<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997
REGISTRATION NO. 333-17795
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WATERFORD GAMING, L.L.C.
WATERFORD GAMING FINANCE CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7999 06-146-5402
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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914 HARTFORD TURNPIKE
P.O. BOX 715
WATERFORD, CT 06385
(860) 442-4559
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
LEN WOLMAN
PRESIDENT
WATERFORD GAMING, L.L.C.
WATERFORD GAMING FINANCE CORP.
914 HARTFORD TURNPIKE
P.O. BOX 715
(860) 442-4559
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
RAYMOND Y. LIN
LATHAM & WATKINS
885 THIRD AVENUE
SUITE 1000
NEW YORK, NEW YORK 10022
(212) 906-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
, 1997
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 1997
OFFER TO EXCHANGE
12 3/4% SENIOR NOTES DUE 2003
FOR ALL OUTSTANDING 12 3/4% SENIOR NOTES DUE 2003
OF
WATERFORD GAMING, L.L.C.
WATERFORD GAMING FINANCE CORP.
---------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME ON , 1997
UNLESS EXTENDED.
Waterford Gaming, L.L.C. (the "Company"), a Delaware limited liability
company, and Waterford Gaming Finance Corp., a Delaware corporation ("Finance"
and, together with the Company, the "Issuers") are hereby offering (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 12 3/4% Senior Notes
due 2003 (the "Exchange Notes"), which exchange has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement"), for each principal amount of its outstanding 12 3/4% Senior Notes
due 2003 (the "Private Notes"), of which $65,000,000 in aggregate principal
amount was issued on November 8, 1996 (the "Private Offering") and is
outstanding as of the date hereof. The form and terms of the Exchange Notes are
the same as the form and terms of the Private Notes except that (i) the exchange
will have been registered under the Securities Act, and, therefore, the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders of
the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement (as defined herein), which
rights will terminate upon the consummation of the Exchange Offer. The Exchange
Notes will evidence the same indebtedness as the Private Notes (which they
replace) and will be entitled to the benefits of an indenture dated as of
November 8, 1996 governing the Private Notes and the Exchange Notes (the
"Indenture"). The Private Notes and the Exchange Notes are sometimes referred to
herein collectively as the "Notes." See "The Exchange Offer" and "Description of
Exchange Notes."
The Exchange Notes bear interest at the rate of 12 3/4% per annum, payable
semi-annually in arrears on May 15 and November 15 of each year, commencing May
15, 1997.
The Issuers will be required to make a mandatory redemption on each May 15
and November 15, commencing November 15, 1997, of the Exchange Notes in the
largest principal amount that is an integral multiple of $1,000, that may be
redeemed using 100% of Company Excess Cash as defined herein as of September 30
and March 31. The Exchange Notes are also mandatorily redeemable upon the
occurrence of certain events. See "Risk Factors." The Exchange Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after November 15, 1999 with Company Excess Cash at the redemption prices set
forth herein, plus accrued and unpaid interest and Liquidated Damages, if any,
to the date of redemption. Upon a Change of Control (as defined herein), each
holder will have the right to require the Company to repurchase such holder's
Exchange Notes at 101% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the repurchase date, subject to
certain limitations and restriction described herein.
The Exchange Notes will be senior obligations of the Company. The Exchange
Notes will be secured by the pledge of subordinated notes (the "Subordinated
Notes") issued by the Mohegan Tribal Gaming Authority, the owner of the Mohegan
Sun, having principal and accrued interest of approximately $22.6 million and a
cash collateral account (the "Cash Collateral Account") into which the Company
will be required to deposit all cash received, including the proceeds of this
Offering and its share of the management fee income from the Manager. The
Manager has a contract to manage the Mohegan Sun for a management fee. The
Company will conduct no other operations.
Finance is a wholly owned subsidiary of the Company that was incorporated
for the sole purpose of serving as a co-Issuer of the Exchange Notes to
facilitate the Offering. Finance will not have any substantial operations or
assets of any kind and will not have any revenues. Prospective purchases of
Notes should not expect Finance to participate in servicing the interest and
principal obligations on the Exchange Notes. See "Description of Exchange
Notes--Certain Covenants." The Issuers do not intend to apply for listing of the
Exchange Notes on any securities exchange or for the inclusion for the Exchange
Notes in any automated quotation system.
The Issuers will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1997,
unless the Exchange Offering is extended by the Issuers in their sole discretion
(the "Expiration Date"). Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. Private Notes may be tendered only in integral
multiples of $1,000. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions."
SEE "RISK FACTORS," BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN
FACTORS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Issuers believe that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Issuers to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Issuers within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Issuers, as required
by the Registration Rights Agreement, that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Issuers believe that none of the registered holders of the Private
Notes is an affiliate (as such term is defined in Rule 405 under the Securities
Act) of the Issuers.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Issuers do not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Issuer's financial condition and certain other factors.
Such conditions might cause the Notes, to the extent that they are traded, to
trade at a significant discount from face value. See "Risk Factors--Lack of
Public Market for Securities."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging 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. 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 Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The have indicated their intention to make this
Prospectus (as it may be amended or supplemented) available to any broker-dealer
for use in connection with any such resale for a period of 120 days after the
Expiration Date. See "The Exchange Offer-- Resale of the Exchange Notes" and
"Plan of Distribution."
The Issuers will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer. See "The Exchange Offer--Resale of the Exchange Notes" and
"Plan of Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
ISSUERS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
Until , 1997 (90 days after the date of this Prospectus), all
dealers offering transactions in the Exchange Notes, whether or not
participating in the Exchange Offer, may be required to deliver a prospectus in
connection therewith. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
The Exchange Notes will be available initially only in book-entry form. The
Issuers expect that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be issued
in exchange for the global note only in accordance with the terms and conditions
set forth in the Indenture. See "Description of Exchange Notes--Book Entry,
Delivery and Form."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND HISTORICAL AND PRO FORMA FINANCIAL DATA APPEARING ELSEWHERE IN
THIS PROSPECTUS. ALL STATEMENTS CONCERNING THE MOHEGAN SUN ARE FORWARD-LOOKING
AND ARE QUALIFIED BY THE CAUTIONARY LANGUAGE CONTAINED UNDER "RISK FACTORS" AND
ELSEWHERE. IN CONJUNCTION WITH THE EXCHANGE OFFER, PROSPECTIVE INVESTORS ARE
URGED TO READ THE PROSPECTUS IN ITS ENTIRETY.
OVERVIEW
Waterford Gaming, L.L.C. (the "Company") and Sun Cove Ltd., an affiliate of
Sun International Hotels Limited (together with its affiliates, "Sun
International") are the two managing general partners of Trading Cove Associates
(the "Manager"), the manager and developer of the Mohegan Sun Casino (the
"Mohegan Sun"), a gaming and entertainment complex located in southeastern
Connecticut that opened on October 12, 1996. The Mohegan Sun and Foxwoods
Resorts & Casino ("Foxwoods"), located approximately 10 miles away, are the only
two casinos offering slot machines and table games in the northeastern United
States that are currently legally authorized to operate outside of Atlantic
City, New Jersey. Pursuant to an agreement between the Manager and the Mohegan
Tribe of Indians of Connecticut (the "Mohegan Tribe"), the Manager manages the
Mohegan Sun for a management fee under a seven-year management agreement (the
"Management Agreement") based on a percentage of Net Revenues (as defined) which
begins at 40% of Net Revenues, and after achieving certain Net Revenue targets,
declines to 35%, and then to 30% for the amounts of Net Revenues above those
targets. The Company owns (i) 50% of the voting control of the Manager, (ii) an
approximate 45% economic interest in the Manager and (iii) approximately $22.6
million in principal and accrued interest of 15% Subordinated Notes due 2003
(the "Original Subordinated Notes") issued by the Mohegan Tribal Gaming
Authority (the "Authority"), the owner of the Mohegan Sun.
THE MOHEGAN SUN
The Mohegan Sun is a 625,000 square foot comprehensive gaming and
entertainment complex located on a dramatically landscaped, heavily wooded
240-acre site on the banks of the Thames River in southeastern Connecticut. The
Mohegan Sun was developed and completed according to a single master plan for
the site that integrates all of the major requirements of a world-class gaming
and entertainment facility in a single comprehensive design. The master plan
places particular emphasis on direct highway access, convenient parking and a
variety of gaming and non-gaming entertainment amenities within the scope of a
single attractive unifying theme. The Mohegan Sun was also designed to achieve
high operating efficiency in patron traffic flow, food and beverage service and
other back-of-house functions.
The Mohegan Sun provides customers fast and direct access to the interstate
highway system through its own four-lane access road with a direct exit from
Connecticut Route 2A (a four lane expressway) which connects to I-395,
approximately one mile from the Mohegan Sun. Interstate 395 connects to I-95
approximately 9 miles away. Interstate 95 is the main interstate highway that
connects Boston, Providence and New York. In addition to easy access, the
Mohegan Sun provides approximately 7,500 parking spaces on its property
including 1,800 underground valet spaces and 1,300 spaces in a multi-level
parking garage.
The quality and the variety of the food and beverage service, together with
attention to personal service, is a hallmark of the Mohegan Sun. Patrons can
choose from over 20 restaurants and bars including a 680-seat buffet, three
specialty restaurants, a coffee shop, a delicatessen and ten fast food outlets.
The facility also features the Wolf Den, a 300-seat circular bar at the center
of the casino floor that showcases live entertainment. In addition, there are
three retail stores, 11 retail carts and KidsQuest, an approximately 20,000
square foot children's recreation and child care area.
The Company believes the use of a thematic environment in the Mohegan Sun is
a differentiating factor in attracting visitors. The Mohegan Sun features a
circular casino separated into four themed quadrants designed to reflect a
separate seasonal theme--winter, spring, summer and fall--emphasizing
3
<PAGE>
the importance of the seasonal changes to tribal life. An historical
northeastern Indian theme is conveyed throughout the facility using
architectural features, artistic details and the extensive use of natural
elements such as timber, stone and water. The circular design, with separate
entrances for each themed quadrant, is integrated into a traffic control design
to provide fast and convenient access from the various self-parking, valet
parking and public transportation loading areas to the gaming areas through
their own separate entrances. In addition to improving traffic flow, the Mohegan
Sun's circular design also improves the resort's operating efficiency. The two
central kitchen areas are located adjacent to the resort's 20 restaurants,
thereby maximizing efficiency and reducing waiting time for patrons.
The gaming area consists of over 150,000 square feet and features
approximately 2,670 slot machines (with the capacity for approximately 3,000
slot machines), ranging in denomination from twenty-five cents to $100, and
approximately 180 table games consisting primarily of blackjack, high stakes
poker, craps, roulette, baccarat and Caribbean stud poker. The facility also
features a 1,500 seat multi-use bingo/ entertainment hall.
The Company estimates the total cost of developing, constructing, equipping
and opening the Mohegan Sun to be approximately $305 million, exclusive of
working capital and certain equipment operating leases. The source of funds
consists of (i) $175 million from the sale of 13 1/2% Senior Secured Notes with
Cash Flow Participation Interest (the "Authority Senior Secured Notes") issued
by the Authority, (ii) $40 million from the sale of Original Subordinated Notes,
(iii) $50 million in advances under a completion guarantee from Sun
International (the "Completion Guarantee") represented by the Floating Rate
Subordinated Notes due 2003 issued by the Authority (the "Completion Guarantee
Subordinated Notes," and, together with the Original Subordinated Notes, the
"Subordinated Notes"), and (iv) $40 million in equipment financing. In addition,
approximately $13 million of initial working capital has been provided by a bank
working capital facility.
THE MARKET
The Company expects that the primary market for the Mohegan Sun will be
day-trip customers from New England and New York who reside within 150 miles of
the Mohegan Sun. According to market research reports, in 1995 there were
approximately 2.4 million adults living within 50 miles of the site, 10.8
million adults within 100 miles of the site and 21.4 million adults within 150
miles of the site. The metropolitan areas of Hartford, New Haven, Springfield,
Worcester, Boston and Providence are within one to two hours driving time by
interstate highway to the Mohegan Sun. In 1995, the median household income and
the per capita income of the population within this market were both
approximately 26% higher than the national averages, with a median household
income of $55,716 and a per capita income of $21,258 as compared to a national
median household income of $45,793 and a national per capita income of $17,363.
The Company believes that the success of Foxwoods, which is approximately 10
miles east of the Mohegan Sun, is evidence of a strong gaming market in the
northeastern United States. Foxwoods is currently the largest gaming facility in
the United States measured by the number of total gaming positions. The Company
believes that Foxwoods is the most profitable casino in the United States,
generating reported slot machine revenue of $471 million and $574 million for
1994 and 1995, respectively. For the first nine months of 1996, Foxwoods
reported $472 million in slot machine revenues, as compared with $442 million
for the first nine months of 1995. Foxwoods' average win per machine per day for
1995 and the first nine months of 1996 was $407 and $406, respectively. Foxwoods
has generally maintained its win per machine while increasing its number of
machines. The Company believes these statistics are an indication of the
strength of the market available to the Mohegan Sun. In comparison, Atlantic
City reported the average win per machine per day of $282 and $258 in 1995 and
for the first nine months of 1996 respectively.
4
<PAGE>
For the month of November 1996, in a press release, the Mohegan Sun reported
slot revenues of $25.9 million and an average win per machine per day of $345.
THE COMPANY
The Company is a newly formed entity that is one of the two managing
partners of the Manager. The Manager is a partnership between the Company and
Sun International, an international gaming and resort company with properties in
the Bahamas, the Indian Ocean and France. The Company owns a 50% voting interest
and a 45% economic interest in the Manager. The Company also owns the
Subordinated Notes. The principals of the Company have been working with the
Mohegan Tribe since 1992 and assisted the Mohegan Tribe in obtaining federal
recognition, negotiating a gaming compact with the State of Connecticut and
obtaining numerous governmental approvals and raising debt financing in
connection with the construction and development of the Mohegan Sun. In the past
year, the Company's management, together with its partners from Sun
International, supervised the construction and development of the Mohegan Sun.
Currently, the principals of the Company are actively involved in the management
of the operation of the Mohegan Sun.
OVERVIEW OF FUTURE CASH FLOWS. The Company will fund its operating debt
service and capital needs from cash flows from the Manager and payments under
the Subordinated Notes (to the extent interest on the Subordinated Notes is
payable in cash and to the extent of principal payments on the Subordinated
Notes) and from amounts in the Cash Collateral Account. Based upon the Company's
anticipated future operations, management believes these sources will be
sufficient to meet the Company's anticipated requirements for operating expenses
and scheduled payments of principal of and interest on the Notes. No assurance,
however, can be given that the operating cash flow will be sufficient for that
purpose. The Mohegan Sun has only recently begun operations and does not have a
long operating history.
The Manager has only one source of revenue, management fees under the
Management Agreement. Management fees are payable monthly under the Management
Agreement, equal to a percentage of Net Revenues (as defined) of the Mohegan Sun
which begins at 40% of Net Revenues and, after achieving certain Net Revenue
targets, declines to 35% and then to 30% for the amounts of Net Revenues above
those targets. Net Revenues are generally equal to net income before management
fees under generally accepted accounting principles. In addition, the Manager is
required to fund $1.2 million per year ($100,000 per month) from its management
fees into a capital replacement reserve. The Management Agreement has a term of
seven years that commenced upon the opening of the Mohegan Sun, subject to a
one-time right of the Authority to buy-out the Management Agreement at the end
of the fifth year. If the Management Agreement is bought out after the fifth
year, the Company will use its share of the proceeds to redeem Notes.
For a more detailed discussion of the payments to be made by the Manager,
and the related priority of such payments, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Sources of Revenues."
Interest accrues on the Subordinated Notes semi-annually. Interest is
deferred (and compounds semi-annually) until the Authority purchases or offers
to purchase at least 50% of its $175 million Authority Senior Secured Notes and
certain fixed charge coverage ratios are met. The Authority is required to offer
annually to purchase the Authority Senior Secured Notes with the sum of (i) 50%
of its Excess Cash Flow (as defined); (ii) the amount of Deferred Subordinated
Interest (as defined) and (iii) accrued and unpaid interest, if any, to the date
of closing of such Excess Cash Purchase Offer. If the holders of the Authority
Senior Secured Notes do not accept the offer, then such amount of the Excess
Cash must be offered to purchase the Subordinated Notes. In the event that the
Company receives an offer to purchase the Subordinated Notes, the Indenture
requires the Company to accept such offer in the same proportion as Sun
International. See "Description of Notes."
5
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SUN INTERNATIONAL
Sun International is a publicly traded international resort and gaming
company, which develops and manages premier resort and casino properties. Sun
International, through its subsidiaries, currently operates resort hotels and
casinos in The Bahamas, the Indian Ocean and France and has several properties
under development.
Sun International currently manages eight hotels containing in excess of
2,400 rooms and six casinos with an aggregate of over 200,000 square feet of
gaming space containing more than 3,950 slot machines and 300 table games. After
the certain proposed expansion, Sun International will manage eleven hotels
containing in excess of 4,400 rooms and six casinos with an aggregate of
approximately 220,000 square feet of gaming space containing approximately 5,000
slot machines and 350 table games. Sun International is unrelated to the Company
and is not an affiliate of the Company. Sun International has no obligations,
directly or indirectly, on the Notes.
THE REORGANIZATION
The Company, a Delaware limited liability company, was formed in September
1996 and is owned by Slavik Suites, Inc. ("Slavik") and LMW Investments Inc.
("LMW"). Prior to the offering of the Private Notes, Slavik and LMW were
partners of the Manager. In connection with the formation of the Company, Slavik
and LMW each contributed to the Company their interests in the Manager in
exchange for a 66 2/3% and a 33 1/3% ownership interest, respectively, of the
Company. Upon consummation of the Offering of the Private Notes, (i) $6,666,667
of the proceeds were distributed directly to Slavik for the purpose of redeeming
certain ownership interests in Slavik, and (ii) $3,333,333 of the proceeds from
the Offering of the Private Notes were distributed to LMW, which will in turn
loaned such proceeds to Len and Mark Wolman, as individuals, who used such funds
to purchase certain interests in Slavik. In addition to its interest in the
Manager, Slavik is an owner of certain hotel properties. The Company used $10.6
million of the proceeds from the offering to purchase RJH Development Corp.'s
ownership interest in the Manager. See "Business--Material Agreements--Trading
Cove Associates Partnership Agreement." As a result of these transactions
(collectively referred to in this Prospectus as the "Reorganization"), each of
Slavik and LMW own approximately two-thirds and approximately one-third of the
Company, respectively, and the Company is the Managing General Partner of the
Manager and will own a 45% economic interest in the Manager. In addition, in
connection with the Reorganization the Manager distributed approximately
$850,000 in principal amount of Subordinated Notes to the Company. As a result
of the Reorganization, the only two Partners of the Manager are the Company and
Sun and each will has equal voting power.
6
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THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........... The Issuers are hereby offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000 principal amount of
Private Notes that are properly tendered and accepted. The
Issuers will issue Exchange Notes on or promptly after the
Expiration Date. As of the date hereof, there is $65,000,000
aggregate principal amount of Private Notes outstanding. See
"The Exchange Offer."
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties, the
Issuers believe that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private Notes may be
offered for resale, resold and otherwise transferred by a
holder thereof (other than (i) a broker-dealer who purchases
such Exchange Notes directly from the Issuers to resell
pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an affiliate of
the Issuers within the meaning of Rule 405 under the
Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act;
provided that the holder is acquiring Exchange Notes in the
ordinary course of its business and is not participating,
and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own
account in exchange for Private Notes, where such Private
Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange
Offer--Resale of the Exchange Notes."
Registration Rights
Agreement.................. The Private Notes were sold by the Issuers on November 8,
1996, to Bear Stearns & Co. Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement, dated
November 5, 1996, by and among the Issuers and the Initial
Purchasers (the "Purchase Agreement"). Pursuant to the
Purchase Agreement, the Issuers and the Initial Purchasers
entered into a Registration Rights Agreement, dated as of
November 15, 1996 (the "Registration Rights Agreement"),
which grants the holders of the Private Notes certain
exchange and registration rights. The Exchange Offer is
intended to satisfy such rights, which will terminate upon
the consummation of the Exchange Offer. The holders of the
Exchange Notes will not be entitled to any exchange or
registration rights with respect to the Exchange Notes.
See "The Exchange Offer--Termination of Certain Rights."
Expiration Date.............. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1997, unless the Exchange Offer is extended
by the Issuers in their sole discretion, in which case the
term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is
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extended. See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
Accrued Interest on the
Exchange Notes
and the Private Notes...... The Exchange Notes will bear interest from and including the
date of issuance of the Private Notes (November 8, 1996). As
of December 31, 1996, accrued and unpaid interest on the
Private Notes was $1,220,104. Holders whose Private Notes
are accepted for exchange will be deemed to have waived the
right to receive any interest accrued on the Private Notes.
Holders of Private Notes who receive Exchange Notes will
receive the same amount of accrued interest as Holders of
Private Notes. See "The Exchange Offer--Interest on the
Exchange Notes."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions that may be waived by the Issuers. The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Private Notes being tendered for
exchange. See "The Exchange Offer--Conditions."
Procedures for Tendering
Private Notes.............. Each holder of Private Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Private Notes and any other
required documentation to Fleet National Bank, as exchange
agent (the "Exchange Agent"), at the address set forth
herein. By executing the Letter of Transmittal, the holder
will represent to and agree with the Issuers that, among
other things, (i) the Exchange Notes to be acquired by such
holder of Private Notes in connection with the Exchange
Offer are being acquired by such holder in the ordinary
course of its business, (ii) such holder has no arrangement
or understanding with any person to participate in a
distribution of the Exchange Notes, (iii) that if such
holder is a broker-dealer registered under the Exchange Act
or is participating in the Exchange Offer for the purposes
of distributing the Exchange Notes, such holder will comply
with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person
and cannot rely on the position of the staff of the
Commission set forth in no- action letters (see "The
Exchange Offer--Resale of Exchange Notes"), (iv) such holder
understands that a secondary resale transaction described in
clause (iii) above and any resales of Exchange Notes
obtained by such holder in exchange for Private Notes
acquired by such holder directly from the Issuers should be
covered by an effective registration statement containing
the selling securityholder information required by Item 507
or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Issuers. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in
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exchange for Private Notes that were acquired as a result of
market-making activities or other trading activities, such
holder will be required to acknowledge in the Letter of
Transmittal that such holder will deliver a prospectus in
connection with any resale of such Exchange Notes; however,
by so acknowledging and by delivering a prospectus, such
holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See
"The Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Private Notes are registered in
the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such Private Notes
in the Exchange Offer should contact such registered holder
promptly and instruct such registered holder to tender on
such beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes,
either make appropriate arrangements to register ownership
of the Private Notes in such owner's name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery
Procedures................. Holders of Private Notes who wish to tender their Private
Notes and whose Private Notes are not immediately available
or who cannot deliver their Private Notes, the Letter of
Transmittal or any other documentation required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes according to
the guaranteed delivery procedures set forth under "The
Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of the Private
Notes
and Delivery of the
Exchange Notes............. Subject to the satisfaction or waiver of the conditions to
the Exchange Offer, the Issuers will accept for exchange any
and all Private Notes that are properly tendered in the
Exchange Offer prior to the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered on the earliest practicable date following the
Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Withdrawal Rights............ Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. See "The Exchange Offer--Withdrawal
of Tenders."
Certain Federal Income Tax
Considerations............. For a discussion of certain material federal income tax
considerations relating to the exchange of the Exchange
Notes for the Private Notes, see "Certain Federal Income Tax
Considerations."
Exchange Agent............... Fleet National Bank is serving as the Exchange Agent in
connection with the Exchange Offer.
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THE EXCHANGE NOTES
The Exchange Offer applies to $65,000,000 aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the form
and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture. For further information and
for definitions of certain capitalized terms used below, see "Description of
Exchange Notes."
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Issuers...................................... Waterford Gaming, L.L.C. and Waterford Gaming
Finance Corp.
Securities Offered........................... $65,000,000 aggregate principal amount of
12 3/4% Senior Notes due 2003.
Maturity Date................................ November 15, 2003.
Interest..................................... The Exchange Notes will bear interest at the
rate of 12 3/4% per annum, and such interest
will be payable in cash semi-annually in
arrears on May 15 and November 15 of each
year to the holders of record at the close of
business on the immediately preceding May 1
or November 1, commencing May 15, 1997. See
"The Exchange Offer--Interest on the Exchange
Notes."
Mandatory Redemption......................... The Issuers will be require to make a
mandatory redemption at the prices set forth
herein on each May 15 and November 15,
commencing November 15, 1997 of the Exchange
Notes in the largest principal amount that is
an integral multiple of $1,000, that may be
redeemed using 100% of Company Excess Cash
(as defined) as of September 30 and March 31.
In the event that either the Company or Sun
International delivers an election to either
buy or sell the other party's interest in the
Manager pursuant to a Buy-Out Notice (as
defined in the Partnership Agreement) or be
deemed to have delivered an election to sell
such interest and such election to buy or
sell is consummated, the Issuers will be
required to make a mandatory redemption of
all the Exchange Notes then outstanding, at
the redemption prices set forth herein. Such
redemption shall be made on a date no more
than 35 days after the date of the closing
(as such term is defined in the Partnership
Agreement) under the option. There can be no
assurance that the Company will have the
financial resources
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necessary to repurchase the Exchange Notes
under such circumstances. See "Risk
Factors--Risks Associate with Buy/Sell Option
Under TCA Partnership Agreement." See
"Description of Exchange Notes--Mandatory
Redemption with Excess Cash Flow or Upon
Exercise of Buy/Sell Option."
Optional Redemption.......................... The Exchange Notes will be redeemable at the
option of the Company in whole or in part at
any time on or after November 15, 1999 with
Company in whole or in part at any time on or
after November 15, 1999 with Company Excess
Cash at the redemption prices set forth
herein plus accrued and unpaid interest, and
Liquidated Damages, if any, thereon to the
date of redemption. The Company will also
have the option to redeem the Notes at any
time if a holder is not found suitable by a
Gaming Regulatory Authority. See "Description
of Exchange Notes--Optional Redemption."
Ranking...................................... The Exchange Notes will be secured on an
exclusive basis by a pledge by the Company of
its Subordinated Notes and Cash and Cash
Equivalents. The Indenture (i) prohibits the
Company and Finance form incurring any
Indebtedness other than the Notes and (ii)
prohibits the Company from having any direct
or indirect subsidiaries (other than
Finance). See "Description of Notes--Certain
Covenants-- Limitation on Indebtedness and
Disqualified Capital Stock" and "--Limitation
on Activities of the Issuers."
Ranking of Subordinated Notes................ The Subordinated Notes that secure the
Company's obligations under the Exchange
Notes are subordinate in right of payment to
the prior payment of the Authority Senior
Secured Notes and PARI PASSU or senior to all
other subordinated indebtedness of the
Authority. Payments of interest on the
Subordinated Notes may be made if at the time
of such payment, no Default or Event of
Default exists and is continuing with respect
to the Authority Senior Secured Notes. See
"Material Agreements--Note Purchase
Agreement."
Change of Control............................ Upon the occurrence of a Change of Control
(as defined), holder of the Exchange Notes
will have the right, at such Holder's option,
pursuant to an irrevocable and unconditional
offer by the Company or Finance (the "Change
of Control Offer"), to require the Issuers to
repurchase all or
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any part of such Holder's Exchange Notes
(provided, however, that the principal amount
of such Exchange Notes must be $1,000 or an
integral multiple thereof) on a date (the
"Change of Control Purchase Date") that is no
later than 35 Business Days after the
occurrence of such Change of Control, at a
cash price (the "Change of Control Purchase
Price") equal to 101% of the principal amount
thereof, together with accrued interest and
Liquidated Damages, if any, to the Change of
Control Purchase Date. The Change of Control
Offer shall be made within 10 Business Days
following a Change of Control and shall
remain open for 20 Business Days following
its commencement (the "Change of Control
Offer Period"). Upon expiration of the Change
of Control Offer Period, the Issuers promptly
shall purchase all Exchange Notes properly
tendered in response to the Change of Control
Offer. There can be no assurance that the
Company will have the financial resources
necessary to repurchase the Exchange Notes
upon a Change of Control. See "Description of
Exchange Notes--Certain Covenants."
Certain Covenants............................ The Indenture governing the Notes (the
"Indenture") restricts the Issuers' ability
to, among other things, (i) pay dividends or
make other restricted payments or
investments, (ii) incur additional
indebtedness, (iii) create or incur or suffer
to exist any liens on any of its properties
or assets, (iv) directly or indirectly make
any Asset Sale or (v) have any subsidiaries,
except, in the case of the Company, Finance.
Covenants with Respect
to the Manager............................. The Indenture contains covenants of the
Issuers to cause the Manager not to, among
other things: (i) incur any Indebtedness
(except with respect to guarantees required
pursuant to certain hotel development
agreements or certain loans to the Manager),
(ii) create or incur or suffer to exist any
Liens on any of its properties or assets,
(iii) directly or indirectly create, cause or
otherwise suffer to exist any consensual
restriction or encumbrance of any kind on the
ability of the Manager to pay dividends or
made other distributions in respect of its
Equity Interests or to transfer any of its
profits or assets to the Company (except
under the Operative Documents (as defined))
or (iv) directly or indirectly make any Asset
Sale. In addition, the Company agrees, and
will causes the Manager to agree, not to
terminate, amend or waive any
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provisions of the Operative Documents in a
manner adverse to the economic interest of
the Holders without the consent of a majority
of the principal amount of the Exchange Notes
outstanding.
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RISK FACTORS
See "Risk Factors," on pages 14 through 22 hereof, for a discussion of
certain factors that should be considered in connection with the Exchange Offer
and an investment in the Exchange Notes.
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RISK FACTORS
AN INVESTMENT IN THE EXCHANGE NOTES IS SUBJECT TO A HIGH DEGREE OF RISK.
PRIOR TO MAKING AN INVESTMENT IN THE EXCHANGE NOTES, PROSPECTIVE INVESTORS
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY AND, IN PARTICULAR, SHOULD EVALUATE
THE FOLLOWING RISK FACTORS.
LACK OF OPERATIONS; DEPENDENCE ON MOHEGAN SUN
The Company does not conduct any business operations, and will be prohibited
by the Indenture from conducting any business operations, other than in
connection with its role as a managing general partner of the Manager and
activities incidental to the ownership of the Subordinated Notes and the
issuance of the Notes. The Company has no material business or assets other than
its interests in the Manager and the Subordinated Notes. The Company's sole
source of revenues is from the operations of the Mohegan Sun through its share
of management fee income under the Management Agreement and payments under the
Subordinated Notes that it holds. The Mohegan Sun is a start-up business and,
accordingly, is subject to all of the risks inherent in the establishment of a
new business enterprise. Although the Authority has engaged the management
services of the Manager, a partnership whose partners have substantial
experience in the development and management of resorts and gaming facilities,
there can be no assurance that the Mohegan Sun will generate sufficient revenues
for the Authority to be profitable or to service its debt obligations (including
its obligations under the Subordinated Notes) or pay sufficiently large
management fees to service the Notes. The operating results of the Mohegan Sun
will depend, in part, on matters over which the Authority and the Manager have
no control including, without limitation, general economic conditions, effects
of competition and the actual number of gaming customers and the amount wagered.
The ability of the Authority to meet its debt service requirements, and
consequently, the ability of the Company to meet its obligations under the
Notes, will be entirely dependent upon the performance of the Mohegan Sun, which
is subject to financial, economic, political, competitive, regulatory and other
factors, many of which are beyond its control. While the Company expects that
its future operating cash flow will be sufficient to cover its expenses,
including interest costs, the Company cannot give any assurance that it will be
able to do so.
LEVERAGE; EFFECTIVE SUBORDINATION
Upon completion of the Private Offering, the Company aggregated long-term
senior indebtedness of $65.0 million, consisting of the Notes. The Company's
sole source of revenues are from the operations of the Mohegan Sun through
distributions and payments from the Manager and payments from the Authority
under the Subordinated Notes that it holds.
The Mohegan Sun is also highly leveraged. The Authority expects to have
issued total debt of $305 million upon completion of the Mohegan Sun consisting
of (i) $175 million of Authority Senior Secured Notes, (ii) $40 million of
equipment financing, (iii) $40 million in principal plus accrued and unpaid
interest of Original Subordinated Notes, half of which will be held by the
Company and half of which will be held by Sun International, and (iv) $50
million in principal amount of the Completion Guarantee Subordinated Notes. The
Authority has (i) incurred approximately $13 million of senior working capital
financing and (ii) approximately $20 million in equipment operating leases.
Substantially all of the assets of the Authority secure the Authority Senior
Secured Notes and its working capital facility. In addition, the Authority is
permitted, under certain circumstances under the terms of the Authority Senior
Secured Notes, to incur additional indebtedness. The debt of the Authority will
be prior in right of payment under the Management Agreement and its Notes are
effectively subordinated to the debt of the Authority.
The degree to which the Authority is leveraged could have significant
consequences for the holders of the Notes, including, without limitation, the
following: (i) a substantial portion of the Authority's cash flow from
operations may be dedicated to fulfilling its payment obligations under its
indebtedness, including payments to certain capital reserve, sinking fund and
cash maintenance accounts required by the Authority
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Senior Secured Notes prior to funds being made available to pay management fees
or debt service on the Subordinated Notes; and (ii) the Authority's high degree
of leverage may make it vulnerable to an economic downturn which may hamper the
Mohegan Sun's ability to meet expected operating results.
RELIANCE UPON THE MANAGER AND ITS PARTNERS
The Mohegan Sun's profitability is largely dependent upon the efforts and
skills of the Manager, which has exclusive responsibility for developing,
marketing and managing the Mohegan Sun. No assurance can be given that the
operating results obtained by the management of Sun International or by the
principals of the Company in their other projects will be achieved by the
Mohegan Sun.
Under the Management Agreement, significant decisions, such as the annual
budget and the employment of key management personnel, are made by the Business
Board which consists of two representatives of the Manager (Howard Kerzner, the
representative from Sun International and Len Wolman, the representative of the
Company) and two representatives of the Mohegan Tribe (Roland Harris and
Carlisle Fowler). Business Board decisions must be unanimous. Disputes are
resolved by binding arbitration. The success of the Mohegan Sun is dependent
upon a good working relationship among the Business Board's members. The
inability of the Business Board to reach consensus decisions may have a material
adverse effect on the business of the Mohegan Sun and the cash flows to the
Manager and the Company.
The Management Agreement is terminable by the Authority if the Manager fails
to perform any material duty or obligation after notice or if the Manager's
gaming license is withdrawn as a result of the conviction of any director or
officer of the Manager for a criminal felony or misdemeanor offense directly
related to the performance of the Manager's duties. If the Management Agreement
is terminated, the Manager, and indirectly, the Company will not be entitled to
further management fees.
RISKS ASSOCIATED WITH THE MANAGER AND THE TCA PARTNERSHIP AGREEMENT
In the event of a bankruptcy of the Manager or bankruptcy or similar
proceeding with respect to the Authority, the Issuers will have no rights with
respect to the assets of either the Manager or the Authority. In the event of a
bankruptcy of the Manager, the Company will have the rights of an equity holder
in the Manager. The Company will not be an assignee of the Management Agreement
and accordingly will not have the right to perform under the Management
Agreement in the event that the Manager is unable to perform its obligations
thereunder, and the Management Agreement may be terminated for cause by the
Authority in the event of a failure to perform thereunder. In the event of a
bankruptcy or similar proceeding with respect to the Authority, the Company will
be a general unsecured creditor with respect to the Subordinated Notes, and the
Management Agreement may be subject to being rejected by the Authority.
The Issuers will not have a pledge of the Company's partnership interest in
the Manager. Accordingly, in the event of an acceleration under the indenture
governing the Notes, the trustee under the indenture will not be able to
foreclose upon the equity in the Manager without bringing suit against the
Company.
The partnership agreement with respect to the Manager requires consent by
both partners in order to take any action. Accordingly, the Company by itself
does not have the authority to cause the Manager to make any distributions.
Likewise, Sun International has the ability to block any action taken by the
Manager. While this partnership agreement requires the Manager to make
distributions of Excess Cash (as defined therein), such requirement is required
to be reduced by certain undefined, discretionary amounts, including
"foreseeable...needs of cash," "obligations to third parties," "adequate working
capital and reserves" and "the amount needed by the Partnership to...conduct its
business and carry out its purposes." If there is a dispute among the partners
as to the meaning of these provisions, it could result in no or limited
distributions being made by the Manager, which could have a material adverse
effect on the Company's ability to make required payments of interest, principal
and premium on the Notes.
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RISKS ASSOCIATED WITH BUY/SELL OPTION UNDER TCA PARTNERSHIP AGREEMENT
In the event of any dispute between the partners in the Manager, either
partner could invoke a buy/ sell provision contained in the partnership
agreement. Pursuant to the buy/sell provision, the party invoking the buy/sell
provision would deliver a notice to the other party requiring it to elect either
to sell its interest or to buy the invoking party's interest, in each at the
price set forth in such notice. The party receiving the notice must make the
election within 45 days of receipt of the notice or be deemed to have accepted
the offer to sell. If the offer to buy is elected, the party must close the
purchase within 75 days of the end of the 45 day period. Any party may terminate
the option at any time prior to closing by accepting the position of the other
party. In the event Sun International were to invoke the buy/sell provision, the
Company could: buy Sun International's interest, sell its interest or agree with
Sun International on the point of dispute. If the Company were to decide that it
was advantageous to purchase the partnership interest at the price offered,
there can be no assurance that the Company would have or would be able to raise
sufficient funds to redeem the Notes and to pay the purchase price at which the
partnership interest was offered. If the Company were to accept the offer to
sell, it is possible that the offer would be insufficient to pay all amounts due
on the Notes and there can be no assurance that the Company would be able to
raise sufficient funds to redeem the Notes in such an event. If the Company were
to concur with Sun International's interpretation of the partnership agreement,
there can be no assurance that the interpretation would not have a material
adverse effect on the ability of the Company to pay principal, interest and
premium on the Notes.
