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Pursuant to Rule 424(b)(3)
Registration No. 333-76753
PROSPECTUS
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$500,000,000
Mohegan Tribal Gaming Authority
Offer To Exchange All Outstanding
$200,000,000 8 1/8% Senior Notes Due 2006
For $200,000,000 8 1/8% Senior Exchange Notes Due 2006
and
All Outstanding $300,000,000 8 3/4% Senior Subordinated Notes Due 2009
For $300,000,000 8 3/4% Senior Subordinated Exchange Notes Due 2009
Interest Payable January 1 and July 1, Beginning on July 1, 1999
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Material Terms of the Exchange Offers
. We are offering to exchange all . The terms of the Exchange Notes
validly tendered and not validly will be substantially identical
withdrawn Outstanding Notes for to the terms of the Outstanding
an equal amount of a new series Notes, except for special
of notes that are registered transfer restrictions and
under the Securities Act of 1933. registration rights relating to
the Outstanding Notes.
. The Exchange Offers will expire
at 5:00 P. M., New York City
Time, on June 3, 1999, unless
extended.
. You may only tender the
Outstanding Notes in
denominations of $1,000 and
multiples of $1,000.
. You may withdraw tenders of
Outstanding Notes at any time . The exchange of notes should not
before the expiration of the be a taxable exchange for U.S.
Exchange Offers. federal income tax purposes.
. We will not receive any proceeds . The Exchange Offers are subject
from the Exchange Offers. to customary conditions.
Please see Risk Factors beginning on page 15 for a discussion of factors
that you should consider in connection with the Exchange Offers.
We are not making the Exchange Offers in any state or Jurisdiction where it
is not permitted.
None of the National Indian Gaming Commission, the U.S. Securities
and Exchange Commission or any other federal or state agency has
approved or disapproved of the Notes to be distributed in the Exchange
Offers, nor have any of these organizations determined that this
Prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this Prospectus is April 29, 1999.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY....................................................... 1
RISK FACTORS............................................................. 15
THE EXCHANGE OFFERS...................................................... 26
USE OF PROCEEDS.......................................................... 35
CAPITALIZATION........................................................... 36
SELECTED FINANCIAL DATA.................................................. 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 39
BUSINESS................................................................. 45
THE AUTHORITY............................................................ 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 58
MOHEGAN TRIBE OF INDIANS OF CONNECTICUT.................................. 59
OTHER MATERIAL AGREEMENTS................................................ 61
GOVERNMENT REGULATION.................................................... 68
DESCRIPTION OF OTHER INDEBTEDNESS........................................ 72
DESCRIPTION OF THE EXCHANGE NOTES........................................ 74
PLAN OF DISTRIBUTION..................................................... 129
LEGAL MATTERS............................................................ 129
INDEPENDENT AUDITORS..................................................... 129
WHERE YOU CAN GET MORE INFORMATION....................................... 130
INDEX TO FINANCIAL STATEMENTS............................................ F-1
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You should rely only on the information contained in or incorporated by
reference in this Prospectus. We have not authorized anyone to provide you with
different information. The Authority is not making an offer of these securities
in any state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this Prospectus is
accurate as of any date other than the date on the front of this Prospectus.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
Prospectus. Because it is a summary, it does not contain all of the information
that is important to you. This summary is qualified in its entirety by the more
detailed information and by the Authority's Consolidated Financial Statements,
the notes thereto and the other financial data that are contained elsewhere in
this Prospectus. You should carefully read this entire Prospectus and the
Letter of Transmittal in their entirety, particularly the section entitled
"Risk Factors" and the financial statements and the related notes to those
statements. References in this Prospectus to the "Authority" are to the Mohegan
Tribal Gaming Authority. The term the "Tribe" refers to the Mohegan Tribe of
Indians of Connecticut. The terms "we" and "us" refer to the Tribe and the
Authority, collectively.
The Tribe and the Authority
The Mohegan Tribe of Indians of Connecticut is a federally recognized Indian
tribe with a 390-acre reservation located in southeastern Connecticut. 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
that has been approved by the U.S. Secretary of the Interior. The Tribe's
gaming operation is one of only two legally authorized gaming operations
offering traditional slot machines and table games in the Northeastern United
States outside of Atlantic City, New Jersey. The Tribe has established an
instrumentality, the Mohegan Tribal Gaming Authority, with the exclusive power
to conduct and regulate gaming activities for the Tribe. The Authority is
governed by a Management Board, which consists of the nine members of the
Mohegan Tribal Council.
Mohegan Sun
In October 1996, the Authority opened a gaming and entertainment complex
known as Mohegan Sun at a total cost of approximately $303 million. Mohegan Sun
is located in Uncasville, Connecticut, approximately 125 miles from New York
City and approximately 100 miles from Boston, Massachusetts. Mohegan Sun is
situated on a 240-acre site on the Tribe's reservation overlooking the Thames
River with direct access from Routes I-395 and 2A via a four-lane access road
constructed by the Authority. As of December 31, 1998, Mohegan Sun had
approximately 176,500 square feet of gaming space. Mohegan Sun currently offers
. 3,025 slot machines, 150 table games (including blackjack, roulette,
craps, baccarat, caribbean stud poker and let it ride) and 42 poker
tables;
. food and beverage amenities, including three gourmet restaurants, a 680-
seat buffet, a New York style delicatessen, a 24-hour coffee shop, a 10-
station food court and multiple service bars for a total of 1,888
restaurant seats;
. a high stakes bingo hall with seating for up to 1,400 guests, which is
also used as an events center that can accommodate up to 1,800 guests;
. an approximately 10,000 square foot lounge featuring live entertainment
seven days a week;
. an approximately 9,000 square foot simulcasting race book facility;
. parking spaces for 7,500 guests and for 1,700 employees;
. a children's arcade area and a child care facility operated by New
Horizons Kids Quest, Inc.; and
. an approximately 4,000 square foot gas station facility.
Mohegan Sun, which frequently operates at capacity on weekends, does not
currently offer any hotel accommodations or a large-scale dedicated
entertainment venue. Additionally, it offers only limited retail outlets. We
believe that there are significant opportunities to increase revenues and
profits by expanding the gaming space and adding hotel, entertainment and other
amenities.
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For its first fiscal year of operations ended September 30, 1997, Mohegan
Sun welcomed approximately 6.5 million guests and recorded gross revenues of
$512.1 million. During its second fiscal year ended September 30, 1998, Mohegan
Sun had approximately 7.5 million guests, an increase of 15.4% over 1997, and
its gross revenues were $641.4 million, an increase of 25.2% over the prior
year. The Authority's EBITDAM (earnings before extraordinary items, interest,
income taxes, depreciation, amortization and management fees) for the 12 months
ended September 30, 1997 and 1998 were $135.4 million and $200.3 million,
respectively. The Authority's EBITDAM for the quarters ended December 31, 1997
and 1998 were $35.1 million and $51.8 million, respectively.
Strategy
Our overall strategy is to profit from expanding demand in the Northeast
gaming market. Our initial success has resulted primarily from guests living
within 100 miles of Mohegan Sun. Based upon Mohegan Sun's results and
experience to date, we believe the Northeast gaming market is strong and that
there is significant demand for additional amenities. We expect to develop
Mohegan Sun into a full-scale entertainment and destination resort and believe
that this will increase the number of guests and lengthen their stays at
Mohegan Sun. Specifically, we plan to expand Mohegan Sun's facilities using the
proceeds from the Outstanding Notes, along with money we borrow pursuant to a
bank credit facility, as well as internally generated cash flow. The expansion
will include additional casino space, a hotel, a large convention facility,
entertainment facilities and additional retail establishments. We will build
the expansion with an effort to minimize disruption to the existing facility
while Mohegan Sun continues to operate. In preparation for the expansion and to
capture existing demand, we have recently widened our marketing efforts to
include the entire New York City metropolitan area. We believe that by
providing Mohegan Sun with additional capacity and the ability to capture a
share of the overnight market in connection with our marketing efforts, we will
extend Mohegan Sun's market penetration. We believe that the expansion will
create a long-term competitive advantage for Mohegan Sun in the East Coast
gaming market. See "Business--Competition."
The Mohegan Sun Expansion
To capitalize on the strong market fundamentals in the region and Mohegan
Sun's popularity, we are expanding the casino significantly and adding a hotel,
convention facilities, entertainment facilities and additional retail
establishments. Key elements of the expansion include
. approximately 100,000 square feet of additional gaming space;
. a hotel with approximately 1,500 rooms;
. approximately 100,000 square feet of convention space;
. an entertainment events center with seating for up to 10,000;
. nine new restaurants and lounges;
. approximately 300,000 additional square feet of retail space; and
. approximately 6,000 additional guest parking spaces.
The Authority commenced construction on the expansion in March, 1999 and
intends to complete the expansion by the fall of 2001. The cost of developing,
constructing, equipping and opening the expansion is expected to be
approximately $750 million (excluding capitalized interest). The Tribe has
issued a formal resolution capping the scope of the expansion budget at $800
million (excluding capitalized interest). In addition, the Tribe has set up a
$40 million construction reserve account that, in some circumstances, will be
used to pay for costs in excess of the expansion budget.
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The Tribe has chosen a project developer, an architect, a cost and
scheduling consultant, a site master planning firm and a retail consultant for
the expansion. The expansion development team currently includes
. Project Developer--Trading Cove Associates, a joint venture between an
affiliate of Sun International Hotels Limited and Waterford Gaming
L.L.C., to oversee the planning, design, construction, furnishing and
opening of the expansion;
. Project Architect--Kohn Pedersen Fox Associates PC, an internationally
recognized architectural firm, to coordinate the design of the expansion
facilities;
. Cost and Scheduling Consultant--Hanscomb Limited, an international
project cost and scheduling consulting firm, to oversee cost planning
and control and provide other planning and scheduling services;
. Site Master Planner--EDAW, Inc., a land planning and architectural firm,
to master plan the expansion site in a manner that minimizes disruption
to the existing facilities during construction; and
. Retail Consultant--Gordon Brant LV, LLC, a retail consulting and
development firm with experience in gaming industry projects, to assist
with the overall concept and design of the retail facilities of the
expansion.
We believe the market favors expansion now for several reasons, including:
(1) unsatisfied current demand for gaming space at the existing facility; (2) a
growing gaming market in the Northeast region; (3) length of stay data
indicating the need for a hotel and other amenities; and (4) the need to remain
competitive with the Foxwoods Resort Casino, a neighboring gaming resort. The
expansion is intended to attract a greater number of guests to the facility,
particularly during mid-week periods, and to increase the amount of time and
money guests spend at Mohegan Sun.
MARKET
Mohegan Sun and the Foxwoods Resort Casino are the only two legally
authorized gaming operations offering both traditional slot machines and table
games in the Northeastern United States outside of Atlantic City, New Jersey,
which is approximately 260 miles from Mohegan Sun. Foxwoods is located
approximately 10 miles east of Mohegan Sun and is owned and operated by the
Mashantucket Pequot Tribe. Foxwoods is currently the largest gaming facility in
the United States in terms of the number of total gaming positions. Based on
the size and success of Foxwoods and the rapid growth of Mohegan Sun, we
believe that the gaming market in the Northeastern United States remains
underserved. See "Business--Competition."
Mohegan Sun frequently operates at capacity on weekends. The addition of new
gaming space will accommodate more of this weekend demand. The Authority
estimates that the current average length of time that guests spend at Mohegan
Sun is approximately 110 minutes. We believe that the addition of a large hotel
as well as convention and entertainment amenities will increase the average
length of time guests spend at Mohegan Sun.
In the past, the Authority has marketed primarily to guests living within
100 miles of Mohegan Sun. This excludes most of the New York City metropolitan
area. The Authority has recently begun a substantial marketing effort to tap a
wider market, including the New York City metropolitan area. As a result of
this marketing effort, the number of guests from New York State has grown over
50% from the last fiscal year as measured by Mohegan Sun's guest database. The
Authority believes the majority of this increase can be attributed to guests
residing within the New York City metropolitan area and believes the New York
City market shows significant potential for additional growth. The Authority
also believes the expansion, particularly a large hotel, should draw many
additional customers from this and other more distant markets. See "Business--
Marketing Strategy."
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Assumption of Self-Management
The Authority engaged Trading Cove Associates in 1995 to operate, manage and
market Mohegan Sun under a seven-year management agreement. Management fees
paid to Trading Cove Associates under this agreement are based on profitability
thresholds of Mohegan Sun. In anticipation of the expansion of Mohegan Sun, the
Authority and Trading Cove Associates have agreed to terminate this management
arrangement. Under the Relinquishment Agreement, the Authority will formally
assume, and Trading Cove Associates will relinquish, the management, operation
and maintenance of Mohegan Sun on January 1, 2000. The Relinquishment Agreement
provides that the Authority will pay Trading Cove Associates 5% of gross
revenues from Mohegan Sun (as determined under the terms of the Relinquishment
Agreement) beginning January 1, 2000 and ending December 31, 2014. As a result
of this new agreement, the Authority was required to recognize the estimated
present value of this payment obligation as a liability in the fourth fiscal
quarter of 1998. This liability was recorded as a non-cash extraordinary
charge. See "Other Material Agreements--Existing Management Agreement with
Trading Cove Associates" and "--Relinquishment Agreement with Trading Cove
Associates."
Trading Cove Associates has agreed to work closely with the Authority to
facilitate a smooth and effective management transition. The Authority has
entered into long term employment contracts with the certain senior managers of
Mohegan Sun, three of whom collectively have 45 years of experience in the
gaming and hotel industry. The Authority has also entered into a development
services agreement with Trading Cove Associates to oversee the planning,
design, construction, furnishing and opening of the expansion of Mohegan Sun.
See "Other Material Agreements--Expansion Development Services Agreement with
Trading Cove Associates."
Address and Telephone Number
The Authority's mailing address is 1 Mohegan Sun Boulevard, Uncasville, CT
06382. Its telephone number is (860) 204-8000.
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SUMMARY OF THE EXCHANGE OFFERS
The following is a summary of the principal terms of the Exchange Offers. A
more detailed description is contained herein under the caption "The Exchange
Offers." The term "Senior Exchange Notes" refers to the 8 1/8% Senior Notes due
2006 being offered in our Exchange Offer. The term "Outstanding Senior Notes"
refers to the Authority's currently outstanding 8 1/8% Senior Notes due 2006
that the Authority is exchanging for Senior Exchange Notes. The term "Senior
Subordinated Exchange Notes" refers to the 8 3/4% Senior Subordinated Notes due
2009 being offered in our Exchange Offer. The term "Outstanding Senior
Subordinated Notes" refers to the Authority's currently outstanding 8 3/4%
Senior Subordinated Notes due 2009 that the Authority is exchanging for Senior
Subordinated Exchange Notes. The term "Outstanding Notes" refers to the
Outstanding Senior Notes and the Outstanding Senior Subordinated Notes,
collectively. The term "Exchange Notes" refers to the the Senior Exchange Notes
and the Senior Subordinated Exchange Notes, collectively. The term "Senior
Notes Indenture" refers to the indenture that applies to both the Outstanding
Senior Notes and the Senior Exchange Notes, and the term "Senior Subordinated
Notes Indenture" refers to indenture that applies to both the Outstanding
Senior Subordinated Notes and the Senior Subordinated Exchange Notes. The term
"Indentures" refers collectively to the Senior Notes Indenture and the Senior
Subordinated Notes Indenture.
The Exchange Offers ........ The Authority is offering to exchange $1,000
principal amount of our Senior Exchange Notes,
which have been registered under the Securities
Act, for each $1,000 principal amount of our
unregistered Outstanding Senior Notes. Together
with this exchange, the Authority is also
offering to exchange of $1,000 principal amount
of its Senior Subordinated Exchange Notes, which
have been registered under the Securities Act,
for each $1,000 principal amount of its
unregistered Outstanding Senior Subordinated
Notes. The Authority issued the Outstanding Notes
on February 24, 1999 in a private offering.
In order for your Outstanding Notes to be
exchanged, you must properly tender them before
the expiration of the Exchange Offers. All
Outstanding Notes that are validly tendered and
not validly withdrawn will be exchanged. The
Authority will issue the Exchange Notes on or
promptly after the expiration of the Exchange
Offers.
Outstanding Notes may be tendered for exchange in
whole or in part in integral multiples of $1,000
principal amount.
Registration Rights
Agreements ................. The Authority sold the Outstanding Notes on
February 24, 1998 to a group of initial
purchasers which included Salomon Smith Barney,
NationsBanc Montgomery Securities LLC, SG Cowen,
Bear, Stearns & Co. Inc., BancBoston Robertson
Stephens Inc. and Fleet Securities, Inc.
Simultaneously with that sale, the Authority
signed a registration rights agreement relating
to the Outstanding Senior Notes and a
registration rights agreement relating to the
Outstanding Senior Subordinated Notes with these
initial purchasers which requires the Authority
to conduct the Exchange Offers.
You have the right under the registration rights
agreements to exchange your Outstanding Notes for
Exchange Notes with substantially identical
terms. The Exchange Offers are intended to
satisfy these rights. After the Exchange Offers
are complete, you
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will no longer be entitled to any exchange or
registration rights with respect to your
Outstanding Notes.
For a description of the procedures for tendering
Outstanding Notes, see "The Exchange Offers--
Procedures for Tendering Outstanding Notes."
Consequences of Failure to
Exchange Your Outstanding
Notes ...................... If you do not exchange your Outstanding Notes for
Exchange Notes in the Exchange Offers, you will
still have the restrictions on transfer provided
in the Outstanding Notes and in the Indentures.
In general, the Outstanding Notes may not be
offered or sold unless registered or exempt from
registration under the Securities Act, or in a
transaction not subject to the Securities Act and
applicable state securities laws. The Authority
does not plan to register the Outstanding Notes
under the Securities Act.
Expiration Date ............ The Exchange Offers will expire at 5:00 p.m., New
York City time, on June 3, 1999. This will be the
Expiration Date unless extended by the Authority.
If the Authority does extend the offers, the
Expiration Date will be the latest date and time
to which an Exchange Offer is extended. See "The
Exchange Offers--Expiration Date; Extensions;
Amendments."
Conditions to the Exchange
Offers...................... The Exchange Offers are subject to conditions
which the Authority may waive at its sole
discretion. The Exchange Offers are not
conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange.
See "The Exchange Offers--Conditions to the
Exchange Offers."
The Authority reserves the right in its sole and
absolute discretion, subject to applicable law,
at any time and from time to time
. to delay the acceptance of the Outstanding
Notes;
. to terminate either or both Exchange Offers if
specified conditions have not been satisfied;
. to extend the Expiration Date of either or
both Exchange Offers and retain all tendered
Outstanding Notes subject, however, to the
right of tendering holders to withdraw their
tender of Outstanding Notes; and
. to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect.
See "The Exchange Offers--Expiration Date;
Extensions; Amendments."
Procedures for Tendering
Outstanding Notes .......... If you wish to tender your Outstanding Notes for
exchange, you must
. complete and sign a Letter of Transmittal
according to the instructions contained in the
Letter of Transmittal; and
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. forward the Letter of Transmittal by mail,
facsimile transmission or hand delivery,
together with any other required documents, to
the relevant Exchange Agent, either with the
Outstanding Notes to be tendered or in
compliance with the specified procedures for
guaranteed delivery of such Outstanding Notes.
Specified brokers, dealers, commercial banks,
trust companies and other nominees may also
effect tenders by book-entry transfer.
Please do not send your Letter of Transmittal or
certificates representing your Outstanding Notes
to us. Those documents should only be sent to the
appropriate Exchange Agent. Questions regarding
how to tender and requests for information should
be directed to the appropriate Exchange Agent.
See "The Exchange Offers--Exchange Agents."
Special Procedures for
Beneficial Owners ......... If your Outstanding Notes are registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee, the Authority urges you
to contact such person promptly if you wish to
tender your Outstanding Notes. See "The Exchange
Offers--Procedures for Tendering Outstanding
Notes."
Withdrawal Rights .......... You may withdraw the tender of your Outstanding
Notes at any time before the Expiration Date. To
do this, you should deliver a written notice of
your withdrawal to the appropriate Exchange Agent
according to the withdrawal procedures described
under the heading "The Exchange Offers--
Withdrawal Rights."
Resales of Exchange Notes... The Authority believes that you will be able to
offer for resale, resell or otherwise transfer
Exchange Notes issued in the Exchange Offers
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that
. you are acquiring the Exchange Notes in the
ordinary course of your business;
. you are not participating, and have no
arrangement or understanding with any person
to participate, in the distribution of the
Exchange Notes; and
. you are not an affiliate of the Mohegan Tribal
Gaming Authority.
The Authority's belief is based on
interpretations by the staff of the SEC, as shown
in no-action letters issued to third parties
unrelated to the Authority. The staff of the SEC
has not considered the Exchange Offers in the
context of a no-action letter, and, the Authority
cannot assure you that the staff of the SEC would
make a similar determination with respect to
these Exchange Offers.
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If the Authority's belief is not accurate and you
transfer an Exchange Note without delivering a
prospectus meeting the requirements of the
Securities Act or without an exemption from such
requirements, you may incur liability under the
Securities Act. The Authority does not and will
not assume, or indemnify you against, such
liability.
Each broker-dealer that receives Exchange Notes
for its own account in exchange for Outstanding
Notes which were acquired by such broker-dealer
as a result of market-making or other trading
activities must acknowledge that it will deliver
a prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. A broker-dealer may use this
Prospectus for an offer to sell, resale or other
transfer of Exchange Notes. See "Plan of
Distribution."
Exchange Agents ............ The exchange agent for the Exchange Offer for the
Outstanding Senior Notes is First Union National
Bank. The exchange agent for the Exchange Offer
for the Outstanding Senior Subordinated Notes is
State Street Bank and Trust Company. The
addresses, telephone and facsimile numbers of the
exchange agents are shown in "The Exchange
Offers--Exchange Agents" section of this
Prospectus and in the Letters of Transmittal.
Use of Proceeds ............ The Authority will not receive any cash proceeds
from the issuance of the Exchange Notes offered
hereby. See "Use of Proceeds."
Certain Federal Income Tax
Consequences .............. Your acceptance of an Exchange Offer and the
related exchange of your Outstanding Notes for
Exchange Notes will not be a taxable exchange for
United States federal income tax purposes. You
should not recognize any taxable gain or loss or
any interest income as a result of the exchange.
See "The Exchange Offers" for more detailed information concerning the
Exchange Offers.
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SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The Exchange Offers relate to the exchange of (1) up to $200,000,000
principal amount of Senior Exchange Notes for up to an equal principal amount
of Outstanding Senior Notes and (2) up to $300,000,000 principal amount of
Senior Subordinated Exchange Notes for up to an equal principal amount of
Outstanding Senior Subordinated Notes. The form and terms of the Exchange Notes
are substantially identical to the form and terms of the Outstanding Notes,
except the Exchange Notes will be registered under the Securities Act.
Therefore, the Exchange Notes will not bear legends restricting their transfer
and will not be entitled to registration under the Securities Act. The Exchange
Notes will evidence the same debt as the Outstanding Notes (which they
replace). The Outstanding Senior Notes and the Senior Exchange Notes are
governed by the same indenture, the Senior Notes Indenture. The Outstanding
Senior Subordinated Notes and the Senior Subordinated Exchange Notes are
governed by the same indenture, the Senior Subordinated Notes Indenture.
Senior Exchange Notes
Securities Offered ......... $200 million in total principal amount of 8 1/8%
Senior Exchange Notes due 2006.
Maturity ................... January 1, 2006.
Interest ................... Annual rate--8 1/8%.
Payment frequency--every six months on January 1
and July 1.
First payment--July 1, 1999.
Ranking .................... The Senior Exchange Notes rank equally with all
of the Authority's existing and future senior
unsecured indebtedness and equally with 50% of
the Authority's payment obligations under the
Relinquishment Agreement and senior to all of the
Authority's senior subordinated indebtedness and
the remaining 50% of the Authority's payment
obligations under the Relinquishment Agreement.
The Senior Exchange Notes will effectively be
subordinated to all of the Authority's existing
and future senior secured indebtedness, including
the bank credit facility.
Assuming the Authority had fully drawn all
possible amounts available under the Bank Credit
Facility on December 31, 1998, the Senior
Exchange Notes would have been
. subordinated to $500 million of senior secured
debt; ranked equally with 50% of the
Authority's payment obligations under the
Relinquishment Agreement and with no other
senior debt; and ranked senior to (1) $300
million of senior subordinated debt, (2) $90
million in original principal amount plus
accrued and unpaid interest thereon of
defeased junior subordinated notes, and (3)
the remaining 50% of the Authority's payment
obligations under the Relinquishment
Agreement.
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Optional Redemption ........ The Authority may redeem some or all of the
Senior Exchange Notes at any time at prices equal
to the greater of (1) 100% of their principal
amount or (2) the sum of the present value of
100% of the principal amount plus all required
interest payments due on such Senior Exchange
Notes (excluding accrued but unpaid interest)
discounted to the Maturity Date at the treasury
yield plus 50 basis points plus accrued and
unpaid interest (including some additional
interest) to, but excluding, the date of
redemption. See "Description of Exchange Notes--
Description of the Senior Exchange Notes" under
the heading "Optional Redemption."
Mandatory Offer to
Repurchase ................. In some circumstances, if the Authority sells
certain assets or experiences specific kinds of
changes of control, it must offer to repurchase
the Senior Exchange Notes at the prices listed in
the section "Description of Exchange Notes--
Description of the Senior Exchange Notes" under
the heading "Repurchase at the Option of
Holders."
Basic Covenants of Senior
Notes Indenture ............ The Authority will issue the Senior Exchange
Notes under an indenture with First Union
National Bank. The Senior Notes Indenture will,
among other things, restrict the Authority's
ability to
. incur additional indebtedness;
. pay dividends or make other distributions;
. make investments;
. use assets as security in other transactions;
and
. sell certain assets or merge with or into
another person.
For more details, see the section "Description of
Exchange Notes--Description of the Senior
Exchange Notes" under the heading "Certain
Covenants."
Senior Subordinated Exchange Notes
Securities Offered ......... $300 million in total principal amount of 8 3/4%
Senior Subordinated Exchange Notes due 2009.
Maturity ................... January 1, 2009.
Interest ................... Annual rate--8 3/4%.
Payment frequency--every six months on January 1
and July 1.
First payment--July 1, 1999.
Ranking .................... The Senior Subordinated Exchange Notes rank
equally with all of the Authority's existing and
future senior subordinated indebtedness and
senior to all of the Authority's subordinated
indebtedness. The Senior Subordinated Exchange
Notes will be subordinated to all of the
Authority's existing and future senior
indebtedness, including the Senior Exchange Notes
and the Bank Credit Facility.
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Assuming the Authority had fully drawn all
possible amounts available under the Bank Credit
Facility on December 31, 1998, the Senior
Subordinated Exchange Notes would have been
. subordinated to $500 million of senior secured
debt;
. subordinated to $200 million of other senior
debt (the Senior Exchange Notes);
. subordinated in a liquidation, bankruptcy or
similar proceeding to 50% of the Authority's
payment obligations under the Relinquishment
Agreement that are then due and owing, but
effectively not subordinated to such payment
obligations that are not yet due under the
Relinquishment Agreement since the payment
obligations under the Relinquishment Agreement
cannot be accelerated by their terms;
. ranked equally to the remaining 50% of the
Authority's payment obligations under the
Relinquishment Agreement that are then due and
owing, but effectively senior to such payment
obligations that are not yet due under the
Relinquishment Agreement since payment
obligations under the Relinquishment Agreement
cannot be accelerated by their terms; and
. ranked senior to $90 million in original
principal amount, plus accrued and unpaid
interest thereon, of defeased junior
subordinated notes.
Optional Redemption ........ On or after January 1, 2004, the Authority may
redeem some or all of the Senior Subordinated
Exchange Notes at any time at the redemption
prices listed in the section "Description of
Exchange Notes--Description of the Senior
Subordinated Exchange Notes" under the heading
"Optional Redemption."
Mandatory Offer to
Repurchase ................. In some circumstances if the Authority sells
certain assets or experiences specific kinds of
changes of control, it must offer to repurchase
the Senior Subordinated Exchange Notes at the
prices listed in the section "Description of
Exchange Notes--Description of the Senior
Subordinated Exchange Notes" under the heading
"Repurchase at the Option of Holders."
Basic Covenants of Senior
Subordinated Notes
Indenture .................. The Authority will issue the Senior Subordinated
Exchange Notes under an indenture with State
Street Bank and Trust Company. The Senior
Subordinated Notes Indenture will, among other
things, restrict the Authority's ability to
. incur additional indebtedness;
. pay dividends or make other distributions;
. make investments;
. use assets as security in other transactions;
and
. sell certain assets or merge with or into
another person.
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For more details, see the section "Description of
Exchange Notes--Description of the Senior
Subordinated Exchange Notes" under the heading
"Certain Covenants."
Terms Common to Senior Exchange Notes and Senior Subordinated Exchange Notes
Special Redemption ......... The Authority may redeem a holder's Exchange
Notes or require the holder to dispose of the
Exchange Notes if (1) any gaming regulatory
authority requires such holder to be licensed or
otherwise qualified under applicable gaming laws
in order for the Authority to maintain any of its
gaming licenses or franchises and (2) such holder
does not obtain such license or qualification
within the required time periods. Any such
redemption or sale shall be at the price listed
in the section "Description of Exchange Notes--
Description of the Senior Exchange Notes" and "--
Description of the Senior Subordinated Exchange
Notes" under the respective headings "Optional
Redemption."
Risk Factors
See "Risk Factors" beginning on page 15 for a discussion of factors that you
should carefully consider before tendering any Outstanding Notes for Exchange
Notes.
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<PAGE>
Summary Financial Data
The following table summarizes the information under the section "Selected
Financial Data" and should be read with the Authority's financial statements
and the related notes included in this Prospectus beginning on page F-1. You
should also read the following information in conjunction with the sections in
this Prospectus entitled "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
<TABLE>
<CAPTION>
Fiscal Year Ended Quarter Ended
September 30, December 31,
------------------ -----------------
1998 1997(1) 1998 1997
-------- -------- -------- --------
(Dollars in thousands, except per
diem data)
<S> <C> <C> <C> <C>
Statements of Income (Loss) Data:
Net revenues.............................. $575,143 $467,837 $163,858 $127,142
Income from operations.................... 135,350 80,029 33,456 22,858
Interest expense.......................... 50,172 45,137 12,810 11,778
Income before extraordinary items......... 87,578 36,687 21,261 11,728
Extraordinary items(2).................... (419,457) -- -- --
Net income (loss)(2)...................... (331,879) 36,687 21,261 11,728
Ratio of earnings to fixed charges(3)..... 2.7x 1.8x 2.6x 1.9x
Other Data:
EBITDA(4)................................. $152,878 $112,184 $ 38,125 $ 27,658
EBITDAM(5)................................ 200,320 135,427 51,770 35,062
Depreciation and amortization............. 17,528 32,155 4,669 4,800
Capital expenditures...................... 32,731 35,749 6,113 17,909
Slot machine win per day.................. 361 319 401 311
Table game win per day.................... 2,545 2,401 2,727 2,364
Slot machines............................. 3,029 2,962 3,025 2,996
Table games............................... 150 149 150 148
Restaurant seats.......................... 1,868 1,808 1,888 1,808
Casino square footage at period end....... 176,500 167,500 176,500 167,500
Other Financial Data:
Ratio of EBITDAM(5) to interest expense... 4.0x 3.0x 4.0x 3.0x
Ratio of total debt to EBITDAM(5)......... 1.6 2.3 -- --
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------
As
Actual Adjusted(6)
-------- -----------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $109,578 $244,978
Defeasance trust assets(7)................................ -- 135,700
Total assets.............................................. 554,746 841,846
Total debt and capital lease obligations(8)............... 327,998 652,998
Total capital(2)(9)....................................... (372,300) (410,200)
</TABLE>
- --------
(1) The Authority commenced operations at Mohegan Sun on October 12, 1996.
(2) The Authority, in conformance with FASB 5, has recorded a non-cash expense
and liability for the estimated present value of the Authority's future
Relinquishment Agreement payment obligations. These payments are based on
the amount of gross revenue generated by the Authority. As of September 30,
1998, the present value of this liability was estimated at $549.1 million,
of which $419.1 million was reflected as an extraordinary item in the
statements of income (loss), and $130.0 million was capitalized
13
<PAGE>
on the balance sheet as trademarks and other intellectual property acquired
as part of the Relinquishment Agreement. Recording this liability has
created negative capital as of September 30, 1998. This liability will be
reassessed periodically and may require additional non-cash adjustments to
be recorded in the statement of income (loss). The estimated liability has
not changed as of December 31, 1998. See the Authority's financial
statements and the accompanying notes and "Other Material Agreements--
Relinquishment Agreement with Trading Cove Associates."
(3) The ratio of earnings to fixed charges is determined by dividing (a)
earnings before extraordinary items and fixed charges by (b) fixed charges.
Fixed charges consist of total interest expense, including cash flow
participation interest relating to the 13 1/2% Senior Secured Notes.
(4) Earnings before extraordinary items, interest, income taxes, depreciation
and amortization. EBITDA is presented because we believe it is frequently
used by securities analysts, investors and other interested parties in the
gaming industry. However, EBITDA should only be read in conjunction with
all of the Authority's financial data summarized above and its financial
statements, including the notes, prepared in conformance with generally
accepted accounting principles or GAAP appearing elsewhere herein. EBITDA
should not be construed as an alternative either to (a) income from
operations (as determined according to GAAP) as an indicator of the
Authority's operating performance or (b) cash flows from operating
activities (as determined according to GAAP) as a measure of liquidity. In
addition, because the Authority is an instrumentality of a sovereign Indian
nation, it is not subject to federal or state income tax.
(5) Earnings before extraordinary items, interest, income taxes, depreciation,
amortization and management fees. Management fees are paid by the Authority
to Trading Cove Associates under the terms of its management agreement
which terminates on January 1, 2000. Until such termination and because
management fees are subordinate to debt service, the Authority believes
EBITDAM is a supplemental financial measurement useful in the evaluation of
its gaming business.
(6) As adjusted amounts reflect (a) the sale of the Outstanding Notes and the
application of the related net proceeds, including to redeem $175.0 million
in aggregate principal amount of senior secured notes and to establish a
defeasance trust account for junior subordinated notes of the Authority;
(b) the release of restricted cash balances to the Authority in the amount
of $81.3 million; and (c) the closing of the Bank Credit Facility with no
loan amounts drawn.
(7) The Authority created a defeasance trust account as of March 3, 1999 and
deposited into such defeasance trust cash or government securities
estimated to be sufficient to redeem its junior subordinated notes. The
Authority has outstanding $40.0 million of junior subordinated notes
bearing interest at 15% per annum and $50.0 million of junior subordinated
notes bearing interest at prime rate plus 1% per annum. These notes do not
pay cash interest. The Authority will redeem these notes on January 1,
2000, the first permitted redemption date, at a price of 100% of the
principal amount plus accrued and unpaid interest less $500,000.
(8) Actual and as adjusted amounts include $90.0 million of principal and $35.2
million of accrued and unpaid interest related to junior subordinated notes
which were defeased as of March 3, 1999 and will be redeemed on January 1,
2000.
(9) As adjusted amounts reflect a tender premium of $37.9 million for
redemption of senior secured notes.
14
<PAGE>
RISK FACTORS
You should carefully consider the information below, as well as all other
information provided to you in this Prospectus before tendering your
Outstanding Notes in the Exchange Offers.
High Degree of Leverage; Restrictive Loan Covenants
The Authority's substantial indebtedness could adversely affect its
financial health and prevent it from fulfilling its obligations under the
Exchange Notes.
The Authority currently has and will continue to have a significant amount
of indebtedness. Total debt and capital lease obligations (including accrued
and unpaid interest on junior subordinated notes) as of December 31, 1998 were
$328.0 million. As of the same date and as adjusted to reflect (1) the sale of
the Outstanding Notes and the application of the related net proceeds,
including the redemption of $175.0 million in aggregate principal amount of
senior secured notes and the establishment of a defeasance trust account for
the Authority's junior subordinated notes; (2) the release of restricted cash
balances to the Authority in the amount of $81.3 million; and (3) the closing
of the Bank Credit Facility with no loan amounts drawn, total debt and capital
lease obligations would have been $653.0 million. In addition, the Authority
has borrowing capacity under the Bank Credit Facility of up to $500.0 million.
If the Authority had fully drawn all possible amounts available under the Bank
Credit Facility, total debt and capital lease obligations would be
approximately $1.2 billion.
The Authority's substantial indebtedness could have important consequences
to you. For example, it could
. make it more difficult for the Authority to satisfy its obligations with
respect to the Exchange Notes;
. increase the Authority's vulnerability to adverse economic and industry
conditions;
. limit the Authority's ability to fund future working capital, capital
expenditures and other general corporate requirements;
. require the Authority to dedicate a substantial portion of its cash flow
from operations to payments on the Authority's indebtedness, thereby
reducing the availability of the Authority's cash flow to fund working
capital, capital expenditures and other general corporate purposes;
. limit the Authority's flexibility in planning for, or reacting to,
changes in its business and the industry in which the Authority
operates;
. place the Authority at a disadvantage compared to its competitors that
have less debt; and
. limit, along with the financial and other restrictive covenants in the
Authority's other indebtedness, among other things, the Authority's
ability to borrow additional funds.
Failure by the Authority to comply with covenants in its debt instruments
could result in an event of default which, if not cured or waived, could have a
material adverse effect on the Authority. See "Description of Exchange Notes--
Description of the Senior Exchange Notes--Repurchase at the Option of Holders--
Change of Control," "--Description of the Senior Subordinated Exchange Notes--
Repurchase at the Option of Holders--Change of Control" and "Description of
Other Indebtedness--Bank Credit Facility."
The Bank Credit Facility includes covenants that, among other things,
restrict the Authority's ability to do the following:
. pay dividends and make other restricted payments;
. incur additional indebtedness;
15
<PAGE>
. grant liens, other than liens created under the new Bank Credit Facility
and certain other permitted liens;
. sell material assets; and
. make capital expenditures (subject to amounts for the casino expansion).
The Bank Credit Facility will also require the Authority to maintain
specified financial ratios, including interest coverage and leverage ratios and
not to exceed specified fixed ratios of senior indebtedness to EBITDA. There
can be no assurance that these requirements will be met in the future. If they
are not, the holders of the indebtedness under the Bank Credit Facility would
be entitled to declare such indebtedness immediately due and payable. See
"Description of Other Indebtedness--Bank Credit Facility."
Unsecured Ranking and Subordination to Existing Indebtedness
The Authority's obligations under the Indentures are not secured. Your right
to receive payments on the Senior Exchange Notes will effectively be
subordinated to the Authority's Bank Credit Facility and other secured
indebtedness. Your right to receive payments on the Senior Subordinated
Exchange Notes will be junior to the Authority's existing and future senior
indebtedness, including the Bank Credit Facility and the Senior Exchange Notes.
Senior Exchange Notes
The Senior Exchange Notes are general unsecured obligations of the Authority
and rank pari passu in right of payment with all current and future unsecured
senior indebtedness of the Authority. However, borrowings under the Bank Credit
Facility and other equipment financing arrangements are secured by first
priority liens on substantially all of the assets of the Authority. As a
result, upon any distribution to creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to the Authority or the Tribe,
the holders of secured debt may be paid in full in cash before any payment may
be made with respect to the Senior Exchange Notes. Assuming the Authority had
fully drawn all possible amounts under the Bank Credit Facility on December 31,
1998, the Senior Exchange Notes would have been subordinated to approximately
$500 million of senior secured debt. In addition, under the Relinquishment
Agreement with Trading Cove Associates, beginning on January 1, 2000 and ending
on December 31, 2014, the Authority has agreed to pay Trading Cove Associates
5% of Mohegan Sun's gross revenues (calculated under the terms of the
Relinquishment Agreement) to compensate Trading Cove Associates for terminating
its management rights. 50% of this payment ranks equal in right of payment to
the Senior Exchange Notes and the remaining 50% of this payment ranks junior in
right of payment to the Senior Exchange Notes.
Senior Subordinated Exchange Notes
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to the Authority or the Tribe, holders of the Senior
Subordinated Exchange Notes will participate with trade creditors and all other
holders of subordinated indebtedness in the assets remaining after the
Authority or the Tribe has paid all of the senior debt, including the Senior
Exchange Notes. However, because the Senior Subordinated Notes Indenture
requires that amounts otherwise payable to the holders of the Senior
Subordinated Exchange Notes in a bankruptcy or similar proceeding be paid to
holders of designated senior debt instead, holders of the Senior Subordinated
Exchange Notes may receive less, ratably, than holders of trade payables in any
such proceedings. In any of these cases, the Authority or the Tribe may not
have sufficient funds to pay all creditors and holders of the Senior
Subordinated Exchange Notes may receive less, ratably, than the holders of
senior debt.
Assuming the Authority had fully drawn all possible amounts under the Bank
Credit Facility, the Senior Subordinated Exchange Notes would have been
subordinated to approximately $700 million of senior debt. The Authority will
be permitted to borrow substantial additional indebtedness, including senior
debt, in the future under the terms of the Indentures. In the event of a
liquidation, bankruptcy or a similar proceeding, the Senior
16
<PAGE>
Subordinated Exchange Notes are subordinated to 50% of the Authority's payment
obligations under the Relinquishment Agreement that are then due and owing, but
are effectively not subordinated to such payment obligations that are not yet
due under the Relinquishment Agreement since the payment obligations under the
Relinquishment Agreement cannot be accelerated by their terms and have no
blockage rights as Designated Senior Debt. In addition, the Senior Subordinated
Exchange Notes rank equally to the remaining 50% of the Authority's payment
obligations under the Relinquishment Agreement that are then due and owing, but
are effectively senior to such payment obligations that are not yet due under
the Relinquishment Agreement since payment obligations under the Relinquishment
Agreement cannot be accelerated by their terms.
