ITEM 1. BUSINESS
A. General
Waterford Gaming Finance Corp., (the "Company"), a Delaware corporation, was formed on October 22, 1996 as a wholly owned subsidiary of Waterford Gaming, L.L.C. ("Gaming"). Effective as of May 15, 1997, the Company functioned as a co-issuer with its parent, Gaming, to issue $65 million 12-3/4% senior notes payable (the "$65 Million Senior Notes"). The $65 Million Senior Notes were redeemed as part of the Company's and Gaming's $125 million 9-1/2% senior notes (the "$125 Million Senior Notes") offering which was completed on March 17, 1999.
B. $125 Million 9-1/2% Senior Notes
On March 17, 1999, the Company and Gaming, issued $125 Million Senior Notes, which mature March 15, 2010. Payment of the principal of, and interest on, the $125 Million Senior Notes is subordinate in right of payment to all their existing and future secured debts.
Interest is payable semi-annually in arrears on March 15 and September 15 at a rate of 9-1/2% per annum which commenced on September 15, 1999.
The principal amount of the $125 Million Senior Notes is payable on March 15, 2010. The Company and Gaming may elect to redeem the $125 Million Senior Notes at any time on or after March 15, 2004 at a redemption price equal to a percentage (105.182% after March 14, 2004, and declining to 104.318% after March 14, 2005, 103.455% after March 14, 2006, 102.591% after March 14, 2007, 101.727% after March 14, 2008, 100.864% after March 14, 2009, and to 100% after March 14, 2010) of the principal amount thereof plus accrued interest. The $125 Million Senior Notes provide that upon the occurrence of a Change of Control (as defined), the holders thereof will have the option to require the redemption of the $125 Million Senior Notes at a redemption price equal to 101% of the principal amount thereof plus accrued interest.
If the Company and Gaming have any Company Excess Cash, as defined, they must redeem the $125 Million Senior Notes (on a semi-annual basis on March 15 and September 15) equal to a percentage (109.500% after March 15, 1999 and declining to 108.636% after March 14, 2000, 107.773% after March 14, 2001, 106.909% after March 14, 2002, 106.045% after March 14, 2003, 105.182% after March 14, 2004, 104.318% after March 14, 2005, 103.455% after March 14, 2006, 102.591% after March 14, 2007, 101.727% after March 14, 2008, 100.864% after March 14, 2009, and to 100% after March 14, 2010). On August 1, 1999 the Company and Gaming had Company Excess Cash, as defined, available for mandatory redemption of the $125 Million Senior Notes totaling approximately $8,983,000, and accordingly on September 15, 1999 the Company and Gaming made a mandatory redemption of $125 Million Senior Notes in the principal amount of $2,841,000 at the redemption price of 109.50%. On February 1, 2000 the Company and Gaming had Company Excess Cash, as defined, available for mandatory redemption of the $125 Million Senior Notes totaling approximately $8,276,000, and accordingly on March 15, 2000 the Company and Gaming made a mandatory redemption of $125 Million Senior Notes in the principal amount of $2,277,000 at the redemption price of 108.636%. In some circumstances, if either Gaming or its partner in Trading Cove Associates ("TCA") exercises the option to buy or sell partnership interests in TCA, the Company and Gaming must redeem the $125 Million Senior Notes.
The indenture relating to the $125 Million Senior Notes (the "Indenture") contains certain affirmative and negative covenants customarily contained in agreements of this type, including without limitation, covenants that restrict, subject to specified exceptions the Company's and Gaming's ability to (i) borrow money, (ii) pay dividends on stock or make certain other restricted payments, (iii) use assets as security in other transactions, (iv) make investments, (v) sell other assets or merge with other companies and (vi) engage in any business except as currently conducted or contemplated or amend their relationship with TCA. The Indenture also provides for customary events of default and the establishment of a restricted investment fund with a trustee for interest reserves.
ITEM 2.
ITEM 2. PROPERTIES
The Company does not have an ownership interest in real property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On January 6, 1998, Leisure Resort Technology, Inc. ("Leisure") and defendants Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., and Slavik Suites, Inc. settled a prior lawsuit brought by Leisure. In connection with this settlement, Leisure and Trading Cove Associates, Waterford Gaming, L.L.C., LMW Investments, Inc., and Slavik Suites, Inc. entered into a settlement and release agreement. Pursuant to this settlement and release agreement, Waterford Gaming, L.L.C. bought out Leisure's beneficial interest in Trading Cove Associates.