The degree to which the Authority is leveraged could have significant
consequences for the holders of the Notes, including, without limitation, the
following: (i) a substantial portion of the Authority's cash flow from
operations may be dedicated to fulfilling its payment obligations under its
indebtedness, including payments to certain capital reserve, sinking fund and
cash maintenance accounts required by the Authority Senior Secured Notes prior
to funds being made available to pay management fees or debt service on the
Subordinated Notes; and (ii) the Authority's high degree of leverage may make it
vulnerable to an economic downturn which may hamper the Mohegan Sun's ability to
meet expected operating results.
UNCERTAINTIES REGARDING ABILITY TO REALIZE ON COLLATERAL AND ENFORCE MANAGEMENT
AGREEMENT
Although the Company's obligation to repay the Notes is secured by a pledge
of approximately $22.6 million in principal and accrued interest of Subordinated
Notes and the cash and Cash Equivalents in the Cash Collateral Account, the
practical realization of value from these assets is subject to a number of
limitations, including the fact that the principal and interest on the
Subordinated Notes will be insufficient, without management fee income, to repay
all of the obligations under the Notes. In addition, realization upon the
collateral will require the ability of the Trustee to enforce payment under the
Subordinated Notes. The ability of the Trustee to enforce payment under the
Subordinated Notes will be dependent upon the availability of a court or other
forum with appropriate jurisdiction over the Mohegan Tribe and the authority
necessary to enforce such rights, and is subject to the prior rights of the
senior debt of the Authority.
The ability of the Trustee and/or the holders of the Notes to foreclose on
any of the collateral, upon the occurrence of an Event of Default or otherwise,
will be subject to the provisions of the documents governing the Collateral and,
in certain instances, to perfection and priority issues and to practical
problems associated with realization of security interests. Although the Mohegan
Tribe and the Authority have sovereign immunity and may not be sued without
their consent, the Mohegan Tribe and the Authority have granted a limited waiver
of sovereign immunity and consent to suit in connection with the Subordinated
Notes and the Management Agreement, including suits against the Authority to
enforce the obligation to repay the Subordinated Notes or to pay fees due under
the Management Agreement. In the event that such waiver of sovereign immunity is
held to be ineffective, the Trustee and the holders of the 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 such as the Mohegan Tribe. In
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addition, the Company is not an assignee of nor a party to the Management
Agreement and accordingly has no standing to enforce the Management Agreement.
The Mohegan Tribe has established the Gaming Disputes Court of the Mohegan
Tribe, which will have jurisdiction over disputes with respect to the Mohegan
Sun, including any disputes relating to the Subordinated Notes. See "Mohegan
Tribe of Indians of Connecticut--Gaming Disputes Court." The Management
Agreement provides that disputes shall be resolved by binding arbitration.
Judgments resulting from the binding arbitration required by the Management
Agreement will generally be enforced in federal court, unless the execution of
such judgment requires enforcement on Mohegan Tribal lands. As discussed below,
disputes under the Subordinated Notes are not subject to arbritration and any
disputes arising thereunder will be subject to the jurisdiction of the Gaming
Disputes Court of the Mohegan Tribe.
Generally, 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 to defer to the
jurisdiction of the Gaming Disputes Court or an arbitration, or to require that
any plaintiff exhaust its remedies in the Gaming Disputes Court or go to
arbitration 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 with the
Authority or the Mohegan Tribe relating to the Subordinated Notes or the
Management Agreement. In addition, the Authority may not be a "person" under the
Federal Bankruptcy Act, and, consequently, may not be able to become a debtor
under the federal bankruptcy laws. Thus, no assurance can be given that, if an
Event of Default (as defined) occurs, any forum will be available to the holders
of the Notes with respect to the enforcement of the Subordinated Notes other
than the Gaming Disputes Court or an arbitration panel with respect to the
Management Agreement. Because the Tribal Constitution and the laws of the
Mohegan Tribe have only been recently established, there are no guiding
precedents for the interpretation of Tribal law. Any execution of a judgment of
the Gaming Disputes Court will require the cooperation of the Mohegan 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 the Tribal officials to carry out such judgment.
The Mohegan 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 Mohegan Tribe voting. However, prior to 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 Division of the Gaming Disputes Court that
the proposed amendment would constitute an impermissible impairment of contract.
The Mohegan Tribe's Constitution prohibits the Mohegan 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 Mohegan Tribe's Constitution require
the affirmative vote of 75% of all registered voters of the Mohegan Tribe.
Amendment to any of such provisions of the Mohegan Tribe's Constitution or its
ordinances could adversely affect the ability of the holders of Notes to enforce
the obligations of the Authority with respect to the collateral securing the
Notes.
RELIANCE ON SINGLE MARKET
It is anticipated that the Mohegan Sun will be heavily dependent upon the
patronage of persons living within a 150-mile radius of the Mohegan Sun for
recurring operational revenue. Any downturn in the economy of the region, or the
entrance of new gaming competitors into the Mohegan Sun's market or the
expansion of existing competitors, could have a material adverse effect on the
Authority's results of operations. See "--Competition."
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COMPETITION
The gaming industry is characterized by intense competition among entities
that, in many instances, have greater resources than the Mohegan Sun. Because
the Mohegan Sun is marketed primarily to the day-trip customer, it competes
primarily with other casinos within 150 miles, and to a lesser extent, with
casinos in Atlantic City, New Jersey and the Oneida Indian casino, Turning
Stone, located near Syracuse, New York. Currently, Foxwoods is the only other
casino in operation within 150 miles of the site. However, Foxwoods is located
approximately 10 miles from the Mohegan Sun and is currently the largest gaming
facility in the United States in terms of the number of total gaming positions.
In addition, Foxwoods offers a number of amenities that the Mohegan Sun does not
currently offer, including hotels and extensive non-gaming entertainment
facilities. Foxwoods has been in operation since 1992 and the Company believes
that Foxwoods' successful operation has enabled it to build financial resources
that are currently substantially greater than the Authority's or the Mohegan
Tribe's.
Currently, outside of Atlantic City, New Jersey, casino gaming in the
northeastern United States may be conducted only by federally-recognized Indian
tribes operating under the Indian Gaming Regulatory Act of 1988 ("IGRA"). In
Connecticut, only the Mohegan Tribe and the Pequot Tribe, which operates
Foxwoods, are federally recognized. In New York State, a number of tribes are
federally recognized, but only two tribes, the St. Regis Mohawks and the Onieda
Nation have gaming compacts with the State of New York. The Oneida Nation is
currently operating a casino, Turning Stone, near Syracuse, New York. A
federally-recognized tribe in Rhode Island and a federally-recognized tribe in
Massachusetts are each currently seeking to establish gaming operations. In
addition, a number of groups in Connecticut and elsewhere in New England are
seeking federal recognition as tribes in order to establish gaming operations.
The Company cannot predict whether any of these groups will be successful in
achieving recognition and establishing gaming operations, and if established,
whether such gaming operations will have a material, adverse effect on the
proposed operations by the Authority.
In addition, a number of states, including Connecticut and New York, have
investigated legalizing casino gaming by non-Indians in one or more locations.
However, under the Mohegan Compact and the tribal-state compact between the
Pequot Tribe and the State of Connecticut, if Connecticut legalizes any gaming
operations with slot machines or other commercial casino games, the Pequot Tribe
and the Mohegan Tribe will no longer be required to make payments to the State
of Connecticut related to slot machine revenues. In New York, an advisory panel
has recently recommended to the governor the legalization of a number of casinos
in upstate New York, including in the Catskill mountain region near New York
City. Any such casino would require additional approval by the state legislature
and/or the governor of the State of New York. Any casino operating in the region
could have a material adverse impact on the Mohegan Sun.
Although the Mohegan Sun is dependent primarily upon gaming customers
residing within 150 miles of the Mohegan Sun, the Mohegan Sun also competes for
customers with casinos in Atlantic City, New Jersey, many of which have greater
resources and greater name recognition than the Mohegan Sun.
ABILITY OF THE AUTHORITY TO BUYOUT THE MANAGEMENT AGREEMENT
Under the terms of the Management Agreement, the Authority has a one time
option to buyout the Manager on the last day of the 60th month following the
first full month of operations of the Mohegan Sun (i.e. November 30, 2001) (the
"Buyout Option"). The Buyout Option is subject, among other things, to the
condition that the parties determine a commercially reasonable price for such
Buyout Option at the time of exercise and is not determinable at the present
time. See "Management Agreement--General." In the event that the Authority
elects to exercise the Buyout Option, there can be no assurance that the
valuation of the Company's management interest will be sufficient to meet the
Company's obligation to repay Notes. See "Description of Notes--Mandatory
Redemption with Excess Cash Flow or Upon Exercise of Buy/Sell Option."
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CONSTRUCTION RISKS; RISK OF COST OVERRUNS
Construction projects such as the Mohegan Sun are inherently subject to
significant development and construction risks, any of which could give rise to
cost overruns.
The anticipated construction costs for the Mohegan Sun are based on budgets
and schedule estimates prepared by the Authority with the assistance of the
Company, the Manager and their contractors. The Authority has entered into a
guaranteed maximum price contract with Morse Diesel International, Inc. ("Morse
Diesel") for the construction of the Mohegan Sun. The final amount of such
contract, however, is subject to modification based upon the occurrence of
certain events, such as certain design change orders and costs associated with
certain types of construction delays, including, in certain cases, force majeure
events. The Authority and Morse Diesel have certain cost matters that have not
been finalized as to whether such matters are covered under the guaranteed
maximum price or whether such cost increases are the result of change orders or
other events that would increase the contract price. The resolution of these
matters in favor of Morse Diesel may result in the final cost of the Mohegan Sun
to exceed its current budget. A portion of the proceeds of this Private Offering
will be held in the Cash Collateral Account and may be used to fund the
Company's share of any cost overruns, if any. Based upon its review of the
budget and the open cost items, the Company believes that the final construction
cost will not exceed the construction budget by an amount greater than the
available contingency. There is no assurance that construction costs for the
Mohegan Sun will not exceed budgeted amounts or the available contingency
including amounts in the Cash Collateral Account (as defined). Failure to
complete the Mohegan Sun within the budget may have a material adverse effect on
the results of operations and financial condition of the Authority, and
consequently, the Company.
In addition the Authority may not obligate itself to pay development costs
(exclusive of interest) in excess of $325.0 million without the further consent
of the National Indian Gaming Commission (the "NIGC"). The NIGC has reviewed and
consented to the current budgeted amounts. No assurance can be given that if
such additional amounts are required for completion of the Mohegan Sun, such
consent will be obtained.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, 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, and may 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.
Such 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 properly remediate such property, 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 a site.
The site of the Mohegan Sun (the "Site") was formerly occupied by United
Nuclear Corporation ("UNC"), a naval products manufacturer of, among other
things, nuclear reactor fuel components. UNC's facility was officially
decommissioned on June 8, 1994 when the Nuclear Regulatory Commission ("NRC")
confirmed that all licensable quantities of special nuclear material ("SNM") had
been removed from the Site and that any residual SNM contamination was
remediated in accordance with the NRC approved decommissioning plan.
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From 1991 through 1993, UNC commissioned an environmental consultant to
perform a series of environmental audits and reports on the Site. The
environmental audits and soil sampling programs 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, extensive environmental studies were
conducted prior to the United States taking the Site into trust for the Mohegan
Tribe.
Although the Site currently meets state remediation requirements, no
assurance can be given that the various environmental reports or any other
existing environmental studies with respect to the Site revealed all
environmental liabilities, that any prior owners or tenants of the Site did not
create any material environmental condition not known to the Authority, that
future laws, ordinances or regulations will not impose any material
environmental liability, or that a material environmental condition does not
otherwise exist on the Site. Future remediation may be necessary if excavation
and construction exposes contaminated soil which has otherwise been deemed
isolated and not subject to cleanup requirements.
Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACMs")
when such materials are in poor condition or in the event of building
remodeling, renovation or demolition. Such laws may impose liability for release
of ACMs and may entitle third parties to seek recovery from owners or operators
of real properties for personal injury associated with ACMS. In December 1994
UNC hired an asbestos contractor who removed all exposed asbestos insulations.
In addition, ACMs were removed as part of the construction of the Mohegan Sun.
However, no assurance can be given that additional future asbestos removal will
not be necessary.
LACK OF EXPERIENCED PERSONNEL
The Company anticipates that approximately 5,000 full time employees will be
required to operate the Mohegan Sun. The required employees have been hired and
have completed their initial training. In selecting employees, the Authority is
obligated to give preference in hiring first to qualified members of the Mohegan
Tribe (and qualified spouses and children of members of the Mohegan Tribe), and
second to members of other Indian tribes. Although sufficient numbers of
employees have been hired including many experienced casino operating and
management personnel, a large number of the employees have no experience with
casino operations and as a result, the initial quality of service may be
affected. As a result, employee turnover may be high, especially in the initial
period, and the Authority may be required to hire and train additional
employees.
RISKS ASSOCIATED WITH HIGHLY REGULATED INDUSTRY
Gaming on Indian land is regulated by federal, state and tribal governments.
The Management Agreement was approved by the NIGC. The Indenture, the Notes, the
Note Purchase Agreement for the Subordinated Notes, and all related exhibits and
schedules were or will be reviewed by the NIGC. The NIGC has advised the
Authority that although the NIGC must review these documents, it has no
authority to directly approve or disapprove those agreements. In addition, all
contracts with Indians relative to Indian land must be reviewed and approved by
the Bureau of Indian Affairs of the Department of Interior (the "BIA"),
exercising authority delegated by the Secretary of the Interior, which approval
has been obtained for all contracts of the Tribe. The Company believes that the
Management Agreement, the Note Purchase Agreement, the Notes and the Indenture
are in compliance with all applicable federal Indian laws and regulations.
Notwithstanding the foregoing, if a court of competent jurisdiction later holds
that the NIGC has the authority and responsibility to approve an agreement, and
if such approval cannot then be obtained or if such court determines that
notwithstanding any such approval from the NIGC or the BIA that such agreement
violated applicable federal law or regulations, such agreement could be held to
be void, and any payments from the Authority or the Mohegan Tribe pursuant to
such agreements (including
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payments in respect of the Management Agreement or the Subordinated Notes) could
be ordered returned.
In addition, gaming on Indian land may be adversely affected by changes in
the law. From time to time, various governmental officials have proposed to tax
casino gaming or to otherwise restrict or limit casino gaming. No assurance can
be given that such legislation or other legislation in the future will not have
a material adverse effect on the operations of the Mohegan Sun. In addition,
under federal law, gaming on Indian land is dependent on the permissibility
under state law of certain forms of gaming or similar activities. If the State
of Connecticut were to make various forms of gaming illegal or against public
policy, then 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. The
Company believes that Connecticut is unlikely to make gaming against public
policy due to the amount of revenues derived from gaming activities currently
being received by the State.
Prior to opening the Mohegan Sun, each of the partners of the Manager,
including the Company and its shareholders, and certain employees of the Mohegan
Sun were required to be licensed by relevant tribal and state authorities. Mr.
Len Wolman, chairman of the Company, Mr. Mark Wolman, a director of the Company,
and Mr. Solomon Kerzner, chairman of Sun International, have applied for and
received permanent gaming licenses from the Commissioner of Revenue Services of
the State of Connecticut which are subject to renewal annually. Certain other
executives of each of Sun International and the Company have received temporary
licenses. The Company believes that if any of these individuals are denied a
gaming license, that such denial will not have a material adverse effect on the
Company. As each employee who is required to be licensed is hired, the Authority
or the Manager will cause such employee to apply for all required licenses.
In addition, a former partner, Leisure Resort Technology, Inc., holds a five
per cent beneficial interest in the Manager. The Manager has been advised that
certain parties have acquired interests in Leisure and such acquisitions are
subject to review by the Connecticut Commission of Revenue Services. No
assurance can be given that all such parties will submit to, or pass, any such
review. The failure of such parties to submit to or pass review would require
the Manager to terminate the interest of Leisure. Pursuant to its agreement to
withdraw as a partner from the Manager, Leisure holds its beneficial interest
subject in all respects to the approval, regulations and requirements of the
NIGC and the applicable State of Connecticut regulating agencies.
LACK OF PUBLIC MARKET FOR THE SECURITIES
As of the date hereof, the only registered holder of Private Notes is Cede &
Co., as the nominee of DTC. Prior to the offering of the Private Notes, there
had been no market for the Notes and there can be no assurance that such a
market will develop, or if such market develops, as to the liquidity of such
market. The Exchange Notes will not be listed on any securities exchange, but
the Private Notes are eligible for trading in the National Association of
Securities Dealers, Inc.'s Private Offerings, Resales and Trading through
Automatic Linakges (PORTAL) market. The Initial Purchasers have advised the
Issuers that they currently intend to make a market in the Notes, as permitted
by applicable laws and regulations; however, the Initial Purchasers are not
obligated to do so and may discontinue such market making at any time without
notice to the holders of the Notes. In addition, such market making activities
may be limited during the Exchange Offer and the pendency of the Shelf
Registration Statement (as defined in the Registration Rights Agreement).
Accordingly, there can be no assurance that a trading market for the Notes will
develop or will provide liquidity to the holders thereof. Historically, the
market for non-investment grade debt has been subject to disruptions that have
caused substantial volatility in the prices of securities similar to the Notes.
There can be no assurance that, if a market for the Notes were to develop, such
a market would not be subject to similar disruptions. See "The Exchange Offer"
and "Plan of Distribution."
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FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Notes, (a) incurred such indebtedness with
the intent to hinder, delay or defraud creditors, or (b) (i) received less than
reasonably equivalent value or fair consideration and (ii) (A) was insolvent at
the time of such incurrence, (B) was rendered insolvent by reason of such
incurrence (and the application of the proceeds thereof), (C) was engaged or was
about to engage in a business or transaction for which the assets remaining with
the Company constituted unreasonably small capital to carry on their business,
or (D) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature, then, in each case, a court of
competent jurisdiction could avoid, in whole or in part, the Notes, or in the
alternative, subordinate the Notes to existing or future indebtedness of the
Company. The measure of insolvency for purposes of the foregoing would likely
vary depending upon the law applied in such case. Generally, however, the
Company would be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than all of its assets at a fair valuation,
or if the present fair salable value of its assets was less than the amount that
would be required to pay the probable liabilities on its existing debts,
including contingent liabilities, as such debts become absolute and matured.
Management of the Company believes that, for purposes of the Bankruptcy Code and
state fraudulent transfer or conveyance laws, the Notes are being issued without
the intent to hinder, delay or defraud creditors and for proper purposes and in
good faith, that the Company will receive reasonably equivalent value or fair
consideration therefor, and that after the issuance of the Notes and the
application of the net proceeds therefrom, including the $10.6 million
distribution to the members of the Company to retire certain indirect interests
of the Manager, the Company will be solvent, will have sufficient capital for
carrying on its business and will be able to pay its debts as they mature.
However, there can be no assurance that a court passing on such issues would
agree with the determination of the Company's management.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Issuers are is under any duty to
give notification of defects or irregularities with respect to tenders of
Private Notes for exchange. Private Notes that are not tendered or are tendered
but not accepted will, following consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected due to the limited amount, or "float," of the
Private Notes that are expected to remain outstanding following the Exchange
Offer. Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Issuers on November 8, 1996 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Private Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A and (ii) a limited number of institutional
"accredited investors" ("Accredited Institutions"), as defined in Rule
501(a)(1),(2), (3) or (7) under the Securities Act. As a condition to the sale
of the Private Notes, the Issuers and the Initial Purchasers entered into the
Registration Rights Agreement on November 8, 1996. Pursuant to the Registration
Rights Agreement, the Issuers agreed that, unless the Exchange Offer is not
permitted by applicable law or Commission policy, it would (i) file with the
Commission a Registration Statement under the Securities Act with respect to the
Exchange Notes within 45 days after the Closing Date, (ii) use its best efforts
to cause such Registration Statement to become effective under the Securities
Act within 120 days after the Closing Date and (iii) use its best efforts to
consummate the Exchange Offer within 150 days after the Closing Date. A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement. The Registration Statement is intended to satisfy
certain of the Issuers's obligations under the Registration Rights Agreement and
the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Issuers believe that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Issuers to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Issuers within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging 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. 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 Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Issuers
have agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any resale
for a period of 120 days after the Expiration Date. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Private
Notes validly tendered and not withdrawn prior to
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the Expiration Date. The Issuers will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Private Notes
surrendered pursuant to the Exchange Offer. Private Notes may be tendered only
in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $65,000,000 in aggregate principal amount
of the Private Notes are outstanding and registered in the name of Cede & Co.,
as nominee for DTC. Only a registered holder of the Private Notes (or such
holder's legal representative or attorney-in-fact) as reflected on the records
of the Trustee under the Indenture may participate in the Exchange Offer. There
will be no fixed record date for determining registered holders of the Private
Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Issuers intend to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement and the applicable requirements of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Private Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Issuers.
Holders who tender Private Notes in the Exchange Offer 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 Private
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "The Exchange Offer--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1997, unless the Issuers, in their sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 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 Issuers may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Issuers shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "The Exchange Offer-- Conditions" shall not
have been satisfied, to terminate the Exchange Offer by giving oral or written
notice of such delay, extension or termination to the Exchange Agent. Any such
delay in acceptance, extension,
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termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders. If the Exchange Offer is
amended in a manner determined by the Issuers to constitute a material change,
the Issuers will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders, and the Issuers
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 12 3/4% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on each
May 15 and November 15, commencing May 15, 1997. Holders of Exchange Notes will
receive interest on May 15, 1997 from the date of initial issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Private
Notes from the date of initial delivery to the date of exchange thereof for
Exchange Notes. Holders of Private Notes that are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the Private
Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "--Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a
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properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "The Exchange Offer--Withdrawal of Tenders"), as the case may be,
must be guaranteed by an Eligible Institution (as defined below) unless the
Private Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box titled "Special Delivery Instructions" on the
Letter of Transmittal or (ii) for the account of an Eligible Institution. In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is
a member of one of the recognized signature guarantee programs identified in the
Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be endorsed
or accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Private Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Issuers's acceptance of
which would, in the opinion of counsel for the Issuers, be unlawful. The Issuers
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Issuers's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Issuers shall determine. Although the Issuers
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Issuers, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Issuers have no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Issuers reserve the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
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 Offer.
By tendering, each holder of Private Notes will represent to the Issuers
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes,
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<PAGE>
(iii) such holder acknowledges and agrees that any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer for
the purposes of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired by
such person and cannot rely on the position of the staff of the Commission set
forth in certain no-action letters, (iv) such holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Private Notes acquired by
such holder directly from the Issuers should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Issuers. If the holder is a broker-dealer that
will receive Exchange Notes for such holder's own account in exchange for
Private Notes that were acquired as a result of market-making activities or
other trading activities, such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Issuers (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within
27
<PAGE>
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or a facsimile thereof), together with the
certificate(s) representing the Private 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 Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Issuers in their sole discretion,
whose determination shall be final and binding on all parties. Any Private Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer--Procedures for Tendering" at any time prior to
the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Issuers determine in their sole discretion that any of these
conditions are not satisfied, the Issuers may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Private Notes (see "--Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Issuers will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Issuers will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
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<PAGE>
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Issuers's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its
best efforts to keep the Registration Statement effective to the extent
necessary to ensure that it is available for resales of transfer-restricted
Private Notes by broker-dealers for a period of up to 120 days from the
Expiration Date and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of up to 120 days
after the Expiration Date.
ADDITIONAL INTEREST
In the event of a Registration Default (as defined below), the Issuers are
required to pay as Liquidated Damages (as defined in the Registration Rights
Agreement) to each holder of Transfer Restricted Securities (as defined below).
If (a) neither an Exchange Offer Registration Statements, nor a Shelf
Registration Statement is filed on or before the 45th day following the Closing
Date, (b) neither of such registration statements is declared effective by the
Commission on or prior to the 180th day after the Closing Date (the
"Effectiveness Target Date"), (c) an Exchange Offer Registration Statement
becomes effective, and the Issuers fail to consummate the Exchange Offer within
45 days of the earlier of the effectiveness of such registration statement or
the Effectiveness Target Date, or (d) the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Notes during the period specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Issuers will pay liquidated damages
("Liquidated Damages") to each holder of the Notes, with respect to the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $.05 per week per $1,000 principal amount of the Notes
held by such holder. Upon a Registration Default, Liquidated Damages will accrue
at the rate specified above until such Registration Default is cured and the
amount of Liquidated Damages will increase by an additional $.05 per week per
$1,000 principal amount of Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Notes
(regardless of whether one or more than one Registration Default is
outstanding). All accrued Liquidated Damages will be paid by the Issuers on May
15 and November 15 of each year to the holders of Notes.
The filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will eliminate
all rights of the holders of Private Notes eligible to participate in the
Exchange Offer to receive damages that would have been payable if such actions
had not occurred.
29
<PAGE>
EXCHANGE AGENT
Fleet National Bank has been appointed as Exchange Agent of the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL, BY OVERNIGHT
DELIVERY OR BY HAND: BY FACSIMILE:
<S> <C>
Fleet National Bank Fleet National Bank
CT OP TO6D Attn: Patricia Williams
Attn: Patricia Williams (860) 986-7920
150 Windsor Street
Hartford, CT 06120
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers and are estimated in the aggregate to be approximately
$ . Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Issuers so requests), (v) to the Issuers
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
TAX AND ACCOUNTING TREATMENT
The Issuers will recognize no gain or loss as a result of the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
Exchange Notes.
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<PAGE>
USE OF PROCEEDS
The Issuers will not receive any proceeds from the Exchange Offer. The net
proceeds received by the Company from the offering of the Private Notes, after
deducting discounts and commissions and estimated fees and expenses, were
approximately $61.5 million. The Company used approximately $25.1 million to
purchase $19.2 million in principal amount of Original Subordinated Notes of the
Authority plus accrued interest and accrued Additional Amounts (as defined). In
addition, in connection with the Reorganization, the Manager distributed
approximately $850,000 in principal amount of Original Subordinated Notes to the
Company. The Original Subordinated Notes bear interest at 15% per annum. The
Completion Guarantee Subordinated Notes bear interest at the prime rate
announced by the Chase Manhattan Bank plus one percent per annum. In addition to
the interest rate borne on the Subordinated Notes that is paid by the Authority,
the Manager is obligated to pay Additional Amounts on the Subordinated Notes to
cause the effective rate to be 26 1/2% per annum. As a holder of the
Subordinated Notes, the Company will be entitled to payment of these Additional
Amounts on its Subordinated Notes.
In addition, the Company used $10.6 million to directly purchase the
interests of a 12 1/2% partner of the Manager and $10.0 million was distributed
to the members of the Company for the purpose of causing certain indirect
ownership interests in the Manager not held by the members of the Company to be
retired. See "The Reorganization." The Company now holds a 45% economic interest
in the Manager. The balance of the proceeds (approximately $15.8 million) were
deposited into the Cash Collateral Account. The Company will be required to
deposit all revenues into the Cash Collateral Account which was pledged to
secure the Exchange Notes. Amounts in the Cash Collateral Account are available
for to pay interest, principal and/or premium on the Notes or to fund the
Company's share of any required advances to the Authority.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to (i) the Private Offering
and the application of the net proceeds therefrom and (ii) the Reorganization.
<TABLE>
<CAPTION>
NOVEMBER 8, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents................................................................. $ 1 $ 15,801
--------- -----------
--------- -----------
Long term debt:
12 3/4% Senior Notes due 2003 $ -- $ 65,000
--------- -----------
Total long-term indebtedness............................................................ -- 65,000
Members equity (deficit).................................................................. $ 1 (6,899)
--------- -----------
Total capitalization.................................................................... $ 1 $ 58,101
--------- -----------
--------- -----------
</TABLE>
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THE MOHEGAN SUN
The Mohegan Sun, which commenced operations on October 12, 1996, is a
625,000 square foot comprehensive gaming and entertainment complex located on a
dramatically landscaped, heavily wooded 240-acre site on the banks of the Thames
River in southeastern Connecticut. The Mohegan Sun, together with Foxwoods,
located approximately 10 miles away, are the only two casinos offering slot
machines and table games in the northeastern United States that are currently
legally authorized to operate outside of Atlantic City, New Jersey.
COMPREHENSIVE MASTER PLAN
The Mohegan Sun was developed according to a master plan for the site that
integrates all of the major requirements of a world-class gaming and
entertainment facility in a single comprehensive design. Pursuant to the master
plan the Mohegan Sun's facilities were not designed and built in phases, as is
the case with many casino developments. Instead, the entire casino and related
facilities were planned and build together, resulting in a cohesive and logical
layout for the entire Mohegan Sun complex. The total costs of the development
and construction of the Mohegan Sun are estimated to be $305 million, exclusive
of working capital and equipment operating leases. The source of funds includes:
(i) $175 million from the sale of the Authority Senior Secured Notes, (ii) $40
million from the sale of Original Subordinated Notes (all of which were
initially purchased by Sun International), (iii) $50 million in advances from
Sun International under the Completion Guarantee subordinated Notes, and (iv)
$40 million in equipment financing.
The master plan, which was completed prior to the commencement of operation
by the Mohegan Sun, emphasized creating direct highway access, providing
convenient parking and developing a variety of non-gaming entertainment
amenities within the scope of a single attractive unifying theme. The master
plan was designed to accommodate expansion, including additional parking and, if
appropriate, hotel accommodations.
The Company believes the use of an overall thematic environment in the
Mohegan Sun is a differentiating factor in attracting visitors. The Mohegan Sun
features a circular casino separated into four themed quadrants designed to
reflect a separate seasonal theme--winter, spring, summer and fall-- emphasizing
the importance of the seasonal changes to tribal life. An historical
northeastern Indian theme is conveyed throughout the facility using
architectural features, artistic details and the extensive use of natural
elements such as timber, stone and water. The circular design, with separate
entrances for each themed quadrant, is integrated into the traffic control
design to provide fast and convenient access from the various self-parking,
valet parking and public transportation loading areas to the gaming areas
through their own separate entrances.
CONVENIENT ACCESS
The Mohegan Sun provides customers fast and direct access to the interstate
highway system through its own four-lane access road with a direct exit from
Connecticut Route 2A (a four lane expressway) which connects to I-395,
approximately one mile from the Mohegan Sun. Interstate 395 connects to I-95
approximately 9 miles away. Interstate 95 is the main highway connecting Boston,
Providence and New York. In addition, the Mohegan Sun provides approximately
7,500 parking spaces on its property including 1,800 underground valet spaces
and 1,300 spaces in a multi-level parking garage.
THE CASINO
The gaming area consists of over 150,000 square feet, divided into four
quadrants around the Wolf Den, an open bar and entertainment area that forms the
centerpiece of the casino. The casino features approximately 2,670 slot machines
(with the capacity for approximately 3,000 slot machines), with denominations
ranging from twenty-five cents to $100, and approximately 180 table games
featuring
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<PAGE>
blackjack, poker, craps, roulette, Caribbean stud poker, baccarat, mini-baccarat
and pai gow poker. Each of the four quadrants has a separate identifying
seasonal decor, a separate customer service center/change bank, a beverage
service bar and restrooms.
Two high limit gaming and lounge areas, with private food and beverage
service, are reserved for premium players.
The facility also features a 22,500 square foot, 1,500 seat multi-use high
stakes bingo hall. When not in use for high stakes bingo, this room can seat
2,000 patrons for special events such as boxing, concerts and headliner
entertainment.
ENTERTAINMENT AND DINING
The Mohegan Sun features a variety of non-gaming entertainment. The
entertainment venues include:
THE WOLF DEN. The centerpiece of the Casino is the Wolf Den, a 300-seat
entertainment venue that is visible from the entire casino. The center of
the Wolf Den is a stage area designed to resemble a 40-foot stone mountain
that features top name dance and show bands and headliner performers. The
Wolf Den also features a 16-foot video screen that shows originally created
videos, music videos and sporting events.
BINGO ROOM. Live entertainment and special events, such as boxing, are
featured in the multi-use hall adjacent to the casino. The multi-use hall
features high stakes bingo when not in use for special events.
KIDSQUEST-REGISTERED TRADEMARK-. This approximately 20,000 square foot
children's entertainment facility provides licensed supervised child care in
a creative and exciting environment. Parents can leave their children at
KidsQuest, for an hourly fee, to play in mazes and slides, enjoy Barbie
Land, Lego blocks, movies and other dynamic activities.
The quality and the variety of the food service, together with attention to
personal service, are expected to be a hallmark of the Mohegan Sun. Patrons are
able to choose from over 20 restaurants and bars including:
THE LONGHOUSE. The Longhouse was the traditional meeting house of the
Mohegan elders. This 150-seat restaurant features grilled and roasted aged
prime beef complemented by a variety of fresh seafood in a wooded, rustic
setting.
POMPEII AND CAESAR. Chief Uncas, the historical leader of the Mohegan
people, believed in the importance of learning from other cultures and named
two of his sons after these Roman generals. In his honor, old world quality
meets contemporary new world flair in this 150-seat Italian fare venue.
BAMBOO FOREST. This 150-seat Asian specialty restaurant slices, dices
and stirfries creatively prepared foods from the Far East. Bamboo Forest's
discerning clientele feast on traditional and innovative Chinese, Thai,
Malay and Vietnamese inspired cuisine.
SEASONS BUFFET. Six hundred eighty guests may enjoy lunch and dinner at
the Seasons Buffet, featuring fresh-carved meats, special selections from
Mohegan Sun's specialty restaurants, pizza and bread fresh-baked in the
buffet's wood burning ovens and fresh grilled meat, fish and sausages.
Weekend breakfasts, Sunday brunch, and late night buffets round out the
Seasons Buffet's offerings.
MOHEGAN TERRITORY. Non-stop food complements the gaming at this 24-hour
350-seat casual restaurant. The Mohegan Territory offers popular selections
from all of the Mohegan Sun's restaurants in one setting, including prime
rib, fresh seafood, sandwiches, burgers, Chinese dishes, desserts and fresh
bakery selections.
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<PAGE>
THE COVE. This lounge area offers a variety of seafood selections and
will give patrons the opportunity to sample appetizers from the menus of the
Longhouse, Pompeii and Caesar and the Bamboo Forest.
CHIEF'S DELI. A 150-seat casual restaurant complete with old-fashioned
counter service. The open-style kitchen showcases the Mohegan Sun's sandwich
chefs as they create gigantic corned beef, pastrami or customized deli-style
offerings. A selection of daily homemade entrees such as yankee pot roast or
chicken pot pie will complement the deli style sandwiches. For dessert, the
Chief's Deli will offer a display of cakes, pies and pastries.
BOW & ARROW. The gaming continues on the big screens at Mohegan Sun's
sports bar, featuring televised sports, congenial bartenders, courteous
servers and snacks.
MOHEGAN GROUNDS. Mohegan Grounds is a cafe that features fresh-brewed
coffees and teas, espresso and cappuccino at any time of day or night.
FOOD COURT. The Food Court offers everything from hot dogs to chicken to
submarine sandwiches to soups to pizza to Chinese food, all served from ten
easy access food outlets centered around a skylit atrium with a running
stream, a waterfall, bridges and trees.
UNCAS GRILLE. Serving Mohegan Sun's approximately 5,000 employees, the
Uncas Grille features a variety of dining, refreshment and breaktime snack
items, 24-hours a day. Featured are hot and cold sandwiches, pizza, soup,
salad bar and fresh grilled selections, extending employees the same
courtesy and flair that patrons receive throughout the Mohegan Sun.
In addition, the Mohegan Sun provides three retail stores and 11 retail
carts. One of the stores features traditional Mohegan and other Indian crafts
and the other stores feature items with the Mohegan Sun logo and convenience and
gift shop items.
MARKET
The primary market for the Mohegan Sun is day-trip customers from New
England and New York who reside within 150 miles of the Mohegan Sun. According
to market research reports, in 1995 there were approximately 2.4 million adults
living within 50 miles of the site, 10.8 million adults within 100 miles of the
site and 21.4 million adults within 150 miles of the site. The metropolitan
areas of Hartford, New Haven, Springfield, Worcester, Boston and Providence are
within one to two hours driving time by interstate highway to the Mohegan Sun.
In 1995, the median household income and the per capita income of the population
within this market were both approximately 26% higher than the national
averages, with a median household income of $55,716 and a per capita income of
$21,258 as compared to a national median household income of $45,793 and a
national per capita income of $17,363.
The Company believes that the success of Foxwoods, which is approximately 10
miles east of the Mohegan Sun, is evidence of a strong gaming market in the
northeastern United States.
Foxwoods is currently the largest gaming facility in the United States
measured by the number of total gaming positions. The Company believes that
Foxwoods is the most profitable casino in the United States, generating reported
slot machine revenue of $471 million and $574 million for 1994 and 1995,
respectively. For the first nine months of 1996, Foxwoods reported $472 million
in slot machine revenues, as compared with $442 million for the first nine
months of 1995. Foxwoods' average win per machine per day for 1995 and the first
nine months of 1996 was $407 and $406, respectively. Foxwoods has generally
maintained its win per machine while steadily increasing its number of machines.
