<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 2002
REGISTRATION NO. 333-98649
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LAS VEGAS SANDS, INC.
(Exact name of Registrant as specified in its charter)
<Table>
NEVADA 7011
(State or other jurisdiction (Primary Standard
of Industrial
incorporation or organization) Classification Code Number)
NEVADA 04-3010100
(State or other jurisdiction (IRS Employer Identification No.)
of
incorporation or organization)
</Table>
3355 LAS VEGAS BOULEVARD SOUTH
ROOM 1A
LAS VEGAS, NEVADA 89109
(702) 414-1000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
VENETIAN CASINO RESORT, LLC
(Exact name of Registrant as specified in its charter)
<Table>
NEVADA 7011
(State or other jurisdiction (Primary Standard
of Industrial
incorporation or organization) Classification Code Number)
NEVADA 86-0863398
(State or other jurisdiction (IRS Employer Identification No.)
of
incorporation or organization)
</Table>
3355 LAS VEGAS BOULEVARD SOUTH
ROOM 1A
LAS VEGAS, NEVADA 89109
(702) 414-1000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
DAVID FRIEDMAN, ESQ., SECRETARY
LAS VEGAS SANDS, INC.
3355 LAS VEGAS BOULEVARD SOUTH
ROOM 1A
LAS VEGAS, NEVADA
(702) 414-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------------
Copies to:
JOHN C. KENNEDY, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable 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, please check the following box
and list the Securities Act 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, check the following box and list the Securities Act
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
TABLE OF ADDITIONAL REGISTRANTS
<Table>
<Caption>
STATE OR OTHER PRIMARY STANDARD IRS
JURISDICTION OF INDUSTRIAL EMPLOYER
INCORPORATION OR CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION CODE NUMBER NUMBER
- ------------------------------------------------ ---------------- ---------------- --------------
Mall Intermediate Holding Company, LLC.......... Delaware 7011 88-0377968
Venetian Venture Development, LLC............... Nevada 7011 88-0482754
Venetian Operating Company, LLC................. Nevada 7011 88-0456086
Venetian Marketing, Inc......................... Nevada 7011 88-0419208
Grand Canal Shops Mall Construction, LLC........ Delaware 7011 88-0377973
Lido Intermediate Holding Company, LLC.......... Delaware 7011 88-0377966
Venetian Casino Resort Athens, LLC.............. Delaware 7011 N/A
</Table>
The address of each of the additional registrants is 3355 Las Vegas
Boulevard South, Las Vegas, Nevada 89109.
<Page>
SUBJECT TO COMPLETION, DATED NOVEMBER 15, 2002
PRELIMINARY PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY 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.
<Page>
LAS VEGAS SANDS, INC.
VENETIAN CASINO RESORT, LLC
EXCHANGE OFFER FOR $850,000,000 OF THEIR
11% MORTGAGE NOTES DUE 2010
THE NOTES AND THE GUARANTEES
We will issue the exchange notes under the indenture dated as of June 4,
2002 pursuant to which we issued $850,000,000 of 11% Mortgage Notes due 2010 on
June 4, 2002, which we refer to in this prospectus as the "initial notes." The
exchange notes will be considered a single issue with the initial notes and will
not be treated as a separate class.
The exchange notes will mature on June 15, 2010. We will pay interest on the
exchange notes on June 15 and December 15 of each year, commencing December 15,
2002. The exchange notes will be secured by a second priority security interest,
subject to permitted liens, on substantially all of the assets of the Venetian
hotel casino, subject to certain limited exceptions. Our new credit facility is
secured by a first priority security interest, subject to permitted liens, on
those assets. The exchange notes will be guaranteed on a senior, second-lien
secured basis, subject to permitted liens, by our domestic subsidiaries that are
also guarantors under our new credit facility. See "Description of Notes."
The exchange notes will be effectively subordinated to our new credit
facility and any indebtedness of our subsidiaries that are not guarantors,
including the new mall loan facility of Grand Canal Shops II, LLC. As of
September 30, 2002, on a pro forma basis after giving effect to borrowings of
$50.0 million under our new credit facility to fund construction costs, we would
have had approximately $420.0 million of debt outstanding that will rank
effectively senior to the exchange notes.
TERMS OF THE EXCHANGE OFFER
- It will expire at 5:00 p.m., New York City time, on , 2002, unless
we extend it. This exchange offer will not be extended beyond
, 2003.
- If all the conditions to this exchange offer are satisfied, we will
exchange all of our outstanding initial notes, that are validly tendered
and not withdrawn for exchange notes.
- The exchange notes that we will issue you in exchange for your initial
notes will be substantially identical to your initial notes except that,
unlike your initial notes, the exchange notes will have no transfer
restrictions or registration rights.
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 20.
Each broker-dealer that receives exchange notes for its own account pursuant
to this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the 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 initial notes
where the initial notes were acquired as a result of market-marking activities
or other trading activities.
Neither the Nevada State Gaming Control Board nor the Nevada Gaming
Commission had passed upon the accuracy or adequacy of this prospectus or the
investment merits of the securities offered hereby. Any representation to the
contrary is unlawful.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------
The date of this prospectus is , 2002.
--------------------------
<Page>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
--------
Available Information....................................... i
Industry and Other Data..................................... ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 20
Forward-Looking Statements.................................. 37
Use of Proceeds............................................. 39
Capitalization.............................................. 42
Selected Historical Financial and Other Data................ 43
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 45
Business.................................................... 59
Management.................................................. 79
Executive Compensation...................................... 80
Principal Stockholders...................................... 83
Certain Relationships and Related Party Transactions........ 85
Description of Other Indebtedness........................... 89
The Exchange Offer.......................................... 96
Description of Notes........................................ 105
Book-Entry, Delivery and Form............................... 165
Description of Intercreditor Agreement...................... 169
Operating Agreements........................................ 170
Certain United States Federal Income Tax Considerations..... 176
Plan of Distribution........................................ 181
Legal Matters............................................... 181
Experts..................................................... 182
Index to Consolidated Financial Statements.................. F-1
</Table>
------------------------
AVAILABLE INFORMATION
Las Vegas Sands, Inc. voluntarily files reports and other information under
Section 15(d) of the Securities Exchange Act of 1934. In accordance with the
Securities Exchange Act, LVSI files reports and other information with the
Securities and Exchange Commission. The reports and other information can be
inspected and copied at the public reference facilities that the Securities and
Exchange Commission maintains at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. The Securities and Exchange Commission also maintains a web site at
HTTP://WWW.SEC.GOV, which contains reports and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. Copies of these materials can be obtained at prescribed rates from
the Public Reference Section of the Securities and Exchange Commission at the
principal offices of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. We have agreed that, if we are not subject to the
informational requirements of Section 13 or 15(d) of the Exchange Act at any
time while the notes constitute "restricted securities" within the meaning of
the Securities Act of 1933, LVSI will furnish to holders and beneficial owners
of the notes and to prospective purchasers designated by such holders the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act of 1933 to permit compliance with Rule 144A in connection with
resales of the notes.
i
<Page>
INDUSTRY AND OTHER DATA
We obtained industry and market data used throughout this prospectus through
company research, surveys and studies conducted by third parties, governmental
agencies and industry and general publications. We have not independently
verified market and industry data from third-party sources. While we believe
internal company surveys are reliable and market definitions are appropriate,
neither these surveys nor these definitions have been verified by any
independent sources.
------------------------
ii
<Page>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. WE URGE YOU TO READ THIS ENTIRE PROSPECTUS CAREFULLY,
INCLUDING THE "RISK FACTORS" SECTION AND OUR CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED NOTES. IN THIS PROSPECTUS, EXCEPT WITH RESPECT TO THE NOTES AND
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY," "WE," "OUR" OR "US" REFERS
TO LAS VEGAS SANDS, INC. AND ITS CONSOLIDATED SUBSIDIARIES, "LVSI" REFERS TO LAS
VEGAS SANDS, INC. AND "VENETIAN" REFERS TO VENETIAN CASINO RESORT, LLC. CERTAIN
STATEMENTS IN THIS "PROSPECTUS SUMMARY" ARE FORWARD-LOOKING STATEMENTS. SEE
"FORWARD-LOOKING STATEMENTS."
THE COMPANY
OVERVIEW
We own and operate the Venetian Casino Resort (the "Casino Resort"), a
Renaissance Venice-themed resort situated at one of the premier locations on Las
Vegas Boulevard (known as the "Strip"). The Casino Resort is located across from
The Mirage and the Treasure Island Hotel and Casino between Flamingo Road and
Sands Avenue. The Casino Resort includes the only all-suites hotel on the Strip,
a casino of approximately 116,000 square feet, an enclosed retail, dining and
entertainment mall of approximately 446,000 net leasable square feet and a
meeting and conference facility of approximately 500,000 square feet. The Casino
Resort is physically connected to the Sands Expo and Convention Center (the
"Expo Center"), one of the largest trade show and convention facilities in the
United States as measured by net leasable square footage, with 1.15 million
gross square feet of exhibit and meeting space. The Expo Center is separately
owned by LVSI's principal stockholder. For the nine months ended September 30,
2002, we generated net revenue, EBITDA and operating income of approximately
$417.4 million, $140.6 million and $107.5 million. See Note 4 to Summary
Historical and Pro Forma Financial Data.
Our hotel presently has 3,036 single and multiple bedroom suites situated in
a 35-story, three-winged tower rising above our casino. The hotel features eight
restaurants, including several "signature" restaurants such as Emeril Lagasse's
Delmonico and Piero Selvaggio's Valentino that are adjacent to the casino, and a
Venetian-style market food court. In addition, the hotel provides a variety of
amenities for its guests, including the state-of-the-art Canyon Ranch health
spa. The hotel also includes approximately 63,000 square feet of exhibition
space, featuring the Guggenheim Las Vegas Museum that currently houses the Art
of the Motorcycle exhibition. Additionally, the hotel includes the
Guggenheim/Hermitage Museum, an art museum featuring masterpiece collections
from the Guggenheim Museum in New York and the Hermitage in Saint Petersburg,
Russia.
Our casino features approximately 2,124 slot machines and 122 table games,
including the traditional games of blackjack, craps and roulette, Asian games
such as "Pai Gow" and "Pai Gow Poker" and popular progressive table games such
as "Caribbean Stud Poker" and "Let it Ride." The casino also offers gaming
customers an upscale sportsbook room and an upscale gaming salon featuring
baccarat, blackjack and roulette tables.
Our mall, The Grand Canal Shoppes, includes 58 retail stores, three
specialty shops, eight restaurants, including Wolfgang Puck's Postrio, and six
food court outlets. The Grand Canal Shoppes retail offerings include exclusive
showcase boutiques such as Mikimoto and Burberry, popular brand name mid-priced
stores such as Kenneth Cole and Banana Republic and themed entertainment
concepts. The Grand Canal Shoppes features a one-quarter mile Venetian
streetscape with intimate "piazza"-style settings along a 630-foot
Venetian-themed canal along which our guests can enjoy authentic-style gondola
rides.
1
<Page>
Our meeting and conference center, the Congress Center, includes the
approximately 85,000 square foot column-free "Venetian Ballroom," the
approximately 13,500 square foot "Palazzo Ballroom" and a meeting complex of 42
individual rooms which can be combined to create three additional ballrooms, in
addition to the Congress Center's own approximately 105,000 square foot
exhibition hall. Together, the Expo Center and the Congress Center offer nearly
1.65 million square feet of state-of-the-art exhibition and meeting facilities,
which can be configured to provide up to 108 separate meeting rooms or
accommodate large-scale multi-media events.
The Casino Resort (excluding The Grand Canal Shoppes) opened on May 4, 1999.
The Grand Canal Shoppes opened on June 19, 1999.
THE PHASE IA ADDITION
In 2001, we began planning, designing, permitting and constructing an
expansion to our Casino Resort facilities to meet unserved room and meeting
facility demand and provide incremental casino, retail and entertainment revenue
at the Casino Resort. These additional facilities, known as the Phase IA
Addition, are anticipated to consist of an approximately 1,000-room hotel tower
on top of the Casino Resort's existing parking garage, an approximately
1,000-parking space expansion to the parking garage and approximately 150,000
square feet of additional meeting and conference space. As of September 30,
2002, we had spent or incurred approximately $67.9 million in planning, design
and construction costs with respect to the Phase IA Addition. We currently
anticipate that the remaining costs for this project will be approximately
$198.0 million, including $5.2 million for contingencies. We expect to complete
construction in June 2003.
We expect that the resulting increase in room space, parking space and
meeting and conference space will increase our hotel, conference center and
gaming revenue and improve our overall operating margins by:
- enabling us to supplement our high-occupancy hotel room supply in order to
meet unmet room demand from group, trade show and free and independent
travelers;
- producing incremental revenue from more meeting space designed to serve
additional hotel guests and to meet demand on the Strip; and
- driving increased visitor volume to our casino and The Grand Canal
Shoppes.
BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
Our primary business objective is to provide a premium destination casino
resort experience in order to drive superior returns on invested capital and to
increase asset value. To achieve this objective, we:
- OPERATE A "MUST-SEE" DESTINATION RESORT. The Casino Resort is
distinctively themed to provide visitors with the sense of being
surrounded by the architecture, music, art and history of Renaissance
Venice. The Venetian-themed setting along the Casino Resort's frontage on
the Strip includes waterways, gondolas and replicas of Venetian landmarks.
We believe that these attractions generate significant room demand and
foot traffic.
- CAPTURE PREMIUM HOTEL ROOM RATES THROUGH A DIFFERENTIATED ALL-SUITES
PRODUCT. The hotel offers the only all-suites product on the Strip with
first-class services, amenities for business travelers, such as in-room
fax machines and two phone lines, and high-end resort facilities. Typical
suite sizes range from approximately 655 square feet to 735 square feet.
In 2001, the hotel was awarded the "Exxon-Mobil Four Star Award," AAA's
"Diamond Award" and Meetings and Conventions Magazine's prestigious "Gold
Key Award" for meetings hotels in the United States and selected as Conde
Nast's "Best 100 Hotels in the World." We believe
2
<Page>
that the all-suites format, together with the Casino Resort's many other
unique attributes, result in a highly differentiated destination resort
product that attracts both business and leisure customers, allow for
premium pricing on rooms and provide us with a competitive advantage over
other Strip hotel/casino properties and resorts.
- DRIVE HOTEL OCCUPANCY, CASINO USE AND MALL SHOPPING THROUGH THE LINK TO
THE EXPO CENTER AND THE CONGRESS CENTER. The Casino Resort is the first
themed entertainment resort in Las Vegas designed specifically to
accommodate large-scale trade shows, conventions, conferences and
meetings. These events often draw more attendees than the hotel can
accommodate and generate additional non-hotel traffic. The Expo Center and
the Congress Center provide recurring, predictable demand for mid-week
room nights from business travelers. In 2001, they provided us with a
92.2% mid-week occupancy rate compared to an 81.6% mid-week average
occupancy rate in Las Vegas. In 2001, our average daily room rate was
approximately $196.
- CATER TO A HIGHER BUDGET CUSTOMER MIX BY OFFERING A UNIQUE COMBINATION OF
HOSPITALITY AND GAMING FACILITIES. The Casino Resort's central location at
the heart of the Strip adjacent to the Expo Center and its all-suites
hotel product allow us to compete effectively for the higher-budget
mid-week trade show, convention and meeting attendees. On both weekdays
and weekends, the all-suites hotel product appeals to free and independent
leisure travelers and "high-roller" gaming customers, both segments of the
travel market that spend more on hotel rooms and entertainment.
- LEVERAGE THE CASINO RESORT'S PREMIUM CO-BRANDING STRATEGY TO DRIVE
REVENUES. We believe that the Casino Resort's premier location on the
Strip, its extensive theming as well as its established and growing
concentration of "signature" restaurant concepts from internationally
recognized chefs and premier global retail brands, such as Burberry,
Mikimoto, Movado and Jimmy Choo, have been an effective strategy for
enhancing foot traffic and revenues and the awareness of the Venetian
brand. We expect to build upon the Venetian's brand awareness and its
association with these premier retail and restaurant brands to provide
continued revenue growth opportunities from retail and restaurant
attractions.
- TARGET PREMIUM GAMING CUSTOMERS. The Casino Resort has facilities and
amenities designed to attract premium gaming customers, such as high end
slots, an upscale gaming salon and first class dining. The all-suites
format in the hotel provides a competitive advantage in the market for
premium gaming customers by allowing us to offer and attract them to a
unique Las Vegas experience.
THE LAS VEGAS MARKET
Las Vegas is one of the fastest-growing and largest entertainment markets in
the country. Las Vegas hotel occupancy rates are among the highest of any major
market in the United States. According to the Las Vegas Convention and Visitors
Authority, the number of visitors traveling to Las Vegas has increased at a
steady and significant rate for the last ten years from 21.3 million visitors in
1991 to 35.0 million visitors in 2001, a compound annual growth rate of 5.1%. In
addition, the population of Las Vegas has grown from approximately 821,000 in
1991 to approximately 1,486,000 in 2001, a compound annual growth rate of 6.1%.
We expect hotel occupancy rates in Las Vegas to remain high as a result of the
sustained growth in the number of visitors traveling to Las Vegas and the lack
of new construction projects in Las Vegas, other than Le Reve, an approximately
2,500-room resort to be built on the site of the former Desert Inn, one block
north of the Casino Resort, on the corner of Las Vegas Boulevard and Sands
Avenue, and anticipated to open in late 2004.
3
<Page>
In 2001, Las Vegas was one of the most popular trade show destinations in
the United States with a 28.4% market share of the Trade Show Week 200 Shows in
terms of net square footage and the fourth most popular convention destination
in the United States. Approximately 4.0 million persons attended trade shows and
conventions in Las Vegas and spent approximately $4.8 billion in 2001.
Las Vegas was also among the most popular vacation destinations in the
United States in 2001. Las Vegas has experienced a period of rapid hotel
development with the number of hotel and motel rooms in Las Vegas increasing by
65% over the last ten years, from 76,879 in 1991 to 126,610 in 2001.
According to the Las Vegas Convention and Visitors Authority, while gaming
revenues have increased from $4.2 billion in 1991 to $7.6 billion in 2001 (a
compound annual growth rate of 6.1%), non-gaming tourist revenues increased from
$10.2 billion to $23.8 billion over the same period (a compound annual growth
rate of 8.8%). The newer, large themed Las Vegas destination resorts have been
designed to capitalize on this growth by providing better quality hotel rooms at
higher rates and by providing expanded shopping, dining and entertainment
opportunities to their visitors in addition to gaming.
PRINCIPAL STOCKHOLDER
Sheldon G. Adelson beneficially owns approximately 95% of the outstanding
common stock of LVSI and 100% of the capital stock of Interface
Group-Nevada, Inc., the owner of the Expo Center. Mr. Adelson has been Chairman
and Chief Executive Officer of LVSI since it was formed in 1988. Mr. Adelson
created and developed the COMDEX Trade Shows, including the COMDEX Fall Trade
Show, the world's largest computer show, all of which were sold in April 1995.
Mr. Adelson has extensive experience in the trade show, convention and tour and
travel businesses, in addition to his experience as a hotel and casino operator.
RECENT DEVELOPMENTS
We are currently in the process of negotiating agreements to develop and
operate one or more hotel, casino, convention centers and other facilities in
Macau, People's Republic of China. On June 26, 2002, a joint venture comprised
of one of our subsidiaries and a group of Macau and Hong Kong-based investors
entered into a final concession contract with the Government of the Macau
Special Administrative Region of the People's Republic of China to operate
casinos in Macau. Our subsidiary continues to negotiate the final terms of a
joint venture and we expect that these negotiations will be concluded by the end
of calendar year 2002.
We are actively pursuing the possibility of developing and operating an
Internet gaming site and are currently exploring other business opportunities
for expansion, including Native American gaming. See "Business--Recent
Developments."
4
<Page>
OWNERSHIP STRUCTURE
Set forth below is our ownership structure showing our principal
subsidiaries. See "Business."
[GRAPHIC OMITTED]
- ------------------------
(1) LVSI and Venetian are co-obligors of the notes and the co-obligors of the
indebtedness under our new credit facility.
(2) Lido Casino Resort, LLC owns 15 acres of land. It is expected that a new
approximately 3,000 room casino resort will be built on this land (the
"Phase II Resort"). This subsidiary is an unrestricted subsidiary under the
indenture governing the notes. Unrestricted subsidiaries are not subject to
the principal covenants under the indenture governing the notes and are not
mortgage note guarantors.
(3) This subsidiary is a restricted subsidiary and a mortgage note guarantor
under the indenture governing the notes. None of our other subsidiaries or
other entities that will own, operate, manage or develop the Macau projects
(the "Macau Entities") will be guarantors of the notes. We intend to make
certain Macau subsidiaries that will manage, or provide services to, the
Macau casinos, and one or more holding companies for the Macau project,
restricted subsidiaries under the indenture governing the notes. All the
other Macau Entities, including all of the Macau Entities that own an
interest in any hotel casino in Macau or license in Macau, will be
unrestricted subsidiaries under the indenture governing the notes.
(4) This subsidiary is a restricted subsidiary under the indenture governing the
notes but does not guarantee the notes.
5
<Page>
SUMMARY OF THE EXCHANGE OFFER
We are offering to exchange $850,000,000 aggregate principal amount of our
exchange notes for a like aggregate principal amount of our initial notes. In
order to exchange your initial notes, you must properly tender them and we must
accept your tender. We will exchange all outstanding initial notes that are
validly tendered and not validly withdrawn.
<Table>
Exchange Offer............................ We will exchange our exchange notes for a like aggregate
principal amount at maturity of our initial notes.
Expiration Date........................... This exchange offer will expire at 5:00 p.m., New York
City time, on , 2002, unless we decide to extend
it. We will not extend this exchange offer beyond
, 2003. In the event that we fail to
consummate the exchange offer within 30 business days
from the date on which the registration statement of
which this prospectus is a part is declared effective,
we have agreed to pay liquidated damages to the holders
of the initial notes at the rate of, and in addition to
the base interest that would accrue on the principal
amount of the initial notes, 0.25% per annum for the
first 90 days and thereafter the rate will increase
0.25% for each 90 day period, up to 2.00%.
Conditions to the Exchange Offer.......... We will complete this exchange offer only if:
- there is no change in the laws and regulations which,
in our judgment, would reasonably be expected to impair
our ability to proceed with this exchange offer,
- there is no change in the current interpretation of
the staff of the Securities and Exchange Commission
which permits resales of the exchange notes,
- there is no stop order issued by the Securities and
Exchange Commission or any state securities
authorities suspending the effectiveness of the
registration statement which includes this prospectus
or the qualification of the indenture governing the
notes under the Trust Indenture Act of 1939, and there
are no proceedings initiated or, to our knowledge,
threatened for that purpose,
- there is no litigation or threatened litigation which
would reasonably be expected to prohibit, prevent or
otherwise impair our ability to proceed with this
exchange offer, and
- we obtain all the governmental approvals we deem
reasonably necessary to complete this exchange offer,
including that of the Nevada Gaming Commission.
Please refer to the section in this prospectus entitled
"The Exchange Offer--Conditions to the Exchange Offer."
</Table>
6
<Page>
<Table>
Procedures for Tendering Initial Notes.... To participate in this exchange offer, you must
complete, sign and date the letter of transmittal or its
facsimile and transmit it, together with your initial
notes to be exchanged and all other documents required
by the letter of transmittal, to U.S. Bank National
Association, as exchange agent, at its address indicated
under "The Exchange Offer--Exchange Agent." In the
alternative, you can tender your initial notes by
book-entry delivery following the procedures described
in this prospectus. If your initial notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee, you should contact that person
promptly to tender your initial notes in this exchange
offer.
As a holder of the initial notes, you must acknowledge
the following in the letter of transmittal:
- that the exchange notes are being acquired in the
ordinary course of business;
- that you do not have any arrangement or understanding
with any person to participate in a distribution of
the exchange notes;
- that you are not an affiliate of ours; and
- that if you are not a broker-dealer, you must
represent that you are not engaged in and do not intend
to engage in a distribution of the exchange notes.
For more information on tendering your notes, please
refer to the section in this prospectus entitled "The
Exchange Offer--Procedures for Tendering Initial Notes."
Special Procedures for Beneficial
Owners.................................. If you are a beneficial owner of initial notes that are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender your initial notes in this exchange offer, you
should contact the registered holder promptly and
instruct that person to tender on your behalf.
Guaranteed Delivery Procedures............ If you wish to tender your initial notes and you cannot
get the required documents to the exchange agent on
time, you may tender your notes by using the guaranteed
delivery procedures described under the section of this
prospectus entitled "The Exchange Offer--Procedures for
Tendering Initial Notes--Guaranteed Delivery Procedure."
Withdrawal Rights......................... You may withdraw the tender of your initial notes at any
time before 5:00 p.m., New York City time, on the
expiration date of the exchange offer. To withdraw, you
must send a written or facsimile transmission notice of
withdrawal to the exchange agent at its address
indicated under "The
</Table>
7
<Page>
<Table>
Exchange Offer--Exchange Agent" before 5:00 p.m., New
York City time, on the expiration date of the exchange
offer.
Acceptance of Initial Notes and Delivery
of Exchange Notes....................... If all the conditions to the completion of this exchange
offer are satisfied, we will accept any and all initial
notes that are properly tendered in this exchange offer
on or before 5:00 p.m., New York City time, on the
expiration date. We will return any initial note that we
do not accept for exchange to you without expense
promptly after the expiration date. We will deliver the
exchange notes to you as promptly as practicable after
the expiration date and acceptance of your initial notes
for exchange. Please refer to the section in this
prospectus entitled "The Exchange Offer--Acceptance of
Initial Notes for Exchange; Delivery of Exchange Notes."
Federal Income Tax Considerations Relating
to the Exchange Offer................... Exchanging your initial notes for exchange notes will
not be a taxable event to you for United States federal
income tax purposes. Please refer to the section of this
prospectus entitled "United States Federal Tax
Considerations."
Exchange Agent............................ U.S. Bank National Association is serving as exchange
agent in this exchange offer.
Fees and Expenses......................... We will pay all expenses related to this exchange offer.
Please refer to the section of this prospectus entitled
"The Exchange Offer--Fees and Expenses."
Use of Proceeds........................... We will not receive any proceeds from the issuance of
the exchange notes in exchange for the outstanding
initial notes. We are making this exchange offer solely
to satisfy our obligations under the registration rights
agreement entered into in connection with the offering
of the initial notes.
Consequences to Holders Who Do Not
Participate in this Exchange Offer...... If you do not participate in this exchange offer:
- except as set forth in the next paragraph, you will
not be able to require us to register your initial notes
under the Securities Act,
- you will not be able to resell, offer to resell or
otherwise transfer your initial notes unless they are
registered under the Securities Act or unless you
resell, offer to resell or otherwise transfer them
under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities
Act, and
</Table>
8
<Page>
<Table>
- the trading market for your initial notes will become
more limited to the extent other holders of initial
notes participate in this exchange offer.
You will not be able to require us to register your
initial notes under the Securities Act unless:
- the initial purchasers request us to register initial
notes that are not eligible to be exchanged for exchange
notes in this exchange offer; or
- you are not eligible to participate in this exchange
offer or do not receive freely tradable exchange notes
in the exchange offer and notify us of such within 20
days following the consummation of the exchange offer.
In these cases, the registration rights agreement
requires us to file a registration statement for a
continuous offering in accordance with Rule 415 under
the Securities Act for the benefit of the holders of the
initial notes described in this paragraph. We do not
currently anticipate that we will register under the
Securities Act any notes that remain outstanding after
completion of this exchange offer.
Please refer to the section of this prospectus entitled
"The Exchange Offer--Your failure to participate in the
exchange offer will have adverse consequences."
Resales................................... It may be possible for you to resell the notes issued in
the exchange offer without compliance with the
registration and prospectus delivery provisions of the
Securities Act, subject to some conditions. Please refer
to the section of this prospectus entitled "Risk
Factors--Risks Relating to the Exchange Offer--Some
persons who participate in the exchange offer must
deliver a prospectus in connection with resales of the
exchange notes" and "Plan of Distribution."
Each broker-dealer that receives exchange notes for its
own account pursuant to this exchange offer must
acknowledge that it will deliver a prospectus in
connection with any resale of the 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 initial notes where the initial notes were
acquired as a result of market-marking activities or
other trading activities. See "Plan of Distribution."
</Table>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
<Table>
Issuers................................... Las Vegas Sands, Inc. and Venetian Casino Resort, LLC.
Exchange Notes............................ $850.0 million principal amount of 11% mortgage notes
due 2010. The form and terms of the exchange notes will
be the
</Table>
9
<Page>
<Table>
same as the form and terms of the initial notes except
that the issuance of the exchange notes is registered
under the Securities Act, and the exchange notes will
not bear legends restricting their transfer and will not
be entitled to registration rights under our
registration rights agreement. The exchange notes will
evidence the same debt as the initial notes, and both
the initial notes and the exchange notes will be
governed by the same indenture.
Maturity.................................. June 15, 2010.
Interest Payment Dates.................... June 15 and December 15 of each year, beginning on
December 15, 2002.
Ranking................................... The exchange notes will be our senior, second-lien
secured obligations, subject to permitted liens and will
be:
- effectively subordinated to the indebtedness under our
new credit facility, which is secured by prior liens
on the collateral that secures the exchange notes; and
- effectively subordinated to the indebtedness of our
subsidiaries that have not guaranteed the exchange
notes, including the new mall loan facility of Grand
Canal Shops II, LLC, the owner of The Grand Canal
Shoppes (the "Mall Subsidiary").
As of September 30, 2002, on a pro forma basis after
giving effect to borrowings of $50.0 million under our
new delayed draw facility to fund development of the
Phase IA Addition (the "Phase IA Funding"), we would
have had approximately $1,269.4 million of indebtedness
outstanding, of which $299.4 million would have been
outstanding under our new credit facility, and $120.0
million would have been outstanding under the new mall
loan facility. In addition, there would have been $75.0
million available for borrowing by Venetian under the
revolver of our new credit facility.
We may incur additional indebtedness under certain
circumstances permitted by the covenant described in
"Description of Notes--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" and
secure such indebtedness, at the time it is incurred, by
granting liens upon any or all of the collateral
securing the notes, on a first-priority or on an equal
and ratable basis with the second-priority liens
securing the notes or by granting liens on assets that
are not included in the note collateral.
Guarantees................................ The exchange notes will be guaranteed jointly and
severally, fully and unconditionally on a senior,
second-lien secured basis, subject to permitted liens,
by our domestic subsidiaries that are guarantors under
our new credit facility.
</Table>
10
<Page>
<Table>
Our domestic subsidiaries that are currently guarantors
under our new credit facility are Mall Intermediate
Holding Company, LLC, Grand Canal Shops Mall
Construction, LLC, Lido Intermediate Holding Company,
LLC, Venetian Casino Resort Athens, LLC, Venetian
Venture Development, LLC, Venetian Operating Company,
LLC and Venetian Marketing, Inc. The notes will not be
guaranteed by our Mall Subsidiary or by our unrestricted
subsidiaries which include Lido Casino Resort, LLC and
our Macau Entities.
Note Collateral........................... The exchange notes will be secured on a second-lien
basis, subject to permitted liens, by all the assets
that are held by us or any of our subsidiary guarantors,
including the assets of the Phase IA Addition (subject
to limited exceptions described in "Description of
Notes--Ranking and Security"). None of the assets of the
non-guarantor subsidiaries, such as the Mall Subsidiary,
Lido Casino Resort, LLC (the owner of the Phase II land)
and the Macau Entities will be included in the note
collateral.
The collateral securing the exchange notes will also
exclude (1) any assets which if pledged, hypothecated or
given as collateral security would require us to seek
approval by the Nevada gaming authorities of the pledge,
hypothecation or collateralization, or require the
trustee or a holder or beneficial holder of the exchange
notes to be licensed, qualified or found suitable under
applicable gaming laws (including, without limitation,
LVSI's gaming license) other than any approval required
for the pledge, hypothecation or collateralization of
assets in connection with this exchange offer, (2) any
stock of or membership interests in any subsidiaries of
LVSI or any equity interests in any other person, and
(3) certain other assets to the extent permitted under
the indenture governing the notes. The lenders under our
new credit facility benefit from first-priority liens on
the note collateral, subject to permitted liens. See
"Description of Notes--Ranking and Security."
Intercreditor Agreement................... Pursuant to an intercreditor agreement, the liens
securing the exchange notes will be expressly second in
priority to all liens that secure (1) obligations under
our new credit facility, (2) certain other future
indebtedness permitted to be incurred under the
indenture governing the notes and (3) certain
obligations under our hedging obligations. Pursuant to
the intercreditor agreement, the parties thereto,
including the trustee under the indenture governing the
notes, have agreed to certain standstill periods prior
to the exercise of any remedies. Any release of the
first-priority liens upon any collateral approved by
holders of the first-priority liens will also release
the second-priority liens securing the exchange notes on
the same collateral; PROVIDED, that after giving effect
to such release, the aggregate book value of all of the
</Table>
11
<Page>
<Table>
assets released does not exceed 10% of the total
consolidated assets of LVSI as of June 4, 2002.
Amendments to, or waivers of the first-priority lien
collateral documents approved by the holders of the
first-priority liens will also be effective as to the
second-priority lien collateral documents for the
exchange notes. The holders of the first-priority liens
will effectively receive all proceeds from any
realization on the collateral until the obligation
secured by the first-priority liens are paid in full and
the commitments with respect thereto are terminated. See
"Description of Intercreditor Agreement."
Optional Redemption....................... On or after June 15, 2006, we may redeem some or all of
the exchange notes at any time at the redemption prices
listed in "Description of Notes--Optional Redemption."
On or prior to June 15, 2005, we may redeem up to 35% of
the exchange notes with the net cash proceeds of one or
more offerings of equity securities at a redemption
price of 111.000% of the principal amount of the
exchange notes, plus accrued and unpaid interest and
liquidated damages, if any.
Prior to June 15, 2006, we may redeem the exchange
notes, in whole or in part, at a redemption price of
100% of the principal amount plus an amount equal to the
greater of (1) 1.000% of the outstanding principal
amount of those exchange notes and (2) the excess of the
present value of the remaining interest, premium and
principal payments due on those notes as if they were
redeemed on June 15, 2006 computed using a discount rate
equal to the then current applicable treasury rate plus
50 basis points applied to the outstanding principal
amount of those exchange notes, plus accrued interest,
and liquidated damages, if any, through the date of
redemption.
See "Description of Notes--Optional Redemption."
Mandatory Gaming Redemption............... If any Nevada gaming authority requires that a holder
must be licensed, qualified or found suitable in order
for us to maintain any of our gaming licenses or
franchises, and if this holder fails to apply for a
license, qualification or finding of suitability within
30 days or is not so licensed, qualified or found
suitable, we will have the right, at our option:
- to require that holder to dispose of its exchange
notes within 30 days of receipt of such finding from the
Nevada gaming authorities or earlier as may be
required by the Nevada gaming authorities; or
- to redeem that holder's exchange notes at a redemption
price equal to (1) the lesser of 100% of the principal
amount of that holder's exchange notes, the price at
</Table>
12
<Page>
<Table>
which that holder acquired its exchange notes or the
fair market value of that holder's exchange notes, in
each case, together with accrued but unpaid interest
and liquidated damages, if any, to the earlier of the
date of redemption or earlier as may be required by
the Nevada gaming authorities or the date of the
finding of unsuitability by the Nevada gaming
authorities or (2) such other price as may be ordered
by the Nevada gaming authorities.
See "Description of Notes--Mandatory Gaming Redemption."
Change of Control Offer................... If we experience specific kinds of change of control
events, we must offer to repurchase the exchange notes
at 101% of the principal amount of the exchange notes,
plus accrued but unpaid interest and liquidated damages,
if any, to the date of purchase as set forth in
"Description of Notes--Repurchase at the Option of
Holders."
Basic Covenants of the Indenture
Provisions.............................. The indenture governing the notes, among other things,
restricts our ability and that of our restricted
subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions;
- create liens;
- engage in transactions with our affiliates;
- enter into certain leases;
- merge or consolidate; and
- transfer or sell all or substantially all assets.
These covenants are subject to important qualifications
and exceptions. For more details, see the section
entitled "Description of Notes--Certain Covenants."
Limited Trading Market for the Exchange
Notes................................... The exchange notes are new securities with no
established market for them. We cannot assure you that
an active market for these exchange notes will develop
or that this market will be liquid. Please refer to the
section of this prospectus entitled "Risk Factors--Risks
Relating to the Exchange Notes--An active trading market
may not develop for the notes."
</Table>
13
<Page>
<Table>
Form of the Exchange Notes................ The exchange notes will be represented by one or more
permanent global securities in registered form deposited
on behalf of The Depository Trust Company with U.S. Bank
National Association, as custodian. You will not receive
exchange notes in certificated form unless one of the
events described in the section of this prospectus
entitled "Book-Entry, Delivery and Form--Exchange of
Book-Entry Notes for Certificated Notes" occurs.
Instead, beneficial interests in the exchange notes will
be shown on, and transfers of these exchange notes will
be effected only through, records maintained in
book-entry form by The Depository Trust Company with
respect to its participants.
</Table>
INFORMATION ABOUT LVSI AND VENETIAN
LVSI was incorporated in 1988 under the laws of the State of Nevada. LVSI
acquired the Sands Hotel and Casino from MGM Grand in April 1989. LVSI owned and
operated the Sands until June 1996 when it ceased operations to begin demolition
of the Sands and construction of the Casino Resort. LVSI is the managing member
and owner of 100% of the common equity of Venetian Casino Resort, LLC. Venetian
was formed as a limited liability company in Nevada in 1997. Venetian is the
owner and operator of the hotel and the Congress Center and the owner of the
casino. Our wholly-owned subsidiary, Grand Canal Shops II, LLC, owns The Grand
Canal Shoppes. Under a casino lease, Venetian leases the casino to LVSI, which
conducts all gaming operations in the Casino Resort.
The executive offices of LVSI are located at 3355 Las Vegas Boulevard South,
Room 1A, Las Vegas, Nevada 89109 and its phone number is (702) 414-1000.
14
<Page>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
Set forth in the following tables are consolidated historical financial data
of LVSI as of September 30, 2002, for each of the twelve months ended
December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2001
and 2002 and selected unaudited pro forma financial data for the year ended
December 31, 2001 and for the nine months ended September 30, 2002. The
historical statement of operations data for each of the twelve months ended
December 31, 1999, 2000 and 2001 have been derived from our audited consolidated
financial statements for these periods which are included in this prospectus and
which have been audited by PricewaterhouseCoopers LLP, independent accountants
(see footnotes 2 and 3 to this table). The balance sheet data as of
September 30, 2002 and the statement of operations data for the nine month
periods ended September 30, 2001 and 2002 have been derived from our unaudited
consolidated financial statements for these periods which are included in this
prospectus. The pro forma statement of operations data gives effect to the
Refinancing Transactions (as defined under "Use of Proceeds" below), the Phase
IA Funding and additional borrowings of $15.0 million under the mall loan
facility for general corporate purposes (the "Additional Mall Loan Borrowings")
as if they had occurred on January 1, 2001 (see footnote 8 to this table). The
pro forma balance sheet data gives effect to the Phase IA Funding as if it had
occurred on September 30, 2002 (see footnote 9 to this table). The following
information should be read in conjunction with "Use of Proceeds,"
"Capitalization," "Selected Historical Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our historical consolidated financial statements, the related notes and other
financial information included elsewhere in this prospectus.
SUMMARY HISTORICAL FINANCIAL DATA
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1999 2000 2001 2001 2002
--------- --------- --------- --------- ---------
(IN THOUSANDS)(1)
STATEMENTS OF OPERATIONS DATA:
Revenues:
Casino................................. $ 124,161 $ 299,083 $ 227,240 $ 174,133 $177,379
Rooms.................................. 89,585 192,327 204,242 159,702 156,605
Food and beverage...................... 30,786 67,052 61,977 49,088 54,838
Retail and other....................... 28,966 68,804 73,034 51,513 53,550
--------- --------- --------- --------- --------
273,498 627,266 566,493 434,436 442,372
Promotional allowances................... (25,045) (46,296) (42,594) (32,384) (25,018)
--------- --------- --------- --------- --------
Net revenues............................. 248,453 580,970 523,899 402,052 417,354
--------- --------- --------- --------- --------
Operating expenses:
Casino................................. 69,664 163,157 139,936 109,970 86,742
Rooms.................................. 25,532 49,618 50,039 39,271 40,128
Food and beverage...................... 19,134 32,627 29,630 23,581 27,049
Retail and other....................... 11,581 29,406 32,302 23,876 23,511
Provision for doubtful accounts........ 13,655 19,252 20,198 14,656 13,540
General and administrative............. 50,450 93,413 86,887 68,337 69,682
Corporate expense...................... 2,510 6,275 6,376 4,741 7,520
Rental expense......................... 5,485 8,727 8,074 6,287 5,535
Pre-opening and development expense.... 21,484 -- 355 -- 3,097
Depreciation and amortization.......... 25,145 41,722 40,823 30,338 33,015
--------- --------- --------- --------- --------
244,640 444,197 414,620 321,057 309,819
--------- --------- --------- --------- --------
(table continued on next page)
</Table>
15
<Page>
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1999 2000 2001 2001 2002
--------- --------- --------- --------- ---------
(IN THOUSANDS)(1)
Operating income......................... 3,813 136,773 109,279 80,995 107,535
Other income (expense):
Interest expense, net of amounts
capitalized.......................... (71,235) (111,026) (101,724) (76,269) (81,531)
Interest expense on indebtedness to
LVSI's principal stockholder......... (163) (8,781) (9,020) (6,747) (4,010)
Other income (expense)................. 2,551 1,771 (553) 1,135 2,372
Loss on early retirement of debt(2).... (589) (2,785) (1,383) (1,383) (51,392)
--------- --------- --------- --------- --------
Income (loss) before preferred return.... (65,623) 15,952 (3,401) (2,269) (27,026)
Preferred return on Redeemable Preferred
Interest in Venetian Casino Resort, LLC
(1999, 2000 and September 30, 2001, as
restated)(3)........................... (14,399) (18,482) (20,766) (15,423) (17,330)
--------- --------- --------- --------- --------
Net income (loss) (1999(2), 2000 and
September 30, 2001, as restated)(3).... $ (80,022) $ (2,530) $ (24,167) $ (17,692) $(44,356)
========= ========= ========= ========= ========
OTHER FINANCIAL DATA:
EBITDA(4)................................ $ 28,958 $ 178,495 $ 150,102 $ 111,333 $140,550
Cash provided by (used in) operating
activities............................. (30,063) 81,017 50,792 35,718 67,572
Cash used in investing activities........ (196,150) (20,158) (55,231) (42,302) (227,162)
Cash provided by (used in) financing
activities............................. 250,180 (44,505) 16,769 19,467 200,296
Capital expenditures..................... $ 319,106 $ 28,589 $ 55,134 $ 42,220 $ 72,476
Ratio of EBITDA to net interest
expense................................ 0.4x 1.5x 1.4x 1.3x 1.6x
Ratio of total debt to EBITDA............ 32.8x 5.1x 6.3x N/M N/M
Ratio of earnings to fixed charges(5).... -- 1.0x -- -- --
OPERATING DATA:
Occupancy %(6)........................... 81.7% 95.2% 94.6% 94.4% 97.4%
Average daily room rate (ADR)(6)......... $ 159 $ 182 $ 196 $ 205 $ 195
Average number of table games(6)......... 116 122 123 123 126
Table games drop per unit per day(6)..... $ 15,470 $ 25,289 $ 21,550 $ 23,299 $ 18,649
Average number of slot machines(6)....... 2,308 2,159 2,159 2,171 2,043
Slot machine win per unit per day(6)..... $ 99 $ 129 $ 132 $ 130 $ 134
Number of Expo Center visitors per
day(6)(7).............................. 10,291 9,526 9,815 10,308 7,660
Number of convention days at Expo
Center(7).............................. 113 141 107 81 93
</Table>
16
<Page>
UNAUDITED PRO FORMA DATA
<Table>
<Caption>
YEAR END
DECEMBER 31, NINE MONTHS ENDED
2001 SEPTEMBER 30, 2002
------------ --------------------
(IN THOUSANDS)(1)
Interest expense, net of amounts capitalized(8).......... $(126,024) $(88,642)
Interest expense on indebtedness to LVSI's principal
stockholder(8)......................................... -- --
Income (loss) before preferred return.................... (17,298) (30,127)
Ratio of EBITDA to net interest expense.................. 1.2x 1.6x
Ratio of earnings to fixed charges(5).................... -- --
</Table>
<Table>
<Caption>
AS OF SEPTEMBER 30, 2002
-------------------------
ACTUAL PRO FORMA(9)
---------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 95,642 $ 95,642
Restricted cash............................................. 157,332 207,332
Total assets................................................ 1,509,062 1,559,062
Total debt.................................................. 1,219,375 1,269,375
Stockholders' equity (deficit).............................. (55,347) (55,347)
(footnotes on following page)
</Table>
- ------------------------
(1) Except ratios and Operating Data. The Casino Resort (excluding The Grand
Canal Shoppes) opened on May 4, 1999. The Grand Canal Shoppes opened on
June 19, 1999.
(2) In April 2002, the Financial Accounting Standards Board issued statement
No. 145 ("SFAS 145") "Recission of FASB Statements Nos. 4, 44 and 64 and
Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations to the
extent they do not meet the requirements of APB Opinion No. 30. We have
adopted SFAS 145 and will no longer present losses on early retirements of
debt as an extraordinary item. Accordingly, prior period losses on early
retirement of debt have been reclassified to other income (expense) to
conform to this new presentation in the accompanying table.
(3) We restated certain income statement items for each of the years ended
December 31, 1999 and 2000 and for the nine months ended September 30, 2001
to include preferred return on preferred interest of Venetian, which amounts
were $14.4 million, $18.5 million and $15.4 million. Such amounts had been
previously reflected as a charge against capital in excess of par.
(4) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA should not be considered as an alternative to operating or net income
(as determined in accordance with generally accepted accounting principles)
as a measure of our operating performance or to net cash provided by
operating, investing and financing activities (as determined in accordance
with generally accepted accounting principles) as a measure of our ability
to meet cash needs. All companies do not calculate EBITDA in the same
manner. As a result, EBITDA as presented may not be comparable to similarly
titled measures presented by other companies. EBITDA is presented as
supplemental disclosure because the calculation of EBITDA is necessary to
determine our compliance with certain covenants under these credit
agreements and we believe that EBITDA is a measure commonly reported and
widely used by investors and other
17
<Page>
interested parties as a measure of a company's operating performance and
debt servicing ability because it assists in comparing performance on a
consistent basis without regard to depreciation and amortization, which can
vary significantly depending upon accounting methods (particularly when
acquisitions are involved) or nonoperating factors (such as historical
cost). Accordingly, this information has been disclosed to permit a more
complete comparative analysis of our operating performance relative to other
companies and of our debt servicing ability. However, EBITDA may not be
comparable in all instances to other similar types of measures used.
(5) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represent income before preferred return plus our proportionate
share of the loss on our equity investment, amortization of capitalized
interest and fixed charges, and less preferred return and interest
capitalized. "Fixed charges" consist of interest expense, whether expensed
or capitalized, amortization of debt discount and debt financing costs,
preferred return and one-third of lease expense, which we believe is
representative of the interest component of lease expense--primarily
comprised of rent expense associated with the heating and air conditioning
provider. For the years ended 1999 and 2001, the nine months ended
September 30, 2001 and 2002, the pro forma year ended 2001 and the pro forma
nine months ended September 30, 2002, earnings were insufficient to cover
fixed charges by $110.4 million, $22.3 million, $17.2 million,
$43.7 million, $36.2 million and $46.8 million. Accordingly, these ratios
have not been presented.
(6) Operating data are average for the respective periods.
(7) This data is based on actual days during which a convention, trade show or
similar event is ongoing at the Expo Center. The Expo Center is separately
owned by LVSI's principal stockholder.
18
<Page>
(8) The pro forma financial columns give effect to the net increase in interest
expense due to the Refinancing Transactions, the Phase IA Funding and the
Additional Mall Loan Borrowings as described under "Capitalization" as
follows:
<Table>
<Caption>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 2001 2002
----------------- --------------
(IN THOUSANDS)
Historical net interest expense (including interest
expense on indebtedness to LVSI's principal
stockholder)........................................ $ 110,744 $ 85,541
Less:
Interest expense related to indebtedness repaid with
proceeds from the Refinancing Transactions, at
actual historical amounts........................... (102,954) (43,398)
Interest expense related to amortization of deferred
offering costs and original issue discount, at
actual historical amounts........................... (8,689) (4,536)
Plus:
Pro forma interest expense on mortgage notes (11.0%
fixed rate)......................................... 93,500 39,737
Pro forma interest expense on $50 million term loan
(weighted average interest rates of 6.7% and
4.8%)(a)............................................ 3,360 1,815
Pro forma interest expense on $250 million term loan
(weighted average interest rates of 6.7% and
4.9%)(a)............................................ 16,798 4,940
Pro forma interest expense on $120 million mall loan
facility (weighted average interest rates of 5.6%
and 3.7%)(a)........................................ 6,713 1,916
Pro forma amortization of deferred offering costs and
commitment fees, based on actual offering costs and
using a weighted average life of approximately 6.7
years............................................... 6,552 2,627
--------- --------
$ 126,024 $ 88,642
========= ========
</Table>
----------------------------
(a) Based on actual weighted average one-month LIBOR rates during the
respective period (3.7% and 1.8%) plus the contractual spread for the new
indebtedness.
Had interest rates been 1/8% higher during the year ended 2001 and the nine
months ended September 30, 2002, the impact on the variable rate
indebtedness would have caused pro forma interest expense for each period to
increase by $0.5 million and $0.4 million.
(9) Pro forma restricted cash reflects the assumed borrowing of $50.0 million
under the delay draw facility. See "Use of Proceeds."
19
<Page>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW AS WELL AS
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE INVESTING IN THE
EXCHANGE NOTES OFFERED PURSUANT TO THIS PROSPECTUS. THE RISKS DESCRIBED BELOW
ARE NOT THE ONLY RISKS OF OWNING THE EXCHANGE NOTES. ADDITIONAL RISKS AND
UNCERTAINTIES NOT CURRENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM TO BE
IMMATERIAL MAY ALSO MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS. IN SUCH CASE, YOU MAY LOSE ALL OR PART OF
YOUR ORIGINAL INVESTMENT. CERTAIN STATEMENTS IN "RISK FACTORS" ARE
FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS."
RISKS RELATING TO OUR INDEBTEDNESS
OUR SUBSTANTIAL DEBT COULD IMPAIR OUR FINANCIAL CONDITION AND PREVENT US FROM
FULFILLING OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
We are highly leveraged and have substantial debt service obligations. As of
September 30, 2002, on a pro forma basis after giving effect to the Phase IA
Funding, we would have had approximately $1,296.4 million of indebtedness
outstanding. In addition, there would have been approximately $75.0 million
available for borrowing by Venetian under the revolver of our new credit
facility.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- impair our ability to obtain additional financing in the future for
working capital needs, capital expenditures, acquisitions or general
corporate purposes;
- require us to dedicate a significant portion of our cash flow from
operations to the payment of principal and interest on our debt, which
would reduce the funds available to us for our operations;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- subject us to higher interest expense in the event of increases in
interest rates to the extent a portion of our debt is and will continue to
be at variable rates of interest.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS
ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture governing the notes do
not fully prohibit us or our subsidiaries from doing so. For example, the
revolver of our new credit facility permits additional borrowing of up to
$75.0 million and that additional borrowing will rank senior to the exchange
notes. If new debt is added to our or our subsidiaries' current debt levels, the
related risks that we and they now face could intensify. See "Description of
Other Indebtedness--New Credit Facility."
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THE TERMS OF OUR NEW CREDIT FACILITY AND THE INDENTURE GOVERNING THE EXCHANGE
NOTES MAY RESTRICT OUR CURRENT AND FUTURE OPERATIONS, PARTICULARLY OUR ABILITY
TO RESPOND TO CHANGES OR TO TAKE SOME ACTIONS.
Our new credit facility contains, and any future refinancing of this
facility likely would contain, a number of restrictive covenants that impose
significant operating and financial restrictions on us. The new credit facility
includes covenants restricting, among other things, our ability to:
- incur additional debt, including guarantees;
- incur liens;
- dispose of assets;
- make certain acquisitions;
- pay dividends and make other restricted payments;
- enter into sale and leaseback transactions;
- engage in any new businesses;
- issue preferred stock; and
- enter into transactions with our shareholders and our affiliates.
The indenture governing the notes also contains numerous covenants
including, among other things, restrictions on our ability and that of our
restricted subsidiaries to:
- incur additional debt, including guarantees;
- use assets as security in other transactions;
- create liens or other encumbrances;
- make certain payments and investments;
- sell or otherwise dispose of assets;
- engage in transactions with our affiliates;
- enter into certain leases;
- merge or consolidate with another entity; and
- transfer all or substantially all assets.
Our new credit facility also includes financial covenants, including
requirements that we satisfy:
- a minimum net worth test;
- a maximum capital expenditure test;
- a minimum interest coverage ratio; and
- a maximum leverage ratio.
In addition, our other debt and future debt or other contracts could contain
financial or other covenants more restrictive than those applicable to the
exchange notes.
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OUR FAILURE TO COMPLY WITH THE COVENANTS CONTAINED IN THE NEW CREDIT FACILITY OR
THE INDENTURE GOVERNING THE EXCHANGE NOTES, INCLUDING OUR FAILURE AS A RESULT OF
EVENTS BEYOND OUR CONTROL, COULD RESULT IN AN EVENT OF DEFAULT WHICH COULD
MATERIALLY AND ADVERSELY AFFECT OUR OPERATING RESULTS AND OUR FINANCIAL
CONDITION.
If there were an event of default under one of our debt instruments, the
holders of the defaulted debt could cause all amounts outstanding with respect
to that debt to be due and payable immediately. We cannot assure you that our
assets or cash flow would be sufficient to fully repay borrowings under our
outstanding debt instruments, either upon maturity or if accelerated upon an
event of default or that we would be able to refinance or restructure the
payments on those debt securities. Further, if we are unable to repay, refinance
or restructure our indebtedness under our new credit facility, the lenders under
that facility could proceed against the collateral securing that indebtedness.
In that event, any proceeds received upon a realization of the collateral would
be applied first to amounts due under our new credit facility before any
proceeds would be available to make payments on the exchange notes. See "--The
collateral securing the exchange notes is subject to control by creditors with
first-priority liens that rank ahead of the liens securing the exchange notes.
If there is a default, the value of the collateral may not be sufficient to
repay both the first-priority creditors and the holders of the exchange notes."
In addition, any event of default or declaration of acceleration under one debt
instrument could result in an event of default under one or more of our other
debt instruments, including the exchange notes.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE
OBLIGATIONS, INCLUDING PAYMENTS DUE ON THE EXCHANGE NOTES BECAUSE OUR ABILITY TO
GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make scheduled payments due on our debt obligations,
including the exchange notes, and to fund planned capital expenditures and
development efforts will depend on our ability to generate cash in the future.
To a certain extent, this is subject to a range of economic, financial,
competitive, legislative, regulatory, business and other factors, many of which
are outside of our control. If we do not generate sufficient cash flow from
operations to satisfy our debt obligations, including payments due on the
exchange notes, we may have to undertake alternative financing plans, such as
refinancing or restructuring our debt, selling assets, reducing or delaying
capital investments or seeking to raise additional capital. We cannot assure you
that any refinancing would be possible, that any assets could be sold, or, if
sold, of the timing of the sales or the amount of proceeds realized from those
sales, or that additional financing could be obtained on acceptable terms, if at
all, or would be permitted under the terms of our various debt instruments then
in effect. Our failure to generate sufficient cash flow to satisfy our debt
obligations, or to refinance our obligations on commercially reasonable terms,
would have an adverse effect on our business, financial condition and results of
operations, as well as on our ability to satisfy our obligations on the exchange
notes.
WE MAY NOT BE ABLE TO FULFILL OUR REPURCHASE OBLIGATIONS IN THE EVENT OF A
CHANGE OF CONTROL.
If we experience certain specific change of control events, we will be
required to offer to repurchase all outstanding exchange notes at 101% of the
principal amount of the exchange notes plus accrued and unpaid interest and
liquidated damages, if any, to the date of repurchase. Any change of control
would also constitute a default under our new credit facility. Therefore, upon
the occurrence of a change of control, the lenders under our new credit facility
would have the right to accelerate their loans and we would be required to
prepay all of our outstanding obligations under the new credit facility. We
cannot assure you that we will have available funds sufficient to pay the change
of control purchase price for any or all of the exchange notes that might be
delivered by holders of the exchange notes seeking to accept the change of
control offer. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our
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indebtedness, would not constitute a "change of control" under the indenture
governing the notes. See "Description of Notes--Repurchase at the Option of
Holders--Change of Control."
In addition, our new credit facility contains, and any future credit
agreement likely will contain, restrictions or prohibitions on our ability to
repurchase the exchange notes. In the event that these change of control events
occur at a time when we are prohibited from repurchasing the exchange notes, we
could seek the consent of our lenders to purchase the exchange notes or could
attempt to refinance the borrowings that contain these prohibitions or
restrictions. If we do not obtain our lenders' consent or refinance these
borrowings, we will remain prohibited or restricted from repurchasing the
exchange notes. Accordingly, the holders of the exchange notes may not receive
the change of control purchase price for their exchange notes in the event of a
sale or other change of control. Our failure to make or consummate the change of
control offer or pay the change of control purchase price when due will give the
trustee and the holders of the exchange notes the right to declare an event of
default and accelerate the repayment of the exchange notes as described under
the section in this prospectus entitled "Description of Notes--Events of
Default." This event of default under the indenture governing the notes would in
turn constitute an event of default under our new credit facility.
RISKS RELATING SPECIFICALLY TO THE EXCHANGE NOTES
THE COLLATERAL SECURING THE EXCHANGE NOTES IS SUBJECT TO CONTROL BY CREDITORS
WITH FIRST-PRIORITY LIENS THAT RANK AHEAD OF THE LIENS SECURING THE EXCHANGE
NOTES. IF THERE IS A DEFAULT, THE VALUE OF THE COLLATERAL MAY NOT BE SUFFICIENT
TO REPAY BOTH THE FIRST-PRIORITY CREDITORS AND THE HOLDERS OF THE EXCHANGE
NOTES.
The exchange notes will be secured on a second-priority basis, subject to
permitted liens, by a lien on substantially all assets now owned or hereafter
acquired by LVSI, Venetian and our subsidiaries that guarantee the exchange
notes. Because The Grand Canal Shoppes is owned by the Mall Subsidiary, which is
not a guarantor of the exchange notes, the assets consisting of The Grand Canal
Shoppes will not be included in the collateral. The first-priority liens,
subject to permitted liens, on the collateral secure or will secure our
obligations under the new credit facility, certain other future indebtedness
permitted to be incurred by us or certain of our subsidiaries that guarantee the
notes and that is designated by us, at the time of such incurrence, as
first-priority lien secured indebtedness and certain hedging obligations.
Although the holders of obligations secured by first-priority liens on the
collateral and the holders of the exchange notes will share in the proceeds of
this collateral, the holders of obligations secured by the first-priority liens
on the collateral will be effectively entitled to receive proceeds from any
realization of the collateral to repay their obligations in full before the
holders of the exchange notes and the other obligations secured by
second-priority liens receive any portion of those proceeds.
The value of the collateral in the event of liquidation will depend on
market and economic conditions, the availability of buyers and other factors.
Further, in any foreclosure sale of the collateral, the purchaser or operator of
the facility would be subject to certain obligations under our existing
cooperation agreement (including an obligation to pay shared expenses and
maintain certain common areas) which may affect the liquidation value of the
collateral securing the notes. We cannot assure you that the proceeds from the
sale or sales of all of such collateral would be sufficient to satisfy the
amounts outstanding under the exchange notes and other obligations secured by
the second-priority liens, if any, after payment in full of all obligations
secured by the first-priority liens on the collateral. If these proceeds were
not sufficient to repay amounts outstanding under the exchange notes, then
holders of the exchange notes, to the extent not repaid from the proceeds of the
sale of the collateral, would only have an unsecured claim against our remaining
assets. As of September 30, 2002, on a pro forma basis after giving effect to
the Phase IA Funding, we would have had approximately $299.4 million of
indebtedness outstanding under
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our new credit facility and approximately $75.0 million of borrowing
availability under our new revolving credit facility. Under the indenture
governing the notes, we are permitted to incur up to $15.0 million of additional
indebtedness that is secured by first liens on the note collateral and
additional debt secured by first liens on the note collateral if certain
financial conditions are met. In addition, we are permitted to issue additional
notes if we meet certain financial tests. The intercreditor agreement also
permits the lenders under our new credit facility to make certain "protective
advances" in order to protect, preserve, repair and maintain their collateral.
Any amounts so advanced will be included in the amounts secured by the
first-priority liens in favor of the lenders under our new credit facility. Such
advances therefore could increase the aggregate first-priority senior secured
claims on the collateral, even beyond the maximum commitments of such lender,
thereby potentially disadvantaging the holders of the exchange notes.
The rights of the holders of the exchange notes with respect to the
collateral securing the exchange notes will be limited pursuant to the terms of
the intercreditor agreement. Under the intercreditor agreement, subject to
certain standstill periods, the holders of the exchange notes may foreclose on
the collateral prior to the lenders under our new credit facility, provided that
the purchaser at the foreclosure sale (including the holders of the exchange
notes, if applicable) is required to concurrently pay all obligations under our
new credit facility in full. There can be no assurance that funds will be
available to the holders of the exchange notes at such time to pay the amounts
due under our new credit facility. Also, any release of the first priority liens
upon any collateral approved by the holders of the first priority liens shall
also release the second priority liens securing the exchange notes on the same
collateral; PROVIDED, that after giving effect to such release, the aggregate
book value of all of the assets released does not exceed 10% of the total
consolidated assets of LVSI as of June 4, 2002. Additional releases of
collateral from the second-priority lien securing the exchange notes are
permitted under some circumstances. Finally, amendments to, or waivers of the
first-priority lien collateral documents approved by the holders of the
first-priority liens shall also be effective as to the second-priority lien
collateral documents for the exchange notes. See "Description of Notes--Ranking
and Security" and "Description of Notes--Security."
THE EXCHANGE NOTES ARE EFFECTIVELY SUBORDINATED TO THE INDEBTEDNESS OF OUR
SUBSIDIARIES THAT DO NOT GUARANTEE THE EXCHANGE NOTES.
The exchange notes will also be effectively subordinated to any of our
indebtedness secured by assets other than the collateral securing the exchange
notes (to the extent of these assets) and to indebtedness of any of our
subsidiaries that is not a guarantor of the exchange notes. In the event of a
bankruptcy, liquidation or reorganization of any of our non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment of their claims from the assets of those
subsidiaries before any assets are made available for distribution to us.
Certain of our subsidiaries including the Mall Subsidiary, Lido Casino Resort,
LLC and the Macau Entities, will not guarantee the exchange notes. The indenture
governing the notes also permits these subsidiaries to incur debt provided
certain conditions are met. Lido Casino Resort, LLC plans to build the Phase II
Resort, and plans to incur substantial indebtedness. In addition, we currently
anticipate that we will need to incur substantial additional indebtedness to
finance our Macau project. See "Description of Notes--Ranking and Security."
In addition, under the indenture governing the notes, we are allowed to make
investments in the amount of $40.0 million in, and extend guarantees with
respect to $90.0 million of indebtedness or other obligations of, our Macau
subsidiaries for the development of our Macau project. We are also allowed to
make investments of up to $20.0 million in Lido Casino Resort, LLC for the
development of the Phase II Resort. See "Description of Notes--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock" and"--Certain
Definitions--Permitted Investments."
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As of September 30, 2002, after giving effect to the Phase IA funding, the
non-guarantor subsidiaries had approximately $120.0 million of debt and other
liabilities (including trade payables but excluding intercompany payables)
outstanding. Our non-guarantor subsidiaries generated 6.3% of our consolidated
net revenues in the nine month period ended September 30, 2002 and held 15.4% of
our consolidated total assets as of September 30, 2002. See footnote 7 to our
consolidated financial statements included in this prospectus.
BANKRUPTCY LAWS MAY SIGNIFICANTLY IMPAIR YOUR RIGHT TO REPOSSESS AND DISPOSE OF
THE COLLATERAL FOR THE EXCHANGE NOTES.
The right of the trustee for the notes to repossess and dispose of the
collateral securing the exchange notes upon the occurrence of an event of
default under the indenture governing the notes is likely to be significantly
impaired by applicable bankruptcy law in the case of a bankruptcy case prior to
such repossession and disposition. A bankruptcy case may be commenced by us, a
holder of notes (subject to the provisions of the intercreditor agreement), the
lenders under our new credit facility or any other creditor, including a junior
creditor.
Under applicable bankruptcy law, secured creditors, such as the holders of
the exchange notes and the lenders under our new credit facility, are prohibited
from repossessing their security from a debtor in a bankruptcy case, or from
disposing of collateral in their possession, without bankruptcy court approval.
Moreover, applicable bankruptcy law permits the debtor to continue to retain and
use the collateral even though the debtor is in default if the secured creditor
is given "adequate protection." The meaning of the term "adequate protection"
may vary according to circumstances, but it is intended in general to protect
the value of the secured creditor's interest in the collateral from diminution
as a result of the stay of repossession or disposition or any use of the
collateral by the debtor during the pendency of the bankruptcy case. It may
include cash payments or the granting of additional security at such time and in
such amount as the court may determine. In view of the lack of a precise
definition of the term "adequate protection," the broad discretionary powers of
a bankruptcy court and the possible complexity of valuation issues, it is
impossible to predict how long payments under the exchange notes could be
delayed following commencement of a bankruptcy case, whether or when the trustee
for the notes could repossess or dispose of the collateral or whether or to what
extent, through the requirement of "adequate protection," the holders of the
exchange notes would be compensated for any delay in payment or loss of value of
the collateral.
Some of the factors that might affect your recovery in these circumstances,
include:
- a debtor in a bankruptcy case does not have the ability to compel
performance of a "financial accommodation," including the funding of
various undrawn loans contemplated to fund construction of the Phase IA
Addition;
- lenders with liens senior to the liens securing the exchange notes may
seek and perhaps receive relief from the automatic stay to foreclose their
respective liens; and
- the cost and delay of developing a confirmed Chapter 11 plan could
adversely affect the present value of revenues.
YOUR RIGHTS TO THE COLLATERAL SECURING THE EXCHANGE NOTES COULD BE IMPAIRED AS A
RESULT OF BANKRUPTCY PROCEEDINGS AGAINST OTHER PERSONS. IN ADDITION, IN THE
EVENT THAT A BANKRUPTCY COURT ORDERS OUR SUBSTANTIVE CONSOLIDATION WITH CERTAIN
AFFILIATED PARTIES, PAYMENTS ON THE EXCHANGE NOTES COULD BE DELAYED OR REDUCED.
Contract rights under certain of our agreements serve as some of the
collateral for the exchange notes. For example, some of our agreements with
Interface Group-Nevada, Inc., the owner of the Expo Center, such as the
cooperation agreement, serve as collateral for the exchange
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notes. See "Operating Agreements--Cooperation Agreement." In the event a
bankruptcy case were to be commenced by or against Interface
Group-Nevada, Inc., it is possible that all or part of the cooperation agreement
could be rejected by Interface Group-Nevada, Inc. or a trustee appointed in a
bankruptcy case pursuant to section 365 or section 1123 of the United States
Bankruptcy Code and thus not be specifically enforceable. In addition, to the
extent any rejected agreement constitutes a lease of real property, the
resulting claim of the lessor for damages resulting from termination may be
capped pursuant to section 502(b)(6) of the Bankruptcy Code.
The exchange notes offered pursuant to this prospectus will represent our
obligations only and will not represent obligations of, and will not be
guaranteed by, Interface Group-Nevada, Inc., LVSI's principal stockholder or any
of their affiliates other than LVSI, Venetian and certain of their subsidiaries.
Although we believe that we have observed and will observe certain formalities
and operating procedures that are generally recognized requirements for
maintaining our separate existence and that our assets and liabilities can be
readily identified as distinct from those of Interface Group-Nevada, Inc.,
LVSI's principal stockholder or the other affiliates referred to in the previous
sentence, we cannot assure you that a bankruptcy court would agree, in the event
that either Interface Group-Nevada, Inc., LVSI's principal stockholder or such
other affiliates referred to in the previous sentence becomes a debtor under the
Bankruptcy Code. Instead, if a bankruptcy court concludes that substantive
consolidation of LVSI and Venetian with any affiliated party referred to in the
first sentence of this paragraph is warranted, payments on the exchange notes
could be delayed or reduced.
THERE ARE PARTICULAR RISKS ASSOCIATED WITH GAMING FORECLOSURES.
In the event of any foreclosure sale of the Casino Resort, the purchaser or
the operator of the facility would need to be licensed in order to operate the
casino under the Nevada Gaming Control Act. If the trustee for the notes or the
lenders under the new credit facility purchase the Casino Resort at a
foreclosure sale and are unable or choose not to sell the casino, the trustee or
the lenders, unless licensed themselves, would be required to retain a licensed
entity under the Nevada Gaming Control Act in order to conduct gaming operations
in the casino. The holders of the exchange notes may have to be licensed or
found suitable in any event. Because potential bidders who wish to operate the
casino must satisfy these requirements, the number of potential bidders in a
foreclosure sale could be less than in foreclosure sales of other types of
facilities, and such requirement may delay the sale of, and may adversely affect
the sales price for, the collateral. See "Description of Notes--Ranking and
Security" and "Description of Notes--Events of Default and Remedies."
RELEASES OF THE GUARANTEES OF THE EXCHANGE NOTES OR ADDITIONAL GUARANTEES MAY BE
CONTROLLED, UNDER SOME CIRCUMSTANCES, BY THE COLLATERAL AGENT UNDER THE NEW
CREDIT FACILITY.
The exchange notes will be guaranteed by certain of our domestic restricted
subsidiaries that guarantee our obligations under the new credit facility. If we
create or acquire a domestic restricted subsidiary in the future and the
collateral agent under the new credit facility does not require that subsidiary
to guarantee the obligations under the new credit facility, then the subsidiary
will not be required to guarantee the notes. In addition, under the indenture
governing the notes, a guarantee of the exchange notes made by a guarantor will
be released without any action on the part of the trustee or any holder of
exchange notes if the collateral agent under the new credit facility releases
the guaranty of the obligations under the new credit facility made by that
guarantor. Additional releases of the guarantees of the exchange notes are
permitted under some circumstances. See "Description of Notes--Note Guarantees."
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FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
THE GUARANTEES OF THE EXCHANGE NOTES AND THE LIENS SECURING THE GUARANTEES AND
REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US OR THE GUARANTORS.
Our creditors or the creditors of our guarantors could challenge the
guarantees and the liens in connection with the exchange notes as fraudulent
conveyances or on other grounds. Under the federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, the delivery of the guarantees and
the grant of the second-priority liens securing the guarantees could be found to
be a fraudulent transfer and declared void if a court determined that the
guarantor of the exchange notes, at the time it incurred the indebtedness
evidenced by its guarantee and lien:
- delivered the guarantee and granted the lien with the intent to hinder,
delay or defraud its existing or future creditors; or
- received less than reasonably equivalent value or did not receive fair
consideration for the delivery of the guarantee and the incurrence of the
lien and any of the three following conditions apply:
- was insolvent or rendered insolvent at the time it delivered the
guarantee and granted the lien;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
If a court declares either the guarantees or the liens to be void, or if the
guarantees must be limited or voided in accordance with their terms, any claim
you may make against us for amounts payable on the exchange notes would be
unsecured and, with respect to amounts claimed against the guarantors,
subordinated to the debt of our guarantors, including trade payables. The
measures of insolvency for purposes of these fraudulent transfer laws will vary
depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of the exchange notes, will not be insolvent, will not have
unreasonably small capital for the business in which it is engaged and will not
have incurred debts beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
these determinations or that a court would agree with our conclusions in this
regard.
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES. WE CANNOT BE
SURE IF AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE NOTES.
The exchange notes are new securities with no established market for them.
We cannot be sure if an active trading market will develop for the exchange
notes.
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The liquidity of, and trading market for, the exchange notes may also be
adversely affected by, among other things:
- changes in the overall market for high yield securities;
- changes in our financial performance or prospects;
- the prospects for companies in our industry generally;
- the number of holders of the exchange notes;
- the interest of securities dealers in making a market for the exchange
notes; and
- prevailing interest rates.
RISKS RELATING TO OUR BUSINESS
OUR BUSINESS IS SUBJECT TO SIGNIFICANT CONTINGENCIES BEYOND OUR CONTROL,
INCLUDING THE AFTERMATH OF TERRORIST ACTS, WHICH MAY SIGNIFICANTLY AND ADVERSELY
AFFECT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
Our operations are subject to significant business, economic and regulatory
uncertainties and contingencies, many of which are beyond our control. On
September 11, 2001, acts of terrorism occurred in New York City, Pennsylvania
and Washington D.C. As a result of these terrorist acts, domestic and
international travel was severely disrupted. As approximately 48% of our
customers use air travel to come to Las Vegas, these terrorist acts and travel
disruptions decreased customer visitation to our Casino Resort. While air travel
levels have rebounded, we cannot predict the extent to which the events of
September 11th may continue to affect us, directly or indirectly, in the future.
Any further terrorist act, outbreak of hostilities or escalation of war could
have a material adverse effect on the economy in general and on the hotel/casino
business in particular or could further disrupt air travel, which would
adversely affect our financial condition, results of operations or cash flows.
We cannot assure you that we will continue to manage the Casino Resort on a
profitable basis or that we will be able to attract a sufficient number of
guests, gaming customers and other visitors to the Casino Resort to make its
various operations profitable independently or as a whole.
WE FACE SIGNIFICANT COMPETITION WHICH COULD MATERIALLY ADVERSELY AFFECT OUR
FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
The hotel, resort and casino businesses are highly competitive. See
"Business--Competition." Our Casino Resort competes with a large number of major
hotel-casinos and a number of smaller casinos located on and near the Strip and
in and near Las Vegas, including other upscale destinations such as The
Bellagio, Mandalay Bay and Paris. We expect competition to increase with the
announced construction of Le Reve, an approximately 2,500-room resort to be
built on the site of the former Desert Inn, one block north of the Casino
Resort, on the corner of Las Vegas Boulevard and Sands Avenue (anticipated to
open in late 2004) and the announced construction of an approximately
1.8 million square foot convention center at Mandalay Bay. We also compete, to
some extent, with other hotel-casino facilities in Nevada and in Atlantic City,
as well as hotel-casinos and other resort facilities and vacation destinations
elsewhere in the United States and around the world. Many of our competitors are
subsidiaries or divisions of large public companies and may have greater
financial and other resources than we have.
We also compete with legalized gaming from casinos located on Native
American tribal lands. In March 2000, California voters approved an amendment to
the California Constitution permitting Native American tribes in California to
operate a limited number of slot and video poker machines and house-banked card
games. The governor of California has entered into compacts with numerous tribes
in California. The federal government has approved approximately 60 such
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compacts, and casino-style gaming is now legal on those tribal lands. While the
competitive impact on our operations in Las Vegas from the continued growth of
Native American gaming establishments in California remains uncertain, the
proliferation of gaming in California and other areas located near our Casino
Resort could have an adverse effect on our results of operations.
In addition, certain states have legalized, and others may legalize, casino
gaming in specific areas, including metropolitan areas from which we
traditionally attract customers, such as New York, Los Angeles, San Francisco
and Boston. In October 2001, the New York legislature approved a bill for
expanded casino gaming on Native American reservations in the State of New York.
Such proliferation of gaming venues, by luring customers close to home and away
from Las Vegas, could significantly and adversely affect our financial
condition, results of operations or cash flows.
Competition will be increasing for the Congress Center and the Expo Center
as a result of certain planned additional convention and meeting facilities as
well as the enhancement or expansion of existing convention and meeting
facilities in Las Vegas, which could have a negative impact on our business.
With the expansion of its facilities, the Las Vegas Convention Center, a
3.2 million square foot convention and exhibition space facility, will continue
to be a major competitor of the Expo Center and will be able to solely host many
large trade shows which had previously split space between the Las Vegas
Convention Center and the Expo Center. In addition, we anticipate increased
competition from the MGM Grand Hotel and Casino, the Mirage and Mandalay Bay,
which are all adding conference and meeting facilities. To the extent that these
competitors are able to capture a substantially larger portion of the trade show
and convention business in Las Vegas, there could be a material adverse impact
on the Congress Center and on the Expo Center and in turn, our financial
position, results of operations and cash flows, given the Casino Resort's link
to the Expo Center. Other cities such as Boston, Orlando and Pittsburgh are also
in the process of developing, or have announced plans to develop, convention
centers and other meeting, trade and exhibition facilities that could in the
long term materially adversely affect us.
WE ARE INVOLVED IN A LAWSUIT WITH THE CONSTRUCTION MANAGER FOR THE ORIGINAL
CONSTRUCTION OF THE CASINO RESORT, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
The original construction of the principal components of the Casino Resort
was undertaken by Lehrer McGovern Bovis, Inc. as construction manager under a
construction management agreement. The construction management agreement
established a guaranteed maximum price of $645.0 million, subject to various
exceptions, and a required substantial completion date for the Casino Resort of
April 21, 1999. In July 1999, we filed a lawsuit in federal court against the
construction manager for the Casino Resort, the guarantor of the construction
manager's obligations and various other parties for breach of contract and
breach of guaranty, including failure to pay trade contractors and vendors and
failure to meet the April 21, 1999 substantial completion date for the Casino
Resort. We are seeking total damages in excess of $100.0 million. In response,
the construction manager has filed a complaint against us for breach of contract
and QUANTUM MERUIT and also alleging that we defrauded the construction manager
in connection with the construction of the Casino Resort. The construction
manager is seeking damages, attorney's fees, costs and punitive damages and
claims that it is owed approximately $90.0 million from us.
In connection with these disputes, the construction manager and its
subcontractors filed mechanics liens against the Casino Resort for approximately
$145.6 million and $182.2 million. We then purchased surety bonds for all of the
claims underlying these liens other than approximately $15.0 million of claims
with respect to which the construction manager purchased bonds. As a result,
there can be no foreclosure of the Casino Resort in connection with the claims
of the construction manager and its subcontractors. However, we will be required
to pay or immediately
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reimburse the bonding company if, and to the extent that, the underlying claims
are judicially determined to be valid.
We and the construction manager commenced a trial in state court in Clark
County, Nevada to litigate certain of our respective claims in August 2002. Many
of the remaining claims that are the subject of the state court action and the
federal court action will be proceeding concurrently in independent arbitration
hearings. It is not yet possible to determine the ultimate outcome of this
litigation, including the likelihood of loss or a range of loss amounts.
Although we have purchased an insurance policy for loss coverage for a portion
of certain specified potential losses, if this litigation or other proceedings
concerning the claims of the construction manager or its subcontractors were
decided adversely to us and were not covered by our insurance policy, this
litigation or other proceedings could have a material adverse effect on our
financial position, results of operations or cash flows. See "Business--Legal
Proceedings."
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH OUR PLANNED CONSTRUCTION PROJECTS,
WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS OR
CASH FLOWS.
Our on-going and future construction projects, such as the Phase IA
Addition, entail significant risks. Construction activity requires us to obtain
qualified subcontractors, the availability of which may be uncertain.
Contractual projects are subject to overrun and delays not within our control or
our subcontractors' control such as shortages of materials or skilled labor,
unforeseen engineering, environmental and/or geological problems, work
stoppages, weather interference, unanticipated cost increases and unavailability
of construction equipment. Construction, equipment or staffing problems or
difficulties in obtaining any of the requisite licenses, permits, allocations
and authorizations from governmental or regulatory authorities could increase
the total cost, delay, jeopardize or prevent the construction or opening of such
projects or otherwise affect the design and features of the Phase IA Addition or
other projects or our ability to preempt our competition.
The anticipated costs and completion date for the Phase IA Addition are
based on budgets, conceptual design documents and schedule estimates that we
have prepared with the assistance of architects and are subject to change as the
design documents are finalized and more actual construction work is performed.
To date, we have completed the design and plans for the expansion of the parking
garage, the addition of the 1000-room hotel tower to be built on top of the
parking garage and the approximately 150,000 square foot conference center, and
have substantially completed the foundation and support systems for the hotel
tower and the additional conference center space. We have hired a general
contractor for the parking garage work and have finalized contracts with the
majority of the trade contractors for the hotel work, but we have not yet
selected or finalized agreements with all of the trade contractors for the hotel
work and the meeting and conference center. We have also not yet hired trade
contractors for all aspects of the Phase IA Addition. We cannot assure you that
we will agree with general or trade contractors on financial and other terms
that will meet our forecasted cost budget and timeline. In addition, we cannot
assure you that we will avoid cost overruns that will not be covered by a
general contractor, trade contractors or insurance or that we will be able to
complete construction on schedule. If we incur significant cost overruns that
are not covered by the general contractor, trade contractors or insurance, we
may not be able to arrange for additional financing to pay for such costs. A
failure to complete the Phase IA Addition on budget and on schedule may
adversely affect our financial condition, results of operations or cash flows.
In addition, the construction of the Phase IA Addition is intended to be
funded in part by the lenders under our new credit facility. Pursuant to such
new credit facility, we may obtain loan proceeds only upon satisfaction of
certain conditions precedent, some of which are subject to the discretion of the
lenders. We cannot assure you that we will be able to satisfy such conditions
precedent to the satisfaction of such lenders or that, even if we do satisfy
such conditions, such
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lenders will perform their obligations under the new facility and fund the
loans. If we are unable to obtain loan proceeds under our new credit facility,
we cannot assure you that we will have access to other funds as may be required
to complete the Phase IA Addition. Our failure to obtain the loan proceeds or
such other funds to complete the Phase IA Addition could materially and
adversely affect our financial condition, results of operation and cash flows.
MECHANIC'S LIENS, UNDER NEVADA LAW, ON THE NOTE COLLATERAL WILL HAVE PRIORITY
OVER THE LIENS SECURING THE EXCHANGE NOTES.
Nevada law provides contractors, subcontractors and materials suppliers with
a lien on the real property being improved by their services or supplies in
order to secure their right to be paid. Such parties may foreclose on their
liens if they are not paid in full. The priority of all mechanics' liens arising
out of a particular construction project relates back to the date on which
construction of the project first commenced. Because construction of the Phase
IA Addition had already begun, all mechanics' liens arising out of the Phase IA
Addition, regardless of when filed, will have priority over the lien on the real
property assets of the Casino Resort securing the exchange notes. We have
obtained, for the benefit of the holders of the exchange notes, title insurance
that provides coverage for any and all mechanics liens that may be filed in
connection with the Phase IA Addition.
THE LOSS OF OUR GAMING LICENSE OR OUR FAILURE TO COMPLY WITH THE EXTENSIVE
REGULATIONS THAT GOVERN OUR OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS.
Our gaming operations and the ownership of our securities are subject to
extensive regulation by the Nevada Gaming Commission, the Nevada State Gaming
Control Board and the Clark County Liquor and Gaming Licensing Board. These
gaming authorities have broad authority with respect to licensing and
registration of our business entities and individuals involved with us,
including the holders of our exchange notes. See "Business--Regulation and
Licensing."
Although we currently hold a gaming license issued by the Nevada gaming
authorities, these authorities may, among other things, revoke the gaming
license of any corporate entity or the registration of a registered corporation
or any entity registered as a holding company of a corporate licensee for
violations of gaming regulations. In addition, the Nevada gaming authorities
may, under certain conditions, revoke the license or finding of suitability of
any officer, director, controlling person, shareholder, noteholder or key
employee of a licensed or registered entity. If our gaming licenses were revoked
for any reason, the Nevada gaming authorities could require the closing of the
casino, which would have a material adverse effect on our business.
From time to time, the Nevada State Gaming Control Board investigates or
reviews the records of gaming companies for compliance with gaming regulations
as part of its regular oversight functions. We have been and are being
investigated and a number of violations have been alleged, which may result in a
penalty or penalties. A majority of these incidents occurred in the first year
of our operations. We do not believe that these violations will result in a
material adverse effect on our business or operations.
We may be required to disclose the identities of the holders of the exchange
notes to the Nevada gaming authorities upon request. The Nevada Gaming
Commission may in its discretion require the holders of the exchange notes to
file an application, be investigated and be found suitable to hold the exchange
notes. In addition, the Nevada Gaming Commission may, in its discretion, require
the holder of any debt security of a company registered by the Nevada Gaming
Commission as a publicly traded corporation to file an application, be
investigated and be found suitable to own such debt security. If a record or
beneficial holder of an exchange note is required by the Nevada Gaming
Commission to be found suitable, such owner will be required to apply for a
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finding of suitability within 30 days after request of such gaming authority or
within such earlier time prescribed by such gaming authority. The applicant for
a finding of suitability must pay all costs of the investigation for such
finding of suitability. If the Nevada Gaming Commission determines that a person
is unsuitable to own such security, then pursuant to the Nevada Gaming Control
Act, we can be sanctioned, including the loss of our approvals, if, without the
prior approval of the Nevada Gaming Commission, we:
- pay to the unsuitable person any dividend, interest, or any distribution
whatsoever;
- recognize any voting right of the unsuitable person with respect to such
securities;
- pay the unsuitable person remuneration in any form; or
- make any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction.
We are currently registered by the Nevada Gaming Commission as a publicly
traded corporation.
Each holder of the exchange notes will be deemed to have agreed, to the
extent permitted by law, that if the Nevada gaming authorities determine that a
holder or beneficial owner of the exchange notes must be found suitable (whether
as a result of a foreclosure of the casino or for any other reason), and if that
holder or beneficial owner either refuses to file an application or is found
unsuitable, that holder shall, upon our request, dispose of its exchange notes
within 30 days after receipt of our request, or earlier as may be ordered by the
Nevada gaming authorities. We will also have the right to call for the
redemption of exchange notes of any holder at any time to prevent the loss or
material impairment of a gaming license or an application for a gaming license
at a redemption price equal to:
- the lesser of (1) the cost paid by the holder, (2) 100% of the aggregate
principal amount of the exchange notes or (3) the fair market value of the
exchange notes, in each case, plus accrued and unpaid interest and
liquidated damages, if any, to the earlier of the date of redemption, or
earlier as may be required by the Nevada gaming authorities or the finding
of unsuitability by the Nevada gaming authorities; or
- such other price as may be ordered by the Nevada gaming authorities.
In addition, this exchange offer, including the hypothecation of our assets,
and any future public offering of debt or equity securities by us, requires the
prior approval of the Nevada Gaming Commission if we intend to use the
securities or the proceeds from the sale thereof to pay for construction of, or
to acquire an interest in, any gaming facilities in Nevada, to finance the
gaming operations of an affiliated company or to retire or extend obligations
incurred for any such purpose. See "Business--Regulation and Licensing" and
"Description of Notes--Mandatory Gaming Redemption."
CERTAIN NEVADA GAMING LAWS APPLY TO OUR PLANNED GAMING ACTIVITIES AND
ASSOCIATIONS IN MACAU.
Certain Nevada gaming laws also apply to our gaming activities and
associations in jurisdictions outside the state of Nevada. We are required to
comply with certain reporting requirements concerning our proposed gaming
activities and associations occurring outside the state of Nevada, including
Macau. We are also subject to disciplinary action by the Nevada Gaming
Commission if we:
- knowingly violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
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- fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engage in any activity or enter into any association that is unsuitable
for us because it poses an unreasonable threat to the control of gaming in
Nevada, reflects or tends to reflect discredit or disrepute upon the State
of Nevada or gaming in Nevada, or is contrary to the gaming policies of
Nevada;
- engage in any activity or enter into any association that interferes with
the ability of the State of Nevada to collect gaming taxes and fees; or
- employ, contract with or associate with any person in the foreign gaming
operation who has been denied a license or a finding of suitability in
Nevada on the ground of personal unsuitability, or who has been found
guilty of cheating at gambling.
In addition, if the Nevada State Gaming Control Board determines that one of
our actual or intended activities or associations in a foreign gaming operation
may violate one or more of the foregoing, we can be required by it to file an
application with the Nevada Gaming Commission for a finding of suitability of
such activity or association. If the Nevada Gaming Commission finds that the
activity or association in the foreign gaming operation is unsuitable or
prohibited, we will either be required to terminate the activity or association,
or we will be prohibited from undertaking the activity or association.
Consequently, should the Nevada Gaming Commission find that our gaming
activities or associations in Macau are unsuitable, we may be prohibited from
undertaking our planned gaming activities or associations in Macau.
WE DEPEND ON THE CONTINUED SERVICES OF KEY MANAGERS AND EMPLOYEES. IF WE DO NOT
RETAIN OUR KEY PERSONNEL AND ATTRACT AND RETAIN OTHER HIGHLY SKILLED EMPLOYEES,
OUR BUSINESS WILL SUFFER.
Our ability to maintain our competitive position is dependent to a large
degree on the services of our senior management team, including Sheldon G.
Adelson, currently LVSI's principal stockholder. Only William Weidner, Bradley
Stone and Robert Goldstein have employment agreements. The employment agreements
do not require them to stay with us. We cannot assure you that any of these
individuals will remain with us. We currently do not have a life insurance
policy on any of the members of our senior management team. The death or loss of
the services of any of our senior managers or the inability to attract and
retain additional senior management personnel could have a material adverse
effect on our business.
OUR BUSINESS, POLICIES, AFFAIRS AND ALL MAJOR CORPORATE DECISIONS ARE CONTROLLED
BY LVSI'S PRINCIPAL STOCKHOLDER, WHOSE INTEREST MAY NOT BE FULLY ALIGNED WITH
YOURS.
Mr. Adelson beneficially owns approximately 95% of LVSI's outstanding common
stock. Our board of directors is comprised of two persons, one of whom is
Mr. Adelson. Mr. Adelson has two votes for all matters before the board of
directors, whereas the other board member has only one vote. As a result,
Mr. Adelson controls our business, policies and affairs, including the election
of directors and all major corporate transactions and could prevent a change of
control. His interests may not be fully aligned with, and could conflict with
the interests of, the holders of the exchange notes. See "Management."
The indenture governing the notes does not contain any prohibition on the
ability of Mr. Adelson or any of his affiliates to purchase, refinance, replace
or otherwise acquire our indebtedness secured by liens prior to the liens in
favor of the holders of the exchange notes, including indebtedness under our new
credit facility. To the extent Mr. Adelson acquires interests in such
indebtedness, we cannot assure you that he would not be in a position to
exercise rights or remedies under state or bankruptcy laws or otherwise that
could materially adversely affect the interests of the holders of the exchange
notes.
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Mr. Adelson owns Interface Group-Nevada, Inc., the owner of the Expo Center,
which may result in potential conflicts of interest. The Expo Center, on the one
hand, and the Congress Center and the meeting and conference space that is a
part of the Phase IA Addition, on the other hand, are potential competitors in
the business conference and meetings business. Under a cooperation agreement
with the Expo Center, we have agreed that, except under certain circumstances
with respect to the Phase IA Addition, we will not conduct, or permit to be
conducted at the Casino Resort, trade shows or expositions of the type generally
held at the Expo Center. Furthermore, marketing practices that are intended to
benefit the Expo Center may have a detrimental effect on the Casino Resort. See
"Certain Relationships and Related Party Transactions--Cooperation Agreement,"
"Certain Relationships and Related Party Transactions--Possible Conflicts of
Interest" and "Operating Agreements--Cooperation Agreement."
THE CONSTRUCTION OF THE PHASE II RESORT AND PHASE IA ADDITION COULD HAVE AN
ADVERSE EFFECT ON THE CASINO RESORT.
We are currently in the process of constructing the Phase IA Addition on top
of the Casino Resort's existing parking garage and on land adjacent to it. In
addition, through our subsidiary, Lido Casino Resort, LLC, we are planning to
construct the Phase II Resort, which would consist of a hotel, casino,
restaurant, dining and entertainment complex, and meeting and conference center
space on a 15-acre site adjacent to the Casino Resort. Although we intend to
construct the Phase IA Addition and the Phase II Resort with minimal impact on
the Casino Resort, we cannot assure you that the construction will not disrupt
the operations of the Casino Resort or that it will be implemented as planned.
Therefore, the construction of the Phase IA Addition and the Phase II Resort may
adversely impact the businesses, operations and revenues of the Casino Resort.
THE COMMON OWNERSHIP AND MANAGEMENT OF THE CASINO RESORT AND THE PHASE II RESORT
COULD HAVE AN ADVERSE EFFECT ON THE CASINO RESORT.
The common ownership of the Casino Resort and the Phase II Resort may result
in potential conflicts of interest because the Phase II Resort will be a
potential competitor to the Casino Resort. For example, we may offer discounts
and other incentives for visitors to stay at the Phase II Resort, which might
result in a competitive advantage of the Phase II Resort over the Casino Resort.
In addition, we may also choose to allocate certain business opportunities, such
as potential restaurant, dining and entertainment tenants or requests for room
reservations, to the Phase II Resort instead of the Casino Resort. Although
common ownership of both the Casino Resort and the Phase II Resort may result in
economies of scale, efficiencies and joint business opportunities for the two
resorts, the Casino Resort may, in certain circumstances, bear the greater
burden of the expenses that are shared by both resorts. In addition, we expect
to lease and operate the casino for the Phase II Resort, so that management's
time may be split between overseeing the operation of each resort. In certain
circumstances, management may devote more time to the ownership and operations
responsibilities of the Phase II Resort than those of the Casino Resort.
WE MAY BE ADVERSELY AFFECTED BY UNION ACTIVITIES IN LAS VEGAS.
Although our employees are not covered by collective bargaining agreements,
most major casino resorts situated on the Strip have collective bargaining
agreements with unions such as the Local 226 of the Hotel Employees and
Restaurant Employees International Union. Although we do not expect a strike to
impact our work force or operations directly, no assurance can be given that a
major strike would not adversely affect Las Vegas business and visitation levels
generally by generating negative publicity. As a result, our business may be
adversely affected if such a major strike were to occur.
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ENTERING INTO NEW VENTURES INVOLVES BUSINESS AND FINANCIAL RISKS, INCLUDING
LITIGATION RISKS AND THE RISK OF LOSS OF OUR NEVADA GAMING LICENSES.
We are assessing the possibility of developing and operating an Internet
gaming site and are currently exploring other business opportunities for
expansion, including Native American gaming and the possibility of operating
casino resorts in certain foreign jurisdictions. It is unclear how long it would
take, or if it would be feasible or attractive, for us to develop, operate,
obtain the necessary regulatory approvals for, acquire land in connection with
or take any of the other necessary business risks and measures to complete any
of these ventures. If we are successful in launching any such ventures, if at
all, we cannot assure you that any of these projects would be successful, or
that they would not have a material adverse effect on our financial position,
results of operations or cash flows.
We are currently in the process of negotiating agreements to develop and
operate one or more hotel, casino and convention centers in Macau, People's
Republic of China. Our Macau joint venture is subject to significant political,
economic and social risks inherent in doing business in an emerging market such
as China. Although our Macau joint venture has been granted a concession to
operate casinos in Macau, we cannot assure you that the joint venture will be
successful, that we will be able to acquire permanent and temporary operating
sites on acceptable terms or at all, or that our concession will not be revoked.
In particular, some of the risks involved in the joint venture and licensing
process include:
- diversion of management's attention away from the other business concerns;
- risks associated with a new and developing regulatory process which could
result in the revocation of our concession or other required licenses in
Macau;
- the possible taking of property without agreement on fair compensation;
- restrictions on foreign partnerships and alliances, foreign ownership
and/or possible discrimination against foreign owned business;
- delayed implementation regarding effective controls regarding criminal
organizations;
- potential conflicts between local and national governments;
- the risk that we will not be able to reach final agreement with our joint
venture partners, which would result in the concession being revoked;
- the risk that we will not be able to acquire rights to build on suitable
sites; and
- risks associated with obtaining project financing.
We believe that future regulatory developments in China will not unduly
limit our planned investment. However, we cannot assure you at this time that
all our planned activities in Macau will be permitted or economically feasible.
Therefore, our planned investments in China could be jeopardized.
Furthermore, in October 2001 before agreeing to join Galaxy Casino Company
Limited, our subsidiary, Venetian Venture Development, LLC, entered into a
non-binding letter of intent with Asian American Entertainment Corporation,
Limited ("AAEC"), a Macau corporation whose largest shareholder is China
Development Industrial Bank, a Taiwanese bank, to enter into a joint venture to
obtain a casino license in Macau. In February 2002, we elected to exercise our
right to terminate this letter of intent and to create a venture with other
parties to seek a Macau casino license. AAEC has threatened, in a press release,
to sue us in connection with our termination of the letter of intent and the
potential awarding of a casino license to our new joint venture Galaxy Casino
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Company Limited. We believe that AAEC's claims lack merit and, if sued by AAEC,
we intend to defend ourselves vigorously.
OUR INSURANCE COVERAGE MAY NOT BE ADEQUATE TO COVER ALL POSSIBLE LOSSES THAT THE
CASINO RESORT COULD SUFFER. IN ADDITION, OUR INSURANCE COSTS MAY INCREASE AND WE
MAY NOT BE ABLE TO OBTAIN THE SAME INSURANCE COVERAGE IN THE FUTURE.
We are dependent on the operations of the Venetian Hotel Casino, which
occupies a single site. The September 11th terrorist attacks have substantially
affected the availability of insurance coverage for certain types of damages or
occurrences. In addition, insurance premiums have increased on available
coverage. We renewed our property and casualty insurance policies in
April 2002. We were not able to purchase new insurance policies or renew our
existing policies on terms as favorable as the terms of our prior policies. The
costs of our new insurance policies are higher as a result of the general
increase in premium levels. Our new insurance policies exclude from coverage
certain losses and damages that were covered under our prior insurance policies.
