As filed with the Securities and Exchange Commission on May 21, 2002
Registration No. 333-84984
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Mohegan Tribal Gaming Authority
(Exact name of registrant as specified in its charter)
Not Applicable 7997 06-1436334
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
-----------------
One Mohegan Sun Boulevard
Uncasville, CT 06382
(860) 862-8000
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
-----------------
Mark F. Brown
Chairman and Member of Management Board
Mohegan Tribal Gaming Authority
One Mohegan Sun Boulevard
Uncasville, CT 06382
(860) 862-8000
(Name and address including zip code, and telephone number, including area code
of agent for service)
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Copy to:
James E. Showen, Esq.
Alexander J. Park, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600
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Approximate date of commencement of proposed sale of the securities to the
public: From time to time after this Registration Statement becomes effective.
If 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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
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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The information in this prospectus is not complete and may be changed. The
Authority may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to completion dated May 21, 2002
PROSPECTUS
[GRAPHIC MOHEGAN SUN] [GRAPHIC THE MOHEGAN
TRIBE MUNDO WIGO]
$250,000,000
Mohegan Tribal Gaming Authority
Offer To Exchange
8% Senior Subordinated Notes due 2012,
Which Have Been Registered Under the Securities Act,
For Any And All Outstanding
8% Senior Subordinated Notes due 2012
Interest Payable April 1 and October 1, Beginning on October 1, 2002
The Authority is offering to exchange its registered 8% senior subordinated
notes, which the Authority refers to as the exchange notes, for all of its
outstanding unregistered 8% senior subordinated notes, which the Authority
refers to as the outstanding notes. The Authority refers to the exchange notes
and the outstanding notes collectively as the notes. The terms of the exchange
notes are substantially identical to the terms of the outstanding notes except
that the exchange notes are registered under the Securities Act of 1933 and,
therefore, are freely transferable.
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Material Terms of the Exchange Offer
. The exchange offer . You may only tender
will expire at 5:00 the outstanding notes
p.m., New York City in denominations of
Time, on , $1,000 and multiples
2002, unless extended. of $1,000.
However, in no event
will the exchange . The exchange of notes
offer be open for more should not be a
than 30 business days. taxable exchange for
U.S. federal income
. You may withdraw tax purposes.
tenders of outstanding
notes at any time . The exchange offer is
before the expiration subject to customary
of the exchange offer. conditions.
. The Authority will not . If you fail to tender
receive any proceeds your outstanding
from the exchange notes, you will
offer. continue to hold
unregistered
securities and your
ability to transfer
them could be
adversely affected.
-----------------
Please see "Risk Factors" beginning on page 14 for a discussion of factors
that you should consider in connection with the exchange offer.
Each broker-dealer that receives exchange notes pursuant to an exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of such exchange notes. If the broker-dealer acquired the outstanding
notes as a result of market making or other trading activities, such
broker-dealer may use the prospectus for the exchange offer, as supplemented or
amended, in connection with resales of the exchange notes.
The Authority is not making this exchange offer in any state or jurisdiction
where it is not permitted.
None of the National Indian Gaming Commission, the U.S. Securities and
Exchange Commission or any other federal or state agency has approved or
disapproved of the notes to be distributed in the exchange offer, nor have any
of these organizations determined that this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this prospectus is May , 2002.
TABLE OF CONTENTS
Page
----
Prospectus Summary.................................................... 1
Cautionary Note Regarding Forward-Looking Statements.................. 13
Risk Factors.......................................................... 14
The Exchange Offer.................................................... 24
Use of Proceeds....................................................... 33
Capitalization........................................................ 34
Selected Financial Data............................................... 35
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 37
Business.............................................................. 61
Description of Material Agreements.................................... 71
The Authority......................................................... 77
Certain Relationships and Related Transactions........................ 81
The Tribe............................................................. 84
Government Regulation................................................. 86
Description of Other Indebtedness..................................... 90
Description of the Exchange Notes..................................... 94
Plan of Distribution.................................................. 135
Legal Matters......................................................... 135
Experts............................................................... 135
Where You Can Get More Information.................................... 136
Index to Financial Statements......................................... F-1
You should rely only on the information contained in this prospectus. The
Authority has not authorized anyone to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. The Authority is not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any date other than
the date on the front of this prospectus.
i
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. Because it is a summary, it does not contain all of the information
that is important to you. This summary is qualified in its entirety by the more
detailed information that is contained elsewhere in this prospectus, including
the Authority's financial statements, the notes thereto and the other financial
data contained herein. You should carefully read this prospectus and the Letter
of Transmittal in their entirety, particularly the section entitled "Risk
Factors," and the financial statements and the related notes to those
statements. References in this prospectus to the "Authority" are to the Mohegan
Tribal Gaming Authority. The term "Tribe" refers to the Mohegan Tribe of
Indians of Connecticut. The terms "we," "us," and "our" refer to the Tribe and
the Authority, collectively. The term "exchange notes" refers to the 8% Senior
Subordinated Notes due 2012 being offered by the Authority in this exchange
offer. The term "outstanding notes" refers to the Authority's currently
outstanding 8% Senior Subordinated Notes due 2012 that may be exchanged for the
exchange notes. The term "notes" refers to the outstanding notes and the
exchange notes, collectively. The term "Indenture" refers to the indenture that
applies to both the outstanding notes and the exchange notes. The term "Bank
Credit Facility" refers to the Authority's senior secured bank credit facility,
as amended by Amendments No. 1, 2 and 3 thereto. The term "SEC" refers to the
Securities and Exchange Commission.
The Tribe and the Authority
The Tribe is a federally recognized Indian tribe with an approximately
405-acre reservation located in southeastern Connecticut. Under the Indian
Gaming Regulatory Act of 1988, federally recognized Indian tribes are permitted
to conduct full-scale casino gaming operations on tribal land, subject to,
among other things, the negotiation of a gaming compact with the state in which
they operate. See "Government Regulation--The Indian Gaming Regulatory Act of
1988--Tribal-State Compacts." The Tribe and the State of Connecticut have
entered into such a compact that has been approved by the United States
Secretary of the Interior, which the Authority refers to in this prospectus as
the Mohegan Compact. The Tribe's gaming operation is one of only two legally
authorized gaming operations in New England offering traditional slot machines
and table games. The Tribe has established an instrumentality, the Authority,
with the exclusive power to conduct and regulate gaming activities on the
existing reservation of the Tribe located adjacent to Uncasville, Connecticut.
The Authority is governed by a Management Board, consisting of the same nine
members of the Mohegan Tribal Council. The Authority is the issuer of both the
outstanding notes and the exchange notes.
Mohegan Sun
In October 1996, the Authority opened a gaming and entertainment complex
known as Mohegan Sun. Mohegan Sun is situated in southeastern Connecticut on a
240-acre site on the Tribe's reservation overlooking the Thames River with
direct access from Routes I-395 and 2A via a four-lane access road constructed
by the Authority. Mohegan Sun is located approximately 125 miles from New York
City and approximately 100 miles from Boston, Massachusetts. The Authority is
currently engaged in a major expansion of Mohegan Sun known as Project
Sunburst. The first phase of Project Sunburst, the Casino of the Sky, which
includes increased gaming, restaurant and retail space and an entertainment
arena, opened on September 25, 2001. The remaining components, including the
majority of a 1,200 room luxury hotel and approximately 100,000 square feet of
convention space, opened in April 2002 with full completion of construction
expected by the end of June 2002.
Mohegan Sun operates in an approximately 1.9 million square foot facility
which includes the following two casinos:
Casino of the Earth. The Casino of the Earth, the original casino at
Mohegan Sun, has approximately 176,500 square feet of gaming space and offers:
. approximately 3,655 slot machines, 158 table games (including blackjack,
roulette, craps, baccarat, pai gow tiles and let it ride) and 42 poker
tables;
1
. food and beverage amenities, including three full-service themed fine
dining restaurants, a 680-seat buffet, a New York style delicatessen, a
24-hour coffee shop, a ten-station food court featuring international
and domestic cuisine and multiple service bars for a total of
approximately 1,888 restaurant seats;
. an approximately 10,000 square foot, 350-seat lounge featuring live
entertainment seven days a week;
. an approximately 9,000 square foot simulcasting race book facility;
. an approximately 3,000 square foot, 50-seat Keno lounge; and
. three retail shops providing shopping opportunities ranging from
souvenirs to clothing to cigars.
Casino of the Sky. The Casino of the Sky, which opened on September 25,
2001, has approximately 119,000 square feet of gaming space and offers:
. approximately 2,564 slot machines and 82 table games (including
blackjack, roulette, craps, baccarat, Spanish 21 and blackjack bonanza);
. food and beverage amenities, including two full-service restaurants,
three quick-service restaurants, a 350-seat buffet and four lounges
operated by Mohegan Sun, as well as four full-service and three
quick-service restaurants operated by third-parties, for a total of
approximately 1,088 restaurant seats;
. the Mohegan Sun Arena with seating for up to 10,000;
. a 300-seat cabaret;
. an arcade-style recreation area and a child care facility; and
. the Shops at Mohegan Sun containing approximately 30 different retail
shops, five of which are owned by the Authority.
For the year ended September 30, 2001, Mohegan Sun had approximately 8.0
million guests and net revenues of $786.6 million, which constituted an
increase of 5.3% in the number of guests and an increase of $47.3 million, or
6.4%, in net revenues over the year ended September 30, 2000. For the six
months ended March 31, 2002, Mohegan Sun had approximately 4.4 million guests
and net revenues of $476.2 million, which constituted an increase of 17.9% in
the number of guests and an increase of $105.3 million, or 28.4%, in net
revenues over the six months ended March 31, 2001.
Additionally, Mohegan Sun had a gross daily slot win per unit per day of
$471 and gross slot revenues of $578.4 million for the year ended September 30,
2001, as compared to $488 and $540.3 million, respectively, for the year ended
September 30, 2000. For the six months ended March 31, 2002, Mohegan Sun had a
gross daily slot win per unit per day of $298 and gross slot revenues of $336.6
million, as compared to $484 and $267.2 million, respectively, for the six
months ended March 31, 2001.
The Authority's Adjusted EBITDA, which represents earnings before interest,
income taxes, depreciation and amortization, as adjusted, to reflect
pre-opening costs and certain other non-operating income/expense, for the year
ended September 30, 2001 increased by $2.2 million, or 0.9%, to $256.2 million
from $254.0 million for the year ended September 30, 2000. For the six months
ended March 31, 2002 and 2001, the Authority's Adjusted EBITDA were $118.5
million and $115.4 million, respectively. For a description of EBITDA and
Adjusted EBITDA, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Explanation of Financial Statement
Captions--EBITDA and Adjusted EBITDA."
Mohegan Sun currently has parking spaces for approximately 10,165 guests and
3,075 employees. In addition, the Authority operates an approximately 4,000
square foot, 20-pump gasoline and convenience center located adjacent to
Mohegan Sun.
2
Additional Mohegan Sun Enhancements
In addition to Project Sunburst, the Authority has scheduled the following
capital improvements to the Mohegan Sun facility:
Parking Garages. The Authority is constructing the Indian Summer Garage,
which will provide approximately 2,700 additional parking spaces. The approved
budget for the construction of the Indian Summer Garage is $65.0 million.
Construction began on the Indian Summer Garage in July 2001, and the Authority
anticipates that the project will be completed in June 2002. A second parking
garage, the Thames Garage, which provides approximately 1,700 additional
parking spaces, was completed in April 2002 for approximately $25.0 million.
Project Sunburst Utilities. The Authority is constructing various utility
upgrades and enhancements needed to support Project Sunburst. These
improvements originally were to be financed entirely by the Tribe from the
proceeds of a tax-exempt financing. The Tribe, however, subsequently received
an opinion from its outside legal counsel advising it that a portion of the
costs for these improvements will not qualify for tax-exempt financing.
Therefore, the Authority paid for this portion of the total costs, which
equaled approximately $35.0 million. These improvements were completed
concurrently with the opening of certain components of Project Sunburst in
April 2002.
Other Reservation Enhancement
Child Development Center. The Tribe is constructing a 36,000 square foot
employee day care facility which will enhance the benefits and services
provided to employees of both the Tribe and of the Authority. The project is
expected to cost approximately $10.0 million. The Authority originally paid
$1.1 million of the facility's cost; however, that amount was later fully
reimbursed by the Tribe. Construction began in November 2001, and the Tribe
anticipates that the project will be completed in January 2003.
Strategy
The Authority's overall strategy is to profit from expanding demand in the
gaming market in the northeastern United States. Mohegan Sun's initial success
has resulted primarily from guests living within 100 miles of Mohegan Sun.
Based upon Mohegan Sun's results and experience to date, the Authority believes
that the gaming market in the northeastern United States is strong and that
there is significant demand for additional amenities. The Authority expects to
develop Mohegan Sun into a full-scale entertainment and destination resort and
believes that this strategy will increase the number of guests and lengthen
their stays at Mohegan Sun. See "Business--Strategy."
Market
Mohegan Sun and the Foxwoods Resort Casino, or Foxwoods, are the only two
legally authorized gaming operations offering both traditional slot machines
and table games in the northeastern United States outside of Atlantic City, New
Jersey, which is approximately 260 miles from Mohegan Sun. Foxwoods, operated
by the Mashantucket Pequot Tribe under procedures approved by the United States
Department of the Interior, is located approximately 10 miles from Mohegan Sun
and is currently the largest gaming facility in the United States in terms of
total gaming positions. Based on the size and success of Foxwoods and the rapid
growth of Mohegan Sun, the Authority believes that the gaming market in the
northeastern United States remains underserved. See "Business--Market."
Address and Telephone Number
The Authority's mailing address is One Mohegan Sun Boulevard, Uncasville, CT
06382 and its telephone number is (860) 862-8000.
3
Recent Developments
Cost of Completing Project Sunburst
The Tribe recently received a notification from Trading Cove Associates, or
TCA, the developer of Project Sunburst, indicating that the cost of completing
Project Sunburst is estimated to be $1.0 billion, excluding capitalized
interest, which represents an increase of $40.0 million over the previous
estimate of $960.0 million. TCA indicated that the $40.0 million increase is
comprised of (i) $18.0 million in additional improvements and upgrades to the
Casino of the Sky, such as decor and access road improvements and upgrades to
the surveillance system, (ii) $10.0 million relating to enhancements to Todd
English's Tuscany, a restaurant located in the Casino of the Sky, and the
addition of a radio station and several retail shops, and (iii) $12.0 million
in additional costs incurred as a result of the acceleration of the opening of
the Casino of the Sky and the delay in the full completion of the Mohegan Sun
hotel, both of which resulted in an increase of overtime construction labor
costs. Mohegan Sun currently anticipates that it will obtain $25.0 million in
operating lease financing to fund a portion of the cost overrun. The Authority
will fund the remaining $15.0 million of the cost overrun from the annual
capital expenditure budget as permitted by its Bank Credit Facility. As a
result, the Authority expects that it will increase its 2002 annual capital
expenditures from $15.0 to the maximum authorized spending of $35.0 million.
See "Business--Project Sunburst."
4
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer.......... The Authority is offering to exchange $1,000
principal amount of its exchange notes, which
have been registered under the Securities Act of
1933, or the Securities Act, for each $1,000
principal amount of its unregistered outstanding
notes. The Authority issued the outstanding notes
on February 20, 2002 in a private offering.
In order for your outstanding notes to be
exchanged, you must properly tender them before
the expiration of the exchange offer. All
outstanding notes that are validly tendered and
not validly withdrawn will be exchanged. The
Authority will issue the exchange notes on or
promptly after the expiration of the exchange
offer.
Outstanding notes may be tendered for exchange in
whole or in part in integral multiples of $1,000
principal amount.
Registration Rights
Agreement................. The Authority sold the outstanding notes on
February 20, 2002 to a group of initial
purchasers which included Banc of America
Securities LLC, Salomon Smith Barney Inc., Fleet
Securities, Inc., SG Cowen Securities
Corporation, Commerzbank Capital Markets Corp.,
McDonald Investments Inc., Wells Fargo Brokerage
Services, LLC and Credit Lyonnais Securities
(USA). Simultaneously with that sale, the
Authority signed a registration rights agreement,
which is referred to in this prospectus as the
Registration Rights Agreement, with these initial
purchasers relating to the outstanding notes
which requires the Authority to conduct this
exchange offer.
You have the right under the Registration Rights
Agreement to exchange your outstanding notes for
exchange notes with substantially identical
terms. This exchange offer is intended to satisfy
this right. After the exchange offer is complete,
you will no longer be entitled to any exchange or
registration rights with respect to your
outstanding notes.
For a description of the procedures for tendering
outstanding notes, see "The Exchange
Offer--Procedures for Tendering Outstanding
Notes."
Consequences of Failure to
Exchange Your Outstanding
Notes..................... If you do not exchange your outstanding notes for
exchange notes in the exchange offer, the
restrictions on transfer provided in the
outstanding notes and in the Indenture will still
apply to your outstanding notes. In general, the
outstanding notes may not be offered or sold
unless registered or exempt from registration
under the Securities Act, or in a transaction not
subject to the Securities Act and applicable
state securities laws. The Authority does not
plan to register the outstanding notes under the
Securities Act.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 2002. This will
be the expiration date unless extended
5
by the Authority. If the Authority does extend
the exchange offer, the expiration date will be
the latest date and time to which the exchange
offer is extended. However, in no event will the
exchange offer be open for more than 30 business
days. See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
Conditions to the Exchange
Offer..................... The exchange offer is subject to conditions which
the Authority may waive in its sole discretion.
The exchange offer is not conditioned upon any
minimum principal amount of outstanding notes
being tendered for exchange. See "The Exchange
Offer--Conditions to the Exchange Offer."
The Authority reserves the right in its sole and
absolute discretion, subject to applicable law,
at any time and from time to time:
. to delay the acceptance of the outstanding
notes;
. to terminate the exchange offer if specified
conditions have not been satisfied;
. to extend the expiration date of the exchange
offer and retain all tendered outstanding
notes, subject, however, to the right of
tendering holders to withdraw their tender of
outstanding notes; and
. to waive any condition or otherwise amend the
terms of the exchange offer in any respect.
See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
Procedures for Tendering
Outstanding Notes......... If you wish to tender your outstanding notes for
exchange, you must:
. complete and sign the Letter of Transmittal
according to the instructions contained in
the Letter of Transmittal; and
. forward the Letter of Transmittal by mail,
facsimile transmission or hand delivery,
together with any other required documents,
to the exchange agent, either with the
outstanding notes to be tendered or in
compliance with the specified procedures for
guaranteed delivery of such outstanding notes.
If you hold outstanding notes through The
Depository Trust Company, or DTC, and wish to
accept the exchange offer, you must do so through
DTC's Automated Tender Offer Program, or ATOP,
pursuant to which you will agree to be bound by
the Letter of Transmittal. See "The Exchange
Offer--Procedures for Tendering Outstanding
Notes."
By executing or agreeing to be bound by the
Letter of Transmittal, you will be making a
number of important representations to the
Authority, as described under the "The Exchange
Offer--Purpose and Effect of the Exchange Offer."
6
Please do not send your Letter of Transmittal or
certificates representing your outstanding notes
to the Authority. Those documents should be sent
only to the exchange agent. Questions regarding
how to tender your outstanding notes and requests
for information should be directed to the
exchange agent. See "The Exchange Offer--Exchange
Agent."
Special Procedures for
Beneficial Owners......... If your outstanding notes are registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee, the Authority urges you
to contact such person promptly if you wish to
tender your outstanding notes. See "The Exchange
Offer--Procedures for Tendering Outstanding
Notes."
Withdrawal Rights........... You may withdraw the tender of your outstanding
notes at any time before the expiration date. To
do this, you should deliver a written notice of
your withdrawal to the exchange agent according
to the withdrawal procedures described under the
heading "The Exchange Offer--Withdrawal Rights."
Resales of Exchange Notes... The Authority believes that you will be able to
offer for resale, resell or otherwise transfer
the exchange notes issued in the exchange offer
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that:
. you are acquiring the exchange notes in the
ordinary course of your business;
. you are not participating, and have no
arrangement or understanding with any person
to participate, in the distribution of the
exchange notes; and
. you are not an affiliate of the Authority.
The Authority's belief is based on
interpretations by the Staff of the SEC, set
forth in the no-action letters of Exxon Capital
Holdings Corporation (available April 13, 1988),
Morgan Stanley & Co. Incorporated (available June
5, 1991) and Shearman & Sterling (available July
2, 1993). The Staff of the SEC has not considered
this exchange offer in the context of a no-action
letter, and the Authority cannot assure you that
the Staff of the SEC would make a similar
determination with respect to this exchange
offer. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" for additional
representations that are required.
If the Authority's belief is not accurate and you
transfer an exchange note without delivering a
prospectus meeting the requirements of the
Securities Act or without an exemption from such
requirements, you may incur liability under the
Securities Act.
The Authority does not and will not assume, or
indemnify you against, such liability.
7
Each broker-dealer that receives exchange notes
for its own account in exchange for outstanding
notes which were acquired by such broker-dealer
as a result of market-making or other trading
activities must acknowledge that it will deliver
a prospectus meeting the requirements of the
Securities Act in connection with any resale of
such exchange notes. A broker-dealer may use this
prospectus for an offer to sell, resale or other
transfer of exchange notes. See "Plan of
Distribution."
Exchange Agent.............. The exchange agent for the exchange offer for the
outstanding notes is State Street Bank and Trust
Company. The address and the telephone and
facsimile numbers of the exchange agent are shown
in "The Exchange Offer--Exchange Agent" section
of this prospectus and in the Letter of
Transmittal.
Use of Proceeds............. The Authority will not receive any cash proceeds
from the issuance of the exchange notes offered
hereby. See "Use of Proceeds."
United States Federal Income
Tax Consequences.......... Your acceptance of the exchange offer and the
related exchange of your outstanding notes for
exchange notes will not be a taxable exchange for
United States federal income tax purposes. You
should not recognize any taxable gain or loss or
any interest income as a result of the exchange.
See "The Exchange Offer--United States Federal
Income Tax Consequences."
See "The Exchange Offer" for more detailed information concerning the
exchange offer.
8
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The exchange offer relates to the exchange of up to $250.0 million principal
amount of exchange notes for up to an equal principal amount of outstanding
notes. The form and terms of the exchange notes are substantially identical to
the form and terms of the outstanding notes, except the exchange notes will be
registered under the Securities Act. Therefore, the exchange notes will not
bear legends restricting their transfer. The exchange notes will evidence the
same debt as the outstanding notes. The outstanding notes and the exchange
notes are governed by the same Indenture.
Issuer...................... The Authority.
Securities Offered.......... $250 million in total principal amount of 8%
Senior Subordinated Notes due 2012.
Maturity.................... April 1, 2012.
Interest Payment Dates...... April 1 and October 1, beginning on October 1,
2002.
Ranking..................... The exchange notes will be subordinated in right
of payment to all of the Authority's existing and
future senior indebtedness, including the
Authority's 8 1/8% Senior Notes due 2006, which
the Authority refers to as the Senior Notes, and
the Bank Credit Facility. The exchange notes will
rank equally with all of the Authority's existing
and future senior subordinated indebtedness,
including the Authority's existing 8 3/4% Senior
Subordinated Notes due 2009, which the Authority
refers to as 8 3/4% Senior Subordinated Notes,
and 8 3/8% Senior Subordinated Notes due 2011,
which the Authority refers to as the 8 3/8%
Senior Subordinated Notes, and senior to all of
the Authority's subordinated indebtedness. The
Authority refers to the 8 3/4% Senior
Subordinated Notes and 8 3/8% Senior Subordinated
Notes collectively as the Existing Senior
Subordinated Notes.
Assuming the Authority had fully drawn all
possible amounts available under the Bank Credit
Facility as of the date of this prospectus, then
as of the date of this prospectus, the exchange
notes would have been:
. subordinated to up to $400.0 million of
senior secured debt available under the Bank
Credit Facility;
. subordinated to $200.0 million in principal
amount of the Senior Notes;
. subordinated in a liquidation, bankruptcy or
similar proceeding to 50% of the Authority's
payment obligations under its relinquishment
agreement with TCA that are then due and
owing (see "Description of Other
Indebtedness--Relinquishment Agreement with
Trading Cove Associates");
. ranked equally to the 8 3/4% Senior
Subordinated Notes;
9
. ranked equally to the 8 3/8% Senior
Subordinated Notes;
. ranked equally to the outstanding notes; and
. ranked equally to the remaining 50% of the
Authority's payment obligations under the
Relinquishment Agreement that are then due
and owing, but effectively senior to such
payment obligations that are not yet due
under the Relinquishment Agreement since
payment obligations under the Relinquishment
Agreement cannot be accelerated by their
terms.
The assets of the Tribe or its affiliates other
than the Authority will not be available for the
creditors of the Authority and will not be
available to pay the exchange notes.
Optional Redemption......... On or after April 1, 2007, the Authority may
redeem some or all of the exchange notes at any
time at the redemption prices listed in
"Description of the Exchange Notes--Optional
Redemption."
Mandatory Offer to
Repurchase................ If the Authority undertakes specific kinds of
asset sales or experiences specific kinds of
changes of control, it must offer to repurchase
the exchange notes as more fully described in
"Description of the Exchange Notes--Repurchase at
the Option of Holders."
Special Redemption.......... The Authority may redeem a holder's notes or
require a holder to dispose of the notes if (1)
any gaming regulatory authority requires such
holder to be licensed or otherwise qualified
under applicable gaming laws in order for the
Authority to maintain any of its gaming licenses
or franchises and (2) the holder does not obtain
such license or qualification within the required
time periods. Any such redemption or sale will be
at the prices listed in "Description of the
Exchange Notes--Optional Redemption."
Basic Covenants of the
Indenture................. The Authority will issue the exchange notes under
an existing indenture with State Street Bank and
Trust Company, as trustee. This Indenture, among
other things, restricts the Authority's ability
to:
. incur additional indebtedness;
. pay dividends or make other distributions;
. make investments;
. use assets as security in other transactions;
and
. sell certain assets or merge with or into
another person.
These covenants are subject to important
exceptions and qualifications. For more details,
see "Description of the Exchange
Notes--Covenants."
10
Transfer Restrictions....... Once registration of the exchange notes is
effective, the exchange notes generally will be
freely transferable. See "Description of the
Exchange Notes--Exchange Offer; Registration
Rights."
Use of Proceeds............. The Authority will not receive any cash proceeds
from the issuance of the exchange notes. See "Use
of Proceeds."
Risk Factors
See "Risk Factors" beginning on page 14 for a discussion of specific factors
that you should consider carefully before tendering any outstanding notes for
exchange notes.
11
SUMMARY FINANCIAL DATA
The following summary financial data should be read together with the
section entitled "Selected Financial Data" and the Authority's financial
statements and the related notes included in this prospectus beginning on page
F-1. You also should read the following information in conjunction with the
sections in this prospectus entitled "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
Unless otherwise indicated, dollar amounts shown in the following table are in
thousands.
As of or for the Six
As of or for the Fiscal Years Ended Months Ended March 31,
September 30, (Unaudited)
------------------------------------ -------------------------
2001 2000 1999 2002 2001
---------- -------- -------- ---------- ----------
Operating Results:
Gross revenues................................... $ 857,977 $809,314 $725,510 $ 507,746 $ 405,900
Promotional allowances........................... (71,372) (70,044) (56,827) (31,588) (35,030)
---------- -------- -------- ---------- ----------
Net revenues..................................... $ 786,605 $739,270 $668,683 $ 476,158 $ 370,870
---------- -------- -------- ---------- ----------
Income from operations........................... $ 264,477 $195,514 $ 66,675 $ 77,569 $ 98,590
Other income (expense), net...................... (59,038)(1) (48,906)(1) (66,355)(1) (49,965)(2) (29,266)(2)
Loss from discontinued operations................ (591) (674) (812) -- (527)
Extraordinary items.............................. -- -- (38,428)(3) -- --
---------- -------- -------- ---------- ----------
Net income (loss)(4)............................. $ 204,848 $145,934 $(38,920) $ 27,604 $ 68,797
========== ======== ======== ========== ==========
Ratio of earnings to fixed charges(5)............ 4.1x 3.7x 1.0x 1.6x 3.4x
========== ======== ======== ========== ==========
Other Data:
Interest expense, net............................ $ 25,060 $ 37,799 $ 55,595 $ 31,946 $ 11,815
Capital expenditures............................. $ 626,350 $288,278 $ 62,795 $ 216,820 $ 235,838
Net cash flows provided by operating activities.. $ 187,679 $194,845 $144,724 $ 58,417 $ 76,831
Balance Sheet Data:
Total assets..................................... $1,452,735 $885,379 $914,962 $1,654,689 $1,069,389
Long-term debt and capital lease obligations..... $ 909,514 $506,391 $519,298 $1,099,000 $ 631,671
- --------
(1) For the fiscal years ended September 30, 2001, 2000 and 1999 includes other
income (expense) of $35.8 million, $23.1 million and $22.0 million,
respectively, of accretion of relinquishment liability discount under the
Relinquishment Agreement. A discussion of the estimation of this liability
may be found under Note 13 to the Authority's audited financial statements
on page F-18 which are included in this prospectus.
(2) For the six months ended March 31, 2002 and March 31, 2001, includes other
income (expense) of $18.2 million and $17.9 million, respectively, of
accretion of relinquishment liability discount under the Relinquishment
Agreement. A discussion of the estimation of this liability may be found
under Note 6 to the Authority's unaudited financial statements on page F-31
which are included in this prospectus.
(3) Includes expense of $33.7 million related to the tender premium of the $175
million senior secured notes and $5.2 million write-off of financing fees,
net of $500,000 forgiveness of debt.
(4) The Authority adopted Statement of Financial Accounting Standards No. 142
on October 1, 2001. Net income (loss), exclusive of the amortization of the
Authority's trademark, was $208.3 million, $150.2 million and ($36.3)
million for the years ended September 30, 2001, 2000 and 1999,
respectively, and $27.6 million and $70.5 million for the six months ended
March 31, 2002 and 2001, respectively. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--New Accounting
Pronouncements."
(5) The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income from
continuing operations plus fixed charges and amortization of capitalized
interest, less capitalized interest. Fixed charges consist of interest
expense, capitalized interest and amortization of deferred financing fees.
12
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events, including, without
limitation, information relating to plans for future expansion and other
business development activities as well as other capital spending, financing
sources and the effects of regulation (including gaming and tax regulation) and
competition. All statements other than statements of historical fact are, or
may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements are not based on historical facts
but rather reflect our current expectations concerning future results and
events. These forward-looking statements generally can be identified by use of
statements that include phrases such as "believe," "expect," "anticipate,"
"intend," "plan," "foresee," "likely," "will" or other similar words or
phrases. Similarly, statements that describe the Authority's objectives, plans
or goals are or may be forward-looking statements. These statements involve
known and unknown risks, uncertainties and other factors which may cause the
Authority's actual results, performance or achievements to be different from
any future results, performance or achievements expressed or implied by these
statements. You should review carefully all of the information, including the
financial statements, included in this prospectus.
In addition to the risk factors described under the heading "Risk Factors,"
the following important factors could affect future results, causing actual
results to differ materially from those expressed in the Authority's
forward-looking statements:
. the expansion and construction activities associated with the final
stage of Project Sunburst and related upgrades and amenities;
. the financial performance of the Casino of the Earth, the Casino of the
Sky, the hotel and the convention center;
. the Authority's dependence on existing management;
. the Authority's leverage and ability to meet its debt service
obligations;
. increased competition from new or existing gaming operations;
. general domestic and global economic conditions;
. changes in federal or state tax laws or the administration of such laws;
. changes in gaming laws or regulations (including the potential
legalization of gaming in a number of jurisdictions); and
. maintenance of licenses required under gaming laws and regulations and
construction permits and approvals required under applicable laws and
regulations.
These factors and the other risk factors discussed in this prospectus are not
necessarily all of the important factors that could cause the Authority's
actual results to differ materially from those expressed in any of its
forward-looking statements. Other unknown or unpredictable factors also could
have material adverse effects on the Authority's future results. The
forward-looking statements included in this prospectus are made only as of the
date of this prospectus. The Authority does not have and does not undertake any
obligation to publicly update any forward-looking statements to reflect
subsequent events or circumstances. All subsequent written and oral
forward-looking statements attributable to the Authority or persons acting on
behalf of the Authority are expressly qualified in their entirety by the
factors discussed above. The Authority cannot assure you that projected results
or events will be achieved.
13
RISK FACTORS
You should consider carefully the following risk factors, as well as all
other information contained in this prospectus, before deciding whether to
tender your outstanding notes for exchange notes pursuant to the exchange offer.
Risks Related to the Authority's Business
The Authority's substantial indebtedness could adversely affect its
financial health and prevent it from fulfilling its obligations with respect to
the exchange notes.
The Authority currently has and will continue to have a significant amount
of indebtedness. As of March 31, 2002, the Authority had outstanding long-term
debt totaling approximately $1.1 billion. In addition, the Authority had
borrowing capacity under the Bank Credit Facility of up to $400.0 million, of
which $199.0 million was outstanding on March 31, 2002. On February 20, 2002,
the Authority used the net proceeds from the issuance of the outstanding notes
to repay a portion of the outstanding balance under the Bank Credit Facility.
In addition, on March 26, 2002, the Authority received the requisite consent of
its lenders for Amendment No. 3 to its Bank Credit Facility. The amendment
reduced the lenders' commitment from $500.0 million to $400.0 million effective
March 26, 2002, and changed the first subsequent scheduled commitment reduction
date to September 30, 2002 from March 31, 2002. See "Capitalization" and
"Description of Other Indebtedness--Bank Credit Facility."
If the Authority had fully drawn all possible amounts available under the
Bank Credit Facility, its total debt and capital lease obligations would have
been approximately $1.3 billion as of March 31, 2002. See "--Your right to
receive payments on the exchange notes will be junior in priority to the
Authority's senior indebtedness. Therefore, if the Authority does not have
sufficient funds to pay all of its debts, then the senior debt will be paid
before any payment may be made with respect to the exchange notes."
The Authority's substantial indebtedness and other obligations could have
important consequences to you. For example, they could:
. make it more difficult for the Authority to satisfy its debt service
obligations with respect to the exchange notes;
. increase the Authority's vulnerability to adverse economic and industry
conditions;
. require the Authority to dedicate a substantial portion of its cash flow
from operations to payments on its indebtedness, thereby reducing the
availability of its cash flow to fund working capital, capital
expenditures and other general operating requirements, including those
with respect to Project Sunburst;
. limit the Authority's flexibility in planning for, or reacting to,
changes in its business and the gaming industry, which may place the
Authority at a disadvantage compared to its competitors that have less
debt thereby hurting the Authority's results of operations and its
ability to meet its debt service obligations with respect to the
exchange notes and its other indebtedness; and
. limit, along with the financial and other restrictive covenants in the
Authority's other indebtedness, its ability to borrow additional funds.
Mohegan Sun's failure to generate sufficient cash flow could prevent the
Authority from fulfilling its debt service obligations with respect to the
exchange notes.
The Authority relies on revenues from the gaming operations of Mohegan Sun
to meet its debt service obligations. Such operations are subject to many
financial, economic, political, competitive and regulatory
14
factors beyond the Authority's control. If Mohegan Sun is unable to generate
sufficient cash flow, the Authority may be unable to meet its debt service
obligations with respect to the exchange notes and its other outstanding
indebtedness. The Authority could be required to reduce or delay planned
capital expenditures, including completion of Project Sunburst, dispose of some
of its assets and/or seek to restructure some or all of its debt. The Authority
cannot assure you that any of these alternatives would not have a material
adverse effect on the Authority's operations.
Your right to receive payments on the exchange notes will be junior in
priority to the Authority's senior indebtedness. Therefore, if the Authority
does not have sufficient funds to pay all of its debts, the senior debt will be
paid before any payment may be made with respect to the exchange notes.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to the Authority, holders of the exchange notes will
participate with trade creditors and all other holders of senior subordinated
indebtedness in the assets remaining after the Authority has paid all of its
senior debt, including the Senior Notes and the Bank Credit Facility. However,
because the Indenture requires that amounts otherwise payable to the holders of
the exchange notes in a bankruptcy or similar proceeding be paid to the holders
of designated senior debt instead, the holders of the exchange notes may
receive less, ratably, than the holders of trade payables in any such
proceedings. Therefore, if the Authority does not have sufficient funds to pay
all of its creditors, the holders of the exchange notes will likely receive
less, ratably, than the holders of senior debt and holders of trade payables.
Assuming the Authority had fully drawn all possible amounts under the Bank
Credit Facility, the exchange notes would have been subordinated to
approximately $600.0 million of senior debt as of March 31, 2002. Subject to
provisions in the Indenture and the other instruments to which the Authority is
a party, the Authority may be able to borrow substantial additional
indebtedness, including senior debt, in the future.
In the event of a liquidation, bankruptcy or a similar proceeding, the
exchange notes also are subordinated to 50% of the Authority's payment
obligations under the Relinquishment Agreement that are then due and owing, but
are effectively not subordinated to such payment obligations that are not yet
due under the Relinquishment Agreement since the payment obligations under the
Relinquishment Agreement cannot be accelerated by their terms and have no
blockage rights as designated senior debt under the Authority's indentures. In
addition, the exchange notes rank equally to the remaining 50% of the
Authority's payment obligations under the Relinquishment Agreement that are
then due and owing, but are effectively senior to such payment obligations that
are not yet due under the Relinquishment Agreement since payment obligations
under the Relinquishment Agreement cannot be accelerated by their terms. See
"Description of Other Indebtedness--Relinquishment Agreement with Trading Cove
Associates" and "Description of the Exchange Notes."
If the Authority is not able to compete successfully with existing and
potential competitors, it may not be able to generate sufficient cash flow to
make payments on the exchange notes.
Due to various federal and state laws, casino gaming in the northeastern
United States may be conducted only in Atlantic City, New Jersey, or by
federally recognized Indian tribes operating under federal Indian gaming law or
on cruise ships in international waters.
Existing Competitors
Mohegan Sun currently competes primarily with Foxwoods and, to a lesser
extent, with casinos in Atlantic City, New Jersey. Foxwoods, operated by the
Mashantucket Pequot Tribe, is approximately 10 miles from Mohegan Sun and is
the largest gaming facility in the United States in terms of total gaming
positions. In addition, Foxwoods offers a number of amenities that Mohegan Sun
only recently began to offer to its guests, including hotel accommodations and
a convention center. The majority of the Mohegan Sun 1,200 room hotel and
100,000 square foot convention center opened in April 2002. Foxwoods has been
in operation for
15
approximately ten years and may have greater financial resources and greater
operating experience than the Authority or the Tribe.
Mohegan Sun also currently faces competition from several casinos and gaming
facilities located on Indian tribal lands in the State of New York. In
addition, other Indian tribes have announced potential casino projects in the
State of New York which, if completed, will add significant casino space and
hotel rooms to the northeastern United States market.
When Project Sunburst is completed, the Authority also intends to compete
for customers more directly with casinos in Atlantic City, New Jersey, and to a
lesser extent with other gaming resorts including those on the Gulf Coast of
Mississippi and in Las Vegas, Nevada. Many of these casinos and resorts
currently have greater resources and name recognition than Mohegan Sun.
Potential New Competitors
Several groups of individuals in Connecticut and Massachusetts are seeking
federal recognition as Indian tribes with the announced intent of establishing
gaming operations in or near Connecticut. Some of these groups have publicized
the existence of financial backers for the construction of gaming facilities. A
number of states, including Connecticut, Massachusetts and New York, also have
investigated legalizing casino gaming by non-Indians in one or more locations.
The Authority cannot predict whether any of these individual groups or other
efforts to legalize casino gaming will succeed in establishing gaming
operations, and if established, whether such proliferation of gaming operations
will have a material adverse effect on the Authority's operations and its
ability to meet its debt service obligations with respect to the exchange notes.
Your ability to enforce your rights against the Authority is limited by the
Tribe's and the Authority's sovereign immunity. If you are unable to enforce
your rights, you may lose your entire investment in the exchange notes.
Although the Tribe and the Authority each have sovereign immunity and may
not be sued without their respective consents, both the Tribe and the Authority
have granted a limited waiver of sovereign immunity and consent to suit in
connection with the exchange notes, the Indenture and the other documents
related to the exchange notes. Such waiver includes suits against the Authority
to enforce its obligation to repay the exchange notes. Generally, waivers of
sovereign immunity have been held to be enforceable against Indian tribes. In
the event that such waiver of sovereign immunity by the Tribe and the Authority
is held to be ineffective, the holders of the exchange notes could be precluded
from judicially enforcing their rights and remedies. With limited exceptions,
the Tribe and the Authority have not waived sovereign immunity from private
civil suits, including violations of the federal securities laws. For this
reason, an investor may not have any remedy against the Authority or the Tribe
for violations of federal securities laws.
Disputes relating to the exchange notes and the Indenture may be brought in
a federal or state court that has jurisdiction over the matter. However,
federal courts may not exercise jurisdiction over disputes not arising under
federal law, and the state courts may not exercise jurisdiction over disputes
arising on the Mohegan reservation. In addition, the Tribe's Constitution has
established a special court, the Gaming Disputes Court, to rule on disputes
with respect to Mohegan Sun, including any disputes relating to the exchange
notes and the Indenture. The federal and state courts, under the doctrines of
comity and exhaustion of tribal remedies, may be required to (1) defer to the
jurisdiction of the Gaming Disputes Court or (2) require that any plaintiff
exhaust its remedies in the Gaming Disputes Court before bringing any action in
a federal or state court. Thus, there may be no federal or state court forum
with respect to a dispute relating to the exchange notes or the Indenture.
The Tribe's Constitution, which established the Authority and the Gaming
Disputes Court, currently has a provision that prohibits the Tribe from
enacting any law that would impair the obligations of contracts entered into in
furtherance of the development, construction, operation and promotion of gaming
on Tribal lands.
16
However, this provision and the provisions establishing the Authority and the
Gaming Disputes Court could be amended by the Tribe's registered voters to
affect adversely the ability of the holders of the exchange notes to enforce
the obligations of the Authority on the exchange notes.
Your rights as a creditor are limited to the assets of the Authority.
The Authority is exclusively liable for the payments on the exchange notes.
The assets of the Tribe and its affiliates other than the Authority will not be
available to pay the exchange notes. Therefore, your rights as a creditor in a
bankruptcy, liquidation or reorganization or similar proceeding would be
limited to the assets of the Authority, and you would have no right to the
assets of the Tribe or those of its other affiliates.
Neither the Tribe nor the Authority may be subject to the federal bankruptcy
laws, which could impair the ability of the holders of the exchange notes to be
repaid from the sale of the Authority's assets if the Authority is unwilling or
unable to meet its debt service obligations.
The Tribe and the Authority may not be subject to the federal bankruptcy
laws. Thus, no assurance can be given that, if an event of default occurs under
the Indenture, any forum will be available to the holders of the exchange notes
other than the Gaming Disputes Court. In such court, there are presently 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
Tribe's officials in the exercise of their police powers. Thus, to the extent
that a judgment of the Gaming Disputes Court must be executed on Tribal lands,
the practical realization of any benefit of such a judgment will be dependent
upon the willingness and ability of Tribal officials to carry out such
judgment. In addition, the land on which the casino facility is located is
owned by the United States in trust for the Tribe, and creditors of the
Authority or the Tribe may not foreclose upon or obtain title to the land
Restrictions in the Indenture, the Bank Credit Facility and the other
indentures to which the Authority is a party may impose limits on the
Authority's ability to pursue its business strategies.
The Indenture, the Bank Credit Facility and the other indentures to which
the Authority is a party contain customary operating and financial restrictions
that limit its discretion on various business matters. These restrictions
include covenants limiting its ability to:
. incur additional debt;
. grant liens;
. make investments;
. sell assets;
. pay dividends and other distributions;
. make capital expenditures; and
. enter into transactions with affiliates.
The Bank Credit Facility also requires the Authority to mainain a fixed
charge coverage ratio and not to exceed certain ratios of senior indebtedness
and total leverage to EBITDA (earnings before interest, taxes, depreciation and
amortization) as defined in the Bank Credit Facility. If these ratios are not
maintained or are exceeded, as applicable, it may be impossible for the
Authority to borrow additional funds to meet its obligations. See "Description
of Other Indebtedness--Bank Credit Facility."
These restrictions may reduce the Authority's flexibility in planning for,
or reacting to, changes in its business and the gaming industry in general and
thereby hurt its results of operations and its ability to meet its debt service
obligations with respect to the exchange notes and its other indebtedness.
17
Additionally, a failure by the Authority to comply with covenants in its
debt instruments could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Authority and could result
in the acceleration of all then-outstanding amounts of such debt and an
inability to make debt service payments under the exchange notes. See
"Description of the Exchange Notes--Covenants."
The Authority's obligations under the Relinquishment Agreement could
adversely affect its financial health and prevent it from fulfilling its debt
service obligations under the exchange notes.
Pursuant to the terms of the Relinquishment Agreement, the Authority is
required, among other things, to pay to TCA five percent of the revenues
generated by Mohegan Sun and Project Sunburst during the 15-year period which
commenced on January 1, 2000. See "Description of Other
Indebtedness--Relinquishment Agreement with Trading Cove Associates." The
Authority paid $24.5 million in Senior Relinquishment Payments during the six
months ended March 31, 2002. Of the $24.5 million in relinquishment payments
for the six months ended March 31, 2002, $6.4 million represents principal
amounts and the remaining $18.1 million is payment for the accretion of
interest. As of March 31, 2002, relinquishment payments earned but unpaid were
$12.5 million. During the six months ended March 31, 2001, the Authority paid
$21.0 million in Senior Relinquishment Payments. Of the $21.0 million in
relinquishment payments for the six months ended March 31, 2001, $6.3 million
represents principal amounts and the remaining $14.7 million is payment for the
accretion of interest.
This obligation consumes a significant portion of the Authority's revenues
that might otherwise be available to fund working capital, capital expenditures
and other general operating requirements. As a result, the Authority's
flexibility in planning for, or reacting to, changes in its business and the
gaming industry in general is reduced. This may place the Authority at a
disadvantage compared to its competitors that do not have such an obligation
and thereby hurt its results of operations and its ability to meet its debt
service obligations with respect to the exchange notes and its other
indebtedness. The Relinquishment Agreement also contains operating and
financial restrictions similar to those contained in the Indenture, the Bank
Credit Facility and the other indentures that govern the Authority's long-term
debt obligations.
Failure to complete Project Sunburst within its revised budget and on time
with minimal disruption to existing operations or continued increases in the
budget to complete Project Sunburst could adversely affect the financial health
of the Authority.
The anticipated remaining construction costs and completion dates for
Project Sunburst are based on budgets, design documents and schedule estimates
prepared by TCA for the Authority, as revised and updated from time to time,
with the assistance of architects and contractors. Construction projects such
as Project Sunburst are inherently subject to significant development and
construction risks and uncertainties. These include, but are not limited to,
the following:
. necessary or desirable changes or increases in scope of the project;
. additional necessary upgrades and enhancements to the project;
. labor disputes;
. shortages of material and skilled labor;
. weather interference;
. engineering problems;
. environmental problems (including asbestos, lead and hazardous waste
removal);
. fire, flood and other natural disasters; and
. geological, construction, demolition, excavation, regulatory and/or
equipment problems.
18
All of these risks and others could cause unanticipated cost increases.
A major portion of Project Sunburst was completed with the opening on
September 25, 2001 of the Casino of the Sky, the Shops at Mohegan Sun and
Mohegan Sun Arena. The remaining components, including a majority of the 1,200
room Mohegan Sun luxury hotel and approximately 100,000 square feet of
convention space, opened in April 2002, with full completion of construction
expected by the end of June 2002. We cannot assure you that the uncompleted
portion of Project Sunburst will begin operations on time or that construction
costs for Project Sunburst will not exceed its budget. In fact, TCA recently
informed the Authority that the total cost of completing Project Sunburst is
estimated to be $1.0 billion, which represents an increase of $40.0 million
over the previous estimate of $960.0 million. See "Business--Project Sunburst."
If the Authority fails to complete Project Sunburst within the revised budget
or on schedule, or continues to experience increases to the budget for the
completion of Project Sunburst, Mohegan Sun's operations and the Authority's
financial condition may be materially adversely affected, which could prevent
the Authority from meeting its debt service obligations with respect to the
exchange notes.
Furthermore, although construction activities related to Project Sunburst
have been planned in a manner so as to minimize disruption, construction noise
and debris and the temporary closing of some of the facilities, such activities
may disrupt Mohegan Sun's current operations. Unexpected construction delays
could exacerbate or magnify these disruptions. We cannot assure you that
construction of Project Sunburst will not have a material adverse effect on the
Authority's results of operations and thereby affect the Authority's ability to
meet its debt service obligations with respect to the exchange notes.
A continued downturn in the regional economy could negatively impact the
Authority's financial performance.
Ninety-five percent of Mohegan Sun's patrons arrive via automobile and are
assumed to work or live in the northeastern United States. Moderate or severe
economic downturns or adverse conditions in the northeastern United States may
negatively affect the Authority's operations. During periods of economic
contraction, the Authority's revenues may decrease while some of its costs
remain fixed, resulting in decreased earnings. This is because the gaming and
other leisure activities that the Authority offers are discretionary
expenditures and participation in such activities may decline during economic
downturns because consumers have less disposable income. Even an uncertain
economic outlook may adversely affect consumer spending in the Authority's
gaming operations and related facilities, because consumers spend less in
anticipation of a potential economic downturn. Accordingly, the Authority's
business, assets, financial condition and results of operations could be
adversely affected if the regional economic conditions continue to weaken.
Because the gaming industry in the State of Connecticut has experienced
seasonal fluctuations in the past, the Authority may also experience seasonal
variations in its revenue and operating results that could adversely affect the
Authority's cash flow.
The gaming industry in the State of Connecticut has experienced seasonal
fluctuations, with the heaviest gaming activity occurring between July and
October. Similarly, the heaviest gaming activity has occurred at Mohegan Sun
between July and October. As a result of this seasonal fluctuation, the
Authority will likely continue to experience seasonal variation in its
quarterly revenue and operating results that could result in decreased cash
flow during periods in which gaming activity is relatively low. These
variations in quarterly revenue and operating results could adversely affect
the Authority's overall financial condition.
Mohegan Sun is subject to the risks of a new business.
Although Mohegan Sun has been in operation since October 12, 1996, the
addition of a hotel and other new and untested amenities has many of the same
risks inherent in the establishment of a new business enterprise. The
Authority's lack of operating history in these new ventures could lead to
service disruptions and other
19
operational and financial issues that may adversely affect the Authority's
future operating results and its ability to meet its debt service obligations
with respect to the exchange notes.
Negative conditions affecting, and seasonal nature of, the lodging industry
may have an adverse affect on the Authority's revenue and cash flow.
Once the hotel is completed, fully operational and has stabilized, the
Authority will depend on the revenue generated from the hotel, together with
the revenue generated from Mohegan Sun, to meet its debt obligations and fund
its operations. Revenue generated from the operation of the hotel is subject to
conditions affecting the lodging industry in general, and, as a result, the
Authority's cash flow and financial performance may be affected not only by the
conditions in the gaming industry, but also by those in the lodging industry.
Some of these conditions are as follows:
. changes in the national, regional and local economic climate;
. changes in local conditions such as an oversupply of hotel properties;
. decreases in the level of demand for hotel rooms and related services;
. the attractiveness of the Authority's hotel to consumers and competition
from comparable hotels;
. cyclical over-building in the hotel industry;
. changes in travel patterns;
. changes in room rates and increases in operating costs due to inflation
and other factors; and
. the need to periodically repair and renovate the hotel.
Adverse changes in these conditions could adversely affect the hotel's
profitability and, hence, the Authority's financial performance.
In addition, the hotel industry is seasonal in nature, which means that the
hotel may experience a decrease in the number of guests and amount of revenue
during particular periods during the year where there is limited travel. As a
result, the hotel's profitability may not be stable throughout the year and may
cause the Authority's cash flow to be adversely affected during these periods.
The risks associated with operating a substantially expanded facility and
managing its growth could have a material adverse effect on Mohegan Sun's
future performance.
When Project Sunburst is completed, Mohegan Sun will have significantly
larger gaming facilities, entertainment venues and retail space, as well as new
hotel and convention facilities. There can be no assurance that the Authority
will be successful in integrating the new casino and resort into Mohegan Sun's
current operations or in managing the expanded resort. The failure to integrate
and manage the new services and amenities successfully could have a material
adverse effect on the Authority's results of operations and on its ability to
meet its debt service obligations with respect to the exchange notes.
The loss of a key management member could have a material adverse effect on
Mohegan Sun.
Mohegan Sun's success depends in large part on the continued service of key
management personnel, particularly William Velardo, the Authority's President
and General Manager, Mitchell Etess, the Authority's Executive Vice President
of Marketing and Jeffrey Hartmann, the Authority's Executive Vice President of
Finance and Chief Financial Officer. The loss of the services of one or more of
these individuals or other key personnel could have a material adverse effect
on the Authority's business, operating results and financial condition.
20
The Authority may be subject to material environmental liability as a result
of possibly incomplete remediation of known environmental hazards and the
existence of unknown environmental hazards.
The site on which Mohegan Sun is located was formerly occupied by United
Nuclear Corporation, a naval products manufacturer of, among other things,
nuclear reactor fuel components. Prior to the decommissioning of United Nuclear
Corporation facilities on the site, extensive remediation of contaminated soils
and additional investigations were completed. The site currently meets federal
and state remediation requirements. Notwithstanding the foregoing, we cannot
assure you that:
. the various environmental reports or any other existing environmental
studies revealed all environmental liabilities;
. any prior owners or tenants did not create any material environmental
condition not known to us;
. future laws, ordinances or regulations will not impose any material
environmental liability; or
. a material environmental condition does not otherwise exist on the site.
Any of the above could have a material adverse effect upon the Authority's
future operating results and ability to meet its debt service obligations with
respect to the exchange notes.
Risks Related to Indian Gaming Industry
Gaming is a highly regulated industry and changes in the law could have a
material adverse effect on the Tribe's and the Authority's ability to conduct
gaming and thus on the Authority's ability to meet its debt service obligations
with respect to the exchange notes.
Gaming on the Tribe's reservation is regulated extensively by federal, state
and tribal regulatory bodies, including the National Indian Gaming Commission,
or the NIGC, and agencies of the State of Connecticut, such as the Division of
Special Revenue, the State Police and the Department of Liquor Control. As is
the case with any casino, changes in applicable laws and regulations could
limit or materially affect the types of gaming that may be conducted by the
Authority and the revenues realized therefrom.
Currently, the operation of all gaming on Indian lands is subject to the
Indian Gaming Regulatory Act of 1988, or IGRA. Over the past several years,
legislation has been introduced in the United States Congress with the intent
of modifying a variety of perceived problems with IGRA. Virtually all of the
proposals that have been considered seriously would be prospective in effect
and contain clauses that would grandfather existing Indian gaming operations
such as Mohegan Sun. Legislation also has been proposed, however, which would
have the effect of repealing many of the key provisions of IGRA and prohibiting
the continued operation of particular classes of gaming on Indian reservations
in states where such gaming is not otherwise allowed on a commercial basis.
While none of the substantive proposed amendments to the Indian Gaming
Regulatory Act have been enacted, the Authority cannot predict the
ramifications of future legislative acts. In the event that Congress passes
prohibitory legislation that does not include any grandfathering exemption for
existing tribal gaming operations, and if such legislation is sustained in the
courts against tribal challenge, the Authority's ability to meet its debt
service obligations would be materially and adversely affected.
