-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jW2SRRu8uIzXubMG9KUEmJCFczbpWeFjgSI/v7ojNmnjhyXLcHn7cDwhEaMyKMCl Y9IQmYxCcaRtzYqnxTh9pw== 0000898430-94-000218.txt : 19940330 0000898430-94-000218.hdr.sgml : 19940330 ACCESSION NUMBER: 0000898430-94-000218 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MGM GRAND INC CENTRAL INDEX KEY: 0000789570 STANDARD INDUSTRIAL CLASSIFICATION: 4522 IRS NUMBER: 880215232 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10362 FILM NUMBER: 94518717 BUSINESS ADDRESS: STREET 1: 3155 W HARMON AVE CITY: LAS VEGAS STATE: NV ZIP: 89103 BUSINESS PHONE: 7028913333 MAIL ADDRESS: STREET 1: 3155 W HARMON CITY: LAS VEGAS STATE: NV ZIP: 89103 FORMER COMPANY: FORMER CONFORMED NAME: GRAND NAME CO DATE OF NAME CHANGE: 19870713 10-K 1 FORM 10-K 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, 1993. OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________________________________________to COMMISSION FILE NUMBER 0-16760 MGM GRAND, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 88-0215232 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 3799 LAS VEGAS BOULEVARD SOUTH LAS VEGAS, NEVADA 89109 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) (702) 891-3333 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON WHICH REGISTERED TITLE OF EACH CLASS New York Stock Exchange Common Stock, $.01 Par Value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Registrant's Common Stock held by non- affiliates (based on the closing price on the New York Stock Exchange-- Composite Transactions on March 14, 1994) was approximately $1.575 billion. As of March 14, 1994, 48,844,831 shares of Registrant's Common Stock, $.01 par value, were outstanding. Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 1993 are incorporated by reference into Part II of this Form 10-K. Portions of the Registrant's Proxy Statement dated March 30, 1994 are incorporated by reference into Part III of this Form 10-K. PART 1 ITEM 1. BUSINESS GENERAL MGM Grand, Inc. (the "Company") was organized as a Delaware corporation on January 29, 1986. Through its wholly-owned subsidiary, MGM Grand Hotel, Inc. ("MGM Grand Hotel"), the Company commenced operations on December 18, 1993 of the MGM Grand Hotel and Theme Park, a large-scale integrated hotel/casino entertainment complex. The new resort is located on approximately 112 acres on Las Vegas Boulevard South (the "Strip") in Las Vegas, Nevada, across the street from Excalibur and the Tropicana Hotel/Casino. MGM Grand Hotel Finance Corp. ("MGM Finance"), a wholly-owned subsidiary of the Company, was formed to issue First Mortgage Notes to the public, to incur bank debt (the "Bank Loan") if required and to lend the aggregate proceeds thereof to MGM Grand Hotel to finance the construction and opening of the MGM Grand Hotel and Theme Park. Through its wholly-owned subsidiary, MGM Grand Air, Inc. ("MGM Grand Air"), the Company provides service as an all charter airline. MGM Grand Air operated a scheduled airline service between New York and Los Angeles through December 1992. In January 1990, the Company acquired the Marina Hotel and Casino (the "Marina") located on the project site for $80 million consisting of $50 million in cash and 1,764,706 shares of common stock. In February 1990, the Company acquired the Tropicana Country Club and adjacent land which, along with the Marina, constitutes the 112 acre project site, for $38 million in cash. During November 1990, the Marina and the Tropicana Country Club were closed to prepare for construction of the MGM Grand Hotel and Theme Park. Formal ground breaking occurred in October 1991, and the facility opened in December 1993. In February 1988, the Company through its wholly-owned subsidiaries, MGM Desert Inn, Inc. ("MGM Desert Inn") and MGM Sands, Inc. ("MGM Sands"), acquired the Desert Inn Hotel and Casino (the "Desert Inn") and the Sands Hotel and Casino (the "Sands") together with the assets (excluding cash and receivables) used in their operations, as well as certain adjacent undeveloped property, for $167 million. In April 1989, the Sands was sold for $110 million in cash, realizing a pre-tax gain of approximately $26.5 million. In January 1990, MGM Desert Inn purchased for $28 million in cash 143 acres of previously leased land on which the Desert Inn is located. In December 1991, the Desert Inn was sold to a subsidiary of Tracinda Corporation ("Tracinda") for $130 million in cash. The net sales proceeds in excess of the book value of the assets sold of $11.8 million net of taxes were credited to Capital in Excess of Par Value. For certain information about the Company's industry segments, see Note 17 to the Company's Consolidated Financial Statements. The Company's principal executive offices are currently located at 3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109. The Company's telephone number is (702) 891-3333. HOTELS AND GAMING MGM Grand Hotel and Theme Park MGM Grand Hotel opened the MGM Grand Hotel and Theme Park on December 18, 1993, more than three months ahead of the originally scheduled opening date of April 1, 1994. The new resort is located on approximately 112 acres on the Strip in Las Vegas Nevada, across the street from Excalibur and the Tropicana Hotel/Casino. 1 MGM Grand Hotel is a multi-themed destination resort which management believes is a "must see" attraction for visitors to Las Vegas. The resort has over 350 feet of frontage on the Strip and 1,450 feet on Tropicana Avenue. The complex is easily accessible from McCarran International Airport and from interstate 15 via Tropicana Avenue. MGM Grand Hotel creates an exciting and unique gaming and entertainment experience which is intended to appeal to all segments of the Las Vegas market. The entrance to the hotel and casino on the Strip is highlighted by a seven story lion through which visitors proceed to a 70 foot high reproduction of the Emerald City inspired by "The Wizard of Oz". The casino is approximately 171,500 square feet in size, and is one of the largest casinos in the world. The casino has 3,500 slot machines and 155 table games, a state of the art baccarat pit, a poker room, a race and sports book, and a keno lounge. The casino features four separate themed areas: Emerald City, Hollywood, Monte Carlo, and Sports which enhance the entertainment experience of the casino patron. The hotel has 5,005 rooms, which management believes is the largest in the world. The hotel includes approximately 4,254 typical guest rooms decorated in five different themes: Deep South, Hollywood, Monte Carlo, Emerald, and Casablanca. The hotel also has 751 luxury suites, more than any other Las Vegas hotel. These suites range in size from 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. MGM Grand Hotel has Las Vegas' only full scale theme park. Situated on 33 acres, the park has 12 rides and attractions, extensive food and beverage outlets, ten retail shops, and a large craft area where visitors can view handcrafts being made. Other entertainment facilities include: a 31,000 square foot Midway containing 30 carnival games of skill; an extensive video arcade including virtual reality simulators; two showrooms providing celebrity entertainment; eight restaurants and a food court; a 15,200 seat special events center, providing a venue for great entertainers such as Barbra Streisand and Luther Vandross, as well as sporting events. MGM Grand Hotel uses the unique characteristics of the property to target the following segments of the Las Vegas market: (i) free and independent travelers; (ii) tour and travel; (iii) special events/conventions; (iv) high end gaming; and (v) local. Las Vegas Market The MGM Grand Hotel and Theme Park operates in the Las Vegas market, and is located on the Strip. Las Vegas is the largest city in Nevada, with a population in excess of 900,000, and one of the largest resort destinations in the world with over 23.5 million visitors in 1993, an increase of 7.5% over 1992. Gaming has continued to be a strong and growing business in Las Vegas. Since 1982, Las Vegas Strip gaming revenues have increased at a compound annual growth rate of 7.5% from $1.3 billion in 1982 to $2.9 billion in 1993. The hotel industry in Las Vegas is highly competitive. In 1993 two other major themed resort hotels opened on the Strip; the Luxor with 2,500 rooms and 100,000 square feet of gaming space, and Treasure Island with 3,000 rooms and 90,000 square feet of gaming space. While all of the large themed resorts pose direct competition with the MGM Grand Hotel and Theme Park, Las Vegas Visitors and Convention Authority ("LVCVA") statistics show that tourism growth more than offset the increased capacity as visitor volume for 1993 increased 16% over 1992 levels. 2 MGM Grand Hotel competes with gaming and resort facilities in their respective markets as well as gaming and resort facilities elsewhere in the world. To some extent, state lotteries and state-authorized card rooms such as those present in California compete with the Company's casino/hotels. Gambling, with various limitations and conditions, is now legal in numerous locations throughout the United States. The proliferation of such limited 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 fully operating casinos in California would likely have a negative effect on MGM Grand Hotel's operations in Nevada. Insurance The MGM Grand Hotel carries insurance of the type customary in the hotel and casino industry and in amounts deemed adequate by management to protect the properties. The policies provide customary business and commercial coverages, including workers' compensation, third party liability, property damage, boiler and machinery and business interruption. Government Regulation The ownership and operation of casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the "Nevada Act"); and (ii) various local regulation. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada Commission, the Nevada Board, and the CCLGLB are collectively referred to as the "Nevada Gaming Authorities." The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) to provide a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations. MGM Grand Hotel operates the casino and is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of fees and taxes and is not transferable. MGM Grand Hotel is also licensed as a manufacturer and distributor of gaming devices. Another wholly-owned subsidiary of the Company, MGM Dist., Inc. ("MGM Dist."), is also licensed by the Nevada Gaming Authorities as a manufacturer and distributor of gaming devices, subject to certain conditions and limitations imposed by the Nevada Commission. The Company is required to be registered by the Nevada Commission as a publicly traded corporation ("Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information that the Nevada Commission may require. No person may become a stockholder of, or receive any percentage of profits from, MGM Grand Hotel or MGM Dist. without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company, MGM Grand Hotel and MGM Dist. have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada. 3 The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, MGM Grand Hotel or MGM Dist. in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of MGM Grand Hotel and MGM Dist. must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in the gaming activities of MGM Grand Hotel or MGM Dist. may be required to be licensed or 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 must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company, MGM Grand Hotel or MGM Dist., the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company, MGM Grand Hotel or MGM Dist. to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company, MGM Grand Hotel and MGM Dist. are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by MGM Grand Hotel and MGM Dist., must be reported to or approved by the Nevada Commission. If it was determined that the Nevada Act was violated by MGM Grand Hotel or MGM Dist., the gaming licenses they held could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, MGM Grand Hotel, MGM Dist., the Company and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming property and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Company's gaming property) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's gaming operations. Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10% but not more than 15% of the Company's voting securities, may apply to the Nevada Commission for a Waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are 4 held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities that are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, MGM Grand Hotel or MGM Dist., the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. Additionally, the CCLGLB has taken the position that they have the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company is required to maintain a current stock ledger in Nevada that may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Company's stock certificates to bear a legend indicating that such securities are subject to the Nevada Act. However, to date, the Nevada Commission has not imposed such a requirement on the Company. The Company may not make a public offering of any securities without the prior approval of the Nevada Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation or approval by the 5 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 29, 1993, the Nevada Commission granted the Company prior approval to make public offerings for a period of one year, subject to certain conditions (the "Shelf Approval"). However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board. The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and the Nevada Commission concerning a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process of the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and(iii) promote a neutral environmental for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Company's board of directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to Clark County, Nevada. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by MGM Grand Hotel where entertainment is furnished in connection with the selling of food or refreshments. Nevada licensees that hold a license as an operator of a slot machine route, a manufacturer or a distributor, such as MGM Grand Hotel and MGM Dist., also pay certain fees and taxes to the State of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are also required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign 6 jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ a person in the foreign operation who has been denied a license or a finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages by MGM Grand Hotel is subject to licensing, control and regulation by the applicable local authorities. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect upon the operations of MGM Grand Hotel. Pursuant to a 1985 agreement between the State of Nevada and the United States Department of the Treasury (the "Treasury"), the Nevada Commission and the Nevada Board have authority to enforce their own cash transaction reporting laws applicable to casinos and that substantially parallel the federal Bank Secrecy Act. Thus, the Nevada Act requires most gaming licensees to file reports related to cash purchases of chips, cash wagers, cash deposits or cash payment of gaming debts, if any such transactions aggregate more than $10,000 in a 24-hour period. Casinos are required to monitor receipts and disbursements of currency in excess of $10,000 and report them to the Treasury. Although it is not possible to quantify the full impact of these requirements on the Company's business, the changes are believed to have had some adverse effect on results of operations since 1985. The Treasury has proposed amendments to the federal regulations promulgated under the Bank Secrecy Act. The most significant proposed regulatory amendment is a reduction in the threshold at which customer identification data must be obtained and documented by the casino, from $10,000 to $3,000 (which may include the aggregation of smaller denominations). The amendments would substantially increase the record-keeping requirements imposed upon casinos relative to customer data, currency and non-currency transactions. The Company's management believes the proposed amendments, if enacted in their current form, could adversely affect future income if middle and upper-level play is reduced as a result thereof and operating costs are increased due to the more extensive record-keeping requirements. While these proposed amendments were issued as a final rule in 1993 and were scheduled to go into effect in September 1993, the Treasury has agreed to delay implementation of these amendments until at least December 1, 1994. Additionally, two bills are currently pending before Congress that could potentially affect Nevada's ability to enforce its own cash transaction reporting laws. While the bill before the House of Representatives includes a section that would revoke the Secretary of the Treasury's ability to allow Nevada to enforce its own cash transaction reporting laws, the bill before the Senate does not include such a section and would allow Nevada to continue to enforce its own cash transaction reporting laws applicable to casinos. In the past, the Internal Revenue Service (the "IRS") had taken the position that gaming winnings from table games by non-resident aliens were subject to a 30% withholding tax; however, the IRS subsequently adopted a practice of not collecting such tax. In response to this ambiguity, Congress enacted as part of the Technical and Miscellaneous Revenue Act of 1988, a provision that exempts from tax withholding game winnings from table games by non-resident aliens, unless the Secretary of the Treasury determines by regulation that such collections have become administratively feasible. When Congress enacted this legislation, it stated its intent that future regulations imposing a withholding tax would be formulated only when future developments permit withholding that would not be disruptive to the operation of the games. Currently, casino operators withhold tax from non-resident aliens only on large wins from slot machines, keno and other high odds wins, and do not withhold from table game winnings. 7 Competition The hotel industry is highly competitive. Hotels located on or near the strip ("Strip Hotels") compete primarily with other Strip Hotels and with a few major hotels in downtown Las Vegas. Strip Hotels offering similar prices compete with each other primarily on the basis of quality of rooms, restaurants and facilities, entertainment offered, complimentary goods and services given, credit limits and quality of personal attention offered to guests and casino customers. The Company's hotel/casino operations will also compete with a large number of hotels and motels, and gaming facilities not related to hotels or motels, located in and near Las Vegas. The Theme Park will compete with all other forms of entertainment, lodging and recreational activities, including other theme parks, especially those located in southern California. Some of the Company's competitors are larger than the Company and may have greater resources. According to the LVCVA, as of December 31, 1993, there were approximately 86,000 hotel and motel rooms in the Las Vegas area. In addition, the LVCVA reports proposals to construct approximately 29,000 more hotel and motel rooms. The Company cannot make any prediction as to how many additional rooms will be constructed in Las Vegas. The Company's future operating results could be adversely affected by excess Las Vegas room and gaming capacity. In addition to competing with hotel/casino facilities elsewhere in Nevada (i.e., the Reno/Lake Tahoe area and the rapidly expanding Laughlin area) and in Atlantic City, the Company competes with hotel/casino facilities elsewhere in the world and with state lotteries. Certain states have recently legalized, and several other states are currently considering, legalizing casino gaming in specific geographic areas, including Colorado, Illinois, Iowa, Louisiana, Mississippi, Missouri, Oregon, South Dakota and Tennessee. Legalized casino gambling in other states could adversely affect the Company's activities in Las Vegas, particularly if such legalization were to occur in areas close to Nevada, such as California. Additionally, certain gaming operations are conducted or have been proposed on federal Indian reservations, including those located in the primary market to be served by the MGM Grand Hotel. In addition, with respect to group bookings, the Company's hotel/casino facilities in Las Vegas also compete with hotels and resorts, which do not include casinos, throughout the United States. MGM GRAND AIR Operating Strategy The first element of MGM Grand Air's strategy is to promote its quality reputation and name recognition in order to provide a distinctive alternative to the current service offered by other airlines and charter operators to professional sports teams, touring entertainers, upscale tour operators and certain upscale travelers. Management of MGM Grand Air believes that these travelers will continue to select MGM Grand Air for their travel needs because of the convenience and premium service offered by MGM Grand Air. The second element of MGM Grand Air's strategy is to reconfigure its markets in order to derive a significant portion of its revenue from track flying (i.e., regularly scheduled flying between the same destinations). Through December 31, 1992, MGM Grand Air provided regularly scheduled service between Los Angeles and New York. This service was discontinued in order to concentrate on the upscale charter market. This decision was a direct result of the low prices established by competitors, over-capacity in the Los Angeles-- New York market, and the on-going recession in the scheduled airline business. MGM Grand Air's charter service is available using either its Boeing 727-100 or DC-8-62 aircraft. The combination of aircraft allows MGM Grand Air to offer flexibility in size and destinations with virtual worldwide capabilities. The aircraft are configured to offer passengers as much as 60 inches of leg room, with a premium cabin service. 8 MGM Grand Air has a separate private terminal facility at Los Angeles International Airport. At other airports, MGM Grand Air usually contracts with fixed base operators which are separate from the main terminal. Pricing and Marketing Strategy MGM Grand Air's marketing strategy operates on the premise that sports teams, touring entertainers and certain upscale travelers will be attracted to MGM Grand Air due to the convenience, privacy and premium service offered by MGM Grand Air. MGM Grand Air markets its services directly to potential customers and also through charter brokers and tour operators. Direct sales efforts are supported by targeted media advertising, public relations and promotional activities and direct mail contact with selected potential customers. Flight Equipment Prior to commencement of operations, MGM Grand Air acquired three specially- configured Boeing 727-100 aircraft for an aggregate cost of approximately $11,000,000 and incurred additional expenses of approximately $8,500,000 to repair, refurbish and equip the aircraft. The aircraft seats 36 passengers. In December 1987, MGM Grand Air acquired three DC-8-62 aircraft for a total purchase price of approximately $16,000,000 and subsequently incurred additional expenses of approximately $38,300,000 to repair, refurbish, equip and hush kit the aircraft. The aircraft seats 70 passengers. These aircraft have been modified to conform to FAA Stage III noise standards. Ground Facilities and Services At Los Angeles International Airport, MGM Grand Air is currently operating under a twenty year lease expiring in March 2007 for its passenger service facilities, flight operations and other office space. MGM Grand Air believes that its current Los Angeles location is unique and enhances its appeal to the travel customer. MGM Grand Air contracts for major maintenance, passenger and ground handling and pre-boarding security services. Maintenance management personnel, quality assurance personnel and airport station management personnel are MGM Grand Air employees. Competition The airline industry is intensely competitive and has become more competitive due to the enactment of the Airline Deregulation Act of 1978 (the "Deregulation Act"). The Deregulation Act has increased competition with respect to both routes and fares among currently certificated carriers, and reduced the barriers to entry in the air transport industry. MGM Grand Air competes with commercial airlines and private charter carriers, some of whom are larger with greater resources than MGM Grand Air. Fuel Jet fuel accounts for the most significant portion of MGM Grand Air's operating costs. MGM Grand Air purchases fuel on standard airline trade terms, which do not provide protection against price increases or assure availability of supplies. Since February 25, 1979, jet fuel has been exempted from the price control and allocation rules under the Emergency Petroleum Allocation Act of 1973. The Department of Energy has adopted special 9 standby pricing and allocation rules applicable to jet fuel in the event of a petroleum supply shortage, but, because of the recent adequacy of supply of petroleum products, these special rules have not yet been imposed. The future availability of fuel and the impact of fuel costs on MGM Grand Air cannot be predicted with certainty. Substantial increases in fuel prices, such as occurred during the mid east conflict of 1990-1991, or the unavailability of adequate supplies could have a material adverse effect on the operations and operating results of MGM Grand Air. In addition, MGM Grand Air's ability to pass on increased fuel costs to its passengers through price increases may be limited. Summary Operating Data for Passenger Service The following table (unaudited) sets forth selected operating data relating to MGM Grand Air's passenger service for the periods indicated.
1992 QUARTERS 1993 QUARTERS ----------------------------------- ----------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH -------- ------- ------- ------- ------- ------- ------- -------- Operating revenues (000).................. $ 14,195 $11,977 $12,859 $10,974 $ 4,938 $ 4,719 $ 4,732 $ 6,395 Depreciation & amortiza- tion (000) (1)......... $ 1,727 $ 1,730 $ 1,742 $ 1,750 $ 1,596 $ 1,567 $ 1,568 $ 1,640 Operating income (loss) (000) (2).............. $ (1,066) $(2,287) $(1,521) $(8,858) $(2,326) $(2,799) $(2,429) $(70,891) Aircraft block hours flown.................. 2,848 2,497 2,562 2,567 1,066 964 813 1,004 Yield per block hour flown (3).............. $ 4,984 $ 4,797 $ 5,019 $ 4,275 $ 4,632 $ 4,895 $ 5,820 $ 6,618
- -------- (1) Excludes 1993 fourth quarter aircraft carrying value adjustment--see also (2). (2) Includes 1993 fourth quarter aircraft carrying value adjustment of $68,948,000. (3) The average revenues per block hour flown. Insurance MGM Grand Air carries insurance of the type customary in the airline industry and in amounts deemed adequate to protect MGM Grand Air and its property. The policies provide customary business and commercial coverages, including workers' compensation, public liability, aircraft liability, airport liability, passenger liability, baggage and cargo liability, shippers risk, property damage and loss of or damage to flight equipment. Government Regulation Economic. Under the Federal Aviation Act of 1958, as amended (the "Aviation Act"), interstate air carriers are subject to regulation by the United States Department of Transportation (the "DOT") and the Federal Aviation Administration (the "FAA"). The DOT has jurisdiction over the issuance of Certificates of Public Convenience and Necessity (the "401 Certificates"), pursuant to which air carriers are permitted to operate. The DOT has the power to amend, modify, suspend or revoke such 401 Certificates. In addition, 401 Certificates are not transferable without DOT approval. MGM Grand Air has received a 401 Certificate to operate as a scheduled and charter interstate air carrier and has been certified by the FAA. Environmental. Under federal law and regulations pertaining to aircraft noise promulgated under the Noise Control Act of 1972 and the Aviation Safety and Noise Abatement Act of 1979, commercial jet aircraft are classified in three categories, Stage I, II and III, with Stage III being the quietest and Stage I being the noisiest. Stage I aircraft were banned from use in the United States, effective January 1, 1986. MGM Grand Air's Boeing 727-100 aircraft are classified as Stage II aircraft and currently comply with applicable noise regulations. Hush kits can be purchased to enable these aircraft to comply with Stage III. MGM Grand Air's DC-8-62 aircraft, which have hush kits installed, are classified as Stage III. Because of the mix of Stage II and Stage III aircraft in the MGM Grand air fleet, all six aircraft are qualified to operate until January 1, 1999. 10 The legislatures and other governmental bodies in several states have from time to time considered noise-reduction measures including limitations on hours of operation of jet aircraft generally or of specific types of aircraft. Any such regulations affecting the aircraft utilized by MGM Grand Air could substantially increase costs or curtail operations. Under the Federal Clean Air Act, the Environmental Protection Agency (the "EPA") has been given authority to promulgate aircraft emission standards, and the adoption or enforcement of site or local aircraft emission standards is expressly barred. The EPA has not yet promulgated emission standards affecting any of the aircraft which it is anticipated will be operated by MGM Grand Air. Other Regulations. The FAA has jurisdiction to regulate flight operations generally, including the licensing of pilots and maintenance personnel, the establishment of minimum standards for training and maintenance and technical standards for flight, communications and ground equipment. All of MGM Grand Air's aircraft must have and maintain airworthiness certificates issued by the FAA. The FAA must also approve MGM Grand Air's pilot and flight attendant training programs. MGM Grand Air's flight personnel procedures, aircraft, maintenance facilities and other procedures are subject to inspection by the FAA. The FAA has the authority to suspend temporarily or revoke permanently the authority of an air carrier or its licensed personnel for failure to comply with federal aviation regulations promulgated by the FAA and to levy civil penalties for such failures. The FAA may also suspend or revoke airworthiness certificates of such aircraft which the FAA determines are or may be unsafe or which do not meet applicable regulations. The Federal Communications Commission has jurisdiction over certain aspects of the operations of airlines involving the use of radio-facilities and in- flight telephone service. In addition, the National Mediation Board has jurisdiction over the labor relations of MGM Grand Air under the Railway Labor Act, as amended. The Food and Drug Administration has regulatory authority over airplane galleys, and various government agencies regulate the sale of alcoholic beverages aboard aircraft. EMPLOYEES As of December 31, 1993, the Company employed approximately 8,500 full time equivalent employees at its corporate offices, MGM Grand Air, MGM Grand Laundry, Inc., and MGM Grand Hotel. None of the Company's employees are covered by collective bargaining agreements. ITEM 2. PROPERTIES The Company's principal executive offices are located at 3799 Las Vegas Boulevard South, Las Vegas, Nevada 89109, where it rents approximately 7,028 square feet from MGM Grand Hotel. In January and February 1990, the Company acquired approximately 112 acres of real property in Las Vegas, Nevada, consisting of the Marina land and the Tropicana land and adjacent land thereto, for approximately $88 million in cash and 1,764,706 shares of Common Stock which together, constitute the MGM Grand Hotel, Casino and Theme Park property. (See Item 1. Business.) MGM Grand Hotel's principal executive offices are also located at 3799 Las Vegas Boulevard South, Las Vegas, Nevada, 89109. Pursuant to a lease expiring in March 1999, certain other office and warehouse space is leased by MGM Grand Hotel consisting of approximately 112,000 square feet at 3155 W. Harmon, Las Vegas, Nevada, 89103, for an annual rent of approximately $372,000. 11 MGM Grand Air maintains its headquarters at 1500 Rosecrans Avenue, Suite 350, Manhattan Beach, California 90266. Pursuant to a lease which expires in January 1999, MGM Grand Air leases approximately 12,300 square feet, 3,100 of which is sublet to an unrelated party. MGM Grand Air's annual aggregate rent payments for its office, terminal and other facilities are approximately $405,000. ITEM 3. LEGAL PROCEEDINGS In October, 1992, the Los Angeles Superior Court issued a minute order favorable to the Company in the litigation between the Company and Walt Disney Co. ("Disney"). Disney sought unspecified compensatory and punitive damages from the Company, and an injunction prohibiting the Company from using the MGM or MGM Grand names in connection with the new theme park in Las Vegas. The court found in favor of the Company on every count of Disney's claim. The Company has been informed that Disney has determined not to appeal the decision, which is now final. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT FRED BENNINGER (age 77) has served as a Director of the Company since February 1986, and as Chairman of the Board since August 1987. He also served as President of the Company from August 1987 to March 1990. He served as Chairman of the Executive Committee on the Board of Directors of MGM/UA Communications Co. from July 1988 to January 1990. He was President of Tracinda from March 1982 to July 1987 and Chairman of the Executive Committee of MGM Grand Hotels, Inc. from 1971 to April 1986. He was Director and Chairman of the Executive Committee of MGM/UA Entertainment Co. from June 1980 to March 1986. ROBERT R. MAXEY (age 56) has served as President, Chief Executive Officer and Director of the Company since January 1991. From May 1989 to January 1991, he was President and Chief Executive Officer of MarCor Resort Properties, Inc. a hotel/casino operator. Prior thereto, from October 1985 to May 1989, he was a Consultant to Golden Nugget, a hotel/casino operator. ALEX YEMENIDJIAN (age 38) has served as Executive Vice President of the Company since June 1992, as Chairman of the Executive Committee from January 1991 to June 1992, and as President and Chief Operating Officer of the Company from March 1990 to January 1991. Since January 1990, he has also served as an executive of Tracinda. Chairman of the Executive Committee and Director of MGM/UA from January to November 1990. For more than five years prior thereto, he served as managing partner of Parks, Palmer, Turner and Yemenidjian, a public accounting firm to December 1989. K. EUGENE SHUTLER (age 55) has served as Executive Vice President and General Counsel and Director of the Company since February 1991. For more than 5 years prior thereto, he was a member of the law firm of Troy and Gould Professional Corporation. JOSEPH T. MURPHY (age 53) has served as Vice President and Chief Financial Officer since July 1987. Prior thereto he served in various capacities with Transamerica Airlines from October 1968 to June 1987, most recently as Senior Vice President Finance and Administration. SCOTT LANGSNER (age 40) has served as Secretary/Treasurer of the Company since July 1987. For more than five years prior to July 1987, he served as Controller of Tracinda. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed on the New York Stock Exchange. For price information with respect to such Common Stock, see page 31 of the Company's 1993 Annual Report to Stockholders, which information is incorporated herein by this reference. As of March 14, 1993, there were approximately 2,800 record holders of the Company's Common Stock. The Company has not paid any dividends to date on the Common Stock. The declaration of dividends (which is within the discretion of the Company's Board of Directors) will depend on the earnings, financial position and capital requirements of the Company and other relevant factors existing at the time. ITEM 6. SELECTED FINANCIAL DATA The information set forth on page 1 of the Company's 1993 Annual Report to Stockholders is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth on pages 16 to 18 of the Company's 1993 Annual Report to Stockholders is incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth on pages 19 to 31 of the Company's 1993 Annual Report to Stockholders is incorporated herein by this reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information called for by PART III (Items 10, 11, 12 and 13) has been omitted, as the Company intends to file with the Securities and Exchange Commission not later than 120 days after the end of its fiscal year a definitive Proxy Statement pursuant to Regulation 14A, except that the information regarding the Company's executive officers called for by Item 10 of PART III has been included in PART I of this Form 10-K under the heading "Executive Officers of the Registrant." 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The financial statements and schedules listed in the accompanying Index to Financial Statements at page 17 herein are filed as part of this Form 10-K. (b) Exhibits The exhibits listed in the accompanying Exhibit Index on pages 23-24 are filed as part of this Form 10-K. 14 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. MGM GRAND, INC. Robert R. Maxey By: _________________________________ Robert R. Maxey President and Chief Executive Officer (Principal Executive Officer) Joseph T. Murphy By: _________________________________ Joseph T. Murphy Vice President and Chief Financial Officer Dated: March 25, 1994 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.
SIGNATURE TITLE DATE --------- ----- ---- Fred Benninger - ------------------------------------ Fred Benninger Chairman of the Board March 25, 1994 Robert R. Maxey - ------------------------------------ Robert R. Maxey President and Chief Executive Officer and Director March 25, 1994 James D. Aljian - ------------------------------------ James D. Aljian Director March 25, 1994 Terry N. Christensen - ------------------------------------ Terry N. Christensen Director March 25, 1994 - ------------------------------------ Glenn C. Cramer Director March , 1994 - ------------------------------------ Willie D. Davis Director March , 1994 - ------------------------------------ Alexander M. Haig, Jr. Director March , 1994 - ------------------------------------ Lee A. Iacocca Director March , 1994 - ------------------------------------ Kirk Kerkorian Director March , 1994
15
SIGNATURE TITLE DATE --------- ----- ---- Walter M. Sharp March 25, 1994 - ------------------------------------ Walter M. Sharp Director K. Eugene Shutler March 25, 1994 - ------------------------------------ K. Eugene Shutler Director March , 1994 - ------------------------------------ E. Parry Thomas Director Alex Yemenidjian March 25, 1994 - ------------------------------------ Alex Yemenidjian Director
16 INDEX TO FINANCIAL STATEMENTS (ITEM 14(A))
ANNUAL REPORT TO FORM STOCKHOLDERS 10-K PAGE PAGE ------------ ---- Report of Independent Public Accountants...................... 30 Consolidated Statements of Operations--For the years ended December 31, 1993, 1992 and 1991............................. 19 Consolidated Balance Sheets as of December 31, 1993 and 1992.. 20 Consolidated Statements of Cash Flows--For the years ended December 31, 1993, 1992 and 1991............................. 21 Consolidated Statements of Stockholders' Equity--For the years ended December 31, 1993, 1992 and 1991....................... 22 Notes to Consolidated Financial Statements.................... 23 Selected Quarterly Financial Results (unaudited).............. 31 Report of Independent Public Accountants on Supplemental Schedules.................................................... 18 Schedule V--Property, Plant and Equipment..................... 19 Schedule VI--Accumulated Depreciation, Depletion, and Amorti- zation of Property, Plant and Equipment......... 20 Schedule VIII--Valuation and Qualifying Accounts.............. 21 Schedule X--Supplementary Income Statement Information........ 22
All other schedules have been omitted either as inapplicable or not required under the instructions contained in Regulation S-X or because the information is included in the financial statements or the notes thereto. 17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES To MGM Grand, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in MGM Grand, Inc.'s Annual Report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 24, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The supplemental schedules V, VI, VIII and X as shown on pages 17 through 20 are the responsibility of the Company's management, are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen & Co. Las Vegas, Nevada February 24, 1994 18 MGM GRAND, INC. AND SUBSIDIARIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
BALANCE BALANCE AT AT END BEGINNING ADDITIONS OF CLASSIFICATION OF PERIOD AT COST RETIREMENTS OTHER(A) PERIOD -------------- --------- --------- ----------- --------- -------- FOR THE YEAR ENDED DECEMBER 31, 1993: Airframes, engines, other flight equipment and de- ferred overhaul costs... $ 89,775 $ 5,533 $13,466 $ -- $ 81,842 Furniture, equipment and leasehold improvements.. 5,047 101,615 1,580 (1,564) 103,518 Land and land improve- ments................... 81,927 540 -- 8,370 90,837 Buildings and building improvements............ -- 374,225 -- 286,387 660,612 Equipment under capital lease................... -- 15,423 -- 1,564 16,987 Development and construc- tion costs.............. 294,757 -- -- (294,757) -- -------- -------- ------- --------- -------- $471,506 $497,336 $15,046 $ -- $953,796 ======== ======== ======= ========= ======== FOR THE YEAR ENDED DECEMBER 31, 1992: Airframes, engines, other flight equipment and de- ferred overhaul costs... $ 87,822 $ 4,394 $ 2,441 $ -- $ 89,775 Furniture, equipment and leasehold improvements.. 6,184 353 1,490 -- 5,047 Land and land improve- ments................... 81,927 -- -- -- 81,927 Buildings and building improvements............ -- -- -- -- -- Development and construc- tion costs.............. 78,481 216,276 -- -- 294,757 -------- -------- ------- --------- -------- $254,414 $221,023 $ 3,931 $ -- $471,506 ======== ======== ======= ========= ======== FOR THE YEAR ENDED DECEMBER 31, 1991: Airframes, engines, other flight equipment and de- ferred overhaul costs... $ 83,855 $ 4,344 $ 377 $ -- $ 87,822 Furniture, equipment and leasehold improvements.. 32,595 2,466 1,868 (27,009) 6,184 Land and land improve- ments................... 137,436 -- -- (55,509) 81,927 Buildings and building improvements............ 50,028 26 -- (50,054) -- Development and construc- tion costs.............. 48,346 30,135 -- -- 78,481 -------- -------- ------- --------- -------- $352,260 $ 36,971 $ 2,245 $(132,572) $254,414 ======== ======== ======= ========= ========
- -------- (A)Amounts in 1991 represent Desert Inn assets sold. The amounts in 1993 represent the reclassification of MGM Grand Hotel assets from construction costs due to completion of construction on December 18, 1993. 19 MGM GRAND, INC. AND SUBSIDIARIES SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
ADDITIONS CHARGED BALANCE BALANCE AT TO COSTS AT END BEGINNING AND OF DESCRIPTION OF PERIOD EXPENSES RETIREMENTS OTHER(A)(B) PERIOD ----------- ---------- --------- ----------- ----------- ------- FOR THE YEAR ENDED DECEMBER 31, 1993: Airframes, engines, other flight equipment and deferred overhaul costs.................. $19,755 $ 6,446 $13,308 $68,948 $81,841 Furniture, equipment and leasehold improvements. 2,011 2,520 935 -- 3,596 Land and land improve- ments.................. -- -- -- -- -- Buildings and building improvements........... 30 855 -- -- 885 Equipment under capital lease.................. -- 190 -- -- 190 ------- ------- ------- -------- ------- $21,796 $10,011 $14,243 $68,948 $86,512 ======= ======= ======= ======== ======= FOR THE YEAR ENDED DECEMBER 31, 1992: Airframes, engines, other flight equipment and deferred overhaul costs.................. $13,546 $ 8,050 $ 1,841 $ -- $19,755 Furniture, equipment and leasehold im- provements............. 2,075 819 883 -- 2,011 Land and land improve- ments.................. -- -- -- -- -- Buildings and building improvements........... 11 19 -- -- 30 ------- ------- ------- -------- ------- $15,632 $ 8,888 $ 2,724 $ -- $21,796 ======= ======= ======= ======== ======= FOR THE YEAR ENDED DECEMBER 31, 1991: Airframes, engines, other flight equipment and deferred overhaul costs.................. $ 7,267 $ 6,651 $ 372 $ -- $13,546 Furniture, equipment and leasehold improvements. 12,643 5,449 1,195 (14,822) 2,075 Land and land improve- ments.................. 1,360 473 -- (1,833) -- Buildings and building improvements........... 5,959 2,287 -- (8,235) 11 ------- ------- ------- -------- ------- $27,229 $14,860 $ 1,567 $(24,890) $15,632 ======= ======= ======= ======== =======
- -------- (A)Amounts in 1991 represent Desert Inn assets sold. (B) The accumulated depreciation and amortization at December 31, 1993 includes the $68,948,000 reduction in the carrying value of aircraft and related equipment. 20 MGM GRAND, INC. AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
ADDITIONS CHARGED BALANCE AT TO COSTS AMOUNTS BALANCE BEGINNING AND WRITTEN AT END OF DESCRIPTION OF PERIOD EXPENSES OFF PERIOD ----------- ---------- --------- ------- --------- FOR THE YEAR ENDED DECEMBER 31, 1993: Allowances for doubtful accounts...... $ 1,531 $3,855 $ 653 $ 4,733 ======= ====== ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1992: Allowances for doubtful accounts...... $10,682 $ 238 $ 9,389 $ 1,531 ======= ====== ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1991: Allowances for doubtful accounts...... $12,328 $7,183 $ 8,829 $10,682 ======= ====== ======= =======
21 MGM GRAND, INC. AND SUBSIDIARIES SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
CHARGED TO COSTS AND ITEM EXPENSES ---- ---------- FOR THE YEAR ENDED DECEMBER 31, 1993: Maintenance and repairs........................................... $10,524 Depreciation and amortization of intangible assets and similar deferrals........................................................ 8,018 Advertising costs................................................. 590 Taxes other than payroll and income............................... 479 FOR THE YEAR ENDED DECEMBER 31, 1992: Maintenance and repairs........................................... $ 5,699 Depreciation and amortization of intangible assets and similar deferrals........................................................ 6,998 Advertising costs................................................. 2,892 Taxes other than payroll and income............................... 386 FOR THE YEAR ENDED DECEMBER 31, 1991: Maintenance and repairs........................................... $ 8,297 Depreciation and amortization of intangible assets and similar deferrals........................................................ 691 Advertising costs................................................. 5,644 Taxes other than payroll and income............................... 4,781
22 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3(1) Certificate of Incorporation of Company, as amended (incorporated by reference to Exhibit 3(1) to Registration Statement No. 33-3305). 3(2) Bylaws of Company, as amended (incorporated by reference to Exhibit 3(2) to Registration Statement No. 33-30337). 4 Indenture, dated as of May 1, 1992, among MGM Grand Hotel Finance Corp. ("MGM Finance"), as issuer, the Company, as guarantor, MGM Grand Hotel, Inc. ("MGM Grand Hotel"), as obligor with respect to certain cove- nants, and U.S. Trust Company of California, N.A., a national bank- ing corporation validly organized and existing under the laws of the United States, as Trustee (the "Trustee"), relating to First Mort- gage Notes, including forms of First Mortgage Notes (incorporated by reference to Exhibit (A)(IV) of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1992). 10(1)* MGM Grand, Inc. Nonqualified Stock Option Plan (incorporated by ref- erence to Exhibit A to Proxy Statement dated March 30, 1990). 10(2)* MGM Grand, Inc. Incentive Stock Option Plan (incorporated by refer- ence to Exhibit B to Proxy Statement dated March 30, 1990). 10(3) Agreement of Purchase and Sale, dated as of July 23, 1991, as amend- ed, between MGM Desert Inn and a wholly-owned subsidiary of Tracinda Corporation (incorporated by reference to Exhibit 1 of the Company's Current Report on Form 8-K dated December 20, 1991). 10(4) Guaranty of Completion by the Company in favor of the Trustee (in- corporated by reference to Exhibit 10(4) of the Company's Annual Re- port on Form 10-K for the fiscal year ended December 31, 1992 (the "1992 10-K")). 10(5) Escrow Agreement by and among MGM Finance, the Trustee and Valley Bank of Nevada, a Nevada corporation ("Escrow Agent"), together with the consent thereto of MGM Grand Hotel (incorporated by reference to Exhibit 10(5) of the Company's 1992 10-K). 10(6) Disbursement Agreement by and among MGM Finance, the Trustee and Ne- vada Title Company, a Nevada corporation ("Disbursement Agent"), to- gether with the consent thereto of MGM Grand Hotel (incorporated by reference to Exhibit 10(6) of the Company's 1992 10-K). 10(7) Commitment Agreement by and among the Company, MGM Grand Hotel, and Tracinda Corporation, a Nevada corporation ("Tracinda") (incorpo- rated by reference to Exhibit 10(7) of the Company's 1992 10-K). 10(8) Credit Agreement among MGM Finance, MGM Grand Hotel and Bank of America N.T. & S.A. ("Bank Agent") and the banks named therein (the "Banks") (incorporated by reference to Exhibit 10(8) of the Company's 1992 10-K). 10(9) Guaranty executed by the Company in favor of Bank Agent and the Banks (incorporated by reference to Exhibit 10(9) of the Company's 1992 10-K). 10(10) Intercreditor Agreement by and among the Trustee, Bank Agent and Continental Bank, N.A., a national banking association ("Secured Lenders' Agent"), together with the consent thereto of MGM Finance (incorporated by reference to Exhibit 10(10) of the Company's 1992 10-K). 10(11) Collateral Assignment by MGM Finance in favor of Secured Lender's Agent, together with the consent thereto of the Company, MGM Grand Hotel, and MGM Grand Movieworld, Inc., a Nevada corporation ("Movieworld") (incorporated by reference to Exhibit 10(11) of the Company's 1992 10-K).
23
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10(12) Stock Pledge Agreement by and between the Company and Secured Lend- ers' Agent (incorporated by reference to Exhibit 10(12) of the Company's 1992 10-K). 10(13) Loan Agreement between MGM Grand Hotel and MGM Finance (incorporated by reference to Exhibit 10(13) of the Company's 1992 10-K). 10(14) Secured Promissory Note by MGM Grand Hotel in favor of MGM Finance (incorporated by reference to Exhibit 10(14) of the Company's 1992 10-K). 10(15) Deed of Trust, Assignment of Rents and Security Agreement (the "Deed of Trust") by MGM Grand Hotel to Nevada Title Company, a Nevada cor- poration, as trustee, for the benefit of MGM Finance, as beneficiary (incorporated by reference to Exhibit 10(15) of the Company's 1992 10-K). 10(16) Loan Guaranty by the Company in favor of MGM Finance (incorporated by reference to Exhibit 10(16) of the Company's 1992 10-K). 10(17)* Letter Agreements, dated December 21, 1990 and February 9, 1993, be- tween the Company and Robert Maxey (incorporated by reference to Ex- hibit 10(17) of the Company's 1992 10-K). 10(18)* Letter Agreements, dated December 13, 1990 and February 26, 1993, between the Company and K. Eugene Shutler (incorporated by reference to Exhibit 10(18) of the Company's 1992 10-K). 10(19)* Letter Agreements, dated January 3, 1991 and February 9, 1993, be- tween the Company and Alex Yemenidjian (incorporated by reference to Exhibit 10(19) of the Company's 1992 10-K). 10(20)* Letter Agreement, dated February 9, 1993, between the Company and Fred Benninger (incorporated by reference to Exhibit 10(20) of the Company's 1992 10-K). 10(21) Participation Agreement, dated as of November 9, 1993, entered into among MGM Grand Hotel, as Subleasee, the Company, as Guarantor, The Certificate Purchasers identified therein and Norwest Bank Minneso- ta, National Association, as Trustee, together with exhibits there- to. 10(22) Letter of Credit and Reimbursement Agreement, dated as of November 17, 1993, between the Company, as Account Party and Bank of America National Trust and Savings Association. 13** The Company's 1993 Annual Report to stockholders. 21 List of Subsidiaries. 23 Consent of Independent Accountants.
