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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 333-17795
WATERFORD GAMING, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 06-1465402
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
914 Hartford Turnpike, P.O. Box 715
Waterford, CT 06385
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 442-4559
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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: Not applicable.
WATERFORD GAMING, L.L.C.
INDEX TO FORM 10-K
PART I. PAGE
Item 1. Business 1
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 20
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III.
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management 22
Item 13. Certain Relationships and Related Transactions 22
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 23
PART I
ITEM 1. BUSINESS
A. GENERAL
Certain Forward Looking Statements
- ----------------------------------
Certain information included in this Form 10-K and other materials filed or to
be filed by the Waterford Gaming, L.L.C. (the "Company") with the Securities and
Exchange Commission (the "Commission") (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements include, but are not limited to,
information relating to the Mohegan Sun Casino (the "Mohegan Sun") including
plans for future expansion and other business development activities, financing
sources, the effects of regulation (including gaming and tax regulation) and
competition. Any forward-looking statements included herein do not purport to be
predictions of future events or circumstances. Forward-looking statements can be
identified by, among other things, the use of forward-looking terminology such
as "believes", "expects", "may", "will", "should", "seeks", "pro forma",
"anticipates", "intends", or the negative of any thereof or other variations
thereon or comparable terminology. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements made by or on behalf of the Company.
The Company is a special purpose company, formed solely for the purpose of
holding its partnership in Trading Cove Associates ("TCA"), a Connecticut
general partnership and the manager (until January 1, 2000) and developer of the
Mohegan Sun. The Company also invested in certain financial instruments issued
by the Mohegan Tribal Gaming Authority (the "Authority"). The Company is a
Delaware limited liability company formed on September 30, 1996. Waterford
Gaming Finance Corp. ("Finance"), a Delaware corporation, is a wholly owned
subsidiary of the Company. The principal executive offices of the Company and
Finance are located at 914 Hartford Turnpike, Waterford, Connecticut 06385 and
their telephone number is (860) 442-4559.
1
The Limited Liability Company Agreement of the Company (the "Agreement") is
effective until September 30, 2020 and may be terminated by unanimous decision
of the members or upon the occurrence of events as stated in the Agreement. The
Agreement provides for the property, affairs and business of the Company to be
managed by a four-member Board of Directors which consists of two directors
appointed by Slavik Suites, Inc. ("Slavik") and two directors appointed by LMW
Investments, Inc. ("LMW") (the "Board of Directors"). A quorum for the Board of
Directors requires all four members. LMW and Slavik initially contributed
capital to the Company consisting of all of their respective interests in TCA.
Prior to the offering of the Company's and Finance's 12-3/4% senior notes due
November 15, 2003 of which $65,000,000 in aggregate principal amount was issued
on November 8, 1996 (the "$65 Million Senior Notes"), Slavik and LMW were
partners of TCA. In connection with the formation of the Company, Slavik and LMW
each contributed to the Company their interests in TCA in exchange for a 66-2/3%
and 33-1/3% ownership interest, respectively, of the Company. Upon consummation
of the offering of the $65 Million Senior Notes, (i) $6,666,667 of the proceeds
were distributed directly to Slavik for the purpose of redeeming certain
ownership interests in Slavik, and (ii) $3,333,333 of the proceeds were
distributed to LMW, which in turn loaned such proceeds to Len and Mark Wolman,
as individuals, who used such funds to purchase certain interests in Slavik. The
Company used $10.6 million of the proceeds from the offering of the $65 Million
Senior Notes to purchase RJH Development Corp.'s ownership interest in TCA. As a
result of these transactions (collectively the "Reorganization"), each of Slavik
and LMW owned 67.7967% and 32.2033% of the Company, respectively. The Company is
a managing general partner of TCA. As a result of the Reorganization, the only
two partners of TCA are the Company and Sun Cove Limited ("Sun Cove").
In connection with the Company's and Finance's issuance on March 17, 1999 of
$125 Million 9-1/2% senior notes payable which mature March 15, 2010 (the "$125
Million Senior Notes"), each of Slavik and LMW have contributed their respective
interests in the Company concurrently to a Delaware limited liability company,
Waterford Group, L.L.C. (the "Waterford Group"). Waterford Group is now the sole
member of the Company. Slavik and LMW own Waterford Group in the same respective
interest as they had in the Company and are generally as follows:
Slavik Suites, Inc. 67.7967%
LMW Investments, Inc. 32.2033%
---------
100.0000%
=========
Upon consummation of the offering of the $125 Million Senior Notes, (i) the $65
Million Senior Notes were redeemed, (ii) a distribution of $37,050,000 was made
by the Company to its sole member Waterford Group and (iii) $2.0 million was
paid to a former partner of TCA, Leisure Resort Technology, Inc. ("Leisure"), in
satisfaction of a contractual obligation.
Additional capital contributions may be made to the Company by its member. If it
is determined that the Company requires additional funds, such funds may be
loaned to the Company by its member pursuant to the terms set forth in the
Agreement; however, the indenture, between the Company and Finance, as the
Issuers, and State Street Bank and Trust Company, as Trustee, relating to $125
Million Senior Notes (the "Indenture"), prohibits the Company from incurring
additional indebtedness. The Agreement also provides that any disputes which
arise under the Agreement and which remain unresolved after 30 days will be
settled through arbitration.
LMW, one of the two members of Waterford Group, is a development firm based in
southeastern Connecticut. LMW is owned by Len Wolman and Mark Wolman. The other
member of Waterford Group, Slavik, is based in Detroit, Michigan. The Directors
of Slavik are Del J. Lauria and Len Wolman. Mark Wolman and Stephan F. Slavik
will be appointed Directors.
The $125 Million Senior Notes bear interest at a rate of 9-1/2% per annum,
payable semi-annually in arrears on March 15 and September 15 which commenced on
September 15, 1999.
The principal amount of the $125 Million Senior Notes is payable on March 15,
2010. The Company and Finance may elect to redeem the $125 Million Senior Notes
at any time on or after March 15, 2004 at a redemption price equal to a
percentage (105.182% after March 14, 2004, and declining to 104.318% after March
14, 2005, 103.455% after March 14, 2006, 102.591% after March 14, 2007, 101.727%
after March 14, 2008, 100.864% after March 14, 2009, and to 100% after March 14,
2010) of the principal amount thereof plus accrued interest. The $125 Million
Senior Notes provide that upon the occurrence of a Change of Control (as
defined), the holders thereof will have the option to require the redemption of
the $125 Million Senior Notes at a redemption price equal to 101% of the
principal amount thereof plus accrued interest.
2
If the Company and Finance have any Company Excess Cash, as defined, they must
redeem the $125 Million Senior Notes (on a semi-annual basis on March 15 and
September 15) equal to a percentage (109.500% after March 15, 1999 and declining
to 108.636% after March 14, 2000, 107.773% after March 14, 2001, 106.909% after
March 14, 2002, 106.045% after March 14, 2003, 105.182% after March 14, 2004,
104.318% after March 14, 2005, 103.455% after March 14, 2006, 102.591% after
March 14, 2007, 101.727% after March 14, 2008, 100.864% after March 14, 2009,
and to 100.000% after March 14, 2010). In some circumstances, if either the
Company or its partner in TCA exercises the option to buy or sell partnership
interests in TCA, the Company and Finance must redeem the $125 Million Senior
Notes.
The Indenture relating to the $125 Million Senior Notes contains certain
affirmative and negative covenants customarily contained in agreements of this
type, including without limitation, covenants that restrict, subject to
specified exceptions the Company's and Finance's ability to (i) borrow money,
(ii) pay dividends on stock or make certain other restricted payments, (iii) use
assets as security in other transactions, (iv) make investments, (v) sell other
assets or merge with other companies and (vi) engage in any business except as
currently conducted or contemplated or amend their relationship with TCA. The
Indenture also provides for customary events of default and the establishment of
a restricted investment fund with a trustee for interest reserves.
The Company has one primary source of revenue: payments from TCA.
Trading Cove Associates
- -----------------------
TCA was organized on July 27, 1993. The primary purpose of TCA has been to
assist the Mohegan Tribe of Indians of Connecticut (the "Tribe") and the
Authority, an instrumentality of the Tribe, in obtaining federal recognition,
negotiate the tribal-state compact with the State of Connecticut, obtain
financing for the development of the Mohegan Sun located on certain Tribal land
in Uncasville, Connecticut, negotiate the Amended and Restated Gaming Facility
Management Agreement (the "Management Agreement") and participate in the design
and development of the Mohegan Sun which commenced operations on October 12,
1996. Since the opening of the Mohegan Sun and until January 1, 2000, TCA had
overseen the Mohegan Sun's day-to-day operations. The TCA partnership will
terminate on December 31, 2040, or earlier, in accordance with the terms of the
partnership agreement. The Company has a 50% voting and profits interest in TCA.
The remaining 50% interest is owned by Sun Cove, an affiliate of Sun
International Hotels Limited ("Sun International").
Trading Cove Associates - Material Agreements
- ---------------------------------------------
On February 7, 1998, TCA, the Tribe and the Authority finalized contract
negotiations and are moving forward with a significant expansion project at the
Mohegan Sun (the "Project"). As a result, TCA and the Authority have terminated
the Management Agreement effective January 1, 2000.
Under the terms of an agreement (the "Relinquishment Agreement") TCA continued
to manage the Mohegan Sun under the Management Agreement until January 1, 2000.
On December 31, 1999 the Management Agreement terminated and the Tribe assumed
day-to-day management of the Mohegan Sun. Under this Relinquishment Agreement to
compensate TCA for terminating its rights under the Management Agreement and the
Hotel/Resort Management Agreement, the Authority has agreed to pay to TCA 5% of
Revenues, as defined, (the "Relinquishment Fees") generated by the Mohegan Sun
during the 15-year period commencing on January 1, 2000.
Relinquishment Agreement
- ------------------------
The payments under the Relinquishment Agreement will be divided into senior
relinquishment payments and junior relinquishment payments, each of which will
be 2.5% of "Revenues". Revenues are defined as gross gaming revenues (other
than Class II gaming revenue, i.e. bingo) and all other facility revenues
(including, without limitation, hotel revenues, food and beverage sales, parking
revenues, ticket revenues and other fees or receipts from the convention/events
center in the expansion and all rental or other receipts from lessees, licensees
and concessionaires operating in the facility but not the gross receipts of such
lessees, licensees and concessionaires). Revenues exclude revenues generated by
any other expansion of the Mohegan Sun. Senior relinquishment payments will be
payable quarterly in arrears commencing on April 25, 2000 for the quarter ended
March 31, 2000, and the junior relinquishment payments will be payable
semi-annually in arrears commencing on July 25, 2000 for the six months ended
June 30, 2000.
3
TCA has notified the Authority that it does not agree with the Authority's
treatment of certain promotional transactions, that in TCA's opinion has
resulted in a reduction of Revenues on which the Relinquishment Fees is
calculated. TCA has requested the Year End Statements, as defined in the
Relinquishment Agreement, from the Authority.
A summary of relinquishment payments received is as follows:
Senior Junior Total
----------- ----------- -----------
April 25, 2000 $ 4,947,458 $ --- $ 4,947,458
July 26, 2000 5,039,048 9,986,506 15,025,554
October 25, 2000 5,457,627 --- 5,457,627
January 25, 2001 5,057,792 10,515,418 15,573,210
----------- ----------- -----------
20,501,925 20,501,924 41,003,849
=========== =========== ===========
The Relinquishment Agreement provides that each of the senior and junior
relinquishment payments are subordinated in right of payment to payment of
senior secured obligations including the Authority's bank credit facility, and
that the junior relinquishment payments are further subordinated to payment of
all other senior obligations including the Authority's 8-1/8% Senior Notes due
2006. The Relinquishment Agreement also provides that all relinquishment
payments are subordinated in right of payment to an annual minimum priority
distribution to the Tribe from the operations of the Mohegan Sun. The minimum
priority distribution currently is $14.0 million and will be adjusted annually
to reflect the cumulative increase in the Consumer Price Index.
Under the Relinquishment Agreement, the Authority makes certain covenants for
the benefit of TCA, including the following:
(1) Payments to the Tribe. Except for payments of the minimum priority
distributions and reasonable charges for utilities or other governmental
services supplied by the Tribe to the Authority, the Authority may not make any
distributions to the Tribe or its members at any time any relinquishment
payments are outstanding.
(2) Affiliate Transactions. Except for payments of the minimum priority
distributions and reasonable charges for utilities or other governmental
services supplied by the Tribe to the Authority, the Authority agrees to abide
by certain restrictions on transactions with the Tribe and its members, all as
set forth in the Relinquishment Agreement.
(3) Replacement/Restoration of the Mohegan Sun. If any portion of the
Mohegan Sun's facilities is damaged by fire or other casualty, the Authority
shall replace or restore such facilities to substantially the same condition as
prior to such casualty, but only to the extent insurance proceeds are available
to do so. If sufficient insurance proceeds are not available, the Authority will
use reasonable efforts to obtain the required financing, on commercially
reasonable terms, to undertake and complete such replacement or restoration.
(4) Business Purpose. The Authority has agreed that during the term of the
Relinquishment Agreement it will only engage in the casino gaming and resort
business (and any incidental business or activity) and will continue to operate
the Mohegan Sun as currently operated.
Under the Relinquishment Agreement, the Authority and TCA agreed to cooperate
with each other to effect an orderly transition of the operations of the Mohegan
Sun to the Authority. Each of the parties also agreed that it will not solicit
any employee of the other party or any affiliate of the other party for five
years.
TCA has granted to the Authority an exclusive and perpetual license with respect
to trademarks and other similar rights, including the "Mohegan Sun" name, used
at or developed for the Mohegan Sun. The Authority has agreed, however, that it
will only use the word "Sun" in conjunction with the Mohegan Sun and together
with "Mohegan" or "Mohegan Tribe".
With certain limitations set forth in the Relinquishment Agreement, both the
Tribe and the Authority have waived immunity from unconsented suit for certain
enforcement rights of TCA arising under the Relinquishment Agreement.
4
Development Agreement
- ---------------------
TCA and the Authority entered into a development services agreement on February
7, 1998. Under this "Development Agreement", TCA agreed to oversee the design,
construction, furnishing, equipping and staffing of the Project for a $14.0
million development fee (the "Development Fee"). On May 24, 2000 TCA and the
Authority agreed that TCA had performed and completed all its obligations
relating to the staffing of the Project and that TCA has no further obligations
relating to the staffing of the the Project.
The Authority wll pay the Development Fee to TCA quarterly beginning on January
15, 2000 until the Completion Date, as defined in the Development Agreement, of
the Project based on incremental completion of the Project as of each payment
date. A summary of the quarterly Development Fee payments received by TCA in
accordance with the terms of the Development Agreement is as follows:
January 15, 2000 $ 1,372,000
April 20, 2000 896,000
July 17, 2000 1,260,000
October 13, 2000 1,372,000
January 23, 2001 588,000
-----------
5,488,000
===========
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and Sun International Management Limited ("SIML"). Pursuant to the
Development Services Agreement Phase II, TCA subcontracted with SIML and SIML
agreed to perform those services assigned to SIML by TCA in order to facilitate
TCA's fulfillment of its duties and obligations to the Authority under the
Development Agreement. TCA shall pay to SIML a fee, as subcontractor (the
"Development Services Fee Phase II") equal to 3% of the development costs of the
Project, less all costs incurred by TCA in connection with the Project. The
Development Services Fee Phase II shall be paid in installments due on December
31, 1999 and 2000 and on the Completion Date, as defined in the Development
Agreement, with a final payment being made when the actual development costs of
the Project are known. The fee is to be paid from available cash flow of TCA, if
any, subordinate to certain other fees as described below under the heading
"Omnibus Termination Agreement".
SIML has further subcontracted with Wolman Construction LLC ("Construction")
(the "Local Construction Services Agreement") to provide certain of those
services assigned to SIML by TCA. SIML shall pay 20.83% of the Development
Services Fee Phase II as and when SIML receives payment from TCA. Construction
has subcontracted with The Slavik Company for 14.30% of its fee.
During the design phase, TCA will assist the Authority in the engagement of the
architect and the construction manager, the preparation of design, construction,
and furnishings budgets, preliminary program evaluation, design development and
the approval of final detailed plans and specifications prepared by the
architect. The Authority has agreed to assign to TCA its responsibilities under
any architectural and/or engineering agreements to allow TCA to supervise and
administer directly the duties of the architect and/or engineer thereunder.
The Development Agreement provides that the design and construction of the
Project must comply with all federal and Connecticut statutes and regulations
that otherwise would apply if the Project were located outside the
jurisdictional boundaries of the Tribe's land.
During the construction phase, TCA will be responsible for the administration
and supervision of the construction manager and the entire construction process.
TCA will act as the Authority's representative in connection with construction
contracts that are approved by the Authority. Specifically, TCA will be
responsible for overseeing all persons performing work on the Project site,
inspecting the progress of construction, determining completion dates and
reviewing contractor payment requests submitted to the Authority. The
Development Agreement specifically gives TCA the right to include provisions in
construction contracts that impose liquidated damage payments in the event of
failure to meet construction schedules.
