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, 2002
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:
NONE
Title of each class Name of each exchange on which registered
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 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III.
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management 15
Item 13. Certain Relationships and Related Transactions 16
PART IV.
Item 14. Control Proceedures 17
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
Signatures 22
Certifications 23
PART I
Certain Forward Looking Statements
- ----------------------------------
Certain information included in this Form 10-K and other materials filed or to
be filed by 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.
ITEM 1. BUSINESS
A. GENERAL
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.
The Limited Liability Company Agreement of the Company (the "Agreement") is
effective until September 30, 2020 and may be terminated by the member 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"), 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 Kerzner Investments Connecticut Inc. ("Kerzner Investments"), formerly Sun
Cove Limited.
In connection with the Company's and Finance's issuance on March 17, 1999 of
$125 Million 9-1/2% senior notes 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 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 U.S. Bank Corporate Trust Services, 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.
1
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, Len Wolman, Mark Wolman and Stephan F. Slavik.
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.
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) at a redemption price 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 certain
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. As of December 31, 2002 and March 17, 2003, the
Company had redeemed $16,993,000 and $22,651,000, respectively, of $125 Million
Senior Notes.
The Indenture relating to the $125 Million Senior Notes contains certain
affirmative and negative covenants customarily contained in agreements of that
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 and cash flow: 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 Kerzner Investments, an affiliate of
Kerzner International Limited ("Kerzner International").
Trading Cove Associates Material Agreements
- -------------------------------------------
Relinquishment Agreement
- ------------------------
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
including the significant expansion project (the "Project") during the 15-year
period commencing on January 1, 2000.
2
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 future expansion of the Mohegan Sun, after completion of the Project. 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.
A summary of relinquishment payments received by TCA is as follows:
Senior Junior Total
----------- ----------- -----------
April 25, 2002 $ 6,228,559 $ --- $ 6,228,559
July 25, 2002 7,104,939 13,333,500 20,438,439
October 25, 2002 8,171,882 --- 8,171,882
January 27, 2003 7,748,971 15,920,852 23,669,823
----------- ----------- -----------
Relinquishment Fees
for the year ended
December 31, 2002 $29,254,351 $29,254,352 $58,508,703
=========== =========== ===========
April 25, 2001 $ 5,090,622 $ --- $ 5,090,622
July 25, 2001 5,472,900 10,563,521 16,036,421
September 7, 2001 68,233 68,234 136,467
October 25, 2001 5,765,232 --- 5,765,232
January 25, 2002 6,460,672 12,225,904 18,686,576
----------- ----------- -----------
Relinquishment Fees
for the year ended
December 31, 2001 $22,857,659 $22,857,659 $45,715,318
=========== =========== ===========
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.
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 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.
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.
3
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 first phase of the Project,
including the Casino of the Sky, the Shops at Mohegan Sun and the 10,000-seat
Mohegan Sun Arena opened in September 2001. In April 2002, 734 of the
1,200-hotel rooms in the 34-story luxury hotel as well as the meeting and
convention space and spa opened. The balance of the 1,200-hotel rooms opened
during June 2002. At December 31, 2002 the Project had been substantially
completed.
The Authority pays the Development Fee to TCA quarterly which began 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
April 16, 2001 1,582,000
July 20, 2001 2,212,000
October 17, 2001 1,974,000
January 25, 2002 1,260,000
April 22, 2002 413,000
July 19, 2002 581,000
October 18, 2002 238,000
January 24, 2003 84,000
-----------
$13,832,000
===========
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and Kerzner International Management Limited ("KIML"). Pursuant to
the Development Services Agreement Phase II, TCA subcontracted with KIML and
KIML agreed to perform those services assigned to KIML by TCA in order to
facilitate TCA's fulfillment of its duties and obligations to the Authority
under the Development Agreement. The Development Services Agreement Phase II was
subsequently assigned to Kerzner Investments. TCA shall pay to Kerzner
Investments 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 "Amended and Restated Omnibus Termination
Agreement".
KIML has further subcontracted with Wolman Construction LLC ("Construction")
(the "Local Construction Services Agreement") to provide certain of those
services assigned to KIML by TCA. This agreement was also assigned to Kerzner
Investments. Kerzner Investments shall pay 20.83% of the Development Services
Fee Phase II as and when Kerzner Investments receives payment from TCA.
Construction has subcontracted with The Slavik Company for 14.30% of its fee.
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.
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, as defined in
the Management Agreement, 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 ($100,000 per month)
from its Management Fees into a capital replacement reserve. The capital
replacement reserve is the property of the Authority.
4
Amended and Restated Omnibus Termination Agreement
- --------------------------------------------------
Effective March 18, 1999, the Amended and Restated Omnibus Termination Agreement
(the "Amended and Restated Omnibus Termination Agreement") was entered into by
TCA, Kerzner International, the Company, KIML, LMW, Kerzner Investments, 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
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 Kerzner Investments 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 years ended December 31,
2002 and 2001, $0 and $1,712,791 ($856,396 to Kerzner Investments and
$856,395 to affiliates of the Company), respectively, had been paid
and incurred by TCA in terms of the first priority.
(b) Second, to return all capital contributions made by the partners of
TCA after September 29, 1995. TCA anticipates making 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, 2002 these capital contributions aggregated
$7,100,000. $6,700,000 has been repaid to the partners of TCA, 50% to
the Company and 50% to Kerzner Investments.
As of December 31, 2002, $400,000 in capital contributions remained
outstanding. On January 28, 2003, a cash distribution of $200,000 was
made to each partner.
(c) Third, to pay any accrued amounts for obligations performed prior to
January 1, 2000 under the Financing Arrangement Agreement. All
required payments were made during 2000.
(d) Fourth, to make the payments set forth in the agreements relating to
the Development Services Agreement Phase II and the Local Construction
Services Agreement. No payments are required or due at December 31,
2002. The contingent obligation at December 31, 2002 was approximately
$10,216,000.
(e) Fifth, to pay Kerzner Investments 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 each the years ended
December 31, 2002 and 2001, $5.0 million had been paid and incurred by
TCA in terms of the fifth priority.
(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, 2001, $23,621,754 ($11,810,877 to KIML and $11,810,877 to
the Company) had been paid and incurred by TCA in terms of the sixth
priority. The final required payments were made during 2001.
(g) Seventh, for the period beginning March 31, 2000 and ending December
31, 2014, to pay each of Kerzner Investments and the Company
twenty-five percent (25%) of the relinquishment payments. For the
years ended December 31, 2002 and 2001, $50,765,000 ($25,382,500 to
Kerzner Investments and $25,382,500 to the Company) and $19,457,160
($9,728,580 to Kerzner Investments and $9,728,580 to the Company),
respectively, had been paid and incurred by TCA in terms of the
seventh priority. The contingent obligation at December 31, 2002 was
approximately $2,392,000.
(h) Eighth, to distribute all excess cash.
In addition, TCA shall not make any distributions pursuant to the Amended and
Restated 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 Amended and Restated Omnibus Termination Agreement.
To the extent TCA does not have adequate cash to make the payments pursuant to
the Amended and Restated Omnibus Termination Agreement, such amounts due shall
be deferred without the accrual of interest until TCA has sufficient cash to pay
them.
5
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.
The Mohegan Tribal Gaming Authority
- -----------------------------------
The Tribe is a federally recognized Indian tribe with an approximately 405-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 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 approximately 405-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.
