<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SEPTEMBER 30, 1998
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 033-80655
MOHEGAN TRIBAL GAMING AUTHORITY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-143633
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE MOHEGAN SUN BOULEVARD, UNCASVILLE 06382
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(860) 204-8000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
NONE ON WHICH REGISTERED
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes [X] No [_]
Indicate by checkmark 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: Yes [X] No [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C>
ITEM 1.--Business................................................................. 1
ITEM 2.--Properties............................................................... 6
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 Stockholders
Matters.................................................................. 8
ITEM 6.--Selected Financial Data.................................................. 8
ITEM 7.--Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8
ITEM 8.--Financial Statements and Supplementary Data.............................. 14
ITEM 9.--Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 14
PART III
ITEM 10.--Executive Officers and Members of the Management Board................... 15
ITEM 11.--Executive Compensation................................................... 17
ITEM 12.--Security Ownership of Certain Beneficial Owners and Management........... 17
ITEM 13.--Related Party Transactions............................................... 17
PART IV
ITEM 14.--Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 18
</TABLE>
i
<PAGE>
PART I
ITEM 1. BUSINESS
A. GENERAL
The Mohegan Tribal Gaming Authority (the "Authority"), established on July
15, 1995, is an instrumentality of The Mohegan Tribe of Indians of Connecticut
(the "Tribe"). The Tribe is a federally recognized Indian tribe with a 390-
acre reservation located in southeastern Connecticut.
The Tribe established the Authority with the exclusive power to conduct and
regulate gaming activities for the Tribe. Under the Indian Gaming Regulatory
Act of 1988, 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 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. On October 12, 1996,
the Authority opened a casino known as Mohegan Sun Casino ("Mohegan Sun").
The Authority is governed by a Management Board, which consists of the nine
members of the Tribal Council. The Management Board engaged Trading Cove
Associates ("TCA"), a Connecticut general partnership, to operate, manage and
market Mohegan Sun under a seven-year contract ("Management Agreement"). TCA's
management fee under the Management Agreement ranges from 30% to 40% of net
income before management fee, depending on profitability thresholds. TCA is
50% owned by Sun Cove Limited, an affiliate of Sun International Hotels
Limited ("Sun International"), and 50% by Waterford Gaming, L.L.C. The
Management Board also selects tribal representatives to serve on a Business
Board (the "Business Board") which oversees the business aspects of Mohegan
Sun. The Business Board is established under the Management Agreement and
consists of two members appointed by the Management Board and two members
appointed by TCA. In February 1998, the Authority and TCA entered into a new
agreement ("Relinquishment Agreement") which will supercede the Management
Agreement effective January 1, 2000. The Bureau of Indian Affairs (the "BIA")
determined on October 23, 1998 that the Relinquishment Agreement did not
require the approval of the BIA. As a result of the Relinquishment Agreement,
the Authority has agreed to pay TCA 5% of gross revenues (as defined in the
agreement) generated from Mohegan Sun and from the planned expansion,
beginning January 1, 2000 and ending December 31, 2014. See Note 13 to the
Authority's Financial Statements included in Part II of this report for
valuation of this liability.
The Authority has established the Mohegan Tribal Gaming Commission (the
"Commission"), which is responsible for the regulation of gaming activities of
Mohegan Sun. The Commission ensures the integrity of the gaming operation
through the promulgation and enforcement of appropriate regulations. The
Commission staff is responsible for performing background investigations on
gaming license applicants and for issuance and revocation of such gaming
licenses.
The Tribe and the Authority have entered into a land lease pursuant to which
the Tribe is leasing to the Authority the land site on which Mohegan Sun is
located. The site is a part of the Tribe's 390-acre reservation in
southeastern Connecticut, 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.
B. DESCRIPTION OF BUSINESS
GAMING
Mohegan Sun opened on October 12, 1996 as a full-service gaming and
entertainment facility. Mohegan Sun conveys historical northeastern Indian
theming through architectural features and the use of natural design elements
such as timber, stone and water. Celebrating the history and traditions of the
Tribe, Mohegan Sun's circular design and Indian theming are directly
influenced by the Tribe's beliefs and culture. The casino is comprised of four
quadrants, each of which features its own entrance and a seasonal theme. Each
of the seasons,
1
<PAGE>
winter, spring, summer and fall, emphasize the importance of seasonal changes
to Mohegan Tribal life. The 634,500 square foot facility includes 176,500
square feet of gaming space and accommodates 3,029 slot machines, 150 table
games (including blackjack, roulette, craps, baccarat, caribbean stud poker
and let it ride), 42 poker tables, a race book area and a 1,400 seat high
stakes bingo hall. For the year ended September 30, 1998, the Authority
welcomed 7.5 million patrons.
Food amenities at Mohegan Sun include the 680-seat Seasons buffet, three
themed gourmet restaurants, a 24-hour full service coffee shop, a New York
style delicatessen and a 10-station food court featuring international and
domestic cuisine. The bingo hall also serves as a special events center which
is utilized for entertainment, boxing events and casino marketing events. The
10,000 square foot Wolf Den Lounge (the "Wolf Den"), located in the center of
Mohegan Sun, features live entertainment seven days a week. The Wolf Den seats
350 patrons. Multiple full-service and floor service bars are located
throughout the facility. Mohegan Sun also offers a children's arcade area and
New Horizons Kids Quest, Inc., a child care facility. There are approximately
7,500 parking spaces for customers, along with 1,700 employee parking spaces.
The Authority opened a 4,000 square foot gas station facility on December 7,
1998. The facility consists of 16 gasoline pumps, one diesel fuel pump, and a
convenience store that offers fresh baked goods and retail items and maintains
a historical Indian theme. Patrons may pay at the pump or utilize their
accumulated complimentary points to pay for the gasoline. The cost of the
facility was approximately $5.9 million and was financed through equipment
leasing and internally generated funds.
On February 7, 1998, the Authority finalized contract negotiations on a
development agreement with TCA and is moving forward with an expansion project
("Phase II"), at Mohegan Sun which is currently estimated to cost $750 million
(excluding capitalized interest and excluding a $50 million project
contingency). The Tribe has chosen a site master planning firm, an architect
and a project developer for the expansion. These firms, in conjunction with
the Tribe, are in the process of developing a construction budget and
schedule. As a result, the estimated project cost range is still subject to
adjustment. Phase II is expected to break ground in the spring of 1999. See
Note 13 to the Authority's Financial Statements for details of the Development
Agreement.
Seasonality
The gaming industry in Connecticut is seasonal, with the heaviest gaming
activity at Mohegan Sun occurring during the period from July through October.
COMPETITION FROM OTHER GAMING OPERATIONS
The gaming industry is highly competitive. Mohegan Sun currently competes
primarily with Foxwoods Resort Casino ("Foxwoods") and, to a lesser extent,
with casinos in Atlantic City, New Jersey. Foxwoods is approximately 10 miles
from Mohegan Sun and is the largest gaming facility in the United States in
terms of total gaming positions. It is owned and operated by the Mashantucket
Pequot Tribe (the "Pequot Tribe") under a separate compact with the State of
Connecticut. Foxwoods offers a number of amenities that Mohegan Sun does not
offer, including hotel accommodations, extensive retail shopping and more
expansive non-gaming entertainment offerings. Foxwoods has been in operation
for nearly seven years and may have greater financial resources than the
Authority or the Tribe.
Mohegan Sun's current market area is predominantly for day-trip customers.
Upon the completion of the expansion, however, the Authority intends to
broaden its market beyond day-trip customers to include patrons making
overnight or extended stays at Mohegan Sun. This means the Authority will
begin to compete for customers more directly with casinos in Atlantic City,
New Jersey. Many of these casinos and other gaming resorts may have greater
resources and greater name recognition than the Authority.
Outside of Atlantic City, New Jersey, casino gaming in the northeastern
United States may be conducted only by federally recognized Indian tribes
operating under the federal Indian gaming law. Currently, the Oneida
2
<PAGE>
Indian Nation operates Turning Stone Casino Resort in Verona, New York,
approximately 270 miles from Mohegan Sun. In addition, at least two other
federally recognized tribes in New England are each seeking to establish
gaming operations. Several other tribes in New England are seeking federal
recognition in order to establish gaming operations. A number of states,
including Connecticut, have also investigated legalizing casino gaming by non-
Indians in one or more locations. The Authority cannot predict whether any of
these other tribes or other efforts to legalize casino gaming will be
successful in establishing gaming operations, and if established, whether such
gaming operations will have a material adverse effect on the operations by the
Authority.
The following is an assessment of the competitive prospects in Connecticut,
each of the Authority's neighboring states and certain other states in the
Northeast.
Connecticut
Currently, only the Tribe and the Pequot Tribe are authorized to conduct
gaming in Connecticut. As required by their state compacts, the Tribe and the
Pequot Tribe make monthly payments to the State of Connecticut based on 25% of
annual slot win. Together, these payments totaled over $266.1 million in the
12 months ended September 30, 1998. The Authority contributed $102.3 million
during that period. These payments are linked to an exclusivity clause and
will terminate if the State legalizes other gaming operations, (except those
consented to by the Tribe and/or the Pequot Tribe) with slot machines or other
commercial casino table games. There are currently at least four tribes in
Connecticut that are attempting to gain federal recognition, a lengthy process
managed by the BIA. Two of these are the Eastern Pequot and/or the Paucatuck
Eastern Pequot Tribe, who share a reservation located next to that of the
Pequot Tribe. The federal recognition process for these tribes is proceeding,
but it is not clear if or when recognition will be achieved. Even upon gaining
recognition, a tribe must have land taken into trust by the federal
government, negotiate a compact with the State, and construct a facility
before it can commence gaming operations.
Rhode Island
There is no commercial casino gaming in Rhode Island although the state's
two pari-mutuel facilities, Lincoln Greyhound Park and Newport Grand Jai Alai,
offer approximately 1,800 video slot machines and have petitions pending
before the Rhode Island Lottery Commission for additional machines. In
November 1994, Rhode Island voters defeated numerous local and state-wide
gaming referenda and passed a referendum, which requires that any new gaming
proposals will have to be approved in a state-wide referendum. The
Narragansett Tribe, with a reservation in Charlestown, is the only federally
recognized Indian tribe in Rhode Island, but under specific federal
legislation the Narragansett Tribe is legally barred from opening a gaming
facility. Thus, the Narragansett Tribe could open a facility only if it were
successful in winning both local and state-wide votes. There is one pending
federal recognition petition from another Rhode Island tribe, filed by the
Pokanoket Tribe of the Wampanoag Nation. It is not clear if or when federal
recognition for the Pokanoket Tribe will be achieved.
Massachusetts
No commercial casinos operate in Massachusetts and no significant
initiatives to legalize such casinos are currently underway. The Wampanoag
Tribe, located on the island of Martha's Vineyard, is currently the only
federally recognized Indian tribe in the State. This tribe has determined that
a casino on the island would not be economically feasible, and the State
Legislature has rejected proposals to locate an Indian casino off tribal
lands. The tribe has announced plans to open a high-stakes bingo facility in
Fall River, for which no state compact would be required, but significant
hurdles, including local government approval still remain. In addition, a
number of other petitions for federal recognition are pending in
Massachusetts, but the Tribe believes potential recognition is several years
away.
3
<PAGE>
New York
There currently are no non-Indian casinos operating in New York, and the
establishment of commercial casino operations would require the approval of
two successive state legislatures, followed by the voters in a state-wide
referendum. However, gambling boats began operating out of the New York City
area in January 1998. These "cruises to nowhere," during which gaming
activities are conducted on board once the boat is in international waters,
are permitted under federal law unless prohibited by the state from which they
operate. New York to date has not prohibited such operations. Only a small
number of operators have applied for licenses for off-shore gambling cruises.
Manhattan Cruises was the first operator to receive a license. Due to the
difference in the gaming experience, the Authority does not believe the
"cruises to nowhere" are significant competition to Mohegan Sun. New York has
seven federally recognized tribes with reservations in the northern part of
the state. Two tribes, the Oneida Tribe and the St. Regis Mohawk Tribe, have
executed compacts with the State. These compacts allow casino table games, but
no conventional slot machines. The Oneida Tribe opened the Turning Stone
Casino in July 1993 on its reservation in Verona, near Syracuse. The facility
has 3,500 video lottery machines (which operate on a pari-mutuel system as
opposed to the traditional fixed odds reel-type machines operated by most
casinos), 150 table games and 285 hotel rooms. Turning Stone currently draws
primarily from the Syracuse, New York market and does not compete directly
with Mohegan Sun for customers. The St. Regis Mohawk Tribe, which has a
reservation in Hogansburg on the Canadian border, has not yet opened a gaming
facility; however, a management contract is under review at the National
Indian Gaming Commission (the "NIGC"). The St. Regis Mohawk Tribe and
officials from Sullivan County have also signed an agreement that contemplates
the establishment of a tribal operated casino at the Monticello Raceway in the
Catskills (located approximately 170 miles from Mohegan Sun), but the Governor
of New York has not indicated that he would support this proposal. In
addition, the Seneca Nation of Indians have bingo operations on two of their
three reservations in western New York. These bingo halls are located in
Vandalia, New York and Gowanda, New York, both over 400 miles from Mohegan
Sun. The Seneca Indians have not entered into a compact with the state of New
York which would allow this tribe to expand their gaming operations to include
casino games.
Maine
There are no commercial casinos allowed in Maine and there are no
significant initiatives currently underway to legalize such casinos. There are
four federally recognized tribes in Maine, one of which (the Penobscott Tribe)
opened a high stakes bingo facility in the township of Albany in western
Maine. None of the federally recognized tribes have negotiated a tribal-state
compact or otherwise significantly begun the process of developing casino
operations.
New Hampshire
There are no casinos allowed in New Hampshire and no significant initiatives
currently underway to facilitate legalization. A bill to allow the state's
racetracks to offer slot machines was defeated in a House committee in May
1997, the fourth consecutive time that New Hampshire legislators voted against
gaming expansion. There are no federally recognized Indian tribes in the state
and no petitions for recognition pending.
Vermont
There are no casinos allowed in Vermont and no significant initiatives
currently underway to allow legislation. There are no federally recognized
tribes in the state, but there is a petition pending from the
St. Francis/Sokoki Band of Abenakis, in Swanton. The Authority believes any
approval is still several years away.
EMPLOYEES AND LABOR RELATIONS
As of September 30, 1998, Mohegan Sun employed approximately 4,743 full time
employees, and 322 seasonal and part-time employees. In recruiting personnel,
Mohegan Sun is obligated to give preference first to qualified members of the
Tribe (and qualified spouses of members of the Tribe) and second to
4
<PAGE>
members of other federally recognized Indian tribes. None of Mohegan Sun's
employees are covered by collective bargaining agreements.
MATERIAL AGREEMENTS
The Mohegan Compact
The Tribe and the State of Connecticut entered into the Mohegan Compact that
authorizes and regulates Class III gaming operations on land owned by the
Tribe. Certain key provisions of the Mohegan Compact are summarized below:
(1) The Tribe agrees to submit all gaming-related operation and
development to the regulation of the State of Connecticut Gaming Commission
(i.e. the Division of Special Revenue) in order to ensure the fair and
honest operation of gaming activities and to maintain the integrity of
Class III gaming activities.
(2) The Tribe may conduct, on the site, games of chance, including:
blackjack, poker, craps, money-wheels, roulette, baccarat, sic-bo, pai gow,
caribbean stud, horse race game, acey-ducey, casino war, slot machines,
video facsimile games and pari-mutuel betting.
(3) Law enforcement matters relating to Class III gaming activities are
under the jurisdiction of the State of Connecticut and the Tribe.
(4) All gaming employees will obtain and maintain a gaming license issued
by the Connecticut Division of Special Revenue.
(5) Any enterprise providing gaming services or gaming equipment to the
Tribe will be required to hold a current valid registration issued by the
Connecticut Division of Special Revenue.
(6) The State of Connecticut will annually assess the Tribe for the costs
attributable to its regulation of the Tribe's gaming operations and for the
provision of law enforcement.
(7) The Tribe will have its Class III gaming operations audited on an
annual basis by an independent certified public accountant and include any
additional procedures required by the State of Connecticut Gaming
Commission.
(8) The Tribe will enact fire, building, sanitary and health ordinances
and regulations no less rigorous than laws and regulations of the State of
Connecticut.
(9) Service of alcoholic beverages within any gaming facility will be
subject to regulation by the State of Connecticut.
(10) The Tribe waives any defense which it may have by virtue of
sovereign immunity in respect to any action in United States District Court
to enforce the Mohegan Compact.
Memorandum of Understanding
The Tribe and the State of Connecticut entered into a Memorandum of
Understanding ("MOU") setting forth certain matters regarding the
implementation of the Mohegan Compact. The MOU provides that, so long as there
is no change in State law to permit the operation of slot machines or other
commercial casino table games by any other person (except those consented to
by the Tribe and/or the Pequot Tribe), the Tribe, through the Authority, will
contribute to the State of Connecticut on a monthly basis a sum equal to 25%
of gross operating revenues derived from slot machines operated by the
Authority ("Slot Win Contribution"). The MOU also states that on an annual
basis, the minimum Slot Win Contribution of the Authority to the State of
Connecticut shall be the lesser of (a) 30% of gross revenues from slot
machines, or (b) the greater of (i) 25% of gross revenues from slot machines
or (ii) $80,000,000. For the fiscal year ending September 30, 1998, the
Tribe's Slot Win Contribution paid by the Authority totaled approximately
$102.3 million.
5
<PAGE>
Town of Montville Agreement
On June 16, 1994, the Tribe and the Town of Montville ("the Town") entered
into an agreement whereby the Tribe agreed to pay to the Town, beginning one
year after the commencement of slot machine gaming activities, an annual
payment of $500,000 to minimize the impact to the Town resulting from
decreased tax revenues on reservation land held in trust. The first and second
annual payments were remitted to the Town in October 1997 and 1998,
respectively. Additionally, the Tribe agreed to make a one-time payment of
$3.0 million toward infrastructure improvements in the Town's water system.
The Tribe has assigned its rights and obligations in this agreement to the
Authority. The Town is billing the Authority for the infrastructure
improvements as the Town's costs are incurred. As of September 30, 1998, the
Town of Montville had billed and received payment for approximately $1.1
million of the $3.0 million obligation.
Management Agreement
The Tribe and TCA entered into the Management Agreement, pursuant to which
the Tribe retained and engaged TCA to operate, manage and market Mohegan Sun.
The Tribe assigned its rights and obligations in the Management Agreement to
the Authority. The term of the Management Agreement is seven years. TCA will
manage Mohegan Sun in exchange for payments ranging from 30% to 40% of net
income, before management fee, depending upon profitability thresholds.
Relinquishment and Development Agreements
On February 7, 1998, the Authority finalized the Relinquishment Agreement
with TCA. Under the Relinquishment Agreement, effective the later of January
1, 2000, or the date the existing Series B Senior Secured Notes of the
Authority in the original aggregate principal amount of $175 million are
refinanced or repaid, the Management Agreement will terminate and the
Authority will assume day-to-day management of Mohegan Sun. The Authority has
agreed to pay to TCA 5% of gross revenues (as defined in the agreement)
generated from Mohegan Sun and a planned expansion, beginning January 1, 2000
and ending December 31, 2014.
The Authority has also negotiated a second agreement with TCA (the
"Development Agreement"), which makes TCA the exclusive developer of Phase II.
Under the Development Agreement, TCA will oversee the planning, design and
construction of Phase II and will receive compensation of $14 million for such
services.
See Note 13 of the Authority's Financial Statements for details of the
Management, Relinquishment and Development Agreements.
ITEM 2. PROPERTIES
Mohegan Sun is located on 240 acres of the Tribe's reservation just outside
of Uncasville, CT, approximately one mile from the interchange of Interstate
395 and Connecticut Route 2A. Mohegan Sun has its own exit from Route 2A,
giving patrons direct access to Interstate 395 and Interstate 95, the main
highway connecting Boston, Providence, and New York. By highway, Mohegan Sun
is approximately 115 miles from New York City, 95 miles from Boston,
Massachusetts, 35 miles from Hartford, Connecticut and 50 miles from
Providence, Rhode Island.
Parking at Mohegan Sun is provided through surface parking lots and a multi-
level parking garage accommodating approximately 7,500 vehicles. Traffic
enters the grounds via a four-lane access road on Route 2A and is directed to
the valet parking drop-off zones or to the self-park surface lots (including
the parking garage) which are connected to the main building by shuttle bus
service. A separate loading and parking area is designated for bus groups.
The Authority has a lease with the Tribe for land on which Mohegan Sun is
located. The initial term of the lease is 25 years, with an option to renew
for one additional 25-year term provided that the Authority is not in default
under the lease. The lease also provides that all improvements constructed on
the site will become the property of the Tribe. The lease is a net lease
requiring that the Authority assume all costs of operating,
6
<PAGE>
constructing, maintaining, repairing, replacing and insuring the leased
property, in addition to the payment of a nominal annual rental fee.
The Authority has entered into four other lease agreements for properties
adjacent to Mohegan Sun. The properties are owned by MTIC Acquisitions,
L.L.C., a Connecticut limited liability company controlled by the Tribe. The
properties are used for providing access and/or parking for Mohegan Sun. The
leases are for terms of five to ten years with options to extend beyond the
term. The aggregate lease payments per year for such properties is $636,000,
and the Authority is responsible for maintenance and repair thereon.
ITEM 3. LEGAL PROCEEDINGS
The Authority is a defendant in certain litigation incurred in the normal
course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will
not have a material adverse effect on the Authority's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to Section 4.28 of the Indenture for the $175 million Senior
Secured Notes due 2002, the Authority is required to make an Excess Cash
Purchase Offer to all Holders of the notes within 120 days of the Authority's
fiscal year end. In March 1998, the Authority made an offer valued at $29.1
million to purchase back a portion of the outstanding Senior Secured Notes.
The offer was declined by security holders, and the excess cash was
distributed to the Tribe on April 2, 1998.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Authority has not issued or sold any equity securities.
ITEM 6. SELECTED FINANCIAL DATA
(Amounts In Thousands)
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 12, 1996
FOR THE FISCAL YEAR ENDED (DATE OF COMMENCEMENT OF OPERATIONS)
SEPTEMBER 30, 1998 THROUGH SEPTEMBER 30, 1997
-------------------------- ------------------------------------
<S> <C> <C>
OPERATING RESULTS:
Gross revenues........ $ 641,415 $512,102
Promotional
allowances........... (66,272) (44,265)
--------- --------
Net revenues.......... $ 575,143 $467,837
--------- --------
Income from
operations........... $ 135,350 $ 80,029
Other expense, net.... (47,772) (43,342)
Extraordinary items... (419,457)* 0
--------- --------
Net income (loss)..... $(331,879) $ 36,687
========= ========
OTHER DATA:
Interest expense...... $ 50,172 $ 45,137
Capital expenditures.. 32,371 35,749
YEAR-END STATUS:
Net cash provided by
operating activities. $ 134,575 $117,220
Total assets.......... 554,480 386,974
Long-term debt and
capital lease
obligations.......... 294,567 298,237
</TABLE>
- --------
* Includes expense of $419.1 million related to the Relinquishment Agreement.
See Note 13 to the Authority's Financial Statements for valuation of this
liability.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview of Fiscal Year Ended September 30, 1998 and Period from October 12,
1996 (date of commencement of operations) through September 30, 1997
Gaming revenues for fiscal 1998 and fiscal 1997 were $543.9 million and
$440.5 million, respectively. For the year ended September 30, 1998, net
operating revenues were $575.1 million versus net operating revenues of $467.8
million for the period ended September 30, 1997. The facility began the year
with 2,962 slot machines available for gaming activity on the casino floor.
During the fiscal year, 67 additional slot machines were placed on the casino
floor, bringing the total year-end number of machines to 3,029. The win per
slot unit per day for the year ended September 30, 1998 and for the period
ended September 30, 1997 were $361 and $319, respectively. This resulted in
fiscal year 1998 total slot revenues of $396.3 million versus total slot
revenue for fiscal year 1997 of $312.4 million. The earnings before interest,
depreciation, amortization, management fees and bingo for the year ended
September 30, 1998 and for the period ended September 30, 1997 totaled
$200.2 million and $137.8 million, respectively. This represents a fiscal year
1998 operating margin of 34.8%
8
<PAGE>
compared to a 29.6% operating margin in the period ended September 30, 1997.
Net loss for the year ended September 30, 1998 totaled $331.9 million, which
is primarily attributable to the relinquishment expense of $419.1 million
related to the Relinquishment Agreement with TCA. Under this Relinquishment
Agreement, the Authority has agreed to pay to TCA 5% of gross revenues, (as
defined in the agreement), generated from Mohegan Sun and a planned expansion,
beginning January 1, 2000 and ending December 31, 2014 (See Note 13 to the
Authority's Financial Statements). Net income for fiscal year 1997 was $36.7
million.
Comparison of Operating Results for the Fiscal Year Ended September 30, 1998
and the Period October 12, 1996 (date of commencement of operations) through
September 30, 1997
The growth in Connecticut gaming continues to expand as does Mohegan Sun's
share in this market. The Connecticut slot market grew at a rate of 18.7%,
reporting a gross slot win of $1.1 billion, an increase of $168.8 million from
fiscal year 1997. Mohegan Sun exceeded the market's growth as it experienced a
26.8% increase in slot win over the prior year. Slot revenues of $396.3
million for the year ended September 30, 1998 reflected a slot win per unit
per day of $361. Slot win per unit per day for the period ended September 30,
1997 was $319. The slot win growth of $83.9 million or 26.8% over the previous
year reflected Mohegan Sun's growth in slot win market share of 2.8% over
prior year.
Gaming revenues totaled $543.9 million for the year ended September 30,
1998, marking an increase of $103.4 million or 23.5% over the period ended
September 30, 1997. The increase in gaming revenues is primarily due to an
18.7% growth in the Connecticut slot market and the continued growth of the
Mohegan Sun customer base. Membership in the Mohegan Sun Player's Club totaled
908,821 and 587,952 as of September 30, 1998 and 1997, respectively.
For the year ended September 30, 1998, food and beverage revenues were $55.5
million, indicating a growth of $8.6 million or 18.4% over the prior year.
Retail and other revenues were $36.3 million, a growth of $14.8 million or
68.8% over the prior year. These increases are attributed to increased
utilization of complimentaries and the addition of two new retail outlets to
the facility.
Bingo revenues totaled $5.7 million for the year ended September 30, 1998,
representing a $2.6 million or 83.9% increase over the prior year. The
increase is a result of improved operating efficiencies as well as an increase
in the overall awareness of the bingo operation.
Promotional allowances totaled $66.3 million for the year ended September
30, 1998, representing a $22.0 million or 49.7% increase over the prior year.
The increase is attributable to an increase in the customer base as well as an
increased utilization of the Mohegan Sun Player's Club complimentary program.
Additionally, promotional allowance as a percentage of total revenue increased
from 8.6% in fiscal 1997 to 10.3% in fiscal 1998.
Total costs and expenses were $439.8 million for the year ended September
30, 1998, an increase of $52.0 million or 13.4% over the prior year. The
increase in expenses is a direct result of a 22.9% increase in net revenues
partially offset by improved operating efficiencies.
Gaming costs and expenses were $237.9 million for the year, an increase of
$28.9 million or 13.8% over the prior year. The slot win contribution for the
year ended September 30, 1998 totaled $102.3 million. This represents an
increase of $21.6 million over the prior year, which is directly attributable
to increased slot revenues.
General and administrative costs were $87.5 million for the year ended
September 30, 1998. The increase of $9.2 million or 11.7% is partially
attributable to more aggressive marketing campaigns associated with efforts to
increase the frequency of patron visits. As a result, food, beverage and
retail expenses for the year increased by $5.4 million from the prior period.