- -------- * Management contract. ** Except for those portions which are expressly incorporated herein by reference, such Annual Report is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of the Report. 24 EX-10.21 2 PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT Dated as of November 9, 1993 Entered Into Among MGM Grand Hotel, Inc., as Sublessee Grand Equipment, Inc., as Lessee MGM Grand, Inc., as Guarantor The Certificate Purchasers Listed on Schedule I hereto and Norwest Bank Minnesota, National Association not individually, except as expressly set forth herein, but as Trustee TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS.............................. 2 ARTICLE II CLOSING Section 2.1 Transactions............................. 2 Section 2.2 Conditions for Participants.............. 3 Section 2.3 Failure to Close......................... 8 ARTICLE III EQUIPMENT AND RELEASE Section 3.1 Equipment Deliveries..................... 9 Section 3.2 Release of Pledge........................ 9 ARTICLE IV GENERAL PROVISIONS Section 4.1 Nature of Transaction.................... 10 Section 4.2 Amounts Due Under Master Lease and Sublease................................. 10 Section 4.3 Replacement of Equipment................. 11 Section 4.4 Failure to Deliver Certificates of Acceptance............................... 12 Section 4.5 Substitution for Letter of Credit........ 12 ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.1 Representations and Warranties of Lessee, Sublessee and Guarantor.......... 12 Section 5.2 Representations and Warranties of Certificate Purchasers................... 20 Section 5.3 Representations and Warranties of Trustee.................................. 20 ARTICLE VI COVENANTS Section 6.1 Covenants of Lessee...................... 22 Section 6.2 Covenants of Sublessee................... 25 Section 6.3 Covenants of Guarantor................... 27 Section 6.4 Covenants of Trustee..................... 30 ARTICLE VII GENERAL INDEMNITY Section 7.1 Indemnity................................ 30 Section 7.2 Excessive Use Indemnity.................. 31 Section 7.3 WAIVER OF SECTION 1542................... 32
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Page ---- Section 7.4 Indemnification of First Security Bank of Utah, N.A.............................. 32 Section 7.5 Swap Agreement Indemnity.................. 33 ARTICLE VIII GENERAL TAX INDEMNITY Section 8.1 General Tax Indemnity..................... 33 Section 8.2 Contest................................... 34 Section 8.3 Gross Up.................................. 36 Section 8.4 Tax Returns............................... 36 Section 8.5 Tax Character of Transaction.............. 37 ARTICLE IX LIMITATIONS Section 9.1 Limitation of Liability of Trustee........ 37 Section 9.2 Payments from Trust Estate................ 38 ARTICLE X MISCELLANEOUS Section 10.1 Survival of Covenants..................... 38 Section 10.2 APPLICABLE LAW............................ 38 Section 10.3 Effect and Modification of Participation Agreement................................. 38 Section 10.4 Notices................................... 39 Section 10.5 Transaction Costs......................... 40 Section 10.6 Counterparts.............................. 41 Section 10.7 Severability.............................. 41 Section 10.8 Successors and Assigns.................... 41 Section 10.9 Brokers................................... 41 Section 10.10 JURY TRIAL................................ 41 Section 10.11 Captions; Table of Contents............... 41 Section 10.12 FINAL AGREEMENT........................... 42 Section 10.13 No Third-Party Beneficiaries.............. 42 Section 10.14 Further Assurances........................ 42 Section 10.15 Reproduction of Documents................. 42 Section 10.16 Consideration for Consents to Waivers and Amendments............................ 43 Section 10.17 Submission to Jurisdiction................ 43 Schedule I -- Commitments Schedule II -- Equipment Maintenance Agreements Schedule III -- Plans Schedule IV -- Purchase Money Security Interests Schedule V -- Nevada Gaming Regulation Schedule X -- Definitions Exhibit A -- Form of Trust Agreement Exhibit B -- Form of Lease
2 Exhibit C -- Form of Sublease Exhibit D -- Form of Guaranty Exhibit E -- Form of Pledge Agreement Exhibit F -- Form of Letter of Credit Schedule I -- Form of Letter of Credit Schedule II -- Form of Letter of Credit Exhibit G 2.2(b)(i) -- Form of Purchase Order Assignment Schedule I -- List of Purchase Agreements Exhibit G 2.2(b)(iii) -- Form of Certificate of Conveyance Schedule I -- Equipment List Exhibit G 2.2(b)(iv) -- Form of Certificate of Acceptance Exhibit G 2.2(b)(v) -- Form of Certificate of Possession Exhibit G 2.2(b)(vi) -- Form of Sublease Assignment Schedule I -- Form of Consent and Agreement of Sublessee Exhibit G 2.2(b)(vii) -- Form of Intercreditor Agreement Exhibit G 2.2(e)(ii) -- Form of Trustee's Opinion of Counsel
3 PARTICIPATION AGREEMENT (MGM EQUIPMENT TRUST 1993-1) This PARTICIPATION AGREEMENT, dated as of November 9, 1993, is entered into among: (a) MGM Grand Hotel, Inc., a Nevada corporation, (b) Grand Equipment, Inc., a Delaware corporation, (c) MGM Grand Inc., a Delaware corporation, (d) the Persons named on Schedule I hereto, and (e) Norwest Bank Minnesota, a national association, not in its individual capacity, except as otherwise expressly provided herein, but solely as trustee under the Trust Agreement substantially in the form of Exhibit A hereto. WHEREAS, immediately preceding the execution hereof, the Lessee and the Trustee entered into the Trust Agreement; AND WHEREAS, on the Effective Date, the Sublessee will convey to the Lessee its interests in the items of Equipment identified on Schedule I to the Trust Agreement and the Lessee shall lease such Equipment to the Sublessee pursuant to the Sublease substantially in the form of Exhibit C hereto; AND WHEREAS, the Lessee will contribute to the Trustee its interest in the items of Equipment identified on Schedule I to the Trust Agreement and the Trustee will issue to the Sublessee the Certificates for the account of the Lessee; AND WHEREAS, upon receiving such Equipment, the Trustee will lease such items of Equipment to the Lessee pursuant to the Master Lease substantially in the form of Exhibit B hereto and simultaneously therewith the Sublease shall be considered restated as a sublease subject and subordinate to the terms and conditions of the Master Lease; AND WHEREAS, on the Effective Date, the Guarantor will enter into the Guaranty substantially in the form of Exhibit D hereto guaranteeing to the Trustee for the benefit of the Certificate Holders the payment and performance of all Obligations of the Lessee and Sublessee pursuant to the Operative Agreements; AND WHEREAS, on the Effective Date, the Guarantor will enter into the Pledge Agreement substantially in the form of Exhibit E hereto pledging to the Trustee for the benefit of the Certificate Holders, certain Certificates of Deposit to secure the Obligations; AND WHEREAS, on the Effective Date, the Guarantor will provide to the Trustee for the benefit of certain of the Certificate Holders a Letter of Credit issued by BofA, a national banking association, substantially in the form of Exhibit F 1 hereto partially securing the performance of the Guarantor pursuant to the Guaranty; AND WHEREAS, on the Effective Date the Certificate Purchasers will purchase the Certificates from the Sublessee; NOW THEREFORE, in consideration of the mutual terms and conditions herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Capitalized terms used but not defined herein (including those used in the foregoing recitals) shall have the meanings specified in Schedule X hereto ---------- unless the context otherwise requires, which Schedule X shall for all purposes ---------- constitute a part of this Participation Agreement. ARTICLE II CLOSING Section 2.1 Transactions. Subject to the terms and conditions hereof, the ------------ following transactions shall occur and be closed at the offices of Lionel Sawyer & Collins, 1700 Valley Bank Plaza, 300 South Fourth Street, Las Vegas, Nevada 89101, Las Vegas, Nevada time, on the date not later than November 30, 1993 set by the Lessee and Sublessee with at least four Business Days prior notice to the other Participants hereunder (the "Effective Date"), which transactions shall be -------------- deemed to have occurred simultaneously: (a) The Sublessee shall convey to the Lessee all of the Sublessee's right, title and interest in and to the items of Equipment identified on Schedule I to the Trust Agreement and the Lessee shall contribute ---------- to the Trustee, subject to the Sublease all of the Lessee's right, title and interest in and to such items of Equipment, each in consideration for the Certificates; (b) (i) Each Certificate Purchaser shall purchase from the Sublessee at 100% of the principal amount thereof, the Certificates set forth opposite the name of such Certificate Purchaser on Schedule I hereto (x) with an ---------- amortization schedule consistent with the description of such Certificate contained in Schedule I to the reasonable satisfaction of the subject ---------- Certificate Purchaser and (y) with an interest rate or yield set at the spread specified in a letter agreement between Sublessee and each subject Certificate Purchaser over the interpolated 2 interest rate of United States Treasury securities with the same average life or final maturity, as the case may be, as the Certificate being acquired to the reasonable satisfaction of the subject Certificate Purchaser four Business Days prior to the Effective Date; (ii) the Certificates to be purchased by such Certificate Purchaser shall be registered in the name of such Certificate Purchaser; and (iii) all of such Certificates shall be issued under the Trust Agreement pursuant to Article IV thereof, provided, however that the obligations ---------- -------- ------- of the Certificate Purchasers shall be several and not joint; (c) The Lessee and the Sublessee shall enter into the Sublease, the Trustee and the Lessee shall enter into the Master Lease, and the Lessee shall assign its interest in the Sublease to the Trustee; (d) The Guarantor shall enter into the Guaranty guaranteeing to the Trustee for the benefit of the Certificate Holders the payment and performance of the Lessee and the Sublessee of all of the Obligations pursuant to the Operative Agreements and the Guarantor shall enter into the Pledge Agreement to further secure such Obligations; (e) The Guarantor shall provide to the Trustee for the benefit of the Certificate Holders the Letter of Credit; and (f) The Sublessee shall pay the Transaction Costs then payable to the persons entitled thereto. All payments described above in this Section 2.1 shall be made by wire transfer ----------- of immediately available funds to the account specified for the recipient by written notice from the recipient to the payor no less than 2 Business Days prior to the Effective Date. Section 2.2 Conditions for Participants. The obligation of each --------------------------- Participant to perform its obligations under Section 2.1 shall be subject to the ----------- fulfillment to the satisfaction of (including, with respect to writings, such writings being in form and substance reasonably satisfactory to the addressee or beneficiary thereof), or the waiver in writing by, such Participant of the following conditions precedent on or prior to the Effective Date (except that the obligation of any party hereto shall not be subject to such party's own performance or compliance): (a) Each of the parties hereto shall have made the payments and executed and delivered the documents, instruments, and certificates that such party is required to make, execute or deliver pursuant to Section 2.1 ----------- hereof or this Section 2.2; ----------- 3 (b) (i) The Lessee and the Sublessee shall have executed and delivered to the Trustee a Purchase Order Assignment substantially in the form of Exhibit G 2.2(b)(i) hereto with respect to items of Equipment which have ------------------- not been delivered, are subject to an installation agreement or are subject to a retainage and financing statements with respect to all the items of Equipment identified in Schedule I to the Trust Agreement. Such financing ---------- statements shall have been filed for recording in all appropriate offices of all relevant jurisdictions; (ii) a fully executed release of lien ("Release of Lien") in --------------- recordable form shall have been delivered to Trustee by Continental Bank, N.A., as beneficiary under the Deed of Trust, together with executed copies of Form UCC-2 release statements sufficient to release the items of Equipment, purchase orders and purchase agreements identified in Schedule I ---------- to the Trust Agreement and evidence such release, respectively from the lien of such Deed of Trust; (iii) the Trustee shall have received a fully executed Certificate of Conveyance substantially in the form of Exhibit G 2.2(b)(iii) with respect --------------------- to the items of Equipment identified on Schedule I to the Trust Agreement ---------- and which are not subject to a Purchase Order Assignment; (iv) a fully executed Certificate of Acceptance substantially in the form of Exhibit G 2.2.(b)(iv) with respect to the items of Equipment --------------------- identified on Schedule I to the Trust Agreement which have been delivered ---------- and become operational shall have been delivered to Trustee; (v) a fully executed Sublease Assignment substantially in the form of Exhibit G 2.2.(b)(vi) shall have been delivered to the Trustee; --------------------- (vi) a fully executed Certificate of Possession substantially in the form of Exhibit G 2.2(b)(v) with respect to the items of Equipment on ------------------- Schedule I to the Trust Agreement which are then located at the Hotel but for which a Certificate of Acceptance is not delivered shall have been delivered to the Trustee; (vii) a fully executed Officer's Certificate of Lessee and Sublessee shall have been delivered to the Trustee and the Certificate Purchasers in form acceptable to each Certificate Purchaser, setting forth (A) the total contract price of each purchase agreement or purchase order (as adjusted); (B) the total amount of payments made to Manufacturers of Equipment as of a date immediately 4 preceding the Effective Date; and (C) the total amount of payments to be paid to Manufacturers after the Effective Date (assuming all work and services to be performed under such agreements is conforming) and the payment date (or estimated date) of each such payment, in each case by purchase agreement or purchase order; (viii) Certificates of Deposit subject to the Pledge Agreement shall have been delivered to the Trustee in an aggregate principal amount at least equal to the greater of: (A) the amount by which the principal amount of the Certificates exceeds payments certified as having been received by vendors of the Equipment and Charges; and (B) the amount necessary to pay all amounts still owing to the vendors of the Equipment as shown in the most recent monthly progress payment requests from vendors; and (ix) a fully executed Intercreditor Agreement in the form of Exhibit ------- G 2.2(b)(vii) shall have been delivered to the Trustee. ------------- (c) The Certificate Purchasers shall have received a report from the Appraiser to their satisfaction opining: (i) That the fair market value of the Equipment from time to time is reasonably expected to be as follows:
Date Value ---- ----- Sum of the Fair Market $48,000,000 Value of Equipment to be Delivered on the Effective Date and the Delivery Dates End of Master Lease Term $27,256,350 End of First Renewal Term $18,809,380 End of Second Renewal Term $ 9,732,580
(ii) that the remaining economic useful life of each item of the Equipment as of December 31, 1993 is at least seven years; and (iii) that it is commercially feasible for a Person other than the Sublessee to use the Equipment at the end of the Master Lease Term and each Renewal Term; (d) The representations and warranties of each of the parties hereto contained in this Participation Agreement or in any of the other Operative Agreements shall be true and correct in all material respects on the Effective Date with the same effect as though made on and as of the Effective Date, and an 5 Officer's Certificate, dated the Effective Date, of each of such parties (other than the Certificate Purchasers) to that effect shall have been delivered to such Participant, and in the case of any Certificate Purchaser, the purchase of the Certificates to be purchased by it pursuant to Section 2.1 shall be deemed ----------- to constitute a confirmation by it that its representations and warranties contained herein are true and correct in all material respects on the Effective Date and an Officer's Certificate, dated the Effective Date, of the Guarantor stating that the representations and warranties of the Lessee and Sublessee contained in any of the Operative Agreements are true and correct in all material respects as of such date shall have been delivered to each of Trustee and the Certificate Purchasers; (e) On the Effective Date, each Participant and the Trustee shall have received the opinions of: (i) Christensen, White, Miller, Fink & Jacobs as counsel to Lessee, Sublessee and Guarantor, the form and substance of which shall be satisfactory to all Participants; and (ii) Dorsey & Whitney as counsel to Trustee substantially in the form of Exhibit G 2.2(e)(ii). The legal opinion -------------------- of Christensen, White, Miller, Fink & Jacobs may rely upon opinions of Nevada counsel as to matters of Nevada law; (f) Each Certificate Purchaser and the Trustee shall have received: (i) Copies of each of the Lessee's, the Sub-lessee's and the Guarantor's certificate of incorporation, certified by the Secretary of State of the States of their incorporation no earlier than the 15th day prior to the Effective Date, and by-laws, accompanied by an Officer's Certificate, dated the Effective Date, of such corporation, stating that such documents are in full force and effect and have not been amended since the respective dates thereof; (ii) certificates of existence and good standing from the Secretary of State of the States of their incorporation and the Secretary of State of the State of Nevada, respectively, dated no earlier than the 15th day prior to the Effective Date, with respect to each of the Lessee, Sublessee and Guarantor; (iii) a copy of resolutions of each of the Lessee's, Sublessee's and Guarantor's board of directors authorizing the execution, delivery and performance by such corporation of each of the Operative Agreements to which it is or will be a party, accompanied by an Officer's Certificate, dated the Effective Date, of such corporation, stating that such resolution is in full force and effect and has not been amended since the date of its adoption; and (iv) an incumbency certificate, dated the Effective Date, of each of the Lessee, Sublessee and Guarantor; (g) Each Participant shall have received: (i) A copy of the articles of association and by-laws of the Trustee accompanied by an Officer's Certificate, dated the Effective Date, of the Trustee stating that such documents are in full 6 force and effect and have not been amended since the respective dates thereof; (ii) a certificate of existence from the Comptroller of the Currency of the United States of America, dated no earlier than the 60th day prior to the Effective Date, with respect to the Trustee; and (iii) an incumbency certificate, dated the Effective Date, of the Trustee; (h) All Impositions other than Charges payable on or prior to the Effective Date in connection with the execution, delivery, recording or filing of any of the Operative Agreements, in connection with the filing of any of the financing statements, in connection with the issuance and sale of any of the Certificates or in connection with the consummation of any other transactions contemplated hereby or by any of the other Operative Agreements, shall have been paid in full by or for the account of the Lessee; (i) (i) Acceptable reports as to each of the Lessee, Sublessee and Guarantor by the office of the Secretary of State of the State of Nevada dated as close to the Effective Date as practicable, in respect of a search of the Uniform Commercial Code files maintained by such offices; and (ii) acceptable (j) The Trustee shall have received (and each Purchaser shall have received a copy of): (i) Current certificates to the effect that insurance complying with Section 7.1 of the Master Lease is in full force and effect; and ----------- (ii) the certificate of a satisfactory insurance consultant as required by such Section 7.2 of the Master Lease; - ----------- (k) Each Certificate Purchaser and the Trustee shall have received: (i) A report or reports, in form and substance reasonably satisfactory to them, from a satisfactory environmental consultant, as to the compliance of the Equipment and the Site with all applicable Environmental Laws and as to such other matters as shall be reasonably requested by such Participant; and (ii) a written agreement from such environmental consultant that such Participant and the Trustee may rely upon such report or reports to the same extent as the Person that engaged such firm to provide such report or reports; (l) [intentionally left blank] 7 (m) The Certificate Purchasers and Trustee shall have received satisfactory evidence that the principal amount of the Certificates does not exceed the contract cost for the items of Equipment identified on Schedule I to ---------- the Trust Agreement plus the Charges properly attributable thereto; (n) All proceedings taken in connection with the Closing and all documents relating thereto shall be reasonably satisfactory to each Participant and its counsel, and each Participant and its counsel shall have received copies of such documents as such Participant or its counsel may reasonably request in connection therewith or as a basis for such counsel's opinions to be delivered in connection with the Closing, all in form and substance reasonably satisfactory to such Participant and its counsel; (o) No Event of Default or an event which with the giving of notice and/or lapse of time could become an Event of Default shall have occurred and be continuing; (p) The Trustee and Certificate Purchasers shall have received such other documents as they may reasonably request and which are consistent with the terms hereof including any necessary third party approvals; and (q) First Security Bank of Utah, National Association, as trustee, and The Industrial Bank of Japan, Limited, Los Angeles Agency shall have completed a secured nonrecourse loan which provides First Security Bank of Utah, National Association, in its capacity as trustee under the MGM Trust No. 2, with the funds to acquire a Class A-1 Certificate pursuant to the terms hereof and The Industrial Bank of Japan, Limited, Los Angeles Agency shall have received an opinion of Nagashima & Ohno, in form and substance reasonably satisfactory to it, with respect to such nonrecourse loan. Section 2.3 Failure to Close. If any Certificate Purchaser fails to make ---------------- any payment required of it, then any party hereto (other than the party so failing to make the payment or otherwise in breach) may cancel its obligations under this Participation Agreement and the transactions contemplated hereby by notice to the other parties. The party wrongfully failing to make its payment shall not be responsible for any consequential damages suffered by the Guarantor, Lessee, Sublessee or any of their Affiliates as a result of its failure to so fund. 8 ARTICLE III EQUIPMENT AND RELEASE Section 3.1 Equipment Deliveries. The Lessee and Sublessee will -------------------- promptly inspect all items of Equipment upon receipt and/or installation. The Lessee and Sublessee shall execute and deliver to the Trustee Certificates of Acceptance substantially in the form of Exhibit G 2.2(b)(iv) upon the -------------------- determination that such items of Equipment are acceptable, together with a certificate of insurance as required by Section 7.2 of the Master Lease. In addition, on the Effective Date, Lessee and Sublessee shall execute and deliver to the Trustee Certificates of Possession substantially in the form of Exhibit G --------- 2.2(b)(v) in respect of all items of Equipment which are located at the Hotel on - --------- such date but for which Certificates of Acceptance have not been executed and delivered by Lessee and Sublessee to the Trustee. Such items of Equipment shall become subject to the terms and conditions of the Master Lease and the Sublease upon the earlier of the execution and delivery of a Certificate of Possession, if applicable, or a Certificate of Acceptance. The Sublessee shall make all necessary arrangements to cause all of the Equipment to be received, installed in good working order and accepted no later than 240 days after the Document Closing Date. In addition, the Sublessee shall make all necessary arrangements to cause all vendors of the Equipment to have delivered Certificates of Conveyance to the Trustee pursuant to Purchase Order Assignments no later than 240 days after the Document Closing Date. Section 3.2 Release of Pledge. As and when provided in the Pledge ----------------- Agreement, all or a portion of the Certificates of Deposit shall be released from the Pledge Agreement such that the principal amount of Certificates of Deposit subject to the Pledge Agreement is always equal to or greater than (to the extent necessary due to the denomination of the Certificates of Deposit) the amount which the Lessee and the Sublessee certify (such certification, a "Pledge ------ Certification") (which Pledge Certification shall be accompanied by supporting - ------------- certifications including those provided in the monthly progress payment requests) is the greater of: (a) the amount by which the principal amount of the Certificates exceeds the sum of payments to the vendors through the date of the Pledge Certification of the Equipment and Charges paid through the date of the Pledge Certification; and (b) the amount necessary to pay in full all amounts still owing to the vendors of the Equipment plus Charges with respect thereto, provided -------- that the above-referenced 9 certifications shall be a condition precedent to any release of any Certificate of Deposit and the referenced Certificate of Deposit shall have a principal amount at least equal to the greater of clause (a) above or ---------- this clause (b). ---------- ARTICLE IV GENERAL PROVISIONS Section 4.1 Nature of Transaction. It is the intent of the Participants --------------------- that: (a) The transaction contemplated hereby constitute an operating lease from Trustee to Lessee and an operating sublease from Lessee to Sublessee for purposes of Lessee's and Sublessee's financial reporting; (b) The transaction contemplated hereby grants ownership in the Equipment to the Lessee for purposes of Federal and state income tax, bankruptcy and Uniform Commercial Code purposes; (c) The Master Lease grants a security interest in the Equipment to the Trustee for the benefit of the Certificate Holders; and (d) The Trust be treated as a grantor trust for Federal and state income tax purposes. Nevertheless, the Lessee, Sublessee and Guarantor acknowledge and agree that no Participant or any other Person has made any representations or warranties concerning the tax, accounting or legal characteristics of the Operative Agreements and that the Lessee, Sublessee and Guarantor have obtained and relied upon such tax, accounting and legal advice concerning the Operative Agreements as they deem appropriate. Section 4.2 Amounts Due Under Master Lease and Sublease. Anything else ------------------------------------------- herein or elsewhere to the contrary notwithstanding, it is the intention of the Participants that: (i) The amount and timing of installments of Rent (other than the final installment of Rent at the end of the Master Lease Term or any Renewal Term) due and payable from time to time from the Sublessee under the Sublease and from the Lessee under the Master Lease shall be equal to the aggregate payments of principal, interest or yield (including Make-Whole Premium) due and payable from time to time on the Certificates; (ii) in the event that the Lessee properly elects the Fixed Price Purchase Option, the sum of the final installment of Rent (whether at the end of the Master Lease Term or a Renewal Term) and the Purchase Option Exercise Amount shall equal all amounts (including Make-Whole Premium) then due and payable on the Certificates; (iii) in the Event of a Default including an Event of Default in connection with the attempted exercise of the Sale Option under Section 11.1(c) of the Master Lease, the amounts then due and payable by the Sublessee under the Sublease and the Lessee under the Master Lease shall equal all amounts (including Make-Whole Premium) then due and payable on the Certificates; (iv) in the event that the Lessee properly elects the Sale Option (and such option is not 10 revoked because of an Event of Default or an event which with the giving of notice and/or passage of time could become an Event of Default under the Master Lease), the final installment of principal and interest or yield on the Certificates (whether at stated maturity of the Certificates or upon a prepayment in full of the Certificates at the end of the Master Lease Term or first Renewal Term) will be greater than the sum of the installment of Rent due from Lessee and Sublessee on such date and the Total Recourse Amount owed by Lessee under Section 11.1(c) of the Master Lease on such date by no more than the amount by which the Lease Balance on such date exceeds the greater of the Applicable Percentage Amount or the Recourse Deficiency Amount on such date, and the Lessee shall be required to pay such greater amount, together with Adjusted Proceeds; and (v) in all events, the Class A-1 Certificates and the Class A-2 Certificates represent fully recourse obligations of the Lessee and the Sublessee supported by the Guaranty, Pledge Agreement and, in the case of the Class A-1 Certificate, the Letter of Credit, all in accordance with their terms. Section 4.3 Replacement of Equipment. The Trustee shall release items of ------------------------ Equipment from the Master Lease and the Trust Agreement and evidence such release by the execution and delivery of a UCC-2 termination statement release, a bill of sale and such other documents as may be required to release the Substituted Item from the Master Lease and which are in form and substance satisfactory to the Certificate Holders subject to the following conditions: (a) Each of the Certificate Holders and Trustee has received a Replacement Notice from the Lessee in writing at least 10 days prior to the requested release which identifies the Replacement Item and Substituted Item; (b) The Replacement Item is new and of the same or greater value, utility and useful life than the Substituted Item on the date it became subject to the Master Lease to the satisfaction of the Certificate Holders; and (c) The conditions set forth in Section 2.2(b), 2.2(h), 2.2(i), -------------- ------ ------ 2.2(k)(i), 2.2(o) and 2.2(p) have been satisfied with respect to the --------- ------ ------ Replacement Item as though it had been identified in a Delivery Date Notice. The Lessee shall pay on behalf of the Trust Estate for the Replacement Item with its own funds or direct the Trustee to pay for such Replacement Items from funds on deposit in the Deposit Account, so long as the conditions of this Section 4.3 have been satisfied and the Substituted ----------- Item has suffered a Casualty with respect to which proceeds were deposited in the Deposit Account. There shall be no obligation on the part of the Trustee, the Trust Estate or the Certificate 11 Holders to pay for or otherwise finance the Replacement Item except by way of releasing the Substituted Item as provided by this Section 4.3 and by ----------- disbursing funds in the Deposit Account. Section 4.4 Failure to Deliver Certificates of Acceptance. In the event --------------------------------------------- that the items of Equipment (or Replacement Items therefor) listed in Schedule I to the Trust Agreement are not made subject to the Master Lease by delivery of a Certificate of Acceptance within 240 days of the Document Closing Date, Lessee and Sublessee, jointly and severally, shall purchase from the Certificate Holders, and the Certificate Holders shall sell to Lessee and Sublessee on such date, all outstanding Certificates for an amount equal to the Lease Balance, accrued and unpaid interest or yield, any Make-Whole Premium and all other fees and expenses due and payable under any of the Operative Agreements; provided -------- that Lessee and Sublessee may not substitute Replacement Items for the escalators and elevators and theme park rides. Section 4.5 Substitution for Letter of Credit. At the written request of --------------------------------- Guarantor delivered to each Certificate Holder, the Trustee and the Industrial Bank of Japan, Limited, Los Angeles Agency, the Guarantor may request that other collateral shall be substituted for the Letter of Credit. Such written request shall describe in reasonable detail the nature and estimated current fair market value of the other collateral and the terms and conditions on which such collateral may be substituted. The other collateral will only be substituted for the Letter of Credit if all Certificate Holders, in their sole and absolute discretion, consent to such substitution on the terms set forth in the request and the conditions set forth in such request are fulfilled. ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.1 Representations and Warranties of Lessee, Sublessee and ------------------------------------------------------- Guarantor. Lessee, Sublessee and Guarantor jointly and severally represent and - --------- warrant and as of the Effective Date will jointly and severally represent and warrant to the Trustee and Certificate Purchasers that: (a) Sublessee, as of the Effective Date, will have good and marketable title to the items of Equipment delivered through such date and the items of Equipment delivered through such date are free from all Liens except those created by the Operative Agreements and the Purchase Money Security Interests; 12 (b) No filing, recordation or registration is necessary in order to perfect the security interest in such items of Equipment, except for the filing of one or more U.C.C. financing statement(s) in the office of the Secretary of State of Nevada and in the county records of Clark County, Nevada and one or more U.C.C. fixture filing(s) in the real property records of Clark County, Nevada, and that upon such filings, the security interest in such items of Equipment are enforceable and properly perfected; (c) The values assigned to the Equipment by the Appraiser in its report for the Effective Date, the end of Master Lease Term, the end of First Renewal Term and the end of Second Renewal Term are reasonable and such Appraiser's report is based on reasonable assumptions; the information provided by Lessee and/or Sublessee to the Appraiser and forming the basis for the conclusions set forth in the Appraiser's report, taken as a whole, was true and correct in all material respects and did not omit any information necessary to make the information provided not materially misleading; (d) Lessee, Sublessee and Guarantor are corporations duly incorporated, validly existing and in good standing under the laws of the States of Delaware, Nevada and Delaware, respectively; (e) Lessee, Sublessee and Guarantor are duly qualified or licensed and in good standing as foreign corporations authorized to do business in each other jurisdiction where, because of the nature of their respective activities or properties, such qualification or licensing is required, except for such jurisdictions where the failure to be so qualified or licensed will not materially adversely affect the consolidated condition (financial or otherwise), business, prospects or operations of Lessee, Sublessee or Guarantor and their respective consolidated subsidiaries; (f) Lessee, Sublessee and Guarantor each have all requisite corporate power and authority to execute, deliver, and perform its respective obligations under each Operative Agreement to which it is a party; (g) The execution and delivery by Lessee, Sublessee and Guarantor of the Operative Agreements to which it is a party, and the performance by Lessee, Sublessee and Guarantor of their respective obligations under such Operative Agreements, have been duly authorized by all necessary corporate action (including any necessary stockholder action) on its or their part, and do not and will not: (i) Violate any provision of any law, rule or 13 regulation presently in effect having applicability to Lessee, Sublessee or Guarantor or of any order, writ, judgment, decree, determination or award presently in effect having applicability to Lessee, Sublessee or Guarantor or of the charter or bylaws of Lessee, Sublessee or Guarantor; (ii) result in a breach of or constitute a default under any indenture or loan or credit agreement, or result in a breach of or constitute a default under any other agreement or instrument to which Lessee, Sublessee or Guarantor is a party or by which Lessee, Sublessee or Guarantor or their respective properties may be bound or affected; or (iii) result in, or require, the creation or imposition of any lien or security interest of any nature upon or with respect to any of the properties now owned or hereafter acquired by Lessee, Sublessee or Guarantor (other than the security interest contemplated by the Master Lease), and none of Lessee, Sublessee or Guarantor is in default under or in violation of their respective charters or bylaws; (h) Each of the Operative Agreements to which Lessee, Sublessee or Guarantor is a party constitutes the legal, valid and binding obligation of Lessee, Sublessee or Guarantor, respectively, enforceable against Lessee, Sublessee or Guarantor, respectively, in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity; (i) There is no litigation (including, without limitation, derivative actions), arbitration or governmental proceedings pending or, to the knowledge of Lessee, Sublessee or Guarantor, threatened against Lessee, Sublessee or Guarantor which may materially and adversely affect the consolidated condition (financial or otherwise), business, prospects or operations of Lessee, Sublessee, Guarantor or their respective consolidated subsidiaries or impair Lessee's, Sublessee's or Guarantor's ability to perform their respective obligations under the Operative Agreements to which they are party; (j) No authorization, consent, approval, license or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority (Federal, state, local or foreign), including, without limitation, the Securities and Exchange Commission, or with any securities exchange, is or will be required in connection with: (i) The execution and delivery by Lessee, Sublessee or Guarantor of the Operative Agreements to which they are party; (ii) the performance by Lessee, Sublessee or Guarantor of their respective 14 obligations under such Operative Agreements; or (iii) the ownership, operation and maintenance of the Equipment as contemplated by the Operative Agreements, except in the case of (ii) and (iii) for matters in the ordinary course of business as to which Lessee, Sublessee or Guarantor believe will be obtained as required; (k) Except as set forth in Schedule II, hereto, there is no ----------- agreement, understanding, contract or document to which the Lessee, Sublessee or Guarantor is a party which is necessary in order to test, maintain, repair, use or operate any item of Equipment; (l) The principal place of business and chief executive office (as such term is used in Article 9 of the Uniform Commercial Code) of the Lessee is located at 3155 West Harmon Avenue, Las Vegas, Nevada 89103; Sublessee is located at 3155 West Harmon Avenue, Las Vegas, Nevada 89103; and Guarantor is located at 3155 West Harmon Avenue, Las Vegas, Nevada 89103; (m) Relying upon the accuracy of the representations in Section ------- 5.2(d) hereof, the execution and delivery of the Operative Agreements by ------ the Lessee, Sublessee and Guarantor and the creation of the beneficial interest in the Trust will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended; (n) The Lessee, Sublessee and Guarantor have filed or caused to be filed all United States Federal and all other material tax returns that are required to be filed by the Lessee, Sublessee or Guarantor, and have paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessment received by the Lessee, Sublessee or Guarantor to the extent that such taxes have become due and payable and, to the extent (if any) that such taxes are not due and payable, has established or caused to be established reserves that are adequate for the payment thereof in accordance with generally accepted accounting principles; (o) The Equipment and the property where it is located and the current operation thereof and thereon do not violate any laws, rules, regulations, or orders of any Authorities that are applicable thereto, including, without limitation, any thereof relating to matters of occupational safety and health or Environmental Laws which could have a Material Adverse Effect; 15 (p) Taken as a whole, neither this Participation Agreement, nor any offering materials, nor the other Operative Agreements to which the Lessee, Sublessee or Guarantor is or will be a party nor the other documents and certificates furnished pursuant to this Participation Agreement to the Trustee, or the Certificate Purchasers in connection with the transactions contemplated by this Participation Agreement, contains any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein and therein, in the light of the circumstances under which they were made, not misleading. There is no fact known to the Lessee, Sublessee or Guarantor which has not been disclosed to the other Participants that to the best of their knowledge and belief could materially and adversely affect the ability of the Lessee, Sublessee or Guarantor to perform their respective obligations under this Participation Agreement or the Operative Agreements. There is no fact concerning the environmental conditions at the Site known to the Lessee, Sublessee or Guarantor which could have a Material Adverse Effect; (q) Neither Lessee, Sublessee nor the Guarantor is subject to regulation as a "holding company," an "affiliate" of a "holding company", or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended; (r) Neither the Lessee, Sublessee nor the Guarantor is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended; (s) There are no patents, patent rights, trademarks, service marks, trade names, copyrights, licenses or other intellectual property rights with respect to the Equipment that are necessary for the continued economic operation of the Equipment and that are not available to Sublessee in the ordinary course of business; (t) Neither the Trustee nor any Certificate Purchaser will become, solely by reason of entering into the Operative Agreements or the consummation of the transactions contemplated by this Participation Agreement, subject to on-going regulation of its operations by the Nevada Gaming Authorities, except as otherwise provided on Schedule V; ---------- (u) The use of the proceeds from the transaction contemplated by this Participation Agreement will not violate or result in any violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any 16 regulations issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System; (v) No Event of Default or event which with the passage of time and/or giving of notice could become an Event of Default has occurred and is continuing; (w) No Casualty has occurred with respect to the items of Equipment to be delivered on the Effective Date; (x) The transfer of items of Equipment made by the Sublessee on the Effective Date will not render the Sublessee insolvent, nor was it made in contemplation of the Sublessee's insolvency; the value of the assets and properties of the Sublessee at fair valuation and at their then present fair salable value is and, after such transfers, will be greater than Sublessee's total liabilities, including contingent liabilities, as they become due; the property remaining in the hands of the Sublessee after such transfers was not and will not be an unreasonably small amount of capital; (y) All insurance coverages required by Section 7.1 of the Master ----------- Lease are in full force and effect and there are no past due premiums in respect of any such insurance; (z) The Equipment is personal property within the meaning of the laws of the State of Nevada; and the Equipment is "goods" or "fixtures" (as defined in the Uniform Commercial Code as in effect in the State of Nevada); (aa) The Guarantor and Sublessee have delivered to the Trustee and Certificate Purchasers the consolidated balance sheet of the Guarantor and Sublessee and their consolidated subsidiaries as of December 31, 1992 and the related consolidated statements of income, cash flows and changes in shareholders' equity accounts for the year then ended and the unaudited consolidated balance sheet of the Guarantor and its consolidated subsidiaries as of March 31 and June 30, 1993 and the related consolidated statements of income, cash flows and changes in shareholders' equity accounts for the months then ended; such consolidated financial statements have been prepared in accordance with generally accepted accounting principles, applied on a consistent basis throughout the periods covered thereby and on a basis consistent with prior periods; and such consolidated financial statements fairly present the consolidated financial condition of the Guarantor and Sublessee and their consolidated subsidiaries at such dates 17 and the consolidated results of their operations for such periods. There has been no material adverse change in the condition (financial or otherwise), operation, prospects or business of Sublessee or Guarantor on either a consolidated or separate basis since December 31, 1992; (ab) The Guarantor has sole beneficial and record ownership, directly or indirectly, of 100% of the issued and outstanding capital stock of each of the Lessee and Sublessee. There are no outstanding subscriptions, options, warrants, calls, rights (including preemptive rights) or other arrangements or commitments of any nature relating to any capital stock of Lessee or Sublessee; (ac) Lessee is a newly created entity which has not engaged in and will not engage in any business other than entering into and performing its obligations pursuant to the Participation Agreement, Lease and Sublease and the other Operative Agreements to which it is a party; (ad) Each of the Lessee, the Sublessee, and the Guarantor represents to each other party hereto that: (i) Neither it, nor any of its Affiliates, nor anyone it has authorized or employed to act on its behalf as agent, broker, dealer or otherwise in connection with the offering or sale of the Certificates or any similar security or any interest in and to the Trust Estate or any similar security has, directly or indirectly, offered any Certificates or any similar security or any interest in and to the Trust Estate or any similar security, for sale to, or solicited any offer to acquire any of the same from, anyone, except that the Lessee represents that it and its Affiliates have offered Certificates to the Certificate Purchasers and to other "accredited investors" as defined in Rule 501 promulgated pursuant to the Securities Act of 1933, as amended; and (ii) neither it nor anyone it has authorized to act on its behalf has offered or sold, or will so offer or sell, any Certificates or any interest in and to the Trust Estate, or any securities similar thereto, so as to bring the issuance and sale of the Certificates or the interest in the Trust Estate within the provisions of Section 5 of the Securities Act of 1933, as amended; and (ae) Schedule III lists all Plans maintained by, sponsored by or to ------------ which Lessee, Sublessee, Guarantor or any Related Person thereto may have any liability or contingent liability and separately identifies Plans which are intended to be qualified under section 401(a) of the Code and Multiemployer Plans. A written description of each such Plan has been provided to the Certificate Purchasers and each such description is true and complete in all material 18 respects. Each such Plan is in material compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal and state laws, including all requirements of the Code and ERISA which require the filing of reports, all reports so filed were true and correct in all material respects as of the date filed and benefits have been paid under each such Plan in accordance with the provisions of the Plan and applicable law. Each such Plan which is intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified, the trusts created thereunder have been determined by the IRS to be exempt from tax under the provisions of section 501 of the Code, and, to the best knowledge of Lessee, Sublessee, Guarantor or any Related Person thereto, nothing has occurred which would cause the loss of such qualification or tax-exempt status. Except as set forth on Schedule III, ------------ (i) none of the Plans listed on Schedule III which are Pension Plans has ------------ any unfunded current liability (as defined in section 302(d) and 412(1) of the Code) for which Lessee, Sublessee, Guarantor or any Related Person thereto may be liable; (ii) no Plan listed on Schedule III provides medical ------------ or other welfare benefits or extends coverage relating to such benefits beyond the date of an employee's termination of employment with Lessee, Sublessee, Guarantor or any Related Person thereto, except to the extent required by Section 4980B or the Code of Section 601 of ERISA and at the sole expense of the employee or his beneficiaries to the fullest extent permissible under such sections of the Code and ERISA; (iii) no event has occurred or, to the best knowledge of Lessee, Sublessee and Guarantor, is reasonably expected to occur with respect to any Plan listed on Schedule -------- III which would have a reasonable likelihood of having a material adverse --- effect on the financial condition of Lessee, Sublessee or Guarantor; (iv) there are no pending, or to the best knowledge of Lessee, Sublessee and Guarantor, threatened claims, actions or lawsuits, other than routine claims for benefits in the usual and ordinary course, asserted or instituted against any Plan listed on Schedule III or any fiduciary with ------------ respect to any such Plan for which Lessee, Sublessee or Guarantor may be liable through indemnification obligations or otherwise; (v) none of Lessee, Sublessee or Guarantor has engaged in any transaction which could give rise to liability of Lessee, Sublessee or Guarantor or any Related Persons thereto under Sections 4212(c) or 4069 of ERISA. None of Lessee, Sublessee or Guarantor has engaged, directly or indirectly, in a non-exempt prohibited transaction (as defined in Section 4975) of the Code or 406 of ERISA in connection with any Plan listed on Schedule III which has a ------------ reasonable likelihood of having a material adverse effect on 19 the financial condition of the Lessee, Sublessee or Guarantor. Section 5.2 Representations and Warranties of Certificate Purchasers. -------------------------------------------------------- Each of the Certificate Purchasers hereby represents and warrants severally but not jointly to the other Participants as follows: (a) The Certificate Purchaser is purchasing the Certificates to be purchased by it pursuant to the Trust Agreement and this Participation Agreement with its general assets, and not directly or indirectly with the assets of, or in connection with any arrangement or understanding by it in any way involving, any "employee benefit plan" (other than a governmental plan) within the meaning of Section 3(3) of ERISA; (b) Each Certificate Purchaser is purchasing the Certificates to be acquired by it hereunder for investment and not with a view to the resale or distribution of such interest or any part thereof, but without prejudice, however, to the right of such Certificate Purchaser at all times to sell or otherwise dispose of all or any part of such interest under a registration available under the Securities Act of 1933, as amended, or under an exemption from such registration available under such Act, it being understood that the disposition by any Certificate Purchaser of the Certificates purchased by it shall, at all times, remain entirely within its control; and (c) Neither the Certificate Purchaser nor any Person authorized to act on its behalf has directly or indirectly offered to sell any interests in the Trust Estate, the Certificates or any security similar thereto, to, or otherwise approved or negotiated with respect thereto with, anyone other than the Certificate Purchasers, and neither it nor any Person authorized to act on its behalf will so offer or sell in violation of Section 5 of the Securities Act of 1933, as amended, or securities or "blue sky" law of any applicable jurisdiction. Section 5.3 Representations and Warranties of Trustee. Norwest Bank ----------------------------------------- Minnesota, National Association, in its individual capacity, represents and warrants to the other parties as follows: (a) Trustee is a national banking association duly organized and validly existing in good standing under the laws of the United States and has the corporate power and authority to enter into and perform its obligations under the Trust Agreement. The Trust Agreement has been duly 20 authorized, executed and delivered by Trustee. The Trust Agreement, this Section 5.3, and Section 6.4 hereof are the valid, legal and binding ----------- ----------- agreements of the Trustee, enforceable against the Trustee in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally (including any federal law relating to the insolvency, liquidation or rehabilitation of national banks) and by general principles of equity, including, without limitation, concepts of good faith and fair dealing, materiality, reasonableness and the possible unavailability of specific performance or injunctive relief (regardless of whether such enforceability is considered in a proceeding in equity or at law); (b) This Participation Agreement has been, and the other Operative Agreements (other than the Trust Agreement) to which the Trustee is or will be a party have been or will be, on the date required to be delivered hereby, duly authorized, executed and delivered by the Trustee, and this Participation Agreement is, and such other Operative Agreements are, or, when so executed and delivered by the Trustee will be, valid, legal and binding agreements of the Trustee, enforceable against the Trustee in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and by general principles of equity, including, without limitation, concepts of good faith and fair dealing, materiality, reasonableness and the possible unavailability of specific performance or injunctive relief (regardless of whether such enforceability is considered in a proceeding in equity or at law); (c) The Trustee has its principal place of business in the State of Minnesota and is eligible to act in a fiduciary capacity in Nevada, pursuant to Nevada Revised Statutes 662.245; (d) Neither the execution and delivery by the Trustee of the Operative Agreements to which it is or will be a party, either in its individual capacity, as Trustee, or both, nor compliance with the terms and provisions thereof, conflicts with, results in a breach of, constitutes a default under (with or without the giving of notice or lapse of time or both), or violates any of the terms, conditions or provisions of: (i) The articles of association or by-laws of the Trustee; (ii) to the best of the Trustee's knowledge, any bond, debenture, note, mortgage, indenture, agreement, lease or other instrument to which the Trustee, either in 21 its individual capacity, as Trustee, or both, is now a party or by which it or its property, either in its individual capacity, as Trustee, or both, is bound or affected, where such conflict, breach, default or violation would materially and adversely affect the ability of the Trustee, either in its individual capacity, as Trustee or both, to perform its obligations under any Operative Agreement to which it is or will be a party, either in its individual capacity, as Trustee, or both; or (iii) to the best of the Trustee's knowledge, any of the terms, conditions or provisions of any law, rule, regulation, order, injunction or decree of any Authority applicable to it in its individual capacity; (e) On the Effective Date, the Trustee will have received whatever title to the Equipment is conveyed to it by the Sublessee, free of all Lessor Liens attributable to the Trustee in its individual capacity; (f) Upon execution by the Trustee of any Certificate pursuant to the Trust Agreement, such Certificate will be a valid, legal and binding obligation of the Trustee in accordance with its terms, subject to the limitation of liability of the Trustee as provided in Article IX hereof and ---------- Section 8.7 of the Trust Agreement; and ----------- (g) Neither the Trustee nor any Person authorized to act on its behalf has directly or indirectly offered to sell any interests in the Trust Estate, the Certificates or any security similar thereto, to, or otherwise approved or negotiated with respect thereto with, anyone other than the Certificate Purchasers and neither it nor any Person authorized to act on its behalf will so offer or sell in violation of Section 5 of the Securities Act of 1933, as amended, or any securities or blue sky law of any applicable jurisdiction. ARTICLE VI COVENANTS Section 6.1 Covenants of Lessee. The Lessee covenants and agrees with the ------------------- Certificate Purchasers and the Trustee that during the Master Lease Term and Renewal Terms and, if the Lessee has not purchased the Equipment pursuant to the Master Lease, for 90 days thereafter: (a) (i) The Lessee shall at all times maintain its corporate existence. The Lessee shall do or cause to be done all things necessary to preserve and keep in full force and effect 22 its full corporate power and authority to perform its obligations under each Operative Agreement to which it is or will be a party; (ii) the Lessee shall not consolidate with or merge with or into any other corporation or transfer, directly or indirectly, by sale, exchange, lease (other than the Sublease) or other disposition, in one transaction or a series of related transactions to one or more Persons, any of its assets without the consent of the Trustee; (iii) the Lessee shall not engage in any business activity other than entering into this Participation Agreement, the Lease and the Sublease and performing its obligations thereunder; (iv) the Lessee shall at all times observe and comply in all material respects with: (A) All laws applicable to it; (B) all requirements of law in the declaration and payment of dividends on its capital stock; and (C) all requisite and appropriate corporate and other formalities (including without limitation meetings of the Lessee's board of directors and, if required by law, its charter or otherwise, meetings and votes of shareholders to authorize corporate action) in the management of its business and affairs and the conduct of the transactions contemplated hereby; (v) the Lessee shall not issue or register the transfer of any of its capital stock to any Person other than the Guarantor; (vi) at least one director who is vested with veto power over actions of the board of directors of the Lessee, to the extent such actions relate to Insolvency Events, shall at all times be a person who is not, and never has been, (A) a director, officer, employee or Affiliate of Guarantor or any of Guarantor's Affiliates (other than Lessee) or (B) a beneficial owner of, directly or indirectly, in excess of 1% of the outstanding common stock of Guarantor, or a stockholder, director, officer, employee or Affiliate of such beneficial owner or any of such beneficial owner's Affiliates; (vii) the Lessee will, at all times: (A) Maintain: (x) Corporate books and records separate from those of any other Person; and (y) minutes of the meetings and other proceedings of its shareholders and board of directors; (B) continuously maintain the resolutions, agreements and other instruments underlying the transactions contemplated hereby as official records of the Lessee; (C) act solely in its corporate name and through its duly authorized officers or agents to maintain an arm's-length relationship with the Guarantor and its Affiliates; and (D) pay all of its operating expenses and 23 liabilities from its own funds. The Lessee will compensate all employees, consultants and agents directly from the Lessee's own bank accounts for services provided to the Lessee by such employees, consultants and agents, and to the extent that any employee, consultant or agent of the Lessee is also an employee, consultant or agent of the Guarantor or any other Person, the Lessee and the Guarantor or such other Person, as the case may be, will allocate among themselves the services and attendant salaries of shared employees, consultants and agents on a basis that reflects the actual services rendered, to the extent practicable. Any shared overhead expenses between the Lessee and the Guarantor will be based on actual use to the extent practicable, and to the extent such allocation is not practicable, on a basis reasonably related to use; (viii) the Lessee shall conduct its business solely in its own name so as to not mislead others as to the identity of the corporation with which those others are concerned, and particularly will use its best efforts to avoid the appearance of conducting business on behalf of the Guarantor or any of its Affiliates or that the assets of the Lessee are available to pay the creditors of the Guarantor or any of its Affiliates. Without limiting the generality of the foregoing, all oral and written communications, including without limitation, letters, invoices, purchase orders, contracts, statements and loan applications, will be made solely in the name of the Lessee. While the Lessee may have its principal place of business in the same facility as the Guarantor or Sublessee, it will maintain such place of business separate and apart (including, without limitation, through the use of appropriate demarcation) from the use of such facility by the Lessee; and (ix) the Lessee will at all times maintain separate financial records to reflect the assets and liabilities of the Lessee, and will prepare its reviewed financial statements separately from those of the Guarantor and any other Person, which statements will be consolidated with financial statements of the Guarantor for certain reporting purposes. Such consolidated financial statements will contain notations clearly noting the separate corporate existence and separate financial condition of the Lessee and that the assets of the Lessee will be available first and foremost to satisfy the claims of its creditors; (b) The Lessee shall furnish to the Trustee notice on or before the 30th day prior to any relocation of its chief executive office; (c) The Lessee, at its expense, shall cause, as soon as possible, but in any event no later than the 10th day after any request, financing statements (and continuation statements 24 with respect thereto) and all other documents necessary or reasonably requested by the Trustee in connection with the establishment and perfection of the interest of the Trustee in the Trust Estate, to be recorded or filed at such places and times, and in such manner, and, at its expense, shall take, or shall cause to be taken, all such other action as may be necessary or reasonably requested by the Trustee in order to establish, preserve, protect and perfect the rights, titles and interests of the Trustee to the Equipment and the Sublease; and (d) The Lessee shall issue and deliver to the Trustee for acknowledgement the Certificates at the time and in the amounts required by this Participation Agreement and the Trust Agreement. Section 6.2 Covenants of Sublessee. The Sublessee covenants and agrees ---------------------- with the Certificate Purchasers and the Trustee that during the Master Lease Term and any Renewal Term and, if the Sublessee has not purchased the Equipment, for 90 days thereafter: (a) (i) The Sublessee shall at all times maintain its corporate existence except as permitted by paragraph (b) hereof. The Sublessee shall do ------------- or cause to be done all things necessary to preserve and keep in full force and effect its full corporate power and authority to perform its obligations under each Operative Agreement to which it is or will be a party; and (b) The Sublessee shall not consolidate or merge with or into, or sell, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person unless: (i) the Person formed by or surviving any such consolidation or merger (if other than the Sublessee), or to which such disposition shall have been made, is a corporation organized under the laws of the United States, any State or the District of Columbia; (ii) the corporation formed by or surviving any such consolidation or merger (if other than the Sublessee) or to which such disposition shall have been made, assumes all the obligations of Sublessee under the Sublease; (iii) immediately after the transaction no Event of Default exists; (iv) immediately after giving effect to such transaction on a pro forma basis, (A) the Consolidated Adjusted Net Worth of the corporation formed by or surviving any such consolidation or merger, or to which such disposition shall have 25 been made is at least equal to the Consolidated Adjusted Net Worth of the Sublessee immediately prior to such transaction; and (v) the Sublessee shall deliver to the Trustee prior to the consummation of the proposed transaction a Certificate of a Responsible Officer to the foregoing effect and an opinion of counsel stating that the proposed transaction and such assumption, if any, is effective; (c) The Sublessee shall furnish to the Trustee notice on or before the 30th day prior to any relocation of its chief executive office or the location of any of the Equipment; (d) The Sublessee shall continually use all Equipment in its business (subject to normal interruption in the ordinary course of business for maintenance, inspection, service, repair and testing) unless such Equipment has been exchanged for a Replacement Item pursuant to Section 4.3 hereof or a ----------- Casualty has been declared with respect thereto; (e) Without limiting the terms of Section 7.1 hereof, the Sublessee ----------- shall pay: (i) To the Trustee, or any Certificate Holder all reasonable expenses, including, without limitation, legal fees and expenses incurred by it in connection with the entering into, or giving or (in the case of any amendments, supplements, waivers or consents proposed by the Lessee, Sublessee or the Guarantor) withholding, of any future amendments or supplements or waivers or consents: (A) With respect to the Operative Agreements; or (B) which are further assurances requested pursuant to Section 10.14 hereof or a similar ------------- provision in other Operative Agreements; and (ii) the ongoing fees and expenses of the Trustee under the Trust Agreement; (f) The Sublessee shall furnish to the Trustee each regular or periodic report and any Current Report on Form 8-K filed by the Sublessee with any securities exchange or with the Securities and Exchange Commission or any successor agency; (g) The Sublessee, at its expense, shall cause, as soon as possible, but in any event no later than the 10th day after any request, financing statements (and continuation statements with respect thereto) and all other documents necessary or reasonably requested by the Trustee in connection with the establishment and perfection of the interest of the Trustee in the Trust Estate, to be recorded or filed at such places and times, and in such manner, and, at its expense, shall take, or shall cause to be taken, all such other action as may be necessary or reasonably requested by the Trustee in order to establish, preserve, protect and perfect the rights, titles and interests of the Trustee to the Equipment; 26 (h) The Sublessee shall pursuant to the Sublease Assignment make all payments due under the Sublease directly to the Trustee; (i) The Sublessee will not, and will not permit any Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist or otherwise cause to suffer or to become effective any Lien on any right, title or interest to any property subject to the Sublease Grant and the Liens of the Collaterally Assigned Documents; (j) Except as otherwise permitted by the Indenture, the Sublessee shall not engage in any transactions with Guarantor or any of its Affiliates, except on terms comparable to those generally available on an arm's length basis in equivalent transactions with third parties (as established by a resolution of the board of directors of Guarantor or the Sublessee as to which a majority of the independent directors have voted in favor, a copy of which resolution certified by a Responsible Officer of the Guarantor or Sublessee, respectively, shall be delivered by the Sublessee to the Trustee within 90 days following the end of each fiscal year); provided, however, that (i) Any transaction, otherwise prohibited by this paragraph (j) shall be permitted if the amount expended for all such transactions during any fiscal year does not exceed $1,000,000 in the aggregate; and (ii) in connection with any transaction otherwise permitted under this paragraph (j) having a fair market value in excess of $20,000,000, in ------------- addition to the certified resolutions of the board of directors required hereunder, a fairness opinion from an Independent Financial Advisor shall be required to be provided to the Trustee as a condition to the consummation of any such transaction and provided, further, that payments pursuant to any -------- ------- Intercompany Debt (as defined in the Indenture) or payments to Guarantor pursuant to the Management Agreement or the Tax Allocation Agreement that are otherwise permitted by this paragraph (j) shall not be considered a transaction with an Affiliate; and (k) The Sublessee shall not permit the incurrence of any indebtedness, directly or indirectly, through one or more subsidiaries unless such indebtedness would have been permitted pursuant to the provisions of Section 4.08 of the Indenture as in effect on the Document Closing Date; provided that the Certificate Holders shall have the benefit of Section 4.08 of the Indenture as in effect on the Document Closing Date for the duration of the Trust Estate as though it were fully set forth herein. Section 6.3 Covenants of Guarantor. The Guarantor covenants and agrees ---------------------- with the Certificate Purchasers and the Trustee that: 27 (a) During the Master Lease Term and Renewal Terms and, if the Lessee has not purchased the Equipment pursuant to the Master Lease, for 90 days thereafter, the Guarantor shall deliver to the Trustee: (i) as soon as available, but not later than ninety (90) days after the end of each fiscal year of Guarantor, a copy of the audited combined balance sheet of Sublessee and MGM Finance as at the end of such year and the related combined statements of income, stockholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous year, and accompanied, in each case, by the opinion of Arthur Andersen & Co. or another nationally-recognized independent public accounting firm which opinion shall state that such combined financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years; (ii) as soon as available, but not later than ninety (90) days after the end of each fiscal year of Guarantor, a copy of (x) the reviewed balance sheet of the Lessee and (y) the audited consolidated and consolidating balance sheets of Guarantor (which shall include, without limitation, Lessee, Sublessee and Guarantor) as at the end of such year, together with the consolidated and consolidating statements of income, stockholders' equity and cash flows for such fiscal year, setting forth in comparative form the figures for the previous year, and accompanied by the opinion of Arthur Andersen & Co. or another nationally-recognized independent public accounting firm which opinion shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years and certified by a Responsible Officer of Guarantor as having been used in connection with the preparation of the financial statements referred to in clause (i) of this subsection 6.3(a) above; ---------- ----------------- (iii) as soon as available, but not later than forty-five (45) days after the end of each of the first three (3) fiscal quarters of each year of the Guarantor a copy of the unaudited combined balance sheet of Sublessee and MGM Finance as of the end of such quarter and the related combined statements of income, stockholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by Responsible Officers of Sublessee and MGM Finance as being completed and correct and fairly presenting, in accordance with GAAP, the financial position and the results of operations of Sublessee and MGM Finance; and (iv) as soon as available, but not later than forty-five (45) days after the end of each of the first three (3) 28 fiscal quarters of each year of the Guarantor the unaudited consolidated and consolidating balance sheets of Guarantor (which shall include, without limitation, Lessee, Sublessee and Guarantor), and the consolidated and consolidating statements of income, stockholders' equity and cash flow for such quarter, all certified by an appropriate Responsible Officer of Guarantor as having been used in connection with the preparation of the financial statements referred to in clause (iii) of this subsection 6.3(a); ----------------- (b) During the Master Lease Term, Renewal Terms and, if the Lessee has not purchased the Equipment pursuant to the Master Lease for 90 days thereafter: (i) The Guarantor shall at all times maintain its corporate existence except as permitted by paragraph (b)(ii) hereof. The Guarantor shall ----------------- do or cause to be done all things necessary to preserve and keep in full force and effect its full corporate power and authority to perform its obligations under each Operative Agreement to which it is or will be a party; and (ii) the Guarantor shall not effect a Merger or a Transfer of all or substantially all of its assets without the consent of the Trustee, unless: (A) The corporation that results from such Merger or the Person to whom such Transfer is made shall be a corporation organized under the laws of a State of the United States and, if such corporation is not the Guarantor: (1) Such corporation shall have assumed in writing the due and punctual performance and observance of each covenant and condition of this Participation Agreement and the other Operative Agreements to be performed or observed by the Guarantor; and (2) the Guarantor shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Owner Trustee that each covenant and obligation of the Guarantor under each Operative Agreement to which it is a party is a legal, valid and binding obligation of the Person surviving the Merger or to which such Transfer has been made; and (B) immediately after giving effect to such Merger or Transfer, no Event of Default, or event which with the passage of time and/or giving of notice could become an Event of Default shall have occurred and be continuing; (c) If there is any change in the ownership interest of the Guarantor in the Lessee or Sublessee during the Master Lease Term or Renewal Terms, the Guarantor shall promptly notify the Certificate Holders and the Trustee; and (d) Guarantor shall contribute to the capital of the Lessee from time to time such amounts as are required to timely pay all expenses incurred by the Lessee in the performance of its obligations under this Participation Agreement, including Section 6.1(a) and the Operative Agreements. -------------- 29 Section 6.4 Covenants of Trustee. The Trustee in its individual capacity -------------------- covenants and agrees with the Lessee and the Certificate Purchasers, that: (a) It will not directly or indirectly create, incur, assume or suffer to exist any Lessor Liens arising by, through or under it on the Trust Estate, other than Permitted Lessor Liens; (b) It will, at its own cost and expense, promptly take such action in its individual capacity as may be necessary to discharge fully such Lessor Liens on the Trust Estate, other than Permitted Lessor Liens; and (c) It will not sell, transfer or otherwise dispose of all or any part of the Trust Estate where such sale, transfer or disposition would violate the Operative Agreements. ARTICLE VII GENERAL INDEMNITY Section 7.1 Indemnity. Whether or not the transactions contemplated --------- hereby are consummated, to the fullest extent permitted by applicable law, Lessee, Sublessee and Guarantor waive and release any claims now or hereafter existing against the Indemnitees on account of, and shall indemnify, reimburse and hold the Indemnitees harmless from, any and all claims by third parties (including, but not limited to, claims relating to trademark or patent infringement and claims based upon negligence, strict liability in tort, violation of laws, including, without limitation, Environmental Laws, statutes, rules, codes or orders or claims arising out of any loss or damage to any property or death or injury to any Person), any losses, damages or obligations owing to third parties, any penalties, liabilities, demands, suits, judgments or causes of action, and all legal proceedings (either administrative or judicial), and any costs or expenses in connection therewith (including costs incurred in connection with discovery) or in connection with the enforcement of this indemnity (including reasonable attorneys' fees and expenses, and reasonable fees and expenses of internal counsel, incurred by the Indemnitees), including, in each case, matters based on the negligence of Indemnitees (subject to the proviso below), which may be imposed on, incurred by or asserted against the - ------- Indemnitees in any way relating to or arising in any manner out of: (a) The registration, purchase, taking or foreclosure of a security interest in, ownership, delivery, condition, lease, sublease, assignment, storage, transportation, possession, use, operation, return or other disposition of any of the Equipment (including, without limitation, disposition by means of a sale pursuant to the Sale Option contained in Section 11.1(c) of the Master Lease or otherwise), or any defect in any such Equipment, arising 30 from the material or any article used therein or from the design, testing or use thereof, or from any maintenance, service, repair, overhaul or testing of any such Equipment regardless of when such defect shall be discovered, whether or not such Equipment is in the possession of Lessee or Sublessee and no matter where it is located; (b) This Participation Agreement, any other Operative Agreement or any document or certificate delivered in connection therewith, the enforcement hereof or thereof or the consummation of the transactions contemplated hereby or thereby; or (c) The loan from The Industrial Bank of Japan, Limited, Los Angeles Agency to First Security Bank of Utah, N.A., as trustee, secured on a nonrecourse basis by the Class A-1 Certificate to be acquired by First Security Bank of Utah, N.A., as trustee, pursuant to the terms hereof and any document or certificate delivered in connection therewith, the enforcement hereof or thereof and the consummation of the transactions contemplated hereby or thereby; provided that Lessee, Sublessee and Guarantor shall not be obligated to - -------- indemnify an Indemnitee for any such claim, loss, damage or liability which results from a violation of the laws of a country or a political subdivision thereof other than the United States of America or a political subdivision thereof or which results from such Indemnitee's own gross negligence or willful misconduct (which shall include the failure of any Indemnitee to have full power and authority to execute and deliver any Operative Agreement to which it is a party or any of the Lending Documents to which it is a party) or from acts or events that occur with respect to any of the Equipment from and after (but not before) the delivery thereof by Lessee to Trustee by reason of the expiration of the Master Lease Term or Renewal Terms in accordance with the terms of the Master Lease; provided, however, that nothing in the preceding proviso shall be -------- ------- ------- deemed to exclude or limit any claim that any Indemnitee may have under any Operative Agreement or applicable laws for damages from Lessee, Sublessee or Guarantor for breach of their representations, warranties or covenants in any Operative Agreement or otherwise. Section 7.2 Excessive Use Indemnity. In the event that at the end of the ----------------------- Master Lease Term or either Renewal Term: (a) The Lessee elects the Sale Option; and (b) After paying to the Trustee the Proceeds together with Lessee's payment of the Applicable Percentage Amount or Recourse Deficiency Amount the Trustee does not have sufficient funds to make all payments (including the Make-Whole Premium) then due on the Certificates; then the Lessee shall promptly pay over to the Trustee the 31 shortfall unless and to the extent that the Lessee delivers a report from the Appraiser in form and substance satisfactory to the Trustee which establishes that the decline in value in the Equipment from that anticipated for such date in the Appraiser's report delivered on the Effective Date was not due to extraordinary use, failure to maintain or replace, failure to use, workmanship or method of installation or removal or any other cause or condition within the power of the Lessee or Sublessee to control or effect. SECTION 7.3 WAIVER OF SECTION 1542. LESSEE, SUBLESSEE AND GUARANTOR ---------------------- HEREBY WAIVE APPLICATION OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES THAT: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." LESSEE, SUBLESSEE AND GUARANTOR CERTIFY THAT THEY HAVE READ THE FOREGOING PROVISION OF THE CALIFORNIA CIVIL CODE AND UNDERSTAND AND ACKNOWLEDGE THAT THE SIGNIFICANCE OF THIS WAIVER OF CALIFORNIA CIVIL CODE SECTION 1542 IS THAT THEY, INDIVIDUALLY AND COLLECTIVELY, WILL NOT BE ABLE TO MAKE ANY CLAIM FOR ANY DAMAGES ARISING OUT OF OR IN CONNECTION WITH ANY OF THE ACTIVITIES DESCRIBED IN SECTIONS 7.1 OR 7.2 OF THIS PARTICIPATION AGREEMENT, EXCEPT TO THE EXTENT THAT - ------------ --- SUCH DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE. Section 7.4 Indemnification of First Security Bank of Utah, N.A.. Lessee ---------------------------------------------------- and Sublessee, jointly and severally, hereby agree, whether or not any of the transactions contemplated hereby or by the MGM Trust No. 2 shall be consummated, to assume liability for, and hereby indemnify, reimburse, defend, protect, save and keep harmless First Security Bank of Utah, N.A. in its individual capacity, and its successors, assigns, agents and servants, from and against any and all liabilities, obligations, demands, losses, damages, penalties, taxes (excluding taxes payable by it as trustee on or measured by any compensation received by it as trustee for its services under the MGM Trust No. 2), claims, actions, suits, costs, expenses or disbursements (including attorneys' fees and expenses) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against it as trustee (whether or not also indemnified against by any other Person under any other document) in any way, directly or indirectly, relating to or arising out of the MGM Trust No. 2 Trust Agreement, the Operative Documents (as defined in the MGM Trust No. 2) or the enforcement of any of the terms of any hereof or thereof, or in any way, directly or indirectly, relating to or arising out of the administration of the trust estate of the MGM 32 Trust No. 2 or the action or inaction of it as trustee under the MGM Trust No. 2, except in the case of willful misconduct or negligence on the part of it as trustee under the MGM Trust No. 2 in the performance of its duties thereunder or the breach by it as trustee of any warranties, representations, or covenants made or undertaken by it in its individual capacity pursuant hereto. The indemnities contained in this Section 7.4 shall survive the termination of the ----------- MGM Trust No. 2 Trust Agreement. The indemnities contained in this Section 7.4 ----------- extend to it as trustee in its individual capacity and shall not be construed as indemnities of the MGM Trust No. 2 trust estate. Section 7.5 Swap Agreement Indemnity. Lessee and Sublessee, jointly and ------------------------ severally, hereby agree, whether or not any of the transactions contemplated hereby shall be consummated, to indemnify, reimburse and hold harmless any Indemnitee against any and all Excess Costs (defined below) incurred as a result of its entering into a Swap Agreement in anticipation of making a purchase of a Certificate less than four Business Days prior to the Effective Date. For purposes of this Section 7.5, "Excess Costs" shall mean the cost to an ----------- ------------ Indemnitee of funding a Swap Agreement for a rate higher than 5% per annum. ARTICLE VIII GENERAL TAX INDEMNITY Section 8.1 General Tax Indemnity. Lessee, Sublessee and Guarantor agree --------------------- to pay or reimburse Indemnitees for, and to indemnify and hold Indemnitees harmless from, all Impositions arising at, or relating to, any time prior to or during the Master Lease Term or Renewal Terms, or upon any termination of the Master Lease or prior to, or upon the return of, the Equipment to Trustee, and levied or imposed upon Indemnitees directly or otherwise, by any Federal, state or local government or taxing authority in the United States or by any foreign country or foreign or international taxing authority upon or with respect to: (a) The Equipment; (b) The exportation, importation, registration, purchase, ownership, delivery, condition, lease, sublease, assignment, storage, transportation, possession, use, operation, maintenance, repair, return, sale (including to Trustee, Lessee or Sublessee pursuant to the Operative Agreements), transfer of title or other disposition thereof; (c) The rentals, receipts, or earnings arising from any of the Equipment; (d) The Master Lease or Sublease or any payment made thereunder; or (e) Transactions entered into by First Security Bank of Utah, N.A., as trustee, to finance the acquisition of the Certificates on a secured nonrecourse basis; provided that this Section 8.1 -------- ----------- shall not apply to: (i) Impositions which are based 33 upon or measured by the Indemnitee's net income, or which are expressly in substitution for, or relieve Indemnitee from, any actual Imposition based upon or measured by Indemnitee's net income (excluding, however: (A) Any Imposition based on, or measured by the net income of Indemnitees imposed by the United States or any state or local government taxing authority in the United States to the extent they would not have been imposed if on the Effective Date the Certificate Purchasers and/or The Industrial Bank of Japan, Limited, Los Angeles Agency had advanced funds directly to Sublessee in the form of a loan secured by the Equipment in an amount equal to the amount advanced for Certificates on such Effective Date with the debt service for such loan equal to that provided pursuant to the Certificate and a principal balance in the amount of the Lease Balance remaining at the end of the Master Lease Term or Renewal Terms was due at the end of such terms (the "Income Tax Indemnity"); and (B) Impositions -------------------- imposed with respect to the payment, receipt or accrual of any indemnity payment hereunder); (ii) Impositions characterized under local law as franchise, net worth, or shareholder's capital (excluding, however, any value-added, license, property or similar Impositions); (iii) Impositions based upon the voluntary transfer, assignment or disposition by Trustee or any Certificate Holder of any interest in any of the Equipment (other than a transfer pursuant to the exercise of remedies under the Operative Agreements, transfers pursuant to the exercise of the Sale Option or Fixed Price Purchase Option, a transfer to Lessee or otherwise pursuant to the Master Lease or a transfer to The Industrial Bank of Japan, Limited, Los Angeles Agency by First Security Bank of Utah, N.A.); and (iv) except where there exists an Event of Default, Impositions in respect of any of the Equipment arising after the expiration or earlier termination of the Master Lease in respect of such Equipment and the return or other disposition of such Equipment in full compliance with the terms of the Master Lease, provided -------- that such Impositions do not relate to acts or events arising or occurring prior to or coincident with such time. Notwithstanding anything to the contrary in this Section 8.1, Lessee agrees to pay or reimburse Indemnitees for, and to ----------- indemnify and hold Indemnitees harmless from, any Impositions imposed by the State of Nevada (including income, severance, franchise and personal property taxes, but net of any foreign, federal, state or local income tax benefits which are recognized by Indemnitees as a result of such Imposition) arising solely by virtue of, and to the extent attributable to, Indemnitees participation in the transactions contemplated by the Operative Agreements or the exercise of remedies under the Operative Agreements. Section 8.2 Contest. Lessee, Sublessee and Guarantor shall pay on or ------- before the time or times prescribed by law any Impositions (except any Impositions excluded by Section 8.1); ----------- 34 provided, however, that Lessee shall be under no obligation to pay any such - -------- ------- Imposition so long as: (i) Such Imposition is being contested in good faith and by appropriate legal or administrative proceedings, with appropriate reserves being maintained therefor; and (ii) the nonpayment thereof does not, in the reasonable opinion of Indemnitee, materially adversely affect the right of Trustee to receive payment of Rent or the Lease Balance, or of a Certificate Holder to receive payments on the Certificates, or involve a material risk of sale, forfeiture or loss of any of the Equipment or any interest therein or materially adversely affect the security interests created by the Master Lease. If any claim or claims is or are made against Indemnitees for any Imposition which is subject to indemnification as provided in Section 8.1 and which is not ----------- an Income Tax Indemnity, Indemnitee shall as soon as practicable, but in no event more than 20 days after receipt of formal written notice of the Imposition or proposed Imposition, notify Lessee and if, in the opinion of Lessee, there exists a reasonable basis to contest such Imposition (and if clause (ii) of this ----------- Section 8.2 continues to be satisfied and so long as no Event of Default - ----------- exists), Lessee, Sublessor and Guarantor at their expense may, to the extent permitted by applicable law, contest such Imposition, and subsequently may appeal any adverse determination, in the appropriate administrative and legal forums; provided that in all other circumstances, upon notice from Lessee that -------- there exists a reasonable basis to contest any such Imposition, the Indemnitee at Lessee's, Sublessee's and Guarantor's expense, shall contest any such Imposition. Lessee shall have the right to participate in the conduct of any proceedings controlled by the Indemnitee to the extent that such participation by Lessee does not interfere with the Indemnitees' control of such contest and Lessee shall in all events be kept informed of material developments relative to such proceedings. The Indemnitees agree that a contested claim for which Lessee, Sublessee or Guarantor would be required to make a reimbursement payment hereunder will not be settled or compromised without Lessee's prior written consent, unless clause (ii) of this Section 8.2 would not continue to be ----------- ----------- satisfied. The Indemnitee shall endeavor to settle or compromise any such contested claim in accordance with written instructions received from Lessee, provided that: (x) Lessee, Sublessee or Guarantor on or before the date the - -------- Indemnitee executes a settlement or compromise pays the contested Imposition to the extent agreed upon or makes an indemnification payment to the Indemnitee in an amount acceptable to the Indemnitee; and (y) the settlement or compromise does not, in the reasonable opinion of the Indemnitee materially adversely affect the right of the Trustee to receive payment of Rent or the Lease Balance, or of a Certificate Holder to receive payments on the Certificates, or involve a material risk of sale, forfeiture or loss of any of the Equipment or any interest therein or materially adversely affect the security interests created by the 35 Master Lease. The failure of an Indemnitee to timely contest a claim against it for any Imposition which is subject to indemnification under Section 8.1 and for ----------- which it has an obligation to Lessee to contest under this Section 8.2 in the ----------- manner required by applicable law or regulations where Lessee has timely requested that such Indemnitee contest such claim shall relieve Lessee, Sublessee and Guarantor of their obligations to such Indemnitee under Section ------- 8.1 with respect to such claim only to the extent such failure results in the - --- loss of an effective contest. Section 8.3 Gross Up. If an Indemnitee shall not be entitled to a -------- corresponding and equal deduction with respect to any Imposition which Lessee is required to pay or reimburse under Section 8.1 or 8.2 and which payment or ----------- --- reimbursement constitutes income to such Indemnitee, then Lessee shall also pay to such Indemnitee on demand the amount of such Imposition on a gross-up basis such that, after subtracting all Impositions imposed on such Indemnitee with respect to such payment by Lessee (including any Impositions otherwise excluded by Section 8.1 and assuming for this purpose that such Indemnitee was subject to ----------- taxation at the applicable Federal, state or local marginal rates used to compute such Indemnitee's tax return for the year in which such income is taxable) such Indemnitee shall be fully reimbursed for the Imposition with respect to which such Indemnitee is entitled to be paid or reimbursed. Section 8.4 Tax Returns. Except as otherwise provided in the third ----------- sentence below, Lessee shall prepare and file (whether or not it is a legal obligation of an Indemnitee) all tax returns or reports that may be required with respect to any Impositions assessed, charged or imposed on the Equipment, the Trust Estate or the Master Lease, including, but not limited to sales and use taxes, property taxes (ad valorem and real property) and any other tax or charge based upon the ownership, leasing, subleasing, rental, sale, purchase, possession, use, operation, delivery, return or other disposition of any of the Equipment or upon the rentals or the receipts therefrom (excluding, however, any tax based upon the net income of an Indemnitee or any tax which is in substitution for or relief of a tax imposed upon or measured by the net income of an Indemnitee). Lessee may notify in writing all applicable governmental authorities having jurisdiction with respect to personal property taxes that Lessee is the appropriate party for receiving notices of (or copies of, if such governmental authority is required by law to notify Trustee) assessment, appeal and payment with respect to the Equipment. If an Indemnitee is obligated by law to file any such reports or returns, then Lessee shall at least 10 days before the same are due prepare the same and forward them to the Indemnitee, as appropriate, with detailed instructions as to how to comply with all applicable filing requirements, together with funds in 36 the amount of any payment required pursuant thereto. The Indemnitee shall forward to Lessee at its address listed in Section 10.4 copies of all assessment ------------ and valuation notices it receives within 10 days of receipt; provided that -------- Indemnitee's failure to deliver on a timely basis such notices shall not relieve Lessee of any obligations hereunder. Section 8.5 Tax Character of Transaction. It is the intention of the ---------------------------- Participants that for Federal and state income tax purposes only: (a) The Lessee or a corporation that is a member of its affiliated group shall be treated as owner of the Equipment with the ability to claim depreciation on the Equipment and to deduct the interest component of the Rents; (b) The Rents payable to Trustee under the Master Lease constitute payments of interest and principal; and (c) The Trust will be treated as a grantor trust or as Lessee's agent. The Participants agree that neither they nor any corporation controlled by them, or under common control with them, directly or indirectly will at any time take any action or fail to take any action with respect to the filing of any income tax return, including an amended income tax return, inconsistent with the intention of the parties expressed in the preceding sentence. ARTICLE IX LIMITATIONS Section 9.1 Limitation of Liability of Trustee. It is expressly ---------------------------------- understood and agreed by and among the parties hereto that, except as otherwise provided herein or in the other Operative Agreements: (a) This Participation Agreement and the other Operative Agreements to which the Trustee is a party are executed by the Trustee, not in its individual capacity, but solely as Trustee under the Trust Agreement in the exercise of the power and authority conferred and vested in it as such Trustee; (b) Each and all of the undertakings and agreements herein made on the part of the Trustee are each and every one of them made and intended not as personal undertakings and agreements by the Trustee, or for the purpose or with the intention of binding the Trustee personally, but are made and intended for the purpose of binding only the Trust Estate unless expressly provided otherwise; (c) Actions to be taken by the Trustee pursuant to its obligations under the Operative Agreements may, in certain circumstances, be taken by the Trustee only upon specific authority of the Certificate Holders; (d) Nothing contained in the Operative Agreements shall be construed as creating any liability on the Trustee, individually or personally, or any incorporator or any past, present or future subscriber to the capital stock of, or stockholder, officer or director of, the Trustee to perform any covenants either express 37 or implied contained herein, all such liability, if any, being expressly waived by the other parties hereto and by any Person claiming by, through or under them; and (e) So far as the Trustee, individually or personally, is concerned, the other parties hereto and any Person claiming by, through or under them shall look solely to the Trust Estate for the performance of any obligation under any of the instruments referred to herein; provided, however, that nothing in this -------- ------- Section 9.1 shall be construed to limit in scope or substance the general - ----------- corporate liability of the Trustee in respect of its gross negligence or willful misconduct or its negligent handling of monies or those representations, warranties and covenants of the Trustee in its individual capacity set forth herein or in any of the other agreements contemplated hereby or for the consequences of its own acts or omissions in breach of the Trust Agreement or constituting bad faith. Section 9.2 Payments from Trust Estate. All payments of principal, Make- -------------------------- Whole Premium, if any, and interest or yield to be made by the Trustee pursuant to the Certificates shall be made only from the income and proceeds from the Trust Estate and only to the extent that the Trustee shall have sufficient income or proceeds from the Trust Estate to make such payments. ARTICLE X MISCELLANEOUS Section 10.1 Survival of Covenants. All claims pertaining to the --------------------- representations, warranties, covenants or indemnities of Lessee, Sublessee or Guarantor shall survive the termination of the Master Lease to the extent such claims arose out of events occurring or conditions existing prior to any such termination. SECTION 10.2 APPLICABLE LAW. THIS PARTICIPATION AGREEMENT SHALL BE -------------- GOVERNED BY AND CONSTRUED UNDER THE LAWS OF CALIFORNIA WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF. Section 10.3 Effect and Modification of Participation Agreement. No -------------------------------------------------- variation, modification, amendment or waiver of this Participation Agreement, including any Schedules or Exhibits hereto, or any other Operative Agreement to which Trustee is a party shall be valid unless in writing and signed by the Lessee and the Trustee with the consent of Certificate Holders pursuant to the Trust Agreement. No variation, modification, amendment or waiver of any Certificate shall be valid unless in writing and signed by Trustee with the consent of the registered holder of such Certificate. 38 Section 10.4 Notices. All notices, demands, declarations, consents, ------- directions, approvals, instructions, requests and other communications required or permitted by the terms hereof shall be in writing and shall be deemed to have been duly given when delivered personally, facsimilied (and confirmed, which confirmation may be mechanical) or otherwise actually received or 5 Business Days after being deposited in the United States mail certified, postage prepaid, addressed as follows: If to the Lessee: Grand Equipment, Inc. 3155 W. Harmon Avenue Las Vegas, Nevada 89103 Attention: K. Eugene Shutler, Esq. with a copy to: Christensen, White, Miller, Fink & Jacobs 2121 Avenue of the Stars 18th Floor Los Angeles, California 90067 Attention: Gary N. Jacobs, Esq. If to the Sublessee: MGM Grand Hotel, Inc. 3155 W. Harmon Avenue Las Vegas, Nevada 89103 Attention: K. Eugene Shutler, Esq. with a copy to: Christensen, White, Miller, Fink & Jacobs 2121 Avenue of the Stars 18th Floor Los Angeles, California 90067 Attention: Gary N. Jacobs, Esq. If to the Guarantor: MGM Grand, Inc. 3155 W. Harmon Avenue Las Vegas, Nevada 89103 Attention: K. Eugene Shutler, Esq. 39 with a copy to: Christensen, White, Miller, Fink & Jacobs 2121 Avenue of the Stars 18th Floor Los Angeles, California 90067 Attention: Gary N. Jacobs, Esq. If to the Trustee: Norwest Bank Minnesota, National Association Norwest Center Sixth & Marquette Minneapolis, MN 55479-0069 Attention: Corporate Trust Department If to the Certificate Purchasers, to their respective addresses set forth on Schedule I hereto; ---------- or at such other place in the United States as any such party may designate by notice given in accordance with this Section 10.4. ------------ Section 10.5 Transaction Costs. The Sublessee shall pay all Transaction ----------------- Costs whether or not the transactions contemplated hereby close including the Make-Whole Premium if notice of the Effective Date is sent by the Lessee and Sublessee but the transactions contemplated on the Effective Date under Article II do not close on such date. In addition, the Sublessee agrees to pay or reimburse the Indemnitees for all other out-of-pocket costs and expenses, including attorneys' fees (and the reasonable charges of in-house counsel), reasonably incurred in connection with: (a) Entering into, or the giving or withholding of, any future amendments, supplements, waivers or consents with respect to the Operative Agreements; (b) Any Casualty or termination of the Master Lease or any other Operative Agreements; (c) The negotiation and documentation of any restructuring or "workout," whether or not consummated, of any Operative Agreement; (d) The enforcement of the rights or remedies under the Operative Agreements; (e) Any transfer by an Indemnitee of any interest in the Master Lease or a Certificate during the continuance of an Event of Default; (f) The nonrecourse secured financing arrangement between First Security Bank of Utah, N.A. and The Industrial Bank of Japan, Limited, Los Angeles Agency with respect to a Class A-1 Certificate to be acquired pursuant to the terms hereof; (g) The release of Certificates of Deposit pledged pursuant to the Pledge Agreement; or (h) Any Delivery Date. 40 Section 10.6 Counterparts. This Participation Agreement may be executed ------------ in any number of counterparts and by different parties hereto on separate counterparts, each executed counterpart constituting an original but all together one agreement. Section 10.7 Severability. Whenever possible, each provision of this ------------ Participation Agreement shall be interpreted in such manner as to be effective and valid under applicable law; but if any provision of this Participation Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Participation Agreement. Section 10.8 Successors and Assigns. This Participation Agreement shall ---------------------- be binding upon the parties hereto and their respective successors and assigns, and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 10.9 Brokers. None of the Participants has engaged or authorized ------- any broker, finder, investment banker or other third party to act on its behalf, directly or indirectly, as a broker, finder, investment banker, agent or any other like capacity in connection with this Participation Agreement or the transactions contemplated hereby, except that Sublessee and its Affiliates have retained BofA as placement agent and BA Leasing & Capital Corporation as arranger in connection with the transaction contemplated hereby and the Sublessee shall be responsible for, and shall indemnify, defend, and hold the other Participants harmless from and against any and all claims, liabilities, or demands by BofA for fees or other entitlements with respect to the Master Lease or the transactions contemplated hereby. SECTION 10.10 JURY TRIAL. THE PARTICIPANTS WAIVE ANY RIGHT TO A TRIAL BY ---------- JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS PARTICIPATION AGREEMENT OR ANY OPERATIVE AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS PARTICIPATION AGREEMENT OR ANY OPERATIVE AGREEMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. Section 10.11 Captions; Table of Contents. Section captions and the table --------------------------- of contents used in this Participation Agreement (including the exhibits and schedules) are for convenience of reference only and shall not affect the construction of this Participation Agreement. 41 Section 10.12 FINAL AGREEMENT. THIS PARTICIPATION AGREEMENT, TOGETHER --------------- WITH THE OPERATIVE AGREEMENTS, REPRESENT THE ENTIRE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY AND THE OTHER OPERATIVE AGREEMENTS. THIS PARTICIPATION AGREEMENT CANNOT BE MODIFIED, SUPPLEMENTED, AMENDED, RESCINDED OR CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES, EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 10.13 No Third-Party Beneficiaries. Nothing in this Participation ---------------------------- Agreement or the other Operative Agreements shall be deemed to create any right in any Person not a party hereto or thereto (other than the permitted successors and assigns of the Certificate Purchasers, the Trustee, the Sublessee and the Guarantor), and such agreements shall not be construed in any respect to be a contract in whole or in part for the benefit of any third party except as aforesaid. Section 10.14 Further Assurances. Each Participant, at the expense of the ------------------ Sublessee, will promptly and duly execute and deliver all such documents and take such further action as may be necessary or appropriate in order to effect the intent or purpose of this Participation Agreement and the other Operative Agreements and to establish and protect the rights and remedies created or intended to be created in favor of the Trustee for the benefit of the Certificate Holders, including, without limitation, if requested by the Trustee at the expense of the Sublessee, the recording or filing of any Operative Agreement or any other document in accordance with the laws of the appropriate jurisdictions. Section 10.15 Reproduction of Documents. This Participation Agreement, ------------------------- all documents constituting Schedules or Exhibits hereto, and all documents relating hereto received by a party hereto, including, without limitation: (a) Consents, waivers and modifications that may hereafter be executed; (b) Documents received by the Certificate Holders in connection with the purchase of the Certificates; (c) Documents received by the Trustee in connection with the Trustee's receipt and/or acquisition of the Equipment; and (d) Financial statements, certificates, and other information previously or hereafter furnished to the Trustee or any Certificate Holder may be reproduced by the party receiving the same by any photographic, photostatic, microfilm, micro- card, miniature photographic or other similar process. Each of the Participants agrees and stipulates that, to the extent permitted by law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such 42 reproduction was made by such party in the regular course of business) and that, to the extent permitted by law, any enlargement, facsimile, or further reproduction of such reproduction shall likewise be admissible in evidence. Section 10.16 Consideration for Consents to Waivers and Amendments. Each ---------------------------------------------------- of the Lessee, the Sublessee and the Guarantor hereby jointly and severally agrees that it will not, and that it will not permit any of its Affiliates to, offer or give any consideration or benefit of any kind whatsoever to any Certificate Holder in connection with, in exchange for, or as an inducement to, such Certificate Holder's consent to any waiver in respect of, any modification or amendment of, any supplement to, or any other consent or approval under, any Operative Agreement unless such consideration or benefit is offered ratably to all Certificate Holders. Section 10.17 Submission to Jurisdiction. The Trustee and the Certificate -------------------------- Holders may bring suit to enforce any claim arising out of the Operative Agreements in any state or Federal court located in Los Angeles, California having subject matter jurisdiction, and with respect to any such claim, the Lessee, the Sublessee and the Guarantor hereby irrevocably: (a) Submits to the jurisdiction of such courts; and (b) Consents to the service of process out of said courts by mailing a copy thereof, by registered mail, postage prepaid, to the Lessee, the Sublessee or the Guarantor at their respective addresses specified in this Participation Agreement, and agrees that such service, to the fullest extent permitted by law: (i) Shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding; and (ii) Shall be taken and held to be valid personal service upon and personal delivery to it. Each of the Lessee, the Sublessee and the Guarantor irrevocably waives, to the fullest extent permitted by law: (A) Any claim, or any objection, that it now or hereafter may have, that venue is not proper with respect to any such suit, action or proceeding brought in such a court located in Los Angeles, California, including, without limitation, any claim that any such suit, action or proceeding brought in such court has been brought in an inconvenient forum; and (B) any claim that any of the Lessee, the Sublessee or the Guarantor is not subject to personal jurisdiction or service of process in such forum. Nothing herein contained shall preclude any Participant from bringing an action or proceeding in respect hereof in any other state or federal court within the United States having subject matter jurisdiction with respect to such action and personal jurisdiction over the parties to such action. The Lessee, the Sublessee and the Guarantor agree that a final judgment in any action or proceeding in a state or Federal court within the United States may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. 43 IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed and delivered as of the date first above written. MGM Grand Hotel, Inc. By: /s/ Joseph T. Murphy -------------------------- Name Printed: Joseph T. Murphy Title: Secretary-Treasurer Grand Equipment, Inc. By: /s/ Joseph T. Murphy -------------------------- Name Printed: Joseph T. Murphy Title: Chief Financial Officer and Treasurer MGM Grand, Inc. By: /s/ Joseph T. Murphy -------------------------- Name Printed: Joseph T. Murphy Title: Vice President and Chief Financial Officer Norwest Bank Minnesota, National Association, not in its individual capacity, except as expressly provided herein, but solely as Trustee under the Trust Agreement By: /s/ Carter Dreblow ------------------------ Name Printed: Carter Dreblow Title: Vice President Bank of Scotland, Grand Cayman By: /s/ Cathy Oniffrey ------------------------ Name Printed: Cathy Oniffrey Title: Vice President 44 Heller Financial, Inc. By: /s/ Marti A. MacInnes --------------------------- Name Printed: Marti A. MacInnes Title: Senior Vice President First Security Bank of Utah, N.A., not in its individual capacity, but solely as Trustee under the MGM Trust No. 2 By: /s/ Greg Hawley --------------------------- Name Printed: Greg Hawley Title: Assistant Vice President Mitsui Leasing (U.S.A.) Inc. By: /s/ Seiji Sano -------------------- Name Printed: Seiji Sano Title: President BA Leasing & Capital Corporation By: /s/ Sara L. Fitch ----------------------- Name Printed: Sara L. Fitch Title: Vice President Sun Life Insurance Company of America By: /s/ Michael J. Campbell ----------------------------- Name Printed: Michael J. Campbell Title: Authorized Agent SCHEDULE I TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) COMMITMENTS OF CERTIFICATE PURCHASERS
DESCRIPTION OF CERTIFICATE PURCHASER CERTIFICATES CLASS A-1 CERTIFICATES 1. Bank of Scotland, Grand Cayman Principal Amount: $10,000,000 380 Madison Avenue New York, NY 10017 Average Life: 3.384 years Wire Transfer Instructions: Total Maturity: 5.0 years 2. Heller Financial, Inc. Principal Amount: $5,000,000 One Montgomery Street Suite 2250 Final Maturity: 5.0 years San Francisco, CA 94104 Total Maturity: 5.0 years Wire Transfer Instructions: 3. First Security Bank of Utah, N.A., Principal Amount: $10,000,000 not in its individual capacity, but solely as Trustee under MGM Trust No. 2 Average Life: 1.680 years Corporate Trust Department 79 South Main Street Total Maturity: 3.0 years Salt Lake City, Utah 84111 Wire Transfer Instructions:
4. Mitsui Leasing (U.S.A.) Inc. Principal Amount: $10,000,000 200 Park Avenue Suite 3214 Average Life: 3.384 years New York, NY 10166 Total Maturity: 5.0 years Wire Transfer Instructions: TOTAL CLASS A-1 CERTIFICATES $35,000,000 CLASS A-2 CERTIFICATES 1. BA Leasing & Capital Corporation Principal Amount: $2,280,000 Four Embarcadero Center 12th Floor Final Maturity: 5.0 years San Francisco, CA 94111 Total Maturity: 5.0 years Wire Transfer Instructions: 2. Sun Life Insurance Company of America Principal Amount: $2,633,366 1 Sun America Center 38th Floor Average Life: 1.680 years Los Angeles, CA 90067 Total Maturity: 3.0 years Wire Transfer Instructions: TOTAL CLASS A-2 CERTIFICATES $4,913,366 CLASS A-3 CERTIFICATES 1. Sun Life Insurance Company of America Principal Amount: $6,646,634 1 Sun America Center 38th Floor Average Life: 4.018 years Los Angeles, CA 90067 Total Maturity: 5.0 years TOTAL CLASS A-3 CERTIFICATES $6,646,634 TOTAL CLASS A CERTIFICATES $46,560,000
2
CLASS B CERTIFICATES 1. BA Leasing & Capital Corporation Principal Amount: $720,000 Four Embarcadero Center 12th Floor Average Life: 5.0 years San Francisco, CA 94111 Total Maturity: 5.0 years Wire Transfer Instructions: 2. Sun Life Insurance Company of America Principal Amount: $720,000 1 Sun America Center Average Life: 5.0 years 38th Floor Los Angeles, CA 90067 Total Maturity: 5.0 years Wire Transfer Instructions: TOTAL CLASS B CERTIFICATES $1,440,000 TOTAL CERTIFICATES $48,000,000
3 SCHEDULE X TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) DEFINITIONS The following terms shall have the following meanings for all purposes, and such meanings shall be equally applicable both to the singular and plural forms of the terms defined. Any agreement, document or instrument defined or referred to in this Schedule X shall include each amendment, modification or supplement ---------- thereto, including each waiver and consent that may (pursuant to the Operative Agreements) be effective from time to time, except as otherwise expressly indicated. The definition of any Person herein shall include its successors and permitted assigns. References to Schedules in this Schedule X shall mean ---------- Schedules attached to the Participation Agreement, except as otherwise indicated. "Actual Knowledge" with respect to any Person shall mean the actual ---------------- knowledge of a Responsible Officer of such Person and shall include receipt of a notice of a fact by any such Person. "Adjusted Proceeds" shall mean an amount equal to the Proceeds, but in no ----------------- event more than the amount by which (i) the Lease Balance, any Make-Whole Premium in respect of all of the Certificates and any other amounts then due and payable under the Operative Agreements exceeds (ii) the Total Recourse Amount. "Affiliate(s)" of any Person shall mean any other Person that directly or ------------ indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such Person. No Person shall be considered an Affiliate of the Trustee unless such Person directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, the Trustee solely in its capacity as trustee under the Trust Agreement. "Applicable Percentage" shall mean with respect to the end of the Master --------------------- Lease Term and each Renewal Term, the percentage set forth opposite such date on - ---------- "Applicable Percentage Amount" shall mean an amount equal to the product of ---------------------------- the Applicable Percentage and the total Purchase Price of the Equipment subject to the Master Lease at the determination date. 1 "Appraisal" shall mean the appraisal of the Equipment from the Appraiser --------- dated as of November 9, 1993. "Appraiser" shall mean Valuation Counselors Group, Inc. or such other --------- Person as is acceptable to the Certificate Purchasers. "Authority" shall mean any: (a) Federal, state, local or (if the Equipment --------- or any component thereof has been moved outside of the United States) foreign, tribunal, legislative body, governmental subdivision, administrative agency or other governmental authority; or (b) Arbitrator or panel of arbitrators, in the case of each of clause (a) and (b) having or exercising jurisdiction over the ---------- --- Lessee, the Sublessee, the Guarantor, the Trustee, or the Equipment (or any component thereof). "BofA" shall mean Bank of America National Trust and Savings Association, a ---- national banking association. "Base Period" shall have the meaning assigned to such term in Section 2.1 ----------- ----------- of the Master Lease. "Beneficiary" or "Beneficiaries" shall have the meaning assigned to such ----------- ------------- terms in Section 1 of the Guaranty. --------- "Business Day" shall mean any day on which Federal and state chartered ------------ banks in Nevada, Minnesota and California are open for commercial banking business. "Capital Stock" shall mean any and all shares, interests, participations, ------------- rights or other equivalents (however designated) of capital stock of a corporation, or any and all equivalent ownership interests in a Person (other than a corporation), including partnership interests. "Casualty" shall mean any of the following events in respect of each item -------- of Equipment: (a) The total loss of the item of Equipment, the total loss of use thereof due to theft, disappearance, destruction, damage beyond repair or rendition of the item of Equipment permanently unfit for normal use for any reason whatsoever; (b) Any damage to the item of Equipment which results in an insurance settlement with respect to the item of Equipment on the basis of a total loss; (c) The permanent condemnation, confiscation or seizure of, or requisition of title to or use of, the item of Equipment; or (d) As a result of any rule, regulation, order or other action by any Authority, the use of the item of Equipment in the normal course of the business of Lessee shall have been prohibited, directly or indirectly, for a period of 180 consecutive days, unless Lessee, prior to the expiration of such 180-day period, shall have undertaken and shall be diligently carrying forward all steps which are 2 necessary or desirable to permit the normal use of such item of Equipment by Lessee or, in any event, if use of such item of Equipment shall have been prohibited, directly or indirectly, for a period of 12 consecutive months. "Casualty Amount" shall mean, with respect to a Casualty, an amount equal --------------- to the product of (a) The Lease Balance on the date of such Casualty and (b) a fraction, the numerator of which is the portion of the aggregate Purchase Price allocable to the items of Equipment suffering such Casualty and the denominator of which is the aggregate Purchase Price of all of the Equipment then subject to the Master Lease. "Casualty Notice" shall have the meaning assigned to such term in Section --------------- ------- 6.1 of the Master Lease. - --- "Casualty Proceeds" shall have the meaning assigned to such term in Section ----------------- ------- 6.1(b) of the Master Lease. - ------ "Casualty Settlement Date" shall have the meaning assigned to such term in ------------------------- Section 6.1(a) of the Master Lease. - -------------- "CD Collateral" shall have the meaning assigned to such term in Section 1.1 ------------- ----------- of the Pledge Agreement. "Certificate Holders" shall mean the Certificate Purchasers and those ------------------- persons to whom the interests in the Trust Estate represented by the Certificates shall have been transferred or assigned from time to time in accordance with the provisions of the Trust Agreement. "Certificate of Acceptance" shall mean a certificate, substantially in the ------------------------- form of Exhibit G 2.2(b)(iv) to the Participation Agreement, with respect to -------------------- items of Equipment accepted under the Master Lease and Sublease. "Certificate of Conveyance" shall mean a certificate of conveyance ------------------------- substantially in the form of Exhibit G 2.2(b)(iii) to the Participation --------------------- Agreement to be delivered to the Trustee pursuant to the provisions of the Participation Agreement. "Certificate of Deposit" shall have the meaning assigned to such term in ---------------------- Section 1.1 of the Pledge Agreement. - ----------- "Certificate of Possession" shall mean a certificate, substantially in the ------------------------- form of Exhibit G 2.2(b)(v) to the Participation Agreement to be delivered to ------------------- the Trustee pursuant to the provisions of the Participation Agreement. "Certificate Participant" shall have the meaning assigned to such term in ----------------------- Section 4.2(g) of the Trust Agreement. - -------------- 3 "Certificate Purchasers" shall mean those institutions identified on ---------------------- Schedule I to the Participation Agreement. - ---------- "Certificate Register" shall have the meaning assigned to such term in -------------------- Section 4.2 of the Trust Agreement. - ----------- "Certificate(s)" shall mean one or more Class A-1 Certificates, Class A-2 -------------- Certificates, Class A-3 Certificates and/or Class B Certificates, whether issued at the Effective Date or thereafter. "Charges" shall mean freight, installation and applicable sales, use or ------- similar taxes imposed upon an item of Equipment. "Class A Certificate(s)" shall mean one or more Class A-1 Certificates, ---------------------- Class A-2 Certificates and/or Class A-3 Certificates, whether issued at the Effective Date or thereafter. "Class A-1 Certificate(s)" shall mean one or more Certificates designated ------------------------ as a "Class A-1 Certificate" and entitled to the rights of a Class A-1 Certificate under the Trust Agreement. "Class A-2 Certificate(s)" shall mean one or more Certificates designated ------------------------ as a "Class A-2 Certificate" and entitled to the rights of a Class A-2 Certificate under the Trust Agreement. "Class A-3 Certificate(s)" shall mean one or more Certificates designated ------------------------ as a "Class A-3 Certificate" and entitled to the rights of a Class A-3 Certificate under the Trust Agreement. "Class B Certificate(s)" shall mean one or more Certificates designated as ---------------------- a "Class B Certificate" and entitled to the rights of a Class B Certificate under the Trust Agreement. "Class I Equipment" shall have the meaning assigned to such term in Section ----------------- ------- 1.1 of the Master Lease. - --- "Class II Equipment" shall have the meaning assigned to such term in ------------------ Section 1.1 of the Master Lease. - ----------- "Closing" shall mean the completion of those transactions described in ------- Section 2.1 of the Participation Agreement. - ----------- "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- 4 "Collateral" shall mean: ---------- (a) The Equipment, whether or not a fixture; (b) The Intellectual Property Collateral; (c) All books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing; (d) All contracts necessary to purchase, operate and maintain the Equipment; (e) The Sublease; (f) The Deposit Account; (g) Any rights to a rebate, offset or other assignment under a purchase order, invoice or purchase agreement with any manufacturer of any item of Equipment; and (h) All products, accessions, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in clauses (a), (b), (c), (d), ------- - - - - (e) (f) and (g) above and, to the extent not otherwise included, all payments - - - under insurance (whether or not Lessor is the loss payee thereof),or any indemnity , warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). "Collaterally Assigned Documents" shall have the meaning assigned to such ------------------------------- term in the Indenture, which meaning shall survive any termination of the Indenture. "Commitment(s)" for each Certificate Purchaser shall mean the aggregate ------------- amount set forth in Schedule I to the Participation Agreement across from the ---------- name of such Certificate Purchaser for Certificates. "Computer Software Collateral" shall mean: ---------------------------- (a) All software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by Lessee, designed for use on any computers and electronic data processing hardware constituting part of the Equipment and necessary for the operation and maintenance of the Equipment; (b) All firmware associated therewith; 5 (c) All documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such hardware, software and firmware described in the preceding clauses (a) and (b); and ------- - - (d) All rights with respect to all of the foregoing, including, without limitation, any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. "Consolidated Adjusted Net Worth" shall mean, with respect to any ------------------------------- corporation, as of any date of determination, the total amount of common stockholders' equity (including Intercompany Debt (as such term is defined in the Indenture)) of such corporation and its Subsidiaries which would appear on the consolidated balance sheet of such corporation as of the date of determination, less (to the extent otherwise included therein) the following (the amount of such stockholders' equity and deductions therefrom to be computed, except as noted below, in accordance with GAAP): (i) an amount attributable to interests in Subsidiaries of such corporation held by Persons other than such corporation or its Subsidiaries; (ii) any reevaluation or other write-up, subsequent to March 31, 1992, in book value of assets, other than upon the acquisition of assets acquired in a transaction to be accounted for by purchase accounting under GAAP; (iii) treasury stock; and (iv) Disqualified Capital Stock of such corporation. "Corporate Trust Office" shall mean the principal corporate trust office of ---------------------- the Trustee, which office is, on the Effective Date, located at the address for the Trustee set forth in Section 10.4 of the Participation Agreement. ------------ "Deciding Interest of Residual Certificate Holders" shall mean holders of ------------------------------------------------- Class A-3 Certificates and Class B Certificates representing more than 66-2/3% of the total outstanding principal amount due and owing under all such Certificates at the time of giving the relevant instruction or taking of action. "Deed of Trust" shall mean that certain Deed of Trust, Assignment of Rents ------------- and Security Agreement dated as of May 13, 1992 among Sublessee, as trustor, Nevada Title Company, as trustee and Continental Bank, N.A., as beneficiary. "Delivery Date(s)" shall mean those dates, other than the Effective Date, ---------------- on which a Certificate of Acceptance is delivered to the Trustee pursuant to Section 3.1 of the Participation - ----------- 6 Agreement with respect to Equipment not subject to a Certificate of Possession. "Deposit Account" shall have the meaning assigned to such term in Section --------------- ------- 6.1(b) of the Master Lease. - ------ "Disqualified Capital Stock" shall mean, as applied to any Person, any -------------------------- Capital Stock or equity securities of such Person to the extent that such Capital Stock or equity security, by its terms or by the terms of any security into which it is on any determination date convertible or exchangeable, is, or upon the happening of an event would be, required to be repurchased, including at the option of the holder thereof, or has, or upon the happening of an event would have, a redemption or similar payment due, on or prior to May 1, 2002. "Document Closing Date" shall mean the date on which all of the --------------------- Participants execute the Participation Agreement. "Effective Date" shall have the meaning assigned to such term in Section -------------- ------- 2.1 of the Participation Agreement. - --- "Environmental Laws" shall mean all applicable Federal, state or local ------------------ statutes, laws, ordinances, codes, rules, regulations and orders (including consent decrees) relating to public health and safety and protection of the environment. "Equipment" shall mean those items of Equipment listed on Schedule I to the --------- ---------- Trust Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- amended. "Event of Default" shall have the meaning assigned to such term in Section ---------------- ------- 8.1 of the Master Lease. - --- "Fair Market Value" shall mean, with respect to the Equipment as of any ----------------- date, the fair market value of the Equipment as determined by an independent appraiser selected by Lessor for such date. "Fixed Price Purchase Option" shall have the meaning assigned to such term --------------------------- in Section 11.1(b) of the Master Lease. --------------- "Formula Yield" for each obligation shall mean, as of any date of ------------- determination, the yield to maturity implied by the sum of 1.0% plus (A) the ---- yields reported, as of 10:00 A.M. (New York City time) on the Business Day immediately preceding the Termination Date, on the display designated as "Page T 500," on the Telerate Service (or such other display as may replace "Page T 500" on the Telerate Service) for actively traded U.S. 7 Treasury securities having a maturity equal to the remaining scheduled term, including the two Renewal Terms, of the Master Lease or (B) if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, the Treasury Constant Maturity Series yields reported for the latest day for which such yields shall have been so reported as of the Business Day immediately preceding the Termination Date, in Federal Reserve Statistical Release H.15(519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the remaining scheduled term, including the two Renewal Terms, of the Master Lease. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (b) by interpolating linearly between reported yields. If no maturity exactly corresponds to the remaining term, including the two Renewal Terms, of the Master Lease, yields for the greater and for the lesser published maturities most closely corresponding to the remaining term, including the two Renewal Terms, of the Master Lease shall be calculated pursuant to the immediately preceding sentence and the Formula Yield shall be interpolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. "GAAP" shall mean generally accepted accounting principles as in effect in ---- the United States. "Gaming Control Act" shall mean the Nevada Gaming Control Act, as from time ------------------ to time amended, or any successor provision of law, and the regulations promulgated thereunder. "Gaming Permits" shall mean every license, franchise, permit or other -------------- authorization required on the date of the Participation Agreement or thereafter to own, lease, operate or otherwise conduct casino gaming at the Hotel, including, without limitation, all such licenses granted under the Gaming Control Act, the regulations of the Nevada Gaming Authorities and other applicable laws. "Grantor" shall mean the Lessee. ------- "Guarantor" shall mean MGM Grand, Inc., a Delaware corporation. --------- "Guaranty" shall mean the Guaranty, dated as of the Effective Date, -------- provided to the Trustee for the benefit of the Certificate Holders by the Guarantor, as the same may be modified, amended or supplemented from time to time pursuant to the applicable provisions thereof. 8 "Hotel" shall mean the improvements to be known as the MGM Grand ----- Hotel/Casino and Theme Park to be located on real property in Las Vegas, Nevada, which improvements consist of approximately 5,000 rooms (including suites), a parking structure for approximately 4,800 cars, an approximately 170,000 square foot casino (including approximately 3,500 slot machines, 150 table games, as well as keno, poker and a race and sports book), an approximately 215,000 square foot special events arena for sporting events, concerts and conventions, an approximately 2,000 seat capacity ballroom, restaurants, shops, a spa and health club, an approximately 31,000 square foot entertainment area featuring carnival games of skill, and an approximately 33-acre theme park accessible from the MGM Grand Hotel via a walkway leading to the theme park entrance. "Impositions" shall mean all fees (including, but not limited to, license, ----------- documentation, recording or registration fees) and taxes (including but not limited to all income, sales, use, lease, sublease, gross receipts, personal property, occupational, value added or other taxes, levies, imposts, duties, assessments, charges or withholdings of any nature whatsoever), together with any penalties, fines or additions to tax or interest thereon. "Income Tax Indemnity" shall have the meaning assigned to such term in -------------------- Section 8.1 of the Participation Agreement. - ----------- "Indemnitee(s)" shall mean the Trustee in both its individual and trustee ------------- capacity, the Trust Estate, the Certificate Holders, Settlor, any trustee or settlor of a Certificate Holder, The Industrial Bank of Japan, Limited, Los Angeles Agency in its capacity as a nonrecourse lender to a Class A-1 Certificate Purchaser, any Affiliate of any of them and any assign, officer, director, employee or agent of any of them. "Indenture" shall mean that certain Indenture dated as of May 1, 1992 among --------- MGM Finance, as issuer, Guarantor, as guarantor, Sublessee and U.S. Trust Company of California, N.A., as trustee. "Independent Financial Advisor" shall mean an accounting, appraisal or ----------------------------- investment banking firm of nationally recognized standing that is, in the reasonable judgement of the board of directors of Guarantor, (i) qualified to perform the task for which it has been engaged, and (ii) disinterested and independent insofar as it relates to such engagement with respect to Guarantor, all of its Subsidiaries, and each Affiliate of Guarantor and/or its Subsidiaries. "Insolvency Default" shall have the meaning assigned to such term in ------------------ Section 6.1 of the Trust Agreement. - ----------- 9 "Insolvency Events" shall mean any event pursuant to which Lessee makes an ----------------- assignment for the benefit of creditors, files a petition in bankruptcy, petitions or applies to any tribunal for the appointment of a custodian, receiver or any trustee for it or for a substantial part of its property, commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now of hereafter in effect, consents or acquiesces in the filing of any such petition, application, proceeding or appointment of or taking possession by the custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Lessee or any substantial part of its property, or admits its inability to pay its debts generally as they become due or authorizes any of the foregoing to be done or taken on behalf of the Lessee. "Intellectual Property Collateral" shall mean all Computer Software -------------------------------- Collateral, all copyrights, whether statutory or common law, registered or unregistered, and all applications therefore, all trademarks and trade names, all common law and statutory trade secrets and all other confidential or proprietary information, but only to the extent in each case necessary to operate and maintain the Equipment, and all know-how (which know-how is used in connection with the Equipment). "Intercreditor Agreement" shall mean the Intercreditor Agreement dated as ----------------------- of the Effective Date between Trustee and BofA. "Interim Period" shall have the meaning assigned to such term in Section -------------- ------- 2.1 of the Master Lease. - --- "IRS" shall mean the Internal Revenue Service. --- "Issuer" shall mean BofA as the issuer of the Letter of Credit. ------ "Items of Equipment" shall have the meaning assigned to such term in the ------------------ Certificate of Conveyance. "Lease Balance" shall mean, as of the date of determination, the aggregate ------------- unpaid principal amount on all outstanding Certificates as of such date. "Lease Commencement Date" shall have the meaning assigned to such term in ----------------------- Section 2.2 of the Master Lease. - ----------- "Lease Default" shall mean an Event of Default. ------------- "Lending Documents" shall mean (i) the Trust Agreement dated as of November ----------------- 9, 1993 between Settlor, as settlor, and First 10 Security Bank of Utah, N.A., as trustee, (ii) the Note and Pledge Agreement made by First Security Bank of Utah, N.A., as trustee in favor of The Industrial Bank of Japan, Limited, Los Angeles Agency, and (iii) the Designee Letter from Settlor to First Security Bank of Utah, N.A. "Lessee" shall mean Grand Equipment, Inc., a Delaware corporation. ------ "Lessor" shall mean the Trustee, not in its individual capacity, but solely ------ in its capacity as trustee under the Trust Agreement. "Lessor Liens" shall mean Liens or other conveyances resulting from any act ------------ of or claim against the Trustee in its individual capacity (or any Person claiming by, through or under the Trustee in its individual capacity), in each case arising out of any event or condition not related to the exercise of such Person's rights or the performance of its duties expressly provided under any Operative Agreement. "Letter of Credit" shall mean that letter of credit substantially in the ---------------- form of Exhibit F to the Participation Agreement issued by BofA and delivered to --------- the Trustee on the Effective Date. "License Agreement" shall mean the revocable License Agreement, dated as of ----------------- the Effective Date, between Sublessee, as licensor, and MGM Grand Movieworld, Inc., as licensee. "Lien" shall mean: (a) Any interest in property securing an obligation ---- owed to, or claimed by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including, without limitation, any judgment lien, security interest, mortgage, encumbrance, pledge, conditional sale, right of distraint or trust receipt or a lease, consignment or bailment for security purposes; or (b) Any reservation, exception, encroachment, easement, right-of-way, covenant, condition, restriction, lease or other title exception or defect, cloud on title or encumbrance affecting property. "Majority of Instructing Certificate Holders" shall mean holders of ------------------------------------------- Certificates representing more than 50% of the total outstanding principal amount due and owing under all such Certificates which, at the time of giving the relevant instruction or taking of action, have instructed the Trustee to accelerate all of the Certificates under Section 6.1 of the Trust Agreement. ----------- 11 "Make-Whole Premium" shall mean the aggregate amount determined pursuant to ------------------ Section 4.6(c) of the Trust Agreement in respect of all of the then outstanding - -------------- Certificates. "Management Agreement" shall mean the Management Agreement dated as of May -------------------- 13, 1992 between Guarantor and Sublessee. "Mandatory Parts" shall have the meaning assigned to such term in Section --------------- ------- 5.5 of the Master Lease. - --- "Manufacturers" shall mean those manufacturers of items of Equipment listed ------------- in Schedule I to the Purchase Order Assignment. ---------- "Master Lease" shall mean that certain Master Lease, dated as of the ------------ Effective Date, by and between the Trustee, as lessor and Lessee, as lessee. "Master Lease Term" shall have the meaning assigned to such term in Section ----------------- ------- 2.1 of the Master Lease. - --- "Material Adverse Effect" shall mean a material adverse change in, or a ----------------------- material adverse effect upon, any of (a) the operations, business, properties, condition (financial or otherwise) or prospects of Lessee, Sublessee or Guarantor; (b) the ability of Lessee, Sublessee or Guarantor to perform their obligations under any Operative Agreement; (c) the legality, validity, binding effect or enforceability of any Operative Agreement; or (d) the perfection or priority of any Lien granted to the Trustee for the benefit of the Certificate Holders under any Operative Agreement. "Merger" shall mean a transaction described in Section 6.2(a)(ii)(A) of the ------ --------------------- Participation Agreement. "MGM Credit Agreement" shall mean that certain Credit Agreement, dated as -------------------- of May 13, 1992, among MGM Finance, Sublessee and Bank of America National Trust and Savings Association, as agent and lender. "MGM Finance" shall mean MGM Grand Hotel Finance Corp., a Nevada ----------- corporation. "MGM Trust No. 2" shall mean the trust designated "MGM Trust No. 2" and --------------- created pursuant to the Trust Agreement dated as of November 9, 1993 between First Security Bank of Utah, N.A., as trustee, and Settlor, as settlor. "Multiemployer Plan" shall have the meaning assigned to the term ------------------ "multiemployer plan" in Section 3(37) of ERISA. 