The Mohegan Sun
- ---------------
The Authority owns and operates the Mohegan Sun, an approximately 3.0 million
square foot full-service gaming and entertainment complex on a 240-acre site
overlooking the Thames River on the Tribe's reservation in southeastern
Connecticut. The Mohegan Sun is located approximately one mile from the
interchange of Interstate 395 and Route 2A in Uncasville, Connecticut. The
Authority constructed a four-lane access road and entrance/exit ramps off of
Route 2A, providing guests direct access to Interstate 395 and Interstate 95,
the main highways connecting Boston, Providence and New York City. The Mohegan
Sun opened in October 1996 and recently the Authority substantially completed
the Project. The Mohegan Sun is one of two legally authorized gaming operations
in New England offering both traditional slot machines and table games.
The full-service gaming and entertainment complex includes the following:
Casino of the Earth. The Casino of the Earth, the original casino at the Mohegan
Sun, has approximately 176,500 square feet of gaming space and offers
approximately 3,640 slot machines, 170 table games (including blackjack,
roulette, craps and baccarat) and 36 poker tables. Food and beverage amenities,
include three full-service themed fine dining restaurants with a fourth area
featuring cuisine from all three themes, a 610-seat buffet, a New York style
delicatessen, a 24-hour coffee shop, a ten-station food court featuring
international and domestic cuisine and multiple service bars for a total of
approximately 1,800 restaurant seats. An approximately 10,000 square foot,
440-seat lounge features live entertainment seven days a week. There is an
approximately 9,000 square foot simulcasting race book facility, an
approximately 3,000 square foot, 50-seat Keno lounge and three retail shops
providing shopping opportunities ranging from Mohegan Sun logo souvenirs to
clothing to cigars.
Casino of the Sky. The Casino of the Sky has approximately 119,000 square feet
of gaming space and offers approximately 2,560 slot machine and 90 table games
(including blackjack, roulette, craps and baccarat). Food and beverage
amenities, include two full-service restaurants, two quick-service restaurants,
a 24-hour coffee shop with room service, a 350-seat buffet, a six station food
court featuring international and domestic cuisine and five lounges and bars
operated by the Mohegan Sun, as well as four full-service and three
quick-service restaurants and one lounge operated by third-parties, for a total
of approximately 2,200 restaurant seats, the Mohegan Sun Arena with seating for
up to 10,000, a 300-seat cabaret, a child care facility and an arcade-style
recreation area, The Shops at Mohegan Sun containing approximately 30 different
retail shops, six of which are owned by the Authority, an approximately
1,200-room luxury hotel, a 20,000 square foot spa and approximately 100,000
square feet of convention space.
As of September 30, 2002, Mohegan Sun had parking spaces for approximately
13,000 guests and 3,100 employees. In addition, the Authority operates an
approximately 4,000 square foot, 20-pump gasoline station and convenience center
located adjacent to the Mohegan Sun.
The information concerning Kerzner International, the Tribe and the Authority
has been derived from publicly filed information.
Internet Address
- ----------------
The Company's internet address is http://www.waterfordgroup.net. In light of the
limited trading market for the Company's securities, the Company does not
currently make its periodic and current reports available, free of charge, on
its website. The Company's periodic and current reports are available, however,
free of charge, on the Commission's website, at www.sec.gov. The Company will
provide electronic or paper copies of its filings free of charge upon request.
6
Item 2. PROPERTIES
The Company does not have an interest in real property.
Item 3. 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 has been
transferred to the complex litigation docket and is pending in Waterbury,
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. In a
decision dated August 6, 2001, the Court dismissed all claims 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. In a
decision dated June 6, 2001, the Court dismissed the counterclaims against Lee
Tyrol. Leisure has moved for summary judgement seeking dismissal of the
counterclaims in full. This motion for summary judgement is pending.
Discovery has commenced. Pursuant to the current scheduling order, all
depositions are to be completed by June 30, 2003. A trial date has not been set.
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, 2002.
7
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
------------------
2002 2001 2000 1999 1998
-------------- -------------- -------------- -------------- --------------
OPERATING RESULTS
Organizational and
administrative fee income-
Trading Cove Associates $ --- $ 11,810,877 $ 11,649,600 $ 14,252,209 $ 4,231,768
25% of relinquishment
payments-Trading Cove
Associates 25,382,500 9,728,580 --- --- ---
Interest and dividend
income 534,012 1,330,711 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
-------------- -------------- -------------- -------------- --------------
Total revenue 25,916,512 22,870,168 14,452,745 26,696,654 16,386,157
-------------- -------------- -------------- -------------- --------------
Total expenses (13,102,082) (13,579,600) (13,490,367) (24,789,253) (9,576,278)
Equity in income (loss)
of Trading Cove Associates 218,880 (2,715,996) (574,002) 6,115,300 (482,869)
-------------- -------------- -------------- -------------- --------------
Net income $ 13,033,310 $ 6,574,572 $ 388,376 $ 8,022,701 $ 6,327,010
============== ============== ============== ============== ==============
OTHER DATA:
Interest expense $ 11,080,139 $ 11,560,994 $ 11,641,049 $ 19,045,076 $ 7,837,552
Net cash used in
operating activities --- --- 1,556,537 --- ---
Net cash provided by
operating activities 10,639,911 5,394,941 --- 21,753,116 2,561,515
Net cash used in
investing activities --- --- 14,557,877 --- ---
Net cash provided by
investing activities 16,395,304 148,647 --- 18,920,350 1,020,625
Net cash used in
financing activities 25,947,562 5,996,660 40,199,182 --- 1,031,555
Net cash provided by
financing activities --- --- --- 16,880,807 ---
YEAR-END STATUS:
Total current assets $ 26,032,197 $ 38,127,059 $ 34,708,598 $ 72,724,437 $ 6,459,361
Trading Cove Associates -
equity investment 5,447,338 5,778,458 7,944,454 9,041,568 8,662,198
Beneficial interest-Leisure
Resort Technology, Inc. 4,540,039 4,918,029 5,296,019 5,674,009 4,191,909
Investment in 15%
subordinated notes
receivable --- --- --- --- 32,059,517
Investment in completion
guarantee subordinated
notes receivable --- --- --- --- 5,075,000
Deferred financing costs net
of accumulated amortization 2,643,338 3,010,202 3,377,066 3,781,051 3,339,780
Fixed assets net of
accumulated depreciation 11,696 22,476 33,256 44,036 ---
-------------- -------------- -------------- -------------- --------------
Total assets $ 38,674,608 $ 51,856,224 $ 51,359,393 $ 91,265,101 $ 59,787,765
============== ============== ============== ============== ==============
Total current liabilities $ 3,133,192 $ 3,400,556 $ 3,481,637 $ 3,576,539 $ 1,037,887
12-3/4% senior notes
payable --- --- --- --- 61,471,000
9-1/2% senior notes
payable 108,007,000 115,434,000 119,691,000 122,159,000 ---
-------------- -------------- -------------- -------------- --------------
Total liabilities $ 111,140,192 $ 118,834,556 $ 123,172,637 $ 125,735,539 $ 62,508,887
============== ============== ============== ============== ==============
8
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 and
from cash flows (dividend and interest) from restricted and temporary
investments.
TCA has two current sources of revenue and cash flows, 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 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 Kerzner
Investments 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 Phase II and incur expenses equal to
3% of the total cost of the Project. On October 13, 2000 the Tribe approved a
$160 million increase to the original budget (excluding capitalized interest) of
$800 million for the Project. In a press release dated May 5, 2002 the Tribe
indicated that the cost of completing the Project is estimated to be $1.0
billion (excluding capitalized interest) which represents an increase of $40
million over the previous estimate of $960 million. Based upon the latest
estimated cost of completing the Project of $1.0 billion (excluding capitalized
interest) such Development Services Fee Phase II and expenses are expected to be
approximately $30 million. Such Development Services Fee Phase II is only
payable to the extent of available cash flow. Thus, ultimately TCA may pay more
in Development Services Fee Phase II to its subcontractors and expenses than it
will receive under the Development Agreement. If the total estimated costs of
the Project of $1 billion (excluding capitalized interest) increase, then the
total Development Services Fee Phase II 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.
