Commitment Letter for Secured Credit Facility - Bank of America and MGM Grand Inc.
[LETTERHEAD OF BANK OF AMERICA APPEARS HERE]
May 13, 1996
Mr. Alex Yemenidjian
MGM Grand, Inc.
3799 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Dear Alex:
Bank of America National Trust and Savings Association is pleased to commit
to provide up to $300,000,000 of the proposed aggregate $500,000,000 secured
credit facility (the "Facility") for MGM Grand, Inc. Our commitment is based
upon the attached Summary of Terms and Conditions (the "Summary"), the terms and
provisions of which are incorporated herein by this reference. We would serve
as Administrative Agent for the Facility.
Lenders which execute this letter and commit to provide a $50,000,000
portion of the Facility not later than Tuesday, May 14, 1996 would be Co-Agents
under the Facility. No Co-Agents would be accepted after that date. Co-Agents
will commit to provide their portions of the Facility (also based upon the
Summary) by executing this letter in the appropriate space provided below. Our
commitment and the commitment of each Co-Agent (collectively, the "Commitments")
are conditioned upon the commitment by at least four of the potential Co-Agents
listed below of $50,000,000 each by Tuesday, May 14, 1996. In the event that
five Co-Agents commit an aggregate of $250,000,000 by that date, our commitment
amount will automatically be reduced to $250,000,000.
BA Securities, Inc. agrees to use its best efforts to arrange a mutually
acceptable syndicate of lenders for the Facility. MGM Grand, Inc. would be
entitled to accept oversubscriptions up to a total Facility amount of
$600,000,000, provided that Bank of America would be entitled to reduce the
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amount of its initial commitment prior to your acceptance of oversubsciptions,
as set forth in the fee letter described below. We reserve the right to
allocate a portion of our commitment to our affiliate, Bank of America Nevada.
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The Commitments are conditioned upon your acceptance of this letter by
signing it and returning it to us not later than close of business on May 14,
1996, together with your payment of the Breakup Fees referred to in the Summary
and in our separate letter agreement dated today respecting fees payable to Bank
of America and BA Securities, Inc.
This letter may not be disclosed to any person (other than your legal
counsel), or its existence referred to in a communication to any such person,
prior to such acceptance and payment. The Commitments will terminate if the
transactions contemplated by the Summary have not been consummated by December
5, 1996.
The Commitments are conditioned upon execution of mutually satisfactory
definitive loan documentation containing appropriate and customary
representations, warranties, covenants and events of default. The Commitments
are also subject to the absence of any material and adverse change in the
financial condition, operations, assets or business of MGM Grand, Inc. and its
subsidiaries, laws or governmental regulations which are relevant to the
transactions contemplated, or the financial and credit markets disrupting the
bank loan syndication market generally.
It is understood that you will assist us in preparing an Information
Memorandum for use in the process of arranging the lender syndicate, and that
senior management will be available to meet with prospective syndicate members
as we may request.
By executing this letter, you agree that you shall not solicit or accept
any other proposal or commitment to provide financing for the transactions
contemplated by the Summary during the period between the date of this letter
and December 5, 1996.
By accepting this letter, MGM Grand, Inc. agrees that it shall pay on
demand all reasonable costs and expenses of the Administrative Agent and BA
Securities, Inc. (including legal fees and disbursements and the allocated costs
of internal counsel) in connection with the preparation of the Summary and the
negotiation and documentation of the Credit Documents and syndication of the
Facility, whether or not the transactions contemplated by the Summary are
actually consummated. In addition, MGM Grand, Inc. shall defend and indemnify
the Administrative Agent, BA Securities, Inc., their respective officers,
directors, employees and agents (each, an "Indemnified Person"), against all
claims, damages, liabilities and expenses which may be incurred by or asserted
against any of them in connection with the transactions contemplated by this
letter and the Summary and for any reasonable legal or
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other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding, whether commenced or threatened, or in any way relating to the
extension of the financing contemplated by this letter and the Summary or from
any use or intended use of any of the proceeds thereof except, in the case of
any Indemnified Person, to the extent any such loss, claim, damage or liability
results from the gross negligence or willful misconduct of such Indemnified
Person.