In addition, under federal law, gaming on Indian land is dependent on the
permissibility under state law of specific forms of gaming or similar
activities. If the State of Connecticut were to make various forms of gaming
illegal or against public policy, such action may have an adverse effect on the
ability of the Authority to conduct its gaming operations. Connecticut
currently permits, among other things, a state lottery, jai alai fronton
betting and off-track betting parlors.
21
A change in the Authority's current tax-exempt status could have a material
adverse effect on its ability to repay its obligations under the exchange notes.
Based on current interpretation of the Internal Revenue Code, which we refer
to as the Code, neither the Tribe nor the Authority is subject to federal
income or property taxes. However, we cannot assure you that Congress will not
reverse or modify the exemption for Indian tribes from federal income or
property taxation.
Efforts have been made in Congress over the past several years to amend the
Code to provide for taxation of the net income of tribal business entities.
These efforts have included a House of Representatives bill that would have
taxed gaming income earned by Indian tribes as unrelated business income
subject to corporate tax rates. Although no such legislation has been enacted,
such legislation could be passed in the future. Future proposals or amendments
in this area could materially and adversely affect the market value of the
exchange notes or the Authority's ability to pay the principal and interest on
the exchange notes.
Risks Related to the Exchange
Your exchange notes may be redeemed automatically if your ownership of the
exchange notes jeopardizes the Authority's gaming licenses.
The Authority has the right to redeem the exchange notes if any holder of
the exchange notes jeopardizes the Authority's gaming license by not having
required licenses or qualifications. The redemption price for the exchange
notes in the case of such redemption is equal to the lowest of the holder's
cost, the principal amount of such exchange notes or the current market price
of such exchange notes. See "Description of the Exchange Notes--Optional
Redemption."
The Authority may lack sufficient funds to effect a repurchase of the
exchange notes upon a change of control.
Upon the occurrence of specified change of control events, the Authority
will be required to offer to repurchase all then outstanding exchange notes.
The Authority may not have the ability to raise the funds necessary to finance
the change of control offer required by the Indenture. See "Description of the
Exchange Notes--Repurchase at the Option of Holders."
Some holders of exchange notes may still be subject to various transfer
restrictions.
You generally may sell exchange notes without complying with the
registration requirements of the Securities Act, unless you are:
. an "affiliate" of the Authority within the meaning of Rule 405 under the
Securities Act;
. a broker-dealer that acquired outstanding notes as a result of
market-making or other trading activities; or
. a broker-dealer that acquired outstanding notes directly from the
Authority for resale pursuant to Rule 144A or another available
exemption under the Securities Act.
"Affiliates" of the Authority may sell exchange notes only in compliance
with the provisions of Rule 144 under the Securities Act or another available
exemption. The broker-dealers described above must deliver a prospectus in
connection with any resale of exchange notes. See "The Exchange Offer" and
"Plan of Distribution."
22
There is no established trading market for the exchange notes, which could
make it more difficult for you to sell the exchange notes and could adversely
affect the price of your exchange notes.
The exchange notes constitute a new issue of securities for which no
established trading market exists. If the exchange notes are traded after their
initial issuance, the liquidity of the trading market in the exchange notes,
and the market price quoted for the exchange notes, may be adversely affected
by changes in the overall market for high yield securities and by changes in
the Authority's financial performance or prospects or in the prospects for
companies in the gaming industry generally. As a result, you can not be sure
that an active trading market will develop for the exchange notes.
The Authority has been informed by the initial purchasers of the outstanding
notes that they intend to make a market in the exchange notes. However, the
initial purchasers have no obligation to do so, and may discontinue any
market-making activities at any time without notice. The Authority does not
intend to list the exchange notes on any national securities exchange or to
seek the admission thereof to trade on the Nasdaq National Market. The
Authority cannot assure you of the development of any market or of the
liquidity of any market that may develop for the exchange notes following the
exchange offer.
Holders of outstanding notes who fail to tender may experience diminished
liquidity after the exchange offer.
The Authority has not registered nor does it intend to register the
outstanding notes under the Securities Act. Outstanding notes that remain after
consummation of the exchange offer will therefore remain subject to transfer
restrictions under applicable securities laws. Unexchanged outstanding notes
will continue to bear a legend reflecting these restrictions on transfer.
Furthermore, the Authority has not conditioned the exchange offer on receipt of
any minimum or maximum principal amount of outstanding notes. As outstanding
notes are tendered and accepted in the exchange offer, the principal amount of
remaining outstanding notes will decrease. This decrease will reduce the
liquidity of the trading market for the outstanding notes. The Authority cannot
assure you of the liquidity, or even the continuation, of the trading market
for the outstanding notes following the exchange offer.
In order to receive exchange notes, you must follow the exchange offer
procedures.
You are responsible for complying with all exchange offer procedures. You
will receive exchange notes in exchange for your outstanding notes only if,
prior to the expiration date, you deliver the following to the exchange agent:
. certificates for the outstanding notes or a book-entry confirmation of a
book-entry transfer of the outstanding notes into the exchange agent's
account at DTC;
. a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), or an electronic message agreeing to be bound by the
Letter of Transmittal properly transmitted through DTC's Automated
Tender Offer Program for a book-entry transfer, together with any
required signature guarantees; and
. any other documents required by the Letter of Transmittal.
You should allow sufficient time to ensure that the exchange agent receives
all required documents before the expiration of the exchange offer. Neither the
Authority nor the exchange agent has any duty to inform you of defects or
irregularities with respect to the tender of your outstanding notes for
exchange. See "The Exchange Offer."
23
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
In connection with the sale of the outstanding notes, the Authority entered
into the Registration Rights Agreement with the initial purchasers of the
outstanding notes. Pursuant to the Registration Rights Agreement, the Authority
agreed to file and to use its best efforts to cause to become effective with
the SEC a registration statement with respect to the exchange of the
outstanding notes for exchange notes with terms identical in all material
respects to the terms of the outstanding notes. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this prospectus is a part. The exchange offer is being made to satisfy
the contractual obligations of the Authority under the Registration Rights
Agreement.
By tendering outstanding notes in exchange for exchange notes, each holder
represents to the Authority that:
(1) the holder of the outstanding notes is not an "affiliate," as such
term is defined under the Securities Act, of the Authority, or if the holder
is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act, if applicable (upon request by
the Authority, the holder will deliver to the Authority a legal opinion
confirming it is not such an affiliate);
(2) the exchange notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the holder;
(3) the holder is not engaging in or intending to engage in a
"distribution," as such term is defined under the Securities Act, of such
exchange notes;
(4) the holder has no arrangement or understanding with any person to
participate in a distribution of such exchange notes;
(5) the holder acknowledges and agrees that any person who is a
broker-dealer registered under the Exchange Act and who receives exchange
notes for its own account in exchange for outstanding notes pursuant to the
exchange offer, by tendering outstanding notes and executing the Letter of
Transmittal, represents and agrees that such outstanding notes were acquired
by such broker-dealer for its own account as a result of market-making
activities or other trading activities and it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of exchange notes (provided that, by so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act);
(6) the holder acknowledges and agrees that any person who is
participating in the exchange offer for the purpose 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 or interests therein acquired by such
person and cannot rely on the position of the Staff of the SEC set forth in
certain no-action letters;
(7) the holder understands that a secondary resale transaction described
in the representation above and any resales of exchange notes or interests
therein obtained by such holder in exchange for outstanding notes or
interests therein originally acquired by such holder directly from the
Authority should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K or the SEC;
(8) the holder has full power and authority to tender, exchange, sell,
assign and transfer the outstanding notes tendered hereby and that, when the
same are accepted for exchange, the Authority will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances; and
(9) the outstanding notes tendered hereby are not subject to any adverse
claims or proxies.
24
The exchange offer is not being made to, nor will the Authority accept
tenders for exchange from, holders of outstanding notes in any jurisdiction in
which the exchange offer or the acceptance of the exchange notes would be in
violation of the securities or blue sky laws of that jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
exchange offer means any person in whose name the outstanding notes are
registered on the books of the Authority or any other person who has obtained a
properly completed bond power from the registered holder, or any participant in
DTC whose name appears on a security position listing as a holder of
outstanding notes (which, for purposes of the exchange offer, include
beneficial interests in the outstanding notes held by direct or indirect
participants in DTC and outstanding notes held in definitive form).
The Authority may be required to file with the SEC a "shelf" registration
statement for a continuous offer in connection with the outstanding notes.
Pursuant to the Registration Rights Agreement, the Authority will be required
to file a shelf registration statement if (1) the Authority is not permitted to
consummate the exchange offer because the exchange offer is not permitted by
applicable law or SEC policy or (2) any holder of transfer restricted
securities notifies the Authority prior to the 20th business day following
consummation of the exchange offer that (a) it is prohibited by law or SEC
policy from participating in the exchange offer, (b) it may not resell the
exchange notes acquired by it in the exchange offer to the public without
delivering a prospectus and the prospectus contained in the exchange offer
registration statement is not appropriate or available for such resales or (c)
it is a broker-dealer and owns outstanding notes acquired directly from the
Authority or an affiliate of the Authority.
Terms of the Exchange Offer
The Authority hereby offers, upon the terms and subject to the conditions
shown in this prospectus and in the accompanying Letter of Transmittal, to
exchange $1,000 principal amount of exchange notes for each $1,000 principal
amount of outstanding notes properly tendered before the expiration date and
not properly withdrawn according to the procedures described below. Holders may
tender their outstanding notes in whole or in part in integral multiples of
$1,000 principal amount.
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that (1) the exchange notes have been
registered under the Securities Act and therefore are not subject to the
restrictions on transfer applicable to the outstanding notes and (2) holders of
the exchange notes will not be entitled to some of the rights of holders of the
outstanding notes under the Registration Rights Agreement. The exchange notes
evidence the same indebtedness as the outstanding notes (which they replace)
and will be issued pursuant to, and entitled to the benefits of, the Indenture.
The exchange offer is not conditioned on any minimum principal amount of
outstanding notes being tendered for exchange. The Authority reserves the right
in its sole discretion to purchase or make offers for any outstanding notes
that remain outstanding after the expiration date in the exchange offer or, as
shown under "--Conditions to the Exchange Offer," to terminate the exchange
offer and, to the extent permitted by applicable law, purchase outstanding
notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer. As of the date of this prospectus, $250 million principal
amount of outstanding notes are outstanding.
Holders of outstanding notes do not have any appraisal or dissenters' rights
in connection with the exchange offer. Outstanding notes which are not tendered
for, or are tendered but not accepted in connection with, the exchange offer
will remain outstanding. See "Risk Factors--Risks Related to the
Exchange--Holders of outstanding notes who fail to tender may experience
diminished liquidity after the exchange offer."
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of particular other events described herein
or otherwise, certificates for any such unaccepted outstanding notes will be
returned, without expense, to the tendering holder thereof promptly after the
expiration date.
25
Holders who tender outstanding notes in connection with 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 the outstanding notes in connection with the exchange offer. The
Authority will pay all charges and expenses, other than specified applicable
taxes. See "--Fees and Expenses"
THE AUTHORITY MAKES NO RECOMMENDATION TO THE HOLDERS OF THE OUTSTANDING
NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF
THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF THE OUTSTANDING NOTES
MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER,
AND, IF SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO TENDER AFTER READING
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND REQUIREMENTS.
Expiration Date; Extensions; Amendments
The "expiration date" for the exchange offer is 5:00 p.m., New York City
time, on , 2002 unless the exchange offer is extended by the Authority.
If the Authority does extend the exchange offer, the "expiration date" will be
the latest date and time to which the exchange offer is extended. However, in
no event will the exchange offer be open for more than 30 business days.
The Authority expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (1)
to delay the acceptance of the outstanding notes for exchange, (2) to terminate
the exchange offer (whether or not any outstanding notes have theretofore been
accepted for exchange) if the Authority determines, in its sole and absolute
discretion, that any of the events or conditions referred to under
"--Conditions to the Exchange Offer" has occurred or exists or has not been
satisfied with respect to the exchange offer, (3) to extend the expiration date
of the exchange offer and retain all outstanding notes tendered pursuant to the
exchange offer, subject, however, to the right of holders of outstanding notes
to withdraw their tendered outstanding notes as described under "--Withdrawal
Rights" and (4) to waive any condition or otherwise amend the terms of the
exchange offer in any respect. If the exchange offer is amended in a manner
determined by the Authority to constitute a material change, or if the
Authority waives a material condition of the exchange offer, the Authority will
promptly disclose such amendment or waiver by means of a prospectus supplement
that will be distributed to the registered holders of the outstanding notes,
and the Authority will extend the exchange offer to the extent required by Rule
14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the exchange agent (any
such oral notice to be confirmed promptly in writing) and by making a public
announcement, and such announcement in the case of an extension will be made no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. Without limiting the manner in which the
Authority may choose to make any public announcement, and subject to applicable
laws, the Authority shall have no obligation to publish, advertise or otherwise
communicate any such public announcement other than by issuing a release to an
appropriate news agency.
Acceptance for Exchange and Issuance of Exchange Notes
Upon the terms and subject to the conditions of the exchange offer, the
Authority will exchange, and will issue to the exchange agent, exchange notes
for outstanding notes validly tendered and not withdrawn (pursuant to the
withdrawal rights described under "--Withdrawal Rights") promptly after the
expiration date.
In all cases, delivery of exchange notes in exchange for outstanding notes
tendered and accepted for exchange pursuant to the exchange offer will be made
only after timely receipt by the exchange agent of
26
(1) outstanding notes or a book-entry confirmation of a book-entry transfer of
outstanding notes into the exchange agent's account at DTC, (2) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), or an
electronic message agreeing to be bound by the Letter of Transmittal properly
transmitted through DTC's Automated Tender Offer Program for a book-entry
transfer, with any required signature guarantees, and (3) any other documents
required by the Letter of Transmittal. Accordingly, the delivery of exchange
notes might not be made to all tendering holders at the same time, and will
depend upon when outstanding notes, book-entry confirmations with respect to
outstanding notes and other required documents are received by the exchange
agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of outstanding notes into the exchange agent's account at
DTC.
Subject to the terms and conditions of the exchange offer, the Authority
will be deemed to have accepted for exchange, and thereby exchanged,
outstanding notes validly tendered and not withdrawn as, if and when the
Authority gives oral or written notice to the exchange agent (any such oral
notice to be confirmed promptly in writing) of the Authority's acceptance of
such outstanding notes for exchange pursuant to the exchange offer. The
Authority's acceptance for exchange of outstanding notes tendered pursuant to
any of the procedures described below will constitute a binding agreement
between the tendering holder and the Authority upon the terms and subject to
the conditions of the exchange offer. The exchange agent will act as agent for
the Authority for the purpose of receiving tenders of outstanding notes,
Letters of Transmittal and related documents, and as agent for tendering
holders for the purpose of receiving outstanding notes, Letters of Transmittal
and related documents and transmitting exchange notes to holders who validly
tendered outstanding notes. Such exchange will be made promptly after the
expiration date of the exchange offer. If for any reason the acceptance for
exchange or the exchange of any outstanding notes tendered pursuant to the
exchange offer is delayed (whether before or after the Authority's acceptance
for exchange of outstanding notes), or the Authority extends the exchange offer
or is unable to accept for exchange or exchange outstanding notes tendered
pursuant to the exchange offer, then, without prejudice to the Authority's
rights set forth herein, the exchange agent may, nevertheless, on behalf of the
Authority and subject to Rule 14e-1(c) under the Exchange Act, retain tendered
outstanding notes and such outstanding notes may not be withdrawn except to the
extent tendering holders are entitled to withdrawal rights as described under
"--Withdrawal Rights."
Procedures for Tendering Outstanding Notes
Valid Tender
Except as set forth below, in order for outstanding notes to be validly
tendered pursuant to the exchange offer, either (1)(a) a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), or an electronic
message agreeing to be bound by the Letter of Transmittal properly transmitted
through DTC's Automated Tender Offer Program for a book-entry transfer, with
any required signature guarantees and any other required documents, must be
received by the exchange agent at the address or the facsimile number set forth
under "--Exchange Agent" prior to the expiration date and (b) tendered
outstanding notes must be received by the exchange agent, or such outstanding
notes must be tendered pursuant to the procedures for book-entry transfer set
forth below and a book-entry confirmation must be received by the exchange
agent, in each case prior to the expiration date, or (2) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the outstanding notes are tendered, a tendering holder
should fill in the amount of outstanding notes being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of outstanding
notes delivered to the exchange agent will be deemed to have been tendered
unless otherwise indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
27
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing. Unless waived by the Authority,
evidence satisfactory to the Authority of such person's authority to so act
also must be submitted.
Any beneficial owner of outstanding notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the exchange offer.
The method of delivery of outstanding notes, the Letter of Transmittal and
all other required documents is at the option and sole risk of the tendering
holder. Delivery will be deemed made only when actually received by the
exchange agent. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery and proper insurance should be obtained. No
Letter of Transmittal or outstanding notes should be sent to the Authority.
Holders may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect these transactions for them.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus. Any financial institution that
is a participant in DTC's book-entry transfer facility system should make a
book-entry delivery of the outstanding notes by causing DTC to transfer such
outstanding notes into the exchange agent's account at DTC in accordance with
DTC's procedures for transfers. DTC's ATOP is the only method of processing
exchange offers through DTC. To accept the exchange offer through ATOP,
participants in DTC must send electronic instructions to DTC through DTC's
system instead of sending a signed, hard-copy Letter of Transmittal. DTC is
obligated to communicate those electronic instructions to the exchange agent.
To tender outstanding notes through ATOP, the electronic instructions sent to
DTC and transmitted by DTC to the exchange agent must contain the character by
which the participant acknowledges its receipt of and agrees to be bound by the
Letter of Transmittal.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
Signature Guarantees
Certificates for outstanding notes need not be endorsed and signature
guarantees on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are unnecessary unless (a) a certificate for outstanding notes is
registered in a name other than that of the person surrendering the certificate
or (b) a registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (a) or (b) above, such certificates for outstanding notes must
be duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal or
the notice of withdrawal, as the case may be, guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined therein) (1) a
bank, (2) broker, dealer, municipal securities broker or dealer or government
securities broker or dealer, (3) a credit union, (4) a national securities
exchange, registered securities association or clearing agency or (5) a savings
association that is a participant in a Securities Transfer Association (each an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 2 to the Letter of Transmittal.
Guaranteed Delivery
If a holder desires to tender outstanding notes pursuant to the exchange
offer and the certificates for such outstanding notes are not immediately
available or time will not permit all required documents to reach the
28
exchange agent before the expiration date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such outstanding notes may
nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with:
(1) such tenders are made by or through an Eligible Institution;
(2) prior to the expiration date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, or an electronic message through ATOP with respect to
guaranteed delivery for book-entry transfers, setting forth the name and
address of the holder of outstanding notes and the amount of outstanding
notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after
the date of execution of the Notice of Guaranteed Delivery or transmission
of such electronic message through ATOP for book-entry transfers, the
certificates for all physically tendered outstanding notes, in proper form
for transfer or a book-entry confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the exchange agent; and
(3) the certificates (or book-entry confirmation) representing all
tendered outstanding notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal with any required
signature guarantees (or a facsimile thereof) or a properly transmitted
electronic message through ATOP in the case of book-entry transfers, and any
other documents required by the Letter of Transmittal, are received by the
exchange agent within three New York Stock Exchange trading days after the
date of execution of the Notice of Guaranteed Delivery or transmission of
such electronic message through ATOP with respect to guaranteed delivery for
book-entry transfers.
Determination of Validity
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered outstanding notes
will be determined by the Authority, in its sole discretion, which
determination shall be final and binding on all parties. The Authority reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders it determines not to be in proper form or the acceptance for exchange
of which may, in the view of counsel to the Authority, be unlawful. The
Authority also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the exchange offer as set forth under "--Conditions to
the Exchange Offer" or any defect or irregularity in any tender of outstanding
notes of any particular holder whether or not similar defects or irregularities
are waived in the case of other holders.
The Authority's interpretation of the terms and conditions of the exchange
offer (including the Letter of Transmittal and the instructions thereto) will
be final and binding on all parties. No tender of outstanding notes will be
deemed to have been validly made until all defects or irregularities with
respect to such tender have been cured or waived. None of the Authority, any
affiliates of the Authority, the exchange agent or any other person shall be
under any duty to give any notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
Resales of Exchange Notes
Based on interpretations by the Staff of the SEC, as set forth in the
no-action letters of Exxon Capital Holdings Corporation (available April 13,
1988), Morgan Stanley & Co. Incorporated (available June 5, 1991) and Shearman
& Sterling (available July 2, 1993), the Authority believes that holders of
outstanding notes who exchange their outstanding notes for exchange notes may
offer for resale, resell and otherwise transfer such exchange notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act. This would not apply, however, to any holder that is a
broker-dealer that acquired outstanding notes as a result of market-making
activities or other trading activities or directly from the Authority for
resale under an available exemption under the Securities Act. Also, resale
would only be permitted for exchange notes that are acquired in
29
the ordinary course of a holder's business, where such holder has no
arrangement or understanding with any person to participate in the distribution
of such exchange notes and such holder is not an "affiliate" of the Authority.
The Staff of the SEC has not considered this exchange offer in the context of a
no-action letter, and there can be no assurance that the Staff of the SEC would
make a similar determination with respect to this exchange offer. Each
broker-dealer that receives exchange notes for its own account in exchange for
outstanding notes under the exchange offer, where such outstanding notes were
acquired by such broker-dealer as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
Withdrawal Rights
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on ,
2002, or such date and time to which the exchange offer is extended. In order
for a withdrawal to be effective, such withdrawal must be in writing and timely
received by the exchange agent at its address or the facsimile number set forth
under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date. Any such notice of withdrawal must specify the name of the
person who tendered the outstanding notes to be withdrawn, the principal amount
of outstanding notes to be withdrawn, and (if certificates for such outstanding
notes have been tendered) the name of the registered holder of the outstanding
notes as set forth on the outstanding notes, if different from that of the
person who tendered such outstanding notes. If certificates for outstanding
notes have been delivered or otherwise identified to the exchange agent, the
notice of withdrawal must specify the serial numbers on the particular
certificates for the outstanding notes to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of outstanding notes tendered for the account of an Eligible
Institution. If outstanding notes have been tendered pursuant to the procedures
for book-entry transfer set forth in "--Procedures for Tendering Outstanding
Notes," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of outstanding notes and must
otherwise comply with the procedures of DTC. Withdrawals of tenders of
outstanding notes may not be rescinded. Outstanding notes properly withdrawn
will not be deemed validly tendered for purposes of the exchange offer, but may
be retendered at any subsequent time prior to the expiration date of the
exchange offer by following any of the procedures described above under
"--Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Authority, in its
sole discretion, which determination shall be final and binding on all parties.
Neither the Authority, any affiliates of the Authority, the exchange agent or
any other person shall be under any duty to give any notification of any
defects or irregularities in any notice of withdrawal or incur any liability
for failure to give any such notification. Any outstanding notes which have
been tendered but which are withdrawn will be returned to the holder promptly
after withdrawal.
Interest on the Exchange Notes
Interest on the exchange notes will be payable on April 1 and October 1 of
each year at a rate of 8% per annum, commencing October 1, 2002. The exchange
notes will mature on April 1, 2012.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer or any extension
of the exchange offer, the Authority will not be required to accept for
exchange, or to exchange, any outstanding notes for any exchange notes and will
not be required to issue exchange notes in exchange for any outstanding notes
and, as described below, may at any time and from time to time, terminate or
amend the exchange offer, whether or not any
30
outstanding notes have been accepted to exchange, or may waive any conditions
to or amend the exchange offer, if any of the following conditions have
occurred or exists or have not been satisfied before the expiration date:
. a change in the current interpretation by the Staff of the SEC which
permits resale of exchange notes as described under "--Resales of
Exchange Notes;"
. the institution or threat of an action or proceeding in any court or by
or before any governmental agency or body with respect to the exchange
offer which, in the Authority's judgment, would reasonably be expected
to impair the ability of the Authority to proceed with the exchange
offer;
. the adoption or enactment of any law, statute, rule or regulation which,
in the Authority's judgment, would reasonably be expected to impair the
ability of the Authority to proceed with the exchange offer;
. the issuance of a stop order by the SEC or any state securities
authority suspending the effectiveness of the Registration Statement, or
proceedings for that purpose;
. failure to obtain any governmental approval which the Authority
considers necessary for the consummation of the exchange offer as
contemplated hereby; and
. any change or development involving a prospective change in the business
or financial affairs of the Authority which the Authority believes might
materially impair its ability to proceed with the exchange offer.
If the Authority determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied at any time prior to the expiration date, the Authority may, subject
to applicable law, terminate the exchange offer (whether or not any outstanding
notes have theretofore been accepted for exchange) or may waive any such
condition or otherwise amend the terms of the exchange offer in any respect. If
such waiver or amendment constitutes a material change to the exchange offer,
the Authority will promptly disclose such waiver or amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
outstanding notes. In this case, the Authority will extend the exchange offer
to the extent required by Rule 14e-1 under the Exchange Act.
United States Federal Income Tax Consequences
The exchange of the outstanding notes for the exchange notes will not be a
taxable exchange for United States federal income tax purposes, and holders of
outstanding notes should not recognize any taxable gain or loss or any interest
income as a result of such exchange.
Exchange Agent
State Street Bank and Trust Company has been appointed as the exchange
agent. Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent as follows:
By Mail:
State Street Bank and Trust Company
P.O. Box 778
Boston, Massachusetts 02102
Attention: Corporate Trust Department, 5th Floor
Johnnie Kindell
By Overnight Courier or Hand Delivery in Boston:
State Street Bank and Trust Company
Two Avenue de Lafayette
Boston, Massachusetts 02110
Attention: Corporate Trust Department, 5th Floor
Johnnie Kindell
31
By Hand Delivery in New York:
State Street Bank and Trust Company
61 Broadway, 15th Floor
Corporate Trust Window
New York, New York 10006
By Facsimile (for Eligible Institutions only):
State Street Bank and Trust Company
(617) 662-1452
Attention: Corporate Trust Department
Confirm by telephone: (617) 662-1553
For Information:
(617) 662-1553
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Authority. The
principal solicitation is being made by mail. Additional solicitation may be
made personally or by telephone or other means by officers, directors or
employees of the Authority.
The Authority has not retained any dealer-manager or similar agent in
connection with the exchange offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the exchange offer. The Authority
has agreed to 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 Authority also will pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus and related documents
to the beneficial owners of outstanding notes, and in handling or tendering for
their customers.
Holders who tender their outstanding notes for exchange notes will not be
obligated to pay any transfer taxes in connection therewith, except that if
exchange notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the outstanding notes tendered, or
if a transfer tax is imposed for any reason other than the exchange of
outstanding notes in connection with the exchange offer, then the amount of any
such transfer tax (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such transfer tax or exemption therefrom is not submitted with the
Letter of Transmittal, the amount of such transfer tax will be billed directly
to such tendering holder.
32
USE OF PROCEEDS
The exchange offer is intended to satisfy the obligations of the Authority
under the Registration Rights Agreement. The Authority will not receive any
cash proceeds from the issuance of the exchange notes. In consideration for
issuing the exchange notes as contemplated in this prospectus, the Authority
will receive, in exchange, an equal number of outstanding notes in like
principal amount. The form and terms of the exchange notes are identical in all
material respects to the form and terms of the outstanding notes, except as
otherwise described in the section entitled "The Exchange Offer--Terms of the
Exchange Offer." The outstanding notes surrendered in exchange for the exchange
notes will be retired and cancelled and cannot be reissued.
33
CAPITALIZATION
The following table shows, as of March 31, 2002, the Authority's actual cash
balance and capitalization. This table should be read in conjunction with the
financial statements and related notes to those statements and other financial
data appearing elsewhere in this prospectus. Dollar amounts shown in the
following table are in thousands.
March 31, 2002
--------------
(Unaudited)
Cash and cash equivalents................................................ $ 80,656
==========
Debt (including current maturities of debt and capital lease obligations)
Bank Credit Facility.................................................. $ 199,000
Senior Notes.......................................................... 200,000
8 3/4% Senior Subordinated Notes...................................... 300,000
8 3/8% Senior Subordinated Notes...................................... 150,000
Outstanding notes..................................................... 250,000
----------
Total debt........................................................ 1,099,000
Total capital............................................................ 194,026
----------
Total capitalization..................................................... $1,293,026
==========
34
SELECTED FINANCIAL DATA
The selected financial data shown below for the fiscal years ended September
30, 2001, 2000 and 1999 and as of September 30, 2001 and 2000, have been taken
from the Authority's audited financial statements included in this prospectus.
The selected financial data set forth below for the fiscal years ended
September 30, 1998 and 1997, and as of September 30, 1999, 1998 and 1997, have
been derived from the Authority's audited financial statements for those years,
including certain reclassifications, which are not included in this prospectus.
The selected financial data as of or for the six months ended March 31, 2002
and 2001 have been taken from the Authority's unaudited interim financial
statements which, in the opinion of the Authority, include all adjustments
necessary for a fair presentation of such information. The Authority's
unaudited interim financial statements also are included in this prospectus.
Operating results for interim periods are not necessarily indicative of the
results that might be expected for the entire fiscal year. The financial
information shown below should be read in conjunction with the Authority's
financial statements and related notes beginning on page F-1 of this
prospectus, the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial and
statistical data included in this prospectus. Unless otherwise indicated,
dollar amounts shown in the following table are in thousands.
As of or for the Fiscal Years Ended September 30,
---------------------------------------------------------------
2001 2000 1999 1998 1997(1)
---------- -------- -------- --------- --------
Operating Results:
Gross revenues......................... $ 857,977 $809,314 $725,510 $ 611,463 $506,911
Promotional allowances................. (71,372) (70,044) (56,827) (42,501) (43,276)
---------- -------- -------- --------- --------
Net revenues........................... $ 786,605 $739,270 $668,683 $ 568,962 $463,635
---------- -------- -------- --------- --------
Income from operations................. $ 264,477 $195,514 $ 66,675 $ 135,687 $ 82,675
Other income (expense), net............ (59,038)(2) (48,906)(2) (66,355)(2) (47,539) (43,301)
Loss from discontinued operations...... (591) (674) (812) (569) (2,687)
Extraordinary items.................... -- -- (38,428)(4) (419,458)(5) --
---------- -------- -------- --------- --------
Net income (loss)(6)................... $ 204,848 $145,934 $(38,920) $(331,879) $ 36,687
========== ======== ======== ========= ========
Ratio of earnings to fixed charges(7).. 4.1x 3.7x 1.0x 2.7x 1.9x
========== ======== ======== ========= ========
Other Data:
Interest expense, net.................. $ 25,060 $ 37,799 $ 55,595 $ 50,172 $ 45,095
Capital expenditures................... $ 626,350 $288,278 $ 62,795 $ 32,731 $ 35,700
Net cash flows provided by operating
activities............................ $ 187,679 $194,845 $144,724 $ 135,067 $156,552
Balance Sheet Data:
Total assets........................... $1,452,735 $885,379 $914,962 $ 554,480 $386,974
Long-term debt and capital lease
obligations........................... $ 909,514 $506,391 $519,298 $ 294,567 $298,237
As of or for the Six
Months Ended March 31,
(Unaudited)
-------------------------
2002 2001
---------- ----------
Operating Results:
Gross revenues......................... $ 507,746 $ 405,900
Promotional allowances................. (31,588) (35,030)
---------- ----------
Net revenues........................... $ 476,158 $ 370,870
---------- ----------
Income from operations................. $ 77,569 $ 98,590
Other income (expense), net............ (49,965)(3) (29,266)(3)
Loss from discontinued operations...... -- (527)
Extraordinary items.................... -- --
---------- ----------
Net income (loss)(6)................... $ 27,604 $ 68,797
========== ==========
Ratio of earnings to fixed charges(7).. 1.6x 3.4x
========== ==========
Other Data:
Interest expense, net.................. $ 31,946 $ 11,815
Capital expenditures................... $ 216,820 $ 235,838
Net cash flows provided by operating
activities............................ $ 58,417 $ 76,831
Balance Sheet Data:
Total assets........................... $1,654,689 $1,069,389
Long-term debt and capital lease
obligations........................... $1,099,000 $ 631,671
- --------
(1) The Authority commenced operations at Mohegan Sun on October 12, 1996.
(2) For the fiscal years ended September 30, 2001, 2000 and 1999, includes
other income (expense) of $35.8 million, $23.1 million and $22.0 million,
respectively, of accretion of relinquishment liability discount under the
Relinquishment Agreement. A discussion of the estimation of this liability
may be found under Note 13 to the Authority's audited financial statements
on page F-18 which are included in this prospectus.
(3) For the six months ended March 31, 2002 and March 31, 2001, includes other
income (expense) of $18.2 million and $17.9 million, respectively, of
accretion of relinquishment liability discount under the Relinquishment
Agreement. A discussion of the estimation of this liability may be found
under Note 6 to the Authority's unaudited financial statements on page F-31
which are included in this prospectus.
(4) Includes expense of $33.7 million related to the tender premium of the $175
million senior secured notes, $5.2 million write-off of financing fees, net
of $500,000 forgiveness of debt.
35
(5) Includes expense of $419.1 million related to the initial assessment of the
Authority's liability under the Relinquishment Agreement.
(6) The Authority adopted Statement of Financial Accounting Standards No. 142
on October 1, 2001. Net income (loss), exclusive of the amortization of the
Authority's trademark, was $208.3 million, $150.2 million, ($36.3) million,
($331.9) million and $36.7 million for the years ended September 30, 2001,
2000, 1999, 1998 and 1997, respectively, and $27.6 million and $70.5
million for the six months ended March 31, 2002 and 2001, respectively. See
"Management's Discussion and Analysis of Financial Conditions and Results
of Operations--New Accounting Pronouncements."
(7) The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income from
continuing operations plus fixed charges and amortization of capitalized
interest, less capitalized interest. Fixed charges consist of interest
expense, capitalized interest and amortization of deferred financing fees.
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Authority's financial statements and the related notes beginning on page F-1
and the sections in this prospectus entitled "Selected Financial Data,"
"Capitalization" and "Business." Although the Authority believes the
expectations reflected in such forward looking statements are based on
reasonable assumptions, there can be no assurance that the Authority's
expectations will be realized. The actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including, without limitation, development and construction risks,
business conditions, competition, changes in interest rates, the risks of
downturns in economic conditions generally and the availability of financing
for development and operations. Some of these factors are discussed elsewhere
herein. The Authority assumes no obligation to update or supplement
forward-looking statements that become untrue because of subsequent events.
Overview
The Tribe and the Authority
The Tribe is a federally recognized Indian tribe with an approximately
405-acre reservation situated in southeastern Connecticut. Under 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 gaming compact with the state in which they operate. The Tribe
and the State of Connecticut have entered into such a compact that has been
approved by the United States Secretary of the Interior. The Tribe's gaming
operation is one of only two legally authorized gaming operations in New
England offering traditional slot machines and table games. The Tribe has
established an instrumentality, the Authority, with the exclusive power to
conduct and regulate gaming activities on the existing reservation of the Tribe
located adjacent to Uncasville, Connecticut. The Authority is governed by a
Management Board, consisting of the same nine members of the Mohegan Tribal
Council. The Authority is the issuer of both the outstanding notes and the
exchange notes.
Mohegan Sun
In October 1996, the Authority opened a gaming and entertainment complex
known as Mohegan Sun. Mohegan Sun is situated in southeastern Connecticut on a
240-acre site on the Tribe's reservation overlooking the Thames River with
direct access from Routes I-395 and 2A via a four-lane access road constructed
by the Authority. Mohegan Sun is located approximately 125 miles from New York
City and approximately 100 miles from Boston, Massachusetts. The Authority is
currently engaged in a major expansion of Mohegan Sun known as Project
Sunburst. The first phase of Project Sunburst, the Casino of the Sky, which
includes increased gaming, restaurant and retail space and an entertainment
arena, opened on September 25, 2001. The remaining components, including the
majority of a 1,200 room luxury hotel and approximately 100,000 square feet of
convention space, opened in April 2002 with full completion of construction
expected by the end of June 2002.
Mohegan Sun operates in an approximately 1.9 million square foot facility
which includes the following two casinos:
Casino of the Earth. The Casino of the Earth, the original casino at
Mohegan Sun, has approximately 176,500 square feet of gaming space and offers:
. approximately 3,655 slot machines, 158 table games (including blackjack,
roulette, craps, baccarat, pai gow tiles and let it ride) and 42 poker
tables;
. food and beverage amenities, including three full-service themed fine
dining restaurants, a 680-seat buffet, a New York style delicatessen, a
24-hour coffee shop, a ten-station food court featuring international
and domestic cuisine and multiple service bars for a total of
approximately 1,888 restaurant seats;
37
. an approximately 10,000 square foot, 350-seat lounge featuring live
entertainment seven days a week;
. an approximately 9,000 square foot simulcasting race book facility;
. an approximately 3,000 square foot, 50-seat Keno lounge; and
. three retail shops providing shopping opportunities ranging from
souvenirs to clothing to cigars.
Casino of the Sky. The Casino of the Sky has approximately 119,000 square
feet of gaming space and offers:
. approximately 2,564 slot machines and 82 table games (including
blackjack, roulette, craps, baccarat, Spanish 21 and blackjack bonanza);
. food and beverage amenities, including two full-service restaurants,
three quick-service restaurants, a 350-seat buffet and four lounges
operated by Mohegan Sun, as well as four full-service and three
quick-service restaurants operated by third-parties, for a total of
approximately 1,088 restaurant seats;
. the Mohegan Sun Arena with seating for up to 10,000;
. a 300-seat cabaret;
. an arcade-style recreation area and a child care facility; and
. the Shops at Mohegan Sun containing approximately 30 different retail
shops, five of which are owned by the Authority.
Mohegan Sun currently has parking spaces for approximately 10,165 guests and
3,075 employees. In addition, the Authority operates an approximately 4,000
square foot, 20-pump gasoline and convenience center located adjacent to
Mohegan Sun.
Additional Mohegan Sun Enhancements
In addition to Project Sunburst, the Authority has scheduled the following
capital improvements to the Mohegan Sun facility:
Parking Garages. The Indian Summer Garage will provide approximately 2,700
additional parking spaces and is currently being constructed. The approved
budget for the construction of the Indian Summer Garage is $65.0 million.
Construction began on the Indian Summer Garage in July 2001, and the Authority
anticipates that the project will be completed in June 2002. A second parking
garage, the Thames Garage, which provides approximately 1,700 additional
parking spaces, was completed in April 2002 for approximately $25.0 million.
Project Sunburst Utilities. The Authority is constructing various utility
upgrades and enhancements needed to support Project Sunburst. These
improvements originally were to be financed entirely by the Tribe from the
proceeds of tax-exempt financing. The Tribe, however, subsequently received an
opinion from its outside legal counsel advising it that a portion of the costs
for these improvements will not qualify for tax-exempt financing. Therefore,
the Authority paid for this portion of the total costs, which equaled
approximately $35.0 million. These improvements were completed concurrently
with the opening of certain components of Project Sunburst in April 2002. See
"Business--Mohegan Sun" and "--Project Sunburst."
Other Reservation Enhancement
Child Development Center. The Tribe is constructing a 36,000 square foot
employee day care facility which will enhance the benefits and services
provided to employees of both the Tribe and of the Authority. The project is
expected to cost approximately $10.0 million. The Authority originally paid
$1.1 million of the facility's cost; however, that amount was later fully
reimbursed by the Tribe. Construction began in November 2001, and the Tribe
anticipates that the project will be completed in January 2003.
38
Explanation of Key Financial Statement Captions
Gross revenues. The Authority's gross revenues are derived mostly from the
following three sources:
. Gaming revenues, which include revenues from slot machines and table
games;
. Food and beverage sales; and
. Retail, entertainment and other revenues, which include revenues from
the Mohegan Sun gasoline and convenience center that opened in December
1998 and the Mohegan Sun Arena, which opened in September 2001.
The table below summarizes the Authority's percentage of gross revenues from
each of these sources:
For the Years Ended For the Quarters For the Six Months
September 30, Ended March 31, Ended March 31,
------------------- ---------------- ------------------
2001 2000 1999 2002 2001 2002 2001
---- ---- ---- ---- ---- ---- ----
Gaming revenues............... 88% 88% 88% 89% 89% 88% 88%
Food and beverage sales....... 6 6 7 6 5 6 5
Retail, entertainment and
other revenues.............. 6 6 5 5 6 6 7
---- ---- ---- ---- ---- ---- ----
Total...................... 100% 100% 100% 100% 100% 100% 100%
Slot win. Gross slot win represents all amounts played in the slot machines
reduced by both (1) the winnings paid out and (2) all amounts deposited by the
Authority into the slot machines to ensure sufficient coins in each machine to
pay out the winnings. Progressive slot machines retain some of each amount
wagered and aggregate these amounts with similar amounts from other slot
machines in order to create one-time winnings that are substantially larger
than those paid in the ordinary course. The Authority refers to such aggregated
amounts as progressive jackpots. In-house progressive jackpot amounts are
accrued by the Authority until paid and such accrued amounts are deducted from
gross slot win to arrive at net slot win. Wide-area progressive jackpot amounts
are paid by a third-party vendor and the Authority remits a fixed monthly
payment to the vendor, which is deducted from gross slot win.
Casino revenues and promotional allowances. The Authority recognizes casino
revenue as gaming wins less gaming losses. Revenues from food and beverages,
retail and entertainment events are recognized at the time the service is
performed. The Authority operates the Mohegan Sun complimentary program in
which food, beverages, retail, entertainment and other services are provided to
guests based on points that are earned through the Mohegan Sun Players Club.
The retail value of these complimentary items is included in gross revenue and
then deducted as promotional allowances, except for the redemption at tenant
outlets at the Shops at Mohegan Sun, to arrive at net revenues.
The estimated cost of providing these promotional allowances is charged to
the casino department in the following amounts:
For the Years Ended For the Quarters For the Six Months
September 30, Ended March 31, Ended March 31,
----------------------- --------------- ------------------
2001 2000 1999 2002 2001 2002 2001
------- ------- ------- ------- ------- ------- -------
(in thousands)
Food and Beverage............. $26,943 $24,987 $26,794 $ 6,658 $ 5,947 $14,622 $12,314
Retail, entertainment and
other....................... 28,044 28,996 20,928 5,623 6,304 11,777 13,740
------- ------- ------- ------- ------- ------- -------
Total......................... $54,987 $53,983 $47,722 $12,281 $12,251 $26,399 $26,054
======= ======= ======= ======= ======= ======= =======
Mohegan Sun Player's Club. The Mohegan Sun Players's Club is a voluntary
program, without membership fees, which awards points to members based on their
gaming activities. These points may be used to
39
purchase items at restaurants located within Mohegan Sun, and the Mohegan Sun
gasoline and convenience center, as well as to purchase tickets to
entertainment events held at the Mohegan Sun facilities. These points may also
be used to purchase items at the Shops at Mohegan Sun and from a catalog
program, the Sun Select Catalog, which includes vacations, electronics and gift
items. The Authority accrues for Player's Club points expected to be redeemed
in the future based on the average cost to the Authority of items expected to
be redeemed, and includes the related cost in gaming expenses in the
Authority's income statement.
Gaming expenses. Gaming expenses primarily include the Slot Win
Contribution which the Authority is required to pay to the State of
Connecticut, expenses associated with slot operations and table game expenses
and promotional expenses for the redemption of the Mohegan Sun Player's Club
points in third party locations, including the Shops at Mohegan Sun and the Sun
Select Catalog. See "Description of Material Agreements--Gaming Compact with
the State of Connecticut" for a description of the Slot Win Contribution.
EBITDA and Adjusted EBITDA. EBITDA represents earnings before interest,
income taxes, depreciation and amortization. Adjusted EBITDA represents
adjustments to EBITDA to reflect pre-opening costs and certain other
non-operating income/expense. Adjusted EBITDA should not be considered as an
alternative to any measure of performance as promulgated under accounting
principles generally accepted in the United States of America (such as
operating income or net income), nor should it be considered as an indicator of
the Authority's overall financial performance. The Authority's calculation of
Adjusted EBITDA is likely to be different from the calculation of EBITDA or
similar measurements used by other companies and therefore comparability may be
limited. EBITDA and Adjusted EBITDA are computed as follows:
For the Quarters For the Six Months
Ended March 31, Ended March 31,
For the Years Ended September 30, (unaudited) (unaudited)
-------------------------------- ---------------- ------------------
2001 2000 1999 2002 2001 2002 2001
-------- -------- -------- ------- ------- -------- --------
(in thousands)
EBITDA
Net income (loss).................. $204,848 $145,934 $(38,920) $19,989 $41,535 $ 27,604 $ 68,797
Add back:
Interest expense, net of
capitalized interest............. 25,060 37,799 55,595 17,147 5,890 31,946 11,815
Interest income.................... (2,920) (13,469) (11,254) (117) (578) (240) (1,742)
Income taxes....................... -- -- -- -- -- -- --
Depreciation and amortization...... 34,753 30,739 23,397 20,013 6,943 37,276 13,522
-------- -------- -------- ------- ------- -------- --------
EBITDA............................. $261,741 $201,003 $ 28,818 $57,032 $53,790 $ 96,586 $ 92,392
-------- -------- -------- ------- ------- -------- --------
EBITDA Margin...................... 33.3% 27.2% 4.3% 24.3% 28.6% 20.3% 24.9%
Adjustments to EBITDA to reconcile
to Adjusted EBITDA
Pre-opening expense................ $ 31,344 $ 5,278 $ -- $ 2,006 $ 1,927 $ 3,663 $ 3,316
Accretion of relinquishment
liability discount............... 35,833 23,053 22,014 9,084 8,958 18,167 17,916
Relinquishment liability
reassessment..................... (74,410) 8,790 89,871 -- -- -- --
Other non-operating expense........ 116 1,523 -- 50 -- 87 --
Change in fair value of derivative
instruments...................... 949 -- -- (11) (865) 5 1,277
Management fees.................... -- 13,634 59,532 -- -- -- --
Discontinued operations............ 591 674 812 -- 335 -- 527
Extraordinary items................ -- -- 38,428 -- -- -- --
-------- -------- -------- ------- ------- -------- --------
Adjusted EBITDA.................... $256,164 $253,955 $239,475 $68,161 $64,145 $118,508 $115,428
======== ======== ======== ======= ======= ======== ========
Adjusted EBITDA margin............. 32.6% 34.4% 35.8% 29.0% 34.2% 24.9% 31.1%
40
Accretion of relinquishment liability discount and reassessment of
relinquishment liability. The Authority stopped paying management fees to TCA
due to the termination of the Management Agreement and began paying fees under
the Relinquishment Agreement beginning January 1, 2000. Under the Management
Agreement, TCA was responsible for the day-to-day management, operation and
maintenance of Mohegan Sun. The Management Agreement authorized TCA to pay
itself a management fee in monthly installments based on 30% to 40% of net
income, before management fees, as defined in the Management Agreement,
depending on profitability levels. Under the Relinquishment Agreement, the
Authority and TCA agreed to terminate the Management Agreement with TCA on
January 1, 2000. To compensate TCA for terminating its management rights, the
Authority agreed to pay to TCA five percent of the revenues, as defined in the
Relinquishment Agreement, generated by Mohegan Sun (including Project Sunburst)
during the 15-year period commencing on January 1, 2000 and ending on December
31, 2014.
The Authority has recorded a relinquishment liability of the estimated
present value of its obligations under the Relinquishment Agreement.The
Authority initially recorded a relinquishment liability of $549.1 million in
1998. The relinquishment liability is reassessed quarterly, and additionally
when necessary, to account for material increases or decreases in projected
revenues as well as the effect of the passage of time on the present value of
the future payments to be made pursuant to the Relinquishment Agreement. In
addition, the Authority has capitalized $130.0 million of this relinquishment
liability in connection with the trademark value of the Mohegan Sun brand name.
See Note 6 to the Authority's unaudited financial statements beginning on page
F-31 for a further discussion of how the relinquishment liability and related
reassessments are calculated.
Results of Operations
Comparison of Operating Results for the Quarters Ended March 31, 2002 and 2001
Net revenues for the quarter ended March 31, 2002 increased by $46.9
million, or 25.0%, to $234.7 million from $187.8 million reported for the same
period of the prior year. This increase is primarily attributable to an
increase in gaming revenues due to the opening of the Casino of the Sky on
September 25, 2001.
Adjusted EBITDA for the quarter ended March 31, 2002 increased by $4.0
million, or 6.3%, to $68.2 million from $64.1 million for the quarter ended
March 31, 2001. Mohegan Sun achieved a 29.0% Adjusted EBITDA margin for the
quarter ended March 31, 2002 compared to a 34.2% Adjusted EBITDA margin for the
quarter ended March 31, 2001. The decline in the margin was the result of
increased labor, marketing and operating expenses related to operating the
expanded facility. The Authority expects revenues to increase and operating
expenses to decrease as a percentage of revenues as the facility matures and as
the remaining amenities are opened. However, the Authority relies heavily on
drive-in traffic and the current parking infrastructure is not sufficient to
accommodate peak crowds. The Authority believes that its ability to host events
in the arena on weekends and to otherwise accommodate guests during peak
periods will be limited until the parking enhancements provided by the Thames
Garage and the Indian Summer Garage are fully completed in June 2002.
Accordingly, operating revenues and margins are expected to be negatively
impacted until the fourth quarter of 2002. See "--Overview--Additional Mohegan
Sun Enhancements--Parking Garages" and "--Liquidity, Capital Resources and
Capital Spending--Capital Expenditures" for a discussion of parking
enhancements.
The Connecticut slot market grew at a rate of 13.4% from the quarter ended
March 31, 2001 to the quarter ended March 31, 2002. The State of Connecticut
reported a gross slot win of $359.7 million and $317.2 million for the quarters
ended March 31, 2002 and 2001, respectively. Mohegan Sun exceeded the market's
growth in slot win as it experienced an increase in gross slot revenues of
21.8% in the quarter ended March 31, 2002 over the quarter ended March 31,
2001. Gross slot revenues were $164.8 million and $135.2 million for the
quarters ended March 31, 2002 and 2001, respectively. Gross slot win per unit
per day was $295 and $496 for the respective periods. The decrease in gross
slot win per unit was due to an increase in the weighted average number of slot
machines year over year from approximately 3,031 in the quarter ended March 31,
2001 to approximately 6,207 in the quarter ended March 31, 2002. The increase
in weighted average slot machines is primarily attributable to the opening of
the Casino of the Sky the Hall of the Lost Tribes smoke-free slot machine
venue, which added a total of approximately 3,200 slot machines to Mohegan Sun.
41
Gaming revenues for the quarter ended March 31, 2002 increased by $40.6
million, or 22.5%, to $221.3 million from $180.6 million for the quarter ended
March 31, 2001. This increase is due to a 20.1% growth in slot machine revenues
and a 30.4% increase in table game revenues as a result of the opening of the
Casino of the Sky.
Food and beverage revenues for the quarter ended March 31, 2002 increased by
$3.9 million, or 35.4%, to $14.9 million from $11.0 million for the quarter
ended March 31, 2001. This increase is attributable to a 29.4% increase in
meals served for the quarter ended March 31, 2002, as compared to the same
period in the prior year and a higher average sale per check. The average sale
per check was $11.71 for the quarter ended March 31, 2002, as compared to
$11.60 for the same period in the prior year. The increases in meals served and
higher average sale per check are primarily associated with the new Project
Sunburst restaurants which include the 350-seat Sunburst Buffet, the Rising
Moon Gallery of Eateries, a gourmet restaurant named Rain, and Todd English's
Tuscany Restaurant.
Retail, entertainment and other revenues for the quarter ended March 31,
2002 increased by $962,000, or 8.0%, to $12.9 million from $12.0 million for
the same period in the prior year. The increase was attributable to $2.5
million in entertainment and other revenue due to the opening of the Mohegan
Sun Arena on September 25, 2001 and the rental income earned from tenant
outlets in the Shops at Mohegan Sun. The increase was partially offset by a
decrease in retail revenue of $1.5 million due to a shift in patronage from
Mohegan Sun operated outlets to the tenant outlets in the Shops at Mohegan Sun.
Promotional allowances for the quarter ended March 31, 2002 decreased by
$1.4 million, or 8.7%, to $14.5 million from $15.8 million for the quarter
ended March 31, 2001. The first phase of Project Sunburst included the opening
of the Shops at Mohegan Sun. Effective with the opening of the first phase of
Project Sunburst, members of the Mohegan Sun Player's Club were eligible to
redeem points at these tenant outlets. The decrease is attributable to the
shift in patronage from Mohegan Sun retail outlets to the tenant outlets in the
Shops at Mohegan Sun, as expenses related to the Shops at Mohegan Sun are
included in gaming expenses.
Total costs and expenses for the quarter ended March 31, 2002 increased by
$56.0 million, or 42.3%, to $188.5 million from $132.5 million for the quarter
ended March 31, 2001. The increase is primarily the result of supporting a
$45.5 million increase in gross revenues and a $13.1 million increase in
depreciation expense due to the opening of the Casino of the Sky.
Gaming costs and expenses for the quarter ended March 31, 2002 increased by
$32.6 million, or 37.4%, to $119.7 million from $87.1 million for the quarter
ended March 31, 2001. This increase is attributable to an approximately 90-unit
increase in table games and the addition of approximately 3,200 slot machines
associated with the opening of the Casino of the Sky and the Hall of the Lost
Tribes. Gaming costs and expenses as a percentage of gaming revenues were 54.1%
in the quarter ended March 31, 2002 compared to 48.2% in the same period of the
prior year, an increase of 5.9%. Additionally, the first phase of Project
Sunburst included the opening of the Shops at Mohegan Sun. The substantial
point redemption by Mohegan Sun Player's Club patrons in the tenant Shops at
Mohegan Sun resulted in a significant increase in Mohegan Sun's gaming expenses
for the quarter ended March 31, 2002.
Food and beverage costs and expenses for the quarter ended March 31, 2002
increased by $4.2 million, or 70.5%, to $10.1 million from $5.9 million in
expenses for the quarter ended March 31, 2001. The cost of sales for food
calculated as a percentage of food revenue was 33.8% for the quarter ended
March 31, 2002 and 2001. These increases are the result of higher food and
beverage operating costs, particularly labor costs and other operating expenses
related to the opening of the Rising Moon Gallery of Eateries, a 350-seat
Sunburst Buffet, a gourmet restaurant named Rain, and Todd English's Tuscany
during the quarter ended December 31, 2001, and additional beverage service in
the Casino of the Sky, the arena concessions, the Cabaret bar, Leffingwell's
bar located at the base of Wombi Rock and Sachem's Lounge. The opening of these
additional outlets resulted in an increase in the number of meals served, or
food covers, from 870,000 in the quarter ended March 31, 2001 to 1,126,000 in
the quarter ended March 31, 2002, a 29.4% increase.
42
Retail, entertainment and other costs and expenses for the quarter ended
March 31, 2002 increased by $1.3 million, or 29.8%, to $5.8 million from $4.5
million for the quarter ended March 31, 2001. This increase was primarily a
result events held in the Mohegan Sun Arena during the quarter ended March 31,
2002. Some of these events included the National Women's Basketball League
Championships, concerts by Janet Jackson and Anne Murray, Showtime Boxing, and
an Ultimate Fighting Championship. Costs associated with operating the Cabaret,
an intimate 300-seat theater in the Casino of the Sky, also contributed to the
increase.
General and administrative costs and expenses for the quarter ended March
31, 2002 increased by $4.8 million, or 18.2%, to $30.8 million from the $26.1
million for the quarter ended March 31, 2001. This increase is primarily
associated with utilities costs related to the expanded facility and
advertising expenses targeted to promote Mohegan Sun through all major media
outlets.