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the amounts of assets and liablities
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.
The notes to the Company's financial statements included in Item 8 contain a
summary of significant accounting policies and methods used in the preparation
of the Company's financial statements. However, in the opinion of management,
the Company does not have any individual accounting policy that is critical in
the preparation of its financial statements. This is due to the definitive
nature of the business in which the Company is engaged. Also, in many cases, the
Company must use an accounting policy or method because it is the only policy or
method permitted under accounting principles generally accepted in the United
States of America. The following is a review of the more significant accounting
policies and methods used by the Company:
Revenue Recognition - The Company receives revenue from TCA in accordance
with an Amended and Restated Omnibus Termination Agreement. The amount of
revenues earned relies upon the fees earned by TCA pursuant to its
Relinquishment Agreement and the Development Agreement with the Authority.
Revenues are accrued when determinable and payment is assured.
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 Fee, as defined, paid and
to be paid by the Authority.
Equity Investments - The Trading Cove Associates, equity investment, is
accounted for utilizing the equity method. Included in the investment is
the purchase price paid to a corporation for their 12.5% interest in TCA.
This amount is amortized over the terms of the related agreement.
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.
Table of Contractual Obligations
- --------------------------------
The following table provides an overview of the Company's aggregate contractual
obligations as of the latest fiscal year end balance sheet date.
Contractual Obligations Payments due by period
- ----------------------- ----------------------
Total Less than 1-3 years 3-5 years More than
1 year 5 years
----- --------- --------- --------- ---------
Long-Term Debt
Obligations (1) (1) (1) (1) (1) (1)
Capital Lease
Obligations 0 0 0 0 0
Operating Lease
Obligations 0 0 0 0 0
Purchase Obligations 0 0 0 0 0
Other Long-Term
Liabilities on the
Registrant's Balance
Sheet under
GAAP 0 0 0 0 0
----- --------- --------- --------- ---------
Total (1) (1) (1) (1) (1)
===== ========= ========= ========= =========
(1) The Company's long-term debt consists of obligations under its $125 Million
Senior Notes. $108,007,000 in aggregate principal amount of $125 Million Senior
Notes is currently outstanding. Interest on the outstanding principal amount of
$125 Million Senior Notes is payable by the Company semi-annually in arrears on
March 15 and September 15 at a rate of 9.5% per annum. The outstanding pricipal
amount of $125 Million Senior Notes is due and payable in full on March 15,
2010. In addition to making payments of principal and interest as decribed in
the preceding sentences, on March 15 and September 15 of each year, the Company
and Finance must redeem their $125 Million Senior Notes with any "Company Excess
Cash" (as defined in the indenture governing the $125 Million Senior Notes) at a
redemption price expressed as a percentage of the principal amount of notes
being redeemed. Such redemption price declines annually from 109.5% for
redemptions made between March 15, 1999 and May 14, 2000, to 100% for
redemptions made after March 14, 2010. Any reduction in pricipal amount of the
$125 Million Senior Notes with Company Excess Cash will lower the interest
payments payable by the Company in subsequent periods.
Sources of Revenues
- -------------------
The Company has one primary source of revenue and cash flow: 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 years ended December 31, 2002 and 2001, the Company received $15,161,000
and $13,781,853 from TCA in accordance with the Amended and Restated Omnibus
Termination Agreement. TCA earned Relinquishment Fees of approximately
$58,509,000 and approximately $45,715,000 in each of the years then ended,
respectively, pursuant to the Relinquishment Agreement. In addition, TCA earned
Development Fees of $1,316,000 and $7,028,000, respectively, during the same
period. At December 31, 2002 and 2001, respectively, $11,021,500 and $8,357,604
was due from TCA.
9
Results of Operations
- ---------------------
Comparison of Operating Results for the Years Ended
- ---------------------------------------------------
December 31, 2002 and 2001
- --------------------------
Total revenue for the twelve months ended December 31, 2002 was $25,916,512
compared with $22,870,168 for the twelve months ended December 31, 2001. This
increase was primarily attributable to an increase in Revenues of the Mohegan
Sun which resulted in greater Relinquishment Fees payments to TCA and offset by
a decrease in Development Fee payments to TCA and by the timing of payments
pursuant to the Amended and Restated Omnibus Termination Agreement. 25% of
relinquishment payments - Trading Cove Associates, as detailed under point (g)
of the table set forth above under "Amended and Restated Omnibus Termination
Agreement" increased by $15,653,920 and organizational and administrative fee
income - Trading Cove Associates, as detailed under point (f) of the table set
forth above under "Amended and Restated Omnibus Termination Agreement" decreased
by $11,810,877. In addition, interest and dividend income decreased by $796,699.
Total expenses for the twelve months ended December 31, 2002 was $13,102,082
compared with $13,579,600 for the twelve months ended December 31, 2001.
Interest expense decreased by $480,855 due primarily to the redemption of the
$125 Million senior notes in the principal amounts of $4,031,000 and $3,396,000
on March 15, 2002 and September 15, 2002, respectively, salaries - related
parties increased by $127,933 due to the increase in Revenues of the Mohegan Sun
and general and administrative costs decreased by $124,596 (primarily
attributable to a decrease in legal and other expenses related to the defense of
the Leisure litigation, as detailed under Part I: Item 3 Legal Proceedings,
totaling approximately $156,000 and offset by an increase in insurance expense
of approximately $17,600, by an increase in miscellaneous expense of
approximately $6,400 and by an increase in accounting fees of approximately
$8,300).
Equity in income (loss) of Trading Cove Associates for the year ended December
31, 2002 was $218,880 compared with $(2,715,996) for the year ended December 31,
2001. The Company has included amortization of purchased interests of $440,028
in each year's equity income(loss). The Company's share of TCA's results
fluctuates based upon revenues received by TCA under the Relinquishment
Agreement and payments made by TCA under the Amended and Restated Omnibus
Termination Agreement. Accordingly, the Company's share of TCA's net
income(loss) was $658,900 and $(2,275,968) for the years ended December 31, 2002
and 2001, respectively.
As a result of the foregoing factors the company experienced net income of
$13,033,310 for the twelve months ended December 31, 2002 compared with net
income of $6,574,572 for the twelve months ended December 31, 2001.
Comparison of Operating Results for the Years Ended
- ---------------------------------------------------
December 31, 2001 and 2000
- --------------------------
Total revenue for the twelve months ended December 31, 2001 was $22,870,168
compared with $14,452,745 for the twelve months ended December 31, 2000. This
increase was primarily attributable to an increase in Revenues of the Mohegan
Sun which resulted in greater Relinquishment Fees payments to TCA, by an
increase in Development Fee payments to TCA and by the timing of payments
pursuant to the Amended and Restated Omnibus Termination Agreement.
Organizational and administrative fee income - Trading Cove Associates, as
detailed under point (f) of the table set forth above under "Amended and
Restated Omnibus Termination Agreement" increased by $161,277, 25% of
relinquishment payments - Trading Cove Associates, as detailed under point (g)
of the table set forth above under "Amended and Restated Omnibus Termination
Agreement" increased by $9,728,580, subordinated notes fee income - Trading Cove
Associates and completion guarantee notes fee income - Trading Cove Associates,
as detailed under point (c) of the table set forth above under "Amended and
Restated Omnibus Termination Agreement", decreased by $692,782 and $215,625,
respectively. In addition, interest and dividend income decreased by $564,027.