As permitted by the Development Agreement, the Authority has elected to engage a
retail consultant to oversee the design and construction of the retail
facilities in the Project. This work will be under the overall supervision of
TCA, which will integrate the design and construction of the retail facilities
with that of the other components of the Project.
The Development Agreement requires TCA to implement procedures described in the
Tribal Employment Rights Ordinance. In effect, this requires TCA to give
preference to business entities or persons which have been approved by the
Authority in the selection of all contractors, vendors and suppliers engaged in
the development of the Project. In addition to the staffing of the operations of
the Project, the Development Agreement requires that TCA give preference to
qualified members of the Tribe (and their spouses and children) and thereafter
to enrolled members of other federally recognized Indian tribes.
The Authority will purchase equipment, furniture and furnishings required to
operate the expanded facilities from vendors selected by TCA or lease such
equipment, furniture and furnishings on terms arranged by TCA and approved by
the Authority.
The Development Agreement terminates after the earlier of completion of the
Project or 10 years. In addition, each party has the right to terminate the
Development Agreement if there is a default or failure to perform by the other
party. The parties must submit disputes arising under the agreement to
arbitration and have agreed that punitive damages may not be awarded to either
party by any arbitrator. The Authority has also waived sovereign immunity for
the purposes of permitting, compelling or enforcing arbitration and has agreed
to be sued by TCA in any court of competent jurisdiction for the purposes of
compelling arbitration or enforcing any arbitration or judicial award arising
out of the Development Agreement. The Development Agreement became effective
April 1, 1999.
5
Management Agreement
- --------------------
The Management Agreement between TCA and the Tribe was entered into on August
30, 1995. The Tribe had assigned its rights and obligations in this agreement to
the Authority. The Authority and TCA had consented to this assignment.
Until January 1, 2000, TCA was the exclusive manager of the Mohegan Sun. Under
the Management Agreement, the Tribe had granted to TCA the exclusive right and
obligation to develop, manage, operate and maintain the Mohegan Sun and all
other related facilities that are owned by the Tribe or any of its
instrumentalities, including the Authority and to train members of the Tribe and
others in the management of the Mohegan Sun.
Until January 1, 2000 TCA's primary source of revenue was management fees under
the Management Agreement (the "Management Fees"). The Management Fees were paid
monthly (the final payment was received by TCA from the Authority on January 25,
2000) and were calculated in three tiers based upon Net Revenues of the Mohegan
Sun set forth below (in thousands):
I II III
--------------- ------------------ -----------------
40% of Net Revenues in Tier I Revenues in
Revenues up to plus 35% of Net Tiers I & II plus
Revenues between 30% of Net
Revenues above
--------------- ------------------ -----------------
Year 1 $50,546 $50,547-$63,183 $63,183
Year 2 $73,115 $73,116-$91,394 $91,394
Year 3 $91,798 $91,799-$114,747 $114,747
Year 4 $95,693 $95,694-$119,616 $119,616
As defined in the Management Agreement, "Net Revenues" of the Mohegan Sun means
the amount of the gross revenues of the facility less operating expenses and
certain specified categories of revenue, such as income from any financing or
refinancing, taxes or charges received from patrons on behalf of and remitted to
a governmental entity, proceeds from the sale of capital assets, insurance
proceeds and interest on the capital replacement reserve. Net Revenues also
include Net Gaming Revenues, which are equal to the amount of the "net win" from
Class III Gaming operations (i.e., the difference between gaming wins and
losses) less all gaming-related operational expenses (excluding the Management
Fees).
In addition, TCA was required to fund $1.2 million per year ($100,000 per month)
from its Management Fees into a capital replacement reserve. The capital
replacement reserve is the property of the Authority.
Omnibus Termination Agreement
- -----------------------------
On March 18, 1999, the Omnibus Termination Agreement (the "Omnibus Termination
Agreement") was entered into by TCA, Sun International, the Company, SIML, LMW,
Sun Cove, Slavik and Construction; which (i) terminated the memorandum of
understanding dated February 7, 1998; and (ii) effective January 1, 2000
terminated a) the Amended and Restated Omnibus Financing Agreement, as defined;
b) completion guarantee and investment banking and financing arrangement fee
agreement (the "Financing Arrangement Agreement"); c) the management services
agreement; d) the organizational and administrative services agreement; e) the
marketing services agreement; and f) a letter agreement relating to expenses
dated October 19, 1996.
In consideration for the termination of such agreements, TCA will use its cash
to pay the following obligations in the priority set forth below:
(a) First, to pay all unpaid amounts which may be due under the terminated
letter agreement and to pay certain affiliates of the Company and to
Sun Cove a percentage of an annual fee of $2.0 million less the actual
expenses incurred by TCA. Such annual fee shall be payable in equal
quarterly installments beginning March 31, 2000 and ending December
31, 2014. For the year ended December 31, 2000 $1,849,506 ($924,753 to
Sun Cove and $924,753 to affiliates of the Company) had been paid and
incurred by TCA in terms of this first priority. The contigent
obligation at December 31, 2000 was $0.
6
(b) Second, to return all capital contributions made by the partners of
TCA after September 29, 1995. TCA anticipates making monthly capital
calls to fund expenses related to the development of the Project, and
these capital calls will be repaid, based on cash flow, in the quarter
following the quarter in which the capital call was made. From January
1, 2000 to December 31, 2000 these capital contributions aggregated
$2,400,000. $2,000,000 has been repaid to the partners of TCA, 50% to
the Company and 50% to Sun Cove.
As of December 31, 2000, $400,000 in capital contributions remained
outstanding.
(c) Third, to pay any accrued amounts for obligations performed prior to
January 1, 2000 under the Financing Arrangement Agreement. For the
year ended December 31, 2000 $2,977,932 ($2,069,525 to Sun
International and $908,407 to the Company) had been paid by TCA in
terms of this third priority. No further obligation is payable at
December 31, 2000.
(d) Fourth, to make the payments set forth in the agreement relating to
Development Services Agreement Phase II and the Local Construction
Services Agreement. For the year ended December 31, 2000 $10,807,000
($8,555,902 to SIML, $1,929,191 to Construction and $321,907 to The
Slavik Company) had been paid and incurred by TCA in terms of this
fourth priority. No additional amounts are payable at December 31,
2000.
(e) Fifth, to pay Sun International an annual fee of $5.0 million payable
in equal quarterly installments of $1.25 million beginning March 31,
2000 and ending December 31, 2006. For the year ended December 31,
2000 $5.0 million had been paid and incurred by TCA in terms of this
fifth priority. No additional amounts are payable at December 31,
2000.
(f) Sixth, to pay any accrued amounts for obligations performed with
respect to periods prior to January 1, 2000 under the management
services agreement, the organizational and administrative services
agreement and the marketing services agreement. For the year ended
December 31, 2000 $23,299,200 ($11,649,600 to SIML and $11,649,600 to
the Company) had been paid and incurred by TCA in terms of this sixth
priority. The contingent obligation at December 31, 2000 was
approximately $23,622,000.
(g) Seventh, for the period beginning March 31, 2000 and ending December
31, 2014, to pay each of SIML and the Company twenty-five percent
(25%) of the relinquishment payments. The contingent obligation at
December 31, 2000 was approximately $20,502,000.
(h) Eighth, to distribute all excess cash.
Notwithstanding the foregoing, on the date TCA receives any funds from Sun
International or the Company pursuant to the last sentence of Section 3 of the
Financing Arrangement Agreement, TCA shall immediately distribute such amounts
equally to its partners. On December 30, 1999 TCA received $10,536,543 from Sun
International and the Company, pursuant to the last sentence of Section 3 of the
Financing Arrangement Agreement, and TCA concurrently distributed $10,536,543 to
its partners. The Company received $5,268,272.
In addition, TCA shall not make any distributions pursuant to the Omnibus
Termination Agreement until it has annually distributed to its partners pro
rata, the amounts related to its partners tax obligations as described in
Section 3.03a(1) of the partnership agreement less twice the amount of all other
funds paid or distributed to the Company during such year pursuant to the
Omnibus Termination Agreement.
To the extent TCA does not have adequate cash to make the payments pursuant to
the Omnibus Termination Agreement, such amounts due shall be deferred without
the accrual of interest until TCA has sufficient cash to pay them.
7
Amended and Restated Omnibus Financing Agreement
- ------------------------------------------------
Until January 1, 2000 TCA's primary source of revenue was Management Fees. Those
fees were utilized by TCA pursuant to the Amended and Restated Omnibus Financing
Agreement which was terminated effective January 1, 2000.
Pursuant to the terms of the Amended and Restated Omnibus Financing Agreement,
upon receipt of the Management Fees, TCA was required to make a number of
different types of payments to its subcontractors. The subcontracts were
primarily with TCA's partners or their affiliates. One of the considerations
used by the National Indian Gaming Commission in determining whether or not to
approve a management contract is whether TCA has provided a portion of the
capital required. Accordingly, TCA agreed to provide or cause to be provided $40
million of capital in the form of the Subordinated Notes, as defined. However,
at the time that the subordinated loan was made, the partners of TCA, including
the Company's predecessors-in-interest, did not participate in the loan in
accordance with their economic interests in TCA. Therefore, the partners of TCA
agreed that Sun International, who subscribed for almost all of the Subordinated
Notes, would be entitled to fees for agreeing to participate in the Mohegan Sun
project. Other fees payable were to compensate the recipients for other
subcontracted services provided by them to the Mohegan Sun.
As of December 29, 1999 the Authority had outstanding the following Authority
Subordinated Notes, as defined.
1. 15% subordinated notes principal amount $40,000,000 due November 2003 (the
"Subordinated Notes"). The rate of the interest payable by the Authority on
the Subordinated Notes was 15% per annum. During 1996, the Company
purchased half of the Subordinated Notes owned by Sun International and TCA
distributed $850,000 principal amount of Subordinated Notes to each of its
partners. As a result of the above transactions, the Company owned 50% of
the principal amount of Subordinated Notes.
2. Completion guarantee subordinated notes principal amount $50,000,000 due
November 2003 (the "Completion Guarantee Subordinated Notes"). The rate of
interest payable by the Authority on the Completion Guarantee Subordinated
Notes was the prime rate per annum announced by Chase Manhattan Bank from
"time to time" plus 1% (the "Base Rate"). The Base Rate was set and revised
at intervals of six months. At December 30, 1999 the Base Rate was 9.25%
per annum.
For purposes of points (c), (d) and (e) below the Company, Sun
International and TCA had agreed that the Completion Guarantee Subordinated
Notes be split into two principal amounts of $32,500,000 Completion
Guarantee Subordinated Notes (the "Non-Pik Completion Guarantee Notes") and
$17,500,000 Completion Guarantee Subordinated Notes (the "Pik Completion
Guarantee Notes").
During 1997, 1998 and 1999 the Company purchased a total of $7,500,000
principal amount of the Non-Pik Completion Guarantee Notes from Sun
International.
On December 30, 1999, the Authority paid to the holders of the Subordinated
Notes, Non-Pik Completion Guarantee Notes and Pik Completion Guarantee Notes
(collectively the "Authority Subordinated Notes"), an amount to satisfy all
obligations of such Authority Subordinated Notes. The Company received
$44,403,517 from the Authority.
The following table sets forth the priority of the distribution from TCA of the
Management Fees to its partners or TCA's subcontractors:
(a) First, for each fiscal year of the Authority, up to $2,000,000 of the
Management Services Fee, as defined, was to be paid by TCA for
expenses. A portion of the Management Services Fee, as defined, were
used to pay a portion of the compensation of the officers and
directors of the Company.
(b) Second, to return capital contributions made by the partners of TCA
after September 29, 1995. These capital contributions aggregated
approximately $4,272,000. At December 31, 1999 the full amount had
been repaid to the partners, 50% to the Company and 50% to Sun Cove.
(c) Third, to pay to the Company and Sun International every six months,
beginning October 31, 1997 an amount equal to the product of (1)
$2,300,000 and (2) a fraction, the numerator of which was the weighted
average principal amount of the Subordinated Notes outstanding
including all interest that was not paid in cash by the Authority on
any interest payment date, May 15 and November 15, during the
applicable Semi-Annual Period (defined as the six month periods
ending, respectively, on April 30 and October 31) and the denominator
of which was $40,000,000 (the "Subordinated Notes Fee Amounts"). The
Company and Sun International were entitled to one half of the
Subordinated Notes Fee Amounts. For the year ended December 31, 1999,
$7,463,612 had been paid by TCA in terms of this third priority. The
Subordinated Notes were redeemed by the Authority on December 30,
1999. The contingent obligation due under this third priority on
December 31, 1999 was $1,385,564.
8
(d) Fourth, i) to pay every six months beginning October 31, 1997 an
amount equal to the product of the number arrived at by dividing the
difference between (26-1/2% and the Base Rate) by two (the
"Multiplier") and the weighted average of principal amount of Non-Pik
Completion Guarantee Notes outstanding during the applicable
Semi-Annual Period (the "Completion Guarantee Notes Fee Amounts"), and
ii) payment of an amount equal to the Base Rate on the Non-Pik
Completion Guarantee Notes to the extent the Authority was not
permitted to pay interest thereon (the "Deferred Interest Amounts").
This amount was paid semi-annually pari passu with the amount under
paragraph (d)i) above.
In addition, when the Authority paid Sun International and the Company
any amounts relating to the Non-Pik Completion Guarantee Notes (other
than current interest), such amounts that relate to the Deferred
Interest Amounts acquired by TCA shall be immediately paid over to
TCA. On December 30, 1999 the Authority paid $10,536,543 to Sun
International and the Company that related to the Deferred Interest
Amounts acquired by TCA and concurrently Sun International and the
Company paid over the $10,536,543 to TCA. TCA immediately distributed
the $10,536,543 to its partners. The Company received $5,268,272.
During September 1997 and on October 12, 1998, and 1999 the Company
purchased from Sun International $2.5 million principal amount of the
outstanding first funded Non-Pik Completion Guarantee Notes, at the
purchase price equal to the outstanding principal balance of the
Non-Pik Completion Guarantee Notes purchased, plus the related accrued
interest and deferred interest amounts which had not been paid by TCA
and Completion Guarantee Notes Fee Amounts (total purchase price
$2,798,125 for each transaction).
For the twelve months ended December 31, 1999 $8,612,500 ($1,656,250
to the Company and $6,956,250 to Sun International) had been paid by
TCA in terms of this fourth priority.
The Non-Pik Completion Guarantee Notes were redeemed by the Authority
on December 30, 1999. The contingent obligation due under this fourth
priority (Completion Guarantee Notes Fee Amounts only) on December 31,
1999 was $934,375.
(e) Fifth, to pay Sun International every six months beginning October 31,
1997 an amount equal to the product of the Multiplier and the weighted
average of principal amount of Pik Completion Guarantee Notes
(including the applicable Pik Amounts) outstanding during the
applicable Semi-Annual Period. For the year ended December 31, 1999
$3,782,082 had been paid by TCA in terms of this fifth priority.
The Pik Completion Guarantee Notes were redeemed by the Authority on
December 30, 1999. The contingent obligation due under this fifth
priority on December 31, 1999 was $657,993.
(f) Sixth, return of capital contributions made before September 29, 1995.
These capital contributions aggregated $6,715,000 (unreturned balance
as of December 31, 1999 was $0).
(g) Seventh, payment of a Development Services Fee Phase I to SIML equal
to $8,280,000 constituting 3% of the total development costs (less
land acquisition costs) of the Mohegan Sun plus $25,000. SIML had
subcontracted with certain affiliates of the Company. The fees paid by
SIML to the affiliates of the Company were equal to 20.83% of the
Development Services Fee Phase I plus $25,000 (total $1,749,724). At
December 31, 1999 and 1998, $8,305,000 had been paid by TCA as
Development Services Fee Phase I.
(h) Eighth, payment of a monthly Management Services Fee (less the amounts
paid pursuant to paragraph (a) above) equal to the lesser of i) 1% of
the gross revenues of the Mohegan Sun or ii) 25% of the sum of the
Excess Cash (as defined in the partnership agreement of TCA) of TCA
plus 25% of the Organizational and Administrative Fee, as defined, and
the Marketing and Casino Operations Fee, as defined. After deducting
operating expenses which were the following amounts; $2.0 million if
the Mohegan Sun's EBITDA (defined as the Mohegan Sun's net income plus
depreciation, amortization, management fee expense, interest expense
and other non-cash charges less interest income) was $200.0 million or
less, $3.0 million if the Mohegan Sun's EBITDA was greater than $200.0
million but less than $225.0 million and $4.0 million if the Mohegan
Sun's EBITDA was greater than $225.0 million the remaining amounts
were distributed in equal amounts to SIML and the Company. A portion
of the Management Services Fee was used to pay portion of the
compensation of the officers and directors of the Company.