Difficulties in Enforcing Obligations Against the Authority
Your ability to enforce your rights against the Authority is limited by the
Tribe's sovereign immunity.
Although the Tribe and the Authority have sovereign immunity and may not be
sued without their consent, both the Tribe and the Authority have granted a
limited waiver of sovereign immunity and consent to suit in connection with the
Exchange Notes, the Indentures and the other documents related to the Exchange
Notes. Such waiver includes suits against the Authority to enforce its
obligation to repay the Exchange Notes. If such waiver of sovereign immunity is
held to be ineffective, the Trustees (as defined) and the holders of the
Exchange Notes could be precluded from judicially enforcing their rights and
remedies. Generally, waivers of sovereign immunity have been held to be
enforceable against Indian tribes. Neither the Authority nor the Tribe has
waived sovereign immunity from private civil suits, including violations of the
federal securities laws. For this reason, an investor may not have any remedy
against the Authority or the Tribe for violations of federal securities laws.
The Tribe's Constitution has established a special court, the Gaming
Disputes Court, to rule on disputes with respect to Mohegan Sun, including any
disputes relating to the Notes and the Indentures. The Gaming Disputes Court
must consist of at least four judges, none of whom may be members of the Tribal
Council or their families and each of whom must be either a retired federal
judge or a Connecticut attorney trial referee (who are attorneys appointed by
the Connecticut Supreme Court). Appeals of the decisions of the Trial Division
are heard by the Appellate Branch of the Gaming Disputes Court. Matters as to
which applicable federal or state courts have jurisdiction may be brought in
such courts. However, the federal courts may not have jurisdiction over
disputes not arising under federal law, and the state courts may not have
jurisdiction over any disputes arising on the Mohegan reservation. Moreover the
federal and state courts, under the doctrines of comity and exhaustion of
tribal remedies, may be required (1) to defer to the jurisdiction of the Gaming
Disputes Court, or (2) to require that any plaintiff exhaust its remedies in
the Gaming Disputes Court before bringing any action in the federal or state
court. Thus, there may be no federal or state court forum with respect to a
dispute relating to the Exchange Notes or the Indentures. In addition, the
Authority may not be subject to the federal bankruptcy laws. Thus, no assurance
can be given that, if an event of default occurs under the Indentures, any
forum will be available to the holders of the Exchange Notes other than the
Gaming Disputes Court. In such a court, there are few guiding precedents for
the interpretation of Tribal law. Any execution of a judgment of the Gaming
Disputes Court will require the cooperation of the Tribe's officials in the
exercise of their police powers. Thus, to the extent that a judgment of the
Gaming Disputes Court must be executed on Tribal lands, the practical
realization of any benefit of such a judgment will be dependent upon the
willingness and ability of Tribal officials to carry out such judgment. In
addition, the land under the casino facility is owned by the United States in
trust for the Tribe, and creditors of the Authority or the Tribe may not force
or obtain title to the land. See "Mohegan Tribe of Indians of Connecticut--
Gaming Disputes Court."
The Tribe is permitted to amend the provisions of its Constitution that
establish the Authority and the Gaming Disputes Court with the approval of two-
thirds of the members of the Tribal Council and a ratifying vote of a two-
thirds majority of all votes cast, with at least 40% of the registered voters
of the Tribe voting. However, before the enactment of any such amendment by the
Tribal Council, any non-tribal party will have the opportunity to seek a ruling
from the Appellate Branch of the Gaming Disputes Court that the proposed
amendment would constitute an impermissible impairment of contract. Further,
the Tribal Constitution prohibits
17
<PAGE>
the Tribe from enacting any law that would impair the obligations of contracts
entered into in furtherance of the development, construction, operation and
promotion of gaming on Tribal lands. Amendments to this provision of the
Tribe's Constitution require the affirmative vote of 75% of all registered
voters of the Tribe. The Tribe has approximately 750 registered voters.
Amendment to any of such provisions of the Tribe's Constitution could adversely
affect the ability of the holders of the Exchange Notes to enforce the
obligations of the Authority on the Exchange Notes.
Exclusive Reliance on Gaming Revenue for Debt Service Payments
Mohegan Sun's failure to generate sufficient cash flow could prevent the
Authority from fulfilling its obligations under the Exchange Notes.
The Authority relies on revenues from the gaming operations of Mohegan Sun
to meet its debt service requirements. Such operations are subject to many
financial, economic, political, competitive and regulatory factors beyond the
Authority's control. If Mohegan Sun is unable to generate sufficient cash flow,
the Authority could be required to reduce or delay planned capital
expenditures, dispose of certain assets and/or seek to restructure some or all
of its debt. There can be no assurance that any of these alternatives could be
effected, if at all, on satisfactory terms.
Risks of Expansion
Failure to complete Mohegan Sun's expansion on budget and on time could
adversely affect the financial health of the Authority.
Construction projects such as the expansion of Mohegan Sun are inherently
subject to significant development and construction risks. These include the
following:
. labor disputes;
. shortages of material and skilled labor;
. weather interference;
. engineering problems;
. environmental problems (including asbestos, lead and hazardous waste
removal);
. fire, flood and other natural disasters; and
. geological, construction, demolition, excavation, regulatory and/or
equipment problems.
All of these risks could cause unanticipated cost increases. Although we
have chosen a developer and have preliminary plans, the final plans for the
expansion are still under development. The actual cost and scope of the project
will be dependent upon the final plans. The Tribe expects the expansion to cost
approximately $750 million (excluding capitalized interest) and has adopted a
formal resolution capping the expansion budget at $800 million to account for
any unforeseen design changes or enhancements. In addition, the Tribe has
established a $40 million construction reserve account that, in some
circumstances, will be used to pay for costs in excess of the expansion budget.
The anticipated construction costs and completion dates for the expansion
are based on budgets, conceptual design documents and schedule estimates
prepared by Trading Cove Associates for the Authority with the assistance of
certain architects and contractors. The final amount of the project is subject
to modification based upon the occurrence of particular events, such as design
change order delays. Construction in the northeastern United States is also
subject to a number of weather related risks. Long winters and severe or
unexpected rain, storms or other bad weather may delay completion and/or
increase the costs of the construction.
18
<PAGE>
The expansion is scheduled to be completed in the fall of 2001. There can be
no assurance that the expansion facilities will commence operations on schedule
or that construction costs for the expansion will not exceed budget. Failure to
complete the expansion within the budget or on schedule may have a material
adverse effect on the results of Mohegan Sun's operations and the Authority's
financial condition.
Although construction activities related to the expansion of Mohegan Sun are
planned to minimize disruption, construction noise and debris and the temporary
closing of some facilities may disrupt Mohegan Sun's current operations.
Unexpected construction delays could exacerbate or magnify these disruptions.
There can be no assurance that construction of the expansion will not have a
material adverse effect the Authority's results of operations.
Failure to Obtain Funds to Complete Expansion
In the event Mohegan Sun fails to achieve expected results, the Authority
may not have sufficient funds to complete Mohegan Sun's expansion.
The Authority expects that approximately $376.0 million of the Mohegan Sun
expansion will be financed from cash flow from operations through December 31,
2001. There can be no assurances that Mohegan Sun will generate sufficient cash
flow from operations to finance the Mohegan Sun expansion. If Mohegan Sun fails
to generate cash flow as expected, the expansion could be delayed, resulting in
a material adverse effect on the financial condition of the Authority.
Competition from Other Gaming Operations
Many competitors have greater resources than the Authority, and other Indian
tribes may receive approval to engage in casino gaming.
The gaming industry is highly competitive. Mohegan Sun currently competes
primarily with the Foxwoods Resort Casino and, to a lesser extent, with casinos
in Atlantic City, New Jersey. Foxwoods is approximately 10 miles from Mohegan
Sun and is the largest gaming facility in the United States in terms of total
gaming positions. In addition, Foxwoods offers a number of amenities that
Mohegan Sun does not have, 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 and greater operating experience than the Authority or the Tribe.
Upon the completion of the expansion, the Authority intends to broaden
Mohegan Sun's market beyond day-trip customers to include guests making
overnight stays at the resort. This means that Mohegan Sun will begin to
compete more directly for customers with casinos in Atlantic City, New Jersey
and, to a lesser extent, gaming resorts such as those on the Gulf Coast of
Mississippi and Las Vegas, Nevada. Many of these casinos and other resorts have
greater resources and greater name recognition than Mohegan Sun.
Under current law, outside of Atlantic City, New Jersey, casino gaming in
the northeastern United States may be conducted only by federally recognized
Indian tribes operating under federal Indian gaming law. Currently, the Oneida
Indian Nation operates Turning Stone Casino Resort in Verona, New York,
approximately 270 miles from Mohegan Sun. The St. Regis Mohawk Tribe in
Hogansburg, New York near the Canadian border has entered into a gaming compact
with the state of New York. Although this tribe has yet to develop a gaming
facility, it has initiatives both on its reservation in Hogansburg (for which
it has had a gaming management contract approved by the National Indian Gaming
Commission) and at Monticello Raceway in the Catskills, 90 miles from New York
City (for which it has received Bureau of Indian Affairs Eastern Area Office
approval to take land into trust). Both initiatives still require additional
federal and state level approvals. 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
as Native American peoples with the intent of establishing gaming operations. A
number of states, including Connecticut
19
<PAGE>
and New York, 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 Authority's proposed
operations. See "Business--Competition."
Need to Obtain Construction Related Licenses and Permits
A failure to obtain necessary licenses and permits could delay the expansion
of Mohegan Sun thereby causing a material adverse effect on operating results.
No assurances can be given that the required licenses, permits or other
approvals for the expansion of Mohegan Sun will be issued. Even if issued, such
licenses, permits or other approvals could have conditions or restrictions that
could adversely affect the completion of the expansion. The failure to obtain
any of these licenses, permits or other approvals in a timely manner may delay,
restrict or prevent the expansion from being completed as contemplated herein.
See "Government Regulation."
Reliance on Nearby Markets
A downturn in the local economy could negatively impact the Authority's
financial performance.
Until and for some time after the expansion is completed, Mohegan Sun will
depend heavily on day-trip customers. Any downturn in the regional economy, the
entrance of new competitors or the expansion of existing competitors within
this local market could have a material adverse effect on the Authority's
results of operations. See "--Competition From Other Gaming Operations."
Limited Operating History Associated with the Operation
Mohegan Sun is subject to the risks of a new business.
Mohegan Sun did not begin operations until October 12, 1996 and has many of
the same risks inherent in the establishment of a new business enterprise. In
addition, Mohegan Sun's limited operating history makes the prediction of the
Authority's future operating results difficult.
Management of Growth; Uncertainty of Future Expanded Operations
The transition to full management responsibility for the Authority coupled
with the risks associated with operating a substantially expanded facility
could have a material adverse effect on Mohegan Sun's future performance.
Mohegan Sun's profitability has been partially dependent upon the efforts
and skills of Trading Cove Associates. Trading Cove Associates will have legal
responsibility for overseeing and managing Mohegan Sun until December 31, 1999.
While the Authority has already assumed many of Mohegan Sun's day-to-day
management functions, on January 1, 2000, it will assume full management,
operation and maintenance responsibility of Mohegan Sun. There can be no
assurance that the Authority will be as successful managing Mohegan Sun as
Trading Cove Associates has been. See "Other Material Agreements."
Mohegan Sun, when expanded, will have significantly larger gaming
facilities, entertainment venues and retail space, as well as new hotel and
convention facilities. There can be no assurance that the Authority will be
successful in integrating the planned casino and resort expansion into Mohegan
Sun's current operations or in managing the expanded resort. The failure to
integrate and manage the new services and amenities successfully could have a
material adverse effect on the Authority's results of operations.
20
<PAGE>
Dependence on Key Personnel; Significant Change in Tribal Management
The loss of any key management member or any significant change in the
makeup of the Tribal Council could have a material adverse effect on Mohegan
Sun.
Mohegan Sun's success depends in large part on the continued service of key
management personnel, particularly William Velardo, the Authority's Executive
Vice President and General Manager, Mitchell Etess, the Authority's Senior Vice
President of Marketing, and Jeffrey Hartmann, the Authority's Chief Financial
Officer. The loss of the services of one or more of these individuals or other
key personnel could have a material adverse effect on the Authority's business,
operating results and financial condition. See "The Authority."
Additionally, Roland J. Harris serves as Chairman of the Tribal Council of
the Tribe and Chairman of the Management Board of the Authority. The Members of
the Tribal Council, including the Chairman, are elected by the Tribe every five
years. The next election is in October of 2000. The loss of Mr. Harris's
services, as well as a significant change in the composition of the Tribal
Council, could have a material adverse effect on the Authority and the
development of the Mohegan Sun expansion. See "Mohegan Tribe of Indians of
Connecticut."
Regulatory Redemption
Your Exchange Notes may be redeemed automatically if your ownership of the
Exchange Notes jeopardizes the Authority's gaming licenses.
The Authority will have the right to redeem the Exchange Notes if any holder
of Exchange Notes jeopardizes the Authority's gaming license by not having
required licenses or qualifications. The redemption price for these Exchange
Notes, without accrued interest, is equal to the lowest of the holder's cost,
the principal amount of such Exchange Notes or the average of the current
market price of such Exchange Notes. See "Description of Exchange Notes--
Description of the Senior Exchange Notes--Optional Redemption" and "Description
of Exchange Notes--Description of the Senior Subordinated Exchange Notes--
Optional Redemption."
Highly Regulated Industry
Changes in the law could have a material adverse effect on the Authority's
ability to conduct gaming.
Gaming on the Tribe's reservation is extensively regulated by federal, state
and tribal regulatory bodies, including the National Indian Gaming Commission
and agencies of the State of Connecticut (for example, the Division of Special
Revenue, the State Police and the Department of Liquor Control). As is the case
with any casino, changes in applicable laws and regulations could limit or
materially affect the types of gaming that may be conducted by the Authority
and the revenues realized therefrom.
In August 1996, federal legislation became effective, creating a nine-member
commission to examine and prepare a report within three years on the effects of
gambling, including gambling on riverboats, Indian reservations and at non-
Indian casinos. No prediction can be made as to what, if any, legislation might
arise from such a report if it is completed. Moreover, Congress has regulatory
authority over Indian affairs and can establish and change the terms upon which
Indian tribes may conduct gaming. Currently, the operation of all gaming on
Indian lands is subject to the Indian Gaming Regulatory Act of 1988. For the
past several years, legislation has been introduced in Congress with the intent
of modifying a variety of perceived problems with this act. Virtually all of
the proposals that have been seriously considered would be prospective in
effect and have contained clauses that would grandfather existing Indian gaming
operations such as Mohegan Sun. Bills have also been proposed, however, which
would have the effect of repealing many of the key provisions of the Indian
Gaming Regulatory Act and prohibiting the continued operation of particular
classes of gaming on specified Indian reservations in states where such gaming
is not otherwise allowed on a commercial basis.
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However, none of the substantive proposed amendments to the Indian Gaming
Regulatory Act have proceeded out of committee hearings to a vote by either the
House or the Senate.
While it is possible that retroactive legislation could be adopted forcing
the closure of existing Indian gaming enterprises, given the number of existing
gaming compacts and tribal gaming operations nationwide, we believe that it is
unlikely that Congress would enact such legislation without grandfathering
existing Indian gaming operations. Furthermore, such legislation would
certainly be challenged by us and other Indian gaming operations as an invalid
exercise of Congressional authority. However, if Congress passes prohibitory
legislation that does not include any grandfathering exemption for existing
tribal gaming operations, and if such legislation is sustained in the courts
against tribal challenge, the Authority's ability to meet its obligations to
creditors, including the holders of the Notes, would be doubtful.
Under federal law, gaming on Indian land is dependent on the permissibility
under state law of specified forms of gaming or similar activities. If the
State of Connecticut were to make various forms of gaming illegal or against
public policy, such action may have an adverse effect on the ability of the
Authority to conduct gaming. Connecticut currently permits, among other things,
a state lottery, jai alai fronton betting and off-track betting parlors. If
Connecticut were to make gaming against public policy, it would forfeit the
substantial income ($276.2 million for the 12 months ended December 31, 1998)
derived from the gaming activities at Mohegan Sun and Foxwoods and the
resulting slot contributions to the state. See "Other Material Agreements--
Gaming Compact with the State of Connecticut."
Possible Environmental Liabilities
Risks of material environmental liability may remain as a result of
incomplete remediation of known environmental hazards.
The Authority currently incurs and may continue to incur costs to comply
with environmental requirements, such as those relating to discharges to air,
water and land, the handling and disposal of solid and hazardous waste, and the
cleanup of properties affected by hazardous substances. Under such
environmental requirements, a current or previous owner or operator of real
estate may be required to investigate and clean up hazardous or toxic
substances or chemical releases at such property. The owner or operator may
also be held liable to a governmental entity or to third parties for property
damage, personal injury and for investigation and cleanup costs incurred by
such parties in connection with the contamination. These laws typically impose
cleanup responsibility and liability without regard to whether the owner knew
of or caused the presence of the contaminants, and the liability under such
laws has been interpreted to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. The costs of
investigation, remediation or removal of such substances may be substantial,
and the presence of such substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to rent such property or to
borrow using such property as collateral. In addition, the owner or former
owners of a site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from the
site. In addition, environmental requirements address the impacts of
development on wetlands areas. See "Business--The Expansion."
The site on which Mohegan Sun is located was formerly occupied by United
Nuclear Corporation, a naval products manufacturer of, among other things,
nuclear reactor fuel components. United Nuclear Corporation's facility was
officially decommissioned on June 8, 1994 when the Nuclear Regulatory
Commission confirmed that all licensable quantities of special nuclear material
had been removed from the site and that any residual special nuclear material
contamination was remediated according to an approved decommissioning plan.
From 1991 through 1993, United Nuclear Corporation commissioned
environmental audits and soil sampling programs which detected, among other
things, volatile organic chemicals, heavy metals and fuel hydrocarbons in the
soil and groundwater. Extensive remediation of contaminated soils and
additional investigations were completed. In addition, initial construction at
the site involved extensive soil excavation
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and contaminated soils were removed during the excavation. The site currently
meets state remediation requirements.
Under the terms of United Nuclear Corporation's environmental certification
and indemnity agreement with the Department of the Interior (which took the
former United Nuclear Corporation land into trust for the Mohegan Tribe),
United Nuclear Corporation agreed to indemnify the Department for environmental
actions and expenses based on acts or conditions existing or occurring as a
result of United Nuclear Corporation's activities on the property.
Notwithstanding the foregoing, no assurance can be given (1) that the various
environmental reports or any other existing environmental studies revealed all
environmental liabilities, (2) that any prior owners or tenants did not create
any material environmental condition not known to us, (3) that future laws,
ordinances or regulations will not impose any material environmental liability,
or (4) that a material environmental condition does not otherwise exist on the
site.
Taxation of Indian Gaming
A change in the Authority's current tax-exempt status could have a material
adverse effect on the Authority's ability to repay its obligation under the
Exchange Notes.
Based on current interpretation of the tax code, neither the Tribe nor the
Authority is a taxable entity for purposes of federal income taxation. There
can be no assurance that Congress will not reverse or modify the exemption for
Indian tribes from federal income taxation.
Efforts have been made in Congress over the past several years to amend the
Internal Revenue Code to provide for taxation of the net income of tribal
business entities. These have included a House bill which would have taxed
gaming income earned by Indian tribes as unrelated business income subject to
corporate tax rates. Although no such legislation has been enacted, some could
be passed in the future. Future proposals or amendments in this area could
materially and adversely affect the market value of the Exchange Notes or the
Authority's ability to pay the principal and interest on the Exchange Notes.
Change of Control Events
The Authority may lack sufficient funds to effect a repurchase of the
Exchange Notes upon a change of control.
Upon the occurrence of specified change of control events, the Authority
will be required to offer to repurchase all then outstanding Exchange Notes.
The Authority may not have the ability to raise the funds necessary to finance
the change of control offer required by the Indentures.
Year 2000 Date Conversion
Failure by the Authority to address the Year 2000 problem adequately may
have a material adverse effect on results of operations.
The Authority is currently working to verify system readiness for the
processing of date-sensitive information by its computerized information
systems to the end of the century. The "Year 2000" problem impacts computer
programs and hardware timers using two digits (rather than four) to define the
applicable year. Any of the Authority's programs that have time-sensitive
functions may recognize a date using "00" as the year 1900 rather than 2000, or
not at all, which could result in miscalculations or system failures. The
Authority, like many companies, depends on fully operational computer systems
in all areas of its business. As a large facility in a relatively remote
location, Mohegan Sun is heavily dependent on a local infrastructure which may
not be adequate to take on the challenges of the Year 2000 problem. It is
especially dependent on that local infrastructure for critical services such as
incoming utilities and outgoing sewage. Additionally, the Authority is
dependent upon many vendors such as food and beverage suppliers, outside
software suppliers and system integrators to provide uninterrupted service for
the operation to run effectively.
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With the assistance of an outside consultant, the Authority has implemented
a Year 2000 program to provide an independent analysis of the Authority's Year
2000 preparedness and the adequacy of the Authority's Year 2000 plans. The
program includes inventorying entities, identifying problems, planning
compliance and implementation strategies, attempting to correct the problems
and testing the solutions.
As of March 31, 1999, Mohegan Sun was approximately 75% in conformance with
the GartnerGroup Year 2000 best practices model. The Authority anticipates
completion of the program by June 1999. Although there can be no assurance, it
is anticipated that 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. While the
Authority's efforts are designed to be successful, because of the complexity of
the Year 2000 issues and the interdependence of organizations using computer
systems, there can be no assurance that the Authority's efforts, or those of a
third party with whom the Authority interacts, will be satisfactorily completed
in a timely fashion. This could result in a material adverse effect on future
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Certain Transfer Restrictions; No Prior Market for Exchange Notes; Failure to
Exchange the Outstanding Notes
Certain transfer restrictions and the failure of a market to develop could
affect the liquidity and price of your Exchange Notes. In the event you do not
exchange your Outstanding Notes, you cannot be assured of a continuation of a
trading market for the Outstanding Notes.
You may generally sell Exchange Notes without complying with the
registration requirements of the Securities Act, unless you are:
. an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act
. a broker-dealer that acquired Outstanding Notes as a result of market-
making or other trading activities
. a broker-dealer that acquired Outstanding Notes directly from us for
resale pursuant to Rule 144A or another available exemption under the
Securities Act
"Affiliates" of the Authority may sell Exchange Notes only in compliance
with the provisions of Rule 144 under the Securities Act or another available
exemption. The broker-dealers described above must deliver a prospectus in
connection with any resale of Exchange Notes.
The Exchange Notes constitute a new issue of securities for which no
established trading market exists. If Exchange Notes are traded after their
initial issuance, they may trade at a discount, depending upon the Authority's
financial condition, prevailing interest rates, the market for similar
securities and other factors beyond the Authority's control, including general
economic conditions. The Authority does not intend to apply for a listing or
quotation of the Exchange Notes on any securities exchange. The initial
purchasers of the Outstanding Notes have informed the Authority that they
intend to make a market in the Exchange Notes. However, the initial purchasers
have no obligation to do so, and may discontinue any market-making activities
at any time without notice. The Authority cannot assure you of the development
or liquidity of any trading market for the Exchange Notes following the
Exchange Offers.
The Authority has not registered nor does it intend to register the
Outstanding Notes under the Securities Act. Outstanding Notes that remain
outstanding after consummation of the Exchange Offers will therefore remain
subject to transfer restrictions under applicable securities laws. Unexchanged
Outstanding Notes will continue to bear a legend reflecting these restrictions
on transfer. Furthermore, the Authority has not conditioned the Exchange Offers
on receipt of any minimum or maximum principal amount of Outstanding Notes. As
Outstanding Notes are tendered and accepted in the Exchange Offers, the
principal amount of
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remaining Outstanding Notes will decrease. This decrease will reduce the
liquidity of the trading market for the Outstanding Notes. The Authority cannot
assure you of the liquidity, or even the continuation, of the trading market
for the Outstanding Notes following the Exchange Offers.
Risks of Not Complying with Exchange Offer Procedures
In order to receive Exchange Notes, you must follow the Exchange Offer
procedures.
You are responsible for complying with all Exchange Offer procedures. You
will only receive Exchange Notes in exchange for your Outstanding Notes if,
prior to the Expiration Date, you deliver the following to the appropriate
Exchange Agent:
. certificates for the Outstanding Notes or a book-entry confirmation of a
book-entry transfer of the Outstanding Notes into the Exchange Agent's
account at the Depository Trust Company ("DTC")
. the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed by you, together with any required signature
guarantees
. any other documents required by the Letter of Transmittal
You should allow sufficient time to ensure that the Exchange Agents receive
all required documents before the expiration of the Exchange Offers. Neither
the Authority nor the Exchange Agents have any duty to inform you of defects or
irregularities with respect to the tender of your Outstanding Notes for
exchange. See "The Exchange Offers."
Forward-Looking Statements
Differences between the Authority's expectations and actual future events
could lead to a material adverse effect on the Mohegan Sun Expansion.
Forward-looking statements are subject to risks, uncertainties and
assumptions about the Authority, and there can be no assurances about the
Authority's current expectations and projections about future events. The
uncertainties include
. the expansion and construction activities for the new casino, the new
hotel and the convention center and related upgrades and amenities;
. the financial performance of the existing casino;
. its dependence on existing management;
. its levels of leverage and ability to meet its debt service obligations;
. general domestic and global economic conditions;
. changes in federal or state tax laws or the administration of such laws;
. changes in gaming laws or regulations (including potential legalization
of gaming in some jurisdictions); and
. maintenance of licenses required under gaming laws and regulations and
construction permits and approvals required under applicable laws and
regulations.
If the Authority's estimates on these types of items differs from actual
future events, there could be a material adverse effects on future operations
and cash flow from those operations.
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THE EXCHANGE OFFERS
Purpose and Effect of the Exchange Offers
In connection with the sale of the Outstanding Notes, the Authority entered
into registration rights agreements with the initial purchasers of the
Outstanding Notes pursuant to which the Authority agreed to file and to use its
best efforts to cause to become effective with the Commission a registration
statement with respect to the exchange of the Outstanding Notes for Exchange
Notes with terms identical in all material respects to the terms of the
Outstanding Notes. Copies of these registration rights agreements have been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The Exchange Offers are being made to satisfy the contractual obligations
of the Authority under the registration rights agreements.
By tendering Outstanding Notes in exchange for Exchange Notes, each holder
represents to the Authority that: (1) any Exchange Notes to be received by such
holder are being acquired in the ordinary course of such holder's business; (2)
such holder has no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of Exchange Notes;
(3) such holder is not an "affiliate" of the Authority (within the meaning of
Rule 405 under the Securities Act), or if such holder is an affiliate, that
such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable; (4) such holder
has full power and authority to tender, exchange, sell, assign and transfer the
tendered Outstanding Notes, (5) the Authority will acquire good, marketable and
unencumbered title to the tendered Outstanding Notes, free and clear of all
liens, restrictions, charges and encumbrances; and (vi) the Outstanding Notes
tendered for exchange are not subject to any adverse claims or proxies. Each
tendering holder also will warrant and agree that such holder will, upon
request, execute and deliver any additional documents deemed by the Authority
or the Exchange Agent to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the Outstanding Notes tendered pursuant to
the Exchange Offers. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Outstanding Notes pursuant to the Exchange Offers,
where such Outstanding Notes were acquired by such broker-dealer as a result of
market-making or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution."
The Exchange Offers are not being made to, nor will the Authority accept
tenders for exchange from, holders of Outstanding Notes in any jurisdiction in
which the Exchange Offers or the acceptance of the Exchange Notes would be in
violation of the securities or blue sky laws of that jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to an
Exchange Offer means any person in whose name the Outstanding Notes are
registered on the books of the Authority or any other person who has obtained a
properly completed bond power from the registered holder, or any participant in
DTC whose name appears on a security position listing as a holder of
Outstanding Notes (which, for purposes of the Exchange Offers, include
beneficial interests in the Outstanding Notes held by direct or indirect
participants in DTC and Outstanding Notes held in definitive form).
Terms of the Exchange Offers
The Authority hereby offers, upon the terms and subject to the conditions
shown in this Prospectus and in the accompanying Letter of Transmittal, to
exchange $1,000 principal amount of Senior Exchange Notes for each $1,000
principal amount of Outstanding Senior Notes and $1,000 principal amount of
Senior Subordinated Exchange Notes for each $1,000 principal amount of
Outstanding Senior Subordinated Notes, properly tendered before the Expiration
Date and not properly withdrawn according to the procedures described below.
Holders may tender their Outstanding Notes in whole or in part in integral
multiples of $1,000 principal amount.
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that (1) the Exchange Notes have been
registered under the Securities Act and therefore are not subject to the
restrictions on transfer applicable to the Outstanding Notes and (2) holders of
the Exchange Notes will not be entitled to some of the rights of holders of the
Outstanding Notes under the registration rights agreement. The Exchange Notes
evidence the same indebtedness as the Outstanding Notes (which they replace)
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and will be issued pursuant to, and entitled to the benefits of, the Senior
Notes Indenture and the Senior Subordinated Notes Indenture.
Neither Exchange Offer is conditioned upon the other Exchange Offer or on
any minimum principal amount of Outstanding Notes being tendered for exchange.
The Authority reserves the right in its sole discretion to purchase or make
offers for any Outstanding Notes that remain outstanding after the Expiration
Date in either Exchange Offer or, as shown under "--Conditions to the Exchange
Offers," to terminate, either or both of the Exchange Offers and, to the extent
permitted by applicable law, purchase Outstanding Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers could differ from the terms of the Exchange Offers. As of the date of
this Prospectus, $200 million principal amount of Outstanding Senior Notes and
$300 million principal amount of Outstanding Senior Subordinated Notes are
outstanding.
Holders of Outstanding Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offers. Outstanding Notes which are not
tendered for, or are tendered but not accepted in connection with, the Exchange
Offers will remain outstanding. See "Risk Factors--Risks of Not Complying With
Exchange Offer Procedures."
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of particular other events shown herein or
otherwise, certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Outstanding Notes in connection with the Exchange Offers
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of the Outstanding Notes in connection with the Exchange Offers. The
Authority will pay all charges and expenses, other than specified applicable
taxes. See "--Fees and Expenses."
THE AUTHORITY MAKES NO RECOMMENDATION TO THE HOLDERS OF THE OUTSTANDING
NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF
THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFERS. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF THE OUTSTANDING NOTES
MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFERS,
AND, IF SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO TENDER AFTER READING
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND REQUIREMENTS.
Expiration Date; Extensions; Amendments
The "Expiration Date" for each Exchange Offer is 5:00 p.m., New York City
time, on March 3, 1999 unless the Exchange Offer is extended by the Authority.
(If the Authority does extend an Exchange Offer, the "Expiration Date" will be
the latest date and time to which that Exchange Offer is extended). Because
neither Exchange Offer is conditioned on the other Exchange Offer, it is
possible that one Exchange Offer could terminate before the other. To the
extent practicable, however, the Authority will seek to terminate both Exchange
Offers at the same time.
The Authority expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (1)
to delay the acceptance of the Outstanding Notes for exchange, (2) to terminate
an Exchange Offer (whether or not any Outstanding Notes have theretofore been
accepted for exchange) if the Authority determines, in its sole and absolute
discretion, that any of the events or conditions referred to under "--
Conditions to the Exchange Offers" has occurred or exists or has not been
satisfied with respect to such Exchange Offer, (3) to extend the Expiration
Date of an Exchange Offer and retain all Outstanding Notes tendered pursuant to
such Exchange Offer, subject, however, to the right of holders of Outstanding
Notes to withdraw their tendered Outstanding Notes as described under "--
Withdrawal Rights," and (4) to waive any condition or otherwise amend the terms
of an Exchange Offer in any respect. If an
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Exchange Offer is amended in a manner determined by the Authority to constitute
a material change, or if the Authority waives a material condition of such
Exchange Offer, the Authority will promptly disclose such amendment by means of
a Prospectus Supplement that will be distributed to the registered holders of
the affected Outstanding Notes, and the Authority will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent for
such Exchange Offer (any such oral notice to be promptly confirmed in writing)
and by making a public announcement, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Authority may choose to make any public announcement,
and subject to applicable laws, the Authority shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to an appropriate news agency.
Acceptance for Exchange and Issuance of Exchange Notes
Upon the terms and subject to the conditions of each Exchange Offer, the
Authority will exchange, and will issue to the relevant Exchange Agent,
Exchange Notes for Outstanding Notes validly tendered and not withdrawn
(pursuant to the withdrawal rights described under "Withdrawal Rights")
promptly after the Expiration Date.
In all cases, delivery of Exchange Notes in exchange for Outstanding Notes
tendered and accepted for exchange pursuant to each Exchange Offer will be made
only after timely receipt by the relevant Exchange Agent of (1) Outstanding
Notes or a book-entry confirmation of a book-entry transfer of Outstanding
Notes into the appropriate Exchange Agent's account at DTC, (2) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and (3) any other documents required by the
Letter of Transmittal. Accordingly, the delivery of Exchange Notes might not be
made to all tendering holders at the same time, and will depend upon when
Outstanding Notes, book-entry confirmations with respect to Outstanding Notes
and other required documents are received by the relevant Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Outstanding Notes into the appropriate Exchange Agent's
account at DTC.
Subject to the terms and conditions of each Exchange Offer, the Authority
will be deemed to have accepted for exchange, and thereby exchanged,
Outstanding Notes validly tendered and not withdrawn as, if and when the
Authority gives oral or written notice to the relevant Exchange Agent (any such
oral notice to be promptly confirmed in writing) of the Authority's acceptance
of such Outstanding Notes for exchange pursuant to each Exchange Offer. The
Authority's acceptance for exchange of Outstanding Notes tendered pursuant to
any of the procedures described above will constitute a binding agreement
between the tendering holder and the Authority upon the terms and subject to
the conditions of the Exchange Offers. The Exchange Agents will act as agents
for the Authority for the purpose of receiving tenders of Outstanding Notes,
Letters of Transmittal and related documents, and as agents for tendering
holders for the purpose of receiving Outstanding Notes, Letters of Transmittal
and related documents and transmitting Exchange Notes to holders who validly
tendered Outstanding Notes. Such exchange will be made promptly after the
Expiration Date of each Exchange Offer. If for any reason the acceptance for
exchange or the exchange of any Outstanding Notes tendered pursuant to an
Exchange Offer is delayed (whether before or after the Authority's acceptance
for exchange of Outstanding Notes), or the Authority extends an Exchange Offer
or is unable to accept for exchange or exchange Outstanding Notes tendered
pursuant to an Exchange Offer, then, without prejudice to the Authority's
rights set forth herein, each Exchange Agent may, nevertheless, on behalf of
the Authority and subject to Rule 14e-1(c) under the Exchange Act, retain
tendered Outstanding Notes and such Outstanding Notes may not be withdrawn
except to the extent tendering holders are entitled to withdrawal rights as
described under "--Withdrawal Rights."
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Procedures for Tendering Outstanding Notes
Valid Tender
Except as set forth below, in order for Outstanding Notes to be validly
tendered pursuant to an Exchange Offer, either (1) (a) a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must be received by the
appropriate Exchange Agent at the address set forth under "--Exchange Agents"
prior to the Expiration Date and (b) tendered Outstanding Notes must be
received by the Exchange Agents, or such Outstanding Notes must be tendered
pursuant to the procedures for book-entry transfer set forth below and a book-
entry confirmation must be received by the Exchange Agents, in each case prior
to the Expiration Date, or (2) the guaranteed delivery procedures set forth
below must be complied with.
If less than all of the Outstanding Notes are tendered, a tendering holder
should fill in the amount of Outstanding Notes being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Outstanding
Notes delivered to the Exchange Agents will be deemed to have been tendered
unless otherwise indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing. Unless waived by the Authority,
evidence satisfactory to the Authority of such person's authority to so act
must also be submitted.
Any beneficial owner of Outstanding Notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offers.
The method of delivery of Outstanding Notes, the Letter Of Transmittal and
all other required documents is at the option and sole risk of the tendering
holder. Delivery will be deemed made only when actually received by the proper
Exchange Agent. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery and proper insurance should be obtained. No
Letter of Transmittal or Outstanding Notes should be sent to the Authority.
Holders may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect these transactions for them.
Book-Entry Transfer
Each Exchange Agent will make a request to establish an account with respect
to the applicable Outstanding Notes at DTC for purposes of the applicable
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Outstanding Notes by
causing DTC to transfer such Outstanding Notes into the relevant Exchange
Agent's account at DTC in accordance with DTC's procedures for transfers.
However, although delivery of Outstanding Notes may be effected through book-
entry transfer into the relevant Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the relevant Exchange Agent at its address
set forth under "--Exchange Agents" prior to the Expiration Date, or the
guaranteed delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO AN EXCHANGE
AGENT.
Signature Guarantees
Certificates for Outstanding Notes need not be endorsed and signature
guarantees on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are unnecessary unless (a) a certificate for
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Outstanding Notes is registered in a name other than that of the person
surrendering the certificate or (b) a registered holder completes the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Outstanding Notes must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power and on
the Letter of Transmittal or the notice of withdrawal, as the case may be,
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein) (1) a bank, (2) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer, (3) a credit union,
(4) a national securities exchange, registered securities association or
clearing agency, or (5) a savings association that is a participant in a
Securities Transfer Association (each an "Eligible Institution"), unless
surrendered on behalf of such Eligible Institution. See Instruction 1 to the
Letter of Transmittal.
Guaranteed Delivery
If a holder desires to tender Outstanding Notes pursuant to an Exchange
Offer and the certificates for such Outstanding Notes are not immediately
available or time will not permit all required documents to reach the proper
Exchange Agent before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such Outstanding Notes may
nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with
(1) such tenders are made by or through an Eligible Institution;
(2) prior to the Expiration Date, the relevant Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, setting forth the name and address of the holder of Outstanding
Notes and the amount of Outstanding Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Outstanding Notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the proper Exchange Agent. The Notice of Guaranteed
Delivery may be delivered by hand, or transmitted by facsimile or mail to the
relevant Exchange Agent and must include a guarantee by an Eligible Institution
in the form set forth in the Notice of Guaranteed Delivery; and
(3) the certificates (or book-entry confirmation) representing all tendered
Outstanding Notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal, with any required signature
guarantees and any other documents required by the Letter of Transmittal, are
received by the relevant Exchange Agent within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery.
Determination of Validity
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered Outstanding Notes
will be determined by the Authority, in its sole discretion, which
determination shall be final and binding on all parties. The Authority reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders it determines not to be in proper form or the acceptance for exchange
of which may, in the view of counsel to the Authority, be unlawful. The
Authority also reserves the absolute right, subject to applicable law, to waive
any of the conditions of either Exchange Offer as set forth under "--Conditions
to the Exchange Offers" or any defect or irregularity in any tender of
Outstanding Notes of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders.
The Authority's interpretation of the terms and conditions of the Exchange
Offers (including the relevant Letter of Transmittal and the instructions
thereto) will be final and binding on all parties. No tender of Outstanding
Notes will be deemed to have been validly made until all defects or
irregularities with respect to such tender
30
<PAGE>
have been cured or waived. None of the Authority, any affiliates of the
Authority, the Exchange Agents or any other person shall be under any duty to
give any notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
Resales of Exchange Notes
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties unrelated to the Authority, the
Authority believes that holders of Outstanding Notes who exchange their
Outstanding Notes for Exchange Notes may offer for resale, resell and otherwise
transfer such Exchange Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act. This would not apply,
however, to any holder that is a broker-dealer that acquired Outstanding Notes
as a result of market-making activities or other trading activities or directly
from the Authority for resale under an available exemption under the Securities
Act. Also, resale would only be permitted for Exchange Notes that are acquired
in the ordinary course of a holder's business, where such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and such holder is not an "affiliate" of the Authority.
The staff of the Commission has not considered the Exchange Offers in the
context of a no-action letter, and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offers. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes under the Exchange Offers, where such
Outstanding Notes were acquired by such broker-dealer as a result of market-
making or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
Withdrawal Rights
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to the Expiration Date of an Exchange Offer. In
order for a withdrawal to be effective, such withdrawal must be in writing and
timely received by the relevant Exchange Agent at its address set forth under
"--Exchange Agents" prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Outstanding Notes to be
withdrawn, the principal amount of Outstanding Notes to be withdrawn, and (if
certificates for such Outstanding Notes have been tendered) the name of the
registered holder of the Outstanding Notes as set forth on the Outstanding
Notes, if different from that of the person who tendered such Outstanding
Notes. If certificates for Outstanding Notes have been delivered or otherwise
identified to the Exchange Agent, the notice of withdrawal must specify the
serial numbers on the particular certificates for the Outstanding Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by
an Eligible Institution, except in the case of Outstanding Notes tendered for
the account of an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "--Procedures
for Tendering Outstanding Notes," the notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawal of
Outstanding Notes and must otherwise comply with the procedures of DTC.
Withdrawals of tenders of Outstanding Notes may not be rescinded. Outstanding
Notes properly withdrawn will not be deemed validly tendered for purposes of an
Exchange Offer, but may be retendered at any subsequent time prior to the
Expiration Date of such Exchange Offer by following any of the procedures
described above under "--Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Authority, in its
sole discretion, which determination shall be final and binding on all parties.
Neither the Authority, any affiliates of the Authority, the Exchange Agents or
any other person shall be under any duty to give any notification of any
defects or irregularities in any notice of withdrawal or incur any liability
for failure to give any such notification. Any Outstanding Notes which have
been tendered but which are withdrawn will be returned to the holder promptly
after withdrawal.