In particular, we have substantially reduced insurance coverage with respect to
occurrences of terrorist acts and any losses that could result from these acts.
On May 16, 2002, Interface Group-Nevada Inc., the owner of the Expo Center,
received a letter from the lender under the Expo Center mortgage facility
stating that it believes that insurance coverage is required for acts of
terrorism under the Expo Center mortgage facility and requesting that Interface
Group-Nevada, Inc. obtain such coverage. Interface Group-Nevada, Inc. has
informed us that it believes that, notwithstanding such lender's request, it is
not required under the mortgage facility to obtain any terrorism coverage.
Nevertheless, Interface Group-Nevada, Inc. has obtained terrorism coverage that
it believes fully complies with its lender's request. If it is determined that
terrorism coverage is required under the Expo Center mortgage facility and that
the existing Interface Group-Nevada, Inc. insurance coverage does not comply
with the applicable requirements, Interface Group-Nevada, Inc. has informed us
that it will seek to either comply with the requirements or refinance and/or
repay the Expo Center mortgage facility.
If there is an act of terrorism that affects the Casino Resort, The Grand
Canal Shoppes and/or the Expo Center, there may not be sufficient insurance
proceeds to cover the costs of restoring the note collateral. Therefore, we
could be exposed to heavy losses in the event that any damages occur, directly
or indirectly, as a result of terrorist acts.
In addition to the damage caused to our property by a casualty loss (such as
fire, natural disasters, acts of war or terrorism), we may suffer disruption of
our business in such event or be subject to claims by third parties injured or
harmed. While we carry business interruption insurance and general liability
insurance, such insurance may not be adequate to cover all losses in such event.
Our new insurance policies terminate in April 2003. The cost of coverage may
become so high that we may need to reduce our policy limits or agree to certain
exclusions from our coverage.
RISKS RELATING TO THE EXCHANGE OFFER
THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR THE
INITIAL NOTES.
If initial notes are tendered for exchange and accepted in the exchange
offer, the trading market for the untendered and tendered but unaccepted initial
notes could be adversely affected. Please refer to the section in this
prospectus entitled "The Exchange Offer--Your failure to participate in the
exchange offer will have adverse consequences."
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SOME PERSONS WHO PARTICIPATE IN THE EXCHANGE OFFER MUST DELIVER A PROSPECTUS IN
CONNECTION WITH RESALES OF THE EXCHANGE NOTES.
Based on interpretations of the staff of the Securities and Exchange
Commission's position contained in Exxon Capital Holdings Corp., SEC no-action
letter (April 13, 1988), Morgan, Stanley & Co. Inc., SEC no-action letter
(June 5, 1991) and Shearman & Sterling, SEC no-action letter (July 2, 1983), we
believe that you may offer for resale, resell or otherwise transfer the exchange
notes without compliance with the registration and prospectus delivery
requirements of the Securities Act. However, in some instances described in this
prospectus under "Plan of Distribution," you will remain obligated to comply
with the registration and prospectus delivery requirements of the Securities Act
to transfer your exchange notes. In these cases, if you transfer any exchange
note without delivering a prospectus meeting the requirements of the Securities
Act or without an exemption from registration of your exchange notes under the
Securities Act, you may incur liability under this act. We do not and will not
assume, or indemnify you against, this liability.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
prospectus, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements
under federal securities laws. We have based these forward-looking statements on
our current expectations and projections about future results. These
forward-looking statements include the discussions of our business strategies
and expectations concerning future operations, margins, profitability, liquidity
and capital resources. In addition, in certain portions of this prospectus, the
words: "anticipate," "believe," "estimate," "seek," "expect," "plan," "intend"
and similar expressions, as they relate to us or our management, are intended to
identify forward-looking statements. Although we believe that these
forward-looking statements are reasonable, we cannot assure you that any
forward-looking statements will prove to be correct. These forward-looking
statements involve known and unknown risks, uncertainties and other factors,
which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements.
These factors include, among others, the risks that are described in "Risk
Factors" and:
- the risks associated with entering into new ventures and new construction,
including our planned expansion and our Macau joint venture;
- the risk of increased competition from increases in meeting and convention
facilities in Las Vegas, including the expansion of the Las Vegas
Convention Center and upcoming expansions of the convention facilities of
some of our other competitors;
- the risk of increased competition from new planned constructions in Las
Vegas such as the opening of a new resort to be built on the site of the
former Desert Inn, one block north of the Casino Resort;
- the completion of infrastructure projects in Las Vegas;
- government regulation of the casino industry, including gaming license
approvals and regulation in foreign jurisdictions;
- the legalization of gaming in certain jurisdictions, particularly Native
American reservations in the States of California and New York;
- growth of gaming on the Internet and its regulation;
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- substantial indebtedness, leverage and debt service, including sensitivity
to fluctuations in interest rates and other capital markets trends;
- the uncertainty of casino spending and vacationing in casino resorts in
Las Vegas;
- disruptions or reductions in travel to Las Vegas;
- the September 11 attack and the risks associated with this attack or
future possible terrorist incidents;
- new taxes or changes to existing taxes;
- the fluctuations in occupancy rates and average daily room rates in Las
Vegas and in the demand for our all-suites rooms;
- the popularity of Las Vegas as a convention and trade show destination;
- insurance risks, including the risk that we will not be able to obtain
coverage against acts of terrorism in any amount or in the amount we
desire or will only be able to obtain such coverage at significantly
increased rates;
- litigation risks, including the outcome of our pending disputes with our
original construction manager and its subcontractors; and
- general economic and business conditions, which may impact levels of
disposable income of consumers and the pricing of our hotel rooms.
You should be aware that any forward-looking statement made by us in this
prospectus, or elsewhere, speaks only as of the date on which we make it. New
risks and uncertainties come up from time to time, and it is impossible for us
to predict these events or how they may affect us. We have no duty to, and do
not intend to, update or revise the forward-looking statements in this
prospectus after the date of this prospectus. In light of these risks and
uncertainties, you should keep in mind that any forward-looking statement made
in this prospectus or elsewhere might not prove to be correct.
38
<Page>
USE OF PROCEEDS
We will not receive any proceeds from the issuance of our exchange notes in
exchange for our outstanding initial notes. We are making this exchange offer
solely to satisfy our obligations under the registration rights agreement
entered into in connection with the offering of the initial notes.
The net proceeds from the sale of the initial notes were approximately
$821.5 million, after deducting the underwriting discount and offering expenses
payable by us. On June 4, 2002, concurrently with and contingent upon the
closing of the offering of the initial notes, we entered into a new senior
secured credit facility providing for aggregate borrowings of $375.0 million.
This new credit facility consists of a $50.0 million senior secured delayed draw
facility, a $250.0 million senior secured term loan facility and a
$75.0 million senior secured revolving credit facility. In addition,
concurrently with and contingent upon the closing of the offering of our initial
notes, our Mall Subsidiary entered into a new secured mall loan facility in the
amount of $105.0 million, which was subsequently increased on June 28, 2002 by
an additional $15.0 million. See "Description of Other Indebtedness."
We used the net proceeds from this offering and initial borrowings under our
new credit facility and the new mall loan facility to (collectively, the
"Refinancing Transactions"):
- repay all amounts outstanding under our old bank credit facility and
certain of our and our subsidiaries' other debt facilities, loans and
notes described below;
- repurchase, defease and/or redeem all our outstanding 12 1/4% mortgage
notes and 14(1)4% senior subordinated notes; and
- pay all fees and expenses associated with these transactions.
In addition, we used and intend to use such proceeds and borrowings to
finance the development of the Phase IA Addition.
The following is a summary of the estimated sources and uses of net proceeds
from the Refinancing Transactions, the Phase IA Funding and the Additional Mall
Loan Borrowings (dollars in thousands):
<Table>
SOURCES OF FUNDS:
New Credit Facility:
Revolving Credit Facility............................... $ --
Delayed Draw Facility(1)................................ 50,000
Term Loan............................................... 250,000
Mall Loan Facility(2)....................................... 120,000
11.00% mortgage notes due 2010(3)........................... 850,000
----------
Total sources......................................... $1,270,000
==========
</Table>
39
<Page>
<Table>
USES OF FUNDS:
Old Bank Credit Facility(4)................................. $ 191,604
FF&E Credit Facility(5)..................................... 48,361
12 1/4% mortgage notes due November 15, 2004(6)............. 425,000
14 1/4% senior subordinated notes due November 15,
2005(6)..................................................... 97,500
Mall tranche A Take-out Loan Facility(7).................... 105,000
Mall tranche B Take-out Loan(8)............................. 35,000
Unsecured Subordinated Note(9).............................. 31,124
Phase II Subsidiary Indebtedness(10)........................ 2,525
Transaction fees and expenses(11)........................... 73,434
Restricted cash for development of Phase IA Addition(12).... 235,000
Excess cash(13)............................................. 25,452
----------
Total uses............................................ $1,270,000
==========
</Table>
- ------------------------
(1) This facility was not drawn at closing of the offering of our initial notes
and remains undrawn at September 30, 2002. The facility is available for
draw through June 4, 2003. However, for purposes of preparing this table, we
have assumed that this facility was fully drawn at closing.
(2) This facility was originally entered into in the amount of $105.0 million,
all of which was drawn at the closing of the offering of our initial notes
to repay some of our subsidiaries' indebtedness pursuant to the Refinancing
Transactions. This facility was subsequently increased on June 28, 2002 by
an additional $15.0 million which was distributed to Venetian by the Mall
Subsidiary to be used for general corporate purposes.
(3) The notes are not secured by a lien on the assets of the Mall Subsidiary.
(4) Upon repayment of all amounts outstanding thereunder, our old bank credit
facility was terminated. This facility consisted of term loans and revolving
loans. The loans under this facility bore interest at variable rates based
on LIBOR or a base rate. The average interest rate during 2001 was 7.68%. We
were required to make quarterly interest payments under this facility and
this facility's final maturity was on June 30, 2003. We had entered into a
rate cap and floor agreement to limit the impact of increases in interest
rates on our floating rate debt.
(5) Upon repayment of all amounts outstanding thereunder, our old furniture,
fixture and equipment credit facility was terminated. The loans under this
facility bore interest at variable rates based on LIBOR or a base rate. The
average interest rate on this facility during 2001 was 8.36%. We were
required to make quarterly interest payments under this facility and this
facility's final maturity was in June 2004.
(6) We have repurchased, defeased and/or redeemed our 12 1/4% mortgage notes due
2004 and 14 1/4% senior subordinated notes due 2005 in connection with the
closing of the offering of the initial notes. On June 4, 2002, we
consummated a tender offer pursuant to which we repurchased $316,558,000 in
aggregate principal amount of our outstanding 12 1/4% mortgage notes due
2004 and $95,690,000 in aggregate principal amount of our outstanding
14 1/4% senior subordinated notes due 2005, at a purchase price in cash
(including a consent payment) of $1,061.25 per $1,000 aggregate principal
amount of mortgage notes and $1,071.25 per $1,000 aggregate principal amount
of senior subordinated notes. On June 4, 2002, we deposited cash or U.S.
treasury obligations with the trustee for the mortgage notes that had not
been tendered in the tender offer to effect a covenant defeasance of these
notes pending their redemption. We redeemed all $108.4 million of our
remaining outstanding 12 1/4% mortgage notes and all $1.8 million of our
remaining outstanding 14 1/4% senior subordinated notes on July 5, 2002.
40
<Page>
(7) Represented indebtedness of our subsidiary, Grand Canal Shops Mall
Subsidiary, LLC, the former owner of The Grand Canal Shoppes, that was
secured by The Grand Canal Shoppes. Upon repayment of all amounts
outstanding thereunder, the Mall tranche A take-out loan facility was
terminated. The loans under this facility bore interest at variable rates
based on LIBOR or a base rate. The average interest rate on this facility
during 2001 was 7.71%. This facility matured on December 20, 2002. We had
entered into an interest rate cap agreement to limit the impact of increases
in interest rates on our floating rate debt derived from this facility.
(8) Represented a loan owed by our subsidiary, Grand Canal Shops Mall
Subsidiary, LLC, the former owner of The Grand Canal Shoppes, to LVSI's
principal stockholder. This loan was secured by The Grand Canal Shoppes.
Upon repayment of all amounts outstanding thereunder, the Mall tranche B
take-out loan was terminated. This loan bore interest at the rate of 14% per
annum payable monthly. This loan matured on December 20, 2004 with a right
of extension to December 20, 2007.
(9) Represented an unsecured subordinated note owed to LVSI's principal
stockholder. This note bore interest at the rate of 14 1/4% per annum. The
interest compounded and was added to the principal balance semi-annually.
The note matured on November 16, 2005. Upon repayment of all amounts
outstanding thereunder, this unsecured subordinated note was terminated.
(10) Included approximately $1.4 million of indebtedness of Lido Casino Resort,
LLC that was secured by the land for the Phase II Resort and approximately
$1.1 million of unsecured indebtedness of Lido Casino Resort, LLC. Upon
repayment of all amounts outstanding thereunder, these facilities were
terminated. The loans bore interest at variable rates based on LIBOR or a
base rate. The secured facility matured on June 30, 2003 and the unsecured
facility matured on July 15, 2002. We used borrowings from the secured loan
facility for a letter of credit provided as credit support for our current
bank credit facility as well as for pre-development expenses for the Phase
II Resort. We used borrowings under the unsecured loan facility to fund the
operating costs of Lido Casino Resort, LLC.
(11) Included estimated call premiums on our 12 1/4% mortgage notes due 2004 and
14 1/4% senior subordinated notes due 2005 ($33.0 million), call premiums on
the FF&E credit facility ($0.5 million), and $39.9 million of debt issuance
costs incurred in connection with the Refinancing Transactions.
(12) We currently anticipate that the remaining development costs for the Phase
IA Addition will be approximately $198.0 million. As of September 30, 2002,
approximately $67.9 million had already been expensed or incurred. See
"Business--Phase IA Addition" and "Risk Factors--There are significant risks
associated with our planned construction projects, which could adversely
affect our financial condition, results of operations or cash flows."
(13) This table does not include approximately $4.0 million for expansion of the
existing HVAC plant. We expect to enter into an agreement that will provide
that the expansion will be paid for and owned by the HVAC Provider. If we do
not enter into such an agreement the expansion will be funded from excess
cash of the proceeds from the offering of our initial notes. This table
reflects the $15.0 million increase of the Mall Loan Facility that was
entered into on June 28, 2002, which was immediately drawn and distributed
to Venetian by the Mall Subsidiary to be used for general corporate
purposes.
41
<Page>
CAPITALIZATION
The following table sets forth our actual total debt and capitalization as
of September 30, 2002, and as adjusted to give pro forma effect to the Phase IA
Funding, assuming it had occurred on that date.
This table is presented and should be read in conjunction with the
historical financial statements with the related notes thereto, included
elsewhere in this prospectus. Also see "Summary Historical and Pro Forma
Financial and Other Data," "Use of Proceeds," "Selected Historical Financial and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Other Indebtedness."
<Table>
<Caption>
SEPTEMBER 30, 2002
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
Cash........................................................ $ 95,642 $ 95,642
========== ==========
Restricted Cash(1).......................................... $ 157,332 $ 207,332
========== ==========
Total Debt:
ISSUERS:
New Credit Facility:
Revolving Credit Facility(2).............................. $ -- $ --
Delayed Draw Facility(3).................................. -- 50,000
Term Loan................................................. 249,375 249,375
11.00% mortgage notes due 2010 offered hereby............. 850,000 850,000
12 1/4% mortgage notes due 2004........................... -- --
14 1/4% senior subordinated notes due 2005, net of
original issue discount of $57.......................... -- --
LOAN SECURED BY THE GRAND CANAL SHOPPES:
Mall Loan Facility(4)..................................... 120,000 120,000
---------- ----------
1,219,375 1,269,375
---------- ----------
Series B Preferred Interest in Venetian(5).................. 206,108 206,108
---------- ----------
Stockholders' Equity (Deficit).............................. (55,347) (55,347)
---------- ----------
Total Capitalization...................................... $1,370,136 $1,420,136
========== ==========
</Table>
- ------------------------
(1) As adjusted restricted cash reflects the assumed borrowing of $50.0 million
under the Phase IA Funding. See "Use of Proceeds."
(2) After completion of the Refinancing Transactions, the Phase IA Funding and
the Additional Mall Loan Borrowings, there was approximately $75.0 million
available for borrowing by Venetian under the revolver of our new credit
facility. For further information, see "Description of Other
Indebtedness--New Credit Facility."
(3) This facility was not drawn at closing of the offering of our initial notes.
The facility is available for draw through June 4, 2003. However, for
purposes of preparing this table, we have assumed that this facility was
fully drawn at closing.
(4) This facility was originally entered into in the amount of $105.0 million,
all of which was drawn at the closing of the offering of our initial notes
to repay some of our subsidiaries' indebtedness pursuant to the Refinancing
Transactions. This facility was subsequently increased on June 28, 2002 by
an additional $15.0 million which was distributed to Venetian by the Mall
Subsidiary to be used for general corporate purposes.
(5) See "Certain Relationships and Related Party Transactions" for more details
on the terms of the Series B preferred interests.
42
<Page>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
Set forth in the following table are certain historical financial data of
LVSI as of and for each of the periods specified. The balance sheet and
statement of operations data as of and for each of the years ended December 31,
1997, 1998, 1999, 2000 and 2001 have been derived from our audited consolidated
financial statements for these periods, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, as adjusted (see footnotes
2 and 3 to this table). The financial statements as of December 31, 2000 and
2001 and for each of the three years in the period ended December 31, 2001 are
included in this prospectus. The balance sheet data as of September 30, 2002 and
the statement of operations data for the nine months ended September 30, 2001
and 2002 have been derived from our unaudited consolidated financial statements
for these periods which are included in this prospectus. The following
information should be read in conjunction with "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our historical consolidated financial statements
and the related notes included elsewhere in this prospectus. Historical results
are not necessarily indicative of our future results of operations.
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)(1)
STATEMENT OF OPERATIONS DATA
Revenues:
Casino..................................... $ -- $ -- $124,161 $ 299,083 $ 227,240 $174,133 $177,379
Rooms...................................... -- -- 89,585 192,327 204,242 159,702 156,605
Food and beverage.......................... -- -- 30,786 67,052 61,977 49,088 54,838
Retail and other........................... 895 937 28,966 68,804 73,034 51,513 53,550
-------- -------- -------- --------- --------- -------- --------
Total revenues............................. 895 937 273,498 627,266 566,493 434,436 442,372
Promotional allowances....................... -- -- (25,045) (46,296) (42,594) (32,384) (25,018)
-------- -------- -------- --------- --------- -------- --------
Net revenues................................. 895 937 248,453 580,970 523,899 402,052 417,354
-------- -------- -------- --------- --------- -------- --------
Operating expenses:
Casino..................................... -- -- 69,664 163,157 139,936 109,970 86,742
Rooms...................................... -- -- 25,532 49,618 50,039 39,271 40,128
Food and beverage.......................... -- -- 19,134 32,627 29,630 23,581 27,049
Retail and other........................... -- -- 11,581 29,406 32,302 23,876 23,511
Provision for doubtful accounts............ -- -- 13,655 19,252 20,198 14,656 13,540
General and administrative................. (1,827) -- 50,450 93,413 86,887 68,337 69,682
Corporate expense.......................... -- -- 2,510 6,275 6,376 4,741 7,520
Rental expense............................. -- -- 5,485 8,727 8,074 6,287 5,535
Pre-opening and developmental expense...... -- 8,722 21,484 -- 355 -- 3,097
Depreciation and amortization.............. 100 100 25,145 41,722 40,823 30,338 33,015
-------- -------- -------- --------- --------- -------- --------
(1,727) 8,822 244,640 444,197 414,620 321,057 309,819
-------- -------- -------- --------- --------- -------- --------
Operating income (loss)...................... 2,622 (7,885) 3,813 136,773 109,279 80,995 107,535
Other income (expense):
Interest expense, net of amounts
capitalized................................ (6,581) (39,015) (71,235) (111,026) (101,724) (76,269) (81,531)
Interest expense on indebtedness to
Principal Stockholder.................... -- -- (163) (8,781) (9,020) (6,747) (4,010)
Other income (expense)..................... 3,439 17,137 2,551 1,771 (553) 1,135 2,372
Loss on early retirement of debt(2)........ -- -- (589) (2,785) (1,383) (1,383) (51,392)
-------- -------- -------- --------- --------- -------- --------
Income (loss) before preferred return........ (520) (29,763) (65,623) 15,952 (3,401) (2,269) (27,026)
Preferred return on Redeemable Preferred
Interest in Venetian Casino Resort, LLC
(1998, 1999, 2000 and September 30, 2001,
as restated)(2)............................ -- (13,647) (14,399) (18,482) (20,766) (15,423) (17,330)
-------- -------- -------- --------- --------- -------- --------
Net income (loss) (1998, 1999, 2000 and
September 30, 2001, as restated)(3)........ $ (520) $(43,410) $(80,022) $ (2,530) $ (24,167) $(17,692) $(44,356)
======== ======== ======== ========= ========= ======== ========
Per Share Data:
Basic and diluted net income (loss) per share
(1998, 1999, 2000 and September 30, 2001,
as restated)(4)............................ $ (0.52) $ (43.41) $ (80.02) $ (2.53) $ (24.17) $ (17.69) $ (44.36)
======== ======== ======== ========= ========= ======== ========
(table continued on next page)
</Table>
43
<Page>
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)(1)
OTHER FINANCIAL DATA
EBITDA(5).................................... $ 2,722 $ (7,785) $ 28,958 $ 178,495 $ 150,102 $111,333 $140,550
Cash provided by (used in) operating
activities................................. 3,859 (26,059) (30,063) 81,017 50,792 35,718 67,572
Cash used in investing activities............ (556,947) (211,173) (196,150) (20,158) (55,231) (42,302) (227,162)
Cash provided by (used in) financing
activities................................. 553,066 238,660 250,180 (44,505) 16,769 19,467 200,296
Ratio of EBITDA to net interest expense...... 0.4x (0.2)x 0.4x 1.5x 1.4x 1.3x 1.6x
Ratio of total debt to EBITDA................ 189.4x (97.4)x 32.8x 5.1x 6.3x N/M N/M
Capital expenditures......................... $130,827 $508,399 $319,106 $ 28,589 $ 55,134 $ 42,220 $ 72,476
Ratio of earnings to fixed charges(6)........ -- -- -- 1.0x -- -- --
OPERATING DATA:
Occupancy %(7)............................... N/A N/A 81.7% 95.2% 94.6% 94.4% 97.4%
Average daily room rate (ADR)(7)............. N/A N/A $ 159 $ 182 $ 196 $ 205 $ 195
Average number of table games(7)............. N/A N/A 116 122 123 123 126
Table games drop per unit per day(7)......... N/A N/A $ 15,470 $ 25,289 $ 21,550 $ 23,299 $ 18,649
Average number of slot machines(7)........... N/A N/A 2,308 2,159 2,159 2,171 2,043
Slot machine win per unit per day(7)......... N/A N/A $ 99 $ 129 $ 132 $ 130 $ 134
Number of Expo Center visitors per
day(7)(8).................................. N/A N/A 10,291 9,526 9,815 10,308 7,660
Number of convention days at Expo
Center(8).................................. N/A N/A 113 141 107 81 93
</Table>
<Table>
<Caption>
YEAR END DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------------ -----------------------
1997 1998 1999 2000 2001 2002
--------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA
Cash and cash equivalents..................... $ 857 $ 2,285 $ 26,252 $ 42,606 $ 55,489 $ 95,642
Restricted cash............................... 426,911 133,936 10,980 2,549 2,631 157,332
Total assets.................................. 747,767 1,005,944 1,209,602 1,232,385 1,282,533 1,509,062
Total debt.................................... 515,612 757,942 950,613 913,412 940,472 1,219,375
Stockholders' equity (deficit)................ 111,347 67,937 15,706 13,176 (4,516) (55,347)
</Table>
- ------------------------------
(1) Except ratios and Operating Data. The Casino Resort (excluding The Grand
Canal Shoppes) opened on May 4, 1999. The Grand Canal Shoppes opened on
June 19, 1999.
(2) In April 2002, the Financial Accounting Standards Board issued SFAS 145.
SFAS 145 addresses the presentation for losses on early retirements of debt
in the statement of operations to the extent they do not meet the
requirements of APB Opinon No. 30. We have adopted SFAS 145 and will no
longer present losses on early retirements of debt as an extraordinary item.
Accordingly, prior period losses on early retirement of debt have been
reclassified to other income (expense) to conform to this new presentation
in the accompanying table.
(3) We restated certain income statement items for each of the three years in
the period ended December 31, 2000 and the nine months ended September 30,
2001 to include preferred return on preferred interest of Venetian, which
amounts were $13.6 million, $14.4 million, $18.5 million and $15.4 million.
Such amounts had been previously reflected as a charge against capital in
excess of par.
(4) Income (loss) per share for all periods presented retroactively reflect our
first quarter 2002 stock split which increased the number of shares of
common stock outstanding from 925,000 to 1,000,000.
(5) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA should not be considered as an alternative to operating or net income
(as determined in accordance with generally accepted accounting principles)
as a measure of our operating performance or to net cash provided by
operating, investing and financing activities (as determined in accordance
with generally accepted accounting principles) as a measure of our ability
to meet cash needs. All companies do not calculate EBITDA in the same
manner. As a result, EBITDA as presented may not be comparable to similarly
titled measures presented by other companies. EBITDA is presented as
supplemental disclosure because the calculation of EBITDA is necessary to
determine our compliance with certain covenants under these credit
agreements and we believe that EBITDA is a measure commonly reported and
widely used by investors and other interested parties as a measure of a
company's operating performance and debt servicing ability because it
assists in comparing performance on a consistent basis without regard to
depreciation and amortization, which can vary significantly depending upon
accounting methods (particularly when acquisitions are involved), financial
leverage levels or nonoperating factors (such as historical cost).
Accordingly, this information has been disclosed to permit a more complete
comparative analysis of our operating performance relative to other
companies and of our debt servicing ability. However, EBITDA may not be
comparable in all instances to other similar types of measures used.
(6) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represent income before preferred return plus our proportionate
share of the loss on our equity investment, amortization of capitalized
interest and fixed charges, and less preferred return and interest
capitalized. "Fixed charges" consist of interest expenses, whether expensed
or capitalized, amortization of debt discount and debt financing costs,
preferred return and one-third of lease expenses, which we believe is
representative of the interest component of lease expense, primarily
comprised of rent expenses associated with the heating and air conditioning
provider. For the years ended 1997, 1998, 1999, 2001 and for the nine months
ended September 30, 2001 and 2002, earnings were insufficient to cover fixed
charges by $2.7 million, $83.1 million, $110.4 million, $22.3 million,
$17.2 million and $43.7 million. Accordingly, these ratios have not been
presented.
(7) Operating data represents the average for the respective periods.
(8) This data is based on actual days during which a convention, trade show or
similar event is ongoing at the Expo Center. The Expo Center is separately
owned by LVSI's principal stockholder.
44
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
consolidated financial statements and their related notes and other financial
information included elsewhere in this prospectus. This discussion contains
forward-looking statements. See "Forward-Looking Statements."
GENERAL
We own and operate the Casino Resort, a large-scale Renaissance
Venice-themed hotel, casino, retail, meeting and entertainment complex in Las
Vegas, Nevada. The Casino Resort includes the only all-suites hotel on the Strip
with 3,036 suites; a gaming facility of approximately 116,000 square feet; an
enclosed retail, dining and entertainment mall of approximately 446,000 net
leasable square feet; and a meeting and conference facility of approximately
500,000 square feet.
We opened additional attractions at the Casino Resort on October 7, 2001,
including the Guggenheim Las Vegas Museum and the Guggenheim/Hermitage Museum
which house various art exhibits in conjunction with the Guggenheim Museum in
New York and the Hermitage in Saint Petersburg, Russia. We also began designing,
planning, permitting and constructing the Phase IA Addition during 2001. The
Phase IA Addition is anticipated to consist of:
- an approximately 1,000-room hotel tower on top of the Casino Resort's
existing parking garage;
- an approximately 1,000-parking space expansion to the parking garage; and
- approximately 150,000 square feet of additional meeting and conference
space.
To date, we have completed the design and plans for the expansion of the
parking garage, the addition of the 1,000-room hotel tower to be built on top of
the parking garage and the 150,000 square foot conference center, and have
substantially completed the foundation and support systems for the hotel tower
and the additional conference center space. As of September 30, 2002, we had
spent or incurred approximately $67.9 million in planning, design and
construction costs with respect to the Phase IA Addition. We currently estimate
that the remaining costs for the development of the Phase IA Addition will be
approximately $198.0 million, including $5.2 million for contingencies. See
"--Liquidity and Capital Resources" and "Use of Proceeds."
We recently announced our receipt of approval, with joint venture partners,
to operate casinos in Macau. We are also pursuing the possibility of developing
an Internet gaming site and are currently exploring other business opportunities
for expansion. See "Business--Recent Developments."
Over the last year, our operating results have been negatively impacted by a
decline in tourism following the terrorist attacks of September 11, 2001, an
economic downturn as well as our unusually low table games winning percentage.
Our consolidated net revenues for the year ended December 31, 2001 were
$523.9 million, representing a decrease of $57.1 million of consolidated net
revenues from 2000 and our consolidated net revenues for the nine months ended
September 30, 2002 were $417.4 million, representing an increase of
$15.3 million from the nine months ended September 30, 2001. This favorable
comparison in our consolidated net revenue for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001 is
partially the result of the decline in visitation to Las Vegas after the
terrorist attacks of September 11, 2001. Despite the decline in tourism and
economic downturn, our financial indicators continue to improve, due in large
part to:
- forward hotel room and meeting space bookings from conventions and trade
shows at the Casino Resort;
45
<Page>
- increased room occupancies;
- a recurring revenue stream from The Grand Canal Shoppes; and
- successful cost-cutting initiatives.
Although we continue to recover, we cannot predict the extent to which
decreased tourism and an economic downturn will directly or indirectly impact
our operating results in the future, nor can we predict the extent to which
future security alerts and/or additional terrorist attacks may impact our
operations.
We called for redemption of all the remaining 12 1/4% mortgage notes due
2004 and 14 1/4% senior subordinated notes due 2005 upon the closing of the
Refinancing Transactions and redeemed all remaining outstanding mortgage notes
($108.4 million) and senior subordinated notes ($1.8 million) on July 5, 2002.
In connection with the Refinancing Transactions, we incurred a loss on early
retirement of indebtedness of $51.4 million during the nine months ended
September 30, 2002 which was comprised of $33.0 million of call premiums paid in
connection with the Refinancing Transactions and the write-off of $18.4 million
related to the write-off of unamortized debt offering costs and unamortized
original issue discount.
On June 26, 2002, we announced that a joint venture comprised of one of our
subsidiaries and a group of Macau and Hong Kong-based investors had entered into
a final concession contract with the Government of the Macau Special
Administrative Region of the People's Republic of China to operate casinos in
Macau. Our subsidiary continues to negotiate the final terms of a joint venture
and we expect that those negotiations will be concluded by the end of calendar
year 2002. The final terms of a joint venture agreement will likely include
financial obligations to the joint venture and/or to the Government of Macau or
our subsidiary will likely be obligated to pay for certain costs of developing
and constructing the contemplated casinos in Macau. Through September 30, 2002,
we had incurred pre-opening and developmental expenses of $4.7 million in
connection with the proposed Macau project.
We have also entered into a joint venture agreement to assess the
feasibility of and develop an Internet gaming site. We have applied for an
Internet gaming license in Alderney, but have not yet been granted such a
license or established any operations. We estimate that we are committed to
contribute approximately $1.0 million, approximately one-third of the required
capital, to the joint venture during the next year. After recovery of each
partner's initial capital contribution, we will receive 50% to 80% of the net
profit of the joint venture, based upon an increasing scale of net profit (if
any). The joint venture provides that the agreement will be automatically
terminated should we fail to obtain any required regulatory approvals from
Alderney, the Nevada gaming authorities or any other applicable jurisdiction
prior to launching our operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have provided below what we believe are the critical accounting policies
that affect our more significant judgments and the estimates used in the
preparation of our consolidated financial statements. The preparation of our
financial statements in conformity with accounting principles generally accepted
in the United States of America requires us 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, we evaluate those estimates, including those related to asset impairment,
accruals for slot marketing points, self-insurance, compensation and related
benefits, revenue recognition, allowance for doubtful accounts, contingencies
and litigation. We stated these accounting policies in the notes to our
consolidated financial statements and in relevant sections in this discussion
and analysis. These estimates are based on the information that is currently
available to us and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results could vary from these
estimates.
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We believe that the following critical accounting policies affect
significant judgments and estimates used in the preparation of our consolidated
financial statements:
- We maintain an allowance for doubtful accounts for estimated losses
resulting from the failure of our customers to make required payments,
which results in bad debt expense. We determine the adequacy of this
allowance by continually evaluating individual customer receivables,
considering each customer's financial condition, credit history and
current economic conditions. If the financial condition of customers were
to deteriorate or if a customer refuses to pay or disputes any such
payment, additional allowances may be required.
- We maintain accruals for health and workers compensation self-insurance,
slot club point redemption and group sales commissions, which are
classified in other accrued liabilities in the consolidated balance
sheets. We determine the adequacy of these accruals by periodically
evaluating the historical experience and projected trends related to these
accruals. If this information indicates that the accruals are overstated
or understated, we will adjust the assumptions utilized in the
methodologies and reduce or provide for additional accruals as
appropriate.
- We are subject to various claims and legal actions including our lawsuit
with the construction manager for the original construction of the Casino
Resort. Some of these matters relate to personal injuries to customers and
damage to customers' personal assets. We estimate guest claims expense and
accrue for this liability based upon historical experience in the other
accrued liability category in our consolidated balance sheet.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
OPERATING REVENUES
Our consolidated net revenues for the nine months ended September 30, 2002
were $417.4 million, representing an increase of $15.3 million when compared
with $402.1 million of consolidated net revenues during the nine months ended
September 30, 2001. The increase in net revenues was primarily due to an
increase of casino, food and beverage, retail and other revenue at the Casino
Resort, which was partially offset by a decrease in hotel revenues.
The Casino Resort's casino revenues were $177.4 million for the nine months
ended September 30, 2002, an increase of $3.3 million when compared to
$174.1 million during the nine months ended September 30, 2001. The increase was
attributable to an increase in table games win percentage as compared to the
same period of the prior year, offset by decreased table games drop (volume) as
compared to the same period of 2001. Table games drop (volume) decreased to
$642.1 million for the nine months ended September 30, 2002 from $782.4 million
during the nine months ended September 30, 2001.
The Casino Resort's hotel occupancy percentages were 97.4% during the nine
months ended September 30, 2002, as compared to 94.4% during the same period of
2001. The Casino Resort achieved room revenues during the nine months ended
September 30, 2002 of $156.6 million, as compared to $159.7 million during the
nine months ended September 30, 2001. The Casino Resort's average daily room
rate was $195 for the nine months ended September 30, 2002, as compared to $205
during the nine months ended September 30, 2001. The decrease in room rates was
partially the result of the decline in tourism following the terrorist attacks
on September 11, 2001. Revenue per available room (REVPAR) was $190 during the
nine months ended September 30, 2002, as compared to $194 during the nine months
ended September 30, 2001.
Our food and beverage, retail and other revenues were $108.4 million during
the nine months ended September 30, 2002, as compared to $100.6 million during
the nine months ended
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September 30, 2001. The increase was primarily the result of increased banquet
business associated with the increase in hotel occupancy.
OPERATING EXPENSES
Our consolidated operating expenses were $309.8 million for the nine months
ended September 30, 2002, as compared with $321.1 million during the nine months
ended September 30, 2001. The decrease in operating expenses was primarily
attributable to a reduction in casino marketing and incentive costs, promotional
allowances and casino payroll costs associated with heightened selectivity of
casino customers.
Corporate expenses totaled $7.5 million during the nine months ended
September 30, 2002, as compared to $4.7 million during the nine months ended
September 30, 2001. The increase in corporate expenses was attributable to the
adoption of an executive bonus program.
Casino expenses were $86.7 million for the nine months ended September 30,
2002, as compared to $110.0 million during the same period of 2001. The decrease
was primarily attributable to a reduction in casino marketing and incentive
costs as well as decreases in payroll costs and gaming taxes. The decrease in
marketing and incentive costs resulted from heightened selectivity of casino
customers to improve casino operating margins and reduced table games drop
(volume).
Food and beverage, retail and other expenses during the nine months ended
September 30, 2002 were $50.6 million as compared to $47.5 million during the
nine months ended September 30, 2001. The increase was associated with an
increase in banquet revenue during the nine months ended September 30, 2002, as
compared to the nine months ended September 30, 2001.
Rental expenses primarily related to the Casino Resort's heating,
ventilation and air conditioning plant and rental of gaming devices for the nine
months ended September 30, 2002 were $5.5 million. Rental expenses were
$6.3 million for the nine months ended September 30, 2001. The decline in rental
expenses was primarily attributable to reduced usage of rented or participation
gaming devices during 2002.
INTEREST INCOME (EXPENSE)
Our interest expense was $85.5 million for the nine months ended
September 30, 2002, as compared to $83.0 million in the same period of 2001. Of
the $85.5 million incurred during the nine months ended September 30, 2002,
$77.8 million was related to the Casino Resort (excluding The Grand Canal
Shoppes), $7.2 million was related to The Grand Canal Shoppes and $0.5 million
was related to Phase II Subsidiary. The increase in interest expense was
attributable to increased interest expense associated with additional borrowings
from the Refinancing Transactions net of decreases in the average interest rates
of our outstanding debt during the nine months ended September 30, 2002 and the
capitalization of interest expense in connection with the Phase IA Addition.
Interest income for the nine months ended September 30, 2002 was
$1.7 million, as compared to $1.1 million in the same period in 2001. The
increase was the result of higher invested cash balances.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
OPERATING REVENUES
Our consolidated net revenues in 2001 were $523.9 million, representing a
decrease of $57.1 million when compared with $581.0 million of consolidated net
revenues in 2000. This decrease in net revenues was primarily due to a decline
in casino revenue, offset by increases in hotel and other revenues.
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Casino revenues were $227.2 million in 2001, a decrease of $71.9 million
from 2000. This decrease was attributable to several factors, including:
- an unusually low historical table games win percentage (calculated before
discounts) of 15.3% in 2001 as compared to 20.5% in 2000--the table games
win percentage is reasonably predictable over time, but may vary
considerably during shorter periods;
- more stringent table games marketing parameters in 2001 that resulted in
decreased table games volume;
- decreased visitor traffic to Las Vegas after the terrorist attacks of
September 11, 2001; and
- a table games drop (volume) decrease to $966.6 million in 2001 from
$1,130.3 million in 2000 and a slot handle (volume) decrease to
$1,825.2 million in 2001 from $1,939.6 million in 2000, as a result of
decreased visitor traffic to Las Vegas after September 11, 2001.
The Casino Resort's average daily room rates increased to $196 in 2001 as
compared to $182 in 2000. Room revenues in 2001 were $204.2 million,
representing an increase of $11.9 million as compared to $192.3 million in 2000.
The increase in room rates occurred in all major segments of the Casino Resort's
hotel rooms business, including the mid-week, group and convention business, and
the weekend retail business. The occupancy of available guestrooms was 94.6% in
2001 compared to 95.2% in 2000.
Our food and beverage revenues were $62.0 million in 2001, representing a
decrease of $5.1 million compared to $67.1 million in 2000. This decrease was
due to lower room occupancy and banquet sales as a result of travel disruption
to Las Vegas during the fourth quarter of 2001.
The Grand Canal Shoppes revenues were $33.5 million in 2001, compared to
$29.9 million in 2000. This increase was due to higher foot traffic, additional
tenants and increased proceeds from rents calculated on tenant gross revenues.
Our retail and other revenues increased $4.2 million, to $73.0 million in
2001 from $68.8 million in 2000. Other revenue included $5.3 million of group
cancellation fees in 2001, including $5.2 million during the fourth quarter of
2001, as compared to $1.9 million in all of 2000. In addition, during the fourth
quarter of 2001, we added approximately $1.0 million to our provision for bad
debt as an estimate of settlement losses associated with $1.9 million of
uncollected group cancellation fees. The calculation of other revenue for 2001
takes into account an operating loss of $2.1 million from the Art of the
Motorcycle exhibition at the Guggenheim Las Vegas Museum. This amount represents
our share of the exhibition operating losses during the fourth quarter of 2001.
The exhibit opened to the public on October 7, 2001 and we incurred substantial
amounts of pre-opening and advertising costs during its first quarter of
operations.
OPERATING EXPENSES
Our operating expenses, including pre-opening, developmental and corporate
expenses, were $414.6 million in 2001, representing a decrease of $29.6 million
when compared with $444.2 million in 2000. This decrease was primarily due to
lower operating revenues and business volumes in all departments of the Casino
Resort and reduced general and administrative costs in 2001. Provision for
doubtful accounts in 2001 was $20.2 million compared to $19.3 million in 2000.
This increase was primarily due to estimates of losses associated with hotel
receivables and group cancellation fees during the fourth quarter of 2001.
The Grand Canal Shoppes operating expenses were $20.9 million in 2001
compared to $19.3 million in 2000. This increase was primarily due to increased
advertising costs during 2001 as compared to 2000.
Our corporate expense was $6.4 million in 2001, compared with $6.3 million
in 2000.
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Rental expense, primarily related to the HVAC Plant, for 2001 was
$8.1 million, including $5.9 million for the Casino Resort and $2.2 million for
The Grand Canal Shoppes. Our rental expense was $8.7 million in 2000, including
$6.5 million for the Casino Resort and $2.2 million for The Grand Canal Shoppes.
This decrease was primarily due to increased allocation of costs to tenants in
2001.
INTEREST INCOME (EXPENSE)
Our interest expense net of amounts capitalized was $110.7 million in 2001,
compared to $119.8 million in 2000. Of the net interest expense we incurred in
2001, $95.0 million was related to the Casino Resort, excluding The Grand Canal
Shoppes, $15.1 million was related to The Grand Canal Shoppes and $0.6 million
was related to Lido Casino Resort, LLC. This decrease in interest expense was
due to decreases in interest rates on our variable rate debt in 2001 and
capitalization of $2.0 million of interest in connection with current
construction projects.
Our interest income was $1.4 million and $1.8 million for 2001 and 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
The Casino Resort began operations on May 4, 1999 and The Grand Canal
Shoppes began operations on June 19, 1999. Therefore, neither the Casino Resort
nor The Grand Canal Shoppes had any operating revenues or operating expense
before these dates. All references to 1999 include 242 days of operations of the
Casino Resort and 195 days of operations of The Grand Canal Shoppes.
OPERATING REVENUES
Our consolidated net revenues in 2000 were $581.0 million, representing an
increase of $332.5 million when compared with $248.5 million in 1999. This
increase was due to growth in every revenue segment at the Casino Resort and the
longer operating period in 2000.
Casino revenues in 2000 were $299.1 million, representing an increase of
$174.9 million when compared with $124.2 million in 1999. This increase was
primarily a result of the longer operating period in 2000, as well as higher
table games and slots volume during comparable periods.
Our room revenues in 2000 were $192.3 million, representing an increase of
$102.7 million when compared with $89.6 million in 1999. This increase was due
to the longer operating period in 2000 and a higher occupancy of 95.2% in 2000,
when compared with 81.7% in 1999. In addition, we achieved a higher average
daily room rate of $182 in 2000 versus $159 in 1999.
Our food and beverage revenues in 2000 were $67.1 million, representing an
increase of $36.3 million when compared with $30.8 million in 1999. This
increase resulted from the longer operating period in 2000, additional banquet
revenues generated from a full year of operation at the Congress Center and
greater room service revenues because of higher occupancy levels.
Our retail and other revenues increased $39.8 million, from $29.0 million in
1999 to $68.8 million in 2000. The Grand Canal Shoppes revenues were
$29.9 million in 2000, compared to $9.6 million in 1999. This increase in The
Grand Canal Shoppes revenues was due to completion of leasing of the mall space
and the longer operating period in 2000. The Grand Canal Shoppes occupancy in
2000 was approximately 95% of leaseable space.
OPERATING EXPENSES
Our operating expenses, including pre-opening and corporate expenses, in
2000 were $444.2 million, representing an increase of $199.6 million when
compared with $244.6 million in 1999. This increase was primarily due to the
longer operating period in 2000, increased casino expenses resulting from higher
gaming taxes and marketing expenses on the increased revenues, and an increase
in the provision for doubtful accounts. The Grand Canal Shoppes operating
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expenses were $19.3 million in 2000 compared to $9.2 million in 1999. This
increase was attributable to completion of leasing of The Grand Canal Shoppes
space and the longer operating period in 2000.
Our pre-opening and other non-recurring expenses in 1999 of $21.5 million
represent costs principally associated with the opening of the Casino Resort on
May 4, 1999. There were no pre-opening expenses in 2000.
Our corporate expense was $6.3 million in 2000, compared with $2.5 million
in 1999. This increase was due to the creation of the corporate division in the
fourth quarter of 1999 and consequently the longer operating period in 2000.
Rental expense primarily related to the HVAC Plant for 2000 was
$8.7 million, including $6.5 million for the Casino Resort and $2.2 million for
The Grand Canal Shoppes. Our rental expense was $5.5 million during the shorter
operating period in 1999, including $4.3 million for the Casino Resort and
$1.2 million for The Grand Canal Shoppes.
INTEREST INCOME (EXPENSE)
Reflecting our investments in the hotel, the casino, the Congress Center and
The Grand Canal Shoppes, our debt levels and associated interest costs increased
significantly. With the opening of these new facilities, our capitalization of
interest costs associated with the construction of the Casino Resort ceased. Our
interest expense was $119.8 million in 2000, compared to $71.4 million, net of
capitalized interest of $31.3 million in 1999. Because construction of the
Casino Resort was virtually complete during the fourth quarter of 1999, we only
capitalized interest of $0.1 million in 2000, versus $31.3 million of interest
capitalized in 1999.
Our interest income was $1.8 million and $2.6 million in 2000 and 1999.
OTHER FACTORS AFFECTING EARNINGS
Depreciation expense for the nine months ended September 30, 2002 was
$33.0 million, as compared to $30.3 million for the nine months ended
September 30, 2001. This increase was attributable to placing various capital
improvement projects into service during the fourth quarter of 2001, including
the Guggenheim Museum projects.
During the nine month periods ended September 30, 2002 and September 30,
2001, $17.3 million and $15.4 million were accrued on the Series B preferred
interest related to the contributions made.
During the nine month period ended September 30, 2002, we incurred
$3.1 million of pre-development expenses for the proposed Macau project.
During early 2000, we modified our business strategy as it relates to
premium casino customers and marketing to foreign premium casino customers. We
have generally raised our betting limits for table games to be competitive with
other premium resorts on the Strip. There are additional risks associated with
this change in strategy, including risk of bad debts, risks to profitability
margins in a highly competitive market and the need for additional working
capital to accommodate possible higher levels of trade receivables and foreign
currency fluctuations associated with collection of trade receivables in other
countries. We have opened domestic and foreign marketing offices as well as bank
collection accounts in several foreign countries to accommodate this change in
business strategy, thereby increasing marketing costs. We continually evaluate
our costs associated with marketing to the various segments of the premium
casino customer market and have recently increased selectivity of casino
customers to reduce variable marketing and incentive costs.
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LIQUIDITY AND CAPITAL RESOURCES
Our historical capital requirements have been debt service, capital
expenditures and various construction projects. We expect to fund our
operations, capital expenditures and debt service requirements from cash flow
from operations, borrowings under our new credit facility and excess cash flow
from the Mall Subsidiary to the extent permitted under our new mall loan
facility.
CASH FLOW AND CAPITAL EXPENDITURES
As of September 30, 2002 and December 31, 2001, we held unrestricted cash
and cash equivalents of $95.6 million and $54.9 million. Net cash provided by
operating activities for the nine months ended September 30, 2002 was
$67.6 million, as compared to net cash provided by operating activities of
$35.7 million for the nine months ended September 30, 2001.
Our capital expenditures during the nine months ended September 30, 2002
were $72.5 million, of which $49.7 million was attributable to construction of
the Phase IA Addition and $1.3 million was attributable to the Macau project.
Capital expenditures for the nine months ended September 30, 2001 were
$42.2 million, of which $18.2 million was attributable to construction of the
Phase IA Addition.
We also held restricted cash balances of $157.3 million as of September 30,
2002. Of this amount, $153.4 million was held in restricted accounts and
invested in cash or permitted investments by a disbursement agent for our new
credit facility lenders until required for Phase IA Addition project costs under
the disbursement terms of our new credit facility. In addition to the cash in
the disbursement account, our new delayed draw facility provides for a delayed
draw term loan of $50.0 million which we expect to draw upon in full by June 4,
2003 to pay Phase IA Addition project costs.
Capital expenditures paid from operating cash flow in 2001 were
$55.1 million, including expenditures for the Guggenheim Las Vegas Museum, the
Guggenheim/Hermitage Museum and the Phase IA Addition. We entered into an
agreement in 2001 with a subsidiary of the Solomon R. Guggenheim Foundation to
operate the Guggenheim Las Vegas Museum in the Casino Resort. The agreement
requires us to make certain contributions of capital. Pursuant to this
agreement, we made capital contributions of $9.0 million to the Guggenheim Las
Vegas Museum in 2001 in addition to other capital expenditures. Capital
expenditures for 2000 were $16.4 million, including a variety of on-going
capital improvement projects and $12.2 million for construction of the Casino
Resort. We expect capital expenditures other than capital expenditures related
to the Phase IA Addition to total approximately $24.0 million in 2002. These
expenditures for 2002 primarily relate to liquidation of construction payables
and commitments related to the Guggenheim Las Vegas Museum and the
Guggenheim/Hermitage Museum and the continuation of other capital expenditure
projects undertaken during 2001.
During 2001, we began designing, planning, permitting and constructing the
Phase IA Addition. We expect substantial completion to occur by June 2003. From
inception of the Phase IA Addition project in 2001 to September 30, 2002, we had
paid approximately $67.9 million to complete the Phase IA Addition. We currently
anticipate that the remaining costs for the development of the Phase IA Addition
will be approximately $198.0 million. We currently anticipate that the funds in
the disbursement account and the delayed draw facility will be sufficient to pay
for all of the remaining costs of the Phase IA Addition. Due to the inherent
risks in large construction projects, however, there can be no assurance that
the Phase IA Addition will be constructed without any substantial delays or cost
increases.
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Our ability to make borrowings under our new credit facility or to obtain
funds under the disbursement agreement to fund the Phase IA Addition is subject
to the satisfaction of certain conditions under that facility or the
disbursement agreement, some of which are subject to the discretion of the
administrative agent for the lenders. See "Description of Other
Indebtedness--New Credit Facility." If we incur significant cost overruns for
the Phase IA Addition or if we are unable to disburse the funds under our new
credit facility, we may need to arrange for additional financing to pay for
these costs. If we require additional financing, we may use cash received from
the following sources to fund these costs:
- borrowings under our new revolving credit facility;
- additional debt or equity financings; and
- operating cash flow.
Our ability to incur additional indebtedness is limited under our new credit
facility and the notes. As a result, we may not be able to incur additional
indebtedness to complete development of the Phase IA Addition without the
consent of the lenders under our new credit facility or the holders of the
notes. In addition, we may not be able to obtain such additional financing on
commercially reasonable terms or at all.
AGGREGATE INDEBTEDNESS AND FIXED PAYMENT OBLIGATIONS UNDER OUR HVAC SERVICES
AGREEMENTS
On June 4, 2002, we closed the offering of $850,000,000 of our initial
notes. Concurrently with and contingent upon the closing of the offering of our
initial notes, we entered into a new senior secured credit facility providing
for aggregate borrowings of $375.0 million. This new credit facility consists of
a $250.0 million senior secured term loan facility, a $50.0 million senior
secured delayed draw facility and a $75.0 million senior secured revolving
credit facility. In addition, concurrently with and contingent upon the closing
of the offering of our initial notes, our Mall Subsidiary, Grand Canal Shops II,
LLC, entered into a new secured mall loan facility, in the amount of
$105.0 million. This facility was subsequently increased on June 28, 2002 by an
additional $15.0 million which was distributed to Venetian by the Mall
Subsidiary to be used for general corporate purposes. See "Description of Other
Indebtedness--Mall Loan Facility."
We used the approximately $1,180.1 million in net proceeds from the offering
and initial borrowings under our new senior secured term loan facility and the
new mall loan facility to repay all amounts outstanding under our old bank
credit facility and certain other debt facilities, loans and notes listed under
"Use of Proceeds," repurchase, defease and/or redeem all our outstanding 12 1/4%
mortgage notes due 2004 and 14 1/4% senior subordinated notes due 2005 and pay
all fees and expenses associated with these transactions. As of September 30,
2002, on a pro forma basis after giving effect to the Phase IA Funding, we would
have had approximately $1,269.4 million of indebtedness outstanding. In
addition, there would have been approximately $75.0 million available for
borrowing by Venetian under the revolver of our new credit facility. See "Use of
Proceeds" and "Description of Other Indebtedness."
As part of the Refinancing Transactions, we commenced a cash tender offer on
May 6, 2002 to repurchase all our outstanding 12 1/4% mortgage notes due 2004
and 14 1/4% senior subordinated notes due 2005. Upon the consummation of the
Refinancing Transactions, we repurchased $316.6 million of the mortgage notes
and $95.7 million of the senior subordinated notes and effected a covenant
defeasance with respect to the remaining mortgage notes. We called for
redemption all of the remaining notes upon the closing of the Refinancing
Transactions and redeemed the balance of the mortgage notes ($108.4 million) and
the senior subordinated notes ($1.8 million). In connection with the Refinancing
Transactions, we incurred a loss on early retirement of indebtedness of
$51.4 million during the nine months ended September 30, 2002.
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Our total long-term indebtedness and fixed payment obligations to the
provider of energy services to the Casino Resort and the Expo Center under our
HVAC services agreements after giving effect to the Refinancing Transactions and
the Additional Mall Loan Borrowings are summarized by year below for the twelve
month periods ended September 30:
<Table>
<Caption>
2003 2004 2005 2006 2007 THEREAFTER
--------- -------- --------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
LONG-TERM INDEBTEDNESS
11.00% mortgage notes due
2010.................... $ -- $ -- $ -- $ -- $ -- $ 850,000
New Credit Facility(1).... 2,500 2,500 2,500 2,500 120,000 119,375
Mall Loan Facility(2)..... -- -- 120,000 -- -- --
FIXED PAYMENT OBLIGATIONS TO
THE HVAC PROVIDER
HVAC Provider fixed
payments(3)............. 7,657 7,657 7,657 7,657 7,657 13,400
-------- ------- -------- ------- -------- ----------
Total indebtedness and
HVAC fixed payment
obligations............. $ 10,157 $10,157 $130,157 $10,157 $127,657 $ 982,775
======== ======= ======== ======= ======== ==========
</Table>
- ------------------------
(1) Our new senior secured term loan facility will mature on June 4, 2008 and
will be subject to nominal quarterly amortization payments, from
September 30, 2002 through June 30, 2007, and equal quarterly amortization
payments of the balance of this facility thereafter. Our new senior secured
delayed draw facility will be available through January 4, 2003 and will
mature on June 4, 2007 and will be subject to quarterly amortization
payments commencing on December 31, 2003. Indebtedness under our new senior
secured revolving credit facility will mature on June 4, 2007 with no
interim amortization.
(2) The new secured mall loan facility will mature on June 10, 2005 (subject to
extension for two terms of one year each), with no amortization.
(3) We and the Mall Subsidiary are parties to a services agreement with a third
party for thermal energy (heating and air conditioning) (HVAC) for the
Casino Resort. The total remaining payment obligation under these
arrangements is $51.7 million, payable in equal monthly installments during
the period of October 1, 2002 through July 1, 2009.
Under the terms of our existing indebtedness, we have debt service payments
due aggregating $2.5 million during the next twelve months, representing
principal payments on our new credit facility. Based on current outstanding
indebtedness and current interest rates on our new credit facility and the Mall
Loan Facility, estimated total interest payments during the next twelve months
(excluding noncash amortization of debt offering costs) of approximately
$105.7 million for indebtedness secured by the Casino Resort and approximately
$4.7 million for indebtedness secured by The Grand Canal Shoppes.
We also have fixed payments obligations due during the next twelve months of
$7.7 million under our energy services agreements with the HVAC Provider. The
total remaining payment obligation under this arrangement is $51.7 million,
payable in equal monthly installments during the period of October 1, 2002
through July 1, 2009.
The proceeds from borrowings by Venetian under the revolver of our new
senior secured credit facility are available for general corporate purposes,
including for use in connection with our Macau venture and for the funding of
pre-development costs for the Phase II Resort.
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All amounts outstanding under our new credit facility bear interest, at our
option, at variable rates based on the reserve-adjusted Eurodollar rate or an
applicable base rate. On and after the date on which the Phase IA Addition is
substantially completed, the applicable margin for amounts outstanding under our
new credit facility will be determined by a grid based upon a leverage ratio.
See "Description of Other Indebtedness."
Subject to certain exceptions, our obligations under our new credit facility
are secured by first priority security interests in all our and our
subsidiaries' (other than certain excluded subsidiaries such as the Mall
Subsidiary) assets, including all tangible personal, real and mixed property and
certain intangible assets and contract rights but excluding capital stock and
other equity interests. In addition, our obligations under our new credit
facility are guaranteed on a senior basis by each of our subsidiaries (other
than certain excluded subsidiaries such as the Mall Subsidiary) and subject to
certain other exceptions. Our new credit facility contains certain restrictions
that, among other things, limit our ability and that of our subsidiaries (other
than certain excluded subsidiaries) to incur additional indebtedness, create
additional liens, make negative pledges, make certain investments, make certain
guarantees, make certain payments with respect to junior securities, enter into
mergers or consolidations, sell assets, enter into leases, enter into
transactions with affiliates or make changes to the scope or other terms of
material contracts without the prior approval of the lenders under our new
credit facility. We are also required to comply with financial ratios and other
financial covenants, including a minimum net worth test, a maximum capital
expenditure test, a minimum interest coverage ratio and a maximum leverage
ratio. See "Risk Factors--Risks Relating to our Indebtedness."
The mall loan facility bears interest at variable rates based on the
reserve-adjusted Eurodollar rate. This facility is secured by first-priority
security interests in all the assets of the Mall Subsidiary, the owner of The
Grand Canal Shoppes, other than the capital stock and other equity interests of
this subsidiary. Under the terms of the new mall loan facility, under certain
circumstances, the Mall Subsidiary may be restricted from making distributions
or paying dividends to us.
For the next twelve months, we expect to fund our operations, capital
expenditures (including the Phase IA Addition, the Macau joint venture project
and Internet gaming development activities) and debt service requirements from
existing cash balances, operating cash flow, borrowings by Venetian under the
revolver of our new credit facility to the extent that funds are available,
drawings under our new delayed draw facility and distributions of excess cash
from our subsidiary Grand Canal Shops II, LLC to Venetian to the extent
permitted by the terms of our indebtedness.
LITIGATION CONTINGENCIES AND AVAILABLE RESOURCES
We are a party to certain litigation matters and claims related to the
original construction of the Casino Resort. See "Business--Legal Proceedings."
If we are required to pay any of the construction manager's claims, we may use
cash received from the following sources to fund these costs:
- our insurance policy for loss coverage in connection with all litigation
relating to the construction of the Casino Resort;
- third parties, pursuant to their liability to us under their agreements
with us;
- amounts received from our subsidiary Lido Casino Resort, LLC for shared
facilities designed and constructed to accommodate the operations of the
Casino Resort and the Phase II Resort;
- borrowings by Venetian under the revolver of our new senior secured credit
facility;
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- additional debt or equity financings; and
- operating cash flow.
If we were required to pay substantial claims, and if we were unable to
raise or obtain the funds from the sources described above, there could be a
material adverse effect on our financial position, results of operations or cash
flows.
PHASE II RESORT
We have not yet set a date to begin construction of the Phase II Resort. If
we determine to construct the Phase II Resort, we will be required to raise
substantial debt and/or equity financings. Currently, we have no commitments to
fund the hard construction costs of the Phase II Resort. In addition, the
development of the Phase II Resort may require obtaining additional regulatory
approvals. Our debt instruments limit our ability to guarantee or otherwise
become liable for any indebtedness of Lido Casino Resort, LLC. These debt
instruments also restrict our and our subsidiaries' ability to sell or otherwise
dispose of the capital stock of Lido Casino Resort, LLC, including a sale to
LVSI's principal stockholder or to any of his affiliates. In addition, the
indenture governing the notes allows us to make investments of up to
$20.0 million for the development of the Phase II Resort and to incur up to
$20.0 million of additional debt to fund such investment. Lido Casino Resort,
LLC is an unrestricted subsidiary that is not subject to the terms of the
indenture governing the notes and is not a guarantor under the exchange notes.
MACAU VENTURE
We are currently in the process of negotiating agreements to develop and
operate one or more hotel, casino and convention centers and other facilities in
Macau, People's Republic of China. Through September 30, 2002, we have incurred
$4.7 million of developmental expenses with respect to the Macau venture. Under
the contemplated terms of our subsidiary's agreements with its joint venture
partners, our subsidiary will likely have financial obligations to the joint
venture and/or to the Government of Macau or it will likely be obligated to pay
for certain costs of developing and constructing the contemplated casinos in
Macau. Under the indenture governing the notes, we are permitted to make
investments in the amount of $40.0 million in, and extend guarantees with
respect to $90.0 million of indebtedness and/or obligations of, our Macau
subsidiaries. We may use cash received from the following sources to fund our
Macau venture:
- borrowings by Venetian under the revolver of our new senior secured credit
facility;
- additional debt or equity financings; and
- operating cash flow (subject to certain limitations contained in our debt
instruments).
The Macau Entities will not be guarantors under the exchange notes and,
subject to certain limited exceptions, are expected not to be restricted
subsidiaries under the indenture governing the notes.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
No. 141 ("SFAS 141") entitled, "Business Combinations" and Statement No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 provides as
follows:
- use of the pooling-of-interests method is prohibited for business
combinations initiated after June 30, 2001; and
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- the provisions of SFAS 141 also apply to all business combinations
accounted for by the purchase method that are completed after June 30,
2001.
- There are also transition provisions that apply to business combinations
completed before July 1, 2001 that were accounted for by the purchase
method.
SFAS 142 is effective for fiscal years beginning after December 15, 2001 and
applies to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized
In August 2001, the Financial Accounting Standards Board issued Statement
No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the Retirement
of Long-Lived Assets." The objective of SFAS 143 is to establish accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. SFAS 143 is effective for fiscal years
beginning after June 15, 2002.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and, generally, is to be applied
prospectively.
In April 2002, the Financial Accounting Standards Board issued SFAS 145.
SFAS 145 addresses the presentation for losses on early retirements of debt in
the statement of operations. We have adopted SFAS 145 and will no longer present
losses on early retirements of debt as an extraordinary item. Additionally,
prior period extraordinary losses will be reclassified to conform to this new
presentation.
In June 2002, the Financial Accounting Standard Board issued Statement
No. 146 ("SFAS 146") "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of SFAS 146 become effective for exit or disposal
activities commenced subsequent to December 31, 2002.
The adoptions of SFAS 141, SFAS 142, SFAS 144 and SFAS 145 had no impact on
our financial position or results of operations. We do not expect the impact of
the adoption of SFAS 143 and SFAS 146 to be material to our financial position,
results of operations or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our long-term debt. We attempt to manage our interest rate risk
by managing the mix of our long-term fixed-rate borrowings and variable rate
borrowings, and by use of interest rate cap and floor agreements. Our ability to
enter into interest rate cap and floor agreements allows us to manage our
interest rate risk associated with our variable rate debt.
We are obligated to obtain interest rate protection through interest rate
swaps, caps or other arrangements against increases in interest rates with
respect to a nominal amount equal to not less than 100% of the new mall loan
facility.
We do not hold or issue financial instruments for trading purposes and do
not enter into deliverable transactions that would be considered speculative
positions. Our derivative financial instruments consist exclusively of interest
rate cap and floor agreements, which do not qualify for hedge accounting. We
record interest differentials resulting from these agreements on an accrual
basis as an adjustment to interest expense.
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To manage exposure to counterparty credit risk in interest rate cap and
floor agreements, we enter into agreements with highly-rated institutions that
can be expected to fully perform under the terms of these agreements.
Frequently, these institutions are also members of the bank group providing our
credit facilities, which we believe further minimizes the risk of
nonperformance.
The table below provides information about our financial instruments that
are sensitive to changes in interest rates. For debt obligations, the table
presents notional amounts and weighted average interest rates by contractual
maturity dates for the twelve month periods ended September 30, assuming the
completion of the Redemption Transactions.
<Table>
<Caption>
FAIR
2003 2004 2005 2006 2007 THEREAFTER TOTAL VALUE(1)
-------- -------- -------- -------- -------- -------------- -------- ----------
(DOLLARS IN MILLIONS)
LIABILITIES
Short-term debt
Variable rate................... $2.5 -- -- -- -- -- $ 2.5 $ 2.5
Average interest rate(2)...... 4.8% -- -- -- -- -- 4.8% 4.8%
Long-term debt
Fixed rate...................... -- -- -- -- -- 850.0 850.0 841.5
Average interest rate(2)...... -- -- -- -- -- 11.0% 11.0% 11.0%
Variable rate................... -- 2.5 122.5 2.5 120 119.4 366.9 366.9
Average interest rate(2)...... -- 4.8% 4.3% 4.8% 4.8% 4.8% 4.7% 4.6%
</Table>
- ------------------------------
(1) The fair values are based on the borrowing rates currently available for
debt instruments with similar terms and maturities and market quotes of our
publicly traded debt.
(2) Based upon contractual interest rates for fixed rate indebtedness or current
LIBOR rates for variable rate indebtedness.
Foreign currency translation gains and losses were not material to our
results of operations for the year ended December 31, 2001 and the nine months
ended September 30, 2002.
See also "--Liquidity and Capital Resources."
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BUSINESS
OVERVIEW
We own and operate the Venetian Casino Resort, a Renaissance Venice-themed
resort situated at one of the premier locations on Las Vegas Boulevard (known as
the "Strip"). The Casino Resort is located across from The Mirage and the
Treasure Island Hotel and Casino between Flamingo Road and Sands Avenue. The
Casino Resort includes the only all-suites hotel on the Strip, a casino of
approximately 116,000 square feet, The Grand Canal Shoppes, an enclosed retail,
dining and entertainment mall of approximately 446,000 net leasable square feet
and the Congress Center meeting and conference facility of approximately 500,000
square feet.
The Casino Resort is physically connected to the approximately 1.15 million
square foot Sands Expo and Convention Center, one of the largest facilities in
the United States specifically designed for trade shows and conventions. We
believe that the combined facilities of the Casino Resort and the Expo Center,
which is separately owned by LVSI's principal stockholder, is one of the largest
hotel and meeting complexes in the United States.
Ground breaking for the Casino Resort occurred in April 1997. Except for The
Grand Canal Shoppes, the Casino Resort opened on May 4, 1999. The Grand Canal
Shoppes opened on June 19, 1999 and substantial completion of the entire Casino
Resort was achieved on November 12, 1999.
In 2001, we began planning, designing and constructing an extension to our
Casino Resort facilities to meet unserved room demand and provide incremental
hotel, casino and retail revenue at the Casino Resort. These additional
facilities, or Phase IA Addition, are anticipated to consist of an approximately
1,000-room hotel tower on top of the Casino Resort's existing parking garage, an
approximately 1,000-parking space expansion to the existing parking garage and
an approximately 150,000 square feet of additional meeting and conference space.
See "--Phase IA Addition."
The Casino Resort was developed on a stand-alone basis as the first phase of
a two-phase development. In the second phase of the development, we plan to
construct another similarly-sized themed resort known as the Phase II Resort
which will be developed by our indirect, wholly-owned subsidiary, Lido Casino
Resort, LLC.
We are currently in the process of negotiating agreements to develop and
operate one or more hotel, casino and convention centers and other facilities in
Macau, People's Republic of China. See "--Recent Developments."
THE CASINO RESORT
THE HOTEL
Our hotel presently has 3,036 single and multiple bedroom suites situated in
a 35-story, three-winged tower rising above our casino. The lobby features a
65-foot domed ceiling decorated with Venetian-themed fresco-style paintings, a
main passageway formed by a barrel-vaulted ceiling carried on ornamental
columns, and a replica of the unique three dimensional-style marble floors found
in Venetian palaces.
A typical hotel suite approximates 655 to 735 square feet and consists of a
raised sleeping area and bathroom and a sunken living/working area. The suite's
bi-level configuration creates a multi-function living space where guests can
sleep, work and entertain. It includes two queen-size beds or one king-size bed,
a writing desk, dual-line speaker phones, a fax machine and a sitting area.
Approximately 318 of the suites are of larger size for use by gaming customers.
The hotel leases space to eight restaurants that are adjacent to the casino
and five other food outlets located in a Venetian-style market food court
located at the casino level of the hotel. Live
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entertainment is offered at the 50,000 square foot entertainment complex called
the "C2K." In addition, the hotel provides a variety of amenities for its
guests, including a state-of-the-art health spa, operated by Canyon Ranch
Management LLC, with massage and treatment rooms, exercise and fitness areas.
The hotel features an outdoor swimming complex including three pools, spas, pool
bars and cabanas surrounded by gardens, waterways, fountains and sculptures.
In addition to the Congress Center, the hotel includes approximately 63,000
square feet of exhibition hall space that was completed in October 2001, with
the Guggenheim Las Vegas Museum that currently houses the Art of the Motorcycle
exhibition. Additionally, the hotel includes the Guggenheim/Hermitage Museum, an
art museum featuring masterpiece collections from the Guggenheim Museum in New
York and the Hermitage in Saint Petersburg, Russia. The hotel has been designed
to accommodate additional expansion. In 2001, we began construction of an
anticipated 1,000-room hotel tower on top of the Casino Resort's existing
parking garage and an anticipated 1,000 parking space expansion of the garage.
See "Phase IA Addition."
THE CASINO
Our casino covers 116,000 square feet of gaming space adjacent to the hotel
lobby. The casino floor is accessible from the hotel, The Grand Canal Shoppes,
the Congress Center, the Expo Center and the Strip. The casino is marketed to
attract a broad base of patrons and focuses on frequent premium gaming
customers. We market the casino directly to this gaming market segment using
database-marketing techniques, slot clubs and traditional incentives such as
reduced room rates and complimentary meals and suites. We also offer "high
roller" gaming customers premium suites and special hotel and casino services.
The casino environment is stylized to resemble a Venetian "palazzo," with
architectural and interior design features representative of Venice's
Renaissance era and its adjacent amenities include several "signature"
restaurants such as Emeril Lagasse's Delmonico and Piero Selvaggio's Valentino.
The ceiling in the table games area features fresco-style paintings of Venetian
palaces. The gaming facilities include approximately 2,124 slot machines of
various denominations, including popular multi-property, linked progressive
games. A high-end slot area, with a private lounge, provides slot customers with
premium slot products and services. The casino's approximately 122 table games
(excluding baccarat tables) include the traditional games of blackjack, craps
and roulette, Asian games such as "Pai Gow" and "Pai Gow Poker," and popular
progressive table games such as "Caribbean Stud Poker" and "Let It Ride." In
addition, the casino offers gaming customers an upscale sportsbook room and an
upscale gaming salon featuring baccarat, blackjack and roulette tables. The
gaming salon is specially designed for premium, "high roller" gaming, with
baccarat, blackjack and roulette, direct access to private cash-out windows at
the casino cage and direct access to the casino's credit department.
THE GRAND CANAL SHOPPES
The Grand Canal Shoppes offers approximately 446,000 net leasable square
feet of shopping, dining and entertainment space located on two levels within
the Casino Resort's main structure, between the casino level and the hotel tower
and in a separate approximately 38,000 square foot retail annex adjacent to the
Casino Resort's main structure and directly accessible from the Strip. The Grand
Canal Shoppes includes 58 retail stores, three specialty shops, eight
restaurants and six food court outlets. Visitors and guests can enter The Grand
Canal Shoppes from several different directions, including from the Strip via a
moving sidewalk, from the main gaming area of the casino via escalators, from
the Expo Center through the Congress Center, from a cross-over bridge across the
Strip and directly from the hotel.
The Grand Canal Shoppes includes an array of quality dining experiences,
including upscale restaurants such as Wolfgang Puck's Postrio, offering
international and American regional cuisines.
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The Grand Canal Shoppes retail offerings include exclusive showcase boutiques,
popular brand name mid-priced stores and themed entertainment concepts. Premium
branded tenants in The Grand Canal Shoppes include Mikimoto, Movado, Burberry
and Jimmy Choo. The restaurants and stores are set along an approximately
one-quarter mile Venetian-themed streetscape and front on the Venetian-themed
canal running its length and grouped in "piazza"-style settings. Store and
restaurant facades are designed to project the Venetian theme.
In 2001, The Grand Canal Shoppes had leased approximately 95% of its gross
leasable space at an average of approximately $100 per leasable square foot.
Additional tenants and increased proceeds from rents raised The Grand Canal
Shoppes revenues to $33.5 million in 2001 from $29.9 million in 2000. The
average term of a lease in The Grand Canal Shoppes is 10 years.
THE EXPO CENTER AND THE CONGRESS CENTER
With over 1.15 million gross square feet of exhibition and meeting space,
including four exhibit halls and 20 meeting rooms, the separately owned and
operated Expo Center is one of the largest trade show and convention facilities
in the United States, as measured by net leasable square footage. As part of the
Casino Resort, we own and operate the Congress Center, an approximately 500,000
gross square foot meeting and conference facility which links the Expo Center
and the rest of the Casino Resort. The Congress Center includes the
approximately 85,000 square foot column-free "Venetian Ballroom," the
approximately 13,500 square foot "Palazzo Ballroom" and a meeting complex of 42
individual rooms which can be combined to create three additional ballrooms, in
addition to the Congress Center's own approximately 105,000 square foot
exhibition hall. Together, the Expo Center and the Congress Center offer nearly
1.65 million square feet state-of-the-art exhibition and meeting facilities,
which can be configured to provide up to 108 separate meeting rooms or
accommodate large-scale multi-media events. We are also planning to add 150,000
square feet of additional meeting and conference facility space to the Casino
Resort. See "Phase IA Addition."
We market the Congress Center to complement the operations of the Expo
Center by targeting business conferences and upscale business events typically
held during the mid-week period, thereby generating room-night demand and
driving average daily room rates during the weekday move-in/move-out phases of
Expo Center events. Our goal is to draw from attendees and exhibitors at Expo
Center events and from attendees of Congress Center events to maintain weekday
room-night demand at the hotel from this higher budget market segment, when room
demand would otherwise be derived from the lower budget tour and travel group
market segment.
In 2001, approximately 1,039,000 visitors attended trade shows and
conventions at the Expo Center during 110 show days. The Expo Center hosted 17
events on the 2001 Trade Show Week 200 list of the largest trade shows in the
United States in 2001, including the Spring and Fall Western Shoe Show and JCK
Jewelry Show, the convention of National Association of Broadcasters and the
Automotive Service Industry Association Week, each of which were
multiple-location events.
We have no ownership or financial interest in the Expo Center or Interface
Group-Nevada, Inc., the owner of the Expo Center, and we do not exercise any
control over the business or management of the Expo Center or Interface
Group-Nevada, Inc. All of the capital stock of Interface Group-Nevada, Inc. is
beneficially owned by Sheldon G. Adelson, LVSI's principal stockholder. See
"Certain Relationships and Related Party Transactions."
Venetian, the Mall Subsidiary, Interface Group-Nevada, Inc. and Lido Casino
Resort, LLC are parties to a cooperation agreement that provides for the
integrated operation of all the facilities. Interface Group-Nevada, Inc., the
Mall Subsidiary and Venetian allocate expenses shared by the Expo Center, the
Casino Resort and The Grand Canal Shoppes. In addition, Interface Group-
Nevada, Inc. and we jointly market the hotel and casino, The Grand Canal
Shoppes, the Congress
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Center and the Expo Center. Until December 31, 2010, Interface
Group-Nevada, Inc. will use commercially reasonable efforts to have our hotel
designated as the "headquarters hotel" for trade show and convention events at
the Expo Center. In turn, we will use commercially reasonable efforts to promote
the use and occupancy of the Expo Center. In order to obtain the Casino Resort's
"headquarters hotel" designation, we have agreed with Interface
Group-Nevada, Inc. that, except under certain circumstances, trade shows of the
type generally held at the Expo Center will not be held in the Congress Center.
Trade show and convention promoters are under no obligation to select the Casino
Resort as the "headquarters hotel" for their events. See "Certain Relationships
and Related Party Transactions--Cooperation Agreement" and "Operating
Agreements--Cooperation Agreement."
PHASE IA ADDITION
During 2001, we began designing, planning, permitting and constructing the
Phase IA Addition which is anticipated to include:
- an approximately 1,000-room hotel tower on top of the Casino Resort's
existing parking garage;
- an approximately 1,000-parking space expansion to the existing parking
garage; and
- approximately 150,000 square feet of additional meeting and conference
space.
We anticipate that the additional 1,000 single and multiple bedroom suites,
designed in a similar manner and style as our hotel's existing suites, and
150,000 square feet of meeting and conference space will meet unserved hotel
room and events space demand and provide incremental casino, retail and
entertainment revenue at the Casino Resort. We also expect to achieve additional
economies of scale when we complete the Phase IA Addition, including shared
administration, HVAC facility and back-of-the-house functions.
To date, we have completed the design and plans for the expansion of the
parking garage, the addition of the 1,000-room hotel tower to be built on top of
the parking garage and the approximately 150,000 square foot conference center
and have substantially completed the foundation and support systems for the
hotel tower and the additional conference center space. We suspended
construction of the Phase IA Addition during the fourth quarter of 2001 due to
the travel disruption to Las Vegas; however, we continued certain designing,
planning and permitting of the Phase IA Addition. As of September 30, 2002, we
had spent or incurred approximately $67.9 million in planning, design and
construction costs. We estimate that our remaining development costs for these
facilities will be approximately $198.0 million. We expect to complete
construction in June 2003. See "Risk Factors--There are significant risks
associated with our planned construction projects, which could adversely affect
our financial condition, results of operations or cash flows."
In 2002, Venetian entered into a long-term lease, at nominal rent, with our
subsidiary Lido Casino Resort, LLC for the lease of the airspace in which the
meeting and conference space for the Phase IA Addition is being built. The
airspace was designated as a separate legal parcel and conveyed to Venetian from
Lido Casino Resort, LLC for a nominal consideration in August, 2002. The
relationship between the Phase IA Addition meeting space and the Expo Center
will be governed by our cooperation agreement, a preferred reservation system
agreement and a meeting services agreement with Interface Group-Nevada, Inc. See
"Certain Relationships and Related Party Transactions--Phase IA Lease,"
"--Cooperation Agreement," "--Preferred Reservation System Agreement" and
"--Meeting Services Agreement."
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BUSINESS AND MARKETING STRATEGY
Our primary business objective is to provide a premium destination casino
resort experience in order to drive superior returns on invested capital and to
increase asset value. To achieve this objective, we:
- operate a "must-see" destination resort;
- capture premium hotel room rates through a differentiated all-suites
product;
- drive hotel occupancy, casino use and mall shopping through the link to
the Expo Center and the Congress Center;
- cater to a higher budget customer mix by offering a unique combination of
hospitality and gaming facilities;
- leverage the Casino Resort's premium co-branding strategy to drive
revenues; and
- target premium gaming customers.
OPERATE A "MUST-SEE" DESTINATION RESORT
The Casino Resort, with its extensive theming, dining, shopping and
entertainment, is a "must-see" destination located at the heart of the Strip.
The Casino Resort is distinctively themed to provide visitors with the sense of
being surrounded by the architecture, music, art and history of Renaissance
Venice. The Venetian-themed setting along the Casino Resort's frontage on the
Strip includes waterways, gondolas and replicas of Venetian landmarks, such as
the Doge's Palace, the Rialto Bridge, the Ca d'Oro and the Campanile Tower. The
Grand Canal Shoppes features a one-quarter mile Venetian streetscape, with
intimate "piazza"-style settings. A 630-foot canal runs along the Venetian
streetscape, with gondolas and waterside cafes and crossed by authentically-
styled Venetian bridges. We believe that these attractions generate significant
room demand and foot traffic.
The Casino Resort has approximately 740 feet of frontage on the east side of
the Strip and is located next to Harrah's and across from some of the most
visited casino resorts and attractions on the Strip, including The Mirage, the
Treasure Island Hotel and Casino and The Forum Shops at Caesars Palace Hotel.
CAPTURE PREMIUM HOTEL ROOM RATES THROUGH A DIFFERENTIATED ALL-SUITES PRODUCT
Our typical hotel suite ranges in size from approximately 655 square feet to
735 square feet compared to approximately 360 square feet to 400 square feet on
average for a standard room in competing facilities on the Strip, and consists
of a sunken living/working area and a raised sleeping area with a marble
bathroom; each area has its own television entertainment center. Each suite
living/working area includes a sitting area and a writing desk and offers
business amenities such as dual-line speakerphones, a fax machine and dataport
access. The bathrooms are oversized, featuring a separate bathtub and shower,
dual sinks and a telephone. In addition, our hotel offers larger suites,
including the "Presidential" and penthouse suites.
Our hotel offers the only all-suites product on the Strip with first-class
services, amenities for business travelers, such as in-room fax machines and two
phone lines and high-end resort facilities. In 2001, the hotel was awarded the
"Exxon-Mobil Four Star Award," AAA's "Diamond Award" and Meetings and
Conventions Magazine's prestigious "Gold Key Award" for meetings hotels in the
United States and selected as Conde Nast's "Best 100 Hotels in the World." We
believe that business and leisure travelers consider suites desirable, superior
accommodations. For business travelers, the hotel's suites, which accommodate
informal business meetings and social gatherings, offer guests a unique, single
location in which to work and entertain in close proximity to the Expo
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Center and the Strip. Leisure travelers appreciate both the hotel's spacious
suites and extensive facilities. We believe that the all-suites format, together
with the Casino Resort's many other unique attributes, result in a highly
differentiated destination resort product, allow for premium pricing on rooms
and provide us with a competitive advantage over other hotel/casino properties
on the Strip.
Our mix of hotel total sales for 2002 is expected to be as follows: group
and convention room sales 38%, casino customers 15%, wholesale 11% and free and
independent travelers 34% of total sales. The hotel's average daily room rate
was approximately $196 in 2001.
DRIVE HOTEL OCCUPANCY, CASINO USE AND MALL SHOPPING THROUGH THE LINK TO THE EXPO
CENTER AND THE CONGRESS CENTER
The Casino Resort is the first themed entertainment resort in Las Vegas
designed specifically to accommodate large-scale trade shows, conventions,
conferences and meetings. These trade shows, conventions, conferences and
meetings often draw more attendees than our hotel can accommodate and generate
additional non-hotel traffic. The Expo Center and the Congress Center provide
recurring, predictable demand for mid-week room nights from business travelers.
Our diverse business model draws convention attendees from all parts of the
United States and the world. In connection with 110 show days, during 2001,
approximately 1,039,000 visitors attended trade shows and conventions at the
Expo Center. The hotel had a mid-week occupancy rate of 92.2% in 2001 (compared
to an 81.6% mid-week average occupancy rate in Las Vegas) due in large part to
the Casino Resort's trade show and convention business. In 2001, our average
daily room rate was approximately $196. Under the cooperation agreement, the
owner of the Expo Center markets the Casino Resort to promoters of Expo Center
trade show conventions and other events as the "headquarters hotel" for those
events. The Casino Resort offers attendees of events at the Expo Center and the
Congress Center the most convenient hotel accommodations in Las Vegas.
CATER TO A HIGHER BUDGET CUSTOMER MIX BY OFFERING A UNIQUE COMBINATION OF
HOSPITALITY AND GAMING FACILITIES
We market the Casino Resort to attract higher-budget business travelers and
free and independent travelers, resulting in a higher-budget customer mix both
on weekdays and on weekends. By appealing to customers in these upscale market
segments, we have reduced our reliance on the lower-budget tour and travel
market. We believe that business travelers typically pay more for rooms and
spend more on entertainment than weekday customers in other categories, such as
tour groups. We believe that the Casino Resort's central location at the heart
of the Strip adjacent to the Expo Center and its all-suites hotel product allow
it to compete effectively for the higher-budget mid-week trade show, convention
and meeting attendees. On both weekdays and weekends, the all-suites product at
the hotel appeals to free and independent leisure travelers and "high-roller"
gaming customers, both segments of the travel market that spend more on rooms
and entertainment.
LEVERAGE THE CASINO RESORT'S PREMIUM CO-BRANDING STRATEGY TO DRIVE REVENUES
We expect to build upon awareness of the Venetian brand by continuing to
attract a unique collection of "signature" restaurant concepts and premier
global retail brands to the Casino Resort. This strategy allows us to focus on
our core competency of providing first-class hotel and meeting facilities in a
premier gaming experience while attracting additional guests and foot traffic
because of our own brand name and our concentration of other premier brands. The
Casino Resort has been designed so that foot traffic from the Strip, the Expo
Center, the Congress Center and the hotel are funneled through the casino floor
in order to attract and retain a broad base of casino patrons. We seek to
maximize guest spending from the Casino Resort's target markets by offering a
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concentration of fine restaurants, exclusive boutiques, the Canyon Ranch health
spa, and the 50,000 square foot entertainment complex called "C2K." Several
well-known restauranteurs operate "signature" restaurants on the premises, such
as Emeril Lagasse's Delmonico and Wolfgang Puck's Postrio. The Grand Canal
Shoppes includes premium branded retailers such as Mikimoto and Burberry and
nationally recognized retailers such as Banana Republic, Kenneth Cole and
Brookstone. In addition, the Casino Resort includes the Guggenheim Las Vegas
Museum and the Guggenheim/Hermitage Museum that house various art exhibits in
conjunction with the Guggenheim Museum in New York and the Hermitage in Saint
Petersburg, Russia. This co-branding strategy enhances the Casino Resort's
appeal to the higher budget room guests.
We believe that the Casino Resort's premier location on the Strip, its
extensive theming as well as its established and growing concentration of
"signature" restaurant concepts and premier global retail brands have been an
effective strategy for driving revenues and the awareness of the Venetian brand.
We expect to build upon the Venetian's brand awareness to provide continued
revenue growth opportunities from retail and restaurants to drive hotel room
rates and casino patronage.
TARGET PREMIUM GAMING CUSTOMERS
We believe that the Casino Resort's all-suites product, themed atmosphere
and high-end amenities, including premier restaurants and shops, offer gaming
customers a unique Las Vegas experience. We actively market the casino to
frequent premium gaming customers. In particular, we seek to attract "high
roller" gaming customers by offering premium suites and special hotel services.
Because of the all-suites format in our hotel, the Casino Resort is able to
offer many gaming customers complementary suites (considered premium
accommodations in Las Vegas) during high occupancy periods, such as weekends and
holidays, when they would not be offered such suites by our competitors. The
Casino Resort is the only all-suites resort on the Strip with facilities and
amenities designed to attract premium gaming customers.
THE LAS VEGAS MARKET
Las Vegas is one of the fastest-growing and largest entertainment markets in
the country. Las Vegas hotel occupancy rates are among the highest of any major
market in the United States. According to the Las Vegas Convention and Visitors
Authority, the number of visitors traveling to Las Vegas has increased at a
steady and significant rate for the last ten years from 21.3 million visitors in
1991 to 35.0 million visitors in 2001, a compound annual growth rate of 5.1%. In
addition, the population of Las Vegas has grown from approximately 821,000 in
1991 to approximately 1,486,000 in 2001, a compound annual growth rate of 6.1%.
We believe that the growth in the Las Vegas market has been enhanced as a result
of:
- a dedicated program by the Las Vegas Convention and Visitors Authority and
major Las Vegas hotels to promote Las Vegas as a major vacation and
convention site;
- the increased capacity of McCarran International Airport; and
- the introduction of large, themed destination resorts in Las Vegas.
We expect hotel occupancy rates in Las Vegas to remain high as a result of
the sustained growth in the number of visitors traveling to Las Vegas and the
lack of new construction in Las Vegas, other than Le Reve, an approximately
2,500 room resort to be built on the site of the former Desert Inn, one block
north of the Casino Resort on the corner of Las Vegas Boulevard and Sands
Avenue, and anticipated to open in late 2004.
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LAS VEGAS AS A TRADE SHOW, CONVENTION AND MEETING DESTINATION
In 2001, according to the Las Vegas Convention and Visitors Authority, Las
Vegas was one of the most popular trade show destinations in the United States
with a 28.4% market share of the Trade Show Week 200 Shows in terms of net
square footage and the fourth most popular convention destination in the United
States. In 1991, approximately 1.8 million persons attended trade shows and
conventions in Las Vegas and spent approximately $1.5 billion. In 2001, the
number of trade show and convention attendees had increased to 4.0 million and
the amount spent by trade show and convention attendees was approximately
$4.8 billion.
Trade shows are held for the purpose of getting sellers and buyers of
products or services together in order to conduct business. Trade shows differ
from conventions in that trade shows typically require substantial amounts of
space for exhibition purposes and participant circulation. Conventions generally
are gatherings of companies or groups that require less space for breakout
meetings and general meetings of the overall group. Las Vegas offers trade shows
and conventions a unique infrastructure for handling the world's largest shows.
This includes a concentration of 48,000 hotel rooms located on the Strip, two
convention centers--the Las Vegas Convention Center and the Expo Center--with a
total of approximately 4.0 million square feet of convention and exhibition
space, convenient air service from major cities throughout the United States and
other countries, and significant entertainment attractions. In addition to the
Expo Center and the Las Vegas Convention Center, the MGM Grand Hotel and Casino
has constructed a conference and meeting facility of approximately 300,000 gross
square feet. The Mirage has recently added 100,000 gross square feet of meeting
space and Mandalay Bay has begun construction of an approximately 1.8 million
square foot convention center with an estimated completion date of early 2003.
We believe that Las Vegas will continue to evolve as the country's preferred
trade show and convention destination.
EXPANDING HOTEL MARKET
During 2001, Las Vegas was among the most popular vacation destinations in
the United States. Las Vegas has experienced a period of rapid hotel development
with the number of hotel and motel rooms in Las Vegas increasing by 65% over the
last ten years, from 76,879 in 1991 to 126,610 in 2001. We expect that the
concentration of quality themed casino hotels and resorts will increase visitor
interest in Las Vegas as a business event and vacation destination, and, as a
result, increase overall demand for hotel rooms, gaming and entertainment.
GROWTH OF LAS VEGAS RETAIL SECTOR AND NON-GAMING REVENUE EXPENDITURES
In order to draw additional visitors, an increasing number of destination
resorts are developing non-gaming entertainment to complement their gaming
activities. According to the Las Vegas Convention and Visitors Authority, while
gaming revenues have increased from $4.2 billion in 1991 to $7.6 billion in 2001
(a compound annual growth rate of 6.1%), non-gaming tourist revenues increased
from $10.2 billion to $23.8 billion over the same period, a compound growth rate
of 8.8%). The newer, large themed Las Vegas destination resorts have been
designed to capitalize on this growth by providing better quality hotel rooms at
higher rates and by providing expanded shopping, dining and entertainment
opportunities to their patrons in addition to gaming.
INFRASTRUCTURE IMPROVEMENTS
Clark County and metropolitan Las Vegas have completed several
infrastructure improvements to accommodate the increase in travel to Las Vegas
by all modes of transportation. According to the Las Vegas Convention and
Visitors Authority, in 2001, visitors to Las Vegas arrived by the following
methods of transportation: 48% by air; 40% by auto; 4% by recreational vehicle;
and 8% by bus.
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MCCARRAN INTERNATIONAL AIRPORT EXPANSION
During the past five years, the facilities of McCarran International Airport
have been expanded to accommodate the increased number of airlines and
passengers that it services. The number of passengers traveling through McCarran
International Airport has increased from 20.2 million in 1991 to 35.2 million in
2001, a compound annual growth rate of 5.7%. Long-term expansion plans for
McCarran International Airport provide for additional runway and related areas.
A new runway was completed in October 1997 and a new terminal and additional
gates were completed in 1998.
COMPETITION
The casino/hotel industry is highly competitive. We compete with other
hotels on the Strip and with other hotels in downtown Las Vegas. The Casino
Resort also competes with a large number of hotels and motels in and near Las
Vegas. Many of our competitors are subsidiaries or divisions of large public
companies and may have greater financial and other resources than us. See "Risk
Factors--We face significant competition which could materially adversely affect
our financial condition, results of operations or cash flows."
HOTEL/CASINO PROPERTIES
Competitors of the Casino Resort include other themed resorts on the Strip,
such as The Bellagio, Mandalay Bay and Paris. In August 2001, Steve Wynn filed
his plans for Le Reve with the Clark County Planning Commission. Le Reve is
intended to be an approximately 2,500-room resort to be built on the site of the
former Desert Inn, one block north of the Casino Resort on the corner of Las
Vegas Boulevard and Sands Avenue, and anticipated to open in late 2004. We are
not aware of any other new significant developments of casino properties in Las
Vegas in the near future. The Casino Resort may also compete with the Phase II
Resort, to the extent its business is not complementary to that of the Casino
Resort. See "Risk Factors--The common ownership and management of the Casino
Resort and the Phase II Resort could have an adverse effect on the Casino
Resort."
We believe that themed resorts are generally more successful at generating
higher traffic volumes and higher revenues and operating income than the
large-scale non-themed properties in Las Vegas. Themed resorts compete on the
basis of the quality of theming, as well as on more traditional bases, such as
quality of rooms, pricing and location. Themed resorts tend to be clustered on
the Strip, creating a critical mass of entertainment experiences which generate
significant traffic for the themed resorts as a group, thereby capturing a
larger portion of the Las Vegas hotel and gaming market than non-themed
properties. We believe that the existence of other themed resorts in close
proximity to the Casino Resort directly benefits the Casino Resort. The Casino
Resort is part of a cluster of themed properties, which includes The Mirage, the
Treasure Island Hotel and Casino, The Bellagio and The Forum Shops at Caesars
Palace Hotel and may in the future also include Le Reve and the Phase II Resort.
In addition to the advantages of being a centrally-located, themed resort,
the cooperation agreement and the Casino Resort's direct connection with the
Expo Center provide the Casino Resort with a unique tie-in to one of the premier
trade show and convention facilities in the United States. With these
competitive advantages, the Casino Resort is positioned to appeal to the
mid-week meeting, trade show and convention market composed of customers who pay
higher average room rates and have higher average travel budgets than other
categories of weekday customers, such as tour groups.
The hotel/casino operation of the Casino Resort also competes, to some
extent, with other hotel-casino facilities in Nevada and in Atlantic City,
hotel/casino and other resort facilities elsewhere in the country and the world,
Internet gaming web sites and state lotteries. In addition, certain
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states have legalized, and others may legalize, casino gaming in specific areas.
The passage of the Indian Gaming Regulatory Act in 1988, for example, has led to
rapid increases in Native American gaming operations. Such proliferation of
gaming venues could significantly and adversely affect our business. In
particular, the legalization of casino gaming in or near major metropolitan
areas from which we traditionally attract customers, such as New York, Los
Angeles, San Francisco and Boston could have a material adverse effect on our
business. In October 2001, the New York legislature approved a bill for expanded
casino gaming on Native American reservations in that state. The expansion of
gaming in New York could also have a material adverse effect on our business.
TRADE SHOW AND CONVENTION FACILITIES
The Expo Center, the Congress Center and Las Vegas generally compete with
trade show and convention facilities located in and around major U.S. cities,
including Atlanta, Chicago, New York and Orlando. Within Las Vegas, the Expo
Center and the Congress Center compete with the Las Vegas Convention Center,
which is located off the Strip and currently has 3.2 million gross square feet
of convention and exhibit facilities, including over 1.0 million square feet of
new meeting and exhibition space that was added in 2001. The MGM Grand Hotel and
Casino has also opened a new conference and meeting facility of approximately
300,000 square feet. The Mirage has recently added 100,000 gross square feet of
meeting space and Mandalay Bay has begun construction of an approximately
1.8 million square foot convention center. The conference and meeting facilities
at these hotel/resorts are the Congress Center's primary competition. We expect
that the Las Vegas Convention Center and Mandalay Bay will be the primary
competitors of the Expo Center. To the extent that any of the competitors of the
Casino Resort can offer a hotel/casino experience that is integrated with
substantial trade show and convention or conference and meeting facilities, the
Casino Resort's competitive advantage in attracting trade show, convention
meeting and conference attendees could be adversely affected. Other cities such
as Boston, Orlando and Pittsburgh are also in the process of developing, or have
announced plans to develop, convention centers and other meeting, trade and
exhibition facilities that could in the long term materially adversely affect
us.
THE GRAND CANAL SHOPPES
The Grand Canal Shoppes competes with both themed resorts, which offer
shopping, dining and entertainment opportunities to their patrons, and other
retail malls in or near Las Vegas. The Grand Canal Shoppes' direct competition
includes The Forum Shops at Caesars Palace and The Desert Passage Shops at the
Aladdin. Park Place Entertainment Corp. recently announced a 200,000 square-foot
expansion of The Forum Shops at Caesars Palace. The Grand Canal Shoppes also
competes with The Fashion Show Mall, a more traditional mall located near the
Casino Resort which is currently undergoing an expansion that will almost double
its size. In the future, The Grand Canal Shoppes may also compete with the
planned retail, dining and entertainment facilities in the Phase II Resort.
Mandalay Resort Group had also announced, but has since suspended, the
development of a retail center near its new Mandalay Bay Resort.