The Company believes these statistics are an indication of the strength of the
market available to the Mohegan Sun. In comparison, Atlantic City reported the
average win per machine per day of $282 and $258 in 1995 and for the first nine
months of 1996, respectively.
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<PAGE>
For the month of November 1996, in a press release, the Mohegan Sun reported
slot revenues of $25.9 million and an average win per machine per day of $345.
MARKETING STRATEGY
The Mohegan Sun employs a comprehensive marketing program designed to
establish the Mohegan Sun as a premier entertainment facility for the entire
family. The Mohegan Sun seeks to distinguish itself by emphasizing a uniquely
themed gaming environment, a superior food and beverage experience in a variety
of settings, ease of access and attention to personal service.
The Company believes that the Mohegan Sun's primary target market is adults
living within 100 miles (or approximately one to two hours driving time) and
secondarily, the population living between 100 and 150 miles (or approximately
two to three hours driving time) of the Mohegan Sun, which includes most of the
New York City and Boston metropolitan areas. The Mohegan Sun does not intend to
market heavily to visitors outside its primary target market unless it expands
to include lodging facilities.
Consistent with its emphasis on the day-trip market, the Mohegan Sun expects
to organize regular bus routes and private limousine service to the major
metropolitan areas in its vicinity to attract gaming patrons at all levels of
play. Although the Mohegan Sun seeks accommodate premium high-stakes players, it
does not initially expect to spend significant resources targeting the more
demanding and costly premium player market.
The Mohegan Sun seeks to create market awareness and customer loyalty
through a wide variety of activities including:
ADVERTISING. The Mohegan Sun utilizes a diverse media approach combining
television, radio and print media in target market areas. The emphasis is on
reach and frequency. Special attention is paid to media that reaches
tourists visiting the southeastern Connecticut tourist attractions. The
initial advertising is focusing on building consumer awareness and the
strengths of the property--spectacular design, convenience location, easy
access, gaming opportunities, unique entertainment and diverse food and
beverage offerings.
PUBLIC RELATIONS. Through regular press releases and special media
events, the Mohegan Sun is striving to create an active presence in the news
with emphasis on the electronic and print media.
AREA TOURISM. Regional marketing targets southeastern Connecticut
tourists with an emphasis on participating with local marketing groups, the
charter bus market, brochure distribution points such as visitor centers and
sponsorship opportunities.
SPONSORSHIPS. The Mohegan Sun will sponsor major expositions and
sporting and entertainment events to position it as a first class
entertainment resort.
SLOT MARKETING. The cornerstones to successful slot marketing are
customer service, complimentaries, an exemplary product and a
"user-friendly" players' club. The Mohegan Sun features special slot hosts
that provide service and that special "personal touch", complimentaries as a
benefit to the players club, and a "state-of-the-art" product with each
machine having a bill validator.
ETHNIC MARKETING. Focussed primarily on the strong Asian-American gaming
market in the Northeast, the Mohegan Sun offers multi-lingual hosts, food,
special events, Asian language advertising and special group transportation
via motorcoach.
BUS MARKETING. The Mohegan Sun marketing department concentrates on
efficiently and profitably attracting customers from the motorcoach market.
A separate motorcoach patron entrance makes access and loading fast and
convenient.
SPECIAL EVENTS AND ENTERTAINMENT. Special events and entertainment will
be used to reward loyal customers of the Mohegan Sun as well as to attract
new patrons. Gaming tournaments, drawings,
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<PAGE>
giveaways and "high end" specialty events will be featured. Top name
entertainment will be featured in the Wolf Den and sporting events and high
impact entertainment will be featured in the multi-use bingo hall.
DATABASE MARKETING. Use of a customer database to build customer loyalty
and generate repeat business will be a key marketing tool. The customer
database from the players club (which will collect data from both slot and
table game play) will enable the Mohegan Sun to target the specific
interests of groups of customers.
COMPETITION
The gaming industry is characterized by intense competition among entities
that, in many instances, have greater resources than the Mohegan Sun. Because
the Mohegan Sun is marketed primarily to the day-trip customer, it competes
primarily with other casinos within 150 miles, and to a lesser extent, with
casinos in Atlantic City, New Jersey. Currently, Foxwoods is the only casino in
operation within 150 miles of the Mohegan Sun. However, Foxwoods is located
approximately 10 miles from the Mohegan Sun and is the largest gaming facility
in the United States in terms of the number of total gaming positions. In
addition, Foxwoods offers a number of amenities that the Mohegan Sun does not
currently plan to offer, including hotels and extensive entertainment
facilities. Foxwoods has been in operation since 1992 and the Company believes
that Foxwoods' successful operation has enabled it to build financial resources
that are currently substantially greater than the Authority's or the Manager's
financial resources.
Currently, outside of Atlantic City, New Jersey, casino gaming in the
northeastern United States may be conducted only by federally-recognized Indian
tribes operating under IGRA. In Connecticut, only the Mohegan Tribe and the
Pequot Tribe, which operates Foxwoods, are federally recognized. In New York
State, a number of tribes are federally recognized, but only two tribes, the St.
Regis Mohawks and the Onieda Nation have gaming compacts with the State of New
York. The Oneida Nation is currently operating a casino, Turning Stone, near
Syracuse, New York. A federally-recognized tribe in Rhode Island and a
federally-recognized tribe in Massachusetts are each currently seeking to
establish gaming operations. In addition, a number of tribes in New England are
seeking federal recognition in order to establish gaming operations. The Company
cannot predict whether any of these tribes will be successful in establishing
gaming operations, and if established, whether such gaming operations will have
a material, adverse effect on the proposed operations by the Authority.
In addition, a number of states, including Connecticut and New York, have
investigated legalizing casino gaming by non-Indians in one or more locations.
However, under the Mohegan Compact and the tribal-state compact between the
Pequot Tribe and the State of Connecticut, if Connecticut legalizes any gaming
operations with slot machines or other commercial casino games, the Pequot Tribe
and the Mohegan Tribe will no longer be required to make payments related to
slot machine revenues. In New York, an advisory panel has recommended to the
legislature the legalization of a number of casinos in upstate New York,
including in the Catskill mountain region near New York City. Any such casino
would require additional approval by the state legislature and/or the governor
of the State of New York.
EMPLOYEES
The Company anticipates that approximately 5,000 full time employees will be
required to operate the Mohegan Sun. The required employees have been hired and
have completed their initial training. In selecting employees, the Authority is
obligated to give preference in hiring first to qualified members of the Mohegan
Tribe (and qualified spouses and children of members of the Mohegan Tribe), and
second to members of other Indian tribes. Although sufficient numbers of
employees have been hired, including many experienced casino operating and
management personnel, a large number of the employees have no experience with
casino operations and as a result, the initial quality of service may be
affected. As a result,
37
<PAGE>
employee turnover may be high, especially in the initial period, and the
Authority may be required to hire and train additional employees.
LEGAL PROCEEDINGS
None of the Mohegan Tribe, the Authority, the Manager the Company or Finance
is a party to any pending material litigation. Urban Design Group, an
architectural design consultant that was discharged from the project, has filed
suit against the Authority and the Manager seeking $270,000 in damages.
38
<PAGE>
THE COMPANY
The Company was organized in September 1996 as a Delaware limited liability
company. The Company is a newly formed entity that is one of the two managing
partners of the Manager. The Company also owns the Subordinated Notes. Finance,
a Delaware corporation was organized in October 1996. The principal executive
offices of the Company and Finance are located at 914 Hartford Turnpike, P.O.
Box 715, Waterford, Connecticut 06385 and its telephone number is (860)
442-4559.
The Limited Liability Company Agreement of the Company (the "LLC Agreement")
provides for the property, affairs and business of the Company to be managed by
a four member Board of Directors which consists of two directors appointed by
Slavik and two directors appointed by LMW (the "Board of Directors"). A quorum
for the Board of Directors requires all four members. The members initial
capital contributions to the Company consists of all of the interests in the
Manager owned by Slavik and LMW as well as certain Subordinated Notes. See
"Prospectus Summary--The Reorganization." Additional capital contributions may
be made to the Company by its members on a PRO RATA basis. If it is determined
that the Company requires additional funds, such funds may be loaned to the
Company by certain members pursuant to the terms set forth in the LLC Agreement;
however, the Indenture for the Notes prohibits the Company from incurring
additional indebtedness. The LLC Agreement also provides that any disputes which
arise under the LLC Agreement and which remain unresolved after 30 days will be
settled through arbitration.
LMW, one of the two members of the Company, is a development firm based in
southeastern Connecticut. LMW is owned by Len Wolman and Mark Wolman, each of
whom have extensive experience in construction and hotel management. Mr. Len
Wolman, who is the President and Chief Executive Officer of Waterford Hotel
Group, Inc. ("Waterford Hotel Group"), has twenty years of experience in
hospitality property development, including management experience associated
with major hotel operators such as Westin, Hyatt, Four Seasons, Sheraton,
Holiday Inn and Marriott. When Mr. Wolman joined the Waterford Hotel Group in
1986, it had one hotel under management. Under Mr. Wolman's leadership,
Waterford Hotel Group has grown to have eighteen properties under management in
eight states today. Mr. Mark Wolman is the founder of Wolman Construction, which
does commercial and residential construction throughout southeastern
Connecticut. Mr. Mark Wolman has over sixteen years of experience in land
development and construction and currently serves on the Board of Directors of
the Builders Association of Eastern Connecticut and served as president of the
association in 1993.
The other member of the Company, Slavik, was one of the first developers of
"way-of-life" communities (i.e. communities with a mix of single-family and
multiple family housing, golf courses or marinas and supportive office and
commercial facilities) and owns over 4,900 apartment units which it has
developed and built. Slavik also develops and manages hotels. The principals of
Slavik are Mr. Stephan Slavik, Sr. and Mr. Del Lauria. Mr. Slavik is the
Managing Member of Slavik Enterprises, LLC, a residential development company
that has developed and constructed more than 6,000 single family homes, 15,000
multiple-family housing units and several planned developments. Mr. Lauria is
the Executive Vice President of Slavik.
39
<PAGE>
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma balance sheet as of November 8, 1996
reflects (i) the Private Offering and the application of the net proceeds
therefrom and (ii) the Reorganization. The information has been prepared as if
the Private Offering and the Reorganization had occurred at September 30, 1996.
<TABLE>
<CAPTION>
NOVEMBER 8, 1996
----------------
<S> <C>
PRO FORMA
----------------
<CAPTION>
(IN THOUSANDS)
<S> <C>
ASSETS
Cash...................................................................... $ 15,801
Investment in Trading Cove Associates(1)(2)............................... 13,700
Investment in Original Subordinated Notes(3).............................. 25,100
Deferred debt costs....................................................... 3,500
-------
Total assets.......................................................... $ 58,101
-------
-------
LIABILITIES AND MEMBERS' EQUITY
12 3/4% Senior Notes due 2003............................................. $ 65,000
Members' equity (deficit)(1)(4)........................................... (6,899)
-------
Total liabilities and members' equity................................. $ 58,101
-------
-------
</TABLE>
- ------------------------
(1) Includes initial capital contribution by LMW and Slavik of each of their
interests in the Manager, recorded at their historical cost of $3.1 million.
The investment has been accounted for utilizing the equity method of
accounting and includes (i) aggregate initial cash contributions of $2.94
million and (ii) equity in net income of $160,000 (which consists solely of
interest income).
(2) Includes the purchase of the partnership interest of RJH Development Corp.
for $10.6 million, which will be amortized over the seven year term of the
Management Agreement. See "Prospectus Summary--The Reorganization."
(3) Includes principal, accrued interest and accrued Additional Amounts (as
defined) on Subordinated Notes to be purchased from Sun International
concurrently with the Private Offering.
(4) Reflects the distribution of $10.0 million of the proceeds from the Private
Offering to LMW and Slavik for the purpose of facilitating the acquisition
of certain interests in Slavik by Messrs. Len and Mark Wolman in connection
with the Reorganization. See "Use of Proceeds."
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's financial statements, the notes
thereto, and certain other financial information included elsewhere in the
Prospectus.
DEVELOPMENT ACTIVITIES
The Company, in its role as a managing general partner of the Manager, was
responsible for the design and development of the Mohegan Sun and oversees its
day-to-day operations. The operations of the Company, or its predecessors, have
been limited to negotiating the Management Agreement and assisting the Mohegan
Tribe and the Authority in obtaining federal recognition, negotiating the
Tribal-State Compact with the State of Connecticut, obtaining financing for the
development of the Mohegan Sun and applying for the appropriate gaming and other
licenses and governmental approvals required.
The Company has been recently formed and is in the development stage and has
capitalized all costs. Accordingly, the Company does not have any historical
operating revenues or income.
OVERVIEW OF CURRENT AND FUTURE CASH FLOWS
The Company expects to fund its operating debt service and capital needs
from cash flows from the Management Agreement and the Subordinated Notes (to the
extent interest is payable in cash on the Subordinated Notes and to the extent
of principal payments on the Subordinated Notes) and from amounts in the Cash
Collateral Account. Based upon the Company's anticipated future operations,
management believes that available cash flow from these sources will be
sufficient to meet the Company's anticipated requirements for operating expenses
and payments of principal of and interest on the Notes. No assurance, however,
can be given that the operating cash flow will be sufficient for that purpose.
The following is a summary of the anticipated cash flows of the Company from the
Mohegan Sun based upon its contractual arrangements. The summary is qualified by
reference to the more detailed summary of the contractual arrangements described
under "Material Agreements."
For the three month period ended December 31, 1996, the Company received
$750,094 in cash distributions from the Manager, which represented its share of
approximately $1,989,772 in net management fees earned by the Manager from the
Authority pursuant to the terms of the Management Agreement for the same period.
The actual amount of management fees earned by the Manager for any annual period
are subject to year-end adjustment, as set forth below.
SOURCES OF REVENUES. The Company has only two sources of revenues:
distributions on its partnership interest in the Manager and debt service
payments on the Subordinated Notes.
41
<PAGE>
The Manager will have only one source of revenue, management fees under the
Management Agreement. The management fees are calculated in three tiers based
upon Net Revenues of the Mohegan Sun set forth below (in thousands):
<TABLE>
<CAPTION>
I II III
----------- -------------------- -------------
<S> <C> <C> <C>
REVENUES IN
REVENUES IN TIER I TIERS I &
PLUS II PLUS 30%
40% OF NET 35% OF NET OF
REVENUES REVENUES NET REVENUES
UP TO BETWEEN ABOVE
----------- -------------------- -------------
Year 1.......................................................... $ 50,546 $ 50,547-$63,183 $ 63,183
Year 2.......................................................... $ 73,115 $ 73,116-$91,394 $ 91,394
Year 3.......................................................... $ 91,798 $ 91,799-$114,747 $ 114,747
Year 4.......................................................... $ 95,693 $ 95,694-$119,616 $ 119,616
Year 5.......................................................... $ 104,107 $ 104,108-$130,134 $ 130,134
Year 6 (subject to Buyout Option)............................... $ 114,335 $ 114,336-$142,919 $ 142,919
Year 7 (subject to Buyout Option)............................... $ 130,944 $ 130,945-$163,680 $ 163,680
----------- -------------------- -------------
----------- -------------------- -------------
</TABLE>
The monthly management fee payments are calculated against 1/12th of the
amounts set forth above, and then adjusted annually within 60 days of the close
of the fiscal year. This annual adjustment might or might not have a material
effect on cash flow. As defined in the Management Agreement, "Net Revenues" of
the Mohegan Sun means the amount of the Gross Revenues of the facility less
operating expenses and certain specified categories of revenue, such as income
from any financing or refinancing, taxes or charges received from patrons on
behalf of and remitted to a governmental entity, proceeds from the sale of
capital assets, insurance proceeds and interest on the Reserve Fund. Net
Revenues also include Net Gaming Revenues, which are equal to the amount of the
"net win" from Class III Gaming operations (ie., the difference between gaming
wins and losses) less all gaming-related operational expenses (excluding the
management fee). Within 25 days after the end of each calendar month, the
Manager is required to calculate and report to the Mohegan Tribe, the gross
revenues, operating expenses and Net Revenues.
In addition, the Manager is required to fund $1.2 million per year ($100,000
per month) from its management fees into a capital replacement reserve. The
Management Agreement has a term of seven years that commences upon the opening
of the Mohegan Sun, subject to a right of the Authority to buy-out the
Management Agreement after the fifth year. If the Management Agreement is bought
out after the fifth year, the Company will use its share of the proceeds to
redeem Notes.
Upon receipt of the management fees, the Manager is required to make a
number of different types of payments to its partners. Some of these payments
are one-time non-recurring payments (the "Nonrecurring Payments") and others are
required on a continuing basis (the "Continuing Payments"). The payments marked
with an asterisk below are Non-recurring Payments and the others are Continuing
Payments. The payments to be made by the Manager are intended to allocate the
management fees to compensate the recipients for the services provided by them
to the Mohegan Sun, including compensation for the provision of capital
resources and to provide the initial investors in the Mohegan Sun with a return
of capital for their initial investment.
The following table sets forth the priority of the distribution of the
Management Fee from the Manager to its Partners:
*1. Return of capital contributions made after September 24, 1995. These
capital contributions aggregated $1.1 million and are to be repaid to the
partners, 50% to the Company and 50% to Sun International.
2. Payment of an amount equal to 11 1/2% per annum on the Original
Subordinated Notes. These payments will be made semi-annually to the holders
of the Original Subordinated Notes, 50% to the Company and 50% to Sun
International.
42
<PAGE>
3. Payment of an amount equal to the difference between 26 1/2% and the
reference rate of Chase Manhattan Bank plus 1.0% on the first $15.0 million
advanced under the Completion Guarantee (the "First Tranche Completion
Guarantee Subordinated Notes"). This amount will be paid semi-annually PARI
PASSU with the amounts under paragraph 4. Upon funding of the First Tranche
Completion Guarantee Subordinated Notes, this amount will be paid to Sun
International. However, these amounts become payable to the Company as it
purchases its share of the First Tranche Completion Guarantee Subordinated
Notes over three years.
4. Payment of an amount equal to the reference rate of Chase Manhattan
Bank plus 1.0% on the First Tranche Completion Guarantee Subordinated Notes
to the extent the Authority is not permitted to pay interest thereon. This
amount will be paid semi-annually PARI PASSU with the amount under paragraph
3. When the Authority can pay such interest, payment under this paragraph 4
shall be reduced accordingly. In addition, to the extent the Manager has
paid amounts otherwise payable by the Authority, the holders will be
required to repay the Manager.
5. Payment of an amount equal to the difference between 26 1/2% and the
reference rate of Chase Manhattan Bank plus 1.0% on the amounts advanced
under the Completion Guarantee in excess of the First Tranche Completion
Guarantee Subordinated Notes (which is expected to total $35.0 million) (the
"Second Tranche Completion Guarantee Subordinated Notes"). This amount is
paid semi-annually to Sun International.
*6. Return of capital contributions made before September 24, 1995.
These capital contributions aggregated approximately $7.0 million and are
repaid to the partners, 50% to the Company and 50% to Sun International.
Approximately $2.2 million of these capital contributions will be deemed
returned at the closing of this Private Offering upon the distribution by
the Manager of the $1.7 million in principal amount of Original Subordinated
Notes together with accrued interest and accrued Additional Amounts, 50% to
Sun International and 50% to the Company.
*7. Payment of a Development Services Fee to Sun International equal to
3% of total development costs (less land acquisition costs) of the Mohegan
Sun plus $25,000 (estimated to be $8.3 million).
8. Payment of a monthly Management Services Fee equal to the lesser of
1% of the gross revenues of the Mohegan Sun and 25% of sum of the Excess
Cash of the Manager (as defined in the Partnership Agreement) plus the
Organizational and Administrative Fee (as defined) and the Marketing and
Casino Operations Fee (as defined). After deducting operating expenses
(which will be the following amounts: $2.0 million if the Mohegan Sun's
EBITDA (as defined) is $200.0 million or less, $3.0 million of the Mohegan
Sun's EBITDA is $200.0 million but less than $225.0 million, and $4.0
million if the Mohegan Sun's EBITDA is greater than $225.0 million) the
remaining amounts will be distributed in amounts equal to 50% to Sun
International and the remainder to the Company.
*9. Payment of a Completion Guarantee Fee to Sun International equal to
2% of the total development costs (less land acquisition costs) of the
Mohegan Sun (approximately $5.5 million).
10. Payment of an amount equal to the state and federal income tax
liability of the Manager as if it were an individual paying federal income
tax and the higher of Michigan or Connecticut taxes. This amount will be
paid 50% to Sun International, 45% to the Company and 5% to a former
partner.
11. All remaining fees and Excess Cash distributed 50% to Sun
International, 45% to the Company and 5% to a former partner.
The Company has an obligation to purchase one-half ($7.5 million) of the
aggregate principal amount of the outstanding First Tranche Completion
Subordinated Guarantee Notes in three equal annual installments beginning in
October 1997.
43
<PAGE>
Interest accrues on the Subordinated Notes semi-annually. Interest is
deferred (and compounds semi-annually) until the Authority retires or offers to
purchase at least 50% of its $175 million Authority Senior Secured Notes. The
Authority is required to offer annually to purchase the Authority Senior Secured
Notes with 50% of its Excess Cash Flow (as defined). If the holders of the
Authority Senior Secured Notes do not accept the offer, then such amount of the
Excess Cash Flow must be offered to purchase the Subordinated Notes. In the
event that the Company receives an offer to purchase Subordinated Notes (other
than in connection with a Change of Control), the Indenture requires the Company
to accept such offer to purchase Subordinated Notes in the same proportion as
Sun International.
LIQUIDITY AND CAPITAL RESOURCES
The initial capital of the Company consists of the partnership interests in
the Manager contributed by Slavik and LMW in forming the Company. See "The
Reorganization". In connection with the offering of the Private Notes, the
Company used approximately $25.1 million to purchase $19.2 million in principal
amount of Original Subordinated Notes of the Authority plus accrued and unpaid
interest and Additional Amounts. In addition, in connection with the
Reorganization the Manager distributed approximately $850,000 in principal
amount of Subordinated Notes to the Company.
If construction costs exceed the current budget or if additional amenities
or facilities are constructed, the Manager may determine to loan the Authority
funds for such purposes, although it does not have any obligation to do so. The
Company currently believes that the completion costs of the Mohegan Sun are
within the current budget or can be funded through the $50.0 million completion
guarantee, but construction costs may increase, and no assurance can be given
that the Authority will be able to obtain sufficient funds if it is required to
do so. A portion of the proceeds of the Private Offering were placed in the Cash
Collateral Account and are available to fund the Company's share of any
additional funding required by the Manager, if any. See "Description of
Notes--Certain Covenants--Limitation on Restricted Payments."
44
<PAGE>
MANAGEMENT
The Mohegan Sun is managed by the Manager pursuant to the Management
Agreement. The Management Agreement provides that significant business
decisions, such as approving the annual budget, will be made by the Business
Board, which consists of two representatives from the Manager (one from the
Company, Mr. Len Wolman, and one from Sun International, Mr. Howard Kerzner) and
two representatives from the Authority. Decisions of the Business Board must be
made unanimously.
The Manager is managed by two managing general partners, the Company and Sun
International. Generally, most decisions require the unanimous decision of both
managing general partners.
The following sections set forth the management personnel of the Company,
Finance, Sun International and the Authority. The information concerning Sun
International and the Authority has been derived from publicly filed
information.
THE COMPANY
The following tables set forth certain information with respect to persons
who are members of the Company's Board of Directors of the Company and Finance
or who are executive officers of the Company or Finance.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Len Wolman........................................... 41 Chairman of the Board and Chief Executive Officer
Del J. Lauria........................................ 48 Director and Chief Financial Officer
Stephan F. Slavik, Sr................................ 76 Director
Mark Wolman.......................................... 38 Director
</TABLE>
LEN WOLMAN. Mr. Wolman has been the Chairman of the Board of Directors and
the Chief Executive Officer of the Company since its formation. Mr. Wolman is
also the Chairman of the Board of Directors and the Chief Executive Officer of
the Waterford Hotel Group, Inc. since 1986. Under Mr. Wolman, Waterford Hotel
Group, Inc. has grown from one hotel management contract to 18 properties in
eight states. Mr. Wolman was actively involved in the development and
construction of the Mohegan Sun. Mr. Wolman was instrumental in formation of the
relationship of the Manager and the Mohegan Tribe and has been actively working
with the Mohegan Tribe in connection with obtaining federal recognition,
acquiring the site for the Mohegan Sun and obtaining the financing to construct
the Mohegan Sun. Mr. Wolman is the brother of Mark Wolman. Mr. Wolman has served
as President and Chief Executive Officer of Finance since its inception.
DEL J. LAURIA. Mr. Lauria became a director of the Company and Chief
Financial Officer upon its formation. Mr. Lauria is also the Executive Vice
President of Slavik Suites, Inc. From 1980 to 1982, Mr. Lauria served first as
Chief Financial Officer of the Formidable Group, Inc., a real estate management
company. In 1982, Mr. Lauria was promoted to Executive Vice President of the
Formidable Group, Inc. and served in that position until joining Slavik Suites,
Inc. in 1991. Prior to joining the Formidable Group, Inc., Mr. Lauria was
associated with the accounting firm now known as Deloitte & Touche and is a
certified public accountant. Mr. Lauria has served as Treasurer of Finance since
its inception.
STEPHAN F. SLAVIK, SR. Mr. Slavik became a Director of the Company upon its
formation. Mr. Slavik is the Managing Member of Slavik Enterprises, LLC, a
residential development company that has developed and constructed more than
6,000 single family homes, 15,000 multiple-family housing units and several
45
<PAGE>
planned communities in Michigan and Florida. Slavik Enterprises is currently
active in the development, building and ownership of over 4,900 apartment units.
MARK WOLMAN. Mr. Wolman became a Director of the Company upon its
formation. Mr. Wolman has been the President of Wolman Construction since its
formation in 1988. Wolman Construction is a residential and commercial
development and construction firm based in eastern Connecticut and is actively
involved in developing the Mohegan Sun. Mr. Wolman has been working with the
Mohegan Tribe since 1992 and has been instrumental in assisting the Mohegan
Tribe obtain a number of governmental approvals in connection with the
development and construction of the Mohegan Sun. Mr. Wolman is the brother of
Len Wolman.
The Company's directors and officers will not be compensated by the Company,
but will receive compensation as part of the operating expenses deducted from
the Management Services Fee. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUN INTERNATIONAL
Sun International, drawing upon its gaming and resort expertise, has
assembled an experienced management team to oversee the development and
operation of the Mohegan Sun. This team includes:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Solomon Kerzner...................................... 60 Chairman and Chief Executive
Howard B. Kerzner.................................... 32 President
Charles Adamo........................................ 35 Executive Vice President--General Counsel
John R. Allison...................................... 50 Executive Vice President--Chief Financial Officer
Kevin DeSanctis...................................... 42 Chief Operating Officer--North America & Caribbean
William C. Katz...................................... 44 Executive Vice President--Project Development
International
</TABLE>
SOLOMON KERZNER. Mr. Kerzner has been Chairman and Chief Executive Officer
of Sun International since October 1993 and from October 1993 to June 1996 was
President. Mr. Kerzner is one of the visionary leaders of the resort and gaming
industries. Prior to founding Sun International, Mr. Kerzner pioneered the
concept of an entertainment and gaming destination resort designed and managed
to appeal to multiple market segments by developing Sun City, the Lost City and
the Carousel. Mr. Kerzner is the father of Howard Kerzner.
HOWARD B. KERZNER. Mr. Kerzner is the President of Sun International. Mr.
Kerzner joined Sun International in May 1995 as Executive Vice
President--Corporate Development. Prior to that time, he was Director--Corporate
Development of Sun International Investments Limited ("SIIL") from September
1992. Previously, Mr. Kerzner worked for Lazard Freres & Co. from September
1991. Prior to that time Mr. Kerzner worked for the First Boston Corporation.
Mr. Kerzner is the son of Solomon Kerzner.
CHARLES D. ADAMO. Mr. Adamo is Executive Vice President and General Counsel
of Sun International. Mr. Adamo joined Sun International in May 1995 as General
Counsel. Prior to that time, he was Group Legal Advisor of SIIL from September
1994. Previously, Mr. Adamo was engaged in the practice of law at the firm of
Cravath, Swaine & Moore in New York from 1986. Mr. Adamo is admitted to the bar
in the State of New York.
46
<PAGE>
JOHN R. ALLISON. Mr. Allison is the Executive Vice President--Chief
Financial Officer of Sun International. Mr. Allison joined Sun International in
May 1995 as Chief Financial Officer. Mr. Allison joined SIIL in March 1994 as
Group Financial Director. From December 1987 until February 1994, Mr. Allison
was Chief Financial Officer--South African operations of Sun International,
Inc., a resort and management holding company with interest in approximately 27
hotels in southern Africa. Prior to that, he was the Group Financial Director of
Kimberly-Clark (South Africa) Limited for four years. He is a fellow of the
Institute of Chartered Accountants in England and Wales and a member of the
South African Institute of Chartered Accountants.
KEVIN DESANCTIS. Mr. DeSanctis is the Chief Operating Officer--North
America & Caribbean. Mr. DeSanctis joined Sun International in July 1995 as
President, Gaming. Prior to joining Sun International, Mr. DeSanctis served as
Executive Vice President and Chief Operating Officer of Hemmeter Enterprises
since April 1994. From 1991 to 1994 Mr. DeSanctis served as President and Chief
Operating Officer of the Trump Plaza Hotel and Casino. From August 1989 to
February 1991, Mr. DeSanctis served as Vice President of Casino Operations of
The Mirage Hotel and Casino in Las Vegas, Nevada. Prior to August 1989, Mr.
DeSanctis served in various positions in the gaming industry.
WILLIAM C. KATZ. Mr. Katz is the Executive Vice President--Project
Development. Mr. Katz joined Sun International in May 1995 as Executive Vice
President--Project Development. Prior to that time, he was Vice
President--Project Development for Americas & Caribbean for SIIL from September
1994. From 1993 to September 1994, Mr. Katz was Operations Manager for Beauchamp
Construction Company, Coral Gables, Florida. From 1991 to 1993, Mr. Katz was
Project Executive for Morse Diesel, Fort Lauderdale, Florida. From 1989 to 1991,
Mr. Katz was Project Executive for Stolte, Inc., Miami, Florida.
THE AUTHORITY
The following tables provides information as of September 1, 1996 with
respect to each of (i) the executive officers of the Authority and (ii) the
members of the Management Board of the Authority (the "Management Board"). See
"Mohegan Tribe of Indians of Connecticut--Tribal Gaming Authority."
<TABLE>
<CAPTION>
NAME POSITION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Roland Harris........................................... Chairman and member, Management Board
Jayne Fawcett........................................... Vice Chairman and member, Management Board
William J. Valardo...................................... Executive Vice President and General Manager
George T. Papanier...................................... Senior Vice President and Chief Financial Officer
Mitchell Grossinger Etess............................... Senior Vice President, Marketing
James Allen............................................. Vice President, Development
Marie Haggerty.......................................... Vice President, Human Resources
Carlisle Fowler......................................... Treasurer and member, Management Board
Loretta Roberge......................................... Corresponding Secretary and member, Management Board
Shirley Walsh........................................... Recording Secretary and member, Management Board
Mark Brown.............................................. Member, Management Board
Courtland Fowler........................................ Member, Management Board
Maynard Strickland...................................... Member, Management Board
Glen R. LaVigne......................................... Member, Management Board
</TABLE>
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ROLAND HARRIS. Mr Harris has been Chairman and a member of the Management
Board since October 1995. Mr. Harris is the founder and president of the firm
Harris and Clark, Inc.--Civil Engineers, Land Surveyors & Land Planner, which
has performed services for the Authority. Mr. Harris has served as First
Selectman and CEO of the Town of Griswold, Connecticut and also as its Planning
and Zoning Commissioner. He has served as Deputy Chief of the Griswold Fire
Department and as Fire Marshall and Inspector of the Town of Griswold. Prior to
assuming the Chairmanship of the Management Board, Mr. Harris served as the
Tribal Planner. In addition to his duties as Chairman, Mr. Harris also is a
member of the Business Board and Director of the Mohegan Tribe's Housing
Authority.
JAYNE FAWCETT. Ms. Fawcett has been Vice Chairman of the Management Board
since December 1995 and a member of the Management Board since July 15, 1995.
Ms. Fawcett worked as a social worker for the State of Connecticut in 1987 and
recently retired from teaching after 27 years of service. Ms. Fawcett was
Chairman of the Constitutional Review Board from 1992 to 1993. In addition, she
serves as an alternate on the Business Board and oversees the Mohegan Tribe's
public relations.
WILLIAM J. VALARDO. Mr. Valardo has been Executive Vice President, General
Manager of the Authority since October 1995 and has 20 years of experience in
gaming operations. Prior to his employment with the Authority, Mr. Valardo was
Chief Operating Officer for River City, a riverboat gaming joint venture in New
Orleans, Louisiana. From 1991 to 1994, Mr. Valardo served as Senior Vice
President, Casino Operations at Trump Plaza Hotel and Casino in New Jersey. Mr.
Valardo was Vice President, Table Games of the Mirage in Las Vegas from its
opening in 1989 until 1991. Mr. Valardo also worked as Assistant Casino Manager
and Pit Manager for Caesars Tahoe and Caesars Palace.
GEORGE T. PAPANIER. Mr. Papanier who has been Senior Vice President Finance
and the Chief Financial Officer of the Authority since October 1995 has 17 years
of experience in the casino and hotel industry. Prior to joining the Authority,
Mr. Papanier worked for Hemmeter Enterprises from November 1994 to July 1995 as
its Vice President of Operations and prior thereto was Vice President of Finance
for Trump Plaza Hotel and Casino. Mr. Papanier also held various financial
management positions at Bally's Grand, Golden Nugget and Sands Hotel and Casino.
Mr. Papanier is a certified public accountant.
MITCHELL GROSSINGER ETESS. Mr. Etess has been Senior Vice President,
Marketing since November 1995 and has 16 years experience in the casino and
hotel industry. Prior to his employment with the Authority, Mr. Etess was Vice
President at Players Island and, from 1989 to 1994, was Senior Vice President of
Marketing and Hotel Operations at Trump Plaza Hotel and Casino. Prior thereto,
Mr. Etess held various management positions in the casino and hotel industry.
JAMES ALLEN. Mr. Allen has been Vice President, Development, since
September 1995 and prior to that served as General Manager of Bullwhackers Black
Hawk Casino in Black Hawk, Colorado. Prior to his employment with Bullwhackers
Black Hawk Casino, Mr. Allen served as Vice President of Hotel Operations at
Trump Plaza in Atlantic City, New Jersey, where he was responsible for all areas
of the hotel. Mr. Allen has been in the gaming industry for sixteen years and
has held a variety of positions.
MARIE HAGGERTY. Ms. Haggerty has been Vice President, Human Resources,
since September 1995. Prior to her employment with the Authority, Ms. Haggerty
served as Vice President of Human Resources at River City Joint Venture in New
Orleans, Louisiana, where she was responsible for all areas of Human Resources,
as well as Wardrobe and Retail Operations. Ms. Haggerty served as Senior Vice
President of Human Resources at Trump Plaza in Atlantic City from 1986 to 1995
before moving to New Orleans. Ms. Haggerty also held various Human Resources
positions with Caesars Atlantic City from its pre-opening phase in 1978 through
1986 when she joined Trump Plaza. Ms. Haggerty has a total of eighteen years of
experience in the gaming industry.
CARLISLE FOWLER. Mr. Fowler has been the Treasurer and a member of the
Management Board since July 15, 1995 and has been active in the Mohegan Tribe's
government for over 20 years. Prior to his
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<PAGE>
retirement in 1989, Mr. Fowler was an electronics technician for the State of
Connecticut and operated his own electronics business. Mr. Fowler serves on the
Business Board and on the Finance Committee of the Management Board.
LORETTA ROBERGE. Ms. Roberge has been Corresponding Secretary and a member
of the Management Board since July 15, 1995. Ms. Roberge has served as a
paraprofessional at the Mohegan School for 24 years, working with children with
special needs. Active in the Mohegan Tribe's community all her life, Ms. Roberge
previously served as secretary of the Management Board. She presently chairs the
Finance Committee, co-chairs the Glad and Sad Committee and is a member of the
Cemetery Committee of the Mohegan Tribe.
SHIRLEY WALSH. Ms. Walsh has been the Recording Secretary of the Management
Board since October 1995 and has been a member of the Management Board since
July 15, 1995. Ms. Walsh has worked for the Mohegan Tribe in various capacities
for almost four years. Prior to that time, she was employed for 13 years by a
local certified public accountant. Ms. Walsh chaired the Mohegan Tribe's
Election Committee from 1994 to 1995 and serves on the Bingo, Glad and Sad and
the Wigwam Committee of the Mohegan Tribe.
MARK BROWN. Mr. Brown has been a member of the Management Board since
October 1985 and serves as the security liaison for the Tribal Council. Prior to
joining the Tribal Council, he served as a law enforcement officer for eight
years. Mr. Brown worked with the Mohegan Tribe's historian during the period in
which the Mohegan Tribe was working to obtain federal recognition and also
served on the Constitutional Review Board from 1993 to 1994. Mr. Brown has
co-chaired the Mohegan Tribe's Wigwam Committee for the past two years and also
serves on its Cemetery Committee.
