<PAGE>
As filed with the Securities and Exchange Commission on January 21, 1999.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
MGM GRAND, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6719 88-0215232
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or organization) classification code number) Identification No.)
</TABLE>
3799 Las Vegas Blvd. South
Las Vegas, Nevada 89109
(702) 891-3333
(Address, including zip code, and telephone number, including area code, of
Registrant's Principal Executive Offices)
Scott Langsner
MGM Grand, Inc.
3799 Las Vegas Blvd. South
Las Vegas, Nevada 89109
(702) 891-3333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of all communications to:
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<S> <C>
Gary N. Jacobs, Esq. Kendall R. Bishop, Esq.
Cristensen, Miller, Fink, O'Melveny & Myers LLP
Jacobs, Glaser, Weil & Shapiro, LLP 1999 Avenue of the Stars
2121 Avenue of the Stars, 1800 Los Angeles, California 90067
Los Angeles, California 90067 (310) 553-6700
(310) 553-3000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions under the Agreement and Plan of Merger (described in the Proxy
Statement/Prospectus herein) are satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed
Proposed maximum
Amount maximum aggregate Amount of
Title of each class of to be offering price offering registration
securities to be registered registered(1) per share(2) price(2) fee(3)
- -------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per
share............................... 10,246,407 $9.5625 $296,912,948 $82,542
</TABLE>
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(1) The number of shares of common stock of MGM Grand, Inc. (the "Registrant")
to be registered has been determined based on (a) the sum of
(i) 28,819,100 shares of common stock of Primadonna Resorts, Inc.
outstanding and not held by the Registrant or its subsidiaries and (ii)
2,230,620 shares issuable to certain holders of Primadonna stock options
and (b) an exchange ratio of .33 shares of Registrant's common stock for
each share of Primadonna common stock, as provided in the Agreement and
Plan of Merger.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to Rule 457, with respect to the shares of
Registrant's common stock being exchanged pursuant to the Agreement and
Plan of Merger, the maximum offering price per share is $9.5625, the
average of the bid and asked price of a share of Primadonna common stock
reported on the NASDAQ National Market on January 13, 1999, and the
maximum aggregate offering price is the product of $9.5625 and 31,049,720,
the maximum number of shares of Primadonna common stock expected to be
acquired by the Registrant or cancelled pursuant to the Agreement and Plan
of Merger.
(3) Calculated pursuant to Section 6(b) of the Securities Act and Rule 457
thereunder. A fee of $48,265.99 was paid on December 31, 1998 in
connection with the filing of a Preliminary Proxy Statement/Prospectus
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended. Pursuant to Rule 457(b) under the Securities Act and Section
14(g)(2) of the Securities Exchange Act of 1934 and Rule 0-11 thereunder,
the amount of such previously paid fee has been credited against the
registration fee payable in connection with this filing.
---------------
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of Primadonna Resorts, Inc. and MGM Grand, Inc. have
agreed on a merger of MGM Grand and Primadonna. In the merger, a subsidiary of
MGM Grand will merge into Primadonna, and Primadonna will become a wholly owned
subsidiary of MGM Grand. Each stockholder of Primadonna will be entitled to
receive .33 shares of MGM Grand common stock for each share of Primadonna
common stock held.
The board of directors of Primadonna has determined that the merger is
advisable and in the best interests of its stockholders and unanimously
recommends voting FOR approval of the merger agreement.
Primadonna's board has scheduled a special meeting for the Primadonna
stockholders to vote on the merger agreement. Stockholders holding
approximately 53% of the outstanding shares have executed stockholder support
letters in which they have agreed to vote in favor of the approval of the
merger. We would like to have as many stockholders as possible vote in favor of
the merger, so your vote is very important. Whether or not you plan to attend
Primadonna's special meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be counted as a
vote in favor of the approval of the merger agreement. If your shares are held
in "street name," you must instruct your broker in order to vote. If you fail
to vote or to instruct your broker to vote your shares, the effect will be the
same as a vote against the approval of the merger agreement.
The date, time and place of the Primadonna special meeting are as follows:
<TABLE>
<C> <S>
Date and Time: February 23, 1999; 10:00 a.m. local time
Place: Primm Valley Resort and Casino Conference Center
31900 Las Vegas Boulevard South
Interstate 15 at the Southern California/Nevada border
Primm, Nevada 89109
</TABLE>
This Proxy Statement/Prospectus provides you with detailed information about
the proposed merger. We encourage you to read this document carefully. In
addition, you may obtain information about our companies from documents that we
have filed with the Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
Gary E. Primm J. Terrence Lanni Alex Yemenidjian
Chairman of the Board and Chairman of the Board and President and Chief
Chief Executive Officer of Chief Executive Officer of Operating Officer of
Primadonna Resorts, Inc. MGM Grand, Inc. MGM Grand, Inc.
</TABLE>
None of the Securities and Exchange Commission, any state securities
regulators, the Nevada Gaming Commission, the Nevada State Gaming Control Board
or any other gaming regulatory authority has approved or disapproved the MGM
Grand common stock to be issued in connection with the merger or determined if
this proxy statement/prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
Proxy Statement/Prospectus dated February 1, 1999
and first mailed to stockholders on February 4, 1999
<PAGE>
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OR OUR COMPANIES THAT DIFFERS FROM, OR ADDS TO,
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS OR IN OUR DOCUMENTS THAT ARE
PUBLICLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF
ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY
ON IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR SELL,
OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS OR TO ASK FOR PROXIES, OR IF YOU ARE A PERSON TO WHOM IT
IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN WE ARE NOT EXTENDING TO YOU THE
OFFER PRESENTED BY THIS PROXY STATEMENT/PROSPECTUS.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS SPEAKS ONLY AS OF
ITS DATE UNLESS WE SPECIFICALLY INDICATE THAT ANOTHER DATE APPLIES. MGM GRAND
SUPPLIED THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS ABOUT MGM GRAND.
PRIMADONNA SUPPLIED THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS ABOUT
PRIMADONNA.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Both companies make forward-looking statements in this document, and in the
public documents to which we refer, that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of our operations or the performance of the
combined company after the merger. Also, when we use any of the words
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. Many possible events or factors could affect the
future financial results and performance of each of our companies and the
combined company after the merger. This could cause results or performance to
differ materially from those expressed in our forward-looking statements. You
should consider these risks when you vote on the merger, including the
following possible events or factors:
1. Our revenues after the merger could be lower than we expect, our
restructuring charges could be higher than we expect and/or our operating
costs after the merger could be greater than we expect;
2. Competition within the gaming industry could intensify;
3. We could have more trouble integrating our businesses or retaining key
personnel than we expect;
4. Our cost savings from the merger could be less than we expect, or we may be
unable to obtain those cost savings as soon as we expect;
5. General economic or business conditions could be worse than we expect;
6. Legislative or regulatory changes could adversely affect our business;
7. Technological changes and systems integration could be harder to make or
more expensive than we expect;
8. We could have more trouble obtaining regulatory approvals for the merger
than we expect; and
9. Adverse changes could occur in the securities markets.
<PAGE>
PRIMADONNA RESORTS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on February 23, 1999
Primadonna Resorts, Inc. will hold a special meeting of stockholders at the
Primm Valley Resort and Casino Conference Center, 31900 Las Vegas Boulevard
South, Interstate 15 at the Southern California/Nevada border, Primm, Nevada,
89109, at 10:00 a.m. local time on February 23, 1999, to vote on:
1. Approval of the Agreement and Plan of Merger, dated as of December 2, 1998,
by and among MGM Grand, Inc., MGM Grand Acquisition Corp. and Primadonna
Resorts, Inc.; and
2. Any other matters that properly come before the special meeting, or any
adjournments or postponements of the special meeting.
Record holders of Primadonna common stock at the close of business on February
1, 1999 will receive notice of and may vote at the special meeting, including
any adjournments or postponements. Approval of the Agreement and Plan of Merger
requires the affirmative vote of a majority of the votes entitled to be cast by
Primadonna stockholders at the special meeting. Members of the Primm family who
own approximately 53% of the outstanding Primadonna common stock have given
support letters to MGM Grand in which they have agreed to vote in favor of the
approval of the Agreement and Plan of Merger.
Gary E. Primm
Chairman of the Board and
Chief Executive Officer
February 1, 1999
Please mark, sign, date and return your proxy promptly, whether or not you plan
to attend the special meeting. Your board of directors unanimously recommends
that you vote FOR the approval of the Agreement and Plan of Merger.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MGM GRAND/PRIMADONNA MERGER 1
SUMMARY
The Companies............................................................ 4
The Merger............................................................... 4
Our Reasons for the Merger............................................... 4
The Primadonna Stockholders Meeting...................................... 5
Our Recommendation to Primadonna Stockholders............................ 5
Record Date; Voting Power................................................ 5
Vote Required............................................................ 5
Opinion of Financial Advisor............................................. 5
Interests of Persons Involved in the Merger.............................. 5
Conditions to the Merger................................................. 6
Termination of the Merger Agreement...................................... 6
Certain Federal Income Tax Consequences.................................. 7
Accounting Treatment..................................................... 7
Board of Directors and Management of the Combined Company Following the
Merger.................................................................. 7
No Appraisal Rights...................................................... 7
Regulatory Approvals..................................................... 7
Summary Historical Financial Data........................................ 9
Summary Unaudited Pro Forma Financial Data............................... 11
Comparative Historical and Pro Forma Combined Per Share Data............. 12
Unaudited Pro Forma Financial Statements and Notes....................... 13
THE PRIMADONNA SPECIAL MEETING
Purpose, Time and Place.................................................. 18
Record Date; Voting Power................................................ 18
Vote Required............................................................ 18
Share Ownership of Management and Certain Stockholders................... 19
Voting by Proxy; Revoking a Proxy........................................ 23
Proxy Solicitation....................................................... 23
THE MERGER
General.................................................................. 24
Background to the Merger................................................. 24
Reasons for the Merger; Recommendation of Primadonna's Board of
Directors............................................................... 27
Opinion of Primadonna's Financial Advisor................................ 30
Terms of the Merger Agreement............................................ 36
General................................................................ 36
Closing; Effective Time................................................ 36
Primadonna Articles of Incorporation................................... 36
Directors and Principal Officers of MGM Grand.......................... 36
The Merger Consideration............................................... 36
Treatment of Primadonna Options........................................ 37
Exchange of Certificates; Fractional Shares............................ 37
Representations and Warranties......................................... 38
Certain Covenants...................................................... 38
No Solicitation........................................................ 39
Employee Benefit Plans................................................. 39
</TABLE>
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
Indemnification and Insurance........................................... 40
Conditions to the Consummation of the Merger............................ 40
Termination............................................................. 41
Expenses................................................................ 42
Amendment............................................................... 42
Certain Federal Income Tax Consequences................................... 43
Interests of Certain Persons in the Merger................................ 44
Accounting Treatment...................................................... 47
Gaming Regulatory Approvals............................................... 47
Delisting and Deregistration of Primadonna Common Stock; Listing of MGM
Grand Common Stock Issued in Connection with the Merger.................. 49
Certain Federal Regulatory Matters........................................ 49
Restriction on Resales by Affiliates...................................... 50
Litigation................................................................ 50
No Appraisal Rights....................................................... 50
INFORMATION ABOUT MGM GRAND
General................................................................... 51
Management and Additional Information..................................... 51
INFORMATION ABOUT PRIMADONNA
General................................................................... 51
Management and Additional Information..................................... 51
COMPARATIVE STOCK PRICES AND DIVIDENDS
Market Prices............................................................. 52
Dividends................................................................. 52
DESCRIPTION OF MGM GRAND COMMON STOCK..................................... 53
COMPARATIVE RIGHTS OF STOCKHOLDERS OF MGM GRAND AND PRIMADONNA
Authorized Capital........................................................ 54
Board of Directors........................................................ 54
Removal of Directors; Filling Vacancies on the Board of Directors......... 54
Committees of the Board of Directors...................................... 55
Limitation on Directors' Liability; Indemnification....................... 55
Restrictions on Business Combinations/Corporate Control................... 55
Stockholder Action by Written Consent; Special Meetings................... 56
Amendment or Repeal of the Certificate of Incorporation and Bylaws........ 57
Cumulative Voting......................................................... 57
Stockholder Vote for Merger............................................... 57
Appraisal Rights in Mergers............................................... 58
Dividends................................................................. 58
LEGAL OPINIONS............................................................ 58
EXPERTS................................................................... 58
STOCKHOLDER PROPOSALS..................................................... 58
OTHER MATTERS............................................................. 59
WHERE YOU CAN FIND MORE INFORMATION....................................... 59
</TABLE>
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
APPENDIX A--Agreement and Plan of Merger
APPENDIX B--Opinion of Morgan Stanley & Co. Incorporated
APPENDIX C--MGM Grand Annual Report on Form 10-K for the year ended
December 31, 1997, together with Exhibit 13 thereto and certain pages
from the MGM Grand Proxy Statement dated April 15, 1998.
APPENDIX D--MGM Grand Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
APPENDIX E--MGM Grand Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
APPENDIX F--MGM Grand Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
APPENDIX G--MGM Grand Current Report on Form 8-K dated January 26, 1998.
APPENDIX H--MGM Grand Current Report on Form 8-K dated December 4, 1998.
APPENDIX I--Primadonna Annual Report on Form 10-K for the year ended
December 31, 1997.
APPENDIX J--Primadonna Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
APPENDIX K--Primadonna Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
APPENDIX L--Primadonna Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
APPENDIX M--Primadonna Current Report on Form 8-K dated
December 30, 1998.
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE MGM GRAND/PRIMADONNA MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: We believe that MGM Grand's acquisition of Primadonna through the merger
will create strategic opportunities to meet the challenges posed by the
rapidly changing gaming industry that would not otherwise be available. The
combination of MGM Grand's and Primadonna's entertainment attractions,
hotel and gaming locations and financial resources will produce a stronger
company better able to capitalize on growth opportunities and to expand its
combined market base. To review the reasons for the merger in greater
detail, see pages 27 to 30.
Q: WHAT WILL PRIMADONNA STOCKHOLDERS BE ENTITLED TO RECEIVE FOR THEIR
PRIMADONNA SHARES?
A: Primadonna stockholders will be entitled to receive .33 shares of MGM Grand
common stock in exchange for each share of Primadonna common stock. This
conversion ratio will not change, even if the market price of MGM Grand
common stock or Primadonna common stock increases or decreases between now
and the date that the merger is completed.
Q: WILL THE MERGER HAVE ANY EFFECT ON THE CURRENTLY OUTSTANDING SHARES OF MGM
GRAND COMMON STOCK?
A: No. The merger will not have any effect on the MGM Grand common shares that
MGM Grand stockholders currently own. Of course, the number of outstanding
shares of MGM Grand common stock will increase from approximately
52 million shares to 61.5 million shares because of the MGM Grand common
stock to be issued to Primadonna's stockholders in connection with the
merger.
Q: WHO NEEDS TO APPROVE THE MERGER?
A: Holders of a majority of Primadonna's outstanding common stock need to
approve the proposed transaction. Members of the Primm family who own
approximately 53% of the outstanding common stock have given support
letters to MGM Grand in which they agree to vote to approve the merger
agreement. Thus, the agreement will be approved. However, the Primadonna
board would still like as many stockholders as possible to vote at the
meeting. In addition to Primadonna stockholder approval, the transaction is
subject to approval by the Nevada gaming authorities.
Q: WHAT DO I NEED TO DO NOW?
A: After you have read this Proxy Statement/Prospectus, simply indicate on
your proxy card how you want to vote and sign and mail it in the enclosed
return envelope as soon as possible so that your shares can be represented
and voted at the February 23, 1999 Primadonna special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares, following the
procedure provided by your broker.
1
<PAGE>
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy card is voted at
the meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy card. Third, you can attend the
Primadonna special meeting on February 23, 1999 and vote in person. Your
attendance alone will not, however, revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the procedure
provided by your broker to change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Please wait until after the merger is completed. At that time, you will
receive written instructions for exchanging your stock certificate(s) that
represented your shares of Primadonna common stock for stock certificate(s)
that represent your new shares of MGM Grand common stock.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS?
A: The exchange of Primadonna common stock shares for MGM Grand common stock
shares is intended to be tax-free to Primadonna stockholders for federal
income tax purposes. You will, however, recognize gain or loss with respect
to any cash received by you instead of fractional shares. Your tax basis in
the shares of MGM Grand common stock you receive will equal your current tax
basis in your Primadonna common stock.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger in the first quarter of 1999. We are working
toward completing the merger as quickly as possible.
Q: WILL THE COMPOSITION OF MGM GRAND'S BOARD OF DIRECTORS CHANGE AFTER THE
MERGER?
A: Yes. After the merger is completed and as soon as Gary E. Primm has been
approved by the relevant gaming authorities, MGM Grand's board will elect
him to the MGM Grand board.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE MEETING?
A: We do not expect to ask you to vote on any other matter at the meeting.
Q: WILL THE RIGHTS OF PRIMADONNA STOCKHOLDERS CHANGE AS A RESULT OF THE MERGER?
A: Yes. Currently Primadonna's stockholder rights are governed by Nevada law
and Primadonna's Articles of Incorporation and By-laws, whereas MGM Grand's
stockholder rights are governed by Delaware law and MGM Grand's Certificate
of Incorporation and By-laws. After the merger, Primadonna's stockholders
will become stockholders of MGM Grand and their rights will be the same as
those of the other MGM Grand stockholders. For a summary of differences
between the rights of Primadonna stockholders and MGM Grand stockholders,
see page 53.
2
<PAGE>
Q: Where can I find more information about the companies?
A: Both of our companies file periodic reports and other information with the
Securities and Exchange Commission. You may read and copy this information
at the Commission's public reference facilities. Please call the Commission
at 1-800-SEC-0330 for information about these facilities. This information
is also available at: the Commission's Internet site (http://www.sec.gov);
the offices of the New York Stock Exchange (for MGM Grand); and the offices
of the National Association of Securities Dealers (for Primadonna). For a
more detailed description of the information available, please see page 59.
Q: Who can help answer my questions?
A: If you are a Primadonna stockholder and have more questions about the
merger, you can contact:
John L. Shigley
Chief Financial Officer
Primadonna Resorts, Inc.
31700 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Telephone: (702) 679-7200
Fax: (702) 679-7222
3
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus. It does not contain all of the information that may be
important to you. You should carefully read this entire document and the other
documents to which we refer. These will give you a more complete description of
the transactions we are proposing. For more information about the companies,
see "Where You Can Find More Information" (page 59). Each item in this summary
refers to the pages where that subject is discussed more fully.
The Companies (Page 51)
MGM Grand, Inc.
3799 Las Vegas Blvd. South
Las Vegas, Nevada 89109
MGM Grand is an entertainment, hotel and gaming company headquartered in Las
Vegas, Nevada. Through its subsidiaries, MGM Grand owns and operates the MGM
Grand Hotel and Casino in Las Vegas and the MGM Grand Hotel and Casino in
Darwin, Australia and is pursuing up to 15 gaming licenses in the Republic of
South Africa, where it currently manages three casinos. MGM Grand also owns a
50% interest in a joint venture with Primadonna that owns and operates the New
York-New York Hotel and Casino in Las Vegas. MGM Grand is also constructing a
temporary casino in Detroit, Michigan and plans to construct significant
destination resort hotel/casino, entertainment and retail facilities in Detroit
and Atlantic City, New Jersey.
MGM Grand Acquisition Corp. is a wholly-owned subsidiary of MGM Grand formed
for the purpose of completing the merger.
Primadonna Resorts, Inc.
P.O. Box 95997
Las Vegas, Nevada 89193-5997
Primadonna is an entertainment, hotel and gaming company. Through its
subsidiaries, Primadonna owns and operates three hotels and casinos, Buffalo
Bill's, Whiskey Pete's and the Primm Valley Resort, on 143 acres of leased and
16 acres of owned land in Primm, Nevada, at the Southern California/Nevada
border. Primadonna also owns two world-class championship golf courses located
near Primm, in California. The golf courses are located on approximately 573
acres of company-owned land, of which 125 acres remain undeveloped. In
addition, Primadonna owns a 50% interest in a joint venture with MGM Grand that
owns and operates New York-New York.
The Merger (Page 24)
The merger agreement is the document that governs the acquisition of Primadonna
by MGM Grand. Primadonna's stockholders will be entitled to receive .33 shares
of MGM Grand common stock for each share of Primadonna's common stock they own
just before the merger.
Our Reasons for the Merger (Page 27)
We believe that MGM Grand's acquisition of Primadonna through the merger will
allow Primadonna stockholders to diversify their investment into a company that
has operations beyond the Las Vegas area. In addition, MGM Grand has, and after
the merger is completed, will continue to have greater equity, greater debt
capacity, lower cost of capital and deeper management than Primadonna alone. We
also considered the fact that MGM Grand has a very strong stockholder base.
4
<PAGE>
The Primadonna Stockholders Meeting (Page 18)
Primadonna will hold a special meeting of its stockholders on February 23, 1999
at 10:00 a.m., local time, at the Primm Valley Resort and Casino Conference
Center, Interstate 15 at the Southern California/Nevada border, Primm, Nevada.
At the meeting, Primadonna stockholders will be asked to approve the merger
agreement.
Our Recommendation to Primadonna Stockholders (Page 27)
The Primadonna board of directors believes that the merger is fair to you and
in your best interest. Accordingly, the Primadonna board of directors
unanimously recommends that you vote "FOR" the proposal to approve the merger
agreement.
Record Date; Voting Power (Page 18)
You can vote your shares at the special meeting only if you owned them as of
the close of business on February 1, 1999 (the so-called "Record Date"). On the
Record Date, Primadonna's records show that there were 28,819,100 shares of
common stock eligible to vote at the special meeting. For each common share
that you owned on the Record Date, you may cast one vote either "for" or
"against" approving the merger agreement or you may abstain from voting.
Similarly, for each common share that you owned on the Record Date, you may
cast one vote either "for" or "against" any other matter that is properly
presented at the meeting, or you may abstain from voting.
Vote Required (Page 18)
To conduct business at the special meeting, a quorum of Primadonna's shares
that were outstanding on the Record Date must be present. A quorum consists of
a majority of the shares outstanding on the Record Date. Once a quorum is
present, Chapter 9A of the Nevada Revised Statutes requires the affirmative
vote of a majority of the shares outstanding on the Record Date to approve the
merger agreement. Gary E. Primm, Primadonna's Chairman of the Board, President
and Chief Executive Officer, Gregory B. Primm, Roger B. Primm, Janet Primm Rosa
and H. Martin Rosa together own approximately 53% of the shares eligible to
vote at the special meeting (see "Share Ownership of Management and Certain
Stockholders"). As part of the transaction, these stockholders have agreed to
vote all of their shares to approve the merger agreement. Accordingly, the
merger agreement will be approved. Nonetheless, the Primadonna board of
directors urges you to vote your shares at the special meeting.
Opinion of Financial Advisor (Page 30)
On November 17, 1998 Morgan Stanley & Co. Incorporated, an internationally
recognized investment banking firm, delivered to the Primadonna board an
opinion to the effect that as of such date, and based upon the considerations
set forth in its opinion, the conversion ratio in the merger is fair to the
holders of Primadonna common stock from a financial point of view. A more
complete description of Morgan Stanley's opinion is provided on pages 30
through 36, and the full text of the Morgan Stanley opinion is provided as
Appendix B to this Proxy Statement/Prospectus. We strongly encourage you to
read the full text of the Morgan Stanley opinion prior to making your decision.
Interests of Persons Involved in the Merger (Page 44)
As you consider the Primadonna board of directors' recommendation to approve
the merger agreement, you should be aware that
5
<PAGE>
certain Primadonna directors and officers have interests regarding the merger
that are separate from their interests as stockholders and, consequently, may
have interests different from your interests.
For example, MGM Grand has agreed to place Gary E. Primm on its board of
directors. Gary E. Primm has also entered into an agreement regarding certain
insurance that has provisions that may or may not benefit him economically,
depending on whether he dies before or after the ten year anniversary of the
merger's completion. Gary E. Primm is also party to an asset disposition
agreement in which he and Primadonna have agreed to sell an airplane, which
they own jointly, to a third party. Gary E. Primm has agreed to purchase an
airplane hangar and support facilities from Primadonna for $1.9 million.
Furthermore, all Primadonna options to purchase shares of Primadonna common
stock, other than options granted under Primadonna's Director Stock Option
Plan, will accelerate and vest if the merger is completed. According to the
merger agreement, moreover, if the merger is completed, all outstanding
options, including those held by directors, will be converted into options to
purchase shares of MGM Grand common stock. Additionally, those Primadonna
stockholders who have signed stockholder support letters, which commit them to
vote their shares in favor of the approval of the merger agreement at the
special meeting, have been granted registration rights by MGM Grand with
respect to their shares of post-merger MGM Grand common stock.
Additionally, MGM Grand has agreed that if the merger is completed, it will
indemnify each of Primadonna's officers and directors against losses arising
from their service as a director or officer of Primadonna and continue in
effect existing indemnification agreements and provisions in Primadonna's
Articles of Incorporation and Bylaws regarding indemnification of directors,
officers, employees and agents. MGM Grand will also continue to maintain
directors' and officers' liability insurance for the persons currently covered
by such insurance.
Conditions to the Merger (Page 40)
The completion of the merger depends on meeting a number of conditions,
including the following:
1. Primadonna's stockholders must approve the merger agreement;
2. We must receive all required regulatory approvals and any waiting periods
required by law must have passed; and
3. There must be no governmental order blocking completion of the merger, and
no proceedings by a governmental body trying to block the merger.
Unless prohibited by law, either MGM Grand or Primadonna could elect to waive a
condition that has not been satisfied and complete the merger anyway. We cannot
be certain whether or when any of these conditions will be satisfied, or waived
where permissible, or that we will complete the merger.
Termination of the Merger Agreement (Page 41)
MGM Grand and Primadonna can agree at any time to terminate the merger
agreement before completing the merger, even if the stockholders of Primadonna
have already voted to approve it. Either company can also terminate the merger
agreement in certain other circumstances
6
<PAGE>
including, but not limited to, the following circumstances:
1. If any governmental body whose approval is necessary to complete the merger
makes a final decision not to approve the merger;
2. If we do not complete the merger by April 30, 1999, provided such deadline
may be extended to August 31, 1999 if the merger has not been completed
because we have not obtained required governmental approvals;
3. If the Primadonna stockholders do not approve the merger agreement;
4. If the other company violates, in a material way, any of its
representations, warranties or obligations under the merger agreement; or
5. On payment of a $10 million termination fee to MGM Grand, if the Primadonna
board of directors accepts a third party proposal that it determines is
superior to the merger and that satisfies other requirements.
Generally, the company seeking to terminate cannot itself be in violation of
the merger agreement.
Certain Federal Income Tax Consequences (Page 43)
We expect that MGM Grand, Primadonna and Primadonna's stockholders will not
recognize any gain or loss for U.S. federal income tax purposes in the merger,
except in connection with any cash that Primadonna's stockholders receive
instead of fractional shares. Primadonna and MGM Grand have each received a
legal opinion that this will be the case. The legal opinion received by MGM
Grand is filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus forms a part. The opinion will not bind the Internal
Revenue Service, which could take a different view.
Determining the actual tax consequences of the merger to you as an individual
taxpayer can be complicated. The tax treatment will depend on your specific
situation and many variables not within our control. You should consult your
own tax advisor for a full understanding of the merger's tax consequences.
Accounting Treatment (Page 47)
We will treat the merger as a purchase transaction for accounting and financial
reporting purposes.
Board of Directors and Management of the Combined Company Following the Merger
(Page 36)
The Board of Directors. The board of directors of MGM Grand on completion of
the merger will not be changed as a result of the merger. However, MGM Grand
will invite Gary E. Primm to join its board of directors upon his approval by
the relevant gaming authorities.
Management. We expect that the executive officers of MGM Grand on completion of
the merger will continue as the executive officers of MGM Grand after the
merger.
No Appraisal Rights (Page 50)
Under Nevada law, Primadonna stockholders will not have any right to dissent
from the merger or to receive the appraised value of their shares in cash in
connection with the merger.
Regulatory Approvals (Pages 47 and 49)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), requires MGM Grand's principal stockholder
7
<PAGE>
and Primadonna to give information to the Antitrust Division of the United
States Department of Justice and the United States Federal Trade Commission.
All applicable waiting periods must expire or be terminated before the merger
may be completed. On December 23, 1998, the required filings with the
Department of Justice and the Federal Trade Commission were made. The required
waiting periods have expired.
In order to complete the merger, MGM Grand and Primadonna made certain filings
with, and must receive approvals from, various state and local governmental
agencies in the State of Nevada. These filings and approvals relate to gaming
and other regulations.
While we do not know of any reason why we should not obtain the regulatory
approvals we need in a timely manner, we cannot be certain when or if we will
obtain them.
8
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
MGM Grand and Primadonna are providing the following financial information to
aid you in your analysis of the financial aspects of the merger. This
information is only a summary and you should read it in conjunction with the
historical financial statements and related notes contained in the annual
reports and other information that MGM Grand and Primadonna have filed with the
Securities and Exchange Commission.
SUMMARY HISTORICAL FINANCIAL DATA OF MGM GRAND
<TABLE>
<CAPTION>
At or for the
At or for the year nine months
ended December 31, ended September 30,
------------------------------------------------------- ---------------------
1993 (A) 1994 1995 (B) 1996 (C) 1997 (D) 1997 (D) 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 37,016 $ 739,676 $ 718,781 $ 800,189 $ 827,597 $ 614,982 $ 558,919
Net income (loss) from
continuing operations
before extraordinary
items.................. (38,895) 73,540 46,565 74,517 115,256 81,843 47,713
Cash dividends ......... -- -- -- -- -- -- --
Diluted earnings per
share from continuing
operations before
extraordinary items.... $ (0.82) $ 1.50 $ 0.96 $ 1.38 $ 1.96 $ 1.39 $ 0.83
Weighted average common
and common equivalent
shares outstanding..... 47,587 48,988 48,544 54,257 58,835 58,799 57,659
Total assets............ $1,160,123 $1,153,511 $1,282,222 $1,287,689 $1,398,374 $1,298,048 $1,709,402
Long-term debt
(including current
portion)............... 483,000 473,000 551,099 83,391 57,830 67,206 545,755
Stockholders' equity.... 481,755 529,379 584,548 973,382 1,101,622 1,060,881 945,649
SUMMARY HISTORICAL FINANCIAL DATA OF PRIMADONNA
<CAPTION>
At or for the
At or for the year nine months
ended December 31, ended September 30,
------------------------------------------------------- ---------------------
1993 (E) 1994 (F) 1995 1996 (G) 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 144,279 $ 193,860 $ 239,797 $ 234,935 $ 287,821 $ 220,933 $ 208,473
Net income from
continuing operations
before extraordinary
items.................. 29,125 26,462 23,307 16,768 33,366 27,772 17,356
Cash dividends.......... 65,141 -- -- -- -- -- --
Diluted earnings per
share from continuing
operations before
extraordinary items.... $ 1.00 $ 0.86 $ 0.76 $ 0.55 $ 1.13 $ 0.94 $ 0.60
Weighted average common
and common equivalent
shares outstanding..... 29,038 30,818 30,801 30,535 29,405 29,569 28,930
Total assets............ $ 165,674 $ 311,613 $ 373,219 $ 399,971 $ 470,695 $ 456,544 $ 494,843
Long-term debt
(including current
portion)............... -- 116,100 145,509 169,300 222,404 212,738 231,900
Stockholders' equity.... 144,836 171,357 196,046 201,018 211,633 206,938 229,110
</TABLE>
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF NEW YORK-NEW YORK
<TABLE>
<CAPTION>
At or for the
At or for the year nine months
ended December 31, ended September 30,
-------------------------------------- -------------------
1993 1994 1995 (H) 1996 (I) 1997 1997 1998
---- ---- -------- -------- -------- -------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $-- $-- $ 149 $ 345 $255,253 $ 196,658 $ 164,422
Net income (loss) from
continuing operations
before extraordinary
items.................. -- -- (53) (15,683) 88,006 69,794 46,137
Cash distributions to
members ............... -- -- -- -- 30,320 25,240 8,240
Diluted earnings per
share from continuing
operations before
extraordinary
items (J).............. $-- $-- $ -- $ -- $ -- $ -- $ --
Weighted average common
and common equivalent
shares
outstanding (J)........ -- -- -- -- -- -- --
Total assets............ $-- $-- $161,537 $457,091 $470,252 $ 472,016 $ 455,411
Long-term debt
(including current
portion)............... -- -- 59,001 285,000 262,558 259,000 210,794
Members' equity......... -- -- 82,347 111,664 183,350 170,217 221,247
</TABLE>
- --------
(A) Includes a $45,130,000 pre-tax charge for hotel preopening costs.
(B) Includes a $5,942,000 pre-tax write-down for restructuring costs.
(C) Includes a $49,401,000 pre-tax write-down for the Master Plan asset
disposition and a $7,868,000 pre-tax charge for New York-New York hotel
preopening costs.
(D) Includes a $28,566,000 pre-tax write-down for the Master Plan asset
disposition.
(E) The net income, diluted earnings per share, and weighted average shares
outstanding are computed on a pro forma basis assuming Primadonna's
reorganization from an S corporation to a publicly traded C corporation
occurred at the beginning of 1993.
(F) Includes a $2,995,000 pre-tax charge for hotel preopening costs.
(G) Includes a $7,842,000 pre-tax charge for New York-New York hotel preopening
costs and a $1,144,000 pre-tax charge for golf course preopening costs.
(H) Includes a $53,000 pre-tax charge for hotel preopening costs from inception
on December 23, 1994 through December 31, 1995.
(I) Includes a $15,683,000 pre-tax charge for hotel preopening costs.
(J) New York-New York was a 50/50 joint venture between MGM Grand, Inc. and
Primadonna Resorts, Inc. and therefore does not report diluted earnings per
share and weighted average shares outstanding.
10
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The merger will be accounted for as a "purchase," which means that the purchase
price will be allocated to assets acquired and liabilities assumed based on
their estimated fair values at the time the companies are combined. We are
providing the following financial information to aid you in your analysis of
the financial aspects of the merger. We derived this information from audited
financial statements for 1997 and unaudited financial statements for the nine
months ended September 30, 1998 for both MGM Grand and Primadonna. The
information is only a summary of the unaudited pro forma financial information
presented on pages 13 to 17 and you should read it in conjunction with our
historical financial statements (and related notes) contained in the annual
reports and other information that we have filed with the Securities and
Exchange Commission.
While this pro forma financial information has been prepared based upon
currently available information using assumptions that we believe are
appropriate, you should be aware that this pro forma information may not be
indicative of what actual results will be in the future or would have been for
the periods presented. You should read the notes to the unaudited pro forma
financial information beginning on page 16 for further discussion of the
assumptions we made to prepare this information.
<TABLE>
<CAPTION>
For the For the
year ended nine months ended
December 31, 1997 September 30, 1998
--------------------- --------------------
(In thousands, except per share amounts)
<S> <C> <C>
Pro Forma Income Statement
Data:
Net revenues............... $ 1,262,547 $ 872,462
Net income before
extraordinary items....... 148,682 65,079
Cash dividends............. -- --
Diluted earnings per share
before extraordinary items
.......................... $ 2.17 $ 0.97
Weighted average common and
common equivalent shares
outstanding............... 68,539 67,206
</TABLE>
<TABLE>
<CAPTION>
At September 30,
1998
----------------
(In thousands)
<S> <C>
Pro Forma Balance Sheet Data:
Total assets................................................... $2,467,419
Long-term debt (including current portion)..................... 988,449
Stockholders' equity........................................... 1,189,116
</TABLE>
11
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA COMBINED PER SHARE DATA
We have summarized below the per share information of MGM Grand and Primadonna
on a historical, pro forma combined and pro forma equivalent basis. Primadonna
stockholders will be entitled to receive .33 shares of MGM Grand common stock
in exchange for each share of Primadonna common stock. The information set
forth below is only a summary and you should read it in conjunction with the
historical financial statements and related notes contained in the annual
reports on Form 10-K and other information that MGM Grand and Primadonna have
filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Primadonna
MGM Grand Primadonna MGM Grand Pro Forma
Historical Historical Pro Forma Equivalent(1)
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Income per diluted share before
extraordinary items(2):
Year ended December 31, 1997... $ 1.96 $1.13 $ 2.17 $0.72
Nine months ended September 30,
1998.......................... 0.83 0.60 0.97 0.32
Book value per share(3):
At December 31, 1997........... 19.00 7.33 N/A N/A
At September 30, 1998.......... 18.17 7.95 19.32 6.38
Cash dividends declared per
share(4)....................... -- -- -- --
</TABLE>
- --------
(1) The Primadonna pro forma equivalent amounts are calculated by multiplying
the MGM Grand pro forma amounts by the exchange ratio of .33 MGM Grand
common shares to be issued for each Primadonna common share.
(2) The table above combines MGM Grand's results of operations for the fiscal
year ended December 31, 1997 and the results of operations for the nine
months ended September 30, 1998 with Primadonna's results of operations for
the same periods. The pro forma combined income per diluted share is based
on the combined weighted average number of common shares and common share
equivalents. Common share equivalents consist of common stock issuable upon
the exercise of outstanding options and warrants.
(3) Historical book value per share for both MGM Grand and Primadonna was
computed by dividing total stockholders' equity at December 31, 1997 and
September 30, 1998 by the number of common shares outstanding as of those
dates, respectively. MGM Grand pro forma book value per share was computed
by dividing pro forma stockholders' equity (See "Unaudited Pro Forma
Balance Sheet" on page 15) by the pro forma number of shares of MGM Grand's
common stock outstanding as of September 30, 1998 (without including
outstanding options). The pro forma number of shares of MGM Grand's common
stock outstanding was calculated as the sum of MGM Grand's common stock
outstanding and Primadonna's common stock outstanding multiplied by the
exchange ratio of .33.
(4) MGM Grand and Primadonna have not paid cash dividends during the periods
presented. MGM Grand does not anticipate that it will do so in the
foreseeable future.
12
<PAGE>
MGM GRAND, INC.
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NY-NY MGM Grand
MGM Grand Primadonna Pro Forma Pro Forma as
Historical Historical Adjustments Adjustments Adjusted
(Note 1) (Note 1) (Note 2) (Note 2) for Merger
---------- ---------- ----------- ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Casino................. $457,206 $163,886 $ 143,953 (a) $ -- $ 765,045
Rooms.................. 171,272 21,913 69,400 (a) -- 262,585
Food and beverage...... 92,594 30,068 13,983 (a) -- 136,645
Entertainment, retail
and other............. 116,458 36,551 37,968 (a) (429)(b)(c) 190,548
Income from
unconsolidated
affiliate............. 53,800 53,895 (107,695)(a) -- --
-------- -------- --------- ----- ----------
891,330 306,313 157,609 (429) 1,354,823
Less: Promotional
allowances............ 63,733 18,492 10,051 (a) -- 92,276
-------- -------- --------- ----- ----------
827,597 287,821 147,558 (429) 1,262,547
-------- -------- --------- ----- ----------
Expenses:
Casino................. 225,896 55,669 51,710 (a) (262)(b) 333,013
Rooms.................. 45,848 10,268 23,852 (a) -- 79,968
Food and beverage...... 55,124 26,854 4,719 (a) -- 86,697
Entertainment, retail
and other............. 79,605 25,229 8,151 (a) (167)(c) 112,818
Provision for doubtful
accounts and
discounts............. 31,814 -- -- -- 31,814
General and
administrative........ 102,246 65,929 37,101 (a) -- 205,276
Depreciation and
amortization.......... 64,104 29,271 22,289 (a) -- 115,664
-------- -------- --------- ----- ----------
604,637 213,220 147,822 (429) 965,250
-------- -------- --------- ----- ----------
Operating Profit Before
Corporate Expense and
Master Plan Asset
Disposition............ 222,960 74,601 (264) -- 297,297
Master Plan asset
disposition........... 28,566 -- -- -- 28,566
Corporate expense...... 3,424 -- -- -- 3,424
-------- -------- --------- ----- ----------
Operating Income........ 190,970 74,601 (264) -- 265,307
-------- -------- --------- ----- ----------
Nonoperating Income
(Expense):
Interest income........ 1,268 -- 357 (a) -- 1,625
Interest expense, net
of amounts
capitalized........... (1,242) (13,205) (19,782)(a) -- (34,229)
Interest expense from
unconsolidated
affiliate............. (9,891) (9,891) 19,782 (a) -- --
Other, net............. (804) -- -- -- (804)
-------- -------- --------- ----- ----------
(10,669) (23,096) 357 -- (33,408)
-------- -------- --------- ----- ----------
Income Before Income
Taxes and Extraordinary
Item................... 180,301 51,505 93 -- 231,899
Provision for income
taxes................. (65,045) (18,139) (33)(f) -- (83,217)
-------- -------- --------- ----- ----------
Income Before
Extraordinary Item..... 115,256 33,366 60 -- 148,682
Loss on early
extinguishment of
debt, net............. (4,238) (964) -- -- (5,202)
-------- -------- --------- ----- ----------
Net Income.............. $111,018 $ 32,402 $ 60 $ -- $ 143,480
======== ======== ========= ===== ==========
Per Share of Common
Stock:
Net Income per Basic
Share Before
Extraordinary Item.... $ 2.00 $ 2.22
Extraordinary Item..... (0.07) (0.08)
-------- ----------
Net Income per Basic
Share................. $ 1.93 $ 2.14
======== ==========
Net Income per Diluted
Share Before
Extraordinary Item.... $ 1.96 $ 2.17
Extraordinary Item..... (0.07) (0.08)
-------- ----------
Net Income per Diluted
Share................. $ 1.89 $ 2.09
======== ==========
Basic Shares
Outstanding............ 57,475 9,662 (d) 67,137
======== ===== ==========
Diluted Shares
Outstanding............ 58,835 9,704 (e) 68,539
======== ===== ==========
</TABLE>
13
<PAGE>
MGM GRAND, INC.
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
MGM Grand Primadonna NY-NY Pro Forma Pro Forma MGM Grand
Historical Historical Adjustments Adjustments as Adjusted
(Note 1) (Note 1) (Note 2) (Note 2) for Merger
---------- ---------- --------------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Casino................. $291,655 $123,983 $ 89,076 (a) $ -- $504,714
Rooms.................. 126,668 14,942 45,325 (a) -- 186,935
Food and beverage...... 75,630 22,428 9,784 (a) -- 107,842
Entertainment, retail
and other............. 83,117 27,819 28,005 (a) (285)(b)(c) 138,656
Income from
unconsolidated
affiliate............. 29,526 29,541 (59,067)(a) -- --
-------- -------- -------- ------ --------
606,596 218,713 113,123 (285) 938,147
Less: Promotional
allowances............ 47,677 10,240 7,768 (a) -- 65,685
-------- -------- -------- ------ --------
558,919 208,473 105,355 (285) 872,462
-------- -------- -------- ------ --------
Expenses:
Casino................. 163,304 38,195 36,859 (a) (150)(b) 238,208
Rooms.................. 36,066 8,467 16,449 (a) -- 60,982
Food and beverage...... 48,212 19,855 3,317 (a) -- 71,384
Entertainment, retail
and other............. 55,011 20,589 5,914 (a) (135)(c) 81,379
Provision for doubtful
accounts and
discounts............. 26,151 -- -- -- 26,151
General and
administrative........ 78,316 50,875 25,419 (a) -- 154,610
Depreciation and
amortization.......... 56,314 24,598 17,543 (a) -- 98,455
-------- -------- -------- ------ --------
463,374 162,579 105,501 (285) 731,169
-------- -------- -------- ------ --------
Operating Profit Before
Corporate Expense...... 95,545 45,894 (146) -- 141,293
Corporate expense...... 6,102 -- -- -- 6,102
-------- -------- -------- ------ --------
Operating Income........ 89,443 45,894 (146) -- 135,191
-------- -------- -------- ------ --------
Nonoperating Income
(Expense):
Interest income........ 12,120 -- 162 (a) -- 12,282
Interest expense, net
of amounts
capitalized........... (17,735) (12,248) (12,946)(a) -- (42,929)
Interest expense from
unconsolidated
affiliate............. (6,473) (6,473) 12,946 (a) -- --
Other, net............. (1,788) -- -- -- (1,788)
-------- -------- -------- ------ --------
(13,876) (18,721) 162 -- (32,435)
-------- -------- -------- ------ --------
Income Before Income
Taxes.................. 75,567 27,173 16 -- 102,756
Provision for income
taxes................. (27,854) (9,817) (6)(f) -- (37,677)
-------- -------- -------- ------ --------
Net Income.............. $ 47,713 $ 17,356 $ 10 $ -- $ 65,079
======== ======== ======== ====== ========
Per Share of Common
Stock:
Net Income per Basic
Share................. $ 0.84 $ 0.98
======== ========
Net Income per Diluted
Share................. $ 0.83 $ 0.97
======== ========
Basic Shares
Outstanding............ 56,907 9,536 (d) 66,443
======== ====== ========
Diluted Shares
Outstanding............ 57,659 9,547 (e) 67,206
======== ====== ========
</TABLE>
14
<PAGE>
MGM GRAND, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
MGM Grand
MGM Grand Primadonna NY-NY Pro Forma Pro Forma as
Historical Historical Adjustments Adjustments Adjusted
(Note 1) (Note 1) (Note 3) (Note 3) for Merger
---------- ---------- --------------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash
equivalents........... $ 90,772 $ 7,319 $ 7,451(g) $ -- $ 105,542
Accounts receivable,
net................... 56,668 1,464 4,299(g) -- 62,431
Prepaid expenses and
other................. 9,773 9,180 5,381(g) -- 24,334
Inventories............ 12,701 1,401 453(g) -- 14,555
Deferred tax asset..... 34,098 -- -- -- 34,098
---------- -------- -------- --------- ----------
Total current assets.. 204,012 19,364 17,584 -- 240,960
---------- -------- -------- --------- ----------
PROPERTY AND EQUIPMENT,
NET.................... 1,280,941 339,179 433,291(g) 47,045 (h) 2,100,456
OTHER ASSETS:
Investments in
unconsolidated
affiliates............ 126,463 123,385 -- (239,282)(i) 10,566
Excess of purchase
price over fair market
value of net assets
acquired, net......... 37,830 -- -- -- 37,830
Deposits and other
assets, net........... 60,156 12,915 4,536(g) -- 77,607
---------- -------- -------- --------- ----------
Total other assets.... 224,449 136,300 4,536 (239,282) 126,003
---------- -------- -------- --------- ----------
$1,709,402 $494,843 $455,411 $(192,237) $2,467,419
========== ======== ======== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES:
Accounts payable....... $ 20,859 $ 2,762 $ 1,108(g) $ -- $ 24,729
Construction payable... 17,276 -- 298(g) -- 17,574
Income taxes payable... 741 -- -- -- 741
Current obligation,
capital leases........ 5,514 -- 189(g) -- 5,703
Current obligation,
long term debt........ 9,729 137 3,048(g) -- 12,914
Accrued interest on
long term debt........ 5,788 -- -- -- 5,788
Other accrued
liabilities........... 88,162 10,518 21,217(g) 4,500 (j) 124,397
---------- -------- -------- --------- ----------
Total current
liabilities.......... 148,069 13,417 25,860 4,500 191,846
---------- -------- -------- --------- ----------
DEFERRED REVENUES....... 4,429 -- -- -- 4,429
DEFERRED INCOME TAXES... 72,236 20,553 -- 10,153 (k) 102,942
LONG TERM OBLIGATION,
CAPITAL LEASES......... 2,993 -- 558(g) -- 3,551
LONG TERM DEBT.......... 536,026 231,763 207,746(g) -- 975,535
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock........... 580 309 -- (214)(l) 675
Capital in excess of
par value............. 968,140 129,738 102,840(g) 10,794 (l) 1,211,512
Treasury stock, at
cost.................. (210,459) (36,462) -- 36,462 (l) (210,459)
Retained earnings...... 171,952 135,525 118,407(g) (253,932)(l) 171,952
Other comprehensive
income................ 15,436 -- -- -- 15,436
---------- -------- -------- --------- ----------
Total stockholders'
equity............... 945,649 229,110 221,247 (206,890) 1,189,116
---------- -------- -------- --------- ----------
$1,709,402 $494,843 $455,411 $(192,237) $2,467,419
========== ======== ======== ========= ==========
</TABLE>
15
<PAGE>
MGM GRAND, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
Note 1--Historical financial information for MGM Grand and Primadonna for the
nine months ended September 30, 1998 and the year ended December 31, 1997 have
been derived from the MGM Grand and Primadonna historical financial statements.
Note 2--The following table sets forth the determination and preliminary
allocation of the purchase price based on a market value of $24.70 per share of
MGM Grand common stock, which is the average of the quoted market price of MGM
Grand common stock for the period beginning two trading days before and ending
two trading days after the announcement that the merger agreement had been
signed.
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
Merger exchange of shares (28.8 million shares of Primadonna
common stock and 2.1 million Primadonna common stock options
converted to MGM Grand common stock and common stock options on
a .33 exchange basis).......................................... $243,467
Estimated fair value of Primadonna debt (including 50% of New
York-New York debt)
assumed by MGM Grand........................................... 337,671
Transaction costs and expenses.................................. 4,500
--------
$585,638
========
The preliminary allocation of the pro forma purchase price is as follows:
Land............................................................ $ 97,651
Buildings, furniture, fixtures and equipment.................... 505,219
Other, net...................................................... (17,232)
--------
$585,638
========
</TABLE>
The final purchase price and its allocation will be based on discounted cash
flows, quoted market prices and estimates by management and is expected to be
completed by September 30, 1999.
The following are brief descriptions of the pro forma adjustments to the
statements of income to reflect MGM Grand's acquisition of Primadonna.
(a) Represents the reallocation of revenues and expenses from unconsolidated
affiliate since New York-New York becomes a consolidated subsidiary of MGM
Grand.
(b) Represents the elimination of rent which was paid by MGM Grand to New
York-New York to lease space to operate the race and sports book at New
York-New York.
(c) Represents the elimination of floral expense which was paid by New York-
New York to MGM Grand.
16
<PAGE>
(d) Represents the number of MGM Grand equivalent shares based upon the number
of weighted average Primadonna shares outstanding times a .33 conversion
ratio.
(e) Represents the number of MGM Grand equivalent shares based upon the number
of weighted average Primadonna shares outstanding times a .33 conversion
ratio, plus the dilutive effect of stock options of Primadonna shares
times a .33 conversion ratio.
(f) Represents the tax effect of the pro forma adjustments using a 35% tax
rate.
Note 3--The following are brief descriptions of the pro forma adjustments to
the balance sheet to reflect the acquisition by MGM Grand of Primadonna.
(g) Represents the allocation of New York-New York's assets and liabilities
since New York-New York becomes a consolidated subsidiary of MGM Grand.
(h) Represents the net increase to New York-New York's carrying value of land,
buildings and equipment related to Primadonna's existing 50% investment in
New York-NewYork to adjust those assets to their estimated fair market
value.
(i) Represents the elimination of MGM Grand and Primadonna's investment in New
York-New York, which becomes a consolidated subsidiary of MGM Grand.
(j) Represents an accrual for the estimated costs of the transaction.
(k) Records the deferred tax effect of the pro forma balance sheet
adjustments, primarily related to land, buildings and equipment.
(l) Represents the issuance of .33 shares of MGM common stock for every share
of Primadonna common stock and the elimination of Primadonna and New York-
New York's equity balances.
17
<PAGE>
THE PRIMADONNA SPECIAL MEETING
Purpose, Time and Place
Primadonna is furnishing this Proxy Statement/Prospectus to holders of shares
of Primadonna common stock, par value $.01 per share, in connection with the
solicitation of proxies by the Primadonna board of directors for use at the
special meeting of Primadonna's stockholders to be held on February 23, 1999.
The Primadonna special meeting will be held at the Primm Valley Resort and
Casino Conference Center, 31900 Las Vegas Boulevard South, Interstate 15 at the
Southern California/Nevada border, Primm, Nevada 89109 at 10:00 a.m. local
time.
At the Primadonna special meeting, the holders of Primadonna common stock will
be asked to vote on a proposal to approve the Agreement and Plan of Merger,
dated as of December 2, 1998, by and among MGM Grand, MGM Grand Acquisition
Corp. and Primadonna. Under the merger agreement, MGM Grand Acquisition Corp.
will merge with and into Primadonna and MGM Grand will issue shares of MGM
Grand common stock, par value $.01 per share, to Primadonna's stockholders.
Record Date; Voting Power
Record Date.
You can vote your shares at the Primadonna special meeting only if you owned
them as of the Record Date. As of the Record Date, Primadonna's records show
that there were 28,819,100 shares of Primadonna common stock eligible to vote
at the Primadonna special meeting. Primadonna is sending notice of the
Primadonna special meeting to all holders of Primadonna common stock as of the
Record Date.
Voting Power.
For each share of Primadonna common stock that you owned on the Record Date,
you may cast one vote either "for" or "against" approving the merger agreement,
or you may abstain from voting. Similarly, for each share of Primadonna common
stock that you owned on the Record Date, you may cast one vote either "for" or
"against" any other matter that is properly presented at the meeting, or you
may abstain from voting.
Vote Required
Shares Required for Quorum.
To conduct business at the Primadonna special meeting, a majority of the
Primadonna common stock outstanding on the Record Date must be present in
person or by proxy for a quorum to exist. There are three ways that your shares
could be counted toward determining the quorum. First, your shares will count
toward the quorum if you attend the meeting in person. Second, your shares will
count toward the quorum if you return a proxy card, and either vote for or
against the approval of the merger agreement or abstain. Third, and finally,
your shares will count toward the quorum if your shares are in your broker's or
bank's name (in so-called "street name") and your broker or bank attends the
meeting in person or returns proxies for your shares, even if your shares are
not voted (so-called "broker non-votes").
18
<PAGE>
Vote Required to Approve Merger Agreement.
To approve the merger agreement, Nevada law requires the affirmative vote of a
majority of the shares of Primadonna common stock outstanding on the Record
Date. Accordingly, abstentions and broker non-votes will be counted as votes
against approval of the merger agreement.
Shares Agreed to be Voted For Approval of the Merger Agreement.
Gary E. Primm, Chairman of the Board, President and Chief Executive Officer of
Primadonna, Gregory B. Primm, Roger B. Primm, Janet Primm Rosa and H. Martin
Rosa own an aggregate of approximately 53% of the shares eligible to vote at
the Primadonna special meeting (see "Share Ownership of Management and Certain
Stockholders"). These stockholders have agreed to vote all of their respective
shares to approve the merger agreement. Accordingly, the merger agreement will
be approved. Nonetheless, Primadonna's board of directors urges you to vote
your shares at the Primadonna special meeting.
Share Ownership of Management and Certain Stockholders
The following table sets forth certain information regarding beneficial
ownership of the Primadonna common stock, as of December 1, 1998 (i) by each
person who Primadonna knows to beneficially own more than 5% of Primadonna
common stock, (ii) by each of Primadonna's directors and executive officers,
and (iii) by all executive officers and directors as a group. Unless listed
below, no director or executive officer owns, beneficially or otherwise, any
shares of Primadonna common stock. The common stock is Primadonna's only
outstanding class of stock. Except as otherwise indicated, the persons named in
the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Amount
Name (and Address for Beneficial Owners Beneficially % of
of Greater than 5%) Owned Class
--------------------------------------- ------------ -----
<S> <C> <C>
Gary E. Primm........................................ 8,809,078(1)(16) 30.5%
c/o Primadonna Resorts, Inc.
P.O. Box 95997
Interstate 15 at Southern CA/NV border
Las Vegas, Nevada 89193-5997
Judith Primm Clemetson............................... 2,689,000(2) 9.3%
c/o Primm South Real Estate Company
100 West Liberty Street, Tenth Floor
Reno, Nevada 89501
Gregory B. Primm..................................... 2,214,325(3)(16) 7.7%
c/o Primm South Real Estate Company
100 West Liberty Street, Tenth Floor
Reno, Nevada 89501
Roger B. Primm....................................... 2,146,000(4)(16) 7.4%
c/o Primm South Real Estate Company
100 West Liberty Street, Tenth Floor
Reno, Nevada 89501
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Amount
Name (and Address for Beneficial Owners Beneficially % of
of Greater than 5%) Owned Class
--------------------------------------- ------------ -----
<S> <C> <C>
Janet Primm Rosa................................... 2,567,575(5)(16) 8.9%
c/o Primm South Real Estate Company
100 West Liberty Street, Tenth Floor
Reno, Nevada 89501
Joyce Primm Schweickert............................ 2,211,512(6) 7.7%
c/o Primm South Real Estate Company
100 West Liberty Street, Tenth Floor
Reno, Nevada 89501
American Express Company........................... 1,520,000(7) 5.3%
American Express Financial Corporation
IDS Tower 10
Minneapolis, Minnesota 55440
Robert E. Armstrong................................ 273,363(8) *
Madison B. Graves, II.............................. 70,145(9) *
Sigmund Rogich..................................... 249,800(10) *
H. Martin Rosa..................................... 1,052,775(11)(16) 3.7%
Paul Roshetko...................................... 0 *
Michael P. Shaunnessy.............................. 0(12) *
Gary R. Sitzmann................................... 4,000(13) *
Craig F. Sullivan.................................. 118,667(14) *
George C. Swarts................................... 23,000(15) *
Michael V. Villamor................................ 0 *
John L. Shigley.................................... 0 *
Gregg Schatzman.................................... 0 *
All directors and executive officers as a group (13
persons) **....................................... 10,600,828 36.0%
</TABLE>
- --------
* Less than 1%
** Includes two former executive officers: Michael P. Shaunnessy and Craig F.
Sullivan
(1) Includes 86,666 shares issuable upon the exercise of stock options that
are exercisable within 60 days after November 30, 1998, out of stock
options covering 220,000 shares granted to Mr. Primm prior to that date.
Also includes 7,526,712 shares held by the Gary Ernest Primm Family Trust
("Family Trust"), 1,195,000 shares held by the Gary E. Primm Charitable
Trust ("Charitable Trust"), and 700 shares held directly by Gary E. Primm.
Gary E. Primm is the sole trustee of the Family Trust and co-trustee of
the Charitable Trust. Mr. Primm retains sole voting and investment power
over the shares in the Family Trust, and shares voting and investment
power over the shares in the Charitable Trust.
(2) This information was obtained from a Schedule 13G filed with the
Commission regarding ownership as of December 31, 1993: 2,668,800 of the
shares are held by the Clemetson Family Trust, of which Judith Clemetson
and her husband are the co-trustees and over which Mrs. Clemetson retains
sole voting and investment power. Mrs. Clemetson shares voting and
investment power over the remaining 20,200 shares.
20
<PAGE>
(3) This information was obtained from a Schedule 13G-Amendment No. 3 filed
with the Commission regarding ownership as of December 31, 1997: Gregory
B. Primm has sole voting and investment power over 2,210,325 of the
shares, which includes 14,300 shares held by the Gregory B. Primm Family
Trust dated September 5, 1985, of which Mr. Primm is the sole trustee, and
1,720 of the shares that are held in limited partnership of which Mr.
Primm is the sole general partner. The remaining 4,000 shares are held by
The Primm Foundation, of which Mr. Primm is a member of the board of
directors, and with whom Mr. Primm shares voting and investment power.
(4) This information was obtained from a Schedule 13G-Amendment No. 1 filed
with the Commission regarding ownership as of December 31, 1994: the
shares are held by the Roger B. Primm Family Trust dated January 30, 1990,
of which Roger B. Primm is the sole trustee.
(5) Mrs. Rosa holds 1,547,500 shares in her own name, with sole voting and
investment power. Also includes: 645,075 shares held by the Marty and
Janet Rosa Family Trust 10/5/84 over which Mrs. Rosa shares voting and
investment power with her spouse, Dr. H. Martin Rosa, a director of
Primadonna; and 375,000 shares held by Primrose Properties Limited
Partnership over which Mrs. Rosa shares voting and investment power with
Dr. Rosa.
(6) This information was obtained from a Schedule 13G-Amendment No. 1 filed
with the Commission regarding ownership as of December 31, 1994.
(7) This information was obtained from a Schedule 13G-Amendment No. 1 filed
with the Commission regarding ownership as of February 29, 1996: neither
American Express Company nor American Express Financial Corporation have
either sole voting power or sole investment power over any shares.
American Express Company and American Express Financial Corporation share
investment power over 1,520,000 shares.
(8) Includes 133,000 shares issuable upon the exercise of stock options that
are exercisable within 60 days after November 30, 1998, out of stock
options covering 275,000 shares granted to Mr. Armstrong prior to that
date. Also includes: 650 shares owned by Mr. Armstrong's spouse; 300
shares held by The Armstrong Children's Trust over which the trustee, who
is not Mr. Armstrong, retains sole voting and dispositive power; 69,444
shares held by The Matthew E. Primm Trust over which Mr. Armstrong, as co-
trustee, shares voting and dispositive power; 69,444 shares held by The
Ashley M. Primm Trust over which Mr. Armstrong, as co-trustee, shares
voting and dispositive power; and 525 shares held directly by Mr.
Armstrong over which he has sole voting and dispositive power.
(9) Includes 18,500 shares issuable upon the exercise of stock options that
are exercisable within 60 days after November 30, 1998, out of stock
options covering 27,500 shares granted to Mr. Graves prior to that date.
Also includes: 3,900 shares held directly by Mr. Graves; 195 shares held
directly by Mr. Graves' spouse; 42,950 shares held jointly by Mr. Graves
and his spouse; 2,300 shares held by the Madison B. Graves II Individual
Retirement Account dated 4/26/93; and 2,300 shares held by the Susan M.
Graves Individual Retirement Account dated 4/26/93.
(10) Includes 227,000 shares issuable upon the exercise of stock options that
are exercisable within 60 days after November 30, 1998, out of stock
options covering 360,000 shares granted to Mr. Rogich prior to that date.
Also includes: 800 shares owned by Mr. Rogich's spouse; and 22,000 shares
held directly by Mr. Rogich.
21
<PAGE>
(11) Includes 14,000 shares issuable upon the exercise of stock options that
are exercisable within 60 days after November 30, 1998, out of stock
options covering 23,000 shares granted to Dr. Rosa prior to that date.
Also includes: 18,745 shares held in his own name with sole voting and
investment power; 645,075 shares held by the Marty and Janet Rosa Family
Trust 10/5/84 over which Dr. Rosa shares voting and investment power with
his spouse, Janet Primm Rosa; and 375,000 shares held by Primrose
Properties Limited Partnership over which Dr. Rosa shares voting and
investment power with Mrs. Rosa.
(12) Mr. Shaunnessy resigned as an officer of Primadonna, effective July 19,
1998.
(13) Represents shares issuable upon the exercise of stock options to purchase
shares that are exercisable within 60 days after November 30, 1998, out of
stock options covering 14,000 shares granted to Mr. Sitzmann prior to that
date.
(14) Represents shares issuable upon the exercise of stock options to purchase
shares that are exercisable within 60 days after November 30, 1998, out of
stock options covering 260,000 shares granted to Mr. Sullivan prior to
that date. Mr. Sullivan resigned as an officer of Primadonna effective
March 14, 1998 and became a consultant to Primadonna.
(15) Represents shares issuable upon the exercise of stock options to purchase
shares that are exercisable within 60 days after November 30, 1998, out of
stock options covering 32,000 shares granted to Mr. Swarts prior to that
date.
(16) Gary E. Primm, Gregory B. Primm, Roger B. Primm, Janet Primm Rosa and H.
Martin Rosa, who own an aggregate of approximately 53% of the Primadonna
common stock eligible to vote at the Primadonna special meeting, have
agreed to vote all of their shares in favor of approving the merger
agreement.
22
<PAGE>
Voting by Proxy; Revoking a Proxy
Voting by Proxy
You do not need to attend the Primadonna special meeting to vote your shares.
Instead, you can complete the attached proxy card and return it, fully
executed, to Primadonna in the attached envelope. At the Primadonna special
meeting, a designated representative (the so-called "proxy holder") will vote
your shares represented by your proxy card. If you return an executed proxy
card without giving specific voting instructions, the proxy holder will vote
your shares "for" the approval of the merger agreement. Additionally, if you
return an executed proxy card, without giving specific voting instructions with
respect to discretionary matters, the proxy holder may vote your shares at his
discretion on any matter that is properly raised at the special meeting.
You may vote your shares by proxy even if you plan on attending the Primadonna
special meeting.
The Primadonna board of directors unanimously recommends that you vote your
shares for the approval of the merger agreement.
Revoking a Proxy
You may revoke your proxy vote and reclaim your right to vote at any time up
to, and including, the day of the Primadonna special meeting. There are three
ways to revoke your proxy. First, you can deliver a written notice to
Primadonna's corporate secretary stating that your proxy vote is revoked. You
must deliver this written notice before the Primadonna special meeting and it
must bear a later date or time than that on the proxy that you wish to revoke.
Second, you can deliver a newly executed proxy card to Primadonna's corporate
secretary. The newly executed proxy card must bear a later date or time than
that on the previously delivered proxy card. Third, and finally, you can attend
the Primadonna special meeting and vote in person. Please understand, however,
that attending the meeting without casting a vote in person will not revoke
your proxy.
If you have instructed your broker to vote your shares and you wish to revoke
those instructions, you must follow your broker's revocation procedures.
Proxy Solicitation
Primadonna will bear the entire cost of soliciting proxies from its common
stockholders.
Primadonna and MGM Grand, however, will each pay one-half of all printing
costs. In addition to solicitation by mail, Primadonna (through its directors,
officers, executives, employees and agents) may solicit proxies from its
stockholders by telephone, in person or otherwise. Moreover, Primadonna will
request banks, brokers and other fiduciaries who are so-called "record holders"
of Primadonna common stock to send proxies and proxy material to the so-called
"beneficial owners" of such stock and to secure the beneficial owners' voting
instructions, if necessary. Primadonna will reimburse the record holders for
their reasonable expenses in so doing.
Stockholders should not send stock certificates with their proxy cards.
23
<PAGE>
THE MERGER
The discussion in this Proxy Statement/Prospectus of the merger and the
principal terms of the merger agreement is subject to, and qualified in its
entirety by reference to, the merger agreement, a copy of which is attached to
this Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference.
General
This Proxy Statement/Prospectus is being furnished to stockholders of
Primadonna in connection with the solicitation of proxies by the Primadonna
board from holders of Primadonna common stock for use at the Primadonna special
meeting to be held on February 23, 1999. At the Primadonna special meeting,
holders of Primadonna common stock will be asked to consider and vote upon a
proposal to approve the merger agreement and such other matters as may properly
come before the Primadonna special meeting.
This Proxy Statement/Prospectus also constitutes a prospectus of MGM Grand,
which is a part of the Registration Statement on Form S-4 (the "Registration
Statement") filed by MGM Grand with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), in order
to register the shares of MGM Grand common stock to be issued to holders of
Primadonna common stock in connection with the merger.
In the merger, other than shares held in Primadonna's treasury or by any wholly
owned subsidiary of Primadonna, each share of Primadonna common stock issued
and outstanding immediately prior to the completion of the merger, will be
converted, without any action on the part of the holder of such shares, into
the right to receive MGM Grand common stock, using a conversion ratio of .33
shares of MGM common stock for each share of Primadonna common stock. Cash will
be paid instead of fractional shares of MGM Grand common stock.
Background to the Merger
In the fall of 1997, we, the Primadonna board of directors, reviewed
Primadonna's strategic position in light of industry consolidation, new
competition in the Las Vegas market and limited growth opportunities for
Primadonna. At the same time, Gary E. Primm indicated that, although he had not
made a decision to sell his interest, he would be interested in exploring
whether another company might be interested in acquiring Primadonna. As a
result, we retained Morgan Stanley to explore a possible sale of Primadonna, as
well as the possible sale of its 50% interest in New York-New York. Morgan
Stanley contacted a large number of potential buyers that might have had an
interest in acquiring all or part of Primadonna. After several months, no
company had expressed an interest in engaging in definitive negotiations or had
made an offer to acquire the entire company or any substantial portion of it,
except MGM Grand, which expressed a possible interest in acquiring Primadonna's
50% interest of New York-New York.
During the spring and summer of 1998, discussions continued with MGM Grand
regarding New York-New York. In addition, in the summer of 1998, one member of
the board requested permission of the board to attempt to put a group together
to acquire Primadonna in a leveraged buy-out. On August 12, 1998, at a special
meeting of the board, the director proposed that his group would, subject to
additional due diligence, be interested in possibly acquiring for $125 million,
a
24
<PAGE>
12% pay-in-kind convertible preferred stock issue which would be convertible
into shares representing approximately 56% of the outstanding stock of
Primadonna. The director's proposal contemplated use of the $125 million
proceeds to be used to fund a special dividend of $10 per share of Primadonna
common stock in cash. Making certain assumptions in order to value
stockholders' residual interest in Primadonna, Morgan Stanley valued the
director's proposal in the range of approximately $11.50 to $13.50 per share,
compared to a closing price of $11.50 as of August 10, 1998. The director's
proposal was contingent upon his group obtaining adequate financing, obtaining
a Nevada gaming license, and Proposition 5 (the Indian Gaming Initiative) in
California being defeated in the November election. We rejected the director's
offer because of the various conditions and a belief that the value was
inadequate. In addition, at approximately the same time, MGM Grand expressed an
interest in acquiring Primadonna's interest in New York-New York for shares of
MGM Grand that would carry a guaranteed future stock price. Morgan Stanley
valued this proposal in the range of approximately $11.50 to $12.00 per share
based upon its valuation of MGM Grand's stock price guarantee and the assets of
Primadonna, excluding New York-New York. We rejected MGM Grand's offer because
we felt the offer represented inadequate value.
In the ensuing months, the availability of high-yield financing for leveraged
buy-outs dried up and gaming stocks in general, and Primadonna's in particular,
declined steeply in value. We believe that this decline was primarily due to
widespread concerns regarding the effects of the "Asian crisis" on gamblers'
visits to Las Vegas, the expected oversupply of hotel/casinos in Las Vegas,
existing competitive pressures and the strong polling data in support of
California's Proposition 5. Primadonna's stock declined from $19.00 in April
1998 to $11.50 by August 10, 1998, and further declined to $7.00 by September
10, 1998.
On September 13, 1998, Mr. Yemenidjian, the President and Chief Operating
Officer of MGM Grand, met with Gary E. Primm and Robert E. Armstrong to discuss
a possible acquisition of New York-NewYork by MGM Grand. After some
consideration, based on prior conversations with the Primadonna board of
directors in August of 1998 regarding the board's valuation of New York-
New York, Messrs. Primm and Armstrong determined that the proposal did not meet
such valuation and, therefore, declined the offer. At that time Mr. Yemenidjian
indicated that MGM Grand would be interested in acquiring Primadonna in a
stock-for-stock transaction, but that MGM Grand would not pay a premium over
Primadonna's then market value. Mr. Primm indicated that a transaction without
a premium was not attractive to him, but that he would discuss the proposed
transaction with the board. On September 15, 1998, at a special meeting of our
board, Mr. Primm briefed the board on his discussions. Mr. Yemenidjian was
invited to address the board and briefly discussed MGM Grand's plans for
expansion in Las Vegas, Detroit and other jurisdictions. No financial
information or other non-public information was discussed or disclosed. Counsel
for Primadonna briefed the Primadonna board on its obligations if it decided to
sell Primadonna. Following the presentation and a further discussion, we
authorized Mr. Primm and Mr. Armstrong to continue discussions to determine if
a premium to the then current market value could be obtained. In the following
days, a series of negotiations took place between representatives of MGM Grand
and Primadonna. Primadonna also began to deliver due diligence materials to MGM
Grand. In mid-September, 1998, MGM Grand proposed an exchange ratio of .315
shares of MGM Grand for each share of Primadonna; this represented a premium of
approximately 20% on the date of MGM Grand's proposal. A special meeting of the
Primadonna board took place on Tuesday, September 29, 1998.
25
<PAGE>
All of the non-officer directors retained Richards, Layton & Finger, P.A., as
special counsel to advise them as to their responsibilities as board members
and to advise them on the proposed agreements. At this meeting, representatives
of O'Melveny & Myers LLP and Richards, Layton & Finger, P.A. reviewed with the
Primadonna board its responsibility if it decided to put Primadonna up for
sale. Management of Primadonna also reviewed with the Primadonna board current
and prospective operations at Primm, Nevada, including the expected labor and
capital costs in the coming years, the alternatives available to Primadonna as
a stand-alone company, the possibility of Primadonna initiating the buy/sell
provisions under the New York-New York operating agreement and the increased
competition from Indian gaming in California, particularly if Proposition 5
were to pass. Representatives of Morgan Stanley advised the Primadonna board
regarding MGM Grand's offer and reviewed with it certain comparative
information on other public companies and on recent acquisition transactions in
the gaming sector. Counsel, Morgan Stanley and management updated the board on
all aspects of the negotiations to date, including timing, the ability of the
Primadonna board to consider other offers and the structure of the transaction.
The Primadonna board authorized the officers to continue to negotiate to
determine if an acceptable transaction could be agreed upon, and authorized
them to negotiate a definitive agreement.
During the next week, financial advisors, counsel, and representatives of
Primadonna and MGM Grand continued to discuss the terms of a possible
transaction. By October 4, 1998, the principal terms of an agreement had been
tentatively agreed upon, although MGM Grand was still conducting its due
diligence and various schedules and exhibits still were being prepared.
On October 5, 1998, we held a special meeting to review the proposed
transaction. We discussed with counsel and Morgan Stanley the steps that had
been taken in the past to determine if any third party was interested in
purchasing Primadonna and our responsibilities as board members if we decided
to sell Primadonna. We also reviewed the terms of the proposed agreement and
the possibility of restructuring Primadonna from a financial point of view if
it remained a stand-alone company. In addition, we reviewed operations at Primm
and at New York-New York. We also sought to determine the interest of the Primm
family in the proposed transaction since they control more than 50% of the
outstanding stock. After a lengthy discussion, we were informed that the Primm
family would not be in favor of the proposed transaction. We decided to
terminate further negotiations with MGM Grand.
On November 3, 1998, Mr. Yemenidjian delivered a letter to Gary E. Primm
stating that MGM Grand would be willing either to acquire all of the
outstanding shares of Primadonna in a transaction where each share of
Primadonna common stock would be exchanged for .33 shares of MGM Grand, an
approximate 25% premium over the then current market price, or to acquire
Primadonna's 50% interest in New York-New York for 6.8 million shares of MGM
Grand common stock. Mr. Yemenidjian's letter further indicated that if a sale
of the entire company were desired, the terms of an acquisition agreement would
be substantially similar to those previously negotiated. On November 6, 1998,
the Primadonna board met again to review the alternatives. We unanimously
rejected the sale of Primadonna's 50% interest in New York-New York for the
proposed consideration. We reviewed the election results in California,
including the passage of Proposition 5, and the recent opening of the Bellagio
Hotel in Las Vegas. Management also updated the Primadonna board on recent
operating results, the outlook for the fourth quarter and a possible joint
venture opportunity in another jurisdiction. Morgan Stanley reviewed with the
Primadonna board
26
<PAGE>
various issues pertaining to the valuation of Primadonna and the valuation of
MGM Grand's offer, including, among other things, the indicative price
reflected in MGM Grand's revised offer, the relative trading performance of
Primadonna and MGM Grand common stock and the relative trading performance
of companies comparable to Primadonna and MGM Grand, the general Las Vegas
operating environment, including the potential impact of the passage of
California's Proposition 5 and the recent opening of the Bellagio Hotel, and
valuation of selected recent acquisition transactions in the gaming sector.
After the review and discussion and after being informed that members of the
Primm family who owned more than 50% of the outstanding stock were in favor of
the proposed transaction, the Primadonna board unanimously approved the
agreement in principle and authorized the officers and counsel to attempt to
negotiate a definitive agreement. A press release regarding the proposed
transaction was issued on November 9, 1998.
During the next week, representatives of Primadonna and MGM Grand and their
counsel met to resolve the open issues and to finalize the merger agreement and
its schedules and exhibits. On November 17, 1998, another special meeting of
the Primadonna board took place to review the status of the negotiations.
Counsel reviewed with the Primadonna board the terms of the proposed merger
agreement and the other agreements and discussed with the Primadonna board
again its duties and responsibilities in connection with the merger.
Representatives of Morgan Stanley delivered an oral opinion to the effect that
as of such date, and based upon various considerations described and set forth
more fully in its subsequent written opinion dated as of November 17, 1998, the
conversion ratio was fair to the holders of Primadonna common stock from a
financial point of view. Following further discussion, we unanimously approved
the merger agreement, authorized its execution, and resolved to recommend that
the holders of Primadonna common stock vote in favor of the approval of the
merger agreement.
During the ensuing days, MGM Grand continued its due diligence and outstanding
issues relating to the merger agreement and other transaction documents were
resolved. On December 1, 1998 the Primadonna board, at a special meeting held
telephonically, was informed that no other bidders for Primadonna had come
forward since the November 9, 1998 press release. We then reviewed the final
changes to the merger agreement and authorized the officers to execute it. On
December 3, 1998, the MGM Grand board of directors approved the merger
agreement and it was executed and delivered by all parties on December 4, 1998.
A joint public announcement of the transaction was made by the parties on the
morning of December 7, 1998.
Reasons for the Merger; Recommendation of Primadonna's Board of Directors
We, the Primadonna board of directors, have unanimously determined that the
merger is fair to and in the best interests of Primadonna and you, its
stockholders, and have unanimously approved the merger agreement. Accordingly,
we unanimously recommend that you vote in favor of the approval of the merger
agreement. Several members of the Primm family, holding in the aggregate
approximately 53% of the outstanding Primadonna common stock, have executed
support letters that bind them to vote in favor of the approval of the merger
agreement; if they do so, the merger agreement will be approved, even if no
other stockholder votes in favor of the transaction.
We believe that the merger will give you an interest in a company that will be
better able to take advantages of opportunities, both nationally and
internationally, than Primadonna could do on its
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own. In addition, the combined company will have greater stockholders' equity,
greater debt capacity, a lower cost of capital and deeper management than
Primadonna alone. We also considered the fact that MGM Grand has a very strong
stockholder base.
The following are the material factors considered by the Primadonna board in
reaching its conclusions:
. Operations at the Primm properties have been adversely affected by the
spread of Indian gaming in California. We believe that many of the customers
who formerly frequented Primm during the week now travel to more
conveniently located Indian casinos in California. Primadonna's board
further believes that the recent change in administration in California as a
result of the November elections and the passage of Proposition 5 (the
Indian Gaming Initiative) will likely result in a further expansion of
Indian gaming in California.
. Operations at New York-New York have been adversely affected by the opening
of new hotel/casinos in Las Vegas. It is anticipated that the opening of
three major new properties with more than 9,000 rooms between now and
December 31, 1999 may further adversely affect New York-New York's
operations by putting substantial pressure on room rates and increasing the
competition for gaming dollars in Las Vegas.
. The increase in job opportunities in Las Vegas, as a result of the
construction of the new mega-hotels, has made, and is expected to continue
to make, it more difficult to attract both management and other employees to
Primm, which is located 40 miles south of Las Vegas. In order to continue to
attract employees, Primadonna may have to offer increased compensation and
other incentives; such increased costs may adversely affect Primadonna's
operating results in the future.
. Primadonna believes that combining the ownership of New York-New York in one
entity may yield a variety of economies of scale. If Primadonna were to
purchase MGM Grand's interest in New York-New York, it could only do so by
incurring a substantial amount of debt. The new debt would likely have a
substantially higher interest rate and a credit agreement with more
restrictive financial covenants than Primadonna's existing credit agreement.
If Primadonna sold its interest in New York-New York, it could not do so in
a tax efficient manner. A sale of Primadonna's interest would eventually be
taxed both at the corporate level and, if distributed to the stockholders,
at the stockholder level.
. New hotel/casinos, particularly in Las Vegas, have become increasingly
expensive. The Bellagio Hotel is estimated to have cost approximately $1.8
billion. Each of the Paris, Venetian and Mandalay Bay hotels, which are
scheduled to open in the next 12 months, are major, expensive mega-resorts.
We do not believe that Primadonna could build that type of project based on
its current balance sheet.
. Combining with MGM Grand will give the Primadonna stockholders a diversified
portfolio of properties in various jurisdictions, rather than having all of
their company's assets located in or near Las Vegas. In addition to its Las
Vegas properties, MGM Grand is constructing a temporary casino in Detroit,
Michigan, and plans to construct major hotel/casino resorts in Detroit and
in Atlantic City, New Jersey, the country's number two gaming destination,
and has operations in Australia and South Africa.
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. The gaming industry is in a mode of consolidation. We believe that smaller
companies such as Primadonna will have a more difficult time succeeding in
the future. Bigger hotel/casinos with greater name recognition and marketing
capabilities are likely to be better able to attract customers and to
exploit opportunities in emerging gaming jurisdictions.
. The exchange ratio represents a substantial premium to Primadonna
stockholders. Primadonna's stock was trading in the $6-7 range in the week
preceding the November 3, 1998 offer, and as low as $4.56 in the prior three
weeks. We believe that the merger consideration fairly reflects Primadonna's
intrinsic value and potential for future growth.
. By receiving MGM Grand common stock in connection with the merger,
Primadonna's stockholders will be able to participate in any upside that
results from a more favorable assessment by the equity markets of the gaming
industry's prospects.
. The express desire and intention of most members of the Primm family to
engage in the transaction; and the tax deferred nature of the transaction,
which various Primm family members required in any such transaction, and
which is a benefit available to all holders of Primadonna common stock in
the merger.
. The possibility that Primadonna's earnings, as a part of MGM Grand, will be
capitalized at a higher multiple in the stock market, because of the
investment community's more favorable assessment of MGM Grand's prospects
and potential.
. The potential cost savings and other potential synergies and efficiencies in
the operation of New York-New York, as well as in the operation of
Primadonna's hotel/casinos at the Southern California/Nevada border.
. The expectation that the merger will be accretive to MGM Grand's earnings
even if the various synergies are not realized.
. Morgan Stanley's opinion as of November 17, 1998, that the conversion ratio
is fair to the holders of Primadonna common stock from a financial point of
view.
. We also considered the work Morgan Stanley had done to try to find another
buyer for Primadonna as described under "Background to the Merger."
. The terms and conditions of the merger agreement, including the conversion
ratio and the absence of any collars, thereby providing Primadonna
stockholders with the possible benefit of a post-announcement increase in
the price of MGM Grand's stock (although the lack of a collar also presents
a risk that MGM Grand's stock price could decline post-announcement).
. The ability of Primadonna's board to review unsolicited offers by third
parties with respect to alternative transactions and to select a superior
proposal if the board decides it is in the best interest of the Primadonna
stockholders. In such event, Primadonna would have to pay MGM Grand a fee of
$10 million.
. The agreement of holders of approximately 53% of Primadonna common stock to
vote in favor of the approval of the merger and the terms of the other
agreements being entered into in connection with the merger agreement.
. The events leading to the signing of the merger agreement, as described
under "Background to the Merger."
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. Possible alternatives to the merger, including continuing to operate as an
independent public company.
. Primadonna's and MGM Grand's business, financial condition, results of
operations and future prospects, current and anticipated developments in the
gaming industry, and historical stock prices.
The foregoing discussion of the information and factors considered by us is not
meant to be exhaustive, but summarizes the material factors considered by us.
We did not quantify or attach any particular weight to the various factors or
determine that any particular factors were of primary importance. Rather we
made our determination based on the totality of the information presented to
and considered by us. Individual members may have given different weight to
different factors.
Opinion of Primadonna's Financial Advisor
Primadonna retained Morgan Stanley & Co. Incorporated to act as its financial
advisor in connection with the merger, based on Morgan Stanley's
qualifications, expertise and reputation. No limitations were imposed by the
Primadonna board upon Morgan Stanley with respect to the investigations made or
the procedures followed by it in rendering its fairness opinion.
On November 17, 1998, Morgan Stanley rendered to the Primadonna board its
written opinion that, as of such date and based upon the considerations set
forth in the opinion, the conversion ratio pursuant to the merger agreement was
fair from a financial point of view to the holders of Primadonna common stock.
The full text of Morgan Stanley's opinion, dated as of November 17, 1998, which
sets forth, among other things, assumptions made, procedures followed, matters
considered and limitations on the review undertaken, is attached as Appendix B
to this Proxy Statement/Prospectus. Primadonna stockholders are urged to, and
should, read the opinion carefully and in its entirety. Morgan Stanley's
opinion is directed to the Primadonna board, addresses only the fairness of the
conversion ratio from a financial point of view to the holders of Primadonna
common stock, and does not address any other aspect of the merger or constitute
a recommendation to any stockholder of Primadonna as to how such stockholder
should vote at the special meeting. This summary is qualified in its entirety
by reference to the full text of such opinion.
In connection with rendering its opinion, Morgan Stanley, among other things:
(i) reviewed certain publicly available financial statements and other
information of Primadonna and of MGM Grand; (ii) reviewed certain internal
financial statements and other financial and operating data concerning
Primadonna prepared by the management of Primadonna; (iii) reviewed certain
internal financial statements and other financial and operating data concerning
New York-New York prepared by the management of New York-New York; (iv)
analyzed certain financial projections prepared by the management of
Primadonna; (v) analyzed certain financial projections prepared by the
management of New York-New York; (vi) discussed with senior executives of
Primadonna the past and current operations and financial condition and the
prospects of Primadonna, including information relating to certain strategic,
financial and operational benefits anticipated from the merger; (vii) discussed
with senior executives of MGM Grand the past and current operations and
financial condition and the prospects of MGM Grand, including information
relating to certain strategic, financial and
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operational benefits anticipated from the merger; (viii) discussed with senior
executives of Primadonna and MGM Grand the past and current operations and
financial condition and the prospects of New York-New York; (ix) reviewed the
pro forma impact of the merger on the earnings per share of MGM Grand; (x)
reviewed the reported prices and trading activity for the Primadonna common
stock and the MGM Grand common stock; (xi) compared the financial performance
of Primadonna and MGM Grand and the prices and trading activity of the
Primadonna common stock and the MGM Grand common stock with those of certain
other publicly traded companies comparable with Primadonna and MGM Grand,
respectively; (xii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions; (xiii) participated
in discussions and negotiations among representatives of Primadonna and MGM
Grand and their financial and legal advisors; (xiv) reviewed the draft merger
agreement and certain related documents presented to Primadonna's Board on
November 17, 1998; and (xv) performed such other analyses and considered such
other factors as Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the internal financial statements, financial
projections and other financial and operating data and information relating to
strategic, financial and operational benefits anticipated from the merger,
Morgan Stanley assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the prospects of
Primadonna and MGM Grand, respectively. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of Primadonna,
MGM Grand or New York-New York, nor was Morgan Stanley furnished with any such
appraisals. Morgan Stanley assumed that, in connection with the receipt of all
the necessary regulatory approvals for the proposed merger, no restrictions
will be imposed that will have a material adverse effect on the contemplated
benefits expected to be derived in the proposed merger. In addition, Morgan
Stanley assumed the merger will be treated as a tax-free reorganization and/or
exchange pursuant to the Internal Revenue Code of 1986, as amended, and will be
consummated in accordance with the terms set forth in the merger agreement.
Morgan Stanley's opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made available to
Morgan Stanley as of, November 17, 1998.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Primadonna board on November 17, 1998, in
connection with Morgan Stanley's presentation and opinion to the Primadonna
board:
Comparable Company Analysis. Morgan Stanley compared certain financial and
operating information of Primadonna with that of a group of publicly traded
hotel and casino gaming entertainment companies. That group included: Aztar
Corporation; Boyd Gaming Corporation; Grand Casinos, Inc.; Harveys Casino
Resorts; Hollywood Park, Inc.; Isle of Capri Casinos, Inc.; Players
International, Inc.; Rio Hotel & Casino, Inc.; Station Casinos, Inc.; and Trump
Hotels & Casino Resorts (collectively, the "Comparable Companies"). The
Comparable Companies were selected based upon conversations with Primadonna
management regarding companies with general business, operating and financial
characteristics representative of companies in the industry in which Primadonna
operates. The financial information analyzed included a review of financial
ratios (in each case based upon the closing share price as of November 11,
1998, except for Primadonna for
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which the share price is based upon the closing price as of November 2, 1998
(which date is one day before Primadonna received MGM Grand's merger proposal))
such as multiples of price to forecasted 1998 earnings per share ("EPS"),
multiples of price to forecasted 1999 EPS, multiples of aggregate value
(defined as market equity value plus book value of debt and preferred stock
less cash and marketable securities) to forecasted 1998 earnings before
interest, taxes, depreciation and amortization ("EBITDA") and multiples of
aggregate value to 1999 forecasted EBITDA. Morgan Stanley noted that, based on
a compilation of earnings projections dated November 11, 1998 obtained from the
Institutional Brokers Estimate System ("IBES"), the Comparable Companies traded
(i) at multiples of share price to forecasted 1998 EPS in a range of 5.3 times
to 35.2 times compared to 9.9 times for Primadonna common stock and (ii) at
multiples of price to forecasted 1999 EPS in a range of 6.1 times to 33.1
times, compared to 10.0 times for Primadonna common stock. Morgan Stanley also
noted that the Comparable Companies traded (i) at multiples of aggregate value
to forecasted 1998 EBITDA in a range of 4.1 times to 8.8 times, compared to 5.2
times for Primadonna common stock and (ii) at multiples of aggregate value to
forecasted 1999 EBITDA in a range of 3.9 times to 8.3 times, compared to 5.2
times for Primadonna common stock. Based upon its analysis of the financial
ratios of the Comparable Companies, Morgan Stanley calculated theoretical per
share trading values for Primadonna of $3.91 to $7.26 and theoretical per share
acquisition values (including an assumed 30% control premium) of $5.09 to
$9.44.
No company considered for purposes of comparison to Primadonna in the
Comparable Company analysis is identical to Primadonna. In evaluating the
Comparable Companies, Morgan Stanley made judgments and assumptions regarding
industry performance, general business, economic, market and financial
conditions and other matters. Mathematical analysis (such as determining the
average or median) of the financial ratios of the Comparable Companies is not
in itself a meaningful method of using comparable company data.
Analysis of Selected Precedent Transactions. Morgan Stanley reviewed certain
recent business combinations in the hotel and casino gaming entertainment
sectors. Using publicly available information, Morgan Stanley reviewed the
financial terms of the following publicly announced pending or completed
business combinations in the hotel and casino gaming entertainment industry:
Horseshoe Gaming LLC's acquisition of Empress Entertainment, Inc.; Harrah's
Entertainment, Inc.'s acquisition of Rio Hotel & Casinos, Inc.; Park Place
Entertainment, Inc.'s acquisition of Grand Casinos, Inc.'s Mississippi gaming
operations; Hollywood Park, Inc.'s acquisition of Casino Magic Corp.; Colony
Capital, Inc.'s acquisition of Harveys Casino Resorts; Starwood Hotel &
Resort's acquisition of ITT Corporation; Harrah's Entertainment, Inc.'s
acquisition of Showboat, Inc.; Sun International Hotels Ltd.'s acquisition of
Griffin Gaming & Entertainment; and Hilton Hotels Corporation's acquisition of
Bally Corporation, as well as the offer by Hollywood Park, Inc. to purchase
Players International, Inc. (collectively, the "Precedent Transactions"). For
the Precedent Transactions, at the time of announcement, (i) the multiple of
aggregate value to latest twelve months ("LTM") EBITDA ranged from 6.7 times to
14.8 times, with a mean of 8.8 times and a median of 7.8 times, (ii) the
multiple of aggregate value to LTM revenues ranged from 1.2 times to 4.9 times,
with a mean of 2.1 times and a median of 1.7 times, (iii) the multiple of
equity value to LTM earnings ranged from 9.8 times to 58.5 times, with a mean
of 25.6 times and a median of 23.0 times, (iv) the multiple of aggregate value
to LTM after-tax cash flow (defined as net income plus depreciation and
amortization) ranged from 7.0 times to 14.9 times with a mean of 9.9 times and
a
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median of 9.0 times, and (v) the multiple of aggregate value to one-year
forward forecasted EBITDA ranged from 5.3 times to 12.7 times with a mean of
7.4 times and a median of 6.8 times. In addition, Morgan Stanley noted that,
using share prices as of November 11, 1998 for Harrah's Entertainment Inc.'s
acquisition of Rio Hotel & Casinos, Inc. and Park Place Entertainment Inc.'s
acquisition of Grand Casinos, Inc., the multiples of aggregate value to one-
year forward forecasted EBITDA were 6.1 times and 5.8 times, respectively.
Pursuant to these analyses, Morgan Stanley calculated theoretical per share
acquisition values for Primadonna ranging from $5.53 to $10.15. Dividing by the
MGM Grand common stock's closing share price of $28.375 on November 11, 1998
produced indicative conversion ratios of .195x to .358x compared to the
conversion ratio of .33x to be received by the holders of Primadonna common
stock pursuant to the merger.
No transaction considered for purposes of the Precedent Transaction analysis is
identical to the merger. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using precedent transaction data.
Primadonna Discounted Cash Flow Analysis. Morgan Stanley performed several
discounted cash flow analyses of Primadonna in order to estimate the present
value of the unlevered free cash flow that may be generated by Primadonna. Such
discounted cash flow analyses were based on certain financial projections
provided by Primadonna management for the fiscal years 1998 through 2002 and
extensions of such forecasts for the fiscal years 2003 through 2007, as well as
certain sensitivities thereto intended to reflect the inherent uncertainty of
financial forecasts. Unlevered free cash flows were calculated as net income
available to common stockholders plus depreciation and amortization, deferred
taxes, other non-cash expenses and after-tax net interest expense less the sum
of capital expenditures and investment in non-cash working capital. Morgan
Stanley calculated terminal values by applying a multiple to EBITDA in fiscal
2007 and the cash flow streams and terminal values were then discounted to the
present using a range of discount rates representing an estimated range of the
weighted average cost of capital for Primadonna. Morgan Stanley calculated
values for Primadonna using discount rates from 10.0% to 12.0%. Based on this
analysis of management's financial projections as well as certain sensitivities
thereto, Morgan Stanley calculated per share values for Primadonna ranging from
$6.90 to $8.20. Based on MGM Grand's closing share price of $28.375 on November
11, 1998, these analyses yielded an implied conversion ratio of .243x to .289x,
compared to the conversion ratio of .33x to be used in the merger.