The Mall Subsidiary entered into an agreement for Forest City
Enterprises, Inc., a subsidiary of Forest City Ratner Enterprises (a leading
developer and manager of retail and commercial real estate developments) to
manage The Grand Canal Shoppes. Forest City is also responsible for:
- preparation of a detailed plan for the routine operation of The Grand
Canal Shoppes;
- collection and deposit procedures for rents and other tenant charges;
- supervision of maintenance and repairs; and
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- on an annual basis, preparation of a detailed budget, including any
anticipated extraordinary expenses and capital expenditures for The Grand
Canal Shoppes.
The term of the management contract is five years from June 19, 1999, the
date The Grand Canal Shoppes opened to the public. Forest City currently
receives a management fee of 2% of all gross rents received from the operation
of the mall, with a minimum fee of $450,000 per year. Beginning in June 2002,
the minimum management fee was increased to $600,000 per year. Forest City is
not affiliated with LVSI's principal stockholder or any of his affiliates.
ADVERTISING AND MARKETING
We advertise in many types of media, including television, radio,
newspapers, magazines and billboards to promote general market awareness of the
Casino Resort as a unique vacation, business and convention destination due to
its first-class hotel, casino, retail stores and restaurants. The mall tenants
also pursue their own general advertising and promotional activity, which
benefits The Grand Canal Shoppes. We actively engage in direct marketing
targeted at specific market segments, such as the meeting, convention and trade
show market and the premium gaming market, and database marketing which focuses
on high-frequency, high-margin market segments such as the "high-roller" gaming
market. We use a preview center featuring a full-scale model suite in the Expo
Center to market Casino Resort and Expo Center events.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in the State of
Nevada are subject to the Nevada Gaming Control Act, its regulations and various
local regulations. Our gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission, the Nevada State Gaming
Control Board and the Clark County Liquor and Gaming Licensing Board.
The laws, regulations and supervisory procedures of the Nevada gaming
authorities are based upon declarations of public policy that are concerned
with, among other things:
- preventing unsavory or unsuitable persons from having a direct or indirect
involvement with gaming at any time or in any capacity;
- establishing and maintaining of responsible accounting practices and
procedures;
- maintaining effective controls over the financial practices of the
licensees, including through the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and revenues,
providing reliable record-keeping and requiring the filing of periodic
reports with the Nevada gaming authorities;
- preventing cheating and fraudulent practices; and
- providing a source of state and local revenues through taxation and
licensing fees.
Any change in those laws, regulations and procedures could have an adverse
effect on our gaming operations or on the operation of the Casino Resort.
We are required to be licensed by the Nevada gaming authorities to operate a
casino, and we are currently so licensed. We must pay periodic fees and taxes
and our gaming license is not transferable. We were registered by the Nevada
Gaming Commission as a publicly-traded corporation. As a result, we must
periodically submit detailed financial and operating reports to the Nevada
gaming authorities and furnish any other information that the Nevada gaming
authorities may require. Prior to our conducting an initial public offering of
our equities securities, no person may become a stockholder of us without first
obtaining licenses and approvals from the Nevada gaming authorities. In
addition, no person may receive any percentage of our profits without first
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obtaining licenses and approvals from the Nevada gaming authorities. If Lido
Casino Resort, LLC, is to receive a percentage of our gaming revenue pursuant to
its casino lease with us for the Phase II Resort, it will first have to obtain
licenses or other approvals from the Nevada gaming authorities. We operate the
casino pursuant to the casino lease between LVSI and Venetian, which provides
for a fixed monthly rental payment. We possess all state and local government
registrations, approvals, permits and licenses required in order for us to
engage in gaming activities at the Casino Resort.
The Nevada gaming authorities may investigate any individual who has a
material relationship to, or material involvement with us or Venetian to
determine whether this individual is suitable or should be licensed as a
business associate of a gaming licensee. Our officers, directors and some of our
key employees must apply and be licensed by the Nevada gaming authorities. These
authorities may deny an application for licensing or a finding of suitability
for any cause they deem reasonable. A finding of suitability is comparable to
licensing; both require submission of detailed personal and financial
information. This is followed by a thorough investigation. The applicant for
licensing or a finding of suitability, or the gaming licensee that employs the
applicant or that the applicant serves, must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
gaming authorities, and in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada gaming authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada gaming authorities were to find one of our officers, directors
or key employees unsuitable for licensing or to continue to have a relationship
with us, we would have to sever all relationships with that person. In addition,
the Nevada Gaming Commission may require us to terminate the employment of any
person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada.
We are required to submit detailed financial and operating reports to the
Nevada Gaming Commission. Substantially all of our material loans, leases, sales
of securities and similar financing transactions must be reported to or approved
by the Nevada Gaming Commission.
If we violate the Nevada Gaming Control Act, the registration and gaming
licenses that we hold could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, we, and the persons involved, could be subject to substantial fines
for each separate violation of the Nevada Gaming Control Act at the discretion
of the Nevada Gaming Commission. Further, a supervisor could be appointed by the
Nevada Gaming Commission to operate the Casino Resort. Under certain
circumstances, earnings generated during the supervisor's appointment, except
for the reasonable rental value of the Casino Resort, could be forfeited to the
State of Nevada. Limitation, conditioning or suspension of any gaming
registration or license or the appointment of a supervisor could, and revocation
of any gaming license would, materially adversely affect our gaming operations.
Any beneficial holder of our voting securities may be required to file an
application, be investigated, and have their suitability as a beneficial holder
of our voting securities determined if the Nevada Gaming Commission has reason
to believe that the ownership would be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada gaming authorities in conducting the investigation.
The Nevada Gaming Control Act requires any person who acquires more than 5%
of our voting securities to report the acquisition to the Nevada Gaming
Commission. The Nevada Gaming Control Act requires that beneficial owners of
more than 10% of our voting securities apply to the Nevada Gaming Commission for
a finding of suitability within thirty days after the Chairman of the Nevada
State Gaming Control Board mails the written notice requiring the filing. Under
certain circumstances, an institutional investor that acquires more than 10% but
not more than 15% of our
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voting securities may apply to the Nevada Gaming Commission for a waiver of the
finding of suitability if the investor holds the voting securities only for
investment purposes. An institutional investor will not be deemed to hold voting
securities for investment purposes unless:
- the voting securities were acquired and are held in the ordinary course of
business as an institutional investor; and
- the voting securities must not be held for the purpose of causing the
election of a majority of the members of our board of directors, any
change in our corporate charter, bylaws, management, policies or our
operations or any of our gaming affiliates, or any other action that the
Nevada Gaming Commission finds to be inconsistent with holding our voting
securities for investment purposes only.
Activities that are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by stockholders;
- making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a
change in its management, policies or operations; and
- such other activities as the Nevada Gaming Commission may determine to be
consistent with on investment intent.
If the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information, including a list of its beneficial owners.
Under certain provisions of the Nevada Gaming Control Act, in some
circumstances, an institutional investor that intends to acquire not more than
15% of any class of nonvoting securities of a privately-held corporation,
limited partnership or limited liability company that is also a registered
holding or intermediary company or the holder of a gaming license, may apply to
the Nevada Gaming Commission for a waiver of the usual prior licensing or
finding of suitability requirements if the institutional investor holds these
nonvoting securities for investment purposes only. An institutional investor
will not be deemed to hold nonvoting securities for investment purposes unless
the nonvoting securities:
- were acquired and are held in the ordinary course of business as an
institutional investor;
- do not give the institutional investor management authority; and
- do not, directly or indirectly, allow the institutional investor to vote
for the election or appointment of members of the board of directors, a
general partner or manager, cause any change in the articles of
organization, operating agreement, other organic document, management,
polices or operations, or cause any other action that the Nevada Gaming
Commission finds to be inconsistent with holding nonvoting securities for
investment purposes only.
Activities that are not deemed to be inconsistent with holding nonvoting
securities for investment purposes only include:
- nominating any candidate for election or appointment to the entity's board
of directors or equivalent in connection with a debt restructuring;
- making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a
change in the entity's management, polices or operations; and
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- such other activities as the Nevada Gaming Commission may determine to be
consistent with an investment intent.
If the beneficial holder of nonvoting securities who must be licensed or found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information, including a list of its beneficial owners.
The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Gaming
Commission or the Chairman of the Nevada State Gaming Control Board may be found
unsuitable. The same restrictions apply to a record owner if the record owner,
after request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the common stock of a registered corporation beyond the period of time
prescribed by the Nevada Gaming Commission may be guilty of a criminal offense.
We are subject to disciplinary action if, after we receive notice that a person
is unsuitable to be a stockholder or to have any other relationship with us, we:
- pay that person any dividend or interest upon our voting securities;
- allow that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pay remuneration in any form to that person for services rendered or
otherwise; or
- fail to pursue all lawful efforts to require that unsuitable person to
relinquish its voting securities for cash at fair market value.
Additionally, the Clark County Liquor and Gaming Licensing Board has taken the
position that it has the authority to approve all persons owning or controlling
the stock of any corporation holding a gaming license.
The Nevada Gaming Commission may require the holder of any debt security of
a registered corporation, including the exchange notes, to file an application,
be investigated and be found suitable to own the debt security of a registered
corporation. If the Nevada Gaming Commission determines that a person is
unsuitable to own such security then the registered corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Gaming Commission, it:
- pays to the unsuitable person any dividend, interest, or any distribution;
- recognizes any voting right by such unsuitable person in connection with
the securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction.
LVSI must maintain a current stock ledger in Nevada that may be examined by
the Nevada gaming authorities at any time. If any securities are held in trust
by an agent or by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada gaming authorities. Failure to
make the disclosure may be grounds for finding the record holder unsuitable. We
are also required to disclose the identity of the beneficial owner to the Nevada
gaming authorities. A failure to make that disclosure may be grounds for finding
the record holder unsuitable. We are also required to render maximum assistance
in determining the identity of the beneficial owner. LVSI stock certificates
bear a legend indicating that these securities are subject to the Nevada Gaming
Control Act.
Neither LVSI nor Venetian may make a public offering of any securities,
including the exchange notes, without the prior approval of the Nevada Gaming
Commission if we intend to use the
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securities or the proceeds from this offering to construct, acquire or finance
gaming facilities in Nevada, or to retire or extend obligations incurred for
those purposes. The Nevada Gaming Commission requires prior approval for the
hypothecation of our assets and restrictions on stock in connection with any
public offering. In addition, the hypothecation of Venetian's assets and
restrictions on stock in respect of any public offering also require the
approval of the Nevada Gaming Commission to remain effective.
This exchange offer will constitute a public offering requiring the prior
approval of the Nevada Gaming Commission. We have filed the necessary
applications with the Nevada Gaming Commission to obtain its approval of the
exchange offer. Without such approval, we will not commence the exchange offer.
In addition, any approval of the exchange offer, if granted, will not constitute
a finding, recommendation or approval by the Nevada State Gaming Control Board
or the Nevada Gaming Commission as to the accuracy or adequacy of the prospectus
or the investment merits of the securities offered. Any representation to the
contrary is unlawful.
The Nevada Gaming Commission must give its prior approval to changes in our
control through a merger, consolidation, stock or asset acquisitions, management
or consulting agreements, or any act or conduct by any person whereby he or she
obtains control. Entities seeking to acquire control of a registered corporation
must satisfy the Nevada State Gaming Control Board and the Nevada Gaming
Commission concerning a variety of stringent standards prior to assuming
control. The Nevada Gaming Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process of the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and registered corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Gaming Commission has established a regulatory
scheme to improve the potentially-adverse effects of these business practices on
Nevada's gaming industry. This furthers Nevada's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals are, in certain circumstances, required from the Nevada Gaming
Commission before we can make exceptional repurchases of voting securities above
the current market price and before a corporate acquisition opposed by
management can be consummated.
The Nevada Gaming Control Act also requires prior approval of any
recapitalization plan proposed by our board of directors in response to a tender
offer made directly to our stockholders for the purposes of acquiring our
control.
License fees and taxes, computed in various ways depending upon the type of
gaming or activity involved, are payable to the State of Nevada and to Clark
County, Nevada. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
either:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
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We also pay a casino entertainment tax where certain entertainment is provided
in a cabaret, nightclub, cocktail lounge or casino showroom in connection with
the serving or selling of food, refreshments or merchandise.
Any person who is licensed or registered or required to be licensed or
registered, or is under common control with such persons, and who proposes to
become involved in a gaming venture outside of Nevada, is required to make a
deposit with the Nevada State Gaming Control Board. That person must maintain a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada State Gaming Control Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease at the discretion
of the Nevada Gaming Commission. Licensees are also required to comply with
certain reporting requirements imposed by the Nevada Gaming Control Act.
Licensees are also subject to disciplinary action by the Nevada Gaming
Commission if they:
- knowingly violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
- fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engage in any activity or enter into any association that is unsuitable
because it poses an unreasonable threat to the control of gaming in
Nevada, reflects or tends to reflect discredit or disrepute upon the State
of Nevada or gaming in Nevada, or is contrary to the gaming policies of
Nevada;
- engage in any activity or enter into any association that interferes with
the ability of the State of Nevada to collect gaming taxes and fees; or
- employ, contract with or associate with any person in the foreign gaming
operation who has been denied a license or a finding of suitability in
Nevada on the ground of personal unsuitability, or who has been found
guilty of cheating at gambling.
By law, we must obtain a license for the sale of alcoholic beverages on the
premises of the Casino Resort. We have obtained all Clark County gaming and
liquor licenses required. All licenses are revocable and are not transferable.
The agencies involved have full power to limit, condition, suspend or revoke
that license, and any disciplinary action could, and revocation would, have a
material adverse effect upon our operations.
RECENT DEVELOPMENTS
MACAU JOINT VENTURE
On June 26, 2002, the Government of the Macau Special Administrative Region
of the People's Republic of China granted a concession to operate casinos in
Macau to Galaxy Casino Company Limited, a joint venture comprised of one of our
subsidiaries and a group of Macau- and Hong Kong-based investors. Macau, the
former Portuguese colony located near Hong Kong, currently has annual gaming
revenues of approximately $2.0 to $2.5 billion and is widely regarded as one of
the fastest growing gaming markets in the world. Approximately 10 million people
visited Macau during 2001, according to the Macau Tourism Board. We believe that
the following factors will continue to significantly improve Macau's status as a
world-class gaming and resort destination:
- the increased ease of access from Hong Kong, China and Taiwan and other
Asian regional gaming markets where casinos are currently banned;
- significant foreign and domestic investment in new and expanded gaming
products; and
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- the development of Disneyland--China and other new resort developments in
the nearby Zhuhai province.
The joint venture tentatively plans to build in Macau a 500-suite hotel,
casino and convention center complex, with a Venetian-style theme similar to
that of our Las Vegas property.
Our subsidiary continues to negotiate the final terms of a joint venture and
we expect that those negotiations will be concluded by the end of the calendar
year 2002. The final terms of a joint venture agreement will likely include
financial obligations to the joint venture and/or to the Government of Macau or
our subsidiary will likely be obligated to pay for certain costs of developing
and constructing the contemplated casinos in Macau. Through September 30, 2002,
we had incurred developmental expenses of $4.7 million in connection with the
proposed Macau project.
We believe that the Macau opportunity provides an international platform to
expand our premier Venetian brand and create increased diversification of a new
source of growth for our revenue base. See "Risk Factors--Entering into new
ventures involves business and financial risks, including litigation risks and
the risk of loss of our Nevada gaming licenses," "Risk Factors--Certain Nevada
gaming laws apply to our planned gaming activities and associations in Macau"
and "--Legal Proceedings."
INTERNET GAMING AND OTHER NEW BUSINESS VENTURES
We are actively pursuing the possibility of developing and operating an
Internet gaming site and are currently exploring other business opportunities
for expansion, including Native American gaming and the possibility of operating
casino resorts in foreign jurisdictions. In January 2002, we entered into a
joint venture agreement to assess the feasibility of and develop an Internet
gaming site. We have applied for an Internet gaming license in Alderney, but
have not yet been granted such a license or established any operations. We
estimate that we are committed to contribute approximately $1.0 million,
approximately one-third of the required capital, to the joint venture during the
next year. After recovery of each partner's initial capital contribution, we
will receive 50% to 80% of the net profit of the joint venture, based upon an
increasing scale of net profit (if any). The joint venture provides that the
agreement will be automatically terminated should we fail to obtain any required
regulatory approvals from Alderney, the Nevada gaming authorities or any other
applicable jurisdiction prior to launching our operations. Although these
projects are in the exploration stage and we cannot assure you that any of them
will be successful, we intend to continue to explore similar new business
opportunities.
EMPLOYEES
We directly employ approximately 4,000 employees in connection with the
Casino Resort. The Casino Resort's employees are not covered by collective
bargaining agreements. Most, but not all, major casino resorts situated on the
Strip have collective bargaining contracts covering at least some of the labor
force at these sites. The unions currently on the Strip include the Local 226 of
the Hotel Employees and Restaurant Employees International Union, the Operating
Engineers Union and the Teamsters Union. Although no assurances can be given, if
employees decide to be represented by labor unions, we do not believe that
representation would have a material impact upon our results of operations, cash
flows or financial position.
The Local 226 of the Hotel Employees and Restaurant Employees International
Union has requested that we recognize it as the bargaining agent for employees
of the Casino Resort. We have declined to do so, believing that current and
future employees are entitled to select their own bargaining agent, if any. In
the past, when other hotel/casino operators have taken a similar position, this
Local has engaged in certain confrontational and obstructive tactics, including
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contacting potential customers, tenants and investors, objecting to various
administrative approvals and picketing. The Local has engaged in those tactics
with the Casino Resort and may continue to do so. Although we believe that we
will be able to operate despite such dispute, we cannot assure you that we will
be able to do so. A failure to operate could have a material adverse effect on
our financial position, results of operations or cash flows.
PROPERTIES
We own the approximately 30-acre parcel of land on which the Casino Resort
is located. Our subsidiary, Lido Casino Resort, LLC, owns an additional
approximately 15-acre adjacent parcel where the Phase II Resort and the meeting
and conference space component of the Phase IA Addition are planned.
LEGAL PROCEEDINGS
We are party to litigation matters and claims related to our operations and
the construction of the Casino Resort. Except as described below, we do not
expect that the final resolution of these matters will have a material adverse
impact on our financial position, results of operations or cash flows.
CONSTRUCTION MANAGER
The construction of the principal components of the Casino Resort was
undertaken by Lehrer McGovern Bovis, Inc., the construction manager, under a
construction management agreement. The construction management agreement
established a final guaranteed maximum price of $645.0 million, so that, with
exceptions, the construction manager was responsible for any costs of the work
covered by the construction management agreement in excess of $645.0 million.
The construction management contract also established a required "substantial
completion" date for the construction of the Casino Resort of April 21, 1999.
This date could be extended on account of "scope changes" and force majeure
events and included a per-day liquidated damages penalty if the deadline was not
met.
We paid the construction manager a construction management fee of 1 1/2% of
the final guaranteed maximum price, payable monthly. The construction manager's
obligations under the construction management contract were guaranteed by
Bovis, Inc., the construction manager's direct parent at the time of the
construction management agreement. Bovis, Inc.'s obligations were guaranteed by
The Peninsular and Oriental Steam Navigation Company ("P&O"), a British public
company and the construction manager's ultimate parent at the time of the
construction management agreement.
On July 30, 1999, we filed a complaint against the construction manager for
the Casino Resort and Bovis, Inc. in United States District Court for the
District of Nevada. We alleged a breach of contract by the construction manager
under the construction management contract and a breach of contract by
Bovis, Inc. under its guaranty, including failure to fully pay trade contractors
and vendors and failure to meet the April 21, 1999 guaranteed completion date.
We amended this complaint on November 23, 1999 to add P&O as an additional
defendant. We are asking the courts to require the construction manager and its
guarantors to pay its contractors, to compensate us for the construction
manager's failure to perform its duties and to pay us the agreed liquidated
damages penalty for failure to meet the guaranteed substantial completion date.
We are seeking total damages in excess of $100.0 million. The construction
manager filed motions to dismiss our complaint on various grounds. Its principal
motions to date have either been denied by the court or voluntarily withdrawn.
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In response to our claims, the construction manager filed a complaint on
August 3, 1999 against us in the District Court of Clark County, Nevada. The
action alleges a breach of contract and QUANTUM MERUIT claims under the
construction management contract and also alleges that we defrauded the
construction manager in connection with the construction of the Casino Resort.
The construction manager seeks damages, attorney's fees and costs and punitive
damages. In the lawsuit, the construction manager claims that it is owed
approximately $90.0 million from us and our affiliates. This complaint was
amended by the construction manager, who also filed an additional complaint
against us relating to work done and funds advanced regarding the contemplated
development of the Phase II Resort.
We believe that the construction manager's claims are without merit and have
been defending ourselves vigorously and pursuing our claims against the
construction manager.
In connection with these disputes, as of December 31, 1999 the construction
manager and its subcontractors filed mechanics liens against the Casino Resort
for approximately $145.6 million and $182.2 million. We believe that a major
reason these lien amounts exceed the construction manager's claims of
$90.0 million is a duplication of liens through the inclusion of lower-tier
claims by subcontractors in the liens of higher-tier contractors, including the
lien of the construction manager. As of December 31, 1999, we had purchased
surety bonds for all of the claims underlying these liens other than
approximately $15.0 million of claims with respect to which the construction
manager purchased bonds. As a result, there can be no foreclosure of the Casino
Resort in connection with these claims. However, we will be required to pay or
immediately reimburse the bonding company if the underlying claims are
judicially determined to be valid. If the claims are not settled, it is likely
to take a significant amount of time for their validity to be judicially
determined.
We believe that these claims are, in general, unsubstantiated, without
merit, overstated and/or duplicative. The construction manager itself has
publicly acknowledged that at least some of the claims of its subcontractors are
without merit. In addition, we believe that pursuant to the construction
management contract, the construction manager is responsible for payment of any
subcontractors' claims to the extent they are determined to be valid. We may
also have a variety of other defenses to the liens that have been filed,
including, for example, the fact that the construction manager and its
subcontractors previously waived or released their right to file liens against
the Casino Resort. We intend to defend ourselves vigorously in any lien
proceedings.
On August 9, 1999, we notified the insurance companies providing coverage
under the liquidated damages policy that was purchased by the construction
manager in connection with the construction management contract that we have a
claim under the liquidated damages policy. This policy provides insurance
coverage for the failure of the construction manager to achieve substantial
completion of the portions of the Casino Resort within 30 days of the April 21,
1999 deadline. The maximum liability under this policy is approximately
$24.1 million and with coverage being provided, on a per-day basis, for days
31-120 of the delay in substantial completion. Because we believe that
substantial completion was not achieved until November 12, 1999, our claim under
the liquidated damages policy is likely to be for the maximum liability of
$24.1 million. We expect the liquidated damages policy insurers to assert many
of the same claims and defenses that the construction manager has asserted or
will assert. Liability under the liquidated damages policy may ultimately be
determined by binding arbitration.
In June 2000, we purchased an insurance policy for loss coverage in
connection with all litigation relating to the construction of the Casino
Resort. Under that insurance policy, we will self-insure the first
$45.0 million and the insurer will insure up to the next $80.0 million of any
possible covered losses. This insurance policy provides coverage for any amounts
up to the policy limit owed in the construction litigation to the construction
manager or its subcontractors relating to claimed delays, inefficiencies,
disruptions, lack of productivity/unauthorized overtime or schedule
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impact, that we allegedly caused during construction of the Casino Resort, as
well as any defense costs.
We and the construction manager commenced trial in state court in Clark
County, Nevada to litigate certain of our respective claims in August 2002. Many
of the remaining claims that are the subject of the state court action and the
federal court action will be proceeding concurrently in independent arbitration
hearings. It is not yet possible to determine a range of loss or the ultimate
outcome of the pending litigation described above. If any litigation or other
lien proceedings concerning the claims of the construction manager or its
subcontractors were decided adversely to us, such litigation or other lien
proceedings could have a material adverse effect on our financial condition,
results of operations or cash flows to the extent such litigation or lien
proceedings are not covered by our insurance policy.
MACAU
In October 2001, before agreeing to join Galaxy Casino Company Limited, our
subsidiary, Venetian Venture Development, LLC, entered into a non-binding letter
of intent with AAEC, a Macau corporation whose largest shareholder is China
Development Industrial Bank, a Taiwanese bank, to enter into a joint venture to
obtain a casino license in Macau. In February 2002, we elected to exercise our
right to terminate this letter of intent and to create a venture with other
parties to seek a Macau casino license. AAEC has threatened, in a press release,
to sue us in connection with our termination of the letter of intent and the
potential awarding of a casino license to our new joint venture Galaxy Casino
Company Limited. We believe AAEC's claims lack merit and, if sued by AAEC, we
intend to defend ourselves vigorously.
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MANAGEMENT
The board of directors of LVSI, the managing member of Venetian, is
comprised of two directors. One director is LVSI's principal stockholder,
Mr. Adelson, who has two votes for all matters brought before the board of
directors. In the event that LVSI increases the number of directors comprising
the board of directors, the number of votes which Mr. Adelson has will be
increased so that he will have one more vote than the number of votes of all of
the other directors aggregated. The second director has one vote for all matters
brought before the board of directors.
The table below sets forth our executive officers and directors as of
September 30, 2002.
<Table>
<Caption>
NAME AGE POSITION
- ---- -------- --------------------------------------------------
Sheldon G. Adelson........................ 69 Chairman of the Board, Chief Executive Officer and
Director
Robert F. List............................ 65 Director
William P. Weidner........................ 57 President and Chief Operating Officer
Bradley H. Stone.......................... 47 Executive Vice President
Robert G. Goldstein....................... 47 Senior Vice President
David Friedman............................ 45 Assistant to Chairman of the Board and Secretary
Harry D. Miltenberger..................... 59 Vice President-Finance
</Table>
SHELDON G. ADELSON has been our Chairman of the Board, Chief Executive
Officer and a director since April 1988 when LVSI was formed to own and operate
the former Sands Hotel and Casino. Mr. Adelson has extensive experience in the
convention, trade show, tour and travel businesses. Mr. Adelson also has
investments in other business enterprises. He has been President and Chairman of
Interface Group-Nevada, Inc. since the mid-1970s and Chairman of Interface
Group-Massachusetts Inc. since 1990. Mr. Adelson created and developed the
COMDEX Trade Shows, including the COMDEX Fall Trade Show, the world's largest
computer show, all of which were sold to Softbank Corporation in April 1995.
ROBERT F. LIST was elected as a Director of LVSI in April 2000. Mr. List is
the Chief Executive Officer of the Robert List Company, a Las Vegas-based
consulting firm, and serves as counsel to the law firm of Beckley, Singleton,
Jemison, Cobeaga and List. Mr. List served as Executive Vice President,
Corporate Counsel and Member of the Board of Directors of Boomtown, Inc. from
1992 to 1999. Mr. List has served in various elected positions in the State of
Nevada, including Attorney General from 1970 to 1978 and Governor from 1978 to
1982.
WILLIAM P. WEIDNER has been our President and Chief Operating Officer since
December 1995. From 1985 to 1995, Mr. Weidner was President and Chief Operating
Officer and served on the board of Pratt Hotel Corporation. From February 1991
to December 1995, Mr. Weidner was also the President of Pratt's Hollywood
Casino-Aurora subsidiary and from June 1992 until December 1995, he served on
the board of the Hollywood Casino Corporation. Since September 1993,
Mr. Weidner has served on the Board of Directors of Shorewood Packaging
Corporation. Mr. Weidner directed the opening of Hollywood Casino, one of
Chicago's first riverboat casino hotels, New York City's Maxim's de Paris (now
the Peninsula), and hotels in Orlando and Palm Springs.
BRADLEY H. STONE has been our Executive Vice President since December 1995.
From June 1984 through December 1995, Mr. Stone was President and Chief
Operating Officer of the Sands Hotel in Atlantic City. Mr. Stone also served as
an Executive Vice President of the parent Pratt Hotel Corporation from
June 1986 through December 1995.
ROBERT G. GOLDSTEIN has been our Senior Vice President since December 1995.
From 1992 until joining us in December 1995, Mr. Goldstein was the Executive
Vice President of Marketing at
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the Sands in Atlantic City as well as an Executive Vice President of the parent
Pratt Hotel Corporation.
DAVID FRIEDMAN has been Assistant to the Chairman of Interface
Group-Nevada, Inc. since October 1995. Subsequently, Mr. Friedman became both
Assistant to our Chairman of the Board and our Secretary. Mr. Friedman is also
an officer of other companies owned by Mr. Adelson. Prior to joining us,
Mr. Friedman was the Senior Vice President of Development and Legal Affairs for
President Casinos, Inc. from May 1993 to October 1995.
HARRY D. MILTENBERGER is a certified public accountant and has been our Vice
President-Finance since February 1997. From March 1995 until February 1997, he
was Senior Vice President and Chief Financial Officer of SUB, a banking company.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for the last three fiscal years of those persons who were, at
December 31, 2001, the Chief Executive Officer and the four highest paid
executive officers of LVSI, which is the managing member of Venetian. Under the
limited liability company agreement of Venetian, LVSI is entitled to be
reimbursed for all expenses incurred in connection with its activities as the
managing member of Venetian, including all employee compensation costs.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (1)
- --------------------------- -------- ---------- --------- ------------ ------------
Sheldon G. Adelson................. 2001 $ -- $ -- -- $ --
Chairman of the Board and 2000 1,500,000 -- -- --
Chief Executive Officer 1999 -- -- -- --
William P. Weidner................. 2001 1,038,462 200,000 2,322
President and Chief 2000 951,284 300,000 -- 2,239
Operating Officer 1999 797,165 -- -- 1,917
Bradley H. Stone................... 2001 830,769 160,000 -- 810
Executive Vice President 2000 726,214 240,000 -- 789
1999 511,882 -- -- 729
Robert G. Goldstein................ 2001 778,846 150,000 -- 810
Senior Vice President 2000 686,269 225,000 -- 789
1999 457,881 -- -- 729
David Friedman 2001 415,385 80,000 -- 1,057
Assistant to Chairman of the 2000 359,615 170,000 -- 540
Board and Secretary 1999 300,000 -- -- 745
</Table>
- ------------------------
(1) Represents Group Life Insurance.
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EMPLOYMENT AGREEMENTS
William P. Weidner, Bradley H. Stone and Robert G. Goldstein each have
entered into employment agreements with us through December 31, 2005, with
automatic one-year extension rights. Pursuant to the employment agreements,
these executive officers have such powers, duties and responsibilities as are
generally associated with their offices, as may be modified or assigned by our
Chairman of the Board of Directors (or our President, in the case of Mr. Stone)
and subject to the supervision of our Board of Directors (and our President, in
the case of Mr. Stone). During the terms of their employment, these officers may
not engage in any other business or professional pursuit unless consented to by
us in writing.
Mr. Weidner, Mr. Stone and Mr. Goldstein currently receive annual base
salaries of $1,144,000, $915,200 and $858,000 and annual bonuses based upon
certain performance based criteria. Their base salaries are increased annually
by 4%. These officers are also entitled to receive other employee benefits.
In the event of a termination of employment for cause, voluntary termination
by the employee or similar circumstances set forth in the employment agreements,
all salary and benefits immediately cease (subject to any requirements of law)
and shares of stock held by these employees may be redeemed pursuant to the
terms of the Plan described below. In the event of a termination caused by
breach of the employment agreements by us, or similar circumstances set forth in
the agreements, we are obligated to pay to the executive officer his salary for
the rest of the term of his employment agreement. If the officer becomes
employed elsewhere, we are obligated to pay the difference, if any, in the
income earned in such other employment and the salary payable under his
employment agreement with us.
If a company breach termination, constructive termination or involuntary
termination (each as defined in the employment agreements) had occurred with
respect to Mr. Weidner, Mr. Stone and Mr. Goldstein on January 2, 2002, the
amounts that Mr. Weidner, Mr. Stone and Mr. Goldstein would have been entitled
to receive pursuant to their employment agreements as continued salary through
December 31, 2005 would have been approximately $4,576,000, $3,660,800 and
$3,432,000. In the case of a death termination, we would pay salary through the
date of death, and all shares held by the officer would be redeemed by us for a
price payable by us to the officer's estate equal to the fair market value of
such shares, reduced by any amounts still owed under the terms of the secured
loan from LVSI's principal stockholder to such officer for the stock option
exercise price, payable in 36 equal consecutive monthly installments with
interest at the applicable federal rate. See "Certain Relationships and Related
Party Transactions--Stock Option Loans." In the case of a disability
termination, we will continue salary, less any applicable disability insurance
payments, for a period six months following the date of termination and all
options and shares will be treated in the same way as upon a death termination.
The employment agreements may not be amended, changed or modified except by a
written document signed by each of the parties.
LAS VEGAS SANDS, INC. 1997 FIXED STOCK OPTION PLAN
Under our Las Vegas Sands, Inc. 1997 Fixed Stock Option Plan (the "Plan"),
75,000 of our shares of common stock are intended for issuance to our officers
and other key employees or consultants or the officers, key employees or
consultants of our affiliates pursuant to options granted under the Plan. The
grant of these options is subject to approval by the Nevada gaming authorities.
The purpose of the Plan is to promote our interest and that of our stockholders
by attracting and retaining exceptional officers and other key employees and
consultants and enabling these individuals to participate in our long-term
growth and financial success. Our board of directors has the authority to
determine the participants to whom options are granted, the number of shares
covered by each option or any repurchase or other disposition of shares
thereunder, the
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exercise price therefor, and the conditions and limitations applicable to the
exercise of the option. The board of directors is authorized to make adjustments
in the terms and conditions of, and the criteria included in, options to be
granted, in the case of certain unusual or nonrecurring events, whenever the
board of directors determines that these adjustments are appropriate in order to
prevent dilution or enlargement of benefits or potential benefits under the
Plan. Options that have been granted under existing stock option agreements
under the Plan expire on the earlier of:
- a specified number of years from the date of grant;
- three days prior to certain change of control events;
- three days prior to certain public offering events; and
- upon the participant's termination for cause.
In the event of any acceleration event under the Plan, any outstanding options
then held by the participants which are unexercisable or otherwise unvested,
will automatically become fully vested and will be exercisable pursuant to the
applicable award agreement. The Plan provides that LVSI's principal stockholder
may, at any time, assume the Plan or certain obligations under the Plan, in
which case he will be the administrator of the Plan, the issuer of the options,
and will have all the rights, powers, and responsibilities granted to us or to
our board of directors under the Plan with respect to these assumed obligations.
The board of directors may amend, alter, suspend, discontinue or terminate
the Plan or any portion thereof at any time. However, no such action may be
taken without shareholder approval if this approval is necessary to comply with
any tax or regulatory requirement applicable to the Plan. In addition, no
amendment, alteration, suspension, discontinuance or termination that would
impair the rights of any holder of an option already granted will be effective
without the holder's consent.
LVSI's principal stockholder has assumed our obligations under the Plan for
purposes of granting options, including the options granted to Mr. Weidner,
Mr. Stone, Mr. Goldstein and Mr. Friedman to acquire shares representing 1.996%,
1.497%, .9980% and .4990% of our common stock. The specific terms and conditions
of the options were agreed to in 1999 and were memorialized in the first quarter
of 2002, which established the grant date for the options under accounting
principles generally accepted in the United States of America. The exercise
price of the stock options on the grant date was not lower than the fair market
value of our common stock, as determined by independent appraisal. The options
granted to these four officers were fully vested and exercisable upon grant.
These options were exercised immediately after issuance and the exercise price
was loaned to the four officers by LVSI's principal stockholder on a
collateralized basis and under full recourse notes. Shares issued to these
officers pursuant to the exercise of their options and held at the time of each
officer's termination of employment may be redeemed by LVSI's principal
stockholder under certain circumstances. In addition during the second quarter
of 2002, LVSI's principal stockholder granted options to purchase 5,500 shares
of common stock of LVSI to other members of senior management under this plan.
These options remain subject to approval by the Nevada gaming authorities. See
"Certain Relationships and Related Party Transactions--Stock Option Loans."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 30, 2002
with respect to the beneficial ownership of the common stock of LVSI by:
- each person who, to our knowledge, beneficially owns more than 5% of the
outstanding common stock of LVSI;
- the directors of LVSI;
- all executive officers named in the summary compensation table in
"Executive Compensation"; and
- all executive officers and directors of LVSI as a group.
<Table>
<Caption>
OUTSTANDING
NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER(1) BENEFICIALLY OWNED COMMON STOCK
- ------------------- ------------------ -------------
Sheldon G. Adelson.......................................... 950,100(2) 95.00%
Robert F. List.............................................. -- --
William P. Weidner.......................................... 19,960 2.00%
Bradley H. Stone............................................ 14,970 1.50%
Robert G. Goldstein......................................... 9,980 1.00%
David Friedman.............................................. 4,990 *
All executive officers and the directors of LVSI as a
group..................................................... 1,000,000(2) 100.00%
</Table>
- ------------------------
* Less than 1%
(1) The address of each person named above is c/o Las Vegas Sands, Inc., 3355
Las Vegas Boulevard South, Room 1A, Las Vegas, NV 89109 other than Mr. List
whose address is 3993 Howard Hughes Parkway, Suite 850, Las Vegas, NV 89109.
(2) This amount includes 1,000 shares that may be purchased from Sheldon G.
Adelson upon exercise of options granted by LVSI's principal stockholder to
one of our executive officers under the Plan. See "Executive
Compensation--Las Vegas Sands, Inc. 1997 Fixed Stock Option Plan."
STOCKHOLDERS' AGREEMENT
We are party to a stockholders' agreement with Mr. Weidner, Mr. Stone,
Mr. Goldstein and Mr. Friedman (the "additional stockholders") and LVSI's
principal stockholder. This agreement restricts the ability of the additional
stockholders and any of their permitted transferees who has agreed to be bound
by the terms and conditions of the agreement to sell, assign, pledge, encumber
or otherwise dispose of any shares of common stock of LVSI, except in accordance
with the provisions of the agreement. All transfers are subject to certain
conditions, including:
- compliance with applicable state and foreign securities laws;
- receipt of necessary licenses or approvals from the Nevada gaming
authorities; and
- compliance with all federal laws, rules and regulations relating to
subchapter S corporations.
If at any time before LVSI completes an initial public offering, LVSI's
principal stockholder wishes to sell 20% or more of his ownership interest in
LVSI to any third party transferee, each additional stockholder shall have the
right to participate in such sale on the same terms as those offered to LVSI's
principal stockholder.
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The additional stockholders also have certain piggyback registration rights.
If at any time LVSI completes an initial public offering or proposes to register
any shares of common stock, the additional stockholders may request registration
of their securities. Common stock will be included in the registration statement
in the following order of priority: first, all securities of LVSI to be sold for
its own account, second, securities of stockholders (other than LVSI's principal
stockholder) who have demand registration rights and third, such securities
requested to be included in such registration statement by LVSI's principal
stockholder and the additional stockholders (pro rata based on the number of
registrable securities owned by such stockholders). Finally, if at any time
prior to the completion by LVSI of an initial public offering LVSI wishes to
issue any new securities, the additional stockholders will have the right to
purchase that number of shares of LVSI common stock, at the proposed purchase
price of the new securities, such that the additional stockholders' percentage
ownership of LVSI would remain the same following such issuance.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
REDEEMABLE PREFERRED INTEREST
Venetian currently has two members, LVSI and Interface Group Holding
Company, Inc., which LVSI's principal stockholder indirectly owns. LVSI is the
managing member of Venetian and owns all of the common equity interests in
Venetian. Interface Group Holding Company, Inc. holds all of the Series B
preferred interest in Venetian. The preferred interest is non-voting and is not
subject to redemption at the holder's option. The preferred interest has accrued
a preferred return of 12% since its inception in 1997, however, it will not be
payable until:
- we repay the indebtedness under our bank credit facility; and
- cash payments are permitted by the restricted payment covenants contained
in the indenture governing the notes.
During 1999, Interface Group Holding Company, Inc. contributed an additional
$44.4 million in cash in exchange for an additional Series B preferred interest.
Since 1997, we have not made any distributions of preferred interest or payment
of preferred return on the preferred interest. As of September 30, 2002,
$84.6 million of interest had accrued on the preferred interest. Commencing in
June 2011, and to the extent of the positive capital account of the holders of
the preferred interest, we will be obligated to carry out a distribution on the
preferred interest. We may also at our option make distributions to the holders
of the preferred interest at any time.
TRANCHE B TAKE-OUT LOAN AND PRINCIPAL STOCKHOLDER'S $20.0 MILLION GUARANTY OF
TRANCHE A TAKE-OUT LOAN
LVSI's principal stockholder guaranteed, on an unsecured basis,
$20.0 million of indebtedness under our $105.0 million Mall tranche A take-out
loan. In addition, the sole lender under our $35.0 million Mall tranche B
take-out loan was LVSI's principal stockholder.
We incurred approximately $0.2 million, $5.2 million and $5.0 million of
interest expense to LVSI's principal stockholder under the Mall tranche B
take-out loan in 1999, 2000 and 2001 and $2.1 million during the first nine
months of 2002. Both the Mall tranche A take-out loan and the Mall tranche B
take-out loan were repaid and terminated and the related guaranty was terminated
in connection with the Refinancing Transactions. See "Use of Proceeds."
COMPLETION GUARANTY
LVSI's principal stockholder had extended a completion guaranty for the
construction of the Casino Resort in November 1997. The principal stockholder
guaranteed, subject to certain conditions and limitations, payment of Casino
Resort construction costs in excess of available funds, up to a maximum of
$25.0 million (plus interest accrued on the collateral for such guaranty, as
described below), provided that the cap on liability under the guaranty did not
apply with respect to excess construction costs attributable to scope changes.
LVSI's principal stockholder's obligations under the guaranty were
collateralized by $25.0 million in cash and cash equivalents and the interest
accrued thereon. On November 12, 1999, an advance of approximately
$23.5 million was made under the guaranty and was being treated as a
subordinated completion guaranty loan. The completion guaranty loan matured on
November 16, 2005 and bore interest at a rate of 14 1/4% per annum. Although
interest might have accrued on the completion guaranty loan, no cash payments
with respect thereto could be made until senior indebtedness was repaid, except
for payments made from certain construction-related recoveries, including any
payments we receive from the construction manager or its subcontractors in
connection with our litigation with them. Total interest expense accrued on the
completion guarantee to LVSI's principal stockholder was $0.5 million,
$3.6 million and $4.1 million in 1999, 2000 and 2001 and $1.9 million during the
first
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nine months of 2002. As the completion guaranty was given for the benefit of the
lenders of our indebtedness that was repaid in the Refinancing Transactions, the
completion guaranty was terminated upon repayment of this indebtedness in the
Refinancing Transactions and the remaining cash collateral was returned to
LVSI's principal stockholder.
PHASE II SUBSIDIARY BANK LOAN GUARANTEE
During 2001, LVSI's principal stockholder guaranteed a $2.9 million bank
loan made to architects of Lido Casino Resort, LLC to secure a trade payable
owed to the architects by Lido Casino Resort, LLC. This guarantee was terminated
upon repayment of our indebtedness in the Refinancing Transactions.
COOPERATION AGREEMENT
Our business plan calls for each of the Casino Resort, Expo Center, The
Grand Canal Shoppes and, if built, the Phase II Resort, though separately owned,
to be integrally related components of one facility. In order to establish terms
for the integrated operation of these components, the owner of each of them (and
all future owners) are and will be bound by a cooperation agreement. Among other
things, the cooperation agreement sets forth agreements regarding encroachments,
easements, operating standards, maintenance requirements, insurance
requirements, casualty and condemnation, joint marketing, the sharing of certain
facilities and costs relating to the facilities. See "Operating
Agreements--Cooperation Agreement."
ADMINISTRATIVE SERVICES AGREEMENT
We have entered into a service sharing agreement with Interface Group
Holding Company, Inc. in which we agreed to share ratably in the costs of shared
services, including legal services, accounting services, insurance
administration, benefits administration, and other services as each party may
request of the other. Under certain circumstances, those services may be
provided by one party to the other. We also agreed to share ratably the costs of
any shared office space. We utilize a Gulfstream III aircraft, which is operated
by an affiliate of LVSI's principal stockholder. The aircraft is used primarily
for the benefit of our executive officers, including LVSI's principal
stockholder. Charge-backs to us in connection with this use are based on the
actual costs to operate the aircraft allocated in accordance with the purpose
for which the aircraft is used. We made total payments to Interface Group
Holding Company, Inc. and its affiliates for the administrative and other
services, such as travel rendered by Interface Group Holding Company, Inc. and
its affiliates, of $0.9 million, $2.1 million and $1.1 million in 1999, 2000 and
2001 and $2.3 million during the first nine months of 2002.
TEMPORARY LEASE
On November 1, 1996, we entered into a lease agreement with Interface
Group-Nevada, Inc. for approximately 5,000 square feet in the Expo Center to be
used as our temporary executive offices during the construction of the Casino
Resort. We believe that the lease agreement that provides for monthly rent
payments of $5,000 is at least as favorable as what we could have obtained from
an independent third party. The initial term of the lease agreement expired on
November 1, 1998, but we extended the term of the lease for a period of five
years and eight months, subject to additional extension for two successive terms
of one-year each. We may terminate the lease upon thirty-days' notice to
Interface Group-Nevada, Inc. We made total payments to Interface
Group-Nevada, Inc. under the lease agreement of $60,000, $60,000 and $60,000 in
1999, 2000 and 2001 and $45,000 during the first nine months of 2002.
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AUDIO VISUAL SERVICES
Interface Group-Nevada, Inc. provides audio visual, telecommunications,
electrical, janitorial and other related services to group customers of the
Casino Resort. These services are provided under a contract that provides for an
equal sharing of revenues after direct operating expenses. We received
$1.3 million, $3.7 million and $2.5 million under this contract during 1999,
2000 and 2001 and $2.1 million during the first nine months of 2002.
POSSIBLE CONFLICTS OF INTEREST
The common ultimate ownership of the Casino Resort, the Phase II Resort and
the Expo Center may present potential conflicts of interest. See "Risk
Factors--The common ownership and management of the Casino Resort and the Phase
II Resort could have an adverse effect on the Casino Resort."
LVSI's principal stockholder also owns the Expo Center, which may result in
potential conflicts of interest because the Expo Center, on the one hand, and
the Congress Center and the meeting space component of the Phase IA Addition, on
the other hand, are potential competitors in the business conference and
meetings business. Under the cooperation agreement, we have agreed that we will
not conduct, or permit to be conducted at the Casino Resort, trade shows or
expositions of the type generally held at the Expo Center. We will be able to
conduct or permit to be conducted, at the meeting and conference space that is a
part of the Phase IA Addition, tradeshows or expositions of the type generally
held at the Expo Center so long as such space is at most 125,000 square feet,
and we enter into a preferred reservation system agreement with Interface
Group-Nevada, Inc. that will govern the booking of exposition and tradeshows in
the Phase IA meeting space and an agreement for Interface Group-Nevada, Inc. to
provide audio-visual, telecommunications, electrical, janitorial and other
related services to group customers of the Phase IA Addition meeting space.
Furthermore, marketing practices that are intended to benefit the Expo Center
may have a detrimental effect on the Casino Resort. See "Risk Factors--Our
business, policies, affairs and all major corporate decisions are controlled by
LVSI's principal stockholder, whose interest may not be fully aligned with
yours," "Certain Relationships and Related Party Transactions--Preferred
Reservation Systems Agreement" and "--Meeting Services Agreement," and
"Operating Agreements--Cooperation Agreement."
RESTAURANT LEASES
LVSI's principal stockholder is a partner in four entities that operate
restaurants in the Casino Resort. The terms and conditions of the leases that we
have with these restaurants are at amounts that we believe would be no less
favorable than those negotiated with independent third parties. Valentino Las
Vegas LLC and Night Market, LLC paid us $0, $0.7 million, $1.0 million and
$0.8 million, and Postrio Las Vegas LLC and Carnevale Coffee Bar LLC paid us $0,
$0.8 million, $1.1 million and $0.8 million in 1999, 2000 and 2001 and during
the first nine months of 2002.
PHASE II LAND LEASE
On October 19, 2001, our subsidiary, Lido Casino Resort, LLC, leased the
land for the Phase II Resort to Venetian for five years at an annual rent of
$8.0 million. Venetian incurred lease expenses to Lido Casino Resort, LLC of
$115,000 in 2001 and $3.3 million in the first nine months of 2002 under this
lease. This lease was terminated upon the repayment of Lido Casino Resort, LLC's
indebtedness pursuant to the Refinancing Transactions. Before October 2001,
Interface Group-Nevada, Inc. also leased parking spaces on this land from Lido
Casino Resort, LLC for rent of $5,000 per month.
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PHASE IA LEASE
Lido Casino Resort, LLC as landlord, and Venetian, as tenant, entered into a
lease pursuant to which Lido Casino Resort, LLC leased to Venetian a portion of
the airspace above the Phase II land for a nominal annual rent. We intend for
the meeting space component of the Phase IA Addition to be located within this
airspace. Venetian owns all improvements to be made within the portion of the
building that will be constructed within this airspace during the term of the
lease. The lease provides that, when and if such airspace becomes a separate
legal and tax parcel, Lido Casino Resort, LLC will be obligated to transfer fee
title in and to this parcel of airspace to Venetian, and the lease will
terminate upon such transfer. The airspace became a separate legal parcel and
fee title in and to this parcel of airspace was transferred to Venetian in
August, 2002 pursuant to the terms of the lease. The lease terminated as a
result of such transfer.
STOCK OPTION LOANS
In January 2002, LVSI's principal stockholder made loans to each of the
executive officers that are additional stockholders to enable them to exercise
options that they had been granted to purchase common stock of LVSI from the
principal stockholder. Each loan is evidenced by a full recourse demand
promissory note with interest at the short term annual applicable federal rate
(as defined in Section 7872 of the Internal Revenue Code) determined to be a
market rate at the date of issuance consistent with the financial profile of the
borrower, to be adjusted each January, and compounding annually. Following
termination of an additional stockholder's employment with us under certain
circumstances, the interest rate may change to LVSI's weighted average cost of
capital, if greater than the rate in effect at the time of such termination.
Payments of a portion of accrued interest are due each year ten days following
the filing of the individual's income tax return. Payments on the outstanding
principal are payable on demand or following a sale of shares by the additional
stockholder in excess of 25% of his holdings. A loan will immediately be due
upon an individual filing for bankruptcy or upon other similar actions. Each
note is a full recourse loan and is collateralized by a pledge of the common
stock. Other than in limited circumstances, the additional stockholder may not
dispose of his shares of common stock prior to repayment of his loan.
PREFERRED RESERVATION SYSTEM AGREEMENT
We will enter into a preferred reservation system agreement with Interface
Group-Nevada, Inc. that will govern the booking of exposition and tradeshows in
the Phase IA Addition meeting space and in the Expo Center. The agreement will
provide the Expo Center with the first opportunity or right of first refusal to
book or host expositions and tradeshows prior to such expositions and tradeshows
being offered to the Phase IA Addition meeting space.
MEETING SERVICES AGREEMENT
We will enter into an agreement for Interface Group-Nevada, Inc. to provide
audio-visual, telecommunications, electrical, janitorial and other related
services to group customers of the Phase IA Addition meeting space. The
agreement will provide for an equal sharing of revenues after deduction of all
direct operating expenses.
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DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
We entered into a new credit facility with a syndicate of lenders, The Bank
of Nova Scotia, as administrative agent, Goldman Sachs Credit Partners L.P., as
syndication agent, and each of them as joint lead arrangers and joint
bookrunners. The new credit facility consists of:
- a $250.0 million single draw senior secured term loan facility, all of
which was drawn upon the closing of the offering of our initial notes.
This facility matures on June 4, 2008 and is subject to nominal quarterly
amortization payments from September 30, 2002 through June 30, 2007, and
equal quarterly amortization payments of the balance of the senior secured
term loan facility thereafter;
- a $50.0 million senior secured delayed draw facility, all of which is
available for draw through June 4, 2003, subject to limits on minimum
drawing amounts and maximum number of drawings per month and compliance
with the terms of the new credit facility. This facility matures on
June 4, 2007 and is subject to quarterly amortization payments commencing
on December 31, 2003; and
- a $75.0 million senior secured revolving facility available, all of which
is available for draw. Indebtedness under this facility matures on
June 4, 2007 with no interim amortization.
We used and will use the proceeds of our new credit facility as follows:
- the proceeds under our $250.0 million senior secured term loan facility
were used and will be used to fund a portion of the costs of the
Refinancing Transactions and the Phase IA Addition, and for our general
corporate purposes and those of our restricted subsidiaries (including,
subject to certain conditions, permitted investments in connection with
our Macau venture and Phase II Resort development costs);
- the proceeds of our $50.0 million senior secured delayed draw facility
will be used to finance a portion of the costs of the Phase IA Addition;
and
- the proceeds under our $75.0 million senior secured revolving facility
will be used for our general corporate purposes and those of our
restricted subsidiaries (including, subject to certain limitations,
permitted investments).
To the extent not used to fund the costs of the Refinancing Transactions, or
to pay fees or expenses in connection with the Refinancing Transactions, the
proceeds of the senior secured term loan facility were deposited into an
interest bearing disbursement account. If there are undrawn amounts under the
senior secured delayed draw facility as of June 4, 2003, we may borrow any such
remaining unfunded amounts for deposit into the same disbursement account. The
disbursement account will be subject to a security interest in favor of the
lenders under our new credit facility. Funds in the disbursement account will be
available, subject to certain conditions and as described in more detail below,
to finance the costs of the Phase IA Addition.
INTEREST AND FEES
All amounts outstanding under our new credit facility bear interest, at our
option subject to certain limitations, as follows:
- with respect to our senior secured revolving facility and our senior
secured delayed draw facility: at the prime rate plus 2.00% per annum or
at the reserve adjusted Eurodollar Rate plus 3.00% per annum;
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- with respect to amounts outstanding under our senior secured term loan
facility: at the prime rate plus 2.00% per annum or at the reserve
adjusted Eurodollar Rate plus 3.00% per annum; and
- on and after the date on which the Phase IA Addition is substantially
completed, the applicable margin for amounts outstanding under our senior
secured revolving facility and our senior secured delayed draw facility
will be determined by a grid based upon our leverage ratio. The leverage
ratio will be calculated as the ratio of our consolidated total debt (as
defined in the agreement) as of the last day of each fiscal quarter to
EBITDA for the four-fiscal quarter period ending on such date.
Commitment fees equal to 0.50% per annum times the daily average unused
portion of the commitment under the senior secured revolving facility and 0.75%
per annum times the daily average unused portion of the senior secured delayed
draw facility will, in each case, accrue from June 4, 2002 and be payable
quarterly in arrears.
SECURITY
Subject to certain exceptions, our obligations are secured under our new
credit facility by first priority security interests (subject to permitted
liens) in all our assets and the assets of our subsidiaries (except for certain
excluded subsidiaries and certain non-guarantor restricted subsidiaries,
including, without limitation, our Mall Subsidiary) other than our and our
subsidiaries' capital stock, and certain furniture, fixtures and equipment and
certain other assets. This includes all of our and our subsidiaries' (except for
certain excluded subsidiaries and certain non-guarantor restricted subsidiaries)
tangible personal, real and mixed property and certain intangible assets,
intercompany notes and contract and leasehold rights.
GUARANTEES
Our subsidiaries Mall Intermediate Holding Company, LLC, Grand Canal Shops
Mall Construction, LLC, Lido Intermediate Holding Company, LLC, Venetian Casino
Resort Athens, LLC, Venetian Venture Development, LLC, Venetian Operating
Company, LLC and Venetian Marketing, Inc. have guaranteed the indebtedness under
our new credit facility on a senior first lien basis.
PREPAYMENTS
We will be required to make mandatory prepayments from certain proceeds,
including proceeds that we and our subsidiaries (except for certain excluded
subsidiaries) receive as a result of asset sales, debt offerings, pension plan
reversions and excess insurance or condemnation proceeds. If we are required to
prepay any portion of our senior secured term loan facility in either the first
or the second year that it is outstanding, we must pay a premium equal to 5.00%
or 2.25%, respectively, times the amount then prepaid. At our option, we may
prepay our indebtedness under the new credit facility at any time without
premium or penalty, provided, however, that if we choose to prepay our senior
secured term loan facility in either the first or the second year that it is
outstanding, we must pay a premium equal to 5.00% or 2.25%, respectively, times
the amount then prepaid.
COVENANTS
The new credit facility contains additional affirmative, negative and
financial covenants applicable to us and our restricted subsidiaries, including,
without limitation, limitations on:
- indebtedness;
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- liens;
- investments;
- guarantees;
- restricted junior payments;
- mergers and acquisitions;
- sales of assets;
- leases;
- transactions with affiliates; and
- scope-changes and modifications to material contracts.
Additionally, we and our restricted subsidiaries are required to comply with
certain financial ratios and other financial covenants such as:
- total debt to EBITDA ratios;
- EBITDA to interest coverage ratios;
- minimum net worth covenants; and
- maximum capital expenditures covenants.
LVSI's principal stockholder or any of his affiliates (other than us or our
restricted subsidiaries) will have the right to cure any deficiencies in EBITDA
by contributing cash or delivering a letter of credit in the amount of the
shortfall up to $20 million per fiscal quarter. We may not include that cash
contribution or the amount of the letter of credit in EBITDA for more than two
consecutive fiscal quarters unless, following any exercise of an election to
include any such cash contribution and/or amount of any letter of credit in
EBITDA for two consecutive quarters, we have been in compliance, on a rolling
four fiscal quarters basis (without giving effect to any previous cash
contributions or letters of credit), for at least one fiscal quarter.
CONDITIONS TO AVAILABILITY OF FUNDS
The conditions to all borrowings include requirements relating to prior
written notice of borrowing, the accuracy of representations and warranties and
the absence of any default or event of default and certain other customary
conditions to borrowing. In the case of a borrowing under our new senior secured
credit facility the proceeds of which are to be used to finance the costs of
construction of the Phase IA Addition, there will be additional conditions as
described below.
CONSTRUCTION OF THE PHASE IA ADDITION
The new credit facility contains covenants obligating us to diligently
construct the Phase IA Addition in accordance with all legal requirements so
that the Phase IA Addition can be operational and open to the public no later
than an outside date set forth in the new credit facility, provided that
(a) such outside completion deadline can be extended to take account of
casualties and other "force majeure" events that are outside of our reasonable
control and (b) we will have the right to modify the size and design of the
Phase IA Addition within agreed-upon parameters set forth in the new credit
facility or with the consent of The Bank of Nova Scotia. The new credit facility
also contains an "in balance" covenant requiring that at all times the aggregate
amount of:
- all funds remaining in the disbursement account;
- any undrawn portion of the senior secured delayed draw facility;
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- all amounts available to be drawn under the senior secured revolving
facility less $15.0 million;
- certain other available funds, such as insurance proceeds and amounts
available to be drawn under any permitted FF&E credit facility or
agreement with the HVAC Provider (subject to the reasonable approval of
The Bank of Nova Scotia); plus
- other funds or anticipated funds from sources reasonably satisfactory to
The Bank of Nova Scotia, as administrative agent for the lenders, not be
less than the remaining costs (including an agreed-upon contingency
reserve) of constructing the Phase IA Addition.
The new credit facility contains disbursement procedures governing our right
to make borrowings under our senior secured delayed draw facility, and to use
disbursement account funds, to pay for costs incurred in connection with the
construction of the Phase IA Addition. Pursuant to these procedures,
disbursement requests by us to pay Phase IA construction costs will be approved
only upon the satisfaction of various conditions precedent. These conditions
include, among others:
- delivery by us of a disbursement request and certificate certifying as to,
among other things, (a) the application of funds to be disbursed, (b) the
substantial conformity of construction undertaken to date with the plans
and specifications for the Phase IA Addition, as amended from time to time
in accordance with the new credit facility, (c) the expectation that the
Phase IA Addition will be operational and open to the public by the
outside completion deadline, (d) the accuracy of the budget for the Phase
IA Addition, as amended from time to time in accordance with the new
credit facility, and (e) compliance with the "in balance" covenant
described above;
- delivery by a construction consultant engaged by the lenders, of
certificates corroborating various matters set forth in our disbursement
request and certificate;
- absence of an event of default under our new credit facility;
- receipt by us of the governmental approvals required to be in effect at
such time;
- delivery by us of the acknowledgments of payment and lien releases
required under the new credit facility; and
- procurement of all required title insurance policies, commitments and
endorsements insuring that the Phase IA Addition and the Casino Resort
continues to be subject only to permitted liens. The Bank of Nova Scotia,
as administrative agent for the lenders, will have the right to waive
certain conditions precedent to funding.
Our new credit facility also contains provisions to assure that the budget,
plans and specifications and schedule for construction of the Phase IA Addition
are approved by the construction consultant and The Bank of Nova Scotia, and
that any amendments thereto are within agreed-upon parameters or are also
approved by the construction consultant and The Bank of Nova Scotia. If a
casualty or other "force majeure" event occurs, we will be permitted to extend
the outside completion deadline for the opening of the Phase IA Addition.
EVENTS OF DEFAULT
The new credit facility contains customary events of default, including
failure to make payments when due, defaults under other material agreements or
instruments of indebtedness of certain amounts, loss of material licenses or
permits, failure or inability to complete the Phase IA Addition in all material
respects by an agreed-upon deadline (subject to force majeure extension and
other extensions approved by the Bank of Nova Scotia, as administrative agent
for the lenders), loss of
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material contracts, noncompliance with covenants, breaches of representations
and warranties, bankruptcy, judgments in excess of specified amounts, ERISA,
impairment of security interests in collateral, loss of Nevada gaming licenses
and a change of control, subject in some cases to applicable notice provisions
and grace periods. Events of default apply to us and our restricted
subsidiaries, provided, however, that events of default will also include a
bankruptcy of the Phase II Subsidiary and acceleration of any indebtedness of
certain amounts secured by the Phase II Resort.
A change of control will include any transfer of equity (not including any
transfer of equity by LVSI's principal stockholder for the purposes of providing
estate planning and gifts subject to certain limitations) whereby:
- prior to the occurrence of a public equity offering by LVSI, LVSI's
principal stockholder and/or any of his affiliates or related parties
cease to own, directly or indirectly, at least 70% of the voting
securities of LVSI;
- after giving effect to one or more public equity offerings by LVSI, LVSI's
principal stockholder and/or any of his affiliates or related parties
cease to own, directly or indirectly, at least 51% of the voting
securities of LVSI;
- subject to some exceptions for tax planning or in connection with our
initial public offering, LVSI ceases to own 100% of the common equity of
Venetian;
- subject to some exceptions for tax planning or in connection with our
initial public offering, LVSI's principal stockholder, Interface Group
Holding Company, Inc. and/or their affiliates and related parties cease to
own 100% of the preferred equity interests of Venetian;
- subject to some exceptions for tax planning or in connection with our
initial public offering, Venetian and LVSI cease to own directly or
indirectly 100% of each of their subsidiaries other than Lido Casino
Resort, LLC, the Mall Subsidiary and any other entity that owns the Mall
and the Macau subsidiaries which are excluded subsidiaries and any
preferred equity interests in Venetian held by LVSI's principal
stockholder, Interface Group Holding Company, Inc. and/or their affiliates
and related parties; or
- the direct holding company of Lido Casino Resort, LLC ceases to own at
least 70% of the economic interests in such entity.
MALL LOAN FACILITY
The Mall Subsidiary owns The Grand Canal Shoppes and entered into a loan
agreement with Goldman Sachs Mortgage Company, as successor-in-interest to
Archon Financial, L.P., as lender. This loan agreement was assigned, as part of
a securitization, as of July 24, 2002, to Wells Fargo Bank Minnesota, N.A., as
Trustee and GMAC Commercial Mortgage Corporation has been appointed as servicer.
The mall loan facility consisted of a $105.0 million single draw secured
promissory note, which was fully drawn. This mall loan facility was amended on
June 28, 2002 to increase the borrowable amounts under this facility by an
additional $15.0 million. As part of the Refinancing Transactions, the Mall
Subsidiary used $105.0 million of borrowings under the mall loan facility and
proceeds from the other Refinancing Transactions to repay all of the
indebtedness of Grand Canal Mall Shops Subsidiary, LLC, the former owner of The
Grand Canal Shoppes. The $15.0 million additional borrowing under the mall loan
facility was distributed to Venetian to be used for general corporate purposes.
The mall loan facility matures on June 10, 2005, with no interim
amortization. The maturity date may be extended for two terms of one year each
if:
- the loan is not in default,
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- net operating income has not declined below 75% of actual net operating
income as of the closing date,
- a terrorist act having a material adverse effect and not covered by
business interruption insurance has not occurred, and
- the Mall Subsidiary purchases interest rate protection covering the
extended term.
INTEREST
The loan bears interest at LIBOR plus 1.875% per annum. The Mall Subsidiary
is required to obtain interest rate protection through an interest rate cap
agreement such that the LIBOR strike rate will not exceed 7.50%.
SECURITY
Subject to certain exceptions, the mall loan facility is secured by first
priority security interests in all of the assets of our Mall Subsidiary, other
than the capital stock and other equity interests of this subsidiary. This
security includes all of the subsidiaries' tangible personal, real and mixed
property, including The Grand Canal Shoppes and the leases of the premises in
The Grand Canal Shoppes, and certain intangible assets and contract rights. The
Mall Subsidiary will not guarantee the exchange notes and the assets of the Mall
Subsidiary will not be pledged to the holders of the exchange notes.
GUARANTY
Although we do not guaranty the loan, in certain limited circumstances,
including fraud, intentional misrepresentation, misappropriation of funds,
certain environmental problems and collusion in the filing of a voluntary or
involuntary bankruptcy, the loan may become recourse to LVSI.
PREPAYMENT
The Mall Subsidiary may prepay the indebtedness under the mall loan facility
at any time after June 10, 2003. Prepayments of the indebtedness between
June 10, 2003 and January 10, 2004 will be subject to a fee of 1% of the amount
prepaid. Prepayments on or after January 10, 2004 may be made without premium or
penalty. If the Mall Subsidiary is required to prepay the loan as a result of a
condemnation or casualty at any time prior to the expiration of the prepayment
lockout period, the Mall Subsidiary will also be required to pay an amount equal
to the amount of interest that would have been paid on the prepaid funds had
such prepaid principal been outstanding until the expiration of the prepayment
lockout period, based on the loan interest rate. If the loan is accelerated
prior to June 10, 2003, our subsidiary will be required to pay a yield
maintenance premium, that in all events cannot be less than 2% of the
outstanding principal.
COVENANTS
The mall loan facility contains affirmative, negative and financial
covenants customary in mortgage loans on malls, including, without limitation,
restrictions on incurring additional indebtedness and liens, restrictions on
entering into, modifying, and terminating leases, and requirements to maintain
certain types of insurance. Subject to certain conditions, the Mall Subsidiary
will be entitled to incur up to an agreed upon maximum amount of subordinated
mortgage debt to expand The Grand Canal Shoppes.
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The Mall Subsidiary was also required on June 4, 2002 to establish reserves
for the payment of taxes and insurance. It will also establish a cash management
system for the deposit of tenant revenue into accounts controlled by its lender.
If the Mall Subsidiary's actual net operating income for a trailing
six-month period is less than 75% of its actual net operating income upon the
closing date, excess cash flow will be placed into a reserve account and
disbursed by the lender to pay operating and capital expenses of The Grand Canal
Shoppes in accordance with a budget approved by lender. Additional reserve
accounts will also be required. If its actual net operating income for a
trailing six-month period is less than 65% of its actual net operating income
upon the closing date, the excess cash flow may also be used to prepay the mall
loan facility.
The Mall Subsidiary is required to purchase terrorism insurance in an amount
not less than the outstanding principal balance of the $120.0 million promissory
note if such insurance is then being obtained by owners of similar real estate
or is available for an annual premium not greater than $1.0 million. If such
insurance is not then available for such premium and is not then being obtained
by owners of similar real estate, our subsidiary will be required to obtain
terrorism insurance reasonably acceptable to lender for an annual premium not to
exceed $1.0 million.
EVENTS OF DEFAULT
The mall loan facility contains events of default customary in mortgage
loans on malls. If an event of default occurs, excess cash flow will be placed
into a reserve account and disbursed by the lender to pay operating and capital
expenses of The Grand Canal Shoppes in accordance with a budget approved by
lender. These funds may also be used to prepay the mall loan facility.
Additional reserve accounts will also be required.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We are offering to exchange our exchange notes for a like aggregate
principal amount of our initial notes.
The exchange notes that we propose to issue in this exchange offer will be
substantially identical to our initial notes except that, unlike our initial
notes, the exchange notes will have no transfer restrictions or registration
rights. You should read the description of the exchange notes in the section in
this prospectus entitled "Description of Notes."
We reserve the right in our sole discretion to purchase or make offers for
any initial notes that remain outstanding following the expiration or
termination of this exchange offer and, to the extent permitted by applicable
law, to purchase initial notes in the open market or privately negotiated
transactions, one or more additional tender or exchange offers or otherwise. The
terms and prices of these purchases or offers could differ significantly from
the terms of this exchange offer. In addition, nothing in this exchange offer
will prevent us from exercising our right to discharge our obligations on the
initial notes by depositing certain securities with the trustee for the notes
and otherwise.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
This exchange offer will expire at 5:00 p.m., New York City time, on
, 2002, unless we extend it in our reasonable discretion. The
expiration date of this exchange offer will be at least 20 business days after
the commencement of the exchange offer in accordance with Rule 14e-1(a) under
the Securities Exchange Act. We will not extend this exchange offer beyond
, 2003.
In the event that we fail to consummate the exchange offer within 30
business days from the date on which the registration statement of which this
prospectus is a part is declared effective, we have agreed to pay liquidated
damages to the holders of the initial notes at the rate of, and in addition to
the base interest that would accrue on the principal amount of the initial
notes, 0.25% per annum for the first 90 days and thereafter the rate will
increase 0.25% for each 90 day period, up to 2.00%.
We expressly reserve the right to delay acceptance of any initial notes,
extend or terminate this exchange offer and not accept any initial notes that we
have not previously accepted if any of the conditions described below under
"--Conditions to the Exchange Offer" have not been satisfied or waived by us. We
will notify the exchange agent of any extension by oral notice promptly
confirmed in writing or by written notice. We will also notify the holders of
the initial notes by mailing an announcement or by a press release or other
public announcement communicated before 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date unless
applicable laws require us to do otherwise.
We also expressly reserve the right to amend the terms of this exchange
offer in any manner. If we make any material change, we will promptly disclose
this change in a manner reasonably calculated to inform the holders of our
initial notes of the change including providing public announcement or giving
oral or written notice to these holders. A material change in the terms of this
exchange offer could include a change in the timing of the exchange offer, a
change in the exchange agent and other similar changes in the terms of this
exchange offer. If we make any material change to this exchange offer, we will
disclose this change by means of a post-effective amendment to the registration
statement which includes this prospectus and will distribute an amended or
supplemented prospectus to each registered holder of initial notes. In addition,
we will extend this exchange offer for an additional five to ten business days
as required by the Securities
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Exchange Act, depending on the significance of the amendment, if the exchange
offer would otherwise expire during that period. We will promptly notify the
exchange agent by oral notice, promptly confirmed in writing, or written notice
of any delay in acceptance, extension, termination or amendment of this exchange
offer.
PROCEDURES FOR TENDERING INITIAL NOTES
PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL
To tender your initial notes in this exchange offer, you must use one of the
three alternative procedures described below:
(1) Regular delivery procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal guaranteed if required by the
letter of transmittal. Mail or otherwise deliver the letter of
transmittal or the facsimile together with the certificates representing
the initial notes being tendered and any other required documents to the
exchange agent on or before 5:00 p.m., New York City time, on the
expiration date.
(2) Book-entry delivery procedure: Send a timely confirmation of a
book-entry transfer of your initial notes, if this procedure is
available, into the exchange agent's account at The Depository Trust
Company in accordance with the procedures for book-entry transfer
described under "--Book-Entry Delivery Procedure" below, on or before
5:00 p.m., New York City time, on the expiration date.
(3) Guaranteed delivery procedure: If time will not permit you to complete
your tender by using the procedures described in (1) or (2) above before
the expiration date and this procedure is available, comply with the
guaranteed delivery procedures described under "--Guaranteed Delivery
Procedure" below.
The method of delivery of the initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ASSURE TIMELY DELIVERY. You should not send any letters of transmittal or
initial notes to us. You must deliver all documents to the exchange agent at its
address provided below. You may also request your broker, dealer, commercial
bank, trust company or nominee to tender your initial notes on your behalf.
Only a holder of initial notes may tender initial notes in this exchange
offer. A holder is any person in whose name initial notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder.
If you are the beneficial owner of initial notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your initial notes, you must contact that registered holder
promptly and instruct that registered holder to tender your initial notes on
your behalf. If you wish to tender your initial notes on your own behalf, you
must, before completing and executing the letter of transmittal and delivering
your initial notes, either make appropriate arrangements to register the
ownership of these notes in your name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by:
(1) a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
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(2) a commercial bank or trust company having an office or correspondent in
the United States, or
(3) an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act, unless the initial notes are tendered:
(1) by a registered holder or by a participant in The Depository Trust
Company whose name appears on a security position listing as the
owner, who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the letter of
transmittal and only if the exchange notes are being issued directly
to this registered holder or deposited into this participant's
account at The Depository Trust Company, or
(2) for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent
in the United States or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934.
If the letter of transmittal or any bond powers are signed by:
(1) the recordholder(s) of the initial notes tendered: the signature must
correspond with the name(s) written on the face of the initial notes
without alteration, enlargement or any change whatsoever.
(2) a participant in The Depository Trust Company: the signature must
correspond with the name as it appears on the security position listing
as the holder of the initial notes.
(3) a person other than the registered holder of any initial notes: these
initial notes must be endorsed or accompanied by bond powers and a proxy
that authorize this person to tender the initial notes on behalf of the
registered holder, in satisfactory form to us as determined in our sole
discretion, in each case, as the name of the registered holder or holders
appears on the initial notes.
(4) trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity: these persons should so indicate when signing.
Unless waived by us, evidence satisfactory to us of their authority to so
act must also be submitted with the letter of transmittal.
To effectively tender notes through The Depository Trust Company, the
financial institution that is a participant in The Depository Trust Company will
electronically transmit its acceptance through the Automatic Tender Offer
Program. The Depository Trust Company will then edit and verify the acceptance
and send an agent's message to the exchange agent for its acceptance. An agent's
message is a message transmitted by The Depository Trust Company to the exchange
agent stating that The Depository Trust Company has received an express
acknowledgment from the participant in The Depository Trust Company tendering
the initial notes that this participant has received and agrees to be bound by
the terms of the letter of transmittal, and that we may enforce this agreement
against this participant.
BOOK-ENTRY DELIVERY PROCEDURE
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry deliveries of initial notes by causing The
Depository Trust Company to transfer these initial notes into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures for transfer. To effectively tender notes
through The Depository Trust Company, the financial institution that is a
participant in The
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Depository Trust Company will electronically transmit its acceptance through the
Automatic Tender Offer Program. The Depository Trust Company will then edit and
verify the acceptance and send an agent's message to the exchange agent for its
acceptance. An agent's message is a message transmitted by The Depository Trust
Company to the exchange agent stating that The Depository Trust Company has
received an express acknowledgment from the participant in The Depository Trust
Company tendering the initial notes that this participation has received and
agrees to be bound by the terms of the letter of transmittal, and that we may
enforce this agreement against this participant. The exchange agent will make a
request to establish an account for the initial notes at The Depository Trust
Company for purposes of the exchange offer within two business days after the
date of this prospectus.
A delivery of initial notes through a book-entry transfer into the exchange
agent's account at The Depository Trust Company will only be effective if an
agent's message or the letter of transmittal or a facsimile of the letter of
transmittal with any required signature guarantees and any other required
documents is transmitted to and received by the exchange agent at the address
indicated below under "--Exchange Agent" on or before the expiration date unless
the guaranteed delivery procedures described below are complied with. DELIVERY
OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURE
If you are a registered holder of initial notes and desire to tender your
notes, and (1) these notes are not immediately available, (2) time will not
permit your notes or other required documents to reach the exchange agent before
the expiration date or (3) the procedures for book-entry transfer cannot be
completed on a timely basis and an agent's message delivered, you may still
tender in this exchange offer if:
(1) you tender through a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States, or an eligible guarantor institution within the meaning of
Rule 17Ad-15 under the Securities Exchange Act,
(2) on or before the expiration date, the exchange agent receives a properly
completed and duly executed letter of transmittal or facsimile of the
letter of transmittal, and a notice of guaranteed delivery, substantially
in the form provided by us, with your name and address as holder of the
initial notes and the amount of initial notes tendered, stating that the
tender is being made by that letter and notice and guaranteeing that
within three New York Stock Exchange trading days after the expiration
date the certificates for all the initial notes tendered, in proper form
for transfer, or a book-entry confirmation with an agent's message, 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 for all your tendered initial notes in proper form for
transfer or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the
exchange agent within three New York Stock Exchange trading days after
the expiration date.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Your tender of initial notes will constitute an agreement between you and us
governed by the terms and conditions provided in this prospectus and in the
related letter of transmittal.
We will be deemed to have received your tender as of the date when your duly
signed letter of transmittal accompanied by your initial notes tendered, or a
timely confirmation of a book-entry
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transfer of these notes into the exchange agent's account at The Depository
Trust Company with an agent's message, or a notice of guaranteed delivery from
an eligible institution is received by the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by us in our
sole discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our opinion
or our counsel's opinion, be unlawful. We also reserve the absolute right to
waive any conditions of this exchange offer or irregularities or defects in
tender. Our interpretation of the terms and conditions of this exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of initial notes must be cured within such time as we
shall determine. We, the exchange agent or any other person will be under no
duty to give notification of defects or irregularities with respect to tenders
of initial notes. We and the exchange agent or any other person will incur no
liability for any failure to give notification of these defects or
irregularities. Tenders of initial notes will not be deemed to have been made
until such irregularities have been cured or waived. The exchange agent will
return without cost to their holders any initial notes that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all initial notes properly tendered and will
issue the exchange notes promptly thereafter. Please refer to the section of
this prospectus entitled "--Conditions to the Exchange Offer" below. For
purposes of this exchange offer, initial notes will be deemed to have been
accepted as validly tendered for exchange when, as and if we give oral or
written notice of acceptance to the exchange agent.
We will issue the exchange notes in exchange for the initial notes tendered
pursuant to a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at The Depository Trust Company with an
agent's message, in each case, in form satisfactory to us and the exchange
agent.
If any tendered initial notes are not accepted for any reason provided by
the terms and conditions of this exchange offer or if initial notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged initial notes will be returned without expense
to the tendering holder, or, in the case of initial notes tendered by book-entry
transfer procedures described above, will be credited to an account maintained
with the book-entry transfer facility, promptly after withdrawal, rejection of
tender or the expiration or termination of the exchange offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the initial notes tendered.
This proxy will be considered coupled with an interest in the tendered notes.
This appointment will be effective only when, and to the extent that we accept
your notes in this exchange offer. All prior proxies on these notes will then be
revoked and you will not be entitled to give any subsequent proxy. Any proxy
that you may give subsequently will not be deemed effective. Our designees will
be empowered to exercise all voting and other rights of the holders as they may
deem proper at any meeting of note holders or otherwise. The initial notes will
be validly tendered only if we are able to exercise full voting rights on the
initial notes, including
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voting at any meeting of the note holders, and full rights to consent to any
action taken by the note holders.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders of
initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"--Exchange Agent" and before acceptance of your tendered notes for exchange by
us.
Any notice of withdrawal must:
(1) specify the name of the person having tendered the initial notes to be
withdrawn,
(2) identify the initial notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of these
notes,
(3) be signed by the person having tendered the initial notes to be
withdrawn in the same manner as the original signature on the letter of
transmittal by which these notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer
sufficient to permit the trustee for the initial notes to register the
transfer of these notes into the name of the person having made the
original tender and withdrawing the tender,
(4) specify the name in which any of these initial notes are to be
registered, if this name is different from that of the person having
tendered the initial notes to be withdrawn, and
(5) if applicable because the initial notes have been tendered through the
book-entry procedure, specify the name and number of the participant's
account at The Depository Trust Company to be credited, if different than
that of the person having tendered the initial notes to be withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of all notices of withdrawal and our determination
will be final and binding on all parties. Initial notes that are withdrawn will
be deemed not to have been validly tendered for exchange in this exchange offer.
The exchange agent will return without cost to their holders all initial
notes that have been tendered for exchange and are not exchanged for any reason,
as promptly as practicable after withdrawal, rejection of tender or expiration
or termination of this exchange offer.
You may retender properly withdrawn initial notes in this exchange offer by
following one of the procedures described under "--Procedures for Tendering
Initial Notes" above at any time on or before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We will complete this exchange offer only if:
(1) there is no change in the laws and regulations which, in our judgment,
would reasonably be expected to impair our ability to proceed with this
exchange offer,
(2) there is no change in the current interpretation of the staff of the
Securities and Exchange Commission which permits resales of the exchange
notes,
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(3) there is no stop order issued by the Securities and Exchange Commission
or any state securities authority suspending the effectiveness of the
registration statement which includes this prospectus or the
qualification of the indenture governing the notes under the Trust
Indenture Act of 1939 and there are no proceedings initiated or, to our
knowledge, threatened for that purpose,
(4) there is no action or proceeding instituted or threatened in any court
or before any governmental agency or body that in our judgment would
reasonably be expected to prohibit, prevent or otherwise impair our
ability to proceed with this exchange offer, and
(5) we obtain all governmental approvals that in our judgment would be
reasonably necessary to complete this exchange offer; including but not
limited to that of the Nevada Gaming Commission.
These conditions are for our sole benefit. We may assert any one of these
conditions regardless of the circumstances giving rise to it and may also waive
any one of them, in whole or in part, at any time and from time to time until
the expiration of this exchange offer, if we determine in our reasonable
discretion that it has not been satisfied, subject to applicable law. We will
not be deemed to have waived our rights to assert or waive these conditions if
we fail at any time to exercise any of them. Each of these rights will be deemed
an ongoing right which we may assert at any time and from time to time.
If we determine that we may terminate this exchange offer because any of
these conditions is not satisfied, we may:
(1) refuse to accept and return to their holders any initial notes that have
been tendered,
(2) extend the exchange offer and retain all notes tendered before the
expiration date, subject to the rights of the holders of these notes to
withdraw their tenders, or
(3) waive any condition that has not been satisfied and accept all properly
tendered notes that have not been withdrawn or otherwise amend the terms
of this exchange offer in any respect as provided under the section in
this prospectus entitled "--Expiration Date; Extensions; Amendments;
Termination."
ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value as the initial
notes as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize the costs of the exchange offer and the unamortized expenses
related to the issuance of the exchange notes over the term of the exchange
notes.
EXCHANGE AGENT
We have appointed U.S. Bank National Association as exchange agent for this
exchange offer. You should direct all questions and requests for assistance on
the procedures for tendering and all requests for additional copies of this
prospectus or the letter of transmittal to the exchange agent as follows:
By registered or certified mail:
U.S. Bank National Association
U.S. Bank Trust Center
180 East 5th Street
St. Paul, MN 55101
Attention: Specialized Finance Department
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By hand or overnight delivery:
U.S. Bank National Association
U.S. Bank Trust Center
180 East 5th Street
St. Paul, MN 55101
Attention: Specialized Finance Department
By facsimile: (651) 244-1537
Confirm by Telephone: (800) 934-6802
FEES AND EXPENSES
We will bear the expenses of soliciting tenders in this exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of this exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with this
exchange offer. We will also pay brokerage houses and other custodians, nominees
and fiduciaries their reasonable out-of-pocket expenses for forwarding copies of
the prospectus, letters of transmittal and related documents to the beneficial
owners of the initial notes and for handling or forwarding tenders for exchange
to their customers.
We will pay all transfer taxes, if any, applicable to the exchange of
initial notes in accordance with this exchange offer. However, tendering holders
will pay the amount of any transfer taxes, whether imposed on the registered
holder or any other persons, if:
(1) certificates representing exchange notes or initial notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the notes tendered,
(2) tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal, or
(3) a transfer tax is payable for any reason other than the exchange of the
initial notes in this exchange offer.
If you do not submit satisfactory evidence of the payment of any of these
taxes or of any exemption from this payment with the letter of transmittal, we
will bill you directly the amount of these transfer taxes.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The initial notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your initial notes for
exchange notes in accordance with this exchange offer, or if you do not properly
tender your initial notes in this exchange offer, you will not be able to
resell, offer to resell or otherwise transfer the initial notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act.
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In addition, except as set forth in this paragraph, you will not be able to
obligate us to register the initial notes under the Securities Act. You will not
be able to require us to register your initial notes under the Securities Act
unless:
(1) the initial purchasers request us to register initial notes that are not
eligible to be exchanged for exchange notes in the exchange offer; or
(2) you are not eligible to participate in the exchange offer or do not
receive freely tradable exchange notes in the exchange offer and notify
us of such within 20 days of the consummation of the exchange offer,
in which case the registration rights agreement requires us to file a
registration statement for a continuous offering in accordance with Rule 415
under the Securities Act for the benefit of the holders of the initial notes
described in this sentence. We do not currently anticipate that we will register
under the Securities Act any notes that remain outstanding after completion of
the exchange offer.
DELIVERY OF PROSPECTUS
Each broker-dealer that receives exchange notes for its own account in
exchange for initial notes, where such initial notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
As a holder of the initial notes, you must acknowledge the following in the
letter of transmittal:
(1) that the exchange notes are being acquired in the ordinary course of
business;
(2) that you do not have any arrangement or understanding with any person to
participate in a distribution of the exchange notes;
(3) that you are not an affiliate of ours; and
(4) that if you are not a broker-dealer, you must represent that you are not
engaged in and do not intend to engage in a distribution of the exchange
notes.
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DESCRIPTION OF NOTES
GENERAL
The initial notes were issued and the exchange notes will be issued pursuant
to the Indenture, dated as of June 4, 2002, among LVSI, Venetian, the Note
Guarantors named in the Indenture and U.S. Bank National Association, as
trustee. When we refer to the notes in this "Description of Notes," we mean the
initial notes and the exchange notes. The notes are jointly and severally, fully
and unconditionally guaranteed on a senior, second-lien secured basis (the "NOTE
GUARANTEES") by all domestic subsidiaries of LVSI and Venetian that are
guarantors under our new credit facility (the "NOTE GUARANTORS"), with certain
exceptions, pursuant to the terms of the Indenture, it being understood that
Mall Subsidiary, which owns the Mall, the Grand Canal Shops Mall Subsidiary and
the Mall Manager will be Restricted Subsidiaries but will not be Note
Guarantors. The terms of the notes include those stated in the Indenture, the
Collateral Documents and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "TRUST INDENTURE ACT"). The notes are subject
to all such terms, and holders of notes are referred to the Indenture, the
Collateral Documents and the Trust Indenture Act for a statement of these terms.
The following summary of the material provisions of the Indenture and the
Collateral Documents does not purport to be complete and is qualified in its
entirety by reference to the Indenture and the Collateral Documents, including
the definitions therein of certain terms used below. You can obtain a copy of
the form of Indenture and each of the Collateral Documents from LVSI as
described under "Additional Information."
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." Capitalized terms that are used but not
otherwise defined in this prospectus have the meanings assigned them in the
Indenture. For purposes of this "Description of Notes," the term "ISSUERS"
refers only to Las Vegas Sands, Inc. and Venetian Casino Resort, LLC and their
successors but not to any of their respective Subsidiaries, the term the
"COMPANY" refers only to Las Vegas Sands, Inc. and not to any of its
Subsidiaries, and the term "Venetian" refers only to Venetian Casino Resort, LLC
and not to any of its Subsidiaries PROVIDED, that if Venetian ceases to be a
subsidiary of Las Vegas Sands, Inc., the term, the "COMPANY" will mean Venetian
and Las Vegas Sands, Inc. on a combined basis.
RANKING AND SECURITY
The notes constitute joint and several obligations of the Issuers and rank
senior in right of payment to all subordinated indebtedness of the Issuers. The
Note Guarantees rank senior in right of payment to all subordinated indebtedness
of the Note Guarantors.
To the extent permitted by applicable law and subject to any required
approval of any Governmental Instrumentality, the notes are secured by a second
priority Lien on the Note Collateral owned by the Issuers and the Note
Guarantees are secured by the Note Collateral owned by the Note Guarantors, in
each case whether the Note Collateral is owned as of the Issuance Date or
acquired after the Issuance Date. Such Lien is prior to all other Liens on the
Note Collateral, except for Permitted Liens, which includes the Lien on the Note
Collateral securing the Bank Credit Facility. The Liens securing the Bank Credit
Facility are prior to the Liens securing the notes and the Liens securing the
Note Guarantors' obligations with respect to their guarantees of the Bank Credit
Facility are prior to the Liens securing the Note Guarantees.
The lenders under the Bank Credit Facility have a first priority Lien on the
Note Collateral and the holders of the notes have a second priority Lien on the
Note Collateral. In addition, the Issuers may incur up to $15.0 million of
additional Indebtedness which may be secured by first Liens on the Note
Collateral in addition to the Company's Bank Credit Facility, and, subject to
meeting certain financial ratios, additional Indebtedness secured by first Liens
on the Note Collateral.
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The Note Collateral includes all assets, now owned or hereafter acquired, of
the Company, Venetian or any Note Guarantor defined as Collateral in the
Collateral Documents, which initially includes (with certain exceptions set
forth in the next sentence) all real estate, improvements and all personal
property owned by the Issuers, as well as a pledge of any intercompany notes
held by either of the Issuers or the Note Guarantors. The Note Collateral does
not include:
(1) the assets of Mall Subsidiary, Grand Canal Shops Mall Subsidiary and
Mall Manager;
(2) the assets of Unrestricted Subsidiaries, including the assets of the
Phase II Subsidiary (which owns the Phase II Land);
(3) the assets of the Macau Entities;
(4) certain equipment owned by the HVAC Provider relating to the Project
and/or the Phase IA Project;
(5) any assets which if pledged, hypothecated or given as collateral
security would require the Issuers to seek approval of the Nevada Gaming
Authorities of the pledge, hypothecation or collateralization, or require
the trustee or a holder or beneficial holder of the notes to be licensed,
qualified or found suitable by an applicable Gaming Authority (other than
any approval required for the pledge, hypothecation or collateralization of
assets in connection with the Exchange Offer);
(6) a pledge of the Capital Stock of the Company or Venetian or any of
their Subsidiaries or of any other Equity Interests in any Person held by
the Company, Venetian or any of their Subsidiaries;
(7) the disbursement account under the Bank Credit Facility and any
proceeds held in such account;
(8) certain assets to the extent such assets are permitted to be
financed by Indebtedness permitted to be incurred pursuant to the covenant
entitled "Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" and such Indebtedness is permitted to be secured
pursuant to the covenant entitled "Liens" pursuant to clause (2), (3) or
(12)(a) of the definition of "Permitted Liens;" and
(9) all rights, title and interest of the Issuers in the account under
the Defeasance Trust Agreement and all securities cash and proceeds in such
account (the "DEFEASANCE ACCOUNT").
The trustee will release assets included in the Note Collateral if all other
Liens on such assets securing any Credit Facility or any other Indebtedness that
is secured by that asset (including all commitments thereunder) are released;
provided that, after giving effect to the release, the aggregate book value of
all of the assets released under this provision does not exceed 10% of the
Consolidated Total Assets of the Company as of the Issuance Date.
The right of the trustee to realize upon and sell the Note Collateral is
likely to be significantly impaired by applicable bankruptcy and insolvency laws
if a proceeding under such laws were commenced in respect of the Issuers or any
Note Guarantor. Such laws may impose limitations or prohibitions on the exercise
of rights and remedies under the Collateral Documents for a substantial or
indefinite period of time. During the pendency of any foreclosure proceeding,
the trustee could seek the appointment of a receiver through a petition to the
appropriate Nevada state court for the taking of possession of the Note
Collateral. The receiver may be required to obtain the approval of Nevada Gaming
Authorities to continue gaming operations until the foreclosure sale. If the
trustee acquired the Note Collateral in a foreclosure sale, it may contract for
the operation of the Note Collateral by an independent operator who would be
required to comply with the licensing requirements and other restrictions
imposed by the Nevada Gaming Authorities, pursuant to an
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arrangement under which the holders of the notes would not share in the profits
or losses of gaming operations. In addition, if the trustee acquires and
operates the Note Collateral, the trustee and the holders of the notes will, if
they share in the profits and losses, and may, in any event, be required to
comply with the licensing requirements under the Nevada gaming laws. In any
foreclosure sale, licensing requirements under the Nevada Gaming Control Act may
limit the number of potential bidders and may delay the sale of the Note
Collateral, either of which could adversely affect the sale price of the Note
Collateral. See "Risk Factors--Bankruptcy laws may significantly impair your
right to repossess and dispose of the collateral for the notes," "--Your rights
to the collateral securing the notes could be impaired as a result of bankruptcy
proceedings against other persons. In addition, in the event that a bankruptcy
court orders the substantive consolidation of the Issuers with certain
affiliated parties, payments on the notes could be delayed or reduced" and
"--There are particular risks associated with gaming foreclosures."
PRINCIPAL, MATURITY AND INTEREST
The exchange notes will be joint and several secured obligations of the
Issuers, exchanged for the initial notes of which $850.0 million in aggregate
principal amount were issued. Subject to compliance with the covenant under the
caption entitled "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock," the Issuers are entitled to, without the consent of the
holders, to issue more notes under the Indenture on the same terms and
conditions as the notes being offered pursuant to this prospectus, except for
issue date, issue price and first interest payment date, in an unlimited
aggregate principal amount (the "ADDITIONAL NOTES"). The notes and the
Additional Notes, if any, will be treated as a single class for all purposes of
the Indenture, including waivers, amendments, redemptions and offers to
purchase. Unless the context otherwise requires, for all purposes of the
Indenture and this "Description of Notes," references to the notes include
Additional Notes actually issued.
The notes will mature on June 15, 2010. The notes bear interest at the rate
of 11.00% per annum of the principal amount then outstanding from the Issuance
Date to the date of payment of such principal amount. Installments of interest
will become due and payable semi-annually in arrears on June 15 and December 15
of each year, commencing December 15, 2002, to the holders of record at the
close of business on June 1 or December 1. Additionally, installments of accrued
and unpaid interest will become due and payable with respect to any principal
amount of the notes that matures (whether at stated maturity, upon acceleration,
upon maturity of repurchase obligation or otherwise) upon such maturity of such
principal amount of the notes. Interest on the notes will be computed on the
basis of a 360-day year, consisting of twelve 30-day months. Each installment of
interest will be calculated to accrue from and including the most recent date to
which interest has been paid or provided for (or from and including the Issuance
Date if no installment of interest has been paid) to, but not including, the
date of payment.
Principal of, premium and Liquidated Damages, if any, and interest on the
notes is payable at the office or agency of the Issuers maintained for such
purpose within the City and State of New York or, at the option of the Issuers,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the holders of the notes at their respective addresses set forth in the
register of holders of notes; PROVIDED that all payments of principal, premium
and Liquidated Damages, if any, and interest on the notes the holders of which
have given wire transfer instructions to the Issuers will be required to be made
by wire transfer of immediately available funds to the accounts specified by the
holders thereof. Until otherwise designated by the Issuers, their office or
agency in New York will be the office of the trustee maintained for such
purpose. The notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
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MANDATORY REDEMPTION
The Issuers will not be required to make mandatory redemptions or sinking
fund payments prior to maturity with respect to the notes.
MANDATORY GAMING REDEMPTION
Notwithstanding any other provision in the Indenture, if any Gaming
Authority requires that a holder or beneficial owner of the notes must be
licensed, qualified or found suitable under any applicable gaming laws in order
to maintain any gaming license or franchise of the Issuers or any Restricted
Subsidiary under any applicable gaming laws, and the holder or beneficial owner
fails to apply for a license, qualification or finding of suitability within
30 days after being requested to do so by the Gaming Authority (or such lesser
period that may be required by such Gaming Authority) or if such holder or
beneficial owner is not so licensed, qualified or found suitable, the Issuers
shall have the right, at their option:
(1) to require such holder or beneficial owner to dispose of such
holder's or beneficial owner's notes within 30 days of receipt of such
finding by the applicable Gaming Authority (or such earlier date as may be
required by the applicable Gaming Authority) or
(2) to call for redemption of the notes of such holder or beneficial
owner at a redemption price equal to (i) the lesser of (a) 100% of the
principal amount thereof, (b) the price at which such holder or beneficial
owner acquired the notes or (c) the fair market value of the notes as
determined in good faith by the Board of Directors of the Company, together
with, in each case, accrued and unpaid interest and Liquidated Damages, if
any, to the earlier of the date of redemption or such earlier date as may be
required by the Gaming Authority or, the date of the finding of
unsuitability by such Gaming Authority, which may be less than 30 days
following the notice of redemption if so ordered by such Gaming Authority or
(ii) such other price as may be ordered by the Gaming Authority. In
connection with any such redemption, and except as may be required by a
Gaming Authority, the Issuers shall comply with the procedures contained in
the notes for redemptions of the notes.
Immediately upon a determination that a holder or beneficial owner will not
be licensed, qualified or found suitable, the holder or beneficial owner will
have no further rights (a) to exercise any right conferred by the notes,
directly or indirectly, through any trustee, nominee or any other Person or
(b) to receive any interest or other distribution or payment with respect to the
notes except the redemption price of the notes described above. Under the note
Indenture, the Issuers are not required to pay or reimburse any holder of the
notes or beneficial owner who is required to apply for such license,
qualification or finding of suitability for the costs of the licensure or
investigation for such qualification or finding of suitability. Such expenses
will, therefore, be the obligation of such holder or beneficial owner. See
"Business--Regulation and Licensing."
