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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, 1996.
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 1-11124
MGM GRAND HOTEL FINANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0276650
(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) 891-1111
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
-------------------- -------------------
$220,000,000 11 3/4% First Mortgage Notes due 1999 New York Stock Exchange
$253,000,000 12% First Mortgage Notes due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(J)(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH REDUCED
DISCLOSURE FORMAT.
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PART I
ITEM 1. BUSINESS
GENERAL
MGM Grand Hotel Finance Corp. ("MGM Finance"), a wholly-owned subsidiary of
MGM Grand, Inc. ("MGM Grand"), was incorporated in Nevada on October 4, 1991
with the intention that it function solely as a financing corporation to issue
First Mortgage Notes to the public, to incur bank debt (the "Bank Loan") in
connection therewith, and to lend the aggregate proceeds to MGM Grand
Hotel/Casino ("MGM Grand Las Vegas") to finance the construction, opening, and
working capital of the Las Vegas property. 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.
MGM Grand Hotel, Inc., a wholly-owned subsidiary of MGM Grand, a Delaware
corporation, was incorporated in Nevada on December 21, 1989, and capitalized on
February 16, 1990, for the purposes of acquiring real property, and building and
operating a large scale hotel/casino and entertainment complex.
MGM Grand Las Vegas commenced operations on December 18, 1993. The resort
is located on approximately 113 acres on Las Vegas Boulevard South (the "Strip")
in Las Vegas, Nevada, across the street from the Excalibur Hotel/Casino, the
Tropicana Hotel/Casino, and the New York-New York Hotel/Casino.
The principal executive offices of MGM Finance and MGM Grand Las Vegas are
located at 3799 Las Vegas Boulevard South, Las Vegas, Nevada, 89109. The
telephone number is (702) 891-1111.
HOTELS AND GAMING
MGM Grand Las Vegas
MGM Grand Las Vegas is a multi-themed destination resort, located on
approximately 113 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 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, and is one of the
largest casinos in the world. The casino has 3,708 slot machines and 163 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: Emerald City, Hollywood, Monte Carlo, and
Sports which enhance the entertainment experience of the casino patron.
The hotel, which management believes is the largest in the world, has 5,005
rooms, including approximately 4,254 typical guest rooms decorated in five
different themes: Deep South, Hollywood, Monte Carlo, Emerald, and Casablanca.
The hotel also has 751 luxury suites, which management believes is more than any
other Las Vegas hotel. These suites range in size from 650 to 6,000 square feet.
The hotel provides guests with a state of the art health spa, a swimming pool,
and four lighted tennis courts.
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Other entertainment facilities include: a theme park including thrill rides
and the new 250 foot high Sky Screamer 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, MGM Grand Las Vegas' original grand spectacle special effects
stage production; nine restaurants and a food court; 51 retail shopping outlets,
including 25 owned and 26 leased facilities; and a special events center, which
seats a maximum of 16,766 patrons, providing mega entertainment such as Barbara
Streisand, Bette Midler, the Rolling Stones, Rod Stewart, Neil Diamond, Phil
Collins, and Luther Vandross, as well as Mike Tyson and Evander Holyfield boxing
and various other sporting events.
In an effort to continue a legacy of providing exceptional entertainment
through the leveraging of its highly recognizable brand name, MGM Grand Las
Vegas has embarked on an extensive transformation into "The City of
Entertainment." The $250 million, 30-month Master Plan program is designed to
enhance the quality of the entertainment experience, and features a series of
substantive improvements and additions throughout its 113 acre destination
resort. Such enhancements will include an expansion of entertainment, restaurant
and retail shopping areas and a new convention center consisting of
approximately 300,000 square feet which will occupy approximately 15 of the
current 33 acres in the theme park, a significant enhancement to the major
entrances and exteriors of the facility, and an upgrade of certain of the
property's luxury suites. The renovation and expansion began in June 1996 and
will be substantially complete by the end of 1998. The project has commenced in
phases in order to minimize disruption of operations. Additionally, the lion
entry will be substantially remodeled with exterior enhancements which will
create theatrical multimedia projection and light shows designed to increase
customer foot traffic at the property. As part of the enhancement program, MGM
Grand Las Vegas anticipates introducing a new Entertainment Casino area with
dramatic live entertainment, themed restaurants, a nightclub and an increase in
the number of gaming positions by approximately 500.
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) local.
Las Vegas Market
MGM Grand Las Vegas operates in the Las Vegas market and is located on the
Strip. Las Vegas is the largest city in Nevada, with a metropolitan area
population in excess of one million and is one of the largest 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
8.4% from $1.6 billion in 1986 to $3.6 billion in 1996.
The hotel/casino industry in Las Vegas is highly competitive. Several new
hotel/casinos opened during 1996 including Monte Carlo, Orleans and
Stratosphere. New York-New York hotel /casino ("NYNY"), which is 50% owned by
MGM Grand and 50% owned by Primadonna Resorts, Inc., opened to the public on
January 3, 1997. NYNY is located on approximately 20 acres at the northwest
corner of Tropicana and the Strip, across from MGM Grand Las Vegas.
Additionally, several new resorts are under construction and several other
existing resorts are undergoing major expansion and renovation. MGM Grand Las
Vegas, Luxor, Caesars and others are in various stages of expansion or
remodeling. While some of the large themed resorts pose direct competition with
MGM Grand Las Vegas, the Las Vegas Convention and Visitors Authority ("LVCVA")
statistics show that tourism growth is increasing at a rate which appears to
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be sufficient to absorb the increased room capacity, as visitor volume for 1996
increased 2.2% over 1995. Total visitors for 1996 exceeded 29.6 million.
MGM Grand Las Vegas competes 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 casino/hotel.
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 operations in Nevada. Furthermore, pursuant to a
recent California State Assembly Legislative report, it is estimated that 12,000
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 carries insurance of the type customary in the hotel
and casino industry and in amounts deemed adequate by management to protect the
property. The policies provide business and commercial coverages, including
workers' compensation, third party liability, property damage, boiler and
machinery, and business interruption.
Government Regulation
The ownership and operation of casino gaming facilities in 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. MGM Grand Las Vegas 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 MGM Grand Las Vegas' 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, and as the operator of the
racebook and sportspool at NYNY. MGM Grand
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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 of, or receive any percentage of profits from, MGM
Grand Las Vegas without first obtaining licenses and approvals from the Nevada
Gaming Authorities. MGM Grand has 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 MGM Grand Las Vegas to
determine whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and certain key
employees of MGM Grand Las Vegas 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 MGM Grand who are
actively and directly involved in the gaming activities of MGM Grand Las Vegas
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 MGM Grand Las Vegas or MGM Grand, such company or companies
would have to sever all relationships with such person. In addition, the Nevada
Commission may require MGM Grand Las Vegas 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.
MGM Grand Las Vegas is required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, leases,
sales of securities and similar financing transactions by MGM Grand Las Vegas
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, the gaming licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, MGM Grand Las Vegas, 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 gaming property 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 MGM Grand Las Vegas' gaming
operations.
Any beneficial holder of the MGM Grand'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 MGM Grand's
voting securities determined if the Nevada Commission
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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 MGM Grand's
voting securities to report the acquisition to the Nevada Commission. The Nevada
Act requires that beneficial owners of more than 10% of MGM Grand'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 MGM Grand'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 MGM Grand, any change in MGM Grand's corporate charter, bylaws, management,
policies or operations of MGM Grand or any of its gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent with holding
MGM Grand'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 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. MGM Grand 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 MGM Grand Las Vegas or
MGM Grand (i) pays that person any dividend or interest upon voting securities
of MGM Grand; (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.
Upon request, MGM Finance may be required to disclose to the Nevada Gaming
Commission the identities of the Noteholders. The Nevada Gaming Authorities will
have discretionary authority to require a Noteholder to file an application, to
be investigated and to be found suitable as an owner or landlord of a gaming
establishment in the event of a foreclosure on and the taking of possession of
MGM Grand Las Vegas and by or on behalf of the Secured Lenders' Agent for the
benefit of the Trustee and the Bank Agent following a default under the MGM
Grand Hotel, Inc. Loan Agreement and the Collaterally Assigned Documents (as
defined), or for any other reason. While the Nevada Gaming Authorities
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generally do not require the individual holders of obligations such as the First
Mortgage Notes to be investigated and found suitable, these authorities retain
the discretion to do so for any reason, including but not limited to a default,
or where the holder of the debt instrument exercises a material influence over
the gaming operations of the entity in question. Each Noteholder, by accepting
First Mortgage Notes, shall be deemed to have agreed (to the extent permitted by
law) that if the relevant Nevada Gaming Authorities determine that a holder or
beneficial owner of First Mortgage Notes must be found suitable under applicable
law (whether as a result of the foreclosure sale of MGM Grand Las Vegas or for
any other reason), and if such holder or beneficial owner is not found suitable,
(i) such Noteholder shall, upon the request of MGM Finance, dispose of such
holder's First Mortgage Notes within 30 days after receipt of such request or
within the time prescribed by the Nevada Gaming Authorities, whichever is
earlier, or (ii) MGM Finance may, at its option, redeem such holder's First
Mortgage Notes at the lesser of (x) the principal amount thereof or (y) the
price at which the First Mortgage Notes to be so redeemed were acquired by the
Noteholder, in either case together with accrued interest to the redemption
date. Any Noteholder required to apply for a finding of suitability must pay all
investigative fees and costs of the Nevada Gaming Authorities in connection with
such an investigation.
In any foreclosure sale of the MGM Grand Las Vegas, the purchaser or the
operator of the facility would need to be licensed in order to operate the
facility under Nevada gaming laws and the regulations promulgated thereunder,
and if the Secured Lenders' Agent (as defined) acting on behalf of the Trustee
(as defined) and the Bank Agent (as defined), purchases MGM Grand Las Vegas at a
foreclosure sale and thereafter is unable or chooses not to sell MGM Grand Las
Vegas, the Secured Lenders' Agent would be required to retain an entity licensed
under the Nevada gaming laws in order to conduct gaming operations in the
facility and the Noteholders (as defined) may have to be licensed. Because
potential bidders who wish to operate the facility as a casino must satisfy such
requirements, the number of potential bidders in a foreclosure sale could be
less than in foreclosures of other types of facilities, and such requirements
may delay the sale of, and may adversely affect the sales price for, MGM Grand
Las Vegas. The ability to take possession and dispose of the collateral securing
the First Mortgage Notes and the Bank Loan upon acceleration is likely to be
significantly impaired or delayed by applicable bankruptcy law if a bankruptcy
case were to be commenced by or against MGM Grand Las Vegas, MGM Finance or MGM
Grand prior to the Secured Lenders' Agent taking possession or disposing of the
collateral securing the First Mortgage Notes and the Bank Loan.
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.
MGM Grand 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. MGM Grand is also
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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. MGM Grand is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require MGM Grand'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 MGM Grand.
MGM Grand 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 25, 1996, the Nevada Commission granted MGM Grand prior approval to
make public offerings for a period of one year, subject to certain conditions
(the "Shelf Approval"). However, the Shelf Approval may be rescinded for good
cause without prior notice upon the issuance of an interlocutory stop order by
the Chairman of the Nevada Board. 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 MGM Grand 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 MGM Grand 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 MGM Grand'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 where certain
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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, also pay certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are also required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in a foreign operation who has been denied a license or
a finding of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by MGM Grand Las Vegas is subject to
licensing, control and regulation by the applicable local authorities. All
licenses are revocable and are not transferable. The agencies involved have full
power to limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse effect
upon MGM Grand Las Vegas' 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 report them to the Nevada Board, which in turn reports them to the Treasury.
Although it is not possible to quantify the full impact of these requirements on
MGM Grand Las Vegas' business, the changes are believed to have had some adverse
effect on results of operations since inception.
On November 28, 1994, the Treasury enacted amendments (effective December
1, 1994) to the federal regulations under the Bank Secrecy Act. The amendments
require casinos subject to the Bank Secrecy Act to implement written programs no
later than June 1, 1995 to assure and monitor compliance with the Bank Secrecy
Act. Although Nevada casinos are exempt from Title 31, the Treasury has
requested the Nevada Commission to enact amendments to the Nevada Act that will
parallel in many respects the amendments to the Bank Secrecy Act. These
amendments to the Nevada Act will require suspicious activity
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reporting and MGM Grand Las Vegas will, in the future, be required to implement
programs of this type.
Regulation and Taxes
As stated above, MGM Grand Las Vegas is subject to extensive regulation by
the Nevada Gaming Authorities. Changes in applicable laws or regulations could
have an adverse effect on MGM Grand Las Vegas.
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 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 financial results of MGM
Grand Las Vegas.
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. MGM Grand Las Vegas 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 these competitors may have
greater resources.
According to the LVCVA, as of December 31, 1996, there were approximately
101,000 hotel and motel rooms in the Las Vegas area (including NYNY which
was completed prior to December 31, 1996 and which opened on January 3, 1997).
In addition, the LVCVA reports projects under construction and/or proposed for
future development of approximately 25,500 more hotel and motel rooms, including
one themed hotel/casino property currently under construction on the Strip
between Tropicana and Flamingo Avenues. Additionally, Circus-Circus has
publicized its intent to commence additional projects which will add additional
themed hotel/casino facilities south of Luxor. The management of MGM Grand Las
Vegas cannot make any prediction as to how many additional rooms will be
constructed in Las Vegas. MGM Grand Las Vegas' 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,
MGM Grand Las Vegas competes with hotel/casino facilities elsewhere in the world
and with state lotteries. Certain states are currently considering legalizing
casino gaming in specific geographic areas, and several other states have
recently legalized casino gaming. This growth has been driven by the expansion
of traditional land-based casino destinations and the continued development of
new riverboat and Native American reservation casinos throughout the United
States. Currently, casinos are operating or are approved in 26 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 MGM Grand Las Vegas' 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
9
<PAGE>
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, MGM Grand Las Vegas' hotel/casino facilities also compete with
hotels and resorts, which do not include casinos, throughout the United States.
See "Las Vegas Market."
EMPLOYEES
As of December 31, 1996, MGM Grand Las Vegas and MGM Grand Finance
(collectively, the "Combined Companies") and its subsidiaries employed
approximately 6,100 full-time equivalent employees. 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 15, 1996, MGM Grand Las Vegas voluntarily recognized 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, and
has commenced negotiations.
ITEM 2. PROPERTIES
The Combined Companies 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 $504,000. Approximately 5,800 square feet of the leased space was
subleased to New York-New York Hotel and Casino, LLC. ("NYNY LLC"), for an
annual rent of approximately $55,500; NYNY LLC terminated the lease and
relocated their offices to NYNY on December 31, 1996, and no further lease
revenues are anticipated.
MGM Grand Las Vegas is located on approximately 113 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 $600,000,000, on which there are no amounts
outstanding, which bears interest based on LIBOR or the bank reference rate, and
which is due December 2001.
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 MGM Grand and
MGM Grand Las Vegas. The suit alleges that MGM Grand and MGM Grand Las Vegas
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 MGM
Grand Las Vegas. 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 MGM Grand Las Vegas' 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This item is omitted in accordance with General Instruction (J) to Form
10-K.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MGM Grand Hotel , Inc. and MGM Finance are wholly-owned subsidiaries of MGM
Grand.
ITEM 6. SELECTED FINANCIAL DATA
This item is omitted in accordance with General Instruction (J) to Form
10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis pertains to the combined financial statements
of MGM Grand Hotel, Inc. and MGM Finance.
Results of Operations
1996 Compared to 1995
MGM Grand Las Vegas had net revenues for 1996 of $766,834,000, compared
with $712,791,000 for 1995. Casino revenue for 1996 was $450,402,000, compared
with $397,448,000 in 1995. Room revenue in 1996 was $172,447,000 on an occupancy
of 94.7% versus $160,052,000 on an occupancy of 90.6% in 1995. Entertainment,
retail, food and beverage, and other revenue was $198,949,000 in 1996, compared
with $210,928,000 in the prior year. The increase in casino revenue was
primarily due to a higher win percentage in baccarat, table games and slots. The
increase in room revenue was due to the increase in occupancy and average daily
room rate. The average room rate increased from $98 in 1995 to $101 in 1996.
Also, promotional allowances decreased from $55,637,000 in 1995 to $54,964,000
in 1996 reflecting management's focus on diversifying its customer mix.
Operating income in 1996 (before Master Plan asset disposition) was
$195,558,000 compared with $113,562,000 in 1995.
Master Plan asset disposition relates to 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 one-time pretax charge of $49,401,000 in
1996 (see Note 10).
Interest income. Interest income was $3,200,000 in 1996, compared with
$1,136,000 in 1995. The increase was attributable to higher average invested
cash balances during the first half of 1996 (prior to the defeasance of the MGM
Grand Hotel Finance Corp. First Mortgage Notes - see Note 7), reflecting the
higher operating cash flow when compared with 1995.
Interest expense. Interest expense (net of capitalized interest) for 1996
was $28,826,000, compared with $57,021,000 in 1995. The decrease was primarily
due to the significant reduction of the debt balance attributable to the
defeasance of the First Mortgage Notes during 1996 (see Note 7).
Income taxes. Income tax provision from continuing operations of
$36,800,000 was recorded at a rate of 35.1% for 1996, compared with the prior
year when there was no provision due to the benefit resulting from the reduction
of the valuation allowance.
1995 Compared to 1994
MGM Grand Las Vegas had net revenues for 1995 of $712,791,000, compared
with $742,529,000 for 1994. Casino revenue for 1995 was $397,448,000, compared
with
11
<PAGE>
$434,297,000 in 1994. Room revenue in 1995 was $160,052,000 on an occupancy of
90.6% versus $145,530,000 on an occupancy of 92.0% in 1994. Entertainment,
retail, food and beverage, and other revenue was $210,928,000 in 1995, compared
with $214,324,000 in the prior year. The decrease in casino revenue was
primarily due to the unusually high win percentage in baccarat in 1994. The
increase in room revenue was primarily due to the increase in the average daily
room rate, partially offset by a slightly lower occupancy percentage, reflecting
less marketing emphasis on the tour and travel business segment. In addition,
promotional allowances increased to $55,637,000, compared with $51,622,000 in
the prior year, due to increased marketing efforts to attract national
customers.
Operating income in 1995 was $113,562,000 compared with $135,195,000 in
1994. In addition to the changes in revenues noted above, the lower results were
primarily attributable to an increase in reserves for casino receivables, an
increase in casino marketing efforts, and an increase in depreciation and
amortization reflecting the asset additions for general property and equipment,
and EFX show equipment. Also contributing to the lower operating results was the
$5,942,000 restructuring charge (see Note 11) during the third quarter of 1995.