9
For the twelve months ended December 31, 1999 $6,219,147 ($3,109,574
to SIML, $1,444,874 to affiliates of the Company and $1,664,699 to the
Company) had been paid by TCA in terms of this eighth priority.
The contingent obligation due under this eighth priority on December
31, 1999 was $0.
(i) Ninth, payment of a fee to Sun International of $5,520,000
constituting 2% of the total development costs (less land acquisition
costs) of the Mohegan Sun. At December 31, 1999 $5,520,000 had been
paid by TCA in terms of this ninth priority.
(j) Tenth, distribution of amount equal to the state and federal income
tax liability of TCA as if it were an individual paying federal income
tax and the higher of Michigan or Connecticut state income taxes. This
amount was paid 50% to Sun Cove and 50% to the Company. For the twelve
months ended December 31, 1999 $2,381,541 had been paid by TCA in
terms of this tenth priority.
(k) Eleventh, payment of the Organizational and Administrative Fee to the
Company and the Marketing and Casino Operations Fee to SIML which fees
were paid in equal amounts to the Company and SIML. These fees were
each equal to 1.5% of the gross revenues of the Mohegan Sun if the
Mohegan Sun's fiscal year ending September 30 gross revenues equaled
or exceeded $300 million and 2% of the gross revenues of the Mohegan
Sun if the Mohegan Sun's fiscal year ending September 30 gross
revenues equaled or exceeded $400 million. For the year ended December
31, 1999 $28,504,418, 50% to the Company and 50% to SIML, had been
paid by TCA in terms of this eleventh priority.
The contingent obligation due under this eleventh priority on December
31, 1999 was $46,920,954.
(l) Twelfth, all excess cash distributed 50% to Sun Cove and 50% to the
Company. For the twelve months ended December 31, 1999 $0 had been
distributed by TCA in terms of this twelfth priority.
The Mohegan Tribal Gaming Authority
- -----------------------------------
The Tribe is a federally recognized Indian tribe with a 390-acre reservation
located in southeastern Connecticut. The Tribe established the Authority on July
15, 1995 with the exclusive power to conduct and regulate gaming activities for
the Tribe. Under the Indian Gaming Regulatory Act of 1988, as amended ("IGRA"),
federally recognized Indian tribes are permitted to conduct full-scale casino
gaming operations on tribal-land, subject to, among other things, the
negotiation of a tribal state compact with the affected state. The Tribe and the
State of Connecticut have entered into such a compact (the "Mohegan Compact")
that has been approved by the U.S. Secretary of the Interior. The Authority is
governed by a management board (the "Management Board"), which consists of the
nine members of the Tribal Council (the governing body of the Tribe).
Under the terms of the Relinquishment Agreement on December 31, 1999 the
Management Agreement terminated and on January 1, 2000 the Tribe assumed
day-to-day management of the Mohegan Sun.
The Authority has established the Mohegan Tribal Gaming Commission (the "Gaming
Commission"), which is responsible for the regulation of the Mohegan Sun. The
Gaming Commission ensures the integrity of the gaming operation through the
promulgation and enforcement of appropriate regulations. The Gaming Commission
is responsible for performing background investigations into gaming license
applicants and for issuance and revocation of gaming licenses. The Tribe and the
Authority have entered into a land lease ("Lease") pursuant to which the Tribe
is leasing to the Authority the land on which the Mohegan Sun is located (the
"Site"). The Site is part of the Tribe's 390-acre reservation which was acquired
and is held in trust for the Tribe by the United States of America with the
Tribe retaining perpetual rights to the use of the Site.
10
The Mohegan Sun
- ---------------
The Mohegan Sun opened on October 12, 1996, as a full-service gaming and
entertainment complex on a 240-acre site overlooking the Thames River at a total
cost of approximately $303.0 million. The Mohegan Sun conveys a historical
northeastern Indian theme through architectural features and the use of natural
design elements such as timber, stone, and water. The Mohegan Sun is comprised
of four quadrants and reflects a seasonal theme - Winter, Spring, Summer and
Fall - emphasizing the importance of seasonal changes to Mohegan Tribal life.
The Mohegan Sun is one of two legally authorized gaming operations in New
England offering both traditional slot machines and table games. The 634,500
square foot facility includes approximately 176,500 square feet of gaming space
"Casino of the Earth", approximately 3,031 slot machines, approximately 153
table games (including blackjack, roulette, craps, baccarat, Spanish 21 and let
it ride), approximately 42 poker tables, and a 9,000 square foot simulcast race
book facility. Food and beverage amenities include the 680-seat buffet, three
full-service themed fine dining restaurants, a 24-hour coffee shop, a New
York-style delicatessen, a nine-station food court featuring international and
domestic cuisine and multiple full and floor service bars for a total of
approximately 1,888 restaurant seats. The 350-seat, 10,000 square foot Wolf Den
Lounge located in the center of the casino hosts musical entertainment seven
days a week. Larger events are currently held in the temporary Uncas Pavilion
constructed on the grounds of the Mohegan Sun, including entertainment and
casino marketing activities. Six retail shops covering 2,276 square feet of
retail space provide shopping opportunities ranging from Mohegan Sun souvenirs
to clothing to cigars. For non-gaming entertainment, the Mohegan Sun also offers
an arcade-type recreation area and a child care facility operated by New
Horizons Kids Quest, Inc. The Mohegan Sun has parking spaces for 7,500 guests
and for 2,700 employees. The Authority also operates a 4,000-square foot,
16-pump service station and convenience store.
On October 12, 2000, the Authority announced it would discontiue bingo
operations in order to build a 650-unit smoke-free slot area.
The Mohegan Sun Expansion
- -------------------------
The Project will include approximately 115,000 square feet of additional gaming
space "Casino of the Sky", a luxury hotel with approximately 1,200 rooms,
approximately 100,000 square feet of convention space, the Mohegan Sun Arena
with seating for up to 10,000, approximately 6,000 additional guest parking
spaces, specialty retail shops and third party operated, branded restaurants. On
October 13, 2000, the Tribal Council approved a formal resolution increasing the
Project budget to $960.0 million (excluding capitalized interest), from $800.0
million. The Authority , in conjunction with the Tribe, has increased the
Project budget to $960.0 million for three reasons: (1) expected increases in
Project labor costs because of the extreme competitive nature of the Northeast
construction labor market; (2) enhanced Project scope such as an increase in the
number of slot machines scheduled to be placed on the gaming floor; and (3)
quality improvements to the hotel. As a result of the increase to the Project
budget, the Authority anticipates seeking to issue an additional $150.0 million
in additional subordinated notes or a term loan. The Authority, based on current
market conditions, anticipates securing such financing after January 2001. The
remainder of the increase will be funded by internally generated funds. In
addition to the financing provided by the Authority's senior notes, senior
subordinated notes and the bank credit facility, the Tribe has set aside, with a
trustee, a $40 million, fully-funded construction reserve account that, in
certain circumstances, will be used to pay costs in excess of the approved
Project budget.
The following is a summary of certain physical attributes of Mohegan Sun before
and after expansion:
Casino Retail Convention Guest
Space Slot Table Poker Restaurant Hotel Space Event Space Parking
(sq. ft.) Machines Games Tables Seats Rooms (sq.ft.) Seating (sq. ft.) Spaces
--------- -------- ----- ------ ---------- ----- ------- ------- --------- -------
Resort before expansion
(September 30, 2000).... 176,500 3,031 153 42 1,888 0 2,276 1,800 0 7,500
Resort after expansion
(estimated)............. 291,500 6,227 233 42 2,976 1,200 130,000 10,000 100,000 13,500
Under the Development Agreement, TCA will oversee the planning, design and
construction of the Project and will receive compensation of $14 million for
such services.
11
The Mohegan Sun - Competition
- -----------------------------
The gaming industry is highly competitive. The Mohegan Sun currently competes
primarily with the Foxwoods Resort Casino and, to a lesser extent, with casinos
in Atlantic City, New Jersey. Foxwoods is approximately 10 miles from the
Mohegan Sun and is the largest gaming facility in the United States in terms of
total gaming positions. It is owned and operated by the Mashantucket Pequot
Tribe under a separate compact with the State of Connecticut. Foxwoods has been
in operation for nearly nine years.
Mohegan Sun's current market area is predominantly for day-trip customers. When
the Project is completed, the Authority intends to broaden its market beyond
day-trip customers to include patrons making overnight or extended stays at
Mohegan Sun. At that time, the Authority will begin to compete for customers
more directly with casinos in Atlantic City, New Jersey. Despite the new
overnight amenities that will be available to guests visiting Mohegan Sun, the
Mohegan Sun management believes that ninety-five percent of the daily guests
visiting Mohegan Sun will arrive by car or bus and visit for one day.
Currently, outside of Atlantic City, New Jersey, casino gaming in the
northeastern United States is conducted only by federally recognized Indian
tribes operating under the federal Indian gaming law. The Oneida Indian Nation
currently operates Turning Stone Casino Resort in Verona, New York,
approximately 270 miles from Mohegan Sun. The St. Regis Mohawk Tribe opened a
casino in Hogansburg, New York on the Canadian border in April 1999. In
addition, at least two other federally recognized tribes in New England are each
seeking to establish gaming operations. Several other tribes in New England are
seeking federal recognition and have announced plans to establish gaming
operations. A number of states, including Connecticut in 1995, have considered
legalizing casino gaming by non-Indians in one or more locations. The Authority
cannot predict whether any of these other tribes or other efforts to legalize
casino gaming will be successful in establishing gaming operations, and if
established, whether such gaming operations will have a materially adverse
effect on the operations of the Authority.
The Mohegan Sun - Seasonality
- -----------------------------
The gaming industry in Connecticut experiences seasonal fluctuations, with the
heaviest gaming activity at the Mohegan Sun occurring during the period from
July through October.
The Mohegan Sun - Employees and Labor Relations
- -----------------------------------------------
As of September 30, 2000, the Mohegan Sun employed approximately 5,495 full time
employees and 707 seasonal and part-time employees. When recruiting personnel,
the Mohegan Sun is obligated to give preference first to qualified members of
the Tribe (and qualified spouses and children of members of the Tribe) and
second to members of other federally recognized Indian tribes. None of the
Mohegan Sun's employees are covered by collective bargaining agreements.
The Mohegan Sun - Material Agreements
- -------------------------------------
The Mohegan Compact
- -------------------
In April 1994, the Tribe and the State of Connecticut entered into a gaming
compact to authorize and regulate the Tribe's conduct of gaming on the Tribe's
lands. This agreement provides, among other things, as follows:
(1) The Tribe is authorized to conduct certain Class III gaming activities on
its reservation. The forms of Class III gaming authorized under the Mohegan
Compact include (a) certain games of chance , (b) video facsimiles of such
authorized games of chance (i.e. slot machines), (c) off-track pari-mutuel
betting on animal races, (d) pari-mutuel betting, through simulcasting, on
animal races and (e) certain types of pari-mutuel betting on games and
races conducted at the gaming facility (some types of which currently are,
together with off-track pari-mutuel telephone betting on animal races,
under a moratorium).
(2) The Tribe must establish standards of operations and management of all
gaming operations in order to protect the public interest, insure the fair
and honest operation of gaming activities and maintain the integrity of all
Class III gaming activities. The first of such standards were set forth in
the Mohegan Compact and approved by the State of Connecticut gaming agency.
State gaming agency approval is required for any revision to such
standards. The Tribe must supervise the implementation of these standards
by regulation through a Tribal gaming agency.
12
(3) Law enforcement matters relating to Class III gaming activities will be
under the jurisdiction of the State of Connecticut and the Tribe.
(4) All gaming employees must obtain and maintain a gaming license issued by
the state gaming agency.
(5) Any enterprise providing gaming services or gaming equipment to the Tribe
is required to hold a current valid registration issued by the Connecticut
Division of Special Revenue.
(6)The State of Connecticut will annually assess the Tribe for the costs
attributable to the State's regulation of the Tribe's gaming operations and
for the provision of law enforcement at the Tribe's gaming facilities.
(7) Net revenues from the Tribe's gaming operations may be applied only for the
certain purposes related to Tribe operations and welfare, charitable
contributions and payments to local governmental agencies.
(8) Tribal ordinances and regulations governing health and safety standards at
the gaming facilities may be no less rigorous than the applicable laws and
regulations of the State of Connecticut.
(9) Service of alcoholic beverages within the Tribe's gaming facilities is
subject to regulation by the State of Connecticut.
(10) The Tribe waived any defense which it may have by virtue of sovereign
immunity in respect to any action in United States District Court to
enforce the Mohegan Compact.
In addition, along with the Mohegan Compact, the Tribe and the State of
Connecticut entered into a memorandum of understanding providing for the payment
of a portion of the Authority's slot machine revenues to the State of
Connecticut. Commencing July 1, 1995, for each fiscal year such payment to the
State of Connecticut must be the lesser of (a) 30% of gross revenues from slot
machines, or (b) the greater of (i) 25% of gross revenues from slot machines or
(ii) $80.0 million. These payments will not be required if there is a change in
the law to permit the operation of commercial casino games by any other person
in the State of Connecticut, other than the Mashantucket Pequot Tribe and the
Tribe. The Authority's financial statements reflect expenses associated with the
slot win contribution totalling $135.1 million, $121.1 million and $102.3
million for the fiscal years ended September 30, 2000, 1999 and 1998,
respectively.
Agreement with the Town of Montville
- ------------------------------------
In June 1994, the Tribe and the neighboring town of Montville entered into an
agreement whereby the Tribe makes annual payments of $500,000 to the town to
minimize the impact to Montville resulting from the decreased tax revenues on
the land taken into trust for the Tribe's reservation. The Tribe also agreed to
pay Montville $3.0 million for infrastructure improvements to the town's water
system and to pay for its use of the Town's disposal and wastewater collection
and treatment systems. Finally, the Tribe agreed to make payments in lieu of
taxes to the Town on lands that the Tribe acquires outside of its current
reservation. The Tribe has assigned its rights and obligations under this
agreement to the Authority. As of September 30, 2000, the Town of Montville had
billed and received payment for approximately $2.9 million of the $3.0 million
obligation.
The information concerning Sun International, the Tribe and the Authority has
been derived from publicly filed information.
13
Item 2. PROPERTIES
The Company does not have an interest in real property.
Item 3. LEGAL PROCEEDINGS
As derived from publicly filed information, the Authority is a defendant in
certain litigations incurred in the normal course of business. In the opinion of
the Authority's management, based on the advise of counsel, the aggregate
liability, if any, arising from such litigation will not have a material adverse
effect on the Authority's financial condition or results of operations.
On January 6, 1998, Leisure Resort Technology, Inc. ("Leisure") and defendants
Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., and
Slavik Suites, Inc. settled a prior lawsuit brought by Leisure. In connection
with this settlement, Leisure and Trading Cove Associates, Waterford Gaming,
L.L.C., LMW Investments, Inc., and Slavik Suites, Inc. entered into a settlement
and release agreement. Pursuant to this settlement and release agreement,
Waterford Gaming, L.L.C. bought out Leisure's beneficial interest in Trading
Cove Associates.
By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a
four count complaint naming as defendants Waterford Gaming, L.L.C., Trading Cove
Associates, LMW Investments, Inc., Slavik Suites, Inc., Waterford Group, L.L.C.,
Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter is
pending in the Judicial District of Middlesex at Middletown, Connecticut. The
complaint alleged breach of fiduciary duties, fraudulent non-disclosure,
violation of Connecticut Statutes Section 42-110a, et seq., and unjust
enrichment in connection with the negotiation by certain of the Defendants of
the settlement and release agreement. The complaint also brought a claim for an
accounting. The complaint seeks unspecified legal and equitable damages. On
February 29, 2000, Defendants filded a Motion to Strike and a Motion for Summary
Judgement, each with respect to all claims. The Court granted Defendants' Motion
to Strike in part and denied Defendants' Motion for Summary Judgement, on
October 13, 2000. The Court's order dismissed the claim for an accounting and
the claim under Connecticut Statutes Section 42-110a, et seq. The Court also
struck the alter ego allegations in the complaint against LMW Investments, Inc.,
Slavik Suites, Inc., Len Wolman and Mark Wolman.
On November 15, 2000, the Company and its co-defendants answered the complaint.
In addition, the Company and Trading Cove Associates asserted counterclaims for
breach of the settlement and release agreement and breach of the implied
covenant of good faith against Leisure and its president, Lee Tyrol.
The Company believes that it has meritorious defenses and intends to vigorously
contest the claims in this action and to assert all available defenses. At the
present time, the Company is unable to express an opinion on the likelihood of
an unfavorable outcome or to give an estimate of the amount or range of
potential loss to the Company as a result of this litigation due to the disputed
issues of law and/or facts on which the outcome of this litigation depends and
due to the infancy of both the action and discovery in the action.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's security holders for a vote for the
fiscal year ended December 31, 2000.
14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
Not applicable.