Please sign this letter in the space provided below and make the payment
described above to accept the Commitments. We look forward to a prompt closing
of this transaction.
Sincerely,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:/s/ William S. Newby
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William S. Newby, Managing Director
By:/s/ Jon Varnell
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Jon Varnell, Managing Director
BA SECURITIES, INC.
By:/s/ Edward F. Millet
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Edward F. Millet, Vice President
Accepted and agreed:
MGM GRAND, INC.
By: Alejandro Yemenidjian
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Title: Pres, COO, & CFO
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Each of the undersigned hereby commits to provide a $50,000,000 portion of the
Facility referred to above and will act as a Co-Agent for the Facility.
BANK OF SCOTLAND
By: /s/ CATHERINE ONNIFREY
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Title: VICE PRESIDENT
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SOCIETE GENERALE
By: /s/ DONALD SCHUBERT
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Title: VICE PRESIDENT
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THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ MOTOKAZU UEMATSU
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Title: DEPUTY GENERAL MANAGER
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WELLS FARGO BANK, N.A.
By: /s/ BRAD PETERSON
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Title: VICE PRESIDENT
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CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ DEAN J. DECKER
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Title: ASSOCIATE DIRECTOR
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<PAGE>
Confidential Draft May 13, 1996
MGM GRAND, INC.
SENIOR SECURED $500,000,000 REDUCING REVOLVING CREDIT FACILITY
Summary of Terms and Conditions
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BORROWER: MGM Grand, Inc.
GUARANTORS: MGM Grand Hotel, Inc. ("Hotel"); and MGM Grand Atlantic
City, Inc. ("MGM AC").
FACILITY: A 5 - 1/2 year senior secured reducing revolving line of
credit.
AMOUNT: $500,000,000; Borrower reserves the right to accept
oversubscriptions to the Facility which result in an
increase in the amount of the Facility to up to
$600,000,000 (subject, however, to the consent of both
BofA and the Arranger).
SWING LINE: A $15,000,000 portion of the Facility would be made
available to Borrower by means of a Swing Line. The
outstanding principal balance of the Swing Line Advances
would not exceed $5,000,000 for a period in excess of 3
business days. Swing Line Advances would be funded by
Bank of America Nevada at a rate equal to the Base Rate
plus the Base Rate Spread described below. Each Bank
would have a risk participation in Swing Line Advances
which is equal to its pro rata share of the Facility.
Swing Line Advances would not constitute usage for the
purpose of computing Commitment Fees due to the Banks.
PURPOSES: 1) Refinance certain existing indebtedness for borrowed
money of Borrower and its Subsidiaries.
2) Finance up to $250,000,000 of Masterplan capital
improvements at the MGM Grand Hotel/Casino over the
next two years;
3) Finance initial development costs for a new project
in Atlantic City; and
4) General corporate purposes.
AVAILABILITY: The Facility will become available upon the earlier to
occur of:
(i) the successful defeasance of the $473,000,000
(face amount) of existing First Mortgage Notes
("FMN's") issued by MGM Grand Hotel Finance Corp. for
approximately $523,000,000, including related
transaction costs; or
(ii) concurrently with the deposit of sufficient
funds with the trustee for the FMN's (in the form of
government securities in the approximate amount of
$523,000,000) to successfully defease the FMN's,
provided that the Borrower
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Confidential Draft May 13, 1996
is able to provide the Agent with a first priority
lien in those government securities to secure the
Facility.
In the latter case, after 91 days, the Agent would
release its lien in the government securities
concurrently with (i) its receipt of the Hotel Guaranty,
a first priority mortgage on the MGM Grand, Las Vegas,
and its other first priority security from Hotel and (ii)
the corresponding release of security from the FMN
Indentures. The final structure of the transaction in
which the FMN's will be defeased is to be negotiated, but
must be acceptable to the Agent and the Banks. In any
event, the defeasance of the FMN's must be structured so
that the Agent and the Banks are entitled to the benefits
of the Security described below or the government
securities, without gaps or the risk of avoidance because
of preference claims or other similar risks.