OPTIONAL REDEMPTION
Except as described below, the notes are not redeemable at the option of the
Issuers prior to June 15, 2006. On or after June 15, 2006, the notes will be
redeemable at the option of the Issuers, in whole or in part, upon not less than
30 nor more than 60 days' prior notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
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interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on June 1 of the
years indicated below:
<Table>
<Caption>
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
- ---- -----------------
2006........................................................ 105.500%
2007........................................................ 103.667%
2008........................................................ 101.833%
2009 and thereafter......................................... 100.000%
</Table>
Notwithstanding the foregoing, on or prior to June 15, 2005, the Issuers may
on any one or more occasions redeem up to 35% of the aggregate principal amount
of notes (which include Additional Notes, if any) originally issued at a
redemption price of 111.000% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the redemption date,
with the proceeds of one or more Equity Offerings; PROVIDED that at least 65% of
the aggregate principal amount of notes (which include Additional Notes, if any)
originally issued remain outstanding immediately after the occurrence of such
redemption; and PROVIDED, FURTHER, that (1) such redemption shall occur within
60 days of the date of such Equity Offering and (2) notes held by the Issuers
and not cancelled will not be deemed to be outstanding for purposes of
calculating the aggregate principal amount of notes outstanding after the
occurrence of such redemption.
In addition, at any time prior to June 15, 2006, the Issuers may, at their
option, redeem the notes, in whole or in part, at a redemption price equal to
100% of the principal amount thereof plus the applicable Make-Whole Premium,
plus, to the extent not included in the Make-Whole Premium, accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption. For purposes
of the foregoing, "Make-Whole Premium" means, with respect to a note, an amount
equal to the greater of:
(1) 1.000% of the outstanding principal amount of such note and
(2) the excess of
(a) the present value of the remaining interest, premium and principal
payments due on such note as if such note were redeemed on June 15,
2006, computed using a discount rate equal to the Treasury Rate plus
50 basis points, over
(b) the outstanding principal amount of such note.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuers will make an offer
to purchase all or any part (equal to $1,000 or an integral multiple thereof) of
the notes pursuant to the offer described below (the "CHANGE OF CONTROL OFFER")
at a price in cash (the "CHANGE OF CONTROL PAYMENT") equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. No later than 30 days
following any Change of Control, the Issuers will mail a notice to each holder
stating the following:
(1) a Change of Control is being made pursuant to the covenant entitled
"Change of Control," and all notes properly tendered pursuant to such Change
of Control Offer will be accepted for payment;
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(2) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 60 days from the date such notice is mailed,
except as may be otherwise required by applicable law (the "CHANGE OF
CONTROL PAYMENT DATE");
(3) any note not properly tendered will remain outstanding and continue
to accrue interest;
(4) unless the Issuers default in the payment of the Change of Control
Payment, all notes accepted for payment pursuant to the Change of Control
Offer will cease to accrue interest after the Change of Control Payment
Date;
(5) holders electing to have any notes purchased pursuant to a Change of
Control Offer will be required to surrender the notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the notes
completed, to the paying agent (which may be the Company or Venetian)
specified in the notice at the address specified in the notice prior to the
close of business on the third Business Day preceding the Change of Control
Payment Date;
(6) holders will be entitled to withdraw their tendered notes and their
election to require the Issuers to purchase the notes, PROVIDED, that the
paying agent receives, not later than the close of business on the last day
of the Offer Period (as defined in the Indenture), an electronic or
facsimile transmission or letter setting forth the name of the holder, the
principal amount of notes tendered for purchase, and a statement that such
holder is withdrawing his tendered notes and his election to have such notes
purchased; and
(7) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion of the
notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Issuers 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 or regulations are applicable in connection with the repurchase
of the notes pursuant to a Change of Control Offer.
On the Change of Control Payment Date, the Issuers will, to the extent
permitted by law,
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the aggregate
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 for cancellation
the notes so accepted together with an Officers' Certificate stating that
such notes or portions thereof have been tendered to and purchased by the
Issuers.
The paying agent will promptly mail to each holder of notes the Change of
Control Payment for such notes, and the trustee will promptly authenticate and
mail 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 Issuers
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The existence of a holder's right to require the Issuers to repurchase such
holder's notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire either of the Issuers in a transaction that would
constitute a Change of Control.
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The source of funds for any repurchase of notes upon a Change of Control
will be cash generated from operations or other sources, including borrowings,
sales of assets or sales of Capital Stock. However, there can be no assurance
that sufficient funds will be available at the time of any Change of Control to
make any required repurchases. Any failure by the Issuers to repurchase notes
tendered pursuant to a Change of Control Offer will be deemed an Event of
Default. See "Risk Factors--We may not be able to fulfill our repurchase
obligations in the event of a change of control."
The Bank Credit Facility contains, and future agreements relating to any
senior debt of the Issuers may contain, restrictions or prohibitions on the
Issuers' ability to repurchase the notes. In addition, the Bank Credit Facility
provides, and any future agreement relating to any senior debt of the Issuers
likely will provide, that certain change of control events with respect to the
Issuers would constitute an event of default thereunder. In the event that a
Change of Control occurs at a time when the Issuers are prohibited from
repurchasing the notes, the Issuers could seek the consent of their lenders to
purchase the notes or could attempt to refinance the borrowings that contain
such prohibition or restriction. If the Issuers do not obtain such consent or
refinance such Indebtedness, they will remain prohibited or restricted from
repurchasing the notes. In such case, the Issuers' failure to repurchase the
notes tendered in the Change of Control Offer would constitute an Event of
Default under the Indenture which would in turn constitute an event of default
under the agreements governing the Issuers' senior debt. See "Description of
Other Indebtedness."
The Issuers 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 Issuers and
purchases all notes properly tendered and not withdrawn under the Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Issuers and their Subsidiaries, taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precisely established definition of the phrase under
applicable law. Accordingly, the ability of a holder of notes to require the
Issuers to repurchase such notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Issuers
and their Subsidiaries taken as a whole to another Person or group may be
uncertain.
Notwithstanding the foregoing, each Issuer may merge with or into an
Affiliate provided that such Affiliate has no material assets or liabilities and
after such merger there is no material change in the ownership of such Issuer.
ASSET SALES
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to consummate an Asset Sale, unless
(1) no Default or Event of Default exists or is continuing immediately
prior to or after giving effect to such Asset Sale,
(2) the Issuers or their Restricted Subsidiaries, as the case may be,
receive consideration at the time of such Asset Sale at least equal to the
fair market value (as determined by the Board of Directors and set forth in
an Officers' Certificate delivered to the trustee) of the assets sold or
otherwise disposed of and
(3) at least 75% of the consideration therefor received by either of the
Issuers or any Restricted Subsidiary, as the case may be, is in the form of
cash or Cash Equivalents; PROVIDED, HOWEVER, that the amount of (A) any
liabilities (as shown on such Issuer's or such
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Restricted Subsidiary's, as the case may be, most recent balance sheet or in
the notes thereto) of the Issuers or any Restricted Subsidiary, as the case
may be (other than liabilities that are by their terms expressly
subordinated to the notes or any Note Guarantee, which may be assumed only
if such liabilities are deemed to be Restricted Payments in the case of the
Issuer or any Restricted Subsidiary and such Restricted Payment may then be
made), that are assumed by the transferee of any such assets and (B) any
notes, securities or other obligations received by the Issuers or any
Restricted Subsidiary, as the case may be, from such transferee that are
converted by the Issuers or such Restricted Subsidiary, as the case may be,
into cash (to the extent of the cash received) within 20 Business Days
following the closing of such Asset Sale, shall be deemed to be cash only
for purposes of satisfying clause (3) of this paragraph and for no other
purpose.
Within 360 days after any Issuer's or any Restricted Subsidiary's receipt of
the Net Proceeds of any Asset Sale, such Issuer or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale:
(1) to permanently reduce Indebtedness under the Bank Credit Facility or
other Indebtedness that is not Subordinated Indebtedness,
(2) in an Investment in any one or more business, capital expenditure or
other tangible asset of the Issuers or any Restricted Subsidiary, in each
case, engaged, used or useful in the Principal Business and/or
(3) for working capital purposes in an aggregate amount not to exceed
$20.0 million, in each case, with no concurrent obligation to make an offer
to purchase any notes. Pending the final application of any such Net
Proceeds, such Issuer or such Restricted Subsidiary may temporarily reduce
Senior Indebtedness or otherwise invest such Net Proceeds in Cash
Equivalents which shall be pledged to the trustee or an agent thereof
(including an agent under a Credit Facility) as security for the holders of
notes with the same relative priority with respect to the other secured
creditors as the priority of the Liens securing the asset that is the
subject of the Asset Sale except that (i) if such Cash Equivalents are to be
used to complete the Phase IA Project, then such Cash Equivalents may be
pledged to the Credit Agent as security for the lenders under the Bank
Credit Facility prior to the final completion of the Phase IA Project and
(ii) such Cash Equivalents need not be pledged to the trustee or an agent
thereof (including an agent under a Credit Facility) to the extent that the
assets subject to such Asset Sale were not subject to Liens securing the
Note Collateral prior to such Asset Sale.
Any Net Proceeds from the Asset Sale that are not invested or used to repay
Indebtedness or as working capital within 365 days of receipt as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuers
shall, subject to any repayment obligations owed to the lenders under any
Indebtedness that is secured by Permitted Liens on such assets, including the
lenders under the Credit Facilities, make an offer to all holders of notes (an
"ASSET SALE OFFER") to purchase the maximum principal amount of notes, that is
an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds. The offer price for the notes in such Asset Sale Offer will be in cash
in an amount equal to 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth in the
Indenture. The Issuers will commence an Asset Sale Offer with respect to Excess
Proceeds within 30 days after the date that Excess Proceeds exceed
$10.0 million by mailing the notice required pursuant to the terms of the
Indenture. To the extent that the aggregate amount of notes tendered pursuant to
an Asset Sale Offer is less than the applicable Excess Proceeds, the Issuers may
use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of notes surrendered by holders thereof
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exceeds the amount of Excess Proceeds, the trustee shall select the notes to be
purchased in the manner described under the caption "Selection and Notice"
below. Upon completion of any such Asset Sale Offer, the amount of Excess
Proceeds shall be deemed reset at zero. The Issuers may commence an Asset Sale
Offer at any time without having to wait for the expiration of the 365-day
period. The Indenture will also require the Issuers or such Restricted
Subsidiary to grant, subject to Permitted Liens, (1) to the lenders under the
First Lien Credit Facilities a first priority Lien and (2) to the trustee, on
behalf of the holders of the notes, a second priority Lien, in each case, on any
properties or assets acquired with the Net Proceeds of any such Asset Sale to
the extent that the assets subject to such Asset Sale were subject to Liens
securing the Note Collateral prior to such Asset Sale.
EVENT OF LOSS
Upon the occurrence of any Event of Loss with respect to Note Collateral
with a fair market value (or replacement cost, if greater) in excess of
$25.0 million, the Issuers or the affected Restricted Subsidiary, as the case
may be, may apply the Net Loss Proceeds from such Event of Loss to:
(1) the rebuilding, repair, replacement or construction of improvements
to the Project and the Phase IA Project, with no concurrent obligation to
make any purchase of any notes; PROVIDED that (a) if such Event of Loss
occurs with respect to the Phase IA Project prior to Completion of Phase IA,
the Issuers' ability to apply such Net Loss Proceeds to rebuild, repair,
replace or construct improvements to the Phase IA Project will be subject to
the terms of the Bank Credit Facility and (b) if such Event of Loss occurs
with respect to the Phase IA Project on or after Completion of Phase IA or
with respect to the Project after the Issuance Date, the Issuers deliver to
the trustee within 90 days of such Event of Loss (i) a written opinion from
a reputable architect or an Independent Expert (as defined in the
Cooperation Agreement) that the Phase IA Project or the Project, as the case
may be, can be rebuilt, repaired, replaced, or constructed and Completed
within one year of delivery of such opinion substantially in the condition
prior to such Event of Loss and (ii) an Officers' Certificate certifying
that the Issuers have available from Net Loss Proceeds, cash on hand or
available borrowings under Indebtedness permitted to be incurred pursuant to
the covenant described below under the caption "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" to complete such
rebuilding, repair, replacement or construction,
(2) permanently reduce Indebtedness or commitments under the Bank Credit
Facility or other Indebtedness that is not Subordinated Indebtedness, and/or
(3) for working capital purposes in an aggregate amount not to exceed
$1.0 million and only to the extent that there are Net Loss Proceeds in
excess of the amount necessary to rebuild, reconstruct or repair the asset
or assets subject to the Event of Loss, in each case, with no concurrent
obligation to make an offer to purchase notes.
Pending the final application of any such Net Loss Proceeds, the Issuer or
the applicable Restricted Subsidiary, as the case may be, may temporarily reduce
Senior Indebtedness or otherwise invest such Net Loss Proceeds in Cash
Equivalents which shall be pledged to the trustee or an agent thereof (including
the agent under a Credit Facility) as security for the holders of notes with the
same relative priority with respect to the other secured creditors as the
priority of the Liens securing the asset that is the subject of the Event of
Loss, except (i) if such Cash Equivalents are to be used to complete the Phase
IA Project, then such Cash Equivalents shall be pledged to the Credit Agent as
security for the lenders under the Bank Credit Facility prior to final
completion of the Phase IA Project and (ii) such Cash Equivalents need not be
pledged to the trustee or an agent thereof (including the agent under a Credit
Facility) to the extent that the assets subject to such
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Event of Loss were not subject to Liens securing the Note Collateral prior to
such Event of Loss. Any Net Loss Proceeds from an Event of Loss that are not
reinvested or used to repay Indebtedness or as working capital as provided in
the first sentence of this paragraph will be deemed to constitute "EXCESS LOSS
PROCEEDS."
When the aggregate amount of Excess Loss Proceeds exceeds $10.0 million, the
Issuers shall, subject to any repayment obligations owed to the lenders under
any Indebtedness that is secured by Permitted Liens on such assets, including
the lenders under the Credit Facilities make an offer to all holders of notes
(an "EVENT OF LOSS OFFER") to purchase the maximum principal amount of notes,
that is an integral multiple of $1,000, that may be purchased out of the Excess
Loss Proceeds. The offer price for the notes in such Asset Sale Offer shall be
in cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth in the
Indenture.
The Issuers will commence an Event of Loss Offer with respect to Excess Loss
Proceeds within 30 days after the date that Event of Loss Proceeds exceed
$10.0 million by mailing the notice required pursuant to the terms of the
Indenture. To the extent that the aggregate amount of notes tendered pursuant to
an Event of Loss Offer is less than the applicable Excess Loss Proceeds, the
Issuers may use any remaining Excess Loss Proceeds for general corporate
purposes. If the aggregate principal amount of notes surrendered by holders
thereof exceeds the amount of Excess Loss Proceeds, the trustee shall select the
notes to be purchased in the manner described under the caption "Selection and
Notice" below. Upon completion of any such Event of Loss Offer, the amount of
Excess Loss Proceeds shall be reset at zero. The Indenture also requires the
Issuers or such Restricted Subsidiary to grant, subject to Permitted Liens,
(1) to the lenders under the First Lien Credit Facilities a first priority Lien
and (2) to the trustee, on behalf of the holders of the notes, a second priority
Lien, in each case, on any properties or assets rebuilt, repaired or constructed
with such Net Loss Proceeds, to the extent that the assets subject to the Event
of Loss were subject to Liens securing the Note Collateral prior to such Event
of Loss.
In addition, the Issuers or the applicable Restricted Subsidiary will be
obligated to comply with any applicable terms of the Cooperation Agreement in
case of any Event of Loss.
SELECTION AND NOTICE
If less than all of the notes are to be purchased in an Asset Sale Offer or
Event of Loss Offer or redeemed at any time, selection of notes for purchase or
redemption will be made by the trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the notes are
listed, or, if the notes are not so listed, on a pro rata basis, by lot or by
such other method as the trustee shall deem fair and appropriate (and in such
manner as complies with applicable legal requirements); PROVIDED, that no notes
of $1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each holder of notes to be purchased or redeemed at such
holder's registered address. Notices of redemption may not be conditional. If
any note is to be purchased or redeemed in part only, any notice of purchase or
redemption that relates to such note shall state the portion of the principal
amount thereof that has been or is to be purchased or redeemed.
A new note in principal amount equal to the unpurchased or unredeemed
portion of any note purchased or redeemed in part will be issued in the name of
the holder thereof upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and after the
purchase or redemption date (unless the Issuers default in payment of the
purchase
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or redemption price), interest and Liquidated Damages, if any, shall cease to
accrue on notes or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on account of
either of the Issuers' or any of their Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving either of the Issuers) or to the direct or
indirect holders of either of the Issuers' Equity Interests in their
capacity as such (other than (a) dividends or distributions by the Issuers
payable in Equity Interests (other than Disqualified Stock) of the Issuers
(or accretions thereon), (b) dividends or distributions paid to the Issuers
or a Wholly Owned Restricted Subsidiary of the Issuers or (c) pro rata
dividends or distributions pro rata to all holders of Capital Stock of a
Subsidiary of either of the Issuers, PROVIDED such holders will not include
the Principal Stockholder and any Affiliate of the Principal Stockholder
other than the Issuers or any Restricted Subsidiary);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving either of the Issuers) any Equity Interests of the
Issuers or any Equity Interests of any of the Restricted Subsidiaries (other
than Venetian) held by an Affiliate of the Issuers (other than any such
Equity Interests owned by the Issuers or any Wholly Owned Restricted
Subsidiary of the Issuers);
(3) purchase, redeem, defease or otherwise acquire or retire for value
any Subordinated Indebtedness of the Issuers or any of their Restricted
Subsidiaries (other than, in each case, scheduled principal payments with
respect to any such Subordinated Indebtedness); or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of
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 Issuers would, after giving pro forma effect to such Restricted
Payment 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 first paragraph of the
description of the covenant described under the caption "Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Issuers and their Restricted
Subsidiaries after the Issuance Date (excluding Restricted Payments
permitted by clauses (2), (3), (5), (7), (8), (9), (11), (12) and (13) of
the next succeeding paragraph and including the other Restricted Payments
permitted by the next paragraph), is less than the sum of:
(i) 50% of (A) the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the Issuance Date to the end
of the Company's most recently ended fiscal quarter for which internal
financial statements are available (or, in the case such Consolidated Net
Income for such period is a deficit, minus 100% of such deficit)
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LESS (B) the amount paid or to be paid in respect of such period pursuant
to clause (5) of the next following paragraph to shareholders or members
other than the Issuers, PLUS:
(ii) without duplication, 100% of the aggregate net cash proceeds
received by the Issuers since the Issuance Date from capital
contributions or the issue or sale of Equity Interests (other than
Disqualified Stock) or debt securities of the Issuers that have been
converted into or exchanged for such Equity Interests of the Issuers
(other than Equity Interests or such debt securities of the Issuers sold
to a Restricted Subsidiary of the Issuers and other than Disqualified
Stock or debt securities that have been converted into or exchanged for
Disqualified Stock), PLUS
(iii) the Appraised Value of the Expo Center or the Phase II Land and
any improvements thereon if contributed, distributed or transferred
without consideration (other than the assumption of liability taken into
consideration in calculating the amount under this clause (c)(iii)) to
the Issuers or any Note Guarantor, minus the amount of any liability
assumed in connection with the contribution, distribution or transfer of
such assets (which contribution, distribution or transfer may be in the
form of all of the Capital Stock of an entity whose only material assets
consist of the Expo Center or the Phase II Land and any improvements
thereon) PLUS
(iv) to the extent not otherwise included in the Company's
Consolidated Net Income, 100% of the cash dividends or distributions or
the amount of the cash principal and interest payments received since the
Issuance Date by the Issuers or any Restricted Subsidiary from any
Unrestricted Subsidiary or in respect of any Restricted Investment (other
than dividends or distributions to pay obligations of or with respect to
such Unrestricted Subsidiary such as income taxes) until the entire
amount of the Investment in such Unrestricted Subsidiary has been
received or the entire amount of such Restricted Investment has been
returned, as the case may be, and 50% of such amounts thereafter.
In the event that the Issuers convert an Unrestricted Subsidiary to a
Restricted Subsidiary, the Issuers may add back to this clause (c) the
aggregate amount of any Investment in such Subsidiary that was a
Restricted Payment at the time of such Investment other than the
conversion of the Phase II Subsidiary to a Restricted Subsidiary in which
case the amount added back to this clause (c) shall be the amount
calculated under clause (c)(iii) as if such Phase II Subsidiary were
contributed to the Issuers under clause (c)(iii).
The foregoing provisions will not prohibit
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(2) any Restricted Payment in exchange for, or out of the proceeds of,
the substantially concurrent sale or issuance (other than to a Restricted
Subsidiary of the Issuers) of Equity Interests of the Issuers (other than
any Disqualified Stock); PROVIDED that the amount of any net cash proceeds
from the sale of such Equity Interests shall be excluded from
clause (c)(ii) of the preceding paragraph;
(3) the defeasance, redemption, repurchase, retirement or other
acquisition of any Subordinated Indebtedness of the Issuers or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale or issuance (other than to a Restricted
Subsidiary of the Issuers) of Subordinated Indebtedness of the Issuers or
such Restricted Subsidiary or Equity Interests of the Issuers (other than
Disqualified Stock); PROVIDED, HOWEVER,
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that the net cash proceeds from the sale of any Equity Interests issued
pursuant to this clause (3) shall be excluded from clause (c)(ii) of the
preceding paragraph;
(4) any redemption or purchase by the Issuers or any Restricted
Subsidiary of Equity Interests or Subordinated Indebtedness of either of the
Issuers or a Restricted Subsidiary required by a Gaming Authority in order
to preserve a material Gaming License; PROVIDED, that so long as such
efforts do not jeopardize any material Gaming License, the Issuers or such
Restricted Subsidiary shall have diligently tried to find a third-party
purchaser for such Equity Interests or Subordinated Indebtedness and no
third-party purchaser acceptable to the applicable Gaming Authority was
willing to purchase such Equity Interests or Subordinated Indebtedness
within a time period acceptable to such Gaming Authority;
(5) (a) for so long as the Company is a corporation under Subchapter S
of the Code or a substantially similarly treated pass-through entity or
Venetian is a limited liability company that is treated as a partnership or
a substantially similarly treated pass-through entity, in each case, for
federal income tax purposes (as evidenced by an opinion of counsel at least
annually), the Issuers and their Restricted Subsidiaries may each make cash
distributions to their shareholders or members, during each Quarterly
Payment Period, in an aggregate amount not to exceed the Permitted Quarterly
Tax Distribution in respect of the related Estimation Period, and if any
portion of the Permitted Quarterly Tax Distribution is not distributed
during such Quarterly Payment Period, the Permitted Quarterly Tax
Distribution payable during the immediately following four quarter period
shall be increased by such undistributed portion and (b) distributions by a
non-Wholly Owned Subsidiary of either of the Issuers or any Restricted
Subsidiary of the Issuers but only to the extent required to pay any tax
liability in respect of the income of such non-Wholly Owned Subsidiary;
(6) the repurchase of shares of, or options to purchase, common stock of
either of the Issuers from employees, former employees, directors or former
directors of either of the Issuers (or permitted transferees of such
individuals), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) upon the death, disability or
termination of employment of such employee, in each case, as such agreements
or plans are in effect on the Issuance Date (the "EMPLOYEE STOCK BUYBACKS");
(7) repurchases of Capital Stock of either of the Issuers deemed to
occur upon exercise of stock options if such Capital Stock represents a
portion of the exercise price of such options; PROVIDED that the amount of
Capital Stock deemed issued and so repurchased shall be excluded from
(c)(ii) of the preceding paragraph;
(8) contributions of cash, real property or other property to
Unrestricted Subsidiaries by the Principal Stockholder or any of his
Affiliates through a contribution or purchase of Equity Interests (that does
not constitute Disqualified Stock) to either of the Issuers and any related
Investment in such Unrestricted Subsidiary by either of the Issuers or any
Restricted Subsidiary; PROVIDED that the amount of such contributions shall
be excluded from clause (c)(ii) of the preceding paragraph;
(9) payments of intercompany subordinated debt, the incurrence of which
was permitted under clause (e) of the second paragraph under the caption
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock";
(10) payments under the change of control, asset sale and event of loss
covenants of the agreements governing any Subordinated Indebtedness
permitted to be incurred under the Indenture; PROVIDED that such payments
are made after compliance with the covenant described under the captions
"--Repurchase at the Option of Holders--Change of Control," "--Asset Sales"
and "--Event of Loss;"
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(11) the repurchase, defeasance or redemption or other retirement of the
Issuers' 14 1/4% Senior Subordinated Notes due 2005;
(12) the repayment of all outstanding Indebtedness and all other amounts
owing with respect to such Indebtedness made on the Closing Date pursuant to
the Refinancing Transactions described in "Use of Proceeds" in this
prospectus and any Investments made by any of the Issuers or their
Restricted Subsidiaries in any Unrestricted Subsidiary in connection
therewith;
(13) a transfer or other issuance of Equity Interests representing not
more than 1% of the total Equity Interests of the Phase II Subsidiary or
Phase II Holdings or any Subsidiary thereof to Phase II Manager or any
Unrestricted Subsidiary of the Issuers;
(14) payments of cash in lieu of fractional shares not to exceed
$100,000 in connection with any transaction or series of related
transactions;
(15) prior to a Qualified IPO, cash distributions or advances by the
Company to, or repurchases by the Company of capital stock from, key
management personnel (excluding the Principal Stockholder) with respect to
their Capital Stock holdings in the Company, in an aggregate amount not to
exceed $2.0 million per year; and
(16) additional Restricted Payments in an aggregate amount not to exceed
$5.0 million under this clause (16).
For purposes of determining compliance with this covenant, in the event that
a proposed Restricted Payment meets the criteria of more than one of the
categories of Restricted Payments described in clauses (1) through (16) above,
or is entitled to be incurred pursuant to the first paragraph of this covenant,
the Issuers shall, in their sole discretion, classify such item of Restricted
Payment on the date of its payment.
For purposes of determining the amount of Restricted Investments outstanding
at any time, all Restricted Investments will be valued at their fair market
value at the time made (as determined in good faith by the Company's Board of
Directors), and no adjustments will be made for subsequent changes in fair
market value.
DESIGNATION OF UNRESTRICTED SUBSIDIARY
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary after the Issuance Date; PROVIDED,
that:
(1) at the time of designation, the Investment by either of the Issuers
and any of their Restricted Subsidiaries in such Subsidiary (other than
Permitted Investments) shall be deemed a Restricted Investment (to the
extent not previously included as a Restricted Investment) made on the date
of such designation in the amount of the fair market value of such
Investment as determined in good faith by the Company's Board of Directors
and, in the case of Investments in excess of $20.0 million, supported by a
fairness opinion issued by an accounting, appraisal or investment banking
firm of national standing;
(2) since the Issuance Date, such Unrestricted Subsidiary has not
acquired any assets from either of the Issuers or any Restricted Subsidiary
other than as permitted by the provisions of the Indenture, including the
provisions described under the covenants entitled "--Restricted Payments"
and "--Repurchase at the Option of Holders--Asset Sales";
(3) at the time of designation, no Default or Event of Default has
occurred and is continuing or results immediately after such designation or
as a result of any Restricted Investment made in such Subsidiary at the time
of such designation;
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(4) at the time of designation, such Subsidiary has no Indebtedness
other than Non-Recourse Indebtedness of such Subsidiary;
(5) such Subsidiary does not own any Equity Interests in a Restricted
Subsidiary; and
(6) such Subsidiary does not own or operate or possess any material
license, franchise or right used in connection with the ownership or
operation of any part of the Project Assets of the Project or any material
portion of the Project Assets of the Project (other than ownership of real
estate, or interests in real estate leased to the Issuers or any Restricted
Subsidiary).
A Subsidiary shall cease to be an Unrestricted Subsidiary and shall become a
Restricted Subsidiary if either
(1) at any time while it is a Subsidiary of the Company
(a) such Subsidiary acquires any assets from the Company or any
Restricted Subsidiary other than as permitted by the provisions of the
Indenture, including the provisions described under the covenants
entitled "--Restricted Payments" and "--Repurchase at the Option of
Holders--Asset Sales";
(b) such Subsidiary has any Indebtedness other than Non-Recourse
Indebtedness of such Subsidiary;
(c) such Subsidiary owns any Equity Interests in a Restricted
Subsidiary of the Company; or
(d) such Subsidiary owns or operates or possesses any material
license, franchise or right used in connection with the ownership or
operation of any part of the Project Assets of the Project (other than
ownership of real estate or interests in real estate leased to the Issuer
or any Restricted Subsidiary); or
(2) the Board of Directors of the Company designates such Unrestricted
Subsidiary to be a Restricted Subsidiary and no Default or Event of Default
occurs or is continuing immediately after such designation.
As of the date hereof, Phase II Subsidiary, Phase II Holdings, Phase II
Manager and all of the Macau Entities (other than any such entities that are
designated as Restricted Subsidiaries by the Issuers) are Unrestricted
Subsidiaries. Under certain circumstances, as described above, the Company will
be able to designate Restricted Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Indenture and will not be Note Guarantors.
Any future designation by the Board of Directors of the Company shall be
evidenced to the trustee by filing with the trustee a certified copy of the
resolutions of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
The Phase II Land may not be sold, leased or transferred to an Affiliate of
the Issuers, other than an Issuer, any Restricted Subsidiary or any Unrestricted
Subsidiary in which the Principal Stockholder does not own any Equity Interests,
directly or indirectly.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collectively,
"INCUR" and correlatively, an "INCURRENCE" of) any Indebtedness (including
Acquired Indebtedness) or any shares of Disqualified Stock; PROVIDED, HOWEVER,
that the
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Issuers and their Restricted Subsidiaries may incur Indebtedness or issue shares
of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date of such incurrence 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 or the Disqualified Stock had been issued, as the case may be,
and application of proceeds had occurred at the beginning of such four-quarter
period.
The foregoing limitations will not apply to:
(a) the incurrence by the Issuers or any of their Restricted
Subsidiaries of Indebtedness under the Credit Facilities, pursuant to this
clause (a), in an aggregate principal amount not to exceed at any one time
$375.0 million under this clause (a), less permanent reductions resulting
from the application of Asset Sale or Event of Loss proceeds;
(b) the incurrence by the Issuers or any of their Restricted
Subsidiaries of any Existing Indebtedness, including the Issuers' 14(1)4%
Senior Subordinated Notes due 2005 and 12(1)4% Mortgage Notes due 2004;
(c) the incurrence by the Issuers or any of their Restricted
Subsidiaries of Indebtedness, in an aggregate principal amount not to exceed
at any one time $850.0 million under this clause (c), represented by the
notes, the Note Guarantees, including Indebtedness represented by the
Exchange Notes and related Note Guarantees to be issued as required by the
Registration Rights Agreement, and obligations arising under the Collateral
Documents to the extent that such obligations would constitute Indebtedness;
(d) the incurrence by the Issuers or any of their Restricted
Subsidiaries of Indebtedness (the "REFINANCING INDEBTEDNESS") issued in
exchange for, or the proceeds of which are used to extend, refinance, renew,
replace, substitute or refund Indebtedness referred to in the first
paragraph of this covenant or in clauses (b) (other than the Issuers'
14(1)4% Senior Subordinated Notes due 2005 and 12(1)4% Mortgage Notes due
2004), (c), this clause (d), (g), (j), (l), (m), (o), (p) and (s)(1);
PROVIDED, HOWEVER, that (1) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount of Indebtedness (or, in
the case of Indebtedness with original issue discount, the accreted value of
such Indebtedness) so extended, refinanced, renewed, replaced, substituted
or refunded (plus the amount of reasonable expenses incurred and any premium
paid in connection therewith and accrued and unpaid interest thereon,
collectively, the "REFINANCING FEE AMOUNTS"), (2) if the Indebtedness being
extended, refinanced, renewed, replaced, substituted or refunded is
subordinate in right of payment to the notes, such Refinancing Indebtedness
shall be subordinate in right and priority of payment to the notes and any
Note Guarantee on terms at least as favorable to the holders of notes and
the Note Guarantees as those contained in the documentation governing any
subordinated Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded, and (3) the Refinancing Indebtedness shall have 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, substituted or refunded;
(e) intercompany Indebtedness between or among the Issuers, any Note
Guarantor and any Wholly Owned Restricted Subsidiary of the Issuers;
PROVIDED, HOWEVER, the obligations of any Issuer or Note Guarantor to pay
principal, interest or other amounts under such intercompany Indebtedness is
subordinated to the payment in full of the notes and any Note Guarantees;
(f) Hedging Obligations that are incurred (1) for the purpose of fixing
or hedging interest rate risk with respect to any Indebtedness that is
permitted by the terms of the Indenture to be
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outstanding or (2) for the purpose of fixing or hedging currency exchange
rate risk with respect to any currency exchanges;
(g) the incurrence by the Issuers or any of their Restricted
Subsidiaries of Non-Recourse Financing used to finance the construction,
purchase or lease of personal or real property (including the Specified
FF&E) used in the business of the Issuers or such Restricted Subsidiary;
PROVIDED, that the Indebtedness incurred pursuant to this clause (g)
(including any refinancings thereof pursuant to clause (d) above) shall not
exceed $50.0 million (plus any Refinancing Fee Amounts) outstanding at any
time;
(h) to the extent that such incurrence does not result in the incurrence
by the Issuers or any of their Restricted Subsidiaries of any obligation for
the payment of borrowed money of others, Indebtedness incurred solely in
respect of performance bonds, completion guarantees, standby letters of
credit or bankers' acceptances, letters of credit in order to provide
security for workers' compensation claims, payment obligations in connection
with self insurance or similar requirements, surety and similar bonds,
statutory claims of lessors, licensees, contractors, franchisees or
customers, in each case, in the ordinary course of business; PROVIDED, that
such Indebtedness was incurred in the ordinary course of business of the
Issuers or any of their Restricted Subsidiaries and in an aggregate
principal amount outstanding under this clause (h) at any one time of less
than $15.0 million;
(i) the incurrence by the Issuers of unsecured Indebtedness issued in
connection with the Employee Stock Buybacks permitted under clause (6) of
the covenant described above under the caption "--Restricted Payments";
(j) the incurrence by the Issuers of Indebtedness incurred to finance
the Issuers' obligations under the HVAC Services Agreement or to expand, add
to or extend the Issuers' or any Restricted Subsidiary's heating,
ventilation, air conditioning or energy systems, (including the Specified
FF&E), in an aggregate amount at any time outstanding (including any
refinancings thereof pursuant to clause (d) above) not to exceed
$15.0 million (plus any Refinancing Fee Amounts);
(k) the Guarantee, including acting as co-obligor of any Indebtedness,
by the Issuers or any Restricted Subsidiary of Indebtedness of the Issuers
or a Restricted Subsidiary that was permitted to be incurred by another
provision of this covenant;
(l) the incurrence by the Issuers or any Restricted Subsidiary of
Indebtedness in aggregate amount at any time outstanding (including any
refinancings thereof pursuant to clause (d) above) not to exceed
$20.0 million (plus any Refinancing Fee Amounts); PROVIDED that the proceeds
of such Indebtedness are used for design, architectural, engineering,
permitting and other costs, including operating costs during such period, in
connection with the development of the Phase II Resort so long as such costs
are not incurred in connection with actual construction (excluding
demolition, site preparation, excavation and foundation work and excluding
the Phase IA Project) on the Phase II Land;
(m) the incurrence by the Issuers or any Restricted Subsidiary of either
Permitted Subordinated Indebtedness or Additional Notes; PROVIDED that
(1) at the time of incurrence, the Issuers' Debt to Cash Flow Ratio is no
greater than 4.5 to 1 on a pro forma basis after giving effect to the
incurrence of such Indebtedness and the use of proceeds from such
Indebtedness and (2) the Phase IA Completion Date has occurred and, PROVIDED
FURTHER that the aggregate amount of Additional Notes issued under this
clause (m) at any time outstanding shall not exceed $100.0 million;
(n) the incurrence by the Issuers or any Restricted Subsidiary of
Indebtedness in an aggregate amount at any time outstanding not to exceed
$105.0 million under a Mall Financing
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Agreement plus any additional Indebtedness under a Mall Financing Agreement
in excess of $105.0 million, PROVIDED that either (1) such additional
Indebtedness is rated Investment Grade by two Rating Agencies or (2) that
the total amount of Indebtedness permitted to be incurred hereunder shall
not exceed 65% of the Appraised Value of the Mall Collateral;
(o) the incurrence by the Issuers or any Restricted Subsidiary of
additional Indebtedness in an aggregate amount at any time outstanding
(including any refinancings thereof pursuant to clause (d) above) not to
exceed $15.0 million under this clause (o);
(p) the incurrence by either Issuer or any Restricted Subsidiary of
Indebtedness (which may include 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 or cost of
construction or improvement of property, plant or equipment used in the
Principal Business or the construction, purchase or lease of real or
personal property or equipment (including the Specified FF&E), in an
aggregate principal amount (including any refinancings thereof pursuant to
clause (d) above) not to exceed $15.0 million at any time outstanding (plus
any Refinancing Fee Amounts);
(q) Indebtedness arising from any agreement entered into by either of
the Issuers or any of their Restricted Subsidiaries providing for
indemnification, purchase price adjustment or similar obligations, in each
case, incurred or assumed in connection with an Asset Sale;
(r) Subordinated Indebtedness to the Principal Stockholder and its
Affiliates or Related Parties that has a maturity date that matures after
the date of maturity of the notes, that is unsecured, does not pay any cash
interest and that is subordinated in right of payment to the payment in full
of the notes and the Note Guarantees at least to the extent set forth in
Appendix A-1 to the Indenture; and
(s) (1) Indebtedness incurred to fund investments in Macau Entities in
an aggregate principal amount (including any refinancings thereof pursuant
to clause (d) above) not to exceed $40.0 million under this clause (s)(1) at
any time outstanding (plus any Refinancing Fee Amounts) and (2) Guarantees
of Indebtedness or obligations of any of the Macau Entities such that the
maximum principal amount of Indebtedness, or the maximum amount of
obligations, so Guaranteed does not exceed $90.0 million at any one time
outstanding under this clause (s)(2).
The Issuers will not permit any of their Unrestricted Subsidiaries to incur
any Indebtedness (including Acquired Indebtedness) or issue any shares of
Disqualified Stock, other than Non-Recourse Indebtedness; PROVIDED, HOWEVER,
that if any such Unrestricted Subsidiary ceases to remain an Unrestricted
Subsidiary, such event shall be deemed to constitute the incurrence of the
Indebtedness in such Subsidiary by a Restricted Subsidiary.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Indebtedness permitted in clauses (a) through (s) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Issuers shall, in
their sole discretion, classify such item of Indebtedness on the date of its
incurrence, or later reclassify all or a portion of such item of Indebtedness in
any manner that complies with this covenant and such item of Indebtedness will
be treated as having been incurred pursuant to only such clause or clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value or principal and the payment of interest in the form of
additional Indebtedness or the payment of dividends in the form of additional
Disqualified Stock will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Upon any refinancing or replacement of the First Lien Credit Facilities or
any portion thereof, or upon entering into any First Lien Credit Facility with a
lender, lenders or their agent that is not then
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a party to the Intercreditor Agreement, such new lender shall become a party to
the Intercreditor Agreement if it is then in effect or, if the Intercreditor
Agreement is not then in effect or if the lender, lenders or their agent does
not become a party to such Intercreditor Agreement, the trustee, without further
action on behalf of holders of notes, shall enter into an intercreditor
agreement with such new lender, lenders or their agent with terms that are no
less favorable to the trustee or the holders of notes than those contained in
the Intercreditor Agreement. The Trustee, without further action on behalf of
holders of notes, shall also enter into such amendments or supplements to the
Intercreditor Agreement or the Collateral Documents to provide for additional
parties to be bound by and subject to the benefits of these terms.
LIENS
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist
any Lien on any asset owned as of the Issuance Date or thereafter acquired by
the Issuers or any such Restricted Subsidiary, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, except, in
each case, Permitted Liens.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Neither of the Issuers shall consolidate or merge with or into or wind up
into (whether or not such entity is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, any Person unless
(1) the Company or Venetian, as the case may be, is the surviving Person or
the Person formed by or surviving any such consolidation or merger (if
other than the Company or Venetian) or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made is a
Person organized or existing under the laws of the United States, any
state thereof, the District of Columbia, or any territory thereof;
(2) the Person formed by or surviving any such consolidation or merger (if
other than the Company or Venetian) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition will have
been made assumes all the obligations of the Company or Venetian, as the
case may be, under the Indenture and the Collateral Documents pursuant to
a supplemental indenture or other documents or instruments in form
reasonably satisfactory to the trustee under the notes and the Indenture;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) such transaction will not result in the loss or suspension or material
impairment of any material Gaming License of the Issuers or their
Restricted Subsidiaries;
(5) the Company, Venetian or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made will, at the
time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test described
above under the caption "Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock"; and
(6) such transactions would not require any holder of notes (other than any
Person acquiring the Company or Venetian or their assets and any
Affiliate thereof) to obtain a gaming license or be qualified under the
law of any applicable gaming jurisdiction; PROVIDED that
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such holder would not have been required to obtain a gaming license or be
qualified under the laws of any applicable gaming jurisdiction in the
absence of such transactions.
Notwithstanding anything to the contrary, either Issuer may consolidate or
merge with or wind up into or sell, assign, transfer or otherwise dispose of all
or substantially all of its assets to each other or a Note Guarantor without
meeting the requirements set forth in clause (5) above. In addition, without
complying with clause (5) above, either Issuer may merge with or into an
Affiliate provided that such Affiliate has no material assets or liabilities and
after such merger there is no material change in the ownership of such Issuer.
TRANSACTIONS WITH AFFILIATES
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or Guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless
(1) such Affiliate Transaction is on terms that are no less favorable to
the Issuers or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Issuers or such Restricted
Subsidiary with an unrelated Person and
(2) the Issuers deliver to the trustee
(a) with respect to any Affiliate Transaction involving aggregate
payments in excess of (i) $500,000, an Officers' Certificate
certifying that such Affiliate Transaction complies with
clause (1) above, or (ii) $2.0 million, a resolution adopted by a
majority of the disinterested non-employee directors of the Board
of Directors approving such Affiliate Transaction and set forth
in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (1) above and
(b) with respect to any Affiliate Transaction that is a loan
transaction involving a principal amount in excess of
$15.0 million or any other type of Affiliate Transaction
involving aggregate payments in excess of $15.0 million, an
opinion as to the fairness of the financial terms of such
Affiliate Transaction to the Company or such Restricted
Subsidiary from a financial point of view issued by an
Independent Financial Advisor.
The foregoing provisions will not apply to the following:
(1) the Billboard Lease, the Canyon Ranch Lease and the Lutece Lease,
each, as in effect on the date of the Indenture;
(2) the agreements in effect on the Issuance Date that are described
under the caption "Certain Relationships and Related Party Transactions" in
this prospectus;
(3) the Other Phase II Agreements on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained with an unrelated Person;
(4) purchases of materials or services from a Supplier Joint Venture by
the Issuers or any of their Restricted Subsidiaries in the ordinary course
of business on arm's length terms;
(5) any employment, compensation, indemnification, noncompetition or
confidentiality agreement entered into by either of the Issuers or any of
their Restricted Subsidiaries with their executive officers or directors in
the ordinary course of business (other than an employment or compensation
agreement with the Principal Stockholder);
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(6) loans or advances to employees of the Issuers or their Restricted
Subsidiaries (a) to fund the exercise price of options granted under
employment agreements or the Issuers' stock option plans or agreements in
each case, as approved by the Company's Board of Directors or (b) for any
other purpose not to exceed $2.0 million in the aggregate outstanding at any
one time under this subclause (b);
(7) the payment of reasonable fees to directors of the Issuers and their
Restricted Subsidiaries who are not employees of the Issuers or their
Restricted Subsidiaries;
(8) the grant of restricted stock, stock options or similar rights to
employees and directors of either of the Issuers pursuant to agreements or
plans approved by the Board of Directors of the Company or the managing
member of Venetian and any repurchases of stock or stock options of the
Issuers from such employees to the extent provided for in such plans or
agreements or permitted under the covenant described above under the caption
"--Restricted Payments;"
(9) transactions between or among the Issuers and/or any of their
Restricted Subsidiaries;
(10) with respect to the Issuers and any Restricted Subsidiary,
Restricted Payments or Permitted Investments permitted by the provisions of
the Indenture described above under the caption "--Restricted Payments";
(11) issuances of Equity Interests of the Issuers (other than
Disqualified Stock);
(12) the transactions contemplated by or permitted under the Cooperation
Agreement and the HVAC Services Agreement, in each case, as in effect on the
date of the Indenture;
(13) the use of the Congress Center or the meeting space in the Phase IA
Project by the owner of the Expo Center; PROVIDED that Venetian receives
fair market value for the use of such property, as determined in the
reasonable discretion of the Board of Directors of the Company;
(14) the transactions contemplated in the captions "--Certain
Relationships and Related Party Transactions--Temporary Lease" and
"--Administrative Services Agreement" in this prospectus;
(15) the lease agreement between Venetian and the Phase II Subsidiary
relating to the air space above the Phase II Land within which a portion of
the Phase IA Project is to be constructed;
(16) the Company or Venetian may enter into and perform their
obligations under a gaming operations lease or management agreement with
Phase II Subsidiary or any Subsidiary thereof relating to the casino to be
operated in the casino resort owned by the Phase II Subsidiary or any
Subsidiary thereof on terms substantially similar to those of the Casino
Lease except that (a) the quarterly rent payable to the Phase II Subsidiary
or any Subsidiary thereof under such lease shall be equal to all quarterly
revenue derived from such casino (whether such revenue is positive or
negative) minus the sum of (1) the operating costs related to such casino
for such period (including an allocated portion (based on gaming revenue) of
the Company's or Venetian's, as the case may be, administrative costs
related to its gaming operations) and (2) the lesser of $250,000 or 1.0% of
such casino's operating income (or zero if there is an operating loss)
(determined in accordance with generally accepted accounting principles);
PROVIDED that if such sum is negative, then the Phase II Subsidiary shall
pay such negative amount to Venetian or its Restricted Subsidiaries,
(b) the Company or Venetian, as the case may be, may agree that they shall
operate the casino in the resort owned by the Phase II Subsidiary and the
Casino in the Project in substantially similar manners and (c) the Company
or Venetian, as the case may be, may agree to have common gaming and
surveillance operations in such casinos (based on equal allocations of
revenues and operating costs);
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(17) the preferred reservation system agreement, one or more meeting
services agreements, one or more agreements for the use of any space in the
Expo Center, and one or more management or operating agreements with respect
to the Expo Center, each as may be amended from time to time, and entered
into with or required to be entered into with Interface Group--Nevada, Inc.
in accordance with that certain Loan Agreement, dated as of June 28, 2001,
by and between Bear, Stearns Funding, Inc. and Interface
Group--Nevada, Inc.;
(18) (i) license agreements with a Macau Entity and (ii) any other
agreements with a Macau Entity, provided the terms such other agreement
under clause (ii) or any amendment to such agreement are no less favorable
to the Issuers or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Issuers or such
Restricted Subsidiary with an unrelated Person;
(19) the Stockholders' Agreement entered into among the Company and the
stockholders of the Company, dated January 2, 2002, as amended from time to
time;
(20) Subordinated Indebtedness to the Principal Stockholder, his
Affiliates and/or its Related Parties that has a maturity date that matures
after the date of maturity of the notes, that does not pay any cash interest
and that is subordinated in right of payment to the payment in full of the
notes and the Note Guarantees at least to the extent specified in
Exhibit A-2 to the Indenture;
(21) any registration rights agreement to provide for the registration
under the Securities Act of the Capital Stock interests held by Affiliates
or that were not previously so registered in an entity whose common equity
will be or was the subject of a Qualified IPO, containing such demand
rights, piggyback rights and S-3 rights, terms and conditions,
indemnifications, expense reimbursements and other terms that are usual and
customary for agreements of this type as determined by the Board of
Directors of the Company; and
(22) any agreement by the owner of the Macau Casino to pay Macau Fees to
the Issuers or a Restricted Subsidiary directly or indirectly.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or consensual restriction
on the ability of any such Restricted Subsidiary (other than Venetian) to
(a)(i) pay dividends or make any other distributions to the Issuers or any of
their Restricted Subsidiaries (A) on their Capital Stock or (B) with respect to
any other interest or participation in, or measured by, its profits, or
(ii) pay any Indebtedness owed to the Issuers or any of their Restricted
Subsidiaries (other than in respect of the subordination of such Indebtedness to
the notes, the Note Guarantees or any other Indebtedness incurred pursuant to
the terms of the Indenture, as the case may be), (b) make loans or advances to
the Issuers or any of their Restricted Subsidiaries or (c) sell, lease, or
transfer any of its properties or assets to the Issuers or any of their
Restricted Subsidiaries, except (in each case) for such encumbrances or
restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the Issuance
Date,
(2) the Bank Credit Facility (and any related security agreements), the
Indenture, the notes, any Note Guarantees, Indebtedness incurred pursuant to
clause (g), (j), (o) or (p) of the covenant described above under the
caption "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" and the Collateral Documents,
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(3) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any Restricted Subsidiary 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,
(4) by reason of customary non-assignment provisions in leases entered
into in the ordinary course of business and consistent with past practices
and any leases permitted by the provisions of the covenant entitled
"--Restrictions on Leasing and Dedication of Property,"
(5) purchase money obligations for property or Capital Lease Obligations
for Specified FF&E acquired or leased in the ordinary course of business
that impose restrictions of the nature discussed in clause (c) above on the
property so acquired,
(6) applicable law or any applicable rule or order of any Gaming
Authority,
(7) Permitted Liens,
(8) customary restrictions imposed by asset sale or stock purchase
agreements relating to the sale of assets or Equity Interests by the Issuers
or any Restricted Subsidiary,
(9) restrictions contained in the Mall Financing Agreement as in effect
on the Issuance Date,
(10) any instrument governing Indebtedness or Capital Stock of any
Person that is an Unrestricted Subsidiary as in effect on the day that such
Person becomes a Restricted Subsidiary, which encumbrance or restriction is
not applicable to any Person or the properties or assets of any Person,
other than the Person and its Restricted Subsidiaries or the property or
assets of the Person and its Restricted Subsidiaries,
(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
relating to the assets or property of such joint ventures or covered by such
joint venture agreements,
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business,
or
(13) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, extensions,
refundings, replacements or refinancings in whole or in part of the
contracts, instruments or obligations referred to in clauses (1) through
(13) above, PROVIDED, that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
are, in the good faith judgment of the Company's Board of Directors, no more
restrictive with respect to such dividend and other payment restrictions
than those contained in the dividend or other payment restrictions prior to
such amendment, modification, restatement, renewal, increase, supplement,
extension, refunding, replacement or refinancing.
LINE OF BUSINESS
For so long as any notes are outstanding, the Issuers shall not, and shall
not permit any of their Restricted Subsidiaries to, engage in any business or
activity other than the Principal Business, except to such extent as would not
be material to the Issuers and their Subsidiaries taken as a whole.
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RESTRICTIONS ON LEASING AND DEDICATION OF PROPERTY
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to lease, sublease, or grant a license, concession or other
agreement to occupy, manage or use, as lessor or sublessor, any real or personal
Project Assets owned or leased by the Issuers or any Restricted Subsidiary
(each, a "LEASE TRANSACTION"), other than the following Lease Transactions:
(1) the Issuers or any Restricted Subsidiary may enter into a Lease
Transaction with respect to any space on or within the Project or Phase IA
Project with any Person (other than an Unrestricted Subsidiary), PROVIDED
that, in the reasonable opinion of the Issuers, (a) such Lease Transaction
will not materially interfere with, impair or detract from the operations of
any of the Project Assets, and will in the reasonable judgment of the
Issuers enhance the value and operations of the Project and (b) such Lease
Transaction is at a fair market rent (in light of other similar or
comparable prevailing commercial transactions) and contains such other terms
such that the Lease Transaction, taken as a whole, is commercially
reasonable and fair to the Issuers or such Restricted Subsidiary in light of
prevailing or comparable transactions in other casinos, hotels, attractions
or shopping venues comparable to the Project;
(2) the Issuers or any Restricted Subsidiary may enter into a Lease
Transaction with any Unrestricted Subsidiary with respect to any part of the
Phase II Land;
(3) the Issuers and any Wholly-Owned Restricted Subsidiary of the
Issuers may enter into Lease Transactions among themselves or with any
Issuer or Wholly Owned Restricted Subsidiary of the Issuers, including the
Casino Lease by the Company from Venetian, the Billboard Lease, the Canyon
Ranch Lease and the Lutece Lease;
(4) the Mall Management Agreement and any Lease Transaction where the
interest created is a Permitted Lien;
(5) to the extent permitted under the covenant described above under the
caption "--Affiliate Transactions," any use or lease agreement between
Interface and Venetian relating to the Congress Center;
(6) the HVAC Services Agreement;
(7) the transactions and agreements described under the caption "Certain
Relationships and Related Party Transactions" under this prospectus, to the
extent such transactions or agreements constitute Lease Transactions, each
as in effect on the Issuance Date; and
(8) the Issuers or any Restricted Subsidiary may enter into a management
or operating agreement with respect to any Project Asset, including any
hotel (so long as such agreement does not cover any casino or gaming
operations) with any Person (other than an Unrestricted Subsidiary or
Affiliate of the Principal Stockholder); PROVIDED that the manager or
operator has experience in managing or operating similar operations or
assets and (ii) such management or operating agreement is on commercially
reasonable and fair terms to the Issuers or such Restricted Subsidiary (in
either case, in the reasonable judgment of the Issuers).
Notwithstanding the foregoing, the Issuers shall not be permitted to enter
into any Lease Transaction: (1) except in the case of clauses (1), (6) and
(8) above, if at the time of such proposed Lease Transaction, a Default or Event
of Default has occurred and is continuing or would occur immediately after
entering into such Lease Transaction (or immediately after any extension or
renewal of such Lease Transaction made at the option of the Issuers or any
Restricted Subsidiary); (2) no gaming or casino operations may be conducted on
any Project Asset that is the subject of such Lease Transaction other than by
the Issuers or a Restricted Subsidiary; and (3) no Lease Transaction may provide
that the Issuers or any Restricted Subsidiary may subordinate its fee or
leasehold interest to any lessee or any party providing financing to any lessee.
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The trustee shall at the request of the Issuers or any Restricted Subsidiary
enter into a commercially customary leasehold non-disturbance and attornment
agreement with the lessee under any Lease Transaction permitted under the
covenant described above. Such agreement, among other things, shall provide that
if the interests of the Issuers (or in the case of a Lease Transaction being
entered by a Restricted Subsidiary, the interests of the Restricted Subsidiary)
in the Project Assets subject to the Lease Transaction are acquired by the
trustee (on behalf of the holders of the notes), whether by purchase and sale,
foreclosure, or deed in lieu of foreclosure or in any other way, or by a
successor to the trustee, including without limitation a purchaser at a
foreclosure sale, then (1) the interests of the lessee in the Project Assets
subject to the Lease Transaction shall continue in full force and effect and
shall not be terminated or disturbed, except in accordance with the lease
documentation applicable to the Lease Transaction, and (2) the lessee in the
Lease Transaction shall attorn to and be bound to the trustee (on behalf of the
holders), its successors and assigns under all terms, covenants and conditions
of the lease documentation applicable to the Lease Transaction. Such agreement
shall also contain such other provisions that are commercially customary and
that will not materially and adversely affect the Lien granted by the Indenture
Deed of Trust (other than pursuant to the terms of the applicable
non-disturbance agreement) as certified to the trustee by an Officer of the
Company.
INSURANCE
The Issuers will, and will cause their Restricted Subsidiaries to, maintain
the specified levels of insurance set forth in the Cooperation Agreement
(whether or not the Cooperation Agreement is then in force). Additionally, the
Issuers will not amend, waive or modify the provisions applicable to such
insurance in the Cooperation Agreement.
OWNERSHIP OF UNRESTRICTED SUBSIDIARIES
If after the Issuance Date the Company or Venetian has made Investments of
at least $25.0 million in the Phase II Subsidiary, then until all of the Capital
Stock of the Phase II Subsidiary is sold or otherwise disposed of to any Person
other than an Affiliate of the Issuers, one of the Issuers will directly or
indirectly own at least a majority of the issued and outstanding Capital Stock
of Phase II Subsidiary (which is an Unrestricted Subsidiary); PROVIDEDthat the
Principal Stockholder or any of his Affiliates (other than the Issuers or any of
their Wholly-Owned Restricted Subsidiaries) will not purchase or otherwise
acquire, directly or indirectly, any of the Capital Stock of the Phase II
Subsidiary or any of its Subsidiaries.
NOTE GUARANTEES
The Issuers' obligations under the notes, the Indenture and the Collateral
Documents are jointly and severally, fully and unconditionally guaranteed on a
senior, second-lien secured basis by the Note Guarantors. The obligations of
each Note Guarantor under its Note Guarantee will be limited to the extent
necessary to ensure it does not constitute a fraudulent conveyance under
applicable law. See "Risk Factors--Federal and state statutes allow courts,
under specific circumstances, to void the guarantees and the liens securing the
guarantees and require noteholders to return payments received from us or the
guarantors."
Except in the event of a disposition of all or substantially all of the
assets of a Note Guarantor by way of merger or consolidation or other merger or
consolidation permitted by the terms of the Indenture in which the Note
Guarantor ceases to be a Restricted Subsidiary, no Note Guarantor
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shall consolidate with or merge with or into (whether or not such Note Guarantor
is the surviving Person), another Person, whether or not affiliated with such
Note Guarantor, unless:
(1) subject to the provisions of the following paragraph and certain
other provisions of the Indenture, the Person formed by or surviving any
such consolidation or merger (if other than such Note Guarantor) assumes all
the obligations of such Note Guarantor pursuant to a supplemental indenture
and supplemental Collateral Documents in form reasonably satisfactory to the
trustee pursuant to which such Person shall unconditionally guarantee, all
of such Note Guarantor's obligations under such Note Guarantee, the
Indenture and the Collateral Documents on the terms set forth in the
Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(3) such transaction will not result in the loss or suspension or
material impairment of any material Gaming License of the Issuers or any of
their Restricted Subsidiaries.
Notwithstanding anything herein to the contrary, a Note Guarantor may
consolidate with or merge with or into, or sell or otherwise dispose of all or
substantially all of its assets to, (a) one of the Issuers if the surviving
corporation (if other than the Issuers) expressly assumes such Note Guarantor's
obligations under the Indenture, or (b) another Note Guarantor.
In the event of:
(1) a sale or other disposition of all or substantially all of the
assets of any Note Guarantor, by way of merger, consolidation or otherwise,
(2) a Note Guarantor becoming an Unrestricted Subsidiary pursuant to the
terms of the Indenture,
(3) a sale or other disposition of all of the Capital Stock of any Note
Guarantor that is a Subsidiary or
(4) a sale of Capital Stock or other transaction which results in such
Note Guarantor ceasing to be a Restricted Subsidiary, then, without any
action required on the part of the trustee or any holder of the notes, such
Note Guarantor (in the event of a sale or other disposition, by way of such
a merger, consolidation or otherwise, of all or a portion of the Capital
Stock of such Note Guarantor or the Note Guarantor becoming an Unrestricted
Subsidiary pursuant to the terms of the Indenture) or the person acquiring
the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Note Guarantor) shall be released
and relieved of any obligations under its Note Guarantee without any action
required on the part of the trustee or any holder of the notes; PROVIDED
that (1) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof and (2) if applicable, the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions
of the Indenture relating to Asset Sales and the Collateral Documents. See
"--Repurchase at the Option of Holders--Asset Sales."
If any Note Guarantor is released from its Guarantee to the lenders under
any First Lien Credit Facility, such Note Guarantor shall be released from its
obligations under the Note Guarantee without any action required on the part of
the trustee or any holder of notes. A Note Guarantor may also be released from
its obligations under its Note Guarantee pursuant to the defeasance, amendment
and satisfaction and discharge provisions of the Indenture. See "--Amendment,
Supplement and Waiver," "--Legal Defeasance and Covenant Defeasance" and
"--Satisfaction and Discharge" below.
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If any domestic Restricted Subsidiary that is not a Note Guarantor becomes a
guarantor under the First Lien Credit Facilities, the Issuers will cause that
Restricted Subsidiary to:
(1) execute and deliver to the trustee a supplemental indenture and
supplemental Collateral Documents in form reasonably satisfactory to the
trustee pursuant to which that Restricted Subsidiary will unconditionally
guarantee, on a senior second lien secured basis, all of the Issuers'
obligations under the notes, the Indenture and the Collateral Documents on
the terms set forth in the Indenture and
(2) deliver to the trustee an opinion of counsel that, subject to
customary assumptions and exclusions, such supplemental indenture and
supplemental Collateral Documents have been duly executed and delivered by
such Restricted Subsidiary. The newly created Note Guarantee will be secured
by a second Lien or charge on all Note Collateral of that Restricted
Subsidiary, subject to Permitted Liens. Any such Note Guarantee will be
released if the Issuers or their Restricted Subsidiaries cease to own any
Equity Interests in such Restricted Subsidiary or if such Restricted
Subsidiary becomes an Unrestricted Subsidiary in accordance with the
Indenture.
FURTHER ASSURANCES
The Issuers will (and will cause each of their Restricted Subsidiaries to)
do, execute, acknowledge, deliver, record, re-record, file, re-file, register
and re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as may be reasonably
required from time to time in order:
(1) to carry out more effectively the express purposes of the Collateral
Documents,
(2) to subject to the Liens created by any of the Collateral Documents
any of the properties, rights or interests required to be encumbered thereby
and contemplated thereby,
(3) to perfect and maintain the validity, effectiveness and priority of
any of the Collateral Documents and the Liens intended to be created thereby
and contemplated thereby, and
(4) to better assure, convey, grant, assign, transfer, preserve, protect
and confirm to the trustee any of the rights granted or now or hereafter
intended by the parties thereto to be granted to the trustee or under any
other instrument executed in connection therewith or granted to the Issuers
under the Collateral Documents or under any other instrument executed in
connection therewith.
REPORTS
The Company will file with the trustee and provide holders of notes, within
15 days after it files them with the Securities and Exchange Commission, copies
of its annual report and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Securities and Exchange
Commission may by rule or regulation prescribe) which the Company is required to
file with the Securities and Exchange Commission pursuant to Section 13 or 15(d)
of the Securities Exchange Act. Notwithstanding that the Company may not be
required to remain subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting pursuant to
rules and regulations promulgated by the Securities and Exchange Commission, the
Company is obligated to continue to file with the Securities and Exchange
Commission and provide the trustee with, without cost to each holder,
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(a) within 90 days after the end of each fiscal year, annual reports on
Form 10-K (or any successor form) containing the information required to be
contained therein (or required in such successor form);
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor form);
and
(c) promptly from time to time after the occurrence of an event required
to be therein reported, such other reports on Form 8-K (or any successor
form) containing the information required to be contained therein (or
required in any successor form);
PROVIDED, HOWEVER, that the Company shall not be so obligated to file such
reports with the Securities and Exchange Commission if the Securities and
Exchange Commission does not permit such filings. If the parent company of the
Company guarantees the notes and such parent company is a reporting company
under section 13 or 15(d) of the Securities Exchange Act, the Company need not
comply with the reporting obligations above if the parent company makes such
filings or provides such information and any required financial information
concerning the Company under Regulation S-X is included in the parent company's
Securities Exchange Act reports. Upon request, the Company will in all cases,
without cost to each recipient, provide copies of such information to the
holders of the notes and, if it is not permitted to file such reports with the
Securities and Exchange Commission, shall make available such information to
prospective purchasers and to securities analysts and broker-dealers upon their
request. In addition, the Company 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.
Not later than the date of filing any annual report, the Company shall
deliver to the trustee an Officers' Certificate stating that each Restricted
Payment made in the prior four fiscal quarters was permitted and setting forth
the basis upon which the calculations required by the covenant relating to
"Restricted Payments" were computed, which calculations may be based upon the
Company's latest available financial statements at the time of such Restricted
Payment.
SECURITY
To the extent permitted by applicable law and subject to any required
approval of any Governmental Instrumentality, the notes are secured by a Lien on
the Note Collateral owned by the Issuers and each Note Guarantee are secured by
a Lien on the Note Collateral owned by each Note Guarantor, in each case whether
such Note Collateral is now owned or hereafter acquired, subject to Permitted
Liens. Such Lien is prior to all other Liens on the Note Collateral, except for
Permitted Liens, which includes the prior Lien on the Note Collateral securing
the Bank Credit Facility. The Issuers and the Note Guarantors are prohibited
from transferring any portion of the Note Collateral (other than cash) to the
Mall Subsidiary, so long as the Mall Subsidiary is a Restricted Subsidiary and
not a Note Guarantor, subject to any Lease Transaction permitted under
clause (1) of the covenant under the caption entitled "--Restrictions on Leasing
and Dedication of Property." The Liens securing the Bank Credit Facility are
prior to the Lien securing the Mortgage Notes. The Liens securing the Note
Guarantors' obligations with respect to their guarantees of the Bank Credit
Facility are prior to the Liens securing the Note Guarantees. The lenders under
the Bank Credit Facility have a first priority Lien on the Note Collateral and
the holders of the notes have a second priority Lien on the Note Collateral,
subject to Permitted Liens.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Collateral
Documents, the Issuers and their Restricted Subsidiaries will be entitled to use
the Note Collateral in a manner consistent with normal business practices. Upon
the occurrence and during the continuance of an Event of Default, but
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subject to certain terms, conditions and limitations in the Intercreditor
Agreement, the trustee may sell the Note Collateral or any part thereof in
accordance with the terms of the Collateral Documents. All funds distributed
under the Collateral Documents and received by the trustee for the benefit of
the holders of the notes shall be distributed by the trustee in accordance with
the provisions of the indenture. See "Description of Intercreditor Agreement"
under this prospectus.
Under the terms of the Collateral Documents but subject to certain terms,
conditions and limitations set forth in the Intercreditor Agreement, the trustee
will determine the circumstances and manner in which the Note Collateral shall
be disposed of, including, but not limited to, the determination of whether to
release all or any portion of the Note Collateral from the Liens created by the
Collateral Documents and whether to foreclose on the Note Collateral following
an Event of Default. Subject to certain additional provisions set forth in the
Indenture, the Note Collateral may be released from the Lien and security
interest created by the Indenture and the Collateral Documents at any time or
from time to time upon the request of the Issuers pursuant to an Officers'
Certificate certifying that all terms for release and conditions precedent under
the Indenture and under any applicable Collateral Document have been met and
specifying (1) the identity of the Note Collateral to be released and (2) the
provision of the indenture which authorizes such release.
The trustee shall release (at the sole cost and expense of the Issuers):
(1) all Note Collateral that is contributed, sold, leased, conveyed,
transferred or otherwise disposed of (including, without limitation, any
Note Collateral that does not constitute Project Assets), and all Note
Collateral that is contributed, sold, leased, conveyed, transferred or
otherwise disposed of to an Unrestricted Subsidiary, but excluding any such
contribution, sale, lease, conveyance, transfer or other distribution to the
Company or a Restricted Subsidiary); PROVIDED, such contribution, sale,
lease, conveyance, transfer or other disposition is or will be in accordance
with provisions of the Indenture, including, without limitation, if
applicable, the requirement that the net proceeds from such contribution,
sale, lease, conveyance, transfer or other disposition are or will be
applied (subject to the provisions of the Intercreditor Agreement) in
accordance with the Indenture and that no Default or Event of Default has
occurred and is continuing or would occur immediately following such
release;
(2) Note Collateral that is condemned, seized or taken by the power of
eminent domain or otherwise confiscated pursuant to an Event of Loss;
PROVIDED that the Net Loss Proceeds, if any, from such Event of Loss are or
will be applied in accordance with the covenant described above under
"--Event of Loss;"
(3) all Note Collateral which may be released with the consent of
holders pursuant to the amendment provisions of the Indenture;
(4) all Note Collateral (except as provided in the discharge and
defeasance provisions of the Indenture and, in particular, the funds in the
trust fund described in such provisions) upon discharge or defeasance of the
Indenture in accordance with the discharge and defeasance provisions of the
Indenture;
(5) all Note Collateral upon the payment in full of all obligations of
the Issuers with respect to the notes and the Note Guarantors with respect
the Note Guarantees;
(6) Note Collateral of a Note Guarantor whose Note Guarantee is released
pursuant to the terms of the Indenture;
(7) Note Collateral that is expressly required to be released by any
Collateral Document or the Intercreditor Agreement;
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(8) assets included in the Note Collateral with a fair market value as
determined in good faith by the Board of Directors of the Company of up to
$1.0 million in any calendar year, subject to cumulative carryover for any
amount not used in any prior calendar year; and
(9) assets if all other Liens on such assets securing any Credit
Facility or any other Indebtedness then secured by that asset (including all
commitments thereunder) are released, including any such release pursuant to
the release of Note Guarantees provisions under the Indenture; PROVIDED that
after giving effect to such releases, the aggregate book value of all of the
assets released under this clause (9) does not exceed 10% of the
Consolidated Total Assets of the Company as of the Issuance Date.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(1) default in payment when due and payable, upon redemption or
otherwise, of principal or premium, if any, on the notes or under any Note
Guarantee;
(2) default for 30 days or more in the payment when due of interest on,
or Liquidated Damages, if any, with respect to the notes or under any Note
Guarantee;
(3) failure by the Issuers or any Note Guarantor to offer to purchase or
to purchase the notes, in each case when required under an offer made
pursuant to the provisions of the Indenture;
(4) failure by the Issuers or any Note Guarantor for 30 days after
receipt of written notice from the trustee to comply with the provisions
described under the captions "--Restricted Payments" or "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(5) failure by the Issuers or any Note Guarantor for 60 days after
receipt of written notice from the trustee to comply with any of its other
agreements in the Indenture, the Collateral Documents, the notes or the Note
Guarantees; PROVIDED, HOWEVER, that any such failure with respect to any
Collateral Documents will not be deemed to have occurred for purposes of the
foregoing, and notice thereof shall not be deemed to have been delivered,
until the delivery of notice and the expiration of all available grace
periods provided for in the applicable Collateral Documents;
(6) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Issuers or any of their Restricted Subsidiaries or
default on any Guarantee by the Issuers or any of their Restricted
Subsidiaries of Indebtedness of a third party, whether such Indebtedness or
Guarantee now exists or is created after the Issuance Date, which default
(a) is caused by a failure to pay when due at final maturity (giving effect
to any grace period or waiver related thereto) the principal of such
Indebtedness (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 a Payment Default then
exists or with respect to which the maturity thereof has been so accelerated
or which has not been paid at maturity, aggregates $15.0 million or more;
(7) failure by the Issuers or any of their Restricted Subsidiaries to
pay final judgments aggregating in excess of $15.0 million, which final
judgments remain unpaid, undischarged or unstayed for a period of more than
60 days;
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(8) (a) except as permitted by the Indenture, any Note Guarantee or any
Collateral Document or any security interest granted thereby shall be held
in any judicial proceeding to be unenforceable or invalid, or shall cease
for any reason to be in full force and effect and such default continues for
10 days after written notice or (b) any Issuer or Note Guarantor, or any
Person acting on behalf of an Issuer or Note Guarantor, shall deny or
disaffirm its obligations under any Note Guarantee or Collateral Document,
in each of clauses (a) and (b), which would materially and adversely impair
the benefits to the trustee or the holders of the notes thereunder;
(9) certain events of bankruptcy or insolvency with respect to the
Issuers or any Note Guarantor that is a Significant Subsidiary of the
Issuers or any group of Note Guarantors that together would constitute a
Significant Subsidiary of the Issuers;
(10) 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 Project; or
(11) failure by Interface for 30 days after written notice to comply
with its obligations under the Cooperation Agreement with respect to a
change of control of Interface or a sale, transfer or other disposition by
Interface of its interest in the Expo Center or the incurrence by Interface
of Indebtedness.
Subject to the provisions of the Intercreditor Agreement, if any Event of
Default (other than by reason of bankruptcy or insolvency) occurs and is
continuing, the trustee or the holders of at least 25% in principal amount of
the then outstanding notes may declare the principal, premium and Liquidated
Damages, if any, interest and any other monetary obligations on all of the notes
to be due and payable immediately. See "Description of Intercreditor Agreement"
under this prospectus. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect to
the Issuers, or any Note Guarantor that is a Significant Subsidiary, all
outstanding notes will become due and payable without further action or notice.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust power, including (subject to limitations contained in the
Intercreditor Agreement) the exercise of any remedy under the Collateral
Documents or the Intercreditor Agreement. The trustee may withhold from holders
of notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. In addition, the
trustee shall have no obligation to accelerate the notes if in the best judgment
of the trustee acceleration is not in the best interest of the holders of the
notes.
At any time after a declaration of acceleration with respect to the notes
and under certain circumstances, the holders of a majority in aggregate
principal amount of notes outstanding may rescind and cancel such acceleration
and its consequences.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention and for the purpose of avoiding payment of the premium that the
Issuers would have had to pay if the Issuers 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.
The holders of 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
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Default in the payment of interest on, premium or Liquidated Damages, if any, or
the principal of, any note held by a non-consenting holder.
For a discussion of the effect of the Intercreditor Agreement on the ability
of the trustee or the holders of notes to exercise remedies after an Event of
Default, see "Description of Intercreditor Agreement" under this prospectus.
The Collateral Documents generally provide for the application of the
internal laws of the State of New York, except to the extent that (1) the laws
of Nevada are mandatory or (2) validity or perfection of security interests in
respect of certain items of collateral (such as real property) is governed by
the laws of the jurisdiction where such collateral is located. The Indenture,
the notes and any Note Guarantee are governed, with certain exceptions, by the
internal laws of the State of New York. There is no certainty regarding whether
New York or Nevada law would be applied by any court with respect to the
enforcement of remedies under the notes, the Indenture, any Note Guarantee or
the Collateral Documents.
Due to restrictions upon gaming activities in Nevada, the trustee may incur
delays or possibly frustration in its effort to sell all or a portion of the
Note Collateral. Operators of gaming facilities in Nevada are required to be
licensed and are required by applicable Gaming Authorities to file applications,
be investigated and be found suitable. Such requirements for governmental
approval may delay or preclude a sale of the Note Collateral to a potential
buyer at a foreclosure sale or sales. This may effectively limit the number of
potential bidders and may delay such sales, either of which could adversely
affect the sale price of the Note Collateral. In addition, the disposition of
Note Collateral consisting of gaming devices is subject to the prior approval of
the Nevada State Gaming Control Board. Moreover, the gaming industry could
become subject to different or additional regulations during the term of the
notes, which could further adversely affect the practical rights and remedies
that the trustee would have upon the occurrence of an Event of Default.
Before pursuing any foreclosures or otherwise executing on any of the Note
Collateral, the trustee will need to consider the effect of Nevada law, which
requires that where a debt is secured by real property, the debtor may require
the creditor to exhaust its real property security before pursuing a judicial
proceeding to obtain a monetary judgment against the debtor. If the creditor
attempts to collect the indebtedness without first exercising its remedies under
its deed of trust, the debtor could defend such action by requiring the creditor
to first exhaust its rights under the deed of trust through statutory
foreclosure proceedings. If, however, the debtor permitted the creditor to
obtain a judgment without first exhausting remedies under the deed of trust,
assuming such action was not stayed or dismissed before the entry of a final
monetary judgment, then under Nevada law the lien of the deed of trust would be
released and discharged. This Nevada law is referred to as the "One Action"
Rule.
Real property pledged as security may be subject to known and unknown
environmental risks or liabilities which can adversely affect the property's
value. In addition, under the federal Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), as amended, for example, a secured
lender may be held liable, in certain limited circumstances, for the costs of
remediating a release of or preventing a threatened release of hazardous
substances at a mortgaged property. There may be similar risks under state laws
or common law theories.
Under CERCLA, a person "who, without participating in the management of a...
facility, holds indicia of ownership primarily to protect his security interest"
is not a property owner, and thus not a responsible person under CERCLA. Lenders
have seldom been held liable under CERCLA. The lenders who have been found
liable have generally been found to have been sufficiently involved in the
mortgagor's operations so that they have "participated in the management of the
borrower." CERCLA does not specify the level of actual participation in
management. CERCLA was amended in 1996 to provide certain "safe harbors" for
foreclosing Lenders; HOWEVER, the courts have not yet
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issued any definitive interpretations of the extent of these safe harbors. There
is currently no controlling authority on this matter.
The trustee may appoint one or more collateral agents, who may be delegated
any one or more of the duties or rights of the trustee under the Collateral
Documents or which are specified in any Collateral Documents.
The Issuers are required to deliver to the trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required, within
ten Business Days, 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, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator, member or stockholder of the
Issuers or the Note Guarantors, as such, shall have any liability for any
obligations of the Issuers or the Note Guarantors under the notes, any Note
Guarantee, the Indenture, the Collateral Documents, as applicable, or for any
claim based on, in respect of, or by reason of such obligations or their
creation. Each holder of the 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 and the Note Guarantees.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Issuers and the Note Guarantors under the Indenture
will terminate (other than certain obligations) and the Note Collateral will be
released upon payment in full of all of the notes. The Issuers may, at their
option and at any time, elect to have all of their and any Note Guarantor's
obligations discharged with respect to the outstanding notes and any Note
Guarantees ("LEGAL DEFEASANCE") and cure all then existing Events of Default
except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due solely out of the trust created pursuant to the
Indenture,
(2) the Company's, Venetian's and any Note Guarantor'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 Issuers' and any Note Guarantor's obligations in connection
therewith and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuers may, at their option and at any time, elect to have
the obligations of the Issuers and any Note Guarantor released with respect to
certain covenants that are described in the Indenture ("COVENANT DEFEASANCE")
and, thereafter, any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"EVENTS OF DEFAULT" will no longer constitute an Event of Default with respect
to the notes. In addition, the Note Collateral will be released and the Note
Guarantees will be terminated and released upon Covenant Defeasance or Legal
Defeasance.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuers must irrevocably deposit 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, to pay the principal of, premium and Liquidated Damages,
if any, and interest due on the outstanding notes on the stated maturity
date or on the applicable redemption date, as the case may be, in
accordance with the terms of the Indenture;
(2) in the case of Legal Defeasance, the Issuers shall have delivered to the
trustee an opinion of tax counsel in the United States reasonably
acceptable to the trustee confirming that (A) the Issuers have received
from the United States Internal Revenue Service a ruling (a copy of which
shall accompany such opinion of counsel) or (B) since the Issuance Date
of the Indenture, there has been a change in the applicable U.S. federal
income tax law such that a ruling is no longer required, in either case
to the effect that, and based thereon such opinion of tax counsel in the
United States shall confirm that, subject to customary assumptions and
exclusions, the holders of the outstanding notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of
such Legal Defeasance and will be subject to U.S. 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 Issuers shall have delivered to
the trustee an opinion of tax 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 U.S. federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
such 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
with respect to certain Events of Default on the date of such deposit;
(5) such Legal Defeasance or Covenant Defeasance shall 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 Issuers
or any of their Restricted Subsidiaries is a party or by which the
Issuers or any of their Restricted Subsidiaries is bound;
(6) the Issuers shall 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 under any applicable United States state law;
(7) the Issuers shall have delivered to the trustee an Officers' Certificate
stating that the deposit was not made by the Issuers with the intent of
defeating, hindering, delaying or defrauding any creditors of the Issuers
or others; and
(8) the Issuers shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel in the United States (which opinion of counsel
may be subject to customary assumptions and exclusions) each stating that
all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, have been complied with.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder and all Liens securing the notes and obligations
under the Indenture including the Note Guarantees will be released, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to
the Issuers, have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have (1) become due and payable by reason of the mailing
of a notice of redemption or otherwise, (2) will become due and
payable within one year or (3) are to be called for redemption within
12 months under arrangements reasonably satisfactory to the trustee
for the giving of notice of redemption by the trustee in the name,
and at the reasonable expense of the Issuers, and the Issuers or any
Note Guarantor have irrevocably deposited or caused to be deposited
with the trustee as trust funds in trust solely for the benefit of
the holders, cash in U.S. dollars, non-callable Government
Securities, or a combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and discharge
the entire Indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium and Liquidated Damages, if any,
and accrued but unpaid interest to the date of maturity or
redemption;
(2) no Default of Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other material instrument to which the Issuers or any
Note Guarantor is a party or by which the Issuers or any Note Guarantor
are bound;
(3) the Issuers or any Note Guarantor have paid or caused to be paid all
sums payable by them under the Indenture; and
(4) the Issuers have delivered irrevocable instructions to the trustee under
the Indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, the Issuers must deliver an officer's certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange 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 Issuers may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers are not required to transfer or exchange any note
selected for redemption. Also, the Issuers are not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Indenture,
the notes, the Note Guarantees, the Collateral Documents or the Intercreditor
Agreement may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
notes), and any existing default or event of default (other than a default or
event of default in the payment of principal of, premium and liquidated damages,
if any, or interest on the notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of the
Indenture, the notes, the Note Guarantees, the Collateral Documents or the
Intercreditor Agreement may be waived with the consent of the holders of a
majority in principal amount of the then outstanding notes (including consents
obtained in connection with a tender offer or exchange offer for the notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a nonconsenting holder of notes):
(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 or waive any of the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described above under
the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest,
including default interest, on any note;
(4) waive a Default or Event of Default in the payment of principal of,
premium and Liquidated Damages, 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 then outstanding 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;
(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 and Liquidated Damages, if any, or
interest on the notes;
(7) release all or substantially all of the Note Collateral from the
Lien of the Indenture or the Collateral Documents (other than in accordance
with the Indenture and the Collateral Documents); or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of notes,
the Issuers, the Note Guarantors and the Trustee together may amend or
supplement the Indenture, the notes, the Note Guarantees or the Collateral
Documents to cure any ambiguity, defect or inconsistency, to comply with the
covenant relating to mergers, consolidations and sales of assets, to provide for
uncertificated notes in addition to or in place of certificated notes, to
provide for the assumption of the Issuers' or the Note Guarantors' obligations
to holders of the notes in the case of a merger, consolidation or asset sale, to
make any change that would provide any additional rights or benefits to the
holders of the notes (including providing for additional guarantees or
collateral), or that does not adversely affect the legal rights under the
Indenture, the Collateral Documents or the Intercreditor Agreement of any such
holder, to comply with requirements of the Securities and Exchange Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act or to enter into additional or supplemental Collateral Documents.
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In addition, without the consent of any holder of notes, any amendment,
waiver or consent (other than the release of Note Collateral) agreed to by the
Credit Agent under any provision of the security documents granting the
first-priority lien on any Note Collateral to secure the obligations under the
Bank Credit Facility will automatically apply to the comparable provisions of
the comparable Collateral Documents entered into in connection with the notes,
without the consent of any holder of a note, so long as the holders of the notes
are treated equally with and in the same manner as the lenders under the Bank
Credit Facility. The Issuers will also be entitled to other releases of the Note
Collateral or the Note Guarantees as described above under the caption "--Note
Guarantees" and "--Security."
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The trustee is permitted to engage in other
transactions; HOWEVER, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Securities and Exchange Commission
for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy, available to the trustee, subject to certain
exceptions. In case an Event of Default shall occur (which shall not be cured),
the trustee is required, in the exercise of its power, to use the degree of care
of a prudent person 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 notes,
unless such holder shall have offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense. The trustee was also
the trustee under our 12 1/4% Mortgage Notes due 2004 that were redeemed on
July 5, 2002.
GOVERNING LAW
The Indenture and the notes are, subject to certain exceptions, governed by
and construed in accordance with the internal laws of the State of New York,
without regard to the choice of law rules thereof. The Collateral Documents are
governed by the laws of the State of New York, except to the extent that
(1) the laws of Nevada are mandatory or (2) validity or perfection of security
interests in respect of certain items of collateral, including, without
limitation, real property, is governed by the laws of the jurisdiction where
such collateral is located.
ADDITIONAL INFORMATION
Any holder of the notes or prospective investor may obtain a copy of the
Indenture, the Registration Rights Agreement and the Collateral Documents
without charge by writing to Las Vegas Sands, Inc., 3355 Las Vegas Boulevard
South, Las Vegas, Nevada 89109; Attention: Corporate Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for full disclosure of all 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,
(i) Indebtedness of any other Person existing at the time such other Person
merged with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in
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contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness encumbering
any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), 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; PROVIDED, HOWEVER,
that beneficial ownership of 20% or more of the voting securities of a Person
shall be deemed to be control.
"APPLICABLE TAX PERCENTAGE" means the highest aggregate effective marginal
rate of federal, state and local income tax or, when applicable, alternative
minimum tax, to which any direct or indirect member or S corporation shareholder
of the Issuers subject to the highest marginal rate of tax would be subject in
the relevant year of determination (as certified to the trustee by an officer's
certificate), taking into account only that member's or S corporation
shareholder's share of income and deductions attributable to its interest in the
Issuers in the relevant year of determination.
"APPRAISED VALUE" means the value of any assets, as set forth in an MAI
Appraisal from a nationally-recognized appraisal firm not given more than
90 days prior to contribution of such assets.
"ASSET SALE" means (1) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of assets
or rights (including by way of a sale and leaseback) of the Issuers or any
Restricted Subsidiary (each referred to in this definition as a "DISPOSITION")
or (2) the issuance or sale of Equity Interests of any Restricted Subsidiary
other than Venetian (whether in a single transaction or a series of related
transactions), in each case, other than:
(1) a disposition of inventory or goods in the ordinary course of business
or a disposition of obsolete assets;
(2) the disposition of all or substantially all of the assets of, or a
merger or similar transfer of, either of the Issuers in a manner
permitted pursuant to the provisions described above under the caption
"Certain Covenants--Merger, Consolidation or Sale of Assets" or any
disposition that constitutes a Change of Control pursuant to the
Indenture;
(3) any disposition that is a Restricted Payment or that is a dividend or
distribution permitted under the covenant described above under the
caption "Certain Covenants--Restricted Payments" or any Investment that
is not prohibited thereunder or any disposition of cash or Cash
Equivalents;
(4) any single disposition, or related series of dispositions, of assets
with an aggregate fair market value of less than $1.0 million;
(5) any Event of Loss;
(6) any Lease Transaction or any grant of easement or Permitted Liens or
Hedging Obligations permitted by the Indenture;
(7) any dedication permitted pursuant to the covenant described above under
the caption "Certain Covenants--Restrictions on Leasing and Dedication of
Property;"
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(8) a transfer of assets by the Issuers to a Wholly Owned Restricted
Subsidiary of the Issuers or by a Wholly Owned Restricted Subsidiary of
the Issuers to another Wholly Owned Restricted Subsidiary of the Issuers
or from one Issuer to another Issuer;
(9) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary
of the Issuers to the Issuers or another Wholly Owned Restricted
Subsidiary of the Issuers or from one Issuer to another Issuer;
(10) any sale, conveyance, transfer or other disposition of property that
secures Non-Recourse Financing that is to or on behalf of the lender of
such Non-Recourse Financing; or
(11) any licensing of tradenames or trademarks in the ordinary course of
business by any of the Issuers or their Restricted Subsidiaries.
"BANK CREDIT FACILITY" means that certain Credit Agreement among the Company
and Venetian, as borrowers, the lenders listed therein, The Bank of Nova Scotia,
as administrative agent, joint lead arranger and joint bookrunner, Goldman Sachs
Credit Partners L.P., as joint lead arranger, joint bookrunner and syndication
agent, together with all related agreements, instruments and documents executed
or delivered pursuant thereto at any time (including, all notes, mortgages,
guarantees, security agreements and all other collateral and security
documents), in each case as such agreements, instruments and documents may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the aggregate principal amount that may be borrowed thereunder) all
or any portion of the Indebtedness and other obligations under such agreement or
agreements or any successor or replacement agreement or agreements, and whether
by the same or any other agent, lender or group of lenders.
"BILLBOARD LEASE" means that certain Lease Agreement by and between Venetian
and Mall Subsidiary relating to certain space that is subleased by H&H of
Nevada, LLC., as amended from time to time in accordance with the terms thereof.
"CANYON RANCH LEASE" means that certain Lease Agreement by and between
Venetian and Mall Subsidiary relating to certain space that is subleased by CR
Las Vegas, LLC, as amended from time to time in accordance with the terms
thereof.
"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 and reflected as a liability on the
balance sheet in accordance with GAAP.
"CAPITAL STOCK" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
equity of such Person, including if such Person is a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and 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, such partnership or limited liability company.
"CASH EQUIVALENTS" means:
(a) United States dollars,
(b)(i) direct obligations of the United States of America (including
obligations issued or held in book-entry form on the books of the Department
of the Treasury of the United States of America) or obligations fully
guaranteed by the United States of America, (ii) obligations, debentures,
notes or other evidence of indebtedness issued or guaranteed by any other
agency or instrumentality of the United States, (iii) interest-bearing
demand or time deposits
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(which may be represented by certificates of deposit) issued by banks having
general obligations rated (on the date of acquisition thereof) at least "A"
by Standard & Poor's Ratings Group ("S&P") or "A2" by Moody's Investors
Service, Inc. ("MOODY'S") (S&P and Moody's together with any other
nationally recognized credit rating agency if neither of such entities is
then currently rating the pertinent obligations, a "RATING AGENCY") or the
equivalent by another Rating Agency, if applicable, or, if not so rated,
secured at all times, in the manner and to the extent provided by law, by
collateral security in clause (i) or (ii) of this definition, of a market
value of no less than the amount of monies so invested, (iv) commercial
paper rated (on the date of acquisition thereof) at least "A-1" or "P-1" or
the equivalent by any Rating Agency issued by any Person, (v) repurchase
obligations for underlying securities of the types described in clause (i)
or (ii) above, entered into with any commercial bank or any other financial
institution having long-term unsecured debt securities rated (on the date of
acquisition thereof) at least "A" or "A2" or the equivalent by any Rating
Agency in connection with which such underlying securities are held in trust
or by a third-part custodian, (vi) guaranteed investment contracts of any
financial institution which has a long-term debt rated (on the date of
acquisition thereof) at least "A" or "A2" or the equivalent by any Rating
Agency, (vii) obligations (including both taxable and nontaxable municipal
securities) issued or guaranteed by, and any other obligations the interest
on which is excluded from income for Federal income tax purposes issued by,
any state of the United States of America or the District of Columbia or the
Commonwealth of Puerto Rico or any political subdivision, agency, authority
or instrumentality thereof, which issuer or guarantor has (A) a short-term
debt rated (on the date of acquisition thereof) at least "A-1" or "P-1" or
the equivalent by any Rating Agency and (B) a long-term debt rated (on the
date of acquisition thereof) at least "A" or "A2" or the equivalent by any
Rating Agency, (viii) investment contracts of any financial institution
either (A) fully secured by (1) direct obligations of the United States,
(2) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States or (3) securities or receipts
evidencing ownership interest in obligations or specified portions thereof
described in clause (1) or (2), in each case guaranteed as full faith and
credit obligations of the United States of America, having a market value at
least equal to 102% of the amount deposited thereunder, or (B) with
long-term debt rated (on the date of acquisition of such investment
contract) at least "A" or "A2" or the equivalent by any Rating Agency and
short-term debt rated (on the date of acquisition of such investment
contract) at least "A-1" or "P-1" or the equivalent by any Rating Agency,
(ix) a contract or investment agreement with a provider or guarantor
(A) which provider or guarantor is rated (on the date of acquisition of such
contract or investment agreement) at least "A" or "A2" or the equivalent by
any Rating Agency (provided that if a guarantor is party to the rating, the
guarantee must be unconditional and must be confirmed in writing prior to
any assignment by the provider to another subsidiary of such guarantor),
(B) providing that monies invested shall be payable without condition (other
than notice) and without brokerage fee or other penalty, upon not more than
two Business Days' notice for application when and as required or permitted
under the Collateral Documents, and (C) stating that such contract or
agreement is unconditional, expressly disclaiming any right of setoff and
providing for immediate termination in the event of insolvency of the
provider and termination upon demand of (subject to the rights of creditors
with prior Liens) the Trustee (which demand shall only be made at the
direction of the Company) after any payment or other covenant default by the
provider, or (x) any debt instruments of any Person which instruments are
rated (on the date of acquisition thereof) at least "A," "A2," "A-1" or
"P-1" or the equivalent by any Rating Agency; provided that in each case of
clauses (i) through (x), such investments are denominated in United States
dollars and maturing not more than 13 months from the date of acquisition
thereof;
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(c) investments in any money market fund which is rated (on the date of
acquisition thereof) at least "A" or "A2" or the equivalent by any Rating
Agency;
(d) investments in mutual funds sponsored by any securities
broker-dealer of recognized national standing having an investment policy
that requires substantially all the invested assets of such fund to be
invested in investments described in any one or more of the foregoing
clauses and having a rating of at least "A" or "A2" or the equivalent by any
Rating Agency or
(e) investments in both taxable and nontaxable (i) periodic auction
reset securities which have final maturities between one and 30 years from
the date of issuance and are repriced through a dutch auction or other
similar method every 35 days or (ii) auction preferred shares which are
senior securities of leveraged closed end municipal bond funds and are
repriced pursuant to a variety of rate reset periods, in each case having a
rating (on the date of acquisition thereof) of at least "A" or "A2" or the
equivalent by any Rating Agency.
"CASINO LEASE" means that certain lease between the Company and Venetian
dated as of November 1997 with respect to the operation of the Casino for the
Project, as amended, revised or modified from time to time in accordance with
the terms thereof.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, lease or transfer, in one or a series of transactions, of
all or substantially all of the assets of the Issuers and their Restricted
Subsidiaries, taken as a whole (except in connection with an Event of Loss),
other than to the other Issuer, the Principal Stockholder and his Related
Parties;
(2) either of the Issuers becomes aware of (by way of a report or any
other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote,
written notice or otherwise) the acquisition by any person or group (within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or
any successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, or any successor provision), other
than the other Issuer, the Principal Stockholder and its Related Parties, in
a single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision) of 50% or more of the total voting power of
the Voting Stock of the Issuers;
(3) the first day within any two-year period on which a majority of the
members of the Board of Directors of the Company are not Continuing
Directors; or
(4) the adoption of a plan relating to liquidation or dissolution of
either of the Issuers or any Note Guarantor (except liquidation of
(a) Venetian into the Company and (b) any Note Guarantor into the Company,
Venetian or another Note Guarantor).
For purposes of this definition, any holding company whose only significant
asset is the Capital Stock of one or more of the Issuers shall be disregarded
and the beneficial ownership of such holding company shall be attributed to the
Issuer or Issuers so held and any Person which has entered into an agreement to
acquire any Capital Stock of either of the Issuers shall not be deemed to have
any beneficial ownership of such Capital Stock until the closing of such
acquisition.
"CODE" means, the Internal Revenue Code of 1986, as amended (or any
successor statute thereto).
"COLLATERAL DOCUMENTS" means, collectively, the Indenture Deed of Trust, the
Security Agreement, the Indenture Environmental Indemnity or any other
agreements, instruments, financing
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statements or other documents that evidence, set forth or limit the Lien of the
trustee in the Note Collateral.
"COMMON STOCK" means the Common Stock, par value $0.10 per share, of the
Company.
"COMPANY" means Las Vegas Sands, Inc., a Nevada corporation, or any
successor thereto that is permitted under the Indenture.
"COMPLETED" or "COMPLETION" has the meaning given to the term "Substantial
Completion" under the Bank Credit Facility.
"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 plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing Consolidated
Net Income), plus (2) provision for taxes based upon net income or net profits
of such Person and its Restricted Subsidiaries to the extent such provision for
taxes was deducted in computing Consolidated Net Income, plus (3) Consolidated
Interest Expense of such Person for such period to the extent such expenses were
deducted in computing Consolidated Net Income (not including any gaming revenue
tax), plus (4) Consolidated Depreciation and Amortization Expense of such Person
for such period to the extent such expenses were deducted in computing
Consolidated Net Income, minus (5) non-cash items increasing such Consolidated
Net Income for such period other than the accrual of revenue in the ordinary
course of business, in each case, on a consolidated basis for such Person and
its Restricted Subsidiaries and determined in accordance with GAAP.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means, with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other noncash expenses (excluding any noncash expense that
represents an accrual or reserve for a cash expenditure for a future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period on a consolidated basis
as defined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period, the sum
of (1) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, to the extent such
expense was deducted in computing Consolidated Net Income (including original
issue discount and deferred financing fees, non-cash interest payments, the
interest component of Capital Lease Obligations, and net payments (if any)
pursuant to Hedging Obligations, but excluding amortization of debt issuance
costs and deferred financing fees), (2) commissions, discounts and other fees
and charges paid or accrued with respect to letters of credit and bankers'
acceptance financing and (3) to the extent not included above, the maximum
amount of interest which would have to be paid by such Person or its Restricted
Subsidiaries under a Guarantee of Indebtedness (other than the Permitted Macau
Guarantee) of any other Person if such Guarantee were called upon.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, HOWEVER, that (1) the Net Income for such period 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 (or to the extent converted into cash) to the
referent Person, an Issuer or a Wholly Owned Subsidiary thereof in respect of
such period, (2) the Net Income for such period of any Restricted Subsidiary
that is not a Note Guarantor shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of its Net Income is not at the date of determination permitted
without any prior governmental approval
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(which has not been obtained) or, directly or indirectly, by the 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, unless such restriction with respect to the
payment of dividends or in similar distributions has been legally waived or such
restriction is otherwise permitted under the covenant contained in the caption
entitled "--Dividend and Other Payment Restrictions Affecting Subsidiaries,"
(3) the cumulative effect of a change in accounting principles shall be
excluded, (4) no effect shall be given to any minority or preferred interest in
Venetian for purposes of computing Consolidated Net Income and (5) Consolidated
Net Income shall be adjusted (to the extent included in calculating such
Consolidated Net Income) by excluding without duplication all extraordinary
gains and losses and all expenses, amortization and charges associated with the
Refinancing Transactions.
"CONSOLIDATED TOTAL ASSETS" means, as of the Issuance Date with respect to
the Company, $1,390,228,000.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors who (1) was a member of such Board of Directors on the
Issuance Date, (2) was nominated for election or elected to such Board of
Directors with, or whose election to such Board of Directors was approved by,
the affirmative vote of a majority of the Continuing Directors who were members
of such Board of Directors at the time of such nomination or election or
(3) was appointed or elected to such Board of Directors by the Principal
Stockholder or a Related Party.