MGM Grand Comparable Company Analysis. Morgan Stanley compared certain
financial and operating information of MGM Grand with that of a group of
publicly traded hotel and casino gaming entertainment companies. That group
included: Circus Circus Enterprises, Inc.; Harrah's Entertainment, Inc.; Hilton
Hotels Corporation; Mirage Resorts, Incorporated and Sun International Hotels
Ltd. (collectively, the "MGM Grand Comparable Companies"). The MGM Grand
Comparable Companies were selected based on conversations with Primadonna and
MGM Grand management as to companies with general business, operating and
financial characteristics representative of companies in the industry in which
MGM Grand operates. The financial information analyzed included a review of
financial ratios such as multiples of price to forecasted 1998 EPS, multiples
of price to forecasted 1999 EPS, multiple of aggregate value to forecasted 1998
EBITDA
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and multiples of aggregate value to forecasted 1999 EBITDA. Morgan Stanley
noted that, based on a compilation of earnings projections dated November 11,
1998 obtained from IBES, the MGM Grand Comparable Companies traded (i) at
multiples of share price (as of November 11, 1998) to forecasted 1998 EPS in a
range of 13.2 times to 19.2 times, compared to 23.6 times for MGM Grand and
(ii) at multiples of price to forecasted 1999 EPS in a range of 11.7 times to
13.9 times, compared to 18.8 times for MGM Grand. Morgan Stanley also noted
that the MGM Grand Comparable Companies traded (i) at multiples of aggregate
value to forecasted 1998 EBITDA in a range of 5.7 times to 16.1 times compared
to 13.8 times for MGM Grand and (ii) at multiples of aggregate value to
forecasted 1999 EBITDA in a range of 5.5 times to 8.2 times compared to 7.1
times for MGM Grand.
No company considered for purposes of comparison to MGM Grand in the MGM Grand
Comparable Company Analysis is identical to MGM Grand. In evaluating the MGM
Grand Comparable Companies, Morgan Stanley made judgments and assumptions with
regard to industry performance, general business, economic, market and
financial conditions and other matters. Mathematical analysis (such as
determining the average or median) of the financial ratios of the MGM Grand
Comparable Companies is not in itself a meaningful method of using comparable
company data.
MGM Grand Discounted Cash Flow Analysis. Morgan Stanley performed several
discounted cash flow analyses of MGM Grand in order to estimate the present
value of the unlevered free cash flow that may be generated by MGM Grand. Such
discounted cash flow analyses were based on certain financial projections
developed from publicly available securities research analysts' estimates, as
well as certain sensitivities thereto intended to reflect the inherent
uncertainty of financial forecasts. Unlevered free cash flows were calculated
as net income available to common stockholders plus depreciation and
amortization, deferred taxes, other non-cash expenses and after-tax net
interest expense less the sum of capital expenditures and investment in non-
cash working capital. Morgan Stanley calculated terminal values by applying a
multiple to EBITDA in fiscal 2007 and the cash flow streams and terminal values
were then discounted to the present using a range of discount rates
representing an estimated range of the weighted average cost of capital for MGM
Grand. Morgan Stanley calculated values for MGM Grand using discount rates from
9.0% to 11.0%. Based on this analysis of financial projections as well as
certain sensitivities thereto, Morgan Stanley calculated per share values for
MGM Grand ranging from $28.40 to $32.50, compared to MGM Grand common stock's
closing share price of $28.38 on November 11, 1998.
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma impact
of the merger on MGM Grand's EPS for the fiscal years ended 1999, 2000 and
2001. The analysis was performed utilizing, for MGM Grand, securities research
analysts' estimates and, for Primadonna, both securities research analysts'
estimates as well as estimates based on certain financial projections provided
by the management of Primadonna, for the fiscal years ended 1999, 2000 and
2001. This analysis incorporated certain financial projections prepared by the
managements of MGM Grand and Primadonna of the cost savings expected to be
derived from the merger. Based on these forecasts and assuming the achievement
of the estimated cost savings, the merger is expected to be accretive to MGM
Grand's EPS in each of the years examined.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the
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results of all its analyses as a whole and did not attribute any particular
weight to any particular analysis or factor considered by it. Furthermore,
selecting any portion of Morgan Stanley's analyses or factors considered by it,
without considering all analyses and factors, would create an incomplete view
of the process underlying its opinion. The range of valuations resulting from
any particular analysis described above should therefore not be taken to be
Morgan Stanley's view of the actual value of Primadonna.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Primadonna or MGM Grand.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as a part of Morgan Stanley's analysis of the fairness from a financial
point of view of the conversion ratio pursuant to the merger agreement to the
holders of Primadonna common stock and were conducted in connection with the
delivery of Morgan Stanley's opinion dated November 17, 1998. The analyses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be valued in the marketplace.
In addition, as described above, Morgan Stanley's opinion and presentation to
the Primadonna board was one of many factors taken into consideration by the
Primadonna board in making its determination to recommend adoption of the
merger agreement. Consequently, the Morgan Stanley analyses described above
should not be viewed as determinative of the opinion of the Primadonna board or
the view of the management of Primadonna with respect to the value of
Primadonna or of whether the Primadonna board would have been willing to agree
to a different conversion ratio. The conversion ratio was determined through
negotiations between Primadonna and MGM Grand and was approved by the
Primadonna board. Morgan Stanley provided advice to Primadonna during the
course of such negotiations; however, the decision to enter into the merger
agreement and to accept the conversion ratio of .33x was solely that of the
Primadonna board.
As part of its investment banking business, Morgan Stanley is regularly engaged
in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuation, for estate,
corporate and other purposes. In the ordinary course of its market-making and
other trading and brokerage activities, Morgan Stanley and its affiliates may,
from time to time, hold long or short positions, trade or otherwise effect
transactions, for its own account or for the account of customers, in the
securities of Primadonna or MGM Grand.
Pursuant to a letter agreement dated December 10, 1997 between Primadonna and
Morgan Stanley, as confirmed by a letter agreement between Primadonna and
Morgan Stanley dated November 12, 1998, Primadonna has agreed to pay to Morgan
Stanley (i) an advisory fee of approximately $250,000 which is currently
payable, (ii) a public announcement fee of approximately $925,000, which is
payable if the merger is not consummated, and (iii) a transaction fee of
approximately $3,700,000 if the merger is consummated, against which any
advisory fee or announcement fee paid will be credited. Primadonna has also
agreed to reimburse Morgan Stanley for its out-of-pocket expenses and to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates
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against certain liabilities, including liabilities under federal securities
laws, and expenses, in connection with Morgan Stanley's engagement.
Terms of the Merger Agreement
General
This section of the Proxy Statement/Prospectus describes material provisions of
the merger agreement. The description of the merger agreement contained in this
Proxy Statement/Prospectus does not purport to be complete and is qualified in
its entirety by reference to the merger agreement, a copy of which is attached
as Appendix A to this Proxy Statement/Prospectus and is incorporated herein by
reference. Capitalized terms in this section have the meanings assigned to them
in the merger agreement or, if not so assigned in the merger agreement, the
meanings assigned to them in this Proxy Statement/Prospectus. All stockholders
of Primadonna are urged to read the merger agreement carefully and in its
entirety.
Closing; Effective Time
The closing of the merger will take place at 9:00 a.m. on the closing date,
which will be the second business day after satisfaction or waiver of the
conditions set forth in the merger agreement, unless another time or date is
agreed to by MGM Grand and Primadonna. Subject to the provisions of the merger
agreement, on the closing date, MGM Grand and Primadonna will file Articles of
Merger or other appropriate documents with the Secretary of State of Nevada in
accordance with the relevant provisions of the Nevada Revised Statutes, as a
result of which, MGM Grand Acquisition Corp. will merge into Primadonna and
Primadonna will become a wholly owned subsidiary of MGM Grand. The merger will
become effective at such time as the Articles of Merger are duly filed with the
Secretary of State of Nevada, or at such subsequent date or time permitted by
the Nevada Revised Statutes as MGM Grand and Primadonna specify in the Articles
of Merger.
Primadonna Articles of Incorporation
The Articles of Incorporation of Primadonna in effect immediately prior to the
closing of the merger will remain in effect upon the closing of the merger
without any change or modification, until changed or amended as provided
therein or by applicable law.
Directors and Principal Officers of MGM Grand
The board of directors of MGM Grand following the merger will consist of the
current directors of MGM Grand and Gary E. Primm, Chairman of the Board,
President and Chief Executive Officer of Primadonna, subject, in the case of
Mr. Primm, to receipt of all required gaming approvals.
The Merger Consideration
On the closing of the merger, by virtue of the merger and without any action on
the part of any stockholder of Primadonna, each issued and outstanding share of
Primadonna common stock (other than shares to be canceled as described below)
will be converted into the right to receive .33 validly issued, fully paid and
nonassessable shares of MGM Grand common stock.
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Each share of Primadonna common stock owned by MGM Grand, held by Primadonna as
treasury stock or held by any wholly owned subsidiary of MGM Grand or
Primadonna will be automatically canceled and retired on the closing of the
merger and will cease to exist. No securities of MGM Grand or other
consideration will be delivered in exchange for those shares.
Treatment of Primadonna Options
Under the merger agreement, on the closing of the merger, each outstanding
option to purchase Primadonna common stock previously granted by Primadonna or
its subsidiaries will be converted into an option to acquire the number of
shares of MGM Grand common stock, rounded down to the nearest whole share,
determined by multiplying the number of shares of Primadonna common stock
subject to such option by the conversion ratio. The per share exercise price
will also be adjusted by dividing the old exercise price by .33, the merger
conversion ratio, and rounding up to the nearest whole cent. MGM Grand has
agreed to adopt, subject to the consent of the stockholders holding a majority
of MGM Grand common stock, a new stock option plan substantially similar to the
existing Primadonna plan, concurrently with the Primadonna special meeting (but
which will not allow for additional grants). The holder of a majority of MGM
Grand's common stock has given such consent. Under the terms of the Primadonna
options, the closing of the merger will have the effect of causing unvested
Primadonna options held by certain option holders (including Primadonna's
officers and consultants) to become immediately exercisable.
Exchange of Certificates; Fractional Shares
At or before the Effective Time, MGM Grand will deposit, or cause to be
deposited, with ChaseMellon Shareholder Services as exchange agent for the
merger, for the benefit of the holders of certificates of Primadonna common
stock, a certificate representing the shares of MGM Grand common stock (and
cash instead of fractional shares, if applicable) to be issued in connection
with the merger.
As soon as is practicable after the Effective Time, the exchange agent will
mail a form of transmittal letter to the holders of shares of Primadonna common
stock. The form of transmittal letter will contain instructions on how to
surrender certificates in exchange for shares of MGM Grand common stock (and
cash instead of fractional shares, if applicable).
Primadonna stock certificates should not be returned with the enclosed proxy
card and should not be forwarded to the exchange agent except with a
transmittal letter, which will be provided to holders following the Effective
Time.
No certificates or scrip representing fractional shares of MGM Grand common
stock will be issued upon the surrender for exchange of stock certificates and
such fractional share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of MGM Grand. Instead of issuing fractional
shares, MGM Grand will pay an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which a former holder, after
taking into account all shares of Primadonna common stock held of record at the
closing of the merger by such holder, would otherwise be entitled by (B) the
average closing price for a share of MGM Grand common stock as reported on the
New York Stock Exchange (as reported in The Wall Street Journal or, if not
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reported therein, any other authoritative source) for the ten trading days
ending on the date that is three trading days before the closing date. Upon
receipt of a duly completed and executed transmittal letter and the
certificate(s) formerly representing a holder's Primadonna common stock, the
exchange agent will send such holder a certificate representing the MGM Grand
common stock to which such holder is entitled and cash instead of fractional
shares, if any.
Representations and Warranties
The merger agreement contains certain representations and warranties by each of
Primadonna and MGM Grand relating to, among other things, (i) corporate
organization, structure and power; (ii) subsidiaries; (iii) capitalization;
(iv) authorization, execution, delivery, performance and enforceability of,
required consents, approvals, orders and authorizations of governmental
authorities relating to, and noncontravention of certain agreements as a result
of, the merger agreement; (v) documents filed by each of Primadonna and MGM
Grand with the Securities and Exchange Commission and other regulatory
entities, the accuracy of information contained therein and the absence of
undisclosed liabilities of each of Primadonna and MGM Grand; (vi) the accuracy
of information supplied by each of Primadonna and MGM Grand in connection with
this Proxy Statement/Prospectus and the Registration Statement; (vii) absence
of material adverse changes or events with respect to each of Primadonna and
MGM Grand since September 30, 1998; (viii) compliance with applicable laws and
litigation; (ix) absence of changes in benefit plans; (x) matters relating to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (xi)
tax matters; (xii) required stockholder approval in connection with the merger
agreement; (xiii) satisfaction of certain state takeover statutes; (xiv)
engagement of and payment of fees to brokers, investment bankers, finders and
financial advisors in connection with the merger agreement; (xv) intellectual
property matters including efforts to resolve any "Year 2000" computer
problems; (xvi) material contracts; (xvii) properties; (xviii) legal
proceedings; (xix) environmental matters; and (xx) insurance.
Certain Covenants
Primadonna has agreed that, except as otherwise expressly contemplated by the
merger agreement or as consented to by MGM Grand, during the period from the
date of the merger agreement to the Effective Time, Primadonna will, and will
cause its subsidiaries to, carry on its business in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith, to
use all reasonable efforts to preserve intact its current business organization
(other than internal organizational realignments), and to refrain from making
any change in employment terms of its directors, officers and employees (except
in the ordinary course of business consistent with past practice).
The merger agreement provides that Primadonna will not take any action outside
of the parameters specified in the merger agreement, such as, among other
things and with certain exceptions, amending its organizational documents;
issuing, selling or encumbering any shares of capital stock or options to
acquire any shares of such capital stock; selling, leasing or encumbering
property or assets (except in the ordinary course of business consistent with
past practice); declaring or paying
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dividends or recapitalizing or redeeming its capital stock; making certain
acquisitions; making capital expenditures; incurring indebtedness; or taking
any action that would cause the representations and warranties regarding
absence of certain changes or events in the merger agreement to no longer be
true and correct.
No Solicitation
The merger agreement provides that Primadonna will not, nor will it permit any
of its subsidiaries to, nor will it authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its subsidiaries
to, directly or indirectly through another person, (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, sale of
substantial assets, sale of shares of capital stock or similar transaction
involving Primadonna or any of its material subsidiaries, other than the
transactions contemplated by the merger agreement (any of the foregoing being
referred to as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, provide any non-public information relating to, or take
any other action to facilitate inquiries or the making of any proposal that
constitutes, an Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal. However, if before the approval of the
merger by the Primadonna stockholders, the Primadonna board determines in good
faith, after consultation with a financial advisor of nationally recognized
reputation, that a written Acquisition Proposal, which identifies a price or
range of values to be paid for the outstanding shares or substantially all of
the assets of Primadonna, is reasonably capable of being completed on
substantially the terms proposed, and would, if consummated, result in a
transaction that would provide greater value to the holders of Primadonna
common stock than the merger (a "Superior Bid"), Primadonna or the Primadonna
board may furnish non-public information to, or enter into discussions or
negotiations with, the third party making such Acquisition Proposal; provided
that prior thereto, the Primadonna board receives from such person an executed
confidentiality and standstill agreement. Primadonna must notify MGM Grand in
writing of its receipt of an Acquisition Proposal or any request for non-public
information in connection with an Acquisition Proposal.
Employee Benefit Plans
From and after the closing of the merger, MGM Grand will: (i) honor
Primadonna's written employment, consulting, severance and termination
agreements previously disclosed to MGM Grand; (ii) for purposes of determining
eligibility to participate in MGM Grand's employee benefit plans, vesting and
entitlement to benefits, give service credit to Primadonna employees for
employment with Primadonna to the extent such credit would not result in a
duplication of benefits; and (iii) waive limitations for preexisting conditions
exclusions and waiting periods in MGM Grand's employee benefit plans (except to
the extent they have not been satisfied prior to the closing of the merger) for
Primadonna's employees and use best efforts to provide affected employees with
credit for co-payments made and deductibles paid prior to the closing of the
merger. The merger agreement does not, however, create any right of employment
for any person or create any obligation to continue any Primadonna employee
benefit plan.
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Indemnification and Insurance
To the extent permitted by applicable law, MGM Grand has agreed to indemnify
and hold harmless the present and former officers and directors of Primadonna
and its subsidiaries from liabilities for acts or omissions occurring at or
prior to the closing of the merger and to maintain for 72 months after the
closing of the merger: (i) indemnification agreements of Primadonna in effect
as of the date of the merger agreement; and (ii) the provisions in Primadonna's
Articles of Incorporation and Bylaws, which limit officer and director
liability, and provide for indemnification and advancement of expenses to
directors, officers, employees and agents.
In the event that MGM Grand or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of MGM Grand assume the obligations described under
this section.
For 72 months after the closing of the merger, MGM Grand will cause to be
maintained in effect policies of directors' and officers' liability insurance
covering acts or omissions occurring prior to the closing of the merger with
respect to those persons who are currently covered by Primadonna's directors
and officers' liability insurance policies on terms with respect to such
coverage and amount no less favorable than those of such policy in effect on
the date of the merger agreement; provided however: (i) MGM Grand will not be
required to pay aggregate premiums for the insurance described in this
paragraph in excess of 200% of the aggregate annual premiums currently paid by
Primadonna for such coverage; (ii) if the annual premiums of such insurance
coverage exceed such amount, MGM Grand shall obtain the best coverage
available, in the reasonable judgment of its board, for a cost not exceeding
such amount; and (iii) MGM Grand may satisfy the obligations described in the
paragraph through its general policies of insurance as are in effect from time
to time.
Conditions to the Consummation of the Merger
MGM Grand's and Primadonna's obligation to effect the merger is subject to the
satisfaction or wavier on or prior to the closing date of various conditions,
which include, in addition to certain other closing conditions, the following:
(i) Primadonna's stockholders shall have approved the merger agreement;
(ii) Primadonna and MGM Grand shall have procured all of the third party
consents required pursuant to the merger agreement;
(iii) all applicable waiting periods under the HSR Act shall have expired or
otherwise been terminated and the parties shall have received all other
authorizations, consents and approvals of governments and governmental agencies
with jurisdiction over the merger;
(iv) the Registration Statement of which this Proxy Statement/Prospectus is a
part shall have become effective under the Securities Act and not be the
subject of any stop order or proceedings seeking a stop order;
(v) the representations and warranties of the other party to the merger
agreement shall be true and correct in all material respects as of the closing
date (except to the extent expressly made as of an earlier date, in which case
as of such date);
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(vi) the other party to the merger agreement shall have performed and complied
with in all material respects all of its covenants under the merger agreement
through the closing date; and
(vii) at any time after the date of the merger agreement no material adverse
change shall have occurred relating to the other party.
In addition, Primadonna is not obligated to effect the merger unless it has
received from its tax counsel an opinion satisfactory to Primadonna to the
effect that (i) the merger will constitute a tax-free reorganization pursuant
to Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) MGM Grand, Primadonna and MGM Grand Acquisition Corp. will
each be a party to the reorganization within the meaning of Section 368(b) of
the Code (see "The Merger--Federal Income Tax Consequences of the Merger") and
(iii) no gain or loss will be recognized by the stockholders of Primadonna as a
result of the merger, except to the extent that cash is received instead of a
fractional share of MGM Grand common stock.
Termination
The merger agreement may be terminated at any time before it is consummated in
certain circumstances, including:
(i) by mutual written consent of MGM Grand and Primadonna; or
(ii) by either MGM Grand or Primadonna:
(a) if the merger has not been completed by April 30, 1999, provided such
deadline may be extended to August 31, 1999 if the merger has not been
completed because the required governmental approvals have not been
obtained;
(b) if the approval of Primadonna's stockholders has not been obtained at
the Primadonna special meeting;
(c) if a court of competent jurisdiction or other governmental authority
shall have issued a nonappealable final order, decree or ruling or taken
any other nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the merger;
(d) if the other party's board has withdrawn or modified, in a manner
adverse to the terminating party, such board's approval or recommendation
of the merger or the merger agreement, or if Primadonna's board approved or
recommended any Superior Bid or resolved to take any such action; or
(e) if there has been a breach of any representation, warranty, covenant or
agreement in the merger agreement on the part of the non-terminating party
which will cause the conditions to the terminating party's to close not to
be satisfied;
(iii) by MGM Grand if for any reason Primadonna fails to call and hold the
special meeting by April 30, 1999; or
(iv) by Primadonna in order to accept a Superior Bid.
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If either MGM Grand or Primadonna terminate the merger agreement, it will
become void and have no effect, without any liability or obligation on the
party of MGM Grand or Primadonna, other than (i) in connection with any
liability of any party then in breach of the merger agreement, (ii) the
obligation of the parties to keep all nonpublic information connected with the
merger confidential and (iii) Primadonna's obligation to pay MGM Grand $10
million under the circumstances described below under "Expenses."
Expenses
Whether or not the merger is completed, all fees and expenses incurred in
connection with the merger, the merger agreement and the transactions
contemplated thereby will be paid by the party incurring such fees or expenses,
except that if the merger agreement is terminated (i) by MGM Grand or
Primadonna by reason of the failure of the Primadonna stockholders to approve
the merger agreement, (ii) by Primadonna in order to accept a Superior Bid or
(iii) by MGM Grand or Primadonna by reason of the withdrawal or modification by
the Primadonna board of its approval or recommendation of the merger agreement,
or its approval or recommendation of a Superior Bid, then Primadonna shall pay
$10 million to MGM Grand.
Amendment
The merger agreement may be amended by MGM Grand and Primadonna at any time
before or after the approval of the merger agreement by the Primadonna
stockholders, but after any such approval, MGM Grand and Primadonna may not
make any amendment that by law requires further approval by Primadonna's
stockholders without the further approval of such stockholders. The merger
agreement may not be amended except by an instrument in writing signed on
behalf of each of MGM Grand, MGM Grand Acquisition Corp. and Primadonna.
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Certain Federal Income Tax Consequences
The following is a discussion of certain United States federal income tax
consequences of the merger. This discussion is based on the Code, the Treasury
Regulations thereunder, rulings of the Internal Revenue Service ("IRS"), and
court decisions as of the date hereof, all of which are subject to change
(possibly with retroactive effect).
The tax treatment of each Primadonna stockholder will depend in part upon such
stockholder's particular situation. Special tax consequences not described
below may be applicable to particular classes of taxpayers, including financial
institutions, broker-dealers, persons who are not citizens or residents of the
United States or who are legal entities formed under the laws of jurisdictions
outside the United States, and Primadonna stockholders who acquired their
shares through the exercise of employee stock options or otherwise as
compensation. This discussion also assumes that the Primadonna stockholders
hold their Primadonna common stock as a capital asset.
This discussion is included for general information purposes only and is not
intended to be legal or tax advice to any particular holder of Primadonna
common stock. All Primadonna stockholders should consult with their own tax
advisors as to the particular consequences of the merger to them, including the
applicability and effect of any state, local and foreign tax laws.
Tax Consequences of the Merger
MGM Grand and Primadonna expect the merger to qualify as a "reorganization" as
defined in (S)368(a) of the Code. As such, the merger can be expected to have
the following federal income tax consequences:
(i) The exchange in connection with the merger of Primadonna common stock
solely for MGM Grand common stock will not result in the recognition of gain or
loss to the Primadonna stockholders with respect to such exchange.
(ii) A Primadonna stockholder who receives cash in connection with the merger
instead of a fractional share interest in MGM Grand common stock will be
treated as having exchanged such fractional share for cash in a redemption
subject to Section 302 of the Code, and the Primadonna stockholder generally
will recognize capital gain or loss in such exchange equal to the difference
between the cash received and the portion of such stockholder's tax basis that
is allocable to the fractional share so exchanged.
(iii) The tax basis of the MGM Grand common stock received by the Primadonna
stockholder in connection with the merger will be the same as the stockholder's
tax basis in the Primadonna common stock surrendered in exchange therefor
subject to the immediately preceding paragraph (ii).
(iv) The holding period of the MGM Grand common stock received by the
Primadonna stockholders in connection with the merger will include the holding
period of Primadonna common stock surrendered in exchange therefor.
(v) No gain or loss will be recognized by MGM Grand or Primadonna as a result
of the merger.
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The obligation of Primadonna to consummate the merger is conditioned upon
(among other things) receipt by Primadonna from its tax counsel of an opinion
as described above under "Conditions to the Consummation of the Merger."
Backup Withholding
Any cash received in connection with the merger by Primadonna stockholder may
be subject to backup withholding at a rate of 31%. Backup withholding will not
apply, however, to a taxpayer that (i) furnishes a correct taxpayer
identification number ("TIN") and certifies that he or she is not subject to
backup withholding on IRS Form W-9 (or an appropriate substitute form), (ii)
provides a certificate of foreign status on IRS Form W-8 (or an appropriate
form), or (iii) is otherwise exempt from backup withholding. The IRS may impose
a $50 penalty upon any taxpayer who fails to provide the correct TIN, as
required.
The foregoing discussion is intended only as a summary of certain United States
federal income tax consequences of the merger and does not purport to be a
complete analysis of all potential tax effects relevant to a Primadonna
stockholder's decision whether to vote in favor of approval of the merger
agreement. Because certain tax consequences of the merger may vary depending
upon the particular circumstances of each Primadonna stockholder, each
Primadonna stockholder is urged to consult his or her own tax advisor to
determine the particular tax consequences to such stockholder of the merger,
including the application and effect of state, local and foreign tax laws.
Interests of Certain Persons in the Merger
As you consider the Primadonna board's recommendation to approve the merger
agreement, you should be aware that certain Primadonna directors and officers
have interests regarding the merger that are separate from their interests as
stockholders and, consequently, may be different from your interests. Such
other interests include those referred to below.
Board Seat on the MGM Grand Board of Directors
MGM Grand has agreed to place Gary E. Primm, Primadonna's President, Chief
Executive Officer and Chairman of the Board, on its board of directors, upon
receipt of necessary approvals by the relevant gaming authorities. Gary E.
Primm has been Chairman and President of Primadonna since September 1996 and
Chief Executive Officer and a director since its inception. He also served as
President of Primadonna from its inception to February 1995. Further, Gary E.
Primm has been President, Chief Executive Officer and a director of The
Primadonna Corporation since 1985 and also serves as Chairman of the Board of
New York-New York.
Stock Options
Primadonna's officers hold options to purchase Primadonna common stock. The
options' terms, however, provide that a transaction like the merger will
automatically accelerate and vest the options before their otherwise scheduled
vesting time. Options held by Primadonna directors who are neither employees
nor consultants to Primadonna will not accelerate as a result of the merger.
MGM Grand will, however, assume all of Primadonna's outstanding options and
will, in turn, convert each such option into an option to purchase shares of
MGM Grand common stock. Each option after conversion will represent an option
for .33 times the number of shares represented by the Primadonna option. The
per share option price will also be increased by dividing the Primadonna option
price by .33.
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This is in keeping with the conversion ratio that the merger agreement provides
for converting shares of Primadonna common stock into shares of MGM Grand
common stock. Except for the acceleration, the conversion ratio and the per
share exercise price, the conversion will not affect the options. They will
continue to be subject to the same terms and conditions as they were before the
merger. MGM Grand has agreed to use its commercially reasonable best efforts to
file certain registration statements under the Securities Act to enable the
holders of converted options to publicly sell any MGM Grand shares that they
acquire by exercising their converted options.
Agreement Regarding Certain Insurance
In accordance with the merger agreement, MGM Grand will enter into an agreement
regarding certain insurance with Gary E. Primm and with Robert E. Armstrong, as
trustee of the 1992 Primm Children's Trust U/A dated December 22, 1992. You can
review a form of this agreement, which is Exhibit C to the merger agreement and
included in Appendix A to this Proxy Statement/Prospectus. The execution of the
agreement regarding certain insurance is a condition to completing the merger
agreement. In January 1994, The Primadonna Corporation, a wholly-owned
subsidiary of Primadonna, entered into an agreement commonly known as a "split
dollar life insurance agreement" with Gary E. Primm and with Robert E.
Armstrong, as trustee of the 1992 Primm Children's Trust U/A dated December 22,
1992. Under the terms of that agreement, The Primadonna Corporation is
obligated to pay the premiums on certain survivorship life insurance policies,
with an aggregate face value of $50 million, on the life of Gary E. Primm.
Under the agreement, Primadonna would be entitled to be repaid all premiums
paid, without interest, upon the death of Mr. Primm.
The agreement regarding certain insurance amends such split dollar life
insurance agreement. It obligates The Primadonna Corporation to pay an
aggregate of $1.4 million on two insurance policies. Such agreement also
obligates Gary E. Primm and Robert E. Armstrong, as trustee of the 1992 Primm
Children's Trust, jointly and severally, irrevocably and unconditionally to
repay The Primadonna Corporation (or its designee) an amount equal to the
aggregate amount of all such premiums paid by The Primadonna Corporation (as
well as premiums previously paid on such policies), without interest, upon the
earlier of: (i) Gary E. Primm's death; or (ii) the tenth anniversary of the day
the merger is completed.
Registration Rights Agreement
In accordance with the merger agreement, MGM Grand has agreed to enter into a
registration rights agreement with Gary E. Primm, Roger B. Primm, Gregory B.
Primm, Janet Primm Rosa and H. Martin Rosa (the so-called "rights holders").
You can review a form of the registration rights agreement, which is Exhibit F
to the merger agreement and is included in Appendix A to this the back of this
Proxy Statement/Prospectus. The execution of the registration rights agreement
is a condition to completion of the merger agreement.
The registration rights agreement authorizes the rights holders to cause MGM
Grand to register their securities for public sale in a variety of ways. One
way is simply to demand that MGM Grand register their securities. This demand,
however, has three limitations. First, it only applies to what is known as an
"S-3" registration statement. Second, a rights holder's ability to make this
demand expires at the later occurrence of the following two events: (i) the
registration rights agreement's second anniversary or (ii) the date such rights
holder has less registerable securities than he or she
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can sell in any calendar quarter under the Securities Act's Rule 144. Third,
and finally, the rights holder must demand that MGM Grand register at least
100,000 shares of MGM Grand common stock.
Another way is to demand MGM Grand to effect an underwritten public offering.
Similar to the demand on form S-3 discussed above, this demand also has three
limitations. First, and most obvious, is that this demand only applies to
underwritten public offerings. Second, a rights holder's ability to make this
demand expires at the later occurrence of the following two events: (i) the
registration rights agreement's second anniversary or (ii) the date such rights
holder has less registerable securities than he or she can sell in any calendar
quarter under the Securities Act's Rule 144. Third, and finally, this demand
cannot be for less than 800,000 shares of MGM Grand common stock, in the
aggregate.
The last way for the rights holders to cause MGM Grand to register their
securities is to include themselves in a registration statement that MGM Grand
is undertaking on its own behalf or on behalf of another stockholder. This is
commonly known as "piggybacking" on a registration statement. The rights
holders can piggyback on any registration statement (except an S-4 or an S-8,
which are used to register securities resulting from business combinations and
securities underlying stock options, respectively) MGM Grand files.
Asset Disposition Agreement
In accordance with the merger agreement, MGM Grand will enter into an asset
disposition agreement with Primadonna and with Gary E. Primm. You can review a
form of this agreement, which is Exhibit G to the merger agreement and is
included in Appendix A to this Proxy Statement/Prospectus. The execution of the
asset disposition agreement is a condition to completing the merger agreement.
Primadonna owns 75% of a Model 1125 Astral SP Aircraft and Mr. Primm owns the
remaining 25%; in addition, Primadonna owns a hangar and support facilities.
MGM Grand does not wish to acquire these assets in the merger. Therefore, the
parties to this agreement have agreed to sell the assets at fair market value.
Primadonna and Mr. Primm will sell the airplane to a third party. Mr. Primm has
agreed to purchase the hangar and support facilities for $1.9 million, which
Primadonna, MGM Grand and Mr. Primm have agreed is the fair market value for
such assets.
Indemnification of Primadonna Officers and Directors
To the extent permitted by applicable law, MGM Grand has agreed to indemnify
and hold harmless the present and former officers and directors of Primadonna
and its subsidiaries from liabilities for acts or omissions occurring at or
prior to the closing of the merger and to maintain for 72 months after the
closing of the merger: (i) indemnification agreements of Primadonna in effect
as of the date of the merger agreement; (ii) the provisions in Primadonna's
articles of incorporation and bylaws, which limit officer and director
liability, and provide for indemnification and advancement of expenses to
directors, officers, employees and agents; and (iii) director and officer
liability insurance.
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Accounting Treatment
The merger will be accounted for as a "purchase" for accounting and financial
reporting purposes. Accordingly, MGM Grand's costs in connection with the
merger will be allocated to the assets of Primadonna acquired and the
liabilities of Primadonna assumed according to their fair values at the
Effective Time. The excess, if any, of costs over estimated fair value of net
assets acquired will be amortized over 40 years.
Gaming Regulatory Approvals
The gaming operations of each of MGM Grand and Primadonna are subject to
extensive regulation, and each of MGM Grand, Primadonna and their respective
subsidiaries hold registrations, approvals, gaming licenses or permits in each
jurisdiction in which it operates gaming activities. In each such jurisdiction,
certain regulatory requirements must be complied with and/or certain approvals
must be obtained in connection with the merger. MGM Grand's and Primadonna's
obligations to consummate the merger are conditioned upon all necessary gaming
regulatory approvals and authorizations having been obtained.
MGM Grand filed an application with the Nevada State Gaming Control Board on
December 31, 1998 for approval of the acquisition of control of Primadonna.
Nevada is the sole jurisdiction in which Primadonna conducts gaming and the
sole jurisdiction in which approval of gaming regulators for the merger is
required.
As described below, changes in control of Primadonna through merger,
consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person whereby he obtains control, may
not occur without the prior approval of the Nevada Gaming Commission. Entities
seeking to acquire control of a registered, publicly traded gaming corporation
must satisfy the Nevada State Gaming Control Board and the Nevada Gaming
Commission in a variety of stringent standards prior to assuming control of
such registered, publicly traded gaming corporation. The Nevada Gaming
Commission may also require controlling stockholders, executive officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed or
found suitable as part of the approval process relating to the transaction. The
merger requires the prior approval of the Nevada Gaming Commission upon the
recommendation of the Nevada State Gaming Control Board.
The ownership and operation of casino gaming facilities in Nevada are subject
to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulations.
MGM Grand's and Primadonna's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission, the Nevada Gaming Control
Board and the Clark County Liquor and Gaming Licensing Board. The Nevada Gaming
Commission, the Nevada State Gaming Control Board and the Clark County Liquor
and Gaming Licensing Board are collectively referred to as the "Nevada Gaming
Authorities."
MGM Grand Hotel, Inc., a wholly-owned subsidiary of MGM Grand ("MGM Grand Las
Vegas"), is required to be licensed by the Nevada Gaming Authorities to enable
it to operate the MGM Grand Hotel/Casino in Las Vegas. MGM Grand Las Vegas is
also licensed as a manufacturer and
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distributor of gaming devices, and as the operator of the race book and sports
pool at New York-New York. In addition, MGM Grand is required to be licensed as
one of the two managers of New York-New York. The other manager of New York-New
York, PRMA of Las Vegas, Inc., a wholly-owned subsidiary of Primadonna, is also
required to be so licensed. New York-New York is required to be licensed by the
Nevada Gaming Authorities to operate the casino. Also, The Primadonna
Corporation, a wholly-owned subsidiary of Primadonna, is required to be
licensed by the Nevada Gaming Authorities to enable it to operate casinos at
Buffalo Bill's Resort & Casino, Primm Valley Resort & Casino, and Whiskey
Pete's Hotel & Casino, all of which are located in Primm, Nevada. MGM Grand Las
Vegas, New York-New York, PRMA of Las Vegas, Inc., and The Primadonna
Corporation are hereinafter collectively referred to as the "Gaming
Subsidiaries." The gaming licenses require the periodic payment of fees and
taxes and are not transferable. Each of MGM Grand and Primadonna is registered
by the Nevada Gaming Commission as a publicly traded corporation, and as such,
is required periodically to submit detailed financial and operating reports to
the Nevada Gaming Commission and furnish any other information which the Nevada
Commission may require. Each of MGM Grand and Primadonna has obtained from the
Nevada Gaming Authorities the various registrations, approvals, findings of
suitability, 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, MGM Grand, Primadonna or the
Gaming Subsidiaries in order to determine whether such individual is suitable
or should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of MGM Grand, Primadonna or the Gaming
Subsidiaries 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 who are actively and directly involved in
gaming activities of MGM Grand or Primadonna may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause that 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
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 MGM Grand, Primadonna or the Gaming Subsidiaries, that entity
would have to sever all relationships with such person. In addition, the Nevada
Commission may require MGM Grand, Primadonna or the Gaming Subsidiaries 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.
Neither MGM Grand nor Primadonna may make a public offering of its securities
without the prior approval of the Nevada Gaming Commission if the securities or
the proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or retire or extend obligations incurred for such
purposes. On July 24, 1997, the Nevada Gaming Commission granted MGM Grand
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prior approval to make offerings for a period of two years, subject to certain
conditions (the "MGM Grand Shelf Approval"). However, the MGM Grand 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 State Gaming
Control Board. Such approval does not constitute a finding, recommendation or
approval by the Nevada Gaming Commission or the Nevada State Gaming Control
Board as to the accuracy or adequacy of the prospectus or the investment merits
of the securities. Any representation to the contrary is unlawful. The issuance
of MGM Grand common stock in connection with the acquisition of control of
Primadonna will be pursuant to the MGM Grand Shelf Approval.
The failure to obtain the required approval of the merger and the issuance of
MGM Grand common stock or the failure to comply with the procedural
requirements prescribed by any applicable gaming regulatory authority or the
failure of MGM Grand or Primadonna to qualify or make disclosures or
applications as required under the laws and regulations of any applicable
gaming regulatory authority may result in the loss of license or denial of
application for licensure in any such jurisdiction.
The foregoing is only a summary of the various applicable gaming regulatory
requirements under the Nevada Act. For a complete description of such
regulatory requirements, see "Nevada Government Regulation" in the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 for MGM Grand
and "Regulation and Licensing" in the Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 for Primadonna.
Delisting and Deregistration of Primadonna Common Stock; Listing of MGM Grand
Common Stock Issued in Connection with the Merger
Primadonna common stock is currently quoted on the Nasdaq National Market under
the symbol "PRMA." Upon consummation of the merger, Primadonna will be delisted
from the Nasdaq National Market and deregistered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). MGM Grand common stock is
currently listed for quotation on the New York Stock Exchange under the trading
symbol "MGG." Application has been made for the listing of the shares of MGM
Grand common stock to be issued in connection with the merger.
Certain Federal Regulatory Matters
The HSR Act and related rules and regulations require that MGM Grand's
principal stockholder and Primadonna file with the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") Notification and Report Forms ("Forms") with respect to
the merger and the related transactions. The parties thereafter are required to
observe a waiting period before consummating the reported transaction. In
compliance with the HSR Act, MGM Grand's principal stockholder and Primadonna
filed Forms on December 23, 1998, 1998 with the Antitrust Division and the FTC
with respect to the merger. All applicable HSR Act waiting periods have
expired. The Antitrust Division, the FTC, state antitrust authorities or a
private person or entity could seek to enjoin the merger under the antitrust
laws at any time prior to its consummation or to compel recission or
divestiture at any time after the merger.
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Restriction on Resales by Affiliates
The shares of MGM Grand common stock to be issued to Primadonna's stockholders
in connection with the merger have been registered under the Securities Act.
These shares may be traded freely and without restriction by those stockholders
not deemed to be "affiliates" (as that term is defined under the Securities
Act) of Primadonna or MGM Grand. An affiliate of Primadonna is a person who
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, Primadonna. Any subsequent
transfer by an affiliate of Primadonna must be permitted by the resale
provisions of Rule 145 under the Securities Act (or Rule 144 under the
Securities Act, in the case of persons who become affiliates of MGM Grand) or
as otherwise permitted under the Securities Act. These restrictions are
expected to apply to the directors and executive officers of Primadonna.
In connection with entering into the merger agreement, Primadonna has delivered
to MGM Grand for each of its affiliates, an agreement that such person will not
dispose of any MGM Grand common stock in violation of the Securities Act or the
rules and regulations thereunder, except pursuant to an effective registration
statement under the Securities Act, in conformity with the volume and other
limitations of Rule 145 or in a transaction that is not required to be
registered under the Securities Act.
Litigation
On November 12, 1998, Michael Shapiro sued MGM Grand, Primadonna and certain
directors and officers of Primadonna in the State District Court, Clark County,
Nevada of a case entitled Michael Shapiro v. Primadonna Resorts, Inc., MGM
Grand, Inc., Gary E. Primm, Robert E. Armstrong, Madison B. Graves, Sigmund
Rogich, Gary R. Sitzmann and George C. Swartz (Case No. A 395831). 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 seeks an unspecified
amount of damages and injunctive relief against the proposed merger. Both
Primadonna and MGM Grand believe it is without merit and intend to vigorously
contest the complaint.
No Appraisal Rights
Under applicable state law, stockholders of Primadonna are not entitled to
dissenters' appraisal rights in connection with the merger.
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INFORMATION ABOUT MGM GRAND
General
MGM Grand is an entertainment, hotel and gaming company headquartered in Las
Vegas, Nevada. Through its wholly owned subsidiaries, MGM Grand owns and
operates the MGM Grand Hotel and Casino in Las Vegas, which MGM Grand believes
is the largest hotel/casino in the world, and the MGM Grand Hotel and Casino in
Darwin, Australia. MGM Grand also owns a 50% interest in a joint venture with
Primadonna that owns and operates New York-New York, an architecturally
distinctive destination resort hotel/casino in Las Vegas. MGM Grand is
currently constructing a temporary casino in Detroit, Michigan, and is planning
to construct significant destination resort hotel/casino, entertainment and
retail facilities in Detroit and Atlantic City, New Jersey. MGM Grand's
subsidiary, MGM Grand South Africa, Inc., is pursuing up to 15 gaming licenses
in the Republic of South Africa, where it currently manages three casinos. See
the MGM Grand Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "MGM Grand Form 10-K"), which is attached to this Proxy
Statement/Prospectus as Appendix C, for a more detailed description of MGM
Grand's activities.
Management and Additional Information
Certain information relating to executive compensation, benefit plans
(including stock option plans), voting securities and the principal holders
thereof, certain relationships and related transactions and other related
matters as to MGM Grand is set forth in Appendix C. Stockholders of Primadonna
that desire an additional copy of the MGM Grand Form 10-K or MGM Grand's Forms
10-Q filed since December 31, 1997, which are attached to this Proxy
Statement/Prospectus as Appendices D-F, may contact MGM Grand at its address or
telephone number indicated under "Where You Can Find More Information."
INFORMATION ABOUT PRIMADONNA
General
Primadonna is an entertainment, hotel and gaming company. It owns three hotel
and casinos, Buffalo Bill's, Whiskey Pete's, and the Primm Valley Resort, in
Primm, Nevada. Primadonna also owns two world class, championship golf courses
in California. The hotel/casinos and golf courses are located on approximately
731 acres of land in California and Nevada, of which 143 acres in Nevada are
subject to a long term lease from Primm South Real Estate Company and 140 acres
remain undeveloped. In addition to the attractions at the Southern
California/Nevada border, Primadonna owns a 50% interest in a joint venture
with MGM Grand that owns and operates New York-New York in Las Vegas. See the
Primadonna Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "Primadonna Form 10-K"), which is attached to this Proxy
Statement/Prospectus as Appendix I, for a more detailed description of
Primadonna's business.
Management and Additional Information
Certain information relating to executive compensation, various benefit plans
(including stock option plans), voting securities and the principal holders of
such securities, certain relationships and related transactions and other
related matters as to Primadonna is set forth in Appendix I. Stockholders of
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Primadonna that desire an additional copy of the Primadonna Form 10-K or
Primadonna's Forms 10-Q filed since December 31, 1997, which are attached to
this Proxy Statement/Prospectus as Appendices J-L, may contact Primadonna at
its address or telephone number indicated under "Where You Can Find More
Information."
COMPARATIVE STOCK PRICES AND DIVIDENDS
Market Prices
The Primadonna common stock is listed for trading on the Nasdaq National Market
under the symbol "PRMA." The MGM Grand common stock is listed on the New York
Stock Exchange under the symbol "MGG." The following table sets forth the range
of high and low per share sales prices for Primadonna's common stock, as
reported on the Nasdaq National Market and the high and low composite per share
closing prices as reported on the New York Stock Exchange. The conversion ratio
for the merger is .33 shares of MGM Grand common stock for each share of
Primadonna common stock outstanding at the effective time of the merger.
<TABLE>
<CAPTION>
Primadonna MGM Grand
------------- -------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1997
First Quarter..................................... $21.00 $17.50 $41.00 $32.63
Second Quarter.................................... $22.25 $18.75 $40.38 $32.13
Third Quarter..................................... $19.81 $17.25 $44.00 $32.38
Fourth Quarter.................................... $18.88 $14.13 $46.69 $34.00
1998
First Quarter..................................... $18.83 $14.94 $39.88 $33.19
Second Quarter.................................... $19.18 $14.34 $35.75 $26.56
Third Quarter..................................... $14.68 $ 6.22 $33.50 $23.07
Fourth Quarter ................................... $ 9.00 $ 4.69 $29.75 $22.56
1999
First Quarter (through January 19, 1999).......... $10.50 $ 8.75 $33.06 $27.75
</TABLE>
On November 6, 1998, the last trading day immediately preceding the public
announcement of the proposed merger, the closing per share sales price of
Primadonna common stock on the Nasdaq National Market was $9.00, and the
closing per share price of MGM Grand common stock on the New York Stock
Exchange was $28.13. On January 19, 1999, the last trading day prior to the
time of the printing of this Proxy Statement/Prospectus, the closing per share
sales price of Primadonna common stock on the Nasdaq National Market was
$10.50, and the closing per share price of MGM Grand common stock on the New
York Stock Exchange was $33.06.
The equivalent per share price of shares of Primadonna common stock on November
6, 1998 and January 19, 1999 are calculated by multiplying the closing sales
price of MGM Grand common stock by the conversion ratio for each respective
day. For November 6, 1998, the equivalent per share price was $9.28. For
January 19, 1999, it was $10.91.
Dividends
Neither MGM Grand nor Primadonna has paid any dividends on its common stock in
the last five years.
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DESCRIPTION OF MGM GRAND COMMON STOCK
The authorized capital stock of MGM Grand consists of 75 million shares of
common stock. Holders of MGM Grand common stock are entitled to dividends when
and as declared by the MGM Grand board of directors. Holders have one vote per
share and the right to the net assets in liquidation after payment of any
amounts due to creditors. Holders are not liable for further calls or
assessments by MGM Grand. Except as described below, there are no sinking fund
or redemption provisions relating to MGM Grand common stock. MGM Grand common
stock has noncumulative voting rights, which means that holders of a majority
of the shares voting for the election of directors can elect 100% of the
directors if they choose to do so.
MGM Grand's certificate of incorporation provides that if and when MGM Grand
becomes, and so long as it remains, a publicly traded holding company as
defined in the New Jersey Casino Control Act, all securities of MGM Grand shall
be held subject to the condition that if a holder thereof is disqualified by
the New Jersey Casino Control Commission pursuant to the New Jersey Casino
Control Act, such disqualified holder must dispose of his interest in the
securities, including any common stock, within 120 days (or such other time
period required by the New Jersey Commission) following MGM Grand's receipt of
notice of such disqualified holder. Promptly following the receipt of such
notice, MGM Grand is required to deliver a copy of such notice to the
disqualified holder by personal delivery, mail or any other reasonable means.
MGM Grand's certificate of incorporation also provides that so long as MGM
Grand holds (directly or indirectly) a license or franchise from a governmental
agency to conduct its business, which license or franchise is conditioned upon
some or all of the holders of MGM Grand common stock possessing prescribed
qualifications, any and all shares of the common stock shall be subject to
redemption by MGM Grand, at its sole option and in its sole discretion, to the
extent necessary to prevent the loss of such license or franchise or to
reinstate it. Any shares of the common stock redeemable pursuant to such
provision may be called for redemption immediately for cash, property or
rights, including securities of MGM Grand or another corporation, on not less
than five days notice to the holders thereof at a redemption price equal to the
average closing price of such stock on a national securities exchange for the
45 trading days immediately preceding the date of the redemption notice; or if
such stock is not so traded, then the average of the high and low closing bid
price of the stock as quoted by the National Association of Securities Dealers
Automated Quotation system for such 45 trading day period; or if such stock is
not so quoted, the redemption price shall be determined in good faith by the
MGM Grand board of directors.
The transfer agent and registrar for the MGM Grand common stock is ChaseMellon
Shareholder Services, LLC, 400 S. Hope Street, Los Angeles, California 90071.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF MGM GRAND AND PRIMADONNA
MGM Grand is incorporated in Delaware, while Primadonna is incorporated in
Nevada. The rights of MGM Grand stockholders are governed by the General
Corporation Law of the State of Delaware (the "DGCL") and the Certificate of
Incorporation and the Bylaws of MGM Grand (the "MGM Grand Certificate" and the
"MGM Grand Bylaws," respectively). The rights of Primadonna stockholders are
currently governed by the Nevada Revised Statutes (the "NRS"), the Primadonna
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Certificate of Amended and Restated Articles of Incorporation and the
Primadonna Bylaws (the "Primadonna Certificate" and the "Primadonna Bylaws,"
respectively). Accordingly, upon consummation of the merger, the rights of
Primadonna stockholders who become MGM Grand stockholders in connection with
the merger will be governed by the DGCL, the MGM Grand Certificate and the MGM
Grand Bylaws.
The following are summaries of the material differences between the rights of
MGM Grand stockholders and the rights of Primadonna stockholders. The following
comparison is not intended to be complete and is qualified in its entirety by
reference to the MGM Grand Certificate, the MGM Grand Bylaws, the Primadonna
Certificate and the Primadonna Bylaws. Copies of these documents will be sent
to stockholders of MGM Grand and Primadonna upon request. See "Where You Can
Find More Information."
Authorized Capital
The authorized capital stock of Primadonna consists of 100,000,000 shares of
common stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share. The authorized capital stock of MGM Grand
consists of 75,000,000 shares of common stock, par value $.01 per share.
Board of Directors
Both the DGCL and the NRS provide that a corporation's board of directors shall
consist of at least one member and that the authorized number of directors may
be fixed in either the corporation's certificate of incorporation or in the
bylaws. The Primadonna Certificate and the Primadonna Bylaws provide that the
Primadonna board shall consist of not less than three nor more than ten
directors, as determined by resolution of the Primadonna board from time to
time. The MGM Grand Bylaws provide that the authorized number of directors
constituting the MGM Grand board shall be not less than one nor more than 20
directors, as determined by resolution of the MGM Grand board from time to
time.
The Primadonna Certificate provides that the Primadonna board will be divided
into three classes, and each class will generally serve for a term of three
years. The term of one class of directors expires annually, so it is only
possible to elect one class of the Primadonna board (or approximately one-
third) in any one year. MGM Grand does not have a classified board of
directors. Accordingly, the MGM Grand stockholders elect the entire MGM Grand
board annually.
Removal of Directors; Filling Vacancies on the Board of Directors
Under the NRS, any director may be removed from office upon the vote of
stockholders representing not less than two-thirds of the outstanding voting
stock of the corporation. The Primadonna Certificate and the Primadonna Bylaws
are silent as to removal of directors from the Primadonna board, thus any
director or the entire Primadonna board may be removed, with or without cause,
by the holders of two-thirds of the shares entitled to vote at an election of
directors. Under the DGCL, any director or the entire board of directors
generally may be removed, with or without cause, by the holders of a majority
of the shares entitled to vote at an election of directors. The MGM Grand
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Certificate and the MGM Grand Bylaws are silent as to removal of directors from
the MGM Grand board, thus any director or the entire MGM Grand board may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
Both the NRS and the DGCL generally provide that all vacancies on the board of
directors, including vacancies caused by an increase in the number of
authorized directors, may be filled by a majority of the remaining directors
even if they are less than a quorum. The Primadonna Certificate and the
Primadonna Bylaws provide that any vacancy on the Primadonna board, however
created, may be filled by a majority of the remaining directors even if they
are less than a quorum. The MGM Grand Bylaws provide that all vacancies on the
MGM Grand board may be filled by a majority vote of the stockholders or of the
remaining directors even if they are less than a quorum.
Committees of the Board of Directors
The Primadonna Bylaws provide that the Primadonna board may appoint such
committees as it may designate. The MGM Grand Bylaws provide that the MGM Grand
board may, by resolution, appoint an Executive Committee, an Audit Committee,
and such other committees as the board may designate.
Limitation on Directors' Liability; Indemnification
As permitted under the NRS, the Primadonna Certificate provides that directors
of Primadonna will not be personally liable to Primadonna or its stockholders
for monetary damages for breach of fiduciary duty, although the Primadonna
Certificate does not eliminate the liability of directors for acts or omissions
that involve intentional misconduct, fraud, a knowing violation of law or
payments of dividends in violation of the NRS. As permitted under the DGCL, the
MGM Grand Certificate provides that no director shall be personally liable to
MGM Grand or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability for any breach of the director's duty of
loyalty to MGM Grand or its stockholders, acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of the law,
payments in violation of Section 174 of the DGCL or for any transaction from
which the director derives an improper personal benefit.
The Primadonna Certificate authorizes indemnification of directors and officers
to the fullest extent permitted by the NRS. The NRS is similar to the DGCL
except that it permits more extensive indemnification with respect to
shareholder derivative claims. The MGM Grand Bylaws provide for indemnification
of directors and officers to the fullest extent permitted by the DGCL.
Restrictions on Business Combinations/Corporate Control
The DGCL contains provisions restricting the ability of a corporation to engage
in business combinations with an interested stockholder. Under the DGCL, except
under certain circumstances, a corporation is not permitted to engage in a
business combination with any interested stockholder for a three-year period
following the date such stockholder became an interested stockholder. The DGCL
defines an interested stockholder generally as a person who owns 15% or more of
the outstanding shares of such corporation's voting stock. The DGCL allows a
corporation to exempt itself from the business combination restrictions if,
among other things, the corporation's certificate of incorporation
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<PAGE>
contains an express election to do so. The MGM Grand Certificate provides that
"tender offers for the purchase of equity securities" of MGM Grand shall not be
subject to the provisions of the DGCL restricting business combinations with
interested stockholders.
Certain provisions of the NRS disallow the exercise of voting rights with
respect to "control shares" of an "issuing corporation" held by an "acquiring
person," unless such voting rights are conferred by a majority vote of the
disinterested stockholders or if, within ten days after the acquiring person's
acquisition of the control shares, the articles of incorporation or bylaws of
the issuing corporation state that such provisions of the NRS do not apply to
the issuing corporation. The Primadonna Certificate contains such a statement.
The NRS also contains provisions restricting the ability of a corporation to
engage in any combination with an interested stockholder unless the combination
complies with certain fair price provisions or unless the board of directors of
the corporation approved of the interested stockholder's acquisition of shares.
The NRS defines an interested stockholder generally as a person who owns 10% or
more of the outstanding shares of such corporation's voting stock.
Stockholder Action by Written Consent; Special Meetings
Under the NRS and the DGCL, unless otherwise provided in the certificate of
incorporation, stockholders may take action without a meeting, without prior
notice and without a vote, upon the written consent of stockholders having not
less than the minimum number of votes that would be necessary to authorize the
proposed action at a meeting at which all shares entitled to vote were present
and voted. The Primadonna Certificate provides that any action of the
stockholders must be taken at a duly called meeting of the stockholders, and
expressly prohibits stockholder action by written consent. The MGM Grand Bylaws
provide that any action that may be taken or is required to be taken at any
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, in accordance with the DGCL.
The Primadonna Bylaws provide that special meetings of stockholders may be
called by the Primadonna board, the Chairman of the Board or the President. The
MGM Grand Bylaws provide that special meetings of the stockholders may be
called by the Chairman of the Board, resolution of the MGM Grand board, or by a
request in writing of a majority of the MGM Grand board or the holders of at
least 10% of the outstanding common stock of MGM Grand.
The Primadonna Bylaws provide that stockholder proposals for business to be
conducted, and nominations for directors to be elected, at annual or special
meetings of the stockholders must be brought pursuant to certain advance notice
procedures, including providing certain detailed descriptions of the proposed
business or nomination not less than 30 nor more than 90 days prior to the
meeting. The MGM Grand Bylaws provide that (i) at each annual meeting,
stockholders shall vote upon directors and such other corporate business as may
properly come before the meeting and (ii) no business other than that stated in
the notice of meeting delivered to the stockholders may be conducted at any
special meeting of the stockholders.
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Amendment or Repeal of the Certificate of Incorporation and Bylaws
Under the NRS and the DGCL, unless the certificate of incorporation or bylaws
otherwise provide, amendments to the certificate of incorporation generally
require the approval of the holders of a majority of the outstanding stock
entitled to vote thereon, and if such amendments would increase or decrease the
number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, a majority
of the outstanding stock of such class or series would also have to approve the
amendment. The Primadonna Certificate and Bylaws are silent as to the amendment
or repeal of the certificate of incorporation. The MGM Grand Certificate
provides that MGM Grand reserves the right to amend alter, change or repeal any
provision contained in the MGM Grand Certificate in the manner prescribed by
the DGCL, and all rights conferred upon stockholders in the MGM Grand
Certificate are subject to such reservation.
The Primadonna Certificate and the Primadonna Bylaws provide that the
Primadonna Bylaws may be amended or repealed, and new bylaws adopted, by the
majority vote of the board of directors. The Primadonna Bylaws also provide
that they may be amended by a two-thirds vote of the shares represented and
entitled to vote at any meeting of stockholders, provided that notice of such
purpose of the meeting was duly given. The MGM Grand Certificate and the MGM
Grand Bylaws authorize the board of directors to adopt, amend or repeal the MGM
Grand Bylaws. The MGM Grand Bylaws also provide that they may be amended by a
majority vote of the shares entitled to vote at any meeting of stockholders,
provided that the substance of the amendment was set forth in the notice of
such stockholder meeting.
Cumulative Voting
Under both the NRS and the DGCL, cumulative voting of stock applies only when
so provided in the certificate of incorporation of the corporation. The
Primadonna Certificate expressly denies cumulative voting and the MGM Grand
Certificate does not provide for cumulative voting.
Stockholder Vote for Merger
Except with respect to certain mergers between parent and subsidiary
corporations, both the DGCL and the NRS generally require the affirmative vote
of a majority of the outstanding shares of the constituent corporations in a
merger. Under the DGCL and the NRS, holders of stock that is not by its terms
entitled to vote on such a transaction are entitled to notice of the meeting at
which the proposed transaction is considered. Neither the DGCL nor the NRS
requires a stockholder vote of the surviving corporation in a merger, however,
if (i) the merger agreement does not amend the existing certificate of
incorporation, (ii) each outstanding or treasury share of the surviving
corporation before the merger is unchanged after the merger, and (iii) the
number of shares of common stock to be issued by the surviving corporation
(plus the number thereof initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered in connection
therewith) in the merger, if any, does not exceed 20% of the shares of the
surviving corporation outstanding immediately prior to such issuance.
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Appraisal Rights in Mergers
Both the DGCL and the NRS provide that stockholders have the right, in some
circumstances, to demand payment of the fair cash value of their shares in
connection with certain transactions. Unless a corporation's certificate of
incorporation provides otherwise, the DGCL does not provide for such rights of
appraisal with respect to (i) a sale of assets, (ii) a merger or consolidation
by a corporation, the shares of which are either listed on a national
securities exchange or widely held (by more than 2,000 holders of record), if
stockholders are entitled to receive shares of the surviving corporation or of
such a listed or widely-held corporation, cash instead of fractional shares or
any combination thereof, or (iii) stockholders of a corporation surviving in a
merger if no vote of the stockholders of the surviving corporation is required
to approve the merger. Like the DGCL, the NRS generally does not provide for
appraisal rights if no vote of the stockholders of the surviving corporation is
required. Further, appraisal rights are not available under the NRS for shares
registered on a securities exchange or included in the national market system
by the National Association of Securities Dealers, Inc. on the record date for
the meeting at which the reorganization is considered by the stockholders.
Dividends
Under the DGCL, corporations may pay dividends out of surplus, or if no surplus
exists, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the NRS, corporations may only
pay dividends if after such distribution the corporation would be able to pay
its debts as they become due in the ordinary course of business.
LEGAL OPINIONS
The legality of the MGM Grand common stock to be issued in connection with the
merger will be passed upon for MGM Grand by Christensen, Miller, Fink, Jacobs,
Glaser, Weil and Shapiro, LLP. Terry N. Christensen, a partner of Christensen,
Miller, Fink, Jacobs, Glaser, Weil and Shapiro, LLP, is a director of MGM
Grand, and he and other attorneys in such firm beneficially own an aggregate of
3,044 of the outstanding shares of MGM Grand common stock. Certain legal
matters with respect to the federal income tax consequences of the merger will
be passed upon for MGM Grand by Christensen, Miller, Fink, Jacobs, Glaser, Weil
and Shapiro, LLP.
EXPERTS
The consolidated financial statements and schedules of both MGM Grand, Inc. and
the Primadonna Resorts, Inc. included in this Joint Proxy Statement/Prospectus
and elsewhere in this Registration Statement, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999 Annual Meeting of
Stockholders of MGM Grand must have been received by the Secretary of MGM Grand
no later than November 30, 1998 for inclusion in the proxy materials for such
meeting. (No such proposals have been received.)
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Due to the proposed merger, Primadonna does not currently expect to hold a 1999
Annual Meeting of Stockholders. If the merger is not consummated and such a
meeting is held, to be eligible for inclusion in Primadonna proxy statement and
form of proxy relating to that meeting, proposals of stockholders intended to
be presented at such meeting must be received by Primadonna within ten days
after Primadonna announces publicly the date of the meeting.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Primadonna board knows
of no matters that will be presented for consideration at the Primadonna
special meeting other than as described in this Proxy Statement/Prospectus. If
any other matters shall properly come before the Primadonna special meeting or
any adjournments or postponements thereof and be voted upon, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters except as may be otherwise indicated thereon. The persons
named as proxies intend to vote or not to vote in accordance with the
recommendation of the management of Primadonna.
WHERE YOU CAN FIND MORE INFORMATION
MGM Grand and Primadonna file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that the companies file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. MGM Grand's and Primadonna's public filings are also
available to the public from commercial document retrieval services and at the
Internet World Wide Web site maintained by the SEC at "http://www.sec.gov."
Reports, proxy statements and other information concerning MGM Grand can also
be inspected and copied at the offices of The New York Stock Exchange, Inc. at
20 Broad Street, New York, New York 10005. Reports, proxy statements and other
information concerning Primadonna can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
MGM Grand has filed the Registration Statement to register with the SEC the
shares of MGM Grand common stock to be issued to Primadonna stockholders in
connection with the merger. This Proxy Statement/Prospectus is a part of the
Registration Statement and constitutes a prospectus of MGM Grand and a proxy
statement of Primadonna for the Primadonna special meeting.
As allowed by SEC rules, this Proxy Statement/Prospectus does not contain all
the information that stockholders can find in the Registration Statement or the
exhibits to the Registration Statement.
Certain documents previously filed by MGM Grand with the SEC are attached as
Appendices C-H to this Proxy Statement/Prospectus, and certain documents
previously filed by Primadonna with the SEC are attached as Appendices I-M of
this Proxy Statement/Prospectus.
MGM Grand and Primadonna incorporate by reference additional documents that
either company may file with the SEC between the date of this Proxy
Statement/Prospectus and the date of the
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Primadonna special meeting. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
MGM Grand has supplied all information contained or incorporated by reference
in this Joint Proxy Statement/Prospectus relating to MGM Grand, and Primadonna
has supplied all information relating to Primadonna.
You can obtain any of the SEC filings of MGM Grand or Primadonna from MGM Grand
or Primadonna or the SEC or the SEC's Internet World Wide Web site described
above. Documents that may be incorporated by reference after the date of this
Proxy Statement/Prospectus are available from the companies without charge,
excluding all exhibits unless specifically incorporated by reference as an
exhibit to this Proxy Statement/Prospectus. Stockholders may obtain documents
incorporated by reference in this Proxy Statement/Prospectus by requesting them
in writing or by telephone at the following addresses:
<TABLE>
<S> <C>
MGM Grand: Scott Langsner Primadonna: John L. Shigley
</TABLE>
<TABLE>
<S> <C>
Secretary Chief Financial Officer
MGM Grand, Inc. Primadonna Resorts, Inc.
3799 Las Vegas Blvd. South 31700 Las Vegas Boulevard South
Las Vegas, Nevada 89109 Las Vegas, Nevada 89109
(702) 891-3333 (702) 679-7200
</TABLE>
If you would like to request documents from either company, please do so by
February 16, 1999 to receive them before the Primadonna special meeting. If you
request any incorporated documents from us, we will mail them to you by first
class mail, or other equally prompt means, within one business day of our
receipt of your request.
You should rely only on the information contained or incorporated by reference
in this Proxy Statement/Prospectus to vote your shares at the Primadonna
special meeting. MGM Grand and Primadonna have not authorized anyone to provide
you with information that is different from what is contained in this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus is dated
February 1, 1999. You should not assume that the information contained in the
Proxy Statement/Prospectus is accurate as of any date other than that date, and
neither the mailing of this Proxy Statement/Prospectus to stockholders nor the
issuance of MGM Grand common stock in connection with the merger shall create
any implication to the contrary.
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MGM GRAND, INC.
MGM GRAND ACQUISITION CORP.
AND
PRIMADONNA RESORTS, INC.
December 2, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") entered into as of
December 2, 1998 by and among MGM GRAND, INC., a Delaware corporation
("Buyer"), MGM GRAND ACQUISITION CORP., a Nevada corporation and a wholly owned
subsidiary of Buyer ("Acquisition Corp."), and PRIMADONNA RESORTS, INC., a
Nevada corporation ("Primadonna"). Buyer, Acquisition Corp. and Primadonna are
referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of Acquisition Corp. with and
into Primadonna in a reorganization pursuant to Code (S)(S)368(a)(1)(A) and
368(a)(2)(A). The Primadonna Stockholders will be entitled to receive capital
stock in Buyer in exchange for their capital stock in Primadonna.
Immediately prior to the execution of this Agreement, the respective boards
of directors (or a duly authorized committee thereof) of Buyer, Acquisition
Corp. and Primadonna each approved this Agreement and the Merger.
Concurrently with the execution of this Agreement, (i) the holders of not
less than a majority of all outstanding Primadonna Shares will deliver to Buyer
their agreements in the form of Exhibit A (each such agreement, as amended,
supplemented or otherwise modified from time to time, the "Support Agreement")
to vote their Primadonna Shares in favor of the Merger, on the terms and
subject to the conditions set forth in the Support Agreement, and (ii) Tracinda
Corporation, the owner of not less than a majority of all outstanding Buyer
Shares, will deliver to Primadonna a support agreement in substantially the
form of Exhibit B hereto to vote its Buyer Shares in favor of the adoption of a
stock option plan or the amendment to the Buyer's existing stock option plans
as contemplated by (S)2(d)(viii), on the terms and subject to the conditions
set forth in such support agreement (the "Tracinda Support Agreement").
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affected Employees" means individuals who were employees of Primadonna or
its Subsidiaries immediately prior to the Effective Time and who continue after
the Closing Date to be employees of Buyer, the Surviving Corporation or any of
its Subsidiaries.
"Affiliate" has the meaning specified in Rule 12b-2.
"Articles of Merger" has the meaning set forth in (S)2(c) below.
"Asset Disposition Agreement" has the meaning set forth in (S) 6(a)(xvi)
below.
"Buyer" has the meaning set forth in the preface above.
"Buyer Board" means the board of directors of Buyer.
"Buyer Comfort Letter" has the meaning set forth in (S)5(d) below.
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"Buyer Contract" means each Material Contract determined with respect to
Buyer.
"Buyer-owned Share" means any Primadonna Share that Buyer owns beneficially.
"Buyer Public Reports" has the meaning set forth in (S) 4(e) below.
"Buyer Share" means any share of the Common Stock, $.01 par value per share,
of Buyer.
"Closing" has the meaning set forth in (S)2(b) below.
"Closing Date" has the meaning set forth in (S)2(b) below.
"Code" has the meaning specified in (S)3(j).
"Confidentiality Agreement" means the Confidentiality Agreement, dated as of
September 15, 1998 between Buyer and Primadonna, as amended, supplemented or
otherwise modified from time to time.
"Confidential Information" has the meaning specified in the Confidentiality
Agreement.
"Conversion Ratio" has the meaning set forth in (S)2(d)(v) below.
"Disclosure Schedule" has the meaning set forth in (S)3 below.
"Effective Time" has the meaning set forth in (S)2(d)(i) below.
"Environmental Laws" means all applicable federal, state and local laws,
rules and regulations relating to pollution, the environment (including ambient
air, surface water, groundwater, land surface or subsurface strata), natural
resources or protection of human health as it relates to the environment
including laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
"ERISA" has the meaning specified in (S)3(m).
"ERISA Affiliate" has the meaning specified in (S)3(m)(i).
"Exchange Agent" has the meaning set forth in (S)2(e) below.
"Executive Officer" has the meaning specified in the Securities Exchange Act
and the regulations promulgated thereunder.
"Family Member" means, with respect to any Person who is an individual, any
family member of such Person (including parents, children, grandchildren,
spouses, first cousins, nephews, nieces and siblings).
"Family Member Affiliate" means, with respect to any Person, (i) Affiliates
of such Person, (ii) Family Members of such Affiliates, and (iii) Affiliates of
such Family Members.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
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"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Hazardous Materials" means (A) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls ("PCBs"); (B) any
chemicals, materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes, "
"toxic substances," "toxic pollutants," or words of similar import under any
Environmental Law and (C) with respect to any Person, any other chemical,
material, substance or waste, exposure to which is now prohibited, limited or
regulated under any Environmental Law in a jurisdiction in which such Person or
any of its Subsidiaries operates.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge of any Executive Officer of Buyer or
Primadonna, as applicable.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, assets, liabilities, financial condition or
results of operations of such Person and its Subsidiaries taken as a whole, or
a material adverse effect on the ability of such Person to perform its
obligations hereunder; provided, however, that none of the following,
individually or in the aggregate, will be deemed to have a Material Adverse
Effect on Buyer or Primadonna, as the case may be: fluctuations in the market
price of Buyer Shares or the Primadonna Shares; passage of California
Proposition No. 5 (the Indian Gaming Initiative); or any change or effect
arising out of general economic conditions or conditions generally affecting
the gaming industry or Las Vegas; and further provided, for purposes of
(S)(S)3(p) and (k) of this Agreement, a Material Adverse Effect on Primadonna
includes a material risk that any fact or circumstance which is disclosed in
(S)(S)3(p) or (k) of the Primadonna Disclosure Schedule or any inaccuracy in
the representations and warranties contained in (S)(S)3(p) or (k) of this
Agreement is likely to result in either of the following: (i) aggregate
liability, loss and/or cost incurred by Primadonna and its Subsidiaries, net of
applicable insurance and recoveries from third parties, in excess of a present
value of $2,000,000 in the aggregate (using a discount rate of 10% for such
computation) for remediation activities, it being understood that normal
maintenance or monitoring in the Ordinary Course of Business shall not be
considered to be a remediation activity; or (ii) a reduction in the volume or
quality of water which may be drawn or used in the exercise of any of the Water
Rights, which reduction may reasonably be expected to have a Material Adverse
Effect on the ability of Primadonna or any of its Subsidiaries to operate any
material facility or real property owned or leased by any of them, including
their ability to expand their existing hotel/casino operations in Primm,
Nevada.
"Material Contract" means, with respect to any Person, all of the following:
(A) each agreement pursuant to which such Person or any of its
Subsidiaries is entitled to receive amounts in excess of $50,000 (or, if
such Person shall be Buyer, $500,000) or the fair market equivalent thereof
in goods or services on an annual or annualized basis; each agreement
pursuant to which such Person or any of its Subsidiaries is obligated to
pay an amount in excess
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of $50,000 (or, if such Person shall be Buyer, $500,000) or the fair market
equivalent thereof in goods or services on an annual or annualized basis;
and each agreement, the term of which cannot be canceled by such Person or
any of its Subsidiaries without penalty on ninety (90) days or less notice,
and pursuant to which such Person or any of its Subsidiaries is entitled to
receive (in cash, services or property) or will be obligated to pay, during
the unexpired term thereof, an amount in excess of $150,000 (or, if such
Person shall be Buyer, $1,500,000) or the fair market equivalent thereof in
goods or services;
(B) each partnership or joint venture agreement to which such Person or
any of its Subsidiaries is a party other than agreements respecting New
York-New York Hotel & Casino, LLC solely among (i) Primadonna and any of
its Subsidiaries and (ii) Buyer and any of its Subsidiaries;
(C) each agreement to which such Person or any of its Subsidiaries is a
party limiting the right of such Person, any of its Subsidiaries or any
other person to engage in or compete with any person in any business or
geographical area;
(D) each agreement or other arrangement of or involving such Person or
any of its Subsidiaries with respect to indebtedness for money borrowed,
including letters of credit, guaranties, indentures, swaps, off balance
sheet items and similar agreements;
(E) each management, consulting, employment, severance or similar
agreement requiring the payment of compensation in excess of $50,000 (or,
if such Person shall be Buyer, $250,000) annually, to which such Person or
any of its Subsidiaries is a party and which may not be terminated by such
Person or such Subsidiary without penalty on 90 days (or less) notice; and,
in the case where such Person is Primadonna, each agreement providing for
any "golden parachute" or providing for payments upon or following any
change of control of such Person or any Subsidiary thereof;
(F) each collective bargaining agreement to which such Person or any of
its Subsidiaries is a party;
(G) in the case where such Person is Primadonna, all agreements relating
to the Fashion Outlet of Las Vegas, CompuSport or Amtrack;
(H) each agreement to which such Person or any of its Subsidiaries is a
party with any Family Member Affiliate of such Person other than any (i)
employment agreement described under clause (E) of this definition above,
(ii) employment agreement requiring the payment of compensation not in
excess of $50,000 (or, if such Person shall be Buyer, $250,000), annually,
and (iii) agreement between such Person and any Subsidiary thereof and New
York-New York Hotel & Casino, LLC; and
(I) each stockholder agreement, voting trust agreement, share purchase
agreement, registration rights agreement or other similar agreement
granting rights to one or more stockholders of such Person, restricting the
voting or transferability of the capital stock of such Person or otherwise
pertaining to the capital stock of such Person or any interest (economic or
voting) therein, in each case to which such Person or any of its
Subsidiaries is a party or of which such Person has Knowledge.
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<PAGE>
"Material Lease" means, (i) with respect to Primadonna, any lease or sublease
or other occupancy or possession agreement with respect to real property to
which Primadonna or any of its Subsidiaries is a party which is material to the
business of Primadonna on a consolidated basis, including any such lease or
sublease or other agreement (A) which requires Primadonna or any of its
Subsidiaries to pay an amount or amounts in excess of $50,000 on an annual or
annualized basis; (B) which may not be canceled by Primadonna or any of its
Subsidiaries without penalty on ninety (90) days or less notice and which
requires Primadonna or any of its Subsidiaries to pay, during the unexpired
term, an amount in excess of $50,000; or (C) to which any Family Member
Affiliate of Primadonna is a party, and, (ii) with respect to Buyer, any lease
or sublease or other occupancy or possession agreement with respect to real
property to which Buyer or any of its Subsidiaries is a party which is material
to the business of Buyer on a consolidated basis, including any such lease or
sublease or other agreement (A) which requires Buyer or any of its Subsidiaries
to pay an amount or amounts in excess of $500,000 on an annual or annualized
basis; (B) which may not be canceled by Buyer or any of its Subsidiaries
without penalty on ninety (90) days or less notice and which requires Buyer or
any of its Subsidiaries to pay, during the unexpired term, an amount in excess
of $500,000; or (C) to which any Family Member Affiliate of Buyer is a party.
"Merger" has the meaning set forth in (S)2(a) below.
"NRS" has the meaning set forth in (S)2(a) below.
"NYSE" means the New York Stock Exchange.
"Ordinary Course of Business" means, with respect to any Person, the ordinary
course of business of such Person consistent with past custom and practice
(including with respect to quantity and frequency) of such Person.
"Party" has the meaning set forth in the preface above.
"Pension Plan" means any "employee pension benefit plan," as defined in
Section 3(2) of ERISA.
"Person" means an individual, a partnership, a corporation, an association,
limited liability company, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental or other entity (or any
department, agency, or political subdivision thereof).
"Primadonna" has the meaning set forth in the preface above.
"Primadonna Board" means the board of directors of Primadonna.
"Primadonna Comfort Letter" has the meaning set forth in (S)5(d) below.
"Primadonna Contract" means each Material Contract determined with respect to
Primadonna.
"Primadonna Public Reports" has the meaning set forth in (S)3(e) below.
"Primadonna Share" means any share of the Common Stock, $.01 par value per
share, of Primadonna.
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"Primadonna Stockholder" means any Person who or which holds any Primadonna
Shares.
"Proxy Statement" means the proxy statement relating to the Special
Primadonna Meeting.
"Registration Statement" means the registration statement to be filed by
Buyer with the SEC covering the Buyer Shares to be issued to Primadonna
Stockholders hereunder as consideration for outstanding Primadonna Shares in
connection with the Merger.
"Release" means any release, spill, emission, leaking, injection, deposit,
disposal, discharge, dispersal, leaching or migration into the atmosphere,
soil, surface water, groundwater or property.
"Requisite Primadonna Stockholder Approval" means the affirmative vote in
favor of this Agreement and the Merger of the holders of a majority of the
outstanding Primadonna Shares entitled to vote at the Special Primadonna
Meeting.
"Rule 12b-2" means Rule 12b-2 of the regulations promulgated under the
Securities Exchange Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" or "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Security Interest" means any leasehold, mortgage, pledge, lien, charge or
any security interest or similar encumbrance, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and payable
or for taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, (d) other liens arising in the Ordinary Course of
Business and not incurred in connection with the borrowing of money, (e) liens
and security interests created and perfected prior to the date hereof securing
Primadonna's obligations under the Wells Fargo Credit Agreement and (f) any
landlord liens arising under applicable laws.
"Special Primadonna Meeting" has the meaning set forth in (S)5(c)(ii) below.
"Subsidiary" means, with respect to any specified Person (the "Parent"), any
other Person of which more than 50% of the total voting power of shares of
capital stock or other equity interests entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers,
trustees or other governing body thereof is at the time owned or controlled,
directly or indirectly, by such Parent and/or one or more of the other
Subsidiaries of such Parent.
"Surviving Corporation" has the meaning set forth in (S)2(a) below.
"Water Rights" has the meaning set forth in (S)3(k)(iii) below.
"Welfare Plan" shall mean any "employee welfare benefit plan", as defined in
Section 3(1) of ERISA, under which Primadonna or any ERISA Affiliate thereof
may incur any liability.
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"Wells Fargo Credit Agreement" means the 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", as amended prior to the date
of this Agreement.
2. Basic Transaction.
(a) The Merger. Upon the terms and subject to the provisions of this
Agreement and in accordance with Chapter 92A of the Nevada Revised Statutes
(the "NRS"), at the Effective Time (as defined below), Acquisition Corp. shall
be merged with and into Primadonna (the "Merger"). As a result of the Merger,
the separate corporate existence of Acquisition Corp. shall cease and
Primadonna shall continue as the surviving corporation (the "Surviving
Corporation") and as a wholly-owned Subsidiary of Buyer.
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Christensen,
Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP in Los Angeles, California,
commencing at 9:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other place and date as the Parties may mutually determine (the "Closing
Date").
(c) Actions at the Closing. At the Closing, (i) Primadonna will deliver to
Buyer the various certificates, instruments, and documents referred to in
(S)6(a) below, (ii) Buyer will deliver to Primadonna the various certificates,
instruments, and documents referred to in (S)6(b) below, (iii) Buyer and
Primadonna will file with the Secretary of State of the State of Nevada
Articles of Merger in the form attached hereto as Exhibit C (the "Articles of
Merger"), and (iv) Buyer will deliver to the Exchange Agent, in the manner
provided below in this (S)2, the certificate evidencing Buyer Shares to be
issued in connection with the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") Buyer and Primadonna file the Articles of Merger with the
Secretary of State of the State of Nevada, or at such later date and time
as is specified therein and agreed to by the Parties. The Merger shall have
the effect set forth in the NRS. The Surviving Corporation may, at any time
after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either Acquisition
Corp. or Primadonna in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Articles of Incorporation. The Articles of Incorporation of
Primadonna in effect at and as of the Effective Time will become the
Articles of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of Acquisition Corp. in effect at and as of the
Effective Time will become the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
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(iv) Directors and Officers. The directors and officers of Acquisition
Corp. in office at and as of the Effective Time will become the directors
and officers of the Surviving Corporation (retaining their respective
positions and terms of office).
(v) Conversion of Primadonna Shares. At and as of the Effective Time, (A)
subject to (S)2(d)(vi) below, each Primadonna Share (other than any
treasury share or any Buyer-owned Share) shall be converted into the right
to receive .33 Buyer Shares (the ratio of .33 Buyer Shares to one
Primadonna Share is referred to herein as the "Conversion Ratio"), and (B)
each treasury share and each Buyer-owned Share shall be canceled and no
payment shall be made with respect thereto; provided, however, that the
Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, reclassification, stock dividend or reverse stock split
affecting Primadonna Shares or Buyer Shares. No Primadonna Share shall be
deemed to be outstanding or to have any rights other than those set forth
above in this (S)2(d)(v) after the Effective Time.
(vi) No Fractional Buyer Shares. Notwithstanding (S)2(d)(v) above, no
fractional Buyer Shares shall be issued in connection with the Merger, but
in lieu thereof each holder of Primadonna Shares otherwise entitled to a
fractional Buyer Share shall be entitled to receive, from the Exchange
Agent a cash payment in lieu of such fractional Buyer Share representing
the value of such fraction, which for this purpose shall be calculated by
multiplying such fraction by the average per share closing trade price of
Buyer Shares as quoted on the NYSE for the ten (10) trading days
immediately preceding the date which is three (3) NYSE trading days prior
to the Closing Date. The Parties acknowledge that payment of the cash
consideration in lieu of issuing fractional Buyer Shares merely represents
a mechanical rounding-off for the purpose of avoiding the expense and
inconvenience to Buyer of issuing fractional shares and does not represent
separately bargained for consideration.
(vii) Acquisition Corp. Shares. Each share of Acquisition Corp. common
stock issued and outstanding at and as of the Effective Time shall be
converted into one share of the common stock of the Surviving Corporation.
(viii) Primadonna Options. Effective at the Effective Time, each
unexpired and unexercised outstanding option, whether or not then vested or
exercisable in accordance with its terms, to purchase Primadonna Shares
(the "Primadonna Options") previously granted by Primadonna or its
Subsidiaries, shall be converted into an option to acquire the number of
Buyer Shares (a "Substitute Option"), rounded down to the nearest whole
share, determined by multiplying (1) the number of Primadonna Shares
subject to such Primadonna Option immediately prior to the Effective Time
by (2) the Conversion Ratio. The exercise price per each Buyer Share
subject to each Substitute Option shall be equal to the exercise price per
each Primadonna Share subject to the relevant Primadonna Option divided by
the Conversion Ratio and then rounded up to the nearest whole cent. After
the Effective Time, each Substitute Option shall be exercisable upon the
same terms and conditions as were applicable to the related Primadonna
Option immediately prior to the Effective Time (including those terms (if
any) which may have caused such Primadonna Option/Substitute Option to
become exercisable in full in connection with the consummation of the
transactions contemplated by this Agreement). Prior to the Effective Time,
the Buyer Board shall adopt, and the Buyer's stockholders shall approve, a
stock option plan, or cause Buyer's existing stock option plans to be
appropriately amended,
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to permit the creation of the Substitute Options thereunder on the terms
required hereby. As soon as practicable after the Effective Time, Buyer
shall amend its existing registration statement on Form S-8, or file a new
registration statement on Form S-8, to cover such Substitute Options and
deliver to the holders of the Substitute Options appropriate notice setting
forth such holders' rights pursuant thereto.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, Buyer will furnish to a bank or
trust company designated by Buyer and reasonably acceptable to Primadonna
(the "Exchange Agent") for the benefit of the Primadonna Stockholders at
the Effective Time, a stock certificate (issued in the name of the Exchange
Agent or its nominee) representing that number of Buyer Shares issuable in
connection with the Merger pursuant to (S)2(d)(v) hereof, and any cash to
be paid in lieu of fractional Buyer Shares pursuant to (S)2(d)(vi) hereof.
As soon as reasonably practicable after the Effective Time, Buyer will
cause the Exchange Agent to mail a letter of transmittal (with instructions
for its use), in a form reasonably determined by Buyer, to each record
holder of outstanding Primadonna Shares as of the Effective Time for such
holder to use in surrendering the certificates which formerly represented
such holder's Primadonna Shares in exchange for a certificate representing
the number of Buyer Shares to which such holder is entitled. Upon surrender
of a certificate formerly representing Primadonna Shares for cancellation
to the Exchange Agent together with such letter of transmittal duly
completed and executed, the holder of such certificate shall be entitled to
receive in exchange therefor a certificate representing that number of
whole Buyer Shares and, if applicable, a check representing the cash
consideration in lieu of any fractional Buyer Share, to which such holder
may be entitled pursuant to (S)2(d)(vi) and any cash payable pursuant to
(S)2(e)(ii) hereof, and the certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Primadonna Shares
which is not registered in the transfer records of Primadonna, a
certificate representing the proper number of Buyer Shares may be issued to
a transferee if the certificate formerly representing such Primadonna
Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid or are not applicable. Until
surrendered as contemplated by this (S)2(e), each certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing Buyer Shares and
cash in lieu of any fractional Buyer Shares as contemplated by this
(S)2(e)(i).
(ii) Buyer will not pay any dividend or make any distribution on Buyer
Shares (with a record date at or after the Effective Time) to any record
holder of outstanding Primadonna Shares as of the Effective Time until the
holder surrenders for exchange such holder's certificates which formerly
represented Primadonna Shares. Buyer instead will pay the dividend or make
the distribution to the Exchange Agent in trust for the benefit of the
holder pending surrender and exchange. Subject to the effect of applicable
laws, following surrender of any such certificate, there shall be paid to
the record holder of the certificates representing whole Buyer Shares
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of fractional Buyer
Shares to which such holder is entitled pursuant to (S) 2(d)(vi) and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole Buyer Shares,
and (ii) at the
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appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole
Buyer Shares. Buyer may cause the Exchange Agent to invest any cash the
Exchange Agent receives from Buyer as a dividend or distribution in
obligations of the United States government or other investment grade debt
instruments; provided, however, that the terms and conditions of the
investments shall be such as to permit the Exchange Agent to make prompt
payments of cash to the former holders of outstanding Primadonna Shares as
necessary. Buyer may cause the Exchange Agent to pay over to Buyer any net
earnings with respect to the investments, and Buyer will replace promptly
any cash which the Exchange Agent loses through investments. In no event,
however, will any former holder of outstanding Primadonna Shares be
entitled to any interest or earnings on the dividend or distribution
pending receipt.
(iii) Buyer may cause the Exchange Agent to return any Buyer Shares, cash
in lieu of fractional Buyer Shares, if any, and dividends and distributions
thereon remaining unclaimed one hundred eighty (180) days after the
Effective Time, and thereafter each remaining former record holder of
outstanding Primadonna Shares shall be entitled to look to Buyer (subject
to abandoned property, escheat, and other similar laws) as a general
creditor thereof with respect to Buyer Shares and cash and dividends and
distributions thereon to which such former holder is entitled upon
surrender of such holder's certificates.
(iv) Buyer shall pay all charges and expenses of the Exchange Agent.
(f) Lost Primadonna Certificates. In the event that any certificate
representing any Primadonna Shares outstanding as of the Effective Time shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
therefor, upon the making of an affidavit of that fact by the holder thereof,
such Buyer Shares and cash in lieu of fractional Buyer Shares, if any, as may
be required pursuant to this Agreement; provided, however, that Buyer may, at
its discretion, require the delivery of a suitable bond or indemnity.
(g) Closing of Transfer Records; Voting. After the close of business on the
Closing Date, transfers of Primadonna Shares outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving
Corporation. In determining Buyer's stockholders entitled to notice of and to
vote at meetings of Buyer's stockholders after the Effective Time, former
stockholders of record of Primadonna shall not be deemed stockholders of record
of Buyer until such holders have delivered their certificates, if any, formerly
representing Primadonna Shares to the Exchange Agent pursuant to this
Agreement.
3. Representations and Warranties of Primadonna. Primadonna represents and
warrants to Buyer that the statements contained in this (S)3 are correct and
complete as of the date of this Agreement, except as set forth in the
disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this (S)3.
(a) Organization, Qualification, and Corporate Power. Each Subsidiary of
Primadonna is listed in the Primadonna Public Reports or in (S)3(a) of the
Disclosure Schedule. Primadonna and each of its Subsidiaries is a corporation
duly organized, validly existing, and in good standing under the
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laws of the jurisdiction of its incorporation. Each of Primadonna and its
Subsidiaries is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required,
except where the lack of such qualification would not have a Material Adverse
Effect on Primadonna. Each of Primadonna and its Subsidiaries has full
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. Except as identified in
(S)3(a) of the Disclosure Schedule or in the Primadonna Public Reports, neither
Primadonna nor any of its Subsidiaries owns, directly or indirectly, any
interest in any Person.
(b) Capitalization. (i) As of the date of this Agreement, the entire
authorized capital stock of Primadonna is as follows:
<TABLE>
<CAPTION>
Issued and
Authorized Outstanding
Number of (excluding
Class of Stock Shares treasury shares)
-------------- ----------- ----------------
<S> <C> <C>
Preferred stock, $.01 par value............... 10,000,000 0
Primadonna Shares Common Stock, $.01 par
value........................................ 100,000,000 28,819,100
</TABLE>
(ii) As of the date of this Agreement, 2,114,500 Primadonna Shares are
held in treasury. All of the issued and outstanding Primadonna Shares, and
all capital stock of each of Primadonna's Subsidiaries, have been duly
authorized and are validly issued, fully paid, and nonassessable. There are
no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts
or commitments that could require Primadonna or any of its Subsidiaries to
issue, sell, or otherwise cause to become outstanding any of its capital
stock except for 2,155,700 options outstanding under Primadonna's 1993
Stock Incentive Plan and 96,500 options outstanding under Primadonna's 1993
Eligible Directors Stock Plan. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to Primadonna or any of its Subsidiaries except as reported in the
Primadonna Public Reports.
(iii) Since September 30, 1998, neither Primadonna nor any of its
Subsidiaries has repriced any Primadonna Options except that Primadonna has
repriced existing Primadonna Options held by current Primadonna employees
who were not members of the Primadonna Board to an exercise price of not
less than $6.94 per Primadonna Option.
(c) Authorization of Transaction. Primadonna has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder; provided, however, that Primadonna cannot consummate the Merger
unless and until it receives the Requisite Primadonna Stockholder Approval.
This Agreement constitutes the valid and legally binding obligation of
Primadonna, enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor, subject to the matters discussed in the next sentence, the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which any of Primadonna and its Subsidiaries is subject or any
provision of the articles of incorporation or bylaws of any of Primadonna and
its Subsidiaries or (ii) conflict with, result in a breach of, constitute a
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default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of Primadonna and its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), other than those which would not individually
or in the aggregate have a Material Adverse Effect on Primadonna. Other than in
connection with the provisions of the Hart-Scott-Rodino Act, the NRS, the
Securities Exchange Act, the Securities Act, state securities laws, the rules
and regulations of the Nevada Gaming Commission (the "Nevada Commission"), the
Nevada State Gaming Control Board (the "Nevada Board"), the Clark County Liquor
and Gaming Licensing Board (the "CCLGLB") and the filing of the Articles of
Merger, as required by the NRS, none of Primadonna or any of its Subsidiaries
needs to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for
Primadonna to consummate the transactions contemplated by this Agreement. No
consent of the holders of the Primadonna Options is required in connection with
conversion thereof as contemplated by this Agreement.
(e) Filings with the SEC. Primadonna has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Primadonna Public Reports") since January 1,
1995. Each of the Primadonna Public Reports, as of its respective date, has
complied with the Securities Act and the Securities Exchange Act in all
material respects. None of the Primadonna Public Reports, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Primadonna has delivered to Buyer a correct and complete copy of
each Primadonna Public Report (together with all exhibits and schedules thereto
and as amended to date).
(f) Financial Statements. The financial statements included in or
incorporated by reference into the Primadonna Public Reports (including the
related notes and schedules) (the "Primadonna Financial Statements") have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC, and fairly present in all material respects the financial
condition of Primadonna and its Subsidiaries as of the indicated dates and the
results of operations of Primadonna and its Subsidiaries for the indicated
periods; provided, however, that the interim statements are subject to normal
year-end adjustments.
(g) Events Subsequent to September 30, 1998. Since September 30, 1998, no
event has occurred which has caused or constitutes a Material Adverse Effect on
Primadonna.
(h) Undisclosed Liabilities. Except for (i) liabilities disclosed in the
Primadonna Public Reports, and (ii) liabilities which have arisen after
September 30, 1998 in the Ordinary Course of Business (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law), to Primadonna's Knowledge, none of Primadonna or any of its Subsidiaries
has any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due), including any
Liability for Taxes, which, individually or in the aggregate, would have a
Material Adverse Effect on Primadonna.