MATURITY: December 31, 2001. Borrower may request one-year
extensions of the Facility (and correspondingly defer the
Scheduled Facility Reductions, below) at any time
following the one year anniversary of closing the
Facility, subject to consent to 100% of the Banks.
MANAGING AND
ADMINISTRATIVE AGENT: Bank of America National Trust and Savings Association
("BofA"; in its capacity as Administrative Agent,
"Agent").
ARRANGER: BA Securities, Inc. Arranger will endeavor, on a best
efforts basis, to arrange a group of Co-Agents to
collectively commit an aggregate initial amount to the
Facility of at least $200,000,000.
CO-AGENTS: Invitations to Bank of Scotland, Societe Generale, Long-
Term Credit Bank of Japan, Wells Fargo, and Canadian
Imperial Bank of Commerce.
SECURITY: Substantially all of the assets of Borrower and
the Guarantors, to include, without limitation, a pledge
by the Borrower of the stock of the Guarantors; first
deeds of trust on, and security interests in, the MGM
Grand Hotel/Casino and the Atlantic City project,
together with any improvements hereafter undertaken; and
a pledge of all other personal property, FF&E, contract
rights, equipment leases, intangibles, and other
significant unencumbered assets of Borrower and
Guarantors now owned or hereafter acquired (MGM Darwin
and New York-New York are specifically excluded).
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Confidential Draft May 13, 1996
SCHEDULED
FACILITY REDUCTIONS: Availability under the Facility will reduce according to
the following schedule (unless extensions of the Facility
have been granted by the Banks -- see Maturity, above):
Remaining
Date Reduction Availability
---- ------------ ------------
12/31/99 $ 25,000,000 $475,000,000
03/31/00 $ 25,000,000 $450,000,000
06/30/00 $ 25,000,000 $425,000,000
09/30/00 $ 25,000,000 $400,000,000
12/31/00 $ 25,000,000 $375,000,000
03/31/01 $ 25,000,000 $350,000,000
06/30/01 $ 25,000,000 $325,000,000
09/30/01 $ 25,000,000 $300,000,000
12/31/01 $300,000,000 $0
In the event that the amount of the Facility is increased
by reason of an oversubscription, the Reduction Amounts
set forth above will be ratably increased.
VOLUNTARY
PREPAYMENT: Base Rate Loans may be prepaid without penalty at any
time upon one business days' notice to the Agent.
Prepayment of LIBOR loans may occur upon three business
days' notice during an interest period provided that
Borrower shall reimburse the Banks for any funding losses
and loss of anticipated profits to the Banks.
Prepayments shall be in an aggregate principal amount of
not less than $10,000,000 and in increments of $1,000,000
above $10,000,000. Both principal and accrued interest
shall be due and payable on the proposed prepayment date.
Subject to the provisions regarding prepayment, Borrower
may reduce or cancel unused commitments without penalty
upon three business days' notice to the Agent.
INTEREST RATES AND
COMMITMENT FEES: Based on the ratio of Borrower's Leverage Ratio (as
defined below), as follows (basis points):
Base
Leverage LIBOR Rate Commitment
Ratio (x) Spread Spread Fee
--------- ------ ------ ---
x (less than) 1.25 75.0 0.0 25.00
1.25 (less than or equal to) x (less than) 1.75 100.0 0.0 31.25
1.75 (less than or equal to) x (less than) 2.25 125.0 25.0 37.50
2.25 (less than or equal to) x (less than) 2.75 150.0 50.0 37.50
2.75 (less than or equal to) x (less than) 3.25 175.0 75.0 43.75
x (greater than or equal to) 3.25 200.0 100.0 50.00
"Base Rate" means the higher of (a) BofA's "Reference
Rate" (calculated on a 365/366 day basis) and (b) the
federal funds rate plus 0.50% (calculated on a 360 day
basis). The "LIBOR" rate
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Confidential Draft May 13, 1996
shall be reserve adjusted. Both the LIBOR rate and all
fees under the loan documents will be calculated on a 360
day basis.
INTEREST PERIODS: LIBOR rate loans will be available for interest periods
of 1, 2, 3 or 6 months. No more than 15 LIBOR loans
shall be outstanding at any one time.