The increased costs were offset by reductions in expenses which resulted from
the continuing cost containment efforts.
Interest income. Interest income was $1,136,000 in 1995, compared with
$3,056,000 in the 1994 period. Interest was higher during 1994 as a result of
the short term investment of undistributed construction funds.
Interest expense. Interest expense (net of capitalized interest) in 1995
was $57,021,000, compared with $61,927,000 in 1994. The reduction in interest
expense reflects capitalization of interest on various construction projects
which did not occur in the prior year.
Income taxes. The combined companies did not record a provision for income
taxes in 1995 due to utilization of tax benefits not realized in prior years,
which have offset any provision for 1995. In 1994 the combined companies
provided income tax of $22,041,000 as the realization of tax benefits was
uncertain due to the combined companies earnings history.
Liquidity and Capital Resources
As of December 31, 1996 and 1995, the Combined Companies held cash and cash
equivalents of $58,792,000 and $77,715,000, respectively. Cash provided by
operations for 1996 was $153,367,000 compared with $106,232,000 in 1995.
Capital expenditures for 1996 were $39,370,000 consisting of $16,055,000 on
Studio Walk, Grand Entry and other Master Plan property enhancements, $3,056,000
on room refurbishments and $20,259,000 on general property improvements.
Capital expenditures for 1995 were $30,630,000 consisting of $14,000,000
expended for the Star Lane Shops mall which opened September 1995, $3,800,000
related to theater improvements, $3,200,000 for refurbishments to suites, and
$9,630,000 for general property improvements, and the purchase of furniture,
fixtures and equipment.
The Combined Companies expect to finance operations and capital
expenditures through cash on hand, cash flow from operations, and the bank line
of credit.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of MGM Grand Hotel Finance Corp. and
MGM Grand Hotel, Inc.:
We have audited the accompanying combined balance sheets of MGM Grand Hotel
Finance Corp. and MGM Grand Hotel, Inc. (Nevada corporations and wholly-owned
subsidiaries of MGM Grand, Inc.) as of December 31, 1996 and 1995, and the
related statements of operations, stockholder's equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of MGM Grand Hotel, Inc.'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 Hotel Finance
Corp. and MGM Grand Hotel, Inc. as of December 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The supplemental schedule in
Item 14(a) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a required part of the basic combined
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic combined 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 combined financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 30, 1997
13
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Casino ............................................................. $ 450,402 $ 397,448 $ 434,297
Rooms .............................................................. 172,447 160,052 145,530
Food and beverage .................................................. 71,974 87,359 91,566
Entertainment, retail and other .................................... 126,975 123,569 122,758
--------- --------- ---------
821,798 768,428 794,151
Less: promotional allowances ...................................... 54,964 55,637 51,622
--------- --------- ---------
766,834 712,791 742,529
--------- --------- ---------
Expenses:
Casino ............................................................. 202,791 192,448 185,427
Rooms .............................................................. 46,781 43,671 45,303
Food and beverage .................................................. 41,877 55,541 65,043
Entertainment, retail and other .................................... 89,802 93,866 115,443
Provision for doubtful accounts and discounts ...................... 38,556 57,683 44,181
Restructuring costs ................................................ - 5,942 -
General and administrative ......................................... 94,215 95,508 107,591
Depreciation and amortization ...................................... 57,254 54,570 44,346
--------- --------- ---------
571,276 599,229 607,334
--------- --------- ---------
Operating Profit Before Master Plan Asset Disposition ................... 195,558 113,562 135,195
Master Plan Asset Disposition ........................................... (49,401) - -
--------- --------- ---------
Operating Income ........................................................ 146,157 113,562 135,195
--------- --------- ---------
Other Income (Expenses)
Interest income .................................................... 3,200 1,136 3,056
Interest expense, net of capitalized interest ...................... (28,826) (57,021) (61,927)
Management fees .................................................... (15,575) (15,782) (13,350)
Other, net ......................................................... (240) - -
--------- --------- ---------
(41,441) (71,667) (72,221)
--------- --------- ---------
Income Before Income Taxes and Extraordinary Item ....................... 104,716 41,895 62,974
Provision for Income Taxes .............................................. (36,800) - (22,041)
--------- --------- ---------
Income Before Extraordinary Item ........................................ 67,916 41,895 40,933
--------- --------- ---------
EXTRAORDINARY ITEM:
Loss on defeasance of debt, net of
income tax benefit of $17,710 ........................................ (30,811) - -
--------- --------- ---------
Net Income .................................................... $ 37,105 $ 41,895 $ 40,933
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
14
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................... $ 58,792 $ 77,715
Accounts receivable, net .................................... 79,888 77,912
Intercompany receivable, net ................................ 81,579 --
Prepaid expenses ............................................ 12,846 12,455
Inventories ................................................. 12,430 9,879
----------- -----------
Total current assets ..................................... 245,535 177,961
----------- -----------
Property And Equipment, Net ..................................... 816,578 874,731
----------- -----------
Other Assets:
Due from parent ............................................. -- 1,509
Deposits .................................................... 15,234 16,281
Other assets, net ........................................... 36,835 52,580
----------- -----------
Total other assets ....................................... 52,069 70,370
----------- -----------
$1,114,182 $1,123,062
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable ............................................ $ 30,658 $ 17,903
Accrued liabilities ......................................... 105,028 78,520
Taxes payable to parent ..................................... 38,604 13,460
Intercompany payables, net .................................. -- 6,583
Current obligation, capital leases .......................... 2,701 2,162
Accrued interest on long term debt .......................... -- 9,368
----------- -----------
Total current liabilities ................................ 176,991 127,996
----------- -----------
Deferred Revenue ................................................ 6,713 8,568
Deferred Income Taxes ........................................... 97 6,171
Long Term Obligation, Capital Leases ............................ 7,701 10,412
Long Term Debt .................................................. -- 473,000
----------- -----------
Total long term liabilities ................................ 14,511 498,151
----------- -----------
Commitments and Contingencies ................................... -- --
Stockholder's Equity:
MGM Finance Corp. Common Stock, (no par value,
1,000 shares authorized; 100 shares issued) ................. -- --
MGM Grand Hotel Common Stock, ($1.00 value,
1,000 shares authorized; 100 shares issued) ................. -- --
Capital in excess of par value ................................ 846,477 455,246
Retained earnings ............................................. 76,203 41,669
----------- -----------
Total stockholder's equity ................................. 922,680 496,915
----------- -----------
$1,114,182 $1,123,062
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
15
<PAGE>
<TABLE>
<CAPTION>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income ............................................................................. $ 37,105 $ 41,895 $ 40,933
Adjustments to reconcile net income to
net cash from operating activities:
Master Plan asset disposition ..................................................... 49,401 - -
Loss on defeasance of debt ......................................................... 48,521 - -
Depreciation and amortization ...................................................... 57,254 54,570 44,346
Amortization of debt offering costs ................................................ 1,292 3,249 2,831
Provision for doubtful accounts and discounts ...................................... 38,556 57,683 44,181
Change in assets and liabilities:
Accounts receivable ........................................................... (40,533) (41,732) (95,407)
Prepaid expenses .............................................................. (391) 590 (2,130)
Inventories ................................................................... (3,327) (1,284) (5,603)
Accounts payable, accrued liabilities, and other .............................. 36,436 (8,074) 39,675
Intercompany (receivable)/payable ............................................. (88,162) 4,273 1,503
Taxes payable to parent ....................................................... 25,144 2,528 10,932
Deferred revenue .............................................................. (1,855) 63 (2,279)
Deferred income taxes ......................................................... (6,074) (7,529) 11,109
---------- ---------- ----------
Net cash from operating activities ............................................... 153,367 106,232 90,091
---------- ---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment .................................................... (39,370) (30,630) (62,829)
Disposition of property and equipment .................................................. 240 181 270
Production Show Costs .................................................................. (2,514) -- --
Change in construction payables ........................................................ (20) (3,126) (92,741)
Deposits and other assets .............................................................. 1,374 (24,363) (28,291)
---------- ---------- ----------
Net cash from investing activities ............................................... (40,290) (57,938) (183,591)
---------- ---------- ----------
Cash Flows from Financing Activities:
Borrowings under bank line of credit ................................................... - 15,000 -
Repayments of bank line of credit ...................................................... - (15,000) -
Investments from MGM Grand, Inc. ....................................................... 391,231 - -
Defeasance of First Mortgage Notes ..................................................... (523,231) - -
---------- ---------- ----------
Net cash from financing activities ............................................... (132,000) - -
---------- ---------- ----------
Net Increase ( Decrease) in Cash and Cash Equivalents .................................... (18,923) 48,294 (93,500)
Cash and Cash Equivalents at Beginning of Year ........................................... 77,715 29,421 122,921
---------- ---------- ----------
Cash and Cash Equivalents at End of Year ................................................. $ 58,792 $ 77,715 $ 29,421
========== ========== ==========
Supplemental disclosures of non-cash investing and financing transactions:
Property and equipment acquired with capital leases .............................. $ - $ - $ 806
========== ========== ==========
Debt offering costs capitalized to property and equipment ........................ $ - $ - $ 1,028
========== ========== ==========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1996, 1995 and 1994
MGM FINANCE
AND MGM CAPITAL IN RETAINED TOTAL
GRAND HOTEL EXCESS OF EARNINGS STOCKHOLDER'S
COMMON STOCK PAR VALUE (DEFICIT) EQUITY
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 ..................... $ - $ 455,246 $ (41,159) $ 414,087
Net Income ............................. - - 40,933 40,933
------------- ------------ ------------ -------------
Balance at December 31, 1994 ..................... - 455,246 (226) 455,020
Net Income ............................. - - 41,895 41,895
------------- ------------ ------------ -------------
Balance at December 31, 1995 ..................... - 455,246 41,669 496,915
Net Income ............................. - - 37,105 37,105
Capital Contribution from MGM Grand Inc. - 391,231 - 391,231
Other................................... - - (2,571) (2,571)
------------- ------------ ------------ -------------
Balance at December 31, 1996 ..................... $ $ 846,477 $ 76,203 $ 922,680
============= ============ ============ =============
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
17
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
MGM Grand Hotel, Inc. is a Nevada corporation incorporated on December 21,
1989, and capitalized on February 16, 1990, for the purposes of acquiring real
property, and building and operating a large scale hotel/casino and
entertainment complex, on approximately 113 acres of land fronting both the Las
Vegas Strip and Tropicana Avenue. The Theme Park is operated by MGM Grand
Movieworld, Inc., a wholly owned subsidiary of MGM Grand Hotel, Inc.,
incorporated on June 25, 1990. MGM Grand Hotel , Inc. is a wholly-owned
subsidiary of MGM Grand, Inc. ("MGM Grand"), a Delaware corporation. MGM Grand
Hotel Inc. commenced operations December 18, 1993.
MGM Grand Hotel Finance Corp. ("MGM Finance"), a wholly-owned subsidiary of
MGM Grand was incorporated in Nevada on October 4, 1991, with the intention that
it function solely as a financing corporation to issue debt securities and to
obtain loan commitments from one or more banks and enter into a bank loan in
connection therewith. The proceeds of financings were loaned to MGM Grand Hotel,
Inc., pursuant to a disbursement agreement. MGM Finance has no other business
operations. See Note 7 regarding defeasance of MGM Finance First Mortgage Notes.
These combined financial statements include the accounts of the MGM Grand
Hotel, Inc., and its subsidiaries and MGM Finance (collectively the "Combined
Companies").
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(a) Management's Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Cash and Cash Equivalents
Cash and cash equivalents consist of investments in bank certificates of
deposit and other interest bearing instruments with original maturities of 90
days or less. Such investments are carried at cost, which approximates market
value.
(c) Receivables
Receivables are due within one year and are recorded net of amounts
estimated to be uncollectible.
(d) Inventories
Inventories are stated at the lower of cost, which is determined generally
by the FIFO method, or market.
(e) Property and Equipment
Property and equipment are stated at cost. All costs related to MGM Grand
Las Vegas, including developing and financing costs, were capitalized to the
project during the period the
18
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(e) Property and Equipment (continued)
complex was under construction. Maintenance, repairs and renewals that neither
materially add to the value of the property nor appreciably prolong its life are
charged to expense as incurred. Gains or losses on dispositions of property and
equipment are included in the determination of income. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings.................................................. 15 to 40 years
Furniture, fixtures and equipment.......................... 3 to 7 years
Land improvements.......................................... 15 years
Leasehold improvements..................................... 5 to 20 years
</TABLE>
(f) Other Assets
The estimated cost of normal hotel operating quantities (base-stock) of
china, silverware, glassware, and utensils is recorded as an asset and is not
depreciated. Costs of base-stock replacements are expensed as incurred.
Organizational costs are amortized on a straight-line basis over 60 months.
(g) Revenue Recognition
Casino revenues are recorded as gaming wins less losses.
(h) Promotional Allowances
The retail value of accommodations, food, 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 $54,964,000 for the period ended December 31, 1996,
$55,637,000 for the period ended December 31, 1995 and $51,622,000 for the
period ended December 31, 1994. The estimated cost of providing such promotional
allowances was included in casino expenses as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Rooms............... $ 9,091 $ 8,512 $ 7,809
Food and beverage... 21,809 23,588 24,115
Other............... 2,457 3,804 5,176
-------- -------- --------
$ 33,357 $ 35,904 $ 37,100
-------- -------- --------
</TABLE>
(i) Capitalized Interest
MGM Grand Las Vegas capitalizes interest costs associated with debt
incurred in connection with major construction projects. MGM Grand Las Vegas
capitalizes interest on amounts expended on the project at the MGM Grand Las
Vegas' weighted average cost of borrowed funds (see Note 7), and based upon the
weighted average amount of the MGM Grand Las Vegas' outstanding borrowings.
Capitalization of interest ceases when the project is substantially completed.
19
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(j) Reclassifications
Certain reclassifications have been made to conform the prior years with
the current year presentation. These reclassifications had no effect on net
income.
NOTE 3. STATEMENT OF CASH FLOWS
The following supplemental disclosures are provided for the combined
statements of cash flows.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments for:
Interest, Net of Amounts Capitalized. . . . $ 39,043 $ 53,501 $ 59,094
========= ========= =========
</TABLE>
NOTE 4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1996 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Casino.............................................. $ 102,408 $ 98,878
Hotel............................................... 11,780 11,257
Other............................................... 1,022 850
------------------ -----------------
115,210 110,985
Less: Allowance for doubtful accounts and discounts (35,322) (33,073)
------------------ -----------------
$ 79,888 $ 77,912
================== =================
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1996 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Land................................................ $ 93,232 $ 90,567
Building and improvements........................... 615,364 658,144
Equipment, furniture and fixtures................... 206,613 198,907
Construction in progress............................ 21,070 1,822
Property under capital lease obligations............ 17,793 17,793
------------------ -----------------
954,072 967,233
Less: Accumulated depreciation...................... (137,494) (92,502)
------------------ -----------------
$ 816,578 $ 874,731
================== =================
</TABLE>
20
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1996 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Accrued Salaries and Related........................ $ 33,066 $ 27,808
Casino Front Money.................................. 24,796 21,279
Casino Chip Liability............................... 15,524 5,803
Advance Deposits.................................... 4,330 5,113
Accrued Gaming Taxes................................ 1,599 3,986
Other............................................... 25,713 14,531
------------------ -----------------
$ 105,028 $ 78,520
================== =================
</TABLE>
NOTE 7. LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1996 1995
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
11 3/4% First Mortgage Notes due May 1, 1999........ $ - $ 220,000
12% First Mortgage Notes due May 1, 2002............ - 253,000
------------------ -----------------
$ - $ 473,000
================== =================
</TABLE>
On July 3, 1996, MGM Grand deposited $523,231,000 (the "Defeasance
Deposit") with the Trustee, U.S. Trust of California, to fund the defeasance of
MGM Grand Hotel Finance Corp. First Mortgage Notes ("FMN's") in accordance with
the terms of the bond indenture. The Defeasance Deposit was made in the form of
U.S. Government securities and will be used to fund interest payments on the
FMN's through May 1, 1997, the call as of such date of the 11-3/4% FMN's at
101.958% of the outstanding principal, the call as of such date of the 12% FMN's
at 105.333% of the outstanding principal, and related expenses. On October 29,
1996, the liens on the assets of MGM Grand Hotel, Inc. and MGM Grand Hotel
Finance Corp. were released and accordingly, the defeasance was finalized. The
early extinguishment of the FMN's resulted in an extraordinary loss of
approximately $30,811,000, net of income tax benefits of $17,710,000. The First
Mortgage Notes Indenture contained various restrictive covenants including the
maintenance of certain financial ratios and limitations on additional debt,
dividends, stock repurchases, dispositions of assets, mergers and similar
transactions. At December 31, 1995, MGM Grand Hotel, Inc. was limited to
dividend payments of approximately $51,000,000 to MGM Grand under the indenture.
The total interest incurred during 1996, 1995 and 1994 was $31,059,000,
$61,338,000 and $61,927,000 respectively, of which $2,233,000 and $4,317,000 was
capitalized in 1996 and 1995 respectively. No interest was capitalized in 1994.
21
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7. LONG TERM DEBT (CONTINUED)
MGM Grand Las Vegas had a $60,000,000 bank credit line which terminated on
October 29, 1996. During 1995, MGM Grand Las Vegas borrowed and repaid
$15,000,000, and as of December 31, 1995, no amounts were outstanding under the
facility.
NOTE 8. COMMITMENTS AND CONTINGENCIES
MGM Grand Las Vegas leases building and equipment under various capital and
operating lease agreements which expire through the year 2027. The leases
generally provide that MGM Grand Las Vegas pay the taxes, insurance, and
maintenance expense related to leased assets.