"COOPERATION AGREEMENT" means that certain Amended and Restated Reciprocal
Easement, Use and Operating Agreement, originally among the Mall Construction
Subsidiary, Venetian and Interface, as amended, revised or modified from time to
time in accordance with its terms.
"CREDIT AGENT" means The Bank of Nova Scotia, in its capacity as the
administrative agent under the Bank Credit Facility and its successors in such
capacity.
"CREDIT FACILITIES" means, one or more debt facilities (including, without
limitation, the Bank Credit Facility) or commercial paper facilities, in each
case with banks or other 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, or any debt securities or other
form of debt financing (including convertible or exchangeable debt instruments)
in each case, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"DEBT TO CASH FLOW RATIO" means with respect to any Person, as of any date
of determination, the ratio of (a) the consolidated Indebtedness of such Person
and its Restricted Subsidiaries as of such date to (b) the Consolidated Cash
Flow of such Person and its Restricted Subsidiaries for the four most recent
full fiscal quarters completed since the Phase IA Completion Date ending
immediately prior to such date of determination for which internal financial
statements are available, determined on a pro forma basis after giving effect to
all acquisitions or dispositions of assets made by such Person and its
Restricted Subsidiaries from the beginning of such four-quarter period through
and including such date of determination (including any related financing
transactions) as if such acquisitions and dispositions had occurred at the
beginning of such four-quarter period. In the event that four full fiscal
quarters have not been completed since the Phase IA Completion Date, then as
long as one full fiscal quarter has been so completed, the completed full fiscal
quarters since the Phase IA Completion Date shall be annualized for purposes of
calculating Consolidated Cash Flow. In addition, for purposes of making the
computation referred to above, the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the date of determination, shall be excluded.
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"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DEFEASANCE TRUST AGREEMENT" means the Defeasance Trust Agreement, dated the
Issuance Date, by and among the Issuers, Mall Intermediate Holdings, Mall
Construction Subsidiary, Phase II Intermediate Holdings and the trustee with
respect to the Issuers' 12 1/4% Mortgage Notes due 2004.
"DISQUALIFIED STOCK" means any Capital Stock which, 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), 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 three months after the date on which the
notes mature; PROVIDED, HOWEVER, that any Capital Stock which would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require the Issuers to repurchase or redeem such Capital Stock upon
the occurrence of a change of control, and event of loss or an asset sale
occurring prior to the final maturity of the notes shall not constitute
Disqualified Stock if the change of control provisions, event of loss
provisions, or asset sale provisions, as the case may be, applicable to such
Capital Stock specifically provide that the Issuers will not repurchase or
redeem any such stock pursuant to such provisions prior to the Company's and
Venetian's compliance with the provisions of the Indenture, including the
covenant described under "Repurchase at the Option of Holders--Change of
Control," "--Event of Loss" and "--Asset Sales."
"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).
"EQUITY OFFERING" means any sale of Equity Interests of the Issuers (or any
parent company or managing member of the Issuers if the proceeds are contributed
to or used to purchase Equity Interests of the Issuers), excluding sales made to
any Restricted Subsidiary and excluding sales of Disqualified Stock, to the
public under an effective registration statement under the Securities Act or in
a private placement under an exemption from the registration requirements of the
Securities Act or any capital contribution in respect of such Equity Interests
of the Issuers.
"EQUITY OFFERING PROCEEDS" means the gross aggregate proceeds from an Equity
Offering.
"ESTIMATION PERIOD" means the period for which a shareholder, partner or
member, who is an individual is required to estimate for federal income tax
purposes his allocation of taxable income from a Subchapter S corporation or any
entity that is treated as a partnership for federal income tax purposes in
connection with determining his or her estimated federal income tax liability
for such period.
"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 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 (3) any settlement in lieu of clause (2)
above.
"EXCHANGE NOTES" means the notes issued pursuant to the Exchange Offer.
"EXCHANGE OFFER" means the exchange offer made pursuant to the Registration
Rights Agreement.
"EXISTING INDEBTEDNESS" means the Indebtedness listed on a schedule to the
Indenture.
"EXPO CENTER" means the Sands Expo and Convention Center.
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"FIRST LIEN CREDIT FACILITIES" means any Indebtedness that is secured by
Permitted Liens as described in clause (13) or clause (19) of the definition
thereof and has a first priority Lien, subject to Permitted Liens, on any Note
Collateral.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any 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
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees,
redeems, repays or defeases any Indebtedness (other than revolving credit
borrowings) or issues, repurchases 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 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 or redemption of Indebtedness and the use of proceeds
therefrom, or such issuance, repurchase or redemption of Preferred Stock and the
use of proceeds therefrom, as if the same had occurred at the beginning of the
applicable four-quarter period. For purposes of making the computation referred
to above, acquisitions, dispositions and discontinued operations (as determined
in accordance with GAAP) that have been made by the Company or any of its
Restricted Subsidiaries, including all mergers, consolidations and dispositions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be calculated on a pro forma basis
assuming that all such acquisitions, dispositions, discontinued operations,
mergers, consolidations (and the reduction of any associated fixed charge
obligations resulting therefrom) had occurred on the first day of the
four-quarter reference period.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (1) Consolidated Interest Expense of such Person for
such period and (2) all capitalized interest of such Person and its Restricted
Subsidiaries and (3) the product of (a) to the extent such Person is not treated
as an S corporation, a partnership or a substantially similarly treated
pass-through entity for federal income tax purposes, all dividend payments,
whether or not in cash on any series of Preferred Stock of such Person or any of
its Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests or dividends paid as an increase in liquidation
preference on Preferred Stock, 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 income tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP MINUS
all one-time charges, expenses and amortization costs relating to Refinancing
Transactions paid on the Issuance Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries (without giving effect to
any minority or preferred interest of Venetian) and shall not include any
Unrestricted Subsidiary.
"GAMING 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, the Nevada Gaming Commission, the Nevada
State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board
and any other agency with authority to regulate any gaming operation (or
proposed gaming operation) owned, managed or operated by the Issuers or any of
their Subsidiaries.
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"GAMING LICENSE" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct activities of the Issuers
or any of their Restricted Subsidiaries, including without limitation, all such
licenses granted under the Nevada Gaming Control Act, and the regulations
promulgated pursuant thereto, and other applicable federal, state, foreign or
local laws.
"GOVERNMENT INSTRUMENTALITY" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, bureau or entity, (including any zoning authority, the
Federal Deposit Insurance Corporation, the Comptroller of the Currency or the
Federal Reserve Board, any central bank or any comparable authority) or any
arbitrator with authority to bind a party at law.
"GOVERNMENT SECURITIES" means securities that are (1) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; PROVIDED, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"GRAND CANAL SHOPS MALL SUBSIDIARY" means Grand Canal Shops Mall Subsidiary,
LLC, a Delaware limited liability company.
"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, letters of credit and
reimbursement agreements in respect thereof and cash collateral accounts), of
all or any part of any Indebtedness.
"HARRAH'S ROAD WAY AGREEMENT" means an agreement between Venetian and
Harrah's Casino Resort as amended, revised, modified or restated, with respect
to the sharing of the common roadway between the parties and certain plans with
respect to the improvements to be made thereto.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (1) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (2) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"HVAC PROVIDER" means Sempra Energy Solutions, successor to
Atlantic-Pacific, Las Vegas, LLC, a Delaware limited liability company.
"HVAC SERVICES AGREEMENT" means, collectively (1) that certain Energy
Services Agreement between Venetian and the HVAC Provider, (2) that certain
Ground Lease between Venetian and the HVAC Provider, (3) that certain
Construction Agency Agreement between Venetian and the HVAC Provider and
(4) that certain Energy Services Agreement between Mall Subsidiary and the HVAC
Provider, in each case, as amended from time to time in accordance with its
terms.
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"INDEBTEDNESS" means, with respect to any Person, (1) any indebtedness of
such Person, whether or not contingent (a) in respect of borrowed money,
(b) evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (c) representing the
balance deferred and unpaid of the purchase price of any property (including
Capital Lease Obligations), except any such balance that constitutes an accrued
expense or trade payable, or (d) representing any Hedging Obligations, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, (2) to the extent not otherwise
included, any obligation by such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business) and (3) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person). For purposes of this definition, the
term "Indebtedness" shall not include (a) any amount of the liability in respect
of an operating lease that at such time would not be required to be capitalized
and reflected as a liability on the balance sheet in accordance with GAAP,
(b) any obligation under the HVAC Services Agreement as in effect on the
Issuance Date or (c) any surety bonds for claims underlying mechanics liens and
any reimbursement obligations with respect thereto so long as such reimbursement
obligations are not then due, or are promptly paid when due. The amount of any
Indebtedness outstanding as of any date shall be (a) the accreted value thereof,
in the case of any Indebtedness with original issue discount, and (b) the
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness. Notwithstanding
anything in the Indenture to the contrary, Indebtedness of the Issuers and their
Restricted Subsidiaries shall not include any Indebtedness that has been either
satisfied and discharged or defeased through covenant defeasance or legal
defeasance.
"INDENTURE DEED OF TRUST" means that certain Deed of Trust, Leasehold Deed
of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing
made by the Company and Venetian, as trustor, to First American Title Insurance
Company, as trustee, for the benefit of the trustee, as beneficiary, as amended,
modified or revised from time to time in accordance with its terms and the
Indenture.
"INDENTURE ENVIRONMENTAL INDEMNITY" means the Unsecured Indemnity Agreement,
dated as of the Issuance Date, by the Company and Venetian to and for the
benefit of the trustee, as amended, modified or revised in accordance with its
terms.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal or investment
banking or financial advisory firm of nationally or internationally recognized
standing that is not an Affiliate of the Company, the Principal Stockholder or
its Related Parties.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, dated as of the
Issuance Date, between The Bank of Nova Scotia, as Credit Agent acting on behalf
of the other Lenders pursuant to the Bank Credit Facility, the trustee, acting
on behalf of the holders of the notes, and the Bank of Nova Scotia as
Intercreditor Agent, as amended, modified or restated form time to time in
accordance with its terms and any other intercreditor agreement entered into by
the trustee on behalf of the holders of notes and pursuant to the provisions of
the Indenture, as amended, revised, modified or restated from time to time in
accordance with its terms.
"INTERFACE" means Interface Group-Nevada, Inc., a Nevada corporation.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
Guarantees), 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
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Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"INVESTMENT GRADE" means, with respect to any Indebtedness, a credit rating
of such Indebtedness of Baa3 or higher by Moody's or BBB- or higher by S&P,
provided, that if either Moody's or S&P is not then rating the pertinent
Indebtedness, an equivalent or higher rating by a nationally recognized credit
rating agency may be substituted.
"ISSUANCE DATE" means the closing date for the sale and issuance of the
initial notes.
"LENDERS" means any of the lenders under the Bank Credit Facility.
"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 or any lease in the
nature thereof).
"LUTECE LEASE" means that certain Lease Agreement by and between Venetian
and Mall Subsidiary relating to certain space that is subleased by Las Vegas
Lutece Corp., as amended from time to time in accordance with the terms thereof.
"MACAU CASINO" means the proposed casino or casinos to be operated in Macau,
China, to be owned and operated by one or more of the Macau Entities.
"MACAU ENTITIES" means, with respect to the Issuers, any entity in which the
Issuer or any Restricted Subsidiary has a direct or indirect Investment, whose
purpose is to manage, develop, construct, maintain or operate one or more
hotels, casinos, conference centers and retail and entertainment complexes in
Macau or assist in any of the foregoing hotel, casino, retail, meeting and
entertainment complex in Macau or any entity which owns any such entity.
"MACAU FEES" means management, consulting, marketing, licensing or other
fees or payments (other than reimbursements or repayments of loans) from the
Macau Casino.
"MAI APPRAISAL" means an appraisal conducted by a member of the Appraisal
Institute in accordance with the standards of the Appraisal Institute.
"MALL" means that certain enclosed retail, dining and entertainment complex
of approximately 446,000 net leasable square feet otherwise known as The Grand
Canal Shoppes Mall.
"MALL COLLATERAL" means all of the Issuers' and their Restricted
Subsidiaries' right, title, and interest in and to (1) the leasehold estate
created by the Billboard Lease, the Canyon Ranch Lease and the Lutece Lease;
(2) the Mall and any related improvements (including expansions) and equipment
thereto; (3) any reserves established by the Issuers or any of their Restricted
Subsidiaries relating to the Mall; and (4) any and all rents or other income
derived from the Mall pledged under any and all security agreements and an
assignment of leases and rents creating a security interest in such rents and
other income.
"MALL CONSTRUCTION SUBSIDIARY" means Grand Canal Shops Mall Construction,
LLC, a Delaware limited liability company.
"MALL FINANCING AGREEMENT" means the agreement between Mall Subsidiary and
Archon Financial, L.P., dated as of the Issuance Date, together with all related
agreements, instruments and documents executed or delivered pursuant thereto at
any time (including, without limitation, all mortgages, guarantees, security
agreements and all other collateral and security documents), in each case as
such agreements, instruments and documents may be amended (including any
amendment and restatement thereof), supplemented, refinanced, replaced, extended
or otherwise modified from time to time, (including any agreement extending the
maturity of, replacing or
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otherwise restructuring (including increasing the aggregate principal amount
that may be borrowed either under such agreement or a new debt agreement or
security or providing for a debt facility or debt security with a second
priority Lien on the Mall Collateral) all or any portion of the Indebtedness and
other obligations under such agreement or agreements or debt instrument or
security or any successor or replacement agreement or agreements or debt
instruments or security, and whether by the same or any other agent, lender or
group of lenders or a group of investors.
"MALL INTERMEDIATE HOLDINGS" means Mall Intermediate Holding Company, LLC, a
Delaware limited liability company, and a wholly owned subsidiary of Venetian.
"MALL MANAGEMENT AGREEMENT" means the Mall Management Agreement, dated as of
November 14, 1997, between Forest City Enterprises and the Mall Subsidiary, as
amended, revised or modified.
"MALL MANAGER" means Grand Canal Shops Mall MM Subsidiary, Inc., a Nevada
corporation and a wholly owned subsidiary of the Company.
"MALL SPACE" means the legal parcel within which the Mall is contained.
"MALL SUBSIDIARY" means Grand Canal Shops II, LLC, a Delaware limited
liability company.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, 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 and leaseback transactions) or (b) the disposition
of any securities or the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries, and (2) any extraordinary gain (or loss),
together with any related provision for taxes on such extraordinary gain (or
loss) or (3) the effect of non-cash accounting adjustments resulting from a
change in the tax status of a flow-through tax entity to a "C-corporation" or
other entity taxed similarly.
"NET LOSS PROCEEDS" means the aggregate cash proceeds received by an Issuer
or any of its Restricted Subsidiaries in respect of any Event of Loss,
including, without limitation, insurance proceeds from condemnation awards or
damages awarded by any judgment, net of the direct costs in recovery of such Net
Loss Proceeds (including, without limitation, legal, accounting, appraisal and
insurance adjuster fees and expenses) and any taxes paid or payable as a result
thereof (including, without limitation, any taxes paid or payable by an owner of
the Issuers or any Restricted Subsidiary).
"NET PROCEEDS" means the aggregate cash proceeds received by an Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and expenses, consent fees, employee
severance and termination costs, any trade payables or similar liabilities
related to the assets sold and required to be paid by the seller as a result
thereof and sales, finder's or broker's commissions), and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result thereof
(including, without limitation, any taxes paid or payable by an owner of the
Issuers or any Restricted Subsidiary), amounts required to be applied to the
repayment of Indebtedness secured by a Lien (other than the notes) on the asset
or assets that are the subject of such Asset Sale or amounts permitted by the
terms of such Indebtedness to be otherwise reinvested in the Project or the
Phase IA Project to the extent so reinvested, all distributions and other
payments required to be made to minority interest holders in a subsidiary or
joint venture as a result of the Asset Sale, any reserve for adjustment in
respect of the sale price of such asset or assets or any liabilities associated
with the asset disposed of in such Asset Sale and the deduction of appropriate
amounts provided by the seller as a reserve in accordance with GAAP
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against any liabilities associated with the assets disposed of in the Asset Sale
and retained by an Issuer or any Restricted Subsidiary after that Asset Sale.
"NON-RECOURSE FINANCING" means Indebtedness incurred in connection with the
construction, purchase or lease of personal or real property or equipment or
Specified FF&E (1) as to which the lender upon default may seek recourse or
payment against the Company or any Restricted Subsidiary only through the return
or foreclosure or sale of the property or equipment or the other Specified FF&E
so constructed, purchased or leased and to any proceeds of such property and
Indebtedness and the related collateral account in which such proceeds are held
and (2) may not otherwise assert a valid claim for payment on such Indebtedness
against the Company or any Restricted Subsidiary or any other property of the
Company or any Restricted Subsidiary except in each case in the case of fraud
and other customary non-recourse exceptions.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness or Disqualified Stock, as the
case may be, or that portion of Indebtedness or Disqualified Stock, as the case
may be, (1) as to which none of the Company, Venetian or any of their Restricted
Subsidiaries (a) provides credit support pursuant to any undertaking, agreement
or instrument that would constitute Indebtedness or Disqualified Stock, as the
case may be, (other than a Permitted Macau Guarantee) or (b) is directly or
indirectly liable (other than a Permitted Macau Guarantee), and (2) with respect
to Non-Recourse Indebtedness of an Unrestricted Subsidiary, no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary but excluding any default
on a Permitted Macau Guarantee by the Issuers or any of their Restricted
Subsidiaries) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness (other than Indebtedness under the Bank Credit Facility)
or Disqualified Stock, as the case may be, of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
Disqualified Stock, as the case may be, or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"NOTE COLLATERAL" means all assets, now owned or hereafter acquired, of the
Company, Venetian or any Note Guarantor defined as Collateral in the Collateral
Documents.
"NOTES" means the Issuers' 11.00% Mortgage Notes due 2010 to be issued
pursuant to the Indenture, including any Exchange Notes or Additional Notes
issued.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Issuers
or a Note Guarantor, as the case may be, by two Officers (or if a limited
liability company, two Officers of the managing member of such limited liability
company) of the Issuers or a Note Guarantor, as the case may be, one of whom
must be the principal executive officer, the principal financial officer, the
treasurer or the principal accounting officer of the Company, Venetian (or its
managing member) or a Note Guarantor, as the case may be, that meets the
requirements set forth in the Indenture.
"OTHER PHASE II AGREEMENTS" means any agreement entered into by the Issuers
or their Subsidiaries with a Person for construction, development and operation
of a hotel or casino on the Phase II Land (other than the Phase II Resort and
the Phase IA Project).
"PERMITTED INVESTMENTS" means:
(1) any Investments in the Issuers, any Note Guarantor or any Restricted
Subsidiary that is not a Note Guarantor if the Investments in such
Restricted Subsidiary that is not a Note Guarantor from the Issuers, any
Note Guarantor or any of the other Restricted Subsidiaries aggregate less
than $2.0 million;
(2) any Investments in Cash Equivalents;
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(3) Investments by the Issuers or any Restricted Subsidiary of the
Issuers in a Person, if as a result of such Investment (a) such Person
becomes a Note Guarantor or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, one of the Issuers or a Note Guarantor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "Repurchase at the
Option of Holders--Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of any of the Issuers;
(6) receivables owing to the Issuers or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(7) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(8) loans or advances to employees, former employees or directors of the
Issuers or their Restricted Subsidiaries (a) to fund the exercise price of
options granted under the employment agreements or the Issuers' stock option
plans or agreements, in each case, as approved by the Company's Board of
Directors or (b) for any other purpose not to exceed $2.0 million in the
aggregate at any one time outstanding under this clause (b);
(9) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Issuers and any
Restricted Subsidiary or in satisfaction of judgments;
(10) Investments in any person engaged in the Principal Business which
Investment is solely in the form of Equity Interests (other than
Disqualified Stock) of the Issuers;
(11) any Investments in any of the Macau Entities (including an
Investment through an Unrestricted Subsidiary that has an Investment in a
Macau Entity) not to exceed (a) $40.0 million in the aggregate for cash and
Cash Equivalents and (b) $90.0 million in the aggregate for any Permitted
Macau Guarantees; PROVIDED that such Investments will only be permitted
pursuant to this clause (11) for so long as any of the Issuers or a
Restricted Subsidiary of the Issuers are the only Affiliates of the Issuers
that have the contractual right to receive Macau Fees; and PROVIDED FURTHER
that such Macau Fees, in the aggregate, shall be reasonably comparable in
amount to management fees that an unrelated, third-party manager would
receive in similar circumstances, as evidenced by an opinion of an
Independent Financial Advisor in the gaming or hospitality field;
(12) any Investments, not to exceed $20.0 million in the aggregate under
this clause (12), in any Subsidiary of the Issuer; PROVIDED that (1) the
proceeds of such Investments are used solely for design, architectural,
engineering or permitting or other costs, including operating costs, in
connection with the development of the Phase II Resort and (2) such costs
are not incurred in connection with actual construction (excluding
demolition, site preparation, site excavation and foundation work and
excluding the Phase IA Project) on the Phase II Land; and
(13) Investments in Supplier Joint Ventures in an amount not to exceed
$10.0 million in the aggregate under this clause (13).
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"PERMITTED LIENS" means:
(1) Liens in favor of the Issuers and any Wholly Owned Restricted
Subsidiary of the Issuers; PROVIDED that if such Liens are on any Note
Collateral, that such Liens are either collaterally assigned to the trustee
or a collateral agent for the trustee or subordinate to the Lien in favor of
the trustee securing the notes or any Note Guarantee;
(2) Liens on property of a Person existing at the time such Person
became a Restricted Subsidiary, is merged into or consolidated with or into,
or wound up into, one of the Issuers or any Restricted Subsidiary of the
Issuers; PROVIDED, that such Liens were in existence prior to the
consummation of, and were not entered into in contemplation of, such
acquisition, merger or consolidation or winding up and do not extend to any
other assets other than those of the Person acquired by, merged into or
consolidated with one of the Issuers or such Restricted Subsidiary;
(3) Liens on property existing at the time of acquisition thereof by the
Issuers or any Restricted Subsidiary of the Issuers; PROVIDED that such
Liens were in existence prior to the consummation of, and were not entered
into in contemplation of, such acquisition;
(4) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business or in the construction of the
Project or the Phase IA Project and which obligations are not expressly
prohibited by the Indenture; PROVIDED, HOWEVER, that the Issuers have
obtained a title insurance endorsement insuring against losses arising
therewith or if such Lien arises in the ordinary course of business or in
the construction of the Project or the Phase IA Project, the Issuers have
bonded within a reasonable time after becoming aware of the existence of
such Lien;
(5) Liens securing obligations in respect of the Indenture, the notes,
including Additional Notes and Exchange Notes, and any Note Guarantee;
(6) leases or Liens, to the extent permitted pursuant to the covenant
entitled "--Restrictions on Leasing and Dedication of Property;"
(7) (a) Liens for taxes, assessments or governmental charges or claims
or (b) statutory Liens of landlords, and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other similar Liens
arising in the ordinary course of business or in the construction of the
Project or the Phase IA Project, in the case of each of (a) and (b), with
respect to amounts that either (i) are not yet delinquent or (ii) are being
contested in good faith by appropriate proceedings as to which appropriate
reserves or other provisions have been made in accordance with GAAP;
(8) (a) easements, rights-of-way, navigational servitudes, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances which do not interfere in any material respect with the
ordinary conduct of business of the Issuers and their Restricted
Subsidiaries and (b) any Liens or other exception to title that appear on a
policy of title insurance, or a commitment to issue such policy, with
respect to the Project Assets and the Phase IA Project Assets, in favor of
the trustee on the Issuance Date;
(9) a leasehold mortgage in favor of a party financing the lease of
space within the Project and/or the Phase IA Project; PROVIDED that (a) the
lease affected by such leasehold mortgage is permitted pursuant to the
covenant entitled "Restrictions on Leasing and Dedication of Property,"
(b) neither the Issuers nor any Restricted Subsidiary is liable for the
payment of any principal of, or interest or premium on, such financing and
(c) the affected lease and leasehold mortgage are expressly made subject and
subordinate to the Lien of the Indenture Deed of
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Trust, subject to the provisions of the last paragraph in the covenant
described under the caption "--Restrictions on Leasing and Dedication of
Property;"
(10) Liens created or contemplated by the Cooperation Agreement and the
HVAC Services Agreement;
(11) Liens on real property of the Issuers arising pursuant to the
Harrah's Road Way Agreement;
(12) Liens (a) to secure Indebtedness permitted by clauses (g), (j) or
(p) of the second paragraph of the covenant entitled "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock" and extending
only to the assets or gaming equipment as acquired and any related assets
specified in the definition of Specified FF&E and (b) to secure Indebtedness
permitted by clause (d) of the second paragraph of the covenant entitled
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; PROVIDED that such Liens are not materially greater in extent than
the Liens securing the Indebtedness so refinanced;
(13) Liens securing all Obligations under the Credit Facilities incurred
pursuant to clause (a) or (o) of the second paragraph of the covenant
described above under the caption "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock", PROVIDED that the notes
will have a second priority Lien, subject to Permitted Liens, on any
collateral subject to the Liens permitted by this clause (13) (other than
the disbursement account under the Bank Credit Facility and any proceeds
held in such account) for so long as such Liens are securing the obligations
described above in this clause (13);
(14) until Phase IA Completion is achieved, Permitted Liens (as defined
in the Bank Credit Facility in effect on the date hereof) on Phase IA
Project Assets;
(15) Liens incurred in connection with Hedging Obligations incurred
pursuant to clause (f) of the covenant described under the caption
"Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock", including first priority Liens on the Note Collateral if the
underlying obligations subject to the Hedging Obligations are secured by a
first priority Lien on the Note Collateral or if the Hedging Obligations are
in respect of currency exchange hedges;
(16) licenses of patents, trademarks and other intellectual property
rights granted by the Issuers or any Subsidiary of the Issuers in the
ordinary course of business and not interfering in any material respect with
the ordinary conduct of the business of such Issuer or such Subsidiary;
(17) any judgment attachment or judgment Lien not constituting an Event
of Default;
(18) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(19) Liens securing obligations in respect of any Senior Secured Debt,
provided the Issuers' Senior Secured Debt to Cash Flow Ratio at the time of
incurrence would be no greater than 2.75 to 1.0 determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), if
the additional Senior Secured Debt and application of proceeds had occurred
at the beginning of the four-quarter period used to determine Senior Secured
Debt to Cash Flow Ratio; PROVIDED that to the extent any Liens incurred
under this clause (19) are in connection with any of the First Lien Credit
Facilities, the notes will have a second priority Lien, subject to Permitted
Liens, on any and all collateral subject to the Liens permitted by this
clause (19) for so long as such Liens are securing obligations under such
Credit Facility;
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(20) Liens on the Mall Collateral (a) securing obligations in respect of
the Mall Financing Agreement and (b) permitted under the Mall Financing
Agreement; PROVIDED that no other assets or collateral of the Issuers or any
Restricted Subsidiary may be subject to such Liens;
(21) Liens incurred or deposits made in connection with workers'
compensation, unemployment insurance and other types of social security, or
to secure performance of tenders, bids, leases, statutory obligations,
surety and appeal bonds, government contracts, trade contracts performance
and return of money bonds and other obligation of a like nature incurred in
the ordinary course;
(22) Liens incurred in connection with the construction of a pedestrian
bridge or pedestrian tunnel under Las Vegas Boulevard and Sands Avenue
provided that such Liens will not (a) materially interfere with, impair or
detract from the operation of the business of the Issuers and their
Restricted Subsidiaries or the construction or operation of the Project
Assets and (b) cause a material decrease in the value of the Note
Collateral;
(23) Liens arising from filing UCC financing statements relating solely
to leases permitted by the covenant entitled "--Restrictions on Leasing and
Dedication of Property" or the other provisions of the Indenture;
(24) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(25) Liens created under the Pre-development Agreement as in effect on
the Issuance Date;
(26) easements, restrictions, rights of way, encroachments and other
minor defects or irregularities in title incurred in connection with the
traffic study relating to increased traffic on Las Vegas Boulevard as a
result of the construction of the Project and the Phase IA Project; and
(27) Liens in favor of the trustee as trustee with respect to the
Issuers' 12( 1)4% Mortgage Notes due 2004 on the Defeasance Account under
the Defeasance Trust Agreement and any proceeds held in such Defeasance
Account for the benefit of the holders of the Issuers' 12( 1)4% Mortgage
Notes due 2004.
"PERMITTED MACAU GUARANTEE" means a guarantee of Indebtedness of, or
performance by, any Macau Entities by any Issuer or any Restricted Subsidiary,
which Guarantee is permitted by the covenant entitled "Limitations on Incurrence
of Indebtedness and Issuance of Disqualified Stock."
"PERMITTED QUARTERLY TAX DISTRIBUTIONS" means quarterly distributions of Tax
Amounts determined on the basis of the estimated taxable income of the Company
or Venetian, as the case may be (in each case, including any such taxable income
attributable to such entity's ownership of interest in any other pass-through
entity for Federal income tax purposes), for the related Estimation Period, as
in a statement filed with the trustee; PROVIDED, HOWEVER, that (1) prior to any
distributions of Tax Amounts the Issuers shall deliver an officers' certificate
to the effect that, in the case of distributions to be made by Venetian,
Venetian qualifies as a partnership or a substantially similarly treated
pass-through entity for federal income tax purposes or that, in the case of
distributions to be made by the Company, the Company qualifies as a Subchapter S
corporation under the Code or a substantially similarly treated pass-through
entity for federal income tax purposes, as the case may be, and (2) at the time
of such distributions, the most recent audited financial statements of the
Company reflect that the Company was treated as a Subchapter S corporation under
the Code or a substantially similarly treated pass-through entity for federal
income tax purposes and Venetian was treated as a partnership or substantially
similarly treated pass-through entity for Federal income tax purposes for the
period covered by such financial statements; PROVIDED, FURTHER, that, for an
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Estimation Period that includes a True-up Determination Date, (1) if the True-up
Amount is due to the members or shareholders, as the case may be, the Permitted
Quarterly Tax Distribution payable by the Company or Venetian, as the case may
be, for the Estimation Period shall be increased by such True-up Amount, and
(2) if the True-up Amount is due to the Company or Venetian, the Permitted
Quarterly Tax Distribution payable by the Company or Venetian, as the case may
be, for the Estimation Period shall be reduced by such True-up Amount and the
excess, if any, of the True-up Amount over such Permitted Quarterly Tax
Distribution shall be applied to reduce the immediately following Permitted
Quarterly Tax Distribution(s) until such True-up Amount is entirely offset. The
amount of Permitted Quarterly Tax Distribution relating to an Estimation Period
including a True-up Determination Date shall be determined by a Tax Amounts CPA,
and the amount of Permitted Quarterly Tax Distribution relating to all other
Estimation Periods shall be determined by the Company or Venetian, as the case
may be.
"PERMITTED SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Issuers
or any of their Restricted Subsidiaries (1) for which no installment of
principal matures earlier than three months after the notes mature and (2) for
which the payment of principal and interest is subordinated in right of payment
to the notes or any Note Guarantee at least to the extent set forth in
Appendix A-2 to the Indenture.
"PERSON" means any individual, corporation, partnership, limited liability
company or partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PHASE IA COMPLETION DATE" means the first date that any of the Issuers or
any Restricted Subsidiary receives a temporary or permanent certificate of
occupancy from Clark County, Nevada for at least 950 hotel rooms in the Phase IA
Project.
"PHASE IA PROJECT" means the contemplated 1,000 room expansion, 150,000
square foot additional meeting space and 1,000 parking space expansion, all as
more particularly described in this prospectus, and as may be modified in
accordance with the Bank Credit Facility.
"PHASE IA PROJECT ASSETS" means, with respect to the Phase IA Project at any
time, all of the assets then in use related to the Phase IA Project including
any real estate assets, any buildings or improvements thereon, and all
equipment, furnishings and fixtures, but excluding: (1) the Phase II Land and
any improvements thereon; (2) any obsolete personal property determined by the
Company's Board of Directors to be no longer useful or necessary to the
operations or support of the Phase IA Project; (3) the equipment owned by the
HVAC Provider (unless purchased by Venetian or a Note Guarantor after the date
hereof); and (4) any equipment or materials leased from a third party in the
ordinary course of business or owned or used by a third party in connection with
the construction of the Phase IA Project Assets.
"PHASE II HOLDINGS" means Lido Casino Resort Holding Company, LLC, a
Delaware limited liability company and, at the Issuance Date, an Unrestricted
Subsidiary of the Issuers.
"PHASE II INTERMEDIATE HOLDINGS" means Lido Intermediate Holding Company,
LLC, a Delaware limited liability company.
"PHASE II LAND" means the real property consisting of approximately 14 acres
adjoining the land containing the Project and which real property is as of the
Issuance Date owned by the Phase II Subsidiary.
"PHASE II MANAGER" means Lido Casino Resort MM, Inc., a Nevada corporation
and, at the Issuance Date, an Unrestricted Subsidiary of the Issuers.
"PHASE II RESORT" means a potential development on the Phase II Land which
may be physically connected to the Casino Resort and/or the Phase IA Project.
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"PHASE II SUBSIDIARY" means Lido Casino Resort, LLC, a Nevada limited
liability company and, at the Issuance Date, an Unrestricted Subsidiary of the
Issuers.
"PLANS AND SPECIFICATIONS" means the Phase IA Project Plans and
Specifications as defined in the Bank Credit Facility, as the same may be
modified and supplemented from time to time in accordance with the Bank Credit
Facility.
"PRE-DEVELOPMENT AGREEMENT" means the Sands Resort Hotel & Casino Agreement,
dated February 18, 1997, by and between Clark County and LVSI, as amended,
revised, modified and restated.
"PREFERRED STOCK" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"PRINCIPAL BUSINESS" means the casino gaming, hotel, retail and
entertainment mall and resort business and any activity or business incidental,
directly related or similar thereto (including owning interests in Subsidiaries,
operating the conference center and meeting facilities and owning and operating
a retail and entertainment mall and acting as a member of Venetian in the case
of the Company), or any business or activity that is a reasonable extension,
development or expansion thereof or ancillary thereto, including any hotel,
entertainment, recreation, convention, trade show, meeting, retail sales or
other activity or business designed to promote, market, support, develop,
construct or enhance the casino gaming, hotel, retail and entertainment mall and
resort business operated by the Company, Venetian and direct and indirect
Restricted Subsidiaries (including, without limitation, engaging in transactions
with Affiliates and incurring Indebtedness, providing guarantees or providing
other credit support, in each case to the extent permitted under the Indenture),
owning and operating joint ventures to supply materials or services for the
construction or operation of any resorts owned or operated by the Company and
its Restricted Subsidiaries and entering into casino leases or management
agreements for any casino situated on land owned by the Issuers or any of their
Subsidiaries or owned or operated by the Issuers or any Affiliate of the
Issuers. For purposes of clarity, "Principal Business" shall also include the
business proposed to be entered into by the Macau Entities and the Issuers'
interest in such projects, each, as described in this prospectus.
"PRINCIPAL STOCKHOLDER" means Sheldon G. Adelson.
"PROJECT" means the Venetian-themed hotel, casino, retail, meeting and
entertainment complex, including the Mall, with related heating, ventilation and
air conditioning and power station facilities located at 3355 Las Vegas
Boulevard South, Clark County, Nevada.
"PROJECT ASSETS" means, with respect to the Project at any time, all of the
assets then in use related to the Project including any real estate assets, any
buildings or improvements thereon, and all equipment, furnishings and fixtures,
but excluding: (1) the Phase II Land and any improvements thereon; (2) any
obsolete personal property determined by the Company's Board of Directors to be
no longer useful or necessary to the operations or support of the Project;
(3) the equipment owned by the HVAC Provider (unless purchased by Venetian or a
Note Guarantor after the date hereof); and (4) any equipment leased from a third
party in the ordinary course of business.
"QUALIFIED IPO" means an initial public offering of the common equity
interests in an Issuer or an entity that controls, directly or indirectly, or is
a managing member of, the Venetian, such that such common equity interests are
thereafter traded on a stock exchange in the United States or the Nasdaq
national system.
"QUARTERLY PAYMENT PERIOD" means the period commencing on the tenth day and
ending on and including the twentieth day of each month in which federal
estimated tax payments are due
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(PROVIDED that payments in respect of estimated state income taxes due in
January may instead, at the option of the Issuers, be paid during the last five
days of the immediately preceding December).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Issuance Date, by and among the Issuers, the Note Guarantors,
Goldman, Sachs & Co. and Scotia Capital (USA) Inc., and any similar future
registration rights agreement entered into with respect to any Additional Notes
(and any other notes to the extent necessary so that all outstanding notes
participating may be traded as a single class and series) each, as may be
amended, modified or supplemented from time to time.
"RELATED PARTIES" means (1) any spouse and any child, stepchild, sibling or
descendant of the Principal Stockholder, (2) any estate of the Principal
Stockholder or any person under clause (1), (3) any person who receives a
beneficial interest in the Company or Venetian from any estate under clause (2)
to the extent of such interest, (4) any executor, personal administrator or
trustee who holds such beneficial interest in the Company or Venetian for the
benefit of, or as fiduciary for, any person under clauses (1), (2) or (3) to the
extent of such interest, (5) any corporation, trust, or similar entity owned or
controlled by the Principal Stockholder or any person referred to in
clause (1), (2), (3) or (4) or for the benefit of any person referred to in
clause (1) and (6) the spouse or issue of one or more of the individuals
described in clause (1).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means, at any time, any direct or indirect
Subsidiary of the Issuers that is not then an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of Restricted Subsidiary."
"SECURITY AGREEMENT" means the Security Agreement, dated as of the Issuance
Date, by and among Venetian, LVSI, the Note Guarantors named therein and The
Bank of Nova Scotia as Intercreditor Agent, as amended, modified or revised form
time to time in accordance with its terms and the terms of the Indenture.
"SENIOR INDEBTEDNESS" means Indebtedness that is not subordinated by its
terms in right of payment to the payment of principal or interest of other
Indebtedness.
"SENIOR SECURED DEBT" means, at any time, the Indebtedness of the Issuers or
any Restricted Subsidiary otherwise permitted to be incurred by the covenant
"Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock"
that is secured by a Lien, on the Note Collateral (other than the notes and the
Note Guarantees) or any other assets of the Issuers or the Restricted
Subsidiaries. Senior Secured Debt will include any Indebtedness incurred under
any Credit Facility and any Mall Financing Agreement for so long as such
Indebtedness is as described in the previous sentence.
"SENIOR SECURED DEBT TO CASH FLOW RATIO" means with respect to any Person,
as of any date of determination, the ratio of (a) the consolidated Senior
Secured Debt of such Person and its Restricted Subsidiaries as of such date to
(b) the Consolidated Cash Flow of such Person and its Restricted Subsidiaries
for the four most recent full fiscal quarters ending immediately prior to such
date for which internal financial statements are available, determined on a pro
forma basis after giving effect to all acquisitions or dispositions of assets
made by such Person and its Restricted Subsidiaries from the beginning of such
four-quarter period through and including such date of determination (including
any related financing transactions) as if such acquisitions and dispositions had
occurred at the beginning of such four-quarter period. In addition, for purposes
of making the computation referred to above, the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the date of determination,
shall be excluded. Consolidated Senior Secured Debt shall be calculated
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without duplication of guarantees and Hedging Obligations to the extent that the
principal underlying obligation is included in such calculation.
"SERVICES AGREEMENT" means that Amended and Restated Services Agreement by
and among the Company, Interface, Interface Holdings and the parties stated on
the signature page thereto, as amended from time to time in accordance with its
terms.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which 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 Issuance
Date.
"SPECIFIED FF&E" means any furniture, fixtures, equipment and other personal
property financed or refinanced with the proceeds from the incurrence of
Indebtedness pursuant to clauses (g), (j) or (p) of the covenant described above
under the caption "Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock," including:
(1) each and every item or unit of equipment acquired with proceeds
thereof;
(2) each and every item or unit of equipment acquired in substitution or
replacement thereof;
(3) all parts, components and other items pertaining to such collateral;
(4) all documents (including without limitation all warehouse receipts,
dock receipts, bills of lading and the like);
(5) all licenses (other than gaming and liquor licenses), warranties,
guarantees, service contracts and related rights and interests covering all
or any portion of such collateral;
(6) to the extent not otherwise included, all proceeds (including
insurance proceeds) of any of the foregoing and all accessions to,
substitutions and replacements for, and the rents, profits and products of,
each of the foregoing (including collateral accounts); and
(7) so long as Indebtedness under the First Lien Credit Facilities are
outstanding, such other collateral reasonably determined by the lenders
under the First Lien Credit Facilities to be collateral for Indebtedness
incurred in connection with the purchase of Specified FF&E so long as the
Lien securing Indebtedness incurred under any First Lien Credit Facilities
does not extend to such collateral.
"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 in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest, accreted value, or principal
prior to the date originally scheduled for the payment or accretion thereof.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness that by its terms is
expressly subordinated in right of payment in any respect (either in the payment
of principal or interest) to the payment of principal or interest on the notes.
"SUBSIDIARY" means, with respect to any Person, (1) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of 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 of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (2) any partnership of
which more than 50% of the partnership's capital accounts, distribution rights
or general or limited partnership interests are
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owned or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person or a combination thereof.
"SUPPLIER JOINT VENTURE" means any Person that supplies or provides
equipment, materials or services to the Issuers or any contractor in the Project
and/or Phase IA Project or the construction of the Phase II Resort and in which
the Issuers or one of their Restricted Subsidiaries have Investments.
"TAX AMOUNT" means, with respect to an Estimation Period or a taxable year,
as the case may be, an amount equal to (1) the product of (a) the taxable income
(including all separately stated items of income) of the Company or Venetian, as
the case may be, for such Estimation Period or a taxable year, as the case may
be, and (b) the Applicable Tax Percentage reduced by (2) to the extent not
previously taken into account, any income tax benefit attributable to the
Company or Venetian in the current taxable year, as the case may be, which could
be utilized (without regard to the actual utilization) by its members or
shareholders, as the case may be, in the current taxable year, or portion
thereof, computed at the Applicable Tax Percentage of the year that such benefit
is taken into account for purposes of this computation; PROVIDED, HOWEVER, that,
the computation of Tax Amount shall also take into account (3) the deductibility
of state and local taxes for federal income tax purposes, and (4) any difference
in the Applicable Tax Percentage resulting from the nature of taxable income
(such a long-term capital gain as opposed to ordinary income).
"TAX AMOUNTS CPA" means a nationally recognized certified public accounting
firm.
"TREASURY RATE" means the yield to maturity at the time of the computation
of the United States Treasury securities with a constant maturity (as compiled
by and published in the most recent Federal Reserve Statistical Release
H.15(519), which has become publicly available at least two Business Days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data) most nearly
equal to the then remaining average life to June 15, 2006; PROVIDED, HOWEVER,
that if the average life of such note is not equal to the constant maturity of
the United States Treasury security for which weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the average
life of such notes is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.
"TRUE-UP AMOUNT" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between (1) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such taxable year, without taking into account any adjustment to such
Permitted Quarterly Tax Distributions made with respect to any other taxable
year (including any adjustment to take into account a True-up Amount for the
immediately preceding taxable year) and (2) the Tax Amount permitted to be
distributed in respect of such year as determined by reference to the Company's
Internal Revenue Service Form 1120-S or Venetian's IRS Form 1065 filed for such
year; PROVIDED, HOWEVER, that if there is an audit or other adjustment with
respect to a return filed by the Company or Venetian (including a filing of an
amended return), upon a final determination or resolution of such audit or other
adjustment, the Tax Amounts CPA shall redetermine the True- up Amount for the
relevant taxable year. The amount equal to the excess, if any, of the amount
described in clause (1) above over the amount described in clause (2) above
shall be referred to as the "True-up Amount due to the Company" or the "True-up
Amount due to Venetian," as the case may be, and the excess, if any, of the
amount described in clause (2) over the amount described in clause (1) shall be
referred to as the "True-up Amount due to the shareholders or members."
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"TRUE-UP DETERMINATION DATE" means the date on which the Tax Amounts CPA
delivers a statement to the trustee indicating the True-up Amount; PROVIDED,
HOWEVER, that the True-up Determination Date shall not be later than 30 days
after the occurrence of an event requiring the determination of the True-up
Amount (including, the filing of the federal and state tax returns or the final
determination or resolution of an audit or other adjustment, as the case may
be).
"UNRESTRICTED SUBSIDIARY" means (1) each of Phase II Holdings, Phase II
Manager and Phase II Subsidiary; and (2) any entity that would have been a
Restricted Subsidiary of the Company but for its designation as an "Unrestricted
Subsidiary" in accordance with the provisions of the Indenture and any
Subsidiary of such entity, so long as it remains an Unrestricted Subsidiary in
accordance with the terms of the Indenture. On the date hereof, all of the
Subsidiaries of Venetian Venture Development, LLC, a Nevada limited liability
company, are Unrestricted Subsidiaries.
"VENETIAN" means Venetian Casino Resort, LLC, a Nevada limited liability
company, or any successor thereto that is permitted under the Indenture.
"VOTING STOCK" means, with respect to any Person that is a corporation, any
class or series of Capital Stock of such Person that is ordinarily entitled to
vote in the election of directors thereof at a meeting of stockholders called
for such purpose, without the occurrence of any additional event or contingency
and with respect to any other Person that is a limited liability company,
membership interests entitled to manage the operations or business of the
limited liability company.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the number of years
(calculated to the nearest one-twelfth) obtained by dividing (1) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal or liquidation preference, 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 or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the case may be.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"WHOLLY OWNED 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 Subsidiaries of such Person and/or one or
more Wholly Owned Subsidiaries of such Person. A Wholly Owned Subsidiary of the
Issuers shall include any Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall be
owned by one or both Issuers and/or one or more Wholly Owned Subsidiaries of the
Issuers.
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BOOK-ENTRY, DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in the
form of one or more registered exchange notes in global form without coupons. We
will deposit each global note on the date of the closing of this exchange offer
with, or on behalf of, The Depository Trust Company in New York, New York, and
register the exchange notes in the name of The Depository Trust Company or its
nominee, or will leave these notes in the custody of the trustee.
DEPOSITORY PROCEDURES
For your convenience, we are providing you with a description of the
operations and procedures of The Depository Trust Company, the Euroclear System
and Clearstream Banking, S.A. These operations and procedures are solely within
the control of the respective settlement systems and are subject to changes by
them. We are not responsible for these operations and procedures and urge you to
contact the system or its participants directly to discuss these matters.
The Depository Trust Company has advised us that it is a limited-purpose
trust company created to hold securities for its participating organizations and
to facilitate the clearance and settlement of transactions in those securities
between its participants through electronic book entry changes in the accounts
of these participants. These direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Access to The Depository Trust Company's system is also indirectly available to
other entities that clear through or maintain a direct or indirect, custodial
relationship with a direct participant. The Depository Trust Company may hold
securities beneficially owned by other persons only through its participants and
the ownership interests and transfers of ownership interests of these other
persons will be recorded only on the records of the participants and not on the
records of The Depository Trust Company.
The Depository Trust Company has also advised us that, in accordance with
its procedures,
(1) upon deposit of the global notes, it will credit the accounts of
the direct participants with an interest in the global notes, and
(2) it will maintain records of the ownership interests of these direct
participants in the global notes and the transfer of ownership interests by
and between direct participants.
The Depository Trust Company will not maintain records of the ownership
interests of, or the transfer of ownership interests by and between, indirect
participants or other owners of beneficial interests in the global notes. Both
direct and indirect participants must maintain their own records of ownership
interests of, and the transfer of ownership interests by and between, indirect
participants and other owners of beneficial interests in the global notes.
Investors in the global notes may hold their interests in the notes directly
through The Depository Trust Company if they are direct participants in The
Depository Trust Company or indirectly through organizations that are direct
participants in The Depository Trust Company. Investors in the global notes may
also hold their interests in the notes through Euroclear and Clearstream if they
are direct participants in those systems or indirectly through organizations
that are participants in those systems. Euroclear and Clearstream will hold
omnibus positions in the global notes on behalf of the Euroclear participants
and the Clearstream participants, respectively, through customers' securities
accounts in Euroclear's and Clearstream's names on the books of their respective
depositories, which are Euroclear Bank, S.A./N.V., as operator of Euroclear, and
Citibank, N.A., as operator of Clearstream. These depositories, in turn, will
hold these positions in their names on the books of DTC. All interests in a
global note, including those held through Euroclear or Clearstream, may be
subject to the procedures and requirements of The Depository Trust Company.
Those interests held through Euroclear or Clearstream may also be subject to the
procedures and requirements of those systems.
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The laws of some states require that some persons take physical delivery in
definitive certificated form of the securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a global note to these
persons. Because The Depository Trust Company can act only on behalf of direct
participants, which in turn act on behalf of indirect participants and others,
the ability of a person having a beneficial interest in a global note to pledge
its interest to persons or entities that are not direct participants in The
Depository Trust Company or to otherwise take actions in respect of its
interest, may be affected by the lack of physical certificates evidencing the
interests.
Except as described below, owners of interests in the global notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders of these notes under the indenture for any purpose.
Payments with respect to the principal of and interest on any notes
represented by a global note registered in the name of The Depository Trust
Company or its nominee on the applicable record date will be payable by the
trustee to or at the direction of The Depository Trust Company or its nominee in
its capacity as the registered holder of the global note representing these
notes under the indenture. Under the terms of the indenture, we and the trustee
will treat the person in whose names the notes are registered, including notes
represented by global notes, as the owners of the notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal and interest on global notes registered in the name of
The Depository Trust Company or its nominee will be payable by the trustee to
The Depository Trust Company or its nominee as the registered holder under the
indenture. Consequently, none of us, the trustee or any of our agents, or the
trustee's agents has or will have any responsibility or liability for:
(1) any aspect of The Depository Trust Company's records or any direct
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 The Depository Trust Company's records or
any direct or indirect participant's records relating to the beneficial
ownership interests in any global note or
(2) any other matter relating to the actions and practices of The
Depository Trust Company or any of its direct or indirect participants.
The Depository Trust Company has advised us that its current practice, upon
receipt of any payment in respect of securities such as the 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
security as shown on its records, unless it has reasons to believe that it will
not receive payment on the payment date. Payments by the direct and indirect
participants to the beneficial owners of interests in the global note will be
governed by standing instructions and customary practice and will be the
responsibility of the direct or indirect participants and will not be the
responsibility of The Depository Trust Company, the trustee or us.
Neither we nor the trustee will be liable for any delay by The Depository
Trust Company or any direct or indirect participant in identifying the
beneficial owners of the notes and we and the trustee may conclusively rely on,
and will be protected in relying on, instructions from The Depository Trust
Company or its nominee for all purposes, including with respect to the
registration and delivery, and the respective principal amounts, of the notes.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same day funds, and
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transfers between participants in Euroclear and Clearstream will be effected in
accordance with their respective rules and operating procedures.
Cross-market transfers between the participants in The Depository Trust
Company, on the one hand, and Euroclear or Clearstream participants, on the
other hand, will be effected through The Depository Trust Company in accordance
with The Depository Trust Company's rules on behalf of Euroclear or Clearstream,
as the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant global note in The Depository
Trust Company, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to The Depository Trust
Company. Euroclear participants and Clearstream participants may not deliver
instructions directly to the depositories for Euroclear or Clearstream.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
participants to whose account The Depository Trust Company has credited the
interests in the global notes and only in respect of the portion of the
aggregate principal amount of the notes as to which the participant or
participants has or have given that direction. However, if there is an event of
default with respect to the notes, The Depository Trust Company reserves the
right to exchange the global notes for legended notes in certificated form and
to distribute them to its participants.
Although The Depository Trust Company, Euroclear and Clearstream have agreed
to these procedures to facilitate transfers of interests in the global notes
among participants in The Depository Trust Company, Euroclear and Clearstream,
they are under no obligation to perform or to continue to perform these
procedures and may discontinue them at any time. None of us, the trustee or any
of our or the trustee's respective agents will have any responsibility for the
performance by The Depository Trust Company, Euroclear or Clearstream or their
direct or indirect participants of their respective obligations under the rules
and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note will be exchangeable for definitive notes in registered
certificated form if:
(1) requested by a holder of such interests,
(2) The Depository Trust Company notifies us that it is unwilling or
unable to continue as depository for the global notes and we fail to appoint
a successor depository within 90 days; or
(3) an Event of Default under the notes has occurred and is continuing
and the registrar has received a written request from The Depositary Trust
Company to issue definitive notes in certificated form.
In all cases, certificated notes delivered in exchange for any global note
or beneficial interests in a global note will be registered in the name, and
issued in any approved denominations, requested by or on behalf of The
Depository Trust Company, in accordance with its customary procedures.
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EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Exchange notes issued in certificated form may be exchanged for beneficial
interests in the global note.
SAME DAY SETTLEMENT
We expect that the interests in the global notes will be eligible to trade
in The Depository Trust Company's Same-Day Funds Settlement System. As a result,
secondary market trading activity in these interests will settle in immediately
available funds, subject in all cases to the rules and procedures of The
Depository Trust Company and its participants. We expect that secondary trading
in any certificated notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a
participant in The Depository Trust Company will be credited, and any such
crediting will be reported to the relevant Euroclear or Clearstream participant,
during the securities settlement processing day (which must be a business day
for Euroclear and Clearstream) immediately following the settlement date of The
Depository Trust Company. The Depository Trust Company has advised us that cash
received in Euroclear or Clearstream as a result of sales of interests in a
global note by or through a Euroclear or Clearstream participant to a
participant in The Depository Trust Company will be received with value on the
settlement date of The Depository Trust Company but will be available in the
relevant Euroclear or Clearstream cash account only as of the business day for
Euroclear or Clearstream following The Depository Trust Company's settlement
date.
PAYMENT
The indenture governing the notes requires that payments in respect of the
notes represented by global notes, including principal and interest, be made by
wire transfer of immediately available funds to the accounts specified by the
holder of the global notes. With respect to notes in certificated form, we will
make all payments of principal and interest on the notes at our office or agency
maintained for that purpose within the city and state of New York. This office
will initially be the office of the Paying Agent maintained for that purpose. At
our option however, we may make these installments of interest by
(1) check mailed to the holders of notes at their respective addresses
provided in the register of holder of notes or
(2) transfer to an account maintained by the payee.
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DESCRIPTION OF INTERCREDITOR AGREEMENT
The agent under our new credit facility and the trustee entered into an
intercreditor agreement setting forth certain agreements among them regarding,
among other things, the priority of their claims and interests in the note
collateral and other assets we own, the method of decision making for the
lenders, the arrangements applicable to actions with respect to approval rights
and waivers, certain limitations on rights of enforcement upon default and the
application of proceeds of enforcement. The following summary of the material
provisions of the intercreditor agreement does not purport to be complete and is
qualified in its entirety by reference to the intercreditor agreement, including
the definitions therein of certain terms used below. You can obtain a copy of
the intercreditor agreement upon request to us.
Although the HVAC Provider is not a party to the intercreditor agreement, it
has entered into an agreement (i) under which the HVAC Provider has agreed, for
the benefit of the lenders under our new credit facility and the holders of the
notes on certain limitations on its right to exercise remedies and
(ii) addressing, for the benefit of the lenders under our new credit facility
and the holders of the notes, other issues customarily addressed in
intercreditor agreements. See "Certain Material Agreements--Agreements Relating
to the Casino Resort--HVAC Services Agreement and Related Documents."
PERMITTED FACILITY AMENDMENTS; ADDITIONAL INDEBTEDNESS
The lenders under our new credit facility may amend our new credit facility
without the consent of the holders of the notes so long as such amendment does
not: (1) increase the maximum principal amount of indebtedness under such
facility by more than the amounts permitted under the indenture governing the
notes and (2) certain other conditions are met.
The lenders under our new credit facility and the holders of the notes shall
have the right to make additional "protective" advances under the respective
loan facilities in order to protect, preserve, repair and maintain the Casino
Resort and their respective security interests therein. For example, these
lenders may make such advances under their loan facilities (1) to pay delinquent
taxes or insurance premiums, (2) to pay claims that otherwise might have lien
priority over the liens of the advancing lender, and (3) to pay amounts
necessary to preserve the continued availability of thermal energy services
under the HVAC Services Agreement. Any amounts so advanced will be secured by
the lien granted to secure the loan provided by the advancing lender. Any such
protective advances made by a lender shall be secured by its respective security
interests in the same priority as regular advances made by the lender in
accordance with its respective facility.
EVENTS OF DEFAULT
Each party will be entitled to accelerate its indebtedness and exercise
remedies against us or with respect to the collateral, in accordance with the
terms of its credit facility, subject to the following conditions:
(1) each party to the intercreditor agreement will be subject to a
45-day standstill period;
(2) the standstill period may be extended by the lenders under our new
credit facility for an additional 15-day period;
(3) each party to the intercreditor agreement will not be entitled to
initiate or join as a petitioning creditor in an involuntary proceeding
against us (or against any of our affiliates) until 10 days after the
expiration of the standstill period; and
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(4) upon expiration of the standstill period, each creditor party to
the intercreditor agreement shall be entitled to exercise remedies against
us or with respect to the collateral, provided that:
(a) if the lenders under our new credit facility accelerate the
indebtedness under our new credit facility, then such lenders will
provide the trustee with notice of such acceleration at least 10 days
prior to such lenders' intent to file the notice of default, and
(b) concurrently with any foreclosure by the holders of notes, the
holders of notes (or other purchaser in a foreclosure sale) must repay in
full all amounts outstanding under our new credit facility.
COLLATERAL; PRIORITY OF LIENS
The liens and security interests held by the lenders under our new credit
facility are first priority liens and those held by the noteholders are second
priority liens, in each case, subject to permitted liens, notwithstanding
(1) the availability of any other collateral to any lender,
(2) the actual date and time of execution, delivery, recording, filing
and perfection of any of the security documents, and
(3) the fact that any lien or security interest credited by any of the
security documents, or any claim with respect thereto, is or may be
subordinated, avoided or disallowed in whole or in part under the Bankruptcy
Code or other applicable federal or state law.
Each party to the intercreditor agreement also agreed that the obligations
due and outstanding under their respective debt instruments include all
principal, additional advances permitted thereunder, protective advances made by
such party to protect or preserve the Casino Resort, its security interest or
its collateral, interest, default interest, LIBOR breakage and swap breakage,
post petition interest and all other amounts due thereunder, for periods before
and for periods after the commencement of any such proceedings, even if the
claim for such amounts is disallowed pursuant to applicable law.
OPERATING AGREEMENTS
HVAC SERVICES AGREEMENT AND RELATED DOCUMENTS
Sempra Energy Solutions, successor to Atlantic Pacific Las Vegas, LLC, the
"HVAC Provider," is a California company and is beneficially owned by Sempra
Energy, a utility holding company.
Thermal energy (heating and air conditioning) is provided to the Casino
Resort and the Expo Center by the HVAC provider using heating and air
conditioning-related and other equipment or "HVAC equipment." The HVAC provider
also furnishes other energy-related services. The central HVAC plant is located
on land owned by Venetian. The land and the HVAC plant has been leased to the
HVAC provider for a nominal annual rent. The HVAC provider owns the HVAC
equipment and has been granted easements in order to use the HVAC plant and
equipment for the supply of thermal energy to the Casino Resort and the Expo
Center. The easements must not, however, materially interfere with the
operations of the Casino Resort and the Expo Center. The HVAC provider paid all
costs in connection with the purchase and installation of the HVAC equipment.
These costs totaled $70.0 million.
The HVAC provider has also entered into separate services agreements with
us, Interface Group-Nevada, Inc. and the predecessor to the Mall Subsidiary for
the provision of heat and cooling requirements. The charges payable by all users
include a fixed component that enables the HVAC provider to recover 85% of the
HVAC costs over the initial term of the service contracts, with interest at a
fixed annual rate of 7.1%. In addition, the users reimburse the HVAC provider
for the
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annual cost of operating and maintaining the HVAC equipment and providing
certain other energy related services. The users pay the HVAC provider a
management fee of $500,000 per year. Each user is allocated a portion of the
total agreed-to charges and fees through its service contract. This includes
paying 100% of the cost of services in connection with the HVAC equipment
relating solely to the particular user. Each user is not liable for the
obligations of the other users. However, the Mall Subsidiary is liable for the
obligations of the mall tenants. The HVAC service agreements have an initial
term that expires in 2009, and provide that upon expiration, users will have the
right to collectively either:
- extend the term of their agreements for two consecutive periods of five
years each; or
- purchase the HVAC equipment in accordance with purchase provisions
contained in the service contracts.
Our rights under the HVAC service agreements and related documents were
collaterally assigned to The Bank of Nova Scotia, as agent for the lenders under
our new credit facility and the holders of the notes as security for our
obligations under our new credit facility and the notes. The HVAC provider has
consented to this collateral assignment pursuant to a consent and agreement
agreed to by the HVAC provider. Under the HVAC consent and agreement, the HVAC
provider has agreed:
- to acknowledge that we have granted a security interest in our agreements
with the HVAC provider;
- under certain conditions, to recognize our secured lenders' rights to
"step in" to our rights under these agreements, and to keep from
exercising termination and other rights for a time;
- not to terminate these agreements or to consent to any termination or
suspension of these agreements without the written notice to The Bank of
Nova Scotia, as agent for the lenders, and providing our secured lenders
an opportunity to correct any default or breach that we commit;
- under certain conditions, to consent to the transfer of our interest to
any of the secured lenders or a purchaser or grantee at a foreclosure sale
and to any purchasers in lieu of foreclosure; and
- that in the event one or more of the service contracts is rejected in any
bankruptcy or insolvency proceedings, to execute and deliver to the
secured lenders a new contract that is on the same terms and conditions as
the original service contracts.
COOPERATION AGREEMENT
Our business plan calls for each of the Casino Resort, The Grand Canal
Shoppes, the Expo Center and if built, the Phase II Resort, though separately
owned, to be integrally-related components of one facility. In establishing the
terms for the integrated operation of these components, the cooperation
agreement sets forth agreements regarding, among other things, encroachments,
easements, operating standards, maintenance requirements, insurance
requirements, casualty and condemnation, joint marketing, the construction of
the Phase II Resort, and the sharing of some facilities and related costs.
Subject to applicable law, the cooperation agreement binds all current and
future owners of the Expo Center, the Casino Resort, The Grand Canal Shoppes and
the Phase II Resort (and the land on which the Phase II Resort is expected to be
built), and has priority over the liens securing our new credit facility and the
notes and any liens securing any indebtedness of The Grand Canal Shoppes, the
Expo Center or Phase II Resort. Accordingly, subject to applicable law, the
obligations in the cooperation agreement will "run with the land" if any of the
components change hands.
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OPERATING COVENANTS
The cooperation agreement regulates certain aspects of the operation of the
Expo Center, The Grand Canal Shoppes and the Casino Resort. For example, under
the cooperation agreement, we are obligated to operate the Casino Resort
continuously and to use it exclusively in accordance with standards of
first-class Las Vegas Boulevard style hotels, casinos and retail and restaurant
complexes. In turn, the Mall Subsidiary is obligated to operate The Grand Canal
Shoppes exclusively in accordance with standards of first-class restaurant and
retail complexes, and Interface Group-Nevada, Inc. is obligated to operate and
to use the Expo Center exclusively in accordance with standards of first-class
convention, trade show and exposition centers. The cooperation agreement also
provides that we will not and the Mall Subsidiary will not (and will not permit
any other person to) own, operate, lease, license or manage any building or
other facility, at or in the Casino Resort, Phase II Resort, The Grand Canal
Shoppes or the land on which the Casino Resort, the Phase II Resort or The Grand
Canal Shoppes sits, that provides space for shows or expositions of the type
generally held at the Expo Center. We will be able to conduct or permit to be
conducted at the meeting and conference space that is a part of the Phase 1A
Addition, and at the Phase II Resort, tradeshows or expositions of the type
generally held at the Expo Center so long as such space is at most 125,000
square feet, and we enter into preferred reservation system agreements with
Interface Group-Nevada, Inc. that will govern the booking of exposition and
tradeshows in the Phase IA meeting space and in the Phase II Resort, and
agreements for Interface Group-Nevada, Inc. to provide audio-visual,
telecommunications, electrical, janitorial and other related services to group
customers of the Phase IA Addition meeting space or the Phase II Resort. See
"Certain Relationships and Related Party Transactions--Preferred Reservation
System Agreement" and "--Meeting Services Agreement."
Additionally, until December 31, 2010, Interface Group-Nevada, Inc., upon
our request, will use commercially reasonable efforts to have the Casino Resort
designated as the "headquarters hotel" for trade show and convention events at
the Expo Center. In turn, we will use commercially reasonable efforts to promote
the use and occupancy of the Expo Center.
Further, Interface Group-Nevada, Inc. agreed under the cooperation agreement
that, until such time as the indebtedness under the notes has been paid in full,
Interface Group-Nevada, Inc. will not incur additional debt secured by the Expo
Center if such additional debt will cause the aggregate indebtedness secured by
the Expo Center to exceed the greater of 85% of the then fair market value of
the Expo Center or $140.0 million plus any additional amounts permitted to be
advanced for equipment leases or equipment financings under the terms of the
mortgages encumbering the Expo Center in 1997.
In addition, subject to certain exceptions, until December 31, 2010,
Interface Group-Nevada, Inc. will not voluntarily dispose of its interest in the
Expo Center and interest in Interface Group-Nevada, Inc., except to a buyer of
the Casino Resort.
MAINTENANCE AND REPAIR
Venetian must maintain the Casino Resort as well as some common areas and
common facilities that are to be shared with The Grand Canal Shoppes and the
Expo Center. The cost of maintenance of all shared common areas and common
facilities is to be shared by us, the Mall Subsidiary and Interface
Group-Nevada, Inc. The Mall Subsidiary must maintain, repair and restore The
Grand Canal Shoppes and all common areas and common facilities located in The
Grand Canal Shoppes, and Interface Group-Nevada, Inc. must maintain, repair and
restore the Expo Center and all common areas and common facilities located in
the Expo Center.
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INSURANCE
The owners of the Casino Resort, the owner of The Grand Canal Shoppes and
the owner of the Expo Center must also maintain minimum types and levels of
insurance, including property damage, general liability and business
interruption insurance.
The cooperation agreement establishes an insurance trustee to assist in the
implementation of the insurance requirements.
The cooperation agreement provides that in the event of a casualty affecting
all or part of the Casino Resort, the Expo Center or The Grand Canal Shoppes,
then (a) all insurance proceeds above $1.5 million shall be paid to an insurance
trustee to be disbursed in accordance with the provisions of the cooperation
agreement and (b) the owners of the affected properties will (subject to certain
conditions in the case of the Expo Center) agree to permit such proceeds to be
used to restore such property as nearly as reasonably possible to its condition
immediately preceding the casualty; PROVIDED, HOWEVER, that no mortgagee of a
damaged property shall be required to permit such application of the resulting
insurance proceeds unless within 90 days after the casualty (a) the mortgagee
receives an opinion from an independent expert to the effect the damaged
property may be completed within one year after the delivery of the opinion and
(b) the mortgagee receives evidence that the insurance proceeds (together with
any other funds committed by the owner) are sufficient to cover the anticipated
costs of the restoration (including scheduled debt service payments through the
anticipated date of completion of the restorations). If the owner of the
affected property is unable to satisfy the foregoing conditions, then the
owner's equitable share of the insurance proceeds shall be applied in accordance
with the provisions of its mortgage(s). See "Risk Factors--The collateral
securing the exchange notes is subject to control by creditors with
first-priority liens that rank ahead of the liens securing the exchange notes.
If there is a default, the value of the collateral may not be sufficient to
repay both the first-priority creditors and the holders of the exchange notes."
In the event of a condemnation of a part of the Casino Resort, a part of The
Grand Canal Shoppes or a part of the Expo Center, the cooperation agreement
requires that the affected owner restore the affected property as nearly as
reasonably possible to its condition at the time of the partial condemnation
less the portion condemned.
The cooperation agreement also requires that insurance proceeds payable in
connection with a casualty that is the result of a terrorist act be allocated
equitably among the Casino Resort, The Grand Canal Shoppes and the Expo Center
in accordance with the damages suffered by each so long as (a) proceeds in an
amount not to exceed the lesser of (i) $105 million, (ii) the cost of restoring
The Grand Canal Shoppes and the rental income lost by The Grand Canal Shoppes as
a result of the terrorist act (and covered by such insurance), and (iii) the
total amount of such insurance proceeds, are paid first to the mortgagee of The
Grand Canal Shoppes, and (b) proceeds in an amount not to exceed the lesser of
(i) $141 million, (ii) the cost of restoring the Expo Center and the income lost
by the Expo Center as a result of the terrorist act (and covered by such
insurance, and (iii) the total amount of such insurance proceeds, are paid
second to the mortgagee of the Expo Center. The mortgagee of The Grand Canal
Shoppes also has the benefit of $15 million of terrorism coverage that is solely
for the benefit of The Grand Canal Shoppes property.
PARKING
The cooperation agreement also addresses issues relating to the use of the
Casino Resort's parking facilities, the use of parking facilities planned in
connection with the Phase II Resort and easements for access. The Casino Resort,
The Grand Canal Shoppes and the Expo Center may use the parking spaces in the
Casino Resort's parking garage on a "first come, first served" basis, as long as
each property retains use of sufficient spaces to comply with minimum parking
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standards. This means that each property uses sufficient spaces to comply with
applicable laws to conduct its business. The Casino Resort's parking garage is
owned, maintained, and operated by us, with the operating costs allocated among
us, The Grand Canal Shoppes and Interface Group-Nevada, Inc. After the
completion of the parking garage planned to be built in connection with the
Phase II Resort, the Casino Resort, The Grand Canal Shoppes and the Expo Center
will have the right to use the Phase II Resort parking garage, with the
operating costs allocated among each facility. All property owners have granted
each other non-exclusive easements and rights to use the roadways and walkways
on their properties for vehicular and pedestrian access to the parking garages.
UTILITY EASEMENTS
All property owners have also granted each other all appropriate and
necessary easement rights to utility lines servicing the Casino Resort, the
Phase II Resort and the Expo Center.
RELATIONS BETWEEN THE CASINO RESORT AND THE PHASE II RESORT
We must approve the plans and specifications (such approval not to be
unreasonably withheld) for all portions of the Phase II Resort that will connect
with or adjoin the Casino Resort prior to the commencement of construction of
the Phase II Resort. The owner of the Phase II Resort must use commercially
reasonable efforts to minimize such construction's interference with the
operation of the Casino Resort.
Additionally, prior to construction of the Phase II Resort, there must be
agreement on:
- appropriate mutual operating covenants for the Casino Resort and the Phase
II Resort;
- joint marketing and advertising of the Casino Resort and the Phase II
Resort;
- certain shared casino operations at the Casino Resort and the Phase II
Resort;
- the sharing of customer information regarding the Casino Resort and the
Phase II Resort;
- the joint purchasing of insurance for the Casino Resort and the Phase II
Resort;
- shared security operations for the Casino Resort and the Phase II Resort;
and
- any other matters that would be of mutual benefit in owning and operating
the Casino Resort and the Phase II Resort.
COORDINATED RELATIONS WITH HVAC PROVIDER
The owners of the Casino Resort, The Grand Canal Shoppes, the Expo Center
and the Phase II Resort have or will have separate services agreements with the
"HVAC Provider" for the provision of thermal energy. See "Operating
Agreements--HVAC Services Agreement and Related Documents."
The cooperation agreement provides mechanisms for these parties to deal with
the HVAC Provider in a coordinated manner. In particular, the cooperation
agreement establishes conditions for the owner of the Phase II Resort receiving
thermal energy services from the HVAC plant. These conditions include the
payment by the owner of the Phase II Resort of all incremental costs
attributable to such services and any additional capital improvements required
for such services.
The cooperation agreement also provides mechanisms for the owners of the
various properties to make decisions regarding the termination or extension of
the HVAC services agreements. In
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general, these provisions permit a property owner that is not receiving adequate
HVAC services to replace the HVAC Services provider, as long as the property
owner:
- arranges for an experienced substitute utility operator to take over
operation of the HVAC plant; and
- indemnifies the other property owners against additional payment
obligations arising as a consequence of the termination of the previous
operator of the HVAC plant.
CONSENTS, APPROVALS AND DISPUTES
If any property owner has a consent or approval right or has discretion to
act or refrain from acting, consent or approval will only be granted and action
will be taken or not taken only if a commercially reasonable owner would do so
and such consent, approval, action or inaction would not have a material adverse
effect on the property owned by such property owner. The cooperation agreement
provides for the appointment of an independent expert to resolve some disputes
between the parties, as well as for expedited arbitration for other disputes.
AGREEMENTS RELATING TO THE PHASE II RESORT
The Casino Resort was developed on a stand-alone basis as the first phase of
a planned two-phase development. In the second phase of the development, it is
contemplated that our subsidiary Lido Casino Resort, LLC will construct and
develop the Phase II Resort, which is planned to be a themed resort as well. See
"Certain Relationships and Related Party Transactions--Possible Conflicts of
Interest."
If the Phase II Resort is constructed, the following additional agreements
may also be entered into by the Phase II Subsidiary, on the one hand, and us,
Venetian and the Mall Subsidiary, on the other hand:
PHASE II CASINO LEASE
If the Phase II Resort is constructed, LVSI or Venetian may operate the
casino for the Phase II Resort under the Phase II casino lease in order to avoid
the need for a separate gaming license for Lido Casino Resort, LLC. The Phase II
casino lease may have terms similar to the casino lease. LVSI or Venetian may
agree to operate the casino in the Phase II Resort and the casino in similar
manners. If Lido Casino Resort, LLC is to receive a percentage of gaming revenue
under the Phase II casino lease, it will first have to obtain licenses or other
approvals from the Nevada gaming authorities. LVSI or Venetian may also agree to
have common gaming and surveillance operations in the casinos based on pro rata
allocations of revenues and operating costs.
PHASE II HVAC SERVICES AGREEMENT
The cooperation agreement permits the owner of the Phase II land to be part
of an HVAC services agreement for HVAC services from the HVAC plant. Any
agreement would have to be concluded on terms satisfactory to the HVAC provider.
See "--Cooperation Agreement."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion presents the opinion of Paul, Weiss, Rifkind,
Wharton & Garrison regarding certain material U.S. federal income tax
consequences of the exchange of initial notes for exchange notes pursuant to the
exchange offer, as well as the ownership and disposition of the exchange notes
by U.S. and non-U.S. holders, each as defined below, who acquire such exchange
notes in the exchange offer. This discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"), administrative pronouncements, judicial
decisions, existing and proposed Treasury Regulations, and interpretations of
the foregoing, all as of the date hereof. All of the foregoing authorities are
subject to change (possibly with retroactive effect) and any such change may
result in U.S. federal income tax consequences to a holder that are materially
different from those described herein. We have not obtained and do not intend to
obtain a ruling from the U.S. Internal Revenue Service ("IRS") regarding the
classification of the initial notes or the exchange notes for U.S. federal
income tax purposes or for any other aspect of the tax consequences described
below. We cannot assure you that the IRS will not disagree with any of the tax
consequences described in this summary. The following discussion assumes that
both the initial notes and exchange notes are properly treated as debt for U.S.
federal income tax purposes.
The following discussion does not purport to be a full description or
listing of all U.S. federal income tax considerations that may be relevant to a
holder in light of such holder's particular circumstances and only addresses
holders who hold exchange notes as capital assets within the meaning of
Section 1221 of the Code. Furthermore, this discussion does not address the U.S.
federal income tax considerations applicable to holders subject to special
rules, such as certain financial institutions, tax-exempt entities, insurance
companies, partnerships or other pass-through entities, persons who have ceased
to be U.S. citizens or to be taxed as resident aliens, dealers in securities or
currencies, persons holding notes in connection with a hedging transaction,
"straddle," conversion transaction or a synthetic security or other integrated
transaction and U.S. holders whose "functional currency" is not the U.S. dollar.
In addition, this summary does not address the tax consequences applicable to
persons who do not acquire exchange notes pursuant to the exchange offer.
As used in this offering circular, a "U.S. holder" means a beneficial owner
of an exchange note who is, for U.S. federal income tax purposes:
- a citizen or resident of the U.S.;
- a corporation created or organized in or under the laws of the U.S. or any
of its political subdivisions;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if either a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust or the trust has a valid election in effect under applicable
Treasury regulations to be treated as a U.S. person.
As used in this summary, the term "non-U.S. holder" means a beneficial owner
of an exchange note who is not a U.S. holder. Persons that are partnerships or
who would hold exchange notes through a partnership or similar pass-through
entity should consult their tax advisors regarding the U.S. federal income tax
consequences to them of holding such notes.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, PERSONS CONSIDERING THE
ACQUISITION OF EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER SHOULD CONSULT
THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF U.S. FEDERAL
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TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY
TAX TREATY.
TAX CONSIDERATIONS FOR U.S. HOLDERS
THE EXCHANGE OFFER
The exchange of initial notes for exchange notes pursuant to the exchange
offer will not be treated as an exchange or otherwise as a taxable event to
holders. Consequently, (1) no gain or loss will be realized by a holder upon
receipt of an exchange note, (2) the holding period of the exchange note will
include the holding period of the initial note exchanged therefor and (3) the
adjusted tax basis of the exchange note will be the same as the adjusted tax
basis of the initial note exchanged therefor immediately before the exchange.
Further, any market discount or bond premium (as discussed below) applicable to
the initial notes should carry over to the exchange notes. The U.S. federal
income tax consequences of holding and disposing of an exchange note generally
should be the same as the U.S. federal income tax consequences of holding and
disposing of an initial note.
PAYMENTS OF INTEREST ON EXCHANGE NOTES
Interest paid on an exchange note generally will be taxable to a U.S. holder
as ordinary interest income at the time it accrues or is received in accordance
with the U.S. holder's method of accounting for U.S. federal income tax
purposes.
MARKET DISCOUNT AND BOND PREMIUM
If a U.S. holder purchased an initial note prior to this exchange offer for
an amount that is less than its principal amount, then, subject to a statutory
DE MINIMIS rule, the difference generally will be treated as market discount. If
a U.S. holder exchanges an initial note, with respect to which there is market
discount, for an exchange note pursuant to the exchange offer, the market
discount applicable to the initial note should carry over to the exchange note
so received. In that case, any partial principal payment on, or any gain
realized on the sale, exchange, retirement or other disposition of (including
dispositions which are nonrecognition transactions under certain provisions of
the Code), the exchange note will be included in gross income and characterized
as ordinary income to the extent of the market discount that (1) has not
previously been included in income and (2) is treated as having accrued on the
exchange note prior to the payment or disposition. Market discount generally
accrues on a straight-line basis over the remaining term of the exchange note.
Upon an irrevocable election, however, market discount will accrue on a constant
yield basis. A U.S. holder might be required to defer all or a portion of the
interest expense on indebtedness incurred or continued to purchase or carry an
exchange note. A U.S. holder may elect to include market discount in gross
income currently as it accrues. If such an election is made, the preceding rules
relating to the recognition of market discount and deferral of interest expense
will not apply. An election made to include market discount in gross income as
it accrues will apply to all debt instruments acquired by the U.S. holder on or
after the first day of the taxable year to which the election applies and may be
revoked only with the consent of the IRS.
If a U.S. holder purchased an initial note prior to this exchange offer for
an amount that is in excess of all amounts payable on the initial note after the
purchase date, other than payments of qualified stated interest, the excess will
be treated as bond premium. If a U.S. holder exchanges an initial note, with
respect to which there is a bond premium, for an exchange note pursuant to the
exchange offer, the bond premium applicable to the initial note should carry
over to the exchange note so received. In general, a U.S. holder may elect to
amortize bond premium over the remaining
177
<Page>
term of the exchange note on a constant yield method. The amount of bond premium
allocable to any accrual period is offset against the qualified stated interest
allocable to the accrual period. If, following the offset determination
described in the immediately preceding sentence, there is an excess allocable
bond premium remaining, that excess may, in some circumstances, be deducted. An
election to amortize bond premium applies to all taxable debt instruments held
at the beginning of the first taxable year to which the election applies and
thereafter acquired by the U.S. holder and may be revoked only with the consent
of the IRS.
SALE, EXCHANGE OR DISPOSITION OF EXCHANGE NOTES
A U.S. holder will generally recognize gain or loss on the sale, exchange,
redemption or other taxable disposition of an exchange note in an amount equal
to the difference between:
- the amount of cash plus the fair market value of any property received,
other than any amount received attributable to accrued but unpaid interest
not previously included in income, which will be taxable as ordinary
interest income; and
- such holder's adjusted tax basis in the exchange note.
A U.S. holder's tax basis in an exchange note will generally be such
holder's cost for the initial note, increased by any accrued market discount
previously included in income, and decreased by any amortized bond premium and
any payments that are not payments of stated interest. Subject to the discussion
of market discount above, such gain or loss will generally be capital gain or
loss and will be long-term capital gain or loss if, at the time of sale,
exchange or other taxable disposition of the exchange note, the holder held such
note for more than one year. The deductibility of capital losses is subject to
limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
interest on, and the proceeds of disposition of, an exchange note made to U.S.
holders other than certain exempt recipients such as corporations. In general,
backup withholding, at the then applicable rate, will be applicable to a U.S.
holder that is not an exempt recipient if such U.S. holder:
- fails to furnish its correct taxpayer identification number which, for an
individual, would be his or her Social Security Number;
- is notified by the IRS that it has failed to properly report payments of
interest or dividends; or
- in some circumstances, fails to certify, under penalties of perjury, that
the holder has furnished a correct taxpayer identification number and has
not been notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments.
Any amount withheld from payment to a holder under the backup withholding
rules will be allowed as a credit against the holder's federal income tax
liability and may entitle the holder to a refund, provided the required
information is furnished to the IRS. Holders of exchange notes should consult
their tax advisors regarding the application of backup withholding in their
particular situation, the availability of an exemption from backup withholding
and the procedure for obtaining such an exemption, if available.
TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
THE EXCHANGE OFFER
The exchange of initial notes for exchange notes pursuant to the exchange
offer by a non-U.S. holder will not be treated as an exchange or otherwise as a
taxable event.
178
<Page>
PAYMENTS OF INTEREST ON EXCHANGE NOTES
Subject to the discussion below concerning backup withholding, payments of
interest on an exchange note by us or our paying agent to a non-U.S. holder will
generally not be subject to U.S. federal income tax or withholding tax, if:
- the non-U.S. holder does not own, actually or constructively, for U.S.
federal income tax purposes, 10% or more of the total combined voting
power of all classes of voting stock of LVSI, or 10% or more of the
capital or profits interest in Venetian;
- the non-U.S. holder is not, for U.S. federal income tax purposes, a
controlled foreign corporation related, directly or indirectly, to LVSI or
Venetian under applicable rules of the Code;
- the non-U.S. holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code; and
- either (A) the non-U.S. holder provides to us or our paying agent an IRS
Form W-8BEN (or a suitable substitute form), signed under penalties of
perjury, that includes such holder's name and address and a certification
as to its non-U.S. status, or (B) in the case of exchange notes held on
behalf of the beneficial owner by a securities clearing organization, bank
or other financial institution holding customers' securities in the
ordinary course of its trade or business, such institution files with the
withholding agent a statement that it has received Form W-8BEN (or a
suitable substitute form) from the non-U.S. holder or from another
financial institution acting on behalf of such holder, furnishes the
withholding agent with a copy thereof and otherwise complies with the
applicable IRS requirements.
In the case of exchange notes held by a foreign partnership, the
certification described above normally is provided by the partners as well as by
the foreign partnership and the partnership provides other specified
information. Other methods might be available to satisfy the certification
requirements described above, depending upon the circumstances applicable to the
non-U.S. holder. Holders, including foreign partnerships and their partners,
should consult their tax advisors regarding possible reporting requirements.
The gross amount of payments of interest that do not qualify for the
exception from withholding described above and that are not effectively
connected with the conduct by such holder of a trade or business in the U.S.
will be subject to U.S. withholding tax at a rate of 30% unless a treaty applies
to reduce or eliminate withholding and the non-U.S. holder properly certifies
its entitlement to such treaty benefits on IRS Form W-8BEN or other applicable
form.
If a non-U.S. holder is engaged in a trade or business in the United States
and if interest on an exchange note or gain realized on the disposition of an
exchange note is effectively connected with the conduct of the trade or
business, the non-U.S. holder usually will be subject to regular U.S. federal
income tax on the interest or gain in the same manner as if it were a U.S.
holder, unless an applicable treaty provides otherwise. In addition, if the
non-U.S. holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% on its earnings and profits for the taxable year, subject to
certain adjustments unless reduced or eliminated by an applicable tax treaty.
SALE, EXCHANGE OR DISPOSITION OF EXCHANGE NOTES
Subject to the discussion below concerning backup withholding, a non-U.S.
holder of an exchange note generally will not be subject to U.S. federal income
tax on gain realized on the sale, exchange or other taxable disposition of such
note unless:
- such holder is an individual who is present in the U.S. for 183 days or
more in the taxable year of disposition, and certain other conditions are
met;
179
<Page>
- the holder is subject to the special rules applicable to certain former
citizens or former residents of the U.S.; or
- such gain is effectively connected with the conduct by such non-U.S.
holder of a trade or business in the U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding and information reporting generally will not apply to
payments made by us or our paying agent on an exchange note to a non-U.S. holder
if the certification described under "--Tax Considerations for Non-U.S. Holders"
is provided or the non-U.S. holder otherwise establishes an exemption, and the
payor does not have actual knowledge that the holder is a U.S. holder or that
the conditions of any other exemption are not, in fact, satisfied.
The payments of proceeds from the disposition of an exchange note made to or
through a non-U.S. office of a non-U.S. broker, as defined in applicable
Treasury regulations, generally will not be subject to backup withholding or
information reporting. However, if such broker is, for U.S. federal income tax
purposes:
- a U.S. person;
- a controlled foreign corporation (for U.S. federal income tax purposes);
- a foreign person 50% or more of whose gross income from all sources is
effectively connected with the conduct of a U.S. trade or business for a
specified 3 year period; or
- a foreign partnership with certain connections to the U.S.
then information reporting will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a U.S. person and certain
other conditions are met or the beneficial owner otherwise establishes an
exemption. Backup withholding may apply to any payment that such broker is
required to report if the broker has actual knowledge that the payee is a U.S.
person. Payments to or through the U.S. office of a broker will be subject to
information reporting and possible backup withholding unless the holder
certifies, under penalties of perjury, that it is not a U.S. holder or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied.
The Treasury Regulations provide certain presumptions under which a non-U.S.
holder will be subject to backup information reporting and backup withholding
unless such holder certifies as to its non-U.S. status or otherwise establishes
an exemption. Non-U.S. holders of exchange notes should consult their tax
advisors regarding the application of information reporting and backup
withholding in their particular situation, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available. Any
amounts withheld from a payment to a non-U.S. holder under the backup
withholding rules will be allowed as a credit against the holder's U.S. federal
income tax liability and may entitle the holder to a refund if the required
information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO YOU OF PURCHASING, HOLDING AND DISPOSING OF THE EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-U.S.
TAX LAWS AND ANY TAX TREATY AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE
TAX LAWS OR TREATIES.
180
<Page>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to this 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 initial notes
where such initial notes were acquired as a result of market-making activities
or other trading activities. We have agreed that, for a period of 180 days after
the registration statement of which this prospectus is a part has become
effective, we will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale. In addition,
until , 2002, all dealers effecting transactions in the exchange notes may
be required to deliver a prospectus. Each broker-dealer that acquires the
initial notes directly from us in the initial offering and not as a result of
market-making or trading activities must, in the absence of an exemption, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the exchange notes and may not use this
prospectus in connection with resales of the exchange notes.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit 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 180 days after the registration statement of which this
prospectus is a part has become effective, we 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. We
have agreed to pay all expenses incident to the exchange offer other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York has passed upon
the validity of the exchange notes and related guarantees. Certain legal matters
with respect to Nevada law will be passed upon for us by Lionel Sawyer &
Collins, Las Vegas, Nevada.
181
<Page>
EXPERTS
The consolidated financial statements of Las Vegas Sands, Inc. as of
December 31, 2000 and 2001 and for each of the three years in the period ended
December 31, 2001 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Venetian Casino Resort, LLC
("Venetian") as of December 31, 2000 and 2001 and for each of the three years in
the period ended December 31, 2001 included in this prospectus have been so
included in reliance on the report (which contains an explanatory paragraph in
relation to (i) Venetian being a co-obligor of certain indebtedness and
(ii) Venetian only operating certain portions of the Casino Resort facility, as
described in Notes 1 and 7 to the consolidated financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Grand Canal Shops Mall Subsidiary, LLC as of
December 31, 2000 and 2001 and for each of the three years in the period ended
December 31, 2001 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
182
<Page>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
--------
LAS VEGAS SANDS, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets at December 31, 2000 and 2001... F-3
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2001............... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the three years in the period ended December
31, 2001.................................................. F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2001............... F-6
Notes to Financial Statements............................... F-7
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 2001 and
September 30, 2002........................................ F-42
Consolidated Statements of Operations for the three and nine
months ended September 30, 2001 and 2002.................. F-43
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2002......................... F-44
Notes to Financial Statements............................... F-45
VENETIAN CASINO RESORT, LLC
Report of Independent Accountants........................... F-66
Consolidated Balance Sheets at December 31, 2000 and 2001... F-67
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999, 2000 and
2001...................................................... F-68
Consolidated Statements of Members' Equity (Deficit) for
each of the three years in the period ended December 31,
2001...................................................... F-69
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1999, 2000 and
2001...................................................... F-70
Notes to Financial Statements............................... F-71
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 2001 and
September 30, 2002........................................ F-103
Consolidated Statements of Operations for the three months
and nine months ended September 30, 2001 and 2002......... F-104
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2002......................... F-105
Notes to Financial Statements............................... F-106
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
Report of Independent Accountants........................... F-121
Consolidated Balance Sheets at December 31, 2000 and 2001... F-122
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1999, 2000 and
2001...................................................... F-123
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 2001..... F-124
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2001............... F-125
Notes to Financial Statements............................... F-126
</Table>
F-1
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND STOCKHOLDERS OF LAS VEGAS SANDS, INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Las Vegas Sands, Inc. and its subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. 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 of America, 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 our opinion.
As more fully described in Note 1, the Company has restated previously
reported net income (loss) for the years ended December 31, 2000 and 1999 to
include preferred return on preferred stock of a subsidiary.
As more fully described in Note 2, the Company changed its method of
accounting for losses on early retirements of debt in connection with its
adoption of Financial Accounting Standards Board Statement No. 145.
PRICEWATERHOUSECOOPERS LLP
Las Vegas, Nevada
February 1, 2002, except for Notes 2 and 16
as to which the date is June 28, 2002
F-2
<Page>
LAS VEGAS SANDS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
DECEMBER 31,
-------------------------
2000 2001
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 42,606 $ 54,936
Restricted cash and investments........................... 2,549 2,646
Accounts receivable, net.................................. 64,328 57,092
Inventories............................................... 3,868 4,747
Prepaid expenses.......................................... 3,672 3,862
----------- -----------
Total current assets........................................ 117,023 123,283
Property and equipment, net................................. 1,062,093 1,096,307
Deferred offering costs, net................................ 22,314 18,989
Other assets, net........................................... 30,955 33,207
----------- -----------
$ 1,232,385 $ 1,271,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 23,835 $ 36,353
Construction payables..................................... 6,212 26,115
Construction payables-contested........................... 7,232 7,232
Accrued interest payable.................................. 13,277 10,008
Other accrued liabilities................................. 76,735 70,035
Current maturities of long-term debt...................... 50,119 129,113
----------- -----------
Total current liabilities................................... 177,410 278,856
Other long-term liabilities................................. 10,494 3,274
Long-term debt.............................................. 801,222 745,746
Long-term subordinated loans payable to Principal
Stockholder............................................... 62,071 66,123
----------- -----------
1,051,197 1,093,999
----------- -----------
Redeemable Preferred Interest in Venetian Casino Resort,
LLC, a wholly owned subsidiary............................ 168,012 188,778
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.10 par value, 3,000,000 shares authorized,
925,000 shares issued and outstanding................... 92 92
Capital in excess of par value (2000, as restated)........ 140,768 140,768
Accumulated deficit since June 30, 1996 (2000, as
restated)............................................... (127,684) (151,851)
----------- -----------
13,176 (10,991)
----------- -----------
$ 1,232,385 $ 1,271,786
=========== ===========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<Page>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
--------- --------- ---------
Revenues:
Casino.................................................. $124,161 $ 299,083 $ 227,240
Rooms................................................... 89,585 192,327 204,242
Food and beverage....................................... 30,786 67,052 61,977
Retail and other........................................ 28,966 68,804 73,034
-------- --------- ---------
273,498 627,266 566,493
Less-promotional allowances............................... (25,045) (46,296) (42,594)
-------- --------- ---------
Net revenues............................................ 248,453 580,970 523,899
-------- --------- ---------
Operating expenses:
Casino.................................................. 69,664 163,157 139,936
Rooms................................................... 25,532 49,618 50,039
Food and beverage....................................... 19,134 32,627 29,630
Retail and other........................................ 11,581 29,406 32,302
Provision for doubtful accounts......................... 13,655 19,252 20,198
General and administrative.............................. 50,450 93,413 86,887
Corporate expense....................................... 2,510 6,275 6,376
Rental expense.......................................... 5,485 8,727 8,074
Pre-opening and developemental expense.................. 21,484 -- 355
Depreciation and amortization........................... 25,145 41,722 40,823
-------- --------- ---------
244,640 444,197 414,620
-------- --------- ---------
Operating income.......................................... 3,813 136,773 109,279
Other income (expense):
Interest income......................................... 2,551 1,771 1,385
Interest expense, net of amounts capitalized............ (71,235) (111,026) (101,724)
Interest expense on indebtedness to Principal
Stockholder........................................... (163) (8,781) (9,020)
Other income (expense).................................. -- -- (1,938)
Loss on early retirement of debt (all periods as
restated--see Note 2)................................. (589) (2,785) (1,383)
-------- --------- ---------
Income (loss) before preferred return (all periods as
restated)............................................... (65,623) 15,952 (3,401)
Preferred return on Redeemable Preferred Interest in
Venetian Casino Resort, LLC (1999 and 2000, as
restated--see Note 1)................................. (14,399) (18,482) (20,766)
-------- --------- ---------
Net income (loss) (1999 and 2000, as restated)............ $(80,022) $ (2,530) $ (24,167)
======== ========= =========
Basic and diluted loss per share.......................... $ (80.02) $ (2.53) $ (24.17)
======== ========= =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<Page>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
COMMON STOCK
------------------- CAPITAL IN
NUMBER EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT TOTAL
-------- -------- ---------- ----------- --------
AS RESTATED (1998-2000)
BALANCE AT DECEMBER 31, 1998............. 925,000 $ 92 $112,977 $ (45,132) $ 67,937
Capital contributions.................... 27,791 27,791
Net loss................................. (80,022) (80,022)
------- ------ -------- --------- --------
BALANCE AT DECEMBER 31, 1999............. 925,000 92 140,768 (125,154) 15,706
Net loss................................. (2,530) (2,530)
------- ------ -------- --------- --------
BALANCE AT DECEMBER 31, 2000............. 925,000 92 140,768 (127,684) 13,176
Net loss................................. (24,167) (24,167)
------- ------ -------- --------- --------
BALANCE AT DECEMBER 31, 2001............. 925,000 $ 92 $140,768 $(151,851) $(10,991)
======= ====== ======== ========= ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<Page>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 2000 2001
-------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (1999 and 2000, as restated).............. $(80,022) $ (2,530) $(24,167)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 25,145 41,722 40,823
Amortization of debt offering costs and original issue
discount................................................ 7,569 8,502 8,691
Non-cash preferred return on Redeemable Preferred Interest
in Venetian (2000 and 1999, as restated)................ 14,399 18,482 20,766
Loss on early retirement of debt.......................... 589 2,785 1,383
Non-cash interest on completion guaranty loan............. -- 3,568 4,052
Provision for doubtful accounts........................... 13,655 19,252 20,198
Changes in operating assets and liabilities:
Accounts receivable..................................... (56,748) (40,377) (12,962)
Inventories............................................. (4,443) 648 (879)
Prepaid expenses........................................ (4,070) 400 (190)
Other assets............................................ (10,141) (19,433) (2,252)
Accounts payable........................................ 17,863 5,707 12,518
Accrued interest payable................................ 3,421 787 (3,269)
Other accrued liabilities............................... 42,720 41,504 (13,920)
-------- -------- --------
Net cash provided by (used in) operating activities......... (30,063) 81,017 50,792
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash...................... 122,956 8,431 (97)
Capital expenditures........................................ (16,409) (55,134)
Construction of Casino Resort............................... (319,106) (12,180) --
-------- -------- --------
Net cash used in investing activities....................... (196,150) (20,158) (55,231)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contributions......................... 16,000 -- --
Proceeds from preferred interest in Venetian................ 44,431 -- --
Repayments on mall construction loan facility............... (140,000) -- --
Proceeds from mall construction loan facility............... 37,287 -- --
Proceeds from mall-tranche A take-out Loan.................. 105,000 -- --
Proceeds from mall-tranche B take-out Loan.................. 35,000 -- --
Proceeds from completion guaranty loan...................... 23,503 -- --
Repayments on bank credit facility-tranche A term loan...... (11,250) (35,625) (103,125)
Proceeds from bank credit facility-tranche A term loan...... 34,000 -- --
Repayments on bank credit facility-tranche B term loan...... (250) (49,750)
Proceeds from bank credit facility-tranche B term loan...... -- 50,000 --
Repayments on bank credit facility-tranche C term loan...... -- -- (5,750)
Proceeds from bank credit facility-tranche C term loan...... -- -- 5,750
Repayments on bank credit term facility..................... -- -- (764)
Proceeds from bank credit term facility..................... -- -- 152,750
Repayments on bank credit facility-revolver................. (10,231) (50,160) (18,000)
Proceeds from bank credit facility-revolver................. 40,506 11,000 58,000
Repayments on FF&E credit facility.......................... (5,862) (16,609) (21,494)
Proceeds from FF&E credit facility.......................... 83,842 -- --
Proceeds from Phase II Subsidiary credit facility........... -- -- 3,933
Proceeds from Phase II Subsidiary unsecured bank loan....... -- -- 1,092
Payments of deferred offering costs......................... (2,046) (2,861) (5,873)
-------- -------- --------
Net cash provided by (used in) financing activities......... 250,180 (44,505) 16,769
-------- -------- --------
Increase in cash and cash equivalents....................... 23,967 16,354 12,330
Cash and cash equivalents at beginning of year.............. 2,285 26,252 42,606
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 26,252 $ 42,606 $ 54,936
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest................................ $ 91,611 $106,143 $106,150
======== ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contribution of land by Principal Stockholder............... $ 11,791 $ -- $ --
======== ======== ========
Non-cash interest on completion guaranty loan............... $ -- $ 3,568 $ 4,052
======== ======== ========
Property and equipment asset acquisitions included in
accounts payable.......................................... $ 17,410 $ 13,444 $ 33,347
======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY
Las Vegas Sands, Inc. ("LVSI") is a Nevada corporation. On April 28, 1989,
LVSI commenced gaming operations in Las Vegas, Nevada, by acquiring the Sands
Hotel and Casino (the "Sands"). On June 30, 1996, LVSI closed the Sands and
subsequently demolished the facility in order to construct a planned two-phase
hotel-casino resort. The first phase of the hotel-casino resort (the "Casino
Resort") includes 3,036 suites, casino space approximating 116,000 square feet,
approximately 500,000 square feet of convention space, and approximately 475,000
gross leasable square feet of retail shops and restaurants. In connection with
the closing of the Sands, LVSI effected a quasi-reorganization (Note 3).