By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a four count complaint naming as defendants Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., Slavik Suites, Inc., Waterford Group, L.L.C., Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter is pending in the Judicial District of Middlesex at Middletown, Connecticut. The suit alleges breach of fiduciary duties, fraudulent non-disclosure, violation of Connecticut Statutes Section 42-110a, et seq., and unjust enrichment in connection with the negotiation by certain of the Defendants of the settlement and release agreement. The suit seeks unspecified legal and equitable damages. A Motion to Strike and a Motion for Summary Judgement, each with respect to all claims, have been filed on behalf of all of the Defendants.
Waterford Gaming, L.L.C. believes that it has meritorious defenses and intends to vigorously contest the claims in this action and to assert all available defenses. At the present time, Waterford Gaming, L.L.C. is unable to express an opinion on the likelihood of an unfavorable outcome or to give an estimate of the amount or range of potential loss to Waterford Gaming, L.L.C. as a result of this litigation due to the disputed issues of law and/or facts on which the outcome of this litigation depends and due to the infancy of both the action and discovery in the action.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Not Applicable.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Omitted.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussions should be read in conjunction with, and is qualified in its entirety by, the Company's financial statements and the notes thereto included elsewhere herein.
Certain Forward Looking Statements - ----------------------------------
Certain information included in this Form 10-K and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company.
Discussion of the year ended December 31, 1999 - ----------------------------------------------
For the year ended December 31, 1999 the Company had no revenue and expense.
Discussion of the year ended December 31, 1998 - ----------------------------------------------
For the year ended December 31, 1998 the Company had no revenue and expense.
Discussion of the year ended December 31, 1997 - ----------------------------------------------
Revenue for the year ended December 31, 1997 was $74.
Expenses for the year ended December 31, 1997 were $55.
As a result of the foregoing factors, the Company's net income for the twelve months ended December 31, 1997 was $19.
The Company is a wholly-owned subsidiary of Waterford Gaming, L.L.C. ("Gaming").
The Company is not expected to have significant operating activity. Funding for future operations will come from the financial support of its parent company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page 7.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Part III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to persons who are members of the Board of Directors of the Company or who are executive officers of the Company.
Name Age Position
Len Wolman 45 President, Chief Executive Officer, Member of the Board of Directors
Del J. Lauria 51 Secretary, Treasurer, Member of the Board of Directors
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Omitted.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Gaming.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits --------
Exhibit No. Description 3.1 Certificate of Incorporation of Waterford Gaming Finance Corp. (i) 3.2 Bylaws of Waterford Gaming Finance Corp. (i) 4.1 Indenture, dated as of November 8, 1996, between Waterford Gaming, L.L.C. and Waterford Gaming Finance Corp., the issuers, and Fleet National Bank, as trustee, relating to $65,000,000 12-3/4% Senior Notes due 2003. (i) 4.1.1 First Supplemental Indenture, dated as of March 4, 1999, among Waterford Gaming, L.L.C. and Waterford Gaming Finance Corp., as issuers, and State Street Bank and Trust Company, as trustee, relating to $65,000,000 12-3/4% Senior Notes due 2003. (iii) 4.2 Indenture, dated as of March 17, 1999, among Waterford Gaming, L.L.C. and Waterford Gaming Finance Corp., as issuers, and State Street Bank and Trust Company, as trustee, relating to $125,000,000 9-1/2% Senior Notes due 2010. (iii) 4.3 Security and Control Agreement, dated as of March 17, 1999, among Waterford Gaming, L.L.C. and Waterford Gaming Finance Corp., as pledgors and State Street Bank and Trust Company, as securities intermediary. (iii) 4.4 Specimen Form of 9-1/2% Senior Notes due 2010 (included in Exhibit 4.2). (iii) 10.1 Purchase Agreement, dated as of March 10, 1999, among Waterford Gaming, L.L.C., Waterford Gaming Finance Corp., Bear, Stearns & Co., Inc., Merrill Lynch, Pierce, Fenner and Smith Inc. and Salomon Smith Barney (iii) 10.2 Waiver and Acknowledgment of Noteholder. (ii) 21.1 Subsidiaries of Waterford Gaming Finance Corp. (i) 27 Financial Data Schedule - included in Edgar filing only. 99.1 Annual Report, for the year ended December 31, 1999 on Form 10-K of Waterford Gaming, L.L.C., dated March 27, 2000, incorporated by reference to Waterford Gaming, L.L.C.'s electronic filing of such report on Form 10-Q Securities and Exchange Commission (the "Commission") file reference no. 333-17795.