At December 31, 1996, MGM Grand Hotel, Inc. is obligated to make future
minimum lease payments as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ ------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
1997................................................ $ 3,151 $ 3,458
1998................................................ 4,559 3,873
1999................................................ 604 2,120
2000................................................ 506 2,764
2001................................................ 416 -
Thereafter.......................................... 15,793 -
------------------ -----------------
Total Minimum Lease Payment.................... $ 25,029 12,215
==================
Amount Representing Interest........................ (1,813)
-----------------
10,402
Less: Amount due within one year.................... (2,701)
-----------------
Amount Due After One Year........................... $ 7,701
=================
</TABLE>
Rental expense on the above noted non-cancelable operating leases was
$3,687,000, $3,552,000 and $12,225,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
NOTE 9. EMPLOYEE PENSION AND SAVINGS PLANS
Participation in the MGM Grand Hotel, Inc. 401(k) savings plan is available
for all full time employees not a part of a bargaining unit. The savings plan
allows participants to defer, on a pretax basis, a portion of their salary and
accumulate tax deferred earnings as a retirement fund. MGM Grand Hotel, Inc.
matches 25% of employee contributions up to a maximum of 1% of 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 years ended December 31, 1996 and 1995,
MGM Grand Hotel, Inc. contributions under this arrangement were $3,060,000, and
$3,189,000, respectively.
22
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9. EMPLOYEE PENSION AND SAVINGS PLANS (CONTINUED)
Effective November 1994, MGM Grand and MGM Grand Hotel 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 Hotel Savings Plan. All
deferred amounts vest immediately. There are no employer matching contributions
made under this plan. The full amount vested in a participant's account will be
distributed to a participant following termination of employment, normal
retirement or in the event of disability or death.
NOTE 10. MASTER PLAN ASSET DISPOSITION
During September 1996, MGM Grand determined to write-off various assets
with a net book value of $49,401,000 as a result of the MGM Grand Las Vegas
Master Plan, associated with the transformation of the facility into "The City
of Entertainment." The affected areas include approximately $39,564,000 of costs
in MGM Grand Adventures Theme Park to prepare for construction of additional
entertainment/retail facilities and a convention center, approximately
$8,580,000 related to the removal of the lion entrance, and approximately
$1,257,000 representing the cost of certain food court and midway/arcade areas
which have been converted in Studio Walk.
NOTE 11. COMPANY RESTRUCTURING PLAN
On August 1, 1995, MGM Grand 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 $5,942,000, primarily related to
employee severance payments.
NOTE 12. INCOME TAXES
The Combined Companies account for income taxes according to Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets, net of
applicable reserves, related to net operating loss carryforwards and certain
temporary differences. The standard requires recognition of a future tax benefit
to the extent that a realization of such benefit is more likely than not.
Otherwise, a valuation allowance is applied. At December 31, 1996 the Combined
Companies believe 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, the
valuation allowance of $4,486,000 at December 31, 1995, was completely reversed
during 1996.
23
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12. INCOME TAXES (CONTINUED)
The Combined Companies are included in the consolidated MGM Grand federal
tax return. Federal income taxes are provided and become payable on a separate
return basis in accordance with an intercompany tax sharing agreement. Net
operating losses are allocated to the Combined Companies in the year the loss is
utilized in the MGM Grand consolidated federal return. The Combined Companies'
provision does not purport to be a proportionate share of the consolidated tax.
The provision (benefit) for income taxes on income from continuing
operations before extraordinary item for the years ended December 31, 1996,
1995, and 1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current federal..................................... $ 27,806 $ 7,528 $ 10,932
Deferred federal.................................... 8,994 (7,528) 11,109
--------- ---------- ---------
$ 36,800 $ - $ 22,041
========= ========== =========
</TABLE>
Reconciliation of the Federal income tax rate and the Combined Companies'
effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Federal income tax rate............................. 35.0% 35.0% 35.0%
Permanent and other................................. 4.1 - -
Change in valuation allowance....................... (4.0) (35.0) -
--------- ---------- ---------
Effective tax rate.................................. 35.1% - % 35.0%
========= ========== =========
</TABLE>
24
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12. INCOME TAXES (CONTINUED)
As of December 31, 1996, the major tax effected components of the Combined
Companies' net deferred tax liability is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
<S> <C> <C>
Deferred Tax Asset
Net operating loss carryforward.................. $ - $ 17,353
Bad debt reserve................................. 8,656 7,989
Hotel preopening expenses........................ 5,822 8,860
Accruals, reserves and other..................... 1,059 2,597
Tax credit carryforward.......................... 29,590 21,850
Master Plan asset disposition.................... 16,639 -
Defeasance of First Mortgage Notes............... 11,278 -
------------------ -----------------
73,044 58,649
Less: Valuation allowance........................ - (4,486)
------------------ -----------------
Total deferred tax asset......................... 73,044 54,163
Deferred Tax Liability
Depreciation and amortization.................... (73,141) (60,334)
------------------ -----------------
Total deferred tax liability..................... (73,141) (60,334)
Net Deferred Tax Liability.......................... $ (97) (6,171)
================== =================
</TABLE>
MGM Grand Las Vegas has an alternative minimum tax credit carryfoward of
$21,469,000 which does not expire, and General Business credit carryfoward of
$8,121,000 which expires in different periods through 2010.
NOTE 13. TRANSACTIONS WITH MGM GRAND AND ITS SUBSIDIARIES
The Combined Companies participated in several transactions with MGM Grand
and its subsidiaries during the periods presented in the accompanying combined
financial statements.
On December 27, 1994, MGM Grand Hotel purchased Grand Laundry, Inc. from
MGM Grand for $9,800,000. Grand Laundry, Inc. provides MGM Grand Hotel with
laundry services.
MGM Grand provided the MGM Grand Hotel with certain administrative and
project management services. Pursuant to a management agreement, such services
are provided commencing October 1991, at annual fees of $6,000,000 during the
construction period. Thereafter, the annual fee is equal to one percent (1%) of
the Combined Companies' gross operating revenues before promotional allowances
plus four percent (4%) of its operating income. For 1996, $15,575,000 was
incurred and paid to MGM Grand, Inc., in 1995 $15,782,000 was incurred with
$4,643,000 actually paid during 1995 and the balance paid in 1996 to MGM Grand,
Inc., and in 1994 $13,350,000 was expended and paid to MGM Grand, Inc. under
this arrangement.
The capital in excess of par value in the accompanying combined balance
sheets represents capital contributions to MGM Grand Hotel for the property and
equipment purchases, including design, procurement and pre-construction costs,
capitalized interest and working capital.
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of MGM Grand Hotel Finance Corp.:
We have audited the accompanying balance sheets of MGM Grand Hotel Finance
Corp. (a Nevada corporation and wholly-owned subsidiary of MGM Grand, Inc.) as
of December 31, 1996 and 1995, and the related statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
MGM Grand Hotel Finance Corp.'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 Hotel Finance
Corp. as of December 31, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
January 30, 1997
26
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Intercompany interest income ................. $ 27,701 $ 55,946 $ 59,182
Intercompany charge to MGM Grand Hotel -
capitalized interest and facility expenses (1,597) - (59,165)
Interest expense ............................. (26,104) (55,943) (17)
Other expenses, net .......................... - (3) -
--------- --------- ---------
Income (Loss) before provision for
income taxes and extraordinary item ........ - - -
Provision for income taxes ................... - - -
--------- --------- ---------
Income (Loss) Before Extraordinary Item .... - - -
--------- --------- ---------
EXTRAORDINARY ITEM:
Loss on defeasance of debt, net of
income tax benefit of $17,710 ............... (30,811) - -
--------- --------- ---------
Net Loss $(30,811) - -
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
27
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............ $ - $ -
------------ ------------
Total current assets .............. - -
------------ ------------
Other Assets:
Debt offering costs, net ............. - 9,274
Intercompany receivable from MGM Grand
Hotel - note ........................ - 394,604
Intercompany receivable from MGM Grand
Hotel - note interest ............... - 21,805
Intercompany receivable from MGM Grand
Hotel - other ....................... - 9,358
Deferred tax asset ................... 11,278 -
Intercompany receivable from MGM Grand
Hotel - capitalized interest and
facility expenses ................... - 53,855
------------ ------------
Total other assets ................ 11,278 488,896
------------ ------------
$ 11,278 $ 488,896
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accrued interest payable ............ $ - $ 9,368
Note payable ........................ - -
------------ -------------
Total current liabilities ........ - 9,368
------------ -------------
Long Term Debt ........................ - 473,000
------------ -------------
Stockholder's Equity:
Common stock, no par value: 1,000
shares authorized; 100 shares issued - -
Capital in excess of par value ...... 42,089 6,528
Retained deficit .................... (30,811) -
------------ -------------
Total stockholder's equity ....... 11,278 6,528
------------ -------------
$ 11,278 $ 488,896
============ =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
28
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------
1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss ......................................................................... $ (30,811) $ - $ -
Adjustments to reconcile net loss to
net cash from operating activities:
Amortization of debt offering costs .......................................... 1,378 2,629 2,606
Loss on defeasance of First Mortgage Notes ................................... 48,521 - -
Change in assets and liabilities:
Intercompany receivable - note
interest ............................................................... - 61 3,946
Accrued interest payable ................................................. (9,036) (61) 122
Deferred tax asset ....................................................... (11,278) - -
Intercompany Receivables - Other ................................................... - (2,629) (6,729)
--------- --------- ---------
Net cash from operating activities ..................................... (1,226) - (55)
--------- --------- ---------
Cash Flows from Investing Activities: .............................................. - - -
Cash Flows from Financing Activities:
Capital contributions by parent .................................................. - - 50
Intercompany Receivable - Other .................................................. 72,487 - -
Intercompany Receivable - Note Interest .......................................... 21,805 - -
Intercompany Receivable - Note ................................................... 394,604 - -
Investment from MGM Grand Inc. ................................................... 35,561 - -
Defeasance of First Mortgage Notes ............................................... (523,231) - -
--------- --------- ---------
Net cash from financing activities ..................................... 1,226 - 50
--------- --------- ---------
Net Decrease in Cash and Cash
Equivalents ...................................................................... - - (5)
Cash and Cash Equivalents at Beginning of
Year.............................................................................. - - 5
--------- --------- ---------
Cash and Cash Equivalents at End of Year............................................ $ - $ - $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
MGM GRAND HOTEL FINANCE CORP.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1996, 1995 and 1994
MGM FINANCE
AND CAPITAL IN RETAINED TOTAL
MGM GRAND HOTEL EXCESS OF EARNINGS STOCKHOLDER'S
COMMON STOCK PAR VALUE (DEFICIT) EQUITY
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 ..................... $ - $ 6,478 $ - $ 6,478
Net Income ............................. - - - -
Capital Contribution from MGM Grand,
Inc. .................................. - 50 - 50
------------- ------------- ------------- -------------
Balance at December 31, 1994 ..................... - 6,528 - 6,528
Net Income ............................. - - - -
------------- ------------- ------------- -------------
Balance at December 31, 1995 ..................... - 6,528 - 6,528
Net Loss ............................... - - (30,811) (30,811)
Capital Contribution from MGM Grand,
Inc. .................................. - 41,993 - 41,993
============= ============= ============= =============
Balance at December 31, 1996 ..................... $ - $ 48,521 $ (30,811) $ 17,710
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
30
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
MGM Grand Hotel Finance Corp. ("MGM Finance"), a wholly-owned subsidiary of
MGM Grand, Inc. ("MGM Grand"), was incorporated in Nevada on October 4, 1991,
with the intention that it function solely as a financing corporation to issue
debt securities and to obtain loan commitments from one or more banks and enter
into a bank loan in connection therewith. The proceeds of financings are loaned
to MGM Grand Hotel, Inc., ("MGM Grand Hotel") a wholly-owned subsidiary of MGM
Grand, pursuant to a disbursement agreement. The MGM Grand Hotel is an
integrated hotel/casino and entertainment complex on approximately 113 acres of
prime real estate (owned by MGM Grand Hotel) in Las Vegas, Nevada. MGM Finance
has no other business operations.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(a) Management's Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Cash and Cash Equivalents
Cash and cash equivalents consist of investments in bank certificates of
deposit and other interest bearing instruments with original maturities of 90
days or less. Such investments are carried at cost, which approximates market
value.
(c) Other Assets
Direct costs related to the debt offering and bank financing were being
amortized over the debt repayment periods until the defeasance of the First
Mortgage Notes (see Note 4), at which time such remaining costs were recognized
in the extraordinary loss.
(d) Intercompany Receivable From MGM Grand Hotel - Capitalized Interest
and Facility
Expenses
The receivable from MGM Grand Hotel - capitalized interest, represents
intercompany charges by MGM Finance to MGM Grand Hotel equivalent to interest
costs capitalized with respect to development and construction costs of MGM
Grand Hotel. The intercompany charge to MGM Grand Hotel - capitalized interest,
included in the Statements of Operations, represents intercompany charges equal
to the interest costs capitalized for the periods presented.
The receivable from MGM Grand Hotel - facility expenses, represents
intercompany charges by MGM Finance to MGM Grand Hotel equivalent to the excess
of both interest expense (net of amounts capitalized) and general and
administrative expense over interest income.
31
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3. CAPITALIZATION
In October, 1991, MGM Grand paid $1,000 for 100 shares of MGM Finance
common stock. In December, 1991, MGM Grand contributed debt offering costs
incurred of $568,575 along with organizational costs of incurred of $897 to the
equity of MGM Finance. During 1992, MGM Grand contributed debt offering costs of
$4,606,000 to the equity of MGM Finance.
NOTE 4. LONG TERM DEBT
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1996 1995
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
11 3/4% First Mortgage Notes due May 1, 1999..... $ - $ 220,000
12% First Mortgage Notes due May 1, 2002......... - 253,000
--------------- --------------
$ - $ 473,000
=============== ==============
</TABLE>
On July 3, 1996, MGM Grand deposited $523,231,000 (the "Defeasance
Deposit") with the Trustee, U.S. Trust of California, to fund the defeasance of
MGM Grand Hotel Finance Corp. First Mortgage Notes ("FMN's") in accordance with
the terms of the bond indenture. The Defeasance Deposit was made in the form of
U.S. Government securities and will be used to fund interest payments on the
FMN's through May 1, 1997, the call as of such date of the 11-3/4% FMN's at
101.958% of the outstanding principal, the call as of such date of the 12% FMN's
at 105.333% of the outstanding principal, and related expenses. On October 29,
1996, the liens on the assets of MGM Grand Hotel, Inc. and MGM Grand Hotel
Finance Corp. were released and accordingly, the defeasance was finalized. The
early extinguishment of the FMN's resulted in an extraordinary loss of
approximately $30,811,000, net of tax benefits.
MGM Grand Las Vegas had a $60,000,000 bank credit line which terminated on
October 29, 1996. During 1995, MGM Grand Las Vegas borrowed and repaid
$15,000,000.
NOTE 5. STATEMENTS OF CASH FLOWS
The following supplemental disclosures are provided for the statements of
cash flows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments for:
Interest, Net of Amounts Capitalized. . . . $ 38,085 $ 56,210 $ 56,210
============ ============ ============
</TABLE>
32
<PAGE>
MGM GRAND HOTEL FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6. INCOME TAXES
MGM Finance accounts for income taxes according to Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain temporary differences.
The standard requires recognition of a future tax benefit to the extent that
realization of such benefit is more likely than not. Otherwise, a valuation
allowance is applied. MGM Finance believes that it is more likely than not that
its deferred tax asset is fully realizable because of the future reversal of
existing temporary differences.
MGM Finance is included in the consolidated MGM Grand federal income tax
return. Federal income taxes are provided and become payable on a separate
return basis in accordance with an intercompany tax sharing agreement. Net
operating losses are allocated to MGM Finance in the year the loss is utilized
in the MGM Grand consolidated federal tax return. The MGM Finance provision does
not purport to be a proportionate share of the consolidated tax.
There was no provision (benefit) for income taxes on income before
extraordinary item for the years ended December 31, 1996, 1995 and 1994.
As of December 31, 1996, the major tax effected component of the MGM
Finance net deferred tax asset is the loss on defeasance of First Mortgage
Notes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
These items are omitted in accordance with General Instruction (J) to
Form 10-K.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) The financial statements on pages 13 through 25, and 26 through 33 and
the schedule listed below are filed as part of the Form 10-K.
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C> <C>
Schedule II - Valuation and Qualifying Accounts...................... 37
</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 of the notes thereto.
(b) No Form 8-K was filed.
(c) Exhibits
The exhibits listed in the accompanying Exhibit Index on page 38 through 39
are filed as part of this Form 10-K.
34
<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 HOTEL FINANCE CORP.
Date: March 27, 1997 By: /s/ Daniel M. Wade
-------------------------------------------
Daniel M. Wade
President and Chief Operating Officer
(Principal Executive Officer)
MGM GRAND HOTEL FINANCE CORP.
Date: March 27, 1997 By: /s/ Daniel H. Scott
--------------------------------------------
Daniel H. Scott
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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 Director 3/27/97
- ----------------------
J. Terrence Lanni
/s/ Alex Yemenidjian Director 3/27/97
- ----------------------
Alex Yemenidjian
/s/ Daniel M. Wade Director 3/27/97
- ----------------------
Daniel M. Wade
/s/ Daniel H. Scott Director 3/27/97
- ----------------------
Daniel H. Scott
</TABLE>
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
(ITEM 14(a))
<TABLE>
<CAPTION>
FORM
10-K
PAGE
----
<S> <C>
Report of Independent Public Accountants - Combined Statements 13
Combined Statements of Operations - For the years ended
December 31, 1996, 1995, and 1994 14
Combined Balance Sheets as of December 31, 1996 and 1995 15
Combined Statements of Cash Flows - For the Years ended 16
December 31, 1996, 1995, and 1994
Combined Statements of Stockholders' Equity - For the years
ended December 31, 1996, 1995, and 1994 17
Notes to Combined Financial Statements 18-25
Report of Independent Public Accountants - MGM Grand Hotel
Finance Corp. 26
MGM Finance Statements of Operations, For the years ended
December 31, 1996, 1995, and 1994 27
MGM Finance Balance Sheets as of December 31, 1996 and 1995 28
MGM Finance Statements of Cash Flows - For the years ended
December 31, 1996, 1995, and 1994 29
MGM Finance Statements of Stockholder's Equity - For the years
ended December 31, 1996, 1995, and 1994 30
Notes to Financial Statements 31-33
Schedule II - Valuation and Qualifying Accounts 37
</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 in
included in the financial statements or the notes thereto.
36
<PAGE>
<TABLE>
<CAPTION>
MGM GRAND HOTEL FINANCE CORP.