Interest on the Exchange Notes
Interest on the Senior Exchange Notes will be payable every six months on
January 1 and July 1 of each year at a rate of 8 1/8% per annum, commencing
July 1, 1999. The Senior Exchange Notes will mature on
31
<PAGE>
January 1, 2006. Interest on the Senior Subordinated Exchange Notes will be
payable every six months on January 1 and July 1 of each year at a rate of 8
3/4% per annum, commencing July 1, 1999. The Senior Subordinated Exchange Notes
will mature on January 1, 2009.
Conditions to the Exchange Offers
If any of the following conditions has occurred or exists or has not been
satisfied prior to the Expiration Date of an Exchange Offer, the Authority will
not be required to accept for exchange any Outstanding Notes and will not be
required to issue Exchange Notes in exchange for any Outstanding Notes. In
addition, the Authority may, at any time and from time to time, terminate or
amend an Exchange Offer (whether or not any Outstanding Notes have theretofore
been accepted for exchange) or may waive any conditions to or amend an Exchange
Offer.
. A change in the current interpretation by the staff of the Commission
which permits resale of Exchange Notes as described about under "--
Resales of Exchange Notes."
. The institution or threat of an action or proceeding in any court or by
or before any governmental agency or body with respect to the Exchange
Offers which, in the Authority's judgment, would reasonably be expected
to impair the ability of the Authority to proceed with the Exchange
Offers.
. The adoption or enactment of any law, statute, rule or regulation which,
in the Authority's judgment, would reasonably be expected to impair the
ability of the Authority to proceed with the Exchange Offers.
. The issuance of a stop order by the Commission or any state securities
authority suspending the effectiveness of the Registration Statement, or
proceedings for that purpose.
. Failure to obtain any governmental approval, which the Authority
considers necessary for the consummation of the Exchange Offers as
contemplated hereby.
. Any change or development involving a prospective change in the business
or financial affairs of the Authority which the Authority thinks might
materially impair its ability to proceed with the Exchange Offers.
If the Authority determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied at any time prior to an Expiration Date, the Authority may, subject
to applicable law, terminate the applicable Exchange Offer (whether or not any
Outstanding Notes have theretofore been accepted for exchange) or may waive any
such condition or otherwise amend the terms of an Exchange Offer in any
respect. If such waiver or amendment constitutes a material change to an
Exchange Offer, the Authority will promptly disclose such waiver or amendment
by means of a prospectus supplement that will be distributed to the registered
holders of the applicable Outstanding Notes. In this case, the Authority will
extend the applicable Exchange Offer to the extent required by Rule 14e-1 under
the Exchange Act.
32
<PAGE>
Exchange Agents
First Union National Bank has been appointed as the Senior Exchange Agent,
State Street Bank and Trust Company has been appointed as the Senior
Subordinated Exchange Agent. Delivery of the Letters of Transmittal and any
other required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the appropriate Exchange Agent as follows:
Exchanging Outstanding Senior Notes for Senior Exchange Notes
By Facsimile
(704) 590-7626
Confirm by telephone: (704) 590-7408
By Hand or Overnight Courier
First Union National Bank
1525 W.T. Harris Boulevard
Charlotte, North Carolina 28288-1153
Attention: Corporate Trust Department
By Mail
First Union National Bank
1525 W.T. Harris Boulevard
Charlotte, North Carolina 28288-1153
Attention: Corporate Trust Department
Exchanging Outstanding Senior Subordinated Notes for Senior Subordinated
Exchange Notes
By Facsimile
(617) 664-5290
Attention: Customer Service
Confirm by telephone: (617) 664-5249
By Hand or Overnight Courier
State Street Bank and Trust Company
Corporate Trust Department
Two International Place--4th Floor
Boston, MA 02110
Attention: Ralph Jones
By Mail
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, MA 02102
Attention: Ralph Jones
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBERS WILL NOT
CONSTITUTE A VALID DELIVERY. DELIVERY TO THE WRONG EXCHANGE AGENT WILL NOT
CONSTITUTE DELIVERY.
33
<PAGE>
Fees and Expenses
The expenses of soliciting tenders will be borne by the Authority. The
principal solicitation is being made by mail. Additional solicitation may be
made personally or by telephone or other means by officers, directors or
employees of the Authority.
The Authority has not retained any dealer-manager or similar agent in
connection with the Exchange Offers and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offers. The Authority
has agreed to pay the Exchange Agents reasonable and customary fees for their
services and will reimburse them for reasonable out-of-pocket expenses in
connection therewith. The Authority will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Outstanding Notes, and in handling or tendering for
their customers.
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that if
Exchange Notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Outstanding Notes tendered, or
if a transfer tax is imposed for any reason other than the exchange of
Outstanding Notes in connection with the Exchange Offers, then the amount of
any such transfer tax (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such transfer tax or exemption therefrom is not submitted with the
Letter of Transmittal, the amount of such transfer tax will be billed directly
to such tendering holder.
34
<PAGE>
USE OF PROCEEDS
The Exchange Offers are intended to satisfy certain obligations of the
Authority under the registration agreements. The Authority will not receive any
cash proceeds from the issuance of the Exchange Notes. In consideration for
issuing the Exchange Notes as contemplated in this Prospectus, the Authority
will receive, in exchange, an equal number of Outstanding Notes in like
principal amount. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Outstanding Notes, except as
otherwise described in the section entiteled "The Exchange Offers--Terms of the
Exchange Offers." The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and cancelled and cannot be reissued. A portion
of the proceeds from the offering of the Outstanding Notes has been used to
redeem the 13 1/2% Senior Secured Notes and defease junior subordinated notes.
The remainder of these proceeds will be used to fund the Mohegan Sun expansion
and for general corporate purposes.
35
<PAGE>
CAPITALIZATION
The following table shows, as of December 31, 1998, the Authority's actual
and adjusted cash balance and capitalization, including the application of the
net proceeds to the Authority from the offering of the Outstanding Notes. This
table should be read in conjunction with the more detailed information and
financial statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------
Actual As Adjusted(1)
--------- --------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents........................... $ 109,578 $ 244,978
Junior Subordinated Notes defeasance trust assets... -- 135,700
========= =========
Debt (including current maturities of debt and
capital lease obligations)
Bank Credit Facility.............................. $ -- $ --
13 1/2% Senior Secured Notes...................... 175,000 --
Junior Subordinated Notes(2)...................... 125,191 125,191
Outstanding Senior Notes.......................... -- 200,000
Outstanding Senior Subordinated Notes............. -- 300,000
Equipment financing............................... 27,807 27,807
--------- ---------
Total debt and capital lease obligations........ 327,998 652,998
Total capital(3).................................... (372,300) (410,200)
--------- ---------
Total capitalization(4)............................. $ (44,302) $ 242,798
========= =========
</TABLE>
- --------
(1) As adjusted amounts reflect (a) the sale of the Outstanding Notes and the
application of the related net proceeds, including the redemption of
$175.0 million in aggregate principal amount of the 13 1/2% Senior Secured
Notes and the establishment of a defeasance trust account for the junior
subordinated notes of the Authority; (b) the release of restricted cash
balances to the Authority in the amount of $81.3 million; and (c) the
closing of the Bank Credit Facility with no loan amounts drawn.
(2) This amount reflects $90.0 million of principal and $35.2 million of
accrued and unpaid interest.
(3) The Authority, in accordance with FASB 5, has recorded a non-cash expense
and liability for the estimated present value of the Authority's future
Relinquishment Agreement payment obligations. These payments are based on
the amount of gross revenue generated by the Authority. As of September
30, 1998, the present value of this liability was estimated at $549.1
million, of which $419.1 million was reflected as an extraordinary item in
the statements of income (loss) and $130.0 million was capitalized on the
balance sheet as trademarks and other intellectual property acquired as
part of the Relinquishment Agreement. Recording this liability has created
negative capital as of September 30, 1998. This liability will be
reassessed periodically and may require additional non-cash adjustments to
be recorded in the statement of income (loss). The estimated liability has
not changed as of December 31, 1998. See the Authority's financial
statements and the accompanying notes and "Other Material Agreements--
Relinquishment Agreement with Trading Cove Associates."
(4) Total capitalization is the sum of total debt, capital lease obligations
and total capital.
36
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data shown below for the fiscal years ended September
30, 1997 and 1998 have been taken from the audited financial statements of the
Authority included in this Prospectus. The selected financial data for the
quarters ended December 31, 1997 and 1998 have been taken from the Authority's
unaudited interim financial statements included elsewhere in this Prospectus,
which in the opinion of the Authority's management include all adjustments
(including only normal, recurring adjustments) necessary for a fair
presentation of such information. Operating results for interim periods are not
necessarily indicative of the results that might be expected for the entire
fiscal year. The financial information shown below should be read in
conjunction with the financial statements and notes, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the other
financial and statistical data included in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended Quarter Ended
September 30, December 31,
------------------- ------------------
1998 1997(1) 1998 1997
--------- -------- -------- --------
(Dollars in thousands except per
diem data)
<S> <C> <C> <C> <C>
Statements of Income (Loss) Data:
Revenues:
Gaming............................. $ 543,870 $440,540 $152,672 $119,798
Food and beverage.................. 55,544 46,925 15,013 12,596
Retail and other................... 36,328 21,489 13,287 10,025
Bingo operations................... 5,673 3,148 3,442 929
--------- -------- -------- --------
Gross revenues..................... 641,415 512,102 184,414 143,348
Promotional allowances............. (66,272) (44,265) (20,556) (16,206)
--------- -------- -------- --------
Net revenues....................... 575,143 467,837 163,858 127,142
--------- -------- -------- --------
Costs and Expenses:
Gaming............................. 237,946 209,086 66,590 56,307
Food and beverage.................. 21,212 24,168 5,386 4,940
Retail and other................... 24,607 16,282 9,113 6,390
Bingo operations................... 3,529 4,508 3,377 703
General and administration......... 87,529 78,366 27,622 23,740
Management fee..................... 47,442 23,243 13,645 7,404
Depreciation and amortization...... 17,528 32,155 4,669 4,800
--------- -------- -------- --------
Total costs and expenses......... 439,793 387,808 130,402 104,284
--------- -------- -------- --------
Income from operations............. 135,350 80,029 33,456 22,858
Other expense, net................. 47,772 43,342 12,195 11,130
--------- -------- -------- --------
Income before extraordinary items.. 87,578 36,687 21,261 11,728
Extraordinary items(2)............. (419,457) -- -- --
--------- -------- -------- --------
Net income (loss)(2)............... $(331,879) $ 36,687 $ 21,261 $ 11,728
========= ======== ======== ========
Ratio of earnings to fixed
charges(3).......................... 2.7x 1.8x 2.6x 1.9x
Other Data:
EBITDA(4)............................ $ 152,878 $112,184 $ 38,125 $ 27,658
EBITDAM(5)........................... 200,320 135,427 51,770 35,062
Capital expenditures................. 32,731 35,749 6,113 17,909
Slot machine win per day............. 361 319 401 311
Table game win per day............... 2,545 2,401 2,727 2,364
Slot machines........................ 3,029 2,962 3,025 2,996
Table games.......................... 150 149 150 148
Restaurant seats..................... 1,868 1,808 1,888 1,808
Casino square footage................ 176,500 167,500 176,500 167,500
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
------------------- ------------
1998 1997 1998
--------- -------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents(6)......... $ 110,730 $ 88,844 $ 109,578
Total assets............ 554,480 386,974 554,746
Total debt and capital
lease obligations...... 326,106 316,146 327,998
Total capital........... (382,300) 21,931 (372,300)
</TABLE>
- --------
37
<PAGE>
(1) The Authority commenced operations at Mohegan Sun on October 12, 1996.
(2) The Authority, in accordance with FASB 5, has recorded a non-cash expense
and liability for the estimated present value of the Authority's future
Relinquishment Agreement payment obligations. These payments are based on
the amount of gross revenue generated by the Authority. As of September 30,
1998, the present value of this liability was estimated at $549.1 million,
of which $419.1 million was reflected as an extraordinary item in the
statements of income (loss), and $130.0 million was capitalized on the
balance sheet as trademarks and other intellectual property acquired as
part of the Relinquishment Agreement. Recording this liability has created
negative capital as of September 30, 1998. This liability will be
reassessed periodically and may require additional non-cash adjustments to
be recorded in the statement of income (loss). The estimated liability has
not changed as of December 31, 1998. See the Authority's financial
statements and the accompanying notes and "Other Material Agreements--
Relinquishment Agreement with Trading Cove Associates."
(3) The ratio of earnings to fixed charges is determined by dividing (a)
earnings before extraordinary items and fixed charges by (b) fixed charges.
Fixed charges consist of total interest expense, including cash flow
participation interest relating to the 13 1/2% Senior Secured Notes.
(4) Earnings before extraordinary items, interest, income taxes, depreciation
and amortization. EBITDA is presented because we believe it is frequently
used by securities analysts, investors and other interested parties in the
gaming industry. However, EBITDA should only be read in conjunction with
all of the Authority's financial data summarized above and its financial
statements, including the notes, prepared in accordance with GAAP appearing
elsewhere herein. EBITDA should not be construed as an alternative either
to (a) income from operations (as determined in accordance with GAAP) as an
indicator of the Authority's operating performance or (b) cash flows from
operating activities (as determined according to GAAP) as a measure of
liquidity. In addition, because the Authority is an instrumentality of a
sovereign Indian nation, it is not subject to federal or state income tax.
(5) Earnings before extraordinary items, interest, income taxes, depreciation,
amortization and management fees. Management fees are paid by the Authority
to Trading Cove Associates pursuant to the terms of its management
agreement which terminates on January 1, 2000. Until such termination and
because management fees are subordinate to debt service, the Authority
believes EBITDAM is a supplemental financial measurement useful in the
evaluation of its gaming business.
(6) Including restricted cash balances of $74.5 million, $48.5 million, and
$81.3 million as of September 30, 1998, September 30, 1997 and December 31,
1998, respectively.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Authority's sole business is the operation of Mohegan Sun, which opened
in October 1996. The growth in the Connecticut gaming market continues to
expand as well as Mohegan Sun's share in this market. The Authority is
currently undertaking an estimated $750 million expansion of Mohegan Sun.
Construction on the expansion began in March, 1999, and the expansion is
expected to be completed in the fall of 2001.
Results of Operations
Comparison of Operating Results for the Quarters Ended December 31, 1998 and
1997
For the quarter ended December 31, 1998, the Connecticut slot market grew at
a rate of 17.3%, reporting a gross slot win of $273.9 million, an increase of
$40.4 million over the period ended December 31, 1997. Mohegan Sun exceeded the
market's growth as it experienced a 30.3% increase in slot win over the same
period in the prior year. Slot revenues of $111.1 million for the quarter ended
December 31, 1998 reflected a slot win per unit per day of $401. Slot win per
unit per day for the quarter ended December 31, 1997 was $311. The slot win
growth of $25.8 million, or 30.3%, over the previous year reflected Mohegan
Sun's growth in slot win market share of 3.8% over the same period in the prior
year.
Gaming revenues totaled $152.7 million for the quarter ended December 31,
1998, marking an increase of $32.9 million, or 27.4%, over the quarter ended
December 31, 1997. The increase in gaming revenues is primarily due to a 17.3%
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 975,933
and 663,932 guests as of December 31, 1998 and 1997, respectively.
For the quarter ended December 31, 1998, food and beverage revenues were
$15.0 million, indicating a growth of $2.4 million, or 19.2%, over the prior
year. Retail and other revenues were $13.3 million, a growth of $3.3 million,
or 32.5%, over the same period in the prior year. The increase in non-gaming
revenues is primarily attributed to increased utilization of complimentaries,
the addition of two new retail outlets to the facility in December 1997 and
April 1998 and the opening of the gas station facility in December 1998.
Bingo revenues totaled $3.4 million for the quarter ended December 31, 1998,
representing a $2.5 million increase over the same period in the prior year.
The increase is a result of an improvement in the overall awareness of the
bingo operation in the marketplace.
Promotional allowances totaled $20.6 million for the quarter ended December
31, 1998, representing a $4.4 million, or 26.8%, increase over the prior year.
The increase is attributable to a growth in the Mohegan Sun customer base as
well as an increased utilization of the Mohegan Sun Player's Club complimentary
program. Promotional allowances as a percentage of gaming revenue remained
constant at 13.5% for both the quarters ended December 31, 1998 and 1997.
Total costs and expenses were $130.4 million for the quarter ended December
31, 1998, an increase of $26.1 million, or 25.0%, over the prior year. The
increase in variable expenses is a direct result of an increase in volume as
gross revenues increased by $41.1 million, or 28.6%, partially offset by
improved operating efficiencies in costs such as rent expense and cost of goods
sold.
Gaming costs and expenses were $66.6 million for the quarter ended December
31, 1998, an increase of $10.3 million, or 18.2%, over the same period in the
prior year. The slot win contribution for the quarter ended December 31, 1998
totaled $28.4 million. This represents an increase of $6.4 million over the
same period in the prior year, which is directly attributable to the $25.8
million increase in slot revenues.
39
<PAGE>
General and administrative costs were $27.6 million for the quarter ended
December 31, 1998. The increase of $3.9 million, or 16.4%, is partially
attributable to marketing and advertising campaigns which increased the length
of stay and frequency of patron visits.
Management fees earned by Trading Cove Associates totaled $13.6 million for
the quarter ended December 31, 1998, an increase of $6.2 million, or 84.3%,
over the fees paid in last year's period. The increase in management fees is a
direct result of the increase in income from operations.
For the quarter ended December 31, 1998, depreciation and amortization
decreased by $131,000, or 2.7%, as compared with the same period in the prior
year. The decrease is primarily attributable to the expensing of financing
fees in fiscal 1998, partially offset by an increase in depreciation for newly
acquired capital assets such as the racebook and gas station facilities.
Income from operations for the quarter ended December 31, 1998 totaled
$33.5 million, compared to $22.9 million in the same period in the prior year.
The year over year increase of $10.6 million, or 46.4%, is primarily due to
the 27.4% increase in gaming revenues and improved operating efficiencies.
Other expense, net is comprised of interest expense minus interest and
other income. Interest expense of $12.8 million for the quarter ended December
31, 1998 represented an increase of $1.0 million, or 8.8%, over the same
period in the prior year. This increase was mainly attributable to an increase
in the cash flow participation interest owed to the holders of the 13 1/2%
Senior Secured Notes, which is derived as a percent of increased earnings
before extraordinary items, interest, taxes, depreciation, amortization and
management fees. The cash flow participation interest is paid to the holders
of the 13 1/2% Senior Secured Notes pursuant to the 13 1/2% Senior Secured
Notes indenture. Interest and other income was $615,000 for the quarter ended
December 31, 1998, a decrease of $33,000, or 5.1%, over the prior year's
period.
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
Net revenues for the fiscal year ended September 30, 1998 were $575.1
million compared with $467.8 million reported for the period ended September
30, 1997. The 22.9% increase in net revenues is primarily attributable to
increases in gaming revenue. As the Authority commenced operations on October
12, 1996, fiscal year 1998 included 12 more operating days than the period
ended September 30, 1997.
Gaming revenues totaled $543.9 million for the fiscal 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
the growth in the Connecticut slot market and the continued growth of the
Mohegan Sun customer base. 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. The slot win per unit per day for the fiscal
years ended September 30, 1998 and 1997 were $361 and $319, respectively. The
slot win growth of $83.9 million, or 26.8%, over the previous fiscal year
reflected Mohegan Sun's growth in slot win market share of 2.8% over the prior
year. Membership in the Mohegan Sun Player's Club totaled 908,821 and 587,952
guests as of September 30, 1998 and 1997, respectively.
For the fiscal 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 fiscal 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.
40
<PAGE>
Promotional allowances totaled $66.3 million for the fiscal year ended
September 30, 1998, representing a $22.0 million, or 49.7%, increase over the
prior fiscal 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 revenues increased from 8.6% in fiscal 1997 to 10.3% in fiscal 1998.
Total costs and expenses were $439.8 million for the fiscal year ended
September 30, 1998, an increase of $52.0 million, or 13.4%, over the prior
fiscal 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 fiscal year 1998, an
increase of $28.9 million, or 13.8%, over the prior fiscal year. The slot win
contribution for the fiscal year ended September 30, 1998 totaled $102.3
million. This represents an increase of $21.6 million over the prior fiscal
year, which is directly attributable to increased slot revenues.
General and administrative costs were $87.5 million for the fiscal 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 fiscal year increased by $5.4 million from the prior period.
For the fiscal 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.
The Authority incurred $47.4 million in management fees to Trading Cove
Associates for the fiscal year ended September 30, 1998, an increase of $24.2
million, or 104.1%, over fiscal year 1997. The increase in management fees was
a direct result of the increase in operating income.
Income from operations for the fiscal 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.
Other expense, net is comprised of interest expense minus interest and other
income. Interest expense of $50.2 million for the fiscal year ended September
30, 1998 represented an increase of $5.0 million, or 11.2%, over the prior
year. This increase was mainly attributable to an increase in the cash flow
participation interest owed to the holders of the 13 1/2% Senior Secured Notes,
which is derived as a percent of increased earnings before extraordinary items,
interest, taxes, depreciation, amortization and management fees. The cash flow
participation interest is paid to the holders of the 13 1/2% Senior Secured
Notes pursuant to the 13 1/2% Senior Secured Notes indenture. Interest and
other income was $2.4 million for the fiscal year ended September 30, 1998, an
increase of $605,000, or 33.7%, over the prior year.
Extraordinary items include a loss on the early extinguishment of debt of
$332,000 due to the retirement of a capital lease and a $419.1 million expense
associated with an agreement with Trading Cove Associates whereby the Authority
will assume management control of Mohegan Sun. The relinquishment expense was
recorded as a one-time, non-cash charge pursuant to FASB 5 which requires that
the present value of future expenses be recorded as liabilities once they
become reasonably identifiable and quantifiable. This expense is based upon the
Authority's agreement to pay Trading Cove Associates 5% of gross revenues (as
determined under the terms of the Relinquishment 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 revenues by the Authority's risk free investment rate.
Future payment obligations to Trading Cove Associates will be recorded as
adjustments to cash flow rather than expensed as
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incurred. However, future "centering" of the estimated present value of this
liability may require additional non-cash charges or credits similar in nature
to this one-time charge.
Liquidity, Capital Resources and Capital Spending
As of December 31, 1998, the Authority held cash and cash equivalents of
$28.3 million. Cash provided by operating activities for the quarters ended
December 31, 1998 and 1997 were $18.0 million and $10.0 million, respectively.
As of September 30, 1998 and 1997, cash and cash equivalents were $36.3 million
and $40.4 million, respectively. Cash provided by operating activities for the
fiscal year ended September 30, 1998 was $134.6 million, compared with $117.2
million for the fiscal year ended September 30, 1997.
The Authority's capital expenditures for the quarters ended December 31,
1998 and 1997 were $6.1 million and $17.9 million, respectively. For the
quarter ended December 31, 1998, capital expenditures included $2.9 million for
facility improvements and the acquisition of new capital assets, and $3.2
million for construction costs for the on-site gas station facility and the
preliminary stages of the planned expansion of Mohegan Sun. Capital spending
for the quarter ended December 31, 1997 of $17.9 million was comprised of $1.7
million for the purchase of new capital assets, $3.6 million in the settlement
of construction claims with Morse Diesel, Inc., related to the initial
construction of Mohegan Sun, and $12.6 million for the purchase of assets
previously held under operating leases.
During the quarters ended December 31, 1998 and 1997, the Authority, after
meeting its operating expenses and required deposits to reserve funds under the
indenture for the 13 1/2% Senior Secured Notes distributed a total of $11.3
million and $6.4 million, respectively, to the Tribe. As required under the
indenture for the 13 1/2% Senior Secured Notes, the Authority made an excess
cash purchase offer of $51.2 million to all holders of the 13 1/2% Senior
Secured Notes on December 30, 1998. The excess cash purchase offer expired, by
its terms, on January 29, 1999, and none of the holders of the 13 1/2% Senior
Secured Notes accepted the offer. On February 1, 1999, as required, the
Authority made an offer to repurchase in the amount of the excess cash purchase
offer to the holders of the junior subordinated notes. On February 1, 1999, the
holders of junior subordinated notes also rejected the offer. On February 2,
1999, as permitted by the 13 1/2% Senior Secured Notes indenture, the Authority
distributed the excess cash purchase offer amount of $51.2 million to the
Tribe.
On November 15, 1998 and 1997, the Authority made interest payments of $11.8
million each to the holders of the 13 1/2% Senior Secured Notes and payments of
$5.8 million and $4.1 million, respectively, in cash flow participation
interest. There were no cash interest payment requirements on the Junior
Subordinated Notes as interest is accrued and deferred until 50% of the 13 1/2%
Senior Secured Notes are offered to be repurchased or retired.
Capital expenditures were $32.7 million in fiscal year 1998, versus $35.7
million in fiscal year 1997. Capital expenditures for furniture, fixtures and
equipment were $14.0 million and $35.7 million in 1998 and 1997, respectively.
Additional capital expenditures made during 1998 of $8.4 million related to the
commencement of the renovation of the casino's north entry and construction of
the race book and gas station facilities, $0.3 million for preliminary spending
on Mohegan Sun's expansion plans, and $10.0 million for the acquisition of
equipment previously leased under operating leases.
During fiscal 1998, the Authority, after meeting its operating expenses and
required deposits to reserve funds under the indenture for the 13 1/2% Senior
Secured Notes, distributed a total of $72.4 million to the Tribe. As required
under the 13 1/2% Senior Secured Notes indenture, the Authority made an excess
cash purchase offer of $29.1 million to all holders of the 13 1/2% Senior
Secured Notes in January 1998. The holders of the 13 1/2% Senior Secured Notes
rejected the offer which was subsequently offered to the holders of junior
subordinated notes. The holders of junior subordinated notes also rejected the
offer, and, as a result, the funds were distributed to the Tribe.
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On February 7, 1998, the Authority finalized contract negotiations with
Trading Cove Associates to move forward with an expansion of Mohegan Sun, as
described more fully in this Prospectus. The expansion project is currently
estimated to cost $750 million (excluding capitalized interest). The Tribe has
issued a formal resolution capping the scope of the project to an expansion
budget of $800 million. The proposed development plans include approximately
100,000 square feet of additional gaming space, a luxury hotel facility with
approximately 1,500 rooms, an events center with seating for 10,000 guests and
a convention center with approximately 100,000 square feet of space. The
Authority also plans to include additional retail and restaurant facilities
into the design. Current plans would require significant upgrades and additions
to the facility's parking and infrastructure systems. The Tribe has chosen a
project developer, an architect, a site master planner, cost and scheduling
consultants and a retail consultant for the expansion. These firms, in
conjunction with the Tribe and the Authority, are in the process of developing
a construction budget and schedule. As a result, the estimated project cost is
still subject to adjustment. Mohegan Sun's expansion broke ground in March,
1999. Trading Cove Associates 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 with Trading Cove
Associates, Trading Cove Associates will continue to manage the existing
property under its current management agreement until December 31, 1999. On
January 1, 2000, the Management Agreement between the Authority and Trading
Cove Associates will terminate, and the Authority will assume all day-to-day
management of Mohegan Sun. The Authority, as a result of the termination of the
Management Agreement, has agreed to pay to Trading Cove Associates 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 for these relinquishment payments is estimated
at $549.1 million as of September 30, 1998. The Authority has netted against
its liability $130.0 million which has been capitalized on the balance sheet as
Trademarks and other intellectual property acquired as part of the
Relinquishment Agreement. Recording this liability has created negative capital
as of September 30, 1998. This liability will be reassessed periodically and
may require additional non-cash adjustments to be recorded in the statement of
income (loss). The estimated liability has not changed as of December 31, 1998.
For the remainder of fiscal 1999, the Authority expects capital expenditures
to be approximately $13.4 million on facility improvements and $52.6 million on
existing construction projects. These existing construction project
expenditures include $1.2 million relating to the completion of the gas station
facility and $51.4 million on the expansion of Mohegan Sun. Management believes
that existing cash balances and operating cash flow will provide the Authority
with sufficient resources to meet its capital expenditure requirements with
respect to current operations for at least the next 12 months.
On January 15, 1999, the Authority initiated the Tender Offer and Consent
Solicitation for the repurchase of all $175.0 million aggregate principal
amount outstanding of the 13 1/2% Senior Secured Notes. The offer was extended
twice and expired at 11:59 p.m., New York City time on February 26, 1999. The
tender offer price for the 13 1/2% Senior Secured Notes was $219.9 million.
Holders of 100% of the 13 1/2% Senior Secured Notes accepted the Tender Offer
and Consent Solicitation.
The Tribe established a $40.0 million construction reserve account that, in
specific circumstances, will be used to pay costs in excess of the expansion
budget. The Authority also established a segregated defeasance trust account
with a defeasance agent with cash equivalent funds estimated to be sufficient
to permit redemption of its junior subordinated notes on January 1, 2000.
Year 2000
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
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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 its operations. Additionally, the Authority is
dependent upon many vendors to provide uninterrupted service for its operations
to run effectively. Exposure to both of these risk factors are issues for which
the Authority is formulating an approach.
Approach
With the assistance of an outside consultant, the Authority has implemented
a Year 2000 program to provide an independent analysis of the Authority's Year
2000 preparedness and the adequacy of the Authority's Year 2000 plans. The
program includes inventorying entities, identifying problems, planning
compliance, calculating time and cost estimates and generating implementation
strategies, attempting to correct the problems and testing the solutions. The
consultant will examine the methodology being used to approach risks in the
facilities' embedded systems and in products in the Authority's supply chain.
While the Authority's efforts are designed to be successful, because of the
complexity of the Year 2000 issues and the interdependence of organizations
using computer systems, there can be no assurance that the Authority's efforts,
or those of a third party with whom the Authority interacts, will be
satisfactorily completed in a timely fashion. This could result in a material
adverse effect on future operations.
Status
As of March 31, 1999, Mohegan Sun was approximately 75% in conformance with
the GartnerGroup Year 2000 best practices model. The Authority anticipates
completion of the program by June 1999. If at that time it is determined that
the program will not be completed, however, the Authority will develop a
contingency plan.
Cost
The Authority has incurred approximately $100,000 in costs associated with
the Year 2000 Program as of December 31, 1998. The Authority does not
separately track the internal costs incurred for the Year 2000 program, and the
$100,000 of costs incurred through December 31, 1998 are principally related to
payroll costs for the Authority's information systems group and outside
consulting fees. 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.
State Compact
The Mohegan Compact stipulates that a portion of the revenues earned on slot
machines must be paid to the State of Connecticut. This slot win contribution
will be the lesser of (1) 30% of gross revenues from slot machines, or (2) the
greater of (a) 25% of gross revenues from slot machines or (b) $80.0 million.
The slot win contribution payments are linked to an exclusivity clause and
will not be required if the State of Connecticut legalizes any other gaming
operations with slot machines or other commercial casino table games within
Connecticut (except those consented to by the Tribe and the Mashantucket Pequot
Tribe). The Authority has reflected $102.3 million and $80.7 million,
respectively, of gaming expense on its financial statements for the required
slot win contribution to the State of Connecticut for the fiscal years ended
September 30, 1998 and 1997.
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BUSINESS
Mohegan Sun
The Authority owns and operates Mohegan Sun, a full-service gaming and
entertainment complex on a 240-acre site overlooking the Thames River on the
Tribe's reservation in southeastern Connecticut. The Authority has entered into
a land lease with the Tribe whereby the Tribe leases to the Authority the site
on which Mohegan Sun is located. Mohegan Sun opened in October 1996 at a total
cost of approximately $303 million. Mohegan Sun and Foxwoods Resort Casino are
the only two legally authorized gaming operations offering both traditional
slot machines and table games in the Northeastern United States outside of
Atlantic City, New Jersey.
For its first fiscal year of operations ended September 30, 1997, Mohegan
Sun welcomed approximately 6.5 million guests and recorded gross revenues of
$512.1 million. During its second fiscal year ended September 30, 1998, Mohegan
Sun had approximately 7.5 million guests, an increase of 15.4% over 1997, and
its gross revenues were $641.4 million, an increase of 25.2% over the prior
year. The Authority's EBITDAM (earnings before extraordinary items, interest,
income taxes, depreciation, amortization and management fees) for the 12 months
ended September 30, 1997 and 1998 were $135.4 million and $200.3 million,
respectively. The Authority's EBITDAM for the quarters ended December 31, 1997
and 1998 were $35.1 million and $51.8 million, respectively.
Mohegan Sun is an approximately 634,500 square foot facility which conveys a
historical northeastern Indian theme through architectural features and the use
of natural design elements such as timber, stone and water. It is comprised of
four quadrants, each of which has its own unique entrance and reflects a
separate seasonal theme--winter, spring, summer and fall--emphasizing the
importance of the seasonal changes to Mohegan Tribal life.
Mohegan Sun has approximately 176,500 square feet of gaming space, 3,025
slot machines, 150 table games (including blackjack, roulette, craps, baccarat,
caribbean stud poker and let it ride), 42 poker tables, and a high-stakes bingo
hall and a recently opened 9,000 square foot simulcasting race book facility.
Food and beverage amenities include the 680-seat Seasons buffet, three full-
service themed gourmet restaurants, a 24-hour coffee shop, a New York style
delicatessen, a 10-station food court featuring international and domestic
cuisine, and multiple full and floor service bars for a total of 1,888
restaurant seats. The 350-seat, 10,000 square foot Wolf Den Lounge located in
the center of the casino hosts musical entertainment seven days a week. Larger
events are currently held in the bingo hall or in temporary facilities
constructed on the grounds of the casino, including entertainment and casino
marketing activities. Six small retail shops covering 2,276 square feet of
space provide shopping opportunities ranging from Mohegan Sun souvenirs to
clothing to cigars. For non-gaming entertainment, Mohegan Sun also offers an
arcade-type recreation area and a child care facility operated by New Horizons
Kids Quest, Inc.
The Authority believes ease of access is one of the important factors that
differentiate Mohegan Sun from the Foxwoods Resort Casino. Mohegan Sun is
located approximately one mile from the interchange of I-395 and Route 2A in
Montville, Connecticut, approximately 10 miles west of the Foxwoods Resort
Casino. The Authority constructed a four-lane access road and entrance/exit
ramps off of Route 2A, giving guests direct access to Interstate 395 and
Interstate 95, the main highways connecting Boston, Providence and New York.
Mohegan Sun has parking spaces for 7,500 guests and for 1,700 employees. The
Authority opened a 4,000-square foot, 16-pump service station and convenience
store in December of 1998. The initial construction of Mohegan Sun included
infrastructure features designed to accommodate future growth. In addition, the
site was master planned to allow for expansion with minimal construction
disruption to existing operations.
Strategy
Our overall strategy is to profit from expanding demand in the Northeast
gaming market. Our initial success has resulted primarily from guests living
within 100 miles of Mohegan Sun. Based upon Mohegan
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Sun's results and experience to date, we believe the Northeast gaming market is
strong and that there is significant demand for additional amenities. We expect
to develop Mohegan Sun into a full-scale entertainment and destination resort
and believe that this will increase the number of guests and lengthen their
stays at Mohegan Sun. Specifically, we plan to expand Mohegan Sun's facilities
using the proceeds from this offering and the Bank Credit Facility, along with
internally generated cash flow. The expansion will include additional casino
space, a hotel, a large convention facility, entertainment facilities and
additional retail establishments. We will build the expansion with an effort to
minimize disruption to the existing facility and while Mohegan Sun continues to
operate. In preparation for the expansion and to capture existing demand, we
have recently widened our marketing efforts to include the entire New York City
metropolitan area. We believe that by providing Mohegan Sun with additional
capacity and the ability to capture a share of the overnight market in
connection with our marketing efforts, we will extend Mohegan Sun's market
penetration. We believe that the expansion will create a long-term competitive
advantage for Mohegan Sun in the East Coast gaming market. See "Business--
Competition."
The Expansion
Overview
We have approved plans for an expansion which will include an approximately
100,000 square feet of additional gaming space, a luxury hotel with
approximately 1,500 rooms, approximately 100,000 square feet of convention
space, an entertainment complex with seating for up to 10,000, approximately
6,000 additional guest parking spaces, specialty retail shops and uniquely
themed restaurants. The expansion will require significant upgrades and
additions to the facility's parking and infrastructure systems. We have master
planned the layout of the existing facilities and the expansion design so as to
minimize disruption to Mohegan Sun's current operations. The cost of
developing, constructing, equipping and opening the expansion is expected to
total approximately $750 million (excluding capitalized interest). The Tribe
has issued a formal resolution capping the scope of the expansion budget at
$800 million (excluding capitalized interest). In addition, the Tribe has
established a $40 million construction reserve account that, in specific
circumstances, will be used to pay costs in excess of the expansion budget.
The following is a summary of some of the key physical attributes of Mohegan
Sun before and after expansion.
<TABLE>
<CAPTION>
Casino Retail Convention Guest
Space Slot Table Poker Restaurant Hotel Space Event Space Parking
(sq. ft.) Machines Games Tables Seats Rooms (sq. ft.) Seating (sq. ft.) Spaces
--------- -------- ----- ------ ---------- ----- --------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resort before expansion
(December 31, 1998).... 176,500 3,025 150 42 1,888 0 2,276 1,800 0 7,500
Resort after expansion
(approximately)........ 276,500 5,025 225 42 2,976 1,500 300,000 10,000 100,000 13,500
</TABLE>
We believe the market favors expansion now for four reasons: (1) unsatisfied
current demand for gaming space at the existing facility; (2) a growing gaming
market in the Northeast region; (3) length of stay data indicating the need for
a hotel and other amenities; and (4) the need to remain competitive with the
Foxwoods Resort Casino. The expansion is intended to attract a greater number
of guests to the facility, particularly during mid-week periods, and to
increase the amount of time and money guests spend at Mohegan Sun. Historical
results show that the market has successfully absorbed both the opening of
Mohegan Sun in October 1996 and the expansion of Foxwoods, completed in July
1997. Despite the addition of over 3,400 slot machines and 200 gaming tables to
the Connecticut market during Mohegan Sun's first year of operation, Mohegan
Sun's win per position for the fiscal year ended September 30, 1997 was $300,
over 25% higher than Atlantic City's win per position for the twelve months
ended September 30, 1997.
Developer
The Authority has engaged Trading Cove Associates to oversee the planning,
design, construction, furnishing and opening of the expansion. Trading Cove
Associates has been working with the Tribe since 1992
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and assisted the Tribe in obtaining a gaming compact with the State of
Connecticut and numerous governmental approvals for Mohegan Sun. Trading Cove
Associates is 50% owned by Sun Cove Limited, a 100% controlled affiliate of Sun
International Hotels Limited, and 50% by Waterford Gaming L.L.C., whose
principals are primarily engaged in hotel management and real estate
development. Sun International Hotels Limited has extensive experience in the
development, construction, marketing and management of casinos and hotels
throughout the world. Senior management personnel of Sun International Hotels
Limited have been actively engaged in the gaming and lodging industries for the
last 25 years and are responsible for the development and operation of several
world-renowned resorts and casinos including Sun City, The Lost City, The
Carousel Casino, Entertainment World in South Africa and the Atlantis Resort
and Casino in the Bahamas. See "Other Material Agreements--Expansion
Development Services Agreement with Trading Cove Associates."
Other Members of the Development Team
Together with Trading Cove Associates, the Authority is assembling a team of
experienced individuals and firms to develop and build Mohegan Sun's expansion.
In addition to the firms listed below, the Tribe and the project developer are
currently in the process of selecting a construction manager and a retail
developer/manager. In an effort to minimize cost overruns, the Authority plans
to enter into only fixed price contracts with the professionals chosen to plan,
develop, design and build the expansion. Construction is not scheduled to
commence until the spring of 1999 so as to allow the architects to complete all
construction drawings and thereby minimize change orders. The Authority will
also implement other measures seeking to minimize the number of change orders
that could increase the cost of the project. The Authority has chosen the
following firms to assist with the expansion:
. Kohn Pedersen Fox Associates PC will coordinate the architectural design
of the expansion facilities. Kohn Pedersen Fox Associates PC is an
internationally recognized firm and has won numerous design awards,
including New Construction Building of the Year (1995), Federal Design
Achievement Award (1995) and the Dallas Urban Design Award (1993). Major
recent projects include the U.S. Courthouse in Foley Square, New York,
the Samsung Rodin Museum in Seoul, South Korea and the World Bank
Headquarters in Washington, D.C.
. Hanscomb Limited will provide cost, scheduling, planning and other
consulting services for the expansion. Hanscomb Limited has provided
cost and scheduling management services since 1946 on national and
international projects, including the Trump Taj Mahal Convention Center
Casino and Hotel in Atlantic City and the Lester B. Pearson
International Airport in Toronto, Canada.
. EDAW, Inc. has master planned the project to provide for expansion with
minimal construction disruption to the existing operations. EDAW is an
internationally recognized architectural firm and has worked on a number
of well known projects including the Centennial Olympic Park in Atlanta,
Georgia, Coors Field in Denver, Colorado and the Asia and Pacific Trade
Center in Fukuoka, Japan.
. Gordon Brant LV, LLC will be the retail consultant for the expansion.
Gordon Brant is headed by Sheldon Gordon, who is nationally recognized
for his ability to create high-profile retail complexes including the
ancient-Roman themed Forum Shops at Ceasar's Palace in Las Vegas, the
five level San Francisco Centre and the Beverly Center in Los Angeles,
California.
Budget
Trading Cove Associates, in consultation with the project architect,
construction manager, cost estimator and retail consultant, will prepare the
formal budget for Mohegan Sun's expansion subject to the Authority's final
approval. The budget will include all costs related to the design, construction
and equipping of the project, plus a contingency of 10% of the hard
construction costs. There will be no allocation of the contingency without
approval by the Authority. In addition, the Authority will be required to
approve any change orders in excess of (1) $750,000 in a single instance; (2)
$3.0 million in the aggregate in any one month; or (3) $12.0 million in the
aggregate for the life of the project.