(i) Incorporated by reference to the Registrant's Registration Statement on Form S-4, Commission File No. 333-17795-01, declared effective on May 15, 1997.
(ii) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1998, Commission File No. 333-17795-01, as accepted by the Commission on May 14, 1998.
(iii) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1999, Commission File No. 333-17795-01, as accepted by the Commission on May 17, 1999.
(b) Financial Statement Schedules
Report of Independent Accountants Financial Statements: Balance Sheets of as of December 31, 1999 and 1998 Statements of Operations and Retained Earnings (Deficit) for the years ended December 31, 1999, 1998 and 1997 Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Waterford Gaming Finance Corp.
In our opinion, the accompanying balance sheets and the related statements of operations, retained earnings (deficit) and of cash flows present fairly, in all material respects, the financial position of Waterford Gaming Finance Corp. (the "Company") at December 31, 1999 and 1998, and the results of its operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
March 9, 2000
WATERFORD GAMING FINANCE CORP.
BALANCE SHEETS
December 31, 1999 and 1998 ----------
1999 1998 ------ ------
ASSETS
Cash $ 100 $ 100 ====== ======
STOCKHOLDER'S EQUITY
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares authorized, issued and outstanding $ 10 $ 10 Additional paid-in capital 90 90 Retained earnings (deficit) -- -- ------ ------
Total stockholder's equity $ 100 $ 100 ====== ======
The accompanying notes are an integral part of these financial statements.
WATERFORD GAMING FINANCE CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
----------
1999 1998 1997 ------------ ------------ --------------
Cash flows from operating activities: Net income $ -- $ -- $ 19 ----- ----- ----- Net cash provided by operating activities -- -- 19 ----- ----- ----- Net increase in cash -- -- 19 Cash at beginning of year 100 100 81 ----- ----- ----- Cash at end of year $ 100 $ 100 $ 100 ===== ===== =====
The accompanying notes are an integral part of these financial statements.
WATERFORD GAMING FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Waterford Gaming Finance Corp. (the "Company"), a Delaware corporation, was formed on October 22, 1996 as a wholly-owned subsidiary of Waterford Gaming, L.L.C. ("Gaming"). Effective as of May 15, 1997 the Company functioned as a co-issuer with its parent, Gaming, to issue $65 million 12-3/4% senior notes payable (the "$65 Million Senior Notes"). The $65 Million Senior Notes were redeemed as part of the Company's and Gaming's $125 million 9-1/2% senior notes (the "$125 Million Senior Notes") offering which was completed on March 17, 1999. The Company is not expected to have significant operating activity. Funding for future operations will come from the financial support of its parent, Gaming.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Method
The financial statements have been prepared utilizing the accrual method of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. $125 MILLION 9-1/2% SENIOR NOTES
On March 17, 1999, the Company and Gaming, issued $125 Million Senior Notes, which mature March 15, 2010. Payment of the principal of, and interest on, the $125 Million Senior Notes is subordinate in right of payment to all their existing and future secured debts.
Interest is payable semi-annually in arrears on March 15 and September 15 at a rate of 9-1/2% per annum and commenced on September 15, 1999.
The principal amount of the $125 Million Senior Notes is payable on March 15, 2010. The Company and Gaming may elect to redeem the $125 Million Senior Notes at any time on or after March 15, 2004 at a redemption price equal to a percentage (105.182% after March 14, 2004 and declining to 104.318% after March 14, 2005, 103.455% after March 14, 2006, 102.591% after March 14, 2007, 101.727% after March 14, 2008, 100.864% after March 14, 2009 and to 100% after March 14, 2010) of the principal amount thereof plus accrued interest. The $125 Million Senior Notes provide that upon the occurrence of a Change of Control (as defined), the holders thereof will have the option to require the redemption of the $125 Million Senior Notes at a redemption price equal to 101% of the principal amount thereof plus accrued interest.