Total expenses for the twelve months ended December 31, 2001 was $13,579,600
compared with $13,490,367 for the twelve months ended December 31, 2000.
Interest expense decreased by $80,055 due primarily to the redemption of the
$125 Million Senior Notes in the principal amounts of $452,000 and $3,805,000 on
March 15, 2001 and September 15, 2001, respectively, salaries - related parties
increased by $47,116 due to the increase in Revenues of the Mohegan Sun and
general and administrative costs increased by $29,293 (primarily attributable to
an increase in bank sweep fees of approximately $15,800 and by an increase in
rating services expense of approximately $19,600 and offset by a decrease in
insurance expense of approximately $2,500 and by a decrease in legal and other
expenses related to the defense of the Leisure litigation, as detailed under
Part I: Item 3 Legal Proceedings, totaling approximately $3,000). In addition at
December 31, 1999 12-3/4% senior notes tender expense was over accrued by
$90,000.
Equity in loss of Trading Cove Associates for the year ended December 31, 2001
was $2,715,996 compared with $574,002 for the year ended December 31, 2000 as a
result of the increase in the loss from Trading Cove Associates of approximately
$2,142,000 due to payments pursuant to the Amended and Restated Omnibus
Termination Agreement exceeding revenues during the period.
As a result of the foregoing factors the Company experienced net income of
$6,574,572 for the twelve months ended December 31, 2001 compared with net
income of $388,376 for the twelve months ended December 31, 2000.
10
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 Kerzner International $19.2 million in principal amount
of Authority subordinated notes plus accrued and unpaid interest and
subordinated notes fee amounts. In addition, TCA distributed approximately
$850,000 in principal amount of Authority subordinated notes to the Company.
During September 1997 and on October 12, 1998 and 1999, the Company purchased
from Kerzner International $2.5 million Authority subordinated notes plus
accrued and unpaid interest and 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.
During 1999 and 2000, on January 11, 2001, on April 12, 2001, on June 11, 2001,
on December 19, 2001, on January 11, 2002, on June 10, 2002, on September 10,
2002, on December 26, 2002 and on January 13, 2003, the Company distributed
$886,285, $3,059,393, $339,356, $30,104, $1,206,200, $164,000, $1,416,900,
$1,925,862, $27,300, $150,500 and $1,290,900, respectively, to Waterford Group
as tax distributions, in accordance with the terms of the Indenture.
On November 1, 2002 the Company distributed $15,000,000 to Waterford Group, as a
Permitted Dividend, in accordance with the terms of the Indenture.
Accordingly, after taking into consideration net income(loss) since inception,
the Company has a members' deficit of approximately $72,500,000 and $67,000,000
at December 31, 2002 and 2001, respectively.
For the twelve months ended December 31, 2002 and 2001, net cash provided by
operating activities (as shown in the Statements of Cash Flows) was $10,639,911
and $5,394,941 respectively.
Current assets decreased from $38,127,059 at December 31, 2001 to $26,032,197 at
December 31, 2002. The decrease was caused primarily by the distribution to
Waterford Group on November 1, 2002, in the amount of $15,000,000, by the
scheduled semi-annual payment of interest on March 15, 2002 and September 15,
2002 on the $125 Million Senior Notes in the amounts of approximately $5,483,000
and $5,292,000, respectively, by the redemption on March 15, 2002 and September
15, 2002 of $125 Million Senior Notes in the principal amounts of $4,031,000 and
$3,396,000, respectively, and offset by approximately $10,640,000 of cash
provided by operations and by the distributions by TCA in terms of the Amended
and Restated Omnibus Termination Agreement
Current liabilities decreased from $3,400,556 at December 31, 2001 to $3,133,192
at December 31, 2002. The decrease was primarily attributable to a decrease in
accrued interest on senior notes payable of approximately $208,000 (attributable
to the redemption on March 15, 2002 and September 15, 2002 of $125 Million
Senior Notes in the principal amounts of $4,031,000 and $3,396,000,
respectively) and by a decrease in accrued expenses and accounts payable of
approximately $59,600 (primarily attributable to a decrease in the amount due
for legal and other expenses related to the defense of the Leisure litigation,
as detailed under Part I: Item 3 Legal Proceedings, of approximately $67,500, by
a decrease in the amount due for accounting services of approximately $2,000, by
a decrease in the amount due for miscellaneous expenses of approximately $2,300
and offset by an increase in the amount due for salaries-related parties of
approximately $5,000 and by an increase in the amount due for other legal
expenses of approximately $7,000).
For the years ended December 31, 2002 and 2001 net cash provided by investing
activities (as shown in the statement of cash flows) was $16,395,304 and
$148,647, respectively. The net cash provided by investing activities in 2002
was primarily the result of sales and (purchases) of restricted investments-net
of approximately $15,845,000, distributions from TCA of $1,550,000 and offset by
contributions to TCA of $1,000,000 (to fund certain of TCA's development
expenses in connection with the Project at the Mohegan Sun). The net cash
provided by investing activities in 2001 was primarily the result of sales and
(purchases) of restricted investments-net of approximately $699,000,
distributions from TCA of $800,000 and offset by contributions to TCA of
$1,350,000 (to fund certain of TCA's development expenses in connection with the
Project at the Mohegan Sun).
11
The Company anticipates that up to $550,000 in additional contributions may have
to be made by the Company to TCA (to fund certain of TCA's development expenses
in connection with the project at the Mohegan Sun). As of December 31, 2002
$4,550,000 had been contributed by the Company to TCA to fund certain of TCA's
development expenses in connection with the Project at the Mohegan Sun.
For the twelve months ended December 31, 2002 and 2001, net cash used in
financing activities (as shown in the Statements of Cash Flows) was $25,947,562
and $5,996,660, respectively. The net cash used in financing activities in 2002
was primarily the result of the redemption of the $125 Million Senior Notes in
the principal amounts of $4,031,000 and $3,396,000 on March 15, 2002 and
September 15, 2002, respectively, and by distributions to the Company's sole
member Waterford Group of approximately $18,521,000. The net cash used in
financing activities in 2001 was primarily the result of the redemption of the
$125 Million Senior Notes in the principal amounts of $452,000 and $3,805,000 on
March 15, 2001 and September 15, 2001, respectively, and tax distributions to
the Company's sole member Waterford Group of approximately $1,740,000.
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 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,
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 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 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 made a mandatory redemption of the $125
Million Senior Notes in the principal amount of $452,000 at the redemption price
of 107.773%. On August 1, 2001 the Company and Finance had Company Excess Cash,
as defined, available for mandatory redemption of the $125 Million Senior Notes
totaling approximately $9,765,000, and accordingly on September 15, 2001 the
Company and Finance made a mandatory redemption of the $125 Million Senior Notes
in the principal amount of $3,805,000 at the redemption price of 107.773%. On
February 1, 2002 the Company and Finance had Company Excess Cash, as defined,
available for mandatory redemption of the $125 Million Senior Notes totaling
approximately $9,793,000, and accordingly on March 15, 2002 the Company and
Finance made a mandatory redemption of the $125 Million Senior Notes in the
principal amount of $4,031,000, at the redemption price of 106.909%. On August
1, 2002 the Company and Finance had Company Excess Cash, as defined, available
for mandatory redemption of the $125 Million Senior Notes totaling approximately
$8,923,000 and accordingly on September 15, 2002 the Company and Finance made a
mandatory redemption of the $125 Million Senior Notes in the principal amount of
$3,396,000, at the redemption price of 106.909%. On February 1, 2003 the Company
and Finance had Company Excess Cash, as defined, available for mandatory
redemption of the $125 Million Senior Notes totaling approximately $11,131,000
and accordingly on March 15, 2003 the Company and Finance made a mandatory
redemption of the $125 Million Senior Notes in the principal amount of
$5,658,000 at the redemption price of $106.045%.