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<PAGE>
(i) Brokers' Fees. None of Primadonna and its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement, except for
fees payable to Morgan Stanley & Co. Incorporated, Primadonna's financial
advisor, in accordance with the retainer letter dated December 10, 1997, a copy
of which Primadonna has delivered to Buyer.
(j) Tax and Accounting Matters.
(i) For purposes of this (S)3(j), (A) the term "Taxes" shall include all
federal, state, county, local or foreign taxes, charges, levies, imposts or
other assessments of any nature whatsoever, including corporate income tax,
corporate franchise tax, payroll tax, sales tax, use tax, property tax,
excise tax, withholding tax, and environmental tax, together with any
interest thereon and any penalties or additions to tax relating thereto
imposed by any governmental taxing authority for which Primadonna or any
other member of the Primadonna Group (as defined below) may be directly or
contingently liable in its own right, as collection agent for taxes imposed
on another person, as a result of any guaranty or election, or as a
transferee of the assets of, or as successor to, any person, or pursuant to
any applicable law; (B) the term "Primadonna Group" shall mean, each member
of the affiliated group (within the meaning of Section 1504 of the Code) of
which Primadonna is the common parent; (C) the term "Returns" shall mean
all returns, reports, estimates, declarations of estimated tax, information
statements and other filings relating to, or required to be filed in
connection with, any Taxes, including, without limitation, information
returns or reports with respect to backup or employee withholding and other
payments to third parties; and (D) for purposes of this Agreement, the term
"Code" shall mean the Internal Revenue Code of 1986, as amended.
(ii) (A) All Federal and other Returns required to be filed by or on
behalf of any member of the Primadonna Group have been duly filed on a
timely basis and all such Returns are true, correct and complete in all
material respects; (B) all Taxes that have been shown as due and payable on
the Returns that have been filed by or on behalf of each member of the
Primadonna Group have been timely paid, and no other material Taxes are
payable by any member of the Primadonna Group with respect to items or
periods covered by such Returns (whether or not shown on or reportable on
such Returns); (C) the amounts set forth as provisions for current and
deferred taxes and/or accrued liabilities in the Primadonna Financial
Statements reflect an adequate reserve in accordance with GAAP for the
payment of all unpaid Taxes accrued for or applicable to all periods ended
on the respective dates of the Primadonna Financial Statements and all
years and periods prior thereto; (D) no member of the Primadonna Group is
delinquent in the payment of any material Taxes or has requested any
extension of time within which to file any Return, which Return has not
since been filed, accompanied by payment of all Taxes shown as due and
payable thereon; (E) there is no dispute or claim concerning any Tax
liability of any member of the Primadonna Group either (x) claimed or
raised by any governmental taxing authority in writing or (y) as to which
any director or officer of any member of the Primadonna Group (or employees
responsible for Taxes of any such member of the Primadonna Group) has
knowledge based upon personal contact with any agent of such authority,
other than those Taxes, identified in (S)3(j) of the Disclosure Schedule,
being contested in good faith by appropriate proceedings; (F) no member of
the Primadonna Group has waived any statute of limitations in respect of
Taxes or granted any extension of the limitations period applicable to
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any claim for Taxes; (G) except for other members of the Primadonna Group,
Primadonna is not liable for the Taxes of any Person, including, without
limitation, as a result of the application of United States Treasury
Regulation (S)1.1502-6, any analogous provision of state, local or foreign
law (including, without limitation, principles of unitary taxation), or as
a result of any contractual arrangement, whether with any third party or
with any taxing authority; (H) Primadonna is not nor has it ever been a
party to any tax sharing agreement with any corporation or limited
liability company which is not currently a member of the Primadonna Group;
(I) no claim has ever been made by any governmental taxing authority in any
jurisdiction where any member of the Primadonna Group does not file Returns
that it is or may be subject to taxation by such jurisdiction; (J) there
are no material liens on any of the assets of any member of the Primadonna
Group that arose in connection with any failure (or alleged failure) to pay
any Taxes; (K) each member of the Primadonna Group has withheld and paid
over all Taxes required to have been withheld and paid over and complied in
all material respects with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party; (L)
(S)3(j) of the Disclosure Schedule lists all Returns (relating to any type
of Tax and to any taxable period) filed with respect to the Primadonna
Group (i) for all taxable periods for which the applicable statute of
limitations for the assessment of tax has not yet expired or (ii) that have
been audited, and indicates those Returns that currently are the subject of
audit; (M) Primadonna has delivered to Buyer correct and complete copies of
all federal, state, local and foreign income and franchise Returns
described in clause (L) above which have been requested by Buyer, and has
provided representatives of Buyer access to all Returns filed with respect
to the Primadonna Group for all other taxable periods; (N) Primadonna has
delivered to Buyer all examination reports and statements of deficiency
assessed against or agreed to by each member of the Primadonna Group since
January 1, 1995; (O) Primadonna is not and has never been a "United States
real property holding corporation" within the meaning of Section 897(c) of
the Code; (P) no member of the Primadonna Group is a "consenting
corporation" under Section 341(f) of the Code; (Q) no member of the
Primadonna Group has entered into any compensatory agreement with respect
to the performance of services as to which payment or vesting thereunder
(including payment or vesting as a result of the transactions contemplated
hereunder) would result in a nondeductible expense to the Primadonna Group
pursuant to Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code; (R) Primadonna has not
agreed, nor is it required, to make any adjustment under Section 481(a) of
the Code by reason of a change in accounting method or otherwise that would
require the recognition of income pursuant to such adjustment in any post-
closing period; and (S) any past due property taxes for which Primadonna or
any Subsidiary of Primadonna is liable do not exceed $100,000.
(k) Properties. (i) Except as disclosed or reserved against in the Primadonna
Financial Statements and except for circumstances that would not, individually
or in the aggregate, have a Material Adverse Effect on Primadonna, Primadonna
and each Subsidiary thereof has good title to all of the material personal
property and assets, tangible or intangible, reflected in the Primadonna
Financial Statements as being owned by Primadonna and its Subsidiaries as of
the dates thereof, free and clear of all Security Interests. (S)3(k)(i) of the
Disclosure Schedule lists all real property that any
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<PAGE>
of Primadonna and its Subsidiaries owns. With respect to each such parcel of
owned real property, except as set forth in (S)3(k)(i) of the Disclosure
Schedule:
(A) there are no pending or, to the Knowledge of Primadonna,
threatened condemnation proceedings, lawsuits, or administrative
actions relating to the property or other matters affecting materially
and adversely the current use, occupancy, or value thereof;
(B) to the Knowledge of Primadonna, no building or improvement owned
or leased by Primadonna or any of its Subsidiaries is in violation of
applicable setback requirements, zoning laws, and ordinances (and none
of the properties or buildings or improvements thereon are subject to
"permitted non-conforming use" or "permitted non-conforming structure"
classifications);
(C) all facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations,
except where failure to obtain such approvals or so operate and
maintain such facilities would not individually or in the aggregate
have a Material Adverse Effect on Primadonna;
(D) there are no leases, subleases, licenses, concessions, or other
agreements, written or oral, granting to any party or parties the right
of use or occupancy of any portion of the parcel of real property other
than hotel guests and invitees (solely in their capacities as such),
tenants, subtenants and concessionaires under any leases or other
occupancy agreements disclosed in (S)3(k)(i) of the Disclosure Schedule
who are in possession of space to which they are entitled, except where
such leases, subleases, licenses, concessions, or other agreements
would not individually or in the aggregate have a Material Adverse
Effect on Primadonna;
(E) there are no outstanding options or rights of first refusal to
purchase the parcel of real property, or any portion thereof or
interest therein; and
(F) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the current
operation of such facilities, including gas, electricity, water,
telephone, sanitary sewer, and storm sewer, all of which services are
currently adequate in accordance with all applicable laws, ordinances,
rules, and regulations.
(ii) All Material Leases are valid instruments enforceable in accordance
with their respective terms. All Material Leases were entered into in the
Ordinary Course of Business. (S)3(k)(ii) of the Disclosure Schedule lists
all Material Leases of Primadonna and its Subsidiaries. With respect to
each Material Lease, except as set forth in (S)3(k)(ii) of the Disclosure
Schedule:
(A) each Material Lease is legal, valid, binding, enforceable, and in
full force and effect with respect to Primadonna and any of its
Subsidiaries that is a party thereto and, to the Knowledge of
Primadonna, with respect to each other party thereto;
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(B) each Material Lease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby with respect
to Primadonna and any of its Subsidiaries that is a party thereto and,
to the Knowledge of Primadonna, with respect to each other party
thereto;
(C) neither Primadonna nor any Subsidiary thereof is in breach or
default of any Material Lease, and no event has occurred which, with
notice or lapse of time, would constitute a material breach or default
or permit termination, modification, or acceleration under any thereof;
and, to the Knowledge of Primadonna, no other party to any Material
Lease is in material breach or default thereunder, and no event has
occurred which, with notice or lapse of time, would, with respect to
such party, constitute a material breach or default or permit
termination, modification, or acceleration under any thereof; except in
each case where such breaches, defaults, termination, modification or
acceleration would not, individually or in the aggregate have a
Material Adverse Effect on Primadonna;
(D) neither Primadonna nor any Subsidiary thereof has repudiated any
provision of any Material Lease to which it is a party, and, to the
Knowledge of Primadonna, no other party to any such Material Lease has
repudiated any provision thereof;
(E) to Primadonna's knowledge, there are no disputes, oral
agreements, or forbearance programs in effect as to any Material Lease;
(F) with respect to each Material Lease which is a sublease, the
representations and warranties set forth in subsections (A) through (E)
above are true and correct with respect to the underlying lease;
(G) none of Primadonna and its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold under any Material Lease;
(H) to Primadonna's Knowledge, all facilities leased or subleased
under any Material Lease have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the current operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations,
except where failure to obtain such approvals or operate or maintain
such facilities would not individually or in the aggregate have a
Material Adverse Effect on Primadonna; and
(I) all facilities leased or subleased under each Material Lease are
supplied with utilities and other services necessary for the current
operation of said facilities, except where failure to be supplied with
such utilities and other services would not individually or in the
aggregate have a Material Adverse Effect on Primadonna.
(iii) (S)3(k)(iii) of the Disclosure Schedule lists all water rights held
by any of Primadonna and its Subsidiaries ("Water Rights"), including
rights under any State of Nevada water appropriation certificates and/or
permits held by any of Primadonna and its Subsidiaries, and, to
Primadonna's Knowledge, with respect to any parcel of real property leased
under a Material Lease, the lessor. With respect to each such right listed
in (S)3(k)(iii) of the Disclosure Schedule, except as set forth in
(S)3(k)(iii) of the Disclosure Schedule:
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(A) all of the Water Rights are legal, valid, binding and
enforceable, and any certificates, permits and approvals pertaining to
any thereof have been duly obtained from all appropriate Governmental
Authorities and are in full force and effect, except where failure to
maintain or obtain such certificates, permits and approvals would not,
individually or in the aggregate have a Material Adverse Effect on
Primadonna;
(B) all of the Water Rights, and any certificates, permits and
approvals pertaining to any thereof , will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
upon the consummation of the transactions contemplated hereby except
where the failure of such continuity would not, individually or in the
aggregate, have a Material Adverse Effect on Primadonna;
(C) neither Primadonna nor any Subsidiary thereof is in breach or
default of any condition or requirement respecting any of the Water
Rights, including under any certificates, permits and approvals
pertaining to any thereof, and no event has occurred which, with notice
or lapse of time, would constitute a breach or default or permit
termination or modification of any thereof;
(D) to Primadonna's Knowledge, there are no disputes, oral
agreements, or forbearance programs in effect as to any Water Rights;
(E) none of Primadonna and its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in any of the Water Rights, and, with respect to any parcel of
real estate owned by any of Primadonna and its Subsidiaries, such owner
has good and marketable title to all Water Rights held with respect to
such parcel, free and clear of any Security Interest, easement,
covenant, option, right of first refusal or other restriction
(including any other restriction on alienation);
(F) with respect to any parcel of real estate leased by any of
Primadonna or any of its Subsidiaries under a Material Lease, either
Primadonna has, or, to Primadonna's Knowledge, the owner of such parcel
has good and marketable title to all Water Rights and sewer rights held
with respect to such parcel, free and clear of any Security Interest,
easement, covenant, or other restriction (including any other
restriction on alienation);
(G) with respect to each Material Lease which is a sublease, the
representations and warranties set forth in this (S)3(k)(iii) are true
and correct with respect to the underlying lease; and
(H) each Security Interest, easement, covenant, option, right of
first refusal, or other restriction (including any described on
(S)3(k)(iii) of the Disclosure Schedule), to which any Water Right is
subject, is subject and subordinate to the rights of Primadonna and its
Subsidiaries to the Water Rights pertaining thereto, and no exercise of
rights of any beneficiary of any such Security Interest, easement,
covenant, or other restriction will disturb or disrupt the quiet
enjoyment of such Water Rights of Primadonna or any of its
Subsidiaries.
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(l) Compliance with Laws. Except for environmental matters and matters
covered by (S)3(k), which shall not be covered by this (S)3(l), Primadonna and
each Subsidiary thereof:
(i) is in compliance with all laws, regulations, reporting and licensing
requirements and orders applicable to its business or employees conducting
its business, the breach or violation of which would have a Material
Adverse Effect on Primadonna; and
(ii) has received no notification or communication from any Governmental
Authority (A) asserting that it or any of its Subsidiaries is not in
compliance with any of the statutes, regulations or ordinances that such
Governmental Authority enforces, which noncompliance would have a Material
Adverse Effect on Primadonna or (B) threatening to revoke any license,
franchise, permit or authorization of any governmental body, board,
commission, agency or authority or court (collectively, "Governmental
Authorities") , which revocation would have a Material Adverse Effect on
Primadonna.
(m) Employee Benefit Plans.
(i) None of Primadonna, any of the Subsidiaries of Primadonna or any of
their respective ERISA Affiliates (as defined below) maintains, is a party
to, participates in or has any liability or contingent liability with
respect to:
(A) any "employee welfare benefit plan" or "employee pension benefit
plan" (as those terms are defined in Sections 3(l) and 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
respectively); or
(B) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangements for
any current or former employee, director, consultant or agent, whether
pursuant to contract, arrangement, custom or informal understanding,
which does not constitute an employee benefit plan, as defined in
Section 3(3) of ERISA ("Employee Benefit Plans").
For purposes of this Agreement, the term "ERISA Affiliate" means, with
respect to any person, any corporation, trade or business which, together
with such person, is a member of a controlled group of corporations or a
group of trades or businesses under common control or would otherwise be
treated as a single employer under Sections 414(b), (c), (m) or (o) of the
Code.
(ii) A true and correct copy of each of the plans, arrangements, programs
and agreements listed in (S)3(m) of the Disclosure Schedule (referred to
hereinafter as "Primadonna Employee Benefit Plans"), and all contracts
relating thereto, or to the funding thereof, including, without limitation,
all plan documents, trust agreements, insurance contracts, administration
contracts, investment management agreements, subscription and participation
agreements, written interpretations and communications and record keeping
agreements, each as in effect on the date hereof, has been supplied to
Buyer. In the case of any Primadonna Employee Benefit Plan which is not in
written form, Buyer has been supplied with an accurate description of such
Primadonna Employee Benefit Plan as in effect on the date hereof. A true
and correct copy of the most recent annual report, Form 5500, actuarial
report, accountant's opinion relating to the plan's financial statements,
summary plan description and Internal Revenue Service
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determination letter with respect to each Primadonna Employee Benefit Plan,
to the extent applicable, and a current schedule of assets (and the fair
market value thereof assuming liquidation of any asset which is not readily
tradable) held with respect to any funded Primadonna Employee Benefit Plan
has been supplied to Buyer, and there have been no material changes in the
financial condition of the respective plans from that stated in the annual
reports and actuarial reports supplied.
(iii) As to all Primadonna Employee Benefit Plans:
(A) Such Plans comply and have been administered in form and in
operation in all material respects with all applicable requirements of
law, including but not limited to ERISA and the Code, and no event has
occurred which will or could cause any such Employee Benefit Plan to
fail to comply materially with such requirements and no notice has been
issued by any governmental authority questioning or challenging such
compliance.
(B) Such Plans which are employee pension benefit plans and are
intended to be tax qualified under Section 401(a) of the Code and
comply in all material respects in form and in operation with all
applicable requirements of Sections 401(a) and 501(a) of the Code; each
such Plan has received a determination letter from the Internal Revenue
Service stating that such Plan is a qualified plan and that each trust
created under such Plan is exempt from taxation under Section 501(a) of
the Code; there have been no amendments to such Plans which are not the
subject of a favorable determination letter issued with respect thereto
by the Internal Revenue Service; and no event has occurred which will
or could give rise to disqualification of any such Plan under such
sections or to a tax under Section 511 of the Code.
(C) None of the assets of any such Plan are invested in employer
securities or employer real property.
(D) There have been no non-exempt "prohibited transactions" (as
described in Section 406 of ERISA or Section 4975 of the Code) with
respect to any such Plan and none of Primadonna, any of its
Subsidiaries or any of their respective ERISA Affiliates has engaged in
any non-exempt prohibited transaction.
(E) To Primadonna's Knowledge, there have been no acts or omissions
by Primadonna, any of its Subsidiaries or any of their respective ERISA
Affiliates with respect to any "employee welfare benefit plan" or
"employee pension benefit plan" which have given rise to or may give
rise to any material fines, penalties, taxes or related charges under
Section 502 of ERISA or Chapters 43, 47 or 68 of the Code for which
Primadonna or any of its Subsidiaries may be liable.
(F) None of the payments contemplated by such Plans would,
individually or in the aggregate, constitute excess parachute payments
(as defined in Section 280G of the Code) and neither the execution of
this Agreement nor the consummation of the transactions contemplated by
this Agreement would accelerate the payment, vesting or funding of
benefits under any of such Plans.
(G) There are no pending actions, claims or lawsuits which either
have been asserted or instituted or can reasonably be expected to be
asserted or instituted against any such
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Plans, the assets of any of the trusts under such Plan, the plan
sponsor, the plan administrator, trustee or any other fiduciary of such
Plans with respect to any aspect of such Plans (except for routine
benefit claims or routine expenses).
(H) No such Plan is subject to Title IV of ERISA or Section 412 of
the Code and no such Plan is a multi- employer plan (within the meaning
of Section 3(37) of ERISA).
(I) None of Primadonna or any of its Subsidiaries has any material
liability or contingent liability for providing, under any such Plan or
otherwise, any post-retirement medical or life insurance benefits,
other than statutory liability for providing group health plan
continuation coverage under Part 6 of Title I of ERISA and Section
4980B of the Code.
(J) Accruals for all obligations under such Plans are reflected in
the financial statements of Primadonna in accordance with GAAP.
(K) To Primadonna's Knowledge, there has been no act or omission
(including any written or oral communication) that would impair the
ability of Primadonna or any of its Subsidiaries (or any successor
thereto) to unilaterally amend or terminate any Primadonna Employee
Benefit Plan.
(L) There are no pending or ongoing audits, or inquiries or
investigations by any governmental agency.
(iv) At no time has Primadonna, any of its Subsidiaries or any of their
respective ERISA Affiliates, contributed to, maintained or been obligated
to contribute to (a) any plan which is or has been subject to Title IV of
ERISA, including any multiemployer plan as such term is defined under
Section 3(37) of ERISA or (b) any plan which is or has been subject to
Section 412 of the Code.
(v) There has been no transaction or series of transactions which, in the
aggregate, would cause the notice provisions of the WARN Act to be
applicable to the transactions contemplated by this Agreement.
(n) Material Contracts.
(i) All Primadonna Contracts, as of the date hereof, are described in the
Primadonna Public Reports or are set forth in (S)3(n) or (S)3(k) of the
Disclosure Schedule.
(ii) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Primadonna, each Primadonna
Contract is in full force and effect and is a legal, valid and binding
contract or agreement of Primadonna, and there is no material default or
breach (or, to Primadonna's Knowledge, any event that, with the giving of
notice or lapse of time or both would result in a material default or
breach) by Primadonna, any of its Subsidiaries or, to Primadonna's
Knowledge, any other party in the timely performance of any obligation to
be performed or paid thereunder or any other material provision thereof.
(iii) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Primadonna, as a result of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or thereby, none of the Primadonna
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Contracts (A) will terminate, (B) becomes terminable by any other party
thereto, (C) allows the terms thereof to become amended or amendable by any
other party thereto without the consent of Primadonna, or (D) contains any
right of Primadonna or any of its Subsidiaries which right will be
terminated or become modified.
(o) Legal Proceedings. As of the date of this Agreement, there are no
actions, suits, investigations or proceedings instituted, pending or, to
Primadonna's Knowledge, overtly threatened, against Primadonna or any of its
Subsidiaries, or against any property, asset, interest or right of any of them,
(i) that involve more than $100,000 in controversy, (ii) that seek relief other
than money damages from Primadonna or any of its Subsidiaries, or (iii) that
would have, either individually or in the aggregate, a Material Adverse Effect
on Primadonna if adversely decided. Neither Primadonna nor any of its
Subsidiaries is subject to any judgment, order, writ, injunction or decree that
would have a Material Adverse Effect on Primadonna.
(p) Environmental. Except insofar as inaccuracies in the following statements
would not have a Material Adverse Effect on Primadonna (and with respect to
properties formerly owned or leased by Primadonna or any of its Subsidiaries,
only with respect to such period of ownership or lease): (i) the properties
owned or leased by Primadonna or any of its Subsidiaries and properties
formerly owned or leased by Primadonna or any of its Subsidiaries for which
Primadonna has contractual liability (the "Primadonna Properties") are or were,
as the case may be, in compliance in all material respects with all
Environmental Laws; (ii) no enforcement actions are pending or, to Primadonna's
Knowledge, threatened against Primadonna or any of its Subsidiaries and no
notice of potential liability or administrative or judicial proceedings
(including notices regarding clean up of off-site third party hazardous waste
sites) has been received by Primadonna or such Subsidiary; (iii) there does not
now exist on any Primadonna Properties currently owned or leased by Primadonna,
and there has not occurred on, from or under Primadonna Properties, a material
disposal or Release of, Hazardous Materials ; (iv) Primadonna Properties
contain no unregistered underground storage tanks; (v) neither Primadonna nor
any of its Subsidiaries nor, to Primadonna's Knowledge, any of their respective
predecessors has any contingent liability in connection with the release of any
Hazardous Materials into the environment; and (vi) neither Primadonna or any of
its Subsidiaries nor, to Primadonna's Knowledge, any of their respective
predecessors, has (A) given any release or waiver of liability that would waive
or impair any claim based on Hazardous Materials to any current or prior tenant
or owner of any real property owned or leased at any time by either Primadonna
or any of its Subsidiaries or to any party who may be potentially responsible
for the presence of Hazardous Materials on any such real property; or (B) made
any promise of indemnification to any party regarding Hazardous Materials that
may be located on any real property owned or leased at any time by either
Primadonna or any Subsidiary or, to Primadonna's Knowledge, any of their
respective predecessors. (S)3(p) of the Disclosure Schedule contains a
description of environmental indemnities of which either Primadonna or any of
its Subsidiaries is a beneficiary.
(q) Personnel. There are no labor disputes existing, or to Primadonna's
Knowledge, threatened, involving strikes, work stoppages, slow downs or
lockouts. There are no grievance proceedings or claims of unfair labor
practices filed or, to Primadonna's Knowledge, threatened to be filed with the
National Labor Relations Board against Primadonna or any of its Subsidiaries.
To Primadonna's Knowledge, there is no union representation or organizing
effort pending or threatened against Primadonna or any Subsidiary. Neither
Primadonna nor any Subsidiary has agreed to
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recognize any union or other collective bargaining unit except those governed
by the terms of the agreements listed in (S)3(q) of the Disclosure Schedule.
(r) Takeover Statutes. The Primadonna Board has approved this Agreement and
the transactions contemplated hereby, and such approval constitutes the
approval under (S)92A.120 of the NRS. To Primadonna's Knowledge, no "fair
price," "moratorium," "control share acquisition" or other similar anti-
takeover statute or regulation enacted under any federal, state or foreign law,
applicable to Primadonna is applicable to this Agreement or the transactions
contemplated hereby.
(s) Intellectual Property. Except for such matters as would not, individually
or in the aggregate, have a Material Adverse Effect on Primadonna: (i)
Primadonna and each of its Subsidiaries owns or possesses or has all necessary
rights and licenses in, all patents, patent rights, licenses, inventions
(whether or not patentable or reduced to practice), copyrights (whether
registered or unregistered), know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), registered and unregistered trademarks, service marks and trade
names and other intellectual property rights (collectively, "Intellectual
Property") necessary to conduct its business as conducted; (ii) to Primadonna's
Knowledge, there is no fact or circumstance that would give any third party a
right to assert infringement or misappropriation of, or conflict with, asserted
rights of others or invalidity or unenforceability of any Intellectual Property
owned by Primadonna or any of its Subsidiaries; (iii) the use of such
Intellectual Property to conduct the business and operations of Primadonna and
its Subsidiaries as conducted does not infringe on the rights of any Person;
(iv) to Primadonna's Knowledge, no Person is challenging or infringing on or
otherwise violating any right of Primadonna or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to Primadonna or
any of its Subsidiaries; (v) neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will result in a loss or
limitation in (x) the rights and licenses of Primadonna or any of its
Subsidiaries to use or enjoy the benefit of any Intellectual Property employed
by them in connection with their business as conducted or (y) the amount of any
royalties or other benefits received by Primadonna or any of its Subsidiaries
from Intellectual Property owned by it. A true and complete copy and
description of each item of Intellectual Property of Primadonna and its
Subsidiaries has been delivered to Buyer, and each such item is identified on
(S)3(s) of the Disclosure Schedule.
(t) Insurance. Primadonna and its Subsidiaries maintain, with reputable
insurers, insurance in such amounts, including deductible arrangements, and of
such a character as is usually maintained by reasonably prudent managers of
companies engaged in the same or similar business and of similar size. True and
correct copies of all insurance policies of Primadonna and its Subsidiaries
have been made available to Buyer.
(u) Year 2000 Compliance. Except as disclosed in the Primadonna Public
Reports, to the knowledge of such officers of Primadonna and its Subsidiaries
who are competent in such matters, after reasonable investigation, Primadonna's
information systems are designed to be used prior to, during and after the
calendar year 2000 A.D., and its information systems will accurately receive,
provide and process date/time data (including but not limited to calculating,
comparing and sequencing) from, into and between the twentieth and twenty-first
centuries, including the years 1999 and 2000, and leap year calculations, and
will not malfunction, cease to function, or provide invalid or incorrect
results as a result of time/date data.
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(v) Due Diligence Materials. All documents, agreements and other materials
provided by Primadonna or its Subsidiaries to any representative of Buyer, or
to which Primadonna or its Subsidiaries have given any representative access,
in connection with the due diligence conducted in connection with this
Agreement have been true, correct and complete originals or copies of the
documents, agreements and other materials purported to be provided or to which
access is given.
(w) Shareholder Approval. Except for Requisite Primadonna Stockholder
Approval, no approval or consent by, or notice to, Primadonna Stockholders is
required to authorize this Agreement, the Merger or the transactions
contemplated hereby.
4. Representations and Warranties of Buyer. Buyer represents and warrants to
Primadonna that the statements contained in this (S)4 are correct and complete
as of the date of this Agreement, except as set forth in the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this (S)4.
(a) Organization, Qualification, and Corporate Power. Buyer and each of its
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation, and is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where the lack of
such qualification would not have a Material Adverse Effect on Buyer. Each of
Buyer and its Subsidiaries has full corporate power and authority to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it.
(b) Capitalization. (i) As of the date of this Agreement, the entire
authorized capital stock of Buyer consists of 75,000,000 Buyer Shares
authorized, of which 52,033,094 Buyer Shares are issued and outstanding.
(ii) As of the date of this Agreement, no Buyer Shares are held in
treasury except as described in the Buyer's Public Reports or (S)4(b) of
the Disclosure Schedule. All of Buyer Shares to be issued in connection
with the Merger have been duly authorized and, upon consummation of the
Merger, will be validly issued, fully paid, and nonassessable. All of the
issued and outstanding Buyer Shares, and all capital stock of each of
Buyer's Subsidiaries, have been duly authorized and are validly issued,
fully paid, and nonassessable. Except as contemplated by this Agreement or
as described in the Buyer Public Reports or (S)4(b) of the Disclosure
Schedule, there are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
or other contracts or commitments that could require Buyer or any of its
Subsidiaries to issue, sell, or otherwise cause to become outstanding any
of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to Buyer or any of its Subsidiaries except as reported in the Buyer
Public Reports.
(c) Authorization of Transaction. Each of Buyer and Acquisition Corp. has
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder; provided, however, that approval of Buyer's
shareholders is required to implement the adoption of a stock option plan or
the amendment to the Buyer's existing stock option plans as contemplated by
(S)2(d)(viii). This Agreement constitutes the valid and legally binding
obligation of Buyer and Acquisition Corp., enforceable in accordance with its
terms and conditions.
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(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor, subject to the matters discussed in the next sentence, the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which any of Buyer and its Subsidiaries is subject or any provision of
the certificate of incorporation or bylaws of any of Buyer and its Subsidiaries
or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which any of Buyer
and its Subsidiaries is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon
any of its assets), other than those which would not individually or in the
aggregate have a Material Adverse Effect on Buyer. Other than in connection
with the provisions of the Hart-Scott-Rodino Act, the NRS, the Securities
Exchange Act, the Securities Act, the state securities laws and the rules and
regulations of the Nevada Commission, the Nevada Board, the CCLGLB and the
filing of the Articles of Merger, as required by the NRS, none of Buyer or any
of its Subsidiaries needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for Buyer or Acquisition Corp. to consummate the
transactions contemplated by this Agreement.
(e) Filings with the SEC. Buyer has made all filings with the SEC that it has
been required to make under the Securities Act and the Securities Exchange Act
(collectively the "Buyer Public Reports") since January 1, 1995. Each of the
Buyer Public Reports, as of its respective date, has complied with the
Securities Act and the Securities Exchange Act in all material respects. None
of the Buyer Public Reports, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Buyer has delivered to Primadonna a
correct and complete copy of each Buyer Public Report (together with all
exhibits and schedules thereto and as amended to date).
(f) Financial Statements. The financial statements included in or
incorporated by reference into the Buyer Public Reports (including the related
notes and schedules) (the "Buyer Financial Statements") have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto and
except with respect to unaudited statements as permitted by Form 10-Q of the
SEC), and fairly present in all material respects the financial condition of
Buyer and its Subsidiaries as of the indicated dates and the results of
operations of Buyer and its Subsidiaries for the indicated periods; provided,
however, that the interim statements are subject to normal year-end
adjustments.
(g) Events Subsequent to September 30, 1998. Since September 30, 1998, no
event has occurred which has caused or constitutes a Material Adverse Effect on
Buyer.
(h) Undisclosed Liabilities. Except for (i) liabilities disclosed in the
Buyer Public Reports, and (ii) liabilities which have arisen after September
30, 1998 in the Ordinary Course of Business (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law), to
Buyer's Knowledge, none of Buyer or any of its Subsidiaries has any liability
(whether known or unknown, whether asserted or
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unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, which, individually or in the aggregate,
would have a Material Adverse Effect on Buyer.
(i) Brokers' Fees. None of Buyer and its Subsidiaries has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(j) Tax and Accounting Matters.
(i) For purposes of this (S)4(j), (A) the term "Taxes" shall include all
federal, state, county, local or foreign taxes, charges, levies, imposts or
other assessments of any nature whatsoever, including corporate income tax,
corporate franchise tax, payroll tax, sales tax, use tax, property tax,
excise tax, withholding tax, and environmental tax, together with any
interest thereon and any penalties or additions to tax relating thereto
imposed by any governmental taxing authority for which Buyer or any other
member of the Buyer Group (as defined below in this (S)4(j)(i)) may be
directly or contingently liable in its own right, as collection agent for
taxes imposed on another person, as a result of any guaranty or election,
or as a transferee of the assets of, or as successor to, any person, or
pursuant to any applicable law; (B) the term "Buyer Group" shall mean each
member of the affiliated group (within the meaning of Section 1504 of the
Code) of which Buyer is the common parent; and (C) the term "Returns" shall
mean all returns, reports, estimates, declarations of estimated tax,
information statements and other filings relating to, or required to be
filed in connection with, any Taxes, including, without limitation,
information returns or reports with respect to backup or employee
withholding and other payments to third parties.
(ii) (A) All Federal and other Returns required to be filed by or on
behalf of any member of the Buyer Group have been duly filed on a timely
basis and all such Returns are true, correct and complete in all material
respects; (B) all Taxes that have been shown as due and payable on the
Returns that have been filed by or on behalf of each member of the Buyer
Group have been timely paid, and no other material Taxes are payable by any
member of the Buyer Group with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns); (C) the
amounts set forth as provisions for current and deferred taxes and/or
accrued liabilities in the Buyer Financial Statements reflect an adequate
reserve in accordance with GAAP for the payment of all unpaid Taxes accrued
for or applicable to all periods ended on the respective dates of the Buyer
Financial Statements and all years and periods prior thereto; (D) no member
of the Buyer Group is delinquent in the payment of any material Taxes or
has requested any extension of time within which to file any Return, which
Return has not since been filed, accompanied by payment of all Taxes shown
as due and payable thereon; (E) there is no dispute or claim concerning any
Tax liability of any member of the Buyer Group either (x) claimed or raised
by any governmental taxing authority in writing or (y) as to which any
director or officer of any member of the Buyer Group (or employees
responsible for Taxes of any such member of the Buyer Group) has knowledge
based upon personal contact with any agent of such authority, other than
those Taxes, identified in (S)4(j) of the Disclosure Schedule, being
contested in good faith by appropriate proceedings; (F) no member of the
Buyer Group has waived any statute of limitations in respect of Taxes or
granted any extension of the
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limitations period applicable to any claim for Taxes; (G) except for other
members of the Buyer Group, Buyer is not liable for the Taxes of any
person, including, without limitation, as a result of the application of
United States Treasury Regulation Section 1.1502-6, any analogous provision
of state, local or foreign law (including, without limitation, principles
of unitary taxation), or as a result of any contractual arrangement,
whether with any third party or with any taxing authority; (H) Buyer is not
nor has it ever been a party to any tax sharing agreement with any
corporation or limited liability company which is not currently a member of
the Buyer Group; (I) no claim has ever been made by any governmental taxing
authority in any jurisdiction where any member of the Buyer Group does not
file Returns that it is or may be subject to taxation by such jurisdiction;
(J) there are no material liens on any of the assets of any member of the
Buyer Group that arose in connection with any failure (or alleged failure)
to pay any Taxes; (K) each member of the Buyer Group has withheld and paid
over all Taxes required to have been withheld and paid over and complied in
all material respects with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party; (L)
(S)4(j) of the Disclosure Schedule lists all Returns (relating to any type
of Tax and to any taxable period) filed with respect to the Buyer Group (i)
for all taxable periods for which the applicable statute of limitations for
assessment of any tax has not expired or (ii) that have been audited, and
indicates those Returns that currently are the subject of audit; (M) Buyer
has delivered to Primadonna correct and complete copies of all federal,
state, local and foreign income and franchise Returns described in clause
(L) above which have been requested by Primadonna, and has provided
representatives of Primadonna access to all Returns filed with respect to
the Buyer Group for all other taxable periods; (N) Buyer has delivered to
Primadonna all examination reports and statements of deficiency assessed
against or agreed to by each member of the Buyer Group since January 1,
1995; (O) Buyer is not and has never been a "United States real property
holding corporation" within the meaning of Section 897(c) of the Code; (P)
no member of the Buyer Group is a "consenting corporation" under Section
341(f) of the Code; (Q) Buyer has not agreed, nor is it required, to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise that would require the recognition of income
pursuant to such adjustment in any post-closing period; and (R) any past
due property taxes for which Buyer or any Subsidiary of Buyer is liable do
not exceed $100,000.
(k) Properties.
(i) Except as disclosed or reserved against in the Buyer Financial
Statements and except for circumstances that would not, individually or in
the aggregate, have a Material Adverse Effect on Buyer, Buyer and each
Subsidiary thereof has good title to all of the material personal property
and assets, tangible or intangible, reflected in the Buyer Financial
Statements as being owned by Buyer and its Subsidiaries as of the dates
thereof, free and clear of all Security Interests. The Buyer Public Reports
and (S)4(k)(i) of the Disclosure Schedule list all real property that any
of Buyer and its Subsidiaries owns.
(ii) All Material Leases of Buyer are valid instruments enforceable in
accordance with their respective terms. All Material Leases of Buyer were
entered into in the Ordinary Course of Business.
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(l) Compliance with Laws. Except for environmental matters and the matters
covered by (S)4(k), which shall not be covered by this (S)4(l), Buyer and each
Subsidiary thereof:
(i) is in compliance with all laws, regulations, reporting and licensing
requirements and orders applicable to its business or employees conducting
its business, the breach or violation of which would have a Material
Adverse Effect on Buyer; and
(ii) has received no notification or communication from any Governmental
Authority (A) asserting that it or any of its Subsidiaries is not in
compliance with any of the statutes, regulations or ordinances that such
Governmental Authority enforces, which noncompliance would have a Material
Adverse Effect on Buyer or (B) threatening to revoke any license,
franchise, permit or authorization of Governmental Authority, which
revocation would have a Material Adverse Effect on Buyer.
(m) Employee Benefit Plans.
(i) None of Buyer, any of the Subsidiaries of Buyer or any of their
respective ERISA Affiliates (as defined below) maintains, is a party to,
participates in or has any liability or contingent liability with respect
to:
(A) any "employee welfare benefit plan" or "employee pension benefit
plan" (as those terms are defined in Sections 3(l) and 3(2) of ERISA,
respectively); or
(B) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangements for
any current or former employee, director, consultant or agent, whether
pursuant to contract, arrangement, custom or informal understanding,
which does not constitute an employee benefit plan (as defined in
Section 3(3) of ERISA).
(ii) Access to each of the plans, arrangements, programs and agreements
listed in (S)4(m) of the Disclosure Schedule (referred to hereinafter as
"Buyer Employee Benefit Plans"), and to all contracts relating thereto, or
to the funding thereof, including, without limitation, all plan documents,
trust agreements, insurance contracts, administration contracts, investment
management agreements, subscription and participation agreements, written
interpretations and communications and record keeping agreements, each as
in effect on the date hereof, has been supplied to Primadonna. In the case
of any Buyer Employee Benefit Plan which is not in written form, Primadonna
has been supplied with an accurate description of such Buyer Employee
Benefit Plan as in effect on the date hereof. There have been no material
changes in the financial condition of the respective plans from that stated
in their last annual reports and actuarial reports.
(iii) As to all Buyer Employee Benefit Plans:
(A) Such Plans comply and have been administered in form and in
operation in all material respects with all applicable requirements of
law, including but not limited to ERISA and the Code, and no event has
occurred which will or could cause any such Employee Benefit Plan to
fail to comply materially with such requirements and no notice has been
issued by any governmental authority questioning or challenging such
compliance.
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(B) Such Plans which are employee pension benefit plans and are
intended to be tax qualified under Section 401(a) of the Code and
comply in all material respects in form and in operation with all
applicable requirements of Sections 401(a) and 501(a) of the Code; each
such Plan has received a determination letter from the Internal Revenue
Service stating that such Plan is a qualified plan and that each trust
created under such Plan is exempt from taxation under Section 501(a) of
the Code; there have been no amendments to such plans which are not the
subject of a favorable determination letter issued with respect thereto
by the Internal Revenue Service; and no event has occurred which will
or could give rise to disqualification of any such Plan under such
sections or to a tax under Section 511 of the Code.
(C) None of the assets of any such Plan are invested in employer
securities or employer real property.
(D) There have been no non-exempt "prohibited transactions" (as
described in Section 406 of ERISA or Section 4975 of the Code) with
respect to any such Plan and none of Buyer, any of its Subsidiaries or
any of their respective ERISA Affiliates has engaged in any non-exempt
prohibited transaction.
(E) To Buyer's Knowledge, there have been no acts or omissions by
Buyer, any of its Subsidiaries or any of their respective ERISA
Affiliates with respect to any "employee welfare benefit plan" or
"employee pension benefit plan" which have given rise to or may give
rise to any material fines, penalties, taxes or related charges under
Section 502 of ERISA or Chapters 43, 47 or 68 of the Code for which
Buyer or any of its Subsidiaries may be liable.
(F) None of the payments contemplated by such Plans would,
individually or in the aggregate, constitute excess parachute payments
(as defined in Section 280G of the Code) and neither the execution of
this Agreement nor the consummation of the transactions contemplated by
this Agreement would accelerate the payment, vesting or funding of
benefits under any of such Plans.
(G) There are no pending actions, claims or lawsuits which either
have been asserted or instituted or can reasonably be expected to be
asserted or instituted against any such Plans, the assets of any of the
trusts under such Plan, the plan sponsor, the plan administrator,
trustee or any other fiduciary of such Plans with respect to any aspect
of such Plans (except for routine benefit claims or routine expenses).
(H) No such Plan is subject to Title IV of ERISA or Section 412 of
the Code and no such Plan is a multi- employer plan (within the meaning
of Section 3(37) of ERISA).
(I) None of Buyer or any of its Subsidiaries has any material
liability or contingent liability for providing, under any such Plan or
otherwise, any post-retirement medical or life insurance benefits,
other than statutory liability for providing group health plan
continuation coverage under Part 6 of Title I of ERISA and Section
4980B of the Code.
(J) Accruals for all obligations under such Plans are reflected in
the financial statements of Buyer in accordance with GAAP.
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(K) To Buyer's Knowledge, there has been no act or omission
(including any written or oral communication) that would impair the
ability of Buyer or any of its Subsidiaries (or any successor thereto)
to unilaterally amend or terminate any Buyer Employee Benefit Plan.
(L) There are no pending or ongoing audits, or inquiries or
investigations by any governmental agency.
(iv) At no time has Buyer, any of its Subsidiaries or any of their
respective ERISA Affiliates, contributed to, maintained or been obligated
to contribute to (a) any plan which is or has been subject to Title IV of
ERISA, including any multiemployer plan as such term is defined under
Section 3(37) of ERISA or (b) any plan which is or has been subject to
Section 412 of the Code.
(v) There has been no transaction or series of transactions which, in the
aggregate, would cause the notice provisions of the WARN Act to be
applicable to the transactions contemplated by this Agreement.
(n) Material Contracts.
(i) All Buyer Contracts as of the date hereof, are described in the Buyer
Public Reports or are set forth in (S)4(n) or (S)4(k) of the Disclosure
Schedule;
(ii) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Buyer, each Buyer Contract is
in full force and effect and is a legal, valid and binding contract or
agreement of Buyer, and there is no material default or breach (or, to
Buyer's Knowledge, any event that, with the giving of notice or lapse of
time or both would result in a material default or breach) by Buyer, any of
its Subsidiaries or, to Buyer's Knowledge, any other party in the timely
performance of any obligation to be performed or paid thereunder or any
other material provision thereof.
(iii) Except for such matters as would not, individually or in the
aggregate, have a Material Adverse Effect on Buyer, as a result of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or thereby, none of the Buyer Contracts
(A) will terminate, (B) becomes terminable by any other party thereto, (C)
allows the terms thereof to become amended or amendable by any other party
thereto without the consent of Buyer, or (D) contains any right of Buyer or
any of its Subsidiaries which right will be terminated or become modified.
(o) Legal Proceedings. As of the date of this Agreement, there are no
actions, suits, investigations or proceedings instituted, ending or, to Buyer's
Knowledge, overtly threatened, against Buyer or any of its Subsidiaries, or
against any property, asset, interest or right of any of them (i) that involve
more than $1,000,000 in controversy, (ii) that seek relief other than money
damages from Buyer or any of its Subsidiaries, or (iii) that would have, either
individually or in the aggregate, a Material Adverse Effect on Buyer if
adversely decided. Neither Buyer nor any of its Subsidiaries is subject to any
judgment, order, writ, injunction or decree that would have a Material Adverse
Effect on Buyer.
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(p) Environmental. Except insofar as inaccuracies in the following statements
would not have a Material Adverse Effect on Buyer (and with respect to
properties formerly owned or leased by Buyer or any of its Subsidiaries, only
with respect to such period of ownership or lease): (i) the properties owned or
leased by Buyer or any of its Subsidiaries and properties formerly owned or
leased by Buyer or any of its Subsidiaries for which Buyer has contractual
liability (the "Buyer Properties") are or were, as the case may be, in
compliance in all material respects with all Environmental Laws; (ii) no
enforcement actions are pending or, to Buyer's Knowledge, threatened against
Buyer or any of its Subsidiaries and no notice of potential liability or
administrative or judicial proceedings (including notices regarding clean up of
off-site third party hazardous waste sites) has been received by Buyer or such
Subsidiary; (iii) there does not now exist on any Buyer Properties currently
owned or leased by Buyer, and there has not occurred on, from or under Buyer
Properties, a material disposal or Release of Hazardous Materials, (iv) Buyer
Properties contain no unregistered underground storage tanks; (v) neither Buyer
nor any of its Subsidiaries nor, to Buyer's Knowledge, any of their respective
predecessors has any contingent liability in connection with the release of any
Hazardous Materials into the environment; and (vi) neither Buyer or any of its
Subsidiaries nor, to Buyer's Knowledge, any of their respective predecessors
has (A) given any release or waiver of liability that would waive or impair any
claim based on Hazardous Materials to any current or prior tenant or owner of
any real property owned or leased at any time by either Buyer or any of its
Subsidiaries or to any party who may be potentially responsible for the
presence of Hazardous Materials on any such real property; or (B) made any
promise of indemnification to any party regarding Hazardous Materials that may
be located on any real property owned or leased at any time by either Buyer or
any Subsidiary or, to Buyer's Knowledge, any of their respective predecessors.
(S)4(p) of the Disclosure Schedule contains a description of environmental
indemnities of which either Buyer or any of its Subsidiaries is a beneficiary.
(q) Personnel. There are no labor disputes existing, or to Buyer's Knowledge,
threatened, involving strikes, work stoppages, slow downs or lockouts. There
are no grievance proceedings or claims of unfair labor practices filed or, to
Buyer's Knowledge, threatened to be filed with the National Labor Relations
Board against Buyer or any of its Subsidiaries. To Buyer's Knowledge, there is
no union representation or organizing effort pending or threatened against
Buyer or any Subsidiary. Neither Buyer nor any Subsidiary has agreed to
recognize any union or other collective bargaining unit except those governed
by the terms of the agreements listed in the Buyer Public Reports or (S)4(q) of
the Disclosure Schedule.
(r) Board Approval. The Buyer Board or its duly authorized Executive
Committee has approved this Agreement and the transactions contemplated hereby.
Acquisition Corp.'s board of directors has approved this Agreement and the
transactions contemplated hereby.
(s) Intellectual Property. Except for such matters as would not, individually
or in the aggregate, have a Material Adverse Effect on Buyer: (i) Buyer and
each of its Subsidiaries owns or possesses or has all necessary rights and
licenses in, all patents, patent rights, licenses, inventions (whether or not
patentable or reduced to practice), copyrights (whether registered or
unregistered), know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
registered and unregistered trademarks, service marks and trade names and other
Intellectual Property necessary to conduct its business as
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conducted; (ii) to Buyer's Knowledge, there is no fact or circumstance that
would give any Third Party a right to assert infringement or misappropriation
of, or conflict with, asserted rights of others or invalidity or
unenforceability of any Intellectual Property owned by Buyer or any of its
Subsidiaries; (iii) the use of such Intellectual Property to conduct the
business and operations of Buyer and its Subsidiaries as conducted does not
infringe on the rights of any person; (iv) to Buyer's Knowledge, no Person is
challenging or infringing on or otherwise violating any right of Buyer or any
of its Subsidiaries with respect to any Intellectual Property owned by and/or
licensed to Buyer or any of its Subsidiaries; (v) neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will
result in a loss or limitation in (x) the rights and licenses of Buyer or any
of its Subsidiaries to use or enjoy the benefit of any Intellectual Property
employed by them in connection with their business as conducted or (y) the
amount of any royalties or other benefits received by Buyer or any of its
Subsidiaries from Intellectual Property owned by it. A true and complete copy
and description of each item of Intellectual Property of Buyer and its
Subsidiaries has been delivered to Primadonna, and each such item is identified
in the Buyer Public Reports or on (S)4(s) of the Disclosure Schedule.
(t) Insurance. Buyer and its Subsidiaries maintain, with reputable insurers,
insurance in such amounts, including deductible arrangements, and of such a
character as is usually maintained by reasonably prudent managers of companies
engaged in the same or similar business and of similar size.
(u) Year 2000 Compliance. Except as disclosed in the Buyer Public Reports, to
the knowledge of such officers of Buyer and its Subsidiaries who are competent
in such matters, after reasonable investigation, Buyer's information systems
are designed to be used prior to, during and after the calendar year 2000 A.D.,
and its information systems will accurately receive, provide and process
date/time data (including but not limited to calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations, and will not
malfunction, cease to function, or provide invalid or incorrect results as a
result of time/date data.
(v) Due Diligence Materials. All documents, agreements and other materials
provided by Buyer or its Subsidiaries to any representative of Primadonna, or
to which Buyer or its Subsidiaries have given any representative access, in
connection with the due diligence conducted in connection with this Agreement
have been true, correct and complete originals or copies of the documents,
agreements and other materials purported to be provided or to which access is
given.
(w) Stockholder Approval. No stockholder approval of this Agreement or the
transactions contemplated hereby (including the issuance of Buyer Shares) needs
to be obtained from Buyer's stockholders under applicable law, New York Stock
Exchange rules or Buyer's certificate of incorporation or by-laws; provided,
however, that approval of Buyer's shareholders is required toimplement the
adoption of a stock option plan or the amendment to the Buyer's existing stock
option plans contemplated by (S)2(d)(viii).
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement through the earlier of the Closing
and any termination of this Agreement.
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(a) General. Subject to the terms and conditions of this Agreement, each of
the Parties will use its reasonable best efforts to take all action and to do
all things necessary in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in (S)6 below).
(b) Notices and Consents. Primadonna and Buyer will each use reasonable best
efforts (and will cause each of their respective Subsidiaries to use its
reasonable best efforts) to obtain any third party consents that any Party
reasonably may request in connection with the matters referred to in (S)(S)3(d)
and 4(d) above, as applicable.
(c) Regulatory Matters and Approvals. Each of the Parties will (and
Primadonna will cause each of its Subsidiaries to) give any notices to, make
any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in the second sentence of
(S)3(d) and (S)4(d) above. Without limiting the generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State Securities
Laws. (A) As promptly as practicable after the execution of this Agreement,
Primadonna and Buyer shall cooperate, and prepare and file with the SEC,
the Proxy Statement and the Registration Statement, provided that Buyer may
delay the filing of the Registration Statement until approval of the Proxy
Statement by the SEC. Primadonna and Buyer will cause the Proxy Statement
and the Registration Statement to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange
Act and the rules and regulations thereunder. Each of Buyer and Primadonna
shall use all reasonable efforts to have or cause the Proxy Statement to be
cleared by the SEC and to cause the Registration Statement to become
effective as promptly as practicable. Without limiting the generality of
the foregoing, each of Primadonna and Buyer shall, and shall cause its
respective representatives to, fully cooperate with the other party and its
respective representatives in the preparation of the Proxy Statement and
the Registration Statement, and shall, upon request, furnish the other
party with all information concerning it and its affiliates, directors,
officers and stockholders as the other may reasonably request in connection
with the preparation of the Proxy Statement and the Registration Statement.
The Proxy Statement shall include the determination and recommendation of
the Primadonna Board that the Primadonna Stockholders vote in favor of the
approval and adoption of this Agreement and the Merger; unless such
recommendation would be reasonably likely to be inconsistent with the
Primadonna Board's fiduciary duties under applicable laws, as concluded by
the Primadonna Board in good faith after consultation with its counsel and
investment advisors, and Primadonna shall have notified Buyer of such
conclusion. Primadonna and Buyer shall use their respective reasonable best
efforts to take all actions required under any applicable federal or state
securities or Blue Sky Laws in connection with the issuance of shares of
Buyer Common Stock in connection with the Merger. As promptly as
practicable after the Registration Statement shall have become effective,
Primadonna shall cause the Proxy Statement, including the Registration
Statement, to be mailed to its stockholders.
(B) Without limiting the generality of the foregoing, (I) Primadonna
and Buyer shall notify each other as promptly as practicable upon
becoming aware of any event or circumstance which should be described
in an amendment of, or supplement to, the Proxy
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Statement or the Registration Statement, and (II) Primadonna and Buyer
shall each notify the other as promptly as practicable after the
receipt by it of any written or oral comments of the SEC on, or of any
written or oral request by the SEC for amendments or supplements to,
the Proxy Statement or the Registration Statement, and shall promptly
supply the other with copies of all correspondence between it or any of
its representatives and the SEC with respect to any of the foregoing
filings.
(C) The information supplied by Primadonna for inclusion or
incorporation by reference in the Proxy Statement and the Registration
Statement shall not (I) at the time the Registration Statement is
declared effective, (II) at the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the holders
of Primadonna Common Stock, (III) at the time of the Special Primadonna
Meeting and (IV) at the Effective Time, contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to
Primadonna or any if its Affiliates or its or their respective officers
and directors should be discovered by Primadonna which should be set
forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement, Primadonna shall promptly inform Buyer of such
event or circumstance.
(D) The information supplied by Buyer for inclusion or incorporation
by reference in the Proxy Statement and the Registration Statement
shall not (I) at the time the Registration Statement is declared
effective, (II) at the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to the holders of
Primadonna Common Stock, (III) at the time of the Special Primadonna
Meeting, and (IV) at the Effective Time, contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances in which they are made, not misleading. If at any
time prior to the Effective Time any event or circumstance relating to
Buyer or any if its Affiliates or its or their respective officers and
directors should be discovered by Buyer which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement, Buyer shall promptly inform Primadonna of such event or
circumstance.
(ii) State Corporation Law. Primadonna will call a special meeting of its
stockholders (the "Special Primadonna Meeting") as soon as practicable in
order that such stockholders may consider and vote upon the adoption of
this Agreement and the approval of the Merger in accordance with the NRS.
Primadonna will mail the Proxy Statement to its stockholders as soon as
practicable. The Proxy Statement will contain the affirmative
recommendation of the Primadonna Board in favor of the adoption of this
Agreement and the approval of the Merger; unless such recommendation would
be reasonably likely to be inconsistent with the Primadonna Board's
fiduciary duties under applicable laws, as concluded by the Primadonna
Board in good faith after consultation with its counsel and investment
advisors.
(iii) Certain Governmental Approvals. (A) The parties hereto shall
cooperate with each other and use their reasonable best efforts (and, with
respect to all gaming laws of any jurisdiction material to the operation of
Primadonna (collectively, the "Primadonna Gaming
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Laws") and all gaming laws of any jurisdiction material to the operation of
Buyer (collectively, the "Buyer Gaming Laws"), shall use their reasonable
best efforts to cause their respective directors and officers to do so) to
promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, registrations, licenses, findings of suitability,
consents, variances, exemptions, orders, approvals and authorizations of
all third parties and Governmental Authorities which are necessary to
consummate the transactions contemplated by this Agreement, including,
without limitation, all filings required under the Hart-Scott-Rodino Act,
the Primadonna Gaming Laws and the Buyer Gaming Laws ("Governmental
Approvals"), and to comply (and, with respect to the Primadonna Gaming Laws
and the Buyer Gaming Laws, to cause their respective directors, officers
and employees to so comply) with the terms and conditions of all such
Governmental Approvals. Each of the parties hereto shall use their
reasonable best efforts to, and shall use their reasonable best efforts to
cause their respective officers, directors and affiliates to, file within
30 days after the date hereof, and in all events shall file as promptly as
practicable after the date hereof, all required initial applications and
documents in connection with obtaining the Governmental Approvals
(including without limitation under applicable Primadonna Gaming Laws and
Buyer Gaming Laws) and shall act reasonably and promptly thereafter in
responding to additional requests in connection therewith. Primadonna and
Buyer shall have the right to review in advance, and to the extent
practicable, each will consult the other on, in each case subject to
applicable laws relating to the exchange of information, all the
information relating to Primadonna or to Buyer, as the case may be, and any
of their respective Subsidiaries, directors, officers and stockholders
which appear in any filing made with, or written materials submitted to,
any third party or any Governmental Authority in connection with the
transactions contemplated by this Agreement. Without limiting the
foregoing, each of Primadonna and Buyer (the "Notifying Party") will notify
the other promptly of the receipt of comments or requests from any
Governmental Authority relating to Governmental Approvals, and will supply
the other party with copies of all correspondence between the Notifying
Party or any of its representatives and any Governmental Authority with
respect to Governmental Approvals; provided, however, that it shall not be
required to supply the other party with copies of correspondence relating
to the personal applications of individual applicants except for evidence
of filing.
(B) Primadonna and Buyer shall promptly advise each other upon receiving
any communication from any Governmental Authority whose consent or approval
is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any approval needed from a Governmental Authority will not
be obtained or that the receipt of any such approval will be materially
delayed. Primadonna and Buyer shall take any and all reasonable actions
necessary to vigorously defend, lift, mitigate and rescind the effect of
any litigation or administrative proceeding adversely affecting this
Agreement or the transactions contemplated hereby or thereby, including,
without limitation, promptly appealing any adverse court or administrative
order or injunction to the extent reasonably necessary for the foregoing
purposes.
(C) Notwithstanding the foregoing or any other provision of this
Agreement, Buyer shall have no obligation or affirmative duty under this
(S) 5(c)(iii) to cease or refrain from the ownership of any assets or
properties, or the association with any person or entity which
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association is material to the operations of Buyer, whether on the date
hereof or at any time in the future.
(d) Comfort Letters. (i) Primadonna will use its reasonable best efforts to
deliver to Buyer on or before the date the Proxy Statement is mailed to
Primadonna Stockholders a letter, reasonably satisfactory to Buyer in form and
substance, of Arthur Andersen LLP stating their conclusions as to the accuracy
of certain information derived from the financial records of Primadonna and its
Subsidiaries and contained in the Proxy Statement and the Registration
Statement (the "Primadonna Comfort Letter"); and (ii) Buyer will use its
reasonable best efforts to deliver to Primadonna on or before the date the
Proxy Statement is mailed to Primadonna's stockholders a letter, reasonably
satisfactory to Primadonna in form and substance, of Arthur Andersen LLP
stating their conclusions as to the accuracy of certain information derived
from the financial records of Buyer and its Subsidiaries and contained in the
Proxy Statement and the Registration Statement (the "Buyer Comfort Letter").
(e) Listing of Buyer Shares. Buyer will use its reasonable best efforts to
cause Buyer Shares that will be issued in connection with the Merger to be
approved for listing on the New York Stock Exchange ("NYSE"), subject to
official notice of issuance, prior to the Effective Time.
(f) Operation of Business. (i) Primadonna will not (and will not cause or
permit any of its Subsidiaries to) engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(A) Primadonna and its Subsidiaries will not authorize or effect any
change in its articles of incorporation or bylaws;
(B) Primadonna and its Subsidiaries will not grant any options, warrants,
or other rights to purchase or obtain any of its capital stock or issue,
sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding), and will not change any of the terms and conditions of such
options, warrants or rights (including with respect to exercise price and
duration), except as specifically provided in this Agreement;
(C) Primadonna and its Subsidiaries will not declare, set aside, or pay
any dividend or distribution with respect to its capital stock (whether in
cash or in kind), or redeem, repurchase, or otherwise acquire any of its
capital stock, or, subject to (S)5(i) hereof, authorize any
recapitalization of itself or any of its Subsidiaries;
(D) Primadonna and its Subsidiaries will not issue any note, bond, or
other debt security or create, incur, assume, or guarantee any material
indebtedness, including for borrowed money or capitalized lease obligation
outside the Ordinary Course of Business, or allow the aggregate amount
outstanding under the credit facilities under the Wells Fargo Credit
Agreement to exceed $240,000,000 at any time;
(E) Primadonna and its Subsidiaries will not impose any Security Interest
upon any of its assets outside the Ordinary Course of Business;
(F) Primadonna and its Subsidiaries will not make any capital investment
in, make any loan to, or acquire the securities or assets of any Person
(including capital expenditures in
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Primadonna and its Subsidiaries) except as contemplated by the capital
expenditures budget adopted by Primadonna and provided to Buyer prior to
the date hereof; provided, however, notwithstanding the foregoing, neither
Primadonna nor any Subsidiary thereof shall, without the prior written
approval of Buyer, which approval will not be unreasonably withheld, make
any capital expenditure in excess of $10,000 (whether or not contemplated
by such capital expenditures budget) which Primadonna or such Subsidiary,
respectively, is not to required to make pursuant to a binding contract or
agreement in existence on the date hereof; provided, that such approval
shall not be required for any emergency capital expenditure immediately
required to protect the health, safety or security of Primadonna's
customers.
(G) Primadonna and its Subsidiaries will not make any change in
employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business, and will not enter into any severance or
similar agreement or grant any salary increases, bonuses or stock options
or other fringe benefit; and
(H) None of Primadonna and its Subsidiaries will commit to any of the
foregoing.
(ii) Buyer will not (and will not cause or permit any of its Subsidiaries
to) engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of
the foregoing:
(A) Buyer and its Subsidiaries will not authorize or effect any
change in its certificate of incorporation or bylaws;
(B) Buyer and its Subsidiaries will not declare, set aside, or pay
any dividend or distribution with respect to its capital stock (whether
in cash or in kind) or authorize any recapitalization of itself and its
Subsidiaries; and
(C) None of Buyer and its Subsidiaries will commit to any of the
foregoing.
(g) Full Access. Primadonna and Buyer shall each (and shall cause each of
their Subsidiaries to) permit representatives of the other party hereto to have
full access at all reasonable times, and in a manner so as not to interfere
with normal business operations of such party and its Subsidiaries, to all
premises, properties, personnel, books, records (including tax records),
business plans, contracts, and documents of or pertaining to each of such party
and its Subsidiaries, and in all manners cooperate fully with the conduct of
the other party's due diligence. Any Confidential Information (as defined in
the Confidentiality Agreement) either Buyer or Primadonna receives from the
other party hereto and its Subsidiaries in the course of the reviews
contemplated by this (S)5(g), will be subject to the terms of the
Confidentiality Agreement. Nothing ascertained by Buyer or Primadonna in the
course of its due diligence shall modify or affect in any way Primadonna's or
Buyer's representations and warranties set forth in (S)(S)3 or 4, all of which
shall remain in full force and effect.
(h) Notice of Developments. Each Party will give prompt written notice to the
other of any event causing a Material Adverse Effect on such Party, and of any
other material adverse development that renders untrue in any material respect
any of its own representations and warranties in (S)3 and (S)4 above. No
disclosure by any Party pursuant to this (S)5(h), however, shall be deemed to
amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
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(i) Non-Solicitation.
(w) Primadonna shall not, directly or indirectly, through any officer,
director, employee, financial advisor, representative or agent of such
party (A) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, sale of substantial assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or
similar transaction involving Primadonna or any of its material
Subsidiaries, other than the transactions contemplated by this Agreement
(any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (B) engage in negotiations or
discussions with any person (or group of persons) other than Buyer or its
respective affiliates (a "Third Party") concerning, provide any non-public
information to any person or entity relating to, or take any other action
to facilitate inquiries or the making of any proposal that constitutes, an
Acquisition Proposal, or (C) enter into any agreement with respect to any
Acquisition Proposal; provided, however, that nothing contained in this
(S)5(i) shall prevent Primadonna or the Primadonna Board from, prior to the
approval of the Merger by the Primadonna Stockholders, furnishing non-
public information to, or entering into discussions or negotiations with,
any Third Party in connection with an unsolicited bona fide written
proposal for an Acquisition Proposal by such Third Party, if and only to
the extent that (1) such Third Party has made a written proposal to the
Primadonna Board to consummate an Acquisition Proposal, which proposal
identifies a price or range of values to be paid for the outstanding
securities or substantially all of the assets of Primadonna, (2) the
Primadonna Board determines in good faith, after consultation with a
financial advisor of nationally recognized reputation, that such
Acquisition Proposal is reasonably capable of being completed on
substantially the terms proposed, and would, if consummated, result in a
transaction that would provide greater value to the holders of Primadonna
Shares than the transaction contemplated by this Agreement (a "Superior
Proposal"), and (3) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, the
Primadonna Board receives from such Person an executed confidentiality and
standstill agreement (unless requiring such Person to enter into a
standstill agreement would be reasonably likely to be inconsistent with the
Primadonna Board's fiduciary duties under applicable laws, as concluded by
the Primadonna Board in good faith after consultation with its counsel and
investment advisors) with material terms no less favorable to such Person
than those contained in the Confidentiality Agreement. Primadonna agrees
not to release any Third Party from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality
agreement between it and another Person who has made, or who may reasonably
be considered likely to make, an Acquisition Proposal, unless the failure
to take such action would be reasonably likely to be inconsistent with the
Primadonna Board's fiduciary duties under applicable laws, as concluded by
the Primadonna Board in good faith after consultation with its counsel and
investment advisors.
(x) Primadonna shall notify Buyer promptly after receipt by Primadonna or
Primadonna's knowledge of the receipt by any of its advisors of any
Acquisition Proposal or any request for non-public information in
connection with an Acquisition Proposal or for access to the properties,
books or records of Primadonna by any Person that informs such party that
it is considering making or has made an Acquisition Proposal. Such notice
shall be made orally and in writing and shall, except pursuant to this
(S)5(i), indicate the identity of the offeror and the
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terms and conditions of such proposal, inquiry or contact. Primadonna shall
keep Buyer informed of the status and the details (including any change to
the material terms) of any such Acquisition Proposal or request for non-
public information.
(y) Except as expressly permitted by (S)5(c) and this (S)5(i), neither
the Primadonna Board nor any committee thereof shall (A) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Buyer, the
approval or recommendation by the Primadonna Board or any such committee of
this Agreement or the Merger, (B) approve or cause Primadonna to enter into
a letter of intent, agreement in principle or any legally binding
acquisition agreement or similar agreement relating to any Acquisition
Proposal (any such legally binding agreement, an "Acquisition Agreement")
or (C) approve or recommend, or propose to publicly approve or recommend,
any Acquisition Proposal. Notwithstanding anything to the contrary
appearing in this Agreement, if Primadonna has received a Superior
Proposal, the Primadonna Board may, prior to approval of the Merger by
Primadonna's stockholders, terminate this Agreement pursuant to (S)(S)7(f)
and 8(l)(ii)(B), but only at a time that is more than 48 hours following
receipt by Buyer of written notice advising Buyer that the Primadonna Board
is prepared to accept such Superior Proposal, specifying the material terms
and conditions of such Superior Proposal and identifying the Third Party
making such Superior Proposal; provided, however, that concurrently with or
immediately after such termination, the Primadonna Board shall cause
Primadonna to enter into an Acquisition Agreement with respect to, or
recommend, such Superior Proposal.
(z) Nothing contained in this (S)5(i) shall prohibit Primadonna from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Securities Exchange Act or from making any
disclosure to Primadonna's stockholders if failure to so disclose would be
reasonably likely to be inconsistent with the Primadonna Board's fiduciary
duties under applicable laws, as concluded by the Primadonna Board in good
faith after consultation with its counsel and investment advisors;
provided, however, that, subject to (S)(S)5(c) and 5(i), neither Primadonna
nor the Primadonna Board (nor any committee thereof) shall withdraw or
modify, or propose publicly to withdraw or modify, its position with
respect to this Agreement or the Merger, or approve or recommend, or
propose publicly to approve or recommend, an Acquisition Proposal.
(j) Insurance and Indemnification.
(i) Indemnification. From and after the Effective Time, Buyer shall, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof, or
who becomes prior to the Effective Time, an officer or director of Primadonna
or any of its Subsidiaries (each an "Indemnified Party" and collectively, the
"Indemnified Parties") against (A) all losses, expenses (including reasonable
attorney's fees and expenses), claims, damages or liabilities or amounts paid
in settlement, arising out of actions or omissions occurring at or prior to the
Effective Time (and whether asserted or claimed prior to, at or after the
Effective Time) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director or officer of Primadonna or any of
its Subsidiaries (the "Indemnified Liabilities"), and (B) all Indemnified
Liabilities to the extent they are based on or arise out of or pertain to the
transactions contemplated by this Agreement; provided, however, that Buyer
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld or delayed), but provided
further, however, that Buyer, to the extent
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permitted, and on such conditions as may be required, by applicable law, will
periodically advance expenses to any Indemnified Party for such Indemnified
Party's legal and other out-of-pocket expenses (including the cost of any
investigation and preparation) incurred in connection with any action, suit or
proceeding pertaining to Indemnified Liabilities upon delivery to Buyer of
invoices therefor and other reasonable evidence thereof, notwithstanding the
immediately foregoing proviso. Buyer shall be entitled to control the defense
of all actions giving rise to such Indemnified Liabilities with a firm of
counsel selected by Buyer to represent all Indemnified Parties as a group with
respect to each such matter or group of related matters; provided that if,
under applicable standards of professional conduct, a conflict with respect to
any significant issue between positions of any Indemnified Party and any other
Indemnified Party or Indemnified Parties, or between Buyer and any Indemnified
Party, exists in connection with such matter, Buyer shall not be entitled to
control, and the Indemnified Party shall control, such defense with counsel of
such Indemnified Party's choice; but provided further, that Buyer shall not be
required to pay for more than one separate firm of counsel (other than
necessary local counsel) to represent all of the Indemnified Parties to which
such conflict relates. Buyer shall pay all reasonable costs and expenses of one
such separate firm of counsel (and necessary local counsel) upon delivery to
Buyer of invoices therefor and other reasonable evidence thereof.
(ii) Insurance. For a period of seventy-two months after the Effective Time,
Buyer shall cause to be maintained in effect policies of directors' and
officers' liability insurance covering acts or omissions occurring prior to the
Effective Time for the benefit of directors and officers of Primadonna and its
Subsidiaries who are currently covered by such policies on terms no less
favorable than the terms of such current insurance coverage; provided, however,
that Buyer shall not be required to expend in any year an amount in excess of
200% of the annual aggregate premiums currently paid by Primadonna for such
insurance; provided, further, that if the annual premiums of such insurance
coverage exceed such amount, Buyer shall be obligated to obtain a policy with
the best coverage available, in the reasonable judgment of the Buyer Board, for
a cost not exceeding such amount, and, provided, further, that, anything to the
contrary appearing in this (S)5(j) notwithstanding, Buyer may satisfy its
obligations under this (S)5(j)(ii) pursuant to Buyer's general insurance
policies as in effect from time to time with respect to Buyer and its
Subsidiaries, it being understood and agreed that Buyer shall be obligated to
obtain additional coverage solely to the extent coverage sufficient to satisfy
this (S)5(j)(ii) is not obtainable within such general coverage and policies.
(iii) Director and Officer Liability. Buyer will cause the Surviving
Corporation, for a period of seventy-two months after the Effective Time to (A)
maintain in effect in its articles of incorporation and by-laws the provisions
regarding the elimination of liability of directors and indemnification of and
advancement of expenses to officers, directors, employees and agents currently
contained in the articles of incorporation and by-laws of Primadonna and (B)
maintain the existing indemnification agreements covering directors and
officers of Primadonna, copies of which have been provided to Buyer before the
date of this Agreement.
(iv) Successors. In the event Buyer or any of its successors or assigns (A)
consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (B) transfers all or substantially all of its properties and assets
to any person or entity, then and in either such case, proper provisions shall
be made so that the successors and assigns of Buyer shall assume the
obligations set forth in this (S)5(j).
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(v) Benefit. The provisions of this (S)5(j) are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
(k) Title Insurance. Primadonna shall use its reasonable best efforts, and
cause each of its Subsidiaries to use its respective reasonable best efforts,
to assist Buyer in obtaining, at Buyer's sole cost, at the Effective Time,
title insurance coverage on terms and conditions reasonably satisfactory to
Buyer (including a "non-imputation" endorsement with respect to prior owners
and subject only to exceptions set forth on Schedule 5(k)) with respect to each
parcel of real property owned by Primadonna or any of its Subsidiaries, or
leased or subleased by Primadonna or any of its Subsidiaries under any Material
Lease (the "Title Insurance"), such policy to be issued by a title insurance
company or companies selected by Buyer and reasonably acceptable to Primadonna
(collectively, the "Title Insurer"). Such actions required of Primadonna shall
include, without limitation, the provision of such documentation and other
information as shall be reasonably requested by the Title Insurer and the
execution and delivery of such affidavits, indemnity agreements and other
documents as shall be reasonably requested by the Title Insurer. Primadonna
shall obtain from surveyors reasonably acceptable to Buyer all surveys of the
Primadonna real property necessary for the issuance of the Title Insurance at
Buyer's cost.
(l) Rule 145 Affiliates. (i) Substantially contemporaneously with the
execution of this Agreement, Primadonna will deliver to Buyer a list
identifying, to Primadonna's Knowledge, those Persons who will be, at the time
of the Special Primadonna Meeting, "affiliates" of Primadonna within the
meaning of Rule 145 promulgated under the Securities Act ("Rule 145"; and each
such Person who is an "affiliate" of Primadonna within the meaning of Rule 145
is referred to as a "Rule 145 Affiliate"). Primadonna shall provide to Buyer
such information and documents as Buyer shall reasonably request for purposes
of reviewing such list and shall notify Buyer in writing regarding any change
in the identity of its Rule 145 Affiliates prior to the Closing Date.
Primadonna shall use all reasonable efforts to deliver or cause to be delivered
to Buyer as soon as practicable (and in any case prior to the Effective Time)
from each of its Rule 145 Affiliates, an executed affiliate agreement in
substantially the form attached hereto as Exhibit D attached hereto (an
"Affiliate Agreement"). Notwithstanding anything in this Agreement to the
contrary, certificates formerly representing Primadonna Shares ("Primadonna
Stock Certificates") surrendered for exchange by any Rule 145 Affiliate of
Primadonna shall not be exchanged until the later of (A) the date Buyer has
received an Affiliate Agreement from such Rule 145 Affiliate or (B) the date
such Buyer Shares are transferable pursuant to the Affiliate Agreement
regardless of whether such agreement was executed by the Rule 145 Affiliate.
(ii) Buyer covenants that through the second anniversary of the date on which
the Effective Time occurs, it will file the reports required to be filed by it
under the Securities Act and the Exchange Act (including but not limited to the
reports under Section 13 and Section 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 and the rules and regulations adopted by the
SEC thereunder) in a timely manner and, if at any time during such period Buyer
is not required to file such reports, it will, upon the request of any Rule 145
Affiliate who is then the holder of Buyer Shares acquired pursuant to the
Merger, make publicly available other information so long as necessary to
permit sales pursuant to Rule 144. Buyer further covenants that it will take
such further action as such Rule 145 Affiliate may reasonably request, all to
the extent required from time
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to time to enable such Rule 145 Affiliate to sell Buyer Shares acquired
pursuant to the Merger without registration under the Securities Act within the
limitation of the exemptions provided by (A) Rule 144, or (B) any similar rule
or regulation hereafter adopted by the SEC. Upon the request of any such Rule
145 Affiliate, Buyer will deliver to such Rule 145 Affiliate a written
statement as to whether it has complied with such information and requirements.
(m) Certain Covenants Respecting Employee Benefit Plans.
(i) Buyer shall cause the Surviving Corporation and its Subsidiaries to
honor all written employment, consulting, severance and termination
agreements (including change in control provisions) of the employees of
Primadonna and its Subsidiaries set forth on (S)3(m) of the Disclosure
Schedule. Buyer acknowledges that consummation of the transactions
contemplated by this Agreement will constitute a change in control (or
change of control) of Primadonna (to the extent such concept is applicable)
for the purpose of the Primadonna Employee Benefit Plans.
(ii) For purposes of determining eligibility to participate, vesting and
entitlement to benefits where length of service is relevant under any
Employee Benefit Plan of Buyer or the Surviving Corporation, other than for
purposes of benefit accrual under any Pension Plan, employees of Primadonna
and its Subsidiaries as of the Effective Time shall receive service credit
for service with Primadonna and any of its Subsidiaries to the same extent
such service was granted under the Primadonna Employee Benefit Plans;
provided, however, that such service need not be credited to the extent
that it would result in a duplication of benefits.
(iii) Nothing in this Agreement is intended to create any right of
employment for any person or to create any obligation for Buyer or the
Surviving Corporation to continue any Primadonna Employee Benefit Plans
following the Effective Time, except as provided in (S)5(m)(i).
(iv) Buyer will, or will cause the Surviving Corporation and its
Subsidiaries to, (i) waive all limitations as to preexisting conditions
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Affected Employees under any Welfare Plans
that such employees may be eligible to participate in after the Closing
Date, other than limitations or waiting periods that are already in effect
with respect to such employees and that have not been satisfied as of the
Closing Date under any Welfare Plan maintained for the Affected Employees
immediately prior to the Closing Date, and (ii) use its best efforts to
provide each Affected Employee with credit for any co-payments and
deductibles paid prior to the Closing Date in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Closing Date.
(n) Covenants Regarding Certain Closing Conditions. Primadonna shall use its
reasonable best efforts, and cause each of its Subsidiaries to use their
respective reasonable best efforts, to deliver to Buyer and to cause its Family
Member Affiliates to deliver to Buyer such items as shall be required to be
delivered to Buyer by (S)(S)6(a)(x) and (xvii) on the Closing Date.
(o) Cooperation with Respect to Certain Litigation. The Parties shall
cooperate with each other in all reasonable respects with respect to, and shall
each give the others a reasonable opportunity to participate in the defense of,
any litigation against any Party or its directors relating to the transactions
contemplated by this Agreement.
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(p) Acquisition Corp. Approval. Buyer, as the sole stockholder of Acquisition
Corp., will approve this Agreement and the transactions contemplated hereby, as
soon as practicable.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of Buyer. The obligation of Buyer to consummate
the transactions to be performed by it in connection with the Closing is
subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
Primadonna Stockholder Approval;
(ii) Primadonna shall have procured all of the third party consents
required to be obtained by it or any of its Subsidiaries pursuant to
(S)5(b) above;
(iii) the representations and warranties set forth in (S)3 above shall be
true and correct at and as of the Closing Date (except for any such
representations and warranties made as of a specific date, which shall be
true and correct as of such date);
(iv) Primadonna shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) Since September 30, 1998 no actions or proceedings shall have been
commenced or filed against Primadonna and/or any of its Subsidiaries which
(A) are reasonably likely to be adversely determined against Primadonna or
such Subsidiaries and (B) if adversely determined against Primadonna or
such Subsidiaries are reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on Primadonna; and no temporary
restraining order or preliminary injunction or other order by any
Governmental Authority preventing consummation of the Merger shall have
been issued and be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under any
applicable federal or state law or regulation;
(vi) Primadonna shall have delivered to Buyer a certificate to the effect
that each of the conditions specified above in (S)6(a)(i)-(v) is satisfied
in all respects;
(vii) the Registration Statement shall have become effective under the
Securities Act;
(viii) Buyer Shares that will be issued in connection with the Merger
shall have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance;
(ix) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all other authorizations, consents, and
approvals of Governmental Authorities referred to in (S)3(d) and (S)4(d)
above;
(x) Buyer shall have received from McDonald Carano Wilson McCune Bergin
Frankovich & Hicks LLP, counsel to Primadonna, an opinion substantially in
the form and substance of Exhibit E hereto;
(xi) Buyer shall have received the resignations, effective as of the
Closing, of each director and officer of Primadonna and its Subsidiaries
other than those whom Buyer shall have specified in writing at least five
business days prior to the Closing;
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(xii) all actions to be taken by Primadonna in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to Buyer;
(xiii) Buyer shall have received the Title Insurance from the Title
Insurer;
(xiv) Buyer shall have received counterparts of a Registration Rights and
Standstill Agreement substantially in the form of Exhibit F hereto (the
"Registration Rights and Standstill Agreement"), duly executed and
delivered by each party thereto other than Buyer;
(xv) Buyer shall have received counterparts of an Agreement Regarding
Certain Insurance substantially in the form of Exhibit G hereto (the
"Agreement Regarding Certain Insurance"), duly executed and delivered by
each party thereto other than Buyer;
(xvi) Buyer shall have received counterparts of an Asset Disposition
Agreement substantially in the form of Exhibit H (the "Asset Disposition
Agreement"), duly executed and delivered by each party thereto other than
Buyer;
(xvii) Buyer shall have received an estoppel letter from Primm South Real
Estate Company, a Nevada corporation ("Primm South"), as the lessor under
the Amended and Restated Ground Lease Agreement effective as of July 1,
1993 (as amended, supplemented or otherwise modified from time to time, the
"Primm South Lease"), between The Primadonna Corporation, a Nevada
corporation, as lessee, and Primm South, as lessor, certifying that the
Merger will not cause or constitute a default or breach under the Primm
South Lease, that the Merger will not constitute or result in an event
requiring that the consent of the lessor under Section 16B of the Primm
South Lease be obtained, that the Primm South Lease will remain in full
force and effect following the Merger, and that after giving effect to the
Merger:
(A) the Water Rights presently enjoyed by Primadonna and its
Subsidiaries in connection with the Primm South Lease will remain in
full force and effect, and be held by the Surviving Corporation and its
Subsidiaries together with the leasehold estates under the Primm South
Lease (the "Leasehold Estates"), and that the Merger will not affect,
trigger or otherwise allow the exercise of, any rights held by Primm
South or any of its Affiliates under Section 13.2(c) of the Primm South
Lease;
(B) the rights presently enjoyed by Primadonna and its Subsidiaries
under Section 5.2 of the Primm South Lease with respect to land owned
or controlled by Primm South and its Affiliates (the "Adjacent Land")
will remain in full force and effect, and be held by Surviving
Corporation and its Subsidiaries together with the Leasehold Estates,
after giving effect to the Merger; and
(C) the rights presently enjoyed by Primadonna and its Subsidiaries
under Section 21 of the Primm South Lease will remain in full force and
effect, and be held by Surviving Corporation and its Subsidiaries
together with the Leasehold Estates, after giving effect to the Merger;
(xviii) Buyer shall have received an estoppel letter in substantially the
form of Exhibit I hereto from Primm South and Dry Lake, Inc. duly executed
and delivered by each party thereto; and
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(xix) O'Melveny & Myers LLP shall have delivered to Buyer a reasoned
opinion with respect to the Dry Lake Easement and Exclusivity Agreement, in
form and substance reasonably acceptable to Buyer, to the effect that, if
California law were to apply to such agreement, a court should hold that
(i) the rights and obligations of The Primadonna Corporation under such
agreement will be no less enforceable and effective after giving effect to
the Merger or any subsequent transfer of stock of either the Surviving
Corporation of The Primadonna Corporation than they were immediately prior
to the Merger, and (ii) neither the Merger nor any such subsequent transfer
of stock will constitute a breach or default by The Primadonna Corporation,
or give rise to any right to terminate in favor of any other party, under
such agreement.
Except for matters which would make performance of this Agreement unlawful,
Buyer may waive any condition specified in this (S)6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of Primadonna. The obligation of Primadonna to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) Buyer shall have procured all third party consents required to have
been obtained by Buyer or any of its Subsidiaries under (S)5(b) above;
(ii) the Registration Statement shall have become effective under the
Securities Act;
(iii) Buyer Shares that will be issued in connection with the Merger
shall have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance;
(iv) the representations and warranties set forth in (S)4 above shall be
true and correct at and as of the Closing Date (except for any such
representations and warranties made as of a specific date, which shall be
true and correct as of such date);
(v) Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(vi) Since September 30, 1998 no actions or proceedings shall have been
commenced or filed against Buyer and/or any of its Subsidiaries which (A)
are reasonably likely to be adversely determined against Buyer or such
Subsidiaries and (B) if adversely determined against Buyer or such
Subsidiaries are reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Buyer; and no temporary restraining order
or preliminary injunction or other order by any Governmental Authority
preventing consummation of the Merger shall have been issued and be
continuing in effect, and the Merger and the other transactions
contemplated hereby shall not be prohibited under any applicable federal or
state law or regulation;
(vii) Buyer shall have delivered to Primadonna a certificate to the
effect that each of the conditions specified above in (S)6(b)(i)-(vi) is
satisfied in all respects;
(viii) this Agreement and the Merger shall have received the Requisite
Primadonna Stockholder Approval;
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(ix) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all other authorizations, consents, and
approvals of governments and governmental agencies referred to in (S)3(d)
and (S)4(d) above;
(x) Primadonna shall have received from Primadonna's tax counsel an
opinion in form and substance reasonably satisfactory to Primadonna to the
effect that (1) the Merger will constitute a tax-free reorganization
pursuant to Code (S)368(a), (2) Buyer, Primadonna, and Acquisition Corp.
will each be a party to the reorganization within the meaning of Code
(S)368(b) and (3) no gain or loss will be recognized by the stockholders of
Primadonna as a result of the Merger, except to the extent that cash is
received in lieu of a fractional Buyer Share; it being understood that in
rendering such opinion such counsel may require and rely upon
representations as to matters of fact (but not law) contained in
certificates of officers of each of the Parties;
(xi) all actions to be taken by Buyer in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance
to Primadonna;
(xii) Primadonna shall have received counterparts of the Registration
Rights and Standstill Agreement, duly executed and delivered by Buyer;
(xiii) Primadonna shall have received counterparts of the Agreement
Regarding Certain Insurance, duly executed and delivered by Buyer; and
(xiv) Primadonna shall have received a counterpart of the Asset
Disposition Agreement, duly executed and delivered by Buyer.
Except for matters which would make performance of this Agreement unlawful,
Primadonna may waive any condition specified in this (S)6(b) if it executes a
writing so stating at or prior to the Closing.
7. Termination. This Agreement may be terminated at any time prior to the
Effective Time (with respect to (S)(S)7(b) through (j), by written notice by
the terminating party to the other party), whether before or after approval of
the matters presented in connection with the Merger by the stockholders of
Primadonna:
(a) by mutual written consent of Primadonna and Buyer; or
(b) by either Buyer or Primadonna if the Merger shall not have been
consummated by April 30, 1999; provided that (i) if the Merger shall not have
been consummated because the requisite Governmental Approvals required
hereunder shall not have been obtained and are still being pursued, either
Buyer or Primadonna may extend such date to August 31, 1999 by providing
written notice thereof to the other Parties and (ii) the right to terminate
this Agreement under this (S) 7(b) shall not be available to any Party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date; or
(c) by either Buyer or Primadonna if a court of competent jurisdiction or
other Governmental Authority shall have issued a nonappealable final order,
decree or ruling or taken any other
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nonappealable final action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; or
(d) by either Buyer or Primadonna, if, at the Special Primadonna Meeting
(including any adjournment or postponement), the requisite vote of the
stockholders of Primadonna in favor of the approval and adoption of this
Agreement and the Merger shall not have been obtained; or
(e) by Buyer, if for any reason Primadonna fails to call and hold the Special
Primadonna Meeting by April 30, 1999; provided, that Buyer's right to terminate
this Agreement under this clause (e) shall not be available if at such time
Primadonna would be entitled to terminate this Agreement under (S)7(j); or
(f) by Primadonna, in accordance with (S)5(i); provided, however, that no
termination pursuant to this (S)7(f) shall be deemed effective unless
Primadonna shall have complied in all material respects with all provisions
contained in (S)5(i), including the notice provision therein, and the
applicable requirements of (S)8(l), including the payment of the termination
fee pursuant to (S)8(l)(ii)(B); or
(g) by Primadonna if (i) the Buyer Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Primadonna its approval of the
Merger or this Agreement or (ii) the Buyer Board or any committee thereof shall
have resolved to take any of the foregoing actions; provided that nothing in
this (S)7(g) shall create any implication as to whether or not such an action
by the Buyer Board, or any committee thereof, if taken, would constitute a
breach of this Agreement; or
(h) by Buyer or Primadonna if (i) the Primadonna Board or any committee
thereof shall have, pursuant to (S)5(c)(i)(A), withdrawn or modified in a
manner adverse to Buyer the Primadonna Board's approval or recommendation of
the Merger or this Agreement, or approved or recommended any Superior Proposal
or (ii) the Primadonna Board or any committee thereof shall have resolved to
take any of the foregoing actions; provided, however, that no termination by
Primadonna pursuant to this (S)7(h) shall be deemed effective unless Primadonna
shall have complied in all material respects with all provisions contained in
(S)5(c)(i)(A), including the notice provision therein, and the applicable
requirements of (S)8(l), including the payment of the termination fee pursuant
to (S)8(l)(ii)(C); or
(i) by Buyer if (i) the Primadonna Board or any committee thereof shall have,
other than pursuant to (S)(S)5(c)(i)(A) or 5(i), withdrawn or modified in a
manner adverse to Buyer the Primadonna Board's approval or recommendation of
the Merger or this Agreement, or approved or recommended any Superior Proposal
or (ii) the Primadonna Board or any committee thereof shall have resolved to
take any of the foregoing actions; provided that nothing in this (S)7(i) shall
create any implication as to whether or not such an action by the Primadonna
Board, or any committee thereof, if taken, would constitute a breach of this
Agreement; or
(j) by Buyer or Primadonna, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the non-terminating party set
forth in this Agreement, which breach will cause the conditions set forth in
(S)6(b) (in the case of termination by Primadonna) or (S)6(a) (in the case of
termination by Buyer) not to be satisfied;
then, and in the event of any termination of this Agreement under this (S)7,
all rights and obligations of the Parties hereunder shall terminate without any
Liability of any Party to any other Party except
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for any Liability of any Party then in breach and except as otherwise expressly
provided herein, including pursuant to (S)8(l), and in the Confidentiality
Agreement. Nothing appearing in this (S)7 shall be construed to restrict any
Party's right to seek or obtain specific performance hereunder prior to
termination of this Agreement or the Confidentiality Agreement.
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants of the
Parties (other than the provisions in (S)2, (S)5(j) (concerning insurance and
indemnification), (S)5(l)(ii) (concerning Rule 144), (S)5(m) (concerning
certain Benefit Plans) and (S)8(p) (concerning the membership of Gary Primm on
the Buyer Board)) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties, which
consent shall not be unreasonably delayed or withheld; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its publicly-
traded securities (in which case the disclosing Party will use its reasonable
best efforts to advise the other Party prior to making the disclosure).
(c) No Third Party Beneficiaries. Except as provided by the terms of (S)(S)2
, 5(j), 5(l)(ii), 5(m) and 8(p) hereof, this Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
(f) Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(h) Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth below:
If to Primadonna:
Primadonna Resorts, Inc.
P.O. Box 95997
Interstate 15
Las Vegas, Nevada 89193-5997
Fax: (702) 679-7222
Attention: Gary E. Primm, Chairman
Copies to:
O'Melveny & Myers
1999 Avenue of the Stars, 7th FL
Los Angeles, CA 90067
Fax: (310) 246-6779
Attention: Kendall R. Bishop, Esq.
and
McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP
241 Ridge St., 4th FL
Reno, NV 89501
Fax: (702) 329-0783
Attention: Bob Armstrong, Esq.
If to Buyer:
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: James J. Murren, Chief Financial Officer
Fax: (702) 891-1114
Copy to:
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars
Eighteenth Floor
Los Angeles, California 90067-5010
Fax: (310) 556-2920
Attention: Gary N. Jacobs, Esq.
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If to Acquisition Corp:
c/o MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: James J. Murren, Chief Financial Officer
Fax: (702) 891-1114
Copy to:
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars
Eighteenth Floor
Los Angeles, California 90067-5010
Fax: (310) 556-2920
Attention: Gary N. Jacobs, Esq.
Any notice given in compliance with this (S)8(h) shall be deemed received by
the party to whom notice is given at the earlier of the date such notice is
actually received by such party and two business days after such notice is
given. Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using personal delivery, expedited courier, messenger service or
telecopy. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Party notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Nevada without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Nevada or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Nevada.
(j) Amendments and Waivers. The Parties may amend any provision of this
Agreement at any time prior to the Effective Time (whether before or after
approval by the Primadonna Stockholders) with the prior authorization of their
respective boards of directors; provided, however, that any amendment effected
subsequent to Primadonna Stockholder approval will be subject to the
restrictions contained in the NRS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
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(l) Expenses.
(i) Except as expressly provided in (S)8(l)(ii) below, each of the
Parties will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
(ii) On the date of the earliest to occur of the events specified under
clauses (A) through (C) below, Primadonna shall pay to Buyer, via wire
transfer of same-day funds, a termination fee equal to the sum of $10
million:
(A) the termination of this Agreement by Buyer or Primadonna pursuant
to (S)7(d); or
(B) the termination of this Agreement by Primadonna pursuant to
(S)7(f); or
(C) the termination of this Agreement by Primadonna pursuant to
(S)7(h).
Primadonna's payment of a termination fee pursuant to this (S)8(l)(ii) shall
be the sole and exclusive remedy of Buyer against Primadonna and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise
to such payment; provided that this limitation shall not apply in the event of
a breach of this Agreement by Primadonna; and provided, further, that nothing
in this (S)8(l) shall be construed to waive or limit any right of Buyer to seek
or obtain specific performance hereunder, as against any stockholder of
Primadonna under any Support Agreement or against any other Person under any
agreement executed and delivered in connection with the Merger. Except as
provided in this (S)8(l), the remedies provided in this Agreement and the
Confidentiality Agreement are cumulative and not exclusive of any remedies
provided by law.
(m) Construction. Each of the Parties has participated in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted by
all the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall,
throughout this Agreement, means "including without limitation".