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Construction Schedule
The Authority began construction of the expansion in the March, 1999, with
openings scheduled in phases. Phase I, which is expected to be completed in
January of 2000, will include the construction of new patron and employee
parking facilities. Phase II, which is expected to be completed in the summer
of 2001, will include the construction of new casino space and the expansion's
retail component. Phase III, the final phase of the expansion, which is
expected to be completed in the fall of 2001, will include the construction of
the convention and hotel facilities. Trading Cove Associates, and in particular
Sun International Hotels Limited, has demonstrated an ability to fast track
casino development projects. Sun International Hotels Limited's management team
built the $300 million Lost City project in South Africa in 26 months and
completed the $480 million development of Atlantis in the Bahamas in
approximately 28 months, despite the fact that the resort remained open
throughout the construction period. Mohegan Sun was designed, developed,
constructed and opened in 12 months. The Authority can give no assurance,
however, that the expansion will be completed as anticipated.
Regulatory Approvals
The Authority anticipates receiving all necessary approvals for the
agreements relating to the expansion from the federal agencies that oversee
Indian affairs. See "Government Regulation--BIA and NIGC Approvals." In
addition, as described below, the Authority is in the process of obtaining
certain other permits and approvals for the expansion of Mohegan Sun.
. Plans have been submitted to the U.S. Army Corps of Engineers for
regulatory activities within an inland wetland. The application has been
reviewed and the Authority has been informally notified that the
application complies with all requirements of the general programmatic
permit. Plans of wetlands mitigation have been submitted and accepted
and verbal approval has been granted. Final permitting is pending
submission of an overall site development plan to confirm that no
additional wetlands impacts will result as a part of this project. The
Authority expects to receive the necessary permits in a timely fashion.
. Permits are required for work associated with the upgrade of an existing
culvert beneath railroad properties located to the east of the expansion
site. Plans have been submitted to the Connecticut Department of
Environmental Protection. The Authority expects to receive the necessary
permits in a timely fashion.
. The Authority has obtained the necessary approvals for permits from the
Connecticut Traffic Commission relating to the expansion of Mohegan Sun.
In connection with the issuance of these permits, the Authority may be
required to make certain improvements to nearby local roadways. The
Authority believes these improvements will not cost in excess of $1.5
million.
Management Transition
The Authority engaged Trading Cove Associates to operate, manage and market
Mohegan Sun under a seven-year management contract commencing upon the casino's
opening in October 1996. In anticipation of the expansion of Mohegan Sun, the
Authority and Trading Cove Associates are now mutually terminating the
management and related agreements and are entering into certain new agreements.
Under the Relinquishment Agreement between the Authority and Trading Cove
Associates, the Authority will assume the management, operation and maintenance
of Mohegan Sun beginning on January 1, 2000. The Authority has previously
assumed many of Mohegan Sun's day-to-day management functions, and, under the
Relinquishment Agreement, Trading Cove Associates has committed to work closely
with the Authority to facilitate a smooth and effective transition. The
Authority expects that the senior management of Mohegan Sun, the top three of
whom collectively have 45 years of experience in the gaming and hotel industry,
will remain in place as employees of the Authority pursuant to certain long-
term employment contracts. See "The Authority" and "Other Material Agreements--
Relinquishment Agreement with Trading Cove Associates."
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Since the beginning of operations at Mohegan Sun, members of the Authority's
Management Board have gained experience with the gaming business through
membership on the Business Board of Mohegan Sun. The Business Board consists of
four members, two from the Authority and two from Trading Cove Associates. The
Authority believes this Business Board experience, coupled with the retention
of Mohegan Sun's current management will enable it to successfully manage
Mohegan Sun once Trading Cove Associates' tenure officially ends.
Market
The Authority believes that Mohegan Sun's location, ease of access, unique
design and reputation, together with the development and marketing of the
expansion, should enable Mohegan Sun to capture a significant share of the
gaming market in the Northeastern United States. The current market for Mohegan
Sun is primarily day-trip customers from New England and New York. According to
market research reports, in 1998 there were approximately 2.5 million adults
living within 50 miles of Mohegan Sun with an average household income of
$56,000, 10.3 million adults within 100 miles with an average household income
of $67,000 and 22.1 million adults within 150 miles with an average household
income of $64,000. The metropolitan areas of Hartford, New Haven, Springfield,
Worcester, Boston and Providence are within two hours driving time by
interstate highway. New York City is approximately 125 miles from Mohegan Sun.
Marketing Strategy
The Authority employs a comprehensive marketing program aimed at
establishing Mohegan Sun as a premier entertainment facility in the
Northeastern United States. Mohegan Sun seeks to distinguish itself by
emphasizing its uniquely themed gaming environment, its superior food
experience in a variety of settings, ease of access and attention to personal
service. The Authority will market the expanded facilities along these same
lines. With the addition of hotel and entertainment amenities, the Authority
will be able to market the Mohegan Sun as a premier destination resort complex.
In the past, the Authority has marketed primarily to guests living within
100 miles of Mohegan Sun. This excludes most of the New York City metropolitan
area. The Authority has recently begun a substantial marketing effort to tap a
wider market, including the entire New York City metropolitan area. As a result
of this marketing effort, the number of guests from New York State has grown
over 50% from the last fiscal year as measured by Mohegan Sun's guest database.
The Authority believes the majority of this increase can be attributed to
guests residing within the New York City metropolitan area and believes the New
York City market shows significant potential for additional growth. The
Authority also believes the expansion, particularly a large hotel, should draw
many additional customers from this and other more distant markets. See
"Business--Marketing Strategy."
Consistent with the current emphasis on the day-trip market, the Authority
organizes regular line and charter bus service to the major metropolitan areas
to attract gaming guests at all levels of play. The development of the casino
expansion, which will add substantial hotel and retail facilities as well as
the increased gaming capacity, will broaden Mohegan Sun's market to include
overnight customers. The Authority has begun to target this overnight market.
The Authority estimates that the current average length of time that guests
spend at Mohegan Sun is 110 minutes. Our strategy is to increase this time
significantly.
The Authority creates market awareness and customer loyalty through a wide
variety of activities such as those listed below:
. Direct mail to Mohegan Sun's . Public relations programs;
guest database;
. Sports arena and public
. Mohegan Sun Player's Club; transportation signage; and
. Print and broadcast . Billboard signage.
advertisements;
. Consumer promotions;
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<PAGE>
The Authority spent a total of $23.3 million on marketing programs during
fiscal year 1998. Of this amount, $2.8 million was spent on print advertising,
$3.5 million on television advertisements, $2.1 million on radio advertising,
$10.7 million on marketing promotions and $4.2 million was spent on various
other advertising media. The Authority believes its marketing activities
contributed to the substantial growth in the Mohegan Sun Player's Club in
fiscal year 1998 as compared to fiscal year 1997. Total membership increased by
65% and active membership increased (defined as one visit per year) by 17%,
with the largest percentage growth coming from guests residing in the New York
metropolitan area.
[A portion of this page contains an untitled map of the Northeastern United
States from Delaware to Vermont. Mohegan Sun is located in the center of the
map, with three concentric circles going out from Mohegan Sun, showing locations
that are 50, 100 and 150 miles from the casino. The map also shows, in bold
text, the location of certain major metropolitan areas, including Albany, Boston
and New York City.]
In addition to the fun and excitement of casino action, the Authority
promotes superior customer service and the quality and value of Mohegan Sun's
food offerings to attract repeat guests. Although Mohegan Sun seeks to
accommodate premium high-stakes players, the Authority does not spend
significant resources targeting the more demanding and costly premium player
market. With the addition of hotel rooms and suites, the Authority may target
higher end domestic customers.
The Authority also promotes Mohegan Sun through special events held from
time to time, such as weekly fireworks displays, concerts by nationally known
performers and premier sporting events. The Authority believes it has been
innovative in terms of offering successful entertainment events that attract
guests to Mohegan Sun without the existence of a large dedicated entertainment
venue. The Authority has successfully established the 350-seat "Wolf Den
Lounge," situated strategically in the center of the casino as a popular
musical venue, hosting such artists as INXS, Duran Duran and the Brian Setzer
Orchestra. Performances by nationally known acts such as Ringo Starr, Lyle
Lovett and Tony Bennett were held in the bingo hall. In addition, the "Uncas
Pavillion," a temporary structure erected in Mohegan Sun's parking lot during
the fall months of 1998, hosted sold-out performances by Lynyrd Skynyrd and the
Steve Miller Band and a pay-for-view heavyweight title fight between Lennox
Lewis and Zeljko Mavrovic. We believe these events significantly enhanced our
revenue and profits. With new entertainment, convention, retail and restaurant
facilities provided by the expansion, the Authority anticipates substantially
enhanced promotional marketing opportunities.
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Competition
The gaming industry is highly competitive. Mohegan Sun currently competes
primarily with the Foxwoods Resort Casino and, to a lesser extent, with casinos
in Atlantic City, New Jersey. Foxwoods is approximately 10 miles from Mohegan
Sun and is the largest gaming facility in the United States in terms of total
gaming positions. It is owned and operated by the Mashantucket Pequot Tribe
under a separate compact with the State of Connecticut. Foxwoods 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.
Upon the completion of the expansion, the Authority intends to broaden
Mohegan Sun's market beyond day-trip customers to include guests making
overnight or extended stays. This means that Mohegan Sun will begin to compete
for customers with casinos in Atlantic City, New Jersey and, to a lesser
extent, gaming resorts such as those on the Gulf Coast of Mississippi and Las
Vegas, Nevada. Many of these casinos and other gaming resorts have greater
resources and greater name recognition than Mohegan Sun.
Outside of Atlantic City, New Jersey, casino gaming in the northeastern
United States may be conducted only by federally recognized Indian tribes
operating under federal Indian gaming law. Currently, (1) the Oneida Indian
Nation operates Turning Stone Casino Resort in Verona, New York, approximately
270 miles from Mohegan Sun and (2) the St. Regis Mohawk Tribe has initiatives
to develop gaming facilities both on its reservation in Hogansburg, New York
near the Canadian border and at the Monticello raceway in the Catskills,
located approximately 90 miles from New York City. 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 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 Authority's operations.
See "Government Regulation."
The following is an assessment of the competitive prospects in Connecticut,
certain neighboring states and other states in the Northeast.
Connecticut
Currently, only the Tribe and the Mashantucket Pequot Tribe are authorized
to conduct gaming in Connecticut. As required by their state compacts, the
Tribe and the Mashantucket Pequots make semi-annual payments to the State of
Connecticut based on 25% of annual slot win. These payments, which totaled
$276.2 million for the 12 months ended December 31, 1998, are linked to an
exclusivity clause and will terminate if Connecticut legalizes other gaming
operations with slot machines or other casino table games within Connecticut,
unless both tribes consent to such operations. There are currently at least
four tribes in Connecticut that are attempting to gain federal recognition, a
lengthy process managed by the Bureau of Indian Affairs. Two of these are the
Eastern Pequot and/or the Paucatuck Eastern Pequot Tribe, who share a
reservation located next to that of the Mashantucket Pequots. 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 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
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<PAGE>
requires that any new gaming proposals will have to be approved in a state-wide
referendum. The Narragansett Tribe 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 without obtaining both
local and state-wide approvals. There is one pending federal recognition
petition from another Rhode Island tribe, filed by the Pokanoket Tribe of the
Wampanoag, located in Bristol, Rhode Island. 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.
This tribe originally announced plans to open a high-stakes bingo facility in
Fall River, Massachusetts, but due to significant hurdles, including the
failure to obtain approval from the state legislature, the Wampanoags have
recently been considering other sites in southeastern Massachusetts. In
addition, approximately five other petitions for federal recognition are
pending in Massachusetts. The Tribe believes potential recognition for any of
these tribes is at least several years away.
New York
No non-Indian casinos currently operate 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, three miles offshore, 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,
and currently these cruises occur primarily in the summer and early fall
months, between June and October. 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 Indian tribes with reservations. 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, 285
hotel rooms, a conference center and a golf course. Turning Stone currently
draws primarily from the Syracuse, New York market. The Authority believes
Turning Stone does not pose a material direct competition with Mohegan Sun for
customers. The St. Regis Mohawk Tribe, which has a reservation in Hogansburg on
the Canadian border, has not yet opened an on reservation gaming facility.
However, this tribe's agreement with a third party to manage such gaming
activities has been approved by the National Indian Gaming Commission. In
addition, the St. Regis Mohawk Tribe and officials from Sullivan County have
also signed an agreement that contemplates the establishment of a tribally
operated casino at Monticello Raceway in the Catskills, located approximately
170 miles from Mohegan Sun and 90 miles north of New York City. This estimated
$500 million project would require land to be taken into trust with specific
approval from the Bureau of Indian Affairs and the Governor of New York. While
the St. Regis Mohawks have received initial approval from the Eastern Area
Office of the Bureau of Indian Affairs for the project, final approval from the
Central Office of the Bureau of Indian Affairs is still pending. Furthermore,
the Governor has not announced his support for this project. 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,
and Gowanda, New York, both over 400 miles from Mohegan Sun. Although
preliminary discussions have occurred, 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.
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<PAGE>
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 Penobscot Tribe)
has opened a high stakes bingo facility in the township of Albany in western
Maine. None of the federally recognized tribes has 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 there are no significant
initiatives currently underway to legalize casinos. 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 there are no significant
initiatives currently underway to legalize casinos. 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. We believe any approval is still
several years away.
Employees and Labor Relations
As of December 31, 1998, Mohegan Sun employed 5,070 full-time employees and
414 seasonal and part-time employees. Pursuant to its Management Agreement with
the Authority, Trading Cove Associates has been responsible for recruiting and
training employees to operate Mohegan Sun. In recruiting personnel, Trading
Cove Associates has been obligated to give preference, first to qualified
members of the Tribe (and qualified spouses and children of members of the
Tribe) and second to members of other Indian tribes. Trading Cove Associates
has developed and implemented training programs to teach Mohegan Sun employees
necessary technical skills as well as to instill a commitment to the highest
levels of service in the industry. Training responsibilities and training
programs have been transitioned to the Authority. The Authority believes that
it will be able to hire and train employees to operate Mohegan Sun during and
after the expansion. Mohegan Sun employees are not covered by any collective
bargaining agreement. The Authority believes its relationship with its
employees is good.
Environmental Matters
The Authority currently incurs and may continue to incur costs to comply
with environmental requirements such as those relating to discharges to air,
water and land, the handling and disposal of solid and hazardous waste, and the
cleanup of properties affected by hazardous substances. The site of Mohegan Sun
was formerly occupied by United Nuclear Corporation, a naval products
manufacturer of, among other things, nuclear reactor fuel components. United
Nuclear's facility was officially decommissioned on June 8, 1994 when the
Nuclear Regulatory Commission confirmed that all licensable quantities of such
nuclear material had been removed from the site and that any residual
contamination from such material was remediated according to the Nuclear
Regulatory Commission approved decommissioning plan. In addition, environmental
requirements address the impacts of development on wetlands areas. See
"Business--The Expansion."
From 1991 through 1993, United Nuclear commissioned environmental audits and
soil sampling programs which detected, among other things, volatile organic
chemicals, heavy metals and fuel hydrocarbons in the soil and groundwater. The
Connecticut Department of Environmental Protection (DEP) reviewed the
environmental audits and reports and established cleanup requirements for the
site. In December 1994, the DEP approved United Nuclear's remedial plan, which
determined that groundwater remediation was unnecessary because although the
groundwater beneath the site was contaminated, it met the applicable
groundwater criteria given the classification of the groundwater under the
site. In addition, extensive remediation of contaminated soils
53
<PAGE>
and additional investigation were completed to achieve the DEP's cleanup
criteria and demonstrate that the remaining soils complied with applicable
cleanup criteria. Initial construction at the site also involved extensive soil
excavation. According to the data gathered in a 1995 environmental report
commissioned by United Nuclear, remediation is complete and is consistent with
the applicable Connecticut cleanup requirements. The DEP has reviewed and
approved the cleanup activities at the site, and, as part of the DEP's
approval, United Nuclear was required to perform post-closure groundwater
monitoring at the site to insure the adequacy of the cleanup.
In addition, under the terms of United Nuclear's environmental certification
and indemnity agreement with the Department of the Interior (which took the
former United Nuclear land into trust for the Mohegan Tribe), United Nuclear
agreed to indemnify the Department for environmental actions and expenses based
on acts or conditions existing or occurring as a result of United Nuclear's
activities on the property. Notwithstanding the foregoing, no assurance can be
given that any existing environmental studies reveal all environmental
liabilities, or that future laws, ordinances or regulations will not impose any
material environmental liability, or that a material environmental condition
does not otherwise currently exist or will be exposed due to the expansion.
Should soil or groundwater contamination be identified during the course of the
expansion, Connecticut remediation standard requirements will have to be met,
in addition to any other applicable environmental remediation requirements.
Under the Clean Air Act, the State of Connecticut has developed a State
Implementation Plan to ensure the achievement of air quality standards in the
state. In 1995, the Tribe and Trading Cove Associates commissioned a Draft
Environmental Assessment of Mohegan Sun, which concluded that emissions from
Mohegan Sun should not cause significant air quality impacts. The Environmental
Assessment's projection was based in part on the Tribe's and Trading Cove
Associates' pollution prevention plans and ability to obtain emission reduction
credits to offset emissions. Pursuant to the Connecticut State Implementation
Plan, the Tribe and the State of Connecticut in 1996 entered into a voluntary
agreement to offset volatile organic compound and nitrogen oxide emissions
resulting from transportation activity associated with the facility. The Tribe
currently purchases nitrogen oxide emission credits to offset these emissions.
Certain federal, state and local requirements govern the removal,
encapsulation and disturbance of asbestos-containing materials when those
materials are in poor condition or in the event of renovation, remodeling or
demolition. These requirements may impose liability for releases of asbestos-
containing materials and may enable third parties to seek recovery from owners
or operators of properties for personal injury associated with such materials.
While there is no known asbestos-containing material on the property, and there
is only one remaining unrenovated building, a full asbestos survey has not been
conducted.
In addition to federal, state and local laws relating to hazardous or toxic
substances, the National Environmental Policy Act requires that, before taking
any federal action that may significantly affect the quality of the human
environment, the responsible federal agency must prepare an environmental
impact statement describing and quantifying, to the extent possible, such
effects. Upon the initial construction of Mohegan Sun, the Bureau of Indian
Affairs and the National Indian Gaming Commission determined that an
environmental impact statement was not necessary. The Authority does not
anticipate an environmental impact statement being required for the expansion.
Legal Proceedings
The Authority is involved in certain litigation incurred in the normal
course of business. In the opinion of the Authority, the aggregate liability,
if any, arising from such litigation will not have a material adverse effect on
its financial position or results of operations.
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THE AUTHORITY
General
The Tribe established the Authority in July 1995 to exercise all
governmental and proprietary powers of the Tribe over all gaming related
development. The Authority is governed by a nine-member Management Board which
consists of the same nine members as those of the Tribal Council (the governing
body of the Tribe). Any change in the composition of the Tribal Council results
in a corresponding change in the Authority's Management Board. See "Mohegan
Tribe of Indians of Connecticut."
The Authority has two major functions. The first, delegated to the
Management Board, is to direct the development, operation, management,
promotion and construction of the gaming enterprise and all related
development. The second major function is to regulate gaming. The Management
Board appoints an independent Director of Regulation to ensure the integrity of
the gaming operation through the promulgation and enforcement of appropriate
regulation. The Director of Regulation serves at the pleasure of the Management
Board. The Director of Regulation employs a staff that is responsible for
performing background investigation into gaming license applicants. The
Director of Regulation is also responsible for the issuance and revocation of
gaming licenses. The individual members of the Management Board do not receive
any direct compensation from the Authority. Management Board salaries are paid
by the Tribe.
Management Board and Executive Officers
The following table provides information as of December 31, 1998 with
respect to (1) the members of the Management Board, (2) each of the executive
officers of Mohegan Sun and (3) the Director of Regulation.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Mark F. Brown........... 41 Member, Management Board
Mitchell Grossinger
Etess.................. 40 Senior Vice President, Marketing, Mohegan Sun
Jayne G. Fawcett........ 63 Vice Chair and Member, Management Board
Carlisle M. Fowler...... 70 Treasurer and Member, Management Board
Courtland C. Fowler..... 71 Member, Management Board
Roland J. Harris........ 51 Chairman and Member, Management Board
Jeffrey E. Hartmann..... 37 Senior Vice President, Finance and Chief Financial Officer, Mohegan Sun
Glenn R. LaVigne........ 38 Member, Management Board
Francis M. Mullen....... 64 Director of Regulation
Loretta F. Roberge...... 67 Corresponding Secretary and Member, Management Board
Maynard L. Strickland... 59 Member, Management Board
William J. Velardo...... 43 Executive Vice President and General Manager, Mohegan Sun
Shirley M. Walsh........ 54 Recording Secretary and Member, Management Board
</TABLE>
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. Before
joining the Management Board, he served as a Law Enforcement officer and has
over ten years experience in this capacity. Mr. Brown worked with the Tribe's
historian during the period in which the Tribe was obtaining federal
recognition and also served on the Tribe's Constitutional Review Board from
1993 to 1994. Mr. Brown is a Tribal Council Member.
Mitchell Grossinger Etess--Mr. Etess has been Senior Vice President,
Marketing of Mohegan Sun since November 1995 and has 17 years experience in the
casino and hotel industry. Before his employment with the Authority, Mr. Etess
was Vice President of Marketing at Players Island and, from 1989 to 1994, was
Senior Vice President of Marketing and Hotel Operations at Trump Plaza Hotel
and Casino. Before that, Mr. Etess held various management positions in the
casino and hotel industry.
Jayne G. Fawcett--Ms. Fawcett has been Vice Chair of the Management Board
since December 1995 and a member of the Management Board since its inception in
July 1995. Ms. Fawcett is the Vice Chair of the
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Tribal Council and 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 a
Chairman of the Tribe's Constitutional Review Board from 1992 to 1993.
Currently, she oversees the Tribe's public relations.
Carlisle M. Fowler--Mr. Fowler has been the Treasurer and a member of the
Management Board since its inception in July 1995 and has been active in the
Tribe's government for over 30 years. Mr. Fowler is a Tribal Council Member.
Before 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.
Courtland C. Fowler--Mr. Fowler has been a member of the Management Board
since its inception in July 1995 and was a major contributor to the cultural
research that led to the federal recognition of the Tribe. Mr. Fowler is a
Tribal Council Member and was previously employed as a chemical operator and
assistant foreman at Pfizer, Inc. until his retirement in 1990. He has served
as Vice Chairman of the Management Board, and as a member of the Tribe's
Constitutional Review Board. Mr. Fowler also was on the committee that drafted
the first constitution of the Tribe. Mr. Courtland Fowler is the brother of Mr.
Carlisle Fowler.
Roland J. Harris--Mr. Harris has been Chairman and a member of the
Management Board since October 1995. He is also Chairman of the Tribal Council.
Mr. Harris was the founder of the firm Harris and Clark, Inc., civil engineers,
land surveyors and land planners, which he subsequently sold to McFarland
Johnson, Inc. in May, 1998. Mr. Harris has served as First Selectman of the
Town of Griswold, Connecticut from 1993 to 1999. He has also served as Deputy
Chief of the Griswold Fire Department and as Fire Marshal of the Town of
Griswold. Before assuming the Chairmanship of the Management Board, Mr. Harris
served as the Tribal Planner.
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
seven years of experience in the casino and hotel industry. Before 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,
formerly Coopers and Lybrand, LLP, as an Audit Manager from 1984 to 1991. Mr.
Hartmann is a certified public accountant.
Glenn R. LaVigne--Mr. LaVigne has been a member of the Management Board
since January 1996. Mr. LaVigne is a Tribal Council Member and was previously
employed by the Town of Montville, Connecticut and oversaw building and
maintenance for Montville's seven municipal buildings. Mr. LaVigne is the
nephew of Ms. Loretta F. Roberge.
Francis M. Mullen--Mr. Mullen has been Director of Regulation since October
1995 and has regulatory responsibility for the Tribal gaming operation. Mr.
Mullen had a 20-year FBI career, last serving in Washington, D.C. as Executive
Assistant Director of all FBI investigations. He later served as Director of
the United States Drug Enforcement Administration for four years before leaving
government service.
Loretta F. Roberge--Ms. Roberge has been Corresponding Secretary and a
member of the Management Board since its inception in July 1995. Ms. Roberge is
a Tribal Council Member and has served as a paraprofessional at the Mohegan
School for 24 years, working with children with special needs. Active in the
Tribe's community all her life, Ms. Roberge assisted in the Tribe's federal
recognition effort and previously served as Secretary of the Tribe. Ms. Roberge
currently chairs the Mohegan Burial Committee. Ms. Roberge is the aunt of Mr.
Glenn LaVigne.
Maynard L. Strickland--Mr. Strickland has been a member of the Management
Board since October 1995. Before that, Mr. Strickland owned and operated
several restaurants in Norwich, Connecticut and Florida. He is a Tribal Council
Member and serves as the Tribal Council liaison to Bingo. Mr. Strickland was
involved in the restructuring of Bingo which has resulted in a profitable Bingo
business.
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William J. Velardo--Mr. Velardo has been Executive Vice President, General
Manager of Mohegan Sun since October 1995 and has 21 years of experience in
gaming operations. Before 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 participated in the opening of the Mirage in Las Vegas where he 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
in Las Vegas.
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 its inception in July 1995. Ms. Walsh is a Tribal Council Member
and serves as the social services liaison for the Tribe and has worked for the
Tribe in various capacities for seven years. Ms. Walsh chaired the Tribe's
Election Committee from 1994 to 1995 and has served on several other committees
for the Tribe.
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid by the Authority to its senior executive officers.
<TABLE>
<CAPTION>
Annual
Compensation
-----------------
Name and Principal Position Fiscal Year Salary Bonus
--------------------------- ----------- -------- --------
<S> <C> <C> <C>
William J. Velardo............................... 1998 $400,000 $150,000
Executive Vice President and General Manager 1997 353,000 175,000
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, and Chief 1997(1) 130,000 60,000
Financial Officer
</TABLE>
- --------
(1) Mr. Hartmann commenced employment with the Authority on December 30, 1996.
Messrs. Velardo, Etess and Hartmann have entered into separate employment
agreements expiring on December 31, 2004 with base salaries of $800,000,
$485,000 and $435,000, respectively. Each of the employment agreements has an
automatic renewal provision for a term of five years, and each provides that
the annual base salary will increase each year by no less than 5% of the then
current base salary for the relevant executive. Additionally, if certain
performance goals are met each executive will receive an annual bonus of not
less than 33 1/3% of his base salary then in effect. If the Authority
terminates the employment of any executive other than for cause, each
employment agreement provides that the relevant executive will receive the
executive's annual base salary plus an annual bonus equal to 100% of the annual
base salary from the date of termination to December 31, 2004. The employment
agreements also obligate each executive to non-compete covenants within certain
portions of the Northeastern United States for a period of 12 months upon
termination of employment.
Business Board
The Authority and Trading Cove Associates have overseen the management of
Mohegan Sun through a Business Board, which reports directly to the Management
Board of the Authority. The Business Board consists of four members, two from
the Authority and two from Trading Cove Associates. The Authority's Business
Board members for the past two years have been (1) the Tribe's Chief of Staff
(with the Deputy Chief of Staff as an alternate) and (2) a member of the
Authority's Management Board. The latter position rotates every six months so
as to give direct gaming enterprise experience to a number of members of the
Authority's Management Board. Trading Cove Associates' Business Board Members
have been the same individuals, one each from Sun International Hotels Limited
and Waterford Gaming L.L.C., for the past two years. As part of the
Relinquishment Agreement, the Business Board will terminate on January 1, 2000.
See "Other Material Agreements--Relinquishment Agreement with Trading Cove
Associates."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Tribe provides governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. For the fiscal year ended
September 30, 1998, the Authority incurred $7.7 million of expenses for such
services.
The Tribe, through two limited liability companies, has entered into various
land lease agreements with the Authority for access, parking and related
purposes for Mohegan Sun. These lease payments are approximately $636,000 per
year. The Tribe, through Little People L.L.C., one of its limited liability
companies, has sold approximately $413,000 worth of Native American related
goods to the Authority for resale at its retail location.
Under terms of its agreements with the Authority, Trading Cove Associates
must award service contracts or purchase services from qualified members of the
Tribe if the costs of these services are competitive with the local market and
give hiring preference first to members of the Tribe then to other Native
Americans. The Authority uses McFarland Johnson, Inc. for surveyance, civil
engineering and professional design services. Roland Harris, Chairman of the
Management Board, is a consultant for this firm for a fixed fee. For the fiscal
year ended September 30, 1998, the Authority paid $54,354 in fees to McFarland
Johnson, Inc. The Authority believes the terms of this engagement are
comparable to those that would pertain to an arms length engagement of an
unaffiliated firm. As of September 30, 1998, 190 employees of the Authority
were Mohegan tribal members. See "Other Material Agreements."
The Tribe has established a $40 million construction reserve account that,
in certain circumstances, will be used to pay costs in excess of the expansion
budget.
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MOHEGAN TRIBE OF INDIANS OF CONNECTICUT
General
The Mohegan Tribe of Indians of Connecticut became a federally recognized
Indian tribe in 1994. The Tribe currently has approximately 1,300 members and
approximately 750 adult voting members. Although it only recently received
federal recognition, the Tribe has lived in a cohesive community for hundreds
of years in what is today southeastern Connecticut. The Tribe historically has
cooperated with the United States and is proud of the fact that members of the
Tribe have fought on the side of the United States in every war from the
Revolutionary War to Desert Storm. The Tribe believes that this philosophy of
cooperation exemplifies its approach to developing Mohegan Sun.
Although the Tribe is a sovereign entity, it has sought to work with, and
gain the support of, local communities in establishing Mohegan Sun. For
example, the Tribe gave up its claim to extensive tracts of land that had been
guaranteed by various treaties in consideration for certain agreements in the
Mohegan Compact. As a result, local residents and businesses whose property
values had been clouded by this dispute were able to gain clear title to their
property. In addition, the Tribe has been sensitive to the concerns of the
local community in developing Mohegan Sun. This philosophy of cooperation,
rather than confrontation, has enabled the Tribe to build a solid alliance
among local, state and federal officials to achieve its goal of building
Mohegan Sun.
Governance of the Tribe
The Tribe's Constitution provides for the governance of the Tribe by a
Tribal Council, consisting of nine members and a Council of Elders, consisting
of seven members. All members of the Tribal Council and the Council of Elders
are elected by the registered voters of the Tribe and serve terms of five
years. Members of the Tribal Council must be at least 18, and members of the
Council of Elders must be at least 55 when elected. The current terms for the
Tribal Council and the Council of Elders expire in October 2000. The members of
the Tribal Council are the same individuals who serve on the Management Board
of the Authority. See "The Authority--Management Board and Executive Officers."
The Tribe's Constitution vests all legislative and executive powers of the
Tribe in the Tribal Council. These powers include the powers to establish an
executive branch departmental structure with agencies and sub-divisions and
delegate appropriate powers to such agencies and sub-divisions.
The Council of Elders acts in the capacity of an appellate court of final
review and may hear appeals of any case or controversy arising under the
Tribe's Constitution, except those matters which relate to Mohegan Sun,
including the Notes, which are required to be submitted to the Gaming Disputes
Court.
Gaming Disputes Court
The Tribal Council has established the Gaming Disputes Court by Tribal
ordinance and vested it with exclusive jurisdiction for the Tribe over all
disputes related to gaming at Mohegan Sun. The Gaming Disputes Court is
composed of a Trial Division and an Appellate Branch. A single judge presides
over cases at the trial level. Trial Division decisions can be appealed to the
Appellate Branch where they will be heard by a panel of three judges, one of
whom will be the Chief Judge, and none of whom shall have presided over the
case below. Decisions of the Appellate Branch are final, and no further appeal
is available in the Gaming Disputes Court.
The Gaming Disputes Court has jurisdiction over all disputes or
controversies related to gaming between any person or entity and the Authority,
the Tribe or Trading Cove Associates. The Gaming Disputes Court also has
jurisdiction of all disputes arising out of the Authority's regulatory powers,
including licensing actions. The Tribe has adopted the substantive law of the
State of Connecticut as the applicable law of the Gaming Disputes Court to the
extent such law is not in conflict with Mohegan Tribal Law. Also, the Tribe has
adopted all of Connecticut's rules of civil and appellate procedure,
professional and judicial conduct to govern the Gaming Disputes Court.
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Judges of the Gaming Disputes Court are chosen by the Tribal Council from a
publicly available list of eligible retired federal judges and Connecticut
Attorney Trial Referees, who are appointed by the Chief Justice of the
Connecticut Supreme Court, each of whom must remain licensed to practice law in
the State of Connecticut. Judges are selected sequentially from this list as
cases are filed with the clerk of the Gaming Disputes Court. The Chief Judge of
the Gaming Disputes Court, who serves as the Gaming Disputes Court's
administrative superintendent, is chosen by the Tribal Council from the list of
eligible judges and serves a five-year term. Judges of the Gaming Disputes
Court are subject to discipline and removal for cause pursuant to the rules of
the Gaming Disputes Court. The Chief Judge is vested with the sole authority to
revise the rules of the Gaming Disputes Court. Judges are compensated by the
Tribe at an agreed rate of pay commensurate with their duties and
responsibilities. Such rate cannot be diminished during a judge's tenure.
Below is a description of certain information regarding judges currently
serving on the Gaming Disputes Court, each of whom has been serving since 1996:
Jane W. Freeman, Chief Judge. Age: 48. Judge, Mashantucket Pequot Tribal
Court, 1992 to 1995; professional law practice for 22 years. Judge Freeman is a
Connecticut Attorney Trial Referee.
Emmet L. Cosgrove, Judge. Age: 50. Professional law practice for 23 years.
Judge Cosgrove is a Connecticut Attorney Trial Referee.
F. Owen Eagan, Judge. Age: 68. U.S. Magistrate Judge from 1975 to 1996.
Formerly, Assistant U.S. Attorney for the District of Connecticut and U.S.
Attorney for the District of Connecticut, and member and chairman of Draft
Appeal Board. Adjunct law faculty member at Western New England School from
1978 to the present.
Paul M. Guernsey, Judge. Age: 48. Fact Finder for the New London Judicial
District from 1990 to 1992. Special Master at the Special Masters Pre-Trial
Conference Program in 1985. State Attorney Trial Referee, Judicial District of
New London, 1992 to the present. Chairman of the Criminal Law and Public
Defender Committee. Professional law practice for 23 years.
Thomas B. Wilson, Judge. Age: 59. Partner/director at Suisman, Shapiro,
Wool, Brennan & Gray, P.C. for 31 years. State Attorney Trial Referee from 1988
to the present. Member of the New London County Standing Committee on
Recommendations for Admission to the Bar. Town Attorney for the Town of Ledyard
from 1971 to 1979; 1983 to 1991; and 1995 to the present.
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OTHER MATERIAL AGREEMENTS
The following discussion summarizes significant terms of certain material
agreements to which either the Tribe or the Authority are parties. This summary
does not purport to be complete and is qualified in its entirety by reference
to each of the full agreements. The Authority will provide you a copy of any of
these agreements without charge upon written or oral request by contacting the
Authority at 1 Mohegan Sun Boulevard, Uncasville, CT 06382, Tel: (860) 204-
8000, attention: Roland Harris, Chairman.
Gaming Compact with the State of Connecticut
The Tribe and the State of Connecticut agreed in April 1994 to resolve all
land disputes and differences and enter into a gaming compact to authorize and
regulate the Tribe's conduct of gaming on the Tribe's lands. This agreement,
the Mohegan Compact, is substantively similar to the agreement governing gaming
operations of the Mashantucket Pequot Tribe in Connecticut and provides, among
other things, as follows:
(1) The Tribe is authorized to conduct certain Class III gaming
activities on its reservation. The forms of Class III gaming authorized
under the Mohegan Compact include (i) certain games of chance, (ii) video
facsimiles of such authorized games of chance (i.e., slot machines), (iii)
off-track pari-mutuel betting on animal races, (iv) pari-mutuel betting,
through simulcasting, on animal races and (v) certain types of pari-mutuel
betting on games and races conducted at the gaming facility (some types of
which currently are, together with off-track pari-mutuel telephone betting
on animal races, under a moratorium).
(2) The Tribe must establish standards of operations and management of
all gaming operations to protect the public interest, insure the fair and
honest operation of gaming activities and maintain the integrity of all
Class III gaming activities. The first of such standards were shown in the
Mohegan Compact and approved by the State gaming agency. State gaming
agency approval is required for any revision to such standards. The Tribe
must supervise the implementation of these standards by regulation through
a Tribal gaming agency.
(3) Law enforcement matters relating to the Tribe's Class III gaming
activities will be under the jurisdiction of both the State and the Tribe.
(4) All gaming employees must obtain and maintain a gaming license
issued by the State gaming agency.
(5) Any enterprise providing gaming services or gaming equipment to the
Tribe is required to hold a current valid registration issued by the
Connecticut Division of Special Revenue.
(6) The State will assess the Tribe annually for the costs attributable
to the State's regulation of the Tribe's gaming operations and for the
provision of law enforcement at the Tribe's gaming facilities.
(7) Net revenues from the Tribe's gaming operations may be applied only
for the certain purposes related to Tribal operations and welfare,
charitable contributions and payments to local governmental agencies.
(8) Tribal ordinances and regulations governing health and safety
standards at the gaming facilities may be no less rigorous than the
applicable laws and regulations of the State.
(9) Service of alcoholic beverages within the Tribe's gaming facilities
is subject to regulation by the State.
(10) The Tribe waives any defense which it may have by virtue of
sovereign immunity with respect to any action in United States District
Court to enforce the Mohegan Compact.
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In addition, together with the Mohegan Compact, the Tribe and the State
entered into a memorandum of understanding providing for the payment of a
portion of the Authority's slot machine revenues to the State. Commencing July
1, 1995, for each fiscal year such payment to the State must be the lesser of
(a) 30% of gross revenues from slot machines, or (b) the greater of (i) 25% of
gross revenues from slot machines or (ii) $80.0 million. These payments will
not be required if there is a change in the law to permit the operation of
commercial casino games by any other person in the State (other than the
Mashantucket Pequot Tribe and the Mohegan Tribe). The Authority expensed $102.3
million for the slot win contribution to the State for the fiscal year ended
September 30, 1998.
Agreement with the Town of Montville
In June 1994, the Tribe and the neighboring town of Montville entered into
an agreement whereby the Tribe makes annual payments of $500,000 to the town to
minimize the impact to Montville resulting from decreased tax revenues on the
land taken into trust for the Tribe's reservation. The Tribe also agreed to pay
Montville $3.0 million for infrastructure improvements to the town's water
system and to pay for its use of the town's disposal and wastewater collection
and treatment systems. Finally, the Tribe agreed to make payments instead of
taxes to Montville on lands that the Tribe acquires outside of its current
reservation. The Tribe has assigned its rights and obligations under this
agreement to the Authority.
Land Lease from the Tribe to the Authority
The land in Uncasville, Connecticut upon which Mohegan Sun is situated and
the expansion will be constructed is held in trust for the Tribe by the United
States of America. The Tribe and the Authority have entered into a land lease
under which the Tribe is leasing to the Authority the property and all
buildings, improvements and related facilities (e.g., Mohegan Sun and the
expansion) constructed or installed on the property. The lease was approved by
the Secretary of the Interior. Below we summarize certain key provisions of
this lease.
Term
The term of the lease is for 25 years with an option, exercisable by the
Authority, to extend the term for one additional 25-year period. Upon the
termination of the lease, the Authority will be required to surrender to the
Tribe possession of the property and improvements, excluding any equipment,
furniture, trade fixtures or other personal leased property.
Rent; Expenses
The Authority is required to pay to the Tribe annual rent in the amount of
$1.00. For any period when the Tribe or another agency or instrumentality of
the Tribe is not the tenant under the lease, the rent will be 8% of the
tenant's gross revenues from the premises. The Authority is responsible for the
payment of all costs of owning, operating, constructing, maintaining,
repairing, replacing and insuring the leased property.
Use of Leased Property
The Authority may use the leased property and improvements solely for the
construction and operation of Mohegan Sun, unless prior approval is obtained
from the Tribe for any proposed alternative use. Similarly, no construction or
alteration of any building or improvement located on the leased property by the
Authority may be made unless complete and final plans and specifications
therefor have been approved by the Tribe. Following foreclosure of any mortgage
on the Authority's interest under the lease or any transfer of such interest to
the holder of such mortgage instead of foreclosure, the leased property and
improvements may be used for any lawful purposes, subject only to applicable
codes and governmental regulations; provided, however, that a non-Indian holder
of the leased property may in no event conduct gaming operations thereon.
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Permitted Mortgages and Rights of Permitted Mortgagees
The Authority may not mortgage, pledge or otherwise encumber its leasehold
estate in the leased property except to a holder of a permitted mortgage. Under
the lease, a "permitted mortgage" includes the leasehold mortgage securing the
Authority's obligations under the Bank Credit Facility as well as any other
mortgage granted by the Authority that provides, among other things, that (1)
the Tribe shall have the right to notice of, and to cure, any default of the
Authority thereunder, (2) the Tribe shall have the right to prior notice of an
intention by the holder to foreclose on such permitted mortgage and the right
to purchase such mortgage instead of any foreclosure, and (3) such permitted
mortgage is subject and subordinated to any and all access and utility
easements granted by the Tribe under the lease. As provided in the lease, each
holder of a permitted mortgage has the right to notice of any default of the
Authority under the lease and the opportunity to cure such default within any
applicable cure period.