12 "Nevada Gaming Authorities" shall mean, without limitation, the Nevada ------------------------- Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board and any other applicable governmental or administrative state or local agency involved in the regulation of gaming and gaming activities in the State of Nevada. "Notice of Partial Casualty" shall be the notice given by Lessee to Lessor -------------------------- in accordance with Section 6.2 of the Master Lease and shall include: (a) A ----------- description of the item of Equipment suffering the Partial Casualty, (b) The Purchase Price of such item of Equipment; and (c): (x) A description of the remedial steps that Lessee will undertake (or cause to be undertaken) and the time-frame in which such steps will be accomplished to repair and rebuild such item of Equipment; or (y) if the item of Equipment is to be replaced, a description of the Replacement Item and its Purchase Price. "Obligation" shall have the meaning assigned to such term in Section 1 of ---------- --------- the Guaranty. "Officer's Certificate" shall mean a certificate executed on behalf of any --------------------- entity by its President, one of its Vice Presidents, its Chief Financial Officer, its Treasurer, its Assistant Treasurer or its Controller. "Operative Agreement(s)" shall mean the Participation Agreement, the Trust ---------------------- Agreement, the Certificates, the Master Lease, the Sublease, the License Agreement, the Sublease Assignment, the Guaranty, the Intercreditor Agreement, the Letter of Credit, the Reimbursement Agreement, the Pledge Agreement, the Purchase Order Assignment, the Certificate of Conveyance, the Certificate of Possession and the Certificate of Acceptance. "Partial Casualty" shall mean any loss, damage, destruction, taking by ---------------- eminent domain, loss of use or theft of any portion of an item of Equipment which does not constitute a Casualty. "Partial Casualty Proceeds" shall mean all payments from any Authority or ------------------------- other Person, and all proceeds of any insurance, which are received as a result of a Partial Casualty. "Participant(s)" shall mean any or all of the parties to the Participation -------------- Agreement including, without limitation, the Trustee in both its individual and trustee capacity, and the successors and assigns thereof. "Participation Agreement" shall mean the Participation Agreement, dated as ----------------------- of November 9, 1993, entered into among the Sublessee, the Lessee, the Guarantor, the Certificate Purchasers and the Trustee, as the same may be modified, amended or 13 supplemented from time to time pursuant to the applicable provisions thereof. "Part(s)" shall mean all appliances, parts, instruments, appurtenances, ------- accessories, furnishings and other equipment of whatever nature that may from time to time be incorporated or installed in or attached to any item of Equipment. "Payment Default" shall have the meaning assigned to such term in Section --------------- ------- 6.1 of the Indenture. - --- "PBGC" shall mean the Pension Benefit Guaranty Corporation. ---- "Pension Plan" shall mean, with respect to any Person, a "pension plan" as ------------ such term is defined in section 3(2) of ERISA which is subject to Title IV of ERISA and to which such Person may have any liability or contingent liability, including, but not limited to, liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason or being deemed to be a contributing sponsor under section 4069 of ERISA. "Permitted Contest" shall mean actions taken by a Person to contest in good ----------------- faith, by appropriate proceedings initiated timely and diligently prosecuted, the legality, validity or applicability to the Equipment or any interest therein of any Person of: (a) Any law, regulation, rule, judgment, order, or other legal provision or judicial or administrative requirements; (b) Any term or condition of, or any revocation or amendment of, or other proceeding relating to, any authorization or other consent, approval or other action by any Authority; or (c) Any Lien; provided that the initiation and prosecution of such contest would not: (i) Result in, or materially increase the risk of, the imposition of any criminal liability on any Indemnitee; (ii) materially and adversely affect the right, title or interest of the Trustee or the Certificate Holder in or to any of the Equipment or any interest therein; or (iii) materially and adversely affect the fair market value, utility or remaining useful life of the Equipment or any interest therein or the continued economic operation thereof; and provided further than in any event adequate reserves in accordance with generally accepted accounting principles are maintained against any adverse determination of such contest. "Permitted Lessor Liens" shall mean Lessor Liens: (a) For Taxes of the ---------------------- Trustee either not yet due or being challenged by a Permitted Contest; (b) Arising out of judgments or awards against the Trustee with respect to which at the time an appeal or proceeding for review is being prosecuted by a Permitted Contest; and (c) Arising out of Liens arising in the ordinary course of business of the Trustee for amounts the payment of which is 14 either not delinquent or is being contested by a Permitted Contest. "Permitted Liens" shall mean: (i) Any rights in favor of Lessor under the --------------- Operative Agreements and any rights of any persons entitled to use of the Collateral in accordance with Section 5.2 of the Master Lease; (ii) any Lien, ----------- (including, without limitation, liens of landlords, carriers, warehousemen, mechanics or materialmen) in favor of any Person securing payment of the price of goods or services provided in the ordinary course of business for amounts the payment of which is not overdue or is being contested in good faith by appropriate proceedings promptly initiated and diligently prosecuted, so long as such proceedings do not involve any reasonable danger of sale, forfeiture or loss of all or any material part of the Collateral and do not materially adversely affect any lien created in favor of Lessor under the Lease; (iii) any Lien arising out of any act of, or any failure to act by, or any claim (including any claim for taxes) against, Lessor which is unrelated to the transactions contemplated by the Lease or any lien arising out of any breach by Lessor of its obligations under the Operative Agreements; (iv) any Lien for current taxes, assessments or other governmental charges which are not delinquent or the validity of which is being contested in good faith by appropriate proceedings promptly initiated and diligently prosecuted so long as such proceedings do not involve any reasonable danger of sale, forfeiture or loss of all or any material part of the Collateral and do not materially adversely affect any lien in favor of Lessor under the Lease; (v) attachments, judgments and other similar liens arising in connection with court proceedings, provided the execution or other enforcement of such liens is effectively stayed - -------- and the claims secured hereby are being contested in good faith and by appropriate proceedings; (vi) reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, zoning and land use restrictions and other similar title exceptions or encumbrances affecting real property that were not incurred in connection with the incurrence of indebtedness, so long as such liens do not involve a reasonable danger of sale, forfeiture or loss of all or any material portion of the Collateral and do not materially adversely affect any lien created in favor of Lessor under the Lease; (vii) any lien incurred in the ordinary course of business to secure performance of statutory obligations; and (viii) Purchase Money Security Interests. "Person" shall mean any individual, partnership, corporation, trust, ------ unincorporated association or joint venture, a government or any department or agency thereof or any other legal entity. 15 "Plan" shall mean an "employee benefit plan" as defined in section 3(3) of ---- ERISA. "Pledge Agreement" shall mean the Pledge Agreement, dated as of the ---------------- Effective Date, made by Pledgor in favor of Trustee, as the same may be modified, amended or supplemented from time to time pursuant to the applicable provisions thereof. "Pledge Certification" shall have the meaning assigned to such term in -------------------- Section 3.2 of the Participation Agreement. - ----------- "Pledgor" shall have the meaning assigned to such term in the preamble to ------- the Pledge Agreement. "Proceeds" shall have the meaning assigned to such term in Section 11.1(c) -------- --------------- of the Master Lease. "Purchase Agreement" shall mean those contracts to acquire items of ------------------ Equipment listed in Schedule I to the Purchase Order Assignment. ---------- "Purchase Money Security Interests" shall mean indebtedness of any Person --------------------------------- incurred prior to the Effective Date issued to finance the purchase, in whole or in part, of Equipment or any interest therein, which indebtedness is secured by a Lien against one or more items of Equipment, and which is described on Schedule IV to the Participation Agreement; in no event shall the total amount of the Lien of any such Person against one or more items of Equipment exceed the amount set forth with respect of such item or items on Schedule IV to the Participation Agreement. "Purchase Option Exercise Amount" shall mean on the last day of the Master ------------------------------- Lease Term and any Renewal Term the sum of (a) the applicable Make-Whole Premium (other than on the last day of the second Renewal Term), (b) the Lease Balance and (c) all other amounts then due and payable under the Operative Agreements. "Purchase Order Assignment" shall mean an assignment substantially in the ------------------------- form of Exhibit G 2.2 (b)(i) to the Participation Agreement with respect to -------------------- Equipment. "Purchase Price" for any item of Equipment shall mean the invoice price for -------------- such item of Equipment plus any Charges fairly attributable thereto and not otherwise included in the invoice price. "Recourse Deficiency Amount" shall mean, with respect to the exercise of -------------------------- the Sale Option, the difference between (i) the Purchase Option Exercise Amount at the end of any Renewal Term in which such Sale Option was elected and (ii) 13.374% of the Fair Market Value of the Equipment as of the first day of the first 16 Renewal Term and 12.768% of the Fair Market Value of the Equipment as of the first day of the second Renewal Term. "Reimbursement Agreement" shall mean that certain Letter of Credit and ----------------------- Reimbursement Agreement dated as of the Effective Date between Guarantor, as account party, and BofA. "Related Person" shall mean, with respect to any person, any trade or -------------- business (whether or not incorporated) which, together with such person, is under common control as described in Section 414 of the Code. "Release of Lien" shall mean a release of the lien described in Section --------------- ------- 2.2(b)(ii) of the Participation Agreement. - ---------- "Removable Part" shall have the meaning assigned to such term in Section -------------- ------- 5.5(a) of the Master Lease. - ------ "Renewal Option" shall have the meaning assigned to such term in Section -------------- 11.1(a) of the Master Lease. "Renewal Term" shall have the meaning assigned to such term in Section 3.1 ------------ ----------- of the Master Lease. "Rent" shall have the meaning assigned to such term in Section 3.1 of the ---- ----------- Master Lease. "Replacement Item" shall mean the item of Equipment which will replace an ---------------- item of Equipment as specified in a Replacement Notice. "Replacement Notice" shall mean a notice provided by the Lessee pursuant to ------------------ Section 4.3 of the Participation Agreement. - ----------- "Replacement Part" shall have the meaning assigned to such term in Section ---------------- ------- 5.4(a) of the Master Lease. - ------ "Reportable Event" shall mean a "reportable event" described in Section ---------------- 4043(b) of ERISA and the regulations thereunder. "Required Certificate Holders" shall mean the holders of Certificates ---------------------------- representing more than 50% of the total outstanding principal amount due and owing under all such Certificates at the time of giving the relevant instruction or taking of action. "Responsible Officer" of any Person shall mean: (i) In the case of any ------------------- business corporation, the chairman of the board of directors of such corporation if such chairman is an officer of such corporation, the president, any vice president or any assistant vice president of such corporation, the secretary or any assistant secretary of such corporation or the treasurer or 17 any assistant treasurer of such corporation; (ii) in the case of any partnership, a general partner (if such general partner is an individual), or a Responsible Officer of a corporate general partner, of such partnership or the general manager of such partnership or any assistant general manager of such partnership; (iii) in the case of any commercial bank or trust company, the chairman or vice chairman of the board of directors or trustees of such bank or trust company, the chairman or vice chairman of the executive committee of the board of directors or trustees of such bank or trust company, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or any assistant trust officer of such bank or trust company, the controller or any assistant controller of such bank or trust company, any executive or senior or assistant or second vice president of such bank or trust company or any other individual who is employed by such bank or trust company and customarily performs functions similar to those performed by any of the other officers of such bank or trust company referred to herein; and (iv) in the case of the Trustee, any officer within the corporate trust department (or any successor group) of the Trustee, including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at that time shall be such officers, and also means, with respect to a particular corporate trust matter, any other officer of the corporate trust department (or any successor group) of the Trustee to whom such trust matter is referred because of his knowledge of and familiarity with the particular trust matter. "Sale Option" shall have the meaning assigned to such term in Section ----------- ------- 11.1(c) of the Master Lease. - ------- "Schedule X" shall mean this Schedule to the Participation Agreement. ---------- "Secured Lenders' Agent" shall have the meaning assigned to such term in ---------------------- the Indenture, which meaning shall survive any termination of the Indenture. "Seller" shall have the meaning assigned to such term in the Certificate of ------ Conveyance. "Settlor" shall mean Security Pacific Leasing Corporation in its capacity ------- as settlor under MGM Trust No. 2. "Stated Amount" shall have the meaning assigned to such term in the Letter ------------- of Credit. 18 "Sublease" shall mean that certain Sublease, dated as of the Effective -------- Date, by and between the Lessee, as sublessor and Sublessee, as sublessee as the same may be modified, amended or supplemented from time to time pursuant to the applicable provisions thereof. "Sublease Assignment" shall mean the assignment of the Sublease to the ------------------- Trustee substantially in the form of Exhibit G 2.2(b)(vi) to the Participation -------------------- Agreement. "Sublease Grant" shall have the meaning assigned to such term in Section -------------- ------- 5.2 of the Master Lease. - --- "Sublessee" shall mean MGM Grand Hotel, Inc., a Nevada corporation. --------- "Subsidiary" shall mean any corporation, association, partnership, joint ---------- venture or other business entity more than 50% (by number of votes) of the stock of any class or classes (or equivalent interests) of which is at the time owned by the Lessee, Sublessee or Guarantor or by one or more Subsidiaries of the Lessee, Sublessee or Guarantor or by the Lessee, Sublessee or Guarantor and one or more Subsidiaries of the Lessee, Sublessee or Guarantor, if the holders of the stock of such class or classes (or equivalent interest) (a) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or Persons performing similar functions) of such business entity, even though the right so to vote has been suspended by the happening of such a contingency, or (b) are at the time entitled, as such holders, to vote for the election of the majority of the directors (or Persons performing similar functions) of such business entity, whether or not the right so to vote exists by reason of the happening of a contingency. "Substituted Item" shall mean the item of Equipment to be released from the ---------------- Lease pursuant to a Replacement Notice. "Supplemental Trust Agreement" shall mean any supplement to the Trust ---------------------------- Agreement entered into in accordance with the provisions of the Trust Agreement. "Swap Agreement(s)" shall mean any interest rate swap agreement, interest ----------------- rate cap agreement and/or interest rate collar agreement entered into on or about the Effective Date by a Certificate Holder in respect of such Certificate Holder's Certificate or by The Industrial Bank of Japan, Limited, Los Angeles Agency in respect of the nonrecourse loan made to the MGM Trust No. 2. 19 "Tax Allocation Agreement" shall mean the Tax Sharing Agreement dated as of ------------------------ December 31, 1988 by and among Guarantor and the subsidiaries of Guarantor that are includable in the consolidated federal income tax return of Guarantor's consolidated group for the taxable year ended December 31, 1988, as such Tax Sharing Agreement has been amended from time to time, including without limitation pursuant to addenda executed by Sublessee and MGM Finance. "Termination Date" shall mean the date the Master Lease Term or Renewal ---------------- Term ends pursuant to Article VIII of the Master Lease relating to termination as a result of an Event of Default, Article X of the Master Lease relating to --------- early termination or Section 11.1 of the Master Lease relating to the exercise ------------ of the Fixed Price Purchase Option or Sale Option or the Casualty Settlement Date. "Termination of Construction Period" shall mean that date by which (a) a ---------------------------------- temporary certificate of occupancy has been issued for the Hotel by the Clark County, Nevada Building Department; (b) a Notice of Completion for the Hotel has been duly recorded; (c) all materialmen's claims, mechanics' liens or other Liens or claims for Liens directly related to the Equipment (other than Permitted Liens) have been paid or satisfactory provisions have been made for such payment; (d) an Officers' Certificate has been delivered to the Trustee certifying that substantially all guest rooms in the Hotel are open and available for hire by the public; (e) certificates have been delivered by the Lessee or Sublessee, the project architect(s) and the project manager(s), as appropriate, to the Trustee certifying that the Hotel has been substantially completed in accordance with the plans therefor and all applicable building laws, ordinances and regulations; and (f) the Hotel is in a condition (including installation of fixtures, furnishings and equipment) to receive guests in the ordinary course of business. For the purposes of the preceding sentence, satisfactory provision for payment of claims, Liens and claims for Liens shall be deemed to have been made if a bond, escrow or trust account for payment has been established with an independent third party satisfactory to the Trustee in an amount at least equal to the total of such outstanding claims, Liens and claims for Liens. "The Industrial Bank of Japan, Limited, Los Angeles Agency" shall mean the --------------------------------------------------------- Japanese corporation by such name which is making a nonrecourse loan secured by a Class A-1 Certificate to MGM Trust No. 2, a Certificate Purchaser. "Total Recourse Amount" shall have the meaning assigned to such term in --------------------- Section 11.1(c) of the Master Lease. - --------------- "Transaction Costs" shall mean ----------------- (i) the reasonable fees and expenses of Mayer, Brown & Platt; 20 (ii) the reasonable fees and expenses of BofA and BA Leasing & Capital Corporation, including the reasonable fees and expenses of their respective internal counsel; (iii) the reasonable fees of Coudert Brothers, not to exceed $15,000, and reasonable disbursements; (iv) the reasonable fees and expenses of Nagashima & Ohno; (v) the initial fees of the Trustee; (vi) all costs of searching and perfecting a first priority security interest in the Equipment; (vii) the placement fee of BofA; and (viii) the reasonable fees and expenses of Dorsey & Whitney. "Transfer" shall mean a transaction described in Section 6.2(a)(ii)(B) of -------- --------------------- the Participation Agreement. "Trust" shall have the meaning assigned to such term in Section 2.1 of the ----- ----------- Trust Agreement. "Trust Agreement" shall mean that Trust Agreement, dated as of the --------------- Effective Date, between Lessee, as grantor, and Trustee, as trustee creating the MGM Equipment Trust 1993-1 as the same may be modified, amended or supplemented from time to time pursuant to the applicable provisions thereof. "Trust Claim" shall have the meaning assigned to such term in Section 3.1 ----------- ----------- of the Trust Agreement. "Trust Estate" shall mean the estate created by the Trust Agreement and ------------ described in Section 2.4 thereof. ----------- "Trustee" shall mean Norwest Bank Minnesota, National Association, a ------- national banking association. "Trustee Indemnified Person" shall have the meaning assigned to such term -------------------------- in Section 3.1 of the Trust Agreement. ----------- "Uniform Customs" shall have the meaning assigned to such term in the ---------------- Letter of Credit. 21 "U.C.C." shall mean the Uniform Commercial Code, as in effect from time to ------ time in the State of Nevada. "Welfare Plan" shall mean, with respect to any Person, a "welfare plan" as ------------ such term is defined in section 3(1) of ERISA to which such Person or any Related Person to such Person may have any liability or contingent liability. 22 EXHIBIT A TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF TRUST AGREEMENT MGM Trust No. 2 TRUST AGREEMENT THIS TRUST AGREEMENT (this "Trust Agreement"), dated as of November 9, --------------- 1993, is between Security Pacific Leasing Corporation, a Delaware corporation ("Settlor"), and First Security Bank of Utah, National Association, a national - --------- banking association, not in its individual capacity, except as otherwise provided herein, but solely as trustee hereunder ("Trustee"). ------- R E C I T A L S: --------------- A. Pursuant to that certain Participation Agreement dated as of November 9, 1993 among MGM Grand Hotel, Inc., Grand Equipment, Inc., MGM Grand Inc., Norwest Bank Minnesota, National Association and the Persons listed on Schedule I thereto (the "Participation Agreement"), MGM Trust No. 2 (as more particularly ----------------------- described herein, the "Trust") will become the registered owner of a Class A-1 ----- Certificate (the "Certificate"). All capitalized terms used herein without ----------- definition shall have the meanings assigned to such terms in the Participation Agreement. B. The Industrial Bank of Japan, Limited, Los Angeles Agency (the "Trust ----- Lender") has agreed to make a nonrecourse secured loan (the "Loan") to the Trust - ------ ---- for the purpose of the acquisition by the Trust of the Certificate. C. To secure repayment of and as a condition precedent to the making of the Loan, the Trust shall pledge the Certificate to the Trust Lender. NOW, THEREFORE, in consideration of the mutual terms, conditions and covenants contained herein, the parties hereto agree as follows: ARTICLE I AUTHORITY TO EXECUTE AND PERFORM DOCUMENTS ------------------------------------------ Settlor hereby authorizes and directs Trustee, not in its individual capacity but solely on behalf of the Trust, except as otherwise expressly provided herein: (a) To execute and deliver a note and pledge agreement (the "Note and -------- Pledge Agreement"), substantially in the form of Exhibit A hereto; - ---------------- --------- (b) To execute and deliver any assignment, pledge or security agreement, and any accompanying financing statements, necessary to perfect the security interest of the Trust Lender against the Trust Estate (as hereinafter defined); (c) To execute and deliver the Participation Agreement, substantially in the form of Exhibit B hereto; --------- (d) To purchase the Certificate for Ten Million Dollars ($10,000,000) with the proceeds of the Loan made by the Trust Lender; (e) To deliver possession of the Certificate to the Trust Lender in accordance with the terms and conditions of the Note and Pledge Agreement; and (f) To accept and acknowledge the Designee Letter substantially in the form of Exhibit C hereto. --------- The Note and Pledge Agreement, the Participation Agreement, the Designee Letter and the Certificate are hereinafter sometimes called the "Operative --------- Documents." The estate, right, title and interest of Trustee in and to the - --------- Certificate and any proceeds therefrom and all other amounts payable to Trustee under the Certificate are hereinafter referred to for purposes of this Trust Agreement as the "Trust Estate." ------------ ARTICLE II DECLARATION OF TRUST BY TRUSTEE ------------------------------- Trustee hereby declares that it will hold all its estate, right, title and interest in the properties which are part of the Trust Estate upon the trust and for the use and benefit of Settlor, subject, however, to the Operative Documents. ARTICLE III RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE TRUST ESTATE ------------------------------- All payments from the Trust Estate shall be distributed by Trustee as follows: 2 (a) first, so much of such payments as shall be required to pay or reimburse Trustee for amounts due to it (or any successor trustee appointed pursuant to the provisions hereof) pursuant to the provisions hereof shall be retained by it; and (b) second, the remainder of such payment shall promptly be distributed by wire transfer to Grand Equipment, Inc., a Delaware corporation. ARTICLE IV DUTIES OF TRUSTEE ----------------- Section 4.1. Notice of Event of Default. -------------------------- In the event Trustee shall have knowledge of an Event of Default under any of the Operative Agreements, Trustee shall give prompt written notice of such Event of Default to the Settlor and the Trust Lender by first-class mail, postage prepaid, unless such Event of Default shall have been remedied before the giving of such notice. Subject to the terms of Section 4.3 hereof, Trustee ----------- shall take such action, or refrain from taking such action, with respect to an Event of Default as Trustee shall be instructed in writing by Settlor or its designee pursuant to Section 4.2 hereof. If Trustee shall not have received ----------- instructions as provided above within twenty days after mailing notice of such Event of Default to the Trust Lender and Settlor, Trustee may, subject to instructions subsequently received pursuant to the preceding sentence (it being understood that such subsequent instructions shall not invalidate actions of Trustee taken hereunder prior to the receipt of such subsequent instructions), take such action, or refrain from taking such action, but shall be under no duty to, and shall have no liability for its failure or refusal to, take or refrain from taking any action with respect to such Event of Default as it shall deem advisable and in the best interests of the Trust Lender. For all purposes of this Trust Agreement, in the absence of actual knowledge, which shall mean actual knowledge by an officer in the Corporate Trust Department of Trustee, Trustee shall not be deemed to have knowledge of an Event of Default unless notified in writing by Settlor, or by any other party to the transaction contemplated hereby. Section 4.2. Action Upon Instructions. ------------------------ Subject to the terms of Sections 4.1 and 4.3 hereof, upon the written ------------ --- instructions at any time and from time to time of the Settlor or its designee, Trustee will take such of the following actions as may be specified in such instructions: 3 (i) Give such notice or direction, or exercise such right, remedy or power hereunder or under the Note and Pledge Agreement or in respect of all or any part of the Trust Estate, or take such action as shall be specified in such instruction; (ii) Take such action to preserve or protect the Trust Estate (including the discharge of liens or encumbrances); (iii) Approve as satisfactory to it all matters required by the terms of this Trust Agreement or any Operative Document to be satisfactory to Trustee, it being understood that without the written instructions of the Settlor or its designee, Trustee shall not approve any such matter as satisfactory to it; and (iv) Take any other action as instructed by Settlor or its designee. Section 4.3. Indemnification. --------------- Trustee shall not be required to take any action or refrain from taking any action under Section 4.1 or 4.2 hereof unless Trustee shall have been ----------- --- indemnified by Settlor or another person satisfactory to Trustee, in manner and form satisfactory to Trustee, against any liability, cost or expense (including attorneys' fees) which may be incurred in connection therewith; and if Settlor shall have directed Trustee to take any such action or refrain from taking any action, Settlor agrees to furnish or cause to be furnished such indemnity as shall be required. Trustee shall not be required to take any action under Section 4.1 or 4.2 hereof, nor shall any other provision of this Trust Agreement - ----------- --- be deemed to impose a duty on Trustee to take any action, if Trustee shall have been advised by legal counsel (not an employee of Trustee) that such action is contrary to the terms hereof or of any of the documents contemplated hereby to which Trustee is a party or is otherwise contrary to law. Section 4.4. No Duties Except as Specified in Trust Agreement or --------------------------------------------------- Instructions. ------------ Trustee shall not have any duty or obligation to manage, control, use, sell, dispose of or otherwise deal with the Trust Estate or otherwise to take or refrain from taking any action under, or in connection with, any of the documents contemplated hereby to which Trustee is a party except as expressly provided by the terms of this Trust Agreement or as expressly provided in written instructions from Settlor or its designee received pursuant to the terms of Section 4.1 or 4.2 hereof; and no implied duties or obligations shall be read ----------- --- into this Trust 4 Agreement against Trustee. Trustee, nevertheless, covenants that it will, in its individual capacity and at its own cost and expense, promptly take such action as may be necessary to discharge any liens or encumbrances on any part of the Trust Estate which result from claims against the Trust Estate not related or connected to the Trust Estate or the administration of the Trust Estate or any other transaction pursuant to this Trust Agreement or any Operative Document ("Trustee Lien"). ------------ Section 4.5. No Action Except Under Specified Documents or Instructions. ---------------------------------------------------------- Trustee agrees that it will not manage, control, use, sell, dispose of or otherwise deal with any part of the Trust Estate except: (a) As required by the terms of the Operative Documents; (b) In accordance with the powers granted to, or the authority conferred upon, Trustee pursuant to this Trust Agreement; or (c) In accordance with the express terms hereof or with written instructions from Settlor or its designee pursuant to Section 4.1 or 4.2 hereof. ----------- --- ARTICLE V TRUSTEE ------- Section 5.1. Acceptance of Trusts and Duties. ------------------------------- Trustee accepts the Trust hereby created and agrees to perform the same but only upon the terms of this Trust Agreement. Trustee also agrees to receive and disburse all moneys actually received by it constituting part of the Trust Estate upon the terms of this Trust Agreement. Trustee shall not be answerable or accountable under any circumstances, except for its own willful misconduct or negligence or the consequences of the breach by Trustee of any warranties, representations or covenants made or undertaken by it in its individual capacity pursuant hereto. Section 5.2. Absence of Duties. ----------------- Except in accordance with written instructions furnished pursuant to Section 4.1 or 4.2 hereof and except as provided in, and without limiting the - ----------- --- generality of, Section 4.4 hereof, Trustee shall have no duty: ----------- 5 (i) To see to any recording or filing of any Operative Document or this Trust Agreement or any filing or recording of any document relating thereto, or to see to the maintenance of any such recording or filing; (ii) To see to any insurance or to effect or maintain any such insurance; or (iii) To see to the payment or discharge of any tax, assessment or other governmental charge or any lien or encumbrance of any kind owing with respect to, or assessed or levied against, any part of the Trust Estate except a Trustee Lien. Section 5.3. No Segregation of Moneys; No Interest. ------------------------------------- Except as otherwise provided herein, moneys received by Trustee hereunder constitute trust funds but need not be segregated in any manner except to the extent required by law, and may be deposited under such general conditions as may be prescribed by law in the general banking department of Trustee, and Trustee shall not be liable for any interest thereon. Section 5.4. Reliance; Agent; Advice of Counsel. ---------------------------------- Trustee shall incur no liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties. Trustee may accept a copy of a resolution of the Board of Directors of Settlor or its designee, certified by the Secretary or an Assistant Secretary thereof as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted by said Board, and that the same is in full force and effect. As to any fact or matter the manner of ascertainment of which is not specifically described herein, Trustee may for all purposes hereof rely on a certificate, signed by the President or by any Executive Vice President or an Assistant Treasurer or the Secretary or an Assistant Secretary of any party to the Operative Documents, as to such fact or matter, and such certificates shall constitute full protection to Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. In the administration of the Trust hereunder, Trustee may exercise any of the trusts or powers hereof and perform its powers and duties hereunder directly or through agents or attorneys and may, upon prior written notice to Settlor and the Trust Lender and at the expense of the Trust Estate, in good faith consult with counsel, accountants and other skilled persons to be selected and employed by it, and Trustee shall not be liable for anything 6 done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel or accountants. Section 5.5. Not Acting in Individual Capacity. --------------------------------- Except to the extent otherwise specifically provided herein, Trustee acts solely as trustee hereunder and not in its individual capacity, and all persons having any claim against Trustee by reason of the transactions contemplated hereby shall look only to the Trust Estate for payment or satisfaction thereof, except to the extent provided in the last sentence of Section 5.1 hereof. ----------- ARTICLE VI TERMINATION OF TRUST -------------------- Section 6.1. Termination of Trust. -------------------- This Trust Agreement and the Trust created hereby shall terminate and the Trust Estate shall be distributed pursuant to Article III hereof, and this Trust ----------- Agreement shall be of no further force or effect, upon the earlier of: (i) The indefeasible payment in full in cash of all obligations owing to the Trustee arising out of the Certificate; (ii) Written notice from Settlor that this Trust is to be terminated; or (iii) Twenty-one (21) years less one (1) day after the death of the last survivor of all of the descendants living on the date hereof of John D., Laurance S., David or Abby G. Rockefeller, children of John D. Rockefeller, Jr. Any Trust assets governed by a statute or rule of law under which such assets cannot validly remain in trust until the date prescribed above shall be distributed on the last day on which such assets can validly remain in trust. ARTICLE VII SUCCESSOR OWNER TRUSTEE ----------------------- Section 7.1. Resignation or Removal. ---------------------- Trustee or any successor Trustee may resign at any time without cause by giving at least thirty (30) days' prior written 7 notice to Settlor, such resignation to be effective upon the appointment of a successor Trustee and the acceptance of such appointment. In addition, Settlor may at any time remove Trustee without cause by an instrument in writing delivered to Trustee. Such removal shall be effective upon the appointment of a successor Trustee and the acceptance of such appointment. In the case of resignation or removal of Trustee, Settlor may appoint a successor Trustee by an instrument or instruments signed by Settlor. If a successor Trustee shall not have been appointed or, if appointed, shall not have accepted such appointment within thirty (30) days after resignation or removal as hereinbefore provided, Trustee or Settlor may apply to any court of competent jurisdiction to appoint a successor Trustee to act until such time, if any, as a successor shall have been appointed by Settlor as above provided. A successor Trustee hereunder shall be deemed the "Trustee" for all purposes hereof, and each reference herein to Trustee shall thereafter be deemed a reference to such successor. Section 7.2. Appointment Procedures. ---------------------- Any successor Trustee, whether appointed by a court or by Settlor, shall execute and deliver to the predecessor Trustee an instrument accepting such appointment, and thereupon such successor Trustee, without further act, shall become vested with all the estates, properties, rights, powers, duties and trusts of the predecessor Trustee hereunder in the trusts hereunder with like effect as if originally named Trustee herein. Upon the written request of the successor Trustee, the predecessor Trustee shall execute and deliver an instrument transferring to such successor Trustee, upon the trust herein expressed, all the estates, properties, rights, powers, duties and trusts of such predecessor Trustee. Section 7.3. Qualifications of Successor Trustee. ----------------------------------- No successor Trustee shall be appointed as such unless: (i) such successor Trustee is a bank or trust company having its principal place of business in the United States, and having a combined capital and surplus of at least One Hundred Million Dollars ($100,000,000); and (ii) such successor Trustee shall have entered into an agreement, in form and substance reasonably satisfactory to Settlor whereby such successor Trustee confirms that it shall be deemed a party to this Trust Agreement, the Participation Agreement, the Certificate and the Note and Pledge Agreement and agrees to be bound by all the terms hereof and thereof applicable to Trustee. 8 Section 7.4. Merger or Consolidation of Trustee. ---------------------------------- Any corporation into which Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which Trustee shall be a party, or any corporation to which substantially all the business of Trustee may be transferred, shall, subject to the limitations of Section 7.3, be Trustee under this Trust Agreement without further act. ARTICLE VIII SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND OTHER DOCUMENTS ------------------------------------------- Section 8.1. Supplements and Amendments Upon Instructions of Settlor; -------------------------------------------------------- Limitations. ----------- At any time and from time to time, upon the written request of Settlor or its designee, Trustee shall execute a supplement hereto or to any Operative Document or any other document or agreement affecting the rights of Trustee for the purposes of adding provisions to, or changing or eliminating provisions of, this Trust Agreement, such Operative Document or such other agreement as specified in such request. Section 8.2. Trustee Protected. ----------------- If in the opinion of Trustee any document required to be executed pursuant to the terms of Section 8.1 hereof adversely affects any right, immunity or ----------- indemnity in favor of Trustee under this Trust Agreement or any Operative Document or any of the documents contemplated hereby or thereby to which Trustee is a party, or would cause or result in any conflict with or breach of any terms, conditions or provisions of, or default under, the articles of association, as amended, or bylaws, as amended, of Trustee, or any of such documents contemplated hereby to which Trustee is a party, Trustee may, in its sole discretion, decline to execute such document. Section 8.3. Request of Substance, Not Form. ------------------------------ It shall not be necessary for any written request of Settlor or its designee furnished pursuant to Section 8.1 hereof to specify the particular form ----------- of the proposed documents to be executed pursuant to said Section 8.1, but it ----------- shall be sufficient if such request shall indicate the substance thereof. 9 Section 8.4. Documents Mailed to Holders. --------------------------- Promptly after the execution by Trustee of any document entered into pursuant to Section 8.1 hereof, Trustee shall mail, by first-class mail, postage ----------- prepaid, a conformed copy thereof to Settlor or its designee, but the failure of Trustee to mail such conformed copies shall not impair or affect the validity of such document. Promptly after the receipt by Trustee of any other document, notice or other information regarding the Trust or the Trust Estate, Trustee shall deliver such document, notice or information to Settlor or its designee, as the case may be. Section 8.5. Performance of Other Agreements. ------------------------------- Notwithstanding any other provision in this Trust Agreement, no consent of Settlor or its designee shall be required to enable Trustee to perform the applicable provisions of the Participation Agreement or the Certificate in accordance with the terms thereof. ARTICLE IX MISCELLANEOUS ------------- Section 9.1. No Legal Title to Trust Estate in Settlor. ----------------------------------------- Settlor shall have no legal title to any part of the Trust Estate. No transfer, by operation or law or otherwise, of the right, title and interest of Settlor in and to the Trust Estate or hereunder shall operate to terminate this Trust Agreement or the trusts hereunder or entitle any successor or transferee of Settlor to an accounting or to the transfer to it of legal title to any part of the Trust Estate. Section 9.2. Limitations on Rights of Others. ------------------------------- Nothing in this Trust Agreement, whether express or implied, shall be construed to give to any person other than Trustee and Settlor any legal or equitable right, remedy or claim under or in respect of this Trust Agreement or any covenants, conditions or provisions contained herein. All such covenants, conditions and provisions are, and shall be held to be, for the sole and exclusive benefit of Settlor. Section 9.3. Notices. ------- All notices provided for herein shall be in writing and shall be deemed to have been given (unless otherwise required by the specific provisions hereof in respect of any matter) when delivered personally or after being deposited in the United 10 States mail, certified (return receipt request), postage prepaid, addressed as follows and received, as evidenced by the signature of the addressee on the return receipt therefor: If to Settlor: ------------- Security Pacific Leasing Corporation Four Embarcadero Center, 12th Floor San Francisco, California 94111 Attention: Ms. Sara L. Fitch If to the Trust Lender: ---------------------- The Industrial Bank of Japan, Limited, Los Angeles Agency 350 South Grand Avenue, Suite 1500 Los Angeles, California 90071 Attention: Mr. Vicente L. Timiraos If to Trustee: ------------- First Security Bank of Utah, National Association Corporate Trust Department 79 South Main Street Salt Lake City, Utah 84111 Attention: Mr. Greg A. Hawley or to Settlor, the Trust Lender or Trustee at such other address as Settlor, the Trust Lender or Trustee may designate by notice duly given in accordance with this Section 9.3. ----------- Section 9.4. Severability. ------------ Any provision of this Trust Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 9.5. Separate Counterparts. --------------------- This Trust Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 11 Section 9.6. Successor and Assigns. --------------------- All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, Trustee and its successors and assigns and to Settlor and its successors and its assigns. Any request, notice, direction, consent, waiver or other instrument or action by Settlor shall bind its successors and assigns. Section 9.7. Transfer of Settlor's Interest. ------------------------------ Settlor shall not be entitled to assign, convey or otherwise transfer any of its right, title or interest in and to this Trust Agreement or the Trust Estate. Section 9.8. Headings. -------- The headings of the various Articles and Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. Section 9.9. Limitation on Settlor's Liability. --------------------------------- Settlor shall not have any liability for the performance or failure of performance of the obligations of Trustee under this Trust Agreement. Section 9.10. Written Changes, Waivers, Discharges or Terminations. ---------------------------------------------------- No term or provisions of this Trust Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party or other person against whom enforcement of the change, waiver, discharge or termination is sought which modification, waiver, discharge or termination shall be subject to the approval of the Trust Lender so long as any amounts are owing under the Note and Pledge Agreement; and any waiver of the terms hereof shall be effective only in the specific instance and for the specific purpose given. Section 9.11. Governing Law. ------------- This Trust Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of California, including all matters of construction, validity and performance. Section 9.12. Identification of Trust. ----------------------- This Trust may for convenience be referred to as the "MGM Trust No. 2." 12 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. SECURITY PACIFIC FIRST SECURITY BANK OF UTAH, LEASING CORPORATION NATIONAL ASSOCIATION "Settlor" "Trustee" By:_____________________________ By:___________________________ Name:___________________________ Name:_________________________ Title:__________________________ Title:________________________ 13 EXHIBIT B TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF MASTER LEASE EXHIBIT B TO PARTICIPATION AGREEMENT MGM EQUIPMENT TRUST 1993-1 MASTER LEASE Dated as of November __, 1993 between GRAND EQUIPMENT, INC., as Lessee and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION not individually, but solely as Trustee, as Lessor, TABLE OF CONTENTS
PAGE ---- ARTICLE I DELIVERY AND ACCEPTANCE................... 1 1.1. Acceptance and Master Lease of Equipment.. 1 1.2. Acceptance Procedure...................... 2 ARTICLE II LEASE TERM................................ 3 2.1. Interim and Base Periods.................. 3 2.2. Master Lease Commencement Date............ 3 2.3. Master Lease Renewal...................... 3 ARTICLE III RENT; OTHER ECONOMIC PROVISIONS........... 3 3.1. Rent Payments............................. 3 3.2. Place and Manner of Payment............... 4 3.3. Net Lease................................. 4 3.4. Integrated Transaction.................... 5 ARTICLE IV WARRANTIES................................ 5 4.1. Warranty Disclaimer....................... 5 4.2. Assignment of Warranties.................. 5 ARTICLE V POSSESSION, ASSIGNMENT, SUBLEASE, USE AND MAINTENANCE OF EQUIPMENT................. 6 5.1. Restriction on Lessee's Possession and Use 6 5.2. Sublease.................................. 6 5.3. Maintenance............................... 6 5.4. Replacement and Substitution.............. 7 5.5. Alterations, Modifications and Additions; Removable Parts........................... 8 5.6. Labelling of Equipment.................... 10 5.7. Inspection of Collateral.................. 10 ARTICLE VI RISK OF LOSS; REPLACEMENT; WAIVER AND INDEMNITY................................ 10 6.1. Casualty.................................. 10 6.2. Partial Casualty.......................... 11 6.3. Partial Casualty Proceeds................. 11 ARTICLE VII INSURANCE................................. 12 7.1. Required Coverages........................ 12 7.2. Delivery of Insurance Certificates........ 14
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Page ---- ARTICLE VIII DEFAULT................................... 14 8.1. Event of Default.......................... 14 8.2. Remedies 18 8.3. Proceeds of Sale; Deficiency.............. 19 8.4. Right to Perform Lessee's Agreements...... 19 ARTICLE IX RETURN OF EQUIPMENT....................... 19 ARTICLE X EARLY TERMINATION......................... 20 ARTICLE XI LEASE TERMINATION......................... 20 11.1. Lessee's Options.......................... 20 11.2. Election of Options....................... 22 11.3. Sale Option Procedures.................... 22 ARTICLE XI ASSIGNMENTS............................... 23 12.1. Assignment by Lessor...................... 23 12.2. Assignment by Lessee...................... 23 ARTICLE XIII OWNERSHIP, GRANT OF SECURITY INTEREST AND FURTHER ASSURANCES........................ 24 13.1. Grant of Security Interest................ 24 13.2. Retention of Title or Proceeds in the Case of Default................................ 25 ARTICLE XIV EFFECT OF WAIVER.......................... 25 ARTICLE XV SURVIVAL OF COVENANTS..................... 25 ARTICLE XVI APPLICABLE LAW............................ 26 ARTICLE XVII EFFECT AND MODIFICATION OF MASTER LEASE... 26 ARTICLE XVII NOTICES................................... 26 ARTICLE XIX COUNTERPARTS.............................. 27 ARTICLE XX SEVERABILITY.............................. 27 ARTICLE XXI SUCCESSORS AND ASSIGNS; MERGER............ 27 21.1. Successors and Assigns.................... 27 21.2. Merger.................................... 27 ARTICLE XXII BROKERS................................... 27 ARTICLE XXIII JURY TRIAL................................ 28
ii ^ ARTICLE XXIV CAPTIONS; TABLE OF CONTENTS............... 28 ARTICLE XXV FINAL AGREEMENT........................... 28 ARTICLE XXVI TIMELINESS OF PERFORMANCE................. 29
Schedule I - Applicable Percentage Schedule II - Class I Equipment Schedule III - Class II Equipment || iii MASTER LEASE ------------ This MASTER LEASE (as amended, modified, restated or supplemented from time to time, this "Master Lease") dated as of November __, 1993 is between Grand ------------ Equipment, Inc., a Delaware corporation ("Lessee"), with its principal office at ------ 3155 W. Harmon Ave., Las Vegas, Nevada 89103, and Norwest Bank Minnesota, National Association, not in its individual capacity, but solely in its capacity as trustee under the Trust Agreement ("Lessor"). ------ WHEREAS, pursuant to the terms and conditions set forth herein and in that certain Participation Agreement, dated as of November 9, 1993, (the "Participation Agreement") among MGM Grand, Inc., a Delaware corporation - ------------------------ ("Guarantor"), Lessee, MGM Grand Hotel, Inc., a Nevada corporation - ----------- ("Sublessee"), the persons named on Schedule I thereto, and Lessor, Lessor and --------- Lessee have agreed that Lessor will lease to Lessee and Lessee will lease from Lessor certain personal property described in Certificates of Acceptance and Certificates of Possession and replacements thereto. AND WHEREAS, capitalized terms used but not otherwise defined herein (including those used in the foregoing recitals) shall have the meanings specified in Schedule X to the Participation Agreement, unless the context otherwise requires. AND WHEREAS, to secure Lessee's obligations under this Master Lease and the other Operative Agreements, Lessee will grant to Lessor on behalf of itself and the Certificate Holders a security interest in the Collateral. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DELIVERY AND ACCEPTANCE Section 1.1. Acceptance and Lease of Equipment. On the Effective Date and --------------------------------- each Delivery Date, Lessor, subject to the satisfaction or waiver of the applicable conditions set forth in Article II or Section 3.1 of the ---------- ----------- Participation Agreement, hereby agrees to accept delivery on such Effective Date or Delivery Date of the items of Equipment subject to such Closing or identified on a Certificate of Acceptance on such Delivery Date pursuant to the terms of the Participation Agreement and simultaneously to 1 lease such items of Equipment to the Lessee hereunder, and the Lessee, subject to satisfaction or waiver of the applicable conditions set forth in the Participation Agreement, hereby agrees, expressly for the direct benefit of the Lessor and the Certificate Holders, to lease on such Effective Date or Delivery Date from the Lessor hereunder, such items of Equipment for the Master Lease Term. Lessor and Lessee acknowledge that certain Items of Equipment identified in Schedule II hereto ("Class I Equipment") that will become subject to the ----------- ----------------- terms and conditions of this Master Lease on the Effective Date will not be operational as of such date. The obligations of Lessee to place in service all of the Class I Equipment are set forth in the Participation Agreement. In addition, as of the Effective Date, the Items of Equipment identified on Schedule III hereto (the "Class II Equipment") will not have been delivered by - ------------ ------------------ the Manufacturer to the Hotel. Upon delivery and acceptance by Lessee of any item of Class II Equipment in accordance with Section 1.2, such item shall ----------- become subject to all of the terms and conditions of this Master Lease. The obligations of Lessee with respect to Class II Equipment are set forth in the Participation Agreement. Lessee's obligation to pay Rent and all other sums under this Master Lease shall not be diminished as a result of the Class I Equipment not being operational as of the Effective Date or at any time thereafter or of the Class II Equipment not having been accepted and subject to this Master Lease as of the Effective Date or any time thereafter. Section 1.2. Acceptance Procedure. Lessor hereby authorizes one or more -------------------- employees of Sublessee, to be designated by the Sublessee, as the authorized representative or representatives of the Lessor to accept delivery of the Equipment on the Effective Date and each Delivery Date. Lessee hereby agrees that such acceptance of delivery by such authorized representative or representatives on behalf of Lessor shall, without further act, irrevocably constitute acceptance by Lessee of all of the terms and conditions of this Master Lease with respect to items of Equipment delivered on each Delivery Date. Sublessee's acceptance of the items of Equipment to be accepted on the Effective Date shall be evidenced by a Certificate of Acceptance or Certificate of Possession (with respect to Class I Equipment) and on each Delivery Date thereafter with respect to the Class II Equipment by a Certificate of Acceptance, in each case executed by Sublessee and Lessee and delivered to Lessor. In addition, no later than 240 days after the Document Closing Date, Sublessee shall deliver to Lessor one or more Certificates of Acceptance covering all Class II Equipment. 2 ARTICLE II LEASE TERM Section 2.1. Interim and Base Periods. Unless earlier terminated, ------------------------ the term of this Master Lease (the "Master Lease Term") shall consist of an ----------------- interim period commencing on and including the Effective Date and ending on but not including the Lease Commencement Date (the "Interim Period") and a base -------------- period, commencing on and including the Lease Commencement Date and ending on but not including the third anniversary thereof (the "Base Period"). ----------- Section 2.2. Master Lease Commencement Date. The lease commencement ------------------------------ date shall be on December 31, 1993 (the "Lease Commencement Date"). ----------------------- Section 2.3. Master Lease Renewal. Lessee may elect to renew this -------------------- Master Lease for up to two successive one-year renewal terms (each, a "Renewal ------- Term") as provided in Article XI hereof. - ---- ---------- ARTICLE III RENT; OTHER ECONOMIC PROVISIONS Section 3.1. Rent Payments. For the Master Lease Term and each ------------- Renewal Term, Lessee shall pay rent to Lessor for the Equipment as follows (the "Rent"): On each date on which a payment of principal, Make-Whole Premium, if ---- any, yield and interest (including any interest on overdue principal and, to the extent permitted by law, yield or interest) is due and payable on one or more outstanding Certificates an amount equal to the aggregate amount of principal, Make-Whole Premium, if any, yield and interest (including interest on overdue principal and, to the extent permitted by law, yield or interest) due on such Certificates on such date, regardless of whether such date falls during or after the Master Lease Term or Renewal Terms, provided, however that no such amount -------- ------- shall be payable as Rent if it is otherwise required to be paid on such date by the Lessee pursuant to the provisions of this Master Lease and is in fact so paid; and further provided that if at the end of the Master Lease Term or ------- -------- Renewal Term the Sales Option has been properly elected, then a portion of the principal payable on the Class A-3 Certificates and Class B Certificates on such date equal to the amount by which the Purchase Option Exercise Amount exceeds the greater of the Applicable Percentage Amount or the Recourse Deficiency Amount shall not be payable as Rent hereunder. Section 3.2. Place and Manner of Payment. Rent and all other sums --------------------------- due Lessor hereunder shall be paid in immediately 3 available funds to Lessor at the Corporate Trust Office, or at such other office of Lessor as it may from time to time specify to Lessee in a notice pursuant to this Master Lease. All such payments shall be received by Lessor not later than 10:00 a.m. California time, on the date due; funds received after such time shall for all purposes under the Operative Agreements be deemed to have been received by Lessor on the next succeeding Business Day. Section 3.3. Net Lease. This Master Lease is a net lease and --------- Lessee's obligation to pay all Rent, indemnity and other amounts payable hereunder shall be absolute and unconditional under any and all circumstances and, without limiting the generality of the foregoing, Lessee shall not be entitled to any abatement or reduction of Rent or any setoff against Rent, indemnity or other amount, whether arising by reason of any past, present or future claims of any nature by Lessee against Lessor or any Certificate Holder, or otherwise. Except as otherwise expressly provided herein, this Master Lease shall not terminate, nor shall the obligations of Lessee be otherwise affected: (a) By reason of any defect in, damage to, or loss of possession or use, obsolescence or destruction, of any or all of the Equipment, however caused; or (b) By the taking or requisitioning of any or all of the Equipment by condemnation or otherwise; or (c) By the invalidity or unenforceability or lack of due authorization by Lessor or Lessee or other infirmity of this Master Lease; or (d) By lack of power or authority of Lessor to enter into this Master Lease; or (e) By the attachment of any lien, encumbrance, security interest or other right or claim of any third party to any item of Equipment; or (f) By any prohibition or restriction of or interference with Lessee's use of any or all of the Equipment by any person or entity; or (g) By the insolvency of or the commencement by or against Lessee or Lessor of any bankruptcy, reorganization or similar proceeding; or (h) By any other cause, whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding; or (i) By reason of the Class I Equipment (or any item thereof) not being operational; or (j) By reason of the Class II Equipment (or any item thereof) not being delivered or otherwise not subject to this Master Lease. It is the intention of the parties that all Rent, indemnities and other amounts payable by Lessee hereunder shall be payable in all events in the manner and at the times herein provided unless Lessee's obligations in respect thereof have been terminated or modified pursuant to the express provisions of this Master Lease. To the extent permitted by applicable law, Lessee waives any and all rights which it may now have or which may at any time be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Master Lease, in whole or in part, except strictly in accordance with the express terms hereof. Each rental, indemnity or other payment made by Lessee hereunder shall be final, and Lessee shall 4 not seek to recover (except as expressly provided in this Master Lease) all or any part of such payment from Lessor for any reason whatsoever. Section 3.4. Integrated Transaction. ---------------------- The transaction represented by the Operative Agreements is intended by the Participants to be one integrated transaction to provide for the secured financing of the Equipment. In furtherance thereof, all indemnities, representations, warranties, covenants and obligations of any type of the Lessee to any Participant contained in any Operative Agreement and any certificate or other document delivered in connection therewith or all amendments thereto are hereby incorporated by reference as though fully set forth herein. ARTICLE IV WARRANTIES Section 4.1. Warranty Disclaimer. LESSEE ACKNOWLEDGES AND AGREES ------------------- THAT: (a) THE EQUIPMENT IS OF A SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED BY LESSEE; (b) LESSEE IS SATISFIED THAT THE SAME IS SUITABLE FOR ITS PURPOSES; (c) LESSOR IS NOT A MANUFACTURER THEREOF OR A DEALER IN PROPERTY OF SUCH KIND; AND (d) NEITHER LESSOR NOR THE CERTIFICATE PURCHASERS HAVE MADE OR SHALL BE DEEMED TO HAVE MADE: (i) ANY REPRESENTATION OR WARRANTY OR COVENANT WITH RESPECT TO THE TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, DESCRIPTION, DURABILITY OR SUITABILITY OF ANY ITEM OF EQUIPMENT IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES AND USES OF LESSEE OR SUBLESSEE; OR (ii) ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY EQUIPMENT. Section 4.2. Assignment of Warranties. Lessor assigns to Lessee for ------------------------ the benefit of the Sublessee, to the extent assignable, all of its interest, if any, in any warranties, covenants and representations of any manufacturer, producer or maker of any item of Equipment (whether or not included in the Purchase Order Assignment); provided that such assignment shall remain in effect -------- only so long as no Event of Default has occurred and is continuing; and provided, further, that any action taken by Lessee by reason thereof shall be at - -------- ------- the expense of Lessee and shall be consistent with Lessee's obligations pursuant to this Master Lease. 5 ARTICLE V POSSESSION, ASSIGNMENT, SUBLEASE, USE AND MAINTENANCE OF EQUIPMENT Section 5.1. Restriction on Lessee's Possession and Use. Lessee ------------------------------------------ shall not: (a) Use, operate, maintain or store any item of Equipment or any portion thereof: (i) Except in accordance with Section 5.3; or (ii) in ----------- violation in any material respect of any applicable insurance policy or law or regulation of any Authority; (b) Abandon any item of Equipment (upon such item becoming subject to this Master Lease); (c) Except as required by Section 5.2, ----------- sublease or assign, without the prior written consent of a Deciding Interest of Residual Certificate Holders, any item of Equipment or permit the use thereof by anyone other than Lessee or Persons acting at the direction of, or pursuant to a license or invitation granted by Lessee or Sublessee in the ordinary course of Lessee's or Sublessee's operations; (d) Except as set forth in Section 5.2, ----------- sell, assign or transfer any of its rights hereunder or in any item of Equipment, or directly or indirectly create, incur or suffer to exist any Lien of any kind on any of its rights hereunder or in any item of Equipment, except for Permitted Liens; or (e) Except in connection with any maintenance or repair thereof, permit any item of Equipment or any Part relating to such item of Equipment to be located at any location outside the Hotel. Section 5.2. Sublease. Lessee has subleased the items of Equipment -------- on each Delivery Date to the Sublessee pursuant to the terms of the Sublease. The Sublease shall be expressly subject and subordinate to this Master Lease and the Liens created hereby, and expressly prohibit any further assignment, sublease or transfer except that Sublessee has granted a security interest in its interest as "sublessee" under the Sublease (but not the Equipment subject to the Sublease) to MGM Finance under the Collaterally Assigned Documents which in turn has assigned such security interest to the Secured Lenders' Agent (the "Sublease Grant"). All of Lessee's right, title and interest in, to and under - --------------- the Sublease shall be pledged by Lessee to Lessor, as collateral for Lessee's obligations under the Operative Agreements, by delivery of an executed copy, marked as the sole original execution copy for U.C.C. purposes, to Lessor, and Lessee shall do any further act and execute, acknowledge, deliver, file, register and record any further documents which Lessor (pursuant to a request under Section 7.2 of the Trust Agreement) may reasonably request in order to ----------- create, perfect, preserve and protect Lessor's security interest in the Sublease. Lessee shall remain primarily liable hereunder for the performance of all of the terms of this Master Lease to the same extent as if such Sublease had not been entered into. 6 Section 5.3. Maintenance. Lessee directly or through Sublessee shall ----------- at its expense at all times during the term of this Master Lease: (a) Maintain, manage and monitor the Equipment in compliance in all material respects with all applicable requirements of law, Authority and/or insurance policies; (b) Maintain the Equipment (or cause the Equipment to be maintained) in as good an operating order, repair, condition and appearance as it was on the date such Equipment became subject to this Master Lease (assuming that, as of such date, the Equipment was in good operating order, repair, condition and appearance), ordinary wear and tear excepted; (c) Maintain, manage and monitor the Equipment in all material respects in accordance with the terms of all applicable contracts (including, without limitation, service contracts and insurance contracts); (d) Conduct all scheduled maintenance of the Equipment in conformity in all material respects with Sublessee's past practices and the Manufacturer's maintenance and repair guidelines for similar equipment (including, without limitation, Sublessee's maintenance program for such equipment); and (e) Cause the Equipment to continue to have at all times in all material respects the capacity and functional ability to perform, on a continuing basis (subject to normal interruption in the ordinary course of business for maintenance, inspection, service, repair and testing) and in commercial operation, the functions for which it was specifically designed. Lessee shall in any event maintain the Equipment (or cause the Equipment to be maintained) in all material respects in at least as good a condition as comparable equipment owned or leased by it, Sublessee or any of their respective Subsidiaries. Lessee will maintain or cause to be maintained and shall permit Lessor to inspect any records, logs and other materials required by any governmental authority having jurisdiction to be maintained or filed in respect of any items of Equipment. Section 5.4. Replacement and Substitution. ---------------------------- (a) In the event that any Part which may from time to time be incorporated or installed in or attached to any item of Equipment becomes at any time worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever (unless such event constitutes a Casualty or Partial Casualty, in which event the provisions of Section 7.1 or 7.2 hereof shall apply), ----------- --- Lessee, at its own cost and expense, will promptly replace, or cause to be replaced, such Part with a replacement Part (a "Replacement Part"). In ---------------- addition, Lessee may, at its own cost and expense, remove in the ordinary course of maintenance, service, repair, overhaul or testing, any Part, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use, 7 provided that Lessee will, at its own cost and expense, replace such Part -------- as promptly as is commercially reasonable. All Replacement Parts shall be free and clear of all Liens (other than Permitted Liens) and shall be in as good operating condition as, and shall have a value and utility at least equal to, the Parts replaced, assuming such replaced Parts and the Equipment were in the condition and repair required to be maintained by the terms hereof. Any Part at any time removed from any item of Equipment shall remain the property of Lessor, no matter where located, until such time as such Part shall be replaced by a Part which has been incorporated or installed in or attached to such item of Equipment and which meets the requirements for a Replacement Part specified above. Immediately upon any Replacement Part becoming incorporated or installed in or attached to any such item of Equipment as above provided, without further act: (i) Title to the replaced Part shall thereupon vest in Lessee, free and clear of all rights of Lessor, and shall no longer be deemed a Part hereunder; (ii) title to such Replacement Part shall thereupon vest in Lessor; and (iii) such Replacement Part shall become subject to this Master Lease and the security interest created hereunder and be deemed part of such item of Equipment for all purposes hereof to the same extent as the Parts incorporated or installed in or attached to such item of Equipment on the date such item of Equipment became subject to this Master Lease. No later than 45 days after the end of each fiscal quarter of the Lessee, Lessee shall deliver to Lessor a Certificate of Conveyance evidencing the conveyance by Lessee to Lessor of all Replacement Parts not previously evidenced by a Certificate of Conveyance and such other documents in respect of such Part or Parts as Lessor may reasonably request in order to confirm that title to such Part or Parts has passed to Lessor, as provided above. (b) Lessee may request the replacement of an item of Equipment by delivery of a Replacement Notice in the manner described in Section 4.3 of ----------- the Participation Agreement. Upon the satisfaction of the conditions specified in such Section 4.3, each in form and substance satisfactory to ----------- Lessor, Lessor shall execute and deliver to Lessee a bill of sale (without representations or warranties, except that the substituted Item is free and clear of all Lessor Liens) and such other documents as may be required to release the substituted Item from the terms and scope of this Master Lease, in such form as may be reasonably requested by Lessee and are in form and substance satisfactory to the Certificate Holders, all at Lessee's expense. 