9
<PAGE>
For the year ended September 30, 1998, depreciation and amortization
decreased by $14.6 million or 45.5% over the prior period. The decrease is
primarily attributable to pre-opening expenditures of $18.2 million that were
fully depreciated over the first 12 months of business operations, partially
offset by an increase in depreciation for newly acquired capital assets.
Management fees earned by Trading Cove Associates totaled $47.4 million for
the year ended September 30, 1998, an increase of $24.2 million or 104.1%. The
increase in management fees are a direct result of the increase in operating
income.
Income from operations for the year ended September 30, 1998 totaled $135.3
million, compared to $80.0 million in the previous period. The year over year
increase is primarily due to an increase in gaming revenues and improved
operating efficiencies.
Interest and other income were $2.4 million for the year ended September 30,
1998, an increase of $604,000 or 33.6% over prior year.
Interest expense of $50.2 million for the year ended September 30, 1998 was
an increase of $5.0 million or 11.2% over prior period interest. This increase
was mainly attributable to an increase in Cash Flow Participation Interest as
defined in the Senior Secured Notes due 2002, which is derived as a percent of
increased gross operating profits. Cash Flow Participation Interest is paid to
the holders of the Senior Secured Notes pursuant to the Senior Secured Note
indenture.
Extraordinary items include loss on the early extinguishment of debt of
$332,000 due to the retirement of a capital lease and a $419.1 million
relinquishment expense associated with the Relinquishment Agreement. The
relinquishment expense is based upon the Authority's agreement to pay TCA 5%
of gross revenues (as defined in the agreement), generated from Mohegan Sun
and from the planned expansion, beginning January 1, 2000 and ending December
31, 2014. This amount was derived by discounting the present value of 5% of
projected gross revenues by the Authority's risk free investment rate. See
Note 13 to the Authority's Financial Statements.
Liquidity, Capital Resources and Capital Spending
As of September 30, 1998 and 1997, the Authority held cash and cash
equivalents of $36.3 million and $40.4 million, respectively. Cash provided by
operating activities for 1998 was $134.6 million, compared with $117.2 million
for 1997.
The Authority's capital spending has decreased slightly due to the 1997
capital lease obligations associated with the initial construction of the
property. Capital expenditures totaled approximately $32.7 million in 1998,
versus $35.7 million in 1997. Capital expenditures for furniture, fixtures and
equipment were $14.0 million in 1998 and $35.7 million in 1997.
During the fiscal year, Mohegan Sun underwent a renovation of its north
entry of the casino and retail area. This $2.1 million project extended
Mohegan Sun's historical northeastern Indian theme in the depiction of a
stylized version of an ancient Mohegan Longhouse. The wooden panels depicting
old Indian tales, the ceiling of blankets, and the clay pipe decor enhance the
interior design of the casino which was inspired by Mohegan tradition and
culture. Renovations to the north entry totaled $1.7 million for the fiscal
year ended September 30, 1998 and were financed through internally generated
funds.
In November 1998, the Authority introduced a $5.6 million race book facility
as an additional gaming amenity. This 9,000 square foot facility features
horse racing from the New York Racing Association circuit as well as greyhound
racing and jai alai from throughout the United States. The race book facility
features 230 seats with individual television monitors and computerized self-
service betting capabilities. For the fiscal year ended September 30, 1998,
expenditures associated with race book facility totaled $3.9 million.
10
<PAGE>
The Authority opened a 4,000 square foot gas station facility on December 7,
1998. The facility consists of 16 gasoline pumps, one diesel fuel pump, and a
convenience store that offers fresh baked goods and retail items. The cost of
the facility was approximately $5.9 million and expenditures totaled $2.8
million during the fiscal year ended September 30, 1998. Both the gas station
and race book were financed through equipment leasing and internally generated
funds.
During 1998, the Authority finalized contract negotiations with TCA for
Phase II at Mohegan Sun which is currently estimated to cost $750 million
(excluding capitalized interest and excluding a $50 million project
contingency). The proposed development plans include 100,000 square feet of
additional gaming space, a luxury hotel with approximately 1,500 rooms, and a
convention/events center with seating for 10,000 patrons and 100,000 square
feet of convention space. The Tribe also plans to include additional retail
and restaurant facilities into its design. Current plans would also require
significant upgrades and additions to the facility's parking and
infrastructure systems. The Tribe has chosen a site master planning firm, an
architect and a project developer for the expansion. These firms, in
conjunction with the Tribe, are in the process of developing a construction
schedule. As a result, the estimated project cost is still subject to
adjustment. Phase II is expected to break ground in the spring of 1999. Under
the Development Agreement, TCA will oversee the planning, design and
construction of the expansion at Mohegan Sun and will receive compensation of
$14 million for such services.
Under the terms of the Relinquishment Agreement, TCA will continue to manage
the existing property under the Management Agreement until December 31, 1999.
On January 1, 2000, the Management Agreement will terminate, and the Authority
will assume day-to-day management of Mohegan Sun. The Authority, as a result
of the termination of the Management Agreement, has agreed to pay to TCA 5% of
gross revenues (as defined in the Relinquishment Agreement), generated from
Mohegan Sun and from the planned expansion, beginning January 1, 2000 and
ending December 31, 2014. The liability is estimated at $549.1 million as of
September 30, 1998 and will be reassessed periodically. The Authority has
capitalized $130 million of the relinquishment liability associated with
trademark value of the Mohegan Sun brand name.
The Development Agreement was approved by the Bureau of Indian Affairs (the
"BIA") on February 7, 1998. The BIA determined on October 23, 1998 that the
Relinquishment Agreement did not require the approval of the BIA.
For fiscal 1999, the Authority expects capital expenditures to be
approximately $16.3 million on facility improvements and $2.4 million on
existing construction projects. These expenditures exclude $3.1 million
relating to the completion of the gas station facility and preliminary
spending on the Phase II expansion.
During fiscal 1998, the Authority, subsequent to meeting its operating
expenses and required deposits to reserve funds under the Indenture for the
Senior Secured Notes, distributed a total of $72.4 million to the Tribe. As
required under the Indenture for the Senior Secured Notes, the Authority made
an Excess Cash Purchase Offer of $29.1 million to all holders of the Senior
Secured Notes in January 1997. The holders of the Senior Secured Notes
rejected the offer which was subsequently offered to the holders of the
Authority's Junior Subordinated Notes. The holders of the Junior Subordinated
Notes also rejected the offer. The excess cash was distributed to the Tribe in
April 1998.
On November 15, 1997 and May 15, 1998, the Authority made two interest
payments of $11.8 million each to the holders of the Senior Secured Notes and
payments of $4.1 million and $4.2 million in Cash Flow Participation Interest
on such dates to such debtholders. There are no cash interest payment
requirements on the Junior Subordinated Notes as interest is accrued and
deferred until a portion of the Senior Secured Notes are offered to be
repurchased or retired, as defined.
Management believes that existing cash balances and operating cash flow will
provide the Authority with sufficient resources to meet its existing debt
obligations and foreseeable capital expenditure requirements with respect to
current operations for at least the next 12 months. The Authority has
commenced consideration of
11
<PAGE>
expanded operations. (See "Part II--Item 7-Management's Discussion and
Analysis--"Liquidity, Capital Resources and Capital Spending.") Any such
expanded operations will require additional sources of funding, which may
include public and private debt and bank financing. There can be no assurance
that the Authority will be able to obtain such financing, although the
Authority believes that the current operating results of Mohegan Sun make such
financing a viable likelihood.
YEAR 2000 READINESS DISCLOSURE
Background
Many computer systems and applications currently use two-digit date fields
to designate a year. As the century date change occurs, date-sensitive systems
will recognize the year 2000 as 1900, or not at all. This inability to
recognize or properly treat the year 2000 may cause systems to process
financial and operational information incorrectly resulting in system failures
and other business problems.
Risk Factors
The Authority, like many companies, depends on fully operational computer
systems in all areas of the business. Additionally, the Authority is dependent
upon many vendors to provide uninterrupted service for the operation to run
effectively. Exposure to both of these risk factors are issues the Authority
is currently addressing and is formulating an approach to handle these issues.
Approach
The Authority has developed a timeline to target issues within its own
operation as well as with suppliers. With the assistance of an outside
consultant, the Authority has implemented a Year 2000 program, which includes
inventorying its entities, identifying problems, planning and correcting the
problems, and testing the solutions.
Status
Through September 30, 1998, the Authority is approximately 40 percent
complete with its Year 2000 Program. The Authority anticipates completion of
the program by March 31, 1999. If at that time it is determined that the
project plan will not be completed, a contingency plan will be developed to
eliminate any disruption to operations.
Cost
The Authority has incurred approximately $25,000 in costs associated with
the Year 2000 Program as of September 30, 1998. Although there can be no
assurances, it is anticipated that costs associated with the remediation and
verification to become Year 2000 compliant will not exceed $1.0 million and
will not have a material adverse impact on the Authority's financial position,
results of operations, or cash flow.
REGULATION AND FEES
The Mohegan Compact stipulates that a portion of the revenues earned on slot
machines must be paid to the State of Connecticut. This annual Slot Win
Contribution will be the lesser of (a) 30% of gross revenues from slot
machines, or (b) the greater of (i) 25% of gross revenues from slot machines
or (ii) $80.0 million.
The Slot Win Contribution payments are linked to an exclusivity clause and
will terminate if the State legalizes other gaming operations (except those
consented to by the Tribe and/or the Pequot Tribe), with slot machines or
other commercial casino table games within Connecticut. The Authority has
reflected $102.3 million and $80.7 million, respectively, of gaming expense in
its financial statements for the required Slot Win
12
<PAGE>
Contribution to the State of Connecticut for the year ended September 30,
1998, and the period ended September 30, 1997, respectively.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income." This statement establishes standards for
reporting and displaying of comprehensive income and its components in the
financial statements. Adoption of SFAS No. 130 is required in fiscal 1999. The
adoption of SFAS No. 130 will not have a material impact on the Authority's
financial position or results of operations.
In June 1997, Statement of Financial Accounting Standards No. 131 ("SFAS No.
131"), "Disclosures about Segments of an Enterprise and Related Information"
was issued. This statement requires that public business enterprises report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Adoption of
SFAS No. 131 is required in fiscal 1999. The Authority currently discloses
certain financial data by segment in the Statement of Operations as of
September 30, 1998 and 1997 in accordance with existing accounting and
disclosure requirements. At the appropriate time the Authority will modify its
current presentation, if necessary, to meet the requirements of SFAS No. 131.
The adoption of SFAS No. 131 will have no impact on the Authority's financial
position or results of operations.
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities" was
issued. This statement revises the accounting for derivative financial
instruments. The Authority is currently analyzing the impacts of this
statement which is required to be adopted in fiscal 2000, and does not expect
this statement to have a material impact on the Authority's financial position
or results of operations.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-Up Activities," which revises the accounting for start-up costs
and will require the expensing of certain costs which the Authority has
historically capitalized. The Authority is currently analyzing the impacts of
this statement, which is required to be adopted in fiscal 2000, and does not
expect this statement to have a material impact on the Authority's financial
position or results of operations.
CERTAIN FORWARD LOOKING STATEMENTS
Certain information included in this Form 10-K and other materials filed or
to be filed by the Authority with the Securities and Exchange Commission
contains forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such statements include information relating to plans for future expansion and
other business development activities as well as other capital spending,
financing sources and the effects of regulation (including gaming and tax
regulation) and competition. 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
Authority. These risks and uncertainties include, but are not limited to,
those relating to development and construction activities, dependence on
existing management, leverage and debt service, domestic or global economic
conditions, issues related to the Year 2000, pending litigation, changes in
federal tax laws or the administration of such laws and changes in gaming laws
or regulations (including the legalization of gaming in certain
jurisdictions).
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Notes to Financial Statements of the Mohegan
Tribal Gaming Authority, referred to in Item 14(A)(1) of this Form 10-K, are
included at pages F-1 to F-16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS AND MEMBERS OF THE MANAGEMENT BOARD
The Authority is governed by a nine-member Management Board, consisting of
the same nine members as the Tribal Council (the governing body of the Tribe).
The Management Board and TCA each appoint two representatives to the Business
Board which is responsible for matters of policy pertaining to the business of
Mohegan Sun. The General Manager of Mohegan Sun is hired by TCA, subject to
the approval of the Authority; other senior officers of Mohegan Sun are hired
by TCA. The General Manager and other senior officers are employees of the
Authority.
The following table provides information as of September 30, 1998 with
respect to each of (i) the executive officers of Mohegan Sun and (ii) the
members of the Management Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roland J. Harris........ 51 Chairman and member, Management Board
Jayne G. Fawcett........ 62 Vice Chair and member, Management Board
William J. Velardo...... 44 Executive Vice President and General Manager
Mitchell Grossinger
Etess.................. 40 Senior Vice President, Marketing
Jeffrey E. Hartmann..... 37 Senior Vice President, Finance and Chief Financial Officer
Carlisle M. Fowler...... 70 Treasurer and member, Management Board
Loretta F. Roberge...... 67 Corresponding Secretary and member, Management Board
Shirley M. Walsh........ 54 Recording Secretary and member, Management Board
Mark F. Brown........... 41 Member, Management Board
Courtland C. Fowler..... 71 Member, Management Board
Maynard L. Strickland... 59 Member, Management Board
Glen R. LaVigne......... 38 Member, Management Board
</TABLE>
Roland J. Harris--Mr. Harris has been Chairman and a member of the
Management Board since October 1995. Mr. Harris is the founder and former
president of the corporation Harris and Clark, Inc.--Civil Engineers, Land
Surveyors & Land Planners, which has performed services for the Authority. The
corporation, now known as McFarland Johnson, Inc., has retained Mr. Harris as
a consultant for a fixed fee. Mr. Harris has served as First Selectman and CEO
of the Town of Griswold, Connecticut and also as its Planning and Zoning
Commissioner. He has served as Deputy Chief of the Griswold Fire Department
and as Fire Marshall and Inspector of the Town of Griswold. Prior to assuming
the Chairmanship of the Management Board, Mr. Harris served as the Tribal
Planner.
Jayne G. Fawcett--Ms. Fawcett has been Vice Chair of the Management Board
since December 1995 and a member of the Management Board since July 15, 1995.
Ms. Fawcett worked as a social worker for the State of Connecticut in 1987 and
is a retired teacher after 27 years of service. Ms. Fawcett was Chair of the
Tribe's Constitutional Review Board from 1992 to 1993. Currently, she oversees
the Tribe's public relations.
William J. Velardo--Mr. Velardo has been Executive Vice President, General
Manager of Mohegan Sun since October 1995 and has 22 years of experience in
gaming operations. Prior to his employment with the Authority, Mr. Velardo was
Chief Operating Officer for River City, a riverboat gaming joint venture in
New Orleans, Louisiana. From 1991 to 1994, Mr. Velardo served as Senior Vice
President, Casino Operations at Trump Plaza Hotel and Casino in New Jersey.
Mr. Velardo was part of the management team that opened the Mirage in Las
Vegas and served as Vice President, Table Games from 1989 to 1991. Mr. Velardo
also worked as Assistant Casino Manager and Pit Manager for Caesar's Tahoe and
Caesar's Palace.
Mitchell Grossinger Etess--Mr. Etess has been Senior Vice President of
Marketing at Mohegan Sun since November 1995 and has 18 years experience in
the casino and hotel industry. Prior to his employment with the Authority, Mr.
Etess was Vice President of Marketing at Players Island and, from 1989 to
1994, was Senior
15
<PAGE>
Vice President of Marketing and Hotel Operations at Trump Plaza Hotel and
Casino. Prior thereto, Mr. Etess held various management positions in the
hospitality and advertising industries.
Jeffrey E. Hartmann--Mr. Hartmann has been Senior Vice President of Finance
and the Chief Financial Officer of Mohegan Sun since December 1996 and has 7
years of experience in the casino and hotel industry. Prior to joining the
Authority, Mr. Hartmann worked for Foxwoods Resort Casino from August 1991 to
December 1996, most recently as Vice President of Finance for Foxwoods
Management Company. Mr. Hartmann was employed by PricewaterhouseCoopers, LLP,
as an Audit Manager from 1984 to 1991. Mr. Hartmann is a certified public
accountant.
Carlisle M. Fowler--Mr. Fowler has been the Treasurer and a member of the
Management Board since July 15, 1995 and has been active in the Tribe's
government for over 20 years. Prior to his retirement in 1989, Mr. Fowler was
an electronics technician for the State of Connecticut and operated his own
electronics business. Mr. Carlisle Fowler is the brother of Mr. Courtland
Fowler.
Loretta F. Roberge--Ms. Roberge has been Corresponding Secretary and a
member of the Management Board since July 15, 1995. Ms. Roberge has served as
a paraprofessional at the Mohegan School for 24 years, working with children
with special needs. Ms. Roberge has remained active in the Tribal community
throughout her life, including her previous service as secretary of the
Management Board. Ms. Roberge presently chairs the Finance Committee.
Shirley M. Walsh--Ms. Walsh has been the Recording Secretary of the
Management Board since October 1995 and has been a member of the Management
Board since July 15, 1995. Ms. Walsh has worked for the Tribe in various
capacities for almost five years. Prior to that time, she was employed for 13
years by a local certified public accountant. Ms. Walsh chaired the Tribal
Election Committee from 1994 to 1995 and serves on several other Committees of
the Tribe.
Mark F. Brown--Mr. Brown has been a member of the Management Board since
October 1995 and serves as the security liaison for the Tribal Council. Prior
to being elected to the Tribal Council, he served as a law enforcement officer
for eight years. Mr. Brown worked with the Tribe's historian during the period
in which the Tribe was working to obtain federal recognition and also served
on the Tribal Constitutional Review Board from 1993 to 1994.
Courtland C. Fowler--Mr. Fowler has been a member of the Management Board
since July 15, 1995 and was a major contributor to the cultural research that
led to the federal recognition of the Tribe. Mr. Fowler was previously
employed as a chemical operator and assistant foreman at Pfizer, Inc. until
his retirement in 1990. He served as Vice Chairman of the Management Board,
and as a member of the Tribe's Constitutional Review Board. Mr. Fowler was on
the committee that drafted the first constitution of the Tribe. Mr. Courtland
Fowler is the brother of Mr. Carlisle Fowler.
Maynard L. Strickland--Mr. Strickland has been a member of the Management
Board since October 1995. During the past 20 years, Mr. Strickland owned and
operated several restaurants in Norwich, Connecticut and in Florida.
Glen R. LaVigne--Mr. LaVigne has been a member of the Management Board since
January 1996. Mr. LaVigne was previously employed by the Town of Montville,
Connecticut and oversaw building and maintenance for Montville's seven
municipal buildings.
16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the senior executive
officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR
NAME AND PRINCIPAL POSITION ENDED SALARY BONUS
--------------------------- ----------- -------- --------
<S> <C> <C> <C>
William J. Velardo............................... 1998 $400,000 $150,000
Executive Vice President and..................... 1997 $353,000 $175,000
General Manager
Mitchell Grossinger Etess........................ 1998 $262,500 $100,000
Senior Vice President, Marketing................. 1997 $223,000 $110,000
Jeffrey E. Hartmann.............................. 1998 $210,000 $100,000
Senior Vice President, Finance................... 1997(1) $130,000 $ 60,000
and Chief Financial Officer
</TABLE>
- --------
(1) Mr. Hartmann commenced employment with the Authority on December 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Authority has no outstanding equity securities.
ITEM 13. RELATED PARTY TRANSACTIONS
The Tribe provided governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. For the year ended September
30, 1998, the Authority incurred $7.7 million of expenses for such services,
of which $7.4 million was paid as of September 30, 1998.
The Tribe, through one of its limited liability companies, has sold goods to
the Authority for resale at its retail location.
The Tribe, through two other limited liability companies, has entered into
various land lease agreements with the Authority for access, parking and
related purposes for Mohegan Sun. Lease expense approximates $636,000 per
year.
The Authority engages McFarland Johnson, Inc. for surveyance, civil
engineering, and professional design services. Roland Harris, Chairman of the
Management Board, is a consultant for this corporation for a fixed fee. For
the fiscal year ended September 30, 1998, the Authority incurred $54,354 for
such services.
As of September 30, 1998, 190 employees of the Authority were Mohegan tribal
members.
The executive officers of Mohegan Sun have been granted stock options from
Sun International. The options vest over a seven-year period.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A(1). FINANCIAL STATEMENTS
Report of Independent Public Accountants
Balance Sheets of Mohegan Tribal Gaming Authority as of September 30, 1998
and 1997
Statements of Income (Loss) of Mohegan Tribal Gaming Authority for the Year
ended September 30, 1998 and the Period October 12, 1996 (date of
commencement of operations) through September 30, 1997
Statements of Capital of the Mohegan Tribal Gaming Authority for the Year
ended September 30, 1998 and the Period October 12, 1996 (date of
commencement of operations) through September 30, 1997
Statement of Cash Flows of Mohegan Tribal Gaming Authority for the Years
ended September 30, 1998 and 1997
Notes to Financial Statements of Mohegan Tribal Gaming Authority
A(2). FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts and Reserves
Schedules other than that listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes to the financial statements.
A(3). EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 Constitution of the Mohegan Tribe of Indians of Connecticut (the
"Tribe") ratified by Tribal vote on April 12, 1996 [**Exhibit 3.1]
3.2 Ordinance No. 95-7/15-1 of the Tribe for Gaming on Tribal Lands,
enacted on July 20, 1995 [**Exhibit 3.2]
4.1 Indenture dated as of September 29, 1995 among the Mohegan Tribal
Gaming Authority of the Tribe (the "Authority"), the Tribe and
First Fidelity Bank, as trustee [**Exhibit 4.1]
4.2 Purchase Agreement dated September 21, 1995 among Bear, Stearns &
Co., Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
(collectively, the "Initial Purchasers"), the Authority and the
Tribe [**Exhibit 4.2]
4.3 Registration Rights Agreement dated as of September 29, 1995 among
the Authority and the Initial Purchasers [**Exhibit 4.3]
10.1 The Mohegan Tribe--State of Connecticut Gaming Mohegan Compact
between the Tribe and the State of Connecticut (the "Compact")
[**Exhibit 10.1]
10.2 Agreement dated April 25, 1994 between the Tribe and the State of
Connecticut resolving certain land claims (the "Resolution
Agreement") [**Exhibit 10.2]
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.3 Memorandum of Understanding dated April 25, 1994 between the Tribe
and the State of Connecticut regarding implementation of the
Compact and the Resolution Agreement [**Exhibit 10.3]
10.4 Agreement between the Tribe and the Town of Montville, Connecticut
[**Exhibit 10.4]
10.5 Land Lease dated September 29, 1995 between the Tribe and the
Authority; Amendment of Land Lease dated September 29, 1995
[**Exhibit 10.5]
10.6 Open-End Construction-- Permanent Leasehold Mortgage Deed,
Assignment of Leases and Rents and Security Agreement dated as of
September 29, 1995 between the Tribe and First Fidelity Bank, as
trustee [**Exhibit 10.6]
10.7 Amended and Restated Gaming Facility Development and Construction
Agreement dated September 1, 1995 between the Tribe and Trading
Cove Associates ("TCA") [**Exhibit 10.7]
10.8 Amended and Restated Gaming Facility Management Agreement dated
August 30, 1995 between the Tribe and TCA [**Exhibit 10.8]
10.9 Secured Completion Guarantee dated as of September 29, 1995 by Sun
International Hotels Limited ("Sun") in favor of First Fidelity
Bank, as trustee [**Exhibit 10.9]
10.10 Note Purchase Agreement dated as of September 29, 1995 between the
Authority and Sun [**Exhibit 10.10]
10.11 Cash Collateral Accounts Pledge and Security Agreement dated as of
September 29, 1995 among First Fidelity Bank, as trustee, TCA,
Sun, the Authority and the Tribe [**Exhibit 10.11]
10.12 Disbursement and Escrow Agreement dated as of September 29, 1995
among First Fidelity Bank, as escrow agent, Chicago Title
Insurance Company, as disbursement agent, First Fidelity Bank, as
trustee, TCA, Sun and the Authority [**Exhibit 10.12]
10.13 Pledge Agreement dated September 29, 1995 between Sun
International Investments Limited and First Fidelity Bank
[**Exhibit 10.13]
10.14 Relinquishment Agreement dated February 7, 1998 between the Tribe
and TCA [*Exhibit 10.14]
10.15 Development Agreement dated February 7, 1998 between the Tribe and
TCA [*Exhibit 10.15]
10.16 The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust
Agreement dated September 1, 1998 between the Authority and
Merrill Lynch Trust [*Exhibit 10.16]
</TABLE>
- --------
*Filed herewith
**Filed by the Authority to its Registration Statement on Form S-1, and
incorporated herein by reference, as
19
<PAGE>
B. SCHEDULE II
MOHEGAN TRIBAL GAMING AUTHORITY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED SEPTEMBER 30, 1998
AND FOR THE PERIOD OCTOBER 12, 1996 (DATE OF COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ------------------- ------------------------------- --------------- -------------
BALANCE AT CHARGED TO COSTS CHARGED TO DEDUCTIONS FROM BALANCE AT
BEGINNING OF PERIOD AND EXPENSES OTHER ACCOUNTS RESERVES(1) END OF PERIOD
DESCRIPTION: ------------------- ---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1998
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET
ACCOUNTS:
Allowance for doubtful
accounts............. $187 $523 $ -- $362 $ 348
Relinquishment
liability............ -- -- $549,125 -- $549,125
PERIOD ENDED SEPTEMBER
30, 1997
RESERVES AND ALLOWANCES
FROM ASSET ACCOUNTS:
Allowance for doubtful
accounts............. -- $231 -- $ 44 $ 187
</TABLE>
- ----
Note (1):Deductions from reserves include the write-off of uncollectible
accounts, net of recoveries of accounts previously written off.