COURTLAND FOWLER. Mr. Fowler has been a member of the Management Board
since July 15, 1995 and was a major contributor to the cultural research that
led to the federal recognition of the Mohegan Tribe. Mr. Fowler continues to
lend his expertise to the Cultural Resources Department. Mr. Fowler was
previously employed as a chemical operator and assistant foreman at Pfizer until
his retirement in 1990. He has served as Vice Chairman of the Management Board,
as a member of the Constitutional Review Board and as a member of the Mohegan
Tribe's Cemetery Committee. Mr. Fowler also was on the committee that drafted
the first constitution of the Mohegan Tribe. Mr. Courtland Fowler is the brother
of Mr. Carlisle Fowler.
MAYNARD STRICKLAND. Mr. Strickland has been a member of the Management
Board since October 1995. During the past 20 years, Mr. Strickland owned and
operated several restaurants in Norwich, Connecticut and in Florida. Mr.
Strickland was born and raised in the Mohegan Tribe community, continuing a long
family tradition of tribal involvement.
GLENN R. LAVIGNE. Mr. LaVigne has been a member of the Management Board
since January 1996. Mr. LaVigne has been employed by the Town of Montville,
Connecticut since 1979 and oversees building and maintenance for Montville's
seven municipal buildings.
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<PAGE>
MOHEGAN TRIBE OF INDIANS OF CONNECTICUT
GENERAL
The Mohegan Tribe of Indians of Connecticut is a federally-recognized Indian
tribe, whose federal recognition became effective May 15, 1994. The Mohegan
Tribe currently has approximately 1,100 members. Although it only recently
received federal recognition, the Mohegan Tribe has lived in a cohesive
community since time immemorial in what is today southeastern Connecticut. The
Mohegan Tribe historically has cooperated with the United States and is proud of
the fact that members of the Mohegan Tribe have fought on the side of the United
States in every war from the Revolutionary War to Desert Storm. The Mohegan
Tribe believes that this philosophy of cooperation exemplifies its approach to
developing the Mohegan Sun.
Although the Mohegan Tribe is a sovereign entity, it has sought to work
with, and gain the support of local communities in establishing the Mohegan Sun.
For example, the Mohegan Tribe gave up its claim to extensive tracts of land
that have 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 Mohegan Tribe has been sensitive to
the concerns of the local community in developing the Mohegan Sun. This
philosophy of cooperation, rather than confrontation, has enabled the Mohegan
Tribe to build a unique alliance among local, state and federal officials to
achieve its goal of building the Mohegan Sun.
GOVERNANCE
The Mohegan Tribe's Constitution provides for the governance of the Mohegan
Tribe by a Tribal Council (the "Council"), consisting of nine members and a
Constitutional Review Board (the "Board"), consisting of seven members. All
members of the Council and the board serve terms of five years except in the
event that the Chair of the Council has been elevated to the position of
Lifetime Chief. A Lifetime Chief serves for life, unless the Lifetime Chief
resigns from office or is deemed incompetent and removed from office in
accordance with tribal custom. On February 22, 1992, Chief Ralph Sturges was
elected to the position of Lifetime Chief of the Mohegan Tribe; however, Chief
Sturges has resigned his position as Chair and a member of the Council.
The legislative and executive powers of the Mohegan Tribe are vested in the
Council. The members of the Council are elected by the registered voters of the
Mohegan Tribe and must be at least 18 years of age prior to the date of the
election. The powers of the Council are set forth in the Mohegan Tribe's
Constitution and include the legislative and executive powers to establish a
departmental structure of the executive branch and to establish governmental
sub-divisions and agencies and delegate appropriate powers to such subdivisions
and agencies. The terms of each of the Council members expire during October
2000. As of November 1996, the members of the council were:
TRIBAL COUNCIL
<TABLE>
<CAPTION>
NAME AGE
- ---------------------------------------------------------------------------------------- ---
<S> <C>
Mark Brown.............................................................................. 38
Jayne Fawcett........................................................................... 59
Carlisle Fowler......................................................................... 66
Courtland Fowler........................................................................ 68
Roland Harris........................................................................... 49
Loretta Roberge......................................................................... 64
Shirley Walsh........................................................................... 51
Maynard Strickland...................................................................... 48
Glenn R. LaVigne........................................................................ 36
</TABLE>
50
<PAGE>
The Board is the Mohegan Tribe's traditional "council of elders." Six
members of the Board must be registered voters of the Mohegan Tribe who are at
least 55 years of age. The members of the Board are elected by the registered
voters of the Mohegan Tribe. The seventh member of the Board is appointed by the
Council. Any case or controversy arising under the Mohegan Tribe's Constitution
must be submitted to the Board for determination, except those matters which
relate to the Mohegan Sun, including, the Authority Senior Secured Notes and the
Subordinated Notes, which are required to be submitted to the Gaming Disputes
Court. The decision of the Board on such matters is final. The Board is not
permitted to issue advisory opinions. The term of each of the Board members
expires during October 1999.
CONSTITUTIONAL REVIEW BOARD
<TABLE>
<CAPTION>
NAME AGE
- ---------------------------------------------------------------------------------------- ---
<S> <C>
Pauline Brown........................................................................... 66
Carlton Eichelberg...................................................................... 65
Everett Eichelberg...................................................................... 61
Melissa Fawcett......................................................................... 35
Margaret LaVigne........................................................................ 65
Dorothy Long............................................................................ 68
Laurence Schultz........................................................................ 63
</TABLE>
MOHEGAN TRIBAL GAMING AUTHORITY
On July 15, 1995, the Mohegan Tribe established the Mohegan Tribal Gaming
Authority. The Mohegan Constitution provides that the Authority shall exercise
all governmental and proprietary powers of the Mohegan Tribe over all
gaming-related development. Presently, the members of the Authority's Management
Board are the same as the members of the Council.
The Authority has two major functions. The first, delegated to the
Authority's Management Board, is to direct the development, operation,
management, promotion and construction of the gaming enterprise and all related
development. The Management Board consists of the nine members of the Council.
The Management Board also selects tribal representations to a Business Board
which oversees the business aspects of the gaming operation (the "Business
Board"). The Business Board is established under the Management Agreement and
consists of two member appointed by the Mohegan Tribe and two members appointed
by the Manager.
The second major function of the Authority is to regulate gaming. The
Management Board appoints an independent Director of Regulation to ensure the
integrity of the gaming operation throughout 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 is responsible for issuance and revocation of gaming licenses.
GAMING DISPUTES COURT
On July 20, 1995, the Council enacted the Tribal Ordinance creating the
Gaming Disputes Court (the "Gaming Disputes Court"). The Gaming Disputes Court
is composed of a trial and an appellate branch. A single judge presides over
cases at the trial level. Trial court 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 Mohegan Constitution and the tribal ordinance establishing the Gaming
Dispute Court give the Court exclusive jurisdiction for the Mohegan Tribe over
all disputes related to gaming. This includes
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<PAGE>
jurisdiction over all disputes or controversies related to gaming between any
person or entity and the Authority, the Mohegan Tribe, or the Manager. The
Gaming Disputes Court has jurisdiction over all disputes arising out of the
Authority's regulatory powers, including licensing actions. By ordinance, the
Mohegan Tribe has adopted the substantive law of the State of Connecticut as the
applicable law of the Gaming Dispute Court. The Mohegan Tribe has also adopted
all of the Connecticut's rules of civil and appellate procedure and professional
and judicial conduct to govern the Gaming Disputes Court.
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 appointed by the Chief Justice of Connecticut Supreme
Court pursuant to Connecticut General Statute 52-434(a)(4), all of whom remain
licensed to practice law in the State of Connecticut. Judges are appointed
sequentially from the 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 Tribal Council at an agreed rate of pay commensurate with
their duties and responsibilities and such rate cannot be diminished during a
judge's tenure.
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<PAGE>
CERTAIN TRANSACTIONS
THE REORGANIZATION
The Company, a Delaware limited liability company, was formed in September
1996 and is owned by Slavik and LMW. Prior to the offering of the Private Notes,
Slavik and LMW were partners of the Manager. In connection with the formation of
the Company, Slavik and LMW each contributed to the Company their partnership
interests in the Manager in exchange for a 66 2/3% and a 33 1/3% ownership
interest, respectively, of the Company. Upon consummation of the Private
Offering, (i) $6,666,667 of the proceeds from the offering of the Private Notes
was distributed directly to Slavik for the purpose of redeeming certain
ownership interests in Slavik, and (ii) $3,333,333 of the proceeds from the
offering of the Private Notes was distributed to LMW, which will in turn loaned
such proceeds to Len and Mark Wolman, as individuals, who used such funds to
purchase certain interests in Slavik. In addition to its partnership interest in
the Manager, Slavik is an owner of certain hotel properties. The Company used
$10.6 million of the proceeds from the offering of the Private Notes to purchase
RJH Development Corp.'s ownership interest in the Manager. See
"Business--Material Agreements--Trading Cove Associates Partnership Agreement."
As a result of the Reorganization, each of Slavik and LMW own approximately
two-thirds and approximately one-third of the Company, respectively, and the
Company became a Managing General Partner of the Manager and owns a 45% economic
interest in the Manager. Following the Reorganization, the only two Partners of
the Manager are the Company and Sun and each has equal voting power.
RELATED PARTY TRANSACTIONS
Under the partnership agreement with the Manager, Sun International is
entitled to a development fee equal to 3% of the total cost of the Mohegan Sun
(exclusive of land acquisition costs).
Pursuant to a subcontract, Wolman Construction will receive 20.83% of the
development fee plus $25,000. Wolman Construction is owned by Mr. Len Wolman,
Chairman of the Board of the Company and Mr. Mark Wolman, a director of the
Company.
Slavik and/or the other principals of the Company have interests or may
acquire interests in hotels in eastern Connecticut which have or may have
arrangements with the Mohegan Sun to reserve and provide hotel rooms to patrons
of the Mohegan Sun.
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<PAGE>
MATERIAL AGREEMENTS
The following discussion summarizes significant terms of certain material
agreements which affect the operations of the Mohegan Sun. This summary does not
purport to be complete and is qualified in its entirety by reference to each of
the agreements described herein, copies of which will be made available to
prospective investors upon request without charge by writing to the Company.
Capitalized terms used but not otherwise defined herein shall have the meaning
ascribed to such terms in the agreement being described (unless otherwise
indicated).
TRIBAL-STATE MOHEGAN COMPACT
The Mohegan Tribe and the State of Connecticut entered into The Mohegan
Tribe--State of Connecticut Gaming Mohegan Compact (the "Mohegan Compact") to
authorize and regulate certain Class III Gaming operations on lands owned by the
Mohegan Tribe. The Mohegan Compact is substantively similar to the agreement
governing Class III Gaming of the Pequot Tribe in the State of Connecticut. The
Mohegan Compact provides, among other things, that:
(1) The Mohegan Tribe agrees to submit all gaming-related operation and
development to the regulation of the State of Connecticut Gaming Commission,
in order to attempt to insure the fair and honest operation of gaming
activities and to maintain the integrity of all activities conducted in
regard to Class III gaming. The Mohegan Tribe further agrees to adopt
certain standards of operation and management of all gaming operations and
to regulate the same through a Tribal gaming agency.
(2) The Mohegan Tribe may conduct games of chance, including: Blackjack,
Poker, Dice, Money-Wheels, Roulette, Baccarat, Chuck-a-Luck, Pai Gow, Over
and Under, Horse Race Game, Acey-ducey, Beat the Dealer, Bouncing Ball, Slot
Machines, video facsimile games and Pari-mutuel betting.
(3) Law enforcement matters relating to Class III Gaming activities will
be under the jurisdiction of the State of Connecticut and the Mohegan Tribe.
(4) All gaming employees will obtain and maintain a gaming license
issued by the State of Connecticut gaming agency. Documentation relating to
personal and family history, personal and business references, criminal
convictions, business activities, financial affairs, gaming industry
experience, gaming school education and general education, as well as
photographs and fingerprints, will be submitted to the State of Connecticut
gaming agency. State and federal criminal record checks will be conducted on
all applicants.
(5) Any enterprise providing gaming services or gaming equipment to the
Mohegan Tribe will be required to hold a current valid registration issued
by the State of Connecticut gaming agency.
(6) The State of Connecticut will annually assess the Mohegan Tribe for
the reasonably necessary costs attributable to its regulation of the Mohegan
Tribe's gaming operations and for the provision of law enforcement in
accordance with the Mohegan Compact.
(7) The Mohegan Tribe shall have each of its Class III Gaming operations
audited on an annual basis by an independent certified public accountant and
shall include any additional procedures required by the State of Connecticut
gaming agency, such additional procedures to be performed at the sole
expense of the State of Connecticut gaming agency.
(8) In order to beneficially effect health and safety, the Mohegan Tribe
shall enact fire, building, sanitary and health ordinances and regulations
no less rigorous than laws and regulations of the State of Connecticut.
(9) Service of alcoholic beverages within any gaming facility will be
subject to regulation by the State of Connecticut.
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(10) The Mohegan Tribe waived any defense which it may have by virtue of
sovereign immunity in respect to any action in United States District Court
to enforce the Mohegan Compact.
In addition, the Mohegan Tribe and the State of Connecticut entered into a
memorandum of understanding, as amended (the "Memorandum"), setting forth
certain matters regarding the implementation of the Mohegan Compact. The
Memorandum provides that:
(1) So long as there is no change in state law to permit the operation
of slot machines or other commercial casino games by any other person (other
than the Pequot Tribe under IGRA), the Mohegan Tribe will contribute to the
State of Connecticut on a monthly basis a sum equal to twenty-five percent
(25%) of gross operating revenues derived from the slot machines operated by
the Mohegan Tribe, which amount shall be reduced by the amounts set forth in
(2) and (3) hereof.
(2) The payment of the State of Connecticut is to be reduced by
$5,000,000 in the second year of the Mohegan Tribe's gaming operations, by
$2,500,000 in the third year of the Mohegan Tribe's gaming operations, and
by $2,500,000 in the fourth year of the Mohegan Tribe's gaming operations.
This represents the settlement of the land claims of the Mohegan Tribe.
(3) The Mohegan Tribe's payment is to be reduced by $3,000,000 in the
first year following the completed transfer of Fort Shantok State Park to
the United States to be held in trust for the Mohegan Tribe.
(4) For each fiscal year commencing July 1, the minimum contribution of
the Mohegan Tribe to the State of Connecticut shall be the lesser of (a)
thirty percent (30%) of gross revenues from slot machines, or (b) the
greater of (i) twenty-five percent (25%) of gross revenues from slot
machines or (ii) $80,000,000.
On December 5, 1994, the Secretary of the Interior approved the Mohegan
Compact in accordance with the IGRA.
DEVELOPMENT AGREEMENT
GENERAL. The Mohegan Tribe and the Manager entered into an Amended and
Restated Gaming Facility Development and Construction Agreement (the
"Development and Construction Agreement") providing for the design,
construction, furnishing and site development of the Mohegan Sun by the Manager.
The Mohegan Tribe has assigned its rights and obligations in this agreement to
the Authority. The Manager and the Authority have consented to this assignment.
EXCLUSIVE RIGHTS OF THE MANAGER; CONDITIONS TO THE MANAGER'S
OBLIGATION. Subject to certain design and budget approval rights retained by
the Mohegan Tribe and the Tribal Council under the Development Agreement, the
Mohegan Tribe has granted to the Manager the exclusive right to design,
engineer, develop, construct, furnish and maintain the Mohegan Sun and any
related facilities that are owned by the Mohegan Tribe or any of its
instrumentalities, including the Authority.
BUSINESS BOARD. Under the Development Agreement, certain decision-making
authority and oversight duties are delegated to a committee comprised of an
equal number of representatives of the Mohegan Tribe and the Manager (the
"Development Agreement Business Board") but in no event more than four persons.
The Development Agreement Business Board is responsible for various matters,
including, without limitation, the selection and approval of architects and/or
engineers (the "Architect"), the approval of one or more contractors and/or
construction managers, selected by the Manager, the establishment of design,
construction and furnishing budgets, which are subject to approval by the Tribal
Council, and the procurement of trade fixtures, furnishings and equipment
("Furnishings"). In addition, the Development Agreement Business Board is
responsible for establishing a program implementing the Manager's and the
Mohegan Tribe's objectives, schedule requirements and design criteria with
respect to the Mohegan Sun.
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CONSTRUCTION BUDGETS; FUNDING REQUIREMENTS; COST OVERRUNS. With the
assistance of the architect, the Development Agreement Business Board is
responsible for the preparation of budgets for the design, construction and
furnishing of the Mohegan Sun, which will be subject to the approval of the
Tribal Council (the "Tribal Council"). This budget is subject to revision from
time to time by the Manager, in its capacity as Manager under the Management
Agreement (as hereinafter defined) and with prior notice to the Tribal Council,
to reflect unpredicted significant changes or events or to include significant,
additional or unanticipated expenses. Development Agreement Business Board
approval is required, however, for any individual or cumulative budget
modification that constitutes an increase of 5% or more over the approved budget
for any specific design package. In addition, the Mohegan Tribe's
representatives on the Development Agreement Business Board may require Tribal
Council approval of any other budget adjustment that varies from the terms of
the Development Agreement.
Currently, the Mohegan Tribe and the Manager have estimated that the total
costs for development and construction of the Mohegan Sun will be approximately
$305 million, exclusive of working capital and equipment operating leases. If
there are any cost overruns related to the construction of the Mohegan Sun, the
Manager has agreed to assist the Mohegan Tribe in obtaining additional funds
necessary to finance such overrun, up to a maximum total for the principal
amount of all Project Costs of $325.0 million for the Mohegan Sun.
DESIGN PHASE--ARCHITECT SELECTION; PLANS AND SPECIFICATIONS. The
Development Agreement provides that the construction of the Mohegan Sun is
divided into two phases: a "Design Phase" and a "Construction Phase." The Design
Phase consisted of the engagement of the architect, who was employed and
directly compensated by the Mohegan Tribe, the preparation of design,
construction, and furnishings budgets, preliminary program evaluation, design
development and the approval of final detailed plans and specifications (the
"Plans and Specifications"). The Mohegan Tribe assigned to the Manager its
responsibilities under any architectural and/or engineering agreements to allow
the Manager to directly supervise and administer directly the duties of the
Architect and/or engineer thereunder. Adjustments to budgets in excess of five
percent required the approval of the Development Agreement Business Board.
The Development Agreement provides that the design and construction of the
Mohegan Sun must comply with all federal and Connecticut statutes and
regulations that otherwise would apply if the Mohegan Sun was located outside
the jurisdictional boundaries of the Mohegan Tribe.
CONSTRUCTION PHASE--CONTRACTOR SELECTION; EMPLOYMENT PREFERENCE; THE MANAGER
OVERSIGHT. The Construction Phase consisted of the selection of contractors and
subcontractors and the commencement and completion of construction. Morsel
Diesel was selected as the general contractor. Following the Manager's review of
proposals from prospective contractors, the Development Agreement Business Board
to negotiated and awarded contracts to the qualified applicants of its choosing.
All contractors were engaged and paid directly by the Mohegan Tribe. In
addition, as required by the Development Agreement, subcontractors were selected
in accordance with certain provisions of the Management Agreement, which
requires, among other things, that employment preference be given to members of
the Mohegan Tribe, their spouses and children, and business entities controlled
by members of the Mohegan Tribe, who or which, in the Manager's opinion, possess
sufficient skills and competence.
The Manager is responsible for the administration and supervision of all
contracts and agreements with contractors and will act as the Mohegan Tribe's
representative, with full power and authority to act on behalf of the Mohegan
Tribe, in connection with any such contracts that are approved by the
Development Agreement Business Board. Specifically, the Manager will be
responsible for control and charge of all persons performing work on the site of
the Mohegan Sun, inspecting the progress of construction, determining completion
dates and reviewing contractor payment requests submitted to the Mohegan Tribe.
The Mohegan Tribe, subject to the direction and approval of the Business Board,
will make progress payments to the contractors. All contractors will be required
to warrant that their construction is free of defects and constructed in a
workmanlike manner for a period of at least one year from the date of
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completion and the Manager will have the authority to reject any work that does
not comply with the applicable contracts.
FURNISHINGS. Furnishings for the Mohegan Sun will be purchased by the
Mohegan Tribe from vendors selected by the Development Agreement Business Board
or leased on terms arranged by the Manager and approved by the Development
Agreement Business Board. The Manager has agreed to use good business practices
and, where appropriate, competitive bidding with respect to the procurement of
Furnishings.
TERMINATION, DEFAULT AND DISPUTES. Each party has the right to terminate
the Development Agreement in the event that a material breach or failure to
perform any material duty or obligation by the other party thereunder remains
uncured for at least 20 days following notice to such party of such breach or
failure to perform. In addition, each party may terminate the Development
Agreement pursuant to applicable provisions of the Management Agreement. In the
event of a dispute between the parties or the termination of the Development
Agreement and/or any related agreement, the Mohegan Tribe and the Manager may
pursue any remedy available under the Management Agreement. See "--Management
Agreement--Termination and Default."
MANAGEMENT AGREEMENT
GENERAL. To provide for the management of the Mohegan Sun, the Mohegan
Tribe and the Manager have entered into the Amended and Restated Gaming Facility
Management Agreement (the "Management Agreement"), pursuant to which the Mohegan
Tribe has retained and engaged the Manager as an independent contractor to
develop, operate, manage and maintain the Mohegan Sun and to train members of
the Mohegan Tribe and others in the management of the Mohegan Sun. The Mohegan
Tribe has assigned its rights and obligations in this agreement to the
Authority. The Authority and the Manager have consented to this assignment. The
term of the Management Agreement is seven years, subject to a one time option
for a buyout by the Mohegan Tribe effective on the last day of the 60th month
following the first full month of operations (the "Buyout Option"). In order to
exercise the Buyout Option, the Mohegan Tribe must (i) fully pay and satisfy
certain outstanding indebtedness, including all indebtedness under the Authority
Senior Secured Notes and the Subordinated Notes, (ii) give notice of its intent
to exercise the option not more than 90 and not less than 30 days prior to the
last day of the 60th month after opening of the Mohegan Sun, (iii) enter into
discussion with the Manager to determine the option price on commercially
reasonable terms, (iv) execute and deliver to the Manager a full release of all
of the Managers obligations under, and claims, whether asserted or unasserted,
liquidated or contingent, arising in connection with, the Management Agreement
and (v) pay all amounts otherwise due the Manager pursuant to the Management
Agreement.
Under the Management Agreement, the Mohegan Tribe has granted to the Manager
the exclusive right and obligation to develop, manage, operate and maintain the
Mohegan Sun and all other related facilities that are owned by the Mohegan Tribe
or any of its instrumentalities, including the Authority and to train members of
the Mohegan Tribe and others in the management of the Mohegan Sun. The
Management Agreement is not assignable by either party without the prior consent
of the other party. Pursuant to the terms of the Management Agreement, the
Mohegan Tribe and the Manager have agreed that neither party may establish or
operate any other gaming facility within the states of Connecticut or Rhode
Island without first obtaining the consent of the other party, which consent may
not be unreasonably withheld. In addition, the Manager has agreed to use its
best efforts to promote and manage the Casino and the Mohegan Tribe has agreed
that, except as required by law, it will not adopt any amendments to its gaming
ordinances that would materially adversely affect the Manager's right to operate
and maintain the Mohegan Sun. The Management Agreement provides that neither the
Mohegan Tribe nor any of its agents, affiliates or representatives will impose
any taxes, fees, assessments or other charges on payments of any debt service to
the Manager or any lender, on the Mohegan Sun or the revenues therefrom or on
the management fee payable to the Manager thereunder and, if any such tax is
imposed, the Manager has the right to obtain compensation from the Mohegan Tribe
in equal amount to the amount of the tax.
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MANAGEMENT AGREEMENT BUSINESS BOARD. Under the Management Agreement,
certain decision-making authority and oversight duties are delegated to a
committee comprised of an equal number of representatives of the Mohegan Tribe
and of the Manager (the "Management Agreement Business Board") but in no event
more than four persons. Actions by the Management Agreement Business Board
require the unanimous approval of its members or their respective designees. The
Mohegan Tribe and the Manager have agreed that, in the event that the Management
Agreement Business Board is unable to reach a mutual decision or compromise, any
disputes will be submitted to summary arbitration before a single arbitrator who
shall render a decision within 48 hours of submission of the dispute.
MANAGEMENT DUTIES AND RELATED OBLIGATIONS OF THE MANAGER. The Management
Agreement provides that the Manager will be responsible for the day-to-day
management, operation and maintenance of the Mohegan Sun, including the
establishment of operating days and hours. The Management Agreement authorizes
the Manager to select a general manager ("General Manager") to fulfill its
responsibilities thereunder. Any General Manager selected by the Manager is
subject to approval by the Mohegan Tribe, by resolution of the Tribal Council or
its designee, and may be removed at the Mohegan Tribe's request, by resolution
of the Tribal Council and with the consent of the Manager, which consent may not
be unreasonably withheld. As manager of the Mohegan Sun, the Manager has agreed
to operate the facility in compliance with all Tribal legal requirements and
other applicable laws and that the Manager and all of the Managers executive
officers shall be licensed by the Mohegan Tribe pursuant to the Mohegan Tribe's
Gaming Ordinance.
Under the Management Agreement, the Mohegan Tribe may not unreasonably
withhold, withdraw, qualify or condition such licenses. The enabling resolution
which approved the Management Agreement and was approved by the Tribal Council,
provides that the Management Agreement itself is the law of the Mohegan Tribe
and is enforceable according to its terms. The Tribal Constitution includes a
provision which forbids any action by the Tribal Council or any officer of the
Mohegan Tribe which impairs contractual obligations.
The Management Agreement provides that the General Manager shall have the
authority to enter into contracts for the operation of the Mohegan Sun on behalf
of the Mohegan Tribe. Any contracts that require annual expenditures in excess
of $25,000 or that are entered into with affiliates of the Manager must be
approved by the Management Agreement Business Board. With respect to contracts
for the supply of goods and services, the Manager is required to give preference
to members of the Mohegan Tribe, their spouses and children, and business
entities controlled by Mohegan Tribe members. In addition, the Manager has
agreed to assist the Mohegan Tribe in obtaining funding necessary for the
operation of the Mohegan Sun and will be responsible for the marketing,
advertisement and promotion thereof. The Manager will have the right to sell
alcoholic beverages and tobacco products at the Mohegan Sun in accordance with
the Mohegan Compact and Tribal legal requirements.
Pursuant to the Management Agreement, subject to the law enforcement
authority of the Mohegan Tribe, the Manager will be responsible for all aspects
of the security and surveillance at the Mohegan Sun. The parties have agreed
that the Mohegan Tribe will have 24-hour access to the entire Mohegan Sun,
including all security and surveillance facilities and records. In addition, the
Manager will be responsible for maintaining, on behalf of the Mohegan Tribe,
adequate insurance coverage for the Mohegan Sun, including "all risk," general
commercial liability, workers' compensation, employer liability and such other
policies of insurance as the Management Agreement Business Board may reasonably
request from time to time. All such policies will name the Manager as an
additional insured party and/or loss payee to the extent provided in the
Management Agreement.
The Manager will be responsible for defending or settling any legal claim
brought against the Manager or the Mohegan Tribe in connection with the
operation of the Mohegan Sun and will also be responsible for bringing legal
claims relating to the Mohegan Sun on behalf of the Mohegan Tribe. However, the
Management Agreement Business Board will have the right to approve the retention
of legal
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counsel and, in the event such proceeding poses substantial risk to the
operation of the Mohegan Sun, such proceedings will be supervised by the
Management Agreement Business Board with notice to and consultation with the
Tribal Council.
MOHEGAN SUN EMPLOYEES; EMPLOYMENT PREFERENCE. Pursuant to the Management
Agreement, the Manager will have the exclusive responsibility and authority to
select, retain, train and discharge all employees hired to perform services at
the Mohegan Sun; however, all employees will be employees of the Mohegan Tribe
and not the Manager. The Mohegan Tribe will have the right to select inspectors,
who will be responsible for verifying the daily gross revenues of the Mohegan
Sun and who will report directly to the Mohegan Tribe. Subject to the approval
of the Tribal Council, the Manager will also have the right to engage its own
employees and the employees of its affiliates to provide services for the
Mohegan Sun; however, neither the Manager nor any of its officers, employees or
partners will be entitled to receive wages or other monetary compensation for
such services under the Management Agreement.
In order to maximize the benefits enjoyed by the Mohegan Tribe, members of
the Mohegan Tribe, their spouses and children will be given preference in
recruiting, employment and training with respect to all job categories in
connection with the operation of the Mohegan Sun, including management
positions. Pursuant to the terms of the Management Agreement, however, no member
or employee of the government of the Mohegan Tribe may be employed without a
waiver by the Mohegan Tribe and such federal agencies as may be required by law.
The Manager has agreed to conduct applicable background investigations with
respect to each applicant for employment at the Mohegan Sun.
The Manager will have the sole responsibility for determining whether a
prospective employee possesses necessary skills for any position and the level
of compensation to be paid to such individual. In addition, the Manager has
agreed to establish standardized personnel policies and procedures, including a
job classification system with salary levels and scales, which will be subject
to approval by the Tribal Council and include a grievance procedure to promote
fair and uniform standards for members of the Mohegan Tribe employed at the
Mohegan Sun. The Manager has agreed that any discharge, demotion or discipline
of employees will be conducted in accordance with such policies and procedures.
OPERATING AND CAPITAL BUDGETS; REPLACEMENT RESERVE FUND. Prior to the first
date that the Mohegan Sun is substantially complete and open to the public (the
"Commencement Date") and not less than 60 days prior to the commencement of each
full or partial fiscal year thereafter, the Manager must submit to the Tribal
Council, for its approval, a detailed proposed operating budget for the facility
for the ensuing fiscal year. Under the Management Agreement, the Manager is
required to meet with the Tribal Council to discuss the proposed budget and the
Tribal Council is obligated to review the budget on a line-by-line basis. The
Tribal Council may not unreasonably withhold or delay its approval of a budget
proposed by the Manager and the Management Agreement establish specific
procedures and time limits for the Tribal Council to object to any budget
submitted for its approval. In the event that the Manager and the Tribal Council
are unable to agree on one or more budget items, the Management Agreement
provides for arbitration of the disputed item(s), in the case of the initial
budget, and a carry over of the prior fiscal year's allocation (with adjustments
for inflation), in the case of subsequent annual budgets. Upon notice to the
Tribal Council, the Manager will have the right to revise the budget and/or
reallocate budgeted items from time to time to reflect any unpredicted
significant changes, variables or events, or to include significant, additional,
unanticipated items of expense. Any increase in planned expenditures of more
than 5% of the amount budgeted for any profit center of the Mohegan Sun will
require approval of the Business Board, and the Mohegan Tribe's
representative(s) to the Business Board may require written approval of the
Mohegan Tribe for any budget modification that varies from the terms of the
Management Agreement.
In addition to an annual operating budget, the Manager is required to
submit, not less than 45 days prior to the commencement of each fiscal year, a
recommended capital budget for furnishings, equipment and ordinary capital
replacement items required to operate the Mohegan Sun in accordance with sound
business practices for the ensuing fiscal year. The approval and dispute
resolution provisions applicable to
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capital budgets are the same is those for operating budgets. The Manager will be
responsible for the design and installation of all capital replacement items,
and the Mohegan Tribe has agreed to expend such amounts as are necessary to
maintain the Mohegan Sun in compliance with all legal requirements and to
correct any emergency conditions. In addition, the Mohegan Tribe has agreed to
authorize such funds as are necessary to comply with the capital renovation and
improvement programs recommended by the Business Board to maintain first class
standards at the Mohegan Sun and maintain its competitiveness.
Pursuant to the terms of the Management Agreement, the Manager will be
required to establish a replacement reserve fund (the "Reserve Fund"), which may
be used to pay any approved budgeted capital expenditures. Any portion of the
Reserve Fund which remains unused at the end of any fiscal year will be carried
forward to the following year. Each of the Manager and the Mohegan Tribe will be
required to make monthly contributions to the Reserve Fund at the rate of 60%
from the Mohegan Tribe and 40% from the Manager up to a combined total of $3
million per year from both parties. Deposits by the Mohegan Tribe to the Reserve
Fund will be deemed capital expenditures and will not reduce amounts
distributable as Net Revenues; however, deposits made by the Manager will reduce
Net Revenues payable to the Manager under the Management Agreement. In addition,
proceeds from the sale of capital items no longer needed for the operation of
the Mohegan Sun and insurance proceeds received in reimbursement for items
previously paid for out of the Reserve Fund will be deposited into the Reserve
Fund. In the event that the Reserve Fund is insufficient to cover replacements
authorized to be paid out of such fund, the Manager may, in its discretion,
advance funds necessary to cover such insufficiency and will be entitled to
reimbursement therefor. See "--Management Fee; Reimbursement and Disbursement."
BANK ACCOUNTS AND ACCOUNTING PROCEDURES; INSPECTION BY TRIBE. Under the
Management Agreement, the Business Board is authorized to establish such bank
accounts, for the benefit of the Mohegan Tribe, as the Manager shall deem
necessary for the operation of the Mohegan Sun. The accounts are also subject to
the terms of the indenture for the Authority Senior Secured Notes, which
provides for the establishment of a security interest in the accounts, and
requires that the accounts be opened in the name of such trustee. The Management
Agreement provides for the establishment of depositary and disbursement accounts
and authorizes the Manager to pay from the disbursement accounts such funds as
are necessary to cover the operating expenses of the Mohegan Sun, debt service
payments under the Authority Senior Secured Notes, the Development Agreement
fees payable to the Manager under the Management Agreement and disbursements to
the Mohegan Tribe. The Manager may not make any cash disbursements from the
depositary accounts, except for disbursements of cash prizes from a cash
contingency reserve fund and petty cash fund established in accordance with the
terms of the Management Agreement. In addition, the Manager will be responsible
for the installation of internal control systems for the monitoring of all
funds, which systems will be subject to approval by the Business Board and
review by the Mohegan Tribe. The Mohegan Tribe is entitled to appoint an
inspector, who will have the right to inspect and oversee such internal control
systems at all times and will have full access to the "hard count" (ie., coins
and tokens) and "soft count" (ie., non-coin revenues and credits) rooms as well
as to the closed-circuit television system required to be installed by the
Manager to monitor the cash- handling activities at the Mohegan Sun.
The Management Agreement requires the Manager to maintain, in accordance
with generally accepted accounting principles, books and records reflecting the
operations of the Mohegan Sun and to prepare monthly, quarterly and annual
statements for the Mohegan Tribe. An annual audit of the Mohegan Sun will be
conducted by a nationally-recognized independent certified public accounting
firm with experience in the casino industry. In addition, the Mohegan Tribe's
inspector or any other authorized agent of the Mohegan Tribe, the NIGC and the
BIA will have an unlimited right to inspect such books and supporting business
records.
MANAGEMENT FEE; REIMBURSEMENT AND DISBURSEMENT. Subject to the priorities
described below and in accordance with the required Reserve Fund contributions,
the Management Agreement authorizes the
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Manager to pay itself a monthly management fee. The annual fee is calculated in
three tiers based upon Net Revenues set forth below (in thousands):
<TABLE>
<CAPTION>
I II III
----------- -------------------- -------------
<S> <C> <C> <C>
REVENUES IN
REVENUES IN TIER I TIERS I &
PLUS II PLUS 30%
40% OF NET 35% OF NET OF
REVENUES REVENUES NET REVENUES
UP TO BETWEEN ABOVE
----------- -------------------- -------------
Year 1.......................................................... $ 50,546 $ 50,547-$63,183 $ 63,183
Year 2.......................................................... $ 73,115 $ 73,116-$91,394 $ 91,394
Year 3.......................................................... $ 91,798 $ 91,799-$114,747 $ 114,747
Year 4.......................................................... $ 95,693 $ 95,694-$119,616 $ 119,616
Year 5.......................................................... $ 104,107 $ 104,108-$130,134 $ 130,134
Year 6 (subject to Buyout Option)............................... $ 114,335 $ 114,336-$142,919 $ 142,919
Year 7 (subject to Buyout Option)............................... $ 130,944 $ 130,945-$163,680 $ 163,680
</TABLE>
The monthly management fee payments are calculated against 1/12th of the
amounts set forth above, and then adjusted annually within 60 days of the close
of the fiscal year. This annual adjustment might or might not have a material
effect on cash flow. As defined in the Management Agreement, "Net Revenues" of
the Mohegan Sun means the amount of the Gross Revenues of the facility less
operating expenses and certain specified categories of revenue, such as income
from any financing or refinancing, taxes or charges received from patrons on
behalf of and remitted to a governmental entity, proceeds from the sale of
capital assets, insurance proceeds and interest on the Reserve Fund. Net
Revenues also include Net Gaming Revenues, which are equal to the amount of the
"net win" from Class III Gaming operations (ie., the difference between gaming
wins and losses) less all gaming-related operational expenses (excluding the
management fee). Within 25 days after the end of each calendar month, the
Manager is required to calculate and report to the Mohegan Tribe, the gross
revenues, operating expenses and Net Revenues.
Class II Gaming (primarily bingo and certain types of card games) conducted
at the Mohegan Sun is not subject to the Management Agreement; the Agreement
does not provide for the Manager to manage any Class II Gaming or to share in
any Class II Gaming revenues.