Pre-opening costs and expenses associated with the April 23, 2002 partial
opening of the Mohegan Sun hotel were $2.0 million for the quarter ended March
31, 2002 compared to pre-opening expenses (relating to the opening of the first
phase of Project Sunburst) of $1.9 million for the quarter ended March 31, 2001.
Depreciation and amortization for the quarter ended March 31, 2002 increased
by $13.1 million, or 188.2%, to $20.0 million from $6.9 million for the quarter
ended March 31, 2001. This increase was a result of $719.4 million of assets
related to Project Sunburst, including $26.5 million of capitalized interest,
placed in service between the opening of the first phase of Project Sunburst on
September 25, 2001 and March 31, 2002.
Income from operations for the quarter ended March 31, 2002 decreased by
$9.1 million, or 16.5%, to $46.1 million from $55.3 million for the quarter
ended March 31, 2001. This decrease is attributable to increases in costs and
expenses associated with the expansion of Mohegan Sun, including increased
staffing levels and increases in depreciation and amortization.
Accretion of the discount associated with the relinquishment liability for
the quarter ended March 31, 2002 increased by $126,000, or 1.4%, to $9.1
million from $9.0 million for the quarter ended March 31, 2001.
Interest and other income for the quarter ended March 31, 2002 decreased by
$461,000, or 79.8%, to $117,000 from $578,000 in income for the quarter ended
March 31, 2001. The decrease in interest income resulted from the liquidation
of investments to fund Project Sunburst plus a decline in return on the
invested assets. The weighted average invested cash was $23.8 million and $20.6
million for the quarters ended March 31, 2002 and March 31, 2001, respectively.
The Authority invests in investment-grade commercial paper having maturities of
not more than six months from the date of acquisition.
Interest expense for the quarter ended March 31, 2002 increased by $11.3
million, or 191.1%, to $17.1 million from $5.9 million in expense for the
quarter ended March 31, 2001. This increase was mainly attributable to higher
average debt outstanding and a decrease in the amount of capitalized interest.
The weighted average outstanding debt was $1.1 billion for the quarter ended
March 31, 2002, compared to $595.9 million for the quarter ended March 31,
2001. Capitalized interest was $3.1 million for the quarter months ended March
31, 2002 compared to $5.9 million for the same period in the prior year. The
weighted average interest rate for the quarter ended March 31, 2002 was 7.4%,
compared to 8.2% for the quarter ended March 31, 2001.
Loss from discontinued operations associated with the conversion of the
bingo hall into the smoke-free Hall of the Lost Tribes slot machine venue
totaled $335,000 for the quarter ended March 31, 2001. There was no loss from
discontinued operations for the quarter ended March 31, 2002.
Net income for the quarter ended March 31, 2002 decreased by $21.5 million,
or 51.9%, to $20.0 million from $41.5 million for the quarter ended March 31,
2001. The decrease is primarily due to the increase in interest expense and
depreciation and amortization. Interest expense increased by $11.3 million
during the quarter ended March 31, 2002 contributing to the reduction in net
income. The increase in interest expense was mainly
43
attributable to higher average debt outstanding. The weighted average
outstanding debt was $1.1 billion for the quarter ended March 31, 2002,
compared to $595.9 million for the quarter ended March 31, 2001. Depreciation
and amortization increased by $13.1 million for the quarter ended March 31,
2002, due to the placing in service of assets related to the first phase of
Project Sunburst.
Comparison of Operating Results for the Six Months Ended March 31, 2002 and
2001
Net revenues for the six months ended March 31, 2002 increased by $105.3
million, or 28.4%, to $476.2 million from $370.9 million reported for the same
period of the prior year. This increase is primarily attributable to an
increase in gaming revenues due to the opening of the Casino of the Sky on
September 25, 2001.
Adjusted EBITDA for the six months ended March 31, 2002 increased by $3.1
million, or 2.7%, to $118.5 million from $115.4 million for the six months
ended March 31, 2001. Mohegan Sun achieved a 24.9% Adjusted EBITDA margin for
the six months ended March 31, 2002 compared to a 31.1% adjusted EBITDA margin
for the six months ended March 31, 2001. The decline in the margin was the
result of increased labor, marketing and operating expenses related to
operating the expanded Mohegan Sun facility. Additionally, the unfavorable
variance can be partially attributed to the impact of the national recession
and the events of the September 11, 2001 tragedy. The Authority expects
revenues to increase and operating expenses to decrease as a percentage of
revenues as the facility matures and as the remaining amenities are opened.
However, the Authority relies heavily on drive-in traffic and the current
parking infrastructure is not sufficient to accommodate peak crowds. The
Authority believes that its ability to host events in the arena on weekends and
to otherwise accommodate guests during peak periods will be limited until the
parking enhancements provided by the Thames Garage and the Indian Summer Garage
are fully completed in June 2002. Accordingly, operating revenues and margins
are expected to be negatively impacted until the fourth quarter of 2002. See
"Overview--Additional Mohegan Sun Enhancements--Parking Garages" and
"Liquidity, Capital Resources and Capital Spending--Capital Expenditures" for a
discussion of parking enhancements.
The Connecticut slot market grew at a rate of 14.5% for the six months
ending March 31, 2002. The State of Connecticut reported a gross slot win of
$717.9 million and $626.8 million for the six months ended March 31, 2002 and
2001, respectively. Mohegan Sun exceeded the market's growth in slot win as it
experienced an increase in gross slot revenues of 26.0% in the six months ended
March 31, 2002 over the six months ended March 31, 2001. Gross slot revenues
were $336.6 million and $267.2 million for the six months ended March 31, 2002
and 2001, respectively. Gross slot win per unit per day was $298 and $484 for
the respective periods. The decrease in gross slot win per unit was due to an
increase in the weighted average number of slot machines year over year from
approximately 3,033 in the six months ended March 31, 2001 to approximately
6,213, in the six months ended March 31, 2002. The increase in weighted average
slot machines is primarily attributable to the opening of the Casino of the Sky
and the Hall of the Lost Tribes smoke-free slot machine venue, which added a
total of approximately 3,200 slot machines to Mohegan Sun.
Gaming revenues for the six months ended March 31, 2002 increased by $92.6
million, or 26.0%, to $448.1 million from $355.6 million for the six months
ended March 31, 2001. This increase is due to a 25.1% growth in slot machine
revenues and a 30.2% increase in table game revenues as a result of the opening
of the Casino of the Sky.
Food and beverage revenues for the six months ended March 31, 2002 increased
by $10.3 million, or 47.2%, to $32.0 million from $21.8 million for the six
months ended March 31, 2001. This increase in food and beverage revenues is
attributable to a 34.1% increase in meals served for the six months ended March
31, 2002, as compared to the same period in the prior year and a higher average
sale per check. The increases in meals served and higher average sale per check
are primarily associated with the new Project Sunburst restaurants which
include the 350-seat Sunburst Buffet, the Rising Moon Gallery of Eateries, a
gourmet restaurant named Rain, and Todd English's Tuscany Restaurant.
44
Retail, entertainment and other revenues for the six months ended March 31,
2002 decreased by $988,000, or 3.5%, to $27.6 million from $28.6 million for
the six months ended March 31, 2001. Retail revenue decreased $4.3 million due
to a shift in patronage from Mohegan Sun operated outlets to the tenant outlets
in the Shops at Mohegan Sun. The decrease was partially offset by an increase
of $3.3 million in entertainment and other revenue due to the opening of the
Mohegan Sun Arena on September 25, 2001 and the rental income earned from
tenant outlets in the Shops at Mohegan Sun.
Promotional allowances for the six months ended March 31, 2002 decreased by
$3.4 million, or 9.8%, to $31.6 million from $35.0 million for the six months
ended March 31, 2001. The first phase of Project Sunburst included the opening
of the Shops at Mohegan Sun. Effective with the opening of the first phase of
Project Sunburst, members of the Mohegan Sun Player's Club were eligible to
redeem points at these tenant outlets. The decrease is attributable to the
shift in patronage from Mohegan Sun retail outlets to the tenant outlets in the
Shops at Mohegan Sun, as expenses related to the Shops at Mohegan Sun are
included in gaming expenses.
Total costs and expenses for the six months ended March 31, 2002 increased
by $126.3 million, or 46.4%, to $398.6 million from $272.3 million during the
six months ended March 31, 2001. This increase is primarily the result of
supporting a $101.9 million increase in gross revenues and a $23.8 million
increase in depreciation expense due to the opening of the Casino of the Sky.
Gaming costs and expenses for the six months ended March 31, 2002 increased
by $72.6 million, or 40.2%, to $253.0 million from $180.4 million for the six
months ended March 31, 2001. The increase is attributable to an approximately
90-unit increase in table games and the addition of approximately 3,200 slot
machines associated with the opening of the first phase of Project Sunburst and
the Hall of the Lost Tribes. Gaming costs and expenses as a percentage of
gaming revenues were 56.5% in the six months ended March 31, 2002 compared to
50.7% in the same period of the prior year, an increase of 5.8%. Additionally,
the first phase of Project Sunburst included the opening of the Shops at
Mohegan Sun. The substantial point redemption by Mohegan Sun Players Club
patrons in the tenant Shops at Mohegan Sun resulted in a significant increase
in Mohegan Sun's gaming expenses for the six months ended March 31, 2002.
Food and beverage costs and expenses for the six months ended March 31, 2002
increased by $9.2 million, or 76.6%, to $21.2 million from $12.0 million for
the six months ended March 31, 2001.The cost of sales for food as calculated as
a percentage of food revenue decreased to 34.9% in the six months ended March
31, 2002, from 35.3% in the six months ended March 31, 2001. These increases
are the result of higher food and beverage operating costs, particularly labor
costs and other operating expenses due to the September 25, 2001 opening of the
Rising Moon Gallery of Eateries, a 350-seat Sunburst Buffet, a gourmet
restaurant named Rain, and Todd English's Tuscany, and additional beverage
service in the Casino of the Sky, the arena concessions, the Cabaret bar and
Leffingwell's bar located at the base of Wombi Rock. The opening of these
additional outlets resulted in an increase in the number of meals served, or
food covers, from 1.8 million in the six months ended March 31, 2001 to 2.4
million in the six months ended March 31, 2002, a 34.1% increase.
Retail, entertainment and other costs and expenses for the six months ended
March 31, 2002 increased by $5.4 million, or 58.5%, to $14.7 million from $9.3
million for the six months ended March 31, 2001. This increase is primarily a
result of the events that were held in the Mohegan Sun Arena in the six months
ended March 31, 2002. The Mohegan Sun Arena opened on September 25, 2001. These
events included an NBA basketball game with Michael Jordan and the Washington
Wizards, the National Women's Basketball League Championships, concerts with
Janet Jackson, Tim McGraw, Gloria Estefan, Aerosmith, Julio Iglesias, Toby
Keith, Bob Dylan and Anne Murray, Polkapalooza, Showtime Boxing, an exhibition
tennis match with Martina Navritolova and Monica Seles and ESPN Bowling. Also
contributing to the increase are expenses associated with the Cabaret, an
intimate 300-seat theater that plays host to entertainers from singers, such as
Tony Bennett, Betty Buckley, Shirley Jones and Jack Jones, to comics, such as
Phyllis Diller, Nell Carter and the Amazing Kreskin.
45
General and administrative costs and expenses for the six months ended March
31, 2002 increased by $15.0 million, or 27.9%,to $68.7 million from the $53.7
million for the six months ended March 31, 2001. This increase is primarily
associated with advertising expenses targeted to promote Mohegan Sun through
all major media outlets.
Pre-opening costs and expenses associated with the April 23, 2002 partial
opening of the Mohegan Sun hotel were $3.7 million for the six months ended
March 31, 2002 compared to pre-opening expenses (relating to the opening of the
first phase of Project Sunburst) of $3.3 million for the six months ended March
31, 2001.
Depreciation and amortization for the six months ended March 31, 2002
increased by $23.8 million, or 175.7%, to $37.3 million for the six months
ended March 31, 2002 from $13.5 million for the six months ended March 31,
2001. This increase was a result of $719.4 million of assets related to Project
Sunburst, including $26.5 million of capitalized interest, placed in service
between the opening of the first phase of Project Sunburst on September 25,
2001 and March 31, 2002.
Income from operations for the six months ended March 31, 2002 decreased by
$21.0 million, or 21.3%, to $77.6 million from $98.6 million for the six months
ended March 31, 2001. This decrease is partially attributable to increases in
costs and expenses associated with the expansion of Mohegan Sun, including
increased staffing levels and depreciation and amortization of the expanded
facility. Additionally, the unfavorable variance can be attributed to the
impact of the economic slowdown and the events of the September 11, 2001
tragedy.
Accretion of the discount associated with the relinquishment liability for
the six months ended March 31, 2002 increased by $251,000, or 1.4%, to $18.2
million from $17.9 million for the same period in the prior year.
Interest and other income for the six months ended March 31, 2002 decreased
by $1.5 million, or 86.2%, to $240,000 from $1.7 million for the six months
ended March 31, 2001. The decrease in interest income resulted from the
liquidation of investments to fund Project Sunburst plus a decline in the
return on the invested assets. The weighted average invested cash was $18.2
million and $21.3 million for the six months ended March 31, 2002 and March 31,
2001, respectively. The Authority invests in investment-grade commercial paper
having maturities of not more than six months from the date of acquisition.
Interest expense for the six months ended March 31, 2002 increased $20.1
million, or 170.4%, to $31.9 million from $11.8 million for the six months
ended March 31, 2001. This increase is mainly attributable to higher average
debt outstanding offset by a decrease in interest rates. Capitalized interest
was $6.3 million for the six months ended March 31, 2002 compared to $10.7
million for the same period in the prior year. The weighted average interest
rate for the six months ended March 31, 2002 was 7.27%, compared to 8.31% for
the six months ended March 31, 2001. The weighted average outstanding debt was
$1.0 billion for the six months ended March 31, 2002, compared to $550.3
million for the six months ended March 31, 2001.
Loss from discontinued operations associated with the conversion of the
bingo hall into the smoke-free Hall of the Lost Tribes slot machine venue
totaled $527,000 for the six months ended March 31, 2001. There was no loss
from discontinued operations for the six months ended March 31, 2002.
Net income for the six months ended March 31, 2002 decreased by $41.2
million, or 59.9%, to $27.6 million from $68.8 million for the same period in
the prior year. The decrease is primarily attributable to the increase in
interest expense and depreciation and amortization. Interest expense increased
by $20.1 million during the six months contributing to the reduction in net
income. The increase in interest expense was mainly attributable to higher
average debt outstanding. The weighted average outstanding debt was $1.0
billion for the six months ended March 31, 2002, compared to $550.3 million for
the six months ended March 31, 2001. Depreciation and amortization increased by
$23.8 million for the six months ended March 31, 2002, due to the placing in
service of assets related to the first phase of Project Sunburst.
46
Comparison of Operating Results for the Fiscal Years Ended September 30, 2001
and 2000
Net revenues for the fiscal year ended September 30, 2001 increased by $47.3
million, or 6.4%, to $786.6 million from $739.3 million for the fiscal year
ended September 30, 2000.
Adjusted EBITDA for the fiscal year ended September 30, 2001 increased by
$2.2 million, or 0.9%, to $256.2 million from $254.0 million for the fiscal
year ended September 30, 2000. Mohegan Sun achieved an Adjusted EBITDA margin
of 32.6% for the fiscal year ended September 30, 2001, compared to a 34.4%
margin for the fiscal year ended September 30, 2000. This decline in the margin
was attributable to increased labor, marketing and operating expenses and an
increase in pre-opening costs related to Project Sunburst. On November 29,
2000, the Authority converted the bingo operations into the 637-unit smoke-free
Hall of the Lost Tribes slot machine venue. Therefore, the corresponding
revenues, promotional allowances, expenses and interest income were reported as
discontinued operations.
The Connecticut slot market continued to grow in fiscal year 2001, as did
Mohegan Sun's market share. The Connecticut slot market grew at a rate of 4.1%
from fiscal year 2000 to fiscal year 2001. The State of Connecticut reported a
gross slot win of $1.4 billion and $1.3 billion for the fiscal years ended
September 30, 2001 and 2000, respectively. Mohegan Sun exceeded the market's
growth in slot win as it experienced a fiscal year 2001 increase in gross slot
revenues of 7.0% over the prior year. The Authority's gross slot revenues were
$578.4 million and $540.3 million for the fiscal years ended September 30, 2001
and 2000, respectively. Gross slot win per unit per day was $471 and $488 for
the respective periods. The decrease in gross slot win per unit per day was due
to an increase in the weighted average number of slot machines year over year
from 3,028 to 3,362.
Gaming revenues for the fiscal year ended September 30, 2001 increased by
$41.4 million, or 5.8%, to $751.0 million from $709.6 million for the fiscal
year 2000. This increase in gaming revenues was primarily due to a 6.3% growth
in Mohegan Sun net slot revenues as a result of the continued growth of the
Mohegan Sun customer base, as well as the opening of the first phase of Project
Sunburst for six days during fiscal year 2001.
Food and beverage revenues for the fiscal year ended September 30, 2001
increased by $2.2 million, or 4.6%, to $49.5 million from $47.3 million for the
fiscal year ended September 30, 2000. This increase in revenues was
attributable to a higher average sale per check primarily associated with new
Project Sunburst restaurants.
Retail, entertainment and other revenues for the fiscal year ended September
30, 2001 increased by $5.1 million, or 9.8%, to $57.5 million from $52.4
million for the fiscal year ended September 30, 2000. This increase was
attributable to increased popularity of the Mohegan Sun gasoline and
convenience center.
Promotional allowances for the fiscal year ended September 30, 2001
increased by $1.4 million, or 1.9%, to $71.4 million from $70.0 million for the
fiscal year ended September 30, 2000. This increase in promotional allowances
was attributable to the increase in gross revenues. Promotional allowances as a
percentage of gross revenue decreased from 8.7% in fiscal year 2000 to 8.3% in
fiscal year 2001 due to an increase in the redemption of Mohegan Sun Player's
Club points at retail outlets not managed by the Authority. See Note 3 to the
Authority's audited financial statements on page F-7 of this prospectus.
Total costs and expenses for the fiscal year ended September 30, 2001
increased by $61.6 million, or 11.5%, to $596.5 million from $535.0 million for
the fiscal year ended September 30, 2000. The increase in expenses was
primarily a result of a 6.0% increase in gross revenues and pre-opening
expenses related to Project Sunburst.
Gaming costs and expenses for the fiscal year ended September 30, 2001
increased by $27.3 million, or 8.9%, to $334.5 million from $307.2 million for
the fiscal year ended September 30, 2000. This increase in gaming costs and
expenses was primarily due to increases in labor and benefit costs, Slot Win
Contribution and
47
the allocation of complimentaries associated with gaming. The Slot Win
Contribution for the fiscal years ended September 30, 2001 and 2000 totaled
$144.6 million and $135.1 million, respectively. The increase in Slot Win
Contribution was directly related to the increase in slot revenues. See
"Description of Material Agreements--Gaming Compact with the State of
Connecticut" for a description of the Slot Win Contribution.
Food and beverage costs for the fiscal year ended September 30, 2001
increased by $702,000, or 3.0%, to $24.4 million from $23.7 million for the
fiscal year ended September 30, 2000. This increase was attributable to
increased labor and benefit costs.
Retail, entertainment and other costs for the fiscal year ended September
30, 2001 increased by $5.0 million, or 18.3%, to $32.1 million from $27.1
million for the fiscal year ended September 30, 2000. This increase was
primarily attributable to the increased popularity of the Mohegan Sun gasoline
and convenience center, as well as the increase in expenses associated with the
Uncas Pavilion, a temporary event structure. The Uncas Pavilion was closed
permanently in September 2001.
General and administrative costs for the fiscal year ended September 30,
2001 increased by $12.1 million, or 9.5%, to $139.3 million from $127.2 million
for the fiscal year ended September 30, 2000. This increase was attributable to
increases in marketing expenses aimed at our direct mail and advertising
programs.
Pre-opening costs for the fiscal year ended September 30, 2001 increased by
$26.1 million, or 493.9%, to $31.3 million from $5.3 million for the fiscal
year ended September 30, 2000. This increase was comprised primarily of
personnel costs and marketing and advertising costs associated with the
September 25, 2001 opening of Project Sunburst.
There were no management fees earned by TCA for the fiscal year ended
September 30, 2001, compared to $13.6 million of management fees for fiscal
year 2000. The decrease in management fees was a direct result of the
termination of the Management Agreement on December 31, 1999. See "Description
of Material Agreements--Previous Management Agreement with Trading Cove
Associates" and "--Relinquishment Agreement with Trading Cove Associates."
Depreciation and amortization for the fiscal year ended September 30, 2001
increased by $4.0 million, or 13.1%, to $34.8 million from $30.7 million for
the fiscal year ended September 30, 2000. The increase was the result of
additional depreciation on capital expenditures made during the year.
The relinquishment liability reassessment for the fiscal year ended
September 30, 2001 decreased by $83.2 million, or 946.5%, to income of $74.4
million from an expense of $8.8 million for the fiscal year ended September 30,
2000. This decrease was due to the review by the Authority of current revenue
forecasts and the reduction of revenue projections for the period in which the
Relinquishment Agreement applies, due to uncertainties involving economic
market conditions and future competition from potential Native American casinos.
Income from operations for the fiscal year ended September 30, 2001
increased by $69.0 million, or 35.3%, to $264.5 million from $195.5 million for
the fiscal year ended September 30, 2000. This increase is primarily
attributable to the decrease in the relinquishment liability reassessment from
an $8.8 million expense for the fiscal year ended September 30, 2000 to $74.4
in income for the fiscal year ended September 30, 2001.
Accretion of the discount associated with the relinquishment liability for
the fiscal year ended September 30, 2001 increased by $12.7 million, or 55.4%,
to $35.8 million from $23.1 million for the fiscal year ended September 30,
2000.
Interest and other income for the fiscal year ended September 30, 2001
decreased by $10.5 million, or 78.3%, to $2.9 million from $13.5 million for
the fiscal year ended September 30, 2000. This decrease was
48
related to declining interest rates during the year and a decrease in the
weighted average invested cash, which has been used in financing Project
Sunburst. Weighted average invested cash was $29.1 million and $171.3 million
for the fiscal years ended September 30, 2001 and 2000, respectively.
Net interest expense for the fiscal year ended September 30, 2001 decreased
by $12.7 million, or 33.7%, to $25.1 million from $37.8 million for the fiscal
year ended September 30, 2000. This decrease was mainly attributable to the
capitalization of $27.4 million in interest on the Bank Credit Facility, the
$200.0 million Senior Notes, the $300.0 million 1999 Senior Subordinated Notes
and the $150.0 million 2001 Senior Subordinated Notes. During fiscal year 2000,
$9.9 million of interest expense was capitalized. The increase in debt was the
result of draws on the Bank Credit Facility and the issuance of the $150.0
million 2001 Senior Subordinated Notes. The weighted average interest rate was
8.04% and 8.39% for the fiscal years ended September 30, 2001 and 2000,
respectively. The weighted average debt outstanding was $787.9 million and
$512.6 million for the fiscal years ended September 30, 2001 and 2000,
respectively.
Other expenses for the fiscal year ended September 30, 2001 decreased by
$1.4 million, or 92.4%, to $116,000 from $1.5 million for the fiscal year ended
September 30, 2000. This decrease was attributable to the disposal of certain
assets by the Authority.
The change in fair value of derivative instruments of $949,000 represents
the change in time value of the derivative instruments. The decrease in the
market value of derivative instruments held at September 30, 2001 of $6.1
million was offset by a reclassification of $5.1 million of intrinsic value to
accumulated other comprehensive loss. The Authority held no derivative
instruments at September 30, 2000. See "--Quantitative and Qualitative
Disclosure of Market Risk" and Note 8 to the Authority's audited financial
statements on page F-11 of this prospectus.
Loss from discontinued operations for the fiscal year ended September 30,
2001 decreased by $83,000, or 12.3%, to $591,000 from $674,000 for the fiscal
year ended September 30, 2000. The loss was the result of the decision of the
Authority, in conjunction with the Tribe, to cease bingo operations in order to
convert the floor space into the 637-unit Hall of the Lost Tribe smoke-free
slot machine venue.
Net income for the fiscal year ended September 30, 2001 increased by $58.9
million, or 40.4%, to $204.8 million from $145.9 million the fiscal year ended
September 30, 2000. This increase was primarily attributable to the decrease in
the relinquishment liability reassessment expense from $8.8 million in fiscal
year 2000 to income of $74.4 million in fiscal year 2001. The increase was
partially offset by the decrease in income from operations from $195.5 million
in fiscal year 2000 to $264.5 million in fiscal year 2001.
Comparison of Operating Results for the Fiscal Years Ended September 30, 2000
and 1999
Net revenues for the fiscal year ended September 30, 2000 increased by $70.6
million, or 10.6%, to $739.3 million from $668.7 million for the fiscal year
ended September 30, 1999.
Adjusted EBITDA for the fiscal year ended September 30, 2000 increased by
$14.5 million, or 6.0%, to $254.0 million from $239.5 million for the fiscal
year ended September 30, 1999. Mohegan Sun achieved a fiscal year 2000 Adjusted
EBITDA margin of 34.4% compared to a 35.8% Adjusted EBITDA margin during the
fiscal year ended September 30, 1999.
On November 29, 2000, the Authority converted its bingo operations into the
Hall of the Lost Tribes smoke-free slot machine venue; therefore, the
corresponding revenues, promotional allowances, expenses and interest income
were consolidated in discontinued operations. See "Business--Mohegan Sun."
During fiscal year 2000, the Connecticut slot market continued to grow, as
did Mohegan Sun's market share. The Connecticut slot market grew at a rate of
8.5% from fiscal year 1999 to fiscal year 2000. The State of
49
Connecticut reported a gross slot win of $1.3 billion and $1.2 billion for the
fiscal years ended September 30, 2000 and 1999, respectively. Mohegan Sun
exceeded the market's growth in slot win as it experienced a fiscal year 2000
increase in net slot revenues of 11.6% over the prior year. The Authority's
gross slot revenues were $529.9 million and $474.9 million for the fiscal years
ended September 30, 2000 and 1999, respectively. Gross slot win per unit per
day was $488 and $439 for the respective periods.
Gaming revenues for the fiscal year ended September 30, 2000 increased by
$68.5 million, or 10.7%, to $709.6 million from $641.1 million for the fiscal
year ended September 30, 1999. This increase in gaming revenues was primarily
due to an 11.6% growth in Mohegan Sun net slot revenues as a result of the
continued growth of the Mohegan Sun customer base. Membership in the Mohegan
Sun Player's Club totaled approximately 1.4 million members and approximately
1.2 million members as of September 30, 2000 and 1999, respectively.
Food and beverage revenues for the fiscal year ended September 30, 2000
decreased by $591,000, or 1.2%, to $47.3 million from $47.9 for the fiscal year
ended September 30, 1999. This decrease in revenues was attributable to reduced
food servings and a patron shift in Mohegan Sun Player's Club point redemption
from the food and beverage products toward retail and gas products.
Retail and other revenues for the fiscal year ended September 30, 2000
increased by $15.9 million, or 43.5%, to $52.4 million from $36.5 million for
the fiscal year ended September 30, 1999. This increase was attributed to
increased utilization of retail complimentaries and the popularity of the
Mohegan Sun gasoline and convenience center.
Promotional allowances for the fiscal year ended September 30, 2000
increased by $13.2 million, or 23.3%, to $70.0 million from $56.8 million for
the fiscal year ended September 30, 1999. This increase was attributable to an
increase in the customer base as well as increased utilization of the Mohegan
Sun Player's Club complimentary program. Additionally, promotional allowances
as a percentage of gross revenue increased from 7.8% in fiscal year 1999 to
8.7% in fiscal year 2000.
Total costs and expenses for the fiscal year ended September 30, 2000
increased by $22.8 million, or 4.5%, to $535.0 million from $512.1 million for
the fiscal year ended September 30, 1999. This increase in expenses was
primarily a result of an 11.6% increase in gross revenues and pre-opening
expenses related to Project Sunburst incurred during fiscal year 2000.
Gaming costs and expenses for the fiscal year ended September 30, 2000
increased by $33.7 million, or 12.3%, to $307.2 million from $273.5 million for
the fiscal year ended September 30, 1999. This increase in gaming costs and
expenses is primarily due to increases in the Slot Win Contribution and the
allocation of complimentaries associated with gaming. The Slot Win Contribution
for the fiscal years ended September 30, 2000 and 1999 totaled $135.1 million
and $121.1 million, respectively. The increase in the Slot Win Contribution was
directly related to the increase in slot revenues.
Food and beverage costs for the fiscal year ended September 30, 2000
increased by $1.5 million, or 6.9%, to $23.7 million from $22.2 million for the
fiscal year ended September 30, 1999. This increase was attributable to
increased labor and benefit costs.
Retail and other costs for the fiscal year ended September 30, 2000
increased by $4.6 million, or 20.2%, to $27.1 million from $22.6 million for
the fiscal year ended September 30, 1999. This increase was primarily
attributable to a full year of operations for the Mohegan Sun gasoline and
convenience center, which opened in December 1998, as well as the increased
utilization of the Mohegan Sun complimentary program in the retail outlets.
General and administrative costs for the fiscal year ended September 30,
2000 increased by $16.3 million, or 14.7%, to $127.2 million from $110.9
million for the fiscal year ended September 30, 1999. This increase was
50
partially attributable to continued marketing campaigns associated with efforts
to increase the frequency of patron visits. Of the $16.3 million increase, $3.5
million was associated with the operation of the Uncas Pavilion.
Pre-opening costs were $5.3 million for the fiscal year ended September 30,
2000. Pre-opening costs were composed of labor and advertising costs associated
with Project Sunburst. Mohegan Sun did not incur any pre-opening costs for the
fiscal year ended September 30, 1999.
Management fees earned by TCA for the fiscal year ended September 30, 2000
decreased by $45.9 million, or 77.1%, to $13.6 million from $59.5 million for
the fiscal year ended September 30, 1999. This decrease in management fees was
a direct result of the termination of the Management Agreement on December 31,
1999.
Depreciation and amortization for the fiscal year ended September 30, 2000
increased by $7.3 million, or 31.4%, to $30.7 million from $23.4 million for
the fiscal year ended September 30, 1999. This increase was primarily
attributable to the $4.3 million amortization of the trademark asset and the
increase in depreciation of newly acquired capital assets including the
Riverview Garage and the Eagleview Center.
The relinquishment liability reassessment expense for the fiscal year ended
September 30, 2000 decreased by $81.1 million, or 90.2%, to $8.8 million from
$89.9 million for the fiscal year ended September 30, 1999. This decrease is
due to the review by the Authority of current revenue forecasts and the
increase in revenue projections for the period in which the Relinquishment
Agreement applies, due to uncertainties involving economic market conditions
and future competition from potential Native American casinos.
Income from operations for the fiscal year ended September 30, 2000
increased by $128.8 million, or 193.2%, to $195.5 million from $66.7 million
for fiscal year ended September 30, 1999. This increase is primarily
attributable to the decrease in the relinquishment liability reassessment from
$89.9 million for the fiscal year ended September 30, 1999 to $8.8 million for
the fiscal year ended September 30, 2000. Additionally, the increase can be
attributed to an increase in gaming revenues.
Accretion of the discount associated with the relinquishment liability for
the fiscal year ended September 30, 2000 increased by $1.1 million, or 4.7% to
$23.1 million from $22.0 million for the fiscal year ended September 30, 1999.
Interest and other income for the fiscal year ended September 30, 2000
increased by $2.2 million, or 19.7%, to $13.5 million from $11.3 million for
the fiscal year ended September 30, 1999. This increase was related to the
investment of the remainder of the proceeds from the Authority's Senior Notes
and 1999 Senior Subordinated Notes issued on March 3, 1999. A portion of the
financing was used to pay off existing debt and the remainder was invested to
be used later for construction of Project Sunburst. The Authority's treasury
program requires investment in investment-grade commercial paper having
maturities not more than six months from the date of acquisition. Weighted
average invested cash was $171.3 million and $151.8 million for the fiscal
years ended September 30, 2000 and 1999, respectively.
Interest expense for the fiscal year ended September 30, 2000 decreased by
$17.8 million, or 32.0%, to $37.8 million from $55.6 million for the fiscal
year ended September 30, 1999. This decrease was mainly attributable to the
capitalization of $9.9 million in interest on the $200 million Senior Notes and
the $300 million 1999 Senior Subordinated Notes to Project Sunburst. The
increase in debt was the result of the payoff of $175 million of the
Authority's senior secured notes due 2002 (the "Senior Secured Notes"), the
defeasance of $90 million of the Authority's subordinated financing from Sun
International and Waterford Gaming L.L.C., which was in the form of notes (the
"Subordinated Notes"), and the issuance of the $200 million Senior Notes and
$300 million 1999 Senior Subordinated Notes in March 1999. The weighted average
interest rate was 8.39% and 10.45% for the fiscal years ended September 30,
2000 and 1999, respectively. The weighted average debt outstanding was $512.6
million and $435.1 million for the fiscal years ended September 30, 2000 and
1999, respectively.
51
Other expense for the fiscal year ended September 30, 2000 was $1.5 million
and was attributable to the disposal of assets having a net book value of $1.5
million. There were no costs attributed to other expense in fiscal year 1999.
Loss from discontinued operations for the fiscal year ended September 30,
2000 decreased by $138,000, or 17.0%, to $674,000 from $812,000 for the fiscal
year ended September 30, 1999. The loss was the result of the decision of the
Authority, in conjunction with the Tribe, to cease bingo operations in order to
convert the floor space into the 637-unit Hall of the Lost Tribes smoke-free
slot machine venue.
Net income for the fiscal year ended September 30, 2000 increased by $184.9
million to $145.9 million from a loss of $38.9 million for the fiscal year
ended September 30, 1999. This increase in net income was primarily
attributable to the decrease in the relinquishment liability reassessment
expense from $89.9 million in fiscal year 1999 to $8.8 million in fiscal year
2000. Net loss for fiscal year 1999 totaled $38.9 million, which was primarily
attributable to the relinquishment reassessment expense of $89.9 million and
the extraordinary item of $38.4 million, of which $33.7 million related to the
early extinguishment of the Senior Secured Notes, $5.2 million related to the
write-off of financing fees associated with the original facility construction
and $500,000 related to the forgiveness of debt associated with the defeasance
of the Subordinated Notes (see Note 15 to the Authority's audited financial
statements on page F-20 of this prospectus).
Liquidity, Capital Resources and Capital Spending
As of September 30, 2001, the Authority held cash and cash equivalents of
$74.3 million, a decrease of $41.4 million from $115.7 million as of September
30, 2000. This decrease is mainly attributable to capital expenditures incurred
in connection with Project Sunburst. As of March 31, 2002, the Authority held
cash and cash equivalents of $80.7 million, which represents an increase of
$18.2 million from $62.5 million as of March 31, 2001. This increase is mainly
attributable to the increase in cash on hand requirements related to the
opening of the Casino of the Sky. Cash provided by operating activities for the
six months ended March 31, 2002 was $58.4 million compared to cash provided by
operating activities for the six months ended March 31, 2001 of $76.8 million.
This decrease in cash provided from operating activities is attributable to a
decrease in net income. Cash provided by operating activities for the year
ended September 30, 2001 was $187.7 million compared to cash provided by
operating activities for the year ended September 30, 2000 of $194.8 million,
which represents a decrease of 3.7%.
Operating activities are the principal source of the Authority's cash flows.
The principal application of this cash was capital expenditures incurred in
connection with the construction and development of Project Sunburst and other
real property improvements. While the Authority does not believe that there is
any trend or a likelihood of an event that would adversely impact the level of
cash generated by its activities, there are numerous potential factors which
may cause a substantial reduction in the amount of cash flow, including the
following:
. downturn in the economy and lack of consumer confidence, which would
result in reduced spending on discretionary items such as gaming
activities;
. an act of terrorism on the United States of America;
. substantial cost overruns in connection with the completion of Project
Sunburst;
. operating expenses increasing at a greater rate than revenue; and
. increased competition in the gaming industry, or the legalization of
gaming activities in the State of Connecticut, which may result in a
substantial decrease in revenue.
In addition to cash generated by operating activities, the Authority has
relied on external sources of liquidity to meet its operating and investing
requirements.
52
External Source of Liquidity
Bank Credit Facility. One of the Authority's main external sources of
liquidity is the Bank Credit Facility. At the Authority's option, each advance
of loan proceeds accrues interest on the basis of a base rate or on the basis
of a one-month, two-month, three-month or six-month London Inter-Bank Offered
Rate, or LIBOR, plus, in either case, the applicable spread (based on the
Authority's Total Leverage Ratio as defined in the Bank Credit Facility).
One-month LIBOR as of March 31, 2002 was 1.88% and the applicable spread on a
LIBOR loan was 2.625%. Interest on each LIBOR loan that is for a term of a
quarter or less is due and payable on the last day of the related interest
period. Interest on each LIBOR loan that is for a term of more than a quarter
is due and payable on the date which is a quarter after the date such LIBOR
loan was made, every quarter thereafter and, in any event, on the last day of
the related interest period. Interest on each base rate loan is due and payable
quarterly in arrears. As of March 31, 2002, the Authority had no base rate
loans.
During the six months ended March 31, 2002, the Authority paid down $59.0
million, net of $184.0 million in draws, on the Bank Credit Facility. The
outstanding balance under the Bank Credit Facility as of March 31, 2002 was
$199.0 million. On February 20, 2002, the Authority completed the sale and
issuance of the outstanding notes, net proceeds of which was used to pay down
the outstanding balance under the Bank Credit Facility. As discussed under the
section titled "Risk Factors," the Bank Credit Facility contains various
provisions that require the Authority to maintain specified financial ratios.
If the Authority's revenue declines due to economic or competitive factors, or
if there is a substantial cost overrun in connection with the completion of
Project Sunburst, it is possible that these financial ratios may be violated.
If this were to happen, the Authority would not be able to borrow additional
funds under the Bank Credit Facility and it may even result in an event of
default which could accelerate the payment of any outstanding balance. In
addition, while the Authority has entered into some hedging transactions to
mitigate against its exposure to interest rate fluctuations on the Bank Credit
Facility, the majority of the outstanding balance is subject to interest rate
fluctuations. As the economy rebounds, it is possible that the interest rate
will start to increase, which would mean that the Authority's interest cost may
increase significantly. A substantial increase in interest expense could have a
negative effect on the Authority's liquidity. For a further discussion on
hedging transactions that mitigate against this exposure, see "--Quantitative
and Qualitative Disclosure of Market Risk" and Note 3 to the Authority's
unaudited financial statements on page F-26 of this prospectus.
Capital Expenditures
Capital Expenditures Incurred to Date. Capital expenditures totaled $216.8
million including capitalized interest for the six months ended March 31, 2002,
versus $235.8 million for the same period in the prior year. These capital
expenditures were an aggregate of the following:
. Cumulative Project Sunburst construction expenses, including capitalized
interest, totaled $978.2 million, including $44.1 million in capitalized
interest and net of $2.1 million expensed or recorded as inventory,
through March 31, 2002. During the six months ending March 31, 2002
expenditures totaled $133.9 million, including $6.3 million in
capitalized interest and net of $780,000 expensed or recorded as
inventory, versus $203.2 million, net of $10.7 million in capitalized
interest, expended during the six months ended March 31, 2001.
. Property maintenance capital expenditures for furniture, fixtures and
equipment totaled $16.9 million and $11.7 million for the six months
ended March 31, 2002 and March 31, 2001, respectively.
. Capital expenditures on the Authority's electrical and water systems
infrastructure improvements totaled $5.4 million and $3.9 million for
the six months ended March 31, 2002 and March 31, 2001, respectively.
Cumulative infrastructure improvements totaled $35.0 million as of March
31, 2002. The total estimated cost of the Infrastructure Improvements is
$35.0 million. The infrastructure improvements will handle the increased
utility demands of the expanded facility that are attributable to the
Project Sunburst expansion.
53
. Capital expenditures for the $65.0 million Indian Summer Garage, which
will provide 2,700 additional patron parking spaces, totaled $42.3
million for the six months ending March 31, 2002. The Authority did not
incur any capital expenditures for the Indian Summer Garage for the six
months ending March 31, 2001. Cumulative expenditures totaled $46.8
million as of March 31, 2002. The Indian Summer Garage is expected to
open in June 2002.
. Capital expenditures for the $25.0 million, 1,700-space Thames Garage
totaled $18.3 million for the six months ended March 31, 2002. The
Authority did not incur any capital expenditures for the construction of
the Thames Garage for the six months ending March 31, 2001.
. Capital expenditures for the construction of the Hall of the Lost
Tribes, the 637-unit smoke-free slot machine venue which opened on April
18, 2001, were $499,000 for the six months ending March 31, 2002.
Expenditures for the construction of the Hall of the Lost Tribes for the
six months ending March 31, 2001 totaled $5.1 million. Cumulative
expenditures for the Hall of the Lost Tribes totaled $15.4 million as of
March 31, 2002. Construction is now complete.
. Capital expenditures for the construction of the employee day care
facility were $554,000 during the six months ended March 31, 2002 and
cumulative expenditures on the employee day care facility reached $1.1
million as of March 31, 2002. The Authority did not incur any
construction expenses in conjunction with the employee day care facility
for the six months ended March 31, 2001. The Authority's expenditure of
$1.1 million has been fully reimbursed by the Tribe. The Tribe will pay
all future expenditures related to this project and operate it when
opened.
. The Authority, in conjunction with the Project Sunburst expansion,
commenced construction on the employee parking center in March 1999. The
employee parking center includes 2,550 parking spaces and amenities such
as a dry cleaning service, on-site banking, an employee
computer/training center and a 15,000 square foot exercise facility. A
portion of the employee parking center opened in June 2000 with the
remainder opening in January 2001. The total cost of the employee
parking center was $25.0 million. The Authority did not incur any
capital expenditures for the employee parking center for the six months
ended March 31, 2002 as construction of the facility is complete.
Capital expenditures associated with the employee parking center were
$1.2 million for the six months ended March 31, 2001.
In keeping with standard practice in the construction industry, the
Authority retains a portion of the construction expenditures until satisfactory
completion of individual contracts. As of March 31, 2002, construction
retainage totaled $16.3 million, which has been included in construction
accounts payable in the Authority's financial statements.
Expected future capital expenditures
During the remainder of fiscal year 2002, the Authority expects capital
expenditures to total approximately $91.8 million and to be allocated as
follows:
. $18.1 million on maintenance capital expenditures;
. $48.8 million on Project Sunburst construction;
. $18.2 million on the Indian Summer Garage; and
. $6.7 million on the approximately 1,700 space Thames Garage.
Project Sunburst
The Tribe recently received a notification from TCA, the developer of
Project Sunburst, indicating that the cost of completing Project Sunburst is
estimated to be $1.0 billion, excluding capitalized interest, which represents
an increase of $40.0 million over the previous estimate of $960.0 million. TCA
indicated that the
54
$40.0 million increase is comprised of (i) $18.0 million in additional
improvements and upgrades to the Casino of the Sky, such as decor and access
road improvements and upgrades to the surveillance system, (ii) $10.0 million
relating to enhancements to Todd English's Tuscany, a restaurant located in the
Casino of the Sky, and the addition of a radio station and several retail
shops, and (iii) $12.0 million in additional costs incurred as a result of the
acceleration of the opening of the Casino of the Sky and the delay in the full
completion of the Mohegan Sun hotel, both of which resulted in an increase of
overtime construction labor costs. Mohegan Sun currently anticipates that it
will obtain $25.0 million in operating lease financing to fund a portion of the
cost overrun. The Authority will fund the remaining $15.0 million of the cost
overrun from the annual capital expenditure budget as permitted by its Bank
Credit Facility. As a result, the Authority expects that it will increase its
2002 annual capital expenditures from $15.0 to the maximum authorized spending
of $35.0 million. See "Business--Project Sunburst."
As of March 31, 2002, cumulative capitalized interest for Project Sunburst
construction expenses totaled $44.1 million. Capitalized interest totaled $3.1
million and $5.9 million for the quarter ended March 31, 2002 and 2001,
respectively. Capitalized interest totaled $6.3 million and $10.7 million for
the six months ended March 31, 2002 and 2001, respectively.
Sources of funding for capital expenditures
The Authority will rely primarily on cash generated from its operations and
amounts available to be drawn under the Bank Credit Facility to finance these
capital expenditures. In addition, the Authority expects to complete a $25.0
million operating lease transaction to fund a portion of the cost overrun.
However, the Authority's ability to finance sufficiently the anticipated
capital expenditures from these sources depend on its ability to maintain a
stable level of cash generation from its operations, its ability to draw down
on the Bank Credit Facility and the successful completion of the operating
lease transaction.
Relinquishment Agreement
Under the terms of the Relinquishment Agreement, TCA continued to manage
Mohegan Sun under the Management Agreement until January 1, 2000. On January 1,
2000, the Management Agreement terminated and the Authority assumed day-to-day
management of Mohegan Sun. As a result of the termination of the Management
Agreement, the Authority has agreed to pay TCA five percent of gross revenues
(as defined in the Relinquishment Agreement) generated from Mohegan Sun
including Project Sunburst, beginning January 1, 2000 and ending December 31,
2014. We refer to these payments as the relinquishment payments. The Authority
initially recorded a relinquishment liability of $549.1 million in 1998. The
present value of this liability is estimated at $585.7 million as of March 31,
2002. The Authority annually reviews revenue forecasts and revenue projections
for the period in which the Relinquishment Agreement applies, due to
uncertainties involving economic market conditions and future competition from
potential Native American casinos. See Note 13 to the Authority's audited
financial statements on page F-18 and Note 6 to the Authority's unaudited
financial statements on page F-31 of this prospectus. The relinquishment
liability is reassessed quarterly, and additionally when necessary, to account
for material increases or decreases in projected revenues and the impact on the
time value of money due to the passage of time. The Authority has capitalized
$130.0 million of the relinquishment liability associated with the trademark
value of the Mohegan Sun brand name. The Authority paid $24.5 million in Senior
Relinquishment Payments during the six months ended March 31, 2002. Of the
$24.5 million in relinquishment payments for the six months ended March 31,
2002, $6.4 million represents principal amounts and the remaining $18.1 million
is payment for the accretion of interest. As of March 31, 2002, relinquishment
payments earned but unpaid were $12.5 million. During the six months ended
March 31, 2001, the Authority paid $21.0 million in Senior Relinquishment
Payments consisting of $6.3 million in principal amounts and $14.7 million for
the accretion of interest.
55
Distributions to the Tribe
During the quarter and the six months ended March 31, 2002, the Authority
distributed $9.7 million and $16.7 million, respectively, to the Tribe. The
Authority distributed $10.0 million and $20.0 million, respectively, to the
Tribe for the quarter and six months ended March 31, 2001.
Debt Service Costs
For the six months ended March 31, 2002 and March 31, 2001 the Authority
incurred the following debt service costs:
Six Months Ended Six Months Ended
March 31, 2002 March 31, 2001
---------------- ----------------
(in thousands)
Bank Credit Facility.............................. $ 8,561 $ 1,087
$200M 8.125% Senior Notes......................... 8,125 8,125
$300M 8.75% Senior Subordinated Notes............. 13,125 13,125
$150M 8.375% Senior Subordinated Notes............ 6,281 --
$250M 8% Senior Subordinated Notes................ 2,167 --
Capital Leases.................................... 9 189
Capitalized Interest.............................. (6,322) (10,711)
------- --------
Total Interest Expense......................... $31,946 $ 11,815
======= ========
Sufficiency of Resources
The Authority believes that existing cash balances, financing arrangements
and operating cash flow will provide the Authority with sufficient resources to
meet its existing debt obligations, relinquishment payments, distributions to
the Tribe and foreseeable capital expenditure requirements with respect to
current operations and Project Sunburst for at least the next twelve months.
Nonetheless, as discussed above, there are potential events or occurrences that
may affect adversely the Authority's ability to meet its existing debt
obligations, make relinquishment payments and distributions to the Tribe and
pay for capital expenditures.
Contractual Obligations and Commitments
The Authority's future payment obligations related to its material debt and
certain other contractual obligations and the timing of those payments are set
forth below. Since many of these payment amounts are not fixed, the amounts in
the table below are solely estimates as more fully indicated in the footnotes
and the actual amounts may be different.
Fiscal
Year After 5
Contractual Obligations 2002 (1) 2-3 years 4-5 years years
- ----------------------- -------- --------- --------- --------
(in thousands)
Long-term debt(2)....................... $114,648 $143,352 $200,000 $700,000
Construction obligations(3)............. 192,200 -- -- --
Development obligations(4).............. 4,718 -- -- --
-------- -------- -------- --------
Total................................... $311,566 $143,352 $200,000 $700,000
======== ======== ======== ========
- --------
(1) Amounts due within one year represent payment obligations from October 1,
2001 to September 30, 2002.
(2) Long-term debt includes scheduled amortization and scheduled maturities for
notes payable and credit facilities, as well as anticipated payments under
the Bank Credit Facility prior to maturity, but excludes interest payments.
56
(3) Construction obligations represent the remainder of expenditures the
Authority must pay to Perini Building Company, Inc. for Project Sunburst.
See Note 12 to the Authority's audited financial statements on page F-18
and Note 5 to the Authority's unaudited financial statements on page F-30
of this prospectus . The Authority does not believe that it will have any
construction obligations after September 30, 2002 and this table has been
prepared based on that assumption.
(4) Under the Development Agreement, the Authority is required to pay to TCA a
development fee of $14.0 million. Development obligations represent the
remainder of the fee due to TCA. See Note 13 to the Authority's audited
financial statements on page F-18 and Note 6 to the Authority's unaudited
financial statements on page F-31 of this prospectus. The Authority does
not believe that it will have any development fee obligations after
September 30, 2002 and this table has been prepared based on that
assumption.
In addition to the contractual obligations described above, the Authority
has certain other contractual commitments that will require payments throughout
the periods described below. The calculation of the estimated payments in the
table below are based, in large part, on projections of future revenues over an
extended period of time, as well as other factors which are indicated more
fully in the footnotes to the following table. Since there is a high level of
estimates and judgments used with respect to calculating these liabilities,
future events that affect or undermine such estimates and judgments may cause
the actual payments to differ significantly from the estimates set forth below.
Fiscal
Year
Contractual Commitments 2002 (1) 2-3 years 4-5 years After 5 years
- ----------------------- -------- --------- --------- -------------
(in thousands)
Slot winning payment commitments(2)..... $187,388 $402,144 $434,959 $1,212,586
Relinquishment commitments(3)........... 58,478 131,341 142,058 578,699
Priority distributions(4)............... 14,882 31,282 33,420 93,889
-------- -------- -------- ----------
Total................................... $260,748 $564,767 $610,437 $1,885,174
======== ======== ======== ==========
- --------
(1) Amounts due within one year represent payment commitments from October 1,
2001 to September 30, 2002.
(2) Slot winning payment commitments are a portion of the revenues earned on
slot machines that must be paid by the Authority to the State of
Connecticut pursuant to the Mohegan Compact. The payment commitment is the
lesser of (a) 30% of gross revenues from slot machines, or (b) the greater
of (i) 25% of gross revenues from slot machines or (ii) $80.0 million. For
the fiscal years ended September 30, 2001, 2000 and 1999, the Slot Win
Contribution totaled $144.6 million, $135.1 million and $121.1 million,
respectively. The amounts shown in this table are estimates and, while the
Mohegan Compact is perpetual in term, for purposes of calculating these
amounts, the Authority has assumed that this commitment will terminate in
10 years.
(3) Relinquishment commitments represent payment commitments of the Authority
to TCA under the Relinquishment Agreement as described in Note 13 to the
Authority's audited financial statements on page F-18 and in Note 6 to the
Authority's unaudited financial statements on page F-31 of this prospectus.
The relinquishment commitment is calculated as five percent of revenues, as
defined in the Relinquishment Agreement. The amounts shown in this table
are estimates and have been calculated through December 31, 2014, the date
on which the Relinquishment Agreement terminates.
(4) Priority distributions are monthly payments required to be made by the
Authority to the Tribe pursuant to the Priority Distribution Agreement. The
payments are calculated based on net cash flow and are limited to a maximum
amount of $14.0 million, which maximum amount is subject to an annual
adjustment based on Consumer Price Index, or CPI. During the fiscal year
ended September 30, 2001, the Authority paid $14.0 million in priority
distributions to the Tribe. In addition, for the six months ended March 31,
2002, the Authority paid $7.7 million in priority distributions to the
Tribe. The amounts included in the table are estimates and, while this
agreement is perpetual in term, for the purposes of calculating these
amounts, the Authority has assumed that it will pay the maximum amount in
each of the years covered by the table, as adjusted by an annual CPI
adjustment of 3.361%, and has assumed that this commitment will terminate
in 10 years.
57
Critical Accounting Policies and Estimates
Management has identified the following critical accounting policies that
affect the Authority's more significant judgments and estimates used in the
preparation of the Authority's financial statements. The preparation of the
Authority's financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Authority's
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, management evaluates
those estimates, including those related to asset impairment, accruals for
Player's Club points, self-insurance, compensation and related benefits,
revenue recognition, allowance for doubtful accounts, contingencies and
litigation. The Authority states these accounting policies in the notes to the
financial statements and in relevant sections in this discussion and analysis.
These estimates are based on the information that is currently available to the
Authority and on various other assumptions that management believes to be
reasonable under the circumstances. Actual results could vary from those
estimates.
The Authority believes that the following critical accounting policies
affect significant judgments and estimates used in the preparation of its
financial statements:
One of the most significant policies used by the Authority relates to its
estimate of its relinquishment liability. The Authority, in accordance with
Statement of Financial Accounting Standards No. 5 "Accounting for
Contingencies" ("SFAS No. 5"), has recorded a relinquishment liability of the
estimated present value of its obligations under the Relinquishment Agreement.
At March 31, 2002, the carrying amount of the relinquishment liability was
$585.7 million as compared to $592.0 million at September 30, 2001. The
decrease is due to $24.5 million in relinquishment payments, partially offset
by $18.2 million in accretion of relinquishment liability discount. Of the
$24.5 million in relinquishment payments for the six months ended March 31,
2002, $6.4 million represents principal amounts and the remaining $18.1 million
is payment for the accretion of interest. This accretion resulted from the
impact on the discount for the time value of money due to the passage of time.
As of March 31, 2002, relinquishment payments earned but unpaid were $12.5
million. Since there is a high level of estimates and judgments used with
respect to calculating this liability, future events that affect or undermine
such estimates and judgments may cause the actual liability to differ
significantly from the estimate.
The Authority recognizes revenue upon occupancy of hotel rooms, as net wins
and losses occur in the casino and upon delivery of food, beverage and other
services. Cancellation fees for hotel and food and beverage services are
recognized as revenue when collection is probable and upon cancellation by the
customer as defined by a written contract entered into with the customer.
Minimum rental revenues in the Shops at Mohegan Sun are recognized on a
straight-line basis over the terms of the related lease. Percentage rents are
recognized in the period in which the tenants exceed their respective
percentage rent thresholds. Recoveries from tenants for operating expenses
related to the Shops at Mohegan Sun are recognized as offsetting expenses in
the period billed, which approximates the period in which the applicable costs
are incurred.
The Authority maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments,
which results in bad debt expense. Management determines the adequacy of this
allowance by continually evaluating individual customer receivables,
considering the customer's financial condition, credit history and current
economic conditions. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
The Authority's trademark is no longer subject to amortization over its
estimated useful life as it has been deemed to have an indefinite useful life.