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 at the Mohegan Sun. No assurance, however, can be given that the
operating cash flow will be sufficient for that purpose.
12
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, 2002 and 2001. The fair market value of
the Company's long-term debt at December 31, 2002 and 2001 is estimated to be
approximately $111,787,000 and $118,897,000, 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, 2002 are
principally comprised of an investment in a Federal Home Loan Bank Discount Note
which was purchased at a discount of 1.64% and matures March 7, 2003 and an
investment in the Federated Treasury Obligations Fund. 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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page 20
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
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 48 Chairman of the Board and Chief
Executive Officer
Alan Angel 46 Chief Financial Officer
Del J. Lauria 54 Director and Secretary
Mark Wolman 45 Director
Stephan F. Slavik 56 Director
Richard Slavik 52 Vice President
Len Wolman. Mr. Wolman has been the Chairman of the Board of Directors and the
Chief Executive of the Company since its formation. Since 1986, Mr. Wolman has
been the Chairman of the Board of Directors and the Chief Executive Officer of
the Waterford Hotel Group, Inc. Mr. Wolman is a managing partner of TCA. 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 was actively involved in the
development, construction and operation of 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 Mr. 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. Mark 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. Mark 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. Mark Wolman is a Director
of Slavik Suites, Inc. Mr. Mark Wolman is the brother of Mr. Len Wolman.
Stephan F. Slavik. Mr. Slavik, was appointed a Director of the Company on April
9, 2001. 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 is a Director and Vice
President of Slavik Suites, Inc. Mr. Slavik is the brother of Mr. Richard
Slavik.
Mr. Richard Slavik. Mr. Richard Slavik was appointed a Vice President of the
Company on April 9, 2001. 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 is President of Slavik
Suites, Inc. Mr. Richard Slavik is the brother of Mr. Stephan F. Slavik.
14
Item 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Directors and the
named Executive Officers of the Company.
Name Year Ended Salary
------ ------------ --------
Len Wolman (1) 2002 $835,086
2001 $707,153
2000 $660,037
Del Lauria 2002 $ ---
2001 $ ---
2000 $ ---
Stephan F. Slavik 2002 $ ---
2001 $ ---
2000 $ ---
Mark Wolman 2002 $ ---
2001 $ ---
2000 $ ---
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 "Amended and Restated 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. 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 years ended December 31, 2002, 2001, and 2000,
$835,086, $707,153 and $660,037, respectively, was paid to Mr. Len
Wolman pursuant to the employment contract.
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 11.875% of the
outstanding shares of Slavik Suites, Inc. Messrs. Stephan F. Slavik and
Richard Slavik each own approximately 14.35% 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.
The Company does not currently have in place any equity compensation plans.
15
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.
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and KIML. Pursuant to the Development Services Agreement Phase II,
TCA subcontracted with KIML and KIML agreed to perform those services assigned
to KIML by TCA in order to facilitate TCA's fulfillment of its duties and
obligations to the Authority under the Development Agreement. The Development
Services Agreement Phase II was subsequently assigned to Kerzner Investments.
TCA shall pay to Kerzner Investments 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 Amended and Restated Omnibus Termination Agreement. KIML
has further subcontracted with Construction to provide certain of those services
assigned to KIML by TCA. This Local Construction Services Agreement was also
assigned to Kerzner Investments. The fee payable by Kerzner Investments to
Construction as and when Kerzner Investments receives payment from TCA is 20.83%
of the Development Services Fee Phase II. Construction has subcontracted with
The Slavik Company for 14.30% of its fee. On April 26, 2000, July 26, 2000 and
January 26, 2001, TCA paid $3,095,000, $1,238,000 and $6,474,000 respectively,
as partial payment Development Services Fee Phase II. Construction received
$644,688, $257,875 and $1,348,534, respectively, and Construction paid The
Slavik Company $92,190, $36,876 and $192,840 on April 26, 2000, July 26, 2000
and January 26, 2001, respectively.
Construction is owned 50% by Mr. Len Wolman (the Company's Chief Executive
Officer and Chairman of the Board of Director) and 50% by Mr. Mark Wolman ( a
member of the Company's Board of Directors). Mr. Del J. Lauria (the Company's
Secretary and a member of the Company's Board of Directors), Mr. Stephan F.
Slavik (a member of the Company's Board of Directors) and Mr. Richard Slavik
(Vice President of the Company) have a financial interest in The Slavik Company.
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 years ended December 31, 2002, 2001 and
2000, the Company paid and incurred $835,086, $707,153 and $660,037,
respectively, pursuant to the employment agreement.
In 2002, 2001 and 2000, approximately $46,000, $903,000 and $976,000,
respectively was paid to the principals and affiliates of the Company as part of
TCA's operating expenses.
In 1999, the Company renovated Mr. Len 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 each of the
years ended December 31, 2002, 2001 and 2000 was $6,480.
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.
16
Part IV
ITEM 14. CONTROL PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's reports filed
with, or furnished to, the Securities and Exchange Commission, or the SEC,
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure
based on the definition of "disclosure controls and procedures" in Rule
13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing evaluation,
the Company's Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures were effective.
(b) Changes in Internal Controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation of those controls by the Chief Executive Officer and Chief
Financial Officer, including any corrective actions with regard to any
significant deficiencies and material weaknesses. The Company believes that its
internal controls and procedures are effective.
17
Item 15. 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)
10.2.3 Amended and Restated Omnibus Termination
Agreement, dated as of January 1, 2000 and
effective 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. (vii)
18
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)
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.
(vii) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 2001, Commission File No. 333-17795
as accepted by the Commission on May 14, 2001.
19
(b) Financial Statement Schedules
-----------------------------
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-1
Financial Statements:
Balance Sheets as of December 31, 2002 and 2001 F-2
Statements of Operations for the years ended
December 31, 2002, 2001 and 2000 F-3
Statements of Changes in Member's Deficiency for the
years ended December 31, 2002, 2001 and 2000 F-4
Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000 F-5
Notes to Financial Statements F-6
20
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, 2002 and 2001 and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2002
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 18, 2003
F-1
Waterford Gaming, L.L.C.