As and when received by the Manager, all revenues from Mohegan Sun
operations are required to be deposited in the bank account established under
the Management Agreement and to be disbursed, for and on behalf of the Mohegan
Tribe, on a monthly basis to cover operating expenses and required deposits to
the Reserve Fund. In addition, the Manager will be required to reserve
additional funds each month, in excess of any required minimum balances
established by the Business Board to cover working capital costs, sufficient to
cover operating and other costs that are not paid on a monthly basis, such as
insurance premiums. See "--Operating and Capital Budgets--Replacement Reserve
Fund" and "--Bank Accounts and Accounting Procedures; Inspection by Mohegan
Tribe."
Under the Management Agreement, Net Revenues (less any amount reasonably
required to maintain a cash contingency reserve fund for the payment of cash
prizes) are required to be disbursed, to the extent due and payable and earned,
in the following order of priority:
(1) $50,000 shall be paid each month to the Mohegan Tribe as a "Minimum
Priority Payment," chargeable against the Mohegan Tribe's distribution of
Net Revenues. In the event that Net Revenues for any given month are less
than the Minimum Priority Payment, the Manager will be required to fund any
deficiency and will be entitled to reimbursement by the Mohegan Tribe
therefor in subsequent months. Minimum Priority Payments shall be made for
any month during which any gaming is conducted, even if only for part of a
month. No Minimum Priority Payment will be required to be made for any month
during which gaming at the Mohegan Sun is suspended or terminated for the
full month.
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(2) current principal and other debt service payments, including sinking
funds or any required deposit to the accounts for the benefit of the
Authority Senior Secured Notes (exclusive of interest, which is paid as an
operating expense);
(3) recoupment payment to the Manager for funds advanced in prior
periods and reimbursement of amounts advanced by the Manager (including any
Minimum Priority Payment deficiencies funded by the Manager pursuant to Item
(1), above; all such funds are charged without interest against the Mohegan
Tribe's share of Net Revenues);
(4) deposits to the Reserve Fund by the Mohegan Tribe and the Manager;
and
(5) payment of the Management Fee to the Manager.
All remaining Net Revenues, if any, and cash shall be distributed to the
Mohegan Tribe, subject to restrictions on distributions to the Mohegan Tribe in
the indenture governing the Authority Senior Secured Notes. In the event of
liquidation all disbursements will be subordinate to repayment of the Authority
Senior Secured Notes.
LIENS; TAXES. Under the Management Agreement, the Mohegan Tribe and the
Manager have represented and warranted to the other that it will not act in any
way to cause any party, other than the Manager, the holders of Authority Senior
Secured Notes and holders of the Subordinated Notes to become a lienholder of
the leased property or the Mohegan Sun, or to allow any party to obtain any such
interest under the Management Agreement without the prior consent of the Manager
or the Mohegan Tribe, as the case may be, and, if required, the United States.
In addition, the Mohegan Tribe and the Manager have agreed to keep the leased
property and the Mohegan Sun free and clear of any liens, whether resulting from
the construction of the Mohegan Sun or otherwise.
The parties have agreed that in the event that any government attempts to
impose taxes upon any party to the Management Agreement or upon the property or
operations of the Mohegan Sun or the Leased Property, the Business Board may
elect unanimously to resist such attempt on behalf of such party or entity
through appropriate legal proceedings. The costs of such proceedings and any tax
or other payment required to be made will be treated as an operating expense of
the Mohegan Sun. The Mohegan Tribe has agreed not to impose any taxes, fees,
assessments or other charges (i) on payments of any debt service to the Manager
or any other lender furnishing financing to the Mohegan Sun, and (ii) on the
salaries, benefits or dividends paid to any of the Managers' partners, officers,
employees or affiliates or any employees of the Mohegan Sun. The Management
Agreement provides that the Mohegan Tribe shall have the right, however, to
assess license fees that reflect reasonable regulatory costs incurred by the
Mohegan Tribe.
RELATIONSHIP BETWEEN TRIBE AND THE MANAGER. Under the Management Agreement,
the Manager agrees not to unduly interfere in or attempt to improperly influence
the internal governmental affairs of the Mohegan Tribe. Furthermore, the Manager
has agreed that it will not make any payments or gifts of services, except for
gifts of nominal value, to any member of the government or other official of the
Mohegan Tribe or their relatives (a "Tribe Official"). In addition, the Manager
may not offer any promotional allowances (e.g., complimentary meals, drinks,
accommodations or gaming tokens) to any member of the Tribal government.
Similarly, no officer of the Mohegan Tribe or family member of any officer or
member of the Mohegan Tribe may be employed at the Mohegan Sun without a written
waiver by the Mohegan Tribe and, if required under applicable law, the NIGC or
other applicable government agency. Furthermore, no Tribe Official may have any
direct or indirect interest in the Mohegan Sun greater than the interest of any
other member of the Mohegan Tribe, except for minimal equity ownership in the
Manager, its partners, parents, subsidiaries or affiliates. Pursuant to the
Management Agreement, the Manager has agreed to guarantee to the Mohegan Tribe
payment of 40% of the amount of the outstanding balance of the indebtedness of
the Authority for Project Costs. This obligation to guarantee will be met to the
extent of any participation by the Manager or any of its affiliates in the
Subordinated Notes and the
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Secured Completion Guarantee. This guarantee is for the sole benefit of the
Mohegan Tribe and the Authority and is not for the benefit of any holder of the
Authority's Notes.
DAMAGE, CONDEMNATION OR IMPOSSIBILITY OF THE ENTERPRISE. In the event that
the Mohegan Sun is damaged or destroyed, taken by condemnation (or sold under
threat thereof), or if gaming at the Mohegan Sun is legally prohibited, the
Management Agreement provides that the Manager will have certain options with
respect to the continuation of gaming operations under the Management Agreement.
First, the Manager will have the option to retain its obligations under the
Management Agreement and commence or recommence the operation of the Mohegan Sun
if, at some point during the term of the Management Agreement, commencement or
recommencement is legally and commercially feasible.
Second, if the Mohegan Sun is damaged, destroyed or condemned, and the
Business Board elects to apply insurance or condemnation proceeds to the repair
or replacement thereof, the Manager may elect within 60 days to reconstruct such
facility. In the event that the insurance or condemnation proceeds are
insufficient to fund such reconstruction, the Manager may, at its option, elect
to provide additional funds to finance the reconstruction, subject to the
approval of the Mohegan Tribe, the BIA and the NIGC, as appropriate. Such funds
will constitute a loan to the Mohegan Tribe, will be secured by the revenues of
the Mohegan Sun and will not be subject to the limitations set forth in the
Development Agreement. See "--Development Agreement; Construction Budget;
Funding Requirements; Cost Overruns." Alternatively, if the Business Board
elects not to apply the insurance or condemnation proceeds to the reconstruction
of the Mohegan Sun, such proceeds will be applied first to amounts due under the
Authority's Senior Secured Notes, second, to the Subordinated Notes and other
outstanding indebtedness of the Authority, third, to any undistributed Net
Revenues and, fourth, to the Mohegan Tribe and the Manager in accordance with
their respective interests.
The Manager will have the option to use the Mohegan Sun for any other
business purposes reasonably incidental to a Class III Gaming facility. In the
event that the Mohegan Sun is to be used for any purpose other than gaming, the
Manager and the Business Board will be required to obtain all approvals
necessary under applicable law.
In the event of the failure of the Mohegan Sun to produce a Management Fee
for a period of six consecutive months, or the cessation of gaming on the Leased
Property, the Management Agreement provides that the Manager will have the right
to terminate its obligations. Following such termination, the Manager will
remain entitled to undistributed Net Revenues in accordance with the terms of
the terminated Management Agreement. However, in the event that the Manager
elects not to terminate, it will have the right, with the approval of the
Business Board, to take whatever actions are necessary to reduce operating
expenses of the Mohegan Sun, during such period. In addition, during any period
of cessation of operation of the Mohegan Sun, the term of the Management
Agreement will be deemed to have been tolled and the expiration date of the term
thereof will be accordingly extended.
TERMINATION AND DEFAULT. Each party has the right to terminate the
Management Agreement for cause, which includes, without limitation, a default or
failure by the other party to perform any material duty or obligation that
remains uncured for at least 60 days following notice to such party of such
breach or failure to perform. In addition, the Mohegan Tribe may terminate the
Management Agreement if the Manager has its gaming license withdrawn as a result
of the conviction of any director or officer of the Manager for a criminal
felony or misdemeanor offense directly related to the performance of the
Manager's duties under such agreement. In the event that the Management
Agreement is terminated for cause, regardless of which party is at fault, the
parties will be entitled to retain all funds previously disbursed to them under
the agreement and the Mohegan Tribe shall retain title to the Mohegan Sun.
Following such termination, the Manager shall have the right to receive its
share of all accrued and unpaid Net Revenues and will continue to have the right
to repayment of unpaid principal and interest under the Subordinated Notes owned
by it, pursuant to the terms thereof.
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The Management Agreement may also be terminated in the event that any change
in law renders the operation of the Mohegan Sun unlawful. For a description of
the Managers' rights in the event of such a termination, see "--Damage,
Condemnation or Impossibility of the Enterprise." Similarly, the Manager has the
right to terminate the Management Agreement in the event that any Tribal,
federal or state authority fails to approve, or objects to, the performance by
the Manager of its obligations under such agreement or if the Managers
performance would jeopardize any licenses or approvals previously obtained by
the Manager.
WAIVER OF TRIBAL SOVEREIGN IMMUNITY; ARBITRATION. Under the Management
Agreement, the Mohegan Tribe has waived sovereign immunity for the purposes of
permitting, compelling or enforcing arbitration and to be sued by the Manager in
any court of competent jurisdiction for the purposes of compelling arbitration
or enforcing any arbitration or judicial award arising out of the Management
Agreement. The parties have agreed that all disputes and claims arising out of
the Management Agreement or the Mohegan Tribe's Gaming Ordinance will be
submitted to binding arbitration, which shall be the sole remedy of the parties
and that punitive damages may not be awarded to either party by any arbitrator.
The Mohegan Tribe's waiver of immunity is limited to enforcement of money
damages from undistributed or future Net Revenues of the Mohegan Sun (or, under
certain conditions, net revenues of other gaming operations of the Mohegan
Tribe). Funds earned and paid over to the Mohegan Tribe as the Mohegan Tribe's
share of Net Revenues prior to any judgement or award are not subject to the
waiver and would not be available for levy pursuant to any judgement or award.
TRADING COVE ASSOCIATES PARTNERSHIP AGREEMENT
GENERAL. In September 1994, Sun Cove, Ltd. (an affiliate of Sun
International), a Connecticut corporation ("Sun Cove"), RJH Development Corp., a
New York corporation ("RJH"), Leisure Resort Technology, Inc., a Connecticut
corporation ("Leisure"), Slavik and LMW entered into an Amended and Restated
Partnership Agreement (the "Partnership Agreement"), to form the Trading Cove
Associates Partnership (the "Manager") in order to, among other things: (i)
admit Sun Cove as a partner; (ii) act as the exclusive agent of the Mohegan
Tribe to manage and develop an entertainment and gaming facility (the
"Facility") on the Mohegan Tribe Reservation; and (iii) engage in any other
activities incidental or related to the foregoing. In February 1995, the parties
entered into an Acknowledgment and Release Agreement whereby Leisure withdrew
from the Manager for all purposes, except that Leisure retained a 5% "Beneficial
Interest" in the Manager. Leisure's Beneficial Interest is defined as the right
to receive certain distributions of Excess Cash and the Organizational and
Administrative Fee on the earlier to occur of (i) 14 years from the date of
commencement of the Management Agreement and (ii) the termination of the
Management Agreement. Following the Private Offering and Reorganization, and
pursuant to (i) a First Amendment to Amended and Restated Partnership Agreement
of Trading Cove Associates, dated October 22, 1996, effective as of the date of
the closing of the Private Offering, and (ii) an Agreement for Purchase and Sale
of Partnership Interest, dated September 12, 1996 whereby RJH agrees to sell and
the Company agrees to buy RJH's partnership interest for $10.6 million, the
Company, (referred to below as the "Original Partner") and Sun Cove will be the
only Partners in the Manager. Recently, the Manager has been advised that
certain parties have acquired interests in Leisure and such acquisitions are
subject to review by the Connecticut Commission of Revenue Services. See "The
Reorganization" and "Use of Proceeds."
TERM. The term of the Manager continues until the first to occur of: (i)
December 31, 2040; (ii) a final disposition of the Facility (or any alternative
facility that may be developed or acquired pursuant to the terms of the
Partnership Agreement); (iii) the decision of the Managing Partners to terminate
the Manager; and (iv) any other event which results in dissolution of the
Manager.
CAPITALIZATION. In connection with its entry into the partnership, Sun Cove
made a capital contribution in an amount sufficient to equal a 50% partnership
interest. The Partnership Agreement provides for
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additional capital contributions ("Additional Contributions") which have been
made by the Partners, in the amount of $1,100,000 in the aggregate. In the event
that the Manager requires additional funds, and subject to unanimous approval by
the Partners, the Partners may make loans (the "Loans") on a pro rata basis,
based on their respective partnership interests. Such Loans are non-recourse and
unsecured and bear interest at an annual rate of 2% above the prime rate. In the
event that the Company issues a capital call and Sun Cove does not make the
requested Additional Contribution within 30 days, generally Sun Cove is
automatically deemed to have withdrawn from the Manager. In such event, Sun Cove
is not entitled to any return of any of its previous capital contributions or
Additional Contributions, but it is generally entitled to receive repayment of
any Loans.
In the event that the Company and Sun Cove determine that additional monies
are required in excess of the Additional Contributions, such partners may issue
a call for an additional capital contribution (the "Additional Capital
Contribution"). In the event that the Sun Cove and the Company issue a capital
call and Sun Cove does not make the requested Additional Capital Contribution
within 30 days, generally Sun Cove is automatically deemed to have withdrawn
from the Manager. In such event, Sun Cove is not entitled to any return of any
of its previous capital contributions or Additional Contributions, but it is
generally entitled to receive repayment of any Loans.
In the event that an Additional Capital Contribution is required and if the
Company elects not to make such contributions, then Sun Cove may, at its
election, pay such contributions, which payment shall be deemed, at the election
of Sun Cove, to be either (i) a loan to the Company or (ii) a Capital
Contribution by Sun Cove, thereby increasing Sun Cove's partnership interest and
diluting the Company's partnership interest.
No Partner is obligated to restore a capital account deficit.
DISTRIBUTIONS. Subject to certain special allocations which are intended to
comply with certain federal tax regulations, the Manager's profits and losses
are generally allocated among the Partners pro rata in accordance with their
percentage interest in the partnership. In the event that the Manager has Excess
Cash (as defined below), as determined at least on a monthly basis, the Managing
Partners are required to make distributions as follows: first, to the Partners,
pro rata based on their respective percentage interests in an amount generally
intended to be sufficient to provide for the payment of each Partner's federal
and state income taxes, second, to Sun Cove for the payment of certain fees in
connection with the development of the Facility and third, the balance to the
Partners, pro rata based on their respective percentage interests. "Excess Cash"
is that portion of cash which exceeds the amount needed to the Manager to (i)
service its debts and other obligations to third parties, (ii) pay certain fees
required by the Partnership Agreement, (iii) maintain adequate working capital
and other reserves, (iv) to conduct its business and (v) repay Loans.
OTHER ACTIVITIES. The Partners are required to bring to the attention of
the Partnership all opportunities to manage or operate (i) any gaming activities
on Native American reservations and involving Native Americans or (ii) any other
gaming activity within 100 miles of the Mohegan Sun. The Partners have agreed to
discuss such opportunities on a good faith basis to achieve mutually
satisfactory arrangements to deal with such opportunities. In the event that the
Partners are unable to achieve a mutually satisfactory agreement relating to an
opportunity, no Partner may participate in such activity without the prior
consent of the non-participating Partners. To the extent that the Partners agree
to pursue additional gaming opportunities together pursuant to this provision,
they have agreed to form a new entity (other than the Manager) to pursue such
opportunities. See "Description of Notes--Certain Covenants--Limitation on
Activities of the Issuers."
MANAGEMENT. Upon consummation of the Private Offering, the Company and Sun
Cove will be the Managing Partners of the Manager, and as such, have the full,
exclusive and absolute right, power and authority to manage and control the
Partnership and the property, assets and business thereof. All
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decisions relating to the management of the Manager require unanimous agreement
between the Company and Sun Cove.
The Partnership Agreement provides that Howard Kerzner will serve as the
designated representative of Sun Cove in its capacity as Managing Partner. In
the absence of Mr. Kerzner, John Allison will serve as Sun Cove's designated
representative. Each designated representative has the right, power and
authority to act for and on behalf of and to bind Sun Cove with respect to all
matters relating to the partnership. The Partnership Agreement grants Mr.
Kerzner the right to appoint a proxy upon written notice to the other Original
Partners Managing Partners. Len Wolman will serve as the designated
representative of the Company.
BUY/SELL OPTION IN THE EVENT OF A DISPUTE. In the event that a dispute
arises under the Partnership Agreement, upon notice by one disputing party to
the other, the parties have ten days to resolve the dispute. If the dispute is
not resolved in such ten day period then, in accordance with specific notice
procedures set forth in the Partnership Agreement, either party has the right to
deliver a buy-out notice ("Buy-Out Notice") to the other to require such party
to elect to either (i) sell their partnership interest to the party delivering
the notice (at a price and under the terms set forth in such Buy-Out Notice (the
"Buy-Out Price")), or (ii) have the other party or its designee purchase the
interest of the party giving notice at the Buy-Out Price. In the event that the
party receiving the Buy-Out Notice fails to respond, such party is deemed to
have agreed to sell its partnership interest to the party delivering such notice
at the Buy-Out Price specified therein. See "Risk Factors--Certain Risks Related
to the Manager and the Partnership Agreement."
FEES. The Partnership Agreement provides for the payment of the following
fees: (i) a "Management Services Fee" of 1% of gross revenues of the Facility
(but not to exceed 25% of the Excess Cash plus the Organizational and
Administrative Fee and the Marketing and Casino Operations Fee) to be paid 50%
to Sun Cove and 50% to the Company after payment by the Manager of operating
expenses which will be $2.0 million if the Mohegan Sun's EBITDA (as defined) is
$200.0 million or less, $3.0 million of the Mohegan Sun's EBITDA is $200.0
million but less than $225.0 million, and $4.0 million if the Mohegan Sun's
EBITDA is greater than or equal to $225.0 million; (ii) a "Marketing and Casino
Operations Fee" equal to (a) 1.5% of gross revenues of the Facility in excess of
$300 million and (b) 2.0% of gross revenues in excess of the Facility in excess
of $400 million, to be paid to an affiliate of Sun Cove for marketing and casino
operations consulting services pursuant to the Management Agreement; (iii) an
"Organizational and Administrative Fee" equal to (a) 1.5% of gross revenues of
the Facility in excess of $300 million and (b) 2.0% of gross revenues of the
Facility in excess of $400 million, to be paid to the Company and a former
partner for certain organizational and administrative services including
advising the Mohegan Tribe in connection with the regulatory approval process
relating to the development of the Facility and certain other tribal activities;
and (iv) a "Development Services Fee" equal to 3% of the total development costs
of "Phase One" of the Facility to be paid to an affiliate of Sun Cove for making
available it expertise, plans and employees to enable the Partnership to perform
its obligations under the Development Agreement. In connection with the
Development Services Fee, Sun Cove has agreed to enter into a construction
contract with Wolman Construction Company (an affiliate of LMW) pursuant to
which Sun Cove will be obligated to pay approximately 21% of the Development
Services Fee to Wolman Construction Company.
ASSIGNMENT OF PARTNERSHIP INTEREST. Subject to the following exceptions,
Sun Cove is generally prohibited from assigning its partnership interest. Sun
Cove may assign its interest to (i) certain of its affiliates and (ii) to any
party making a bona fide written offer to purchase any or all of Sun Cove's
partnership interest if, after offering its interest to the Original Partners at
the same price and on the same terms and conditions as set forth in such written
offer, the Original Partners elect not to purchase Sun Cove's partnership
interest.
Subject to the following exceptions, the Original Partners are generally
prohibited from assigning its partnership interest. The Original Partners may
assign their interests (i) to an affiliate of such Original
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Partner with the consent of a majority of the remaining Original Partners, (ii)
to any party making a bona fide written offer to purchase all, but not less than
all, of such Original Partner's partnership interest if, after offering its
interest first to the non-selling Original Partners at the same price and on the
same terms and conditions as set forth in such written offer and, in the event
that such non-selling Original Partners, next to Sun Cove at the same price and
on the same terms and conditions as set forth in such written offer, the
Original Partners or Sun Cove, as the case may be, elect not to purchase Sun
Cove's partnership interest.
WITHDRAWAL. Except as otherwise permitted by the Partnership Agreement, no
Partner may withdraw from the partnership with out the consent of the remaining
Partners. In the event that a Partner withdraws from the partnership in
violation of the Partnership Agreement, such Partner will be liable to the
remaining Partners for all damages cause by such withdrawal and shall
immediately cease to have any rights (including rights to receive any monies) in
the partnership.
NOTE PURCHASE AGREEMENT
GENERAL. Pursuant to a Note Purchase Agreement (the "Note Purchase
Agreement"), entered into between the Authority and Sun International, the
Authority issued $40.0 million aggregate principal amount of 15% Subordinated
Notes due 2003 (the "Original Subordinated Notes") at an aggregate purchase
price equal to 100% of the principal amount thereof. In addition, to evidence
advances under the Completion Guarantee, it is expected that the Authority will
issue up to $50.0 million of floating rate Subordinated Notes due 2003 (the
"Completion Guarantee Subordinated Notes", which collectively with the Original
Subordinated Notes are hereinafter referred to as the "Subordinated Notes") to
Sun International under the Note Purchase Agreement. The Subordinated Notes are
subordinate in right of payment to the Authority's Senior Secured Notes.
INTEREST. The Original Subordinated Notes bear interest at the rate of 15%
per annum of the principal amount then outstanding from the issuance date to the
date of payment of such principal amount of such Subordinated Note. Each
Completion Guarantee Subordinated Note bears interest at the rate per annum then
most recently announced by Chase Manhattan Bank of New York as its prime rate at
New York, New York plus 1% per annum, which rate shall be set and revised at six
month intervals. Installments of interest will become due and payable
semi-annually in arrears on each May 15 and November 15 to the holders of record
at the close of business on the preceding April 30 or October 31. Additionally,
installments of accrued and unpaid interest will become due and payable with
respect to any principal amount of the Subordinated Notes that matures (whether
at stated maturity, upon acceleration, upon maturity of repurchase obligation,
upon repurchase or otherwise) upon such maturity of such principal amount of the
Subordinated Notes. Interest on the Subordinated Notes will be computed on the
basis of a 360-day year, consisting of twelve 30-day months. Each installment of
interest will be calculated to accrue from and include the most recent date to
which interest has been paid or provided for (or from and including the Issuance
Date if no installment of interest has been paid) to, but not including, the
date of payment.
Interest with respect to the most recently ended semi-annual period shall be
deferred unless (i) $87.5 million in aggregate principal amount of the Authority
Senior Secured Notes have been repurchased or retired (for purposes of such
determination, the aggregate principal amount of the Authority Senior Secured
Notes offered to be repurchased in any required repurchase offer shall be deemed
to have been repurchased, whether or not such amount was properly tendered
pursuant to such repurchase offer) and (ii) the Authority's Fixed Charge
Coverage Ratio (as defined) for the four full fiscal quarters last ended is
equal to or greater than 2.5 to 1 and no deferred cash flow participation
interest on the Authority Senior Secured Notes remains unpaid. Deferred interest
shall continue to be deferred unless (and then only to the extent) current
interest may be paid in cash and the Authority's Fixed Charge Coverage Ratio for
the four full fiscal quarters last ended (calculated as if such accrued interest
payable were the oldest interest accrued and was added to interest expense for
such period if not already included therein) is equal to or
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greater than 4.0 to 1. Notwithstanding the foregoing, all accrued and unpaid
interest shall be payable in cash on the interest payment dates and shall not be
deferred if the Authority has paid in full all obligations under the Authority
Senior Secured Notes and the related indenture and the same shall have been
discharged. Notwithstanding anything herein to the contrary, installments of
accrued or deferred and unpaid interest shall become due and payable (and shall
not be further deferred) with respect to any principal amount of Subordinated
Notes that matures (whether at stated maturity, upon acceleration, upon maturity
of repurchase obligation or otherwise) upon the maturity of such principal
amount of Subordinated Notes. The term "Fixed Charge Coverage Ratio" generally
means the ratio of cash flow to fixed charges (including any capitalized
interest expense) for any entity.
The Subordinated Notes will be payable both as to principal and interest at
the office or agency of the Authority maintained for such purpose within the
City and State of New York or, at the option of the Authority, payment of
interest may be made by check mailed to the holders of the Subordinated Notes at
their respective addresses set forth in the register of holders of Subordinated
Notes. Until otherwise designated by the Authority, its office or agency in New
York will be the office of the Trustee maintained for such purpose. The
Subordinated Notes were issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
SUBORDINATION. The Subordinated Notes will rank subordinate in right of
payment to the prior payment of all obligations related to the Authority Senior
Secured Notes and PARI PASSU or senior to all other subordinated indebtedness of
the Authority. Payments of interest on the Subordinated Notes may be made only
if at the time of such payment, no Default or Event of Default exists and is
continuing with respect to the Authority Senior Secured Notes. No payment of
principal of or premium, if any, on the Subordinated Notes may be made, and no
Subordinated Notes may be repurchased, redeemed or otherwise retired, until all
obligations in respect of the Authority Senior Secured Notes under the Indenture
have been paid in full, except that (i) payments of principal and premium, if
any, and interest on Subordinated Notes tendered in connection with a change of
control offer may be made if the Authority has fulfilled all obligations in
respect of a change of control offer with respect to the Authority Senior
Secured Notes and no other Default or Event of Default has occurred and is
continuing under the Authority Senior Secured Notes, (ii) payments of principal
and premium, if any, and interest on the Subordinated Notes to be redeemed in
the circumstances described in the second paragraph under "Optional Redemption
of Subordinated Notes by Authority" may be made if no Default or Event of
Default has occurred and is continuing under the Indenture and (iii) payments of
principal and premium, if any, and interest on Subordinated Notes tendered in
connection with a Remaining Excess Cash Purchase Offer (as defined) if no
Default or Event of Default has occurred and is continuing under the Indenture.
See "--Remaining Excess Cash Purchase Offer."
Upon any payment or distribution of the assets of the Authority to creditors
in a total or partial liquidation or dissolution of the Authority, holders of
the Authority Senior Secured Notes shall be entitled to receive payment in full
of all obligations in respect of the Authority Senior Secured Notes before the
holders of the Subordinated Notes shall receive any payment in respect of the
Subordinated Notes. If the payment of the Subordinated Notes is accelerated
because of an Event of Default under the Note Purchase Agreement, the Authority
and the holders of the Subordinated Notes are required to promptly notify
holders of the Authority Senior Secured Notes of such acceleration and the
Authority may not pay the Subordinated Notes until five days after such notice
is received and, thereafter, may pay the Subordinated Notes only if the Note
Purchase Agreement otherwise permits the payment at that time. In the event that
any distributions are made to the holders of the Subordinated Notes in violation
of the Note Purchase Agreement, the holders of the Subordinated Notes shall be
obligated to hold such distributions, in trust, for the benefit of the holders
of the Authority Senior Secured Notes and pay over such amounts to the holders
of the Authority Senior Secured Notes as their interests may appear.
MANDATORY REDEMPTION. The Authority will not be required to make a
mandatory redemption or sinking fund payments with respect to the Subordinated
Notes.
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OPTIONAL REDEMPTION OF SUBORDINATED NOTES BY AUTHORITY. Under the Note
Purchase Agreement, the Authority may make an optional redemption of the
Subordinated Notes; however, such redemption may be made only after the
Authority Senior Secured Notes have been paid in full. Subject to the foregoing,
the Authority may redeem the Subordinated Notes at a price equal to 100% of the
principal amount thereof plus all accrued and unpaid interest on the unpaid
principal to the date of redemption. Any redemption of the Subordinated Notes,
whether in whole or in part, must be made in accordance with procedures set
forth in the Note Purchase Agreement.
Notwithstanding the foregoing, in the event that any holder or beneficial
owner of the Subordinated Notes is found unsuitable, or refuses or is unable to,
within 30 days after being asked to do so by the applicable gaming regulatory
authority, become licensed or qualified under any applicable gaming laws
requiring such holder or beneficial owner of the Subordinated Notes to be so
licensed, qualified or suitable in order for the Authority to maintain any
gaming license or franchise, then, the Authority shall have, at its option, the
right to (i) require such holder or beneficial owner to dispose of such holder's
or beneficial owner's Subordinated Notes within 30 days of the receipt of such
notice of such finding by the gaming regulatory authority or (ii) call for the
redemption of the Subordinated Notes of such holder or beneficial owner at a
redemption price equal to the lesser of the outstanding principal balance of
such Subordinated Notes or the price at which such holder or beneficial owner
paid to acquire such Subordinated Notes (in each case together with accrued and
unpaid interest to the date of redemption). Redemption of the Subordinated Notes
pursuant to the foregoing circumstances, however, may not be made if any Event
of Default has occurred and is continuing under the Authority's Senior Secured
Notes.
OFFER TO REPURCHASE SUBORDINATED NOTES UPON CHANGE OF CONTROL. Upon any
Change of Control and subject to certain priority rights of the holders of the
Authority Senior Secured Notes, the Authority will be required to offer to
purchase all of the outstanding Subordinated Notes at a purchase price equal to
101% of the aggregate principal thereof plus accrued and unpaid interest to the
purchase date; provided, however, the Authority will not be required to make an
offer to repurchase the Subordinated Notes if (i) an event deemed to be a Change
of Control ceases to exist prior to the closing of such offer or (ii) if on or
before the 120th day after the Change of Control, which Change of Control arises
under either clause (iv) or (v) of the definition thereof, the Manager is
replaced (or the Authority is using its best efforts to effect such a
replacement) with a person with experience and reputation comparable to Sun
International. Any offer to repurchase the Subordinated Notes may be made by the
Authority only after a repurchase offer has been made to the holders of the
Authority's Senior Secured Notes. A "Change of Control" means any of the
following: (i) the Authority ceases to be a wholly owned unit, instrumentality
or subdivision of the government of the Mohegan Tribe; (ii) the Authority ceases
to have the exclusive legal right to operate gaming operations of the Mohegan
Tribe; (iii) 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 Mohegan Sun; (iv) the Manager or any other entity in which Sun
International owns, directly or indirectly, at least 50% of the capital stock
ceases to be the Manager or fails to hold any material governmental consent or
permit required to manage the Mohegan Sun; or (v) Sun International fails to own
directly or indirectly, at lease 50% of the capital stock of the Manager.
CASH MAINTENANCE ACCOUNT; SECURITY INTEREST. The Authority will be
obligated to make monthly deposits into the Cash Maintenance Account as provided
for under the indenture for the Authority Senior Secured Notes.
Under the Note Purchase Agreement, the Authority is required to grant and
maintain a perfected first priority security interest in favor of the trustee
for the ratable benefit of the holders of the Authority Senior Secured Notes and
a perfected, second priority security interest for the ratable benefit of the
holders of the Subordinated Notes in all amounts in, or investments constituting
amounts in, the Cash Maintenance Account. The second priority security interest
of the holders of the Subordinated Notes; however, will not impair or prevent
the Authority from transferring amounts in the Cash Maintenance Account to the
holders of the Authority Senior Secured Notes in accordance with the terms of
the Indenture, free and
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clear of such second priority security interest. Upon full repayment of the
Authority Senior Secured Notes, the perfected, second priority security interest
shall automatically become, and the Authority is required to take all acts to
assure, a perfected, first priority-security interest in favor of the holders of
the Subordinated Notes. Furthermore, if an Event of Default has occurred and is
continuing under the Note Purchase Agreement and the Authority Senior Secured
Notes have been paid in full, then, the holders of the Subordinated Notes will
have the right, among other things, to direct any investments in the Cash
Maintenance Account and to apply any cash or investments therein to the payment
of principal and interest on the Subordinated Notes.
REMAINING EXCESS CASH PURCHASE OFFER. To the extent that the aggregate
purchase price of the Authority Senior Secured Notes tendered pursuant to any
Excess Cash Purchase Offer required to be made pursuant to the indenture for the
Authority Senior Secured Notes is less than the Excess Cash Purchase Amount with
respect thereto, the Authority has agreed to make an offer to the holders of the
Subordinated Notes to purchase the maximum principal amount of Subordinated
Notes that is an integral multiple of $1,000 that may be purchased with the
Remaining Excess Cash Flow (as defined in the Note Purchase Agreement) at an
offer price in cash equal to the principal amount of the Subordinated Notes to
be purchased plus accrued and unpaid interest. In the event that more
Subordinated Notes are tendered than are required to be purchased by the
Authority, the Authority will purchase Subordinated Notes pro rata from each
tendering holder. Any Remaining Excess Cash Flow not used to repurchase
Subordinated Notes in accordance with the foregoing may be used by the Authority
for general purposes.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. Under the Note Purchase
Agreement, the Authority has agreed that the total outstanding principal balance
of indebtedness of the Authority shall not exceed an aggregate of $320 million.
The total indebtedness of the Authority permitted to be outstanding at any one
time shall be reduced from time to time. In addition, the Authority has agreed
that the principal amount of any indebtedness incurred by the Authority to
refinance other outstanding indebtedness will not exceed the principal amount of
such refinanced indebtedness and, in the event refinancing indebtedness is
issued to refinance the Authority Senior Secured Notes or any portion thereof,
such refinancing indebtedness shall have a weighted average life to maturity not
less than that of the Authority Senior Secured Notes.
CERTAIN OTHER COVENANTS OF THE AUTHORITY. Under the Note Purchase
Agreement, the Authority has made certain other covenants with respect to the
repayment of the Subordinated Notes and the conduct of its business during the
period which such Subordinated Notes remain outstanding that are substantially
similar to the covenants made by the Authority under its Senior Secured Notes.
EVENTS OF DEFAULT. Under the Note Purchase Agreement, Events of Default
include the following:
(i) a default by the Authority for 30 days in payment of any interest
due on the Subordinated Notes (such due date shall take into account any
interest payments entitled to be deferred by the Authority under the Note
Purchase Agreement);
(ii) default by the Authority in the payment of the principal of or
premium, if any, on any Subordinated Notes when due;
(iii) failure by the Authority to observe or perform any other covenant,
representation, warranty or agreement under the Note Purchase Agreement or
the Subordinated Notes that continues for 90 days after written notice to
holders of at least 25% of the principal amount of the Subordinated Notes;
and
(iv) certain events of bankruptcy and insolvency of the Authority.
If an Event of Default (other than certain events with respect to
bankruptcy, insolvency and reorganization) shall occur and be continuing, then
the holders of 25% of the aggregate principal amount of the Subordinated Notes
outstanding may declare by written notice to the Authority the principal amount
of, premium, if any, and interest on the Subordinated Notes to be due and
payable immediately;
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provided, however, that no such declaration may be made unless all obligations
under the Authority Senior Secured Notes and the Indenture have been paid in
full and discharged. If an Event of Default with respect to certain events of
bankruptcy or insolvency occurs and all obligations under the Authority Senior
Secured Notes and the Indenture have been paid in full and discharged, then all
outstanding Subordinated Notes will become due and payable without any act on
the part of any holder of Subordinated Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE. The Note Purchase Agreement will
contain legal defeasance and covenant defeasance provisions that are
substantially similar to those under the indenture for the Authority Senior
Secured Notes.
OMNIBUS FINANCING AGREEMENT
In connection with the development, construction and management of the
Mohegan Sun the Manager and Sun International entered into an Omnibus Financing
Agreement (the "Omnibus Agreement"), in September 1995. Pursuant to the Omnibus
Agreement, Sun International agreed to (i) acquire the Original Subordinated
Notes, (ii) provide a Completion Guarantee in which Sun International guaranteed
that the Mohegan Sun project would be completed, (the "Completion Guarantee"),
(iii) pledge certain shares of its stock as collateral for the Completion
Guarantee and (iv) post a letter of credit (the "Letter of Credit") in an amount
up to $15 million to support its obligations under the Completion Guarantee. In
exchange, the Authority agreed to (i) issue the Completion Guarantee
Subordinated Notes to Sun International when Sun International is required to
pay funds under the Completion Guarantee, and (ii) pay certain fees as described
below.
On the Original Subordinated Notes, the Authority shall pay interest at an
annual rate of 15% and the Manager shall pay additional interest at an annual
rate of 11.5%. Subject to certain priorities set forth in the Omnibus Agreement,
to the extent that the Manager does not receive sufficient Management Fees to
pay the full amount of any additional payments due the Manager shall pay the
entire Management Fee as partial payment of the additional payments on the
Subordinated Notes and any portion which remains outstanding shall be deferred
until the Manager receives sufficient Management Fees.
On the Completion Guarantee Subordinated Notes, which may be issued in two
tranches, the Authority shall pay annually a "Base Interest Rate" equivalent to
the prime interest rate plus one percent. The Manager shall pay annually,
additional interest equal to the difference between 26 1/2 %and the Base
Interest Rate. In the event that the indenture for the Authority Senior Secured
Notes prohibits the Authority from making interest payments on the Completion
Guarantee Subordinated Notes, the Omnibus Agreement provides that the Manager
will pay the Authority's portion of such interest (the "Deferred Interest
Amount") on the $15.0 million of First Tranche Completion Guarantee Subordinated
Notes, subject to the Manager's right to receive a credit from the Authority for
Deferred Interest Amounts.