8 Section 5.5. Alterations, Modifications and Additions; Removable Parts. --------------------------------------------------------- (a) Lessee shall not remove, replace or alter any item of Equipment or affix or place any accessory, equipment or device on any item of Equipment if such removal, replacement, alteration or addition would materially impair the originally intended function or use or materially reduce the value of such item of Equipment, provided that Lessee, at its -------- own expense, will make, or cause to be made, any alteration, improvement, modification or addition to or in respect of any item of Equipment that may be necessary, from time to time, to comply in all material respects with any applicable law, governmental rule or regulation (including any Environmental Law) or any provision of any insurance policy required to be maintained under Section 7.1 hereof (any Parts being used to comply with ----------- this provision shall be hereafter referred to as "Mandatory Parts"). --------------- Lessee shall notify Lessor in advance of any proposed alteration of any item of Equipment if the cost of such alteration, in the aggregate, can reasonably be expected to exceed $250,000, or if such advance notice is not practicable, within 30 days after the completion of such alteration. All Parts affixed to or installed as a part of any item of Equipment, excluding temporary replacements, shall thereupon become subject to the security interest under this Master Lease. If no Event of Default shall exist, Lessee may remove, at its expense, any Part (other than a Mandatory Part) at any time during the term of this Master Lease (such part, a "Removable --------- Part"): (i) Which is in addition to, and not in replacement of or ---- substitution for, any Part originally incorporated or installed in or attached to an item of Equipment on the date such item became subject to this Master Lease or any Part in replacement of or substitution for any such Part originally incorporated or installed or attached to such Equipment; (ii) which is not a Mandatory Part; and (iii) which can be removed from any item of Equipment without causing damage to such Equipment or diminishing or impairing the value, utility or condition which such Equipment would have had at such time had such addition not occurred; provided that: (x) Such removal will not materially impair the value or -------- use which the item of Equipment would have had at such time had such Part not been affixed or placed to or on such Equipment; and (y) such Part is not necessary for the continued normal use of such Equipment. Lessee shall repair all damage to the Equipment resulting from any alteration so as to restore any item of Equipment to the condition in which it existed prior to such alteration (ordinary wear and tear excepted). Lessor shall not have any obligation to pay for or to reimburse Lessee for any alteration permitted by this Section 5.5. ----------- 9 (b) Title to all Parts incorporated or installed in or attached or added to any item of Equipment as the result of alterations, modifications or additions under this Section 5.5, except Removable Parts, shall, without ----------- further act, vest in Lessor in the manner provided in clause (ii) of ----------- Section 5.4(a) and the other applicable provisions of Section 5.4 shall -------------- ----------- apply with respect to such Parts. Title to any Removable Parts shall not vest in Lessor, and upon the removal by Lessee of any Removable Part as provided herein, such Removable Part shall no longer be deemed part of the item of Equipment from which it was removed. Any Removable Part not removed by Lessee as provided herein prior to the end of the Master Lease Term shall become the property of Lessor at such time. Section 5.6. Labelling of Equipment. Lessee shall as soon as practicable ---------------------- affix and keep throughout the Master Lease Term and any Renewal Terms labels, plates or other markings, bearing the inscription "Security Interest held by Norwest Bank Minnesota, National Association," upon a prominent place on each item of Equipment constituting "theme park equipment," "kitchen equipment," or "escalators and elevators" (as such terms are used in the Appraisal) and reasonably susceptible to being so identified (as determined by Sublessee in its reasonable judgment). Section 5.7. Inspection of Collateral. Lessor shall have the right at ------------------------ all reasonable times, upon reasonable notice, to inspect any Collateral. ARTICLE VI RISK OF LOSS; REPLACEMENT; WAIVER AND INDEMNITY Section 6.1. Casualty. Subject to the last sentence of this Section 6.1, -------- ----------- upon a Casualty, Lessee shall give prompt written notice thereof (a "Casualty -------- Notice") to Lessor, which notice shall specify whether Lessee will: - ------ (a) Subject to the penultimate sentence of this Section 6.1, repay a ----------- portion of the Lease Balance (as deter-mined after payment of Rent on such date) equal to the sum of the Casualty Amount and any Make-Whole Premium, which repayment shall be made no later than the later of: (i) The next scheduled Rent Payment Date; or (ii) 60 days after such Casualty (the later date being referred to as the "Casualty Settlement Date"); or ------------------------ (b) Subject to the last sentence of this Section 6.1, replace the ----------- Item of Equipment with respect to which the 10 Casualty has occurred pursuant to the provisions of Section 5.4 hereof and ----------- Section 4.3 of the Participation Agreement. All proceeds of any casualty ----------- insurance or condemnation proceeds ("Casualty Proceeds") paid to the Lessee ----------------- or Sublessee by reason of a Casualty to an item of Equipment shall be deposited into a deposit account (the "Deposit Account") established by --------------- Lessor at Norwest Bank Minnesota, National Association. Any Casualty Proceeds paid to Lessor with respect to an item of Equipment suffering a Casualty shall be held in such Deposit Account. All proceeds in the Deposit Account shall be distributed in accordance with Section 4.3 of the ----------- Participation Agreement and the following sentence. Any monies in the Deposit Account attributable to the Casualty of an item of Equipment after Lessee's payment in full of the Casualty Amount together with accrued but unpaid interest thereon to the date of payment or compliance with the conditions governing a Replacement Item in each case with respect to such item of Equipment shall be remitted promptly to Lessee. If there is a Casualty to any item of Equipment that constitutes an escalator or elevator, subject to the immediately following sentence, Lessee shall be obligated to make the substitution referred to in clause (b) above and shall not ---------- be entitled to make the payment with respect to such items of Equipment referred to in clause (a) above. Upon the occurrence and during the continuance of an ---------- Event of Default or an event which with the giving of notice and/or the passage of time could give rise to an Event of Default, Lessee shall be, at the option of a Deciding Interest of Residual Certificate Holders, obligated to make the payment referred to in clause (a) above and shall not be entitled to exercise ---------- any right or election of replacement as set forth in clause (b) above. ---------- Section 6.2. Partial Casualty. Upon any Partial Casualty, Lessee shall ---------------- give to Lessor a Notice of Partial Casualty. As soon as practicable after a Partial Casualty, Lessee shall: (a) Repair and rebuild the affected portions of such item of Equipment (or cause such affected portions to be repaired and rebuilt) to the condition required to be maintained by Section 5.3 hereof, ----------- provided that the value and functional capability of such item of Equipment, as - -------- restored, is at least equivalent to the value and functional capability of such item of Equipment as in effect immediately prior to the occurrence of such Partial Casualty; or (b) Replace such affected item of Equipment with a Replacement Item pursuant to the provisions of Section 5.4 hereof and Section ----------- ------- 4.3 of the Participation Agreement. - --- Section 6.3. Partial Casualty Proceeds. All Partial Casualty Proceeds ------------------------- received by Lessee, Sublessee or any of their 11 Affiliates as a result of a Partial Casualty shall be promptly paid to Lessor. Subject to the last sentence of this Section 6.3, Lessor shall deposit Partial ----------- Casualty Proceeds into the Deposit Account and, so long as no Event of Default or event which with the giving of notice and/or passage of time could give rise to an Event of Default shall exist, Lessor shall disburse such Partial Casualty Proceeds with respect to an item of Equipment suffering a Partial Casualty as follows: (a) to Lessee in payment of the costs of repairing and rebuilding the affected portions of such item of Equipment suffering a Partial Casualty which the Lessee has chosen to repair and rebuild in accordance with Section 6.2; or ----------- (b) upon a Replacement Item being duly substituted for an item of Equipment suffering a Partial Casualty, to Lessee to the extent Partial Casualty Proceeds with respect to the corresponding Substituted Item of Equipment were deposited into the Deposit Account. Partial Casualty Proceeds held by Lessor and to be distributed in accordance with paragraph (a) of Section 6.3 shall be disbursed by Lessor from ------------- ----------- the Deposit Account to Lessee from time to time (but no more frequently than twice per calendar month) to pay Lessee for the costs of repairing and rebuilding the affected portions of the Equipment as required under Section 6.2, ----------- subject to such reasonable disbursement conditions as Lessor may impose, including presentation of invoices and other supporting documentation reflecting such costs and delivery of Lien waivers; provided, however, Lessor shall have no -------- ------- obligation to disburse any Partial Casualty Proceeds out of the Deposit Account at any time that Lessor shall reasonably determine: (i) That such Partial Casualty Proceeds are not sufficient to repair and rebuild the affected portions of the Equipment as required by Section 6.2 (unless additional funds which are, ----------- in the sole discretion of Lessor, sufficient to so repair and rebuild the affected portions of the Equipment have been deposited in the Deposit Account); or (ii) that Lessee is not diligently performing its obligations under Section ------- 6.2. Notwithstanding the foregoing provisions of this Section 6.3, and provided - --- ----------- no Event of Default and no event which with the giving of notice and/or passage of time could become an Event of Default shall exist, if the aggregate amount of Partial Casualty Proceeds attributable to any Partial Casualty is $250,000 or less, Lessee may receive such Partial Casualty Proceeds directly, without delivery to Lessor, provided such Partial Casualty Proceeds are applied in -------- accordance with the requirements of Section 6.2. If Lessor receives Partial ----------- Casualty Proceeds in an amount that is less than $250,000, so long as no Event of Default or event which with the giving of notice and/or passage of time could give rise to an Event of Default shall exist, Lessor shall promptly remit 12 such funds to Lessee. Notwithstanding any Partial Casualty, all of Lessee's obligations under this Master Lease (including its obligation to make all payments of Rent as they become due) shall continue unabated and in full force and effect as provided in this Master Lease. ARTICLE VII INSURANCE Section 7.1. Required Coverages. Lessee will keep the Equipment insured ------------------ by financially sound and reputable insurers against loss or damage of the kinds and in the amounts customarily insured against by similar corporations engaged in similar operations and carry such other insurance as is usually carried by such corporations, provided that in any event Lessee will maintain: -------- (a) Casualty Insurance -- insurance against all risks of loss or ------------------ damage with respect to the Equipment with deductibles and in such minimum amounts as are consistent with industry standards; provided, however, that -------- ------- at no time shall the amount of coverage be less than the sum of (A) the Lease Balance; (B) all unpaid accrued yield and interest on the Certificates; and (C) all other amounts then payable by Lessee under this Master Lease and the other Operative Agreements; (b) Public Liability Insurance -- combined single limit insurance -------------------------- against claims for bodily injury, death or property damage in an amount at least equal to $100,000,000 per occurrence with such deductibles as are carried by similarly situated companies involved in operating similar facilities and equipment; and (c) Other Insurance -- such other insurance including workmen's --------------- compensation and business interruption insurance, in each case as generally carried by owners of equipment similar to the Equipment and properties in the State of Nevada, in such amounts and against such risks as are then customary for equipment and property similar in use. Such insurance shall be written by reputable insurance companies that are financially sound and solvent and otherwise reasonably appropriate considering the amount and type of insurance being provided by such companies. Any insurance company selected by Lessee which is rated in Best's Insurance Guide or any successor thereto (or if there be none, an organization having a similar reputable national reputation) shall have a general policyholder rating of "A" and a financial rating of at least "10," or be 13 otherwise acceptable to a Deciding Interest of Residual Certificate Holders, and if any insurance company selected by Lessee is not so rated, then an executive officer of Lessee and Lessee's outside insurance broker shall each deliver a certificate to Lessor on or before the commencement of the term of the policy provided by such company certifying that such company meets the criteria stated in the preceding sentence, and shall name Lessor, in the case of casualty insurance, as sole loss payee with respect to claims in excess of $250,000, and as loss payee, as its interest may appear, with respect to claims equal to or less than $250,000, in each case to the extent such claims relate to Items of Equipment subject to this Master Lease, and, in the case of liability insurance, together with the Certificate Holders, as additional insureds. Each policy referred to in this Section 7.1 shall provide that: (i) it will not be ----------- cancelled or its limits reduced, or allowed to lapse without renewal, except after not less than 30 days' written notice to Lessor; (ii) the interests of Lessor and the Certificate Holders shall not be invalidated by any act or negligence of Lessee or any person having an interest in any item of Equipment, except for such acts or omissions that constitute exceptions to this clause (ii) ----------- as provided for in policies of insurance in effect as of the date hereof; (iii) such insurance is primary with respect to any other insurance carried by or available to Lessor and the Certificate Holders; (iv) the insurer shall waive any right of subrogation, setoff, counterclaim, or other deduction, whether by attachment or otherwise, against Lessor or the Certificate Holders; and (v) such policy shall contain a cross-liability clause providing for coverage of Lessor and each Certificate Holder as if separate policies had been issued to each of them. Lessee will notify Lessor promptly of any policy cancellation, reduction in policy limits, modification or amendment. Section 7.2. Delivery of Insurance Certificates. On or before the ---------------------------------- Effective Date and at each Delivery Date, Lessee shall deliver to Lessor certificates of insurance satisfactory to Lessor evidencing the existence of all insurance required to be maintained hereunder and setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. Thereafter, throughout the Master Lease Term and any Renewal Terms, no sooner than 10 days before and no later than on the last day of October (commencing in 1994), Lessee shall deliver to Lessor certificates of insurance evidencing that all insurance required by Section 7.1 hereof to be maintained by Lessee with ----------- respect to the Equipment subject to this Master Lease is in effect. With each such certificate of insurance (other than certificates delivered in connection with Delivery Date Closings) Lessee shall cause to be delivered a written report of Karch & Company or such other firm of independent insurance brokers of nationally recognized standing, stating that, in their 14 opinion, such policy is in compliance with the provisions of Section 7.1 hereof ----------- and is comparable in all material respects with insurance carried by responsible owners and operators of equipment similar to the Equipment. ARTICLE VIII DEFAULT Section 8.1. Event of Default. The following shall constitute events of ---------------- default (each an "Event of Default") hereunder (whether any such event shall be ---------------- voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) Any payment of Rent or any other payment payable by the Lessee hereunder or under any other Operative Agreement shall not be paid when due, and such payment shall be overdue for a period of five Business Days; (b) Any representation or warranty on the part of Lessee, Sublessee or Guarantor contained in any Operative Agreement or in any certificate, letter or other writing or instrument furnished or delivered to Lessor or Certificate Holders or, pursuant thereto shall at any time prove to have been incorrect in any material respect when made, deemed made or reaffirmed, as the case may be; (c) Lessee shall default in any respect in the performance or observance of any term, covenant, condition or agreement on its part to be performed or observed under Section 4.4 of the Participation Agreement, ----------- Sections 5.1(c) or 5.1(d), Article XI, or Section 21.2 hereof; --------------- ------ ---------- ------------ (d) Lessee shall default in any material respect in the performance or observance of any term, covenant, condition or agreement on its part to be performed or observed under Section 5.2, Article VII or Article IX ----------- ----------- ---------- hereof; (e) Lessee, Sublessee or Guarantor shall default in any material respect in the performance or observance of any other term, covenant, condition or agreement on their part to be performed or observed hereunder or under any Operative Agreement (and not constituting an Event of Default under any other clause of this Section 8.1), and such default shall ----------- continue unremedied for a period of 30 days after: (i) Written notice thereof by Lessor or any Participant to 15 Lessee; or (ii) Lessee or Guarantor has Actual Knowledge thereof; provided, -------- that if such failure cannot be remedied within such 30-day period and the Lessee or Guarantor is diligently proceeding, in the absolute discretion of the Lessor, to correct such failure of performance and such failure of performance is capable of being remedied within an additional 30-day period, such period shall be extended for an additional 30 days; (f) (i) Either Lessee, Sublessee or Guarantor shall generally fail to pay, or admit in writing its inability to pay, its debts as they become due, or shall voluntarily commence any case or proceeding or file any petition under any bankruptcy, insolvency or similar law or seeking dissolution, liquidation or reorganization or the appointment of a receiver, trustee, custodian or liquidator for itself or a substantial portion of its property, assets or business or to effect a plan or other arrangement with its creditors, or shall file any answer admitting the jurisdiction of the court and the material allegations of any involuntary petition filed against it in any bankruptcy, insolvency or similar case or proceeding, or shall be adjudicated bankrupt, or shall make a general assignment for the benefit of creditors, or shall consent to, or acquiesce in the appointment of, a receiver, trustee, custodian or liquidator for itself or a substantial portion of its property, assets or business; or (ii) corporate action shall be taken by Lessee for the purpose of effectuating any of the foregoing; (g) Involuntary proceedings or an involuntary petition shall be commenced or filed against Lessee, Sublessee or Guarantor under any bankruptcy, insolvency or similar law or seeking the dissolution, liquidation or reorganization of Lessee, Guarantor or Sublessee or the appointment of a receiver, trustee, custodian or liquidator for Lessee, Guarantor or Sublessee or of a substantial part of the property, assets or business of Lessee, Guarantor or Sublessee, or any writ, judgment, warrant of attachment, execution or similar process shall be issued or levied against a substantial part of the property, assets or business of Lessee, Guarantor or Sublessee, and such proceedings or petition shall not be dismissed or stayed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded, within 60 days after commencement, filing or levy, as the case may be; (h) A contribution failure occurs with respect to any Pension Plan (other than a Multiemployer Plan) sufficient to give rise to a lien under Section 302(f) of ERISA or Section 16 412(n) of the Code with respect to any Pension Plan (other than a Multiemployer Plan) as to which Lessee or any Related Person to Lessee may have any liability, there shall exist an unfunded current liability (as defined in 302(d)(8) of the Code) with respect to any Pension Plan which unfunded current liability is material to the consolidated financial condition of Guarantor and its consolidated subsidiaries, steps are undertaken to terminate any Pension Plan, any Reportable Event occurs with respect to a Pension Plan for which notice to the PBGC has not been waived, any action is taken with respect to a Pension Plan which could result in the requirement that Lessee or any Related Person to the Lessee furnish a bond or other security to the PBGC or such Pension Plan, the occurrence of any event which could cause Lessee or any Related Person to Lessee to incur any material liability, fine or penalty with respect to any Pension Plan or any material increase in liability with respect to any Pension Plan, or the occurrence of any event that could result in any material increase in the liability (or contingent liability) of Lessee or any Related Person to Lessee with respect to post-retirement benefits under any Welfare Plan. (i) any Operative Agreement or the security interest granted under this Master Lease shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of Lessee, Guarantor or Sublessee, as the case may be, or Lessee or Guarantor or any Subsidiary of either shall, directly or indirectly, contest in any manner the effectiveness, validity, binding nature or enforceability thereof; or the security interest securing Lessee's obligations under the Operative Agreements shall, in whole or in part, cease to be a perfected first priority security interest, subject only to Permitted Liens; (j) Guarantor shall fail to perform (within the applicable grace or cure period set forth in an Operative Agreement) in any material respect any covenant or condition under the Guaranty; (k) There shall exist a material breach with respect to the Sublease; (l) Lessee, Sublessee, Guarantor or any of their respective Subsidiaries (other than MGM Grand Air, Inc. and its Subsidiaries) shall fail to make any payment when due in respect of any indebtedness or contingent obligation or as a result of an event of default, the maturity of an indebt-edness or contingent obligation has been accelerated prior to its express maturity, provided that the aggregate of all 17 such defaulted payments and/or accelerations of principal exceeds $25,000,000 and such default or defaults shall continue unremedied for 60 days after written notice to Lessee, Sublessee or Guarantor; (m) The Termination of Construction Period has not occurred by October 7, 1994, provided that the foregoing shall not constitute an Event -------- of Default if the Termination of Construction Period shall have occurred prior to an acceleration of the Certificates; (n) A final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against Lessee, Sublessee, Guarantor or any Subsidiary of Lessee or the Sublessee, and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the -------- aggregate of all such judgments exceeds $25,000,000; (o) There has occurred any revocation, suspension or loss of any Gaming Permit (after the same shall have been obtained) which results in the cessation of business at the Hotel for a period of more than 120 consecutive days; (p) Any Event of Default under and as defined in the Indenture (or under any documentation evidencing a refinancing or replacement of the indebtedness created thereunder) has occurred and is continuing; (q) Any Event of Default under and as defined in the MGM Credit Agreement (or under any documentation evidencing a refinancing or replacement of the indebtedness created thereunder) has occurred and is continuing; or (r) Any Event of Default under and as defined in the Reimbursement Agreement has occurred and is continuing. Section 8.2. Remedies. If any Event of Default exists and is continuing, -------- Lessor may exercise in any order one or more or all of the remedies set forth in this Section 8.2 (it being understood that no remedy herein conferred is ----------- intended to be exclusive of any other remedy or remedies, but each and every remedy shall be cumulative and shall be in addition to every other remedy given herein or now or hereafter existing at law or in equity or by statute). For purposes of the preceding sentence, if an Event of Default is cured prior to termination of this Lease (but after the applicable grace period), such Event of Default shall no longer be deemed to be continuing; provided, however, that upon -------- ------- termination of this Lease by Lessor pursuant 18 to this Section 8.2, Lessor may exercise any and all remedies provided for ----------- herein and under applicable law: (a) Lessor may proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Master Lease or to recover damages for the breach thereof; or (b) Lessor may by notice in writing to Lessee terminate this Master Lease, but Lessee shall remain liable as hereinafter provided; and Lessor may, at its option, do any one or more of the following: (i) Declare the Lease Balance, all accrued but unpaid Rent (to the extent of the accrued unpaid interest on the Certificates), all other amounts then payable by Lessee under this Master Lease and the other Operative Agreements and an amount equal to the Make-Whole Premium to be immediately due and payable, and recover any other damages and expenses (including the costs and expenses described in Sections 7.1, 7.2 and 10.5 of the Participation ------------ --- ---- Agreement) in addition thereto which Lessor shall have sustained by reason of such Event of Default; (ii) enforce the Lien given hereunder pursuant to the U.C.C. or any other law; (iii) enter upon the premises where any item of Equipment may be and either remove such Equipment (or any portion thereof), with any damage to the improvements upon which the Equipment may be attached to be borne by Lessee, or take possession of the Equipment; and (iv) require Lessee to disassemble and return the Equipment as provided in Article IX hereof; or ---------- (c) Lessor may require Lessee immediately to purchase the Equipment for a purchase price equal to the sum of the Lease Balance, all accrued and unpaid Rent, an amount equal to any Make-Whole Premium and all other amounts then due and payable under the Operative Agreements. Except for notices expressly otherwise provided for in the Operative Agreements, Lessee hereby waives presentment, demand, protest and notice of any kind including, without limitation, notices of default, notice of acceleration and notice of intent to accelerate. Section 8.3. Proceeds of Sale; Deficiency. The proceeds of any sale ---------------------------- pursuant to this Article VIII shall be applied by the Lessor in the manner ------------ specified in Article V of the Trust Agreement. --------- If there is a deficiency in any amounts due hereunder after Lessor has exercised remedies, Lessee shall promptly pay the same to Lessor. 19 Section 8.4. Right to Perform Lessee's Agreements. If Lessee fails to ------------------------------------ perform any of its agreements contained herein or in any other Operative Agreement, whether or not an Event of Default has occurred and is continuing, Lessor may perform such agreement and the fees and expenses incurred by Lessor in connection with such performance together with interest thereon shall be payable by Lessee upon demand. Interest on fees and expenses so incurred by Lessor shall accrue at the rate provided in the Certificates for overdue payments. ARTICLE IX RETURN OF EQUIPMENT If Lessor shall rightfully demand possession of the Equipment pursuant to this Master Lease, Lessee, at its expense, shall forthwith disassemble, package to facilitate reassembly and deliver exclusive possession of such Equipment to Lessor at a location designated by Lessor, together with a copy of an inventory list of the Equipment, all then current plans, specifications and operating, maintenance and repair manuals relating to the Equipment that have been received or prepared by Lessee, appropriately protected and in the condition required by Section 5.3 hereof, to Lessor. In addition, if Lessor has terminated this - ----------- Master Lease pursuant to Section 8.2 or Section 11.3, Lessee shall maintain the ----------- ------------ Equipment in the condition required by Section 5.3, store the Equipment without ----------- cost to Lessor and keep all of the Equipment insured in accordance with Article ------- VII for 90 days after redelivery thereof. - --- ARTICLE X EARLY TERMINATION If no Event of Default or event which with the giving of notice and/or passage of time could become an Event of Default shall exist, on any date scheduled for the payment of principal with respect to the Certificates subsequent to the ninth such scheduled date Lessee may, at its option, by giving at least 30 days advance written notice to Lessor, purchase all, but not less than all, of the Equipment for the sum of: (i) The Lease Balance (as determined after any payment of Rent on such date); (ii) an amount equal to any Make-Whole Premium; and (iii) all other fees and expenses then due and payable pursuant to this Master Lease and the other Operative Agreements. Upon the payment of such sum by Lessee in accordance with the provisions of the preceding sentence, the obligation of Lessee to pay Rent hereunder shall cease, the term of this Master Lease shall end on the date of such payment and Lessor shall execute and deliver to Lessee a 20 bill of sale (without representations or warranties, except that the Equipment is free and clear of Lessor Liens) and such other documents as may be required to release the Equipment from the terms and scope of this Master Lease, in such form as may be reasonably requested by Lessee, all at Lessee's expense. ARTICLE XI LEASE TERMINATION Section 11.1. Lessee's Options. Not later than 360 days prior to the last ---------------- day of the Master Lease Term and any Renewal Term, Lessee shall by delivery of written notice to Lessor exercise one of the following options: (a) Renew this Master Lease for an additional one year Renewal Term (the "Renewal Option"); provided, however, that such Renewal Option may be -------------- -------- ------- exercised only with respect to the expiration of the Master Lease Term and the first Renewal Term; (b) Purchase for the Purchase Option Exercise Amount all, but not less than all, of the Equipment then subject to this Master Lease on the last day of the Master Lease Term or Renewal Term with respect to which such option is exercised (the "Fixed Price Purchase Option"), in which --------------------------- event Lessee shall, not less than three months prior to the expiration of the Master Lease Term or Renewal Term, as the case may be, at its option, either: (i) Post a letter of credit, from a bank satisfactory to the Required Certificate Holders in an amount equal to the Purchase Option Exercise Amount, which letter of credit will secure the payment by Lessee of the Purchase Option Exercise Amount; or (ii) Present to Lessor an unconditional purchase agreement for all of the Equipment in an amount not less than the Purchase Option Exercise Amount from a purchaser who, in the sole judgment of the Required Certificate Holders, is at least as creditworthy as the Sublessee, which agreement shall be in form and substance satisfactory to Lessor and the Required Certificate Holders; or (c) Sell for cash to a purchaser or purchasers not in any way affiliated with Lessee, Sublessee or Guarantor all, but not less than all, of the Equipment then subject to this Master Lease on the last day of the Master Lease Term or any Renewal Term with respect to which such option is exercised (the "Sale Option"). Simultaneously with a sale pursuant to the ----------- Sale Option, Lessee shall pay Lessor from the gross proceeds of such sale, without deductions or expense reimbursements (the "Proceeds"), the Lease -------- Balance as of the 21 Termination Date (as determined after any payment of Rent on such date) plus any applicable Make-Whole Premium. If the Proceeds exceed the sum of the Lease Balance plus any applicable Make-Whole Premium as of such date, Lessee will retain the portion of the Proceeds in excess thereof. If the Proceeds are less than the sum of the Lease Balance plus any applicable Make-Whole Premium as of such date, Lessee will pay or will cause to be paid to Lessor on the last day of the Master Lease Term or the applicable Renewal Term: (i) Adjusted Proceeds; and (ii) from its own funds, the sum of the Make-Whole Premium, if any, and the greater of: (x) The Applicable Percentage Amount or (y) the Recourse Deficiency Amount (the amount determined pursuant to clause (ii) shall be referred to as the "Total ----------- ----- Recourse Amount"). The obligation of Lessee to pay the Total Recourse --------------- Amount shall be a recourse obligation of the Lessee and shall be payable on the date provided for in the preceding sentence without regard to the amount of Proceeds. The Total Recourse Amount and all Adjusted Proceeds paid to Lessor shall be distributed in accordance with Article V of the --------- Trust Agreement. If Lessee elects to exercise the Sale Option, Lessee shall, not less than 30 days prior to the expiration of the Master Lease Term or any Renewal Term, as the case may be, post a letter of credit, from a bank satisfactory to a Deciding Interest of Residual Certificate Holders in an amount equal to the greater of the Applicable Percentage Amount or the Recourse Deficiency Amount, which letter of credit will secure the payment by Lessee of the Applicable Percentage Amount or the Recourse Deficiency Amount, as applicable. Section 11.2. Election of Options. Lessee's election of the Fixed Price ------------------- Purchase Option will be irrevocable at the time made, but if Lessee fails to make a timely election, Lessee will be deemed, in the case of the Master Lease Term and each Renewal Term (other than the last Renewal Term) to have irrevocably elected the Renewal Option and, in the case of the last Renewal Term, Lessee will be deemed to have irrevocably elected the Fixed Price Purchase Option. In addition, the Sale Option shall automatically be revoked if there exists an Event of Default at any time after the Sale Option is properly elected and Lessor shall be entitled to exercise all rights and remedies under Article ------- VIII hereof. Lessee may not elect the Sale Option if there exists on the date - ---- the election is made an Event of Default or an event which with the giving of notice and/or passage of time could become an Event of Default. Section 11.3. Sale Option Procedures. (a) If Lessee elects the Sale ---------------------- Option, Lessee shall use its best commercial efforts to obtain the highest all cash purchase price for the Equipment. All costs related to such sale and delivery, including the cost 22 of sales agents, removal of the Equipment, delivery of documents and Equipment, certification and testing of the Equipment in any location chosen by the buyer or prospective buyer, or other information and of any parts, configurations, repairs or modifications desired by a buyer or prospective buyer shall be borne entirely by Lessee, without regard to whether such costs were incurred by Lessor, Lessee or any potentially qualified buyer. Lessor shall not have any responsibility for procuring any purchaser. If, nevertheless, Lessor, at the direction of a Deciding Interest of the Residual Certificate Holders, undertakes any sales efforts, Lessee shall promptly reimburse Lessor for any charges, costs and expenses incurred in such effort, including any allocated time charges, costs and expenses of internal counsel or other attorneys' fees. Upon a sale pursuant to the Sale Option, the Equipment shall be in the condition required by Section 5.3 hereof. - ----------- (b) Lessor shall determine whether to accept the highest all cash offer for the Equipment, which determination shall be made by a Deciding Interest of Residual Certificate Holders, in their sole and absolute discretion; provided, however, that Lessor's acceptance of an all cash offer for the Equipment shall not relieve Lessee of its obligation to sell such Equipment on the last day of the Master Lease Term or a Renewal Term, as the case may be, if the sale pursuant to the offer and acceptance is not consummated; and provided, further, however, that Lessor shall be obligated to accept the highest all cash offer for the Equipment if Proceeds are equal to or greater than Adjusted Proceeds. Lessee shall provide Lessor copies of all written offers for the purchase of any Item of Equipment promptly after receipt thereof. At least 14 days prior to the last day of the Master Lease Term or Renewal Term with respect to which such option is exercised, Lessor, acting at the direction of a Deciding Interest of Residual Certificate Holders, shall notify Lessee of which offer, if any, it is willing to accept; provided that any offers communicated to Lessee after such date shall continue to be promptly delivered to Lessor and, in the sole discretion of the Deciding Interest of Residual Certificate Holders, and subject to whatever contractual limitations then exist, considered. Lessor retains the right to reject all offers (subject to the second proviso in the first sentence of this Section 11.3(b) in which event Lessor shall retain ownership of the --------------- Equipment, Lessee and Sublessee shall execute a release of all right, title and interest in and to the Equipment, in form satisfactory to the Lessor and a Deciding Interest of Residual Certificate Holders, Lessee shall pay to Lessor any applicable taxes and Lessee shall represent and warrant that the Equipment is free and clear of all Liens (other than Liens imposed by, through or under Lessor in its individual capacity and not related to the transactions contemplated by the Operative 23 Agreements). Any purchaser or purchasers of the Equipment shall not in any way be affiliated with Lessee, Sublessee or Guarantor. ARTICLE XII ASSIGNMENTS Section 12.1. Assignment by Lessor. Lessor shall not sell, assign, -------------------- transfer or otherwise dispose of its rights or delegate its obligations under this Master Lease to any other person except as permitted or required by the Trust Agreement. Section 12.2. Assignment by Lessee. Lessee shall not sell, assign, -------------------- transfer or otherwise dispose of its rights or delegate its obligations under this Master Lease to any other person, except as permitted or required by Section 5.2. - ----------- ARTICLE XIII OWNERSHIP, GRANT OF SECURITY INTEREST AND FURTHER ASSURANCES Section 13.1. Grant of Security Interest. Title to the Equipment shall -------------------------- remain in Lessor as security for the obligations of Lessee, Sublessee and Guarantor hereunder and under the Operative Agreement to which it is a party until such time as Lessee, Sublessee and Guarantor have fulfilled all of their obligations hereunder and under such Operative Agreement. Lessee hereby assigns, grants and pledges to Lessor, on behalf of itself and the Certificate Holders, a security interest in all of Lessee's right, title and interest, whether now or hereafter existing or acquired, in the Collateral, to secure the payment and performance of all obligations of Lessee, Sublessee or Guarantor now or hereafter existing under this Master Lease or any other Operative Agreement; provided, however, that the foregoing security interest does not secure the - -------- ------- payment or performance of any obligations of Lessee, Sublessee or Guarantor now or hereafter existing under any agreement, instrument, lease or other undertaking that is not an Operative Agreement or otherwise connected with or arising out of the transactions contemplated by the Participation Agreement. Lessee shall, at its expense, do any further act and execute, acknowledge, deliver, file, register and record any further documents which Lessor (pursuant to a request under Section 7.2 of the Trust Agreement) may reasonably request in ----------- order to protect its title to and perfected security interest in the Collateral, subject to no liens other than Permitted Liens, and Lessor's rights and benefits under this Master Lease. Lessee shall promptly and duly execute and deliver to Lessor (pursuant to a request under 24 Section 7.2 of the Trust Agreement) such documents and assurances and take such - ----------- further action as Lessor may from time to time reasonably request in order to carry out more effectively the intent and purpose of this Master Lease and the other Operative Agreements, to establish and protect the rights and remedies created or intended to be created in favor of Lessor hereunder and thereunder, and to establish, perfect and maintain the right, title and interest of Lessor in and to the Equipment, subject to no lien other than Permitted Liens, or of such financing statements or fixture filings or other documents with respect hereto as Lessor may from time to time reasonably request, and Lessee agrees to execute and deliver promptly such of the foregoing financing statements and fixture filings or other documents as may require execution by Lessee. To the extent permitted by applicable laws, Lessee hereby authorizes any such financing statements and fixture filings to be filed without the necessity of the signature of Lessee. Upon Lessee's request, Lessor shall at such time as all of the obligations of Lessee under this Master Lease or any other Operative Document have been paid or performed in full (other than Lessee's contingent obligations, if any, under Articles VII and VIII of the Participation Agreement and Section 3.1 of the Trust Agreement), execute and deliver termination ----------- statements and other appropriate documentation reasonably requested by Lessee, all at Lessee's expense, to evidence Lessor's release of its security interest in the Collateral. At such time, Lessor shall execute and deliver to Lessee a bill of sale (without representations or warranties except that the Equipment is free and clear of Lessor Liens) for the Equipment. Section 13.2. Retention of Title or Proceeds in the Case of Default. If ----------------------------------------------------- Lessee would be entitled to any amount (including any Casualty Proceeds or Partial Casualty Proceeds) or title to any item of Equipment hereunder but for the existence of any Event of Default or event which with the giving of notice and/or passage of time could become an Event of Default, Lessor shall hold such amount or item of Equipment as part of the Collateral and shall be entitled to apply such amounts against any amounts due hereunder; provided that Lessor shall -------- distribute such amount or transfer such Equipment in accordance with the other terms of this Master Lease if and when no Event of Default or event which with the giving of notice and/or passage of time could become an Event of Default exists. ARTICLE XIV EFFECT OF WAIVER No delay or omission to exercise any right, power or remedy accruing to Lessor upon any breach or default of Lessee hereunder 25 shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein or of or in any similar breach or default thereafter occurring, nor shall any single or partial exercise of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of Lessor of any breach or default under this Master Lease must be specifically set forth in writing and must satisfy the requirements set forth in Article XVII with respect to approval by ------------ Lessor. ARTICLE XV SURVIVAL OF COVENANTS All claims pertaining to the representations, warranties and covenants of Lessee under Articles II, III, IV, V, VI, VII, X, XII and XIV shall survive the ----------- --- -- - -- --- - --- --- termination of this Master Lease to the extent such claims arose out of events occurring or conditions existing prior to any such termination. ARTICLE XVI APPLICABLE LAW THIS MASTER LEASE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF CALIFORNIA WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF. ARTICLE XVII EFFECT AND MODIFICATION OF MASTER LEASE Except as provided in the next sentence, no variation, modification, amendment or waiver of this Master Lease, including any schedules or exhibits hereto, or any other Operative Agreement to which Lessor is a party shall be valid unless in writing and signed by Lessor and Lessee. No variation, modification, amendment or waiver of this Master Lease purporting to: (a) Postpone, reduce or forgive, in whole or in part, any payment of Rent, Lease Balance, Purchase Option Exercise Amount, Applicable Percentage, Recourse Deficiency Amount, Make-Whole Premium, interest or other amount payable hereunder, or modify the definition or method of calculation of any payment of Rent, Lease Balance, Purchase Option Exercise Amount, Applicable 26 Percentage, Recourse Deficiency Amount, Make-Whole Premium, interest or other amount payable hereunder; (b) Release any Collateral granted hereunder (except as expressly provided herein); (c) Modify or waive any provisions of Articles V, ---------- IX or XI or Sections 8.3, 12.2 or 13.2; or (d) Modify this sentence shall be - -- -- ------------ ---- ---- valid unless in writing and signed by Lessor. ARTICLE XVIII NOTICES All notices, demands, requests, consents, approvals and other instruments hereunder shall be in writing and shall be deemed to have been properly given if given as provided for in Section 10.4 of the Participation Agreement. ------------ ARTICLE XIX COUNTERPARTS This Master Lease has been executed in several counterparts. One counterpart has been prominently marked "Lessor's Copy". Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation of Lessee or shall be deemed to be an original or to be chattel paper for purposes of the U.C.C., and such copy shall be held by Lessor. ARTICLE XX SEVERABILITY Whenever possible, each provision of this Master Lease shall be interpreted in such manner as to be effective and valid under applicable law; but if any provision of this Master Lease shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Master Lease. ARTICLE XXI SUCCESSORS AND ASSIGNS; MERGER Section 21.1. Successors and Assigns. This Master Lease shall be binding ---------------------- upon the parties hereto and, subject to Article XII hereof, their respective ----------- successors and assigns, and 27 shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 21.2. Merger. Lessee shall not consolidate with or merge with or ------ into any other corporation or entity, or permit any other corporation or entity to consolidate with or merge with or into Lessee or any such subsidiary. ARTICLE XXII BROKERS Neither the Lessee nor the Lessor has engaged or authorized any broker, finder, investment banker or other third party to act on its behalf, directly or indirectly, as a broker, finder, investment banker, agent or any other like capacity in connection with this Master Lease or the transactions contemplated hereby, except that Sublessee and its Affiliates have retained BA Leasing & Capital Corporation as arranger in connection with the transaction contemplated hereby and the Sublessee shall be responsible for, and shall indemnify, defend, and hold the Lessor and each Certificate Purchaser harmless from and against any and all claims, liabilities, or demands by BA Leasing & Capital Corporation for fees or other entitlements with respect to this Master Lease or the transactions contemplated hereby or by the Participation Agreement. ARTICLE XXIII JURY TRIAL EACH OF LESSEE AND LESSOR WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS MASTER LEASE OR ANY RELATED DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS MASTER LEASE OR ANY RELATED DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. ARTICLE XXIV CAPTIONS; TABLE OF CONTENTS Section captions and the table of contents used in this Master Lease (including the schedule) are for convenience of 28 reference only and shall not affect the construction of this Master Lease. ARTICLE XXV FINAL AGREEMENT THIS MASTER LEASE, TOGETHER WITH THE OTHER OPERATIVE AGREEMENTS, REPRESENTS THE ENTIRE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THE MASTER LEASE AND THE OTHER OPERATIVE AGREEMENTS. THIS MASTER LEASE CANNOT BE MODIFIED, SUPPLEMENTED, AMENDED, RESCINDED OR CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES, EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ARTICLE XXVI TIMELINESS OF PERFORMANCE The provisions of Article XI pertaining to the delivery of notice and the ---------- performance of certain events on dates required by such Article XI are to be ---------- strictly adhered to by the parties hereto. 29 IN WITNESS WHEREOF, the parties hereto have executed this Master Lease as of the day and year first above written. GRAND EQUIPMENT, INC. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, not individually, but solely as Trustee By___________________________ By____________________________ Name Printed:________________ Name Printed:_________________ Title:________________________ Title:________________________ 30 EXHIBIT C TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF SUBLEASE SUBLEASE P R E A M B L E This Sublease, dated as of November 17, 1993, as amended, modified, restated or supplemented from time to time, (this "Sublease") is between Grand -------- Equipment, Inc., a Delaware corporation ("Sublessor"), with its principal office --------- at 3155 West Harmon Avenue, Las Vegas, Nevada 89103, and MGM Grand Hotel, Inc., a Nevada corporation, with its principal office at 3155 West Harmon Avenue, Las Vegas, Nevada 89103 ("Sublessee"). --------- R E C I T A L S: - - - - - - - - WHEREAS, Sublessor and Sublessee are parties to that certain Participation Agreement dated as of November 9, 1993 among MGM Grand, Inc., as Guarantor, Sublessor, as Lessee, Sublessee, as Sublessee, the Persons named on Schedule I thereto and Trustee, not in its individual capacity, but solely as Trustee under the Trust Agreement. Unless otherwise defined herein, terms which are defined herein without definition shall have the same meanings as assigned to them in Schedule X to the Participation Agreement. - ---------- WHEREAS, Sublessor desires to lease to Sublessee, and Sublessee desires to lease from Sublessor, the equipment described in Certificates of Acceptances and/or Certificates of Possession and replacements thereto ("Sublease -------- Equipment"). - --------- WHEREAS, Sublessor will be Lessee under that certain Master Lease Agreement, dated as of the date hereof (as from time to time thereafter amended or supplemented, the "Master Lease") with Trustee, not in its individual ------------ capacity but solely as Trustee under the Trust Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. LEASE. Sublessor leases to Sublessee and Sublessee leases from Sublessor the Sublease Equipment described in the Certificates of Acceptance or the Certificates of Possession executed by Sublessee and Lessee and delivered to Lessor, as such items may be substituted and replaced from time to time in accordance with the provisions of the Master Lease and this Sublease. All items of Equipment that become subject to the Master Lease shall automatically become subject to this Sublease. 2 SECTION 2. TERM. The term of this Sublease shall be concurrent with the term of the Master Lease and termination thereof shall constitute automatic termination hereof and any extension or renewal of the Master Lease shall constitute automatic renewal or extension hereof. If Sublessor terminates the Master Lease with respect to all of the Equipment as provided in Article X of --------- the Master Lease, Sublessor shall sell to Sublessee and Sublessee shall purchase from Sublessor the Sublease Equipment for the same amount as is payable under the Master Lease and such amount will be payable on the same date as the amount payable under the Master Lease. If a Substituted Item is released from the Master Lease pursuant to Section 5.4(b) thereof, Sublessor shall sell to -------------- Sublessee and Sublessee shall purchase from Sublessor, the Substituted Item so released on the date of delivery to Sublessor from Trustee of a Certificate of Transfer for the Substituted Item for either a purchase price in cash equal to the Substituted Item's then fair market value or in exchange for a Replacement Item or Items meeting the requirements of Section 4.3 of the Participation ----------- Agreement. Upon payment of the Lease Balance for the Substituted Item, Sublessor shall execute and deliver to Sublessee a quitclaim Certificate of Transfer (without representations or warranties) for the Substituted Item. SECTION 3. RENT. For the term of this Sublease, including any renewal terms, Sublessee shall pay rent to Sublessor in the amount, at the time and in the manner set forth for the payment of Rent in the Master Lease. SECTION 4. WARRANTIES. NEITHER SUBLESSOR NOR ANY ASSIGNEE MAKES ANY EXPRESS OR IMPLIED WARRANTY WHATSOEVER OF TITLE, MERCHANTABILITY, FITNESS FOR ANY PURPOSE OR OTHERWISE REGARDING ANY SUBLEASE EQUIPMENT OR ANY ITEM THEREOF. Sublessor and Sublessee agree that the risk of loss with respect to any Sublease Equipment, whether or not then delivered or identified, shall be borne by the Sublessee. SECTION 5. SUBORDINATION TO MASTER LEASE. This Sublease is being entered into immediately prior to the Sublessor conveying the Equipment to the Lessor and leasing it back from the Lessor pursuant to the Master Lease. The Sublessee acknowledges that this Sublease is being entered into in contemplation of such conveyance and lease by the Sublessor. The Sublessee hereby consents to such conveyance and lease. And the Sublessee agrees that immediately upon the completion of such conveyance and lease transaction on the Effective Date all of Sublessee's rights, title and interest as a direct lessee of the Equipment shall cease and from and after the completion of such conveyance and lease transaction, Sublessee's sole right to possession and use of the Equipment shall be that of a lessee from the Sublessor whose rights in turn derive from the Master Lease. In furtherance thereof, and without regard to the order of events, 3 the Sublessee hereby agrees that the Sublease is in all respects subject and subordinate to the Master Lease and the interests of the Certificate Holders in and to the Collateral. Without limiting the foregoing, if for any reason Assignee shall exercise rights or remedies under the Master Lease, such exercise may include the termination hereof, notwithstanding to the maximum extent permitted by law, any right of Sublessee hereunder. Sublessee shall in all respects assume all obligations of the Sublessor under the Master Lease and Sublessee shall comply with all the terms and provisions thereof, including those of Article V, Article VI, Article VII and Article IX of the Master Lease. --------- ---------- ----------- ---------- SECTION 6. ASSIGNMENT. Sublessee shall not assign any right or interest in this Sublease without the prior written consent of the Trustee, except that Sublessee may (i) enter into the License Agreement and (ii) grant the Sublease Grant. Sublessor is entering into the Sublease Assignment on the Effective Date with respect to this Sublease. Sublessee consents to such assignment and agrees to enter into and perform its obligations under the consent and agreement of Sublessee in connection with the Sublease Assignment. Sublessee shall, upon request, execute and deliver such instruments and take such other action as may reasonably be requested to protect Sublessor's or Trustee's interest. This Sublease shall not be amended, modified or waived without the prior written consent of Trustee. Sublessee acknowledges that this Sublease has been assigned, and a security interest in the Sublease Equipment has been granted to Trustee under the Master Lease. The Trustee acknowledges and consents to the License Agreement and the Sublease Grant. SECTION 7. NOTICES. All notices shall be in writing and shall be given in the manner and at the addresses provided for in the Participation Agreement. SECTION 8. MANDATORY PURCHASE. If an Event of Default exists and is continuing under the Master Lease, Sublessee shall immediately purchase the Sublease Equipment for a purchase price equal to the sum of the Lease Balance, an amount equal to any Make-Whole Premium and all other amounts then due and payable under the Operative Agreements. Sublessee shall pay such amounts promptly to Sublessor in immediately available funds. If an Event of Default exists, Sublessee's obligation to purchase the Sublease Equipment shall be absolute and unconditional under any and all circumstances and Sublessee shall not be entitled to, and hereby waives, any right of abatement, setoff or reduction. SECTION 9. MISCELLANEOUS. This Sublease will be governed by the laws of the State of California without regard to conflict of law principles. This Sublease has been executed in several counterparts. One counterpart has been prominently marked "Trustee's Copy". Only the counterpart marked "Trustee's Copy" 4 shall be deemed to be chattel paper for purposes of the Uniform Commercial Code. Each of Sublessor and Sublessee waives any right to trial by jury in any action or proceeding with respect to this Sublease or any instrument, document or agreement now or hereafter relating to this Sublease. If any provision hereof shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Sublease. This Sublease shall be binding upon Sublessor and Sublessee and shall inure to the benefit of Sublessor, Sublessee, Assignee, and the successors and assigns of Assignee. SECTION 10. INTEGRATED TRANSACTION. The transaction represented by the Operative Agreements is intended by the Participants to be one integrated transaction to provide for the secured financing of the Equipment pursuant to the Master Lease. In furtherance thereof, all indemnities, representations, warranties, covenants and obligations of any type of the Sublessee to any Participant contained in any Operative Agreement and any certificate or other document delivered in connection therewith or all amendments thereto are hereby incorporated by reference as if fully set forth herein. IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of the day and year first above written. GRAND EQUIPMENT, INC. By:____________________________ Name: Joseph T. Murphy Title: Chief Financial Officer and Treasurer MGM GRAND HOTEL, INC. By:____________________________ Name: Joseph T. Murphy Title: Secretary-Treasurer 5 EXHIBIT D TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF GUARANTY ________________________________________________________ ________________________________________________________ GUARANTY dated as of November 17, 1993 of MGM GRAND, INC. in favor of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, not individually, but solely as Trustee _____________________________________________________ _____________________________________________________ TABLE OF CONTENTS
Page ---- SECTION 1 Guaranty............................. 1 SECTION 2 Guarantor's Obligations Unconditional 2 SECTION 3 Waiver and Agreement................. 4 SECTION 4 Waiver of Subrogation................ 5 SECTION 5 Rights of the Beneficiaries.......... 6 SECTION 6 Term of Guaranty Agreement........... 6 SECTION 7 Covenants of Guarantor............... 8 SECTION 8 Notices, etc......................... 10 SECTION 9 Severability of this Guaranty........ 10 SECTION 10 Further Assurances................... 11 SECTION 11 Miscellaneous........................ 11
1 GUARANTY -------- This GUARANTY (the "Guaranty"), dated as of November 17, 1993, of MGM Grand -------- Inc., a Delaware corporation (the "Guarantor"), is made in favor of Norwest Bank --------- Minnesota, National Association, a national banking association, not individually, but solely as trustee (the "Trustee") under the Trust Agreement ------- dated as of the date hereof between Grand Equipment, Inc., a Delaware corporation as grantor, and the Trustee for the benefit of the Certificate Holders and the Indemnitees. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to such term in the Trust Agreement, unless the context otherwise requires. WHEREAS, the Guarantor is the direct beneficial owner of all the issued and outstanding capital stock of the Lessee and the Sublessee; AND WHEREAS, pursuant to the Sublease, the Sublessee has agreed to sublease the Equipment from the Lessee and concurrently transfer the Equipment, subject to the Sublease, to the Trustee and leaseback such Equipment pursuant to the Master Lease; AND WHEREAS, pursuant to the Sublease Assignment, the Lessee has assigned the Sublease to the Trustee; AND WHEREAS, the Certificate Purchasers are unwilling to purchase the Certificates as contemplated by the Participation Agreement, and the Trustee is unwilling to accept the trust unless the Guarantor executes this Guaranty and as an inducement to the Certificate Purchasers and the Trustee, the Guarantor is entering into this Guaranty and the guaranty provided for herein; AND WHEREAS, it is in the best interest of the Guarantor to execute this Guaranty inasmuch as the Guarantor will derive substantial direct and indirect benefits from the transactions contemplated by the Participation Agreement. NOW, THEREFORE, the Guarantor covenants and agrees as follows: SECTION 1 Guaranty. The Guarantor, as primary obligor and not as surety, -------- hereby unconditionally and irrevocably guarantees to the Trustee (both individually and in its capacity as Trustee), the Certificate Holders and each other Indemnitee and their respective successors and assigns (individually, a "Beneficiary" and, collectively, the "Beneficiaries") as their respective - ------------ ------------- interests may appear: (a) The due, punctual and full payment by the Lessee and the Sublessee of all amounts (including, without limitation, amounts payable as damages in 1 case of default) to be paid by the Lessee and/or the Sublessee pursuant to the Master Lease, the Sublease, the Participation Agreement, the Trust Agreement and/or any other Operative Agreement to which the Lessee or the Sublessee is or is to be a party whether such obligations now exist or arise hereafter, as and when the same shall become due and payable in accordance with the terms thereof; and (b) The due, prompt and faithful performance of, and compliance with, all other obligations, covenants, terms, conditions and undertakings of the Lessee and/or the Sublessee contained in the Participation Agreement, the Trust Agreement or any other Operative Agreements to which the Lessee or the Sublessee is or is to be a party in accordance with the terms thereof (such obligations referred to in clauses (a) and (b) above being hereinafter called the ----------- --- "Obligations"). The Guarantor further agrees to pay any and all costs and - ------------ expenses (including reasonable fees and disbursements of counsel) that may be paid or incurred by any Beneficiary in collecting any Obligations and/or in preserving or enforcing any rights under this Guaranty or under the Obligations. The Guaranty is a guaranty of payment, performance and compliance and not of collectability, is in no way conditioned or contingent upon any attempt to collect from or enforce performance or compliance by the Lessee or the Sublessee or upon any other event, contingency or circumstance whatsoever, and shall be binding upon and against the Guarantor without regard to the validity or enforceability of the Master Lease, the Sublease, the Participation Agreement, the Trust Agreement or any other Operative Agreement. If for any reason whatsoever the Lessee or the Sublessee shall fail or be unable duly, punctually and fully to pay such amounts as and when the same shall become due and payable or to perform or comply with any such obligation, covenant, term, condition or undertaking, the Guarantor will immediately pay or cause to be paid such amounts to the Person or Persons entitled to receive the same (according to their respective interests) under the terms of the Operative Agreements, as appropriate, or perform or comply with any such obligation, covenant, term, condition or undertaking or cause the same to be performed or complied with, together with interest on any amount due and owing from the date the same shall have become due and payable to the date of payment. SECTION 2 Guarantor's Obligations Unconditional. The covenants and ------------------------------------- agreements of the Guarantor set forth in this Guaranty shall be primary obligations of the Guarantor, and such obligations shall be continuing, absolute and unconditional, shall not be subject to any counterclaim, setoff, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense (other than full and strict compliance by the Guarantor with its obligations hereunder), whether based upon 2 any claim that the Lessee, the Sublessee, the Guarantor, or any other Person may have against any Beneficiary or any other Person or otherwise, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not the Guarantor, the Lessee, or the Sublessee shall have any knowledge or notice thereof) including, without limitation: (a) Any amendment, modification, addition, deletion, supplement or renewal to or of or other change in the Obligations or any Operative Agreement or any of the agreements referred to in any thereof, or any other instrument or agreement applicable to any Operative Agreement or any of the parties to such agreements, or to the Equipment, or any assignment, mortgage or transfer thereof or of any interest therein, or any furnishing or acceptance of additional security for, guaranty of or right of offset with respect to, any of the Obligations; or the failure of any security or the failure of any Beneficiary to perfect or insure any interest in any collateral; (b) Any failure, omission or delay on the part of the Lessee or the Sublessee or any Beneficiary to conform or comply with any term of any instrument or agreement referred to in clause (a) above; ---------- (c) Any waiver, consent, extension, indulgence, compromise, release or other action or inaction under or in respect of any instrument, agreement, guaranty, right of offset or security referred to in clause ------ (a) above or any obligation or liability of the Lessee, the Sublessee --- or any Beneficiary, or any exercise or non-exercise by any Beneficiary of any right, remedy, power or privilege under or in respect of any such instrument, agreement, guaranty, right of offset or security or any such obligation or liability; (d) Any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to the Lessee, the Sublessee, any Beneficiary or any other Person or any of their respective properties or creditors, or any action taken by any trustee or receiver or by any court in any such proceeding; (e) Any limitation on the liability or obligations of any Person under the Master Lease, the Sublease or any other Operative Agreement, the Obligations, any collateral security for the Obligations or any other guaranty of the Obligations or any discharge, termination, cancellation, frustration, irregularity, 3 invalidity or unenforceability, in whole or in part, of any of the foregoing, or any other agreement, instrument, guaranty or security referred to in clause (a) above or any term of any thereof; ---------- (f) Any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, or any interruption or cessation in the use of the Equipment by the Lessee, the Sublessee or any other Person for any reason whatsoever (including, without limitation, any governmental prohibition or restriction, condemnation, requisition, seizure or any other act on the part of any governmental or military authority, or any act of God or of the public enemy) regardless of the duration thereof (even though such duration would otherwise constitute a frustration of a lease), whether or not resulting from accident and whether or not without fault on the part of the Lessee, the Sublessee or any other Person; (g) Any merger or consolidation of the Lessee, the Sublessee or the Guarantor into or with any other corporation or any sale, lease or transfer of any of the assets of the Lessee, the Sublessee or the Guarantor to any other Person; (h) Any change in the ownership of any shares of capital stock of the Lessee, the Sublessee or any corporate change in the Lessee or the Sublessee; or (i) Any other occurrence or circumstance whatsoever, whether similar or dissimilar to the foregoing and any other circumstance that might otherwise constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or that might otherwise limit recourse against the Guarantor. The obligations of the Guarantor set forth herein constitute the full recourse obligations of the Guarantor enforceable against it to the full extent of all its assets and properties, notwithstanding any provision in the Trust Agreement or any other agreements limiting the liability of any Beneficiary or any other Person, or any agreement by any Certificate Holder to look for payment with respect thereto, solely to the Trust Estate. SECTION 3 Waiver and Agreement. The Guarantor waives any and all notice -------------------- of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by any Beneficiary upon this Guaranty or acceptance of this Guaranty, and the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance 4 upon this Guaranty. The Guarantor unconditionally waives, to the extent permitted by law: (a) Acceptance of this Guaranty and proof of reliance by any Beneficiary hereon; (b) Notice of any of the matters referred to in Section 2 --------- hereof, or any right to consent or assent to any thereof; (c) All notices that may be required by statute, rule of law or otherwise, now or hereafter in effect, to preserve intact any rights against the Guarantor, including without limitation, any demand, presentment, protest, proof or notice of nonpayment under the Participation Agreement, the Master Lease, the Sublease, the Trust Agreement or any other Operative Agreement, and notice of default or any failure on the part of the Lessee or the Sublessee to perform and comply with any covenant, agreement, term or condition of the Participation Agreement, the Master Lease, the Sublease, the Trust Agreement or any other Operative Agreement; (d) Any right to the enforcement, assertion or exercise against the Lessee or the Sublessee of any right, power, privilege or remedy conferred in the Participation Agreement, the Master Lease, the Sublease, the Trust Agreement or any other Operative Agreement or otherwise; (e) Any requirement of diligence on the part of any Person; (f) Any requirement of any Beneficiary to take any action whatsoever, to exhaust any remedies or to mitigate the damages resulting from a default by any Person under the Participation Agreement, the Master Lease, the Sublease, the Trust Agreement or any other Operative Agreement; (g) Any notice of any sale, transfer or other disposition by any Person of any right under, title to or interest in the Participation Agreement, the Master Lease, the Sublease, the Trust Agreement any other Operative Agreement, the Equipment or the Trust Estate; (h) any and all benefits under California Civil Code Sections 2809, 2810, 2819, 2825, 2845, 2846, 2847, 2848, 2849, 2850, 2899 and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726; and (i) Any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety, or that might otherwise limit recourse against the Guarantor. The Guarantor agrees that this Guaranty shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Lessee or the Sublessee is rescinded or must be otherwise restored by any of the Beneficiaries, whether as a result of any proceedings in bankruptcy or reorganization or otherwise. The Guarantor further agrees that, without limiting the generality of this Guaranty, if an Event of Default shall have occurred and be continuing and the Trustee is prevented by applicable law from exercising its remedies under the Master Lease or the Sublease, the Trustee shall be entitled to receive hereunder from the Guarantor, upon demand therefor, the sums which would have otherwise been due from the Lessee or the Sublessee had such remedies been exercised. 