The consolidated financial statements include the accounts of LVSI and its
wholly owned subsidiaries (the "Subsidiaries"), including Venetian Casino
Resort, LLC ("Venetian"), Grand Canal Shops Mall, LLC (the "Mall Subsidiary"),
Grand Canal Shops Mall Subsidiary, LLC (the "New Mall Subsidiary"), Lido Casino
Resort, LLC (the "Phase II Subsidiary"), Mall Intermediate Holding Company, LLC
("Mall Intermediate"), Grand Canal Shops Mall Construction, LLC ("Mall
Construction"), Lido Intermediate Holding Company, LLC ("Lido Intermediate"),
Grand Canal Shops Mall Holding Company, LLC, Grand Canal Shops Mall MM
Subsidiary, Inc., Lido Casino Resort Holding Company, LLC, Grand Canal Shops
Mall MM, Inc. and Lido Casino Resort MM, Inc. (collectively, and including all
other direct and indirect subsidiaries of LVSI, the "Company"). Each of LVSI and
the Subsidiaries is a separate legal entity and the assets of each such entity
are intended to be available only to the creditors of such entity.
Venetian was formed on March 20, 1997 to own and operate certain portions of
the Casino Resort. LVSI is the managing member and owns 100% of the common
voting equity in Venetian. The entire preferred interest in Venetian is owned by
Interface Group Holding Company, Inc. ("Interface Holding"), which is wholly
owned by LVSI's Principal stockholder (the "Principal Stockholder") (Note 9).
Mall Intermediate and Lido Intermediate are special purpose companies, which
are wholly owned subsidiaries of Venetian. They are guarantors or co-obligors of
certain indebtedness related to the construction of the Casino Resort.
The New Mall Subsidiary, an indirect wholly-owned subsidiary of LVSI, was
formed on December 9, 1999 and owns and operates the retail mall in the Casino
Resort (the "Mall").
The Casino Resort is physically connected to the approximately 1.15 million
square foot Sands Expo and Convention Center (the "Expo Center"). Interface
Group-Nevada, Inc. ("IGN"), the owner of the Expo Center, is beneficially owned
by the Principal Stockholder. Venetian, the New Mall Subsidiary and IGN transact
business with each other and are parties to certain agreements. The nature of
such transactions and the amounts involved are disclosed in the notes to the
financial statements.
RESTATEMENT OF PREVIOUSLY REPORTED AMOUNTS
As more fully described above, Interface Holding (an entity controlled by
LVSI's principal stockholder) owns a redeemable preferred interest in LVSI's
wholly owned subsidiary, Venetian. The preferred return on the redeemable
preferred interest has not been paid, but it has been accrued by the Company
each year and historically accounted for as a charge against capital. Under
guidance by the Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards
F-7
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY (CONTINUED)
Board, dividends on a subsidiary's preferred stock should be reflected as a
minority interest and recognized as a charge against income.
The Company has recognized the preferred return as a charge against income
in the accompanying 2001 financial statements, and has restated certain income
statement items, capital in excess of par value and accumulated deficit for the
years ended December 31, 1999 and 2000 to include the preferred return, which
amounts were $14.4 million and $18.5 million, respectively. Accumulated deficit
as of December 31, 1998 has also been restated for the cumulative effect of
years prior to 1999, which amount was $13.6 million. The restatement has no
impact on the previously reported carrying balances of the redeemable preferred
interest, or on the previously reported financial position of the Company. In
addition, because such preferred return was deducted from income available to
common stockholders in calculating earnings per share, the restatement has no
impact on previously reported amounts for earnings per share.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany balances and transactions have
been eliminated.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The preparation of the consolidated financial statements in accordance with
generally accepted accounting principles requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, management evaluates those estimates, including those related to
asset impairment, accruals for slot marketing points, self-insurance,
compensation and related benefits, revenue recognition, allowance for doubtful
accounts, contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term investments with
original maturities not in excess of 90 days.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out and specific identification methods. Inventories consist
primarily of food, beverage and retail products.
F-8
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable are due within one year and are recorded net of amounts
estimated to be uncollectible.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the assets
as follows:
<Table>
Building and improvements................................... 15 to 40 years
Furniture, fixtures and equipment........................... 3 to 15 years
Leasehold improvements...................................... 5 to 10 years
</Table>
Maintenance, repairs and renewals that neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on disposition of property and equipment are included
in the statements of operations.
Management reviews assets for possible impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
such assets exceeds their fair value. Impairment losses are recognized when
estimated future undiscounted cash flows expected to result from the use of the
assets and their eventual disposition are less than their carrying amounts. See
Note 3 for adjustment of carrying values as a result of the
quasi-reorganization.
CAPITALIZED INTEREST
Interest costs associated with major construction projects are capitalized.
Interest is capitalized on amounts expended on the Casino Resort using the
weighted-average cost of the Company's outstanding borrowings. Capitalization of
interest ceases when the project is substantially complete.
PRE-OPENING AND DEVELOPMENTAL COSTS
Pre-opening and developmental costs, representing primarily direct personnel
and other costs incurred prior to the opening of the Casino Resort and other new
ventures are expensed as incurred.
DEBT DISCOUNT AND DEFERRED OFFERING COSTS
Debt discount and offering costs are amortized based on the terms of the
related debt instruments using the straight-line method, which approximates the
effective interest method.
PER SHARE DATA
Basic and diluted loss per share are calculated based upon the weighted
average number of shares outstanding. As further described in Note 10, in the
first quarter of 2002, the Company completed a stock split whereby the number of
common shares outstanding was increased to 1,000,000 from 925,000. Accordingly,
all earnings per share calculations have been adjusted to retroactively give
effect to the increase in shares outstanding to 1,000,000.
F-9
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement
exists, performance of the service or delivery of the product has occurred, the
sales price is fixed or determinable and collectibility is probable.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue is the aggregate of gaming wins and losses. Effective in the
fourth quarter of 2000 and the first quarter of 2001, the Company adopted
Emerging Issues Task Force Issue 00-14 ("EITF 00-14") and Emerging Issues Task
Force Issue 00-22 ("EITF 00-22"), respectively. EITF 00-14 and EITF 00-22
require that cash discounts and other cash incentives related to gaming play be
recorded as a reduction of gross casino revenues. EITF 00-14 and EITF 00-22 also
require that prior periods be restated to conform to this presentation. The
Company previously recorded such discounts as an operating expense and has
reclassified prior period amounts, which has no effect on previously reported
net income. In connection with the adoption of EITF 00-22 in the first quarter
of 2001, the Company reclassified $3.3 million and $6.1 million of such
discounts in the 1999 and 2000 financial statements, respectively. In addition,
the retail value of accommodations, food and beverage, and other services
furnished to hotel/casino guests without charge is included in gross revenue and
then deducted as promotional allowances. The estimated departmental cost of
providing such promotional allowances is included primarily in casino operating
expenses as follows (in thousands):
<Table>
<Caption>
COST
DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
Food and Beverage.............................. $ 7,126 $10,391 $ 9,357
Rooms.......................................... 5,077 7,956 6,996
Other.......................................... 836 1,904 1,752
------- ------- -------
$13,039 $20,251 $18,105
======= ======= =======
</Table>
The estimated retail value of such promotional allowances is included in
operating revenues as follows (in thousands):
<Table>
<Caption>
REVENUE
DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
Food and Beverage.............................. $ 8,265 $16,053 $14,749
Rooms.......................................... 15,445 27,421 25,828
Other.......................................... 1,335 2,822 2,017
------- ------- -------
$25,045 $46,296 $42,594
======= ======= =======
</Table>
RENTAL REVENUE
Minimum rental revenues 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
F-10
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
percentage rent thresholds. Charges to tenants for real estate taxes, insurance
and other shopping center operating expenses are recognized as revenues in the
period billed which approximates the period in which the applicable costs are
incurred.
HOTEL AND FOOD AND BEVERAGE REVENUES
Hotel sales criteria are generally met at the time of occupancy. Deposits
for future hotel occupancy or food and beverage services contracts are recorded
as deferred income until revenue recognition criteria are met. Cancellation fees
for hotel and food and beverage services are recognized upon cancellation by the
customer as defined by a written contract entered into with the customer.
JOINT VENTURE REVENUE
The Company entered into an agreement during 2001 with a subsidiary of the
Solomon R. Guggenheim Foundation to operate the Guggenheim Las Vegas Museum in
the Casino Resort. The Guggenheim entity is the manager of the Guggenheim Las
Vegas Museum. The agreement requires the Company to make certain contributions
of capital. The Company is reimbursed for certain expenses incurred and certain
advances made to open the exhibition at the Guggenheim Las Vegas Museum. After
such expenses are reimbursed, the Company is to receive 49% of the operating
income generated pursuant to the agreement. The Company's share of operating
losses generated pursuant to the agreements is also 49%. The agreement is
accounted for on the equity method of accounting.
SLOT CLUB PROMOTION AND PROGRESSIVE JACKPOT PAYOUTS
The Company has established a promotional club to encourage repeat business
from frequent and active slot machine customers and table games patrons. Members
earn points based on gaming activity and such points can be redeemed for cash.
The Company accrues for club points based upon the estimates for expected
redemptions. The Company maintains a number of progressive slot machines and
table games. As wagers are made on the respective progressive games, the amount
available to win (to be paid out when the appropriate jackpots are hit)
increases. The Company has recorded the progressive jackpots as a liability with
a corresponding charge against casino revenue.
INCOME TAXES
LVSI has elected to be taxed as an S Corporation and its wholly owned
subsidiaries are either limited liability companies or S Corporations, each of
which is a tax pass-through entity for federal income tax purposes. Nevada does
not levy a corporate income tax. Accordingly, no provision for federal or state
income taxes is included in the statement of operations.
ADVERTISING COSTS
Costs for advertising are expensed as incurred, except costs for
direct-response advertising, which are capitalized and amortized over the period
of the related program. Direct-response advertising consists primarily of
mailing costs associated with the direct-mail programs. Capitalized
F-11
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
advertising costs, included in prepaid expense, were immaterial at December 31,
2001 and 2000. Advertising costs that were expensed during the year were
$5.2 million, $8.7 million and $5.6 million in 1999, 2000 and 2001,
respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of short-term investments and
receivables. The short-term investments are placed with a high credit quality
financial institution, which invests primarily in money market funds.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), entitled "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If specific conditions are met, a derivative may be specifically
designated as a hedge of specific financial exposures. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and, if used in hedging activities, it depends on its effectiveness
as a hedge. SFAS 133 as amended is effective for all fiscal quarters of fiscal
years beginning after December 31, 2000. SFAS 133 should not be applied
retroactively to financial statements of prior periods. The Company adopted
SFAS 133 on January 1, 2001.
The Company, from time to time, uses interest rate caps and floors and
similar financial instruments to assist in managing interest incurred on its
long-term debt. The difference between amounts received and amounts paid under
such agreements, as well as any costs or fees, is recorded as a reduction of, or
addition to, interest expense as incurred over the life of the cap and floor or
similar financial instrument.
The Company has a policy aimed at managing interest rate risk associated
with its current and anticipated future borrowings. This policy enables the
Company to use any combination of interest rate swaps, futures, options, cap and
similar instruments. To the extent the Company employs such financial
instruments pursuant to this policy, and the instruments qualify for hedge
accounting, they are accounted for as hedging instruments. In order to qualify
for hedge accounting, the underlying hedged item must expose the Company to
risks associated with market fluctuations and the financial instrument used must
be designated as a hedge and must reduce the Company's exposure to market
fluctuation throughout the hedge period. If these criteria are not met, a change
in the market value of the financial instrument is recognized as a gain or loss
in the period of change. Otherwise, gains and losses are not recognized except
to the extent that the financial instrument is disposed of prior to maturity.
Net interest paid or received pursuant to the financial instrument is included
as interest expense in the period.
F-12
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
The consolidated financial statements and footnotes for prior years reflect
certain reclassifications to conform with the current year presentation, which
have no effect on previously reported net income.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
No. 141 ("SFAS 141"), entitled "Business Combinations" and Statement No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 is effective as
follows: (a) use of the pooling-of-interests method is prohibited for business
combinations initiated after June 30 2001; and (b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. There are also transition provision that
apply to business combinations completed before July 1, 2001 that were accounted
for by the purchase method. SFAS 142 is effective for fiscal years beginning
after December 15, 2001 and applies to all goodwill and other intangible assets
recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the Retirement
of Long-Lived Assets." The objectives of SFAS 143 are to establish accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. SFAS 143 is effective for fiscal years
beginning after June 15, 2002.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and, generally, is to be applied
prospectively.
The Company is currently evaluating the provisions of SFAS 141, SFAS 142,
SFAS 143 and SFAS 144 and does not anticipate that the effects of these changes
will have an impact the Company's financial position or results of operations.
In April 2002, the Financial Accounting Standards Board issued statement
No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64 and
Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations to the extent
they do not meet the requirements for classification as an extraordinary loss,
as defined by APB Opinion No. 30. The Company has adopted SFAS 145 and will no
longer present losses on early retirements of debt as an extraordinary item.
Accordingly, for the years ended December 31, 1999, 2000 and 2001 the losses on
early retirement of debt of $0.6 million, $2.8 million and $1.4 million,
respectively have been reclassified to other income (expense) to conform to this
new presentation. The adoption of SFAS 145 had no impact on the Company's
financial condition or cash flows.
F-13
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--STRATEGIC REDIRECTION AND QUASI-REORGANIZATION
During 1996, in response to increasing competition and rapid market changes,
management decided to strategically redirect the Company's business. On
June 30, 1996, the Company suspended operations and closed the existing Sands
property in order to construct a new hotel-casino resort (Note 1). As a result,
approximately 1,400 employee positions were eliminated. The estimated severance
and related closing costs were included in selling, general and administrative
expense for 1996. In December 1997, the Company reevaluated its accrued closing
costs resulting in a credit of $1.8 million to selling, general and
administrative expense.
In connection with the closing of the Sands (Note 1), the Company's director
and Principal Stockholder approved a quasi-reorganization, effective as of
June 30, 1996, pursuant to which the Company revalued certain of its assets as
of that date. This revaluation, in accordance with the accounting principles
applicable to a quasi-reorganization, permitted the Company to eliminate the
adjusted accumulated deficit account as of that date, by a charge against
capital in excess of par value, and to establish a new retained earnings account
for the accumulation of the results of future operations. The
quasi-reorganization resulted in an increase in the carrying value of land of
$51.7 million and a corresponding decrease of $45.0 million in buildings and
other property and equipment, net of accumulated depreciation and $6.7 million
in severance and related closing costs. The remaining accumulated depreciation
against the cost basis of the remaining property was eliminated, and the
accumulated deficit of $155.0 million as of June 30, 1996, was transferred to
capital in excess of par value.
NOTE 4--RESTRICTED CASH
The net proceeds of the Company's 12 1/4% Mortgage Notes due 2004 (the
"Mortgage Notes") and its 14 1/4% Senior Subordinated Notes due 2005 (the
"Senior Subordinated Notes" and, together with the Mortgage Notes, the "Notes")
were deposited into restricted accounts and invested in cash or permitted
investments by a disbursement agent for the Company's lenders until required for
project costs under the terms of the disbursement agreement with certain of the
Company's lenders (the "Disbursement Agreement") (Note 8). Additional amounts
have been deposited to other restricted accounts, which are controlled by the
Company, but which are also restricted as to use under the terms of the
Disbursement Agreement.
NOTE 5--ACCOUNTS RECEIVABLE
Components of accounts receivable were as follows:
<Table>
<Caption>
DECEMBER 31,
-------------------
2000 2001
-------- --------
Casino................................................. $ 66,520 $ 58,689
Hotel.................................................. 15,387 13,987
Other.................................................. 5,334 8,409
-------- --------
87,241 81,085
Less: allowance for doubtful accounts and discounts.... (22,913) (23,993)
-------- --------
$ 64,328 $ 57,092
======== ========
</Table>
F-14
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--ACCOUNTS RECEIVABLE (CONTINUED)
The Company extends credit to approved casino customers following background
checks and investigations of creditworthiness. At December 31, 2001, a
substantial portion of the Company's casino receivables were due from customers
residing in foreign countries. Business or economic conditions, the legal
enforceability of gaming debts, or other significant events in these countries
could affect the collectibility of such receivables.
An estimated allowance for doubtful accounts and discounts is maintained to
reduce the Company's receivables to their estimated net realizable value.
Although management believes the allowance is adequate, it is possible that the
estimated amount of cash collections with respect to the casino accounts
receivable could change.
NOTE 6--PROPERTY AND EQUIPMENT, NET
Property and equipment includes costs incurred to construct the Casino
Resort and consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
-----------------------
2000 2001
---------- ----------
Land and land improvements......................... $ 109,863 $ 113,309
Building and improvements.......................... 832,429 882,395
Equipment, furniture, fixtures and leasehold
improvements..................................... 134,008 138,978
Construction in progress........................... 52,129 68,542
---------- ----------
1,128,429 1,203,224
Less: accumulated depreciation and amortization.... (66,336) (106,917)
---------- ----------
$1,062,093 $1,096,307
========== ==========
</Table>
The Casino Resort serves as collateral for various financing facilities
(Note 8).
During the years ended December 31, 1999, 2000 and 2001, the Company
capitalized interest expense of $31.3 million, $0.1 million, and $2.0 million,
respectively.
NOTE 7--OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
-------------------
2000 2001
-------- --------
Customer deposits........................................ $33,807 $32,735
Payroll and related...................................... 21,226 16,901
Taxes and licenses....................................... 8,476 6,360
Outstanding gaming chips and tokens...................... 5,095 5,849
Other accruals........................................... 8,131 8,190
------- -------
$76,735 $70,035
======= =======
</Table>
F-15
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
---------------------
2000 2001
--------- ---------
INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES
OTHER THAN THE NEW MALL SUBSIDIARY:
12 1/4% Mortgage Notes, due November 15, 2004............... $ 425,000 $425,000
14 1/4% Senior Subordinated Notes, due November 15, 2005
(net of unamortized discount of $3,387 in 2001 and $4,263
in 2000).................................................. 93,237 94,113
Bank Credit Facility-Revolver............................... -- 40,000
Bank Credit Facility-Tranche A Term Loan.................... 103,125 --
Bank Credit Facility-Tranche B Term Loan.................... 49,750 --
Bank Credit Facility-Term Loan.............................. -- 151,986
FF&E Credit Facility........................................ 75,229 53,735
INDEBTEDNESS OF THE NEW MALL SUBSIDIARY:
Mall Tranche A Take-out Loan................................ 105,000 105,000
INDEBTEDNESS OF THE PHASE II SUBSIDIARY:
Phase II Subsidiary Credit Facility......................... -- 3,933
Phase II Unsecured Bank Loan................................ -- 1,092
Less: current maturities.................................... (50,119) (129,113)
--------- --------
Total long-term debt........................................ $ 801,222 $745,746
========= ========
SUBORDINATED OWNER INDEBTEDNESS:
Completion Guaranty Loan (Indebtedness of Venetian)......... $ 27,071 $ 31,123
Subordinated Mall Tranche B Take-out Loan from Principal
Stockholder (Indebtedness of New Mall Subsidiary)......... 35,000 35,000
--------- --------
Total long-term subordinated loans payable to Principal
Stockholder............................................... $ 62,071 $ 66,123
========= ========
</Table>
As further described in Note 16, the above indebtedness of the Company was
refinanced on June 4, 2002.
MORTGAGE NOTES AND SENIOR SUBORDINATED NOTES
In November 1997, the Company issued $425.0 million aggregate principal
amount of the Mortgage Notes and $97.5 million aggregate principal amount of the
Senior Subordinated Notes in a private placement. Interest on the Notes is
payable each May 15 and November 15, commencing on May 15, 1998. On June 1,
1998, LVSI and Venetian completed an exchange offer to exchange the Notes for
notes with substantially the same terms.
The Mortgage Notes are secured by second priority liens on the Notes
Collateral (the real estate improvements and personal property that comprise the
Hotel, the Casino and the Congress Center, with certain exceptions). The Senior
Subordinated Notes are unsecured. The Notes are redeemable at the option of LVSI
and Venetian at prices ranging from 100% to 106.125% for the Mortgage Notes and
100% to 107.125% for the Senior Subordinated Notes commencing after
F-16
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
November 14, 2001, as set forth in the Notes and the indentures pursuant to
which the Notes were issued (the "Indentures"). Upon a change of control (as
defined in the Indentures), each Note holder may require LVSI and Venetian to
repurchase such Notes at 101% of the principal amount thereof plus accrued
interest and other amounts which are then due, if any. The Notes are not subject
to a sinking fund requirement.
The Senior Subordinated Notes bear cash interest at the rate of 10% per
annum through November 15, 1999, and thereafter at a rate of 14 1/4% per annum.
The Senior Subordinated Notes were sold at a $7.0 million discount to their face
amount in order to yield 14 1/4% per annum to maturity and accrued to par
through the second anniversary date of the issuance.
BANK CREDIT FACILITY
In November 1997, LVSI and Venetian and a syndicate of lenders entered into
a Bank Credit Facility (the "Bank Credit Facility") providing for up to
$150.0 million in multiple draw term loans (the "Tranche A Term Loan") to the
Company for construction and development of the Casino Resort. Up to
$40.0 million of additional credit in the form of revolving loans under the Bank
Credit Facility (the "Revolver") was made available generally for working
capital. In June 2000, the Company amended certain terms of the Bank Credit
Facility in order to: (1) add a new senior secured tranche B term loan (the
"Tranche B Term Loan") in the amount of $50.0 million, the proceeds of which
were applied to (x) prepay the Tranche A Term Loan in forward order of maturity
in the amount of $30.0 million and (y) reduce outstanding loans under the
Revolver by $20.0 million (net of fees and expenses) without decreasing
available commitments of the Revolver; and (2) adjust certain financial
covenants provided for in the Bank Credit Facility. The Company recorded a
$2.8 million extraordinary loss on early retirement of debt in connection with
this transaction.
On September 17, 2001, the Company entered into its second amendment and
restatement of the Bank Credit Facility in order to: (1) combine the
$97.5 million Tranche A Term Loan, $49.5 million Tranche B Term Loan and an
additional $5.8 million tranche C term loan into a single term loan of
$152.8 million; (2) modify the Company's scheduled amortization payments to
instead repay $381,875 per quarter until December 2002, to be followed by two
bullet payments of $75.2 million during each of March 2003 and June 2003;
(3) extend the commitment termination date of the Revolver from September 15,
2001 to June 30, 2003; (4) eliminate the "cash sweep" provision of such
agreement in connection with any excess cash flows of the Company; and
(5) modify the financial covenants. The Company recorded a $1.4 million
extraordinary loss on early retirement of debt in connection with this
transaction. Each of the term loan and revolving loans under the Bank Credit
Facility has an interest rate of 350 basis points over LIBOR. The average
interest rate incurred during 2001 was 7.68% and was payable upon expiration of
each LIBOR contract, limited to three months.
The Company is required to enter into interest rate cap and/or floor
agreements to limit the impact of increases in interest rates on its floating
rate debt derived from the Bank Credit Facility. To meet the requirements of the
Bank Credit Facility, the Company entered into a cap and floor agreement during
1998 which was further amended in 2000 and 2001 (the "Cap and Floor Agreement"),
which resulted in a premium payment to counterparties and receipt of an equal
payment from the counterparties, based upon notional principal amounts for a
term equal to the
F-17
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
term of the Bank Credit Facility. The interest rate cap provisions of the Cap
and Floor Agreement entitle the Company to receive from the counterparties the
amounts, if any, by which the selected market interest rates exceed the strike
rates stated in such agreement. Conversely, the interest rate floor provisions
of the Cap and Floor Agreement require the Company to pay the counterparties the
amounts, if any, by which the selected market interest rates are less than the
strike rates stated in such agreement. The net effect of all such cap and floor
agreements resulted in an increase of interest expense of $0.5 million for the
year ended December 31, 2001. If the Company had terminated the cap and floor
agreements as of December 31, 2001, the Company would have had to pay a net
amount of $1.9 million based on quoted market values from the various
institutions holding the swaps. In accordance with SFAS 133, the Company has
recorded the fair value of its obligation in the accompanying financial
statements. The notional amount of the Cap and Floor Agreement at December 31,
2001 was $76.2 million.
FF&E FINANCING
In December 1997, a credit facility (the "FF&E Credit Facility") secured by
certain furniture, fixtures and equipment (the "Specified FF&E") was entered
into with certain lenders (the "FF&E Lenders") to provide $97.7 million of
financing for the Specified FF&E and an electrical substation. The financing
provides for an interim loan during construction and a 60-month basic term loan
after completion of the Casino Resort. In the initial and subsequent draws, the
FF&E Lenders reimbursed the Company for amounts spent by the Company for
Specified FF&E prior to the initial draw.
Interest on the FF&E Credit Facility is the lower of (x) base rate plus 100
basis points and (y) a floating monthly rate calculated at the higher of
(a) the reserve-adjusted 30-day LIBOR rate plus 375 basis points and (b) the
eurodollar interest rate margin in effect on the Bank Credit Facility plus 125
basis points. The average interest rate incurred during 2001 was 8.36% and was
payable quarterly. Amortization on the FF&E basic loan was 3% of the principal
for the first four quarters beginning September 30, 1999 and 5.5% of the
principal for the next 16 quarters. On September 28, 2001, the Company entered
into a fourth amendment to the FF&E Credit Facility in order to modify its
financial covenants to substantially match those under the September 17, 2001
amended and restated Bank Credit Facility, as described above. As of
December 31, 2001, $97.7 million had been drawn and $44.0 million principal
repayments had been paid under the FF&E Credit Facility.
COMPLETION GUARANTY LOAN
In accordance with its terms, advances made under the Principal Stockholder
completion guaranty (the "Completion Guaranty") are treated as a junior loan
from the Principal Stockholder to Venetian (the "Completion Guaranty Loan") that
is subordinated in right of payment to the indebtedness under the Bank Credit
Facility, the FF&E Credit Facility and the Notes. The Completion Guaranty Loan
matures on November 16, 2005, bears interest at a rate of 14 1/4% per annum and
compounds and is added to the principal balance semi-annually. Although interest
may accrue on the Completion Guaranty Loan, no cash payments with respect to
such loan may be made until senior indebtedness is repaid, except for payments
made from certain construction-related recoveries. On November 12, 1999, an
advance of approximately $23.5 million was made under the Completion Guaranty
and treated as a Completion Guaranty Loan. During 2000 and 2001 the Company
incurred interest expense of $3.6 million and $4.1 million, respectively under
this loan
F-18
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
which has been added to the principal balance of the Completion Guaranty Loan,
resulting in a total balance of $31.1 million at December 31, 2001.
MALL TRANCHE A TAKE-OUT LOAN
On December 20, 1999, certain take-out lenders (collectively, the "Tranche A
Take-out Lender") funded a $105.0 million Tranche A take-out loan to the New
Mall Subsidiary (the "Tranche A Take-out Loan"). The proceeds were used to repay
indebtedness under the mall construction loan facility for the Mall.
The indebtedness under the Tranche A Take-out Loan is secured by first
priority liens on the assets that comprise the Mall (the "Mall Assets"). The
annual interest rate on the Tranche A Take-out Loan is 350 basis points over
30-day LIBOR and is payable monthly. The average interest rate incurred during
2001 was 7.71%. The Tranche A Take-out Loan is due in full on December 20, 2002.
The Company currently plans to refinance the Tranche A Take-out Loan prior to
its due date of December 20, 2002; however, no assurance can be given that
refinancing for such indebtedness will be available to the Company prior to this
date. No principal payments are due thereunder until December 20, 2002.
The Company is required to enter into an interest rate cap agreement to
limit the impact of increases in interest rates on its floating rate debt
derived from the Tranche A Take-out Loan. To meet the requirements of the
Tranche A Take-out Loan, the Company entered into a cap agreement during 2000
(the "Cap Agreement"), which resulted in a premium payment to counterparties
based upon notional principal amounts for a term equal to the term of the
Tranche A Take-out Loan. The interest rate cap provisions of the Cap Agreement
entitle the Company to receive from the counterparties the amounts, if any, by
which the selected market interest rates exceed the strike rates stated in such
agreement. The net effect on interest expense of the cap agreements was zero for
the year ended December 31, 2001. If the Company had terminated the Cap
Agreement as of December 31, 2001, the Company would not have had to pay any
amounts based on quoted market values from the various institutions holding the
swaps. The notional amount of the Cap Agreement at December 31, 2001 was
$42.3 million.
The New Mall Subsidiary is also required pursuant to the Tranche A Take-out
Loan to maintain certain funds in escrow for mall management fees, tenant
disputes, tenant allowances and leasing commissions. At each of December 31,
2000 and 2001, $1.1 million was held in escrow for these purposes and classified
as restricted cash in the accompanying financial statements.
MALL TRANCHE B TAKE-OUT LOAN
On December 20, 1999, the Principal Stockholder funded a Tranche B take-out
loan to provide $35.0 million in financing to the New Mall Subsidiary (the
"Tranche B Take-out Loan" and, together with the Tranche A Take-out Loan, the
"Mall Take-out Financing"). The proceeds, along with $105.0 million of proceeds
from the Tranche A Take-out Loan, were used to repay the mall construction loan
facility for the Mall in full.
F-19
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
The indebtedness under the Tranche B Take-out Loan is secured by second
priority liens on the Mall Assets. The loan bears interest at 14% per annum and
is payable monthly. During 1999, 2000 and 2001, the Company incurred interest
expense of $0.2 million, $5.2 million and $5.0 million, respectively, under this
loan. The initial maturity date of the Tranche B Take-out Loan is December 20,
2004 with a right of extension to December 20, 2007. No principal payments are
due thereunder until maturity.
PHASE II SUBSIDIARY CREDIT FACILITY
On October 19, 2001, the Phase II Subsidiary entered into a loan agreement
providing for a $17.5 million term and revolving loan, with a one time option to
increase such loan to $30.0 million (the "Phase II Subsidiary Credit Facility").
The Phase II Subsidiary Credit Facility is secured by a first priority mortgage
on the land on the site located adjacent to the Casino Resort (the "Phase II
Land"), as well as the Phase II Subsidiary's interest in a five year lease of
the Phase II Land to Venetian for an annual rental payment of $8.0 million (the
"Phase II Lease"). The Phase II Subsidiary immediately drew $12.5 million for a
letter of credit under the revolver portion of the Phase II Subsidiary Credit
Facility (the "Letter of Credit") pursuant to the terms of and to be provided as
credit support for the Bank Credit Facility. The Letter of Credit was released
in February 2002, pursuant to its terms, immediately following the first fiscal
quarter period ending after September 30, 2001 in which the Company's
consolidated adjusted EBITDA exceeded $30.0 million. The Company drew
$3.9 million on the Phase II Credit Facility during 2001. The remaining portion
of the Phase II Subsidiary Credit Facility and proceeds from rental payments
from Venetian to the Phase II Subsidiary under the Phase II Lease are each
available for any Phase II Resort pre-development expenses or may be loaned or
distributed by the Phase II Subsidiary to the Company for other liquidity needs.
The Phase II Subsidiary Credit Facility bears interest at LIBOR plus 400 basis
points and is due on June 30, 2003. The average interest rate incurred during
2001 was 6.5% and was payable upon expiration of each LIBOR contract, limited to
three months.
PHASE II UNSECURED BANK LOAN
In February 2001, the Phase II Subsidiary entered into an unsecured bank
line of credit, as amended on May 31, 2001, for $1,092,000 and payable on
July 15, 2002. This line of credit bears interest at LIBOR plus 100 basis
points. The proceeds of the line of credit were used to fund payments of Phase
II Subsidiary operating costs. The average interest rate incurred during 2001
was 5.25%.
SCHEDULED MATURITIES OF LONG-TERM DEBT
Scheduled maturities of long-term debt outstanding at December 31, 2001 are
summarized as follows: $129.1 million for 2002, $215.9 million for 2003,
$470.7 million for 2004, and $125.3 million for 2005 (which includes unamortized
discount on the Senior Subordinated Notes).
F-20
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
WAIVERS
On November 12, 1999, the Company entered into various limited waiver
agreements (the "Waivers") with the administrative agent and lenders under:
(1) the Bank Credit Facility; (2) the FF&E Credit Facility; and (3) certain
parties to the Disbursement Agreement. Under the Waivers, the various lenders
waived certain defaults and events of default (to the extent, if any, they
existed or may have existed) arising from the Company's litigation with Lehrer
McGovern Bovis, Inc., its construction manager (the "Construction Manager"), the
facts relating to the underlying dispute with the Construction Manager and the
mechanics liens that were filed against the Casino Resort (Note 13). As
conditions to the effectiveness of the Waivers, the Company and the Principal
Stockholder, among other things: (i) agreed to pay a fee to the lenders under
the Bank Credit Facility and the FF&E Credit Facility; (ii) agreed to purchase
surety bonds for all of the mechanics liens and cause the title company to
provide endorsements ensuring that the deeds of trust under the Bank Credit
Facility and the Mortgage Notes are superior in priority to all mechanics liens;
and (iii) agreed that the Principal Stockholder's $25.0 million Completion
Guaranty would, notwithstanding the prior agreement of the parties providing for
termination of such guaranty upon substantial completion of the Casino Resort,
remain in effect until "final completion" (i.e., the completion of all remaining
punchlist items and the final resolution or settlement of all disputes with the
Construction Manager and subcontractors) and be unlimited in amount with respect
to all construction costs arising from scope changes. In order to be able to
purchase the surety bonds, the Principal Stockholder had to provide a
$5.0 million irrevocable letter of credit as collateral to the bonding company.
All of the conditions to the effectiveness of the limited waivers were satisfied
on November 12, 1999.
The debt instruments described above contain certain covenants that require
the Company to pass a number of financial tests relating to, among other things,
a minimum consolidated earnings before interest, taxes, depreciation and
amortization ("EDITDA"), a consolidated leverage ratio, and a fixed charge
coverage ratio (all as defined in the respective credit agreements).
Additionally, the debt instruments contain certain restrictions that, among
other things, limit the ability of the Company and/or certain subsidiaries to
incur additional indebtedness, issue disqualified stock or equity interests, pay
dividends or make other distributions, repurchase equity interests or certain
indebtedness, create certain liens, enter into certain transactions with
affiliates, enter into certain mergers or consolidations or sell assets of the
Company without prior approval of the lenders or noteholders. The Company is
also a party to certain intercreditor agreements. The intercreditor agreements
set forth the lender's interests and claims in the Company's assets as
collateral for borrowings.
Consolidated EBITDA is dependent on the Company's results of operations,
which in turn are partially dependent on tables games revenues. While the table
games win percentage is reasonably predictable over the long term, it can
fluctuate significantly from quarter to quarter, affecting table games revenues.
The financial covenants involving EBITDA are applied on a rolling four-quarter
basis, and the Company's compliance with financial covenants can be temporarily
affected if the Company experiences a decline in hotel occupancy or room rates,
or an unusually low win percentage in a particular quarter, which is not offset
in subsequent quarters or by other results of operations.
F-21
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
The Company was challenged to meet these covenant tests in 2001 for certain
quarters during the rolling measurement period due to an extremely low win
percentage and reduced travel to Las Vegas during the fourth quarter of 2001
because of the September 11th terrorist attacks. These covenants allow the
Principal Stockholder to increase EBITDA for measurement purposes by issuing a
standby letter of credit to the Company's lenders. The covenants also allow the
New Mall Subsidiary and the Phase II Subsidiary, subject to certain limitations,
to make distributions to LVSI which would increase EBITDA for debt covenant
measurement purposes. The Company used the letter of credit mechanism in the
amount of $10.0 million during the first quarter of 2001. Pursuant to the terms
of the Company's indebtedness, the letter of credit was subsequently reduced to
$6.9 million during the third quarter of 2001.
Due to decreased casino revenues attributable to an unusually low table
games win percentage, the Company also would not have met its financial
covenants in the second quarter of 2001. As a result, on June 29, 2001, the
Company entered into limited waivers, consents and amendments to the Bank Credit
Facility and the FF&E Credit Facility in order to, among other things:
(1) obtain a waiver with respect to each of its minimum fixed charge ratio
covenant, maximum leverage ratio covenant and minimum consolidated adjusted
EBITDA covenant for the quarter ending June 30, 2001; and (2) amend the maximum
consolidated capital expenditures covenant. Additionally, during the fourth
quarter of 2001, the Company entered into a limited waiver amendment to the Bank
Credit Facility and FF&E Credit Facility to obtain a wavier with respect to the
minimum consolidated adjusted EBITDA requirement. These covenants also allow the
New Mall Subsidiary and the Phase II Subsidiary to make distributions to LVSI
which would increase EBITDA for debt covenant measurement purposes. The ability
of the New Mall Subsidiary and the Phase II Subsidiary to make distributions is
subject to certain limitations. During February 2002, the New Mall Subsidiary
paid a $7.0 million distribution to Venetian.
For the next twelve months, the Company expects to fund Casino Resort
operations, capital expenditures and debt service requirements (excluding the
Tranche A Take-out Loan) from existing cash balances, operating cash flow,
borrowings under its revolving credit line (the "Revolver") to the extent that
funds are available, distributions of excess cash from the New Mall Subsidiary
to the extent permitted under the Tranche A Take-out Loan, and loans or
distributions of excess cash from the Phase II Subsidiary as a result of rental
payments under the Phase II Lease and borrowings under the Phase II Subsidiary
Credit Facility.
The Company expects to be challenged to meet certain of its covenant tests
in the first quarter of 2002 due to the carry-over effects that the extremely
low win percentage for certain of its fiscal 2001 quarters will have on the
rolling measurement period. The Company has certain options available to it in
the event that it needs to seek a cure in order to meet such covenants,
including the ability to draw down on the Phase II Subsidiary Credit Facility,
make distributions of excess cash from the Mall under the terms of the Tranche A
Take-out Loan or the negotiation with its lenders of further waivers for debt
covenant violations in 2002. The Company anticipates that ultimately its win
percentage will return to normal levels and that it will no longer need to rely
on the various cures and waivers described above.
F-22
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT (CONTINUED)
FAIR VALUE
Estimated fair values of the Company's debt and related financial
instruments are as follows (in thousands):
<Table>
<Caption>
DECEMBER 31,
---------------------------------------------
2000 2001
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
12 1/4% Mortgage Notes........................... $425,000 $422,875 $425,000 $439,875
14 1/4% Senior Subordinated Notes................ 93,237 93,600 94,113 95,995
Mall Tranche A Take-out Loan..................... 105,000 105,000 105,000 105,000
Mall Tranche B Take-out Loan..................... 35,000 35,000 35,000 35,000
Completion Guaranty Loan......................... 27,071 27,071 31,123 31,123
Bank Credit Facility-Tranche A Term Loan......... 103,125 103,125 -- --
Bank Credit Facility-Tranche B Term Loan......... 49,750 49,750 -- --
Bank Credit Facility-Term Loan................... -- -- 151,986 151,986
Bank Credit Facility-Revolver.................... -- -- 40,000 40,000
Phase II Subsidiary Credit Facility.............. -- -- 3,933 3,933
Phase II Subsidiary Bank Loan.................... -- -- 1,092 1,092
FF&E Credit Facility............................. 75,229 75,229 53,735 53,735
Cap and Floor Agreement.......................... -- 184 1,937 1,937
Cap Agreement.................................... -- 4 1 1
</Table>
The fair values of the Mortgage Notes and the Senior Subordinated Notes are
based on quoted market prices. The fair values of the Senior Subordinated Notes
are based upon the $94.1 million carrying value amounts. The fair values of
other indebtedness and the FF&E Credit Facility approximate their respective
carrying amounts based on the variable nature of these facilities. The fair
value of the Cap and Floor Agreement and the Cap Agreement are based upon quotes
from brokers.
NOTE 9--REDEEMABLE PREFERRED INTEREST IN VENETIAN CASINO RESORT, LLC
During 1997, Interface Holding contributed $77.1 million in cash to Venetian
in exchange for a Series A preferred interest (the "Series A Preferred
Interest") in Venetian. By its terms, the Series A Preferred Interest was
convertible at any time into a Series B preferred interest in Venetian (the
"Series B Preferred Interest"). In August 1998, the Series A Preferred Interest
was converted into the Series B Preferred Interest. The rights of the Series B
Preferred Interest include the accrual of a preferred return of 12% from the
date of contribution in respect of the Series A Preferred Interest. Until the
indebtedness under the Bank Credit Facility is repaid and cash payments are
permitted under the restricted payment covenants of the indentures entered into
in connection with the Notes, the preferred return on the Series B Preferred
Interest will accrue and will not be paid in cash. Commencing in November 2009,
distributions must be made to the extent of the positive capital account of the
holder. During the second and third quarters of 1999, Interface Holding
contributed $37.3 million and $7.1 million, respectively, in cash in exchange
for an additional Series B Preferred Interest. During the years ended
December 31, 1999, 2000 and 2001, $14.4 million, $18.5 million and
$20.8 million, respectively, were accrued on the Series B Preferred Interest
related to the
F-23
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--REDEEMABLE PREFERRED INTEREST IN VENETIAN CASINO RESORT, LLC (CONTINUED)
contributions made. There were no distributions of preferred interest or
preferred return paid during 2001, 2000 or 1999.
NOTE 10--STOCKHOLDERS' EQUITY
INCREASE IN SHARES AUTHORIZED AND OUTSTANDING
In November 1997, the Company's Board of Directors increased the number of
authorized shares of LVSI from 100,000 to 3,000,000 and authorized and consented
to increase the number of shares outstanding with respect to the outstanding
shares of common stock of LVSI, so that each share of such common stock would
henceforth be deemed to represent 18.4996 shares of common stock, resulting in
925,000 shares of common stock outstanding on such date. The par value remained
$.10 per share. In the first quarter of 2002, the Company completed a stock
split whereby the number of common shares held by the Principal Stockholder was
increased to 1,000,000 from 925,000. At the date of the stock split, the
Principal Stockholder maintained 100% ownership of the Company's common stock.
All references to share and per share data herein have been adjusted
retroactively to give effect to the increase in shares outstanding to 1,000,000.
1997 FIXED STOCK OPTION PLAN
The Company established a nonqualified stock option plan, which provides for
the granting of stock options pursuant to the applicable provisions of the
Internal Revenue Code and regulations. The stock option plan provides for the
granting of up to 75,000 shares of common stock to officers and other key
employees of the Company. As of December 31, 2001, no grants under the stock
option plan had occurred. In the first quarter of 2002, options to purchase
49,900 shares, which represented approximately 5% of the Company's outstanding
common stock, were granted from the Principal Stockholder to certain key
employees of the Company. On the date of grant, the exercise price of the
options of $271 per share was higher than the fair market value of the Company's
common stock based upon a preliminary determination of the fair market value of
a per share minority interest in the common stock of LVSI, performed by an
independent third-party appraiser. The options granted were fully vested and
exercisable upon grant. All of the options were exercised immediately after
issuance by the respective employees by delivery of a notice of exercise. The
notice contemplates that the exercise price of the options will be loaned to the
optionees by the Principal Stockholder on a secured basis under full recourse
notes. The applicable shares of common stock have not yet been delivered.
NOTE 11--EMPLOYEE SAVINGS PLAN
Participation in the Venetian Casino Resort, LLC 401 (k) employee savings
plan is available for all full time employees. The savings plan allows
participants to defer, on a pre-tax basis, a portion of their salary and
accumulate tax-deferred earnings as a retirement fund. Venetian matches 150% of
the first $390 of employee contributions and 50% of employee contributions in
excess of $390 up to a maximum of 3% of participating employee's eligible gross
wages. For the year ended December 31, 1999, 2000 and 2001, contributions
accrued under the savings plan were $0.8 million, $1.8 million and
$2.0 million, respectively.
F-24
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--RELATED PARTY TRANSACTIONS
As support for the development and operation of the Casino Resort, the
Principal Stockholder or his affiliates currently provide the following:
(i) a construction completion guaranty unlimited in amount with respect to
excess construction costs due to scope changes, with a remaining
liability of approximately $5.0 million (collateralized by cash and
cash equivalents) with respect to all other construction costs. On
November 12, 1999, approximately $23.5 million of the completion
guaranty collateral was utilized for excess construction costs, leaving
the $5.0 million of cash collateral remaining as described above;
(ii) the $35.0 million Tranche B Take-out Loan; and
(iii) a $20.0 million unsecured guaranty of the $105.0 million Tranche A
Take-out Loan.
The Principal Stockholder is a partner in four entities formed to operate
restaurants in the Casino Resort. The terms and conditions of the leases granted
by the Company for such restaurants are at amounts which management believes
would be no less favorable than those negotiated with independent third parties.
Valentino Las Vegas LLC and Night Market, LLC paid Venetian zero, $0.7 million
and $1.0 million, and Postrio Las Vegas LLC and Carnevale Coffee Bar LLC paid
the Mall Subsidiary zero, $0.8 million and $1.1 million for the years ended
December 31, 1999, 2000 and 2001, respectively.
During 2001, the Principal Stockholder guaranteed a $2.9 million bank loan
made to architects of the Phase II Subsidiary to secure a trade payable owed to
the architects by the Phase II Subsidiary.
During November 1999, the Principal Stockholder purchased idle construction
equipment from the Company (tower cranes) for $2.0 million, the cost basis of
the equipment which was its fair value.
During the fourth quarter of 1999, the Principal Stockholder purchased
certain construction claims from various contractors and subcontractors for an
aggregate price equal to the aggregate amount of the claims (approximately
$1.6 million). On November 12, 1999, with the approval of all of the Company's
lenders, the Company paid the Principal Stockholder the aggregate amount of
these claims.
In 2001, LVSI received from, and rendered to, IGN and its affiliates certain
administrative and other services such as travel. Any such services were
provided at amounts which management believes would be no less favorable than
those negotiated with independent third parties. The Company paid certain
affiliates $0.9 million, $2.1 million and $1.1 million for these services during
1999, 2000 and 2001, respectively.
IGN provides audio visual services to group customers of the Casino Resort.
These services are provided pursuant to a contract that provides for an equal
sharing of revenues after direct operating expenses. The Company received
$1.3 million, $3.7 million and $2.5 million pursuant to this contract during
1999, 2000 and 2001, respectively.
The Company, the New Mall Subsidiary and IGN are parties to an Amended and
Restated Reciprocal Easement, Use and Operating Agreement (the "Cooperation
Agreement") which, among other things, provides for the integrated operation of
all the facilities and addresses, encroachments, joint marketing and the sharing
of certain facilities and costs related thereto.
F-25
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--RELATED PARTY TRANSACTIONS (CONTINUED)
In conjunction with the Phase II Subsidiary Credit Facility on October 19,
2001, the Phase II Subsidiary leased the Phase II Land to Venetian for five
years at an annual rent of $8.0 million. Prior to October 2001, IGN leased
parking spaces on the Phase II Land from the Phase II Subsidiary for rent of
$5,000 per month.
NOTE 13--COMMITMENTS AND CONTINGENCIES
ENERGY SERVICES AGREEMENTS AND OPERATING LEASE AGREEMENTS
During 1997, Venetian and the Mall Subsidiary entered into separate energy
service agreements with a heating and air conditioning ("HVAC") provider (the
"HVAC Provider"). Under the terms of the energy services agreement and other
separate energy services agreements, HVAC energy and services will be purchased
by Venetian, the New Mall Subsidiary, its mall tenants and IGN over initial
terms expiring in 2009 with an option to collectively extend the terms of their
agreements for two consecutive five-year periods.
Pursuant to the Company's construction management contract (as more fully
defined under "Litigation" below), the HVAC plant was constructed by the
Construction Manager on land owned by the Company and leased to the HVAC
Provider. The HVAC equipment is owned by the HVAC Provider, which paid all costs
("HVAC Costs") in connection with the purchase and installation of the HVAC
equipment. The total HVAC Costs were $70.0 million.
The charges payable under the separate energy services agreements include a
fixed component applied to the HVAC Costs paid by the HVAC Provider,
reimbursement of operational and related costs and a management fee.
As of December 31, 2001, Venetian and the New Mall Subsidiary were obligated
under the energy services agreements to make future minimum payments as follows
(in thousands):
<Table>
<Caption>
YEARS ENDING DECEMBER 31,
- -------------------------
2002........................................................ $ 7,657
2003........................................................ 7,657
2004........................................................ 7,657
2005........................................................ 7,657
2006........................................................ 7,657
Thereafter.................................................. 19,142
-------
Total minimum payments...................................... $57,427
=======
</Table>
Expenses incurred under the energy services agreements were $4.3 million,
$7.0 million ($7.657 million less leasee reimbursements) and $6.2 million for
the years ended December 31, 1999, 2000 and 2001, respectively. The New Mall
Subsidiary is responsible for 19% of energy services rental payments and these
amounts exclude payments by IGN. Expenses incurred under short-term, variable
rate operating lease agreements totaled $1.2 million, $1.7 million and
$1.9 million for the years ended December 31, 1999, 2000 and 2001, respectively.
LITIGATION
The Company is party to litigation matters and claims related to its
operations and construction of the Casino Resort that could have a material
adverse effect on the financial position, results of
F-26
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
operations or cash flows of the Company to the extent such litigation is not
covered by the Insurance Policy.
The construction of the principal components of the Casino Resort was
undertaken by the Construction Manager pursuant to a construction management
agreement and certain amendments thereto (as so amended, the "Construction
Management Contract"). The Construction Management Contract established a final
guaranteed maximum price (the "Final GMP") of $645.0 million, so that, subject
to certain exceptions (including an exception for cost overruns due to "scope
changes"), the Construction Manager was responsible for any costs of the work
covered by the Construction Management Contract in excess of the Final GMP. The
obligations of the Construction Manager under the Construction Management
Contract are guaranteed by Bovis, Inc. ("Bovis" and such guaranty, the "Bovis
Guaranty"), the Construction Manager's direct parent at the time the
Construction Management Contract was entered into. Bovis' obligations under the
Bovis Guaranty are guaranteed by The Peninsular and Oriental Steam Navigation
Company ("P&O"), a British public company and the Construction Manager's
ultimate parent at the time the Construction Management Contract was entered
into (such guaranty, the "P&O Guaranty").
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations under the Bovis Guaranty, including failure to fully
pay trade contractors and vendors and failure to meet the April 21, 1999
guaranteed completion date. The Company amended this complaint on November 23,
1999 to add P&O as an additional defendant. The suit is intended to ask the
courts, among other remedies, to require the Construction Manager and its
guarantors to pay its contractors, to compensate Venetian for the Construction
Manager's failure to perform its duties under the Construction Management
Contract and to pay the Company the agreed upon liquidated damages penalty for
failure to meet the guaranteed substantial completion date. Venetian seeks total
damages in excess of $100.0 million. The Construction Manager subsequently filed
motions to dismiss the Company's complaint on various grounds, which the Company
opposed. The Construction Manager's principal motions to date have either been
denied by the court or voluntarily withdrawn.
In response to Venetian's breach of contract claims against the Construction
Manager, Bovis and P&O, the Construction Manager filed a complaint on August 3,
1999 against Venetian in the District Court of Clark County, Nevada. The action
alleges a breach of contract and QUANTUM MERUIT claims under the Construction
Management Contract and also alleges that Venetian defrauded the Construction
Manager in connection with the construction of the Casino Resort. The
Construction Manager seeks damages, attorney's fees and costs and punitive
damages. In the lawsuit, the Construction Manager claims that it is owed
approximately $90.0 million from Venetian and its affiliates. This complaint was
subsequently amended by the Construction Manager, which also filed an additional
complaint against the Company relating to work done and funds advanced with
respect to the contemplated development of the Phase II Resort. Based upon its
preliminary review of the complaints, the fact that the Construction Manager has
not provided Venetian with reasonable documentation to support such claims, and
the Company's belief that the Construction Manager has materially breached its
agreements with the Company, the Company believes that the Construction
Manager's claims are without merit and intends to vigorously defend itself and
pursue its claims against the Construction Manager in any litigation.
F-27
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. The Company believes that a
major reason these lien amounts exceed the Construction Manager's claims of
$90.0 million is based upon a duplication of liens through the inclusion of
lower-tier claims by subcontractors in the liens of higher-tier contractors,
including the lien of the Construction Manager. As of December 31, 1999, the
Company had purchased surety bonds for virtually all of the claims underlying
these liens (other than approximately $15.0 million of claims with respect to
which the Construction Manager purchased bonds). As a result, there can be no
foreclosure of the Casino Resort in connection with the claims of the
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
The Company believes that these claims are, in general, unsubstantiated,
without merit, overstated and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Company believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Company may also have a variety of other defenses to
the liens that have been filed, including, for example, the fact that the
Construction Manager and its subcontractors previously waived or released their
rights to file liens against the Casino Resort. The Company intends to
vigorously defend itself in any lien proceedings.
On August 9, 1999, the Company notified the insurance companies providing
coverage under its liquidated damages insurance policy (the "LD Policy") that it
has a claim under the LD Policy. The LD Policy provides insurance coverage for
the failure of the Construction Manager to achieve substantial completion of the
portions of the Casino Resort covered by the Construction Management Contract
within 30 days of the April 21, 1999 deadline, with a maximum liability under
the LD Policy of approximately $24.1 million and with coverage being provided,
on a per-day basis, for days 31-120 of the delay in the achievement of
substantial completion. Because the Company believes that substantial completion
was not achieved until November 12, 1999, the Company's claim under the LD
Policy is likely to be for the above-described maximum liability of
$24.1 million. The Company expects the LD Policy insurers to assert many of the
same claims and defenses that the Construction Manager has asserted or will
assert in the above-described litigations. Liability under the LD Policy may
ultimately be determined by binding arbitration.
In June 2000, the Company purchased an insurance policy (the "Insurance
Policy") for loss coverage in connection with all litigation relating to the
construction of the Casino Resort (the "Construction Litigation"). Under the
Insurance Policy, the Company will self-insure the first $45.0 million and the
insurer will insure up to the next $80.0 million of any possible covered losses.
The Insurance Policy provides coverage for any amounts determined in the
Construction Litigation to be owed to the Construction Manager or its
subcontractors relating to claimed delays, inefficiencies, disruptions, lack of
productivity/unauthorized overtime or schedule impact, allegedly caused by the
Company during construction of the Casino Resort, as well as any defense costs.
The insurance is in addition to, and does not affect, any scope change
guarantees provided by the Principal Stockholder pursuant to the Completion
Guaranty.
F-28
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
All of the pending litigation described above is in preliminary stages and
it is not yet possible to determine a range of loss or its ultimate outcome. If
any litigation or other lien proceedings concerning the claims of the
Construction Manager or its subcontractors were decided adversely to the
Company, such litigation or other lien proceedings could have a material adverse
effect on the financial position, results of operations or cash flows of the
Company to the extent such litigation or lien proceedings are not covered by the
Insurance Policy.
NOTE 14--MINIMUM LEASE INCOME
The Company has entered into a number of operating leases in relation to the
New Mall Subsidiary and various retail and food and beverage outlets in the
Casino Resort, which range in length from 5 to 20 years. The future minimum
lease income under these leases (of which approximately 90% is attributable to
the New Mall Subsidiary) consisted of the following at December 31, 2001 (in
thousands):
<Table>
2002........................................................ $ 19,342
2003........................................................ 19,117
2004........................................................ 18,382
2005........................................................ 16,467
2006........................................................ 15,964
Thereafter.................................................. 62,542
--------
Total....................................................... $151,814
========
</Table>
Most of the leases include provisions for reimbursements of other charges
including real estate taxes, utilities and other operating costs. Total
reimbursements amounted to $3.6 million, $9.9 million and $11.4 in 1999, 2000
and 2001, respectively.
The New Mall Subsidiary has entered into an agreement with Forest City
Enterprises (the "Mall Manager"), a subsidiary of Forest City Ratner
Enterprises, a leading developer and manager of retail and commercial real
estate developments, whereby the Mall Manager manages the Mall and supervises
and assists in the creation of an advertising and promotional program and a
marketing plan for the Mall. The Mall Manager is also responsible for, among
other things, preparation of a detailed plan for the routine operation of the
Mall, collection and deposit procedures for rents and other tenant charges,
supervision of maintenance and repairs and, on an annual basis, preparation of a
detailed budget (including any anticipated extraordinary expenses and capital
expenditures) for the Mall. The term of the management contract is five years
from June 19, 1999, the date the Mall opened to the public. The Mall Manager
receives a management fee of 2% of all gross rents received from the operation
of the Mall; provided that the Mall Manager will receive a minimum fee of
$450,000 per year. For the years ended December 31, 1999, 2000 and 2001,
management fees paid to the Mall Manager were $240,000, $450,000 and $450,000,
respectively. Beginning in June 2002, the minimum management fee will increase
to $600,000 per year.
NOTE 15--SUMMARIZED FINANCIAL INFORMATION
Venetian and LVSI are co-obligors of the Notes and certain other
indebtedness related to construction of the Casino Resort and are jointly and
severally liable for such indebtedness (including the Notes). Venetian, Mall
Intermediate, Mall Construction and Lido Intermediate
F-29
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
(collectively, the "Subsidiary Guarantors") are wholly-owned subsidiaries of
LVSI. The Subsidiary Guarantors have jointly and severally guaranteed (or are
co-obligors of) such debt on a full and unconditional basis. No other subsidiary
of LVSI is an obligor or guarantor of any of the Casino Resort financing.
Because the New Mall Subsidiary is not a guarantor of any indebtedness of
the Company (other than the Mall Take-out Financing), creditors of the Company's
entities comprising the Company other than the New Mall Subsidiary (including
the holders of the Notes but excluding creditors of the New Mall Subsidiary) do
not have a direct claim against the Mall Assets. As a result, indebtedness of
the entities comprising the Company other than the New Mall Subsidiary
(including the Notes) is, with respect to the Mall Assets, effectively
subordinated to indebtedness of the New Mall Subsidiary. The New Mall Subsidiary
is not restricted by any of the debt instruments of LVSI, Venetian or the
Company's other subsidiary guarantors (including the Indentures) from incurring
any indebtedness. The terms of the Tranche A Take-out Loan prohibit the New Mall
Subsidiary from paying dividends or making distributions to any of the other
entities comprising the Company unless payments under the Tranche A Take-out
Loan are current, and, with certain limited exceptions, prohibit the New Mall
Subsidiary from making any loans to such entities. Any additional indebtedness
incurred by the New Mall Subsidiary may include additional restrictions on the
ability of the New Mall Subsidiary to pay any such dividends and make any such
distributions or loans.
Prior to October 1998, Venetian owned approximately 44 acres of land on or
near the Las Vegas Strip (the "Strip"), on the site of the former Sands. Such
property includes the site on which the Casino Resort was constructed.
Approximately 14 acres of such land was transferred to the Phase II Subsidiary
in October 1998. On December 31, 1999, an additional 1.75 acres of land was
contributed indirectly by the Principal Stockholder to the Phase II Subsidiary.
The Phase II Resort is planned to be constructed adjacent to the Casino Resort.
Because the Phase II Subsidiary will not be a guarantor of the Company's
indebtedness, creditors of the Company (including the holders of the Notes) will
not have a direct claim against the assets of the Phase II Subsidiary. As a
result, the indebtedness of the Company (including the Notes) will, with respect
to these assets, be effectively subordinated to indebtedness of the Phase II
Subsidiary. The Phase II Subsidiary is not subject to any of the restrictive
covenants of the debt instruments of the Company (including the Notes). Any
indebtedness incurred by the Phase II Subsidiary in addition to the Phase II
Subsidiary Credit Facility may include material restrictions on the ability of
the Phase II Subsidiary to pay dividends or make distributions or loans to the
Company and its subsidiaries.
As further described in Note 16, in connection with the June 4, 2002
refinancing of the Company's existing indebtedness, a new guarantor subsidiary,
Venetian Venture Development, LLC was created by the Company.
F-30
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
Separate financial statements and other disclosures concerning each of
Venetian and the Subsidiary Guarantors are not presented below because
management believes that they are not material to investors. Summarized
financial information of LVSI, Venetian, the Subsidiary Guarantors and the
non-guarantor subsidiaries on a combined basis as of December 31, 2000 and 2001
and the three years for the period ended December 31, 2001 is as follows (in
thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 2000
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
OTHER
VENETIAN LIDO MALL GRAND CANAL NON-
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL GUARANTOR
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY SUBSIDIARIES
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) (2)
----------- --------- ------------- ------------- ----------- ------------
Cash and cash equivalents............ $ 35,332 $ 4,260 $ 4 $ 4 $ 2,972 $ 34
Restricted cash and investments...... 1,471 1,078
Intercompany receivable.............. 10,732
Accounts receivable, net............. 45,609 17,686 973 60
Inventories.......................... 3,868
Prepaid expenses..................... 458 2,897 317
-------- --------- ------------ ------------ ---------- ----------
Total current assets............... 92,131 30,182 4 4 5,340 94
Property and equipment, net.......... 840,960 140,185 80,948
Investment in Subsidiaries........... 695,191 86,820
Deferred offering costs.............. 18,335 3,979
Other assets......................... 4,928 22,120 3,907
-------- --------- ------------ ------------ ---------- ----------
$792,250 $ 998,417 $ 4 $ 4 $ 153,411 $ 81,042
======== ========= ============ ============ ========== ==========
Accounts payable..................... $ 4,794 $ 18,036 $ $ $ 1,005 $
Construction payable................. 3,297 2,915
Construction payable-contested....... 7,232
Intercompany payables................
Payable to affiliates................ 10,206 526
Accrued interest payable............. 11,498 1,779
Other accrued liabilities............ 27,939 47,380 1,363 53
Current maturities of long-term
debt(3)............................ 50,119 50,119
-------- --------- ------------ ------------ ---------- ----------
Total current liabilities.......... 82,852 147,768 4,673 2,968
Other long-term liabilities.......... 10,494
Long-term debt(3).................... 696,222 696,222 105,000
Long-term subordianted loans payable
to Principal Stockholder........... 27,071 35,000
-------- --------- ------------ ------------ ---------- ----------
779,074 881,555 144,673 2,968
-------- --------- ------------ ------------ ---------- ----------
Redeemable Preferred interest in
Venetian........................... 168,012
-------- --------- ------------ ------------ ---------- ----------
Stockholders' equity (deficit)....... 13,176 (51,150) 4 4 8,738 78,074
-------- --------- ------------ ------------ ---------- ----------
$792,250 $ 998,417 $ 4 $ 4 $ 153,411 $ 81,042
======== ========= ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Cash and cash equivalents............ $ $ 42,606
Restricted cash and investments...... 2,549
Intercompany receivable.............. (10,732)
Accounts receivable, net............. 64,328
Inventories.......................... 3,868
Prepaid expenses..................... 3,672
------------ ----------
Total current assets............... (10,732) 117,023
Property and equipment, net.......... 1,062,093
Investment in Subsidiaries........... (782,011)
Deferred offering costs.............. 22,314
Other assets......................... 30,955
------------ ----------
$ (792,743) $1,232,385
============ ==========
Accounts payable..................... $ $ 23,835
Construction payable................. 6,212
Construction payable-contested....... 7,232
Intercompany payables................
Payable to affiliates................ (10,732)
Accrued interest payable............. 13,277
Other accrued liabilities............ 76,735
Current maturities of long-term
debt(3)............................ (50,119) 50,119
------------ ----------
Total current liabilities.......... (60,851) 177,410
Other long-term liabilities.......... 10,494
Long-term debt(3).................... (696,222) 801,222
Long-term subordianted loans payable
to Principal Stockholder........... 62,071
------------ ----------
(757,073) 1,051,197
------------ ----------
Redeemable Preferred interest in
Venetian........................... 168,012
------------ ----------
Stockholders' equity (deficit)....... (35,670) 13,176
------------ ----------
$ (792,743) $1,232,385
============ ==========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no assets or liabilities as of December 31,
2000.
(2) Land with a historical cost basis of $29.2 million was transferred from
Venetian Casino Resort, LLC, a co-obligor of the Notes to Lido Casino
Resort, LLC., a non-guarantorsubsidiary, in October 1998 and land with a
value of $11.8 million was indirectly contributed by the Principal
Stockholder during December 1999.
(3) As more fully described in Note 8, Las Vegas Sands, Inc. and Venetian Casino
Resort LLC are co-obligors of certain of the Company's indebtedness.
Accordingly, such indebtedness has been presented as an obligation of both
entities in the above balance sheets.
F-31
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2001
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
OTHER
VENETIAN LIDO MALL GRAND CANAL NON-
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL GUARANTOR
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY SUBSIDIARIES
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) (2)
----------- ---------- ------------- ------------- ----------- ------------
Cash and cash equivalents........... $ 37,367 $ 7,806 $ 4 $ 4 $ 6,650 $ 3,105
Restricted cash and investments..... 1,528 1,118
Intercompany receivable............. 6,772 1,508
Accounts receivable, net............ 37,416 18,240 1,436
Inventories......................... 4,747
Prepaid expenses.................... 546 2,953 363
-------- ---------- ------------ ------------ ---------- ----------
Total current assets.............. 82,101 35,274 4 4 9,567 4,613
Property and equipment, net......... 878,239 136,167 81,901
Investment in subsidiaries.......... 692,100 86,657
Deferred offering costs, net........ 16,250 1,903 836
Other assets, net................... 3,771 25,691 3,745
-------- ---------- ------------ ------------ ---------- ----------
$777,972 $1,042,111 $ 4 $ 4 $ 151,382 $ 87,350
======== ========== ============ ============ ========== ==========
Accounts payable.................... $ 2,880 $ 33,105 $ $ $ 368 $
Construction payable................ 22,955 3,160
Construction payable-contested...... 7,232
Intercompany payables............... 1,508
Payable to affiliates............... 5,837 935
Accrued interest payable............ 9,125 872 11
Other accrued liabilities........... 21,249 47,074 1,647 65
Current maturities of long-term
debt(3)........................... 23,021 23,021 105,000 1,092
-------- ---------- ------------ ------------ ---------- ----------
Total current liabilities......... 47,150 149,857 108,822 4,328
Other long-term liabilities......... 3,274
Long-term debt(3)................... 741,813 741,813 3,933
Long-term subordinated loans payable
to Principal Stockholder.......... 31,123 35,000
-------- ---------- ------------ ------------ ---------- ----------
788,963 926,067 143,822 8,261
-------- ---------- ------------ ------------ ---------- ----------
Redeemable Preferred interest in
Venetian.......................... 188,778
-------- ---------- ------------ ------------ ---------- ----------
Stockholders' equity (deficit)...... (10,991) (72,734) 4 4 7,560 79,089
-------- ---------- ------------ ------------ ---------- ----------
$777,972 $1,042,111 $ 4 $ 4 $ 151,382 $ 87,350
======== ========== ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Cash and cash equivalents........... $ $ 54,936
Restricted cash and investments..... 2,646
Intercompany receivable............. (8,280)
Accounts receivable, net............ 57,092
Inventories......................... 4,747
Prepaid expenses.................... 3,862
------------ ----------
Total current assets.............. (8,280) 123,283
Property and equipment, net......... 1,096,307
Investment in subsidiaries.......... (778,757)
Deferred offering costs, net........ 18,989
Other assets, net................... 33,207
------------ ----------
$ (787,037) $1,271,786
============ ==========
Accounts payable.................... $ $ 36,353
Construction payable................ 26,115
Construction payable-contested...... 7,232
Intercompany payables............... (1,508)
Payable to affiliates............... (6,772)
Accrued interest payable............ 10,008
Other accrued liabilities........... 70,035
Current maturities of long-term
debt(3)........................... (23,021) 129,113
------------ ----------
Total current liabilities......... (31,301) 278,856
Other long-term liabilities......... 3,274
Long-term debt(3)................... (741,813) 745,746
Long-term subordinated loans payable
to Principal Stockholder.......... 66,123
------------ ----------
(773,114) 1,093,999
------------ ----------
Redeemable Preferred interest in
Venetian.......................... 188,778
------------ ----------
Stockholders' equity (deficit)...... (13,923) (10,991)
------------ ----------
$ (787,037) $1,271,786
============ ==========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no assets or liabilities as of December 31,
2001.
(2) Land with a historical cost basis of $29.2 million was transferred from
Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a
non-guarantor subsidiary, in October 1998 and land with a value of $11.8
million was indirectly contributed by the Principal Stockholder during
December 1999.
(3) As more fully described in Note 8, Las Vegas Sands, Inc. and Venetian Casino
Resort LLC are co-obligors of certain of the Company's indebtedness.
Accordingly, such indebtedness has been presented as an obligation of both
entities in the above balance sheets.
F-32
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
VENETIAN LIDO MALL GRAND CANAL OTHER
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL NON-
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY GUARANTOR
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) SUBSIDIARIES
----------- --------- ------------- ------------- ----------- ------------
Revenues:
Casino............................. $124,161 $ $ $ $ $
Rooms.............................. 89,585
Food and beverage.................. 30,786
Casino rental revenues from LVSI... 29,466
Retail and other................... 1,592 17,731 9,844
-------- --------- ------------ ------------ ---------- ----------
Total revenues..................... 125,753 167,568 9,844
Less promotional allowances.......... (4,140)
-------- --------- ------------ ------------ ---------- ----------
Net revenues....................... 125,753 163,428 9,844
-------- --------- ------------ ------------ ---------- ----------
Operating expenses:
Casino............................. 109,116
Rooms.............................. 29,443
Food and beverage.................. 26,184
Retail and other................... 8,109 4,397
Provision for doubtful accounts.... 12,225 730 700
General and administrative......... 1,369 47,800 1 512 2
Corporate expense.................. 1,794 716
Rental expense..................... 455 3,852 1,178
Pre-opening expense 143 21,341
Depreciation and amortization...... 52 22,692 2,401
-------- --------- ------------ ------------ ---------- ----------
125,154 160,867 1 9,188 2
-------- --------- ------------ ------------ ---------- ----------
Operating income (loss).............. 599 2,561 (1) 656 (2)
-------- --------- ------------ ------------ ---------- ----------
Other income (expense):
Interest income.................... 209 2,336 6
Interest expense, net of amounts
capitalized...................... (63,819) (7,416)
Interest expense on indebtedness to
Principal Stockholder............ (163)
Income (loss) from equity
investment in subsidiaries....... (80,830) (7,434)
Loss on early retirement of debt... (589)
-------- --------- ------------ ------------ ---------- ----------
Income (loss) before preferred
return............................. (80,022) (66,356) (1) (7,506) (2)
Preferred return on Redeemable
Preferred Interest in Venetian..... (14,399)
-------- --------- ------------ ------------ ---------- ----------
Net income (loss).................... $(80,022) $ (80,755) $ (1) $ $ (7,506) $ (2)
======== ========= ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Revenues:
Casino............................. $ $ 124,161
Rooms.............................. 89,585
Food and beverage.................. 30,786
Casino rental revenues from LVSI... (29,466)
Retail and other................... (201) 28,966
------------ ----------
Total revenues..................... (29,667) 273,498
Less promotional allowances.......... (20,905) (25,045)
------------ ----------
Net revenues....................... (50,572) 248,453
------------ ----------
Operating expenses:
Casino............................. (39,452) 69,664
Rooms.............................. (3,911) 25,532
Food and beverage.................. (7,050) 19,134
Retail and other................... (925) 11,581
Provision for doubtful accounts.... 13,655
General and administrative......... 766 50,450
Corporate expense.................. 2,510
Rental expense..................... 5,485
Pre-opening expense 21,484
Depreciation and amortization...... 25,145
------------ ----------
(50,572) 244,640
------------ ----------
Operating income (loss).............. 3,813
------------ ----------
Other income (expense):
Interest income.................... 2,551
Interest expense, net of amounts
capitalized...................... (71,235)
Interest expense on indebtedness to
Principal Stockholder............ (163)
Income (loss) from equity
investment in subsidiaries....... 88,264
Loss on early retirement of debt... (589)
------------ ----------
Income (loss) before preferred
return............................. 88,264 (65,623)
Preferred return on Redeemable
Preferred Interest in Venetian..... (14,399)
------------ ----------
Net income (loss).................... $ 88,264 $ (80,022)
============ ==========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no revenues or expenses as of December 31,
1999.
F-33
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
VENETIAN LIDO MALL GRAND CANAL OTHER
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL NON-
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY GUARANTOR
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) SUBSIDIARIES
----------- --------- ------------- ------------- ----------- ------------
Revenues:
Casino........................... $299,083 $ $ $ $ $
Rooms............................ 192,327
Food and beverage................ 67,052
Casino rental revenues from
LVSI........................... 45,164
Retail and other................. 1,646 37,291 30,781
-------- --------- ------------ ------------ ----------- -----------
Total revenues................... 300,729 341,834 30,781
Less promotional allowances........ (6,190)
-------- --------- ------------ ------------ ----------- -----------
Net revenues..................... 300,729 335,644 30,781
-------- --------- ------------ ------------ ----------- -----------
Operating expenses:
Casino........................... 230,755
Rooms............................ 55,803
Food and beverage................ 42,903
Retail and other................. 18,937 11,194
Provision for doubtful
accounts....................... 17,743 1,300 209
General and administrative....... 3,819 89,744 10 1,219 21
Corporate expense................ 2,293 3,982
Rental expense................... 714 5,856 2,157
Depreciation and amortization.... 37,180 4,542
-------- --------- ------------ ------------ ----------- -----------
255,324 255,705 10 19,321 21
-------- --------- ------------ ------------ ----------- -----------
Operating income (loss)............ 45,405 79,939 (10) 11,460 (21)
-------- --------- ------------ ------------ ----------- -----------
Other income (expense):
Interest income.................. 739 960 72
Interest expense, net of amounts
capitalized.................... (98,437) (12,589)
Interest expense on indebtedness
to Principal Stockholder....... (3,568) (5,213)
Income (loss) from equity
investment in subsidiaries..... (48,674) (6,238)
Loss on early retirement of
debt........................... (2,785)
-------- --------- ------------ ------------ ----------- -----------
Income (loss) before preferred
return........................... (2,530) (30,129) (10) (6,270) (21)
Preferred return on Redeemable
Preferred Interest in Venetian... (18,482)
-------- --------- ------------ ------------ ----------- -----------
Net income (loss).................. $ (2,530) $ (48,611) $ $ (10) $ (6,270) $ (21)
======== ========= ============ ============ =========== ===========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Revenues:
Casino........................... $ $ 299,083
Rooms............................ 192,327
Food and beverage................ 67,052
Casino rental revenues from
LVSI........................... (45,164)
Retail and other................. (914) 68,804
------------ ----------
Total revenues................... (46,078) 627,266
Less promotional allowances........ (40,106) (46,296)
------------ ----------
Net revenues..................... (86,184) 580,970
------------ ----------
Operating expenses:
Casino........................... (67,598) 163,157
Rooms............................ (6,185) 49,618
Food and beverage................ (10,276) 32,627
Retail and other................. (725) 29,406
Provision for doubtful
accounts....................... 19,252
General and administrative....... (1,400) 93,413
Corporate expense................ 6,275
Rental expense................... 8,727
Depreciation and amortization.... 41,722
------------ ----------
(86,184) 444,197
------------ ----------
Operating income (loss)............ 136,773
------------ ----------
Other income (expense):
Interest income.................. 1,771
Interest expense, net of amounts
capitalized.................... (111,026)
Interest expense on indebtedness
to Principal Stockholder....... (8,781)
Income (loss) from equity
investment in subsidiaries..... 54,912
Loss on early retirement of
debt........................... (2,785)
------------ ----------
Income (loss) before preferred
return........................... 54,912 15,952
Preferred return on Redeemable
Preferred Interest in Venetian... (18,482)
------------ ----------
Net income (loss).................. $ 54,912 $ (2,530)
============ ==========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no revenues or expenses as of December 31,
2000.
F-34
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
VENETIAN LIDO MALL GRAND CANAL OTHER
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL NON-
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY GUARANTOR
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) SUBSIDIARIES
----------- --------- ------------- ------------- ----------- ------------
Revenues:
Casino............................. $227,240 $ $ $ $ $
Rooms.............................. 204,242
Food and beverage.................. 61,977
Casino rental revenues from LVSI... 45,973
Retail and other................... 1,417 38,125 34,707 1,622
-------- --------- ------------ ------------ ---------- ----------
Total revenues..................... 228,657 350,317 34,707 1,622
Less promotional allowances.......... (5,181)
-------- --------- ------------ ------------ ---------- ----------
Net revenues....................... 228,657 345,136 34,707 1,622
-------- --------- ------------ ------------ ---------- ----------
Operating expenses:
Casino............................. 207,587
Rooms.............................. 55,322
Food and beverage.................. 38,896
Retail and other................... 21,148 12,230
Provision for doubtful accounts.... 18,200 1,866 132
General and administrative......... 2,711 83,928 1,570 3
Corporate expense.................. 2,459 3,917
Rental expense..................... 914 6,625 2,157
Pre-opening and developemental
expense.......................... 355
Depreciation and amortization...... 36,039 4,784
-------- --------- ------------ ------------ ---------- ----------
231,871 248,096 20,873 3
-------- --------- ------------ ------------ ---------- ----------
Operating income (loss).............. (3,214) 97,040 13,834 1,619
-------- --------- ------------ ------------ ---------- ----------
Other income (expense):
Interest income.................... 643 613 129
Interest expense, net of amounts
capitalized...................... (90,947) (10,173) (604)
Interest expense on indebtedness to
Principal Stockholder............ (4,052) (4,968)
Other income (expense)............. (1,938)
Income (loss) from equity
investment in subsidiaries....... (21,596) (151)
Loss on early retirement of debt... (1,383)
-------- --------- ------------ ------------ ---------- ----------
Income (loss) before preferred
return........................... (24,167) (818) (1,178) 1,015
Preferred return on Redeemable
Preferred Interest in Venetian..... (20,766)
-------- --------- ------------ ------------ ---------- ----------
Net income (loss).................... $(24,167) $ (21,584) $ $ $ (1,178) $ 1,015
======== ========= ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Revenues:
Casino............................. $ $ 227,240
Rooms.............................. 204,242
Food and beverage.................. 61,977
Casino rental revenues from LVSI... (45,973)
Retail and other................... (2,837) 73,034
------------ ----------
Total revenues..................... (48,810) 566,493
Less promotional allowances.......... (37,413) (42,594)
------------ ----------
Net revenues....................... (86,223) 523,899
------------ ----------
Operating expenses:
Casino............................. (67,651) 139,936
Rooms.............................. (5,283) 50,039
Food and beverage.................. (9,266) 29,630
Retail and other................... (1,076) 32,302
Provision for doubtful accounts.... 20,198
General and administrative......... (1,325) 86,887
Corporate expense.................. 6,376
Rental expense..................... (1,622) 8,074
Pre-opening and developemental
expense.......................... 355
Depreciation and amortization...... 40,823
------------ ----------
(86,223) 414,620
------------ ----------
Operating income (loss).............. 109,279
------------ ----------
Other income (expense):
Interest income.................... 1,385
Interest expense, net of amounts
capitalized...................... (101,724)
Interest expense on indebtedness to
Principal Stockholder............ (9,020)
Other income (expense)............. (1,938)
Income (loss) from equity
investment in subsidiaries....... 21,747
Loss on early retirement of debt... (1,383)
------------ ----------
Income (loss) before preferred
return........................... 21,747 (3,401)
Preferred return on Redeemable
Preferred Interest in Venetian..... (20,766)
------------ ----------
Net income (loss).................... $ 21,747 $ (24,167)
============ ==========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no revenues or expenses as of December 31,
2001.
F-35
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
VENETIAN LIDO MALL GRAND CANAL OTHER
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL NON-
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY GUARANTOR
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) SUBSIDIARIES
----------- --------- ------------- ------------- ----------- ------------
Net cash provided by (used in)
operating activities.............. $(1,084) $ (34,090) $ (1) $ $ (7,174) $ (3)
------- --------- ------------ ------------ ---------- ----------
Cash flows from investing
activities:
Proceeds from purchases of
investments..................... 125,147 (2,191)
Construction of Casino Resort..... (52) (228,393) (53,593) (37,068)
Investment in Mall Subsidiary..... (22,000) 22,000
------- --------- ------------ ------------ ---------- ----------
Net cash used in investing
activities...................... (52) (125,246) (33,784) (37,068)
------- --------- ------------ ------------ ---------- ----------
Cash flows from financing
activities:
Proceeds from capital
contributions................... 27,791 (37,262) 498 37,262
Proceeds from preferred interest
in Venetian..................... 44,431
Repayments on mall construction
loan facility (140,000)
Proceeds from mall construction
loan facility................... 37,287
Proceeds from mall--tranche A
take-out loan................... 105,000
Proceeds from mall--tranche B
take-out loan................... 35,000
Proceeds from completion guaranty
loan............................ 23,503
Repayments on bank credit
facility--tranche A term loan... (11,250)
Proceeds from bank credit
facility--tranche A term loan... 34,000
Repayments on bank credit
facility--revolver.............. (10,231)
Proceeds from bank credit
facility--revolver.............. 40,506
Repayments on FF&E credit
facility........................ (5,862)
Proceeds from FF&E credit
Facility........................ 83,842
Payments of deferred offering
costs........................... (1,299) (747)
Net increase(decrease) in
intercompany accounts........... (3,910) 170 3,910 (170)
------- --------- ------------ ------------ ---------- ----------
Net cash provided by financing
activities........................ 23,881 160,548 40,948 37,092
------- --------- ------------ ------------ ---------- ----------
Increase (decrease) in cash and cash
equivalents....................... 22,745 1,212 (1) (10) 21
Cash and cash equivalents at
beginning of year................. 1,216 1,025 5 5 10 24
------- --------- ------------ ------------ ---------- ----------
Cash and cash equivalents at end of
year.............................. $23,961 $ 2,237 $ 4 $ 5 $ $ 45
======= ========= ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- -----------
Net cash provided by (used in)
operating activities.............. $ 12,289 $ (30,063)
------------ -----------
Cash flows from investing
activities:
Proceeds from purchases of
investments..................... 122,956
Construction of Casino Resort..... (319,106)
Investment in Mall Subsidiary.....
------------ -----------
Net cash used in investing
activities...................... (196,150)
------------ -----------
Cash flows from financing
activities:
Proceeds from capital
contributions................... (12,289) 16,000
Proceeds from preferred interest
in Venetian..................... 44,431
Repayments on mall construction
loan facility (140,000)
Proceeds from mall construction
loan facility................... 37,287
Proceeds from mall--tranche A
take-out loan................... 105,000
Proceeds from mall--tranche B
take-out loan................... 35,000
Proceeds from completion guaranty
loan............................ 23,503
Repayments on bank credit
facility--tranche A term loan... (11,250)
Proceeds from bank credit
facility--tranche A term loan... 34,000
Repayments on bank credit
facility--revolver.............. (10,231)
Proceeds from bank credit
facility--revolver.............. 40,506
Repayments on FF&E credit
facility........................ (5,862)
Proceeds from FF&E credit
Facility........................ 83,842
Payments of deferred offering
costs........................... (2,046)
Net increase(decrease) in
intercompany accounts...........
------------ -----------
Net cash provided by financing
activities........................ (12,289) 250,180
------------ -----------
Increase (decrease) in cash and cash
equivalents....................... 23,967
Cash and cash equivalents at
beginning of year................. 2,285
------------ -----------
Cash and cash equivalents at end of
year.............................. $ $ 26,252
============ ===========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no cash flows as of December 31, 1999.
F-36
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
VENETIAN LIDO MALL GRAND CANAL OTHER
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL NON-
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY GUARANTOR
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) SUBSIDIARIES
----------- -------- ------------- ------------- ----------- ------------
Net cash provided by (used in)
operating
activities......................... $ 11,217 $ 66,499 $ $ (10) $ 3,341 $ (30)
-------- -------- ------------ ------------ ---------- ----------
Cash flows from investing activities:
Proceeds from purchases of
investments...................... 7,319 1,112
Capital expenditures............... (15,647) (762)
Construction of Casino Resort...... (12,178) (2)
-------- -------- ------------ ------------ ---------- ----------
Net cash used in investing
activities......................... (20,506) 350 (2)
-------- -------- ------------ ------------ ---------- ----------
Cash flows from financing activities:
Proceeds from capital
contributions.................... (5) (30) 9 5 21
Repayments on bank credit
facility--tranche A term loan.... (35,625)
Repayments on bank credit
facility--tranche B term loan.... (250)
Proceeds from bank credit
facility--tranche B term loan.... 50,000
Repayments on bank credit
facility--revolver............... (50,160)
Proceeds from bank credit
facility--revolver............... 11,000
Repayments on FF&E credit
facility......................... (16,609)
Payments of deferred offering
costs............................ (2,296) (565)
Net increase (decrease) in
intercompany accounts............ 159 (159)
-------- -------- ------------ ------------ ---------- ----------
Net cash provided by (used in)
financing activities............... 154 (43,970) 9 (719) 21
-------- -------- ------------ ------------ ---------- ----------
Increase (decrease) in cash and cash
equivalents........................ 11,371 2,023 (1) 2,972 (11)
Cash and cash equivalents at
beginning of year.................. 23,961 2,237 4 5 45
-------- -------- ------------ ------------ ---------- ----------
Cash and cash equivalents at end of
year............................... $ 35,332 $ 4,260 $ 4 $ 4 $ 2,972 $ 34
======== ======== ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- -----------
Net cash provided by (used in)
operating
activities......................... $ $ 81,017
------------ -----------
Cash flows from investing activities:
Proceeds from purchases of
investments...................... 8,431
Capital expenditures............... (16,409)
Construction of Casino Resort...... (12,180)
------------ -----------
Net cash used in investing
activities......................... (20,158)
------------ -----------
Cash flows from financing activities:
Proceeds from capital
contributions....................
Repayments on bank credit
facility--tranche A term loan.... (35,625)
Repayments on bank credit
facility--tranche B term loan.... (250)
Proceeds from bank credit
facility--tranche B term loan.... 50,000
Repayments on bank credit
facility--revolver............... (50,160)
Proceeds from bank credit
facility--revolver............... 11,000
Repayments on FF&E credit
facility......................... (16,609)
Payments of deferred offering
costs............................ (2,861)
Net increase (decrease) in
intercompany accounts............
------------ -----------
Net cash provided by (used in)
financing activities............... (44,505)
------------ -----------
Increase (decrease) in cash and cash
equivalents........................ 16,354
Cash and cash equivalents at
beginning of year.................. 26,252
------------ -----------
Cash and cash equivalents at end of
year............................... $ $ 42,606
============ ===========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no cash flows as of December 31, 2000.
F-37
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
VENETIAN LIDO MALL GRAND CANAL OTHER
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL NON-
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY GUARANTOR
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) SUBSIDIARIES
----------- --------- ------------- ------------- ----------- ------------
Net cash provided by operating
activities........................ $ 2,444 $ 43,711 $ $ $ 4,075 $ 562
-------- --------- ------------ ------------ ---------- ----------
Cash flows from investing
activities:
(Increase) decrease in restricted
cash............................ (57) (40)
Capital expenditures.............. (53,660) (766) (708)
-------- --------- ------------ ------------ ---------- ----------
Net cash used in investing
activities........................ (53,717) (806) (708)
-------- --------- ------------ ------------ ---------- ----------
Cash flows from financing
activities:
Repayments on bank credit
facility--tranche A term loan... (103,125)
Repayments on bank credit
facility--tranche B term loan... (49,750)
Repayments on bank credit
facility--tranche C term loan... (5,750)
Proceeds from bank credit
facility--tranche C term loan... 5,750
Repayments on bank credit
facility--term.................. (764)
Proceeds from bank credit
facility--term.................. 152,750
Repayments on bank credit
facility--revolver.............. (18,000)
Proceeds from bank credit
facility--revolver.............. 58,000
Repayments on FF&E credit
facility........................ (21,494)
Proceeds from Phase II Subidiary
credit facility................. 3,933
Proceeds from Phase II Subsidiary
unsecured bank loan............. 1,092
Payments of deferred offering
costs........................... (5,573) (300)
Net increase(decrease) in
intercompany accounts........... (409) 1,508 409 (1,508)
-------- --------- ------------ ------------ ---------- ----------
Net cash provided by (used in)
financing activities.............. (409) 13,552 409 3,217
-------- --------- ------------ ------------ ---------- ----------
Increase in cash and cash
equivalents....................... 2,035 3,546 3,678 3,071
Cash and cash equivalents at
beginning of year................. 35,332 4,260 4 4 2,972 34
-------- --------- ------------ ------------ ---------- ----------
Cash and cash equivalents at end of
year.............................. $ 37,367 $ 7,806 $ 4 $ 4 $ 6,650 $ 3,105
======== ========= ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- -----------
Net cash provided by operating
activities........................ $ $ 50,792
------------ -----------
Cash flows from investing
activities:
(Increase) decrease in restricted
cash............................ (97)
Capital expenditures.............. (55,134)
------------ -----------
Net cash used in investing
activities........................ (55,231)
------------ -----------
Cash flows from financing
activities:
Repayments on bank credit
facility--tranche A term loan... (103,125)
Repayments on bank credit
facility--tranche B term loan... (49,750)
Repayments on bank credit
facility--tranche C term loan... (5,750)
Proceeds from bank credit
facility--tranche C term loan... 5,750
Repayments on bank credit
facility--term.................. (764)
Proceeds from bank credit
facility--term.................. 152,750
Repayments on bank credit
facility--revolver.............. (18,000)
Proceeds from bank credit
facility--revolver.............. 58,000
Repayments on FF&E credit
facility........................ (21,494)
Proceeds from Phase II Subidiary
credit facility................. 3,933
Proceeds from Phase II Subsidiary
unsecured bank loan............. 1,092
Payments of deferred offering
costs........................... (5,873)
Net increase(decrease) in
intercompany accounts...........
------------ -----------
Net cash provided by (used in)
financing activities.............. 16,769
------------ -----------
Increase in cash and cash
equivalents....................... 12,330
Cash and cash equivalents at
beginning of year................. 42,606
------------ -----------
Cash and cash equivalents at end of
year.............................. $ $ 54,936
============ ===========
</Table>
- ----------------------------------
(1) The assets and liabilities of Mall Construction, a guarantor, were
transferred to the Mall Subsidiary, a non-guarantor subsidiary, upon
substantial completion of the Casino Resort on November 12, 1999, and
subsequently transferred to the New Mall Subsidiary on December 20, 1999. As
a result, Mall Construction had no cash flows as of December 31, 2001.
F-38
<Page>
LAS VEGAS SANDS, INC.
NOTES FOR FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SUBSEQUENT EVENTS
On June 4, 2002, the Company completed a series of refinancing transactions
(collectively, the "Refinancing Transactions") including (1) the issuance of
$850.0 million in aggregate principal amount of 11% mortgage notes due 2010 (the
"Mortgage Notes") in a private placement, (2) entering into a new senior secured
credit facility (the "Senior Secured Credit Facility") with a syndicate of
lenders in an aggregate amount of $375.0 million, and (3) entering into a
secured mall facility (the "Secured Mall Facility") in an aggregate amount of
$105.0 million, which was subsequently increased to $120.0 million on June 28,
2002. The Company used or will use the proceeds of the Refinancing Transactions
to repay, redeem or repurchase all of its outstanding indebtedness (including
the Mortgage Notes, the Senior Subordinated Notes, the Bank Credit Facility, the
FF&E Facility, the Completion Guaranty Loan, the Mall Take-out Financing, the
Phase II Unsecured Bank Loan and the Phase II Subsidiary Credit Facility), to
finance the construction and development of the Phase 1A Addition and to pay all
fees and expenses associated with the Refinancing Transactions. In addition, the
Principal Stockholder's completion guarantee relating to the constrcution of the
Casino Resort was terminated upon the comsummation of the Refinancing
Transactions and the remaining cash collateral was returned to the Principal
Stockholder.
In connection with the Refinancing Transactions, the Company incurred a loss
on early retirement of indebtedness of $42.8 million during the three months
ended June 30, 2002. As part of the Refinancing Transactions, the Company also
commenced a cash tender offer on May 6, 2002 to repurchase the Mortgage Notes
and the Senior Subordinated Notes. Upon the consummation of the Refinancing
Transactions, the Company repurchased $316.6 million of the Mortgage Notes and
$95.7 million of the Senior Subordinated Notes and affected a covenant
defeasance with respect to the remaining Mortgage Notes. The Company called all
of the remaining Mortgage Notes upon the closing of the Refinancing Transactions
and redeemed the balance of the Mortgage Notes ($108.4 million) and the Senior
Subordinated Notes ($1.8 million) on July 5, 2002.
Prior to the closing of the Refinancing Transactions, during 2002 the
Company established certain new subsidiaries including Grand Canal Shops II, LLC
(the "Mall II Subsidiary"), Venetian Venture Development, LLC ("Venetian
Venture"), Venetian Venture Development Intermediate Limited, Venetian Macau
Management Limited and Venetian Macau Holdings Limited ("Venetian Macau"). Of
the new subsidiaries which were credated only Venetian Venture is a guarantor of
the new indebtedness of the Company. As of December 31, 2000 and 2001 and for
each of three years in the period ended December 31, 2001, new condensed,
consolidating financial statements have not been presented as they do not differ
materially from those as presented in Note 15.
NOTE 17--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following unaudited information shows selected items (in thousands,
except per share data), for each quarter in the years ended December 31, 2000
and 2001. As more fully described in Note 1, under guidance by the Emerging
Issues Task Force ("EITF") of the Financial Accounting Standards Board,
dividends on the Venetian's preferred stock have been reflected as a charge
F-39
<Page>
LAS VEGAS SANDS, INC.
NOTES FOR FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
against income. The "as previously reported" amounts are included for reference
purposes. The restatements have no impact on previously reported quarterly
earnings per share.
<Table>
<Caption>
FIRST SECOND THIRD FOURTH YEAR
--------- --------- --------- --------- ---------
2000
Gross revenues......................... $166,847 $154,939 $148,508 $156,972 $627,266
Less-promotional allowances............ (10,933) (11,693) (11,971) (11,699) (46,296)
-------- -------- -------- -------- --------
Net revenues......................... 155,914 143,246 136,537 145,273 580,970
-------- -------- -------- -------- --------
Operating income..................... 45,578 31,051 25,523 34,621 136,773
-------- -------- -------- -------- --------
Income (loss) before preferred
return(1).......................... 16,630 (1,150) (4,676) 5,148 15,952
Preferred return on Redeemable
Preferred Interest in Venetian Casino
Resort, LLC.......................... (4,419) (4,553) (4,755) (4,755) (18,482)
-------- -------- -------- -------- --------
Net income (loss).................... $ 12,211 $ (5,703) $ (9,431) $ 393 $ (2,530)
======== ======== ======== ======== ========
Basic and diluted income (loss) per
share................................ $ 12.21 $ (5.70) $ (9.43) $ 0.39 $ (2.53)
======== ======== ======== ======== ========
INFORMATION AS PREVIOUSLY REPORTED:
Income (loss) before extraordinary item
(as previously reported)............. $ 16,630 $ 1,635 $ (4,676) $ 5,148 $ 18,737
Extraordinary item-loss on early
retirement of debt (as previously
reported)(1)......................... -- (2,785) -- -- (2,785)
-------- -------- -------- -------- --------
Net income (loss) (as previously
reported).......................... $ 16,630 $ (1,150) $ (4,676) $ 5,148 $ 15,952
======== ======== ======== ======== ========
Basic and diluted income (loss) per
share before extraordinary item (as
previously reported)................. $ 12.21 $ (2.92) $ (9.43) $ 0.39 $ 0.26
======== ======== ======== ======== ========
Basic and diluted income (loss) per
share (as previously reported)....... $ 12.21 $ (5.70) $ (9.43) $ 0.39 $ (2.53)
======== ======== ======== ======== ========
</Table>
- ------------------------
(1) As further described in Note 2, the Company has adopted SFAS 145.
Accordingly, the presentation for losses on early retirement of debt have
been reclassified as a deduction from income (loss) before preferred return
in the accompanying table and statement of operations.
F-40
<Page>
LAS VEGAS SANDS, INC.