The Omnibus Agreement provides for the payment of certain additional fees to
Sun International, including reimbursement for out-of-pocket expenses incurred
by Sun International, all of which have been paid.
The Omnibus Agreement provides that payments required to be made by the
Manager out of the Management Fees shall be prioritized as follows:
(a) First, to return capital contributions made by the Partners of the
Manager after September 24, 1995, the closing date of the sale of the
Subordinated Notes;
(b) Second, to pay additional payments due on the Original Subordinated
Notes;
(c) Third, to pay Deferred Interest Amounts and additional interest due
on First Tranche Completion Guarantee Subordinated Notes on a pari passu
basis;
(d) Fourth, to pay additional payments due on the Second Tranche
Completion Guarantee Subordinated Notes;
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(e) Fifth, to return capital contributions made by the Partners of the
Manager before September 24, 1995, the closing date of the sale of the
Original Subordinated Notes;
(f) Sixth, to pay the Development Services Fee;
(g) Seventh, to pay the Management Service Fee;
(h) Eighth, to pay the Completion Guarantee Fee;
(i) Ninth, to pay the Partners, pro rata based on their respective
Percentage Interest, an amount equal to state and federal income tax
obligations;
(j) Tenth, to pay the Organizational and Administrative Fee and the
Marketing and Casino Operations Fee on a pari passu basis; and
(k) Eleventh, to distribute the Excess Cash in the manner set forth in
the Partnership Agreement. See "Trading Cove Associates Partnership
Agreement--Distributions."
The Omnibus Agreement was amended on October 19, 1996. Under such amendment,
the Company has the obligation to purchase from Sun International, on each of
October 12, 1997, October 12, 1998 and October 12, 1999, a portion of the
outstanding principal amount of First Tranche Completion Guarantee Subordinated
Notes owned by Sun International. In addition, Sun International has the
obligation to notify the Company of its decision with respect to any Remaining
Excess Cash Purchase Offer.
13% SENIOR NOTES DUE 2002 WITH CASH FLOW PARTICIPATION INTEREST
GENERAL. The Authority has issued $175.0 million in aggregate principal
amount of 13 1/2% Senior Notes due 2002 (the "Authority Senior Secured Notes")
with Cash Flow Participation Interest (the "Senior Note Participation Interest")
to finance the development, construction, equipping and opening of the Mohegan
Sun. The Authority Senior Secured Notes rank senior in right of payment to all
subordinated indebtedness of the Authority and pari passu in right of payment
with certain working capital and equipment financing. The Authority Senior
Secured Notes are secured by a first lien certain cash collateral accounts owned
by the Authority and, with certain exceptions, all of the assets of the Mohegan
Sun, including the leasehold interest of the Authority in the Mohegan Sun.
SENIOR NOTE PARTICIPATION INTEREST. The Senior Note Participation Interest
is payable on each interest payment date, in an aggregate amount equal to 5.0%
of the Authority's Cash Flow (as defined below), up to a limit of $250.0 million
of the Authority's Cash Flow during any two consecutive semi-annual periods
ending on September 30; provided that no Senior Note Participation Interest is
payable with respect to any period prior to the earlier of the first day the
Mohegan Sun commences operations and October 31, 1996. Payment of all or a
portion of any of the Senior Note Participation Interest may be deferred if (a)
such payment will cause the Authority's "Fixed Charge Coverage Ratio," which is
defined in the indenture governing the Authority Senior Secured Notes (the
"Authority Senior Secured Note Indenture") generally as the ratio of cash flow
to fixed charges (including any capitalized interest expense) for any person) to
be less than 2.0:1 on a pro forma basis and (b) the principal of the Authority
Senior Secured Notes corresponding to such Senior Note Participation Interest
has not then matured and become due and payable.
MANDATORY REDEMPTION. The Authority will not be required to make any
mandatory redemption or sinking fund payments with respect to the Authority
Senior Secured Notes.
OPTIONAL REDEMPTION. Unless otherwise required by the any gaming regulatory
authority, the Authority Senior Secured Notes may not be redeemed prior to
November 15, 1999. Thereafter, the Authority may redeem the Authority Senior
Secured Notes in whole or in part, at its option at the redemption prices set
forth in the Authority Senior Secured Note Indenture.
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OFFER TO PURCHASE UPON A CHANGE OF CONTROL. Upon a change of control,
subject to certain limitations, each holder of the Authority Senior Secured
Notes will have the right, at such holder's option, to require the Authority to
repurchase such holder's Authority Senior Secured Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest and liquidated damages, if any
to the date of repurchase.
EXCESS CASH PURCHASE OFFER. Within 120 days after the last day of each
fiscal year of the Authority, beginning with the fiscal year ending September
30, 1997, the Authority will be required to make an offer to purchase (an
"Excess Cash Purchase Offer") outstanding Authority Senior Secured Notes in an
amount equal to the sum of (i) 50% of the Excess Cash Flow (defined as an amount
equal to the cash flow of the Authority for any given period, less (a) the
Management Fees for such period, (b) interest expense and principal payments on
indebtedness of the Authority for such period, (c) amounts set aside in the Cash
Maintenance Account for such period, (d) amounts for the payment of federal and
state for such period, and (e) certain other amounts (not to exceed $6.8
million) for such fiscal year, (ii) 100% of the amount of Deferred Subordinated
Interest for such fiscal year and (iii) accrued interest to the purchase date
and liquidated damages, if any, on such principal at the purchase prices set
forth below (expressed as a percentage of the principal amount).
<TABLE>
<CAPTION>
YEAR %
- ------------------------------------------------------------------ ---------
<S> <C>
1997.............................................................. 113.5%
1998.............................................................. 112.0
1999.............................................................. 110.0
2000.............................................................. 105.0
2001.............................................................. 100.0
</TABLE>
OTHER OFFERS TO PURCHASE. Under certain circumstances, the Authority may be
required to make an offer to purchase outstanding Authority Senior Secured Notes
following certain asset sales. In addition, the Authority may be required to
purchase outstanding Authority Senior Secured Notes following certain events of
loss.
CERTAIN COVENANTS
USE OF PROCEEDS. The Authority Senior Secured Note Indenture requires the
Authority to use the net proceeds from the sale of the Authority Senior Secured
Notes to, among other things, fund interest payments on the Authority Senior
Secured Notes, fund project costs relating to the construction of the Mohegan
Sun, and to repay certain amounts advanced to or paid on behalf of the Mohegan
Tribe or the Authority for fees and expenses incurred in connection with
obtaining a gaming license, and certain administrative and operating expenses of
the Mohegan Tribe and the Authority relating to the Mohegan Sun.
CASH MAINTENANCE ACCOUNT. Generally, the Authority Senior Secured Note
Indenture requires the Authority to deposit into a cash maintenance account, on
a monthly basis, beginning in 1997 through 2001, $6.0 million annually, and
thereafter such amount as necessary to keep at least $36.0 million in such cash
maintenance account.
GAMING LICENSES. The Authority Senior Secured Note Indenture requires the
Authority to 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 Mohegan Sun.
RESTRICTED PAYMENTS. Subject to certain exceptions, the Authority Senior
Secured Note Indenture prohibits the Authority from making certain restricted
payments, including: (i) the purchase, redemption, defeasance or other
acquisition or retirement of value of any Subordinated Indebtedness and the
payment of any interest on the Subordinated Notes; (ii) any general distribution
to the members of the Mohegan Tribe; (iii) subject to the next sentence, the
payment of the Management Fee; and (iv) any payment in
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respect of repayment or reimbursement of any obligations under the Secured
Completion Guarantee. The Authority Senior Secured Note Indenture permits the
Authority to pay the Management Fee, however such payment is subordinated to all
payments required under the terms of the Authority Senior Secured Note
Indenture.
INCURRENCE OF INDEBTEDNESS. Subject to certain exceptions, the Authority
Senior Secured Note Indenture provides that the Authority will not directly or
indirectly incur any additional indebtedness unless: (i) the Authority's Fixed
Charge Coverage Ratio is at least 2.5 to 1 if the date on which the indebtedness
is incurred is prior to November 15, 1997, at least 2.75 to 1 if the date on
which the indebtedness is incurred is after November 15, 1997 and prior to
November --]15, 1998 and at least 3.00 to 1 thereafter; (ii) such indebtedness
is expressly subordinated in right of payment to the Authority Senior Secured
Notes and (iii) such indebtedness does not mature prior to the maturity date of
the Authority Senior Secured Notes.
CERTAIN ADDITIONAL COVENANTS. The Authority Senior Secured Note Indenture
restricts the ability of the Authority to incur liens, lease property, engage in
transactions with affiliates, engage in certain business activities and requires
the Authority to maintain certain additional accounts and agreements.
HOTEL/RESORT MANAGEMENT AGREEMENT
GENERAL. In July 1994, the Mohegan Tribe and the Manager entered into an
agreement (the "Hotel/ Resort Management Agreement") to provide for the
management of a hotel for the Mohegan Sun (the "Hotel"). The Hotel/Resort
Management Agreement grants the Manager the exclusive right and obligation to
develop, maintain and operate the Hotel. In return for its services, the Manager
will receive a fee equivalent to forty percent (40%) of the Hotel's net
revenues, gross revenues less operating expenses, ("Hotel Net Revenues").
FINANCING. In order to finance the development, design, construction and
furnishing of the Hotel and to provide start-up and working capital, the Mohegan
Tribe and a third party lender will enter into a separate loan agreement (the
"Loan Agreement"). In addition, a separate agreement between the Mohegan Tribe
and the Manager, provides for the Manager to construct and develop the Hotel
facilities (the "Hotel/Resort Development and Construction Agreement").
MANAGEMENT FEE; REIMBURSEMENT AND DISBURSEMENT. The Hotel/Resort Management
Agreement authorizes the Manager to pay itself a monthly management fee
equivalent to forty percent (40%) of the Hotel's Net Revenues. Hotel Net
Revenues will be disbursed in the following order: (i) principal, interest and
other payments due under the Loan Agreement, (ii) reimbursements for any amounts
advanced by the Manager, (iii) payments to the Reserve Fund (as defined below)
by the Manager and the Mohegan Tribe, and (iv) management fees. All remaining
Hotel Net Revenues will be distributed to the Mohegan Tribe.
TERM, TERMINATION AND DEFAULT. The term of the Hotel/Resort Management
Agreement is fourteen (14) years, beginning five days following the date on
which (i) the property on which the Hotel is to be built has been secured by the
Mohegan Tribe and (ii) the Hotel/Resort Management, Development and
Construction, and Loan Agreements have been approved by the BIA and the Mohegan
Tribe.
HOTEL BUSINESS BOARD. Under the Hotel/Resort Management Agreement, certain
decision-making authority and oversight duties are delegated to a committee
comprised of an equal number of representatives of the Mohegan Tribe and of the
Manager (the "Hotel Business Board"). Actions taken by the Hotel Business Board
require unanimous approval of its members or their respective designees.
MANAGEMENT DUTIES AND RELATED OBLIGATIONS OF THE MANAGER. The Hotel/Resort
Management Agreement provides that the Manager will be responsible for
day-to-day management, operation and maintenance of the Hotel. Subject to
approval by the Mohegan Tribe, the Manager is authorized to select a general
manager to fulfill its responsibilities under the Hotel/Resort Management
Agreement. The
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Manager, on behalf of the Mohegan Tribe, shall maintain at all times during
construction and operation of the Hotel insurance policies that meet the
approval of the Mohegan Tribe.
HOTEL EMPLOYEES; EMPLOYMENT PREFERENCES. Pursuant to the Hotel Management
Agreement, the Manager will have the exclusive responsibility and authority to
select, train, determine compensation, and discharge all employees of the Hotel;
however, all employees will be employees of the Mohegan Tribe and not the
Manager. In selecting employees, the Manager will give preference to qualified
members of the Mohegan Tribe; thereafter, preference will be given to qualified
members of other federally recognized Indian tribes. Subject to the approval of
the Mohegan Tribe, the Manager will also have the right to use employees of the
Manager, or any of its subsidiaries or affiliates, to provide services to the
Hotel ("Off-Site Employees"). In entering into contracts for the supply of goods
and services for the Hotel, the Manager shall give preference to qualified
members and certified business entities of the Mohegan Tribe.
OPERATING AND CAPITAL BUDGETS; REPLACEMENT RESERVE FUNDS. Prior to the
first date that the Hotel is substantially complete and open to the public, and
not less then sixty (60) days prior to the commencement of each full or partial
fiscal year thereafter, the Manager shall submit to the Mohegan Tribe, for its
approval, a detailed operating budget. In addition to an annual operating
budget, the Manager is required to submit a recommended capital budget for
furnishings, equipment and ordinary capital replacement items. Likewise, the
Mohegan Tribe has agreed to expend funds to cover repairs, modernizations,
improvements, and other necessary capital replacements. The Hotel/Resort
Management Agreement further requires the Manager to establish a replacement
reserve fund (the "Reserve Fund"), which may be used to pay for any approved
budgeted capital expenditures. The Manager and the Mohegan Tribe will be
required to make monthly contributions to the Reserve Fund.
LIENS; TAXES. The Mohegan Tribe has agreed not to impose any taxes, fees,
assessments or other charges (i) on payments of any debt service to the Manager
or any other lender furnishing financing to the Hotel, (ii) on revenues from the
Hotel, (iii) on management fees, or (iv) on the salaries, benefits, or dividends
paid to any of the Manager's partners, officers, employees or affiliates or any
employees of the Hotel.
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GOVERNMENT REGULATION
GENERAL
In addition to a variety of generally applicable state and federal laws
governing business operations, the Mohegan Sun is also subject to extensive
regulation by special federal, state and tribal laws and regulations applicable
to commercial relationships with Indians generally, as well as Indian gaming and
the management and financing of Indian casinos. In addition, the Mohegan Sun is
regulated by federal and state laws and regulations 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 is
intended to be a summary and is not intended to be a complete recitation of all
applicable law. Moreover, because the regulatory environment is dynamic and
evolving, it is impossible to predict how certain provisions will be ultimately
interpreted or how they may affect the Mohegan Sun or the Company. Changes in
such laws or regulations could have a material adverse impact on the Mohegan
Sun's operations, and consequently, on the Company. 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 Mohegan Tribe or the United States Congress, the
laws of the State of Connecticut do not apply to the Mohegan Tribe or the
Authority. Under the federal law that recognizes the Mohegan Tribe, the Mohegan
Tribe consented to the extension of Connecticut criminal law and Connecticut
state traffic controls over the Mohegan Sun site.
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. In order 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 of 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 existence of jurisdiction
in the tribal forum exists, the tribal court must first rule as to the limits of
its own jurisdiction.
In connection with the Subordinated Notes and the Management Agreement, the
Mohegan 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 to enforce repayment
of the Subordinated Notes, and any arbitration action to enforce the Management
Agreement. The Mohegan Tribe has also adopted a constitutional restraint against
any action by the Mohegan Tribe or its officers which impairs contractual
obligations. In the event that such waiver of sovereign immunity is held to be
ineffective, the Trustee and the Note holders could be precluded from judicially
enforcing their
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rights and remedies against the Mohegan Tribe or the Authority. In the event
that the waiver of the rule requiring exhaustion of tribal remedies is held to
be ineffective, the Trustee and the 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 Mohegan Tribe. In addition, unless the
decisions of the Gaming Disputes Court or other tribunals of the Mohegan 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 terms and conditions of the Management Agreement,
as well as the operation of casinos and of all gaming on Indian land, are
subject to the Indian Gaming Regulatory Act of 1988, 25 U.S.C. 2701 et seq.
("IGRA").
IGRA is administered by the National Indian Gaming Commission ("NIGC"), an
independent agency, within the U.S. Department of Interior, exercising primary
federal regulatory responsibility over Indian gaming. The 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 managements 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
BIA. 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 Mohegan Tribe.
The NIGC is empowered to inspect and audit all Indian gaming facilities, to
conduct background checks on all persons associated with Indian gaming, to hold
hearings, issue subpoenas, take depositions, adopt regulations and assess fees
and impose civil penalties for violations of IGRA. IGRA also provides for
federal criminal penalties for illegal gaming on Indian land and for theft from
Indian gaming facilities.
In 1993, the NIGC published 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 facilities in a manner
that adequately protects the environment and the public health and safety.
The 1993 rules also set out a review procedure for tribal licensing of all
gaming operation employees. Reporting requirements applicable to tribes are
articulated, requiring the report of specified information, including that
derived from background investigations, to the NIGC.
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 the 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 Mohegan 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 (i) the ownership, security, personnel background, recordkeeping,
and auditing of a tribe's gaming enterprises; (ii) the use of the revenues from
such gaming; and (iii) the protection of the environment and the public health
and safety. The Mohegan Tribe adopted its gaming ordinance on July 24, 1994, and
the NIGC approved the gaming ordinance on November 8, 1994.
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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
individuals as part of, or in connection with, tribal ceremonies or
celebrations. "Class II Gaming" includes bingo, pulltabs, lotto, punch boards,
tip jars, 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 parimutuel wagering).
Class I Gaming on Indian lands is within the exclusive jurisdiction of the
Indian tribes and is not subject to the provision of IGRA. Class II Gaming is
permitted on Indian lands if (i) the state in which the Indian lands lies
permits such gaming for any purpose by any person, organization or entity; (ii)
the gaming is not otherwise specifically prohibited on Indian lands by federal
law; (iii) the gaming is conducted in accordance with a tribal ordinance or
resolution which has been approved by the NIGC; (iv) an Indian tribe has sole
proprietary interest and responsibility for the conduct of gaming; (v) the
primary management officials and key employees are tribally licensed; and (vi)
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 written agreement
between the tribal government and the government of the state within whose
boundaries the tribe's lands lie (a "Tribal-State Compact").
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 such activity in amounts comparable to those amounts
assessed by the state for comparable activities, remedies for breach, standards
for the operation of such activity and maintenance of the gaming facility,
including licensing, and any other subjects that are directly related to the
operation of gaming activities. The terms of Tribal-State Compacts vary from
state to state; however, Tribal-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 was
entered into in May 1994 and was approved by the Secretary of the Interior on
December 14, 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. See "Risk Factors--Highly Regulated
Industry."
Tribal-State Compacts have been the subject of litigation in several states,
including Alabama, California, Florida, Kansas, Michigan, Mississippi, New
Mexico, New York, Oklahoma, Oregon, South Dakota, Wisconsin and Washington.
Among the issues being litigated are the constitutionality of the provision of
IGRA which entitles tribes to sue in federal court to force states to negotiate
Tribal-State Compacts. The United States Supreme Court has recently ruled 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.
As a result, certain provisions of IGRA have been ruled unconstitutional.
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
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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.
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 Company does not believe that the precedent in New Mexico or Kansas cases
would apply. On May 18, 1994, the Connecticut Attorney General issued a formal
opinion that concluded 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 Pequot Tribe, that Connecticut law authorizes casino gaming. After
execution of the Mohegan Compact in May 1994, the Connecticut Legislature passed
a law to require future gaming compacts to 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 Mohegan 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. To this date, no such bill has passed either
house of Congress. If IGRA were amended, the amendment could change the
governmental structure and requirements within which the Mohegan Tribe could
conduct gaming.
NIGC AND BIA APPROVALS
The Authority operates, and the Manager manages, the Mohegan Sun, which is
located on lands held in trust for the Mohegan Tribe by the United States of
America and which are leased by the Mohegan Tribe to the Authority. Such leases,
and modifications or amendments to such lease, must be approved by the BIA
pursuant to 25 U.S.C. ss.415 and 25 C.F.R. ss.162. In addition, 25 U.S.C. ss. 81
("Section 81"), a federal statute originally passed in 1871, requires that all
contracts "by any person with any tribe of Indians" which are "relative to their
lands" must be approved by the Secretary of the Interior. The remedies pursuant
to Section 81 enable the federal courts to find agreements which violate this
statute to be void ab initio, and to grant full restitution of all amounts paid
to the non-Indian party by the tribe.
The full scope of required review and approval pursuant to this statute is
not fully or precisely defined. The regulations and guidelines which the NIGC
and the BIA use to interpret their respective responsibilities regarding Section
81 are incomplete and evolving. Both Section 81 and IGRA have been the subject
of litigation and may be subject to further judicial or legislative
interpretation.
IGRA requires that the Management Agreement must be approved by the Chairman
of the NIGC. The Management Agreement has been approved by the Chairman of the
NIGC. Documents that are collateral to the Management Agreement must be reviewed
by the NIGC. The NIGC advised the tribe that although it must review such
collateral documents, it has no authority to directly approve or disapprove such
agreements. The Company does not believe that the Notes or the Indenture is a
collateral document that is subject to review by the NIGC. The Company believes
that the Indenture, the Notes, the Management Agreement and the Subordinated
Note documents are in compliance with all applicable federal Indian laws and
regulations and has received all approvals that the NIGC and the BIA have
advised are required. However, the rules and regulations relating to Indian
gaming have only recently been promulgated and the NIGC and BIA have had little
or no experience reviewing documents relative to a public bond financing. If a
court of competent jurisdiction later holds that the NIGC or the BIA has the
authority and responsibility to approve any document, and if such approval
cannot then be obtained, or if such approval was obtained, but that such
document violated applicable federal law or regulation, then such document could
be held to be void, and any payments from the Authority or the Mohegan Tribe
pursuant to such agreements could be ordered returned.
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LICENSING
Prior to opening the Mohegan Sun, each of the partners of the Manager, and
the shareholders of the Company and certain employees of the Mohegan Sun were
required to be licensed by relevant tribal and state authorities. Each of the
partners of the Manager and each of the shareholders of the Company has applied
for and received temporary gaming licenses from the Commissioner of Revenue
Services of the State of Connecticut. Mr. Len Wolman, Mr. Mark Wolman and Mr.
Solomon Kerzner have each received permanent gaming licenses that are subject to
renewal. As each employee who is required to be licensed is hired, the Authority
or the Manager will cause such employee to apply for all required licenses.
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PRINCIPAL SECURITY HOLDERS
The following table sets forth the beneficial ownership interest in the
Company, as adjusted to reflect the Reorganization, by each person known by the
Company to beneficially own 5% or more of the outstanding Company interests.
Finance is a wholly-owned subsidiary of the Company.
<TABLE>
<CAPTION>
NAME OF % OWNERSHIP
BENEFICIAL OWNER IN THE COMPANY
- ----------------------------------------------------------------------------- -----------------
<S> <C>
LMW, Inc.(1)................................................................. 32.26%
Slavik Suites, Inc.(2)....................................................... 67.74%
</TABLE>
- ------------------------
(1) LMW, Inc. is owned 50% by Mr. Len Wolman and 50% by Mr. Mark Wolman. The
address for LMW, Inc. is c/o the Company, 914 Hartford Turnpike, P.O. Box
715, Waterford, Connecticut.
(2) Messrs. Len and Mark Wolman together own approximately 22.5% of the
outstanding shares of Slavik Suites, Inc. The address for Slavik Suites,
Inc. is 32605 West 12 Mile Road, Suite 350, Farmington Hills, Michigan.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued by the Issuers pursuant to the Indenture
between the Issuers and Fleet National Bank, as trustee (the "Trustee"). The
Exchange Notes will evidence the same indebtedness as the Private Notes (which
they replace) and will be entitled to the benefits of the Indenture. The form
and terms of the Exchange Notes are the same as the form and terms of the
Private Notes except that (i) the Exchange Notes will have been registered under
the Securities Act, and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of the Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The terms of the Notes include those stated in the
Indenture and the Collateral Agreements (as defined below) and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), as in effect on the date of the Indenture. The
following summaries of the material provisions of the Indenture and the
Collateral Agreements are summaries only, do not purport to be complete and are
qualified in their entirety by reference to all of the provisions of the
Indenture and the Collateral Agreements. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Indenture.
Wherever particular provisions of the Indenture are referred to in this summary,
such provisions are incorporated by reference as a part of the statements made
and such statements are qualified in their entirety by such reference. A copy of
the form of Indenture and each of the Collateral Agreements is available from
the Company upon request. Set forth below is a summary of the material
provisions of the Notes.
GENERAL
The Notes will be senior, secured, joint and several general obligations of
the Issuers, limited in aggregate principal amount to $65.0 million and secured
as set forth under "--Security for the Notes" below. The Notes will be issued
only in fully registered form, without coupons, in denominations of $l,000 and
integral multiples thereof.
The Notes will mature on November 15, 2003. The Notes will bear interest at
the rate per annum stated on the cover page hereof from the Issue Date or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on May 15 and November 15 of each year,
commencing May 15, 1997, to the persons in whose names such Notes are registered
at the close of business on the May 1 or November 1 immediately preceding such
Interest Payment Date (the "Record Date"). Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office or agency of the Issuers maintained for such
purpose, which office or agency shall be maintained in the Borough of Manhattan,
The State and City of New York. At the option of the Issuers, payment of
interest and Liquidated Damages may be made by check mailed to the Holders of
the Notes at the addresses set forth upon the registry books of the Issuers;
PROVIDED, that all payments with respect to Global Notes will be required to be
made by wire transfer of immediately available funds to the account specified by
the Holder thereof. No service charge will be made for any registration of
transfer or exchange of Notes, but the Issuers may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Until otherwise designated by the Issuers, the Issuers' office or
agency will be the corporate trust office of the Trustee presently located at
the office of the Trustee in the Borough of Manhattan, The State and City of New
York.
SECURITY FOR THE NOTES
The obligations of the Issuers with respect to the Notes will be secured on
an exclusive basis by a pledge of the Subordinated Notes and a pledge of all
cash and Cash Equivalents held by the Company
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(collectively, the "Collateral"). Finance does not have, and pursuant to the
requirements of the Indenture will not have, any significant assets. The Company
will enter into one or more pledge and assignment agreements (collectively, the
"Collateral Agreements") that will provide for the pledge of the Collateral to
the Trustee for the benefit of the Holders of the Notes. Such pledges will
secure the payment and performance when due of all of the obligations of the
Issuers under the Indenture and the Notes. The Manager will not be a party to
the Indenture or the Collateral Agreements and accordingly in an Event of
Default the Trustee will be unable to foreclose on any rights of the Manager
under the Management Agreement. The Issuers will not have a pledge of the
Company's partnership interest in the Manager. Accordingly, in the event of an
acceleration under the Indenture, the Trustee under the indenture will not be
able to foreclose upon the equity in the Manager without bringing suit against
the Company.
As a result of federal Indian gaming law prohibiting any non-Indian entity,
including the Manager, the Company and Sun International, from owning an equity
interest in an Indian casino, Sun International structured its initial
investment in the Mohegan Sun in the form of a deferred interest subordinated
loan (i.e. the Subordinated Notes). The obligation of the Manager to provide an
additional amount of 11 1/2% over and above the stated 15% interest rate on the
Subordinated Notes is not an obligation to pay interest, and while it may
increase the overall effective rate of interest on the Subordinated Notes, if
the funds are not available to pay such additional amounts, then it will not be
paid. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview of Future Cash Flows."
The Manager, in connection with the overall financing plan for the Mohegan
Sun, retained the right to purchase one-half of the Original Subordinated Notes
from Sun International in the Omnibus Financing Agreement. In connection with
the Offering of the Private Notes, pursuant to any amendment to the Omnibus
Financing Agreement, the Company acquired such rights the Original Subordinated
Notes from Sun International and purchased such Original Subordinated Notes. See
"Offering Summary--The Reorganization" and "Use of Proceeds."
For a description of the material terms of the Subordinated Notes, see
"Material Agreements--Note Purchase Agreement."
Following an Event of Default, the Trustee, on behalf of the Holders of the
Notes, in addition to any rights or remedies available to it under the
Indenture, may take such action as it deems advisable to protect and enforce its
rights in the Collateral, including the institution of foreclosure proceedings.
See "Risk Factors--Ability to Foreclose on Collateral."
CERTAIN BANKRUPTCY CONSIDERATIONS
The Company's only assets are the Collateral and its partnership interest in
the Manager, and it conducts no operations other than serving as a partner in
the Manager, which in turn has no operations other than managing the Mohegan Sun
for the Authority. In the event of a bankruptcy of the Manager or bankruptcy or
similar proceeding with respect to the Authority, the Issuers will have no
rights with respect to the assets of either the Manager or the Authority. In the
event of a bankruptcy of the Manager, the Company will only have the rights of
an equity holder in the Manager. The Company will not be an assignee of the
Management Agreement and accordingly will not have the right to perform under
the Management Agreement in the event that the Manager is unable to perform its
obligations thereunder, and the Management Agreement may be terminated for cause
by the Authority in the event of a failure to perform thereunder. In the event
of a bankruptcy or similar proceeding with respect to the Authority, the Company
will be a general unsecured creditor with respect to the Subordinated Notes, and
the Management Agreement may be subject to being rejected by the Authority.
MANDATORY REDEMPTION WITH EXCESS CASH FLOW OR UPON EXERCISE OF BUY/SELL OPTION
The Issuers will be required to make a mandatory redemption on each May 15
and November 15, commencing November 15, 1997, of Notes in the largest principal
amount that is an integral multiple of
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$1,000, that may be redeemed using 100% of Company Excess Cash as of the
preceding September 30 and March 31, respectively, at the following redemption
prices (expressed as percentage of principal amount) if redeemed during the
12-month period commencing May 15 of the years indicated below, in each case
(subject to the right of Holders of record on a Record Date to receive interest
and Liquidated Damages, if any, due on an Interest Payment Date that is on or
prior to such Redemption Date) together with accrued and unpaid interest and
Liquidated Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
1997.................................................................................. 112.750%
1998.................................................................................. 110.625
1999.................................................................................. 108.500
2000.................................................................................. 106.375
2001.................................................................................. 104.250
2002.................................................................................. 102.125
2003.................................................................................. 100.000
</TABLE>
In the event that either the Company or Sun International shall deliver an
election to either buy or sell the other party's interest in the Manager
pursuant to a Buy-Out Notice (as defined in the Partnership Agreement) or be
deemed to have delivered an election to sell such interest and such election to
buy or sell is consummated, the Issuers will be required to make a mandatory
redemption of all the Notes then outstanding, at the redemption prices described
above. Such redemption shall be made on a date no more than 35 days after the
date of the Closing (as such term is defined in the Partnership Agreement) under
the option.
OPTIONAL REDEMPTION
Except as provided above, the Issuers will not have the right to redeem any
Notes prior to November 15, 1999. The Notes will be redeemable for cash at the
option of the Issuers, in whole or in part, at any time on or after November 15,
1999, with Company Excess Cash as of the date notice is given at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the 12-month period commencing May 15 of the years indicated below, in
each case (subject to the right of Holders of record on a Record Date to receive
interest and Liquidated Damages, if any, due on an Interest Payment Date that is
on or prior to such Redemption Date) together with accrued and unpaid interest
and Liquidated Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
1999.................................................................................. 108.500%
2000.................................................................................. 106.375
2001.................................................................................. 104.250
2002.................................................................................. 102.125
2003.................................................................................. 100.000
</TABLE>
REGULATORY REDEMPTION
Notwithstanding any other provisions of the Indenture, if any Gaming
Regulatory Authority requires that a Holder or beneficial owner of the Notes
must be licensed, qualified or found suitable under any applicable gaming laws
in order to maintain any gaming license or franchise related to the Mohegan Sun
under any applicable gaming laws, and the Holder or beneficial owner fails to
apply for a license, qualification or finding of suitability within 30 days
after being requested to do so by such Gaming Regulatory Authority (or such
lesser period that may be required by such Gaming Regulatory Authority) or if
such Holder or beneficial owner is not so licensed, qualified or found suitable,
the Company shall have the right, at its option:
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(1) to require such Holder or beneficial owners to dispose of such
Holder's or beneficial owner's Notes within 30 days of receipt of such
finding by the applicable Gaming Regulatory Authority (or such earlier date
as may be required by the applicable Gaming Regulatory Authority); or
(2) to call for redemption of the Notes of such Holder or beneficial
owner at a redemption price equal to (a) the lesser of the principal amount
thereof or the price at which such Holder or beneficial owner acquired the
Notes, together with, in either case, accrued and unpaid interest and
Liquidated Damages, if any, to the earlier of the date of redemption or the
date of the finding of unsuitability by such Gaming Regulatory Authority,
which may be less than 30 days following the notice of redemption if so
ordered by such Gaming Regulatory Authority or (b) such other amount as may
be determined by such Gaming Regulatory Authority.
In connection with any such redemption, and except as may be required by a
Gaming Regulatory Authority, the Company shall comply with the procedures
contained in the Indenture for redemptions of the Notes. Under the Indenture,
the Company is not required to pay or reimburse any Holder of the Notes or
beneficial owner of Notes who is required to apply for any such license,
qualification or finding of suitability for the costs of the licensure or
investigation for such qualification or finding of suitability. Such expenses
will, therefore, be the obligation of such Holder or beneficial owner. See
"Government Regulation."
PROCEDURES FOR REDEMPTIONS
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair; provided, however, that mandatory or
optional redemptions from Company Excess Cash will be done as nearly as
practicable on a pro rata basis. The Notes may be redeemed in part in multiples
of $1,000 only.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Note to be redeemed to such Holder's last address as then shown upon the
registry books of the Registrar. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest and Liquidated Damages, if any, will cease to
accrue on the Notes or portions thereof called for redemption, unless the
Issuers default in the payment thereof.
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an irrevocable and unconditional offer by the Company or Finance
(the "Change of Control Offer"), to require the Issuers to repurchase all or any
part of such Holder's Notes (provided, however, that the principal amount of
such Notes must be $1,000 or an integral multiple thereof) on a date (the
"Change of Control Purchase Date") that is no later than 35 Business Days after
the occurrence of such Change of Control, at a cash price (the "Change of
Control Purchase Price") equal to 101% of the principal amount thereof, together
with accrued interest and Liquidated Damages, if any, to the Change of Control
Purchase Date. The Change of Control Offer shall be made within 10 Business Days
following a Change of Control and shall remain open for 20 Business Days
following its commencement (the "Change of Control Offer Period"). Upon
expiration of the Change of Control Offer Period, the Issuers promptly shall
purchase all Notes properly tendered in response to the Change of Control Offer.
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As used herein, a "Change of Control" means any event, the result of which
is that Len Wolman and Mark Wolman and their Permitted Assignees cease in the
aggregate to "beneficially own," directly or indirectly, at least 40% of the
total voting power in the aggregate of the Company.
On or before the Change of Control Purchase Date, the Issuers will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased. The Paying Agent promptly
will pay the Holders of Notes so accepted an amount equal to the Change of
Control Purchase Price (together with accrued and unpaid interest and Liquidated
Damages, if any), and the Trustee promptly will authenticate and deliver to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered. Any Notes not so accepted will be delivered promptly by the
Issuers to the Holder thereof. The Issuers will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws.
LIMITATION ON ACTIVITIES OF THE ISSUERS
The Issuers will not conduct any business (including having any Subsidiary,
other than Finance in the case of the Company) whatsoever, other than to (i) own
and act upon the Collateral, in the case of the Company, and the Notes and (ii)
comply with their respective rights and obligations under the Partnership
Agreement, the Indenture, the Registration Rights Agreement, the Notes, the
Management Agreement, the Omnibus Agreement, the Purchase Agreement described
under "Plan of Distribution" and the Collateral Agreements and take action
arising under such agreements or related or incidental thereto.
LIMITATION ON INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK
The Indenture provides that the Issuers will not, directly or indirectly,
create, issue, assume, guaranty, incur, suffer to exist, become directly or
indirectly liable with respect to (including as a result of an Acquisition), or
otherwise become responsible for, contingently or otherwise (individually and
collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness
or any Disqualified Capital Stock, other than the Notes.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that the Issuers will not, directly or indirectly,
make any Restricted Payment.
The preceding paragraph, however, will not prohibit (i) the payment of
Permitted Quarterly Tax Distributions to the members of the Company as described
below and (ii) Investments in connection with the development and/or improvement
of the Mohegan Sun or a hotel adjacent to the Mohegan Sun or the purchase of the
5% interest of the minority partner in the Manager, provided, however, that,
after giving pro forma effect to the proposed Investment, (i) no Default or
Event of Default shall have occurred or be continuing and (ii) the aggregate
amount of all such Investments made on or after the Issue Date that are
outstanding (after giving effect to any such Investments that are returned to
the Company without restriction, in cash, on or prior to the date of any such
calculation) at any time does not exceed $5.0 million.
Notwithstanding the foregoing provisions of this covenant, the Issuers will
not, directly or indirectly, make any Investment in the Manager other than a
capital contribution or loan made (i) substantially concurrently with
proportionate capital contributions or loans made in cash by all other partners
of the
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Manager and (ii) at a time when the Manager is in compliance (without regard to
any cure periods) with the terms of the covenant described below under
"Covenants with Respect to the Manager."
For so long as the Company is a partnership or substantially similar
pass-through entity for Federal income tax purposes, the Company may make cash
distributions to its members, during each Quarterly Payment Period, in an
aggregate amount not to exceed the Permitted Quarterly Tax Distribution in
respect of the related Estimation Period. If any portion of a Permitted
Quarterly Tax Distribution is not distributed during such Quarterly Payment
Period, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such undistributed
portion.
Within 10 days following the Company's filing of Internal Revenue Service
Form 1065 for the immediately preceding taxable year, the Tax Amounts CPA shall
file with the Trustee a written statement indicating in reasonable detail the
calculation of the True-up Amount. In the case of a True-up Amount due to the
members, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such True-up Amount. In
the case of a True-up Amount due to the Company, the Permitted Quarterly Tax
Distribution payable during the immediately following Quarterly Payment Period
shall be reduced by such True-up Amount and the excess, if any, of the True- up
Amount over such Permitted Quarterly Tax Distribution shall be applied to reduce
the immediately following Permitted Quarterly Tax Distributions until such
True-up Amount is entirely offset.