5 SECTION 4 Waiver of Subrogation. The Guarantor hereby irrevocably waives --------------------- any claim or other rights which it may now or hereafter acquire against the Lessee or Sublessee that arise from the existence, payment, performance or enforcement of the Guarantor's obligations under this Guaranty or any other Operative Agreement, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Beneficiaries against the Lessee or Sublessee or any Collateral which the Trustee now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Lessee or Sublessee, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Guarantor in violation of the preceding sentence and the Obligations shall not have been indefeasibly paid in cash, such amount shall be deemed to have been paid to the Guarantor for the benefit of, and held in trust for, the Beneficiaries, and shall forthwith be paid to the Trustee to be credited and applied pursuant to the terms of the Trust Agreement. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Participation Agreement and that the waiver set forth in this Section 4 is knowingly made in contemplation of such --------- benefits. Guarantor hereby absolutely, unconditionally and irrevocably waives and agrees not to assert or take advantage of any defense based upon an election of remedies by Trustee, including an election to proceed by non-judicial rather than judicial foreclosure, which destroys or impairs any right of subrogation of Guarantor or the right of Guarantor to proceed against any Person for reimbursement or both. SECTION 5 Rights of the Beneficiaries. This Guaranty is made for the --------------------------- benefit of, and shall be enforceable by, each Beneficiary as its interest may appear. SECTION 6 Term of Guaranty Agreement. This Guaranty and all guaranties, -------------------------- covenants and agreements of the Guarantor contained herein shall continue in full force and effect and shall not be discharged until such time as all the Obligations shall be indefeasibly paid in full in cash and all the agreements of the Lessee, the Sublessee and the Guarantor hereunder and under the Master Lease, the Sublease, the Participation Agreement, the Trust Agreement and the other Operative Agreements shall have been duly performed. If, as a result of any bankruptcy, dissolution, reorganization, insolvency, arrangement or liquidation proceedings (or proceedings similar in purpose or effect) or if for any other reason, any payment received by any Beneficiary in respect of the Obligations is rescinded or must be returned by such Beneficiary, this Guaranty shall continue to be 6 effective as if such payment had not been made and, in any event, as provided in the preceding sentence. SECTION 7 Covenants of Guarantor. The Guarantor covenants and agrees with ---------------------- each Beneficiary that: (a) promptly following such filing, a copy of each regular or periodic report and any Current Report on Form 8-K filed by the Guarantor with any securities exchange or with the Securities and Exchange Commission or any successor agency, and the delivery of any Quarterly Report on Form 10-Q any Annual Report on Form 10-K in either case as filed with the Securities and Exchange Commission, shall be deemed to satisfy the Guarantor's obligations under Section 8(a)(i) and Section 8(a)(ii), --------------- ---------------- respectively, for the period covered by such reports; and (b) if the Guarantor shall cease to be subject to Section 13 or 15(d) of the Securities Exchange Act of 1934; and (B) the Trustee or any Certificate Holder of a Certificate at the time outstanding shall request that the Guarantor deliver to the Trustee, or to such Certificate Holder, information with respect to the Guarantor that meets the requirements of Rule 144A(d)(4)(i) of such Act (or any successor provision), then: (x) Promptly following the receipt by the Guarantor of that request, the Guarantor shall deliver such information to the Trustee, or to such Certificate Holder; and (y) such information shall, at the time of such delivery, be as of a date so as to be entitled to the presumption that such information is "reasonably current", within the meaning of Rule 144A(d)(4)(ii) of such Act (or any successor provision). SECTION 8 Notices, etc. All notices, demands, requests, consents, ------------- approvals and other instruments hereunder shall be in writing and shall be deemed to have been properly given if given as provided for in Section 10.4 of ------------ the Participation Agreement. SECTION 9 Severability of this Guaranty. In case any provisions of this ----------------------------- Guaranty or any application thereof shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions and statements and any other application thereof shall not in any way be affected or impaired thereby. To the extent permitted by law, the Guarantor hereby waives any provision of law that renders any term or provision hereof invalid or unenforceable in any respect. SECTION 10 Further Assurances. The Guarantor hereby agrees to execute ------------------ and deliver all such instruments and take all such action as the Trustee or any other Beneficiary may from time 7 to time reasonably request in order to fully effectuate the purposes of this Guaranty. SECTION 11 Miscellaneous. THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED ------------- BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. This Guaranty shall be binding upon the Guarantor and its successors, transferees and assigns and inure to the benefit of and be enforceable by the respective successors, transferees, and assigns of the Beneficiaries, provided, however, that the -------- ------- Guarantor may not assign any of its obligations hereunder without the prior written consent of the Trustee and each Certificate Holder. The table of contents and headings in this Guaranty are for purposes of reference only, and shall not limit or otherwise affect the meaning hereof. This Guaranty may be executed in any number of counterparts and by different parties hereto on separate counterparts, each executed counterpart constituting an original, but all of which together shall constitute one agreement. IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be executed as of the date first above written. MGM Grand, Inc. By: ___________________________ Name Printed: Joseph T. Murphy Title: Vice President and Chief Financial Officer 8 EXHIBIT E TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF PLEDGE AGREEMENT PLEDGE AGREEMENT Dated as of November 17, 1993 made by MGM GRAND, INC., as Pledgor in favor of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, not individually, but solely as Trustee TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE I PLEDGE SECTION 1.1. Grant of Security Interest.................. 2 SECTION 1.2. Security for Obligations.................... 2 SECTION 1.3. Delivery of CD Collateral................... 2 SECTION 1.4. Interest on Certificates of Deposit......... 2 SECTION 1.5. Continuing Security Interest................ 2 SECTION 1.6. Security Interest Absolute.................. 3 SECTION 1.7. Waiver of Subrogation....................... 4 ARTICLE II RELEASE AND REINVESTMENT SECTION 2.1. Partial Release............................. 5 SECTION 2.2. Reinvestment................................ 5 ARTICLE III REPRESENTATIONS AND WARRANTIES ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. 7 SECTION 4.2. Continuous Pledge........................... 8 SECTION 4.3. Voting Rights; Dividends, etc............... 8 ARTICLE V THE TRUSTEE SECTION 5.1. Trustee Appointed Attorney-in-Fact.......... 8 SECTION 5.2. Trustee May Perform......................... 9 SECTION 5.3. Trustee Has No Duty......................... 9 SECTION 5.4. Reasonable Care............................. 9 ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies............................ 10 SECTION 6.2. Compliance with Restrictions................ 11 SECTION 6.3. Application of Proceeds..................... 11 SECTION 6.4. Indemnity and Expenses...................... 11 ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Operative Agreement......................... 12 SECTION 7.2. Amendments, etc............................. 12 1 SECTION 7.3. Protection of CD Collateral............. 12 SECTION 7.4. Addresses for Notices................... 12 SECTION 7.5. Section Captions........................ 13 SECTION 7.6. Severability............................ 13 SECTION 7.7. Governing Law, Entire Agreement, etc.... 13 2 PLEDGE AGREEMENT ---------------- THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of November 17, 1993, made by MGM Grand, Inc., a Delaware corporation (the "Pledgor"), in favor of Norwest Bank Minnesota, N.A., not individually, but solely as trustee (the "Trustee") under the Trust Agreement (the "Trust Agreement"), dated as of the date hereof, between Grand Equipment, Inc., a Delaware corporation (the "Lessee"), as grantor, and the Trustee, as trustee. WHEREAS, pursuant to a Participation Agreement (the "Participation Agreement"), dated as of November 9, 1993 entered into among MGM Grand, Inc., a Nevada corporation, the Lessee, the Pledgor, the Persons named on Schedule I thereto and the Trustee, not in its individual capacity, except as otherwise expressly provided therein, but solely as trustee under the Trust Agreement, the Certificate Purchasers have agreed to purchase certain Certificates; WHEREAS, capitalized terms used but not otherwise defined herein (including those terms used in the foregoing recitals) shall have the meanings specified in Schedule X to the Participation Agreement unless the context otherwise requires; WHEREAS, the Pledgor is the direct beneficial owner of all of the issued and outstanding capital stock of the Lessee and the Sublessee; WHEREAS, as a condition precedent to the purchase of the Certificates, the Pledgor is required to execute and deliver this Pledge Agreement; WHEREAS, it is in the best interests of the Pledgor to execute this Pledge Agreement inasmuch as the Pledgor will derive substantial direct and indirect benefits from the purchase of the Certificates by the Certificate Purchasers; and WHEREAS, the Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement. NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Certificate Purchasers to purchase the Certificates pursuant to the Participation Agreement, the Pledgor agrees, for the benefit of the Trustee and each Certificate Holder, as follows: 1 ARTICLE I PLEDGE SECTION 1.1. Grant of Security Interest. The Pledgor hereby pledges, -------------------------- hypothecates, assigns, charges, mortgages, delivers, and transfers to the Trustee, for its benefit and the benefit of each of the Certificate Holders pursuant to the Trust Agreement, and hereby grants to the Trustee, for its benefit and the benefit of each of the Certificate Holders pursuant to the Trust Agreement of a continuing security interest in, all of the following property (the "CD Collateral"): (a) The certificates of deposit identified in Schedule I hereto and all certificates of deposit acquired by reason of the reinvestment of the proceeds thereof (the "Certificates of Deposit"); (b) All interest and other payments and rights with respect to the Certificates of Deposit; and (c) All proceeds of any of the foregoing. SECTION 1.2. Security for Obligations. This Pledge Agreement secures the ------------------------ payment in full of all Obligations as such term is defined in the Guaranty. SECTION 1.3. Delivery of CD Collateral. All certificates representing or ------------------------- evidencing any CD Collateral, including all Certificates of Deposit, shall be delivered free to Norwest Bank Minnesota, National Association, Corporate Trust Department, with interest and/or principal delivered via federal wire to Norwest Bank Minnesota, National Association; ABA No. 091000019, Attention: Income Collections; Reference: MGM Equipment Trust No. 1993-1; Payable date _________________; Account No.: 13047101, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION 1.4. Interest on Certificates of Deposit. In the event that any ----------------------------------- interest is to be paid on any CD Collateral at a time when no Event of Default or event which with the giving of notice and/or passage of time could become an Event of Default shall exist, such interest shall upon receipt be paid by the Trustee to the Pledgor. If any such Event of Default or event has occurred and is continuing, then any such interest shall be paid directly to the Trustee. SECTION 1.5. Continuing Security Interest. This Pledge Agreement shall ---------------------------- create a continuing security interest in the CD Collateral and shall: 2 (a) Remain in full force and effect until the earlier of: (i) Indefeasible payment in full in cash of all Obligations and the termination of the Trust Agreement in accordance with the terms thereof; and (ii) the release of all CD Collateral pursuant to the terms of Article II hereto; (b) Be binding upon the Pledgor and its successors, transferees and assigns; and (c) Inure, together with the rights and remedies of the Trustee hereunder, to the benefit of the Trustee and each Certificate Holder from time to time. Upon the reversion of the Trust Estate to the Grantor, the security interest granted herein shall terminate and all rights to the CD Collateral shall revert to the Pledgor. Upon any such termination, the Trustee will, at the Pledgor's sole expense, deliver to the Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all CD Collateral, and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. SECTION 1.6. Security Interest Absolute. All rights of the Trustee and -------------------------- the security interests granted to the Trustee hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional, irrespective of: (a) Any lack of validity or enforceability of the Participation Agreement, the Trust Agreement, the Certificates or any other Operative Agreement; (b) The failure of the Trustee or any Certificate Holder: (i) To assert any claim or demand or to enforce any right or remedy against the Lessee, the Sublessee, the Guarantor, the Issuer of the Letter of Credit, or any other Person under the provisions of the Operative Agreements or otherwise; or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Obligation; (c) Any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other extension, compromise or renewal of any Obligation; 3 (d) Any reduction, limitation, impairment or termination of any Obligation for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Pledgor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligation or otherwise; (e) Any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Participation Agreement, the Trust Agreement, any Certificate or any other Operative Agreement; (f) Any addition, exchange, release, surrender or non-perfection of any collateral (including the CD Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Obligations; or (g) Any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Lessee, the Sublessee, any surety or any guarantor. SECTION 1.7. Waiver of Subrogation. The Pledgor hereby irrevocably waives --------------------- any claim or other rights which it may now or hereafter acquire against the Lessee or the Sublessee that arise from the existence, payment, performance or enforcement of the Pledgor's obligations under this Pledge Agreement or any other Operative Agreement, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Trustee or Certificate Holders against the Lessee or the Sublessee or any collateral which the Trustee now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Lessee or Sublessee, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Pledgor in violation of the preceding sentence and the Obligations shall not have been paid in cash in full, such amount shall be deemed to have been paid to the Pledgor for the benefit of, and held in trust for, the Trustee and Certificate Holders, and shall forthwith be paid to the Trustee to be credited and applied upon the Obligations, whether matured or unmatured. The Pledgor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Participation Agreement and that the waiver set forth in this Section 1.6, is knowingly made ----------- in contemplation of such benefits. 4 ARTICLE II RELEASE AND REINVESTMENT SECTION 2.1. Partial Release. Certificates of Deposit shall be released --------------- from the security interest granted herein from time to time when and as the conditions for partial release contained in Section 3.2 of the Participation ----------- Agreement have been satisfied to the reasonable satisfaction of the Trustee but no more frequently than twice per calendar month and no earlier than one month after the Effective Date. The Certificates of Deposit released shall have a principal amount equal to the maximum aggregate principal amount of Certificates of Deposit subject to this Pledge Agreement which is equal to or less than the amount for which the conditions to release have been satisfied pursuant to Section 3.2 of the Participation Agreement. Upon any such partial release, the - ----------- Trustee will, at the Pledgor's sole expense, deliver to the Pledgor, without representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing the Certificates of Deposit selected by the Trustee for release pursuant to the standard described above, if any, and execute and deliver to Pledgor such documents as the Pledgor shall reasonably request to evidence such release. SECTION 2.2. Reinvestment. If any Certificate of Deposit shall mature ------------ while it is subject to this Pledge Agreement, the proceeds payable at the time of such maturity shall be paid to the Trustee. The proceeds representing interest shall be applied in the manner described at Section 1.4 hereof. The ----------- proceeds representing principal shall be invested by the Trustee from time to time as directed by the Pledgor in writing, at the expense and risk of Pledgor, in certificates of deposit maturing within 90 days after such investment issued by commercial banks organized under the laws of the United States of America or of a political subdivision having a combined capital and surplus in excess of $1,000,000,000 and rated "B" or better by Thompson Bank Watch, Inc., provided that the aggregate amount at any one time so invested in certificates of deposit issued by any one bank shall not exceed $5,000,000. The certificates of deposit so acquired shall be subject to the grant of security interest contained in this Pledge Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES The Pledgor represents and warrants unto the Trustee and each Certificate Purchaser, as at the date of each pledge and delivery hereunder by the Pledgor to the Trustee of any CD Collateral, as follows: 5 (a) Pledgor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (b) Pledgor is duly qualified or licensed and in good standing as a foreign corporation authorized to do business in each other jurisdiction where, because of the nature of its respective activities or properties, such qualification or licensing is required, except for such jurisdictions where the failure to be so qualified or licensed will not materially adversely affect the consolidated condition (financial or otherwise), business, prospects or operations of Pledgor and its respective consolidated subsidiaries; (c) Pledgor has all requisite corporate power and authority to execute, deliver, and perform its obligations under this Pledge Agreement; (d) The execution and delivery by Pledgor of this Pledge Agreement and the performance by Pledgor of its obligations thereunder, have been duly authorized by all necessary corporate action (including any necessary stockholder action) on its part, and do not and will not: (i) Violate any provision of any law, rule or regulation presently in effect having applicability to Pledgor or of any order, writ, judgment, decree, determination or award presently in effect having applicability to Pledgor or of the charter or bylaws of Pledgor; or (ii) result in a breach of or constitute a default under any indenture or loan or credit agreement, or result in a breach of or constitute a default under any other agreement or instrument to which Pledgor is a party or by which Pledgor or its respective properties may be bound or affected; or (iii) result in, or require, the creation or imposition of any lien or security interest of any nature upon or with respect to any of the properties now owned or hereafter acquired by Pledgor (other than the security interest contemplated by the Master Lease and this Pledge Agreement), and Pledgor is not in default under or in violation of its charters or bylaws; (e) The Pledge Agreement constitutes the legal, valid and binding obligation of Pledgor, enforceable against Pledgor, in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity; (f) There is no litigation (including, without limitation, derivative actions), arbitration or governmental proceedings pending or, to the knowledge of Pledgor, threatened against Pledgor which may adversely affect the 6 consolidated condition (financial or otherwise), business, prospects or operations of Pledgor or its consolidated subsidiaries or impair Pledgor's ability to perform its obligations under the Pledge Agreement; (g) No authorization, consent, approval, license or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority (Federal, state, local or foreign), including, without limitation, the Securities and Exchange Commission, or with any securities exchange, or any other Person is or will be required in connection with the execution and delivery by Pledgor of the Pledge Agreement, the performance by Pledgor of its obligations under the Pledge Agreement, the Pledge of the CD Collateral pursuant to the Pledge Agreement or the exercise by the Trustee of rights provided in this Pledge Agreement with respect to the CD Collateral; (h) The Pledgor is the legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign) the CD Collateral, free and clear of all liens, security interests, options, or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Trustee; (i) The delivery of the CD Collateral to the Trustee is effective to create a valid, perfected, first priority security interest in the CD Collateral and all proceeds thereof, securing the Obligations. No filing or other action will be necessary to perfect or protect such security interest; and (j) The Pledgor is in compliance with the requirements of all applicable laws (including, without limitation, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every governmental authority, the non-compliance with which might materially adversely affect the business, properties, assets, operations, condition (financial or otherwise) or prospects of the Pledgor or the value of the CD Collateral or the worth of the CD Collateral as collateral security. ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. The Pledgor -------------------------------------------- will not sell, assign, transfer, pledge, or encumber in any other manner the CD Collateral (except in favor of the Trustee hereunder). The Pledgor will warrant and defend the 7 right and title herein granted unto the Trustee in and to the CD Collateral (and all right, title, and interest represented by the CD Collateral) against the claims and demands of all Persons whomsoever. The Pledgor agrees that at any time, and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Trustee (pursuant to a request under Section 7.2 of the Trust Agreement) may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any CD Collateral. SECTION 4.2. Continuous Pledge. Subject to Sections 1.4 and 2.1, the ----------------- ------------ --- Pledgor will, at all times, keep pledged to the Trustee pursuant hereto all CD Collateral and other securities, instruments, proceeds, and rights from time to time received by or distributable to the Pledgor in respect of any CD Collateral. SECTION 4.3. Interest and Proceeds. The Pledgor agrees that after any --------------------- Event of Default or event which with the giving of notice and/or passage of time could become an Event of Default shall have occurred, promptly upon receipt thereof by the Pledgor and without any request therefor by the Trustee, to deliver (properly endorsed where required hereby or requested by the Trustee) to the Trustee all interest, all principal, all other cash payments, and all proceeds of the CD Collateral, all of which shall be held by the Trustee as additional CD Collateral for use in accordance with Section 6.3. All interest, ----------- principal, cash payments, and proceeds which may at any time and from time to time be held by the Pledgor but which the Pledgor is then obligated to deliver to the Trustee, shall, until delivery to the Trustee, be held by the Pledgor separate and apart from its other property in trust for the Trustee. ARTICLE V THE TRUSTEE SECTION 5.1. Trustee Appointed Attorney-in-Fact. The Pledgor hereby ---------------------------------- irrevocably appoints the Trustee the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Trustee's discretion, to take any action and to execute any instrument which the Trustee may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) To ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for 8 moneys due and to become due under or in respect of any of the CD Collateral; (b) To receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and ---------- (c) To file any claims or take any action or institute any proceedings which the Trustee may deem necessary or desirable for the collection of any of the CD Collateral or otherwise to enforce the rights of the Trustee with respect to any of the CD Collateral. The Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section 5.1 is irrevocable and coupled with an ----------- interest. SECTION 5.2. Trustee May Perform. If the Pledgor fails to perform any ------------------- agreement contained herein, the Trustee may itself perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by the Pledgor pursuant to Section 6.4. ----------- SECTION 5.3. Trustee Has No Duty. The powers conferred on the Trustee ------------------- hereunder are solely to protect its interest (on behalf of the Certificate Holders) in the CD Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any CD Collateral in its possession and the accounting for moneys actually received by it hereunder, the Trustee shall have no duty as to any CD Collateral or responsibility for: (a) Ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any CD Collateral, whether or not the Trustee has or is deemed to have knowledge of such matters, or (b) Taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any CD Collateral. SECTION 5.4. Reasonable Care. The Trustee is required to exercise --------------- reasonable care in the custody and preservation of any of the CD Collateral in its possession; provided, however, the Trustee shall be deemed to have exercised -------- ------- reasonable care in the custody and preservation of any of the CD Collateral, if it takes such action for that purpose as the Pledgor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Trustee to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. 9 ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If any Event of Default shall have ---------------- occurred: (a) The Trustee may exercise in respect of the CD 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 as in effect from time to time in the State of California ("U.C.C.") (whether or not the U.C.C. applies to the affected CD Collateral) and also may, without notice except as specified below, sell the CD Collateral or any part thereof in one or more parcels at public or private sale, at any of the Trustee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Trustee may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Pledgor 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 Trustee shall not be obligated to make any sale of CD Collateral regardless of notice of sale having been given. The Trustee 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; and (b) The Trustee may: (i) Transfer all or any part of the CD Collateral into the name of the Trustee or its nominee, with or without disclosing that such CD Collateral is subject to the lien and security interest hereunder; (ii) notify the parties obligated on any of the CD Collateral to make payment to the Trustee of any amount due or to become due thereunder; (iii) enforce collection of any of the CD Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto; 10 (iv) endorse any checks, drafts, or other writings in the Pledgor's name to allow collection of the CD Collateral; (v) take control of any proceeds of the CD Collateral; and (vi) execute (in the name, place and stead of the Pledgor) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the CD Collateral. SECTION 6.2. Compliance with Restrictions. The Pledgor agrees that in any ---------------------------- sale of any of the CD Collateral whenever an Event of Default shall have occurred, the Trustee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such CD Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Trustee be liable nor accountable to the Pledgor for any discount allowed by the reason of the fact that such CD Collateral is sold in compliance with any such limitation or restriction. SECTION 6.3. Application of Proceeds. All cash proceeds received by the ----------------------- Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the CD Collateral may, in the discretion of the Trustee, be held by the Trustee as additional collateral security for, or then or at any time thereafter be applied in the manner provided in Article V of the Trust --------- Agreement. SECTION 6.4. Indemnity and Expenses. The Pledgor hereby indemnifies and ---------------------- holds harmless the Trustee from and against any and all claims, losses, and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses, or liabilities resulting from the Trustee's gross negligence or wilful misconduct. Upon demand, the Pledgor will pay to the Trustee the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any 11 experts and agents, which the Trustee may incur in connection with: (a) The administration of this Pledge Agreement, the Participation Agreement and each other Operative Agreement; (b) The custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon, any of the CD Collateral; (c) The exercise or enforcement of any of the rights of the Trustee hereunder; or (d) The failure by the Pledgor to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Operative Agreement. This Pledge Agreement is an Operative ------------------- Agreement executed pursuant to the Participation Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision --------------- of this Pledge Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of CD Collateral. The Trustee may from time to --------------------------- time, at its option, perform any act which the Pledgor agrees hereunder to perform and which the Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence of an Event of Default) and the Trustee may from time to time take any other action which the Trustee reasonably deems necessary for the maintenance, preservation or protection of any of the CD Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications --------------------- provided for hereunder shall be in writing and shall be deemed to have been duly given when delivered personally, facsimilied (and confirmed, which confirmation may be mechanized) or otherwise actually received or five Business Days after being deposited in the United States mail, certified, 12 postage prepaid, addressed to the address specified for such Person in the Participation Agreement. SECTION 7.5. Section Captions. Section captions used in this Pledge ---------------- Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION 7.6. Severability. Wherever possible each provision of this ------------ Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION 7.7. Governing Law, Entire Agreement, etc. THIS PLEDGE AGREEMENT ------------------------------------ SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR CD COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. THIS PLEDGE AGREEMENT AND THE OTHER OPERATIVE AGREEMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. 13 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. MGM GRAND, INC. By:________________________________ Name Printed: Joseph T. Murphy Title: Vice President and Chief Financial Officer NORWEST BANK MINNESOTA, National Association, not individually, but solely as Trustee By:________________________________ Name Printed: Carter Dreblow Title: Vice President 14 EXHIBIT F TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF LETTER OF CREDIT IRREVOCABLE LETTER OF CREDIT BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION INTERNATIONAL TRADE BANKING DIVISION #5655 333 SOUTH BEAUDRY LOS ANGELES, CALIFORNIA 90017 ATTENTION: DIRECT PAY LETTER OF CREDIT November 17, 1993 Letter of Credit No. ___________________ Norwest Bank Minnesota, National Association not individually, but solely as Trustee of MGM Equipment Trust 1993-1 Corporate Trust Department 6th & Marquette Minneapolis, MN 55479-0069 Attention: Carter Dreblow Gentlemen: At the request and on the instructions of our customer, MGM Grand Inc., a Delaware corporation, we, the undersigned bank (herein called the "Issuer"), hereby establish in your favor this irrevocable Letter of Credit in ------- the maximum aggregate amount of Seven Million Dollars ($7,000,000) (the portion of such maximum aggregate amount available in accordance with this Letter of Credit, is herein called the "Stated Amount"). ------------- The Stated Amount available to be drawn under this Letter of Credit shall at all times be equal to the lesser of: (a) the maximum amount specified above; and (b) the amount set forth in a certificate delivered from time to time in the form of Schedule I hereto as being twenty-percent (20%) of the amount which the aggregate unpaid principal amount (exclusive of interest, premium, if any, and interest on interest, if any) of outstanding Class A-1 Certificates, as described in that certain Trust Agreement ("Trust Agreement"), dated as of the --------------- date hereof, between Grand Equipment, Inc., a Delaware corporation, as grantor, and you, as trustee, has not exceeded for more than ninety (90) calendar days. To the extent not otherwise defined, 1 capitalized terms shall have the meaning assigned to such terms in the Trust Agreement, unless the context otherwise requires. Subject to the other provisions of this Letter of Credit, you are hereby irrevocably authorized to make one demand for payment hereunder by presentation to the Issuer, at its above address, of your certificate in the form of Schedule II hereto, duly completed, either: (a) in the form of a letter ----------- on your letterhead signed by a person purporting to be a Responsible Officer; or (b) in the form of a Telex or other writing transmitted by any telecommunication facility, sent by a person purporting to be a Responsible Officer. Demand for payment may be made by you under this Letter of Credit prior to the expiration hereof at any time during the Issuer's business hours at its aforesaid address in Los Angeles, California (or, such other office as shall have been designated to you in writing by the Issuer), on a Business Day. If demand for payment is made by you hereunder at or prior to 10:00 A.M., Los Angeles time, on a Business Day, and provided that such demand for payment and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made to you of the amount demanded, in immediately available funds, not later than 2:00 P.M., Los Angeles time on the next succeeding Business Day. If demand for payment is made by you hereunder after 10:00 A.M., Los Angeles time, on a Business Day, and provided that such demand for payment and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made to you of the amount demanded, in immediately available funds, not later than 2:00 P.M., Los Angeles time, on the second next succeeding Business Day. If a demand for payment made by you hereunder does not, in any instance, conform to the terms and conditions of this Letter of Credit, the Issuer shall give you prompt notice that the purported demand was not effected in accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor and that the Issuer is holding any documents at your disposal or is returning the same to you, as the Issuer may elect. Upon being notified that the purported demand was not effected in accordance with this Letter of Credit, you may attempt to correct any such non-conforming demand for payment if, and to the extent that, you are entitled (without regard to the provisions of this sentence) and able to do so. Only you or your designated transferee may make a drawing under this Letter of Credit. Upon payment of the amount specified in a demand presented hereunder, the Issuer shall be fully discharged of its obligation under this Letter of Credit with respect to such demand and shall not thereafter be obligated to make any further payments under this Letter of Credit with respect to such demand. 2 This Letter of Credit shall automatically terminate on the Issuer's close of business at its aforesaid address in Los Angeles, California, or such substitute office designated by the Issuer, on March 31, 1999 or, if said date shall not be a Business Day, on the first Business Day next succeeding said date. No drawing may be made on this Letter of Credit after such automatic termination. This Letter of Credit sets forth in full the terms of our undertaking, and this undertaking shall not in any way be modified, amended or amplified by reference to any document, instrument or agreement referred to herein (except the Uniform Customs (hereinafter defined), the certificates in the forms of Schedules I, II and III hereto and definitions of undefined capitalized terms - ----------- -- --- used herein) or in which this Letter of Credit is referred to (except the certificates in the forms of Schedules I, II and III hereto) or to which this ----------- -- --- Letter of Credit relates and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement. All documents presented to the Issuer in connection with any demand for payment hereunder, as well as all notices and other communications to the Issuer in respect of this Letter of Credit, shall be in writing and addressed and presented to Bank of America National Trust and Savings Association of Los Angeles, California, at its above address, or such substitute office designated by the Issuer, and shall make specific reference to this Letter of Credit by number. Such documents, notices and other communications shall be personally delivered to the Issuer or, if appropriate, may be sent to the Issuer by Telex, TWX or facsimile, to the following number(s), as applicable: Telex No: 67652 TWX No: Facsimile No: (213) 345-6694 This Letter of Credit shall be deemed to be a contract made under the laws of the State of California and shall be governed by and construed in accordance with the laws of said State, without regard to principles of conflicts of law and shall be subject to the Uniform Customs and Practice for Documentary Credits (1983 Revision), International Chamber of Commerce, Publication No. 400 (the "Uniform Customs"), provided that all references to the --------------- "Issuing Bank" in such Uniform Customs shall be deemed to refer to the Issuer. In the event of a conflict between the laws of the State of California and the Uniform Customs, the Uniform Customs shall prevail. This Letter of Credit is transferable to any transferee(s) who has (have) succeeded to your interest in the Trust Estate. Upon any such transfer, this Letter of Credit may be successively transferred in the same manner to any further 3 successor(s). Transfer of this Letter of Credit to such transferee(s) shall be effected by the presentation to us of this Letter of Credit accompanied by a certificate substantially in the form of Schedule III hereto. Upon such ------------ presentation, we shall forthwith endorse such transfer on the reverse hereof and forward this Letter of Credit to the transferee(s) designated in such certificate. In case of any transfer of this Letter of Credit, any certificate accompanying a demand for payment hereunder must be executed by the transferee(s). Very truly yours, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By____________________________ By____________________________ 4 SCHEDULE I to FORM OF LETTER OF CREDIT Bank of America National Trust and Savings Association International Trade Banking Division #5655 333 South Beaudry Los Angeles, California 90017 Attention: Direct Pay Letter of Credit Re: Letter of Credit No. _____________ Gentlemen: We refer to your Letter of Credit No. ___________________ (the "Letter of Credit"). Capitalized terms defined in the Letter of Credit have the same meanings when used herein. The undersigned individuals, Responsible Officers of the undersigned, hereby certify as follows with respect to the Letter of Credit: (a) The aggregate unpaid principal amount (exclusive of interest, premium, if any, and interest on interest, if any) of outstanding Class A-1 Certificates as described in that certain Trust Agreement, dated as of November 9, 1993 between Grand Equipment, Inc., a Delaware corporation, as grantor, and ____________ as trustee has not exceeded $_____________ for more than ninety (90) calendar days. (b) The amount which is 20% of such amount is $___________. Please reduce the Stated Amount of the Letter of Credit to such amount. IN WITNESS WHEREOF, this Certificate has been executed this _____ day of ___________________, 199__. MGM Grand, Inc. By:___________________________ Name Printed:_________________ Its:__________________________ 5 Norwest Bank Minnesota, National Association, not individually, but solely as Trustee By:___________________________ Name Printed:_________________ Its:__________________________ 6 SCHEDULE II to FORM OF LETTER OF CREDIT Bank of America National Trust and Savings Association International Trade Banking Division #5655 333 South Beaudry Los Angeles, California 90017 Attention: Direct Pay Letter of Credit Re: Letter of Credit No. _____________ Gentlemen: We refer to your Letter of Credit No. ___________________ (the "Letter of Credit"). Capitalized terms defined in the Letter of Credit have the same meanings when used herein. The undersigned individual, a Responsible Officer of the undersigned, hereby certifies as follows with respect to the Letter of Credit: (i) The Trustee is the beneficiary under the Letter of Credit. (ii) An Event of Default under the Master Lease has occurred and is continuing. (c) We hereby make demand for payment under the Letter of Credit of the Stated Amount as of the date hereof which our records show to be U.S. $______________, and which demand is evidenced hereby. Please [deposit] [wire transfer] the amount hereby demanded [in our Account No. _________________ with] [to] _________________ at _______________. IN WITNESS WHEREOF, this Certificate has been executed this _____ day of ___________________, 199__. Norwest Bank Minnesota, National Association, not individually, but solely as Trustee By:___________________________ Name Printed:_________________ Its:__________________________ 7 SCHEDULE III to FORM OF LETTER OF CREDIT To: Bank of America National Trust and Savings Association International Trade Banking Division #5655 333 South Beaudry Los Angeles, California 90017 Attention: Direct Pay Letter of Credit Re: Letter of Credit No. _____________ Gentlemen: FOR VALUE RECEIVED, the undersigned beneficiary of the above described Letter of Credit No. __________ dated November 17, 1993 (the "Letter of Credit") issued by Bank of America National Trust and Savings Association (the "Issuer") hereby irrevocably transfers to [Insert name(s) and address(es) of successors] all rights of the undersigned beneficiary to make demands for payment under the Letter of Credit in its entirety. The transferee is the successor in interest to the Trust Estate under the Trust Agreement (as such term is defined in the Letter of Credit). By this transfer all rights of the undersigned beneficiary in the Letter of Credit are transferred to the transferee(s) and the transferee(s) shall have the sole right as beneficiary thereof, including sole right relating to any amendments thereto whether now existing or hereafter made (including, without limitation, to increase the amount available thereunder or to extend the expiration date thereof). The transferee(s) is (are) to be advised directly of all amendments to be made to the Letter of Credit without necessity of any consent or notice to the undersigned. The Letter of Credit is returned herewith and the undersigned instructs the Issuer to endorse the transfer on the reverse side thereof and to forward it directly to [name] , at [address] , _____________ _______________________________ Attention: _____________, with Issuer's customary notice of transfer and with a copy to the undersigned. 8 IN WITNESS WHEREOF, this Certificate has been executed this ____ day of _______________, ____. Norwest Bank Minnesota, National Association, not individually, but solely as Trustee By:___________________________ Name Printed:_________________ Its:__________________________ Guaranty of Signature Authorized Signature_____________________________________________ Name of Firm:_________________________________________ Dated: ___________________, _____. 9 EXHIBIT G 2.2(b)(i) TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF PURCHASE ORDER ASSIGNMENT PURCHASE ORDER ASSIGNMENT ------------------------- This PURCHASE ORDER ASSIGNMENT, dated as of November 17, 1993, (this "Purchase Order Assignment") is among MGM Grand Hotel, Inc., a Nevada - -------------------------- corporation (the "Sublessee"), Grand Equipment, Inc. a Delaware corporation (the --------- "Lessee") and Norwest Bank Minnesota, National Association, not individually but ------ as Trustee (the "Trustee") under the Trust Agreement, dated as of November 9, ------- 1993 (the "Trust Agreement"), between the Lessee and the Trustee. --------------- WHEREAS, capitalized terms used but not otherwise defined herein (including those used in the foregoing recitals) shall have the meanings specified in Schedule X to the Participation Agreement, dated as of November 9, ---------- 1993 among the Sublessee, Lessee, MGM Grand, Inc. a Delaware corporation, the Persons listed in Schedule I, thereto, and the Trustee unless the context ---------- otherwise requires; AND WHEREAS, the Sublessee and the Persons listed on Schedule I hereto ---------- (the "Manufacturers"), are parties to certain Purchase Agreements identified on ------------- Schedule I hereto and previously or contemporaneously provided to the Trustee, - ---------- providing, among other things, for the manufacture and/or installation by the Manufacturers and sale to the Sublessee of certain items of Equipment; AND WHEREAS, the Lessee wishes to acquire the Equipment and to assign its interest in the Equipment to the Trustee and the Sublessee, on the terms and conditions hereinafter set forth, is willing to assign to the Lessee and permit the Lessee to assign to the Trustee certain of the Sublessee's rights and interests under the Purchase Agreements, and the Lessee and Trustee are willing to accept such assignment, as hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: SECTION 1. Assignment; Rights Reserved. The Sublessee does hereby --------------------------- sell, assign, transfer and set over unto the Lessee and the Lessee does hereby sell, assign, transfer and set over unto the Trustee all of the Sublessee's right, title and interest in 1 and to the Purchase Agreements as and to the extent that the same relates to the items of Equipment specified in Schedule I hereto and the purchase and operation ---------- thereof, except to the extent reserved below, including, without limitation, in such assignment: (a) The right upon valid tender to the Manufacturer to purchase the respective items of Equipment pursuant to the respective Purchase Agreement at the respective purchase prices specified therein and the right to take title to the Equipment and be named the purchaser in all Certificates of Conveyance to be delivered by the Manufacturer for the Equipment substantially in the form of Exhibit G 2.2.(b)(iii) to the Participation Agreement; (b) ---------------------- Subject to the provisions of Section 3(a) hereof, all claims for damages in ------------ respect of an item of Equipment arising as a result of any default by a Manufacturer under its Purchase Agreement, including, without limitation, all warranty and indemnity provisions in such Purchase Agreement in respect of the Equipment and all claims thereunder; and (c) Any and all rights of the Sublessee to compel performance of the terms of the Purchase Agreement in respect of the Equipment subject thereto including, without limitation, all warranty and indemnity provisions in the Purchase Agreement in respect of the Equipment subject thereto and all claims thereunder; reserving to the Sublessee, however: -------------------------- ------- (i) The right to select the closing dates under the Purchase Agreement and the items of Equipment subject thereto to be purchased on each such closing date; (ii) so long as such Equipment shall be subject to the Sublease and the Trustee shall not have notified the Manufacturer in writing that an Event of Default has occurred and is continuing, all rights: (A) To demand, accept and retain all rights in and to all property (other than such items of Equipment), data and services which the Manufacturer is obligated to provide or does provide pursuant to the Purchase Agreement with respect to such items of Equipment; and (B) to obtain services, training, data and demonstrations pursuant to or in connection with the Purchase Agreement with respect to such items of Equipment; and (iii) all rights with respect to maintenance of representatives at the Manufacturer's plant pursuant to the Purchase Agreement or otherwise. The Sublessee does hereby constitute, effective at any time after the Trustee has declared the Master Lease to be in default (or the Master Lease shall be deemed to be declared in default pursuant to the terms thereof) and thereafter so long as the Sublessee has not remedied all Lease Defaults thereunder, the Trustee, its successors and assigns, the Sublessee's true and lawful attorney, irrevocably, with full power (in the name of the Sublessee or otherwise) to ask, require, demand and receive, any and all moneys and claims for moneys due and to become due under, or arising out of, the Purchase Agreement in respect of the items of Equipment subject thereto or any claims thereunder, to the extent that the same have been assigned by this Purchase Order Assignment and, for such period as the Trustee may exercise 2 rights with respect thereto under this Purchase Order Assignment, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute (or, if previously commenced, assume control of) any proceedings and to obtain any recovery in connection therewith which the Trustee may deem to be necessary or advisable in the premises. SECTION 2. Acceptance of Assignment. Subject to the terms and ------------------------ conditions hereof, the Lessee and the Trustee hereby accept the assignments contained in Section 1 hereof. --------- SECTION 3. Rights of Sublessee in Absence of Lease Event of Default. --------------------------------------------------------- SECTION 3.1. Rights of Sublessee. Notwithstanding the foregoing, if ------------------- and so long as no Event of Default shall have occurred and be continuing, the Trustee authorizes the Sublessee, to the exclusion of the Trustee, to exercise in the Sublessee's own name such rights and claims (other than the rights assigned pursuant to clause (a) of Section 1 hereof) of the buyer under the ---------- --------- Purchase Agreement, to retain any recovery or benefit resulting from the enforcement of any warranty or indemnity under any Purchase Agreement in respect of the items of Equipment subject thereto and all claims thereunder, and the Lessee and Trustee shall, at the Sublessee's expense, cooperate with the Sublessee and take such actions as the Lessee and Trustee reasonably deems necessary to enable the Sublessee to enforce such rights and claims; provided -------- that: (i) The Sublessee may not enter into any specification change notice or, except with respect to rights reserved to the Sublessee under Section 1 hereof, --------- other amendment, modification or supplement to the Purchase Agreements without the written consent or counter-signature of the Lessee and Trustee if such specification change notice, amendment, modification or supplement would: (A) Change the items of Equipment which the Lessee and Trustee are entitled to purchase thereunder; (B) result in any material adverse change in the value or utility of the items of Equipment from that contracted for as of the date hereof; (C) result in any rescission, cancellation or termination of the Purchase Agreement with respect to the items of Equipment; (D) postpone the date of delivery of the items of Equipment; or (E) affect the availability of remedies against the Manufacturer under the Purchase Agreement or otherwise; and (ii) the Sublessee will use its reasonable efforts to cause deliveries to be made in accordance with the delivery schedule set forth in the Purchase Agreements and to prevent the non-delivery of any items of Equipment; and provided, further, that, upon the occurrence and continuance of an Event of - -------- ------- Default: (i) The authorization given to the Sublessee to enforce such rights and claims pursuant to this Section 3.1 shall henceforth cease to be effective ----------- and the Trustee shall, to the exclusion of the Lessee and Sublessee, be 3 entitled to assert and enforce such rights and claims as substitute party plaintiff or otherwise, and the Lessee and Sublessee shall cooperate with the Trustee and take such action as the Trustee reasonably deems necessary to enable the Trustee to enforce such rights and claims, and the Trustee, if it shall elect to enforce such rights or claims, shall use its best effort to assert and enforce such rights and claims; and/or (ii) the Trustee shall be entitled to receive all proceeds resulting from any such action and, after deducting from the proceeds of any such action all reasonable costs and expenses, including attorneys' fees (including the allocated time charges of its internal counsel), that may have been incurred by the Trustee in connection with any such action of the Trustee or the Lessee or Sublessee, the Trustee may hold the remaining proceeds as security until all Events of Default shall have been cured or waived pursuant to the Master Lease or may apply all or any such remaining proceeds to the payment of any obligation of the Lessee, Sublessee or Guarantor to make payments at the time due under the Operative Agreements or to pay Rent at the time due under the Master Lease as the Trustee may elect, and the balance, if any, shall be payable to the Lessee when all such Events of Default shall have been cured or waived pursuant to the Master Lease. The Sublessee agrees to preserve and protect the Lessee's and Trustee's right under any warranty or indemnity made by the Manufacturers in the respective Purchase Agreements with respect to the Equipment, and the Lessee and Sublessee warrant that they will not take any action which will impair such rights of the Lessee or the Trustee, and covenant to act solely in compliance with any restrictions and requirements prerequisite to the continued existence, enforcement, validity and maintenance of any such warranty or indemnity. SECTION 3.2. Notice to Manufacturer. The Manufacturer shall not be ---------------------- deemed to have knowledge of the existence of any Event of Default unless and until the Manufacturer shall have received written notice thereof addressed to it at its address for notice in its respective Purchase Agreement. If the Trustee has notified the Manufacturer of the existence of any such Event of Default by written notice thereof, it will also give prompt written notice to the Manufacturer when such Lease Default has been cured or waived. The Manufacturer shall be entitled to conclusively rely upon any such notice sent by the Trustee. SECTION 4. Certain Rights and Obligations of the Parties. (a) It is --------------------------------------------- expressly agreed that, anything herein contained to the contrary notwithstanding: (i) The Sublessee shall at all times remain liable to the Manufacturers under the Purchase Agreements to perform all the duties and obligations of the "Buyer" thereunder to the same extent as if this Purchase Order Assignment had not been executed; (ii) the exercise by the Lessee or Trustee of any of the rights assigned hereunder shall not release the Sublessee from any of its duties or obligations to 4 the Manufacturers under the Purchase Agreements except to the extent that such exercise by the Lessee or Trustee shall constitute performance of such duties and obligations; and (iii) the Trustee shall not have any obligation or liability under the Purchase Agreements by reason of, or arising out of, this Purchase Order Assignment or be obligated to perform any of the obligations or duties of the Sublessee under the Purchase Agreement or to make any payment or to make any inquiry as to the sufficiency of any payment received by any of them or to present or file any claim or to take any other action to collect or enforce any claim for any payment assigned hereunder; (b) Without in any way releasing the Sublessee from any of its duties or obligations under the Purchase Agreement, the Trustee and Lessee confirm for the benefit of the Manufacturer that, insofar as the provisions of the Purchase Agreements relate to the Equipment, in exercising any rights under the Purchase Agreement, or in making any claim with respect to the Equipment or other goods and services delivered or to be delivered pursuant to the Purchase Agreement in connection therewith, the terms and conditions of the Purchase Agreement shall apply to, and be binding upon, the Trustee and Lessee to the same extent as the Sublessee, provided that nothing contained in this Purchase Order Assignment -------- shall in any way diminish or limit the provisions of the Lessee's or Sublessee's indemnities in Articles 7 and 8 of the Participation Agreement with respect to ---------- - any liability of the Trustee to the Manufacturers in any way relating to or arising out of the Purchase Agreements; and (c) Nothing contained herein shall: (i) Subject any Manufacturer to any liability to which it would not otherwise be subject under its respective Purchase Agreement; (ii) modify in any respect the Manufacturers' contract rights thereunder; or (iii) require any Manufacturer to divest itself of title to or possession of any item of Equipment until payment therefor as provided in the Purchase Agreement. SECTION 5. Further Assurances. The Sublessee and Lessee agree that ------------------ at any time and from time to time, upon the written request of the Trustee, the Sublessee and Lessee will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Trustee may reasonably request in order to obtain the full benefits of this Purchase Order Assignment and of the rights and powers herein granted. SECTION 6. Intentionally omitted. --------------------- SECTION 7. Representations, Warranties and Covenants. The Sublessee ----------------------------------------- does hereby represent and warrant that the Purchase Agreements are in full force and effect and are legal, valid and binding obligations of the Sublessee, enforceable against it in 5 accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity, and that the Sublessee is not in default thereunder. The Sublessee does hereby further represent and warrant that the Sublessee has not assigned or pledged, and hereby covenants that it will not assign or pledge, so long as this Purchase Order Assignment shall remain in effect, the whole or any part of the rights hereby assigned to anyone other than to the Lessee except to the extent contemplated in the Operative Agreements. The Lessee does hereby represent and warrant that the Lessee has not assigned or pledged, and hereby covenants that it will not assign or pledge so long as this Purchase Order Assignment shall remain in effect, the whole or any part of the rights hereby assigned to anyone other than the Trustee except to the extent contemplated in the Operative Agreements. SECTION 8. Governing Law. This Purchase Order Assignment shall be ------------- governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of law. SECTION 9. Counterparts. This Purchase Order Assignment may be ------------ executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Purchase Order Assignment to be duly executed as of the day and year first above written. MGM GRAND HOTEL, INC. By:_____________________________ Name Printed: Joseph T. Murphy Title: Secretary-Treasurer GRAND EQUIPMENT, INC. By:_____________________________ Name Printed: Joseph T. Murphy Title: Chief Financial Officer and Treasurer NORWEST BANK MINNESOTA, National Association, not individually, but solely as Trustee By:_____________________________ Name Printed: Carter Dreblow Title: Vice President 6 EXHIBIT G 2.2(b)(iii) TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF CERTIFICATE OF CONVEYANCE CERTIFICATE OF CONVEYANCE ------------------------- MGM Grand Hotel, Inc., a Nevada corporation ("Assignor"), is the owner -------- of the items (together with all repairs, parts, supplies, accessories, equipment and devices affixed thereto or installed thereon, and all warranties, covenants and representations of any manufacturer or vendor thereof, the "Items of -------- Equipment") of personal property described on Schedule I hereto; - --------- ---------- Assignor grants, conveys, transfers and assigns title to the Items of Equipment to Grand Equipment, Inc., a Delaware corporation (the "Lessee") and ------ Lessee grants, conveys, transfers and assigns title to the Items of Equipment, to Norwest Bank Minnesota, National Association, as trustee (the "Trustee") ------- under that certain Trust Agreement, dated as of November 9, 1993, between Lessee, as grantor and the Trustee as trustee for the benefit of Certificate Holders described therein subject to the existing sublease, dated the date hereof, between Lessee, as sublessor and Assignor, as lessee (the "Sublease"); -------- and Assignor warrants to Lessee and Trustee, their successors and assigns and to each Certificate Holder, that there is conveyed to Trustee good title to the Items of Equipment, free and clear of all liens, claims, rights or encumbrances of others[, except for Liens described in clause (iv) of the definition of "Permitted Liens"],/*/ but subject to the Sublease. Lessee warrants to Trustee, its successors and assigns and to each Certificate Holder, that there is conveyed to Trustee good title to the Items of Equipment, free and clear of all liens, claims, rights or encumbrances of others[, except for Liens described in clause (iv) of the definition of "Permitted Liens"],/*/ but subject to the Sublease. - - --------------------- /*/ Insert bracketed language only with respect to theme park rides subject to a Certificate of Conveyance executed and delivered on a Delivery Date. Such exception shall apply to the extent that sales tax has been deferred pursuant to an agreement with the Nevada taxing authorities, which deferred sales tax will be equal to approximately $350,000. 7 Assignor and, by their acceptance of this Certificate of Conveyance, Lessee and Trustee hereby evidence and confirm their intent and agreement that the Equipment and each portion thereof is severed, and shall be and remain severed from any real property, and even if physically attached thereto, shall retain the character of personal property, shall be treated as personal property with respect to the rights of Lessee, as buyer, and Trustee, or any other person and shall not, by any reason of attachment or connection to any real property, become or be deemed to be a fixture or pertinent to such real property and may be removed, sold or otherwise transferred, and any Lien or security interest therein may be created independently of such real property and without the consent of the owner of any interest in such real property. This Certificate Of Conveyance shall be governed by the laws of California without regard to conflict of law principles. IN WITNESS WHEREOF, Assignor and Lessee have caused this Certificate of Conveyance to be executed and delivered by one of its duly authorized officers this ____ day of _________, 199__. MGM GRAND HOTEL, INC. By: _________________________ Name Printed: Title: GRAND EQUIPMENT, INC. By: _________________________ Name Printed: Title: 8 EQUIPMENT LIST EXHIBIT G 2.2(b)(iv) TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF CERTIFICATE OF ACCEPTANCE CERTIFICATE OF ACCEPTANCE ------------------------- TO: Norwest Bank Minnesota, National Association, not individually, but solely as trustee (the "Trustee") under that certain Trust Agreement, dated as of ------- November 9, 1993 between Grand Equipment, Inc., a Delaware corporation (the "Lessee"), as grantor and the Trustee, as trustee. ------ Lessee and MGM Grand Hotel, Inc., a Nevada corporation, ("Sublessee") hereby jointly and severally certify to you, and for the benefit of the Certificate Holders described in said Trust Agreement from time to time (and no other Persons), as follows: 1. That each of Lessee and Sublessee have inspected, received, approved and accepted delivery of all of the items of Equipment described in Schedule I hereto (the "Items of Equipment"). ---------- ------------------ 2. That all of the Items of Equipment are subject to and governed by all of the provisions of the Lease and the Sublease. 3. That the Items of Equipment are in good operating order, repair, condition and appearance and that neither Lessee nor Sublessee has any knowledge of any defect therein with respect to design, manufacture, condition (reasonable wear and tear excepted) or in any other respect. 4. Sublessee understands that the Sublease of the Items of Equipment accepted hereby has been assigned to the Trustee and acknowledges its duty to make all payments due under the Sublease with respect to the Items of Equipment directly to the Trustee. 5. All sales or other taxes payable on the Items of Equipment have been paid in full [, except for Liens described in clause (iv) of the definition of "Permitted Liens"]./*/ - -------------------- /*/ Insert bracketed language only with respect to theme park rides to the extent that sales tax has been deferred pursuant to an agreement with the Nevada taxing authorities. Such deferred amounts will be equal to approximately $350,000. 9 IN WITNESS WHEREOF, Lessee and Sublessee have caused this Certificate of Acceptance to be duly executed and delivered by one of its officers thereunto duly authorized this ___ day of ____________, 199__. GRAND EQUIPMENT, INC. By: _________________________ Name:_________________________ Title:________________________ MGM GRAND HOTEL, INC. By: _________________________ Name Printed:_________________ Title:________________________ Agreed and Accepted by Norwest Bank Minnesota, National Association not individually, but solely as Trustee By: ___________________________ Name Printed: __________________ Title: _________________________ 10 EXHIBIT G 2.2(b)(v) TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF CERTIFICATE OF POSSESSION CERTIFICATE OF POSSESSION ------------------------- TO: Norwest Bank Minnesota, National Association, not individually, but solely as trustee (the "Trustee") under that certain Trust Agreement, dated as of ------- November 9, 1993 between Grand Equipment, Inc., a Delaware corporation (the "Lessee"), as grantor, and the Trustee, as trustee. ------ Lessee and MGM Grand Hotel, Inc., a Nevada corporation, ("Sublessee") --------- hereby jointly and severally certify to you, and for the benefit of the Certificate Holders described in said Trust Agreement from time to time (and no other Person), as follows: 1. That each of Lessee and Sublessee have inspected, received, approved and accepted delivery of all of the items of Equipment described in Schedule I hereto (the "Items of Equipment"). ---------- ------------------ 2. That all of the Items of Equipment are subject to and governed by all of the provisions of the Master Lease and the Sublease. 3. That the Items of Equipment are in the process of being installed and that neither Lessee nor Sublessee has any knowledge of: (a) Any defect therein with respect to design, manufacture, condition or in any other respects; or (b) Any default in the contracts pursuant to which such Items of Equipment are being installed. 