INTEREST PAYMENTS: Interest will be payable on Base Rate Loans at the end of
each calendar month, and on each other type of Loan at
the end of each Interest Period, but not less frequently
than every 90 days if Interest Periods longer than 90
days are selected.
NOTICE OF
BORROWINGS: Borrower must give notice to the Agent of its intention
to borrow under the LIBOR option 3 eurodollar banking
days before the requested loan. Base Rate borrowings are
available on a same day basis.
MINIMUM
BORROWINGS: Advances under the Facility shall be in integral
multiples of $1,000,000 which are not less than
$10,000,000.
COMMITMENT FEES: Commitment fees shall be payable with respect to the
average daily unused portion of the Facility quarterly in
arrears and upon any termination of all or any portion of
the Facility.
ADMINISTRATIVE FEE: Annual Administrative Fee payable as set forth in a
letter with BofA.
UNDERWRITING FEES: Agent: As set forth in a letter agreement with BofA.
Co-Agents: 1.00% for $50,000,000 commitments, payable
upon consummation of the initial loans on the commitment
amount accepted by Borrower and Arranger.
BREAKUP FEE: Borrower will pay $25,000 to each Co-Agent and an amount
set forth in a letter agreement to the Agent within one
week of commitment, for use of the Commitment Letters
providing an aggregate $500,000,000 underwriting of the
Facility. Such amounts will be credited to the
Underwriting Fees payable at closing to BofA/Arranger and
the Co-Agents, respectively.
DOCUMENTATION: The Facility will be subject to preparation, execution,
and delivery of a Loan Agreement and other mutually
acceptable loan documentation which will contain the
normal conditions precedent, representations and
warranties, covenants, events of default and other
provisions including, without limitation, those outlined
below.
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<PAGE>
Confidential Draft May 13, 1996
COVENANTS AND
CONDITIONS: The Loan Agreement will contain covenants usual and
customary for a financing of this nature, including, but
not limited to, the Borrower's covenant to maintain its
fundamental business, compliance with law, ERISA
compliance, notice of default, and material litigation.
Covenants will include, among others, the following:
Financial
Covenants: Financial covenants will be measured quarterly, beginning
with the first full calendar quarter after Closing.
(A) Maximum Leverage Ratio of not more than the following
(individual quarterly levels to be determined):
During Fiscal
Year Ending Maximum Ratio
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12/31/96 3.00
12/31/97 3.00
12/31/98 3.80
12/31/99 3.00
and thereafter
Leverage Ratio defined as the ratio of Total Debt to
Cashflow. Cashflow is defined as EBITDA of the
Borrower, plus pre-opening expenses, plus EBITDA of
---- ----
MGM Grand Australia (but not including return of
capital), plus operating cashflow from New York - New
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York distributed to and received by Borrower (but not
including return of capital). Total Debt defined as
all funded debt, plus letters of credit, plus all
contingent obligations (e.g., guarantees and other
forms of support), plus 50% of the amount of debt
outstanding on the New York-New York project until
the opening of New York-New York; following the
opening of New York-New York, and for so long as the
New York-New York Keep-Well Agreement is in place,
50% of its debt amount will be included in this
calculation (for the subsequent quarter) only when
New York-New York does not achieve quarterly EBITDA
of at least $20,000,000.
(B) Minimum Interest Coverage Ratio not less than the
following (individual quarterly levels to be
determined):
During Fiscal
Year Ending Minimum Ratio
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12/31/96 3.00
12/31/97 3.00
12/31/98 2.25
12/31/99 3.00
and thereafter
Defined as (Cashflow - Maintenance CAPEX (to be
defined) - Income Tax Provision - Cash
Dividends)/(Cash
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Confidential Draft May 13, 1996
Interest + Payments required by Borrower under the
New York-New York Keep-Well Agreement).
(C) Maximum New Venture CAPEX. Limited to (i)
$750,000,000 on the Atlantic City project, (ii) up to
$250,000,000 for Masterplan improvements at Hotel,
(iii) amounts payable under the New York-New York
Keep-Well Agreement, New York-New York pre-opening
costs and additional equity infusions to New York -
New York required under the current $460 million
budget, (iv) an additional $200,000,000 over the life
of the Facility, and (v) 100% of the net proceeds
received from additional equity offerings subsequent
to 12/31/96.