Balance Sheets
December 31, 2002 and 2001
-------------------------
2002 2001
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 4,658,602 $ 3,570,949
Restricted investments 10,344,130 26,189,434
Due from Trading Cove Associates 11,021,500 8,357,604
Other current assets 7,965 9,072
------------ ------------
Total current assets 26,032,197 38,127,059
------------ ------------
Trading Cove Associates-equity
investment 5,447,338 5,778,458
Beneficial interest-Leisure Resort
Technology, Inc. 4,540,039 4,918,029
Deferred financing costs,
net of accumulated amortization of
$1,391,838 and $1,024,974 at
December 31, 2002 and 2001, respectively 2,643,338 3,010,202
Fixed assets, net of accumulated
depreciation of $42,222 and $31,442 at
December 31, 2002 and 2001, respectively 11,696 22,476
------------ ------------
Total assets $ 38,674,608 $ 51,856,224
============ ============
LIABILITIES AND MEMBERS' DEFICIENCY
Current liabilities
Accrued expenses and accounts payable $ 111,996 $ 171,610
Accrued interest on senior notes
payable 3,021,196 3,228,946
------------ ------------
Total current liabilities 3,133,192 3,400,556
------------ ------------
9-1/2% senior notes payable 108,007,000 115,434,000
------------ ------------
Total liabilities 111,140,192 118,834,556
------------ ------------
Contingencies --- ---
Members' deficiency (72,465,584) (66,978,332)
------------ ------------
Total liabilities
and members' deficiency $ 38,674,608 $ 51,856,224
============ ============
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, 2002, 2001 and 2000
--------------------------
2002 2001 2000
------------ ------------ ------------
Revenue
25% of relinquishment payments-
Trading Cove Associates $ 25,382,500 $ 9,728,580 $ ---
Organizational and administrative
fee income-Trading Cove
Associates --- 11,810,877 11,649,600
Interest and dividend income 534,012 1,330,711 1,894,738
Subordinated notes fee income-
Trading Cove Associates --- --- 692,782
Completion guarantee notes fee
income-Trading Cove Associates --- --- 215,625
------------ ------------ ------------
Total revenue 25,916,512 22,870,168 14,452,745
------------ ------------ ------------
Expenses
Interest expense 11,080,139 11,560,994 11,641,049
Salaries-related parties 835,086 707,153 660,037
General and administrative 431,223 555,819 526,526
12-3/4% senior notes tender expense --- --- (90,000)
Amortization of beneficial interest-
Leisure Resort Technology, Inc. 377,990 377,990 377,990
Amortization on deferred financing
costs 366,864 366,864 363,985
Depreciation 10,780 10,780 10,780
------------ ------------ ------------
Total expenses 13,102,082 13,579,600 13,490,367
------------ ------------ ------------
12,814,430 9,290,568 962,378
Equity in income (loss)of
Trading Cove Associates 218,880 (2,715,996) (574,002)
------------ ------------ ------------
Net income $ 13,033,310 $ 6,574,572 $ 388,376
============ ============ ============
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, 2002, 2001 and 2000
--------------------------
Balance, January 1, 2000 $ (34,470,438)
Distributions (37,731,182)
Net income 388,376
-------------
Balance, December 31, 2000 (71,813,244)
Distributions (1,739,660)
Net income 6,574,572
-------------
Balance, December 31, 2001 (66,978,332)
Distributions (18,520,562)
Net income 13,033,310
-------------
Balance, December 31, 2002 $ (72,465,584)
=============
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, 2002, 2001 and 2000
--------------------------
2002 2001 2000
------------ ------------ ------------
Cash flows from operating activities
Net income $ 13,033,310 $ 6,574,572 $ 388,376
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Amortization 744,854 744,854 741,975
Depreciation 10,780 10,780 10,780
Equity in (income)loss of Trading
Cove Associates (218,880) 2,715,996 574,002
Changes in operating assets
and liabilities
Increase in due from
Trading Cove Associates (2,663,896) (4,587,604) (3,277,093)
Decrease in other
assets 1,107 17,424 60,325
(Decrease) increase in accrued
expenses and accounts payable (59,614) 37,996 14,134
Decrease in accrued
interest on senior notes
payable (207,750) (119,077) (69,036)
------------ ------------ ------------
Total adjustments (2,393,399) (1,179,631) (1,944,913)
------------ ------------ ------------
Net cash provided by
(used in) operating
activities 10,639,911 5,394,941 (1,556,537)
------------ ------------ ------------
Cash flows from investing activities
Contributions to Trading Cove
Associates (1,000,000) (1,350,000) (1,200,000)
Distributions from Trading Cove
Associates 1,550,000 800,000 1,723,112
Sales and (purchases) of
restricted investments-net 15,845,304 698,647 (15,080,989)
------------ ------------ ------------
Net cash provided by
(used in) investing
activities 16,395,304 148,647 (14,557,877)
------------ ------------ ------------
Cash flows from financing activities
Distributions to member (18,520,562) (1,739,660) (37,731,182)
Redemption of 9-1/2% senior notes (7,427,000) (4,257,000) (2,468,000)
------------ ------------ ------------
Net cash used in
financing activities (25,947,562) (5,996,660) (40,199,182)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 1,087,653 (453,072) (56,313,596)
Cash and cash equivalents at
beginning of year 3,570,949 4,024,021 60,337,617
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 4,658,602 $ 3,570,949 $ 4,024,021
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year
for interest $ 11,287,889 $ 11,680,071 $ 11,710,084
============ ============ ============
Supplemental disclosure of non-cash financing activities:
Deferred financing costs overaccrued
through accrued expenses and
accounts payable $ --- $ --- $ (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 notes issued by the Mohegan Tribal Gaming Authority (the
"Authority"). The Company is governed by a Board of Directors 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 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. On November 1, 2002 the Company distributed $15,000,000 to Waterford Group
in accordance with the terms of the indenture relating to the $125 Million
Senior Notes (the "Indenture"). In addition tax distributions totaling
approximately $9,206,000 were made by the Company during 2002, 2001, 2000 and
1999. On January 13, 2003 the Company distributed $1,290,900 to Waterford Group
as a tax distribution, in accordance with the terms of the Indenture.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Method
The accrual method of accounting is used in the preparation of the
financial statements.
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, highly liquid
investments with original maturities of three months or less.
Restricted Investments
Restricted investments at December 31,2002 are principally comprised
of an investment in a Home Loan Bank Discount Note which was purchased
at a discount of 1.64% and matures March 7, 2003 and an investment in
the Federated Treasury Obligations Fund and at December 31, 2001 are
principally comprised of an investment in a Federal National Mortgage
Association Discount Note which was purchased at a discount of 3.65%
and matured March 6, 2002. The investments represent a restricted
investment fund that has been established with a trustee in terms of
the 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 wholly owned subsidiary of Waterford Group does not
file federal or state income tax returns. As a result, no provision
for federal and state income taxes has been made in the accompanying
financial statements.
Revenue Recognition
The Company receives revenues from TCA in accordance with an Amended
and Restated Omnibus Termination Agreement. The amount of revenues
earned relies on the fees earned by TCA pursuant to its Relinquishment
Agreement and Development Agreement with the Authority. Revenues are
accrued when amounts are determinable and payment is assured.
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 Fee, 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.
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 in the United States of America
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,
negotiated the tribal-state compact with the State of Connecticut, obtained
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
Kerzner Investments Connecticut, Inc. ("Kerzner Investments"), formerly Sun Cove
Limited, an affiliate of Kerzner International Limited ("Kerzner
International").
As of December 31, 2002, 2001 and 2000 the following summary information relates
to Trading Cove Associates. Total revenues and net income are for the years
ended December 31, 2002, 2001 and 2000.
2002 2001 2000
------------ ------------ ------------
Total assets $ 27,166,723 $ 23,522,567 $ 21,452,587
Total liabilities (24,821,195) (21,394,854) (15,872,938)
------------ ------------ ------------
Partners' capital $ 2,345,528 $ 2,127,713 $ 5,579,649
============ ============ ============
Total revenue $ 61,244,405 $ 48,327,998 $ 46,072,404
============ ============ ============
Net income (loss) $ 1,317,815 $ (4,551,936) $ (267,948)
============ ============ ============
2002 2001 2000
------------ ------------ ------------
Company's interest:
Trading Cove Associates -
equity investment, beginning
of year $ 5,778,458 $ 7,944,454 $ 9,041,568
Contributions 1,000,000 1,350,000 1,200,000
Distributions (1,550,000) (800,000) (1,723,112)
------------ ------------ ------------
5,228,458 8,494,454 8,518,456
------------ ------------ ------------
Income (loss)from Trading Cove
Associates 658,908 (2,275,968) (133,974)
Amortization of interests
purchased (440,028) (440,028) (440,028)
------------ ------------ ------------
Equity in income (loss)of
Trading Cove Associates 218,880 (2,715,996) (574,002)
------------ ------------ ------------
Trading Cove Associates -
equity investment, end of year $ 5,447,338 $ 5,778,458 $ 7,944,454
============ ============ ============
Trading Cove Associates - Material Agreements
- ---------------------------------------------
F-7
Relinquishment Agreement
- ------------------------
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
including the significant expansion project (the "Project") during the 15-year
period commencing on January 1, 2000.