20
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants........................... F-2
Balance Sheets of Mohegan Tribal Gaming Authority as of September
30, 1998 and 1997................................................. F-3
Statements of Income (Loss) of Mohegan Tribal Gaming Authority for
the Year ended September 30, 1998 and the Period October 12, 1996
(date of commencement of operations)
through September 30, 1997......................................... F-4
Statements of Capital of the Mohegan Tribal Gaming Authority for
the Year ended September 30, 1998 and the Period October 12, 1996
(date of commencement of operations) through September 30, 1997.... F-5
Statements of Cash Flows of Mohegan Tribal Gaming Authority for the
Years ended September 30, 1998 and 1997............................ F-6
Notes to Financial Statements of Mohegan Tribal Gaming Authority... F-7 to F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Mohegan Tribal Gaming Authority:
We have audited the accompanying balance sheets of the Mohegan Tribal Gaming
Authority (the Authority) as of September 30, 1998 and 1997, and the related
statements of income (loss) and capital for the year ended September 30, 1998
and for the period October 12, 1996 (date of commencement of operations),
through September 30, 1997 and statement of cash flows for the years ended
September 30, 1998 and 1997. These financial statements and the schedule
referred to below are the responsibility of the Authority's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Mohegan Tribal Gaming
Authority as of September 30, 1998 and 1997, and the results of its operations
for the year ended September 30, 1998 and for the period October 12, 1996
(date of commencement of operations), through September 30, 1997 and its cash
flows for the years ended September 30, 1998 and 1997, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in Item 14 is the responsibility of the Authority's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Hartford, Connecticut
December 21, 1998
F-2
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 3)............... $ 36,264 $ 40,387
Restricted cash (Note 4)......................... 74,466 48,457
Receivables, net (Note 5)........................ 3,067 1,140
Inventories...................................... 5,027 4,516
Other current assets............................. 2,136 1,263
--------- --------
Total current assets........................... 120,960 95,763
NON-CURRENT ASSETS:
Property and equipment, net (Note 6)............. 296,380 280,216
Trademark........................................ 130,000 --
Other assets..................................... 7,140 10,995
--------- --------
Total assets................................... $ 554,480 $386,974
========= ========
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Current portion of capital lease obligations
(Note 9)........................................ $ 11,004 $ 9,200
Accounts payable and accrued expenses (Note 7)... 46,857 35,985
Accrued interest payable (Note 8)................ 46,231 30,821
--------- --------
Total current liabilities...................... 104,092 76,006
NON-CURRENT LIABILITIES:
Long-term debt (Note 8).......................... 265,000 265,000
Relinquishment liability (Note 13)............... 549,125 --
Capital leases obligations net of current portion
(Note 9)........................................ 18,563 24,037
--------- --------
Total liabilities.............................. 936,780 365,043
--------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
CAPITAL:
Total capital.................................... (382,300) 21,931
--------- --------
Total liabilities and capital.................... $ 554,480 $386,974
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 12,
1996 (DATE
OF
COMMENCEMENT
FOR THE OF
FISCAL YEAR OPERATIONS)
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER
1998 30, 1997
------------- ------------
<S> <C> <C>
REVENUES:
Gaming............................................. $ 543,870 $440,540
Food and beverage.................................. 55,544 46,925
Retail and other................................... 36,328 21,489
Bingo operations................................... 5,673 3,148
--------- --------
Gross revenues..................................... 641,415 512,102
Less-Promotional allowances........................ (66,272) (44,265)
--------- --------
Net revenues....................................... 575,143 467,837
--------- --------
COSTS AND EXPENSES:
Gaming............................................. 237,946 209,086
Food and beverage.................................. 21,212 24,168
Retail and other................................... 24,607 16,282
Bingo operations................................... 3,529 4,508
General and administration......................... 87,529 78,366
Management fee..................................... 47,442 23,243
Depreciation and amortization...................... 17,528 32,155
--------- --------
Total costs and expenses......................... 439,793 387,808
--------- --------
Income from operations............................. 135,350 80,029
--------- --------
OTHER INCOME (EXPENSE):
Interest and other income.......................... 2,400 1,795
Interest expense................................... (50,172) (45,137)
--------- --------
(47,772) (43,342)
--------- --------
Income before extraordinary items.................. 87,578 36,687
Extraordinary items (Note 14)...................... (419,457) --
--------- --------
Net income (loss).................................. $(331,879) $ 36,687
========= ========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-4
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 12, 1996
FOR THE FISCAL YEAR ENDED (DATE OF COMMENCEMENT OF OPERATIONS)
SEPTEMBER 30, 1998 THROUGH SEPTEMBER 30, 1997
------------------------- ------------------------------------
<S> <C> <C>
Beginning balance....... $ 21,931 $ --
Net income (loss)....... (331,879) 36,687
Distributions to Tribe.. (72,352) (14,756)
--------- --------
Ending balance.......... $(382,300) $ 21,931
========= ========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-5
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------- -------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss)........ $(331,879) $ 36,687
Adjustments to reconcile
net income (loss) to net
cash flow provided by
operating activities:
Depreciation and
amortization.......... 17,528 32,155
Relinquishment expense. 419,125 --
Loss on early
extinguishment of
debt.................. 332 --
Loss on asset disposal. 124 --
Provision for losses on
receivables........... 523 231
Changes in operating
assets and liabilities:
(Increase) decrease in
receivables and other
assets................ (1,064) 177
Increase in accounts
payable and accrued
expenses.............. 29,886 47,970
--------- --------
Net cash flows provided
by operating
activities............ 134,575 117,220
--------- --------
CASH FLOWS USED IN
INVESTING ACTIVITIES:
Purchase of property and
equipment............... (32,731) (13,010)
Decrease in construction
payable................. (3,604) (40,646)
--------- --------
Net cash flows used in
investing activities.... (36,335) (53,656)
--------- --------
CASH FLOWS (USED IN)
PROVIDED BY FINANCING
ACTIVITIES:
Distributions to Tribe... (72,352) (14,756)
Increase in short-term
borrowings.............. -- 7,056
Proceeds from equipment
financing............... 9,772 17,439
Payment on equipment
financing and short-term
borrowings.............. (13,774) (19,996)
Additional borrowing
under Secured Completion
Guarantee............... -- 23,000
--------- --------
Net cash flows (used in)
provided by financing
activities.............. (76,354) 12,743
--------- --------
Net increase in cash and
cash equivalents........ 21,886 76,307
Cash and cash equivalents
at beginning of period.. 88,844 12,537
--------- --------
Cash and cash equivalents
at end of period........ $ 110,730 $ 88,844
========= ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the
period for interest..... $ 34,763 $ 30,140
Debt assumed from
acquisition of property. -- $ 22,739
Trademark................ $ 130,000 --
</TABLE>
The accompanying notes are an integral part of
these financial statements
F-6
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
The Mohegan Tribal Gaming Authority (the "Authority"), established on July
15, 1995, is an instrumentality of the Mohegan Tribe of Indians of Connecticut
(the "Tribe"). The Tribe established the Authority with the exclusive power to
conduct and regulate gaming activities for the Tribe. Under the Indian Gaming
Regulatory Act of 1988, 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, which consists of the nine
members of the Tribal Council. The Management Board has engaged Trading Cove
Associates ("TCA"), a Connecticut general partnership, to manage the operation
of Mohegan Sun pursuant to a seven-year contract (the "Management Agreement").
TCA is 50% owned by Sun Cove Limited, an affiliate of Sun International Hotels
Limited ("Sun International"), and 50% owned by Waterford Gaming, L.L.C. (See
Note 13 for discussion of Relinquishment Agreement between the Tribe and TCA).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Authority classifies as cash all highly liquid investments with a
maturity of three months or less when purchased. Cash equivalents are carried
at cost, which approximates market value.
Inventories
Inventories are stated at the lower of the cost or market value. Cost is
determined by using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and land improvements................ 40 years
Furniture and equipment........................ 3-7 years
</TABLE>
The costs of significant improvements are capitalized. Costs of normal
repairs are charged to expense as incurred. Gains or losses on disposition of
property and equipment are included in the determination of income.
LONG-LIVED ASSETS
The Authority adopted the provisions of Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets," ("SFAS
121"). SFAS 121 requires, among other things, that an
F-7
<PAGE>
entity review its long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. As a result of its review, the
Authority does not believe that any asset impairment exists in the
recoverability of its long-lived assets as of September 30, 1998.
Fair Value of Financial Instruments
The fair value amounts disclosed below have been reported to meet the
disclosure requirements of SFAS No. 107, "Disclosures about Fair Values of
Financial Instruments" and are not necessarily indicative of the amounts that
the Authority could realize in a current market exchange.
The carrying amount of cash and cash equivalents, receivables, accounts
payables and accrued expenses, and capital lease obligations approximate fair
value.
At September 30, 1998, the fair value of the Authority's financing
facilities and related deferred interest ($31.5 million at September 30, 1998)
is as follows:
<TABLE>
<S> <C>
Senior Notes................................................. $207 million
Subordinated Notes........................................... $106 million
</TABLE>
Revenue Recognition
The Authority recognizes casino revenue as gaming wins less gaming losses.
Revenues from food and beverage, retail and special events are recognized at
the time the service is performed.
Promotional Allowances
The retail value of food and beverage and other services furnished to casino
guests without charge is included in gross revenue and then deducted as
promotional allowances.
The estimated value of providing such promotional allowances was included in
revenues as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 12, 1996
(DATE OF COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ -------------------------------
<S> <C> <C>
Food and beverage....... $34,783 $26,871
Retail.................. 28,027 15,955
Other................... 3,462 1,439
------- -------
$66,272 $44,265
======= =======
</TABLE>
Advertising
The Authority expenses the production costs of advertising the first time
the advertising takes place, except for billboard advertising which is
capitalized and amortized over its expected period of future benefits. The
capitalized costs of the advertising are amortized over the terms of the
contract following the month in which it appears.
Trademarks
Trademarks are amortized on a straight-line basis over the estimated periods
benefited, but not exceeding 40 years.
Income Taxes
The Tribe is an "Indian Tribal Government" within the meaning of sections
7701(a)(40) and 7871 of the Internal Revenue Code of 1986. As such, the
Authority has tax-exempt status with respect to federal and state income
taxes.
F-8
<PAGE>
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income." This statement establishes standards for
reporting and displaying of comprehensive income and its components in the
financial statements. Adoption of SFAS No. 130 is required for fiscal years
beginning after December 15, 1997. Management believes the adoption of SFAS
No. 130 will not have a material impact on the Authority's financial position
or results of operations.
In June 1997, Statement of Financial Accounting Standards No. 131 ("SFAS No.
131"), "Disclosures about Segments of an Enterprise and Related Information"
was issued. This statement requires that public business enterprises report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Adoption of
SFAS No. 131 is required for fiscal years beginning after December 15, 1997.
The Authority currently discloses financial data in accordance with existing
accounting and disclosure requirements. At the appropriate time the Authority
will modify its current presentation, if necessary, to meet the requirements
of SFAS No. 131. Management believes the adoption of SFAS No. 131 will have no
impact on the Authority's financial position or results of operations.
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities" was
issued. This statement revises the accounting for derivative financial
instruments. The Authority is currently analyzing the impacts of this
statement which management does not expect it to have a material impact on the
Authority's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-Up Activities," which revises the accounting for start-up costs
and will require the expensing of certain costs which the Authority has
historically capitalized. The Authority is currently analyzing the impacts of
this statement, which is effective for fiscal years beginning after December
15, 1998. Management does not expect this statement to have a material impact
on the Authority's financial position or results of operations.
Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
NOTE 3--CASH AND CASH EQUIVALENTS
At September 30, 1998 and 1997, the Authority had $5.3 million and $14
million, respectively invested in commercial paper. For reporting purposes,
cash equivalents include all operating cash as well as in-house funds.
NOTE 4--RESTRICTED CASH
Components of restricted cash were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Replacement reserve............................ $ 250 $ 1,500
Cash maintenance............................... 10,000 4,500
Interest and excess cash flow.................. 64,216 42,457
------- -------
$74,466 $48,457
======= =======
</TABLE>
F-9
<PAGE>
Replacement Reserve Fund
Pursuant to terms of the Management Agreement, TCA is required to establish
a Replacement Reserve Fund, which may be used to pay any approved budgeted
capital expenditures. Any portion of the Replacement Reserve Fund which
remains unused at the end of any fiscal year will be carried forward to the
following year. TCA and the Tribe are each required to make monthly
contributions to the Replacement Reserve Fund at the rate of 60% from the
Tribe and 40% from TCA up to a combined total of $3.0 million per year from
both parties. As of September 30, 1998 and 1997, the unused balance in the
Replacement Reserve Fund totaled $250,000 and $1.5 million, respectively.
Cash Maintenance Account
The Senior Secured Notes provide that the Authority shall deposit into the
Cash Maintenance Account, on a monthly basis, 1/2 of $6.0 million, for each
calendar year, plus any amounts deferred from any prior month, no later than
25 days after the end of such calendar month. As required under the Senior
Secured Notes, $10.0 million and $4.5 million have been deposited in the Cash
Maintenance Account as of September 30, 1998 and 1997, respectively.
Interest and Excess Cash Flow Account
The Senior Secured Notes provide that the Authority shall deposit into the
Interest and Excess Cash Flow Account, on a monthly basis, the amount of fixed
interest accrued during the prior month on the Senior Secured Notes, 50% of
the Excess Cash Flow (as defined) for the prior month on the Senior Secured
Notes, 100% of all Deferred Subordinated Interest for the prior month, and the
amount of Cash Flow Participation Interest accrued for the prior month.
Amounts deposited into the Interest and Excess Cash Flow Account are invested
only in cash or cash equivalents (See Note 8).
NOTE 5--ACCOUNTS RECEIVABLE
The Authority maintains an allowance for doubtful accounts which is based on
management's estimate of the amount expected to be uncollectible considering
historical experience and the information management obtains regarding the
credit worthiness of the customer. The collectibility of these receivables
could be affected by future business or economic trends. Although management
believes the allowance is adequate, it is possible that the estimated amount
of cash collections could change.
At September 30, 1998 and 1997, the Authority established $348,000 and
$187,000, respectively in allowance for doubtful accounts.
NOTE 6--PROPERTY AND EQUIPMENT, NET
Components of property and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Land........................................... $ 28,581 $ 28,581
Land improvements.............................. 47,350 41,016
Buildings...................................... 176,514 162,651
Furniture and equipment........................ 64,153 55,014
Construction in progress....................... 8,576 5,445
-------- --------
325,174 292,707
Less: accumulated depreciation................. (28,794) (12,491)
-------- --------
$296,380 $280,216
======== ========
</TABLE>
F-10
<PAGE>
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Components of accounts payable and accrued expenses were as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Trade payables................................ $ 7,558 $ 5,054
Accrued payroll and related taxes and
benefits..................................... 9,931 9,955
Accrued gaming taxes.......................... 9,242 7,017
Other accrued liabilities..................... 20,126 13,959
------- -------
$46,857 $35,985
======= =======
</TABLE>
NOTE 8--FINANCING FACILITIES
The Authority has a $2.5 million line-of-credit and letter of credit
arrangement with Fleet National Bank. Interest is payable at the bank's base
rate or LIBOR option. Borrowings are collateralized by substantially all
assets of the Authority. This arrangement expires on March 31, 2000. As of
September 30, 1998, the Authority has issued letters of credit of $1.9 million
and has no borrowings outstanding under the line of credit.
Financing facilities, as described below, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Senior Secured Notes........................... $175,000 $175,000
Subordinated Notes............................. 90,000 90,000
-------- --------
$265,000 $265,000
======== ========
</TABLE>
Senior Secured Notes
On September 29, 1995, the Authority issued $175 million in Senior Secured
Notes with fixed interest payable at a rate of 13.50% per annum and Cash Flow
Participation Interest, as defined therein, in an aggregate amount of 5.0% of
the Authority's Cash Flow up to, during any two consecutive semi-annual
periods, ending September 30, $250 million of the Authority's Cash Flow. Fixed
interest is payable semi-annually and commenced May 15, 1996. The aggregate
amount of Cash Flow Participation Interest payable will be reduced pro rata
for reductions in outstanding principal amount of Senior Secured Notes. The
payment of Cash Flow Participation Interest may be deferred if the Authority's
Fixed Charge Coverage Ratio, as defined, is less than 2 to 1. For the year
ended September 30, 1998 and for the period from October 12, 1996 (date of
commencement of operations) through September 30, 1997, the Authority's Fixed
Charge Coverage Ratio was 4.0 and 3.0 respectively. The Senior Secured Notes
are redeemable at set prices as set forth in the Senior Secured Notes after
November 15, 1999, at the option of the Authority. Upon the occurrence of
certain events (as specified in the Senior Secured Notes) each holder of
Senior Secured Notes can require the Authority to repurchase the notes at
prices specified.
Beginning with the fiscal year ending September 30, 1997, the Authority is
required within 120 days, under certain circumstances, to offer to purchase,
at set prices, certain amounts of Senior Secured Notes then outstanding, under
the Excess Cash Purchase Offer, as defined in the Senior Secured Notes (See
Excess Cash Purchase Offer below).
Subordinated Notes
The Authority has obtained $90.0 million of subordinated financing from Sun
International and Waterford Gaming L.L.C. in the form of notes ("Subordinated
Notes"). The Authority has issued $20.0 million of Subordinated Notes to each
of Sun International and Waterford Gaming L.L.C., which notes bear interest at
F-11
<PAGE>
15.0% per year. The Authority also has issued $50.0 million of Subordinated
Notes to Sun International evidencing draws made by the Authority under the
secured completion guarantee provided by Sun International ("Secured
Completion Guarantee"). Each Subordinated Note issued under the Secured
Completion Guarantee bears interest at the rate per annum then most recently
announced by Chase Manhattan Bank (f/r/a Chemical Bank of New York) as its
prime rate plus 1% which shall be set and revised at intervals of six months.
The interest rates were 9.5% at September 30, 1998 and September 30, 1997.
Interest on the Subordinated Notes is payable semi-annually, provided, however
that all such interest is deferred and will not be paid until at least half of
the Senior Secured Notes have been offered to be repurchased or retired,
pursuant to the terms of the Senior Secured Notes, and certain other
conditions have been fulfilled. Accrued and deferred interest payable on the
Subordinated Notes is $31.5 million and $17.9 million at September 30, 1998
and 1997, respectively. All Subordinated Notes are due 2003; however,
principal cannot be paid until the Senior Secured Notes have been paid in
full, unless certain conditions are met. During October 1998 and October 1997,
$2.5 million of Subordinated Notes issued to Sun International pursuant to the
Secured Completion Guarantee were purchased by Waterford Gaming L.L.C.
In the event that the holders of the Senior Secured Notes reject all or any
portion of the Excess Cash Purchase Offer, as defined in the Indenture, the
Authority is required to offer to purchase, at par, certain amounts of the
Subordinated Notes then outstanding. See Excess Cash Purchase Offer below for
such offer made by the Authority.
Excess Cash Purchase Offer
Pursuant to the Senior Secured Notes, the Authority is required to make an
Excess Cash Purchase Offer to all holders of the Senior Secured Notes within
120 days after each fiscal year end of the Authority, commencing September 30,
1997. The Excess Cash Purchase Offer equals 50% of the Excess Cash Flow, as
defined, plus 100% of the Deferred Subordinated Interest.
An Excess Cash Purchase Offer of $29.1 million was made on January 28, 1998
for the period October 12, 1996 (date of commencement of operations) through
September 30, 1997. In accordance with the Senior Secured Notes, the Authority
offered to purchase the Senior Secured Notes at 113.5% of the principal amount
of the Senior Secured Notes plus accrued and unpaid interest to the purchase
date. The Excess Cash Purchase Offer expired, by its terms, on February 25,
1998, and none of the holders of the Senior Secured Notes accepted the offer.
On March 12, 1998, pursuant to the Subordinated Note purchase agreement, an
offer to repurchase in the amount of the Excess Cash Purchase Offer was made
to the holders of the Subordinated Notes. The offer period concluded on April
2, 1998, and the holders of the Subordinated Notes also rejected the offer. On
April 3, 1998, as permitted by Section 4.07(g) of the Senior Secured Notes
Indenture, the Authority distributed the Excess Cash Purchase Offer of $29.1
million to the Tribe. The Authority will make an Excess Cash Purchase Offer to
all holders of the Senior Secured Notes within 120 days of September 30, 1998,
pursuant to the Senior Secured Notes. For the fiscal year ended September 30,
1998, it is estimated that this offer will be approximately $51.2 million.
F-12
<PAGE>
NOTE 9--LEASES
At September 30, 1998, the Authority was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
FISCAL YEAR ENDING SEPTEMBER 30, --------- --------
(IN THOUSANDS)
<S> <C> <C>
1999................................................... $3,600 $ 13,215
2000................................................... 2,680 13,215
2001................................................... 84 4,835
2002................................................... -- 1,965
------ --------
Total minimum lease payment............................ $6,364 33,230
======
Amount representing interest........................... (3,663)
--------
Total obligation under capital leases.................. 29,567
Less: Amount due within one year....................... (11,004)
--------
Amount due after one year.............................. $ 18,563
========
</TABLE>
Rent expense on the non-cancelable operating leases was $3.6 million and
$11.1 million for the year ended September 30, 1998 and the period from
October 12, 1996 (date of commencement of operations) through September 30,
1997, respectively.
The Authority's debt agreements require, among other restrictions, the
maintenance of various financial covenants and terms including a fixed charge
coverage ratio, a debt to adjusted net worth ratio, and a debt service
coverage ratio.
NOTE 10--RELATED PARTY TRANSACTIONS
The Tribe provided governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. For both the year ended
September 30, 1998 and for the period October 12, 1996 (date of commencement
of operations) through September 30, 1997, the Authority incurred $7.7 million
of expenses for such services, of which $7.4 million and $6.9 million was paid
as of September 30, 1998 and 1997, respectively.
The Tribe, through one of its limited liability companies, has provided
goods to the Authority for resale at its retail location.
The Tribe, through two other limited liability companies, has entered into
various land lease agreements with the Authority for access, parking and
related purposes for Mohegan Sun.
The Authority engages McFarland Johnson, Inc. for surveyance, civil
engineering, and professional design services. Roland Harris, Chairman of the
Management Board is a consultant for this corporation for a fixed fee. For the
fiscal year ended September 30, 1998, the Authority incurred $54,354 for such
services.
Under terms of the Management Agreement, the Authority may award service
contracts or purchase services from qualified members of the Tribe if the
costs of services are competitive in the local market.
As of September 30, 1998, 190 employees of the Authority are Mohegan tribal
members.
The executive officers of Mohegan Sun have been granted stock options from
Sun International. The options vest over a seven-year period.
F-13
<PAGE>
NOTE 11--EMPLOYEE BENEFIT PLANS
Effective February 10, 1997, the Authority adopted a retirement savings plan
for its employees under Section 401(k) of the Internal Revenue Code. The plan
allows employees of the Authority to defer up to the lesser of the maximum
amount prescribed by the Internal Revenue Code or 15% of their income on a
pre-tax basis, through contributions to this plan. The Authority matches 50%
of eligible employees' contributions up to a maximum of 4% of their individual
earnings. The Authority recorded matching contributions of approximately $1.4
million and $792,000, respectively, to this plan for the year ended September
30, 1998 and the period ended September 30, 1997.
Effective September 1, 1998, the Authority adopted the MTGA Non-Qualified
Deferred Compensation Plan. This plan allows highly compensated employees, as
defined in Section 414(q) of the Internal Revenue Code, to defer up to 100% of
their income to the plan. As of September 30, 1998 there have been no
contributions by eligible employees to this plan.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Mohegan Compact
The Mohegan Compact stipulates that a portion of the revenues earned on slot
machines must be paid to the State of Connecticut ("Slot Win Contribution").
For each 12-month period commencing July 1, 1995, the Slot Win Contribution
shall be the lesser of (a) 30% of gross revenues from slot machines, or (b)
the greater of (i) 25% of gross revenues from slot machines or (ii) $80
million.
The Slot Win Contribution payments will not be required if the State of
Connecticut legalizes any other (except those consented to by the Mashantucket
Pequot Tribe and/or Mohegan Tribe) gaming operations with slot machines or
other commercial casino table games within Connecticut. The Authority has
reflected $102.3 million and $80.7 million, respectively of gaming expense in
its financial statements for the required Slot Win Contribution for the year
ended September 30, 1998 and for the period from October 12, 1996 (date of
commencement of operations) through September 30, 1997.
Town of Montville Agreement
On June 16, 1994, the Tribe and the Town of Montville (the "Town") entered
into an agreement whereby the Tribe agreed to pay to the Town an annual
payment of $500,000 to minimize the impact to the Town resulting from
decreased tax revenues on reservation land held in trust. Two annual $500,000
payments payable beginning one year after the commencement of slot machine
gaming activities, were remitted to the Town of Montville in October 1998 and
1997, respectively. Additionally, the Tribe agreed to make a one-time payment
of $3.0 million towards infrastructure improvements to the Town's water
system. The Tribe has assigned its rights and obligations in this agreement to
the Authority. The Town is billing the Authority for the infrastructure
improvements as the Town's costs are incurred. As of September 30, 1998, the
Authority has paid $1.1 million to the Town of Montville towards improvements
to the municipal water system, which has been included in other assets in the
accompanying balance sheet and will be amortized over 40 years.
Litigation
The Authority is a defendant in certain litigation incurred in the normal
course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will
not have a material adverse effect on the Authority's financial position or
results of operations.
F-14
<PAGE>
NOTE 13--TCA AGREEMENTS
Management Agreement
The Tribe and TCA entered into the Amended and Restated Gaming Facility
Management Agreement (the "Management Agreement"), pursuant to which the Tribe
has retained and engaged TCA, on an independent contractor basis, to operate,
manage and market Mohegan Sun.
The Tribe has assigned its rights and obligations under the Management
Agreement to the Authority. The term of the Management Agreement is seven
years. TCA holds responsibility to manage Mohegan Sun in exchange for payments
ranging from 30% to 40% of net income, before management fees, as defined,
depending upon profitability levels. Management fees totaled $47.4 million and
$23.2 million, respectively, for the year ended September 30, 1998 and for the
period ended September 30, 1997. At September 30, 1998, $4.1 million was owed
to TCA in connection with the Management Agreement.
Relinquishment Agreement
In February 1998, the Authority and TCA entered into an agreement, (the
"Relinquishment Agreement"). The Relinquishment Agreement supersedes the
Management Agreement effective the later of January 1, 2000 (the
"Relinquishment Date"), or the date the existing Series B Senior Secured Notes
of the Authority in the original aggregate principal amount of $175 million
are refinanced or repaid, and provides that the Authority shall make certain
payments to TCA out of, and determined as a percentage of, the gross revenues
generated by the Mohegan Sun resort over a 15-year period commencing on the
Relinquishment Date. The payments ("Senior Relinquishment Payments" and the
"Junior Relinquishment Payments"), each of which are calculated as 2.5% of
revenues, as defined, have their own payment schedule and priority. Payments
of Senior Relinquishment Payments commence at the end of the first three-month
period following the Relinquishment Date and continue at the end of each
three-month period occurring thereafter until the fifteenth anniversary of the
Relinquishment Date. Junior Relinquishment Payments commence at the end of the
first six-month period following the Relinquishment Date and continue at the
end of each six-month period occurring thereafter until the fifteenth
anniversary of the Relinquishment Date. Each Senior Relinquishment Payment and
Junior Relinquishment Payment is an amount equal to 2.5% of the Revenues
generated by Mohegan Sun over the immediately preceding three-month or six-
month payment period, as the case may be. "Revenues" are defined as gross
gaming revenues (other than Class II gaming revenue) and all other facility
revenues (including, without limitation, hotel revenues, fees or receipts from
convention/events center in the expansion and all rental or other receipts
from lessees and concessionaires operating in the facility but not the gross
receipts of such lessees, licenses and concessionaires). The Authority, in
accordance with Financial Accounting Standards Board Statement No. 5,
"Accounting for Contingencies", has recorded a relinquishment liability of the
estimated present value of its obligations under the Relinquishment Agreement.
The liability is estimated at $549.1 million as of September 30, 1998 and will
be reassessed periodically. This amount was derived by discounting the present
value of 5% of projected gross revenues by the Authority's risk free
investment rate. The Authority has recognized the value of the trademarks
associated with the Mohegan Sun brand name as of September 30, 1998. The value
of the Mohegan Sun trademarks is $130 million. TCA's services will be retained
in the development and construction of the Phase II expansion (See Development
Agreement).
Development Agreement
The Authority has also negotiated a second agreement with TCA (the
"Development Agreement"), which will make TCA the exclusive developer of the
planned expansion of Mohegan Sun. Under the Development Agreement, TCA will
oversee the planning, design and construction of the expansion of Mohegan Sun
and will receive compensation of $14 million for such services.
F-15
<PAGE>
NOTE 14--EXTRAORDINARY ITEMS
The Authority incurred $419.5 million of extraordinary items for the year
ended September 30, 1998. Included in the expense is $332,000 related to the
early extinguishment of debt and $419.1 million related to the Relinquishment
Agreement discussed in Note 13.
NOTE 15--SUBSEQUENT EVENTS
On December 7, 1998, the Authority opened a 4,000 square foot gas station
facility. The facility consists of 16 gasoline pumps, one diesel fuel pump,
and a convenience store that offers fresh baked goods and retail items. The
cost of the facility was approximately $5.9 million and is being financed
through equipment leasing and internally generated funds.
On December 23, 1998, the Authority borrowed the final $878,000 available in
equipment financing from CIT Group at an interest rate of 7.75% over 48
months.
The Tribe has announced an expansion of Mohegan Sun consisting of 100,000
square feet of additional gaming space, a luxury hotel with approximately
1,500 rooms, a convention/events center with seating for 10,000 patrons and
100,000 square feet of convention space. The expansion is estimated to cost
$750 million (excluding capitalized interest and excluding a $50 million
project contingency). The Tribe has chosen a site master planning firm, an
architect and a project developer for the expansion. In connection with the
expansion, the existing Senior Secured Notes and Subordinated Notes will be
refinanced. It is anticipated that a loss on the extinguishment of the Senior
Secured and Subordinated Notes will be reflected in the Authority's second
quarter financial statements for fiscal 1999.