(D) Minimum Tangible Net Worth of not less than the sum
of (i) 85% of Consolidated Tangible Net Worth as of
the closing date (but after having accounted for the
defeasance/buyback costs of the FMN's), plus (ii) 50%
of cumulative Consolidated Net Income after closing
(not reduced by Consolidated Net Losses), plus (iii)
75% of the net proceeds of any equity offering.
Negative
Covenants: The Loan Agreement will contain negative covenants
including, without limitation, acquisitions, mergers and
similar transactions, asset sales, and restricted
payments (including dividends, which are payable by
Borrower subject to Financial Covenants (B) and (D)
above, and so long as Borrower's Leverage Ratio is not
greater than 2.0). Change in control (to be defined) of
the Borrower shall not result in an Event of Default, but
rather an optional termination of the Facility
commitments by the Banks if Requisite Banks so elect. No
additional senior indebtedness or liens are permitted,
except for secured purchase money indebtedness and
capital leases under baskets to be defined. Unsecured
subordinated debt of Borrower will be permitted so long
as it is on terms consistent with the current market (to
be later defined).
Also, Borrower may enter into secured swap agreements
with one or more Banks in a notional amount up to
$250,000,000 that shall be secured on a pari passu basis
with the obligations under the Facility.
Conditions of Lending: For the initial advance, usual and customary for
transactions of a similar nature, including, without
limitation, the following, in form and substance
satisfactory to the Agent and the Banks:
(A) all legal matters shall be satisfactory to the Banks,
including favorable legal opinions and no judgment,
order, injunction or other restraint shall exist, and
no litigation shall be pending or threatened, that in
the judgment of the Banks would prohibit or impose,
or result in the
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Confidential Draft May 13, 1996
imposition of, materially adverse conditions upon the
financing contemplated hereby;
(B) receipt by Borrower, and continuing effectiveness, of
all licenses, regulatory approvals, governmental
authorizations, permits, etc., necessary to the
ongoing business as now conducted;
(C) execution and delivery of satisfactory closing
documentation;
(D) no material adverse change (i) in the financial
condition, operations, assets, or business of
Borrower or (ii) that would have a material adverse
effect on the rights or remedies of the Agent or
Banks, or on the ability of Borrower to perform its
obligations under the Loan Agreement and other loan
documents.
(E) FIRREA appraisal and update to environmental
assessment.
(F) Solvency certificate by each Guarantor.
For each subsequent Advance, usual and customary for
transactions of a similar nature, including, without
limitation, the following, in form and substance
satisfactory to the Banks:
(A) absence of Event of Default, matured or unmatured;
(B) representations and warranties true, correct and
complete as the date of such advance, immediately
prior to and after giving effect to the proposed
borrowing;
(C) no material adverse change (i) in the financial
condition, operations, assets or business of
Borrower, or (ii) that would have a material adverse
effect on the rights or remedies of the Agent or
Banks, or on the ability of Borrower to perform its
obligations, under the Loan Agreement and other loan
documents.
Reporting
Requirements: To be negotiated.
EVENTS OF DEFAULT: Customary, including, without limitation, failure to
maintain material franchises and licenses, breach of
covenants, breach of representations and warranties,
bankruptcy/insolvency, judgments and attachments of
Borrower or any Guarantor, unfunded ERISA liabilities and
withdrawal liabilities under multiemployer plans, all
subject to mutually satisfactory materiality thresholds
and grace, notice and cure periods, as appropriate.
REQUISITE BANKS: Banks comprising 66-2/3% of total commitments under the
Facility.
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Confidential Draft May 13, 1996
CLEAR MARKET: Borrower shall agree that, except for the anticipated
equity offering, and related transactions and
subordinated debt, from the date of this Summary of Terms
and Conditions through December 5, 1996 neither it nor
the Guarantors will engage in any other material
financing transaction, or solicit interest in such a
transaction, without the consent of the Arranger.
TAXES: All payments will be made free and clear of any present
or future taxes, withholdings or other deductions
whatsoever (other than taxes imposed on the overall
income (whether gross or net) of a Bank by the
jurisdiction in which the Bank is organized, resident or
doing business).