The trademark is evaluated periodically for impairment by applying a fair-value
based test and, if impairment occurs, the amount of impaired trademark will be
written off immediately. The Authority has applied the initial fair value test
and has determined that no impairment exists at March 31, 2002.
58
The Authority maintains accruals for health and workers compensation
self-insurance, Player's Club points redemption and group sales commissions,
which are classified in other accrued liabilities in the accompanying balance
sheets. Management determines the adequacy of these accruals by periodically
evaluating the historical experience and projected trends related to these
accruals. If such information indicates that the accruals are overstated or
understated, the Authority will adjust the assumptions utilized in the
methodologies and reduce or provide for additional accruals as appropriate.
The Authority is subject to various claims and legal actions in the ordinary
course of business. Some of these matters relate to personal injuries to
customers and damage to customers' personal assets. Management estimates guest
claims expense and accrues for such liability based upon historical experience
in the accounts payable and accrued expenses category in its accompanying
balance sheets.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices
affecting the hotel and casino industry, the Authority does not expect that
inflation will have a significant impact on its operations. Changes in specific
prices, such as fuel and transportation prices, relative to the general rate of
inflation may have a material adverse effect on the hotel and casino industry
in general.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 144 "Accounting for the Impairment of Disposal of Long-Lived
Assets" ("SFAS No. 144"). SFAS No. 144 modifies the rules for accounting for
the impairment or disposal of long-lived assets. The new rules become effective
for fiscal years beginning after December 15, 2001, with earlier application
encouraged. The Authority has not yet adopted, and has not yet quantified the
impact of implementing SFAS No. 144 on the Authority's financial statements,
but does not anticipate a negative effect on the Authority's financial
position, results of operations or cash flows upon adoption of the standard.
The Authority adopted SFAS No. 142 on October 1, 2001. Under SFAS No. 142,
the trademark is no longer subject to amortization over its estimated useful
life as it has been deemed to have an indefinite useful life. However, SFAS No.
142 requires the trademark to be evaluated at least annually for impairment by
applying a fair-value based test and, if impairment occurs, the amount of
impaired trademark must be written off immediately. With the adoption of SFAS
No. 142, the Authority no longer records amortization of the trademark. For the
quarter and six months ended March 31, 2001, the Authority recorded $859,000
and $1.7 million, respectively, related to the amortization of the trademark.
As of March 31, 2002, the Authority has applied the initial fair value test and
has determined that no impairment exists.
In April 2002, FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002" ("SFAS No. 145"). SFAS No. 145 rescinds FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and
an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements." The Statement also rescinds FASB
Statement No. 44, "Accounting for Intangible Assets of Motor Carriers." The
Statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. The
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of this Statement
related to the rescission of Statement 4 shall be applied in fiscal years
beginning after May 15, 2002. Any gain or loss on extinguishment of debt that
was classified as an extraordinary item in prior periods presented that does
not meet the criteria in Opinion 30 for classification as an extraordinary item
shall be reclassified. Early application of the provisions of this Statement
related to the rescission of Statement 4 is encouraged. The provisions in
paragraphs
59
8 and 9(c) of this Statement related to Statement 13 shall be effective for
transactions occurring after May 15, 2002, with early application encouraged.
All other provisions of this Statement shall be effective for financial
statements issued on or after May 15, 2002, with early application encouraged.
The Authority has not adopted SFAS No. 145 and has not yet quantified the
impact of implementing SFAS No. 145 on the Authority's financial statements.
The Authority does not anticipate a negative effect on the Authority's
financial position, results of operations or cash flows upon adoption of the
standard.
Quantitative and Qualitative Disclosure of Market Risk
The Authority is exposed to inherent market risk on the following:
At the Authority's option, Bank Credit Facility interest accrues on the
basis of a base rate formula or a LIBOR-based formula, plus applicable spreads.
As of March 31, 2002, the Authority had drawn $199.0 million from the Bank
Credit Facility. The Authority expects to continue to draw down on the Bank
Credit Facility in fiscal year 2002 in connection with Project Sunburst and
other capital expenditures.
The Authority analyzes interest rate risk using various models that forecast
cash flows of the liabilities and their supporting assets, including derivative
instruments. The Authority uses derivative instruments, including an interest
rate cap, collar and swap as its strategy to manage interest rate risk
associated with the variable interest rates applicable to advances under the
Bank Credit Facility. The Authority's objective in managing interest rate risk
is to ensure appropriate income and sufficient liquidity to meet its
obligations. The Authority does not believe that there is any material risk
exposure with respect to derivative or other financial instruments which it
currently holds. The Authority continually monitors these exposures and makes
the appropriate adjustments to manage these risks within management's
established limits.
The Authority is considered an "end user" of derivative instruments and
engages in derivative transactions for risk management purposes only. On
October 1, 2000, the Authority adopted Financial Standards Accounting Board
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") which designated all derivative instruments as
cash flow hedging instruments and marked them to market. The impact of the
adoption of SFAS No. 133 was not material to the financial position of the
Authority taken as a whole. The Authority excludes the change in time value
when assessing the effectiveness of the hedging relationships. All derivatives
are evaluated quarterly and were deemed to be effective at March 31, 2002.
Derivative instruments held by the Authority at March 31, 2002 are as
follows:
Effective Date Maturity Date Notional Cost Market
--------------- --------------- ------------ -------- -----------
Interest Rate Cap Strike Rate--8%....... October 1, 2000 October 1, 2003 $ 69,883,000 $410,000 $ 1,300
Interest Rate Collar Ceiling Strike
Rate--8% Floor Strike Rate--6%......... January 2, 2001 March 1, 2004 79,063,800 295,000 (2,383,757)
Interest Rate Swap Pay
fixed--6.35% Receive Variable.......... January 2, 2001 March 1, 2004 39,531,900 221,000 (1,314,262)
------------ -------- -----------
Total................................ $188,478,700 $926,000 $(3,696,719)
============ ======== ===========
All derivative instruments are based upon one-month LIBOR, which was 1.88%
on March 31, 2002.
For the quarters ended March 31, 2002 and March 31, 2001, the Authority
recognized a net gain of $11,000 and $865,000 respectively. For the six months
ended March 31, 2002 and March 31, 2001, the Authority recognized a net loss of
$5,000 and $1,277,000, respectively, relating to the change in time value of
its derivative instruments, as reflected in the statement of income. See also
Note 3 to the Authority's unaudited financial statements on page F-26 of this
prospectus.
60
BUSINESS
Overview
The Tribe is a federally recognized Indian tribe with an approximately
405-acre reservation located in southeastern Connecticut. Under 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
compact with the affected state. The Tribe and the State of Connecticut have
entered into such a compact, the Mohegan Compact, which has been approved by
the United States Secretary of the Interior.
The Authority, established on July 15, 1995, is an instrumentality of the
Tribe with the exclusive power to conduct and regulate gaming activities for
the Tribe on tribal lands. On October 12, 1996, the Authority opened a casino
known as Mohegan Sun. The Authority is currently engaged in a major expansion
of Mohegan Sun.
The Authority's mailing address is One Mohegan Sun Boulevard, Uncasville, CT
06382 and its telephone number is (860) 862-8000.
The following disclosure relating to the Authority's business is organized
as follows:
. Mohegan Sun;
. Strategy;
. Project Sunburst;
. Additional Mohegan Sun Enhancements;
. Other Reservation Enhancement;
. Market;
. Competition from Other Gaming Operations;
. Environmental Matters;
. Properties;
. Legal Proceedings; and
. Trademarks.
Mohegan Sun
The Authority owns and operates Mohegan Sun, a full-service gaming and
entertainment complex on a 240-acre site overlooking the Thames River on the
Tribe's reservation in southeastern Connecticut located approximately 125 miles
from New York City and 100 miles from Boston, Massachusetts. The Authority has
entered into a land lease with the Tribe whereby the Tribe leases to the
Authority the site on which Mohegan Sun is located. Mohegan Sun opened in
October 1996 at a cost of approximately $303.0 million and is currently
undergoing a $1.0 billion expansion known as Project Sunburst. Project Sunburst
includes increased gaming and retail space and an entertainment arena, which
opened on September 25, 2001, and the addition of a hotel and a convention
center, which partially opened in April 2002. See--"Project Sunburst." Mohegan
Sun is one of two legally authorized gaming operations in New England offering
both traditional slot machines and table games. Mohegan Sun currently operates
in a 1.9 million square foot facility which conveys a historical northeastern
Indian theme through architectural features and the use of natural design
elements such as timber, stone and water.
Casino of the Earth. The original casino, Casino of the Earth, is comprised
of four quadrants, each of which has its own unique entrance and reflects a
separate seasonal theme--winter, spring, summer and fall--emphasizing the
importance of the seasonal changes to Mohegan Tribal life. The Casino of the
Earth includes
61
176,500 square feet of gaming space with approximately 3,655 slot machines, 158
table games, 42 poker tables and a 9,000 square foot simulcasting race book
facility. On April 18, 2001, the Hall of the Lost Tribes smoke-free gaming
venue opened featuring 637 slot machines, quick-service food and beverage
concessions and a new cocktail bar with video poker. Food and beverage
amenities include a 680-seat buffet, three full-service themed fine dining
restaurants, a 24-hour coffee shop, a New York style delicatessen, a ten
station food court featuring international and domestic cuisine and multiple
service bars for a total of 1,888 restaurant seats. The 350-seat, 10,000 square
foot Wolf Den Lounge located in the center of the Casino of the Earth hosts
live musical entertainment seven days a week. Three retail shops are located
within the Casino of the Earth and provide shopping opportunities ranging from
Mohegan Sun souvenirs to clothing to cigars.
Casino of the Sky. On September 25, 2001, the Authority opened the first
phase of Project Sunburst, the Casino of the Sky. The Casino of the Sky
includes the world's largest planetarium dome, which projects changing displays
of constellations, sun cycles and clouds. Wombi Rock, a three-story crystal
mountain built inside the Casino of the Sky, is crafted from more than 12,000
individual plates of onyx and alabaster fused to glass. The Casino of the Sky
also includes an 85-foot-high waterfall, which pays tribute to the journey of
the Tribe from upstate New York. The Casino of the Sky includes 119,000 square
feet of gaming space with approximately 2,564 slot machines, 82 table games,
the Shops at Mohegan Sun, the 10,000-seat Mohegan Sun Arena and a 300-seat
cabaret. Wombi Rock serves as a three-level lounge and bar. Food and beverage
amenities include Jasper White's Summer Shack, Todd English's Tuscany, Michael
Jordan's Steakhouse and 23 Sportcafe, Rain, the Rising Moon Gallery of Eateries
and a 350-seat Sunburst Buffet. The Shops at Mohegan Sun located in the Casino
of the Sky contain approximately 30 different retail shops, five of which are
owned and operated by the Authority. The remaining are tenants of the Authority
and include, but are not limited to, Boccelli, Discovery Channel, Godiva,
Swarovski and Lux, Bond & Green. For non-gaming entertainment, the Casino of
the Sky offers an arcade-style recreation area and a child care facility
operated by New Horizon Kids Quest, Inc.
The Authority also operates a 4,000 square foot, 20-pump gasoline service
station and convenience center located adjacent to Mohegan Sun.
On November 29, 2000, in connection with construction of the Hall of the
Lost Tribes, which is now part of the Casino of the Earth, the Authority
discontinued certain bingo operations to provide the necessary floor space for
the new gaming venue. Pursuant to Accounting Principles Board Opinion No. 30
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30"), the financial statements of the Authority
have been restated to reflect the disposition of bingo operations as
discontinued operations. Accordingly, the revenues, costs and expenses of the
bingo operations have been excluded from the captions in the Statements of
Income (Loss) and have been reported as "Loss from discontinued operations."
For the fiscal years ended September 30, 2001, 2000 and 1999, loss from
discontinued operations totaled $591,000, $674,000 and $812,000, respectively.
See "Selected Financial Data" and the Authority's financial statements and the
related notes beginning on page F-1 of this prospectus.
The Authority believes ease of access is one of the important factors that
differentiate Mohegan Sun from its local competition. Mohegan Sun is located
approximately one mile from the interchange of Interstate 395 and Route 2A in
Uncasville, Connecticut. The Authority constructed a four-lane access road and
entrance/exit ramps off of Route 2A, providing guests direct access to
Interstate 395 and Interstate 95, the main highways connecting Boston,
Providence and New York City. Mohegan Sun currently has parking spaces for
approximately 10,165 guests and 3,075 employees. The gaming industry in
Connecticut experiences seasonal fluctuations, with the heaviest gaming
activity at Mohegan Sun occurring during the period from July through October.
Strategy
The Authority's overall strategy is to profit from expanding demand in the
gaming market in the northeastern United States. Mohegan Sun's initial success
resulted primarily from guests living within 100 miles
62
of Mohegan Sun. Based upon Mohegan Sun's results and experience, the Authority
believes the gaming market in the northeastern United States is strong and that
there is significant demand for additional amenities. The Authority expects to
develop Mohegan Sun into a full-scale entertainment and destination resort and
believes that this will increase the number of guests and lengthen their stays
at Mohegan Sun. Specifically, the Authority is currently engaged in a major
expansion of Mohegan Sun, Project Sunburst, including the addition of a luxury
hotel, increased gaming and retail space, a convention center and an
entertainment arena. By providing Mohegan Sun with additional capacity and the
ability to capture a share of the overnight market, the Authority believes
Mohegan Sun's market penetration will expand. The Authority believes that
Project Sunburst will create a long-term competitive advantage for Mohegan Sun
in the gaming market in the northeastern United States. See "--Project
Sunburst," "--Market" and "--Competition from Other Gaming Operations."
Project Sunburst
In order to capitalize on the strong demand for gaming opportunities in the
northeastern United States and Mohegan Sun's popularity, the Authority decided
in 1998 to expand the casino significantly and to add a hotel, convention
facilities, an entertainment arena and additional retail establishments. The
Authority refers to this expansion as Project Sunburst. The first phase of
Project Sunburst, the Casino of the Sky, opened on September 25, 2001. See
"--Mohegan Sun." The remaining components, including the majority of a 1,200
room luxury hotel and approximately 100,000 square feet of convention space,
opened in April 2002 and full completion of construction is expected by the end
of June 2002.
The following is a summary of some of the attributes of Mohegan Sun before
and after the Project Sunburst expansion:
Casino Retail Convention Guest
Space Slot Table Poker Restaurant Hotel Space Event Space Parking
(sq. ft) Machine Games Tables Seats Rooms (sq. ft) Seating (sq. ft) Spaces
-------- ------- ----- ------ ---------- ----- -------- ------- ---------- -------
Resort before expansion
(September 25, 2001)(1)...... 176,500 3,655 158 42 1,888 0 5,476 5,015 0 8,265
Resort after expansion
(estimated)(2)............... 295,500 6,219 240 42 2,976 1,200 135,476 10,650 100,000 12,865
- --------
(1) These figures include the effect of the establishment of the 4,665-seat
Uncas Pavilion (a temporary entertainment structure for special events) and
the effect of the opening of the Hall of the Lost Tribes smoke-free gaming
venue which added an additional 637 slot machines as if both had occurred
prior to the expansion. The Uncas Pavilion has been replaced by the 10,000
seat Mohegan Sun Arena and is no longer being used.
(2) These figures include approximately 2,700 additional parking spaces
associated with the construction of the Indian Summer Garage which is
projected to be opened in June 2002, an additional 1,700 space parking
garage, the Thames Garage, which opened in April 2002 and 200 additional
valet parking spaces available in the spring of 2002.
The Authority continues to believe that the market favors expansion for
three primary reasons: (1) unsatisfied current patron demand for gaming space
at the existing facility; (2) growth of the gaming market in the northeastern
United States; and (3) patron length of stay data indicating the need for a
hotel and other amenities. The Authority believes that Project Sunburst, upon
anticipated full completion by the end of June 2002, will continue to attract a
significant number of guests to the facility, particularly during midweek
periods. When fully completed, the Authority believes that the patron length of
stay will increase, as well as the average spending per guest.
The Tribe recently received a notification from Trading Cove Associates, or
TCA, the developer of Project Sunburst, indicating that the cost of completing
Project Sunburst is estimated to be $1.0 billion, excluding capitalized
interest, which represents an increase of $40.0 million over the previous
estimate of $960.0 million. TCA indicated that the $40.0 million increase
relates to scope changes to the Mohegan Sun retail program amounting to $10.0
million and acceleration costs related to the early opening of the Casino of
the Sky and the extended hotel tower completion date in the amount of $12.0
million. The balance of the increase relates to theming and quality
improvements and claims reserves in the amount of $18.0 million.
63
On May 1, 2002, the Tribal Council approved a formal resolution increasing
the Project Sunburst budget from $960.0 million (excluding capitalized
interest) to $1.0 billion. Mohegan Sun currently anticipates obtaining $25.0
million in operating lease financing to fund a portion of the cost overrun and
will increase its 2002 annual capital expenditures by $15.0 million to the
maximum authorized spending of $35.0 million to fund the balance of the overrun
out of operating cash flows. As of March 31, 2002, the Authority had spent
$936.2 million, excluding capitalized interest, on Project Sunburst. The
remaining $63.8 million, of which $15.0 million will be categorized as annual
capital expenditures, is anticipated to be spent during the remainder of fiscal
year 2002.
Additional Mohegan Sun Enhancements
In addition to Project Sunburst, we have scheduled or have completed the
following capital improvements to the Mohegan Sun facility:
Parking Garages. The Indian Summer Garage will provide approximately 2,700
additional parking spaces and is currently being constructed. The approved
budget for the construction of the Indian Summer Garage is $65.0 million.
Construction began on the Indian Summer Garage in August 2001, and the
Authority anticipates that the project will be completed in June 2002. A second
parking garage, the Thames Garage, which provides approximately 1,700
additional parking spaces, was completed in April 2002 for approximately $25.0
million.
Project Sunburst Utilities. The Authority currently is constructing various
utility upgrades and enhancements needed to support Project Sunburst. These
improvements originally were to be financed entirely by the Tribe from the
proceeds of tax-exempt financing. The Tribe, however, subsequently received an
opinion from its outside legal counsel advising it that a portion of the costs
for these improvements will not qualify for tax-exempt financing. Therefore,
the Authority will pay for this portion of the total costs, which we expect
will equal approximately $35.0 million. These improvements were completed
concurrently with the opening of certain components of Project Sunburst in
April 2002.
Other Reservation Enhancement
Child Development Center. The Tribe is constructing a 36,000 square foot
employee day care facility which will enhance the benefits and services
provided to employees of both the Tribe and of the Authority. The project is
expected to cost approximately $10.0 million. The Authority originally paid
$1.1 million of the facility's cost; however, that amount was later fully
reimbursed by the Tribe. Construction began in November 2001, and the Tribe
anticipates that the project will be completed in January 2003.
Market
Mohegan Sun and Foxwoods are the only two legally authorized gaming
operations offering both traditional slot machines and table games in the
northeastern United States outside of Atlantic City, New Jersey, which is
approximately 260 miles from Mohegan Sun. Foxwoods, operated by the
Mashantucket Pequot Tribe under procedures approved by the United States
Department of the Interior, is located approximately 10 miles from Mohegan Sun
and is currently the largest gaming facility in the United States in terms of
total gaming positions. Based on the size and success of Foxwoods and the rapid
growth of Mohegan Sun, the Authority believes that the gaming market in the
northeastern United States remains underserved. See "--Competition from Other
Gaming Operations."
Mohegan Sun frequently operates at capacity on weekends. The addition of new
gaming space will accommodate more of this weekend demand. The Authority
estimates that the current average length of time that guests spend at Mohegan
Sun is approximately 130 minutes. The Authority believes that the addition of a
1,200 room hotel as well as convention and entertainment amenities will
increase the average length of time guests spend at Mohegan Sun.
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After opening in October 1996, the Authority marketed primarily to guests
living within 100 miles of Mohegan Sun. This excludes much of the New York City
metropolitan area. The Authority began a substantial marketing effort in 1999
to access a wider market, including the New York City metropolitan area. As a
result of this marketing effort, the number of guests from New York State has
grown from 11.0% of total guests in fiscal year 1999 to 18.0% of total guests
in fiscal year 2001 to 19.0% of total guests for the six months ended March 31,
2002, as measured by Mohegan Sun's guest database. The Authority believes that
the majority of this increase can be attributed to guests residing within the
New York City metropolitan area and that the New York City market shows
significant potential for additional growth. The Authority believes that the
expansion, particularly the addition of a large hotel, should draw a
significant number of additional customers from the New York City metropolitan
area and other more distant markets.
Competition from Other Gaming Operations
The gaming industry is highly competitive. Mohegan Sun currently competes
primarily with Foxwoods and, to a lesser extent, with casinos in Atlantic City,
New Jersey. Foxwoods offers a number of amenities that Mohegan Sun only
recently began to offer to its guests, including hotel accommodations and a
convention center. Foxwoods has been in operation for approximately ten years
and may have greater financial resources and greater operating experience than
the Authority or the Tribe.
Upon completion of the Project Sunburst expansion, the Authority will
broaden Mohegan Sun's target market beyond day-trip customers to include guests
making overnight stays at the resort. This means that Mohegan Sun will begin to
compete more directly for customers with casinos in Atlantic City, New Jersey
and, to a lesser extent, gaming resorts such as those on the Gulf Coast of
Mississippi and Las Vegas, Nevada. Many of these casinos and other resorts have
greater resources and greater name recognition than Mohegan Sun.
Under current law, outside of Atlantic City, New Jersey, casino gaming in
the northeastern United States may be conducted only by federally recognized
Indian tribes operating under federal Indian gaming law or on cruise ships in
international waters. A number of states, including Connecticut, Massachusetts
and New York, also have considered legalizing casino gaming by non-Indians in
one or more locations. The Tribe cannot predict whether any of these individual
groups or other efforts to legalize casino gaming will be successful in
establishing casino gaming operations, and if established, whether such casino
gaming operations will have a material adverse effect on the Authority's
operations and its ability to meet its obligations.
The following is an assessment of the competitive prospects in Connecticut
and the northeastern United States.
Connecticut
Currently, only the Tribe and the Mashantucket Pequot Tribe are authorized
to conduct casino gaming in Connecticut. As required by their individual
Memorandums of Understanding, or MOUs, with the State of Connecticut, the Tribe
and the Mashantucket Pequot Tribe make monthly payments to the State of
Connecticut based on a portion of the revenues from their slot machines.
Together, these payments totaled over $338.2 million for the year ended
September 30, 2001, of which the Authority contributed $144.6 million and over
$179.5 million for the six months ended March 31, 2002, of which the Authority
contributed $84.2 million. These payments are linked to an exclusivity clause,
which specifies that the payments will terminate if there is any change in
state law that permits operation of slot machines or other commercial casino
games or, any other person lawfully operates slot machines or other commercial
casino games within the state (except those consented to by the Tribe and the
Mashantucket Pequot Tribe).
Currently, numerous groups in Connecticut are attempting to gain federal
recognition, a lengthy process managed by the Bureau of Indian Affairs (the
"BIA"). At least five groups recognized by the State of
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Connecticut as Indian tribes have filed a letter of intent to petition the BIA
for federal recognition. Currently, though, only four of these groups are
actively being considered by the BIA:
. Schaghticoke Tribe of Kent, Connecticut--A federal district court has
ruled that the BIA must issue a final decision on federal recognition of
this group by June 2003.
. Golden Hill Paugussett Tribe of Trumbull, Connecticut--A petition
currently is pending before the BIA. The Golden Hill Paugussett Tribe
filed a motion for summary judgment in federal district court claiming
that the BIA failed to timely act on the tribe's petition for federal
recognition. In December 2001, a federal district court set forth a
timetable that sets a deadline as early as December 2002, but no later
than March 2003, for the BIA to issue proposed findings on the
Paugussetts' petition for federal recognition.The city council of the
City of Bridgeport, Connecticut has adopted a non-binding resolution
supporting a Golden Hill Paugussett casino in Bridgeport.
. Eastern Pequot and the Paucatuck Eastern Pequot Tribe of
Connecticut--These two groups share a reservation located next to that
of the Mashantucket Pequot Tribe. Each is seeking federal recognition
independently from the other. In March 2000, the Eastern Pequot and the
Paucatuck Eastern Pequot Tribes received proposed findings from the BIA
that they be federally recognized as Indian tribes. The State of
Connecticut has commenced litigation challenging this decision. A
federal district court order required the BIA to make a final
determination on federal recognition by early December 2001; however,
the court granted the BIA a six-month extension to make a final
determination. Both of these groups have publicized the existence of
financial backers for the construction of gaming facilities and it is
likely that, if and when recognition is granted to these groups, each
will seek to establish gaming facilities in southeastern Connecticut.
. Hassanamisco Band of the Nipmuc Tribe--In October 2001, the BIA reversed
the prior administration's decision and rejected the Hassanamisco Band
of the Nipmuc Tribe's petition to be recognized as an Indian tribe. The
Hassanamisco Band has six months to appeal the BIA's decision. Although
officially based in Massachusetts, the Hassanamisco Band could pursue
land claims in Connecticut if granted federal recognition because of a
significant historical presence within the boundaries of the State of
Connecticut. If the Hassanamisco Band were ever to receive final federal
recognition, it would likely attempt to develop a casino in northeastern
Connecticut near the Connecticut/Massachusetts border. The Hassanamisco
Band also has publicized the existence of financial backers for
construction of gaming facilities.
While the federal recognition process for the individual groups described
above is proceeding, it is not clear if or when federal recognition will be
achieved. Even upon gaining federal recognition, a tribe must, among other
things, have land taken into trust by the federal government, negotiate a
compact with the State of Connecticut, adopt a tribal gaming ordinance and
negotiate a gaming management agreement (both of which must be approved by the
NIGC), obtain financing and construct a facility before gaming operations may
commence. Due to these factors, we anticipate it would take at least three to
five years before any of these individual groups could open a new casino in the
State of Connecticut.
Rhode Island
Commercial casino gaming does not exist in Rhode Island although the state's
two pari-mutuel facilities, Lincoln Greyhound Park and Newport Grand Jai Alai,
offer approximately 2,478 video slot machines and have petitions pending before
the Rhode Island Lottery Commission for approximately 1,800 additional
machines. In November 1994, Rhode Island voters defeated numerous local and
statewide gaming referenda and passed a referendum, which requires that any new
gaming proposals be approved in a statewide referendum. The Narragansett Indian
Tribe of Rhode Island, with a reservation in Charlestown, is the only federally
recognized Indian tribe in Rhode Island. However, under specific federal
legislation, the Narragansett Tribe is legally barred from opening a gaming
facility unless it is successful in winning both local and statewide referenda.
The Narragansett Tribe has lobbied the Rhode Island General Assembly to allow
another gaming referendum for
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statewide vote next November. While Rhode Island officials have rejected such
efforts in the past, the Narragansett Tribe has recently announced that it will
continue to pursue development of a casino in West Warwick, Rhode Island. There
are several pending federal recognition petitions from other Rhode Island
groups, but none are being actively considered by the BIA for federal
recognition. It is not clear if or when federal recognition for these groups
will be achieved.
Massachusetts
The Wampanoag Tribe of Gay Head (Aquinnah) of Massachusetts, located on the
island of Martha's Vineyard, is currently the only federally recognized Indian
tribe in Massachusetts. The Wampanoag Tribe has announced plans to open a
high-stakes bingo facility in Fall River, for which no state compact would be
required, but significant hurdles, including local government approval, still
remain. More recently, there have been reports that the Wampanoag Tribe
seriously is considering an effort to locate a casino in Fall River, New
Bedford or Plymouth.
The BIA has rejected petitions for federal recognition submitted by both the
Hassanamisco Band and the Chaubanagungamaug Band of the Nipmuc Tribe. In
January 2001, the BIA rejected the petition for federal recognition of the
Chaubanagungamaug Band. In October 2001, the BIA reversed the previous
administration's ruling and rejected the Hassanamisco Band's petition for
federal recognition. The Hassanamisco Band has six months to appeal the BIA's
decision. If the Hassanamisco Band were ever to receive final federal
recognition, it would likely attempt to develop a casino in northeastern
Connecticut near the Connecticut/Massachusetts border. The Mashpee Tribe,
located on Cape Cod, has obtained a federal court order which requires the BIA
to make a final determination on its petition for federal recognition by
December 2002. A number of other petitions for federal recognition are pending
in Massachusetts, but we believe potential recognition for these groups is
several years away, if at all.
New York
New York has seven federally recognized tribes with reservations in the
northern part of the state. Two tribes, the Oneida Nation of New York and the
St. Regis Band of Mohawk Indians of New York, have executed gaming compacts
with New York and currently engage in casino gaming. Recently, New York
approved legislation allowing an expansion of casino gaming by Indian tribes
that could result in as many as six additional gaming operations within the
state. This legislation approved the use of traditional slot machines, rather
than video slot machines, where the possession and use of traditional slot
machines is authorized pursuant to a tribal-state compact. The legislation also
authorized the use of video lottery games at certain racetracks in the State of
New York. As many as three of these additional gaming operations may be
operated by the Seneca Nation in Western New York pursuant to a gaming compact
negotiated with the Governor of New York. This compact, however, is still
subject to approval by the New York State Legislature because provisions
specified by the Legislature as mandatory for inclusion in the gaming compact
were not included in the version that the Seneca Nation negotiated with the
Governor. The recent legislation also authorizes the Governor of New York to
negotiate and execute tribal-state compacts for the remaining three gaming
operations with yet to be determined tribes for sites in Ulster and Sullivan
counties, New York; however, the New York State Legislature must still approve
any tribal-state compact. The development and management of all of these Indian
gaming projects are contingent upon various regulatory approvals, including
receipt of approvals from the BIA, the NIGC and local planning and zoning
boards.
The Oneida Nation operates Turning Stone Casino Resort on its reservation
near Syracuse, New York, approximately 270 miles from Mohegan Sun. The facility
has approximately 3,500 video lottery machines (which operate on a pari-mutuel
system as opposed to the traditional fixed odds reel-type machines operated by
most casinos), 150 table games and 285 hotel rooms. The Oneida Nation recently
began an expansion effort at Turning Stone, which will include the addition of
a clubhouse to its existing golf course and increase overall gaming space by
50,000 square feet. Turning Stone currently draws customers primarily from the
Syracuse market.
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The St. Regis Mohawk Tribe opened a casino located in Hogansburg, New York
near the Canadian border in April 1999 with 78 table games and 400 video
lottery machines. In April 2000, they entered into an agreement with Park Place
Entertainment Corporation, a Nevada based gaming and entertainment company, for
exclusive rights to develop a casino project in New York for a period of three
years, extendable thereafter by mutual agreement. In the event such a casino
project is developed, the parties also agreed to enter into a seven-year
management agreement whereby Park Place will manage the casino and pay the St.
Regis Mohawk Tribe 70% of the net profits. This agreement is subject to the
approval of the NIGC. Park Place has acquired 50 acres of the Kutsher's Resort
Hotel and Country Club in Sullivan County, New York, approximately 170 miles
from Mohegan Sun. An application is currently pending with the BIA to transfer
the 50-acre site to the United States in trust for the St. Regis Mohawk Tribe.
On August 17, 2001, the St. Regis Mohawk Tribe signed an agreement with
Sullivan County to build a $500.0 million resort at this location in the
Catskills.
The Seneca Nation has bingo operations on two of its three reservations in
western New York. These bingo halls are located in Vandalia and Gowanda, New
York, both over 400 miles from Mohegan Sun. As discussed above, the Seneca
Nation also has reached an agreement with the Governor of New York for a gaming
compact that allows the Seneca Nation to develop three casinos; however, the
compact must still be approved by the New York State Legislature. In addition,
these gaming projects are contingent upon various regulatory approvals,
including receipt of approvals from the BIA, the NIGC and local planning and
zoning boards. Possible future gaming locations include sites in Niagara Falls
and Buffalo, New York and sites on the Seneca reservation in Vandalia and
Gowanda, New York.
The Stockbridge-Munsee Community of Mohican Indians of Wisconsin is
considering opening a casino in Sullivan County, New York, in connection with
the settlement of litigation regarding a Stockbridge-Munsee land claim in
Madison County, New York. TCA, the entity responsible for the administration
and supervision of the construction manager and the entire construction process
of Project Sunburst, has announced its intention to provide financial backing
for this group. This project is contingent upon various regulatory approvals,
including approval of any gaming compact by the New York State Legislature and
receipt of approvals from the BIA, the NIGC and local planning and zoning
boards.
Currently, there are no non-Indian casinos operating in the State of New
York, and the establishment of non-Indian commercial casino operations would
require the approval of two successive state legislatures, followed by the
voters in a statewide referendum. However, gambling boats began operating
"cruises to nowhere" out of the New York City and Long Island, New York areas
in January 1998. To date, New York has not prohibited gambling boat operations
and only a small number of operators have applied for licenses for offshore
gambling cruises. These "cruises to nowhere," during which casino gaming
activities are conducted on board once the boat is in international waters, are
permitted under federal law unless prohibited by the state from which they
operate. To date, New York has not prohibited such operations. Due to the
difference in the gaming experience, the Authority does not believe that the
"cruises to nowhere" are potentially significant competition to Mohegan Sun.
Maine
There are no casinos allowed in Maine other than at least one cruise boat
that operates out of Maine and provides gambling operations on board. There are
four federally recognized tribes in Maine, one of which, the Penobscot Tribe,
operates a high stakes bingo facility in the township of Albany in western
Maine. The Penobscot and the Passamaquoddy tribes are attempting to gain
approval for casino operations at various locations in Maine; however, to date,
these efforts have been unsuccessful. None of the federally recognized tribes
in Maine have negotiated a tribal-state compact or otherwise significantly
begun the process of developing casino operations.
New Hampshire
There are no casinos allowed in New Hampshire and no significant initiatives
currently underway to facilitate legalization. Over the past several years, a
number of legislative initiatives to expand legalized
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gambling activities in New Hampshire have been defeated. There are no federally
recognized Indian tribes in the state and no petitions for recognition pending.
Vermont
There are no casinos allowed in Vermont and no significant legislative
initiatives currently underway to allow casino gambling. There are no federally
recognized tribes in Vermont, but there is a petition pending from the St.
Francis/Sokoki Band of Abenakis in Swanton. We believe any approval of this
petition is still several years away.
Environmental Matters
The site on which Mohegan Sun is located formerly was occupied by United
Nuclear Corporation, a naval products manufacturer of, among other things,
nuclear reactor fuel components. United Nuclear Corporation's facility was
officially decommissioned on June 8, 1994 when the Nuclear Regulatory
Commission confirmed that all licensable quantities of such nuclear material
had been removed from the site and that any residual contamination from such
material was remediated according to the Nuclear Regulatory Commission approved
decommissioning plan.
From 1991 through 1993, United Nuclear Corporation commissioned
environmental audits and soil sampling programs which detected, among other
things, volatile organic chemicals, heavy metals and fuel hydrocarbons in the
soil and groundwater. The Connecticut Department of Environmental Protection,
or DEP, reviewed the environmental audits and reports and established cleanup
requirements for the site. In December 1994, the DEP approved United Nuclear
Corporation's remedial plan, which determined that groundwater remediation was
unnecessary because although the groundwater beneath the site was contaminated,
it met the applicable groundwater criteria given the classification of the
groundwater under the site. In addition, extensive remediation of contaminated
soils and additional investigation were completed to achieve the DEP's cleanup
criteria and demonstrate that the remaining soils complied with applicable
cleanup criteria. Initial construction at the site also involved extensive soil
excavation. According to the data gathered in a 1995 environmental report
commissioned by United Nuclear Corporation, remediation is complete and is
consistent with the applicable Connecticut cleanup requirements. The DEP has
reviewed and approved the cleanup activities at the site, and, as part of the
DEP's approval, United Nuclear Corporation was required to perform post-closure
groundwater monitoring at the site to insure the adequacy of the cleanup. In
addition, under the terms of United Nuclear Corporation's environmental
certification and indemnity agreement with the Department of the Interior
(which took the former United Nuclear Corporation land into trust for the
Tribe), United Nuclear Corporation agreed to indemnify the Department for
environmental actions and expenses based on acts or conditions existing or
occurring as a result of United Nuclear Corporation's activities on the
property.
The Authority is not currently incurring, and did not incur in fiscal years
2001 and 2000, any material costs related to compliance with environmental
requirements with respect to the site's former use by the United Nuclear
Corporation. Notwithstanding the foregoing, no assurance can be given that any
existing environmental studies reveal all environmental liabilities, or that
future laws, ordinances or regulations will not impose any material
environmental liability, or that a material environmental condition does not
otherwise currently exist or will be exposed due to the expansion. Should soil
or groundwater contamination be identified during the course of the expansion,
Connecticut remediation standard requirements will have to be met, in addition
to any other applicable environmental remediation requirements.
Properties
Mohegan Sun is located on 240 acres of the Tribe's approximately 405-acre
reservation just outside of Uncasville, Connecticut, approximately one mile
from the interchange of Interstate 395 and Connecticut Route 2A. The land in
southeastern Connecticut upon which Mohegan Sun is situated is held in trust
for the Tribe by
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the United States. Mohegan Sun has its own exit from Route 2A, giving patrons
direct access to Interstate 395 and Interstate 95, the main highways connecting
Boston, Providence and New York City. By highway, Mohegan Sun is approximately
125 miles from New York City, 100 miles from Boston, Massachusetts, 35 miles
from Hartford, Connecticut and 50 miles from Providence, Rhode Island.
The Authority has a lease with the Tribe for the land on which Mohegan Sun
is located. The initial term of the lease is 25 years, with an option to renew
for one additional 25-year term provided that the Authority is not in default
under the lease. The lease also provides that all improvements constructed on
the site will become the property of the Tribe. The lease is a net lease
requiring that the Authority assume all costs of operating, constructing,
maintaining, repairing, replacing and insuring the leased property, in addition
to the payment of a nominal annual rental fee. See "Description of Material
Agreements--Land Lease from the Tribe to the Authority."
The Authority has entered into various lease agreements for properties
adjacent to Mohegan Sun. The properties are owned by MTIC Acquisitions, L.L.C.,
a Connecticut limited liability company controlled by the Tribe. The properties
are used for providing access and/or parking for Mohegan Sun. For the fiscal
years ending September 30, 2001, 2000 and 1999, the Authority incurred charges
of $386,000, $386,000 and $412,000, respectively, relating to the lease
agreements. Expenses relating to these lease agreements for the six months
ended March 31, 2002 and 2001 were $194,000 and $181,000, respectively.
The Authority does not own, lease or have any interest in any other property.
Legal Proceedings
The Authority is a defendant in litigation resulting from its normal course
of business. The Authority believes that, based on the advice of counsel, the
aggregate liability, if any, arising from such litigation will not have a
materially adverse effect on the Authority's financial position, results of
operations or cash flows.
Trademarks
Under the Relinquishment Agreement, TCA has granted to the Authority an
exclusive, irrevocable, perpetual, world-wide and royalty-free license with
respect to trademarks and other similar rights, including the "Mohegan Sun"
name, used at or developed for Mohegan Sun. The Authority has agreed, however,
that it will only use the word "Sun" in conjunction with Mohegan Sun and
Project Sunburst facilities and together with "Mohegan" or "Mohegan Tribe." See
"Description of Material Agreements--Relinquishment Agreement with Trading Cove
Associates."
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DESCRIPTION OF MATERIAL AGREEMENTS
The following is a summary of the material terms of several of the
Authority's and the Tribe's material agreements. This summary does not restate
these agreements in their entirety. We urge you to read these agreements
because they, and not these summaries, define the rights and obligations of the
Authority and the Tribe. Copies of these agreements are included as exhibits to
the Registration Statement of which this prospectus forms a part.
Gaming Compact with the State of Connecticut
In April 1994, the Tribe and the State of Connecticut entered into a gaming
compact to authorize and regulate the Tribe's conduct of gaming on the Tribe's
land. The Mohegan Compact has a perpetual term and is substantively similar to
the procedures which govern gaming operations of the Mashantucket Pequot Tribe
in Connecticut and provides, among other things, as follows:
(1) The Tribe is authorized to conduct on its reservation those Class III
gaming activities specifically enumerated in the Mohegan Compact or
amendments thereto. The forms of Class III gaming authorized under the
Mohegan Compact include (a) specific types of games of chance, (b) video
facsimiles of such authorized games of chance (i.e., slot machines), (c)
off-track pari-mutuel betting on animal races, (d) pari-mutuel betting,
through simulcasting, on animal races and (e) certain other types of
pari-mutuel betting on games and races conducted at the gaming facility
(some types of which currently are, together with off-track pari-mutuel
telephone betting on animal races, under a moratorium).
(2) The Tribe must establish standards of operations and management of
all gaming operations in order to protect the public interest, ensure the
fair and honest operation of gaming activities and maintain the integrity of
all Class III gaming activities conducted on the Tribe's lands. The first of
such standards was set forth in the Mohegan Compact and approved by the
State of Connecticut gaming agency. State of Connecticut gaming agency
approval is required for any revision to such standards. The Tribe must
supervise the implementation of these standards by regulation through a
Tribal gaming agency.
(3) Criminal law enforcement matters relating to Class III gaming
activities are under the concurrent jurisdiction of the State of Connecticut
and the Tribe.
(4) All gaming employees must obtain and maintain a gaming employee
license issued by the State gaming agency.
(5) Any enterprise providing gaming services or gaming equipment to the
Tribe is required to hold a valid, current gaming services registration
issued by the State of Connecticut gaming agency.
(6) The State of Connecticut annually assesses the Tribe for the costs
attributable to its regulation of the Tribe's gaming operations and for the
provision of law enforcement at the Tribe's gaming facility.
(7) Net revenues from the Tribe's gaming operations may be applied only
for purposes related to Tribal government operations and general welfare,
Tribal economic development, charitable contributions and payments to local
governmental agencies.
(8) Tribal ordinances and regulations governing health and safety
standards at the gaming facilities may be no less rigorous than the
applicable laws and regulations of the State of Connecticut.
(9) Service of alcoholic beverages within any gaming facility is subject
to regulation by the State of Connecticut.
(10) The Tribe waives any defense which it may have by virtue of
sovereign immunity with respect to any action brought in United States
District Court to enforce the Mohegan Compact.
In May 1994, the Tribe and the State of Connecticut entered into a MOU which
sets forth certain matters regarding the implementation of the Mohegan Compact.
The MOU stipulates that a portion of the revenues
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earned on slot machines must be paid to the State of Connecticut. This payment,
known as the Slot Win Contribution, is the lesser of (a) 30% of gross revenues
from slot machines, or (b) the greater of (i) 25% of gross revenues from slot
machines or (ii) $80.0 million. The Slot Win Contribution payments will not be
required if the State of Connecticut legalizes any other gaming operations with
slot machines or other commercial casino games within the State of Connecticut
except those operators consented to by the Tribe and the Mashantucket Pequot
Tribe. The Authority's financial statements reflect expenses associated with
the Slot Win Contribution totaling $144.6 million, $135.1 million and $121.1
million for the fiscal years ended September 30, 2001, 2000 and 1999,
respectively, and $84.2 million and $66.8 million for the six months ended
March 31, 2002 and March 31, 2001, respectively. See "Government Regulation."
Agreement with the Town of Montville
On June 16, 1994, the Tribe and the Town of Montville entered into an
agreement whereby the Tribe agreed to pay to the town a recurring annual
payment of $500,000 to minimize the impact on the town resulting from the
decreased tax revenues on reservation land held in trust. Additionally, the
Tribe agreed to make a one-time payment of $3.0 million towards infrastructure
improvements to the town's water system. The Tribe has assigned its rights and
obligations in this agreement to the Authority. As of September 30, 2001, the
Authority has fulfilled this obligation and paid $3.0 million to the town for
improvements to the municipal water system, which has been included in other
assets in the accompanying balance sheets and is being amortized over 40 years.
Land Lease from the Tribe to the Authority
The land upon which Mohegan Sun is situated is held in trust for the Tribe
by the United States. The Tribe and the Authority have entered into a land
lease under which the Tribe leases to the Authority the property and all
buildings, improvements and related facilities constructed or installed on the
property. The lease was approved by the Secretary of the Interior on, and
became effective as of, September 29, 1995. Summarized below are several key
provisions of this lease. See also, "Business--Properties."
Term
The term of the lease is 25 years with an option, exercisable by the
Authority, to extend the term for one additional 25-year period. Upon the
termination of the lease, the Authority will be required to surrender to the
Tribe possession of the property and improvements, excluding any equipment,
furniture, trade fixtures or other personal property.
Rent and Other Operating Expenses
The Authority is required to pay to the Tribe a nominal annual rental fee.
For any period when the Tribe or another agency or instrumentality of the Tribe
is not the tenant under the lease, the rent will be 8% of the tenant's gross
revenues from the premises. The Authority is responsible for the payment of all
costs of owning, operating, constructing, maintaining, repairing, replacing and
insuring the leased property.
Use of Leased Property
The Authority may use the leased property and improvements solely for the
construction and operation of Mohegan Sun, unless prior approval is obtained
from the Tribe for any proposed alternative use. Similarly, no construction or
alteration of any building or improvement located on the leased property by the
Authority may be made unless complete and final plans and specifications have
been approved by the Tribe. Following foreclosure of any mortgage on the
Authority's interest under the lease or any transfer of such interest to the
holder of such mortgage in lieu of foreclosure, the leased property and
improvements may be used for any lawful purpose, subject only to applicable
codes and governmental regulations; provided, however, that a non-Indian holder
of the leased property may in no event conduct gaming operations on the
property.
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Permitted Mortgages and Rights of Permitted Mortgages
The Authority may not mortgage, pledge or otherwise encumber its leasehold
estate in the leased property except to a holder of a permitted mortgage. Under
the lease, a "permitted mortgage" includes the leasehold mortgage securing the
Authority's obligations under the Bank Credit Facility granted by the Authority
that provides, among other things, that (1) the Tribe will have the right to
notice of, and to cure, any default of the Authority, (2) the Tribe will have
the right to prior notice of an intention by the holder to foreclose on the
permitted mortgage and the right to purchase the mortgage in lieu of any
foreclosure, and (3) the permitted mortgage is subject and subordinated to any
and all access and utility easements granted by the Tribe under the lease. As
provided in the lease, each holder of a permitted mortgage has the right to
notice of any default of the Authority under the lease and the opportunity to
cure such default within any applicable cure period.
Default Remedies
The Authority will be in default under the lease if, subject to the notice
provisions, it fails to make lease payments or to comply with its covenants
under the lease or if it pledges, encumbers or conveys its interest in the
lease in violation of the terms of the lease. Following a default, the Tribe
may, with approval from the United States Secretary of the Interior, terminate
the lease unless a permitted mortgage remains outstanding with respect to the
leased property. In that case, the Tribe may not (1) terminate the lease or the
Authority's right to possession of the leased property, (2) exercise any right
of re-entry, (3) take possession of and/or relet the leased property or any
portion thereof, or (4) enforce any other right or remedy which may materially
and adversely affect the rights of the holder of the permitted mortgage, unless
the default triggering such rights was a monetary default which such holder
failed to cure after notice.
Priority Distribution Agreement with the Tribe
On August 1, 2001, the Authority and the Tribe entered into a priority
distribution agreement, the Priority Distribution Agreement, which obligates
the Authority to make monthly payments to the Tribe to the extent of the
Authority's net cash flow, as defined in the Priority Distribution Agreement.
The Priority Distribution Agreement, which has a perpetual term, also clarifies
and records the terms pursuant to which the Authority made such payments to the
Tribe prior to the effective date of the Priority Distribution Agreement. The
Priority Distribution Agreement limits the maximum aggregate payments by the
Authority to the Tribe in each calendar year to $14.0 million, as adjusted
annually in accordance with the formula specified in the Priority Distribution
Agreement to reflect the effects of inflation. However, payments pursuant to
the Priority Distribution Agreement do not reduce the Authority's obligations
to make payments pursuant to invoices for governmental services provided by the
Tribe or any payments under any other agreements with the Tribe to the extent
that such agreements are permitted under the Bank Credit Facility. See
"Description of Other Indebtedness--Bank Credit Facility." The monthly payments
under the Priority Distribution Agreement are limited obligations of the
Authority payable only to the extent of its net cash flow and are not secured
by a lien or encumbrance on any assets or property of the Authority. The
Authority's financial statements reflect payments associated with the Priority
Distribution Agreement of $14.0 million for the fiscal year ended September 30,
2001. In addition, for the six months ended March 31, 2002, the Authority paid
$7.7 million in priority distributions to the Tribe.
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority engaged Perini Building Company, Inc. as construction manager
to provide construction management services for Project Sunburst. As
construction manager, Perini is receiving a fee of $25.5 million for services,
including, without limitation, pre-construction review and construction phase
contract administration. The Construction Management Agreement contains a
limited waiver of sovereign immunity to permit the commencement, maintenance
and enforcement of any dispute, claim and/or cause of action arising under the
Construction Management Agreement. In conjunction with the limited waiver of
sovereign immunity, Perini may seek satisfaction of judgments against the
undistributed and/or future revenues of Project Sunburst and/or the
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existing Mohegan Sun facility. In addition, the Authority has agreed to pay
Perini $1.3 million in construction management fees relating to the Indian
Summer Garage and $500,000 relating to the Thames Garage. The Authority did not
make any payments related to the above projects for the fiscal years ended
September 30, 2000 and 1999. For the fiscal year ended September 31, 2001, the
Authority made a payment of $4.5 million in connection with the construction of
the Indian Summer Garage. For the six months ended March 31, 2001, the
Authority did not make any payments related to the above projects. For the six
months ended March 31, 2002, the Authority made payments of $42.3 million in
connection with the construction of the Indian Summer Parking Garage and $18.3
million in connection with the construction of the Thames Garage. As of March
31, 2002, Perini has received $22.3 million of the $27.3 million in fees
related to the above projects which has been included in "construction in
process" in the Authority's financial statements beginning on page F-1 of this
prospectus.
Development Agreement
On February 7, 1998, the Authority and TCA entered into a development
services agreement, the Development Agreement. Under the Development Agreement,
TCA is responsible for the administration and supervision of the construction
manager and the entire construction process of Project Sunburst. TCA acts as
the Authority's representative in connection with construction contracts that
are approved by the Authority. Specifically, TCA oversees all persons
performing work on the expansion site, inspects the progress of construction,
determines completion dates and reviews contractor payment requests submitted
to the Authority. The Development Agreement specifically gives TCA the right to
include provisions in construction contracts that impose liquidated damage
payments in the event of failure to meet construction schedules.
Retail Facilities
As permitted by the Development Agreement, the Authority elected to engage a
retail consultant to oversee the design and construction of the retail
facilities in the expansion. The Authority chose the Gordon Group Holdings,
Ltd. as the retail consultant for the retail portion of the expansion. This
work is under the overall supervision of TCA, which will integrate the design
and construction of the retail facilities with that of the other components of
the expansion.
Engagement of Certified Entities; Staffing the Expansion
The Development Agreement requires TCA to implement procedures described in
the Tribal Employment Rights Ordinance. See "Certain Relationships and Related
Transactions." TCA is required to give preference to business entities or
persons, which have been approved by the Authority, in the selection of all
contractors, vendors and suppliers engaged in the development of the expansion.
In addition, in staffing the operation of the Project Sunburst expansion, the
Development Agreement requires that TCA give preference first to qualified
members of the Tribe (and their spouses and children) and then to enrolled
members of other federally recognized Indian tribes.
Payment of the Development Fee
Under the Development Agreement, the Authority is required to pay to TCA a
development fee of $14.0 million. Pursuant to the payment schedule described in
the Development Agreement, on January 15, 2000, the Authority began paying the
development fee to TCA on a quarterly basis, based upon the incremental
completion as of each payment date. The Authority paid development fees to TCA
totaling $5.8 million and $3.5 million, respectively for the fiscal years ended
September 30, 2001 and 2000. The Authority did not pay TCA development fees for
the fiscal year ended September 30, 1999. For the six months ended March 31,
2002 and March 31, 2001, the Authority paid development fees to TCA totaling
$3.2 million and $3.6 million, respectively. As of March, 2002, the Authority
has incurred $12.9 million related to the TCA development fee, of which $12.5
million has been paid.
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Termination and Disputes
The Development Agreement terminates upon the earlier of (a) completion of
Project Sunburst or (b) February 7, 2008. In addition, each party has the right
to terminate the Development Agreement if there is a material default or
failure to perform a material duty or obligation by the other party. The
parties must submit disputes arising under the Development Agreement to
arbitration and have agreed that punitive damages may not be awarded to either
party by an arbitrator. The Authority has also waived sovereign immunity for
the purpose of permitting, compelling or enforcing arbitration and has agreed
to be sued by TCA in any court of competent jurisdiction for the purposes of
compelling arbitration or enforcing any arbitration or judicial award arising
out of the Development Agreement.
Previous Management Agreement with Trading Cove Associates
Until January 1, 2000, TCA was the exclusive manager of Mohegan Sun pursuant
to a gaming facility management agreement among the Authority, the Tribe and
TCA, the Management Agreement, which was entered into on August 30, 1995. The
Management Agreement originally had a term of seven years. The Management
Agreement was terminated on December 31, 1999, at which point the
Relinquishment Agreement (see below) became effective. Under the Management
Agreement, TCA was responsible for the day-to-day management, operation and
maintenance of Mohegan Sun. The Management Agreement authorized TCA to pay
itself a management fee in monthly installments based on 30% to 40% of net
income, before management fees, as defined in the Management Agreement,
depending on profitability levels. Management fees for the years ended
September 30, 2000 and 1999 were $13.6 million and $59.5 million, respectively.
Management fees for fiscal year 2000 represent amounts earned from October 1,
1999 through December 31, 1999 due to the termination of the Management
Agreement on December 31, 1999.
Relinquishment Agreement with Trading Cove Associates
General
In February 1998, the Authority and TCA entered into the Relinquishment
Agreement under which the Authority and TCA agreed to terminate the Management
Agreement with TCA. This termination occurred on December 31, 1999, at which
time the Authority assumed the day-to-day management of Mohegan Sun. To
compensate TCA for terminating its management rights, the Authority agreed to
pay to TCA five percent of revenues, as defined in the Relinquishment
Agreement, generated by Mohegan Sun during the 15-year period commencing on
January 1, 2000 and ending on December 31, 2014.
Relinquishment Payments
The payments under the Relinquishment Agreement are divided into Senior
Relinquishment Payments and Junior Relinquishment Payments, each of which are
2.5% of Revenues as defined in the Relinquishment Agreement. Senior
Relinquishment Payments are payable quarterly in arrears and commenced on April
25, 2000 and the Junior Relinquishment Payments are payable semi-annually in
arrears and commenced on July 25, 2000. Revenues are defined as gross gaming
revenues (other than Class II gaming revenue) and all other facility revenues
(including hotel revenues, room service, food and beverage sales, parking
revenues, ticket revenues and other fees or receipts from the convention/events
center and all rental or other receipts from the lessees, licensees and
concessionaires, but not the gross receipts of such lessees, licensees and
concessionaires) and proceeds of business interruption insurance.
Subordination of Relinquishment Payments/Priority Distribution to the Tribe
The Relinquishment Agreement provides that each of the Senior and Junior
Relinquishment Payments are subordinated in right to payment of senior secured
obligations, which includes the Bank Credit Facility and
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capital lease obligations, and that the Junior Relinquishment Payments are
further subordinated to payment of all other senior obligations, including the
Authority's Senior Notes. The Relinquishment Agreement also provides that all
relinquishment payments are subordinated in right of payment to the minimum
priority distribution payment, as defined in the Relinquishment Agreement, from
the Authority to the Tribe to the extent then due.
Trademarks
In connection with the Relinquishment Agreement, TCA has granted to the
Authority an exclusive, irrevocable, perpetual, world-wide and royalty-free
license with respect to trademarks and other similar rights. See
"Business--Trademarks" for a description of these rights.