MGM GRAND HOTEL, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
ADDITIONS
CHARGED BALANCE
BALANCE AT TO COST AMOUNTS AT END
BEGINNING AND WRITTEN OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FOR YEAR ENDED DECEMBER 31, 1996
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 33,072 $ 38,556 $ 36,306 $ 35,322
============= ============= ============= =============
FOR YEAR ENDED DECEMBER 31, 1995
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 17,524 $ 57,683 $ 42,135 $ 33,072
============= ============= ============= =============
FOR THE YEAR ENDED DECEMBER 31, 1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 3,855 $ 44,181 $ 30,512 $ 17,524
============= ============= ============= =============
</TABLE>
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3(1) Certificate of Incorporation of MGM Finance, as amended
(incorporated by reference to Exhibit 3(1) to Registration Statement
No. 33-3305).
3(2) Bylaws of MGM Finance, as amended (incorporated by reference to
Exhibit 3(2) to Registration Statement No. 33-30337).
4 Indenture, dated as of May 1, 1992, among MGM Grand Hotel Finance
Corp. ("MGM Finance"), as issuer, MGM Grand, Inc., as guarantor, MGM
Grand Hotel, Inc., as obligor with respect to certain covenants, and
U.S. Trust Co. of California, N.A., a national banking corporation
validly organized and existing under the laws of the United States,
as Trustee (the "Trustee"), relating to First Mortgage Notes,
including forms of First Mortgage Notes (incorporated by reference
to Exhibit (A)(IV) of the MGM Finance's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1992).
4(1) Irrevocable Security Agreement of MGM Grand, Inc. Regarding
Defeasance and Redemption, together with Certificate of Defeasance.
4(2) Irrevocable Security Agreement of MGM Grand Hotel Finance Corp.
Regarding Defeasance and Redemption, together with Certificate of
Defeasance.
4(3) Certificate of Defeasance dated as of October 29, 1996.
21 List of Subsidiaries. (Omitted pursuant to instruction (J) to Form
10K)
27 Financial Data Schedule
</TABLE>
38
<PAGE>
EXHIBIT 4.1
IRREVOCABLE SECURITY AGREEMENT
OF MGM GRAND, INC.
REGARDING DEFEASANCE AND REDEMPTION
$220,000,000 PRINCIPAL AMOUNT MGM GRAND HOTEL FINANCE CORP.
11-3/4% FIRST MORTGAGE NOTES DUE 1999 AND
$253,000,000 PRINCIPAL AMOUNT MGM GRAND HOTEL FINANCE CORP.
12% FIRST MORTGAGE NOTES DUE 2002
IRREVOCABLE SECURITY AGREEMENT OF MGM GRAND, INC. REGARDING DEFEASANCE AND
REDEMPTION dated as of July 1, 1996 among (i) MGM GRAND, INC., a Delaware
corporation (the "Grantor"), (ii) MGM GRAND HOTEL FINANCE CORP., a Nevada
-------
corporation ("MGM Finance"), (iii) BANK OF AMERICA NATIONAL TRUST AND SAVINGS
-----------
ASSOCIATION, as Administrative Agent under the Loan Agreement (defined below)
for the Banks (defined below) and as Agent (in such capacity, the "Credit
------
Agent") under the Credit Agreement (defined below), (iv) FIRST TRUST OF
- -----
ILLINOIS, NATIONAL ASSOCIATION, a national banking association ("First Trust"),
-----------
as agent for the Trustee, Administrative Agent and the Credit Agent hereunder
(the "Secured Lenders' Agent") and (v) U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
----------------------
as Trustee under the Indenture (defined below).
PRELIMINARY STATEMENTS
(1) Pursuant to that certain Indenture dated as of May 1, 1992 (as
supplemented, amended or otherwise modified from time to time, the "Indenture",
---------
the terms defined therein and not otherwise defined herein being used herein as
therein defined) by and among (i) MGM Finance, as issuer, (ii) the Grantor, as
guarantor, (iii) MGM Grand Hotel, Inc., a Nevada corporation (the "Company") as
-------
obligor under certain covenants therein, and (iv) U.S. Trust Company of
California, N.A., a national banking association, as trustee (the "Trustee"),
-------
MGM Finance has issued $220,000,000 principal amount of its 11-3/4% First
Mortgage Notes due 1999 and $253,000,000 principal amount of its 12% First
Mortgage Notes due 2002 (collectively, the "First Mortgage Notes").
--------------------
(2) Pursuant to the Loan Agreement, dated as of July 1, 1996 (as
supplemented, amended or otherwise modified from time to time, the "Loan
----
Agreement"), by and among the Grantor, the lenders from time to time party
- ---------
thereto (collectively, the "Banks", and individually, a "Bank"), Bank of
----- ----
Scotland, Societe Generale, the Long-Term Credit Bank of Japan, Ltd., Wells
Fargo Bank, N.A., and CIBC, Inc., as Co-Agents, and Bank of America National
Trust and Savings Association, as Administrative Agent, the Banks have agreed to
extend the credit facilities described therein to the Grantor.
(3) Pursuant to the Credit Agreement, dated as of May 13, 1992 (as
supplemented, amended or otherwise modified from time to time, the "Credit
------
Agreement"), by and among MGM Finance, the Company, the financial institutions
- ---------
from time to time
<PAGE>
party thereto and Bank of America National Trust and Savings Association, as
Agent thereunder, such financial institutions have agreed to extend the credit
facilities in an amount not to exceed $60,000,000 described therein to MGM
Finance and the Company.
(4) The Grantor has established two securities accounts with First Trust at
its office at 410 North Michigan Avenue, Suite 370, Chicago, Illinois 60611,
each in the name of Grantor and each subject to the terms of this Agreement.
The first such securities account has been designated "Defeasance Account
pledged to U.S. Trust Company of California, N.A., as Trustee" (the "Defeasance
----------
Account"). The second such securities account has been designated "Securities
- -------
Account pledged to Bank of America National Trust & Savings Association, as
Administrative Agent as senior pledgee, and to U.S. Trust Company of California,
N.A., as Trustee as subordinated pledgee" (the "Dual Interest Account", and,
---------------------
together with the Defeasance Account, the "Securities Accounts").
-------------------
(5) The Grantor has entered into this Agreement to assign, pledge and
encumber all of the Grantor's right, title and interest in and to each of the
Securities Accounts and the securities deposited in each thereof in favor of the
Trustee, in order to secure the payment and performance of the obligations of
MGM Finance under the Indenture and the First Mortgage Notes; provided that
--------
until such time as is specified herein, such assignment, pledge and security
interest in the Dual Interest Account and the U.S. Government Obligations
therein shall be junior and subject as to priority to the assignment, pledge and
security interest created hereby in favor of the Administrative Agent and the
Banks, as set forth in Section 17 hereof.
(6) MGM Finance has entered into the Irrevocable Security Agreement of MGM
Grand Hotel Finance Corp. Regarding Defeasance and Redemption (as supplemented,
amended or otherwise modified from time to time, the "MGM Finance Defeasance
----------------------
Agreement"), of even date herewith, with the Administrative Agent, the Credit
- ---------
Agent, the Trustee, the Secured Lenders' Agent and the Grantor, to assign,
pledge and encumber all of MGM Finance's right, title and interest in and to the
Defeasance Account (as defined in the MGM Finance Defeasance Agreement) and the
U.S. Government Obligations deposited therein in favor of the Trustee, in order
to secure the payment and performance of the obligations of MGM Finance under
the Indenture and the First Mortgage Notes.
(7) MGM Finance, the Company and the Grantor (collectively, the "MGM Grand
---------
Parties") may terminate all of their obligations under the Indenture (except MGM
- -------
Finance's obligations under Section 7.07 thereof), pursuant to and on the terms
and conditions set forth in Article 8 of the Indenture, which Article provides
for the defeasance of the First Mortgage Notes. In furtherance of such
defeasance, MGM Finance (pursuant to the MGM Finance Defeasance Agreement) and
the Grantor (pursuant hereto) intend to deposit with the Secured Lenders' Agent
for the benefit of the Trustee U.S.Government Obligations in amounts sufficient
under Article 8 to defease the First Mortgage Notes.
2
<PAGE>
NOW, THEREFORE, in consideration of the premises the parties hereto
hereby agree as follows:
SECTION 1. Grant for the Benefit of the Creditors. The Grantor hereby
--------------------------------------
assigns and pledges to the Administrative Agent for its benefit and the ratable
benefit of the Banks, and hereby grants to the Administrative Agent for its
benefit and the ratable benefit of the Banks a security interest in, the
following (collectively, the "Bank Collateral"):
---------------
(a) the Dual Interest Account and all U.S. Government Obligations
contained or deposited in the Dual Interest Account from time to time, and any
certificates representing any thereof, and all cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all thereof; and
(b) all proceeds of any and all of the foregoing Bank Collateral
(including, without limitation, proceeds that constitute property of the types
described above in Section 1(a)).
SECTION 2. Grant for the Benefit of the Trustee. The Grantor hereby
------------------------------------
assigns and pledges to the Trustee for its benefit and the benefit of the
Holders, and hereby grants to the Trustee for its benefit and the benefit of the
Holders a security interest in, the following (collectively, and including,
without limitation, all property constituting Bank Collateral, the
"Collateral"):
----------
(a) the Securities Accounts and all U.S. Government Obligations contained
or deposited in either Securities Account from time to time, and any
certificates representing any thereof, and all cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all thereof; and
(b) all proceeds of any and all of the foregoing Collateral (including,
without limitation, proceeds that constitute property of the types described
above in Section 2(a)).
SECTION 3. Agreement to Defease and Redeem First Mortgage Notes.
----------------------------------------------------
(a) On or before July 3, 1996 (the "Delivery Date") Grantor shall deliver
-------------
to the Secured Lenders' Agent as Collateral in the manner provided in Section 4
below, U.S Government Obligations maturing as to principal and interest in such
amounts and at such times as is, together with the MGM Finance Defeasance
Deposit (as defined in the MGM Finance Defeasance Agreement) sufficient, without
consideration of the reinvestment of interest and after payment of all federal,
state and local taxes or other charges or assessments in respect thereof payable
by the Trustee, to pay principal of and interest on the First Mortgage Notes to
May 1, 1997 (the "Redemption Date"), and to pay all other sums payable by it
---------------
under the Indenture (such amount of such U.S. Government Obligations so
delivered being referred to herein as the "Grantor Defeasance Deposit", and,
--------------------------
together with the MGM Finance Defeasance Deposit, the "Defeasance Deposit"). On
------------------
or before the
3
<PAGE>
Delivery Date MGM Finance shall deliver to the Trustee an Officer's Certificate
certifying that the Defeasance Deposit is and will be sufficient to pay all such
principal, interest and other amounts, as required by Section 8.01(a) of the
Indenture.
(b) MGM Finance shall cause all of the First Mortgage Notes to be redeemed
on May 1, 1997 pursuant hereto and to the optional redemption provisions of
paragraph 5 of each First Mortgage Notes and Section 3.07 of the Indenture.
(c) The Trustee hereby agrees:
(i) That delivery of a Defeasance Deposit by the Grantor and MGM
Finance to the Secured Lenders' Agent pursuant to and complying with the
terms hereof and the MGM Finance Defeasance Agreement will satisfy MGM
Finance's obligation to deposit U.S. Government Obligations with the
Trustee under Section 8.01(a) of the Indenture;
(ii) That possession by the Secured Lenders' Agent on the ninety-
first day following the Delivery Date or such later date on which the
conditions of Section 8.01 of the Indenture shall be satisfied (the
"Defeasance Date") of a Defeasance Deposit complying with the requirements
---------------
of Section 8.01(a) of the Indenture, of the MGM Finance Defeasance
Agreement and hereof shall be deemed to satisfy the obligation of MGM
Finance to deposit the redemption price of all First Mortgage Notes under
Section 3.05 of the Indenture as of the Defeasance Date provided the
--------
assignment, pledge and security interest created hereunder in favor of the
Trustee and Holders in all of the U.S. Government Obligations included in
the Collateral shall then be valid, perfected and first priority;
(iii) To provide, in MGM Finance's name and at MGM Finance's expense,
notice of the redemption of the First Mortgage Notes to each Holder before
the Redemption Date as provided in Section 3.03 of the Indenture;
(iv) To use the proceeds of the Collateral to redeem all of the then
outstanding First Mortgage Notes on the Redemption Date in accordance with
the Indenture;
(v) After redemption of the First Mortgage Notes and payment of all
other amounts required to be paid in connection with such redemption under
the Indenture, to remit any Collateral or proceeds thereof then remaining
to the Grantor provided, that with respect to the Bank Collateral, the
--------
assignment, pledge and security interest granted under Section 1 hereof in
the Bank Collateral shall then have terminated;
(vi) Delivery to the Trustee of an opinion of Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro substantially in the form of Exhibit
A hereto
4
<PAGE>
shall satisfy the requirement for the delivery of the Opinion of Counsel
required by Sections 8.01(d), (e), (f) and (g) of the Indenture;
(vii) Delivery to the Trustee of an Officer's Certificate
substantially in the form of Exhibit B hereto shall satisfy the requirement
for the delivery of the Officer's Certificate required by Section 8.01(g)
of the Indenture; and
(viii) On each of the Defeasance Date and the Redemption Date the
Trustee shall acknowledge to the Grantor and MGM Finance in writing the
discharge of their respective obligations under the Indenture, except for
those then surviving obligations as specified in Section 8.01 of the
Indenture.
SECTION 4. Delivery of Collateral.
----------------------
(a) All certificates or instruments representing or evidencing Collateral
(if any) shall be delivered to and held by the Secured Lenders' Agent pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Secured Lenders' Agent.
(b) With respect to any Collateral the ownership of which is recorded in
book-entry form by a Federal Reserve Bank, the Grantor shall cause such
Collateral to be irrevocably transferred to and maintained in a custody account
with such Federal Reserve Bank in the book entry records of such Federal Reserve
Bank in the name of First Bank National Association, as agent for First Trust as
Secured Lenders' Agent. Grantor shall also deliver to the Secured Lenders'
Agent and the Administrative Agent a listing of such Collateral by title (or
series), unpaid principal amount and maturity. Each such listing of Collateral
shall be accompanied by written instructions of the Grantor to the Secured
Lenders' Agent directing that each item of listed Collateral be deposited and
maintained in the Securities Account specified therein. The Secured Lenders'
Agent shall cause each item of listed Collateral delivered to it to be deposited
and maintained in the Securities Account specified therefor, subject to the
Liens, terms and conditions hereof. The Secured Lenders' Agent shall cooperate
with Grantor in effecting each such delivery of Collateral, and upon the date of
the completion of each transfer to its custodial account with the appropriate
Federal Reserve Bank, the Secured Lenders' Agent shall notify each of the
Grantor, Trustee and Administrative Agent that it has received and holds such
Collateral for the account of Grantor in the appropriate Securities Account, and
subject to the Liens, terms and conditions hereof. The Secured Lenders' Agent
shall cause all relevant records respecting such U.S. Government Obligations
delivered to it to be maintained in the name of First Trust as Secured Lenders'
Agent in order to reflect and perfect the respective interests of the Grantor,
the Administrative Agent and the Trustee therein, in each case in a manner
required by and consistent with applicable law (including United States
regulations applicable to perfection of security interests in such U.S.
Government Obligations). If U.S. Government Obligations so delivered under this
Section 4(b) are
5
<PAGE>
securities of the United States Treasury, such delivery shall be made by wire
transfer to ABA #091000022, FIRST MPLS/TRUST, Account #03, or to such other
account as the Secured Lenders' Agent may specify in writing. The Secured
Lenders' Agent shall, promptly upon its receipt of any U.S. Government
Obligations hereunder place them in the appropriate Securities Account. The
execution and delivery of this Agreement shall constitute acknowledgement by,
and notification of, the Secured Lenders' Agent as if it were bailee of the
Collateral with notice of the assignment, pledge and security interests created
hereby to the full extent contemplated by 31 C.F.R. section 306.118 and Article
8 of the Uniform Commercial Code of any jurisdiction.
(c) All deliveries of Collateral hereunder shall be irrevocable and, for
the purposes of the Indenture, shall be deemed to constitute irrevocable deposit
of such Collateral by MGM Finance with the Trustee.
(d) On the Closing Date (as defined in the Loan Agreement) and at all
times on or before the date on which the Administrative Agent shall have
provided a Collateral Notice to the Secured Lenders' Agent as contemplated by
Sections 13(a) or (b), Grantor shall maintain in the Dual Interest Account U.S.
Government Obligations in an amount equal to $157,500,000 (105% of the maximum
principal amount permitted to be outstanding under the Loan Agreement at any
time prior to the Second Closing Date (as defined in the Loan Agreement)), which
U.S. Government Obligations shall be delivered as provided in this Section 4 and
maintained in the Dual Interest Account as Bank Collateral until released in
accordance with Section 13 of this Agreement. Except as provided in this Section
4(d), Grantor shall not be required to maintain in the Dual Interest Account any
U.S. Government Obligations or other property.
SECTION 5. Security for Obligations.
------------------------
(a) The assignment, pledge and security interest in the Bank Collateral
granted under Section 1 hereof secure the prompt payment, in full in cash, and
the full performance of, all Obligations (as defined in the Loan Agreement) of
the Grantor (collectively, the "Grantor's Obligations"), whether for principal,
---------------------
interest, fees, expenses or otherwise, including, without limitation, all
Obligations of the Grantor now or hereafter existing under this Agreement and
the Loan Documents, and all interest that accrues on all or any part of any of
the Obligations of Grantor after the filing of any petition or pleading against
Grantor or any other Person for a proceeding under any Debtor Relief Laws (as
defined in the Loan Agreement).
(b) The assignment, pledge and security interest in the Collateral granted
under Section 2 hereof secure the prompt payment, in full in cash, and the full
performance of, all obligations of MGM Finance to the Trustee and the Holders
under the Indenture and the First Mortgage Notes, whether for principal,
interest, fees, expenses or otherwise, including, without limitation, all
interest that accrues on all or any part of any of such obligations of MGM
Finance after the filing of any petition or pleading against MGM
6
<PAGE>
Finance or any other Person for a proceeding under any Debtor Relief Laws
(collectively, the "MGM Finance Obligations", and, together with the Grantor
-----------------------
Obligations, the "Secured Obligations").
-------------------
SECTION 6. Representations and Warranties.
------------------------------
(a) The Grantor represents and warrants to and for the benefit of the
Administrative Agent and the Banks as follows:
(i) The Grantor is the legal and beneficial owner of the Bank
Collateral free and clear of any Lien, except for the assignment, pledge
and security interest created by this Agreement.
(ii) This Agreement and the pledge of the Bank Collateral pursuant
hereto create a valid and perfected first priority security interest in the
Bank Collateral, securing the payment of the Grantor Obligations.