Item 6. SELECTED FINANCIAL DATA
For the Year Ended
------------------
For the period
September 30, 1996
(date of commencement
of operations) to
2000 1999 1998 1997 December 31, 1996
-------------- -------------- -------------- -------------- --------------
OPERATING RESULTS
Interest and dividend
income $ 1,894,738 $ 6,144,502 $ 4,873,323 $ 4,592,208 $ 623,213
Subordinated notes fee
income-Trading Cove
Associates 692,782 3,731,806 3,229,253 2,732,530 ---
Completion guarantee notes
fee income-Trading Cove
Associates 215,625 903,438 467,500 --- ---
Management services income-
Trading Cove Associates --- 1,664,699 3,584,313 --- ---
Organizational and
administrative fee income-
Trading Cove Associates 11,649,600 14,252,209 4,231,768 --- ---
-------------- -------------- -------------- -------------- --------------
Total revenue 14,452,745 26,696,654 16,386,157 7,324,738 623,213
-------------- -------------- -------------- -------------- --------------
Total expenses (13,490,367) (24,789,253) (9,576,278) (9,340,510) (1,355,985)
Equity in (loss)income
of Trading Cove Associates (574,002) 6,115,300 (482,869) 834,643 (384,826)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ 388,376 $ 8,022,701 $ 6,327,010 $ (1,181,129) $ (1,117,598)
============== ============== ============== ============== ==============
OTHER DATA:
Interest expense $ 11,641,049 $ 19,045,076 $ 7,837,552 $ 8,687,704 $ 1,220,104
Net cash used in
operating activities 1,556,537 --- --- 5,835,475 ---
Net cash provided by
operating activities --- 21,753,116 2,561,515 --- 33,064
Net cash used in
investing activities 14,557,877 --- --- --- 51,345,292
Net cash provided by
investing activities --- 18,920,350 1,020,625 9,043,282 ---
Net cash used in
financing activities 40,199,182 --- 1,031,555 3,816,560 ---
Net cash provided by
financing activities --- 16,880,807 --- --- 52,152,740
YEAR-END STATUS:
Total current assets $ 34,708,598 $ 72,724,437 $ 6,459,361 $ 9,980,267 $ 16,737,416
Trading Cove Associates-
equity investment 7,944,454 9,041,568 8,662,198 10,384,292 12,682,469
Beneficial interest-Leisure
Resort Technology, Inc. 5,296,019 5,674,009 4,191,909 --- ---
Investment in 15%
subordinated notes
receivable --- --- 32,059,517 27,742,146 25,965,897
Investment in completion
guarantee subordinated
notes receivable --- --- 5,075,000 2,548,162 ---
Deferred financing costs net
of accumulated amortization 3,377,066 3,781,051 3,339,780 2,702,744 2,788,529
Fixed assets net of
accumulated depreciation 33,256 44,036 --- --- ---
-------------- -------------- -------------- -------------- --------------
Total assets $ 51,359,393 $ 91,265,101 $ 59,787,765 $ 53,357,611 $ 58,174,311
============== ============== ============== ============== ==============
Total current liabilities $ 3,481,637 $ 3,576,539 $ 1,037,887 $ 1,081,043 $ 1,273,614
12-3/4% senior notes
payable --- --- 61,471,000 61,471,000 65,000,000
9-1/2% senior notes
payable 119,691,000 122,159,000 --- --- ---
-------------- -------------- -------------- -------------- --------------
Total liabilities $ 123,172,637 $ 125,735,539 $ 62,508,887 $ 62,552,043 $ 66,273,614
============== ============== ============== ============== ==============
15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain Risk Factors
- --------------------
Lack of Operations; Dependence on the Mohegan Sun
The Company does not conduct any business operations other than in connection
with its role as a managing general partner of TCA and activities incidental to
the issuance of the $125 Million Senior Notes and the making of restricted and
temporary investments. The Company is prohibited by the terms of the Indenture
from engaging in any other business activities. The Company intends to fund its
operating, debt service and capital needs primarily from cash flows from TCA.
TCA's major sources of revenues are Relinquishment Fees and Development Fee.
There can be no assurance that the Mohegan Sun will continue to generate
sufficient revenues for the Authority to be profitable or to service its debt
obligations, or to pay Relinquishment Fees and Development Fee. The Company is
entirely dependent upon the performance of the Mohegan Sun, which is subject to
matters over which the Authority, TCA and the Company have no control including,
without limitation, general economic conditions, effects of competition,
political, regulatory and other factors, and the actual number of gaming
customers and the amount wagered.
Although TCA is entitled to a $14.0 million development fee under the
Development Agreement, it has entered into a subcontract with SIML who has
subcontracted with affiliates of the Company to provide certain of the services
required by such agreement and is to pay such subcontractors a development
services fee and incur expenses equal to 3% of the total cost of the expansion,
excluding capitalized interest. Based upon the estimated cost of the expansion
of $960 million, excluding capitalized interest, such fees and expenses are
expected to be approximately $28.8 million. Such fees are only payable to the
extent of available cash flow. Thus, ultimately TCA may pay more in development
services fees and expenses to its subcontractors than it will receive under the
Development Agreement. Although the Authority has passed a resolution that the
total costs of the expansion cannot exceed $960 million, excluding capitalized
interest, the actual costs of the expansion may exceed such amounts. If the
total costs of the expansion increase, then the total development services fee
and expenses paid by TCA will increase proportionately, which reduces the cash
flow distributable to the Company.
While the Company expects its future operating cash flows will be sufficient to
cover its expenses, including interest costs, the Company cannot give any
assurance that it will be able to do so.
Overview of Current and Future Cash Flows
- -----------------------------------------
The Company expects to fund its operating, debt service and capital needs from
cash flows from the Company's share of payments from TCA, and from the Company's
available cash. Based upon the Company's anticipated future operations,
management believes that available cash flow will be sufficient to meet the
Company's anticipated requirements for future operating expenses, future
scheduled payments of principal and interest on the $125 Million Senior Notes
and additional investments in TCA that may be required in connection with the
Project. No assurance, however, can be given that the operating cash flow will
be sufficient for that purpose.
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Company's financial statements and the notes thereto
included elsewhere herein.
Sources of Revenues
- -------------------
The Company has one primary source of revenue: payments from TCA. The Company
anticipates regular payments from TCA based on the results of the Mohegan Sun
and Relinquishment Fees and Development Fee payments by the Authority.
Distributions on the Company's partnership interest in TCA
- ----------------------------------------------------------
For the year ended December 31, 2000, the Company received $9,788,007 from TCA
and $3,770,000 was due from TCA which represents the Company's share under the
Omnibus Termination Agreement of approximately $41,004,000 in Relinquishment
Fees earned by TCA pursuant to the Relinquishment Agreement for the same period
and $5,488,000 in Development Fee earned by TCA pursuant to the Development
Agreement for the same period. For the year ended December 31, 1999, the Company
received $21,879,716 from TCA and $1,216,019 was due from TCA, which represents
the Company's share under the Amended and Restated Omnibus Financing Agreement
of approximately $59,521,000 in net Management Fees earned by TCA from the
Authority pursuant to the terms of the Management Agreement for the same period.
On December 30, 1999 TCA received $10,536,543 from Sun International and the
Company, pursuant to the last sentence of Section 3 of the Financing Arrangement
Agreement, and TCA concurrently distributed $10,536,543 to its partners. The
Company received $5,268,272.
16
Payments on the Authority Subordinated Notes
- --------------------------------------------
On December 30, 1999, the Authority paid to the holders of the Authority
Subordinated Notes, an amount to satisfy all obligations of such Authority
Subordinated Notes. The Company received $44,403,517 from the Authority.
Results of Operations
- ---------------------
Comparison of Operating Results for the Twelve Months Ended
- -----------------------------------------------------------
December 2000 and 1999
- ----------------------
Total revenue for the twelve months ended December 31, 2000 was $14,452,745
compared with $26,696,654 for the twelve months ended December 31, 1999. This
decrease was primarily attributable to the termination of the Management
Agreement and the commencement of the Relinquishment Agreement and payment under
the Development Agreement, and by the termination of the Omnibus Financing
Agreement and the commencement of the Omnibus Termination Agreement on January
1, 2000. Subordinated notes fee income - Trading Cove Associates decreased by
$3,039,024, completion guarantee notes fee income - Trading Cove Associates
decreased by $687,813, management services income - Trading Cove Associates
decreased by $1,664,699 and organizational and administrative fee income -
Trading Cove Associates decreased by $2,602,609 as a result of the termination
of the Management Agreement and the commencement of the Relinquishment Agreement
and payment under the Development Agreement, and by the termination of the
Omnibus Financing Agreement and the commencement of the Omnibus Termination
Agreement on January 1, 2000 as detailed above under "Trading Cove Associates -
Material Agreements". In addition, interest and dividend income decreased by
$4,249,764 primarily attributable to the repayment on December 30, 1999 by the
Authority of the Authority Subordinated Notes.
Total expenses for the twelve months ended December 31, 2000 was $13,490,367
compared with the $24,789,253 for the twelve months ended December 31, 1999.
Interest expense decreased by $7,404,027 and amortization on deferred financing
costs decreased by $3,269,920 due primarily to the redemption of the $65 Million
Senior Notes and the issuance of the $125 Million Senior Notes, general and
administrative costs increased by $216,522 (primarily attributable to an
increase in legal and other expenses related to the defense of the Leisure
litigation, as detailed under Part I: Item 3 Legal Proceedings, totaling
approximately $395,200, an increase in credit agency rating cost of
approximately $12,500, and partially offset by a decrease in filing expense of
approximately $14,200, by a decrease in other legal fees of approximately
$62,000, by a decrease in federal and state payroll taxes of approximately
$15,700 and by a decrease in accounting fees of approximately $90,900 (during
the years ended December 31, 2000 and 1999 the Company paid accounting fees to
an affiliate totalling $0 and $95,000, respectively)), 12-3/4% senior notes
tender expense decreased by $702,486 due to the redemption of the $65 Million
Senior Notes and to an over accrual of $90,000 at December 31, 1999 and a
decrease in amortization of beneficial interest Leisure Resort Technology, Inc.
of $139,910 due to the increase in the period over which the asset is amortized.
Equity in (loss) income of Trading Cove Associates for the twelve months ended
December 31, 2000 was $(574,002) compared with $6,115,300 for the twelve months
ended December 31, 1999, as a result of the decrease in income from Trading Cove
Associates of approximately $6,962,600 due to the timing of payments pursuant to
the Omnibus Termination Agreement and the Omnibus Financing Agreement and by a
decrease in amortization of interests purchased of approximately $273,100 due to
the increase in the period over which the interests purchased is amortized.
As a result of the foregoing factors, the Company experienced net income of
$388,376 for the twelve months ended December 31, 2000 compared with net income
of $8,022,701 for the twelve months ended December 31, 1999.
17
Comparison of operating results for the years ended December 31,
- ----------------------------------------------------------------
1999 and 1998
- -------------
Total revenue for the twelve months ended December 31, 1999, was $26,696,654
compared with $16,386,157 for the twelve months ended December 31, 1998. This
increase was primarily attributable to a substantial increase in gross revenues
and profitability of the Mohegan Sun which resulted in higher Management Fees
paid to TCA, an increase in subordinated notes fee income - Trading Cove
Associates, as detailed under point (c) of the table set forth in Item 1 above
under "Amended and Restated Omnibus Financing Agreement", of $502,553, an
increase in completion guarantee notes fee income - Trading Cove Associates, as
detailed under point (d) of the table set forth in Item 1 above under "Amended
and Restated Omnibus Financing Agreement", of $435,938, a decrease in management
services income - Trading Cove Associates, as detailed under point (h) of the
table set forth in Item 1 above under "Amended and Restated Omnibus Financing
Agreement", of $1,919,614 and an increase in organizational and administrative
fee income - Trading Cove Associates, as detailed under point (k) of the table
set forth in Item 1 above under "Amended and Restated Omnibus Financing
Agreement", of $10,020,441. In addition, interest and dividend income increased
by $1,271,179.
Total expenses for the year ended December 31, 1999 was $24,789,253 compared
with $9,576,278 for the year ended December 31, 1998. Interest expense increased
by $11,207,524, and amortization on deferred financing costs increased by
$3,093,086 due to the redemption of the $65 Million Senior Notes and the
issuance of the $125 Million Senior Notes, general and administrative costs
increased by $637,399, (primarily attributable to an increase in executive
payroll and associated federal and state payroll taxes of approximately
$690,000, a decrease in accounting fees of approximately $55,200 (during the
twelve months ended December 31, 1999 and 1998 the Company paid accounting fees
to an affiliate totaling approximately $95,000 and $146,300, respectively),
filing expense increased by approximately $15,600, copying and printing expense
increased by approximately $2,000, trustee and disbursement agent fees increased
by approximately $3,600, dues and subscriptions increased by approximately
$1,600, by a decrease in legal fees of approximately $25,100 and by a decrease
in insurance expense of approximately $1,000), an increase in 12-3/4% senior
notes tender expense of $612,486, a decrease in amortization of beneficial
interest - Leisure Resort Techology, Inc. of $347,402, due to the increase in
the period over which the asset is amortized and by an increase in depreciation
of $9,882.
Equity in income (loss) of Trading Cove Associates for the twelve months ended
December 31, 1999 was $6,115,300 compared with $(482,869) for the twelve months
ended December 31, 1998, as a result of the increase in income from Trading Cove
Associates of $5,778,791 due to the timing of payments pursuant to the Amended
and Restated Omnibus Financing Agreement and by a decrease in amortization of
interests purchased of $819,378 due to the increase in the period over which the
interests purchased is amortized.
As a result of the foregoing factors, the Company experienced net income of
$8,022,701 for the year ended December 31, 1999 compared with net income of
$6,327,010 for the year ended December 31, 1998.
18
Liquidity and Capital Resources
- -------------------------------
The initial capital of the Company consists of the partnership interests in TCA
contributed by Slavik and LMW in forming the Company. In connection with the
offering of the $65 Million Senior Notes, the Company used approximately $25.1
million to purchase from Sun International $19.2 million in principal amount of
Subordinated Notes plus accrued and unpaid interest and Subordinated Notes Fee
Amounts. In addition, TCA distributed approximately $850,000 in principal amount
of Subordinated Notes to the Company. During September 1997 and on October 12,
1998 and 1999, the Company purchased from Sun International $2.5 million Non-Pik
Completion Guarantee Notes plus accrued and unpaid interest and Non-Pik
Completion Guarantee Fee Amounts (total cost approximately $2.8 million for each
transaction).
On January 6, 1998 the Company paid $5,000,000 to Leisure whereby Leisure gave
up its beneficial interest in 5% of the Organizational and Administrative Fee
and Excess Cash of TCA and any other claims it may have had against the Company,
TCA and TCA's partners and former partner.
In connection with the offering of the $125 Million Senior Notes, the Company
used approximately $72 million to repurchase its $65 Million Senior Notes,
distributed approximately $37 million to its new parent, Waterford Group and
paid the final $2 million to Leisure.
On December 30, 1999, the Authority paid to the holders of the Authority
Subordinated Notes, an amount to satisfy all obligations of such Authority
Subordinated Notes. The Company received $44,403,517 from the Authority.
On December 30, 1999, TCA distributed $10,536,543 to its partners. The Company
received $5,268,272.
On January 4, 2000 in accordance with the terms of the Indenture and the
Security and Control Agreement dated as of March 17, 1999 between the Company
and Finance and State Street Bank and Trust Company, $15,000,000 was transferred
to restricted investments ("Interest Reserve Account").
On January 4, 2000 also in accordance with the terms of the Indenture, the
Company distributed $34,671,789 to its sole member Waterford Group. On January
11, 2000, on April 13, 2000, on June 12, 2000, and on December 27, 2000 the
Company distributed $2,557,545, $132,869, $330,400, and $38,579, respectively,
to Waterford Group as a tax distribution, in accordance with the terms of the
Indenture.
For the twelve months ended December 31, 2000 and 1999, net cash (used in)
provided by operating activities (as shown in the Statements of Cash Flows) was
$(1,556,537) and $21,753,116, respectively.
Current assets decreased from $72,724,437 at December 31, 1999 to $34,708,598 at
December 31, 2000. The decrease was caused primarily by the distributions to the
Company's sole member Waterford Group of approximately $37,731,000,
approximately $1,557,000 of cash used in operations, the redemption of $125
Million Senior Notes in the principal amount of $2,468,000, and offset by the
payment of fees and distributions by TCA in terms of the Omnibus Termination
Agreement.
Current liabilities decreased from $3,576,539, at December 31, 1999 to
$3,481,637 at December 31, 2000. The decrease was primarily attributable to a
decrease in accrued interest on senior notes payable of approximately $69,000
and by a decrease in accrued expenses of approximately $25,900 (primarily
attributable to an increase in the amount due under Len Wolman's employment
agreement of approximately $39,900 , an increase in the amount due for legal and
other expenses related to the defense of the Leisure litigation of approximately
$72,100, and offset by the over accrual of deferred financing costs of $40,000
and 12-3/4% senior notes tender expense of $90,000 at December 31, 1999).