76
THE AUTHORITY
General
The Tribe established the Authority in July 1995 with the exclusive power to
conduct and regulate gaming activities for the Tribe. The Authority is governed
by a nine-member Management Board, consisting of the same nine members as those
of the Mohegan Tribal Council (the governing body of the Tribe). Any change in
the composition of the Mohegan Tribal Council results in a corresponding change
in the Authority's Management Board. The General Manager and other senior
officers of Mohegan Sun are hired by the Management Board. The General Manager
and other senior officers are employees of the Authority. See "The Tribe" and
"--Management Board and Executive Officers."
The Authority has two major functions. The first function is to direct the
development, operation, management, promotion and construction of the gaming
enterprise and all related activities. The second major function is to regulate
gaming activities. The Authority's Management Board has appointed an
independent Director of Regulation to be responsible for the regulation of
gaming activities at Mohegan Sun. The Director of Regulation serves at the will
of the Management Board and ensures the integrity of the gaming operation
through the promulgation and enforcement of appropriate regulations. The
Director of Regulation and his staff also are responsible for performing
background investigations and licensing of non-gaming employees as well as
vendors seeking to provide non-gaming products or services within the casino.
Pursuant to the Mohegan Compact, the State of Connecticut is responsible for
performing background investigations and licensing of gaming employees as well
as vendors seeking to provide gaming products or services within the casino.
Management Board and Executive Officers
The Authority is governed by a nine-member Management Board, consisting of
the same nine members on the Mohegan Tribal Council. Any change in the
composition of the Tribal Council results in a corresponding change in the
Authority's Management Board. The General Manager and other executive officers
of Mohegan Sun are hired by the Management Board and are employees of the
Authority. See "The Tribe."
The following table provides information as of March 31, 2002 with respect
to (1) the members of the Management Board and (2) each of the executive
officers of Mohegan Sun.
Name Age Position
- ---- --- --------
Mark F. Brown................. 44 Chairman and Member, Management Board
Peter J. Schultz.............. 47 Vice Chairman and Member, Management Board
Christine Damon-Murtha........ 54 Corresponding Secretary and Member, Management Board
Donald M. Chapman............. 76 Treasurer and Member, Management Board
Shirley M. Walsh.............. 57 Recording Secretary and Member, Management Board
Jayne G. Fawcett.............. 65 Member, Management Board
Roland J. Harris.............. 54 Member, Management Board
Glenn R. LaVigne.............. 41 Member, Management Board
Maynard L. Strickland......... 62 Member, Management Board
William J. Velardo............ 47 President and General Manager, Mohegan Sun
Mitchell Grossinger Etess..... 44 Executive Vice President of Marketing, Mohegan Sun
Jeffrey E. Hartmann........... 40 Executive Vice President of Finance and Chief Financial
Officer, Mohegan Sun
Mark F. Brown--Mr. Brown has been a member of the Authority's Management
Board since October 1995. Mr. Brown became the Chairman of the Management Board
in October 2000. Mr. Brown worked with the Tribe's historian during the period
in which the Tribe was working to obtain federal recognition and also served on
the Tribal Constitutional Review Board from 1993 to 1995. Mr. Brown served as a
law enforcement officer for over twelve years. Prior to his work in law
enforcement, Mr. Brown was involved in retail sales and management.
77
Peter J. Schultz--Mr. Schultz was seated on the Management Board and was
elected Vice Chairman of the Management Board in October 2000. Mr. Schultz held
the position of Human Resources Director for the Tribe from February 1997 to
September 2000. From 1982 to 1997, Mr. Schultz was employed by Aetna Life and
Casualty, a large insurance company, culminating with the position of Manager
of Organizational Development at the Aetna Institute.
Christine Damon-Murtha--Ms. Murtha was seated on the Management Board and
was elected Corresponding Secretary in October 2000. Ms. Murtha was employed in
the Finance Department for the Tribe from 1996 to 1998 and as a reporter and
photographer for the Tribe's Communication Department from 1998 to September
2000. Ms. Murtha held the position of Supervisor/Senior Accounting Analyst with
Travelers Insurance Company from 1984 to 1992. Ms. Murtha serves as council
liaison for the Environmental Department of the Tribe.
Donald M. Chapman--Mr. Chapman was seated on the Management Board and was
elected Treasurer in October 2000. Mr. Chapman retired from the United States
Coast Guard at the rank of Commander. Following Mr. Chapman's retirement, he
held management positions with the Urban Mass Transportation Administration in
Washington, D.C. Mr. Chapman was also employed as a stockbroker with Legg Mason
& Company.
Shirley M. Walsh--Ms. Walsh has been the Recording Secretary of the
Management Board since October 1995 and has been a member of the Management
Board since July 1995. Ms. Walsh has worked for the Tribe in various capacities
for almost nine years. Prior to that time, she was employed for 13 years by a
local certified public accountant. Ms. Walsh chaired the Tribal Election
Committee from 1994 to 1995 and has served on several other committees for the
Tribe.
Jayne G. Fawcett--Ms. Fawcett has been a member of the Management Board
since its inception in July 1995. Ms. Fawcett served as the Vice Chair of the
Management Board and the Tribal Council from December 1995 until October 2000.
Ms. Fawcett worked as a social worker for the State of Connecticut in 1987 and
is a retired teacher after 27 years of service. Ms. Fawcett was a Chairman of
the Tribe's Constitutional Review Board from 1992 to 1993. Currently, she
oversees the Tribe's public relations and serves as the Tribe's Public
Relations Ambassador.
Roland J. Harris--Mr. Harris has been a member of the Management Board since
October 1995. He served as Chairman of the Management Board and the Tribal
Council from October 1995 until October 2000. Mr. Harris was the founder of the
firm Harris and Clark, Inc., Civil Engineers, Land Surveyors and Land Planners.
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 also
served as Deputy Chief of the Griswold Fire Department and as Fire Marshal and
Inspector of the Town of Griswold. Prior to assuming the Chairmanship of the
Management Board in 1995, Mr. Harris served as the Tribal Planner.
Glenn R. LaVigne--Mr. LaVigne has been a member of the Management Board
since January 1996. Mr. LaVigne was previously employed by the Town of
Montville, Connecticut and oversaw building and maintenance for Montville's
seven municipal buildings. Mr. LaVigne serves as council liaison for
development and construction.
Maynard L. Strickland--Mr. Strickland has been a member of the Management
Board since October 1995. Before that, Mr. Strickland owned and operated
several restaurants in Norwich, Connecticut and Florida for 21 years.
William J. Velardo--Mr. Velardo currently serves as President and General
Manager of Mohegan Sun. Mr. Velardo has served as Mohegan Sun's President and
General Manager since October 1995 and has over 25 years of experience in
gaming operations. Prior to his employment with the Authority, Mr. Velardo was
Chief Operating Officer for River City, a riverboat gaming venture in New
Orleans, Louisiana. From 1991 to 1994,
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Mr. Velardo served as Senior Vice President, Casino Operations at Trump Plaza
Hotel and Casino in New Jersey. Mr. Velardo participated in the opening of the
Mirage in Las Vegas, Nevada, a casino, where he served as Vice President, Table
Games from 1989 to 1991. Mr. Velardo also worked as Assistant Casino Manager
and Pit Manager at Caesar's Tahoe and Caesar's Palace casinos.
Mitchell Grossinger Etess--Mr. Etess has been Executive Vice President of
Marketing at Mohegan Sun since November 1995 and has 21 years experience in the
casino and hotel industry. Prior to his employment with the Authority, Mr.
Etess was Vice President of Marketing at Players Island and, from 1989 to 1994,
was Senior Vice President of Marketing and Hotel Operations at Trump Plaza
Hotel and Casino. Prior thereto, Mr. Etess held various management positions in
the hospitality and advertising industries.
Jeffrey E. Hartmann--Mr. Hartmann has been Executive Vice President of
Finance and the Chief Financial Officer of Mohegan Sun since December 1996 and
has 10 years of experience in the casino and hotel industry. Prior to joining
the Authority, Mr. Hartmann worked for Foxwoods, a casino located in
Connecticut, from August 1991 to December 1996, including as Vice President of
Finance for Foxwoods Management Company. Mr. Hartmann was employed by
PricewaterhouseCoopers, LLP, an independent public accounting firm, as an Audit
Manager from 1984 to 1991. Mr. Hartmann is a certified public accountant.
Compensation of the Management Board
The individual members of the Management Board do not receive any direct
compensation from the Authority. The Tribe compensates members of the
Management Board for the services they render as members of the Tribal Council
and of the Management Board.
Summary Compensation Table
The following table provides summary information concerning compensation
paid by the Authority to all of its executive officers.
Annual Compensation
------------------------------------------------------
Other(2)
-----------------------
401(k) Plan
Life Matching
Name and Principal Position Fiscal Year Salary(1) Bonus Insurance Contributions
- --------------------------- ----------- --------- -------- --------- -------------
William J. Velardo, President and General Manager......... 2001 $830,000 $271,000 $64,000 $5,100
2000 789,000 264,000 27,000 5,100
1999 503,000 150,000 0 4,800
Mitchell Grossinger Etess, Executive Vice President,
Marketing................................................ 2001 $523,000 $164,000 $30,000 $5,100
2000 463,000 164,000 8,000 5,100
1999 306,000 100,000 0 4,800
Jeffrey E. Hartmann, Executive Vice President, Finance and
Chief Financial Officer.................................. 2001 $471,000 $150,000 $24,000 $5,100
2000 401,000 158,000 12,000 5,100
1999 250,000 100,000 0 4,800
- --------
(1) Amounts reflect total base salary earned. Employee contributions to the
Authority's 401(k) plan and non-qualified deferred compensation plan are
deducted from such amounts.
(2) The only compensation received by these employees other than salary and
bonus was employer matching contributions to the Authority's 401(k) plan
and the payment by the Authority of premiums on life insurance policies for
which the employee is the owner and beneficiary.
79
Employment Agreements
On April 22, 1999, the Authority entered into employment agreements with
each of William J. Velardo, Mitchell Grossinger Etess and Jeffrey E. Hartmann.
The term of each agreement runs until December 31, 2004, with automatic renewal
for an additional term of five years unless either the employee or the
Authority provides notice to the other of its intention to terminate. Under the
employment agreements, commencing on January 1, 2000, each of Messrs. Velardo,
Etess and Hartmann is entitled to receive an annual salary of $800,000,
$485,000 and $435,000, respectively. The annual salary is subject to an annual
increase on each subsequent January 1, of no less than five percent of the then
current annual salary. Each employee is also entitled to receive an annual
bonus of not less that 33 1/3% of the base salary in effect for the period for
which the annual bonus is paid.
Each employment agreement provides that, if the employee is terminated for
cause or if the employee terminates his employment voluntarily, then the
employee will not be entitled to any further compensation. If the employee is
terminated other than for cause, then the employee will be entitled to receive,
at termination, a severance payment equal to his annual salary plus an annual
bonus equal to 100% of his annual salary from the date of termination to the
expiration date of the employment agreement.
These employment agreements further provide that the applicable employee may
not, without prior written consent of the Authority, compete with the Authority
in specified states in the northeastern United States during the term of his
employment and for a one-year period following a termination for cause or a
voluntary termination of employment. Also, during this period, the applicable
employee may not hire or solicit other employees of the Authority or encourage
any such employees to leave employment with the Authority. Under these
employment agreements, the applicable employee may not disclose any of the
Authority's confidential information while employed by the Authority or
thereafter. This confidentiality obligation will survive the termination of
such employee's employment and employment agreement. Copies of these employment
agreements have been filed as exhibits to this registration statement of which
this prospectus forms a part.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Services Provided by the Tribe to the Authority
The Tribe provides governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. During the fiscal year ended
September 30, 2001, the Authority incurred $10.9 million of expenses for such
services. The Authority incurred $9.9 million and $8.3 million of expenses for
such services during fiscal years ended September 30, 2000 and 1999,
respectively. For the six months ended March 31, 2002, the Authority incurred
$4.1 million of expenses for such services. In addition, from March 31, 2002 to
April 30, 2002, the Authority incurred $975,000 of such expenses.
The Tribe provided services through its Development Department for projects
related to Mohegan Sun and Project Sunburst. The Authority incurred $954,000 of
such expenses associated with the Development Department for the fiscal year
ended September 30, 2000. There were no expenses incurred during the year ended
September 30, 2001.
Leases by the Authority to the Tribe
Prior to October 1, 2000, the Authority operated a retail outlet at Mohegan
Sun and purchased goods for resale at this location from Little People, LLC, a
Connecticut limited liability company owned by the Tribe. For the fiscal years
ended September 30, 2000 and 1999, the Authority purchased $348,000 and
$417,000, respectively, of such goods from Little People, LLC. On October 1,
2000, the Tribe assumed the management of this retail outlet from the Authority
and purchased the remaining inventory from the Authority. The Tribe paid the
Authority approximately $172,000 for such remaining inventory. The Authority
and Little People, LLC have entered into a lease agreement, whereby Little
People, LLC leases retail space located in the casino from the Authority. The
lease term expires on June 30, 2002 and may be renewed on a monthly basis.
Little People, LLC is not obligated to pay any base rent. The Authority
reimburses the Tribe for sales where patron player's club points are utilized.
Leases by the Tribe to the Authority
The Authority leases the land on which Mohegan Sun is located from the Tribe
pursuant to a long-term lease. The Authority is required to pay to the Tribe a
nominal annual rental fee under the lease. The lease has an initial term of 25
years and is renewable for an additional 25-year term upon expiration. See
"Description of Material Agreements--Land Lease from the Tribe to the
Authority."
The Tribe, through MTIC Acquisitions, L.L.C., a Connecticut limited
liability company owned by the Tribe, has entered into various land lease
agreements with the Authority for access, parking and related purposes for
Mohegan Sun. For the fiscal years ended September 30, 2001, 2000 and 1999, the
Authority expended $386,000, $386,000 and $412,000, respectively, relating to
these land lease agreements. For the six months ended March 31, 2002, the
Authority expended $194,000 related to these land lease agreements. In
addition, from March 31, 2002 to April 30, 2002, the Authority expended $34,000
related to these land lease agreements.
Distributions by the Authority to the Tribe
On August 7, 2001, the Tribe issued Gaming Authority Priority Distribution
Payment Public Improvement Bond Anticipation Notes (the "Series 2001 BANS").
Debt service on the Series 2001 BANS is paid from 95% of amounts received by
the Tribe from the Authority under the Priority Distribution Agreement. The
remaining five percent of each priority distribution payment is remitted to the
Tribe free and clear of any lien. The Priority Distribution Agreement obligates
the Authority to make monthly priority distribution payments to the Tribe in a
maximum aggregate amount of $14.0 million per calendar year, adjusted annually
in accordance with the
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formula specified in the Priority Distribution Agreement to reflect the effects
of inflation. However, payments pursuant to the Priority Distribution Agreement
do not reduce the Authority's obligations to make payments pursuant to invoices
for governmental services provided by the Tribe or any payments under any other
agreements with the Tribe to the extent that such agreements are permitted
under the Bank Credit Facility. See "Description of Other Indebtedness--Bank
Credit Facility." The priority distribution payments are limited obligations of
the Authority payable only to the extent of its net cash flow, as defined in
the Priority Distribution Agreement, and are not secured by a lien or
encumbrance on any assets or property of the Authority. The Authority's
financial statements reflect payments associated with the Priority Distribution
Agreement of $14.0 million for the fiscal year ended September 30, 2001, $7.7
million for the six months ended March 31, 2002 and $1.2 million for the period
from March 31, 2002 to April 30, 2002. See "Description of Material
Agreements--Priority Distribution Agreement with the Tribe."
As permitted by the restrictive provisions of the Bank Credit Facility and
the Authority's indentures, the Authority distributed to the Tribe $30.0
million in cash, net of $14.0 million related to the Priority Distribution
Agreement, during the fiscal year ended September 30, 2001. For the six months
ended March 31, 2002, the Authority distributed to the Tribe $9.0 million in
cash, net of $7.7 million related to the Priority Distribution Agreement. In
addition, for the period of March 31, 2002 to April 30, 2002, the Authority
distributed to the Tribe $3.0 million in cash, net of $1.2 million related to
the Priority Distribution Agreement.
Mohegan Tribal Employment Rights Ordinance
On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment
Rights Ordinance (the "TERO"), which sets forth hiring and contracting
preference requirements for employers and entities conducting business on
Tribal land or working on behalf of the Tribe. Pursuant to the TERO, an
employer is required to give hiring, promotion, training, retention and other
employment-related preferences to Native Americans who meet the minimum
qualifications for the applicable employment position. However, this preference
requirement does not apply to key employees, as such persons are defined in the
TERO. In addition, when staffing the operations of the Project Sunburst
expansion, the Development Agreement requires TCA to give hiring and recruiting
preferences, first to qualified members of the Tribe (and their spouses and
children) and then to enrolled members of other federally recognized Indian
tribes. See "Description of Material Agreements--Development
Agreement--Engagement of Certified Entities; Staffing the Expansion."
Similarly, any entity awarding a contract to be performed on Tribal land or
on behalf of the Tribe must give preference, first to certified Mohegan
entities and second to other certified Native American entities. This
contracting preference is conditioned upon the bid by the preferred certified
entity being within five percent of the lowest bid by a non-certified entity
(unless the preferred certified entity's bid exceeds $100,000 of the lowest bid
by a non-certified entity). The TERO establishes procedures and requirements
for certifying Mohegan entities and other Native American entities.
Certification is based largely on the level of ownership and control exercised
by the members of the Tribe or other Native Americans, as the case may be, over
the entity bidding on a contract. A number of contracts for Project Sunburst
were awarded to companies controlled by Tribal members and/or other Native
Americans under the TERO provision described above.
As of March 27, 2002, 122 employees of the Authority were members of the
Tribe.
Services from Entities in Which Members Have an Interest
The Authority engages McFarland Johnson, Inc. for surveying, civil
engineering and professional design services. Roland Harris, a current member
and a former Chairman of the Management Board and the Tribal Council, was a
consultant for this firm pursuant to a consulting agreement which expired in
May 2001. For the fiscal years ended September 30, 2001, 2000 and 1999, the
Authority incurred $175,000, $792,000 and $373,000, respectively, for such
services provided by McFarland Johnson. For the six months ended March 31,
2002, the
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Authority incurred $266,000 for such services. In addition, from March 31, 2002
to April 30, 2002, the Authority incurred $55,000 for such services. McFarland
Johnson formerly conducted business as Harris and Clark, Inc. The Authority
believes that the terms of this engagement are comparable to those that would
pertain to arms-length engagement with an unaffiliated firm.
Services by the Authority to the Tribe
In July 1999, the Tribe commenced construction of a public safety facility
within the Eagleview Complex that will service the Mohegan Reservation,
including Mohegan Sun. The Authority initially funded the construction and was
subsequently reimbursed by the Tribe. The total cost of the public safety
facility is anticipated to be $7.5 million, of which $7.2 million has been
incurred. The Authority has also initially funded other Tribal projects and has
subsequently been reimbursed by the Tribe, including the construction of a
temporary Tribal office, construction of roads and improvements made to the
Town of Montville's wastewater collection and treatment facilities. The total
amount incurred by the Authority for these projects through March 31, 2002,
including the public safety facility referred to above, is $47.4 million. The
Authority anticipates that a total amount of $50.7 million will be spent in
connection with these projects. Approximately $1.6 million was reflected as
amounts due from the Tribe in the Authority's balance sheet as of September 30,
2000. No amounts were due as of March 31, 2002, as the Authority was reimbursed
for amounts due from the Tribe.
83
THE TRIBE
General
The Tribe became a federally recognized Indian tribe in 1994. The Tribe
currently has approximately 1,528 members and approximately 909 adult voting
members. Although it only recently received federal recognition, the Tribe has
lived in a cohesive community for hundreds of years in what is today
southeastern Connecticut. The Tribe historically has cooperated with the United
States and is proud of the fact that members of the Tribe have fought on the
side of the United States in every war from the Revolutionary War to Desert
Storm. The Tribe believes that this philosophy of cooperation exemplifies its
approach to developing Mohegan Sun.
Although the Tribe is a sovereign entity, it has sought to work with, and to
gain the support of, local communities in establishing Mohegan Sun. For
example, the Tribe gave up its claim to extensive tracts of land that had been
guaranteed by various treaties in consideration for certain arrangements in the
Mohegan Compact. As a result, local residents and businesses whose property
values had been clouded by this dispute were able to gain clear title to their
property. In addition, the Tribe has been sensitive to the concerns of the
local community in developing Mohegan Sun. This philosophy of cooperation has
enabled the Tribe to build a solid alliance among local, state and federal
officials to achieve its goal of building Mohegan Sun.
Governance of the Tribe
The Tribe's Constitution provides for the governance of the Tribe by a
Tribal Council, consisting of nine members and a Council of Elders, consisting
of seven members. All members of the Tribal Council and the Council of Elders
are elected by the registered voters of the Tribe and serve terms of five
years. Members of the Tribal Council must be at least 18, and members of the
Council of Elders must be at least 55 when elected. The current terms for the
Tribal Council expire in October 2005 and the current terms for the Council of
Elders expire in October 2004. The members of the Tribal Council are the same
individuals who serve on the Management Board of the Authority. See "The
Authority--Management Board and Executive Officers."
The Tribe's Constitution vests all legislative and executive powers of the
Tribe in the Tribal Council, with the exception of the power to enroll Tribal
members which is vested in the Council of Elders. The powers of the Tribal
Council include the power to establish an executive branch departmental
structure with agencies and subdivisions and to delegate appropriate powers to
such agencies and sub-divisions.
The Tribe may amend the provisions of its Constitution that establish the
Authority and the Gaming Disputes Court, which is described below, with the
approval of two-thirds of the members of the Tribal Council and a ratifying
vote of a two-thirds majority of all votes cast, with at least 40% of the
registered voters of the Tribe voting. In addition, a certain provision of the
Tribe's Constitution currently prohibits the Tribe from enacting any law that
would impair the obligations of contracts entered into in furtherance of the
development, construction, operation and promotion of gaming on Tribal lands.
An amendment to this provision requires the affirmative vote of 75% of all
registered voters of the Tribe. 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 Branch of the Gaming Disputes Court that the proposed
amendment would constitute an impermissible impairment of contract.
The Council of Elders acts in the capacity of an appellate court of final
review and may hear appeals of any case or controversy arising under the
Tribe's Constitution, except those matters which relate to Mohegan Sun, which
are required to be submitted to the Gaming Disputes Court.
Gaming Disputes Court
The Tribal Council has established the Gaming Disputes Court by Tribal
ordinance and vested it with exclusive jurisdiction for the Tribe over all
disputes related to gaming at Mohegan Sun. The Gaming Disputes
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Court is composed of a Trial Division and an Appellate Branch. A single judge
presides over cases at the trial level. Trial Division decisions can be
appealed to the Appellate Branch where they will be heard by a panel of three
judges, one of whom will be the Chief Judge, and none of whom will have
presided over the specific case being heard. Decisions of the Appellate Branch
are final, and no further appeal is available.
The Gaming Disputes Court has jurisdiction over all disputes or
controversies related to gaming between any person or entity and the Authority,
the Tribe or TCA, who managed Mohegan Sun from its inception until December 31,
1999. The Gaming Disputes Court also has jurisdiction over all disputes arising
out of the Authority's regulatory powers, including licensing actions. The
Tribe has adopted the substantive law of the State of Connecticut as the
applicable law of the Gaming Disputes Court to the extent that such law is not
in conflict with Mohegan Tribal Law. Also, the Tribe has adopted all of
Connecticut's rules of civil and appellate procedure 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, who are appointed by the Chief Justice of the
Connecticut Supreme Court, each of whom must remain licensed to practice law in
the State of Connecticut.
Judges are selected sequentially from this list as cases are filed with the
clerk of the Gaming Disputes Court. The Chief Judge of the Gaming Disputes
Court, who serves as the Gaming Disputes Court's administrative superintendent,
is chosen by the Tribal Council from the list of eligible judges and serves a
five-year term. Judges of the Gaming Disputes Court are subject to discipline
and removal for cause pursuant to the rules of the Gaming Disputes Court. The
Chief Judge is vested with the sole authority to revise the rules of the Gaming
Disputes Court. Judges are compensated by the Tribe at an agreed rate of pay
commensurate with their duties and responsibilities. Such rate cannot be
diminished during a judge's tenure.
Below is a description of certain information regarding judges currently
serving on the Gaming Disputes Court:
Paul M. Guernsey, Chief Judge. Age: 52. Judge Guernsey has served on the
Gaming Disputes Court since 1996. He was appointed Acting Chief Judge in
November 1999 and appointed as Chief Judge in January 2000. Judge Guernsey has
also served as Fact Finder for the New London Judicial District from 1990 to
1992 and as State of Connecticut Attorney Trial Referee, Judicial District of
New London since 1992.
F. Owen Eagan, Judge. Age: 71. Judge Eagan was appointed to the Gaming
Disputes Court in 1996. He served as U.S. Magistrate Judge from 1975 to 1996
and was formerly Assistant U.S. Attorney for the District of Connecticut and
U.S. Attorney for the District of Connecticut. He is currently an adjunct law
faculty member at Western New England School, a position he has held since 1987.
Frank A. Manfredi, Judge. Age: 51. Judge Manfredi was appointed to the
Gaming Disputes Court in 2001. He has been a partner at Cotter, Greenfield,
Manfredi & Lanes, P.C. since 1983. Judge Manfredi has also served as State of
Connecticut Attorney Trial Referee since 1993, State of Connecticut Attorney
Fact Finder since 1992 and Town Attorney for the Town of Preston since 1988.
Thomas B. Wilson, Judge. Age: 62. Judge Wilson was appointed to the Gaming
Disputes Court in 1996. He has been a partner and director at Suisman, Shapiro,
Wool, Brennan & Gray, P.C. since 1967. Judge Wilson has also served as State
Attorney Trial Referee since 1988 and as Town Attorney for the Town of Ledyard
from 1971 to 1979, 1983 to 1991 and 1995 to the present.
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GOVERNMENT REGULATION
General
The Authority is subject to special federal, state and tribal laws
applicable to both commercial relationships with Indians generally and to
Indian gaming and the management and financing of Indian casinos specifically.
In addition, the Authority is subject to federal and state laws applicable to
the gaming industry generally and to the distribution of gaming equipment. The
following description of the regulatory environment in which gaming takes place
and in which the Authority operates is only a summary and not a complete
recitation of all applicable law. Moreover, since this particular regulatory
environment is more susceptible to changes in public policy considerations than
others, it is impossible to predict how particular provisions will be
interpreted from time to time or whether they will remain intact. Changes in
such laws could have a material adverse impact on the Authority's operations.
See "Risk Factors."
Tribal Law and Legal Systems
Applicability of State and Federal Law
Federally recognized Indian tribes are independent governments, subordinate
to the United States, with sovereign powers, except as those powers may have
been limited by treaty or by the United States Congress. The power of Indian
tribes to enact their own laws to regulate gaming derives from the exercise of
this tribal sovereignty. Indian tribes maintain their own governmental systems
and often their own judicial systems. Indian tribes have the right to tax
persons and enterprises conducting business on Indian lands, and also have the
right to require licenses and to impose other forms of regulations and
regulatory fees on persons and businesses operating on their lands.
Absent the consent of the Tribe or action of the United States Congress, the
laws of the State of Connecticut do not apply to the Tribe or the Authority.
Under the federal law that recognizes the Tribe, the Tribe consented to, among
other things, the extension of Connecticut criminal law and Connecticut state
traffic controls over Mohegan Sun.
Waiver of Sovereign Immunity; Jurisdiction; Exhaustion of Tribal Remedies
Indian tribes enjoy sovereign immunity from unconsented suit similar to that
of the states and the United States. 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 also may lack jurisdiction
over suits brought by non-Indians against Indian tribes in Connecticut. The
remedies available against an Indian tribe also depend, at least in part, upon
the rules of comity requiring initial exhaustion of remedies in tribal
tribunals and, as to some judicial remedies, the tribe's consent to
jurisdictional provisions contained in the disputed agreements. The United
States Supreme Court has held that, where a tribal court exists, jurisdiction
in that forum first must be exhausted before any dispute can be heard properly
by federal courts which would otherwise have jurisdiction. Where a dispute as
to the jurisdiction of the tribal forum exists, the tribal court first must
rule as to the limits of its own jurisdiction.
In connection with some of the Authority's outstanding indebtedness, the
Tribe and the Authority agreed to waive their sovereign immunity from
unconsented suit to permit any court of competent jurisdiction to (1) enforce
and interpret the terms of the Authority's applicable outstanding indebtedness,
and award and enforce the award of damages owing as a consequence of a breach
thereof, whether such award is the product of litigation,
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administrative proceedings, or arbitration; (2) determine whether any consent
or approval of the Tribe or the Authority has been granted improperly or
withheld unreasonably; (3) enforce any judgment prohibiting the Tribe or the
Authority from taking any action, or mandating or obligating the Tribe or the
Authority to take any action, including a judgment compelling the Tribe or
Authority to submit to binding arbitration; and (4) adjudicate any claim under
the Indian Civil Rights Act of 1968, 25 U.S.C. (S) 1302 (or any successor
statute).
The Indian Gaming Regulatory Act of 1988
Regulatory Authority
The operation of casinos, and of all gaming on Indian land, is subject to
IGRA which is administered by the NIGC, an independent agency within the United
States Department of Interior, which exercises 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
management agreements for gaming facilities, conduct investigations and
generally monitor tribal gaming. Certain responsibilities under IGRA (such as
the approval of per capita distribution plans to tribal members and the
approval of transfer of lands into trust status for gaming) are retained by the
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 Tribe.
The NIGC is empowered to inspect and audit all Indian gaming facilities, to
conduct background checks on all persons associated with Class II Gaming, to
hold hearings, issue subpoenas, take depositions, adopt regulations and assess
fees and impose civil penalties for violations of IGRA. IGRA also prohibits
illegal gaming on Indian land and theft from Indian gaming facilities. The NIGC
has adopted rules implementing specific provisions of IGRA. These rules govern,
among other things, the submission and approval of tribal gaming ordinances or
resolutions and require an Indian tribe to have the sole proprietary interest
in and responsibility for the conduct of any gaming. Tribes are required to
issue gaming licenses only under articulated standards, to conduct or
commission financial audits of their gaming enterprises, to perform or
commission background investigations for primary management officials and key
employees and to maintain their facilities in a manner that adequately protects
the environment and the public health and safety. These rules also set out
review and reporting procedures for tribal licensing of gaming operation
employees.
Additionally, the NIGC established the Minimum Internal Control Standards,
or MICS, that require each tribe or its designated tribal government body or
agency to establish and implement tribal MICS by February 4, 2000. The
Authority is in compliance with all of the MICS.
Tribal Ordinances
Under IGRA, except to the extent otherwise provided in a tribal-state
compact, Indian tribal governments have primary regulatory authority over Class
III Gaming on land within a tribe's jurisdiction. Therefore, the Authority's
gaming operations, and persons engaged in gaming activities, are guided by and
subject to the provisions of the Tribe's ordinances and regulations regarding
gaming.
IGRA requires that the NIGC review tribal gaming ordinances and authorizes
the NIGC to approve such ordinances only if they meet specific requirements
relating to (1) the ownership, security, personnel background, recordkeeping
and auditing of a tribe's gaming enterprises; (2) the use of the revenues from
such gaming; and (3) the protection of the environment and the public health
and safety. The Tribe adopted its gaming ordinance in July 1994, and the NIGC
approved the gaming ordinance in November 1994.
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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, certain non-banked
card games (if such games are played legally elsewhere in the state), instant
bingo and other games similar to bingo, if those games are played at the same
location where bingo is played. "Class III Gaming" includes all other forms of
gaming, such as slot machines, video casino games (e.g., video blackjack and
video poker), so-called "table games" (e.g., blackjack, craps, roulette) and
other commercial gaming (e.g., sports betting and pari-mutuel wagering).
Class I Gaming on Indian lands is within the exclusive jurisdiction of the
Indian tribes and is not subject to IGRA. Class II Gaming is permitted on
Indian lands if: (1) the state in which the Indian lands lie permits such
gaming for any purpose by any person, organization or entity; (2) the gaming is
not otherwise specifically prohibited on Indian lands by federal law; (3) the
gaming is conducted in accordance with a tribal ordinance or resolution which
has been approved by the NIGC; (4) an Indian tribe has sole proprietary
interest and responsibility for the conduct of gaming; (5) the primary
management officials and key employees are tribally licensed; and (6) several
other requirements are met. Class III Gaming is permitted on Indian lands if
the conditions applicable to Class II Gaming are met and, in addition, the
gaming is conducted in conformance with the terms of a tribal-state compact (a
written agreement between the tribal government and the government of the state
within whose boundaries the tribe's lands lie).
With the growth of the Internet and other modern advances, computers and
other technology aids are increasingly used to conduct specific kinds of
gaming. Congress has considered legislation that limits and/or prohibits gaming
conducted over the Internet. The use of technology to conduct gaming operations
and a state's ability to regulate such activity have been the subject of
several court cases in the past few years with no clear resolution of the issue.
Tribal-State Compacts
IGRA requires states to negotiate in good faith with Indian tribes that seek
to enter into tribal-state compacts for the conduct of Class III Gaming. Such
tribal-state compacts may include provisions for the allocation of criminal and
civil jurisdiction between the state and the Indian tribe necessary for the
enforcement of such laws and regulations, taxation by the Indian tribe of
gaming activities in amounts comparable to those amounts assessed by the state
for comparable activities, remedies for breach of compacts, standards for the
operation of gaming and maintenance of the gaming facility, including licensing
and any other subjects that are directly related to the operation of gaming
activities. While the terms of tribal-state compacts vary from state to state,
compacts within one state tend to be substantially similar. Tribal-state
compacts usually specify the types of permitted games, establish technical
standards for gaming, set maximum and minimum machine payout percentages,
entitle the state to inspect casinos, require background investigations and
licensing of casino employees and may require the tribe to pay a portion of the
state's expenses for establishing and maintaining regulatory agencies. Some
tribal-state compacts are for set terms, while others are for indefinite
duration. The Mohegan Compact, approved by the Secretary of the Interior in
1994, does not have a specific term and will remain in effect until terminated
by written agreement of both parties, or the provisions are modified as a
result of a change in applicable law.
IGRA provides that if a Indian tribe and state fail to successfully
negotiate a tribal-state compact, the United States Department of the Interior
may approve gaming procedures pursuant to which Class III gaming may be
conducted on Indian lands. The Mashantucket Pequot Tribe is the only Indian
tribe to successfully obtain approval of such procedures from the Department of
the Interior. We believe that any attempt by any other Indian tribe to obtain
similar procedures under IGRA would be unsuccessful because the United States
Supreme Court has determined that states are entitled to sovereign immunity
under the 11th Amendment against attempts by Indian tribes to impose these
types of procedures.
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Tribal-state compacts have been the subject of litigation in a number of
states, including Alabama, California, Florida, Kansas, Michigan, Mississippi,
New Mexico, New York, Oklahoma, Oregon, South Dakota, Texas, Washington and
Wisconsin. Tribes frequently seek to enforce the constitutionality of the
provision of IGRA which entitles tribes to bring suit in federal court against
a state that fails to negotiate a tribal-state compact in good faith. The
United States Supreme Court resolved this issue by holding that the Indian
commerce clause of IGRA does not grant Congress authority to abrogate sovereign
immunity granted to the states under the Eleventh Amendment. Accordingly, IGRA
does not grant jurisdiction over a state that did not consent to be sued.
There has been litigation in a number of states challenging the authority of
state governors, under state law, to enter into tribal-state compacts without
legislative approval. Federal courts have upheld such authority in Louisiana
and Mississippi. The highest state courts of Arizona, Kansas, Michigan, New
Mexico, New York and Rhode Island 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 the authority to enter into such compacts is a
legislative function under their 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 tribal-state compacts. If such a suit were filed,
however, the Tribe does not believe that the precedent in the New Mexico or
Kansas cases would apply. The Connecticut Attorney General has issued a formal
opinion which states that "existing [state] statutes provide the Governor with
the authority to negotiate and execute the . . . [Mohegan] Compact." Thus, the
Attorney General therefore declined to follow the Kansas case. In addition, the
United States Court of Appeals for the Second Circuit has held, in a case
brought by the Mashantucket Pequot Tribe, that Connecticut law authorizes
casino gaming. After execution of the Mohegan Compact, the Connecticut
Legislature passed a law requiring that future gaming compacts be approved by
the legislature, but that law does not apply to previously executed compacts
such as the Mohegan Compact.
The Authority's operation of gaming is subject to the requirements and
restrictions contained in the Mohegan Compact. The Mohegan Compact authorizes
the Tribe to conduct most forms of Class III Gaming.
Possible Changes in Federal Law
Several bills have been introduced in Congress which would amend IGRA. While
there have been a number of technical amendments to the law, to date there have
been no material changes to IGRA. Any amendment of IGRA could change the
governmental structure and requirements within which the Tribe could conduct
gaming.
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DESCRIPTION OF OTHER INDEBTEDNESS
The following is a summary of the material terms of several of the
Authority's other material debt obligations. This summary does not restate in
entirety the terms of the agreements under which the Authority incurred these
indebtedness. We urge you to read these agreements because they, and not these
summaries, define the rights and obligations of the Authority and, in some
cases, the Tribe. Copies of these agreements are included as exhibits to the
Registration Statement of which this prospectus forms a part.
Bank Credit Facility
As of March 31, 2002, the Authority had $199.0 million outstanding under a
$400.0 million reducing and revolving, senior secured credit facility with a
syndicate of lenders led by Bank of America, N.A. (formerly known as Bank of
America National Trust and Savings Association). The Authority draws on the
Bank Credit Facility in connection with Project Sunburst and other capital
expenditures. The Bank Credit Facility is secured by a lien on substantially
all of the Authority's assets, by a leasehold mortgage on the land and
improvements which comprise Mohegan Sun and by each of the Authority's cash
operating accounts. The Bank Credit Facility subjects the Authority to a number
of restrictive covenants including financial covenants. These financial
covenants relate to the permitted maximums of the Authority's total debt and
senior debt leverage ratios, its minimum fixed charge coverage ratio and
maximum capital expenditures. The Bank Credit Facility includes other
affirmative and negative covenants by the Tribe and the Authority customarily
found in loan agreements for similar transactions. Such covenants include
provisions that:
. the Tribe preserve its existence as a federally recognized Indian tribe;
. the Tribe cause the Authority to continually operate Mohegan Sun in
compliance with all applicable laws;
. except under specific conditions, the Authority not sell or dispose of
assets, incur other debt or contingent obligations, extend credit, make
investments or commingle its assets with assets of the Tribe; and
. permit a construction consultant to inspect and review the proposed
expansion and all budgets, plans, designs and specifications on a
periodic basis.
At the Authority's option, each advance of loan proceeds accrues interest on
the basis of a base rate or on the basis of a one-month, two-month, three-month
or six-month LIBOR plus, in either case, the applicable spread (based on the
Authority's Total Leverage Ratio as defined in the Bank Credit Facility).
One-month LIBOR as of March 31, 2002 was 1.88% and the applicable spread on a
LIBOR loan was 2.375%. Interest on each LIBOR loan that is for a term of three
months or less is due and payable on the last day of the related interest
period. Interest on each LIBOR loan that is for a term of more than three
months is due and payable on the date which is three months after the date such
LIBOR loan was made, every three months thereafter and; in any event, on the
last day of the related interest period. Interest on each base rate loan is due
and payable quarterly in arrears. The Authority has no base rate loans.
Pursuant to the terms of the Bank Credit Facility, the commitment (or the
maximum amount that may be borrowed under the Bank Credit Facility) will be
automatically reduced on March 31, 2002 and will continue to reduce on the last
day of each fiscal quarter thereafter. The amount of each such reduction must
equal 10% of the commitment as in effect immediately prior to the first such
reduction.
On February 20, 2002, the Authority used the net proceeds from the issuance
of the outstanding notes to repay a portion of the outstanding balance under
the Bank Credit Facility.
Recent Amendments to the Bank Credit Facility
Second Amendment. On February 8, 2002, the Authority received the requisite
consent of its lenders for Amendment No. 2 to its Bank Credit Facility. The
amendment revised several of the restrictive covenants governing the
Authority's activities and finances. These revisions included, among other
things, the following:
. the Authority is permitted to enter into interest rate swap agreements
and similar arrangements involving up to $200.0 million of the
Authority's indebtedness (in addition to similar arrangements with
respect to indebtedness under the Bank Credit Facility);
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. the maximum aggregate amount of several categories of permitted
Authority investments and capital expenditures relating to gaming is
increased from $85.0 million to $125.0 million;
. the maximum amount of subordinated indebtedness the Authority may incur
is increased from $150.0 million to $500.0 million;
. the Tribe is no longer prohibited from engaging in gaming operations
separate from Mohegan Sun; and
. the permitted maximums in the financial covenants that relate to the
Authority's total leverage ratio and senior leverage ratio are modified
as follows:
Total leverage ratio
Fiscal quarters ending: Previous Max. Ratio New Max. Ratio
----------------------- ------------------- --------------
March 31, 2002.......................... 4.50x 5.25x
June 30, 2002........................... 3.50x 5.00x
September 20, 2002 - March 31, 2003..... 3.50x 4.50x
June 30, 2003 and thereafter............ 3.50x 4.00x
Senior leverage ratio
Fiscal quarters ending: Previous Max. Ratio New Max. Ratio
----------------------- ------------------- --------------
March 31, 2002.......................... 2.50x 3.00x
June 30, 2002........................... 2.00x 2.50x
September 20, 2002 and thereafter....... 2.00x 2.00x
Third Amendment. On March 26, 2002, the Authority received the requisite
consent of its lenders for Amendment No. 3 to its Bank Credit Facility. The
amendment reduced the lenders' commitment from $500.0 million to $400.0 million
effective March 26, 2002, and changed the first scheduled commitment reduction
date to September 30, 2002 from March 31, 2002.
We urge you to read carefully in full the amendments, both of which were
filed by the Authority with the SEC on Forms 8-K on February 12, 2002 and March
26, 2002, respectively. See "Where You Can Get More Information."
Senior Notes
On March 3, 1999, the Authority issued $200.0 million of Senior Notes with
fixed interest payable at a rate of 8 1/8% per annum. The proceeds from this
financing were used to extinguish or defease existing debt, pay transaction
costs and fund initial costs related to Project Sunburst. Interest on the
Senior Notes is payable semi-annually on January 1 and July 1. The Senior Notes
mature on January 1, 2006. The Senior Notes are unsecured general obligations
of the Authority and are effectively subordinated to the Bank Credit Facility.
The Senior Notes rank equally in right of payment with 50% of the Authority's
payment obligations under the Relinquishment Agreement and rank senior to the
remaining 50% of the Authority's payment obligations under the Relinquishment
Agreement, the 8 3/4% Senior Subordinated Notes, the 8 3/8% Senior Subordinated
Notes, the outstanding notes and, when issued, the exchange notes. See
"--Relinquishment Agreement with Trading Cove Associates" for a further
description of the ranking of payments under the Relinquishment Agreement.
8 3/4% Senior Subordinated Notes
On March 3, 1999, the Authority issued $300.0 million of 8 3/4% Senior
Subordinated Notes with fixed interest payable at a rate of 8 3/4% per annum.
The proceeds from this financing were used to extinguish or defease existing
debt, pay transaction costs and fund initial costs related to Project Sunburst.
Interest on the 8 3/4% Senior Subordinated Notes is payable semi-annually on
January 1 and July 1. The 8 3/4% Senior
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Subordinated Notes mature on January 1, 2009. The 8 3/4% Senior Subordinated
Notes are unsecured general obligations of the Authority and are subordinated
to the Bank Credit Facility, the Senior Notes and, in a liquidation, bankruptcy
or similar proceeding, 50% of the Authority's payment obligations under the
Relinquishment Agreement that are then due and owing. The 8 3/4% Senior
Subordinated Notes rank equally with the 8 3/8% Senior Subordinated Notes, the
outstanding notes, and, when issued, the exchange notes, and the remaining 50%
of the Authority's payment obligations under the Relinquishment Agreement that
are then due and owing. See "--Relinquishment Agreement with Trading Cove
Associates" for a further description of the ranking of payments under the
Relinquishment Agreement.
8 3/8% Senior Subordinated Notes
On July 26, 2001, the Authority issued $150.0 million of 8 3/8% Senior
Subordinated Notes with fixed interest payable at a rate of 8 3/8% per annum.
The proceeds from this financing were used to pay transaction costs, pay down
$90.0 million on the Bank Credit Facility and fund costs related to Project
Sunburst. Interest on the 8 3/8% Senior Subordinated Notes is payable
semi-annually on January 1 and July 1. The 8 3/8% Senior Subordinated Notes
mature on July 1, 2011. The 8 3/8% Senior Subordinated Notes are unsecured
general obligations of the Authority and are subordinated to the Bank Credit
Facility, the Senior Notes and, in a liquidation, bankruptcy or similar
proceeding, 50% of the Authority's payment obligations under the Relinquishment
Agreement that are then due and owing. The 8 3/8% Senior Subordinated Notes
rank equally with the 8 3/4% Senior Subordinated Notes, the outstanding notes,
and, when issued, the exchange notes, and the remaining 50% of the Authority's
payment obligations under the Relinquishment Agreement that are then due and
owing. See "--Relinquishment Agreement with Trading Cove Associates" for a
further description of the ranking of payments under the Relinquishment
Agreement.
Outstanding Notes
On February 20, 2002, the Authority issued $250.0 million of the outstanding
notes with fixed interest payable at a rate of 8% per annum. The proceeds from
this financing were used to pay transaction costs, pay down approximately
$244.9 million of the outstanding balance under the Bank Credit Facility.
Interest on the outstanding notes is payable semi-annually on April 1 and
October 1 commencing on October 1, 2002. The outstanding notes mature on April
1, 2012. The outstanding notes are unsecured general obligations of the
Authority and are subordinated to the Bank Credit Facility, the Senior Notes
and, in a liquidation, bankruptcy, or similar proceeding, 50% of the
Authority's payment obligations under the Relinquishment Agreement that are
then due and owing. The outstanding notes rank equally with the 8 3/4 Senior
Subordinated Notes, 8 3/8 Senior Subordinated Notes, the exchange notes, if any
are issued, and the remaining 50% of the Authority's payment obligations under
the Relinquishment Agreement that are then due and owing. The terms of the
outstanding notes are identical to the terms of the exchange notes, as
described under "Description of the Exchange Notes." Also, see
"--Relinquishment Agreement with Trading Cove Associates" for a further
description of the ranking of payments under the Relinquishment Agreement.
Relinquishment Agreement with Trading Cove Associates
General
Until December 31, 1999, TCA was the exclusive manager of Mohegan Sun
pursuant to the Management Agreement among the Authority, the Tribe and TCA. In
February 1998, the Authority and TCA entered into the Relinquishment Agreement
under which the Authority and TCA agreed to terminate the Management Agreement
with TCA. This termination occurred on December 31, 1999, at which time the
Authority assumed the day-to-day management of Mohegan Sun. To compensate TCA
for terminating its management rights, the Authority agreed to pay to TCA five
percent of the revenues, as defined in the Relinquishment Agreement, generated
by Mohegan Sun during the 15-year period commencing on January 1, 2000 and
ending on December 31, 2014.
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Relinquishment Payments
The payments under the Relinquishment Agreement are divided into Senior
Relinquishment Payments and Junior Relinquishment Payments, each of which are
2.5% of revenues as defined in the Relinquishment Agreement. Senior
Relinquishment Payments are payable quarterly in arrears and commenced on April
25, 2000 and the Junior Relinquishment Payments are payable semi-annually in
arrears and commenced on July 25, 2000. Revenues are defined as gross gaming
revenues (other than Class II gaming revenue) and all other facility revenues
(including hotel revenues, room service, food and beverage sales, parking
revenues, ticket revenues and other fees or receipts from the convention/events
center and all rental or other receipts from the lessees, licensees and
concessionaires, but not the gross receipts of such lessees, licensees and
concessionaires) and proceeds of business interruption insurance.
Subordination of Relinquishment Payments/Priority Distribution to the Tribe
The Relinquishment Agreement provides that each of the Senior and Junior
Relinquishment Payments are subordinated in right to payment of senior secured
obligations, which includes the Bank Credit Facility and capital lease
obligations, and that the Junior Relinquishment Payments are further
subordinated to payment of all other senior obligations, including the
Authority's Senior Notes. The Relinquishment Agreement also provides that all
relinquishment payments are subordinated in right of payment to the minimum
priority distribution payment, as defined in the Relinquishment Agreement, from
the Authority to the Tribe to the extent then due.
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DESCRIPTION OF THE EXCHANGE NOTES
The following description is a summary of the material provisions of the
Indenture and the Registration Rights Agreement. It does not restate those
agreements in their entirety. We urge you to read the Indenture and the
Registration Rights Agreement because they, and not this description, define
your rights as holders of the exchange notes. Copies of the forms of Indenture
and Registration Rights Agreement are filed as exhibits to the Registration
Statement of which this prospectus forms a part and are available from the
Authority upon request. You can find the definitions of some terms used in this
section in the Indenture and under the subheading "--Definitions." Reference is
made to the Indenture for all of such terms, as well as any other capitalized
terms used herein for which no definition is provided. The term "exchange
notes" refers to the 8% Senior Subordinated Notes due 2012 being offered by the
Authority in this exchange offer. The term "outstanding notes" refers to the
Authority's currently outstanding 8% Senior Subordinated Notes due 2012 that
may be exchanged for the exchange notes. The term "notes" refers to the
outstanding notes and the exchange notes, collectively. The term "Indenture"
refers to the indenture that applies to both the outstanding notes and the
exchange notes.
The Authority issued the outstanding notes under the Indenture among itself,
the Tribe and State Street Bank and Trust Company, as Trustee. The terms of the
exchange notes are identical in all material respects to the outstanding notes,
except that (1) the exchange notes will have been registered under the
Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the outstanding notes and (2) holders of the exchange
notes will not be entitled to certain rights of holders of outstanding notes
under the Registration Rights Agreement. The terms of the outstanding notes
included and the terms of the exchange notes will be those stated in the
Indenture and those made a part of the Indenture by reference to the Trust
Indenture Act of 1939 as in effect on the date of the Indenture (the "Trust
Indenture Act"). The exchange notes are subject to all such terms, and holders
of the exchange notes should refer to the Indenture and the Trust Indenture Act
for a complete statement of applicable terms.
Ranking
These exchange notes are:
. unsecured general obligations of the Authority;
. subordinated in right of payment to all existing and future Senior
Indebtedness of the Authority, including, without limitation, the Senior
Notes and up to $400.0 million of indebtedness under the Bank Credit
Facility;
. subordinated in a liquidation, bankruptcy or similar proceeding to 50%
of the Authority's payment obligations under the Relinquishment
Agreement that are then due and owing, but effectively not subordinated
to such payment obligations that are not yet due under the
Relinquishment Agreement since the payment obligations under the
Relinquishment Agreement cannot be accelerated by their terms;
. ranked equally in right of payment with the Authority's 8 3/4% Senior
Subordinated Notes;
. ranked equally in right of payment with the Authority's 8 3/8% Senior
Subordinated Notes;
. ranked equally in right of payment with the outstanding notes; and
. ranked equally to the remaining 50% of the Authority's payment
obligations under the Relinquishment Agreement that are then due and
owing, but effectively senior to such payment obligations that are not
yet due under the Relinquishment Agreement since payment obligations
under the Relinquishment Agreement cannot be accelerated by their terms.
Subsidiaries
As of the date of the Indenture, the Authority had no Subsidiaries. However,
the Indenture will permit the Authority to create Subsidiaries and will
generally require that these Subsidiaries be designated as Restricted
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Subsidiaries (i.e., subject to the terms of the Indenture) unless specific
conditions are met. If these conditions are met, the Authority will be
permitted to designate a Subsidiary as an Unrestricted Subsidiary, and
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants of the Indenture.
Principal, Maturity and Interest
The Authority will issue the exchange notes under the Indenture in a maximum
aggregate amount of $250.0 million. The Authority will issue the exchange notes
in denominations of $1,000 and integral multiples of $1,000. The exchange notes
will mature on April 1, 2012.
Interest on these exchange notes will accrue at the rate of 8% per year and
will be payable semi-annually in arrears on April 1 and October 1, beginning on
October 1, 2002. The Authority will make each interest payment to the holders
of record of these exchange notes on the immediately preceding March 15 and
September 15.
Interest on these exchange notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Subordination
The payment of principal, premium and interest, if any, on the exchange
notes and the Subsidiary Guarantees, if any, will be subordinated to the prior
payment in full of all Senior Indebtedness of the Authority including, without
limitation, the Senior Notes, senior Relinquishment Payments and the Bank
Credit Facility.
In the event of any distribution to creditors:
(1) in a liquidation or dissolution of the Authority or the Tribe;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Authority, the Tribe or their respective property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Authority's or the Tribe's assets and
liabilities;
the holders of Senior Indebtedness will be entitled to receive payment in full
of all Obligations due in respect of Senior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Indebtedness) before the holders of the notes will be
entitled to receive any payment distributions with respect to the notes (except
that holders of the notes may receive and retain Permitted Junior Securities
and payments made from the trust described under "--Legal Defeasance and
Covenant Defeasance"); and until all Obligations with respect to such Senior
Indebtedness are paid in full, any distributions to which the holders of the
notes would be entitled but for the subordination provisions of the Indenture
shall be made to holders of Senior Indebtedness (except that holders of the
notes may receive and retain Permitted Junior Securities and payments made from
the trust described under "--Legal Defeasance and Covenant Defeasance").
The Authority also may not make any payment in respect of the notes (except
in Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") until all principal and other Obligations
with respect to Senior Indebtedness have been paid in full if:
(1) a payment default on Designated Senior Indebtedness occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior
Indebtedness that permits holders of the Designated Senior Indebtedness to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Authority or the Representative.
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If the Trustee receives any such Payment Blockage Notice, no subsequent
Payment Blockage Notice shall be effective for the purposes of this provision
unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest on the
notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 180 days.
Payments on the notes may and shall be resumed
(1) in the case of a payment default, upon the date on which all Senior
Indebtedness is paid in full in cash or such default is cured or waived in
writing; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Indebtedness has been accelerated.
The Authority must promptly notify holders of Senior Indebtedness if payment
of the notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of the Authority or the Tribe,
holders of these notes may recover less ratably than holders of Senior
Indebtedness. See "Risk Factors--Risks Related to the Authority's
Business--Your right to receive payments on the exchange notes will be junior
in priority to the Authority's senior indebtedness. Therefore, if the Authority
does not have sufficient funds to pay all of its debts, then the senior debt
will be paid before any payment may be made with respect to the exchange notes."
Optional Redemption
If, at any time after the issue date, any Gaming Regulatory Authority
requires a holder or beneficial owner of the notes to be licensed or otherwise
qualified under applicable gaming laws in order for the Authority to maintain
any of its gaming licenses or franchises and the holder or beneficial owner
does not obtain such license or qualification within the time periods described
in the Indenture and at its own cost and expense, then the Authority will have
the right to either:
. require such holder or beneficial owner of the notes to dispose of its
notes within the time period specified by the Gaming Regulatory
Authority or within 30 days of receipt of the request by such Gaming
Regulatory Authority, whichever is shorter; or
. redeem such holder's or beneficial owner's notes at a redemption price
equal to the least of (1) the principal amount of the notes held by the
holder or the beneficial owner, (2) the price paid for the notes by the
holder or the beneficial owner and (3) the current market price of the
notes, in each case, including all accrued and unpaid interest and
Additional Interest, if any, to the earlier of the redemption date or
the date a finding of unsuitability is made by the applicable Gaming
Regulatory Authority.