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Non-Involvement of Tracinda. The Parties acknowledge that neither Kirk
Kerkorian nor Tracinda Corporation, individually or collectively, is a party to
this Agreement or any exhibit or agreement provided for herein, other than the
Tracinda Support Agreement. Accordingly, the Parties hereby agree that in the
event (i) there is any alleged breach or default by any Party under this
Agreement or any exhibit or agreement provided for herein, or (ii) any Party
has any claim arising from or relating to any such agreement, no Party, nor any
party claiming through it (to the extent permitted by applicable law), shall
commence any proceedings or otherwise seek to impose any liability whatsoever
against Kirk Kerkorian or Tracinda Corporation by reason of such alleged
breach, default or claim unless such alleged breach or default relates to the
Tracinda Support Agreement.
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(p) Buyer Board Representation. Buyer hereby agrees to cause Gary Primm (A)
to be appointed as a member of the Buyer Board promptly upon the later of the
Effective Time and his and Buyer's receipt of all licensing and other approvals
required for such membership under any Buyer Gaming Laws or by any Governmental
Authority with respect to any jurisdiction in which Buyer or any of its
Subsidiaries conduct or propose to conduct gaming operations, including
Detroit, Michigan and Atlantic City, New Jersey (collectively, "Primm Board
Membership Licenses"), and (B) to be included in the management slate of
individuals next proposed by Buyer after the Effective Time to be elected as
members of the Buyer Board provided all Primm Board Membership Licenses have
been obtained at the time such slate is proposed.
*****
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
MGM GRAND, INC.
By: _________________________________
Title: ______________________________
MGM GRAND ACQUISITION CORP.
By: _________________________________
Title: ______________________________
PRIMADONNA RESORTS, INC.
By: _________________________________
Title: ______________________________
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EXHIBIT A
STOCKHOLDER SUPPORT AGREEMENT
This STOCKHOLDER SUPPORT AGREEMENT, dated as of December 2, 1998 (this
"Agreement"), by __________________ ("Stockholder") is to and for the benefit of
MGM GRAND, INC., a Delaware corporation ("Buyer"). Capitalized terms used and
not otherwise defined herein shall have the respective meanings assigned to
them in the Merger Agreement referred to below.
WHEREAS, as of the date hereof, Stockholder is the beneficial owner
(excluding shares underlying stock options held by Stockholder) of ______ shares
of common stock, par value $0.01 per share ("Primadonna Common Stock"), of
Primadonna Resorts, Inc. ("Primadonna"), a Nevada corporation, including _______
shares of Primadonna Common Stock owned of record (such shares, together with
any other voting or equity securities hereafter acquired by Stockholder prior
to the termination of this Agreement, being referred to herein collectively as
the "Shares"); and
WHEREAS, concurrently with the execution of this Agreement, Buyer, MGM
Acquisition Corp., and Primadonna are entering into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to
which, upon the terms and subject to the conditions thereof, Acquisition Corp.
will be merged with and into Primadonna such that Primadonna will become a
wholly-owned subsidiary of Buyer (the "Merger"); and
WHEREAS, as a condition to the willingness of Buyer and Acquisition Corp. to
enter into the Merger Agreement, Buyer has requested Stockholder agreement, and
in order to induce Buyer and Acquisition Corp. to enter into the Merger
Agreement, the Stockholder is willing to agree to vote in favor of adopting the
Merger Agreement and approving the Merger, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties agree as follows:
Section 1. Voting of Shares. Until the termination of this Agreement in
accordance with the terms hereof, Stockholder hereby agrees that, at the
Special Primadonna Meeting (as defined in the Merger Agreement) or any other
meeting of the stockholders of Primadonna, however called, and in any action by
written consent of the stockholders of Primadonna, Stockholder will vote all of
Stockholder's respective Shares (a) in favor of adoption of the Merger
Agreement and approval of the Merger and the other transactions contemplated by
the Merger Agreement, and (b) in favor of any other matter necessary for the
consummation of the transactions contemplated by the Merger Agreement and
considered and voted upon by the stockholders of (or any class) of Primadonna.
In addition, Stockholder agrees that it will, upon request by Buyer, furnish
written confirmation, in form and substance reasonably acceptable to Buyer, of
such Stockholder's vote in favor of the Merger Agreement and the Merger;
provided, however, anything to the contrary appearing in this Agreement
notwithstanding, that Stockholder shall not at any time be obligated to vote
any of Stockholder's respective Shares in a manner prohibited by the terms of
an injunction issued by any court having jurisdiction. Stockholder acknowledges
receipt and review of a copy of the Merger Agreement.
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Section 2. Transfer of Shares. Subject to and except as permitted by Section
8 of this Agreement, Stockholder represents, warrants and covenants that
Stockholder shall not take, and has no present intention of taking, action,
prior to the termination of this Agreement in accordance with the terms hereof,
to, directly or indirectly, (a) sell, assign, transfer (including by merger,
interspousal disposition pursuant to a domestic relations proceeding or
otherwise by operation of law), pledge, encumber or otherwise dispose of any of
the Shares, (b) deposit any of the Shares into a voting trust or enter into a
voting agreement or arrangement with respect to the Shares or grant any proxy
or power of attorney with respect thereto which is inconsistent with this
Agreement or (c) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect sale, assignment, transfer
(including by merger, testamentary disposition, interspousal disposition
pursuant to a domestic relations proceeding or otherwise by operation of law)
or other disposition of any Shares except, in each case, if the Shares remain
subject to the terms of this Agreement and the parties to such transaction
execute and deliver to Buyer an assignment and assumption agreement, in form
and substance reasonably acceptable to Buyer, providing that such Shares remain
so subject.
Section 3. Representations and Warranties of Stockholder. Stockholder hereby
represents and warrants to Buyer with respect to Stockholder and Stockholder's
ownership of the Shares as follows:
(a) Ownership of Shares. On the date hereof, the Shares are owned as set
forth in the first "whereas" clause of this Agreement, Stockholder has sole
voting power, without restrictions, with respect to all of the Shares.
(b) Power, Binding Agreement. Stockholder has the legal capacity, power and
authority to enter into and perform all of Stockholder's obligations under this
Agreement. The execution, delivery and performance of this Agreement by
Stockholder will not violate any other agreement to which Stockholder is a
party, including, without limitation, any voting agreement, stockholders'
agreement, partnership agreement or voting trust. This Agreement has been duly
and validly executed and delivered by Stockholder and constitutes a valid and
binding obligation of Stockholder, enforceable against Stockholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(c) No Conflicts. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, conflict
with or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under, any
provision of any loan or credit agreement, note, bond, mortgage, indenture,
lease, or other agreement, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Stockholder or any of Stockholder's properties or assets, other than such
conflicts, violations or defaults or terminations, cancellations or
accelerations which individually or in the aggregate do not materially impair
the ability of Stockholder to perform Stockholder's obligations hereunder.
Subject to Nevada Gaming Laws, no consent, approval, order or authorization of,
or registration, declaration, or filing with, any governmental entity is
required by or with respect to the execution and delivery of this Agreement by
Stockholder and the consummation by Stockholder of the transactions
contemplated hereby.
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Section 4. No Solicitation. Prior to the termination of this Agreement in
accordance with its terms, Stockholder agrees that (i) in Stockholder's
individual capacity Stockholder will not, nor will Stockholder authorize or
permit any of Stockholder's employees, agents and representatives to, directly
or indirectly, (a) initiate, solicit or encourage any inquiries or the making
of any Acquisition Proposal (as defined in the Merger Agreement), (b) enter
into any agreement with respect to any Acquisition Proposal, or (c) participate
in any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal, and (ii) Stockholder will notify
Buyer as soon as possible if any such inquiries or proposals are received by,
any information or documents are requested from, or any negotiations or
discussions are sought to be initiated or continued with, Stockholder or any of
Stockholder's affiliates in Stockholder's individual capacity.
Section 5. Termination. This Agreement shall terminate upon the earliest to
occur of (i) the Effective Time (as such term is defined in the Merger
Agreement) or (ii) any termination of the Merger Agreement in accordance with
the terms thereof; provided that (a) the provisions of Sections 6, 9 and 10 of
this Agreement shall survive any termination of this Agreement if the Merger
(as such term is defined in the Merger Agreement) shall occur; and (b) no
termination of this Agreement shall relieve any party of liability for a breach
hereof prior to termination.
Section 6. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 7. Fiduciary Duties. Notwithstanding anything herein to the contrary,
(i) no provision of this Agreement shall require Stockholder to act (or refrain
from acting) in any manner in respect of any capacity of Stockholder as a
director or officer of Primadonna, and (ii) the provisions of this Agreement
only relate to Stockholder in Stockholder's capacity as a stockholder of
Primadonna.
Section 8. Broker Letter. of the shares are owned beneficially by
Stockholder through brokerage or other accounts at . Immediately upon
the execution and delivery of this Agreement, Stockholder shall execute and
deliver to each broker or dealer or other institution or entity, holding any of
Stockholder's Primadonna Common Stock, with a copy to Buyer, a letter
substantially in the form of Exhibit A hereto (the "Brokers Letters").
Stockholder agrees that Stockholder shall not revoke the instructions in the
Brokers Letters until the Effective Time or the earlier termination of the
Merger Agreement in accordance with the terms thereof.
Section 9. Standstill. Without limitation to any of Stockholder's obligations
appearing in this Agreement above, Stockholder irrevocably agrees that, without
the prior written consent of Buyer, Stockholder will not sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase, or
otherwise transfer or dispose of, any Buyer Shares (as defined in the Merger
Agreement) obtained pursuant to the Merger Agreement for a period beginning at
the Effective Time and ending 180 days after the Effective Time, except for
transfers to family members, trusts for the benefit of family members or
charitable organizations, provided that such transferees are bound by the
transfer restrictions of this Agreement. Prior to the expiration of such
period, Stockholder will not announce
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or disclose, other than a request under the Registration Rights Agreement, any
intention to do anything after the expiration of such period which the
undersigned is prohibited, as provided in the preceding sentence, from doing
during such period. Stockholder agrees that the provisions of this Agreement
shall be binding also upon the successors, assigns, heirs and personal
representatives of the undersigned.
Section 10. Miscellaneous. (a) This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect thereto. This Agreement may not be amended,
modified or rescinded except by an instrument in writing signed by each of the
parties hereto.
(b) If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible.
(c) This Agreement shall be governed by and construed in accordance with the
laws of the State of Nevada without regard to the principles of conflicts of
law thereof.
Section 11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed as of the date first written above.
STOCKHOLDER
[ ]
_____________________
Agreed and Acknowledged:
MGM GRAND, INC.
By: _________________________________
Its: ________________________________
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EXHIBIT A
[Form of Broker Instruction Letter]
December , 1998
[Brokerage Company]
[address of Brokerage Company]
Re: [ ] Account Number [ ]
______ ______
Dear [ ]:
______
The undersigned owns certain shares of common stock, par value $0.01 per
share , of Primadonna Resorts, Inc., a Nevada corporation ("Primadonna Common
Stock"), which are held in account(s) maintained with you by the undersigned,
including accounts numbered [ ]. The undersigned has entered into a
Stockholder Support Agreement, dated as of December 2, 1998 (the "Support
Agreement"), for the benefit of MGM Grand, Inc., a Delaware corporation ("MGM
Grand"). Under the Support Agreement the undersigned has agreed to vote the
Primadonna Common Stock in support of the proposed acquisition of Primadonna
Resorts, Inc. by MGM Grand, which was recently publicly announced.
In the event you propose to sell or otherwise dispose of any Primadonna
Common Stock of the undersigned which is held by you (including pursuant to (i)
instructions of or on behalf of the undersigned, (ii) compliance with any
margin rules or regulations, or (iii) any pledge of such Primadonna Common
Stock), prior to effecting such sale, you are hereby instructed to first offer
such Primadonna Common Stock to MGM Grand for purchase, and to provide MGM
Grand a reasonable period to act on your offer (not less than 24 hours).
Communications to MGM Grand should be made at the following address:
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Phone: (702) 891-3320
Fax: (702) 891-1114
Attention: Scott Langsner, Treasurer
The instructions appearing in this letter are unconditional and effective
immediately, and are not contingent on your return of this letter or any
further action by you, the undersigned or any other person. However, we would
greatly appreciate your acknowledgment and return of this letter to MGM Grand
at the above address.
Very truly yours,
[ ]
___________________
Acknowledged and agreed:
[Brokerage Company]
By: _________________________________
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EXHIBIT B
SUPPORT AGREEMENT
TRACINDA CORPORATION
This SUPPORT AGREEMENT, dated as of December 2, 1998 (this "Agreement"), by
TRACINDA CORPORATION, a Nevada corporation ("Stockholder") is to and for the
benefit of PRIMADONNA RESORTS, INC. ("Primadonna"), a Nevada corporation.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings assigned to them in the Merger Agreement referred to below.
WHEREAS, concurrently with the execution of this Agreement, MGM Grand, Inc.
("MGM Grand"), a Delaware corporation , MGM Acquisition Corp., and Primadonna
are entering into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), pursuant to which, upon the terms and subject to the
conditions thereof, Acquisition Corp. will be merged with and into Primadonna
such that Primadonna will become a wholly-owned subsidiary of MGM Grand (the
"Merger"); and
WHEREAS, as of the date hereof, Stockholder is the beneficial owner of
34,110,716 shares of Common Stock, $.01 par value per share of MGM Grand (such
shares, together with any other voting or equity securities hereafter acquired
by Stockholder prior to the termination of this Agreement, being referred to
herein collectively as the "Shares"); and
WHEREAS, as a condition to the willingness of Primadonna to enter into the
Merger Agreement, Primadonna has requested this agreement, and in order to
induce Primadonna to enter into the Merger Agreement, Stockholder is willing to
agree to vote the Shares in favor of the adoption of a stock option plan or the
amendment to MGM Grand's existing stock option plans as contemplated by
(S)2(d)(viii) of the Merger Agreement, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties agree as follows:
Section 1. Voting of Shares. Until the termination of this Agreement in
accordance with the terms hereof, Stockholder hereby agrees that, at any
meeting of the stockholders of MGM Grand, however called, and in any action by
written consent of the stockholders of MGM Grand, Stockholder will vote all of
the Shares in favor of the adoption of a stock option plan or the amendment to
the MGM Grand's existing stock option plans as contemplated by (S)2(d)(viii) of
the Merger Agreement.
Section 2. Termination. This Agreement shall terminate upon the earlier to
occur of (i) the Effective Time (as such term is defined in the Merger
Agreement) or (ii) any termination of the Merger Agreement in accordance with
the terms thereof, but in no event later than April 30, 1999 (unless the
termination date of the Merger Agreement is extended in accordance with its
terms beyond April 30, 1999 but not later than August 31, 1999, in which event
this Agreement shall continue in existence until such later termination date).
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Section 3. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 4. Miscellaneous. (a) This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect thereto. This Agreement may not be amended,
modified or rescinded except by an instrument in writing signed by each of the
parties hereto.
(b) If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible.
(c) This Agreement shall be governed by and construed in accordance with the
laws of the State of Nevada without regard to the principles of conflicts of
law thereof.
Section 5. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed as of the date first written above.
TRACINDA CORPORATION
By: _________________________________
Its: ________________________________
Agreed and Acknowledged:
PRIMADONNA RESORTS, INC.
By: _________________________________
Its: ________________________________
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EXHIBIT C
ARTICLES OF MERGER OF
MGM GRAND ACQUISITION CORP., A NEVADA CORPORATION INTO
PRIMADONNA RESORTS, INC., A NEVADA CORPORATION
Primadonna Resorts, Inc., a Nevada corporation, and MGM Grand Acquisition
Corp., a Nevada corporation, hereby certify that:
1.The name and jurisdiction of organization of each of the constituent
entities are:
a.Primadonna Resorts, Inc., a Nevada corporation ("Primadonna"); and
b.MGM Grand Acquisition Corp., a Nevada corporation ("MGM").
2.The name of the surviving corporation is Primadonna Resorts, Inc.
3.The surviving corporation is a corporation of the State of Nevada.
4.A plan of merger has been approved, adopted, certified, executed and
acknowledged by each of Primadonna and MGM in accordance with the provisions of
Chapter 92A of the Nevada Revised Statutes.
5.A plan of merger was submitted to the owners of each of Primadonna and MGM
pursuant to Chapter 92A of the Nevada Revised Statutes.
6.The only outstanding stock of Primadonna is its common stock. There are a
total of 28,819,000 shares outstanding, each entitled to cast one vote on the
plan of merger. The total number of votes cast for the plan were ,
and the total number of votes cast against the plan were . The
number of votes cast for the plan of merger by the owners of Primadonna common
stock was sufficient for approval by the owners of that class of stock.
7.The only outstanding stock of MGM is its common stock. There are a total of
shares outstanding, each entitled to cast one vote on the plan
of merger. The total number of votes cast for the plan were , and the
total number of votes cast against the plan were . The number of
votes cast for the plan of merger by the owners of MGM common stock was
sufficient for approval by the owners of that class of stock.
8.The articles of incorporation of Primadonna shall be the articles of
incorporation of the surviving corporation.
9. The executed plan of merger is on file at the principal place of business
of Primadonna:
Primadonna Resorts, Inc.
P.O. Box 95997
Interstate 15
Las Vegas, Nevada 89193-5997
Fax: (702) 679-7222
Attention: Gary E. Primm, Chairman
10. A copy of the plan of merger will be furnished by Primadonna, on request
and without cost, to any stockholder of Primadonna or MGM.
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IN WITNESS WHEREOF, Primadonna Resorts, Inc., a Nevada corporation, and MGM
Grand Acquisition Corp., a Nevada corporation, have caused these articles of
merger to be signed by their authorized officers on the _______ day of
___________, 199____.
PRIMADONNA RESORTS, INC.,
a Nevada corporation
By: _________________________________
Title: ______________________________
and
By: _________________________________
Title: ______________________________
MGM GRAND ACQUISITION CORP.,
a Nevada corporation
By: _________________________________
Title: ______________________________
and
By: _________________________________
Title: ______________________________
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EXHIBIT D
FORM OF AFFILIATE LETTER
MGM Grand, Inc.
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Primadonna Resorts, Inc., a Nevada corporation
("Primadonna"), as the term "affiliate" is defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, (the "Act"). Pursuant to the
terms of the Agreement and Plan of Merger, dated as of November , 1998 (the
"Agreement"), between MGM Grand, Inc., a Delaware corporation ("MGM"), MGM
Grand Acquisition Corp., a Nevada corporation ("Merger Sub"), and Primadonna,
Merger Sub will be merged with and into Primadonna (as defined in the
Agreement) (the "Merger").
As a result of the Merger, I may receive shares of Common Stock, par value
$0.01 per share, of MGM (the "MGM Common Stock") in exchange for shares of
Common Stock, par value $0.01 per share, of Primadonna owned by me.
1. COMPLIANCE WITH THE ACT. I represent, warrant and covenant to MGM that in
the event I receive any MGM Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the MGM
Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the MGM Common Stock to
the extent I felt necessary, with my counsel or counsel for Primadonna.
C. I have been advised that the issuance of MGM Common Stock to me
pursuant to the Merger will be registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised
that, since at the time the Merger is submitted for a vote of the
stockholders of Primadonna, I may be deemed to have been an affiliate of
Primadonna and the distribution by me of the MGM Common Stock has not been
registered under the Act, I may not sell, transfer or otherwise dispose of
the MGM Common Stock issued to me in connection with the Merger unless
(i) such sale, transfer or other disposition has been registered under the
Act, (ii) such sale, transfer or disposition is made in conformity with
Rule 145 promulgated by the Commission under the Act, or (iii) in the
opinion of counsel reasonably acceptable to MGM, or pursuant to a "no
action" letter obtained by the undersigned from the staff of the
Commission, such sale, transfer or other disposition is otherwise exempt
from registration under the Act.
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D. Unless I have signed the Registration Rights Agreement, I understand
that MGM is under no obligation to register the sale, transfer or
disposition of the MGM Common Stock by me or on my behalf under the Act or
to take any other action necessary in order to make compliance with an
exemption from such registration available.
E. I also understand that stop transfer instructions will be given to the
MGM transfer agent with respect to the MGM Common Stock and that there will
be placed on the Certificates for the MGM Common Stock issued to me, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED NOVEMBER
, 1998 BETWEEN THE REGISTERED HOLDER HEREOF AND MGM GRAND, INC., A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF MGM
GRAND, INC."
F. I also understand that unless the transfer by me of my MGM Common
Stock has been registered under the Act or is a sale made in conformity
with the provisions of Rule 145, MGM reserves the right to put the
following legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this
Agreement. It is understood and agreed that such legends and the stop orders
referred to above will be removed if (i) one year shall have elapsed from the
date the undersigned acquired the MGM Common Stock received in connection with
the Merger and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the undersigned
acquired MGM Common Stock received in connection with the Merger and the
provisions of Rule 145(d)(3) are then available to the undersigned, or
(iii) MGM has received either an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to MGM, or a "no action" letter obtained by
the undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 145 under the Act no longer apply to the
undersigned.
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2. CERTAIN TAX MATTERS. The undersigned does not intend to take a position on
any federal or state income tax return that is inconsistent with the treatment
of the Merger as a tax-free reorganization for federal or state income tax
purposes.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of Primadonna as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
Name: ____________________
Accepted this _____ day of
___________________, 1998 by
MGM GRAND, INC.
By: ___________________
Name: _________________
Title: ________________
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EXHIBIT E
Date:
MGM Grand, Inc.
1799 Las Vegas Blvd. South
Las Vegas, Nevada 89101
Attn: Scott Langsner
Re: Agreement and Plan of Merger, dated (the "Merger Agreement"),
among Primadonna Resorts, Inc. ("Primadonna" or "Surviving
Corporation"), a Nevada corporation, MGM Grand, Inc. ("Buyer"), a
Delaware corporation, and MGM Acquisition Corp.
Gentlemen:
We have acted as special Nevada legal counsel to Primadonna in connection
with the Merger Agreement. This opinion is delivered in accordance with
Section 6(a)(x) of the Merger Agreement. Capitalized terms used in this letter
and not otherwise defined have the meaning set forth in the Merger Agreement.
SCOPE OF REVIEW
In connection with this opinion, we have (i) investigated such questions of
law, and (ii) examined the following documents:
1. The Merger Agreement.
2. The Amended and Restated Ground Lease ("Ground Lease") dated July 1,
1993, between Primm South Real Estate Company ("Landlord" or "Primm
South"), and The Primadonna Corporation, a wholly owned subsidiary of
Primadonna.
3. The Easement and Exclusivity Agreement by and among The Primadonna
Corporation, Primm South, and Dry Lake, Inc. ("Dry Lake"), executed in
December, 1993.
4. The Service Agreement for Dry Lake Convenience Store, effective
January 1, 1993, between Dry Lake and The Primadonna Corporation.
5. The Sewer Treatment Plant Agreement, dated December 24, 1993, by and
among The Primadonna Corporation, Primm South, and Dry Lake.
6. The Water Facilities Agreement, dated December 24, 1993, by and among
The Primadonna Corporation, Primm South, and Dry Lake.
7. The Estoppel Certificate(s) to be executed at the Closing by Primm
South, and Dry Lake.
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ASSUMPTIONS
In rendering our opinion, we have assumed: (i) the due authorization,
execution and delivery of each document referred to in clauses 1 through 7
above by all parties to such document; and (ii) each of the documents
referenced above that we have reviewed is complete, authentic, fully and duly
executed, and in full force and effect with no incidence of default as of the
date of the consummation of the Merger as contemplated by the Merger Agreement.
With your permission, we have further assumed in rendering this opinion that
the facts outlined below will at all relevant times remain correct:
1. Subsequent to the merger contemplated in the Merger Agreement. The
Primadonna Corporation will remain a surviving corporation, and the sole
licensed gaming operator on the Leased Property as defined under 5.2(C) of the
Ground Lease.
2. The Primadonna Corporation will not otherwise be in default under the
agreements referenced at clauses (2) through (6) in the previous section of
this opinion.
OPINION
Subject to the analysis, discussion, assumptions, limitations, exceptions and
qualifications set forth herein, it is our opinion if the issues addressed by
this opinion were properly presented and argued, and the Supreme Court of
Nevada followed existing legal precedents applicable to the subject matter of
this opinion, the Supreme Court of Nevada, although not free from doubt, should
hold that:
(i) The Merger or any subsequent sale of the stock of the Surviving
Corporation or the Primadonna Corporation by the Buyer or an affiliate
of the Buyer will not cause or constitute a default or breach under
the Ground Lease.
(ii) The Merger or any subsequent sale of the stock of the Surviving
Corporation or The Primadonna Corporation by the Buyer or an affiliate
of the Buyer will not cause or result in an event requiring the
consent of Lessor (as defined in the Ground Lease) under Section 16(b)
of the Ground Lease.
(iii) After giving effect to the Merger or any subsequent transfer of stock
of either the Surviving Corporation or The Primadonna Corporation, as
Lessee, by the Buyer or an affiliate of the Buyer, the Ground Lease
will remain in full force and effect following the Merger.
(iv) After giving effect to the Merger or any subsequent transfer of stock
of either the Surviving Corporation or The Primadonna Corporation, the
rights enjoyed by Lessee and its subsidiaries under Section 5.2 of the
Ground Lease with respect to the land owned or controlled by Lessor
and its affiliates will remain in full force and effect.
(v) After giving the effect to the Merger or any subsequent transfer of
stock of either the Surviving Corporation or The Primadonna
Corporation by the Buyer or an affiliate of the Buyer, the rights
presented enjoyed by Lessee and its subsidiaries under Section 21 of
the Ground Lease will remain in full force and effect.
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(vi) The rights and obligations of The Primadonna Corporation under the Dry
Lake Easement and Exclusivity Agreement will remain in full force and
effect after giving effect to the Merger or any subsequent transfer of
stock of either the Surviving Corporation or The Primadonna
Corporation by the Buyer or an affiliate of the Buyer.
(vii) The rights and obligations of The Primadonna Corporation under the
Service Agreement for Dry Lake Convenience Store will remain in full
force and effect following the Merger.
(viii) The rights and obligations of The Primadonna Corporation under the
Sewer Treatment Plant Agreement will remain in full force and effect
following the Merger or any subsequent transfer of stock of either
the Surviving Corporation or The Primadonna Corporation by the Buyer
or an affiliate of the Buyer.
(ix) The rights and obligations of The Primadonna Corporation under the
Water Facilities Agreement will remain in full force and effect
following the Merger or any subsequent transfer of stock of either the
Surviving Corporation or The Primadonna Corporation by the Buyer or an
affiliate of the Buyer.
DISCUSSION AND ANALYSIS
Section 16(b) of the Ground Lease provides that "except for Permitted
Transfers, Tenant shall not have the power to, and shall not, transfer, sublet
or assign this Lease or the Tenant's interest in this Lease or in and to the
Property without the prior written consent of Landlord, which consent will not
be unreasonably withheld." The definition of "Permitted Transfer" does not
include a merger or a sale of stock. The question presented is whether the
Merger as contemplated in the Merger Agreement, with Primadonna as the
surviving corporation which is the parent of Primadonna Corporation, the Lessee
under the Ground Lease, would constitute an "assignment" or "transfer" of the
leasehold interest so as to require the consent of the Lessor or otherwise be a
breach of the Ground Lease.
There is no Nevada statutory or judicial authority on whether a merger of a
corporate lessee, or its parent, constitutes a transfer or an assignment of a
leasehold estate so as to require the consent of the lessor. Therefore, a
definitive opinion cannot be given. There is a split of authority on this
question in other jurisdictions. Compare. Ser-bye Corporation v. C.P.&G.
Markets. 179 P.2d 342 (Cal. 1947); and Standard Operations, Inc. v. Sharon J.
Mantague, 1758 S.W.2d 442 (Mo. 1988); to Pacific First Bank v. New Morgan Bank
Corp., 876 P.2d 761 (Or. 1994); See generally, 39 ALR 4th 879; Ballew, The
Assignment of Rights, Franchises, and Obligations of the Disappearing
Corporation, 38 Bus. Law, 45 (1982). The majority view is that a merger does
not constitute a transfer or an assignment. The cases in other jurisdictions
rely upon state specific statutory and case law, as well as the specific
language of the lease in question. Based thereon, the courts undertake to
determine the intent of the parties. Most courts recognize that such an anti-
assignment clause is a restraint on alienation and is therefore strictly
construed. The courts holding that a merger is not a transfer or an assignment
usually indicate that if the parties had intended that a merger constitute a
transfer or an assignment, the lease agreement should specifically so provide.
However, in Pacific First Bank, supra, the Oregon Supreme Court specifically
held that a merger constituted a "transfer"
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so as to require the landlord's consent. While this Oregon case is factually
____________________________________________________________________________
distinguishable, it is a troublesome case that is quite recent, and represents
______________________________________________________________________________
contrary authority. The courts that hold a merger is a transfer or an
_____________________________________________________________________
assignment usually indicate that the party contracting with the merging entity
______________________________________________________________________________
will be dealing with different individuals as officers and directors of the
___________________________________________________________________________
surviving corporation. That fact will exist in the Merger as contemplated by
____________________________________________________________________________
the Merger Agreement. While not determinative, any court reviewing the effect
_____________________________________________________________________________
of the Merger on the Ground Lease would take this factor into consideration.
____________________________________________________________________________
Our opinion is based primarily on the following factors: (i) it is consistent
with the majority and better reasoned decisions from other jurisdictions,
including California and Delaware (Star Cellular Telephone Company, Inc. v.
Baton Rouge CGSA, Inc., 19 Del. J. Corp. I., 875 (Del. Ch. 1993), aff'd 647
A.2d 382 (Del. Supr. 1994); (ii) The Primadonna Corporation, the lessee under
the Ground Lease, will retain its corporate existence after the merger. In
addition, Primadonna, its corporate parent, will retain its corporate
existence, but with a change of shareholder control. At the time of the Ground
Lease, Primadonna was a publicly traded corporation and thus a change of
control could and should have been anticipated by the parties; (iii) Nevada
Revised Statute 92A.250 provides that when a merger takes place, title to all
real estate and other property of each merging constituent entity "is vested in
the surviving entity without reversion or impairment..." This language suggests
that any restraints on alienation or restrictions on the ability of a lessee to
merge will be strictly construed. Therefore, any such restrictions should have
been specifically set forth in the Ground Lease; (iv) to the extent that the
Ground Lease may be considered ambiguous, the intent of the parties is
reflected by the Estoppel Certificate executed by the Landlord, wherein the
Landlord acknowledges that the merger as contemplated by the Merger Agreement
will not constitute a default or breach of the Ground Lease and that no consent
of Lessor is required. This constitutes an express acknowledgment that the
Merger is not an assignment or transfer.
Our opinion with respect to whether any "subsequent transfers" of the stock
of Primadonna or Primadonna Corporation would not constitute a default under
the Lease Agreement or otherwise require the consent of the Landlord must be
further qualified. Specifically, the above analysis with respect to the
proposed merger as reflected in the Merger Agreement is generally applicable to
the evaluation of any subsequent stock transfer, except that the intent of the
parties may not be reflected by the Estoppel Certificates in the form of the
current transaction. However, the Estoppel Certificate executed by Primm South
in the present Merger would have significant probative value. In addition, the
courts which have ruled on whether a stock transfer or merger is a transfer or
assignment within the meaning of a lease are very fact specific.
Paragraph 5.2 of the Ground Lease contains a covenant running with any land
of the Landlord within a five-mile radius prohibiting gaming for a period of
ten years ("Exclusivity Covenant"). While Section 5.2(d) provides that this
Exclusivity Covenant is a covenant running with the property owned or after
acquired by the Landlord, the Ground Lease specifically provides that the
benefit is "personal" to The Primadonna Corporation as Lessee and to any
wholly-owned subsidiary of Primadonna Resorts, Inc., and does not run with
tenant's interest in the land. Accordingly, this right of Lessee is independent
of the leasehold estate and thus an assignment or transfer of the Ground Lease
would not transfer this right. Since the Exclusivity Covenant is personal, it
does not attain the status of an interest in land and therefore it may not be
strictly construed as a restraint on alienation,
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which is generally applicable only to real property. Indeed, this covenant may
be strictly construed in favor of the Landlord, since it is not a restraint on
alienation of real property and is more analogous to a covenant not to compete.
Under Nevada law, covenants not to compete are strictly construed and are only
enforceable if reasonable in scope and duration.
In a similar situation, the United States District Court in SQL Solutions,
Inc. v. Oracle Corp., 1991 WL 626458 (N D. Cal. 1991), held that contractual
rights under a software license agreement were not transferred to the surviving
corporation subsequent to a merger. The District Court specifically
distinguished cases dealing with real estate leases. Thus, this case makes
rendering an opinion on this question even more problematic. Our opinion on
this matter is based almost entirely on the Estoppel Certificate executed by
Primm South.
With respect to the rights under Section 21 of the Ground Lease involving a
right of first refusal, a right of first refusal is an interest in real
property and as such would be subject to the restraint on alienation doctrine
as set forth above. There is no limitation in Section 21 of the Ground Lease
that the Right of First Refusal is personal to The Primadonna Corporation
similar to that contained in Section 5.2. Therefore, particularly in light of
the fact that the Landlord will execute the Estoppel Certificate which reflects
the intent of the parties, and based on the above discussion and
qualifications, it is opinion of this office that after the Merger, The
Primadonna Corporation will still have the rights enjoyed by the Lessee under
Section 21 of the Ground Lease.
The Dry Lake Easement and Exclusivity Agreement provides certain rights and
obligations of The Primadonna Corporation, Primm South, and Dry Lake. The
easements and obligations related thereto are not subject to any restrictions
with respect to transfer or assignment. Thus, the Merger as contemplated in the
Merger Agreement would have no impact on the continuing rights and obligations
under the Dry Lake Easement and Exclusivity Agreement, except as provided
below.
Paragraph 7 of the Dry Lake Easement and Exclusivity Agreement provides an
Exclusivity Covenant which prohibits a gaming operation on certain property of
Dry Lake, and also provides a right of first refusal to The Primadonna
Corporation on certain Dry Lake property. Paragraph 7.1 specifically provides
that the benefits of this Exclusivity Covenant are personal to The Primadonna
Corporation and any wholly-owned subsidiary of Primadonna Resorts, Inc. As
such, these interests are not interests in real property. As discussed more
fully above in connection with the Ground Lease, the rights under Paragraph 7
of the Dry Lake Easement and Exclusivity Agreement may be subject to arguments
similar to those raised in the SQL Solutions, Inc. case. However, based on the
fact that Dry Lake is executing an Estoppel Certificate which specifically
provides that the provisions of Paragraph 7 will remain in full force and
effect after the Merger, the rights of Primadonna Corporation under the Dry
Lake Easement and Exclusivity Agreement will survive the Merger.
The Service Agreement for Dry Lake Convenience Store is effective January 1,
1993. This agreement provides for personal services by Primadonna Corporation
in providing support services for the operation of the Dry Lake Convenience
Store. The Primadonna Corporation's rights and obligations under this Service
Agreement are clearly personal and not an interest in real property. Section
7.1 of the Service Agreement specifically prohibits any assignment or transfer
of any interest in the agreement. Because this agreement is in the nature of a
personal services contract, but for the Estoppel Certificate by Dry Lake, Dry
Lake could argue that it specifically intended to contract with the present
management of The Primadonna Corporation. However, based on the fact that Dry
Lake
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is executing the Estoppel Certificate which would be enforceable subsequent to
the Merger. The Primadonna Corporation should retain its rights and obligations
under the Dry Lake Service Agreement. We note that either party has unilateral
termination rights upon due notice under the subject agreement.
The Sewer Treatment Plant Agreement provides for rights and obligations among
the parties relating to certain easements and the right to use and pay for the
use of the sewer plant to serve the various businesses of the parties. This
agreement contains no prohibition on assignment. The agreement specifically
provides in Section 9.2 that it is binding upon The Primadonna Corporation's
successors and assigns as Lessee of the leased property. Thus, the Merger will
have no effect on the rights and obligations of the parties under the Sewer
Treatment Plant Agreement. We would also note that under the terms of the Sewer
Treatment Plant Agreement (see Paragraphs 6 and 7), either party has certain
rights to termination.
The Water Facilities Agreement provides certain rights and obligations
including non-exclusive easements by and among the parties for the use of water
facilities which service their respective business operations. This agreement
is substantially similar to the Sewer Treatment Plant Agreement. This Agreement
has no prohibition against assignment and indeed specifically provides that it
is binding upon The Primadonna Corporation's, Primm South's, and Dry Lake's
successors and assigns. Subject to the termination rights set forth in
Paragraphs 6 and 7, the Merger will have no effect on the rights and
obligations of the parties under the Water Facilities Agreement.
LIMITATIONS, EXCEPTIONS, AND QUALIFICATIONS
This opinion is rendered solely for the purposes of the Merger as reflected
in the Merger Agreement and may not be used or relied upon for any other
purpose. We acknowledge that MGM Grand, Inc. will be relying upon the opinions
expressed herein, but such opinions may not be relied upon by any other party.
We assume no obligation or responsibility to update, revise or supplement our
opinions should the present laws of the State of Nevada be changed by
legislation, administrative action, judicial decision or otherwise.
This opinion is subject to the following exceptions, limitations and
additional qualifications:
(i) The effect of bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting
the rights and remedies of creditors;
(ii) The effect of general principles of equity, whether enforcement is
considered in any proceeding in equity or law and the discretion of
the court before which any proceeding therefrom may be brought; and
(iii) The unenforceability of certain circumstances under law or court
decisions or provisions providing for the indemnification of or
contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy.
We wish to advise you that Robert E. Armstrong, a partner of our firm, is a
member of the board of directors and secretary of Primadonna, and we disclaim
any knowledge he may possess solely in his capacity as director of Primadonna.
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We are admitted to practice law only in the State of Nevada. Accordingly, the
opinions set forth herein are limited in all respects to the laws of the State
of Nevada as in effect on the date hereof, and we have made no inquiry into and
we express no opinion as to the statutes, regulations or laws of any other
jurisdiction as may be applicable to the Merger.
MCDONALD CARANO WILSON MCCUNE BERGIN
FRANKOVICH & HICKS LLP
By __________________________________
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EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of the ____ day of ___, 1999 by and among MGM GRAND, INC., a Delaware
corporation (the "Company"), and certain Holders listed on the signature page
hereto.
Recitals
________
WHEREAS, the Holders will be issued the shares of Common Stock set forth on
Exhibit A hereto on the consummation of that certain Agreement and Plan of
Merger among the Company, MGM Grand Acquisition Corp. and Primadonna Resorts,
Inc., dated as of December 2, 1998 (the "Merger Agreement").
WHEREAS, the execution and delivery of this Agreement by the Company is a
condition precedent to the consummation of the Merger Agreement;
Agreement
_________
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1.Certain Definitions. As used in this Agreement, the following capitalized
terms shall have the following meanings:
"Commencement Date" shall mean the 180th day after the date of this
Agreement for all holders other than Gary Primm and the 270th day after the
date of this Agreement for Gary Primm.
"Common Stock" shall mean the Common Stock of the Company, $.01 par value
per share.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time, corresponding
to such act.
"Form S-3" shall mean a registration statement on Form S-3 (or its then
equivalent) under the Securities Act filed by the Company pursuant to this
Agreement.
"Holders" shall mean the parties listed on the signature pages hereto
(other than the Company) and their successors who agree in writing to be bound
by the provisions of this Agreement.
"Holder Information" shall have the meaning set forth in Section 6 hereof.
"Merger Agreement" shall have the meaning set forth in the first recital to
this Agreement.
"Person" shall mean any individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
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"Registrable Securities" shall mean the shares of Common Stock to be issued
to the Holders pursuant to the Merger Agreement, as set forth on Exhibit A, and
any securities into which such shares are converted.
"Registration Expenses" shall have the meaning set forth in Section 7 hereof.
"Rule 144" means Rule 144 under the Securities Act, as such rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar successor federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time, corresponding to such act.
"SEC" shall mean the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
2. Standstill Provisions. Each Holder severally agrees that, without the
prior written consent of the Company, such holder will not sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase, or
otherwise transfer or dispose of, any Registrable Securities for a period (the
"Standstill Period") beginning on the date hereof and ending on the
Commencement Date, except for transfers to family members (or trusts for their
benefit) or charitable organizations, provided that such transferees are bound
by the transfer restrictions contained in this Section 2; and provided further
that in the case of Gary Primm, the Standstill Period shall commence on the
date hereof and end 270 days after the date hereof, provided that Gary Primm
may sell no more than an aggregate of 100,000 shares between the 181st day and
the 270th day after the date hereof. Except as otherwise provided in this
Agreement, prior to the Commencement Date, such Holder will not announce or
disclose any intention to do anything on or after the Commencement Date that
such Holder is prohibited, as provided in the preceding sentence, from doing
prior to the Commencement Date. Such Holder agrees that the provisions of this
Section 2 shall be binding upon the successors, assigns, heirs and personal
representatives of such Holder. Set forth on Exhibit A opposite each Holder=s
name is the number of Registrable Securities beneficially owned by such Holder,
including the name, address and account number of any brokerage or other
account holding any such Registrable Securities (or common stock of Primadonna
Resorts, Inc. that will, through operation of the Merger Agreement, become
converted into the right to receive Registrable Securities). Immediately upon
the execution and delivery of this Agreement by Holder, such Holder shall
execute and deliver to each broker or dealer or other institution or entity
holding any of such Holder's Registrable Securities, with a copy to the
Company, a letter substantially in the form of Exhibit B hereto (the "Broker
Letter"). Such Holder shall not revoke the instructions in the Broker Letter.
3. Piggyback Registrations.
(a) If at any time the Company proposes to register any of its equity
securities under the Securities Act for sale to the public after the applicable
Commencement Date, whether for its own account or for the account of other
security holders or both (except with respect to registration statements on
Forms S-4, S-8 or another form not available for registering Common Stock for
sale to the public), each such time the Company will give at least twenty (20)
business days' prior written notice (the "Piggyback Notice") to the Holders of
its intention so to do. Such Piggyback Notice
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shall specify the number of securities to be registered for the Company's
account and for the account of any Holder and the intended method of
disposition of such securities. Upon the written request of a Holder, received
by the Company within fifteen (15) business days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will use commercially reasonable best efforts to promptly cause such
Registrable Securities, as to which registration shall have been so requested,
to be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of such Registrable Securities, as the case may be,
by the Holder thereof. In the event that any registration pursuant to this
Agreement shall be, in whole or in part, an underwritten public offering of
securities, then (i) if all other holders of securities to be included in such
offering, other than the Company, agree at the request of the underwriter to
refrain from selling securities of the Company for a reasonable period of time
following the effective date of the applicable registration statement of the
Company under the Securities Act, the Holders shall agree to refrain therefrom
during such reasonable time period, provided that such time period shall not
exceed ninety (90) days, and (ii) the number of shares of Registrable
Securities to be included in such an underwriting may be reduced if and to the
extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
therein.
(b) In the event that the managing underwriter shall notify the Company that
it is of the opinion that the inclusion of all Registrable Securities proposed
to be registered would adversely affect the marketing of the securities to be
sold therein, then (i) the Company shall notify all persons desiring to include
securities in such registration, and (ii) the Holders, together with other
selling shareholders participating in such offering, shall have the right to
sell (x) in the event of an offering by the Company, the remaining shares that
may be sold by selling shareholders in such offering, and (y) in the event of
an offering by another Holder or other shareholder, all shares that may be sold
in such offering, in each case, such shares to be on a pro rata basis in
accordance with the number of shares of Registrable Securities owned by such
Persons.
(c) Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Agreement without thereby incurring
any liability to the Holder.
4. Form S-3 Demand Registration by Holders
(a) Request by Holders. At any time and from time to time, subject to Section
4(b) hereof, a Holder may, by notice to the Company, request that after the
applicable Commencement Date, the Company effect the registration under the
Securities Act of all or part of the requesting Holder's Registrable
Securities, but not less than 100,000 shares of Common Stock. Such notice shall
also specify the intended method of disposition of the Registrable Securities
for which registration is requested (which may not include an underwritten
public offering). Thereafter the Company will, as expeditiously as possible,
use commercially reasonable best efforts to effect after the applicable
Commencement Date the registration under the Securities Act of the Registrable
Securities that the Company has been so requested to register; provided,
however, that the Company may delay filing any registration statements for up
to ninety (90) days if the Board of Directors of the Company determines that
the filing of the registration statement would be materially detrimental to the
Company; provided further that the Company may not make such determination more
than once in any twelve (12) month period.
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(b) Limitation on Demand Rights. The registration rights granted pursuant to
this Section 4 shall lapse as to any Holder at the later of (x) the second
anniversary of the date of this Agreement or (y) such date as the number of
Registrable Securities held by such Holder is less than the number of shares of
Common Stock which such Holder is then entitled to sell in any calendar quarter
under Rule 144.
(c) Availability of Form S-3. The Company shall use its commercially
reasonable best efforts to maintain its eligibility to register securities
under the Securities Act on Form S-3 by continuing to meet the registrant
requirements listed therein, as such requirements may be amended from time to
time.
5. Underwritten Demand Registration..
(a) Request by Holders. At any time, one or more Holders seeking to sell
after the applicable Commencement Date at least an aggregate of 800,000 shares
of Common Stock in an underwritten public offering may by notice to the Company
request that the Company effect the registration under the Securities Act of at
least 800,000 shares of Registrable Securities for sale in an underwritten
public offering after the applicable Commencement Date. Thereafter the Company
will promptly give written notice of such requested registration to all other
Holders whose Standstill Period has expired, and thereupon will, as
expeditiously as possible, use commercially reasonable best efforts to effect
the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so requested to
register by such Holder(s); and
(ii) all other shares of Registrable Securities that the Company has been
requested to register by any other Holder thereof by written request given
to the Company within ten (10) business days after the giving of such
written notice by the Company so as to permit the disposition of the
Registrable Securities so to be registered; provided, however, that the
Company may delay filing any registration statements for up to ninety (90)
days if the Board of Directors of the Company determines that the filing of
the registration statement would be materially detrimental to the Company.
(b) Limitation on Underwritten Demand Registration Right.
(i) The registration rights granted pursuant to this Section 5 shall
lapse as to any Holder at the later of (x) the second anniversary of the
date of this Agreement or (y) such date as the number of Registrable
Securities held by such Holder is less than the number of shares of Common
Stock which such Holder is then entitled to sell in any calendar quarter
under Rule 144.
(ii) The Company shall not be obligated to effect more than two (2)
registrations pursuant to this Section 5.
(c) Selection of Underwriters. The Holders holding a majority of the shares
of Registrable Securities shall have the right to select the underwriter or
underwriters of nationally recognized standing to administer the underwritten
public offering made pursuant to this Section 5, which underwriter or
underwriters shall be reasonably acceptable to the Company.
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(d) Priority in Underwritten Demand Registration. Notwithstanding Section 3
hereof, if the managing underwriter advises the Company in writing that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number that can be sold in such offering, the number of shares of
Registrable Securities to be included in such registration shall be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder (provided that
any shares thereby allocated to any such Holder that exceed such Holder's
request shall be reallocated among the remaining requesting Holders in like
manner). In the event that the number of shares of Registrable Securities
requested to be included in such registration is less than the number which, in
the opinion of the managing underwriter, can be sold, the Company and/or other
shareholders may include securities of the Company up to the number of
securities that, in the opinion of the underwriter, can be sold.
6. Registration Procedures. If and whenever the Company proposes to register
any of its securities under the Securities Act for sale to the public, the
Company will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with respect to
such securities and use commercially reasonable best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) at least ten (10) business days before filing a registration statement or
any amendments or supplements thereto, furnish to Holder copies of all such
documents proposed to be filed, which documents will be subject to review of
Holder and its counsel, and in the case of a registration pursuant to Section 4
or 5, the Company will not file any registration statement or amendment or
supplement thereto to which Holder shall reasonably object;
(c) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for the period of
the distribution contemplated thereby and comply with the provisions of the
Securities Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
intended method of disposition set forth in such registration statement for
such period;
(d) promptly notify Holder in writing (i) when the registration statement or
any post-effective amendment has become effective or (ii) of any request by the
SEC for amendments or supplements to the registration statement or for
additional information;
(e) furnish to the Holder, and to each underwriter without charge such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or other disposition of the securities
covered by such registration statement;
(f) use commercially reasonable best efforts to register or qualify the
Holder's Registrable Securities covered by such registration statement under
the securities or "blue sky" laws of such jurisdictions as the Holder or, in
the case of an underwritten public offering, the managing underwriter
reasonably shall request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign
corporation in any
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jurisdiction when it is not so qualified or to consent to general service of
process in any such jurisdiction unless this limitation means that the
Registrable Securities would not be qualified for offer and sale in at least
ten states;
(g) use commercially reasonable best efforts to cause the Registrable
Securities covered by such registration statement to be listed on any
securities exchange or accepted for quotation on any facility of the National
Association of Securities Dealers, Inc. or stock exchange on which the
Company's Common Stock is then quoted or listed as the case may be;
(h) immediately notify the Holder and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statement therein not misleading in
light of the circumstances then existing;
(i) if the offering is underwritten and at the request of the Holder, furnish
on the date that the Registrable Securities are delivered to the underwriters
for sale pursuant to such registration: (i) an opinion dated such date of
counsel(s) representing the Company for the purposes of such registration,
addressed to the underwriters and to the Holder, stating that such registration
statement has become effective under the Securities Act and that (A) to the
knowledge of such counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act, (B) the registration
statement, the related prospectus and each amendment or supplement thereof
comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements or regulatory matters contained therein), (C) such counsel
has participated in conferences with officers and other representatives of the
Company, and representatives of the independent certified public accountants of
the Company, at which the contents of the registration statement and any
amendment thereof or supplement thereto and related matters were discussed and,
although such counsel has not independently verified and is not passing upon
and assumes no responsibility for the accuracy, completeness or fairness of the
statements contained in the registration statement and prospectus included
therein, and noting that they have relied as to materiality upon the statements
of directors, officers and other representatives of the Company, nothing has
come to such counsel's attention that has caused such counsel to believe that
the registration statement, on the effective date thereof, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, or that the prospectus on the date thereof or on the date of such
opinion, contained or contains an untrue statement of material fact or omitted
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that such counsel will express no view with respect to the
financial statements contained therein) and (D) to such other matters as
reasonably may be requested by counsel for the underwriters or by the Holder or
its counsel and (ii) if requested by the Holder, a letter dated such date from
the independent public accountants retained by the Company, addressed to the
underwriters and to the Holder, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion
of such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any
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amendment or supplement thereof, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five business days prior to
the date of such letter) with respect to such registration as such underwriters
or Holder reasonably may request; and
(j) make available for inspection by the Holder, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Holder or underwriter,
during business hours upon reasonable notice, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney, accountant or
agent in connection with such registration statement.
For purposes of Section 6(a) and 6(c) above, the period of distribution of
securities in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities
purchased by it, and the period of distribution of securities in any other
registration shall be deemed to extend until the earlier of the sale of all
securities covered thereby and one hundred and eighty (180) days after the
effective date thereof.
In connection with each registration hereunder, the Holder will furnish to
the Company in writing such information regarding such Holder as the Company
may reasonably require in connection with the preparation of a registration
statement that includes the Registrable Securities (the "Holder Information")
of such Holder. In connection with a shelf registration hereunder, if the
Holder shall distribute a prospectus of the Company in compliance with
applicable securities laws and if the Company provides the Holder with a
written prospectus for distribution in connection with such registration and
thereafter the Company delivers a written notice to the Holder requesting that
the Holder refrain from further distribution of such prospectus because such
prospectus contains an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statement
therein not misleading, then the Holder will not thereafter further distribute
such prospectus.
In connection with each registration pursuant to this Agreement covering an
underwritten public offering, the Company and each Holder agree, to the extent
requested by the managing underwriter, to enter into a written agreement with
the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
7. Registration Expenses. All expenses incurred in connection with a
registration hereunder or otherwise incurred by the Company in complying with
this Agreement, including, without limitation, all registration and filing
fees, listing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, reasonable fees and expenses of one counsel for all selling
Holders (such counsel to be selected by the holders of a majority of the
Holders of the Registrable Securities included in such registration statement),
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars and costs of insurance if any, but
excluding underwriting discounts and selling commissions applicable to the
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sale of the Registrable Securities (collectively the "Registration Expenses")
will be paid by the Company. The Company will pay all Registration Expenses in
connection with each registration statement under this Agreement.
8. Indemnification.
(a) In the event of a registration of any Registrable Securities under the
Securities Act pursuant to this Agreement, the Company will indemnify and hold
harmless each Holder, each person, if any, who controls such Holder within the
meaning of the Securities Act, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, to which such Holder, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities
Act pursuant to this Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement therein
not misleading, or (ii) any violation by the Company of the Securities Act or
the Exchange Act, or other federal or state law applicable to the Company and
relating to any action or inaction required of the Company in connection with
such registration, and will reimburse such Holder, each such underwriter and
each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Company will
not be liable in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or omission made in reliance upon and in conformity with the Holder Information
or information provided by the underwriter in writing specifically for use in
such registration statement or prospectus.
(b) In the event of a registration of any Registrable Securities under the
Securities Act pursuant to this Agreement, each Holder will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter of such
Registrable Securities and each person, if any, who controls any underwriter
within the meaning of the Securities Act, against any losses, claims, damages
or liabilities to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the Securities
Act pursuant to this Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) any violation by such Holder of the Securities Act or
the Exchange Act, or other federal or state law applicable to such Holder and
relating to any action or inaction required of such Holder in connection with
such registration and will reimburse the Company and each such officer,
directors, underwriter and controlling person for any legal or other
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expenses reasonably incurred by them in connection with investigating or
defending any such loss claim, damage, liability or action, provided however,
that a Holder will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or omission made in reliance upon and in conformity
with the Holder Information pertaining to such Holder, as such, furnished in
writing to the Company by the Holder specifically for use in such registration
statement or prospectus.
(c) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to such indemnified party other than as provided in this
Section 8(c) and shall only relieve the indemnifying party from any liability
that it may have to such indemnified party under this Section 8(c) if and to
the extent the indemnifying party is materially prejudiced by such omission. In
case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall so desire, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 8(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, provided, however, that,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to the indemnified party that
are different from or in addition to those available to the indemnifying party
or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select one separate counsel (as well as necessary local
counsel) and to assume such legal defenses and otherwise to participate in the
defense of such action, with the expenses and fees of such separate counsel (as
well as necessary local counsel) and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any Holder
exercising rights under this Section 8, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 8 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 8 provides for indemnification
in such case, or (ii) contribution under the Securities Act may be required on
the part of any such Holder or any such controlling person in circumstances for
which indemnification is provided under this Section 8; then, and in each such
case, the Company and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, and the Company
is responsible for the remaining portion; provided, however, that, in any
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such case, (A) no such Holder will be required to contribute any amount in
excess of the net proceeds received by such Holder from the sale of all such
Registrable Securities sold by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
9. Avoidance of Registration. Notwithstanding anything to the contrary
contained in this Agreement, the Company shall be under no obligation to
register any Registrable Securities pursuant to this Agreement to the extent,
on receipt of a request to register any Registrable Securities, it (and/or its
designee(s)) offers to purchase for cash such Registrable Securities at a
purchase price equal to the average of the closing price for Common Stock on
the New York Stock Exchange (or other principal stock exchange or trading
facility on which the Common Stock is traded at the time of such notice) for
the ten (10) trading days immediately prior to the date of such request. Such
offer may be extended in writing at any time within ten (10) days after receipt
of such request, and must be accepted, if at all, in writing delivered to the
offeror no later than 5:00 P.M. Pacific Time on the fifth (5th) business day
after the date such offer is made. If such offer is accepted by any of the
requesting Holders, such purchase and sale shall be completed on the third
(3rd) business day following acceptance of the offer. With respect to a
registration under Section 5 of this Agreement, the making of such offer
(whether or not it is accepted by the requesting Holders) shall be deemed to
constitute one of the registrations referred to in Section 5(b)(ii), provided
that to the extent the offer is accepted by any of the requesting Holders,
assuming due delivery of the Registrable Securities to which the offer relates
by the requesting Holders who accept the offer, the Company (and/or its
designee(s)) purchases such Registrable Securities pursuant to the offer.
10. No Inconsistent Registration Rights. From and after the date of this
Agreement, the Company shall not enter into any agreement granting registration
rights with respect to the common stock of the Company or other securities that
are inconsistent with the rights granted to the Holders hereunder.
11. Rule 144. The Company covenants that it will file the reports required to
be filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Section 13 and Section 15(d) of the Exchange Act
referred to in subparagraph (c)(1) of Rule 144 and the rules and regulations
adopted by the SEC thereunder) in a timely manner and, if at any time the
Company is not required to file such reports, it will, upon the request of any
Holder of Registrable Securities, make publicly available other information so
long as necessary to permit sales pursuant to Rule 144. The Company further
covenants that it will take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon
the request of any Holder of Registrable Securities, the Company will deliver
to such Holder a written statement as to whether it has complied with such
information and requirements.
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12. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it, only if the Company shall have obtained the written
consent to such amendment, action or omission to act, of the Holders of a two-
thirds of the Registrable Securities then outstanding. Each Holder of
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 12(a), whether or not such Registrable
Securities shall have been marked to indicate such consent. No waiver of any of
the conditions, restrictions, or options contained in this Agreement shall be,
or for any purpose be deemed to be, a waiver by the Company or the Holders to
insist upon and to enforce strict compliance with the provisions hereof as to
any matter subsequent to such waiver.
(b) Successors, Assigns and Transferees. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the
benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent Holder of any shares of
Registrable Securities, subject to the provisions contained herein.
(c) Notices. All notices and other communications provided for hereunder
shall be in writing and shall be sent by first class mail, telex, telecopy or
hand delivery:
(i) if to the Company, to:
MGM GRAND, INC.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attn: Scott Langsner
Telecopy No.: 702 891 1114
with a copy to:
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars
18th Floor
Los Angeles, California 90067
Attn: Gary N. Jacobs, Esq.
Telecopy No.: 310 556 2920
(ii) if to any Holder, to the address of such Holder as shown in the
stock ledger of the Company, or to such other address as any of the above
shall have designated in writing.
All such notices and communications shall be deemed to have been given or made
(a) when delivered by hand, (b) five business days after being deposited in the
mail, postage prepaid, (c) one business day after being deposited with an
overnight courier of national reputation, or (d) when delivered via facsimile,
receipt acknowledged.
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(d) Descriptive Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning of terms
contained herein.
(e) Attorneys' Fees. Should any party hereto or any person bound by the
provisions of this Agreement institute any legal action against any other
person(s) and/or party to enforce the provisions hereof, the prevailing party
in such action shall be entitled to receive from the losing party, in addition
to any other relief to which the prevailing party may be entitled, such amount
as the court may adjudge to be reasonable attorneys= fees and court costs.
(f) Severability. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the remaining provisions, paragraphs,
words, clauses, phrases or sentences hereof shall not be in any way impaired,
it being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
(g) Counterparts. This Agreement and any amendments, waivers, consents or
supplements hereto or hereunder may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument. This
Agreement shall become effective upon the execution and delivery of a
counterpart hereof by each of the parties hereto.
(h) Governing Law. This Agreement shall be governed by and construed and
enforced in accordance, with the laws of the State of Nevada, without regard to
conflicts of laws principles.
(i) Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, it is agreed that they shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they may be entitled at law or in equity.
(j) Time of Essence. Time is of the essence in the performance of this
Agreement.
(k) Persons Deemed Owners. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name any Registrable Shares
are registered as the owner and Holder thereof for all purposes, and the
Company shall not be affected by notice to the contrary.
(l) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the matters dealt with
herein and supersedes all prior written or oral agreements and understandings
with respect to such matters.
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IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or
caused this Agreement to be executed on its behalf as of the date first written
above.
The Company: MGM GRAND, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
The Holders:
_____________________________________
_____________________________________
_____________________________________
_____________________________________
_____________________________________
_____________________________________
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EXHIBIT B
Form of Broker Instruction Letter
_______, 1999
Brokerage Company
Address of Brokerage Company
RE: Account Number
--------------------------------
Dear___________:
The undersigned owns certain shares of common stock, par value $.01 per
share, of MGM Grand, Inc., a Delaware corporation ("Common Stock") which is
held in account(s) maintained with you by the undersigned, including accounts
numbered [_____]. The undersigned has entered into a Registration Rights
Agreement dated as of ______, 1999 with MGM Grand, Inc. (the "Company").
In the event prior to _______, you propose to sell or otherwise dispose of any
Common Stock of the undersigned which is held by you (including pursuant to (i)
instructions of or on behalf of the undersigned, (ii) compliance with any
margin rules or regulations or (iii) any pledge of such Common Stock), prior to
effecting such sale, you are hereby instructed to first offer such Common Stock
to the Company for purchase, and to provide the Company a reasonable period to
act on your offer (not less than 24 hours). Communications to the Company
should be made at the following address:
MGM Grand, Inc.
1799 Las Vegas Boulevard South
Las Vegas, Nevada 89101
Phone: 702 891 3320
Fax: 702 891 1114
Attention: Scott Langsner, Treasurer
The instructions appearing in this letter are unconditional and effective
immediately, and are not contingent on your return of this letter or any
further action by you, the undersigned or any other person. However, we would
greatly appreciate your acknowledgment and return of this letter to the Company
at the above address.
Very truly yours,
_____________________________________
Acknowledged and agreed:
[Brokerage Company]
By __________________________________
Title _______________________________
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EXHIBIT G
AGREEMENT REGARDING CERTAIN INSURANCE
This Agreement Regarding Certain Insurance (this "Agreement") is made by and
among MGM GRAND, INC., a Delaware corporation ("Buyer"), THE PRIMADONNA
CORPORATION, a Nevada corporation (the "Corporation"), GARY PRIMM, an
individual (the "Employee"), and Robert E. Armstrong, Trustee of the 1992 PRIMM
CHILDREN'S TRUST U/A DATED DECEMBER 22, 1992 (the "Owner"), with reference to
that certain Amended and Restated Split Dollar Agreement by and among the
Corporation, Employee and the Owner, a copy of which is attached hereto as
Exhibit A hereto (the "Split Dollar Agreement") and the life insurance policies
which are the subject of such agreement (the "Policies"). Capitalized terms
used and not defined herein shall have the meaning attributed to them in the
Split Dollar Agreement.
RECITALS
WHEREAS, Buyer and the Corporation's parent corporation, Primadonna Resorts,
Inc. have entered into that certain Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which the Buyer will acquire indirect ownership of the
Corporation through a merger of Buyer's wholly-owned subsidiary with and into
Primadonna Resorts, Inc.
WHEREAS, the Merger Agreement provides that the parties will enter into this
Agreement as a condition of the respective parties' obligations to consummate
the transactions contemplated by the Merger Agreement.
WHEREAS, Buyer is made a party to this Agreement solely to evidence its
approval thereof and its status as an intended beneficiary of the obligations
of Owner and Employee.
AGREEMENT
1. Amendment of Split Dollar Agreement. The Split Dollar Agreement is hereby
amended to incorporate the terms and conditions of this Agreement. As
amended herein, the Split Dollar Agreement remains in full force and effect
in accordance with its terms.
2. Payment of Premiums. The parties hereto agree that premiums on the Policies
shall be paid by the Corporation in accordance with the following schedule:
(a) Pacific Life Insurance Company Policy No. VP 605,170,50: $225,000
promptly following the Effective Time (as such term is defined in the
Merger Agreement); and $475,000 on or promptly after April 1, 1999;
(b) John Hancock Policy No. 20,023,115: $225,000 promptly following the
Effective Time; and $475,000 on or promptly after March 25, 1999.
The parties intend that the payment of premiums set forth above shall not
cause the Policies to be treated as modified endowment contracts under
I.R.C. Section 7702A. In the event immediately prior to such premium
payment the parties determine that such treatment would occur, the parties
agree to modify such payments so such treatment would not result, but in a
manner that most closely approximates their original agreement with respect
to payment.
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3. Satisfaction of Duty to Pay Premiums. Upon payment of the premiums pursuant
to Section 2 of this Agreement, the Corporation shall be deemed to have
fully performed and satisfied all of its obligations to pay premiums on the
Policies pursuant to the Split Dollar Agreement and shall have no further
obligation to pay any premium on the Policies.
4. Repayment of Premiums to the Corporation. Owner and Employee hereby
acknowledge and agree that after giving effect to the premiums to be paid
pursuant to Section 2, the aggregate amount of all premiums paid on the
policies by the Corporation is $3,706,518 (the "Aggregate Premium"). Owner,
to the extent of the assets in trust, irrevocably and unconditionally agrees
to repay the Corporation (or its designee) an amount equal to the Aggregate
Premium, without interest, upon the earlier of: (a) the death of Employee or
(b) the tenth anniversary of the Effective Time. To the extent Owner is
unable to pay the full amount of the Aggregate Premium on such event,
Employee irrevocably and unconditionally agrees to repay the Corporation (or
its designee) all, or any unpaid portion of the Aggregate Premium not paid
by Owner.
This paragraph 4 shall supercede in all respects the provisions of
Paragraph 8(a)(i) through 8(a)(iii) of the Split Dollar Agreement.
5. Collateral Assignment. The obligation of Owner and Employee pursuant to
Section 4 shall be secured by collateral assignments of each of the Policies
as set forth in the Split Dollar Agreement. Exhibit B hereto consists of the
documents evidencing such collateral assignment, which shall have been duly
executed and filed with the respective Insurers as a condition precedent to
the Corporation=s obligation to make the premium payments pursuant to
Section 2 herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
__________, 1999.
BUYER: MGM GRAND, INC.
By:__________________________
Title:_______________________
CORPORATION: THE PRIMADONNA CORPORATION
By:__________________________
Title:_______________________
EMPLOYEE:
GARY PRIMM
OWNER: 1992 PRIMM CHILDREN'S TRUST U/A
DATED DECEMBER 22, 1992
By:__________________________
Robert E. Armstrong, Trustee
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EXHIBIT H
ASSET DISPOSITION AGREEMENT
This ASSET DISPOSITION AGREEMENT (this "Agreement") is made and entered into
as of December 2, 1998 by and among MGM GRAND, INC., a Delaware corporation
("Buyer"), PRIMADONNA RESORTS, INC., a Nevada corporation ("Primadonna"), and
GARY E. PRIMM, an individual ("Primm") (collectively, the "Parties") with
reference to the following facts:
Recitals
WHEREAS, pursuant to that certain Agreement and Plan of Merger among Buyer,
Primadonna and MGM Grand Acquisition Corp, dated as of December 2, 1998 (the
"Merger Agreement"), Buyer will acquire Primadonna in a merger transaction.
WHEREAS, among the assets of Primadonna is a seventy-five percent (75%)
interest in a Model 1125 Astral SP Aircraft, of which Primm owns the other
twenty-five percent (25%) interest (the "Airplane"), together with the hangar
and support facilities and equipment therefor owned and/or leased by Primadonna
(the "Support Facilities Assets"; and collectively, with the Airplane, the
"Assets").
WHEREAS, Buyer and Primadonna desire to dispose of the Assets for cash prior
to the Effective Time of the Merger or as promptly as practicable following the
Effective Time (the "Disposition") and Primm desires to acquire the Support
Facilities Assets.
WHEREAS, it is in the best interests of the Parties hereto to cooperate to
effect the Disposition.
WHEREAS, the execution and delivery of this Agreement by Primadonna and Primm
is a condition precedent to Buyer's obligation to consummate the Merger
Agreement.
Agreement
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Certain Definitions. As used in this Agreement, the following capitalized
terms shall have the following meanings:
"Airplane" shall have the meaning set forth in the second recital to this
Agreement.
"Assets" shall have the meaning set forth in the second recital to this
Agreement.
"Buyer" shall have the meaning set forth in the preamble to this Agreement.
"Disposition" shall have the meaning set forth in the third recital to this
Agreement.
"Effective Time" shall have the meaning set forth in the Merger Agreement.
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"Fair Market Value" shall have the meaning set forth in Section 3(b) hereof.
"Merger Agreement" shall have the meaning set forth in the first recital to
this Agreement.
"Parties" shall have the meaning set forth in the preamble to this Agreement.
"Primadonna" shall have the meaning set forth in the preamble to this
Agreement.
"Primm" shall have the meaning set forth in the preamble to this Agreement.
"Purchaser" shall have the meaning set forth in Section 4(a) hereof.
"Subsidiary" shall have the meaning set forth in the Merger Agreement.
"Support Facilities Assets" shall have the meaning set forth in the second
recital to this Agreement.
"Support Facilities Closing" shall have the meaning set forth in Section 2(d)
of this Agreement.
2. Basic Agreement.
(a) The Parties each agree to cooperate fully to effect the Disposition of
the Assets pursuant to this Agreement.
(b) Primadonna, Buyer and Primm, after arms length negotiations have agreed
that the fair market value of the Support Facilities Assets is $1.9 million.
(c) The Parties agree that, subject to the terms and conditions set forth
below, they will each use their reasonable best efforts to effect after January
1, 1999 the sale, assignment or other conveyance of all right, title and
interest of each of Primm and Primadonna, respectively, in the Airplane to a
third party purchaser designated by Buyer for a sale price which is mutually
agreeable to the Parties, such agreement not to be unreasonably delayed or
withheld (the "Sale"). Primm and Primadonna hereby irrevocably agree that Buyer
shall have full and sole power and authority to negotiate and arrange such Sale
at such price and subject to such terms and conditions as Buyer shall
determine, subject to the consent of Primm and Primadonna, which consent shall
not be unreasonably delayed or withheld. At the closing of the Sale, Primadonna
and Primm shall convey to such third party purchaser all of their respective
right, title and interest in the Airplane (which shall be free and clear of all
liens and encumbrances), and each such Party shall receive a ratable portion of
the net proceeds of such Sale. Such Sale shall be evidenced by duly executed
documentation customary for such a transaction, and each of Primm and
Primadonna agree to execute and deliver such documentation as Buyer shall
reasonably request. Primm and Primadonna hereby agree that neither of them
shall sell, assign or otherwise convey any of their respective interests in the
Airplane except as requested by Buyer under this Section 2(c).
(d) Primm agrees to purchase, acquire and assume, and Primadonna agrees to
sell, assign or otherwise convey all of Primadonna's right, title and interest
in the Support Facilities Assets for a total purchase price of $1.9 million.
The purchase, sale, assignment, conveyance and assumption of the Support
Facilities Assets (the "Support Facilities Closing") shall occur at such time
as
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Primadonna and Primm shall agree, but not later than the Effective Time. At the
Support Facilities Closing, Primadonna shall sell, convey and/or assign to
Primm or his designee all of its right, title and interest in the Support
Facilities (which shall be free and clear of all liens and encumbrances
resulting from actions of Primadonna). Such sale, conveyance and assignment
shall be evidenced by duly executed documentation customary for such a
transaction, including duly executed consents from all lessors of any of the
Support Facilities. At the Support Facilities Closing , Primm shall assume and
indemnify and hold Primadonna and its Subsidiaries harmless against all claims,
obligations and other liabilities of any kind related to the Support Facilities
Assets and which arise on or after the date of the Support Facilities Closing
(including any costs of cure and other damages resulting from any breach or
default by Primm under any Lease (defined below) or assignment thereof to
Primm.
3. Reversion to Primadonna Upon Breach.
If a novation of any lease or similar occupancy agreement (each, a "Lease")
included in the Support Facilities Assets cannot be obtained at or prior to the
Support Facilities Closing, Primm agrees that the terms of any assignment of
any interest of Primadonna in any such Lease will provide, without limitation,
that upon a material breach or default by Primm under the Lease or assignment
thereof to Primm, Primadonna may cause the assignment to Primm to terminate,
and all interests assigned thereunder to revert to Primadonna.
4. Miscellaneous.
(a) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
(b) Succession and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
(c) Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
(d) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Gender and Number. All terms used in any one number or gender shall
extend to, mean and include any other number or gender as the facts, context,
or sense of this Agreement or any section hereof may require.
(f) Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth below:
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If to Primm:
Gary E. Primm
7000 Tomiyasu Lane
Las Vegas, Nevada
Fax: 702-458-8954
Copy to:
Robert E. Armstrong, Esq.
McDonald Carano Wilson McCune Bergin Frankovich & Hicks LLP
241 Ridge Street
4th Floor
Reno, NV 89505
Fax: 702-747-2877
If to Primadonna or Buyer:
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: James J. Murren, Chief Financial Officer
Fax: (702) 891-1114
Copy to:
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars
Eighteenth Floor
Los Angeles, California 90067-5010
Fax: (310) 556-2920
Attention: Gary N. Jacobs, Esq.
All such notices and communications shall be deemed to have been given or made
(a) when delivered by hand, (b) five business days after being deposited in the
mail, postage prepaid, (c) when deposited with an overnight courier of national
reputation, or (d) when delivered via facsimile, receipt acknowledged.
(g) Attorneys' Fees. Should any Party or any person bound by the provisions
of this Agreement institute any legal action against any other person(s) and/or
party to enforce the provisions hereof, the prevailing party in such action
shall be entitled to receive from the losing party, in addition to any other
relief to which the prevailing party may be entitled, such amount as the court
may adjudge to be reasonable attorneys' fees and court costs.
(h) Severability. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the remaining provisions, paragraphs,
words, clauses, phrases or sentences hereof shall not be in any way impaired,
it being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
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<PAGE>
(i) Specific Performance. The Parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Accordingly, it is agreed that they shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they may be entitled at law or in equity.
(j) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Nevada without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Nevada or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Nevada.
(k) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by all of the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
(l) Time of Essence. Time is of the essence in the performance of this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first written above.
MGM GRAND, INC.
By:____________________________
Title:_________________________
PRIMADONNA RESORTS, INC.
By:____________________________
Title:_________________________
_______________________________
GARY E. PRIMM
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MORGAN STANLEY DEAN WITTER
1999 AVENUE OF THE STARS
LOS ANGELES, CA 90067
(310) 788-2000
November 17, 1998
Board of Directors
Primadonna Resorts, Inc.
P.O. Box 95997
Las Vegas, NV 89193-5997
Gentlemen:
We understand that Primadonna Resorts, Inc. ("Primadonna" or the "Company"),
MGM Grand, Inc. ("Buyer"), and MGM Grand Acquisition Corp., a wholly owned
subsidiary of Buyer ("Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger, substantially in the form of the draft dated November 11, 1998
(the "Merger Agreement"), which provides, among other things, for the merger
(the "Merger") of Acquisition Sub with and into the Company. Pursuant to the
Merger, the Company will become a wholly owned subsidiary of Buyer and each
outstanding share of common stock, par value $.01 per share, of the Company
(the "Primadonna Common Stock"), other than shares held in treasury or held by
Buyer or any affiliate of Buyer, will be converted into the right to receive
0.33 shares (the "Exchange Ratio") of common stock, par value $.01 per share,
of Buyer (the "Buyer Common Stock"), subject to adjustment in certain
circumstances. The terms and conditions of the Merger are more fully set forth
in the Merger Agreement. We further understand that Primadonna indirectly and
Buyer directly each own a 50% interest in New York-New York Hotel and Casino,
LLC ("NY-NY"), a Nevada limited liability company.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of the Primadonna Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and of Buyer.
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) reviewed certain internal financial statements and other financial
and operating data concerning NY-NY prepared by the management of
NY-NY;
(iv) analyzed certain financial projections prepared by the management of
the Company;
(v) analyzed certain financial projections prepared by the management of
NY-NY;
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MORGAN STANLEY DEAN WITTER
(vi) discussed the past and current operations and financial condition and
the prospects of the Company, including information relating to
certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of the Company;
(vii) discussed the past and current operations and financial condition
and the prospects of Buyer, including information relating to
certain strategic, financial and operational benefits anticipated
from the Merger, with senior executives of Buyer;
(viii) discussed the past and current operations and financial condition
and the prospects of NY-NY with senior executives of the Company
and Buyer;
(ix) reviewed the pro forma impact of the Merger on the earnings per share
of Buyer;
(x) reviewed the reported prices and trading activity for the Primadonna
Common Stock and the Buyer Common Stock;
(xi) compared the financial performance of the Company and Buyer and the
prices and trading activity of the Primadonna Common Stock and the
Buyer Common Stock with those of certain other publicly traded
companies comparable with the Company and Buyer, respectively, and
their securities;
(xii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xiii) participated in discussions and negotiations among representatives
of the Company and Buyer and their financial and legal advisors;
(xiv) reviewed the Merger Agreement and certain related documents; and
(xv) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the internal financial statements, financial
projections and other financial and operating data and information relating to
strategic, financial and operational benefits anticipated from the Merger, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the prospects of the
Company and Buyer, respectively. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, Buyer or NY-NY nor have
we been furnished with any such appraisals. Morgan Stanley has assumed that in
connection with the receipt of all the necessary regulatory approvals for the
proposed Merger, no restrictions will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Merger. In addition, we have assumed the Merger will be treated as a
tax-free reorganization and/or exchange pursuant to the Internal Revenue Code
of 1986 and will be consummated in accordance with the terms set forth in the
Merger Agreement. Our opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
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MORGAN STANLEY DEAN WITTER
We have acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services. In the past, Morgan
Stanley & Co. Incorporated and its affiliates have provided financial advisory
and financing services for the Company and have received fees for the rendering
of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its
entirety in any filing made by the Company in respect to the Merger with the
Securities and Exchange Commission. In addition, this opinion does not in any
manner address the prices at which the Buyer Common Stock will trade following
consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how the holders of Primadonna Common Stock should vote at
the shareholders' meeting to be held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of shares of Primadonna Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By:/s/ Ian C.T. Pereira
________________________________
Ian C.T. Pereira
Managing Director
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APPENDIX C
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997.
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
---------------
MGM GRAND, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 88-0215232
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
(Address of principal executive office) (Zip Code)
(702) 891-3333
(Registrant's telephone number, including area code)
---------------
Securities registered pursuant to Section 12(b) of the Act:
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 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 12, 1998) was approximately $779.2 million. As
of March 12, 1998, 57,990,640 shares of Registrant's Common Stock, $.01 par
value, were outstanding.
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1997 and Proxy Statement dated April 15, 1998 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 or
incorporated by reference 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
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
MGM Grand, Inc. (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 Hotel and Casino ("MGM Grand Las Vegas"), a
hotel/casino entertainment complex offering a full range of destination resort
amenities. The resort is located on approximately 114 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. MGM Grand Hotel Finance Corp. ("MGM Finance"), a
wholly-owned subsidiary of the Company, was formed to issue First Mortgage
Notes to the public, to incur bank debt, and to lend the aggregate proceeds
thereof to MGM Grand Hotel to finance the construction and opening of MGM
Grand Las Vegas. The MGM Finance First Mortgage Notes were defeased on July 3,
1996, in accordance with the terms of the bond indenture, and on October 29,
1996, all Company asset liens related thereto were released and the defeasance
was finalized.
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. The resort includes a public
and private casino, 96 rooms and suites, restaurants, and other facilities.
The Company and Primadonna Resorts, Inc. ("Primadonna") each owns 50% of New
York-New York Hotel and Casino, LLC. ("NYNY LLC"), which completed development
of the $460 million architecturally distinctive, themed destination resort 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
side of the New Four Corners, across from MGM Grand Las Vegas. NYNY features a
2,033-room hotel, an 84,000 square foot casino, themed entertainment
attractions, restaurants, and retail outlets.
Through its wholly-owned subsidiary, MGM Grand South Africa, Inc., the
Company manages casinos in Nelspruit and Witbank, in the Mpumalanga Province
of the Republic of South Africa, which began operations on October 15, 1997
and March 10, 1998, respectively. A third license was granted in the city of
Johannesburg for which a temporary casino could open by late 1998. 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
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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 all of the financing necessary for the
hotel/casino projects. The National Gambling Act was approved and assented to
by the President of the government of South Africa on June 27, 1996.
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.
On June 26, 1997, the Company, through its wholly-owned subsidiary MGM Grand
Detroit, Inc., and its partners in Detroit formed a joint venture, MGM Grand
Detroit, LLC, to develop a hotel/casino and entertainment complex at a minimum
approximate cost of $700 million. On November 20, 1997, MGM Grand Detroit,
L.L.C. was chosen as one of the three finalists to develop, own and operate
one of Detroit's three new casinos pending negotiation of a development
agreement with the City of Detroit and subject to approval by governmental
authorities. The plans for the project call for an 800 room hotel and casino,
exciting signature restaurant/retail outlets, a showroom and other
entertainment venues. On March 12, 1998, MGM Grand Detroit, LLC entered into a
development agreement with the City of Detroit and its Economic Development
Corporation with respect to such project. The agreement is subject to a number
of conditions. See "Buisness--Detroit Project."
For certain information about the Company's industry segments, see Note 20
to the Company's Consolidated Financial Statements contained in Exhibit 13,
which is incorporated herein by this 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.
Las Vegas 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 114 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 features four separate themed areas: Entertainment,
Hollywood, Monte Carlo, and Sports which enhance the entertainment 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 typical guest rooms
decorated in five different themes: Deep South, Hollywood, Monte Carlo,
Emerald, and Casablanca. The hotel also has 751 luxury suites, ranging in size
from 650 to 6,000 square feet, representing a suite-to-room ratio which
management believes is one of the highest among the Strip properties.
In an effort to continue a legacy of providing exceptional entertainment
through the leveraging of its highly recognizable brand name, on May 6, 1996,
the Company embarked on an extensive transformation of MGM Grand Las Vegas
into "The City of Entertainment." The $250 million, 30-month Master Plan
program was designed to enhance the quality of the entertainment experience,
through a series of substantive improvements and additions throughout the 114
acre destination resort. The Master Plan was enhanced and increased during
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1997 to more than $700 million, calling for a new 1,500 room "Marriott
Marquis," expansion of the resort's casino capacity by nearly 20 percent to
more than 200,000 square feet; a new "Mansion at the MGM Grand" offering 30
exclusive suites and villas; a new 380,000 square foot state-of-the-art
conference center; a new 6.6 acre pool and spa complex; significantly expanded
and improved parking facilities; and an approximately 50 foot tall new
polished bronze lion sculpture on a 25 foot pedestal which is the resort's
signature, adjoining a re-themed Entertainment Casino that includes a
Rainforest Cafe and a Studio 54 nightclub. The completed "Studio Walk"
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 Company also announced that by the year 2000, it may construct a 500 room
Ritz-Carlton Hotel at MGM Grand Las Vegas. On December 22, 1997, the Company
announced the signing of a definitive agreement to develop the 1,500 room
Marriott Marquis.
Other entertainment facilities include: a theme park with 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
The Company's 50% joint venture, NYNY LLC, completed construction of NYNY in
December 1996, and opened NYNY on January 3, 1997. The 47-story destination
resort, which management believes is architecturally the most distinctive
property ever built in Las Vegas, replicates many of Manhattan's landmark
buildings and icons, including the Statue of Liberty, the Empire State
Building, Central Park, the Brooklyn Bridge, and a Coney Island-style roller
coaster.
The casino is approximately 84,000 square feet in size and has approximately
2,400 slot machines and 70 table games. The casino features numerous themed
interiors including: Park Avenue with retail shops; The Financial District
consisting of the cashiers' cage; Central Park setting in the central casino
area; and Little Italy with its traditional food court set inside a typical
residential neighborhood.
Las Vegas Market
MGM Grand Las Vegas and NYNY operate in the Las Vegas market and are located
on the Strip. Las Vegas is the largest city in Nevada, with a metropolitan
area population in excess of one million and is one of the most traveled
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
8.9% from $1.6 billion in 1987 to $3.8 billion in 1997.
The hotel/casino industry in Las Vegas is highly competitive. Currently,
several new resorts are under construction and several other existing resorts
are undergoing major expansion and renovation. The Company's MGM Grand Las
Vegas, as well as Bellagio, Project Paradise, Caesars, Venetian, Paris and
other hotel/casino properties are in various stages of expansion, construction
or remodeling. While some of the large themed resorts pose direct competition
with MGM Grand Las Vegas and NYNY, the Las Vegas Convention and Visitors
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Authority ("LVCVA") statistics show that visitor volume for 1997 increased
2.8% over 1996. Total visitors for 1997 exceeded 30.4 million. The Company's
future operating results could be adversely affected by excess room and gaming
capacity.
MGM Grand Las Vegas and NYNY 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, 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 and NYNY's operations. Furthermore, pursuant to recent reports,
including a California State Assembly Legislative report, it is estimated that
as many as approximately 15,000 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."
Insurance
MGM Grand Las Vegas and NYNY 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 operates a casino and is required to be licensed by the
Nevada Gaming Authorities. The gaming license requires the periodic payment of
fees and taxes and is not transferable. MGM Grand 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 is licensed as one of 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 or NYNY
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, MGM Grand Las Vegas and NYNY 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 or NYNY to determine whether such
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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 and NYNY 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
or NYNY may be required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability, or the gaming 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 or NYNY, 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 or NYNY 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 and NYNY 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 and NYNY 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 or NYNY, 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, 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
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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 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 the
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 or NYNY, and subsequently the Company,
MGM Grand Las Vegas or NYNY (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 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
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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 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 and NYNY 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 and NYNY, 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
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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.
The sale of alcoholic beverages by MGM Grand Las Vegas and NYNY 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, and as such place the
Company at a competitive disadvantage.
According to the LVCVA, as of December 31, 1997, there were approximately
105,000 hotel and motel rooms in the Las Vegas area. In addition, the LVCVA
reports projects under construction and/or proposed for future development of
approximately 21,000 more hotel and motel rooms, including three themed
hotel/casino
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properties currently under construction on the Strip north of Tropicana Avenue
and one major facility south of Tropicana Avenue. 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, some form of casino gaming is operating or is approved in
approximately 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. 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. 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."
Australia Operations
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 resort includes a public and private casino, 96 rooms, restaurants
and other facilities. Casino operations include approximately 32 table games,
360 slots and a keno lounge. The Company has positioned MGM Grand Australia as
a multi-faceted gaming/entertainment facility for the local market and as an
exclusive destination resort for international table game customers.
Two casinos operate in the Northern Territory, including MGM Grand, Inc'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 the Northern Territory during 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 12 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. 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
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amenities. 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. 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, and as a result, the operating
margins have been lower than anticipated. MGM Grand Australia has therefore
revisited and revised its marketing efforts with an emphasis on the local
population and commenced a cost reduction program in an effort to strengthen
operating results.
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.
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.
New Jersey Project
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 management believes will be larger and more
elaborate than any other facility currently in existence in that market. The
Company intends 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
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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, 1997 had
11,360 rooms, 1,036,705 square feet of casino space, 35,206 slot machines and
1,484 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 of Atlantic City. 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 $3.91 billion in gaming
revenues in 1997, a 2.6% increase over 1996 gaming revenues of approximately
$3.81 billion. From 1990 to 1997, total annual gaming revenues in Atlantic
City increased 32.1%, while hotel rooms increased only approximately 28.9%
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, a 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 late 1996, other gaming
companies entered 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 improvements include,
among other projects, new housing and retail development, a tunnel connecting
the Atlantic City Expressway to the Marina, and a new $254 million Convention
Center which 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.
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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 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 or
approvals from other state 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 licenses, 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
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 not exceeding 20% or
(iii) 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 outstanding voting securities. Additionally, a waiver of
qualifications 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.
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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 the 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 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.
Detroit Project
MGM Grand Detroit
The recently enacted 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, Dennis Archer, designated MGM Grand Detroit,
L.L.C. ("MGM Grand Detroit") to develop
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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 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 project 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 $700 million and development could take up to
three years following issuance of building permits. On March 12, 1998, MGM
Grand Detroit, LLC entered into a development agreement with the City of
Detroit and its Economic Development Corporation. The agreement is subject to
a number of conditions, including: (i) approval of the development agreement
by the Detroit City Council and adoption of an ordinance approving casino
gaming; (ii) acquisition by MGM Grand Detroit of a suitable development site;
and (iii) a finding by the Michigan Gaming Control Board that MGM Grand
Detroit is suitable for licensing. 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 Detroit, or if it does, as to its
ultimate size, configuration or costs.
Detroit Market
An assessment prepared by third party 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 under construction 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 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
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casino licensee or former licensee to another person or entity who meets the
requirements of the Michigan Act for licensure.
The MGCB recently approved administrative rules (the "Proposed Rules") to
implement the terms of the Michigan Act. The Proposed Rules are currently
being reviewed by the Governor's Office of Regulatory Reform and the
Legislative Services Bureau of the Michigan Legislature for certification.
After certification, they were submitted to the Joint Rules Committee of the
Michigan Legislature for review and approval. The Proposed Rules are subject
to modification at any time prior to their final adoption by the MGCB.
The Detroit City Council is considering the adoption of an ordinance which
would provide for periodic reporting by the three licensed casino operators to
the City Council and procedures whereby the City Council would determine
compliance by the operators with various commitments made by them in their
respective development agreements and report its findings to the MGCB in
connection with the annual license renewal process. While the legal effect of
any such determination is unclear, it is anticipated that certain material
breaches by an operator of its development agreement could ultimately result
in revocation or non-renewal of its casino license by the MGCB.
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 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.
Employees
As of December 31, 1997, the Company and its subsidiaries employed
approximately 6,555 full-time equivalent employees at the MGM Grand Las Vegas
and its 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 90 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 2,800
employees, running through December 12, 2000.
As of December 31, 1997, MGM Grand Australia employed approximately 350
full-time equivalent employees. Hourly employees are covered by collective
bargaining agreements.
As of December 31, 1997, NYNY employed approximately 2,060 full-time
equivalent employees; operations of NYNY commenced on January 3, 1997. As of
December 31, 1997, approximately 830 of NYNY's employees were covered by
collective bargaining agreements.
Item 2. Properties
The Company's principal executive offices are located at 3799 Las Vegas
Boulevard South, Las Vegas, Nevada 89109, where it rents approximately 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.
C-16
<PAGE>
MGM Grand Las Vegas is located on approximately 114 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, 1997, 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 February 2, 1998 and February 6, 1998, in tranches of
$300 million and $200 million and are due February 1, 2005 and February 6,
2008, 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 up to $285 million, of which $245.1 million was
outstanding as of December 31, 1997, and which bears interest based on the
bank prime rate, federal funds rate or LIBOR rate, and is due December 2001.
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 $58 million, which bears interest based
on the Australian bank bill rate and is due December 2000.
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 alleges 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 claim 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 are suing for
$350,000 in costs advanced in anticipation of the project being constructed,
as well as 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 enforceable contract exists between the parties. As of
December 31, 1997, the motion for summary judgment still was pending before
the court.
A subsidiary of the Company is a defendant in an adversary proceeding
against MGM Dist. Inc., (formerly MGM Desert Inn, Inc.), 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. The Company intends to vigorously defend this action.
Item 4. Submission of Matters to a Vote of Security Holders
None.
C-17
<PAGE>
Executive Officers of the Registrant
J. Terrence Lanni (age 55) 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 42) has served as President of the Company since July
1995, as Chief Operating Officer of the Company since June 1995, and as Chief
Financial Officer of the Company from May 1994 to January 1998. He also served
as Executive Vice President of the Company from June 1992 to July 1995, as
Chairman of the Executive Committee of the Company 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.
Fred Benninger (age 81) has served as Vice Chairman of the Board of the
Company since April 1995. He was Chairman of the Board of the Company from
August 1987 to April 1995. He also served as President of the Company from
August 1987 to March 1990 and as Chief Executive Officer of the Company from
August 1987 to January 1991.
James J. Murren (age 36) has served as Executive Vice President and Chief
Financial Officer of the Company since January 1998. For the five years prior
thereto, most recently serving as Managing Director and Co-Director of
research for Deutsche Morgan Grenfell.
Scott Langsner (age 44) has served as Secretary/Treasurer of the Company
since July 1987.
Edward J. Jenkins (age 53) 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.
C-18
<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 Exhibit
13 hereto, which is incorporated herein by this reference.
As of March 12, 1998, there were approximately 3,063 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 Exhibit 13 hereto, which is
incorporated herein by this reference.
Item 6. Selected Financial Data
The information is set forth in Exhibit 13 hereto, which is
incorporated herein by this reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information is set forth in Exhibit 13 hereto, which is
incorporated herein by this reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets as of December 31, 1997 and 1996 and
the consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December
31, 1997, together with the Report of Independent Public Accountants,
are contained in Exhibit 13 hereto and are incorporated herein by this
reference.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
C-19
<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 for the Company are set forth in Exhibit
13 hereto, which are incorporated herein by this reference. The
financial schedule listed in the accompanying Index to Financial
Statements at page 22 herein is filed as part of this Form 10-K.
(b) Form 8-K filed on February 23, 1998.
(c) Exhibits.
The exhibits listed in the accompanying Exhibit Index on Pages 25-26
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.
C-20
<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 27, 1998
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 27, 1998
____________________________________ Executive Officer, and
J. Terrence Lanni Director
/s/ Alex Yemenidjian President, Chief Operating March 27, 1998
____________________________________ Officer, and Director
Alex Yemenidjian
/s/ Fred Benninger Vice-Chairman of the Board March 27, 1998
____________________________________
Fred Benninger
/s/ James J. Murren Executive Vice President, March 27, 1998
____________________________________ Chief Financial Officer,
James J. Murren and Director
/s/ James D. Aljian Director March 27, 1998
____________________________________
James D. Aljian
/s/ Terry N. Christensen Director March 27, 1998
____________________________________
Terry N. Christensen
Director March , 1998
____________________________________
Glenn A. Cramer
</TABLE>
C-21
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director March , 1998
____________________________________
Willie D. Davis
Director March , 1998
____________________________________
Alexander M. Haig, Jr.
Director March , 1998
____________________________________
Kirk Kerkorian
Director March , 1998
____________________________________
Frank G. Mancuso
Director March , 1998
____________________________________
Walter M. Sharp
/s/ Jerome B. York Director March 27, 1998
____________________________________
Jerome B. York
</TABLE>
C-22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
<TABLE>
<CAPTION>
Form 10-K
Page
---------
<S> <C>
Schedule II--Valuation and Qualifying Accounts........................ 24
</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.