Under the lease, the Tribe and the Secretary of the Interior have consented
to the assignment and transfer by the Authority of its interest in the lease to
any holder of a permitted mortgage under (1) a foreclosure by such holder, (2)
a transfer instead of foreclosure, (3) the exercise of any right or remedy
granted by such holder or (4) any purchase by a third party at a foreclosure or
other sale. In no event, however, will a holder of a permitted mortgage (or any
assignee, sublessee, purchaser or transferee of such holder) be permitted to
transfer any interest in the lease or its leasehold interest in the leased
property and improvements to any person or entity engaged by the Tribe or the
Authority to manage a gaming enterprise.
Default; Remedies
The Authority will be in default under the lease if, subject to certain
notice provisions, it fails to make lease payments or to comply with its
covenants under the lease or if it pledges, encumbers or conveys its interest
in the lease in violation of the terms of the lease. Following a default, the
Tribe may, with approval from the Secretary of the Interior, terminate the
Lease unless a permitted mortgage remains outstanding with respect to the
leased property. In that case, the Tribe may not (1) terminate the lease or the
Authority's right to possession of the leased property, (2) exercise any right
of re-entry, (3) take possession of and/or relet the leased property or any
portion thereof, or (4) enforce any other right or remedy which may materially
and adversely affect the rights of the holder of the permitted mortgage, unless
the default triggering such rights was a monetary default which such holder
failed to cure after notice.
Expansion Development Services Agreement with Trading Cove Associates
General
The Authority entered into a Development Services Agreement with Trading
Cove Associates on February 7, 1998 whereby Trading Cove Associates agreed to
oversee the design, construction, furnishing, equipping and staffing of the
casino expansion for a $14.0 million development fee.
Design Phase--Architect and Construction Manager Selection; Plans and
Specifications
During the design phase, Trading Cove Associates will assist the Authority
in the engagement of the architect and the construction manager, the
preparation of design, construction, and furnishings budgets, preliminary
program evaluation, design development and the approval of final detailed plans
and specifications prepared by the architect. The Authority has chosen Kohn
Pedersen Fox Associates PC as the architect for the expansion. The Authority
has agreed to assign to Trading Cove Associates its responsibilities under any
architectural and/or engineering agreements to allow Trading Cove Associates to
supervise and administer directly the duties of the architect and/or engineer
thereunder.
The Development Agreement provides that the design and construction of the
expansion must comply with all federal and Connecticut statutes and regulations
that otherwise would apply if the expansion were located outside the
jurisdictional boundaries of the Tribe's land.
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Construction Phase
During the construction phase, Trading Cove Associates will be responsible
for the administration and supervision of the construction manager and the
entire construction process. Trading Cove Associates will act as the
Authority's representative in connection with construction contracts that are
approved by the Authority. Specifically, Trading Cove Associates will be
responsible for overseeing all persons performing work on the expansion site,
inspecting the progress of construction, determining completion dates and
reviewing contractor payment requests submitted to the Authority. The
Development Agreement specifically gives Trading Cove Associates the right to
include provisions in construction contracts that impose liquidated damage
payments in the event of failure to meet construction schedules.
Retail Facilities
As permitted by the Development Agreement, the Authority has elected to
engage a retail consultant to oversee the design and construction of the retail
facilities in the expansion. This work will be under the overall supervision of
Trading Cove Associates, which will integrate the design and construction of
the retail facilities with that of the other components of the expansion.
Engagement of Certified Entities; Staffing the Expansion
The Development Agreement requires Trading Cove Associates to implement
procedures described in the Tribal Employment Rights Ordinance. In effect, this
requires Trading Cove Associates to give preference to business entities or
persons which have been approved by the Authority in the selection of all
contractors, vendors and suppliers engaged in the development of the expansion.
In addition, in staffing the operation of the expansion, the Development
Agreement requires that Trading Cove Associates give preference to qualified
members of the Tribe (and their spouses and children) and thereafter to
enrolled members of other federally recognized Indian tribes.
Equipping the Expansion
The Authority will purchase equipment, furniture and furnishings required to
operate the expanded facilities from vendors selected by Trading Cove
Associates or lease such equipment, furniture and furnishings on terms arranged
by Trading Cove Associates and approved by the Authority.
Payment of the Development Fee
The Authority will pay a portion of the development fee to Trading Cove
Associates quarterly beginning on January 15, 2000 until the completion date of
the expansion, such quarterly payment to be based on incremental completion of
the expansion as of each payment date.
Termination and Disputes
The Development Agreement terminates after the earlier of completion of the
expansion or 10 years. In addition, each party has the right to terminate the
Development Agreement if there is a default or failure to perform by the other
party. The parties must submit disputes arising under the agreement to
arbitration and have agreed that punitive damages may not be awarded to either
party by any arbitrator. The Authority has also waived sovereign immunity for
the purposes of permitting, compelling or enforcing arbitration and has agreed
to be sued by Trading Cove Associates in any court of competent jurisdiction
for the purposes of compelling arbitration or enforcing any arbitration or
judicial award arising out of the Development Agreement.
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Relinquishment Agreement with Trading Cove Associates
General
Under a relinquishment agreement dated February 7, 1998, the Authority and
Trading Cove Associates have agreed to terminate the existing agreement with
Trading Cove Associates under which Trading Cove Associates manages the
Authority's gaming operations (described in greater detail in the following
section). This termination will occur as of January 1, 2000, at which time the
Authority will assume day-to-day management of Mohegan Sun. To compensate
Trading Cove Associates for terminating its management rights, the Authority
has agreed to pay to Trading Cove Associates 5% of the gross revenues generated
by Mohegan Sun and the planned expansion during the 15-year period commencing
on January 1, 2000.
Relinquishment Payments
The payments under the Relinquishment Agreement will be divided into Senior
Relinquishment Payments and Junior Relinquishment Payments, each of which will
be 2.5% of "Revenues," as defined in the Relinquishment Agreement. Senior
Relinquishment Payments will be payable quarterly in arrears commencing on
April 25, 2000 and the Junior Relinquishment Payments will be payable semi-
annually in arrears commencing on July 25, 2000. "Revenues" are defined as
gross gaming revenues (other than Class II gaming revenue) and all other
facility revenues (including, without limitation, hotel revenues, food and
beverage sales, parking revenues, ticket revenues and other fees or receipts
from the convention/events center in the expansion and all rental or other
receipts from lessees, licensees and concessionaires operating in the facility
but not the gross receipts of such lessees, licensees and concessionaires).
Subordination of Relinquishment Payments/Minimum Priority Distribution to the
Tribe
The Relinquishment Agreement provides that each of the Senior and Junior
Relinquishment Payments are subordinated in right of payment to payment of
senior secured obligations, including the Bank Credit Facility, and that the
Junior Relinquishment Payments are further subordinated to payment of all other
senior obligations, including the Senior Exchange Notes. The Relinquishment
Agreement also provides that all relinquishment payments are subordinated in
right of payment to an annual minimum priority distribution of $14 million to
the Tribe from the operations of Mohegan Sun. The minimum priority distribution
will be adjusted annually to reflect the cumulative increase in the Consumer
Price Index.
Covenants of the Authority
Under the Relinquishment Agreement, the Authority makes certain covenants
for the benefit of Trading Cove Associates, including the following.
(1) Payments to Tribe. Except for payments of the minimum priority
distributions and reasonable charges for utilities or other governmental
services supplied by the Tribe to the Authority, the Authority may not make
any distributions to the Tribe or its members at any time any
Relinquishment Payments are outstanding.
(2) Affiliate Transactions. Except for payments of the minimum priority
distributions and reasonable charges for utilities or other governmental
services supplied by the Tribe to the Authority, the Authority agrees to
abide by certain restrictions on transactions with the Tribe and its
members, all as shown in the Relinquishment Agreement.
(3) Replacement/Restoration of Mohegan Sun. If any portion of Mohegan
Sun's facilities is damaged by fire or other casualty, the Authority shall
replace or restore such facilities to substantially the same condition as
before such casualty, but only to the extent insurance proceeds are
available to do so. If sufficient insurance proceeds are not available, the
Authority will use reasonable efforts to obtain the required financing, on
commercially reasonable terms, to undertake and complete such replacement
or restoration.
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(4) Business Purpose. The Authority has agreed that during the term of
the Relinquishment Agreement it will only engage in the casino gaming and
resort business (and any incidental business or activity) and will continue
to operate Mohegan Sun as currently operated.
Orderly Transition/Employee Solicitation
Under the Relinquishment Agreement, the Authority and Trading Cove
Associates agree to cooperate with each other to effect an orderly transition
of the operations of Mohegan Sun to the Authority. Each of the parties also
agrees that it will not solicit any employee of the other party or any
affiliate of the other party for five years.
Marks
Trading Cove Associates has granted to the Authority an exclusive and
perpetual license with respect to trademarks and other similar rights,
including the "Mohegan Sun" name, used at or developed for Mohegan Sun. The
Authority has agreed, however, that it will only use the word "Sun" in
conjunction with the Mohegan Sun resort and together with "Mohegan" or "Mohegan
Tribe."
Waiver of Immunity from Unconsented Suit
With certain limitations shown in the Relinquishment Agreement, both the
Tribe and the Authority waive immunity from unconsented suit for certain
enforcement rights of Trading Cove Associates arising under the Relinquishment
Agreement.
Existing Management Agreement with Trading Cove Associates
General
Until January 1, 2000, Trading Cove Associates will continue as the
exclusive manager of Mohegan Sun. Under the Management Agreement, Trading Cove
Associates is responsible for the day-to-day management, operation and
maintenance of Mohegan Sun. Trading Cove Associates is obligated to manage and
operate the facility in compliance with all Tribal legal requirements and other
applicable laws. Certain major decision-making and oversight duties have been
delegated to the Business Board, a committee comprised of an equal number of
representatives of the Authority and of Trading Cove Associates. Actions by the
Business Board require the unanimous approval of its members or their
respective designees.
Staffing the Facility
Trading Cove Associates has the exclusive responsibility and authority to
select, retain, train and discharge all employees hired to perform services at
Mohegan Sun; however, all employees are the employees of the Authority and not
Trading Cove Associates. It is anticipated that substantially all of these
employees will remain in place following termination of the Management
Agreement. Members of the Tribe are to be given preference in the recruiting,
employment and training of personnel in all job categories in connection with
the operation of Mohegan Sun.
Operating and Capital Budgets; Replacement Reserve Fund
Trading Cove Associates must annually submit to the Tribal Council, for its
approval, a detailed proposed annual operating budget for the facility. In
addition to an annual operating budget, Trading Cove Associates must annually
submit to the Tribal Council, for its approval, a recommended annual capital
budget for the furnishings, equipment and ordinary capital replacement items
required to operate Mohegan Sun. Trading Cove Associates must manage and
operate the facility according to the then-current approved operating budget
and capital reserve budget. The Management Agreement further requires Trading
Cove Associates to establish a
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replacement reserve fund for the purpose of funding approved budgeted capital
expenditures. This Reserve Fund is funded monthly by the Authority and Trading
Cove Associates according to a schedule determined by the Business Board, with
all required amounts (up to an aggregate total of $3 million) being funded 60%
by the Authority and 40% by Trading Cove Associates. The Authority's deposits
to the Reserve Fund are deemed capital expenditures and do not reduce Net
Revenues (as defined in the Management Agreement); deposits made on behalf of
Trading Cove Associates reduce monthly management fee amounts distributable to
Trading Cove Associates.
Books and Records; Accounting Procedures
The Management Agreement requires Trading Cove Associates to maintain,
according to generally accepted accounting principles, books and records
reflecting the operations of Mohegan Sun and to prepare monthly, quarterly and
annual statements for the Authority. An annual audit of Mohegan Sun is required
by a nationally-recognized independent certified public accounting firm with
experience in the casino industry.
Management Fee
The Management Agreement authorizes Trading Cove Associates to pay itself a
management fee in monthly installments based on 30% to 40% of Net Revenues
depending on profitability levels. "Net Revenues" are generally defined as
gross gaming revenues (other than Class II gaming revenue) and all other
facility revenues, less operating expenses other than the management fee. The
management fees for the 12 months ended September 30, 1998 and for the quarter
ended December 31, 1998 were $47.4 million and $13.6 million, respectively.
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GOVERNMENT REGULATION
General
The Authority is subject to special federal, state and tribal laws
applicable to both commercial relationships with Indians generally and to
Indian gaming and the management and financing of Indian casinos specifically.
In addition, the Authority is regulated by federal and state laws applicable to
the gaming industry generally and to the distribution of gaming equipment. The
following description of the regulatory environment in which gaming takes place
and in which the Authority operates is only a summary and not a complete
recitation of all applicable law. Moreover, since this particular regulatory
environment is more susceptible to changes in public policy considerations than
others, it is impossible to predict how certain provisions will be interpreted
from time to time or whether they will remain intact. Changes in such laws
could have a material adverse impact on the Authority's operations. See "Risk
Factors."
Tribal Law and Legal Systems
Applicability of State and Federal Law
Federally recognized Indian tribes are independent governments, subordinate
to the United States, with sovereign powers, except as those powers may have
been limited by treaty or by the United States Congress. The power of Indian
tribes to enact their own laws to regulate gaming derives from the exercise of
tribal sovereignty. Indian tribes maintain their own governmental systems and
often their own judicial systems. Indian tribes have the right to tax persons
and enterprises conducting business on Indian lands, and also have the right to
require licenses and to impose other forms of regulations and regulatory fees
on persons and businesses operating on their lands.
Absent the consent of the Tribe or the United States Congress, the laws of
the State of Connecticut do not apply to the Tribe or the Authority. Under the
federal law that recognizes the Tribe, the Tribe consented to the extension of
Connecticut criminal law and Connecticut state traffic controls over Mohegan
Sun.
Waiver of Sovereign Immunity; Jurisdiction; Exhaustion of Tribal Remedies
Indian tribes enjoy sovereign immunity from unconsented suit similar to that
of the states and the United States. To sue an Indian tribe (or an agency or
instrumentality of an Indian tribe, such as the Authority), the tribe must have
effectively waived its sovereign immunity with respect to the matter in
dispute. Further, in most commercial disputes with Indian tribes, the
jurisdiction of the federal courts, which are courts of limited jurisdiction,
may be difficult or impossible to obtain. A commercial dispute is unlikely to
present a federal question, and some courts have ruled that an Indian tribe as
a party is not a citizen of any state for purposes of establishing diversity
jurisdiction in the federal courts. State courts may also lack jurisdiction
over suits brought by non-Indians against Indian tribes in Connecticut. The
remedies available against an Indian tribe also depend, at least in part, upon
the rules of comity requiring initial exhaustion of remedies in tribal
tribunals and, as to some judicial remedies, the tribe's consent to
jurisdictional provisions contained in the disputed agreements. The United
States Supreme Court has held that where a tribal court exists, the
jurisdiction in that forum must first be exhausted before any dispute can be
properly heard by federal courts which would otherwise have jurisdiction. Where
a dispute as to the jurisdiction of the tribal forum exists, the tribal court
must first rule as to the limits of its own jurisdiction.
In connection with the offering of the Outstanding Notes and the Exchange
Offers for the Exchange Notes, the Tribe has agreed, and has constitutionally
granted the Authority the power, to waive its sovereign immunity, and the
Authority has agreed to waive its sovereign immunity, for the limited purpose
of any suit by the Trustees under the Indentures or, as to the Authority, under
certain circumstances by the holders of the Exchange Notes to enforce repayment
of the Exchange Notes. The Tribe has also adopted a constitutional restraint
against any action by the Tribe or its officers which impairs contractual
obligations. If such waiver of
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sovereign immunity is held to be ineffective, the Trustees and the Exchange
Note holders could be precluded from judicially enforcing their rights and
remedies against the Tribe or the Authority. If the waiver of the rule
requiring exhaustion of tribal remedies is held to be ineffective, the Trustees
and the Exchange Note holders could be subjected to substantial delay, cost and
expense while seeking such remedies in the Gaming Disputes Court or other
tribunals of the Tribe. In addition, unless the decisions of the Gaming
Disputes Court or other tribunals of the Tribe violate applicable state or
federal law, there might be no effective right to appeal such decisions in
state or federal court.
The Indian Gaming Regulatory Act of 1988
Regulatory Authority
The operation of casinos and of all gaming on Indian land is subject to the
Indian Gaming Regulatory Act of 1988. The Indian Gaming Regulatory Act (IGRA)
is administered by the National Indian Gaming Commission, an independent
agency, within the U.S. Department of Interior, exercising primary federal
regulatory responsibility over Indian gaming. The National Indian Gaming
Commission (NIGC) has exclusive authority to issue regulations governing tribal
gaming activities, approve tribal ordinances for regulating Class II and Class
III Gaming (as described below), approve management agreements for gaming
facilities, conduct investigations and generally monitor tribal gaming. Certain
responsibilities under IGRA (such as the approval of per capita distribution
plans to tribal members and the approval of transfer of lands into trust status
for gaming) are retained by the Bureau of Indian Affairs. The BIA also has
responsibility to review and approve land leases and other agreements relating
to Indian lands. Criminal enforcement is the exclusive responsibility of the
United States Department of Justice, except to the extent such enforcement
responsibility is shared with the State of Connecticut under the Mohegan
Compact and under the federal law that recognizes the Tribe.
The NIGC is empowered to inspect and audit all Indian gaming facilities, to
conduct background checks on all persons associated with Class II Indian
gaming, to hold hearings, issue subpoenas, take depositions, adopt regulations
and assess fees and impose civil penalties for violations of IGRA. IGRA also
prohibits illegal gaming on Indian land and theft from Indian gaming
facilities. The NIGC has adopted rules implementing certain provisions of IGRA.
These rules govern, among other things, the submission and approval of tribal
gaming ordinances or resolutions and require an Indian tribe to have the sole
proprietary interest in and responsibility for the conduct of any gaming.
Tribes are required to issue gaming licenses only under articulated standards,
to conduct or commission financial audits of their gaming enterprises, to
perform or commission background investigations for primary management
officials and key employees, and to maintain their facilities in a manner that
adequately protects the environment and the public health and safety. These
rules also set out review and reporting procedures for tribal licensing of
gaming operation employees.
Tribal Ordinances
Under IGRA, except to the extent otherwise provided in a tribal-state
compact, Indian tribal governments have primary regulatory authority over Class
III Gaming on land within a tribe's jurisdiction. Therefore, the Authority's
gaming operations, and persons engaged in gaming activities, are guided by and
subject to the provisions of the Tribe's ordinances and regulations regarding
gaming.
IGRA requires that the NIGC review tribal gaming ordinances and authorizes
the NIGC to approve such ordinances only if they meet certain requirements
relating to (1) the ownership, security, personnel background, recordkeeping,
and auditing of a tribe's gaming enterprises; (2) the use of the revenues from
such gaming; and (3) the protection of the environment and the public health
and safety. The Tribe adopted its gaming ordinance in July 1994, and the NIGC
approved the gaming ordinance in November 1994.
Classes of Gaming
IGRA classifies games that may be conducted on Indian lands into three
categories. "Class I Gaming" includes social games solely for prizes of minimal
value or traditional forms of Indian gaming engaged in by
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individuals as part of, or in connection with, tribal ceremonies or
celebrations. "Class II Gaming" includes bingo, pulltabs, lotto, punch boards,
tip jars, certain non-banked card games (if such games are played legally
elsewhere in the state), instant bingo and certain other games similar to
bingo, if those games are played at the same location as bingo is played.
"Class III Gaming" includes all other forms of gaming, such as slot machines,
video casino games (e.g., video slots, video blackjack and video poker), so-
called "table games" (e.g., blackjack, craps, roulette) and other commercial
gaming (e.g., sports betting and pari-mutuel wagering).
Class I Gaming on Indian lands is within the exclusive jurisdiction of the
Indian tribes and is not subject to IGRA. Class II Gaming is permitted on
Indian lands if (1) the state in which the Indian lands lie permits such gaming
for any purpose by any person, organization or entity; (2) the gaming is not
otherwise specifically prohibited on Indian lands by federal law; (3) the
gaming is conducted according to a tribal ordinance or resolution which has
been approved by the NIGC; (4) an Indian tribe has sole proprietary interest
and responsibility for the conduct of gaming; (5) the primary management
officials and key employees are tribally licensed; and (6) several other
requirements are met. Class III Gaming is permitted on Indian lands if the
conditions applicable to Class II Gaming are met and, in addition, the gaming
is conducted in conformance with the terms of a tribal-state Compact (a written
agreement between the tribal government and the government of the state within
whose boundaries the tribe's lands lie).
Tribal-State Compacts
IGRA requires states to negotiate in good faith with Indian tribes that seek
to enter into tribal-state compacts for the conduct of Class III Gaming. Such
tribal-state compacts may include provisions for the allocation of criminal and
civil jurisdiction between the state and the Indian tribe necessary for the
enforcement of such laws and regulations, taxation by the Indian tribe of
gaming activities in amounts comparable to those amounts assessed by the state
for comparable activities, remedies for breach of compacts, standards for the
operation of gaming and maintenance of the gaming facility, including
licensing, and any other subjects that are directly related to the operation of
gaming activities. While the terms of tribal-state compacts vary from state to
state, compacts within one state tend to be substantially similar. Tribal-state
compacts usually specify the types of permitted games, establish technical
standards for video gaming machines, set maximum and minimum machine payout
percentages, entitle the state to inspect casinos, require background
investigations and licensing of casino employees and may require the tribe to
pay a portion of the state's expenses for establishing and maintaining
regulatory agencies. Some tribal-state compacts are for set terms, while others
are for indefinite duration. The Mohegan Compact, approved by the Secretary of
the Interior in 1994, does not have a specific term and will remain in effect
until terminated by written agreement of both parties, or the provisions are
modified as a result of a change in applicable law.
Tribal-state compacts have been the subject of litigation in a number of
states, including Alabama, California, Florida, Kansas, Michigan, Mississippi,
New Mexico, New York, Oklahoma, Oregon, South Dakota, Wisconsin and Washington.
Among the issues litigated have been the constitutionality of the provision of
IGRA which entitles tribes to sue in federal court to force states to negotiate
tribal-state compacts. Federal district courts in Alabama, Michigan and
Washington recently have held that the Eleventh Amendment to the United States
Constitution immunizes states from suit by Indian tribes in federal court
unless the state consents to such suit. Federal appellate courts have divided
over this issue. The United States Supreme Court recently held that the Indian
commerce clause of IGRA does not grant Congress authority to abrogate a state's
sovereign immunity. Accordingly, IGRA does not grant jurisdiction over a state
that did not consent to be sued.
There has also been litigation challenging the authority of governors, under
state law, to enter into tribal-state compacts. Federal courts have upheld the
authority of the governors of Louisiana and Mississippi to enter into compacts,
while the highest state courts of New Mexico and Kansas have held that the
governors of those states did not have authority to enter into such compacts
without the consent or authorization of the legislatures of those states. In
the New Mexico and Kansas cases, the courts held that compacting is a
legislative function under the respective state constitutions. The court in the
New Mexico case also held that state law does not permit casino-style gaming.
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In Connecticut, there has been no litigation challenging the governor's
authority to enter into the Mohegan Compact. If such a suit were filed,
however, the Authority does not believe that the precedent in the New Mexico or
Kansas cases would apply. The Connecticut Attorney General has issued a formal
opinion that "existing [state] statutes provide the Governor with the authority
to negotiate and execute the.......... [Mohegan] Compact.'' The Attorney General
therefore declined to follow the Kansas case. In addition, the United States
Court of Appeals for the Second Circuit Court has held, in a case brought by
the Mashantucket Pequot Tribe, that Connecticut law authorizes casino gaming.
After execution of the Mohegan Compact, the Connecticut Legislature passed a
law requiring that future gaming compacts be approved by the legislature, but
that law does not apply to previously executed compacts such as the Mohegan
Compact.
The Authority's operation of gaming is subject to the requirements and
restrictions contained in the Mohegan Compact. The Mohegan Compact authorizes
the Tribe to conduct most forms of Class III Gaming.
Possible Changes in Federal Law
Several bills have been introduced in Congress which would amend IGRA. While
there have been a number of technical amendments to the law, to date there have
been no material changes to the IGRA. Any amendment of IGRA could change the
governmental structure and requirements within which the Tribe could conduct
gaming.
BIA and NIGC Approvals
Mohegan Sun is built on lands held in trust for the Tribe by the United
States of America, which are leased by the Tribe to the Authority. See "Other
Material Agreements--Land Lease from the Tribe to the Authority." Such lease,
and modifications or amendments to such lease, must be and have been approved
by the BIA. In addition, federal law requires that all contracts "by any person
with any tribe of Indians" which are "relative to their lands" must be approved
by the BIA. Federal courts can void agreements that have not been approved by
the BIA and grant full restitution of all amounts paid to the non-Indian party
by the tribe. BIA approved the Indentures and the Bank Credit Facility in
February, 1999 in connection with the closing of the offering of the
Outstanding Notes.
Before the passage of IGRA, the BIA took the position that management
contracts for Indian gaming facilities did not require BIA approval.
Nevertheless, beginning in the early 1980s federal courts held that gaming
management contracts did require such approval, and several such agreements
were set aside by federal courts because they lacked approval. In 1988, with
the passage of IGRA, the approval of gaming management agreements and
collateral agreements between Indian tribes and gaming managers became the
province of the NIGC, but the BIA continues to have some residual jurisdiction.
The full scope of required review and approval for gaming management agreements
is not fully or precisely defined. The regulations and guidelines which the
NIGC and the BIA use to interpret their respective responsibilities are
incomplete and evolving. The federal law in this area has been the subject of
litigation and may be subject to further judicial or legislative
interpretation.
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DESCRIPTION OF OTHER INDEBTEDNESS
Bank Credit Facility
The Authority has a $425 million reducing, revolving, secured credit
facility with a syndicate of lenders led by Bank of America National Trust and
Savings Association ("Bank of America"). The Bank Credit Facility is currently
undrawn, with reductions to the total amounts available under the Bank Credit
Facility to begin on the earlier of March 31, 2002 or the end of the first
fiscal quarter after the completion date. In addition, the Authority has the
right, within two years following the closing of the Bank Credit Facility, to
arrange for increases in the Bank Credit Facility to an aggregate amount of
$500 million. The Authority will use the Bank Credit Facility for (1) the
Mohegan Sun expansion, (2) general working capital, and (3) general corporate
purposes of the Authority. The Bank Credit Facility is secured by, among other
things, a lien on substantially all of the Authority's assets. This
indebtedness is effectively senior in right of payment to the Exchange Notes.
The loan agreement subjects the Authority to a number of restrictive covenants
including financial covenants. These financial covenants relate to the
permitted maximums of the Authority's total debt and senior debt leverage
ratios, its minimum fixed charge coverage ratio, and maximum capital
expenditures. The Bank Credit Facility includes other affirmative and negative
covenants customarily found in loan agreements for similar transactions, many
of which will be similar to those included in the indenture for the Senior
Exchange Notes. Such covenants include provisions that:
. the Tribe preserve its existence as a federally recognized Indian Tribe;
. the Authority continually operate Mohegan Sun in compliance with all
applicable laws;
. except under certain conditions, the Authority not sell or dispose of
assets, incur other debt or contingent obligations, extend credit, make
investments, or commingle its assets with other tribal assets of the
Tribe; and
. permit a construction monitoring services group to inspect and review
the proposed expansion and all budgets, plans, designs and
specifications on a quarterly basis.
At the Authority's option, interest will accrue on the basis of a base rate
formula or a Reserve Adjusted LIBOR based formula plus applicable spreads. The
base rate is the higher of the rate as publicly announced by Bank of America as
its "Reference Rate" or the Federal Funds Rate plus one-half of one percent per
annum. The Reserve Adjusted LIBOR Rate is the London Interbank Offered Rate for
one, two, three or six month dollar deposits as offered by Bank of America to
prime international banks in the offshore dollar market, adjusted for reserve
requirements. The Bank Credit Facility will terminate and all outstanding
amounts will become due on March 3, 2004.
Lines of Credit
The Authority currently has a $2.5 million line of credit and letter of
credit arrangement with Fleet National Bank, an affiliate of Fleet Securities,
Inc. Borrowings are collateralized by a security interest in all of the
Authority's cash deposit accounts with Fleet National Bank. The line of credit
provides for interest based on various floating indexes. As of September 30,
1998, the Authority had outstanding letters of credit totalling $1.9 million
and had no other borrowings outstanding under the line of credit. No further
borrowings will be made under the line of credit. The first extension of credit
under the Bank Credit Facility, which will include the issuance of letters of
credit to replace the letters of credit outstanding under the line of credit.
The line of credit and the security interests collateralizing the line of
credit will be terminated at that time.
Equipment Financing
The Authority currently has three agreements for equipment financing with
CIT Group/Equipment Financing, Inc. or its affiliates:
(1) The Authority has $23.0 million of gaming equipment financing.
Principal payments are over 48 months and commenced December 1996.
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(2) The Authority has a second agreement for equipment financing of $5.0
million. Principal payments are over 48 months and commenced December 1996.
(3) The Authority has a third agreement for equipment financing of an
aggregate amount of $10.0 million. The principal payments are made over 48
months from the commencement of each draw.
The Authority has also received equipment financing of $4.0 million from
Phoenixcor, Inc. The principal payments are over 48 months and commenced
November 1996.
The Authority received equipment financing of $3.0 million from Fleet
Capital Corporation, an affiliate of Fleet Securities, Inc. The principal
payments are over 48 months and commenced July 1997. As of September 30, 1997
this agreement has been assigned to KeyCorp Leasing.
The Authority's equipment financing bears a weighted average interest of
9.1%. As of December 31, 1998, the future minimum lease payments, including
principal and interest, of the Authority's equipment financing are as follows
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ending September 30
-------------------------------
<S> <C>
1999............................................................. $ 9,756
2000............................................................. 13,008
2001............................................................. 5,557
2002............................................................. 2,358
2003............................................................. 64
-------
$30,743
=======
</TABLE>
Junior Subordinated Notes
In conjunction with its initial opening of Mohegan Sun, the Authority
obtained a total of $90.0 million of subordinated financing from Sun
International Hotels Limited and Waterford Gaming L.L.C. including (1) $20.0
million of junior subordinated notes to each of Sun International Hotels
Limited and Waterford Gaming L.L.C., bearing interest at 15.0% per year, and
(2) $50.0 million of junior subordinated notes to Sun International Hotels
Limited evidencing draws made by the Authority under a secured completion
guarantee provided by Sun International Hotels Limited relating to the original
development of Mohegan Sun. Each junior subordinated note issued under the Sun
International Hotels Limited secured completion guarantee bears interest at the
rate per annum then most recently announced by Chase Manhattan 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 both September 30, 1998 and September
30, 1997. Interest on junior subordinated notes is payable semi-annually.
Accrued and deferred interest payable on junior subordinated notes was $31.5
million and $17.9 million at September 30, 1998 and 1997, respectively. All
junior subordinated notes are due 2003 but may be redeemed at the Authority's
discretion commencing on January 1, 2000. During October 1998 and October 1997,
a total of $5.0 million of junior subordinated notes issued to Sun
International Hotels Limited pursuant to its secured completion guarantee were
purchased by Waterford Gaming L.L.C. from Sun International Hotels Limited.
The Authority decided to redeem its junior subordinated notes on January 1,
2000. To accomplish this, the Authority effected a defeasance of the junior
subordinated notes on March 3, 1999. The Authority established a segregated
trust account with a defeasance agent with cash equivalent funds estimated to
be sufficient to permit a redemption of its junior subordinated notes on
January 1, 2000. All junior subordinated notes are currently held by Sun
International Hotels Limited, the parent company of a partner in Trading Cove
Associates, and Waterford Gaming L.L.C., also a partner in Trading Cove
Associates.
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DESCRIPTION OF THE EXCHANGE NOTES
The Authority issued the Outstanding Senior Notes under the Senior Notes
Indenture among itself, the Tribe and First Union National Bank, as trustee
(the "Senior Trustee"), and the Outstanding Senior Subordinated Notes under the
Senior Subordinated Notes Indenture among itself, the Tribe and State Street
Bank and Trust Company, as trustee (the "Senior Subordinated Trustee", and
together with the Senior Trustee, the "Trustees"). The terms of the Outstanding
Notes included and the terms of the Exchange Notes will be those stated in
their respective Indentures and those made part of the Indentures by reference
to the Trust Indenture Act of 1939.
The terms of the Exchange Notes are identical in all material respects to
the Outstanding Notes, except that (1) the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Outstanding Notes and (2)
Holders of the Exchange Notes will not be entitled to certain rights of Holders
of Outstanding Notes under the registration rights agreement. The terms of the
Exchange Notes include those stated in the Indentures and those made a part of
the Indentures by reference to the Trust Indenture Act of 1939 as in effect on
the date of the Indentures (the "Trust Indenture Act"). The Exchange Notes are
subject to all such terms, and Holders of the Exchange Notes are referred to
the Indentures and the Trust Indenture Act for a complete statement of such
terms. Copies of the Indentures are available from the Authority on request.
The statements and definitions of terms under this caption relating to the
Exchange Notes and the Indentures are summaries and do not purport to be
complete. Such summaries make use of certain terms defined in the Indentures
and are qualified in their entirety by express reference to the Indentures.
Certain terms used herein are defined below under "--Certain Definitions."
The following description is a summary of the material provisions of the
Indentures and the registration rights agreements. It does not restate those
agreements in their entirety. We urge you to read the Indentures and the
registration rights agreements because they, and not this description, define
your rights as holders of the Notes. Copies of the forms of Indentures and
registration rights agreements are available from the Authority upon request.
You can find the definitions of certain terms used in this section under the
subheading
"--Certain Definitions." Reference is made to the Indentures for all of such
terms, as well as any other capitalized terms used herein for which no
definition is provided.
Description of the Senior Exchange Notes
Ranking
These Senior Exchange Notes
. are unsecured general obligations of the Authority;
. are effectively subordinated to up to $500 million of secured
indebtedness under the Loan Agreement; and
. are senior in right of payment to all future subordinated Indebtedness
of the Authority (including the Senior Subordinated Exchange Notes).
Subsidiaries
As of the date of the Senior Notes Indenture, the Authority will have no
Subsidiaries. However, the Senior Notes Indenture will permit the Authority to
create Subsidiaries and will generally require that these Subsidiaries be
designated as Restricted Subsidiaries (i.e., subject to the terms of the Senior
Notes Indenture) unless certain conditions are met. If these conditions are
met, the Authority will be permitted to designate a Subsidiary as an
Unrestricted Subsidiary, and Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants of the Senior Notes Indenture.
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Principal, Maturity and Interest
The Senior Exchange Notes will be limited to a maximum aggregate principal
amount of $200 million. The Authority will issue Senior Exchange Notes without
coupons and in fully registered form only, in minimum denominations of $1,000
and integral multiples of $1,000. The Senior Exchange Notes will mature on
January 1, 2006.
Interest on the Senior Exchange Notes will accrue at the rate of 8 1/8% per
annum and will be payable semi-annually in arrears on January 1 and July 1,
beginning on July 1, 1999. The Authority will make each interest payment to the
holders of record of these Senior Exchange Notes on the immediately preceding
December 15 and June 15.
Interest on the Senior Exchange Notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Optional Redemption
Except as otherwise shown in this section, the Authority will not have the
right to redeem the Senior Exchange Notes.
If, at any time after the Issue Date, any Gaming Regulatory Authority
requires a holder to be licensed or otherwise qualified under applicable gaming
laws in order for the Authority to maintain any of its gaming licenses or
franchises and the holder does not obtain such license or qualification within
the time periods described in the Senior Notes Indenture and at its own cost
and expense, then the Authority will have the right to either
. require the holder to dispose of its Senior Exchange Notes within the
time period specified by the Gaming Regulatory Authority or 30 days,
whichever is shorter; or
. redeem the holder's Senior Exchange Notes at a price equal to the lesser
of (1) the principal amount of the Senior Exchange Notes held by the
holder, (2) the price paid for the Senior Exchange Notes by the holder,
and (3) the current market price of the Senior Exchange Notes, in each
case, including all accrued and unpaid interest and Additional Interest,
if any, to the redemption date or the date a finding of unsuitability is
made by the applicable Gaming Regulatory Authority, if earlier.
The Authority will comply with the redemption procedures for the Senior
Exchange Notes described in the Senior Notes Indenture unless otherwise
required by a Gaming Regulatory Authority. In addition, the Authority may
redeem all or a part of these Senior Exchange Notes upon not less than 30 nor
more than 60 days' notice, at a redemption price (expressed as percentages of
principal amount) equal to 100% of the principal amount thereof plus the
Applicable Premium, if any, plus accrued and unpaid interest thereon, if any,
to the applicable redemption date.
The "Applicable Premium" of any redeemed Senior Note equals the excess of
(a) the present value at the date of redemption of 100% of the principal
amount of such Senior Exchange Note plus all required interest payments due
on such Senior Exchange Note through its Stated Maturity date (excluding
accrued but unpaid interest), calculated using a discount rate equal to the
Treasury Rate plus 50 basis points over
(b) the principal amount of such Senior Exchange Note, if greater.
If the period from the date of redemption to the Stated Maturity date is
greater than one year, the "Treasury Rate" will be equal to the yield to
maturity as of such date of redemption of United States Treasury securities
with a constant maturity (as complied and published in the most recent Federal
Reserve Statistical Release H.15 (519) that became publicly available at least
two business days prior to the date of redemption (or, if the Federal Reserve
Statistical Release H.15 (519) is no longer published, any publicly available
source of similar market data)) most nearly equal to the period from the date
of redemption to the Stated Maturity date.
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If the period from the date of redemption to the Stated Maturity date is
less than one year, the "Treasury Rate" will be equal to the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year.
Selection and Notice
If less than all of the Senior Exchange Notes are to be redeemed at any
time, the Senior Trustee will select Senior Exchange Notes for redemption as
follows:
(1) if the Senior Exchange Notes are listed, in compliance with the
requirements of the principal national securities exchange on which the
Senior Exchange Notes are listed; or
(2) if the Senior Exchange Notes are not so listed, on a pro rata basis,
by lot or by such method as the Senior Trustee shall deem fair and
appropriate.
No Senior Exchange Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of Senior Exchange
Notes to be redeemed at its registered address. Notices of redemption may not
be conditional.
If any Senior Exchange Note is to be redeemed in part only, the notice of
redemption that relates to that Senior Exchange Note shall state the portion of
the principal amount thereof to be redeemed. A new Senior Note in principal
amount equal to the unredeemed portion of the original Senior Exchange Note
will be issued in the name of the holder thereof upon cancellation of the
original Senior Exchange Note. Senior Exchange Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on Senior Exchange Notes or portions of them called
for redemption.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of the Senior Exchange Notes will
have the right to require the Authority to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of that holder's Senior Exchange Notes
pursuant to a Change of Control Offer. In the Change of Control Offer, the
Authority will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of Senior Exchange Notes repurchased plus accrued
and unpaid interest and Additional Interest, if any, thereon, to the date of
purchase.
Within 20 business days following any Change of Control, the Authority will
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Senior Exchange
Notes on the Change of Control Payment Date specified in such notice, pursuant
to the procedures required by the Senior Notes Indenture and described in such
notice. The Authority will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Authority will, to the extent
lawful
(1) accept for payment all Senior Exchange Notes or portions thereof
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Senior Exchange Notes or portions thereof
so tendered; and
(3) deliver or cause to be delivered to the Senior Trustee the Senior
Exchange Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Senior Exchange Notes or portions thereof
being purchased by the Authority.
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The Paying Agent will promptly mail to each holder of Senior Exchange Notes
so tendered the Change of Control Payment for such Senior Exchange Notes, and
the Senior Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each holder a new Senior Exchange Note equal in
principal amount to any unpurchased portion of the Senior Exchange Notes
surrendered, if any; provided that each such new Senior Exchange Note will be
in a principal amount of $1,000 or an integral multiple thereof. The Authority
will notify the Senior Trustee and will instruct the Senior Trustee to notify
the holders of the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Senior
Notes Indenture does not contain provisions that permit the holders of the
Senior Exchange Notes to require that the Authority repurchase or redeem the
Senior Exchange Notes in the event of a takeover, recapitalization or similar
transaction.
The Loan Agreement will prohibit the Authority from purchasing any Senior
Exchange Notes and also will provide that certain change of control events with
respect to the Authority will constitute a default under the Loan Agreement.
Any future credit agreements or other agreements relating to secured
indebtedness to which the Authority becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Authority is prohibited from purchasing Senior Exchange Notes, the
Authority could seek the consent of its lenders to the purchase of Senior
Exchange Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Authority does not obtain such a consent or repay such
borrowings, the Authority will remain prohibited from purchasing Senior
Exchange Notes. In such case, the Authority's failure to purchase tendered
Senior Exchange Notes would constitute an Event of Default under the Senior
Notes Indenture which would, in turn, constitute a default under the Loan
Agreement.
The Authority will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements shown in
the Senior Notes Indenture applicable to a Change of Control Offer made by the
Authority and purchases all Senior Exchange Notes validly tendered and not
withdrawn under such Change of Control Offer.
Asset Sales
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless
(1) the Authority (or its Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value (as determined in good faith by the Management Board and
evidenced by a resolution shown in an Officers' Certificate delivered to
the Senior Trustee) of the assets sold or otherwise disposed of; and
(2) except in the case of a Permitted Asset Swap, at least 75% of the
consideration therefor received by the Authority or such Restricted
Subsidiary is in the form of cash. For purposes of this provision, each of
the following shall be deemed to be cash:
(a) any liabilities that would appear on the Authority's or such
Restricted Subsidiary's balance sheet prepared according to GAAP (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Senior Exchange Notes or any guarantee thereof)
that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Authority or such
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
Authority or any such Restricted Subsidiary from such transferee that
are converted by the Authority or such Restricted Subsidiary into cash
(to the extent of the cash received) within 30 days of the receipt
thereof,
provided, however, that the Authority will not be permitted to make any Asset
Sale of Key Project Assets.