For the twelve months ended December 31, 2000 and 1999, net cash (used in)
provided by investing activities (as shown in the Statements of Cash Flows was
$(14,557,877) and $18,920,350, respectively. The net cash used in investing
activities in 2000 was primarily the result of contributions to TCA of
$1,200,000 (to fund certain development expenses in connection with the Project
at the Mohegan Sun), the (purchases) and sales of restricted investments-net of
approximately $(15,081,000) (principally due to the funding of the Interest
Reserve Account in the amount of $15 million on January 4, 2000), and offset by
distributions from TCA of approximately $1,723,000. The net cash provided by
investing activities in 1999 was primarily the result of the redemption by the
Authority of the Authority Subordinated Notes in the principal amount of
$27,500,000, the (purchases) and sales of temporary investments-net of
$2,045,430 (primarily due to the redemption of the $65 Million Senior Notes and
the issuance of the $125 Million Senior Notes), distributions from TCA of
$6,335,930 and offset by the payment to Leisure of $2 million, contributions to
TCA of $600,000 (to fund certain development expenses in connection with the
Project at the Mohegan Sun), the (purchases) and sales of restricted
investments-net of approximately $(11,807,000) (principally due to the funding
of the Interest Reserve Account in the amount of approximately $12 million on
March 17, 1999), the purchase from Sun International of an Authority
Subordinated Note in the principal amount of $2.5 million and the purchase of
fixed assets for approximately $54,000.
19
The Company anticipates that up to $3,300,000 in additional investments in TCA
(as of December 31, 2000, $2,200,000 had been invested in TCA) may be required
by the Company in connection with the Project at the Mohegan Sun.
For the years ended December 31, 2000 and 1999 net cash (used in) provided by
financing activities (as shown in the Statements of Cash Flows) was
$(40,199,182) and $16,880,807, respectively. The net cash used in financing
activities in 2000 was primarily the result of the redemption of $125 Million
Senior Notes in the principal amount of $2,468,000 and distributions to the
Company's sole member of approximately $37,731,000. The net cash provided by
financing activities in 1999 was primarily the result of the issuance of the
$125 Million Senior Notes, in the principal amount of $125,000,000,
contributions by members of $49,000, and offset by the redemption of the $65
Million Senior Notes in the principal amount of $61,471,000, deferred financing
costs of approximately $4,035,000 (primarily due to the costs associated with
the issuance of the $125 Million Senior Notes) and by distributions to members
of approximately $39,821,000.
The Company and Finance are required to make a mandatory redemption on September
15 and March 15, of each year, which began September 15, 1999, of $125 Million
Senior Notes using any Company Excess Cash, as defined in the Indenture, which
the Company and Finance may have as of the preceding August 1 and February 1. On
August 1, 1999 the Company and Finance had Company Excess Cash, as defined in
the Indenture, available for mandatory redemption of the $125 Million Senior
Notes totaling approximately $8,983,000, and accordingly on September 15, 1999
the Company and Finance made a mandatory redemption of $125 Million Senior Notes
in the principal amount of $2,841,000 at the redemption price of 109.50%. On
February 1, 2000 the Company and Finance had Company Excess Cash, as defined in
the Indenture, available for mandatory redemption of the $125 Million Senior
Notes totaling approximately $8,276,000, and accordingly on March 15, 2000 the
Company and Finance made a mandatory redemption of $125 Million Senior Notes in
the principal amount of $2,277,000 at the redemption price of 108.636%. On
August 1, 2000 the Company and Finance had Company Excess Cash, as defined,
available for mandatory redemption of the $125 Million Senior Notes, totaling
approximately $5,902,000, and accordingly on Septmeber 15, 2000 the Company and
Finance made a mandatory redemption of $125 Million Senior Notes in the
principal amount of $191,000 at the redemption price of 108.636%. On February 1,
2001 the Company and Finance had Company Excess Cash, as defined, available for
mandatory redemption of the $125 Million Senior Notes totaling approximately
$6,173,000 and accordingly on March 15, 2001 the Company and Finance made a
mandatory redemption of the $125 Million Senior Notes in the principal amount of
$452,000 at the redemption price of 107.773%.
The Company expects to fund its operating, debt service and capital needs from
cash flows from the Company's share of payments from TCA, and from the Company's
available cash. Based upon the Company's anticipated future operations,
management believes that available cash flow will be sufficient to meet the
Company's anticipated requirements for future operating expenses, future
scheduled payments of principal and interest on the $125 Million Senior Notes
and additional investments in TCA that may be required in connection with the
Project. No assurance, however, can be given that the operating cash flow will
be sufficient for that purpose.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates, foreign
exchange rates and equity prices. Changes in these factors could cause
fluctuations in earnings and cash flows.
For fixed rate debt, changes in interest rates generally affect the fair market
value of the debt instrument, but not earnings or cash flows. Therefore,
interest rate risk and changes in the fair market value of fixed rate debt
should not have a significant impact on earnings or cash flows until such debt
is refinanced, if necessary. For variable rate debt, changes in interest rates
generally do not impact the fair market value of the debt instrument, but do
affect future earnings and cash flows. The Company did not have any variable
rate debt outstanding at December 31, 2000 and 1999. The fair market value of
the Company's long-term debt at December 31, 2000 and 1999 is estimated to be
approximately $118,494,000 and $120,300,000, respectively, based on the quoted
market price for the same issue.
The Company is exposed to market risks from fluctuations in interest rates and
the effects of those fluctuations on market values of the Company's cash
equivalents and restricted investments. Cash equivalents generally consist of
overnight investments while the restricted investments at December 31, 2000 are
generally comprised of an investment in a Federal National Mortgage Association
Discount Note which was purchased at a discount of 6.30% and matured March 8,
2001 and at December 31, 1999 are principally comprised of an investment in a
Federal Home Loan Mortgage Corp. Discount Note which was purchased at a discount
of 5.46% and matured March 14, 2000. These investments are not significantly
exposed to interest rate risk, except to the extent that changes in interest
rates will ultimately affect the amount of interest income earned and cash flow
from these investments.
The Company does not currently have any derivative financial instruments in
place to manage interest costs, but that does not mean that the Company will not
use them as a means to manage interest rate risk in the future.
The Company does not use foreign currency exchange forward contracts or
commodity contracts and does not have foreign currency exposure in its
operations.
20
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page 25
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following tables set forth certain information with respect to persons who
are members of the Board of Directors of the Company or who are executive
officers of the Company.
Name Age Position
Len Wolman 46 Chairman of the Board and Chief
Executive Officer
Alan Angel 44 Chief Financial Officer
Del J. Lauria 52 Director and Secretary
Mark Wolman 43 Director
Len Wolman. Mr. Wolman has been the Chairman of the Board of Directors and the
Chief Executive of the Company since its formation. Mr. Wolman is a managing
partner of TCA. Since 1986, Mr. Wolman has been the Chairman of the Board of
Directors and the Chief Executive Officer of the Waterford Hotel Group, Inc.
Under Mr. Wolman, Waterford Hotel Group, Inc. has grown from one hotel
management contract to 27 properties in ten states. Mr. Wolman was actively
involved in the development, construction and operation of the Mohegan Sun and
is actively involved in the development and construction of the expansion to the
Mohegan Sun. Mr. Wolman was instrumental in the formation of the relationship of
TCA and the Tribe and had been actively working with the Tribe in connection
with obtaining federal recognition, acquiring the site for the Mohegan Sun and
obtaining the financing to construct the Mohegan Sun. Mr. Wolman has served as
President and Chief Executive Officer of Finance since its inception. Mr. Wolman
is a Director and Officer of Slavik Suites, Inc., one of Waterford Group's
members. Mr. Wolman is the brother of Mark Wolman. Mr. Wolman's wife and Mr.
Angel's wife are sisters.
Alan Angel. Mr. Angel became Chief Financial Officer of the Company in January,
1999. Since 1997, Mr. Angel has been the Chief Financial Officer of Mystic
Suites, L.L.C. Mystic Suites, L.L.C is a commercial development firm based in
eastern Connecticut which currently holds an ownership interest in a number of
hotels managed by the Waterford Hotel Group, Inc. Prior to joining Mystic
Suites, L.L.C., Mr. Angel resided in South Africa and served as Chief Financial
Officer of Rowan & Angel cc. Mr. Angel is a certified public accountant and a
chartered accountant. Mr. Angel has over 20 years of accounting experience. Mr.
Angel's wife and Mr. Len Wolman's wife are sisters.
Del J. Lauria. Mr. Lauria became a Director of the Company, Chief Financial
Officer and Secretary upon its formation. Mr. Lauria was succeeded as Chief
Financial Officer in January 1999 by Mr. Alan Angel. Mr. Lauria is also an
Officer and Director of the Waterford Hotel Group, Inc. and is Executive Vice
President and Director of Slavik Suites, Inc. Mr. Lauria first joined the Slavik
Organization in 1980 as the Chief Financial Officer of its real estate property
management division. The Slavik Organization is an affiliated group of full
service real estate companies first established in Michigan in the early 1950s.
Mr. Lauria rapidly advanced at the Slavik Organization and currently holds
various key managerial positions within the enterprise. Prior to joining the
Slavik Organization, Mr. Lauria was associated with the accounting firm now
known as Deloitte & Touche and is a certified public accountant. Mr. Lauria has
served as Treasurer and Secretary of Finance since its inception.
Mark Wolman. Mr. Wolman became a Director of the Company upon its formation. Mr.
Wolman is the president of Wolman Homes, Inc. d/b/a Wolman Construction. Wolman
Homes, Inc. is a commercial development and construction firm based in eastern
Connecticut. Mr. Wolman has been working with the Mohegan Tribe since 1992 and
had been instrumental in assisting the Mohegan Tribe in obtaining a number of
governmental approvals in connection with the development and construction of
the Mohegan Sun. Mr. Wolman will be appointed a Director of Slavik Suites, Inc.
Mr. Wolman is the brother of Len Wolman.
Stephan F. Slavik, Sr. Mr. Slavik, Sr. passed away on December 12, 2000. The
late Mr. Slavik, Sr. was a Director of the Company since its formation. Mr.
Slavik, Sr. was the President of Slavik Suites, Inc. and the Chief Operating
Officer of the Slavik Organization. Mr. Stephan F. Slavik, age 54 years, will be
appointed a Director of the Company. Mr. Slavik is a son of the late Stephan F.
Slavik, Sr. Mr. Slavik is the President of Michigan based Slavik Builders. Mr.
Slavik has over 30 years of experience with all phases of land planning, product
design, estimating and site construction in single family, multiple and
commercial design/build developments. Mr. Slavik will be appointed a Director
and an Officer of Slavik Suites, Inc. Mr. Slavik is the brother of Richard
Slavik. Mr. Richard Slavik, age 50, will be appointed a Vice President of the
Company. Mr. Richard Slavik is a son of the late Stephan F. Slavik, Sr. Mr.
Richard Slavik is Chief Operating Officer of the Fourmidable Group, Inc., a
Michigan based real estate management firm. Mr. Richard Slavik has over 20 years
of constructing and operating commercial residential real estate experience. Mr.
Richard Slavik will be appointed as an Officer of Slavik Suites, Inc. Mr.
Richard Slavik is the brother of Stephan F. Slavik.
Item 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Directors of
the Company.
Name Year Ended Salary
------ ------------ --------
Len Wolman (1) 2000 $660,037
1999 $165,000
1998 $ ---
Del Lauria 2000 $ ---
1999 $165,000
1998 $ ---
Stephan F. Slavik, Sr. 2000 $ ---
1999 $165,000
1998 $ ---
Mark Wolman 2000 $ ---
1999 $165,000
1998 $ ---
From January 1, 2000, the Company's Directors have also received compensation as
part of the operating expenses of TCA as detailed under point a) of the table
set forth above under "Omnibus Termination Agreement" and until January 1, 2000
the Company's Directors received compensation as part of the operating expenses
and Management Services Fee of TCA as detailed under points (a) and (h) of the
table set forth above under "Amended and Restated Omnibus Financing Agreement".
The Company does not have a compensation committee, and all compensation
decisions are made by the Board of Directors.
(1) As detailed in Item 13, Mr. Len Wolman has an employment contract with the
Company. For the year ended 2000 $660,037 was paid to Mr. Len Wolman
pursuant to the employment contract. For the years ended 1999 and 1998 no
compensation was paid to Len Wolman pursuant to the employment contract.
21
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's sole member is Waterford Group, L.L.C.
The following table sets forth the beneficial ownership interest in
Waterford Group, L.L.C.
Name of % Ownership
Beneficial Owner in the Company
- ---------------- --------------
LMW Investments, Inc. (1) 32.2033%
Slavik Suites, Inc. (2) 67.7967%
---------
100.0000%
=========
(1) LMW Investments, Inc. is owned 50% by Mr. Len Wolman and 50% by Mr. Mark
Wolman. The address for LMW Investments, Inc. is 914 Hartford Turnpike,
P.O. Box 715, Waterford, Connecticut 06385.
(2) Messrs. Len and Mark Wolman each own approximately 11.9% of the outstanding
shares of Slavik Suites, Inc. The address for Slavik Suites, Inc. is 32605
West 12 Mile Road, Suite 350, Farmington Hills, Michigan 48334.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Len Wolman, the Company's Chairman of the Board of Directors and Chief
Executive Officer is a managing partner of TCA.
Pursuant to the Development Services Agreement Phase I, dated as of September
29, 1995, between TCA and SIML, TCA shall pay SIML a fee ("the Development
Services Fee Phase I") equal to $8,280,000 (3% of the total development costs of
the Mohegan Sun, exclusive of land acquisition costs) plus $25,000 for expense
reimbursement. Pursuant to a subcontract, Construction will receive 20.83% of
the Development Services Fee Phase I plus $25,000 (total approximately $1.75
million). Construction is owned 50% by Mr. Len Wolman (the Company's Chief
Executive Officer and Chairman of the Board of Directors) and 50% by Mr. Mark
Wolman (a member of the Company's Board of Directors). Pursuant to a
subcontract, Construction will pay The Slavik Company $250,000 of Construction's
approximately $1.75 million. Del J. Lauria (the Company's Secretary and member
of the Company's Board of Directors), Stephan F. Slavik and Richard Slavik have
a financial interest in The Slavik Company. For the year ended December 31,
1998, Construction received $1,749,724 and The Slavik Company received $250,000
respectively, of their share of the Development Services Fee Phase I on a
cumulative basis.
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and SIML. Pursuant to the Development Services Agreement Phase II,
TCA subcontracted with SIML and SIML agreed to perform those services assigned
to SIML by TCA in order to facilitate TCA's fulfillment of its duties and
obligations to the Authority under the Development Agreement. TCA shall pay to
SIML a fee, as subcontractor (the "Development Services Fee Phase II") equal to
3% of the development costs of the Project exclusive of capitalized interest,
less all costs incurred by TCA in connection with the Project. The Development
Services Fee Phase II shall be paid in installments due on December 31, 1999 and
2000 and on the Completion Date, as defined in the Development Agreement, with a
final payment being made when the actual development costs of the Project are
known. The payment of the Development Services Fee Phase II will be made from
available cash flow, if any, in accordance with the Omnibus Termination
Agreement. SIML has further subcontracted with certain affiliates of the Company
to provide certain of those services assigned to SIML by TCA. SIML shall pay to
to those affiliates of the Company approximately 20% of the Developoment
Services Fee Phase II as and when SIML receives payment if any, from TCA. For
the year ended December 31, 2000, Construction received $1,929,191 and The
Slavik Company received $321,907, of their share of the Development Services Fee
Phase II on a cumulative basis.
The Company paid amounts to an affiliate for accounting services totaling, $0,
$95,200, and $146,300 respectively, during the years ended December 31, 2000,
1999 and 1998.
On September 28, 1998, the Company entered into an employment agreement with Mr.
Len Wolman. The employment agreement provides for a base annual salary of
$250,000 reduced by any amounts Mr. Wolman receives as a salary from TCA for
such period. Pursuant to such employment agreement, the Company shall pay to Mr.
Wolman an amount equal to 0.05% of the revenues of the Mohegan Sun including the
expansion to the extent Mr. Wolman has not received such amounts from TCA. On
and after January 1, 2004, the Company shall pay to Mr. Wolman incentive
compensation based on the revenues of the Mohegan Sun, including the expansion,
as a percentage (ranging from .00% to .10%) to be determined using a formula
attached to the employment agreement which compares actual revenues to
predetermined revenue targets. For the year ended December 31, 2000 the Company
paid and incurred $660,037 pursuant to the employment agreement. No payments
were made pursuant to the employment agreement during 1999 and 1998.
In 2000, approximately $976,000 was paid to the principals and affiliates of the
Company as part of TCA's operating expenses. In 1999 and 1998, approximately
$756,000 and $690,000, respectively, was paid to the principals and affliliates
of the Company as part of TCA's operating expenses, including the payment of Mr.