Effective January 1, 1999, the Authority changed the employer contribution
match of its retirement savings plan to 100% of eligible employee
contributions up to a maximum of 3% of their individual earnings. This
retirement savings plan as discussed in Note 11, is pursuant to Section 401(k)
of the Internal Revenue Code.
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Mohegan Tribal Gaming Authority has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on December 22, 1998.
MOHEGAN TRIBAL GAMING AUTHORITY
By: /s/ Roland J. Harris
________________________________________
Roland J. Harris
Chairman, Management Board,
Duly Authorized
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 December 22, 1998.
SIGNATURE TITLE
/s/ Roland J. Harris Chairman and Member, Management
- --------------------------------------- Board
Roland J. Harris
/s/ Jayne G. Fawcett Vice-Chair and Member, Management
- --------------------------------------- Board
Jayne G. Fawcett
/s/ William J. Velardo Executive Vice President and General
- --------------------------------------- Manager, Mohegan Sun (Principal
William J. Velardo Executive Officer)
/s/ Jeffrey E. Hartmann Senior Vice President and Chief
- --------------------------------------- Financial Officer, Mohegan Sun
Jeffrey E. Hartmann (Principal Financial and Accounting
Officer)
/s/ Carlisle M. Fowler Treasurer and Member, Management
- --------------------------------------- Board
Carlisle M. Fowler
/s/ Loretta F. Roberge Corresponding Secretary and Member,
- --------------------------------------- Management Board
Loretta F. Roberge
/s/ Shirley M. Walsh Recording Secretary and Member,
- --------------------------------------- Management Board
Shirley M. Walsh
/s/ Mark F. Brown Member, Management Board
- ---------------------------------------
Mark F. Brown
/s/ Courtland C. Fowler Member, Management Board
- ---------------------------------------
Courtland C. Fowler
/s/ Maynard L. Strickland Member, Management Board
- ---------------------------------------
Maynard L. Strickland
/s/ Glen R. LaVigne Member, Management Board
- ---------------------------------------
Glen R. LaVigne
<PAGE>
EXHIBIT 10.14
EXECUTION COPY
RELINQUISHMENT AGREEMENT
THIS RELINQUISHMENT AGREEMENT (as further supplemented or amended from time
to time, the "Relinquishment Agreement") is entered into as of this 7th day of
February, 1998, between the Mohegan Tribal Gaming Authority (as further
defined below, the "Authority"), an instrumentality of The Mohegan Tribe of
Indians of Connecticut, a federally recognized Indian tribe (as further
defined below, the "Tribe"), and Trading Cove Associates, a Connecticut
partnership ("TCA").
RECITALS
A. The Authority and TCA are parties to (i) that certain Amended and
Restated Gaming Facility Management Agreement dated August 30, 1995 and
approved by the National Indian Gaming Commission on September 29, 1995 (the
"Gaming Management Agreement"), which grants to TCA the exclusive right and
obligation, for a period of seven (7) years ending on October 11, 2003, to
manage certain gaming operations as described therein, and to train Tribe
members and others in the operation and maintenance of such operations and
(ii) that certain Hotel/Resort Management Agreement dated February 28, 1994
(the "Hotel Management Agreement"), which grants to TCA the exclusive right
and obligation, for a period of fourteen (14) years, to manage, operate and
maintain certain hotel/resort operations as described therein.
B. The Authority now desires to assume the management, operation and
maintenance of its existing gaming operations, any related hotel/resort
operations and any expansion of the foregoing.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
promises herein contained, and other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the Authority and
TCA agree as follows:
1. Definitions. Capitalized terms used in this Relinquishment Agreement
shall have the meanings set forth below:
"Affiliate" means, with respect to the Person in question, any Person
controlling, controlled by or under common control with, such Person. For
the purposes hereof, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
or policies of the Person in question.
"Affiliate Transaction" has the meaning set forth in Section 7.2 below.
"Assignment Offer" has the meaning set forth in Section 16.7(a) below.
"Assignor" has the meaning set forth in Section 16.7(a) below.
"Authority" means the Mohegan Tribal Gaming Authority, acting by the
Management Board, or any other instrumentality of the Tribe with the
authority to exercise the regulatory and proprietary authority of the Tribe
over the Facilities in accordance with the Mohegan Tribal Constitution, the
Tribe's ordinance for gaming, the Tribe's ordinance establishing the
Mohegan Tribal Gaming Authority, the Compact, the IGRA or other applicable
law, and any successor and assignee thereto.
"Average Casino Revenues" means the average monthly Revenues of the
Casinos for the twelve (12) months ending with (and including) the month
immediately prior to the month in which a Casualty Event occurs.
<PAGE>
"Bankruptcy Code" means the United States Bankruptcy Code, at 11 U.S.C.
(S)(S) 101, et. seq., as amended from time to time.
"Bureau of Indian Affairs" is the Bureau of Indian Affairs of the
Department of the Interior of the United States of America.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet
prepared in accordance with GAAP.
"Cash Contingency Reserve Fund" means the account previously established
by TCA in the Authority's name pursuant to the Gaming Management Agreement
which is used to make transfers as necessary to the Disbursement Account
and the cash prize reserve fund.
"Casinos" means, collectively, the Mohegan Sun Casino and the New Casino.
"Casualty Event" means any casualty, event or occurrence that destroys or
damages either or both Casinos.
"Class II Gaming Revenues" means any revenues collected from Class II
Gaming as that term is defined under the IGRA.
"Compact" means the tribal-state Compact entered into between the Tribe
and the State of Connecticut pursuant to the IGRA, as the same may be
amended from time to time, or such other Compact as may be substituted
therefor.
"Construction Financing" means the financing to be obtained and/or
committed by the Authority sufficient, as determined by the Authority, for
the purposes of the design, construction, equipping and staffing of the New
Facilities.
"CPI" means the revised Consumer Price Index for All Urban Consumers
(revised CPI-U), All Items, MSA applicable to New London County, CT, Base
1982-84=100, issued by the Bureau of Labor Statistics of the U.S.
Department of Labor. If the CPI is changed so that a base period other than
1982-84 is used, the CPI shall be converted in accordance with the
conversion factor published by the Bureau of Labor Statistics of the
Department of Labor. If the CPI is discontinued during the Term with no
successor or comparable successor CPI, the Authority shall appoint an
independent nationally recognized accounting firm to select another similar
index.
"Depository Account" means the account previously established by TCA in
the Authority's name pursuant to the Gaming Management Agreement into which
account are deposited all gross revenues and other proceeds connected with
or arising from the operation of the current gaming operations, the sale of
all products, food and beverage and all other activities of the current
operations.
"Designated Senior Indebtedness" means any Senior Indebtedness the
original principal amount or maximum commitment of which is $50,000,000 or
more and that has been designated at the time of issuance thereof by the
Authority as "Designated Senior Indebtedness."
"Designated Senior Secured Indebtedness" means any Senior Secured
Indebtedness the original principal amount or maximum commitment of which
is $50,000,000 or more and that has been designated at the time of issuance
thereof by the Authority as "Designated Senior Secured Indebtedness."
"Disbursement Account" means the account previously established by TCA in
the Authority's name pursuant to the Gaming Management Agreement which
account TCA uses to make all required payments for operating expenses and
certain other payments relating to the existing gaming and related
operations.
"Effective Date" means the later of (a) the date the Authority receives
all Required Approvals, or (b) the date the existing Series B Senior
Secured Notes of the Authority in the original aggregate principal amount
of $175,000,000 are refinanced or repaid.
2
<PAGE>
"Facilities" means collectively the Mohegan Sun Casino and the New
Facilities, as such may be replaced or reconstructed following a casualty
loss (in whole or in part). The Facilities shall not include any other
facilities or improvements hereafter developed (by TCA or others) on lands
owned or controlled by the Authority or the Tribe or any instrumentality
thereof.
"Fiscal Year" means the fiscal year of the Authority which currently is
October 1-September 30.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession.
"Gaming" means any and all activities defined as Class III Gaming under
the IGRA or authorized under the Compact, but shall not include Class II
Gaming as defined under the IGRA.
"Gaming Management Agreement" has the meaning set forth in Recital A
hereof.
"Gross Gaming Revenue" shall mean the net win from Gaming activities
which is the difference between Gaming wins and losses before deducting
promotional allowances, costs and expenses, determined in accordance with
GAAP consistently applied.
"Guarantee" means a guaranty, direct or indirect, in any manner, of all
or any part of any indebtedness of another Person.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in
interest rates.
"Hotel Management Agreement" has the meaning set forth in Recital A
hereof.
"IGRA" means the Indian Gaming Regulatory Act of 1988, 25 U.S.C. (S) 2701
et seq., as amended from time to time.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property or representing
any Hedging Obligations, except any such balance that constitutes an
accrued expense or trade payable, if and to the extent any of the foregoing
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with
GAAP consistently applied, as well as all Indebtedness of others secured by
a lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The
amount of any Indebtedness outstanding as of any date shall be (a) the
accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (b) the principal amount thereof, together
with any interest thereon that is more than thirty (30) days past due, in
the case of any other Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of Management Board of the Authority, (i) qualified to
perform the task for which it has been engaged and (ii) disinterested and
independent with respect to the Authority and each Affiliate of the
Authority.
"Initial Junior Payment Period" means the period commencing on the
Relinquishment Date and ending on the earlier to occur of June 30 or
December 31 following the Relinquishment Date.
"Initial Senior Payment Period" means the period commencing on the
Relinquishment Date and ending on the earlier to occur of March 31, June
30, September 30 or December 31 following the Relinquishment Date.
3
<PAGE>
"Junior Changeover Date" means the date immediately following the end of
the Initial Junior Payment Period.
"Junior Relinquishment Payment" has the meaning set forth in Section
6.1(b) below.
"MTC Court" means the Gaming Disputes Court of the Tribe.
"Marks" means any and all of the service marks, trademarks, copyrights,
trade names, patents or other similar rights or registrations, now or
hereafter held by the Tribe or the Authority or applied for in connection
therewith; including all marks which are unique to, and developed for, the
Facilities.
"Minimum Priority Distribution" means an annual minimum payment to the
Tribe from the operation of the Facilities in the amount of Fourteen
Million Dollars ($14,000,000), which shall be adjusted annually, on each
anniversary of the Relinquishment Date, to reflect the cumulative increase
in the CPI since the Relinquishment Date. One twelfth (1/12th) of the
Minimum Priority Distribution shall be paid to the Tribe within twenty-five
(25) days following the end of each calendar month following the
Relinquishment Date. Any underpayment of the Minimum Priority Distribution
in any calendar month shall be added to the Minimum Priority Distribution
due the following calendar month.
"Mohegan Sun Casino" means the existing Mohegan Sun casino and any other
lawful commercial activity operated in such casino, as used for Gaming.
"National Indian Gaming Commission" means the commission established
pursuant to 25 U.S.C. Section 2704.
"New Casino" means the new casino to the extent developed by TCA as part
of the New Facilities and any other lawful commercial activity operated in
such casino, as used for Gaming.
"New Facilities" means a new casino consisting of approximately 100,000
square feet of gaming space and related food and beverage and entertainment
facilities, a luxury hotel containing approximately 1,500 guest rooms and
related food and beverage facilities, a convention/events center with
indoor seating for approximately 10,000 patrons and 100,000 square feet of
convention space, related parking facilities and infrastructure, and
including any modifications of the foregoing elements agreed to by the
parties, to the extent such facilities are developed by TCA.
"NJ Gaming License" means Sun International's qualification as a holding
company pursuant to the New Jersey Casino Control Act.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"Officer's Certificate" means a certificate signed on behalf of the
Authority by two officers of the Authority, one of whom must be the
principal executive officer, the principal financial officer, the treasurer
or the principal accounting officer of the Authority.
"Payment Blockage Notice" has the meaning set forth in Section 6.2(d)(ii)
below.
"Permitted Assignee" means Sun International, any Affiliate of Sun
International, Sun Cove Ltd., Waterford Gaming, L.L.C., LMW Investments,
Inc. and Slavik Suites, Inc.
"Person" means any individual, sole proprietorship, corporation, general
partnership, limited partnership, limited liability company or partnership,
joint venture, association, joint stock company, unincorporated
association, instrumentality or other form of entity.
"Petty Cash Fund" means the account previously established by TCA in the
Authority's name pursuant to the Gaming Management Agreement which is used
to maintain funds for miscellaneous small expenditures relating to the
existing gaming and related operations.
4
<PAGE>
"Principal Business" means the Class II and Class III casino gaming (as
such terms are defined in IGRA) and resort business and any activity or
business incidental, directly related or similar thereto, or any business
or activity that is a reasonable extension, development or expansion
thereof or ancillary thereto, including any hotel, retail, entertainment,
recreation or other activity or business designated to promote, market,
support, develop, construct or enhance the gaming and resort business
operated by the Authority.
"Proposed Financing" means the anticipated refinancing of certain of the
Authority's existing indebtedness, together with the Construction
Financing.
"Recommencement Month" means, following a Tolling Event, the earlier of
the month in which (i) the monthly Revenues of the Casinos equal or exceed
ninety percent (90%) of the Average Casino Revenues, (ii) the date upon
which the Authority has fully complied with the requirements set forth in
Section 7.6 below occurs, or (iii) TCA delivers written notice (which shall
be irrevocable with respect to such Tolling Event) to the Authority stating
that the current month shall be deemed the "Recommencement Month."
"Relinquishment Agreement" has the meaning set forth in the introductory
paragraph hereof.
"Relinquishment Date" means the later of (a) January 1, 2000 or (b) the
Effective Date.
"Relinquishment Payment" has the meaning set forth in Section 6.1 below.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Indebtedness.
"Required Approvals" means the approval of this Relinquishment Agreement
by the Bureau of Indian Affairs, and/or the National Indian Gaming
Commission, to the extent those agencies determine such approval may be
required by law, and the entry of a stipulated declaratory judgment by the
MTC Court upholding the validity and enforceability of this Relinquishment
Agreement.
"Revenues" means all revenues of any nature (but excluding any Class II
Gaming Revenues) derived directly or indirectly from the Facilities,
including, without limitation, Gross Gaming Revenue, hotel revenues, room
service, catering, food and beverage sales, parking revenues, ticket
revenues or other fees or receipts from the convention/events center, other
rental or other receipts from lessees, sublessees, licensees and
concessionaires (but not the gross receipts of such lessees, sublessees,
licensees or concessionaires) and proceeds of business interruption
insurance, but excluding (i) any gratuities or service charges added to a
customer's bill, (ii) any credits or refunds made to customers, guests or
patrons, (iii) any sales, excise, gross receipt, admission, entertainment,
tourist or other taxes or charges (or assessments equivalent thereto, or
payments made in lieu thereof) which are received from patrons and passed
on to governmental or quasi-governmental entities unrelated to the Tribe,
(iv) any federal taxes or impositions that relate to the operation of the
Facilities, which may be implemented from time to time, (v) any fire and
extended coverage insurance proceeds other than for business interruption,
(vi) any condemnation awards other than for temporary condemnation, (vii)
any proceeds of financings or refinancings, and (viii) any interest earned
on any accounts, all as determined in accordance with GAAP consistently
applied.
"Senior Changeover Date" means the date immediately following the end of
the Initial Senior Payment Period.
"Senior Indebtedness" means (a) any Indebtedness of the Authority unless
the instrument under which such Indebtedness is incurred expressly provides
that it is on parity with, or subordinated in right of payment to, the
Junior Relinquishment Payment and (b) all Obligations with respect to any
of the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (x) any Indebtedness of
the Authority to the Tribe or any Affiliate or instrumentality thereof
other than in respect of the Minimum Priority Distribution and (y) any
Indebtedness incurred for the purchase of goods or materials or for
services obtained in the ordinary course of the business of the Facilities
(other than with the proceeds of revolving credit borrowings permitted
hereby).
5
<PAGE>
"Senior Obligations" means Senior Indebtedness, Senior Relinquishment
Payments and interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable with respect to the Senior
Relinquishment Payments.
"Senior Relinquishment Payment" has the meaning set forth in Section
6.1(a) below.
"Senior Secured Indebtedness" means any Senior Indebtedness secured by a
security interest, mortgage or other arrangement such that the holder of
such Senior Indebtedness would be recognized as a secured creditor under
the Bankruptcy Code if the obligor of such Senior Indebtedness were a
debtor under the Bankruptcy Code.
"Senior Secured Obligations" means any Obligations with respect to Senior
Secured Indebtedness to the extent that such Obligations would be
recognized as a secured claim (assuming no election has been made under
(S) 1111 of the Bankruptcy Code) under the Bankruptcy Code if the obligor
were a debtor under the Bankruptcy Code.
"Sun International" means Sun International Hotels Limited.
"TCA" has the meaning set forth in the introductory paragraph hereof.
"Term" has the meaning set forth in Section 3 below.
"Termination Event" means the irrevocable revocation of the NJ Gaming
License.
"Tolling Event" means, following a Casualty Event, the failure of the
monthly Revenues of the Casinos to equal at least fifty percent (50%) of
the Average Casino Revenues for three (3) consecutive months.
"Tolling Period" has the meaning set forth in Section 16.14 below.
"Tribe" means the Mohegan Tribe of Indians of Connecticut, a federally
recognized Indian tribe and its permitted successors and assigns.
"Unsecured Senior Refinancing Indebtedness" means any Senior Indebtedness
other than Senior Secured Indebtedness that is issued as part of the
Proposed Financing and is underwritten or privately placed by an investment
banking firm.
"Year-End Statement" has the meaning set forth in Section 6.1(c) below.
2. Status of Management Agreements. (a) As of the Relinquishment Date, the
Authority and TCA terminate the Gaming Management Agreement and all covenants,
terms and provisions contained therein pursuant to Section 9.2 thereof,
including, without limitation, the retention of TCA as an independent
contractor for the purposes of managing the Authority's gaming operations and
all rights and responsibilities of TCA in connection with such retention under
the Gaming Management Agreement. Notwithstanding the foregoing, following the
Relinquishment Date, to the extent any claims or obligations relating to the
period prior to the Relinquishment Date pursuant to Sections 4.2.3, 4.17 or 5
of the Gaming Management Agreement arise, such of TCA's and the Authority's
obligations under such sections shall survive the termination of the Gaming
Management Agreement.
(b) As of the Effective Date, the Authority and TCA terminate all rights and
responsibilities of the Authority and TCA which may exist under the Hotel
Management Agreement.
3. Term. The "Term" of this Relinquishment Agreement shall commence on the
Effective Date and shall continue until all Relinquishment Payments have been
paid in accordance with Section 6.1 below; provided, however, that if a
Termination Event occurs on or prior to the Relinquishment Date, this
Relinquishment Agreement (and all obligations of the Authority under this
Relinquishment Agreement) shall automatically terminate and be of no further
force and effect; unless the partnership interest in TCA held by Sun Cove Ltd.
is assigned within thirty (30) days following such Termination Event to an
entity which (a) has been approved by the Authority, in the Authority's sole
and absolute discretion, and (b) otherwise satisfies the provisions of the
Gaming Management Agreement.
6
<PAGE>
4. Distributions. Within forty-five (45) days of the Relinquishment Date,
TCA shall prepare and deliver to the Authority a final statement of accounts
covering the period since the most recent operating statement prepared in
accordance with Section 4.29 of the Gaming Management Agreement through the
Relinquishment Date. Based on such final statement and in accordance with
Section 10.2 of the Gaming Management Agreement, no later than fifteen (15)
business days following the release of the accounts to the Authority pursuant
to Section 5 below, the Authority shall pay TCA those amounts to which it is
entitled under the third and fifth clauses of Section 6.4 of the Gaming
Management Agreement that have accrued for the period prior to the
Relinquishment Date but which have not been distributed. In its sole
discretion, within ninety (90) days following receipt of such final statement,
the Authority may obtain an audit of such final statement as well as the other
books and records required to be maintained by TCA pursuant to the Gaming
Management Agreement for the period from the date of the last audited
financial statements delivered thereunder through the Relinquishment Date from
a nationally recognized independent certified public accounting firm with
casino industry experience selected by the Authority.
5. Release of Accounts. On the Relinquishment Date, TCA shall release to the
Authority and relinquish any and all rights it may have under the Gaming
Management Agreement with respect to any and all accounts maintained by or on
behalf of the Tribe or the Authority, including, without limitation, the
Depository Account, the Disbursement Account, the Cash Contingency Reserve
Fund and the Petty Cash Fund, and TCA shall no longer have authority or the
right or obligation to make payments into, disbursements from, or transfers
between or among such accounts. TCA shall execute any and all instruments or
documents necessary to release or transfer to the Authority full control over
all such accounts.
6. Payments.
6.1 Relinquishment Payments. The Authority shall make certain payments to
TCA (the "Relinquishment Payments"), without set-off, deduction or
counterclaim, in connection with the termination of TCA's rights under the
terms of the Gaming Management Agreement and the Hotel Management Agreement.
Subject to Section 6.2 below, the Relinquishment Payments shall be paid and
consist of those amounts computed in accordance with paragraphs (a) and (b) as
set forth below:
(a) Within twenty-five (25) days following the end of the Initial Senior
Payment Period and thereafter within twenty-five (25) days following the
end of each successive three (3) month period, commencing on the Senior
Changeover Date and ending on the day immediately preceding the fifteenth
(15th) annual anniversary of the Relinquishment Date (recognizing that the
last such period may be less than three (3) full months), the Authority
shall pay TCA an amount equal to two and one half percent (2.50%) of
Revenues for the Initial Senior Payment Period and for each successive
three (3) month period thereafter, as applicable (the "Senior
Relinquishment Payments").
(b) Within twenty-five (25) days following the end of the Initial Junior
Payment Period and thereafter within twenty-five (25) days following the
end of each successive six (6) month period, commencing on the Junior
Changeover Date and ending on the day immediately preceding the fifteenth
(15th) annual anniversary of the Relinquishment Date (recognizing that the
last such period may be less than six (6) full months), the Authority shall
pay TCA an amount equal to two and one half percent (2.50%) of Revenues for
the Initial Junior Payment Period and for each successive six (6) month
period thereafter, as applicable (the "Junior Relinquishment Payments").
(c) Within ninety (90) days following the end of the Fiscal Year in which
the Relinquishment Date occurs and thereafter following the end of each
Fiscal Year (or portion thereof) during the Term, the Authority shall
provide to TCA operating statements derived from audited financials for the
preceding Fiscal Year which include, without limitation, all Revenues
generated by the Facilities and the amount of the Relinquishment Payments
paid or payable to TCA pursuant to Sections 6.1(a) and (b) (the "Year End
Statements"). Such statements shall be prepared in accordance with GAAP,
consistently applied, and shall be certified as true and complete by
nationally recognized independent auditors selected by the Authority.
7
<PAGE>
Upon reasonable notice and at reasonable times, TCA or its duly authorized
representatives shall have on-site access to, and be entitled to photocopy,
the books and records of the Authority relating to the Facilities for the
purpose of verifying the Year End Statements.
(d) To the extent that any Relinquishment Payment (or portion thereof) is
not paid when due, such amounts shall earn interest at a rate of twelve
percent (12%) per annum from the due date thereof until the date payment is
made (or if such rate of interest is not lawful, at the maximum lawful rate
of interest).
6.2 Subordination of Relinquishment Payments. (a) TCA and the Authority
agree that each of the Junior Relinquishment Payments and each of the Senior
Relinquishment Payments are subordinated in right of payment, to the extent
and in the manner provided in this Section 6.2, to the prior payment of the
Minimum Priority Distribution (to the extent then due) and to the prior
payment of all Senior Secured Obligations (whether outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed), and that the
subordination referred to in this sentence is for the benefit of the Tribe and
the holders of Senior Secured Indebtedness. TCA and the Authority agree that
each of the Junior Relinquishment Payments (but not the Senior Relinquishment
Payments) are subordinated in right of payment, to the extent and in the
manner provided in this Section 6.2, to the prior payment of all Senior
Obligations (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination referred to in
this sentence is for the benefit of the holders of Senior Obligations.
(b) Upon any distribution to creditors of the Authority in a liquidation of
the Authority, or of the business conducted in the Facilities, or dissolution
of the Authority, or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to the Authority or the business conducted in
the Facilities, or in an assignment for the benefit of creditors or any
marshaling of the Authority's assets and liabilities:
(i) (A) the Tribe shall be entitled to receive the Minimum Priority
Distributions then due in cash before TCA shall be entitled to receive any
payment with respect to either the Senior Relinquishment Payments or the
Junior Relinquishment Payments then due, (B) the holders of Senior Secured
Indebtedness shall be entitled to receive payment in full in cash of all
Senior Secured Obligations due in respect of such Senior Secured
Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Secured
Indebtedness) before TCA shall be entitled to receive any payment with
respect to either the Senior Relinquishment Payments or the Junior
Relinquishment Payments, and (C) the holders of Senior Obligations shall be
entitled to receive payment in full in cash of such Senior Obligations
(including interest after the commencement of any such proceeding at the
rate specified in the document governing the applicable Senior Obligation)
before TCA shall be entitled to receive any payment with respect to the
Junior Relinquishment Payments; and
(ii) (A) until all Minimum Priority Distributions then due are paid in
full in cash, any payment or distribution in respect of any Relinquishment
Payment to which TCA would be entitled but for the operation of this
Section 6.2 shall be made to the Tribe, (B) if all Minimum Priority
Distributions then due are paid in full in cash and until all Senior
Secured Obligations (as provided in subsection (i) above) are paid in full
in cash, any payment or distribution in respect of any Relinquishment
Payment to which TCA would be entitled but for the operation of this
Section 6.2 shall be made to holders of Senior Secured Indebtedness, as
their interests may appear, and (C) if all Minimum Priority Distributions
then due and Senior Secured Obligations are paid in full in cash and until
all Senior Obligations (as provided in subsection (i) above) are paid in
full in cash, any payment or distribution in respect of any Junior
Relinquishment Payment to which TCA would be entitled but for the operation
of this Section 6.2 shall be made to holders of Senior Obligations, as
their interests may appear.
(c) The Authority may not make any payment or distribution to TCA in respect
of any Relinquishment Payment and may not acquire from TCA any right to any
Relinquishment Payment or any release, satisfaction, discharge or
relinquishment of any Relinquishment Payment for cash or property until all
Minimum Priority Distributions then due have been paid in full in cash if a
default in the payment of any Minimum Priority Distribution then due has
occurred.
8
<PAGE>
(d) Provided that provisions substantially equivalent to this Section 6.2(d)
prevent payments or distributions to or in respect of all Unsecured Senior
Refinancing Indebtedness, the Authority may not make any payment or
distribution to TCA in respect of any Relinquishment Payment and may not
acquire from TCA any right to any Relinquishment Payment or any release,
satisfaction, discharge or relinquishment of any Relinquishment Payment for
cash or property until all Senior Secured Obligations have been paid in full
if:
(i) a default in the payment of any principal or other Obligations with
respect to Designated Senior Secured Indebtedness occurs and is continuing
beyond any applicable grace period in the agreement, indenture or other
document governing such Designated Senior Secured Indebtedness; or
(ii) a default, other than a payment default, on Designated Senior
Secured Indebtedness occurs and is continuing that then permits holders of
the Designated Senior Secured Indebtedness to accelerate its maturity and
TCA receives a notice of the default (a "Payment Blockage Notice") from a
Representative. If TCA receives any such Payment Blockage Notice, no
subsequent Payment Blockage Notice shall be effective for purposes of this
Section 6.2(d)(ii), irrespective of the number of defaults (other than
defaults covered by clause (i) above) with respect to Designated Senior
Secured Indebtedness during such period, unless and until at least three
hundred sixty (360) days shall have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice issued under this Section
6.2(d)(ii).