MISCELLANEOUS: Customary indemnity and yield protection (including risk-
based capital adequacy, increased costs and interest
period breakage indemnities), illegality and similar
provisions.
ASSIGNMENTS AND
PARTICIPATIONS: Each Bank may assign all or any part of its loans or
commitment to an affiliate of such lender or to any other
Bank without consent, and to one or more financial
institutions that are Eligible Assignees with the prior
consent of the Agent and Borrower. The Agent's and the
Borrower's consent shall be required for all assignments,
but shall not be unreasonably withheld. The minimum
amount of any such assignment shall be $10,000,000, or
such lesser amount as constitutes the remaining amount of
a Bank's commitment (except that there shall be no
minimum assignment among the Banks or to their
affiliates), and each assigning Bank shall pay to the
Agent a recordation fee of $2,500 with respect to each
such assignment. As used herein, the term "Eligible
Assignee" means any Affiliate of the assignor Bank and
any commercial bank having a combined capital and surplus
of not less than $100,000,000 which is (i) organized
under the laws of the United States or any state thereof,
or (ii) the domestic branch or agency of any such
commercial bank organized under the laws of a country
which is a member of the Organization for Economic
Cooperation and Development. Upon any such assignment,
the assignee financial institution shall become a Bank
for all purposes under the loan documents.
Each Bank may sell participations for all or any part of
the Facility or commitment provided, that (i) such Banks
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shall remain responsible for its total obligations under
the loan documents, (ii) Borrower and the Agent shall
continue to deal solely with such Bank in connection with
such Bank's rights and obligations under the loan
documents, and (iii) such Bank shall not sell any
participation under which the participant would have
rights to approve any amendment or waiver relating to any
loan documents except to the extent any such amendment or
waiver would (a) extend the final maturity date or the
date for the payment of any installments of fees,
principal or interest due in respect of the Facility, (b)
reduce the amount of any installment of principal due in
respect of the Facility, (c) reduce the interest
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Confidential Draft May 13, 1996
rates of fees applicable to the Facility, (d) release the
Guarantors or any material collateral, or (e) change the
definition of Requisite Banks.
FEES AND EXPENSES: Borrower shall pay all reasonable costs and expenses
(including without limitation, the allocated fees and
expenses of in-house counsel), incurred by the Arranger,
the Agent, and any Bank in the enforcement and collection
of obligations under the Facility.
GOVERNING LAW: State of Nevada.
This Summary is not meant to be, nor should it be construed as, an attempt to
define all of the terms and conditions of the transaction contemplated hereby,
nor is it intended to reflect specific document phrasing that will exist in the
Loan Agreement. This Summary is intended only to outline the basic points of
business understanding around which a Loan Agreement can be structured.
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Confidential Draft May 13, 1996
BA SECURITIES, INC.
SPECIAL DISCLOSURE STATEMENT
BA Securities, Inc. ("BA Securities") is a wholly-owned, direct subsidiary of
BankAmerica Corporation, the parent company of Bank of America NT&SA ("Bank of
America"). BA Securities is a broker-dealer registered with the Securities and
Exchange Commission, and is a member of the National Association of Securities
Dealers, Inc. and the Securities Investor Protection Corporation.
BA Securities is not a bank. The securities and financial instruments sold,
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offered or recommended by BA Securities are not bank deposits, are not
guaranteed by, and are not otherwise obligations of, any bank, thrift or other
subsidiary of BankAmerica Corporation, and are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency.
From time to time, Bank of America's affiliates may lend to one or more issuers
whose securities are underwritten, dealt in, or placed by BA Securities. You
are referred to the relevant prospectus, offering statement or other disclosure
document for material information relating to any such lending relationship, and
whether the proceeds of an issue will be used to repay any such loans.
Furthermore, the obligations of BA Securities are not those of any affiliated
bank or thrift, and no such affiliated bank or thrift is responsible for
securities underwritten, dealt in, or placed by BA Securities.
BA Securities also may participate from time to time in a primary or secondary
distribution of securities offered or sold to you by it. Further, BA Securities
may act as an investment adviser to issuers whose securities may be offered or
sold to you by it.
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