Len Wolman's salary and bonus. In addition, for the years ended December 31,
1999 and 1998, $6,219,147 ($3,109,573 to SIML, $1,444,875 to the Directors of
the Company and $1,664,699 to the Company) and $8,771,643 ($4,385,822 to SIML,
$280,212 to the Directors of the Company, $521,296 to affiliates of the Company
and $3,584,313 to the Company), respectively, had been incurred by TCA in
monthly management services fees.
For the year ended December 31, 1999, the Company paid the Directors of the
Company $660,000 as salaries for various services provided to the Company.
Waterford Group, Slavik and the other principals of Waterford Group have
interests in and may acquire interests in hotels in southeastern Connecticut
which have or may have arrangements with the Mohegan Sun to reserve and provide
hotel rooms to patrons of the Mohegan Sun.
22
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit No. Description
3.1 Certificate of Formation, as amended, of Waterford
Gaming, LLC (i)
3.2 Certificate of Incorporation of Waterford Gaming
Finance Corp. (i)
3.3 Bylaws of Waterford Gaming Finance
Corp. (i)
4.1 Indenture, dated as of November 8, 1996, between
Waterford Gaming, L.L.C. and Waterford Gaming
Finance Corp., the issuers, and Fleet National
Bank, as trustee, relating to $65,000,000 12-3/4%
Senior Notes due 2003. (i)
4.1.1 First Supplemental Indenture, dated as of March 4,
1999, among Waterford Gaming, L.L.C. and Waterford
Gaming Finance, Corp., as issuers, and State
Street Bank and Trust Company, as trustee,
relating to $65,000,000 12-3/4% Senior Notes due
2003. (vi)
4.2 Indenture, dated as of March 17, 1999, among
Waterford Gaming, L.L.C. and Waterford Gaming
Finance Corp., as issuers, and State Street Bank
and Trust Company, as trustee, relating to
$125,000,000 9-1/2% Senior Notes
due 2010. (vi)
4.3 Security and Control Agreement, dated as of March
17, 1999, among Waterford Gaming, L.L.C. and
Waterford Gaming Finance Corp., as pledgors and
State Street Bank and Trust Company, as securities
intermediary. (vi)
4.4 Specimen Form of 9-1/2% Senior Notes due 2010
(included in Exhibit 4.2). (vi)
10.1 Omnibus Financing Agreement, dated as of September
21, 1995, between Trading Cove Associates and Sun
International Hotels Limited. (i)
10.2 First Amendment to the Omnibus Financing
Agreement, dated as of October 19, 1996, among
Trading Cove Associates, Sun International Hotels
Limited and Waterford Gaming, L.L.C. (i)
10.2.1 Amended and Restated Omnibus Financing Agreement
dated September 10, 1997 (ii)
10.2.2 Omnibus Termination Agreement, dated as of March
18, 1999, among Sun International Hotels Limited,
Trading Cove Associates, Waterford Gaming, L.L.C.,
Sun International Management Limited, LMW
Investments, Inc., Sun Cove Limited, Slavik
Suites, Inc., and Wolman Construction, L.L.C.(vi)
10.3 Amended and Restated Partnership Agreement of
Trading Cove Associates, dated as of September 21,
1994, among Sun Cove Limited, RJH Development
Corp., Leisure Resort Technology, Inc., Slavik
Suites , Inc., and LMW Investments, Inc. (i)
10.4 First Amendment to Amended and Restated
Partnership Agreement of Trading Cove Associates,
dated as of October 22, 1996, among Sun Cove
Limited, Slavik Suites, Inc., RJH Development
Corp., LMW Investments, Inc. and Waterford Gaming,
L.L.C. (i)
10.5 Purchase Agreement, dated as of March 10, 1999,
among Waterford Gaming, L.L.C., Waterford Gaming
Finance Corp., Bear, Stearns & Co., Inc., Merrill
Lynch, Pierce, Fenner and Smith Inc. and Salomon
Smith Barney. (vi)
10.5.1 Agreement with Respect to Redemption or Repurchase
of Subordinated Notes, dated September 10, 1997
(ii)
10.6 Amended and Restated Limited Liability Company
Agreement of Waterford Gaming, L.L.C., dated as of
March 17, 1999 by Waterford Group, L.L.C. (vi)
10.7 Note Purchase Agreement, dated as of October 19,
1996, among Sun International Hotels Limited,
Waterford Gaming, L.L.C. and Trading Cove
Associates. (i)
10.8 Note Purchase Agreement, dated as of September 29,
1995, between the Mohegan Tribal Gaming Authority
and Sun International Hotels Limited relating to
the Subordinated Notes. (i)
10.9 Management Agreement, dated as of July 28, 1994,
between the Mohegan Tribe of Indians of
Connecticut and Trading Cove Associates. (i)
10.10 Management Services Agreement, dated September 10,
1997. (ii)
10.11 Development Services Agreement, dated September
10, 1997. (ii)
10.12 Subdevelopment Services Agreement, dated September
10, 1997. (ii)
10.13 Completion Guarantee and Investment Banking and
Financing Arrangement Fee Agreement, dated
September 10, 1997. (ii)
23
10.14 Settlement and Release Agreement, dated January 6,
1998, by and among Leisure Resort Technology,
Inc., Lee R. Tyrol, Trading Cove Associates,
Slavik Suites, Inc., LMW Investments, Inc., RJH
Development Corp., Waterford Gaming, L.L.C. and
Sun Cove Limited. (iii)
10.15 Waiver and Acknowledgment of Noteholder. (iv)
10.16 Relinquishment Agreement, dated February 7, 1998,
between the Mohegan Tribal Gaming Authority and
Trading Cove Associates. (v)
10.17 Development Services Agreement, dated February 7,
1998, between the Mohegan Tribal Gaming Authority
and Trading Cove Associates. (v)
10.18 Agreement, dated September 28, 1998, by and among,
Waterford Gaming, L.L.C., Slavik Suites, Inc., LMW
Investments, Inc., Len Wolman, Mark Wolman,
Stephan F. Slavik, Sr. and Del J. Lauria (Len
Wolman's Employment Agreement). (v)
10.19 Agreement Relating to Development Services, dated
as of February 9, 1998, between Trading Cove
Associates and Sun International Management
Limited. (vi)
10.20 Local Construction Services Agreement, dated as of
February 9, 1998 between Sun International
Management Limited and Wolman Construction,
L.L.C. (vi)
10.21 Escrow Deposit Agreement, dated as of the 3rd day
of March 1999, by and among the Mohegan Tribal
Gaming Authority and First Union National Bank, as
Defeasance Agent. (vi)
21.1 Subsidiaries of Waterford Gaming,
L.L.C. (i)
21.2 Subsidiaries of Waterford Gaming Finance Corp. (i)
(i) Incorporated by reference to the Registrant's Registration Statement
on Form S-4, Securities and Exchange Commission (the "Commission")
File No. 333-17795, declared effective on May 15, 1997.
(ii) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1997, Commission File No.
333-17795, as accepted by the Commission on November 14, 1997.
(iii) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, Commission File No.
333-17795, as accepted by the Commission on March 30, 1998.
(iv) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1998, Commission File No.
333-17795, as accepted by the Commission on May 14, 1998.
(v) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1998, Commission File No.
333-17795, as accepted by the Commission on November 13, 1998.
(vi) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1999, Commission File No.
333-17795 as accepted by the Commission on May 17, 1999.
24
(b) Financial Statement Schedules
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-1
Financial Statements:
Balance Sheets as of December 31, 2000 and 1999 F-2
Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 F-3
Statements of Changes in Member's Deficiency for the
years ended December 31, 2000, 1999 and 1998 F-4
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 F-5
Notes to Financial Statements F-6
25
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE MEMBER OF
WATERFORD GAMING, L.L.C.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in member's deficiency and of cash flows present fairly, in
all material respects, the financial position of Waterford Gaming, L.L.C. (the
"Company") at December 31, 2000 and December 31, 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. 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 of these
statements in accordance with auditing standards generally accepted in the
United States of America which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
March 15, 2001
F-1
Waterford Gaming, L.L.C.
Balance Sheets
December 31, 2000 and 1999
-------------------------
2000 1999
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 4,024,021 $ 60,337,617
Restricted investments 26,888,081 11,807,092
Due from Trading Cove Associates 3,770,000 492,907
Other assets 26,496 86,821
------------ ------------
Total current assets 34,708,598 72,724,437
------------ ------------
Trading Cove Associates-equity
investment 7,944,454 9,041,568
Beneficial interest-Leisure Resort
Technology, Inc. 5,296,019 5,674,009
Deferred financing costs,
net of accumulated amortization of
$658,110 and $294,125 at December 31,
2000 and 1999, respectively 3,377,066 3,781,051
Fixed assets, net of accumulated
depreciation of $20,662 and $9,882 at
December 31, 2000 and 1999, respectively 33,256 44,036
------------ ------------
Total assets $ 51,359,393 $ 91,265,101
============ ============
LIABILITIES AND MEMBERS' DEFICIENCY
Current liabilities
Accrued expenses $ 133,614 $ 159,480
Accrued interest on senior notes
payable 3,348,023 3,417,059
------------ ------------
Total current liabilities 3,481,637 3,576,539
------------ ------------
9-1/2% senior notes payable 119,691,000 122,159,000
------------ ------------
Total liabilities 123,172,637 125,735,539
------------ ------------
Contingencies --- ---
Members' deficiency (71,813,244) (34,470,438)
------------ ------------
Total liabilities and members'
deficiency $ 51,359,393 $ 91,265,101
============ ============
The accompanying notes are an integral part of these financial statements.
F-2
Waterford Gaming, L.L.C.
Statements of Operations
For the Years Ended December 31, 2000, 1999 and 1998
--------------------------
2000 1999 1998
------------ ------------ ------------
Revenue
Interest and dividend income $ 1,894,738 $ 6,144,502 $ 4,873,323
Subordinated notes fee income-
Trading Cove Associates 692,782 3,731,806 3,229,253
Completion guarantee notes fee
income-Trading Cove Associates 215,625 903,438 467,500
Management services income-
Trading Cove Associates --- 1,664,699 3,584,313
Organizational and administrative
fee income-Trading Cove
Associates 11,649,600 14,252,209 4,231,768
------------ ------------ ------------
Total revenue 14,452,745 26,696,654 16,386,157
------------ ------------ ------------
Expenses
Interest expense 11,641,049 19,045,076 7,837,552
Salaries-related parties 660,037 660,000 ---
General and administrative 526,526 310,004 332,605
12-3/4% senior notes tender expense (90,000) 612,486 ---
Amortization of beneficial interest-
Leisure Resort Technology, Inc. 377,990 517,900 865,302
Amortization on deferred financing
costs 363,985 3,633,905 540,819
Depreciation 10,780 9,882 ---
------------- ------------ ------------
Total expenses 13,490,367 24,789,253 9,576,278
------------ ------------ ------------
962,378 1,907,401 6,809,879
Equity in (loss) income of
Trading Cove Associates (574,002) 6,115,300 (482,869)
------------ ------------ ------------
Net income $ 388,376 $ 8,022,701 $ 6,327,010
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-3
Waterford Gaming, L.L.C.
Statements of Changes in Members' Deficiency
For the Years Ended December 31, 2000, 1999 and 1998
--------------------------
Slavik Suites Inc. LMW Investments Inc. Waterford Group, LLC Total
------------------ ------------------- -------------------- --------------
Balance, January 1,1998 $ (6,154,626) $ (3,039,806) $ (9,194,432)
Contributions 99,186 47,114 146,300
Net income 4,289,504 2,037,506 6,327,010
------------------ ------------------- -------------
Balance, December 31, 1998 (1,765,936) (955,186) (2,721,122)
Contributions,
January 1- March 17 33,220 15,780 49,000
Distributions,
January 1- March 17 (1,277,787) (606,945) (1,884,732)
Net loss,
January 1-March 17 (5,043,441) (2,395,625) (7,439,066)
Transfer of interest 8,053,944 3,941,976 $ (11,995,920) 0
Distributions,
March 17- December 31 --- --- (37,936,285) (37,936,285)
Net income,
March 17- December 31 --- --- 15,461,767 15,461,767
--------------- -------------------- -------------------- -------------
Balance, December 31, 1999 --- --- (34,470,438) (34,470,438)
Distributions --- --- (37,731,182) (37,731,182)
Net income --- --- 388,376 388,376
--------------- -------------------- -------------------- -------------
Balance, December 31, 2000 $ --- $ --- $ (71,813,244) $(71,813,244)
=============== ==================== ==================== =============
The accompanying notes are an integral part of these financial statements.
F-4
Waterford Gaming, L.L.C.
Statements of Cash Flows
For the years ended December 31,2000, 1999 and 1998
--------------------------
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities
Net income $ 388,376 $ 8,022,701 6,327,010
------------ ------------ ------------
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities
Amortization 741,975 4,151,805 1,406,121
Depreciation 10,780 9,882 ---
Equity in loss (income) of Trading
Cove Associates 574,002 (6,115,300) 482,869
Changes in operating assets
and liabilities
Decrease (increase) in accrued
interest receivable-15%
subordinated notes receivable --- 12,059,517 (4,317,371)
Decrease (increase)in accrued
interest receivable-completion
guarantee subordinated notes
receivable --- 75,000 (27,500)
(Increase) decrease in due from
Trading Cove Associates (3,277,093) 1,118,381 (1,317,365)
Decrease (increase) in other
assets 60,325 (67,522) 50,907
Increase (decrease) in accrued
expenses 14,134 84,308 (43,156)
(Decrease) increase in accrued
interest on senior notes
payable (69,036) 2,414,344 ---
------------ ------------ ------------
Total adjustments (1,944,913) 13,730,415 (3,765,495)
------------ ------------ ------------
Net cash (used in)provided
by operating activities (1,556,537) 21,753,116 2,561,515
------------ ------------ ------------
Cash flows from investing activities
Beneficial interest-Leisure
Resort Technology, Inc. --- (2,000,000) (5,057,211)
Release of cash in escrow --- --- 5,000,000
Contributions to Trading Cove
Associates (1,200,000) (600,000) (400,000)
Distributions from Trading Cove
Associates 1,723,112 6,335,930 1,639,225
Sales and (purchases) of
temporary investments-net --- 2,045,430 2,337,949
(Purchases) and sales of
restricted investments-net (15,080,989) (11,807,092) ---
Purchase of completion guarantee
guarantee subordinated note
receivable --- (2,798,125) (2,798,125)
Return on investment in completion
guarantee subordinated notes
receivable --- 298,125 298,787
Redemption of completion guarantee
subordinated notes receivable --- 7,500,000 ---
Redemption of 15% subordinated notes
receivable --- 20,000,000 ---
Fixed assets --- (53,918) ---
------------ ------------ ------------
Net cash (used in) provided
by investing activities (14,557,877) 18,920,350 1,020,625
------------ ------------ ------------
Cash flows from financing activities
Redemption of 12-3/4% senior
notes --- (61,471,000) ---
Proceeds from 9-1/2% senior notes
issuance --- 125,000,000 ---
Redemption of 9-1/2% senior notes (2,468,000) (2,841,000) ---
Deferred financing costs --- (4,035,176) (1,177,855)
Contributions by members --- 49,000 146,300
Distributions to member (37,731,182) (39,821,017) ---
------------ ------------ ------------
Net cash (used in)
provided by
financing activities (40,199,182) 16,880,807 (1,031,555)
------------ ------------ ------------
Net (decrease) increase in cash (56,313,596) 57,554,273 2,550,585
Cash and cash equivalents at
beginning of year 60,337,617 2,783,344 232,759
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 4,024,021 $ 60,337,617 $ 2,783,344
============ ============ ============
Supplemental disclosure of cash
flow information:
Cash paid during the year
for interest $ 11,710,084 $ 16,630,732 $ 7,837,552
============ ============ ============
Supplemental disclosure of
non-cash financing activities:
Deferred financing costs (overaccrued)
funded through accrued expenses $ (40,000) $ 40,000 ---
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-5
WATERFORD GAMING, L.L.C.
NOTES TO FINANCIAL STATEMENTS
--------------------------
ORGANIZATION, MEMBERSHIP AGREEMENT, CHANGE OF OWNERSHIP AND MEMBER ALLOCATIONS:
Waterford Gaming, L.L.C. (the "Company"), a Delaware limited liability company,
was formed on September 30, 1996. The Company initially acquired and owns an
interest in Trading Cove Associates ("TCA") a Connecticut general partnership,
and invested in certain financial instruments issued by the Mohegan Tribal
Gaming Authority (the "Authority"). The Company is governed by a board of
managers pursuant to the limited liability company agreement (the "Agreement").
In connection with the Company's and the Company's wholly- owned subsidiary
Waterford Gaming Finance Corp. ("Finance") issuance of $125 million 9-1/2%
senior notes payable which mature March 15, 2010 (the "$125 Million Senior
Notes"), each of Slavik Suites, Inc. ("Slavik") and LMW Investments, Inc.