NOTES FOR FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
<Table>
<Caption>
FIRST SECOND THIRD FOURTH YEAR
--------- --------- --------- --------- ---------
2001
Gross revenues......................... $155,926 $146,576 $133,594 $130,397 $566,493
Less-promotional allowances............ (12,286) (9,658) (10,440) (10,210) (42,594)
-------- -------- -------- -------- --------
Net revenues......................... 143,640 136,918 123,154 120,187 523,899
-------- -------- -------- -------- --------
Operating income..................... 33,201 27,389 20,405 28,284 109,279
-------- -------- -------- -------- --------
Income (loss) before preferred
return(1).......................... 4,679 414 (7,362) (1,132) (3,401)
Preferred return on Redeemable
Preferred Interest in Venetian Casino
Resort, LLC.......................... (5,040) (5,040) (5,343) (5,343) (20,766)
-------- -------- -------- -------- --------
Net (loss)........................... $ (361) $ (4,626) $(12,705) $ (6,475) $(24,167)
======== ======== ======== ======== ========
Basic and diluted loss per share....... $ (0.36) $ (4.63) $ (12.71) $ (6.48) $ (24.17)
======== ======== ======== ======== ========
INFORMATION AS PREVIOUSLY REPORTED:
Income (loss) before extraordinary item
(as previously reported)............. $ 4,679 $ 414 $ (5,979)
Extraordinary item-loss on early
retirement of debt (as previously
reported)(1)......................... -- -- (1,383)
-------- -------- --------
Net income (loss) (as previously
reported).......................... $ 4,679 $ 414 $ (7,362)
======== ======== ========
Basic and diluted (loss) per share
before extraordinary item (as
previously reported)................. $ (0.36) $ (4.63) $ (11.32)
======== ======== ========
Basic and diluted (loss) per share (as
previously reported)................. $ (0.36) $ (4.63) $ (12.71)
======== ======== ========
</Table>
- ------------------------
(1) As further described in Note 2, the Company has adopted SFAS 145.
Accordingly, the presentation for losses on early retirement of debt have
been reclassified as a deduction from income (loss) before preferred return
in the accompanying table and statement of operations.
F-41
<Page>
LAS VEGAS SANDS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents................................. $ 54,936 $ 95,642
Restricted cash and investments........................... 2,646 16,718
Accounts receivable, net.................................. 57,092 51,279
Inventories............................................... 4,747 4,576
Prepaid expenses.......................................... 3,862 3,750
---------- ----------
Total current assets........................................ 123,283 171,965
Property and equipment, net................................. 1,096,307 1,126,636
Deferred offering costs, net................................ 18,989 39,080
Restricted cash and investments............................. -- 140,614
Other assets, net........................................... 33,207 30,767
---------- ----------
$1,271,786 $1,509,062
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 36,353 $ 16,208
Construction payables..................................... 26,115 17,284
Construction payables-contested........................... 7,232 7,232
Accrued interest payable.................................. 10,008 30,693
Other accrued liabilities................................. 70,035 66,250
Current maturities of long-term debt...................... 129,113 2,500
---------- ----------
Total current liabilities................................... 278,856 140,167
Other long-term liabilities................................. 3,274 1,259
Long-term debt.............................................. 745,746 1,216,875
Long-term subordinated loans payable to Principal
Stockholder............................................... 66,123 --
---------- ----------
1,093,999 1,358,301
---------- ----------
Redeemable Preferred Interest in Venetian Casino Resort,
LLC, a wholly owned subsidiary............................ 188,778 206,108
---------- ----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.10 par value, 3,000,000 shares authorized,
1,000,000 shares issued and outstanding................. 92 100
Capital in excess of par value............................ 140,768 140,760
Accumulated deficit since June 30, 1996................... (151,851) (196,207)
---------- ----------
(10,991) (55,347)
---------- ----------
$1,271,786 $1,509,062
========== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<Page>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2001 2002 2001 2002
--------- --------- --------- ---------
Revenues:
Casino......................................... $ 61,392 $ 80,086 $174,133 $177,379
Rooms.......................................... 43,688 47,592 159,702 156,605
Food and beverage.............................. 11,731 15,305 49,088 54,838
Retail and other............................... 16,783 18,103 51,513 53,550
-------- -------- -------- --------
133,594 161,086 434,436 442,372
Less-promotional allowances...................... (10,440) (8,330) (32,384) (25,018)
-------- -------- -------- --------
Net revenues................................... 123,154 152,756 402,052 417,354
-------- -------- -------- --------
Operating expenses:
Casino......................................... 33,814 31,878 109,970 86,742
Rooms.......................................... 12,415 13,502 39,271 40,128
Food and beverage.............................. 6,333 8,329 23,581 27,049
Retail and other............................... 8,845 8,547 23,876 23,511
Provision for doubtful accounts................ 5,767 5,266 14,656 13,540
General and administrative..................... 22,911 25,290 68,337 69,682
Corporate expense.............................. 763 2,697 4,741 7,520
Rental expense................................. 2,074 2,006 6,287 5,535
Pre-opening and developmental expense.......... -- 1,026 -- 3,097
Depreciation and amortization.................. 9,827 11,066 30,338 33,015
-------- -------- -------- --------
102,749 109,607 321,057 309,819
-------- -------- -------- --------
Operating income................................. 20,405 43,149 80,995 107,535
Other income (expense):
Interest income................................ 329 1,079 1,135 1,729
Interest expense, net of amounts capitalized... (24,606) (29,466) (76,269) (81,531)
Interest expense on indebtedness to Principal
Stockholder.................................. (2,107) (6,747) (4,010)
Other income (expense)......................... -- 280 -- 643
Loss on early retirement of debt............... (1,383) (8,629) (1,383) (51,392)
-------- -------- -------- --------
Income (loss) before preferred return............ (7,362) 6,413 (2,269) (27,026)
Preferred return on Redeemable Preferred
Interest in Venetian Casino Resort, LLC
(2001, as restated).......................... (5,343) (6,003) (15,423) (17,330)
-------- -------- -------- --------
Net loss (2001, as restated)..................... $(12,705) $ 410 $(17,692) $(44,356)
======== ======== ======== ========
Basic and diluted income (loss) per share........ $ (12.71) $ 0.41 $ (17.69) $ (44.36)
======== ======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<Page>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2001 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (2001, as restated)....................... $ (17,692) $ (44,356)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 30,338 33,015
Amortization of debt offering costs and original issue
discount................................................ 6,046 6,614
Non-cash preferred return on Redeemable Preferred Interest
in Venetian (2001, as restated)......................... 15,423 17,330
Loss on early retirement of debt.......................... 1,383 51,392
Loss on disposition of fixed asset........................ 301
Non-cash interest on completion guaranty loan............. 1,940
Provision for doubtful accounts........................... 14,656 13,540
Changes in operating assets and liabilities:
Accounts receivable..................................... (4,683) (7,727)
Inventories............................................. (545) 171
Prepaid expenses........................................ (1,592) 112
Other assets............................................ (4,626) 2,440
Accounts payable........................................ 2,865 (20,145)
Accrued interest payable................................ 14,342 20,685
Other accrued liabilities............................... (22,137) (5,800)
--------- ---------
Net cash provided by operating activities................... 35,718 67,572
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash ($185.0 million for
Phase IA construction and $116.9 million for debt
defeasance on July 5, 2002)............................... (82) (154,686)
Capital expenditures........................................ (42,220) (72,476)
--------- ---------
Net cash used in investing activities....................... (42,302) (227,162)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on 12 1/4% mortgage notes........................ (425,000)
Proceeds from 11% mortgage notes............................ 850,000
Repayments on senior subordinated notes..................... (97,500)
Proceeds from secured mall facility......................... 120,000
Repayments on mall-tranche A take-out Loan.................. (105,000)
Repayments on mall-tranche B take-out Loan.................. (35,000)
Repayments on completion guaranty loan...................... (31,124)
Repayments on senior secured credit facility-term B......... (625)
Proceeds from senior secured credit facility-term B......... 250,000
Repayments on bank credit facility-tranche A term loan...... (103,125)
Repayments on bank credit facility-tranche B term loan...... (49,750)
Repayments on bank credit facility-tranche C term loan...... (5,750)
Proceeds from bank credit facility-tranche C term loan...... 5,750
Repayments on bank credit term facility..................... (382) (151,986)
Proceeds from bank credit term facility..................... 152,750
Repayments on bank credit facility-revolver................. (8,000) (61,000)
Proceeds from bank credit facility-revolver................. 48,000 21,000
Repayments on FF&E credit facility.......................... (16,121) (53,735)
Repayments on Phase II Subsidary credit facility............ (3,933)
Repayments on Phase II Subsidiary unsecured bank loan....... (1,092)
Proceeds from Phase II Subsidiary unsecured bank loan....... 1,092
Repurchase premiums incurred in connection with financing
transactions (33,478)
Payments of deferred offering costs......................... (4,997) (41,231)
--------- ---------
Net cash used in financing activities....................... 19,467 200,296
--------- ---------
Decrease in cash and cash equivalents....................... 12,883 40,706
Cash and cash equivalents at beginning of period............ 42,606 54,936
--------- ---------
Cash and cash equivalents at end of period.................. $ 55,489 $ 95,642
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest.................................. $ 61,917 $ 59,689
========= =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001. The year end balance sheet data was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles. In addition, certain amounts in the 2001
financial statements have been reclassified to conform with the 2002
presentation. In the opinion of management, all adjustments and normal recurring
accruals considered necessary for a fair presentation of the results for the
interim period have been included. The interim results reflected in the
unaudited financial statements are not necessarily indicative of expected
results for the full year.
Las Vegas Sands, Inc. ("LVSI") is a Nevada corporation. On April 28, 1989,
LVSI commenced gaming operations in Las Vegas, Nevada, by acquiring the Sands
Hotel and Casino (the "Sands"). On June 30, 1996, LVSI closed the Sands and
subsequently demolished the facility in order to construct a planned two-phase
hotel-casino resort. The first phase of the hotel-casino resort (the "Casino
Resort") includes 3,036 suites, casino space approximating 116,000 square feet,
approximately 500,000 square feet of convention space, and approximately 475,000
gross leasable square feet of retail shops and restaurants.
The consolidated financial statements include the accounts of LVSI and its
subsidiaries (the "Subsidiaries"), including Venetian Casino Resort, LLC
("Venetian"), Mall Intermediate Holding Company, LLC ("Mall Intermediate"),
Grand Canal Shops Mall Subsidiary, LLC (the "Mall Subsidiary"), Grand Canal
Shops II, LLC (the "Mall II Subsidiary"), Grand Canal Shops Mall MM
Subsidiary, Inc., Grand Canal Shops Mall Construction, LLC ("Mall
Construction"), Lido Intermediate Holding Company, LLC ("Lido Intermediate"),
Lido Casino Resort Holding Company, LLC, Lido Casino Resort, LLC (the "Phase II
Subsidiary"), Lido Casino Resort MM, Inc., Venetian Casino Resort Athens, LLC
("Venetian Athens"), Venetian Venture Development, LLC ("Venetian Venture"),
Venetian Venture Development Intermediate Limited, Venetian Macau Management
Limited, Venetian Macau Holdings Limited ("Venetian Macau"), Venetian
Marketing, Inc. ("Venetian Marketing"), Venetian Far East Limited and Venetian
Operating Company, LLC ("Venetian Operating") (collectively, and including all
other direct and indirect subsidiaries of LVSI, the "Company"). Each of LVSI and
the Subsidiaries is a separate legal entity and the assets of each such entity
are intended to be available only to the creditors of such entity.
Venetian was formed on March 20, 1997 to own and operate certain portions of
the Casino Resort. LVSI is the managing member and owns 100% of the common
voting equity in Venetian. The entire preferred interest in Venetian is owned by
Interface Group Holding Company, Inc. ("Interface Holding"), which is
wholly-owned by LVSI's principal stockholder (the "Principal Stockholder").
Various Subsidiaries are guarantors or co-obligors of certain indebtedness
related to the Casino Resort. See Note 4--Long-Term Debt.
The Mall II Subsidiary is an indirect, wholly-owned subsidiary of LVSI and
owns and operates the retail mall in the Casino Resort (the "Mall"). The Mall II
Subsidiary was formed on May 31, 2002 and became a successor to the Mall
Subsidiary in connection with the refinancing of the Mall's indebtedness. See
Note 4--Long-Term Debt.
The Casino Resort is physically connected to the approximately 1.15 million
square foot Sands Expo and Convention Center (the "Expo Center"). Interface
Group-Nevada, Inc. ("IGN"), the owner
F-45
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY (CONTINUED)
of the Expo Center, is beneficially owned by the Principal Stockholder.
Venetian, the Mall II Subsidiary and IGN transact business with each other and
are parties to certain agreements.
RESTATEMENT OF PREVIOUSLY REPORTED AMOUNTS
As more fully described above, Interface Holding (an entity controlled by
the Principal Stockholder) owns a redeemable preferred interest in LVSI's
wholly-owned subsidiary, Venetian. The preferred return on the redeemable
preferred interest has not been paid, but it has been accrued by Venetian each
year and historically accounted for as a charge against capital (See Note 5).
Under guidance by the Emerging Issues Task Force of the Financial Accounting
Standards Board, dividends on a subsidiary's preferred stock should be reflected
as a minority interest and recognized as a charge against income.
The Company has recognized the preferred return as a charge against income
in the accompanying 2002 financial statements. The Company has restated certain
income statement items for the three and nine month periods ended September 30,
2001 to include the preferred return, which amounts were $5.3 million and
$15.4 million, respectively. The restatement has no impact on the previously
reported carrying balances of the redeemable preferred interest or on the
previously reported financial position of the Company. In addition, because the
preferred return was deducted from income available to common stockholders in
calculating earnings per share, the restatement has no impact on previously
reported amounts for earnings per share.
NEW ACCOUNTING PRONOUNCEMENT
In April 2002, the Financial Accounting Standards Board issued statement
No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64 and
Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations. The Company
has adopted SFAS 145 and will no longer present losses on early retirements of
debt as an extraordinary item. Additionally, prior period extraordinary losses
have been reclassified to conform to this new presentation. Adoption of
SFAS 145 had no impact on the Company's financial condition or cash flows.
NOTE 2--STOCKHOLDERS' EQUITY AND PER SHARE DATA
The Company established a nonqualified stock option plan, which provides for
the granting of stock options pursuant to the applicable provisions of the
Internal Revenue Code and regulations. The stock option plan provides that the
Principal Stockholder may assume the obligations of the Company under the plan
and provides for the granting of up to 75,000 shares of common stock to officers
and other key employees of the Company. As of December 31, 2001, no grants under
the stock option plan had occurred. In the first quarter of 2002, options to
purchase 49,900 shares, which represented approximately 5% of the Company's
outstanding common stock, were granted from the Company to certain key employees
of the Company. Immediately thereafter, the Principal Stockholder assumed the
obligations of the Company under the stock option plan. On the date of grant,
the exercise price of the options of $271 per share was higher than the fair
market value of the Company's common stock based upon a determination of the
fair market value of a per share minority interest in the common stock of LVSI,
performed by an independent third-party appraiser. The options granted were
fully vested and exercisable upon grant. All of the options were exercised
F-46
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--STOCKHOLDERS' EQUITY AND PER SHARE DATA (CONTINUED)
immediately after issuance by the respective employees by delivery of a notice
of exercise. There has been no change in outstanding shares of the Company and
the notes receivable are not reflected in the accompanying financial statements
because the shares issued were from the Principal Stockholder's existing
holdings. The exercise price of the options (a total of approximately
$13.5 million) was loaned to the optionees by the Principal Stockholder on a
collateralized basis under full recourse notes.
During the first quarter of 2002, the Company entered into a stockholders'
agreement (the "Stockholders' Agreement") with the respective employees (the
"Additional Stockholders") and the Principal Stockholder. The Stockholders'
Agreement restricts the ability of the Additional Stockholders and any of their
permitted transferees who have agreed to be bound by the terms and conditions of
the agreement to sell, assign, pledge, encumber or otherwise dispose of any
shares of common stock of LVSI, except in accordance with the provisions of the
Stockholders' Agreement. All transfers are subject to certain conditions,
including:
- compliance with applicable state and foreign securities laws,
- receipt of necessary licenses or approvals from the Nevada gaming
authorities, and
- compliance with all federal laws, rules and regulations relating to
subchapter S corporations.
If at any time before LVSI completes an initial public offering, the
Principal Stockholder wishes to sell 20% or more of his ownership interest in
LVSI to any third party transferee, each Additional Stockholder shall have the
right to participate in such sale on the same terms as those offered to the
Principal Stockholder.
The Additional Stockholders also have certain piggyback registration rights.
If at any time LVSI completes an initial public offering or proposes to register
any shares of common stock, the Additional Stockholders may request registration
of their securities. Common stock will be included in the registration statement
in the following order of priority: first, all securities of LVSI to be sold for
its own account, second, securities of stockholders (other than the Principal
Stockholder) who have demand registration rights and third, such securities
requested to be included in such registration statement by the Principal
Stockholder and the Additional Stockholders (pro rata based on the number of
registrable securities owned by such stockholders). Finally, if at any time
prior to the completion by LVSI of an initial public offering LVSI wishes to
issue any new securities, the Additional Stockholders will have the right to
purchase that number of shares of LVSI common stock, at the proposed purchase
price of the new securities, such that the Additional Stockholders' percentage
ownership of LVSI would remain the same following such issuance.
During the second quarter of 2002, options to purchase an additional 5,500
shares at an exercise price of $271 per share were reserved under the stock
option plan. The granting of these options are subject to approval by the Nevada
gaming authorities. The Company will determine if a charge to compensation is
necessary at the date of actual grant of these options, depending on the
estimated fair market value of a per share minority interest in the common stock
of LVSI at that date.
Basic and diluted income (loss) per share are calculated based upon the
weighted average number of shares outstanding. In the first quarter of 2002, the
Company completed a stock split whereby the number of shares of common stock
outstanding was increased from 925,000 to
F-47
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--STOCKHOLDERS' EQUITY AND PER SHARE DATA (CONTINUED)
1,000,000. At the time of the stock split, the Principal Stockholder maintained
100% ownership of the Company's common stock. All references to share and per
share data herein have been adjusted retroactively to give effect to the
increase in shares of common stock outstanding to 1,000,000.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
Land and land improvements............................... $ 113,309 $ 113,428
Building and improvements................................ 882,395 885,966
Equipment, furniture, fixtures and leasehold
improvements........................................... 138,978 141,001
Construction in progress................................. 68,542 125,853
---------- ----------
1,203,224 1,266,248
Less: accumulated depreciation and amortization.......... (106,917) (139,612)
---------- ----------
$1,096,307 $1,126,636
========== ==========
</Table>
During the three and nine month periods ended September 30, 2001 and
September 30, 2002, the Company capitalized interest expense of $0.8 million and
$1.4 million, and $0.7 million and $1.5 million, respectively.
As of September 30, 2002, construction in progress represented construction
costs and project design for an approximately 1,000-room hotel tower on top of
the Casino Resort's existing parking garage, an approximately 1,000-parking
space expansion to the parking garage and approximately 150,000 square feet of
additional convention center space on the Phase II Land (collectively, the
"Phase IA Addition"), design and shared facilities costs for the planned second
phase of the Casino Resort, to be owned by the Phase II Subsidiary (the "Phase
II Resort"), design and pre-development costs for a casino in Macau, and
on-going capital improvement projects at the Casino Resort.
F-48
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES OTHER THAN
THE MALL II SUBSIDIARY, THE MALL SUBSIDIARY AND THE
PHASE II SUBSIDIARY:
12 1/4% Mortgage Notes, due November 15, 2004--redeemed
July 5, 2002 $ 425,000 $ --
14 1/4% Senior Subordinated Notes, due November 15, 2005
(net of unamortized discount of $3,607 in 2001)--redeemed
July 5, 2002 94,113 --
Bank Credit Facility--Revolver.............................. 40,000 --
Bank Credit Facility--Term Loan............................. 151,986 --
FF&E Credit Facility........................................ 53,735 --
11% Mortgage Notes, due June 15, 2010 -- 850,000
Senior Secured Credit Facility--Term B...................... -- 249,375
INDEBTEDNESS OF THE MALL II SUBSIDIARY:
Secured Mall Facility....................................... -- 120,000
INDEBTEDNESS OF THE MALL SUBSIDIARY:
Mall Tranche A Take-out Loan................................ 105,000 --
INDEBTEDNESS OF THE PHASE II SUBSIDIARY:
Phase II Subsidiary Credit Facility......................... 3,933 --
Phase II Unsecured Bank Loan................................ 1,092 --
Less: current maturities, including amounts redeemed on
July 5, 2002.............................................. (129,113) (2,500)
--------- ----------
Total long-term debt........................................ $ 745,746 $1,216,875
--------- ----------
SUBORDINATED OWNER INDEBTEDNESS:
Completion Guaranty Loan (Indebtedness of Venetian)......... $ 31,123 $ --
Subordinated Mall Tranche B Take-out Loan from Principal
Stockholder (Indebtedness of Mall Subsidiary)............. 35,000 --
--------- ----------
Total long-term subordinated loans payable to Principal
Stockholder............................................... $ 66,123 $ --
========= ==========
</Table>
In connection with the construction financing for the Casino Resort, the
Company entered into a series of transactions during 1997 to build the Casino
Resort. In November 1997, the Company issued $425.0 million in aggregate
principal amount of 12 1/4% Mortgage Notes (the "Old Mortgage Notes") and
$97.5 million in aggregate principal amount of 14 1/4% Senior Subordinated Notes
(the "Old Subordinated Notes" and, together with the Old Mortgage Notes, the
"Old Notes") in a private placement. Also in November 1997, LVSI and Venetian
and a syndicate of lenders entered into a Bank Credit Facility (the "Bank Credit
Facility") providing for multiple draw term loans to the Company for
construction and development of the Casino Resort. In December 1997, the Company
entered into an agreement (the "FF&E Facility") with certain lenders to provide
for $97.7 million of financing for certain furniture, fixtures, and equipment
and an electrical substation.
On November 12, 1999, an advance of approximately $23.5 million was made
under the Principal Stockholder's completion guaranty (the "Completion Guaranty
Loan"), a junior loan from the Principal Stockholder to Venetian. On
December 20, 1999, certain take-out lenders funded a $105.0 million tranche A
take-out loan to the Mall Subsidiary (the "Tranche A Take-out Loan") and
F-49
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
an entity wholly-owned by the Principal Stockholder funded a $35.0 million loan
to the Mall Subsidiary (the "Tranche B Take-out Loan" and, together with the
Tranche A Take-out Loan, the "Mall Take-out Financing"), the proceeds of which
were used to repay an existing mall construction loan facility.
In February 2001, the Phase II Subsidiary entered into an unsecured bank
line of credit (the "Phase II Unsecured Bank Loan") of $1.1 million for Phase II
Subsidiary operating costs. On October 19, 2001, the Phase II Subsidiary also
entered into a loan agreement providing for a $17.5 million term and revolving
loan (the "Phase II Subsidiary Credit Facility") for Phase II Resort
pre-development expenses and loans or distributions to the Company for other
liquidity needs.
On June 4, 2002, the Company completed a series of refinancing transactions
(collectively, the "Refinancing Transactions") including (1) the issuance of
$850.0 million in aggregate principal amount of 11% mortgage notes due 2010 (the
"Mortgage Notes") in a private placement, (2) entering into a new senior secured
credit facility (the "Senior Secured Credit Facility") with a syndicate of
lenders in an aggregate amount of $375.0 million, and (3) entering into a
secured mall facility (the "Secured Mall Facility") in an aggregate amount of
$105.0 million, which was subsequently increased to $120.0 million on June 28,
2002. The Company used the proceeds of the Refinancing Transactions to repay,
redeem or repurchase all of its outstanding indebtedness (including the Old
Notes, the Bank Credit Facility, the FF&E Facility, the Completion Guaranty
Loan, the Mall Take-out Financing, the Phase II Unsecured Bank Loan and the
Phase II Subsidiary Credit Facility), to finance the construction and
development of the Phase IA Addition and to pay all fees and expenses associated
with the Refinancing Transactions. In addition, the Principal Stockholder's
completion guarantee relating to the construction of the Casino Resort was
terminated upon the consummation of the Refinancing Transactions and the
remaining cash collateral was returned to the Principal Stockholder. In
connection with the Refinancing Transactions, the Company incurred a loss on
early retirement of indebtedness of $8.6 million and $51.4 million during the
three and nine months ended September 30, 2002.
As part of the Refinancing Transactions, the Company also commenced a cash
tender offer on May 6, 2002 to repurchase the Old Notes. Upon the consummation
of the Refinancing Transactions, the Company repurchased $316.6 million of the
Old Mortgage Notes and $95.7 million of the Old Subordinates Notes and effected
a covenant defeasance with respect to the remaining Mortgage Notes. The Company
called all of the remaining Old Notes upon the closing of the Refinancing
Transactions and redeemed the balance of the Old Mortgage Notes
($108.4 million) and the Old Subordinated Notes ($1.8 million) on July 5, 2002.
MORTGAGES NOTES
The Mortgage Notes bear interest at 11%, payable each June 15th and
December 15th, beginning December 15, 2002. The Mortgage Notes are secured by
second priority liens on certain assets of the Company (the personal property
and the real estate improvements that comprise the hotel, the casino, and the
convention space, with certain exceptions). The Mortgage Notes are redeemable at
the option of LVSI and Venetian at prices ranging from 100% to 105.5% commencing
on or after June 15, 2006, as set forth in the Mortgage Notes and the indenture
pursuant to which the Mortgage Notes were issued (the "Indenture"). Prior to
June 15, 2006, LVSI and Venetian may redeem the Mortgage Notes at their
principal amount plus an applicable make-whole premium.
F-50
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
Upon a change of control (as defined in the Indenture), each Mortgage Note
holder may require LVSI and Venetian to repurchase such Mortgage Notes at 101%
of the principal amount thereof plus accrued interest and other amounts which
are then due, if any. Upon an event of loss or certain asset sales, the Company
may also be required to offer to purchase all or a portion of the Mortgage Notes
with the proceeds of such event of loss or sale. The Mortgage Notes are not
subject to a sinking fund requirement.
The Company is committed under a registration rights agreement to use its
commercially reasonable efforts prior to 180 days after the closing date to
effect a registered exchange offer for the Mortgage Notes or, subject to certain
conditions, to provide a shelf registration for the Mortgage Notes. Should the
Company not meet certain requirements of the registration rights agreement,
liquidated damages in the amount of 0.25% to 2.00% per annum of the aggregate
principal amount of the Mortgage Notes would accrue until such defaults are
cured.
SENIOR SECURED CREDIT FACILITY
The Senior Secured Credit Facility provides for a $250.0 million single draw
senior secured term loan facility (the "Term B Facility"), a $50.0 million
senior secured delayed draw facility (the "Term A Facility") and a
$75.0 million senior secured revolving facility (the "Revolving Facility"). Term
B Facility proceeds of $185.0 million were deposited into restricted accounts,
invested in cash or permitted investments and pledged to a disbursement agent
for the Senior Secured Credit Facility lenders. The $185.0 million will be used
as required for Phase IA Addition project costs under disbursement terms
specified in the Senior Secured Credit Facility. The disbursement account is
subject to a security interest in favor of the lenders under the Senior Secured
Credit Facility.
The Term B Facility matures on June 4, 2008 and is subject to quarterly
amortization payments in the amount of $625,000 from September 30, 2002 until
September 30, 2007, followed by four equal quarterly amortization payments of
$59.4 million until the maturity date. The Term A Facility is available from the
closing date of the Senior Secured Credit Facility through the first anniversary
of the closing date, subject to certain conditions. The Term A Facility matures
on June 4, 2007 and is subject to quarterly amortization payments commencing on
December 31, 2003 in the amount of $1,666,667 for three quarters, $2,500,000 for
the succeeding four quarters, $3,750,000 for the next four quarters and
$5,000,000 for the final four quarters. The Revolving Facility matures on
June 4, 2007 and has no interim amortization. No amounts had been drawn under
the Term A Facility or the Revolving Facility as of September 30, 2002.
All amounts outstanding under the Senior Secured Credit Facility bear
interest at the option of the Company at the prime rate plus 2% per annum, or at
the reserve adjusted Eurodollar rate plus 3% per annum. After the Phase IA
Addition is substantially complete, the applicable margin for amounts
outstanding under the Term A Facility and the Revolving Facility will be
determined by a grid based upon a leverage ratio. The leverage ratio will be
calculated as the ratio of consolidated total debt as of the last day of each
fiscal quarter to EBITDA (as defined in the Senior Secured Credit Facility) for
the four-fiscal quarter period ending on such date. Commitment fees equal to
0.50% per annum of the daily average unused portion of the commitment under the
Revolving Facility and 0.75% per annum of the daily average unused portion of
the Term A Facility are payable quarterly in arrears.
F-51
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
The Senior Secured Credit Facility is secured by a first priority lien on
certain assets of the Company (the personal property and the real estate
improvements that comprise the hotel, the casino, and the convention space, with
certain exceptions). The Senior Secured Credit Facility contains affirmative,
negative and financial covenants including limitations on indebtedness, liens,
investments, guarantees, restricted junior payments, mergers and acquisitions,
sales of assets, leases, transactions with affiliates and scope-changes and
modifications to material contracts. Additionally, the Company is required to
comply with certain financial ratios and other financial covenants including
total debt to EBITDA ratios, EBITDA to interest coverage ratios, minimum net
worth covenants and maximum capital expenditure limitations. At September 30,
2002, the Company was in compliance with all required covenants and ratios under
the Senior Secured Credit Facility.
SECURED MALL FACILITY
In June 2002, the Company also entered into an agreement (the "Secured Mall
Facility") with certain lenders to provide for a $105.0 million loan
(subsequently increased to $120.0 million on June 28, 2002) to the Mall II
Subsidiary. The initial $105.0 million of proceeds (net of financing costs) from
the Secured Mall Facility, along with the proceeds of a $37.9 million capital
contribution in Mall II Subsidiary by Venetian, were used to repay the Mall
Take-out Financing and costs previously owed by the Mall Subsidiary. Upon the
consummation of the Refinancing Transactions, the assets of the Mall were
transferred to the Mall II Subsidiary, the borrower under the Secured Mall
Facility. The additional $15.0 million of proceeds (net of financing costs) were
distributed to Venetian and used for general corporate purposes. The
indebtedness under the Secured Mall Facility is secured by a first priority lien
on the assets that comprise the Mall (the "Mall Assets").
The amounts outstanding under the Secured Mall Facility bear interest at the
adjusted one month Eurodollar rate plus 1.875% per annum. Interest is paid
monthly and there is no scheduled principal amortization. The Secured Mall
Facility is due in full on June 28, 2005 and provides for two one-year
extensions at the option of the Company, subject to certain criteria. The
Secured Mall Facility contains affirmative, negative and financial covenants
including net operating income performance standards. Failure to meet these
financial covenants in certain circumstances allows the lenders' agent to
control collection of rents, to approve operating budgets and provides for a
cash sweep of excess cash flow to reduce amounts outstanding under the Secured
Mall Facility.
The Company is required to enter into an interest rate cap agreement to
limit the impact of increases in interest rates on its floating rate debt
derived from the Secured Mall Facility. To meet the requirements of the Secured
Mall Facility, the Company entered into a cap agreement during June 2002 (the
"Mall Cap Agreement") that resulted in a premium payment to counterparties based
upon notional principal amounts for a term equal to the term of the Secured Mall
Facility. The provisions of the Mall Cap Agreement entitle the Company to
receive from the counterparties the amounts, if any, by which the selected
market interest rates exceed the strike rates stated in such agreement. There
was no net effect on interest expense as a result of the Mall Cap Agreement for
the three months ended September 30, 2002. If the Company had terminated the
Mall Cap Agreement as of September 30, 2002, the Company would have received
$0.2 million based on quoted market values from the various institutions holding
the swaps. The notional amount of the Mall Cap Agreement (which expires on
June 28, 2005) at September 30, 2002 was $120.0 million.
F-52
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT (CONTINUED)
Pursuant to the terms of the Secured Mall Facility, the Mall II Subsidiary
is also required to maintain certain funds in escrow for debt service and
property taxes. At September 30, 2002, $1.8 million was held by the lenders'
agent in escrow for these purposes. The amounts in escrow are classified as
restricted cash in the accompanying financial statements.
The Company entered into interest rate cap and/or floor agreements related
to the Bank Credit Facility (the "Bank Cap Agreement") during 1998 and the
Tranche A Take-out Loan during 1999 (the "Mall Cap Agreement" and, together with
the Bank Cap Agreement, the "Old Rate Cap Agreements"). The notional amount of
the Bank Cap Agreement at September 30, 2002 was $76.0 million. The Bank Cap
Agreement expires in June 2003, the maturity date of the Bank Credit Facility,
unless terminated earlier by the Company. The notional amount of the Mall Cap
Agreement at September 30, 2002 was $42.3 million. The Mall Cap Agreement
expires on December 20, 2002, the original maturity date of the Tranche A
Take-out Loan, unless terminated earlier by the Company.
The net effect of the Old Rate Cap Agreements resulted in an increase of
interest expense of $0.5 million for the quarter ended September 30, 2002.
Currently, the Old Rate Cap Agreements remain outstanding. If the Company had
terminated the Old Rate Cap Agreements as of September 30, 2002, the Company
would have had to pay a net amount of $1.4 million based on quoted market values
from the various institutions holding the swaps. In accordance with Financial
Accounting Standards Board Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, the Company has recorded the fair value of
its obligations under the Old Rate Cap Agreements in the accompanying financial
statements and will continue to do so while the agreements are in effect.
NOTE 5--REDEEMABLE PREFERRED INTEREST IN VENETIAN CASINO RESORT, LLC
During 1997, Interface Holding contributed $77.1 million in cash to Venetian
in exchange for a Series A preferred interest (the "Series A Preferred
Interest") in Venetian. By its terms, the Series A Preferred Interest was
convertible at any time into a Series B preferred interest in Venetian (the
"Series B Preferred Interest"). In August 1998, the Series A Preferred Interest
was converted into the Series B Preferred Interest. The rights of the Series B
Preferred Interest include the accrual of a preferred return of 12% from the
date of contribution in respect of the Series A Preferred Interest. Until the
indebtedness under the Senior Secured Credit Facility is repaid and cash
payments are permitted under the restricted payment covenants of the Indenture,
the preferred return on the Series B Preferred Interest will accrue and will not
be paid in cash. Commencing June 30, 2011, distributions must be made to the
extent of the positive capital account of the holder. During the second and
third quarters of 1999, Interface Holding contributed $37.3 million and
$7.1 million, respectively, in cash in exchange for an additional Series B
Preferred Interest. During the three and nine month periods ended September 30,
2001 and September 30, 2002, $5.3 million and $15.4 million, and $6.0 million
and $17.3 million, respectively, were accrued on the Series B Preferred Interest
related to the contributions made. Since 1997, no distributions of preferred
interest or preferred return have been paid on the Series B Preferred Interest.
F-53
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES
CONSTRUCTION LITIGATION
The Company is party to litigation matters and claims related to its
operations and construction of the Casino Resort that could have a material
adverse effect on the financial position, results of operations or cash flows of
the Company to the extent such litigation is not covered by the Insurance Policy
(as defined below).
The construction of the principal components of the Casino Resort was
undertaken by Lehrer McGovern Bovis, Inc. (the "Construction Manager") pursuant
to a construction management agreement and certain amendments thereto (as so
amended, the "Construction Management Contract"). The Construction Management
Contract established a final guaranteed maximum price (the "Final GMP") of
$645.0 million, so that, subject to certain exceptions (including an exception
for cost overruns due to "scope changes"), the Construction Manager was
responsible for any costs of the work covered by the Construction Management
Contract in excess of the Final GMP. The obligations of the Construction Manager
under the Construction Management Contract are guaranteed by Bovis, Inc.
("Bovis" and such guaranty, the "Bovis Guaranty"), the Construction Manager's
direct parent at the time the Construction Management Contract was entered into.
Bovis' obligations under the Bovis Guaranty are guaranteed by The Peninsular and
Oriental Steam Navigation Company ("P&O"), a British public company and the
Construction Manager's ultimate parent at the time the Construction Management
Contract was entered into (such guaranty, the "P&O Guaranty").
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations under the Bovis Guaranty, including failure to fully
pay trade contractors and vendors and failure to meet the April 21, 1999
guaranteed completion date. The Company amended this complaint on November 23,
1999 to add P&O as an additional defendant. The suit is intended to ask the
courts, among other remedies, to require the Construction Manager and its
guarantors to pay its contractors, to compensate Venetian for the Construction
Manager's failure to perform its duties under the Construction Management
Contract and to pay the Company the agreed upon liquidated damages penalty for
failure to meet the guaranteed substantial completion date. Venetian seeks total
damages in excess of $100.0 million. The Construction Manager subsequently filed
motions to dismiss the Company's complaint on various grounds, which the Company
opposed. The Construction Manager's motions were either denied by the court or
voluntarily withdrawn.
In response to Venetian's breach of contract claims against the Construction
Manager, Bovis and P&O, the Construction Manager filed a complaint on August 3,
1999 against Venetian in the District Court of Clark County, Nevada. The action
alleges a breach of contract and QUANTUM MERUIT claims under the Construction
Management Contract and also alleges that Venetian defrauded the Construction
Manager in connection with the construction of the Casino Resort. The
Construction Manager seeks damages, attorney's fees and costs and punitive
damages. In the lawsuit, the Construction Manager claims that it is owed
approximately $90.0 million from Venetian and its affiliates. This complaint was
subsequently amended by the Construction Manager, which also filed an additional
complaint against the Company relating to work done and funds advanced with
respect to the contemplated development of the Phase II Resort. Based upon its
review of the
F-54
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
complaints, the Company believes that the Construction Manager has not provided
Venetian with reasonable documentation to support such claims, the Construction
Manager has materially breached its agreements with the Company and the
Construction Manager's claims are without merit. The Company intends to
vigorously defend itself and pursue its claims against the Construction Manager
in any litigation.
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. The Company believes that a
major reason these lien amounts exceed the Construction Manager's claims of
$90.0 million is based upon a duplication of liens through the inclusion of
lower-tier claims by subcontractors in the liens of higher-tier contractors,
including the lien of the Construction Manager. As of December 31, 1999, the
Company had purchased surety bonds for virtually all of the claims underlying
these liens (other than approximately $15.0 million of claims with respect to
which the Construction Manager purchased bonds). As a result, there can be no
foreclosure of the Casino Resort in connection with the claims of the
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
The Company believes that these claims are, in general, unsubstantiated,
without merit, overstated, and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Company believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Company may also have a variety of other defenses to
the liens that have been filed, including, for example, the fact that the
Construction Manager and its subcontractors previously waived or released their
rights to file liens against the Casino Resort. The Company intends to
vigorously defend itself in any lien proceedings.
On August 9, 1999, the Company notified the insurance companies providing
coverage under its liquidated damages insurance policy (the "LD Policy") that it
has a claim under the LD Policy. The LD Policy provides insurance coverage for
the failure of the Construction Manager to achieve substantial completion of the
portions of the Casino Resort covered by the Construction Management Contract
within 30 days of the April 21, 1999 deadline, with a maximum liability under
the LD Policy of approximately $24.1 million and with coverage being provided,
on a per-day basis, for days 31-120 of the delay in the achievement of
substantial completion. Because the Company believes that substantial completion
was not achieved until November 12, 1999, the Company's claim under the LD
Policy is likely to be for the above-described maximum liability of
$24.1 million. The Company expects the LD Policy insurers to assert many of the
same claims and defenses that the Construction Manager has asserted or will
assert in the above-described litigations. Liability under the LD Policy may
ultimately be determined by binding arbitration.
In June 2000, the Company purchased an insurance policy (the "Insurance
Policy") for loss coverage in connection with all litigation relating to the
construction of the Casino Resort (the "Construction Litigation"). Under the
Insurance Policy, the Company will self-insure the first $45.0 million and the
insurer will insure up to the next $80.0 million of any possible covered losses.
F-55
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Insurance Policy provides coverage for any amounts determined in the
Construction Litigation to be owed to the Construction Manager or its
subcontractors relating to claimed delays, inefficiencies, disruptions, lack of
productivity/unauthorized overtime or schedule impact, allegedly caused by the
Company during construction of the Casino Resort, as well as any defense costs.
The Company and the Construction Manager commenced a trial in state court in
Clark County, Nevada to litigate certain of their respective claims in
August 2002. Many of the remaining claims between the parties that are the
subject of the state court action and the federal court action, will be
proceeding concurrently in independent arbitration hearings. It is not yet
possible to determine a range of loss or the ultimate outcome of the litigation.
If any litigation or other lien proceedings concerning the claims of the
Construction Manager or its subcontractors were decided adversely to the
Company, such litigation or other lien proceedings could have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company to the extent such litigation or lien proceedings are not covered by the
Insurance Policy.
MACAU JOINT VENTURE AND INTERNET GAMING
On June 26, 2002, the Company announced that a joint venture comprised of
Venetian Macau and a group of Macau and Hong Kong-based investors had entered
into a final concession contract with the Government of the Macau Special
Administrative Region of the People's Republic of China to operate casinos in
Macau. Through September 30, 2002, the Company had incurred developmental
expenses of $4.7 million in connection with the proposed Macau project. Venetian
Macau continues to negotiate the final terms of a joint venture and management
expects that those negotiations will be concluded in the fourth quarter of 2002.
The final terms of a joint venture agreement will likely include financial
obligations to the joint venture and/or to the Government of Macau or Venetian
Macau will likely be obligated to pay for certain costs of developing and
constructing the contemplated casinos in Macau. Under the Indenture, the Company
is permitted to make investments in the amount of $40.0 million in, and extend
guarantees with respect to $90.0 million of indebtedness and/or obligations of,
its Macau subsidiaries. The Company may use cash received from the following
sources to fund the Macau venture:
- borrowings by Venetian under the Revolving Facility;
- additional debt or equity financings; and
- operating cash flow (subject to certain limitations contained in the
Company's debt instruments).
Venetian Macau and the Company's other Macau subsidiaries are not guarantors
under the Mortgage Notes or the Senior Secured Credit Facility and, subject to
certain limited exceptions, are not restricted subsidiaries under the Indenture
or the Senior Secured Credit Facility.
The Company has also entered into a joint venture agreement to assess the
feasibility of and develop an Internet gaming site. The Company has initiated
the application process for an Internet gaming license in Alderney, but has not
yet been granted such a license or established any operations. The Company
estimates that it is committed to contribute approximately $1.0 million,
approximately one-third of the required capital, to the joint venture during the
next year. After recovery of each partner's initial capital contribution, the
Company will receive 50% to 80% of the net profit of the joint venture, based
upon an increasing scale of net profit (if any). The joint venture
F-56
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
provides that the agreement will be automatically terminated should the Company
fail to obtain or maintain any required regulatory approvals or existing gaming
licenses from Alderney, the Nevada gaming authorities or any other applicable
jurisdiction prior to launching its operations or determine that any such
approvals or licenses could be jeopardized.
NOTE 7--SUMMARIZED FINANCIAL INFORMATION
LVSI and Venetian are co-obligors of the Mortgage Notes and the indebtedness
under the Senior Secured Credit Facility and are jointly and severally liable
for such indebtedness. Venetian, Mall Intermediate, Mall Construction, Lido
Intermediate, Venetian Venture, Venetian Athens, Venetian Marketing and Venetian
Operating (collectively, the "Subsidiary Guarantors") are subsidiaries of LVSI,
all of the capital stock of which is owned by LVSI and Venetian. The Subsidiary
Guarantors have jointly and severally guaranteed (or are co-obligors of) such
debt on a full and unconditional basis. The Mall is owned by the Mall II
Subsidiary, a non-guarantor subsidiary which is the borrower under the Secured
Mall Facility.
Separate financial statements and other disclosures concerning each of
Venetian and the Subsidiary Guarantors are not presented below because
management believes that they are not material to investors. Summarized
financial information of LVSI, Venetian, the Subsidiary Guarantors and the
non-guarantor subsidiaries on a combined basis as of December 31, 2001 and
September 30, 2002, and for the three and nine month periods ended
September 30, 2001 and September 30, 2002, is as follows (in thousands):
F-57
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2001
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------- --------------------------
OTHER
VENETIAN LIDO MALL GRAND CANAL NON-
CASINO INTERMEDIATE INTERMEDIATE SHOPS MALL GUARANTOR
LAS VEGAS RESORT HOLDING HOLDING SUBSIDIARY SUBSIDIARIES
SANDS, INC. LLC COMPANY LLC COMPANY LLC LLC (1) (2)
----------- ---------- ------------- ------------- ----------- ------------
Cash and cash equivalents........... $ 37,367 $ 7,806 $ 4 $ 4 $ 6,650 $ 3,105
Restricted cash and investments..... 1,528 1,118
Intercompany receivable............. 6,772 1,508
Accounts receivable, net............ 37,416 18,240 1,436
Inventories......................... 4,747
Prepaid expenses.................... 546 2,953 363
-------- ---------- ------------ ------------ ---------- ----------
Total current assets.............. 82,101 35,274 4 4 9,567 4,613
Property and equipment, net......... 878,239 136,167 81,901
Investment in subsidiaries.......... 692,100 86,657
Deferred offering costs, net........ 16,250 1,903 836
Other assets, net................... 3,771 25,691 3,745
-------- ---------- ------------ ------------ ---------- ----------
$777,972 $1,042,111 $ 4 $ 4 $ 151,382 $ 87,350
======== ========== ============ ============ ========== ==========
Accounts payable.................... $ 2,880 $ 33,105 $ $ $ 368 $
Construction payable................ 22,955 3,160
Construction payable-contested...... 7,232
Intercompany payables............... 7,345 935
Accrued interest payable............ 9,125 872 11
Other accrued liabilities........... 21,249 47,074 1,647 65
Current maturities of long-term
debt(3)........................... 23,021 23,021 105,000 1,092
-------- ---------- ------------ ------------ ---------- ----------
Total current liabilities......... 47,150 149,857 108,822 4,328
Other long-term liabilities......... 3,274
Long-term debt (3).................. 741,813 741,813 3,933
Long-term subordinated loans payable
to Principal Stockholder.......... 31,123 35,000
-------- ---------- ------------ ------------ ---------- ----------
788,963 926,067 143,822 8,261
-------- ---------- ------------ ------------ ---------- ----------
Redeemable Preferred interest in
Venetian.......................... 188,778
-------- ---------- ------------ ------------ ---------- ----------
Stockholders' equity (deficit)...... (10,991) (72,734) 4 4 7,560 79,089
-------- ---------- ------------ ------------ ---------- ----------
$777,972 $1,042,111 $ 4 $ 4 $ 151,382 $ 87,350
======== ========== ============ ============ ========== ==========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Cash and cash equivalents........... $ $ 54,936
Restricted cash and investments..... 2,646
Intercompany receivable............. (8,280)
Accounts receivable, net............ 57,092
Inventories......................... 4,747
Prepaid expenses.................... 3,862
------------ ----------
Total current assets.............. (8,280) 123,283
Property and equipment, net......... 1,096,307
Investment in subsidiaries.......... (778,757)
Deferred offering costs, net........ 18,989
Other assets, net................... 33,207
------------ ----------
$ (787,037) $1,271,786
============ ==========
Accounts payable.................... $ $ 36,353
Construction payable................ 26,115
Construction payable-contested...... 7,232
Intercompany payables............... (8,280)
Accrued interest payable............ 10,008
Other accrued liabilities........... 70,035
Current maturities of long-term
debt(3)........................... (23,021) 129,113
------------ ----------
Total current liabilities......... (31,301) 278,856
Other long-term liabilities......... 3,274
Long-term debt (3).................. (741,813) 745,746
Long-term subordinated loans payable
to Principal Stockholder.......... 66,123
------------ ----------
(773,114) 1,093,999
------------ ----------
Redeemable Preferred interest in
Venetian.......................... 188,778
------------ ----------
Stockholders' equity (deficit)...... (13,923) (10,991)
------------ ----------
$ (787,037) $1,271,786
============ ==========
</Table>
- ----------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. Neither Mall Construction nor Grand Canal
Shops Mall, LLC had any assets or liabilities as of December 31, 2001.
(2) Land with a historical cost basis of $29.2 million was transferred from
Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a
non-guarantor subsidiary, in October 1998 and land with a value of $11.8
million was indirectly contributed by the Principal Stockholder during
December 1999.
(3) As more fully described in Note 8, Las Vegas Sands, Inc. and Venetian Casino
Resort LLC are co-obligors of certain of the Company's indebtedness.
Accordingly, such indebtedness has been presented as an obligation of both
entities in the above balance sheets.
F-58
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2002
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------------------- ---------------------------
LIDO MALL
INTERMEDIATE INTERMEDIATE VENETIAN OTHER
VENETIAN HOLDING HOLDING VENTURE GRAND CANAL NON-GUARANTOR
LAS VEGAS CASINO RESORT COMPANY COMPANY DEVELOPMENT SHOPS II SUBSIDIARIES
SANDS, INC. LLC LLC LLC LLC LLC(1) (2)
----------- ------------- ------------ ------------ ----------- ----------- -------------
Cash and cash
equivalents........ $ 76,819 $ 11,409 $ 3 $ 3 $ $ 7,309 $ 99
Restricted cash and
investments........ 14,908 1,810
Intercompany
receivable......... 11,079
Accounts receivable,
net................ 36,016 14,530 733
Inventories.......... 4,576
Prepaid expenses..... 606 2,610 534
---------- ---------- ------- ------- ------- -------- -------
Total current
assets........... 113,441 59,112 3 3 10,386 99
Property and
equipment, net..... 909,905 1,258 132,804 82,669
Investment in
subsidiaries....... 951,443 109,959
Deferred offering
costs, net......... 36,197 2,883
Restricted cash and
investments........ 140,614
Other assets, net.... 3,868 23,493 3,406
---------- ---------- ------- ------- ------- -------- -------
$1,068,752 $1,279,280 $ 3 $ 3 $ 1,258 $149,479 $82,768
========== ========== ======= ======= ======= ======== =======
Accounts payable..... $ 1,657 $ 14,353 $ $ $ $ 198 $
Construction
payable............ 17,284
Construction payable-
contested.......... 7,232
Intercompany
payables........... 9,486 1,593
Accrued interest
payable............ 30,501 192
Other accrued
liabilities........ 13,581 51,221 1,375 73
Current maturities of
long-term
debt (3)........... 2,500 2,500
---------- ---------- ------- ------- ------- -------- -------
Total current
liabilities...... 27,224 123,091 3,358 73
Other long-term
liabilities........ 1,201 58
Long-term debt (3)... 1,096,875 1,096,875 120,000
---------- ---------- ------- ------- ------- -------- -------
1,124,099 1,221,167 123,416 73
---------- ---------- ------- ------- ------- -------- -------
Redeemable Preferred
Interest in
Venetian........... 206,108
---------- ---------- ------- ------- ------- -------- -------
Stockholders' equity
(deficit).......... (55,347) (147,995) 3 3 1,258 26,063 82,695
---------- ---------- ------- ------- ------- -------- -------
$1,068,752 $1,279,280 $ 3 $ 3 $ 1,258 $149,479 $82,768
========== ========== ======= ======= ======= ======== =======
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Cash and cash
equivalents........ $ $ 95,642
Restricted cash and
investments........ 16,718
Intercompany
receivable......... (11,079)
Accounts receivable,
net................ 51,279
Inventories.......... 4,576
Prepaid expenses..... 3,750
----------- ----------
Total current
assets........... (11,079) 171,965
Property and
equipment, net..... 1,126,636
Investment in
subsidiaries....... (1,061,402)
Deferred offering
costs, net......... 39,080
Restricted cash and
investments........ 140,614
Other assets, net.... 30,767
----------- ----------
$(1,072,481) $1,509,062
=========== ==========
Accounts payable..... $ $ 16,208
Construction
payable............ 17,284
Construction payable-
contested.......... 7,232
Intercompany
payables........... (11,079)
Accrued interest
payable............ 30,693
Other accrued
liabilities........ 66,250
Current maturities of
long-term
debt (3)........... (2,500) 2,500
----------- ----------
Total current
liabilities...... (13,579) 140,167
Other long-term
liabilities........ 1,259
Long-term debt (3)... (1,096,875) 1,216,875
----------- ----------
(1,110,454) 1,358,301
----------- ----------
Redeemable Preferred
Interest in
Venetian........... 206,108
----------- ----------
Stockholders' equity
(deficit).......... 37,973 (55,347)
----------- ----------
$(1,072,481) $1,509,062
=========== ==========
</Table>
- ----------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. The Mall Assets were transferred to the Mall
II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall,
LLC and the Mall Subsidiary had no assets and liabilities as of
September 30, 2002.
(2) Land with a historical cost basis of $29.2 million was transferred from
Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a
non-guarantor subsidiary, in October 1998 and land with a value of
$11.8 million was indirectly contributed by the Principal Stockholder during
December 1999.
(3) As more fully described in Note 4 Long-Term Debt, LVSI and Venetian are
co-obligors of certain of the Company's indebtedness. Accordingly, such
indebtedness has been presented as an obligation of both entities in the
above balance sheets.
F-59
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------------------- ---------------------------
LIDO MALL
INTERMEDIATE INTERMEDIATE VENETIAN
VENETIAN HOLDING HOLDING VENTURE GRAND CANAL OTHER
LAS VEGAS CASINO RESORT COMPANY COMPANY DEVELOPMENT SHOPS II NON-GUARANTOR
SANDS, INC. LLC LLC LLC LLC LLC (1) SUBSIDIARIES
----------- ------------- ------------ ------------ ----------- ----------- -------------
Revenues:
Casino.................. $ 61,392 $ $ $ $ $ $
Rooms................... 43,688
Food and beverage....... 11,731
Casino rental revenues
from LVSI............. 11,563
Retail and other........ 179 8,071 8,854
-------- -------- -------- -------- -------- -------- ------
Total revenues.......... 61,571 75,053 8,854
Less promotional
allowances.............. (1,662)
-------- -------- -------- -------- -------- -------- ------
Net revenues............ 61,571 73,391 8,854
-------- -------- -------- -------- -------- -------- ------
Operating expenses:
Casino.................. 50,052
Rooms................... 13,535
Food and beverage....... 8,902
Retail and other........ 5,717 3,371
Provision for doubtful
accounts.............. 5,501 266
General and
administrative........ 674 22,359 369 1
Corporate expense....... (233) 996
Rental expense.......... 287 1,235 552
Depreciation and
amortization.......... 8,667 1,160
-------- -------- -------- -------- -------- -------- ------
56,281 61,677 5,452 1
-------- -------- -------- -------- -------- -------- ------
Operating income (loss)... 5,290 11,714 3,402 (1)
-------- -------- -------- -------- -------- -------- ------
Other income (expense):
Interest income......... 104 192 33
Interest expense, net of
amounts capitalized... (22,146) (2,460)
Interest expense on
indebtedness to
Principal
Stockholder........... (855) (1,252)
Loss on early retirement
of debt (1,383)
Income (loss) from
equity investment in
Grand Canal
Shops II.............. (8) (269)
Income (loss) from
equity investment in
VCR and
subsidiaries.......... (18,091) (1)
-------- -------- -------- -------- -------- -------- ------
Income (loss) before
preferred return........ (12,705) (12,748) (277) (1)
Preferred return on
Redeemable Preferred
Interest in Venetian.... (5,343)
-------- -------- -------- -------- -------- -------- ------
Net income (loss)......... $(12,705) $(18,091) $ $ $ $ (277) $ (1)
======== ======== ======== ======== ======== ======== ======
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ---------
Revenues:
Casino.................. $ $ 61,392
Rooms................... 43,688
Food and beverage....... 11,731
Casino rental revenues
from LVSI............. (11,563)
Retail and other........ (321) 16,783
--------- --------
Total revenues.......... (11,884) 133,594
Less promotional
allowances.............. (8,778) (10,440)
--------- --------
Net revenues............ (20,662) 123,154
--------- --------
Operating expenses:
Casino.................. (16,238) 33,814
Rooms................... (1,120) 12,415
Food and beverage....... (2,569) 6,333
Retail and other........ (243) 8,845
Provision for doubtful
accounts.............. 5,767
General and
administrative........ (492) 22,911
Corporate expense....... 763
Rental expense.......... 2,074
Depreciation and
amortization.......... 9,827
--------- --------
(20,662) 102,749
--------- --------
Operating income (loss)... 20,405
--------- --------
Other income (expense):
Interest income......... 329
Interest expense, net of
amounts capitalized... (24,606)
Interest expense on
indebtedness to
Principal
Stockholder........... (2,107)
Loss on early retirement
of debt (1,383)
Income (loss) from
equity investment in
Grand Canal
Shops II.............. 277
Income (loss) from
equity investment in
VCR and
subsidiaries.......... 18,092
--------- --------
Income (loss) before
preferred return........ 18,369 (7,362)
Preferred return on
Redeemable Preferred
Interest in Venetian.... (5,343)
--------- --------
Net income (loss)......... $ 18,369 $(12,705)
========= ========
</Table>
- ----------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. Neither Mall Construction nor Grand Canal
Shops Mall, LLC had any revenues or expenses as of September 30, 2001.
F-60
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------------------- ---------------------------
LIDO MALL
INTERMEDIATE INTERMEDIATE VENETIAN
VENETIAN HOLDING HOLDING VENTURE GRAND CANAL OTHER
LAS VEGAS CASINO RESORT COMPANY COMPANY DEVELOPMENT SHOPS II NON-GUARANTOR
SANDS, INC. LLC LLC LLC LLC LLC (1) SUBSIDIARIES
----------- ------------- ------------ ------------ ----------- ----------- -------------
Revenues:
Casino.................. $ 80,086 $ $ $ $ $ $
Rooms................... 47,592
Food and beverage....... 15,305
Casino rental revenues
from LVSI............. 10,632
Retail and other........ 164 8,642 9,643
-------- -------- ------- ------- ------- ------- ------
Total revenues.......... 80,250 82,171 9,643
Less promotional
allowances.............. (998)
-------- -------- ------- ------- ------- ------- ------
Net revenues............ 80,250 81,173 9,643
-------- -------- ------- ------- ------- ------- ------
Operating expenses:
Casino.................. 46,445
Rooms................... 14,692
Food and beverage....... 10,397
Retail and other........ 5,221 3,672
Provision for doubtful
accounts.............. 3,891 1,350 25
General and
administrative........ 534 24,360 1 1 533
Corporate expense....... 1,472 1,225
Rental expense.......... 211 1,167 628
Pre-opening and
developmental
expense............... (5) 1,031
Depreciation and
amortization.......... 9,895 1,171
-------- -------- ------- ------- ------- ------- ------
52,553 68,302 1 1 1,031 6,029
-------- -------- ------- ------- ------- ------- ------
Operating income (loss)... 27,697 12,871 (1) (1) (1,031) 3,614
-------- -------- ------- ------- ------- ------- ------
Other income (expense):
Interest income......... 121 942 16
Interest expense, net of
amounts capitalized... (28,054) (1,412)
Interest expense on
indebtedness to
Principal
Stockholder...........
Other expenses.......... 202 78
Loss on early retirement
of debt............... (8,629)
Income (loss) from
equity investment in
Grand Canal
Shops II.............. 69 2,227
Income (loss) from
equity investment in
VCR and
subsidiaries.......... (27,477) (1,033)
-------- -------- ------- ------- ------- ------- ------
Income before preferred
return.................. 410 (21,474) (1) (1) (1,031) 2,296
Preferred return on
Redeemable Preferred
Interest in Venetian.... (6,003)
-------- -------- ------- ------- ------- ------- ------
Net income (loss)......... $ 410 $(27,477) $ (1) $ (1) $(1,031) $ 2,296 $
======== ======== ======= ======= ======= ======= ======
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ---------
Revenues:
Casino.................. $ $ 80,086
Rooms................... 47,592
Food and beverage....... 15,305
Casino rental revenues
from LVSI............. (10,632)
Retail and other........ (346) 18,103
-------- --------
Total revenues.......... (10,978) 161,086
Less promotional
allowances.............. (7,332) (8,330)
-------- --------
Net revenues............ (18,310) 152,756
-------- --------
Operating expenses:
Casino.................. (14,567) 31,878
Rooms................... (1,190) 13,502
Food and beverage....... (2,068) 8,329
Retail and other........ (346) 8,547
Provision for doubtful
accounts.............. 5,266
General and
administrative........ (139) 25,290
Corporate expense....... 2,697
Rental expense.......... 2,006
Pre-opening and
developmental
expense............... 1,026
Depreciation and
amortization.......... 11,066
-------- --------
(18,310) 109,607
-------- --------
Operating income (loss)... 43,149
-------- --------
Other income (expense):
Interest income......... 1,079
Interest expense, net of
amounts capitalized... (29,466)
Interest expense on
indebtedness to
Principal
Stockholder...........
Other expenses.......... 280
Loss on early retirement
of debt............... (8,629)
Income (loss) from
equity investment in
Grand Canal
Shops II.............. (2,296)
Income (loss) from
equity investment in
VCR and
subsidiaries.......... 28,510
-------- --------
Income before preferred
return.................. 26,214 6,413
Preferred return on
Redeemable Preferred
Interest in Venetian.... (6,003)
-------- --------
Net income (loss)......... $ 26,214 $ 410
======== ========
</Table>
- ----------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. The Mall Assets were transferred to the
Mall II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops
Mall, LLC and the Mall Subsidiary had no revenues or expenses as of
September 30, 2002.
F-61
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------------------- ---------------------------
LIDO MALL
INTERMEDIATE INTERMEDIATE VENETIAN OTHER
VENETIAN HOLDING HOLDING VENTURE GRAND CANAL NON-
LAS VEGAS CASINO RESORT COMPANY COMPANY DEVELOPMENT SHOPS II GUARANTOR
SANDS, INC. LLC LLC LLC LLC LLC (1) SUBSIDIARIES
----------- ------------- ------------ ------------ ----------- ----------- -------------
Revenues:
Casino.................. $174,133 $ $ $ $ $ $
Room.................... 159,702
Food and beverage....... 49,088
Casino rental revenue
from LVSI............. 34,410
Retail and other........ 620 26,072 25,680
-------- -------- -------- -------- -------- ------- --------
Total revenue........... 174,753 269,272 25,680
Less promotional
allowances.............. (4,370)
-------- -------- -------- -------- -------- ------- --------
Net revenues............ 174,753 264,902 25,680
-------- -------- -------- -------- -------- ------- --------
Operating expenses:
Casino.................. 160,676
Rooms................... 42,972
Food and beverage....... 30,705
Retail and other........ 15,288 9,315
Provision for doubtful
accounts.............. 14,390 266
General and
administrative........ 2,046 66,111 1,204 1
Corporate expense....... 1,849 2,892
Rental expense.......... 566 4,085 1,636
Depreciation and
amortization.......... 26,721 3,617
-------- -------- -------- -------- -------- ------- --------
179,527 189,040 15,772 1
-------- -------- -------- -------- -------- ------- --------
Operating income (loss)... (4,774) 75,862 9,908 (1)
-------- -------- -------- -------- -------- ------- --------
Other income (expense):
Interest income......... 491 541 103
Interest expense, net of
amounts capitalized... (68,191) (8,078)
Interest expense on
indebtedness to
Principal
Stockholder........... (3,031) (3,716)
Loss on early retirement
of debt............... (1,383)
Income (loss) from
equity investment in
Grand Canal Shops
II.................... (53) (1,730)
Income (loss) from
equity investment in
VCR and
subsidiaries.......... (13,356) (1)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
preferred return........ (17,692) 2,067 (1,783) (1)
Preferred return on
Redeemable Preferred
Interest in Venetian.... (15,423)
-------- -------- -------- -------- -------- ------- --------
Net loss.................. $(17,692) $(13,356) $ $ $ $(1,783) $ (1)
======== ======== ======== ======== ======== ======= ========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ---------
Revenues:
Casino.................. $ $174,133
Room.................... 159,702
Food and beverage....... 49,088
Casino rental revenue
from LVSI............. (34,410)
Retail and other........ (859) 51,513
--------- --------
Total revenue........... (35,269) 434,436
Less promotional
allowances.............. (28,014) (32,384)
--------- --------
Net revenues............ (63,283) 402,052
--------- --------
Operating expenses:
Casino.................. (50,706) 109,970
Rooms................... (3,701) 39,271
Food and beverage....... (7,124) 23,581
Retail and other........ (727) 23,876
Provision for doubtful
accounts.............. 14,656
General and
administrative........ (1,025) 68,337
Corporate expense....... 4,741
Rental expense.......... 6,287
Depreciation and
amortization.......... 30,338
--------- --------
(63,283) 321,057
--------- --------
Operating income (loss)... 80,995
--------- --------
Other income (expense):
Interest income......... 1,135
Interest expense, net of
amounts capitalized... (76,269)
Interest expense on
indebtedness to
Principal
Stockholder........... (6,747)
Loss on early retirement
of debt............... (1,383)
Income (loss) from
equity investment in
Grand Canal Shops
II.................... 1,783
Income (loss) from
equity investment in
VCR and
subsidiaries.......... 13,357
--------- --------
Income (loss) before
preferred return........ 15,140 (2,269)
Preferred return on
Redeemable Preferred
Interest in Venetian.... (15,423)
--------- --------
Net loss.................. $ 15,140 $(17,692)
========= ========
</Table>
- ----------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. Neither Mall Construction nor Grand Canal
Shops Mall, LLC had any revenues or expenses as of September 30, 2001.
F-62
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------------------- ---------------------------
LIDO MALL
INTERMEDIATE INTERMEDIATE VENETIAN OTHER
VENETIAN HOLDING HOLDING VENTURE GRAND CANAL NON-
LAS VEGAS CASINO RESORT COMPANY COMPANY DEVELOPMENT SHOPS II GUARANTOR
SANDS, INC. LLC LLC LLC LLC LLC (1) SUBSIDIARIES
----------- ------------- ------------ ------------ ----------- ----------- -------------
Revenues:
Casino.................. $177,379 $ $ $ $ $ $
Room.................... 156,605
Food and beverage....... 54,838
Casino rental revenues
from LVSI............. 33,163
Retail and other........ 1,733 25,613 27,262 3,333
-------- -------- -------- -------- -------- ------- --------
Total revenues.......... 179,112 270,219 27,262 3,333
Less promotional
allowances.............. (2,763)
-------- -------- -------- -------- -------- ------- --------
Net revenues............ 179,112 267,456 27,262 3,333
-------- -------- -------- -------- -------- ------- --------
Operating expenses:
Casino.................. 132,487
Rooms................... 43,387
Food and beverage....... 33,053
Retail and other........ 14,257 10,303
Provision for doubtful
accounts.............. 9,015 4,500 25
General and
administrative........ 1,954 66,729 1 1 1,416
Corporate expense....... 4,409 3,111
Rental expense.......... 673 6,473 1,722
Pre-opening and
developmental
expense............... 3,097
Depreciation and
amortization.......... 29,499 3,516
-------- -------- -------- -------- -------- ------- --------
148,538 201,009 1 1 3,097 16,982
-------- -------- -------- -------- -------- ------- --------
Operating income (loss)... 30,574 66,447 (1) (1) (3,097) 10,280 3,333
-------- -------- -------- -------- -------- ------- --------
Other income (expense):
Interest income......... 281 1,404 44
Interest expense, net of
amounts capitalized... (17) (75,921) (5,057) (536)
Interest expense on
indebtedness to
Principal
Stockholder........... (1,914) (2,096)
Other income............ 565 78
Loss on early retirement
of debt............... (49,865) (1,020) (507)
Income (loss) from
equity investment in
Grand Canal Shops
II.................... 67 2,162
Income (loss) from
equity investment in
VCR and
subsidiaries.......... (75,261) (809)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
preferred return........ (44,356) (57,931) (1) (1) (3,097) 2,229 2,290
Preferred return on
Redeemable Preferred
Interest in Venetian.... (17,330)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)......... $(44,356) $(75,261) $ (1) $ (1) $ (3,097) $ 2,229 $ 2,290
======== ======== ======== ======== ======== ======= ========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ---------
Revenues:
Casino.................. $ $177,379
Room.................... 156,605
Food and beverage....... 54,838
Casino rental revenues
from LVSI............. (33,163)
Retail and other........ (4,391) 53,550
--------- --------
Total revenues.......... (37,554) 442,372
Less promotional
allowances.............. (22,255) (25,018)
--------- --------
Net revenues............ (59,809) 417,354
--------- --------
Operating expenses:
Casino.................. (45,745) 86,742
Rooms................... (3,259) 40,128
Food and beverage....... (6,004) 27,049
Retail and other........ (1,049) 23,511
Provision for doubtful
accounts.............. 13,540
General and
administrative........ (419) 69,682
Corporate expense....... 7,520
Rental expense.......... (3,333) 5,535
Pre-opening and
developmental
expense............... 3,097
Depreciation and
amortization.......... 33,015
--------- --------
(59,809) 309,819
--------- --------
Operating income (loss)... 107,535
--------- --------
Other income (expense):
Interest income......... 1,729
Interest expense, net of
amounts capitalized... (81,531)
Interest expense on
indebtedness to
Principal
Stockholder........... (4,010)
Other income............ 643
Loss on early retirement
of debt............... (51,392)
Income (loss) from
equity investment in
Grand Canal Shops
II.................... (2,229)
Income (loss) from
equity investment in
VCR and
subsidiaries.......... 76,070
--------- --------
Income (loss) before
preferred return........ 73,841 (27,026)
Preferred return on
Redeemable Preferred
Interest in Venetian.... (17,330)
--------- --------
Net income (loss)......... $ 73,841 $(44,356)
========= ========
</Table>
- ----------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. The Mall Assets were transferred to the Mall
II Subsidiary on June 4, 2002. Mall Construction, Grand Canal Shops Mall,
LLC and the Mall Subsidiary had no revenues or expenses as of September 30,
2002.
F-63
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
----------------------------------------- ---------------------------
LIDO MALL
INTERMEDIATE INTERMEDIATE VENETIAN
VENETIAN HOLDING HOLDING VENTURE GRAND CANAL OTHER
LAS VEGAS CASINO RESORT COMPANY COMPANY DEVELOPMENT SHOPS II NON-GUARANTOR
SANDS, INC. LLC LLC LLC LLC LLC(1) SUBSIDIARIES
----------- ------------- ------------ ------------ ----------- ----------- -------------
Net cash provided by (used
in) operating
activities................ $(12,587) $ 46,799 $ $ $ $ 1,416 $ 90
-------- --------- ------- -------- -------- -------- ------
Cash flows from investing
activities:
Increase in restricted
cash.................... (47) (35)
Capital expenditures...... (41,009) (356) (855)
-------- --------- ------- -------- -------- -------- ------
Net cash used in investing
activities................ (41,056) (391) (855)
-------- --------- ------- -------- -------- -------- ------
Cash flows from financing
activities:
Repayments on bank credit
facility-tranche A term
loan.................... (103,125)
Repayments on bank credit
facility-tranche B term
loan.................... (49,750)
Repayments on bank credit
facility-tranche C term
loan.................... (5,750)
Proceeds from bank credit
facility-tranche C term
loan.................... 5,750
Repayments on bank credit
facility-term........... (382)
Proceeds from bank credit
facility-term........... 152,750
Repayments on bank credit
facility-revolver....... (8,000)
Proceeds from bank credit
facility-revolver....... 48,000
Repayments on FF&E credit
facility................ (16,121)
Proceeds from Phase II
Subsidiary unsecured
bank loan............... 1,092
Payments of deferred
offering costs.......... (4,697) (300)
Net increase(decrease) in
intercompany accounts... (6,424) 6,283 141
-------- --------- ------- -------- -------- -------- ------
Net cash provided by (used
in) financing
activities................ (6,424) 24,958 141 792
-------- --------- ------- -------- -------- -------- ------
Increase (decrease) in cash
and cash equivalents...... (19,011) 30,701 1,166 27
Cash and cash equivalents at
beginning of period....... 35,332 4,260 4 4 2,972 34
-------- --------- ------- -------- -------- -------- ------
Cash and cash equivalents at
end of period............. $ 16,321 $ 34,961 $ 4 $ 4 $ $ 4,138 $ 61
======== ========= ======= ======== ======== ======== ======
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ---------
Net cash provided by (used
in) operating
activities................ $ $ 35,718
-------- ---------
Cash flows from investing
activities:
Increase in restricted
cash.................... (82)
Capital expenditures...... (42,220)
-------- ---------
Net cash used in investing
activities................ (42,302)
-------- ---------
Cash flows from financing
activities:
Repayments on bank credit
facility-tranche A term
loan.................... (103,125)
Repayments on bank credit
facility-tranche B term
loan.................... (49,750)
Repayments on bank credit
facility-tranche C term
loan.................... (5,750)
Proceeds from bank credit
facility-tranche C term
loan.................... 5,750
Repayments on bank credit
facility-term........... (382)
Proceeds from bank credit
facility-term........... 152,750
Repayments on bank credit
facility-revolver....... (8,000)
Proceeds from bank credit
facility-revolver....... 48,000
Repayments on FF&E credit
facility................ (16,121)
Proceeds from Phase II
Subsidiary unsecured
bank loan............... 1,092
Payments of deferred
offering costs.......... (4,997)
Net increase(decrease) in
intercompany accounts...
-------- ---------
Net cash provided by (used
in) financing
activities................ 19,467
-------- ---------
Increase (decrease) in cash
and cash equivalents...... 12,883
Cash and cash equivalents at
beginning of period....... 42,606
-------- ---------
Cash and cash equivalents at
end of period............. $ $ 55,489
======== =========
</Table>
- ----------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. Neither Mall Construction nor Grand Canal
Shops Mall, LLC had any cash flows as of September 30, 2001.
F-64
<Page>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARIES
-------------------------------------------- ------------
LIDO MALL
INTERMEDIATE INTERMEDIATE VENETIAN
VENETIAN HOLDING HOLDING VENTURE GRAND CANAL
LAS VEGAS CASINO RESORT COMPANY COMPANY DEVELOPMENT SHOPS II
SANDS, INC. LLC LLC LLC LLC LLC(1)
----------- ------------- ------------- ------------- ------------ ------------
Net cash provided by operating
activities....................... $ 23,194 $ 36,556 $ (1) $ (1) $ (3,097) $ 7,792
--------- --------- ------- -------- -------- --------
Cash flows from investing
activities:
Increase in restricted cash
(153.4 million for Phase 1A
construction).................. (153,994) (692)
Capital expenditures............. (67,138) (1,258) (152)
Dividend from Grand Canal Shops
II LLC......................... 21,590
Capital contributions to
subsidiaries................... (43,535)
--------- --------- ------- -------- -------- --------
Net cash used in investing
activities....................... (243,077) (1,258) (844)
--------- --------- ------- -------- -------- --------
Cash flows from financing
activities:
Dividend to Venetian Casino
Resort LLC..................... (21,590)
Capital contribution from
Venetian Casino Resort, LLC.... 4,355 37,864
Repayments on 12 1/4% mortgage
notes.......................... (425,000)
Proceeds from 11% mortgage
notes.......................... 850,000
Repayments on senior subordinated
notes.......................... (97,500)
Proceeds from secured mall
facility....................... 120,000
Repayments on mall-tranche A
take-out loan.................. (105,000)
Repayments on mall-tranche B
take-out loan.................. (35,000)
Repayments on completion guaranty
loan........................... (31,124)
Repayments on senior secured
credit facility-term B......... (625)
Proceeds from senior secured
credit facility-term B......... 250,000
Repayments on bank credit
facility-term.................. (151,986)
Repayments on bank credit
facility-revolver.............. (61,000)
Proceeds from bank credit
facility-revolver.............. 21,000
Repayments on FF&E credit
facility....................... (53,735)
Repayments on Phase II Subsidiary
credit facility................
Repayments on Phase II Subsidiary
unsecured bank loan............
Repurchase premiums incurred in
connection with refinancing
transactions................... (33,478)
Payments of deferred offering
costs.......................... (38,004) (3,221)
Net increase (decrease) in
intercompany accounts.......... 16,258 (18,424) 658
--------- --------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities............. 16,258 210,124 4,355 (6,289)
--------- --------- ------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents................. 39,452 3,603 (1) (1) 659
Cash and cash equivalents at
beginning of period.............. 37,367 7,806 4 4 6,650
--------- --------- ------- -------- -------- --------
Cash and cash equivalents at end of
period........................... $ 76,819 $ 11,409 $ 3 $ 3 $ $ 7,309
========= ========= ======= ======== ======== ========
<Caption>
NON-GUARANTOR
SUBSIDIARIES
--------------
OTHER CONSOLIDATING/
NON-GUARANTOR ELIMINATING
SUBSIDIARIES ENTRIES TOTAL
-------------- -------------- --------
Net cash provided by operating
activities....................... $3,129 $ $ 67,572
------ -------- --------
Cash flows from investing
activities:
Increase in restricted cash
(153.4 million for Phase 1A
construction).................. (154,686)
Capital expenditures............. (3,928) (72,476)
Dividend from Grand Canal Shops
II LLC......................... (21,590)
Capital contributions to
subsidiaries................... 43,535
------ -------- --------
Net cash used in investing
activities....................... (3,928) 21,945 (227,162)
------ -------- --------
Cash flows from financing
activities:
Dividend to Venetian Casino
Resort LLC..................... 21,590
Capital contribution from
Venetian Casino Resort, LLC.... 1,316 (43,535)
Repayments on 12 1/4% mortgage
notes.......................... (425,000)
Proceeds from 11% mortgage
notes.......................... 850,000
Repayments on senior subordinated
notes.......................... (97,500)
Proceeds from secured mall
facility....................... 120,000
Repayments on mall-tranche A
take-out loan.................. (105,000)
Repayments on mall-tranche B
take-out loan.................. (35,000)
Repayments on completion guaranty
loan........................... (31,124)
Repayments on senior secured
credit facility-term B......... (625)
Proceeds from senior secured
credit facility-term B......... 250,000
Repayments on bank credit
facility-term.................. (151,986)
Repayments on bank credit
facility-revolver.............. (61,000)
Proceeds from bank credit
facility-revolver.............. 21,000
Repayments on FF&E credit
facility....................... (53,735)
Repayments on Phase II Subsidiary
credit facility................ (3,933) (3,933)
Repayments on Phase II Subsidiary
unsecured bank loan............ (1,092) (1,092)
Repurchase premiums incurred in
connection with refinancing
transactions................... (33,478)
Payments of deferred offering
costs.......................... (6) (41,231)
Net increase (decrease) in
intercompany accounts.......... 1,508
------ -------- --------
Net cash provided by (used in)
financing activities............. (2,207) (21,945) 200,296
------ -------- --------
Increase (decrease) in cash and
cash equivalents................. (3,006) 40,706
Cash and cash equivalents at
beginning of period.............. 3,105 54,936
------ -------- --------
Cash and cash equivalents at end of
period........................... $ 99 $ $ 95,642
====== ======== ========
</Table>
- ----------------------------------------
(1) The Mall II Subsidiary was not formed until May 31, 2002, in preparation for
the Refinancing Transactions. The Mall Assets were transferred to the Mall
II Subsidiary on June 4, 2002 Mall construction, Grand Canal shops Mall LLC
and the Mall Subsidairy had no cash flows as of September 30, 2002.
F-65
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND MEMBERS OF VENETIAN CASINO RESORT, LLC
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of member's equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of
Venetian Casino Resort, LLC and its subsidiaries ("Venetian"), a subsidiary of
Las Vegas Sands, Inc. ("LVSI") at December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Venetian'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 of America, 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 our opinion.
As more fully explained in Note 7, Venetian co-obligor with LVSI of certain
indebtedness. In addition, as more fully explained in Note 1, the Venetian
operates only certain portions of the facility comprising the total casino
resort, the balance of which is operated by LVSI.
As more fully described in Note 2, the Company changed its method of
accounting for lossses on early retirements of debt in connection with its
adoption of Financial Accounting Standards Board Statement No. 145.
PRICEWATERHOUSECOOPERS LLP
Las Vegas, Nevada
February 1, 2002, except for Notes 2 and 14
as to which the date is June 28, 2002
F-66
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
DECEMBER 31,
-----------------------
2000 2001
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,302 $ 10,919
Restricted cash and investments........................... 1,471 1,528
Accounts receivable, net.................................. 17,746 18,240
Inventories............................................... 3,868 4,747
Prepaid expenses.......................................... 2,897 2,953
---------- ----------
Total current assets........................................ 30,284 38,387
Property and equipment, net................................. 921,908 960,140
Investment in unconsolidated Mall Subsidiary................ 8,738 7,560
Deferred offering costs, net................................ 18,335 17,086
Other assets, net........................................... 22,120 25,691
---------- ----------
$1,001,385 $1,048,864
========== ==========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 18,036 $ 33,105
Construction payables..................................... 6,212 26,115
Construction payables-contested........................... 7,232 7,232
Payable to affiliates..................................... 10,206 5,837
Accrued interest payable.................................. 11,498 9,136
Other accrued liabilities................................. 47,433 47,139
Current maturities of long-term debt...................... 50,119 24,113
---------- ----------
Total current liabilities................................... 150,736 152,677
Other long-term liabilities................................. 10,494 3,274
Long-term debt.............................................. 696,222 745,746
Long-term subordinated loans payable to Principal
Stockholder of LVSI....................................... 27,071 31,123
---------- ----------
884,523 932,820
---------- ----------
Redeemable Preferred Interest held indirectly
by Principal Stockholder of LVSI.......................... 168,012 188,778
---------- ----------
Commitments and contingencies
Member's equity (deficit)................................... (51,150) (72,734)
---------- ----------
$1,001,385 $1,048,864
========== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-67
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
--------- --------- ---------
Revenues:
Rooms................................................... $ 87,117 $ 188,457 $ 201,441
Food and beverage....................................... 29,624 65,299 60,131
Casino rental revenues from LVSI........................ 29,466 45,164 45,973
Retail and other........................................ 17,221 36,724 37,591
-------- --------- ---------
163,428 335,644 345,136
-------- --------- ---------
Operating expenses:
Rooms................................................... 29,443 55,803 55,322
Food and beverage....................................... 26,184 42,903 38,896
Retail and other........................................ 8,109 18,937 21,148
Provision for doubtful accounts......................... 730 1,300 1,866
General and administrative.............................. 47,803 89,775 83,931
Corporate expense....................................... 716 3,982 3,917
Rental expense.......................................... 3,852 5,856 5,003
Pre-opening and developmental expense................... 21,341 -- 355
Depreciation and amortization........................... 22,692 37,180 36,039
-------- --------- ---------
160,870 255,736 246,477
-------- --------- ---------
Operating income.......................................... 2,558 79,908 98,659
Other income (expense):
Interest income......................................... 2,336 960 613
Interest expense, net of amounts capitalized............ (63,819) (98,437) (91,551)
Interest expense on indebtedness to Principal
Stockholder........................................... -- (3,568) (4,052)
Other income (expense).................................. -- -- (1,938)
Loss on early retirement of debt (2000 and 2001, as
restated--see Note 2)................................. -- (2,785) (1,383)
Income (loss) from equity investment in unconsolidated
Mall Subsidiary....................................... (7,431) (6,207) (1,166)
-------- --------- ---------
Net income (loss)......................................... $(66,356) $ (30,129) $ (818)
======== ========= =========
Preferred interest........................................ (14,399) (18,482) (20,766)
-------- --------- ---------
Net income (loss) available to LVSI....................... $(80,755) $ (48,611) $ (21,584)
======== ========= =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-68
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
TOTAL
--------
BALANCE AT DECEMBER 31, 1998................................ $ 66,425
Contribution of land by Principal Stockholder (at historical
cost)..................................................... 11,791
Net loss.................................................... (66,356)
Preferred Interest.......................................... (14,399)
--------
BALANCE AT DECEMBER 31, 1999................................ (2,539)
Net loss.................................................... (30,129)
Preferred Interest.......................................... (18,482)
--------
BALANCE AT DECEMBER 31, 2000................................ (51,150)
Net loss.................................................... (818)
Preferred Interest.......................................... (20,766)
--------
BALANCE AT DECEMBER 31, 2001................................ $(72,734)
========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (66,356) $(30,129) $ (818)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
(Income) loss from equity investment in unconsolidated
Mall Subsidiary......................................... 7,431 6,207 1,166
Depreciation and amortization............................. 22,692 37,180 36,039
Amortization of debt offering costs and original issue
discount................................................ 6,118 6,492 6,615
Loss on early retirement of debt.......................... -- 2,785 1,383
Non-cash interest on completion guaranty loan............. -- 3,568 4,052
Changes in operating assets and liabilities:
Accounts receivable..................................... (17,407) (227) (494)
Amounts due to affiliates............................... (16,510) 22,928 (4,369)
Inventories............................................. (4,443) 648 (879)
Prepaid expenses........................................ (3,227) 332 (56)
Other assets............................................ (4,587) (17,469) (3,571)
Accounts payable........................................ 15,578 2,193 15,069
Accrued interest payable................................ 3,258 (829) (2,362)
Other accrued liabilities............................... 23,856 33,014 (7,514)
Other operating activities.............................. (497) (234) 12
--------- -------- ---------
Net cash provided by (used in) operating activities......... (34,094) 66,459 44,273
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash...................... 125,147 7,319 (57)
Capital expenditures........................................ (265,461) (27,827) (54,368)
Investment in unconsolidated Mall Subsidiary................ (22,000) -- --
--------- -------- ---------
Net cash used in investing activities....................... (162,314) (20,508) (54,425)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred interest in Venetian................ 44,431 -- --
Proceeds from completion guaranty loan...................... 23,503 -- --
Repayments on bank credit facility-tranche A term loan...... (11,250) (35,625) (103,125)
Proceeds from bank credit facility-tranche A term loan...... 34,000 -- --
Repayments on bank credit facility-tranche B term loan...... -- (250) (49,750)
Proceeds from bank credit facility-tranche B term loan...... -- 50,000 --
Repayments on bank credit facility-tranche C term loan...... -- -- (5,750)
Proceeds from bank credit facility-tranche C term loan...... -- -- 5,750
Repayments on bank credit term facility..................... -- -- (764)
Proceeds from bank credit term facility..................... -- -- 152,750
Repayments on bank credit facility-revolver................. (10,231) (50,160) (18,000)
Proceeds from bank credit facility-revolver................. 40,506 11,000 58,000
Repayments on FF&E credit facility.......................... (5,862) (16,609) (21,494)
Proceeds from FF&E credit facility.......................... 83,842 -- --
Proceeds from Phase II Subsidiary credit facility........... -- -- 3,933
Proceeds from Phase II Subsidiary unsecured bank loan....... -- -- 1,092
Payments of deferred offering costs......................... (1,299) (2,296) (5,873)
--------- -------- ---------
Net cash provided by (used in) financing activities......... 197,640 (43,940) 16,769
--------- -------- ---------
Increase in cash and cash equivalents....................... 1,232 2,011 6,617
Cash and cash equivalents at beginning of year.............. 1,059 2,291 4,302
--------- -------- ---------
Cash and cash equivalents at end of year.................... $ 2,291 $ 4,302 $ 10,919
========= ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest................................ 80,475 $ 91,967 $ 92,178
========= ======== =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contribution of land by Principal Stockholder of LVSI (at
historical cost).......................................... $ 11,791 $ -- $ --
========= ======== =========
Non-cash interest on completion guaranty loan............... $ -- $ 3,568 $ 4,052
========= ======== =========
Property and equipment asset acquisitions included in
accounts payable.......................................... $ 17,410 $ 13,444 $ 33,347
========= ======== =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY
Venetian Casino Resort, LLC ("Venetian" or the "Company") was formed on
March 20, 1997 to own a planned two-phase hotel-casino resort. The first phase
of the hotel-casino resort (the "Casino Resort") includes 3,036 suites, casino
space approximating 116,000 square feet, approximately 500,000 square feet of
convention space, and approximately 475,000 gross leasable square feet of retail
shops and restaurants.
Las Vegas Sands, Inc. ("LVSI"), a Nevada corporation, is the managing member
and owns 100% of the common voting equity in Venetian. The entire preferred
interest in Venetian is owned by Interface Group Holding Company, Inc.
("Interface Holding"), which is wholly owned by LVSI's Principal stockholder
(the "Principal Stockholder"). See Note 8.
Venentian operates the hotel and convention space of the Casino Resort. LVSI
holds the casino gaming license and is the operator of the casino located within
the Casino Resort. LVSI pays rent to Venetian for the use of space and certain
equipment used in the casino gaming operations. In addition, LVSI pays Venetian
for the use of hotel rooms and other services provided by Venetian to the casino
customers of LVSI. Accordingly, the accompanying financial statements reflect as
revenues the charges by Venetian to LVSI. See Note 2.
As more fully explained in Note 7, Venetian and LVSI are co-obligors of
indebtedness used to construct the Casino Resort. The accompanying consolidated
financial statements include the accounts of Venetian and its subsidiaries,
certain of which subsidiaries are guarantors of the indebtedness, as described
below.
- GRAND CANAL SHOPS MALL SUBSIDIARY LLC ("NEW MALL SUBSIDIARY")
The New Mall Subsidiary was formed on December 9, 1999 and owns and
operates the retail mall in the Casino Resort. The New Mall Subsidiary is
99% owned by Venetian. A separate corporation (a wholly owned subsidiary of
LVSI) owns the remaining 1% of the New Mall Subsidiary, which is the
managing member of the New Mall Subsidiary. Because the managing member is
not directly owned or controlled by Venetian, the New Mall Subsidiary has
not been shown in the accompanying financial statements on a consolidated
basis with Venetian. Instead, Venetian's 99% interest in the New Mall
Subsidiary is accounted for as an unconsolidated subsidiary, using the
equity method of accounting. Summarized financial information and
disclosures of the New Mall Subsidiary have been included in Note 13. The
New Mall Subsidiary is not a guarantor of the indebtedness.
- LIDO CASINO RESORTS, LLC (THE "PHASE II SUBSIDIARY")
The Phase II Subsidiary holds approximately 15 acres of land for future
development, and located adjacent to the Casino Resort. The Phase II
Subsidiary is a development stage enterprise and is not a guarantor of the
indebtedness.
- LIDO INTERMEDIATE HOLDING COMPANY LLC ("LIDO INTERMEDIATE")
Lido Intermediate has no significant business activities or financial
statement balances. It is a guarantor of the indebtedness.
- MALL INTERMEDIATE HOLDING COMPANY LLC ("MALL INTERMEDIATE")
Mall Intermediate has no significant business activities or financial
statement balances. It is a guarantor of the indebtedness.
F-71
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY (CONTINUED)
The Casino Resort is physically connected to the approximately 1.15 million
square foot Sands Expo and Convention Center (the "Expo Center"). Interface
Group-Nevada, Inc. ("IGN"), the owner of the Expo Center, is beneficially owned
by the Principal Stockholder. Venetian and IGN transact business with each other
and are parties to certain agreements. The nature of such transactions and the
amounts involved are disclosed in the notes to the financial statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany balances and transactions have
been eliminated.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The preparation of the consolidated financial statements in accordance with
generally accepted accounting principles requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, management evaluates those estimates, including those related to
asset impairment, self-insurance, compensation and related benefits, revenue
recognition, allowance for doubtful accounts, contingencies and litigation. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term investments with
original maturities not in excess of 90 days.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out and specific identification methods. Inventories consist
primarily of food, beverage and retail products.
ACCOUNTS RECEIVABLE
Accounts receivable are due within one year and are recorded net of amounts
estimated to be uncollectible.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the assets
as follows:
<Table>
Building and improvements................................... 15 to 40 years
Furniture, fixtures and equipment........................... 3 to 15 years
Leasehold improvements...................................... 5 to 10 years
</Table>
F-72
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Maintenance, repairs and renewals that neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on disposition of property and equipment are included
in the statements of operations.
Management reviews assets for possible impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
such assets exceeds their fair value. Impairment losses are recognized when
estimated future undiscounted cash flows expected to result from the use of the
assets and their eventual disposition are less than their carrying amounts.
CAPITALIZED INTEREST
Interest costs associated with major construction projects are capitalized.
Interest is capitalized on amounts expended on the Casino Resort using the
weighted-average cost of the Company's outstanding borrowings. Capitalization of
interest ceases when the project is substantially complete.
PRE-OPENING AND DEVELOPMENTAL COSTS
Pre-opening and developmental costs, representing primarily direct personnel
and other costs incurred prior to the opening of the Casino Resort and other new
ventures are expensed as incurred.
DEBT DISCOUNT AND DEFERRED OFFERING COSTS
Debt discount and offering costs are amortized based on the terms of the
related debt instruments using the straight-line method, which approximates the
effective interest method.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an arrangement
exists, performance of the service or delivery of the product has occurred, the
sales price is fixed or determinable and collectibility is probable.
PROMOTIONAL ALLOWANCES FOR CUSTOMERS OF LVSI
The casino is operated by LVSI. Venetian provides complementary rooms, food,
beverage and other services to LVSI's customers and charges LVSI for the retail
value of such goods and services.
Amounts charged to LVSI for the estimated retail value of such promotional
allowances to LVSI's customers are included in operating revenues and are as
follows (in thousands):
<Table>
<Caption>
REVENUE
DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
Food and Beverage.............................. $ 7,103 $14,386 $12,915
Rooms.......................................... 12,977 23,552 23,027
Other.......................................... 825 2,168 1,471
------- ------- -------
$20,905 $40,106 $37,413
======= ======= =======
</Table>
F-73
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RENTAL REVENUE
Minimum rental revenues 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. Charges to
tenants for real estate taxes, insurance and other shopping center operating
expenses are recognized as revenues in the period billed which approximates the
period in which the applicable costs are incurred.
Included in operating revenues are rental revenues from LVSI for the use of
casino space and certain equipment. Such amounts are based on a fixed rental
agreement and are recognized in the period in which earned. While management
believes that the rental amounts are representative of fair value, they do not
necessarily represent the amounts that would be received if the lease had been
negotiated with an independent third party.
HOTEL AND FOOD AND BEVERAGE REVENUES
Hotel sales criteria are generally met at the time of occupancy. Deposits
for future hotel occupancy or food and beverage services contracts are recorded
as deferred income until revenue recognition criteria are met. Cancellation fees
for hotel and food and beverage services are recognized upon cancellation by the
customer as defined by a written contract entered into with the customer.
JOINT VENTURE REVENUE
The Company entered into an agreement during 2001 with a subsidiary of the
Solomon R. Guggenheim Foundation to operate the Guggenheim Las Vegas Museum in
the Casino Resort. The Guggenheim entity is the manager of the Guggenheim Las
Vegas Museum. The agreement requires the Company to make certain contributions
of capital. The Company is reimbursed for certain expenses incurred and certain
advances made to open the exhibition at the Guggenheim Las Vegas Museum. After
such expenses are reimbursed, the Company is to receive 49% of the operating
income generated pursuant to the agreement. The Company's share of operating
losses generated pursuant to the agreements is also 49%. The agreement is
accounted for on the equity method of accounting.
INCOME TAXES
Venetian has elected to be taxed as an LLC and its subsidiaries are either
limited liability companies or S Corporations, each of which is a tax
pass-through entity for federal income tax purposes. Nevada does not levy a
corporate income tax. Accordingly, no provision for federal or state income
taxes is included in the statement of operations.
ADVERTISING COSTS
Costs for advertising are expensed as incurred, except costs for
direct-response advertising, which are capitalized and amortized over the period
of the related program. Direct-response advertising consists primarily of
mailing costs associated with the direct-mail programs. Capitalized
F-74
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
advertising costs, included in prepaid expense, were immaterial at December 31,
2000 and 2001. Advertising costs that were expensed during the year were
$5.2 million, $8.7 million and $5.6 million in 1999, 2000 and 2001,
respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of short-term investments and
receivables. The short-term investments are placed with a high credit quality
financial institution, which invests primarily in money market funds.
Receivables typically consist of amounts due from credit card companies for
guest transactions, and are settled shortly after being incurred. Risk of loss
is mitigated by strict internal controls under which the Company's personnel
obtain approval for charges to the credit card accounts before guest charges are
incurred. Receivables also result from the use of the Company's convention and
related facilities, typically by corporate customers or event producers.
Receivables result from charges that exceed initial customer deposits. Risk of
loss from these receivables is mitigated by the fact that no one customer
comprises a significant portion of the remaining amounts due.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), entitled "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If specific conditions are met, a derivative may be specifically
designated as a hedge of specific financial exposures. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and, if used in hedging activities, it depends on its effectiveness
as a hedge. SFAS 133 as amended is effective for all fiscal quarters of fiscal
years beginning after December 31, 2000. SFAS 133 should not be applied
retroactively to financial statements of prior periods. The Company adopted
SFAS 133 on January 1, 2001.
The Company, from time to time, uses interest rate caps and floors and
similar financial instruments to assist in managing interest incurred on its
long-term debt. The difference between amounts received and amounts paid under
such agreements, as well as any costs or fees, is recorded as a reduction of, or
addition to, interest expense as incurred over the life of the cap and floor or
similar financial instrument.
The Company has a policy aimed at managing interest rate risk associated
with its current and anticipated future borrowings. This policy enables the
Company to use any combination of interest rate swaps, futures, options, cap and
similar instruments. To the extent the Company employs such financial
instruments pursuant to this policy, and the instruments qualify for hedge
accounting, they are accounted for as hedging instruments. In order to qualify
for hedge accounting, the underlying hedged item must expose the Company to
risks associated with market fluctuations and the financial instrument used must
be designated as a hedge and must reduce the Company's
F-75
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
exposure to market fluctuation throughout the hedge period. If these criteria
are not met, a change in the market value of the financial instrument is
recognized as a gain or loss in the period of change. Otherwise, gains and
losses are not recognized except to the extent that the financial instrument is
disposed of prior to maturity. Net interest paid or received pursuant to the
financial instrument is included as interest expense in the period.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
No. 141 ("SFAS 141"), entitled "Business Combinations" and Statement No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 is effective as
follows: (a) use of the pooling-of-interests method is prohibited for business
combinations initiated after June 30 2001; and (b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. There are also transition provision that
apply to business combinations completed before July 1, 2001 that were accounted
for by the purchase method. SFAS 142 is effective for fiscal years beginning
after December 15, 2001 and applies to all goodwill and other intangible assets
recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the Retirement
of Long-Lived Assets." The objectives of SFAS 143 are to establish accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. SFAS 143 is effective for fiscal years
beginning after June 15, 2002.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and, generally, is to be applied
prospectively.
