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31, 1985, MGM's bank debt stood at $98 million, consisting of $89
million in borrowings under a $175 million revolving credit
facility, and $9 million under an agreement providing for bank
borrowings of up to $10 million to cover daily operating
requirements.
In anticipation of the merger, TBS offered to exchange
$1,100 of its subordinated notes for each $1,000 principal amount
of the MGM Notes, provided the exchanging MGM Note Holder
consented to certain modifications of the MGM Indenture. The
Merger Agreement did not require TBS to make the exchange offer
for the MGM Notes, and TBS' obligation to close its acquisition
of MGM was not contingent upon the successful consummation of the
exchange offer. However, the exchange offer was conditioned upon
consummation of the merger. The exchange offer remained open
through March 31, 1986.
The original Merger Agreement and other transaction
documents were first executed on August 6, 1985. At that time,
MGM believed that its tax basis in UA was not materially
different from the $9 per share value of UA set forth in the
Merger Agreement. Accordingly, MGM believed and informed TBS
that a sale of UA would not produce any material gain or loss.
This information was incorrect. MGM's tax basis in the UA shares
exceeded the consideration received by MGM. The parties disagree
as to the extent of the excess; however, none of the parties have
contended that MGM's basis did not exceed the consideration
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