("LMW") have contributed their respective interests in the Company as of March
17, 1999 to a Delaware Limited Liability Company, Waterford Group, L.L.C. (the
"Waterford Group"). Waterford Group is now the sole member of the Company.
Slavik and LMW own Waterford Group in the same respective interest as they had
in the Company and are generally as follows:
Slavik Suites, Inc. 67.7967%
LMW Investments, Inc. 32.2033%
---------
100.0000%
=========
The Agreement is effective until September 30, 2020 and may be terminated by
unanimous decision of the member or any other event as stated in the Agreement.
During December 1999, the Company received a payment on notes it held due from
the Authority and a distribution from TCA. As contemplated in the $125 Million
Senior Notes offering ("the Offering"), the Company distributed approximately
$34,672,000 to Waterford Group during January 2000. In connection with the
Offering the Company distributed $37,050,000 to Waterford Group during March
1999. In addition tax distributions totaling approximately $3,946,000 were made
by the Company during 2000 and 1999.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Method
The accrual method of accounting is used in the preparation of the
financial statements and the partnership income tax returns.
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, hightly
liquid investments with original maturities of three months or less.
Restricted Investments
Restricted investments at December 31, 2000 are principally comprised
of an investment in a Federal National Mortgage Association Discount
Note which was purchased at a discount of 6.30% and matures March 8,
2001 and at December 31,1999 are principally comprised of an
investment in a Federal Home Loan Mortgage Corp. Discount Note which
was purchased at a discount of 5.46% and matures March 14, 2000. The
investment represents a restricted investment fund that has been
established with a trustee in terms of the $125 Million Senior Notes
indenture and is reported at cost plus accrued interest, which
approximates market.
Trading Cove Associates - Equity Investment
The Trading Cove Associates - equity investment is accounted for
utilizing the equity method. Included in the investment is $10,600,000
which represents the purchase price paid to a corporation for their
12.5% interest in TCA. This amount was initially amortized on a
straight-line basis over a 7-year term, which represents the term of
the management agreement between TCA and the Authority, through March
1999. As a result of the Relinquishment Agreement, as defined,
becoming effective the remaining balance will be amortized over 189
months beginning April 1999.
Deferred Financing Costs
All costs incurred with the issuance of the Company's and Finance's
$125 Million Senior Notes, were capitalized and are amortized on a
straight-line basis over the 11-year term of the $125 Million Senior
Notes.
Fixed Assets
Fixed Assets are stated at cost. Depreciation is charged against
income over the estimated life of the fixed assets. The estimated life
is five years for furniture and fixtures and leasehold improvements.
Income Taxes
The Company, as a limited liability company, files federal and state
partnership income tax returns which indicate each member's share of
taxable income or loss to be reported on each member's tax return. As
a result, no provision for federal and state income taxes has been
made in the accompanying financial statements.
Concentration of Credit Risk
The Company has one primary source of revenue: payments from TCA. The
Company anticipates regular payments from TCA based upon the operating
results of the Authority and the related Relinquishment Fees, as
defined, and Development Fees, as defined, paid and to be paid by the
Authority. Financial instruments, which potentially subject the
Company to a concentration of credit risk, principally consist of cash
in excess of the financial institutions' insurance limits. The Company
invests available cash with high credit quality institutions.
Fair Value of Financial Instruments
Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties in a
current transaction other than forced liquidation. However, in many
instances, current exchange prices are not available for certain of
the Company's financial instruments, since no active market generally
exists for such financial instruments.
Fair value estimates are subjective and are dependent on a number of
significant assumptions, based on management's judgment regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
In addition, technical pronouncements allow a wide range of valuation
techniques, therefore, comparisons between entities, however similar,
may be difficult.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-6
2. TRADING COVE ASSOCIATES - EQUITY INVESTMENT:
TCA was organized on July 27, 1993. The primary purpose of TCA has been to
assist the Mohegan Tribe of Indians of Connecticut (the "Tribe") and the
Authority, an instrumentality of the Tribe, in obtaining federal
recognition, negotiate the tribal-state compact with the State of
Connecticut, obtain financing for the development of the Mohegan Sun Casino
(the "Mohegan Sun") located on certain Tribal land in Uncasville,
Connecticut, negotiated the Amended and Restated Gaming Facility Management
Agreement (the "Management Agreement") and participated in the design,
development and construction of the Mohegan Sun, which commenced operations
on October 12, 1996. Since the opening of the Mohegan Sun, and until
January 1, 2000 TCA had overseen the Mohegan Sun's day-to-day operations.
TCA will terminate on December 31, 2040, or earlier, in accordance with the
terms of the partnership agreement. On November 8, 1996, certain partners
of TCA withdrew and, concurrently, consented to the admission of the
Company as a partner to TCA. Also, on November 8, 1996, the Company
acquired an additional interest (12.5%) in TCA from a corporation for
$10,600,000. The Company has a 50% voting and profits interest in TCA. The
remaining 50% interest is owned by Sun Cove Limited ("Sun Cove"), an
affiliate of Sun International Hotels Limited ("Sun International").
As of December 31, 2000, 1999 and 1998 the following summary information
relates to Trading Cove Associates. Total revenues and net income are for
the years ended December 31, 2000, 1999 and 1998.
2000 1999 1998
------------ ------------ ------------
Total assets $ 21,452,587 $ 8,634,840 $ 8,720,632
Total liabilities (15,872,938) (1,741,019) (4,011,858)
------------ ------------ ------------
Partners' capital $ 5,579,649 $ 6,893,821 $ 4,708,774
============ ============ ============
Total revenue $ 46,072,404 $ 72,179,041 $ 53,766,834
============ ============ ============
Net (loss) income $ (267,948) $ 13,656,908 $ 2,099,326
============ ============ ============
2000 1999 1998
------------ ------------ ------------
Company's interest:
Trading Cove Associates -
equity investment, beginning
of year $ 9,041,568 $ 8,662,198 $ 10,384,292
Contributions 1,200,000 600,000 400,000
Distributions (1,723,112) (6,335,930) (1,639,225)
------------ ------------ ------------
8,518,456 2,926,268 9,145,067
------------ ------------ ------------
(Loss)income from Trading Cove
Associates (133,974) 6,828,454 1,049,663
Amortization of interests
purchased (440,028) (713,154) (1,532,532)
------------ ------------ ------------
Equity in (loss) income of
Trading Cove Associates (574,002) 6,115,300 (482,869)
------------ ------------ ------------
Trading Cove Associates -
equity investment, end of year $ 7,944,454 $ 9,041,568 $ 8,662,198
============ ============ ============
Trading Cove Associates - Material Agreements
- ---------------------------------------------
On February 7, 1998, TCA, the Tribe and the Authority finalized contract
negotiations and are moving forward with a significant expansion project at the
Mohegan Sun (the "Project"). As a result, TCA and the Authority have terminated
the Management Agreement effective January 1, 2000.
Under the terms of an agreement (the "Relinquishment Agreement") TCA continued
to manage the Mohegan Sun under the Management Agreement until January 1, 2000.
On December 31, 1999 the Management Agreement terminated and the Tribe assumed
day-to-day management of the Mohegan Sun. Under this Relinquishment Agreement to
compensate TCA for terminating its rights under the Management Agreement and the
Hotel/Resort Management Agreement, the Authority has agreed to pay to TCA 5% of
Revenues, as defined, (the "Relinquishment Fees") generated by the Mohegan Sun
during the 15-year period commencing on January 1, 2000.
F-7
Relinquishment Agreement
- ------------------------
The payments under the Relinquishment Agreement will be divided into senior
relinquishment payments and junior relinquishment payments, each of which will
be 2.5% of Revenues. Revenues are defined as gross gaming revenues (other than
Class II gaming revenue, i.e. bingo) and all other facility revenues (including,
without limitation, hotel revenues, food and beverage sales, parking revenues,
ticket revenues and other fees or receipts from the convention/events center in
the expansion and all rental or other receipts from lessees, licensees and
concessionaires operating in the facility but not the gross receipts of such
lessees, licensees and concessionaires). Revenues exclude revenues generated by
any other expansion of the Mohegan Sun. Senior relinquishment payments will be
payable quarterly in arrears commencing on April 25, 2000 for the quarter ended
March 31, 2000, and the junior relinquishment payments will be payable
semi-annually in arrears commencing on July 25, 2000 for the six months ended
June 30, 2000, assuming sufficient funds are available after satisfaction of the
Tribe's senior obligations.
For the year ended December 31, 2000 the Relinquishment Fees earned was
$41,003,849. A summary of relinquishment payments received is as follows:
Senior Junior Total
------------ ------------ ------------
April 25, 2000 $ 4,947,458 $ --- $ 4,947,458
July 26, 2000 5,039,048 9,986,506 15,025,554
October 25, 2000 5,457,627 --- 5,457,627
January 25, 2001 5,057,792 10,515,418 15,573,210
------------ ------------ ------------
$ 20,501,925 $ 20,501,924 $ 41,003,849
============ ============ ============
TCA has notified the Authority that it does not agree with the Authority's
treatment of certain promotional transactions, that in TCA's opinion, has
resulted in a reduction in Revenues on which relinquishment fees is calculated.
TCA has requested the Year End Statements, as defined in the Relinquishment
Agreement, from the Authority.
Development Agreement
- ---------------------
TCA and the Authority entered into a development services agreement on February
7, 1998. Under this "Development Agreement", TCA agreed to oversee the design,
construction, furnishing, equipping and staffing of the Project for a $14.0
million development fee (the "Development Fee"). On May 24, 2000 TCA and the
Authority agreed that TCA had performed and completed all its obligations
relating to the staffing of the Project and that TCA has no further obligations
relating to the staffing of the Project.
The Authority will pay the Development Fee to TCA quarterly beginning on January
15, 2000 until the Completion Date, as defined in the Development Agreement, of
the Project based on incremental completion of the Project as of each payment
date. A summary of the quarterly Development Fee payments received by TCA in
accordance with the terms of the Development Agreement is as follows:
January 15, 2000 $ 1,372,000
April 20, 2000 896,000
July 17, 2000 1,260,000
October 13, 2000 1,372,000
January 23, 2001 588,000
------------
$ 5,488,000
============
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and SIML. Pursuant to the Development Services Agreement Phase II,
TCA subcontracted with Sun International Management Limited ("SIML") and SIML
agreed to perform those services assigned to SIML by TCA in order to facilitate
TCA's fulfillment of its duties and obligations to the Authority under the
Development Agreement. TCA shall pay to SIML a Development Services Fee Phase II
equal to 3% of the development costs of the Project, less all costs incurred by
TCA in connection with the Project. The Development Services Fee Phase II shall
be paid in installments due on December 31, 1999 and 2000 and on the Completion
Date, as defined in the Development Agreement, with a final payment being made
when the actual development costs of the Project are known. The fee is to be
paid from available cash flow of TCA, if any, subordinate to certain other fees
as described below under the heading "Omnibus Termination Agreement".
SIML has further subcontracted with Wolman Construction L.L.C. ("Construction")
(the "Local Construction Services Agreement") to provide certain of those
services assigned to SIML by TCA. SIML shall pay 20.83% of the Development
Services Fee Phase II as and when SIML receives payment from TCA. Construction
has subcontracted with The Slavik Company for 14.30% of its fee.
F-8
Management Agreement
- --------------------
The Management Agreement between TCA and the Tribe was entered into on August
30, 1995. The Tribe had assigned its rights and obligations in this agreement to
the Authority. The Authority and TCA had consented to this assignment.
Until January 1, 2000, TCA was the exclusive manager of the Mohegan Sun. Under
the Management Agreement, the Tribe had granted to TCA the exclusive right and
obligation to develop, manage, operate and maintain the Mohegan Sun and all
other related facilities that are owned by the Tribe or any of its
instrumentalities, including the Authority and to train members of the Tribe and
others in the management of the Mohegan Sun.
Until January 1, 2000 TCA earned a management fee from the Authority pursuant to
the Management Agreement (the "Management Fees"). The Management Fees were paid
monthly (the final payment was received by TCA from the Authroity on January 25,
2000) and were calculated in three tiers based upon net revenues of the Mohegan
Sun set forth below (in thousands):
I II III
-------------- ------------------ -----------------
40% of Net Revenues in Tier I Revenues in
Revenues up to plus 35% of Net Tiers I & II plus
Revenues between 30% of Net
Revenues above
-------------- ---------------- -----------------
Year 1 $50,546 $50,547-$63,183 $63,183
Year 2 $73,115 $73,116-$91,394 $91,394
Year 3 $91,798 $91,799-$114,747 $114,747
Year 4 $95,693 $95,694-$119,616 $119,616
In addition, TCA was required to fund $1.2 million per year ($100,00 per
month) from its Management Fees into a capital replacement reserve. The
capital replacement reserve is the property of the Authority.
Omnibus Termination Agreement
- -------------------------------
On March 18, 1999, the Omnibus Termination Agreement (the "Omnibus Termination
Agreement") was entered into by TCA, Sun International, the Company, SIML, LMW,
Sun Cove, Slavik and Construction; which (i) terminated the memorandum of
understanding dated February 7, 1998; and (ii) effective January 1, 2000
terminated a) the Amended and Restated Omnibus Financing Agreement; b)
completion guarantee and investment banking and financing arrangement fee
agreement (the "Financing Arrangement Agreement"); c) the management services
agreement; d) the organizational and administrative services agreement; e) the
marketing services agreement; and f) a letter agreement relating to expenses
dated October 19, 1996.
In consideration for the termination of such agreements, TCA will use its cash
(primarily cash from payments from the Authority for Relinquishment Fees and
Developkment Fee) to pay the following obligations in the priority set forth
below:
F-9
(a) First, to pay all unpaid amounts which may be due under the terminated
letter agreement and to pay certain affiliates of the Company and to
Sun Cove a percentage of an annual fee of $2.0 million less the actual
expenses incurred by TCA. Such annual fee shall be payable in equal
quarterly installments beginning March 31, 2000 and ending December
31, 2014. For the year ended December 31,2000 $1,849,506 ($924,753 to
Sun Cove and $924,753 to affiliates of the Company) had been paid and
incurred by TCA in terms of this first priority. The contingent
obligation at December 31,2000 was $0.
(b)Second, to return all capital contributions made by the partners of
TCA after September 29, 1995. TCA anticipates making monthly capital
calls to fund expenses related to the development of the Project, and
these capital calls will be repaid, based on cash flow, in the quarter
following the quarter in which the capital call was made. From January
1, 2000 to December 31, 2000 these capital contributions aggregated
$2,400,000. $2,000,000 has been repaid to the partners of TCA, 50% to
the Company and 50% to Sun Cove.
As of December 31, 2000, $400,000 in capital contributions remained
outstanding.
(c) Third, to pay any accrued amounts for obligations performed prior to
January 1, 2000 under the Financing Arrangement Agreement. For the
year ended December 31, 2000 $2,977,932 ($2,069,525 to Sun
International and $908,407 to the Company) had been paid by TCA in
terms of this third priority. No further obligation is payable at
December 31,2000.
(d) Fourth, to make the payments set forth in the agreement relating to
Development Services Agreement Phase II and the Local Construction
Services Agreement. For the year ended December 31, 2000 $10,807,000
($8,555,902 to SIML, $1,929,191 to Construction and $321,907 to The
Slavik Company) had been paid and incurred by TCA in terms of this
fourth priority. No additional amounts are payable at December
31,2000.
(e) Fifth, to pay Sun International an annual fee of $5.0 million payable
in equal quarterly installments of $1.25 million beginning March 31,
2000 and ending December 31, 2006. For the year ended December 31,
2000 $5.0 million had been paid and incurred by TCA in terms of this
fifth priority. No additional amounts are payable at December 31,
2000.
(f) Sixth, to pay any accrued amounts for obligations performed with
respect to periods prior to January 1, 2000 under the management
services agreement, the organizational and administrative services
agreement and the marketing services agreement. For the year ended
December 31, 2000 $23,299,200 ($11,649,600 to SIML and $11,649,600 to
the Company) had been paid and incurred by TCA in terms of this sixth
priority. The contingent obligation at December 31, 2000 was
approximately $23,622,000.
(g) Seventh, for the period beginning March 31, 2000 and ending December
31, 2014, to pay each of SIML and the Company twenty-five percent
(25%) of the relinquishment payments. The contingent obligation at
December 31, 2000 was approximately $20,502,000.
(h) Eighth, to distribute all excess cash.
In addition, TCA shall not make any distributions pursuant to the Omnibus
Termination Agreement until it has annually distributed to its partners pro
rata, the amounts related to its partners tax obligations as described in
Section 3.03a(1) of the partnership agreement less twice the amount of all other
funds paid or distributed to the Company during such year pursuant to the
Omnibus Termination Agreement.
To the extent TCA does not have adequate cash to make the payments pursuant to
the Omnibus Termination Agreement, such amounts due shall be deferred without
the accrual of interest until TCA has sufficient cash to pay them.