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Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Authority may apply such Net Proceeds, at its option, to:
(1) repay permanently term Indebtedness under Credit Facilities of the
Authority or any Restricted Subsidiary;
(2) repay revolving credit Indebtedness under Credit Facilities and
correspondingly permanently reduce commitments with respect thereto;
(3) acquire a majority of the assets of, or a majority of the Voting
Stock of, an entity engaged in the Principal Business or a Related
Business;
(4) make capital expenditures or acquire other long-term assets that are
used or useful in the Principal Business or a Related Business;
(5) make an investment in the Principal Business or a Related Business
or in tangible long-term assets used or useful in the Principal Business or
a Related Business; or
(6) reduce permanently Indebtedness that is not Subordinated
Indebtedness.
Pending the final application of any such Net Proceeds, the Authority may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Senior Notes Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Authority will make an Asset Sale Offer to all holders of Senior Exchange
Notes and all holders of other Indebtedness containing provisions similar to
those shown in the Senior Notes Indenture with respect to offers to purchase or
redeem with the proceeds of sales of assets to purchase the maximum principal
amount of Senior Exchange Notes and such other Indebtedness that may be
purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer
will be equal to 100% of the principal amount plus accrued and unpaid interest
and Additional Interest, if any, to the date of purchase and will be payable in
cash, according to the procedures shown in the Senior Notes Indenture and such
other Indebtedness. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Authority may use such Excess Proceeds
for any purpose not otherwise prohibited by the Senior Notes Indenture. If the
aggregate principal amount of Senior Exchange Notes and such other Indebtedness
tendered into such Asset Sale Offer surrendered by holders thereof exceeds the
amount of Excess Proceeds, the Senior Trustee shall select the Senior Exchange
Notes and such other Indebtedness (to the extent that such other Indebtedness
permits such selection) to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Authority will not, and the Authority will not permit any of its
Restricted Subsidiaries, directly or indirectly, to
(1) make any payment on or with respect to any of the Authority's or any
of its Restricted Subsidiaries' Equity Interests;
(2) purchase, redeem, defease or otherwise acquire or retire for value
any Equity Interest in the Authority held by the Tribe or any Affiliate of
the Tribe;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Subordinated Indebtedness
(other than the defeasance and ultimate redemption of the junior
subordinated notes according to their terms and the terms of the Defeasance
Trust), except a payment of interest or principal at Stated Maturity
thereof;
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(4) make any payment or distribution to the Tribe (or any other agency,
instrumentality or political subunit thereof) or make any general
distribution to the members of the Tribe (other than Government Service
Payments); or
(5) make any Restricted Investment;
(all such payments and other actions shown in clauses (1) through (5) above are
collectively referred to as "Restricted Payments") unless, at the time of and
after giving effect to such Restricted Payment
(A) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(B) the Authority would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test shown in the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(C) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Authority and its Restricted
Subsidiaries after the date of the Senior Notes Indenture (excluding
Restricted Payments permitted by clauses (2), (3), (4) and (5) of the next
succeeding paragraph), is less than the sum, without duplication, of
(i) 50% of the Consolidated Net Income of the Authority for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Senior Notes Indenture
to the end of the Authority's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds or fair market value (as determined in good
faith by the Management Board and evidenced by a resolution shown in an
Officers' Certificate delivered to the Senior Trustee) of assets or
property (other than cash) received by the Authority from capital
contributions from the Tribe that bear no mandatory obligation to repay
the Tribe and other than from a Restricted Subsidiary of the Authority,
plus (iii) to the extent that any Restricted Investment that was made
after the date of the Senior Notes Indenture is sold, liquidated or
otherwise disposed of for cash or an amount equal to the fair market
value thereof (as determined in good faith by the Management Board and
evidenced by a resolution shown in an Officers' Certificate delivered
to the Senior Trustee), the lesser of (a) the cash return of capital or
fair market value amount, as the case may be, with respect to such
Restricted Investment (less the cost of disposition, if any) and (b)
the initial amount of such Restricted Investment, plus (iv) to the
extent that any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary after the date of the Senior Notes Indenture, the lesser of
(a) the fair market value of the Authority's Investment in such
Subsidiary as of the date of such redesignation or (b) such fair market
value as of the date on which such Subsidiary was originally designated
as an Unrestricted Subsidiary.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit
(1) the defeasance, redemption, repurchase or other acquisition of
Subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(2) the payment of any dividend by a Restricted Subsidiary of the
Authority to the holders of its common Equity Interests on a pro rata
basis;
(3) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary of the Authority
held by any member of the Authority's (or any of its Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Senior
Notes Indenture; provided that (a) the aggregate price paid
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for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $1.0 million in any 12-month period and (b) the aggregate
amount of all such repurchased, redeemed, acquired or retired Equity
Interests shall not in the aggregate exceed $3.0 million;
(4) the redemption or purchase of Subordinated Indebtedness of the
Authority if the holder of such Subordinated Indebtedness has failed to
qualify or be found suitable or otherwise be eligible by any Gaming
Regulatory Authority to remain a holder of such Subordinated Indebtedness;
(5) the redemption, defeasance, repurchase or other acquisition or
retirement of Subordinated Indebtedness with the net cash proceeds from a
substantially concurrent capital contribution from the Tribe (provided that
such capital contribution is not counted for purposes of clause (C)(ii)
above); and
(6) any other Restricted Payments in an amount not to exceed $20.0
million at any one time outstanding.
The Authority may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default; provided that in no
event shall (i) any entity (including any Subsidiary of the Authority or the
Authority or any operating division thereof) engaged in a Principal Business be
transferred to or held by an Unrestricted Subsidiary or (ii) any Key Project
Assets or Gaming Licenses be transferred to an Unrestricted Subsidiary. In the
event of such designation, all outstanding Investments owned by the Authority
and its Restricted Subsidiaries in the Subsidiary so designated will be deemed
to be an Investment made as of the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant unless the Investment constitutes a Permitted Investment. All such
outstanding Investments will be deemed to constitute Restricted Payments in an
amount equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. The Authority may
redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary if such
redesignation would not otherwise cause a Default.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Authority or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be
valued by this covenant shall be determined by the Management Board whose
resolution with respect thereto shall be delivered to the Senior Trustee. Not
later than the date of making any Restricted Payment, the Authority shall
deliver to the Senior Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "--Restricted Payments" were computed.
Subordination of Junior Payments Under the Relinquishment Agreement
All Obligations under the Senior Exchange Notes shall be "Senior
Obligations" as defined in the Relinquishment Agreement and will not be on
parity with, or subordinated in right of payment to, the Junior Relinquishment
Payments (as defined in the Relinquishment Agreement) and the Authority will
not amend Section 6.2 of the Relinquishment Agreement in a manner adverse to
the holders of the Senior Exchange Notes.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Authority will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Indebtedness)
and the Authority will not issue any Disqualified Stock and will not permit any
of its Subsidiaries to issue any shares of preferred stock; provided, however,
that the Authority may incur Indebtedness (including Acquired Indebtedness) or
issue shares of Disqualified Stock and the Authority's Subsidiaries may incur
Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for
the Authority's most recently ended four full fiscal quarters for which
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internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred would have been at least 2.0 to
1 if such Indebtedness is incurred before September 30, 2001 and 2.5 to 1 if
such indebtedness is incurred thereafter, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred at the beginning of such four-quarter
period. Notwithstanding the foregoing, the Authority will not issue any
Disqualified Stock or any type of Capital Stock that would violate IGRA.
So long as no Default or Event of Default shall have occurred and be
continuing, or would be caused thereby, the first paragraph of this covenant
will not prohibit the incurrence of any of the following items of Indebtedness:
(1) the incurrence by the Authority or its Restricted Subsidiaries of
Indebtedness and letters of credit pursuant to Credit Facilities; provided
that the aggregate principal amount of all such Indebtedness and letters of
credit outstanding under all Credit Facilities, after giving effect to such
incurrence (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Authority thereunder), does
not exceed $500 million less the aggregate amount of all Net Proceeds of
Asset Sales applied by the Authority or any of its Restricted Subsidiaries
since the date of the Senior Notes Indenture to repay Indebtedness under
Credit Facilities pursuant to the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales";
(2) the incurrence by the Authority and its Restricted Subsidiaries of
the Existing Indebtedness;
(3) the incurrence by the Authority of Indebtedness represented by the
Senior Exchange Notes and the Senior Exchange Notes;
(4) the incurrence by the Authority of Indebtedness represented by the
Senior Subordinated Exchange Notes and the Senior Subordinated Exchange
Notes;
(5) the incurrence by the Authority or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price of
furniture, fixtures, equipment or similar assets used or useful in the
business of the Authority or such Restricted Subsidiary not to exceed 100%
of the lesser of cost or fair market value of the assets financed and, in
an aggregate principal amount under this clause not to exceed $25.0 million
at any time outstanding;
(6) the incurrence by the Authority or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance, renew, extend, defease
or replace Indebtedness that was permitted by the Senior Notes Indenture to
be incurred under the first paragraph of this covenant or clauses (1), (2)
(other than the junior subordinated notes), (3), (4) or (5) of this
paragraph;
(7) the incurrence by the Authority or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Senior Notes Indenture
to be outstanding;
(8) the guarantee by the Authority or any of its Restricted Subsidiaries
of any Indebtedness of the Authority or any of its Restricted Subsidiaries
that was permitted to be incurred by another provision of this covenant;
(9) the incurrence by a Wholly Owned Restricted Subsidiary of
Indebtedness owed to another Wholly Owned Restricted Subsidiary or to the
Authority; provided that if at any time any such Wholly Owned Restricted
Subsidiary ceases to be a Wholly Owned Restricted Subsidiary, any such
Indebtedness shall be deemed to be an incurrence of Indebtedness for the
purposes of this covenant;
(10) the incurrence by the Authority or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (10), not to exceed $25.0
million; or
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(11) the incurrence by the Authority's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Authority that was not permitted by this clause (11).
For purposes of determining compliance with this "--Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, if an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (11) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Authority shall,
in its sole discretion, classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries
The Authority (i) will not, and will not permit any Wholly Owned Restricted
Subsidiary of the Authority to, transfer, convey, sell, lease or otherwise
dispose of any Equity Interests in any Wholly Owned Restricted Subsidiary of
the Authority to any Person (other than the Authority or another Wholly Owned
Restricted Subsidiary of the Authority), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Equity Interests in such Wholly
Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied according to the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales," and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Authority to issue any of its Equity Interests (other than,
if necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Authority or a Wholly Owned Restricted
Subsidiary of the Authority.
Liens
The Senior Notes Indenture will provide that the Authority will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind (other than Permitted Liens) upon any of its property or
assets, now owned or hereafter acquired, unless all payments due under the
Senior Notes Indenture and the Senior Exchange Notes are secured on an equal
and ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to
(1) pay dividends or make any other distributions on its Capital Stock
to the Authority or any of the Authority's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the Authority or any of the
Authority's Restricted Subsidiaries;
(2) make loans or advances to the Authority or any of the Authority's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Authority or any of
the Authority's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of
(1) Existing Indebtedness as in effect on the date of the Senior Notes
Indenture and any amendments, modifications, restatements, renewals,
extensions, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, extensions,
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increases, supplements, refundings, replacements or refinancings are no
more restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing Indebtedness, as
in effect on the date of the Senior Notes Indenture;
(2) the Senior Notes Indenture and the Senior Exchange Notes;
(3) the Senior Subordinated Notes Indenture and the Senior Subordinated
Exchange Notes;
(4) the Credit Facilities;
(5) applicable law;
(6) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Authority or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
Senior Notes Indenture to be incurred;
(7) customary non-assignment provisions in leases or other contracts
entered into in the ordinary course of business and consistent with past
practices;
(8) purchase money obligations (including, without limitation, Capital
Lease Obligations) for property acquired in the ordinary course of business
that impose restrictions on the property so acquired of the nature
described in clause (3) of the preceding paragraph;
(9) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(10) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(11) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limit the right of the Authority or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien;
(12) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Transactions with Affiliates
The Authority will not, and the Authority will not permit any of its
Restricted Subsidiaries to, make any payment to, or 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 or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless
(1) such Affiliate Transaction is on terms that are no less favorable to
the Authority or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Authority or such
Restricted Subsidiary with an unrelated Person; and
(2) the Authority delivers to the Senior Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Management Board shown in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the
Management Board; and
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(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Authority or such
Restricted Subsidiary of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraphs:
(1) any employment agreement or arrangement entered into by the
Authority or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Authority or such
Restricted Subsidiary;
(2) transactions between or among the Authority and/or its Restricted
Subsidiaries;
(3) payment of reasonable Management Board fees to members of the
Management Board;
(4) transactions with Persons in whom the Authority owns any Equity
Interests, so long as the remaining equity holders of such Person are not
Affiliates of the Authority or any of its Subsidiaries;
(5) Government Service Payments;
(6) transactions pursuant to the Development Services Agreement, the
Relinquishment Agreement and the Side Letters;
(7) Restricted Payments or Permitted Investments that are made in
compliance with the provisions of the Senior Notes Indenture described
above under the caption "--Restricted Payments;" and
(8) contractual arrangements existing on the date of the Senior Notes
Indenture and any renewals, extensions and modifications thereof that are
not materially adverse to holders.
Subsidiary Guarantees
The Senior Notes Indenture provides that if the Authority acquires or
creates any Restricted Subsidiary after the date of the Senior Notes Indenture,
then that newly acquired or created Restricted Subsidiary must become a
Subsidiary Guarantor and execute a supplemental indenture satisfactory to the
Senior Trustee and deliver an Opinion of Counsel to the Senior Trustee within
20 business days of the date on which it is acquired or created.
The obligations of each Subsidiary Guarantor under its Senior Subsidiary
Guarantee will be limited so as not to constitute a fraudulent conveyance under
applicable law.
No Subsidiary Guarantor may consolidate with or merge with or into (whether
or not such Subsidiary Guarantor is the surviving Person), another corporation,
Person or entity whether or not affiliated with such Subsidiary Guarantor
unless: (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Senior Trustee; and (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists.
The Senior Notes Indenture will permit the merger of one or more Subsidiary
Guarantors with or into another Subsidiary Guarantor or with or into the
Authority; provided that in the case of a merger with or into the Authority,
the Authority is the surviving entity.
In the event of a sale or other disposition of all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Subsidiary
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Guarantor, or, if a Subsidiary Guarantor is designated as an Unrestricted
Subsidiary, then such Subsidiary Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of or a redesignation of such Subsidiary Guarantor) or the entity
acquiring the property (in the event of a sale or other disposition of all of
the assets of such Subsidiary Guarantor) will be released and relieved of any
obligations under its Senior Subsidiary Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in accordance with or
the redesignation is accomplished in accordance with the applicable provisions
of the Senior Notes Indenture. See "--Repurchase at the Option of Holders--
Asset Sales."
The Authority currently has no Subsidiaries.
Sale and Leaseback Transactions
The Senior Notes Indenture will provide that the Authority will not, and
will not permit any of its Restricted Subsidiaries to, enter into any sale and
leaseback transaction involving the Resort; provided that the Authority or any
of its Restricted Subsidiaries may enter into a sale and leaseback transaction
if
(1) the Authority or such Restricted Subsidiary, as applicable, could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed
Charge Coverage Ratio test shown in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption "--
Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Management Board and shown in an Officers' Certificate delivered to the
Senior Trustee, of the property that is subject of such sale and leaseback
transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Authority applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales"; provided that, upon the
occurrence of a Rating Event Date and for so long as the covenants shown
under the caption entitled "--Changes in Covenants when Senior Exchange
Notes Rated Investment Grade" continue to be Suspended Covenants, the
following provisions shall replace the foregoing provisions with respect to
sale and leaseback transactions by the Authority and its Restricted
Subsidiaries: The Senior Notes Indenture will provide that Authority will
not, and will not permit any of its Restricted to Subsidiaries to, enter
into any sale and leaseback transaction involving the Resort; provided that
the Authority or any Restricted Subsidiary may enter into any sale and
leaseback transaction with an Attributable Value (when taken together with
all other sale and leaseback transactions of the Authority and its
Restricted Subsidiaries) that, at the time of such transaction, after
giving effect thereto, does not exceed 10% of Consolidated Net Tangible
Assets.
Construction
The Authority will use its commercially reasonable best efforts to cause
construction of the Expansion Project to be prosecuted with diligence and
continuity in good and workmanlike manner materially in accordance with the
plans relating to the Expansion Project as more fully described in this
Prospectus.
Restrictions on Leasing and Dedication of Property
Except as provided below, the Authority will not lease, sublease, or grant a
license, concession or other agreement to occupy, manage or use any material
portion of the Authority's property and assets owned or leased by the Authority
(each, a "Lease Transaction").
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The first paragraph of this covenant will not prohibit any of the following
Lease Transactions:
(1) The Authority may enter into a Lease Transaction with respect to any
space with any Person (including, without limitation, a lease in connection
with the Expansion Project for the purpose of developing, constructing,
operating and managing retail establishments within the Resort), provided
that:
(a) such Lease Transaction will not materially interfere with,
impair or detract from the operations of the Resort;
(b) such Lease Transaction contains rent and such other terms such
that the Lease Transaction, taken as a whole is commercially reasonable
in light of prevailing or comparable transactions in other casinos,
hotels, attractions or shopping venues; and
(c) such Lease Transaction complies with all applicable law,
including obtaining any consent of the BIA, if required;
(2) The Lease and any amendments, extensions, modifications or renewals
thereof which are not materially adverse to the holders;
(3) The Authority may enter into a management or operating agreement
with respect to any of the Authority's property and assets with any Person;
provided that
(a) the manager or operator has experience in managing or operating
similar operations; and
(b) such management or operating agreement is on commercially
reasonable and fair terms to the Authority; and
(4) The Relinquishment Agreement, the Development Services Agreement and
the Side Letters with the Manager and any amendments, extensions,
modifications or renewals thereof which are not materially adverse to the
holders.
No Lease Transaction may provide that the Authority may subordinate its
leasehold or fee interest to any lessee or any financing party of any lessee,
and no person other than the Authority may conduct gaming or casino operations
on any property which is the subject of a Lease Transaction.
Covenants of the Tribe
The Tribe shall not, and shall not permit any of its representatives,
political subunits or councils, agencies, instrumentalities, directly or
indirectly, except as required by federal or state law, to do any of the
following:
(1) increase or impose any tax or other payment obligation on the
Authority or on any patrons of, or any activity at, the Resort other than:
(a) payments which are due under any agreement in effect on the
Closing Date or payments which are not materially adverse to the
economic interests of holders;
(b) payments which the Authority has agreed to reimburse each holder
for the economic effect thereof, if any;
(c) payments which correspondingly reduce the Restricted Payments
otherwise payable to the Tribe;
(d) pursuant to the Tribal Tax Code; or
(e) Government Service Payments;
(2) amend the terms of the Lease in any material manner that would be
materially adverse to the economic interests of holders;
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(3) amend the Tribal Gaming Ordinance in effect on the Closing Date
(unless any such amendment is a legitimate effort to ensure that the
Authority and the Resort conduct gaming operations in a manner that is
consistent with applicable laws, rules and regulations or that protects the
environment, the public health and safety, or the integrity of the
Authority or the Resort), restrict or eliminate the exclusive right of the
Authority to conduct gaming operations on any property owned or controlled
by the Tribe in a manner that would be materially adverse to the economic
interests of holders; or
(4) take any other action, enter into any agreement, amend its
constitution or enact any ordinance, law, rule or regulation that would
have a material adverse effect on the economic interests of holders.
The Tribe shall comply with all material terms of a construction reserve
disbursement agreement and shall not amend and shall not permit any of its
representatives, political subunits or councils, agencies, instrumentalities,
directly or indirectly, to amend, except as required by federal or state law,
such construction reserve agreement in a manner that would have a material
adverse effect on the economic interests of holders.
Moreover, except with the consent of a majority in interest of holders or as
required by federal or state law, the Tribe shall not, and shall not permit any
of its representatives, political subunits or councils, agencies,
instrumentalities, to, directly or indirectly impose, tax or otherwise make a
charge on the Senior Exchange Notes, the Senior Notes Indenture or any payments
or deposits to be made thereunder.
Upon any payment or distribution of assets upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Authority or the Resort, the holders of the Senior Exchange
Notes shall be entitled to receive payment in full in respect to all principal,
premium, interest and other amounts owing in respect of the Notes before any
payment or any distribution to the Tribe.
Changes in Covenants when Senior Exchange Notes Rated Investment Grade
Following the first date upon which the Senior Exchange Notes are rated Baa3
or better by Moody's Investors Service, Inc. ("Moody's") and BBB- or better by
Standard & Poor's Ratings Group ("S&P") (or, in either case, if such person
ceases to rate the Senior Exchange Notes for reasons outside of the control of
the Authority, the equivalent investment grade credit rating from any other
"nationally recognized statistical rating organization" (within the meaning of
Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act) selected by the Authority as a
replacement agency) (the "Rating Event Date") and provided no Event of Default
or event that with notice or the passage of time would constitute an Event of
Default shall exist on the Rating Event Date, the covenants specifically listed
under "--Repurchase at the Option of Holders--Asset Sales," "--Incurrence of
Indebtedness and Issuance of Preferred Stock," "--Restricted Payments," "--
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries," "--Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries," "--Construction," "--Restrictions on Leasing and
Dedication of Property," "--Provisions Common to Both Senior Exchange Notes and
Senior Subordinated Exchange Notes--Certain Common Covenants--Maintenance of
Insurance" and "--Transactions with Affiliates" in this Prospectus
(collectively, the "Suspended Covenants") will no longer be applicable to the
Senior Exchange Notes; provided however that if at any time after a Rating
Event Date, the Senior Exchange Notes shall be rated lower than Baa3 by Moody's
or lower than BBB- by S&P, or any equivalent rating by a successor agency to
Moody's or S&P, the Suspended Covenants shall be automatically reinstated (the
"Reinstated Covenants") and all transactions by the Authority that occurred
during the time that such covenants were suspended and that would have violated
such covenants had such covenants been in effect at the time shall be deemed
not to constitute a Default or an Event of Default, as the case may be, and
shall be deemed to have been in compliance with such covenants for all
purposes; provided further that thereafter all transactions by the Authority
occurring on or after the date on which the Suspended Covenants have been
reinstated shall be required to be in compliance with the Reinstated Covenants.
For purposes of interpreting the definition of "Permitted Liens" during the
time any Suspended Covenants are suspended, the definition should be read as if
the Suspended Covenants were not so suspended.
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There can be no assurance that a Rating Event Date will occur or, if one
occurs, that the Senior Exchange Notes will continue to maintain an investment
grade rating.
Description of the Senior Subordinated Exchange Notes
Ranking
These Senior Subordinated Exchange Notes
. are unsecured general obligations of the Authority; and
. are subordinated in right of payment to all existing and future Senior
Indebtedness of the Authority, including without limitation, up to $500
million of indebtedness under the Loan Agreement and $200 million in
principal amount of Senior Exchange Notes.
Subsidiaries
As of the date of the Senior Subordinated Notes Indenture, the Authority had
no Subsidiaries. However, the Senior Subordinated Notes Indenture permits the
Authority to create Subsidiaries and generally requires that these Subsidiaries
be designated as Restricted Subsidiaries (i.e., subject to the terms of the
Senior Subordinated Notes Indenture) unless certain conditions are met. If
these conditions are met, the Authority will be permitted to designate a
Subsidiary as an Unrestricted Subsidiary, and Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants of the Senior Subordinated
Notes Indenture.
Principal, Maturity and Interest
The Authority will issue Senior Subordinated Exchange Notes with a maximum
aggregate principal amount of $300 million. The Authority will issue Senior
Subordinated Exchange Notes in denominations of $1,000 and integral multiples
of $1,000. The Senior Subordinated Exchange Notes will mature on January 1,
2009.
Interest on these Senior Subordinated Exchange Notes will accrue at the rate
of 8 3/4% per annum and will be payable semi-annually in arrears on January 1
and July 1, beginning on July 1, 1999. The Authority will make each interest
payment to the holders of record of these Senior Subordinated Exchange Notes on
the immediately preceding December 15 and June 15.
Interest on these Senior Subordinated Exchange Notes accrues from the date
of original issuance or, if interest has already been paid, from the date it
was most recently paid. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
Subordination
The payment of principal, premium and interest, if any, on the Senior
Subordinated Exchange Notes and the Senior Subordinated Subsidiary Guarantees,
if any, is subordinated to the prior payment in full of all Senior Indebtedness
of the Authority including, without limitation, the Senior Exchange Notes and
the Loan Agreement. In the event of any distribution to creditors
(1) in a liquidation or dissolution of the Authority or the Tribe;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Authority, the Tribe or their respective
property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Authority's or the Tribe's assets and
liabilities;
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the holders of Senior Indebtedness will be entitled to receive payment in full
of all Obligations due in respect of Senior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Indebtedness) before the holders of Senior Subordinated
Exchange Notes will be entitled to receive any payment with respect to the
Senior Subordinated Exchange Notes (except that holders of Senior Subordinated
Exchange Notes may receive and retain Permitted Junior Securities and payments
made from the trust described under "--Provisions Common to Both Senior
Exchange Notes and Senior Subordinated Exchange Notes--Legal Defeasance and
Covenant Defeasance").
The Authority also may not make any payment in respect of the Senior
Subordinated Exchange Notes (except in Permitted Junior Securities or from the
trust described under "--Provisions Common to Both Senior Exchange Notes and
Senior Subordinated Exchange Notes--Legal Defeasance and Covenant Defeasance")
if
(1) a payment default on Designated Senior Indebtedness occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior
Indebtedness that permits holders of the Designated Senior Indebtedness to
accelerate its maturity and the Senior Subordinated Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Authority or
the holders of any Designated Senior Indebtedness.
Payments on the Senior Subordinated Exchange Notes may and shall be resumed
(1) in the case of a payment default, upon the date on which all Senior
Indebtedness is paid in full in cash or such default is cured or waived in
writing; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Indebtedness has been accelerated.
No new Payment Blockage Notice may be delivered unless and until
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest on the
Senior Subordinated Exchange Notes that have come due have been paid in
full in cash.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Senior Subordinated Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 180 days.
The Authority must promptly notify holders of Senior Indebtedness if payment
of the Senior Subordinated Exchange Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of the Authority or the Tribe,
holders of these Senior Subordinated Exchange Notes may recover less ratably
than holders of Senior Indebtedness. See "Risk Factors--Unsecured Ranking and
Subordination to Existing Indebtedness--Senior Subordinated Exchange Notes."
Optional Redemption
If, at any time after the Issue Date, any Gaming Regulatory Authority
requires a holder to be licensed or otherwise qualified under applicable gaming
laws in order for the Authority to maintain any of its gaming licenses or
franchises and the holder does not obtain such license or qualification within
the time periods
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described in the Senior Subordinated Notes Indenture and at its own cost and
expense, then the Authority will have the right to either
. require the holder to dispose of its Senior Subordinated Exchange Notes
within the time period specified by the Gaming Regulatory Authority or
30 days, whichever is shorter; or
. redeem the holder's Senior Subordinated Exchange Notes at a price equal
to the lesser of (1) the principal amount of the Senior Subordinated
Exchange Notes held by the holder, (2) the price paid for the Senior
Subordinated Exchange Notes by the holder, and (3) the current market
price of the Senior Subordinated Exchange Notes, in each case, including
all accrued and unpaid interest and Additional Interest, if any, to the
redemption date or the date a finding of unsuitability is made by the
applicable Gaming Regulatory Authority, if earlier.
The Authority will comply with the redemption procedures for the Senior
Subordinated Exchange Notes described in the Senior Subordinated Notes
Indenture unless otherwise required by a Gaming Regulatory Authority.
Except as described above, the Senior Subordinated Exchange Notes will not
be redeemable at the Authority option before January 1, 2004.
On or after January 1, 2004, the Authority may redeem all or a part of these
Senior Subordinated Exchange Notes upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
shown below plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the 12-month period beginning on January 1
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.............................. 104.375%
2005.............................. 102.917%
2006.............................. 101.458%
2007 and thereafter............... 100.000%
</TABLE>
Selection and Notice
If less than all of the Senior Subordinated Exchange Notes are to be
redeemed at any time, the Senior Subordinated Trustee will select Senior
Subordinated Exchange Notes for redemption as follows:
(1) if the Senior Subordinated Exchange Notes are listed, in compliance
with the requirements of the principal national securities exchange on
which the Senior Subordinated Exchange Notes are listed; or
(2) if the Senior Subordinated Exchange Notes are not so listed, on a
pro rata basis, by lot or by such method as the Senior Subordinated Trustee
shall deem fair and appropriate.
No Senior Subordinated Exchange Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of Senior
Subordinated Exchange Notes to be redeemed at its registered address. Notices
of redemption may not be conditional.
If any Senior Subordinated Exchange Note is to be redeemed in part only, the
notice of redemption that relates to that Senior Subordinated Exchange Note
shall state the portion of the principal amount thereof to be redeemed. A new
Senior Subordinated Exchange Note in principal amount equal to the unredeemed
portion of the original Senior Subordinated Exchange Note will be issued in the
name of the holder thereof upon cancellation of the original Senior
Subordinated Exchange Note. Senior Subordinated Exchange Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Senior Subordinated Exchange
Notes or portions of them called for redemption.
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Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of the Senior Subordinated
Exchange Notes will have the right to require the Authority to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of that holder's
Senior Subordinated Exchange Notes pursuant to a Change of Control Offer. In
the Change of Control Offer, the Authority will offer a Change of Control
Payment in cash equal to 101% of the aggregate principal amount of Senior
Subordinated Exchange Notes repurchased plus accrued and unpaid interest and
Additional Interest, if any, thereon, to the date of purchase.
Within 20 business days following any Change of Control, the Authority will
mail a notice to each holder (and, unless the Senior Subordinated Trustee makes
the mailing on behalf of the Authority, to the Senior Subordinated Trustee)
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Senior Subordinated Exchange Notes on the
Change of Control Payment Date specified in such notice, pursuant to the
procedures required by the Indenture and described in such notice. If the
Authority wishes the Senior Subordinated Trustee to do the mailing, it will
give the Senior Subordinated Trustee adequate prior notice so that the Senior
Subordinated Trustee may do so. The Authority will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Senior Subordinated Exchange Notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Authority, to the extent lawful
will,
(1) accept for payment all Senior Subordinated Exchange Notes or
portions thereof properly tendered pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Senior Subordinated Exchange Notes or
portions thereof so tendered; and
(3) deliver or cause to be delivered to the Senior Subordinated Trustee
the Senior Subordinated Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Senior
Subordinated Exchange Notes or portions thereof being purchased by the
Authority.
The Paying Agent will promptly mail to each holder of Senior Subordinated
Exchange Notes so tendered the Change of Control Payment for such Senior
Subordinated Exchange Notes, and the Senior Subordinated Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Senior Subordinated Note equal in principal amount to any unpurchased
portion of the Senior Subordinated Exchange Notes surrendered, if any; provided
that each such new Senior Subordinated Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Authority will notify the Senior
Subordinated Trustee and will instruct the Senior Subordinated Trustee to
notify the holders of the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Senior
Subordinated Notes Indenture does not contain provisions that permit the
holders of the Senior Subordinated Exchange Notes to require that the Authority
repurchase or redeem the Senior Subordinated Exchange Notes in the event of a
takeover, recapitalization or similar transaction.
The Loan Agreement will prohibit and the Senior Note Indenture may prohibit
the Authority from purchasing any Senior Subordinated Exchange Notes upon a
Change of Control. The Loan Agreement will also provide that certain change of
control events with respect to the Authority will constitute a default under
the Loan Agreement. Any future credit agreements or other agreements relating
to secured indebtedness to which
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the Authority becomes a party may contain similar restrictions and provisions.
In the event a Change of Control occurs at a time when the Authority is
prohibited from purchasing Senior Subordinated Exchange Notes, the Authority
could seek the consent of its lenders and other creditors to the purchase of
Senior Subordinated Exchange Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Authority does not obtain such a consent
or repay such borrowings, the Authority will remain prohibited from purchasing
Senior Subordinated Exchange Notes. In such case, the Authority's failure to
purchase tendered Senior Subordinated Exchange Notes would constitute an Event
of Default under the Senior Subordinated Notes Indenture which would, in turn,
constitute a default under the Loan Agreement and the Senior Subordinated Notes
Indenture.
The Authority will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements shown in
the Senior Subordinated Notes Indenture applicable to a Change of Control Offer
made by the Authority and purchases all Senior Subordinated Exchange Notes
validly tendered and not withdrawn under such Change of Control Offer.
Asset Sales
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless
(1) the Authority (or its Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value (as determined in good faith by the Management Board and
evidenced by a resolution shown in an Officers' Certificate delivered to
the Senior Subordinated Trustee) of the assets sold or otherwise disposed
of; and
(2) except in the case of a Permitted Asset Swap, at least 75% of the
consideration therefor received by the Authority or such Restricted
Subsidiary is in the form of cash. For purposes of this provision, each of
the following shall be deemed to be cash:
(a) any liabilities that would appear on the Authority's or such
Restricted Subsidiary's balance sheet prepared in accordance with GAAP
(other than contingent liabilities and liabilities that are by their
terms subordinated to the Senior Subordinated Exchange Notes or any
guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the
Authority or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
Authority or any such Restricted Subsidiary from such transferee that
are converted by the Authority or such Restricted Subsidiary into cash
(to the extent of the cash received) within 30 days of the receipt
thereof,
provided, however, that the Authority will not be permitted to make any Asset
Sale of Key Project Assets.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Authority may apply such Net Proceeds, at its option, to
(1) repay permanently term Indebtedness under Credit Facilities of the
Authority or any Restricted Subsidiary;
(2) repay revolving credit Indebtedness under Credit Facilities and
correspondingly permanently reduce commitments with respect thereto;
(3) acquire a majority of the assets of, or a majority of the Voting
Stock of, an entity engaged in the Principal Business or a Related
Business;
(4) make capital expenditures or acquire other long-term assets that are
used or useful in the Principal Business or a Related Business;
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(5) make an investment in the Principal Business or a Related Business
or in tangible long-term assets used or useful in the Principal Business or
a Related Business; or
(6) reduce permanently Indebtedness (including the Senior Exchange
Notes) that is not Subordinated Indebtedness.
Pending the final application of any such Net Proceeds, the Authority may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Senior Subordinated Notes
Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Authority will make an Asset Sale Offer to all holders of Senior
Subordinated Exchange Notes and all holders of other Indebtedness containing
provisions similar to those shown in the Senior Subordinated Notes Indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets to purchase the maximum principal amount of Senior Subordinated Exchange
Notes and such other Indebtedness that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the
principal amount plus accrued and unpaid interest and Additional Interest, if
any, to the date of purchase and will be payable in cash, in accordance with
the procedures shown in the Senior Subordinated Notes Indenture and such other
Indebtedness. To the extent that any Excess Proceeds remain after consummation
of an Asset Sale Offer, the Authority may use such Excess Proceeds for any
purpose not otherwise prohibited by the Senior Subordinated Notes Indenture. If
the aggregate principal amount of Senior Subordinated Exchange Notes and such
other Indebtedness tendered into such Asset Sale Offer surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Senior Subordinated Trustee
shall select the Senior Subordinated Exchange Notes and such other Indebtedness
(to the extent that such other Indebtedness permits such selection) to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Authority will not, and the Authority will not permit any of its
Restricted Subsidiaries, directly or indirectly, to
(1) make any payment on or with respect to any of the Authority's or any
of its Restricted Subsidiaries' Equity Interests;
(2) purchase, redeem, defease or otherwise acquire or retire for value
any Equity Interest in the Authority held by the Tribe or any Affiliate of
the Tribe;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Subordinated Indebtedness
(other than the defeasance and ultimate redemption of the junior
subordinated notes in accordance with their terms and the terms of the
Defeasance Trust, except a payment of interest or principal at Stated
Maturity thereof;
(4) make any payment or distribution to the Tribe (or any other agency,
instrumentality or political subunit thereof) or make any general
distribution to the members of the Tribe (other than Government Service
Payments); or
(5) make any Restricted Investment;
(all such payments and other actions shown in clauses (1) through (5) above are
collectively referred to as "Restricted Payments") unless, at the time of and
after giving effect to such Restricted Payment
(A) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
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(B) the Authority would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test shown in the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(C) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Authority and its Restricted
Subsidiaries after the date of the Senior Subordinated Notes Indenture
(excluding Restricted Payments permitted by clauses (2), (3), (4) and (5)
of the next succeeding paragraph), is less than the sum, without
duplication, of
(i) 50% of the Consolidated Net Income of the Authority for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Senior Subordinated
Notes Indenture to the end of the Authority's most recently ended
fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds or fair market value (as
determined in good faith by the Management Board and evidenced by a
resolution shown in an Officers' Certificate delivered to the Senior
Subordinated Trustee) of assets or property (other than cash) received
by the Authority from capital contributions from the Tribe that bear no
mandatory obligation to repay the Tribe and other than from a
Restricted Subsidiary of the Authority, plus (iii) to the extent that
any Restricted Investment that was made after the date of the Senior
Subordinated Notes Indenture is sold, liquidated or otherwise disposed
of for cash or an amount equal to the fair market value thereof (as
determined in good faith by the Management Board and evidenced by a
resolution shown in an Officers' Certificate delivered to the Senior
Subordinated Trustee), the lesser of (a) the cash return of capital or
fair market value amount, as the case may be, with respect to such
Restricted Investment (less the cost of disposition, if any) and (b)
the initial amount of such Restricted Investment plus (iv) to the
extent that any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary after the date of the Senior Subordinated Notes Indenture,
the lesser of (a) the fair market value of the Authority's Investment
in such Subsidiary as of the date of such redesignation or (b) such
fair market value as of the date on which such Subsidiary was
originally designated as an Unrestricted Subsidiary.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit
(1) the defeasance, redemption, repurchase or other acquisition of
Subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(2) the payment of any dividend by a Restricted Subsidiary of the
Authority to the holders of its common Equity Interests on a pro rata
basis;
(3) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary of the Authority
held by any member of the Authority's (or any of its Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Senior
Subordinated Notes Indenture; provided that (a) the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $1.0 million in any 12-month period and (b) the aggregate
amount of all such repurchased, redeemed, acquired or retired Equity
Interests shall not in the aggregate exceed $3.0 million;
(4) the redemption or purchase of Subordinated Indebtedness of the
Authority if the holder of such Subordinated Indebtedness has failed to
qualify or be found suitable or otherwise be eligible by any Gaming
Regulatory Authority to remain a holder of such Subordinated Indebtedness;
(5) the redemption, defeasance, repurchase or other acquisition or
retirement of Subordinated Indebtedness with the net cash proceeds from a
substantially concurrent capital contribution from the Tribe (provided that
such capital contribution is not counted for purposes of clause (C)(ii)
above); and
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(6) any other Restricted Payments in an amount not to exceed $20.0
million at any one time outstanding.
The Authority may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default; provided that in no
event shall (i) any entity (including any Subsidiary of the Authority or the
Authority or any operating division thereof) engaged in a Principal Business be
transferred to or held by an Unrestricted Subsidiary or (ii) any Key Project
Assets or Gaming Licenses be transferred to an Unrestricted Subsidiary. In the
event of such designation, all outstanding Investments owned by the Authority
and its Restricted Subsidiaries in the Subsidiary so designated will be deemed
to be an Investment made as of the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant unless the Investment constitutes a Permitted Investment. All such
outstanding Investments will be deemed to constitute Restricted Payments in an
amount equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. The Authority may
redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary if such
redesignation would not otherwise cause a Default.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Authority or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be
valued by this covenant shall be determined by the Management Board whose
resolution with respect thereto shall be delivered to the Senior Subordinated
Trustee. Not later than the date of making any Restricted Payment, the
Authority shall deliver to the Senior Subordinated Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "--Restricted
Payments" were computed.
Ranking of Payments Under the Relinquishment Agreement
The Authority will not designate the Senior Relinquishment Payments (as
defined in the Relinquishment Agreement) as Designated Senior Indebtedness and
the Authority will not amend Section 6.2 of the Relinquishment Agreement in a
manner adverse to the holders of the Senior Subordinated Exchange Notes.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Authority will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Indebtedness)
and the Authority will not issue any Disqualified Stock and will not permit any
of its Subsidiaries to issue any shares of preferred stock; provided, however,
that the Authority may incur Indebtedness (including Acquired Indebtedness) or
issue shares of Disqualified Stock and the Authority's Subsidiaries may incur
Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for
the Authority's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred would have been at least 2.0 to
1, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred at
the beginning of such four-quarter period. Notwithstanding the foregoing, the
Authority will not issue any Disqualified Stock or any type of Capital Stock
that would violate IGRA.