(iii) No consent of any other Person and no authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (x)
for the grant by the Grantor of the assignment and security interest
granted hereby, for the pledge by the Grantor of the Bank Collateral
pursuant hereto or for the execution, delivery or performance of this
Agreement by the Grantor, or (y) for the perfection or maintenance of the
pledge, assignment and security interest created hereby over the Bank
Collateral (including the first priority nature of such pledge, assignment
or security interest), except as may be required in connection with the
disposition thereof by laws affecting the offering and sale of securities
generally. This Agreement has been duly authorized, executed and delivered
by, and is the legal, valid and binding obligation of, each the Grantor and
MGM Finance, enforceable against each such MGM Party in accordance with its
terms.
(iv) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
(v) There is no action, suit, investigation, litigation or
proceeding affecting either the Grantor or MGM Finance pending or
threatened before any court, governmental agency or arbitrator that
purports to affect the legality, validity or enforceability of this
Agreement or the consummation of the transactions contemplated hereby or
whose resolution could have a material adverse affect on the ability of
either such party to perform its obligations hereunder.
(vi) No Event of Default has occurred and is continuing, and neither
this Agreement nor the consummation of the transactions contemplated hereby
shall cause or result in a Default under the Indenture or a breach or
violation of, or constitute a default
7
<PAGE>
under, any other agreement instrument to which MGM Finance is a party or by
which it or its property is bound.
(b) The Grantor represents and warrants to and for the benefit of the
Secured Lenders' Agent, the Trustee and the Holders as follows:
(i) The Grantor is the legal and beneficial owner of the Collateral
free and clear of any Lien, except for the assignments, pledges and
security interests created by this Agreement.
(ii) This Agreement and the pledge of the Collateral pursuant hereto
create a valid and perfected security interest in the Collateral securing
the payment of the MGM Finance Obligations. Such security interest is first
priority with respect to all Collateral other than Bank Collateral. With
respect to Bank Collateral, such security interest is subject as to
priority only to the Lien created by Section 1 hereof.
(iii) No consent of any other Person and no authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (x)
for the grant by the Grantor of the assignment and security interest
granted hereby, for the pledge by the Grantor of the Collateral pursuant
hereto or for the execution, delivery or performance of this Agreement by
the Grantor, or (y) for the perfection or maintenance of the pledge,
assignment and security interest created hereby over the Collateral
(including the priority nature of such pledge, assignment or security
interest as described in clause (ii) above), except as may be required in
connection with the disposition thereof by laws affecting the offering and
sale of securities generally.
(iv) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
(v) There is no action, suit, investigation, litigation or
proceeding affecting either the Grantor or MGM Finance pending or
threatened before any court, governmental agency or arbitrator that
purports to affect the legality, validity or enforceability of this
Agreement or the consummation of the transactions contemplated hereby or
whose resolution could have a material adverse affect on the ability of
either such party to perform its obligations hereunder.
(vi) No Event of Default has occurred and is continuing, and neither
this Agreement nor the consummation of the transactions contemplated hereby
shall cause or result in a Default under the Indenture or a breach or
violation of, or constitute a default under, any other agreement instrument
to which MGM Finance is a party or by which it or its property is bound.
8
<PAGE>
SECTION 7. Further Assurances. The Grantor agrees that from time to time,
------------------
at the expense of the Grantor, the Grantor will promptly execute and deliver all
further instruments and documents (including the filing and recording of any
necessary financing statements), and take all further action, that may be
necessary or desirable, or that the Administrative Agent, Trustee or Secured
Lenders' Agent may request, in order to perfect and protect any pledge,
assignment or security interest granted or purported to be granted hereby or to
enable the Administrative Agent, Trustee and Secured Lenders' Agent to exercise
and enforce their respective rights hereunder. The Grantor shall pay all taxes,
assessments and other charges with respect to the Collateral, and will defend
the Collateral against any suit, action or proceeding which could adversely
affect the assignment, pledge and security interest created hereby.
SECTION 8. Interest and Distributions; Reinvestment of Securities
------------------------------------------------------
Accounts. (a) The Secured Lenders' Agent shall be entitled to receive and
- --------
retain any and all interest and other distributions paid in respect of Bank
Collateral and Collateral as additional Bank Collateral and Collateral,
respectively, subject to the Lien and terms hereof. All interest and
distribution payments that are received by the Grantor contrary to the
provisions of this Section 8 shall be received in trust for the benefit of the
Secured Lenders' Agent, shall be segregated from other funds of the Grantor and
shall be forthwith paid over to the Secured Lenders' Agent as Collateral.
(b) All amounts maintained in either of the Securities Accounts, including
all amounts paid in respect of interest and other distributions on Bank
Collateral and Collateral which are retained by the Secured Lenders' Agent,
shall be invested in U.S. Government Obligations with respect to which the
requirements of Sections 4(a) or (b), and Section 7, have been satisfied.
SECTION 9. Transfers and Other Liens. The Grantor shall not (i) sell,
-------------------------
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, except that the Grantor may
assign its interests in the Collateral to the Company at any time after the
Defeasance Date provided that the Collateral remains subject to the assignments,
pledges and security interests created hereby, or (ii) create or suffer to exist
any Lien upon or with respect to any of the Collateral except for the pledge,
assignment and security interest created by this Agreement.
SECTION 10. Secured Lenders' Agent Appointed Attorney-in-Fact. The Grantor
-------------------------------------------------
hereby irrevocably appoints the Secured Lenders' Agent the Grantor's attorney-
in-fact, with full authority in the place and stead of the Grantor and in the
name of the Grantor or otherwise, from time to time in the Secured Lenders'
Agent's discretion, to take any action and to execute any instrument necessary
to accomplish the purposes of this Agreement.
SECTION 11. Secured Lenders' Agent May Perform. If the Grantor fails to
----------------------------------
perform any agreement contained herein, the Secured Lenders' Agent may itself
perform, or cause
9
<PAGE>
performance of, such agreement, and the expenses of the Secured Lenders' Agent
incurred in connection therewith shall be payable by the Grantor.
SECTION 12. The Secured Lenders' Agent's Duties. The Trustee (on its own
-----------------------------------
behalf and on behalf of the Holders) hereby appoints Secured Lenders' Agent as
their agent to act for and on its behalf, but only upon its direction, in
connection with the exercise and enforcement of their rights and remedies
hereunder in accordance with the terms hereof, including, without limitation,
for the purposes of perfection of the assignment, pledge and security interest
created hereby in favor of the Trustee and the Holders. The Administrative
Agent (on its own behalf and on behalf of the Banks) hereby appoints Secured
Lenders' Agent as their agent to act for and on its behalf, but only upon its
direction, in connection with the exercise and enforcement of their rights and
remedies hereunder in accordance with the terms hereof, including, without
limitation, for the purposes of perfection of the assignment, pledge and
security interest created hereby in favor of the Administrative Agent and the
Banks. The powers conferred on the Secured Lenders' Agent hereunder are solely
to protect the assignments, pledges and security interests in the Collateral,
including the Bank Collateral, and shall not impose any duty upon it to exercise
any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Secured Lenders' Agent shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Security Collateral,
whether or not the Secured Lenders' Agent has or is deemed to have knowledge of
such matters, or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Collateral. The
Secured Lenders' Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which First Trust accords its
own property.
SECTION 13. Release and Termination.
-----------------------
(a) On the Defeasance Date, and subject to the fulfillment or waiver of
the conditions precedent set forth in Article 8 (including Sections 8.2 and 8.3
thereof) of the Loan Agreement on that date, the Administrative Agent shall
notify the Secured Lenders' Agent that, concurrently with the release and
termination of all collateral and guarantees held by the Secured Lenders' Agent
for the First Mortgage Notes and credit Agreement (other than the liens in the
Securities Accounts created hereunder), the assignment, pledge and security
interest created hereunder or pursuant hereto for the benefit of the Banks or
the Administrative Agent, all rights of any Bank or the Administrative Agent
with in or respect of any Bank Collateral, and all other rights of any Creditor
or the Administrative Agent hereunder, have been terminated. Such notice and
the notice of the Administrative Agent to the Secured Lenders' Agent
contemplated by Section 13(b) below are each referred to herein as a "Collateral
----------
Notice". Upon such termination, the Administrative Agent shall, at the
- ------
Grantor's expense, execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence the release of any Bank Collateral
from
10
<PAGE>
the assignment, pledge and security interest granted to the Administrative Agent
and the Banks hereby, regardless of whether at the time of such request or such
release any Event of Default or Loan Agreement Event of Default shall have
occurred and be continuing.
(b) Without limitation to the foregoing Section 13(a), upon the later of
payment in cash and in full of the Grantor Obligations and the termination in
full of the Commitment (as defined in the Loan Agreement), the pledge,
assignment and security interest granted hereby in the Bank Collateral shall
terminate. Upon any such termination, the Administrative Agent will, at the
Grantor's expense, execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence such termination and shall promptly
notify the Secured Lenders' Agent that the assignment, pledge and security
interest created by Section 1 hereof have terminated.
(c) The term of this Agreement shall commence upon its execution and
delivery and shall terminate when the First Mortgage Notes have been paid and
discharged in accordance with the Indenture and the assignment, pledge and
security interest granted to the Administrative Agent and the Banks under
Section 1 hereof shall have terminated pursuant to Sections 13(a) or (b) above.
Upon termination of this Agreement each assignment, pledge and security interest
created hereunder shall terminate and be released.
SECTION 14. Certification of Defeasance and Reconveyance of Deeds of Trust
--------------------------------------------------------------
and Release of Collateral Related to the Defeased First Mortgage Notes. On the
- ----------------------------------------------------------------------
Defeasance Date the Trustee shall execute and deliver to the addressees thereof
the Certificate of Defeasance in the form attached hereto as Exhibit C. In
addition, the Credit Agent and Trustee shall, and shall cause the Secured
Lender's Agent to, reconvey and release all Collaterally Assigned Documents and
all other guaranties, mortgages, deed of trust, security agreement, pledge,
assignments and any other document and instrument securing or supporting the
Indenture, the First Mortgage Notes, the MGM Finance Obligations, the Credit
Agreement and the "Loan Documents" (as such term is defined in the Credit
Agreement) or any of the foregoing, in each case by execution, delivery and
recordation by the Trustee of such instruments and agreements of reconveyance
and release as may be reasonably requested by the Grantor, MGM Finance, the
Trustee or the Credit Agent.
SECTION 15. Remedies for the Benefit of the Banks and Administrative Agent.
--------------------------------------------------------------
Upon the occurrence and continuation of an "Event of Default" under and as such
term is defined in the Loan Agreement (a "Loan Agreement Event of Default"):
-------------------------------
(a) The Administrative Agent may exercise, or cause the Secured Lenders'
Agent to exercise, in respect of the Bank Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all the
rights and remedies of a secured party upon default under the Uniform Commercial
Code in effect in the State of Nevada at such time (the "Uniform Commercial
------------------
Code") (whether or not the Uniform Commercial Code applies to the affected Bank
Collateral) and also may without notice except as specified below, sell the Bank
Collateral or any part thereof in one or more parcels at
11
<PAGE>
public or private sale, at any of the Secured Lenders' Agent's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other terms
as the Secured Lenders' Agent may deem commercially reasonable. The Grantor
agrees that, to the extent notice of sale shall be required by law, at least ten
days' notice to the Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Neither the Administrative Agent nor the Secured Lenders' Agent
shall be obligated to make any sale of Bank Collateral regardless of notice of
sale having been given. Any public or private sale may be adjourned from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received in respect of any sale of, collection from,
or other realization upon all or any part of the Bank Collateral may, in the
discretion of the Secured Lenders' Agent, be held by the Secured Lenders' Agent
as collateral for, and/or then or at any time thereafter applied in whole or in
part by the Administrative Agent for the ratable benefit of the Banks against,
all or any part of the Grantor Obligations in such order as the Administrative
Agent shall elect. Any surplus of such cash or cash proceeds held by the
Secured Lenders' Agent or the Administrative Agent and remaining after payment
in full of all the Grantor Obligations shall be held by the Secured Lenders'
Agent as Collateral pursuant to the terms hereof.
SECTION 16. Remedies for the Benefit of the Trustee. Subject in each case
---------------------------------------
to the provisions of Section 17 hereof, upon the occurrence and continuation of
an Event of Default under the Indenture:
(a) The Trustee may cause the Secured Lenders' Agent to exercise in
respect of the Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party upon default under the Uniform Commercial Code (whether or not the Uniform
Commercial Code applies to the affected Collateral) and also may without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Secured Lenders' Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Secured Lenders' Agent may deem commercially reasonable. The
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Secured Lenders' Agent shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given. The
Secured Lenders' Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(b) All cash proceeds received by the Secured Lenders' Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Trustee, be held by the Secured
Lenders' Agent as collateral for,
12
<PAGE>
and/or then or at any time thereafter applied in whole or in part by the Trustee
against, all or any part of the MGM Finance Obligations in accordance with the
Indenture. Any surplus of such cash or cash proceeds held by the Secured
Lenders' Agent and remaining after payment in full of all the MGM Finance
Obligations shall be paid over to the Grantor or to whomsoever may be lawfully
entitled to receive such surplus.
SECTION 17. Subordination of Trustee's Lien on Bank Collateral.
--------------------------------------------------
(a) Notwithstanding the date, manner or order of attachment or perfection
or the description of any Bank Collateral or security interests, liens, claims
or encumbrances covered or granted hereby with respect to the Bank Collateral,
the assignment, pledge and security interest granted in the Bank Collateral
under Section 2 hereof shall be in all respects subordinate to and rank after
the assignment, pledge and security interest granted in the Bank Collateral
under Section 1 hereof. The Administrative Agent and the other Creditors (as
defined in the Loan Agreement) shall have at all times an interest prior and
superior to that of the Secured Lenders' Agent and Trustee in the Bank
Collateral except as specified in Section 13 hereof. Without prejudice to the
generality of the foregoing, the Administrative Agent and the Banks may
exercise, or cause the Secured Lenders' Agent to exercise, any right of sale
(whether by private contract, court sale or otherwise) of the Bank Collateral,
the method, manner, time, place and terms of which sale shall be commercially
reasonable, without any further responsibility or duty on the part of the
Secured Lenders' Agent, Banks or the Administrative Agent to protect any rights
and entitlement of the Trustee or Holders hereunder. For this purpose, the
Secured Lenders' Agent and the Trustee hereby irrevocably agree to take all
steps as may be necessary or desirable to consent to and ratify and confirm such
sale and, whether or not the proceeds of such sale shall be sufficient after
application thereof by the Banks and the Administrative Agent in payment of the
Grantor Obligations to discharge the MGM Finance Obligations, the Trustee shall
cooperate with the Banks and the Agent in the completion of such sale and, in
particular, but without limitation, shall forthwith upon the request of the
Banks or the Administrative Agent execute such discharges, releases and/or
reassignments as may be necessary or desirable to effect the sale of the Bank
Collateral free of any lien, charge, assignment, encumbrance or other security
created for the benefit of the Trustee hereby or pursuant hereto in such Bank
Collateral.
(b) Neither the Trustee nor any Holder shall ask, exercise, demand or sue
for any right, power or remedy in respect of the Bank Collateral, or permit,
cause or attempt to cause the Secured Lenders' Agent to do any of the foregoing
on its behalf or on behalf of any Holders, whether pursuant to any enforcement,
collection, execution, levy or foreclosure proceeding or otherwise, in each case
unless one of the conditions set forth in clauses (i) or (ii) below shall have
been satisfied. The Trustee further agree that, until one of the conditions set
forth in clauses (i) or (ii) below shall have been satisfied, the only right of
the Trustee and Holders under this Agreement with respect to the Bank Collateral
is for the Grantor Obligations to be secured by the Bank Collateral and to
receive a share of the
13
<PAGE>
proceeds of such Bank Collateral, if any, to the extent and at the time provided
in this Agreement:
(i) the Administrative Agent has given its written consent thereto
on behalf of the Banks; or
(ii) the assignment, pledge and security interest created in the
Bank Collateral in favor of the Administrative Agent and the Banks under
Section 1 hereof shall have terminated as provided in Section 13 hereof;
provided, however, that nothing in this Agreement shall be taken to restrict the
- -------- -------
right of the Trustee or any Holders to appear in any proceeding brought against
any Bank Collateral for the purpose of putting appropriate parties on notice of
their interests and rights under this Agreement.
(c) The Administrative Agent shall be under no duty to marshall assets in
favor of the Trustee or any other person, or to pursue any other claim or remedy
which may exist in favor of the Administrative Agent, but may proceed against
any Bank Collateral in any order or manner which it may in its discretion elect,
subject to the terms of the Loan Agreement. The Credit Agent shall be under no
duty to marshall assets in favor of the Trustee or any other person, or to
pursue any other claim or remedy which may exist in favor of the Credit Agent,
but may proceed against any collateral of which it is beneficiary in any order
or manner which it may in its discretion elect, subject to the agreements
governing the provision of such collateral.
SECTION 18. Responsibilities of Trustee and Secured Lenders' Agent.
------------------------------------------------------
(a) Each of the Trustee and the Secured Lenders' Agent undertakes to
perform only such duties as are expressly and specifically set forth in the
Indenture (in the case of the Trustee only) and this Agreement and no implied
duties or obligations shall be read into this Agreement against the Trustee or
the Secured Lenders' Agent.
(b) Neither the Trustee nor the Secured Lenders' Agent shall have any
liability hereunder except to the extent of its own gross negligence or willful
misconduct. In no event shall the Trustee or the Secured Lenders' Agent be
liable for any special, indirect or consequential damages. Neither the Trustee
nor the Secured Lenders' Agent shall have any duty or responsibility under this
Agreement in the case of any default in the performance of the covenants or
agreements contained in the Indenture. Neither the Trustee nor the Secured
Lenders' Agent shall be required to resolve conflicting demands to money or
property in its possession under this Agreement.
(c) The Trustee and the Secured Lenders' Agent may consult with counsel of
its own choice and the opinion of such counsel shall be full and complete
authorization to take or suffer in good faith any action hereunder in accordance
with such opinion of counsel.
14
<PAGE>
(d) Neither the Trustee nor the Secured Lenders' Agent shall be
responsible for any of the recitals or representations contained herein.
(e) Either the Trustee or the Secured Lenders' Agent may become the owner
of, or acquire an interest in, any of the First Mortgage Notes with the same
rights that it would have if it were not the Trustee or Secured Lenders' Agent,
respectively.
(f) Neither the Trustee nor the Secured Lenders' Agent shall be liable for
the accuracy of any calculations provided as to the sufficiency of the U.S.