The Authority will comply with the redemption procedures for the notes
described in the Indenture unless otherwise required by a Gaming Regulatory
Authority.
Except as described above, the notes will not be redeemable at the
Authority's option prior to April 1, 2007. On or after April 1, 2007, the
Authority may redeem all or a part of the notes then outstanding upon not less
than
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30 days but not more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the 12-month period beginning on April 1 of the years indicated below:
Year Percentage
---- ----------
2007............... 104.000%
2008............... 102.667%
2009............... 101.334%
2010 and thereafter 100.000%
Selection and Notice of Redemption
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 days but not more than 60 days
before the redemption date to each holder of the notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder thereof upon
surrender and cancellation of the original note. The notes called for
redemption become due on the date fixed for redemption at the redemption price.
On and after the redemption date, interest ceases to accrue on the notes or
portions of them called for redemption.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of the notes will have the right
to require the Authority to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that holder's notes pursuant to a Change of
Control Offer. In the Change of Control Offer, the Authority will offer a
Change of Control Payment in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest and Additional
Interest, if any, thereon, to the date of purchase.
Within 20 business days following any Change of Control, the Authority will
mail a notice to each holder (and, unless the Trustee makes the mailing on
behalf of the Authority, to the Trustee) describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the Change of Control Payment Date specified in such notice, pursuant
to the procedures required by the Indenture and described in such notice. If
the Authority wishes the Trustee to do the mailing, it will give the Trustee
adequate prior notice so that the Trustee may do so. The Authority will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Authority, to the extent lawful,
will:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
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(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by the Authority.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof. The Authority will notify the
Trustee and will instruct the Trustee to notify the holders of the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the notes to require
that the Authority repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction. The Bank Credit Facility prohibits and
the Indenture for the Senior Notes (the "Senior Notes Indenture") may prohibit
the Authority from purchasing any notes upon Change of Control.
The Bank Credit Facility also provides that particular types of change of
control events with respect to the Authority constitute a default under the
Bank Credit Facility. Any future credit agreements or other agreements relating
to secured indebtedness to which the Authority becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs at
a time when the Authority is prohibited from purchasing the notes, the
Authority could seek the consent of its lenders and other creditors to the
purchase of notes or could attempt to refinance the borrowings that contain
such prohibition. If the Authority does not obtain such a consent or repay such
borrowings, the Authority will remain prohibited from purchasing the notes. In
such case, the Authority's failure to purchase tendered notes would constitute
an Event of Default under the Indenture which would, in turn, constitute a
default under the Bank Credit Facility, the Senior Notes Indenture and the
Indentures for the Existing Senior Subordinated Notes.
The Authority will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Authority and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
Asset Sales
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Authority (or its Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value (as determined in good faith by the Management Board and
evidenced by a resolution set forth in an Officers' Certificate delivered to
the Trustee) of the assets sold or otherwise disposed of; and
(2) except in the case of a Permitted Asset Swap, at least 75% of the
consideration therefor received by the Authority or such Restricted
Subsidiary is in the form of cash. For purposes of this provision, each of
the following shall be deemed to be cash:
(a) any liabilities that would appear on the Authority's or such
Restricted Subsidiary's balance sheet prepared in accordance with GAAP
(other than contingent liabilities and liabilities that are by their
terms subordinated to the notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Authority or such Restricted
Subsidiary from further liability; and
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(b) any securities, notes or other obligations received by the
Authority or any such Restricted Subsidiary from such transferee that
are converted by the Authority or such Restricted Subsidiary into cash
(to the extent of the cash received) within 30 days of the receipt
thereof,
provided, however, that the Authority will not be permitted to make any Asset
Sale of Key Project Assets.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Authority may apply such Net Proceeds, at its option, to:
(1) repay permanently term Indebtedness under Credit Facilities of the
Authority or any Restricted Subsidiary;
(2) repay revolving credit Indebtedness under Credit Facilities and
correspondingly permanently reduce commitments with respect thereto;
(3) acquire a majority of the assets of, or a majority of the Voting
Stock of, an entity engaged in the Principal Business or a Related Business;
(4) make capital expenditures or acquire other long-term assets that are
used or useful in the Principal Business or a Related Business;
(5) make an investment in the Principal Business or a Related Business or
in tangible long-term assets used or useful in the Principal Business or a
Related Business; or
(6) reduce permanently Indebtedness (including the Senior Notes) that is
not Subordinated Indebtedness.
Pending the final application of any such Net Proceeds, the Authority may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraphs will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Authority will make an Asset Sale Offer to all holders of notes and all
holders of other Indebtedness containing provisions similar to those set forth
in the Indenture with respect to offers to purchase or redeem with the proceeds
of sales of assets to purchase the maximum principal amount of notes and such
other Indebtedness that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of the principal amount
plus accrued and unpaid interest and Additional Interest, if any, to the date
of purchase and will be payable in cash, in accordance with the procedures set
forth in the Indenture and such other Indebtedness. To the extent that any
Excess Proceeds remain after consummation of an Asset Sale Offer, the Authority
may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of notes and such other
Indebtedness tendered into such Asset Sale Offer surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the notes and
such other Indebtedness (to the extent that such other Indebtedness permits
such selection) to be purchased on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Covenants
Set forth below are several of the covenants that are contained in the
Indenture.
Restricted Payments
The Authority will not, and the Authority will not permit any of its
Restricted Subsidiaries, directly or indirectly, to:
(1) make any payment on or with respect to any of the Authority's or any
of its Restricted Subsidiaries' Equity Interests;
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(2) purchase, redeem, defease or otherwise acquire or retire for value
any Equity Interest in the Authority held by the Tribe or any Affiliate of
the Tribe;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Subordinated Indebtedness,
except a payment of interest or principal at Stated Maturity thereof;
(4) make any payment or distribution to the Tribe (or any other agency,
instrumentality or political subunit thereof) or make any general
distribution to the members of the Tribe (other than Government Service
Payments); or
(5) make any Restricted Investment;
(all such payments and other actions set forth in clauses (1) through (5)
above are collectively referred to as "Restricted Payments") unless, at the
time of and after giving effect to such Restricted Payment:
(A) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(B) the Authority would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(C) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Authority and its Restricted
Subsidiaries after March 3, 1999 (excluding Restricted Payments
permitted by clauses (2), (3), (4) and (5) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Authority for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after March 3, 1999 to the end of the Authority's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds or fair
market value (as determined in good faith by the Management Board and
evidenced by a resolution set forth in an Officers' Certificate
delivered to the Trustee) of assets or property (other than cash)
received by the Authority after March 3, 1999 from capital contributions
from the Tribe that bear no mandatory obligation to repay the Tribe,
plus (iii) to the extent that any Restricted Investment that was made
after March 3, 1999 is sold, liquidated or otherwise disposed of for
cash or an amount equal to the fair market value thereof (as determined
in good faith by the Management Board and evidenced by a resolution set
forth in an Officers' Certificate delivered to the Trustee), the lesser
of (a) the cash return of capital or fair market value amount, as the
case may be, with respect to such Restricted Investment (less the cost
of disposition, if any) and (b) the initial amount of such Restricted
Investment, plus (iv) to the extent that any Unrestricted Subsidiary is
redesignated as Restricted Subsidiary after March 3, 1999, the lesser of
(x) the fair market value of the Authority's Investment in such
Subsidiary as of the date of such redesignation or (y) such fair market
value as of the date on which such Subsidiary was originally designated
as an Unrestricted Subsidiary.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the defeasance, redemption, repurchase or other acquisition of
Subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(2) the payment of any dividend by a Restricted Subsidiary of the
Authority to the holders of its common Equity Interests on a pro rata basis;
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(3) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary of the Authority
held by any member of the Authority's (or any of its Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the
Indenture; provided that (a) the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any 12-month period and (b) the aggregate amount of all such
repurchased, redeemed, acquired or retired Equity Interests shall not in the
aggregate exceed $3.0 million;
(4) the redemption or purchase of Subordinated Indebtedness of the
Authority in the event that the holder of such Subordinated Indebtedness has
failed to qualify or be found suitable or otherwise be eligible by any
Gaming Regulatory Authority to remain a holder of such Subordinated
Indebtedness;
(5) the redemption, defeasance, repurchase or other acquisition or
retirement of Subordinated Indebtedness with the net cash proceeds from a
substantially concurrent capital contribution from the Tribe (provided that
such capital contribution is not counted for purposes of clause (C)(ii)
above); and
(6) any other Restricted Payments in an amount not to exceed $50.0
million at any one time outstanding.
The Authority may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default; provided that in no
event shall (i) any entity (including any Subsidiary of the Authority or the
Authority or any operating division thereof) engaged in a Principal Business be
transferred to or held by an Unrestricted Subsidiary or (ii) any Key Project
Assets or Gaming Licenses be transferred to an Unrestricted Subsidiary. In the
event of such designation, all outstanding Investments owned by the Authority
and its Restricted Subsidiaries in the Subsidiary so designated will be deemed
to be an Investment made as of the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
Restricted Payments covenant unless the Investment constitutes a Permitted
Investment. All such outstanding Investments will be deemed to constitute
Restricted Payments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Authority may redesignate an Unrestricted Subsidiary to be a
Restricted Subsidiary if such redesignation would not otherwise cause a Default.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Authority or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be
valued by this covenant shall be determined by the Management Board whose
resolution with respect thereto shall be delivered to the Trustee. Not later
than the date of making any Restricted Payment, the Authority shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Restricted Payments covenant were computed.
Ranking of Payments Under the Relinquishment Agreement
The Authority will not designate the Senior Relinquishment Payments (as
defined in the Relinquishment Agreement) as Designated Senior Indebtedness and
the Authority will not amend Section 6.2 of the Relinquishment Agreement in a
manner adverse to the holders of the notes.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Authority will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Indebtedness)
and the Authority will not issue
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any Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Authority may incur
Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified
Stock and the Authority's Subsidiaries may incur Indebtedness or issue
preferred stock if the Fixed Charge Coverage Ratio for the Authority's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred would have been at least 2.0 to 1.0,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred at the
beginning of such four-quarter period. Notwithstanding the foregoing, the
Authority will not issue any Disqualified Stock or any type of Capital Stock
that would violate IGRA.
So long as no Default or Event of Default shall have occurred and be
continuing, or would be caused thereby, the first paragraph of this covenant
will not prohibit the incurrence of any of the following items of Indebtedness:
(1) the incurrence by the Authority or its Restricted Subsidiaries of
Indebtedness and letters of credit pursuant to Credit Facilities; provided
that the aggregate principal amount of all such Indebtedness and letters of
credit outstanding under all Credit Facilities, after giving effect to such
incurrence (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Authority thereunder), does
not exceed $500.0 million less the aggregate amount of all Net Proceeds of
Asset Sales applied by the Authority or any of its Restricted Subsidiaries
since March 3, 1999 to repay Indebtedness under Credit Facilities pursuant
to the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales;"
(2) the incurrence by the Authority and its Restricted Subsidiaries of
the Existing Indebtedness;
(3) the incurrence by the Authority of Indebtedness represented by the
notes in an aggregate principal amount of $250.0 million;
(4) the incurrence by the Authority or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price of furniture,
fixtures, equipment or similar assets used or useful in the business of the
Authority or such Restricted Subsidiary not to exceed 100% of the lesser of
cost and fair market value of the assets financed and, in an aggregate
principal amount under this clause not to exceed $50.0 million at any time
outstanding;
(5) the incurrence by the Authority or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance, renew, extend, defease or replace
Indebtedness that was permitted by the Indenture to be incurred under the
first paragraph of this covenant or clause (1), (2), (3) or (4) of this
paragraph;
(6) the incurrence by the Authority or any of its Restricted Subsidiaries
of Hedging and Swap Obligations that are incurred with respect to any
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;
(7) the guarantee by the Authority or any of its Restricted Subsidiaries
of any Indebtedness of the Authority or any of its Restricted Subsidiaries
that was permitted to be incurred by another provision of this covenant;
(8) the incurrence by a Wholly Owned Restricted Subsidiary of
Indebtedness owed to another Wholly Owned Restricted Subsidiary or to the
Authority; provided that if at any time any such Wholly Owned Restricted
Subsidiary ceases to be a Wholly Owned Restricted Subsidiary, any such
Indebtedness shall be deemed to be an incurrence of Indebtedness for the
purposes of this covenant;
(9) the incurrence by the Authority or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all
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Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (9), not to exceed $25.0
million; or
(10) the incurrence by the Authority's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Authority that was not permitted by this clause (10).
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (1) through (10) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Authority shall, in its sole discretion, classify such item of Indebtedness on
the date of its incurrence in any manner that complies with this covenant.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries
The Authority:
(1) will not, and will not permit any Wholly Owned Restricted Subsidiary
of the Authority to, transfer, convey, sell, lease or otherwise dispose of
any Equity Interests in any Wholly Owned Restricted Subsidiary of the
Authority to any Person (other than the Authority or another Wholly Owned
Restricted Subsidiary of the Authority), unless
(a) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary and
(b) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales," and
(2) will not permit any Wholly Owned Restricted Subsidiary of the
Authority to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to
any Person other than to the Authority or a Wholly Owned Restricted
Subsidiary of the Authority.
Liens
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or otherwise
cause or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of its property or assets, or any proceeds therefrom,
which secures either:
(a) Subordinated Indebtedness, unless the notes are secured by a Lien on
such property, assets or proceeds, which Lien is senior in priority to the
Liens securing such Subordinated Indebtedness or
(b) pari passu Indebtedness, unless the notes are equally and ratably
secured with the Liens securing such pari passu Indebtedness.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
Except as set forth in the next paragraph, the Authority will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or permit to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the Authority or any of the Authority's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the Authority or any of the
Authority's Restricted Subsidiaries;
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(2) make loans or advances to the Authority or any of the Authority's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Authority or any of
the Authority's Restricted Subsidiaries.
The restrictions in the preceding paragraph will not apply to encumbrances
or restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the Indenture and
any amendments, modifications, restatements, renewals, extensions,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
extensions, increases, supplements, refundings, replacements or refinancings
are no more restrictive, taken as a whole, with respect to such dividend and
other payment restrictions than those contained in such Existing
Indebtedness, as in effect on the date of the Indenture;
(2) the Indenture and the notes;
(3) the Credit Facilities;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Authority or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred;
(6) customary non-assignment provisions in leases or other contracts
entered into in the ordinary course of business and consistent with past
practices;
(7) purchase money obligations (including, without limitation, Capital
Lease Obligations) for property acquired in the ordinary course of business
that impose restrictions on the property so acquired of the nature described
in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained
in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption
"--Liens" that limit the right of the Authority or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien;
(11) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements entered
into in the ordinary course of business; and
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Transactions with Affiliates
The Authority will not, and the Authority will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan,
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advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Authority or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Authority or such
Restricted Subsidiary with an unrelated Person; and
(2) the Authority delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Management Board set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Management
Board; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Authority or such
Restricted Subsidiary of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking
firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the preceding paragraph:
(1) any employment agreement or arrangement entered into by the Authority
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Authority or such Restricted
Subsidiary;
(2) transactions between or among the Authority and/or its Restricted
Subsidiaries;
(3) payment of reasonable Management Board fees to members of the
Management Board;
(4) transactions with Persons in whom the Authority owns any Equity
Interests, so long as the remaining equity holders of such Person are not
Affiliates of the Authority or any of its Subsidiaries;
(5) Government Service Payments;
(6) transactions pursuant to the Development Services Agreement and the
Relinquishment Agreement;
(7) Restricted Payments or Permitted Investments that are made in
compliance with the covenant described above under the caption "--Restricted
Payments;" and
(8) contractual arrangements existing on the date of the Indenture and
any renewals, extensions and modifications thereof that are not materially
adverse to holders.
Subsidiary Guarantees
If the Authority acquires or creates any Restricted Subsidiary after the
date of the Indenture, then that newly acquired or created Restricted
Subsidiary must become a Subsidiary Guarantor and execute a supplemental
indenture satisfactory to the Trustee and deliver an Opinion of Counsel to the
Trustee within 20 business days of the date on which it is acquired or created.
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
will be limited so as not to constitute a fraudulent conveyance under
applicable law. Any Subsidiary Guarantees will be subordinated to Senior
Indebtedness in the same manner and to the same extent as the notes.
No Subsidiary Guarantor may consolidate with or merge with or into (whether
or not such Subsidiary Guarantor is the surviving Person), another corporation,
Person or entity whether or not affiliated with such Subsidiary Guarantor
unless: (i) subject to the provisions of the following paragraph, the Person
formed by or
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surviving any such consolidation or merger (if other than such Subsidiary
Guarantor) assumes all the obligations of such Subsidiary Guarantor pursuant to
a supplemental indenture in form and substance reasonably satisfactory to the
Trustee; and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
The Indenture will permit the merger of one or more Subsidiary Guarantors
with or into another Subsidiary Guarantor or with or into the Authority;
provided that in the case of a merger with or into the Authority, the Authority
is the surviving entity.
In the event of a sale or other disposition of all of the assets of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Subsidiary Guarantor or
if a Subsidiary Guarantor is designated as an Unrestricted Subsidiary, then
such Subsidiary Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock or a
redesignation of such Subsidiary Guarantor) or the entity acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with or the redesignation is
accomplished in accordance with the applicable provisions of the Indenture. See
"--Repurchase at the Option of Holders--Asset Sales."
The Authority currently has no Subsidiaries.
Sale and Leaseback Transactions
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction involving the
Resort; provided that the Authority or any of its Restricted Subsidiaries may
enter into a sale and leaseback transaction if:
(1) the Authority or such Restricted Subsidiary, as applicable, could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "--Liens;"
(2) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
Management Board and set forth in an Officers' Certificate delivered to the
Trustee, of the property that is subject of such sale and leaseback
transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Authority applies the proceeds of such transaction in
compliance with, the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales."
Construction
The Authority will use its commercially reasonable best efforts to cause
construction of the Project Sunburst to be prosecuted with diligence and
continuity in good and workmanlike manner materially in accordance with the
Authority's plans relating to Project Sunburst as more fully described in this
prospectus.
Restrictions on Leasing and Dedication of Property
Except as provided in the next paragraph, the Authority will not lease,
sublease, or grant a license, concession or other agreement to occupy, manage
or use any material portion of the Authority's property and assets owned or
leased by the Authority (each, a "Lease Transaction").
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The first paragraph of this covenant will not prohibit any of the following
Lease Transactions:
(1) the Authority may enter into a Lease Transaction with respect to any
space with any Person (including, without limitation, a lease in connection
with the Project Sunburst for the purpose of developing, constructing,
operating and managing retail establishments within the Resort), provided
that:
(a) such Lease Transaction will not materially interfere with, impair
or detract from the operations of the Resort;
(b) such Lease Transaction contains rent and such other terms such
that the Lease Transaction, taken as a whole is commercially reasonable
in light of prevailing or comparable transactions in other casinos,
hotels, attractions or shopping venues; and
(c) such Lease Transaction complies with all applicable law,
including obtaining any consent of the BIA, if required;
(2) the Lease and any amendments, extensions, modifications or renewals
thereof which are not materially adverse to the holders;
(3) the Authority may enter into a management or operating agreement with
respect to any of the Authority's property and assets with any Person;
provided that:
(a) the manager or operator has experience in managing or operating
similar operations; and
(b) such management or operating agreement is on commercially
reasonable and fair terms to the Authority; and
(4) the Relinquishment Agreement and the Development Services Agreement
and any amendments, extensions, modifications or renewals thereof which are
not materially adverse to the holders. No Lease Transaction may provide that
the Authority may subordinate its leasehold or fee interest to any lessee or
any financing party of any lessee, and no person other than the Authority
may conduct gaming or casino operations on any property that is the subject
of a Lease Transaction.
No Senior Subordinated Indebtedness
Notwithstanding the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock," (1) the Authority will not
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness of the Authority and senior in any respect in right of payment to
the exchange notes and (2) no Subsidiary Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness of such
Subsidiary Guarantor and senior in any respect in right of payment to such
Subsidiary Guarantor's Subsidiary Guarantee.
Covenants of the Tribe
Set forth below are several of the covenants of the Tribe contained in the
Indenture.
The Tribe shall not, and shall not permit any of its representatives,
political subunits or councils, agencies or instrumentalities, directly or
indirectly, except as required by federal or state law, to do any of the
following:
(1) increase or impose any tax or other payment obligation on the
Authority or on any patrons of, or any activity at, the Resort other than:
(a) payments that are due under any agreement in effect on the
Closing Date or payments which are not materially adverse to the
economic interests of holders of the notes;
(b) payments that the Authority has agreed to reimburse each holder
for the economic effect thereof, if any;
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(c) payments that correspondingly reduce the Restricted Payments
otherwise payable to the Tribe;
(d) pursuant to the Tribal Tax Code; or
(e) Government Service Payments;
(2) amend the terms of the Lease in any material manner that would be
materially adverse to the economic interests of holders of the notes;
(3) amend the Tribal Gaming Ordinance in effect on the Closing Date
(unless any such amendment is a legitimate effort to ensure that the
Authority and the Resort conduct gaming operations in a manner that is
consistent with applicable laws, rules and regulations or that protects the
environment, the public health and safety, or the integrity of the Authority
or the Resort) to restrict or eliminate the exclusive right of the Authority
to conduct gaming operations on the existing reservation of the Tribe
located adjacent to Uncasville, Connecticut in a manner that would be
materially adverse to the economic interests of holders; or
(4) take any other action, enter into any agreement, amend its
constitution or enact any ordinance, law, rule or regulation that would have
a material adverse effect on the economic interests of holders; provided
that, except as set forth in the previous clause (3), nothing herein shall
restrict the ability of the Tribe, directly or indirectly, to engage in any
business, including a Gaming enterprise, outside of the Authority.
Moreover, except with the consent of a majority in interest of holders or as
required by federal or state law, the Tribe shall not, and shall not permit any
of its representatives, political subunits or councils, agencies,
instrumentalities, to, directly or indirectly impose, tax or otherwise make a
charge on the notes, the Indenture or any payments or deposits to be made
thereunder.
Additional covenants of the Tribe contained in the Indenture include the
following:
(1) Upon any payment or distribution of assets upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Authority or the Resort, the holders of the exchange
notes shall be entitled to receive payment in full in respect of all
principal, premium, interest and other amounts owing in respect of the
exchange notes before any payment or any distribution to the Tribe.
(2) The Tribe agrees that the Authority shall have sole and exclusive
jurisdiction to operate the Resort.
(3) The Tribe shall comply with all material terms of the Construction
Reserve Disbursement Agreement and shall not amend and shall not permit any
of its representatives, political subunits or councils, agencies or
instrumentalities, directly or indirectly, to amend, except as required by
federal or state law, such Construction Reserve Disbursement Agreement in a
manner that would have a material adverse effect on the economic interests
of holders.
Gaming Licenses
The Authority will use its commercially reasonable best efforts to obtain
and retain in full force and effect at all times all Gaming Licenses necessary
for the operation of the Resort, provided, that, if in the course of the
exercise of its governmental or regulatory functions the Authority is required
to suspend or revoke any consent, permit or license or close or suspend any
operation or any part of the Resort as a result of any noncompliance with the
law, the Authority will use its commercially reasonable best efforts to
promptly and diligently correct such noncompliance or replace any personnel
causing such noncompliance so that the Resort will be open and fully operating.
The Authority shall file with the Trustee and provide holders of notes any
notice of Violation, Order of Temporary Closure, or Assessment of Civil Fines,
from the NIGC pursuant to 25 C.F.R. Part 573 or 575 or any successor provision,
and any Notice of Non-Compliance issued by, or cause of action commenced by,
the State of Connecticut under Section 13 of the Compact, or any successor
provision.
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Ownership Interests in the Authority
Neither the Tribe nor the Authority shall permit any Person other than the
Tribe to acquire any Ownership Interest whatsoever in the Authority.
Existence of the Authority and Maintenance of the Lease
The Authority shall, and shall cause each of its Restricted Subsidiaries to,
do or cause to be done all things necessary to preserve and keep in full force
and effect their respective existence, in accordance with their respective
organizational documents and their respective rights (contractual, charter and
statutory), licenses and franchises; provided, however, that neither the
Authority nor any Restricted Subsidiary shall be required to preserve, with
respect to itself, any license, right or franchise and, with respect to its
Restricted Subsidiaries, any such existence, license, right or franchise, if
its Management Board or Board of Directors, or other governing body or officers
authorized to make such determination, as the case may be, shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Authority or any Restricted Subsidiary, and that the loss thereof is not
adverse in any material respect to the holders. In addition, the Authority
shall do, or cause to be done, all things necessary to perform any material
covenants set forth in the Lease in order to keep the Lease in full force and
effect.
Liquidation or Dissolution
The Authority shall not sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in one or more
transactions. The Authority shall not consolidate or merge with or into any
other Person.
Limitations on Lines of Business
The Authority shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any business other than the Principal Business or a
Related Business.
Maintenance of Insurance
Until the notes have been paid in full, the Authority shall maintain
insurance with responsible carriers against such risks and in such amounts as
is customarily carried by similar businesses with such deductibles, retentions,
set insured amounts and coinsurance provisions as are customarily carried by
similar businesses of similar size, including, without limitation, property and
casualty.
Customary insurance coverage shall be deemed to include the following:
(1) workers' compensation insurance to the extent required to comply with
all applicable state, territorial, or United States laws and regulations, or
the laws and regulations of any other applicable jurisdiction;
(2) comprehensive general liability insurance with minimum limits of $2.0
million;
(3) umbrella or bumbershoot liability insurance providing excess
liability coverages over and above the foregoing underlying insurance
policies up to a minimum limit of $100.0 million; and
(4) property insurance protecting the property against loss or damage by
fire, lightning, wind-storm, tornado, water damage, vandalism, riot,
earthquake, civil commotion, malicious mischief, hurricane, and such other
risks and hazards as are from time to time covered by an "all-risk" policy
or a property policy covering "special" causes of loss (such insurance shall
provide coverage of not less than 100% of actual replacement value (as
determined at each policy renewal based on the F.W. Dodge Building Index or
some other recognized means) of any improvements and with a deductible no
greater than $500,000 (other than earthquake insurance, for which the
deductible may be up to 10% of such replacement value) ).
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Payments for Consent
The Authority will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, to or for the benefit of any holder of any notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the notes, as the case may be, unless such
consideration is offered to be paid or is paid to all holders of the notes that
consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Designation of Designated Senior Indebtedness Under the Relinquished Agreement
The Authority will not designate any indebtedness as "Designated Senior
Indebtedness" under the Relinquishment Agreement that is not also designated as
Designated Senior Indebtedness under the Indenture.
Methods of Receiving Payments on the Notes
If a holder that holds at least $1.0 million in principal amount of notes
has given wire transfer instructions to the Authority, the Authority will make
all principal, premium and interest payments, including Additional Interest
payments, if any, on those notes in accordance with those instructions. All
other payments on these notes will be made at the office or agency of the
Paying Agent and Registrar within the City and State of New York unless the
Authority elects to make interest payments by check mailed to the holders at
their address set forth in the register of holders.
Paying Agent and Registrar for the Notes
The Trustee initially will act as Paying Agent and Registrar. The Authority
may change the Paying Agent or Registrar without prior notice to the holders of
the notes, and the Authority may act as Paying Agent or Registrar.
Transfer and Exchange
A holder may transfer or exchange the notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Authority may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Authority is not required to transfer or
exchange any note selected for redemption. Also, the Authority is not required
to transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
The registered holder of a note will be treated as the owner of it for all
purposes.
Reports
Whether or not required by the SEC, so long as any notes are outstanding,
the Authority will furnish to the holders of notes and the Trustee within 15
days after the end of the time periods specified in the SEC's rules and
regulations for filings of current, quarterly and annual reports:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Authority were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations of the
Authority and its consolidated Subsidiaries (shown in reasonable detail,
either on the face of the financial statements or in the footnotes thereto
and in Management's Discussion and Analysis of Financial Condition and
Results of Operations, the financial condition and results of operations of
the Authority and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of the
Authority, to the extent that would be required by the rules, regulations or
interpretive positions of the SEC) and, with respect to the annual
information only, a report thereon by the Authority's independent public
accountants; and
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(2) all current reports that would be required to be filed with the SEC
on Form 8-K if the Authority were required to file such reports.
In addition, in the event that the Authority consummates this exchange
offer, whether or not required by the rules and regulations of the SEC, the
Authority will file a copy of all such information and reports with the SEC for
public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
In addition, the Authority has agreed that, for so long as any notes remain
outstanding, it will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The Authority shall file with the Trustee and provide to holders of notes,
within 15 days after it files them with the NIGC, copies of all reports which
the Authority is required to file with the NIGC pursuant to 25 C.F.R. Part 514.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default by the Authority for 30 days in the payment when due of
interest on, or Additional Interest with respect to, the notes;
(2) default by the Authority in payment when due of the principal of or
premium, if any, on the notes;
(3) failure by the Authority or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "--Repurchase at the
Option of Holders--Asset Sales" or "--Covenants --Liquidation or
Dissolution;"
(4) failure by the Authority or any of its Restricted Subsidiaries for
(i) 30 days after notice to the Authority by the Trustee or the holders of
at least 25% in principal amount of the then outstanding notes to comply
with the provisions described under "--Covenants--Restricted Payments" or
"--Covenants --Incurrence of Indebtedness and Issuance of Preferred Stock"
or (ii) 60 days after notice to the Authority by the Trustee or the holders
of at least 25% in principal amount of the then outstanding notes to comply
with any covenant, representation, warranty or other agreements in the
Indenture or the notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by the Authority or any of its Restricted Subsidiaries
(or the payment of which is guaranteed by the Authority or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity; and,
in each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more;
(6) failure by the Authority or any of its Restricted Subsidiaries to pay
final judgments in amounts not covered by insurance or not adequately
reserved for in accordance with GAAP aggregating in excess of $10.0 million,
which judgments are not paid, discharged or stayed (by reason of pending
appeal or otherwise) for a period of 60 days;
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(7) certain events of bankruptcy or insolvency with respect to the
Authority or any of its Restricted Subsidiaries;
(8) revocation, termination, suspension or other cessation of
effectiveness of any Gaming License which results in the cessation or
suspension of gaming operations for a period of more than 90 consecutive
days at the Resort;
(9) cessation of gaming operations for a period of more than 90
consecutive days at the Resort (other than as a result of a casualty loss);
(10) the Lease ceases to be in full force and effect; and
(11) failure by the Tribe to comply with the provisions described under
"--Covenants--Covenants of the Tribe" for 30 days after notice to the
Authority and the Tribe by the Trustee or the holders of at least 25% in
aggregate principal amount of the then outstanding notes to comply.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency with respect to the Authority, any Restricted Subsidiary that is
a Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately. The holders of a majority in
aggregate principal amount of the then outstanding notes by written notice to
the Trustee may on behalf of all of the holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, interest
or premium that has become due solely because of the acceleration) have been
cured or waived.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to specific limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in the interests of the
holders of the notes.
The holders of not less than a majority in aggregate principal amount of the
notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the notes waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the notes
(including in connection with an offer to purchase) (provided, however, that
the holders of a majority in aggregate principal amount of the then outstanding
notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
In the case of any Event of Default which occurs on or after April 1, 2007
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Authority with the intention of avoiding payment of the premium
that the Authority would have had to pay if the Authority then had elected to
redeem the notes pursuant to the optional redemption provisions of the
Indenture, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the notes. If
an Event of Default occurs prior to April 1, 2007 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Authority with
the intention of avoiding the prohibition on redemption of the notes prior to
April 1, 2007, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the notes.
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The Authority will be required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Authority will be
required upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees, Stockholders and
Members
Neither the Tribe nor any director, officer, office holder, employee, agent,
representative or member of the Authority or the Tribe or holder of an
Ownership Interest of the Authority, any Subsidiary Guarantor or the Tribe, as
such, shall have any liability for any obligations of the Authority under the
notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of notes by accepting a
note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of
the SEC that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
Upon compliance with the conditions set forth below, the Authority may, at
its option and at any time, elect to have all of its obligations discharged
with respect to the outstanding notes ("Legal Defeasance"), except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and Additional
Interest, if any, on such notes when such payments are due from the trust
referred to below;
(2) the Authority's obligations with respect to the 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;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Authority's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, upon compliance with the conditions set forth below, the
Authority may, at its option and at any time, elect to have the obligations of
the Authority released with respect to particular 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, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "--Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the notes
The following are the conditions to the exercise of either Legal Defeasance
or Covenant Defeasance:
(1) the Authority shall have irrevocably deposited with the Trustee, in
trust, for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest and Additional Interest on the outstanding notes on the
stated maturity or on the applicable redemption date, as the case may be,
and the Authority must specify whether the notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Authority shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
(a) the Authority has received from, or there has been published by,
the Internal Revenue Service a ruling; or
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(b) since the date of the 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 the outstanding notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Authority shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
outstanding notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Authority or any of
the Authority's Restricted Subsidiaries is a party or by which the Authority
or any of the Authority's Restricted Subsidiaries is bound;
(6) the Authority must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) the Authority shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Authority with the
intent of preferring the holders of notes over any other creditors of the
Authority or with the intent of defeating, hindering, delaying or defrauding
creditors of the Authority or others; and
(8) the Authority shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in this section, the Authority, the Tribe and the Trustee
may amend or supplement the Indenture and the notes with the consent of the
holders of at least a majority of the aggregate principal amount of the notes
then outstanding, provided that without the consent of each holder affected, an
amendment or waiver (with respect to any notes held by a non-consenting holder)
may not:
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other than
provisions relating to the provisions of the Indenture described above under
the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in aggregate
principal amount of the notes and a waiver of the payment default that
resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
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(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by the provisions in the Indenture described above under
the caption "--Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Without the consent of holders of at least 66 2/3% of the aggregate
principal amount of the notes then outstanding, the Authority may not amend,
alter or waive the provisions set forth in the section entitled "--Repurchase
at the Option of Holders--Change of Control." In addition, any waiver or
amendment to the provisions of Article 10 of the Indenture (which relates to
subordination) will require the consent of holders of at least 75% in aggregate
principal amount of notes then outstanding.
Notwithstanding the foregoing, without the consent of any holder of notes,
the Authority, the Tribe and the Trustee may amend or supplement the Indenture
or the notes to:
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated notes in addition to or in place of
certificated notes;
(3) provide for the assumption of the Authority's obligations to the
holders of the notes in the case of a merger or consolidation or sale of all
or substantially all of the Authority's assets;
(4) make any change that would provide any additional rights or benefits
to the holders of the notes or that does not adversely affect the legal
rights under the Indenture of such holder;
(5) comply with requirements of the SEC in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act; or
(6) allow any Subsidiary to execute a supplemental indenture relating to
a Subsidiary Guarantee and a Subsidiary Guarantee.
Concerning the Trustee
If the Trustee becomes a creditor of the Authority or any Guarantor, the
Indenture limits its right to obtain payment of claims, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
specific exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of the notes, unless such holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
Governing Law
The Indenture and the notes will be, subject to specific exceptions,
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to the conflicts of law principles thereof
(other than Section 5-1401 of the New York General Obligations Law).
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Book-Entry, Delivery and Form
The exchange notes will initially be issued in registered, global form in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof, held in book-entry form ("global notes"). The exchange notes will be
deposited with the Trustee as custodian for The Depository Trust Company
("DTC"), and DTC or its nominee will initially be the sole registered holder of
the exchange notes for all purposes under the Indenture. Except as shown below,
the global notes may be transferred, in whole and not in part, only to another
nominee of DTC or to a successor of DTC or its nominee.
The global notes will be deposited upon issuance with the Trustee as
custodian for the DTC, in New York, New York, and registered in the name of DTC
or its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Initially, the Trustee will act as Paying Agent and Registrar. The exchange
notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. The Authority takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised the Authority that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Authority that, pursuant to procedures established
by it, (1) upon deposit of the global notes, DTC will credit the accounts of
Participants with individual beneficial interests in such global notes
representing the respective portions of the principal amount of exchange notes
held by such Participant and (2) ownership of such interests in the global
notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or
by the Participants and the Indirect Participants (with respect to other owners
of beneficial interest in the global notes).
All interests in a global note may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a global note to such persons
will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a global note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of beneficial interest in the global notes
will not have exchange notes registered in their names, will not receive
physical delivery of exchange notes in certificated form
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and will not be considered the registered owners or "holders" thereof under the
Indenture for any purpose.
Payments in respect of the principal of, and premium, if any, Additional
Interest, if any, and interest on a global note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Authority and the
Trustee will treat the persons in whose names the exchange notes, including the
global notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Authority, the Trustee nor any agent of the Authority or the
Trustee has or will have any responsibility or liability for (1) any aspect of
DTC's records or any Participant's or Indirect Participant's records relating
to or payments made on account of beneficial ownership interests in the global
notes, or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the global notes or (2) any other matter relating to the
actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised the Authority that its current practice, upon
receipt of any payment in respect of securities such as the exchange notes
(including principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in the principal amount of beneficial interest in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of exchange
notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Trustee or the Authority. Neither
the Authority nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the exchange notes, and
the Authority and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Interest in the global notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its Participants. See "--Same
Day Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds.
DTC has advised the Authority that it will take any action permitted to be
taken by a holder of exchange notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the global
notes and only in respect of such portion of the aggregate principal amount of
the exchange notes as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default under the
exchange notes, DTC reserves the right to exchange the global notes for
legended exchange notes in certificated form, and to distribute such exchange
notes to its Participants.
Certificated Notes
In accordance with the Indenture, definitive exchange notes in registered
certificated form ("certificated notes") shall be issued in exchange for the
outstanding notes in the exchange offer, if requested by a holder of such
outstanding note or an owner of such beneficial interest. In addition,
beneficial interests in a global note may be exchanged for certificated notes
upon request but only upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. Also, certificated notes may be
issued if (1) DTC (i) notifies the Authority that it is unwilling or unable to
continue as depositary for the global notes and the Authority thereupon fails
to appoint a successor depositary or (ii) has ceased to be a clearing agency
registered under the Exchange Act, (2) the Authority, at its option, notifies
the Trustee in writing that it elects to cause the issuance of the certificated
notes or (3) there shall have occurred and be continuing a Default or Event of
Default with respect to the exchange notes. In all cases, certificated notes
delivered in exchange for any global note or
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beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
Same Day Settlement and Payment
The Indenture will require that payments in respect of the exchange notes
represented by the global notes (including principal, premium, if any, interest
and Additional Interest, if any) be made by wire transfer of immediately
available funds to the accounts specified by the global note holder. With
respect to exchange notes in certificated form, the Authority will make all
payments of principal, premium, if any, interest and Additional Interest, if
any, by wire transfer of immediately available funds to the accounts specified
by the holders thereof that holds at least $1.0 million in principal amount of
exchange notes or, if no such account is specified, by mailing a check to each
such holder's registered address. The notes represented by the global notes are
expected to trade in DTC's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. The Authority expects that
secondary trading in any certificated notes will also be settled in immediately
available funds.
Exchange Offer; Registration Rights
The Authority and the initial purchasers entered into the Registration
Rights Agreement. The following is a summary of the material provisions of the
Registration Rights Agreement. Reference is made to the Registration Rights
Agreement for any capitalized terms used in this section for which no
definition is provided.
Pursuant to the Registration Rights Agreement, the Authority agreed to file
with the SEC the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the exchange notes. Upon the
effectiveness of the Exchange Offer Registration Statement and pursuant to the
exchange offer, the Authority will offer to the holders of Transfer Restricted
Securities, who are able to make the required representations, the opportunity
to exchange their Transfer Restricted Securities for exchange notes. If:
(1) the Authority is not permitted to consummate the exchange offer
because the exchange offer is not permitted by applicable law or SEC policy
or
(2) any holder of Transfer Restricted Securities notifies the Authority
prior to the 20th business day following consummation of the exchange offer
that:
(a) it is prohibited by law or SEC policy from participating in the
exchange offer or
(b) it may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus, and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or
(c) it is a broker-dealer and owns outstanding notes acquired
directly from the Authority or an affiliate of the Authority,
then the Authority will file with the SEC a Shelf Registration Statement to
cover resales of the outstanding notes or exchange notes, as the case may be,
by the holders thereof who satisfy specific conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Authority will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the SEC.
For purposes of the foregoing, "Transfer Restricted Securities" means each
outstanding note or exchange notes until:
(1) the date on which such outstanding note has been exchanged by a
person other than a broker-dealer for an exchange note in the exchange offer,
(2) following the exchange by a broker-dealer in the exchange offer of an
outstanding note for an exchange note, the date on which such exchange note
is sold to a purchaser who receives from such broker-
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dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement,
(3) the date on which such outstanding note or exchange notes, as the
case may be, has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or
(4) the date on which such outstanding note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that:
(1) the Authority will file an Exchange Offer Registration Statement
with the SEC on or prior to 90 days after the Closing Date,
(2) the Authority will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the SEC on or prior
to 150 days after the Closing Date,
(3) unless the exchange offer would not be permitted by applicable
law or SEC policy, the Authority will commence the exchange offer and
use its best efforts to issue, on or prior to 30 business days after the
date on which the Exchange Offer Registration Statement was declared
effective by the SEC, the exchange notes in exchange for all outstanding
notes tendered prior thereto in the exchange offer, and
(4) if obligated to file the Shelf Registration Statement, the
Authority will use its best efforts to file the Shelf Registration
Statement with the SEC on or prior to 30 days after such filing
obligation arises and to cause the Shelf Registration to be declared
effective by the SEC on or prior to 90 days after such obligation arises.
If:
(a) the Authority fails to file the Registration Statement required by
the Registration Rights Agreement on or before the date specified for such
filing,
(b) such Registration Statement is not declared effective by the SEC on
or prior to the date specified for such effectiveness (the "Effectiveness
Target Date"),
(c) the Authority fails to consummate the exchange offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or
(d) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted Securities during
the periods specified in the Registration Rights Agreement without being
cured within seven days (each such event referred to in clauses (a) through
(d) above a "Registration Default"),
then the Authority will pay Additional Interest to each holder of outstanding
notes or exchange notes, as the case may be, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default
in an amount equal to 25 basis points per 90-day period of the principal amount
of outstanding notes or exchange notes held by such holder. The amount of the
Additional Interest will increase by an additional 25 basis points with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Additional Interest of 1% per annum of the
principal amount of outstanding notes or exchange notes. All accrued Additional
Interest will be paid by the Authority on each date on which the payment of
Additional Interest is due (which date shall be the next Interest Payment Date
as provided in the outstanding notes or exchange notes) to the global note
holder by wire transfer of immediately available funds or by federal funds
check and to holders of certificated securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses
if no such accounts have been specified. Following the cure of all Registration
Defaults, the accrual of Additional Interest will cease.
119
Holders of outstanding notes may be required to make specific
representations to the Authority (as described in the Registration Rights
Agreement) in order to participate in the exchange offer, and holders of either
outstanding notes or exchange notes, as the case may be, will be required to
deliver information to be used in connection with the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have their outstanding notes or exchange notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Additional Interest set forth above.
Definitions
Set forth below are some defined terms used in the Indenture. Reference is
made to the Indenture for all of such terms, as well as any other capitalized
terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Additional Interest" has the meaning set forth in the notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback) other
than sales of inventory in the ordinary course of business consistent with
past practices; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Authority and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Repurchase
at the Option of Holders--Change of Control" and not by the provisions
described above under "--Repurchase at the Option of Holders--Asset Sales;"
and
(2) the issuance by the Authority or any of its Restricted Subsidiaries
of Equity Interests of any of the Authority's or its Restricted
Subsidiaries' Restricted Subsidiaries or the sale by the Authority or any of
its Subsidiaries of any Equity Interests in any of their respective
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1.0 million; or (b)
results in net proceeds to the Authority and its Restricted Subsidiaries of
less than $1.0 million;
(2) a transfer of assets between or among the Authority and its Wholly
Owned Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Authority or to another Wholly Owned Restricted Subsidiary;
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(4) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Covenants--Restricted
Payments;"
(5) any Event of Loss; and
(6) any lease or sublease permitted under the covenant described under
the caption entitled "--Covenants--Restrictions on Leasing and Dedication of
Property."
The Authority is prohibited from making an Asset Sale of Key Project Assets.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended (or may, at the option of the lessor, be extended). Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Authority" means the Mohegan Tribal Gaming Authority together with any
subdivision, agency or subunit that has no separate legal existence from the
Mohegan Tribal Gaming Authority, and any successor and assignee thereto.
"Bank Credit Facility" means that certain Loan Agreement, dated as of March
3, 1999, as amended by and among the Authority, the Tribe, the lenders there
under and Bank of America, N.A. as Administrative Agent and the Documentation
Agent and Syndication Agent referred to therein, including any related notes,
guarantees, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"BIA" means the Bureau of Indian Affairs.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person; but excluding any interest under the
Relinquishment Agreement.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than six months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank
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deposits, in each case with any lender party to the Credit Facilities or
with any domestic commercial bank having capital and surplus in excess of
$500.0 million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group and
in each case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the Authority ceases to be a wholly-owned unit, instrumentality or
subdivision of the government of the Tribe;
(2) the Authority ceases to have the exclusive legal right to operate the
Resort;
(3) the Authority fails to retain in full force and effect at all times
all material governmental consents, permits or legal rights necessary for
the operation of the Resort and such failure continues for a period of 90
consecutive days; or
(4) the Authority sells, assigns, transfers, leases, conveys or otherwise
disposes of all or substantially all of its assets to, or consolidates or
merges with or into any other Person.
"Compact" means the tribal-state Compact entered into between the Tribe and
the State of Connecticut pursuant to the Indian Gaming Regulatory Act of 1988,
PL 100-497, 25 U.S.C. 2701 et seq. as the same may, from time to time, be
amended, or such other Compact as may be substituted therefor.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss (including, without
limitation, any non-cash charges or losses arising from adjustments relating
to the Relinquishment Agreement) plus any net loss realized in connection
with an Asset Sale, to the extent such losses were deducted in computing
such Consolidated Net Income; plus
(2) provision for taxes based on the income or profits of such Person and
its Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of debt issuance costs and original issue discount, non cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if
any, pursuant to Hedging and Swap Obligations), but excluding interest
expense on the Junior Subordinated Notes, to the extent that any such
expense was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period), non-cash charges associated with equity option
plans and other non-cash expenses (excluding any such non-cash expense to
the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash
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expense that was paid in a prior period) of such Person and its Subsidiaries
for such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income;
minus
(5) non-cash items increasing such Consolidated Net Income for such
period (including, without limitation, any non-cash items arising from
adjustments relating to the Relinquishment Agreement); minus
(6) to the extent not included in computing such Consolidated Net Income,
any revenues received or accrued by the Authority or any of its Subsidiaries
from any Person (other than the Authority or any of its Subsidiaries) in
respect of any Investment for such period,
all determined on a consolidated basis and in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that the Net Income of such Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to such Person by
such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to
that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash
to the specified Person or a Wholly Owned Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) the Net Income shall be reduced by the amount of payments pursuant to
the Relinquishment Agreement, paid or payable, for such period based on five
percent of the revenues (as defined in the Relinquishment Agreement)
generated in such period.
"Construction Reserve Disbursement Agreement" means that certain agreement,
dated the date of the Indenture, among the Authority, the Tribe and Fleet
National Bank, as escrow agent, regarding the disbursement of a $40.0 million
reserve account to pay certain costs in excess of the construction budget.
"Consumer Price Index" means The Consumer Price Index for All Urban
Consumers (CPI-U) for the U.S. City Average for All Items, 1982-1984=100 as
compiled and released by the Bureau of Labor Statistics.
"Credit Facilities" means, with respect to the Authority or any Restricted
Subsidiary, one or more debt facilities (including, without limitation, the
Bank Credit Facility) or commercial paper facilities with banks or
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other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Facilities outstanding on the
date on which the notes are first issued and authenticated under the Indenture
shall be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the covenant described under the caption entitled
"--Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means Indebtedness under the Bank Credit
Facility and any other Indebtedness permitted under the Indenture the principal
amount of which is $20.0 million or more and that has been designated by the
Authority as "Designated Senior Indebtedness."
"Development Services Agreement" means that certain Development Services
Agreement dated February 7, 1998 among the Authority, the Tribe and TCA.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is after the date on which the
notes mature; provided, however, that any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
the Authority to repurchase such Capital Stock upon the occurrence of a Change
of Control or an Asset Sale shall not constitute Disqualified Stock if the
terms of such Capital Stock provide that the Authority may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under the
caption "--Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any property or asset (tangible or
intangible, real or personal), any of the following:
(1) any loss, destruction or damage of such property or asset;
(2) any institution of any proceedings for the condemnation or seizure of
such property or asset or for the exercise of any right of eminent domain;
(3) any actual condemnation, seizure or taking by exercise of the power
of eminent domain or otherwise of such property or asset, or confiscation of
such property or asset or the requisition of the use of such property or
asset; or
(4) any settlement in lieu of clause (2) or (3) above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means up to $650.0 million in aggregate original
principal amount of Indebtedness of the Authority (other than Indebtedness
under the Bank Credit Facility) in existence on the date of the Indenture,
until such amounts are repaid.
"Existing Senior Subordinated Notes" means the Authority's 8 3/4% Senior
Subordinated Notes due 2009 and 8 3/8% Senior Subordinated Notes due 2011.
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"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
guarantees, repays or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if
any, pursuant to Hedging and Swap Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such guarantee or Lien is called upon; plus
(4) the product of (a) all cash dividend payments or other distributions
(and non-cash dividend payments in the case of a Person that is a Restricted
Subsidiary) on any series of preferred equity of such Person, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate
of such Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board ("FASB") or in such other statements
by such other entity as have been approved by a significant segment of the
accounting profession which are in effect on the date of the Indenture.
"Gaming" means any and all activities defined as Class II or Class III
Gaming under IGRA or authorized under the Compact.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct gaming activities of the
Tribe or the Authority, including, without limitation, all such licenses
granted under the Tribal Gaming Ordinance, and the regulations promulgated
pursuant thereto, and other applicable federal, state, foreign or local laws.
"Gaming Regulatory Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision, whether now or hereafter existing, or any officer
or official thereof, including, without limitation, any division of the
Authority or any other agency with authority to regulate any gaming operation
(or proposed gaming operation) owned, managed or operated by the Tribe or the
Authority.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and for the payment of which the
United States pledges its full faith and credit.
"Government Service Payments" means (1) an annual payment to the Tribe by
the Authority in the amount of $14.0 million (as of March 1999), which amount
has been and shall be adjusted annually on the last day of each calendar year
commencing with the year 2000 by the Consumer Price Index as published for the
applicable year and (2) amounts equal to those reflected on each annual audited
income statement of the Authority as prepared in accordance with GAAP relating
to payment for governmental services (including charges for utilities, police
and fire department services, health and emergency medical services, the pro
rata portion of Tribal Council costs and salaries attributable to the
operations of the Authority, and similar pro rata costs of other tribal
departments, in each case, to the extent that the costs of such departments are
attributable to the operations of the Authority) by the Authority to the Tribe
or any of its representatives, political subunits, councils, agencies or
instrumentalities.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging and Swap Obligations" means, with respect to any Person:
(1) the obligations of such Person under interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements; and
(2) the obligations of such Person under other agreements or arrangements
relating to, or the value of which is dependent upon, interest rates or
currency exchange rates or indices.
"IGRA" means the Indian Gaming Regulatory Act of 1988, PL 100-497, U.S.C.
2701 et seq. as same may, from time to time, be amended.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
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(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) any Hedging and Swap Obligations,
if and to the extent any of the preceding items (other than letters of
credit and Hedging and Swap Obligations) would appear as a liability upon a
balance sheet of the specified Person prepared in accordance with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured
by a Lien on any asset of the specified Person (whether or not such
Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the guarantee by such Person of any Indebtedness of any
other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Authority or any Subsidiary of the Authority sells or otherwise disposes
of any Equity Interests of any direct or indirect Subsidiary of the Authority
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Authority, the Authority shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Covenants--Restricted Payments."
"Junior Subordinated Notes" means the $90.0 million in aggregate original
principal amount (plus any accrued and unpaid interest) of junior subordinated
notes of the Authority, all of which were redeemed on January 1, 2000.
"Key Project Assets" means:
(1) the Lease and any real property or interest in real property
comprising the Resort held in trust for the Tribe by the United States;
(2) any improvements (including, without limitation, the Resort) to the
leasehold estate under the Lease or such real property comprising the Resort
(but excluding any obsolete personal property or real property improvements
determined by the Authority to be no longer useful to the operations of the
Resort); and
(3) any business records of the Authority or the Tribe relating to the
operation of the Resort.
"Lease" means the Land Lease between the Tribe and the Authority dated
September 29, 1995, as the same may be amended in accordance with the terms
thereof and of the Indenture.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Board" means the Management Board of the Authority or any
authorized committee of the Management Board of the Authority, as applicable.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of dividends on preferred interests,
excluding, however:
(1) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with (A) any Asset Sale
(including, without limitation, dispositions pursuant to sale leaseback
transactions) or (B) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain or loss, together with any
related provision for taxes on such extraordinary or nonrecurring gain or
loss; less
(3) in the case of any Person that is a partnership or a limited
liability company, the amount of withholding for tax purposes of such Person
for such period.
"Net Proceeds" means the aggregate cash proceeds received by the Authority
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale including, without limitation, legal, accounting
and investment banking fees, and sales commissions and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, in
each case after taking into account any available tax credits or deductions and
any tax sharing arrangements and amounts required to be applied to the
repayment of Indebtedness (other than, in the case of the notes only, the
repayment of Senior Indebtedness), secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"NIGC" means the National Indian Gaming Commission.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Authority nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness) or
(b) is directly or indirectly liable (as a guarantor or otherwise);
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Authority or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity;
and
(3) as to which such Indebtedness specifies that the lenders thereunder
will not have any recourse to the stock or assets of the Authority or any of
its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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"Ownership Interest" means, with respect to any Person, Capital Stock of
such Person or any interest which carries the right to elect or appoint any
members of the Management Board or the Board of Directors or other executive
office of such Person.
"Permitted Asset Swap" means the exchange by the Authority or any Restricted
Subsidiary of any assets for other assets from a Person; provided that, the
assets received in such exchange are believed by the Authority in good faith to
be of substantially equivalent value and substantially all of which are either
(i) long term assets that are used or useful in the Principal Business, (ii)
cash or (iii) any combination of the foregoing clauses (i) and (ii).
"Permitted Investments" means:
(1) any Investment in the Authority or in a Restricted Subsidiary of the
Authority that is engaged in a Principal Business or a Related Business;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by the Authority or any Restricted Subsidiary of the
Authority in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Authority and a Subsidiary Guarantor,
and is engaged in a Principal Business or a Related Business or (b) is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Authority or
a Restricted Subsidiary of the Authority;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the provision of the Indenture described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;"
(5) any Investment in any Person engaged in the Principal Business or a
Related Business having an aggregate fair market value (as determined in
good faith by the Management Board and measured as of the date of such
Investment, without giving effect to any subsequent increases or decreases
in value) not to exceed $25.0 million at any one time outstanding;
(6) Government Service Payments;
(7) payroll advances to employees of the Authority or its Restricted
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount not to exceed $250,000 at
any one time outstanding;
(8) accounts and notes receivable if created or acquired in the ordinary
course of business and which are payable or dischargeable in accordance with
customary trade terms; and
(9) Investments related to Hedging and Swap Obligations, so long as such
Hedging and Swap Obligations are not used for speculative purposes.