11 IN WITNESS WHEREOF, Lessee and Sublessee have caused this Certificate of Possession to be duly executed and delivered by one of its officers thereunto duly authorized this __ day of ____________, 199__. GRAND EQUIPMENT, INC. By:___________________________ Name Printed:_________________ Title:________________________ MGM GRAND HOTEL, INC. By:___________________________ Name Printed:_________________ Title:________________________ Agreed and Accepted by Norwest Bank Minnesota, National Association not individually, but solely as Trustee By:__________________________ Name Printed:________________ Title:_______________________ 12 EXHIBIT G 2.2(b)(vi) TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF SUBLEASE ASSIGNMENT SUBLEASE ASSIGNMENT ------------------- This SUBLEASE ASSIGNMENT, dated as of November 17, 1993 (this "Sublease -------- Assignment"), is between Grand Equipment, Inc., a Delaware corporation (the - ---------- "Lessee"), and Norwest Bank Minnesota, National Association, not individually, - ------- but solely as Trustee (the "Trustee") under the Trust Agreement, dated as of ------- November 9, 1993 (the "Trust Agreement"), between Lessee and the Trustee --------------- creating the trust referred to as MGM Equipment Trust 1993-1. WHEREAS, capitalized terms used but not otherwise defined herein (including those used in the foregoing recitals) shall have the meanings assigned to such terms in the Trust Agreement, unless the context otherwise requires; AND WHEREAS, the Lessee has leased certain items of Equipment to the Sublessee pursuant to the Sublease, and the Lessee has conveyed such items of Equipment to the Trustee, and the Trustee has leased such items of Equipment to the Lessee pursuant to the Master Lease; AND WHEREAS, the Trustee wishes to obtain the rights of the Lessee under the Sublease, the Lessee is willing to assign to the Trustee Lessee's rights and interests under the Sublease, and the Trustee is willing to accept such assignment. NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: SECTION 1. Assignment. The Lessee does hereby sell, assign, transfer and ---------- set over unto the Trustee all of the Lessee's right, title and interest in and to the Sublease and any Equipment subject thereto, including, without limitation, the right to directly receive all payments and notices due thereunder. This assignment is made with full recourse to the Lessee and is provided as security for the performance of all of Lessee's obligations pursuant to the Lease and the other Operative Agreements to which it is a party. The Lessee does hereby appoint the Trustee, its successors and assigns, the Lessee's true and lawful attorney, irrevocably, with full power (in the name of the Lessee or otherwise) to ask, require, demand and receive, any and all moneys and claims for 13 moneys due and to become due under, or arising out of, the Sublease to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute (or, if previously commenced, assume control of) any proceedings and to obtain any recovery in connection therewith which the Trustee may deem to be necessary or advisable. SECTION 2. Acceptance of Assignment. Subject to the terms and conditions ------------------------ hereof, the Trustee hereby accepts the assignment contained in Section 1 hereof. --------- SECTION 3. Certain Rights and Obligations of the Parties. It is expressly --------------------------------------------- agreed that, anything herein contained to the contrary notwithstanding: (a) The Lessee shall at all times remain liable to the Sublessee under the Sublease to perform all the duties and obligations of the "lessor" thereunder to the same extent as if this Sublease Assignment had not been executed; (b) The exercise by the Trustee of any of the rights assigned hereunder shall not release the Lessee from any of its duties or obligations to the Sublessee under the Sublease; and (c) The Trustee shall not have any obligation or liability under the Sublease by reason of, or arising out of, this Sublease Assignment or be obligated to perform any of the obligations or duties of the Lessee under the Sublease or to make any payment or to make any inquiry as to the sufficiency of any payment or to present or file any claim or to take any other action to collect or enforce any claim for any payment assigned hereunder. SECTION 4. Further Assurances. The Lessee agrees that at any time and ------------------ from time to time, upon the written request of the Trustee, the Lessee will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Trustee may reasonably request in order to obtain the full benefits of this Sublease Assignment and of the rights and powers herein granted. SECTION 5. Lessee's Representations, Warranties and Covenants. The Lessee -------------------------------------------------- does hereby represent and warrant that: (a) The Sublease is in full force and effect and is the legal, valid and binding obligations of the Lessee, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity, and that the Lessee is not in default thereunder; (b) The Lessee has not assigned or pledged, and hereby covenants that it will not assign or pledge, so long as this Sublease Assignment shall remain in effect, the whole or any part of the rights hereby assigned to 14 anyone other than the Trustee except as contemplated in the Operative Agreements or consented to by the Trustee; (c) The Sublease and documents executed in connection therewith, and each of them are genuine and in all respects what they purport to be and enforceable according to their terms, and that they are, and will continue to be (except insofar as Trustee may consent otherwise) the only, and all of, the instruments executed in connection with the Sublease of the Equipment; all statements contained in the Sublease are true and that all unpaid balances shown therein are correct; the Sublease, and each of the Sublease documents and the obligations which they evidence are, and will continue to be, free and clear of all defenses, setoffs, counterclaims, Liens (other than the Sublease Grant) and encumbrances of every kind and nature (except insofar as Trustee may consent otherwise); at the time of the execution of this Sublease Assignment the undersigned had a good leasehold interest in the items of Equipment subject thereto and full right to enter into the Sublease with respect thereto; all sales or other taxes that may be payable on Equipment identified in the Certificate of Conveyance delivered on the Effective Date have been paid; all parties to the Sublease have full capacity to contract; the Lessee has no knowledge of any facts which impair the validity of the Sublease or make the same less valuable; all filings and recordings required by law have been completed and complied with; any requirement of new or further filings, recordings or renewals thereof shall be complied with by the Lessee and Trustee may undertake same but shall be without any responsibility or obligations whatsoever for any omission or invalid accomplishment thereof; and (d) The Sublease and all Sublease documents arise out of a bona fide Sublease of the Equipment to the person therein named as sublessee; no payments of rent or otherwise have been made by Sublessee; the Lessee will not create any Lien upon the Sublease or any of the Equipment except as contemplated in the Operative Agreements or consented to by the Trustee; the Lessee will not accept the return of or retake, recapture or repossess any of such Equipment or modify, terminate or renew the Sublease without Trustee's consent; the Lessee will not permit any items of Equipment to be removed from the places where same may be located without Trustee's consent; and the Lessee shall have no authority to accept any collections of any sums under the Sublease, whether as rent or otherwise. 15 SECTION 6. Governing Law. This Sublease Assignment and the Consent and ------------- Agreement attached hereto shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of law. SECTION 7. Counterparts. This Sublease Assignment may be executed by the ------------ parties hereto in separate counterparts and by different parties or separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. * * * * 16 IN WITNESS WHEREOF, the parties hereto have caused this Sublease Assignment to be duly executed as of the day and year first above written. LESSEE: GRAND EQUIPMENT, INC. By:_____________________________ Name Printed: Joseph T. Murphy Title: Chief Financial Officer and Treasurer TRUSTEE: NORWEST BANK MINNESOTA, National Association, not individually, but solely as Trustee By:_____________________________ Name Printed: Carter Dreblow Title: Vice President 17 SCHEDULE I to SUBLEASE ASSIGNMENT FORM OF CONSENT AND AGREEMENT OF SUBLESSEE MGM Grand Hotel, Inc., a Nevada corporation (the "Sublessee"), hereby --------- acknowledges notice of and consents to all of the terms of the Sublease Assignment (herein called the "Sublease Assignment"), dated as of the date ------------------- hereof, between Grand Equipment, Inc., a Delaware corporation ("Lessee"), and ------ Norwest Bank Minnesota, National Association (the "Trustee"), not individually ------- but solely as trustee under the Trust Agreement, (the "Trust Agreement") dated --------------- as of November 9, 1993, between Lessee and Trustee creating the trust referred to as the MGM Equipment Trust 1993-1, (the defined terms therein being hereinafter used with the same meaning as in the Trust Agreement) and hereby confirms to the Trustee that: (a) All representations, warranties, indemnities and agreements of the Sublessee under the Sublease with respect to the items of Equipment subject thereto shall inure to the benefit of the Trustee to the same extent as if the Trustee had been the lessor of such items of Equipment subject thereto; (b) The Sublessee will pay all amounts due under the Sublease directly to Trustee and will provide all notices required under the Sublease directly to the Trustee; (c) Neither the Trustee nor its assigns shall be liable for any of the obligations or duties of the Lessee under the Sublease, nor shall the Sublease Assignment nor this Consent and Agreement give rise to any duties or obligations whatsoever on the part of the Trustee or its assigns; (d) The Sublessee hereby assigns to the Trustee for the benefit of the Certificate Holders all rights it may have, if any, as a secured party in the Equipment; and (e) The Sublessee shall not permit any Liens to be placed on the Equipment or its interest as Sublessee (other than the Sublease Grant) without the prior consent of the Trustee. 18 The Sublessee represents and warrants to the Trustee that: (a) The Sublessee is a corporation duly organized and existing in good standing under the laws of the State of Nevada; (b) The making and performance of the Sublease and this Consent and Agreement have been duly authorized by all necessary corporate action on the part of the Sublessee, do not require any stockholder approval and do not contravene any law binding on the Sublessee or contravene the Sublessee's charter documents or by-laws or any indenture, credit agreement or other contractual agreement to which the Sublessee is a party or by which it is bound; and (c) The Sublease constitutes as of the date hereof a legal, valid and binding obligation of the Sublessee, and this Consent and Agreement is a legal, valid and binding obligation of the Sublessee, in each case enforceable against the Sublessee in accordance with its respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity. Dated as of November 17, 1993 MGM GRAND HOTEL, INC. By:________________________________ Name Printed: Joseph T. Murphy Title: Secretary-Treasurer AGREED AND ACCEPTED BY NORWEST BANK MINNESOTA, National Association, not individually, but solely as Trustee By:_________________________________ Name Printed: Carter Dreblow Title: Vice President 19 EXHIBIT G 2.2(b)(vii) TO PARTICIPATION AGREEMENT (MGM Equipment Trust 1993-1) FORM OF INTERCREDITOR AGREEMENT 20 INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT (the "Intercreditor Agreement"), dated as of November 17, 1993, is entered into between Norwest Bank Minnesota, National Association, not in its individual capacity, but solely in its capacity as trustee under the Trust Agreement (the "Trust Agreement"), dated as of November 9, 1993 between Grand Equipment, Inc., a Delaware corporation, as grantor (the "Lessee") and Norwest Bank Minnesota, N.A., as trustee (the "Trustee") and Bank of America National Trust and Savings Association, a national banking association ("BofA"). WHEREAS, capitalized terms used but not otherwise defined herein shall have the meaning specified in Schedule X to the Participation Agreement, dated as of November 9, 1993, among MGM Grand Hotel, Inc., a Nevada corporation, Lessee, MGM Grand Inc., a Delaware corporation, the Persons listed in Schedule I thereto, and the Trustee, not individually, except as expressly set forth therein, but as Trustee, unless the context otherwise requires. WHEREAS, pursuant to the terms of the Participation Agreement and Trust Agreement, Certificates with an original principal amount of $48,000,000 are being issued contemporaneously herewith; WHEREAS, the Participation Agreement and the Master Lease prohibit the assignment of Lessee's interest in the Master Lease or the Equipment and prohibit the imposition of Liens thereon; WHEREAS, contemporaneously herewith BofA will issue the Letter of Credit to the Trustee for the benefit of the Certificate Holders; WHEREAS, MGM Grand, Inc. as the account party on the Letter of Credit is entering into a Letter of Credit and Reimbursement Agreement ("Reimbursement Agreement") with BofA dated as of the date hereof; WHEREAS, BofA requires the obligations of MGM Grand, Inc. pursuant to the Reimbursement Agreement to be secured by the grant of a subordinated security interest in the Equipment pursuant to a security agreement in the form of Exhibit A hereto; and WHEREAS, the Certificate Purchasers have directed the Trustee to consent to the Lessee's grant of such security interest in order to obtain the benefits of the Letter of Credit. NOW THEREFORE, the parties hereto hereby agree as follows: 21 ARTICLE I CONSENT Subject to Article II below, the Trustee hereby consents to the Lessee's grant of a security interest to BofA in all of Lessee's right, title and interest in and to the Master Lease, the Collateral and the residual interest in the Trust pursuant to a security agreement substantially in the form of Exhibit A hereto. ARTICLE II SUBORDINATION BofA will not take any action to enforce its rights pursuant to such security agreement prior to the time that the Trust Estate reverts to the Grantor pursuant to the terms of the Trust Agreement. Section 2.1 Senior Interest. Notwithstanding the terms contained in any --------------- agreement relative to the grant of a security interest (including the description of any collateral) or the time of attachment or perfection of any security interest or Lien, the time or order of filing or recording of any Lien under the Uniform Commercial Code or any other applicable law as between the Trustee and BofA, Trustee shall have a senior security interest in and Lien upon the Collateral and the residual interest in the Trust and BofA shall have a junior and subordinate Lien upon the Collateral and the residual interest in the Trust. Section 2.2 Limitation on Actions of BofA. BofA agrees that it will not: ----------------------------- (i) interfere, in any manner, with the Trustee's Lien upon the Collateral and the residual interest in the Trust or the exercise of remedies by the Trustee with respect to the sale or other disposition of the Collateral, the Master Lease and residual interest in the Trust (or any portion thereof) whether at a private sale or pursuant to foreclosure or other judicial proceedings; or (ii) take any action by way of enforcement or application of its Lien upon the Collateral, the Master Lease or the residual interest in the Trust unless and until the Trustee shall have advised BofA, in writing, that the Trust Estate has reverted to the Grantor pursuant to the terms of the Trust Agreement. Section 2.3 Defense. If either BofA or the Trustee, in violation of this ------- Intercreditor Agreement shall commence, prosecute, or participate in any action by way of enforcement or application of its Lien upon any Collateral or in any manner interfere with any of the other's Liens upon any of the 22 Collateral, then the other of BofA or the Trustee may interpose as a defense or plea the making of this Intercreditor Agreement and such other party may intervene and interpose such defense or plea in its own name or in the name of the Lessee, or restrain the enforcement of any Lien in its own name or in the name of the Lessee. ARTICLE III MISCELLANEOUS Section 3.1 Other Relationships. Each of the Trustee and BofA may accept ------------------- deposits from, extend credit to, act as trustee under indentures of, and generally engage in any kind of banking, financing, securities or other business with the Lessee, Sublessee and Guarantor other than in connection with the transactions contemplated herein, without any duty to account therefor to any other party. Section 3.2 Termination. This Intercreditor Agreement shall terminate ----------- upon the reversion of the Trust Estate to the Lessee pursuant to the terms of the Trust Agreement. Section 3.3 Waiver. Each party hereto may specifically waive any breach ------ of this Intercreditor Agreement by any other party, but no such waiver shall be deemed to have been given unless such waiver is in writing, signed by the waiving party and specifically designates the breach waived, nor shall any such waiver constitute a continuing waiver of similar or other breaches. Section 3.4 Invalidity. If, for any reason whatsoever, any one or more of ---------- the provisions of this Intercreditor Agreement shall be held or deemed to be inoperative, unenforceable or invalid in a particular case or in all cases, such circumstances shall not have the effect of rendering any of the other provisions of this Intercreditor Agreement inoperative, unenforceable or invalid, and the inoperative, unenforceable or invalid provision shall be construed as if it were written so as to effectuate, to the maximum extent possible, the parties' intents. Section 3.5 Benefit. The benefit of this Intercreditor Agreement shall ------- inure to the parties hereto, the Certificate Holders and their successors and assigns. Section 3.6 Choice of Law. The existence, validity, construction, ------------- operation and effect of any and all terms and provisions of this Intercreditor Agreement shall be determined in accordance with and governed by the laws of the State of California. 23 Section 3.7 Entire Agreement; Amendments. This Intercreditor Agreement ---------------------------- contains the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all prior agreements, understandings and commitments, whether oral or written. This Intercreditor Agreement may be amended only by a writing signed by duly authorized representatives of each party hereto. Section 3.8 Notices. All notices, demands, declarations, consents, ------- directions, approvals, instructions, requests and other communications required or permitted by the terms hereof shall be in writing and shall be deemed to have been given when delivered personally, facsimilied (and confirmed, which confirmation may be mechanical) or otherwise actually received or 5 business days after being deposited in the United States mail certified, postage prepaid, addressed as follows: If to the Trustee: Norwest Bank Minnesota, National Association Sixth and Marquette Minneapolis, MN 55479-0069 Attention: Corporate Trust Department with a copy to: Dorsey & Whitney 220 South Sixth Street Minneapolis, MN 55402 Attention: James Alt, Esq. If to BofA: Bank of America National Trust and Savings Association Credit Products Group #3283 555 South Flower Street Los Angeles, CA 90071 Attention: Jon Varnell Facsimile No. (213) 228-6181 Telephone No. (213) 228-2641 24 with a copy to: Bank of America National Trust and Savings Association Trade Finance Services #5655 333 South Beaudry Street Los Angeles, California 90017 Attention: International Trade Banking Division Facsimile No. (213) 345-6694 Telephone No. (213) 345-6631 and to: Credit Products Group #3283 555 South Flower Street Los Angeles, California 90071 Attention: Jon Varnell Facsimile No. (213) 228-6181 Telephone No. (213) 228-2641 or at such other place in the United States as such party may designate by notice given in accordance with this Section 3.8. ----------- Section 3.9 Counterparts. This Intercreditor Agreement may be executed in ------------ any number of counterparts and by different parties hereto on separate counterparts, each executed counterpart constituting an original but all together one agreement. Section 3.10 Captions. Section captions used in this Intercreditor -------- Agreement (including the exhibit hereto) are for convenience of reference only and shall not affect the construction of this Intercreditor Agreement. 25 IN WITNESS WHEREOF, the parties hereto have executed this Intercreditor Agreement as of the day and year first above written. NORWEST BANK MINNESOTA, N.A., BANK OF AMERICA NATIONAL TRUST not individually, but solely AND SAVINGS ASSOCIATION as Trustee By:_________________________ By:___________________________ Name Printed: Carter Dreblow Name Printed: Jon Varnell Title: Vice President Title: Vice President 26 EXHIBIT A --------- SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT ("Agreement") is entered into as of November 17, 1993 between GRAND EQUIPMENT, INC. (the "Lessee"), a Delaware corporation, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"). RECITALS -------- Lessee is issuing Certificates pursuant to that certain Trust Agreement (the "Trust Agreement"), dated as of November 9, 1993 between the Lessee, as grantor, and Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such term in the Trust Agreement, unless the context otherwise requires. BofA is issuing its Letter of Credit (the "Letter of Credit") to the Trustee as further security for the Lessee's obligations to the Certificate Holders and the Trustee. Such Letter of Credit is being issued pursuant to the terms of that certain Letter of Credit and Reimbursement Agreement (the "Reimbursement Agreement") dated as of November 17, 1993 between MGM Grand, Inc., ("MGM") as Account Party and BofA. A condition precedent to the issuance of the Letter of Credit pursuant to the terms of the Reimbursement Agreement is the Lessee granting a security interest in its property as described below. NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows: 1. THE SECURITY. Lessee hereby assigns and grants a security interest to BofA in the following described personal property, all such property hereinafter collectively called "Collateral", in each case with such security interest being subject and subordinate to all of the rights of the Certificate Holders and the Trustee whether such rights are set forth in the Certificates, the Trust Agreement, the Participation Agreement, the Master Lease, the Sublease Assignment or elsewhere: A. All of Lessee's rights as lessee pursuant to the terms of the Master Lease, including all of Lessee's rights, title and interest in and to the Equipment subject thereto as described in Schedule I hereto; 27 B. All rights to the payment of money now owned or hereafter acquired by Lessee, whether due or to become due and whether or not earned by performance, including, but not limited to, accounts, contract rights, chattel paper, instruments and general intangibles, arising under that certain Sublease ("Sublease"), dated as of November 17, 1993, by and between the Lessee, as sublessor, and MGM Grand Hotel, Inc. ("MGM Hotel"), a Nevada corporation, as Sublessee. C. All of Lessee's rights, title and interest as grantor of the Trust Estate pursuant to the Trust Agreement. D. All proceeds of the foregoing. E. All rights to insurance and the proceeds thereof covering any of the above property. 2. OBLIGATIONS SECURED. The Collateral secures and will secure all Obligations of MGM to BofA under the Reimbursement Agreement. For the purposes of this Agreement, "Obligations" shall mean all reimbursement obligations of MGM to BofA under the Reimbursement Agreement, all extensions of credit made by BofA to MGM and all other obligations and liabilities of MGM to BofA under the Reimbursement Agreement, whether now existing or hereafter incurred or created, whether voluntary or involuntary, whether due or not due, whether absolute or contingent, or whether incurred directly or acquired by BofA by assignment or otherwise. 3. LESSEE'S COVENANTS. Lessee covenants and warrants that: A. Lessee will properly maintain and care for Collateral. B. Lessee will notify BofA in writing prior to any change in Lessee's place of business, or, if Lessee has or acquires more than one place of business, prior to any change in Lessee's chief executive office or the offices where Lessee's books and records concerning the Collateral are kept. C. Lessee will immediately notify BofA of any proposed or actual change of Lessee's name, identity or corporate structure. D. Until BofA exercises its rights to make collections, Lessee will diligently collect all amounts owing under the Sublease and keep accurate books and records thereof. 28 E. Lessee will promptly notify BofA of any legal process levied against the Collateral or any other event which materially affects the value of the Collateral or the rights and remedies of BofA in relation thereto. F. The execution and delivery of this Agreement does not and will not (i) violate any provision of any law, rule or regulation presently in effect having applicability to Lessee or of any order, writ, judgment, decree, determination or award presently in effect having applicability to Lessee or of the charter or bylaws of Lessee, or (ii) result in a breach of or constitute a default under any indenture or loan or credit agreement, or result in a breach of or constitute a default under any other agreement or instrument to which Lessee is a party or by which any of its properties may be bound or affected. 4. BOFA'S REMEDIES AFTER DEFAULT. Upon the occurrence and continuance of any Event of Default as defined in the Reimbursement Agreement, but subject in each case to all of the rights of the Trustee and the Certificate Holders and the terms of that certain Intercreditor Agreement, dated as of the date hereof between the Trustee and BofA, BofA may do any one or more of the following: A. Require Lessee to segregate all collections and proceeds of the Collateral so that they are capable of identification and deliver daily such collections and proceeds to BofA in kind. B. Require Lessee to periodically deliver to BofA records and schedules, which show amounts owing under the Sublease or other matters which affect the Collateral. C. Verify amounts owing under the Sublease and inspect the books and records of Lessee and make copies thereof or extracts therefrom. D. Require Lessee to deliver to BofA any instruments or chattel paper evidencing amounts owing under the Sublease. E. Notify MGM Hotel or any other persons of BofA's interest in the Collateral and the proceeds thereof. F. Require MGM Hotel to forward all remittances, payments and proceeds of the Collateral to a post office box under BofA's exclusive control. G. Demand and collect any amounts owing under the Sublease and any proceeds of the Collateral. In connection therewith Lessee irrevocably authorizes BofA to endorse or 29 sign Lessee's name on all collections, receipts or other documents, take possession of and open the mail addressed to Lessee and remove therefrom proceeds and payments of Collateral. H. Enforce the security interest given hereunder pursuant to the Uniform Commercial Code of Nevada or any other law. I. Require Lessee to assemble the records pertaining to Collateral and make them available to BofA at a place designated by BofA. J. Enter the premises of Lessee and take possession of the records pertaining to the Collateral. K. Grant extensions of, compromise claims in respect of, and settle amounts owing under, the Sublease for less than face value, all without prior notice to Lessee. 5. MISCELLANEOUS. A. Any waiver, expressed or implied, of any provision hereunder and any delay or failure by BofA to enforce any provision shall not preclude BofA from enforcing any such provision thereafter. B. Lessee shall, at the request of BofA, and subject to the approval of the Trustee, execute such other agreements, documents or instruments in connection with this Agreement as BofA may reasonable deem necessary. C. This Agreement shall governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. D. All rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy. E. In the event of any action by BofA to enforce this Agreement or to protect the security interest of BofA in the Collateral, Lessee agrees to pay the costs thereof, reasonable attorneys fees, including the allocated cost of in-house counsel, and other expenses. F. Lessee hereby waives, to the fullest extent permitted by law, all suretyship defenses and rights of every nature otherwise available under California law and the laws of any other jurisdiction, including, without limitation, all defenses arising under Sections 2787 through 2855 and Sections 2899 and 3433 of the California Civil Code and any successor provisions of those Sections. 30 IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first written above. GRAND EQUIPMENT, INC. By:___________________________ Name: Joseph T. Murphy Title: Chief Financial Officer and Treasurer BANK OF AMERICA NATIONAL TRUST SAVINGS ASSOCIATION By:___________________________ Name: Jon Varnell Title: Vice President MGM Grand Hotel, Inc. hereby consents to the foregoing Security Agreement and to the security interest granted therein. MGM GRAND HOTEL, INC. By:___________________________ Name: Joseph T. Murphy Title: Secretary-Treasurer 31 EX-10.22 3 LETTER OF C&R AGREEMENT ================================================================================ LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT DATED AS OF NOVEMBER 17, 1993 BETWEEN MGM GRAND, INC., AS ACCOUNT PARTY AND BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ================================================================================ EXHIBIT 10(22) TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 DEFINITIONS........................................................................ 1 SECTION 1.1 Certain Defined Terms................................... 1 SECTION 1.2 Computation of Time Periods............................. 7 ARTICLE 2 AMOUNT AND TERMS OF THE LETTER OF CREDIT........................................... 7 SECTION 2.1 The Letter of Credit.................................... 7 SECTION 2.2 Issuing the Letter of Credit............................ 7 SECTION 2.3 Reimbursement of Draws.................................. 7 SECTION 2.4 Letter of Credit Fee and Draw Fee....................... 7 SECTION 2.5 Increased Costs and Reduced Return...................... 8 SECTION 2.6 Payments and Computations............................... 9 SECTION 2.7 Non-Business Days....................................... 9 SECTION 2.8 Obligations Absolute.................................... 9 SECTION 2.9 Security................................................ 10 ARTICLE 3 CONDITIONS OF ISSUANCE............................................................. 10 SECTION 3.1 Condition Precedent to Issuance of the Letter of Credit.................................................. 10 SECTION 3.2 Additional Conditions Precedent to Issuance of the Letter of Credit........................................ 11 ARTICLE 4 REPRESENTATIONS AND WARRANTIES..................................................... 12 SECTION 4.1 Corporate Existence and Power........................... 12 SECTION 4.2 Corporate Authorization; No Contravention............... 12 SECTION 4.3 Governmental Authorization.............................. 12 SECTION 4.4 Binding Effect.......................................... 13 SECTION 4.5 Litigation.............................................. 13 SECTION 4.6 No Default.............................................. 13 SECTION 4.7 Management Agreement.................................... 13 SECTION 4.8 No Liens................................................ 13 SECTION 4.9 Taxes................................................... 14 SECTION 4.10 Financial Condition..................................... 14 SECTION 4.11 Collateral Documents.................................... 14 SECTION 4.12 Regulated Entities...................................... 14 SECTION 4.13 No Burdensome Restrictions.............................. 15 SECTION 4.14 Full Disclosure......................................... 15 ARTICLE 5 COVENANTS.......................................................................... 15 SECTION 5.1 Financial Statements.................................... 15 SECTION 5.2 Certificates; Other Information......................... 16 SECTION 5.3 Notices................................................. 16 SECTION 5.4 Preservation of Corporate Existence, Etc................ 17 SECTION 5.5 Maintenance of Property................................. 17 SECTION 5.6 Insurance............................................... 17 SECTION 5.7 Payment of Obligations.................................. 18 SECTION 5.8 Compliance with Laws.................................... 18
SECTION 5.9 Inspection of Property and Books.............................. 18 SECTION 5.10 Environmental Laws............................................ 19 SECTION 5.11 Maintenance of Tangible Consolidated Net Worth................ SECTION 5.12 Maintenance of Consolidated Coverage Ratio.................... 19 SECTION 5.13 Further Assurances............................................ 19 SECTION 5.14 Amendments to Related Documents............................... 20 ARTICLE 6 EVENTS OF DEFAULT.................................................................. 20 SECTION 6.1 Event of Default.............................................. 20 SECTION 6.2 Upon an Event of Default...................................... 22 SECTION 6.3 Rights Not Exclusive.......................................... 23 ARTICLE 7 MISCELLANEOUS...................................................................... 23 SECTION 7.1 Amendments, Etc............................................... 23 SECTION 7.2 Notices, Etc.................................................. 23 SECTION 7.3 No Waiver; Remedies........................................... 24 SECTION 7.4 Right of Set-off.............................................. 25 SECTION 7.5 Indemnity..................................................... 25 SECTION 7.6 Liability of the Account Party................................ 26 SECTION 7.7 Costs......................................................... 26 SECTION 7.8 Binding Effect; Successors and Assigns........................ 27 SECTION 7.9 Severability.................................................. 27 SECTION 7.10 Governing Law................................................. 27 SECTION 7.11 Headings...................................................... 28
LETTER OF CREDIT AND -------------------- REIMBURSEMENT AGREEMENT ----------------------- LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of November 17, 1993, between MGM GRAND, INC., a Delaware corporation, (the "Account Party") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association (the "Bank"). R E C I T A L: ------------- WHEREAS, in order to secure the payment when due of certain rent and other payments to Norwest Bank Minnesota National Association, not individually, but solely as trustee under the Trust Agreement, as Lessor ("Lessor") under a Master Lease dated ag of November 17, 1993, between MGM Grand Equipment Inc., a Delaware corporation ("Lessee") and Lessor (as amended, supplemented or modified from time to time being herein referred to as the "Master Lease"), the Account Party, as guarantor of Lessee's obligations under the Master Lease, has requested the Bank to issue the Letter of Credit. NOW, THEREFORE, in consideration of the premises and in order to induce the Bank to issue the Letter of Credit, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 Certain Defined Terms. As used in this Agreement, the following --------------------- terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agreement" means this Letter of Credit and Reimbursement Agreement, as --------- amended and supplemented from time to time hereafter. "Amortization" means, for any period, as applied to any Person, the amount ------------ of the amortization (other than amortization of debt discount and amortization of capitalized financing fees) that is reflected on the financial statements of such Person and its consolidated Subsidiaries for such period in accordance with GAAP. "Bank Loan Agreement" means that certain Credit Agreement, entered into as ------------------- of May 13, 1992, among MGM Finance, MGM Hotel, the several financial institutions parties thereto, and Bank of America National Trust and Savings Association, as agent for such banks, and any amendments, supplements, modifications, renewals, replacements, consolidations, substitutions and extensions thereof. "Base Rate" means for any day, a rate per annum equal to the higher of (i) --------- the Reference Rate for such day and (ii) the Federal Funds Rate applicable to the Bank for such day plus onehalf of one percent (0.50%). "Business Day" means a day of the year on which banks are not required or ------------ authorized to close in San Francisco, California, Los Angeles, California or New York, New York. 1 "Certificate Holders" has the meaning assigned to that term under the ------------------- Participation Agreement. "Collateral Documents" means, collectively, (i) the Security Agreement, -------------------- (ii) the Intercreditor Agreement, (iii) other security agreements and documents, and all financing statements (or comparable documents) now or hereafter filed in accordance with the UCC (or comparable law) in connection therewith in favor of the Bank and (iv) any amendments, supplements, modifications, renewals, replacements, consolidations, substitutions and extensions of any of the foregoing. "Commitment" means, as of any date, an amount equal to the lesser of (a) ---------- $7,000,000 and (b) 20% of the balance of the Master Lease on such date, as such amount shall be permanently reduced by the amount of any Drawing under the Letter of Credit in accordance with Section 2.1. "Consolidated Adjusted Net Worth" has the meaning assigned to that term in ------------------------------- the Indenture. "Consolidated Coverage Ratio" has the meaning assigned to that term in the --------------------------- Indenture. "Consolidated Fixed Charges" has the meaning assigned to that term in the -------------------------- Indenture. "Consolidated Income Tax Expense" has the meaning assigned to that term in ------------------------------- the Indenture. "Consolidated Net Income" has the meaning assigned to that term in the ----------------------- Indenture. "Contractual Obligations" means, as to any Person, any provision of any ----------------------- security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Credit Obligations" means all unreimbursed Draws, interest, fees, ------------------ expenses, and other indebtedness, advances, liabilities, obligations, covenants and duties owing by the Account Party to the Bank, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement or under any other Related Document, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. "Default Rate" means the Base Rate from time to time in effect plus 3%. ------------ "Depreciation Expense" has the meaning assigned to that term in the -------------------- Indenture. "Draw" or "Drawing" means the payment by the Bank under the Letter of ---- ------- Credit of an amount as demanded pursuant to the presentation of a sight draft by the Lessor. "Event of Default" has the meaning assigned to that term in Section 6.1. ---------------- "Federal Funds Rate" means, for any day, the rate per annum (rounded ------------------ upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged 2 by Federal funds brokers on such day, as published by the Federal Reserve Bank of San Francisco on the Business Day next succeeding such day, provided in each case that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Pay, the Federal Funds Rate with respect to the Bank for such day shall be the average rate quoted to the Bank on such day on such transactions as determined by the Bank. "Fiscal Year" has the meaning assigned to that term in the Indenture. ----------- "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other ---------------------- political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Indebtedness" has the meaning assigned to that term in the Indenture. ------------ "Indemnified Person" has the meaning assigned to that term in Section 7.5. ------------------ "Indemnified Liabilities" has the meaning assigned to that term in Section ----------------------- 7.5. "Indenture" means that certain Indenture dated as of May 1, 1992 among MGM --------- Finance, as issuer, the Account Party, as guarantor, MGM Hotel, as obligor, and U.S. Trust Company of California, N.A., as trustee, relating to the $220,000,000 113/4% First Mortgage Notes due May 1, 1999 and $253,000,000 12% First Mortgage Notes due May 1, 2002. All references to the Indenture in this Agreement shall mean the Indenture as in effect on the date hereof and, to the extent consented to by the Bank in writing, any amendments thereto. "Insolvency Proceeding" means (a) any case, action or proceeding before any --------------------- court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors or other, similar arrangement; in each case (a) and (b) under U.S. Federal, State or foreign law. "Intercreditor Agreement" means the Intercreditor Agreement, substantially ----------------------- in the form of Exhibit A hereto and any amendments, supplements, modifications, --------- renewals, replacements, consolidations, substitutions and extensions thereof. "Letter of Credit" means the irrevocable transferable letter of credit, ---------------- substantially in the form of Exhibit A. --------- "Lien" means any mortgage, deed of trust, pledge, hypothecation, ---- assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preference, priority or 3 other security interest or preferential arrangement of any kind or nature whatsoever (including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement), the interest of a lessor under a capital lease obligation, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, (under the UCC or any comparable law) and any contingent or other agreement to provide any of the foregoing. "Management Agreement" has the meaning assigned to that term in the -------------------- Indenture. "Master Lease Commencement Date" means the date of opening of the MGM Grand ------------------------------ Hotel and Theme Park, but in no event later than March 31, 1994. "Material Adverse Effect" means a material adverse change in, or a material ----------------------- adverse effect upon, any of (a) the operations, business, properties, condition (financial or otherwise) or prospects of the Account Party; (b) the ability of the Account Party to perform under any Related Document; (c) the legality, validity, binding effect or enforceability of any Related Document; or (d) the perfection or priority of any Lien granted to the Bank under any of the Collateral Documents. "MGM Finance" means MGM Grand Hotel Finance Corp., a Nevada corporation. ----------- "MGM Grand Hotel and Theme Park" has the meaning assigned to that term in ------------------------------ the Indenture. "MGM Hotel" means MGM Grand Hotel, Inc., a Nevada corporation. --------- "Minimum Equity" has the meaning assigned to that term in the Indenture. -------------- "Operative Documents" has the meaning assigned to that term in the ------------------- Participation Agreement. "Participant" has the meaning assigned to that term in Section 7.8(b). ----------- "Participation Agreement" means the Participation Agreement dated as of the ----------------------- date hereof, among MGM Hotel, as Sublessee, Lessee, Account Party, the Certificate Holders and the Lessor, as amended or supplemented from time to time. "Person" means an individual, a corporation, a partnership, an association, ------ a joint venture, a trust, an unincorporated organization or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Reference Rate" means the rate of interest publicly announced from time to -------------- time by the Bank in San Francisco, California, as its reference rate. It is a rate set by the Bank based upon various factors including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the reference rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change. "Related Documents" means this Agreement, the Letter of Credit, the ----------------- Collateral Documents, the Operative Documents and all documents and certificates delivered in connection with the execution and delivery hereof and thereof. 4 "Requirement of Law" means, as to any Person, any law (statutory or ------------------ common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the Chief Executive Officer or the President of ------------------- the Account Party or, with respect to financial matters, the Chief Financial Officer or the Treasurer of the Account Party. "Security Agreement" means the Security Agreement substantially in the form ------------------ of Exhibit B hereto and any amendments, supplements, modifications, renewals, --------- replacements, consolidations, substitutions and extensions thereof. "Scheduled Termination Date" means the earlier of (a) March 31, 1999 and -------------------------- (b) [the one hundred and twenty-first day next following the date on which the Lessee, MGM Hotel and the Account Party have performed all of their Obligations to the Lessee and the Certificate Holders pursuant to the Operative Agreements (as such terms "Obligations", "Certificate Holders" and "Operative Agreements" are defined in or by reference to the Participation Agreement)] [five years from the Master Lease Commencement Date]. "Stated Amount" means the amount of the Letter of Credit, as adjusted from ------------- time to time pursuant to the terms of this Agreement and the Letter of Credit. "Subsidiary" of any specified Person means (i) a corporation a majority of ---------- whose Capital Stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such Person or by such Person and a Subsidiary or Subsidiaries of such Person or by a Subsidiary or Subsidiaries of such Person or (ii) any other Person (other than a corporation) in which such Person or such Person and a Subsidiary or Subsidiaries of such Person or a Subsidiary or Subsidiaries of such Person directly or indirectly, at the date of determination thereof has at least majority ownership interest. "Tangible Consolidated Net Worth" has the meaning assigned to that term in ------------------------------- the Indenture. SECTION 1.2 Computation of Time Periods. In this Agreement, in the --------------------------- computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". ARTICLE 2 AMOUNT AND TERMS OF THE LETTER OF CREDIT SECTION 2.1 The Letter of Credit. -------------------- (a) The Bank hereby agrees, on the terms and conditions hereinafter set forth, to issue the Letter of Credit upon the request of the Account Party; provided, however, that in no event shall the sum of (i) the Stated Amount and (ii) the aggregate principal amount of all unreimbursed Draws exceed the Commitment. Each Drawing under the Letter of Credit shall permanently reduce the Stated Amount of the Letter of Credit. (b) The Account Party hereby applies to the Bank, and instructs the 5 Bank to issue, and the Bank agrees, on the terms and conditions hereinafter set forth, to issue the Letter of Credit to the Lessor on the date as set forth in Section 2.2 and in a Stated Amount equal to the amount requested by the Account Party pursuant to Section 2.2. The Commitment to issue the Letter of Credit hereunder shall terminate if the Account Party has not requested the issuance thereof, and said terms and conditions set forth herein have not been complied with, on or before November 30, 1993. (c) The Letter of Credit and the Commitment shall expire on the Scheduled Termination Date. SECTION 2.2 Issuing the Letter of Credit. The Letter of Credit shall be ---------------------------- issued concurrently herewith. SECTION 2.3 Reimbursement of Draws. The Account Party shall cause the Bank ---------------------- to be reimbursed for any Draws, together with any accrued interest on unreimbursed Draws, no later than 1:00 P.M. (San Francisco time) immediately on demand upon each date on which the Bank shall pay any Draw. Each unreimbursed Draw shall accrue interest from the date on which the Bank pays such Draw until payment in full, at the Default Rate in effect from time to time. SECTION 2.4 Letter of Credit Fee and Draw Fee. --------------------------------- (a) The Account Party hereby agrees to pay to the Bank a letter of credit commission on the Stated Amount of the Letter of Credit in effect from time to time from the date of issuance of the Letter of Credit until the Scheduled Termination Date, at the rate of 2% per annum, payable quarterly in arrears on the first Business Day of each January, April, July and October until the Scheduled Termination Date and on the Scheduled Termination Date. (b) The Account Party hereby agrees to pay to the Bank a one time draw fee equal to $75.00, payable on each Business Day on which the Bank shall pay any amount under the Letter of Credit pursuant to a demand for payment. SECTION 2.5 Increased Costs and Reduced Return. ---------------------------------- (a) If the Bank shall have reasonably determined that the introduction of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or compliance by the Bank or any corporation controlling the Bank, with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other authority, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy and the Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its obligations under this Agreement, then, upon demand of the Bank, the Account Party shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase; provided, however, that the Account Party shall not be required -------- ------- to compensate the Bank in respect of any period prior to 30 days after the Bank makes its initial demand (or delivers its initial notice that it intends to make a demand) for any compensation under this Section. (b) If, after the date hereof, the adoption of any applicable law, rule or 6 regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by the Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject the Bank to any tax, duty or other charge with respect to the Credit Obligations, or shall change the basis of taxation of payments to the Bank with respect to the Credit Obligations (except for changes in the rate of tax on the overall net income of the Bank imposed by the jurisdiction in which the Bank's principal executive office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), against assets of, deposits with or for the account of, or credit extended by, the Bank; and the result of any of the foregoing is to increase the cost to the Bank of issuing or maintaining the Commitment or the Letter of Credit or paying any Draw, or to reduce the amount of any sum received or receivable by the Bank under this Agreement, by an amount deemed by the Bank to be material, then, within 30 days after demand by the Bank, the Account Party agrees to pay or cause to be paid to the Bank such additional amount or amounts as will compensate the Bank for such increased cost or reduction. (c) A certificate of the Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder (accompanied by a statement specifying the reasons therefor) shall be conclusive in the absence of manifest error. In determining such amount, the Bank may use any reasonable averaging and attribution methods, provided that adjustments pursuant to subsection (a) and (b) shall not be duplicative. SECTION 2.6 Payments and Computations. The Account Party shall make each ------------------------- payment hereunder not later than 1:00 p.m. (San Francisco time) on the day when due in lawful money of the United States of America to the Bank in immediately available funds. Computations of the Base Rate, the Default Rate and the fees hereunder shall be made on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days (including the first day but excluding the last day) elapsed. Any payment received by the Bank after 1:00 P.M. (San Francisco time) will be deemed to have been received on the following Business Day. SECTION 2.7 Non-Business Days. Whenever any payment to be made hereunder ----------------- shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. SECTION 2.8 Obligations Absolute. The obligation of the Account Party to -------------------- reimburse the Bank for payments made by the Bank under the Letter of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit or any other Related Document; 7 (ii) any amendment or waiver of or any consent to departure from the Letter of Credit or any of the other Related Documents; (iii) the existence of any claim, set-off, defense or other right which the Account Party may have at any time against the Lessor or any other beneficiary, or any transferee, of the Letter of Credit (or any persons or entities for whom the Lessor, any such beneficiary or any such transferee may be acting), the Bank or any other person or entity, whether in connection with this Agreement, the transactions contemplated herein or in the Related Documents, or any unrelated transaction; (iv) any breach of contract or dispute between the Account Party, the Lessor, the Bank or any other person or entity; (v) any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) payment by the Bank under the Letter of Credit against presentation of a demand for payment which does not comply with the terms of the Letter of Credit; (vii) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by the Bank, with or without notice to or approval by the Account Party, with respect to the Account Party's Credit Obligations; or (viii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. SECTION 2.9 Security. All Credit Obligations shall be secured in accordance -------- with the Collateral Documents. ARTICLE 3 CONDITIONS OF ISSUANCE SECTION 3.1 Condition Precedent to Issuance of the Letter of Credit. The ------------------------------------------------------- obligation of the Bank to issue the Letter of Credit is subject to the conditions precedent that the Bank shall have received on or before the date of the issuance of the Letter of Credit the following, each dated such date, in form and substance satisfactory to the Bank: (a) Certified copies of the resolutions of the Board of Directors of the Account Party approving the Related Documents to which it is a party, the form and content of the Letter of Credit and the other matters contemplated hereby, and of all other documents evidencing any other necessary action of the Account Party. (b) Certified copies of the Related Documents, which shall have been (or concurrently herewith are being) duly executed and delivered by the parties thereto, and all governmental and regulatory approvals or determinations necessary or appropriate for the Account Party with respect to this Agreement and the Related Documents and the transactions contemplated hereby and thereby. (c) Certified copy of the Management Agreement. 8 (d) A certificate of the Secretary or an Assistant Secretary of the Account Party certifying the names and true signatures of the officers of the Account Party authorized to sign this Agreement and the other documents to be delivered by it hereunder. (e) An opinion of counsel for the Account Party, in form and substance satisfactory to the Bank in the exercise of reasonable judgment. (f) An opinion of counsel for Lessor, in form and substance satisfactory to the Bank in the exercise of reasonable judgment. (g) This Agreement and the Collateral Documents in form and substance satisfactory to the Bank duly executed and delivered by the parties thereto, together with any UCC financing statements deemed necessary or desirable by Bank in the exercise of reasonable judgment. SECTION 3.2 Additional Conditions Precedent to Issuance of the Letter of ------------------------------------------------------------ Credit. The obligation of the Bank to issue the Letter of Credit shall be - ------ subject to the further conditions precedent that on the date of the issuance of the Letter of Credit the following statements shall be true and the Bank shall have received a certificate signed by a duly authorized officer of the Account Party, dated the date of such issuance, stating that: (a) the representations and warranties contained in Section 4.1 of this Agreement are correct on and as of the date of issuance of the Letter of Credit as though made on and as of such date; and (b) no event has occurred and is continuing, or would result from the issuance of the Letter of Credit, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and the Bank shall have received such other approvals, opinions or documents as the Bank may reasonably request, including, without limitation, a receipt from the Lessor acknowledging receipt of the Letter of Credit. ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.1 Corporate Existence and Power. The Account Party (a) is a ----------------------------- corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver and perform its obligations under the Related Documents; (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to so qualify, to be authorized or to be in good standing would not result in a Material Adverse Effect; and (d) is in compliance with all Requirements of Law, except where the failure to be in compliance would not result in a Material Adverse Effect. SECTION 4.2 Corporate Authorization; No Contravention. The execution, ----------------------------------------- delivery and performance by the Account Party of this Agreement and each other Related Document to which the Account Party is a party, have been duly authorized by all necessary corporate 9 action and do not and will not: (a) contravene the terms of the Account Party's certificate of incorporation, bylaws or other organization document; or (b) conflict with or result in any breach or contravention of, or the creation of any lien under, any indenture, agreement, lease, instrument, Contractual Obligation, injunction, order, decree or undertaking to which such the Account Party is a party; or (c) violate any Requirement of Law. SECTION 4.3 Governmental Authorization. No approval, consent, exemption, -------------------------- authorization, or other action by, or notice to, or filing with, any Governmental Authority (except for recordings or filings in connection with the Liens granted to the Bank under the Collateral Documents) is necessary or required in connection with the execution, delivery, performance or enforcement against the Account Party of this Agreement or any other Related Document or any other instrument or agreement required hereunder to be made by the Account Party. SECTION 4.4 Binding Effect. This Agreement and each other Related Document -------------- to which the Account Party is a party constitute the legal, valid and binding obligations of the Account Party, enforceable against such the Account Party in accordance with their respective terms. SECTION 4.5 Litigation. There are no actions, suits, proceedings (other ---------- than ordinary and customary proceedings involving issuance, renewal or extension of permits, licenses and other evidences of authority to operate aspects of the business of the Account Party in which no material dispute has arisen and in which no third party is contesting issuance of such license, permit or evidence of authority), claims or disputes pending, or to the best knowledge of the Account Party, threatened or contemplated at law, in equity, in arbitration or before any Governmental Authority, against the Account Party or any of its properties which: (a) purport to affect or pertain to this Agreement, or any Related Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Account Party, might have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery and performance of this Agreement or any other Related Document or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. SECTION 4.6 No Default. No Default or Event of Default exists or would ---------- result from the incurring of obligations by the Account Party under this Agreement or any other Related Document. The Account Party is not in default under or with respect to any Contractual Obligation, which such default would have a Material Adverse Effect. SECTION 4.7 Management Agreement. The Management Agreement is in full force -------------------- and effect, and the parties thereto are in full compliance with the provision thereof. There are no events or conditions known to the Account Party which causes it to believe that the Management Agreement will not be performed in accordance with its terms. SECTION 4.8 No Liens. The right of the Account Party to receive proceeds -------- pursuant to the Management Agreement is free and clear of all Liens or rights of others, except Liens contemplated by this Agreement and the Security Agreement and restrictions and limitations contemplated by the Indenture and/or the Bank Loan Agreement. SECTION 4.9 Taxes. The Account Party has filed all Federal and other ----- material 10 tax returns and reports required to be filed and have paid prior to delinquency all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP and no Notice of Lien has been filed or recorded. There is no material proposed tax assessment against the Account Party except those which are or will be contested in good faith by appropriate proceedings and for which adequate reserves have been, or upon notice of such assessment, will be, provided in accordance with GAAP. SECTION 4.10 Financial Condition. ------------------- (a) The audited consolidated financial statements of the Account Party dated December 31, 1992, the related combined statements of operations, stockholders' equity and cash flows for the fiscal year ended on that date and the audited consolidated and consolidating financial statements of the Account Party and its Subsidiaries dated December 31, 1992, the related consolidated and consolidating statements of operations, stockholders' equity and cash flows for the fiscal year ended on that date: (i) were prepared in accordance with GAAP, except as otherwise expressly noted therein; (ii) are complete, accurate and fairly present the financial condition of the Account Party and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) show all material indebtedness and other liabilities, direct or contingent of the Account Party and its Subsidiaries as of the date thereof (including liabilities for taxes and material commitments). SECTION 4.11 Collateral Documents. The Account Party has the full power -------------------- and authority to pledge the Collateral pursuant to the Collateral Documents. The provisions of each of the Collateral Documents are effective to create in favor of the Bank a legal, valid and enforceable first priority security interest in all right, title and interest of the Account Party in the collateral described therein; and financing statements have been filed in the offices in all of the jurisdictions listed in the schedule to the Security Agreement. SECTION 4.12 Regulated Entities. Neither the Account Party, nor any Person ------------------ controlling the Account Party, or any Subsidiaries of thereof, is (a) an "Investment Company" within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. SECTION 4.13 No Burdensome Restrictions. The Account Party is not a party -------------------------- to or bound by any Contractual Obligation or subject to any charter or corporate restriction or any Requirement of Law (other than the Related Documents, the Indenture, the Bank Loan Agreement and documents executed or delivered in connection therewith) which could reasonably be expected to materially and adversely affect or insofar as the Account Party may reasonably foresee may so affect, the ability of the Account Party to perform or observe its obligations under this Agreement. SECTION 4.14 Full Disclosure. None of the representations or warranties --------------- made by the Account Party in the Related documents, none of the statements contained in each exhibit, report, statement or certificate furnished by or on behalf of the Account Party in connection with the Related Documents, and none of the Account Parties filings with the Securities Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act") as of the date of such representation, warranty statement or filing, as the case may be, taken as a whole, contain any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the 11 statements made therein, in light of the circumstances under which they are made, not misleading. ARTICLE 5 COVENANTS The Account Party covenants and agrees that, so long as the Bank shall have any Commitment hereunder, or any Credit Obligation shall remain unpaid, unless the Bank waives compliance in writing: SECTION 5.1 Financial Statements. The Account Party shall deliver to the -------------------- Bank in form and detail reasonably satisfactory to the Bank: (a) as soon as available, but not later than ninety (90) days after the end of each fiscal year of the Account Party, as the case may be, a copy of the audited combined balance sheet of the Account Party as at the end of such year and the related combined statements of income, stockholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous year, and accompanied, in each case, by the opinion of Arthur Andersen & Co. or another nationally-recognized independent public accounting firm which opinion shall state that such combined financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years; and (b) as soon as available, but not later than forty-five (45) days after the end of each of the first three (3) fiscal quarters of each year a copy of the unaudited combined balance sheet of the Account Party as of the end of such quarter and the related combined statements of income, stockholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by Responsible Officers of the Account Party as being complete and correct and fairly presenting, in accordance with GAAP, the financial position and the results of operations of the Account Party; SECTION 5.2 Certificates; Other Information. The Account Party shall ------------------------------- furnish to the Bank: (a) concurrently with the delivery of the financial statements referred to in subsection 5.1(a) above, and so long as not contrary to the then- current recommendations of the American Institute of Certified Public Accountants or to a written policy adopted by the Account Party's independent certified public accountants, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 5.1(a) and (b) above, a certificate of a Responsible Officer (i) stating that, to the best of such officer's knowledge, the Account Party, as the case may be, during such period, has observed or performed in all material aspects all of its covenants and other agreements, and satisfied in all material aspects every condition contained in this Agreement to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (ii) showing in detail the calculations supporting such statement in respect of Sections 5.11 and 5.12; 12 (c) promptly after the same are sent, copies of all financial statements and reports which the Account Party sends to its stockholders, and promptly after the same are filed, copies of all financial statements and regular, periodical or special reports which the Account Party may make to, or file with, the SEC, the Nevada Gaming Commission or any successor or similar Governmental Authority to either of them; and (d) promptly, such additional financial and other information as the Bank may from time to time reasonably request. SECTION 5.3 Notices. The Account Party shall promptly notify the Bank: ------- (a) of the occurrence of any Default or Event of Default and of the occurrence or existence of any event or circumstance that a Responsible Officer of such Person believes, in such Person's reasonable business judgement, will become a Default or Event of Default; (b) promptly upon becoming aware of any Material Adverse Effect subsequent to the date of the most recent audited financial statements of the Account Party delivered to the Bank pursuant to subsection 5.1(a), notice thereof; and (c) promptly following any material change in accounting policies or financial reporting practices, notice thereof. Each notice pursuant to this Section 5.3 shall be accompanied by a written statement by a Responsible Officer of the Account Party setting forth details of the occurrence referred to therein and stating what action the Account Party proposes to take with respect thereto. SECTION 5.4 Preservation of Corporate Existence, Etc. The Account Party ---------------------------------------- shall and shall cause MGM Hotel to: (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business to the extent required by the Indenture and the Bank Credit Agreement; and (c) use its reasonable efforts, in the ordinary course and consistent with past practice, to preserve its business organization and preserve the general goodwill and business of the customers, suppliers and others having business relations with it, the non-preservation of which could have a Material Adverse Effect. SECTION 5.5 Maintenance of Property. The Account Party shall maintain, and ----------------------- shall cause MGM Hotel to maintain, and preserve all their respective property which is used or useful in their respective business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof, except as permitted by the Indenture or the Bank Credit Agreement. The Account Party shall use the standard of care typical in the industry in the operation of its facilities. SECTION 5.6 Insurance. The Account Party shall maintain, and shall cause --------- MGM Hotel to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in 13 such amounts as are customarily carried under similar circumstances by such other Persons, including workers' compensation insurance, business interruption, public liability and property and casualty insurance. SECTION 5.7 Payment of Obligations. The Account Party shall, and shall ---------------------- cause MGM Hotel and MGM Finance to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Account Party or such Subsidiary, including: (a) prior to delinquency, all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets; (b) all lawful claims which, if unpaid or otherwise provided for, might by law become a Lien upon its property; and (c) all Indebtedness as and when due and payable but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. SECTION 5.8 Compliance with Laws. The Account Party shall comply, and shall -------------------- cause MGM Hotel and MGM Finance to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. SECTION 5.9 Inspection of Property and Books. The Account Party shall -------------------------------- maintain, and shall cause MGM Hotel and MGM Finance to maintain, proper books of record and accounts in which full, true and correct entries in conformity with GAAP shall be made of all financial transactions and matters involving the assets and business of the Account Party and such Subsidiaries. The Account Party will permit, and will cause MGM Hotel and MGM Finance to permit, representatives or employees of the ______, to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers employees and independent public accountants, and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Account Party. SECTION 5.10 Environmental Laws. The Account Party shall, and shall cause ------------------ MGM Hotel to, conduct its operations and keep and maintain its property in material compliance with all Environmental Laws and to promptly upon discovery by any Responsible Officer of the Account Party, as the case may be, make such reports to Governmental Authorities as are required by applicable law and repair, eliminate or otherwise institute remedial action in respect of any violation of any Environment Law. SECTION 5.11 Maintenance of Tangible Consolidated Net Worth. Following the ---------------------------------------------- Termination of Construction Period, the Account Party shall cause MGM Hotel and MGM Finance, on a combined basis, to maintain a Tangible Consolidated Net Worth at the end of each of fiscal quarter of at least equal to the lesser of (a) 70% of the Tangible Consolidated Net Worth as of the last day of the first fiscal quarter immediately following the Termination of Construction Period and (b) $255,000,000. SECTION 5.12 Maintenance of Consolidated Coverage Ratio. Subsequent to ------------------------------------------ four 14 fiscal quarters following the Termination of Construction Period, the Account Party shall cause MGM Hotel and MGM Finance, on a combined basis, to maintain a Consolidated Coverage Ratio, as of the last day of any quarter during any Fiscal Year as follows:
Fiscal Year Coverage Ratio 2nd year after Termination of Construction Period 1. 50 to 1 3rd year after Termination of Construction Period and thereafter 1. 75 to 1