(e) The Authority may not make any payment or distribution to TCA in respect
of any Junior Relinquishment Payment and may not acquire from TCA any right to
any Junior Relinquishment Payment or any release, satisfaction, discharge or
relinquishment of any Junior Relinquishment Payment for cash or property until
all Senior Obligations have been paid in full if:
(i) a default in the payment of any amounts, principal or other
Obligations with respect to Designated Senior Indebtedness or Senior
Relinquishment Payments occurs and is continuing beyond any applicable
grace period in the agreement, indenture or other document governing such
Designated Senior Indebtedness or Senior Relinquishment Payments; or
(ii) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing that then permits holders of the
Designated Senior Indebtedness to accelerate its maturity and TCA receives
a Payment Blockage Notice from a Representative. If TCA receives any such
Payment Blockage Notice, no subsequent Payment Blockage Notice shall be
effective for purposes of this Section 6.2(e)(ii), irrespective of the
number of defaults (other than defaults covered by clause (i) above) with
respect to Designated Senior Indebtedness during such period, unless and
until at least three hundred sixty (360) days shall have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice issued under
this Section 6.2(e)(ii).
(f) The Authority may and shall resume payments on, and distributions in
respect of, any Relinquishment Payment (or portion thereof) the payment of
which was not permitted hereby, and the Authority may take actions with
respect thereto that were not permitted hereby, upon the earlier of:
(i) the date upon which all applicable defaults that prevent such payment
or distribution are cured or waived; or
(ii) in the case of a default referred to in Section 6.2(d)(ii) or
6.2(e)(ii) hereof, one hundred seventy nine (179) days following receipt of
the applicable Payment Blockage Notice if the maturity of such Designated
Senior Secured Indebtedness or Designated Senior Indebtedness, as
applicable, has not been accelerated,
if this Section otherwise permits the payment or distribution or such action
at the time of such payment or distribution.
(g) In the event that TCA receives any payment with respect to any
Relinquishment Payment at a time when TCA has actual knowledge that such
payment is prohibited by this Section 6.2, such payment shall be held by TCA,
in trust for the benefit of, and shall be paid over forthwith and delivered,
upon written request, to: (i) the
9
<PAGE>
Tribe (to the extent that any Minimum Priority Distribution is then due and
not paid), (ii) the holders of Senior Secured Indebtedness (to the extent that
any such payment held by TCA was in respect of a Relinquishment Payment that
was subordinated to such Senior Secured Indebtedness), as their interests may
appear, or their Representative under the indenture or other agreement (if
any) pursuant to which Senior Secured Indebtedness may have been issued, as
their respective interests may appear, and (iii) the holders of Senior
Obligations (to the extent that any such payment held by TCA was in respect of
a Junior Relinquishment Payment that was subordinated to such Senior
Obligations), as their interests may appear, or their Representative under the
indenture or other agreement (if any) pursuant to which Senior Obligations may
have been issued or created, as their respective interests may appear, for
application to the payment, first to all Minimum Priority Distributions then
due and not paid, second, to all Senior Secured Obligations remaining unpaid
and then to all Senior Obligations remaining unpaid to the extent necessary to
pay such Senior Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the Tribe,
the holders of Senior Secured Indebtedness or the holders of Senior
Obligations or their Representatives, as the case may be.
(h) The Authority shall promptly notify TCA of any facts known to the
Authority that would cause a payment of any portion of the Relinquishment
Payments to violate this Section, but failure to give such notice shall not
affect the subordination of the Relinquishment Payments as provided in this
Section.
(i) After all Minimum Priority Distributions (to the extent then due) and
Senior Secured Obligations have been paid in full and until all Senior
Relinquishment Payments and all other Senior Indebtedness are current, TCA
shall be subrogated with respect to the Senior Relinquishment Payments
(equally and ratably with all other Senior Indebtedness pari passu with the
Senior Relinquishment Payments) to the rights of (i) the Tribe to receive
distributions applicable to Minimum Priority Distributions (to the extent then
due) to the extent that distributions otherwise payable with respect to the
Senior Relinquishment Payments have been applied to the payment of such
Minimum Priority Distributions, and (ii) holders of Senior Secured
Indebtedness to receive distributions applicable to Senior Secured Obligations
to the extent that distributions otherwise payable with respect to the Senior
Relinquishment Payments have been applied to the payment of Senior Secured
Obligations. A distribution made under this Section 6.2(i) to the Tribe or
holders of Senior Secured Indebtedness that otherwise would have been made in
respect of Senior Relinquishment Payments is not, as between the Authority and
TCA, a payment by the Authority in respect of Senior Relinquishment Payments.
(j) After all Minimum Priority Distributions (to the extent then due),
Senior Indebtedness and Senior Relinquishment Payments have been paid in full
and until all Junior Relinquishment Payments are current, TCA shall be
subrogated with respect to the Junior Relinquishment Payments (equally and
ratably with all other Indebtedness pari passu with the Junior Relinquishment
Payments) to the rights of (i) the Tribe to receive distributions applicable
to Minimum Priority Distributions (to the extent then due) to the extent that
distributions otherwise payable with respect to the Junior Relinquishment
Payments have been applied to the payment of such Minimum Priority
Distributions, (ii) holders of Senior Secured Indebtedness to receive
distributions applicable to Senior Secured Indebtedness to the extent that
distributions otherwise payable with respect to the Junior Relinquishment
Payments have been applied to the payment of Senior Secured Indebtedness, and
(iii) holders of any other Senior Indebtedness to receive distributions
applicable to any other Senior Indebtedness to the extent that distributions
otherwise payable with respect to the Junior Relinquishment Payments have been
applied to the payment of such Senior Indebtedness. A distribution made under
this Section 6.2(j) to the Tribe, holders of Senior Secured Indebtedness or
holders of other Senior Indebtedness that otherwise would have been made in
respect of Junior Relinquishment Payments is not, as between the Authority and
TCA, a payment by the Authority in respect of Junior Relinquishment Payments.
(k) This Section 6.2 defines the relative rights of TCA, the Tribe, holders
of Senior Secured Indebtedness and holders of Senior Obligations. Nothing in
this Section 6.2 shall:
(i) affect the relative rights of TCA and creditors of the Authority
other than their rights in relation to holders of Senior Secured
Indebtedness, holders of Senior Obligations and the Tribe with respect to
its rights to Minimum Priority Distributions;
10
<PAGE>
(ii) impair, as between the Authority and TCA, the obligation of the
Authority, which is absolute and unconditional, to pay the Relinquishment
Payments in accordance with the terms hereof; or
(iii) prevent TCA from exercising its available remedies upon a default
under this Relinquishment Agreement, including the right to obtain a
judgment against the Authority for failure to pay any Relinquishment
Payments when due pursuant to the provisions of Section 11 hereof, subject
to the rights of holders of Senior Secured Indebtedness, holders of Senior
Indebtedness and the Tribe to receive distributions and payments otherwise
payable to TCA as or in respect of Relinquishment Payments.
(l) No right of any holder of Senior Secured Indebtedness, any holder of
Senior Obligations or the Tribe to enforce the subordination provisions of
this Section 6.2 shall be impaired by any act or failure to act by the
Authority or TCA or by the failure of the Authority or TCA to comply with this
Section 6.2.
(m) The Authority agrees and covenants that it will not, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible
for the payment of (collectively, "incur") any Indebtedness that by its terms
is expressly subordinated in right of payment to any obligation of the
Authority (other than any subordination in right of payment to the Minimum
Priority Distributions or to Senior Secured Indebtedness) unless (i) such
Indebtedness is subordinated at least to the same extent to the right of
payment to the Senior Relinquishment Payments and (ii) such Indebtedness is
expressly not Senior Indebtedness hereunder. The Authority shall not incur any
Indebtedness that by its terms is expressly subordinated in right of payment
to any obligations of the Authority (other than any subordination in right of
payment to the Minimum Priority Distributions or to Senior Secured
Indebtedness) and which subordination terms would permit any payment on the
obligations due thereunder at a time that obligations due with respect to the
Junior Relinquishment Payments would not be payable pursuant to the terms
hereof, unless such payment was pari passu or subordinated with the Junior
Relinquishment Payment (pro rata in accordance with the respective amounts
then due).
(n) For the purposes of this Section 6.2, any Minimum Priority Distribution
shall be deemed paid for all purposes of this Section 6.2 if the Authority
lawfully may pay such Minimum Priority Distribution to the Tribe and has at
any time the funds lawfully available to pay such Minimum Priority
Distribution.
(o) The provisions of this Section 6.2 shall not be amended or modified to
affect adversely (i) the holders of Senior Secured Indebtedness, with respect
to the provisions relating to Senior Secured Obligations, without the prior
written consent of the holders of all Designated Senior Secured Indebtedness;
provided, however, that a provision may be amended or modified with respect to
any class of Senior Secured Obligations to the extent such class has given its
prior written consent to such amendment or modification, (ii) the holders of
Senior Indebtedness, with respect to the provisions relating to Senior
Obligations, without the prior written consent of the holders of all
Designated Senior Indebtedness; provided, however, that a provision may be
amended or modified with respect to any class of Senior Obligations to the
extent such class has given its prior written consent to such amendment or
modification, and (ii) the Tribe, with respect to the provisions relating to
the Minimum Priority Distribution, without the prior written consent of the
Tribe.
7. Certain Covenants of the Authority.
7.1 Payments to the Tribe. Except for the payment of (a) the Minimum
Priority Distributions, or (b) reasonable charges for utilities or other
governmental services supplied by the Tribe and used by the Authority (in an
amount not to exceed the reasonable costs of such services plus a reasonable
allowance for administrative costs), the Authority shall not make any payment
or distribution to or for the benefit of the Tribe or any Affiliate of the
Tribe or make any distribution to the members of the Tribe (i) prior to the
payment in full of Relinquishment Payments then due, or (ii) at any time if
any Relinquishment Payments are outstanding.
7.2 Affiliate Transactions. Except for the payment of (a) the Minimum
Priority Distributions, or (b) reasonable charges for utilities or other
governmental services supplied by the Tribe and used by the Authority (in an
amount not to exceed the reasonable costs of such services plus a reasonable
allowance for administrative
11
<PAGE>
costs), the Authority shall not sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from,
or enter into or make any contract, agreement, understanding, loan, advance or
Guarantee with, or for the benefit of, the Tribe, an Affiliate of the Tribe or
an Affiliate of the Authority (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Authority than those that would have been obtained in a
comparable transaction by the Authority with an unrelated Person, and (ii) the
Authority delivers to TCA (a) with respect to any Affiliate Transaction
involving aggregate payments in excess of Two Million Dollars ($2,000,000), a
resolution adopted by a majority of the Management Board approving such
Affiliate Transaction and set forth in an Officer's Certificate certifying
that such Affiliate Transaction complies with clause (i) above and (b) with
respect to any Affiliate Transaction involving aggregate payments in excess of
Ten Million Dollars ($10,000,000), a written opinion as to the fairness to the
Authority from a financial point of view issued by an Independent Financial
Advisor.
7.3 Subsidiaries. The Authority will not create, acquire or own any
instrumentality, subdivisions or subunits unless the actions and assets of
such instrumentalities, subdivisions or subunits are subject to or bound by
the terms of this Relinquishment Agreement.
7.4 Business Purpose. During the Term, the Authority (or any assignee of the
Authority permitted under this Relinquishment Agreement), directly or
indirectly, shall not engage in any business or activity other than the
Principal Business.
7.5 Operation of Casinos. During the Term, the Authority shall continue to
operate (i) the Mohegan Sun Casino for the primary purpose of conducting
Gaming, substantially in accordance with the standard and character of the
operations being conducted therein on the date hereof, and (ii) the New Casino
for the primary purpose of conducting Gaming, substantially in accordance with
the standard and character of the operations conducted therein one year after
the opening of the New Casino.
7.6 Replacement or Restoration Following Casualty. If all or a portion of
the Facilities are damaged by fire or other casualty, the Authority promptly
shall cause the Facilities to be replaced or restored to substantially the
same condition as immediately prior to the occurrence of such fire or other
casualty; provided, however, that in no event shall the Authority be obligated
to expend for any replacement or restoration an amount in excess of the
insurance proceeds recovered by the Authority and allocable to the damage to
the Facilities after deduction of any amounts required to be paid to any
holder of Indebtedness. If insurance proceeds are not available to the
Authority for such replacement or restoration, the Authority shall use
reasonable efforts to obtain financing on commercially reasonable terms to
undertake such replacement or restoration of the Facilities.
8. Marks. To the extent TCA has any rights to any of the Marks or the
"Mohegan Sun" name, TCA grants to the Authority an exclusive, irrevocable,
perpetual, world-wide, royalty free license to use the Marks and the "Mohegan
Sun" name in connection with the Facilities; provided, however, that the
Authority shall only use the word "Sun" in conjunction with the Facilities and
together with the word or words "Mohegan" or "the Mohegan Tribe" and that the
Authority will not use the word "Sun" separately as a trademark or servicemark
or engage in any activity that suggests it is affiliated with Sun
International or TCA after the Relinquishment Date. TCA acknowledges that all
of the Marks might not be used in connection with the Facilities, and the
Authority shall have sole discretion to determine which Marks shall be so
used. Except as may be required by law or to describe the historical
relationship between the parties, TCA shall not use the Authority's or the
Tribe's name, or any variation thereof, directly or indirectly, in any context
without the prior written approval of the Authority, which may be withheld in
its sole and absolute discretion.
9. Non-Impairment of Agreement. The Tribe, directly or indirectly, shall not
impose any tax, levy or other monetary payment obligation on the Authority or
on any activity at the Facilities, other than (a) Minimum Priority
Distributions and (b) reasonable charges for utilities or other governmental
services supplied by the Tribe and used by the Authority (in an amount not to
exceed the reasonable costs of such services plus a reasonable allowance for
administrative costs). The Tribe shall not, directly or indirectly, take any
action, enter into any
12
<PAGE>
agreement, amend its constitution or enact any ordinance, law, rule or
regulation that would prejudice or have a material adverse affect on the
rights of TCA under this Relinquishment Agreement. Neither the Tribe nor any
committee, agency, board or other official body of the Tribe shall, by
exercise of the police power, eminent domain or otherwise, act to modify,
amend or in any manner impair the obligations of the parties under this
Relinquishment Agreement without the written consent of TCA. Any such action
or attempted action shall be void ab initio. The Tribe acknowledges that the
MTC Court has the authority to provide equitable relief to enforce this
provision.
10. Confidential and Proprietary Information. Each party agrees to treat as
confidential all non public information received during the performance of the
Gaming Management Agreement or pursuant to this Relinquishment Agreement
regarding the other party, its organization, financial matters, marketing
plans or other affairs. Except as may be required by law, no such information
will be disclosed to any person, firm or organization without the prior
written approval of the other party. Notwithstanding the provisions of Section
22 of the Gaming Management Agreement, the Authority may retain the
confidential and proprietary information developed by TCA and relating to the
management of the existing gaming and related operations pursuant to the
Gaming Management Agreement.
11. Authority's Consent to Suit. The Authority expressly waives its immunity
from unconsented suit for the purpose of permitting a suit by TCA in any court
of competent jurisdiction, including, without limitation, the MTC Court, for
any claims by TCA for the purpose of enforcing this Relinquishment Agreement
and any judgment arising out of this Relinquishment Agreement. The Authority's
waiver of immunity from suit is specifically limited to the following actions
and judicial remedies: (a) the enforcement of the Authority's payment
obligations under this Relinquishment Agreement with an award of actual
damages in connection with any breach of the provisions hereof; provided,
however, that the court shall have no authority or jurisdiction to order
execution against any assets or revenues of the Authority except cash of the
Authority (except to the extent the Authority can demonstrate such cash was
derived from a source other than the Facilities) and undistributed and future
Revenues; and (b) an action to prohibit the Authority from taking an action
that would prevent the operation of this Relinquishment Agreement pursuant to
its terms, or that requires the Authority to specifically perform any
obligation under this Relinquishment Agreement. In no instance shall any
enforcement of any kind whatsoever be allowed against any assets of the
Authority other than the limited assets of the Authority specified in the
foregoing clause (a).
12. No Liability of the Tribe; Limited Consent To Suit. Neither the Tribe
nor any director, officer or office holder, employee, agent, representative or
member of the Authority or the Tribe, as such, shall have any liability for
any obligations of the Authority under this Relinquishment Agreement or for
any claim based upon, in respect of, or by reason of such obligations or their
creation. The only assets subject to payment or encumbrances for the payment
of obligations hereunder shall be cash of the Authority (except to the extent
the Authority can demonstrate such cash was derived from a source other than
the Facilities) and the undistributed and future Revenues of the Authority.
Notwithstanding the foregoing, the Tribe expressly waives its immunity from
unconsented suit for the limited purpose of permitting a suit by TCA in any
court of competent jurisdiction, including, without limitation, the MTC Court,
for the sole purpose of obtaining equitable relief to enforce the provisions
of Sections 9, 12 and 13 of this Relinquishment Agreement. The Tribe's waiver
of immunity from suit is specifically limited to equitable relief to enforce
the provisions of Sections 9, 12 and 13; provided, however, that the court
shall have no authority or jurisdiction to order execution against any assets
or revenues of the Tribe and in no instance shall any enforcement of any kind
whatsoever be allowed against any assets of the Tribe.
13. Government Savings Clause. This Relinquishment Agreement shall be
submitted to (a) the Bureau of Indian Affairs, and the National Indian Gaming
Commission, to the extent required by law, for appropriate action, if any, and
(b) the MTC Court for a stipulated declaratory judgment upholding its validity
and enforceability, the form of which will be mutually agreed to by the
Authority and TCA. In addition, each party agrees to pursue such actions or
judgment and execute, deliver and, if necessary, record any and all
instruments,
13
<PAGE>
certifications, amendments, modifications and other documents as may be
required by the United States Department of the Interior, Bureau of Indian
Affairs, the office of the Field Solicitor, or any applicable statute, rule or
regulation or otherwise cooperate, as necessary, in order to effectuate,
complete, perfect, continue or preserve the respective rights, obligations and
interests of the parties to the fullest extent permitted by law; provided that
any such instrument, certification, amendment, modification or other document
shall not materially change the respective rights, remedies or obligations of
the parties under this Relinquishment Agreement or related agreements or
documents.
14. Coordination. During the period of time between the Effective Date and
the Relinquishment Date, TCA and the Authority shall cooperate with each other
(at no cost to the other) as necessary to effect an orderly transition of the
operation of the existing gaming operations to the Authority.
15. Employment Solicitation. From and after the date hereof until five (5)
years after the Relinquishment Date, neither TCA nor the Authority nor any
Affiliate of either party shall solicit, attempt to solicit or cause the
solicitation or attempted solicitation of any employee of TCA or the Authority
or any Affiliate of either party with whom TCA or the Authority or any
Affiliate of either party had contact, by virtue of their relationship
regarding the Facilities, to leave his or her employment and accept employment
with TCA or the Authority or any Affiliate of either party, as the case may
be.
16. Miscellaneous Provisions.
16.1 Authorization. The Authority and TCA represent and warrant to each
other that each has full power and authority to execute this Relinquishment
Agreement and to be bound by and perform the terms hereof. Each party shall
furnish evidence of such authority to the other. The Authority and TCA each
represent and warrant to the other that the execution, delivery and
performance of this Relinquishment Agreement shall not conflict with the terms
of their organizational documents, any agreement to which it is a party or by
which it is bound or any law, rule or regulation to which its subject.
16.2 Relationship. From and after the Relinquishment Date, TCA shall not
have any management authority or responsibilities with respect to the
Facilities. TCA and the Authority shall not be construed as joint venturers or
partners of each other by reason of this Relinquishment Agreement, and neither
shall have the power to bind or obligate the other.
16.3 Governing Law. The rights and obligations of the parties and the
interpretation and performance of this Relinquishment Agreement shall be
governed by the law of the Tribe, and, to the extent not addressed by the law
of the Tribe, by applicable federal law, and, to the extent not addressed by
the law of the Tribe or applicable federal law, the law of the State of
Connecticut without regards to its principles regarding conflicts of law.
16.4 Amendment. No modification or amendment to this Relinquishment
Agreement will be effective unless mutually agreed upon by both parties in
writing and unless such modification or amendment has received any required
regulatory approval.
14
<PAGE>
16.5 Notices. All notices, demands, requests or other communications which
may be or are required to be given, served or sent to either party in
connection with the matters which are the subject of this Relinquishment
Agreement shall be in writing and shall be personally delivered to such party
or mailed first class, postage prepaid, or transmitted by a major overnight
commercial courier or by facsimile to the address for such party as set forth
below, or to such other address furnished by such parties for such purpose by
means of notice pursuant to this Section 16.5:
If to the Authority:
Mohegan Tribal Gaming Authority
One Mohegan Sun Boulevard
Uncasville, CT 06382
Attention: Chairman of the
Management Board
Phone: (860) 848-6100
Facsimile: (860) 848-6162
with a copy to:
Mohegan Tribal Gaming Authority
One Mohegan Sun Boulevard
Uncasville, CT 06382
Attention: Mr. Thomas Acevedo
Phone: (860) 848-6126
Facsimile: (860) 848-6162
If to TCA:
Trading Cove Associates
914 Hartford Turnpike
P.O. Box 60
Waterford, CT 06385
Attention: Mr. Len Wolman
Phone: (860) 442-4559
Facsimile: (860) 437-7752
with a copy to:
Sun International Hotels Limited
Coral Towers
P.O. Box N-4777
Paradise Island
Nassau, The Bahamas
Attention: Mr. Charles Adamo
Phone: (242) 363-2509
Facsimile: (242) 363-4581
Notices delivered by mail shall be deemed given five (5) days after such
mailing. Notices given by hand delivery shall be deemed given on the date of
delivery. Notices given by overnight commercial courier shall be deemed given
on the business day immediately following transmittal, and notices delivered
by facsimile shall be deemed given on the date of transmission if the
transmission is confirmed.
16.6 Third Party Beneficiary. This Relinquishment Agreement is exclusively
for the benefit of the parties hereto and it may not be enforced by any party
other than the parties to this Relinquishment Agreement and shall not give
rise to liability to any third party other than the authorized successors and
assigns of the parties pursuant to Section 16.7.
15
<PAGE>
16.7 Successors and Assigns. (a) The benefits and obligations of this
Relinquishment Agreement shall inure to and be binding upon the parties hereto
and their respective successors and assigns. Neither this Relinquishment
Agreement nor the rights hereunder may be assigned by TCA to any entity prior
to the Relinquishment Date. After the Relinquishment Date, neither this
Relinquishment Agreement nor the rights hereunder may be assigned by TCA to an
entity other than a Permitted Assignee, without the prior written consent of
the Authority (which may be withheld in its sole and absolute discretion) and
any required approvals by the Bureau of Indian Affairs or its authorized
representatives. Notwithstanding the foregoing, after the Relinquishment Date,
TCA or any Permitted Assignee may, without the consent of the Authority,
pledge its right to receive the Relinquishment Payments hereunder (but not
this Relinquishment Agreement itself) in connection with a bona fide
commercial financing from a financial institution, pension fund, insurance
company, pooled equity fund or other similar type of entity. In addition, on
or after December 31, 2001, TCA or its Permitted Assignees, if applicable (the
"Assignor"), may assign this Relinquishment Agreement or the rights hereunder
without the Authority's consent upon compliance with the following
requirements: (i) the Assignor shall promptly give the Authority written
notice of the terms and conditions of any proposed assignment (the "Assignment
Offer"), together with information regarding the proposed assignee and such
additional information as the Authority may reasonably request and (ii) the
Authority shall have fifteen (15) days after receipt of the Assignment Offer
to elect, by written notice delivered to Assignor within such fifteen (15) day
period to accept such Assignment Offer. If the Authority timely elects to
accept the Assignment Offer, the Authority shall have a period of sixty (60)
days following such election to close thereunder. If the Authority does not
timely elect to accept the Assignment Offer or thereafter fails to close
thereunder, then the Assignor may assign this Relinquishment Agreement for a
period of one hundred eighty (180) days thereafter to such third party in
accordance with the terms of the Assignment Offer.
(b) The Authority may, without the consent of TCA, but subject to applicable
law, assign this Relinquishment Agreement to the Tribe, another
instrumentality of the Tribe or an entity wholly owned by the Tribe if such
assignee owns or conducts the business of the Facilities and is in compliance
with Section 7.4 on the date of such assignment. In the event of any such
permitted assignment, the assigning party shall be relieved of its obligations
under this Relinquishment Agreement which accrue from and after the date of
the assignment, provided that the assignee shall assume in writing the
obligations of the assignor under this Relinquishment Agreement and agree to
perform and be bound by the terms and provisions hereof effective from and
after the date of such assignment.
16.8 Severability. The invalidity of any one or more provisions hereof or of
any other agreement or instrument given pursuant to or in connection with this
Relinquishment Agreement shall not affect the remaining portions of this
Relinquishment Agreement or any such other agreement or instrument or any part
thereof, all of which are inserted conditionally on their being held valid in
law; and in the event that one or more of the provisions contained herein or
therein should be invalid, or should operate to render this Relinquishment
Agreement or any such other agreement or instrument invalid, this
Relinquishment Agreement and such other agreements and instruments shall be
construed as if such invalid provision had not been inserted. Notwithstanding
the foregoing, the invalidity of any of Sections 2(a), 3 or 6.1 hereof shall
render the entire Relinquishment Agreement invalid.
16.9 Entire Agreement. This Relinquishment Agreement (including any exhibits
referred to herein) represents the entire agreement between the parties hereto
with respect to the subject matter hereof. No other representations,
warranties, promises or agreements, express or implied, shall exist between
the parties unless such representations, warranties, promises or agreements
are in writing and bear a date subsequent to the date of this Relinquishment
Agreement.
16.10 Headings. The headings used in this Relinquishment Agreement are for
the convenience of the parties only and shall not modify nor restrict any of
the terms or provisions hereof.
16.11 Waivers. No failure or delay by TCA or the Authority to insist upon
the strict performance of any covenant, agreement, term or condition of this
Relinquishment Agreement, or to exercise any right or remedy consequent upon
the breach thereof, shall constitute a waiver of any such breach or any
subsequent breach of
16
<PAGE>
such covenant, agreement, term or condition. No covenant, agreement, term or
condition of this Relinquishment Agreement and no breach thereof shall be
waived, altered or modified except by written instrument. No waiver of any
breach shall affect or alter this Relinquishment Agreement, but each and every
covenant, agreement, term and condition of this Relinquishment Agreement shall
continue in full force and effect with respect to any other then existing or
subsequent breach thereof.
16.12 Periods of Time. Whenever any determination is to be made or action is
to be taken on a date specified in this Relinquishment Agreement, if such date
shall fall on a Saturday, Sunday or legal holiday under the laws of the State
of Connecticut or the Tribe, then in such event said date shall be extended to
the next day which is not a Saturday, Sunday or legal holiday.
16.13 Consents and Approvals. Where approval or consent or other action of
the Authority, or any agent or political subdivision of the Authority, is
required, such approval shall mean the written approval of the Management
Board evidenced by a duly enacted resolution thereof, or, if not provided by
resolution of the Management Board, the written approval of such other person
or entity designated by resolution of the Management Board.
16.14 Tolling of this Relinquishment Agreement. If any Tolling Event occurs,
the Authority shall give prompt notice thereof to TCA. If, within thirty (30)
days following receipt of such notice, TCA delivers written notice to the
Authority electing to implement this Section 16.14, then the Term shall be
tolled for such number of full calendar months commencing with the month
immediately following such Tolling Event and ending with (and including) the
calendar month immediately prior to the Recommencement Month (the "Tolling
Period"). The expiration of this Relinquishment Agreement (and the obligations
of the Authority to make payments of the Relinquishment Payments hereunder)
shall be extended for such number of full calendar months included in the
Tolling Period. During the Tolling Period, the Authority shall have no
obligation to make payments of any Relinquishment Payments.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Relinquishment
Agreement on and as of the date first written above.