"Permitted Junior Securities" means Equity Interests in the Authority or any
Subsidiary Guarantor debt securities that are subordinated to all Senior
Indebtedness (and any debt securities issued in exchange for Senior
Indebtedness) to substantially the same extent as, or to a greater extent than,
the notes are subordinated to Senior Indebtedness pursuant to the Indenture.
"Permitted Liens" means:
(1) Liens securing Indebtedness that was permitted by the terms of the
Indenture to be incurred under clauses (1), (2), (4), (5), (6), (7) (to the
extent that the Indebtedness so guaranteed is permitted to be secured by the
Indenture) and (9) of the second paragraph of the covenant described under
the caption entitled "--Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock;"
(2) Liens in favor of the Authority or a Restricted Subsidiary;
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(3) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
(including, without limitation, pledges or deposits made in connection with
obligatory workers' compensation laws, unemployment insurance or similar
laws) incurred in the ordinary course of business;
(4) Liens existing on the date of the Indenture;
(5) Liens arising as a result of survey exceptions, title defects,
encumbrances, easements, reservations of, or rights of others for, rights of
way, sewers, electric lines, telegraph and telephone lines and other similar
purposes or zoning or other restrictions as to the use of real property not
interfering with the ordinary conduct of the business of the Authority or
any of its Restricted Subsidiaries;
(6) Liens arising by operation of law in favor of carriers, warehousemen,
landlords, mechanics, materialmen, laborers, employees or suppliers,
incurred in the ordinary course of business for sums which are not yet
delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof;
(7) Liens incurred as a result of any interest or title of a lessor or
lessee under any lease of property (including any Lien granted by such
lessor or lessee but excluding any Lien arising in respect of a Financing
Lease);
(8) Liens in favor of the Tribe representing the ground lessor's interest
under the Lease;
(9) Liens on property existing at the time or acquisition thereof by the
Authority or a Restricted Subsidiary; provided that such Liens were in
existence prior to the contemplation of such acquisition;
(10) Liens for taxes, assessments or governmental charges, claims or
rights that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(11) Liens incurred in the ordinary course of business of the Authority
or a Restricted Subsidiary with respect to obligations that do not exceed
$500,000 at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property
and materially impair the use thereof in the operation of business by the
Authority; provided however, it is acknowledged that Permitted Liens will
not include any Lien on the land held in trust for the Tribe by the United
States or any real property interest therein, including the buildings,
improvements and fixtures, other than the leasehold interest pursuant to the
Lease, or which will give the holder thereof a proprietary interest in any
gaming activity as prohibited by Section 11(b)(2)(A) of IGRA; and
(12) Liens created by or resulting from any legal proceeding with respect
to which the Authority or a Restricted Subsidiary is prosecuting an appeal
proceeding for review and the Authority or such Restricted Subsidiary is
maintaining adequate reserves in connection with GAAP.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Authority
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Authority or any of its Restricted
Subsidiaries; provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of prepayment premiums and reasonable expenses
incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
130
provided that if the original maturity date of such Indebtedness is after
the Stated Maturity of the notes, then such Permitted Refinancing
Indebtedness shall have a maturity at least 180 days after the notes;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to,
the notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Authority or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Principal Business" means the Class II and Class III casino Gaming (as such
terms are defined in IGRA) and resort business and any activity or business
incidental, directly related or similar thereto, or any business or activity
that is a reasonable extension, development or expansion thereof or ancillary
thereto, including any hotel, entertainment, recreation or other activity or
business designed to promote, market, support, develop, construct or enhance
the casino gaming and resort business operated by the Authority.
"Project Sunburst" means the project to expand the existing Mohegan Sun
casino as more fully described in this prospectus.
"Related Business" means any business related to the Principal Business.
"Relinquishment Agreement" means the Relinquishment Agreement dated February
7, 1998 between the Authority and TCA.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Indebtedness.
"Resort" means the multi-amenity gaming and entertainment resort located on
the existing reservation of the Tribe located adjacent to Uncasville,
Connecticut and the convention center, retail facilities, arena, hotel and
improvements constructed or proposed to be constructed adjacent thereto, as
described in this prospectus, but excluding (i) any obsolete personal property
or real property improvement determined by the Authority to be no longer useful
or necessary to the operations or support of the Resort and (ii) any equipment
leased from a third party in the ordinary course of business.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means:
(1) all Indebtedness outstanding under the Credit Facilities and all
Hedging and Swap Obligations with respect thereto including, without
limitation, all principal, interest, fees and other amounts payable with
respect thereto, including any interest which accrues following any
bankruptcy or insolvency of the Authority, the Tribe or any Subsidiary
Guarantor;
131
(2) the Senior Notes;
(3) any other Indebtedness permitted to be incurred by the Authority
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the notes;
(4) all Obligations with respect to the foregoing; and
(5) at any time the Senior Relinquishment Payments (as defined in the
Relinquishment Agreement) to the extent then due and owing pursuant to the
terms of the Relinquishment Agreement at such time.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include:
(1) any Indebtedness of the Authority to any of its Restricted
Subsidiaries or other Affiliates; or
(2) any Indebtedness that is incurred in violation of the Indenture.
"Senior Notes" means the Authority's 8 1/8% Senior Notes due 2006.
"Significant Subsidiary" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such regulation is in effect on the date of
the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid including as a result of any
mandatory sinking fund payment or mandatory redemption in the documentation
governing such Indebtedness in effect on the date hereof or, if such
Indebtedness is incurred after the date of the Indenture, in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness that by its terms is
expressly subordinated in right of payment in any respect to the payment of any
obligation on the notes.
"Subsidiary" means:
(1) any instrumentality or subdivision or subunit of the Authority that
has a separate legal existence or status or whose property and assets would
not otherwise be bound to the terms of the Indenture; or
(2) with respect to any Person, any corporation, association or other
business entity of which more than 50% of the total voting power of the
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a
combination thereof. The Tribe and any other instrumentality of the Tribe
that is not also an instrumentality of the Authority shall not be a
Subsidiary of the Authority.
"Subsidiary Guarantee" means the joint and several guarantee by the
Authority's Subsidiaries of the Authority's obligations under the notes, in
substantially the form of such Subsidiary Guarantee attached as Exhibit D to
the Indenture.
"Subsidiary Guarantor" means any Subsidiary of the Authority that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture.
"TCA" means Trading Cove Associates.
"Tribal Council" means the Tribe's nine member elected council which
exercises all the legislative and executive powers of the Tribe.
132
"Tribal Gaming Ordinance" means the ordinance and any amendments thereto,
and all related or implementing ordinances, including, without limitation, the
Gaming Authority Ordinance, enacted on July 15, 1995 which are enacted by the
Tribe or authorize and regulate gaming on the existing reservation of the Tribe
located adjacent to Uncasville, Connecticut pursuant to IGRA.
"Tribal Tax Code" means any sales, use, room occupancy and related excise
taxes, including admissions and cabaret taxes and any other tax (other than
income tax) that may be imposed by the State of Connecticut that the Tribe may
impose on the Authority, its patrons or operations; provided, however, that the
rate and scope of such taxes shall not be more onerous than those imposed by
the State of Connecticut.
"Tribe" means the Mohegan Tribe of Indians of Connecticut, a sovereign tribe
recognized by the United States of America pursuant to 25 C.F.R. (S)83.
"Unrestricted Subsidiary" means any Subsidiary that is designated in writing
by the Authority as an Unrestricted Subsidiary, but only to the extent that
such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with the Authority or any Restricted Subsidiary of the Authority unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Authority or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of
the Authority;
(3) is a Person with respect to which neither the Authority nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Authority or any of its
Restricted Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of the Authority or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of the Authority or any of its Restricted Subsidiaries.
Any such designation by the Management Board shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by
the covenant described above under the caption "--Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Authority as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "--Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," the Authority shall be in default of such covenant). The Authority may
at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Authority of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "--Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Management
Board or Board of Directors, as the case may be, of such Person.
133
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
134
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 resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired as a result of market-making
activities or other trading activities. The Authority has agreed that, starting
on the expiration date and ending on the close of business on the first
anniversary of the expiration date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Authority will not receive any proceeds from any sale of exchange notes
by broker-dealers. Exchange notes received by broker-dealers for their own
accounts 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. 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 of any such resale of exchange notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after the expiration date, the Authority will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal or in an electronic message through DTC's ATOP.
The Authority has agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the outstanding
notes), other than commissions or concessions of any brokers or dealers, and
will indemnify the holders of the outstanding notes (including any
broker-dealers) against specific types of liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
Certain legal matters with regard to the validity of the exchange notes will
be passed upon for the Authority by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The financial statements and schedules of the Authority as of September 30,
2001 and 2000, and for each of the years in the three-year period ended
September 30, 2001, appearing in this prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm, as experts in
accounting and auditing in giving said reports.
135
WHERE YOU CAN GET MORE INFORMATION
The Authority has filed with the SEC a Registration Statement on Form S-4
(Reg. No. 333-84984) with respect to the exchange notes it is offering of which
this prospectus forms a part. This prospectus does not contain all the
information contained in the Registration Statement, including exhibits and
schedules. You should refer to the Registration Statement, including the
exhibits and schedules, for further information about the Authority and the
exchange notes it is offering. The Registration Statement, including exhibits
and schedules, is on file at the offices of the SEC and may be inspected
without charge.
In addition, the Authority files reports, statements and other information
with the SEC. You may read and copy any of these documents at the following
public reference facility maintained by the SEC:
Public Reference
Room Room
1024 Judiciary
Plaza 450 Fifth
Street, NW
Washington, DC 20549
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms.
The Authority's SEC filings are also available to the public on the SEC's
Web Site at http://www.sec.gov.
136
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants................................................. F-2
Financial Statements
Balance Sheets as of September 30, 2001 and 2000...................................... F-3
Statements of Income (Loss) for the Years Ended September 30, 2001, 2000 and 1999..... F-4
Statements of Capital for the Years Ended September 30, 2001, 2000 and 1999........... F-5
Statements of Cash Flows for the Years Ended September 30, 2001, 2000 and 1999........ F-6
Notes to Financial Statements......................................................... F-7
Unaudited Financial Statements
Balance Sheets as of March 31, 2002 (unaudited) and September 30, 2001................ F-21
Statements of Income for the Quarters and Six Months Ended March 31, 2002 and
March 31, 2001 (unaudited).......................................................... F-22
Statements of Capital for the Six Months Ended March 31, 2002 and 2001 (unaudited).... F-23
Statements of Cash Flows for the Six Months Ended March 31, 2002 and 2001 (unaudited). F-24
Notes to Financial Statements......................................................... F-25
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Mohegan Tribal Gaming Authority:
We have audited the accompanying balance sheets of the Mohegan Tribal Gaming
Authority (the Authority) as of September 30, 2001 and 2000 and the related
statements of income (loss), capital and cash flows for the each of the three
years in the period ended September 30, 2001. These financial statements are
the responsibility of the Authority's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 aspects, the financial position of the Mohegan Tribal Gaming
Authority as of September 30, 2001 and 2000, and the results of its operations
and its cash flows for the each of the three years in the period ended
September 30, 2001, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
December 14, 2001
F-2
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
(in thousands)
September 30, September 30,
2001 2000
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 74,284 $ 115,731
Receivables, net.......................................... 7,163 6,337
Due from Tribe............................................ -- 1,648
Inventories............................................... 11,455 7,577
Other current assets...................................... 12,706 4,478
---------- ----------
Total current assets................................... 105,608 135,771
Non-current assets:
Property and equipment, net............................... 935,016 338,243
Construction in process................................... 267,653 264,999
Trademark, net............................................ 119,692 123,128
Other assets, net......................................... 24,766 23,238
---------- ----------
Total assets........................................... $1,452,735 $ 885,379
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Current portion of capital lease obligations.............. $ 1,514 $ 4,055
Current portion of relinquishment liability............... 68,272 56,646
Accounts payable and accrued expenses..................... 73,548 45,811
Construction accounts payable............................. 65,768 11,790
Accrued interest payable.................................. 13,062 10,625
---------- ----------
Total current liabilities.............................. 222,164 128,927
Non-current liabilities:
Long-term debt............................................ 908,000 500,000
Relinquishment liability, net of current portion.......... 523,736 616,234
Other long-term liabilities............................... 5,232 --
Capital lease obligations, net of current portion......... -- 2,336
---------- ----------
Total liabilities...................................... 1,659,132 1,247,497
---------- ----------
Commitments and contingencies (Note 12)
Capital:
Retained Deficit.......................................... (201,270) (362,118)
Accumulated other comprehensive loss...................... (5,127) --
---------- ----------
Total capital.......................................... (206,397) (362,118)
---------- ----------
Total liabilities and capital.......................... $1,452,735 $ 885,379
========== ==========
The accompanying notes are an integral part of these financial statements
F-3
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF INCOME (LOSS)
(in thousands)
For the Years Ended
----------------------------------------
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Revenues:
Gaming........................................ $750,988 $709,627 $641,117
Food and beverage............................. 49,508 47,316 47,907
Retail and other.............................. 57,481 52,371 36,486
-------- -------- --------
Gross revenues............................ 857,977 809,314 725,510
Less--Promotional allowances.................. (71,372) (70,044) (56,827)
-------- -------- --------
Net revenues................................... 786,605 739,270 668,683
-------- -------- --------
Cost and expenses:
Gaming........................................ 334,537 307,202 273,488
Food and beverage............................. 24,447 23,745 22,218
Retail and other.............................. 32,114 27,142 22,583
General and administration.................... 139,343 127,226 110,919
Pre-opening costs............................. 31,344 5,278 --
Management fee................................ -- 13,634 59,532
Depreciation and amortization................. 34,753 30,739 23,397
Relinquishment liability reassessment......... (74,410) 8,790 89,871
-------- -------- --------
Total costs and expenses.................. 522,128 543,756 602,008
-------- -------- --------
Income from operations......................... 264,477 195,514 66,675
-------- -------- --------
Other income (expense):
Accretion of relinquishment liability discount (35,833) (23,053) (22,014)
Interest and other income..................... 2,920 13,469 11,254
Interest expense, net......................... (25,060) (37,799) (55,595)
Other expense................................. (116) (1,523) --
Change in fair value of derivative instruments (949) -- --
-------- -------- --------
(59,038) (48,906) (66,355)
-------- -------- --------
Income from continuing operations.............. 205,439 146,608 320
Loss from discontinued operations.............. (591) (674) (812)
-------- -------- --------
Income (loss) before extraordinary items....... 204,848 145,934 (492)
Extraordinary items............................ -- -- (38,428)
-------- -------- --------
Net income(loss)............................... $204,848 $145,934 $(38,920)
======== ======== ========
The accompanying notes are an integral part of these financial statements
F-4
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CAPITAL
(in thousands)
For the Fiscal Years Ended
-------------------------------------------------------
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
Beginning Balance................... $(362,118) $(458,052) $(377,874)
Net income (loss)................... 204,848 145,934 (38,920)
Accumulated other comprehensive loss (5,127) -- --
Capital contributions by Tribe...... -- -- 97,096
Distributions to Tribe.............. (44,000) (50,000) (138,354)
--------- --------- ---------
Ending balance...................... $(206,397) $(362,118) $(458,052)
========= ========= =========
The accompanying notes are an integral part of these financial statements
F-5
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
-------------------------------------------------------
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
Cash flows provided by operating activities:
Net income (loss)...................................... $ 204,848 $ 145,934 $ (38,920)
Adjustments to reconcile net income (loss) to
net cash flow provided by operating activities:
Depreciation and amortization....................... 34,753 30,739 23,397
Accretion of relinquishment liability discount...... 35,833 23,053 22,014
Reassessment of relinquishment liability............ (74,410) 8,790 89,871
Cash paid for accretion of relinquishment liability
discount.......................................... (32,637) (11,527) --
Change in fair value of derivative instruments...... 949 -- --
Loss on asset disposal.............................. 116 1,705 453
Provision for losses on receivables................. 411 617 679
Loss on early extinguishment of debt................ -- -- 33,217
Write-off of financing fees......................... -- -- 5,211
Changes in operating assets and liabilities:
(Increase) decrease in current assets............... (11,695) (6,150) 759
Increase in other assets............................ (5,894) (2,390) (6,000)
Increase in current liabilities..................... 30,173 4,074 14,043
Increase in other liabilities....................... 5,232 -- --
--------- --------- ---------
Net cash flows provided by operating activities..... 187,679 194,845 144,724
--------- --------- ---------
Cash flows used in investing activities:
Purchase of property and equipment..................... (623,696) (75,310) (17,772)
Decrease (increase) in construction in process, net of
change in construction accounts payable of $53,978,
$11,790 and $0, respectively......................... 51,324 (201,178) (45,023)
Proceeds from asset sale............................... 95 -- --
--------- --------- ---------
Net cash flows used in investing activities......... (572,277) (276,488) (62,795)
--------- --------- ---------
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of long-term debt............... 498,000 -- 500,000
Credit Facility payments............................... (90,000) -- --
Distributions to Tribe................................. (44,000) (50,000) (138,354)
Principal portion of relinquishment payments........... (9,658) (8,446) --
Capitalized financing fees............................. (6,314) (3,034) (20,309)
Payments on capital lease obligations.................. (4,877) (12,907) (11,148)
Defeasance liability................................... -- (140,344) --
Defeasance trust asset................................. -- 135,507 (135,507)
Extinguishment of Senior Secured Notes................. -- -- (208,717)
Capital contribution by Tribe.......................... -- -- 97,096
Proceeds from equipment financing...................... -- -- 878
--------- --------- ---------
Net cash flows provided by (used in) financing
activities........................................ 343,151 (79,224) 83,939
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents....................................... (41,447) (160,867) 165,868
Cash and cash equivalents at beginning of period....... 115,731 276,598 110,730
--------- --------- ---------
Cash and cash equivalents at end of period............. $ 74,284 $ 115,731 $ 276,598
========= ========= =========
Supplemental disclosures:
Cash paid during the period for interest............ $ 50,031 $ 43,558 $ 44,981
The accompanying notes are an integral part of these financial statements
F-6
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
The Tribe established the Authority in July 1995 with the exclusive power to
conduct and regulate gaming activities for the Tribe. The Authority is governed
by a nine-member Management Board, consisting of the same nine members as those
of the Tribal Council (the governing body of the Tribe). Any change in the
composition of the Tribal Council results in a corresponding change in the
Authority's Management Board. The General Manager and other senior officers of
Mohegan Sun are hired by the Management Board. The General Manager and other
senior officers are employees of the Authority.
NOTE 2--DISCONTINUED OPERATIONS
On November 29, 2000, the Authority discontinued bingo operations in order
to build the Hall of the Lost Tribes, a smoke-free slot machine venue. Pursuant
to Accounting Principles Board Opinion No. 30 "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB 30"), the financial statements of the Authority have been restated to
reflect the disposition of bingo operations as discontinued operations.
Accordingly, the revenues, costs and expenses have been excluded from the
captions in the Statements of Income (Loss) and have been reported as "Loss
from discontinued operations." The loss for fiscal 2001 relates to severance
pay and disposal of bingo inventory.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Authority classifies as cash and cash equivalents all highly liquid
investments with a maturity of three months or less when purchased. Cash
equivalents are carried at cost, which approximates market value.
Inventories
Inventories are stated at weighted average cost.
Due from Tribe
Due from Tribe represents amounts paid by the Authority on behalf of the
Tribe for certain public safety facility projects that were reimbursed by the
Tribe subsequent to the fiscal year ended September 30, 2000.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line basis. Useful life
estimates of asset categories are as follows:
Buildings and land improvements.................. 40 years
Furniture and equipment.......................... 3-7 years
The costs of significant improvements are capitalized. Costs of normal
repairs and maintenance are charged to expense as incurred. Gains or losses on
disposition of property and equipment are included in the determination of
income. Interest incurred for the construction of Project Sunburst is
capitalized at the Authority's weighted-average borrowing rate and amortized
over the life of the related asset. Interest capitalized for the years ended
September 30, 2001, 2000 and 1999 were $27.4 million, $9.9 million and
$534,000, respectively.
F-7
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The carrying value of the Authority's assets are reviewed when event or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has occurred based
on current and future levels of income and expected future cash flows as well
as other factors, then an impairment loss is recognized in the Statement of
Income (loss). The Authority believes no such impairment exists at September
30, 2001.
Fair Value of Financial Instruments
The fair value amounts presented below are reported to satisfy the
disclosure requirements of Statement of Financial Accounting Standards No. 107
("SFAS No. 107"), "Disclosures about Fair Values of Financial Instruments" and
are not necessarily indicative of the amounts that the Authority could realize
in a current market exchange.
The carrying amount of cash and cash equivalents, receivables, accounts
payable and accrued expenses, financing facilities and capital lease
obligations approximate fair value.
The fair value of the Authority's financing facilities is as follows:
September 30, 2001 September 30, 2000
------------------ ------------------
$200M Senior Notes............. $200.0 million $196.0 million
$300M Senior Subordinated Notes $303.0 million $294.0 million
$150M Senior Subordinated Notes $152.3 million --
The estimated fair value of the Authority's financing facilities was based
on quoted market prices on or about September 30, 2001.
Casino Revenues and Promotional Allowances
The Authority recognizes casino revenue as gaming wins less gaming losses.
Revenues from food and beverage, retail and special events are recognized at
the time the service is performed.
The retail value of food and beverage sales and other services furnished to
casino guests, mainly through the use of the Mohegan Sun complimentary program,
is included in gross revenues and then deducted as promotional allowances to
arrive at net revenues.
The estimated retail value of providing such promotional allowances was
included in revenues as follows (in thousands):
For the Year Ended For the Year Ended For the Year Ended
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
Food and beverage $26,215 $25,466 $26,724
Retail and other. 45,157 44,578 30,103
------- ------- -------
$71,372 $70,044 $56,827
======= ======= =======
Advertising
The Authority expenses the production costs of advertising the first time
the advertising takes place, with the exception of billboard advertising, which
is treated as a prepaid and amortized over the expected period of future
benefits.
F-8
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pre-Opening Expenses
Pre-opening expenses consist principally of direct incremental personnel
costs, marketing and advertising expenses related to Project Sunburst. In
accordance with the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
pre-opening expenses are expensed as incurred. Previously, these costs were
capitalized prior to the opening of a specific project and were charged to
expense at the commencement of operations.
Derivative Instruments
The Authority utilizes derivative instruments including interest rate swaps,
collars and caps to manage interest rate risk associated with the variable
interest rates. The Authority accounts for these derivative instruments in
accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities." The derivative instruments are designated as cash flow hedging
instruments and are marked to market with unrealized gains (losses) included as
a component of accumulated other comprehensive income (loss). All derivatives
are evaluated quarterly and are deemed effective.
Income Taxes
The Tribe is a sovereign Indian nation with independent legal jurisdiction
over its people and its lands. Like other sovereign governments, the Tribe and
its entities, including the Authority, is not subject to federal, state or
local income taxes.
Trademarks
In connection with the Relinquishment Agreement (see Note 13), Trading Cove
Associates ("TCA") granted the Authority an exclusive, irrevocable, perpetual,
world-wide and royalty-free license with respect to trademarks and other
similar rights, including the "Mohegan Sun" name used at or developed for
Mohegan Sun.
Management's Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimate included in the
accompanying financial statements relates to the relinquishment liability (see
Note 13). Actual results could differ from those estimates.
New Accounting Pronouncements
In November 2000, the Emerging Issues Task Force ("EITF") on the Financial
Accounting Standards Board (FASB) reached a consensus on EITF Issue No. 00-14,
"Accounting for Certain Sales Incentives." EITF 00-14 requires that discounts
which result in a reduction in or refund of the selling price of a product or
service in a single exchange transaction be recorded as a reduction of
revenues. The Authority's accounting policy related to free or discounted food
and beverage and other services already complies with EITF 00-14, and those
free or discounted services are generally deducted from gross revenues as
"promotional allowances."
In February 2001, the EITF reached a partial consensus on EITF Issue No.
00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume Based
Sales Incentive Offers, and Offers for Free Products or Services
F-9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
to be Delivered in the Future." EITF 00-22 requires that the redemption of
points for cash be recognized as a reduction of revenue. The adoption of this
Issue will not impact the Authority as it does not currently offer cash rebates
on its players club points.
On June 30, 2001, the FASB issued SFAS No. 142 "Goodwill and Other
Intangible Assets" to be effective for fiscal years beginning after December
15, 2001. The Authority adopted SFAS No. 142 on October 1, 2001. Under SFAS No.
142, the trademark will no longer be subject to amortization over its estimated
useful life as it has been deemed to have an indefinite useful life. However,
SFAS No. 142 requires the trademark to be evaluated at least annually for
impairment by applying a fair-value based test and, if impairment occurs, the
amount of impaired trademark must be written off immediately. With the adoption
of SFAS No. 142, the Authority no longer records amortization of the trademark.
For the year ended September 30, 2001, the Authority recorded $3.4 million of
amortization. The Authority is required to apply the initial fair value test by
March 31, 2002. The Authority has not yet determined whether the initial fair
value test will result in any impairment changes, but does not anticipate a
negative effect on its operating income upon completing the fair value
assessment.
For the Fiscal Years Ended
-------------------------------------------------------
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
Net income (loss)............ $204,848 $145,934 $(38,920)
Trademark amortization....... 3,436 4,295 2,577
-------- -------- --------
As adjusted net income (loss) $208,284 $150,229 $(36,343)
======== ======== ========
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
of Disposal of Long-Lived Assets." SFAS No. 144 modifies the rules for
accounting for the impairment or disposal of long-lived assets. The new rules
become effective for fiscal years beginning after December 15, 2001, with
earlier application encouraged. The Authority has not yet quantified the impact
of implementing SFAS No. 144 on the Authority's financial statements, but does
not anticipated a negative effect on the Authority's operating income upon
adoption of the standard.
Reclassifications
Certain amounts in the 2000 and 1999 financial statements have been
reclassified to conform with the 2001 presentation.
NOTE 4--CASH AND CASH EQUIVALENTS
At September 30, 2001 and 2000, the Authority had cash and cash equivalents
of $74.3 million and $115.7 million, respectively, of which, $5.3 million and
$81.4 million, respectively, were invested in highly liquid investments with
original maturities not to exceed three months. For reporting purposes, cash
and cash equivalents include all operating cash, in-house funds, and cash set
aside for the expansion of Mohegan Sun ("Project Sunburst").
NOTE 5--ACCOUNTS RECEIVABLE
Accounts receivable consists primarily of casino receivables which represent
credit extended to approved casino customers. The Authority maintains an
allowance for doubtful accounts which is based on management's estimate of the
amount expected to be uncollectible considering historical experience and the
information management obtains regarding the credit worthiness of the customer.
The collectibility of these receivables could be affected by future business or
economic trends. At September 30, 2001 and 2000, the allowance for doubtful
accounts was approximately $765,000 and $736,000, respectively.
F-10
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6--PROPERTY AND EQUIPMENT, NET
Components of property and equipment were as follows (in thousands):
September 30, 2001 September 30, 2000
------------------ ------------------
Land............................ $ 28,581 $ 28,581
Land improvements............... 44,119 44,834
Buildings and improvements...... 675,301 251,931
Furniture and equipment......... 265,161 80,476
---------- --------
Subtotal..................... 1,013,162 405,822
Less: accumulated depreciation.. (78,146) (65,579)
---------- --------
Property and Equipment, net.. 935,016 338,243
Construction in Process......... 267,653 264,999
---------- --------
Total Property and Equipment. $1,202,669 $603,242
========== ========
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Components of accounts payable and accrued expenses were as follows (in
thousands):
September 30, 2001 September 30, 2000
------------------ ------------------
Trade payables................................ $13,809 $ 6,486
Accrued payroll and related taxes and benefits 25,474 15,733
Accrued gaming taxes.......................... 13,504 11,842
Other accrued liabilities..................... 20,761 11,750
------- -------
$73,548 $45,811
======= =======
NOTE 8--FINANCING FACILITIES
During fiscal year 1999, the Authority issued $200.0 million in Senior Notes
and $300.0 million in Senior Subordinated Notes. The proceeds from these
financings were used to extinguish the then existing Senior Secured Notes,
defease the then existing Subordinated Notes, pay transaction costs for the
newly issued Senior and Senior Subordinated Notes, and fund initial costs
related to Project Sunburst (see Note 15).
During fiscal year 2001, the Authority issued $150.0 million in new Senior
Subordinated Notes. A portion of the proceeds from this financing, net of fees,
were used in conjunction with Project Sunburst. On July 30, 2001, the Authority
paid down $90.0 million on the Bank Credit Facility with a portion of the
proceeds from the financing.
Financing facilities, as described below, consisted of the following (in
thousands):
September 30, 2001 September 30, 2000
------------------ ------------------
Bank Credit Facility........... $258,000 --
$200M Senior Notes............. 200,000 $200,000
$300M Senior Subordinated Notes 300,000 300,000
$150M Senior Subordinated Notes 150,000 --
-------- --------
$908,000 $500,000
======== ========
F-11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Bank Credit Facility
As of September 30, 2001, the Authority had $258.0 million outstanding under
a $500 million reducing, revolving, secured credit facility (the "Bank Credit
Facility") with a syndicate of lenders led by Bank of America N.A. (formally
known as Bank of America National Trust and Savings Association). The Authority
draws on the Bank Credit Facility primarily in connection with Project
Sunburst. The Bank Credit Facility is secured by a lien on substantially all of
the Authority's assets, by a leasehold mortgage on the land and improvements
which comprise Mohegan Sun and by each of the Authority's cash operating
accounts
At the Authority's option, each advance of loan proceeds will accrue
interest on the basis of a base rate or on the basis of a one-month, two-month,
three-month or six-month London Inter-Bank Offered Rate ("LIBOR") plus, in
either case, the applicable spread (based on the Authority's Total Leverage
Ratio as defined in the Bank Credit Facility). One-month LIBOR at September 30,
2001 was 2.64% and the applicable spread on a LIBOR loan was 2.375%. Interest
on each LIBOR loan that is for a term of three months or less is due and
payable on the last day of the related interest period. Interest on each base
rate loan is due and payable quarterly in arrears.
Pursuant to the terms of the Bank Credit Facility, the commitment (or the
maximum amount that may be borrowed under the Bank Credit Facility) will be
automatically reduced on the earlier of March 31, 2002 or the last day of the
first full fiscal quarter following the completion date of Project Sunburst,
and on the last day of each fiscal quarter thereafter. The amount of such
reduction must equal 10% of the commitment as in effect immediately prior to
the first such reduction. Project Sunburst is tentatively scheduled to be
completed on June 1, 2002.
The Authority's debt agreements require, among other restrictions, the
maintenance of various financial covenants and terms including a fixed charge
coverage ratio, and certain debt leverage ratios. As of September 30, 2001 and
2000, the Authority was in compliance with all financial covenant requirements.
The Authority uses derivative instruments, including interest rate caps,
collars, and swaps in its strategy to manage interest rate risk associated with
the variable interest rate on the Bank Credit Facility. The Authority's
objective in managing interest rate risk is to ensure the Authority has
appropriate income and sufficient liquidity to meet the Tribe and debt-holder
obligations. The Authority does not believe that there is any material risk
exposure with respect to derivative or other financial instruments. The
Authority continually monitors these exposures and makes the appropriate
adjustments to manage these risks within management's established limits.
The Authority analyzes interest rate risk using various models that forecast
cash flows of the liabilities and their supporting assets, including derivative
instruments.
The Authority is considered an "end user" of derivative instruments and
engages in derivative transactions for risk management purposes only. The
following is a summary of the Authority's derivative instruments at September
30, 2001:
Notional Cost Market
------------ -------- -----------
Interest Rate Cap Strike Rate--8%................... $ 61,038,000 $410,000 $ 1,000
Interest Rate Collar Ceiling Strike Rate--8% Floor
Strike Rate--6%................................... 56,356,800 295,000 (3,310,295)
Interest Rate Swap Pay fixed--6.35% Receive Variable 28,178,400 221,000 (1,840,126)
------------ -------- -----------
Total............................................ $145,573,200 $926,000 $(5,149,421)
============ ======== ===========
F-12
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
All derivative instruments are based on one-month LIBOR. One-month LIBOR was
2.64% on September 30, 2001.
For the year ended September 30, 2001, the Authority recognized a net loss
of $949,000 relating to the change in time value of its derivative instruments,
as reflected in the statement of income (loss).
Senior Notes
On March 3, 1999, the Authority issued $200.0 million Senior Notes with
fixed interest payable at a rate of 8.125% per annum (the "Senior Notes").
Interest on the Senior Notes is payable semi-annually on January 1 and July 1.
The Senior Notes mature on January 1, 2006. The Senior Notes are unsecured
general obligations of the Authority rank pari passu in right of payment with
all current and future unsecured senior indebtedness of the Authority. However,
borrowing under the syndicated $500.0 million Bank Credit Facility and other
capital lease obligations are secured by first priority liens on substantially
all of the assets of the Authority. As a result, upon any distribution to
creditors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to the Authority or the Tribe, the holders of secured debt may be paid
in full in cash before any payment may be made with respect to the Senior
Notes. The Senior Notes rank equally in right of payment with 50% of the
Authority's payment obligations under the Relinquishment Agreement (see Note
13) and rank senior to the remaining 50% of the Authority's payment obligations
under the Relinquishment Agreement. As of September 30, 2001 and 2000, accrued
interest on the Senior Notes was $4.1 million.
1999 Senior Subordinated Notes
On March 3, 1999, the Authority issued the $300.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.75% per annum
(the "1999 Senior Subordinated Notes"). Interest on the 1999 Senior
Subordinated Notes is payable semi-annually on January 1 and July 1. The 1999
Senior Subordinated Notes mature on January 1, 2009. The 1999 Senior
Subordinated Notes are unsecured general obligations of the Authority and are
subordinated to the Bank Credit Facility, the Senior Notes and 50% of the
Authority's payment obligations under the Relinquishment Agreement. The 1999
Senior Subordinated Notes rank equally with the remaining 50% of the
Authority's payment obligations under the Relinquishment Agreement. As of
September 30, 2001 and 2000, accrued interest on the 1999 Senior Subordinated
Notes was $6.6 million.
2001 Senior Subordinated Notes
On July 26, 2001, the Authority issued $150.0 million Senior Subordinated
Notes with fixed interest payable at a rate of 8.375% per annum (the "2001
Senior Subordinated Notes"). Interest on the 2001 Senior Subordinated Notes is
payable semi-annually on January 1 and July 1. The 2001 Senior Subordinated
Notes mature on July 1, 2011. The 2001 Senior Subordinated Notes are unsecured
general obligations of the Authority and are subordinated to the Bank Credit
Facility, the Senior Notes and 50% of the Authority's payment obligations under
the Relinquishment Agreement. The 2001 Senior Subordinated Notes rank equally
with the 1999 Senior Subordinated Notes and the remaining 50% of the
Authority's payment obligations under the Relinquishment Agreement. As of
September 30, 2001 and 2000, accrued interest on the 2001 Senior Subordinated
Notes was $2.3 million.
Letters of Credit
The Authority has available a $250,000 unsecured letter of credit that will
expire in August 2002 and a $550,000 letter of credit with Bank of America that
expires in April 2002. The $550,000 letter of credit was reduced from $1.0
million on April 13, 2001. As of September 30, 2001 and 2000, no amounts were
drawn on the letters of credit.
F-13
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 9--LEASES
At September 30, 2001, the Authority was obligated under capital leases to
make future minimum lease payments of $1.6 million, of which $54,000 represents
interest for the fiscal year ending September 30, 2002.
In October and November 2001, the Authority repaid the total obligation
under the capital leases.
Operating lease expenses, excluding costs to obtain assets, were $2.5
million and $3.6 million for the years ended September 30, 2000 and 1999,
respectively. During fiscal 2000, the Authority purchased equipment previously
used under operating leases for $2.7 million. No operating leases existed as of
September 30, 2001.
NOTE 10--RELATED PARTY TRANSACTIONS
The Tribe provides governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. During the fiscal years ended
September 30, 2001, 2000 and 1999, the Authority incurred $10.9 million, $9.9
million and $8.3 million, respectively, of expenses for such services.
Prior to October 1, 2000, the Authority operated a retail outlet at Mohegan
Sun and purchased goods for resale at this location from a limited liability
company ("Little People, LLC") owned by the Tribe. For the fiscal years ended
September 30, 2000 and 1999 the Authority purchased $348,000 and $417,000,
respectively, of such goods from Little People, LLC. On October 1, 2000, the
Tribe assumed the management of this retail outlet from the Authority and
purchased the remaining inventory from the Authority for approximately
$172,000. The Authority and Little People, LLC have entered into a lease
agreement, whereby Little People, LLC leases retail space located in the casino
from the Authority. The lease term expires on June 30, 2006 and may be renewed
on a monthly basis. Little People, LLC is not obligated to pay any base rent.
The Authority reimburses the Tribe for sales where patron player's club points
are utilized.
The Tribe, through one of its limited liability companies, has entered into
various land lease agreements with the Authority for access, parking and
related purposes for Mohegan Sun. For the fiscal years ended September 30,
2001, 2000 and 1999, the Authority expended $386,000, $386,000 and $412,000,
respectively, relating to these land lease agreements.
The Tribe provided services through its Development Department for projects
related to Mohegan Sun and Project Sunburst. The Authority incurred $954,000 of
such expenses associated with the Development Department for the fiscal year
ended September 30, 2000. There were no expenses incurred during the year ended
September 30, 2001.
On August 7, 2001, the Tribe issued Gaming Authority Priority Distribution
Payment Public Improvement Bond Anticipation Notes (the "Series 2001 BANS").
Debt service on the Series 2001 BANS is paid from 95% of amounts received from
the Authority under the Priority Distribution Agreement. The Priority
Distribution Agreement obligates the Authority to make monthly priority
distribution payments to the Tribe in a maximum aggregate amount of $14.0
million per calendar year, adjusted annually in accordance with the formula
specified in the Priority Distribution Agreement to reflect the effects of
inflation. However, payments pursuant to the Priority Distribution Agreement do
not reduce the Authority's obligations to make payments pursuant to invoices
for governmental services provided by the Tribe or any payments under any other
agreements with the Tribe to the extent that such agreements are permitted
under the Bank Credit Facility. The priority distribution payments are limited
obligations of the Authority payable only to the extent of its net cash flow,
as defined in the Priority Distribution Agreement, and are not secured by a
lien or encumbrance on any assets or property of the Authority. The remaining
5% of each priority distribution payment is remitted to the Tribe free and
clear of any lien. The
F-14
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Authority's financial statements reflect payments associated with the Priority
Distribution Agreement of $14.0 million for the fiscal year ended September 30,
2001. The Authority's payment obligations under the Relinquishment Agreement
(see Note 13) are subordinated in right of payment to the minimum distribution
payment as defined in the Relinquishment Agreement, from the Authority to the
Tribe to the extent then due.
In compliance with the restrictive provisions of the Bank Credit Facility
and the Authority's indentures, the Authority distributed to the Tribe $30.0
million, net of $14.0 million related to the Priority Distribution Agreement,
during the fiscal year 2001.
On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment
Rights Ordinance (the "TERO"), which sets forth hiring and contracting
preference requirements for employers and entities conducting business on
Tribal land or working on behalf of the Tribe. Pursuant to the TERO, an
employer is required to give hiring, promotion, training, retention and other
employment-related preferences to Native Americans who meet the minimum
qualifications for the applicable employment position. However, this preference
requirement does not apply to key employees, as such persons are defined in the
TERO. In addition, when staffing the operations of the Project Sunburst
expansion, the Development Agreement requires TCA to give hiring and recruiting
preferences, first to qualified members of the Tribe (and their spouses and
children) and then to enrolled members of other federally recognized Indian
tribes.
Similarly, any entity awarding a contract to be performed on Tribal land or
on behalf of the Tribe must give preference, first to certified Mohegan
entities and second to other certified Indian entities. This contracting
preference is conditioned upon the bid by the preferred certified entity being
within 5% of the lowest bid by a non-certified entity (unless the preferred
certified entity's bid exceeds $100,000 of the lowest bid by a non-certified
entity). The TERO establishes procedures and requirements for certifying
Mohegan entities and other Indian entities. Certification is based largely on
the level of ownership and control exercised by the members of the Tribe or
other Indian tribes, as the case may be, over the entity bidding on a contract.
A number of contracts for Project Sunburst were awarded to companies controlled
by Tribal members under the TERO provision described above.
The Authority engages McFarland Johnson, Inc. for surveying, civil
engineering and professional design services. Roland Harris, a current member
and a former Chairman of the Management Board and the Tribal Council, was a
consultant for this firm pursuant to a consulting agreement which expired in
May 2001. For the fiscal years ended September 30, 2001, 2000 and 1999, the
Authority incurred $175,000, $792,000 and $373,000, respectively, for such
services provided by McFarland Johnson. McFarland Johnson formerly conducted
business as Harris and Clark, Inc. The Authority believes that the terms of
this engagement are comparable to those that would pertain to arms length
engagement with an unaffiliated firm.
As of September 30, 2001, 146 employees of the Authority were members of the
Tribe.
NOTE 11--EMPLOYEE BENEFIT PLANS
The Authority maintains a retirement savings plan for its employees under
Section 401(k) of the Internal Revenue Code ("401(k) Plan"). The plan allows
employees of the Authority to defer up to the lesser of the maximum amount
prescribed by the Internal Revenue Code or 15% of their income on a pre-tax
basis, through contributions to the 401(k) Plan. The Authority matches 100% of
the eligible employees' contributions up to a maximum of 3% of their individual
earnings. The Authority recorded matching contributions of approximately $2.7
million, $2.9 million and $2.0 million, respectively, to this plan for the
years ended September 30, 2001, 2000 and 1999, respectively.
F-15
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Authority, together with the Tribe, maintains a Non-Qualified Deferred
Compensation Plan (the "Deferred Compensation Plan") for certain key employees.
This plan allows participants to defer up to 100% of their pre-tax income to
the plan. For the fiscal years ended September 30, 2001, 2000 and 1999,
contributions, net of withdrawals, totaled $657,000, $703,000 and $144,000,
respectively.
On April 18, 2001, the Authority announced a Deferred Retirement Plan (the
"Retirement Plan") for all employees sponsored by the Authority. The Retirement
Plan was effective July 2, 2001 and contributions by the Authority are based on
hours worked. Employee become eligible after 90 days of employment and will be
fully vested at the completion of seven years of employment. For the year ended
September 30, 2001 the Authority has contributed $986,000 to the Retirement
Plan.
NOTE 12--COMMITMENTS AND CONTINGENCIES
Project Sunburst
The Authority has received authorization from the Tribe to expend up to
$960.0 million, excluding capitalized interest for completion of Project
Sunburst. As of September 30, 2001, the Authority has spent $807.9 million,
excluding capitalized interest on Project Sunburst. The remaining $152.1
million is anticipated to be spent during fiscal 2002.
The Mohegan Compact
The Mohegan Compact stipulates that a portion of the revenues earned on slot
machines must be paid to the State of Connecticut ("Slot Win Contribution").
For each 12-month period commencing July 1, 1995, the Slot Win Contribution
shall be the lesser of (a) 30% of gross revenues from slot machines, or (b) the
greater of (i) 25% of gross revenues from slot machines or (ii) $80.0 million.
The Slot Win Contribution payments will not be required if the State of
Connecticut legalizes any other gaming operations with slot machines or other
commercial casino table games within Connecticut, except those consented to by
the Tribe and the Mashantucket Pequot Tribe. The Authority reflected expenses
associated with the Slot Win Contribution totaling $144.6 million, $135.1
million and $121.1 million, respectively for the fiscal years ended September
30, 2001, 2000 and 1999.
Agreement with the Town of Montville
On June 16, 1994, the Tribe and the Town of Montville (the "Town") entered
into an agreement whereby the Tribe agreed to pay to the Town a recurring
annual payment of $500,000 to minimize the impact on the Town resulting from
the decreased tax revenues on reservation land held in trust. Additionally, the
Tribe agreed to make a one-time payment of $3.0 million towards infrastructure
improvements to the Town's water system. The Tribe has assigned its rights and
obligations in this agreement to the Authority. As of September 30, 2001, the
Authority has fulfilled this obligation and paid $3.0 million to the Town for
improvements to the municipal water system, which has been included in other
assets in the accompanying balance sheets and is being amortized over 40 years.
Land Lease from the Tribe to the Authority
The land upon which Mohegan Sun is situated is held in trust for the Tribe
by the United States. The Tribe and the Authority have entered into a land
lease under which the Tribe leases to the Authority the property and
F-16
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
all buildings, improvements and related facilities constructed or installed on
the property. The lease was approved by the Secretary of the Interior on
September 29, 1995. Summarized below are several key provisions of this lease.
Term
The term of the lease is 25 years with an option, exercisable by the
Authority, to extend the term for one additional 25-year period. Upon the
termination of the lease, the Authority will be required to surrender to the
Tribe possession of the property and improvements, excluding any equipment,
furniture, trade fixtures or other personal property.
Rent and Other Operating Expenses
The Authority is required to pay to the Tribe a nominal annual rental fee.
For any period when the Tribe or another agency or instrumentality of the Tribe
is not the tenant under the lease, the rent will be 8% of the tenant's gross
revenues from the premises. The Authority is responsible for the payment of all
costs of owning, operating, constructing, maintaining, repairing, replacing and
insuring the leased property.
Use of Leased Property
The Authority may use the leased property and improvements solely for the
construction and operation of Mohegan Sun, unless prior approval is obtained
from the Tribe for any proposed alternative use. Similarly, no construction or
alteration of any building or improvement located on the leased property by the
Authority may be made unless complete and final plans and specifications have
been approved by the Tribe. Following foreclosure of any mortgage on the
Authority's interest under the lease or any transfer of such interest to the
holder of such mortgage in lieu of foreclosure, the leased property and
improvements may be used for any lawful purpose, subject only to applicable
codes and governmental regulations; provided, however, that a non-Indian holder
of the leased property may in no event conduct gaming operations on the
property.
Permitted Mortgages and Rights of Permitted Mortgages
The Authority may not mortgage, pledge or otherwise encumber its leasehold
estate in the leased property except to a holder of a permitted mortgage. Under
the lease, a "permitted mortgage" includes the leasehold mortgage securing the
Authority's obligations under the Bank Credit Facility granted by the Authority
that provides, among other things, that (1) the Tribe will have the right to
notice of, and to cure, any default of the Authority, (2) the Tribe will have
the right to prior notice of an intention by the holder to foreclose on the
permitted mortgage and the right to purchase the mortgage in lieu of any
foreclosure, and (3) the permitted mortgage is subject and subordinated to any
and all access and utility easements granted by the Tribe under the lease. As
provided in the lease, each holder of a permitted mortgage has the right to
notice of any default of the Authority under the lease and the opportunity to
cure such default within any applicable cure period.
Default Remedies
The Authority will be in default under the lease if, subject to the notice
provisions, it fails to make lease payments or to comply with its covenants
under the lease or if it pledges, encumbers or conveys its interest in the
lease in violation of the terms of the lease. Following a default, the Tribe
may, with approval from the Secretary of the Interior, terminate the lease
unless a permitted mortgage remains outstanding with respect to the leased
property. In that case, the Tribe may not (1) terminate the lease or the
Authority's right to possession of the
F-17
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
leased property, (2) exercise any right of re-entry, (3) take possession of
and/or relet the leased property or any portion thereof, or (4) enforce any
other right or remedy which may materially and adversely affect the rights of
the holder of the permitted mortgage, unless the default triggering such rights
was a monetary default which such holder failed to cure after notice.
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority engaged Perini Building Company, Inc. ("Perini") as
construction manager to provide construction management services for Project
Sunburst. As construction manager, Perini is receiving a fee of $25.5 million
for services including, but not limited to, pre-construction review and
construction phase contract administration. As of September 30, 2001, Perini
has received $14.0 million of the $25.5 million fee which has been included in
"construction in process" in the accompanying balance sheets. The Construction
Management Agreement contains a limited waiver of sovereign immunity to permit
the commencement, maintenance and enforcement of any dispute, claim and/or
cause of action arising under the Construction Management Agreement. In
conjunction with the limited waiver of sovereign immunity, Perini may seek
satisfaction of judgment against the undistributed and/or future revenues of
Project Sunburst and/or the existing Mohegan Sun facility.
Litigation
The Authority is a defendant in certain litigation incurred in the normal
course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will not
have a materially adverse effect on the Authority's financial position or
results of operations.
NOTE 13--TCA AGREEMENTS
Management Agreement
On September 30, 1995, the Tribe and TCA entered into the Amended and
Restated Gaming Facility Management Agreement (the "Management Agreement"),
pursuant to which the Tribe retained and engaged TCA, on an independent
contractor basis, to operate, manage and market Mohegan Sun.
The Tribe assigned its rights and obligations under the Management Agreement
to the Authority. TCA had a responsibility to manage Mohegan Sun in exchange
for payments ranging from 30% to 40% of net income, before management fees, as
defined, depending upon profitability levels. Management fees totaled $13.6
million and $59.5 million, respectively, for the fiscal years ended September
30, 2000 and 1999. The amount for fiscal 2000 represents only the amounts
earned from the period October 1, 1999 through December 31, 1999, the date upon
which the Management Agreement was terminated.
Relinquishment Agreement
In February 1998, the Authority and TCA entered into an agreement, (the
"Relinquishment Agreement"). The Relinquishment Agreement superceded the
Management Agreement effective January 1, 2000 (the "Relinquishment Date"), and
provides that the Authority is to make certain payments to TCA out of, and
determined as a percentage of, the gross revenues generated by the Mohegan Sun
over a 15-year period commencing on the Relinquishment Date. The payments
("Senior Relinquishment Payments" and "Junior Relinquishment Payments"), each
of which are calculated as 2.5% of revenues, as defined, have separate payment
schedules and priority. Payment of Senior Relinquishment Payments commenced on
April 25, 2000, twenty-five days following the end of the first three-month
period following the Relinquishment Date and continue at the end of each
three-month period occurring thereafter until December 31, 2014. Junior
F-18
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Relinquishment Payments commenced on July 25, 2000, twenty-five days following
the end of the first six-month period following the Relinquishment Date and
continue at the end of each six-month period occurring thereafter until
December 31, 2014. Each Senior Relinquishment Payment and Junior Relinquishment
Payment is an amount equal to 2.5% of the Revenues generated by Mohegan Sun
over the immediately preceding three-month or six-month payment period, as the
case may be. "Revenues" are defined as gross gaming revenues (other than Class
II gaming revenue) and all other facility revenues (including, without
limitation, hotel revenues, room service, food and beverage sales, ticket
revenues, fees or receipts from convention/events center and all rental or
other receipts from lessees and concessionaires but not the gross receipts of
such lessees, licenses and concessionaires).
In the fourth quarter of 2000, TCA notified the Authority that it did not
agree with the Authority's treatment of certain promotional transactions that,
in TCA's opinion, has resulted in a reduction in revenues subject to the
Relinquishment Agreement. The Authority and TCA have agreed on the accounting
for Revenues related to certain promotional allowances in accordance with the
Relinquishment Agreement. As a result, in August 2001, the Authority paid TCA
approximately $137,000 of additional relinquishment fees.
The Authority, in accordance with SFAS No. 5, "Accounting for
Contingencies," has recorded a relinquishment liability of the estimated
present value of its obligations under the Relinquishment Agreement. A
relinquishment liability of $549.1 million was established at September 30,
1998 based on the present value of the estimated future Mohegan Sun revenues
utilizing the Authority's risk free investment rate. At September 30, 2001, the
carrying amount of the relinquishment liability was $592.0 million as compared
to $672.9 million at September 30, 2000. The decrease is due to $42.3 million
in relinquishment payments and income of $74.4 million related to the
reassessment and reduction of revenue projections. This decrease is partially
offset by $35.8 million in accretion of relinquishment liability discount. Of
the $42.3 million in relinquishment payments for the fiscal year ended
September 30, 2001, $9.7 million represents principal amounts and the remaining
$32.6 million is payment for the accretion of interest. Relinquishment payments
of $20.0 million were made during the fiscal year ended September 30, 2000. Of
the $20.0 million in relinquishment payments for the fiscal year ended
September 30, 2000, $8.5 million represents principal payments and the
remaining $11.5 million is payment for the accretion of interest. There were no
relinquishment payments made during the fiscal year ended September 30, 1999.
The accretion described above resulted from the impact on the discount for the
time value of money due to the passage of time. As of September 30, 2001,
relinquishment payments earned but unpaid were $11.5 million.
Development Agreement
On February 7, 1998, the Authority and TCA entered into a development
services agreement (the "Development Agreement"). Under the Development
Agreement, TCA is responsible for the administration and supervision of the
construction manager and the entire construction process of Project Sunburst.
TCA is acting as the Authority's representative in connection with construction
contracts that are approved by the Authority. Specifically, TCA is responsible
for overseeing all persons performing work on the expansion site, inspecting
the progress of construction, determining completion dates and reviewing
contractor payment requests submitted to the Authority. The Development
Agreement specifically gives TCA the right to include provisions in
construction contracts that impose liquidated damage payments in the event of
failure to meet construction schedules.
Payment of the Development Fee
Under the Development Agreement, the Authority is required to pay to TCA a
development fee of $14.0 million. Pursuant to the payment schedule described in
the Development Agreement, on January 15, 2000, the Authority began paying the
development fee to TCA on a quarterly basis, based upon the incremental
F-19
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
completion as of each payment date. As of September 30, 2001, the Authority has
incurred $11.3 million related to the TCA development fee, of which $9.3
million has been paid.
Termination and Disputes
The Development Agreement terminates upon the earlier of (a) completion of
Project Sunburst or (b) February 7, 2008. In addition, each party has the right
to terminate the Development Agreement if there is a material default or
failure to perform a material duty or obligation by the other party. The
parties must submit disputes arising under the Development Agreement to
arbitration and have agreed that punitive damages may not be awarded to either
party by an arbitrator. The Authority has also waived sovereign immunity for
the purpose of permitting, compelling or enforcing arbitration and has agreed
to be sued by TCA in any court of competent jurisdiction for the purposes of
compelling arbitration or enforcing any arbitration or judicial award arising
out of the Development Agreement.
NOTE 14--COMPREHENSIVE INCOME
SFAS No. 130 "Reporting Comprehensive Income", requires that the Authority
disclose comprehensive income and its components. The objective of SFAS No. 130
is to report a measure of all changes in the equity of a company that result
from transactions and other economic events of the period other than
transactions with stockholders. Comprehensive income is the total of net income
and all other non-stockholder changes in equity ("Other Comprehensive Income").
The Authority has recognized the intrinsic value associated with its
derivative instruments in accordance with SFAS No. 133 upon becoming effective
as of January 1, 2001.
For the Year Ended
September 30, 2001
------------------
(in thousands)
Net Income....................... $204,848
Derivative instruments adjustment (5,127)
--------
Comprehensive Income............. $199,721
========
NOTE 15--EXTRAORDINARY ITEMS
The Authority incurred $38.4 million in extraordinary items for the year
ended September 30, 1999. Included in the expense is $33.7 million related to
the early extinguishment of the Senior Secured Notes and $5.2 million related
to the write-off of financing fees associated with the original facility
construction. Also included is an extraordinary gain for the forgiveness of
debt of $500,000 associated with the defeasance of the Subordinated Notes (See
Note 8).