Government Obligations deposited hereunder to pay any obligations secured
hereby.
(g) Neither the Trustee nor the Secured Lenders' Agent shall be liable for
any action or omission of any each other, any MGM Party, the Administrative
Agent or the Credit Agent under this Agreement or the Indenture.
(h) Whenever in the administration of this Agreement the Trustee or
Secured Lenders' Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action thereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of gross negligence or willful misconduct on the
part of the Trustee or Secured Lenders' Agent, respectively, be deemed to be
conclusively proved and established by a certificate of an authorized
representative of the Grantor and such certificate shall, in the absence of
gross negligence or willful misconduct on the part of the Trustee or the Secured
Lenders' Agent, respectively, be full warrant to the Trustee or Secured Lenders'
Agent, respectively, of any action taken or suffered by it under the provisions
of this Agreement upon the faith thereof.
(i) The Trustee and the Secured Lenders' Agent may conclusively rely, as
to the truth and accuracy of the statements and correctness of the opinions and
the calculations, if any, provided to it in connection with this Agreement, and
shall be protected in acting, or refraining from acting, upon any written
notice, instruction, request, certificate, document or opinion furnished to the
Trustee or Secured Lenders' Agent in connection with this Agreement and
reasonably believed by the Trustee or Secured Lenders' Agent, respectively, to
have been signed or presented by the proper party, and it need not investigate
any fact or matter stated in such notice, instruction, request, certificate,
document or opinion.
(j) The Grantor agrees to indemnify the Trustee, its agents and its
officers or employees, and hold the Trustee, its agents, officers or employees
harmless, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable fees and disbursements of counsel for the Trustee) which may be
imposed on, incurred by, or asserted against the Trustee at any time by reason
of the performance of its duties as Trustee in any transaction arising out of
this Agreement, or any of the transactions contemplated herein or in the
Indenture, unless due to the Trustee's or its officers' or employees' or agents'
negligence or willful misconduct.
15
<PAGE>
(k) The Secured Lenders' Agent shall distribute funds from the Securities
Accounts to the Trustee, to the extent such funds are available for application
to payments of principal and interest under the Indenture and the First
Mortgage Notes in accordance with the Schedule attached to the Officer's
Certificate delivered in the form of Exhibit D.
SECTION 19. Resignation and Merger.
----------------------
(a) The Trustee may resign and be discharged of its duties hereunder in
accordance with the procedures in the Indenture, if and at such time as the
Trustee shall resign or be discharged as the Trustee under the Indenture. Any
successor Trustee under the Indenture shall succeed as the Trustee under this
Agreement.
(b) Any company into which the Trustee may be merged or converted or with
which it may be consolidated or any company resulting from any merger,
conversion or consolidation to which it shall be a party or any company to which
the Trustee may sell or transfer all or substantially all of its corporate trust
business, provided such company shall be eligible under this Agreement, shall be
the successor to such Trustee without the execution or filing of any paper or
any further act, notwithstanding anything to the contrary herein.
(c) First Trust reserves the right to resign as Secured Lenders' Agent
under this Agreement at any time by giving written notice of its resignation,
specifying the effective date thereof, to the other parties hereto. Within 30
days after receiving the aforesaid notice, MGM Finance agrees to appoint a
successor Secured Lenders' Agent, reasonably acceptable to the Administrative
Agent, the Credit Agent and the Trustee, to which First Trust may distribute the
property then held by it hereunder, less its fees, costs and expenses. If a
successor Secured Lenders' Agent has not been appointed hereunder and has not
accepted such appointment by the end of such 30 day period, First Trust may
apply to a court of competent jurisdiction for appointment of a successor
Secured Lenders' Agent hereunder, and the costs, expenses and reasonable
attorney's fees which it incurs in connection with such a proceeding shall be
paid by MGM Finance.
SECTION 20. Successors.
----------
(a) If at any time hereafter the Trustee shall resign, be removed, be
dissolved or otherwise become incapable of acting, or shall be taken over by any
governmental official, agency, department or board, the position of Trustee
shall thereupon become vacant. MGM Finance shall mail notice of any such
vacancy to the Holders.
(b) If no appointment of a successor Trustee shall be made pursuant to the
foregoing provisions of this section any Holder, or any retiring Trustee or
Secured Lenders' Agent, respectively, may apply to any court of competent
jurisdiction to appoint a successor Trustee. Such court may thereupon, after
such notice, if any, as such court may deem proper and prescribe, appoint a
successor Trustee.
16
<PAGE>
SECTION 21. Limitation of Liability. The Trustee shall not be liable or
-----------------------
responsible because of the failure of any of the other parties of this Agreement
to perform any act required of each of them hereunder or because of the loss of
any moneys arising through the insolvency or the act or default or omission of
any depository, other than itself, in which such moneys shall have been
deposited. The liability of the Trustee hereunder to make payments due and
payable with respect to the First Mortgage Notes as provided herein is limited
to the availability of amounts on deposit under the Indenture and as Collateral
hereunder.
SECTION 22. Indemnity and Expenses.
----------------------
(a) The Grantor agrees to indemnify the Secured Lenders' Agent from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting from the Secured
Lenders' Agent's, own gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction.
(b) The Grantor will upon demand pay to the Secured Lenders' Agent the
amount of any and all reasonable fees and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the Secured
Lenders' Agent may incur in connection with (i) the custody, preservation, use
or operation of, or the sale of, collection from or other realization upon, any
of the Collateral, or (ii) the failure by the Grantor to perform or observe any
of the provisions hereof.
SECTION 23. Security Interests Absolute. The obligations of the Grantor
---------------------------
under this Agreement are independent of the Secured Obligations, and a separate
action or actions may be brought and prosecuted against the Grantor to enforce
this Agreement, irrespective of whether any action is brought against MGM
Finance or whether MGM Finance is joined in any such action or actions. All
rights of the beneficiaries hereof and the pledge, assignment and security
interest hereunder, and all obligations of the Grantor hereunder, shall be
absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of the Indenture, any First
Mortgage Note or any Loan Document (as defined in the Loan Agreement) or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations or any other amendment or waiver
of or any consent to any departure from the terms of the Indenture, the First
Mortgage Notes or any Loan Document;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
17
<PAGE>
(d) any manner of application of collateral, or proceeds thereof, to all
or any of the Secured Obligations, or any manner of sale or other disposition of
any collateral for all or any of the Secured Obligations or any other assets of
the Grantor;
(e) any change, restructuring or termination of the corporate structure or
existence of the Grantor; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Grantor or a third party grantor of a
security interest.
SECTION 24. Redemption or Acceleration of Maturity. MGM Finance will not
--------------------------------------
accelerate the maturity or due date of the First Mortgage Notes to a date
earlier than May 1, 1997.
SECTION 25. Amendments; Waivers; Etc. No amendment or waiver of any
------------------------
provision of this Agreement, and no consent to any departure by any party
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the each of the parties hereto, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. No failure on the part of any party hereto to exercise, and no
delay in exercising any right hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
SECTION 26. Addresses for Notices. All notices and other communications
---------------------
provided for hereunder shall be in writing (including electronic facsimile) and
(a) if to the Trustee, the Grantor or MGM Finance, to the address provided
therefor under Section 12.10 of the Indenture, (b) if to the Administrative
Agent, to the address provided therefor under Section 11.6 of the Loan
Agreement, (c) if to the Credit Agent, to the address provided therefor under
Section 11.02 of the Credit Agreement, and (d) if to the Secured Lenders' Agent,
to 410 North Michigan Avenue, Suite 370, Chicago, Illinois 60611, Attention:
Gwendolyn Carroll, Vice President, facsimile number 312-836-6757, or, as to each
party, to such other address as such party shall designated in a notice to each
of the other parties hereto.
SECTION 27. Continuing Security Interest; Assignments under the Loan
--------------------------------------------------------
Agreement. This Agreement shall create a continuing security interest in the
- ---------
Collateral and shall (a) remain in full force and effect except as provided by
Section 13 hereof, (b) be binding upon the parties hereto and their respective
successors, transferees and assigns and (c) inure, together with the rights and
remedies hereunder, to the benefit of the parties hereto and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Bank may assign or otherwise transfer all or any
portion of its rights and obligations under the Loan Agreement (including,
without limitation, all or any portion of its Commitment) to any other Person
permitted by the Loan Agreement, and
18
<PAGE>
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Bank herein or otherwise, in each case as provided in
the Loan Agreement.
SECTION 28. Severability. If any one or more of the covenants or
------------
agreements provided in this Agreement should be determined by a court of
competent jurisdiction to be contrary to law, such covenants or agreements
herein contained shall be null and void and shall be severed from the remaining
covenants and agreements and shall, in so far as is reasonably possible, not
affect the validity of the remaining provisions of this Agreement.
SECTION 29. Counterparts. This Agreement may be executed in several
------------
counterparts, all or any of which shall be regarded for all purposes as
duplicate originals and shall constitute and be but one and the same instrument.
SECTION 30. Governing Law; Terms. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of Nevada, except to the
extent that the validity or perfection of the security interest hereunder, or
remedies hereunder, in respect of any particular Collateral are governed by the
laws of a jurisdiction other than the State of Nevada. Unless otherwise defined
herein or in the Indenture, terms used in Article 9 of the Uniform Commercial
Code are used herein as therein defined.
SECTION 31. Waiver of Jury Trial. Each party hereto hereby irrevocably
--------------------
waives any right to a trial by jury in any action or proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
MGM GRAND, INC.
By: /s/ Scott Langsner
----------------------------
Scott Langsner
MGM GRAND HOTEL FINANCE CORP.
By: /s/ Daniel H. Scott
----------------------------
Daniel H. Scott
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent
and Credit Agent
By: /s/ L. Chenevert, Jr.
----------------------------
L. Chenevert, Jr.
Vice President
FIRST TRUST OF ILLINOIS, NATIONAL ASSOCIATION
By: /s/ G.M. Carroll
----------------------------
G.M. Carroll
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as
Trustee
By: /s/ D. Young
----------------------------
D. Young
Assistant Vice President
20
<PAGE>
EXHIBIT 4.2
IRREVOCABLE SECURITY AGREEMENT
OF MGM GRAND HOTEL FINANCE CORP.
REGARDING DEFEASANCE AND REDEMPTION
$220,000,000 PRINCIPAL AMOUNT MGM GRAND HOTEL FINANCE CORP.
11-3/4% FIRST MORTGAGE NOTES DUE 1999 AND
$253,000,000 PRINCIPAL AMOUNT MGM GRAND HOTEL FINANCE CORP.
12% FIRST MORTGAGE NOTES DUE 2002
IRREVOCABLE SECURITY AGREEMENT OF MGM GRAND HOTEL FINANCE CORP. REGARDING
DEFEASANCE AND REDEMPTION dated as of July 1, 1996 among (i) MGM GRAND, INC., a
Delaware corporation (the "Borrower"), (ii) MGM GRAND HOTEL FINANCE CORP., a
--------
Nevada corporation ("MGM Finance"), (iii) BANK OF AMERICA NATIONAL TRUST AND
-----------
SAVINGS ASSOCIATION, as Agent (in such capacity, the "Credit Agent") for the
------------
Banks (defined below) under the Credit Agreement (defined below), (iv) FIRST
TRUST OF ILLINOIS, NATIONAL ASSOCIATION, a national banking association ("First
-----
Trust"), as agent for the Trustee and the Credit Agent hereunder (the "Secured
- ----- -------
Lenders' Agent"), and (v) U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
- --------------
under the Indenture (defined below).
PRELIMINARY STATEMENTS
(1) Pursuant to that certain Indenture dated as of May 1, 1992 (as
supplemented, amended or otherwise modified from time to time, the "Indenture",
---------
the terms defined therein and not otherwise defined herein being used herein as
therein defined) by and among (i) MGM Finance, as issuer, (ii) the Borrower, as
guarantor, (iii) MGM Grand Hotel, Inc., a Nevada corporation (the "Company") as
-------
obligor under certain covenants therein, and (iv) U.S. Trust Company of
California, N.A., a national banking association, as trustee (the "Trustee"),
-------
MGM Finance has issued $220,000,000 principal amount of its 11-3/4% First
Mortgage Notes due 1999 and $253,000,000 principal amount of its 12% First
Mortgage Notes due 2002 (collectively, the "First Mortgage Notes").
--------------------
(2) Pursuant to the Loan Agreement, dated as of July 1, 1996 (as
supplemented, amended or otherwise modified from time to time, the "Loan
----
Agreement"), by and among the Borrower, the lenders from time to time party
- ---------
thereto, Bank of Scotland, Societe Generale, the Long-Term Credit Bank of Japan,
Ltd., Wells Fargo Bank, N.A., and CIBC, Inc., as Co-Agents, and Bank of America
National Trust and Savings Association, as Administrative Agent, the lenders
party thereto have agreed to extend the credit facilities described therein to
the Borrower.
(3) Pursuant to the Credit Agreement, dated as of May 13, 1992 (as
supplemented, amended or otherwise modified from time to time, the "Credit
------
Agreement"), by and among MGM Finance, the Company, the financial institutions
- ---------
from time to time
<PAGE>
party thereto (collectively, the "Banks", and individually, a "Bank") and Bank
----- ----
of America National Trust and Savings Association, as Agent for the Banks
thereunder, such Banks have agreed to extend the credit facilities in an amount
not to exceed $60,000,000 described therein to MGM Finance and the Company.
(4) MGM Finance has established two securities accounts with First Trust at
its office at 410 North Michigan Avenue, Suite 370, Chicago, Illinois 60611,
each in the name of MGM Finance and each subject to the terms of this Agreement.
The first such securities account has been designated "MGM Finance Defeasance
Account pledged to U.S. Trust Company of California, N.A., as Trustee" (the "MGM
---
Finance Defeasance Account"). The second such securities account has been
- --------------------------
designated "MGM Finance Securities Account pledged equally and ratably to Bank
of America National Trust & Savings Association, as Credit Agent and to U.S.
Trust Company of California, N.A., as Trustee" (the "MGM Finance Dual Interest
-------------------------
Account", and, together with the MGM Finance Defeasance Account, the "MGM
- ------- ---
Finance Securities Accounts").
- ---------------------------
(5) MGM Finance has entered into this Agreement to assign, pledge and
encumber all of MGM Finance's right, title and interest in and to each of the
MGM Finance Securities Accounts and the securities deposited in each thereof in
favor of the Trustee, in order to secure the payment and performance of the
obligations of MGM Finance under the Indenture and the First Mortgage Notes;
provided that until such time as is specified herein, such assignment, pledge
- --------
and security interest in the MGM Finance Dual Interest Account and the U.S.
Government Obligations therein shall be equal and ratable as to priority to the
assignment, pledge and security interest created hereby in favor of the Credit
Agent and the Banks.
(6) The Borrower has entered into the Irrevocable Security Agreement of MGM
Grand, Inc. Regarding Defeasance and Redemption (as supplemented, amended or
otherwise modified from time to time, the "Borrower Defeasance Agreement"), of
-----------------------------
even date herewith, with the Administrative Agent (as defined in the Loan
Agreement), the Credit Agent, the Trustee, the Secured Lenders' Agent and MGM
Finance, to assign, pledge and encumber all of the Borrower's right, title and
interest in and to the Securities Accounts (as defined in the Borrower
Defeasance Agreement) and the U.S. Government Obligations deposited therein in
favor of the Trustee, in order to secure the payment and performance of the
obligations of MGM Finance under the Indenture and the First Mortgage Notes.
(7) MGM Finance, the Company and the Borrower (collectively, the "MGM Grand
---------
Parties") may terminate all of their obligations under the Indenture (except MGM
- -------
Finance's obligations under Section 7.07 thereof), pursuant to and on the terms
and conditions set forth in Article 8 of the Indenture, which Article provides
for the defeasance of the First Mortgage Notes. In furtherance of such
defeasance, the Borrower (pursuant to the Borrower Defeasance Agreement) and MGM
Finance (pursuant hereto) intend to deposit with the Secured Lenders' Agent for
the benefit of the Trustee U.S. Government Obligations in amounts sufficient
under Article 8 to defease the First Mortgage Notes.
2
<PAGE>
NOW, THEREFORE, in consideration of the premises the parties hereto hereby
agree as follows:
SECTION 1. Grant for the Benefit of the Banks. MGM Finance hereby assigns
----------------------------------
and pledges to the Credit Agent for its benefit and the ratable benefit of the
Banks, and hereby grants to the Credit Agent for its benefit and the ratable
benefit of the Banks a security interest in, the following (collectively, the
"Bank Collateral"):
- ----------------
(a) the MGM Finance Dual Interest Account and all U.S. Government
Obligations contained or deposited in the Dual Interest Account from time to
time, and any certificates representing any thereof, and all cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof; and
(b) all proceeds of any and all of the foregoing Bank Collateral
(including, without limitation, proceeds that constitute property of the types
described above in Section 1(a)).
SECTION 2. Grant for the Benefit of the Trustee. The Borrower hereby
------------------------------------
assigns and pledges to the Trustee for its benefit and the benefit of the
Holders, and hereby grants to the Trustee for its benefit and the benefit of the
Holders a security interest in, the following (collectively, and including,
without limitation, all property constituting Bank Collateral, the
"Collateral"):
----------
(a) the MGM Finance Securities Accounts and all U.S. Government
Obligations contained or deposited in either MGM Finance Securities Account from
time to time, and any certificates representing any thereof, and all cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all thereof; and
(b) all proceeds of any and all of the foregoing Collateral (including,
without limitation, proceeds that constitute property of the types described
above in Section 2(a)).
SECTION 3. Agreement to Defease and Redeem First Mortgage Notes.
----------------------------------------------------
(a) On or before July 3, 1996 (the "Delivery Date") MGM Finance shall
-------------
deliver to the Secured Lenders' Agent as Collateral in the manner provided in
Section 4 below, U.S Government Obligations maturing as to principal and
interest in such amounts and at such times as is, together with the Grantor
Defeasance Deposit (as defined in the Borrower Defeasance Agreement) sufficient,
without consideration of the reinvestment of interest and after payment of all
federal, state and local taxes or other charges or assessments in respect
thereof payable by the Trustee, to pay principal of and interest on the First
Mortgage Notes to May 1, 1997 (the "Redemption Date"), and to pay all other sums
---------------
payable by it under the Indenture (such amount of such U.S. Government
Obligations so delivered being referred
3
<PAGE>
to herein as the "MGM Finance Defeasance Deposit", and, together with the
------------------------------
Grantor Defeasance Deposit, the "Defeasance Deposit"). On or before the Delivery
------------------
Date MGM Finance shall deliver to the Trustee an Officer's Certificate
certifying that the Defeasance Deposit is and will be sufficient to pay all such
principal, interest and other amounts, as required by Section 8.01(a) of the
Indenture.