SECTION 5.13 Further Assurances. ------------------ (a) The Account Party shall ensure that all written information, exhibits and reports furnished to the Bank pursuant to this Agreement do not and will not contain, as of the time the same is furnished, any untrue statement of a material fact and do not and will not omit to state, as of the time the same is furnished, any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Bank and correct any material defect or error that may be discovered therein or in any Related Document or in the execution, acknowledgement or recordation thereof. (b) Promptly upon request by the Bank, the Account Party shall (and shall cause MGM Hotel to) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register, any and all such further acts, deeds, conveyances, security agreements, mortgages, assignments, estoppel certificates, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Bank may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Related Document, (ii) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests covered by any of the Collateral Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Bank the rights granted or now or hereafter intended to be granted to the Bank under any Related Document or under any other instrument executed in connection therewith. SECTION 5.14 Amendments to Related Documents. The Account Party will not ------------------------------- amend, waive or modify, or take or refrain from taking any action which has the effect of amending, waiving or modifying, any provision of any Related Document or the Management Agreement without the prior written consent of the Bank if such amendment, waiver or modification would have an adverse effect on the rights of the Bank. ARTICLE 6 EVENTS OF DEFAULT SECTION 6.1 Event of Default. Any of the following events while outstanding ---------------- or continuing shall constitute an "Event of Default": (a) Non-Payment of Principal or Interest. The Account Party fails ------------------------------------ to 15 pay when due any amount of principal or any interest hereunder or within any grace period pursuant to any other Related Document; or (b) Other Non-Payment. The Account Party fails to pay any fees or ----------------- any other amount payable hereunder or pursuant to any other Related Document and such amount remains unpaid for four (4) days following the expiration of such grace period; or (c) Representation or Warranty. Any representation or warranty by -------------------------- the Account Party in this Agreement or any Related Document or which is contained in any certificate, document or financial or other statement furnished at any time under this Agreement or in or under any Related Document, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (d) Specific Defaults. The Account Party fails to perform or ----------------- observe any term, covenant or agreement contained in Section 5.4, 5.11, 5.12 or 5.14; or (e) Other Defaults. The Account Party fails to perform or observe -------------- any other term or covenant contained in this Agreement or any Related Document, and such default shall continue unremedied for a period of thirty (30) days after notice; (f) Cross-Default. (i) An event of default shall exist and be ------------- continuing under any Related Document, the Indenture, the Management Agreement or the Bank Loan Agreement, or (ii) the Account Party, MGM Hotel MGM Finance fails to make any payment in respect of any Indebtedness or Contingent Obligation, having an aggregate principal amount of more than $25,000,000 when due, (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) unless such obligation is being contested in good faith in appropriate proceedings and adequate reserves have been set aside in accordance with GAAP, or (iii) the Account Party, MGM Hotel or MGM Finance fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Obligation and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto, if the effect of such event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity or such Contingent Obligation to become payable; or (g) Bankruptcy or Insolvency. The Account Party, MGM Hotel or MGM ------------------------ Finance (i) becomes insolvent or generally fail to pay, or admit in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course substantially as it is conducted on the date hereof; (iii) commences any Insolvency Proceeding or files any petition or answer in any Insolvency Proceeding; (iv) acquiesces in the appointment of a receiver, trustee, custodian or liquidator for itself or a substantial portion of its property, assets or business or effects a plan or other arrangement with its creditors; (v) admits the material allegations of a petition filed against it in any Insolvency Proceeding, or (vi) takes any action to effectuate any of the foregoing; or (h) Involuntary Proceedings. Any involuntary Insolvency Proceeding ----------------------- is commenced or filed against the Account Party, MGM Hotel or MGM Finance, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Account Party's, MGM Hotel's or MGM Finances's assets and any such proceedings or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded 16 within ninety (90) days after commencement, filing or levy; or (i) Monetary Judgments. One or more final judgments, orders or ------------------ decrees shall be entered against the Account Party, MGM Hotel or MGM Finance involving in the aggregate a liability (not fully covered by insurance) of $25,000,000 or more and the same shall remain unvacated, undischarged, unstayed or unbonded pending appeal for a period of thirty (30) days after the entry thereof; or (j) Non-Monetary Judgments. Any non-monetary judgment, order or ---------------------- decree shall be rendered against the Account Party, MGM Hotel or MGM Finance which does or could be expected to have a Material Adverse Effect, and either (i) enforcement proceedings shall have been commenced by any Person upon such judgment or order and (ii) there shall be any period of sixty (60) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) Collateral. ---------- (i) any provision of any Collateral Document shall for any reason cease to be valid and binding on or enforceable against any party thereto, or any party thereto shall so state in writing or bring an action to limit its obligations or liabilities thereunder; or (ii) the Collateral Documents shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first (except to the extent prior or pari passu security interests are otherwise permitted in the Related Documents) priority security interest; or (l) Adverse Change. There shall occur a Material Adverse Effect. -------------- SECTION 6.2 Upon an Event of Default. If any Event of Default shall have ------------------------ occurred and be continuing, the Bank may do any one or all of the following: (a) instruct the Account Party to direct the Lessor to make one or more Draws in the aggregate amount required to pay in full all amounts, if any, entitled to be drawn under the Letter of Credit and, require the Account Party immediately to reimburse the Bank for the amount of such Draw(s); (b) declare the Credit Obligations hereunder, all interest thereon and all other amounts owed by the Account Party hereunder to be immediately due and payable, whereupon all Credit Obligations, all such interest and all such amounts shall become and be immediately due and payable without presentment, demand or notice of any kind, all of which are hereby expressly waived by the Account Party; and (c) direct the Account Party to pay to the Bank an amount in cash equal to the undrawn face amount of the Letter of Credit, to be deposited into a deposit account established or maintained with Bank as cash collateral for the Account Party's obligations to reimburse Bank for any Drawings under the Letter of Credit as and when such Drawings are made; provided, however, that upon the occurrence of any event specified in Section - -------- ------- 6.1(g) or (h) above, all Credit Obligations, all interest thereon and all other amounts due hereunder shall be immediately due and payable; the Account Party shall immediately reimburse the Bank 17 for any Draw made as provided in Section 6.2(a) above; and the Account Party shall forthwith pay to the Bank an amount in cash equal to the undrawn face amount of the Letter of Credit, to be deposited into a deposit account established or maintained with Bank as cash collateral for the Account Party's obligations to reimburse Bank for any Drawings under the Letter of Credit as and when such Drawings are made without any instruction, declaration or notice of any kind, all of which notices and demands are hereby expressly waived by the Account Party. SECTION 6.3 Rights Not Exclusive. The rights provided for in this Agreement -------------------- and the other Related Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement. ARTICLE 7 MISCELLANEOUS SECTION 7.1 Amendments, Etc. No amendment of this Agreement shall be --------------- effective unless the same shall be in writing and signed by each of the parties hereto. No waiver of any provision of this Agreement, nor consent to any departure by the Account Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the and then such waivers or consents shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.2 Notices, Etc. All notices and other communications provided for ------------ hereunder shall be in writing (including telecommunication, facsimile or telex) and mailed, delivered or facsimilied to the addresses set forth below: If to the Account Party: MGM Grand, Inc. 3155 W. Harmon Avenue Las Vegas, Nevada 89103 Attention: K. Eugene Shutler, Esq. Telecopy: (702) 891-1114 If to the Bank: Bank of America National Trust and Savings Association Payment Services #5693 1850 Gateway Boulevard Concord, California 94520 Attention: ABA No. Telecopy No. (510) with a copy to: Bank of America National Trust and Savings Association Trade Finance Services #5655 333 South Beaudry Street Los Angeles, California 90017 Attention: International Trade Banking Division Telecopy No. (213) 345-6694 18 Telephone No. (213) 345-6631 and to: Credit Products Group #3283 555 South Flower Street Los Angeles, California 90071 Attention: Jon Varnell Telecopy No. (213) 228-6181 Telephone No. (213) 228-2641 or as to each such person, at such other address as shall be designated by such person in written notice to the other persons. All such notices and communications shall, when delivered, mailed or facsimilied, be effective when delivered, deposited in the mails or facsimilied, respectively, addressed as aforesaid, except that notices to the Bank pursuant to the provisions of Article II shall not be effective until actually received by the Bank. SECTION 7.3 No Waiver; Remedies. No failure on the part of the Bank or the ------------------- Account Party 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 right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 7.4 Right of Set-off. ---------------- (a) Upon the occurrence and during the continuance of an Event of Default, the Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Account Party against any and all of the obligations of the Account Party now or hereafter existing under this Agreement, irrespective of whether or not the Bank shall have made any demand hereunder and although such obligations may be contingent or unmatured. (b) The Bank agrees promptly to notify the Account Party after any such set-off and application referred to in subsection (a) above, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have. SECTION 7.5 Indemnity. The Account Party shall pay, indemnify, and hold the --------- Bank and each of its officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable fees and expenses of counsel and allocated costs of internal counsel) of any kind or nature whatsoever with respect to the execution, delivery, enforcement and performance of this Agreement and any other Related Documents or the transactions contemplated herein, including by reason of or in connection with the execution and delivery or transfer of, or payment or failure to make payment under after a properly presented demand therefor, the Letter of Credit, and with respect to any investigation, litigation or proceeding related to this Agreement or the use of the proceeds thereof (whether or not any Indemnified Person is a party thereto) (all the foregoing, collectively, the "Indemnified Liabilities"); provided, however, that the Account Party shall not be required to indemnify the Bank pursuant to this Section 7.5 for any claims, damages, losses, liabilities, costs or expenses to the extent caused by (i) the Bank's wilful misconduct or 19 gross negligence in determining whether documents presented under the Letter of Credit comply with the terms of the Letter of Credit or (ii) the 's wilful or grossly negligent failure to make lawful payment under the Letter of Credit of a demand for payment strictly complying with the terms and conditions of the Letter of Credit. Nothing in this Section 7.5 is intended to limit the Account Party's obligations contained in Article 2. SECTION 7.6 Liability of the Account Party. As between the Bank and the ------------------------------ Account Party, the Account Party assumes all risks of the acts or omissions of the Lessor and any other beneficiary or transferee of the Letter of Credit with respect to its officers use of the Letter of Credit. Neither the Bank nor any of their officers or directors shall be liable or responsible for: (a) any use which may be made of the Letter of Credit or any acts or omissions of the Lessor and any other beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not comply with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, except that the Account Party shall have a claim against the Bank, and the Bank shall be liable to the Account Party, to the extent of any direct, as opposed to consequential, damages suffered by the Account Party which the Account Party proves were caused by (i) the Bank's wilful misconduct or gross negligence in determining whether documents presented under the Letter of Credit comply with the terms of the Letter of Credit or (ii) the Bank's wilful or grossly negligent failure to make lawful payment under the Letter of Credit after the presentation to it by the Lessor or a successor trustee under the Trust Agreement of a demand for payment strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 7.7 Costs. Expenses and Taxes. The Account Party agrees to ----- reimburse the Bank for all reasonable attorneys fees, costs and expenses (including without limitation the allocated cost of inhouse counsel) incurred by Bank in connection with the preparation, execution, delivery, filing and recording of this Agreement and any other documents which may be delivered in connection with this Agreement. The Account Party agrees to pay on demand to the Bank all reasonable attorneys fees, costs and expenses (including without limitation the allocated cost of inhouse counsel) incurred by Bank in connection with (i) the enforcement of this Agreement and such other documents which may be delivered in connection with this Agreement, including, without limitation, any costs or expenses incurred in connection with a "work out" or with any bankruptcy or similar proceedings, or (ii) any action or proceeding relating to a court order, injunction, or other process or decree restraining or seeking to invalidate or enjoin payments under the Letter of Credit. In addition, the Account Party agrees, to the extent permitted by law, to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such expenses and fees. SECTION 7.8 Binding Effect; Successors and Assigns. -------------------------------------- (a) This Agreement shall become effective when it thereafter shall have been executed by the Account Party and the Bank and shall be binding upon and inure to the benefit of the Account Party and the Bank and their respective successors and assigns; provided, however, that neither the Account Party nor the Bank shall have the right to assign its rights hereunder or any interest herein (except that the Bank may grant participating interests in the Letter of Credit and this Agreement as set forth in subparagraph 20 (b) below) without the prior written consent of the other party hereto. (b) The _____ may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in the Letter of Credit and this Agreement. In the event of any such grant by the of a participating interest to a Participant, whether or not upon notice to the Account Party, the shall remain responsible for the performance of its obligations hereunder, and the Account Party shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations to the Account Party hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement. (c) No Participant or other transferee of the Bank's rights shall be entitled to receive any greater payment hereunder, or at any different time, than the Bank would have been entitled to receive with respect to the rights transferred unless such transfer is made with the Account Party's prior written consent. (d) Upon the written request of the Account Party the will identify each Participant to which it has participated any of its rights hereunder. SECTION 7.9 Severability. Any provision of this Agreement which is ------------ prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 7.10 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the laws of the State of California. SECTION 7.11 Headings. Section headings in this Agreement are included -------- herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 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:________________________________ Title:_____________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:________________________________ Vice President 21 EXHIBIT B --------- SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT ("Agreement") entered into as of November 17, 1993 between MGM GRAND, INC. ("MGM"), a Delaware corporation ("MGM,") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank"). RECITAL ------- MGM and Bank are entering into a Letter of Credit and Reimbursement Agreement dated as of even date herewith (as amended, modified or supplemented from time to time, the "Reimbursement Agreement"), and it is a condition precedent in such Reimbursement Agreement that the parties hereto execute and deliver this Agreement. NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows: 1. THE SECURITY. MGM hereby assignees and grants to a security interest to Bank in the following described personal property, all such property hereinafter collectively called "Collateral": A. All rights to the payment of money now owned or hereafter acquired by MGM, whether due or to become due and whether or not earned by performance, including, but not limited to, accounts, contract rights, chattel paper, instruments and general intangibles, arising under that certain Management and License Agreement dated as of May 13, 1992 between MGM and MGM Grand Hotel, Inc. a Nevada corporation ("MGM Hotel"), (as amended, supplemented or modified from time to time, "Management Agreement"). B. All proceeds of the foregoing. C. All rights to insurance and the proceeds thereof covering any of the above property. 2. OBLIGATIONS SECURED. The Collateral secures and will secure all Obligations of MGM to Bank under this Agreement and under the Reimbursement Agreement. For the purposes of this Agreement, "Obligations" shall mean all reimbursement obligations of MGM to Bank under the Reimbursement Agreement, all extensions of credit made by Bank to MGM and all other obligations and liabilities of MGM to Bank under the Reimbursement Agreement and this Agreement, whether now existing or hereafter incurred or created, whether voluntary or involuntary, whether due or not due, whether absolute or contingent, or whether incurred directly or acquired by Bank by assignment or otherwise. 3. MGM'S COVENANTS. MGM covenants and warrants that: A. MGM will properly maintain and care for Collateral. B. MGM will notify Bank in writing prior to any change in MGM's place of business, or, if MGM has or acquires more than one place of business, prior to any change in MGM's chief executive office or the offices where MGM's books and records concerning the Collateral are kept. 1 C. MGM will immediately notify Bank of any proposed or actual change of MGM's name, identity or corporate structure. D. MGM has not executed and will not execute any security agreement or financing statement covering any Collateral except to Bank. E. MGM will not dispose of or create a security interest in the Collateral except as provided hereunder. F. Until Bank exercises its rights to make collections, MGM will diligently collect all amounts owing under the Management Agreement and keep accurate books and records thereof. G. MGM will promptly notify Bank of any legal process levied against the Collateral or any other event which materially affects the value of the Collateral or the rights and remedies of Bank in relation thereto. H. Except as may be required pursuant to the Bank Loan Agreement or the Indenture (as such terms are defined in the Reimbursement Agreement) or any of the documents executed in connection therewith, MGM will not agree to subordinate or otherwise restrict its right to receive payments under the Management Agreement. 4. BANK'S REMEDIES AFTER DEFAULT. Upon the occurrence and continuance of any Event of Default, Bank may do any one or more of the following: A. Require MGM to segregate all collections and proceeds of the Collateral so that they are capable of identification and deliver daily such collections and proceeds to Bank in kind. B. Require MGM to periodically deliver to Bank records and schedules, which show amounts owing under the Management Agreement or other matters which affect the Collateral. C. Verify amounts owing under the Management Agreement and inspect the books and records of MGM and make copies thereof or extracts therefrom. D. Require MGM to deliver to Bank any instruments or chattel paper evidencing amounts owing under the Management Agreement. E. Notify MGM Hotel or any other persons of Bank's interest in the Collateral and the proceeds thereof. F. Require MGM to direct MGM Hotel to forward all remittances, payments and proceeds of the Collateral to a post office box under Bank's exclusive control. G. Demand and collect any amounts owing under the Management Agreement and any proceeds of the Collateral. In connection therewith MGM irrevocably authorizes Bank to endorse or sign MGM's name on all collections, receipts or other documents, take possession of an open the mail addressed to MGM and remove therefrom proceeds and payments of Collateral. H. Enforce the security interest given hereunder pursuant to the Uniform 2 Commercial Code of California or any other law. I. Require MGM to assemble the records pertaining to Collateral and make them available to Bank at a place designated by Bank. J. Enter the premises of MGM and take possession of the records pertaining to the Collateral. K. Grant extensions of, compromise claims in respect of, and settle amounts owing under, the Management Agreement for less than face value, all without prior notice to MGM. 5. MISCELLANEOUS. A. Any waiver, expressed or implied, of any provision hereunder and any delay or failure by Bank to enforce any provision shall not preclude Bank from enforcing any such provision thereafter. B. MGM shall, at the request of Bank, execute such other agreements, documents or instruments in connection with this Agreement as Bank may reasonable deem necessary. C. This Agreement shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. D. All rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy. E. All terms not defined herein are used as set forth in the Reimbursement Agreement or in the Uniform Commercial Code of California. F. In the event of any action by Bank to enforce this Agreement or to protect the security interest of Bank in the Collateral, MGM agrees to pay the costs thereof, reasonable attorney's fees, including the allocated cost of inhouse counsel, and other expenses. IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first written above. MGM GRAND, INC. By:________________________________ Name:______________________________ Title:_____________________________ BANK OF AMERICA NATIONAL TRUST SAVINGS ASSOCIATION 3 By:________________________________ Jon Varnell Vice President 4 CONSENT TO ASSIGNMENT The undersigned, MGM Grand Hotel, Inc. ("MGM Hotel") acknowledges and consents to the foregoing Security Agreement dated as of November 17, 1993 and agrees with Bank of America National Trust and Savings Association ("Bank") as follows: 1. Upon and after MGM Hotel's receipt of a notice from the Bank (a) stating that an Event of Default has occurred and is continuing under the Reimbursement Agreement and (b) directing MGM Hotel to do so, MGM Hotel agrees to forward all remittances, payments and proceeds under the Management Agreement to a post office box designated by the Bank. 2. The Bank may enforce MGM Grand, Inc.'s rights under the Management Agreement directly against MGM Hotel. 3. If requested by the Bank, MGM Hotel will cooperate with the Bank by assembling its records in order to verify amounts owing under the Management Agreement and permit the Bank to inspect MGM Hotel's books and records and make copies thereof or extracts therefrom in connection therewith. 4. Except at may be required pursuant to the Bank Loan Agreement or the Indenture (as such terms are defined in the Reimbursement Agreement) or any of the documents executed in connection therewith, MGM Hotel will not agree to subordinate or otherwise restrict MGM Grand, Inc.'s right to receive payments under the Management Agreement. Dated: MGM GRAND HOTEL, INC. By:________________________________ Name:______________________________ Title:_____________________________ 5 EX-13 4 ANNUAL REPORT MGM Grand, Inc and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources As of December 31, 1993 and 1992, the Company held cash and cash equivalents of $211,305,000 and $579,963,000, respectively. Cash used in operating activities for 1993 was $37,596,000 versus cash provided of $12,251,000 for 1992. In August 1991 and October 1992, the Company completed rights offerings of common stock. Total common stock sold in the 1991 offering was 17,210,489 shares at $12 per share, resulting in net proceeds of approximately $200,000,000. The 1992 offering resulted in the sale of 5,785,918 shares at $17.50 per share, resulting in net proceeds of approximately $100,000,000. In May 1991, the Company borrowed $20,000,000 from Tracinda at a commercial lending market rate pursuant to a Term Promissory Note, the proceeds of which were used to repurchase shares of the Company's common stock in accordance with the Marina Hotel and Casino Purchase Agreement. The loan was repaid in full on July 24, 1991. The sale of the Desert Inn Hotel and Casino in December 1991 for approximately $130,000,000 realized net sale proceeds in excess of assets sold of $11,757,000. The Company's $100,000,000 bank facility was used during a portion of 1991 in connection with the development of hotel/casino properties and for general corporate purposes. The facility terminated on December 20, 1991. In May 1992, MGM Grand Hotel Finance Corp. completed a public offering of $220,000,000 of seven year 11 3/4% First Mortgage Notes and $253,000,000 of ten year 12% First Mortgage Notes, realizing net cash proceeds of approximately $454,000,000 after underwriting and other related offering costs. Also in May 1992, MGM Grand Hotel Finance Corp. obtained a $60,000,000 bank line of credit for the MGM Grand Hotel and Theme Park. In June 1993, Grand Laundry, Inc., a wholly-owned subsidiary of the Company, obtained a $10 million loan from a financial institution for a laundry facility constructed in North Las Vegas, Nevada. The facility was completed in December 1993, and provides the laundry and dry cleaning services for the MGM Grand Hotel. In August 1993, the Company completed a public offering of common stock. Total common stock sold was 1,955,000 shares at $37.75 per share, resulting in net proceeds of approximately $70,600,000. During 1993, the Company completed equipment lease financings for Hotel/Casino and Theme Park equipment. See Note 12. Capital expenditures in 1993 were $480,054,000, consisting of $5,568,000 for refurbishment of aircraft and spare parts, and $474,454,000 for expenditures related to the MGM Grand Hotel and Theme Park project, and $32,000 related to furniture, fixtures and equipment. Capital expenditures in 1992 were $222,229,000 consisting of $4,669,000 for refurbishment of aircraft and spare parts, and $217,207,000 for expenditures related to the MGM Grand Hotel and Theme Park project, and $353,000 related to furniture, fixtures and equipment. In addition to final construction expenditures of $96,844,000 accrued at December 31, 1993, expenditures for 1994 are expected to be $19,855,000, consisting of $15,000,000 at the MGM Grand Hotel and Theme Park for general property improvements, and $4,855,000 for aircraft refurbishment by MGM Grand Air, including airframe and engine overhauls and spare parts. The Company expects to finance operations and capital expenditures through cash flow from operations, cash on hand, and the bank line of credit. Results of Operations The Company operates in two industry segments: Hotel/Casino--the operations of the MGM Grand Hotel commencing on December 18, 1993 and Airline--the operations of MGM Grand Air. 1 1993 Compared to 1992 MGM Grand Hotel commenced operations on December 18, 1993. Net revenues for the year ended December 31, 1993 were $37,016,000. Casino revenue for the 14-day period ended December 31, 1993 was $26,700,000. Table game win percentage was 21.7%. Room revenue for the period was $2,897,000 on an occupancy of 58%. In order to open the Grand Hotel three months ahead of schedule, only 3,500 rooms were available for rent. Management believes that the remaining rooms will be available by the end of February 1994. Theme Park revenue was $2,014,000 for the period. The operating loss of $39,691,000 in 1993 includes a non-recurring charge of $45,130,000 for Pre-opening costs. Pre-opening costs include direct project salaries, advertising and other pre-opening services incurred during the pre-opening period of the MGM Grand Hotel and Theme Park. MGM Grand Air revenues for the year ended December 31, 1993 were $20,784,000 compared to $50,005,000 for the year ended December 31, 1992, representing a decrease of $29,221,000 (58%). The 1992 period included $29,488,000 of revenue from MGM Grand Air's scheduled service which was terminated on December 31, 1992. Charter and other revenue increased $514,000 (3%) due to the use of equipment from scheduled service for the charter. Operating expenses (before non-recurring adjustments) decreased $28,562,000 (48%) due to the termination of scheduled service offset by a $241,000 (6% per gallon) increase in the cost of fuel. The 1992 operating expenses included a $4,646,000 charge related to the termination of scheduled service and the bankruptcy of a charter customer. The operating loss in 1993 includes an adjustment of $68,948,000 resulting from the revaluation of the carrying value of aircraft and related equipment. Interest and other income. Interest and other income was $12,247,000 for the year ended 1993 versus $16,455,000 for the year ended 1992. Interest was higher during the 1992 period as a result of short term investment of net proceeds from the issuance of the First Mortgage Notes and the rights offerings. Invested fund balances decreased during 1993 due to construction requirements. Interest expense. Interest incurred was $59,472,000 for the year ended 1993, compared to $37,733,000 for the year ended 1992. Capitalized interest was $52,876,000 in 1993 and $19,811,000 in 1992. The increased interest expense resulted from a full year of interest on the First Mortgage Notes during 1993. Income Taxes. Effective January 1993, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). The standard requires the recognition of deferred tax assets, net of applicable reserves, related to the net operating loss carryforward and certain temporary differences. The cumulative effect of adopting the provisions of SFAS 109 as of January 1, 1993 had no impact on the Company's financial position or results of operations. (See Note 13). Impact of changing prices. Future operating results could be unfavorably impacted to the extent that inflation reduces discretionary income for hotel/casino/theme park customers and increases travel costs for airline travelers. In addition, inflation impacts liquidity and operations by raising the replacement cost of property and equipment. 1992 Compared to 1991 MGM Grand Air had revenues for the year ended December 31, 1992 of $50,005,000 compared to $47,317,000 for 1991, an increase of $2,688,000, or 5%. Passenger revenue from scheduled service decreased $8,053,000 (22%), and charter and other revenues increased $10,741,000 (102%). While the number of passengers increased by 14%, passenger revenue declined by 9%. The load factor declined 3 percentage points from 54% to 51%. The decline in passenger revenue and revenue per passenger was due to the continuing recession and increased price and service competition. MGM Grand Air terminated scheduled service on December 31, 1992 to concentrate on charter operations. The increase in charter 2 revenues resulted primarily from NBA teams, entertainment tour bookings and flights to the Summer Olympic Games. The operating loss increased from $4,914,000 in 1991 to $13,732,000 in 1992, primarily because of the decline in passenger revenue and $4,646,000 of additional charges associated with the termination of scheduled service and the bankruptcy of a charter customer. Interest and other income. Interest and other income was $16,455,000 for the year ended 1992 versus $2,717,000 for the year ended 1991. Interest was higher during the 1992 period as a result of short term investment of net proceeds from the issuance of the First Mortgage Notes and the rights offerings. Interest expense. Interest incurred was $37,733,000 for the year ended 1992, compared to $4,969,000 for the year ended 1991. Capitalized interest was $19,811,000 in 1992 and $4,947,000 in 1991. The increased interest expense was for interest on the First Mortgage Notes. 3 MGM Grand, Inc and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, [In thousands, except share data] 1993 1992 1991 .............................................................................. Revenues: Casino $ 26,702 $ -- $ 56,135 Rooms 2,897 -- 18,862 Food and beverage 2,351 -- 12,857 Other hotel/casino 5,066 -- 11,692 Airline 20,784 50,005 47,317 --------- -------- -------- 57,800 50,005 146,863 --------- -------- -------- Expenses: Casino 9,341 -- 37,098 Rooms 1,016 -- 7,957 Food and beverage 2,529 -- 14,631 Other hotel/casino 5,777 -- 9,740 Airline 20,599 43,995 32,445 Selling, general and administrative 19,679 17,617 45,549 Depreciation and amortization 8,018 6,998 14,353 --------- -------- -------- 66,959 68,610 161,773 --------- -------- -------- Operating Income (loss) before preopening expenses and aircraft carrying value adjustment (9,159) (18,605) (14,910) --------- -------- -------- Hotel preopening expenses 45,130 -- -- Aircraft carrying value adjustment 68,948 -- -- --------- -------- -------- Operating Income (Loss) (123,237) (18,605) (14,910) --------- -------- -------- Nonoperating Income (Expense): Interest income 12,231 16,549 2,603 Interest expense, net of amounts capitalized (6,596) (17,922) (22) Other, net 16 (94) 109 --------- -------- -------- 5,651 (1,467) 2,690 --------- -------- -------- Income (Loss) Before Provision (Benefit) for Income Taxes (117,586) (20,072) (12,220) Provision (benefit) for income taxes -- -- -- --------- -------- -------- Net Income (Loss) $(117,586) $(20,072) $(12,220) ========= ======== ======== Per Share of Common Stock: Net Income (Loss) $ (2.47) $ (.48) $ (.40) ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 MGM Grand, Inc and Subsidiaries CONSOLIDATED BALANCE SHEETS
As of December 31, [In thousands, except share data] 1993 1992 ................................................................................ ASSETS Current Assets: Cash and cash equivalents, including $444,134 restricted for construction purposes at December 31, 1992 $ 211,305 $ 579,963 Accounts receivable, net 30,516 647 Prepaid expenses 11,755 1,219 Inventories 12,662 154 ---------- ---------- Total current assets 266,238 581,983 ---------- ---------- Property and Equipment, net 867,284 449,710 ---------- ---------- Other Assets: Pre-opening expenses -- 10,677 Deposits 1,330 1,092 Licensed rights and trademarks, net 1,154 1,188 Deferred organizational costs, net 1,985 1,742 Other assets, net 22,132 17,094 ---------- ---------- Total other assets 26,601 31,793 ---------- ---------- $1,160,123 $1,063,486 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 14,181 $ 4,322 Accrued salaries and wages 8,194 945 Current obligation, capital leases 1,830 289 Current maturities, long term debt 1,573 -- Accrued interest on long term debt 9,472 9,429 Construction payables 96,844 32,296 Other accrued liabilities 33,502 9,744 ---------- ---------- Total current liabilities 165,596 57,025 ---------- ---------- Deferred Revenues 10,784 -- Deferred Income Taxes 6,517 6,517 Long Term Obligation, Capital Leases 14,044 162 Long Term Debt, Net of Current Maturities 481,427 473,000 Commitments Stockholders' Equity: Common stock ($.01 par value, 75,000,000 shares authorized, 50,579,537 and 48,537,977 shares issued) 506 485 Capital in excess of par value 662,365 589,827 Common stock in treasury (1,734,706 shares) (29,490) (29,490) Retained earnings (deficit) (151,626) (34,040) ---------- ---------- Total stockholders' equity 481,755 526,782 ---------- ---------- $1,160,123 $1,063,486 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 5 MGM Grand, Inc and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (In thousands) 1993 1992 1991 ................................................................................ Cash Flows From Operating Activities: Net income (loss) $(117,586) $ (20,072) $(12,220) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,018 7,356 14,361 Aircraft carrying value adjustment 68,948 -- -- Amortization of debt offering costs 1,312 1,863 -- Aircraft overhaul amortization 1,993 2,423 1,226 Provision for losses on accounts receivable 3,855 238 7,183 Provision (benefit) for deferred income taxes -- -- -- Change in assets and liabilities: Accounts receivable (33,724) 10,653 1,656 Income tax receivable -- -- 8,866 Inventories (12,508) 583 149 Prepaid expenses (10,536) (80) 1,777 Accounts payable, accrued liabilities, and other 52,632 9,287 (5,576) --------- --------- -------- Net cash provided by (used in) operating activities (37,596) 12,251 17,422 --------- --------- -------- Cash Flows From Investing Activities: Sale (purchase) of hotel/casino assets -- -- 130,375 Purchases of property and equipment, net (480,054) (222,229) (36,975) Dispositions of property, plant of equipment, net 684 1,206 4 Change in construction payables 64,548 28,239 4,057 Deposits and other assets 2,141 (5,156) (8,667) --------- --------- -------- Net cash provided by (used in) investing activities (412,681) (197,940) 88,794 --------- --------- -------- Cash Flows From Financing Activities: Borrowings from (repayments to) banks and others 10,000 -- (82,829) Issuance of long term debt, net -- 455,906 -- Issuance of common stock 71,619 99,952 200,216 Repurchase of common stock -- -- (20,000) --------- --------- -------- Net cash provided by financing activities 81,619 555,858 97,387 --------- --------- -------- Net Increase (Decrease) In Cash And Cash Equivalents (368,658) 370,169 203,603 Cash And Cash Equivalents At Beginning Of Year 579,963 209,794 6,191 --------- --------- -------- Cash And Cash Equivalents At End Of Year $ 211,305 $ 579,963 $209,794 ========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 6 MGM Grand, Inc and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1993, 1992, and 1991 (Dollar amounts in Capital in Retained Total thousands, except Common Common Excess of Treasury Earnings Stockholders' share data) Stock Outstanding Stock Par Value Stock (Deficit) Equity ........................................................................................................... Balance at December 31, 1990 24,983,335 $255 $269,386 $ (9,490) $ (1,748) $258,403 Issuance of common stock 17,210,489 173 200,043 -- -- 200,216 Repurchase of common stock (1,176,471) -- -- (20,000) -- (20,000) Classification of redeemable equity -- -- 8,747 -- -- 8,747 Net Sales Proceeds in Excess of Desert Inn Assets Sold -- -- 11,757 -- -- 11,757 Net loss -- -- -- -- (12,220) (12,220) ---------- ---- -------- -------- --------- -------- Balance at December 31, 1991 41,017,353 428 489,933 (29,490) (13,968) 446,903 Issuance of common stock 5,785,918 57 99,894 -- -- 99,951 Net Loss -- -- -- -- (20,072) (20,072) ---------- ---- -------- -------- --------- -------- Balance at December 31, 1992 46,803,271 485 589,827 (29,490) (34,040) 526,782 Issuance of common stock 1,955,000 20 70,604 -- -- 70,624 Issuance of common stock pursuant to employee stock options 86,560 1 994 -- -- 995 Adjustment to Net Sales Proceeds in Excess of Desert Inn Assets Sold -- -- 940 -- -- 940 Net loss -- -- -- -- (117,586) (117,586) ---------- ---- -------- -------- --------- -------- Balance at December 31, 1993 48,844,831 $506 $662,365 $(29,490) $(151,626) $481,755 ========== ==== ======== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 7 MGM Grand, Inc and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Basis of Presentation ................................................................................ MGM Grand, Inc. (the Company) is a Delaware corporation incorporated January 29, 1986. As of December 31, 1993, approximately 72.9% of the outstanding shares of the Company's common stock were owned by Kirk Kerkorian and Tracinda Corporation (Tracinda), a Nevada corporation wholly-owned by Kirk Kerkorian. Through its wholly-owned subsidiary, MGM Grand Hotel, Inc., the Company owns and operates the MGM Grand Hotel and Theme Park, a hotel/casino and entertainment complex in Las Vegas. In January 1990, the Company acquired the Marina Hotel and Casino for $80 million, consisting of $50 million in cash and 1,764,706 shares of common stock. During 1990 and 1991, in accordance with the Marina purchase agreement, the Company repurchased 1,734,706 of such shares for approximately $29,500,000. The remaining shares subject to the agreement were sold in the open market during 1991. In February 1990, the Company acquired the Tropicana Country Club and adjacent land for $38 million in cash which, along with the Marina, constitutes the 112 acre property site. The Marina and the Tropicana Country Club were subsequently closed to allow preparation for construction. The MGM Grand Hotel, Casino and Theme Park commenced operations on December 18, 1993. The Company operated the Desert Inn Hotel and Casino in Las Vegas, Nevada through its wholly-owned subsidiary, MGM Desert Inn, Inc., from February 1988 until December 20, 1991 when the Desert Inn was sold to a wholly-owned subsidiary of Tracinda. (See Note 4). Through its wholly-owned subsidiary, MGM Grand Air, Inc., the Company engages in the luxury charter airline business. MGM Grand Air also operated a scheduled airline service between New York and Los Angeles through December 1992. Note 2. Significant Accounting Policies ................................................................................ a. Principles of Consolidation--The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts are eliminated in consolidation. b. Cash Equivalents--Cash equivalents consist of investments in bank certificates of deposit and other interest bearing instruments with original maturities of 90 days or less. Such investments are carried at cost, which approximates market value. c. Inventories--Inventories are stated at the lower of cost or market, which is determined generally by the FIFO method. d. Property and Equipment--Property and equipment are stated at cost. Maintenance, repairs and renewals that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. The Company capitalized interest during the period that the hotel/casino and entertainment complex was under construction. Gains or losses on dispositions of property and equipment are included in the determination of income. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets, as follows: Airframes, engines and other flight equipment............... 1 to 10 years Buildings................................................... 15 to 40 years Furniture, fixtures and equipment........................... 3 to 7 years Land improvements........................................... 10 years Leasehold improvements...................................... 5 to 20 years
e. Debt and Equity Offering Costs--Direct costs incurred related to the sale of common stock to the public were charged against common stock proceeds at the time of the sale. Direct costs related to the debt offering are being deferred and amortized over the debt repayment period. f. Licensed Rights and Trademarks--Licensed Rights and Trademarks are amortized on a straight-line basis over periods not exceeding 40 years. g. Deferred Organizational Costs--Organizational costs are amortized on a straight-line basis over periods not exceeding 60 months. h. Aircraft Maintenance--Ordinary maintenance and repairs are charged against operations as incurred. The costs of refurbishments or betterments that extend the life of the assets are capitalized. The deferral method of accounting is utilized for major overhauls on airframes and aircraft engines, whereby the cost of each overhaul is capitalized and amortized over the subsequent service period. Such amortization is included in airline expenses. 8 MGM Grand, Inc and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) i. Other Assets--The estimated cost of normal hotel operating quantities (base- stock) of china, silverware, glassware, linen and utensils is recorded as an asset and is not depreciated. Costs of base-stock replacements are expensed as incurred. j. Revenue Recognition--Aircraft charter sales are recognized as revenue when the transportation is rendered. Charter deposits are included in other accrued liabilities. Casino revenue is recorded as gaming wins less losses. k. Promotional Allowances--The retail value of accommodations, food, beverages, and other services furnished to customers without charge is included in gross revenue and then deducted as promotional allowances. The estimated retail value of these promotional allowances was $3,053,000 and $15,478,000 for the years ended December 31, 1993 and 1991, respectively. The estimated cost of providing such promotional allowances was included in casino expenses as follows:
Years Ended December 31, -------------------- (In thousands) 1993 1992 1991 ---------------------------------------- Rooms $ 659 $ -- $2,774 Food and beverage 1,170 -- 4,943 Other 84 -- 628 ------ ------ ------ $1,913 $ -- $8,345 ====== ==== ======
l. Pre-Opening Expenses--Pre-opening expenses include direct project salaries, advertising, and other pre-opening services incurred during the pre-opening period of the MGM Grand Hotel and Theme Park. Such expenses were expensed upon opening of the facility. m. Aircraft Valuation Adjustment--The Company reduced the book value of its aircraft and related equipment to their expected recoverable values, and recognized an aircraft carrying value adjustment in the 1993 Statement of Operations. See Note 10. n. Income Taxes--The Company adopted statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" Effective January 1, 1993. (See Note 13). Prior to 1993, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. o. Net Income (Loss) per Common Share--Net income (loss) per common share has been computed based upon the weighted average number of shares of common stock and common stock equivalents, if dilutive, outstanding during each year (47,587,331 in 1993, 42,254,000 in 1992, and 30,516,440 in 1991). p. Reclassifications--Certain reclassifications have been made to conform the prior year with the current year presentation. Note 3. Statements of Cash Flows ................................................................................ The following supplemental disclosures are provided for the Consolidated Statements of Cash Flows:
Years Ended December 31, ------------------- (In thousands) 1993 1992 1991 ----------------------------------------------------------- Cash payments made for: Interest, net of amounts capitalized $3,535 $8,346 $724 ====== ====== ==== State and federal taxes $ 203 $ 350 $186 ====== ====== ====
In 1993, the Company acquired property and equipment with capital leases totalling $15,423,000. In 1993, amortization of deferred bond offering costs of $1,705,000 was capitalized to property and equipment as a component of the total capitalized interest. In 1993, $940,000 was credited to Capital in Excess of Par Value in connection with the sale of the Desert Inn Hotel and Casino (see Note 4). Note 4. Sale of Hotel and Casino ................................................................................ On December 20, 1991, MGM Desert Inn, Inc. completed the sale of the Desert Inn Hotel and Casino for approximately $130,000,000 in cash to a wholly-owned subsidiary of Tracinda. The net sale proceeds in excess of the Desert Inn assets sold of $11,757,000, net of income taxes of $6,138,000, were credited to Capital in Excess of Par Value. Note 5. Rights Offerings ................................................................................ On August 7, 1991, the Company completed a common stock rights offering. Total common stock issued at completion of the offering was 17,210,489 shares at a subscription price of $12.00 per share, resulting in net proceeds of 9 MGM Grand, Inc and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) approximately $200,000,000. The Company utilized a portion of the net proceeds to repay bank debt and the balance to provide partial financing for the Company's MGM Grand Hotel and Theme Park. On October 15, 1992, the Company completed a second common stock rights offering. Total common stock issued at completion of the offering was 5,785,918 shares at a subscription price of $17.50 per share, resulting in net proceeds of approximately $100,000,000. The Company utilized the net proceeds to provide partial financing for the Company's MGM Grand Hotel and Theme Park. Note 6. Stock Offering ................................................................................ On August 17, 1993, the Company completed a common stock public offering. Total common stock issued at completion of the offering was 1,955,000 shares at a price of $37.75 per share, resulting in net proceeds of approximately $70,600,000. The Company intends to use such funds for general corporate purposes including possible additions to the MGM Grand Hotel and Theme Park and the exploration of other expansion opportunities. Note 7. Issuance of First Mortgage Notes ................................................................................ On May 14, 1992, MGM Grand Hotel Finance Corp. completed its public offering of $220,000,000 of seven year 11 3/4% First Mortgage Notes and $253,000,000 of ten year 12% First Mortgage Notes, realizing net cash proceeds of approximately $454,000,000 after underwriting and other related offering costs. The Company utilized the net proceeds to provide partial financing for the Company's MGM Grand Hotel and Theme Park. Note 8. Accounts Receivable ................................................................................ Components of receivables were as follows:
At December 31, ----------------- (In thousands) 1993 1992 --------------------------------------------------------- Casino $27,095 $ 598 Hotel 6,732 16 Airline 1,422 1,564 ------- ------- 35,249 2,178 Less: Allowance for doubtful accounts (4,733) (1,531) ------- ------- $30,516 $ 647 ======= =======
Credit is issued in exchange for gaming chips as permitted by the regulations of the Nevada Gaming Commission at the MGM Grand Hotel and Casino, and was issued through the date of sale of the Desert Inn Hotel and Casino on December 20, 1991. Note 9. Other Accrued Liabilities ................................................................................ Other accrued liabilities consisted of the following:
At December 31, --------------- (In thousands) 1993 1992 -------------------------------------- Advance Deposits $10,549 $ -- Casino Front Money 7,445 -- Casino Chip Liability 3,267 -- Aircraft Improvements 1,997 -- Accrued Gaming Taxes 1,636 -- Air Traffic Liability 1,563 2,470 Other Liabilities 7,045 7,274 ------- ------ $33,502 $9,744 ======= ======
Note 10. Property and Equipment ................................................................................ Property and equipment consisted of the following:
At December 31, ------------------- (In thousands) 1993 1992 --------------------------------------------------------------------- Land $ 90,837 $ 81,927 Buildings and improvements 660,612 -- Airframes, engines and other flight equipment 81,842 78,083 Deferred airframe and engine overhaul costs -- 11,692 Equipment, furniture, fixtures and leasehold improvements 103,518 5,047 Development and construction costs -- 294,757 Equipment under capital lease 16,987 -- -------- -------- 953,796 471,506 Less: Accumulated depreciation and amortization (86,512) (21,796) -------- -------- $867,284 $449,710 ======== ========
10 MGM Grand, Inc and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The accumulated depreciation and amortization at December 31, 1993 includes the $68,948,000 reduction in the carrying value of aircraft and related equipment. Note 11. Long Term Debt ................................................................................ Long term debt consisted of the following:
At December 31, ------------------ (In thousands) 1993 1992 ------------------------------------------------------------------ 11 3/4% First Mortgage Notes due May 1, 1999. $220,000 $220,000 12% First Mortgage Notes due May 1, 2002. 253,000 253,000 Laundry Facility Loan 10,000 -- -------- -------- 483,000 473,000 Less: Current Maturities (1,573) -- -------- -------- $481,427 $473,000 ======== ========
The First Mortgage Notes contain various restrictive covenants including the maintenance of certain financial ratios and limitations on additional debt, dividends, stock repurchases, disposition of assets, mergers and similar transactions. Based on the quoted market value of the First Mortgage Notes at December 31, 1993, the fair value was $544,885,000. Maturities of the Company's long term debt are as follows:
Year Ending December 31, (In thousands) ------------------------------ 1994 $ 1,573 1995 1,573 1996 3,372 1997 55,889 1998 55,889 Thereafter 364,704 -------- $483,000 ========
The Company's $100,000,000 bank facility was used during a portion of 1991 in connection with the development of hotel/casino properties and for general corporate purposes. The facility terminated on December 20, 1991. On May 17, 1991, the Company borrowed $20,000,000 from Tracinda at a commercial lending market rate pursuant to a Term Promissory Note, the proceeds of which were used to repurchase 1,176,471 shares of the Company's common stock in accordance with the Marina Hotel and Casino Purchase Agreement (see Note 1). The loan was repaid in full on July 24, 1991. On May 14, 1992, the Company secured a commitment from several banks for a $60 million line of credit for the MGM Grand Hotel/Casino and Theme Park. The facility became available on November 18, 1993. The Company incurs a commitment fee for the unused portion of the line of credit. No amounts were outstanding under the line of credit during 1993. On June 16, 1993, Grand Laundry, Inc., a wholly-owned subsidiary of the Company, obtained a $10 million loan from a financial institution for a laundry facility in North Las Vegas, Nevada. As of December 31, 1993, $10 million has been drawn down under the loan. Construction of the facility was completed in December 1993. The Laundry provides the laundry and dry cleaning services for the MGM Grand Hotel. Total interest incurred during 1993, 1992, and 1991 was $59,472,000, $37,733,000, and $4,969,000, respectively, of which $52,876,000, $19,811,000, and $4,947,000, were capitalized in 1993, 1992, and 1991, respectively. Note 12. Lease Commitments ................................................................................ The Company and its subsidiaries lease buildings and equipment under non- cancellable operating lease agreements which expire at various dates through the year 2007. The leases generally provide that the Company pay the taxes, insurance and maintenance expense related to leased assets. In 1993, the Company entered into an operating lease for hotel/casino and theme park equipment in the amount of $48,000,000. Quarterly lease payments are approximately $2,500,000. The lease is for a three year initial term and two one-year optional renewal periods. The Company may purchase the equipment at any time after the initial lease term, or sell the equipment to a third party. In the latter event, the reimbursement to the lessor will not exceed approximately $18,500,000. In addition, the Company entered into capital leases for hotel/casino and theme park equipment in the amount of $15,400,000. 11 MGM Grand, Inc and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) MGM Grand Air has a lease with the City of Los Angeles Department of Airports covering terminal facilities at Los Angeles International Airport through March 25, 2007. At December 31, 1993, the Company was obligated under non-cancellable operating leases and capital leases to make future minimum lease payments as follows:
Year Ending December 31, Operating Capital (In thousands) Leases Leases ---------------------------------------------------------- 1994 $12,714 $ 3,095 1995 12,585 3,137 1996 43,338 3,002 1997 2,099 2,995 1998 2,002 2,766 Thereafter 1,467 6,031 ------- ------- Total Minimum Lease Payment $74,205 21,026 ======= Amount Representing Interest (5,152) ------- Total Obligation Under Capital Leases 15,874 Less: Amount due within one year (1,830) ------- Amount due after one year $14,044 =======
Rental expense on the above noted non-cancellable operating leases was $1,152,000, $603,000, and $508,000 for the years ending December 31, 1993, 1992, and 1991, respectively. Note 13. Income Taxes ............................................................................... The Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109") for the year ended December 31, 1993. The impact of adopting this new standard was not material to the consolidated financial statements of the Company for 1993. Prior to 1993, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied. The Company determined that $51,235,000 of previously unrecognized tax benefits did not satisfy the recognition criteria set forth in the standard because of the Company's history of prior operating results, which do not include the MGM Grand Hotel and Theme Park. Accordingly, a valuation allowance was recorded to fully reserve the applicable deferred tax assets. There was no provision (benefit) for income taxes for the years ended December 31, 1993, 1992, and 1991. Reconciliation of the Federal income tax rate and the Company's effective tax rate is as follows:
1993 1992 1991 ---------------------------------------------------------- Federal income tax rate 35% 34% 34% State tax (net of Federal tax benefit) -- -- -- Limitation on carryback -- -- -- Net operating loss--no benefit recorded (35) (34) (34) --- --- --- Effective tax rate -- % -- % --% === === ===
As of December 31, 1993, after having given effect to SFAS 109, the major tax effected components of the Company's net deferred tax liability is as follows:
(In thousands) - -------------------------------------------------------------------- Deferred Tax Asset Net operating loss carryforward $ 22,490 Bad debt reserve 2,707 Aircraft carying value adjustment 24,132 Hotel preopening expenses 15,483 Accruals, reserves and other 4,496 Alternative minimum tax credit carryfoward 827 -------- 70,135 Less: Valuation allowance (51,235) -------- Total deferred tax asset 18,900 Deferred Tax Liability Depreciation and amortization (17,315) Capitalized interest $ (8,102) -------- Total deferred tax liability (25,417) ------- Net Deferred Tax Liability $(6,517) =======
12 MGM Grand, Inc and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) At December 31, 1993, the Company had a tax return net operating loss carryforward of approximately $64,300,000 which will expire as follows:
Year of Net Operating Loss Carryforward Expiration (In thousands) ---------------------------------------------------- 2005 $18,400 2006 9,900 2007 28,200 2008 7,800 ------- $64,300 =======
In addition the Company has an alternative minimum tax credit carryforward of $827,000, which does not expire. Note 14. Stock Option Plan ................................................................................ The Company has adopted a nonqualified stock option plan which provides for the granting of nonqualified stock options and an incentive stock plan which provides for the granting of incentive stock options pursuant to applicable provisions of the Internal Revenue Code and regulations. The aggregate options available under the plans are 2,500,000 shares. In 1993, 491,100 options were granted at exercise prices ranging from $19.13 to $40.75 pursuant to the nonqualified plan. During 1993, 86,560 stock options were exercised at $11.50 each. At December 31, 1993, 1,792,100 options at exercise prices ranging from $10.25 to $40.75 were outstanding of which 317,000 were exercisable. The Company has agreements with eight executives which provide that, upon a change of control, any unvested stock options covered by such agreements become exercisable. The total number of stock options subject to such agreements is 760,000. The plans are administered by a compensation and stock option committee of the Company's board of directors. Salaried officers and other key employees of the Company and its subsidiaries are eligible to receive options. The exercise price in each instance is 100 percent of the fair market value of the Company's common stock on the date of grant. The options generally have ten-year terms and are exercisable in four annual installments. Note 15. Employee Pension and Savings Plans ................................................................................ MGM Grand Hotel has a section 401(k) employee savings plan for all full time employees not a part of a bargaining unit. The savings plan allows participants to defer, on a pretax basis, a portion of their salary and accumulate tax deferred earnings as a retirement fund. The Company matches employee contributions up to a maximum of 1% of participating employee's gross wages. Additionally, the Company makes contributions to employee's savings plans based on length of service which vest over a five year period. At December 31, 1993 the Company has not made contributions under this arrangement. MGM Grand Air maintains a noncontributory section 401(k) employee savings plan for employees not a part of a bargaining unit. This savings plan allows participants to defer, on a pretax basis, a portion of their salary and accumulate tax deferred earnings as a retirement fund. A subsidiary of the Company (the operations of which have terminated due to the sale of the property) contributed to multi-employer pension plans under various union agreements. Such contributions totalled $1,190,000 in 1991. The share of the unfunded liability related to the multi-employer plans, if any, is not determinable. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standard No. 112 entitled "Employers Accounting for Post Employment Benefits". This statement requires the recognition and measurement of post employment benefits that are not pension benefits, and is effective for fiscal years beginning after December 15, 1993. Management anticipates based on present circumstances that this statement will not have a material impact on the Company's financial position or results of operations. Note 16. Related-Party Transactions ................................................................................ In May 1991, the Company borrowed $20,000,000 from Tracinda at a commercial lending market rate pursuant to a Term Promissory Note, the proceeds of which were used to repurchase shares of the Company's common stock in accordance with the Marina Hotel and Casino Purchase Agreement (see Note 1). The loan was repaid in full on July 24, 1991. In December 1991, MGM Desert Inn, Inc. completed the sale of the Desert Inn Hotel and Casino for approximately $130,000,000 in cash to a wholly-owned subsidiary of Tracinda. 13 MGM Grand, Inc and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) In May 1992, Tracinda acquired $30,000,000 of the Company's First Mortgage Notes (see Note 7) through an open market purchase. During February 1994, such First Mortgage Notes were sold in the open market. The terms of the First Mortgage Notes (see Note 7) required that the Company's obligation to obtain an additional $100,000,000 in equity be assured by the issuance of an irrevocable bank letter of credit in that amount provided by the Company's principal shareholder, Tracinda. The letter of credit was outstanding from May to October 1992, when the rights offering was completed. Fees to the bank issuer of the letter of credit were paid by the Company. During the period from October 10, 1992 through January 20, 1993, MGM Grand Air, Inc. leased a Boeing 757 aircraft from Tracinda. The lease and related payments were $479,000. Also during 1992, payments by The Stars' Desert Inn Hotel and Casino to MGM Grand Air for the charter of aircraft amounted to $221,000. During November 1992, the Company was granted a no cost two-year option from Tracinda to purchase approximately 18 acres of undeveloped land across the Las Vegas strip from its new hotel and theme park. The option gives the Company the right to acquire the property at Tracinda's purchase cost of $31.5 million, together with its actual costs incurred in connection with the ownership of the property, and interest. In August 1992, the Company's hotel subsidiary installed and commenced testing of a property management computer software system at The Stars' Desert Inn which was then owned by Tracinda. The hotel subsidiary agreed to pay certain of the costs incurred in connection therewith. The system was used at The Stars' Desert Inn until September 1993. The Company's hotel subsidiary also agreed to use The Stars' Desert Inn casino to test market certain gaming equipment from July to September 1993. The Company's subsidiary has agreed to reimburse the Stars' Desert Inn for it's estimated costs, which are approximately $1,000,000. The Stars' Desert Inn did not exercise an option to retain the computer software system. The Stars' Desert Inn retained all revenues generated by the gaming equipment. The Company's hotel subsidiary agreed to sell to Tracinda two unused parcels of land (approximately .56 acres total) for $272,950. The Company, based upon appraisals it received, believes that this sale was on terms comparable to what it could have obtained for the land on an arms length basis in an equivalent transaction with a third party. The acquisition has not yet been completed. Note 17. Industry Segments ................................................................................ The Company operates in two industry segments: Hotel/Casino--includes the operations of the MGM Grand Hotel since December 18, 1993, and The Desert Inn through December 20, 1991; and Airline--the operations of MGM Grand Air. Sales between industry segments are immaterial and generally at prices approximately equal to those charged to unaffiliated customers. Revenues and assets of operations outside the United States are not significant.
Years ended December 31, --------------------------------- (In thousands) 1993 1992 1991 - ------------------------------------------------------------ Net revenues: Hotel/Casino $ 37,016 $ -- $ 99,546 Airline 20,784 50,005 47,317 ---------- ---------- -------- $ 57,800 $ 50,005 $146,863 ========== ========== ======== Operating income (loss): Hotel/Casino $ 5,439 $ -- $ (7,196) Airline (9,497) (13,732) (4,914) Corporate expenses (5,101) (4,873) (2,800) Hotel preopening expenses (45,130) -- -- Aircraft carrying value adjustment (68,948) -- -- ---------- ---------- -------- $ (123,237) $ (18,605) $(14,910) ========== ========== ======== Identifiable assets: Hotel/Casino $1,071,612 $ 961,761 $186,712 Airline 2,501 73,773 84,868 Corporate 86,010 27,952 201,502 ---------- ---------- -------- $1,160,123 $1,063,486 $473,082 ========== ========== ======== Capital expenditures: Hotel/Casino $ 474,454 $ 217,207 $ 30,135 Airline 5,568 4,669 6,834 Corporate 32 353 6 ---------- ---------- -------- $ 480,054 $ 222,229 $ 36,975 ========== ========== ======== Depreciation and amortization: Hotel/Casino $ 1,593 $ -- $ 7,202 Airline 6,371 6,949 6,818 Corporate 54 49 333 ---------- ---------- -------- $ 8,018 $ 6,998 $ 14,353 ========== ========== ========
14 MGM Grand, Inc and Subsidiaries REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of MGM Grand, Inc.: We have audited the accompanying consolidated balance sheets of MGM Grand, Inc. (a Delaware corporation) and subsidiaries as ofDecember 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MGM Grand, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 13 to the notes to consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes. Arthur Andersen & Co. Las Vegas, Nevada February 24, 1994 15 MGM Grand, Inc and Subsidiaries SELECTED QUARTERLY FINANCIAL RESULTS For the years ended December 31, 1993 and 1992 (Unaudited) (In thousands except share data)
Quarter -------------------------------------- 1993 First Second Third Fourth Total ................................................................................ Net Revenues $ 4,938 $ 4,719 $ 4,731 $ 43,412 $ 57,800 Operating income (loss) (3,510) (4,333) (7,030) (108,364) (123,237) Net income (loss) (2,742) (2,056) (4,522) (108,266) (117,586) Per share of common stock: Net income (loss) $ (.06) $ (.04) $ (.09) $ (2.22) $ (2.47) 1992 ................................................................................ Net Revenues $14,194 $11,977 $ 12,859 $ 10,975 $ 50,005 Operating income (loss) (2,023) (3,385) (2,751) (10,446) (18,605) Net income (loss) 44 (4,080) (4,905) (11,130) (20,072) Per share of common stock: Net income (loss) $ -- $ (.10) $ (.12) $ (.24) $ (.48)
Common Stock Prices
1993 1992 -------------------- ------------------- For the year ended December 31, High Low High Low ................................................................................ First quarter $ 28 5/8 $ 19 1/8 $ 13 3/8 $ 11 Second quarter 36 3/8 26 5/8 13 1/2 10 3/4 Third quarter 48 3/4 28 1/4 17 7/8 13 1/4 Fourth quarter 48 7/8 36 20 3/8 16 1/8
The Company's Common Stock is listed on the New York Stock Exchange. Its symbol is MGG. 16 EX-21 5 LIST OF SUBSIDIARIES EXHIBIT 21 MGM GRAND, INC. LIST OF SUBSIDIARIES DECEMBER 31, 1993
STATE OF NAME INCORPORATION --------------------------------- ------------- PARENT: (1) MGM Grand, Inc. Delaware SUBSIDIARIES*: (2) MGM Grand Hotel, Inc. Nevada (3) MGM Grand Hotel Finance Corp. Nevada (3) MGM Grand Air, Inc. Delaware
- -------- * Certain subsidiaries have been omitted since, considered in the aggregate as a single subsidiary, they do not, as of December 31, 1993, constitute significant subsidiaries as defined in the rules promulgated under the Securities Exchange Act of 1934, as amended. EX-23 6 CONSENT OF AA&CO. EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 24, 1994 included or incorporated by reference in this Form 10-K, into the Company's previously filed Form S-8 Registration Statements File Nos. 33-35023 and 33-38616. Arthur Andersen & Co. Las Vegas, Nevada March 25, 1994 -----END PRIVACY-ENHANCED MESSAGE-----