F-20
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
(in thousands)
March 31, September 30,
2002 2001
----------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................... $ 80,656 $ 74,284
Receivables, net............................. 12,154 7,163
Inventories.................................. 12,064 11,455
Other current assets......................... 16,196 12,706
---------- ----------
Total current assets..................... 121,070 105,608
Non-current assets:
Property and equipment, net.................. 1,044,552 935,016
Construction in process...................... 340,244 267,653
Trademark, net............................... 119,692 119,692
Other assets, net............................ 29,131 24,766
---------- ----------
Total assets............................. $1,654,689 $1,452,735
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Current portion of capital lease obligations. $ -- $ 1,514
Current portion of relinquishment liability.. 69,207 68,272
Accounts payable and accrued expenses........ 73,782 73,548
Construction accounts payable................ 70,306 65,768
Accrued interest payable..................... 16,080 13,062
---------- ----------
Total current liabilities................ 229,375 222,164
Non-current liabilities:
Long-term debt............................... 1,099,000 908,000
Relinquishment liability..................... 516,516 523,736
Other long-term liabilities.................. 3,824 5,232
---------- ----------
Total liabilities........................ 1,848,715 1,659,132
---------- ----------
Commitments and contingencies (Note 5)
Capital:
Retained deficit............................. (190,357) (201,270)
Accumulated other comprehensive loss......... (3,669) (5,127)
---------- ----------
(194,026) (206,397)
---------- ----------
Total liabilities and capital............ $1,654,689 $1,452,735
========== ==========
The accompanying notes to the financial statements
should be read in conjunction with the financial statements
F-21
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF INCOME
(in thousands)
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
March 31, 2002 March 31, 2001 March 31, 2002 March 31, 2001
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Gaming......................................... $221,254 $180,605 $448,121 $355,563
Food and beverage.............................. 14,946 11,037 32,037 21,761
Retail, entertainment and other................ 12,943 11,981 27,588 28,576
-------- -------- -------- --------
Gross revenues............................... 249,143 203,623 507,746 405,900
Less--Promotional allowances................... (14,461) (15,843) (31,588) (35,030)
-------- -------- -------- --------
Net revenues...................................... 234,682 187,780 476,158 370,870
-------- -------- -------- --------
Cost and expenses:
Gaming......................................... 119,725 87,122 253,015 180,423
Food and beverage.............................. 10,131 5,943 21,222 12,020
Retail, entertainment and other................ 5,818 4,483 14,728 9,292
General and administration..................... 30,847 26,087 68,685 53,707
Pre-opening costs.............................. 2,006 1,927 3,663 3,316
Depreciation and amortization.................. 20,013 6,943 37,276 13,522
-------- -------- -------- --------
Total costs and expenses................... 188,540 132,505 398,589 272,280
-------- -------- -------- --------
Income from operations............................ 46,142 55,275 77,569 98,590
-------- -------- -------- --------
Other income (expense):
Accretion of relinquishment liability discount
(Note 6)..................................... (9,084) (8,958) (18,167) (17,916)
Interest and other income...................... 117 578 240 1,742
Interest expense, net of capitalized interest
(Note 5)..................................... (17,147) (5,890) (31,946) (11,815)
Other non-operating expense.................... (50) -- (87) --
Change in fair value of derivative
instruments (Note 3)......................... 11 865 (5) (1,277)
-------- -------- -------- --------
(26,153) (13,405) (49,965) (29,266)
-------- -------- -------- --------
Income from continuing operations................. 19,989 41,870 27,604 69,324
Loss from discontinued operations.............. -- (335) -- (527)
-------- -------- -------- --------
Net income........................................ $ 19,989 $ 41,535 $ 27,604 $ 68,797
======== ======== ======== ========
The accompanying notes to the financial statements
should be read in conjunction with the financial statements
F-22
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CAPITAL
(in thousands)
For the Six Months Ended For the Six Months Ended
March 31, 2002 March 31, 2001
------------------------ -----------------------
(unaudited) (unaudited)
Comprehensive Comprehensive
Capital Income Capital Income
--------- ------------- --------- -------------
Balance September 30............................ $(201,270) $(362,118)
Net income...................................... 27,604 $27,604 68,797 $68,797
Distributions to Tribe.......................... (16,691) (20,000)
--------- ---------
Balance March 31................................ (190,357) (313,321)
--------- ---------
Accumulated other comprehensive loss............ (5,127) --
Unrealized gain (loss) on derivative instruments 1,458 (2,291)
------- -------
Other comprehensive income...................... 1,458 1,458 (2,291) (2,291)
--------- ------- --------- -------
Comprehensive income............................ $29,062 $66,506
======= =======
Balance March 31................................ (3,669)
---------
Ending balance.................................. $(194,026) $(315,612)
========= =========
The accompanying notes to the financial statements
should be read in conjunction with the financial statements
F-23
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF CASH FLOWS
(in thousands)
For the Six Months Ended For the Six Months Ended
March 31, 2002 March 31, 2001
------------------------ ------------------------
(unaudited) (unaudited)
Cash flows provided by operating activities:
Net income................................................... $ 27,604 $ 68,797
Adjustments to reconcile net income to net cash flow
provided by operating activities:
Depreciation and amortization............................ 37,276 13,522
Loss on early extinguishment of debt..................... 6 --
Loss on asset disposal................................... 80 --
Provision for losses on receivables...................... 459 275
Accretion of relinquishment liability discount........... 18,167 17,916
Cash paid for accretion of relinquishment liability
discount............................................... (18,041) (14,721)
Change in fair value of derivative instruments........... 5 1,277
Changes in operating assets and liabilities:
Increase in receivables and other assets................. (10,391) (16,547)
Increase in accounts payable and accrued expenses........ 3,252 6,312
--------- ---------
Net cash flows provided by operating activities.......... 58,417 76,831
--------- ---------
Cash flows used in investing activities:
Purchase of property and equipment........................... (144,229) (8,744)
Increase in construction in process, net of change in
construction accounts payable of $4,538 and $9,027,
respectively............................................... (68,053) (218,067)
Proceeds from asset sale..................................... 72 --
--------- ---------
Net cash flows used in investing activities.............. (212,210) (226,811)
--------- ---------
Cash flows provided by financing activities:
Proceeds from issuance of long-term debt..................... 250,000 --
Draw on Bank Credit Facility................................. 184,000 128,000
Payment on Bank Credit Facility.............................. (243,000) --
Principal portion of relinquishment payments................. (6,411) (6,310)
Distributions to Tribe....................................... (16,691) (20,000)
Capitalized financing fees................................... (6,257) (2,234)
Payment on equipment financing............................... (1,520) (2,719)
Increase in other long-term liabilities...................... 44 --
--------- ---------
Net cash flows provided by financing activities.......... 160,165 96,737
--------- ---------
Net increase (decrease) in cash and cash equivalents..... 6,372 (53,243)
Cash and cash equivalents at beginning of period................ 74,284 115,731
--------- ---------
Cash and cash equivalents at end of period...................... $ 80,656 $ 62,488
========= =========
Supplemental disclosures:
Cash paid during the period for interest..................... $ 41,286 $ 22,111
The accompanying notes to the financial statements
should be read in conjunction with the financial statements
F-24
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
The Mohegan Tribe of Indians of Connecticut (the "Tribe") established the
Mohegan Tribal Gaming Authority (the "Authority"), in July 1995 with the
exclusive power to conduct and regulate gaming activities for the Tribe on
Tribal lands. On October 12, 1996, the Authority opened a casino known as the
Mohegan Sun Casino ("Mohegan Sun"). The Authority is governed by a nine-member
Management Board, consisting of the same nine members as those of the Tribal
Council (the governing body of the Tribe). Any change in the composition of the
Tribal Council results in a corresponding change in the Authority's Management
Board. The General Manager and other senior officers of Mohegan Sun are hired
by the Management Board and are employees of the Authority.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with the accounting principles generally accepted in the United
States of America for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals and adjustments) considered necessary for a fair
presentation have been included. Operating results for the period ending March
31, 2002 are not necessarily indicative of the results that may be expected for
the year ending September 30, 2002. For further information, refer to the
financial statements and footnotes thereto included in the Authority's annual
report on Form 10-K for the year ended September 30, 2001.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 modifies the
rules for accounting for the impairment or disposal of long-lived assets. The
new rules become effective for fiscal years beginning after December 15, 2001,
with earlier application encouraged. The Authority has not adopted SFAS No.
144, and has not yet quantified the impact of implementing SFAS No. 144 on the
Authority's financial statements, but does not anticipate a negative effect on
the Authority's financial position, results of operations or cash flows upon
adoption of the standard.
The Authority adopted SFAS No. 142 on October 1, 2001. Under SFAS No. 142,
the Mohegan Sun trademark is no longer subject to amortization over its
estimated useful life as it has been deemed to have an indefinite useful life.
However, SFAS No. 142 requires the trademark to be evaluated at least annually
for impairment by applying a fair-value based test and, if impairment occurs,
the amount of impaired trademark must be written off immediately. With the
adoption of SFAS No. 142, the Authority no longer records amortization of the
trademark. For the quarter and six months ended March 31, 2001, the Authority
recorded $859,000 and $1.7 million, respectively, related to the amortization
of the trademark. The Authority has applied the initial fair value test and has
determined that no impairment exists at March 31, 2002.
Three Months Ended Six Months Ended
----------------------------- -----------------------------
March 31, 2002 March 31, 2001 March 31, 2002 March 31, 2001
-------------- -------------- -------------- --------------
Net income............ $19,989 $41,535 $27,604 $66,797
Trademark amortization -- 859 -- 1,718
------- ------- ------- -------
As adjusted net income $19,989 $42,394 $27,604 $70,515
======= ======= ======= =======
F-25
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as
of April 2002." SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that Statement,
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." The Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers." The Statement amends FASB Statement
No. 13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 shall be
applied in fiscal years beginning after May 15, 2002. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in Opinion 30 for
classification as an extraordinary item shall be reclassified. Early
application of the provisions of this Statement related to the rescission of
Statement 4 is encouraged. The provisions in paragraphs 8 and 9(c) of this
Statement related to Statement 13 shall be effective for transactions occurring
after May 15, 2002, with early application encouraged. All other provisions of
this Statement shall be effective for financial statements issued on or after
May 15, 2002, with early application encouraged. The Authority has not adopted
SFAS No. 145 and has not yet quantified the impact of implementing SFAS No. 145
on the Authority's financial statements. The Authority does not anticipate a
negative effect on the Authority's financial position, results of operations or
cash flows upon adoption of the standard.
Reclassifications
Certain amounts in the 2001 financial statements have been reclassified to
conform with the 2002 presentation.
NOTE 3--FINANCING FACILITIES
Financing facilities, as described below, consisted of the following (in
thousands):
March 31, September 30,
2002 2001
---------- -------------
Bank Credit Facility.................. $ 199,000 $258,000
$200M 8 1/8% Senior Notes............. 200,000 200,000
$300M 8 3/4% Senior Subordinated Notes 300,000 300,000
$150M 8 3/8% Senior Subordinated Notes 150,000 150,000
$250M 8% Senior Subordinated Notes.... 250,000 --
---------- --------
$1,099,000 $908,000
========== ========
Bank Credit Facility
On March 26, 2002 the Authority reduced the commitment amount on the Bank
Credit Facility to $400.0 million from $500.0 million (see Third Amendment
below). As of March 31, 2002, the Authority had $199.0 million outstanding
under a $400.0 million reducing, revolving, collateralized credit facility (the
"Bank Credit Facility") with a syndicate of lenders led by Bank of America N.A.
(formerly known as Bank of America National Trust and Savings Association). The
Authority draws on the Bank Credit Facility primarily in connection with the
major expansion of Mohegan Sun, known as Project Sunburst, and other capital
expenditure
F-26
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
projects. The Bank Credit Facility is collateralized by a lien on substantially
all of the Authority's assets, by a leasehold mortgage on the land and
improvements which comprise Mohegan Sun, and by each of the Authority's cash
operating accounts.
At the Authority's option, each advance of loan proceeds accrues interest on
the basis of a base rate or on the basis of a one-month, two-month, three-month
or six-month London Inter-Bank Offered Rate ("LIBOR") plus, in either case, the
applicable spread (based on the Authority's Total Leverage Ratio as defined in
the Bank Credit Facility). One-month LIBOR at March 31, 2002 was 1.88% and the
applicable spread on a LIBOR loan was 2.625%. Interest on each LIBOR loan that
is for a term of a quarter or less is due and payable on the last day of the
related interest period. Interest on each base rate loan is due and payable
quarterly in arrears. The Authority has no base rate loans at March 31, 2002.
Accrued interest on the Bank Credit Facility was $148,000 at March 31, 2002.
On February 20, 2002, the Authority used the net proceeds from the issuance
of the $250.0 million 8% Senior Subordinated Notes to repay a portion of the
outstanding balance under the Bank Credit Facility.
Recent Amendments to the Bank Credit Facility
During the quarter ended March 31, 2002, the Authority received consent of
its lenders for two amendments. On February 8, 2002, the Authority received the
requisite consent of its lenders for Amendment No. 2 to its Bank Credit
Facility. The amendment revised several of the restrictive covenants governing
the Authority's activities and finances. On March 26, 2002, the Authority
received the requisite consent of its lenders for Amendment No. 3 to its Bank
Credit Facility. The amendment reduced the lenders' commitment from $500.0
million to $400.0 million effective March 26, 2002, and changed the first
subsequent scheduled commitment reduction date to September 30, 2002 from March
31, 2002. The amount of each reduction on the last day of each fiscal quarter
must equal 10% of the commitment as in effect immediately prior to the first
such reduction. For more information regarding the amendments to the Bank
Credit Facility, see the Authority's 8-Ks filed on February 12, 2002 and March
26, 2002, respectively.
Financial Covenant Requirements
The Authority's debt agreements require, among other restrictions, the
maintenance of various financial covenants and terms including a fixed charge
coverage ratio, and certain debt leverage ratios. As of March 31, 2002, the
Authority was in compliance with all financial covenant requirements.
The Authority uses derivative instruments, including an interest rate cap,
collar, and swap in its strategy to manage interest rate risk associated with
the variable interest rates applicable to advances under the Bank Credit
Facility. The Authority's objective in managing interest rate risk is to ensure
appropriate income and sufficient liquidity to meet its obligations. The
Authority analyzes interest rate risk using various models that forecast cash
flows of the liabilities and their supporting assets, including derivative
instruments. The Authority does not believe that there is any material risk
exposure with respect to derivative or other financial instruments which it
currently holds. The Authority continually monitors these exposures and makes
the appropriate adjustments to manage these risks within management's
established limits.
The Authority is considered an "end user" of derivative instruments and
engages in derivative transactions for risk management purposes only. On
October 1, 2000, the Authority adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," designated all derivative instruments as
cash flow hedging instruments and marked them to market. The impact of the
adoption of SFAS 133 was not material to the financial position of the
Authority taken as a whole. The Authority excludes the change in time value
when assessing the effectiveness of the hedging relationships. All derivatives
are evaluated quarterly and were deemed to be effective at March 31, 2002.
F-27
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Derivative instruments held by the Authority at March 31, 2002 are as
follows:
Notional Cost Market
------------ -------- -----------
Interest Rate Cap
Strike Rate--8%......... $ 69,883,000 $410,000 $ 1,300
Interest Rate Collar
Ceiling Strike Rate--8%
Floor Strike Rate--6%... 79,063,800 295,000 (2,383,757)
Interest Rate Swap
Pay fixed--6.35%
Receive Variable........ 39,531,900 221,000 (1,314,262)
------------ -------- -----------
Total...................... $188,478,700 $926,000 $(3,696,719)
============ ======== ===========
All derivative instruments are based on one-month LIBOR. One-month LIBOR was
1.88% on March 31, 2002.
For the quarters ended March 31, 2002 and 2001, the Authority recognized a
net gain of $11,000 and $865,000 respectively, relating to the change in time
value of its derivative instruments, as reflected in the statements of
income.The Authority recognized a net loss of $5,000 and $1,277,000 for the six
months ended March 31, 2002 and 2001, respectively.
Senior Notes
On March 3, 1999, the Authority issued $200.0 million Senior Notes with
fixed interest payable at a rate of 8.125% per annum (the "Senior Notes"). The
proceeds from this financing were used to extinguish or defease existing debt,
pay transaction costs and fund initial costs related to Project Sunburst.
Interest on the Senior Notes is payable semi-annually on January 1 and July 1.
The Senior Notes mature on January 1, 2006. The Senior Notes are
uncollateralized general obligations of the Authority and rank pari passu in
right of payment with all current and future uncollateralized senior
indebtedness of the Authority. Borrowings under the syndicated Bank Credit
Facility and other capital lease obligations are collateralized by first
priority liens on substantially all of the assets of the Authority. As a
result, upon any distribution to creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to the Authority or the Tribe,
the holders of collateralized debt may be paid in full in cash before any
payment may be made with respect to the Senior Notes. The Senior Notes rank
equally in right of payment with 50% of the Authority's payment obligations
under the Relinquishment Agreement (see Note 6) and rank senior to the
remaining 50% of the Authority's payment obligations under the Relinquishment
Agreement, the 1999 Senior Subordinated Notes, the 2001 Senior Subordinated
Notes and the 2002 Senior Subordinated Notes. As of March 31, 2002, accrued
interest on the Senior Notes was $4.1 million.
1999 Senior Subordinated Notes
On March 3, 1999, the Authority issued $300.0 million Senior Subordinated
Notes with fixed interest payable at a rate of 8.75% per annum (the "1999
Senior Subordinated Notes"). The proceeds from this financing were used to
extinguish or defease existing debt, pay transaction costs and fund initial
costs related to Project Sunburst. Interest on the 1999 Senior Subordinated
Notes is payable semi-annually on January 1 and July 1. The 1999 Senior
Subordinated Notes mature on January 1, 2009. The 1999 Senior Subordinated
Notes are uncollateralized general obligations of the Authority and are
subordinated to the Bank Credit Facility, the Senior Notes and in a
liquidation, bankruptcy or similar proceeding 50% of the Authority's payment
obligations under
F-28
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
the Relinquishment Agreement that are then due and owing. The 1999 Senior
Subordinated Notes rank equally with the remaining 50% of the Authority's
payment obligations under the Relinquishment Agreement that are then due and
owing, the 2001 Senior Subordinated Notes and the 2002 Senior Subordinated
Notes. As of March 31, 2002, accrued interest on the 1999 Senior Subordinated
Notes was $6.6 million.
2001 Senior Subordinated Notes
On July 26, 2001, the Authority issued $150.0 million Senior Subordinated
Notes with fixed interest payable at a rate of 8.375% per annum (the "2001
Senior Subordinated Notes"). The proceeds from this financing were used to pay
transaction costs, pay down $90.0 million on the Bank Credit Facility and fund
costs related to Project Sunburst. Interest on the 2001 Senior Subordinated
Notes is payable semi-annually on January 1 and July 1. The 2001 Senior
Subordinated Notes mature on July 1, 2011. The 2001 Senior Subordinated Notes
are uncollateralized general obligations of the Authority and are subordinated
to the Bank Credit Facility, the Senior Notes and in a liquidation, bankruptcy
or similar proceeding 50% of the Authority's payment obligations under the
Relinquishment Agreement that are then due and owing. The 2001 Senior
Subordinated Notes rank equally with the 1999 Senior Subordinated Notes, the
2002 Senior Subordinated Notes and the remaining 50% of the Authority's payment
obligations under the Relinquishment Agreement that are then due and owing. As
of March 31, 2002, accrued interest on the 2001 Senior Subordinated Notes was
$3.1 million.
2002 Senior Subordinated Notes
On February 20, 2002, the Authority issued $250.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.0% per annum (the
"2002 Senior Subordinated Notes"). The proceeds from this financing were used
to pay transaction costs and pay down $243.0 million of the outstanding balance
under the Bank Credit Facility. Interest on the 2002 Senior Subordinated Notes
is payable semi-annually on April 1 and October 1, with the first interest
payment scheduled for October 1, 2002. The 2002 Senior Subordinated Notes
mature on April 1, 2012. The 2002 Senior Subordinated Notes are
uncollateralized general obligations of the Authority and are subordinated to
the Bank Credit Facility, the Senior Notes and in a liquidation, bankruptcy or
similar proceeding 50% of the Authority's payment obligations under the
Relinquishment Agreement that are then due and owing. The 2002 Senior
Subordinated Notes rank equally with the 1999 Senior Subordinated Notes, the
2001 Senior Subordinated Notes and the remaining 50% of the Authority's payment
obligations under the Relinquishment Agreement that are then due and owing. As
of March 31, 2002, accrued interest on the 2002 Senior Subordinated Notes was
$2.2 million.
Letters of Credit
The Authority has available a $250,000 uncollateralized letter of credit
that will expire in August 2002. The Authority also has a $550,000 letter of
credit that expires in April 2003, which the Authority is currently negotiating
a reduction. The $550,000 letter of credit was reduced from $1,000,000 on April
13, 2001. As of March 31, 2002, no amounts were drawn on the letters of credit.
NOTE 4--RELATED PARTY TRANSACTIONS
The Tribe provides governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. For the quarters ended March
31, 2002 and 2001, expenses associated with these services were $1.2 million
and $2.7 million, respectively. During the six months ended March 31, 2002 and
2001, the Authority incurred $4.1 million and $5.5 million, respectively, of
expenses for such services.
F-29
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Tribe, through one of its limited liability companies, has entered into
various land lease agreements with the Authority for access, parking and
related purposes for Mohegan Sun. For each of the quarters ended March 31, 2002
and 2001, expenses related to these agreements totaled $97,000. The Authority
expensed $194,000 and $181,000 for the six months ended March 31, 2002 and
2001, respectively, relating to these land lease agreements.
NOTE 5--COMMITMENTS AND CONTINGENCIES
Project Sunburst
The Tribe received a notification from Trading Cove Associates, or TCA, the
developer of Project Sunburst, indicating that the cost of completing Project
Sunburst is estimated to be $1.0 billion, excluding capitalized interest, which
represents an increase of $40 million over the previous estimate of $960.0
million. TCA indicated that the $40.0 million increase relates to scope changes
to the Mohegan Sun retail program amounting to $10.0 million and acceleration
costs related to the early opening of the Casino of the Sky and the extended
hotel tower completion date in the amount of $12.0 million. The balance of the
increase relates to theming and quality improvements and claims reserves in the
amount of $18.0 million. Mohegan Sun currently anticipates obtaining $25.0
million in operating lease financing to fund a portion of the cost overrun and
will increase its 2002 annual capital expenditures by $15.0 million to the
maximum authorized spending of $35.0 million to fund the balance of the overrun
out of operating cash flows. As of March 31, 2002, the Authority has spent
$936.2 million, excluding capitalized interest, on Project Sunburst. The
remaining $63.8 million (of which $15.0 million will be categorized as annual
capital expenditures) is anticipated to be spent during the remainder of fiscal
year 2002.
As of March 31, 2002, cumulative capitalized interest for Project Sunburst
construction expenses totaled $44.1 million. Capitalized interest totaled $3.1
million and $5.9 million for the quarters ended March 31, 2002 and 2001,
respectively. Capitalized interest totaled $6.3 million and $10.7 million for
the six months ended March 31, 2002 and 2001, respectively.
The Mohegan Compact
In May 1994, the Tribe and the State of Connecticut entered into a
Memorandum of Understanding ("MOU") which sets forth certain matters regarding
implementation of the Mohegan Compact. The MOU stipulates that a portion of the
revenues earned on slot machines must be paid to the State of Connecticut
("Slot Win Contribution"). The Slot Win Contribution payments will not be
required if the State of Connecticut legalizes any other gaming operations with
slot machines or other commercial casino table games within Connecticut, except
those consented to by the Tribe and the Mashantucket Pequot Tribe.For each
12-month period commencing July 1, 1995, the Slot Win Contribution shall be the
lesser of (a) 30% of gross revenues from slot machines, or (b) the greater of
(i) 25% of gross revenues from slot machines or (ii) $80.0 million. The
Authority reflected expenses associated with the Slot Win Contribution totaling
$41.2 million and $33.8 million, respectively, for the quarters ended March 31,
2002 and March 31, 2001. For the six months ended March 31, 2001 and 2001,
expenses associated with the Slot Win Contribution totaled $84.2 million and
$66.8 million, respectively.
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority engaged Perini Building Company, Inc. ("Perini") as
construction manager to provide construction management services for Project
Sunburst. As construction manager, Perini is receiving a fee of
F-30
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
$25.5 million for services including, but not limited to, pre-construction
review and construction phase contract administration. In addition, the
Authority has agreed to pay Perini $1.3 million in construction management fees
relating to the Indian Summer Garage and $500,000 relating to the Thames
Garage. As of March 31, 2002, Perini has received $22.3 million of the $27.3
million fee. Of the $22.3 million, $15.3 million has been included in property,
plant and equipment and the remainder has been included in "construction in
process" in the accompanying balance sheets. For the quarters ended March 31,
2002 and 2001, the Authority paid Perini $2.5 million and $970,000,
respectively, related to the construction management fee. The Authority paid
Perini $7.9 million and $3.0 million in fees for the six months ended March 31,
2002 and 2001, respectively.
Radio Station Guarantee
The Authority entered into an agreement with AAA Entertainment, LLC ("AAA")
to operate the radio station WMOS on the premises of Mohegan Sun. In the event
WMOS's annual net revenue is less than $600,000, the Authority agrees to
reimburse AAA $600,000 less the actual net revenue. AAA will retain 100% of
WMOS's annual net revenues between $600,000 and $750,000 and the Authority will
share one-half of annual net revenues that exceed $750,000. Amounts to be
reimbursed are assessed monthly, but payments are calculated on a cumulative
annual basis. No payments have been made during the quarter ended March 31,
2002. Payments to AAA have totaled $61,000 for the six months ended March 31,
2002. As of March 31, 2002 amounts due to AAA but not yet paid totaled $44,000.
These amounts represent the revenue shortfall from October 1, 2001 through
March 31, 2002.
Litigation
The Authority is a defendant in certain litigation incurred in the normal
course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will not
have a materially adverse effect on the Authority's financial position, results
of operations or cashflows.
NOTE 6--TCA AGREEMENTS
Relinquishment Agreement
In February 1998, the Authority and TCA entered into an agreement (the
"Relinquishment Agreement"). Effective January 1, 2000 (the "Relinquishment
Date"), the Relinquishment Agreement superseded the September 30, 1995 Amended
and Restated Gaming Facility Management Agreement (the "Management Agreement"),
and provides that the Authority is to make certain payments to TCA out of, and
determined as a percentage of, the gross revenues generated by the Mohegan Sun
over a 15-year period commencing on the Relinquishment Date. The payments
("Senior Relinquishment Payments" and "Junior Relinquishment Payments"), each
of which are calculated as 2.5% of revenues, as defined, have separate payment
schedules and priority. Payment of Senior Relinquishment Payments commenced on
April 25, 2000, twenty-five days following the end of the first three-month
period following the Relinquishment Date, and continue at the end of each
three-month period occurring thereafter until December 31, 2014. Junior
Relinquishment Payments commenced on July 25, 2000, twenty-five days following
the end of the first six-month period following the Relinquishment Date, and
continue at the end of each six-month period occurring thereafter until
December 31, 2014. Each Senior Relinquishment Payment and Junior Relinquishment
Payment is an amount equal to 2.5% of the Revenues generated by Mohegan Sun
over the immediately preceding three-month or six-month payment period, as the
case may be. "Revenues" are defined as gross gaming revenues (other than Class
II gaming revenue) and all other facility revenues (including, without
limitation, hotel revenues, room service, food and beverage sales, ticket
revenues, fees or receipts from convention/events center and all rental or
other receipts from lessees and concessionaires but not the gross receipts of
such lessees, licenses and concessionaires).
F-31
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Authority, in accordance with SFAS No. 5, "Accounting for
Contingencies," has recorded a relinquishment liability of the estimated
present value of its obligations under the Relinquishment Agreement.
A relinquishment liability of $549.1 million was established at September 30,
1998 based on the present value of the estimated future Mohegan Sun revenues
utilizing the Authority's risk free investment rate. At March 31, 2002, the
carrying amount of the relinquishment liability was $585.7 million as compared
to $592.0 million at September 30, 2001. The decrease is due to $24.5 million
in relinquishment payments, partially offset by $18.2 million in accretion of
relinquishment liability discount. Of the $24.5 million in relinquishment
payments for the six months ended March 31, 2002, $6.4 million represents
principal amounts and the remaining $18.1 million is payment for the accretion
of interest. Relinquishment payments of $21.0 million were made during the six
months ended March 31, 2001. Of the $21.0 million in relinquishment payments
for the six months ended March 31, 2001, $6.3 million represents principal
payments and the remaining $14.7 million is payment for the accretion of
interest. The accretion described above resulted from the impact on the
discount for the time value of money due to the passage of time. As of March
31, 2002, relinquishment payments earned but unpaid were $12.5 million.
Development Agreement
On February 7, 1998, the Authority and TCA entered into a development
services agreement (the "Development Agreement"). Under the Development
Agreement, TCA is responsible for the administration and supervision of the
construction manager and the entire construction process of Project Sunburst.
TCA is acting as the Authority's representative in connection with construction
contracts that are approved by the Authority. Specifically, TCA is responsible
for overseeing all persons performing work on the expansion site, inspecting
the progress of construction, determining completion dates and reviewing
contractor payment requests submitted to the Authority.
Payment of the Development Fee
Under the Development Agreement, the Authority is required to pay to TCA a
development fee of $14.0 million. Pursuant to the payment schedule described in
the Development Agreement, on January 15, 2000, the Authority began paying the
development fee to TCA on a quarterly basis, based upon the incremental
completion as of each payment date. As of March 31, 2002, the Authority has
incurred $12.9 million related to the TCA development fee, of which $12.5
million has been paid. Of the $12.9 million, $8.8 million has been included in
property, plant and equipment and the remainder has been included in
"construction in process" in the accompanying balance sheets.
Termination and Disputes
The Development Agreement terminates upon the earlier of (a) completion of
Project Sunburst or (b) February 7, 2008. In addition, each party has the right
to terminate the Development Agreement if there is a material default or
failure to perform a material duty or obligation by the other party. The
parties must submit disputes arising under the Development Agreement to
arbitration and have agreed that punitive damages may not be awarded to either
party by an arbitrator. The Authority has also waived sovereign immunity for
the purpose of permitting, compelling or enforcing arbitration and has agreed
to be sued by TCA in any court of competent jurisdiction for the purposes of
compelling arbitration or enforcing any arbitration or judicial award arising
out of the Development Agreement.
F-32
================================================================================
$250,000,000
Mohegan Tribal Gaming Authority
$250,000,000 8% Senior Subordinated Notes due 2012
[GRAPHIC THE MOHEGAN
[GRAPHIC MOHEGAN SUN] TRIBE MUNDO WIGO]
-----------------
PROSPECTUS
Dated , 2002
-----------------
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
All current and former officers, employees and members of the Authority are
entitled to be indemnified by the Authority pursuant to Section 7 of Mohegan
Tribal Ordinance No. 95-2, the ordinance that established the Authority,
"against reasonable expenses actually and necessarily incurred by that person
in connection with the defense of any action, suit or proceeding in which that
person is made a party by reason of being, or having been, such officer,
employee or member of the Authority." Indemnification is not available in the
event of an adjudication of liability for negligence or misconduct in the
performance of duty or for actions beyond the scope of employment. The
Authority also may reimburse such persons for the reasonable costs of
settlements of actions, suits or proceedings (so long as such settlements do
not involve findings of neglect, misconduct or ultra vires acts) deemed by the
Management Board to be in the best interests of the Authority.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit
No. Exhibit Description
--- -------------------
*1.1 Purchase Agreement, dated as of February 12, 2002 among the Mohegan Tribal Gaming Authority,
the Mohegan Tribe of Indians of Connecticut and Banc of America Securities LLC, as representative
of the Initial Purchasers.
*1.2 Purchase Agreement, dated as of July 19, 2001 among the Mohegan Tribal Gaming Authority, the
Mohegan Tribe of Indians of Connecticut and Salomon Brothers Inc., as representative of the Initial
Purchasers (filed as Exhibit 1.1 to Registration Statement on Form S-4, File No. 333-69472, filed with
the SEC on September 17, 2001 (the "2001 Form S-4") and incorporated by reference herein).
*3.1 Constitution of the Mohegan Tribe of Indians of Connecticut (filed as Exhibit 3.1 to the Registration
Statement on Form S-1, File No. 33-80655, filed with the SEC on December 21, 1995 (the "1996
Form S-1"), and incorporated by reference herein).
*3.2 Ordinance No. 95-2 of the Tribe for Gaming on Tribal Lands, enacted on July 15, 1995 (filed as
Exhibit 3.2 to the 1996 Form S-1 and incorporated by reference herein).
*4.1 Note Purchase Agreement dated September 29, 1995 between the Mohegan Tribal Gaming Authority
and Sun International Hotels Limited (filed as Exhibit 10.10 to the 1996 Form S-1 and incorporated
by reference herein).
*4.2 Form of Junior Subordinated Note due 2003 of the Mohegan Tribal Gaming Authority (contained in
the Note Purchase Agreement filed as Exhibit 4.1).
*4.3 Indenture dated March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of
Indians of Connecticut and First Union National Bank, as Trustee, relating to the 8 1/8% Senior Notes
Due 2006 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.3 to Registration Statement on
Form S-4, File No. 333-76753, filed with the SEC on April 21, 1999 (the "1999 Form S-4"), and
incorporated by reference herein).
*4.4 Form of Global 8 1/8% Senior Note Due 2006 of the Mohegan Tribal Gaming Authority (contained in
the Indenture filed as Exhibit 4.3).
*4.5 Senior Registration Agreement dated March 3, 1999 among the Mohegan Tribal Gaming Authority,
Salomon Smith Barney Inc., NationsBanc Montgomery Securities, LLC, SG Cowen Securities
Corporation, Bear, Stearns & Co. Inc., BankBoston Robertson Stephens Inc. and Fleet Securities, Inc.
(filed as Exhibit 4.5 to the 1999 Form S-4 and incorporated by reference herein).
II-1
Exhibit
No. Exhibit Description
--- -------------------
*4.6 Indenture dated as of March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan
Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the
8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (filed as
Exhibit 4.6 to the 1999 Form S-4 and incorporated by reference herein).
*4.7 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority
(contained in the Indenture filed as Exhibit 4.6).
*4.8 Senior Subordinated Registration Agreement dated March 3, 1999 among the Mohegan Tribal
Gaming Authority, Salomon Smith Barney Inc., NationsBanc Montgomery Securities LLC, SG
Cowen Securities Corporation, Bear, Stearns & Co. Inc., BankBoston Robertson Stephens Inc. and
Fleet Securities, Inc. (filed as Exhibit 4.8 to the 1999 Form S-4 and incorporated by reference herein).
*4.9 Indenture dated as of July 26, 2001 among the Mohegan Tribal Gaming Authority, the Mohegan
Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the
8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority (filed as
Exhibit 4.9 to the 2001 Form S-4 and incorporated by reference herein).
*4.10 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority
(contained in the Indenture filed as Exhibit 4.9).
*4.11 Registration Rights Agreement dated July 26, 2001 among the Mohegan Tribal Gaming Authority,
Salomon Smith Barney Inc., Banc of America Securities LLC, Fleet Securities, Inc., SG Cowen
Securities Corporation, Commerzbank Capital Markets Corp., McDonald Investments Inc. and Wells
Fargo Brokerage Services, LLC (filed as Exhibit 4.11 to the 2001 Form S-4 and incorporated by
reference herein).
*4.12 Indenture dated as of February 20, 2002 among the Mohegan Tribal Gaming Authority, the Mohegan
Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the
8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority.
*4.13 Form of Global 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority
(contained in the Indenture filed as Exhibit 4.12).
*4.14 Registration Rights Agreement dated February 20, 2002 among the Mohegan Tribal Gaming
Authority, Banc of America Securities LLC, Salomon Smith Barney Inc., Fleet Securities, Inc., SG
Cowen Securities Corporation, Commerzbank Securities, McDonald Investments Inc., Wells Fargo
Brokerage Services, LLC, and Credit Lyonnais Securities.
*5.1 Opinion of Hogan & Hartson L.L.P.
*10.1 The Mohegan Tribe--State of Connecticut Gaming Compact between the Mohegan Tribe of Indians
of Connecticut and the State of Connecticut (the "Compact") (filed as Exhibit 10.1 to the 1996 Form
S-1 and incorporated by reference herein).
*10.2 Agreement dated April 25, 1994 between the Mohegan Tribe of Indians of Connecticut and the State
of Connecticut resolving certain land claims (the "Resolution Agreement") (filed as Exhibit 10.2 to
the 1996 Form S-1 and incorporated by reference herein).
*10.3 Memorandum of Understanding dated May 17, 1994 between the Mohegan Tribe of Indians of
Connecticut and the State of Connecticut regarding implementation of the Compact and the
Resolution Agreement (filed as Exhibit 10.3 to the 1996 Form S-1 and incorporated by reference
herein).
*10.4 Agreement between the Mohegan Tribe of Indians of Connecticut and the Town of Montville,
Connecticut (filed as Exhibit 10.4 to the 1996 Form S-1 and incorporated by reference herein).
II-2
Exhibit
No. Exhibit Description
--- -------------------
*10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of Indians of Connecticut and the
Mohegan Tribal Gaming Authority; Amendment of Land Lease dated September 29, 1995 (filed as
Exhibit 10.5 to the 1996 Form S-1 and incorporated by reference herein).
*10.6 Amendment to the Land Lease dated February 18, 1999 between the Mohegan Tribe of Indians of
Connecticut and the Mohegan Tribal Gaming Authority (filed as Exhibit 10.6 to the 1999 Form S-4
and incorporated by reference herein).
*10.7 Amended and Restated Gaming Facility Management Agreement dated August 30, 1995 between the
Mohegan Tribe of Indians of Connecticut, the Mohegan Tribal Gaming Authority and Trading Cove
Associates (filed as Exhibit 10.8 to the 1996 Form S-1 and incorporated by reference herein).
*10.8 Development Services Agreement dated February 7, 1998 by and among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates (filed
as Exhibit 10.15 to Form 10-K for the Authority's fiscal year ended September 30, 1998, File
No. 33-80655 (the "1998 Form 10-K"), and incorporated by reference herein).
*10.9 Relinquishment Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates (filed as
Exhibit 10.14 to the 1998 Form 10-K and incorporated by reference herein).
*10.10 The Loan Agreement dated as of March 3, 1999 by and among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut, Bank of America National Trust and
Savings Associations as administrative agent, Salomon Smith Barney Inc. as Syndication Agent,
Societe Generale as Documentation Agent, NationsBanc Montgomery Securities LLC as Lead
Arranger and each lender named therein (filed as Exhibit 10.10 to the 1999 Form S-4 and
incorporated by reference herein).
*10.11 Escrow Deposit Agreement dated March 3, 1999 by and among the Mohegan Tribal Gaming
Authority and First Union National Bank (filed as Exhibit 10.11 to the 1999 Form S-4 and
incorporated by reference herein).
*10.12 Construction Reserve Disbursement Agreement dated March 3, 1999 among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Fleet National Bank (filed as
Exhibit 10.12 to the 1999 Form S-4 and incorporated by reference herein).
*10.13 The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust Agreement dated September 1,
1998 between the Mohegan Tribal Gaming Authority and Merrill Lynch Trust (filed as Exhibit 10.16
to the 1998 Form 10-K).
*10.14 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and
William J. Velardo (filed as Exhibit 10.14 to the 1999 Form S-4 and incorporated by reference herein).
*10.15 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority
and Mitchell Grossinger Etess (filed as Exhibit 10.15 to the 1999 Form S-4 and incorporated by
reference herein).
*10.16 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and
Jeffrey E. Hartmann (filed as Exhibit 10.16 to the 1999 Form S-4 and incorporated by reference herein).
*10.17 Amendment No. 1 to Loan Agreement dated as of March 3, 1999 by and among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America National
Trust and Savings Association (filed as Exhibit 10.17 to the Form 10-K for the Authority's fiscal year
ended September 30, 2000, File No. 33-80655, and incorporated by reference herein).
*10.18 Amendment No. 2 to Loan Agreement dated as of February 8, 2002 by and among the Mohegan
Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America
National Trust and Savings Association (filed as Exhibit 99.1 to the Authority's Form 8-K filed on
February 12, 2002, and incorporated by reference herein).
II-3
Exhibit
No. Exhibit Description
--- -------------------
*10.19 Amendment No. 3 to Loan Agreement dated as of March 26, 2002 by and among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America National
Trust and Savings Association (filed as Exhibit 99.1 to the Authority's Form 8-K filed on March 26,
2002, and incorporated by reference herein).
*10.20 Priority Distribution Agreement between Mohegan Tribal Gaming Authority and the Mohegan Tribe
of Indians of Connecticut dated August 1, 2001 (filed as Exhibit 10.1 to the Form 10-Q for the
Authority's quarter ended June 30, 2001, File No. 33-80655 (the "June 2001 10-Q"), and
incorporated by reference herein).
*10.21 Administrative Services Agreement between Mohegan Tribal Gaming Authority and Fleet
Retirement Plan Services dated July 30, 2001 (filed as Exhibit 10.2 to the June 2001 10-Q and
incorporated by reference herein).
+ 12.1 Computation of Ratio of Earnings to Fixed Charges.
*23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
+ 23.2 Consent of Arthur Andersen LLP.
*24.1 Power of attorney.
*25.1 Statement on Form T-1 of Eligibility of Trustee.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.
*99.4 Form of Letter to Clients.
*99.5 Letter to Commission Pursuant to Temporary Note 3T.
- --------
* Previously filed.
+ Filed herewith.
(b) Financial Statement Schedules.
The following financial statement schedule is filed with this Registration
Statement:
Page
----
Report of the Independent Public Accountants on the Financial Statement Schedule S-1
Schedule II--Valuation and Qualifying Accounts.................................. S-2
Schedules other than that listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes to the financial statements.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or 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
Securities Act and will be governed by the final adjudication of such issue.
II-4
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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 this Registration Statement through
the date of responding to the request.
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
this Registration Statement when it became effective.
The undersigned registrant hereby undertakes 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;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement when it becomes
effective; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act, 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.
The undersigned registrant hereby undertakes 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.
II-5
SIGNATURES
Pursuant to the requirements of Securities Act of 1933, the Authority has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Uncasville, Connecticut,
on this 21st day of May, 2002.
MOHEGAN TRIBAL GAMING AUTHORITY
By: /s/ MARK F. BROWN
-----------------------------
Mark F. Brown
Chairman and Member,
Management Board
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons, in the capacities
indicated below, on this 21st day of May, 2002.
Signatures Title
---------- -----
/s/ MARK F. BROWN Chairman and Member,
- --------------------------------------- Management Board
Mark F. Brown
/s/ PETER J. SCHULTZ Vice-Chairman and Member,
- --------------------------------------- Management Board
Peter J. Schultz
* President and General
- --------------------------------------- Manager, Mohegan Sun
William J. Velardo (Principal Executive
Officer)
/s/ JEFFREY E. HARTMANN Executive Vice President,
- --------------------------------------- Finance and Chief Financial
Jeffrey E. Hartmann Officer, Mohegan Sun
(Principal Financial and
Accounting Officer)
/s/ SHIRLEY M. WALSH Recording Secretary and
- --------------------------------------- Member, Management Board
Shirley M. Walsh
/s/ CHRISTINE D. MURTHA Corresponding Secretary and
- --------------------------------------- Member, Management Board
Christine D. Murtha
* Treasurer and Member,
- --------------------------------------- Management Board
Donald M. Chapman
/s/ JAYNE G. FAWCETT Ambassador and Member,
- --------------------------------------- Management Board
Jayne G. Fawcett
/s/ ROLAND J. HARRIS Member, Management Board
- ---------------------------------------
Roland J. Harris
/s/ MAYNARD L. STRICKLAND Member, Management Board
- ---------------------------------------
Maynard L. Strickland
/s/ GLENN R. LAVIGNE Member, Management Board
- ---------------------------------------
Glenn R. LaVigne
*By: /s/ MARK F. BROWN
------------------------
Mark F. Brown
Attorney-in-fact
II-6
SCHEDULE II
REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE
To the Mohegan Tribal Gaming Authority:
We have audited in accordance with auditing standards generally accepted in the
United States, the balance sheets of the Mohegan Tribal Gaming Authority (the
Authority) as of September 30, 2001 and 2000 and the related statements of
income (loss), capital and cash flows for the three years ended September 30,
2001 included in this registration statement and have issued our report thereon
dated December 14, 2001. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule issued
in Item 21 is the responsibility of the Authority's management and is presented
for the purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth herein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
December 14, 2001
S-1
MOHEGAN TRIBAL GAMING AUTHORITY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 and 1999
(in thousands)
Column A Column B Column C Column D Column E
-------- ------------- ------------------------ ----------- ----------
Balance Charged to Charged Deductions Balance
at beginning costs to other from at end
Description: of period and expenses accounts reserves(1) of period
------------ ------------- ------------- --------- ----------- ----------
Year Ended September 30, 2001
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts......... $ 736 $ 411 $ -- $ 382 $ 765
Relinquishment liability................ $ 672,880 $ (38,577) $ -- $ 42,295 $ 592,008
Year Ended September 30, 2000
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts......... $ 834 $ 617 $ -- $ 715 $ 736
Relinquishment liability................ $ 661,010 $ 31,843 $ -- $ 19,973 $ 672,880
Year Ended September 30, 1999
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts......... $ 348 $ 679 $ -- $ 193 $ 834
Relinquishment Liability................ $ 549,125 $ 111,885 $ -- $ -- $ 661,010
- --------
Note (1): Deductions from reserves include the write-off of uncollectible
accounts, net of recoveries of accounts previously written off and payments
under the Relinquishment Agreement.
S-2
EXHIBIT INDEX
Exhibit
No. Exhibit Description
--- -------------------
*1.1 Purchase Agreement, dated as of February 12, 2002 among the Mohegan Tribal Gaming Authority,
the Mohegan Tribe of Indians of Connecticut and Banc of America Securities LLC, as representative
of the Initial Purchasers.
*1.2 Purchase Agreement, dated as of July 19, 2001 among the Mohegan Tribal Gaming Authority, the
Mohegan Tribe of Indians of Connecticut and Salomon Brothers Inc., as representative of the Initial
Purchasers (filed as Exhibit 1.1 to Registration Statement on Form S-4, File No. 333-69472, filed with
the SEC on September 17, 2001 (the "2001 Form S-4") and incorporated by reference herein).
*3.1 Constitution of the Mohegan Tribe of Indians of Connecticut (filed as Exhibit 3.1 to the Registration
Statement on Form S-1, File No. 33-80655, filed with the SEC on December 21, 1995 (the "1996
Form S-1"), and incorporated by reference herein).
*3.2 Ordinance No. 95-2 of the Tribe for Gaming on Tribal Lands, enacted on July 15, 1995 (filed as
Exhibit 3.2 to the 1996 Form S-1 and incorporated by reference herein).
*4.1 Note Purchase Agreement dated September 29, 1995 between the Mohegan Tribal Gaming Authority
and Sun International Hotels Limited (filed as Exhibit 10.10 to the 1996 Form S-1 and incorporated
by reference herein).
*4.2 Form of Junior Subordinated Note due 2003 of the Mohegan Tribal Gaming Authority (contained in
the Note Purchase Agreement filed as Exhibit 4.1).
*4.3 Indenture dated March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of
Indians of Connecticut and First Union National Bank, as Trustee, relating to the 8 1/8% Senior Notes
Due 2006 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.3 to Registration Statement on
Form S-4, File No. 333-76753, filed with the SEC on April 21, 1999 (the "1999 Form S-4"), and
incorporated by reference herein).
*4.4 Form of Global 8 1/8% Senior Note Due 2006 of the Mohegan Tribal Gaming Authority (contained in
the Indenture filed as Exhibit 4.3).
*4.5 Senior Registration Agreement dated March 3, 1999 among the Mohegan Tribal Gaming Authority,
Salomon Smith Barney Inc., NationsBanc Montgomery Securities, LLC, SG Cowen Securities
Corporation, Bear, Stearns & Co. Inc., BankBoston Robertson Stephens Inc. and Fleet Securities, Inc.
(filed as Exhibit 4.5 to the 1999 Form S-4 and incorporated by reference herein).
*4.6 Indenture dated as of March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan
Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the
8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (filed as
Exhibit 4.6 to the 1999 Form S-4 and incorporated by reference herein).
*4.7 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority
(contained in the Indenture filed as Exhibit 4.6).
*4.8 Senior Subordinated Registration Agreement dated March 3, 1999 among the Mohegan Tribal
Gaming Authority, Salomon Smith Barney Inc., NationsBanc Montgomery Securities LLC, SG
Cowen Securities Corporation, Bear, Stearns & Co. Inc., BankBoston Robertson Stephens Inc. and
Fleet Securities, Inc. (filed as Exhibit 4.8 to the 1999 Form S-4 and incorporated by reference herein).
*4.9 Indenture dated as of July 26, 2001 among the Mohegan Tribal Gaming Authority, the Mohegan
Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the
8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority (filed as
Exhibit 4.9 to the 2001 Form S-4 and incorporated by reference herein).
1
Exhibit
No. Exhibit Description
--- -------------------
*4.10 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority
(contained in the Indenture filed as Exhibit 4.9).
*4.11 Registration Rights Agreement dated July 26, 2001 among the Mohegan Tribal Gaming Authority,
Salomon Smith Barney Inc., Banc of America Securities LLC, Fleet Securities, Inc., SG Cowen
Securities Corporation, Commerzbank Capital Markets Corp., McDonald Investments Inc. and Wells
Fargo Brokerage Services, LLC (filed as Exhibit 4.11 to the 2001 Form S-4 and incorporated by
reference herein).
*4.12 Indenture dated as of February 20, 2002 among the Mohegan Tribal Gaming Authority, the Mohegan
Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the
8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority.
*4.13 Form of Global 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority
(contained in the Indenture filed as Exhibit 4.12).
*4.14 Registration Rights Agreement dated February 20, 2002 among the Mohegan Tribal Gaming
Authority, Banc of America Securities LLC, Salomon Smith Barney Inc., Fleet Securities, Inc., SG
Cowen Securities Corporation, Commerzbank Securities, McDonald Investments Inc., Wells Fargo
Brokerage Services, LLC, and Credit Lyonnais Securities.
*5.1 Opinion of Hogan & Hartson L.L.P.
*10.1 The Mohegan Tribe--State of Connecticut Gaming Compact between the Mohegan Tribe of Indians
of Connecticut and the State of Connecticut (the "Compact") (filed as Exhibit 10.1 to the 1996 Form
S-1 and incorporated by reference herein).
*10.2 Agreement dated April 25, 1994 between the Mohegan Tribe of Indians of Connecticut and the State
of Connecticut resolving certain land claims (the "Resolution Agreement") (filed as Exhibit 10.2 to
the 1996 Form S-1 and incorporated by reference herein).
*10.3 Memorandum of Understanding dated May 17, 1994 between the Mohegan Tribe of Indians of
Connecticut and the State of Connecticut regarding implementation of the Compact and the
Resolution Agreement (filed as Exhibit 10.3 to the 1996 Form S-1 and incorporated by reference
herein).
*10.4 Agreement between the Mohegan Tribe of Indians of Connecticut and the Town of Montville,
Connecticut (filed as Exhibit 10.4 to the 1996 Form S-1 and incorporated by reference herein).
*10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of Indians of Connecticut and the
Mohegan Tribal Gaming Authority; Amendment of Land Lease dated September 29, 1995 (filed as
Exhibit 10.5 to the 1996 Form S-1 and incorporated by reference herein).
*10.6 Amendment to the Land Lease dated February 18, 1999 between the Mohegan Tribe of Indians of
Connecticut and the Mohegan Tribal Gaming Authority (filed as Exhibit 10.6 to the 1999 Form S-4
and incorporated by reference herein).
*10.7 Amended and Restated Gaming Facility Management Agreement dated August 30, 1995 between the
Mohegan Tribe of Indians of Connecticut, the Mohegan Tribal Gaming Authority and Trading Cove
Associates (filed as Exhibit 10.8 to the 1996 Form S-1 and incorporated by reference herein).
*10.8 Development Services Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates (filed as
Exhibit 10.15 to Form 10-K for the Authority's fiscal year ended September 30, 1998, File No.
33-80655 (the "1998 Form 10-K"), and incorporated by reference herein).
*10.9 Relinquishment Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates (filed as
Exhibit 10.14 to the 1998 Form 10-K and incorporated by reference herein).
2
Exhibit
No. Exhibit Description
--- -------------------
*10.10 The Loan Agreement dated as of March 3, 1999 by and among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut, Bank of America National Trust and
Savings Associations as administrative agent, Salomon Smith Barney Inc. as Syndication Agent,
Societe Generale as Documentation Agent, NationsBanc Montgomery Securities LLC as Lead
Arranger and each lender named therein (filed as Exhibit 10.10 to the 1999 Form S-4 and
incorporated by reference herein).
*10.11 Escrow Deposit Agreement dated March 3, 1999 by and among the Mohegan Tribal Gaming
Authority and First Union National Bank (filed as Exhibit 10.11 to the 1999 Form S-4 and
incorporated by reference herein).
*10.12 Construction Reserve Disbursement Agreement dated March 3, 1999 among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Fleet National Bank (filed as
Exhibit 10.12 to the 1999 Form S-4 and incorporated by reference herein).
*10.13 The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust Agreement dated September 1,
1998 between the Mohegan Tribal Gaming Authority and Merrill Lynch Trust (filed as Exhibit 10.16
to the 1998 Form 10-K).
*10.14 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority
and William J. Velardo (filed as Exhibit 10.14 to the 1999 Form S-4 and incorporated by reference
herein).
*10.15 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority
and Mitchell Grossinger Etess (filed as Exhibit 10.15 to the 1999 Form S-4 and incorporated by
reference herein).
*10.16 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority
and Jeffrey E. Hartmann (filed as Exhibit 10.16 to the 1999 Form S-4 and incorporated by reference
herein).
*10.17 Amendment No. 1 to Loan Agreement dated as of March 3, 1999 by and among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America National
Trust and Savings Association (filed as Exhibit 10.17 to the Form 10-K for the Authority's fiscal year
ended September 30, 2000, File No. 33-80655, and incorporated by reference herein).
*10.18 Amendment No. 2 to Loan Agreement dated as of February 8, 2002 by and among the Mohegan
Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America
National Trust and Savings Association (filed as Exhibit 99.1 to the Authority's Form 8-K filed on
February 12, 2002, and incorporated by reference herein).
*10.19 Amendment No. 3 to Loan Agreement dated as of March 26, 2002 by and among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America National
Trust and Savings Association (filed as Exhibit 99.1 to the Authority's Form 8-K filed on March 26,
2002, and incorporated by reference herein).
*10.20 Priority Distribution Agreement between Mohegan Tribal Gaming Authority and the Mohegan Tribe
of Indians of Connecticut dated August 1, 2001 (filed as Exhibit 10.1 to the Form 10-Q for the
Authority's quarter ended June 30, 2001, File No. 33-80655 (the "June 2001 10-Q"), and
incorporated by reference herein).
*10.21 Administrative Services Agreement between Mohegan Tribal Gaming Authority and Fleet
Retirement Plan Services dated July 30, 2001 (filed as Exhibit 10.2 to the June 2001 10-Q and
incorporated by reference herein).
+12.1 Computation of Ratio of Earnings to Fixed Charges.
*23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
3
Exhibit
No. Exhibit Description
--- -------------------
+ 23.2 Consent of Arthur Andersen LLP.
*24.1 Power of attorney.
*25.1 Statement on Form T-1 of Eligibility of Trustee.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.
*99.4 Form of Letter to Clients.
*99.5 Letter to Commission Pursuant to Temporary Note 3T.
- --------
* Previously filed.
+ Filed herewith.
4