C-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To The Board of Directors and Stockholders of MGM Grand, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in MGM Grand, Inc.'s Annual
Report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 28, 1998. 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 24 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission 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
January 28, 1998
C-24
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996, and 1995
(In thousands)
<TABLE>
<CAPTION>
Additions
Charged
Balance at to Costs Amounts Balance
Beginning and Written at End
Description of Period Expenses Off of Period
----------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts and
discounts............................. $17,624 $57,683 $42,235 $33,072
======= ======= ======= =======
</TABLE>
C-25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3(1) Certificate of Incorporation of Company, as amended (incorporated by
reference to Exhibit 3(1) to Registration Statement No. 33-3305).
3(a) Amendment to Certificate of Incorporation dated July 17, 1997.
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,
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).
10(3)(a) Amendment No. 1 to Amended and Restated Loan Agreement.
10(3)(b) Amendment No. 2 to Amended and Restated Loan Agreement.
*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 Form 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")).
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).
</TABLE>
C-26
<PAGE>
EXHIBIT INDEX--(Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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.
*10(32) Letter Agreement dated January 16, 1998, between the Company and
James Murren.
13 Portions of the Company's 1997 Annual Report to Stockholders.
21 List of Subsidiaries.
23(1) Consent of Independent Public Accountants.
27 Financial Data Schedule for period ending December 31st.
27(1) Financial Data Schedule for period ending September 30th.
27(2) Financial Data Schedule for period ending June 30th.
27(3) Financial Data Schedule for period ending March 31st.
99 Unconsolidated Affiliate Financial Statements.
</TABLE>
- --------
* Management contract or compensatory plan.
C-27
<PAGE>
EXHIBIT 13
FINANCIAL HIGHLIGHTS
(In thousands except share data)
<TABLE>
<CAPTION>
For the Years Ended 1997 1996 1995 1994 1993
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $827,597 $800,189 $718,781 $739,676 $ 37,016
Operating profit before non-recurring
items and corporate expense 222,960 196,585 113,905 137,147 6,124
Operating income (loss) 190,970 129,294 103,823 129,715 (44,546)
Income (loss) before income taxes,
discontinued operations and
extraordinary item 180,301 99,151 46,565 73,540 (38,895)
Net income (loss) 111,018 43,706 46,565 74,576 (117,586)
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) before
discontinued operations and
extraordinary item $ 2.00 $ 1.41 $ 0.97 $ 1.53 $ (0.82)
Discontinued operations - - - 0.02 (1.65)
Extraordinary item - loss on
early extinguishment of debt,
net of income tax benefit (0.07) (0.58) - - -
-----------------------------------------------------------------------------------------
Net income (loss) per share $ 1.93 $ 0.83 $ 0.97 $ 1.55 $ (2.47)
-----------------------------------------------------------------------------------------
Weighted average number of shares 57,475,000 52,759,000 48,076,000 48,232,000 47,587,000
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) before
discontinued operations and
extraordinary item $ 1.96 $ 1.38 $ 0.96 $ 1.50 $ (0.82)
Discontinued operations - - - 0.02 (1.65)
Extraordinary item - loss on
early extinguishment of debt,
net of income tax benefit (0.07) (0.57) - - -
--------------------------------------------------------------------------------------------
Net income (loss) per share $ 1.89 $ 0.81 $ 0.96 $ 1.52 $ (2.47)
--------------------------------------------------------------------------------------------
Weighted average number of shares 58,835,000 54,257,000 48,544,000 48,988,000 47,587,000
AT YEAR END
Total assets $ 1,398,374 $ 1,287,689 $ 1,282,222 $ 1,153,511 $ 1,160,123
Total debt 57,830 83,391 551,099 473,000 483,000
Stockholders' equity 1,101,622 973,382 584,548 529,379 481,755
Stockholders' equity per share $ 19.00 $ 16.82 $ 11.98 $ 11.05 $ 9.86
Number of shares at year end 57,985,000 57,884,000 48,775,000 47,925,000 48,845,000
</TABLE>
The selected financial data above includes information for New York-New York
which is 50% owned and commenced operations on January 3, 1997, MGM Grand Las
Vegas which commenced operations on December 18, 1993, MGM Australia, which was
acquired on September 7, 1995, and MGM Grand Air until December 31, 1994, when
the company was sold.
C-28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates 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 a
casino in Nelspruit, in the Mpumalanga Province of the Republic of South Africa,
which began operations on October 15, 1997 (see Notes 1 and 18). The Company
also owns a 50% interest in New York-New York Hotel and Casino, LLC ("NYNY
LLC"), which owns and operates New York-New York Hotel and Casino in Las Vegas,
Nevada ("NYNY"), which commenced operations on January 3, 1997 (see Note 1).
Additionally, the Company's wholly-owned subsidiaries, MGM Grand Detroit and MGM
Grand Atlantic City are in the development stage, with plans to construct
hotel/casino and entertainment facilities in Detroit, Michigan and Atlantic
City, New Jersey, respectively (see Note 1).
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 (see Note 1) 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 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
for 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
C-29
<PAGE>
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 SkyScreamer 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.
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 decreased 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.
Management anticipates the impact from recent worldwide financial conditions,
particularly throughout Asia, although not currently measurable, will not have a
material adverse effect on the Company's future operations or its ability to
collect current receivables. 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.
Consolidating operating profit (before Master Plan asset disposition, preopening
and corporate expense) was $223 million for the year ended December 31, 1997,
reflecting an increase of $26.4 million (13.4%) over 1996 of $196.6 million. The
increase was primarily attributable to the Company's 50% share of NYNY's
operating income and higher operating profit at MGM Grand Australia offset by
lower operating profit at MGM Las Vegas.
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 over $700
million (see Note 15).
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 under the agreement with Don King Productions (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
amounts 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") (see Note 9) in the prior
year, 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.
C-30
<PAGE>
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.
Extraordinary loss of $4.2 million, net of income tax benefit, reflects the
write-off of unamortized debt costs from the previous $600 million 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).
1996 COMPARED WITH 1995
Consolidated net revenues for the year ended December 31, 1996, were $800.2
million, representing an increase of $81.4 million (11.3%) when compared with
$718.8 million for 1995. MGM Grand Las Vegas accounted for a majority of the
improved 1996 revenues with growth in every revenue segment over the prior year,
excluding food and beverage, which was a result of the Company's 1995
restructuring plan that included the conversion of three Company operated
restaurants into leased facilities (see Note 16). MGM Grand Australia revenues
for the year ended December 31, 1996 were significantly higher than the prior
year due to a full year operating period in 1996, compared with an abbreviated
1995 operating period from the acquisition of the property on September 7, 1995
through December 31, 1995 (see Note 18). Promotional allowances remained
consistent between years, reflecting management's focus on diversifying its
customer mix.
Consolidated casino revenues were $476.7 million for the year ended December 31,
1996, reflecting an increase of $75 million (18.7%) compared with $401.7 million
for the prior year. MGM Grand Las Vegas primarily accounted for the increase,
where casino revenues of $445.4 million were $51.1 million (13%) above the prior
year of $394.3 million, reflecting improved win and win percentages in table
games, baccarat and slots. MGM Grand Australia casino revenues were $31.3
million for 1996, reflecting a significant increase of $24 million above the
prior year due to the shortened operating period in 1995 from the acquisition on
September 7, 1995 (see Note 18).
Consolidated room revenues were $174.4 million for 1996, reflecting an increase
of $13.9 million (8.7%) above the prior year of $160.5 million. MGM Grand Las
Vegas reported room revenues of $172.4 million for 1996, which were $12.3
million (7.7%) above the prior year of $160.1 million. This increase reflected
higher occupancy and average daily room rate of 94.7% and $101, respectively,
when compared with 90.6% and $98 for the prior year. MGM Grand Australia
reported room revenues for 1996 of $2.1 million, which were above the prior year
by $1.5 million, reflecting the shortened 1995 operating period.
Consolidated food and beverage revenues of $78.4 million for the year ended
December 31, 1996 were $10.9 million (12.2%) below the prior year of $89.3
million. MGM Grand Las Vegas accounted for the reduction, where revenues of $72
million for the 1996 year were $15.4 million (17.6%) below the prior year of
$87.4 million, reflecting the effect of the conversion of three Company operated
restaurants to tenancies during the last half of 1995. MGM Grand Australia
revenues of $6.5 million for the year ended December 31, 1996 were above the
1995 year by $4.4 million, reflecting the shortened prior year operating period.
C-31
<PAGE>
Consolidated entertainment, retail and other revenues for 1996 were $126.9
million, representing an increase of $3.6 million (2.9%) above the prior year of
$123.3 million. The increase was attributable to MGM Grand Las Vegas,
reflecting a full year of operations for the EFX production show (which opened
during March 1995) and the Star Lane Shops retail mall (which opened during
September 1995), as well as higher rental income from added restaurant and
retail tenancies. Additionally, the MGM Grand Garden arena revenues for 1996
were higher than 1995, reflecting the increased number of entertainment events
held. Such improvements were partially offset by reduced revenues at the theme
park due to decreased overall attendance for the year and lower average ticket
prices, and lower midway/arcade revenues in 1996 which reflects the relocation
of the midway/arcade to a smaller facility.
Consolidated operating expenses (before Master Plan Asset disposition,
preopening and Corporate expense) of $603.6 million for the year ended December
31, 1996 decreased $1.3 million (0.2%) when compared with the prior year of
$604.9 million. MGM Grand Las Vegas operating expenses for 1996 were $570.9
million, or $25.2 million (4.2%) below the prior year of $596.1 million.
Operating expenses as a percentage of net revenues were reduced from 84.2% in
1995 to 75.4% in 1996. This reduction was primarily attributable to the
continued cost containment efforts at MGM Grand Las Vegas, lower food and
beverage expenses in 1996 due to the conversion of three of the Company operated
restaurants to tenancies as part of the prior year restructuring plan, and a
lower provision for doubtful accounts and discounts reflecting changes in
anticipated collectibility and payments on fully reserved casino receivables.
Additionally, 1995 contained a one-time charge of $5.9 million related to the
restructuring program. Such decreases were partially offset by higher casino
operating costs for gaming taxes (based upon the improved gaming revenues) and
increased marketing programs, increased room expenses due to the higher average
occupancy throughout the 1996 year, and higher depreciation and amortization
expense as a result of additional property and equipment placed in service
during 1996. MGM Grand Australia operating expenses were $37.4 million for the
year ended December 31, 1996, representing a $28.7 million increase above the
prior year of $8.7 million as a result of the abbreviated 1995 operating period.
Consolidated operating profit (before Master Plan asset disposition, preopening
and Corporate expense) was $196.6 million for the year ended December 31, 1996,
reflecting an increase of $82.7 million (72.6%) over $113.9 million for 1995.
The increase was primarily attributable to MGM Grand Las Vegas, where continued
operating efficiencies and the impact of the 1995 restructuring plan boosted
operating profit (before Master Plan asset disposition) to $195.6 million,
representing an increase of $82 million (72.2%) over $113.6 million in 1995. MGM
Grand Australia had operating income of $1.3 million for the 1996 period,
representing an increase when compared with the prior year operating income of
$. 9 million, reflecting the property acquisition on September 7, 1995 and the
subsequent construction and remodeling program which was completed in June 1996.
Master Plan asset disposition represented the write-off of various assets as a
result of the transformation of MGM Grand Las Vegas into "The City of
Entertainment," which resulted in a pre-tax charge of $49.4 million in the 1996
period (see Note 15).
Preopening and other - unconsolidated affiliate represented the Company's 50%
share of NYNY preopening expenses, which included direct salaries, marketing and
other costs incurred during the period prior to the hotel/casino being
substantially complete. NYNY commenced operations on January 3, 1997 (see Note
1).
C-32
<PAGE>
Interest income and other was $3.6 million for the year ended December 31, 1996,
reflecting an increase of $1.5 million (71.4%) from $2.1 million in 1995. The
increase was attributable to higher average invested cash balances at MGM Grand
Las Vegas in the first half of the 1996 year (prior to the defeasance of the
FMN-see Note 9), reflecting higher operating cash flow when compared with the
prior year.
Interest expense (net of amounts capitalized) for the year ended December 31,
1996 was $33.8 million, reflecting a decrease of $25.5 million (43%) when
compared with $59.3 million for 1995. The significant decrease resulted from a
combination of the defeasance of the FMN (see Note 9) and increased
capitalization of interest expense during 1996 related to various new and
ongoing construction projects, including the MGM Grand Las Vegas Master Plan,
MGM Grand Atlantic City land acquisition and pre-construction activities, and
the NYNY construction project. The reduction in interest expense was partially
offset by the effect of the MGM Grand Australia bank loan which was outstanding
for the entire 1996 year, compared with the period from the acquisition on
September 7, 1995 to December 31, 1995.
The Company recorded an income tax provision of $24.6 million at a rate of 24.8%
for the year ended December 31, 1996, compared with the prior year period when
there was no provision due to the benefit resulting from the reduction of the
valuation allowance (see Note 17).
The Company recorded an extraordinary loss of $30.8 million, net of income tax
benefit of $17.7 million reflecting the 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 to define the applicable year, which may result in
systems failures and disruptions to operations at January 1, 2000. During 1996,
the Company established a remediation plan and a timetable to complete this
plan. The Company has incurred immaterial costs during 1996 and 1997 to modify
its existing computer systems and applications. All available Year 2000
compliant systems have been obtained and tested by the Company, excluding
certain systems that are non-critical to operations, which are scheduled to be
upgraded during 1998. For those Year 2000 systems which are still in the
developmental stage, the Company has initiated formal communications with its
suppliers to determine the timing of the necessary upgrades and the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 Issue. The Company does not anticipate any material costs
in the future relating to the Year 2000 Issue.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997 and 1996, the Company held cash and cash equivalents of
$34.6 million and $61.4 million, respectively. Cash provided by operating
activities for 1997 was $184 million, compared with $245.2 million for 1996.
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 more than $700 million, calls for a new 1,500-room "Marriott
Marquis"; expansion of the resort's casino capacity by nearly 20% to more than
200,000 square feet; a new "Mansion at the MGM Grand" offering 30 exclusive
suites and villas; a new 380,000 square foot state-of-the-art conference center;
a new 6.6 acre pool and spa complex; significantly expanded and
C-33
<PAGE>
improved parking facilities; and an approximately 50-foot tall new polished
bronze lion sculpture on a 25-foot pedestal, which is the resort's signature
lion, adjoining a re-themed entertainment casino that includes a Rainforest Cafe
and Studio 54 nightclub. The Company also announced that by the year 2000, it
plans to begin construction of a 500-room Ritz-Carlton Hotel at MGM Grand Las
Vegas.
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. These improvements included new rooftop signage as well as the
recarpeting of the casino areas. MGM 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.
The Company made a capital contribution of $7 million to NYNY LLC during 1997.
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 Keep-Well Agreement (see Note 9). The Company
also received $15.2 million in distributions from NYNY LLC during 1997 to pay
taxes on its allocated share of income.
During the year ended December 31, 1996, the Company utilized operating cash
flow to fund capital expenditures of $84.8 million, including $16.1 million
related to the Master Plan project and $25.7 million for general property
enhancements and expansions at MGM Grand Las Vegas. Such property improvements
included suite and restaurant remodeling (Gatsby's and Brown Derby), various new
property signage, the acquisition of two land parcels, and the new "SkyScreamer"
thrill ride theme park attraction.
MGM Grand Australia expended $13.1 million related to its renovation program
which was completed on June 5, 1996, and which included substantive improvements
throughout the property, such as enhanced guest accommodations, casino and
restaurant remodels, and other upgrades to public areas. MGM Grand Atlantic
City commenced the assemblage of acreage for its new destination resort by
expending $29.7 million for land acquisitions and pre-construction activities.
Also during 1996, the Company contributed additional capital investment of $22.5
million to the NYNY project (see Note 9).
Capital expenditures are expected to significantly increase in 1998 to
approximately $616.1 million as a result of the continuing transformation of MGM
Grand Las Vegas into "The City of Entertainment," as well as the Company's
development of premier, emotionally engaging destination resorts in Detroit and
Atlantic City. MGM Grand Las Vegas expenditures for 1998 are expected to be
approximately $444.3 million, consisting of $391.3 million related to the Master
Plan project, and approximately $53 million for general property improvements
including room refurbishments. MGM Grand Australia plans to expend
approximately $2 million for general property and equipment improvements.
Approximately $169.7 million is anticipated to be expended for land acquisition
and pre-construction activities relating to the Company's planned development of
hotel/casino and entertainment facilities, including $154 million for the MGM
Grand Detroit project and $15.7 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,
C-34
<PAGE>
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, 1997, the Company's borrowing rate
was approximately 6.1%. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one year periods. During 1997,
$15 million was drawn down and repaid against the Facility, $10.5 million was
drawn down and repaid against the New Facility, and no amounts remained
outstanding under the New Facility as of December 31, 1997.
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 the
underwriters' discount and issuance costs.
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 MGM Grand Hotel Finance Corp FMN (see Note 9).
On September 15, 1995, NYNY LLC (see Note 1) 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 five-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. During the year, $39.9
million in voluntary principal repayments were made by NYNY LLC. The first draw
down occurred on September 30, 1995, and as of December 31, 1997, $245.1 million
was outstanding under the Facility. On January 21, 1997, NYNY LLC completed an
additional $20 million equipment financing with a financial institution. As of
December 31, 1997, $17.5 million remained outstanding related to equipment
financing.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia (see
Note 18). The acquisition cost was financed by an Australian bank facility which
provides a total availability of approximately $68.4 million (AUD$105 million)
and includes funding for general corporate purposes. The facility was reduced by
principal payments totaling $11.8 million (AUD$16.3 million) made in accordance
with the terms of the bank facility, and as of December 31, 1997, $57.8 million
(AUD$88.8 million) remained outstanding. Interest on the Australian facility is
based on the bank bill rate and was approximately 5.8% and 7.5% as of December
31, 1997 and 1996, respectively. The facility matures in December 2000, and the
indebtedness has been guaranteed by the Company.
MGM Grand Australia has a $13 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, 1997, no amounts were borrowed under the line of
credit and no amounts were outstanding as of December 31, 1997, and 1996,
respectively.
The Company expects to finance capital expenditures and existing debt
obligations through cash flow from operations, cash on hand, the bank line of
credit, and the Shelf Registration Statement (see Note 9).
C-35
<PAGE>
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 and in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 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).
C-36
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
For the years ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Casino $457,206 $476,685 $401,680
Rooms 171,272 174,440 160,470
Food and beverage 92,594 78,438 89,299
Entertainment, retail and other 116,458 126,875 123,307
Income from unconsolidated affiliate 53,800 - -
----------------------------------------------------------
891,330 856,438 774,756
Less: Promotional allowances 63,733 56,249 55,975
----------------------------------------------------------
827,597 800,189 718,781
==========================================================
EXPENSES:
Casino 225,896 221,268 196,665
Rooms 45,848 46,639 42,816
Food and beverage 55,124 46,590 57,516
Entertainment, retail and other 79,605 88,214 89,820
Provision for doubtful accounts and discounts 31,814 38,635 57,683
General and administrative 102,246 100,062 99,119
Restructuring costs - - 5,942
Depreciation and amortization 64,104 62,196 55,315
----------------------------------------------------------
604,637 603,604 604,876
==========================================================
Operating Profit Before Master Plan Asset Disposition,
Preopening and Corporate Expense 222,960 196,585 113,905
Master Plan asset disposition 28,566 49,401 -
Preopening and other - unconsolidated affiliate - 7,868 -
Corporate expense 3,424 10,022 10,082
----------------------------------------------------------
Operating Income 190,970 129,294 103,823
==========================================================
NONOPERATING INCOME (EXPENSE):
Interest income 1,268 4,247 2,896
Interest expense, net of amounts capitalized (1,242) (33,778) (59,329)
Interest expense from unconsolidated affiliate (9,891) - -
Other, net (804) (612) (825)
---------------------------------------------------------
(10,669) (30,143) (57,258)
---------------------------------------------------------
Income Before Income Taxes and Extraordinary Item 180,301 99,151 46,565
Provision for income taxes (65,045) (24,634) -
---------------------------------------------------------
Income Before Extraordinary Item 115,256 74,517 46,565
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 $111,018 $ 43,706 $ 46,565
=========================================================
BASIC INCOME PER SHARE OF COMMON STOCK:
Income before extraordinary item $ 2.00 $ 1.41 $ 0.97
Extraordinary item - loss on early extinguishment of debt, net of
income tax benefit (0.07) (0.58) -
---------------------------------------------------------
Net Income per share $ 1.93 $ 0.83 $ 0.97
=========================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 57,475,000 52,759,000 48,076,000
=========================================================
DILUTED INCOME PER SHARE OF COMMON STOCK:
Income before extraordinary item $ 1.96 $ 1.38 $ 0.96
Extraordinary item - loss on early extinguishment of debt, net of
income tax benefit (0.07) (0.57) -
---------------------------------------------------------
Net Income per share $ 1.89 $ 0.81 $ 0.96
=========================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 58,835,000 54,257,000 48,544,000
=========================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-37
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
As of December 31, 1997 1996
- -------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 34,606 $ 61,412
Accounts receivable, net 78,977 80,529
Prepaid expenses 10,452 13,208
Inventories 16,462 13,520
Deferred tax asset 30,294 58,039
-------------------------------------
Total current assets 170,791 226,708
-------------------------------------
PROPERTY AND EQUIPMENT, NET 1,032,708 884,750
OTHER ASSETS:
Investment in unconsolidated affiliates 108,121 72,896
Deposits 255 15,255
Excess of purchase price over fair 38,598 39,622
market value of net assets acquired, net
Other assets, net 47,901 48,458
-------------------------------------
Total other assets 194,875 176,231
-------------------------------------
$1,398,374 $1,287,689
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 53,860 $ 32,995
Income taxes payable - 23,653
Current obligation, capital leases 6,088 2,769
Current obligation, long term debt 10,589 12,906
Other accrued liabilities 110,953 118,448
-------------------------------------
Total current liabilities 181,490 190,771
-------------------------------------
DEFERRED REVENUES 4,743 6,712
DEFERRED INCOME TAXES 58,831 38,477
LONG TERM OBLIGATION, CAPITAL LEASES 4,447 7,862
LONG TERM DEBT 47,241 70,485
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock ($.01 par value,
75,000,000 shares authorized,
57,984,873 and 57,883,766 shares issued) 580 579
Capital in excess of par value 966,487 963,688
Retained earnings 124,239 13,221
Currency translation adjustment 10,316 (4,106)
-------------------------------------
Total stockholders' equity 1,101,622 973,382
-------------------------------------
$1,398,374 $1,287,689
=====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-38
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 111,018 $ 43,706 $ 46,565
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 1,127 2,191 3,308
Depreciation and amortization 64,244 62,323 55,419
Provision for doubtful accounts and discounts 31,814 38,635 57,683
Preopening and other - unconsolidated affiliate - 7,868 -
Earnings in excess of distributions - unconsolidated affiliate (28,749) - -
Change in assets and liabilities:
Accounts receivable (30,262) (40,605) (40,395)
Prepaid expenses 2,756 (551) 2,589
Inventories (4,035) (3,283) (3,784)
Income taxes payable (23,653) 21,302 -
Deferred income taxes 48,100 (27,696) (2,034)
Accounts payable, accrued liabilities, and other (24,185) 43,209 (5,863)
Currency translation adjustment 700 130 1,056
-----------------------------------------------------
Net cash from operating activities 184,012 245,151 114,544
-----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (227,756) (84,775) (37,447)
Acquisition of MGM Grand Australia - - (71,942)
Dispositions of property and equipment, net 202 322 488
Change in construction payables 32,418 (809) (3,915)
Note receivable - 529 13,796
Investment in unconsolidated affiliates (7,190) (27,153) (36,500)
Deposits and other assets 548 (8,929) (30,514)
-----------------------------------------------------
Net cash from investing activities (201,778) (120,815) (166,034)
-----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Defeasance of First Mortgage Notes - (523,231) -
Borrowings from (repayments to) banks and others (11,839) - 78,099
Borrowings under lines of credit 25,500 65,262 15,000
Repayments of lines of credit (25,500) (65,262) (15,000)
Issuance of common stock 2,799 350,290 7,549
----------------------------------------------------
Net cash from financing activities (9,040) (172,941) 85,648
----------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (26,806) (48,605) 34,158
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 61,412 110,017 75,859
----------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 34,606 $ 61,412 $ 110,017
====================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-39
<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'
1997, 1996, and 1995 OUTSTANDING STOCK PAR VALUE STOCK (DEFICIT) OTHER EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 47,924,510 $ 507 $663,186 $(57,264) $(77,050) $ - $ 529,379
Issuance of common stock for
note receivable 618,557 - - 15,000 - (15,000) -
Payment received from note
receivable - - - - - 5,000 5,000
Issuance of common stock pursuant
to employee stock options 231,789 2 2,546 - - - 2,548
Retirement of treasury stock - (21) (42,243) 42,264 - - -
Net income - - - - 46,565 - 46,565
Currency translation adjustment - - - - - 1,056 1,056
---------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 48,774,856 488 623,489 - (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
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
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-40
<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, 1997, approximately 62.5% of the
outstanding shares of the Company's common stock were owned by Kirk Kerkorian
and Tracinda Corporation ("Tracinda"), a Nevada corporation wholly owned by Kirk
Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., 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 results of operations of MGM Grand Australia are
included from September 7, 1995, the date of acquisition (see Note 18).
The Company and Primadonna Resorts, Inc. ("Primadonna") each own 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/Casino
in Las Vegas, Nevada ("NYNY") 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 a casino in Nelspruit, in the Mpumalanga Province of the Republic of
South Africa, which began operations on October 15, 1997. The Company receives
development and management fees from its partner, Tsogo Sun Gaming &
Entertainment who 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 ("MGM
Grand Detroit"), to develop a hotel/casino and entertainment complex at a
minimum approximate cost of $700 million. On November 20, 1997, MGM Grand
Detroit was chosen as a finalist for a development agreement to construct, own
and operate one of Detroit's three new casinos pending negotiation of a
development agreement with City of Detroit and subject to approval by
governmental authorities. The plans for MGM Grand Detroit call for an 800-room
hotel, a 100,000 square-foot casino, signature restaurants and retail outlets,
showroom and other entertainment venues.
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 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.
C-41
<PAGE>
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 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. RECEIVABLES -- Receivables are due within one year and are recorded net of
amounts estimated to be uncollectible.
e. INVENTORIES -- Inventories are stated at the lower of cost or market. 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.
C-42
<PAGE>
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 $63.7 million, $56.2
million and $56 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The estimated cost of providing such promotional allowances was
included in casino expenses as follows:
<TABLE>
<CAPTION>
PROMOTIONAL ALLOWANCES
(In thousands)
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Rooms $ 9,841 $ 9,487 $ 8,512
Food and beverage 28,436 23,224 23,588
Other 2,235 2,175 3,627
------------------------------------------
$40,512 $34,886 $35,727
------------------------------------------
</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 issued to employees are exercised
and repurchased at the average price for the periods presented (see Note 12).
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. RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income," which requires the display
of comprehensive income and its components in a financial statement with the
same prominence as the other financial statements. SFAS 130 is effective for
fiscal
C-43
<PAGE>
years beginning after December 15, 1997, and management believes that the
adoption of SFAS 130 will not have a significant impact on the Company's
financial position or results of operations.
o. 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.
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, 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PAYMENTS MADE FOR:
Interest, net of amounts capitalized $ 7,916 $48,155 $55,750
--------------------------------------
State and federal income taxes $43,159 $ 3,660 $ 620
--------------------------------------
</TABLE>
During 1997, the Company completed equipment lease financings for approximately
$3.1 million at MGM Grand Las Vegas.
On June 5, 1995, the Company retired all shares of common stock held in
Treasury, which thereupon resumed the status of authorized unissued shares in a
non-cash transaction in the amount of approximately $42.3 million.
NOTE 4. ACCOUNTS RECEIVABLE
Components of accounts receivable were as follows:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Casino $ 87,442 $102,408
Hotel 11,229 13,286
Income tax receivable 6,776 -
Other 553 267
------------------------------
106,000 115,961
Less: Allowance for doubtful accounts
and discounts (27,023) (35,432)
--------------------------------
$ 78,977 $ 80,529
--------------------------------
</TABLE>
C-44
<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, 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Land $ 105,813 $ 102,290
Buildings and improvements 663,832 635,238
Equipment, furniture, fixtures and
leasehold improvements 217,723 220,379
Equipment under capital lease 18,053 18,054
Construction in progress 216,898 50,797
------------------------------------
1,222,319 1,026,758
Less: Accumulated depreciation and
amortization (189,611) (142,008)
------------------------------------
$1,032,708 $ 884,750
------------------------------------
</TABLE>
NOTE 6. DEVELOPMENT PROJECTS
The Company, along with its local partners in Detroit, Michigan, plans to
develop a hotel/casino and entertainment complex at a minimum approximate cost
of $700 million. On November 20, 1997, MGM Grand Detroit was chosen as a
finalist for a development agreement to construct, own and operate one of
Detroit's three new casinos pending negotiation of a development agreement with
the City of Detroit and subject to approval by governmental authorities. The
plans for MGM Grand Detroit call for an 800-room hotel, a 100,000 square-foot
casino, signature restaurants and retail outlets, a showroom, and other
entertainment venues. Through December 31, 1997, approximately $3.8 million was
expended and capitalized by the Company for licensing and design costs.
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, 1997, the Company has expended
and capitalized approximately $47.6 million, relating primarily to land
acquisition and pre-construction activities.
C-45
<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. As of December 31, 1997, the Company has
contributed land on which the property is located and cash totaling $70.7
million which includes $7 million in capital contributions made in 1997. During
the year ended December 31, 1997, the Company received distributions of $15.2
million from the joint venture to pay taxes on its allocated share of income.
The joint venture secured bank financing of $285 million and term loan financing
of $20 million (see Note 9), and the joint venture Partners' executed Keep-Well
Agreements 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)
Year ended December 31, 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Net Revenues $255,253 $ 345
======== ========
Operating Income (Loss) $107,431 $(15,830)
======== ========
Interest Expense, net $(19,425) $ 147
======== ========
Net Income (Loss) $ 88,006 $(15,683)
======== ========
<CAPTION>
(In thousands)
at December 31, 1997 1996
- -------------------------------------------------------------------------
Total Assets $470,252 $457,091
======== ========
Long-term Debt $246,403 $285,829
======== ========
Members' Equity $183,350 $111,664
======== ========
</TABLE>
C-46
<PAGE>
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 capitalized during construction. Investments in
unconsolidated affiliates consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
New York-New York Hotel and Casino, LLC $ 96,949 $60,943
MGM Grand - Bally's Monorail, LLC 11,172 11,953
--------------------------
$108,121 $72,896
--------------------------
</TABLE>
The changes in the Company's investments in unconsolidated affiliates was as
follows:
<TABLE>
<CAPTION>
(In thousands)
New York-New York Hotel and Casino, LLC 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Investment at January 1 $ 60,943 $40,938
Earnings (losses) 44,003 (7,868)
Distributions received (15,160) -
Additional investments 7,000 22,500
Other, net 163 5,373
-------- -------
Investment at December 31 $ 96,949 $60,943
======== =======
<CAPTION>
(In thousands)
MGM Grand-Bally's Monorail, LLC 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Investment at January 1 $ 11,953 $12,673
Losses (808) (808)
Additional investments 27 88
-------- -------
Investment at December 31 $ 11,172 $11,953
======== =======
</TABLE>
C-47
<PAGE>
NOTE 8. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Accrued salaries and related $ 35,115 $ 34,944
Casino front money 26,393 24,796
Casino chip liability 17,204 15,524
Other liabilities 32,241 43,184
--------------------------
$110,953 $118,448
--------------------------
</TABLE>
NOTE 9. LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Australian Hotel/Casino Loan due
December 1, 2000 $ 57,830 $ 83,391
Bank Credit Facility - -
---------------------------
57,830 83,391
Less: Current Maturities (10,589) (12,906)
---------------------------
$ 47,241 $ 70,485
---------------------------
</TABLE>
Total interest incurred during 1997, 1996 and 1995 was $9 million, $40.8
million and $63.6 million, respectively, of which $7.8 million, $7 million and
$4.3 million were capitalized in 1997, 1996 and 1995, 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 MGM Grand
Hotel Finance Corp. 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
11-3/4% 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 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
C-48
<PAGE>
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 benefit, 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, 1997, the
Company's borrowing rate was approximately 6.1%. 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, 1997, $15 million was drawn
down and repaid against the Facility, $10.5 million was drawn down and repaid
against the New Facility, and no amounts remained outstanding under the New
Facility as of December 31, 1997.
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.
On September 7, 1995, the Company completed the acquisition of MGM Grand
Australia (formerly the Diamond Beach Hotel/Casino) in Darwin, Australia (see
Note 18). The acquisition cost was financed by an Australian bank facility
which provides a total availability of approximately $68.4 million (AUD$105
million) and includes funding for general corporate purposes. The facility was
reduced by principal payments totaling $11.8 million (AUD$16.3 million) made in
accordance with the terms of the bank facility, and as of December 31, 1997,
$57.8 million (AUD$88.8 million) remained outstanding. Interest on the
Australian facility is based on the bank bill rate and was approximately 5.8%
and 7.5% as of December 31, 1997 and 1996, respectively. The facility matures
in December 2000, and the indebtedness has been guaranteed by the Company.
MGM Grand Australia has a $13 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, 1997, no amounts were borrowed under the line
of credit and no amounts were outstanding as of December 31, 1997, and 1996,
respectively.
C-49
<PAGE>
Maturities of the Company's long term debt are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year ending December 31,
- ----------------------------------
<S> <C>
1998 $10,589
1999 13,847
2000 33,394
2001 -
Thereafter -
-------
Total $57,830
-------
</TABLE>
On September 15, 1995, NYNY LLC (see Note 1) 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 five-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. The first draw down
occurred on September 30, 1995, and as of December 31, 1997, $245.1 million was
outstanding under the facility. During 1997, $39.9 million in voluntary
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, 1997, $17.5 million remained outstanding
related to the equipment financing.
The Company's $60 million bank line of credit for MGM Grand Las Vegas terminated
on October 29, 1996. No amounts were outstanding under the line of credit
during 1996.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease buildings and equipment under non-
cancelable operating lease agreements which expire through the year 2027. The
leases generally provide that the Company pay taxes, insurance and maintenance
expenses related to the leased assets.
C-50
<PAGE>
At December 31, 1997, the Company was obligated under non-cancelable operating
leases and capital leases to make future minimum lease payments as follows:
<TABLE>
<CAPTION>
(In thousands) OPERATING CAPITAL
Year ending December 31, LEASES LEASES
- --------------------------------------------------------
<S> <C> <C>
1998 $ 1,653 $ 6,702
1999 604 2,175
2000 506 2,764
2001 416 -
2002 416 -
Thereafter 15,378 -
-------------------------
Total Minimum $18,973 11,641
Lease Payment =======
Amount Representing Interest (1,106)
-------
Total Obligation Under Capital Leases 10,535
Less: Amount due within one year (6,088)
-------
Amount due after one year $ 4,447
=======
</TABLE>
Rental expense on the non-cancelable operating leases was $2.5 million, $3.7
million and $3.6 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE 11. STOCKHOLDERS' EQUITY
On July 2, 1996, the Company completed a public offering (the "Offering") of 8.6
million shares of common stock (including an underwriter's over allotment option
to purchase 1.1 million shares of common stock). Based upon 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
C-51
<PAGE>
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.
NOTE 12. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
superseded Accounting Principles Board Opinion 15, "Earnings per Share," and was
intended to simplify and harmonize the EPS calculations in the United States
with those common in other countries. 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 to employees are exercised and
repurchased at the average price for the periods presented. SFAS 128 became
effective for financial statements for the year ended December 31, 1997, and the
following reflects the effect of the Company's adoption of SFAS 128 for the
periods presented (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $111,018 $43,706 $46,565
-------- ------- -------
Weighted Average Basic
Shares 57,475 52,759 48,076
-------- ------- -------
Basic Earnings per Share $ 1.93 $ 0.83 $ 0.97
-------- ------- -------
Weighted Average Diluted
Shares 58,835 54,257 48,544
-------- ------- -------
Diluted Earnings per
Share $ 1.89 $ 0.81 $ 0.96
-------- ------- -------
</TABLE>
Weighted average diluted shares include the following: options to purchase
approximately 877,000, 962,000, and 411,000 shares issued to employees for the
years ended December 31, 1997, 1996 and 1995, respectively; employee grant
shares (see Note 11) of approximately 29,000 and 22,000 for the years ended
December 31, 1997 and 1996, respectively; and DKP shares (see Note 11) of
approximately 454,000, 514,000 and 57,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
C-52
<PAGE>
NOTE 13. 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. The Company had
granted options of approximately 4.5 million shares through December 31, 1997.
The plans are administered by a compensation and stock option committee of the
Company's Board of Directors. Salaried officers and other key employees of the
Company and its subsidiaries are eligible to receive options. The exercise
price in each instance is 100% of the fair market value of the Company's common
stock on the date of grant. The options 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.
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:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME:
As Reported $111,018 $43,706 $46,565
----------------------------------------------
Pro Forma $110,235 $34,981 $45,751
----------------------------------------------
BASIC EARNINGS PER
SHARE:
As Reported $ 1.93 $ 0.83 $ 0.97
----------------------------------------------
Pro Forma $ 1.92 $ 0.66 $ 0.95
----------------------------------------------
DILUTED EARNINGS
PER SHARE:
As Reported $ 1.89 $ 0.81 $ 0.96
----------------------------------------------
Pro Forma $ 1.87 $ 0.64 $ 0.94
----------------------------------------------
</TABLE>
C-53
<PAGE>
A summary of the status of the Company's fixed stock option plan for each of the
years in the period ended December 31, 1997, 1996 and 1995 is presented below
(there are no options outstanding under the Incentive Stock Option Plan):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------------------------------------------------
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 3,213 $27.26 3,102 $22.67 1,815 $16.94
Granted 727 $36.26 765 $35.12 3,261 $25.69
Exercised (72) $15.09 (414) $11.92 (232) $11.00
Forfeited (226) $35.19 (240) $26.35 (1,742) $26.32
Expired - $ - - $ - - $ -
Outstanding at End
of the Year 3,642 $28.82 3,213 $27.26 3,102 $22.67
----- ----- ------
Exercisable at End
of the Year 783 $24.24 220 $14.38 493 $11.76
----- ----- ------
Weighted Average
Fair Value
of Options Granted $16.98 $22.89 $13.74
------ ------ ------
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -----------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
PRICES AT 12/31/97 LIFE (YEARS) PRICE 12/31/97 PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.25 - $20.00 242,000 3.6 $12.82 193,000 $11.84
$20.01 - $25.00 365,000 7.6 $24.40 72,000 $24.41
$25.00 - $30.00 1,876,000 7.9 $26.19 413,000 $26.16
$30.01 - $35.00 87,000 8.5 $33.87 18,000 $33.87
$35.01 - $40.00 603,000 9.3 $35.70 15,000 $38.66
$40.01 - $45.00 469,000 8.8 $41.26 72,000 $41.03
----------------------------------------------------------------------------
3,642,000 8.0 $28.82 783,000 $24.24
----------------------------------------------------------------------------
</TABLE>
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 1997, 1996 and 1995, respectively: risk-free
interest rates 6%, 6.1%, and 6.4% respectively; no expected dividend yields for
the years presented; expected lives of 6 years for all years; and expected
volatility of 38% for 1997 and 39% for 1996 and 1995.
The Company has agreements with 95 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
3.2 million, of which 3.1 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.
C-54
<PAGE>
Effective November 1996, the Company and MGM Grand Hotel, Inc. adopted an
Employee Stock Purchase Plan. The plan provides eligible employees the
opportunity to purchase shares of the Company's Common Stock via payroll
deductions. The price for each share of Common Stock is the weighted average
price paid for all shares purchased by the Plan Administrator on behalf of the
participating employees on the last trading day of each month. The Company and
MGM Grand Hotel, Inc. pay the administrative costs of the plan. The plan may be
amended or terminated at any time by the Company's Board of Directors or by a
committee designated by the Board of Directors.
NOTE 14. 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 pretax basis, a portion of their salary and accumulate tax deferred
earnings as a retirement fund. MGM Grand Hotel, Inc. matches 25% of employee
contributions up to a maximum of 1% of 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, 1997, 1996 and 1995, MGM Grand
Hotel, Inc. contributions under this arrangement were $3.4 million, $3.1
million, and $3.2 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 pretax basis, a portion of their salary and
accumulate tax deferred earnings, plus interest, as a retirement fund. These
deferrals are in addition to those allowed under the MGM Grand Hotel, Inc.
401(k) savings plan. All deferred amounts vest immediately. There are no
employer matching contributions made under this plan. The full amount vested in
a participant's account will be distributed to a participant following
termination of employment, normal retirement or in the event of disability or
death.
Effective with the September 1995 acquisition of MGM Grand Australia (see Notes
1 and 18), 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 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. For the period from
acquisition on September 7, 1995 to December 31, 1995, MGM Grand Australia
contributions under these arrangements were $64,000 and $221,000 for the
executive employees and staff, respectively.
NOTE 15. MASTER PLAN ASSET DISPOSITION
During 1997, the Company enhanced and increased the Master Plan to more than
$700 million, and wrote off assets with a net book value of $28.6 million (pre-
tax) which included the original swimming
C-55
<PAGE>
pool facility, to be replaced by the Mansion at the MGM Grand consisting of 30
exclusive suites and villas, and certain theme park assets to make way for a
500-room Ritz-Carlton Hotel. 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 a 380,000
square-foot conference center and a 6.6 acre 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, a 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 16. COMPANY RESTRUCTURING PLAN
On August 1, 1995, the Company announced details of a comprehensive
restructuring plan designed to reduce costs and improve efficiency of operations
at MGM Grand Las Vegas. This restructuring resulted in a one-time charge
against earnings in the third quarter of 1995 totaling $5.9 million, primarily
related to employee severance payments.
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, 1997, 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, 1997.
The provision for income taxes and income from continuing operations before
extraordinary item for the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
(In thousands)
YEARS ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current - Federal (net of $9,935 and $18,013
tax benefit of operating loss carryforwards
for 1997 and 1996, respectively) $14,207 $31,014 $ 2,034
Deferred - Federal 50,838 (6,380) (2,034)
---------------------------------------------
Provision for income taxes $65,045 $24,634 $ -
---------------------------------------------
</TABLE>
C-56
<PAGE>
Reconciliation of the Federal income tax rate and the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0 % 35.0 % 35.0 %
Permanent and other items 1.1 6.2 -
Changes in valuation allowance - (16.4) (35.0)
-------------------------------------------------
Effective tax rate 36.1 % 24.8 % - %
-------------------------------------------------
</TABLE>
As of December 31, 1997, the major tax effected components of the Company's net
deferred tax liability are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforward $ 1,929 $ 11,864
Bad debt reserve 6,586 9,123
Master Plan asset disposition - 16,639
Hotel preopening expenses 2,781 8,619
Loss on defeasance of debt - 12,180
Accruals, reserves and other - 4,643
Tax credit carryforwards 27,219 31,488
----------------------------------
38,515 94,556
----------------------------------
DEFERRED TAX LIABILITIES
Depreciation and amortization (65,144) (74,994)
Accruals, reserves and other (1,908) -
----------------------------------
(67,052) (74,994)
----------------------------------
NET DEFERRED TAX (LIABILITY) ASSET $(28,537) $ 19,562
----------------------------------
</TABLE>
The Company has an Australian tax loss of $5.4 million which does not expire.
For U.S. Federal income tax return purposes, the Company has an alternative
minimum tax credit carryforward of $24.3 million which does not expire, and a
general business tax credit carryforward of $2.9 million which expires in
different periods through 2012.
C-57
<PAGE>
NOTE 18. AUSTRALIAN CASINO ACQUISITION
On September 7, 1995, the Company, through its wholly-owned subsidiary, MGM
Grand Australia, Pty Ltd., completed the acquisition of MGM Grand Australia, for
approximately U.S. $76 million. The acquisition costs include approximately $60
million for the purchase of stock and approximately $14.2 million of debt
assumption, and debt and organization costs of approximately $1.8 million. In
addition, on October 24, 1995, the Company expended approximately $3.8 million
to acquire the remaining 14.3% interest not already owned in the Territory
Property Trust, which owns the land and buildings of MGM Grand Australia. MGM
Grand Australia is located on 18 acres of beachfront property on the north
central coast of Australia. The resort includes a public and private casino, 96
rooms and suites, restaurants and other facilities. The Company financed the
acquisition through an Australian bank facility (see Note 9). The acquisition
was accounted for using the purchase method, whereby the assets acquired were
recorded at their fair market values. The purchase price allocation was as
follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------
<S> <C>
Cash $ 7,803
Property, plant and equipment 36,088
Excess of purchase price over
fair market value of
net assets acquired 40,980
Deferred income taxes (4,226)
Net liabilities (900)
--------------------------
$79,745
==========================
</TABLE>
Concurrent with the closing of the transaction on September 7, 1995, the Company
granted to certain of the sellers an option to acquire 22.5% of the stock of the
Company's Australian subsidiary. The option, which was granted for a nominal
consideration, is exercisable at any time during the third and fourth years
following the closing, at an exercise price of approximately $14.4 million
subject to certain adjustments. The option holders also granted to the Company
a two-year option to purchase 25% interests in each of Aspinall's Club in
London, U.K., and Aspinall Casino SA in Le Touquet, France, with an exercise
price in each case based on the amount of the owners' respective investments in
such casinos; the Company allowed its option to expire during 1997.
NOTE 19. 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 $1.5 million, $1.3 million, and $.8
million to the joint venture as part of its operating contribution during 1997,
1996 and 1995, respectively.
In August 1995, the Company made a $5 million working capital advance to NYNY.
The $5 million advance, together with interest, was repaid during September
1995. 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
C-58
<PAGE>
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 1997, approximately $.5 million was 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 $.2 million and $.1 million during 1997 and 1996, 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 during 1997. The Company and NYNY have entered into various
other transactions and arrangements which, individually and in the aggregate,
are not material.
For the years ended December 31, 1997, and 1996, the Company and its
subsidiaries rented aircraft from Tracinda for various business purposes. The
aggregate amount of rental payments were $.5 million and $1 million,
respectively, and the rent payments were at rates which management believes are
generally below those offered by third parties. During 1995, MGM Grand Las
Vegas leased an aircraft from Tracinda, with total lease payments of
approximately $.2 million. MGM Grand Las Vegas also leased Tracinda's
Challenger aircraft through a third party operator for approximately $.2 million
during 1995. The Company and Tracinda have entered into various other
transactions and arrangements which, individually and in the aggregate, are not
material.
The Company was granted a no-cost option from Tracinda, with an expiration date
of September 1, 1995, to purchase approximately 18 acres of undeveloped land
across the Las Vegas Strip from MGM Grand Las Vegas. The option, which gave the
Company the right to acquire the property at Tracinda's purchase cost of $31.5
million, together with its actual costs incurred in connection with the
ownership of the property, plus interest, was exercised on January 5, 1995, for
a total cost of approximately $36.5 million. On January 6, 1995, the Company
contributed the property to NYNY as its share of the initial capital
contribution to the hotel/casino construction project (see Notes 1 and 7).
During 1997, the Company contributed an additional $7 million to NYNY LLC along
with $22.5 million during 1996. The Company received approximately $15.2
million in distributions from NYNY LLC during 1997 to pay taxes on its allocated
share of income.
Pursuant to an agreement dated December 23, 1996, between MGM Grand Hotel, Inc.
and MGM/UA Home Entertainment, Inc. ("MGM/UA"), a California based motion
picture studio in which Tracinda has an approximate 65% 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/UA motion picture video cassettes for availability in one
or more retail venues. During 1997, MGM Grand Hotel, Inc. purchased video
cassettes and other MGM/UA merchandise of approximately $.3 million 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 1997 for which MGM/UA paid approximately $.5 million.
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.
C-59
<PAGE>
During the three year periods ended December 31, 1997, 1996 and 1995, the
Company and MGM/UA have entered into various other transactions and arrangements
which, individually and in the aggregate, are not material.
Note 20. Industry Segments
The Company operates in the hotel/casino industry segment 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 18), its 50%
interest in NYNY LLC, which commenced operations on January 3, 1997 (see Note
1), and the management of a casino in Nelspruit, South Africa, which commenced
operations on October 15, 1997 (see Note 1). Sales between industry segments
are immaterial and generally at prices approximately equal to those charged to
unaffiliated customers.
<TABLE>
<CAPTION>
(In thousands)
For the Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
NET REVENUES:
<S> <C> <C> <C>
Hotel/Casino $773,797 $800,189 $718,781
Income from unconsolidated affiliate 53,800 - -
---------------------------------------------------------
$827,597 $800,189 $718,781
==========================================================
OPERATING INCOME (LOSS):
Hotel/Casino $169,160 $196,585 $119,847
Income from unconsolidated affiliate 53,800 - -
Master Plan asset disposition (28,566) (49,401) -
Corporate expense (3,424) (10,022) (10,082)
Restructuring costs - - (5,942)
Preopening and other - unconsolidated affiliate - (7,868) -
---------------------------------------------------------
$ 190,970 $ 129,294 $ 103,823
==========================================================
IDENTIFIABLE ASSETS:
Hotel/Casino $1,390,215 $1,254,602 $1,250,771
Corporate 8,159 33,087 31,451
----------------------------------------------------------
$1,398,374 $1,287,689 $1,282,222
==========================================================
CAPITAL EXPENDITURES:
Hotel/Casino $ 227,658 $ 84,544 $ 37,371
Corporate 98 231 76
----------------------------------------------------------
$ 227,756 $ 84,775 $ 37,447
==========================================================
DEPRECIATION AND AMORTIZATION:
Hotel/Casino $ 64,104 $ 62,196 $ 55,315
Corporate 140 127 104
----------------------------------------------------------
$ 64,244 $ 62,323 $ 55,419
==========================================================
</TABLE>
C-60
<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, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ending
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 28, 1998
C-61
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL RESULTS
(In thousands except share data)
For the years ended December 31, 1997 and 1996
(Unaudited)
QUARTER
--------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
--------------------------------------------------------------------------------------------
1996
Net revenues $207,996 $189,237 $197,388 $205,568 $800,189
Operating profit before
non-recurring items
and corporate expense 50,615 50,097 46,262 49,611 196,585
Operating income (loss) 49,223 48,615 (4,808) 36,264 129,294
Income (loss) before
income taxes and
extraordinary item 34,528 34,331 (6,804) 37,096 99,151
Net income (loss) 34,528 20,635 (35,488) 24,031 43,706
Basic income per share
of common stock:
Income (loss) before
extraordinary item $ 0.71 $ 0.43 $ (0.08) $ 0.42 $ 1.41
Extraordinary item - - (0.54) - (0.58)
--------------------------------------------------------------------------------------------
Net income (loss) $ 0.71 $ 0.43 $ (0.62) $ 0.42 $ 0.83
--------------------------------------------------------------------------------------------
Diluted income per share
of common stock:
Income (loss) before
extraordinary item $ 0.70 $ 0.41 $ (0.08) $ 0.41 $ 1.38
Extraordinary item - - (0.54) - (0.57)
--------------------------------------------------------------------------------------------
Net income (loss) $ 0.70 $ 0.41 $ (0.62) $ 0.41 $ 0.81
--------------------------------------------------------------------------------------------
</TABLE>
C-62
<PAGE>
CORPORATE INFORMATION
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Terrence Lanni Terry N. Christensen Kirk Kerkorian Jerome B. York
Director Director Director Director
Chairman of the Board Partner, Christensen, President and Vice Chairman
and Chief Executive Miller, Fink, Jacobs, Chief Executive Officer Tracinda Corporation
Officer Glaser, Weil & Shapiro, Tracinda Corporation
LLP
Alex Yemenidjian Glenn A. Cramer Frank Mancuso Scott Langsner
Director Director Director Secretary/Treasurer
President and Former Chairman, Chairman
Chief Operating Transamerica Airlines Metro-Goldwyn-Mayer Inc.
Officer Retired
Fred Benninger Willie D. Davis James J. Murren Edward J. Jenkins
Director Director Director Vice President
Vice Chairman President and Director, Executive Vice President and
All-Pro Broadcasting, Inc. Chief Financial Officer
James D. Aljian Alexander M. Haig, Jr. Walter M. Sharp Jim Fox
Director Director Director Vice President
Executive, Tracinda Chairman President,
Corporation Worldwide Associates, Inc. Walter M. Sharp Company
</TABLE>
MGM GRAND HOTEL SENIOR OFFICERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel M. Wade Lyn H. Baxter Tom Peterman Corey Sanders
President and Senior Vice President Senior Vice President Senior Vice President and
Chief Operating Operations General Counsel Chief Financial Officer
Officer
William Hornbuckle Cynthia Kiser Murphey Greg W. Saunders Richard A. Sturm
Executive Vice Senior Vice President Senior Vice President Senior Vice President
President Human Resources and Hotel Operations Marketing and Entertainment
Operations Administration
MGM GRAND MARKETING MGM GRAND DEVELOPMENT
- ------------------------------------------------------------------------------------------------------------------------------
Robert V. Moon Kenneth A. Rosevear
President President and
Chief Operating Officer
MGM GRAND AUSTRALIA MGM GRAND MERCHANDISING
- ------------------------------------------------------------------------------------------------------------------------------
J. D. Clayton Bob Bowman
General Manager President
New York-New York Hotel and Casino
- ------------------------------------------------------------------------------------------------------------------------------
David Cacci
President and Chief Operating Officer
</TABLE>
C-63
<PAGE>
Investor Information
- --------------------
<TABLE>
<CAPTION>
1997 1996
For the year ended December 31, HIGH LOW HIGH LOW
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $41 $32 3/8 $39 3/4 $22 3/4
Second Quarter $40 3/8 $32 1/8 $47 7/8 $38 3/8
Third Quarter $44 $32 3/8 $43 1/4 $35 1/2
Fourth Quarter $46 11/16 $34 $45 5/8 $34
</TABLE>
The Company's Common Stock is listed on the New York Stock Exchange. Its symbol
is MGG.
<TABLE>
TRANSFER AGENT AND INDEPENDENT PUBLIC
REGISTRAR FOR COMMON STOCK ACCOUNTANTS
- -----------------------------------------------------------------------------------------
<S> <C>
ChaseMellon Shareholders Services, LLC Arthur Andersen LLP
Overpeck Centre 3773 Howard Hughes Parkway, Suite 500 South
85 Challenger Road Las Vegas, NV 89109
Ridgefield Park, NJ 07660
www.chasemellon.com
</TABLE>
FORM 10-K
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, will be furnished without charge to any stockholder
upon written request to: Mr. Scott Langsner, Secretary/Treasurer, MGM Grand,
Inc., 3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
C-64
<PAGE>
Shown below is certain information as of March 12, 1998 with respect to
beneficial ownership (as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of shares of
Common Stock by the only person or entities known to the Company to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock, by the Named Executives, as defined under "Executive Compensation," and
by all directors and executive officers of the Company as a group who held
office as of the date of this Proxy Statement.
<TABLE>
<CAPTION>
Amount
Beneficially Percent
Name and Address(1) Owned(2) of Class
------------------- ------------ --------
<S> <C> <C>
Kirk Kerkorian 36,239,822(3) 62.5%
4835 Koval Lane
Las Vegas, Nevada 89109
J. Terrence Lanni 435,015(4) --%*
Alex Yemenidjian 340,000(4) --%*
Fred Benninger 40,000(4) --%*
4835 Koval Lane
Las Vegas, Nevada 89109
Scott Langsner 39,722(4) --%*
Edward J. Jenkins 10,315(4) --%*
FMR Corp. 4,386,700(5) 7.6%
82 Devonshire Street
Boston, MA 02109
Capital Group Companies,
Inc. 3,650,000(6) 6.3%
333 South Hope Street
Los Angeles, CA 90071-
1447
All directors and
executive officers 37,167,489(3)(4) 63.2%
as a group (16 persons)
</TABLE>
- --------
* Less than one percent (1%)
(1) Unless otherwise indicated, the address for the persons listed is 3799 Las
Vegas Blvd. South, Las Vegas, Nevada 89109.
(2) Except as otherwise indicated and subject to applicable community property
and similar laws, the persons listed as beneficial owners of the shares
have sole voting and investment power with respect to such shares.
(3) Of these shares, 32,345,416 are held by Tracinda Corporation ("Tracinda"),
a Nevada corporation wholly owned by Mr. Kerkorian.
(4) Included in these amounts are 400,000 shares, 300,000 shares, 30,000
shares, 35,500 shares, and 10,000 shares subject to stock options
exercisable on or prior to May 12, 1998 held by Messrs. Lanni,
Yemenidjian, Benninger, Langsner and Jenkins, respectively, and 907 shares
held in Mr. Langsner's 401(k) Savings Plan. Also included are 7,000 shares
subject to stock options exercisable on or prior to May 12, 1998, held by
seven non-employee directors (see "Election of Directors"), at 1,000
shares each, which are exercisable on or prior to May 12, 1998.
C-65
<PAGE>
(5) Based upon a Schedule 13G, dated February 14, 1998, filed by FMR Corp.,
Edward C. Johnson 3d and Abigail P. Johnson with the Securities and
Exchange Commission. Of these shares, 3,681,800 are held by Fidelity
Management & Research Company and 704,900 shares are held by Fidelity
Management Trust Company, each a wholly owned subsidiary of FMR Corp. FMR
Corp. and Edward C. Johnson 3d each has sole power to dispose of 4,386,700
of such shares and the sole power to vote or to direct the voting of
539,000 of such shares.
(6) Based upon a Schedule 13G, dated February 10, 1998, filed by The Capital
Group Companies, Inc. with the Securities and Exchange Commission, wherein
The Capital Group Companies, Inc. states that it does not have investment
or voting power over, but may be deemed to beneficially own, such shares.
As indicated above, Mr. Kerkorian beneficially owns over 50% of the
currently outstanding shares of Common Stock. Mr. Kerkorian intends to vote
his shares of Common Stock in favor of the nominees for the Board of Directors
listed in the Proxy Statement. Since the holders of Common Stock do not have
cumulative voting rights and since Mr. Kerkorian's shares represent more than
50% of the shares to be voted at the meeting, Mr. Kerkorian will be able to
elect the entire Board of Directors. Mr. Kerkorian also intends to vote his
shares in favor of Proposals 2 and 3, and Mr. Kerkorian's vote will be
sufficient to cause adoption of Proposals 2 and 3.
C-66
<PAGE>
ELECTION OF DIRECTORS
Proposal No. 1
Information Concerning the Nominees
One of the purposes of the meeting is to elect 13 Directors, each of whom
will serve until the next annual meeting of stockholders or until their
respective successor shall have been elected and qualified or until their
earlier resignation or removal.
The table set forth below names each nominee for Director and gives
information concerning their principal occupation for at least the past five
years, beneficial ownership of Company Common Stock, age as of March 12, 1998
and certain other matters. In the event any of said nominees should be
unavailable to serve as Director, which contingency is not presently
anticipated, it is the intention of the persons named in the proxies to select
and cast their votes for the election of such other person or persons as the
Board of Directors may designate.
<TABLE>
<CAPTION>
Shares of
Common
First Stock
Principal Occupation and Became Beneficially
Name (age) Other Directorships a Director Owned(1)
-------------------------- ------------------------ ---------- ------------
<C> <S> <C> <C>
James D. Aljian (65) Executive of Tracinda 1988 11,400(2)(3)
since October 1987.
Director of Chrysler
Corporation ("Chrysler")
since February 1996, and
Metro-Goldwyn-Mayer Inc.
("MGM Inc."), of which
Tracinda has an
approximate 65%
ownership interest,
since October 1996.
Fred Benninger (81) Vice Chairman of the 1986 40,000(2)(3)
Board of the Company
since April 1995.
Chairman of the Board of
the Company from August
1987 to April 1995.
President of the Company
from August 1987 to
March 1990, and Chief
Executive Officer of the
Company from August 1987
to January 1991.
Terry Christensen (57) Partner, Christensen, 1987 3,000(2)(3)
Miller, Fink, Jacobs,
Glaser, Weil & Shapiro,
LLP, attorneys, Los
Angeles, California,
since May 1988. Director
of GIANT GROUP, LTD.,
Rally's Hamburgers, Inc.
and Checkers Drive-In
Restaurants, Inc.
Glenn A. Cramer (76) Director of Transamerica 1992 6,033(2)(3)
Corporation from 1968 to
April 1994, and Chairman
of the Executive
Committee of
Transamerica Airlines
from 1983 to April 1994.
Willie D. Davis (63) President and Director 1989 1,500(2)(3)
of All-Pro Broadcasting,
Inc., an AM and FM radio
broadcasting company.
Director of Sara Lee
Corporation, K-Mart
Corporation, Johnson
Controls, Inc., Alliance
Bank, WICOR, Dow
Chemical Company,
Rally's Hamburgers, Inc.
and LA Gear, Inc.
</TABLE>
C-67
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common
First Stock
Principal Occupation and Became Beneficially
Name (age) Other Directorships a Director Owned(1)
--------------------------- ------------------------ ---------- ------------
<C> <S> <C> <C>
Alexander M. Haig, Jr. (73) Chairman of Worldwide 1990 1,200(2)(3)
Associates, Inc., an
international business
advisory firm. Director
of America Online, Inc.
and Interneuron
Pharmaceuticals, Inc.
Consultant to the
Company since May 1990.
Kirk Kerkorian (80) Chief Executive Officer, 1987 36,239,822(4)
President and sole
director and stockholder
of Tracinda. Director of
MGM Inc. since October
1996.
J. Terrence Lanni (55) Chairman of the Company 1995 435,015(2)(3)
since July 1995.
Chairman of the
Executive Committee and
Chief Executive Officer
of the Company since
June 1995. President of
the Company from June
1995 to July 1995.
President and Chief
Operating Officer of
Caesars World, Inc. from
April 1981 to February
1995. Director of
Meditrust Operating
Company, a New York
Stock Exchange listed
real estate investment
trust.
Frank G. Mancuso (64) Chairman of the Board 1997 3,000(2)
and Chief Executive
Officer of MGM Inc.
since October 1996, and
of Metro-Goldwyn-Mayer
Studios, Inc. since July
1993. Chairman and Chief
Executive Officer of
Paramount Pictures
Corporation
("Paramount") from
September 1984 to March
1991, having served
Paramount in numerous
other capacities
beginning in 1963.
Entertainment industry
consultant from March
1991 to July 1993.
James J. Murren (36) Executive Vice President 1998 --
and Chief Financial
Officer of the Company
since January 1998.
Prior thereto, Managing
Director and Co-Director
of research for Deutsche
Morgan Grenfell ("DMG"),
having served DMG in
various other capacities
since 1984.
Walter M. Sharp (81) President of Walter M. 1986 30,482(2)(3)
Sharp Company (financial
consultants) and a
consultant to Tracinda.
</TABLE>
C-68
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common
First Stock
Principal Occupation and Became Beneficially
Name (age) Other Directorships a Director Owned(1)
-------------------------- ------------------------ ---------- ------------
<C> <S> <C> <C>
Alex Yemenidjian (42) President of the Company 1989 340,000(2)(3)
since July 1995. Chief
Operating Officer of the
Company since June 1995.
Executive Vice President
of the Company from June
1992 to July 1995, and
Chief Financial Officer
of the Company from May
1994 to January 1998.
Chairman of the
Executive Committee of
the Company from January
1991 to June 1992.
President and Chief
Operating Officer of the
Company from March 1990
to January 1991.
Executive of Tracinda
from January 1990 to
January 1997. Director
of MGM Inc. since
November 1997.
Jerome B. York (59) Vice Chairman of 1995 6,000(2)(3)
Tracinda since September
1995. Senior Vice
President and Chief
Financial Officer of IBM
Corporation from May
1993 to September 1995,
and Director of IBM
Corporation from January
1995 to September 1995.
Executive Vice President
Finance and Chief
Financial Officer of
Chrysler from May 1990
to May 1993. Director of
Chrysler from April 1992
to May 1993. Director of
MGM Inc. since October
1996. In addition, Mr.
York serves on the board
of directors of Apple
Computer, Inc. and USA
Waste Services, Inc.
</TABLE>
- --------
(1) Except as otherwise indicated and subject to applicable community property
and similar laws, the persons listed as beneficial owners of the shares
have sole voting and investment power with respect to such shares.
(2) The number of shares shown as beneficially owned represents less than 1%
of the outstanding shares.
(3) Included in these amounts are shares subject to stock options exercisable
on or prior to May 12, 1998 held as follows:
<TABLE>
<CAPTION>
Name Shares
---- -------
<S> <C>
Mr. Aljian........................... 1,000
Mr. Benninger........................ 30,000
Mr. Christensen...................... 1,000
Mr. Cramer........................... 1,000
Mr. Davis............................ 1,000
Mr. Haig............................. 1,000
Mr. Lanni............................ 400,000
Mr. Sharp............................ 1,000
Mr. Yemenidjian...................... 300,000
Mr. York............................. 1,000
</TABLE>
(4) Of this amount, 32,345,416 shares are owned by Tracinda.
C-69
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company for the years
ended December 31, 1997, 1996, and 1995, of those persons who were, at
December 31, 1997, (i) the Chief Executive Officer, and (ii) the other most
highly compensated Executive Officers of the Company who have received in
excess of $100,000 (collectively, the "Named Executives").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
-------------------------------- ------------
Shares
Name and Principal Other Underlying All Other
Position Year Salary Bonus Annual Option(A) Compensation(B)
- ------------------ ---- ---------- ---------- ------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Terrence Lanni 1997 $1,000,000 $983,642(C) $-- -- $ 591
Chairman and Chief 1996 1,000,000 500,000(D) -- -- --
Executive Officer 1995 583,333(E) -- -- 1,000,000 85,000
Alex Yemenidjian 1997 750,000 826,482(C) -- -- --
President and Chief 1996 750,000 423,750(D) -- -- --
Operating Officer 1995 410,416(E) -- -- 400,000 --
Fred Benninger 1997 110,000 97,500(C) -- -- --
Vice-Chairman of the 1996 110,000 97,500(D) -- -- --
Board 1995 401,666 -- -- -- --
Scott Langsner 1997 200,000 118,037(C) -- 7,000 591
Secretary/Treasurer 1996 183,333(G) 50,000(D) -- 7,500 --
1995 160,000 25,000(F) -- -- --
Edward J. Jenkins 1997 150,000 30,000(C) -- -- 591
Vice President 1996 140,000 30,000(D) -- -- --
1995 32,105 -- -- 25,000 --
</TABLE>
- --------
(A) During the years indicated, the only long-term compensation was pursuant
to the Company Non-qualified Stock Option Plan. No grants have been made
under the Company Incentive Stock Option Plan.
(B) The amounts in this column for 1997 represent value received pursuant to
the employee stock grant program in May 1997 (see "Benefit Plans"). The
payment of $85,000 to Mr. Lanni in 1995 represented a moving allowance and
reimbursement of moving costs incurred related to relocation to the
Company offices in Las Vegas, Nevada.
(C) In February 1998, certain of the Named Executives received bonuses
pursuant to the Company's Annual Performance Based Incentive Plan for
executive officers (see "Compensation Committee Report on Executive
Compensation") as follows: Mr. Lanni--$983,642; Mr. Yemenidjian--$737,732;
Mr. Langsner--$118,037; and Mr. Jenkins--$30,000. Additionally, in April
1997, Mr. Yemenidjian received $40,000 pursuant to commencement of an
employment contract (see "Certain Transactions"), and in February 1998,
Mr. Yemenidjian and Mr. Benninger received $48,750 and $97,500,
respectively, pursuant to long-term incentive agreements as detailed
herein (see "Certain Transactions").
(D) In February 1997, certain of the Named Executives received bonuses based
on (i) the financial performance of the Company for 1996 and (ii) the
Named Executives' individual performance. Additionally, in February 1996,
Mr. Yemenidjian and Mr. Benninger received $48,750 and $97,500,
respectively, pursuant to long-term incentive agreements as detailed
herein (see "Certain Transactions").
C-70
<PAGE>
(E) Pursuant to the terms of their respective employment, Mr. Lanni's annual
salary was $1,000,000 and Mr. Yemenidjian's annual salary was $750,000.
The amounts shown cover a period of less than one year.
(F) Represents payment from the MGM Grand-Bally's Monorail Limited Liability
Company, of which the Company is a 50% owner.
(G) Mr. Langsner's annual salary was $180,000; the excess shown here
represents a retroactive salary adjustment.
The table below sets forth certain information regarding options granted
during 1997 to the Named Executives.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Number of Securities Appreciation for
Underlying Options Granted Option Term(B)
----------------------------------------- -----------------
Percent
of Total
Options
Granted
to Exercise
Employees Price
Options in Fiscal Per Expiration
Name Granted (A) Year Share Date 5% 10%
- ---- ----------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Scott Langsner..... 7,000 1.11% $35.13 7/7/07 $154,630 $391,860
</TABLE>
- --------
(A) The options were granted on July 7, 1997. All options have a ten-year
term, with 20% of the options becoming exercisable on each of the first
through the fourth anniversary dates, and with full vesting occurring on
the fifth anniversary date.
(B) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall stock
market conditions.
The following table sets forth option exercises and year end value tables
for the Named Executives.
Aggregated Option Exercises in Fiscal 1997 and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1997 December 31, 1997(A)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Terrence Lanni....... -- $-- 200,000 800,000 $2,025,000 $8,100,000
Alex Yemenidjian........ -- -- 215,000 335,000 4,083,125 3,391,875
Fred Benninger.......... -- -- 20,000 30,000 202,500 303,750
Scott Langsner.......... -- -- 35,500 29,000 755,500 211,500
Edward J. Jenkins....... -- -- 5,000 20,000 60,625 242,500
</TABLE>
- --------
(A) Based upon the market value of the underlying securities at December 31,
1997 of $36.125, minus the exercise price of "in-the-money" options.
C-71
<PAGE>
CERTAIN TRANSACTIONS
J. Terrence Lanni, Chairman and Chief Executive Officer of the Company, has
an employment agreement with the Company through April 1, 2000 pursuant to
which he receives an annual salary of $1,000,000. If the agreement is
terminated without cause (as defined) by the Company during the first five
years of its term, Mr. Lanni is entitled to continue to receive his monthly
salary, less any income or benefits received as a result of Mr. Lanni's
employment elsewhere, for the period from the date of termination through and
including March 31, 2000. "Cause" is defined as: (i) misconduct or negligence
in the performance of Mr. Lanni's material duties or the refusal to perform
such duties; (ii) any breach of Mr. Lanni's representations, warranties or
covenants; (iii) failure by Mr. Lanni to promptly obtain or retain any
permits, licenses or approvals required by state or local authorities; (iv)
Mr. Lanni's death or disability for a period of six consecutive months; (v)
indictment or conviction of Mr. Lanni for a crime, other than traffic
violations or similar misdemeanors; or (vi) the Board of Directors, after
reasonable inquiry, concludes that Mr. Lanni has engaged in conduct materially
adverse to the Company. Pursuant to the agreement, Mr. Lanni was granted
options to purchase 1,000,000 shares of Common Stock, of which 40% have vested
with the balance vesting on April 1, 1999. If there is a change in control in
the Company as the result of stockholders disposing of their shares in a sale,
exchange or merger (a "Change in Control"), as distinguished from a change in
control resulting from the issuance of treasury shares or from any other
transaction, all unvested stock options become fully vested.
C-72
<PAGE>
Alex Yemenidjian, President and Chief Operating Officer of the Company, has
a 4-year employment agreement with the Company which commenced April 22, 1997,
pursuant to which he received a signing bonus of $40,000, and receives an
annual salary of $750,000 and which contains a covenant not to compete. The
agreement is terminable by either party. Pursuant to the agreement, the
Company may terminate the agreement for good cause (as defined). In such
event, Mr. Yemenidjian shall be entitled to receive so much of the stock from
the Company's Nonqualified Stock Option Plan as had been vested but
unexercised as of the date of termination. Also, pursuant to the agreement, if
the Company terminates the agreement for any or no cause, Mr. Yemenidjian's
salary will continue for the term of the agreement, he will continue to
receive certain employee benefits, and all unvested stock options held will
continue to vest for a period of 12 months. If Mr. Yemenidjian seeks to
terminate the agreement for good cause (as defined), he must give the Company
30 days notice to cure the breach. If such breach is not cured (and the
Company does not invoke its right to arbitration), or if Mr. Yemenidjian
terminates without cause upon 30 days notice, then termination will result and
Mr. Yemenidjian shall be entitled to receive so much of the stock from the
Company's Nonqualified Stock Option Plan as had been vested but unexercised as
of the date of termination. Mr. Yemenidjian was granted options to purchase
125,000 shares of Common Stock on January 7, 1991; 25,000 shares on February
5, 1993; and 400,000 shares on December 5, 1995. The granted options totaling
125,000 and 25,000 shares vest 20% in each of the third, fourth and fifth
years, and 40% in the sixth year from the date of the grants, while the
400,000 share grant vests 20% on April 1, 1997; April 1, 1998; April 1, 1999;
April 1, 2000; and April 1, 2001. If there is a Change in Control (as defined)
of the Company, all unvested stock options become fully vested. If the Change
in Control results from an exchange of outstanding Common Stock as a result of
which the Common Stock of the Company is no longer publicly held, then options
held by Mr. Yemenidjian to purchase Common Stock of the Company 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 the
Company's Common Stock received in such exchange.
James Murren, Executive Vice President and Chief Financial Officer of the
Company, has a 4-year employment agreement with the Company which commenced
January 16, 1998, pursuant to which he received a signing bonus of $30,000,
and receives an annual salary of $375,000 and which contains a covenant not to
compete. The agreement is terminable by either party. Pursuant to the
agreement, the Company may terminate the agreement for good cause (as
defined). In such event, Mr. Murren shall be entitled to receive so much of
the stock from the Company's Nonqualified Stock Option Plan as had been vested
but unexercised as of the date of termination. Also, pursuant to the
agreement, if the Company terminates the agreement for any or no cause, Mr.
Murren's salary will continue for the term of the agreement, he will continue
to receive certain employee benefits and all unvested stock options held will
continue to vest for a period of 12 months. If Mr. Murren seeks to terminate
the agreement for good cause (as defined), he must give the Company 30 days
notice to cure the breach. If such breach is not cured (and the Company does
not invoke its right to arbitration), or if Mr. Murren terminates without
cause upon 30 days notice, then termination will result and Mr. Murren shall
be entitled to receive so much of the stock from the Company's Nonqualified
Stock Option Plan as had been vested but unexercised as of the date of
termination. Mr. Murren was granted options to purchase 475,000 shares of
Common Stock on January 16, 1998, which vest 20% on each of the first four
anniversary dates of the grant, with full vesting on the fifth anniversary
date of the grant. If there is a Change in Control of the Company (as
defined), all unvested stock options become fully vested. If the Change in
Control results from an exchange of outstanding Common Stock as a result of
which the Common Stock of the Company is no longer publicly held, then options
held by Mr. Murren to purchase Common Stock of the Company 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 the
Company's Common Stock received in such exchange.
C-73
<PAGE>
As part of its overall compensation packages for certain of its senior
executives, in February 1993, the Company entered into long term incentive
agreements, on a case by case basis, with Messrs. Benninger and Yemenidjian
and two senior executives who are no longer employed by the Company. Such
agreements are keyed to demonstrable enhancements to stockholder values, i.e.,
market price of the Company's Common Stock. Because such agreements were
entered into in connection with prior services to the Company, the Company
does not intend to take such agreements into account when it determines such
executives' salary, performance bonuses and grants of stock options.
The Company has agreed to pay to Messrs. Benninger and Yemenidjian, on each
of February 1, 1996, 1997, 1998, cash amounts equal to 10,000 and 5,000,
respectively, and on February 1, 1999, cash amounts equal to 20,000 and
10,000, respectively, multiplied by the excess, if any (the "Spread"), between
the closing price of the Company's Common Stock on the New York Stock Exchange
(the "NYSE") (or if the Common Stock is not then traded on the NYSE, the
principal stock exchange or securities market on which the Common Stock is
then traded) on such date (the "Measuring Price") and $16.50, provided that
for purposes of such determination, the Spread shall not exceed $9.75. As of
the date of such agreements, the Measuring Price was approximately $9.75 below
the market price of the Company's Common Stock. Such amounts, if any, would be
paid only if the executive were employed by the Company on the applicable
date, subject to proration in the event such employment terminated after
February 1, 1996. Messrs. Benninger and Yemenidjian were paid $97,500 and
$48,750, respectively, in February 1996, February 1997 and February 1998.
Edward J. Jenkins, Vice President of the Company, has an employment
agreement, pursuant to which he received an annual salary of $150,000 and
which is terminable upon 30 days notice by either party. If there is a Change
in Control of the Company, all unvested stock options held by Mr. Jenkins
become fully vested.
Christensen, Miller, Fink, Jacobs, Glaser, Weil, & Shapiro, LLP, a law firm
of which Terry Christensen, a Director, is a partner (see "Election of
Directors"), has performed extensive legal services for the Company. Such
services rendered relate to litigation, sales of securities, financing
transactions, acquisitions and dispositions of certain assets and operations,
tax matters and other business transactions, contracts and agreements.
During 1995, 1996, and 1997, Alexander M. Haig, Jr., a member of the Board
of Directors of the Company, rendered consulting services to the Company, for
which he received fees at the rate of $50,000 per annum.
On February 28, 1997, the Compensation Committee adopted a stock option
grant program pursuant to the Nonqualified Stock Option Plan, which was
subsequently approved by stockholders, whereby members of the Company's Board
of Directors who are not full-time employees of the Company would receive an
initial grant of 5,000 stock options, and subsequent yearly grants of 1,000
stock options during their respective terms as directors.
During 1997, the Company contributed $7,000,000 to New York-New York Hotel &
Casino, LLC ("NYNY"), its 50% joint venture with Primadonna Resorts, Inc., as
its share of capital contribution to the hotel/casino, and received
$15,160,000 in distributions from NYNY to pay taxes on its allocated share of
income.
For the twelve months ended December 31, 1997, the Company and its
subsidiaries rented aircraft from Tracinda for various business purposes. The
aggregate amount of rental payments were approximately $539,000, 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.
The Company, through its wholly owned subsidiary MGM Grand Hotel, Inc., has
an agreement with NYNY to lease space in the New York-New York Hotel & Casino
to operate a race book and
C-74
<PAGE>
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 a minimum annual rent of
$200,000 versus a percentage rent based upon gross revenue, as defined by the
Nevada Gaming Commission and Nevada State Gaming Control Board. The percentage
rent is based on a graduated scale of gross revenue at percentages ranging
from 12% to 15%. New York-New York Hotel & Casino commenced operations on
January 3, 1997. During 1997, approximately $496,000 was paid under this
agreement. Additionally, MGM Grand Hotel, Inc. provided various other hotel
goods and services for which NYNY paid approximately $226,000. The Company
also has 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 made by NYNY under the
floral service contract during 1997 were approximately $127,000. The Company
and NYNY have entered into various other transactions and arrangements which,
individually and in the aggregate, are not material.
In conjunction with the Company's 50% interest in the MGM Grand-Bally's
Monorail Limited Liability Company, the Company, through its wholly owned
subsidiary MGM Grand Hotel, Inc., contributed approximately $1,489,000 to the
joint venture as part of its operating contribution during 1997. The Company
made capital contributions of approximately $27,000 to the MGM Grand-Bally's
Monorail Limited Liability Company during 1997.
Pursuant to an agreement dated December 23, 1996 between MGM Grand Hotel,
Inc. and MGM/UA Home Entertainment, Inc. ("MGM/UA"), a wholly owned subsidiary
of Metro-Goldwyn-Mayer Inc., ("MGM Inc.") a California based motion picture
studio in which Tracinda has an approximate 65% ownership interest, MGM Grand
Hotel, Inc. utilized key art and still photographs from certain MGM 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/UA motion picture video cassettes for availability in its retail venues.
During 1997, MGM Grand Hotel, Inc. provided various goods and services for
which MGM Inc. paid approximately $462,000, and MGM Grand Merchandising, Inc.
purchased merchandise from MGM Inc. and MGM/UA for sale in its retail outlets
in the approximate amount of $299,000.
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,
tradenames and logos in and in connection with the Company's hotel/gaming
business and other businesses, excluding the film entertainment business.
C-75
<PAGE>
APPENDIX D
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from - to -
-------------- --------------
Commission File Number: 0-16760
-------
MGM GRAND, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 88-0215232
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-3333
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 8, 1998
----- --------------------------
Common Stock, $.01 par value 58,000,280 shares
D-1
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and March 31, 1997............................................... 1
Condensed Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997............................................................... 2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and March 31, 1997............................................... 3
Notes to Condensed Consolidated Financial Statements............................ 4-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 10-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on 8-K..................................................... 14
Signatures...................................................................... 15
</TABLE>
D-2
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- --------
<S> <C> <C>
REVENUES:
Casino $ 95,722 $107,096
Room 40,749 43,336
Food and beverage 24,983 21,569
Entertainment, retail and other 23,947 25,874
Income from unconsolidated affiliate 10,209 14,722
-------- --------
195,610 212,597
Less promotional allowances 15,763 15,099
-------- --------
179,847 197,498
-------- --------
EXPENSES:
Casino 54,600 53,157
Room 11,373 11,116
Food and beverage 15,533 12,239
Entertainment, retail and other 18,117 18,642
Provision for doubtful accounts and discounts 8,187 8,413
General and administrative 24,524 25,435
Depreciation and amortization 16,904 15,458
-------- --------
149,238 144,460
-------- --------
OPERATING PROFIT BEFORE CORPORATE EXPENSE 30,609 53,038
CORPORATE EXPENSE 2,451 1,489
-------- --------
OPERATING INCOME 28,158 51,549
-------- --------
OTHER INCOME (EXPENSE):
Interest Income 3,797 199
Interest expense, net of amounts capitalized (3,772) (974)
Interest expense from unconsolidated affiliate (2,171) (2,465)
Other, net (603) (232)
-------- --------
(2,749) (3,472)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 25,409 48,077
Provision for income taxes (9,147) (17,927)
-------- --------
NET INCOME $ 16,262 $ 30,150
======== ========
PER SHARE OF COMMON STOCK:
Basic:
Net income per share $ 0.28 $ 0.52
======== ========
Weighted Average Shares Outstanding (000's) 57,990 57,836
======== ========
Diluted:
Net income per share $ 0.28 0.51
======== ========
Weighted Average Shares Outstanding (000's) 58,775 58,772
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
D-3
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 437,333 $ 34,606
Accounts receivable, net 47,747 78,977
Prepaid expenses and other 11,645 10,452
Inventories 13,882 16,462
Deferred tax asset 28,986 30,294
---------- ----------
Total current assets 539,593 170,791
---------- ----------
PROPERTY AND EQUIPMENT, NET 1,122,017 1,032,708
OTHER ASSETS:
Investments in unconsolidated affiliates 115,951 108,121
Excess of purchase price over fair market value
of net assets acquired, net 38,342 38,598
Deposits and other assets, net 56,356 48,156
---------- ----------
Total other assets 210,649 194,875
---------- ----------
$1,872,259 $1,398,374
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 18,323 $ 20,484
Construction payable 28,786 33,376
Current obligation, capital leases 5,935 6,088
Current obligation, long term debt 11,606 10,589
Accrued interest on long term debt 5,441 -
Other accrued liabilities 70,604 110,953
---------- ----------
Total current liabilities 140,695 181,490
---------- ----------
DEFERRED REVENUES 5,721 4,743
DEFERRED INCOME TAXES 60,099 58,831
LONG TERM OBLIGATION, CAPITAL LEASES 3,937 4,447
LONG TERM DEBT 544,559 47,241
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 75,000,000 shares
authorized, 58,000,280 and 57,984,873 shares
issued and outstanding) 580 580
Capital in excess of par value 966,953 966,487
Retained earnings 140,501 124,239
Other comprehensive income 9,214 10,316
---------- ----------
Total stockholders' equity 1,117,248 1,101,622
---------- ----------
$1,872,259 $1,398,374
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
D-4
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,262 $ 30,150
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 16,942 15,493
Amortization of debt offering costs 377 431
Provision for doubtful accounts and discounts 8,187 8,413
Earnings in excess of distributions-unconsolidated affiliate (8,038) (12,257)
Change in assets and liabilities:
Accounts receivable 23,043 25,116
Inventories 2,339 (342)
Prepaid expenses and other (1,193) 1,135
Income taxes payable and deferred income taxes 2,575 (8,493)
Accounts payable, accrued liabilities and other (36,754) (50,069)
Currency translation adjustment (71) 48
--------- --------
Net cash from operating activities 23,669 9,625
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (104,092) (23,760)
Disposition of property and equipment, net 402 113
Investments in unconsolidated affiliates - (7,160)
Change in construction payables (4,590) (45)
Change in deposits and other assets, net (10,434) (8,503)
--------- --------
Net cash from investing activities (118,714) (39,355)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to banks and others (2,694) (3,192)
Issuance of long term debt 500,000 -
Borrowings under bank line of credit 31,000 15,000
Repayments of bank line of credit (31,000) -
Issuance of common stock 466 1,883
--------- --------
Net cash from financing activities 497,772 13,691
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 402,727 (16,039)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,606 61,412
--------- --------
CASH AND CASH EQUIVALENTS AS END OF PERIOD $ 437,333 $ 45,373
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
D-5
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand, Inc. (the "Company") is a Delaware corporation,
incorporated on January 29, 1986. As of March 31, 1998, approximately 62.5%
of the outstanding shares of the Company's common stock were owned by Kirk
Kerkorian and Tracinda Corporation ("Tracinda"), a Nevada corporation
wholly-owned by Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the
Company owns and operates MGM Grand Hotel/Casino ("MGM Grand Las Vegas"),
a hotel/casino and entertainment complex in Las Vegas, Nevada.
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").
The Company and Primadonna Resorts, Inc. ("Primadonna") each owns 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 two casinos in the Mpumalanga Province of the Republic of
South Africa. The casino in Nelspruit began operations on October 15,
1997, while the casino in Witbank began operations on March 10, 1998. The
Company receives development and management fees from its partner, Tsogo
Sun Gaming & Entertainment, who 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 ("MGM Grand Detroit") to develop a hotel/casino and
entertainment complex at a minimum approximate cost of $700 million. On
November 20, 1997, MGM Grand Detroit 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's development agreement with the City. Construction of the project
is subject to the receipt of various governmental approvals. The plans for
MGM Grand Detroit call for an 800-room hotel, a 100,000-square-foot casino,
signature restaurants and retail outlets, a showroom and other
entertainment venues.
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 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.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the 1997
Annual Report included on Form 10-K.
D-6
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position as of March 31, 1998, and the results of operations for
the three month periods ended March 31, 1998 and 1997. The results of
operations for such periods are not necessarily indicative of the results
to be expected for the full year.
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
property opened at which time these cumulative costs would be expensed. As
of March 31, 1998, the Company capitalized "start-up" costs of $.6 million
related to Atlantic City. The Company will adopt SOP 98-5 in the first
quarter of fiscal year 1999.
Certain reclassifications have been made to prior period financial
statements to conform with the 1998 presentation, which have no effect on
previously reported net income.
NOTE 2. STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997, cash payments made
for interest were $1.6 million and $2.0 million, respectively.
No cash payments were made for state and federal taxes for the three
months ended March 31, 1998. Cash payments made for state and federal
taxes for the three months ended March 31, 1997 were $25 million.
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Australian Hotel/Casino Loan, due December 1, 2000 $ 56,165 $ 57,830
6.95% Senior Collateralized Notes, due February 1, 2005 300,000 -
6.875% Senior Collateralized Notes, due February 6, 2008 200,000 -
Bank Credit Facility - -
-------- ------------
556,165 57,830
Less: Current Maturities (11,606) (10,589)
-------- ------------
$544,559 $ 47,241
======== ============
</TABLE>
Total interest incurred for the first three months of 1998 and 1997
was $7.5 million and $2.5 million, respectively, of which $3.7 million and
$1.5 million were capitalized in the 1998 and 1997 periods, respectively.
During the first three months of 1998 and 1997, the Company recognized
interest expense from its unconsolidated affiliate of $2.2 million and $2.5
million, respectively.
D-7
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
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, of unamortized debt costs
from the Facility during the third quarter of 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. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one year periods. During
the three months ended March 31, 1998, $31 million was drawn down and
repaid against the New Facility, and no amounts remained outstanding as of
March 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 the security may be removed equally with
the New Facility at the Company's option upon the occurrence of certain
events, including the maintenance of investment grade ratings.
The Australian bank facility originally provided a total availability
of approximately $69.6 million (AUD $105 million), which has been reduced
by principal payments totaling $14.5 million (AUD $20.3 million) made in
accordance with the terms of the bank facility, including $2.7 million (AUD
$4.1 million) during the three months ended March 31, 1998. As of March
31, 1998, $56.2 million (AUD $84.7 million) remained outstanding. The bank
facility includes funding for general corporate purposes. Interest on the
bank facility is based on the Australian Bank Bill rate. The indebtedness,
which matures in December 2000, has been wholly guaranteed by the Company.
MGM Grand Australia has a $13.3 million (AUD $20 million) uncommitted
standby line of credit, with a funding period of 91 days for working
capital purposes. No amount was outstanding during the three months ended
March 31, 1998 and December 31, 1997.
Upon commencement of operations of NYNY on January 3, 1997 (see Note
1), the $285 million non-revolving construction line of credit converted to
a five-year reducing revolver. The Company and Primadonna (the "Partners")
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.
During the first three months of 1998, $17.6
D-8
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
million in voluntary principal repayments were made by NYNY LLC. As of
March 31, 1998 and December 31, 1997, a total of $227.5 million and $245.1
million was outstanding, respectively. On January 21, 1997, NYNY LLC
completed an additional $20 million equipment financing with a financial
institution. As of March 31, 1998 and December 31, 1997, $16.7 million and
$17.5 million were outstanding related to the equipment financing,
respectively.
NOTE 4. ISSUANCE OF COMMON STOCK
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
$.9 million of such expense was recognized during the three months ended
March 31, 1997.
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.
NOTE 5. 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):
D-9
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
For Three Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Net income $16,262 $30,150
Currency translation adjustment (1,102) 1,133
------- -------
Comprehensive income $15,160 $31,283
======= =======
</TABLE>
NOTE 6. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with
the Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 presents two EPS calculations: (i) basic
earnings per common share 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 assumptions that options issued to employees are
exercised and repurchased at the average price for the periods presented
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
Net Income $16,262 $30,150
======= =======
Weighted Average Basic Shares 57,990 57,836
======= =======
Basic Earnings per Share $ 0.28 $ 0.52
======= =======
Weighted Average Diluted Shares 58,775 58,772
======= =======
Diluted Earnings per Share $ 0.28 $ 0.51
======= =======
</TABLE>
Weighted average diluted shares include the following: options to purchase
785,000 and 858,000 shares issued to employees for the three month periods
ended March 31, 1998 and 1997, respectively, and 78,000 employee grant
shares (see Note 4) for the period ended March 31, 1997.
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
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. The Company
has contributed land on which the property is located and cash totaling
$70.7 million. The joint venture secured bank financing of $285 million and
term loan financing of $20 million (see Note 3), and the joint venture
Partners' executed a Keep-Well Agreement in conjunction with the financing.
D-10
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE (CONTINUED)
Summary condensed financial information for New York-New York Hotel and
Casino, LLC is as follows (In thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
-------- --------
<S> <C> <C>
Net Revenues $ 54,035 $ 67,868
======== ========
Operating Income $ 20,406 $ 29,261
======== ========
Interest Expense, net $ 4,342 $ 4,930
======== ========
Net Income $ 16,064 $ 24,331
======== ========
<CAPTION>
As of As of
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Total Assets $467,444 $470,252
======== ========
Long-term Debt $241,813 $246,403
======== ========
Members' Equity $199,414 $183,350
======== ========
</TABLE>
D-11
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company, through its wholly-owned subsidiaries, owns and operates
MGM Grand Las Vegas and MGM Grand Australia (see Note 1). The Company also
owns 50% of New York-New York Hotel and Casino, which commenced operations
on January 3, 1997 (see Note 1).
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
March 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Net Revenues:
MGM Grand Las Vegas $161,613 $175,295
MGM Grand Australia 7,525 7,766
MGM Grand South Africa 672 -
Income from unconsolidated affiliate 10,209 14,722
Eliminations and other (172) (285)
-------- --------
$179,847 $197,498
======== ========
Operating profit (loss):
MGM Grand Las Vegas $ 18,885 $ 38,574
MGM Grand Australia 1,233 (258)
MGM Grand South Africa 282 -
Income from unconsolidated affiliate 10,209 14,722
-------- --------
30,609 53,038
Corporate expense (2,451) (1,489)
-------- --------
Operating income 28,158 51,549
Interest income 3,797 199
Interest expense, net of amounts capitalized (3,772) (974)
Interest expense - unconsolidated affiliate (2,171) (2,465)
Other, net (603) (232)
-------- --------
Income before provision for income taxes 25,409 48,077
Provision for income taxes (9,147) (17,927)
-------- --------
Net income $ 16,262 $ 30,150
======== ========
</TABLE>
D-12
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER
Net revenues for the first quarter of 1998 were $179.8 million,
representing a decrease of $17.7 million (9.0%) when compared with $197.5
million during the same period last year. The decrease in net revenues was
largely due to lower casino revenue and lower earnings from the Company's
50% ownership in NYNY (see Note 1).
Consolidated casino revenues for the first quarter of 1998 were $95.7
million, representing a decrease of $11.4 million (10.6%) when compared
with $107.1 million during the same period in the prior year. MGM GRAND
LAS VEGAS casino revenues were $89.6 million, representing a decrease of
$11.3 million (11.2%) when compared with $100.9 million during the same
period in the prior year. The reduction in casino revenues at MGM Grand
Las Vegas was a result of lower table game and baccarat win percentages, as
well as lower baccarat volume. MGM GRAND AUSTRALIA reported casino
revenues of $6.1 million which was flat overall when compared with the same
period in the prior year, primarily reflecting lower volume and win
percentages in table games offset by an increase in slot win.