If the Company and Gaming have any Company Excess Cash, as defined, they must redeem the $125 Million Senior Notes (on a semi-annual basis on March 15 and September 15) equal to a percentage (109.500% after March 15, 1999 and declining to 108.636% after March 14, 2000, 107.773% after March 14, 2001, 106.909% after March 14, 2002, 106.045% after March 14, 2003, 105.182% after March 14, 2004, 104.318% after March 14, 2005, 103.455% after March 14, 2006, 102.591% after March 14, 2007, 101.727% after March 14, 2008, 100.864% after March 14, 2009 and to 100% after March 14, 2010). On August 1, 1999 the Company and Gaming had Company Excess Cash, as defined, available for mandatory redemption of the $125 Million Senior Notes totaling approximately $8,983,000, and accordingly on September 15, 1999 the Company and Gaming made a mandatory redemption of $125 Million Senior Notes in the principal amount of $2,841,000 at the redemption price of 109.50%. On February 1, 2000 the Company and Gaming had Company Excess Cash, as defined, available for mandatory redemption of the $125 Million Senior Notes totaling approximately $8,276,000 and accordingly the Company and Gaming will make a mandatory redemption of $125 Million Senior Notes in the principal amount of $2,277,000 at the redemption price of 108.636% on March 15, 2000. In some circumstances, if either Gaming or its partner in Trading Cove Associates ("TCA") exercises the option to buy or sell partnership interests in TCA, the Company and Gaming must redeem the $125 Million Senior Notes.
The indenture relating to the $125 Million Senior Notes (the "Indenture") contains certain affirmative and negative covenants customarily contained in agreements of this type, including without limitation, covenants that restrict, subject to specified exceptions the Company's and Gaming's ability to (i) borrow money, (ii) pay dividends on stock or make certain other restricted payments, (iii) use assets as security in other transactions, (iv) make investments, (v) sell other assets or merge with other companies and (vi) engage in any business except as currently conducted or contemplated or amend their relationship with TCA. The Indenture also provides for customary events of default and the establishment of a restricted investment fund with a trustee for interest reserves.
4. SUBSEQUENT EVENT
On January 6, 1998, Leisure Resort Technology, Inc. ("Leisure") and defendants Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., and Slavik Suites, Inc. settled a prior lawsuit brought by Leisure. In connection with this settlement, Leisure and Trading Cove Associates, Waterford Gaming, L.L.C., LMW Investments, Inc., and Slavik Suites, Inc. entered into a settlement and release agreement. Pursuant to this settlement and release agreement, Waterford Gaming, L.L.C. bought out Leisure's beneficial interest in Trading Cove Associates.
By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a four count complaint naming as defendants Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., Slavik Suites, Inc., Waterford Group, L.L.C., Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter is pending in the Judicial District of Middlesex at Middletown, Connecticut. The suit alleges breach of fiduciary duties, fraudulent non-disclosure, violation of Connecticut Statutes Section 42-110a, et seq., and unjust enrichment in connection with the negotiation by certain of the Defendants of the settlement and release agreement. The suit seeks unspecified legal and equitable damages. A Motion to Strike and a Motion for Summary Judgement, each with respect to all claims, have been filed on behalf of all of the Defendants.
Waterford Gaming, L.L.C. believes that it has meritorious defenses and intends to vigorously contest the claims in this action and to assert all available defenses. At the present time, Waterford Gaming, L.L.C. is unable to express an opinion on the likelihood of an unfavorable outcome or to give an estimate of the amount or range of potential loss to Waterford Gaming, L.L.C. as a result of this litigation due to the disputed issues of law and/or facts on which the outcome of this litigation depends and due to the infancy of both the action and discovery in the action.
(c) Reports on Form 8-K
i) Form 8-K filed on December 21, 1999.
Item 5.
The Mohegan Tribal Gaming Authority (the "Authority") has filed its 1999 annual report on Form 10-K for the fiscal year ended December 31, 1999, a copy of which has been filed as an exhibit to this report and is incorporated by reference to the Authority's electronic filing of such report on Form 10-K, Securities and Exchange Commission file reference no. 033-80655.
Date of Report: December 20, 1999
ii) Form 8-K filed on February 15, 2000
Item 5.
The Mohegan Tribal Gaming Authority (the "Authority") has filed its quarterly report on Form 10-Q for the quarter ended December 31, 1999, a copy of which has been filed as an exhibit to this report and is incorporated by reference to the Authority's electronic filing of such report on Form 10-Q, Securities and Exchange Commission file reference no. 033-80655.
Date of Report: February 14, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Waterford Gaming Finance Corp.
Date: March 27, 2000 By: /s/Len Wolman Len Wolman, Chief Executive Officer
Date: March 27, 2000 By: /s/Del Lauria Del Lauria, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 27, 2000.
Signature Title
/s/ Len Wolman President, Chief Executive Officer, Len Wolman Member of the Board of Directors
/s/ Del J. Lauria Secretary, Treasurer, Del J. Lauria Member of the Board of Directors