, $1,000,000 and $5,600,000, respectively,
were outstanding against the Swing Line. The Swing Line allows for the
issuance of letters of credit of up to $20,000,000 and the issuance of
swing line loans of up to $10,000,000. As of December 31, 1998, other than
those noted above, the Company has not issued any letters of credit nor has
it received advances on the Swing Line.
7. Long-Term Debt
Long-term debt at December 31, 1998 and 1997 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Amount due under Master Security Agreement for Equipment financing.
Interest rate based on LIBOR plus 1.88%. Interest ranged from 7.10%
to 7.85% during the year. Repayable in 58 monthly installments of
$254,000. $ 14,407 $ 17,458
Amount due under Bank Credit Facility at floating interest rates based
on LIBOR plus between .75% to 2.00% depending on the Guarantor Funded
Debt Ratio as defined. Interest on the Bank Credit Facility ranged
from 6.32% to 7.19% during 1998. The Bank Credit Facility matures on
March 31, 2002. $177,500 $239,500
-------- --------
191,907 256,958
Less current portion of long-term debt (3,048) (11,273)
-------- --------
Total long-term debt $188,859 $245,685
======== ========
</TABLE>
On September 15, 1995, the Company entered into a secured limited recourse
financing agreement for a $225,000,000 Construction/Revolving Loan (the
"Bank Credit Facility") with a consortium of banks, led by Bank of America.
On September 26, 1996, the Bank Credit Facility was amended to increase the
commitment to $285,000,000. The Bank Credit Facility was a non-revolving
construction line of credit, which converted to a 5 year reducing revolver
upon the commencement of operations of the Hotel-Casino on January 3, 1997.
Interest on the Bank Credit Facility is variable based on a formula defined
in the Bank Credit Facility agreement.
11
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
7. Long-Term Debt, continued
An initial payment of $20,000,000 was due on March 31, 1998 which was the
Initial Reduction Date. Thereafter, quarterly installments were due of
$9,375,000 for the next four quarters; $11,250,000 for the next eight
quarters; $12,500,000 for the next three quarters; and the balance maturing
four years after the Initial Reduction Date. Additional principal payments
were due one year after operations commence based on 50% of Available Cash
Flow.
On October 8, 1998, the Bank Credit Facility was amended to reduce the
commitment to $210,000,000; and to eliminate required quarterly
installments. The Bank Credit Facility matures on March 31, 2002. The Bank
Credit Facility is secured by substantially all of the assets of the
Company.
The Company incurred commitment fees on a quarterly basis on the unused
portion of the Bank Credit Facility at 0.375%. Commitment fees incurred
during the years ended December 31, 1998, 1997 and 1996 were $210,000,
$51,000 and $284,000, respectively.
The Bank Credit Facility contains various restrictive covenants including
the maintenance of certain financial ratios and limitations of additional
debt, distributions, disposition of property, mergers and similar
transactions. The Company is in compliance with these covenants at
December 31, 1998.
As a condition of the Bank Credit Facility, MGM and Primadonna
(collectively, the "Guarantors") guaranteed completion of the Hotel-Casino
and, in addition, entered into a "Keep Well" agreement whereby, if the
Company fails to be in compliance with any of the financial ratio covenants
(as defined), the Guarantors shall contribute Acceptable Cash Equity (as
defined) to the Company.
On January 21, 1997, the Company entered into a $20,000,000 Master Security
Agreement for equipment financing with a financial institution (the
"Note"). The Note is payable in 58 monthly installments of $254,000 and
one final installment of $5,000,000. The Note contains a Contract Rate of
interest equal to the sum of (a) one and 88/100 percent (1.88%) per annum,
plus (b) a variable annum interest rate which shall be equal to the one
month LIBOR rate. The Company has the option to convert to a fixed rate,
based on the Treasury Rate, for the remaining length of time on the Note,
plus one and 88/100 percent (1.88%) per annum.
Interest payable at December 31, 1998 and 1997 was approximately $1,331,000
and $1,809,000, respectively, and is included in accrued expenses in the
accompanying balance sheets.