Consolidated room revenues were $40.7 million for the first quarter of
1998 compared with $43.3 million in the prior year's first quarter,
representing a decrease of $2.6 million (6.0%). MGM GRAND LAS VEGAS room
revenues were $40.4 million representing a decrease of $2.6 million (6.0%)
when compared with $43 million in the same period of the prior year. The
decrease was primarily due to a lower occupancy of 90.5% for the first
quarter of 1998 when compared with 92.1% in the same period of the prior
year, and a decrease in the average room rate for the first quarter to $100
from $104 for the 1997 first quarter. MGM GRAND AUSTRALIA room revenues
were flat quarter over quarter.
Consolidated food and beverage revenues were $25 million in the first
quarter of 1998, representing an increase of $3.4 million (15.7%) when
compared with $21.6 million in the first quarter of the prior year. The
increase was attributable to MGM GRAND LAS VEGAS which had food and
beverage revenues of $23.7 million during the first quarter of 1998, an
increase of $3.7 million (18.5%) when compared with $20 million in the
first quarter of 1997. This increase resulted from the Company's decision
to operate the Studio Cafe coffee shop which during the 1997 period had
been a leased facility until March 1997, and the opening of the Studio 54
night club in late December 1997. MGM GRAND AUSTRALIA reported food and
beverage revenues of $1.3 million, representing a decrease of $.3 million
(18.8%) when compared with $1.6 million during the same period in the prior
year.
Consolidated entertainment, retail and other revenues decreased $2
million (7.7%) from $25.9 million in the 1997 period to $23.9 million in
the 1998 period. The decrease in entertainment, retail and other revenues
is a result of lower MGM GRAND LAS VEGAS theme park revenues, lower retail
revenues, and the downsizing of the spa to a smaller facility. These
decreases were partially offset by increases in entertainment revenues from
events in the Grand Garden Arena and Grand Theatre, increased occupancy of
EFX, and addition of Company management fees from MGM Grand South Africa.
Income from unconsolidated affiliate was $10.2 million for the first
quarter of 1998, compared with $14.7 million in 1997, representing the
Company's 50% share of NYNY's operating income. The reduction of earnings
from NYNY is a result of the unprecedented public response in the first
year.
D-13
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER (CONTINUED)
Consolidated operating expenses (before Corporate expenses) were
$149.2 million in the first quarter of 1998, representing an increase of
$4.7 million (3.3%) when compared with $144.5 million for the same period
last year. The overall increase was attributable to MGM GRAND LAS VEGAS
which had higher operating expenses in the 1998 period as a result of
casino marketing costs associated with special events, and higher food and
beverage costs as a result of a full quarter of operation of the Studio
Cafe coffee shop and the addition of the Studio 54 night club. MGM GRAND
AUSTRALIA operating expenses decreased from $8 million in the 1997 period
to $6.3 million in the 1998 period as a result of continuing cost
containment efforts.
Corporate expense for 1998 was $2.5 million compared with $1.5 million
in 1997, an increase of $1.0 million. In the 1997 period, corporate
expense was reduced by a $.6 million reversal of previously expensed stock
price guarantee amortization (see Note 4).
Interest income of $3.8 million for the period ended March 31, 1998
increased by $3.6 million from $.2 million in the first quarter of 1997.
The increase was attributable to higher invested cash balances primarily
from the proceeds of the Senior Collateralized Notes (See Note 3).
Interest expense in the first quarter of 1998 of $3.8 million (net of
amounts capitalized) increased by $2.8 million when compared with $1
million in the same period of 1997. The increase in the first quarter of
1998 was primarily due to the issuance of the Senior Collateralized Notes
(see Note 3). Also, the Company recognized interest expense from
unconsolidated affiliate of $2.2 million during the 1998 period compared
with $2.5 million in 1997 reflecting a reduced outstanding balance on the
NYNY facility (see Note 3).
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998 and December 31, 1997, the Company held cash and
cash equivalents of $437.3 million and $34.6 million, respectively. Cash
provided by operating activities for the first three months of 1998 was
$23.7 million compared with $9.6 million for the same period of 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 more than $700 million, calls for a new 1,500-room
"Marriott Marquis"; expansion of the resort's casino capacity by nearly 20
percent to more than 200,000 square feet; and a "Mansion at the MGM Grand"
offering 29 exclusive suites and villas. The Company also announced that
by the year 2000, it may construct a 500-room Ritz Carlton Hotel at MGM
Grand Las Vegas. 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. Additionally, the new pool and spa complex is partially completed
and open for operations. Approximately $351.3 million is anticipated to be
expended during 1998 related to the Master Plan, of which $94.4 million had
been expended through March 31, 1998.
D-14
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Capital expenditures during the first three months of 1998 were $104.1
million, consisting primarily of $7.8 million related to MGM Grand Las
Vegas for general property improvements, $94.4 million for the Master Plan
project, $.2 million at MGM Grand Australia for general property
improvements and $1.7 million for MGM Grand Atlantic City land acquisition
costs and pre-construction activities. Anticipated capital expenditures
remaining for 1998 are approximately $406.2 million, consisting of
approximately $256.9 million related to the Master Plan, approximately
$55.6 million related to general property improvements for MGM Grand Las
Vegas, approximately $77.8 million for MGM Grand Detroit, approximately
$14.6 million related to land acquisitions and pre-construction activities
for MGM Grand Atlantic City, and approximately $1.3 million for MGM Grand
Australia.
The Company expects to finance operations and capital expenditures
through cash flow from operations, cash on hand, and the bank lines of
credit.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this 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).
D-15
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Items 1 through 5 of Part II are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
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 the Company's Current Report on Form 8-K, dated
February 23, 1998).
4(2) Schedule setting forth material details of the differences
from Exhibit 4(1) of the Indenture, dated as of February 6,
1998, among the Company, as issuer, the Guarantor Parties
thereto, as guarantors, and U.S. Trust Company of California,
N.A., as Trustee (incorporated by reference to Exhibit 4(2) to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
(b) Reports on Form 8-K
1 Report on Form 8-K, dated February 23, 1998, filed by the
Company with the Commission on February 24, 1998 in which
events under Item 5. Other Events were reported.
D-16
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
---------------
(Registrant)
Date: May 8, 1998 /s/ ALEJANDRO YEMENIDJIAN
-------------------------
Alejandro Yemenidjian
President and Chief Operating Officer
Date: May 8, 1998 /s/ JAMES J. MURREN
-------------------
James J. Murren
Executive Vice President and Chief
Financial Officer
(principal accounting officer)
D-17
<PAGE>
APPENDIX E
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
-------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
--------------- ------------------------
Commission File Number: 0-16760
---------------------------------------------------
MGM GRAND, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 88-0215232
- --------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-3333
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 1998
- ------------------------------------- ----------------------------------
Common Stock, $.01 par value 58,033,094 shares
E-1
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations for the Three Months and Six Months
Ended June 30, 1998 and June 30, 1997 .................................... 1
Condensed Consolidated Balance Sheets
at June 30, 1998 and December 31, 1997 ................................... 2
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1998 and June 30, 1997 ........................................... 3
Notes to Condensed Consolidated Financial
Statements................................................................. 4-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .......................... 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders
at the Annual Shareholder Meeting Held on May 5, 1998 ..................... 16
Signatures................................................................. 17
</TABLE>
E-2
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1998 1997 1998 1997
------- -------- --------- --------
<S> <C> <C> <C> <C>
REVENUES:
Casino $ 96,427 $113,108 $ 192,149 $ 220,204
Room 43,344 43,085 84,093 86,421
Food and beverage 23,560 23,858 48,543 45,427
Entertainment, retail
and other 27,413 30,357 51,360 56,231
Income from
unconsolidated affiliate 9,468 14,706 19,677 29,428
-------- -------- --------- ---------
200,212 225,114 395,822 437,711
Less promotional
allowances 14,847 16,029 30,610 31,128
-------- -------- --------- ---------
185,365 209,085 365,212 406,583
-------- -------- --------- ---------
EXPENSES:
Casino 54,641 58,375 109,241 111,532
Room 12,428 11,712 23,801 22,828
Food and beverage 14,987 14,015 30,520 26,254
Entertainment, retail
and other 18,657 20,960 36,774 39,602
Provision for doubtful
accounts and discounts 9,586 5,917 17,773 14,330
General and administrative 26,186 24,804 50,710 50,239
Depreciation and
amortization 18,840 15,934 35,744 31,392
-------- -------- -------- --------
155,325 151,717 304,563 296,177
-------- -------- -------- --------
OPERATING PROFIT BEFORE
CORPORATE EXPENSE 30,040 57,368 60,649 110,406
Corporate expense (2,937) (3,289) (5,388) (4,778)
-------- -------- -------- --------
OPERATING INCOME 27,103 54,079 55,261 105,628
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 5,413 381 9,210 580
Interest expense, net of
amounts capitalized (6,272) (268) (10,044) (1,242)
Interest expense from
unconsolidated affiliate (2,185) (2,543) (4,356) (5,008)
Other, net (544) (212) (1,147) (444)
-------- -------- -------- --------
(3,588) (2,642) (6,337) (6,114)
-------- -------- -------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 23,515 51,437 48,924 99,514
Provision for income taxes (9,116) (18,438) (18,263) (36,365)
-------- -------- -------- --------
NET INCOME $ 14,399 $ 32,999 $ 30,661 $ 63,149
======== ======== ======== ========
PER SHARE OF COMMON STOCK:
Basic:
Net income per share $ 0.25 $ 0.57 $ 0.53 $ 1.09
======== ======== ======== ========
Weighted Average
Shares Outstanding
(000's) 58,001 57,927 57,995 57,882
======== ======== ======== ========
Diluted:
Net income per share $ 0.25 $ 0.56 $ 0.52 $ 1.07
======== ======== ======== ========
Weighted Average Shares
Outstanding (000's) 58,613 58,808 58,697 58,791
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
E-3
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 368,205 $ 34,606
Accounts receivable, net 59,099 78,977
Prepaid expenses and other 10,413 10,452
Inventories 14,584 16,462
Deferred tax asset 28,620 30,294
---------- ---------
Total current assets 480,921 170,791
---------- ---------
PROPERTY AND EQUIPMENT, NET 1,209,961 1,032,708
OTHER ASSETS:
Investments in unconsoidated affiliates 118,910 108,121
Excess of purchase prie over fair market
value of net assets acquired, net 38,086 38,598
Deposits and other assets, net 58,056 48,156
---------- ----------
Total other assets 215,052 194,875
---------- ----------
$1,905,934 $1,398,374
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,967 $ 20,484
Construction payable 22,476 33,376
Current obligation, capital leases 5,616 6,088
Current obligation, long term debt 11,610 10,589
Accrued interest on long term debt 14,188 -
Other accrued liabilities 87,952 110,953
---------- ----------
Total current liabilities 158,809 181,490
---------- ----------
DEFERRED REVENUES 5,210 4,743
DEFERRED INCOME TAXES 64,290 58,831
LONG TERM OBLIGATION, CAPITAL LEASES 3,570 4,447
LONG TERM DEBT 538,313 47,241
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value,
75,000,000 shares authorized,
58,001,480 and 57,984,873 shares issued
and outstanding) 580 580
Capital in excess of par value 966,983 966,487
Retained earnings 154,900 124,239
Other comprehensive income 13,279 10,316
---------- ----------
Total stockholders' equity 1,135,742 1,101,622
---------- ----------
$1,905,934 $1,398,374
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
E-4
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,661 $ 63,149
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 35,819 31,462
Amortization of debt offering costs 868 842
Provision for doubtful accounts and discounts 17,773 14,330
Earnings in excess of distributions-unconsolidated affiliate (11,201) (17,700)
Change in assets and liabilities:
Accounts receivable 2,106 5,163
Inventories 1,256 (3,285)
Prepaid expenses and other 39 2,124
Income taxes payable and deferred income taxes 7,133 1,184
Accounts payable, accrued liabilities and other (13,214) (20,816)
Currency translation adjustment 266 263
--------- ---------
Net cash from operating activities 71,506 76,716
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (208,247) (70,651)
Disposition of property and equipment, net 446 123
Investments in unconsolidated affiliates - (7,183)
Change in construction payable (10,900) 29
Change in deposits and other assets, net (14,493) (9,134)
--------- ---------
Net cash from investing activities (233,194) (86,816)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to banks and others (5,210) (6,251)
Issuance of long term debt 500,000 -
Borrowings under bank line of credit 31,000 15,000
Repayments of bank line of credit (31,000) (15,000)
Issuance of common stock 497 2,352
--------- ---------
Net cash from financing activities 495,287 (3,899)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 333,599 (13,999)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,606 61,412
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 368,205 $ 47,413
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
E-5
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand, Inc. (the "Company") is a Delaware corporation,
incorporated on January 29, 1986. As of June 30, 1998, approximately 62.5%
of the outstanding shares of the Company's common stock were owned by Kirk
Kerkorian and Tracinda Corporation ("Tracinda"), a Nevada corporation
wholly owned by Kirk Kerkorian.
Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the
Company owns and operates MGM Grand Hotel/Casino ("MGM Grand Las Vegas"),
a hotel/casino and entertainment complex in Las Vegas, Nevada.
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").
The Company and Primadonna Resorts, Inc. ("Primadonna") each owns 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 two casinos in the Mpumalanga Province of the Republic of
South Africa. The casino in Nelspruit began operations on October 15,
1997, while the casino in Witbank began operations on March 10, 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 ("MGM Grand Detroit") to develop a hotel/casino and
entertainment complex at an approximate cost of $750 million. On November
20, 1997, MGM Grand Detroit 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'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 that it will issue casino licenses to conduct gaming
operations in temporary facilities. Upon receipt of a license, MGM Grand
Detroit intends to open a temporary gaming facility in the second 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.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the 1997
Annual Report included on Form 10-K.
E-6
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position as of June 30, 1998, and the results of operations for
the three month and six month periods ended June 30, 1998 and 1997. The
results of operations for such periods are not necessarily indicative of
the results to be expected for the full year.
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 June 30, 1998, the
Company capitalized "start-up" costs of $.7 million related to Atlantic
City and $.5 million related to Detroit. The Company will adopt SOP 98-5
in the first quarter of fiscal year 1999.
Certain reclassifications have been made to prior period financial
statements to conform with the 1998 presentation, which have no effect on
previously reported net income.
NOTE 2. STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997, cash payments made
for interest were $3.1 million and $4.1 million, respectively.
Cash payments made for state and federal taxes for the six months
ended June 30, 1998 and 1997 were $7.1 million and $36.1 million,
respectively.
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION> June 30, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Australian Hotel/Casino Loan, due December 1, 2000 $ 49,923 $ 57,830
6.95% Senior Collateralized Notes, due February 1, 2005 300,000 -
6.875% Senior Collateralized Notes, due February 6, 2008 200,000 -
--------------- ---------------
549,923 57,830
Less: Current Maturities (11,610) (10,589)
--------------- ---------------
$ 538,313 $ 47,241
=============== ===============
</TABLE>
Total interest incurred for the first six months of 1998 was $18.2
million of which $8.2 million was capitalized, and $4.9 million was
incurred for the first six months of 1997 of which $3.7 million was
capitalized. During the first six months of 1998 and 1997, the Company
recognized interest expense from its unconsolidated affiliate of $4.4
million and $5 million, respectively.
E-7
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
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, of unamortized debt costs
from the Facility during the third quarter of 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. The New Facility matures in December 2002, with the
opportunity to extend the maturity for successive one year periods. During
the six months ended June 30, 1998, $31 million was drawn down and repaid
against the New Facility, and no amounts remained outstanding as of June
30, 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 the security may be removed equally with
the New Facility at the Company's option upon the occurrence of certain
events, including the maintenance of investment grade ratings.
The Australian bank facility originally provided a total availability
of approximately $65 million (AUD $105 million), which has been reduced
by principal payments totaling $17 million (AUD $24.4 million) made in
accordance with the terms of the bank facility, including $5.2 million (AUD
$8.1 million) during the six months ended June 30, 1998. As of June 30,
1998, $49.9 million (AUD $80.6 million) remained outstanding. The bank
facility includes funding for general corporate purposes. Interest on the
bank facility is based on the Australian Bank Bill rate. The indebtedness,
which matures in December 2000, has been wholly guaranteed by the Company.
MGM Grand Australia has a $12.4 million (AUD $20 million) uncommitted
standby line of credit, with a funding period of 91 days for working
capital purposes. No amount was outstanding during the six months ended
June 30, 1998.
Upon commencement of operations of NYNY on January 3, 1997 (see Note
1), the $285 million non-revolving construction line of credit converted to
a five-year reducing revolver. The Company and Primadonna (the "Partners")
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.
During the first six months of 1998, $27 million
E-8
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
in principal repayments were made by NYNY LLC. As of June 30, 1998 and
December 31, 1997, a total of $218.1 million and $245.1 million was
outstanding, respectively. On January 21, 1997, NYNY LLC completed an
additional $20 million equipment financing with a financial institution.
As of June 30, 1998 and December 31, 1997, $15.9 million and $17.5 million
were outstanding related to the equipment financing, respectively.
NOTE 4. ISSUANCE OF COMMON STOCK
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
$1.1 million of such expense was recognized during the six months ended
June 30, 1997.
In 1995, 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, and provided a
guaranteed future share price. The original agreement was amended during
1996 and 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 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, an excess of 6
million shares of the Company's common stock were tendered, and
accordingly, the shares will be prorated. The total acquisition cost of the
tendered shares is approximately $210 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 or offers or otherwise.
NOTE 5. 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").
E-9
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5. COMPREHENSIVE INCOME (CONTINUED)
The Company has recorded currency translation adjustments as Other
Comprehensive Income in the accompanying financial statements.
Comprehensive income is calculated as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Income $14,399 $32,999 $30,661 $63,149
Currency translation adjustment 4,065 3,702 2,963 4,835
------- ------- ------- -------
Comprehensive income $18,464 $36,701 $33,624 $67,984
======= ======= ======= =======
</TABLE>
NOTE 6. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with
the Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 presents two EPS calculations: (i) basic
earnings per common share 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 assumptions that options issued to employees are
exercised and repurchased at the average price for the periods presented
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Income $14,399 $32,999 $30,661 $63,149
======= ======= ======= =======
Weighted Average Basic Shares 58,001 57,927 57,995 57,882
======= ======= ======= =======
Basic Earnings per Share $ 0.25 $ 0.57 $ 0.53 $ 1.09
======= ======= ======= =======
Weighted Average Diluted Shares 58,613 58,808 58,697 58,791
======= ======= ======= =======
Diluted Earnings per Share $ 0.25 $ 0.56 $ 0.52 $ 1.07
======= ======= ======= =======
</TABLE>
Weighted average diluted shares include the following: options to purchase
612,000 and 844,000 shares issued to employees for the three month periods
ended June 30, 1998 and 1997, respectively, and 702,000 and 852,000 for the
six month periods ended June 30, 1998 and 1997, respectively; employee
grant shares (see Note 4) of 37,000 for the three month period ended June
30, 1997 and 57,000 for the six month period ended June 30, 1997.
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company and Primadonna each hold a 50% interest in a joint venture
which owns and operates NYNY (see Note 1). The hotel/casino opened to the
public on January 3, 1997. The Company contributed land on which the
property is located and cash totaling $70.7 million. The joint venture
initially secured bank financing of $285 million and term loan financing of
$20 million (see Note 3), and the joint venture Partners executed a Keep-
Well Agreement in conjunction with the financing.
E-10
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE (CONTINUED)
Summary condensed financial information for NY NY LLC, is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Revenues $ 54,698 $ 67,401 $108,733 $135,269
======== ======== ======== ========
Operating Income $ 18,930 $ 29,573 $ 39,337 $ 58,834
======== ======== ======== ========
Interest Expense, net $ 4,369 $ 5,086 $ 8,711 $ 10,016
======== ======== ======== ========
Net Income $ 14,561 $ 24,487 $ 30,626 $ 48,818
======== ======== ======== ========
<CAPTION>
As of As of
June 30, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Total Assets $460,761 $470,252
======== ========
Long term Debt $229,746 $246,403
======== ========
Members' Equity $205,736 $183,350
======== ========
</TABLE>
E-11
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates MGM
Grand Las Vegas and MGM Grand Australia (see Note 1). The Company also owns 50%
of New York-New York Hotel and Casino, which commenced operations on January 3,
1997 (see Note 1).
<TABLE>
<CAPTION>
(in thousands) (in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net Revenues:
MGM Grand Las Vegas $167,262 $185,832 $328,881 $361,219
MGM Grand Australia 8,280 8,756 15,805 16,522
MGM Grand South Africa 587 - 1,259 -
Income from unconsolidated affiliate 9,468 14,706 19,677 29,428
Eliminations and other (232) (209) (410) (586)
--------- --------- ---------- ----------
$185,365 $209,085 $365,212 $406,583
========= ========= ========== ==========
Operating Profit (Loss):
MGM Grand Las Vegas $ 18,541 $ 41,747 $ 37,426 $ 80,321
MGM Grand Australia 1,747 915 2,980 657
MGM Grand South Africa 284 - 566 -
Income from unconsolidated affiliate 9,468 14,706 19,677 29,428
--------- --------- ---------- ----------
30,040 57,368 60,649 110,406
Corporate expense (2,937) (3,289) (5,388) (4,778)
--------- --------- ---------- ----------
Operating income 27,103 54,079 55,261 105,628
Interest income 5,413 381 9,210 580
Interest expense, net of amounts capitalized (6,272) (268) (10,044) (1,242)
Interest expense from unconsolidated affiliate (2,185) (2,543) (4,356) (5,008)
Other net (544) (212) (1,147) (444)
--------- --------- ---------- ----------
Income before provision for income taxes 23,515 51,437 48,924 99,514
Provision for income taxes (9,116) (18,438) (18,263) (36,365)
--------- --------- ---------- ----------
Net income $ 14,399 $ 32,999 $ 30,661 $ 63,149
========= ========= ========== ==========
</TABLE>
E-12
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER
Net revenues for the second quarter of 1998 were $185.4 million,
representing a decrease of $23.7 million (11.3%) when compared with $209.1
million during the same period last year. The decrease in net revenues was
largely due to lower casino and entertainment revenues, and lower earnings from
the Company's 50% ownership in NYNY (see Note 1).
Consolidated casino revenues for the second quarter of 1998 were $96.4
million, representing a decrease of $16.7 million (14.8%) when compared with
$113.1 million during the same period in the prior year. MGM GRAND LAS VEGAS
casino revenues were $89.8 million, representing a decrease of $16.6 million
(15.6%) when compared with $106.4 million during the same period in the prior
year. The reduction in casino revenues at MGM Grand Las Vegas was a result of
lower than average table games win percentage and lower table games volume. The
lower table games volume in the current quarter reflects the championship boxing
event which was held in the prior year's quarter. MGM GRAND AUSTRALIA reported
casino revenues of $6.6 million which was flat when compared with the same
period in the prior year, and which was comprised of lower casino volume offset
by higher win percentages.
Consolidated room revenues were $43.3 million for the second quarter of
1998 compared with $43.1 million in the prior year's second quarter,
representing an increase of $.2 million (.5%). MGM GRAND LAS VEGAS room revenues
were $42.9 million, representing an increase of $.3 million (.7%) when compared
with $42.6 million in the same period of the prior year. The increase was
primarily due to a higher occupancy of 98% for the second quarter of 1998 when
compared with 95.2% in the same period of the prior year. The increase was
partially offset by a decrease in the average room rate for the 1998 second
quarter to $97 from $101 for the 1997 second quarter. MGM GRAND AUSTRALIA room
revenues decreased $.1 million (16.7%) from $.6 million in 1997 to $.5 million
in 1998 due to lower room rates, which was somewhat offset by higher occupancy.
Consolidated food and beverage revenues were $23.6 million in the second
quarter of 1998, representing a decrease of $.3 million (1.3%) when compared
with $23.9 million in the second quarter of the prior year. MGM GRAND LAS VEGAS
had food and beverage revenues of $22.2 million during the second quarter of
1998, representing an increase of $.1 million (.5%) when compared with $22.1
million in the second quarter of 1997. This increase resulted from the banquet
revenue generated from the Conference Center which opened April 16, 1998, and
the operation of the Studio 54 night club. The increases in revenue were offset
by the closure of the MGM Grand Buffet for remodeling during the majority of the
1998 second quarter. The consolidated decrease was attributable to MGM GRAND
AUSTRALIA which had food and beverage revenues of $1.4 million, representing a
decrease of $.5 million (26.3%) when compared with $1.9 million during the same
period in the prior year due to lower food covers.
Consolidated entertainment, retail and other revenues decreased $3 million
(9.9%) from $30.4 million in the 1997 period to $27.4 million in the 1998
period. The decrease in entertainment, retail and other revenues is primarily a
result of lower MGM GRAND LAS VEGAS retail revenues and the downsizing of the
spa to a temporary facility. These decreases were partially offset by increases
in entertainment revenues from events in the Grand Garden Arena, increased EFX
attendance, increased convention entertainment revenue, and the addition of
management fees from MGM Grand South Africa.
Income from unconsolidated affiliate was $9.5 million for the second
quarter of 1998, compared with $14.7 million in 1997, representing the Company's
50% share of NYNY's operating income. The reduction of earnings from NYNY is a
result of the unprecedented public response in the prior (first) year of
operations.
E-13
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER (CONTINUED)
Consolidated operating expenses (before Corporate expenses) were
$155.3 million in the second quarter of 1998, representing an increase of
$3.6 million (2.4%) when compared with $151.7 million for the same period
last year. The overall increase was attributable to MGM GRAND LAS VEGAS
which included a higher provision for doubtful accounts due to changes in
anticipated collectability of receivables and uncertain economic conditions
in Asia, increased depreciation expense due to Master Plan assets placed in
service, and increased operating expense for the Master Plan new
facilities. The increases were somewhat offset by decreases in casino
expense in the current year's quarter which did not include a championship
boxing event, and decreased retail sales expense corresponding with the
lower retail revenue. MGM GRAND AUSTRALIA operating expenses decreased
from $7.8 million in the 1997 period to $6.5 million in the 1998 period as
a result of continuing cost containment efforts.
Corporate expense for 1998 was $2.9 million compared with $3.3 million
in 1997, a decrease of $.4 million. The decrease is a result of the stock
price guarantee amortization in the prior year (see Note 4).
Interest income of $5.4 million for the three months ended June 30,
1998 increased by $5 million from $.4 million in the second quarter of
1997. The increase was attributable to higher invested cash balances
primarily from the proceeds of the Senior Collateralized Notes (see Note
3).
Interest expense in the second quarter of 1998 of $6.3 million (net of
amounts capitalized) increased by $6 million when compared with $.3 million
in the same period of 1997, reflecting the issuance of the Senior
Collateralized Notes (see Note 3). Also, the Company recognized interest
expense from unconsolidated affiliate of $2.2 million during the 1998
period compared with $2.5 million in 1997, reflecting a reduced outstanding
balance on the NYNY facility (see Note 3).
SIX MONTHS VERSUS SIX MONTHS
Net revenues for the six months ended June 30, 1998 were $365.2
million, representing a decrease of $41.4 million (10.2%) when compared
with $406.6 million during the same period last year. The decrease in net
revenues was largely due to lower casino and retail revenue, and lower
earnings from the Company's 50% ownership in NYNY (see Note 1).
Consolidated casino revenues for the six months ended June 30, 1998
were $192.1 million, representing a decrease of $28.1 million (12.8%) when
compared with $220.2 million during the same period in the prior year.
MGM GRAND LAS VEGAS casino revenues were $179.4 million, representing a
decrease of $28 million (13.5%) when compared with $207.4 million during
the same period in the prior year. The reduction in casino revenues at MGM
Grand Las Vegas was a result of lower table game volume and win
percentages. MGM GRAND AUSTRALIA reported casino revenues of $12.7 million
which was $.1 million lower than the same period in the prior year,
primarily reflecting lower casino volume, somewhat offset by an increase in
slot win percentage.
Consolidated room revenues for the period were $84.1 million compared
with $86.4 million for the same period in 1997, representing a decrease of
$2.3 million (2.7%). MGM GRAND LAS VEGAS room revenues were $83.4 million,
representing a decrease of $2.1 million (2.5%) when compared with $85.5
million in the same period of the prior year. The decrease was primarily
due to a lower average room rate for the 1998 period of $99 compared with
$103 in
E-14
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS VERSUS SIX MONTHS (CONTINUED)
1997, partially offset by an increase in occupancy to 94.2% for the 1998
period when compared with 93.6% in the same period of the prior year. MGM
GRAND AUSTRALIA room revenues were $.8 million for the six months ended
June 30, 1998, representing a decrease of $.2 million (20.0%) when compared
with $1 million for the prior year period, due to lower room rates
partially offset by higher occupancy.
Consolidated food and beverage revenues for the period were $48.5
million, representing an increase of $3.1 million (6.8%) when compared with
$45.4 million for the same period of the prior year. The increase was
attributable to MGM GRAND LAS VEGAS which had food and beverage revenues of
$45.9 million during the current period, representing an increase of $3.8
million (9.0%) when compared with $42.1 million in the same period of 1997.
This increase resulted from the Company's decision to operate the Studio
Cafe coffee shop which during the 1997 period had been a leased facility
until March 1997, the opening of the Studio 54 night club in late December
1997, and banquets from the Conference Center which opened in April 1998.
MGM GRAND AUSTRALIA reported food and beverage revenues of $2.7 million,
representing a decrease of $.7 million (20.6%) when compared with $3.4
million during the same period in the prior year as a result of reduced
food covers.
Consolidated entertainment, retail and other revenues decreased $4.8
million (8.5%) from $56.2 million in the 1997 period to $51.4 million in
the 1998 period. The decrease in entertainment, retail and other revenues
is a result of lower MGM GRAND LAS VEGAS theme park revenues, lower retail
revenues, and the downsizing of the spa to a smaller facility. These
decreases were partially offset by increases in entertainment revenues from
events in the Grand Garden Arena, increased EFX attendance, increased
convention entertainment /audio visual revenue, and the addition of
management fees from MGM Grand South Africa.
Income from unconsolidated affiliate was $19.7 million for the six
months ended June 30, 1998, compared with $29.4 million in 1997,
representing the Company's 50% share of NYNY's operating income. The
reduction of earnings from NYNY is a result of the unprecedented public
response in the prior (first) year of operations.
Consolidated operating expenses (before Corporate expenses) for the
1998 period were $304.6 million, representing an increase of $8.4 million
(2.8%) when compared with $296.2 million for the same period last year.
The overall increase was attributable to MGM GRAND LAS VEGAS which had
higher operating expenses in the 1998 period as a result of higher food and
beverage expenses associated with the addition of Studio 54 and the longer
operating period for the Studio Cafe, higher provisions for doubtful
accounts due to changes in anticipated collectability of receivables and
uncertain economic conditions in Asia, and higher depreciation expense due
to Master Plan assets placed in service. These increases were partially
offset by lower casino expenses due to lower casino taxes and the lack of a
championship boxing event, when compared with the prior year, as well as
lower retail expenses relating to the lower retail revenue. MGM GRAND
AUSTRALIA operating expenses decreased $3.1 million (19.5%) from $15.9
million in the 1997 period to $12.8 million in the 1998 period as a result
of continuing cost containment efforts.
Corporate expense for the 1998 period was $5.4 million compared with
$4.8 million in 1997, representing an increase of $.6 million (12.5%) due
to higher operating expenses in the current year.
E-15
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS VERSUS SIX MONTHS (CONTINUED)
Interest income of $9.2 million for the period ended June 30, 1998
increased by $8.6 million from $.6 million in the same period of 1997. The
increase was attributable to higher invested cash balances primarily from
the proceeds of the Senior Collateralized Notes (see Note 3).
Interest expense for the six months ended June 30, 1998 of $10 million
(net of amount capitalized) increased by $8.8 million when compared with
$1.2 million (net of amount capitalized) in the same period of 1997. The
increase in the 1998 period was primarily due to the issuance of the Senior
Collateralized Notes (see Note 3). Also, the Company recognized interest
expense from unconsolidated affiliate of $4.4 million during the 1998
period compared with $5 million in 1997, reflecting a reduced outstanding
balance on the NYNY facility (see Note 3).
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998 and December 31, 1997, the Company held cash and
cash equivalents of $368.2 million and $34.6 million, respectively. Cash
provided by operating activities for the first six months of 1998 was $71.5
million compared with $76.7 million for the same period of 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 more than $700 million, calls for a new 1,500-room
"Marriott Marquis"; expansion of the resort's casino capacity by nearly 20
percent to more than 200,000 square feet; and a "Mansion at the MGM Grand"
offering 29 exclusive suites and villas. 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. Additionally, the new pool and spa complex was
completed and opened for operations in July 1998. Approximately $347
million is anticipated to be expended during 1998 related to the Master
Plan, of which $181.9 million had been expended through June 30, 1998.
Capital expenditures during the first six months of 1998 were $208.2
million, consisting primarily of $12.2 million related to MGM Grand Las
Vegas for general property improvements, $181.9 million for the Master Plan
project, $10.1 million related to the purchase of a Company airplane, $1.1
million at MGM Grand Australia for general property improvements and $2.9
million for MGM Grand Atlantic City land acquisition costs and pre-
construction activities. Anticipated capital expenditures remaining for
1998 are approximately $255.8 million, consisting of approximately $170.6
million related to the Master Plan, approximately $40.3 million related to
general property improvements for MGM Grand Las Vegas, approximately $40
million for MGM Grand Detroit, approximately $3 million related to land
acquisitions and pre-construction activities for MGM Grand Atlantic City,
$1.5 million for Company airplane and approximately $.4 million for MGM
Grand Australia.
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, an excess of 6
million shares of the Company's common stock were tendered, and
accordingly, the shares will be prorated. The total acquisition cost of the
tendered shares is approximately $210 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 or offers or otherwise.
E-16
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company expects to finance operations and capital expenditures
through cash flow from operations, cash on hand, and the bank lines of
credit.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this 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).
E-17
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
Part II. OTHER INFORMATION
Items 2, 3, 5 and 6 of Part II are not applicable.
ITEM 1. LEGAL PROCEEDINGS
On July 22, 1998, MGM Dist., Inc. (formerly MGM Grand Desert Inn, Inc.
and a subsidiary of the Company ) was granted a dismissal in an adversary
proceeding in the United States Bankruptcy Court for the Central District
of California, in which the plaintiff sought to collect funds previously
paid to the Company in settlement of gaming activities. The plaintiff
subsequently filed a motion for reconsideration which is pending judicial
consideration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS AT THE
ANNUAL SHAREHOLDER MEETING HELD ON MAY 5, 1998.
<TABLE>
<CAPTION>
(A) The following persons were elected Directors: Share Voting Results
----------------------------------
For Withheld/Not Voted
------------ ------------------
<S> <C> <C>
James D. Aljian 49,961,696 29,096
Fred Benninger 49,960,331 30,461
Terry Christensen 49,962,811 27,981
Glenn A. Cramer 49,961,146 29,646
Willie D. Davis 49,962,620 28,172
Alexander M. Haig, Jr. 49,767,490 223,302
Kirk Kerkorian 49,960,315 30,477
J. Terrence Lanni 49,943,316 47,476
Jim Murren 49,961,826 28,966
Walter M. Sharp 49,960,016 30,776
Alex Yemenidjian 49,961,686 29,106
Jerome B. York 49,962,091 28,701
(B) Approval for an amendment to the Company's Nonqualified Stock Option and
Incentive Stock Option Plans.
Share Voting Results:
For 49,787,424
Against 175,142
Abstain 28,226
(C) Ratification of the selection of Arthur Andersen LLP as independent auditors.
Share Voting Results:
For 49,960,661
Against 20,805
Abstain 9,326
</TABLE>
E-18
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
-----------------------------------------
(Registrant)
Date: August 10, 1998 /s/ ALEJANDRO YEMENIDJIAN
-----------------------------------------
Alejandro Yemenidjian
President and
Chief Operating Officer
Date: August 10, 1998 /s/ JAMES J. MURREN
----------------------------------------
James J. Murren
Executive Vice President
and Chief Financial Officer
(principal accounting officer)
E-19
<PAGE>
APPENDIX F
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
-------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
--------------- ------------------------
Commission File Number: 0-16760
---------------------------------------------------
MGM GRAND, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 88-0215232
- --------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-3333
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 6, 1998
- ------------------------------------- ----------------------------------
Common Stock, $.01 par value 52,033,094 shares
F-1
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations for the Three Months and Nine Months
Ended September 30, 1998 and September 30, 1997............... 1
Condensed Consolidated Balance Sheets
at September 30, 1998 and December 31, 1997 .................. 2
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1998 and September 30, 1997 .................... 3
Notes to Condensed Consolidated Financial
Statements ................................................... 4-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ............. 10-15
PART II. OTHER INFORMATION
Item 6. Legal Proceedings............................................. 16
Signatures.................................................... 16
</TABLE>
F-2
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Casino $ 99,506 $115,192 $291,655 $335,396
Rooms 42,575 40,999 126,668 127,420
Food and beverage 27,087 23,915 75,630 69,342
Entertainment, retail and other 31,757 30,492 83,117 86,723
Income from unconsolidated affiliate 9,849 12,923 29,526 42,351
-------- -------- -------- --------
210,774 223,521 606,596 661,232
Less: promotional allowances 17,067 15,122 47,677 46,250
-------- -------- -------- --------
193,707 208,399 558,919 614,982
-------- -------- -------- --------
EXPENSES:
Casino 54,063 52,948 163,304 164,480
Rooms 12,265 11,942 36,066 34,770
Food and beverage 17,692 14,695 48,212 40,949
Entertainment, retail and other 18,237 20,379 55,011 59,981
Provision for doubtful accounts and discounts 8,378 8,405 26,151 22,735
General and administrative 27,606 27,377 78,316 77,616
Depreciation and amortization 20,570 16,234 56,314 47,626
-------- -------- -------- --------
158,811 151,980 463,374 448,157
-------- -------- -------- --------
OPERATING PROFIT BEFORE MASTER PLAN ASSET
DISPOSITION AND CORPORATE EXPENSE 34,896 56,419 95,545 166,825
Master Plan asset disposition - 28,566 - 28,566
Corporate expense (income) 714 (3,466) 6,102 1,312
-------- -------- -------- --------
OPERATING INCOME 34,182 31,319 89,443 136,947
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 2,910 381 12,120 961
Interest expense, net of amounts capitalized (7,691) - (17,735) (1,242)
Interest expense from unconsolidated affiliate (2,117) (2,511) (6,473) (7,519)
Other, net (641) (205) (1,788) (649)
-------- -------- -------- --------
(7,539) (2,335) (13,876) (8,449)
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM 26,643 28,984 75,567 128,498
Provision for income taxes (9,591) (10,290) (27,854) (46,655)
-------- -------- -------- --------
NET INCOME BEFORE EXTRAORDINARY ITEM 17,052 18,694 47,713 81,843
Loss on early extinguishment of debt, net
of income tax benefit of $2,333 - (4,238) - (4,238)
-------- -------- -------- --------
NET INCOME $ 17,052 $ 14,456 $ 47,713 $ 77,605
======== ======== ======== ========
PER SHARE OF COMMON STOCK:
Basic:
Net income per share before extraordinary item $ 0.31 $ 0.32 $ 0.84 $ 1.41
Extraordinary item, net - (0.07) - (0.07)
-------- -------- -------- --------
Net income per share $ 0.31 $ 0.25 $ 0.84 $ 1.34
======== ======== ======== ========
Weighted Average Shares Outstanding (000's) 54,765 57,973 56,907 57,912
======== ======== ======== ========
Diluted:
Net income per share before extraordinary item $ 0.31 $ 0.32 $ 0.83 $ 1.39
Extraordinary item, net - (0.07) - (0.07)
-------- -------- -------- --------
Net income per share $ 0.31 $ 0.25 $ 0.83 $ 1.32
======== ======== ======== ========
Weighted Average Shares Outstanding (000's) 55,390 58,812 57,659 58,799
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-3
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 90,772 $ 34,606
Accounts receivable, net 56,668 78,977
Prepaid expenses and other 9,773 10,452
Inventories 12,701 16,462
Deferred tax asset 34,098 30,294
---------- ----------
Total current assets 204,012 170,791
---------- ----------
PROPERTY AND EQUIPMENT, NET 1,280,941 1,032,708
OTHER ASSETS:
Investments in unconsolidated affiliates, net 126,463 108,121
Excess of purchase price over fair market value
of net assets acquired, net 37,830 38,598
Deposits and other assets, net 60,156 48,156
---------- ----------
Total other assets 224,449 194,875
---------- ----------
$1,709,402 $1,398,374
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,859 $ 20,484
Construction payable 17,276 33,376
Income taxes payable 741 -
Current obligation, capital leases 5,514 6,088
Current obligation, long term debt 9,729 10,589
Accrued interest on long term debt 5,788 -
Other accrued liabilities 88,162 110,953
---------- ----------
Total current liabilities 148,069 181,490
---------- ----------
DEFERRED REVENUES 4,429 4,743
DEFERRED INCOME TAXES 72,236 58,831
LONG TERM OBLIGATION, CAPITAL LEASES 2,993 4,447
LONG TERM DEBT 536,026 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 968,140 966,487
Treasury stock, at cost (210,459) -
Retained earnings 171,952 124,239
Other comprehensive income 15,436 10,316
---------- ----------
Total stockholders' equity 945,649 1,101,622
---------- ----------
$1,709,402 $1,398,374
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 47,713 $ 77,606
Adjustments to reconcile net income to net cash from
operating activities:
Master Plan asset disposition - 28,566
Loss on early extinguishment of debt - 6,671
Depreciation and amortization 56,549 47,731
Amortization of debt offering costs 1,359 960
Provision for doubtful accounts and discounts 26,151 22,735
Earnings in excess of distributions-unconsolidated affiliate (18,933) (22,212)
Deferred income taxes 9,601 22,373
Change in assets and liabilities:
Accounts receivable (3,842) 12,956
Inventories 2,947 (3,210)
Prepaid expenses and other 679 2,522
Income taxes payable 741 (16,122)
Accounts payable, accrued liabilities and other (18,970) (53,145)
Currency translation adjustment 246 407
--------- ---------
Net cash from operating activities 104,241 127,737
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (297,624) (119,084)
Disposition of property and equipment, net 533 130
Investments in unconsolidated affiliates - (7,183)
Change in construction payable (16,100) 86
Change in deposits and other assets, net (18,977) 2,693
--------- ---------
Net cash from investing activities (332,068) (123,458)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to banks and others (7,201) (9,192)
Issuance of long term debt 500,000 -
Borrowings under bank line of credit 31,000 23,000
Repayments of bank line of credit (31,000) (23,000)
Purchase of treasury stock (210,459) -
Issuance of common stock 1,653 2,494
--------- ---------
Net cash from financing activities 283,993 (6,698)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 56,166 (2,419)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,606 61,412
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 90,772 $ 58,993
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-5
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand, Inc. (the "Company") is a Delaware corporation,
incorporated on January 29, 1986. As of September 30, 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 MGM Grand Hotel/Casino ("MGM Grand Las Vegas"),
a hotel/casino and entertainment complex in Las Vegas, Nevada.
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").
The Company and Primadonna Resorts, Inc. ("Primadonna") each owns 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 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 ("MGM Grand Detroit") to develop a hotel/casino and
entertainment complex at an approximate cost of $800 million. On November
20, 1997, MGM Grand Detroit 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'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 anticipates the opening of a temporary gaming
facility in the summer 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.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
F-6
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
the consolidated financial statements and notes thereto included in the
1997 Annual Report included on Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position as of September 30, 1998, and the results of operations
for the three month and nine month periods ended September 30, 1998 and
1997. The results of operations for such periods are not necessarily
indicative of the results to be expected for the full year.
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 September 30,
1998, the Company capitalized start-up costs of $.7 million related to
Atlantic City and $9.1 million related to Detroit. The Company will adopt
SOP 98-5 in the first quarter of fiscal year 1999.
Certain reclassifications have been made to prior period financial
statements to conform with the 1998 presentation, which have no effect on
previously reported net income.
NOTE 2. STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997, cash payments
made for interest were $22.1 million and $6.2 million, respectively.
Cash payments made for state and federal taxes for the nine months
ended September 30, 1998 and 1997 were $9.4 million and $36.1 million,
respectively.
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE
Long term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Australian Hotel/Casino Loan, due December 1, 2000 $ 45,755 $ 57,830
6.95% Senior Collateralized Notes, due February 1, 2005 300,000 -
6.875% Senior Collateralized Notes, due February 6, 2008 200,000 -
-------- --------
545,755 57,830
Less: Current Maturities (9,729) (10,589)
-------- --------
$536,026 $ 47,241
======== ========
</TABLE>
F-7
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
Total interest incurred for the first nine months of 1998 was $29.3
million of which $11.6 million was capitalized, and $7.1 million was
incurred for the first nine months of 1997 of which $5.9 million was
capitalized. During the first nine months of 1998 and 1997, the Company
recognized interest expense from its unconsolidated affiliate of $6.5
million and $7.5 million, respectively.
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, of unamortized debt costs from the
Facility during the third quarter of 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. The
New Facility matures in December 2002, with the opportunity to extend the
maturity for successive one year periods. During the nine months ended
September 30, 1998, $31 million was drawn down and repaid against the New
Facility, and no amounts remained outstanding as of September 30, 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 the security may be removed equally with
the New Facility at the Company's option upon the occurrence of certain
events, including the maintenance of investment grade ratings.
The Australian bank facility originally provided a total availability
of approximately $62.2 million (AUD $105 million), which has been reduced
by principal payments totaling $19 million (AUD $28.4 million) made in
accordance with the terms of the bank facility, including $7.2 million (AUD
$12.2 million) during the nine months ended September 30, 1998. As of
September 30, 1998, $45.8 million (AUD $77.3 million) remained outstanding.
The bank facility includes funding for general corporate purposes. Interest
on the bank facility is based on the Australian Bank Bill rate. The
indebtedness, for which a bank agreement has been reached to extend
maturity to December 2002, has been wholly guaranteed by the Company.
MGM Grand Australia has an $11.8 million (AUD $20 million)
uncommitted standby line of credit, with a funding period of 91 days for
working capital purposes. No amount was outstanding during the nine months
ended September 30, 1998.
Upon commencement of operations of NYNY on January 3, 1997 (see
Note 1), the $285 million non-revolving construction line of credit
converted to a five-year reducing revolver. The Company and Primadonna (the
"Partners") have executed a joint and several unlimited Keep-Well
Agreement, which provides that in the event of insufficient cash flow from
NYNY to comply
F-8
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. LONG TERM DEBT AND NOTES PAYABLE (CONTINUED)
with financial covenants, the Partners will make cash infusions which are
sufficient to bring NYNY LLC into compliance with the financial covenants.
During the first nine months of 1998, $49.5 million in principal repayments
were made by NYNY LLC. As of September 30, 1998 and December 31, 1997, a
total of $195.6 million and $245.1 million was outstanding, respectively.
On January 21, 1997, NYNY LLC completed an additional $20 million equipment
financing with a financial institution. As of September 30, 1998 and
December 31, 1997, $15.2 million and $17.5 million were outstanding related
to the equipment financing, respectively.
NOTE 4. ISSUANCE OF COMMON STOCK
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
$1.1 million of such expense was recognized during the nine months ended
September 30, 1997.
In 1995, 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, and provided a
guaranteed future share price. The original agreement was amended during
1996, the Shares were placed in the custody of an independent trustee, and
the Company and DKP subsequently determined to terminate the agreement. On
September 25, 1997, the Shares were sold to Tracinda 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 common stock as part of
a 12 million share repurchase program. The offer commenced on July 2, 1998
and expired on July 31, 1998. A total of 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 $210.5 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.
NOTE 5. 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").
F-9
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5. COMPREHENSIVE INCOME (CONTINUED)
The Company has recorded currency translation adjustments as Other
Comprehensive Income in the accompanying financial statements.
Comprehensive income is calculated as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $17,052 $14,456 $47,713 $77,605
Currency translation adjustment 2,157 2,564 5,120 7,399
------- ------- ------- -------
Comprehensive income $19,209 $17,020 $52,833 $85,004
======= ======= ======= =======
</TABLE>
NOTE 6. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with
the Statement of Financial Accounting Standards No. 128 ("SFAS 128")
Earnings per Share. SFAS 128 presents two EPS calculations: (i) basic
earnings per common share 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 assumptions that options issued to employees are
exercised and repurchased at the average price for the periods presented
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $17,052 $14,456 $47,713 $77,605
======= ======= ======= =======
Weighted Average Basic Shares 54,765 57,973 56,907 57,912
======= ======= ======= =======
Basic Earnings per Share $ 0.31 $ 0.25 $ 0.84 $ 1.34
======= ======= ======= =======
Weighted Average Diluted Shares 55,390 58,812 57,659 58,799
======= ======= ======= =======
Diluted Earnings per Share $ 0.31 $ 0.25 $ 0.83 $ 1.32
======= ======= ======= =======
</TABLE>
Weighted average diluted shares include the following: options to
purchase 625,000 and 839,000 shares issued to employees for the three month
periods ended September 30, 1998 and 1997, respectively; 752,000 and
848,000 for the nine month periods ended September 30, 1998 and 1997,
respectively; and employee grant shares (see Note 4) of 39,000 for the nine
month period ended September 30, 1997.
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company and Primadonna each hold a 50% interest in a joint venture
which owns and operates the NYNY (see Note 1). The hotel/casino opened to
the public on January 3, 1997. The Company contributed land on which the
property is located and cash totaling $70.7 million. The joint venture
initially secured bank financing of $285 million and term loan financing of
$20 million (see Note 3), and the joint venture Partners executed a Keep-
Well Agreement in conjunction with the financing.
F-10
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7. INVESTMENT IN UNCONSOLIDATED AFFILIATE (CONTINUED)
Summary condensed financial information for NYNY LLC is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenues $ 55,851 $ 61,709 $164,584 $196,978
======== ======== ======== ========
Operating Income $ 19,745 $ 25,998 $ 59,082 $ 84,833
======== ======== ======== ========
Interest Expense, net $ 4,234 $ 5,023 $ 12,946 $ 15,039
======== ======== ======== ========
Net Income $ 15,511 $ 20,975 $ 46,136 $ 69,794
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of As of
September 30, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
Total Assets $455,411 $470,252
======== ========
Long Term Debt $208,304 $246,403
======== ========
Members' Equity $221,247 $183,350
======== ========
</TABLE>
NOTE 8. MASTER PLAN ASSET DISPOSITION
As a result of the MGM Grand Las Vegas property construction
enhancements associated with the transformation of the facility into "The
City of Entertainment", the Company wrote-off assets during the third
quarter of 1997. The net book value of these assets was $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 suites and villas, and
certain theme park assets on the site intended for a 500 room Ritz-Carlton
Hotel.
F-11
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company, through its wholly-owned subsidiaries, owns and operates
MGM Grand Las Vegas and MGM Grand Australia (see Note 1). The Company also
owns 50% of New York-New York Hotel and Casino, which commenced operations
on January 3, 1997 (see Note 1).
<TABLE>
<CAPTION>
(in thousands) (in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenues:
MGM Grand Las Vegas $173,758 $185,754 $502,639 $546,972
MGM Grand Australia 9,228 9,814 25,033 26,336
MGM Grand South Africa 1,305 - 2,564 -
Income from unconsolidated affiliate 9,849 12,923 29,526 42,351
Eliminations and other (433) (92) (843) (677)
-------- -------- -------- --------
$193,707 $208,399 $558,919 $614,982
======== ======== ======== ========
Operating Profit (Loss):
MGM Grand Las Vegas $ 21,654 $ 41,595 $ 59,080 $121,915
MGM Grand Australia 2,423 1,901 5,403 2,559
MGM Grand South Africa 970 - 1,536 -
Income from unconsolidated affiliate 9,849 12,923 29,526 42,351
-------- -------- -------- --------
34,896 56,419 95,545 166,825
Master Plan asset disposition - 28,566 - 28,566
Corporation expense (income) 714 (3,466) 6,102 1,312
-------- -------- -------- --------
Operating income 34,182 31,319 89,443 136,947
Interest income 2,910 381 12,120 961
Interest expense, net of amounts capitalized (7,691) - (17,735) (1,242)
Interest expense from unconsolidated affiliate (2,117) (2,511) (6,473) (7,519)
Other, net (641) (205) (1,788) (649)
-------- -------- -------- --------
Income before provision for income taxes and
extraordinary item 26,643 28,984 75,567 128,498
Provision for income taxes (9,591) (10,290) (27,854) (46,655)
-------- -------- -------- --------
Net income before extraordinary item 17,052 18,694 47,713 81,843
Extraordinary item, net - (4,238) - (4,238)
-------- -------- -------- --------
Net income $ 17,052 $ 14,456 $ 47,713 $ 77,605
======== ======== ======== ========
</TABLE>
F-12
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER
Net revenues for the third quarter of 1998 were $193.7 million,
representing a decrease of $14.7 million (7.1%) when compared with $208.4
million during the same period last year. The decrease in net revenues was
largely due to lower casino and retail revenues, and lower earnings from
the Company's 50% ownership in NYNY (see Note 1), somewhat offset by higher
food and beverage revenues.
Consolidated casino revenues for the third quarter of 1998 were $99.5
million, representing a decrease of $15.7 million (13.6%) when compared
with $115.2 million during the same period in the prior year. MGM GRAND LAS
VEGAS casino revenues were $92.2 million, representing a decrease of $15.4
million (14.3%) when compared with $107.6 million during the same period in
the prior year. The reduction in casino revenues at MGM Grand Las Vegas was
a result of lower baccarat volume and win percentage. MGM GRAND AUSTRALIA
reported casino revenues of $7.3 million, representing a decrease of $.3
million (3.9%) when compared with $7.6 million during the same period in
the prior year. The reduction of casino revenue was a result of lower
average exchange rate in the current year's quarter (.5989), compared with
a higher average rate in the prior year's quarter (.7356).
Consolidated room revenues were $42.6 million for the third quarter of
1998 compared with $41 million in the prior year's third quarter,
representing an increase of $1.6 million (3.9%). MGM GRAND LAS VEGAS room
revenues were $42 million, representing an increase of $1.7 million (4.2%)
when compared with $40.3 million in the same period of the prior year. The
increase was primarily due to a higher average room rate for the 1998 third
quarter of $94 compared with $90 for the 1997 third quarter. The increase
was partially offset by a decrease in occupancy to 97.8% for the third
quarter of 1998 when compared with 99% in the same period of the prior
year. MGM GRAND AUSTRALIA room revenues decreased $.2 million (25%) from
$.8 million in 1997 to $.6 million in 1998 due to lower room rates and
average exchange rate, somewhat offset by higher occupancy.
Consolidated food and beverage revenues were $27.1 million in the
third quarter of 1998, representing an increase of $3.2 million (13.4%)
when compared with $23.9 million in the third quarter of the prior year.
The increase was attributable to MGM GRAND LAS VEGAS which had food and
beverage revenues of $25.5 million during the third quarter of 1998,
representing an increase of $3.3 million (14.9%) when compared with $22.2
million in the third quarter of 1997. This increase resulted from the
banquet revenue generated from the Conference Center which opened on April
16, 1998, and the operation of the Studio 54 night club which opened late
December 1997. MGM GRAND AUSTRALIA reported food and beverage revenues of
$1.6 million, which were slightly lower when compared with the same period
in the prior year due to a lower average exchange rate in the current year.
Consolidated entertainment, retail and other revenues increased $1.3
million (4.3%) from $30.5 million in the 1997 period to $31.8 million in
the 1998 period. The increase is primarily a result of strengthened MGM
GRAND LAS VEGAS entertainment revenues and the addition of management and
development fees from MGM GRAND SOUTH AFRICA of $1.3 million. These
increases were partially offset by decreases in theme park revenues due to
the abbreviated seasonal operating schedule during this year's quarter.
Income from unconsolidated affiliate was $9.8 million for the third
quarter of 1998, compared with $12.9 million in 1997, representing the
Company's 50% share of NYNY's operating income. The reduction of earnings
from NYNY is a result of the unprecedented public response in the prior
(first) year of operations.
F-13
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
QUARTER VERSUS QUARTER (CONTINUED)
Consolidated operating expenses (before Master Plan asset disposition
and Corporate expenses) were $158.8 million in the third quarter of 1998,
representing an increase of $6.8 million (4.5%) when compared with $152
million for the same period last year. The overall increase was
attributable to MGM GRAND LAS VEGAS which included increased depreciation
expense and operating expenses due to Master Plan assets placed in service
and higher food and beverage expenses associated with increased revenues.
The increases were somewhat offset by decreases in retail expenses in the
current year's quarter due to the abbreviated seasonal operating schedule
of the theme park. MGM GRAND AUSTRALIA operating expenses decreased from
$7.9 million in the 1997 period to $6.8 million in the 1998 period as a
result of continuing cost containment efforts and lower average exchange
rate in the current year.
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's quarter write-off of $28.6 million
(pre-tax) is the result of management's decision to enhance and expand the
Master Plan project from $250 million to over $700 million.
Corporate expense for 1998 was $.7 million compared with income of
$3.5 million in 1997, representing an increase of $4.2 million. The 1997
third quarter corporate expense was reduced by a $5.9 million reversal of
previously expensed stock price guarantee amortization (see Note 4), which
was somewhat offset by a payroll-related reversal of $1.6 million in the
1998 period.
Interest income of $2.9 million for the three months ended September
30, 1998 increased by $2.5 million from $.4 million in the third quarter of
1997. The increase was attributable to higher invested cash balances
primarily from the proceeds of the Senior Collateralized Notes (see Note
3).
Interest expense in the third quarter of 1998 was $7.7 million (net of
amounts capitalized) compared with no interest expense in the same period
of 1997, reflecting the issuance of the Senior Collateralized Notes (see
Note 3). Also, the Company recognized interest expense from unconsolidated
affiliate of $2.1 million during the 1998 period compared with $2.5 million
in 1997, reflecting a reduced outstanding balance on the NYNY facility (see
Note 3).
Extraordinary loss in the prior year's third quarter of $4.2 million,
net of income tax benefit, reflects the write-off of unamortized debt costs
from the previous $600 million credit facility (see Note 3).
NINE MONTHS VERSUS NINE MONTHS
Net revenues for the nine months ended September 30, 1998 were $558.9
million, representing a decrease of $56.1 million (9.1%) when compared with
$615 million during the same period last year. The decrease in net revenues
was largely due to lower casino, other retail revenue, and lower earnings
from the Company's 50% ownership in NYNY (see Note 1), somewhat offset by
higher food and beverage revenues.
Consolidated casino revenues for the nine months ended September 30,
1998 were $291.7 million, representing a decrease of $43.7 million (13%)
when compared with $335.4 million during the same period in the prior year.
MGM GRAND LAS VEGAS casino revenues were $271.7 million, representing a
decrease of $43.3 million (13.7%) when compared with $315 million during
the same period in the prior year. The reduction in casino revenues at MGM
Grand Las Vegas was a result of lower table game and baccarat volume and
F-14
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS VERSUS NINE MONTHS (CONTINUED)
win percentages. MGM GRAND AUSTRALIA reported casino revenues of $20
million which was $.4 million lower than the same period in the prior year,
primarily due to a lower average exchange rate in the current year (.6317)
and a higher average exchange rate in 1997 (.7609).
Consolidated room revenues for the period were $126.7 million compared
with $127.4 million for the same period in 1997, representing a decrease of
$.7 million (.5%). MGM GRAND LAS VEGAS room revenues were $125.4 million,
representing a decrease of $.4 million (.3%) when compared with $125.8
million in the same period of the prior year. The decrease was due to a
lower average room rate for the 1998 period of $97 compared with $98 in
1997. MGM GRAND AUSTRALIA room revenues were $1.4 million for the nine
months ended September 30, 1998, representing a decrease of $.4 million
(22.2%) when compared with $1.8 million for the prior year period, due to
lower room rates and average exchange rates partially offset by higher
occupancy.
Consolidated food and beverage revenues for the period were $75.6
million, representing an increase of $6.3 million (9.1%) when compared with
$69.3 million for the same period of the prior year. The increase was
attributable to MGM GRAND LAS VEGAS which had food and beverage revenues of
$71.5 million during the current period, representing an increase of $7.2
million (11.2%) when compared with $64.3 million in the same period of
1997. This increase resulted from the Company's decision to operate the
Studio Cafe coffee shop which during the 1997 period had been a leased
facility until March 1997, the opening of the Studio 54 night club in late
December 1997, and banquets from the Conference Center which opened in
April 1998. MGM GRAND AUSTRALIA reported food and beverage revenues of
$4.3 million, representing a decrease of $.9 million (17.3%) when compared
with $5.2 million during the same period in the prior year as a result of
lower average exchange rate in the current year.
Consolidated entertainment, retail and other revenues decreased $3.6
million (4.2%) from $86.7 million in the 1997 period to $83.1 million in
the 1998 period. The decrease in entertainment, retail and other revenues
is a result of lower MGM GRAND LAS VEGAS theme park revenues from reduced
covers and the abbreviated seasonal operating schedule during the current
third quarter. The decrease was partially offset by increases in
entertainment revenues from events in the Grand Garden Arena, increased EFX
attendance, increased convention entertainment /audio visual revenue, and
the addition of management and development fees from MGM GRAND SOUTH
AFRICA.
Income from unconsolidated affiliate was $29.5 million for the nine
months ended September 30, 1998, compared with $42.4 million in 1997,
representing the Company's 50% share of NYNY's operating income. The
reduction of earnings from NYNY is a result of the unprecedented public
response in the prior (first) year of operations.
Consolidated operating expenses (before Master Plan asset disposition
and Corporate expenses) for the 1998 period were $463.4 million,
representing an increase of $15.2 million (3.4%) when compared with $448.2
million for the same period last year. The overall increase was
attributable to MGM GRAND LAS VEGAS which had higher operating expenses in
the 1998 period as a result of higher food and beverage expenses associated
with the addition of Studio 54 and the longer operating period for the
Studio Cafe and higher banquets expense for the Conference Center.
Additionally, provisions for doubtful accounts were higher due to changes
in anticipated collectability of receivables and uncertain economic
conditions in Asia, higher depreciation expense due to Master Plan assets
placed in service and room expenses for the addition of sales staffing for
F-15
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS VERSUS NINE MONTHS (CONTINUED)
the Conference Center. These increases were partially offset by lower
casino expenses due to a reduction in casino taxes, as well as decreased
retail expenses relating to the lower retail revenue. MGM GRAND AUSTRALIA
operating expenses decreased $4.2 million (17.6%) from $23.8 million in the
1997 period to $19.6 million in the 1998 period as a result of continuing
cost containment efforts and lower average exchange rate in the current
year.
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's quarter write-off of $28.6 million
(pre-tax) is the result of management's decision to enhance and expand the
Master Plan project from $250 million to over $700 million.
Corporate expense for the 1998 period was $6.1 million compared with
$1.3 million in 1997, representing an increase of $4.8 million. The
increase was due to higher operating expenses in the current year and the
$5.9 million reversal of the stock price guarantee amortization that
occurred in the prior year. This was somewhat offset by the current year's
quarter payroll-related reversal of $1.6 million.
Interest income of $12.1 million for the period ended September 30,
1998 increased by $11.1 million from $1 million in the same period of
1997. The increase was attributable to higher invested cash balances
primarily from the proceeds of the Senior Collateralized Notes (see Note
3).
Interest expense for the nine months ended September 30, 1998 of $17.7
million (net of amount capitalized) increased by $16.5 million when
compared with $1.2 million (net of amount capitalized) in the same period
of 1997. The increase in the 1998 period was primarily due to the issuance
of the Senior Collateralized Notes (see Note 3). Also, the Company
recognized interest expense from unconsolidated affiliate of $6.5 million
during the 1998 period compared with $7.5 million in 1997, reflecting a
reduced outstanding balance on the NYNY facility (see Note 3).
Extraordinary loss in the prior year's third quarter of $4.2 million,
net of income tax benefit, reflects the write-off of unamortized debt costs
from the previous $600 million credit facility (see Note 3).
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 and December 31, 1997, the Company held cash
and cash equivalents of $90.8 million and $34.6 million, respectively.
Cash provided by operating activities for the first nine months of 1998 was
$104.2 million compared with $127.7 million for the same period of 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 more than $700 million, calls for a new 1,500-room "Marriott
Marquis"; expansion of the resort's casino capacity by nearly 20 percent to
more than 200,000 square feet; and a "Mansion at the MGM Grand" offering 29
exclusive suites and villas. 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. Additionally, the new pool and spa complex was
completed and opened for operations in July 1998. Approximately $309.4
F-16
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
million is anticipated to be expended during 1998 related to the Master
Plan, of which $255.7 million had been expended through September 30, 1998.
Capital expenditures during the first nine months of 1998 were $297.5
million, consisting primarily of $24.6 million related to MGM Grand Las
Vegas for general property improvements, $255.7 million for the Master Plan
project, $11.7 million related to the purchase of a Company airplane, $1.3
million at MGM Grand Australia for general property improvements and $4.2
million for MGM Grand Atlantic City land acquisition costs and pre-
construction activities. Anticipated capital expenditures remaining for
1998 are approximately $105.4 million, consisting of approximately $53.7
million related to the Master Plan, approximately $20.9 million related to
general property improvements for MGM Grand Las Vegas, approximately $29
million for MGM Grand Detroit, approximately $1.6 million related to land
acquisitions and pre-construction activities for MGM Grand Atlantic City
and approximately $.2 million for MGM Grand Australia.
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 tendered shares was
approximately $210.5 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.
The Company expects to finance operations and capital expenditures
through cash flow from operations, cash on hand, and the bank lines of
credit.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this 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).
F-17
<PAGE>
MGM GRAND, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Items 2, 3, 4, 5 and 6 of Part II are not applicable.
ITEM 1. LEGAL PROCEEDINGS
On July 22, 1998, MGM Dist., Inc. (formerly MGM Grand Desert Inn, Inc.
and a subsidiary of the Company ) was granted a dismissal in an adversary
proceeding in the United States Bankruptcy Court for the Central District
of California, in which the plaintiff sought to collect funds previously
paid to the Company in settlement of gaming activities. The plaintiff
subsequently filed a motion for reconsideration which is pending judicial
consideration.
SIGNATURES
Pursuant to the requirements 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.
-------------------------------------
(Registrant)
Date: November 10, 1998 /s/ ALEJANDRO YEMENIDJIAN
-------------------------------------
Alejandro Yemenidjian
President and
Chief Operating Officer
Date: November 10, 1998 /s/ JAMES J. MURREN
-------------------------------------
James J. Murren
Executive Vice President
and Chief Financial Officer
(principal accounting officer)
F-18
<PAGE>
APPENDIX G
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
January 26, 1998
MGM GRAND, INC.
---------------------------------------------
(Exact Name of Registrant as specified in Charter)
Delaware 0-16760 88-0215232
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 891-3333
---------------------------------
(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name or former address, if changed since last report)
G-1
<PAGE>
Item 5. Other Events
------------
On January 26, 1998, MGM Grand, Inc., a Delaware corporation (the
"Company") entered into a Purchase Agreement (the "January 26 Purchase
Agreement") by and between the Company, certain of its wholly-owned subsidiaries
(the "Subsidiary Guarantors"), BancAmerica Robertson Stephens and each of the
Underwriters named in the January 26 Purchase Agreement, regarding the sale by
the Company and the purchase by such Underwriters of $300,000,000 aggregate
principal amount of the Company's 6.95% Senior Collateralized Notes Due 2005
(the "6.95% Notes"). The January 26 Purchase Agreement is filed as Exhibit 1(1)
to this Current Report.
On February 2, 1998, the Company entered into an Indenture (the "February 2
Indenture") by and among the Company, as issuer, the Subsidiary Guarantors and
PNC Bank, National Association, as Trustee, in connection with the issuance of
the 6.95% Notes. The February 2 Indenture is filed as Exhibit 4(1) to this
Current Report.
On February 3, 1998, the Company entered into a Purchase Agreement (the
"February 3 Purchase Agreement") by and among the Company and the Subsidiary
Guarantors, on the one hand, and Deutsche Morgan Grenfell Inc. and BancAmerica
Robertson Stephens, as Underwriters thereunder, on the other hand, regarding the
sale by the Company and the purchase by such Underwriters of $200,000,000
aggregate principal amount of the Company's 6-7/8% Senior Collateralized Notes
Due 2008 (the "6-7/8% Notes"). The February 3 Purchase Agreement is filed as
Exhibit 1(2) to this Current Report.
On February 6, 1998, the Company entered into an Indenture (the "February 6
Indenture") by and among the Company, as Issuer, the Subsidiary Guarantors and
U.S. Trust Company of California, N.A., as Trustee, in connection with the
issuance of the 6-7/8% Notes. A schedule setting forth the material details in
which the February 6 Indenture differs from the February 2 Indenture is filed as
Exhibit 4(2) to this Current Report.
The Company is filing this Current Report for purposes of incorporating by
reference this Current Report and the January 26 Purchase Agreement, the
February 3 Purchase Agreement, the February 2 Indenture and the schedule
describing relevant provisions of the February 6 Indenture, as exhibits hereto,
into the description of those purchase agreements and indentures set forth in
the Company's Registration Statement on Form S-3, Commission File No. 333-31845,
filed in connection with the offering of $600,000,000 of its debt securities and
common stock.
G-2
<PAGE>
Item 7. Exhibits
--------
The following Exhibits are filed herewith as part of this current Report:
Exhibit
Number Description of Document
------ -----------------------
1(1) Purchase Agreement, dated January 26, 1998, by and
between MGM Grand, Inc., the Subsidiary Guarantors,
BancAmerica Robertson Stephens and the Underwriters
named therein.
1(2) Purchase Agreement, dated February 3, 1998, by and
between MGM Grand, Inc., the Subsidiary Guarantors,
Deutsche Morgan Grenfell Inc. and BancAmerica
Robertson Stephens.
4(1) Indenture, among MGM Grand, Inc., as Issuer, the
Guarantors Parties thereto and PNC Bank, National
Association, as Trustee, dated as of February 2,
1998.
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.
G-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MGM GRAND, INC.
February 23, 1998 By: /s/ Scott Langsner
------------------
Scott Langsner
Secretary
G-4
<PAGE>
APPENDIX H
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 4, 1998
PRIMADONNA RESORTS, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Nevada 0-21732 88-0297563
--------------- -------------- ----------------------
(State or other (Commission (IRS employer
jurisdiction of file number) identification number)
incorporation)
31700 LAS VEGAS BOULEVARD SOUTH, PRIMM, NV 89019
------------------------------------------------
(Address of principal executive offices)
(702) 679-7267
----------------------------------------------------
(Registrant's telephone number, including area code)
_____________________________________________________________
(Former name or former address, if changed since last report)
H-1
<PAGE>
ITEM 5. OTHER EVENTS
- ------- ------------
On December 4, 1998, MGM Grand, Inc. and Primadonna Resorts, Inc.
entered into an Agreement and Plan of Merger, dated as of December 2, 1998,
pursuant to which MGM Grand will acquire Primadonna in an all stock transaction.
The terms of the merger provide for Primadonna's stockholders to receive 0.33
shares of MGM Grand common stock for each share of Primadonna common stock held,
or a total of approximately 9.5 million shares of MGM Grand common stock. A
copy of the press release announcing the execution of the Merger Agreement is
attached hereto as Exhibit 99.1 and incorporated by reference.
H-2
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ITEM 7. EXHIBITS
- ------ --------
(a) & (b) Not Applicable.
(c) Exhibits
Exhibit 99.1 Press Release, dated December 7, 1998.
H-3
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PRIMADONNA RESORTS, INC.
Date: December 30, 1998 By: /s/ John L. Shigley
------------------------------
Name: John L. Shigley
Title: Chief Financial Officer
H-4
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APPENDIX I
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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 0-21732
---------------
PRIMADONNA RESORTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 88-0297563
(State of Incorporation) (I.R.S. Employer Identification Number)
</TABLE>
P.O. Box 95997, Las Vegas, Nevada 89193-5997
(address of principal executive offices)
(702) 382-1212
(Registrant's telephone number, including area code)
---------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
<S> <C>
Not applicable Not applicable
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .01 par value
------------------------------------------------------------
(Title of Class)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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 the voting stock held by non-affiliates of the
registrant as of March 16, 1998: $299,788,863
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 16, 1998: 28,917,600 shares of Common Stock, $ .01 Par Value
Part III incorporates information by reference from the Registrant's definitive
Proxy Statement to be filed with the Commission within 120 days after the close
of the Registrant's fiscal year.
Exhibit Index on page 68
Total number of pages 84
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PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
FORM 10-K
INDEX
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Page no.
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PART I
<C> <S> <C>
Item 1. Business................................................ 3-14
Item 2. Properties.............................................. 15-16
Item 3. Legal Proceedings....................................... 16-17
Item 4. Submission of Matters to a Vote of Security Holders..... 17
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholders Matters.................................... 18
Item 6. Selected Financial Data................................. 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 20-25
Item 8. Consolidated Financial Statements and Supplementary
Data.................................................... 26-61
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure..................... 62
PART III
Item 10. Directors and Executive Officers of the Registrant...... 62
Item 11. Executive Compensation.................................. 62
Item 12. Security Ownership of Certain Beneficial Owners and
Management.............................................. 62
Item 13. Certain Relationships and Related Transactions.......... 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................ 63-66
Signatures.............................................. 67
</TABLE>
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PART I
Item 1. Business
Primadonna Resorts, Inc. and subsidiaries ("Company") owns and operates three
resort-casinos on both sides of Interstate 15 at the California/Nevada border,
in Primm, Nevada ("Primm"), a 50% interest in New York-New York Hotel & Casino,
LLC ("New York-New York") on the Las Vegas "Strip", and the Primm Valley Golf
Club ("Golf Club") 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" and
together with Buffalo Bill's and Primm Valley, "Primm Properties") form a major
destination location and offer, to the more than eleven million vehicles
traveling through Primm on Interstate 15, the first opportunity to wager upon
entering Nevada, and the last opportunity before leaving. The Company estimates
that more than 25% of all passing vehicles stopped at the Primm Properties in
1997.
The Company is a 50% joint venture partner with MGM Grand, Inc. ("MGM") in
New York-New York, which was completed in late December 1996, and opened to the
public on January 3, 1997. The New York themed mega-resort is located at the
premier location on the Las Vegas "Strip", the corner of Tropicana Avenue and
Las Vegas Boulevard.
In February 1997, the Company opened the challenging championship 18-hole Primm
Valley Golf Club, designed by Tom Fazio, and located in California, four miles
south of Primm. This represented the first phase of a golf educational complex
which will include an additional 18-hole championship course, opening in April
1998, and a golf academy operated by Compusport, opening in the spring of 1998.
Business Strategy
The Company's business strategy at Primm is to capitalize on its unique and
advantageous location on the heavily traveled Interstate 15 corridor.
Approximately 11.3 million, 10.8 million and 10.6 million vehicles traveled
through Primm on Interstate 15 in 1997, 1996, and 1995, respectively. The next
closest casino-hotel is 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.
The Company positions its Primm Properties to 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 offering
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, 2,676 hotel rooms,
a 25,000 square foot conference center, 10 restaurants, and a variety of rides.
The three casinos include approximately 4,525 slot machines, 107 table games,
poker, keno, and race and sports books. In addition, the Primm Properties offer
one-of-a-kind swimming pools, a movie theater, motion simulation theaters,
ferris wheel, bowling center, an interactive water flume
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ride, "The Desperado" roller coaster and the "Turbo Drop" thrill ride. These
attractions encourage visits by families and provide entertainment for
children, while allowing adults to spend more time in the Company's casinos.
The 6,100-seat Star of the Desert Arena hosts top-name entertainers, and has
allowed the Company to use special events as part of extended stay packages.
To further advance Primm as a destination location, increase mid-week
utilization, and attract a more upscale clientele, the Company opened the Golf
Club in February 1997. A second 18-hole course , opening in April 1998, and a
golf school are under construction with opening expected in the spring of 1998.
Additionally, in August 1997 the Company opened a 25,000 square foot conference
center at Primm Valley. The Company began to pursue group and conference
business to coincide with the opening. In addition, a 525,000 square foot
themed outlet mall is being constructed adjacent to Primm Valley by third party
developers; the anticipated opening is July 1998. The Company expects these
enhancements to increase both the visibility and desirability of the Primm
location.
The Company is actively continuing bus and tour contracts with major operators.
Special events and entertainment promotions are held to further enhance the
destination concept as well as to foster repeat visits from patrons.
A major element of the Company's business strategy at Primm is to emphasize
slot machine play. Slot play contributes to consistent cash flow, profit
generation, and provides significant operating leverage because of lower
associated labor costs. The Company's low minimum and maximum ($500) betting
limits for its table games also helps stabilize its cash flows. The Company has
installed player tracking systems to encourage customer loyalty, and increased
visits. Additionally, the Company uses these systems to more efficiently target
and administer its direct mail programs.
The Company's strategy at New York-New York is to create an atmosphere that
will cause visitors to believe that the hotel, with its New York skyline, the
"Manhattan Express" roller coaster and its Coney Island style amusement center,
are a "must-see" on any Las Vegas visit. New York-New York is targeted towards
the upper end of the middle market.
The Company's growth and diversification strategy is to develop or acquire
additional casino operations by capitalizing upon its design, development,
marketing, and operational expertise. The Company is seeking opportunities to
expand beyond Primm and New York-New York, however, the Company is highly
selective in its evaluation of expansion opportunities. The Company's expansion
activities focus on (i) venues with long-term growth potential, political
stability, and a reliable regulatory environment, (ii) unique locations that
provide immediate access to high population density or traffic flow and some
degree of market protection, (iii) development sites with enough available land
to grow, and (iv) projects that generate meaningful cash flow and an above
average return on investment. The Company believes that it is well positioned
to pursue business opportunities either alone, or through strategic alliances
with other entities.
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Current Operations
Buffalo Bill's Resort & Casino
Buffalo Bill's is a western-themed resort-casino, targeted towards the
family/entertainment market segment, offering diverse amenities that appeal to
all age groups. The 35 foot high ceiling gives one the feel of the wide open
spaces of the old west. Buffalo Bill's has 1,239 rooms in two 16-story towers.
The complex includes approximately 46,000 square feet of casino space including
approximately 1,700 slot machines, 43 table games, a keno lounge, and a race
and sports book; four restaurants; a deli; two bars; two motion simulation
theaters; a movie theater; the 6,100-seat Star of the Desert Arena; a Ghost
Town attraction including various novelty, gift, and food specialty shops; a
buffalo shaped swimming pool with a Jacuzzi; a video arcade and midway games.
In addition, Buffalo Bill's features "The Desperado", the tallest and fastest
roller coaster in the western hemisphere, and the interactive "Adventure
Canyon" water log flume ride, both of which are accessible from within the
casino. In April 1997 the Company opened another thrill ride , the "Turbo
Drop", which gives riders the experience of weightlessness from 6Gs of negative
force.
Whiskey Pete's Hotel & Casino
Whiskey Pete's attracts travelers seeking a value-oriented casual and friendly
atmosphere. The congenial, "down to earth" atmosphere is promoted through the
Gold Rush period dress of the employees, the use of wood and bright colors
throughout the interior, and the "home-style" cooking offered in the Whiskey
Pete's restaurants.
Whiskey Pete's, an 1850's Gold Rush themed hotel-casino, offers a 36,400 square
foot casino, three restaurants, a snack bar, three bars and a lounge, a 650
seat showroom, 777 rooms, swimming pool with a water slide, a Jacuzzi, and an
arcade. The casino includes approximately 1,315 slot machines, 30 table games,
a keno lounge, and a race and sports book. The casino entrance features the
original Bonnie & Clyde "Death Car" and the Dutch Schultz-Al Capone "Gangster
Car".
Primm Valley Resort & Casino
The former Primadonna Resort & Casino was re-themed during 1997 to a golf
resort atmosphere, and renamed "Primm Valley Resort & Casino". A room
renovation project was completed at the end of 1996, and the casino area decor
transformation occurred in 1997 in conjunction with the completion of a 25,000
square foot conference center and a 20,000 square foot casino expansion, which
were completed in August. In October, a new 600 space parking garage was
opened. The gourmet restaurant, now called GP's, was remodeled in 1997, as was
the buffet. The expanded monorail system has been completed and now connects
Primm Valley with both Buffalo Bill's and Whiskey Pete's.
Current projects for 1998 include the renovation of the coffee shop and the
addition of a piano bar lounge in the center of the casino area. An additional
34,000 square feet of casino, restaurant and retail space will be added in
July, to tie-in directly with the new retail outlet mall discussed below.
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Primm Valley currently has a 51,000 square foot casino, including 1,510 slot
machines and 34 table games, keno lounge, poker and a race and sports book, 660
rooms, three restaurants, two bars, a snack bar, ferris wheel, arcade, and
bowling center. The property is a four-story diamond shaped building with a
large interior courtyard consisting of a swimming pool, Jacuzzi and garden.
Primm Valley Golf Club
The Primm Valley Golf Club, located approximately four miles south in
California, was completed in December 1996 and opened to the public in February
1997. The first phase offered an 18-hole Tom Fazio designed championship
course, a driving range and other practice facilities, and a clubhouse. The
second phase, currently under construction, includes a second Tom Fazio
designed 18-hole course, to be completed by April 1998. The Compusport Golf
Academy opened in March 1998, providing advanced training facilities. The
addition of the golf course, coupled with the Primm Valley re-theming and
conference center, is expected to appeal to groups seeking an attractive
setting for mid-week conferences, with golf as a recreational option. The
Company also believes that the attractiveness of the Golf Club is enhanced by
the limited number of premier golf facilities available to Las Vegas visitors
and residents.
New York-New York
The 48 story New York-New York Hotel & Casino complex includes such landmarks
as the Statue of Liberty, Empire State Building, Central Park, and the Brooklyn
Bridge. This New York-themed property contains an 84,000 square foot casino,
2,033 rooms, themed restaurants and lounges, retail outlets, the "Manhattan
Express" roller coaster and a Coney Island style amusement area. The casino has
approximately 2,400 slots machines, 71 table games, a keno lounge, and a race
and sports book. The property includes approximately 30,000 square feet of
retail space, and a showroom which opened in mid-1997.
In March 1997, New York-New York acquired an adjacent 2 acre parcel of land
which is available for future expansion.
The operating agreement for New York-New York contains a buy/sell provision
allowing either party to make an offer at a stated price for the other party's
interest. The other party must either sell its interest, or buy the offering
party's interest, at the stated price. There are no parameters or constraints
within the agreement for determining the stated price. New York-New York is
managed by a chief executive officer appointed by the board of directors
consisting of three representatives from each company. If the Company and MGM
are unable to reach agreement on any joint venture decision, there is no
mechanism for resolving the dispute other than through the buy/sell provision.
Amenities
The Company offers numerous other amenities at Primm. Interstate 15 travelers
have 24-hour Unocal and Texaco service stations as well as a truck stop at
Whiskey Pete's that offers a lounge and shower facilities. Located adjacent to
Primm Valley is the RV Village offering 199 full-service hookups for
recreational vehicles. Subleased to a franchisee is a 24-hour McDonald's.
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The Primm Properties also benefit from a convenience store (owned by the
Company's Chairman of the Board and his brothers and sisters) ("Primm Family"),
located just south of Primm on the California side of the border. This store
attracts Las Vegas residents who want to purchase California lottery tickets.
Other Projects
Retail Outlet Mall
The team of Sheldon Gordon and Randy Brant, developers of the Forum Shops at
Caesars Palace, along with the TrizecHahn Centers, intend to develop up to a
1.0 million square foot highly themed retail outlet mall on 100 acres of land
adjacent to Primm Valley and owned by Primm 650 Limited Partnership, a
partnership controlled by the Primm Family. The first phase of the "Fashion
Outlet of Las Vegas" is approximately 525,000 square feet and is expected to be
open in July 1998. The Company may incur approximately $1.5 million of
infrastructure costs related to roadways and water/sewer systems to accommodate
the development, which is being built and financed by the developers. The
Company is planning to directly connect the Primm Valley casino to the mall.
Southwest
The Company has advanced a total of $3.8 million to Southwest Casino and Hotel
Corp. ("Southwest"), a developer and manager of Native American gaming
enterprises. Southwest managed a Class II Indian gaming facility in Eagle Pass,
Texas for the Kickapoo Traditional Tribe of Texas until its recent termination.
Southwest also manages a Class II Indian gaming facility just outside Oklahoma
City, Oklahoma for the Cheyenne and Arapaho Tribes.
The Company holds a $1.6 million Convertible Term Promissory Note which is
convertible into preferred stock of Southwest. No payments have been made on
this note, and in 1996, based upon the financial condition of Southwest, the
Company fully reserved the $1.6 million and related interest. The Company also
holds a $2.2 million Demand Promissory Note which was secured by the management
contract on the Kickapoo gaming facility. Southwest has made $100,000 in
sporadic payments on this note. No reserve has been established for this note
due to its collateralization. As a result of a termination settlement of the
Southwest management contract with the Kickapoo Tribe, effective December 31,
1997, Southwest assigned the Company two notes, aggregating $2.2 million, due
Southwest from the Kickapoo Tribe. The Company has received $475,000 in
payments on those notes through March 1998.
Competition
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
casino-hotels in the Las Vegas area, principally on the basis of location,
range and pricing of amenities, gaming mix, and overall atmosphere. The New
York-New York Hotel & Casino competes primarily with the other mega- resorts
and hotels on Las Vegas Boulevard, and with a few major casino-hotels in
downtown Las Vegas.
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Several new major resort projects have been announced and are expected to be
completed within the next two years. This increase in capacity may increase
competition for customers both at the Company's Primm Properties and at New
York-New York. 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 casino-hotels.
To a lesser extent, the Company's Primm resort-casinos also compete with gaming
establishments in or near Laughlin, Nevada, approximately 90 miles away in
Southern Nevada. Laughlin caters to moderate to 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 casino-hotels could have an adverse effect on the number of customers
visiting the Company's Primm Properties.
Since the 1980's, legalized gaming opportunities have proliferated throughout
the United States. Some form of gaming is legal in all 50 states except Hawaii
and Utah. Riverboat, dockside or land-based gaming is currently legal in
several states, and in excess of 100 compacts have been negotiated between
Indian tribes and certain states to allow various forms of gaming on Indian
owned land. California sponsors a lottery (as do numerous other states) and
allows other non-casino style gaming, including pari-mutuel wagering, card
parlors and bingo.
There are currently Indian casinos in California and Arizona, several of which
are quite large and offer slot machines and table games. Indian casinos located
along Interstate 10 in the San Bernadino-Palm Springs region and in the greater
San Diego area pose the most direct competition to the Primm Properties.
Despite the fact that compacts have not been negotiated between these Tribes
and the State of California, these Indian casinos have operated with casino-
type gaming.
The State of California recently completed negotiations for an intended "Model
Compact" with the Pala Band of Mission Indians. The ultimate impact of this
compact on currently operating Indian casinos is unknown. Additionally, there
are state and local initiatives as well as legislation continually being
presented to allow some form of Indian and non-Indian casino gaming at various
locales in California.
While the Company believes that the continued spread of legalized gaming may,
in the future, present the Company with additional opportunities for expansion,
increased legalized gaming in some jurisdictions, particularly in areas close
to Nevada, such as Southern California and Arizona, could adversely affect the
Company's operations, particularly the number of bus groups and individuals
making day trips to the Company's properties.
Business Risks
The Company is highly dependent on customers from Southern California traveling
to and from Las Vegas along Interstate 15. In the event that the Interstate, or
the entrance and exit ramps providing access to the Primm Properties, were
impaired for an extended period of time due to road modifications, repairs,
weather, or other factors, the operations and financial performance of the
Company would be adversely affected. Additionally, significant increases in
fuel costs could have an impact on the number of travelers on Interstate 15.
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As with any major construction project, the expansion of Primm Valley, the
construction of the second golf course at the Golf Club, and the plans for the
outlet mall, involve many potential risks, including shortages of materials and
labor, work stoppages, labor disputes, weather interference, engineering,
environmental, or geological problems, governmental regulations and approvals,
and unanticipated cost increases, including those arising from design changes,
any of which could give rise to delays or cost overruns.
The Company's employees primarily live in the Las Vegas area, which is
approximately 40 miles away from Primm. The continued growth and expansion of
resort properties in Las Vegas could adversely impact the Company's ability to
attract and retain qualified employees, and may put pressure on compensation
costs.
While the Company believes that it has sufficient water for its present
expansion plans and operations, the Company will need further governmental
approvals to use additional water for future expansion. There can be no
assurance that future requests for additional water will be granted.
Regulation and Licensing
The ownership and operation of casino gaming facilities in Nevada are subject
to (i) the Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, "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 ("Nevada Commission"), the Nevada State Gaming Control
Board ("Nevada Board"), and the Clark County Liquor and Gaming Licensing Board
("CCLGLB"). The Nevada Commission, the Nevada Board and the CCLGLB are
collectively referred to as the "Nevada Gaming Authorities". The PRMA Land
Development Company, which owns and operates the Primm Valley Golf Club, is
subject to licensing and regulatory control of the California and San Bernadino
County Alcoholic Beverage Commissions.
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) to provide a source of state and
local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on the Company's gaming
operations.
The Primadonna Corporation, which operates Whiskey Pete's, Primm Valley, and
Buffalo Bill's, is required to be licensed by the Nevada Gaming Authorities.
Additionally, PRMA Las Vegas, Inc., which is a 50% joint venture party in New
York-New York, as well as New York-New York itself, are required to be licensed
by the Nevada Gaming Authorities. The gaming license requires the periodic
payment of fees and taxes and is not transferable. The Company is 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
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any other information which the Nevada Commission may require. No person may
become a stockholder of, or receive any percentage of profits from, The
Primadonna Corporation, PRMA Las Vegas, Inc., or New York-New York without
first obtaining licenses and approvals from the Nevada Gaming Authorities. The
Company, The Primadonna Corporation, PRMA Las Vegas, Inc., and New York-New
York have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company, The Primadonna
Corporation, PRMA Las Vegas, Inc., or New York-New York in order to determine
whether such individual is suitable or should be licensed as a business
associate of a gaming licensee. Officers, directors and certain key employees
of The Primadonna Corporation, PRMA Las Vegas, Inc., or New York-New York 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 gaming activities of The Primadonna Corporation, PRMA Las Vegas,
Inc., or New York-New York may be required to be licensed or found suitable by
the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing for any cause which 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 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, The Primadonna Corporation, PRMA Las Vegas,
Inc., or New York-New York, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company, The Primadonna Corporation, PRMA Las Vegas, Inc., or New York-New
York 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, The Primadonna Corporation, PRMA Las Vegas, Inc., and New York-New
York are required to submit detailed financial and operating reports to the
Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company, The Primadonna
Corporation, PRMA Las Vegas, Inc., or New York-New York must be reported to or
approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by The Primadonna
Corporation or New York-New York, the gaming licenses they hold could be
limited, conditioned, suspended, or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, The Primadonna
Corporation, PRMA Las Vegas, Inc., or New York-New York 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
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Company's 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 his suitability as a beneficial holder of the Company's
voting securities determined, if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the Company's
voting securities to report the acquisition to the Nevada Commission. The
Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails 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 which are not deemed to be
inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information, including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common stock
of a Registered Corporation, beyond such period of time as may be prescribed by
the Nevada Commission, may be guilty of a criminal offense. The Company is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship with the
Company, The Primadonna Corporation, PRMA Las Vegas, Inc., or New York-New
York, the Company (i) pays that person any dividend or interest upon voting
securities of the Company, (ii) allows that person to exercise, directly or
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<PAGE>
indirectly, any voting rights 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, at its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated, and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including 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 rights 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 which may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a legend indicating
that the securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the prior
approval of the Nevada Commission if the securities or 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. On July
2, 1997, the Nevada Commission granted the Company prior approval to make
public offerings for a period of two years, subject to certain conditions
("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.
Changes in control of the Company through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in 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 relating to 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
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<PAGE>
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 policies 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 purpose 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 the
counties and cities in which Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly, semi-annually, 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 casino operations where
entertainment is furnished in connection with the selling of food or
refreshments. Nevada licensees that hold a license as an operator of a slot
route, or a manufacturer's or distributor's license, 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 by 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 required to comply with
certain reporting requirements imposed by the Nevada Act. Licensees are also
subject to disciplinary action by the Nevada Commission, if it knowingly
violates any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations,
engages in activities that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employs a person in the foreign operation who
has been denied a license or finding of suitability in Nevada on the grounds of
personal unsuitability.
The sale of alcoholic beverages at Primm Valley, Whiskey Pete's, Buffalo
Bill's, Primm Valley Golf Course, and New York-New York is subject to
licensing, control, and regulation by the applicable state and local
authorities. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend, or revoke any such
licenses, and any such disciplinary action could (and revocation would) have a
material adverse effect upon the operations of the Company.
The gaming industry represents a significant source of tax revenues for the
State of Nevada and Clark County. From time to time, various changes in the tax
laws and their administration are proposed by various legislators and
officials. Recent proposals have included a federal gaming tax
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and increases in state and local gaming taxes. A federal study of gaming has
been passed into law. The two year study of gaming by the commission will have
broad powers, including subpoenas. The impact of this study is not known at
this time. In addition, federal income tax proposals have been suggested which
would limit the deductibility of promotional allowances provided to customers,
modify the withholding requirements on amounts won by customers, and impose
withholding on negotiated discounts provided to customers. It is not possible
to determine with certainty the likelihood of possible changes in the tax laws
or their administration. Such changes, if adopted, could have a material
adverse effect on the Company's financial results. The federal courts have
determined that meals provided to employees are income and subject to taxes on
both the employee and employer. The impact of this decision has not yet been
determined.