THE AUTHORITY:
MOHEGAN TRIBAL GAMING AUTHORITY
By: _________________________________
Name: Roland Harris
Its: Chairman of the Management
Board
TCA:
TRADING COVE ASSOCIATES, a
Connecticut partnership
By: WATERFORD GAMING, L.L.C.
Its: General Partner
By: LMW INVESTMENTS, INC.
member
By: _____________________________
Name: Len Wolman
Its: President
By: SLAVIK SUITES, INC., member
By: _____________________________
Name: Len Wolman
Its: Vice President
By: SUN COVE LTD.
Its: General Partner
By: _________________________________
Name: Howard B. Kerzner
Its: President
18
<PAGE>
JOINDER
The Mohegan Tribe of Indians of Connecticut hereby agrees to comply with
Sections 9, 12 and 13 of this Relinquishment Agreement.
Date: THE MOHEGAN TRIBE OF INDIANS OF
CONNECTICUT
By: _________________________________
Name: Roland Harris
Title: Chairman of the Management
Board
19
<PAGE>
EXHIBIT 10.15
EXECUTION COPY
DEVELOPMENT SERVICES AGREEMENT
THIS DEVELOPMENT SERVICES AGREEMENT (as further supplemented or amended from
time to time, the "Development Agreement") is made this 7th day of February,
1998 between the Mohegan Tribal Gaming Authority (as further defined below,
the "Authority"), an instrumentality of The Mohegan Tribe of Indians of
Connecticut, a federally recognized Indian tribe (as further defined below,
the "Tribe"), and Trading Cove Associates, a Connecticut partnership (the
"Developer").
RECITALS
A. The Tribe is the beneficial owner of land located in the State of
Connecticut which is owned by the United States of America in trust for the
benefit of the Tribe pursuant to the Tribe's recognized powers of self-
government, and the statutes and ordinances of the Tribe (the "Property").
B. On behalf of the Tribe, the Authority has constructed a casino known as
Mohegan Sun on the Property to improve the economic conditions of the Tribe's
members and is now seeking development and expertise from Developer for the
following "Project": the construction of a new casino consisting of
approximately 100,000 square feet of gaming and related commercial space
within such casino, a luxury hotel containing approximately 1,500 guest rooms
and customary amenities, a convention/events center with indoor seating for
approximately 10,000 patrons and 100,000 square feet of convention space and
related food and beverage and parking facilities and other related
infrastructure, and any modifications of the foregoing elements agreed to by
the parties.
C. The Authority, on its own behalf and on behalf of the Tribe, and
Developer desire to replace, supersede and terminate all existing and prior
agreements, arrangements and understandings with respect to the design,
construction, equipping and opening of any gaming or non gaming facilities
between the Tribe and/or the Authority and Developer, including, without
limitation, (i) that certain Amended and Restated Gaming Facility Development
and Construction Agreement dated September 1, 1995 and approved by the Bureau
of Indian Affairs on September 29, 1995 (the "Gaming Development Agreement"),
which grants to Developer the exclusive right to develop certain facilities as
described therein, and (ii) that certain Hotel/Resort Facility Development and
Construction Agreement dated July 12, 1994 (the "Hotel Development
Agreement"), which grants Developer the exclusive right to develop certain
hotel/resort facilities described therein.
D. The Authority desires to grant Developer the exclusive right and
obligation to provide development services in respect of the design,
construction, equipping and opening of the Project upon the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants, conditions and
promises herein contained, the receipt and sufficiency of which hereby are
acknowledged, the Authority and Developer agree as follows:
ARTICLE 1
Certain Definitions
Capitalized terms used in this Development Agreement shall have the meanings
set forth below:
"Affiliate" means, with respect to the Person in question, any Person
controlling, controlled by or under common control with, such Person. For
the purposes hereof, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
or policies of the Person in question.
"Architect" means, as applicable from time to time, the design architect
(if retained) and/or the architect of record for the Project employed
pursuant to Section 4.2 below.
B-1
<PAGE>
"Authority" means the Mohegan Tribal Gaming Authority, acting by the
Management Board, or any other instrumentality of the Tribe with the
authority to exercise the regulatory and proprietary authority of the Tribe
over the gaming and/or non-gaming facilities located on the Property in
accordance with the Mohegan Tribal Constitution, the Tribe's Gaming
Ordinance, the Tribe's ordinance establishing the Mohegan Tribal Gaming
Authority, the Compact, the IGRA or other applicable law, and any successor
and assignee thereto.
"Authority Representative" has the meaning set forth in Article 3 below.
"Bid Packages" has the meaning set forth in Section 5.1 below.
"Bureau of Indian Affairs" is the Bureau of Indian Affairs of the
Department of the Interior of the United States of America.
"Certified Entities" has the meaning set forth in Section 8.1 below.
"Compact" means the tribal-state Compact entered into between the Tribe
and the State of Connecticut pursuant to the IGRA, as the same may be
amended from time to time, or such other Compact as may be substituted
therefor.
"Completion Date" means the date upon which the Authority receives, with
respect to the Project: (i) a certificate from the Architect, as required
pursuant to the terms of the Architect's agreement, certifying that the
Project has been constructed in accordance with the Plans and
Specifications therefor and all applicable building, life/safety,
environmental and other laws and regulations applicable to the design and
construction of the Project; (ii) a certificate from Developer stating that
it has completed all of its obligations hereunder; (iii) certificates of
such professional designers, inspectors or consultants or opinions of
counsel as the Authority reasonably may determine to be appropriate
verifying completion of the Project in compliance with all Legal
Requirements; and (iv) the Project is fully stocked, staffed (including,
without limitation, compliance with Section 8.8 below) and ready to open to
the public.
"Contract Documents" has the meaning set forth in Section 5.2 below.
"Contractors" has the meaning set forth in Section 5.1 below.
"Construction Financing" means the financing to be obtained by, and/or
committed to, the Authority sufficient, as determined by the Authority, for
the purposes of the design, construction, equipping and staffing of the
Project.
"Construction Manager" means the professional employed pursuant to
Section 4.3 below.
"Cost Estimator" has the meaning set forth in Section 2.3 below.
"Design Development Documents" has the meaning set forth in Section 4.5
below.
"Developer" has the meaning set forth in the introductory paragraph
hereof.
"Development Agreement" has the meaning set forth in the introductory
paragraph hereof.
"Development Fee" has the meaning set forth in Article 9 below.
"Director of Regulation" means the director of gaming operations
appointed by the Authority pursuant to the Tribe's Gaming Ordinance.
"Effective Date" means, the first (1st) day of the first (1st) calendar
month following the later of (a) the date the Authority receives all
Required Approvals with respect to the Development Agreement, or (b)
closing of the Proposed Financing.
"Executive Project Committee" means the Authority Representative, the
Project Executive and senior executives of each of the Architect and the
Construction Manager.
"Final Budget" has the meaning set forth in Section 5.3 below.
B-2
<PAGE>
"Force Majeure Causes" means causes beyond the reasonable control of a
party to this Development Agreement, including casualties, war,
insurrection, strikes, lockouts and governmental actions (but excluding
causes which can be controlled by the expenditure of money in accordance
with good business practices).
"Gaming Development Agreement" has the meaning set forth in Recital C
hereof.
"Hotel Development Agreement" has the meaning set forth in Recital C
hereof.
"IGRA" means the Indian Gaming Regulatory Act of 1988, 25 U.S.C. (S) 2701
et seq., as amended from time to time.
"Key Personnel" means collectively the general manager of operations for
each major element of the Project, and the director of sales for each major
element of the Project, (or the equivalent of either of the foregoing
positions).
"Legal Requirements" means singularly and collectively all applicable
laws, including, without limitation, the Tribe's Gaming Ordinance, the
Tribal Employment Rights Ordinance, all other laws or regulations of the
Tribe, the IGRA, the Compact and applicable federal and Connecticut
statutes, laws and regulations.
"MTC Court" means the Gaming Disputes Court of the Tribe.
"NIGC" means the commission established pursuant to 25 U.S.C. Section
2704.
"Person" means any individual, sole proprietorship, corporation, general
partnership, limited partnership, limited liability company or partnership,
joint venture, association, joint stock company, unincorporated
association, instrumentality or other form of entity.
"Plans and Specifications" means the detailed plans and specifications
for the construction of the Project prepared pursuant to Section 4.6 below.
"Preliminary Budget" has the meaning set forth in Section 2.3 below, as
such may be modified from time to time in the Authority's sole and absolute
discretion in accordance with this Development Agreement.
"Project" has the meaning set forth in Recital B hereof, as modified in
accordance with the terms of this Development Agreement.
"Project Executive" has the meaning set forth in Section 2.1 below.
"Project Program" has the meaning set forth in Section 2.2 below, as
modified in accordance with the terms of this Development Agreement.
"Project Schedule" has the meaning set forth in Section 2.3 below.
"Property" has the meaning set forth in Recital A hereof.
"Proposed Final Budget" has the meaning set forth in Section 5.3 below.
"Proposed Financing" means the anticipated refinancing of certain of the
Authority's existing indebtedness, together with the Construction
Financing.
"Proposed Project Program" has the meaning set forth in Section 2.2
below.
"Required Approvals" means the approval by the Bureau of Indian Affairs,
and/or the NIGC, to the extent those agencies determine such approval may
be required by law.
"Retail Consultant" has the meaning set forth in Section 2.4 below.
B-3
<PAGE>
"Retail Facilities" means, if the Authority elects to pursue construction
of such facilities pursuant to Section 2.4 below, additional facilities
consisting of approximately 200,000 square feet of retail and restaurant
facilities and related parking facilities and other related infrastructure.
"Retail Facilities Architect" means the meaning set forth in Section 4.2
below.
"Retail Facilities Costs" has the meaning set forth in Section 2.4 below.
"Schematic Design Documents" has the meaning set forth in Section 4.5
below.
"Staffing Plan" has the meaning set forth in Section 8.8 below.
"Sun" means Sun International Hotels Limited.
"Term" has the meaning set forth in Article 10 below.
"Total Project Costs" means all costs of programming, budgeting,
designing, constructing, equipping and staffing the Project, including
costs related to professional services, but excluding all financing fees
and expenses, and interest payments on the Construction Financing prior to
the opening of the Project, which costs shall not exceed Four Hundred Fifty
Million Dollars ($450,000,000), without the prior written approval of the
Authority, which may be withheld in its sole and absolute discretion.
"Tribal Employment Rights Ordinance" means the Tribal Gaming Authority
Employment Rights Ordinance enacted by the Authority on or about September
25, 1995 and any replacements thereof or amendments thereto adopted from
time to time, and all related or implementing ordinances and policies of
the Authority to give preference in recruiting and hiring to employees and
Certified Entities.
"Tribe" means the Mohegan Tribe of Indians of Connecticut, a federally
recognized Indian tribe and its permitted successors and assigns.
"Tribe's Gaming Ordinance" means the Mohegan Tribal Gaming Ordinance No.
94-1, and any replacements or amendments thereto adopted from time to time,
and all related or implementing ordinances, which are enacted by the Tribe
to authorize and regulate gaming on the Tribe's reservation pursuant to
IGRA.
ARTICLE 2
Developer
2.1 Retention of Developer. The Authority hereby retains Developer, as its
exclusive developer for the Project, to perform all required development
services relating to the programming (including concept development), design,
construction, equipping and staffing (pursuant to Section 8.8 below) of the
Project, upon, and subject to, the terms and conditions, and in consideration
of the payments, hereinafter set forth. Developer shall provide promptly and
diligently the services as hereinafter set forth as necessary to facilitate
the development of the Project and shall furnish, at its cost, a sufficient
number of trained personnel, as mutually agreed upon by Developer and the
Authority, with experience on projects of a scope and magnitude similar to the
Project, at all times as necessary to accomplish the same. The organizational
and reporting chart which describes the broad relationships and areas of
responsibilities to be used in the development of the Project is attached
hereto as Exhibit A. Within thirty (30) days of the full execution of this
Development Agreement, Developer, at its own cost and expense, shall (a)
appoint a senior executive with sufficient development, construction and
project management experience in the gaming and resort industry to be in
charge of coordinating the development, design and construction of the Project
(the "Project Executive"), and (b) provide to the Authority an initial staff
outline for the Project. The appointment of the Project Executive shall be
subject to the prior written approval of the Authority, in its sole and
absolute discretion. As soon as required (but in no event later than
completion of the Schematic Design Drawings), the Project Executive shall
maintain a full-time office and staff at the Property. Any substitution by
Developer of the Project Executive shall be subject to the Authority's prior
written approval, in its sole and absolute discretion.
B-4
<PAGE>
2.2 Project Program. At a time which is mutually agreeable to the Authority
and Developer (but not later than thirty (30) days following full execution of
this Development Agreement), Developer and the Authority shall meet to review
and discuss an initial draft of a Project brief, budget program and schedule
which outlines the key tasks and objectives for the Project. Within thirty
(30) days after such initial meeting, the Authority and Developer shall meet a
second time to review and update such information. Within ninety (90) days
following the full execution of this Development Agreement (provided that the
Authority and Developer may agree to extend such period for an additional
thirty (30) days), Developer shall provide to the Authority a detailed program
outline of the requirements for the Project, that includes a conceptual
program, design and construction objectives and criteria, preliminary time
schedules, amenities, preliminary space requirements, infrastructure and
support, preliminary cost estimates (based on estimates prepared by the Cost
Estimator) for each major element of the Project and Developer's initial
recommendations regarding the appropriateness of proceeding with the design,
construction and completion of the Project in a series of independent stages
(taking into account the desire of the Authority to minimize disruptions to
the operation of the existing facilities on the Property) (the "Proposed
Project Program"). The Project's theme shall reflect the culture, history and
art of the Tribe. The Authority shall either approve, (in its sole and
absolute discretion) or return with comments consistent with the elements
described in Recital B hereof and reasonable construction practices and
consideration of the limit on Total Project Costs, on the Proposed Project
Program within fifteen (15) days of delivery by Developer. Developer shall
modify the Proposed Project Program as required by the Authority's comments
and shall resubmit it for final approval within fifteen (15) days (or such
additional time as the extent of the comments reasonably require). The final,
approved proposal is hereinafter referred to as the "Project Program".
2.3 Initial Cost Estimate and Submission of Project Schedule. (a) Within
thirty (30) days following full execution of this Development Agreement,
subject to compliance with the requirement set forth in Section 8.1 below,
during the period that the Project Program is being developed, Developer shall
recommend the selection and terms of employment by the Authority of a
professional cost estimator for the Project or portions thereof (the "Cost
Estimator"), which recommendation shall be subject to the approval of the
Authority, in its sole and absolute discretion. The Cost Estimator shall be
retained on terms recommended by Developer and approved by the Authority.
Within thirty (30) days after approval of the Project Program, the Cost
Estimator, under the direction of Developer, shall prepare more detailed cost
estimates, based upon the preliminary estimates contained in the Project
Program, for each major element of the Project and including pre-opening costs
relating to Section 8.8 (the "Preliminary Budget"), which shall be subject to
the approval of the Authority (which may be withheld in its sole and absolute
discretion). If such Preliminary Budget exceeds the ceiling on Total Project
Costs, Developer and the Authority shall work together either to revise the
Project Program as agreed, or to revise the ceiling on Total Project Costs, as
determined in the Authority's sole and absolute discretion.
(b) Within thirty (30) days following the approval by the Authority of the
Project Program, based upon the Project Program, Developer shall submit to the
Authority, for its approval, a more detailed schedule, which schedule shall
include, without limitation, target dates for the selection of all
professionals and consultants, completion of design and construction plans as
described in Article 4 below and initial conceptual budgets for the Project
(the "Project Schedule"). The Authority and Developer shall mutually agree
upon target commencement and completion dates for the design, construction,
equipping and opening of the Project (including stages thereof, if
applicable).
2.4 Retail Facilities. Within thirty (30) days following full execution of
this Development Agreement, the Authority may elect, by written notice to
Developer, to pursue the development of the Retail Facilities with Developer
and in consultation with a retail development firm selected by the Authority
(the "Retail Consultant"). If the Authority so elects to pursue the
development of the Retail Facilities, the definition of "Project" in this
Development Agreement shall be deemed to include the Retail Facilities and all
terms and conditions set forth in this Development Agreement shall apply to
the Retail Facilities, except as expressly set forth herein, and except that
the ceiling for Total Project Costs shall be revised to incorporate the total
costs of designing, constructing, equipping and opening the Retail Facilities
(the "Retail Facilities Costs"). Developer and the Authority shall work with
the Retail Consultant to develop a program and a schedule for the Retail
B-5
<PAGE>
Facilities in the manner described in Sections 2.2 and 2.3 above for the
Project and to determine the Retail Facilities Costs. Developer shall
integrate the construction of the Retail Facilities with the balance of the
Project in a manner agreed upon by the Authority, Developer and the Retail
Consultant.
ARTICLE 3
Appointment of Authority Representative
The Authority, at its own expense, shall appoint a representative (the
"Authority Representative"), that is qualified to act as the principal liaison
with Developer in connection with the Project. The Authority Representative
may, at the Authority's option, have an office within Developer's on-site
office, shall participate in progress meetings pursuant to Section 8.4,
inspect work pursuant to Section 5.4 and coordinate all matters that require
the approval of the Authority. Unless otherwise indicated by the Authority,
any provisions in this Development Agreement requiring notice to the Authority
may be complied with by the giving of notice to the Authority Representative.
Unless otherwise provided in this Development Agreement or pursuant to the
written authorization of the Authority, however, the Authority Representative
shall have no right or authority to make decisions or take actions which bind
or require the consent of the Authority.
ARTICLE 4
Design of the Project
4.1 General Supervision. Developer shall represent the Authority and act as
the Authority's liaison with respect to the selection, direction and
management of the Architect selected pursuant to Section 4.2 and the
Construction Manager selected pursuant to Section 4.3, and any other
professionals engaged, in accordance with the terms of the Project Program, to
perform services in connection with the design and construction of any portion
of the Project. Subject to the limitations described herein, the Authority
shall delegate to Developer its responsibilities under any construction
management, architectural and other agreements with development professionals
in order to allow Developer to supervise, direct and administer the duties,
activities and functions of the Architect and the Construction Manager. Both
the Architect and Construction Manager shall review and advise the Authority
and Developer with respect to the Project Program.
4.2 Employment of the Architect. Within thirty (30) days of the approval of
the Project Program by the Authority, Developer shall prequalify and interview
architects with substantial and satisfactory experience in the design and
construction of hotel, resort, convention and gaming facilities. The Architect
shall be duly licensed to practice architecture in the State of Connecticut,
as required by applicable law, and (with respect to the architect of record
for the Project) shall be qualified to provide and/or secure and supervise all
necessary engineering and related consulting services in connection with the
design of the Project. The Authority shall advise Developer in writing if it
requires a design competition. The Authority shall review and approve, in
advance, the prequalification and design competition (if required) criteria
(which shall include, without limitation, a standard form agreement prepared
by Developer and all necessary specifications developed by Developer).
Developer shall advise the Authority Representative concerning the status of,
and the Authority may, at its option, participate in, the prequalification,
interview and design competition processes. Based on the results of the design
competition, subject to compliance with the requirement set forth in Section
8.1 that preference be given to Certified Entities, Developer shall recommend
the selection and employment by the Authority of the Architect to provide
design services for the Project, which recommendation shall be subject to the
approval of the Authority, in its sole and absolute discretion. Subject to the
Authority's final approval and right to participate in negotiations, Developer
shall be responsible for preparing and negotiating a contract with the
Architect, which contract shall contain such provisions for the protection of
the Authority that are deemed appropriate and are requested by the Authority.
In the event the Authority pursues the development of the Retail Facilities
pursuant to Section 2.4 hereof, upon the mutual agreement of the Authority,
Developer and the Retail Consultant, an
B-6
<PAGE>
architect other than the Architect may be selected, as described above in this
Section 4.2, to perform the Retail Facilities design services (the "Retail
Facilities Architect"), in which event all provisions regarding the
Architect's role under this Development Agreement with respect to the Retail
Facilities shall apply solely to the Retail Facilities Architect.
4.3 Employment of Construction Manager. Within thirty (30) days of the
approval of the Project Schedule by the Authority, subject to compliance with
the requirement set forth in Section 8.1 that preference be given to Certified
Entities, Developer shall prequalify, interview and recommend the selection
and employment by the Authority of a construction manager with sufficient
experience in the construction of hotel, resort, convention and gaming
facilities, as necessary to complete the Project in the region where it is
located. The Construction Manager shall be properly licensed in the State of
Connecticut, as required by applicable law, and shall maintain a full-time
staff dedicated to a continuous presence at the Project. The Authority shall
review and approve, in advance, the prequalification and selection criteria
(which shall include, without limitation, a standard form agreement
(consistent with industry standards for owner/construction manager agreements)
prepared by Developer and all necessary specifications developed by
Developer). Subject to the Authority's final approval and right to participate
in negotiations, Developer shall be responsible for preparing and negotiating
a contract with the Construction Manager, which contract shall contain such
provisions for the protection of the Authority that are deemed appropriate and
are requested by the Authority.
4.4 Design, Construction and Furnishings Budgets. From time to time,
Developer, with the advice and assistance of the Architect and the
Construction Manager, shall update in writing the Preliminary Budget,
consistent, in all respects, with the Project Program and the Project
Schedule, for the management, supervision, design, construction, equipping and
opening of the Project, which update shall be subject to the approval of the
Authority (which may be withheld in its sole and absolute discretion). If such
updated Preliminary Budget exceeds the ceiling on Total Project Costs,
Developer and the Authority shall work together either to revise the Project
Program and/or the Project Schedule as agreed, or to revise the ceiling on
Total Project Costs, as determined in the Authority's sole and absolute
discretion.
4.5 Design Development. Based upon, and consistent with, the Preliminary
Budget, Project Program and Project Schedule, the Architect, under the
direction of Developer, and in consultation with the Construction Manager
and/or the Cost Estimator, shall prepare "Schematic Design Documents"
consistent with industry standards which shall include, without limitation,
drawings and other documents illustrating the scale and relationship of the
proposed Project and the major divisions of each major element of the Project,
as well as a preliminary estimate of construction costs based upon the
proposed area, size and scope of each major element of the Project. The
Schematic Design Documents shall be submitted to the Authority for its review
and comment (consistent with the Project Program, the Project Schedule and the
Preliminary Budget) or approval, which approval shall not be withheld
unreasonably so long as such documents are consistent with the Project
Program, Project Schedule and Preliminary Budget.
Upon final approval of the Schematic Design Drawings for the Project by the
Authority (but not before receipt of the Required Approvals and closing of the
Construction Financing), the Architect, under the direction of Developer and
in consultation with the Construction Manager, shall prepare "Design
Development Documents" for the Project consistent with industry standards
which shall include, without limitation, drawings and other documents to fix
and describe the size and character of each major element of the Project as to
architectural, structural, mechanical and electrical systems, materials and
such other elements as may be appropriate. Further, the Architect,
Construction Manager and/or the Cost Estimator shall advise Developer and,
subject to the requirements of Section 4.4 above, update the Preliminary
Budget to the extent necessary. Following completion of any revisions which
Developer deems necessary to the Design Development Documents, Developer shall
submit copies thereof to the Authority, together with any necessary updates to
the Preliminary Budget (subject to the requirement of Section 4.4 above), for
the Authority's review and comment (consistent with the Project Program, the
Project Schedule, the Project Budget and the Schematic Design Documents) or
approval, which approval shall not be withheld unreasonably so long as the
Design Development Documents are consistent with the Project Program, Project
Schedule and approved Schematic Design Documents.
B-7
<PAGE>
4.6 Construction Documents. Based upon, and consistent with, the Project
Schedule, approved Design Development Documents and Preliminary Budget, the
Architect shall prepare for Developer's approval, full construction documents
(the "Plans and Specifications") prepared so as to conform to all Legal
Requirements and to allow bids to be obtained on the work described therein.
The Plans and Specifications shall be consistent with industry standards and
shall include, without limitation, all architectural, mechanical, electrical
and plumbing drawings and specifications necessary to complete the
construction of the Project. In addition, subject to the requirements of
Section 4.4 above, the Architect and Construction Manager shall advise
Developer and update the Preliminary Budget to the extent necessary based upon
the Plans and Specifications. Following completion of any revisions which
Developer deems necessary to the Plans and Specifications, Developer shall
submit the Plans and Specifications, together with any necessary updates to
the Preliminary Budget, to the Authority for its review and approval, which
approval shall not be withheld unreasonably so long as the Plans and
Specifications are consistent with the Project Program, Project Schedule and
approved Design Development Documents.
4.7 Compliance with Construction Standards, Environmental Laws and
Regulations. The Project shall be designed and constructed so as to protect
the environment and the public heath and safety, as agreed upon by Developer
and the Authority. The design, construction and maintenance of the Project
shall, except to the extent waived in writing by the Authority, meet or exceed
all established standards pertaining to the Tribe or all building codes, fire
codes and safety and traffic requirements (but excluding planning, zoning and
land use laws, ordinances, regulations and requirements) which would be
imposed on the Project by existing local, state or federal laws or regulations
which would be applicable if the Project were located outside of the
jurisdictional boundaries of the Tribe, even though those requirements may not
apply within the Tribe's jurisdictional boundaries. Nothing in this
Development Agreement shall grant to the State of Connecticut or any political
subdivision thereof any jurisdiction (including but not limited to
jurisdiction regarding zoning or land use) over the Property or the design,
construction, equipping and opening of the Project.
4.8 Suspension of Obligations. On the earlier of (a) the date on which the
NIGC or the Bureau of Indian Affairs gives notice to Developer, the Tribe or
the Authority that the Required Approvals with respect to the Relinquishment
Agreement dated February 7, 1998 between the Authority and Trading Cove
Associates (the "Relinquishment Agreement") or this Development Agreement in
their current forms (including any changes mutually acceptable to the parties)
will not be granted or (b) the earlier of (i) six (6) months after the date of
execution of this Development Agreement or (ii) the date that the Schematic
Design Drawings are approved, if no response has been received from the NIGC
or the Bureau of Indian Affairs with respect to the Required Approvals of the
Relinquishment Agreement or this Development Agreement in their current forms
(including any changes mutually acceptable to the parties), Developer shall
not be authorized or required to provide any further services under this
Development Agreement, and all work relating to the development of the Project
shall cease, and shall not recommence until forms of the Relinquishment
Agreement and this Development Agreement agreeable to the Authority and
Developer have received the Required Approvals.
ARTICLE 5
Construction of the Project
5.1 Employment of Contractors. Within thirty (30) days of the Authority's
approval of the Design Development Documents, the Construction Manager, under
the direction of Developer, shall begin to prequalify (in accordance with
criteria approved by the Authority) and interview contractors with significant
experience in the construction of comparable hotel, resort, convention and
gaming facilities in the region where the Property is located based upon the
need for such contractors as provided in the Project Schedule. Thereafter, as
may be required by the Project Schedule, the Construction Manager, under the
direction of Developer, shall prepare detailed bid packages based upon the
Plans and Specifications, which shall include, without limitation, the
Construction Manager's standard form agreement prepared under the direction of
Developer and approved by the Authority, and all necessary performance
specifications developed by or for Developer, with the assistance of the
Construction Manager (the "Bid Packages"). The Bid Packages shall be subject
to the Authority's prior
B-8
<PAGE>
written approval, in its sole and absolute discretion. The Bid Packages shall
be sent to at least three (3) pre-approved contractors. Any bids not returned
within the bidding period set forth in the Bid Packages shall be disregarded
unless the Authority elects to extend the bidding period. Developer shall
advise the Authority Representative concerning the status of, and the
Authority may, at its option, participate in, the bidding processes. Based on
the results of the bidding process and subject to compliance with the
requirement set forth in Section 8.1 that preference be given to Certified
Entities, Developer shall recommend the selection and employment by the
Authority of the contractors to construct and equip the Project, which
recommendation shall be subject to the approval of the Authority, in its sole
and absolute discretion. The approved contractors shall be referred to herein
as the "Contractors." Each of the Contractors shall be properly licensed as
required by applicable law and, if required by the Authority, shall furnish a
payment and performance bond or other guaranty of performance reasonably
satisfactory to the Authority, to cover the construction and equipping of the
Project. Neither Developer nor any Affiliate of Developer shall be eligible to
serve or be employed as a Contractor.