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 years ended December 31, 2002 and 2001 the Relinquishment Fees earned
were $58,508,703 and $45,715,318, respectively, based upon Revenues reported to
TCA by 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 first phase of the Project,
including the Casino of the Sky, The Shops at Mohegan Sun and the 10,000-seat
Mohegan Sun Arena opened in September 2001. In April 2002, 734 of the
1,200-hotel rooms in the 34-story luxury hotel as well as the meeting and
convention space and spa opened. The balance of the 1,200-hotel rooms opened
during June 2002.
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. As of December 31, 2002 total Development Fee earned was $13,832,000 of
which $13,748,000 had been paid by the Authority. $84,000 was paid by the
Authority on January 24, 2003.
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and Kerzner International Management Limited ("KIML"). Pursuant to
the Development Services Agreement Phase II, TCA subcontracted with KIML and
KIML agreed to perform those services assigned to KIML by TCA in order to
facilitate TCA's fulfillment of its duties and obligations to the Authority
under the Development Agreement. The Development Services Agreement Phase II was
subsequently assigned to Kerzner Investments. TCA shall pay to Kerzner
Investments as subcontractor 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 "Amended and Restated Omnibus Termination
Agreement".
KIML has further subcontracted with Wolman Construction L.L.C. ("Construction")
(the "Local Construction Services Agreement") to provide certain of those
services assigned to KIML by TCA. This agreement was also assigned to Kerzner
Investments. Kerzner Investments shall pay 20.83% of the Development Services
Fee Phase II as and when Kerzner Investments receives payment from TCA.
Construction has subcontracted with The Slavik Company for 14.30% of its fee.
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 and
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 Authority on January 25, 2000) and were
calculated in three tiers based upon net revenues of the Mohegan Sun.
F-8
Amended and Restated Omnibus Termination Agreement
- ---------------------------------------------------
Effective March 18, 1999, the Amended and Restated Omnibus Termination Agreement
(the "Amended and Restated Omnibus Termination Agreement") was entered into by
TCA, Kerzner International, the Company, KIML, LMW, Kerzner Investments, 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
Development Fee) 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
Kerzner Investments 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 years ended December 31, 2002 and 2001, $0
and $1,712,791 ($856,396 to Kerzner Investments and $856,395 to
affiliates of the Company), respectively, had been paid and incurred
by TCA in terms of the first priority.
(b) Second, to return all capital contributions made by the partners of
TCA after September 29, 1995. TCA anticipates making 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, 2002 these capital contributions aggregated
$7,100,000. $6,700,000 has been repaid to the partners of TCA, 50% to
the Company and 50% to Kerzner Investments.
As of December 31, 2002, $400,000 in capital contributions remained
outstanding. On January 28, 2003, a cash distribution of $200,000 was
made to each partner.
(c) Third, to pay any accrued amounts for obligations performed prior to
January 1, 2000 under the Financing Arrangement Agreement. All
required payments were made during 2000.
(d) Fourth, to make the payments set forth in the agreement relating to
the Development Services Agreement Phase II and the Local Construction
Services Agreement. No payments are required or due at December 31,
2002. The contingent obligation at December 31, 2002 was approximately
$10,216,000.
(e) Fifth, to pay Kerzner Investments 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 each of the years
ended December 31, 2002 and 2001, $5.0 million had been paid and
incurred by TCA in terms of the fifth priority.
(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, 2001, $23,621,754 ($11,810,877 to KIML and $11,810,877 to
the Company), had been paid and incurred by TCA in terms of the sixth
priority. The final required payments were made during 2001.
(g) Seventh, for the period beginning March 31, 2000 and ending December
31, 2014, to pay each of Kerzner Investments and the Company
twenty-five percent (25%) of the relinquishment payments. For the
years ended December 31, 2002 and 2001, $50,765,000 ($25,382,500 to
Kerzner Investments and $25,382,500 to the Company) and $19,457,160
($9,728,580 to Kerzner Investments and $9,728,580 to the Company),
respectively, had been paid and incurred by TCA in terms of the
seventh priority. The contingent obligation at December 31, 2002, was
approximately $2,392,000.
(h) Eighth, to distribute all excess cash.
In addition, TCA shall not make any distributions pursuant to the Amended and
Restated 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 Amended and Restated Omnibus Termination Agreement.
To the extent TCA does not have adequate cash to make the payments pursuant to
the Amended and Restated Omnibus Termination Agreement, such amounts due shall
be deferred without the accrual of interest until TCA has sufficient cash, if
any, to pay them.
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.
F-9
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, Kerzner Investments, 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 notes
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, 2002 and 2001 amounts to $2,517,172 and
$2,139,182, 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 approximately
$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 made a mandatory
redemption of $125 Million Senior Notes in the principal amount of $452,000 at
the redemption price of 107.773%. On August 1, 2001 the Company and Finance had
Company Excess Cash, as defined, available for mandatory redemption of the $125
Million Senior Notes totaling approximately $9,765,000, and accordingly on
September 15, 2001 the Company and Finance made a mandatory redemption of the
$125 Million Senior Notes in the principal amount of $3,805,000 at the
redemption price of 107.773%. On February 1, 2002 the Company and Finance had
Company Excess Cash, as defined, available for mandatory redemption of the $125
Million Senior Notes totaling approximately $9,793,000 , and accordingly on
March 15, 2002 the Company and Finance made a mandatory redemption of the $125
Million Senior Notes in the principal amount of $4,031,000, at the redemption
price of 106.909%. On August 1, 2002 the Company and Finance had Company Excess
Cash, as defined, available for mandatory redemption of the $125 Million Senior
Notes totaling approximately $8,923,000 and accordingly on September 15, 2002
the Company and Finance made a mandatory redemption of the $125 Million Senior
Notes in the principal amount of $3,396,000 at the redemption price of 106.909%.
On February 1, 2003 the Company and Finance had Company Excess Cash, as defined,
available for a mandatory redemption of the $125 Million Senior Notes totaling
$11,131,000 and accordingly on March 15, 2003 the Company and Finance made a
mandatory redemption of the $125 Million Senior Notes in the principal amount of
$5,658,000 at the redemption price of 106.045%. In certain 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 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, 2002 and 2001 is
estimated to be approximately $111,787,000 and $118,897,000, respectively, based
on the quoted market price for the same issue.
F-10
5. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION:
The following is a reconciliation of net income for financial statement purposes
to net income for federal income tax purposes for the years ended December 31,
2002, 2001 and 2000.
For the For the For the
Year Ended Year Ended Year Ended
December 31, 2002 December 31, 2001 December 31, 2000
----------------- ----------------- -----------------
Financial Statement
net income $13,033,310 $6,574,572 $ 388,376
Financial statement equity in (income) loss of Trading Cove Associates over tax
basis equity in (income) loss of Trading
Cove Associates (437,925) (394,380) 1,184,388
Other 7,263 6,188 4,682
---------------- ----------------- -----------------
Federal income tax basis
net income $12,602,648 $6,186,380 $1,577,446
================ ================= =================
The following is a reconciliation of members' deficiency for financial statement
purposes to members' deficiency for federal income tax purposes as of December
31, 2002, 2001 and 2000.