The Company and certain of its officers and directors have been investigated
and found suitable by the Mississippi Gaming Commission ("MGC")in connection
with a proposed acquisition in Biloxi, Mississippi, which acquisition was later
abandoned by the Company. The Company is also registered with the MGC as a
"publicly traded holding company" and remains subject to the reporting
requirements by the Mississippi Gaming Control Act and the regulations
promulgated thereunder as such requirements relate to the Company's
registration as a publicly traded holding company. Such reporting and
registration requirements are similar to those imposed by the State of Nevada
discussed above.
Employees
As of December 31, 1997, the Company had a total of 3,701 employees, of whom
1,120 were in gaming operations, 488 in hotel operations, 1,023 in food and
beverage, and 1,070 in other operations. None of the Company's employees are
represented by a labor union, but there can be no assurance that this will
continue. Management considers its labor relations to be good.
As of December 31, 1997, New York-New York, in which the Company is a 50%
partner, had 2,159 employees. Approximately 500 of these employees are
currently represented by the Culinary labor union.
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Item 2. Properties
The Primm Properties are located on approximately 142 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 Company's Chairman, and his brothers and sisters. 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 $451,000 per
month. A lease amendment that increases land leased by approximately 2 acres,
and is effective July 1998, will increase the rent to approximately $460,000
per month. Rent increases each year by the cost of living, but not more than
eight percent in any one year. Each eight years, the rent is to be reset by two
appraisers, or, if they are unable to agree, by another appraiser selected by
the other 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 the exclusive right to any gaming activity on any of the unleased
acreage owned by the lessor. In addition, the lessor has made available to the
Company acreage for a wastewater treatment plant operated by the Company and
the associated rapid infiltration basins.
The Whiskey Pete's facility has been expanded numerous times over the years.
The most recent major projects were a new 537 room, eighteen story hotel tower
and an adjacent parking garage, both of which were completed in early 1994. The
original Primadonna, now Primm Valley, was built in 1990 with 300 rooms, and
was expanded by another 361 rooms in 1992. In late 1996, the rooms were
refurbished and during 1997 the casino was re-themed to a golf atmosphere. Also
in 1997, a 25,000 square foot conference facility was completed in conjunction
with a 20,000 square foot casino expansion and the addition of a parking
garage. Buffalo Bill's 618 room, sixteen story hotel and casino was opened in
August of 1994. In June of 1995, a second 610 room hotel tower was added.
The Company owns approximately 12 acres immediately north of Buffalo Bill's
that are currently the site of 144 company-owned mobile homes rented to
employees. The Company owns approximately 575 acres of land in California,
approximately four miles south of Primm, which is the location for the Primm
Valley Golf Club. Upon completion of the second golf course, approximately 140
acres will remain for future use.
The Company has first priority on water in various wells located on federal
land, and has received permits to pipe the water to its property. The Company
believes that there is adequate water, and that the Company 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.
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 Company's use and delivery of water to the Primm Properties.
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.
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<PAGE>
New York-New York is a 48 story hotel and casino complex located on
approximately 22 acres at the intersection of Tropicana and Las Vegas Boulevard
on the Las Vegas "Strip". This facility opened in January 1997. The property is
subject to a first priority deed of trust secured by the $285 million of bank
financing due December 2001.
Item 3. Legal Proceedings
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) filed
their answer on February 11, 1998. The parties are currently preparing an
updated case management order.
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
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assaulted and killed in the women's arcade restroom at Primm Valley Resort &
Casino. An eighteen year-old male has been charged with her murder. The
complaint alleges negligence on the part of the Company and seeks compensatory
and punitive damages.
On October 15, 1997, the Company 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 Angles, receiving "special Powers" to settle the lawsuit. 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. To date, this second compliant has not been served. On December 3, 1997
Ms. Manuel and the Company entered into a stipulation that would allow for the
withdrawal of the Company's 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 Company. An answer to the Manuel
complaint is being prepared.
Management does not expect that the above litigations will have a material
adverse effect on the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's common stock is quoted on the NASDAQ National Market System under
the symbol "PRMA". The following table sets forth, for the periods indicated,
the high and low closing sales price per share of the common stock as reported
by NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ending December 31, 1997
First Quarter................................................... $21.00 $17.50
Second Quarter.................................................. 22.25 18.75
Third Quarter................................................... 19.81 17.25
Fourth Quarter.................................................. 18.88 14.13
Fiscal Year Ending December 31, 1996
First Quarter................................................... $17.75 $12.25
Second Quarter.................................................. 25.00 15.25
Third Quarter................................................... 23.75 17.00
Fourth Quarter.................................................. 19.50 15.63
</TABLE>
As of January 31, 1998, there were 457 holders of record of the Company's
common stock.
The Company has neither declared nor paid any dividends since its initial
public offering on June 22, 1993. The payment of any dividends in the future
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements,
loan restrictions, the general financial condition of the Company and general
business conditions.
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<PAGE>
Item 6. Selected Financial Data
The selected consolidated financial data presented below is qualified in its
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements, Notes thereto, and other financial and
statistical information included elsewhere in this report.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues...................... $287,821 $234,935 $239,797 $193,860 $144,279
Operating income.................. 74,601 31,012 43,992 41,560 44,996
Net income (1).................... 32,402 16,768 23,307 26,462 29,125
Cash dividends (2)................ -- -- -- -- 65,141
Diluted earnings per share........ $ 1.10 $ .55 $ .76 $ .86 $ 1.00
Balance Sheet Data:
Total assets...................... $470,695 $399,971 $373,219 $311,613 $165,674
Long term-debt.................... 220,765 168,200 145,500 116,100 --
Stockholders' equity.............. 211,633 201,018 196,046 171,357 144,836
Equity per share.................. $ 7.33 $ 6.58 $ 6.36 $ 5.56 $ 4.99
Other Data:
Employees......................... 3,701 3,805 3,834 3,705 2,159
Average hotel rooms............... 2,676 2,676 2,411 1,664 908
Slot machines..................... 4,525 4,150 4,140 4,207 2,409
Table games....................... 107 105 113 106 64
</TABLE>
- --------
(1) Pro forma for 1993 reflecting provisions for federal income taxes assuming
an effective tax rate of 35% from January 1 through June 22, 1993 (the date
of the initial public offering). Also assumes the Company would not have
incurred interest on certain subordinated notes in 1993, and would not have
recorded the reinstatement of deferred taxes.
(2) The Company has not paid any dividends since its initial public offering in
June, 1993. Previously, the Company had distributed a substantial portion
of its net income as cash dividends to its S corporation stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this report.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Summary of Operations
The Company opened its New York-New York joint venture project on January 3,
1997. Performance exceeded expectations yielding net revenues of $255.6 million
and pre-tax income of $88.0 million. The Company's 50% share of these results
more than offset a significant decline in performance of the Company's
operations at Primm.
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The increased capacity in the Las Vegas market in 1997, coupled with relatively
stable air passenger numbers, intensified the competition for highway traffic
coming from Southern California. The Company decreased its room rates and
increased its marketing and promotional allowances in an effort to maintain
market share. These factors put pressure on margins, while construction
disruptions at its Primm Valley property put pressure on revenues.
Net revenues increased to $287.8 million, an increase of 23%, and operating
income increased to $74.6 million, an increase of $43.6 million. These
increases were the result of the performance of New York-New York which offset
a net revenue decline for the Primm Properties of $8.9 million, or 4%, and an
operating income decline of $18.1 million.
Casino revenue declined $6.5 million, or 3.8%. Slot revenue decreased $2.9
million, or 2.1%, primarily due to reduced volume in the casino. Table games
revenue decreased $3.6 million, or 11.4%, of which $2.1 million was due to a
lower win percentage, partially caused by increased marketing promotions, and
the other $1.5 million was due to reduced volume. Food and beverage revenue
increased slightly, however, cash revenue declined $1.0 million while
promotional revenue increased $1.4 million. The Company believes that the cash
revenue decline was due to both reduced volume and the conversion of cash
revenue to promotional revenue. The increase in promotional revenue was due to
the Company's increased marketing emphasis. Hotel revenue declined
$1.7 million, or 7.1%. The number of occupied rooms increased 3.5%, while the
average daily rate dropped 10%. The increase in occupied rooms was due to an
increase in complimentary rooms provided to customers, offset by a decline in
cash room sales. The increased promotional allowances generated a $1.4 million
increase in hotel revenue, while cash revenues declined $3.1 million.
Entertainment revenue increased $1.1 million, or 9.0%, primarily due to the
opening of the Primm Valley Golf Club, which contributed $1.6 million in
additional revenue. This increase, along with a $300,000 increase in amusement
revenue fueled by increased promotional allowances of $1.1 million, offset a
decline in arcade revenues of $800,000. Service station revenue increased
$2.1 million, or 13.7%. This increase was due to a 17.5% increase in volume
coupled with a 3.8% decrease in prices.
Operating income from New York-New York is the Company's share of pre-tax, pre-
interest earnings from its 50% interest in New York-New York Hotel & Casino.
The property opened January 3, 1997, but was substantially complete prior to
the end of 1996. Accordingly, New York-New York recognized its pre-opening
costs of $16.0 million, offset by some interest income and other revenue in
1996, which accounted for the $7.8 million loss for 1996. In 1997, New York-
New York generated net revenue of $255.6 million, and pre-tax income of $88.0
million.
Costs and Expenses
Casino expenses increased to $55.7 million from $51.7 million, an increase of
$4.0 million, or 7.7%. The increase was primarily due to increased promotional
allowance costs of $4.6 million, which are all charged to casino expense,
offset by slight decreases in payroll and gaming taxes. Food and beverage costs
decreased slightly, primarily as a result of the increased promotional
allowance costs transferred to the casino, offset by an increase in food costs
related to enhanced offerings in the
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<PAGE>
buffets. Hotel costs decreased $1.1 million, or 9.7%, due primarily to the
increased promotional allowance costs transferred to the casino, offset by
payroll increases and the costs associated with an additional 24,000 occupied
rooms.
Entertainment expenses increased $1.6 million, primarily due to the $2.5
million in operating costs for the golf club. The increase was partially offset
by increased promotional allowance costs transferred to the casino. Service
station costs increased $1.7 million, or 12.2%, as a result of a 17.5% increase
in volume offset by a 5.1% decline in product cost.
Selling, general and administrative expenses increased to $47.1 million from
$44.6 million, an increase of $2.4 million, or 5.5%. The increase is primarily
a result of a $1.5 million increase in advertising, a $2.3 million increase in
general marketing expenses, and an increase of $1.0 million in administrative
overhead and payroll costs. These increases were partially offset by a $2.4
million decline in development related costs. In 1996, the Company recorded a
bad debt reserve of $1.8 million related to its investment in Southwest Casino
and Hotel Corp., and incurred an additional $1.0 million for various other
projects. In 1997, the Company incurred approximately $.5 million in
development related expenses.
Depreciation expense increased $1.9 million due to the opening of the golf
course in February, the completion of the clubhouse in July, the opening of the
Primm Valley conference center and casino expansion in September, and the new
parking garage in October.
Pre-opening costs of $1.1 million related to the completion of the Primm Valley
Golf Club were recorded in 1996; there was no comparable expense in 1997.
Interest Income (Expense)
Interest expense, net, was $13.2 million compared to $4.9 million in the prior
year. The Company incurred $14.4 million of interest, of which $1.1 million was
capitalized as part of the various construction projects, and earned interest
income of $32,000. In 1996, the Company incurred $11.4 million of interest, of
which $6.1 million was capitalized as part of the New York-New York and other
construction projects, and earned $400,000 of interest income. The increase in
interest incurred was due to an increase in the outstanding indebtedness offset
by a slight reduction in the rate.
Interest expense from New York-New York represents the Company's 50% share of
the interest expense recorded by the joint venture. This interest is primarily
attributable to amounts outstanding under its $285.0 million bank credit
facility and $20 million term loan. In 1996, all such interest was capitalized
as part of the construction project.
Income Taxes
Income taxes increased to $18.1 million from $9.3 million primarily as a result
of the doubling of earnings before taxes. The Company's share of New York-New
York earnings are recognized on a pre-tax basis, and the Company, in turn,
provides for the income tax expense on its share. The effective tax rate was
not materially different from the prior year.
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<PAGE>
Extraordinary Item
In June 1997, the Company recorded an extraordinary charge of $1.0 million, net
of a $.5 million tax benefit, related to the write-off of the unamortized loan
costs associated with the early retirement of its former bank credit facility.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Summary of Operations
The Company continued the process of absorbing the capacity provided by Buffalo
Bill's, while continuing to pursue its strategy of enhancing Primm as a
destination location. The Tom Fazio-designed golf course has been completed and
it opened to the public in February 1997. The expansion and upgrade of the
Primadonna is under way, and the construction of an upscale factory outlet mall
is expected to break ground in mid-1997.
The Company continued its focus on marketing in an effort to absorb mid-week
capacity. With the addition of comprehensive player tracking systems, the
Company is now positioned to more effectively execute its direct mail marketing
campaigns. There were an additional 52,000 occupied rooms during 1996, a
substantial portion of which were during the mid-week period.
Net revenues, before the equity loss from New York-New York, increased to
$242.8 million, an increase of 1.2%. Net income was $16.8 million, a decline of
$6.5 million, which was primarily due to the $7.8 million loss from New York-
New York, $1.1 million in pre-opening costs associated with the golf course, a
$2.3 million increase in selling, general and administrative expenses, and a
$900,000 increase in the cost of promotional allowances, offset by a $3.0
million decrease in interest expense and the corresponding $3.5 million
reduction in the tax provision.
Revenues
Overall casino revenue of $170.4 million was virtually unchanged from the prior
year. Slot revenue increased $1.4 million, while table games revenue declined
$1.3 million, yielding a net increase of $118,000 in casino revenue.
Food and beverage revenue increased to $29.7 million from $28.1 million, an
increase of $1.6 million, or 5.7%. The increase is primarily due to increased
food covers, coupled with selected beverage price increases. Hotel revenue
increased to $23.6 million from $19.8 million, an increase of $3.8 million, or
19.4%. An increase in rooms sold, including a substantial increase in
complimentary rooms provided to customers, coupled with a 10% increase in
rates, were the primary causes of the increase. The increase in complimentary
rooms contributed $2.4 million of the revenue increase, while cash revenues
contributed $1.4 million.
Entertainment revenue declined to $11.7 million from $13.2 million, a decrease
of $1.5 million, or 11.0%. The decline was primarily due to the reduced
ridership on "The Desperado" roller coaster, the log flume ride, and the motion
theaters. These declines were compounded by "The Desperado" being out of
service for repairs during 20 days of the peak summer season, and the log flume
ride undergoing extensive renovations to make the ride more interactive and
exciting, which caused it to
I-22
<PAGE>
be out of service for 30 days. The motion theaters are located in close
proximity to the other two rides, and management believes that they were
impacted by the reduced levels of activity in the area when each of the two
primary rides was out of service. To address the declining volume in this area,
the Company is installing a new thrill ride, the "Turbo Drop", which the
Company anticipates will reinvigorate this segment of its business, upon its
completion in April 1997.
Service station revenue increased to $15.0 million from $13.0 million, an
increase of $2.0 million, or 15.6%. This increase was due to a 7% increase in
gallons sold coupled with an 8% increase in prices. Other revenue declined
$356,000, or 5.2%, primarily due to reduced volume in the gift shops.
Equity loss in New York-New York is the Company's share of earnings from its
50% interest in New York-New York Hotel & Casino. The property was completed in
December 1996, and opened to the public on January 3, 1997. Accordingly, in
1996, New York-New York wrote-off its pre-opening costs of $15.8 million and
incurred a small operating loss, offset slightly by interest income. The
Company's 50% share of this loss amounted to a $7.8 million.
Costs and Expenses
Casino expenses increased to $51.7 million from $49.8 million, an increase of
$1.9 million, or 3.7%. The increase was primarily due to increased promotional
allowances, which are all charged to casino expense, along with increases in
payroll and related benefits. Food and beverage costs increased $1.2 million,
or 4.6%, primarily as a result of the increased volume. Hotel costs increased
$401,000, or 3.7%, due primarily to an additional 52,000 occupied rooms.
Service station costs increased $1.9 million, or 15.8%, due to higher product
cost and increased volume.
Selling, general and administrative expenses increased to $44.6 million from
$42.3 million, an increase of $2.3 million, or 5.4%. The increase is primarily
a result of an $829,000 increase in bus promotions, a $345,000 increase in
general marketing expenses, an incremental $450,000 related to the departure of
the Company's former president, and an increase of $672,000 in development
expenses, offset by a decrease of $206,000 in legal and other professional
fees. The development expenses for 1996 include a $1.8 million reserve for the
Southwest note receivable.
Pre-opening costs of $1.1 million related to the completion of the Primm Valley
Golf Club were recorded in 1996. There were no such costs in 1995.
Interest Income (Expense)
Interest expense, net, was $4.9 million as compared to $7.9 million in the
prior year. The Company incurred $11.4 million of interest of which $6.1
million was capitalized as part of the New York-New York investment and the
golf club development, and earned interest income of $400,000. In 1995, the
Company incurred $12.9 million of interest, of which $4.7 million was
capitalized, and earned interest income of $300,000. The decrease in interest
incurred is due to a decline in interest rates offset by a slight increase in
the average long-term debt outstanding.
I-23
<PAGE>
Income Taxes
Income taxes decreased $3.5 million due primarily to lower earnings before
taxes. The Company's effective tax rate was not materially different from the
prior year.
Liquidity and Capital Resources
The Company held cash and cash equivalents of $10.0 million. Net cash provided
by operations was $38.8 million compared to $55.9 million in the prior year.
The decline in cash from operations reflects the significant decline in the
performance of the Company's Primm Properties. The Company has not received any
cash from its NEW YORK-NEW YORK investment other than that necessary to pay the
applicable federal income taxes on its share of earnings.
The Company funds its daily operations through cash flow from operations. The
Company borrows funds for significant capital expenditures and investments,
such as a portion of its New York-New York equity investment, which cannot be
fully funded out of operating cash flows.
The Company has a $300 million Credit Agreement, (" New Agreement", see Note 9
of the Consolidated Financial Statements). At December 31, 1997, the amount
outstanding under the Agreement was $220,600,000 at an average all-in rate of
7.0%.
The Company is a 50% joint venture partner with MGM Grand, Inc. ("MGM") in the
New York-New York Hotel & Casino, LLC. The joint venture secured a $285 million
Construction/Revolving loan from Bank of America as agent for a sixteen bank
consortium. At December 31, 1997, $245 million was outstanding. Additionally,
term loan financing was obtained in January 1997, with a balance at December
31, 1997 of approximately $18 million. The Company contributed additional
equity of $7.0 million to the joint venture in 1997. The Company and MGM
executed Keep-Well Agreements in conjunction with the bank loan. The Keep- Well
provisions require the maintaining of certain financial ratios, and stipulates
that equity contributions be made by the partners if these ratios are not met.
To date, the operating performance has far exceeded the required ratios.
The Board of Directors has approved a stock repurchase program authorizing the
Company to acquire up to $50 million worth of its outstanding shares. The
Company had acquired 2,014,500 shares for $35.7 million at December 31, 1997.
In September 1995, the Company announced that Sheldon Gordon and Randy Brant,
developers of the Forum Shops at Caesars Palace, along with the TrizecHahn
Centers, intended to develop, in two phases, up to a one million square foot
themed shopping facility on 100 acres of land that is owned by the Primm 650
Limited Partnership and is adjacent to the Primm Valley. The first phase of
approximately 525,000 square feet is scheduled to open in July 1998. The
facility being built and financed by the developers. The Company expects to
benefit from the increased visitors caused by the mall and, particularly, the
draw from the Las Vegas market. In addition, the Company will be able to place
slot machines in the facility's transition area from the casino. For its part,
the Company expects to incur approximately $1.5 million for infrastructure
costs to accommodate this planned development, of which $.6 million had been
expensed through December 31, 1997. The Company has no other financial interest
in the mall project.
I-24
<PAGE>
Capital requirements for 1998 include $2.0 million for the second phase of the
Primm Valley Golf Club, $32.0 million for the Primm Valley expansion and
infrastructure, $2.0 million for an upgraded and expanded monorail system, and
$8.0 million for maintenance of existing facilities.
The Company expects some difficult year-ago comparisons for New York-New York,
due to its extremely successful opening in 1997. Additionally, performance at
Primm will continue to be impacted during the first six months of 1998, by
ongoing construction projects.
The Company believes that its current cash flow, coupled with its bank
facility, provides both the resources and flexibility to meet existing
obligations and to fund its commitments on the projects discussed above. The
Company continues to pursue other gaming opportunities and, if successful in
securing another location, depending upon the amount of funding required, the
Company may need to obtain additional bank or vendor financing, or issue public
or private debt or equity, or a combination thereof.
Some computer software and hardware systems may experience problems handling
dates beyond the year 1999. The Company is assessing the capabilities of its
internal systems to handle the year 2000 and beyond, and has received written
confirmation from its major hardware and software system vendors that their
products are compliant with year 2000 matters. The Company does not expect that
the cost of implementing year 2000 solutions will have a material effect on the
Company's results of operations or financial condition.
Certain statements contained in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by
the use of forward-looking terminology such as "may", "believe", "intend",
"expect", "scheduled", "estimate", or the negative thereof, or other variations
thereon, or comparable terminology. These statements are subject to a number of
risks and uncertainties, including but not limited to, those set forth under
"Business Risks".
I-25
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page no.
--------
<S> <C>
Primadonna Resorts, Inc. and Subsidiaries:
Report of Independent Public Accountants............................. 27
Consolidated Balance Sheets as of December 31, 1997 and 1996......... 28-29
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995................................................. 30
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995................................... 31
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995............................................. 32-33
Notes to Consolidated Financial Statements........................... 34-46
New York-New York Hotel & Casino, LLC:
Report of Independent Public Accountants............................. 47
Balance Sheets as of December 31, 1997 and 1996...................... 48-49
Statements of Income for the years ended December 31, 1997, 1996 and
1995................................................................ 50
Statements of Changes in Member's Equity for the years ended December
31, 1997, 1996, and 1995............................................ 51
Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995............................................................ 52-53
Notes to Financial Statements........................................ 54-61
</TABLE>
I-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Primadonna Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Primadonna
Resorts, Inc. (a Nevada corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Primadonna Resorts,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Las Vegas, Nevada
January 30, 1998
I-27
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 9,973 $ 10,027
Accounts and notes receivable........................... 988 1,170
Income tax refund receivable............................ 1,664 221
Inventories............................................. 1,687 1,403
Prepaid expenses and other.............................. 6,647 5,790
--------- ---------
Total current assets.................................. 20,959 18,611
--------- ---------
PROPERTY AND EQUIPMENT:
Buildings and improvements.............................. 212,396 187,756
Land improvements....................................... 95,364 90,950
Furniture, fixtures and equipment....................... 144,371 130,169
--------- ---------
452,131 408,875
Less: accumulated depreciation and amortization......... (144,653) (116,183)
--------- ---------
307,478 292,692
Land.................................................... 5,654 4,274
Construction in progress................................ 19,495 3,949
--------- ---------
332,627 300,915
INVESTMENT IN JOINT VENTURE............................... 104,436 68,593
--------- ---------
NOTES RECEIVABLE, net..................................... 2,718 2,926
--------- ---------
OTHER ASSETS.............................................. 9,955 8,926
--------- ---------
$ 470,695 $ 399,971
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-28
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-trade................................... $ 10,265 $ 5,599
Accrued expenses......................................... 10,432 10,684
Current portion of long-term debt........................ 1,639 1,100
-------- --------
Total current liabilities.................................. 22,336 17,383
-------- --------
LONG-TERM DEBT, net of current portion..................... 220,765 168,200
-------- --------
DEFERRED INCOME TAXES PAYABLE.............................. 15,961 13,370
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding
Common stock, $.01 par value; 100,000,000 shares
authorized; 28,858,000 and 30,002,975 shares issued and
outstanding in 1997 and 1996, respectively.............. 309 308
Additional paid-in capital............................... 128,817 128,236
Retained earnings........................................ 118,169 85,767
Less: treasury stock, at cost............................ (35,662) (13,293)
-------- --------
211,633 201,018
-------- --------
$470,695 $399,971
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-29
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Casino........................................ $163,886 $170,395 $170,277
Food and beverage............................. 30,068 29,709 28,095
Hotel......................................... 21,913 23,584 19,756
Entertainment................................. 12,809 11,750 13,207
Service station............................... 17,035 14,984 12,966
Other......................................... 6,707 6,433 6,789
Operating income (loss) from New York-New
York......................................... 53,895 (7,842) --
-------- -------- --------
306,313 249,013 251,090
Less: promotional allowances.................. (18,492) (14,078) (11,293)
-------- -------- --------
Net revenues.................................. 287,821 234,935 239,797
-------- -------- --------
COSTS AND EXPENSES:
Casino........................................ 55,669 51,661 49,799
Food and beverage............................. 26,854 27,214 26,017
Hotel......................................... 10,268 11,369 10,968
Entertainment................................. 7,060 5,492 5,636
Service station............................... 15,529 13,846 11,958
Other......................................... 2,640 2,922 3,046
Selling, general and administrative........... 47,052 44,611 42,330
Property costs................................ 18,877 18,306 18,986
Depreciation and amortization................. 29,271 27,358 27,065
Pre-opening costs............................. -- 1,144 --
-------- -------- --------
213,220 203,923 195,805
-------- -------- --------
Income from operations........................ 74,601 31,012 43,992
OTHER INCOME (EXPENSE)
Interest expense, net......................... (13,205) (4,923) (7,875)
Interest expense, from New York-New York...... (9,891) -- --
-------- -------- --------
Income before income taxes.................... 51,505 26,089 36,117
INCOME TAX PROVISION............................ 18,139 9,321 12,810
-------- -------- --------
Income before extraordinary item.............. 33,366 16,768 23,307
EXTRAORDINARY ITEM-loss on early retirement of
debt, net of income tax benefit................ 964 -- --
-------- -------- --------
NET INCOME:..................................... $ 32,402 $ 16,768 $ 23,307
======== ======== ========
Earnings per share
Basic earnings before extraordinary item...... $ 1.14 $ 0.55 $ 0.76
Basic earnings from net income................ $ 1.11 $ 0.55 $ 0.76
Diluted earnings before extraordinary item.... $ 1.13 $ 0.55 $ 0.76
Diluted earnings from net income.............. $ 1.10 $ 0.55 $ 0.76
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-30
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Additional
Common Stock Treasury Paid-in Retained
Shares Amount Stock Capital Earnings Total
---------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1994................... 30,673,875 $307 $ -- $125,358 $ 45,692 $171,357
Net income.............. -- -- -- -- 23,307 23,307
Exercise of stock
options................ 121,500 1 -- 1,821 -- 1,822
Purchase of treasury
stock.................. (30,000) -- (440) -- -- (440)
---------- ---- -------- -------- -------- --------
Balances, December 31,
1995................... 30,765,375 308 (440) 127,179 68,999 196,046
Net income.............. -- -- -- -- 16,768 16,768
Exercise of stock
options................ 42,600 -- -- 1,057 -- 1,057
Purchase of treasury
stock.................. (805,000) -- (12,853) -- -- (440)
---------- ---- -------- -------- -------- --------
Balances, December 31,
1996................... 30,002,975 308 (13,293) 128,236 85,767 201,018
Net income.............. -- -- -- -- 32,402 32,402
Exercise of stock
options................ 34,525 1 -- 581 -- 582
Purchase of treasury
stock.................. (1,179,500) -- (22,369) -- -- (22,369)
---------- ---- -------- -------- -------- --------
Balances, December 31,
1997................... 28,858,000 $309 $(35,662) $128,817 $118,169 $211,633
========== ==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-31
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 32,402 $ 16,768 $ 23,307
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 29,271 27,358 27,065
Amortization of debt issuance costs........ 245 425 536
Equity (income) loss in New York-New York
in excess of distributions................ (28,843) 7,842 --
Allowance for doubtful accounts............ -- 1,852 --
Pre-opening costs.......................... -- 1,144 --
Increase in life insurance cash surrender
value..................................... (270) (75) (299)
Gain on sale of assets..................... (88) (314) (334)
Deferred income taxes...................... 2,374 (1,771) 6,147
Extraordinary loss......................... 1,483 -- --
Change in current assets and liabilities
due to operating activities:
(Increase) decrease in accounts and notes
receivable.............................. 182 1,581 (764)
(Increase) decrease in income tax refund
receivable.............................. (1,443) 773 1,862
(Increase) in inventories................ (284) (199) (196)
(Increase) decrease in prepaid expenses
and other............................... (640) 472 (883)
Increase (decrease) in accounts payable-
trade................................... 4,666 (1,519) 2,352
Increase (decrease) in accrued expenses.. (252) 1,595 2,931
--------- -------- ---------
Total adjustments.......................... 6,401 39,164 38,417
--------- -------- ---------
Net cash provided by operating activities...... 38,803 55,932 61,724
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......... (60,609) (35,158) (36,970)
Decrease in construction payables............ -- (4,621)
Investment in joint venture.................. (7,000) (26,874) (45,687)
Increase in other assets..................... (1,545) (4,670) (3,438)
Proceeds from disposal of other assets....... 321 789 2,940
Pre-opening costs............................ -- (1,144) --
--------- -------- ---------
Net cash used in investing activities.......... (68,833) (67,057) (87,776)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of stock
options..................................... $ 582 $ 1,057 $ 1,822
Purchase of treasury stock................... (22,369) (12,853) (440)
Proceeds from issuance of long-term debt..... 378,200 70,400 209,400
Debt issuance costs.......................... (931) -- (1,504)
Principal payments of long-term debt......... (325,506) (46,600) (180,000)
--------- -------- ---------
Net cash provided by financing activities...... 29,976 12,004 29,278
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (54) 879 3,226
Cash and cash equivalents, beginning of year... 10,027 9,148 5,922
--------- -------- ---------
Cash and cash equivalents, end of year......... $ 9,973 $ 10,027 $ 9,148
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-32
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION
Primadonna Resorts, Inc., a Nevada corporation, and subsidiaries("Company"),
owns and operates three hotel-resort/casinos, Buffalo Bill's Resort & Casino,
Primm Valley Resort & Casino, and Whiskey Pete's Hotel & Casino, all located at
the California/Nevada border in Primm, Nevada. The Company also owns and
operates the Primm Valley Golf Club, located approximately four miles south of
Primm, in California. In addition, the Company owns a 50% interest in the joint
venture which owns and operates the New York-New York Hotel & Casino, located
on the "Strip" in Las Vegas, Nevada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Primadonna Resorts, Inc. and its wholly owned subsidiaries. Investments in
unconsolidated affiliates which are 50% or less owned are accounted for under
the equity method. All material intercompany accounts and transactions have
been eliminated.
b. Cash and Cash Equivalents
Cash equivalents are stated at market value and consist of highly liquid
investments with a maturity of less than three months. There were no
significant or unrealized gains or losses from cash equivalent investments
during the years ended December 31, 1997, 1996, and 1995. The Company's cash
management policies, at times, causes deficit ledger balances in the general
disbursement accounts, which amounted to $3,591,000 and $2,089,000 at December
31, 1997 and 1996, respectively.
c. Inventories
Inventories, which consist primarily of food, beverage, and gift shop items,
are valued at the lower of cost or market as determined on the first-in, first-
out method.
d. 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:
<TABLE>
<S> <C>
Buildings and improvements 10 to 40 years
Land improvements 5 to 15 years
Furniture, fixtures and equipment 3 to 12 years
</TABLE>
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are capitalized.
I-33
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
e. Casino Revenues and Promotional Allowances
Casino revenues represent the net win from gaming wins and losses. The retail
value of food, beverage, and hotel rooms 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:
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1997 1996 1995
-------- ------ ------
(In thousands)
<S> <C> <C> <C>
Food and beverage........................................ $ 8,397 $6,534 $6,536
Hotel.................................................... 4,116 2,403 1,265
Other.................................................... 2,073 1,022 1,273
-------- ------ ------
$ 14,586 $9,959 $9,074
======== ====== ======
</TABLE>
f. Development Costs
The Company defers costs associated with projects in jurisdictions in which
gaming has been approved and the Company has identified a site; otherwise these
costs are expensed as incurred.
g. Pre-Opening Costs
During construction of a new facility, the Company defers certain operating
costs, including incremental salaries and wages, as pre-opening costs. Upon
substantial completion of the facilities or commencement of operations, the
Company expenses all such pre-opening costs.
h. Capitalized Interest
The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. Interest capitalized was
$1,124,000, $6,100,000, and $4,665,000 for the years ended December 31, 1997,
1996, and 1995, respectively.
i. 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, liabilities, revenues, and expenses
for the reported periods. Actual results may differ from those estimates.
j. Reclassifications
The consolidated financial statements for prior periods reflect certain
reclassifications to conform with classifications adopted in 1997.
k. Segment Reporting
The Company will adopt Statement of Financial Accounting Standards ("SFAS") No.
131-"Disclosure about Segments of an Enterprise and Related Information", in
1998.
I-34
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. STATEMENT OF CASH FLOWS
The following supplemental disclosures are provided as part of the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
Years Ended December
31,
---------------------
1997 1996 1995
------- ------ ------
(In thousands)
<S> <C> <C> <C>
Cash payments made for interest (net of amounts
capitalized)....................................... $12,051 $5,274 $6,899
======= ====== ======
Cash payments made for income taxes................. $16,700 $9,900 $4,800
======= ====== ======
Assets acquired through capitalized leases.......... $ 383 -- --
======= ====== ======
</TABLE>
4. EARNINGS PER SHARE
Earnings per share consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
---------------- --------------- ---------------
Income Shares Income Shares Income Shares
------- ------- ------- ------- ------- -------
(In thousands, except share price)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income from continuing
operations................. $33,366 29,278 $16,768 30,406 $23,307 30,741
Extraordinary item.......... (964) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income available to
common shareholders........ $32,402 29,278 $16,768 30,406 $23,307 30,741
------- ------- ------- ------- ------- -------
Per share amounts:
Income from continuing
operations................. $ 1.14 $ 0.55 $ 0.76
Extraordinary item.......... $ (0.03) -- --
Net income available to
common shareholders........ $ 1.11 $ 0.55 $ 0.76
Diluted EPS:
Income before extraordinary
item....................... $33,366 29,278 $16,768 30,406 $23,307 30,741
Effect of dilutive stock
options.................... -- 127 -- 129 -- 60
------- ------- ------- ------- ------- -------
Income from continuing
operations................. $33,366 29,405 $16,768 30,535 $23,307 30,801
Extraordinary item.......... (964) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income available to
common shareholders........ $32,402 29,405 $16,768 30,535 $23,307 30,801
------- ------- ------- ------- ------- -------
Per share amounts:
Income from continuing
operations................. $ 1.13 $ 0.55 $ 0.76
Extraordinary item.......... $ (0.03) -- --
Net income available to
common shareholders........ $ 1.10 $ 0.55 $ 0.76
</TABLE>
Options to purchase 333,000, 393,000, and 23,000 shares of common stock at
December 31, 1997, 1996, and 1995, respectively, at prices of $21.75-$31.25,
$19.50-$31.25, and $23.25-$31.25, respectively, were outstanding during the
period but not included in the computation of diluted earnings per share
because their exercise price was in excess of the average market price of the
common shares for the periods presented.
I-35
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. INVESTMENT IN JOINT VENTURE
On December 28, 1994 the Company and MGM Grand, Inc. ("MGM"), formed a joint
venture to own and operate the New York-New York Hotel & Casino, LLC. The
hotel/casino, which cost $460 million, was completed in December 1996 and
opened January 3, 1997. The Company holds a 50% interest in the joint venture.
The Company has contributed $69.5 million in cash and certain rights to the New
York theme from a third party licensor to the joint venture. MGM has
contributed $29.5 million in cash and land upon which the property is located,
valued at $41.2 million, to the joint venture. The joint venture secured
limited recourse bank financing of $285 million, and term loan financing of $20
million, which funded the construction of, and equipment for, the hotel/casino.
The joint venture partners have executed Keep-Well Agreements in conjunction
with the financing which requires the maintenance of certain financial ratios
and stipulates that equity contributions be made by the partners if the
financial ratios are not met.
Summary condensed financial information for the joint venture is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Net revenues..................................... $ 255,253 $ 345
Operating income (loss).......................... 107,431 (15,830)
Interest income (expense), net................... (19,425) 147
Net income (loss)................................ 88,006 (15,683)
Total assets..................................... $ 470,252 $ 457,091
Long-term debt................................... 246,403 285,829
Member equity.................................... 183,350 111,664
</TABLE>
Pre-opening costs of $15,762,000 were expensed in the year ended December 31,
1996, and are included in the operating loss reflected above.
6. NOTES RECEIVABLE
The Company entered into an agreement to loan Southwest Casino and Hotel
Corp. ("Southwest"), a developer and manager of Native American gaming
enterprises, $1,600,000. This Convertible Term Promissory Note bears interest
at 8%. Interest is payable quarterly beginning January 15, 1997, and the
principal is due on or before July 15, 2000. This note may be converted, in
whole, into 16,000 shares of Series B Convertible Preferred Stock. Southwest
has not made payments on the note, and collectability is in doubt. The Company
has recorded a reserve of $1,600,000 on the note and further reserved $252,000
of interest due.
Additionally, the Company entered into a Demand Promissory Note with Southwest
in July 1995 to loan an aggregate of $2,248,000 to Southwest for construction
of the Kickapoo gaming facility in Eagle Pass, Texas. The note bears interest
at 12% for the first six months, 15% the next six months, and 18% thereafter.
Principal and interest are payable on demand, or, if no demand, $24,800 monthly
beginning December 1996, $34,800 monthly beginning December 1997, $70,000
monthly
I-36
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
beginning December 1998, with the remaining principal and interest due December
31, 1999. The note also requires the borrower to use its best efforts to obtain
take-out financing in an amount equal to at least 75% of the principal amount
of the note. Amounts advanced at December 31, 1997 and 1996 was $2,248,000. At
December 31, 1997 and 1996, $151,000 of accrued interest is outstanding, and
classified as long-term. Southwest has begun making payments of $25,000 per
month since October 1997. Prior to this period, Southwest had not made payments
on this note since the December 1996 payment. This note is secured by the
management contract on the Kickapoo gaming facility. No reserve has been
recorded on this note.
<TABLE>
<CAPTION>
December 31,
---------------
1997 1996
------- ------
(In thousands)
<S> <C> <C>
Convertible Term Promissory Note, 8%, due July 15, 2000,
and related interest.................................... $ 1,852 $1,852
Demand Promissory Note, 12-18%, due December 1, 1999, and
related interest........................................ 2,350 2,399
Amount due on life insurance policies (Note 7)........... 368 527
Allowance for doubtful accounts.......................... (1,852) (1,852)
------- ------
2,718 2,926
Less: current portion.................................... -- --
------- ------
$ 2,718 $2,926
======= ======
</TABLE>
7. LIFE INSURANCE
Included in Other Assets is the cash surrender value of various life insurance
policies held on behalf of the Company's principal shareholder and Chairman of
the Board. The aggregate face value of all policies was $94 million at December
31, 1997 and 1996. The Company is the primary beneficiary on $24 million of
face value on the policies. The Company's principal shareholder and Chairman of
the Board has agreed to reimburse the Company, with respect to certain policies
with a face value of $70 million, for the difference between premiums paid by
the Company and such policies' cash surrender value.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1996
------- -------
(In thousands)
<S> <C> <C>
Compensation and related benefits........................... $ 4,300 $ 4,422
Unredeemed chips and token liability........................ 1,078 1,178
Accrued gaming taxes........................................ 704 716
Progressive jackpot liabilities............................. 582 652
Accrued sales and use taxes................................. 846 1,235
Accrued interest............................................ 1,955 1,040
Other....................................................... 967 1,441
------- -------
$10,432 $10,684
======= =======
</TABLE>
I-37
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. LONG-TERM DEBT
On June 5, 1997 the Company entered into a Credit Agreement (" New Agreement")
with a sixteen bank consortium led by Wells Fargo Bank as agent, for a
$250,000,000 revolving loan. The loan was increased to $300,000,000 on December
19, 1997 and allows, upon certain conditions, the Company to increase the
maximum permitted balance to $350,000,000. This loan replaced the existing
Reducing Revolving Bank Credit Agreement. As of December 31, 1997, the Company
had an outstanding balance of $220,600,000 on the New Agreement.
The New Agreement provides for interest payments at least quarterly, at the
prime rate or LIBOR, plus a sliding margin, based upon the Company's debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA")
ratio. The margin for the prime rate ranges between 0% and 1.125%, while the
margin for LIBOR ranges between 0.5% and 2.375%. The weighted average interest
rate at December 31, 1997, was 7.0%. The Company incurs commitment fees of .20%
to .50% for the unused portion of the New Agreement, also dependent upon the
debt to EBITDA ratio. The obligation is secured by a deed of trust on all real
property, leasehold interests in real property, and personal property of the
Company, excluding the Primm Valley Golf Club. The New Agreement contains
certain restrictive covenants relating to the use of proceeds, sale or transfer
of assets, the incurrence of additional debt over a specified level, capital
expenditures, and maintenance of certain minimum financial ratios.
The Reducing Revolving Bank Credit Agreement ("Existing Agreement") entered
into on December 28, 1993, as amended, was terminated on June 5, 1997. The
Existing Agreement provided for a maximum principal balance of $250,000,000,
with scheduled reductions in the maximum permitted beginning August 18, 1997,
and continuing thereafter through maturity on July 18, 2000. The Existing
Agreement provided for EBITDA ratios, interest payments, security interests,
and covenants that were substantially similar to the New Agreement which
replaced the Existing Agreement.
The Company recorded an extraordinary charge of $964,000, net of a $519,000 tax
benefit, for the previously unamortized loan fees related to the Existing
Agreement.
The Company incurred a liability in connection with the acquisition of the New
York-New York theme rights of $1,100,000, due January 6, 1997, and $400,000 due
January 7, 1998. At December 31, 1997 and 1996, $1,500,000 and $1,100,000,
respectively, due for the theme rights is reflected as a current obligation. In
accordance with the terms of the theme rights agreement, the payment of the
$1,500,000 is being withheld pending the determination of indemnity
obligations.
I-38
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Credit Agreement, $300,000,000, June 5, 1997, 5 year term,
LIBOR plus applicable margin............................. $220,600 $ --
Reducing Revolving Bank Credit Agreement, amended March
27, 1997, terminated June 5, 1997, LIBOR plus applicable
margin................................................... -- 167,800
New York-New York theme rights due January 6, 1997 and
January 7, 1998.......................................... 1,500 1,500
Other..................................................... 304 --
-------- --------
222,404 169,300
Less: Current portion..................................... 1,639 1,100
-------- --------
Total long-term debt...................................... $220,765 $168,200
======== ========
</TABLE>
10. INCOME TAXES
The Company files a consolidated federal income tax return. The provision
(benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December
31,
------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current............................................. $15,765 $11,092 $ 6,663
Deferred............................................ 2,374 (1,771) 6,147
------- ------- -------
$18,139 $ 9,321 $12,810
======= ======= =======
</TABLE>
I-39
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effect of significant temporary differences representing deferred tax
assets and liabilities for the Company is as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets (liabilities):
Current:
Progressive jackpots............................... $ 69 $ 55
Accrued vacation, workers' compensation, and group
health............................................ 368 389
Inventories........................................ 38 30
Outstanding chip and token liability............... 265 182
Other.............................................. 74 (59)
-------- --------
814 597
-------- --------
Long-term:
Depreciation....................................... (17,334) (16,634)
Pre-opening costs.................................. 314 394
Bad debt allowances................................ 648 648
Joint venture timing differences................... 408 2,185
Other.............................................. 3 37
-------- --------
(15,961) (13,370)
-------- --------
$(15,147) $(12,773)
======== ========
</TABLE>
The Company did not record a valuation allowance at December 31, 1997 or 1996,
relating to recorded tax benefits, because all benefits are likely to be
realized. The net current deferred tax asset is included in Prepaid expenses
and other in the accompanying consolidated balance sheets.
The provision for income taxes differs from the amount computed at the federal
statutory rate as a result of the following:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal Statutory rate.................................... 35% 35% 35%
Permanent differences..................................... -- 1 --
--- --- ---
Effective tax rate........................................ 35% 36% 35%
=== === ===
</TABLE>
11. LEASES
The Company entered into a lease agreement on July 1, 1993 which covers the
property upon which Whiskey Pete's, Primm Valley, and Buffalo Bill's are
located. The land is owned by Primm South Real Estate Company ("Primm South").
Certain shareholders and one Director of the Company are shareholders of Primm
South. The lease has an initial term of 50 years, with an option to extend for
one additional 25 year period. Monthly lease payments were $417,000 through
June 1995, $429,000 through June 1996, $441,000 through June 1997, and are
currently $451,000 through June 1998.
I-40
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Lease payments are subject to annual increases based upon the Consumer Price
Index, not to exceed 8% per year. The lease provides for the base rent to be
adjusted every 8 years, based upon appraisal. The Company is required to pay
all taxes, insurance, utilities, and maintenance expenses related to the
property.
The lease further provides the Company with the exclusive right to conduct
gaming activities on the landlord's property in Primm, Nevada, for 10 years,
for a $100,000 annual fee. This right can be extended, at the Company's option,
for consecutive 10 year periods so long as the Company is in compliance with
the lease agreement. At each renewal period, the fee will be increased by the
Consumer Price Index, subject to a maximum annual increase of 8%.
Future minimum lease payments, for all leases with noncancelable lease terms in
excess of one year, at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
-------------------------
(In thousands)
<S> <C>
1998............................................... $ 5,581
1999............................................... 5,614
2000............................................... 5,614
2001............................................... 5,614
2002............................................... 5,614
Thereafter......................................... $223,402
</TABLE>
Rent expense is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1997 1996 1995
------- ------- -------
(In Thousands)
<S> <C> <C>
$ 5,564 $ 5,609 $ 5,764
======= ======= =======
</TABLE>
12. RELATED-PARTY TRANSACTIONS
The Company leases certain property from Primm South as discussed in Note 11.
Included in property costs and expenses for the years ended December 31, 1997,
1996 and 1995, is a lease expense of $5,353,000, $5,320,000, and $5,175,000,
respectively.
The Company has an agreement with the Chairman of the Company that provides for
each party to share undivided interests of 75% and 25%, respectively, in a jet
aircraft. Operational expenses are borne by the participants based upon actual
flight hours utilized by each party.
In September 1996, the Company entered into a new two-year agreement with a
director of the Company for certain consulting services. Contract terms provide
for monthly payments of $12,500 and include an option to renew the agreement
for one additional year. The agreement provides for a waiver of any fees to
which the director would otherwise be entitled to in his capacity as a director
of the Company. This agreement replaces a substantially similar agreement
executed in September 1993 for a one year term with two one year renewal
options. Fees of $150,000 were incurred for the years ended December 31, 1997,
1996, and 1995. The director is also a partner in a law firm which provides
legal services to the Company. The total amount for such services were
$383,000, $264,000, and $250,000 for the years ended December 31, 1997, 1996,
and 1995, respectively.
I-41
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. CAPITAL STOCK, STOCK OPTIONS AND INCENTIVES
a. Authorized Shares
The authorized capital stock of the Company consists of 10,000,000 shares of
preferred stock, $.01 par value, and 100,000,000 shares of common stock, $.01
par value. The preferred stock may be issued in one or more series having such
respective terms, rights, and preferences as are designated by the Board of
Directors. No preferred stock has been issued.
b. Treasury Stock
The Board of Directors has authorized the Company to acquire up to $50 million
of the Company's outstanding common shares. As of December 31, 1997, the
Company had acquired 2,014,500 shares for $35.7 million.
c. Stock Incentive Plan
The Company's Board of Directors adopted various Stock Incentive Plans
("Plans"), as amended, for directors, officers, employees, employee-directors,
consultants, or advisors. A maximum of 300,000 shares of common stock have been
reserved for non-employee directors, and 3,000,000 shares have been reserved
for issuance to all others under the Plans. All awards will terminate 10 years
after grant, no awards may be granted after June 2003. In November 1995, the
Company's compensation committee amended all outstanding stock options issued
to non-employee directors to reduce the exercise price per share to $15 (the
market price on the date of amendment). Excluded from the amendment were those
stock options which had been issued in connection with the Company's initial
public offering.
Option activity under the Stock Incentive Plan was as follows:
<TABLE>
<CAPTION>
Number of Option
Shares Years Ended
December 31,
----------------------
1997 1996 1995
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance, beginning of year........................... 1,338 1,249 1,155
Granted............................................ 979 563 1,000
Exercised.......................................... (35) (43) (121)
Canceled........................................... (198) (431) (785)
------ ------ ------
Balance, end of year................................. 2,084 1,338 1,249
------ ------ ------
Options exercisable at end of year................... 547 319 247
====== ====== ======
Weighted Average Exercise Price
Granted............................................ $18.43 $19.65 $15.09
Exercised.......................................... 15.00 15.00 15.00
Canceled........................................... 18.29 15.94 21.99
Balance, end of year............................... 17.48 16.83 15.19
Options exercisable at end of year................. $16.96 $15.49 $15.31
====== ====== ======
</TABLE>
I-42
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The options vest ratably over 2 to 5 years. The exercise price is the market
value on the date granted. The Company applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for the plan.
Accordingly, no compensation expense has been recognized for the stock options.
In accordance with SFAS No. 123, the Company has calculated, on a pro forma
basis, the estimated compensation expense related to its stock option programs
utilizing the assumptions in the table below. The effect on net income and
earnings per share would be as follows:
<TABLE>
<CAPTION>
Years Ended December
31,
-----------------------
1997 1996 1995
------- ------- -------
(In Thousands, except
share data)
<S> <C> <C> <C>
Net income as reported.............................. $32,402 $16,768 $23,307
Pro forma........................................... $31,370 $16,164 $22,946
======= ======= =======
Basic earnings per share as reported................ $ 1.11 $ .55 $ .76
Pro forma........................................... $ 1.07 $ .53 $ .74
======= ======= =======
Diluted earnings per share as reported.............. $ 1.10 $ .55 $ .76
Pro forma........................................... $ 1.07 $ .53 $ .74
======= ======= =======
</TABLE>
Weighted average assumptions, using the Black-Scholes option pricing model:
<TABLE>
<S> <C> <C> <C>
Expected stock price volatility............................ 19% 19% 18%
Risk-free interest rate.................................... 5.60% 5.83% 6.32%
Option life, in years...................................... 3.36 4.39 4.45
Expected forfeitures....................................... 45% 45% 45%
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
a. Southwest joint venture
On January 16, 1996, the Company and Southwest entered into an agreement to
fund the development of a casino for the Kickapoo Traditional Tribe of Texas in
Eagle Pass, Texas (see Note 6). Southwest was required to post an $800,000
letter of credit in favor of the Kickapoo Tribe. The Company issued an $800,000
reducing letter of credit on behalf of Southwest. On August 10, 1997 the letter
of credit was canceled. At December 31, 1996, the balance under the letter of
credit was $601,000.
b. Litigation
Currently, there are lawsuits pending against the Company arising in the normal
course of business. In management's opinion, the ultimate outcome of these
matters will not have a material adverse effect on the results of operations or
the financial position of the Company.
15. SUPPLEMENTARY CONSOLIDATING FINANCIAL INFORMATION
Presented on the following pages is consolidating financial information of the
Company for the year ended December 31, 1997. The consolidating information is
presented for informational purposes only.
I-43
<PAGE>
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, 1997 and 1996, and the related
statements of income, changes in members' equity, and cash flows for each of
the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 28, 1998
I-44
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 7,296 $ 6,104
Restricted cash........................................... -- 10,868
Accounts receivable, net of allowance for doubtful
accounts of $872 and $0, respectively.................... 4,266 370
Inventories............................................... 460 350
Prepaid expenses and other................................ 5,999 4,097
-------- --------
Total current assets........................................ 18,021 21,789
-------- --------
PROPERTY AND EQUIPMENT:
Land...................................................... 63,223 49,563
Building, fixtures and equipment.......................... 405,418 380,989
-------- --------
468,641 430,552
Accumulated depreciation.................................. (21,768) --
-------- --------
Property and equipment, net................................. 446,873 430,552
OTHER ASSETS................................................ 5,358 4,750
-------- --------
TOTAL ASSETS................................................ $470,252 $457,091
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
I-45
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
BALANCE SHEETS
LIABILITIES AND MEMBERS' EQUITY
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable.......................... $ 11,273 $ --
Swing line loan........................................... 5,600 --
Current portion of capital lease.......................... 179 172
Accounts payable.......................................... 1,314 12,683
Accrued expenses.......................................... 21,815 19,522
Construction payable...................................... -- 12,625
Retention payable......................................... 318 14,596
-------- --------
Total current liabilities................................... 40,499 59,598
-------- --------
LONG-TERM DEBT:
Long-term capital lease................................... 718 829
Notes payable............................................. 245,685 285,000
-------- --------
TOTAL LIABILITIES........................................... 286,902 345,427
-------- --------
MEMBERS' EQUITY:
Members' contributions.................................... 141,400 127,400
Members' distributions.................................... (30,320) --
Retained earnings (deficit)............................... 72,270 (15,736)
-------- --------
Total members' equity....................................... 183,350 111,664
-------- --------
TOTAL LIABILITIES AND MEMBERS' EQUITY....................... $470,252 $457,091
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
I-46
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF INCOME
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
REVENUES:
Casino........................................... $143,953 $ -- $ --
Hotel............................................ 69,400 -- --
Beverage......................................... 13,983 -- --
Roller Coaster................................... 9,910 -- --
Retail and other................................. 28,058 345 149
-------- -------- ------
265,304 345 149
Less: promotional allowances..................... (10,051) -- --
-------- -------- ------
Net revenues..................................... 255,253 345 149
-------- -------- ------
COSTS AND EXPENSES:
Casino........................................... 51,710 -- --
Hotel............................................ 23,852 -- --
Beverage......................................... 4,719 -- --
Roller Coaster................................... 2,079 -- --
Retail and other................................. 6,072 413 481
Selling, general and administrative.............. 24,691 -- --
Property costs................................... 12,410 -- --
Depreciation and amortization.................... 22,289 -- --
Pre-opening expenses............................. -- 15,762 --
Abandonment loss................................. -- -- 642
-------- -------- ------
Total costs and expenses......................... 147,822 16,175 1,123
-------- -------- ------
OPERATING INCOME/(LOSS)............................ 107,431 (15,830) (974)
INTEREST INCOME (EXPENSE), NET..................... (19,425) 147 921
-------- -------- ------
NET INCOME/(LOSS).................................. $ 88,006 $(15,683) $ (53)
======== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
I-47
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
MGM PRMA
Grand, Inc. Las Vegas, Inc. Total
----------- --------------- --------
<S> <C> <C> <C>
Inception, December 23, 1994.............. $ $ $
Members' contributions.................... 41,200 41,200 82,400
Net loss.................................. (27) (26) (53)
-------- -------- --------
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
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
I-48
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996 1995
------- -------- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss).................................. $88,006 $(15,683) $ (53)
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 21,905 -- --
Amortization of debt issuance costs.............. 384 -- --
Allowance for doubtful accounts.................. (872) -- --
Pre-opening costs................................ -- 15,762 --
Change in current assets and liabilities due to
operating activities:
Increase in accounts receivable................ (3,024) (340) (30)
Increase in inventories........................ (110) (304) (46)
Increase in prepaid expenses and other......... (1,902) (4,097) --
Increase (decrease) in accounts payable........ (11,369) 12,496 187
Increase in other accrued expenses............. 2,293 18,257 1,265
------- -------- -----
Total adjustments.................................. 7,305 41,774 1,376
------- -------- -----
Net cash provided by operating activities............ 95,311 26,091 1,323
------- -------- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
I-49
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and land... (52,367) (262,211) (111,544)
(Decrease) increase in construction
payables................................... (12,625) (2,365) 14,990
Decrease (increase) in restricted cash...... 10,868 (10,868) --
Increase in other assets.................... (1,628) (1,070) --
Pre-opening costs........................... -- (14,976) (786)
-------- --------- ---------
Net cash used in investing activities......... (55,752) (291,490) (97,340)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deferred financing, fees, net... 499 -- (2,480)
Proceeds from issuance of long-term debt.... 25,600 225,999 59,001
Members' contributions...................... 14,000 45,000 40,000
Members' distributions...................... (30,320) -- --
Proceeds from members' advances............. -- -- 10,000
Repayment of members' advances.............. -- -- (10,000)
Principal payments of long-term debt........ (48,146) -- --
-------- --------- ---------
Net cash (used in)/provided by financing
activities................................... (38,367) 270,999 96,521
-------- --------- ---------
Net increase in cash and cash equivalents..... 1,192 5,600 504
Cash and cash equivalents, beginning of year.. 6,104 504 --
-------- --------- ---------
Cash and cash equivalents, end of year........ $ 7,296 $ 6,104 $ 504
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
I-50
<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
develops and operates the New York-New York Hotel & Casino (the "Hotel-Casino")
located on the "Las Vegas Strip". The Agreement will expire on December 23,
2024. In the prior year financial statements the Company was in the development
stage.
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 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 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 counted at cost, which approximates market value.
c. Casino Revenues and Promotional Allowances
Casino revenues represent the net win from 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.
I-51
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
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, 1997
----------------------------
<S> <C>
Beverage........................................ $4,367
Hotel........................................... 1,001
Other........................................... 197
------
$5,565
======
</TABLE>
d. 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.
e. 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:
<TABLE>
<S> <C>
Buildings and improvements.................................... 10 to 40 years
Furniture, fixtures and equipment............................. 3 to 12 years
</TABLE>
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of assets are capitalized.
f. Capitalized Interest
The Company capitalized interest costs associated with debt incurred during the
active construction and development as well as in connection with major
construction projects. Interest capitalized was $0, $13,951,000 and $759,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
g. 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. All pre-opening costs were expensed in the year ended December
31, 1996, as the property was ready for use as of December 25, 1996.
h. 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.
I-52
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
i. 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.
j. Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximates their
recorded value at December 31, 1997 and 1996.
k. Reclassifications
The financial statements for prior periods reflect certain reclassifications to
conform with classifications adopted in 1997.
3. Statements Of Cash Flows
The following supplemental disclosures are provided as part of the accompanying
financial statements of cash flows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash payments made for interest (net of amounts
capitalized)...................................... $17,616 $ -- $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease for equipment........................ $ -- $ 1,001 $ --
======= ======= =======
Retention payable included in construction in
progress.......................................... $ 318 $14,596 $ 3,747
======= ======= =======
Contributed land, at fair market value............. $ -- $ -- $41,200
======= ======= =======
Contributed intangible asset, at fair market
value............................................. $ -- $ -- $ 1,200
======= ======= =======
</TABLE>
4. Prepaid Expenses and Other
Prepaid expenses and other at December 31, 1997 and 1996 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Prepaid taxes and licenses..................................... $2,885 $ 630
Deposits....................................................... 148 2,207
Other Prepaids................................................. 2,966 1,260
------ ------
$5,999 $4,097
====== ======
</TABLE>
I-53
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Other Assets
Other assets at December 31, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Deferred financing fees..................................... $ 2,485 $2,994
Intangible assets........................................... 2,290 1,319
Organization costs.......................................... 614 461
Cost of chips and tokens.................................... 988 513
------- ------
Subtotal.................................................... 6,377 5,287
Less: amortization.......................................... (1,019) (537)
------- ------
Other assets, net........................................... $ 5,358 $4,750
======= ======
</TABLE>
Deferred financing fees related to the Company's long-term debt facility are
being amortized to interest expense on a straight-line basis over the period of
the loan. In accordance with the Company's capitalization of interest costs
during the development phase, the amortized portion of these fees was included
in capitalized interest.
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.
6. Accrued Expenses
Accrued expenses at December 31, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued interest............................................ $ 1,809 $ 2,158
Advance deposits............................................ 3,393 2,632
Accrued accounts payable.................................... 385 10,231
Accrued payroll and related................................. 6,791 1,550
Accrued gaming liability.................................... 3,290 --
Accrued taxes............................................... 1,866 --
Other accruals.............................................. 4,281 2,951
------- -------
$21,815 $19,522
======= =======
</TABLE>
I-54
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Long-Term Debt
Long-term debt at December 31, 1997 and 1996 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Amount due under Master Security Agreement for Equipment
financing. Interest rate based on Libor plus 1.88%.
Interest ranged from 7.35% to 7.75% during the year.
Repayable in 58 monthly installments of $254,000......... $ 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 6.28% to 6.71%
during 1997, maturing March 31, 2002..................... 239,500 285,000
Amount due under the Swing Line loan at floating interest
rates based on Libor plus between zero and 1.00%
depending on the Guarantor Funded Debt Ratio as defined.
Interest on the Swing Line loan ranged from 7.69% to
8.19% during 1997. This loan is payable on demand or in
any event will mature on March 31, 2002.................. 5,600 --
-------- --------
262,558 285,000
Less--current portion of long-term debt................... (16,873) --
-------- --------
Total long-term debt...................................... $245,685 $285,000
======== ========
</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 New York-New York on January 3, 1997.
Interest on the Bank Credit Facility is variable based on a formula defined in
the Bank Credit Facility agreement. An initial payment of $20,000,000 is due on
March 31, 1998 which is the Initial Reduction Date. Thereafter, quarterly
installments are 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 are due one year after operations commence based on 50% of
Available Cash Flow (as defined). The Company has the ability to apply the
payments made ahead of schedule in 1997 against this minimum payment.
Accordingly, $11,273,000 related to the Bank Credit Facility is shown in the
current portion of long-term debt which represents the additional balance due
in 1998. The Bank Credit facility is secured by substantially all of the assets
of the Company.
I-55
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company incurred commitment fees on a quarterly basis on the unused portion
of the Bank Credit Facility at 0.5%. Commitment fees incurred during the years
ended December 31, 1997, 1996 and 1995 were $51,000, $284,000 and $228,000,
respectively; these amounts are included in capitalized interest. Substantially
all property and equipment of the Hotel-Casino is pledged as collateral under
the Bank Credit Facility.
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, 1997. On March
17, 1997, the Company purchased a contiguous parcel of land for $13,500,000.
This purchase is not subject to the calculation of the maximum capital
expenditures allowable under the Bank Credit Facility.
As a condition 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.
The Bank Credit Facility 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, 1997, no amounts were outstanding with respect to the letter of
credit and the outstanding balance on the Swing Line loan was $5,600,000.
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 1) one and 88/100 percent (1.88%) per annum, plus 2) 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, 1997, 1996 and 1995 was approximately
$1,809,000, $2,158,000 and $175,000 respectively, and is included in accrued
expenses in the accompanying balance sheets.
Scheduled maturities of long-term debt are as follows as of December 31, 1997
(in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 16,873
1999................................................................ 46,173
2000................................................................ 48,048
2001................................................................ 51,798
2002................................................................ 99,666
Thereafter.......................................................... --
--------
$262,557
========
</TABLE>
I-56
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Capital Lease
In December, 1996, the Company entered into a five-year master equipment lease
agreement to purchase various powered supply carts with a 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, 1997 (in thousands):
<TABLE>
<S> <C>
1999................................................................... $240
2000................................................................... 240
2001................................................................... 241
2002................................................................... --
Thereafter............................................................. --
----
Minimum lease payments................................................. 961
Less: amounts representing interest.................................... (64)
----
Present value of minimum lease payments................................ $897
====
</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, 1997 (in thousands):
<TABLE>
<S> <C>
1998................................................................. $ 6,995
1999................................................................. 6,959
2000................................................................. 6,959
2001................................................................. 6,959
2002................................................................. 5,713
Thereafter........................................................... 46,877
-------
$80,462
</TABLE>
10. Abandonment Loss
The Company incurred costs related to the construction of flyover ramps to
divert traffic from the heavily traveled intersection in front of the Hotel-
Casino. Based upon the results of the traffic studies subsequently performed,
management changed their intentions and abandoned construction of these
flyovers; therefore $642,000 of abandonment loss, the cumulative costs incurred
to date, was charged to expense as of December 31, 1995.
11. Related Party Transactions
During the years ended December 31, 1997, 1996 and 1995, the Company engaged in
certain transactions with MGM and Primadonna. In 1995 MGM and Primadonna, each,
contributed $5,000,000, to the Company, which amounts were advanced to, and
subsequently repaid by the Company, during the year ended December 31, 1995.
I-57
<PAGE>
NEW YORK-NEW YORK HOTEL & CASINO, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
In addition, 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 1996 and $414,000 and $2,279,000 for
1995, for MGM and Primadonna, respectively. Included in these amounts are
interest paid of $4,000 to Primadonna for 1996, and $44,000 and $40,000 to MGM
and Primadonna, respectively for 1995.
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.
12. 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 the
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. 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
as defined, and established by the compensation committee. A total of $910,000
was charged to expense under the plan during 1997.
I-58
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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
The information required by Items 10, 11, 12, and 13 is incorporated by
reference from the 1997 Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal year covered by
this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Reference is made to the Index to Financial Statements and Related Information
under Item 8 in Part II hereof where these documents are listed.
(a)(2) Financial Statement Schedules:
None.
(a)(3) Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Primadonna Resorts,
Inc. (incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 No. 33-61212 filed by the Registrant).
3.2 Bylaws of Primadonna Resorts, Inc., dated April 12, 1993 (incorporated by
reference to Exhibit 3.2 to the Registration Statement on Form S-1 No.
33-61212 filed by the Registrant).
10.1 Primadonna Resorts, Inc. 1993 Eligible Directors' Stock Option Plan
(incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-8 No. 33-70842 filed by the Registrant).
10.2 Form of Eligible Director Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 4.2 to the Registration Statement
on Form S-8 No. 33-70842 filed by the Registrant).
10.3 Primadonna Resorts, Inc. 1993 Stock Incentive Plan (incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-8 No.
33-70844 filed by the Registrant).
10.4 Form of Employee Incentive Stock Option Award Agreement (incorporated by
reference to Exhibit 4.2 to the Registration Statement on Form S-8 No.
33-70844 filed by the Registrant).
10.5 Form of Employee Nonqualified Stock Option Award Agreement (incorporated
by reference to Exhibit 4.3 to the Registration Statement on Form S-8 No.
33-70844 filed by the Registrant).
</TABLE>
I-59
<PAGE>
<TABLE>
<C> <S>
10.6 Form of Consultant Nonqualified Stock Option Award Agreement
(incorporated by reference to Exhibit 4.4 to the Registration Statement
on Form S-8 No. 33-70844 filed by the Registrant).
10.7 Form of Special Employee Nonqualified Stock Option Award Agreement
(incorporated by reference to Exhibit 4.5 to the Registration Statement
on Form S-8 No. 33-70844 filed by the Registrant).
10.8 Form of Special Employee Incentive Stock Option Award Agreement (Early
Vesting Provisions) (incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-8 No. 33-70844 filed by the
Registrant).
10.9 Closing Agreement on Final Determination Covering Specific Matters dated
July 1, 1992 between the Primadonna Corporation d.b.a. Primadonna Resort
& Casino and the Internal Revenue Service (incorporated by reference to
Exhibit 10.12 to the Registration Statement on Form S-1 No. 33-61212
filed by the Registrant).
10.10 Agreement dated May 19, 1993 between RP Racing Enterprises, Inc. and The
Primadonna Corporation (incorporated by reference to Exhibit 10.13 to
the Registration Statement on Form S-1 No. 33-61212 filed by the
Registrant).
10.11 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 1 to the Form 10-Q for the quarter
ended September 30, 1993).
10.12 Aircraft Co-Ownership Agreement by and among Gary E. Primm, as Trustee
of the Gary E. Primm Family Trust, and Primadonna Resorts, Inc. dated as
of September 7, 1993 (incorporated by reference to Exhibit 10.12 to the
Form 10-K for the year ended December 31, 1993).
10.13 Reducing Revolving Credit Agreement by and among The Primadonna
Corporation, Primadonna Resorts, Inc. First Interstate Bank of Nevada,
N.A., Bank of America NT&SA, Bank of America Nevada, Midlantic National
Bank, First Security Bank of Utah, N.A., and Michigan National Bank
dated December 28, 1993 (incorporated by reference to Exhibit 10.13 to
the Form 10-K for the year ended December 31, 1993).
10.14 Employment Agreement by and among Gary E. Primm and The Primadonna
Corporation dated as of October 1, 1993 (incorporated by reference to
Exhibit 10.14 to the Form 10-K for the year ended December 31, 1993).
10.15 Consulting Agreement between Mr. Robert E. Armstrong and The Primadonna
Corporation dated November 23, 1993 (incorporated by reference to
Exhibit 10.15 to the Form 10-K for the year ended December 31, 1993).
10.16 Employment Agreement by and among William Paulos and Primadonna Resorts,
Inc. dated January 9, 1994 (sic) (incorporated by reference to Exhibit
10.16 to the Form 10-K for the year ended December 31, 1994).
10.17 Operating Agreement by and between MGM Grand, Inc. ("MGM") and PRMA Las
Vegas, Inc. ("PRMA-LV") dated as of December 26, 1994 (incorporated by
reference to Exhibit 10.17 to the Form 10-K for the year ended December
31, 1994).
10.18 Contribution Agreement with Joint Escrow Instructions by and among PRMA-
LV, MGM and New York-New York Hotel, LLC dated as of December 26, 1994
(incorporated by reference to Exhibit 10.18 to the Form 10-K for the
year ended December 31, 1994).
</TABLE>
<TABLE>
<C> <S>
10.19 Split-Dollar Agreement among Gary Primm, Primadonna Corporation and
Robert E. Armstrong, Trustee of the 1992 Primm Children's Trust U/A
dated December 22, 1992 (the ("Trustee") dated January 19, 1994 (Split-
Dollar Agreement I") (incorporated by reference to Exhibit 10.19 to the
Form 10-K for the year ended December 31, 1994).
</TABLE>
I-60
<PAGE>
<TABLE>
<C> <S>
10.20 Amendment to Split-Dollar Agreement I among Gary Primm, the Primadonna
Corporation and the Trustee dated June 16, 1994 (incorporated by
reference to Exhibit 10.20 to the Form 10-K for the year ended December
31, 1994).
10.21 Second Amendment to Split-Dollar Agreement I among Gary Primm, the
Primadonna Corporation and the Trustee dated December 15, 1994
(incorporated by reference to Exhibit 10.21 to the Form 10-K for the
year ended December 31, 1994).
10.22 Split-Dollar Agreement among Gary Primm, The Primadonna Corporation and
the Trustee dated January 19, 1994 ("Split-Dollar Agreement II")
(incorporated by reference to Exhibit 10.22 to the Form 10-K for the
year ended December 31, 1994).
10.23 First Amendment to Split-Dollar Agreement II among Gary Primm, the
Primadonna Corporation and the Trustee dated December 15, 1994
(incorporated by reference to Exhibit 10.23 to the Form 10-K for the
year ended December 31, 1994).
10.24 Split-Dollar Agreement among Gary Primm, The Primadonna Corporation and
the Trustee dated February 14, 1994 ("Split-Dollar Agreement III")
(incorporated by reference to Exhibit 10.24 to the Form 10-K for the
year ended December 31, 1994).
10.25 First Amendment to Split-Dollar Agreement III among Gary Primm, the
Primadonna Corporation and the Trustee dated December 15, 1994
(incorporated by reference to Exhibit 10.25 to the Form 10-K for the
year ended December 31, 1994).
10.26 Amended and Restated Reducing Revolving Credit Agreement dated July 17,
1995 by and among Primadonna Resorts, Inc., The Primadonna Corporation,
and PRMA Land Development Company, as "Borrowers", and First Interstate
Bank of Nevada, N.A. as "Agent Bank" for a consortium of seventeen
participating bank listed therein as "Lenders". (incorporated by
reference to Exhibit 10.26 to the Form 10-Q for the quarter ended June
30, 1995).
10.27 First Amendment to Amended and Restated Reducing Revolving Credit
Agreement, dated March 27, 1996 by and among Primadonna Resorts, Inc.,
The Primadonna Corporation, and PRMA Land Development Company as
"Borrowers", and First Interstate Bank, N.A. as "Agent Bank" for a
consortium of seventeen participating banks listed therein as "Lenders"
(incorporated by reference to Exhibit 10.27 to the Form 10-Q for the
quarter ended March 31, 1996).
10.28 Consulting Agreement between Robert E. Armstrong and The Primadonna
Corporation dated September 1, 1996 (incorporated by reference to Ex-
hibit 10.28 to the Form 10-Q for the quarter ended September 30, 1996).
</TABLE>
<TABLE>
<C> <S>
10.29 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 for the quarter ended June
30, 1997).
10.30 Amended and Restated 1993 Incentive Plan, formerly known as the 1993
Stock Incentive Plan, dated March 28, 1997 (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8, No. 33-70844
filed by the Registrant).
10.31 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.
10.32 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).
21 Subsidiaries
</TABLE>
I-61
<PAGE>
<TABLE>
<C> <S>
23 Consent of Independent Public Accountants
24 Power of Attorney (See page 53 hereof)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three-month period ended
December 31, 1997.
27 Financial Data Schedule
27.1 Financial Data Schedule Restated six month period ended June 30, 1997,
and nine month period ended September 30, 1997.
</TABLE>
I-62
<PAGE>
POWER OF ATTORNEY
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, on the 25th, day of March
1998.
Primadonna Resorts, Inc.
By /s/ Gary E. Primm
_____________________________________
Gary E. Primm
Chairman of the Board, Chief
Executive Officer and Director
Each person whose signature appears below hereby authorizes Gary E. Primm, as
attorney-in-fact to sign on his behalf, individually, and in each capacity
stated below, and to file all amendments and/or supplements to this Annual
Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary E. Primm Chairman of the Board, Chief March 25, 1998
____________________________________ Executive Officer and
Gary E. Primm Director
/s/ Michael P. Shaunnessy Vice President--Finance March 25, 1998
____________________________________ (Principal Financial and
Michael P. Shaunnessy Accounting Officer)
/s/ Robert E. Armstrong Director March 25, 1998
____________________________________
Robert E. Armstrong
/s/ Madison B. Graves II Director March 25, 1998
____________________________________
Madison B. Graves II
/s/ H. Martin Rosa Director March 25, 1998
____________________________________
H. Martin Rosa
/s/ Sigmund Rogich Director March 25, 1998
____________________________________
Sigmund Rogich
</TABLE>
I-63
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ George C. Swarts Director March 25, 1998
____________________________________
George C. Swarts
/s/ Gary R. Sitzmann Director March 25, 1998
____________________________________
Gary R. Sitzmann
</TABLE>
I-64
<PAGE>
APPENDIX J
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21732
----------------
PRIMADONNA RESORTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 88-0297563
(State or other jurisdiction of (IRS employer identification
incorporation or organization) number)
</TABLE>
P.O. Box 95997, Las Vegas, Nevada 89193-5997
(address of principal executive offices)
(702) 382-1212
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name, former address and former fiscal year, if change since last
report)
----------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at April 30, 1998
Common Stock, $.01 par value 28,919,100 Shares
Total No. of Pages 20 Exhibit Index on page 19
</TABLE>
J-1
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1998
(Unaudited) and December 31, 1997.............................. 3- 4
Condensed Consolidated Statements of Income (Unaudited) for the
Three Months Ended March 31, 1998 and 1997..................... 5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Three Months Ended March 31, 1998 and 1997................. 6- 7
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................... 8-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14-17
Part II. OTHER INFORMATION............................................ 17-18
</TABLE>
J-2
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 7,333 $ 9,973
Accounts and notes receivable......................... 773 988
Income tax refund receivable.......................... -- 1,664
Inventories........................................... 1,397 1,687
Prepaid expenses and other............................ 5,739 6,647
--------- ---------
Total current assets................................ 15,242 20,959
--------- ---------
PROPERTY AND EQUIPMENT:
Buildings and improvements............................ 212,808 212,396
Land improvements..................................... 95,594 95,364
Furniture, fixtures and equipment..................... 145,166 144,371
--------- ---------
453,568 452,131
Less: accumulated depreciation and amortization....... (152,420) (144,653)
--------- ---------
301,148 307,478
Land.................................................. 5,724 5,654
Construction in progress.............................. 26,109 19,495
--------- ---------
332,981 332,627
--------- ---------
INVESTMENT IN JOINT VENTURE............................. 112,469 104,436
--------- ---------
NOTES RECEIVABLE, net of current portion................ 2,150 2,718
--------- ---------
OTHER ASSETS............................................ 11,797 9,955
--------- ---------
$ 474,639 $ 470,695
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
J-3
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-trade.............................. $ 5,197 $ 10,265
Accrued expenses.................................... 12,570 10,432
Current portion of long-term debt................... 1,639 1,639
-------- --------
Total current liabilities............................. 19,406 22,336
-------- --------
LONG-TERM DEBT........................................ 220,940 220,765
-------- --------
DEFERRED INCOME TAXES PAYABLE......................... 15,979 15,961
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding.......
Common stock, $.01 par value; 100,000,000 shares
authorized; 28,917,600 and 28,858,000 shares issued
and outstanding in 1998 and 1997, respectively..... 309 309
Additional paid-in capital.......................... 129,716 128,817
Retained earnings................................... 123,951 118,169
Less: treasury stock, at cost....................... (35,662) (35,662)
-------- --------
218,314 211,633
-------- --------
$474,639 $470,695
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
J-4
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
1998 1997
------- -------
(Unaudited)
<S> <C> <C>
REVENUES:
Casino...................................................... $39,738 $40,524
Food and beverage........................................... 7,333 7,070
Hotel....................................................... 4,739 5,130
Entertainment............................................... 2,777 2,415
Service station............................................. 3,950 3,741
Other....................................................... 1,711 1,586
Operating income from New York-New York..................... 10,203 14,631
------- -------
70,451 75,097
Less: promotional allowances................................ (3,806) (3,601)
------- -------
Net revenues................................................ 66,645 71,496
COSTS AND EXPENSES:
Casino...................................................... 12,908 13,028
Food and beverage........................................... 6,313 6,192
Hotel....................................................... 2,395 2,681
Entertainment............................................... 1,878 1,474
Service station............................................. 3,489 3,466
Other....................................................... 634 711
Selling, general and administrative......................... 11,672 11,194
Property costs.............................................. 4,701 4,300
Depreciation and amortization............................... 7,817 7,161
------- -------
51,807 50,207
------- -------
Income from operations...................................... 14,838 21,289
INTEREST INCOME (EXPENSE)
Interest expense, net....................................... (3,716) (3,074)
Interest expense, net from New York-New York................ (2,171) (2,465)
------- -------
Income before taxes......................................... 8,951 15,750
INCOME TAXES:
Income tax provision........................................ 3,169 5,639
------- -------
NET INCOME:................................................... $ 5,782 $10,111
======= =======
Earnings per share
Basic earnings from net income.............................. $ 0.20 $ 0.34
Diluted earnings from net income............................ $ 0.20 $ 0.34
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
J-5
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 5,782 $ 10,111
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 7,817 7,161
Amortization of debt issuance costs................... 36 92
Equity income from New York-New York in excess of
distributions........................................ (8,032) (12,166)
Increase in life insurance cash surrender value....... (75) (57)
Gain on sale of assets................................ -- (78)
Deferred income taxes................................. -- 742
Change in current assets and liabilities due to
operating activities:
(Increase) decrease in accounts and notes
receivable......................................... 215 (42)
Decrease in income tax refund receivable............ 1,664 221
Decrease in inventories............................. 290 222
Decrease in prepaid expenses and other.............. 926 652
(Decrease) increase in accounts payable-trade....... (5,068) 1,176
Increase in accrued expenses........................ 2,138 3,607
-------- ---------
Total adjustments..................................... (89) 1,530
-------- ---------
Net cash provided by operating activities................. 5,693 11,641
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (8,159) (7,771)
Investment in joint venture............................. -- (7,000)
Increase in other assets................................ (1,751) (338)
Proceeds from disposal of other assets.................. 502 160
-------- ---------
Net cash used in investing activities..................... (9,408) (14,949)
-------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
J-6
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.............. $ 899 $ 140
Purchase of treasury stock.............................. -- (3,704)
Proceeds from issuance of long-term debt................ 28,300 33,800
Principal payments of long-term debt.................... (28,124) (27,100)
--------- ---------
Net cash provided by financing activities................. 1,075 3,136
--------- ---------
Net decrease in cash and cash equivalents................. (2,640) (172)
Cash and cash equivalents, beginning of year.............. 9,973 10,027
--------- ---------
Cash and cash equivalents, end of period.................. $ 7,333 $ 9,855
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
J-7
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organizational Structure and Basis of Presentation
Primadonna Resorts, Inc., a Nevada corporation, and subsidiaries ("Company"),
owns and operates three hotel-resort/casinos: Buffalo Bill's Resort & Casino,
Primm Valley Resort & Casino, and Whiskey Pete's Hotel & Casino, all located at
the California/Nevada border in Primm, Nevada. The Company also owns and
operates the Primm Valley Golf Club, located approximately four miles south of
Primm, in California. In addition, the Company owns a 50% interest in the joint
venture which owns and operates the New York-New York Hotel & Casino, located
on the "Strip" in Las Vegas, Nevada.
Information as of December 31, 1997 included in the accompanying consolidated
financial statements and the notes thereto, has been audited. Information with
respect to the three month periods ended March 31, 1998 and 1997, included in
these consolidated financial statements and notes thereto, is unaudited. These
unaudited consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission, and
do not contain all of the information and disclosures required by generally
accepted accounting principles. However, the accompanying unaudited
consolidated financial statements do contain all adjustments which, in the
opinion of management, are necessary to fairly present the financial position
and results of operations for the three month periods presented. Interim
results are not necessarily indicative of results to be expected for any future
interim period or for the entire fiscal year.
The accompanying consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
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, liabilities, revenues and expenses.
Actual results may differ from those estimates. Significant intercompany and
interdivision accounts and transactions have been eliminated.
2. Statements of Cash Flows
The following supplemental disclosures are provided as part of the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Cash payments made for interest (net of amounts
capitalized)......................................... $ 3,181 $ 3,061
========= =========
Cash payments made for income taxes................... -- --
========= =========
</TABLE>
J-8
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Earnings per share
Earnings per share consist of the following:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------- --------------
Income Shares Income Shares
------ ------ ------- ------
(In thousands, except per
share amounts)
<S> <C> <C> <C> <C>
Basic EPS:
Income from continuing operations.............. $5,782 28,881 $10,111 29,947
------ ------ ------- ------
Net income available to common shareholders.... $5,782 28,881 $10,111 29,947
====== ====== ======= ======
Per share amounts:
Income from continuing operations.............. $ 0.20 $ 0.34
Net income available to common shareholders.... $ 0.20 $ 0.34
Diluted EPS:
Income from continuing operations.............. $5,782 28,881 $10,111 29,947
Effect of dilutive stock options............... 48 -- 143
------ ------ ------- ------
Net income available to common shareholders.... $5,782 28,929 $10,111 30,090
====== ====== ======= ======
Per share amounts:
Income from continuing operations.............. $ 0.20 $ 0.34
Net income available to common shareholders.... $ 0.20 $ 0.34
</TABLE>
Options to purchase 1,405,000 and 335,000 shares of common stock at March 31,
1998 and 1997, respectively, at prices of $16.75-$31.25 and $19.50-$31.25, 1998
and 1997, respectively, at prices of $16.75-$31.25 and $19.50-$31.25,
respectively, were outstanding during the period but not included in the
computation of diluted earnings per share because their exercise price was in
excess of the average market price of the common shares for the periods
presented.
4. Investment in Joint Venture
On December 28, 1994 the Company and MGM Grand, Inc.("MGM"), formed a joint
venture to own and operate the New York-New York Hotel & Casino, LLC. The
hotel/casino, which cost $460 million, was completed in December 1996 and
opened January 3, 1997. The Company holds a 50% interest in the joint venture.
The Company has contributed $69.5 million in cash and certain rights to the New
York theme from a third party licensor to the joint venture. MGM has
contributed $29.5 million in cash and land upon which the property is located,
valued at $41.2 million, to the joint venture. The joint venture secured
limited recourse bank financing of $285 million, and term loan financing of $20
million, which funded the construction of, and equipment for, the hotel/casino.
The joint venture partners have executed Keep-Well Agreements in conjunction
with the financing which requires the maintenance of certain financial ratios
and stipulates that equity contributions be made by the partners if the
financial ratios are not met.
J-9
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Summary condensed financial information for the joint venture is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Net revenues............................................. $ 54,035 $ 67,868
Operating income......................................... 20,406 29,261
Interest expense, net.................................... 4,342 4,930
Net income............................................... 16,064 24,331
Total assets............................................. $ 467,444 $ 479,202
Long-term debt........................................... 268,033 279,535
Member equity............................................ 199,411 149,994
</TABLE>
5. Long-Term Debt
On June 5, 1997 the Company entered into a Credit Agreement (" Agreement") with
a sixteen bank consortium led by Well Fargo Bank as agent, for a $250,000,000
revolving loan. The loan was increased to $300,000,000 on December 19, 1997 and
allows, prior to June 5, 1998, upon certain conditions, the Company to increase
the maximum permitted balance to $350,000,000. This loan replaced the existing
Reducing Revolving Bank Credit Agreement.
The Agreement provides for interest payments at least quarterly, at the prime
rate or LIBOR, plus a sliding margin, based upon the Company's debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA") ratio. The
margin for the prime rate ranges between 0% and 1.125%, while the margin for
LIBOR ranges between 0.5% and 2.375%. The weighted average interest rate at
March 31, 1998 was 6.9%, and at December 31, 1997, 7.0%. The Company incurs
commitment fees of .20% to .50% for the unused portion of the Agreement, also
dependent upon the debt to EBITDA ratio. The obligation is secured by a deed of
trust on all real property, leasehold interests in real property, and personal
property of the Company, excluding the Primm Valley Golf Club. The Agreement
contains certain restrictive covenants relating to the use of proceeds, sale or
transfer of assets, the incurrence of additional debt over a specified level,
capital expenditures, and maintenance of certain minimum financial ratios.
The Reducing Revolving Bank Credit Agreement ("Existing Agreement") entered
into on December 28, 1993, as amended, was terminated on June 5, 1997. The
Existing Agreement provided for a maximum principal balance of $250,000,000,
with scheduled reductions in the maximum permitted beginning August 18, 1997,
and continuing thereafter through maturity on July 18, 2000. The Existing
Agreement provided for EBITDA ratios, interest payments, security interests,
and covenants that were substantially similar to the Agreement which replaced
the Existing Agreement.
The Company incurred a liability in connection with the acquisition of the New
York-New York theme rights of $1,100,000, due January 6, 1997, and $400,000 due
January 7, 1998. At December 31, 1997 and 1996, $1,500,000 and $1,100,000,
respectively, due for the theme rights is
J-10
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
reflected as a current obligation. In accordance with the terms of the theme
rights agreement, the payment of the $1,500,000 is being withheld pending the
determination of indemnity obligations.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(In thousands)
<S> <C> <C>
Credit Agreement, $300,000,000, June 5, 1997, 5
year term, LIBOR plus applicable margin........... $220,800 $220,600
New York-New York theme rights due January 6, 1997
and January 7, 1998............................... 1,500 1,500
Other.............................................. 279 304
-------- --------
222,579 222,404
Less: Current portion.............................. 1,639 1,639
-------- --------
Total long-term debt............................... $220,940 $220,765
======== ========
</TABLE>
6. Commitments and Contingencies
a. Southwest Investment
The Company has advanced a total of $3.8 million to Southwest Casino and Hotel
Corp. ("Southwest"), a developer and manager of Native American gaming
enterprises. Southwest managed a Class II Indian gaming facility in Eagle Pass,
Credit Agreement, $300,000,000, June 5, 1997, 5 year term, LIBOR plus
applicable margin.. $ 220,800 $220,600 Texas for the Kickapoo Traditional Tribe
of Texas until its recent termination. Southwest also manages a Class II Indian
gaming facility just outside Oklahoma City, Oklahoma for the Cheyenne and
Arapaho Tribes.
The Company holds a $1.6 million Convertible Term Promissory Note which is
convertible into preferred stock of Southwest. No payments have been made on
this note, and in 1996, based upon the financial condition of Southwest, the
Company fully reserved the $1.6 million and related interest. The Company also
holds a $2.2 million Demand Promissory Note which was secured by the management
contract on the Kickapoo gaming facility. Southwest has made $100,000 in
sporadic payments on this note. No reserve has been established for this note
due to its collateralization. As a result of a termination settlement of the
Southwest management contract with the Kickapoo Tribe, effective December 31,
1997, Southwest assigned the Company two notes, aggregating $2.2 million, due
Southwest from the Kickapoo Tribe. The Company has received $475,000 in
payments on these notes through March 1998, and an additional $100,000 was
received in April 1998.
b. Litigation
Currently, there are lawsuits pending against the Company arising in the normal
course of business. In management's opinion, the ultimate outcome of these
matters will not have a material adverse effect on the results of operations or
the financial position of the Company.
J-11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited)
SUMMARY OF OPERATIONS
For the three months ended March 31, 1998, net revenues decreased $4.9 million,
while income from operations declined $6.5 million, due primarily to a $4.4
million decrease in operating income from the Company's 50% share of New York-
New York. In addition, operating income at Primm declined approximately $2.0
million while net revenues declined $.4 million. Net income decreased to $5.8
million from $10.1 million in 1997. Earnings per share, on a diluted basis for
the three month periods ended March 31, 1998 and 1997, were $.20 and $.34,
respectively.
January 3, 1997 marked the opening of the New York-New York Hotel & Casino in
Las Vegas. This opening has been considered one of the most successful in Las
Vegas, and resulted in earnings in 1997 that are not expected to be replicated
in 1998.
The increase in available hotel rooms in the Las Vegas market over the last
year, coupled with the declining airline passenger counts, continues to cause
competitive pressures in Southern Nevada. The Company has focused extensively
on its cost structure and operating efficiencies at Primm during the first
quarter, and expects to see measurable results as the year progresses. The
ongoing construction projects at Primm should be completed in the third
quarter, and the expanded and enhanced facilities should begin to contribute
meaningfully to revenues.
REVENUES
Casino revenue declined $.8 million, or 2%, primarily due to decreased business
volume. Slot revenues declined $.5 million and table games declined $.3
million. Food and beverage revenues increased $.3 million due to more
complimentary beverages being provided to patrons. Hotel revenue declined $.4
million due to a 5.6% decline in occupied rooms coupled with a 1.8% decrease in
the average rate.
Entertainment revenue increased $.4 million, or 15.0%. This was due to a $.8
million increase in golf revenues as a result of the course being open for the
full quarter in 1998 compared to a soft opening in February 1997. This increase
was partially offset by declines in amusement and arcade revenues of $.4
million. Service station revenue increased $.2 million due primarily to a 20.3%
increase in volume offset by a 14.7% decrease in prices.
Operating income from New York-New York, which represents the Company's 50%
share of the pre-tax, pre-interest earnings of the joint venture, was $10.2
opening quarter. Net revenues at New York-New York declined to $54.0 million
from $67.9 million in the prior year period. Casino revenues were down $11.2
million, or 17% due to a 6% decline in occupied rooms, coupled with a 12%
decline in the average daily rate. These revenue decreases were the primary
contributors to an $8.8 million decline in pre-tax, pre-interest earnings.
J-12
<PAGE>
COSTS AND EXPENSES
Casino costs decreased slightly, primarily due to a reduction in payroll. Food
and beverage costs increased $.1 million primarily due to higher kitchen
payroll costs. Hotel costs decreased $.3 million, or 10.7%, due to lower
payroll costs associated with a 5.6% decrease in occupied rooms.
Entertainment costs increased $.4 million, or 27.4%, primarily due to the added
expenses associated with the golf course, which opened in February 1997.
Service station costs were substantially unchanged from 1997 as product costs
decreased 16.9% and were offset by a volume increase of 20.3%.
Selling, general and administrative expenses increased $.5 million, primarily
due to an increase in the number of bus patrons, which increased subsidy
payments by $.7 million. This was offset by lower development related costs.
Property costs increased $.4 million, or 9%, due primarily to increased costs
for life safety, signage, parking lots, lighting systems, and the property
grounds.
Depreciation increased $.7 million due to completion of the conference center,
the expanded and remodeled casino and public spaces and the parking garage at
Primm Valley, along with the addition of the golf course clubhouse.
INTEREST EXPENSE
Interest expense, net, increased $.6 million. The higher interest expense was
primarily due to an increase in the amounts outstanding under the credit
facility, used to fund capital expenditures.
Interest expense, net from New York-New York decreased $.3 million due to a
decrease in the amounts outstanding under its credit facility.
INCOME TAXES
Income taxes decreased to $3.2 million compared to $5.6 million in 1997. The
decrease in taxes is due to lower earning before taxes. Tax rates were
substantially unchanged.
LIQUIDITY AND CAPITAL RESOURCES
The Company held cash and cash equivalents of $7.3 million as of March 31,
1998. Net cash provided by operations during the three months ended March 31,
1998 was $5.7 million as compared to $11.6 million in the prior year.
The Company funds its daily operations through cash flow from operations. The
Company borrows funds for significant capital expenditures and investments,
such as a portion of its equity investment in New York-New York, which can not
be fully funded out of operating cash flows.
The Company has a $300 million Credit Agreement. ("Agreement", see Note 5 of
the notes to the Condensed Consolidated Financial Statements). At March 31,
1998, the amount outstanding under the Agreement was $220,800,000 at an average
all-in rate of 6.9%. The Company has initiated the process of increasing this
facility to the full $350 million availability, pursuant to the initial terms.
J-13
<PAGE>
The Company is a 50% joint venture partner with MGM Grand, Inc. ("MGM") in the
New York-New York Hotel & Casino, LLC. The joint venture secured a $285 million
Construction/Revolving loan from Bank of America as agent for a sixteen bank
consortium. At March 31, 1998, $228 million was outstanding. Additionally, term
loan financing was obtained in January 1997, with a balance at March 31, 1998
of approximately $18 million. The Company and MGM executed Keep-Well Agreements
in conjunction with the bank loan. The Keep-Well provisions require the
maintaining of certain financial ratios, and stipulate that equity
contributions be made by the partners if these ratios are not met. To date, the
operating performance has far exceeded the required ratios.