(b) MGM Finance shall cause all of the First Mortgage Notes to be redeemed
on May 1, 1997 pursuant hereto and to the optional redemption provisions of
paragraph 5 of each First Mortgage Notes and Section 3.07 of the Indenture.
(c) The Trustee hereby agrees:
(i) That delivery of a Defeasance Deposit by the Borrower and MGM
Finance to the Secured Lenders' Agent pursuant to and complying with the
terms hereof and the Borrower Defeasance Agreement will satisfy MGM
Finance's obligation to deposit U.S. Government Obligations with the
Trustee under Section 8.01(a) of the Indenture;
(ii) That possession by the Secured Lenders' Agent on the ninety-
first day following the Delivery Date or such later date on which the
conditions of Section 8.01 of the Indenture shall be satisfied (the
"Defeasance Date") of a Defeasance Deposit complying with the requirements
---------------
of Section 8.01(a) of the Indenture, of the Borrower Defeasance Agreement
and hereof shall be deemed to satisfy the obligation of MGM Finance to
deposit the redemption price of all First Mortgage Notes under Section 3.05
of the Indenture as of the Defeasance Date provided the assignment, pledge
--------
and security interest created hereunder in favor of the Trustee and Holders
in all of the U.S. Government Obligations included in the Collateral shall
then be valid, perfected and first priority;
(iii) To provide, in MGM Finance's name and at MGM Finance's expense,
notice of the redemption of the First Mortgage Notes to each Holder before
the Redemption Date as provided in Section 3.03 of the Indenture;
(iv) To use the proceeds of the Collateral to redeem all of the then
outstanding First Mortgage Notes on the Redemption Date in accordance with
the Indenture;
(v) After redemption of the First Mortgage Notes and payment of all
other amounts required to be paid in connection with such redemption under
the Indenture, to remit any Collateral or proceeds thereof then remaining
to the Borrower provided, that with respect to the Bank Collateral, the
--------
assignment, pledge and security interest granted under Section 1 hereof in
the Bank Collateral shall then have terminated;
4
<PAGE>
(vi) Delivery to the Trustee of an opinion of Christensen, White,
Miller, Fink, Jacobs, Glaser & Shapiro substantially in the form of Exhibit
A hereto shall satisfy the requirement for the delivery of the Opinion of
Counsel required by Sections 8.01(d), (e), (f) and (g) of the Indenture;
(vii) Delivery to the Trustee of an Officer's Certificate
substantially in the form of Exhibit B hereto shall satisfy the requirement
for the delivery of the Officer's Certificate required by Section 8.01(g)
of the Indenture; and
(viii) On each of the Defeasance Date and the Redemption Date the
Trustee shall acknowledge to the Borrower and MGM Finance in writing the
discharge of their respective obligations under the Indenture, except for
those then surviving obligations as specified in Section 8.01 of the
Indenture.
SECTION 4. Delivery of Collateral.
----------------------
(a) All certificates or instruments representing or evidencing Collateral
(if any) shall be delivered to and held by the Secured Lenders' Agent pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Secured Lenders' Agent.
(b) With respect to any Collateral the ownership of which is recorded in
book-entry form by a Federal Reserve Bank, MGM Finance shall cause such
Collateral to be irrevocably transferred to and maintained in a custody account
with such Federal Reserve Bank in the book entry records of such Federal Reserve
Bank in the name of First Bank National Association, as agent for First Trust as
Secured Lenders' Agent. MGM Finance shall also deliver to the Secured Lenders'
Agent and the Credit Agent a listing of such Collateral by title (or series),
unpaid principal amount and maturity. Each such listing of Collateral shall be
accompanied by written instructions of MGM Finance to the Secured Lenders' Agent
directing that each item of listed Collateral be deposited and maintained in the
MGM Finance Securities Account specified therein. The Secured Lenders' Agent
shall cause each item of listed Collateral delivered to it to be deposited and
maintained in the MGM Finance Securities Account specified therefor, subject to
the Liens, terms and conditions hereof. The Secured Lenders' Agent shall
cooperate with MGM Finance in effecting each such delivery of Collateral, and
upon the date of the completion of each transfer to its custodial account with
the appropriate Federal Reserve Bank, the Secured Lenders' Agent shall notify
each of the MGM Finance, Trustee and Credit Agent that it has received and holds
such Collateral for the account of MGM Finance in the appropriate MGM Finance
Securities Account, and subject to the Liens, terms and conditions hereof. The
Secured Lenders' Agent shall cause all relevant records respecting such U.S.
Government Obligations delivered to it to be maintained in the name of First
Trust as Secured Lenders' Agent in order to reflect and perfect the respective
interests of the MGM Finance, the Credit Agent and the Trustee therein, in each
case in a manner required by
5
<PAGE>
and consistent with applicable law (including United States regulations
applicable to perfection of security interests in such U.S. Government
Obligations). U.S. Government Obligations so delivered under this Section 4(b)
are securities of the United States Treasury, such delivery shall be made by
wire transfer to ABA #091000022, FIRST MPLS/TRUST, Account #03, or to such other
account as the Secured Lenders' Agent may specify in writing. The Secured
Lenders' Agent shall, promptly upon its receipt of any U.S. Government
Obligations hereunder place them in the appropriate MGM Finance Securities
Account. The execution and delivery of this Agreement shall constitute
acknowledgement by, and notification of, the Secured Lenders' Agent as if it
were bailee of the Collateral with notice of the assignment, pledge and security
interests created hereby to the full extent contemplated by 31 C.F.R. section
306.118 and Article 8 of the Uniform Commercial Code of any jurisdiction.
(c) All deliveries of Collateral hereunder shall be irrevocable and, for
the purposes of the Indenture, shall be deemed to constitute irrevocable deposit
of such Collateral by MGM Finance with the Trustee.
(d) Notwithstanding anything to the contrary appearing in the MGM Finance
Collateral Assignment (including, without limitation, Section 6(a) thereof), the
Intercreditor Agreement, the MGM Hotel Loan Agreement, the MGM Hotel Promissory
Note or any other Collaterally Assigned Document, the Company may prepay all or
any portion of the MGM Hotel Loan on the Delivery Date provided (i) the proceeds
--------
of such prepayment are applied exclusively to the purchase of U.S. Government
Obligations and (ii) immediately upon MGM Finance's purchase of such U.S.
Government Obligations, MGM Finance shall deliver such U.S. Government
Obligations to the Secured Lenders' Agent as Collateral to be deposited and
maintained as Bank Collateral in the MGM Finance Dual Interest Account. MGM
Finance shall not be required to deliver to the Secured Lenders' Agent for
deposit in the MGM Finance Dual Interest Account as Bank Collateral any U.S.
Government Obligations not acquired with the proceeds of prepayments of the MGM
Hotel Loan.
SECTION 5. Security for Obligations.
------------------------
(a) The assignment, pledge and security interest in the Bank Collateral
granted under Section 1 hereof secure the prompt payment, in full in cash, and
the full performance of, all Obligations (as defined in the Credit Agreement) of
MGM Finance under the Credit Agreement and the Loan Documents (as defined in the
Credit Agreement) (collectively, the "Credit Obligations"), including, without
------------------
limitation, all interest that accrues on all or any part of any of such Credit
Obligations the filing of any petition or pleading against Borrower or any other
Person for a proceeding under any Debtor Relief Laws (as defined in the Loan
Agreement).
(b) The assignment, pledge and security interest in the Collateral granted
under Section 2 hereof secure the prompt payment, in full in cash, and the full
performance of,
6
<PAGE>
all obligations of MGM Finance to the Trustee and the Holders under the
Indenture and the First Mortgage Notes, whether for principal, interest, fees,
expenses or otherwise, including, without limitation, all interest that accrues
on all or any part of any of such obligations of MGM Finance after the filing of
any petition or pleading against MGM Finance or any other Person for a
proceeding under any Debtor Relief Laws (collectively, the "Indenture
---------
Obligations", and, together with Credit Obligations, the "Secured Obligations").
- ----------- -------------------
SECTION 6. Representations and Warranties.
------------------------------
(a) MGM Finance represents and warrants to and for the benefit of the
Credit Agent and the Banks as follows:
(i) MGM Finance is the legal and beneficial owner of the Bank
Collateral free and clear of any Lien, except for the assignment, pledge
and security interest created by this Agreement.
(ii) This Agreement and the pledge of the Bank Collateral pursuant
hereto create a valid and perfected security interest in the Bank
Collateral, securing the payment of Indenture Obligations. Such security
interest is equal and ratable as to priority to the Lien created by Section
2 hereof, and is otherwise first priority.
(iii) No consent of any other Person and no authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (x)
for the grant by MGM Finance of the assignment and security interest
granted hereby, for the pledge by MGM Finance of the Bank Collateral
pursuant hereto or for the execution, delivery or performance of this
Agreement by MGM Finance, or (y) for the perfection or maintenance of the
pledge, assignment and security interest created hereby over the Bank
Collateral (including the priority nature of such pledge, assignment or
security interest as described in clause (ii) above), except as may be
required in connection with the disposition thereof by laws affecting the
offering and sale of securities generally. This Agreement has been duly
authorized, executed and delivered by, and is the legal, valid and binding
obligation of, each of MGM Finance and Borrower, enforceable against each
such MGM Party in accordance with its terms.
(iv) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
(v) There is no action, suit, investigation, litigation or
proceeding affecting Borrower or MGM Finance pending or threatened before
any court, governmental agency or arbitrator that purports to affect the
legality, validity or enforceability of this Agreement or the consummation
of the transactions contemplated hereby or whose resolution could
7
<PAGE>
have a material adverse affect on the ability of either such party to
perform its obligations hereunder.
(vi) No Event of Default has occurred and is continuing, and neither
this Agreement nor the consummation of the transactions contemplated hereby
shall cause or result in a Default under the Indenture or a breach or
violation of, or constitute a default under, any other agreement instrument
to which MGM Finance is a party or by which it or its property is bound.
(b) MGM Finance represents and warrants to and for the benefit of the
Secured Lenders' Agent, the Trustee and the Holders as follows:
(i) MGM Finance is the legal and beneficial owner of the Collateral
free and clear of any Lien, except for the assignments, pledges and
security interests created by this Agreement.
(ii) This Agreement and the pledge of the Collateral pursuant hereto
create a valid and perfected security interest in the Collateral securing
the payment of the Indenture Obligations. Such security interest is first
priority with respect to all Collateral other than Bank Collateral. With
respect to the Bank Collateral, such security interest is equal and ratable
as to priority to the Lien created by Section 1 hereof, and is otherwise
first priority.
(iii) No consent of any other Person and no authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (x)
for the grant by MGM Finance of the assignment and security interest
granted hereby, for the pledge by MGM Finance of the Collateral pursuant
hereto or for the execution, delivery or performance of this Agreement by
MGM Finance, or (y) for the perfection or maintenance of the pledge,
assignment and security interest created hereby over the Collateral
(including the priority nature of such pledge, assignment or security
interest as described in clause (ii) above), except as may be required in
connection with the disposition thereof by laws affecting the offering and
sale of securities generally.
(iv) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
(v) There is no action, suit, investigation, litigation or
proceeding affecting either MGM Finance or Borrower pending or threatened
before any court, governmental agency or arbitrator that purports to affect
the legality, validity or enforceability of this Agreement or the
consummation of the transactions contemplated hereby or whose resolution
could have a material adverse affect on the ability of either such party to
perform its obligations hereunder.
8
<PAGE>
(vi) No Event of Default has occurred and is continuing, and neither
this Agreement nor the consummation of the transactions contemplated hereby
shall cause or result in a Default under the Indenture or a breach or
violation of, or constitute a default under, any other agreement instrument
to which MGM Finance is a party or by which it or its property is bound.
SECTION 7. Further Assurances. MGM Finance agrees that from time to time,
------------------
at the expense of MGM Finance, MGM Finance will promptly execute and deliver all
further instruments and documents (including the filing and recording of any
necessary financing statements), and take all further action, that may be
necessary or desirable, or that the Credit Agent, Trustee or Secured Lenders'
Agent may request, in order to perfect and protect any pledge, assignment or
security interest granted or purported to be granted hereby or to enable the
Credit Agent, Trustee and Secured Lenders' Agent to exercise and enforce their
respective rights hereunder. MGM Finance shall pay all taxes, assessments and
other charges with respect to the Collateral, and will defend the Collateral
against any suit, action or proceeding which could adversely affect the
assignment, pledge and security interest created hereby.
SECTION 8. Interest and Distributions; Reinvestment of MGM Finance
-------------------------------------------------------
Securities Accounts. (a) The Secured Lenders' Agent shall be entitled to
- -------------------
receive and retain any and all interest and other distributions paid in respect
of Bank Collateral and Collateral as additional Bank Collateral and Collateral,
respectively, subject to the Lien and terms hereof. All interest and
distribution payments that are received by MGM Finance contrary to the
provisions of this Section 8 shall be received in trust for the benefit of the
Secured Lenders' Agent, shall be segregated from other funds of MGM Finance and
shall be forthwith paid over to the Secured Lenders' Agent as Collateral.
(b) All amounts maintained in either of the MGM Finance Securities
Accounts, including all amounts paid in respect of interest and other
distributions on Bank Collateral and Collateral which are retained by the
Secured Lenders' Agent, shall be invested in U.S. Government Obligations with
respect to which the requirements of Sections 4(a) or (b), and Section 7, have
been satisfied.
SECTION 9. Transfers and Other Liens. MGM Finance shall not (i) sell,
-------------------------
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, except that MGM Finance may
assign its interests in the Collateral to the Company at any time after the
Defeasance Date provided that the Collateral remains subject to the assignments,
pledges and security interests created hereby,or (ii) create or suffer to exist
any Lien upon or with respect to any of the Collateral except for the pledge,
assignment and security interest created by this Agreement.
SECTION 10. Secured Lenders' Agent Appointed Attorney-in-Fact. MGM Finance
-------------------------------------------------
hereby irrevocably appoints the Secured Lenders' Agent MGM Finance's attorney-
in-fact, with full authority in the place and stead of MGM Finance and in the
name of MGM
9
<PAGE>
Finance or otherwise, from time to time in the Secured Lenders' Agent's
discretion, to take any action and to execute any instrument necessary to
accomplish the purposes of this Agreement.
SECTION 11. Secured Lenders' Agent May Perform. If MGM Finance fails to
----------------------------------
perform any agreement contained herein, the Secured Lenders' Agent may itself
perform, or cause performance of, such agreement, and the expenses of the
Secured Lenders' Agent incurred in connection therewith shall be payable by MGM
Finance.
SECTION 12. The Secured Lenders' Agent's Duties. The Trustee (on its own
-----------------------------------
behalf and on behalf of the Holders) hereby appoints Secured Lenders' Agent as
their agent to act for and on its behalf, but only upon its direction, in
connection with the exercise and enforcement of their rights and remedies
hereunder in accordance with the terms hereof, including, without limitation,
for the purposes of perfection of the assignment, pledge and security interest
created hereby in favor of the Trustee and the Holders. The Credit Agent (on
its own behalf and on behalf of the Banks) hereby appoints Secured Lenders'
Agent as their agent to act for and on its behalf, but only upon its direction,
in connection with the exercise and enforcement of their rights and remedies
hereunder in accordance with the terms hereof, including, without limitation,
for the purposes of perfection of the assignment, pledge and security interest
created hereby in favor of the Credit Agent and the Banks. The powers conferred
on the Secured Lenders' Agent hereunder are solely to protect the assignments,
pledges and security interests in the Collateral, including the Bank Collateral,
and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Secured Lenders' Agent shall have
no duty as to any Collateral, as to ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relative
to any Security Collateral, whether or not the Secured Lenders' Agent has or is
deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral. The Secured Lenders' Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which First Trust accords its own property.
SECTION 13. Release and Termination.
-----------------------
(a) On the Defeasance Date, and upon (i) the payment in full and in cash
of all amounts outstanding under the Credit Agreement, together with any amounts
of interest then accrued thereon, and (ii) termination of the Commitment (as
defined in the Credit Agreement), the Credit Agent shall notify the Secured
Lenders' Agent that, concurrently with the release and termination of all
collateral and guarantees held by the Secured Lenders' Agent for the First
Mortgage Notes and the Credit Agreement (other than the liens in the MGM Finance
Securities Accounts created hereunder), the assignment, pledge and security
interest created hereunder or pursuant hereto for the benefit of the Banks or
the Credit Agent, all rights of any Bank or the Credit Agent with in or respect
of any Bank
10
<PAGE>
Collateral, and all other rights of any Bank or the Credit Agent hereunder, have
been terminated. Such notice and the notice of the Credit Agent to the Secured
Lenders' Agent contemplated by Section 13(b) below are each referred to herein
as a "Collateral Notice". Upon such termination, the Credit Agent shall, at MGM
-----------------
Finance's expense, execute and deliver to MGM Finance such documents as MGM
Finance shall reasonably request to evidence the release of any Bank Collateral
from the assignment, pledge and security interest granted to the Credit Agent
and the Banks hereby, regardless of whether at the time of such request or such
release any Event of Default or Credit Agreement Event of Default (defined
below) shall have occurred and be continuing.
(b) Without limitation to the foregoing Section 13(a), upon the later of
payment in cash and in full of the Credit Obligations and the termination in
full of all Commitments (as defined in the Credit Agreement), the pledge,
assignment and security interest granted hereby in the Bank Collateral shall
terminate. Upon any such termination, the Credit Agent will, at MGM Finance's
expense, execute and deliver to MGM Finance such documents as MGM Finance shall
reasonably request to evidence such termination and shall promptly notify the
Secured Lenders' Agent that the assignment, pledge and security interest created
by Section 1 hereof have terminated.
(c) The term of this Agreement shall commence upon its execution and
delivery and shall terminate when the First Mortgage Notes have been paid and
discharged in accordance with the Indenture and the assignment, pledge and
security interest granted to the Credit Agent and the Banks under Section 1
hereof shall have terminated pursuant to Sections 13(a) or (b) above. Upon
termination of this Agreement each assignment, pledge and security interest
created hereunder shall terminate and be released.