12
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
7. Long-Term Debt, continued
Scheduled maturities of long-term debt are as follows as of December 31,
1998 (in thousands):
<TABLE>
<S> <C> <C>
1999 3,048
2000 3,048
2001 3,048
2002 182,763
2003 -
Thereafter -
-------
$191,907
--------
</TABLE>
8. Capital Lease
In December, 1996, the Company entered into a five-year master equipment
lease agreement to purchase various powered supply carts with an
approximate fair market value of $1,001,000 at an interest rate of 7.46%.
The future minimum lease payments by year under the lease, together with
the present value of the lease payments, consisted of the following at
December 31, 1998 (in thousands):
<TABLE>
<S> <C> <C>
1999 $ 240
2000 240
2001 241
2002 -
Thereafter -
----
Minimum lease payments 721
Less: amounts representing interest (26)
-----
Present value of minimum lease payments $ 695
=====
</TABLE>
9. Minimum Lease Income
The Company has entered into a number of operating leases in relation to
food and beverage and retail outlets. The future minimum lease income
under these leases consisted of the following at December 31, 1998 (in
thousands):
<TABLE>
<S> <C> <C>
1999 6,974
2000 6,974
2001 6,974
2002 6,974
2003 6,964
Thereafter 32,758
-------
Total $67,618
=======
</TABLE>
13
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
10. Related Party Transactions
During the years ended December 31, 1998, 1997 and 1996, the Company
engaged in certain transactions with MGM and Primadonna.
In 1996, the Company has reimbursed expenses related to construction and
pre-opening expenses paid for by MGM and Primadonna. These reimbursed
expenses approximated $96,000 and $1,544,000 for MGM and Primadonna,
respectively. Included in these amounts are interest paid of $4,000 to
Primadonna for 1996.
During the year ended December 31, 1997 the Company purchased services
valued at $346,000 and $98,000 from MGM and Primadonna, respectively. At
December 31, 1997, $9,000 and $1,000 was payable to MGM and Primadonna,
respectively. In addition, services were provided by the Company valued at
$483,000 and $8,000 to MGM and Primadonna, respectively. At December 31,
1997 balances of $35,000 and $1,000 were receivable from MGM and
Primadonna, respectively.
During the year ended December 31, 1998 the Company purchased services
valued at $163,000 and $19,000 from MGM and Primadonna, respectively. At
December 31, 1998, $2,000 and $0 was payable to MGM and Primadonna,
respectively. In addition, services were provided by the Company valued at
$418,000 and $50,000 to MGM and Primadonna, respectively. At December 31,
1998 balances of $9,000 and $1,000 were receivable from MGM and Primadonna,
respectively.
11. Commitments and Contingencies
Litigation
The Company is party to various litigation arising in the normal course of
business. Management is of the opinion that the ultimate resolution of
these matters will not have a material effect on the financial position or
the results of operations of the Company.
Long Term Incentive Plan
During 1997, the Company adopted a long-term incentive plan for senior
executives of the Company. The plan is based on performance to motivate
management to remain with the Company over the long term. The plan rewards
performance over and above a predetermined level of earnings before
interest, taxes and depreciation and amortization ("EBITDA") as defined,
and established by the compensation committee. A total of $910,000 was
charged to expense under the plan during 1997.
In 1998, the $910,000 accrual was reversed as the Company's cumulative
EBITDA fell below the predetermined level.
14
<PAGE>
NEW YORK - NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS, Continued
12. Subsequent Event
During December 1998, MGM and Primadonna Resorts, Inc. entered into a
definitive merger agreement whereby MGM would acquire Primadonna Resorts,
Inc. in an all stock transaction plus the assumption of debt. The terms of
the merger provided for Primadonna Resorts, Inc. stockholders to receive
0.33 shares of MGM's common stock for approximately 9.5 million shares of
MGM's common stock.
On March 1, 1999 the merger with Primadonna Resorts, Inc. was completed
making Primadonna Resorts, Inc. a wholly-owned subsidiary of MGM. On March
1, 1999, MGM assumed approximately $315 million of long term debt related
to the Primadonna Resorts, Inc. acquisition, which includes Primadonna
Resorts, Inc.'s 50% share of NYNY LLC's long-term debt.
15