The Board of Directors has approved a stock repurchase program authorizing the
Company to acquire up to $50 million worth of its outstanding shares. The
Company had acquired 2,014,500 shares for $35.7 million at March 31, 1998.
The first phase of the 525,000 square foot Fashion Outlet of Las Vegas is
scheduled to open in July 1998. The facility is being built and financed by the
developers. The Company expects to benefit from the increased visitors caused
by the mall and, particularly, the draw from the Las Vegas market. In addition,
the Company will be able to place slot machines in the facility's transition
area from the Primm Valley Resort & Casino. For its part, the Company expects
to incur approximately $1.5 million for infrastructure costs to accommodate
this planned development, of which $.9 million had been expended through March
31, 1998. The Company has no other financial interest in the mall project.
The Company is expanding the Primm Valley property by the addition of 34,000
square feet of casino, restaurant and retail space that is to be connected to
the mall. This expansion is also expected to be completed in July.
Additionally, the current coffee shop has been renovated and a new piano bar
has been added in the casino area.
Capital expenditures for the three months ended March 31, 1998 were $8.2
million, as compared to $14.8 million for the three months ended March 31,
1997. Of the $8.2 million, $1.9 million was for the second golf course, $3.2
million for the Primm Valley expansion and upgrade, $1.9 million for an
expanded and upgraded monorail and infrastructure costs, and $1.2 million for
the maintenance of existing facilities. Capital requirements for the balance of
the year are expected to include $29.8 million for the Primm Valley expansion
and infrastructure, $.4 million for an upgraded and expanded monorail system,
and $6.8 million for maintenance of existing facilities.
The Company expects some continuing difficult year-ago comparisons for New York
- -New York, due to its extremely successful opening in 1997, and continuing
competitive pressures in the Las Vegas market. Additionally, performance at
Primm will continue to be impacted during the second quarter of 1998 by the
ongoing construction projects.
The Company believes that its current cash flow, coupled with its bank
facility, provides both the resources and flexibility to meet existing
obligations and to fund its commitments on the projects discussed above. The
Company continues to pursue other gaming opportunities and, if successful in
securing another location, depending upon the amount of funding required, may
need to obtain additional bank or vendor financing, or issue public or private
debt or equity, or a combination thereof.
J-14
<PAGE>
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as
"believes", "intend", "may", "expect", "will", or "continue," or the negative
thereof, or other variations thereon, or comparable terminology. As with any
construction projects, the Primm Valley expansion and upgrade and the outlet
mall, involve many risks and uncertainties, including but not limited to
material and labor shortages, work stoppages, design changes, and weather.
Further, engineering, environmental, or geological problems and governmental
regulations and approvals could give rise to delays or cost overruns. For
additional factors which could cause forward looking statements to be
materially different than actual results, see "Business Risks" section of
Annual Report Form 10-K at December 31, 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 19, 1998 the plaintiffs filed a motion for class certification of the
April 26,1994, May 10, 1995 and September 26,1995 purported class action
lawsuit ("Poulos/Ahern/Schreier"), as discussed in the Annual Report Form 10 -K
Legal Proceedings. On March 19, 1998 the Magistrate Judge granted defendants
(including the Company) motion seeking to bifurcate discovery into "class" and
"merits" discovery pending a decision on plaintiff's motion for class
certification. The Magistrates order gave the defendants until May 22, 1998 to
complete discovery from the class representatives, and until June 12, 1998, to
file their opposition to the motion for class certification. Plaintiffs' reply
memorandum is due on June 30, 1998.
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 has been charged with her murder. The complaint alleges negligence on
the part of the Company and seeks compensatory and punitive damages.
On October 15, 1997, the Company 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 Angles, receiving "special Powers" to settle the lawsuit. 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 compliant was served on March 31, 1998, but has not been
responded to, due to the fact that the plaintiffs have not posted out-of-state
security bonds. On December 3, 1997 Ms. Manuel and the Company entered into a
stipulation that would allow for the withdrawal of the Company's 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
Company. An answer to the Manuel complaint was filed on February 3, 1998 with a
cross-claim against the male charged and his companion.
J-15
<PAGE>
Items 2 through 5. Are not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule as of March 31, 1998.
See exhibit index on page 19 for exhibits filed with this report
(b) Reports on Form 8-K. No report of Form 8-K was filed during the
quarter for which this report is filed.
J-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
PRIMADONNA RESORTS, INC.
_____________________________________
(Registrant)
Date: May 8, 1998 By /s/ Michael P. Shaunnessy
-----------------------------------
Michael P. Shaunnessy
Chief Accounting Officer
J-17
<PAGE>
APPENDIX K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21732
----------------
PRIMADONNA RESORTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 88-0297563
(State or other jurisdiction of (IRS employer identification
incorporation or organization) number)
</TABLE>
P.O. Box 95997, Las Vegas, Nevada 89193-5997
(address of principal executive offices)
(702) 382-1212
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name, former address and former fiscal year, if change since last
report)
----------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at August 7, 1998
Common Stock, $.01 par value 28,919,100 Shares
Total No. of Pages 54 Exhibit Index on page 24
</TABLE>
K-1
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 1998 (Unaudited) and
December 31, 1997.............................................. 3-4
Consolidated Statements of Income (Unaudited) for the Three and
Six Months Ended June 30, 1998 and 1997........................ 5-6
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Six Months Ended June 30, 1998 and 1997. .................. 7
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................... 8-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15-20
Part II. OTHER INFORMATION............................................ 21-23
</TABLE>
K-2
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997
----------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 6,595 $ 9,973
Accounts and notes receivable..................... 835 988
Income tax refund receivable...................... -- 1,664
Inventories....................................... 1,281 1,687
Prepaid expenses and other........................ 6,080 6,647
--------- ---------
Total current assets................................ 14,791 20,959
--------- ---------
PROPERTY AND EQUIPMENT:
Buildings and improvements........................ 227,324 212,396
Land improvements................................. 107,152 95,364
Furniture, fixtures and equipment................. 150,843 144,371
--------- ---------
485,319 452,131
Less: accumulated depreciation
and amortization................................. (160,875) (144,653)
--------- ---------
324,444 307,478
Land.............................................. 5,654 5,654
Construction in progress.......................... 8,431 19,495
--------- ---------
338,529 332,627
--------- ---------
INVESTMENT IN JOINT VENTURE......................... 117,689 104,436
--------- ---------
NOTES RECEIVABLE, net of current portion............ 1,998 2,718
--------- ---------
OTHER ASSETS, net................................... 10,873 9,955
--------- ---------
$ 483,880 $ 470,695
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-3
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997
----------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts and construction payables............... $ 4,709 $ 10,265
Accrued expenses................................. 11,246 10,432
Current portion of long-term debt................ 1,639 1,639
-------- --------
Total current liabilities...................... 17,594 22,336
-------- --------
LONG-TERM DEBT..................................... 224,706 220,765
-------- --------
DEFERRED INCOME TAXES PAYABLE...................... 16,403 15,961
-------- --------
COMMITMENTS AND CONTINGENCIES......................
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued and
outstanding.....................................
Common stock, $.01 par value; 100,000,000 shares
authorized; 28,919,100 and 28,858,000 shares
issued and outstanding in 1998 and 1997,
respectively.................................... 309 309
Additional paid-in capital....................... 129,738 128,817
Retained earnings................................ 130,792 118,169
Less: treasury stock, at cost.................... (35,662) (35,662)
-------- --------
225,177 211,633
-------- --------
$483,880 $470,695
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-4
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
REVENUES:
Casino................................................ $ 42,527 $ 42,282
Food and beverage..................................... 7,643 7,744
Hotel................................................. 4,859 5,806
Entertainment......................................... 3,860 3,846
Service station....................................... 4,500 4,219
Other................................................. 1,602 1,783
Operating income from New York-New York............... 9,466 14,786
--------- ---------
74,457 80,466
Less: promotional allowances.......................... (3,123) (4,840)
--------- ---------
Net revenues.......................................... 71,334 75,626
--------- ---------
COSTS AND EXPENSES:
Casino................................................ 12,429 13,598
Food and beverage..................................... 6,725 6,761
Hotel................................................. 2,853 2,689
Entertainment......................................... 2,466 1,890
Service station....................................... 3,995 3,823
Other................................................. 759 616
Selling, general and administrative................... 12,270 12,047
Property costs........................................ 4,556 4,421
Depreciation and amortization......................... 8,288 7,078
--------- ---------
54,341 52,923
--------- ---------
Income from operations................................ 16,993 22,703
OTHER INCOME (EXPENSE)
Interest expense, net................................. (4,230) (3,153)
Interest expense, net from New York-New York.......... (2,185) (2,543)
--------- ---------
Income before taxes................................... 10,578 17,007
INCOME TAX PROVISION.................................... (3,738) (6,089)
--------- ---------
Income before extraordinary item...................... 6,840 10,918
EXTRAORDINARY ITEM-loss on early retirement of debt, net
of income tax benefit.................................. -- (964)
--------- ---------
NET INCOME.............................................. $ 6,840 $ 9,954
========= =========
Earnings per share
Basic and Diluted earnings from income before
extraordinary item................................... $ 0.24 $ 0.37
========= =========
Basic and Diluted earnings from net income............ $ 0.24 $ 0.34
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-5
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
REVENUES:
Casino.................................................. $ 82,265 $ 82,806
Food and beverage....................................... 14,976 14,814
Hotel................................................... 9,598 10,936
Entertainment........................................... 6,637 6,261
Service station......................................... 8,450 7,960
Other................................................... 3,313 3,369
Operating income from New York-New York................. 19,669 29,417
-------- --------
144,908 155,563
Less: promotional allowances............................ (6,929) (8,441)
-------- --------
Net revenues............................................ 137,979 147,122
-------- --------
COSTS AND EXPENSES:
Casino.................................................. 25,337 26,626
Food and beverage....................................... 13,038 12,953
Hotel................................................... 5,248 5,370
Entertainment........................................... 4,344 3,364
Service station......................................... 7,484 7,289
Other................................................... 1,393 1,327
Selling, general and administrative..................... 23,942 23,241
Property costs.......................................... 9,257 8,721
Depreciation and amortization........................... 16,105 14,239
-------- --------
106,148 103,130
-------- --------
Income from operations.................................. 31,831 43,992
OTHER INCOME (EXPENSE)
Interest expense, net................................... (7,946) (6,227)
Interest expense, net from New York-New York............ (4,356) (5,008)
-------- --------
Income before taxes..................................... 19,529 32,757
INCOME TAX PROVISION...................................... (6,907) (11,728)
-------- --------
Income before extraordinary item........................ 12,622 21,029
EXTRAORDINARY ITEM-loss on early retirement of debt, net
of income tax benefit.................................... -- (964)
-------- --------
NET INCOME................................................ $ 12,622 $ 20,065
======== ========
Earnings per share
Basic and Diluted earnings from income before
extraordinary item..................................... $ 0.44 $ 0.70
======== ========
Basic and Diluted earnings from net income.............. $ 0.44 $ 0.67
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-6
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 12,622 $ 20,065
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 16,177 14,400
Equity income from New York-New York in
excess of distributions..................... (13,253) (17,689)
Extraordinary loss........................... -- 1,483
Other adjustments to reconcile net income to
net cash, provided by operating activities.. (1,606) 4,656
--------- ---------
Total adjustments............................ 1,318 2,850
--------- ---------
Net cash provided by operating activities........ 13,940 22,915
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (21,982) (26,227)
Investment in joint venture.................... -- (7,000)
Increase in other assets, net.................. (199) (1,792)
--------- ---------
Net cash used in investing activities............ (22,181) (35,019)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of options.......... $ 921 $ 511
Purchase of treasury stock..................... -- (16,517)
Proceeds from issuance of long-term debt....... 109,480 267,500
Principal payments on long-term debt........... (105,538) (241,036)
--------- ---------
Net cash provided by financing activities........ 4,863 10,458
--------- ---------
Net decrease in cash and cash equivalents........ (3,378) (1,646)
Cash and cash equivalents, beginning of year..... 9,973 10,027
--------- ---------
Cash and cash equivalents, end of period......... $ 6,595 $ 8,381
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
K-7
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organizational Structure and Basis of Presentation
Primadonna Resorts, Inc., a Nevada corporation, and subsidiaries ("the
Company"), owns and operates three hotel-resort/casinos: Buffalo Bill's Resort
& Casino, Primm Valley Resort & Casino, and Whiskey Pete's Hotel & Casino, all
located at the California/Nevada border in Primm, Nevada. The Company also owns
and operates the Primm Valley Golf Club, located approximately four miles south
of Primm, in California. In addition, the Company owns a 50% interest in the
joint venture which owns and operates the New York-New York Hotel & Casino,
located on the "Strip" in Las Vegas, Nevada.
Information as of December 31, 1997 included in the accompanying condensed
consolidated financial statements and the notes thereto, has been audited.
Information with respect to the three and six month periods ended June 30, 1998
and 1997, included in these condensed consolidated financial statements and
notes thereto, is unaudited. These unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission, and do not contain all of the
information and disclosures required by generally accepted accounting
principles. However, the accompanying unaudited consolidated financial
statements do contain all adjustments which, in the opinion of management, are
necessary to fairly present the financial position and results of operations
for the three and six month periods presented. Interim results are not
necessarily indicative of results to be expected for any future interim period
or for the entire fiscal year.
The accompanying condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
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, liabilities, revenues and expenses.
Actual results may differ from those estimates. Significant intercompany and
interdivision accounts and transactions have been eliminated.
2. Statements of Cash Flows
The following supplemental disclosures are provided as part of the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
-------------
1998 1997
------ ------
(In
thousands)
<S> <C> <C>
Cash payments made for interest (net of amounts
capitalized)............................................... $7,297 $6,143
====== ======
Cash payments made for income taxes......................... $5,200 $8,900
====== ======
Assets acquired through capitalized leases.................. $ -- $ 437
====== ======
</TABLE>
K-8
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Earnings Per Share
Earnings per share for the three months ended June 30, 1998 and 1997 consist of
the following:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------
1998 1997
------------- ---------------
Income Shares Income Shares
------ ------ ------- ------
(In thousands, except per
share amounts)
<S> <C> <C> <C> <C>
Basic EPS:
Income before extraordinary item............. $6,840 28,919 $10,918 29,407
Extraordinary Item........................... -- -- (964) --
------ ------ ------- ------
Net income available to common shareholders.. $6,840 28,919 $ 9,954 29,407
====== ====== ======= ======
Per share amounts:
Income before extraordinary item............. $ 0.24 $ 0.37
Extraordinary Item........................... -- (.03)
------ -------
Net income available to common shareholders.. $ 0.24 $ 0.34
====== =======
Diluted EPS:
Income before extraordinary item............. $6,840 28,919 $10,918 29,407
Effect of dilutive stock options............. -- 55 -- 192
------ ------ ------- ------
Income before Extraordinary Item............. 6,840 28,974 10,918 29,599
Extraordinary Item........................... -- -- (964) --
------ ------ ------- ------
Net income available to common shareholders
and assumed conversion...................... $6,840 28,974 $ 9,954 29,599
====== ====== ======= ======
Per share amounts:
Income before extraordinary item............. $ 0.24 $ 0.37
Effective of Dilutive Securities Stock
Option...................................... -- --
Extraordinary Item........................... -- (.03)
------ -------
Net income available to common shareholders
and assumed conversion...................... $ 0.24 $ 0.34
====== =======
</TABLE>
Options to purchase 1,299,000 and 358,000 shares of common stock at June 30,
1998 and 1997, respectively, at prices of $17.00-$31.25 and $21.75-$31.25,
respectively, were outstanding at the end of the period but not included in the
computation of diluted earnings per share because their exercise price was in
excess of the average market price of the common shares for the periods
presented.
K-9
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Earnings per share for the six months ended June 30, 1998 and 1997 consist of
the following:
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1998 1997
-------------- ---------------
Income Shares Income Shares
------- ------ ------- ------
(In thousands, except per
share amounts)
<S> <C> <C> <C> <C>
Basic EPS:
Income before extraordinary item............ $12,622 28,900 $21,029 29,675
Extraordinary Item.......................... -- -- (964) --
------- ------ ------- ------
Net income available to common
shareholders............................... $12,622 28,900 $20,065 29,675
======= ====== ======= ======
Per share amounts:
Income before extraordinary item............ $ 0.44 $ 0.71
Extraordinary Item.......................... -- (.03)
------- -------
Net income available to common
shareholders............................... $ 0.44 $ 0.68
======= =======
Diluted EPS:
Income before extraordinary item............ $12,622 28,900 $21,029 29,675
Effect of dilutive stock options............ -- 51 -- 168
------- ------ ------- ------
Income before extraordinary item............ 12,622 28,951 $21,029 29,843
Extraordinary item.......................... -- -- (964) --
------- ------ ------- ------
Net income available to common
shareholders............................... $12,622 28,951 $20,065 29,843
======= ====== ======= ======
Per share amounts:
Income before extraordinary item and
dilutive option............................ $ 0.44 $ 0.71
Effect of Dilutive Securities Stock Option.. -- (.01)
------- -------
Income before extraordinary item............ 0.44 0.70
Extraordinary item.......................... -- (.03)
------- -------
Net income available to common
shareholders............................... $ 0.44 $ 0.67
======= =======
</TABLE>
Options to purchase 1,299,000 and 358,000 shares of common stock at June 30,
1998 and 1997, respectively, at prices of $17.00-$31.25 and $21.75-$31.25,
respectively, were outstanding at the end of the period but not included in the
computation of diluted earnings per share because their exercise price was in
excess of the average market price of the common shares for the periods
presented.
4. Investment in Joint Venture
On December 28, 1994 the Company and MGM Grand, Inc.("MGM"), formed a joint
venture to own and operate the New York-New York Hotel & Casino. The hotel/
casino opened on January 3, 1997. The Company holds a 50% interest in the joint
venture. The Company has contributed cash of $69.5 million and certain rights
to the New York theme acquired from a third party licensor. MGM has contributed
land (valued at $41.2 million) on which the property is located and cash of
$29.5 million. The joint venture has secured limited recourse bank financing of
$285 million, and term loan financing of $20 million. The joint venture
partners have executed Keep-Well Agreements
K-10
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
in conjunction with the bank financing. Should New York-New York fail to meet
certain minimum financial ratios, then the partners would be required to make
additional equity contributions, to the extent needed, to bring the ratios into
compliance.
Summary condensed financial information for the joint venture is as follows
(000's):
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
June 30, June 30,
--------------- -----------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Condensed Statement of Income Data
----------------------------------
Net revenues.............................. $54,698 $67,401 $108,733 $135,269
Operating income.......................... 18,931 29,573 39,337 58,834
Interest expense, net..................... 4,369 5,086 8,711 10,016
Net income................................ 14,561 24,487 30,626 48,818
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997
---------------- --------------------
<S> <C> <C>
Condensed Balance Sheet Data
----------------------------
Total assets........................... $460,761 $470,252
Long-term debt......................... 225,025 246,403
Member equity.......................... 205,736 183,350
</TABLE>
5. Long-Term Debt
On June 5, 1997 the Company entered into a Credit Agreement ("Agreement") with
a sixteen bank consortium led by Wells Fargo Bank as agent, for a $250,000,000
revolving loan. The maximum balance under the loan was increased to
$300,000,000 on December 19, 1997 and to $350,000,000 on June 4, 1998. This
loan replaced the existing Reducing Revolving Bank Credit Agreement.
The Agreement provides for interest payments at least quarterly, at the prime
rate or LIBOR, plus a sliding margin, based upon the Company's debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA") ratio. The
margin for the prime rate ranges between 0% and 1.125%, while the margin for
LIBOR ranges between 0.5% and 2.375%. The weighted average interest rate was
6.8% at June 30, 1998 and 7.0% at December 31, 1997. The Company incurs
commitment fees of .20% to .50% for the unused portion of the Agreement, also
dependent upon the debt to EBITDA ratio. The obligation is secured by a deed of
trust on all real property, leasehold interests in real property, and personal
property of the Company, excluding the Primm Valley Golf Club. The Agreement
contains certain restrictive covenants relating to the use of proceeds, sale or
transfer of assets, the incurrence of additional debt over a specified level,
capital expenditures, and maintenance of certain minimum financial ratios.
The Reducing Revolving Bank Credit Agreement ("Prior Agreement") entered into
on December 28, 1993, as amended, was terminated on June 5, 1997. The Prior
Agreement provided for a maximum principal balance of $250,000,000, with
scheduled reductions in the maximum permitted
K-11
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
beginning August 18, 1997, and continuing thereafter through maturity on July
18, 2000. The Prior Agreement provided for EBITDA ratios, interest payments,
security interests, and covenants that were substantially similar to the
Agreement which replaced the Prior Agreement.
The Company incurred a liability in connection with the acquisition of the New
York-New York theme rights of $1,100,000, due January 6, 1997, and $400,000 due
January 7, 1998. At both June 30, 1998 and December 31, 1997, $1,500,000 due
for the theme rights was reflected as a current obligation. This liability was
paid in full in July 1998.
Long-term debt consists of the follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Credit Agreement $350,000,000, June 5, 1997, 5 year
term, LIBOR
plus applicable margin............................ $224,600 $220,600
NEW YORK-NEW YORK theme rights due January 6, 1997
and
January 7, 1998................................... 1,500 1,500
Other.............................................. 245 304
-------- --------
226,345 222,404
Less: current portion.............................. 1,639 1,639
-------- --------
Total long-term debt............................... $224,706 $220,765
======== ========
</TABLE>
6. Commitments and Contingencies
a. Southwest Investment
The Company has advanced a total of $3.8 million to Southwest Casino and Hotel
Corp. ("Southwest"), a developer and manager of Native American gaming
enterprises. Southwest managed a Class II Indian gaming facility in Eagle Pass,
Texas for the Kickapoo Traditional Tribe of Texas under a management contract
which was terminated on December 31, 1997. Southwest currently manages a Class
II Indian gaming facility just outside Oklahoma City, Oklahoma for the Cheyenne
and Arapaho Tribes.
The Company holds a $1.6 million Convertible Term Promissory Note which is
convertible into preferred stock of Southwest. No payments have been made on
this note, and in 1996, based upon the financial condition of Southwest, the
Company fully reserved the $1.6 million and related interest. The Company also
holds a $2.2 million Demand Promissory Note which was secured by the management
contract on the Kickapoo gaming facility. Southwest made $100,000 in interest
payments on these notes between October 1997 and January 1998. As a result of a
termination settlement of the Southwest management contract with the Kickapoo
Tribe, effective December 31, 1997, Southwest assigned the Company two notes,
aggregating $2.2 million, due Southwest from the
K-12
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Kickapoo Tribe and secured by the assets of the Kickapoo gaming facility. The
Company has received $575,000 in payments on these notes through June 1998. No
reserve has been established for this note due to its collateralization.
b. Litigation
Currently, there are lawsuits pending against the Company arising in the normal
course of business. In management's opinion, the ultimate outcome of these
matters will not have a material adverse effect on the results of operations or
the financial position of the Company.
K-13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited)
SUMMARY OF OPERATIONS
For the second quarter of 1998, net income before extraordinary items declined
37.4% to $6.8 million, or $.24 per share, compared to $10.9 million, or $.37
per share in the prior year period. For the six month period ended June 30,
1998, net income decreased 40.0% to $12.6 million, or $.44 per share before
extraordinary items, from $21.0 million, or $.70 per share in the prior year
period.
The decreases in net income and earnings per share, as well as declines in
revenue and operating income, were primarily attributable to a decline in
operating income of New York-New York Hotel and Casino, the Company's 50% owned
joint venture. The Company's operations at Primm, Nevada realized revenue
improvements of 1.7% and 0.5% during the respective three and six month periods
of 1998. Operating income from the Primm properties declined during the
periods, primarily due to higher depreciation expense.
New York-New York Hotel & Casino in Las Vegas opened on January 3, 1997. The
softening in New York-New York's performance is a function of favorable results
in its inaugural year and recent overall declines in the southern Nevada gaming
market. Although the opening year results are not expected to be repeated, New
York-New York continues to be one of the most successful properties in Las
Vegas from the standpoint of operating margins and return on invested capital.
The increase in available hotel rooms in the Las Vegas market over the last
year, coupled with a decline in Las Vegas airline passengers and relatively
flat California automobile traffic counts, continues to cause competitive
pressures in southern Nevada. In response to these conditions, the Company has
focused extensively on its cost structure, operating efficiencies and marketing
programs at Primm during the first half of the year.
An extraordinary charge of $964 thousand (net of taxes), or $.03 per share, was
recorded in the second quarter of 1997. The extraordinary charge resulted from
the early termination of the Company's prior bank credit facility.
Following is an analysis of the results of operations for the three and six
month periods ended June 30, 1998 versus the comparable periods of 1997.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1997
Revenues
Net revenues for the second quarter decreased 5.7% or $4.3 million to $71.3
million. This decrease is due to the Company's share of earnings from NY-NY,
which were off $5.3 million or 36.0% for the quarter. Operations at Primm,
Nevada experienced an increase in net revenues which totaled $1.0 million or
1.7% for the same period.
Casino revenue increased $245 thousand due primarily to a higher table win
percentage. This improved win percentage is the result of the elimination of a
match play coupon program which lowered the win percentage in the prior year
period.
K-14
<PAGE>
Hotel revenue declined $947 thousand or 16.3% in the quarter due to a 3.6%
decline in occupied rooms coupled with a 14.9% decrease in the average room
rate. This decline in occupied rooms was experienced in the complimentary
segment, as cash room nights sold increased 13.3%. The softening in the room
rate is primarily due to the competitive conditions in southern Nevada.
Entertainment revenue in the second quarter was flat with the prior year. The
opening of a second golf course at Primm Valley, during the second quarter of
1998, helped generate an additional $878 thousand in cash green fees. This
offset a decline in complimentary amusement and arena revenue.
Service station revenues increased $281 thousand or 6.7% for the three month
period. The number of gallons sold increased 13.1%, more than offsetting
declines in retail gas prices.
Operating income from New York-New York, which represents the Company's 50%
share of the pre-tax, pre-interest earnings of the joint venture, was $9.5
million, a decline of $5.3 million from the $14.8 million posted in the second
quarter of last year. Net revenues at New York-New York totaled $54.7 million,
down from $67.4 million in the prior year quarter. Casino revenues were down
$8.4 million, or 22.8% for the quarter, primarily due to lower volume.
COSTS AND EXPENSES
Casino expenses decreased $1.2 million for the three month period. This
decrease is primarily the result of a decrease in promotional allowances due to
management efforts to improve the profitability of marketing programs. In
addition, payroll costs were reduced by $355 thousand or 6.8%.
Hotel expenses increased $164 thousand or 6.1% for the second quarter,
primarily due to a decrease in the amount of hotel costs transferred to casino
expense. This reflects a decline in complimentary rooms given to casino
customers.
Entertainment costs increased $576 thousand for the three month period due
mostly to decreased transfer of promotional allowance costs to the casino of
$436 thousand. Additionally, operating expenses of the Primm Valley Golf Club
increased $366 thousand for the quarter due to the opening of a second course
in the second quarter of 1998. These increases were partially offset by lower
amusement and arcade operating costs.
Service station costs increased $172 thousand or 4.5% for the three month
period, the result of the increase in gallons sold, partially offset by a
decline in product cost.
Selling, general and administrative expenses increased $223 thousand or 1.9% in
the quarter. The increase is primarily due to higher bus tour marketing
subsidies and additional bus customers. This increase is partially offset by
lower development, administrative, and advertising costs.
Property costs increased $135 thousand, or 3.1% for the quarter, due primarily
to increased costs for life safety, parking lot maintenance, and grounds
maintenance.
Depreciation increased $1.2 million for the three month period due to
completion of the expanded and remodeled casino space, public space and parking
garage at Primm Valley Resort and Casino, and the addition of the second golf
course.
K-15
<PAGE>
INTEREST EXPENSE
Interest expense, net, increased $1.1 million for the quarter. The higher
interest expense was primarily due to an increase in the amounts outstanding
under the credit facility, which were used to fund capital expenditures.
Interest expense, net, from New York-New York decreased $358 thousand for the
three months due to decreases in the amounts outstanding under that credit
facility.
INCOME TAXES
Income taxes decreased to $3.7 million for the quarter ended June 1998 compared
to $6.1 million in the comparable prior year period. The decrease in taxes is
due to lower earnings before taxes, as tax rates were substantially unchanged.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
REVENUES
For the six months ended June 30, 1998, net revenues decreased 6.2% or $9.1
million to $138.0 million from the same period last year. This decrease is due
to the Company's share of earnings from New York-New York, which were off $9.7
million or 33.1% for the six months. In the period, net revenue from the
operations at Primm, Nevada, increased $605 thousand or 0.5%.
Casino revenue was $541 thousand, or 0.7% less than last year, primarily due to
decreased slot volume. Slot revenues declined $678 thousand and were only
partially offset by an increase in table games revenue of $139 thousand. The
higher table game win resulted from an improved win percentage. This improved
win percentage was the result of the elimination of a match play coupon program
which lowered the win percentage in the prior year period.
For the six months ended June 30, 1998, Hotel revenue was $1.3 million below
prior year levels due to a 4.6% reduction in occupied rooms and an 8.8% decline
in the average rate. The decrease in occupied rooms was entirely in the
complimentary segment as cash rooms occupied increased slightly. The room rate
decline is primarily due to the competitive conditions in southern Nevada.
Entertainment revenues were $376 thousand or 6.0% greater than last year due to
increased revenues from the Primm Valley Golf Club. The first course opened in
the first quarter of 1997, while the second course opened in the second quarter
of 1998.
Service station revenues increased $490 thousand or 6.2% for the six month
period. The number of gallons sold increased 16.3%, and more than offset a
decline in retail gas prices.
Operating income from New York-New York, which represents the Company's 50%
share of the pre-tax, pre-interest earnings of the joint venture, was $9.7
million or 33.1% less than the grand opening year. Net revenues at New York-New
York declined to $108.7 million from $135.3 million in the prior year six month
period. Casino revenues were down $19.6 million or 25.1% in the first half of
the year, primarily due to lower volume.
K-16
<PAGE>
COSTS AND EXPENSES
Casino expenses decreased $1.3 million for the six month period. This decrease
is partially the result of a decrease in promotional allowances reflective of
changes in marketing programs. In addition, payroll costs were reduced by $536
thousand or 5.2%.
Hotel expenses declined $122 thousand for the six months ended June 30, 1998.
The decline is due to lower payroll costs associated with an overall decrease
in occupied rooms of 4.6%, partially offset by a decrease in the amount of
complimentary room costs transferred to casino expense.
Entertainment costs increased $980 thousand for the six month period due
primarily to increased operating expenses of the Primm Valley Golf Club, which
were $758 thousand higher due to the opening of the second course.
Additionally, Entertainment expenses transferred to the casino related to
promotional allowances were $673 thousand less than last year. These factors
were partially offset by lower amusement and arcade operating costs.
Service station costs increased $195 thousand or 2.7% for the six month period,
the result of the increase in gallons sold, partially offset by a decline in
product cost.
Selling, general and administrative expenses increased $701 thousand or 3.0% in
the six month period. The increases are primarily due to an increase in bus
tour marketing subsidies, partially offset by lower development,
administrative, and advertising costs.
Property costs increased $536 thousand or 6.1% for the six month period, due
primarily to increased costs for life safety, signage, parking lot maintenance,
lighting systems, and property grounds service.
Depreciation increased $1.9 million for the six month period due to completion
of the expanded and remodeled casino, public spaces and parking garage at Primm
Valley, and the addition of the second golf course.
INTEREST EXPENSE
Interest expense, net, increased $1.7 million for the six months. The higher
interest expense was primarily due to an increase in the amount outstanding
under the credit facility, used to fund capital expenditures.
Interest expense, net from New York-New York decreased $652 thousand for the
six month period due to decreases in the amounts outstanding under its credit
facility.
INCOME TAXES
Income taxes declined to $6.9 million for the six months ended June 30, 1998
compared to $11.7 million in the prior year period. The decrease in taxes is
due to lower earnings before taxes, as tax rates were substantially unchanged.
K-17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company held cash and cash equivalents of $6.6 million as of June 30, 1998.
Net cash provided by operations during the six months ended June 30, 1998 was
$13.9 million as compared to $22.9 million in the prior year. The Company funds
its daily operations through cash flow from operations, and borrows funds for
significant capital expenditures and investments, such as a portion of its
equity investment in New York-New York.
The Company has a $350 million Credit Agreement. ("Agreement", see Note 5 of
the Notes to Condensed Consolidated Financial Statements). At June 30, 1998,
the amount outstanding under the Agreement was $224.6 million at an average
all-in rate of 6.8%. During the second quarter, the Company completed the
process of increasing this facility by $50 million to its full $350 million
availability, pursuant to its initial terms.
The Company is a 50% joint venture partner with MGM Grand, Inc. ("MGM") in the
New York-New York Hotel & Casino, LLC. The joint venture secured a $285 million
construction/reducing revolving loan from a consortium of banks. At June 30,
1998, $218.1 million was outstanding under this loan. Additionally, term loan
financing was obtained in January 1997, with a balance of $15.0 million at June
30, 1998. The Company and MGM executed Keep-Well Agreements in conjunction with
the bank loan. The Keep-Well provisions require that certain financial ratios
be maintained and stipulate that the partners make equity contributions if
these ratios are not met. Operating performance to date at New York-New York
has exceeded these provisions.
The Board of Directors has approved a stock repurchase program authorizing the
Company to acquire up to $50 million worth of its outstanding shares. The
Company had acquired 2,014,500 shares for $35.7 million at June 30, 1998.
The first phase of the 525,000 square foot Fashion Outlet of Las Vegas ("Mall")
opened July 16, 1998. The facility was built and financed by developers. The
Company expects to benefit from the increase in visitors to Primm, Nevada
caused by the Mall. In addition, the Company will be able to place slot
machines in the facility's transition area from the Primm Valley Resort &
Casino and expects to be able to place slot machines in the Mall itself. For
its part, the Company expects to incur approximately $1.5 million and has
incurred approximately $1 million through June 30, 1998 for the infrastructure
improvements necessary to accommodate this development. The Company has no
other financial interest in the Mall project.
The Company has expanded the Primm Valley property by the addition of 34,000
square feet of casino, restaurant and retail space that is connected to the
Mall. This expansion (with the exception of the restaurant space) was also
opened on July 16, 1998. Additionally, the current coffee shop has been
renovated and a new piano bar has been added in the casino area.
Capital expenditures for the six months ended June 30, 1998 were $22.0 million,
as compared to $33.2 million for the six months ended June 30, 1997. In
addition to the above mentioned projects, the Company has completed the
construction of a second golf course at the Primm Valley Golf Club, expanded
and upgraded the monorail from Buffalo Bills to Primm Valley, and remodeled and
upgraded the casino and selected guest rooms at Primm Valley. Normal
expenditures for the maintenance of existing facilities and equipment were also
incurred.
K-18
<PAGE>
The Company expects some continuing difficult year-ago comparisons for New
York--New York, due to its extremely successful opening in 1997, and continuing
competitive pressures in the Las Vegas market. Additionally, performance at
Primm may continue to be impacted during the third quarter of 1998 by the
competitive pressures in the Las Vegas Market.
The Company believes that its current cash flow, coupled with its bank
facility, provides both the resources and flexibility to meet existing
obligations and to fund its commitments on the projects discussed above. The
Company continues to pursue other gaming opportunities and, if successful in
securing another location, depending upon the amount of funding required, may
need to obtain additional bank or vendor financing, or issue public or private
debt or equity, or a combination thereof.
IMPACT OF THE YEAR 2000 ISSUE
Efficient operation of the Company's business is dependent in part on its
computer software programs and operating systems. These programs and systems
are used in several key areas of the Company's business including operations,
marketing and administration. The Company has been evaluating its internal
systems and determined that one of its critical systems is not year 2000
compliant. The Company has commenced a project, in conjunction with the system
vendor, to implement a compliant version of the system prior to this system
causing any material disruption in the Company's operation. The cost of this
project is not expected to have a material adverse effect on the results of
operations or financial position of the Company. The Company has also
identified several non-critical systems which are not year 2000 compliant, but
which will be made compliant via minor expenditures for software upgrades.
Certain of the systems on which the Company relies are completely maintained by
outside vendors. In addition, certain equipment used in the daily operations of
the Company relies on software programs and operating systems over which the
Company has no direct control. The Company continues to review with its vendors
of software, equipment, products and services any possible exposures from the
year 2000 issue. In the event that any of the Company's significant vendors
does not successfully and timely achieve year 2000 compliance, the Company's
business could be adversely affected.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as
"believes", "may", "expect", or "continue," or the negative thereof, or other
variations thereon, or comparable terminology. As with any construction
projects, the Primm Valley expansion and upgrade and the outlet mall, involve
many risks and uncertainties, including but not limited to material and labor
shortages, work stoppages, design changes, and weather disruptions. Further,
engineering, environmental, or geological problems and governmental regulations
and approvals could give rise to delays or cost overruns. For additional
factors which could cause forward looking statements to be materially different
than actual results, see "Business Risks" section of Annual Report Form 10-K at
December 31, 1997.
K-19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In May 1998, defendants filed their response to plaintiffs discovery requests
in the purported class action lawsuit by Paulos, Ahern, Schreirer as discussed
in the Annual Report Form 10-K Legal Proceeding, including objections to
certain questions. In June 1998, plaintiffs filed their motion to compel
response for documents and other information to which defendants objected. On
August 3, 1998, defendants filed its opposition to compel providing certain
documents and other documents, no decision has been made. On August 7, 1998,
defendants responded under an extension to defendants motion for class
certification, plaintiffs reply is due before August 25, 1998. Discovery has
been stayed pending class certification.
On May 12, 1998, Yolanda Manuel, the non-custodial parent of Sherrice Iverson,
filed a demand for jury trial, in the lawsuit discussed in the Company's Annual
Report on Form 10-K. On April 23, 1998 Leroy Iverson and Harold Jordon, the
custodial parent and brother of Sherrice Iverson, respectively, filed an out-
of-state security bond with the Nevada Court. On August 5, 1998 plaintiffs
filed an amended complaint stating that Mr. Iverson is the "personal
representative" of Ms. Iverson's estate, and alleging additional damages from
false imprisonment and defamation, seeking compensating and punitive damages.
Items 2 through 3. Are not applicable.
Item 4. Submission of Matter to a Vote of Security Holders
The following matters were submitted to a vote of security holders during the
Company's Annual meeting of Stockholders held June 2, 1998:
<TABLE>
<CAPTION>
No. of
votes Cast Withheld
Description of Matter for Authority
--------------------- ---------- ---------
<S> <C> <C>
1. Election of directors
Robert E. Armstrong................................... 28,133,672 144,961
H. Martin Rosa........................................ 28,125,522 153,111
</TABLE>
<TABLE>
<CAPTION>
No. of votes cast
------------------
No. of
For Against Abstentions
---------- ------- -----------
<S> <C> <C> <C> <C>
2. Ratification of appointment of
independent auditors.................. 28,218,327 27,774 32,532
</TABLE>
Item 5. None
K-20
<PAGE>
Item 6. Exhibits and Reports on Form 8--K.
(a) Exhibits.
10.33 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).
10.34 Change in Control and Salary Continuation Agreement by and among Michael
Villamor and Primadonna Resorts, Inc. dated as of July 13, 1998.
10.35 Change in Control and Salary Continuation Agreement by and among John L.
Shigley and Primadonna Resorts, Inc. dated as of July ,3 1998.
10.36 Change in Control and Salary Continuation Agreement by and among Gregg
Schatzman and Primadonna Resorts, Inc. dated as of July 11, 1998.
27. Financial Data Schedule as of June 30, 1998.
See exhibit index on page 22 for exhibits filed with this report
(b) Reports on Form 8--K. No report of Form 8--K was filed during the quarter
for which this report is filed.
K-21
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PRIMADONNA RESORTS, INC.
_____________________________________
(Registrant)
By /s/ John L. Shigley
--------------------------------
Date: August 11, 1998 John L. ShigleyChief Financial
Officer
K-22
<PAGE>
APPENDIX L
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21732
----------------
PRIMADONNA RESORTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 88-0297563
(State or other jurisdiction of (IRS employer identification
incorporation or organization) number)
</TABLE>
P.O. Box 95997, Las Vegas, Nevada 89193-5997
(address of principal executive offices)
(702) 382-1212
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name, former address and former fiscal year, if change since last
report)
----------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at November 12, 1998
Common Stock, $.01 par value 28,819,100 Shares
Total No. of Pages 35 Exhibit Index on page 24
</TABLE>
L-1
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at September 30, 1998 (Unaudited) and
December 31, 1997................................................ 3-4
Consolidated Statements of Income (Unaudited) for the Three and
Nine Months Ended September 30, 1998 and 1997.................... 5-6
Condensed Consolidated Statements of Cash Flows (Unaudited) For
the Nine Months Ended September 30, 1998 and 1997................ 7
Notes to Consolidated Financial Statements (Unaudited)............ 8-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 15-21
Part II. OTHER INFORMATION............................................ 22-23
</TABLE>
L-2
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 7,319 $ 9,973
Accounts and notes receivable...................... 1,464 988
Income tax refund receivable....................... -- 1,664
Inventories........................................ 1,401 1,687
Prepaid expenses and other......................... 9,180 6,647
--------- ---------
Total current assets............................. 19,364 20,959
--------- ---------
PROPERTY AND EQUIPMENT:
Buildings and improvements......................... 239,289 212,396
Land improvements.................................. 108,631 95,364
Furniture, fixtures and equipment.................. 152,608 144,371
--------- ---------
500,528 452,131
Less: accumulated depreciation and amortization.... (169,195) (144,653)
--------- ---------
331,333 307,478
Land............................................... 5,340 5,654
Construction in progress........................... 2,506 19,495
--------- ---------
339,179 332,627
--------- ---------
INVESTMENT IN JOINT VENTURE.......................... 123,385 104,436
--------- ---------
NOTES RECEIVABLE, net of current portion............. 2,306 2,718
--------- ---------
OTHER ASSETS, net.................................... 10,609 9,955
--------- ---------
$ 494,843 $ 470,695
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
L-3
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts and construction payables................ $ 2,762 $ 10,265
Accrued expenses.................................. 10,518 10,432
Current portion of long-term debt................. 137 1,639
-------- --------
Total current liabilities....................... 13,417 22,336
-------- --------
LONG-TERM DEBT...................................... 231,763 220,765
-------- --------
DEFERRED INCOME TAXES PAYABLE....................... 20,553 15,961
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding.....
Common stock, $.01 par value; 100,000,000 shares
authorized; 28,819,100 and 28,858,000 shares
issued and outstanding in 1998 and 1997,
respectively..................................... 309 309
Additional paid-in capital........................ 129,738 128,817
Retained earnings................................. 135,525 118,169
Less: treasury stock, at cost..................... (36,462) (35,662)
-------- --------
229,110 211,633
-------- --------
$494,843 $470,695
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
L-4
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Three Months
Ended September
30,
----------------
1998 1997
------- -------
(Unaudited)
<S> <C> <C>
REVENUES:
Casino...................................................... $41,718 $41,964
Food and beverage........................................... 7,452 8,007
Hotel....................................................... 5,344 5,438
Entertainment............................................... 3,118 3,894
Service station............................................. 4,904 4,597
Other....................................................... 1,397 1,969
Operating income from New York-New York..................... 9,872 12,999
------- -------
73,805 78,868
Less: promotional allowances................................ (3,311) (5,057)
------- -------
Net revenues................................................ 70,494 73,811
------- -------
COSTS AND EXPENSES:
Casino...................................................... 12,858 14,648
Food and beverage........................................... 6,817 7,206
Hotel....................................................... 3,219 2,552
Entertainment............................................... 2,314 2,152
Service station............................................. 4,332 4,086
Other....................................................... 722 714
Selling, general and administrative......................... 11,856 11,846
Property costs.............................................. 5,820 5,494
Depreciation and amortization............................... 8,493 7,244
------- -------
56,431 55,942
------- -------
Income from operations...................................... 14,063 17,869
OTHER INCOME (EXPENSE)
Interest expense, net....................................... (4,302) (3,352)
Interest expense, net from New York-New York................ (2,117) (2,511)
------- -------
Income before taxes......................................... 7,644 12,006
INCOME TAX PROVISION.......................................... (2,910) (4,299)
------- -------
NET INCOME.................................................... $ 4,734 $ 7,707
======= =======
Earnings per share
Basic and Diluted earnings from net income.................. $ 0.16 $ 0.27
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
L-5
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
REVENUES:
Casino.................................................. $123,983 $124,770
Food and beverage....................................... 22,428 22,821
Hotel................................................... 14,942 16,374
Entertainment........................................... 9,755 10,155
Service station......................................... 13,354 12,557
Other................................................... 4,710 5,338
Operating income from New York-New York................. 29,541 42,416
-------- --------
218,713 234,431
Less: promotional allowances............................ (10,240) (13,498)
-------- --------
Net revenues............................................ 208,473 220,933
-------- --------
COSTS AND EXPENSES:
Casino.................................................. 38,195 41,274
Food and beverage....................................... 19,855 20,159
Hotel................................................... 8,467 7,922
Entertainment........................................... 6,658 5,516
Service station......................................... 11,816 11,375
Other................................................... 2,115 2,041
Selling, general and administrative..................... 35,798 35,087
Property costs.......................................... 15,077 14,215
Depreciation and amortization........................... 24,598 21,483
-------- --------
162,579 159,072
-------- --------
Income from operations.................................. 45,894 61,861
OTHER INCOME (EXPENSE)
Interest expense, net................................... (12,248) (9,579)
Interest expense, net from New York-New York............ (6,473) (7,519)
-------- --------
Income before taxes..................................... 27,173 44,763
INCOME TAX PROVISION...................................... 9,817 16,027
-------- --------
Income before extraordinary item........................ 17,356 28,736
EXTRAORDINARY ITEM-loss on early retirement of debt, net
of income tax benefit.................................... -- 964
-------- --------
NET INCOME................................................ $ 17,356 $ 27,772
======== ========
Earnings per share
Basic and Diluted earnings from income before
extraordinary item..................................... $ 0.60 $ 0.97
======== ========
Basic and Diluted earnings from net income.............. $ 0.60 $ 0.94
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
L-6
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 17,356 $ 27,772
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 24,706 21,685
Equity income from New York-New York in excess of
distributions....................................... (18,949) (22,277)
Extraordinary Loss................................... -- 1,483
Other adjustments to reconcile net income to net cash
provided by operating activities.................... (3,425) 6,253
--------- ---------
Total adjustments.................................... 2,332 7,144
--------- ---------
Net cash provided by operating activities................ 19,688 34,916
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (31,533) (49,950)
Investment in joint venture............................ -- (7,000)
Increase in other assets, net.......................... (426) (1,596)
--------- ---------
Net cash used in investing activities.................... (31,959) (58,546)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of options.................. $ 921 $ 517
Purchase of treasury stock............................. (800) (22,369)
Proceeds from issuance of long-term debt............... 179,200 328,300
Principal payments of short-term debt.................. (1,502) --
Principal payments of long-term debt................... (168,202) (285,271)
--------- ---------
Net cash provided by financing activities................ 9,617 21,177
--------- ---------
Net decrease in cash and cash equivalents................ (2,654) (2,453)
Cash and cash equivalents, beginning of year............. 9,973 10,027
--------- ---------
Cash and cash equivalents, end of period................. $ 7,319 $ 7,574
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
L-7
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organizational Structure and Basis of Presentation
Primadonna Resorts, Inc., a Nevada corporation, and subsidiaries ("the
Company"), owns and operates three hotel-resort/casinos: Buffalo Bill's Resort
& Casino, Primm Valley Resort & Casino, and Whiskey Pete's Hotel & Casino, all
located at the California/Nevada border in Primm, Nevada. The Company also owns
and operates the Primm Valley Golf Club, located approximately four miles south
of Primm, in California. In addition, the Company owns a 50% interest in the
joint venture which owns and operates the New York-New York Hotel & Casino,
located on the "Strip" in Las Vegas, Nevada.
Information as of December 31, 1997 included in the accompanying condensed
consolidated financial statements and the notes thereto, has been audited.
Information with respect to the three and nine month periods ended September
30, 1998 and 1997, included in these condensed consolidated financial
statements and notes thereto, is unaudited. These unaudited condensed
consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission, and do not
contain all of the information and disclosures required by generally accepted
accounting principles. However, the accompanying unaudited consolidated
financial statements do contain all adjustments which, in the opinion of
management, are necessary to fairly present the financial position and results
of operations for the three and nine month periods presented. Interim results
are not necessarily indicative of results to be expected for any future interim
period or for the entire fiscal year.
The accompanying condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
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, liabilities, revenues and expenses.
Actual results may differ from those estimates. Significant intercompany and
interdivision accounts and transactions have been eliminated.
2. Statements of Cash Flows
The following supplemental disclosures are provided as part of the accompanying
consolidated statements of cash flows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
---------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Cash payments made for interest (net of amounts
capitalized)............................................. $11,767 $ 9,918
======= =======
Cash payments made for income taxes....................... $ 5,200 $14,200
======= =======
Assets acquired through capitalized leases................ $ -- $ 383
======= =======
</TABLE>
L-8
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Earnings Per Share
Earnings per share for the three months ended September 30, 1998 and 1997
consist of the following:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------
1998 1997
--------------------- ---------------------
Income Shares Income Shares
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Basic EPS:
Net income available to common
shareholders.................. $4,734 28,886 $7,707 28,918
========== ========== ========== ==========
Per share amounts:
Net income available to common
shareholders.................. $ 0.16 $ 0.27
========== ==========
Diluted EPS:
Income before extraordinary
item.......................... $ 4,734 28,886 $ 7,707 28,918
Effect of dilutive stock
options....................... -- -- -- 112
---------- ---------- ---------- ----------
Net income available to common
shareholders and assumed
conversion.................... $ 4,734 28,886 $ 7,707 29,030
========== ========== ========== ==========
Per share amounts:
Income before extraordinary
item.......................... $ 0.16 $ 0.27
Effective of Dilutive
Securities Stock Option....... -- --
---------- ----------
Net income available to common
shareholders and assumed
conversion.................... $ 0.16 $ 0.27
========== ==========
</TABLE>
Options to purchase 1,949,500 and 788,000 shares of common stock at September
30, 1998 and 1997, respectively, at prices of $15.00-$31.25 and $18.75-$31.25,
respectively, were outstanding at the end of the period but not included in the
computation of diluted earnings per share because their exercise price was in
excess of the average market price of the common shares for the periods
presented.
L-9
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Earnings per share for the nine months ended September 30, 1998 and 1997
consist of the following:
<TABLE>
<CAPTION>
Nine Months Ended September
30,
------------------------------
1998 1997
-------------- ---------------
Income Shares Income Shares
------- ------ ------- ------
(In thousands, except per
share amounts)
<S> <C> <C> <C> <C>
Basic EPS:
Income before extraordinary item............ $17,356 28,896 $28,736 29,420
Extraordinary Item.......................... -- -- (964) --
------- ------ ------- ------
Net income available to common
shareholders............................... $17,356 28,896 $27,772 29,420
======= ====== ======= ======
Per share amounts:
Income before extraordinary item............ $ 0.60 $ 0.98
Extraordinary Item.......................... -- (.03)
------- -------
Net income available to common
shareholders............................... $ 0.60 $ 0.95
======= =======
Diluted EPS:
Income before extraordinary item............ $17,356 28,896 $28,736 29,420
Effect of dilutive stock options............ -- 34 -- 149
------- ------ ------- ------
Income before extraordinary item and
dilutive options........................... 17,356 28,930 $28,736 29,569
Extraordinary item.......................... -- -- (964) --
------- ------ ------- ------
Net income available to common
shareholders............................... $17,356 28,930 $27,772 29,569
======= ====== ======= ======
Per share amounts:
Income before extraordinary item and
dilutive option............................ $ 0.60 $ 0.98
Effect of Dilutive Securities Stock Option.. -- (.01)
------- -------
Income before extraordinary item............ 0.60 0.97
Extraordinary item.......................... -- (.03)
------- -------
Net income available to common
shareholders............................... $ 0.60 $ 0.94
======= =======
</TABLE>
Options to purchase 1,949,500 and 334,000 shares of common stock at September
30, 1998 and 1997, respectively, at prices of $15.00-$31.25 and $21.75-$31.25,
respectively, were outstanding at the end of the period but not included in the
computation of diluted earnings per share because their exercise price was in
excess of the average market price of the common shares for the periods
presented.
4. Investment in Joint Venture
On December 28, 1994, the Company and MGM Grand, Inc.("MGM"), formed a joint
venture to own and operate the New York-New York Hotel & Casino. The hotel/
casino opened on January 3, 1997. The Company holds a 50% interest in the joint
venture. The Company has contributed cash of $69.5 million and certain rights
to the New York theme acquired from a third party licensor. MGM
L-10
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
has contributed land (valued at $41.2 million) on which the property is located
and cash of $29.5 million. In September 1998, the joint venture amended its
limited recourse $285 million bank financing. The amendment included a
reduction in bank commitments to $210 million and eliminated the scheduled
reductions under the bank loan. The joint venture also has term loan financing
of $20 million. The joint venture partners have executed Keep-Well Agreements
in conjunction with the bank financing. Should New York-New York fail to meet
certain minimum financial ratios, then the partners would be required to make
additional equity contributions, to the extent needed, to bring the ratios into
compliance.
Also, in September 1998, the Company and MGM amended the operating agreement
for the joint venture to require scheduled reductions of the bank financing and
to utilize cash flow from operations, after tax distributions, to reduce the
amount outstanding under the current bank loan.
Summary condensed financial information for the joint venture is as follows:
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
September 30, September 30,
--------------- -----------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Condensed Statement of Income Data
----------------------------------
Net revenues.............................. $55,852 $61,709 $164,584 $196,978
Operating income.......................... 19,745 25,998 59,082 84,833
Interest expense, net..................... 4,234 5,022 12,946 15,039
Net income................................ 15,511 20,976 46,137 69,794
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1998 At December 31, 1997
--------------------- --------------------
<S> <C> <C>
Condensed Balance Sheet Data
----------------------------
Total assets..................... $455,411 $470,252
Long-term debt................... 208,304 246,403
Members' equity.................. 221,247 183,350
</TABLE>
5. Long-Term Debt
On June 5, 1997 the Company entered into a Credit Agreement ("Agreement") with
a sixteen bank consortium led by Wells Fargo Bank as agent, for a $250,000,000
revolving loan. The maximum balance under the loan was increased to
$300,000,000 on December 19, 1997 and to $350,000,000 on June 4, 1998. This
loan replaced the existing Reducing Revolving Bank Credit Agreement.
The Agreement provides for interest payments at least quarterly, at the prime
rate or LIBOR, plus a sliding margin, based upon the Company's debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA") ratio. The
margin for the prime rate ranges between 0% and 1.125%, while the margin for
LIBOR ranges between 0.5% and 2.375%. The weighted average interest rate was
7.1% at September 30, 1998 and 7.0% at December 31, 1997. The Company incurs
commitment fees of .20% to .50% for the unused portion of the Agreement, also
dependent upon the debt to EBITDA ratio. The obligation is secured by a deed of
trust on all real property, leasehold interests in
L-11
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
real property, and personal property of the Company, excluding the Primm Valley
Golf Club. The Agreement contains certain restrictive covenants relating to the
use of proceeds, sale or transfer of assets, the incurrence of additional debt
over a specified level, capital expenditures, and maintenance of certain
minimum financial ratios.
The Reducing Revolving Bank Credit Agreement ("Prior Agreement") entered into
on December 28, 1993, as amended, was terminated on June 5, 1997. The Prior
Agreement provided for a maximum principal balance of $250,000,000, with
scheduled reductions in the maximum permitted beginning August 18, 1997, and
continuing thereafter through maturity on July 18, 2000. The Prior Agreement
provided for EBITDA ratios, interest payments, security interests, and
covenants that were substantially similar to the Agreement which replaced the
Prior Agreement.
The Company incurred a liability in connection with the acquisition of the New
York-New York theme rights of $1,100,000, due January 6, 1997, and $400,000 due
January 7, 1998. At December 31, 1997, $1,500,000 due for the theme rights was
reflected as a current obligation. This liability was paid in full in July
1998.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Credit Agreement $350,000,000, June 5, 1997, 5
year term, LIBOR
plus applicable margin......................... $231,700 $220,600
NEW YORK-NEW YORK theme rights due January 6,
1997 and January 7, 1998....................... -- 1,500
Other........................................... 200 304
-------- --------
231,900 222,404
Less: current portion........................... 137 1,639
-------- --------
Total long-term debt............................ $231,763 $220,765
======== ========
</TABLE>
6. Commitments and Contingencies
a. Southwest Investment
The Company has advanced a total of $3.8 million to Southwest Casino and Hotel
Corp. ("Southwest"), a developer and manager of Native American gaming
enterprises. Southwest managed a Class II Indian gaming facility in Eagle Pass,
Texas for the Kickapoo Traditional Tribe of Texas under a management contract
which was terminated on December 31, 1997. Southwest currently manages a Class
II Indian gaming facility just outside Oklahoma City, Oklahoma for the Cheyenne
and Arapaho Tribes, and has consulting agreements with several other Native
American tribes.
L-12
<PAGE>
PRIMADONNA RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The Company exchanged a portion of a $2.2 million note from Southwest for a
note from the Kickapoo tribe, secured by the assets of the Kickapoo gaming
facility. The note currently has a balance of $1.7 million. On October 30, 1998
the Company agreed to convert the $1.6 million convertible term promissory note
(which was fully reserved) and the $.3 million remaining balance of the $2.2
million demand promissory note into 2.9 million warrants for convertible
preferred stock in Southwest, as part of Southwest's plan of recapitalization.
b. Litigation
Currently, there are lawsuits pending against the Company arising in the normal
course of business. In management's opinion, the ultimate outcome of these
matters will not have a material adverse effect on the results of operations or
the financial position of the Company.
L-13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited)
SUMMARY OF OPERATIONS
For the third quarter of 1998, net income before extraordinary items declined
38.5% to $4.7 million, or $.16 per diluted share, compared to $7.7 million, or
$.27 per diluted share in the prior year period. For the nine month period
ended September 30, 1998, net income decreased 37.5% to $17.4 million, or $.60
per diluted share before extraordinary items, from $27.8 million, or $.97 per
diluted share in the prior year period. The number of shares outstanding used
to compute diluted earnings were 28,929,737 for the nine-month period of 1998
and 29,569,380 for the nine-month period of 1997.
The decreases in net income and earnings per share, as well as declines in
revenue and operating income, were primarily attributable to a decline in
earnings of New York-New York Hotel and Casino, the Company's 50% owned joint
venture. The Company's operations at Primm, Nevada realized improved earnings
before interest, taxes and depreciation (EBITDA) of 5% and 0.1% during the
respective three and nine month periods of 1998. Net income from the Primm
properties declined during the periods, primarily due to higher depreciation
and interest expenses.
New York-New York Hotel & Casino in Las Vegas opened on January 3, 1997. The
softening in New York-New York's performance is a function of both favorable
results in its inaugural year, and recent overall declines in the southern
Nevada gaming market. Although the opening year results are not expected to be
repeated, New York-New York continues to be one of the most successful
properties in Las Vegas from the standpoint of operating margins and return on
invested capital.
The increase in available hotel rooms in the Las Vegas market over the last
year, coupled with a decline in airline passengers and flat California
automobile traffic counts, continues to cause competitive pressures in southern
Nevada. The Company also believes its operations have been negatively impacted
by Indian gaming in southern California.
An extraordinary charge of $964 thousand (net of taxes), or $.03 per share, was
recorded in the second quarter of 1997. The extraordinary charge resulted from
the early termination of the Company's prior bank credit facility.
Following is an analysis of the results of operations for the three and nine
month periods ended September 30, 1998 versus the comparable periods of 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
Net revenues for the third quarter decreased 4.5% to $70.5 million. This
decrease is primarily due to the Company's share of earnings from NY-NY, which
were off $3.1 million or 24.1% for the quarter. Operations at Primm, Nevada
experienced a slight decrease in net revenues which totaled $190 thousand or
0.3% for the same period.
Casino revenue decreased $246 thousand or 0.6% due primarily to a 1.6% decline
in slot coin-in, partially offset by higher hold percentage.
L-14
<PAGE>
Food and Beverage revenues declined from $8.0 million in the third quarter of
1997, to $7.5 million in the comparable period of 1998. This decrease was
primarily the result of outsourcing select food outlets to third party
operators.
Hotel revenue declined $94 thousand or 1.7% in the quarter due to a 5.7%
reduction in the average room rate, partially offset by a 2.6% increase in
rooms sold. The increase in rooms sold was the result of a 22.7% improvement in
cash room nights occupied, as complimentary room nights declined 51.7%. The
reduction in average room rate is primarily due to competitive conditions in
southern Nevada.
Entertainment revenue in the third quarter was $776 thousand or 19.9% less than
in the prior year. The opening of a second golf course at Primm Valley helped
generate an additional $424 thousand in cash green fees, but this was more than
offset by declines in complimentary amusement and arena revenue.
Service station revenues increased $307 thousand or 6.7% for the three month
period. The amount of gasoline and diesel fuel sold increased 18.0%, more than
offsetting declines in consumer gas prices.
Other revenues were $572 thousand or 29.1% less than the comparable period of
policies. last year. The decline in other revenue is primarily related to the
cash surrender value of key man life insurance. The Company recorded a $164
thousand charge to other income in 1998 compared to a $297 thousand credit in
1997. These amounts reflect changes in the value of investments underlying the
policies.
Operating income from New York-New York, which represents the Company's 50%
share of the pre-tax, pre-interest earnings of the joint venture, was $9.9
million, a decline of 24.1% from the $13.0 million posted in the third quarter
of last year. Overall, New York-New York generated $15.5 million of pre-tax
income on net revenues of $55.9 million, compared with $21.0 million of pre-tax
income on net revenues of $61.7 million in the third quarter of 1997. EBITDA
was $25.5 million (a 45% margin) in the third quarter of 1998 versus $31.2
million (a 51% margin) in the third quarter of 1997.
COSTS AND EXPENSES
Casino expenses decreased $1.8 million or 12.2% for the three month period.
This decrease is primarily the result of a decrease in promotional allowances
due to management efforts to improve the profitability of marketing programs.
In addition, payroll costs were reduced by $321 thousand or 5.9%.
Hotel expenses increased $667 thousand or 26.1% for the third quarter,
primarily due to a decrease in the amount of hotel costs transferred to casino
expense. This reflects a 51.7% decline in complimentary rooms given to casino
customers. Additionally, total rooms sold increased by 2.6%.
Entertainment costs increased $162 thousand for the three month period when
compared to the same period of last year. Operating expenses of the Primm
Valley Golf Club increased $278 thousand for the quarter due to the opening of
the Desert course in second quarter of 1998. This increase was
L-15
<PAGE>
partially offset by a reduction in arena entertainer contract costs, and lower
amusement operating costs.
Service station costs increased $246 thousand or 6.0% for the three month
period, the result of the increase in gallons sold.
Selling, general and administrative expenses increased just $10 thousand or
0.1% in the quarter. However, there were several offsetting variances within
this item. Lower development, marketing payroll, and advertising costs were
more than offset by increases in key man life insurance expense, and lobbying
expenses.
Property costs increased $326 thousand, or 5.9% for the quarter, due primarily
to increased costs for life safety, lighting, and grounds maintenance.
Depreciation increased $1.2 million for the three month period due to
completion of the expanded and remodeled casino space, public space and parking
garage at Primm Valley Resort and Casino, and the addition of the second golf
course.
INTEREST EXPENSE
Interest expense, net, increased $950 thousand for the quarter. The higher
interest expense was primarily due to an increase in the amounts outstanding
under the credit facility, which were used to fund capital expenditures.
Interest expense, net, from New York-New York decreased $394 thousand for the
three months due to decreases in the amounts outstanding under that credit
facility.
INCOME TAXES
Income taxes decreased to $2.9 million for the quarter ended September 1998
compared to $4.3 million in the comparable prior year period. The decrease in
taxes is primarily due to lower earnings before taxes. The effective tax rate
for the company, however, increased from 35.8% of income in the third quarter
of 1997 to 38.5% of income in the same period of 1998 as the above mentioned
lobbying and life insurance expenses are not deductible for tax purposes.
NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
For the nine months ended September 30, 1998, net revenues decreased 5.6% to
$208.5 million from $220.9 million in the same period last year. This decrease
is due to the Company's share of earnings from New York-New York, which were
off $12.9 million or 30.4% for the nine months. In the period, net revenue
increases from the operations at Primm, Nevada, totaled $415 thousand or 0.2%.
Casino revenue declined by $787 thousand or 0.6% from last year, primarily due
to decreased slot volume. Slot revenues declined $1.1 million and were only
partially offset by an increase in table games revenue of $452 thousand.
L-16
<PAGE>
Food and Beverage revenues declined from $22.8 million for the nine months
ended September 30, 1997, to $22.4 million in the comparable period of 1998.
This decrease was primarily the result of outsourcing select food outlets to
third party operators.
For the nine months ended September 30, 1998, hotel revenue was $1.4 million
below prior year levels due to a 2.2% reduction in occupied rooms and a 7.7%
decline in the average rate. The decrease in occupied rooms was entirely in the
complimentary segment, which experienced a 33.9% decrease, offset in part by an
increase in cash rooms occupied of 7.3%. The room rate decline is primarily due
to the competitive conditions in southern Nevada.
Entertainment revenues were $400 thousand or 3.9% less than last year due to
increased revenues from Primm Valley Golf Club. The opening of a second golf
course at Primm Valley helped generate an additional $2.0 million in cash green
fees, but this was more than offset by declines in complimentary amusement and
arena revenue.
Service station revenues increased $797 thousand or 6.3% for the nine month
period. The amount of fuel sold increased 16.3%, and more than offset a decline
in consumer gas prices.
Operating income from New York-New York, which represents the Company's 50%
share of the pre-tax, pre-interest earnings of the joint venture, was $12.9
million or 30.4% less than the grand opening year. Net revenues at New York-New
York declined to $164.6 million from $197.0 million in the prior year nine
month period. Casino revenues were down $23.2 million or 20.7% for the nine
month period, primarily due to lower table game drop and reduced slot handle.
COSTS AND EXPENSES
Casino expenses decreased $3.1 million for the nine month period, a decline of
7.5%. This decrease is largely the result of a decrease in promotional
allowances reflective of changes in marketing programs. In addition, payroll
costs were reduced by $856 thousand or 5.4%.
Hotel expenses increased by $545 thousand for the nine months ended September
30, 1998. The increase in costs is associated with a decrease in the amount of
complimentary room costs transferred to the casino. In the period,
complimentary rooms sold declined by 33.9%.
Entertainment costs increased $1.1 million for the nine month period due
primarily to increased operating expenses of the Primm Valley Golf Club, which
were $1.0 million higher due to the opening of the second course.
Service station costs increased $441 thousand or 3.9% for the nine month
period, the result of selling more diesel fuel.
Selling, general and administrative expenses increased $711 thousand or 2.0% in
the nine month period. Decreases in development, marketing and advertising were
more than offset by increases in bus tour marketing subsidies, key man life
insurance, and lobbying expenses.
Property costs increased $862 thousand or 6.1% for the nine month period, due
primarily to increased costs for life safety, signage, parking lot maintenance,
lighting systems, and property grounds service.
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<PAGE>
Depreciation increased $3.1 million for the nine month period due to completion
of the expanded and remodeled casino, public spaces and parking garage at Primm
Valley, as well as the addition of the second golf course.
INTEREST EXPENSE
Interest expense, net, increased $2.7 million or 27.9% for the nine months. The
higher interest expense was primarily due to an increase in the amount
outstanding under the credit facility, used to fund capital expenditures.
Interest expense, net from New York-New York decreased $1.0 million or 13.9%
for the nine month period due to decreases in the amounts outstanding under its
credit facility.
INCOME TAXES
Income taxes declined to $9.8 million for the nine months ended September 30,
1998 compared to $16.0 million in the prior year period. The decrease in taxes
is due to lower earnings before taxes. The effective tax rate was slightly
higher in the period due to non-deductible charges incurred in the third
quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company held cash and cash equivalents of $7.3 million as of September 30,
1998. Net cash provided by operations during the nine months ended September
30, 1998 was $19.7 million as compared to $34.9 million in the prior year. The
decline is due to both the decrease in tax distributions from New York-New York
and a significant reduction in construction and accounts payable. The Company
funds its daily operations through cash flow from operations, and borrows funds
for significant capital expenditures and investments.
The Company has a $350 million Credit Agreement. ("Agreement", see Note 5 of
the notes to the Condensed Consolidated Financial Statements). At September 30,
1998, the amount outstanding under the Agreement was $231.7 million at an
average all-in rate of 7.1%. During the second quarter, the Company completed
the process of increasing this facility by $50 million to its full $350 million
availability, pursuant to its initial terms.
The Company is a 50% joint venture partner with MGM Grand, Inc. ("MGM") in the
New York New York Hotel & Casino, LLC. In September 1998, the joint venture
amended its limited recourse $285 million bank financing. The amendment
included a reduction in bank commitments to $210 million and eliminated the
scheduled reductions under the bank loan. At September 30, 1998, $195.6 million
was outstanding under this loan. Additionally, term loan financing was obtained
in January 1997, with a balance at September 30, 1998 of approximately $15.2
million. The Company and MGM executed Keep-Well Agreements in conjunction with
the bank loan. The Keep-Well provisions require that certain financial ratios
be maintained and stipulate that the partners make equity contributions if
these ratios are not met. Operating performance to date at New York-New York
has exceeded these provisions.
The Board of Directors has approved a stock repurchase program authorizing the
Company to acquire up to $50 million worth of its outstanding shares. The
Company had acquired 2,114,500 shares for $36.5 million at September 30, 1998.
L-18
<PAGE>
The first phase of the 525,000 square foot Fashion Outlet of Las Vegas opened
July 16, 1998. The facility was built and financed by the developers, although
the Company has incurred $1.6 million for the infrastructure improvements
necessary to accommodate this development. The Company may benefit from the
increase in visitors to Primm, Nevada caused by the mall. In addition, the
Company has placed slot machines in the facility's transition area from the
Primm Valley Resort & Casino, and may place additional slot machines in the
mall itself. The Company has no other financial interest in the mall project.
The Company has expanded the Primm Valley property by the addition of 34,000
square feet of casino, restaurant and retail space that is connected to the
mall. This expansion (with the exception of the restaurant space) was also
opened on July 16, 1998. Additionally, the current coffee shop has been
renovated and a new piano bar has been added in the casino area.
Capital expenditures for the nine months ended September 30, 1998 were $31.5
million, as compared to $57.0 million for the nine months ended September 30,
1997. In addition to the above mentioned projects, the Company has completed
the construction of a second golf course at Primm Valley, expanded and upgraded
the monorail from Buffalo Bills to Primm Valley, and remodeled and upgraded the
casino and selected guest rooms at Primm Valley. Normal expenditures for the
maintenance of existing facilities and equipment were also experienced.
The Company expects continuing difficult year-ago comparisons for New York-New
York, due to its extremely successful opening in 1997, and increasing
competitive pressures in the Las Vegas market. Room and gaming capacity in the
Las Vegas market has expanded and is expected to continue to increase
significantly over the next two years. Such additions to supply may have a
negative impact on both New York-New York and the Primm properties. In
addition, on November 3, 1998, California voters passed Proposition Five, which
permits gaming on Indian reservations. While the Company anticipates that
Proposition Five will be subject to a variety of legal challenges, its
implementation or any other expansion of Indian gaming in Southern California
would have a negative impact on the Primm operations and, to a lesser extent,
on the operations of New York-New York.
The Company believes that its current cash flow, coupled with its bank
facility, provides both the resources and flexibility to meet existing
obligations and to fund its commitments on the projects discussed above. The
Company continues to pursue other gaming opportunities and, if successful in
securing another location, depending upon the amount of funding required, may
need to obtain additional bank or vendor financing, or issue public or private
debt or equity, or a combination thereof.
IMPACT OF THE YEAR 2000 ISSUE
Efficient operation of the Company's business is dependent in part on its
computer software programs and operating systems. These programs and systems
are used in several key areas of the Company's business including operations,
marketing and administration. The Company has been evaluating its internal
systems and determined that one of its critical systems is not year 2000
compliant. The Company, in conjunction with the system vendor, expects to
implement a compliant version of the system at a cost of approximately $1
million. The implementation is expected to be
L-19
<PAGE>
completed prior to the fourth quarter of 1999. However, if the upgrade on this
system is not accomplished in a timely manner, its failure could have an
adverse effect on the Company's operation. The Company has also identified
several non-critical systems which are not year 2000 compliant, but which will
be made compliant via minor expenditures for software upgrades.
Certain of the systems on which the Company relies are completely maintained by
outside vendors. In addition, certain equipment used in the daily operations of
the Company relies on software programs and operating systems over which the
Company has no direct control. The Company continues to review with its vendors
of software, equipment, products and services any possible exposures from the
year 2000 issue. In the event that any of the Company's significant vendors
does not successfully and timely achieve year 2000 compliance, the Company's
business could be adversely affected.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as
"believes", "intend", "may", "expect", "will", or "continue," or the negative
thereof, or other variations thereon, or comparable terminology. As with any
construction projects, the Primm Valley expansion and upgrade and the outlet
mall, involve many risks and uncertainties, including but not limited to
material and labor shortages, work stoppages, design changes, and weather
disruptions. Further, engineering, environmental, or geological problems and
governmental regulations and approvals could give rise to delays or cost
overruns. For additional factors which could cause forward looking statements
to be materially different than actual results, see "Business Risks" section of
Annual Report Form 10-K at December 31, 1997.
L-20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In September 1998, discovery began in the purported class action lawsuit by
Poulos, Ahern, Schreirer as discussed in the Annual Report Form 10-K Legal
Proceeding.
There have been no significant events in the lawsuit filed by, Yolanda Manuel,
the non-custodial parent of Sherrice Iverson, as discussed in the Company's
Annual Report on Form 10-K. There have been no significant events in a lawsuit
filed by Leroy Iverson and Harold Jordon, the custodial parent and "personal
representative" of Ms. Iverson's estate and brother of Sherrice Iverson.
Items 2 through 4. Are not applicable.
Item 5. Market for Registrant's Common Stock & Related Stockholders Matters
On October 13, 1998, the Compensation Committee of the Board of Directors
authorized an offer to re-price the previous stock option awards to all
management employees, excluding directors and consultants. The offer to re-
price included the following conditions: (1) all re-priced options would be
subject to a 20% forfeiture of the individual's stock option awards, (2) all
re-priced options would not be exercisable for six months unless certain events
occur, and (3) the exercise price would be the closing price on the date,
between October 26, 1998 and October 30, 1998, the individual agreed to the
conditions, but not less than 4 7/8, the closing price on October 13, 1998. All
offers to re-price were accepted with exercise prices ranging from 6 15/16 to 7
1/4.
On November 9, 1998, the Company and MGM Grand, Inc. announced that their
respective Boards of Directors have approved in principle MGM Grand's
acquisition of Primadonna in an all stock transaction. The terms of the merger
provide for Primadonna's stockholders to receive 0.33 shares of MGM Grand
common stock for each share of Primadonna stock held, or a total of
approximately 9.5 million shares of MGM Grand common stock. The transaction is
subject to the execution of a definitive merger agreement, Primadonna
shareholder approval and the satisfaction of various conditions to be contained
in the merger agreement, including obtaining certain regulatory approvals. The
parties expect to enter into a definitive merger agreement within two weeks.
The merger is expected to be completed in the first quarter of 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.37 Change in Control and Salary Continuation Agreement by and among
Gary Primm and Primadonna Resorts, Inc. dated as of September 24,
1998.
10.38 Amendment to Operating Agreement by and between MGM Grand, Inc.
("MGM) and PRMA Las Vegas, Inc. ("PRMA-LV) dated as of August ,
1998 (incorporated by reference to Exhibit 10.17 to the Form 10-K
for the year ended December 31, 1994).
27. Financial Data Schedule as of September 30, 1998.
See exhibit index on page 24 for exhibits filed with this report
(b) Reports on Form 8-K. No report of Form 8-K was filed during the quarter
for which this report is filed.
L-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
PRIMADONNA RESORTS, INC.
____________________________________
(Registrant)
Date: November 12, 1998 By /s/ John L. Shigley
---------------------------------
John L. Shigley
Chief Financial Officer
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<PAGE>
APPENDIX M
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
----------------
PRIMADONNA RESORTS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
Nevada 0-21732 88-0297563
------ ------- ----------
<S> <C> <C>
(State or other (Commission (IRS employer
jurisdiction of file number) identification number)
incorporation)
</TABLE>
31700 LAS VEGAS BOULEVARD SOUTH, PRIMM, NV 89019
(address of principal executive offices)
(702) 679-7267
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name or former address, if change since last report)
M-1
<PAGE>
ITEM 5. OTHER EVENTS
On December 4, 1998, MGM Grand, Inc. and Primadonna Resorts, Inc. entered
into an Agreement and Plan of Merger, dated as of December 2, 1998, pursuant to
which MGM Grand will acquire Primadonna in an all stock transaction. The terms
of the merger provide for Primadonna's stockholders to receive 0.33 shares of
MGM Grand common stock for each share of Primadonna common stock held, or a
total of approximately 9.5 million shares of MGM Grand common stock. A copy of
the press release announcing the execution of the Merger Agreement is attached
hereto as Exhibit 99.1 and incorporated by reference.
M-2
<PAGE>
ITEM 7. EXHIBITS
(a) & (b) Not Applicable.
(c) Exhibits
Exhibit 99.1 Press Release, dated December 7, 1998.
M-3
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PRIMADONNA RESORTS, INC.
By: /s/ John L. Shigley
-----------------------------
Date: December 30, 1998 John L. Shigley
Chief Financial Officer
M-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") provides that a Delaware corporation may indemnify any person
against expenses, judgments, fines and amounts paid in settlements actually
and reasonably incurred by any such person in connection with a threatened,
pending or completed action, suit or proceeding, other than an action, suit or
proceeding in the name of the corporation, in which he is involved by reason
of the fact that he is or was a director, officer, employee or agent of such
corporation, provided that (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. If the action or suit
is by or in the name of the corporation, the corporation may indemnify any
such person against expenses actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no indemnification may
be made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation, unless and only to the extent that
the Delaware Court of Chancery or the court in which the action or suit is
brought determines upon application that, despite the adjudication of
liability but in light of the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expense as the court deems
proper.
Article II, Section 12 of the Bylaws of MGM Grand, Inc. (the "Registrant")
provides for indemnification of persons to the extent permitted by the
Delaware Law.
In accordance with Section 102(b)(7) of the Delaware Law, the Certificate of
Incorporation, as amended, of the Registrant limits the personal liability of
its directors for violations of their fiduciary duty. The Certificate of
Incorporation eliminates each director's liability to the Registrant or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the section of the Delaware law
providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions, or (iv) for any transaction from
which a director derived an improper personal benefit. The effect of this
provision is to eliminate the personal liability of directors for monetary
damages for actions involving a breach of their fiduciary duty of care,
including any such actions involving gross negligence. This provision will
not, however, limit in any way the liability of directors for violations of
the Federal securities laws.
The Registrant carries Directors and Officers Liability Insurance Policies
which are maintained in effect on a yearly basis.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2(1) Agreement and Plan of Merger, dated as of December 2, 1998, by and
among the Registrant, MGM Grand Acquisition Corp. and Primadonna
Resorts, Inc. (incorporated by reference to Appendix A to the Proxy
Statement/Prospectus included in this Registration Statement).
3(1) Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3(1) to Registration
Statement No. 33-3305).
3(a) Amendment to Certificate of Incorporation dated July 17, 1997
(incorporated by reference to Exhibit 3(a) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "1997 10-K")).
3(2) Bylaws of the Registrant, 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 Registrant, as
issuer, the Guarantor Parties thereto, as guarantors, and PNC Bank,
National Association, as Trustee (incorporated by reference to
Exhibit 4(1) to the Registrant'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 the
Registrant, as issuer, the Guarantors Parties thereto and U.S.
Trust Registrant of California, N.A., dated as of February 6, 1998
(incorporated by reference to Exhibit 4(2) to the Form 8-K).
5 Opinion of Christensen, Miller, Fink, Jacobs, Glaser, Weil &
Shapiro, LLP.
8 Opinion of Christensen, Miller, Fink, Jacobs, Glaser, Weil &
Shapiro, LLP.
*10(1) MGM Grand, Inc. Nonqualified Stock Option Plan (incorporated by
reference to Exhibit 10(1) to the Registrant'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,
between the Registrant, 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 Registrant's Current Report on Form 8-K dated July 23, 1997).
10(3)(a) Amendment No. 1 to Amended and Restated Loan Agreement.
(incorporated by reference to Exhibit 10(3)(a) to the 1997 10-K)
10(3)(b) Amendment No. 2 to Amended and Restated Loan Agreement.
(incorporated by reference to Exhibit 10(3)(b) to the 1997 10-K)
*10(4) Letter Agreements, dated January 3, 1991 and February 9, 1993,
between the Registrant and Alex Yemenidjian (incorporated by
reference to Exhibit 10(19) of the Registrant'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 Registrant 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
Registrant'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 Registrant and New York-New York
Hotel, LLC dated as of December 26, 1994 (incorporated by reference
to the 1994 Form 10-K).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
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 Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "1995 10-K")).
10(9) Completion Guaranty dated as of September 15, 1995 by the Registrant
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 Registrant
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 Registrant 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 Registrant 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 Registrant 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 Registrant 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 Registrant'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 Registrant's Proxy
Statement dated March 28, 1997).
*10(31) Letter Agreement dated April 22, 1997, between the Registrant 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 Registrant and
James Murren (incorporated by reference to Exhibit 10(32) to the 1997
10-K).
21 List of Subsidiaries.
23(1) Consent of Independent Public Accountants.
23(2) Consent of Independent Public Accountants.
23(3) Consent of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro,
LLP (included in Exhibit 5).
23(4) Consent of Gary E. Primm.
23(5) Consent of Morgan Stanley & Co. Incorporated.
24 Power of Attorney (see p II-6 hereof).
99(1) Form of Proxy for Special Meeting of Stockholders of Primadonna
Resorts, Inc.
</TABLE>
- --------
* Management contract or compensatory plan.
II-3
<PAGE>
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission (the "Commission") pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
provided, however, that the undertakings set forth in paragraphs (a)(1)(i)
and (a)(1)(ii) above do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
Registrants pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered hereby which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any
II-4
<PAGE>
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the foregoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada on January 20, 1999.
MGM GRAND, INC.
By /s/ J. Terrence Lanni
_____________________________________
J. Terrence Lanni
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of MGM Grand, Inc., do hereby
constitute and appoint Alex Yemenidjian and Scott Langsner or either of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and behalf in our capacities as directors and officers and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorneys and agents, or either of them, may deem necessary
or advisable to enable said corporation to comply with the Securities Act of
1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated
below, any and all amendments (including post-effective amendments) to this
Registration Statement, or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended; and we do hereby ratify and confirm all that the said
attorneys and agents, or either of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Terrence Lanni Chairman of the Board and January 20, 1999
____________________________________ Chief Executive Officer
J. Terrence Lanni (Principal Executive
Officer)
/s/ Alex Yemenidjian President, Chief Operating January 20, 1999
____________________________________ Officer and Director
Alex Yemenidjian
/s/ Fred Benninger Director January 20, 1999
____________________________________
Fred Benninger
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James J. Murren Executive Vice President, January 20, 1999
____________________________________ Chief Financial Officer and
James J. Murren Director (Principal
Financial and Accounting
Officer)
/s/ James D. Aljian Director January 20, 1999
____________________________________
James D. Aljian
/s/ Terry N. Christensen Director January 20, 1999
____________________________________
Terry N. Christensen
Director January , 1999
____________________________________
Glenn A. Cramer
Director January , 1999
____________________________________
Willie D. Davis
Director January , 1999
____________________________________
Alexander M. Haig, Jr.
Director January , 1999
____________________________________
Kirk Kerkorian
/s/ Walter M. Sharp Director January 20, 1999
____________________________________
Walter M. Sharp
/s/ Jerome B. York Director January 20, 1999
____________________________________
Jerome B. York
</TABLE>
II-7
<PAGE>
EXHIBIT 5
[LETTERHEAD OF CHRISTENSEN, MILLER, FINK, JACOBS, GLASER, WEIL & SHAPIRO, LLP]
January 20, 1999
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, NV 89109
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
You have requested our opinion in connection with the issuance by MGM
Grand, Inc., a Delaware corporation (the "Company"), of shares of the Company's
Common Stock, $0.01 par value per share (the "Shares"), in connection with the
Merger (as defined below). The Shares are the subject of the Company's
Registration Statement on Form S-4 (the "Registration Statement") to be filed by
the Company with the Securities and Exchange Commission on January 21, 1999.
The Shares are to be issued in connection with an Agreement and Plan of
Merger, dated as of December 2, 1998 (the "Merger Agreement"), by and among the
Company, MGM Grand Acquisition Corp., a Nevada corporation that is a wholly
owned subsidiary of the Company ("Merger Subsidiary"), and Primadonna Resorts,
Inc., a Nevada corporation ("Primadonna"), pursuant to which, among other
things, (i) Merger Subsidiary will be merged with and into Primadonna (the
"Merger"), with Primadonna as the surviving corporation, and (ii) each share of
common stock, par value $.01 per share, of Primadonna outstanding at the
effective time of the Merger will be converted into the right to receive .33
shares of the Company's Common Stock.
We have acted as counsel for the Company in connection with the Merger and
the Registration Statement. We have examined and relied upon copies, unless
otherwise stated, of the following documents: (i) the Certificate of
Incorporation and By-laws of the Company, as amended to date; (ii) minutes and
resolutions of the Executive Committee of the Company's Board of Directors
relating to the Merger, including without limitation, the authorization and
issuance of the Shares; (iii) the Registration Statement (together with the
Proxy Statement/Prospectus forming a part thereof); and (iv) such other
documents, instruments and agreements as we have deemed necessary or appropriate
as a basis for the opinion set forth below.
In rendering our opinion herein, we have assumed, with your permission: the
genuineness and authenticity of all signatures on original documents submitted
to us; the authenticity of all
<PAGE>
MGM Grand, Inc.
January 20, 1999
Page 2
documents submitted to us as originals; the conformity to originals of all
documents submitted to us as copies or facsimiles; the continued accuracy of all
certificates and other documents from public officials dated earlier than the
date of this letter; the Registration Statement being declared effective by the
Securities and Exchange Commission; the issuance by any necessary regulatory
agencies of appropriate permits, consents, approvals, authorizations and orders
relating to the offering and sale of the Shares; the consummation of the Merger
in accordance with the Merger Agreement and the offer and sale of the Shares
being made in the manner set forth in the Registration Statement and pursuant to
said permits, consents approvals, authorizations and orders. In addition, we
have made such legal and factual examinations and inquiries as we have deemed
necessary or appropriate for purposes of this opinion.
With respect to the matters set forth below, we are relying as to certain
factual matters solely upon a certificate of an officer of the Company.
Our opinions herein are limited to the General Corporation Law of the State
of Delaware (based upon the latest unofficial compilation thereof available to
us) and the federal laws of the United States. We express no opinion whatsoever
with respect to the laws of any other jurisdiction and can assume no
responsibility for the applicability or effect of any such laws. In addition,
please be advised that Mr. Terry N. Christensen, a partner of Christensen,
Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, is a director of the Company.
Based on and subject to the foregoing, it is our opinion that when issued
the Shares will be validly issued, fully paid and non-assessable.
This opinion is addressed solely to the Company, and no one else has the
right to rely upon it, nor may anyone release it, quote from it, or employ it in
any transaction other than those discussed herein without the written consent of
the undersigned; however, the undersigned hereby consents to the filing of this
opinion as an exhibit to, and the references to the undersigned contained in,
the Registration Statement.
Very truly yours,
/s/ CHRISTENSEN, MILLER, FINK, JACOBS, GLASER, WEIL & SHAPIRO, LLP
CHRISTENSEN, MILLER, FINK, JACOBS, GLASER, WEIL & SHAPIRO, LLP
<PAGE>
EXHIBIT 8
[LETTERHEAD OF CHRISTENSEN, MILLER, FINK, JACOBS, GLASER, WEIL & SHAPIRO, LLP]
January 20, 1999
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Primadonna Resorts, Inc.
P.O. Box 95997
Interstate 15
Las Vegas, Nevada 89193-5997
Re: Merger of MGM Acquisition Corp., A Wholly-Owned Subsidiary of MGM
Grand, Inc., With And Into Primadonna Resorts, Inc.
Registration Statement on Form S-4
Dear Sirs:
We have acted as counsel for MGM Grand, Inc. and MGM Acquisition Corp. in
connection with the above-referenced registration statement. In connection
therewith, we have reviewed the discussion set forth under the caption "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" other than as to the tax effects of the
proposed merger on Primadonna Resorts, Inc. (the "Discussion") in the Proxy
Statement/Prospectus (the "Prospectus") that is part of the Registration
Statement on Form S-4 ("Registration Statement") filed by MGM Grand, Inc. and
Primadonna Resorts, Inc. with the Securities and Exchange Commission.
Capitalized terms used herein but not defined have the same meanings as provided
in the Prospectus.
It is our opinion that the Discussion is accurate.
We hereby consent to the use of our name in the Registration Statement. The
issuance of such a consent does not concede that we are an "expert" for purposes
of the Securities Act of 1933.
Very truly yours,
/s/ Christensen, Miller, Fink, Jacobs, Glaser,
Weil & Shapiro, LLP
CHRISTENSEN, MILLER, FINK, JACOBS, GLASER, WEIL
& SHAPIRO, LLP
<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
<PAGE>
EXHIBIT 23(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion or
incorporation by reference in this Registration Statement on Form S-4 of our
report dated January 28, 1998 included in the MGM Grand, Inc. Annual Report on
Form 10-K for the year ended December 31, 1997, and to all references to our
Firm included in or made a part of this Registration Statement on Form S-4.
Arthur Andersen LLP
Las Vegas, Nevada
January 20, 1999
<PAGE>
EXHIBIT 23(2)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion or
incorporation by reference in this Registration Statement on Form S-4 of our
report dated January 30, 1998 included in the Primadonna Resorts, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997, and to all references
to our Firm included in or made a part of this Registration Statement on
Form S-4.
Arthur Andersen LLP
Las Vegas, Nevada
January 20, 1999
<PAGE>
EXHIBIT 23(4)
CONSENT
I hereby consent to the reference to me under the caption "The Merger--Terms
of the Merger--Directors and Principal Officers of MGM Grand" in the Proxy
Statement on Schedule 14A of Primadonna Resorts, Inc. ("Primadonna") and in the
Prospectus forming a part of the Registration Statement on Form S-4 of MGM
Grand, Inc. relating to the merger acquisition of Primadonna by MGM Grand.
Date: January 19, 1999
/s/ Gary E. Primm
------------------------------
Gary E. Primm
<PAGE>
EXHIBIT 23(5)
CONSENT
We hereby consent to the inclusion in the Registration Statement on Form S-4
of MGM Grand, Inc. ("MGM Grand"), relating to the proposed merger of MGM Grand
Acquisition Corp., a wholly owned subsidiary of MGM Grand, with and into
Primadonna Resorts, Inc. ("Primadonna"), of our opinion letter dated November
17, 1998 to the Board of Directors of Primadonna appearing as Appendix B to the
Proxy Statement/Prospectus that forms a part of such Registration Statement,
and to the references to our firm name therein. In giving such consent, we do
not thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations adopted by the Securities and Exchange Commission
thereunder, nor do we admit that we are experts with respect to any part of
such Registration Statement within the meaning of the term "experts" as used in
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Morgan Stanley & Co. Incorporated
By: /s/ Neil B. Morganbesser
-----------------------------
Neil B. Morganbesser
Los Angeles, California
January 19, 1999
<PAGE>
EXHIBIT 99(1)
PROXY
PRIMADONNA RESORTS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS--FEBRUARY 23, 1999
The undersigned hereby appoints Gary E. Primm and Robert E. Armstrong, and
each of them, proxies with full power of substitution, for and in the name of
the undersigned to vote all shares of Common Stock of Primadonna Resorts, Inc.,
a Nevada corporation (the "Company"), that the undersigned would be entitled to
vote at the Company's 1999 Special Meeting of Stockholders to be held on
February 23, 1999 (the "Meeting"), 10:00 AM, Local Time, at the Primm Valley
Resort and Casino Conference Center, 31900 Las Vegas Boulevard South,
Interstate 15 at the Southern California/Nevada border in Primm, Nevada, 89109,
or at any and all adjournments and postponements thereof upon the matters set
forth in the Notice of the Meeting as stated hereon, hereby revoking any proxy
heretofore given.
The undersigned acknowledges receipt of the Notice of the Meeting and the
accompanying Proxy Statement/Prospectus.
(Continued and to be SIGNED on the other side)
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL 1.
Please mark your vote as indicated in this example: [X]
1. Approval of the Agreement and Plan of Merger, dated as of December 2,
1998, by and among MGM Grand, Inc., MGM Grand Acquisition Corp. and the
Company.
[_] FOR[_] AGAINST[_] ABSTAIN
2. In their discretion on any other matter that may properly come before
the special meeting, including any adjournments or postponements thereof.
[_] FOR[_] AGAINST[_] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1 AND 2 SET FORTH ABOVE.
Date: _______________________
-----------------------------
SIGNATURE
Date: _______________________
-----------------------------
SIGNATURE
NOTE: Please sign exactly as
name appears hereon. Joint
owners should each sign.
When signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such.