SECTION 14. Certification of Defeasance and Reconveyance of Deeds of Trust
--------------------------------------------------------------
and Release of Collateral Related to the Defeased First Mortgage Notes. On the
- ----------------------------------------------------------------------
Defeasance Date the Trustee shall execute and deliver to the addressees thereof
the Certificate of Defeasance in the form attached hereto as Exhibit C. In
addition, the Credit Agent and Trustee shall, and shall cause the Secured
Lender's Agent to, reconvey and release all Collaterally Assigned Documents and
all other guaranties, mortgages, deed of trust, security agreement, pledge,
assignments and any other document and instrument securing or supporting the
Indenture, the First Mortgage Notes, the Indenture Obligations, the Credit
Obligations, any Loan Document (as defined in the Credit Agreement) or any of
the foregoing, in each case by execution, delivery and recordation by the
Trustee of such instruments and agreements of reconveyance and release as may be
reasonably requested by MGM Finance, Borrower or the Trustee.
SECTION 15. Remedies for the Benefit of the Banks and Credit Agent.
------------------------------------------------------
Subject in each case to the terms of Section 17 hereof, upon the occurrence and
continuation of an "Event of Default" under and as such term is defined in the
Credit Agreement (a "Credit Agreement Event of Default"):
---------------------------------
11
<PAGE>
(a) The Credit Agent may exercise, or cause the Secured Lenders' Agent to
exercise, in respect of the Bank Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party upon default under the Uniform Commercial Code in
effect in the State of Nevada at such time (the "Uniform Commercial Code")
-----------------------
(whether or not the Uniform Commercial Code applies to the affected Bank
Collateral) and also may without notice except as specified below, sell the Bank
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Secured Lenders' Agent's offices or elsewhere, for cash, on credit
or for future delivery, and upon such other terms as the Secured Lenders' Agent
may deem commercially reasonable. MGM Finance agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to MGM Finance of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Neither the Credit
Agent nor the Secured Lenders' Agent shall be obligated to make any sale of Bank
Collateral regardless of notice of sale having been given. Any public or
private sale may be adjourned from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
(b) All cash proceeds received in respect of any sale of, collection from,
or other realization upon all or any part of the Bank Collateral may, in the
discretion of the Secured Lenders' Agent, be held by the Secured Lenders' Agent
as collateral for, and/or then or at any time thereafter applied in whole or in
part by the Credit Agent for the ratable benefit of the Banks against, all or
any part of Credit Obligations in such order as the Credit Agent shall elect,
subject to the terms of Section 17 hereof. Any surplus of such cash or cash
proceeds held by the Secured Lenders' Agent or the Credit Agent and remaining
after payment in full of all Indenture Obligations shall be held by the Secured
Lenders' Agent as Collateral pursuant to the terms hereof.
SECTION 16. Remedies for the Benefit of the Trustee. Subject in each case
---------------------------------------
to the provisions of Section 17 hereof, upon the occurrence and continuation of
an Event of Default under the Indenture:
(a) The Trustee may cause the Secured Lenders' Agent to exercise in
respect of the Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party upon default under the Uniform Commercial Code (whether or not the Uniform
Commercial Code applies to the affected Collateral) and also may without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Secured Lenders' Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Secured Lenders' Agent may deem commercially reasonable. MGM
Finance agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to MGM Finance of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Secured Lenders' Agent shall not be obligated to
make any sale of Collateral regardless of notice
12
<PAGE>
of sale having been given. The Secured Lenders' Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) All cash proceeds received by the Secured Lenders' Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Trustee, be held by the Secured
Lenders' Agent as collateral for, and/or then or at any time thereafter applied
in whole or in part by the Trustee against, all or any part of the Indenture
Obligations in accordance with the Indenture and hereof. Any surplus of such
cash or cash proceeds held by the Secured Lenders' Agent and remaining after
payment in full of all the Indenture Obligations shall be paid over to MGM
Finance or to whomsoever may be lawfully entitled to receive such surplus.
SECTION 17. Equal and Ratable Liens on Bank Collateral.
------------------------------------------
Notwithstanding the date, manner or order of attachment or perfection or
the description of any Bank Collateral or security interests, liens, claims or
encumbrances covered or granted hereby with respect to the Bank Collateral, the
assignment, pledge and security interest granted in the Bank Collateral under
Section 2 hereof shall be in all respects equal and ratable to and rank equally
with the assignment, pledge and security interest granted in the Bank Collateral
under Section 1 hereof, except as specified in Section 13 hereof. The Credit
Agent and the Banks shall have at all times an interest equal to that of the
Secured Lenders' Agent and Trustee in the Bank Collateral, except as specified
in Section 13 hereof. All proceeds from any exercise of rights by the Trustee,
the Credit Agent or the Secured Lenders Agent with respect to any Bank
Collateral hereunder shall be paid to or retained by the Secured Lenders' Agent
and applied in accordance with the terms of the Intercreditor Agreement as if
such proceeds were proceeds of an exercise of rights under a Collateral Document
(as defined in the Intercreditor Agreement).
SECTION 18. Responsibilities of Trustee and Secured Lenders' Agent.
------------------------------------------------------
(a) Each of the Trustee and the Secured Lenders' Agent undertakes to
perform only such duties as are expressly and specifically set forth in the
Indenture (in the case of the Trustee only) and this Agreement and no implied
duties or obligations shall be read into this Agreement against the Trustee or
the Secured Lenders' Agent.
(b) Neither the Trustee nor the Secured Lenders' Agent shall have any
liability hereunder except to the extent of its own gross negligence or willful
misconduct. In no event shall the Trustee or the Secured Lenders' Agent be
liable for any special, indirect or consequential damages. Neither the Trustee
nor the Secured Lenders' Agent shall have any duty or responsibility under this
Agreement in the case of any default in the performance of the covenants or
agreements contained in the Indenture. Neither the Trustee nor the Secured
Lenders' Agent shall be required to resolve conflicting demands to money or
property in its possession under this Agreement.
13
<PAGE>
(c) The Trustee and the Secured Lenders' Agent may consult with counsel of
its own choice and the opinion of such counsel shall be full and complete
authorization to take or suffer in good faith any action hereunder in accordance
with such opinion of counsel.
(d) Neither the Trustee nor the Secured Lenders' Agent shall be
responsible for any of the recitals or representations contained herein.
(e) Either the Trustee or the Secured Lenders' Agent may become the owner
of, or acquire an interest in, any of the First Mortgage Notes with the same
rights that it would have if it were not the Trustee or Secured Lenders' Agent,
respectively.
(f) Neither the Trustee nor the Secured Lenders' Agent shall be liable for
the accuracy of any calculations provided as to the sufficiency of the U.S.
Government Obligations deposited hereunder to pay any obligations secured
hereby.
(g) Neither the Trustee nor the Secured Lenders' Agent shall be liable for
any action or omission of any each other, any MGM Party or the Credit Agent
under this Agreement or the Indenture.
(h) Whenever in the administration of this Agreement the Trustee or
Secured Lenders' Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering any action thereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of gross negligence or willful misconduct on the
part of the Trustee or Secured Lenders' Agent, respectively, be deemed to be
conclusively proved and established by a certificate of an authorized
representative of MGM Finance and such certificate shall, in the absence of
gross negligence or willful misconduct on the part of the Trustee or the Secured
Lenders' Agent, be full warrant to the Trustee or Secured Lenders' Agent,
Respectively, of any action taken or suffered by it under the provisions of this
Agreement upon the faith thereof.
(i) The Trustee and the Secured Lenders' Agent may conclusively rely, as
to the truth and accuracy of the statements and correctness of the opinions and
the calculations, if any, provided to it in connection with this Agreement, and
shall be protected in acting, or refraining from acting, upon any written
notice, instruction, request, certificate, document or opinion furnished to the
Trustee or Secured Lenders' Agent in connection with this Agreement and
reasonably believed by the Trustee or Secured Lenders' Agent, respectively, to
have been signed or presented by the proper party, and it need not investigate
any fact or matter stated in such notice, instruction, request, certificate,
document or opinion.
(j) MGM Finance agrees to indemnify the Trustee, its agents and its
officers or employees, and hold the Trustee, its agents, officers or employees
harmless, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable fees and disbursements of counsel for the Trustee) which may
14
<PAGE>
be imposed on, incurred by, or asserted against the Trustee at any time by
reason of the performance of its duties as Trustee in any transaction arising
out of this Agreement, or any of the transactions contemplated herein or in the
Indenture, unless due to the Trustee's or its officers' or employees' or agents'
negligence or willful misconduct.
(k) The Secured Lenders' Agent shall distribute funds from the Securities
Accounts to the Trustee, to the extent such funds are available for application
to payments of principal and interest under the Indenture and the First
Mortgage Notes in accordance with the Schedule attached to the Officer's
Certificate delivered in the form of Exhibit D, or otherwise as directed in
writing by the Trustee.
SECTION 19. Resignation and Merger.
----------------------
(a) The Trustee may resign and be discharged of its duties hereunder in
accordance with the procedures in the Indenture, if and at such time as the
Trustee shall resign or be discharged as the Trustee under the Indenture. Any
successor Trustee under the Indenture shall succeed as the Trustee under this
Agreement.
(b) Any company into which the Trustee may be merged or converted or with
which it may be consolidated or any company resulting from any merger,
conversion or consolidation to which it shall be a party or any company to which
the Trustee may sell or transfer all or substantially all of its corporate trust
business, provided such company shall be eligible under this Agreement, shall be
the successor to such Trustee without the execution or filing of any paper or
any further act, notwithstanding anything to the contrary herein.
(c) First Trust reserves the right to resign as Secured Lenders' Agent
under this Agreement at any time by giving written notice of its resignation,
specifying the effective date thereof, to the other parties hereto. Within 30
days after receiving the aforesaid notice, MGM Finance agrees to appoint a
successor Secured Lenders' Agent, reasonably acceptable to the Credit Agent and
the Trustee, to which First Trust may distribute the property then held by it
hereunder, less its fees, costs and expenses. If a successor Secured Lenders'
Agent has not been appointed hereunder and has not accepted such appointment by
the end of such 30 day period, First Trust may apply to a court of competent
jurisdiction for appointment of a successor Secured Lenders' Agent hereunder,
and the costs, expenses and reasonable attorney's fees which it incurs in
connection with such a proceeding shall be paid by MGM Finance.
SECTION 20. Successors.
----------
(a) If at any time hereafter the Trustee shall resign, be removed, be
dissolved or otherwise become incapable of acting, or shall be taken over by any
governmental official, agency, department or board, the position of Trustee
shall thereupon become vacant. MGM Finance shall mail notice of any such
vacancy to the Holders.
15
<PAGE>
(b) If no appointment of a successor Trustee shall be made pursuant to the
foregoing provisions of this section any Holder, or any retiring Trustee or
Secured Lenders' Agent, respectively, may apply to any court of competent
jurisdiction to appoint a successor Trustee. Such court may thereupon, after
such notice, if any, as such court may deem proper and prescribe, appoint a
successor Trustee.
SECTION 21. Limitation of Liability. The Trustee shall not be liable or
-----------------------
responsible because of the failure of any of the other parties of this Agreement
to perform any act required of each of them hereunder or because of the loss of
any moneys arising through the insolvency or the act or default or omission of
any depository, other than itself, in which such moneys shall have been
deposited. The liability of the Trustee hereunder to make payments due and
payable with respect to the First Mortgage Notes as provided herein is limited
to the availability of amounts on deposit under the Indenture and as Collateral
hereunder.
SECTION 22. Indemnity and Expenses.
----------------------
(a) MGM Finance agrees to indemnify the Secured Lenders' Agent from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting from the Secured
Lenders' Agent's, own gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction.
(b) MGM Finance will upon demand pay to the Secured Lenders' Agent the
amount of any and all reasonable fees and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the Secured
Lenders' Agent may incur in connection with (i) the custody, preservation, use
or operation of, or the sale of, collection from or other realization upon, any
of the Collateral, or (ii) the failure by MGM Finance to perform or observe any
of the provisions hereof.
SECTION 23. Security Interests Absolute. The obligations of MGM Finance
---------------------------
under this Agreement are independent of the Secured Obligations, and a separate
action or actions may be brought and prosecuted against MGM Finance to enforce
this Agreement, irrespective of whether any action is brought against MGM
Finance or whether MGM Finance is joined in any such action or actions. All
rights of the beneficiaries hereof and the pledge, assignment and security
interest hereunder, and all obligations of MGM Finance hereunder, shall be
absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of the Indenture, any First
Mortgage Note or any Loan Document (as defined in the Loan Agreement) or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations or any other amendment or waiver
of or any
16
<PAGE>
consent to any departure from the terms of the Indenture, the First Mortgage
Notes or any Loan Document;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all
or any of the Secured Obligations, or any manner of sale or other disposition of
any collateral for all or any of the Secured Obligations or any other assets of
MGM Finance;
(e) any change, restructuring or termination of the corporate structure or
existence of MGM Finance; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, MGM Finance or a third party grantor of a
security interest.
SECTION 24. Redemption or Acceleration of Maturity. MGM Finance will not
--------------------------------------
accelerate the maturity or due date of the First Mortgage Notes to a date
earlier than May 1, 1997.
SECTION 25. Amendments; Waivers; Etc. No amendment or waiver of any
------------------------
provision of this Agreement, and no consent to any departure by any party
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the each of the parties hereto, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. No failure on the part of any party hereto to exercise, and no
delay in exercising any right hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
SECTION 26. Addresses for Notices. All notices and other communications
---------------------
provided for hereunder shall be in writing (including electronic facsimile) and
(a) if to the Trustee, MGM Finance or MGM Finance, to the address provided
therefor under Section 12.10 of the Indenture, (b) if to the Credit Agent, to
the address provided therefor under Section 11.02 of the Credit Agreement, and
(c) if to the Secured Lenders' Agent, to 410 North Michigan Avenue, Suite 370,
Chicago, Illinois 60611, Attention: Gwendolyn Carroll, Vice President,
facsimile number 312-836-6757, or, as to each party, to such other address as
such party shall designated in a notice to each of the other parties hereto.
SECTION 27. Continuing Security Interest; Assignments under the Loan
--------------------------------------------------------
Agreement. This Agreement shall create a continuing security interest in the
- ---------
Collateral and shall (a) remain in full force and effect except as provided by
Section 13 hereof, (b) be binding upon the parties hereto and their respective
successors, transferees and assigns and (c) inure, together with the rights and
remedies hereunder, to the benefit of the parties hereto and
17
<PAGE>
their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any Bank may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment)
to any other Person permitted by the Credit Agreement, and such other Person
shall thereupon become vested with all the benefits in respect thereof granted
to such Bank herein or otherwise, in each case as provided in the Credit
Agreement.
SECTION 28. Severability. If any one or more of the covenants or
------------
agreements provided in this Agreement should be determined by a court of
competent jurisdiction to be contrary to law, such covenants or agreements
herein contained shall be null and void and shall be severed from the remaining
covenants and agreements and shall, in so far as is reasonably possible, not
affect the validity of the remaining provisions of this Agreement.
SECTION 29. Counterparts. This Agreement may be executed in several
------------
counterparts, all or any of which shall be regarded for all purposes as
duplicate originals and shall constitute and be but one and the same instrument.
SECTION 30. Governing Law; Terms. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of Nevada, except to the
extent that the validity or perfection of the security interest hereunder, or
remedies hereunder, in respect of any particular Collateral are governed by the
laws of a jurisdiction other than the State of Nevada. Unless otherwise defined
herein or in the Indenture, terms used in Article 9 of the Uniform Commercial
Code are used herein as therein defined.
SECTION 31. Waiver of Jury Trial. Each party hereto hereby irrevocably
--------------------
waives any right to a trial by jury in any action or proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
MGM GRAND, INC.
By: /s/ Scott Langsner
----------------------------
Scott Langsner
MGM GRAND HOTEL FINANCE CORP.
By: /s/ Daniel H. Scott
----------------------------
Daniel H. Scott
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Credit Agent
By: /s/ L. Chenevert, Jr.
----------------------------
L. Chenevert, Jr.
Vice President
FIRST TRUST OF ILLINOIS, NATIONAL ASSOCIATION
By: /s/ G.M. Carroll
----------------------------
G.M. Carroll
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By: /s/ D. Young
----------------------------
D. Young
Assistant Vice President
19
<PAGE>
EXHIBIT 4.3
CERTIFICATE OF DEFEASANCE
To: MGM GRAND HOTEL FINANCE CORP.
MGM GRAND, INC.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
Re: Indenture dated as of May 1, 1992 (as supplemental, amended or otherwise
modified from time to time prior to the date hereof, the "Indenture") by
---------
and among MGM Grand, Inc., a Delaware corporation, MGM Grand Hotel Finance
Corp., a Nevada corporation, MGM Grand Hotel, Inc., a Nevada corporation,
and U.S. Trust Company of California, N.A., as Trustee.
U.S. Trust Company of California, N.A. is acting as trustee (the "Trustee")
-------
under and pursuant to the Indenture, under which MGM Finance has issued
$220,000,000 principal amount of its 11-3/4% First Mortgage Notes due 1999 and
$253,000,000 principal amount of its 12% First Mortgage Notes due 2002
(collectively, the "First Mortgage Notes"). Capitalized terms appearing herein
--------------------
have the meanings specified in the Indenture.
The Trustee hereby confirms that the provisions of Article 8 of the
Indenture providing for the defeasance of the First Mortgage Notes have been met
as specified therein.
IN WITNESS WHEREOF, the Trustee, by its duly authorized officer, has
hereunto set its hand as of this 29th day of October, 1996.
U.S. Trust Company of California, N.A., as Trustee
By: /s/ D. Young
--------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 58,792
<SECURITIES> 0
<RECEIVABLES> 115,210
<ALLOWANCES> 35,322
<INVENTORY> 12,430
<CURRENT-ASSETS> 245,535
<PP&E> 954,072
<DEPRECIATION> 137,494
<TOTAL-ASSETS> 1,114,182
<CURRENT-LIABILITIES> 176,991
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 922,680
<TOTAL-LIABILITY-AND-EQUITY> 1,114,182
<SALES> 821,798
<TOTAL-REVENUES> 766,834
<CGS> 0
<TOTAL-COSTS> 582,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38,556
<INTEREST-EXPENSE> 28,826
<INCOME-PRETAX> 104,716
<INCOME-TAX> 36,800
<INCOME-CONTINUING> 67,916
<DISCONTINUED> 0
<EXTRAORDINARY> 30,811
<CHANGES> 0
<NET-INCOME> 37,105
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