So long as no Default or Event of Default shall have occurred and be
continuing, or would be caused thereby, the first paragraph of this covenant
will not prohibit the incurrence of any of the following items of Indebtedness:
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(1) the incurrence by the Authority or its Restricted Subsidiaries of
Indebtedness and letters of credit pursuant to Credit Facilities; provided
that the aggregate principal amount of all such Indebtedness and letters of
credit outstanding under all Credit Facilities, after giving effect to such
incurrence (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Authority thereunder), does
not exceed $500 million less the aggregate amount of all Net Proceeds of
Asset Sales applied by the Authority or any of its Restricted Subsidiaries
since the date of the Senior Subordinated Notes Indenture to repay
Indebtedness under Credit Facilities pursuant to the covenant described
above under the caption "--Repurchase at the Option of Holders--Asset
Sales";
(2) the incurrence by the Authority and its Restricted Subsidiaries of
the Existing Indebtedness;
(3) the incurrence by the Authority of Indebtedness represented by the
Outstanding Senior Notes and the Senior Exchange Notes;
(4) the incurrence by the Authority of Indebtedness represented by the
Outstanding Senior Subordinated Notes and the Senior Subordinated Exchange
Notes;
(5) the incurrence by the Authority or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price of
furniture, fixtures, equipment or similar assets used or useful in the
business of the Authority or such Restricted Subsidiary not to exceed 100%
of the lesser of cost or fair market value of the assets financed and, in
an aggregate principal amount under this clause not to exceed $25.0 million
at any time outstanding;
(6) the incurrence by the Authority or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance, renew, extend, defease
or replace Indebtedness that was permitted by the Senior Subordinated Notes
Indenture to be incurred under the first paragraph of this covenant or
clauses (1), (2) (other than the junior subordinated notes), (3), (4) or
(5) of this paragraph;
(7) the incurrence by the Authority or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Senior Subordinated
Notes Indenture to be outstanding;
(8) the guarantee by the Authority or any of its Restricted Subsidiaries
of any Indebtedness of the Authority or any of its Restricted Subsidiaries
that was permitted to be incurred by another provision of this covenant;
(9) the incurrence by a Wholly Owned Restricted Subsidiary of
Indebtedness owed to another Wholly Owned Restricted Subsidiary or to the
Authority; provided that if at any time any such Wholly Owned Restricted
Subsidiary ceases to be a Wholly Owned Restricted Subsidiary, any such
Indebtedness shall be deemed to be an incurrence of Indebtedness for the
purposes of this covenant;
(10) the incurrence by the Authority or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (10), not to exceed $25.0
million; or
(11) the incurrence by the Authority's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Authority that was not permitted by this clause (11).
For purposes of determining compliance with this "--Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, if an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (11) above or is entitled to be
incurred
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pursuant to the first paragraph of this covenant, the Authority shall, in its
sole discretion, classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries
The Authority (i) will not, and will not permit any Wholly Owned Restricted
Subsidiary of the Authority to, transfer, convey, sell, lease or otherwise
dispose of any Equity Interests in any Wholly Owned Restricted Subsidiary of
the Authority to any Person (other than the Authority or another Wholly Owned
Restricted Subsidiary of the Authority), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Equity Interests in such Wholly
Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales," and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Authority to issue any of its Equity Interests (other than,
if necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Authority or a Wholly Owned Restricted
Subsidiary of the Authority.
Liens
The Senior Subordinated Notes Indenture will provide that the Authority will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) upon any of
its property or assets, or any proceeds therefrom, which secure either (a)
Subordinated Indebtedness, unless the Senior Subordinated Exchange Notes are
secured by a Lien on such property, assets or proceeds, which Lien is senior in
priority to the Liens securing such Subordinated Indebtedness or (b) pari passu
Indebtedness, unless the Senior Subordinated Exchange Notes are equally and
ratably secured with the Liens securing such pari passu Indebtedness.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to
(1) pay dividends or make any other distributions on its Capital Stock
to the Authority or any of the Authority's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the Authority or any of the
Authority's Restricted Subsidiaries;
(2) make loans or advances to the Authority or any of the Authority's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Authority or any of
the Authority's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of
(1) Existing Indebtedness as in effect on the date of the Senior
Subordinated Notes Indenture and any amendments, modifications,
restatements, renewals, extensions, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, extensions, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as
a whole, with respect to such dividend and other payment restrictions than
those contained in such Existing Indebtedness, as in effect on the date of
the Senior Subordinated Notes Indenture;
(2) the Senior Subordinated Notes Indenture and the Senior Subordinated
Exchange Notes;
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(3) the Senior Notes Indenture and the Senior Exchange Notes;
(4) the Credit Facilities;
(5) applicable law;
(6) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Authority or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
Senior Subordinated Notes Indenture to be incurred;
(7) customary non-assignment provisions in leases or other contracts
entered into in the ordinary course of business and consistent with past
practices;
(8) purchase money obligations (including, without limitation, Capital
Lease Obligations) for property acquired in the ordinary course of business
that impose restrictions on the property so acquired of the nature
described in clause (3) of the preceding paragraph;
(9) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(10) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(11) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limit the right of the Authority or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien;
(12) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Transactions with Affiliates
The Authority will not, and the Authority will not permit any of its
Restricted Subsidiaries to, make any payment to, or 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 or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless
(1) such Affiliate Transaction is on terms that are no less favorable to
the Authority or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Authority or such
Restricted Subsidiary with an unrelated Person; and
(2) the Authority delivers to the Senior Subordinated Trustee
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Management Board shown in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the
Management Board; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Authority or such
Restricted Subsidiary of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of national standing.
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The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraphs:
(1) any employment agreement or arrangement entered into by the
Authority or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Authority or such
Restricted Subsidiary;
(2) transactions between or among the Authority and/or its Restricted
Subsidiaries;
(3) payment of reasonable Management Board fees to members of the
Management Board;
(4) transactions with Persons in whom the Authority owns any Equity
Interests, so long as the remaining equity holders of such Person are not
Affiliates of the Authority or any of its Subsidiaries;
(5) Government Service Payments;
(6) transactions pursuant to the Development Services Agreement, the
Relinquishment Agreement and the Side Letters;
(7) Restricted Payments or Permitted Investments that are made in
compliance with the provisions of the Senior Subordinated Notes Indenture
described above under the caption "--Restricted Payments;" and
(8) contractual arrangements existing on the date of the Senior
Subordinated Notes Indenture and any renewals, extensions and modifications
thereof that are not materially adverse to holders.
Subordinated Subsidiary Guarantees
The Senior Subordinated Notes Indenture will provide that if the Authority
acquires or creates any Restricted Subsidiary after the date of the Senior
Subordinated Notes Indenture, then that newly acquired or created Restricted
Subsidiary must become a Subsidiary Guarantor and execute a supplemental
indenture satisfactory to the Senior Subordinated Trustee and deliver an
Opinion of Counsel to the Senior Subordinated Trustee within 20 business days
of the date on which it is acquired or created.
The obligations of each Subsidiary Guarantor under its Senior Subordinated
Subsidiary Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. Any Senior Subordinated Subsidiary Guarantees
will be subordinated to Senior Indebtedness in the same manner and to the same
extent as the Senior Subordinated Exchange Notes.
No Subsidiary Guarantor may consolidate with or merge with or into (whether
or not such Subsidiary Guarantor is the surviving Person), another corporation,
Person or entity whether or not affiliated with such Subsidiary Guarantor
unless: (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Senior Subordinated Trustee; and (ii) immediately after
giving effect to such transaction, no Default or Event of Default exists.
The Senior Subordinated Notes Indenture will permit the merger of one or
more Subsidiary Guarantors with or into another Subsidiary Guarantor or with or
into the Authority; provided that in the case of a merger with or into the
Authority, the Authority is the surviving entity.
In the event of a sale or other disposition of all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Subsidiary Guarantor or
if a Subsidiary Guarantor is designated as an Unrestricted Subsidiary, then
such Subsidiary Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock or a
redesignation of such Subsidiary Guarantor) or the entity acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and
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relieved of any obligations under its Senior Subordinated Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with or the redesignation is accomplished in accordance with the
applicable provisions of the Senior Subordinated Notes Indenture. See "--
Repurchase at the Option of Holders--Asset Sales."
The Authority currently has no Subsidiaries.
Sale and Leaseback Transactions
The Senior Subordinated Notes Indenture will provide that the Authority will
not, and will not permit any of its Restricted Subsidiaries to, enter into any
sale and leaseback transaction involving the Resort; provided that the
Authority or any of its Restricted Subsidiaries may enter into a sale and
leaseback transaction if
(1) the Authority or such Restricted Subsidiary, as applicable, could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed
Charge Coverage Ratio test shown in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption "--
Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Management Board and shown in an Officers' Certificate delivered to the
Senior Subordinated Trustee, of the property that is subject of such sale
and leaseback transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Authority applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales."
Construction
The Authority will use its commercially reasonable best efforts to cause
construction of the Expansion Project to be prosecuted with diligence and
continuity in good and workmanlike manner materially in accordance with the
plans relating to the Expansion Project as more fully described in this
Prospectus.
Restrictions on Leasing and Dedication of Property
Except as provided below, the Authority will not lease, sublease, or grant a
license, concession or other agreement to occupy, manage or use any material
portion of the Authority's property and assets owned or leased by the Authority
(each, a "Lease Transaction").
The first paragraph of this covenant will not prohibit any of the following
Lease Transactions:
(1) The Authority may enter into a Lease Transaction with respect to any
space with any Person (including, without limitation, a lease in connection
with the Expansion Project for the purpose of developing, constructing,
operating and managing retail establishments within the Resort), provided
that:
(a) such Lease Transaction will not materially interfere with,
impair or detract from the operations of the Resort;
(b) such Lease Transaction contains rent and such other terms such
that the Lease Transaction, taken as a whole is commercially reasonable
in light of prevailing or comparable transactions in other casinos,
hotels, attractions or shopping venues; and
(c) such Lease Transaction complies with all applicable law,
including obtaining any consent of the BIA, if required;
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(2) The Lease and any amendments, extensions, modifications or renewals
thereof which are not materially adverse to the holders;
(3) The Authority may enter into a management or operating agreement
with respect to any of the Authority's property and assets with any Person;
provided that
(a) the manager or operator has experience in managing or operating
similar operations; and
(b) such management or operating agreement is on commercially
reasonable and fair terms to the Authority; and
(4) The Relinquishment Agreement, the Development Services Agreement and
the Side Letters with the Manager and any amendments, extensions,
modifications or renewals thereof which are not materially adverse to the
holders.
No Lease Transaction may provide that the Authority may subordinate its
leasehold or fee interest to any lessee or any financing party of any lessee,
and no person other than the Authority may conduct gaming or casino operations
on any property which is the subject of a Lease Transaction.
No Senior Subordinated Indebtedness
The Authority will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Indebtedness of the Authority and senior in any respect
in right of payment to the Senior Subordinated Exchange Notes. No Subordinated
Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Senior Indebtedness of such Subordinated Guarantor and senior in any
respect in right of payment to such Subordinated Guarantor's Subsidiary
Subordinated Guarantee.
Covenants of the Tribe
The Tribe shall not, and shall not permit any of its representatives,
political subunits or councils, agencies, instrumentalities, directly or
indirectly, except as required by federal or state law, to do any of the
following:
(1) increase or impose any tax or other payment obligation on the
Authority or on any patrons of, or any activity at, the Resort other than:
(a) payments which are due under any agreement in effect on the
Closing Date or payments which are not materially adverse to the
economic interests of holders;
(b) payments which the Authority has agreed to reimburse each holder
for the economic effect thereof, if any;
(c) payments which correspondingly reduce the Restricted Payments
otherwise payable to the Tribe;
(d) pursuant to the Tribal Tax Code; or
(e) Government Service Payments;
(2) amend the terms of the Lease in any material manner that would be
materially adverse to the economic interests of holders;
(3) amend the Tribal Gaming Ordinance in effect on March 3, 1999 (unless
any such amendment is a legitimate effort to ensure that the Authority and
the Resort conduct gaming operations in a manner that is consistent with
applicable laws, rules and regulations or that protects the environment,
the public health and safety, or the integrity of the Authority or the
Resort), restrict or eliminate the exclusive right of the Authority to
conduct gaming operations on any property owned or controlled by the Tribe
in a manner that would be materially adverse to the economic interests of
holders; or
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(4) take any other action, enter into any agreement, amend its
constitution or enact any ordinance, law, rule or regulation that would
have a material adverse effect on the economic interests of holders.
The Tribe shall comply with all material terms of the construction reserve
agreement and shall not amend and shall not permit any of its representatives,
political subunits or councils, agencies, instrumentalities, directly or
indirectly, to amend, except as required by federal or state law, such a
construction reserve agreement in a manner that would have a material adverse
effect on the economic interests of holders.
Moreover, except with the consent of a majority in interest of holders or as
required by federal or state law, the Tribe shall not, and shall not permit any
of its representatives, political subunits or councils, agencies,
instrumentalities, to, directly or indirectly impose, tax or otherwise make a
charge on the Senior Subordinated Exchange Notes, the Senior Subordinated Notes
Indenture or any payments or deposits to be made thereunder.
Upon any payment or distribution of assets upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Authority or the Resort, the holders of the Notes shall be
entitled to receive payment in full in respect to all principal, premium,
interest and other amounts owing in respect of the Notes before any payment or
any distribution to the Tribe.
Provisions Common to Both Senior Exchange Notes and Senior Subordinated
Exchange Notes
Methods of Receiving Payments on the Notes
If a holder that holds at least $1.0 million in principal amount of Exchange
Notes has given wire transfer instructions to the Authority, the Authority will
make all principal, premium and interest payments, including Additional
Interest payments, if any, on those Exchange Notes in accordance with those
instructions. All other payments on these Exchange Notes will be made at the
office or agency of the Paying Agent and Registrar within the City and State of
New York unless the Authority elects to make interest payments by check mailed
to the holders at their address shown in the register of holders.
Paying Agent and Registrar for the Notes
The Trustees initially will act as Paying Agent and Registrar. The Authority
may change the Paying Agent or Registrar without prior notice to the holders of
the Notes, and the Authority may act as Paying Agent or Registrar.
Transfer and Exchange
A holder may transfer or exchange Exchange Notes in accordance with the
Indentures. The Registrar and the Trustees may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Authority may require a holder to pay any taxes and fees required by law or
permitted by the Indentures. The Authority is not required to transfer or
exchange any Exchange Note selected for redemption. Also, the Authority is not
required to transfer or exchange any Exchange Note for a period of 15 days
before a selection of Exchange Notes to be redeemed.
The registered holder of an Exchange Note will be treated as the owner of it
for all purposes.
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Certain Common Covenants
Use of Proceeds
The Authority will use the net proceeds of the Outstanding Notes Offering
only for Permitted Proceed Uses.
Gaming Licenses
The Authority will use its best efforts to obtain and retain in full force
and effect at all times all Gaming Licenses necessary for the operation of the
Resort, provided, that, if in the course of the exercise of its governmental or
regulatory functions the Authority is required to suspend or revoke any
consent, permit or license or close or suspend any operation or any part of the
Resort as a result of any noncompliance with the law, the Authority will use
its best efforts to promptly and diligently correct such noncompliance or
replace any personnel causing such noncompliance so that the Resort will be
opened and fully operating.
The Authority shall file with the Trustees and provide holders of Exchange
Notes any Notice of Violation, Order of Temporary Closure, or Assessment of
Civil Fines, from the NIGC pursuant to 25 C.F.R. Part 573 or 575 or any
successor provision, and any Notice of Non-Compliance issued by, or cause of
action commenced by, the State of Connecticut under Section 13 of the Compact,
or any successor provision.
Ownership Interests in the Authority
Neither the Tribe nor the Authority shall permit any Person other than the
Tribe to acquire any Ownership Interest whatsoever in the Authority.
Existence of the Authority and Maintenance of the Lease
The Authority shall, and shall cause each of its Restricted Subsidiaries to,
do or cause to be done all things necessary to preserve and keep in full force
and effect their respective existence, in accordance with their respective
organizational documents and their respective rights (contractual, charter and
statutory), licenses and franchises; provided, however, that neither the
Authority nor any Restricted Subsidiary shall be required to preserve, with
respect to itself, any license, right or franchise and, with respect to its
Restricted Subsidiaries, any such existence, license, right or franchise, if
its Management Board or Board of Directors, or other governing body or officers
authorized to make such determination, as the case may be, shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Authority or any Restricted Subsidiary, and that the loss thereof is not
adverse in any material respect to the holders. In addition, the Authority
shall do, or cause to be done, all things necessary to perform any material
covenants shown in the Lease to keep the Lease in full force and effect.
Liquidation or Dissolution
The Authority shall not sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or more
transactions. The Authority shall not consolidate or merge with or into any
other Person.
Limitations on Lines of Business
The Authority shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any business other than the Principal Business or a
Related Business.
Maintenance of Insurance
The Indentures provide that, until the Exchange Notes have been paid in
full, the Authority shall maintain insurance with responsible carriers against
such risks and in such amounts as is customarily carried by similar businesses
with such deductibles, retentions, set insured amounts and coinsurance
provisions as are customarily carried by similar businesses of similar size,
including, without limitation, property and casualty.
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Customary insurance coverage shall be deemed to include the following:
(1) workers' compensation insurance to the extent required to comply
with all applicable state, territorial, or United States laws and
regulations, or the laws and regulations of any other applicable
jurisdiction;
(2) comprehensive general liability insurance with minimum limits of
$2.0 million;
(3) umbrella or bumbershoot liability insurance providing excess
liability coverages over and above the foregoing underlying insurance
policies up to a minimum limit of $100.0 million; and
(4) property insurance protecting the property against loss or damage by
fire, lightning, wind-storm, tornado, water damage, vandalism, riot,
earthquake, civil commotion, malicious mischief, hurricane, and such other
risks and hazards as are from time to time covered by an "all-risk" policy
or a property policy covering "special" causes of loss (such insurance
shall provide coverage of not less than 100% of actual replacement value
(as determined at each policy renewal based on the F.W. Dodge Building
Index or some other recognized means) of any improvements and with a
deductible no greater than $500,000 (other than earthquake insurance, for
which the deductible may be up to 10% of such replacement value)).
Payments for Consent
The Authority will not and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, to or for the benefit of any holder of any Senior Exchange Notes
or Senior Subordinated Exchange Notes, as the case may be, for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of either of the Indentures or the Senior Exchange Notes or Senior
Subordinated Exchange Notes, as the case may be, unless such consideration is
offered to be paid or is paid to all holders of the Senior Exchange Notes or
Senior Subordinated Exchange Notes, as the case may be, that consent, waive or
agree to amend in the time frame shown in the solicitation documents relating
to such consent, waiver or agreement.
Required Defeasance and Redemption of the Junior Subordinated Notes
The Authority will have established, as of the date of the Indentures, the
Defeasance Trust and deposit into the Defeasance Trust cash or government
securities estimated to be sufficient to pay all principal, premium and
interest on the Junior Subordinated Notes less $500,000 on January 1, 2000, the
first redemption date. The Authority will redeem the Junior Subordinated Notes
from the proceeds of the Defeasance Trust on January 1, 2000 at a price of 100%
of the principal amount, plus accrued and unpaid interest thereon, less
$500,000.
Designation of Designated Senior Indebtedness Under the Relinquished Agreement
The Authority will not designate any indebtedness as "Designated Senior
Indebtedness" under the Relinquishment Agreement that is not also designated as
Designated Senior Indebtedness under the Senior Subordinated Notes Indenture.
Reports
Whether or not required by the Commission, so long as any Exchange Notes are
outstanding, the Authority will furnish to the holders of Notes and the
Trustees within 15 days after the end of the time periods specified in the
Commission's rules and regulations for filings of current, quarterly and annual
reports:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Authority were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of
operations of the Authority and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes
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thereto and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the financial condition and results of
operations of the Authority and its Restricted Subsidiaries separate from
the financial condition and results of operations of the Unrestricted
Subsidiaries of the Authority, to the extent that would be required by the
rules, regulations or interpretive positions of the Commission) and, with
respect to the annual information only, a report thereon by the Authority's
independent public accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Authority were required to file such reports.
In addition, if the Authority consummates the Exchange Offers, whether or
not required by the rules and regulations of the Commission, the Authority
will file a copy of all such information and reports with the Commission for
public availability within the time periods specified in the Commission's
rules and regulations (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request.
In addition, the Authority has agreed that, for so long as any Exchange
Notes remain outstanding, it will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The Authority shall file with the Trustees and provide to holders of
Exchange Notes, within 15 days after it files them with the NIGC, copies of
all reports which the Authority is required to file with the NIGC pursuant to
25 C.F.R. Part 514.
Events of Default and Remedies
With respect to each of the Senior Exchange Notes and the Senior
Subordinated Exchange Notes, respectively, each of the following is an Event
of Default:
(1) default for 30 days in the payment when due of interest on, or
Additional Interest with respect to, such Notes;
(2) default in payment when due of the principal of or premium, if any,
on such Exchange Notes;
(3) failure by the Authority or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "--Description of
the Senior Exchange Notes--Repurchase at the Option of Holders--Asset
Sales," "--Description of the Senior Subordinated Exchange Notes--
Repurchase at the Option of Holders--Asset Sales" or "--Certain Common
Covenants--Liquidation or Dissolution";
(4) failure by the Authority or any of its Restricted Subsidiaries for
(i) 30 days after notice to comply with the provisions described under "--
Description of the Senior Exchange Notes--Certain Covenants--Restricted
Payments," "--Description of the Senior Subordinated Exchange Notes--
Certain Covenants--Restricted Payments," "--Description of the Senior
Exchange Notes--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock" and "Description of the Senior Subordinated Exchange
Notes--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" or (ii) 60 days after notice to comply with any of the
other agreements in the respective Indentures or the Exchange Notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Authority or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Authority or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, if that default
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness before the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default"); or
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(b) results in the acceleration of such Indebtedness before its
express maturity; and,
in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(6) failure by the Authority or any of its Restricted Subsidiaries to
pay final judgments in amounts not covered by insurance or not adequately
reserved for in accordance with GAAP aggregating in excess of $10.0
million, which judgments are not paid, discharged or stayed (by reason of
pending appeal or otherwise) for a period of 60 days;
(7) certain events of bankruptcy or insolvency with respect to the
Authority or any of its Restricted Subsidiaries;
(8) revocation, termination, suspension or other cessation of
effectiveness of any Gaming License which results in the cessation or
suspension of gaming operations for a period of more than 90 consecutive
days at the Resort;
(9) cessation of gaming operations for a period of more than 90
consecutive days at the Resort (other than as a result of a casualty loss);
(10) the Lease ceases to be in full force and effect; and
(11) failure by the Tribe to comply with the provisions described under
"Covenants of the Tribe" for 30 days after notice to comply.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency with respect to the Authority, any Restricted Subsidiary that is
a Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, a Trustee or the holders of at
least 25% in principal amount of the then outstanding Exchange Notes may
declare all the Exchange Notes to be due and payable immediately.
Holders of the Exchange Notes may not enforce their respective Indentures or
the Exchange Notes except as provided in the Indentures. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Exchange Notes may direct a Trustee in its exercise of any trust or power. A
Trustee may withhold from holders of the Exchange Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to a Trustee may on behalf of the holders of
all of the Exchange Notes waive any existing Default or Event of Default and
its consequences under the respective Indentures except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the
Exchange Notes.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Authority with
the intention of avoiding payment of the premium that the Authority would have
had to pay if the Authority then had elected to redeem the Senior Subordinated
Exchange Notes pursuant to the optional redemption provisions of the Senior
Subordinated Notes Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the
acceleration of the Senior Subordinated Exchange Notes. If an Event of Default
occurs before January 1, 2004 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Authority with the intention of
avoiding the prohibition on redemption of the Senior Subordinated Exchange
Notes before January 1, 2004, then the premium specified in the Senior
Subordinated Notes Indenture shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Senior Subordinated
Exchange Notes.
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The Authority will be required to deliver to each Trustee annually a
statement regarding compliance with the Indenture, and the Authority will be
required upon becoming aware of any Default or Event of Default, to deliver to
each Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Limited Partners, Directors, Officers, Employees and
Stockholders
Neither the Tribe nor any director, officer, office holder, employee, agent,
representative or member of the Authority or the Tribe or holder of an
Ownership Interest of the Authority, any Subsidiary Guarantor or the Tribe, as
such, shall have any liability for any obligations of the Authority under the
Exchange Notes or the Indentures or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holder of Exchange Notes
by accepting an Exchange Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Exchange
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
The Authority may, at its option and at any time, elect to have all of its
obligations discharged with respect to either or both of the outstanding Senior
Exchange Notes and Senior Subordinated Exchange Notes, ("Legal Defeasance")
except for
(1) the rights of holders of outstanding Exchange Notes to receive
payments in respect of the principal of, premium, if any, and interest and
Additional Interest, if any, on such Exchange Notes when such payments are
due from the trust referred to below;
(2) the Authority's obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of Outstanding
Notes, mutilated, destroyed, lost or stolen Exchange Notes and the
maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustees,
and the Authority's obligations in connection with those rights, powers,
trusts, duties and immunities; and
(4) the Legal Defeasance provisions of the Indentures.
In addition, the Authority may, at its option and at any time, elect to
have the obligations of the Authority released with respect to certain
covenants that are described in the Indentures ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Exchange
Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "--Events of Default and Remedies" will
no longer constitute an Event of Default with respect to the Exchange
Notes.
To exercise either Legal Defeasance or Covenant Defeasance
(1) the Authority shall have irrevocably deposited with the appropriate
Trustee, in trust, for the benefit of the holders of the Exchange Notes,
cash in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and Additional Interest on the
outstanding Exchange Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Authority must specify whether
the Exchange Notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, the Authority shall have delivered
to the Trustees an opinion of counsel in the United States reasonably
acceptable to the Trustees confirming that
(a) the Authority has received from, or there has been published by,
the Internal Revenue Service a ruling; or
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(b) since the date of the Indentures, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
holders of the Exchange Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Authority shall have
delivered to the Trustees an opinion of counsel in the United States
reasonably acceptable to the Trustees confirming that the holders of the
Exchange Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indentures) to which the Authority
or any of the Authority's Restricted Subsidiaries is a party or by which
the Authority or any of the Authority's Restricted Subsidiaries is bound;
(6) the Authority must have delivered to the Trustees an opinion of
counsel that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) the Authority shall have delivered to the Trustees an Officers'
Certificate stating that the deposit was not made by the Authority with the
intent of preferring the holders of Exchange Notes over the other creditors
of the Authority with the intent of defeating, hindering, delaying or
defrauding creditors of the Authority or others; and
(8) the Authority shall have delivered to the Trustees an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in this section, the Authority, the Tribe and the Trustee
may amend or supplement the Exchange Notes with the consent of the holders of
at least a majority of the aggregate outstanding principal amount of each of
the Senior Exchange Notes or the Senior Subordinated Exchange Notes, as
applicable, provided that without the consent of each holder affected, an
amendment or waiver (with respect to any Exchange Notes held by a non-
consenting holder) may not
(1) reduce the principal amount of Exchange Notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Exchange
Note or alter the provisions with respect to the redemption of the Exchange
Notes (other than provisions relating to the covenants described above
under the captions "--Description of the Senior Exchange Notes--Repurchase
at the Option of Holders" and "--Description of the Senior Subordinated
Exchange Notes--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
Exchange Note;
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(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Exchange Notes (except a rescission
of acceleration of the Exchange Notes by the holders of at least a majority
in aggregate principal amount of the Exchange Notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any Exchange Note payable in money other than that stated in
the Exchange Notes;
(6) make any change in the provisions of the Indentures relating to
waivers of past Defaults or the rights of holders of Exchange Notes to
receive payments of principal of or premium, if any, or interest on the
Exchange Notes;
(7) waive a redemption payment with respect to any Exchange Note (other
than a payment required by one of the covenants described above under the
captions "--Description of the Senior Exchange Notes--Repurchase at the
Option of Holders" and "--Description of the Senior Subordinated Exchange
Notes--Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Without the consent of holders of at least 66 2/3% of the aggregate
outstanding principal amount of each of the Senior Exchange Notes and the
Senior Subordinated Exchange Notes, as applicable, the Authority may not amend,
alter or waive the provisions shown in the sections entitled "--Description of
the Senior Exchange Notes--Repurchase at the Option of Holders--Change of
Control" and "--Description of the Senior Subordinated Exchange Notes--
Repurchase at the Option of Holders--Change of Control." In addition, any
amendment to the provisions of Article X of the Senior Subordinated Indenture
(which relate to subordination) will require the consent of holders of at least
75% in aggregate principal amount of Senior Subordinated Exchange Notes then
outstanding.
Notwithstanding the foregoing, without the consent of any holder of Exchange
Notes, and provided that any required governmental approval to ensure the
enforceability of the Exchange Notes and the Indentures, including that of the
NIGC or the BIA, is obtained, the Authority and the Trustee may amend or
supplement the Indentures or the Exchange Notes to
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated Exchange Notes in addition to or in place
of certificated Exchange Notes;
(3) provide for the assumption of the Authority's obligations to holders
of Exchange Notes in the case of a merger or consolidation or sale of all
or substantially all of the Authority's assets;
(4) make any change that would provide any additional rights or benefits
to the holders of Exchange Notes or that does not adversely affect the
legal rights under the Indentures of any such holder; or
(5) comply with requirements of the Commission to effect or maintain the
qualification of the Indentures under the Trust Indenture Act.
Concerning the Trustees
If a Trustee becomes a creditor of the Authority or any Guarantor, the
Indentures limit its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security
or otherwise. Such Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue or
resign.
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The holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to a Trustee,
subject to certain exceptions. The Indentures provide that in case an Event of
Default shall occur and be continuing, the Trustees will be required, in the
exercise of their power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustees will be
under no obligation to exercise any of their rights or powers under the
Indentures at the request of any holder of Exchange Notes, unless such holder
shall have offered to the Trustees security and indemnity satisfactory to each
of them against any loss, liability or expense.
Governing Law
The Indentures and the Notes will be, subject to certain exceptions,
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to the conflicts of law principles thereof
(other than Section 5-1401 of the New York General Obligations Law).
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indentures and
registration rights agreements without charge by writing to the Authority at 1
Mohegan Sun Boulevard, Uncasville, CT 06382 attention: Roland Harris.
Book-Entry, Delivery and Form
The Exchange Notes will initially be issued in registered, global form in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof, held in book-entry form. The Exchange Notes will be deposited with the
Trustees as custodian for The Depository Trust Authority ("DTC"), and DTC or
its nominee will initially be the sole registered holder of the Exchange Notes
for all purposes under the Indentures. Except as shown below, the Global Senior
Notes (as defined in the Senior Indenture) and Global Senior Subordinated Notes
(as defined in the Senior Subordinated Notes Indenture), (collectively, the
"Global Notes") may be transferred, in whole and not in part, only to another
nominee of DTC or to a successor of DTC or its nominee.
The Global Notes will be deposited upon issuance with the respective Trustee
as custodian for The Depository Trust Authority ("DTC"), in New York, New York,
and registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Beneficial interests in the Global Notes may not be exchanged for Exchange
Notes in certificated form except in the limited circumstances described below.
See "--Exchange of Books-Entry Notes for Certificated Notes." Except in the
limited circumstances described below, owners of beneficial interests in the
Global Notes will not be entitled to receive physical delivery of the
Certificated Notes (as defined below).
Initially, the Trustees will act as Paying Agent and Registrar. The Exchange
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. The Authority takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
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DTC has advised the Authority that DTC is a limited-purpose trust Authority
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Authority that, pursuant to procedures established
by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amounts of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global Notes).
All interests in a Global Note, may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in Global Note to such persons
will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have Exchange Notes registered in their names, will not receive physical
delivery of Exchange Notes in certificated form and will not be considered the
registered owners or "holders" thereof under the Indentures for any purpose.
Payments in respect of the principal of, and premium, if any Additional
Interest, if any, and interest on a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered holder
under the Indentures. Under the terms of the Indentures, the Authority and the
Trustees will treat the persons in whose names the Exchange Notes, including
the Global Notes are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Authority, the Trustees nor any agent of the
Authority or the Trustees has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Participant's or Indirect participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Notes, or for maintaining, supervising or reviewing any
of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Notes or (ii) any
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advise the Authority that its
current practice, upon receipt of any payment in respect of securities such as
the Notes (including principal and interests), is to credit the accounts of the
relevent Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of the
beneficial interest in the relevent security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of the Exchange Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
the DTC, the Trustees or the Authority. Neither the Authority nor the Trustees
will be liable for any delay by DTC or any of its Participants in identifying
the beneficial owners of the Exchange Notes, and the Authority and the Trustees
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
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Interest in the Global Notes are expected to be eligible to trade DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefor, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "--Same Day
Settlement and payment."
Subject to the transfer restrictions shown under "Notice to Investors, "
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds.
DTC has advised the Authority that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Notes and only in respect of such portion of the aggregate principal amount of
the Exchange Notes as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default under the
Exchange Notes, DTC reserves the right to exchange the Global Notes for
legended Exchange Notes in certificated form, and to distribute such Exchange
Notes to its Participants.
Exchange of Book-Entry Exchange Notes for Certificated Notes
A Global Note is exchangeable for definitive Exchange Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Authority
that it is unwilling or unable to continue as depositary for the Global Notes
and the Authority thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Authority, at its option, notifies the applicable Trustee in writing that it
elects to cause the issuance of the Certificated Notes or (iii) there shall
have occurred and be continuing a Default or Event of Default with respect to
the Exchange Notes. In addition, beneficial interests in a Global Note may be
exchanged for Certificated Notes upon request but only upon prior written
notice given to the applicable Trustee by or on behalf of DTC in accordance
with the Indentures. In all cases, Certificated Notes delivered in exchange for
any Global Note or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the depositary (in accordance with its customary procedures) and will bear the
applicable restrictive legend referred to in "Notice to Investors," unless the
Authority determines otherwise in compliance with applicable law.
Exchange of Certificated Exchange Notes for Book-Entry Notes
Exchange Notes in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the
applicable Trustee a written certificate (in the form provided in the
Indentures) to the effect that such transfer will comply with the appropriate
transfer restrictions applicable to such Exchange Notes. See "Notice to
Investors."
Same Day Settlement and Payment
The Indentures require that payments in respect of the Exchange Notes
represented by the Global Notes (including principal, premium, if any, interest
and Additional Interest, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note holder. With
respect to Exchange Notes in certificated form, the Authority will make all
payments of principal, premium, if any, interest and Additional Interest, if
any, by wire transfer of immediately available funds to the accounts specified
by the holders thereof that holds at least $1.0 million in principal amount of
Exchange Notes or, if no such account is specified, by mailing a check to each
such holder's registered address.
Registration Rights; Additional Interest
The Authority and the Initial Purchasers entered into registration rights
agreements, pursuant to which, the Authority is filing with the Commission this
Exchange Offer Registration Statement under the Securities Act with respect to
the Exchange Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Authority will offer to the holders of Transfer Restricted
Securities pursuant to the Exchange Offers who are
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able to make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) the Authority is not required
to file the Exchange Offer Registration Statement or permitted to consummate an
Exchange Offer because such Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any holder of Transfer Restricted Securities
notifies the Authority before the 20th day following consummation of an
Exchange Offer that (A) it is prohibited by law or Commission policy from
participating in such Exchange Offer or (B) that it may not resell the Exchange
Notes acquired by it in the Exchange Offers to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Outstanding Notes acquired directly from the Authority
or an affiliate of the Authority, the Authority will file with the Commission a
Shelf Registration Statement to cover resales of the Outstanding Notes by the
holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Authority
will use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Outstanding Note
until (i) the date on which such Outstanding Note has been exchanged by a
person other than a broker-dealer for an Exchange Note in the Exchange Offers,
(ii) following the exchange by a broker-dealer in an Exchange Offer of an
Outstanding Note for a Exchange Note, the date on which such Exchange Note is
sold to a purchaser who receives from such broker-dealer on or before the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iv) the date on which such Note is distributed
to the public pursuant to Rule 144 under the Act.
The registration rights agreements each provide that (i) the Authority will
file an Exchange Offer Registration Statement with the Commission on or before
90 days after the Closing Date, (ii) the Authority will use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or before 150 days after the Closing Date, (iii) unless the
Exchange Offers would not be permitted by applicable law or Commission policy,
the Authority will commence the Exchange Offers and use its best efforts to
issue on or before 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, Exchange Notes
in exchange for all Outstanding Notes tendered prior thereto in the Exchange
Offers and (iv) if obligated to file the Shelf Registration Statement, the
Authority will use its best efforts to file the Shelf Registration Statement
with the Commission on or before 30 days after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the Commission
on or before 90 days after such obligation arises. If (a) the Authority fails
to file any of the Registration Statements required by the registration rights
agreements on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or
before the date specified for such effectiveness (the "Effectiveness Target
Date"), or (c) the Authority fails to consummate the Exchange Offers within
30 business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the registration rights
agreements (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Authority will pay Additional Interest to
each holder of Notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal
to 25 basis points per 90-day period of the principal amount of Notes held by
such holder. The amount of the Additional Interest will increase by an
additional 25 basis points with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of Additional
Interest of 1% per annum of the principal amount of Notes. All accrued
Additional Interest will be paid by the Authority on each date on which the
payment of Additional Interest is due (which date shall be the next Interest
Payment Date as provided in the Notes) to the Global Note holder by wire
transfer of immediately available funds or by federal funds check and to
holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Additional Interest will cease.
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Holders of Outstanding Notes will be required to make certain
representations to the Authority (as described in the registration rights
agreement) to participate in the Exchange Offers and will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods shown in the registration rights agreements to have their
Outstanding Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Additional Interest shown above.
Certain Definitions
Shown below are certain defined terms used in the Indentures. Reference is
made to the Indentures for all of such terms, as well as any other capitalized
terms used herein for which no definition is provided. Cross references to
captions shall means the respective caption, as appropriate, under the
subsections "--Description of the Senior Exchange Notes" and "--Description of
the Senior Subordinated Exchange Notes."
"Acquired Indebtedness" means, with respect to any specified Person,
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Asset Sale" means
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary course of business consistent
with past practices; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Authority and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the respective Indentures described above under the captions
"--Repurchase at the Option of Holders--Change of Control" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance by the Authority or any of its Restricted Subsidiaries
of Equity Interests of any of the Authority's or its Restricted
Subsidiaries' Restricted Subsidiaries or the sale by the Authority or any
of its Subsidiaries of any Equity Interests in any of their respective
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1.0 million; or
(b) results in net proceeds to the Authority and its Restricted
Subsidiaries of less than $1.0 million;
(2) a transfer of assets between or among the Authority and its Wholly
Owned Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Authority or to another Wholly Owned Restricted
Subsidiary;
(4) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the captions "--Certain Covenants--
Restricted Payments;"
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(5) any Event of Loss; and
(6) any lease or sublease permitted under the covenant described under
the captions entitled "--Certain Covenants--Restrictions on Leasing and
Dedication of Property."
The Authority is prohibited from making an Asset Sale of Key Project Assets.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended (or may, at the option of the lessor, be extended). Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Attributable Value" means, with respect to any sale and leaseback
transaction, as of the time of determination, the total obligation (discounted
to present value at the rate of interest equal to that of the terms of the
Senior Exchange Notes, compounded semi-annually) of the lessee for rental
payments (other than amounts required to be paid on account of property taxes)
during the remaining portion of the base terms of the lease included in such
sale and leaseback transaction.
"Authority" means the Mohegan Tribal Gaming Authority together with any
subdivision, agency or subunit that has no separate legal existence from the
Mohegan Tribal Gaming Authority, and any successor and assignee thereto.
"BIA" means the Bureau of Indian Affairs.
"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 in
accordance with GAAP.
"Capital Stock" means
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person; but excluding any interest under the
Relinquishment Agreement.
"Cash Equivalents" means
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than six months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case with any lender party to the Credit Facilities or with any
domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better,
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(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable
from Moody's or S&P and in each case maturing within six months after the
date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1)-(5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the Authority ceases to be a wholly-owned unit, instrumentality or
subdivision of the government of the Tribe;
(2) the Authority ceases to have the exclusive legal right to operate
gaming operations of the Tribe;
(3) the Authority fails to retain in full force and effect at all times
all material governmental consents, permits or legal rights necessary for
the operation of the Resort and such failure continues for a period of 90
consecutive days, or
(4) the Authority sells, assigns, transfers, leases, conveys or
otherwise disposes of all or substantially all of its assets to, or
consolidates or merges with or into any other person.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compact" means the tribal-state Compact entered into between the Tribe and
the State of Connecticut pursuant to the Indian Gaming Regulatory Act of 1988,
PL 100-497, 25 U.S.C. 2701 et seq. as the same may, from time to time, be
amended, or such other Compact as may be substituted therefor.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus
(1) an amount equal to any extraordinary loss (including without
limitation any non-cash charges or losses arising from adjustments relating
to the Relinquishment Agreement) plus any net loss realized in connection
with an Asset Sale, to the extent such losses were deducted in computing
such Consolidated Net Income; plus
(2) provision for taxes based on the income or profits of such Person
and its Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if
any, pursuant to Hedging Obligations), but excluding interest expense on
the Junior Subordinated Notes, to the extent that any such expense was
deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period), non-cash charges associated with equity
option plans and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Subsidiaries for
such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income;
minus
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(5) non-cash items increasing such Consolidated Net Income for such
period (including without limitation any non-cash items arising from
adjustments relating to the Relinquishment Agreement), minus
(6) to the extent not included in computing such Consolidated Net
Income, any revenues received or accrued by the Authority or any of its
Subsidiaries from any Person (other than the Authority or any of its
Subsidiaries) in respect of any Investment for such period,
all determined on a consolidated basis and in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that the Net Income of such Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to such Person by
such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to
that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that
(1) the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash
to the specified Person or a Wholly Owned Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period before the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) the Net Income shall be reduced by the amount of payments pursuant
to the Relinquishment Agreement, paid or payable, for such period based on
5% of the revenues (as defined in the Relinquishment Agreement) generated
in such period; and
(6) both the interest income related to the Defeasance Trust and the
interest expense on the Junior Subordinated Notes shall be excluded so long
as the payment of principal, premium and interest on the Junior
Subordinated Notes at redemption on January 1, 2000 is fully covered by the
amounts of the Defeasance Trust.
"Consolidated Net Tangible Assets" means, with respect to the Authority and
its Restricted Subsidiaries, taken as a whole, the aggregate amount of assets
(less applicable reserves and other items deducted in accordance with GAAP)
after deducting therefrom (a) all liabilities (other than liabilities incurred
with respect to the Relinquishment Agreement) and (b) all goodwill, trade
names, trademarks, patents, organization expenses and other like intangibles of
the Authority and its Restricted Subsidiaries, in each case, to the extent
included in the total amount of assets, all as shown on the most recent
consolidated balance sheet of the Authority and its Restricted Subsidiaries and
calculated in accordance with GAAP excluding assets in the Defeasance Trust and
the liabilities represented by the Junior Subordinated Notes.