OMNIBUS FINANCING AGREEMENT
- ---------------------------
Until January 1, 2000 TCA's primary source of revenue was Management Fees. Those
fees were utilized by TCA pursuant to The Amended and Restated Omnibus Financing
Agreement (the "Omnibus Financing Agreement") which was terminated effective
January 1, 2000.
F-10
3. BENEFICIAL INTEREST - LEISURE RESORT TECHNOLOGY, INC.:
On January 6, 1998, the Company paid $5,000,000 to Leisure Resort Technology,
Inc. ("Leisure") whereby Leisure gave up its beneficial interest in 5% of
certain fees and excess cash flows, as defined, of TCA and any other claims it
may have had against the Company, TCA and TCA's partners and former partner. On
August 6, 1997, Leisure, a former partner of TCA, had filed a lawsuit against
TCA, Sun Cove, former partner of TCA, RJH Development Corp. and the Company and
its owners, claiming breach of contract, breach of fiduciary duties and other
matters in connection with the development of the Mohegan Sun by TCA. The
Company agreed to acquire Leisure's contractual rights and settle all matters.
The Company no longer has the obligation to pay to Leisure 5% of the
Organizational and Administrative fee, as defined in the Organizational and
Administrative Services Agreement, and 5% of TCA's Excess Cash as defined in
TCA's partnership agreement. The Company is now entitled to such cash flow. On
March 17, 1999, the Company and Finances' $65 million 12-3/4% senior note
payable (the "$65 Million Senior Notes") were retired and on March 18, 1999, the
Company paid an additional $2,000,000 to Leisure pursuant to the settlement and
release agreement.
The Leisure payments plus associated costs were amortized on a straight-line
basis over the remaining term of TCA's Management Agreement through March 17,
1999. As a result of the Relinquishment Agreement becoming effective, the
remaining balance will be amortized over 189 months which began March 18, 1999.
Accumulated amortization at December 31, 2000 and 1999 amounts to $1,761,192 and
$1,383,202, respectively.
4. $125 MILLION 9-1/2% SENIOR NOTES PAYABLE:
On March 17, 1999, the Company and Finance, issued $125 Million Senior Notes.
Payment of the principal of, and interest on, the $125 Million Senior Notes is
subordinate in right of payment to all of their existing and future secured
debts.
Interest is payable semi-annually in arrears on March 15 and September 15 at a
rate of 9-1/2% per annum which commenced on September 15, 1999.
The principal amount of the $125 Million Senior Notes is payable on March 15,
2010. The Company and Finance may elect to redeem the $125 Million Senior Notes
at any time on or after March 15, 2004 at a redemption price equal to a
percentage (105.182% after March 14, 2004 and declining to 104.318% after March
14, 2005, 103.455% after March 14, 2006, 102.591% after March 14, 2007, 101.727%
after March 14, 2008, 100.864% after March 14, 2009, and to 100% after March 14,
2010) of the principal amount thereof plus accrued interest. The $125 Million
Senior Notes provide that upon the occurrence of a Change of Control (as
defined), the holders thereof will have the option to require the redemption of
the $125 Million Senior Notes at a redemption price equal to 101% of the
principal amount thereof plus accrued interest.
If the Company and Finance have any Company Excess Cash, as defined, they must
redeem the $125 Million Senior Notes (on a semi-annual basis on March 15 and
September 15) equal to a percentage (109.500% after March 15, 1999 and declining
to 108.636% after March 14, 2000, 107.773% after March 14, 2001, 106.909% after
March 14, 2002, 106.045% after March 14, 2003, 105.182% after March 14, 2004,
104.318% after March 14, 2005, 103.455% after March 14, 2006, 102.591% after
March 14, 2007, 101.727% after March 14, 2008, 100.864% after March 14, 2009,
and to 100.000% after March 14, 2010). On August 1, 1999 the Company and Finance
had Company Excess Cash, as defined, available for mandatory redemption of the
$125 Million Senior Notes totaling approximately $8,983,000,and accordingly on
September 15, 1999 the Company and Finance made a mandatory redemption of $125
Million Senior Notes in the principal amount of $2,841,000 at the redemption
price of 109.50%. On February 1,2000 the Company and Finance had Company Excess
Cash, as defined, available for mandatory redemption of the $125 Million Senior
Notes totaling approximately $8,276,000 and accordingly the Company and Finance
made a mandatory redemption of $125 Million Senior Notes in the principal amount
of $2,277,000 at the redemption price of 108.636% on March 15, 2000. On August
1, 2000 the Company and Finance had Company Excess Cash, as defined, available
for mandatory redemption of the $125 Million Senior Notes totaling aproximately
$5,902,000, and accordingly on September 15, 2000 the Company and Finance made a
mandatory redemption of $125 Million Senior Notes in the principal amount of
$191,000 at the redemption price of 108.636%. On February 1, 2001 the Company
and Finance had Company Excess Cash, as defined, available for mandatory
redemption of the $125 Million Senior Notes totaling approximately $6,173,000,
and accordingly on March 15, 2001 the Company and Finance will make a mandatory
redemption of $125 Million Senior Notes in the principal amount of $452,000 at
the redemption price of 107.773%. In some circumstances, if either the Company
or its partner in TCA exercises the option to buy or sell partnership interests
in TCA, the Company and Finance must redeem the $125 Million Senior Notes.
The indenture relating to the $125 Million Senior Notes (the "Indenture")
contains certain affirmative and negative covenants customarily contained in
agreements of this type, including without limitation, covenants that restrict,
subject to specified exceptions the Company's and Finance's ability to (i)
borrow money, (ii) pay dividends on stock or make certain other restricted
payments, (iii) use assets as security in other transactions, (iv) make
investments, (v) sell other assets or merge with other companies and (vi) engage
in any business except as currently conducted or contemplated or amend their
relationship with TCA. The Indenture also provides for customary events of
default and the establishment of a restricted investment fund with a trustee for
interest reserves.
The fair value of the Company's long term debt at December 31,2000 and 1999 is
estimated to be approximately $118,494,000 and $120,300,000, respectively, based
on the quoted market price for the same issue.
F-11
5. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION:
The following is a reconciliation of net income for financial statement purposes
to net income (loss) for federal income tax purposes for the years ended
December 31, 2000, 1999 and 1998.
For the For the For the
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Financial Statement
net income $ 388,376 $ 8,022,701 $ 6,327,010
Financial statement
equity in (income) loss
of Trading Cove Associates
over tax basis equity in
(income) loss of Trading
Cove Associates 1,184,388 176,879 131,018
Other 4,682 (6,603) 39,999
----------------- ----------------- -----------------
Federal income tax basis
net income $ 1,577,446 $ 8,192,977 $ 6,498,027
================= ================= =================
The following is a reconciliation of members' deficiency for financial statement
purposes to members' deficiency for federal income tax purposes as of December
31, 2000, 1999 and 1998.
2000 1999 1998
------------ ------------ -----------
Financial statement members'
deficiency $(71,813,244) $(34,470,438) $ (2,721,122)
Adjustment for cumulative
difference between tax basis
of Trading Cove Associates-
equity investment and GAAP
basis of Trading Cove
Associates-equity investment 466,913 296,637 132,082
Current year financial
statement net income over
(under) federal income tax
basis net income 1,189,070 170,276 171,017
------------ ------------ ------------
Federal income tax basis
members' deficiency $(70,157,261) $(34,003,525) $ (2,418,023)
============ ============ ============
6. CONTINGENCIES:
LEGAL PROCEEDINGS
On January 6, 1998, Leisure Resort Technology, Inc. ("Leisure") and defendants
Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., and
Slavik Suites, Inc. settled a prior lawsuit brought by Leisure. In connection
with this settlement, Leisure and Trading Cove Associates, Waterford Gaming,
L.L.C., LMW Investments, Inc., and Slavik Suites, Inc. entered into a settlement
and release agreement. Pursuant to this settlement and release agreement,
Waterford Gaming, L.L.C. bought out Leisure's beneficial interest in Trading
Cove Associates.
By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a
four count complaint naming as defendants Waterford Gaming, L.L.C., Trading Cove
Associates, LMW Investments, Inc., Slavik Suites, Inc., Waterford Group, L.L.C.,
Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter is
pending in the Judicial District of Middlesex at Middletown, Connecticut. The
complaint alleged breach of fiduciary duties, fraudulent non-disclosure,
violation of Connecticut Statutes Section 42-110a, et seq., and unjust
enrichment in connection with the negotiation by certain of the Defendants of
the settlement and release agreement. The complaint also brought a claim for an
accounting. The complaint seeks unspecified legal and equitable damages. On
February 29, 2000, Defendants filed a Motion to Strike and a Motion for Summary
Judgement, each with respect to all claims. The Court granted Defendants' Motion
to Strike in part and denied Defendants' Motion for Summary Judgement, on
October 13, 2000. The Court's order dismissed the claim for an accounting and
the claim under Connecticut Statutes Section 42-110a, et seq. The Court also
struck the alter ego allegations in the complaint against LMW Investments, Inc.,
Slavik Suites, Inc., Len Wolman and Mark Wolman.
On November 15, 2000, the Company and its co-defendants answered the complaint.
In addition, the Company and Trading Cove Associates asserted counterclaims for
breach of the settlement and release agreement and breach of the implied
covenant of good faith against Leisure and its president, Lee Tyrol.
The Company believes that it has meritorious defenses and intends to vigorously
contest the claims in this action and to assert all available defenses. At the
present time, the Company is unable to express an opinion on the likelihood of
an unfavorable outcome or to give an estimate of the amount or range of
potential loss to the Company as a result of this litigation due to the disputed
issues of law and/or facts on which the outcome of this litigation depends and
due to the infancy of both the action and discovery in the action.
F-12
7. RELATED PARTY AGREEMENT AND TRANSACTIONS:
Len Wolman, the Company's Chairman of the Board of Directors and Chief Executive
Officer, is a managing partner of TCA.
Pursuant to the Development Services Agreement Phase I, dated as of September
29, 1995 between TCA and SIML, TCA shall pay SIML a fee ("the Development
Services Fee Phase I") equal to $8,280,000 (3% of the total development costs of
the Mohegan Sun, exclusive of land acquisition costs) plus $25,000 for expense
reimbursement. Pursuant to a subcontract, Construction will receive 20.83% of
the Development Services Fee Phase I plus $25,000 (total approximately $1.75
million). Construction is owned 50% by Len Wolman (the Company's Chief Executive
Officer and Chairman of the Board of Directors) and 50% by Mark Wolman (a member
of the Company's board of Directors). Pursuant to a subcontract, Construction
will pay The Slavik Company $250,000 of Construction's approximately $1.75
million. Del J. Lauria (the Company's Secretary and a member of the Company's
Board of Directors) and the late Stephan F. Slavik, Sr. (a member of the
Company's Board of Directors until December 12, 2000) and ? Slavik (a member of
the Company's Board of Directors from date-?) have a financial interest in The
Slavik Company. For the year ended December 31, 1998, Construction received
$1,749,724 and The Slavik Company received $250,000 respectively, of their share
of the Development Services Fee Phase I on a cumulative basis.
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and SIML. Pursuant to the Development Services Agreement Phase II,
TCA subcontracted with SIML and SIML agreed to perform those services assigned
to SIML by TCA in order to facilitate TCA's fulfillment of its duties and
obligations to the Authority under the Development Agreement. TCA shall pay to
SIML a fee, as subcontractor (the "Development Services Fee Phase II") equal to
3% of the development costs of the Project, less all costs incurred by TCA in
connection with the Project. The Development Services Fee Phase II shall be paid
in installments due on December 31, 1999 and 2000 and on the Completion Date, as
defined in the Development Agreement, with a final payment being made when the
actual development costs of the Project are known. The payment of the
Development Services Fee Phase II will be made from available cash flow if any,
in accordance with the Omnibus Termination Agreement. SIML has further
subcontracted with certain affiliates of the Company to provide certain of those
services assigned to SIML by TCA. SIML shall pay to those affiliates of the
Company approximately 20% of the Development Services Fee Phase II as and when
SIML receives payment if any, from TCA. For the year ended December 31, 2000,
Construction received $1,929,191 and The Slavik Company received $321,907, of
their share of the Development Service Fee Phase II on a cumulative basis.
The Company paid amounts to an affiliate for accounting services totaling $0,
$95,200 and $146,300 respectively, during the years ended December 31, 2000,
1999, and 1998.
On September 28, 1998, the Company entered into an employment agreement with Len
Wolman. The employment agreement provides for a base annual salary of $250,000
reduced by any amounts Mr. Wolman receives as a salary from TCA for such period.
Pursuant to such employment agreement, the Company shall pay to Mr. Wolman an
amount equal to 0.05% of the revenues of the Mohegan Sun including the expansion
to the extent Mr. Wolman has not received such amounts from TCA. On and after
January 1, 2004, the Company shall pay to Mr. Wolman incentive compensation
based on the revenues of the Mohegan Sun, including the expansion, as a
percentage (ranging from .00% to .10 %) to be determined using a formula
attached to the employment agreement which compares actual revenues to
predetermined revenue targets. For the year ended December 31, 2000 the Company
paid and incurred $660,037 pursuant to the employment agreement. No payments
were made pursuant to the employment agreement during 1999 and 1998.
In 2000, approximately $976,000 was paid to the principals and affiliates of the
Company as part of TCA's operating expenses. In 1999 and 1998, approximately
$756,000 and $690,000, respectively, was paid to the principals and affiliates
of the Company as part of TCA's operating expenses, including the payment of Mr.
Len Wolman's salary and bonus. In addition, for the years ended December 31,
1999 and 1998, $6,219,147 ($3,109,573 to SIML, $1,444,875 to the Directors of
the Company and $1,664,699 to the Company) and $8,771,643 ($4,385,822 to SIML,
$280,212 to the Directors of the Company, $521,296 to affiliates of the Company
and $3,584,313 to the Company), respectively, had been incurred by TCA in
monthly management services fees.
For the year ended December 31, 1999, the Company paid the Directors of the
Company $660,000 as salaries for various services provided to the Company.
In 1999, the Company renovated Mr. Wolman's office space at a cost of $32,413,
of which $30,000 was paid to Wolman Homes Inc., a related party. Cost of the
improvement is being depreciated over five years . Expense for the years ended
December 31, 2000 and 1999 was $6,480 and $5,940, respectively.
Waterford Group, Slavik and the other principals of Waterford Group have
interests in and may acquire interests in hotels in southeastern Connecticut
which have or may have arrangements with the Mohegan Sun to reserve and provide
hotel rooms to patrons of the Mohegan Sun.
F-13
(c) Reports on Form 8-K
(i) Form 8-K filed on December 28, 2000
Item 5.
The Mohegan Tribal Gaming Authority (the "Authority") has
filed its annual report on Form 10-K for the year ended
September 30, 2000, a copy of which has been filed as an
exhibit to this report and is incorporated by reference to
the Authority's electronic filing of such report on Form
10-K, Securities and Exchange Commission file reference no.
033-80655.
Date of Report: December 14, 2000
(ii) Form 8-K filed on February 14, 2001
Item 5.
The Mohegan Tribal Gaming Authority (the "Authority") has
filed its annual report on Form 10-K for the year ended
December 31, 2000, a copy of which has been filed as an
exhibit to this report and is incorporated by reference to
the Authority's electronic filing of such report on Form
10-K, Securities and Exchange Commission file reference no.
033-80655.
Date of Report: February 13, 2001
(iii) Form 8-K/A filed on February 20, 2001
Item 5
The Mohegan Tribal Gaming Authority (the ("Authority") has
filed its quarterly report on Form 10-Q for the quarter
ended December 31, 2000, a copy of which has been filed as
an exhibit to this report and is incorporated by referce to
the Authority's electronic filing of such report on Form
10-Q, Securities and Exchange Commission file reference no.
033-80655.
Date of Report: February 13, 2001
(iv) Form 8-K filed on February 20, 2001
Item 5
The Mohegan Tribal Gaming Authority (the "Authority") has
filed an amended quarterly report on Form 10-Q/A for the
quarter ended December 31, 2000, a copy of which has been
filed as an exhibit to this report and is incorporated by
reference to the Authority's electronic filing of such
report on Form 10-Q/A, Securities and Exchange Commission
file reference no. 033-80655.
Date of Report: February 14, 2001
26
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
WATERFORD GAMING, L.L.C.
Date: March 30, 2001 By: /s/ Len Wolman
Len Wolman, Chairman of the Board of Directors,
Chief Executive Officer
Date: March 30, 2001 By: /s/ Alan Angel
Alan Angel, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of
the registrant and in capacities indicated on March 30, 2001.
SIGNATURE TITLE
/s/ Len Wolman Chairman of the Board of Directors,
- ----------------- Chief Executive Officer
Len Wolman
/s/ Del J. Lauria Member of the Board of Directors,
- ----------------- Secretary
Del J. Lauria
/s/ Mark Wolman Member of the Board of Directors
- -----------------
Mark Wolman
27