LIMITATIONS ON LIENS
The Indenture provides that the Issuers will not, directly or indirectly,
create, incur or suffer to exist any Lien upon any of their property or assets,
whether now owned or hereafter acquired, or upon any income or profits
therefrom, other than (i) Liens on assets and property of the Company pursuant
to the Collateral Agreements or (ii) Permitted Liens.
LIMITATION ON SALE OF ASSETS
The Indenture provides that the Issuers will not, in one or a series of
related transactions, convey, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of their property, business or assets having a value
in excess of $1,000 (an "Asset Sale"), except pursuant to a sale of its
partnership interest in the Manager pursuant to a Buy-Out Notice as described
above under the caption "--Mandatory Redemption with Excess Cash Flow or Upon
Exercise of Buy/Sell Option."
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that neither of the Issuers will, directly or
indirectly, consolidate with or merge with or into another person or sell,
lease, convey or transfer all or substantially all of their respective assets
(computed on a consolidated basis), whether in a single transaction or a series
of related transactions, to another Person or group of affiliated Persons, or
adopt a plan of liquidation.
COVENANTS WITH RESPECT TO THE MANAGER
The Indenture provides that the Company will not permit the Manager to: (i)
incur any Indebtedness, except for any guarantees required by the Hotel/Resort
Management Agreement with respect to the construction of the hotel or any
Investment permitted by the covenant entitled "--Limitations on Restricted
Payments" and any pro rata investment by the other partner; (ii) directly or
indirectly create, incur or suffer to exist any Liens on any of its properties
or assets; (iii) directly or indirectly, create, assume or suffer to exist any
consensual restriction on the ability of the Manager or any Subsidiary of the
Manager to pay dividends or make other distributions to or on behalf of, or to
pay any obligation to or on behalf of, or otherwise to transfer assets or
property to or on behalf of, or make or pay loans or advances to or on behalf
of, the Company, except, in each case, for Permitted Liens and restrictions
imposed by the
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Operative Documents, provided, however, that customary provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practice shall not in and of themselves be
considered a restriction on the ability of the Manager or the applicable
Subsidiary to transfer such agreement or assets, as the case may be; (iv)
directly or indirectly make any Asset Sale; (v) enter into any subcontract to
delegate the duties of the Manager under the Management Agreement other than
those described in Article IV of the Partnership Agreement; (vi) issue any
equity security in a manner that dilutes distributions to the Company; (vii)
make payments for the management services, except for payments made in
accordance with the Operative Documents; or (viii) engage in any business other
than as described in the Partnership Agreement. In addition, the Company will
not agree, and will not permit the Manager to agree, to terminate, amend or
waive any provision of an Operative Document in a manner adverse to the economic
interest of the Holders without the consent of holders of a majority of the
principal amount of the Notes outstanding, provided, however, that this sentence
will not apply to the terms of the Hotel/Resort Management Agreement or the
Hotel/Resort Development and Construction Agreement.
Acceptance of Remaining Excess Cash Purchase Offers and Change of Control
Offers
The Indenture requires the Company to accept Remaining Excess Cash Purchase
Offers (as defined in the Note Purchase Agreement) or any other offer to
purchase Subordinated Notes made by the Authority other than a Change of Control
Offer (as defined in the Note Purchase Agreement) as made as follows. The
Company shall accept any such offer, if accepted by Sun International. If less
than all the Subordinated Notes owned by Sun International are to be tendered,
the Company shall tender that principal amount of the Subordinated Notes,
rounded to the nearest multiple of $1,000, owned by the Company (with the First
Tranche Completion Guarantee Subordinated Notes (as defined below under
"Material Agreements--Omnibus Agreement") to be tendered first) that bears the
same proportion to the total principal amount of Subordinated Notes owned by the
Company that the principal amount of Subordinated Notes to be tendered by Sun
International and its Affiliates bears to the total principal amount of
Subordinated Notes owned by Sun International and its Affiliates. In the event
that the total amount available for a Remaining Excess Cash Purchase Offer or
other offer is less than the total amount needed to purchase the Subordinated
Notes to be tendered by the Company and Sun International and its Affiliates
pursuant to the above formula, the Company shall reduce the amount of
Subordinated Notes to be tendered pro rata, assuming Sun International and its
Affiliates likewise reduce their amount of Subordinated Notes to be so tendered,
in each case rounded to the nearest multiple of $1,000, such that the total
amount of Subordinated Notes to be tendered can be purchased in such offer.
Notwithstanding the foregoing, in the event that either (i) Sun
International fails to notify the Company of its intention to tender into such
offer prior to the time at which tenders are due and has not as of such time
tendered into such offer or (ii) the total amount of cash or Cash Equivalents
held by the Company as of the date tenders are due is less than $5.0 million,
the Company shall tender into such offer all Subordinated Notes then held by it.
The Indenture requires the Company to accept Change of Control Offers (as
defined in the Note Purchase Agreement) in full.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not permit the Manager on or
after the Issue Date to enter into or suffer to exist any contract, agreement,
arrangement or transaction with any Affiliate of the Company (an "Affiliate
Transaction"), or any series of related Affiliate Transactions, other than those
existing on the Issue Date (i) unless it is determined that the terms of such
Affiliate Transaction are fair and reasonable to the Manager, and no less
favorable to the Manager, than could have been obtained in an arm's length
transaction with a non-Affiliate of the Company and, (ii) if involving
consideration to either party in excess of $500,000, unless such Affiliate
Transaction (or Transactions) is evidenced by an Officers'
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Certificate addressed and delivered to the Trustee certifying that such
Affiliate Transaction (or Transactions) has been approved by a majority of the
members of the Board of Directors that are disinterested in such transaction and
(iii) if involving consideration to either party in excess of $1 million, unless
in addition the Company, prior to the consummation thereof, obtains a written
favorable opinion as to the fairness of such transaction to the Manager from a
financial point of view from an independent investment banking firm or
accounting firm, in each case having a national reputation.
REPORTS
The Indenture provides that whether or not the Issuers are subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, each of the
Issuers shall deliver to the Trustee, to each Holder and to prospective
purchasers of Notes identified to the Issuers by an Initial Purchaser, within 15
days after it is or would have been (if it were subject to such reporting
obligations) required to file such with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that would
have been included in reports filed with the Commission, if the Issuers were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Issuers' certified independent public accountants as such would be required in
such reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required and, to the extent permitted by the Commission (if it were
subject to such reporting obligations), file with the Commission the annual,
quarterly and other reports which it is or would have been required to file with
the Commission.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Issuers
to pay any installment of interest or Liquidated Damages, if any, on the Notes
as and when the same becomes due and payable and the continuance of any such
failure for 30 days, (ii) the failure by the Issuers to pay all or any part of
the principal, or premium, if any, on the Notes when and as the same becomes due
and payable at maturity, redemption, by acceleration or otherwise, including,
without limitation, payment of the Change of Control Purchase Price or on a
mandatory redemption, or otherwise, (iii) the failure by the Issuers to observe
or perform the terms of the covenant described above under "Limitation on
Merger, Sale or Consolidation," (iv) the failure by the Issuers to observe or
perform any other covenant or agreement contained in the Notes or the Indenture
and, subject to certain exceptions, the continuance of such failure for a period
of 30 days after written notice is given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Notes outstanding, (v) certain events of bankruptcy, insolvency or
reorganization in respect of the Issuers, (vi) final unsatisfied judgments not
covered by insurance aggregating in excess of $2.0 million, at any one time
rendered against either or both of the Issuers and not stayed, bonded or
discharged within 60 days, or (vii) any default in the performance or breach of
the terms of an Operative Document by the Manager or by the Company with respect
to the Partnership Agreement, extending past any applicable cure period, that
would result in material damages to either the Company or the Manager, (viii)
the failure by the Company to observe or perform any material covenant set forth
in a Collateral Agreement, subject to applicable cure periods or (ix) an Event
of Default under the Senior Secured Notes resulting in an acceleration of the
maturity thereof. The Indenture provides that if a Default occurs and is
continuing, the Trustee must, within 90 days after the occurrence of such
default, give to the Holders notice of such default; provided, however, that if
the Manager is notified in writing of any default by the Manager under the
Management Agreement (regardless of whether or not any cure period has expired)
the Company shall promptly notify the Holders of such event.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (v), above, relating to either or both of the
Issuers), then in every such case, unless the principal of all of the Notes
shall have already become due and payable, either the Trustee or the Holders of
25% in aggregate
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principal amount of the Notes then outstanding, by notice in writing to the
Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), may
declare all principal, determined as set forth below, and accrued interest and
Liquidated Damages, if any, thereon to be due and payable immediately. If an
Event of Default specified in clause (v), above, relating to either or both of
the Issuers occurs, all principal and accrued interest and Liquidated Damages,
if any, thereon will be immediately due and payable on all outstanding Notes
without any declaration or other act on the part of Trustee or the Holders.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Holders of a majority in aggregate principal
amount of Notes generally are authorized to rescind such acceleration if all
existing Events of Default, other than the non-payment of the principal of,
premium, if any, and interest and Liquidated Damages, if any, on the Notes which
have become due solely by such acceleration, have been cured or waived, except a
default with respect to any provision requiring a supermajority approval to
amend, which default may only be waived by such a supermajority.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except on
default with respect to any provision requiring a supermajority approval to
amend, which default may only be waived by such a supermajority, and except a
default in the payment of principal of or interest and Liquidated Damages, if
any, on any Note not yet cured or a default with respect to any covenant or
provision which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request,
order or direction of any of the Holders, unless such Holders have offered to
the Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuers may, at their option and at any
time, elect to have their obligations discharged with respect to the outstanding
Notes ("Legal Defeasance"). Such Legal Defeasance means that the Issuers shall
be deemed to have paid and discharged the entire indebtedness represented, the
Collateral shall be released from the Liens in favor of the Notes and the
Indenture shall cease to be of further effect as to all outstanding Notes,
except as to (i) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages, if any, on
such Notes when such payments are due from the trust funds described below; (ii)
the Issuers' obligations with respect to such Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment and money for security
payments held in trust; (iii) the rights, powers, trust, duties, and immunities
of the Trustee, and the Issuers' obligations in connection therewith; and (iv)
the Legal Defeasance provisions of the Indenture. In addition, the Issuers may,
at their option and at any time, elect to have the obligations of the Issuers
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, the Collateral shall be
released from the Liens in favor of the Notes and certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, U.S. legal tender, U.S. government obligations 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
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interest and Liquidated Damages, if any, on such Notes on the stated date for
payment thereof or on an optional redemption date of such principal or
installment of principal of, premium, if any, or interest and Liquidated
Damages, if any, on such Notes, and the Holders of Notes must have a valid,
perfected, exclusive security interest in such trust; (ii) in the case of the
Legal Defeasance, the Issuers shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to Trustee confirming that
(A) the Issuers have received from, or there has been published by the Internal
Revenue Service, a ruling or (B) since the date of the Indenture, 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 such 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; (iii) in the
case of Covenant Defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the Holders of such 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; (iv) 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 or such
earlier time as, in the opinion of counsel, such deposit is not voidable as a
preference under applicable bankruptcy law; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or constitute
a default any material agreement (other than the Indenture) or instrument to
which either Issuer is a party or by which either is bound; (vi) the Company
shall have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Issuers with the intent of preferring the Holders of
such Notes over any other creditors of the Issuers or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the Issuers
or others; and (vii) the Issuers shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that the
conditions precedent provided for in, in the case of the officers' certificate,
(i) through (vi) and, in the case of the opinion of counsel, clauses (i) (with
respect to the validity and perfection of the security interest), (ii), (iii)
and (v) of this paragraph have been complied with.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
The Indenture contains provisions permitting the Issuers and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Issuers and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders; provided,
however, that no such modification may without the consent of Holders of at
least 66- 2/3% in aggregate principal amount of Notes at the time outstanding,
modify the provisions (including the defined terms used therein) of the covenant
"Repurchase of Notes at the Option of the Holder upon a Change of Control" in a
manner adverse to the Holders, and provided further, that no such modification
may, without the consent of each Holder affected thereby: (i) change the Stated
Maturity on any Note, or reduce the principal amount thereof or the rate (or
extend the time for payment other than a rescission of acceleration of the Notes
by the Holders of at least a majority in aggregate principal amount of such
Notes and a waiver of the payment default resulting from such acceleration) of
interest and Liquidated Damages, if any, thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Note or any premium or the interest and Liquidated
Damages, if any, thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity thereof (or,
in the case of redemption, on or after the Redemption Date), or reduce the
Change of Control Purchase Price or alter the provisions
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(including the defined terms used therein) regarding the redemption of the Notes
in a manner adverse to the Holders, or (ii) reduce the percentage in principal
amount of the outstanding Notes, the consent of whose Holders is required for
any such amendment, supplemental indenture or waiver provided for in the
Indenture, or (iii) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the Holder of each
outstanding Note affected thereby, or (iv) cause the Notes to become subordinate
in right of payment to any other Indebtedness, or (v) modify any of the
provisions relating to the Collateral (including without limitation the
Collateral Agreements) in a manner adverse to the Holders.
The Issuers shall not, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
Notes for or as an inducement to any consent, waiver or amendment of any terms
or provisions of the Notes unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES AND MEMBERS
The Indenture provides that no direct or indirect officer, director,
manager, employee or member, as such, past, present or future of the Issuers, or
any successor entity shall have any personal liability in respect of the
obligations of the Issuers under the Indenture, the Notes or the Collateral
Agreements by reason of his or its status as such officer, director, employee or
member, except to the extent such person is an Issuer.
CERTAIN DEFINITIONS
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, stock purchase, merger, consolidation, or other transfer, and whether
or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such person. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, however, that with respect to ownership interest in the
Company a Beneficial Owner of 10% or more of the total voting power normally
entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control has the meaning attributed to it in Rules l3d-3 and l3d-5
under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
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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 commercial bank having capital
and surplus in excess of $300.0 million, (iv) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper rated A-1
or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group and in each case maturing within one year after the date of
acquisition and (vi) investment funds investing solely in securities of the
types described in clauses (ii)--(v) above.
"Company Excess Cash" means at any date of determination all cash and Cash
Equivalents held by the Company in excess of $10 million, provided, however, if
the principal amount of Notes then outstanding, together with accrued and unpaid
interest and Liquidated Damages, if any, thereon, is less than $10 million, then
the Company shall treat all cash and Cash Equivalents held by the Company as
Company Excess Cash.
"Disqualified Capital Stock" means with respect to any person, Equity
Interests of such person that, by its terms or by the terms of any security into
which it is then convertible, exercisable or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased (including at the option of the holder thereof) by such person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Notes.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership interests in, such
Person.
"Estimation Period" means the period for which a partner who is an
individual is required to estimate for federal income tax purposes his
allocation of taxable income from a calendar year partnership in connection with
determining his estimated federal income tax liability for such period.
"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 Mohegan Tribe or the
Authority.
"Indebtedness" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such any person, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereof), (ii) evidenced by bonds,
notes, debentures or similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services, except
those incurred in the ordinary course of its business that would constitute
ordinarily a trade payable to trade creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) relating to
any capitalized lease obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any letter of credit;
(b) all net obligations of such person under Interest Swap and Hedging
Obligations; (c) all liabilities and obligations of others of the kind described
in the preceding clause (a) or (b) that such person has guaranteed or that is
otherwise its legal liability or which are secured by any assets or property of
such person and all obligations to purchase, redeem or acquire any Equity
Interests; (d) any and all deferrals, renewals, extensions, refinancing and
refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b) or (c), or this clause (d), whether or not between or among the
same parties; and (e) all Disqualified Capital Stock of such Person.
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"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
person of any deposit with, or advance, loan or other extension of credit to,
such other person (including the purchase of property from another person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable or deposits arising in the
ordinary course of business); (c) the entering into by such person of any
guarantee of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other person; and (d) the making of any
capital contribution by such person to such other person.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Operative Documents" means collectively the Partnership Agreement, the
Omnibus Agreement, the Note Purchase Agreement, the Subordinated Notes, the
Management Agreement, the Hotel/Resort Management Agreement, the Hotel/Resort
Development and Construction Agreement and the Gaming Facility Development and
Construction Agreement.
"Permitted Assignee" means (i) any immediate family member of Len and Mark
Wolman, the estate of Len or Mark Wolman and any heirs upon distribution of such
estate, and any partnership, trust or similar entity controlled by Len or Mark
Wolman exclusively for their benefit and/or the benefit of immediate family
members and (ii) any charitable organization upon whose board of directors or
similar governing entity either Len or Mark Wolman serves.
"Permitted Investment" means Investments in Cash Equivalents, First Tranche
Completion Guarantee Subordinated Notes not in excess of $7.5 million original
principal amount (plus accrued and unpaid interest and amounts due from the
Manager under the Omnibus Agreement), Original Subordinated Notes not in excess
of $19.2 million original principal amount (plus accrued and unpaid interest and
amounts due from the Manager under the Omnibus Agreement) and the purchase of
RJH Development Corp.'s interest in the Manager for $10.6 million.
"Permitted Lien" means (a) Liens imposed by governmental authorities for
taxes, assessments or other charges not yet subject to penalty or which are
being contested in good faith and by appropriate proceedings, if adequate
reserves with respect thereto are maintained on the books of the Manager or the
Issuers, as the case may be, in accordance with GAAP; (b) statutory liens of
carriers, warehousemen, mechanics, materialmen, landlords, repairmen or other
like Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period of
more than 30 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Manager or the Issuers, as the case may be, in
accordance with GAAP; (c) Liens securing the performance of bids, trade
contracts (other
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than borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (d) easements, rights-of-way, zoning, similar
restrictions and other similar encumbrances or title defects which, singly or in
the aggregate, do not in any case materially detract from the value of the
property, subject thereto (as such property is used by the Manager or the
Issuers, as the case may be) or interfere with the ordinary conduct of the
business of the Manager or the Issuers, as the case may be; (e) Liens arising by
operation of law in connection with judgments, only to the extent, for an amount
and for a period not resulting in an Event of Default with respect thereto; (f)
pledges or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social security
legislation; (g) leases or subleases granted to other persons in the ordinary
course of business not materially interfering with the conduct of the business
of the Manager or the Issuers, as the case may be, or materially detracting from
the value of the relative assets of the Manager or the Issuers, as the case may
be; and (h) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the Manager or the
Issuers, as the case may be, in the ordinary course of business.
"Permitted Quarterly Tax Distributions" means quarterly distributions of Tax
Amounts determined on the basis of the estimated taxable income of the Company,
for the related Estimation Period, as determined by the Tax Amounts CPA in a
statement filed with the Trustee; provided, however, that (A) prior to any
distributions of Tax Amounts the Company shall deliver an officers' certificate
stating to the effect that the Company qualifies as a partnership or
substantially similar pass-through entity for Federal income tax purposes and
(B) at the time of such distributions, the most recent audited financial
statements of the Company reflect that the Company was treated as a partnership
or substantially similar pass-through entity for Federal income tax purposes for
the period covered by such financial statements.
"Qualified Capital Stock" means any Equity Interests of any person that is
not Disqualified Capital Stock.
"Quarterly Payment Period" means the period commencing on the tenth day and
ending on and including the twentieth day of each month in which Federal
individual estimated tax payments are due (provided that payments in respect of
estimated state income taxes due in January may instead, at the option of the
Company, be paid during the last five days of the immediately preceding
December).
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any parent of such person, (b) any payment on account of the
purchase, redemption or other acquisition or retirement for value of Equity
Interests of such person or any Affiliate or parent of such person, (c) any
purchase, redemption, or other acquisition or retirement for value of, any
payment in respect of any amendment of the terms of or any defeasance of, any
Indebtedness, directly or indirectly, by such person or a parent prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness, other than mandatory or
optional redemption of the Notes or pursuant to a Change of Control Offer or
defeasance thereof as provided herein and (d) any Investment by such person;
provided, however, that the term "Restricted Payment" does not include any
dividend, distribution or other payment on or with respect to Equity Interests
of an issuer to the extent payable solely in shares of Qualified Capital Stock
of such issuer.
"Stated Maturity," when used with respect to any Note, means November 15,
2003.
"Subsidiary," with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person, by such
person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) any other person (other than a corporation or
a partnership) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
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or (iii) a partnership in which such person or a Subsidiary of such person is,
at the time, a general partner and in which such person, directly or indirectly,
at the date of determination thereof has at least a majority ownership interest.
"Tax Amounts" with respect to any taxable period shall not exceed an amount
equal to (A) the product of (x) the taxable income of the Company for such
period as determined by the Tax Amounts CPA and (y) the Tax Percentage reduced
by (B) to the extent not previously taken into account, any income tax benefit
attributable to the Company which could be realized (without regard to the
actual realization) by its members in the current or any prior taxable year, or
portion thereof, commencing on or after the Issue Date (including any tax losses
or tax credits), computed at the applicable Tax Percentage for the year that
such benefit is taken into account for purposes of this computation.
"Tax Amounts CPA" means a nationally recognized certified public accounting
firm.
"Tax Percentage" means, for a particular taxable year, the highest effective
marginal combined rate of Federal and state income tax, imposed on an individual
taxpayer, as certified by the Tax Amounts CPA in a certificate filed with the
Trustee. The rate of "state income tax" to be taken into account for purposes of
determining the Tax Percentage for a particular taxable year shall be deemed to
be the higher of (A) the highest Connecticut income tax rate imposed on
individuals for such year or (B) the sum of (x) the highest Michigan income tax
rate imposed on individuals for such year and (y) the Michigan intangibles tax
rate.
"True-up Amount" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between (i) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such taxable year and (ii) the aggregate amount permitted to be distributed
in respect of such year as determined by reference to the Company's Internal
Revenue Service Form 1065 filed for such year. For purposes of this Agreement,
the amount equal to the excess, if any, of the amount described in clause (i)
above over the amount described in clause (ii) above shall be referred to as the
"True-up Amount due to the Company" and the excess, if any, of the amount
described in clause (ii) over the amount described in clause (i) shall be
referred to as the "True-up Amount due to the members".
"True-up Determination Date" means the date on which the Tax Amounts CPA
delivers a statement to the Trustee indicating the True-up Amount.
"True-up Payment Period" means, in respect of any immediately preceding
taxable year of the Company, the later of (i) the period commencing on the tenth
day and ending on and including the twentieth day of April or (ii) the period
commencing on the tenth day following the True-up Determination Date and ending
on and including the twentieth day following the True-up Determination Date.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be initially represented by one or more global notes (the
"Global Notes") issued in the form of fully registered Global Notes, which will
be deposited with or on behalf of the Depository and registered in the name of a
nominee of the Depository. Interests in Global Notes will be available for
purchase only by "qualified institutional buyers," as defined in Rule 144A under
the Securities Act ("QIBs").
The Depository has advised the Company and the Initial Purchasers that the
Depository intends to follow the procedures described below:
The Depository will act as securities depository for the Global Notes.
The Global Notes will be issued as a fully registered security registered in
the name of Cede & Co. (the Depository's nominee).
The Depository is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal
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Reserve System, a "clearing corporation" within the meaning of New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depository holds
securities that its participants ("Participants") deposit with the
Depository. The Depository also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations ("Direct Participants"). The Depository is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depository's system is also available to others
such as securities brokers and dealers, banks, and trust companies that
clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
Rules applicable to the Depository and its Participants are on file with the
Commission.
Purchase of Notes must be made by or through Direct Participants, which
will receive a credit for the Notes on the Depository's records. The
ownership interest of each actual purchaser of each Note ("Beneficial
Owner") is in turn recorded on the Direct and Indirect Participant's
records. Transfers of ownership interests in the Notes are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the Notes, except in the event
that use of the book-entry system for the Notes is discontinued.
Conveyance of Notes and other communications by the Depository to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners are governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, the Depository's practice is to determine by lot
the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither the Depository nor Cede & Co. will consent or vote with respect
to the Notes. Under its usual procedures, the Depository mails an Omnibus
Proxy to the issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Notes are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal of, premium and Liquidated Damages, if any, and interest
payments on the Notes will be made to the Depository. The Depository's
practice is to credit Direct Participants' accounts on the payable date in
accordance with their respective holdings shown on the Depository's records
unless the Depository has reason to believe that it will not receive payment
on the payable date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
Participant and not of the Depository, the Paying Agent or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment to the Depository of principal of, premium and
Liquidated Damages, if any, and interest on the Notes are the responsibility
of the Company or the Paying Agent, disbursement of such payments to Direct
Participants shall be the responsibility of the Depository, and disbursement
of such payments to the Beneficial Owners shall be the responsibility of
Direct and Indirect Participants.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
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If the Depository is at any time unwilling, unable or ineligible to continue
as Depository and a successor Depository is not appointed by the Company within
90 days, the Company will issue certificated securities in exchange for the
Global Notes. In addition, the Company may at any time and in its sole
discretion determine not to have any Notes in registered form represented by the
Global Notes and, in such event, will issue certificated securities in exchange
for the Global Notes. In any such instance, an owner of a beneficial interest in
a Global Note will be entitled to physical delivery of certificated securities
registered in its name. Upon the exchange of the Global Notes for certificated
securities, the Global Notes will be canceled by the Trustee.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material federal income tax
consequences expected to result to holders whose Private Notes are exchanged for
Exchange Notes in the Exchange Offer. Such discussion is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative rulings
and practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought with respect to the Exchange Offer. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The tax treatment of a
holder of Notes may vary depending upon such holder's particular situation.
Certain holders (including, but not limited to, certain financial institutions,
insurance companies, broker-dealers, tax-exempt organizations, persons who are
not citizens or residents of the United States or who are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States, and
persons holding the Notes as part of a "straddle," "hedge" or "conversion
transaction") may be subject to special rules not discussed below. This
discussion is limited to holders who will hold the Notes as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Code. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
THE EXCHANGE NOTES
The exchange of Private Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Private Notes. As
a result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
THE PRIVATE NOTES
RECOGNITION OF INTEREST INCOME
Because the Company will be required to use the Company Excess Cash
generated during certain specified semi-annual periods to redeem at a premium a
portion of the Notes on a pro rata basis and such redemption payments will be
contingent in nature, Treasury Regulations regarding contingent payment debt
instruments will apply to the Notes, requiring the Company to construct a
projected payment schedule for the Notes. Holders generally will recognize all
interest income with respect to a Note on a constant yield basis based on this
projected payment schedule (but would not recognize ordinary income upon receipt
of cash payments denominated as interest), subject to certain adjustments if
actual contingent payments differ from those projected. Such interest is treated
as "original issue discount" (or "OID").
The projected payment schedule will include each noncontingent payment and a
projection of the amount and timing of each contingent payment on the Notes as
of the issue date. The projected payment schedule must produce the "comparable
yield," which is the yield at which the Company would issue a fixed rate debt
instrument with terms and conditions similar to those of the Notes. The amount
of interest that accrues each accrual period is the product of the "comparable
yield" (adjusted for the length of the accrual period) and the Note's "adjusted
issue price" at the beginning of each accrual period. The "adjusted issue price"
of a Note is equal to its issue price (i.e., the initial offering price paid by
the holders for a Note), increased by interest previously accrued on the Note
(determined without adjustments), and decreased by the amount of any
noncontingent payments and the projected amount of any contingent
99
<PAGE>
payments previously made on the Note. Except for adjustments made for
differences between actual and projected payments, the amount of interest
included in income by a holder of a Note is the sum of the "daily portions" of
interest income with respect to the Note for each day during the taxable year
(or portion thereof) on which such holder held such Note. The "daily portions"
of interest income are determined by allocating to each day in the accrual
period the ratable portion of the interest that accrues in the accrual period.
If the total actual payments exceed the total projected payments in a tax year
(a "net positive adjustment"), holders will generally be required to treat such
excess as additional interest includible in gross income for such tax year. If
the total actual payments are less than the total projected payments in a tax
year (a "net negative adjustment"), holders will be required to reduce the
amount of interest income that they would otherwise account for by the amount of
such difference. If the net negative adjustment exceeds the amount of interest
income that the holder would otherwise account for, such excess will be treated
as ordinary loss to the extent that the holder's total interest inclusions with
respect to the Note exceed the total net negative adjustments treated as
ordinary loss on the Note in prior taxable years. Any remaining excess will be a
"negative adjustment carryforward" and treated as a negative adjustment in the
succeeding tax year. If a Note is sold, exchanged or retired, any negative
adjustment carryforward from the prior year will reduce the holder's amount
realized on the sale, exchange or retirement. Thus, because the yield to
maturity of the Notes, for federal income tax purposes, will be determined by
assuming that the projected payments will be made on specific dates, holders of
Notes may be required to include amounts in income prior to the receipt of cash
payments attributable to such income.
The Company will provide to holders the projected payment schedule for the
Notes. The payment amounts, timing thereof, and yield set forth on the projected
payment schedule are for federal income tax purposes only and are not assurances
by the Company with respect to any aspect of the Notes. Holders will generally
be bound by the projected payment schedule. The Service, however, will not
respect the projected payment schedule if it determines such schedule to be
unreasonable. HOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE CONTINGENT PAYMENT RULES DESCRIBED ABOVE TO
THE NOTES.
SALE OR OTHER TAXABLE DISPOSITION
A holder of a Note will generally recognize gain or loss upon the sale or
other taxable disposition of such Note in an amount equal to the difference
between (i) the amount of cash and the fair market value of any property
received in exchange therefor (except to the extent attributable to the payment
of accrued but unrecognized original issue discount, which generally will be
taxable to a holder as ordinary income), reduced by any negative adjustment
carryforward (as described above), and (ii) the holder's adjusted tax basis in
such Note. A holder's tax basis in a Note generally will be equal to the price
paid for such Note, increased by the amount of interest previously accrued on
the Note (determined without adjustments), and decreased by the amount of any
noncontingent payments and the projected amount of contingent payments
previously made on the Note.
If a Note is sold or otherwise disposed of when there are remaining
contingent payments due under the projected payment schedule, then any gain
recognized upon such sale or other disposition will be ordinary interest income,
while any loss recognized will be ordinary loss to the extent the holder's total
interest inclusions on a Note exceed the total net negative adjustments on the
Note the holder took into account as ordinary loss under the rules described
above, and any additional loss will generally be a capital loss. If, however, a
Note is sold or otherwise disposed of after there are no remaining contingent
payments due on the Notes under the projected payment schedule, the resulting
gain or loss will generally be capital gain or loss and will be long-term
capital gain or loss if the Note had been held for more than one year.
100
<PAGE>
LIQUIDATED DAMAGES
The Company intends to take the position that the Liquidated Damages
described above will, if paid, be taxable to the holder as ordinary income in
accordance with the holder's method of accounting for federal income tax
purposes. The Service may take a different position, however, which could affect
the timing of both the holder's income and the Company's deduction with respect
to the Liquidated Damages.
BACKUP WITHHOLDING
A holder of Notes may be subject to backup withholding at the rate of 31%
with respect to certain payments of principal of, and interest on (and the
amount of original issue discount accrued on), a Note and proceeds of certain
sales of Notes unless (i) such holder is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A holder of Notes who does not
provide the Company with his or her correct taxpayer identification number may
be subject to penalties imposed by the Service. Any amount withheld under these
rules will be creditable against the federal tax liability of a holder, and will
be refundable to the extent that it results in an overpayment of tax.
The Company will report to the holders of the Notes and the Service the
amount of any "reportable payments" (including any original issue discount
accrued on the Notes) and any amount withheld with respect to the Notes during
the calendar year.
101
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer 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 the resales of Exchange Notes received in exchange for Private
Notes where such Private Notes were acquired as a result of market-making
activities or other trading activities. The Issuers have agreed that for a
period of up to 120 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
The Issuers will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer 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 prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
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 Offer 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
on 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.
The Issuers have agreed to pay all expenses incident to the Issuers's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Latham & Watkins, New York, New York.
EXPERTS
The balance sheet of the Company and Finance included in the Prospectus has
been audited by Coopers & Lybrand L.L.P., independent certified public
accountants, as indicated in their report with respect thereto.
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Issuers and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. As a result of the Exchange Offer, the
Issuers will become subject to the informational requirements of the Exchange
Act. The Registration Statement (and the exhibits and schedules thereto), as
well as the periodic reports and other information filed by the Issuers with the
Commission, may be inspected and copied at the Public
102
<PAGE>
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 6061-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois at the prescribed rates. Such materials may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
Pursuant to the Indenture, the Issuers have agreed to furnish to the Trustee
and to registered holders of the Notes, without cost to the Trustee or such
registered holders, copies of all reports and other information that would be
required to be filed by the Issuers with the Commission under the Exchange Act,
whether or not the Issuers are then required to file reports with the
Commission. As a result of this Exchange Offer, the Issuers will become subject
to the periodic reporting and other informational requirements of the Exchange
Act. In the event that the Issuers ceases to be subject to the informational
requirements of the Exchange Act, the Issuers have agreed that, so long as any
Notes remain outstanding, it will file with the Commission (but only if the
Commission at such time is accepting such voluntary filings) and distribute to
holders of the Private Notes or the Exchange Notes, as applicable, copies of the
financial information that would have been contained in such annual reports and
quarterly reports, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," that would have been required to
be filed with the Commission pursuant to the Exchange Act. The Issuers will also
furnish such other reports as it may determine or as may be required by law.
The principal address of the Issuers is 914 Hartford Turnpike, P.O. Box 715,
Waterford, CT 06385 and the Issuer's telephone number is (860) 442-4559.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WATERFORD GAMING, L.L.C.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet.............................................................................................. F-3
Notes to Balance Sheet..................................................................................... F-4
WATERFORD GAMING FINANCE CORP.
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-5
Balance Sheet.............................................................................................. F-6
Notes to Balance Sheet..................................................................................... F-7
MOHEGAN TRIBAL GAMING AUTHORITY
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-8
Balance Sheets of Mohegan Tribal Gaming Authority as of September 30, 1996 and 1995........................ F-9
Statement of Cash Flows of Mohegan Tribal Gaming Authority as of September 30, 1996 and 1995............... F-10
Notes to Financial Statements of Mohegan Tribal Gaming Authority........................................... F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Waterford Gaming, L.L.C.:
We have audited the accompanying balance sheet of Waterford Gaming, L.L.C.
as of October 17, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on the balance
sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Waterford Gaming, L.L.C. as of
October 17, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 18, 1996
F-2
<PAGE>
WATERFORD GAMING, L.L.C.
BALANCE SHEET
OCTOBER 17, 1996
ASSETS
<TABLE>
<S> <C>
Cash................................................................................ $ 1,000
---------
---------
</TABLE>
MEMBERS' EQUITY
<TABLE>
<S> <C>
Members' Equity..................................................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-3
<PAGE>
WATERFORD GAMING, L.L.C.
NOTES TO BALANCE SHEET
1. ORGANIZATION AND MEMBERS' AGREEMENT:
Waterford Gaming, L.L.C. (the "Company"), a Delaware limited liability
company, was formed on September 30, 1996. The Company will initially acquire
and own an interest in Trading Cove Associates, a Connecticut General
Partnership, and invest in certain financial instruments issued by the Mohegan
Tribal Gaming Authority.
The members of the Company are Slavik Suites, Inc. owning a 66.67% interest
and LMW Investments, Inc. owning a 33.33% interest. The Company has been
initially capitalized with $1,000 of equity. The members have agreed to
contribute their respective interests in Trading Cove Associates to the Company.
Allocations of profit and loss and distributions of excess of cash are generally
made in the respective ownership percentages, in accordance with the members'
agreement. The Company is governed by a board of managers pursuant to the
members' agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The balance sheet has been prepared utilizing the accrual method of
accounting.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Waterford Gaming Finance Corp.:
We have audited the accompanying balance sheet of Waterford Gaming Finance
Corp. (the "Company") as of October 17, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Waterford Gaming Finance Corp. as
of November 6, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
December 12, 1996
F-5
<PAGE>
WATERFORD GAMING FINANCE CORP.
BALANCE SHEET
NOVEMBER 6, 1996
<TABLE>
<S> <C>
ASSETS
Cash................................................................................. $ 100
---------
---------
STOCKHOLDERS' EQUITY
Stockholder's equity:
Common stock, $.01 par value: 1,000 shares authorized, issued and outstanding...... $ 10
Additional paid-in capital......................................................... 90
---------
Total stockholder's equity....................................................... $ 100
---------
---------
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-6
<PAGE>
WATERFORD GAMING FINANCE CORP.
NOTES TO BALANCE SHEET
1. ORGANIZATION:
Waterford Gaming Finance Corp. (the "Company"), a Delaware corporation, was
formed on October 22, 1996 as a wholly-owned subsidiary of Waterford Gaming
L.L.C. The Company will initially act as a co-issuer of financing transactions
with its parent company Waterford Gaming L.L.C.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The balance sheet has been prepared utilizing the accrual method of
accounting.
F-7
<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 (a development state entity) as of September 30, 1996 and 1995, and
cash flows for the period of inception (July 15, 1995) to September 30, 1996.