5.2 Contract Documents. Subject to the Authority's final approval and its
right to participate in negotiations, Construction Manager, under the
direction of Developer, shall be responsible for preparing and negotiating a
contract and other contract documents with the Contractors. The contract and
other contract documents with the Contractors (the "Contract Documents") shall
require the Contractors to construct and equip the Project in accordance with
the directives of the Construction Manager, the approved Plans and
Specifications and their approved bids and to be responsible for providing all
surety, administrative and other services, materials, equipment and labor
defined in the Contract Documents. The Contract Documents shall contain such
provisions for the protection of the Authority that are reasonably deemed
appropriate and are requested by the Authority and provide for insurance,
appropriate lien waivers and for construction schedules which include progress
payments and may include liquidated damages for delayed performance.
5.3 Final Budget. Within thirty (30) days following approval of the Design
Development Documents and commencement of preparation of the Plans and
Specifications, Developer, in consultation with the Architect, Construction
Manager and/or Cost Estimator shall prepare a proposed final budget for the
Project, which shall contain all costs related to the design, construction and
equipping of the Project, plus a contingency of ten percent (10%) of the hard
construction costs (the "Proposed Final Budget"). If the Proposed Final Budget
exceeds Total Project Costs, then Developer and the Authority shall work
together to either revise the Design Development Documents and/or the Plans
and Specifications as agreed, or revise the ceiling on Total Project Costs, as
determined in the Authority's sole and absolute discretion. Within fifteen
(15) days of submission thereof, the Authority shall either approve or comment
upon the Proposed Final Budget, which approval may be withheld in the
Authority's sole and absolute discretion. Developer shall modify the Proposed
Final Budget as required to conform to the Authority's comments and shall
resubmit it for final approval within fifteen (15) days (or such additional
time as the extent of the comments reasonably require) following receipt of
the Authority's comments. The approved budget shall be the "Final Budget."
Subject to the approval requirements set forth below, Developer may, after at
least fifteen (15) days prior written notice to the Authority (which shall
include an explanation): (i) revise the line items in the Final Budget from
time-to-time as necessary to reflect any unforeseen changes, variables or
events or to include additional, unanticipated items of expense, (ii)
reallocate part or all of the amount budgeted with respect to any line item to
another line item, and (iii) to make such other modifications to the Final
Budget, as Developer deems necessary. Any allocation of the contingency
contained in the Final Budget shall require the approval of the Authority. In
addition, the Authority shall receive written notices of all change orders,
and any change orders in excess of (x) Seven Hundred Fifty Thousand Dollars
($750,000) in any single instance, (y) Three Million Dollars ($3,000,000) in
the aggregate in any one month or, (z) Twelve Million Dollars ($12,000,000) in
the aggregate over the duration of the Project, shall, at the Authority's
option, require the prior written approval of the Authority (which may be
withheld in its sole and absolute discretion).
5.4 Supervision of the Contractor and Construction. The Construction
Manager, under the direction of Developer, shall supervise the Contractors
engaged to perform services in connection with the construction of the
Project. All Contractors shall be selected and employed in compliance with
Section 8.1 of this Development Agreement. The Construction Manager, under the
direction of Developer, shall be responsible for the
B-9
<PAGE>
supervision, review and administration of any and all Contract Documents or
invoices during the construction and close-out of the Project. Unless
otherwise provided in this Development Agreement, Developer shall have full
power and authority to act on behalf of the Authority in connection with any
Contract Documents which have been approved by the Authority; provided,
however, that Developer shall not have any authority to declare a default or
exercise remedies under any Contract Documents without the Authority's prior
written approval, which may be withheld in its sole and absolute discretion.
Developer and/or the Construction Manager, shall have control of and charge
and responsibility for, supervision of any Persons performing work on the
Property in connection with the Project. The Construction Manager, under the
direction of Developer and subject to review by the Architect, shall cause the
Contractors to construct the Project in accordance with the Plans or
Specifications and other requirements of the Contract Documents, including,
without limitation, any changes or modifications thereto approved by the
Authority, and shall not authorize the Contractors to pay or incur any
obligations not approved by the Authority (to the extent such approval is
required hereunder). Developer, in consultation with the Architect, the
Construction Manager and the Authority's Representative, shall review
applications for payment for submission to the Authority and review and
certify the amounts due. In addition, Developer, in consultation with the
Authority's Representative, shall supervise and assist the Architect and the
Construction Manager in: (a) interpreting and deciding matters concerning the
performance of any Contractor and the requirements of the Contract Documents;
(b) observing and evaluating the work performed and rejecting work which does
not conform to construction contracts and related documents; (c) using
reasonable efforts to cause the Contractors to pay punctually all sums due for
labor, materials, fixtures or equipment used or purchased in connection with
the construction of the Project; and (d) inspecting the work to determine the
dates of temporary occupancy, partial, substantial and final Completion of the
Project (which must be agreed to by the Architect and the Authority).
5.5 Late Payment Fees; Bonus; Delay Claims. The Authority and Developer
agree that time is of the essence in completing the Project and, together with
the Construction Manager, they may seek to include in certain material
Contract Documents, certain provisions that if a Contractor fails to meet
project schedules, the Contract Documents shall provide that such Contractor
shall pay to the Authority an amount to be determined by Developer and the
Authority for each calendar day that it fails to meet such project schedules,
as liquidated damages and not a penalty. In addition, subject to the approval
of the Authority (which may not be unreasonably withheld), the Contract
Documents may include a bonus payment if a Contractor completes its work on
the Project prior to the deadline therefor.
ARTICLE 6
Selection of Equipment, Furniture and Furnishings
Subject to the Final Budget for the Project, Developer shall, through itself
or a purchasing agent retained by the Authority, arrange for the selection of
vendors and suppliers for purchase by the Authority of equipment, furniture
and furnishings required to operate the Project. Alternatively, at the
Authority's option, Developer shall arrange for the procurement of equipment,
furniture and furnishings on lease terms approved by the Authority. All
vendors and suppliers shall be selected and employed in compliance with
Section 8.1 below. Developer shall be responsible for the negotiation,
preparation, supervision, review and administration of any and all contracts,
agreements or invoices with vendors and suppliers, and, unless otherwise
provided in this Development Agreement, Developer, consistent with the terms
of the Final Budget, shall have full power and authority to act on behalf of
the Authority in connection with any contracts which have been approved by the
Authority with vendors and suppliers. Notwithstanding the foregoing, with
respect to any such contract in excess of Seven Hundred Fifty Thousand Dollars
($750,000), Developer shall not terminate such contract or exercise other
remedies with respect thereto without the Authority's prior written consent,
which may be withheld in its sole and absolute discretion.
B-10
<PAGE>
ARTICLE 7
Funding Requirements of the Project
7.1 Tribe's Funding Obligations. Developer agrees to cooperate fully with
the Authority in the Authority's efforts to arrange the Construction
Financing. The Authority shall, prior to commencement of construction of the
Project, make available or otherwise cause to be established a development
fund into which shall be deposited all of the proceeds of the Construction
Financing. Said funds shall be designated exclusively for performing the
Authority's obligations under any agreements entered into with respect to the
management, supervision, design, construction, equipping and opening of the
Project. The funds procured under the Construction Financing shall be used to
discharge the Authority's obligations under any and all agreements entered
into for the management, supervision, design, construction, equipping and
opening of the Project, including, without limitation, consulting fees,
professional fees, on-site and off-site improvements, architectural,
engineering, contractors' fees and costs, furniture, signs, trade fixtures and
equipment necessary for implementing the operation of the Project, closing and
financing related costs, and interest as provided under the Construction
Financing.
7.2 Deadline for Construction Financing. Notwithstanding any contrary
provision contained herein, if the Authority fails to obtain Construction
Financing on or before December 1, 1998, the Authority shall provide Developer
with written notice that the Construction Financing has not been obtained,
together with written notice either, at its sole option that (a) the Authority
has elected to proceed with the design, construction, equipping and opening of
the Project based upon alternative financing arrangements or (b) the Project
has been suspended. Upon any such election to suspend the Project, the
Authority shall pay all amounts due to the Architect, the Construction Manager
or other Contractors for the period prior to the date of such suspension and
shall pay to Developer its reasonable out of pocket expenses directly related
to the Project Executive and the services provided in connection with the
performance of its duties hereunder prior to the date of such suspension. If
the Authority elects to proceed with the Project, the Authority shall provide
Developer with proof of alternative financing, whereupon Developer shall
proceed with its obligations pursuant to this Development Agreement. If the
Authority elects to suspend the Project, Developer shall suspend its services
under this Development Agreement pending receipt from the Authority of a
notice to proceed. If the Authority subsequently obtains financing for the
Project, the parties' obligations under this Development Agreement shall be
reinstated.
ARTICLE 8
Additional Duties, Obligations and
Authority of Developer
8.1 Approval of Contractors, Vendors and Suppliers. Upon notice to the
Authority, Developer shall be responsible for determining the acceptability of
Contractors, vendors and suppliers proposed by the Architect and the
Construction Manager; provided, however, that if any Contractor, vendor or
supplier is to perform work with respect to the Project, including, without
limitation, performing labor or other services or delivering or installing any
materials, goods, equipment, furniture or furnishings, for an amount greater
than Seven Hundred Fifty Thousand Dollars ($750,000), the selection of such
Contractor, vendor or supplier must be approved in writing by the Authority.
In order to maximize the benefits of the Project to the Tribe and the
Authority, Developer shall implement procedures described in the Tribal
Employment Rights Ordinance or otherwise developed by the Authority so that
preference be given in the recruiting, prequalification, negotiation and
selection of the Architect and the Construction Manager and all Contractors,
vendors and suppliers to business entities or persons which have been approved
by the Authority (the "Certified Entities") in all employment categories
relating to the design, construction, equipping and opening of the Project. If
there are Certified Entities that are experienced in the relevant employment
category, the opportunity to compete for employment in such employment
category shall be made available to such Certified Entities. Only in the event
that the bids by such Certified Entities are unreasonable based on
commercially competitive standards or that the Certified Entities lack the
capability to complete the contract, shall the bidding with respect to such
employment category be reopened to entities or persons that are not Certified
Entities. If Developer or the Construction Manager
B-11
<PAGE>
determines that a Certified Entity lacks the capability to complete a
contract, Developer shall so notify the Authority at least five (5) days
before bidding therefor is opened to entities or persons that are not
Certified Entities, and Developer and the Construction Manager shall require
that the Certified Entities be considered as a subcontractor with respect to
portions of such contract for which they are qualified.
8.2 Employment of Other Professionals. The Authority, in consultation with
Developer, shall select and employ other professionals, including, without
limitation, surveyors, attorneys, accountants and public relations or
advertising firms, to perform services required for the Project.
8.3 Expenditures. Subject to variances and change orders specifically
permitted hereunder, Developer shall not authorize any expenditure of funds
other than expenditures authorized by the Authority as set forth in the
Preliminary Budget (as modified from time to time in accordance with the terms
hereof) or the Final Budget for the Project (as modified from time to time in
accordance with the terms hereof).
8.4 Progress Reports and Meetings. The Authority, the Project Executive and
the Construction Manager shall have weekly meetings (and other meetings as may
be needed) to discuss the progress of the Project. In addition, on a monthly
basis, the Executive Project Committee shall meet to discuss all issues with
respect to the Project, including, without limitation, updates to the Project
Schedule and Preliminary or Final Budget (as applicable), any claims or
disputes, the status of the work and all other relevant items. Prior to such
monthly meetings, Developer shall submit to the Authority monthly progress
reports showing the then present status of design and/or construction of the
Project. If the progress reports reflect a substantial deviation from the
budget or design or construction progress schedules approved by the Authority,
Developer shall submit to the Authority with Developer's design or
construction report an explanation thereof and proposed corrective steps, as
applicable.
8.5 Submission of Contracts. Developer agrees promptly to submit to the
Authority copies of all contracts and subcontracts relating to the Project
from time to time received by Developer and all other documents related to the
Project. Developer, with the assistance of the Construction Manager, shall
assist the Authority in complying with the terms of and maintain in full force
all contracts for design or construction of the Project and any surety bonds
issued in connection therewith. Developer shall give the Authority immediate
notice of any known failure of any party to comply with the terms of any such
contract or bonds and shall submit to the Authority copies of any
correspondence regarding an alleged default by any person in relation to any
contract or agreement relating to the Project, together with an explanation
thereof and proposed corrective steps.
8.6 Permits and Licenses. Except for permitting and licensing requirements
of the Tribe, Developer shall advise the Authority as to all permitting and
licensing requirements for the Project, and the Authority, in consultation
with Developer, shall obtain or cause to be obtained all permits and licenses
required for the design, construction equipping and opening of the Project.
8.7 Maintenance of Records. Developer, the Construction Manager and the
Architect, shall maintain on the Property all books and records in connection
with the design, construction, equipping and opening of the Project, together
with all documents and papers pertaining to the Project, including, without
limitation, general maintenance of such full and detailed accounts as may be
necessary for proper financial management of the Project. All such documents
shall at all times be open to the inspection of the Authority. Copies of such
documents shall be provided to the Authority or the Authority's
Representative, and Developer shall cooperate with any audit of such books and
records. After the expiration or termination of this Development Agreement,
Developer shall deliver all such books and records together with all such
related documents and papers to the Authority, and Developer shall be entitled
to retain a copy.
8.8 Staffing of Project. (a) Developer shall have the responsibility and
authority to direct the selection, retention and training of all initial
employees performing regular services in connection with the management,
operation and maintenance of the Project on the Completion Date. No later than
sixty (60) days prior to the anticipated Completion Date of the Project (or
any portion thereof that will be opened for business), Developer
B-12
<PAGE>
shall submit to the Authority, for its approval, a detailed staffing plan for
all personnel necessary to operate the Project (or portion thereof) in a first
class manner, which staffing plan shall include, without limitation,
organizational charts, a job classification system with job descriptions,
salary levels and wage scales (the "Staffing Plan"). The Staffing Plan shall
be subject to the Authority's review and approval (which approval may be
withheld in its sole and absolute discretion) and to compliance with the
Tribal Employment Rights Ordinance.
(b) All prospective employees shall be subject to the Authority's approval,
which approval, with respect to Key Personnel, may be withheld in the
Authority's sole and absolute discretion. All Key Personnel and any and all
other employees as required by the Director of Regulation of the Authority
shall be subject to background checks to be performed by the Authority (and
the Authority shall have the right to reject any candidate for any position
based on the results thereof). In order to maximize the benefits of the
Project to the Tribe and the Authority, in accordance with the Tribal
Employment Rights Ordinance, Developer shall give preference in employment and
training for Key Personnel positions to qualified candidates recommended by
the Authority. In addition, in accordance with the Tribal Employment Rights
Ordinance, Developer shall give preference in recruiting, training and
employment by the Authority for all positions to qualified members of the
Tribe and their spouses and children in all job categories of the Project,
including, without limitation, management positions. Only if no tribal
members, spouses or children are qualified for a particular job opening may
other candidates be considered. Thereafter, preference shall be given to
qualified, enrolled members of other federally recognized Indian tribes.
Developer shall supervise all activities determined necessary by the Authority
to recruit and train Tribe members, spouses and children, including, without
limitation, providing job fairs for members of the Tribe and clearly
specifying in all job advertisements the preference for Tribe members.
(c) Notwithstanding anything contained herein to the contrary, from and
after the Completion Date of the Project (or any portion thereof which is
sooner opened for business), all decisions with respect to the management,
operation and maintenance of the Project (or portion thereof) shall be made
exclusively by the Authority.
8.9 Force Majeure Events. Notwithstanding anything in this Development
Agreement to the contrary, the parties hereto shall be excused from their
obligations hereunder to the extent and for so long as such party shall be
prevented from compliance by reason of "Force Majeure Causes", provided notice
of such inability to comply is given to the other party to this Development
Agreement within ten (10) days after the occurrence of the applicable Force
Majeure Cause.
ARTICLE 9
Compensation to Developer
The Authority shall pay to Developer as compensation for the services set
forth herein, a fee in the amount of Fourteen Million Dollars ($14,000,000)
(the "Development Fee"). The Development Fee shall be paid as follows: on
January 15, 2000 and thereafter within fifteen (15) days following the end of
each calendar quarter until the Completion Date, the Authority shall pay to
Developer a percentage of the Development Fee equal to the completion
percentage of the Project certified by Developer as of December 31, 1999 and
the end of each successive calendar quarter. The Authority shall make payments
of the Development Fee to Developer upon receipt of an application for payment
from Developer, which statement shall include evidence of satisfaction of the
foregoing conditions to payment.
ARTICLE 10
Term
The "Term" of this Development Agreement shall commence on the Effective
Date and shall expire upon the earlier of (i) the Completion Date of the
Project in the event construction has commenced or (ii) ten (10) years from
the Effective Date of this Development Agreement.
B-13
<PAGE>
ARTICLE 11
Termination
Subject to Section 12.5 below, this Development Agreement may only be
terminated by the Authority or Developer if the other party commits any
material breach or fails to perform any material duty or obligation of this
Development Agreement. Upon learning of a material breach or default, the non-
breaching party shall send written notice of such material breach or default
to the breaching party. Subject to Section 12.5 below, if the breaching party
fails to cure the material breach or default within thirty (30) days of
receipt of such written notice from the non-breaching party, the non-breaching
party may terminate this Development Agreement by providing the defaulting
party with a notice of termination (which shall be immediately effective).
ARTICLE 12
Dispute Resolution
12.1 Authority's Consent to Suit. Subject to Section 12.5 below, the
Authority expressly waives its immunity from unconsented suit for the purpose
of permitting or compelling arbitration as provided in this Article 12, and to
be sued in any court of competent jurisdiction for any claims by Developer for
the purpose of compelling arbitration or enforcing any arbitration award or
judgment arising out of this Development Agreement. In no instance shall any
enforcement of any kind whatsoever be allowed against any assets of the
Authority other than the limited assets of the Authority specified in Section
12.4.
12.2 Arbitration. All disputes controversies or claims arising out of or
relating to this Development Agreement, or the termination of this Development
Agreement, shall be settled by binding arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association and the
Federal Arbitration Act. The parties agree that binding arbitration shall be
the sole remedy as to all disputes arising out this Development Agreement,
unless the parties mutually agree otherwise. The arbitrator(s) shall have no
authority to award punitive damages and the parties and the arbitrator(s)
shall maintain strict confidentiality with respect to the arbitration. In
determining any matter, the arbitrator(s) shall apply the terms of this
Development Agreement, including, without limitation, Section 12.5, without
adding to, modifying or changing the terms in any respect, and shall apply the
laws of the Tribe. All arbitration hearings shall be held at a place
designated by the arbitrator(s) in New London County, Connecticut.
12.3 Limitation of Actions. The Authority's waiver of immunity from
unconsented suit is specifically limited to the following actions and judicial
remedies: (i) the enforcement of an award of actual damages by arbitration
subject to Section 12.4; provided, however, that the arbitrator(s) and/or the
court shall have no authority or jurisdiction to order execution against any
assets or revenues of the Authority except undistributed or future revenues of
the Project and the existing Mohegan Sun casino; (ii) the enforcement of a
determination by an arbitrator that prohibits the Authority from taking an
action that would prevent Developer from performing this Development Agreement
pursuant to its terms, or that requires the Authority to specifically perform
any obligation under this Development Agreement; (iii) an action to compel
arbitration pursuant to Section 12.2; and (iv) an action to preserve the
status quo during disputes pursuant to Section 12.5.
12.4 Authority's or Tribe's Assets. Nothing in this Development Agreement
shall obligate or authorize the payment or encumbrance of any assets or
revenues of the Authority or the Tribe other than undistributed or future
revenues of the Project or the existing Mohegan Sun casino. Neither the Tribe
nor any director, officer or office holder, employee, agent, representative or
member of the Authority or the Tribe, as such, shall have any liability for
any obligations of the Authority under this Development Agreement or for any
claim based upon, in respect of, or by reason of such obligations or their
creation.
12.5 Limit of Damages Payable by Developer. Notwithstanding anything in this
Development Agreement to the contrary, Developer shall not be liable hereunder
for the payment of damages to the Authority in excess of the amount of the
Development Fee paid hereunder.
B-14
<PAGE>
12.6 Performance During Disputes. The parties mutually agree that during any
kind of controversy, claim, disagreement or dispute, including, without
limitation, a dispute as to the validity of this Development Agreement, the
Authority and Developer shall continue their performance of the provisions of
this Development Agreement for a period of forty-five (45) days, provided
funds necessary to pay Project costs which continue to be incurred (other than
amounts in dispute) continue to be available.
ARTICLE 13
Miscellaneous Provisions
13.1 Authorization. The Authority and Developer represent and warrant to
each other that each has full power and authority to execute this Development
Agreement and to be bound by and perform the terms hereof. Each party shall
furnish evidence of such authority to the other. The Authority and Developer
each represent and warrant to the other that the execution, delivery and
performance of this Development Agreement shall not conflict with the terms of
their organizational documents, any agreement to which it is a party or by
which it is bound or any law, rule or regulation to which its subject.
13.2 Relationship. Developer and the Authority shall not be construed as
joint venturers or partners of each other by reason of this Development
Agreement, and neither shall have the power to bind or obligate the other
except as set forth in this Development Agreement. Developer is retained by
the Authority only for the purposes and to the extent set forth in this
Development Agreement, and Developer's relationship to the Authority shall be
that of an independent contractor.
13.3 Governing Law. The rights and obligations of the parties and the
interpretation and performance of this Development Agreement shall be governed
by the law of the Tribe, and, to the extent not addressed by the law of the
Tribe, by applicable federal law, and, to the extent not addressed by the law
of the Tribe or applicable federal law, the law of the State of Connecticut,
without regard to its principles regarding conflicts of law.
13.4 Amendment. No modification or amendment to this Development Agreement
shall be effective unless mutually agreed upon by both parties in writing and
unless such modification or amendment has received any required regulatory
approval.
13.5 Notices. All notices, demands, requests or other communications which
may be or are required to be given, served or sent to either party in
connection with the matters which are the subject of this Development
Agreement shall be in writing and shall be personally delivered to such party
or mailed first class, postage prepaid, or transmitted by a major overnight
commercial courier or by facsimile to the address for such party as set forth
below, or to such other address furnished by such parties for such purpose by
means of notice pursuant to this Section 13.5:
If to the Authority:
The Mohegan Tribal Gaming Authority
One Mohegan Sun Boulevard
Uncasville, CT 06382
Attention: Chairman of the Management Board
Phone: (860) 848-6100
Facsimile: (860) 848-6162
with a copy to:
Mohegan Tribal Gaming Authority
One Mohegan Sun Boulevard
Uncasville, CT 06382
Attention: Mr. Thomas Acevedo
Phone: (860) 848-6126
Facsimile: (860) 848-6162
B-15
<PAGE>
If to Developer:
Trading Cove Associates
914 Hartford Turnpike
P.O. Box 60
Waterford, CT 06385
Attention: Mr. Len Wolman
Phone: (860) 442-4559
Facsimile: (860) 437-7752
with a copy to:
Sun International Hotels Limited
Coral Towers
P.O. Box N-4777
Paradise Island
Nassau, The Bahamas
Attention: Mr. Charles Adamo
Phone: (242) 363-2509
Facsimile: (242) 363-4581
Notices delivered by mail shall be deemed given five (5) days after such
mailing. Notices given by hand delivery shall be deemed given on the date of
delivery. Notices given by overnight commercial courier shall be deemed given
on the business day immediately following transmittal, and notices delivered
by facsimile shall be deemed given on the date of transmission if the
transmission is confirmed.
13.6 Third Party Beneficiary. This Development Agreement is exclusively for
the benefit of the parties hereto and it may not be enforced by any party
other than the parties to this Development Agreement and shall not give rise
to liability to any third party other than the authorized successors and
assigns of the parties pursuant to Section 13.7.
13.7 Successors and Assigns. The benefits and obligations of this
Development Agreement shall inure to and be binding upon the parties hereto
and their respective successors and assigns. This Development Agreement shall
not be assigned by Developer to an entity other than Sun or an Affiliate of
Sun without the prior written consent of the Authority (which may be withheld
in its sole and absolute discretion) and any required approvals by the Bureau
of Indian Affairs or its authorized representatives. At all times during the
term of this Development Agreement, Sun, or a wholly-owned subsidiary of Sun
must own at least fifty percent (50%) of the partnership interests in
Developer. The Authority may, without the consent of Developer, but subject to
any required approvals of the Bureau of Indian Affairs or its authorized
representative, assign this Development Agreement to the Tribe, another
instrumentality of the Tribe or an entity wholly owned by the Tribe organized
to conduct the Authority's gaming enterprise and the business of the Project.
In the event of any such permitted assignment by the Authority or its
authorized assignee, the assigning party shall be relieved of its obligations
under this Development Agreement which accrue from and after the date of the
assignment, provided that the assignee shall assume in writing the obligations
of the assignor under this Development Agreement and agree to perform and be
bound by the terms and provisions hereof effective from and after the date of
such assignment.
13.8 Severability. The invalidity of any one or more provisions hereof or of
any other agreement or instrument given pursuant to or in connection with this
Development Agreement shall not affect the remaining portions of this
Development Agreement or any such other agreement or instrument or any part
thereof, all of which are inserted conditionally on their being held valid in
law; and in the event that one or more of the provisions contained herein or
therein should be invalid, or should operate to render this Development
Agreement or any such other agreement or instrument invalid, the parties agree
to negotiate, in good faith, to modify or amend such invalid provision to
obtain for the parties the intended benefits of such provision (or this
Development Agreement and such other agreements and instruments shall be
construed as if such invalid provision had not been inserted).
B-16
<PAGE>
13.9 Entire Agreement. This Development Agreement (including any exhibits
referred to herein) represents the entire agreement between the parties hereto
with respect to the subject matter hereof. No other representations,
warranties, promises or agreements, express or implied, shall exist between
the parties unless such representations, warranties, promises or agreements
are in writing and bear a date subsequent to the date of this Development
Agreement.
13.10 Headings. The headings used in this Development Agreement are for the
convenience of the parties only and shall not modify nor restrict any of the
terms or provisions hereof.
13.11 Waivers. No failure or delay by Developer or the Authority to insist
upon the strict performance of any covenant, agreement, term or condition of
this Development Agreement, or to exercise any right or remedy consequent upon
the breach thereof, shall constitute a waiver of any such breach or any
subsequent breach of such covenant, agreement, term, or condition. No
covenant, agreement, term or condition of this Development Agreement and no
breach thereof shall be waived, altered or modified except by written
instrument. No waiver of any breach shall affect or alter this Development
Agreement, but each and every covenant, agreement, term and condition of this
Development Agreement shall continue in full force and effect with respect to
any other then existing or subsequent breach thereof.
13.12 Periods of Time. Unless otherwise specified herein, all references to
"days" shall mean calendar days. Whenever any determination is to be made or
action is to be taken on a date specified in this Development Agreement, if
such date shall fall on a Saturday, Sunday or legal holiday under the laws of
the State of Connecticut or the Tribe, then in such event said date shall be
extended to the next day which is not a Saturday, Sunday or legal holiday.