2002 2001 2000
------------ ------------ -----------
Financial statement members'
deficiency $(72,465,584) $(66,978,332) $(71,813,244)
Adjustment for cumulative
difference between tax basis
of Trading Cove Associates-
equity investment and GAAP
basis of Trading Cove
Associates-equity investment 1,267,791 1,655,983 466,913
Current year financial
statement net income over
(under) federal income tax
basis net income (430,662) (388,192) 1,189,070
------------ ------------ ------------
Federal income tax basis
members' deficiency $(71,628,455) $(65,710,541) $(70,157,261)
============ ============ ============
F-11
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 has been
transferred to the complex litigation docket and is pending in Waterbury,
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. In a
decision dated August 6, 2001, the Court dismissed all claims 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. In a
decision dated June 6, 2001, the Court dismissed the counterclaims against Lee
Tyrol. Leisure has moved for summary judgement seeking dismissal of the
counterclaims in full. This motion for summary judgement is pending.
Discovery has commenced. Pursuant to the current scheduling order, all
depositions are to be completed by June 30, 2003. A trial date has not been set.
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 AGREEMENTS AND TRANSACTIONS:
Len Wolman, the Company's Chairman of the Board of Directors and Chief Executive
Officer, is a managing partner of TCA.
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and KIML. Pursuant to the Development Services Agreement Phase II,
TCA subcontracted with KIML and KIML agreed to perform those services assigned
to KIML by TCA in order to facilitate TCA's fulfillment of its duties and
obligations to the Authority under the Development Agreement. The Development
Services Agreement Phase II was subsequently assigned to Kerzner Investments.
TCA shall pay to Kerzner Investments, 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 Amended and Restated Omnibus
Termination Agreement. KIML has further subcontracted with Construction to
provide certain of those services assigned to KIML by TCA. This Local
Construction Services Agreement was also assigned to Kerzner Investments. The
fee payable by Kerzner Investments to Construction as and when Kerzner
Investments receives payment from TCA is 20.83% of the Development Services Fee
Phase II. Construction has subcontracted with The Slavik Company for 14.30% of
its fee. On April 26, 2000, July 26, 2000 and January 26, 2001, TCA paid
$3,095,000, $1,238,000 and $6,474,000 respectively, as partial payment
Development Services Fee Phase II. Construction received $644,688, $257,875 and
$1,348,534, respectively, and Construction paid The Slavik Company $92,190,
$36,876 and $192,840 on April 26, 2000, July 26, 2000 and January 26, 2001,
respectively.
Construction is owned 50% by Mr. Len Wolman (the Company's chief Executive
Officer and Chairman of the Board of Director) and 50% by Mr. Mark Wolman ( a
member of the Company's Board of Directors). Mr. Del J. Lauria (the Company's
Secretary and a member of the Company's Board of Directors), Mr. Stephan F.
Slavik ( a member of the Company's Board of Directors) and Mr. Richard Slavik
(Vice President of the Company) have a financial interest in The Slavik Company.
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 years ended December 31, 2002, 2001 and
2000 the Company paid and incurred $835,086, $707,153 and $660,037,
respectively, pursuant to the employment agreement.
In 2002, 2001 and 2000, approximately $46,000, $903,000 and $976,000,
respectively, was paid to the principals and affiliates of the Company as part
of TCA's operating expenses.
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 each of the years
ended December 31, 2002, 2001 and 2000 was $6,480.
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 November 13, 2002
Item 5.
The Mohegan Tribal Gaming Authority (the "Authority") filed:
i) Form 10-Q/A for the quarter ended December 31, 2000, ii)
Form 10-Q/A for the quarter ended March 31, 2001, iii) Form
10-Q/A for the quarter ended June 30, 2001, iv) Form 10-K/A
for the fiscal year ended September 30, 2001, v) Form 10-Q/A
for the quarter ended December 31, 2001, vi) Form 10-Q/A for
the quarter ended March 31, 2002 and vii) Form 10-Q/A for
the quarter ended June 30, 2002 a copy of each of which has
been filed as an exhibit to this report and is incorporated
by reference to the Authority's electronic filing of such
reports on Form 10-Q/A and Form 10-K/A, Securities and
Exchange Commission file reference no. 033-80655.
Date of Report: November 12, 2002
(ii) Form 8-K filed on December 6, 2002
Item 5.
On December 5, 2002, the Mohegan Tribal Gaming Authority
(the "Authority") filed a press release report on Form 8-K
for the fourth quarter and fiscal year ended September 30,
2002, 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 8-K, Securities and
Exchange Commission file reference no. 033-80655.
Date of Report: December 5, 2002
(iii) Form 8-K filed on December 20, 2002
Item 5.
On December 19, 2002, the Mohegan Tribal Gaming Authority
(the "Authority") filed its annual report on Form 10-K for
the year ended September 30, 2002, 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 19, 2002
(iv) Form 8-K filed on February 3, 2003
Item 5.
On January 29, 2003, the Mohegan Tribal Gaming Authority
(the "Authority") filed a copy of Amendment No. 6 to its
senior credit facility (the "Amendment") on Form 8-K, 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 8-K, Securities and Exchange
Commission file reference no. 033-80655. The Amendment
allows the Authority to create a new subsidiary for the
purpose of acquiring a woman's professional basketball team
franchise.
On January 30, 2003, the Mohegan Tribal Gaming Authority
(the "Authority") filed a press release report on Form 8-K,
announcing its first quarter ended December 31, 2002
operating results, 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
8-K, Securities and Exchange Commission file reference no.
033-80655.
On January 30, 2003, the Mohegan Tribal Gaming Authority
(the "Authority") filed a copy of a Membership Agreement,
dated January 28, 2003, by and among WNBA, LLC, the Mohegan
Basketball Club LLC, the Mohegan Tribal Gaming Authority and
the Mohegan Tribe of Indians of Connecticut on Form 8-K, 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 8-K, Securities and
Exchange Commission file reference no. 033-80655.
Date of Report: January 29, 2003
(v) Form 8-K filed on February 13, 2003
Item 5.
On February 13, 2003, the Mohegan Tribal Gaming Authority
(the "Authority") filed its quarterly report on Form 10-Q
for the quarter ended December 31, 2002, 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, Securities and Exchange Commission file
reference no. 033-80655.
Date of Report: February 13, 2003
21
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 26, 2003 By: /s/ Len Wolman
Len Wolman, Chairman of the Board of Directors,
Chief Executive Officer
Date: March 26, 2003 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 the capacities indicated on March 26, 2003.
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
/s/ Stephan F. Slavik Member of the Board of Directors
- ---------------------
Stephan F. Slavik
22
CERTIFICATION
I, Len Wolman, certify that:
1. I have reviewed this annual report on Form 10-K of Waterford Gaming, LLC;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, and any consolidated subsidiaries,
is made known to us by others within the registrant, particularly during
the period in which this annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the registrant's board
of directors (or persons performing equivalent functions):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Len Wolman Chief Executive Officer
- ----------------------
Len Wolman
23
CERTIFICATION
I, Alan Angel, certify that:
1. I have reviewed this annual report on Form 10-K of Waterford Gaming, LLC;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, and any consolidated subsidiaries,
is made known to us by others within the registrant, particularly during
the period in which this annual report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the '"Evaluation Date"); and
(c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the registrant's board
of directors (or persons performing equivalent functions):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Alan Angel Chief Financial Officer
- ----------------------
Alan Angel
24