These financial statements are the responsibility of 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, 1996 and 1995, and its cash flows for the period
from inception (July 15, 1995) to September 30, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
November 27, 1996
F-8
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................ $ 7,437 $ --
Restricted cash............................................................. 5,100 213,300
Deposits.................................................................... 5,900 --
Inventory................................................................... 819 --
Other current assets........................................................ 2,135 --
-------- --------
Total Current Assets.................................................... 21,391 213,300
-------- --------
CAPITALIZED PROPERTY COSTS:
Deferred lease cost......................................................... 30,081 --
Leasehold interest under construction....................................... 220,578 --
Furniture, fixture & equipment.............................................. 14,259 --
-------- --------
Total Capitalized Property Costs........................................ 264,918 --
-------- --------
OTHER ASSETS:
Pre-opening costs........................................................... 11,186 --
Deferred financing costs.................................................... 9,286 11,352
Organizational costs........................................................ 700 700
-------- --------
Total Other Assets...................................................... 21,172 12,052
-------- --------
Total Assets............................................................ $ 307,481 $ 225,352
-------- --------
-------- --------
LIABILITIES
CURRENT LIABILITIES:
Construction retainage...................................................... $ 9,738 $ --
Current maturities of long-term debt........................................ 250 --
Accounts payable............................................................ 33,077 10,352
Accrued interest............................................................ 15,232 --
Accrued liabilities......................................................... 1,208 --
Credit line................................................................. 4,749 --
Other current liabilities................................................... 227 --
-------- --------
Total Current Liabilities............................................... 64,481 10,352
-------- --------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 5)
NON-CURRENT LIABILITIES:
Senior notes................................................................ 175,000 175,000
Subordinated notes.......................................................... 67,000 40,000
Other long-term debt, net of current maturities............................. 1,000 --
-------- --------
Total Non-Current Liabilities........................................... 243,000 215,000
-------- --------
Total Liabilities....................................................... $ 307,481 $ 225,352
-------- --------
-------- --------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-9
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENT OF CASH FLOW
FOR THE PERIOD FROM INCEPTION (JULY 15, 1995)
THROUGH SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-OPENING ACTIVITIES:
<S> <C>
Increase in inventory........................................................... $ (819)
Increase in deposits............................................................ (5,900)
Increase in other current assets................................................ (2,135)
Increase in construction retainage.............................................. 9,738
Increase in accounts payable.................................................... 33,077
Increase in accrued liabilities and interest.................................... 16,440
Increase in other current liabilities........................................... 727
---------
Net cash provided by pre-opening activities................................. 51,128
---------
INVESTING ACTIVITIES
Deferred lease cost............................................................. (30,081)
Leasehold interest under construction........................................... (220,578)
Net equipment additions......................................................... (14,259)
Pre-opening costs............................................................... (11,186)
Deferred financing costs........................................................ (9,286)
Organizational costs............................................................ (700)
---------
Net cash used in investing activities....................................... (286,090)
---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........................................ 247,499
---------
Net cash provided by financing activities................................... 247,499
---------
Net increase in cash and cash equivalents................................... 12,537
---------
CASH AND CASH EQUIVALENTS, at beginning of period................................. --
---------
CASH AND CASH EQUIVALENTS, at end of period....................................... 12,537
---------
---------
SUPPLEMENTAL INFORMATION:
INTEREST PAID................................................................... $ 14,925
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENT OF MOHEGAN TRIBAL GAMING AUTHORITY:
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES:
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 Authority is developing a gaming and entertainment facility
(the "Mohegan Sun"). The Authority's year-end is September 30.
The Tribe and the Authority have entered into a land lease ("Lease") (see
Note 3) pursuant to which the Tribe is leasing to the Authority certain land
located in southeastern Connecticut on which the Mohegan Sun is being
constructed (the "Site"). The Site is a portion of a parcel of land that has
been acquired and held in trust for the Tribe by the United States of America,
with the Tribe retaining perpetual rights to the use of the Site.
The 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, as amended ("IGRA"), federally recognized Indian tribes are permitted
to conduct full-scale casino gaming operations on tribal-land, subject to, among
other things, the negotiation of a tribal state compact with the affected state.
The Tribe and the State of Connecticut have entered into such a compact (the
"Compact") that has been approved by the Secretary of the Interior.
The Authority has engaged Trading Cove Associates ("TCA") to manage the
development, construction and operation of the Mohegan Sun. TCA is 50% owned by
Sun Cove, an affiliate of Sun International Hotels Limited ("Sun
International"), and 50% by Waterford Gaming, LLC.
The Authority is financing the development of the Mohegan Sun with the
proceeds of the sale of senior notes, subordinated notes and equipment and
working capital financing as described in Note 2. The total cost of development
and construction of Mohegan Sun and working capital is estimated to be $318
million, all of which has been obtained as of the balance sheet date as follows
(000's):
<TABLE>
<S> <C>
Senior Notes...................................................... $ 175,000
Subordinated Notes................................................ 40,000
Subordinated Notes: Secured
Completion Guarantee............................................ 50,000
Working Capital Financing......................................... 13,000
Equipment Financing............................................... 40,000
---------
$ 318,000
---------
---------
</TABLE>
The Secured Completion Guarantee provides that, subject to certain
qualifications, Sun International will provide up to $50.0 million to fund any
cost overruns incurred in connection with the construction, development,
equipping and opening of the Mohegan Sun. The Guarantee terminates on September
30, 1997, or, if certain other criteria are met as agreed upon by the Authority
and Sun International. Any draws on the Guarantee are evidenced by additional
subordinated notes issued by the Authority to Sun International. These
additional subordinated notes will bear interest at the prime rate plus 1% and
are payable under the same terms as the subordinated notes (see Note 2).
USE OF ESTIMATES IN THE PRESENTATION OF FINANCIAL STATEMENTS--
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. Actual results could differ from those estimates.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENT OF MOHEGAN TRIBAL GAMING AUTHORITY: (CONTINUED)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES: (CONTINUED)
FAIR VALUE OF FINANCING INSTRUMENTS--
The Authority's carrying amount of financial instruments including cash,
payables and debt, approximate fair market value.
DEVELOPMENT STAGE ENTERPRISE--
The Authority is classified as a Development Stage enterprise as defined by
Statement of Financial Accounting Standards No. 7.
CASH EQUIVALENTS--
For purposes of the Financial Statements, the Authority has considered all
investments with maturities of three months or less to be cash equivalents.
RESTRICTED CASH
Included in restricted cash are approximately $850,000 held as collateral
for road construction permits and land required for the completion of the
Authority's roadway access and approximately $4.3 million in working capital for
the impressment of the slot machines.
DEPOSITS AND OTHER CURRENT ASSETS
The Authority has expended approximately $5.9 million in deposits for items
relating to the development of the Mohegan Sun that will be refunded in full
during the first quarter of fiscal 1997.
INVENTORIES
Inventories of provisions and supplies are carried at the lower of cost
(weighted average) or market.
CAPITALIZED PROPERTY COSTS--
Capitalized property costs consist of (i) deferred lease costs related to
the payment made by the Authority on behalf of the Tribe for the acquisition of
the Site, (ii) leasehold interest costs which represent costs incurred through
the balance sheet date for the construction of the Mohegan Sun and (iii)
equipment (primarily furniture and computers) that are being used in connection
with the pre-opening activities of the Authority. Upon the commencement of
operations, these costs will be depreciated or amortized, as applicable, on a
straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Deferred lease cost............................................. 50 years
40-50
Leasehold interest cost......................................... years
Equipment....................................................... 5-7 years
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENT OF MOHEGAN TRIBAL GAMING AUTHORITY: (CONTINUED)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES: (CONTINUED)
DEFERRED LEASE COST--
Deferred lease cost consists of the following (000's):
<TABLE>
<S> <C>
Acquisition cost of the site....................................... $ 28,581
Acquisition cost of additional parcel.............................. 1,500
---------
$ 30,081
---------
---------
</TABLE>
The Site and the additional parcel were acquired from third parties
unrelated to the Tribe or the Authority. The Authority will not be reimbursed by
the Tribe for these payments.
OTHER ASSETS--
Other assets consist of pre-opening, deferred financing and organization
costs. Pre-opening costs are mainly payroll and related benefits and general
office overhead incurred through the balance sheet date. Deferred financing
costs have been incurred in connection with the issuance of the senior notes and
the subordinated notes. Organization costs represent primarily legal costs
incurred in the organization of the Authority.
Beginning on the opening date of the Mohegan Sun, these costs will be
amortized on a straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Pre-opening costs............................................... 12 months
Deferred financing costs........................................ 7 years
Organization costs.............................................. 5 years
</TABLE>
RETAINAGE
Retainage consists of amounts withheld from construction draws for the
General and Infrastructure contractor to ensure adequate performance and
completion of the development of Mohegan Sun and is expected to be remitted in
the 1997 fiscal year.
2. DEBT
A. The Authority has issued $175 million in Senior Notes due 2002 (the
"Senior Notes") with fixed interest payable at a rate of 13 1/2% per annum and
Cash Flow Participation Interest in an aggregate amount of 5.0% of the
Authority's Cash Flow up to a limit, during any two consecutive semi-annual
periods, ending September 30, of $250 million of the Authority's Cash Flow.
Fixed interest is payable semi-annually and commenced May 15, 1996. No Cash Flow
Participation Interest shall be payable with respect to any period prior to the
earlier of the first day the Mohegan Sun commences operations or October 31,
1996. The aggregate amount of Cash Flow Participation Interest payable will be
reduced pro rata for reductions in outstanding principal amount of Senior Notes.
The payment of Cash Flow Participation Interest may be deferred if the
Authority's Fixed Charge Coverage Ratio (as defined) is less than 2 to 1. The
Senior Notes are redeemable at set prices as set forth in the Senior Notes after
November 15, 1999, at the option of the Authority. Upon the occurrence of
certain events (as specified in the Indenture for the Senior Notes) each holder
of Senior Notes can require the Authority to repurchase the notes at prices
specified in the Senior Notes. Beginning with fiscal year ending September 30,
1997, the Authority will be
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENT OF MOHEGAN TRIBAL GAMING AUTHORITY: (CONTINUED)
2. DEBT (CONTINUED)
required, under certain circumstances, to offer to purchase, at set prices,
certain amounts of Senior Notes then outstanding.
B. The Authority has obtained $67.0 million of subordinated financing from
Sun International and Waterford Gaming LLC in the form of two notes. The first
note for $40.0 million (Subordinated Notes) bears interest at 15% per year, paid
semi-annually. The second note for $27.0 million (Secured Completion Guarantee)
bears interest at 1% over prime. Both are due 2003; however, principal cannot be
paid until the Senior Notes have been paid in full, unless certain conditions
are met.
C. The Authority has obtained a mortgage note payable of approximately $1.3
million from a local bank to fund property purchased for the development of
Mohegan Sun payable in yearly payments of $250,000 for 5 years.
D. The Authority has obtained two lines of credit totaling $13.0 million.
The line of credit for $12.5 million, obtained from Fleet Bank, offers LIBOR and
Base rate options (9.25% as of September 30, 1996). The maximum borrowings under
the Fleet line of credit shall be reduced by $2,000,000 on April 1, 1997 and by
an additional $2,000,000 on each one month anniversary date thereafter. The
second line of credit for $500 thousand was obtained from Norwich Savings bears
interest at a rate of 7 3/4%. As of September 30, 1996, $4.8 million was
outstanding under both lines of credit. These amounts were used for the
impressment of slot machines and Bingo operations.
Long-term debt consists of the following(000's):
<TABLE>
<S> <C>
Senior Secured Notes (A).......................................... $ 175,000
Subordinated Notes (B)............................................ 67,000
Mortgage Note Payable (C)......................................... 1,250
Line of Credit (D)................................................ 4,749
---------
Total Debt.................................................. 247,999
Less Current Maturities........................................... 4,999
---------
$ 243,000
---------
---------
</TABLE>
The above described debt is secured by substantially all the assets of the
Authority.
REPAYMENTS OF DEBT FOR NEXT FIVE YEARS
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNTS
- ---------------------------------------------------------------------------------- ----------
<S> <C>
(000'S)
1997.............................................................................. $ 4,999
1998.............................................................................. 250
1999.............................................................................. 250
2000.............................................................................. 250
2001.............................................................................. 250
THEREAFTER........................................................................ 242,000
----------
$ 247,999
----------
----------
</TABLE>
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENT OF MOHEGAN TRIBAL GAMING AUTHORITY: (CONTINUED)
2. DEBT (CONTINUED)
The ability of the Authority to meet its debt service requirements will be
entirely dependent upon the completion and future successful performance of the
Mohegan Sun, which is subject to financial, economic, political, competitive,
and other factors, many of which are beyond the Authority's control.
The amount of interest capitalized in leasehold interest under construction
on the balance sheet for the period from inception to September 30, 1996, was
approximately $30.2 million.
3. LEASE AGREEMENTS--
As discussed in Note 1, the Authority has entered into a Lease with the
Tribe with respect to the Site. The initial term of the Lease is 25 years, with
an option to extend the term for an additional 25 years provided that the
Authority is not in default under the Lease. The Lease also provides that all
improvements constructed on the Site will become the property of the Tribe and
subject to the Lease. The Lease is a net Lease requiring that the Authority be
responsible for all costs of operating, constructing, maintaining, repairing,
replacing and insuring the leased property, plus paying the Tribe an annual rent
of $1.00. In addition to the rent, the Authority has used the proceeds from the
issuance of the Subordinated Notes, described in Note 2, to acquire the Site on
behalf of the Tribe. Due to these payments and other terms of the Lease
described above, expenditures made by the Authority in connection with the
acquisition of the Site and the Additional Parcel have been recorded as deferred
lease costs. These deferred lease costs will be amortized on a straight-line
basis over the term of the Lease, plus the option period (a total of 50 years).
The leasehold interest will be amortized on a straight-line basis over the
estimated life of the buildings (40 years).
The Authority leases various equipment and vehicles under operating leases.
Future minimum lease payments under the noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
AMOUNTS
---------
<S> <C>
(000'S)
---------
1997............................................................................... $ 3,664
1998............................................................................... 3,650
1999............................................................................... 3,421
2000............................................................................... 3,041
Thereafter......................................................................... -0-
---------
$ 13,776
---------
---------
</TABLE>
4. 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 amended. As such,
the Authority has tax-exempt status with respect to federal and state income and
certain excise taxes.
5. COMMITMENTS AND CONTINGENCIES:
The Tribe, by itself and acting through the Authority, and TCA have entered
into an Amended and Restated Gaming Facility Development and Construction
Agreement ("the Construction Agreement") providing for the design, construction,
furnishing and site development of the Mohegan Sun by TCA. The
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENT OF MOHEGAN TRIBAL GAMING AUTHORITY: (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
total cost of the Mohegan Sun as outlined in the Construction Agreement, is not
to exceed $325 million. The Tribe has assigned its rights and obligations in the
Agreement to the Authority.
The Tribe has entered into a seven-year Amended and Restated Gaming Facility
Management Agreement ("the Management Agreement") with TCA to provide for the
management of the Mohegan Sun. Under the terms of the Management Agreement, the
Tribe has granted TCA the exclusive right and obligation to develop, manage,
operate and maintain the Mohegan Sun and all other related facilities that are
owned by the Tribe or any of its instrumentalities. The Management Agreement
authorizes TCA to pay itself a monthly management fee from the Mohegan Sun's net
revenues (as defined). The management fee under the Management Agreement is
expressed as a percentage of net revenues, which ranges from 30% to 40%,
depending on the level of the net revenues generated by the Mohegan Sun. The
Tribe has assigned its rights in and delegated its obligations under the
Management Agreement to the Authority.
The Authority has entered into a guaranteed maximum price contract with the
general contractor, Morse Diesel International, for the construction of the
Mohegan Sun. The final amount paid under such contract, however, is subject to
modification based upon the occurrence of certain events, such as design change
orders and costs associated with certain types of delays. The Authority and
Morse Diesel International currently are negotiating whether certain costs
incurred in construction or the Mohegan Sun are covered under the guaranteed
maximum price or whether such cost increases are the result of change orders or
other events that could result in an increase in the contract price above the
guaranteed maximum price. The resolution of all or some of these issues in favor
of Morse Diesel International may result in the final cost of Mohegan Sun
exceeding its current budget. Based upon its review of the budget and the open
cost items, the Authority believes that the final, total cost of developing,
constructing, equipping and opening the Mohegan Sun will not exceed the sum of
the proceeds from the sale of the Senior Notes and the Subordinated Notes and
amounts available under the Secured Completion Guarantee, the Equipment
Financing and the Working Capital Financing. However, there is no assurance that
such costs will not exceed budgeted amounts. As of December 4, 1996, the
Authority has drawn $42 million under the Secured Completion Guarantee and
issued additional subordinated notes to Sun International in principal amount
equal to the amount of the draw. The Authority may not obligate itself to pay
development costs in excess of $325 million without the further consent of the
National Indian Gaming Commission (the "NIGC"). In the event the resolution of
the issues with Morse Diesel International result in total development costs
being in excess of $325 million, the Authority would require the consent of the
NIGC, and there can be no assurances such consent would be given.
The Authority has established a Cash Maintenance Account as a way of
accumulating funds to protect the Bond Holders in the event of a default. For
the calendar years ended 1997-2001, the annual deposit required is $6.0 million
per year and thereafter, such amount necessary to keep at least $36.0 million in
the Cash Maintenance Account.
The Authority also has established an Interest and Excess Cash Flow Account
into which it must place the fixed interest accrued during each month on the
Senior Debt and the Subordinated Debt, 50% of the Excess Cash Flow (as defined)
generated by the Mohegan Sun in the previous month and the Cash Flow
Participating interest accrued for the prior month. These amounts are to be used
to pay current interest and to provide funds for redemption of Senior Debt as
provided in the Indenture. If the Senior Debt holders decline redemption, these
funds may be used to redeem the subordinated debt, with any remaining balance
available for distribution to the Tribe.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENT OF MOHEGAN TRIBAL GAMING AUTHORITY: (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Authority shall also make a minimum monthly payment to the Tribe of
$50,000. In addition, the Authority may make a monthly payment to the Tribe with
respect to net revenues (as defined), generated by the Mohegan Sun in the
preceding month. Such amount shall only be made after certain other minimum
Priority Payments and required deposits in to certain reserve accounts (as
defined) have been made. No payments have been made or are due as of September
30, 1996.
6. COMPACT WITH THE STATE OF CONNECTICUT
The Tribe's Compact with the State of Connecticut stipulates that a portion
of the revenues earned on slot machines will be paid to the State of
Connecticut. For each twelve-month period commencing July 1, 1995, the minimum
contribution of the Tribe to the State of Connecticut shall be the lesser of (a)
30% of gross revenues from slot machines, or (b) the greater of (i) 25% of gross
revenues from slot machines or (ii) $80,000,000. These payments will not be
required if the State of Connecticut legalizes any other gaming operations with
slot machines to be operated in the State of Connecticut (other than on certain
Indian lands). No payments have been made or are due as of September 30, 1996.
7. TOWN OF MONTVILLE
The Tribe has entered into an agreement with the Town of Montville,
Connecticut (the "Town") pursuant to which the Tribe has agreed to pay to the
Town (i) an annual payment of $500,000 to compensate the Town for the financial
impact of removing the Site from the Town's tax rolls and jurisdiction and (ii)
a one-time fee of $3.0 million to make improvements to the Town's water system,
which improvements are necessitated by the development and operation of the
Mohegan Sun. The one-time payment is due and the annual payments commence one
year after the commencement of slot machine gaming activities.
It is anticipated that these payments will be made by the Authority on
behalf of the Tribe. When that occurs, the one-time fee of $3.0 million for
improvement of the Town's water system will be capitalized as part of leasehold
interest (see Note 3), while the annual payments of $500,000 will be treated as
operating expenses of the Authority since they are effectively in lieu of
property taxes that would be the responsibility of the Authority under the
Lease. It is not anticipated that the Tribe will reimburse the Authority for
these payments.
8. SUBSEQUENT EVENTS
As of September 30, 1996, the Authority has entered into or is negotiating
various commitments to obtain (through purchase or under capital or operating
leases) approximately $56.9 million worth of assets. Also, the Authority has
drawn down an additional $6 million on the working capital line of credit
subsequent to September 30, 1996.
Mohegan Sun plans on implementing a 401(k) plan during the second quarter of
fiscal 1997.
Mohegan Sun opened to the general public on October 12, 1996.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY OTHER
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 14
The Exchange Offer.............................. 23
Use of Proceeds................................. 31
Capitalization.................................. 32
The Mohegan Sun................................. 33
The Company..................................... 39
Pro Forma Financial Information................. 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 41
Management...................................... 45
Mohegan Tribe of Indians of Connecticut......... 50
Certain Transactions............................ 53
Material Agreements............................. 54
Government Regulation........................... 76
Principal Security Holders...................... 81
Description of Exchange Notes................... 82
Certain Federal Income Tax Consequences......... 99
Plan of Distribution............................ 102
Legal Matters................................... 102
Experts......................................... 102
Available Information........................... 102
Index to Financial Statements................... F-1
</TABLE>
$65,000,000
WATERFORD GAMING, L.L.C.
WATERFORD GAMING FINANCE CORP.
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the Bylaws of Finance, and the
Certificate of Formation of the Company and the Company's Limited Liability
Company Agreement provide for the indemnification by the Issuers of each
director, officer, employee and agent of the Issuers to the fullest extent
permitted by the Delaware General Corporation Law, as the same exists or may
hereafter be amended. Section 145 of the Delaware General Corporation Law
provides in relevant part that a corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee,or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. Delaware law further provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
The Certificate of Incorporation of the Finance further provides that a
Director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
Director. Section 102(b)(7) of the Delaware General Corporation Law provides
that a provision so limiting the personal liability of a director shall not
eliminate or limit the liability of a director for, among other things: breach
of the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; unlawful payment of
dividends; and transactions from which the director derived an improper personal
benefit.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Formation, as amended, of Waterford Gaming L.L.C.
3.2 Certificate of Incorporation of Waterford Gaming Finance Corp.
3.3 Bylaws of Waterford Gaming Finance Corp.
4.1 Indenture, dated as of November 8, 1996, between Waterford Gaming , L.L.C. and Waterford Gaming
Finance Corp., the issuers, and Fleet National Bank, as trustee, relating to $65,000,000 12 3/4%
Senior Notes due 2003.
4.2 Registration Rights Agreement, dated as of November 8, 1996, among, Waterford Gaming L.L.C.,
Waterford Gaming Finance Corp., Bear, Stearns & Co., Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
4.3 Note Pledge Agreement, dated as of November 8, 1996, between Waterford Gaming L.L.C. and Fleet
National Bank, as trustee.
4.4 Cash Collateral and Disbursement Agreement, dated as of November 8, 1996, among Fleet National Bank,
as trustee, Fleet National Bank, as disbursement agent, and Waterford Gaming L.L.C.
4.5 Specimen Form of 12 3/4% Senior Notes due 2003 (the "Private Notes") (included in Exhibit 4.1
hereto).
4.6 Specimen Form of 12 3/4% Senior Notes due 2003 (the "Exchange Notes") (included in Exhibit 4.1
hereto).
5.1** Opinion of Latham & Watkins regarding the validity of the Exchange Notes.
10.1 Omnibus Financing Agreement, dated as of September 21, 1995, between Trading Cove Associates and Sun
International Hotels Limited.
10.2 First Amendment to the Omnibus Financing Agreement, dated as of October 19, 1996, among Trading Cove
Associates, Sun International Hotels Limited, and Waterford Gaming L.L.C.
10.3 Amended and Restated Partnership Agreement of Trading Cove Associates, dated as of September 21,
1994, among Sun Cove Ltd., RJH Development Corp., Leisure Resort Technology, Inc., Slavik Suites,
Inc., and LMW Investments Corp.
10.4 First Amendment to Amended and Restated Partnership Agreement of Trading Cove Associates, dated as of
October 22, 1996, among Sun Cove Ltd., Slavik Suites, Inc., RJH Development Corp., LMW Investments
Corp. and Waterford Gaming L.L.C.
10.5 Purchase Agreement, dated as of November 5, 1996, among Waterford Gaming L.L.C., Waterford Gaming
Finance Corp., Bear, Stearns & Co., Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
10.6 Limited Liability Company Agreement of Waterford Gaming L.L.C., dated as of September 30, 1996, among
Slavik Suites, Inc., LMW Investments and Waterford Gaming L.L.C.
10.7* Note Purchase Agreement, dated October 19, 1996 among Sun International Hotels Limited, Waterford
Gaming L.L.C. and Trading Cove Associates.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of Waterford Gaming L.L.C.
21.2 Subsidiaries of Waterford Gaming Finance Corp.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Arthur Andersen LLP.
23.3** Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1)
24.1 Power of Attorney of Waterford Gaming L.L.C. and Waterford Gaming Finance Corp. (included on
signature page to Registration Statement on Form S-4).
25.1*** Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of Fleet
National Bank.
27* Financial Data Schedule.
99.1** Form of Letter of Transmittal and related documents to be used in conjunction with the Exchange
Offer.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
*** To be filed under separate cover.
SCHEDULES OMITTED
(b) Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-3
<PAGE>
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement; (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(e) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirement of section 10(a)(3) of the Act and in used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York on February 13, 1997.
Waterford Gaming, L.L.C.
Waterford Gaming Finance Corp.
By: /s/ LEN WOLMAN
-----------------------------------
Len Wolman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Director and Chief
Executive Officer,
/s/ LEN WOLMAN Waterford Gaming, L.L.C.
- ------------------------------ and Director, President February 13, 1997
Len Wolman and Chief Executive
Officer, Waterford Gaming
Finance Corp.
Director, Chief Financial
Officer and principal
accounting officer and
/s/ DEL J. LAURIA* Secretary of Waterford
- ------------------------------ Gaming, L.L.C. and February 13, 1997
Del J. Lauria Director, Secretary and
Treasurer Waterford
Gaming Finance Corp.
Director, Waterford Gaming,
/s/ MARK WOLMAN* L.L.C. and Director,
- ------------------------------ Waterford Gaming Finance February 13, 1997
Mark Wolman Corp.
Director, Waterford Gaming,
/s/ STEPHEN SLAVIK, SR.* L.L.C. and Director,
- ------------------------------ Waterford Gaming Finance February 13, 1997
Stephen Slavik, Sr. Corp.
*By: /s/ LEN WOLMAN
-------------------------
Len Wolman
(ATTORNEY-IN-FACT)
II-5
<PAGE>
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (the "AGREEMENT") dated October 19, 1996
is among Sun International Hotels Limited, a Bahamian corporation ("SIHL"),
Waterford Gaming, L.L.C., a Delaware limited liability company ("PURCHASER"),
and Trading Cove Associates, a Connecticut general partnership ("TCA").
RECITALS
A. TCA and SIHL are parties to an Omnibus Financing Agreement dated
as of September 21, 1995 (as amended, the "OMNIBUS AGREEMENT"), which remains in
full force and effect.
B. The term "Original Subordinated Notes" as used in the Omnibus
Agreement and in this Agreement means the 15% Subordinated Notes due November
15, 2003 issued by the Mohegan Tribal Gaming Authority in the original aggregate
principal amount of $40,000,000, all of which are Currently outstanding and of
which $38,300,000 principal amount are owned by SIHL or an affiliate of SIHL
(the "SIHL NOTES") and $1,700,000 principal amount are owned by TCA in the form
of a single note certificate registered solely in the name of TCA (the"TCA
NOTE")
C. Section 3 of the Omnibus Agreement provides that the Original
Partners of TCA shall have the right at any time to purchase without premium
from SIHL a participating interest in the Original Subordinated Notes not to
exceed the Original Partners' Percentage Interest in TCA (as such terms are
defined in the Amended and Restated Partnership Agreement of TCA) (the "SECTION
3 RIGHT").
D. In anticipation of and in connection with certain simultaneous
future transactions whereby Purchaser will acquire the, entire Original
Partners' Percentage Interest in TCA, being a 50% Percentage Interest in TCA,
(1) Purchaser wishes to exercise the Section 3 Right to purchase 50% of the
outstanding SIHL Notes from SIHL, and SIHL is willing to sell such portion of
the SIHL Notes to Purchaser, and (J) recognizing that Purchaser (directly) and
SIHL (indirectly) each then will own a 50% Percentage Interest in TCA, the
parties wish to provide for the outstanding principal amount of the TCA Note to
be reregistered half in the name of Purchaser and half in the name of SIHL, all
on the terms and conditions set forth in this Agreement.
AGREEMENTS
In consideration of the above Recitals and the agreements set forth
below, the parties agree as follows:
1. Upon the terms and conditions and upon the basis of the
representations herein set forth, Purchaser hereby agrees to purchase from
SIT-IL or an affiliate of SIHL, and SIHL, or an affiliate of SIHL, hereby agrees
to sell to Purchaser, Nineteen Million One Hundred Fifty Thousand Dollars
($19,150.000) aggregate principal amount of the Original Subordinated Notes,
together with all accrued and unpaid interest thereon to and including the date
of the Closing (as defined below) and any Additional Amounts (as defined in the
Omnibus Agreement) that have accrued and are unpaid thereon (collectively, the
"SUBJECT NOTES") for a purchase price equal to the sum of (a) the aggregate
principal amount thereof ($19,150,000), without any premium or discount, plus
(b) all accrued and unpaid interest thereon to and including the date of the
Closing (as defined below) plus (c) any Additional Amounts (as defined in the
Omnibus Agreement) that have accrued and are unpaid thereon.
<PAGE>
2. SIHL shall do all things necessary in accordance with Section 9
of the form of the Original Subordinated Notes to effectuate the assignment, and
the registration of the transfer, of the Subject Notes to Purchaser at the
Closing, including without limitation duly presenting the Subject Notes to the
Registrar (as defined in Section 3 of the form of the Original Subordinated
Notes) for registration of such transfer, with a duly completed and signed
Assignment Form.
3. Subject to the terms and conditions hereof, at such time, date or
location as may be agreed upon in writing by SIHL and Purchaser, SIHL shall
cause the Registrar to deliver the Subject Notes to Purchaser and Purchaser
shall accept delivery of the Subject Notes and pay the purchase price for the
Subject Notes as set forth in Paragraph I above by wire transfer, to SIHL, in
Federal Reserve funds immediately available, for the account of SIHL or as SIHL
shall direct. This delivery and payment is hereby called the "CLOSING."
4. In connection with the above-described transactions, at no cost
to Purchaser or SIHL,, and as a return of capital contributions used by TCA to
purchase the TCA Note, TCA agrees to cause the outstanding TCA Note to be
reregistered half solely in the name of Purchaser and half solely in the name of
SIHL (i.e., dividing the $1,700,000 outstanding principal amount of the TCA Note
equally between Purchaser and SIHL), effective simultaneously with the
consummation of the sale of the Subject Notes to Purchaser. TCA shall do all
things necessary in accordance with Section 9 of the form of the Original
Subordinated Notes to effectuate the assignment, and the registration of the
transfer, of such equal $850,000 portions of the outstanding principal amount of
the TCA Note to Purchaser and SIHL at the Closing, including without limitation
duly presenting the TCA Note to the Registrar, with a duly completed and signed
Assignment Form or Forms, together with directions to the Registrar to cancel
the TCA Note and issue in exchange therefor two Original Subordinated Notes,
each in the principal amount of $850,000, one registered solely in the name of
Purchaser and the other registered solely in the name of SIHL.
5. TCA represents and warrants to Purchaser and SIHL as follows:
(a) TCA has the power and authority to execute, deliver and
perform this Agreement and to consummate the transfers of the TCA Note
contemplated by this Agreement. This Agreement has been duly
authorized by all necessary partnership action on the part of TCA, has
been duly and validly executed and delivered by TCA and constitutes
the valid, binding and enforceable agreement of TCA.
(b) The transfers of the TCA Note pursuant to this Agreement are
not in violation of any agreement or laws to which TCA is subject.
(c) TCA is and at the Closing will be the sole owner of
$1,700,000 aggregate principal amount of Original Subordinated Notes,
free and clear of all liens, encumbrances and claims other than tile
rights of Purchaser and SIHL under this Agreement.
6. SIHL represents and warrants to Purchaser as follows:
(a) SIHL has the power and authority to execute, deliver and
perform this Agreement and to consummate the sale of the Subject Notes
contemplated by this Agreement. This Agreement has been duly
authorized by all necessary corporate action on the part of SIHL, has
been duly and validly executed and delivered by SIHL and
2
<PAGE>
constitutes the valid, binding and enforceable agreement of SIHL.
(b) The sale of the Subject Notes pursuant to this Agreement is
not in violation of any agreement or corporate or other laws to which
SIHL or any affiliate of SIHL is subject.
(c) Exclusive of the portion of the TCA Note to be transferred
to SIHL pursuant to this Agreement, SIHL or an affiliate of SIHL is
and until the Closing will be the sole owner of $38,300,000 aggregate
principal amount of Original Subordinated Notes, and at Closing such
Original Subordinated Notes will be free and clear of all liens,
encumbrances and claims other than the Section 3 Right,
7. Purchaser represents and warrants to SIHL as follows:
(a) Purchaser has the power and authority to execute. deliver
and perform this Agreement.
(b) This Agreement has been duly authorized by all necessary
partnership action on the part of Purchaser, has been duly and validly
executed and delivered by Purchaser and constitutes the valid, binding
and enforceable agreement of Purchaser.
8. Purchaser has entered into this Agreement in reliance upon the
representations and warranties of SIHL and TCA herein and the performance by
SIHL and TCA of their obligations hereunder, both as of the date hereof and as
of the date of Closing. Purchaser's obligations under this Agreement are and
shall be subject to the conditions that:
(a) the representations and agreements of SIHL and TCA contained
herein shall be true and correct as of the date of Closing, and
certificates, dated the date of Closing, signed by an authorized
officer of SIHL and a Managing Partner of TCA, respectively, in form
and substance satisfactory to Purchaser, shall be delivered to that
effect (each solely with respect to itself);
(b) Purchaser shall have successfully completed a debt offering
to finance transactions referred to in Recital D above; and
(c) as of the Closing, Purchaser will own the entire Original
Partners' Percentage Interest in TCA, being exactly a 50% Percentage
Interest in TCA, and by itself will be the Original Partner within the
meaning of the TCA Partnership Agreement as then amended and in
effect.
9. SIHL's obligations under this Agreement shall be subject to the
conditions that:
(a) the representations and agreements of Purchaser and TCA
contained herein shall be true and correct as of the date of Closing;
(b) as of the Closing, Purchaser will own the entire Original
Partners' Percentage Interest in TCA, being exactly a 50% Percentage
Interest in TCA, and by itself will be the Original Purchaser within
the meaning of the TCA Partnership Agreement as then amended and in
effect; and
3
<PAGE>
(c) certificates, dated the date of Closing, signed by a Member
of Purchaser and a Managing Partner of TCA, respectively, shall be
delivered to the foregoing effect (each solely with respect to
itself).
10. This Agreement shall be binding upon, and inured to the benefit
of, the parties hereto and their respective successors and assigns.
4
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first set forth above.
SUN INTERNATIONAL HOTELS LIMITED
By:_____________________________
Its:____________________________
TRADING COVE ASSOCIATES
By: Sun Cove, Ltd.
Its Managing Partner
By:___________________________________
Its:_____________________________
and
By: LMW Investments Inc.
Its: Managing Partner
By:___________________________________
Its:_____________________________
WATERFORD GAMING, L.L.C.
By: Slavik Suites, Inc.
Its: Member
By:___________________________________
Its:_____________________________
and
By: LMW Investments Inc.
Its: Managing Partner
By:___________________________________
Its:_____________________________
5
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first set forth above.
SUN INTERNATIONAL HOTELS LIMITED
By:___________________________________
Its:_____________________________
TRADING COVE ASSOCIATES
By: Sun Cove, Ltd.
Its Managing Partner
By:___________________________________
Its:_____________________________
and
By: LMW Investments Inc.
Its: Managing Partner
By:___________________________________
Its:_____________________________
WATERFORD GAMING, L.L.C.
By: Slavik Suites, Inc.
Its: Member
By:___________________________________
Its:_____________________________
and
By: LMW Investments Inc.
Its: Managing Partner
By:___________________________________
Its:_____________________________
6
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first set forth above.
SUN INTERNATIONAL HOTELS LIMITED
By:___________________________________
Its:_____________________________
TRADING COVE ASSOCIATES
By: Sun Cove, Ltd.
Its Managing Partner
By:___________________________________
Its:_____________________________
and
By: LMW Investments Inc.
Its: Managing Partner
By:___________________________________
Its:_____________________________
WATERFORD GAMING, L.L.C.
By: Slavik Suites, Inc.
Its: Member
By:___________________________________
Its:_____________________________
and
By: LMW Investments Inc.
Its: Managing Partner
By:___________________________________
Its:_____________________________
7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Amendment No.1
to Form S-4 (File No. 333-17795) of our reports for Waterford Gaming, L.L.C. and
Waterford Gaming Finance Corporation (the "Companies"), dated October 18, 1996
and December 12, 1996, respectively, on our audits of the balance sheets of the
Companies. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 12, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 11, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<S> <C>
ARTICLE 5
PERIOD-TYPE YEAR
FISCAL-YEAR-END SEP-30-1996
PERIOD-START OCT-01-1995
PERIOD-END SEP-30-1996
CASH 12,537
SECURITIES 0
RECEIVABLES 0
ALLOWANCES 0
INVENTORY 819
CURRENT-ASSETS 21,391
PP&E 264,918
DEPRECIATION 0
TOTAL-ASSETS 307,481
CURRENT-LIABILITIES 64,481
BONDS 243,000
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY 307,481
SALES 0
TOTAL-REVENUES 0
CGS 0
TOTAL-COSTS 0
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 0
INCOME-PRETAX 0
INCOME-TAX 0
INCOME-CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 0
EPS-PRIMARY 0
EPS-DILUTED 0
</TABLE>