13.13 Consents and Approvals. Where approval or consent or other action of
the Authority, or any agent or political subdivision of the Authority, is
required, such approval shall mean the written approval of the Management
Board evidenced by a duly enacted resolution thereof, or, if not provided by
resolution of the Management Board, the written approval of the Authority
Representative (to the extent authorized by the Management Board) or such
other person or entity designated by resolution of the Management Board. If
the approval of Developer or the Authority is required hereunder, Developer or
the Authority, as the case may be, shall request such approval in writing,
which request shall specify the matter as to which such approval is requested
and provide reasonable detail regarding such matter. If Developer or the
Authority, as the case may be, does not receive a negative response or a
notice that more time and/or information is necessary to make a decision
(which notice shall specify the amount of time and/or the information
necessary), in writing, from such other party within fifteen (15) days
thereafter, such other party shall be deemed to have approved the matter
referred to in such request.
13.14 Government Savings Clause. This Development Agreement shall be
submitted to the Bureau of Indian Affairs for its approval pursuant to its
authority under 25 U.S.C. (S) 81 and the NIGC, to the extent required by law.
In addition, each party agrees to pursue such approval and execute, deliver,
and if necessary, record any and all additional instruments, certifications,
amendments, modifications and other documents as may be required by the United
States Department of the Interior, Bureau of Indian Affairs, the office of the
Field Solicitor, or any applicable statute, rule or regulation in order to
effectuate, complete, perfect, continue or preserve the respective rights,
obligations and interest of the parties to the fullest extent permitted by
law; provided that any such instrument, certification, amendment, modification
or other document shall not materially change the respective rights, remedies
or obligations of the parties under this Development Agreement or related
agreements or documents.
13.15 Termination of Prior Agreements. As of the Effective Date, the
Authority and Developer terminate all prior agreements, arrangements or
understandings and all covenants, terms and provisions contained therein with
respect to development and construction of facilities on the Property,
including, without limitation, the Gaming Development Agreement and the Hotel
Development Agreement.
B-17
<PAGE>
13.16 Representation before Public Bodies. Without the prior written consent
of the Authority, Developer shall have no right or authority to represent the
Authority before public and governmental bodies in connection with any zoning,
environmental, site, easement, title, design, construction or other matter
related to the Project.
13.17 Non-Impairment of Agreement. The Tribe shall not take any action,
enter into any agreement, amend its constitution or enact any ordinance, law,
rule or regulation that would prejudice or have a material adverse affect on
the rights of Developer under this Development Agreement. Neither the Tribe
nor any committee, agency, board or other official body of the Tribe shall, by
exercise of the police power, eminent domain or otherwise, act to modify,
amend or in any manner impair the obligations of the parties under this
Development Agreement without the written consent of Developer. Any such
action or attempted action shall be void ab initio. The Tribe acknowledges
that the MTC Court has the authority to provide equitable relief to enforce
this provision.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
B-18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Development
Agreement on and as of the date first written above.
THE AUTHORITY:
MOHEGAN TRIBAL GAMING AUTHORITY
By: _________________________________
Name: Roland Harris
Its: Chairman of the Management
Board
DEVELOPER:
By:WATERFORD GAMING, L.L.C.
Its:General Partner
By:LMW INVESTMENTS, INC.
member
By: _____________________________
Name: Len Wolman
Its: President
By:SLAVIK SUITES, INC., member
By: _____________________________
Name: Len Wolman
Its: Vice President
By:SUN COVE LTD.
Its:General Partner
By: _____________________________
Name: Howard B. Kerzner
Its: President
Date: Approved Pursuant to 25 U.S.C.
(S) 81
United States Department of Interior
Bureau of Indian Affairs:
By: _____________________________
Name: ___________________________
Title: __________________________
B-19
<PAGE>
JOINDER
The Mohegan Tribe of Indians of Connecticut hereby agrees to comply with
Section 13.17 of this Development Agreement.
Date: THE MOHEGAN TRIBE OF INDIANS OF
CONNECTICUT
By: _________________________________
Name: Roland Harris
Title: Chairman of the Management
Board
B-20
<PAGE>
EXHIBIT 10.16
Mohegan Sun
401(k) Savings and Investment Plan
Summary Plan Description
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION TO YOUR PLAN 3
GENERAL INFORMATION ABOUT YOUR PLAN 4
ELIGIBILITY AND PARTICIPATION 5
ELIGIBILITY 5
PARTICIPATION REQUIREMENTS 5
ENTRY DATE 5
YOUR CONTRIBUTIONS TO THE PLAN 5
COMPENSATION 5
ELECTIVE DEFERRALS 5
YOUR EMPLOYER'S CONTRIBUTIONS TO THE PLAN 6
EMPLOYER MATCHING CONTRIBUTIONS 6
EMPLOYER PROFIT SHARING CONTRIBUTIONS 6
BENEFITS UNDER YOUR PLAN 8
NORMAL RETIREMENT AGE 8
DISABILITY 8
IN-SERVICE DISTRIBUTIONS 8
HARDSHIP WITHDRAWALS 8
STATEMENT OF ERISA RIGHTS 13
CLAIMS PROCEDURES 14
PENSION BENEFIT GUARANTY CORPORATION: 14
</TABLE>
2
<PAGE>
INTRODUCTION TO YOUR PLAN
Your Employer has instituted this Plan to reward efforts made by Employees who
contribute to the overall success of the Company. The Plan is exclusively for
the benefit of Participants and their Beneficiaries. The purpose of the Plan is
to help you build financial security for your retirement and to help protect you
and your Beneficiaries in the event of your death or Disability.
This Plan is a 401(k) plan. It offers you a built in savings system through
pre-tax payroll deductions. It also offers attractive tax advantages, the
freedom to choose investments according to your needs, the flexibility to change
your investments as your needs change, and a way to build capital for a secure
retirement.
Under the terms of this Plan, you may choose to defer a portion of your current
salary, which your Employer then contributes to the plan on a pre-tax basis.
Contributions are not subject to Federal income tax, and in most cases are also
exempt from state or local income taxes. Since your contributions are not
subject to Federal income tax, your taxable income is reduced.
The laws governing plans like this one contain many provisions that may affect
your retirement. You should contact your Plan Administrator with any questions
about the Plan before you make any decisions related to your retirement. For
specific tax advice, you should contact your tax advisor.
This Summary Plan Description (SPD) summarizes the key features of your Plan,
and your rights, obligations and benefits under the Plan. Some of the statements
made in this SPD are dependent upon this Plan being "qualified", or approved by
the Internal Revenue Service. Please contact your Plan Administrator with any
questions you may have after you have read this summary.
Every effort has been made to make this description as accurate as possible.
However, this booklet is not a Plan document. This SPD is not meant to
interpret, extend, or change the provisions of the Plan in any way. The terms of
the Plan are stated in and will be governed in every respect by the Plan
document. Your right to any benefit depends on the actual facts and the terms
and conditions of the Plan document, and no rights accrue by reason of any
statement in this summary. A copy of the Plan document is available at the
principal office of your Employer for inspection. You, your Beneficiaries, or
your legal representatives may request to inspect the Plan Document at any
reasonable time.
3
<PAGE>
GENERAL INFORMATION ABOUT YOUR PLAN
EMPLOYER/PLAN SPONSOR Mohegan Tribal Gaming Authority dba Mohegan Sun
AND PLAN ADMINISTRATOR Mohegan Sun Boulevard
Uncasville, CT 06382
(860) 204-7800
EMPLOYER'S TAX ID NUMBER: 06-1436334
PLAN TRUSTEE(S): MERRILL LYNCH TRUST COMPANY
300 Davidson Avenue
2nd Floor West
Somerset, New Jersey 08873
PLAN NAME: Mohegan Sun 401(k) Savings and Investment Plan
PLAN NUMBER: 001
PLAN EFFECTIVE DATE: February 10, 1997
PLAN TAX YEAR: January 1st through December 31st
PLAN YEAR END: December 31st
TYPE OF RECORDKEEPING: Contract Administration
TYPE OF PLAN: 401(k) with profit sharing.
The Plan Administrator keeps the records for the Plan, and is responsible for
the interpretation and administration of the Plan. All Plan Records will be kept
on the basis of the Plan Year. The Plan Administrator may hire a third party
record keeper to perform the administrative functions of the Plan. If you have
question about the Plan you should write to the Plan Administrator. The Plan
Administrator and the Trustees are designated as the Agents for Service of Legal
Process.
4
<PAGE>
ELIGIBILITY AND PARTICIPATION
ELIGIBILITY: All Employees of the Employer are eligible to
participate in this Plan.
PARTICIPATING AFFILIATES: The Mohegan Tribe of Indians of Connecticut and
such other affiliated entities as may adopt the
plan with the approval of the sponsor.
PARTICIPATION REQUIREMENTS: If you are not excluded from participation due to
the above, you will become eligible to
participate upon attaining age 18 and completing
1/4 of a Year of Service.
Since the service requirement is less than one
year, you are not required to complete a specific
number of Hours of Service during the service
period. Instead, your service will be measured by
the length of time you are employed. You will
become eligible to participate in the Plan on
your 3 month anniversary of your date of hire.
For example: If your Date of Hire is 1/1/97, you
will become eligible to participate in the Plan
on 4/1/97.
If you do not meet the eligibility requirements,
you will not be eligible to participate in the
Plan.
ENTRY DATE: You will become a Participant in the Plan on the
Entry Date coincident with or next following the
date you meet the participation requirements. The
initial Entry Date will be the 10th day of
February and thereafter the Entry Dates will be
the first day of the first and seventh month of
the Plan Year.
YOUR CONTRIBUTIONS TO THE PLAN
COMPENSATION: Compensation means the total salary or wages paid
to you as shown on your W-2, excluding bonuses.
Compensation is limited to a maximum of $160,000*
For the first year you participate in the Plan,
only Compensation earned after your Entry Date
will be used to determine your share of your
Employer's Contribution.
ELECTIVE DEFERRALS: 15% of Annual Compensation, to a maximum of
$9,500* per calendar year.
* Adjusted periodically for cost of living by the
IRS.
5
<PAGE>
This limitation is an aggregate limit that
applies to all deferrals you make to this
Plan and to any other Elective Deferral plan,
including tax sheltered annuity contracts,
simplified pension plans, or other 401(k)
Plans.
MAKING AND MODIFYING 401(K) You may discontinue deferrals at any time,
ELECTIONS: upon written notice to the Plan
Administrator. Your instructions to cease
Elective Deferrals will be implemented as of
the first payroll period following the date
you notified your Plan Administrator.
To resume your Elective Deferral
Contribution, you must provide written notice
to your Plan Administrator, and wait until
the next quarterly interval.
You may increase or decrease your Elective
Deferral Contribution Percentage at quarterly
intervals throughout the Plan Year.
INVESTMENT OF CONTRIBUTIONS: As a Participant in this Plan, you direct the
investment of your account(s) Your Plan
provides a menu of investment options from
which you may select your investments. You
may modify your investment elections,
transfer existing account balances, and
obtain information regarding your investments
on a daily basis.
You should be aware that your investment decisions will ultimately affect the
retirement benefits to which you will become entitled. Your Employer and the
Plan Trustee(s) cannot provide you with investment advice, nor are they
obligated to reimburse any participant for any investment loss that may occur as
a result of his or her investment decisions. There is no guarantee that any of
the investment options available in this Plan will retain their value or
appreciate.
YOUR EMPLOYER'S CONTRIBUTIONS TO THE PLAN
EMPLOYER MATCHING CONTRIBUTIONS: Your Employer may make a contribution to the
Plan known as a 401(k) Matching Contribution.
Your Employer's 401(k) Matching Contribution,
if any, will be an amount not to exceed 50%
of the first 4% of your Compensation
contributed as an Elective Deferral.
ELIGIBILITY FOR EMPLOYER MATCHING Any Participant who makes an Elective
CONTRIBUTIONS: Deferral Contribution will be eligible to
receive an Employer Matching Contribution.
EMPLOYER PROFIT SHARING Your Employer may make a contribution to the
CONTRIBUTIONS: plan known as a Profit Sharing Contribution.
Your share of the Employer's Profit Sharing
Contribution, if any, will be allocated to
your account based on the ratio that your
Compensation bears to the total Compensation
of all Participants eligible for a share of
this Contribution.
6
<PAGE>
ELIGIBILITY FOR EMPLOYER PROFIT SHARING Any Participant who is employed on
CONTRIBUTIONS: the last day of the Plan Year will be
eligible to receive an Employer
Profit Sharing Contribution.
Any Participant who is on a leave of
absence on the last day of the Plan
Year will be eligible to receive an
Employer Profit Sharing Contribution.
In addition, any Participant who
died, retired, or became Disabled
during the Plan Year will receive an
Employer Profit Sharing Contribution,
if any.
VESTING: Vesting means that for each Year of
Service you complete, you become
entitled to all or a portion of your
Employer Contributions Account(s).
For purposes of determining your
vested account balance, all of your
Years of Service, beginning on your
date of hire, will be counted.
YEAR OF SERVICE FOR VESTING DEFINED: You will have completed a Year of
Service for vesting purposes on each
anniversary of your date of hire with
your Employer.
VESTING OF ELECTIVE DEFERRALS: You are always 100% vested in your
Elective Deferrals.
VESTING SCHEDULE FOR EMPLOYER 401(K) MATCHING AND PROFIT SHARING CONTRIBUTIONS
YEARS OF SERVICE VESTED PERCENTAGE
1 20%
2 40%
3 60%
4 80%
5 100%
If this is an amended or restated Plan, your vested percentage cannot be less
than your vested percentage prior to the amendment or restatement of this Plan.
FORFEITURES: If you terminate service prior to
being fully vested in your Employer
Contribution Account(s), you forfeit
the amount in which you are not
vested. Forfeitures of Employer
Matching Contributions will be used
to reduce future Employer
Contributions to the Plan.
Forfeitures of Employer Profit
Sharing Contributions will be
reallocated among remaining
Participants.
7
<PAGE>
BENEFITS UNDER YOUR PLAN
NORMAL RETIREMENT AGE: Your Normal Retirement Age is the later
of age 65 or your age after completing 5
years of Plan participation. Your Normal
Retirement Date is the first day of the
month following attainment of Normal
Retirement Age with your Employer. You
will be 100% vested in your Employer
Contribution Account(s) upon your Normal
Retirement Date.
You are 100% vested in your Employer
Contribution Account(s) upon your Normal
Retirement Date.
DISABILITY: You will be considered to be disabled if
your injury or medical condition causes
you to be unable to perform your usual
and customary duties for your Employer
for a continuous period of at least
twelve months. Benefit payments will
begin as soon as feasible after your
Disability Retirement Date.
You are 100% vested in your Employer
Contribution Account(s) if you are
deemed disabled.
IN-SERVICE DISTRIBUTIONS: As an active Participant in the Plan,
you may, upon attaining age 59 1/2,
submit a written application to the Plan
Administrator to withdraw all or a
portion of your vested account balance.
HARDSHIP WITHDRAWALS As an active Participant in the Plan,
you may submit a written application to
the Plan Administrator for a hardship
withdrawal, if you are experiencing an
immediate and heavy financial need.
EVENTS WHICH QUALIFY FOR A HARDSHIP 1. To cover medical expenses incurred by
DISTRIBUTION: you, your spouse or your dependents;
2. For the purchase of a principal
residence (excluding mortgage payments);
3. For the payment of post-secondary
education tuition expenses;
4. For the payment of amounts necessary
to prevent eviction from or foreclosure
on your principal residence.
All other forms of financial assistance
must be explored and exhausted before a
Hardship Distribution can me made.
If you take a hardship withdrawal, your Elective Deferral Contributions will be
suspended for a period of twelve months following the date of the withdrawal.
TAX CONSEQUENCES FOR RECEIVING A Distribution or withdrawal of your pre-
DISTRIBUTION OR WITHDRAWAL: tax contributions or earnings on your
pre-tax contributions may be subject to
ordinary income taxes or early
distribution penalties. Please consult
your tax advisor prior to taking any
distribution or withdrawal
8
<PAGE>
LOAN AVAILABILITY: An active Participant in the Plan may request
a loan from the Plan. A loan allows you to
borrow money from your account without
incurring a penalty. You must repay the loan
with interest, on an after tax basis, usually
through payroll deduction.
Once you request a loan, your Employer is
required to approve the loan. After approval,
you will receive a check with an attached
promissory note. By endorsing the check, you
agree to the terms and repayment conditions
in the promissory note.
As an active Participant in the Plan, you may
request a loan from
LOAN REQUIREMENTS: 1. Loans are available to all participants
in the Plan on a uniform and
nondiscriminatory basis.
2. Loans must bear a reasonable rate of
interest.
3. The loan must be adequately secured.
If you are married at the time of your death,
your surviving spouse is your Beneficiary
unless:
. You elect otherwise in writing (with the
consent of your spouse);
. You establish to the satisfaction of the
Plan Administrator that your spouse cannot
be located.
If you want to designate a Beneficiary other
than your spouse, (an "alternate
Beneficiary") you must do so on a form
provided by the Plan Administrator. You may
revoke or change this designation at any time
by filing written notice with the Plan
Administrator, however, your spouse must
consent, in writing, to any alternate
Beneficiary. Your spouse's consent must be
witnessed by a Notary Public or Plan
official.
It is important that you notify the Plan
Administrator of any change in your marital
status.
LOAN LIMITATIONS: You may borrow any amount up to 50% of your
vested account balance. However, your loan
can be no more than $50,000 minus your
highest outstanding loan amount during the
prior 12 months.
LOAN REPAYMENTS: Repayment of a loan must be made at least
quarterly, on an after-tax basis, in level
payments of principal and interest, and
repaid within five years, except for the
purchase of a primary residence.
9
<PAGE>
DISTRIBUTIONS UPON DEATH: If death occurs before Retirement Benefits
begin, your Beneficiary may choose to defer
payment, or to receive payment based on the
following general guidelines:
. If death occurs before Retirement Benefits
begin, your Beneficiary may choose to
defer payment, or to receive payment based
on the following general guidelines:
. Payment may be made in the form of a life
annuity for Participants who transferred
money from a prior plan where this option
was available,
. Payment may be made in installments
payable in cash or in kind, or part in
cash and part in kind over a period not to
exceed your lifetime, or the joint
lifetime of you and your spouse,
. The entire sum must be distributed no
later than the last day of the year of the
fifth anniversary of your death, if your
Beneficiary is not your surviving spouse,
. If your Beneficiary is your spouse,
payment may be postponed until December
31st of the calendar year in which you
would have attained age 65,
. Payment may be made in installments, as
described above, beginning on or before
the December 31st following the year in
which you die.
If death occurs after Retirement Benefits begin, but before your entire
Retirement Benefit has been paid, the remaining portion of your Retirement
Benefit will continue in the same form and for the same period as you originally
elected. In any case, payments will continue to be made at least as rapidly as
such payment were being made prior to your death.
If you fail to designate an alternate
Beneficiary, or your alternate Beneficiary
does not survive you, the benefit payable
from this Plan as a result of your death will
be payable to your Surviving Spouse, or if
you have no Surviving Spouse, the death
benefit will be paid to your estate.
If the value of your account is $3,500 or
less, death benefits will be distributed to
your Beneficiary without your Beneficiary's
consent as soon as practicable following your
death.
FORMS OF BENEFIT: The normal form of payment with respect to
your vested account balance under this Plan
is a lump sum. If your account balance is
$3,500 or less, you will receive a lump sum
distribution as soon as feasible following
the date you terminated employment. If your
account balance is greater than $3,500, you
(and your spouse, if applicable) must give
written consent before the distribution can
be made.
10
<PAGE>
An optional form of payment with respect to
your vested account balance is installments
payable in cash or in kind, or part in cash
and part in kind over a period not to exceed
your lifetime, or the joint lifetime of you
and your spouse.
If you transferred money from a prior plan,
another form of benefit may be available. You
should consult with your tax advisor
regarding those options.
You may request that all or part of any taxable distribution you receive from
the Plan, other than an annuity, installments paid over 10 or more years, or
required distributions after age 70 1/2, be rolled over directly from the
Trustees to the trustee or custodian of an eligible retirement plan. For this
purpose, an "eligible retirement plan" includes an individual retirement account
of annuity, or your new employer's qualified plan, if the plan accepts
rollovers. The Plan Administrator will notify you if any amount to be
distributed to you is an eligible rollover distribution. Special tax withholding
rules apply to any portion of the eligible rollover distribution which is not
rolled over directly to an eligible retirement plan.
TOP HEAVY DEFINED: A plan becomes Top-Heavy when 60% or more of
the Plan's assets are allocated to Key
Employees. Key Employees are certain owners
or officers of your Employer. If the Plan
becomes Top Heavy certain rules apply
TOP HEAVY RULES: A minimum contribution will be required to
non key employees. This contribution is the
lesser of:
. three percent (3%) of Compensation; or
. the largest percentage of Compensation
contributed by the Employer on behalf of
key employees.
. If you are a Participant in more than one
Plan maintained by your Employer, you may
not be entitled to minimum benefits in
more than one plan.
VESTING SCHEDULE FOR TOP-HEAVY: Vesting schedule outlined earlier will apply.
ROLLOVERS OR TRANSFERS: . You must submit a written request to your
Plan Administrator, who will determine
whether a rollover or transfer is
acceptable;
. You may make such a contribution to this
Plan prior to being eligible for the Plan;
. Any amount rolled over or transferred to
this Plan cannot include personal IRA
contributions;
. Prior to making a rollover or transfer,
you should consult with your tax advisor.
PERIOD OF SEVERANCE: Under the elapsed time method, your Years of
Service for vesting purposes run from the
date you first perform an Hour of Service for
your Employer until your severance from
service date. A Period of Severance begins on
the earlier of:
. The date you quit, retire, are discharged,
or die.
11
<PAGE>
OR
. The first anniversary of the first date of a
period in which you remain absent from service
with your Employer (with or without pay) for
any reason other than quitting, retirement,
discharge, or death. These reasons include
vacation, holiday, sickness, disability, leave
of absence, or layoff.
. If you are absent on military leave, you will
not be considered to have a Period of Severance
if you return to work within 90 days of your
release from military duty, or any longer
period during which your reemployment rights
are protected by law.
If you are on an authorized leave of absence (in
accordance with standard personnel policies), you
will not be considered to have a Period of
Severance if you return to work immediately upon
the expiration of such leave of absence. If you
are on a leave of absence because of maternity or
paternity, the second anniversary of the first
date of your leave, if you remain absent from
service with your Employer. For example, if you
went on maternity leave on October 1, 1995, you
would not be considered to have severed service
with your Employer if you returned to work and
performed an Hour of Service before October 1,
1997. If you did not return to work on or before
October 1, 1997, you would incur a Period of
Severance.
If you are reemployed after you incur a Period of
Severance and you were vested when you terminated
employment, upon your reemployment, you will be
immediately eligible for the Plan, and you will be
vested at the same percentage as when you left.
If you are reemployed after you incur a Period of
Severance and you were not vested when you
terminated employment, you will lose credit for
service you completed prior to your termination if
your absence is five years or longer.
If you are reemployed within five years after you
incur a Period of Severance, and you received a
full or partial distribution (including a "deemed"
distribution if you had a $0 account balance), you
may return as a Participant at the same vested
percentage as when you left, provided you repay
the amount distributed to you within five years of
the date you are reemployed. After repayment, your
account balance will be restored to its original
amount as though there had been no distribution,
and any amount forfeited when you left will be
replaced by your Employer.
If you are reemployed after you incur a five-year
Period of Severance, you will not be given the
opportunity to repay the
12
<PAGE>
amount distributed to you and your vested
percentage will be determined based on
your Years of Service beginning on your
date of reemployment.
If you terminate service prior to becoming
a Participant in the Plan, you will be
treated as a new employee upon your
reemployment. To participate, you must
meet the Eligibility Requirements.
QUALIFIED DOMESTIC RELATIONS ORDERS: As a general rule, your account balance,
may not be assigned. This means that your
accounts cannot be sold, used as
collateral for a loan, given away, or
otherwise transferred. In addition, your
creditors may not attach, garnish or
otherwise interfere with your account.
An exception to this general rule is a
"qualified domestic relations order" or
QDRO. A QDRO is a court order that can
require the plan administrator to pay a
portion of your account balance to your
former spouse, child or other dependent.
PLAN AMENDMENT OR TERMINATION: Your Employer reserves the right to amend
the Plan at any time. However, no
amendment can deprive you of any vested
benefits.
Your Employer also reserves the right to
terminate the Plan. If the Plan is
terminated, you will be 100% vested in
your total account balance under the Plan.
STATEMENT OF ERISA RIGHTS
As a Participant in the Plan, you are entitled to certain rights and protection
under the Employee Retirement Income Security Act of 1974 (ERISA). Your Employer
may not fire you or discriminate against you to prevent you from obtaining a
benefit from the Plan or exercising your rights under ERISA.
ERISA provides that all Plan Participants shall be entitled to:
. Examine, without charge, at your Plan Administrator's office, all Plan
documents, insurance contracts, if any, and copies of all documents filed by
your Plan with the U. S. Department of Labor, such as annual reports and Plan
descriptions.
. Obtain copies of all Plan documents and other Plan information upon written
request to your Plan Administrator. Your Plan Administrator may impose a
reasonable charge for the copies.
. Receive a summary of the Plan's annual financial report. Your Plan
Administrator is required by law to provide each Participant with a copy of
the Plan's Summary Annual Report.
. Obtain an annual statement telling you whether you have a right to receive a
benefit under the Plan, and if so, what your benefits would be if you stop
working for your Employer now. If you do not have a right to a benefit under
the Plan, the statement must tell you how many years you have to work to get
a benefit under the Plan. The Plan may require a written request for this
statement, but it must be provided free of charge.
13
<PAGE>
. File suit in Federal court if any materials requested are not received
within 30 days of your request unless the materials were not sent because of
matters beyond the control of your Plan Administrator. The court may require
your Plan Administrator to pay you up to $100 per day for each day's delay
until the materials are received by you.
In addition to creating rights for Plan participants, ERISA imposes obligations
upon the persons who are responsible for the operation of the Plan. These
persons are referred to as "fiduciaries". Fiduciaries must act solely in the
interest of Plan participants and must exercise prudence in the performance of
their plan duties. Fiduciaries who do not comply with ERISA may be removed and
required to make good any losses they have caused the Plan.
If Plan fiduciaries are misusing the Plan's assets, as a Participant in the
Plan, you have the right to file suite in a Federal court or to request
assistance from the U.S. Department of Labor. If you are successful in your
lawsuit, the court may require the other party to pay your legal costs,
including attorney's fees. If you are unsuccessful in your lawsuit, or the court
finds your action frivolous, the court may order you to pay these costs and
fees.
CLAIMS PROCEDURES
When you terminate employment, you must complete a form that notifies the Plan
Administrator that you are making a claim for benefits. Your Employer has a
supply of these forms. Ideally this form should be completed on or before your
final day of work. This way, your Employer can send your claim for benefits
right away for processing.
If, after your claim for benefits is processed, you have questions or disagree
with the calculation of your benefit, you must notify the Plan Administrator in
writing. The Plan Administrator will, within 90 days(or within 180 days if
special circumstances exist) notify you in writing of its decision. That
notification will include:
1. How your benefit was calculated,
2. The specific reason that your claim is denied (in whole or in part) if it is
denied
3. Specific references to Plan provisions on which the denial is based
4. A description of any additional material or information necessary for you to
perfect your claim and an explanation of why such information is necessary
5. An explanation of the Plan's claim review procedure.
Within 60 days after you receive notice of the denial of part or all of your
claim for benefits, you may file a written appeal with the Plan Administrator.
You may seek representation by an attorney or other representation of your
choosing. You may submit written and oral evidence and arguments in support of
your claim. You may review all relevant documents. The Plan Administrator
generally makes a final decision within 60 days of your appeal. The Plan
Administrator decision will include the specific reasons for its decision and
specific references to Plan provisions on which the decision is based
PENSION BENEFIT GUARANTY CORPORATION:
The type of Plan your Employer has adopted is a defined contribution plan.
Therefore, the Plan is not subject to or insured by the Pension Benefit Guaranty
Corporation (PBGC).
14