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"Consumer Price Index" means The Consumer Price Index for All Urban
Consumers (CPI-U) for the U.S. City Average for All Items, 1982-1984=100 as
compiled and released by the Bureau of Labor Statistics.
"Credit Facilities" means, with respect to the Authority or any Restricted
Subsidiary, one or more debt facilities (including, without limitation, the
Loan Agreement) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Facilities outstanding on the
date on which the Notes are first issued and authenticated under the Indentures
shall be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the covenant described under the captions entitled
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Defeasance Trust" means that certain trust established pursuant to Section
12.04(a) of the Note Purchase Agreement under which the Junior Subordinated
Notes were issued for the covenant defeasance of the Junior Subordinated Notes
to their redemption date on January 1, 2000.
"Designated Senior Indebtedness" means Indebtedness under the Loan Agreement
and any other Indebtedness permitted under the Indentures the principal amount
of which is $20.0 million or more and that has been designated by the Authority
as "Designated Senior Indebtedness."
"Development Services Agreement" means that certain Development Services
Agreement dated February 7, 1998 among the Authority, the Tribe and TCA.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or before the date that is after the date on which the
Senior Exchange Notes or Senior Subordinated Exchange Notes, as the case may
be, mature; provided, however, that any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
the Authority to repurchase such Capital Stock upon the occurrence of a Change
of Control or an Asset Sale shall not constitute Disqualified Stock if the
terms of such Capital Stock provide that the Authority may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any property or asset (tangible or
intangible, real or personal), any of the following: (i) any loss, destruction
or damage of such property or asset; (ii) any institution of any proceedings
for the condemnation or seizure of such property or asset or for the exercise
of any right of eminent domain; (iii) any actual condemnation, seizure or
taking by exercise of the power of eminent domain or otherwise of such property
or asset, or confiscation of such property or asset or the requisition of the
use of such property or asset; or (iv) any settlement instead of clause (ii) or
(iii) above.
"Exchange Notes" means, collectively, the Senior Exchange Notes and the
Senior Subordinated Exchange Notes.
"Existing Indebtedness" means up to $617.8 million in aggregate original
principal amount of Indebtedness of the Authority (other than Indebtedness
under the Loan Agreement) in existence on the date of the Indentures, until
such amounts are repaid.
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"Existing Secured Notes" means the Authority's 13 1/2% Senior Secured Notes
due 2002 with Cash Flow Participation Interest.
"Expansion Project" means the project to expand the existing Mohegan Sun
casino as more fully described in this Prospectus.
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments, if any, pursuant to Hedging Obligations, but excluding
interest expense on the Junior Subordinated Notes so long as the principal,
premium and interest thereon at redemption on January 1, 2000 are covered
by amounts in the Defeasance Trust.; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such guarantee or Lien is called upon; plus
(4) the product of (a) all cash dividend payments or other distributions
(and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred equity of such Person,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on
a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. If the specified
Person or any of its Restricted Subsidiaries incurs, assumes, guarantees,
repays or redeems any Indebtedness (other than revolving credit borrowings) or
issues or redeems preferred stock after the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but before the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee,
repayment or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or after such reference period and on or before the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (3) of the
proviso shown in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of before the Calculation Date, shall be excluded; and
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(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of before the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles shown 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 ("FASB") or in such other statements by
such other entity as have been approved by a significant segment of the
accounting profession which are in effect on the date of the Indentures.
"Gaming" means any and all activities defined as Class II or Class III
Gaming under IGRA or authorized under the Compact.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct gaming activities of the
Tribe or the Authority including without limitation, all such licenses granted
under the Tribal Gaming Ordinance, and the regulations promulgated pursuant
thereto, and other applicable federal, state, foreign or local laws.
"Gaming Regulatory Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision, whether now or hereafter existing, or any officer
or official thereof, including without limitation, any division of the
Authority or any other agency with authority to regulate any gaming operation
(or proposed gaming operation) owned, managed or operated by the Tribe or the
Authority.
"Government Service Payments" means (1) an annual payment to the Tribe by
the Authority in the amount of $14.0 million, which amount shall be adjusted
annually on the last day of each calendar year commencing with the year 2000 by
the Consumer Price Index as published for the applicable year and (2) amounts
equal to those reflected on each annual audited income statement of the
Authority as prepared in accordance with GAAP relating to payment for
governmental services (including charges for utilities, police and fire
department services, health and emergency medical services, the pro rata
portion of Tribal Council costs and salaries attributable to the operations of
the Authority, and similar pro rata costs of other tribal departments, in each
case, to the extent that the costs of such departments are attributable to the
operations of the Authority) by the Authority to the Tribe or any of its
representatives, political subunits, councils, agencies or instrumentalities.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person,
(1) the obligations of such Person under interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements; and
(2) the obligations of such Person under other agreements or
arrangements designed to protect such Person against fluctuations in
interest rates.
"IGRA" means the Indian Gaming Regulatory Act of 1988, PL 100-497, U.S.C.
2701 et seq. as same may, from time to time, be amended.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of
(1) borrowed money;
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(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified 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
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Indentures" means, collectively, the Senior Notes Indenture and the Senior
Subordinated Notes Indenture.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Authority or any Subsidiary of the Authority sells or otherwise disposes
of any Equity Interests of any direct or indirect Subsidiary of the Authority
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Authority, the Authority shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the captions "--Restricted Payments."
"Junior Subordinated Notes" means the $90.0 million in aggregate original
principal amount (plus any accrued and unpaid interest) of junior subordinated
notes of the Authority.
"Key Project Assets" means
(1) the Lease and any real property or interest in real property
comprising the Resort held in trust for the Tribe by the United States,
(2) any improvements (including, without limitation the Resort) to the
leasehold estate under the Lease or such real property comprising the
Resort (but excluding any obsolete personal property or real property
improvements determined by the Authority to be no longer useful to the
operations of the Resort), and
(3) any business records of the Authority or the Tribe relating to the
operation of the Resort.
"Lease" means the Land Lease between the Tribe and the Authority, as the
same may be amended in accordance with the terms thereof and of the Indentures.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Loan Agreement" means that certain Loan Agreement, to be dated as of March
3, 1999, by and among the Authority, the Tribe, the lenders thereunder and
Bank of America National Trust and Savings Association as Administrative Agent
and the Documentation Agent and Syndication Agent referred to therein,
including any related notes, guarantees, instruments and agreements executed
in connection therewith, and in each case as amended, modified, renewed,
refunded, replaced or refinanced from time to time.
"Management Agreement" means the Amended and Restated Gaming Facility
Management Agreement dated August 30, 1995 by and between the Authority and
TCA or any successor management agreement thereto.
"Management Board" means the Management Board of the Authority or any
authorized committee of the Management Board of the Authority, as applicable.
"Management Company" or "Manager" means TCA or a successor permitted
pursuant to the Indentures.
"Management Fee" means the Management Fee under the Management Agreement.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of dividends on preferred interests,
excluding, however,
(1) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with (A) any Asset Sale
(including, without limitation, dispositions pursuant to sale leaseback
transactions) or (B) the disposition of any securities by such Person or
any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain or loss, together with any
related provision for taxes on such extraordinary or nonrecurring gain or
loss, less
(3) in the case of any Person that is a partnership or a limited
liability company, the amount of withholding for tax purposes of such
Person for such period.
"Net Proceeds" means the aggregate cash proceeds received by the Authority
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale including, without limitation, legal,
accounting and investment banking fees, and sales commissions and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case after taking into account any available tax
credits or deductions and any tax sharing arrangements and amounts required to
be applied to the repayment of Indebtedness (other than, in the case of the
Senior Subordinated Exchange Notes only, the repayment of Senior
Indebtedness), secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"NIGC" means the National Indian Gaming Commission.
"Non-Recourse Debt" means Indebtedness
(1) as to which neither the Authority nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness) or
(b) is directly or indirectly liable (as a guarantor or otherwise);
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(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Authority or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable before its stated maturity;
and
(3) as to which such Indebtedness specifies that the lenders thereunder
will not have any recourse to the stock or assets of the Authority or any
of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Ownership Interest" means, with respect to any Person, Capital Stock of
such Person or any interest which carries the right to elect or appoint any
members of the Management Board or the Board of Directors or other executive
office of such Person.
"Permitted Asset Swap" means the exchange by the Authority or any Restricted
Subsidiary of any assets for other assets from a Person; provided that, the
assets received in such exchange are believed by the Authority in good faith to
be of substantially equivalent value and substantially all of which are either
(i) long term assets that are used or useful in the Principal Business, (ii)
cash or (iii) any combination of the foregoing clauses (i) and (ii).
"Permitted Investments" means
(1) any Investment in the Authority or in a Restricted Subsidiary of the
Authority that is engaged in a Principal Business or a Related Business;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by the Authority or any Restricted Subsidiary of the
Authority in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Authority and a Subsidiary
Guarantor, and is engaged in a Principal Business or a Related Business or
(b) is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the
Authority or a Restricted Subsidiary of the Authority;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the captions "--
Repurchase at the Option of Holders--Asset Sales";
(5) any Investment in any Person engaged in the Principal Business or a
Related Business having an aggregate fair market value (as determined in
good faith by the Management Board and measured as of the date of such
Investment, without giving effect to any subsequent increases or decreases
in value) not to exceed $25.0 million at any one time outstanding;
(6) Government Service Payments;
(7) payroll advances to employees of the Authority or its Restricted
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount not to exceed $250,000
at any one time outstanding;
(8) accounts and notes receivable if created or acquired in the ordinary
course of business and which are payable or dischargeable in accordance
with customary trade terms;
(9) Investments related to Hedging Obligations, so long as such Hedging
Obligations are not used for speculative purposes; and
(10) any investment in government securities to be held in the
Defeasance Trust to defease the Junior Subordinated Notes in accordance
with their terms.
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"Permitted Liens" means
(1) Liens securing Indebtedness that was permitted by the terms of the
respective Indenture to be incurred under clauses (1), (2), (5), (6), (7),
(8) (to the extent that the Indebtedness so guaranteed is permitted to be
secured by the respective Indenture) and (10) of the second paragraph of
the covenant described under the captions entitled "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock";
(2) Liens in favor of the Authority or a Restricted Subsidiary;
(3) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
(including, without limitation, pledges or deposits made in connection with
obligatory workers' compensation laws, unemployment insurance or similar
laws) incurred in the ordinary course of business;
(4) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (5) of the second paragraph of the covenant entitled
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness;
(5) Liens existing on the date of the Indentures;
(6) Liens arising as a result of survey exceptions, title defects,
encumbrances, easements, reservations of, or rights of others for, rights
of way, sewers, electric lines, telegraph and telephone lines and other
similar purposes or zoning or other restrictions as to the use of real
property not interfering with the ordinary conduct of the business of the
Authority or any of its Restricted Subsidiaries;
(7) Liens arising by operation of law in favor of carriers,
warehousemen, landlords, mechanics, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business for sums which are
not yet delinquent or are being contested in good faith by negotiations or
by appropriate proceedings which suspend the collection thereof;
(8) Liens incurred as a result of any interest or title of a lessor or
lessee under any lease of property (including any Lien granted by such
lessor or lessee but excluding any Lien arising in respect of a Financing
Lease);
(9) Liens in favor of the Tribe representing the ground lessor's
interest under the Lease;
(10) Liens on property existing at the time or acquisition thereof by
the Authority or a Restricted Subsidiary; provided, that such Liens were in
existence before the contemplation of such acquisition;
(11) Liens for taxes, assessments or governmental charges, claims or
rights that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded; provided, however that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor;
(12) Liens securing Indebtedness permitted under clause (7) of the
second paragraph of the covenant described under the captions entitled "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock"; provided that such Liens are no more extensive that the liens
securing the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded thereby; and
(13) Liens incurred in the ordinary course of business of the Authority
or a Restricted Subsidiary with respect to obligations that do not exceed
$500,000 at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property
and materially impair the use thereof in the operation of business by the
Authority; provided however, it is acknowledged that Permitted Liens will
not include any Lien on the land held in trust for the Tribe by the United
States or any real property interest therein, including the buildings,
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improvements and fixtures, other than the leasehold interest pursuant to
the Lease, or which will give the holder thereof a proprietary interest in
any gaming activity as prohibited by Section 11(b)(2)(A) of IGRA, provided,
however, it is acknowledged that Permitted Liens will not include any Lien
on the land held in trust for the Tribe by the United States or any real
property interest therein, including the buildings, improvements and
fixtures, other than the leasehold interest pursuant to the Lease, or which
will give the holder thereof a proprietary interest in any gaming activity
as prohibited by Section 11(b)(2)(A) of IGRA;
(14) Liens created by or resulting from any legal proceeding with
respect to which the Authority or a Restricted Subsidiary is prosecuting an
appeal proceeding for review and the Authority or such Restricted
Subsidiary is maintaining adequate reserves in connection with GAAP; and
(15) any Lien on the assets in the Defeasance Trust with respect to the
obligations of the Junior Subordinated Notes.
"Permitted Proceed Uses" means
(1) uses of the proceeds described in this Prospectus under "Use of
Proceeds;" and
(2) payments of principal, premium or interest on the Senior Exchange
Notes and the Senior Subordinated Exchange Notes.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Authority
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Authority or any of its Restricted
Subsidiaries; provided that
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of prepayment premiums and reasonable expenses
incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; provided that if the original maturity date of such Indebtedness
is after the Stated Maturity of the Senior Exchange Notes, then such
Permitted Refinancing Indebtedness shall have a maturity at least 180 days
after the Senior Exchange Notes;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Senior
Exchange Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to, the Senior Exchange Notes on terms at least as
favorable to the holders of Senior Exchange Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Authority or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"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, entertainment, recreation or other activity or
business designed to promote, market, support, develop, construct or enhance
the casino gaming and resort business operated by the Authority.
"Related Business" means any business related to the Principal Business.
"Relinquishment Agreement" means the Relinquishment Agreement dated February
7, 1998 between the Authority and TCA.
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"Resort" means the multi-amenity gaming and entertainment resort located in
Uncasville, Connecticut and the convention center, retail facilities, arena,
hotel and improvements proposed to be constructed adjacent thereto, as
described in this Prospectus but excluding (i) any obsolete personal property
or real property improvement determined by the Authority to be no longer useful
or necessary to the operations or support of the Resort and (ii) any equipment
leased from a third party in the ordinary course of business.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Exchange Notes" means the Authority's 8 1/8% Senior Exchange Notes
due 2006 issued pursuant to the Senior Notes Registration Rights Agreement.
"Senior Indebtedness" means
(1) all Indebtedness outstanding under the Credit Facilities and all
Hedging Obligations with respect thereto including, without limitation, all
principal, interest, fees and other amounts payable with respect thereto,
including any interest which accrues following any bankruptcy or insolvency
of the Authority, the Tribe or any Subsidiary Guarantor;
(2) any other Indebtedness permitted to be incurred by the Authority
under the terms of the Indentures, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Senior Subordinated Exchange Notes;
(3) all Obligations with respect to the foregoing; and
(4) at anytime, the Senior Relinquishment Payments (as defined in the
Relinquishment Agreement) to the extent then due and owing pursuant to the
terms of the Relinquishment Agreement at such time.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include
(1) any Indebtedness of the Authority to any of its Restricted
Subsidiaries or other Affiliates; or
(2) any Indebtedness that is incurred in violation of the Indentures.
"Senior Exchange Notes" means the Authority's 8 1/8% Senior Exchange Notes
due 2006.
"Senior Subordinated Exchange Notes" means the Authority's 8 3/4% Senior
Subordinated Exchange Notes due 2009 issued pursuant to the Senior Subordinated
Notes Registration Rights Agreement.
"Senior Subsidiary Guarantee" means the joint and several guarantee by the
Authority's Subsidiaries of the Authority's obligations under the Senior
Exchange Notes, in substantially the form of such Senior Subsidiary Guarantee
attached as Exhibit E to the Senior Notes Indenture.
"Senior Subordinated Exchange Notes" means the Authority's 8 3/4% Senior
Subordinated Exchange Notes due 2009.
"Senior Subordinated Subsidiary Guarantee" means the joint and several
guarantee by the Authority's Subsidiaries of the Authority's obligations under
the Senior Subordinated Exchange Notes, in substantially the form of such
Senior Subordinated Subsidiary Guarantee attached as Exhibit E to the Senior
Subordinated Notes Indenture.
"Side Letters" means (i) that certain Side Letter, dated February 7, 1998
regarding the Junior Subordinated Notes, as amended; (ii) that certain Side
Letter, dated February 7, 1998 relating to various waivers under the existing
Management Agreement; (iii) that certain Side Letter, dated February 7, 1998,
regarding the use of TCA personnel following this termination of the Management
Agreement; (iv) that certain Side Letter, dated February 22, 1999, regarding
the previously proposed exchange of Junior Subordinated Notes for Senior
Subordinated Exchange Notes and (v) that certain Side Letter, dated February
22, 1999, regarding the earlier Side Letters, in connection with the defeasance
of the Junior Subordinated Notes.
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"Significant Subsidiary" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid including as a result of any
mandatory sinking fund payment or mandatory redemption in the documentation
governing such Indebtedness in effect on the date hereof or, if such
Indebtedness is incurred after the date of the Indentures, in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal
before the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness which by its terms is
expressly subordinate in right of payment in any respect to the payment of any
obligation on, in the case of the Senior Exchange Notes, the Senior Exchange
Notes and, in the case of the Senior Subordinated Exchange Notes, the Senior
Subordinated Exchange Notes.
"Subsidiary" means:
(1) any instrumentality or subdivision or subunit of the Authority that
has a separate legal existence or status or whose property and assets would
not otherwise be bound to the terms of the Indentures; or
(2) with respect to any Person, any corporation, association or other
business entity of which more than 50% of the total voting power of the
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a
combination thereof. The Tribe and any other instrumentality of the Tribe
that is not also an instrumentality of the Authority shall not be a
Subsidiary of the Authority.
"Subsidiary Guarantor" means any Subsidiary of the Authority that executes a
Senior Subsidiary Guarantee or a Senior Subordinated Subsidiary Guarantee, as
the case may be, in accordance with the provisions of the respective
Indentures.
"Sun International" means Sun International Hotels Limited, a Bahamian
corporation or any of its affiliates.
"TCA" means Trading Cove Associates.
"Tender Offer" means the Tender Offer and the Consent Solicitation with
respect to $175.0 million aggregate principal amount of the Existing Secured
Notes.
"Tribal Gaming Ordinance" means the ordinance and any amendments thereto,
and all related or implementing ordinances, including without limitation, the
Gaming Authority Ordinance, enacted on July 15, 1995 which are enacted by the
Tribe or authorize and regulate gaming on the Mohegan Reservation pursuant to
IGRA.
"Tribal Tax Code" means any sales, use, room occupancy and related excise
taxes, including admissions and cabaret taxes and any other tax (other than
income tax) that may be imposed by the State of Connecticut that the Tribe may
impose on the Authority, its patrons or operations; provided, however, that the
rate and scope of such taxes shall not be more onerous than those imposed by
the State of Connecticut.
"Tribal Council" means the Tribe's nine member elected council which
exercises all the legislative and executive powers of the Tribe.
"Tribe" means the Mohegan Tribe of Indians of Connecticut, a sovereign tribe
recognized by the United States of America pursuant to 25 C.F.R. (S) 83.
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"Unrestricted Subsidiary" means any Subsidiary that is designated in writing
by the Authority as an Unrestricted Subsidiary, but only to the extent that
such Subsidiary
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Authority or any Restricted Subsidiary of the
Authority unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Authority or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Authority;
(3) is a Person with respect to which neither the Authority nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Authority or any of its
Restricted Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of the Authority or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of the Authority or any of its Restricted
Subsidiaries.
Any such designation by the Management Board shall be evidenced to the
Trustees by filing with the Trustees a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by
the covenant described above under the captions "--Certain Covenants--
Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indentures and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Authority as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "Incurrence of Indebtedness and Issuance
of Preferred Stock," the Authority shall be in default of such covenant). The
Authority may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Authority of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
covenant described under the captions "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Management
Board or Board of Directors, as the case may be, of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of such payment,
by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly Owned Restricted Subsidiaries of such
Person and one or more Wholly Owned Restricted Subsidiaries of such Person.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offers must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. The Authority has agreed that, starting
on the Expiration Date and ending on the close of business on the first
anniversary of the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Authority will not receive any proceeds from any sale or Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
accounts pursuant to the Exchange Offers may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offers and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit of any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Authority will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Authority has agreed to pay all expenses
incident to the Exchange Offers (including the expenses of one counsel for the
holders of the Outstanding Notes), other than commissions or concessions of any
brokers or dealers, and will indemnify the holders of the Outstanding Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with regard to the validity of the Exchange Notes will
be passed upon for the Authority by Hogan & Hartson L.L.P., Washington, D.C.
Latham & Watkins, New York, New York, has acted as counsel for the initial
purchasers of the Outstanding Notes.
INDEPENDENT AUDITORS
The financial statements of the Authority at September 30, 1998 and
September 30, 1997, and for the fiscal years then ended, appearing in this
Prospectus have been audited by Arthur Andersen LLP, independent auditors, as
stated in their report, which is included herein.
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WHERE YOU CAN GET MORE INFORMATION
The Authority, although not subject to the informational requirements of the
Securities Exchange Act of 1934, has agreed, according to the terms of the
identures governing our Exchange Notes and which will govern the Exchange
Notes, to subject itself to the reporting requirements of the Exchange Act,
and, in conformance with our indentures, files information with the Securities
and Exchange Commission (the "SEC" or the "Commission"). You may read and copy
any of this information at the SEC's public reference rooms at:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, NW 7 World Trade Center Citicorp Center
Washington, DC 200549 Suite 1300 500 West Madison Street
New York, New York 10048 Suite 1400
Chicago, Illinois 60661-
2511
You may call the SEC at 1-800-SEC-0330
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Financial Statements
Balance Sheets as of September 30, 1998 and 1997........................ F-3
Statements of Income (Loss) 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 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 for the Years ended September 30, 1998 and
1997................................................................... F-6
Notes to Financial Statements........................................... F-7
Review Report of Independent Public Accountants........................... F-17
Unaudited Financial Statements
Balance Sheets as of December 31, 1998 and September 30, 1998 (audit-
ed).................................................................... F-18
Statements of Income for the Quarter Ended December 31, 1998 and 1997... F-19
Statements of Capital for the Quarter Ended December 31, 1998 and 1997.. F-20
Statements of Cash Flows for the Quarter Ended December 31, 1998 and
1997................................................................... F-21
Notes to Financial Statements........................................... F-22
</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 statements of cash flows for the years ended
September 30, 1998 and 1997. These financial statements are the responsibility
of the Authority's management. Our responsibility is to express an opinion on
these financial statements 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.
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
------------- -------------
<S> <C> <C>
ASSETS
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)................ 14,692 12,912
--------- --------
Total current liabilities...................... 72,553 58,097
Non-Current Liabilities:
Long-term debt (Note 8).......................... 296,539 282,909
Relinquishment liability (Note 13)............... 549,125 --
Capital lease 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 Fiscal of operations)
Year Ended through
September 30, September 30,
1998 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 (date of
commencement
For the Fiscal of operations)
Year Ended through
September 30, September 30,
1998 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 For the
Fiscal Fiscal
Year Ended Year Ended
September 30, September 30,
1998 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 ex-
penses........................................ 29,886 47,970
--------- --------
Net cash flows provided by operating activi-
ties.......................................... 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 activi-
ties:
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 peri-
od.............................................. 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
SEPTEMBER 30, 1998 AND 1997
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. On October 12, 1996, the Authority opened a casino known as Mohegan
Sun ("Mohegan Sun").
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
F-7
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
things, that an 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>
Existing Secured Notes......................................... $207 million
Junior 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
For the year ended of 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.
F-8
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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 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 $14.0
million, respectively invested in commercial paper. For reporting purposes,
cash equivalents include all operating cash as well as in-house funds.
F-9
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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 Existing 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 Existing
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 Existing 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 Existing 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.
F-10
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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 re-
lated taxes and bene-
fits................... 9,931 9,955
Accrued gaming taxes.... 9,242 7,017
Other accrued liabili-
ties................... 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>
Existing Secured Notes........................... $175,000 $175,000
Junior Subordinated Notes........................ 121,539 107,909
-------- --------
$296,539 $282,909
======== ========
</TABLE>
Existing Secured Notes
On September 29, 1995, the Authority issued $175 million in senior secured
notes (the "Existing 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
F-11
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Participation Interest payable will be reduced pro rata for reductions in
outstanding principal amount of Existing 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 2.0 to 1.0. 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 Existing Secured Notes
are redeemable at set prices as set forth in the Existing Secured Notes after
November 15, 1999, at the option of the Authority. Upon the occurrence of
certain events (as specified in the Existing Secured Notes) each holder of
Existing 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 Existing Secured Notes then outstanding, under
the Excess Cash Purchase Offer, as defined in the Existing 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 ("Junior
Subordinated Notes"). The Authority has issued $20.0 million of Junior
Subordinated Notes to each of Sun International and Waterford Gaming L.L.C.,
which notes bear interest at 15.0% per year. The Authority also has issued
$50.0 million of Junior Subordinated Notes to Sun International evidencing
draws made by the Authority under the secured completion guarantee provided by
Sun International ("Secured Completion Guarantee"). Each Junior Subordinated
Note issued under the Secured Completion Guarantee bears interest at the rate
per annum then most recently announced by Chase Manhattan Bank (f/k/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 Junior 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 Existing Secured Notes have been offered to be
repurchased or retired, pursuant to the terms of the Existing Secured Notes,
and certain other conditions have been fulfilled. Accrued and deferred interest
payable on the Junior Subordinated Notes is $31.5 million and $17.9 million at
September 30, 1998 and 1997, respectively. All Junior Subordinated Notes are
due 2003; however, principal cannot be paid until the Existing Secured Notes
have been paid in full, unless certain conditions are met. During October 1998
and October 1997, a total of $5.0 million of Junior 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 Existing Secured Notes reject all or
any portion of the Excess Cash Purchase Offer, as defined in the Existing
Secured Notes Indenture, the Authority is required to offer to purchase, at
par, certain amounts of the Junior Subordinated Notes then outstanding. See
Excess Cash Purchase Offer below for such offer made by the Authority.
Excess Cash Purchase Offer
Pursuant to the Existing Secured Notes, the Authority is required to make an
Excess Cash Purchase Offer to all holders of the Existing 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 Existing Secured Notes Indenture,
the Authority offered to purchase the Existing Secured Notes at 113.5% of the
principal amount of the Existing Secured Notes plus accrued and unpaid interest
to the purchase date. The
F-12
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Excess Cash Purchase Offer expired, by its terms, on February 25, 1998, and
none of the holders of the Existing Secured Notes accepted the offer.
On March 12, 1998, pursuant to the Junior Subordinated Notes purchase
agreement, an offer to repurchase in the amount of the Excess Cash Purchase
Offer was made to the holders of the Junior Subordinated Notes. The offer
period concluded on April 2, 1998, and the holders of the Junior Subordinated
Notes also rejected the offer. On April 3, 1998, as permitted by the Existing
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 Existing Secured Notes within 120 days of
September 30, 1998, pursuant to the Existing Secured Notes. For the fiscal year
ended September 30, 1998, it is estimated that this offer will be approximately
$51.2 million.
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
Fiscal Year Ending September 30, Leases Leases
-------------------------------- --------- --------
(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.
F-13
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
Note 11--Employee Benefit Plans
Effective February 10, 1997, the Authority adopted a retirement savings plan
for its employees under Section 401 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 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
F-14
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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. As of 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 Existing Secured Notes 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 Mohegan Sun 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. 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
F-15
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 was 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 also recognized the value of the trademarks associated
with the Mohegan Sun brand name as of the September 30, 1998. The Mohegan Sun
trademarks, which were appraised by an independent consultant, are valued at
$130.0 million. TCA's services will be retained, however, 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.
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 Secured Notes and Junior Subordinated Notes will be refinanced. It
is anticipated that a loss on the extinguishment of the Existing Secured Notes
and Junior Subordinated Notes will be reflected in the Authority's second
quarter financial statements for fiscal 1999.
Effective January 1, 1999, the Authority will change 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 of
the Internal Revenue Code.
F-16
<PAGE>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Mohegan Tribal Gaming Authority:
We have reviewed the accompanying balance sheet of the Mohegan Tribal Gaming
Authority (the Authority) as of December 31, 1998, and the related statements
of income, capital and cash flows for the three-month periods ended December
31, 1998 and 1997. These financial statements are the responsibility of the
Authority's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheets of the Mohegan Tribal Gaming 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 (not
presented herein) and statements of cash flows for the years ended September
30, 1998 and 1997 (not presented herein) and in our report dated December 21,
1998, we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying balance sheet of the
Mohegan Tribal Gaming Authority as of September 30, 1998, is fairly stated, in
all material respects, in relation to the balance sheet from which it has been
derived.
Arthur Andersen LLP
Hartford, Connecticut
February 2, 1999
F-17
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 28,328 $ 36,264
Restricted cash................................... 81,250 74,466
Receivables, net.................................. 1,735 3,067
Inventories....................................... 5,776 5,027
Other current assets.............................. 2,349 2,136
-------- --------
Total current assets............................ 119,438 120,960
Non-Current Assets:
Property and equipment, net....................... 298,181 296,440
Trademark......................................... 130,000 130,000
Other assets, net................................. 7,127 7,080
-------- --------
Total assets.................................... $554,746 $554,480
======== ========
LIABILITIES AND CAPITAL
Current Liabilities:
Current portion of capital lease obligations (Note
3)............................................... $ 11,463 $ 11,004
Accounts payable and accrued expenses............. 44,382 46,857
Accrued interest payable (Note 2)................. 5,541 14,692
-------- --------
Total current liabilities....................... 61,386 72,553
-------- --------
Non-Current Liabilities:
Long-term debt (Note 2)........................... 300,191 296,539
Relinquishment liability (Note 6)................. 549,125 549,125
Capital lease obligations, net of current portion
(Note 3)......................................... 16,344 18,563
-------- --------
Total liabilities............................... 927,046 936,780
-------- --------
Commitments and Contingencies (Note 4)
Capital:
Total capital..................................... (372,300) (382,300)
-------- --------
Total liabilities and capital..................... $554,746 $554,480
======== ========
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with these financial statements
F-18
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
For the Quarter For the Quarter
Ended Ended
December 31, 1998 December 31, 1997
----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Gaming.................................... $152,672 $119,798
Food and beverage......................... 15,013 12,596
Retail and other.......................... 13,287 10,025
Bingo operations.......................... 3,442 929
-------- --------
Gross revenues............................ 184,414 143,348
Less--Promotional allowances.............. (20,556) (16,206)
-------- --------
Net revenues.............................. 163,858 127,142
-------- --------
Costs and Expenses:
Gaming.................................... 66,590 56,307
Food and beverage......................... 5,386 4,940
Retail and other.......................... 9,113 6,390
Bingo operations.......................... 3,377 703
General and administration................ 27,622 23,740
Management fee............................ 13,645 7,404
Depreciation and amortization............. 4,669 4,800
-------- --------
Total costs and expenses.................. 130,402 104,284
-------- --------
Income from operations.................... 33,456 22,858
-------- --------
Other income (expense):
Interest and other income................. 615 648
Interest expense.......................... (12,810) (11,778)
-------- --------
(12,195) (11,130)
-------- --------
Net income................................ $ 21,261 $ 11,728
======== ========
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with these financial statements
F-19
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CAPITAL
(in thousands)
<TABLE>
<CAPTION>
For the Quarter Ended For the Quarter Ended
December 31, 1998 December 31, 1997
--------------------- ---------------------
(unaudited) (unaudited)
<S> <C> <C>
Beginning balance.................. $(382,300) $21,931
Net income......................... 21,261 11,728
Distributions to Tribe............. (11,261) (6,395)
--------- -------
Ending balance..................... $(372,300) $27,264
========= =======
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with these financial statements
F-20
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Quarter For the Quarter
Ended Ended
December 31, 1998 December 31, 1997
----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows provided by operating activi-
ties:
Net income............................... $ 21,261 $ 11,728
Adjustments to reconcile net income to
net cash flow provided by operating
activities:
Depreciation and amortization.......... 4,669 4,800
Provision for losses on receivables.... 83 19
Changes in operating assets and liabili-
ties:
(Increase) decrease in receivables and
other assets.......................... (56) 534
Decrease in accounts payable and ac-
crued expenses........................ (7,974) (7,120)
-------- --------
Net cash flows provided by operating
activities............................ 17,983 9,961
-------- --------
Cash flows used in investing activities:
Purchase of property and equipment....... (6,113) (17,909)
Decrease in construction payable......... -- (3,604)
-------- --------
Net cash flows used in investing activ-
ities................................. (6,113) (21,513)
-------- --------
Cash flows used in financing activities:
Distributions to Tribe................... (11,261) (6,395)
Increase in short-term borrowings........ -- 650
Proceeds from equipment financing........ 878 --
Payment on equipment financing and short-
term borrowings......................... (2,639) (2,212)
-------- --------
Net cash flows used in financing activ-
ities................................. (13,022) (7,957)
-------- --------
Net decrease in cash and cash equiva-
lents................................. (1,152) (19,509)
Cash and cash equivalents at beginning of
period.................................. 110,730 88,844
-------- --------
Cash and cash equivalents at end of peri-
od...................................... $109,578 $ 69,335
======== ========
Supplemental disclosures of cash flow in-
formation:
Cash paid during the period for inter-
est..................................... $ 18,309 $ 16,700
======== ========
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with these financial statements
F-21
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
1. 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 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 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 6 for discussion of Relinquishment Agreement between the Tribe and TCA).
The accompanying financial statements have been prepared in accordance with
the accounting policies described in the Authority's 1998 Annual Report on Form
10-K and should be read in conjunction with the Notes to Financial Statements
which appear in that report. The Balance Sheet at September 30, 1998, contained
herein, was taken from the audited financial statements, but does not include
all disclosures contained in the Form 10-K and required by generally accepted
accounting principles.
Certain amounts in the financial statements have been reclassified. The
reclassification has no effect on the Authority's net income.
In the opinion of the Authority, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods have been included. The results reflected in the financial
statements for the quarter ended December 31, 1998 are not necessarily
indicative of expected results for the full year, as the casino industry in
Connecticut is seasonal in nature.
2. Financing Facilities:
Line of Credit
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 a security interest in
all of the Authority's cash deposit accounts with Fleet National Bank. This
arrangement expires on March 31, 2000. As of December 31, 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>
December 31, 1998 September 30, 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
Existing Secured Notes.................. $175,000 $175,000
Junior Subordinated Notes............... 125,191 121,539
-------- --------
$300,191 $296,539
======== ========
</TABLE>
F-22
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Unaudited)
Existing Secured Notes
On September 29, 1995, the Authority issued $175 million in senior secured
notes (the "Existing Secured Notes") with fixed interest payable at a rate of
13.5% per annum and Cash Flow Participation Interest, as defined therein, in an
aggregate amount of 5% 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 the outstanding principal amount of
Existing 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 2.0. For the quarters ended December 31, 1998 and 1997, the Authority's
Fixed Charge Coverage Ratio was 4.0 and 3.0, respectively. The Existing Secured
Notes are redeemable at set prices set forth in the Existing Secured Notes,
after November 15, 1999, at the option of the Authority (see Note 8 for a
discussion of the tender offer and consent solicitation). Upon the occurrence
of certain events (as specified in the Existing Secured Notes) each holder of
Existing Secured Notes can require the Authority to repurchase the notes at
prices specified.
Beginning with the fiscal year ended September 30, 1997, the Authority was
required within 120 days, under certain circumstances, to offer to purchase, at
set prices, certain amounts of Existing Secured Notes then outstanding, under
the Excess Cash Purchase Offer, as defined in the Existing Secured Notes. See
"Excess Cash Purchase Offer" below.
Junior Subordinated Notes
The Authority has obtained $90 million of subordinated financing from Sun
International and Waterford Gaming L.L.C. in the form of notes ("Junior
Subordinated Notes"). The Authority has issued $20 million of Junior
Subordinated Notes to each of Sun International and Waterford Gaming L.L.C.,
which notes bear interest at 15% per year. The Authority also has issued $50
million in Junior Subordinated Notes to Sun International evidencing draws made
by the Authority under the secured completion guarantee provided by Sun
International ("Secured Completion Guarantee"). Each Junior Subordinated Note
issued under the Secured Completion Guarantee bears interest at the rate per
annum then most recently announced by the Chase Manhattan Bank (f/k/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 8.75% and 9.5% at December 31,
1998 and 1997, respectively. Interest on the Junior 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 Existing Secured Notes have been
offered to be repurchased or retired, pursuant to the terms of the Existing
Secured Notes, and certain other conditions have been fulfilled. Accrued and
deferred interest payable on the Junior Subordinated Notes was $35.2 million
and $21.2 million as of December 31, 1998 and 1997, respectively. All Junior
Subordinated Notes are due 2003; however, principal cannot be paid until the
Existing Secured Notes have been paid in full, unless certain conditions are
met. During October 1998 and October 1997, a total of $5.0 million of Junior
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 Existing Secured Notes reject all or
any portion of the Excess Cash Purchase Offer, as defined in the Existing
Secured Notes Indenture, the Authority is required to offer to purchase, at
par, certain amounts of the Junior Subordinated Notes then outstanding. See
"Excess Cash Purchase Offer" below.
F-23
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Unaudited)
Excess Cash Purchase Offer
Pursuant to the Existing Secured Notes, the Authority is required to make an
Excess Cash Purchase Offer to all holders of the Existing 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 $51.2 million was made on December 30, 1998
for the year ended September 30, 1998. In accordance with the Existing Secured
Notes, the Authority offered to purchase the Existing Secured Notes at 112% of
the principal amount of the Existing Secured Notes plus accrued and unpaid
interest to the purchase date. The Excess Cash Purchase Offer expired, by its
terms, on January 29, 1999, and none of the holders of the Existing Secured
Notes accepted the offer.
On February 1, 1999, pursuant to the Junior Subordinated Note purchase
agreement, an offer to repurchase in the amount of the Excess Cash Purchase
Offer was made to the holders of the Junior Subordinated Notes. On February 1,
1999, the holders of the Junior Subordinated Notes rejected the offer. On
February 2, 1999, as permitted by the Existing Secured Notes Indenture, the
Authority distributed the Excess Cash Purchase Offer of $51.2 million to the
Tribe.
3. Leases:
At December 31, 1998, the Authority was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows (unaudited):
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Ending September 30, Leases Leases
-------------------------------- --------- -------
(In thousands)
<S> <C> <C>
1999...................................................... $2,700 $ 9,756
2000...................................................... 2,680 13,008
2001...................................................... 84 5,557
2002...................................................... -- 2,358
2003...................................................... -- 64
------ -------
Total minimum lease payment............................... $5,464 30,743
======
Amount representing interest.............................. (2,937)
-------
Total obligation under capital leases..................... 27,806
Less: Amount due within one year.......................... (11,463)
-------
Amount due after one year................................. $16,344
=======
</TABLE>
Rent expense on the non-cancelable operating leases was $900,000 for each of
the quarters ended December 31, 1998 and 1997.
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.
F-24
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Unaudited)
4. 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 the Mohegan Tribe) gaming operations with slot machines or
other commercial casino games within Connecticut. The Authority has reflected
$28.4 million and $22.0 million of gaming expense in its financial statements
for the required Slot Win Contribution for the quarters ended December 31, 1998
and 1997, respectively.
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.
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 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 December 31, 1998, the Authority has paid $1.6
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.
5. Related Party Transactions:
The Tribe provides governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. For the quarters ended
December 31, 1998 and 1997, the Authority incurred expenses of $1.7 million and
$1.3 million, respectively, for such services.
6. 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.
F-25
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Unaudited)
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 $13.6 million and
$7.4 million, respectively, for the quarters ended December 31, 1998 and 1997.
At December 31, 1998, $3.7 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 supercedes the
Management Agreement effective the later of January 1, 2000, or the date the
Existing Secured Notes are refinanced or repaid (the "Relinquishment Date"),
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
over a 15-year period commencing on the Relinquishment Date. The payments
("Senior Relinquishment Payments" and "Junior Relinquishment Payments"), are
calculated as 2.5% of Revenues each, as defined, but each has its own payment
schedule and priority. 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, ("SFAS
No. 5"), "Accounting for Contingencies", has recorded a relinquishment
liability of the estimated present value of its obligation under the
Relinquishment Agreement. The liability is estimated at $549.1 million as of
December 31, 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 also recognized the
value of the trademarks associated with the Mohegan Sun brand name. The Mohegan
Sun trademarks, which were appraised by an independent consultant, were valued
at $130.0 million at December 31, 1998. TCA's services will be retained,
however, in the development and construction of the 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.
7. Employee Benefits Plans
Effective January 1, 1999 pursuant to Section 401 of the Internal Revenue
Code, the Authority increased the employer matching contribution to match of
its retirement savings plan. The plan allows employees of the
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MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Unaudited)
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 now matches 100% of eligible
employees' contributions up to a maximum of 3% of their individual earnings.
8. Subsequent Events:
On January 15, 1999, the Authority initiated a Tender Offer and Consent
Solicitation for the repurchase of all of the Existing Secured Notes. The offer
will expire at 12:00 midnight, New York City time on February 12, 1999, unless
extended or terminated earlier. The tender offer price for the Existing Secured
Notes is expected to be approximately $214 million. Funding of the Tender Offer
and Consent Solicitation 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. As of January 29, 1999, holders of 99.9% of the
Existing Secured Notes have accepted the Tender Offer and Consent Solicitation.
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<PAGE>
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$500,000,000
Mohegan Tribal Gaming Authority
$200,000,000 8 1/8% Senior Exchange Notes Due 2006
$300,000,000 8 3/4% Senior Subordinated Exchange Notes Due 2009
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PROSPECTUS
Dated April 29, 1999
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