The Company is currently evaluating the provisions of SFAS 141, SFAS 142,
SFAS 143 and SFAS 144 and does not anticipate that the effects of these changes
will have an impact the Company's financial position or results of operations.
In April 2002, the Financial Accounting Standards Board issued statement
No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64 and
Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations to the extent
they do not meet the requirements for classification as an extraordinary loss,
as defined by APB Opinion No. 30. The Company has adopted SFAS 145 and will no
longer present losses on early retirements of debt as an extraordinary item.
Accordingly, for the years ended December 31, 2000 and 2001 the losses on early
retirement of debt of $2.8 million and $1.4 million, respectively have been
reclassified to other income (expense) to conform to this new presentation. The
adoption of SFAS 145 had no impact on the Company's financial condition or cash
flows.
F-76
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--RESTRICTED CASH
The net proceeds of the Company's 12 1/4% Mortgage Notes due 2004 (the
"Mortgage Notes") and its 14 1/4% Senior Subordinated Notes due 2005 (the
"Senior Subordinated Notes" and, together with the Mortgage Notes, the "Notes")
were deposited into restricted accounts and invested in cash or permitted
investments by a disbursement agent for the Company's lenders until required for
project costs under the terms of the disbursement agreement with certain of the
Company's lenders (the "Disbursement Agreement") (Note 7). Additional amounts
have been deposited to other restricted accounts, which are controlled by the
Company, but which are also restricted as to use under the terms of the
Disbursement Agreement.
NOTE 4--ACCOUNTS RECEIVABLE
Components of accounts receivable were as follows:
<Table>
<Caption>
DECEMBER 31,
-------------------
2000 2001
-------- --------
Hotel.................................................... $15,387 $13,987
Other.................................................... 3,677 6,419
------- -------
19,064 20,406
Less: allowance for doubtful accounts and discounts...... (1,318) (2,166)
------- -------
$17,746 $18,240
======= =======
</Table>
An estimated allowance for doubtful accounts and discounts is maintained to
reduce the Company's receivables to their estimated net realizable value.
Although management believes the allowance is adequate, it is possible that the
estimated amount of cash collections with respect to the hotel accounts
receivable could change.
NOTE 5--PROPERTY AND EQUIPMENT, NET
Property and equipment includes costs incurred to construct the Casino
Resort and consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
----------------------
2000 2001
--------- ----------
Land and land improvements........................... $109,863 $ 113,309
Building and improvements............................ 686,215 735,771
Equipment, furniture, fixtures and leasehold
improvements....................................... 133,513 138,484
Construction in progress............................. 52,102 68,400
-------- ----------
981,693 1,055,964
Less: accumulated depreciation and amortization...... (59,785) (95,824)
-------- ----------
$921,908 $ 960,140
======== ==========
</Table>
F-77
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT, NET (CONTINUED)
The Casino Resort serves as collateral for various financing facilities
(Note 7).
During the years ended December 31, 1999, 2000 and 2001, the Company
capitalized interest expense of $31.3 million, $0.1 million, and $2.0 million,
respectively.
NOTE 6--OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
-------------------
2000 2001
-------- --------
Customer deposits........................................ $19,105 $23,770
Payroll and related...................................... 19,705 15,221
Taxes and licenses....................................... 2,751 2,402
Other accruals........................................... 5,872 5,746
------- -------
$47,433 $47,139
======= =======
</Table>
NOTE 7--LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
---------------------
2000 2001
--------- ---------
INDEBTEDNESS OF THE COMPANY AND LVSI, AS CO-OBLIGORS:
12 1/4% Mortgage Notes, due November 15, 2004............... $425,000 $425,000
14 1/4% Senior Subordinated Notes, due November 15, 2005
(net of unamortized discount of $4,263 in 2000 and $3,387
in 2001).................................................. 93,237 94,113
Bank Credit Facility-Revolver............................... -- 40,000
Bank Credit Facility-Tranche A Term Loan.................... 103,125 --
Bank Credit Facility-Tranche B Term Loan.................... 49,750 --
Bank Credit Facility-Term Loan.............................. -- 151,986
FF&E Credit Facility........................................ 75,229 53,735
INDEBTEDNESS OF THE PHASE II SUBSIDIARY:
Phase II Subsidiary Credit Facility......................... -- 3,933
Phase II Unsecured Bank Loan................................ -- 1,092
Less: current maturities.................................... (50,119) (24,113)
-------- --------
Total long-term debt........................................ $696,222 $745,746
======== ========
SUBORDINATED OWNER INDEBTEDNESS:
Completion Guaranty Loan (Indebtedness of Venetian)......... $ 27,071 $ 31,123
======== ========
</Table>
F-78
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LONG-TERM DEBT (CONTINUED)
As further described in Note 14, the above indebtedness of the Company was
refinanced on June 4, 2002. The above table does not reflect amounts owed by the
New Mall Subsidiary, which has been accounted for as an unconsolidated
subsidiary. See Note 12 for condensed financial information of the New Mall
Subsidiary.
MORTGAGE NOTES AND SENIOR SUBORDINATED NOTES
In November 1997, the Company and LVSI issued $425.0 million aggregate
principal amount of the Mortgage Notes and $97.5 million aggregate principal
amount of the Senior Subordinated Notes in a private placement. Interest on the
Notes is payable each May 15 and November 15, commencing on May 15, 1998. On
June 1, 1998, LVSI and Venetian completed an exchange offer to exchange the
Notes for notes with substantially the same terms.
The Mortgage Notes are secured by second priority liens on the Notes
Collateral (the real estate improvements and personal property that comprise the
Hotel, the Casino and the Congress Center, with certain exceptions). The Senior
Subordinated Notes are unsecured. The Notes are redeemable at the option of LVSI
and Venetian at prices ranging from 100% to 106.125% for the Mortgage Notes and
100% to 107.125% for the Senior Subordinated Notes commencing after
November 14, 2001, as set forth in the Notes and the indentures pursuant to
which the Notes were issued (the "Indentures"). Upon a change of control (as
defined in the Indentures), each Note holder may require LVSI and Venetian to
repurchase such Notes at 101% of the principal amount thereof plus accrued
interest and other amounts which are then due, if any. The Notes are not subject
to a sinking fund requirement.
The Senior Subordinated Notes bear cash interest at the rate of 10% per
annum through November 15, 1999, and thereafter at a rate of 14 1/4% per annum.
The Senior Subordinated Notes were sold at a $7.0 million discount to their face
amount in order to yield 14 1/4% per annum to maturity and accrued to par
through the second anniversary date of the issuance.
BANK CREDIT FACILITY
In November 1997, LVSI and Venetian and a syndicate of lenders entered into
a Bank Credit Facility (the "Bank Credit Facility") providing for up to
$150.0 million in multiple draw term loans (the "Tranche A Term Loan") to the
Company for construction and development of the Casino Resort. Up to
$40.0 million of additional credit in the form of revolving loans under the Bank
Credit Facility (the "Revolver") was made available generally for working
capital. In June 2000, the Company amended certain terms of the Bank Credit
Facility in order to: (1) add a new senior secured tranche B term loan (the
"Tranche B Term Loan") in the amount of $50.0 million, the proceeds of which
were applied to (x) prepay the Tranche A Term Loan in forward order of maturity
in the amount of $30.0 million and (y) reduce outstanding loans under the
Revolver by $20.0 million (net of fees and expenses) without decreasing
available commitments of the Revolver; and (2) adjust certain financial
covenants provided for in the Bank Credit Facility. The Company recorded a
$2.8 million extraordinary loss on early retirement of debt in connection with
this transaction.
F-79
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LONG-TERM DEBT (CONTINUED)
On September 17, 2001, the Company entered into its second amendment and
restatement of the Bank Credit Facility in order to: (1) combine the
$97.5 million Tranche A Term Loan, $49.5 million Tranche B Term Loan and an
additional $5.8 million tranche C term loan into a single term loan of
$152.8 million; (2) modify the Company's scheduled amortization payments to
instead repay $381,875 per quarter until December 2002, to be followed by two
bullet payments of $75.2 million during each of March 2003 and June 2003;
(3) extend the commitment termination date of the Revolver from September 15,
2001 to June 30, 2003; (4) eliminate the "cash sweep" provision of such
agreement in connection with any excess cash flows of the Company; and
(5) modify the financial covenants. The Company recorded a $1.4 million
extraordinary loss on early retirement of debt in connection with this
transaction. Each of the term loan and revolving loans under the Bank Credit
Facility has an interest rate of 350 basis points over LIBOR. The average
interest rate incurred during 2001 was 7.68% and was payable upon expiration of
each LIBOR contract, limited to three months.
The Company is required to enter into interest rate cap and/or floor
agreements to limit the impact of increases in interest rates on its floating
rate debt derived from the Bank Credit Facility. To meet the requirements of the
Bank Credit Facility, the Company entered into a cap and floor agreement during
1998 which was further amended in 2000 and 2001 (the "Cap and Floor Agreement"),
which resulted in a premium payment to counterparties and receipt of an equal
payment from the counterparties, based upon notional principal amounts for a
term equal to the term of the Bank Credit Facility. The interest rate cap
provisions of the Cap and Floor Agreement entitle the Company to receive from
the counterparties the amounts, if any, by which the selected market interest
rates exceed the strike rates stated in such agreement. Conversely, the interest
rate floor provisions of the Cap and Floor Agreement require the Company to pay
the counterparties the amounts, if any, by which the selected market interest
rates are less than the strike rates stated in such agreement. The net effect of
all such cap and floor agreements resulted in an increase of interest expense of
$0.5 million for the year ended December 31, 2001. If the Company had terminated
the cap and floor agreements as of December 31, 2001, the Company would have had
to pay a net amount of $1.9 million based on quoted market values from the
various institutions holding the swaps. In accordance with SFAS 133, the Company
has recorded the fair value of its obligation in the accompanying financial
statements. The notional amount of the Cap and Floor Agreement at December 31,
2001 was $76.2 million.
FF&E FINANCING
In December 1997, a credit facility (the "FF&E Credit Facility") secured by
certain furniture, fixtures and equipment (the "Specified FF&E") was entered
into with certain lenders (the "FF&E Lenders") to provide $97.7 million of
financing for the Specified FF&E and an electrical substation. The financing
provides for an interim loan during construction and a 60-month basic term loan
after completion of the Casino Resort. In the initial and subsequent draws, the
FF&E Lenders reimbursed the Company for amounts spent by the Company for
Specified FF&E prior to the initial draw.
Interest on the FF&E Credit Facility is the lower of (x) base rate plus 100
basis points and (y) a floating monthly rate calculated at the higher of
(a) the reserve-adjusted 30-day LIBOR rate plus 375 basis points and (b) the
eurodollar interest rate margin in effect on the Bank Credit Facility plus 125
F-80
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LONG-TERM DEBT (CONTINUED)
basis points. The average interest rate incurred during 2001 was 8.36% and was
payable quarterly. Amortization on the FF&E basic loan was 3% of the principal
for the first four quarters beginning September 30, 1999 and 5.5% of the
principal for the next 16 quarters. On September 28, 2001, the Company entered
into a fourth amendment to the FF&E Credit Facility in order to modify its
financial covenants to substantially match those under the September 17, 2001
amended and restated Bank Credit Facility, as described above. As of
December 31, 2001, $97.7 million had been drawn and $44.0 million principal
repayments had been paid under the FF&E Credit Facility.
COMPLETION GUARANTY LOAN
In accordance with its terms, advances made under the Principal Stockholder
completion guaranty (the "Completion Guaranty") are treated as a junior loan
from the Principal Stockholder to Venetian (the "Completion Guaranty Loan") that
is subordinated in right of payment to the indebtedness under the Bank Credit
Facility, the FF&E Credit Facility and the Notes. The Completion Guaranty Loan
matures on November 16, 2005, bears interest at a rate of 14 1/4% per annum and
compounds and is added to the principal balance semi-annually. Although interest
may accrue on the Completion Guaranty Loan, no cash payments with respect to
such loan may be made until senior indebtedness is repaid, except for payments
made from certain construction-related recoveries. On November 12, 1999, an
advance of approximately $23.5 million was made under the Completion Guaranty
and treated as a Completion Guaranty Loan. During 2000 and 2001 the Company
incurred interest expense of $3.6 million and $4.1 million, respectively under
this loan which has been added to the principal balance of the Completion
Guaranty Loan, resulting in a total balance of $31.1 million at December 31,
2001.
PHASE II SUBSIDIARY CREDIT FACILITY
On October 19, 2001, the Phase II Subsidiary entered into a loan agreement
providing for a $17.5 million term and revolving loan, with a one time option to
increase such loan to $30.0 million (the "Phase II Subsidiary Credit Facility").
The Phase II Subsidiary Credit Facility is secured by a first priority mortgage
on the land on the site located adjacent to the Casino Resort (the "Phase II
Land"), as well as the Phase II Subsidiary's interest in a five year lease of
the Phase II Land to Venetian for an annual rental payment of $8.0 million (the
"Phase II Lease"). The Phase II Subsidiary immediately drew $12.5 million for a
letter of credit under the revolver portion of the Phase II Subsidiary Credit
Facility (the "Letter of Credit") pursuant to the terms of and to be provided as
credit support for the Bank Credit Facility. The Letter of Credit was released
in February 2002, pursuant to its terms, immediately following the first fiscal
quarter period ending after September 30, 2001 in which the Company's
consolidated adjusted EBITDA exceeded $30.0 million. The Company drew
$3.9 million on the Phase II Credit Facility during 2001. The remaining portion
of the Phase II Subsidiary Credit Facility and proceeds from rental payments
from Venetian to the Phase II Subsidiary under the Phase II Lease are each
available for any Phase II Resort pre-development expenses or may be loaned or
distributed by the Phase II Subsidiary to the Company for other liquidity needs.
The Phase II Subsidiary Credit Facility bears interest at LIBOR plus 400 basis
points and is due on June 30, 2003. The average interest rate incurred during
2001 was 6.5% and was payable upon expiration of each LIBOR contract, limited to
three months.
F-81
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LONG-TERM DEBT (CONTINUED)
PHASE II UNSECURED BANK LOAN
In February 2001, the Phase II Subsidiary entered into an unsecured bank
line of credit, as amended on May 31, 2001, for $1,092,000 and payable on
July 15, 2002. This line of credit bears interest at LIBOR plus 100 basis
points. The proceeds of the line of credit were used to fund payments of Phase
II Subsidiary operating costs. The average interest rate incurred during 2001
was 5.25%.
SCHEDULED MATURITIES OF LONG-TERM DEBT
Scheduled maturities of long-term debt outstanding at December 31, 2001
(excluding amounts borrowed by the New Mall Subsidiary) are summarized as
follows: $24.1 million for 2002, $215.9 million for 2003, $435.7 million for
2004, and $125.3 million for 2005 (which includes unamortized discount on the
Senior Subordinated Notes).
WAIVERS
On November 12, 1999, the Company entered into various limited waiver
agreements (the "Waivers") with the administrative agent and lenders under:
(1) the Bank Credit Facility; (2) the FF&E Credit Facility; and (3) certain
parties to the Disbursement Agreement. Under the Waivers, the various lenders
waived certain defaults and events of default (to the extent, if any, they
existed or may have existed) arising from the Company's litigation with Lehrer
McGovern Bovis, Inc., its construction manager (the "Construction Manager"), the
facts relating to the underlying dispute with the Construction Manager and the
mechanics liens that were filed against the Casino Resort (Note 11). As
conditions to the effectiveness of the Waivers, the Company and the Principal
Stockholder, among other things: (i) agreed to pay a fee to the lenders under
the Bank Credit Facility and the FF&E Credit Facility; (ii) agreed to purchase
surety bonds for all of the mechanics liens and cause the title company to
provide endorsements ensuring that the deeds of trust under the Bank Credit
Facility and the Mortgage Notes are superior in priority to all mechanics liens;
and (iii) agreed that the Principal Stockholder's $25.0 million Completion
Guaranty would, notwithstanding the prior agreement of the parties providing for
termination of such guaranty upon substantial completion of the Casino Resort,
remain in effect until "final completion" (i.e., the completion of all remaining
punchlist items and the final resolution or settlement of all disputes with the
Construction Manager and subcontractors) and be unlimited in amount with respect
to all construction costs arising from scope changes. In order to be able to
purchase the surety bonds, the Principal Stockholder had to provide a
$5.0 million irrevocable letter of credit as collateral to the bonding company.
All of the conditions to the effectiveness of the limited waivers were satisfied
on November 12, 1999.
The debt instruments described above contain certain covenants that require
LVSI and the Company to pass a number of financial tests relating to, among
other things, a minimum consolidated earnings before interest, taxes,
depreciation and amortization ("EDITDA"), a consolidated leverage ratio, and a
fixed charge coverage ratio (all as defined in the respective credit
agreements). Additionally, the debt instruments contain certain restrictions
that, among other things, limit the ability of the Company and/or certain
subsidiaries to incur additional indebtedness, issue disqualified stock or
equity interests, pay dividends or make other distributions, repurchase
F-82
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LONG-TERM DEBT (CONTINUED)
equity interests or certain indebtedness, create certain liens, enter into
certain transactions with affiliates, enter into certain mergers or
consolidations or sell assets of the Company without prior approval of the
lenders or noteholders. The Company is also a party to certain intercreditor
agreements. The intercreditor agreements set forth the lender's interests and
claims in the Company's assets as collateral for borrowings.
Consolidated EBITDA is dependent on LVSI and the Company's results of
operations, which in turn are partially dependent on tables games revenues in
the casino. While the table games win percentage is reasonably predictable over
the long term, it can fluctuate significantly from quarter to quarter, affecting
table games revenues. The financial covenants involving EBITDA are applied on a
rolling four-quarter basis, and LVSI and the Company's compliance with financial
covenants can be temporarily affected if LVSI and the Company experience a
decline in hotel occupancy or room rates, or an unusually low win percentage in
a particular quarter, which is not offset in subsequent quarters or by other
results of operations.
LVSI and the Company were challenged to meet these covenant tests in 2001
for certain quarters during the rolling measurement period due to an extremely
low win percentage and reduced travel to Las Vegas during the fourth quarter of
2001 because of the September 11th terrorist attacks. These covenants allow the
Principal Stockholder to increase EBITDA for measurement purposes by issuing a
standby letter of credit to the Company's lenders. The covenants also allow the
New Mall Subsidiary and the Phase II Subsidiary, subject to certain limitations,
to make distributions to LVSI which would increase EBITDA for debt covenant
measurement purposes. The Company used the letter of credit mechanism in the
amount of $10.0 million during the first quarter of 2001. Pursuant to the terms
of the Company's indebtedness, the letter of credit was subsequently reduced to
$6.9 million during the third quarter of 2001.
Due to decreased casino revenues attributable to an unusually low table
games win percentage, LVSI and the Company also would not have met their
financial covenants in the second quarter of 2001. As a result, on June 29,
2001, LVSI and the Company entered into limited waivers, consents and amendments
to the Bank Credit Facility and the FF&E Credit Facility in order to, among
other things: (1) obtain a waiver with respect to each of its minimum fixed
charge ratio covenant, maximum leverage ratio covenant and minimum consolidated
adjusted EBITDA covenant for the quarter ending June 30, 2001; and (2) amend the
maximum consolidated capital expenditures covenant. Additionally, during the
fourth quarter of 2001, LVSI and the Company entered into a limited waiver
amendment to the Bank Credit Facility and FF&E Credit Facility to obtain a
wavier with respect to the minimum consolidated adjusted EBITDA requirement.
These covenants also allow the New Mall Subsidiary and the Phase II Subsidiary
to make distributions to LVSI which would increase EBITDA for debt covenant
measurement purposes. The ability of the New Mall Subsidiary and the Phase II
Subsidiary to make distributions is subject to certain limitations. During
February 2002, the New Mall Subsidiary paid a $7.0 million distribution to
Venetian.
For the next twelve months, the Company expects to fund Casino Resort
operations, capital expenditures and debt service requirements (excluding the
Tranche A Take-out Loan) from existing cash balances, operating cash flow,
borrowings under its revolving credit line (the "Revolver") to the extent that
funds are available, distributions of excess cash from the New Mall Subsidiary
to the
F-83
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LONG-TERM DEBT (CONTINUED)
extent permitted under the Tranche A Take-out Loan, and loans or distributions
of excess cash from the Phase II Subsidiary as a result of rental payments under
the Phase II Lease and borrowings under the Phase II Subsidiary Credit Facility.
LVSI and the Company expect to be challenged to meet certain of their
covenant tests in the first quarter of 2002 due to the carry-over effects that
the extremely low win percentage for certain of its fiscal 2001 quarters will
have on the rolling measurement period. The Company has certain options
available to it in the event that it needs to seek a cure in order to meet such
covenants, including the ability to draw down on the Phase II Subsidiary Credit
Facility, make distributions of excess cash from the Mall under the terms of the
Tranche A Take-out Loan or the negotiation with its lenders of further waivers
for debt covenant violations in 2002. LVSI and the Company anticipate that
ultimately LVSI's win percentage will return to normal levels and that it will
no longer need to rely on the various cures and waivers described above.
FAIR VALUE
Estimated fair values of the Company's debt and related financial
instruments are as follows (in thousands):
<Table>
<Caption>
DECEMBER 31,
---------------------------------------------
2000 2001
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
12 1/4% Mortgage Notes........................... $425,000 $422,875 $425,000 $439,875
14 1/4% Senior Subordinated Notes................ 93,237 93,600 94,113 95,995
Completion Guaranty Loan......................... 27,071 27,071 31,123 31,123
Bank Credit Facility-Tranche A Term Loan......... 103,125 103,125 -- --
Bank Credit Facility-Tranche B Term Loan......... 49,750 49,750 -- --
Bank Credit Facility-Term Loan................... -- -- 151,986 151,986
Bank Credit Facility-Revolver.................... -- -- 40,000 40,000
Phase II Subsidiary Credit Facility.............. -- -- 3,933 3,933
Phase II Subsidiary Bank Loan.................... -- -- 1,092 1,092
FF&E Credit Facility............................. 75,229 75,229 53,735 53,735
Cap and Floor Agreement.......................... -- 184 1,937 1,937
Cap Agreement.................................... -- 4 1 1
</Table>
The fair values of the Mortgage Notes and the Senior Subordinated Notes are
based on quoted market prices. The fair values of the Senior Subordinated Notes
are based upon the $94.1 million carrying value amounts. The fair values of
other indebtedness and the FF&E Credit Facility approximate their respective
carrying amounts based on the variable nature of these facilities. The fair
value of the Cap and Floor Agreement and the Cap Agreement are based upon quotes
from brokers.
F-84
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--REDEEMABLE PREFERRED INTEREST IN VENETIAN CASINO RESORT, LLC
During 1997, Interface Holding contributed $77.1 million in cash to Venetian
in exchange for a Series A preferred interest (the "Series A Preferred
Interest") in Venetian. By its terms, the Series A Preferred Interest was
convertible at any time into a Series B preferred interest in Venetian (the
"Series B Preferred Interest"). In August 1998, the Series A Preferred Interest
was converted into the Series B Preferred Interest. The rights of the Series B
Preferred Interest include the accrual of a preferred return of 12% from the
date of contribution in respect of the Series A Preferred Interest. Until the
indebtedness under the Bank Credit Facility is repaid and cash payments are
permitted under the restricted payment covenants of the indentures entered into
in connection with the Notes, the preferred return on the Series B Preferred
Interest will accrue and will not be paid in cash. Commencing in November 2009,
distributions must be made to the extent of the positive capital account of the
holder. During the second and third quarters of 1999, Interface Holding
contributed $37.3 million and $7.1 million, respectively, in cash in exchange
for an additional Series B Preferred Interest. During the years ended
December 31, 1999, 2000 and 2001, $14.4 million, $18.5 million and
$20.8 million, respectively, were accrued on the Series B Preferred Interest
related to the contributions made. There were no distributions of preferred
interest or preferred return paid during 1999, 2000 or 2001.
NOTE 9--EMPLOYEE SAVINGS PLAN
Participation in the Venetian Casino Resort, LLC 401 (k) employee savings
plan is available for all full time employees. The savings plan allows
participants to defer, on a pre-tax basis, a portion of their salary and
accumulate tax-deferred earnings as a retirement fund. Venetian matches 150% of
the first $390 of employee contributions and 50% of employee contributions in
excess of $390 up to a maximum of 3% of participating employee's eligible gross
wages. For the year ended December 31, 1999, 2000 and 2001, contributions
accrued under the savings plan were $0.8 million, $1.8 million and
$2.0 million, respectively.
NOTE 10--RELATED PARTY TRANSACTIONS
As support for the development and operation of the Casino Resort, the
Principal Stockholder or his affiliates currently provide the following:
(i) a construction completion guaranty unlimited in amount with respect to
excess construction costs due to scope changes, with a remaining
liability of approximately $5.0 million (collateralized by cash and
cash equivalents) with respect to all other construction costs. On
November 12, 1999, approximately $23.5 million of the completion
guaranty collateral was utilized for excess construction costs, leaving
the $5.0 million of cash collateral remaining as described above;
(ii) a $20.0 million unsecured guaranty of the $105.0 million Tranche A
Take-out Loan.
The Principal Stockholder is a partner in four entities formed to operate
restaurants in the Casino Resort. Valentino Las Vegas LLC and Night Market, LLC
paid Venetian zero, $0.7 million and $1.0 million, and Postrio Las Vegas LLC and
Carnevale Coffee Bar LLC paid the Mall Subsidiary
F-85
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--RELATED PARTY TRANSACTIONS (CONTINUED)
zero, $0.8 million and $1.1 million for the years ended December 31, 1999, 2000
and 2001, respectively.
During 2001, the Principal Stockholder guaranteed a $2.9 million bank loan
made to architects of the Phase II Subsidiary to secure a trade payable owed to
the architects by the Phase II Subsidiary.
During November 1999, the Principal Stockholder purchased idle construction
equipment from the Company (tower cranes) for $2.0 million, the cost basis of
the equipment which was its fair value.
During the fourth quarter of 1999, the Principal Stockholder purchased
certain construction claims from various contractors and subcontractors for an
aggregate price equal to the aggregate amount of the claims (approximately
$1.6 million). On November 12, 1999, with the approval of all of the Company's
lenders, the Company paid the Principal Stockholder the aggregate amount of
these claims.
IGN provides audio visual services to group customers of the Casino Resort.
These services are provided pursuant to a contract that provides for an equal
sharing of revenues after direct operating expenses. The Company received
$1.3 million, $3.7 million and $2.5 million pursuant to this contract during
1999, 2000 and 2001, respectively.
The Company, the New Mall Subsidiary and IGN are parties to an Amended and
Restated Reciprocal Easement, Use and Operating Agreement (the "Cooperation
Agreement") which, among other things, provides for the integrated operation of
all the facilities and addresses, encroachments, joint marketing and the sharing
of certain facilities and costs related thereto.
In conjunction with the Phase II Subsidiary Credit Facility on October 19,
2001, the Phase II Subsidiary leased the Phase II Land to Venetian for five
years at an annual rent of $8.0 million. Prior to October 2001, IGN leased
parking spaces on the Phase II Land from the Phase II Subsidiary for rent of
$5,000 per month.
NOTE 11--COMMITMENTS AND CONTINGENCIES
ENERGY SERVICES AGREEMENTS AND OPERATING LEASE AGREEMENTS
During 1997, Venetian and the Mall Subsidiary entered into separate energy
service agreements with a heating and air conditioning ("HVAC") provider (the
"HVAC Provider"). Under the terms of the energy services agreement and other
separate energy services agreements, HVAC energy and services will be purchased
by Venetian, the New Mall Subsidiary, its mall tenants and IGN over initial
terms expiring in 2009 with an option to collectively extend the terms of their
agreements for two consecutive five-year periods.
Pursuant to the Company's construction management contract (as more fully
defined under "Litigation" below), the HVAC plant was constructed by the
Construction Manager on land owned by the Company and leased to the HVAC
Provider. The HVAC equipment is owned by the HVAC
F-86
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Provider, which paid all costs ("HVAC Costs") in connection with the purchase
and installation of the HVAC equipment. The total HVAC Costs were
$70.0 million.
The charges payable under the separate energy services agreements include a
fixed component applied to the HVAC Costs paid by the HVAC Provider,
reimbursement of operational and related costs and a management fee.
As of December 31, 2001, Venetian and the New Mall Subsidiary were obligated
under the energy services agreements to make future minimum payments as follows
(in thousands):
<Table>
<Caption>
YEARS ENDING DECEMBER 31,
- -------------------------
2002........................................................ $ 7,657
2003........................................................ 7,657
2004........................................................ 7,657
2005........................................................ 7,657
2006........................................................ 7,657
Thereafter.................................................. 19,142
-------
Total minimum payments...................................... $57,427
=======
</Table>
Expenses incurred under the energy services agreements were $4.3 million,
$7.0 million ($7.657 million less leasee reimbursements) and $6.2 million for
the years ended December 31, 1999, 2000 and 2001, respectively. The New Mall
Subsidiary is responsible for 19% of energy services rental payments and these
amounts exclude payments by IGN. Expenses incurred under short-term, variable
rate operating lease agreements totaled $1.2 million, $1.7 million and
$1.9 million for the years ended December 31, 1999, 2000 and 2001, respectively.
LITIGATION
The Company is party to litigation matters and claims related to its
operations and construction of the Casino Resort that could have a material
adverse effect on the financial position, results of operations or cash flows of
the Company to the extent such litigation is not covered by the Insurance
Policy.
The construction of the principal components of the Casino Resort was
undertaken by the Construction Manager pursuant to a construction management
agreement and certain amendments thereto (as so amended, the "Construction
Management Contract"). The Construction Management Contract established a final
guaranteed maximum price (the "Final GMP") of $645.0 million, so that, subject
to certain exceptions (including an exception for cost overruns due to "scope
changes"), the Construction Manager was responsible for any costs of the work
covered by the Construction Management Contract in excess of the Final GMP. The
obligations of the Construction Manager under the Construction Management
Contract are guaranteed by Bovis, Inc. ("Bovis" and such guaranty, the "Bovis
Guaranty"), the Construction Manager's direct parent at the time the
Construction Management Contract was entered into. Bovis' obligations under the
Bovis Guaranty are guaranteed by The Peninsular and Oriental Steam Navigation
Company ("P&O"), a British
F-87
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
public company and the Construction Manager's ultimate parent at the time the
Construction Management Contract was entered into (such guaranty, the "P&O
Guaranty").
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations under the Bovis Guaranty, including failure to fully
pay trade contractors and vendors and failure to meet the April 21, 1999
guaranteed completion date. The Company amended this complaint on November 23,
1999 to add P&O as an additional defendant. The suit is intended to ask the
courts, among other remedies, to require the Construction Manager and its
guarantors to pay its contractors, to compensate Venetian for the Construction
Manager's failure to perform its duties under the Construction Management
Contract and to pay the Company the agreed upon liquidated damages penalty for
failure to meet the guaranteed substantial completion date. Venetian seeks total
damages in excess of $100.0 million. The Construction Manager subsequently filed
motions to dismiss the Company's complaint on various grounds, which the Company
opposed. The Construction Manager's principal motions to date have either been
denied by the court or voluntarily withdrawn.
In response to Venetian's breach of contract claims against the Construction
Manager, Bovis and P&O, the Construction Manager filed a complaint on August 3,
1999 against Venetian in the District Court of Clark County, Nevada. The action
alleges a breach of contract and QUANTUM MERUIT claims under the Construction
Management Contract and also alleges that Venetian defrauded the Construction
Manager in connection with the construction of the Casino Resort. The
Construction Manager seeks damages, attorney's fees and costs and punitive
damages. In the lawsuit, the Construction Manager claims that it is owed
approximately $90.0 million from Venetian and its affiliates. This complaint was
subsequently amended by the Construction Manager, which also filed an additional
complaint against the Company relating to work done and funds advanced with
respect to the contemplated development of the Phase II Resort. Based upon its
preliminary review of the complaints, the fact that the Construction Manager has
not provided Venetian with reasonable documentation to support such claims, and
the Company's belief that the Construction Manager has materially breached its
agreements with the Company, the Company believes that the Construction
Manager's claims are without merit and intends to vigorously defend itself and
pursue its claims against the Construction Manager in any litigation.
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. The Company believes that a
major reason these lien amounts exceed the Construction Manager's claims of
$90.0 million is based upon a duplication of liens through the inclusion of
lower-tier claims by subcontractors in the liens of higher-tier contractors,
including the lien of the Construction Manager. As of December 31, 1999, the
Company had purchased surety bonds for virtually all of the claims underlying
these liens (other than approximately $15.0 million of claims with respect to
which the Construction Manager purchased bonds). As a result, there can be no
foreclosure of the Casino Resort in connection with the claims of the
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be
F-88
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
valid. If such claims are not settled, it is likely to take a significant amount
of time for their validity to be judicially determined.
The Company believes that these claims are, in general, unsubstantiated,
without merit, overstated and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Company believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Company may also have a variety of other defenses to
the liens that have been filed, including, for example, the fact that the
Construction Manager and its subcontractors previously waived or released their
rights to file liens against the Casino Resort. The Company intends to
vigorously defend itself in any lien proceedings.
On August 9, 1999, the Company notified the insurance companies providing
coverage under its liquidated damages insurance policy (the "LD Policy") that it
has a claim under the LD Policy. The LD Policy provides insurance coverage for
the failure of the Construction Manager to achieve substantial completion of the
portions of the Casino Resort covered by the Construction Management Contract
within 30 days of the April 21, 1999 deadline, with a maximum liability under
the LD Policy of approximately $24.1 million and with coverage being provided,
on a per-day basis, for days 31-120 of the delay in the achievement of
substantial completion. Because the Company believes that substantial completion
was not achieved until November 12, 1999, the Company's claim under the LD
Policy is likely to be for the above-described maximum liability of
$24.1 million. The Company expects the LD Policy insurers to assert many of the
same claims and defenses that the Construction Manager has asserted or will
assert in the above-described litigations. Liability under the LD Policy may
ultimately be determined by binding arbitration.
In June 2000, the Company purchased an insurance policy (the "Insurance
Policy") for loss coverage in connection with all litigation relating to the
construction of the Casino Resort (the "Construction Litigation"). Under the
Insurance Policy, the Company will self-insure the first $45.0 million and the
insurer will insure up to the next $80.0 million of any possible covered losses.
The Insurance Policy provides coverage for any amounts determined in the
Construction Litigation to be owed to the Construction Manager or its
subcontractors relating to claimed delays, inefficiencies, disruptions, lack of
productivity/unauthorized overtime or schedule impact, allegedly caused by the
Company during construction of the Casino Resort, as well as any defense costs.
The insurance is in addition to, and does not affect, any scope change
guarantees provided by the Principal Stockholder pursuant to the Completion
Guaranty.
All of the pending litigation described above is in preliminary stages and
it is not yet possible to determine a range of loss or its ultimate outcome. If
any litigation or other lien proceedings concerning the claims of the
Construction Manager or its subcontractors were decided adversely to the
Company, such litigation or other lien proceedings could have a material adverse
effect on the financial position, results of operations or cash flows of the
Company to the extent such litigation or lien proceedings are not covered by the
Insurance Policy.
F-89
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--INVESTMENT IN UNCONSOLIDATED MALL SUBSIDIARY
Venetian has a non-controlling investment in the New Mall Subsidiary, the
controlling interest of which is held indirectly by LVSI. The Company uses the
equity method of accounting for this investment.
Summarized balance sheet information and operating results for the
unconsolidated subsidiary are as follows:
<Table>
<Caption>
DECEMBER 31,
---------------------
2000 2001
--------- ---------
Cash................................................. $ 2,972 $ 6,650
Restricted cash...................................... 1,078 1,118
Other current assets................................. 1,290 1,799
Property and equipment, net.......................... 140,185 136,167
Other assets......................................... 7,886 5,648
Other current liabilities............................ (4,673) (3,822)
Notes payable........................................ (140,000) (140,000)
Members' equity...................................... 8,738 7,560
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
1999 2000 2001
-------- -------- --------
Revenue...................................... $ 9,844 $ 30,781 $ 34,707
Operating expenses........................... 9,188 19,321 20,873
Operating income............................. 656 11,460 13,834
Interest expense, net........................ (7,573) (17,730) (15,012)
Loss on early debt retirement................ (589) -- --
-------- -------- --------
Net income (loss)............................ $ (7,506) $ (6,270) $ (1,178)
======== ======== ========
</Table>
MALL TRANCHE A TAKE-OUT LOAN
On December 20, 1999, certain take-out lenders (collectively, the "Tranche A
Take-out Lender") funded a $105.0 million Tranche A take-out loan to the New
Mall Subsidiary (the "Tranche A Take-out Loan"). The proceeds were used to repay
indebtedness under the mall construction loan facility for the Mall.
The indebtedness under the Tranche A Take-out Loan is secured by first
priority liens on the assets that comprise the Mall (the "Mall Assets"). The
annual interest rate on the Tranche A Take-out Loan is 350 basis points over
30-day LIBOR and is payable monthly. The average interest rate incurred during
2001 was 7.71%. The Tranche A Take-out Loan is due in full on December 20, 2002.
The Company currently plans to refinance the Tranche A Take-out Loan prior to
its due date of December 20, 2002; however, no assurance can be given that
refinancing for such indebtedness will be available to the New Mall Subsidiary
prior to this date. No principal payments are due thereunder until December 20,
2002.
F-90
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--INVESTMENT IN UNCONSOLIDATED MALL SUBSIDIARY (CONTINUED)
The New Mall Subsidiary is required to enter into an interest rate cap
agreement to limit the impact of increases in interest rates on its floating
rate debt derived from the Tranche A Take-out Loan. To meet the requirements of
the Tranche A Take-out Loan, the New Mall Subsidiary entered into a cap
agreement during 2000 (the "Cap Agreement"), which resulted in a premium payment
to counterparties based upon notional principal amounts for a term equal to the
term of the Tranche A Take-out Loan. The interest rate cap provisions of the Cap
Agreement entitle the New Mall Subsidiary to receive from the counterparties the
amounts, if any, by which the selected market interest rates exceed the strike
rates stated in such agreement. The net effect on interest expense of the cap
agreements was zero for the year ended December 31, 2001. If the New Mall
Subsidiary had terminated the Cap Agreement as of December 31, 2001, the New
Mall Subsidiary would not have had to pay any amounts based on quoted market
values from the various institutions holding the swaps. The notional amount of
the Cap Agreement at December 31, 2001 was $42.3 million.
The New Mall Subsidiary is also required pursuant to the Tranche A Take-out
Loan to maintain certain funds in escrow for mall management fees, tenant
disputes, tenant allowances and leasing commissions. At each of December 31,
2000 and 2001, $1.1 million was held in escrow for these purposes and classified
as restricted cash in the summarized balance sheet.
MALL TRANCHE B TAKE-OUT LOAN
On December 20, 1999, the Principal Stockholder funded a Tranche B take-out
loan to provide $35.0 million in financing to the New Mall Subsidiary (the
"Tranche B Take-out Loan" and, together with the Tranche A Take-out Loan, the
"Mall Take-out Financing"). The proceeds, along with $105.0 million of proceeds
from the Tranche A Take-out Loan, were used to repay the mall construction loan
facility for the Mall in full.
The indebtedness under the Tranche B Take-out Loan is secured by second
priority liens on the Mall Assets. The loan bears interest at 14% per annum and
is payable monthly. During 1999, 2000 and 2001, the New Mall Subsidiary incurred
interest expense of $0.2 million, $5.2 million and $5.0 million, respectively,
under this loan. The initial maturity date of the Tranche B Take-out Loan is
December 20, 2004 with a right of extension to December 20, 2007. No principal
payments are due thereunder until maturity.
As further described in Note 14, the Mall Tranche A Take-out Loan and the
Mall Tranche B Take-out Loan were refinanced on June 4, 2002.
MINIMUM LEASE INCOME
The New Mall Subsidiary has entered into an agreement with Forest City
Enterprises (the "Mall Manager"), a subsidiary of Forest City Ratner
Enterprises, a leading developer and manager of retail and commercial real
estate developments, whereby the Mall Manager manages the Mall and supervises
and assists in the creation of an advertising and promotional program and a
marketing plan for the Mall. The Mall Manager is also responsible for, among
other things, preparation of a detailed plan for the routine operation of the
Mall, collection and deposit procedures for rents and other tenant charges,
supervision of maintenance and repairs and, on an annual basis, preparation
F-91
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--INVESTMENT IN UNCONSOLIDATED MALL SUBSIDIARY (CONTINUED)
of a detailed budget (including any anticipated extraordinary expenses and
capital expenditures) for the Mall. The term of the management contract is five
years from June 19, 1999, the date the Mall opened to the public. The Mall
Manager receives a management fee of 2% of all gross rents received from the
operation of the Mall; provided that the Mall Manager will receive a minimum fee
of $450,000 per year. For the years ended December 31, 1999, 2000 and 2001,
management fees paid to the Mall Manager were $240,000, $450,000 and $450,000,
respectively. Beginning in June 2002, the minimum management fee will increase
to $600,000 per year.
The Company and the New Mall Subsidiary have entered into a number of
operating leases in relation to the New Mall Subsidiary and various retail and
food and beverage outlets in the Casino Resort, which range in length from 5 to
20 years. The future minimum lease income under these leases (of which
approximately 90% is attributable to the New Mall Subsidiary) consisted of the
following at December 31, 2001 (in thousands):
<Table>
2002........................................................ $ 19,342
2003........................................................ 19,117
2004........................................................ 18,382
2005........................................................ 16,467
2006........................................................ 15,964
Thereafter.................................................. 62,542
--------
Total....................................................... $151,814
========
</Table>
Most of the leases include provisions for reimbursements of other charges
including real estate taxes, utilities and other operating costs. Total
reimbursements amounted to $3.6 million, $9.9 million and $11.4 in 1999, 2000
and 2001, respectively.
Because the New Mall Subsidiary is not a guarantor of any indebtedness of
the Company, creditors of the Company's entities comprising the Company other
than the New Mall Subsidiary (including the holders of the Notes but excluding
creditors of the New Mall Subsidiary) do not have a direct claim against the
Mall Assets. As a result, indebtedness of the entities comprising the Company
other than the New Mall Subsidiary (including the Notes) is, with respect to the
Mall Assets, effectively subordinated to indebtedness of the New Mall
Subsidiary. The New Mall Subsidiary is not restricted by any of the debt
instruments of LVSI, Venetian or the Company's other subsidiary guarantors
(including the Indentures) from incurring any indebtedness. The terms of the
Tranche A Take-out Loan prohibit the New Mall Subsidiary from paying dividends
or making distributions to any of the other entities comprising the Company
unless payments under the Tranche A Take-out Loan are current, and, with certain
limited exceptions, prohibit the New Mall Subsidiary from making any loans to
such entities. Any additional indebtedness incurred by the New Mall Subsidiary
may include additional restrictions on the ability of the New Mall Subsidiary to
pay any such dividends and make any such distributions or loans.
F-92
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION
Venetian and LVSI are co-obligors of the Notes and certain other
indebtedness related to construction of the Casino Resort and are jointly and
severally liable for such indebtedness (including the Notes). Mall Intermediate,
Mall Construction (which has no financial statement balances), and Lido
Intermediate (collectively, the "Subsidiary Guarantors") are wholly-owned
subsidiaries of Venetian. The Subsidiary Guarantors have jointly and severally
guaranteed (or are co-obligors of) such debt on a full and unconditional basis.
No other subsidiary of Venetian is an obligor or guarantor of any of the Casino
Resort financing.
As further described in Note 14, in connection with the June 4, 2002
refinancing of the Company's existing indebtedness, a new guarantor subsidiary,
Venetian Venture Development, LLC was created by the Company.
Prior to October 1998, Venetian owned approximately 44 acres of land on or
near the Las Vegas Strip (the "Strip"), on the site of the former Sands. Such
property includes the site on which the Casino Resort was constructed.
Approximately 14 acres of such land was transferred to the Phase II Subsidiary
in October 1998. On December 31, 1999, an additional 1.75 acres of land was
contributed indirectly by the Principal Stockholder to the Phase II Subsidiary.
The Phase II Resort is planned to be constructed adjacent to the Casino Resort.
Because the Phase II Subsidiary will not be a guarantor of the Company's
indebtedness, creditors of the Company (including the holders of the Notes) will
not have a direct claim against the assets of the Phase II Subsidiary. As a
result, the indebtedness of the Company (including the Notes) will, with respect
to these assets, be effectively subordinated to indebtedness of the Phase II
Subsidiary. The Phase II Subsidiary is not subject to any of the restrictive
covenants of the debt instruments of the Company (including the Notes). Any
indebtedness incurred by the Phase II Subsidiary in addition to the Phase II
Subsidiary Credit Facility may include material restrictions on the ability of
the Phase II Subsidiary to pay dividends or make distributions or loans to the
Company and its subsidiaries.
Separate financial statements and other disclosures concerning each of the
Subsidiary Guarantors are not presented below because management believes that
they are not material to investors. Summarized financial information of Venetian
and the guarantor and the non-guarantor subsidiaries on a combined basis as of
December 31, 2000 and 2001 and the three years in the period ended December 31,
2001 is as follows (in thousands):
F-93
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2000
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
----------------------------
VENETIAN LIDO MALL
CASINO INTERMEDIATE INTERMEDIATE CONSOLIDATING/
RESORT HOLDING HOLDING NON-GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC SUBSIDIARIES(1) ENTRIES TOTAL
--------- ------------ ------------- --------------- -------------- ----------
Cash and cash equivalents.............. $ 4,260 $ 4 $ 4 $ 34 $ $ 4,302
Restricted cash and investments........ 1,471 1,471
Accounts receivable, net............... 17,686 60 17,746
Inventories............................ 3,868 3,868
Prepaid expenses....................... 2,897 2,897
-------- ------- ------- ------- -------- ----------
Total current assets................. 30,182 4 4 94 30,284
Property and equipment, net............ 840,960 80,948 921,908
Investment in consolidated
subsidiaries......................... 78,082 (78,082)
Investment in unconsolidated Mall
Subsidiary........................... 8,738 8,738
Deferred offering costs, net........... 18,335 18,335
Other assets, net...................... 22,120 22,120
-------- ------- ------- ------- -------- ----------
$998,417 $ 4 $ 4 $81,042 $(78,082) $1,001,385
======== ======= ======= ======= ======== ==========
Accounts payable....................... $ 18,036 $ $ $ $ $ 18,036
Construction payable................... 3,297 2,915 6,212
Construction payable-contested......... 7,232 7,232
Payable to affiliates.................. 10,206 10,206
Accrued interest payable............... 11,498 11,498
Other accrued liabilities.............. 47,380 53 47,433
Current maturities of long-term debt... 50,119 50,119
-------- ------- ------- ------- -------- ----------
Total current liabilities............ 147,768 2,968 150,736
Other long-term liabilities............ 10,494 10,494
Long-term debt......................... 696,222 696,222
Long-term subordinated loans payable to
Principal Stockholder of LVSI........ 27,071 27,071
-------- ------- ------- ------- -------- ----------
881,555 2,968 884,523
-------- ------- ------- ------- -------- ----------
Redeemable Preferred Interest held
indirectly by Principal Stockholder
of LVSI.............................. 168,012 168,012
-------- ------- ------- ------- -------- ----------
Member's equity (deficit).............. (51,150) 4 4 78,074 (78,082) (51,150)
-------- ------- ------- ------- -------- ----------
$998,417 $ 4 $ 4 $81,042 $(78,082) $1,001,385
======== ======= ======= ======= ======== ==========
</Table>
- ----------------------------------
(1) Land with a historical cost basis of $29.2 million was transferred from
Venetian Casino Resort, LLC, a co-obligor of the Notes to Lido Casino
Resort, LLC., a non-guarantorsubsidiary, in October 1998 and land with a
value of $11.8 million was indirectly contributed by the Principal
Stockholder during December 1999.
F-94
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
Summarized financial information of Venetian and the guarantor and the
non-guarantor subsidiaries on a combined basis as of December 31, 2000 and 2001
and the three years for the period ended December 31, 2001 is as follows (in
thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 2001
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
----------------------------
VENETIAN LIDO MALL
CASINO INTERMEDIATE INTERMEDIATE CONSOLIDATING/
RESORT HOLDING HOLDING NON-GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC SUBSIDIARIES(1) ENTRIES TOTAL
---------- ------------ ------------- --------------- -------------- ----------
Cash and cash equivalents............. $ 7,806 $ 4 $ 4 $ 3,105 $ $ 10,919
Restricted cash and investments....... 1,528 1,528
Intercompany receivable............... 1,508 (1,508)
Accounts receivable, net.............. 18,240 18,240
Inventories........................... 4,747 4,747
Prepaid expenses...................... 2,953 2,953
---------- -------- -------- ------- -------- ----------
Total current assets................ 35,274 4 4 4,613 (1,508) 38,387
Property and equipment, net........... 878,239 81,901 960,140
Investment in consolidated
subsidiaries........................ 79,097 (79,097)
Investment in unconsolidated Mall
Subsidiary.......................... 7,560 7,560
Deferred offering costs, net.......... 16,250 836 17,086
Other assets, net..................... 25,691 25,691
---------- -------- -------- ------- -------- ----------
$1,042,111 $ 4 $ 4 $87,350 $(80,605) $1,048,864
========== ======== ======== ======= ======== ==========
Accounts payable...................... $ 33,105 $ $ $ $ $ 33,105
Construction payable.................. 22,955 3,160 26,115
Construction payable-contested........ 7,232 7,232
Intercompany payables................. 1,508 (1,508)
Payable to affiliates................. 5,837 5,837
Accrued interest payable.............. 9,125 11 9,136
Other accrued liabilities............. 47,074 65 47,139
Current maturities of long-term
debt................................ 23,021 1,092 24,113
---------- -------- -------- ------- -------- ----------
Total current liabilities........... 149,857 4,328 (1,508) 152,677
Other long-term liabilities........... 3,274 3,274
Long-term debt........................ 741,813 3,933 745,746
Long-term subordinated loans payable
to Principal Stockholder of LVSI.... 31,123 31,123
---------- -------- -------- ------- -------- ----------
926,067 8,261 (1,508) 932,820
---------- -------- -------- ------- -------- ----------
Redeemable Preferred Interest held
indirectly by Principal Stockholder
of LVSI............................. 188,778 188,778
---------- -------- -------- ------- -------- ----------
Member's equity (deficit)............. (72,734) 4 4 79,089 (79,097) (72,734)
---------- -------- -------- ------- -------- ----------
$1,042,111 $ 4 $ 4 $87,350 $(80,605) $1,048,864
========== ======== ======== ======= ======== ==========
</Table>
- ----------------------------------
(1) Land with a historical cost basis of $29.2 million was transferred from
Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a
non-guarantor subsidiary, in October 1998 and land with a value of $11.8
million was indirectly contributed by the Principal Stockholder during
December 1999.
F-95
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
---------------------------
LIDO MALL
VENETIAN INTERMEDIATE INTERMEDIATE NON- CONSOLIDATING/
CASINO RESORT HOLDING HOLDING GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------------ ------------ -------------- ---------
Revenues:
Rooms................................. $ 89,585 $ $ $ $ (2,468) $ 87,117
Food and beverage..................... 30,786 (1,162) 29,624
Casino rental revenues from LVSI...... 29,466 29,466
Retail and other...................... 17,731 (510) 17,221
-------- -------- -------- ------- -------- --------
Total revenues........................ 167,568 (4,140) 163,428
Less promotional allowances............. (4,140) 4,140
-------- -------- -------- ------- -------- --------
Net revenues.......................... 163,428 163,428
-------- -------- -------- ------- -------- --------
Operating expenses:
Rooms................................. 29,443 29,443
Food and beverage..................... 26,184 26,184
Retail and other...................... 8,109 8,109
Provision for doubtful accounts....... 730 730
General and administrative............ 47,800 1 2 47,803
Corporate expense..................... 716 716
Rental expense........................ 3,852 3,852
Pre-opening expense................... 21,341 21,341
Depreciation and amortization......... 22,692 22,692
-------- -------- -------- ------- -------- --------
160,867 1 2 160,870
-------- -------- -------- ------- -------- --------
Operating income (loss)................. 2,561 (1) (2) 2,558
-------- -------- -------- ------- -------- --------
Other income (expense):
Interest income....................... 2,336 2,336
Interest expense, net of amounts
capitalized......................... (63,819) (63,819)
Income (loss) from equity investment
in unconsolidated Mall Subsidiary... (7,431) (7,431)
Income (loss) from equity investment
in consolidated subsidiaries........ (3) 3
-------- -------- -------- ------- -------- --------
Net income (loss)....................... (66,356) (1) (2) 3 (66,356)
Contribution of land by Principal
Stockholder (at historical cost)...... 11,791 11,791
Preferred return on Redeemable Preferred
Interest held indirectly by Principal
Stockholder of LVSI................... (14,399) (14,399)
Member's equity (deficit), beginning of
year.................................. 66,425 5 14 78,097 (78,116) 66,425
-------- -------- -------- ------- -------- --------
Member's equity (deficit), end of
year.................................. $ (2,539) $ 4 $ 14 $78,095 $(78,113) $ (2,539)
======== ======== ======== ======= ======== ========
</Table>
F-96
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
---------------------------
LIDO MALL
VENETIAN INTERMEDIATE INTERMEDIATE NON- CONSOLIDATING/
CASINO RESORT HOLDING HOLDING GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------------ ------------ -------------- ---------
Revenues:
Rooms................................. $192,327 $ $ $ $ (3,870) $188,457
Food and beverage..................... 67,052 (1,753) 65,299
Casino rental revenues from LVSI...... 45,164 45,164
Retail and other...................... 37,291 (567) 36,724
-------- -------- -------- ------- -------- --------
Total revenues........................ 341,834 (6,190) 335,644
Less promotional allowances............. (6,190) 6,190
-------- -------- -------- ------- -------- --------
Net revenues.......................... 335,644 335,644
-------- -------- -------- ------- -------- --------
Operating expenses:
Rooms................................. 55,803 55,803
Food and beverage..................... 42,903 42,903
Retail and other...................... 18,937 18,937
Provision for doubtful accounts....... 1,300 1,300
General and administrative............ 89,744 10 21 89,775
Corporate expense..................... 3,982 3,982
Rental expense........................ 5,856 5,856
Depreciation and amortization......... 37,180 37,180
-------- -------- -------- ------- -------- --------
255,705 10 21 255,736
-------- -------- -------- ------- -------- --------
Operating income (loss)................. 79,939 (10) (21) 79,908
-------- -------- -------- ------- -------- --------
Other income (expense):
Interest income....................... 960 960
Interest expense, net of amounts
capitalized......................... (98,437) (98,437)
Interest expense on indebtedness to
Principal Stockholder............... (3,568) (3,568)
Income (loss) from equity investment
in unconsolidated Mall Subsidiary... (6,207) (6,207)
Income (loss) from equity investment
in consolidated subsidiaries........ (31) 31
Loss on early retirement of debt...... (2,785) (2,785)
-------- -------- -------- ------- -------- --------
Net income (loss)....................... (30,129) (10) (21) 31 (30,129)
Preferred return on Redeemable Preferred
Interest held indirectly by Principal
Stockholder of LVSI................... (18,482) (18,482)
Member's equity (deficit), beginning of
year.................................. (2,539) 4 14 78,095 (78,113) (2,539)
-------- -------- -------- ------- -------- --------
Member's equity (deficit), end of
year.................................. $(51,150) $ 4 $ 4 $78,074 $(78,082) $(51,150)
======== ======== ======== ======= ======== ========
</Table>
F-97
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-------------------------------
LIDO MALL
VENETIAN INTERMEDIATE INTERMEDIATE NON- CONSOLIDATING/
CASINO RESORT HOLDING HOLDING GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC SUBSIDIARIES ENTRIES TOTAL
-------------- -------------- -------------- ------------ -------------- ---------
Revenues:
Rooms............................ $204,242 $ $ $ $ (2,801) $201,441
Food and beverage................ 61,977 (1,846) 60,131
Casino rental revenues from
LVSI........................... 45,973 45,973
Retail and other................. 38,125 1,622 (2,156) 37,591
-------- -------- -------- ------- -------- --------
Total revenues................... 350,317 1,622 (6,803) 345,136
Less promotional allowances........ (5,181) 5,181
-------- -------- -------- ------- -------- --------
Net revenues..................... 345,136 1,622 (1,622) 345,136
-------- -------- -------- ------- -------- --------
Operating expenses:
Rooms............................ 55,322 55,322
Food and beverage................ 38,896 38,896
Retail and other................. 21,148 21,148
Provision for doubtful
accounts....................... 1,866 1,866
General and administrative....... 83,928 3 83,931
Corporate expense................ 3,917 3,917
Rental expense................... 6,625 (1,622) 5,003
Pre-opening and developemental
expense........................ 355 355
Depreciation and amortization.... 36,039 36,039
-------- -------- -------- ------- -------- --------
248,096 3 (1,622) 246,477
-------- -------- -------- ------- -------- --------
Operating income (loss)............ 97,040 1,619 98,659
-------- -------- -------- ------- -------- --------
Other income (expense):
Interest income.................. 613 613
Interest expense, net of amounts
capitalized.................... (90,947) (604) (91,551)
Interest expense on indebtedness
to Principal Stockholder....... (4,052) (4,052)
Other income (expense)........... (1,938) (1,938)
Income (loss) from equity
investment in unconsolidated
Mall Subsidiary................ (1,166) (1,166)
Income (loss) from equity
investment in consolidated
subsidiaries................... 1,015 (1,015)
Loss on early retirement of
debt........................... (1,383) (1,383)
-------- -------- -------- ------- -------- --------
Net income (loss).................. (818) 1,015 (1,015) (818)
Preferred return on Redeemable
Preferred Interest held
indirectly by Principal
Stockholder of LVSI.............. (20,766) (20,766)
Member's equity (deficit),
beginning of year................ (51,150) 4 4 78,074 (78,082) (51,150)
-------- -------- -------- ------- -------- --------
Member's equity (deficit), end of
year............................. $(72,734) $ 4 $ 4 $79,089 $(79,097) $(72,734)
======== ======== ======== ======= ======== ========
</Table>
F-98
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-----------------------------
VENETIAN LIDO MALL
CASINO INTERMEDIATE INTERMEDIATE NON- CONSOLIDATING/
RESORT HOLDING HOLDING GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC SUBSIDIARIES ENTRIES TOTAL
--------- ------------- ------------- ------------ -------------- -----------
Net cash provided by (used
in) operating activities... $ (34,090) $ (1) $ $ (3) $ $ (34,094)
--------- ------- ------ ---------- ------------ -----------
Cash flows from investing
activities:
Proceeds from purchases of
investments.............. 125,147 125,147
Construction of Casino
Resort................... (228,393) (37,068) (265,461)
Investment in
unconsolidated Mall
Subsidiary............... (22,000) (22,000)
--------- ------- ------ ---------- ------------ -----------
Net cash used in investing
activities............... (125,246) (37,068) (162,314)
--------- ------- ------ ---------- ------------ -----------
Cash flows from financing
activities:
Capital contributions...... (37,262) 37,262
Proceeds from preferred
interest in Venetian..... 44,431 44,431
Proceeds from completion
guaranty loan............ 23,503 23,503
Repayments on bank credit
facility--tranche A term
loan..................... (11,250) (11,250)
Proceeds from bank credit
facility--tranche A term
loan..................... 34,000 34,000
Repayments on bank credit
facility--revolver....... (10,231) (10,231)
Proceeds from bank credit
facility--revolver....... 40,506 40,506
Repayments on FF&E credit
facility................. (5,862) (5,862)
Proceeds from FF&E credit
Facility................. 83,842 83,842
Payments of deferred
offering costs........... (1,299) (1,299)
Net increase(decrease) in
intercompany accounts.... 170 (170)
--------- ------- ------ ---------- ------------ -----------
Net cash provided by
financing activities....... 160,548 37,092 197,640
--------- ------- ------ ---------- ------------ -----------
Increase (decrease) in cash
and cash equivalents....... 1,212 (1) 21 1,232
Cash and cash equivalents at
beginning of year.......... 1,025 5 5 24 1,059
--------- ------- ------ ---------- ------------ -----------
Cash and cash equivalents at
end of year................ $ 2,237 $ 4 $ 5 $ 45 $ $ 2,291
========= ======= ====== ========== ============ ===========
</Table>
F-99
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
GUARANTOR
SUBSIDIARIES
---------------------------
LIDO MALL
VENETIAN INTERMEDIATE INTERMEDIATE
CASINO HOLDING HOLDING NON- CONSOLIDATING/
RESORT COMPANY COMPANY GUARANTOR ELIMINATING
LLC LLC LLC SUBSIDIARIES ENTRIES TOTAL
-------- ------------ ------------ ------------ -------------- --------
Net cash provided by (used in)
operating activities.............. $ 66,499 $ $ (10) $(30) $ $ 66,459
-------- ------ ------ ---- ------ --------
Cash flows from investing
activities:
Proceeds from purchases of
investments..................... 7,319 7,319
Capital expenditures.............. (15,647) (15,647)
Construction of Casino Resort..... (12,178) (2) (12,180)
-------- ------ ------ ---- ------ --------
Net cash used in investing
activities........................ (20,506) (2) (20,508)
-------- ------ ------ ---- ------ --------
Cash flows from financing
activities:
Proceeds from capital
contributions................... (30) 9 21
Repayments on bank credit
facility--tranche A term loan... (35,625) (35,625)
Repayments on bank credit
facility--tranche B term loan... (250) (250)
Proceeds from bank credit
facility--tranche B term loan... 50,000 50,000
Repayments on bank credit
facility--revolver.............. (50,160) (50,160)
Proceeds from bank credit
facility--revolver.............. 11,000 11,000
Repayments on FF&E credit
facility........................ (16,609) (16,609)
Payments of deferred offering
costs........................... (2,296) (2,296)
-------- ------ ------ ---- ------ --------
Net cash provided by (used in)
financing activities.............. (43,970) 9 21 (43,940)
-------- ------ ------ ---- ------ --------
Increase (decrease) in cash and cash
equivalents....................... 2,023 (1) (11) 2,011
Cash and cash equivalents at
beginning of year................. 2,237 4 5 45 2,291
-------- ------ ------ ---- ------ --------
Cash and cash equivalents at end of
year.............................. $ 4,260 $ 4 $ 4 $ 34 $ $ 4,302
======== ====== ====== ==== ====== ========
</Table>
F-100
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-------------------------------
VENETIAN LIDO MALL
CASINO INTERMEDIATE INTERMEDIATE NON- CONSOLIDATING/
RESORT HOLDING HOLDING GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC SUBSIDIARIES ENTRIES TOTAL
-------------- -------------- -------------- ------------ -------------- -----------
Net cash provided by operating
activities..................... $ 43,711 $ $ $ 562 $ $ 44,273
--------- --------- --------- ---------- ------------ -----------
Cash flows from investing
activities:
(Increase) decrease in
restricted cash.............. (57) (57)
Capital expenditures........... (53,660) (708) (54,368)
--------- --------- --------- ---------- ------------ -----------
Net cash used in investing
activities..................... (53,717) (708) (54,425)
--------- --------- --------- ---------- ------------ -----------
Cash flows from financing
activities:
Repayments on bank credit
facility--tranche A term
loan......................... (103,125) (103,125)
Repayments on bank credit
facility--tranche B term
loan......................... (49,750) (49,750)
Repayments on bank credit
facility--tranche C term
loan......................... (5,750) (5,750)
Proceeds from bank credit
facility--tranche C term
loan......................... 5,750 5,750
Repayments on bank credit
facility--term............... (764) (764)
Proceeds from bank credit
facility--term............... 152,750 152,750
Repayments on bank credit
facility--revolver........... (18,000) (18,000)
Proceeds from bank credit
facility--revolver........... 58,000 58,000
Repayments on FF&E credit
facility..................... (21,494) (21,494)
Proceeds from Phase II
Subsidiary credit facility... 3,933 3,933
Proceeds from Phase II
Subsidiary unsecured bank
loan......................... 1,092 1,092
Payments of deferred offering
costs........................ (5,573) (300) (5,873)
Net increase (decrease) in
intercompany accounts........ 1,508 (1,508)
--------- --------- --------- ---------- ------------ -----------
Net cash provided by (used in)
financing activities........... 13,552 3,217 16,769
--------- --------- --------- ---------- ------------ -----------
Increase in cash and cash
equivalents.................... 3,546 3,071 6,617
Cash and cash equivalents at
beginning of year.............. 4,260 4 4 34 4,302
--------- --------- --------- ---------- ------------ -----------
Cash and cash equivalents at end
of year........................ $ 7,806 $ 4 $ 4 $ 3,105 $ $ 10,919
========= ========= ========= ========== ============ ===========
</Table>
F-101
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--SUBSEQUENT EVENTS
On June 4, 2002, LVSI and the Company completed a series of refinancing
transactions (collectively, the "Refinancing Transactions") including (1) the
issuance of $850.0 million in aggregate principal amount of 11% mortgage notes
due 2010 (the "Mortgage Notes") in a private placement, (2) entering into a new
senior secured credit facility (the "Senior Secured Credit Facility") with a
syndicate of lenders in an aggregate amount of $375.0 million, and (3) entering
into a secured mall facility (the "Secured Mall Facility") in an aggregate
amount of $105.0 million, which was subsequently increased to $120.0 million on
June 28, 2002 (as described in Note 7, as the New Mall Subsidiary has been
accounted for as an unconsolidated subsidiary, the Secured Mall Facility is not
indebtedness of the Company). LVSI and the Company used or will use the proceeds
of the Refinancing Transactions to repay, redeem or repurchase all of its
outstanding indebtedness (including the Mortgage Notes, the Senior Subordinated
Notes, the Bank Credit Facility, the FF&E Facility, the Completion Guaranty
Loan, the Mall Take-out Financing, the Phase II Unsecured Bank Loan and the
Phase II Subsidiary Credit Facility), to finance the construction and
development of the Phase IA Addition and to pay all fees and expenses associated
with the Refinancing Transactions. In addition, the Principal Stockholder's
completion guarantee relating to the construction of the Casino Resort was
terminated upon the consummation of the Refinancing Transactions and the
remaining cash collateral was returned to the Principal Stockholder.
In connection with the Refinancing Transactions, the Company incurred a loss
on early retirement of indebtedness of $42.8 million during the three months
ended June 30, 2002. As part of the Refinancing Transactions, LVSI and the
Company also commenced a cash tender offer on May 6, 2002 to repurchase the
Mortgage Notes and the Senior Subordinated Notes. Upon the consummation of the
Refinancing Transactions, LVSI and the Company repurchased $316.6 million of the
Mortgage Notes and $957 million of the Senior Subordinated Notes and affected a
covenant defeasance with respect to the remaining Mortgage Notes. LVSI and the
Company called all of the remaining Mortgage Notes upon the closing of the
Refinancing Transactions and redeemed the balance of the Mortgage Notes
($108.4 million) and the Senior Subordinated Notes ($1.8 million) on July 5,
2002.
Prior to the closing of the Refinancing Transactions, during 2002 LVSI
established certain new subsidiaries including Grand Canal Shops II, LLC (the
"Mall II Subsidiary"), Venetian Venture Development, LLC ("Venetian Venture"),
Venetian Venture Development Intermediate Limited, Venetian Macau Management
Limited, and Venetian Macau Holdings Limited ("Venetian Macau"). Of the new
subsidiaries which were created only Venetian Venture is a guarantor of the new
indebtedness of LVSI and the Company. As of December 31, 2000 and 2001 and for
each of three years in the period ended December 31, 2001, new condensed,
consolidating financial statements have not been presented as they do not differ
materially from those as presented in Note 13.
F-102
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,919 $ 11,514
Restricted cash and investments........................... 1,528 14,908
Receivable from affiliates................................ -- 11,079
Accounts receivable, net.................................. 18,240 14,530
Inventories............................................... 4,747 4,576
Prepaid expenses.......................................... 2,953 2,610
---------- ----------
Total current assets........................................ 38,387 59,217
Property and equipment, net................................. 960,140 993,832
Investment in unconsolidated Mall Subsidiary................ 7,560 26,000
Deferred offering costs, net................................ 17,086 36,197
Restricted Cash and investments............................. -- 140,614
Other assets, net........................................... 25,691 23,493
---------- ----------
$1,048,864 $1,279,353
========== ==========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 33,105 $ 14,353
Construction payables..................................... 26,115 17,284
Construction payables-contested........................... 7,232 7,232
Payable to affiliates..................................... 5,837 --
Accrued interest payable.................................. 9,136 30,501
Other accrued liabilities................................. 47,139 51,294
Current maturities of long-term debt...................... 24,113 2,500
---------- ----------
Total current liabilities................................... 152,677 123,164
Other long-term liabilities................................. 3,274 1,201
Long-term debt.............................................. 745,746 1,096,875
Long-term subordinated loans payable to Principal
Stockholder............................................... 31,123 --
---------- ----------
932,820 1,221,240
---------- ----------
Redeemable Preferred Interest held indirectly by Principal
Stockholder of LVSI....................................... 188,778 206,108
---------- ----------
Commitments and contingencies
Member's deficit............................................ (72,734) (147,995)
---------- ----------
$1,048,864 $1,279,353
========== ==========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-103
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2001 2002 2001 2002
--------- --------- --------- ---------
Revenues:
Rooms......................................... $ 42,399 $ 46,862 $ 156,493 $ 154,589
Food and beverage............................. 11,705 15,299 48,613 54,623
Casino rental revenues from LVSI.............. 11,563 10,632 34,410 33,163
Retail and other.............................. 7,724 8,380 25,386 25,081
-------- -------- --------- ---------
73,391 81,173 264,902 267,456
-------- -------- --------- ---------
Operating expenses:
Rooms......................................... 13,535 14,692 42,972 43,387
Food and beverage............................. 8,902 10,397 30,705 33,053
Retail and other.............................. 5,717 5,221 15,288 14,257
Provision for doubtful accounts............... 266 1,350 266 4,500
General and administrative.................... 22,360 24,362 66,112 66,731
Corporate expense............................. 996 1,225 2,892 3,111
Rental expense................................ 1,235 1,167 4,085 3,140
Pre-opening and developmental expense......... -- 1,026 -- 3,097
Depreciation and amortization................. 8,667 9,895 26,721 29,499
-------- -------- --------- ---------
61,678 69,335 189,041 200,775
-------- -------- --------- ---------
Operating income................................ 11,713 11,838 75,861 66,681
Other income (expense):
Interest income............................... 192 942 541 1,404
Interest expense, net of amounts
capitalized................................. (22,146) (28,054) (68,191) (76,457)
Interest expense on indebtedness to Principal
Stockholder................................. (855) -- (3,031) (1,914)
Other income (expense)........................ -- 202 -- 565
Loss on early retirement of debt.............. (1,383) (8,629) (1,383) (50,372)
Income (loss) from equity investment in Mall
Subsidiary.................................. (269) 2,227 (1,730) 2,162
-------- -------- --------- ---------
Net income (loss)............................... $(12,748) $(21,474) $ 2,067 $ (57,931)
======== ======== ========= =========
Preferred interest.............................. (5,343) (6,003) (15,423) (17,330)
-------- -------- --------- ---------
Net loss available to LVSI...................... $(18,091) $(27,477) $ (13,356) $ (75,261)
======== ======== ========= =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-104
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2001 2002
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 2,067 $ (57,931)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
(Income) loss from equity investment in unconsolidated
Mall Subsidiary......................................... 1,730 (2,162)
Depreciation and amortization............................. 26,721 29,499
Amortization of debt offering costs and original issue
discount................................................ 4,502 5,390
Loss on early retirement of debt.......................... 1,383 50,372
Loss on disposal of assets................................ -- 301
Non-cash interest on completion guaranty loan............. 1,940 --
Changes in operating assets and liabilities:
Accounts receivable..................................... 6,200 3,710
Inventories............................................. (545) 171
Prepaid expenses........................................ (1,141) 343
Other assets............................................ (5,053) 2,198
Accounts payable........................................ 4,926 (18,752)
Accrued interest payable................................ 15,155 21,365
Other accrued liabilities............................... (10,996) 2,082
-------- ---------
Net cash provided by operating activities................... 46,889 36,586
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash ($153.4 million for Phase 1A
construction)........................................... (47) (153,994)
Capital expenditures...................................... (41,864) (72,324)
Capital contribution to unconsolidated Mall Subsidiary.... -- (37,864)
Dividend from unconsolidated Mall Subsidiary.............. -- 21,590
-------- ---------
Net cash used in investing activities....................... (41,911) (242,592)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on 12 1/4% mortgage notes...................... -- (425,000)
Proceeds from 11% mortgage notes.......................... -- 850,000
Repayments on senior subordinated notes................... -- (97,500)
Repayments on completion guaranty loan.................... -- (31,124)
Repayments on senior secured credit facility-term B....... -- (625)
Proceeds from senior secured credit facility-term B....... -- 250,000
Repayments on bank credit facility-term................... (382) (151,986)
Proceeds from bank credit facility-term................... 152,750
Repayments on bank credit facility-revolver............... (8,000) (61,000)
Proceeds from bank credit facility-revolver............... 48,000 21,000
Repayments on FF&E credit facility........................ (16,121) (53,735)
Repayments on Phase II Subidiary credit facility.......... -- (3,933)
Repayments on Phase II Subidiary unsecured bank loan...... -- (1,092)
Proceeds from Phase II Subsidiary unsecured bank loan..... 1,092 --
Repayments on bank credit facility-tranche A term loan.... (103,125) --
Repayments on bank credit facility-tranche B term loan.... (49,750) --
Repayments on bank credit facility-tranche C term loan.... (5,750) --
Proceeds from bank credit facility-tranche C term loan.... 5,750 --
Repurchase premiums incurred in connection with
refinancing transactions................................ (33,478)
Payments of deferred offering costs....................... (4,997) (38,010)
Net increase (decrease) in intercompany accounts.......... 6,283 (16,916)
-------- ---------
Net cash provided by financing activities................... 25,750 206,601
-------- ---------
Increase in cash and cash equivalents....................... 30,728 595
Cash and cash equivalents at beginning of period............ 4,302 10,919
-------- ---------
Cash and cash equivalents at end of period.................. $ 35,030 $ 11,514
======== =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-105
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto, for
the year ended December 31, 2001. The year end balance sheet data was derived
from audited financial statements but does not include all disclosures required
by generally accepted accounting principles. In addition, certain amounts in the
2001 financial statements have been reclassified to conform with the 2002
presentation. In the opinion of management, all adjustments and normal recurring
accruals considered necessary for a fair presentation of the results for the
interim period have been included. The interim results reflected in the
unaudited financial statements are not necessarily indicative of expected
results for the full year.
Venetian Casino Resort, LLC ("Venetian" or the "Company") was formed on
March 20, 1997 to own a planned two-phase hotel-casino resort. The first phase
of the hotel-casino resort (the "Casino Resort") includes 3,036 suites, casino
space approximating 116,000 square feet, approximately 500,000 square feet of
convention space, and approximately 475,000 gross leasable square feet of retail
shops and restaurants.
Las Vegas Sands, Inc. ("LVSI"), a Nevada corporation, is the managing member
and owns 100% of the common voting equity in Venetian. The entire preferred
interest in Venetian is owned by Interface Group Holding Company, Inc.
("Interface Holding"), which is wholly owned by LVSI's Principal stockholder
(the "Principal Stockholder").
Venentian operates the hotel and convention space of the Casino Resort. LVSI
holds the casino gaming license and is the operator of the casino located within
the Casino Resort. LVSI pays rent to Venetian for the use of space and certain
equipment used in the casino gaming operations. In addition, LVSI pays Venetian
for the use of hotel rooms and other services provided by Venetian to the casino
customers of LVSI. Accordingly, the accompanying financial statements reflect as
revenues the charges by Venetian to LVSI.
NEW ACCOUNTING PRONOUNCEMENT
In April 2002, the Financial Accounting Standards Board issued statement
No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64 and
Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations. The Company
has adopted SFAS 145 and will no longer present losses on early retirements of
debt as an extraordinary item. Additionally, prior period extraordinary losses
have been reclassified to conform to this new presentation. Adoption of
SFAS 145 had no impact on the Company's financial condition or cash flows.
NOTE 2--PROPERTY AND EQUIPMENT
During the three month and nine month periods ended September 30, 2001 and
September 30, 2002, the Company capitalized interest expense of $0.8 million and
$1.4 million, and $0.7 million and $1.5 million, respectively.
As of September 30, 2002, $125.8 million in construction in progress
represented construction costs and project design for an approximately
1,000-room hotel tower on top of the Casino Resort's existing parking garage, an
approximately 1,000-parking space expansion to the parking garage and
approximately 150,000 square feet of additional convention center space on the
Phase II Land
F-106
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PROPERTY AND EQUIPMENT (CONTINUED)
(collectively, the "Phase IA Addition"), design and shared facilities costs for
the planned second phase of the Casino Resort, to be owned by the Phase II
Subsidiary (the "Phase II Resort"), design and pre-development costs for a
casino in Macau, and on-going capital improvement projects at the Casino Resort.
NOTE 3--LONG-TERM DEBT
On June 4, 2002, LVSI and the Company completed a series of refinancing
transactions (collectively, the "Refinancing Transactions") including (1) the
issuance of $850.0 million in aggregate principal amount of 11% mortgage notes
due 2010 (the "Mortgage Notes") in a private placement, (2) entering into a new
senior secured credit facility (the "Senior Secured Credit Facility") with a
syndicate of lenders in an aggregate amount of $375.0 million, and (3) entering
into a secured mall facility (the "Secured Mall Facility") in an aggregate
amount of $105.0 million, which was subsequently increased to $120.0 million on
June 28, 2002 (as described in Note 6, as the New Mall Subsidiary has been
accounted for as an unconsolidated subsidiary, the Secured Mall Facility is not
indebtedness of the Company). LVSI and the Company used the proceeds of the
Refinancing Transactions to repay, redeem or repurchase all of its outstanding
indebtedness (including the Old Notes, the Bank Credit Facility, the FF&E
Facility, the Completion Guaranty Loan, the Mall Take-out Financing, the
Phase II Unsecured Bank Loan and the Phase II Subsidiary Credit Facility), to
finance the construction and development of the Phase IA Addition and to pay all
fees and expenses associated with the Refinancing Transactions. In addition, the
Principal Stockholder's completion guarantee relating to the construction of the
Casino Resort was terminated upon the consummation of the Refinancing
Transactions and the remaining cash collateral was returned to the Principal
Stockholder. In connection with the Refinancing Transactions, LVSI and the
Company incurred a loss on early retirement of indebtedness of $8.6 million and
$51.4 million during the three and nine months ended September 30, 2002.
As part of the Refinancing Transactions, LVSI and the Company also commenced
a cash tender offer on May 6, 2002 to repurchase the Old Notes. Upon the
consummation of the Refinancing Transactions, LVSI and the Company repurchased
$316.6 million of the Old Mortgage Notes and $95.7 million of the Old
Subordinated Notes and effected a covenant defeasance with respect to the
remaining Mortgage Notes. LVSI and the Company called all of the remaining Old
Notes upon the closing of the Refinancing Transactions and redeemed the balance
of the Old Mortgage Notes ($108.4 million) and the Old Subordinated Notes
($1.8 million) on July 5, 2002.
MORTGAGE NOTES
The Mortgage Notes are secured by second priority liens on certain assets of
the Company (the personal property and the real estate improvements that
comprise the hotel, the casino, and the convention space, with certain
exceptions). The Mortgage Notes are redeemable at the option of LVSI and
Venetian at prices ranging from 100% to 105.5% commencing on or after June 15,
2006, as set forth in the Mortgage Notes and the indenture pursuant to which the
Mortgage Notes were issued (the "Indenture"). Prior to June 15, 2006, LVSI and
Venetian may redeem the Mortgage Notes at their principal amount plus an
applicable make-whole premium. Upon a change of control (as defined in the
Indenture), each Mortgage Note holder may require LVSI and Venetian to
F-107
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--LONG-TERM DEBT (CONTINUED)
repurchase such Mortgage Notes at 101% of the principal amount thereof plus
accrued interest and other amounts which are then due, if any. Upon an event of
loss or certain asset sales, the Company may also be required to offer to
purchase all or a portion of the Mortgage Notes with the proceeds of such event
of loss or sale. The Mortgage Notes are not subject to a sinking fund
requirement.
The Company is committed under a registration rights agreement to use its
commercially reasonable efforts prior to 180 days after the closing date to
effect a registered exchange offer for the Mortgage Notes or, subject to certain
conditions, to provide a shelf registration for the Mortgage Notes. Should the
Company not meet certain requirements of the registration rights agreement,
liquidated damages in the amount of 0.25% to 2.00% per annum of the aggregate
principal amount of the Mortgage Notes would accrue until such defaults are
cured.
SENIOR SECURED CREDIT FACILITY
The Senior Secured Credit Facility provides for a $250.0 million single draw
senior secured term loan facility (the "Term B Facility"), a $50.0 million
senior secured delayed draw facility (the "Term A Facility") and a
$75.0 million senior secured revolving facility (the "Revolving Facility"). Term
B Facility proceeds of $185.0 million were deposited into restricted accounts,
invested in cash or permitted investments and pledged to a disbursement agent
for the Senior Secured Credit Facility lenders. The $185.0 million will be used
as required for Phase IA Addition project costs under disbursement terms
specified in the Senior Secured Credit Facility. The disbursement account is
subject to a security interest in favor of the lenders under the Senior Secured
Credit Facility.
The Term B Facility matures on June 4, 2008 and is subject to quarterly
amortization payments in the amount of $625,000 from September 30, 2002 until
September 30, 2007, followed by four equal quarterly amortization payments of
$59.4 million until the maturity date. The Term A Facility is available from the
closing date of the Senior Secured Credit Facility through the first anniversary
of the closing date, subject to certain conditions. The Term A Facility matures
on June 4, 2007 and is subject to quarterly amortization payments commencing on
December 31, 2003 in the amount of $1,666,667 for three quarters, $2,500,000 for
the succeeding four quarters, $3,750,000 for the next four quarters and
$5,000,000 for the final four quarters. The Revolving Facility matures on
June 4, 2007 and has no interim amortization. No amounts had been drawn under
the Term A Facility or the Revolving Facility as of September 30, 2002.
NOTE 4--REDEEMABLE PREFERRED INTEREST IN VENETIAN CASINO RESORT, LLC
During the three and nine month periods ended September 30, 2001 and
September 30, 2002, $5.3 million and $15.4 million, and $6.0 million and
$17.3 million, respectively, were accrued on the Series B Preferred Interest.
F-108
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--COMMITMENTS AND CONTINGENCIES
CONSTRUCTION LITIGATION
The Company is party to litigation matters and claims related to its
operations and construction of the Casino Resort that could have a material
adverse effect on the financial position, results of operations or cash flows of
the Company to the extent such litigation is not covered by the Insurance Policy
(as defined below).
The construction of the principal components of the Casino Resort was
undertaken by Lehrer McGovern Bovis, Inc. (the "Construction Manager") pursuant
to a construction management agreement and certain amendments thereto (as so
amended, the "Construction Management Contract"). The Construction Management
Contract established a final guaranteed maximum price (the "Final GMP") of
$645.0 million, so that, subject to certain exceptions (including an exception
for cost overruns due to "scope changes"), the Construction Manager was
responsible for any costs of the work covered by the Construction Management
Contract in excess of the Final GMP. The obligations of the Construction Manager
under the Construction Management Contract are guaranteed by Bovis, Inc.
("Bovis" and such guaranty, the "Bovis Guaranty"), the Construction Manager's
direct parent at the time the Construction Management Contract was entered into.
Bovis' obligations under the Bovis Guaranty are guaranteed by The Peninsular and
Oriental Steam Navigation Company ("P&O"), a British public company and the
Construction Manager's ultimate parent at the time the Construction Management
Contract was entered into (such guaranty, the "P&O Guaranty").
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations under the Bovis Guaranty, including failure to fully
pay trade contractors and vendors and failure to meet the April 21, 1999
guaranteed completion date. The Company amended this complaint on November 23,
1999 to add P&O as an additional defendant. The suit is intended to ask the
courts, among other remedies, to require the Construction Manager and its
guarantors to pay its contractors, to compensate Venetian for the Construction
Manager's failure to perform its duties under the Construction Management
Contract and to pay the Company the agreed upon liquidated damages penalty for
failure to meet the guaranteed substantial completion date. Venetian seeks total
damages in excess of $100.0 million. The Construction Manager subsequently filed
motions to dismiss the Company's complaint on various grounds, which the Company
opposed. The Construction Manager's motions were either denied by the court or
voluntarily withdrawn.
In response to Venetian's breach of contract claims against the Construction
Manager, Bovis and P&O, the Construction Manager filed a complaint on August 3,
1999 against Venetian in the District Court of Clark County, Nevada. The action
alleges a breach of contract and QUANTUM MERUIT claims under the Construction
Management Contract and also alleges that Venetian defrauded the Construction
Manager in connection with the construction of the Casino Resort. The
Construction Manager seeks damages, attorney's fees and costs and punitive
damages. In the lawsuit, the Construction Manager claims that it is owed
approximately $90.0 million from Venetian and its affiliates. This complaint was
subsequently amended by the Construction Manager, which also filed an additional
complaint against the Company relating to work done and funds advanced with
F-109
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED)
respect to the contemplated development of the Phase II Resort. Based upon its
review of the complaints, the Company believes that the Construction Manager has
not provided Venetian with reasonable documentation to support such claims, the
Construction Manager has materially breached its agreements with the Company and
the Construction Manager's claims are without merit. The Company intends to
vigorously defend itself and pursue its claims against the Construction Manager
in any litigation.
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. The Company believes that a
major reason these lien amounts exceed the Construction Manager's claims of
$90.0 million is based upon a duplication of liens through the inclusion of
lower-tier claims by subcontractors in the liens of higher-tier contractors,
including the lien of the Construction Manager. As of December 31, 1999, the
Company had purchased surety bonds for virtually all of the claims underlying
these liens (other than approximately $15.0 million of claims with respect to
which the Construction Manager purchased bonds). As a result, there can be no
foreclosure of the Casino Resort in connection with the claims of the
Construction Manager and its subcontractors. However, the Company will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
The Company believes that these claims are, in general, unsubstantiated,
without merit, overstated, and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Company believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Company may also have a variety of other defenses to
the liens that have been filed, including, for example, the fact that the
Construction Manager and its subcontractors previously waived or released their
rights to file liens against the Casino Resort. The Company intends to
vigorously defend itself in any lien proceedings.
On August 9, 1999, the Company notified the insurance companies providing
coverage under its liquidated damages insurance policy (the "LD Policy") that it
has a claim under the LD Policy. The LD Policy provides insurance coverage for
the failure of the Construction Manager to achieve substantial completion of the
portions of the Casino Resort covered by the Construction Management Contract
within 30 days of the April 21, 1999 deadline, with a maximum liability under
the LD Policy of approximately $24.1 million and with coverage being provided,
on a per-day basis, for days 31-120 of the delay in the achievement of
substantial completion. Because the Company believes that substantial completion
was not achieved until November 12, 1999, the Company's claim under the LD
Policy is likely to be for the above-described maximum liability of
$24.1 million. The Company expects the LD Policy insurers to assert many of the
same claims and defenses that the Construction Manager has asserted or will
assert in the above-described litigations. Liability under the LD Policy may
ultimately be determined by binding arbitration.
In June 2000, the Company purchased an insurance policy (the "Insurance
Policy") for loss coverage in connection with all litigation relating to the
construction of the Casino Resort (the
F-110
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED)
"Construction Litigation"). Under the Insurance Policy, the Company will
self-insure the first $45.0 million and the insurer will insure up to the next
$80.0 million of any possible covered losses. The Insurance Policy provides
coverage for any amounts determined in the Construction Litigation to be owed to
the Construction Manager or its subcontractors relating to claimed delays,
inefficiencies, disruptions, lack of productivity/unauthorized overtime or
schedule impact, allegedly caused by the Company during construction of the
Casino Resort, as well as any defense costs.
The Company and the Construction Manager commenced a trial in state court in
Clark County, Nevada to litigate certain of their respective claims in
August 2002. Many of the remaining claims between the parties that are the
subject of the state court action and the federal court action, will be
proceeding concurrently in independent arbitration hearings. It is not yet
possible to determine a range of loss or the ultimate outcome of the litigation.
If any litigation or other lien proceedings concerning the claims of the
Construction Manager or its subcontractors were decided adversely to the
Company, such litigation or other lien proceedings could have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company to the extent such litigation or lien proceedings are not covered by the
Insurance Policy.
F-111
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INVESTMENT IN UNCONSOLIDATED MALL SUBSIDIARY
Venetian has a non-controlling investment in the New Mall Subsidiary, the
controlling interest of which is held indirectly by LVSI. The Company uses the
equity method of accounting for this investment.
Summarized balance sheet information and operating results for the
unconsolidated subsidiary are as follows:
<Table>
<Caption>
DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
Cash............................................. $ 6,650 $ 7,309
Restricted cash.................................. 1,118 1,810
Other current assets............................. 1,799 1,267
Property and equipment, net...................... 136,167 132,804
Other current liabilities........................ (3,822) (3,358)
Notes payable.................................... (140,000) (120,000)
Members' equity.................................. 7,560 26,063
</Table>
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------
2001 2002 2001 2002
--------- --------- -------- --------
Revenue............................................ $ 8,854 $ 9,643 $ 25,680 $27,262
Operating expenses................................. 5,452 6,029 15,772 16,982
Operating income................................... 3,402 3,614 9,908 10,280
Interest expense, net.............................. (3,679) (1,396) (11,691) (7,109)
Other income (expense)............................. -- 78 -- 78
Loss on early debt retirement...................... -- -- -- (1,020)
------- ------- -------- -------
Net income (loss).................................. $ (277) $ 2,296 $ (1,783) $ 2,229
======= ======= ======== =======
</Table>
NOTE 7--SUMMARIZED FINANCIAL INFORMATION
LVSI and Venetian are co-obligors of the Mortgage Notes and the indebtedness
under the Senior Secured Credit Facility and are jointly and severally liable
for such indebtedness. Venetian, Mall Intermediate, Mall Construction, Lido
Intermediate, Venetian Venture, Venetian Athens, Venetian Marketing and Venetian
Operating (collectively, the "Subsidiary Guarantors") are subsidiaries of LVSI,
all of the capital stock of which is owned by LVSI and Venetian. The Subsidiary
Guarantors have jointly and severally guaranteed (or are co-obligors of) such
debt on a full and unconditional basis. The Mall is owned by the Mall II
Subsidiary, a non-guarantor subsidiary which is the borrower under the Secured
Mall Facility.
F-112
<Page>
VENETIAN RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
Separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented below because management that they are not
material to investors. Summarized financial information of Venetian and the
guarantor and the non-guarantor subsidiaries on a combined basis as of
September 30, 2002 and December 31, 2001 and for the three and nine month
periods ended September 30, 2002 and September 30, 2001 is as follows (in
thousands):
CONDENSED BALANCE SHEETS
DECEMBER 31, 2001
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-----------------------------------------
LIDO MALL VENETIAN OTHER
VENETIAN INTERMEDIATE INTERMEDIATE VENTURE NON-GUARANTOR CONSOLIDATING/
CASINO RESORT HOLDING HOLDING DEVELOPMENT SUBSIDIARIES ELIMINATING
LLC COMPANY LLC COMPANY LLC LLC (1) ENTRIES
------------- ------------ ------------ ----------- ------------- --------------
Cash and cash equivalents.............. $ 7,806 $ 4 $ 4 $ $ 3,105 $
Restricted cash and investments........ 1,528
Receivable from affiliates............. 1,508 (1,508)
Accounts receivable, net............... 18,240
Inventories............................ 4,747
Prepaid expenses....................... 2,953
---------- ------- ------- ------- ------- --------
Total current assets................. 35,274 4 4 4,613 (1,508)
Property and equipment, net............ 878,239 81,901
Investment in consolidated
subsidiaries......................... 79,097 (79,097)
Investment in unconsolidated Mall
Subsidiary........................... 7,560
Deferred offering costs, net........... 16,250 836
Other assets........................... 25,691
---------- ------- ------- ------- ------- --------
$1,042,111 $ 4 $ 4 $ $87,350 $(80,605)
========== ======= ======= ======= ======= ========
Accounts payable....................... $ 33,105 $ $ $ $ $
Construction payable................... 22,955 3,160
Construction payable-contested......... 7,232
Intercompany payables.................. 1,508 (1,508)
Payable to affiliates.................. 5,837
Accrued interest payable............... 9,125 11
Other accrued liabilities.............. 47,074 65
Current maturities of long-term debt... 23,021 1,092
---------- ------- ------- ------- ------- --------
Total current liabilities............ 149,857 4,328 (1,508)
Other long-term liabilities............ 3,274
Long-term debt......................... 741,813 3,933
Long-term subordinated loans payable to
Principal Stockholder................ 31,123
---------- ------- ------- ------- ------- --------
926,067 8,261 (1,508)
---------- ------- ------- ------- ------- --------
Redeemable Preferred Interest held
indirectly by Principal Stockholder
of LVSI.............................. 188,778
---------- ------- ------- ------- ------- --------
Stockholder's equity (deficit)......... (72,734) 4 4 79,089 (79,097)
---------- ------- ------- ------- ------- --------
$1,042,111 $ 4 $ 4 $ $87,350 $(80,605)
========== ======= ======= ======= ======= ========
<Caption>
TOTAL
----------
Cash and cash equivalents.............. $ 10,919
Restricted cash and investments........ 1,528
Receivable from affiliates.............
Accounts receivable, net............... 18,240
Inventories............................ 4,747
Prepaid expenses....................... 2,953
----------
Total current assets................. 38,387
Property and equipment, net............ 960,140
Investment in consolidated
subsidiaries.........................
Investment in unconsolidated Mall
Subsidiary........................... 7,560
Deferred offering costs, net........... 17,086
Other assets........................... 25,691
----------
$1,048,864
==========
Accounts payable....................... $ 33,105
Construction payable................... 26,115
Construction payable-contested......... 7,232
Intercompany payables..................
Payable to affiliates.................. 5,837
Accrued interest payable............... 9,136
Other accrued liabilities.............. 47,139
Current maturities of long-term debt... 24,113
----------
Total current liabilities............ 152,677
Other long-term liabilities............ 3,274
Long-term debt......................... 745,746
Long-term subordinated loans payable to
Principal Stockholder................ 31,123
----------
932,820
----------
Redeemable Preferred Interest held
indirectly by Principal Stockholder
of LVSI.............................. 188,778
----------
Stockholder's equity (deficit)......... (72,734)
----------
$1,048,864
==========
</Table>
- ----------------------------------
(1) Land with a historical cost basis of $29.2 million was transferred from
Venetian Casino Resort, a co-obligor of the Notes, to Lido Casino Resort, a
non-guarantor subsidiary, in October 1998 and land with a value of $11.8
million was indirectly contributed by the Principal Stockholder during
December 1999.
F-113
<Page>
VENETIAN RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2002
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-----------------------------------------
LIDO MALL OTHER
INTERMEDIATE INTERMEDIATE VENETIAN NON-
VENETIAN HOLDING HOLDING VENTURE GUARANTOR
CASINO RESORT COMPANY COMPANY DEVELOPMENT SUBSIDIARIES
LLC LLC LLC LLC (1)
------------- ------------ ------------ ----------- ------------
Cash and cash equivalents................... $ 11,409 $ 3 $ 3 $ $ 99
Restricted cash and investments............. 14,908
Receivables from affiliates................. 11,079
Accounts receivable, net.................... 14,530
Inventories................................. 4,576
Prepaid expenses............................ 2,610
---------- -------- -------- -------- --------
Total current assets........................ 59,112 3 3 99
Property and equipment, net................. 909,905 1,258 82,669
Investment in consolidated subsidiaries..... 83,959
Investment in unconsolidated Grand Canal
Shop II................................... 26,000
Deferred offering costs, net................ 36,197
Restricted Cash and investments............. 140,614
Other assets, net........................... 23,493
---------- -------- -------- -------- --------
$1,279,280 $ 3 $ 3 $ 1,258 $ 82,768
========== ======== ======== ======== ========
Accounts payable............................ $ 14,353 $ $ $ $
Construction payable........................ 17,284
Construction payable-contested.............. 7,232
Accrued interest payable.................... 30,501
Other accrued liabilities................... 51,221 73
Current maturities of long-term debt........ 2,500
---------- -------- -------- -------- --------
Total current liabilities................... 123,091 73
Other long-term liabilities................. 1,201
Long-term debt.............................. 1,096,875
---------- -------- -------- -------- --------
1,221,167 73
---------- -------- -------- -------- --------
Redeemable Preferred interest held
indirectly by Principal
Stockholder of LVSI......................... 206,108
---------- -------- -------- -------- --------
Member's equity (deficit)................... (147,995) 3 3 1,258 82,695
---------- -------- -------- -------- --------
$1,279,280 $ 3 $ 3 $ 1,258 $ 82,768
========== ======== ======== ======== ========
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ----------
Cash and cash equivalents................... $ $ 11,514
Restricted cash and investments............. 14,908
Receivables from affiliates................. 11,079
Accounts receivable, net.................... 14,530
Inventories................................. 4,576
Prepaid expenses............................ 2,610
-------- ----------
Total current assets........................ 59,217
Property and equipment, net................. 993,832
Investment in consolidated subsidiaries..... (83,959)
Investment in unconsolidated Grand Canal
Shop II................................... 26,000
Deferred offering costs, net................ 36,197
Restricted Cash and investments............. 140,614
Other assets, net........................... 23,493
-------- ----------
$(83,959) $1,279,353
======== ==========
Accounts payable............................ $ $ 14,353
Construction payable........................ 17,284
Construction payable-contested.............. 7,232
Accrued interest payable.................... 30,501
Other accrued liabilities................... 51,294
Current maturities of long-term debt........ 2,500
-------- ----------
Total current liabilities................... 123,164
Other long-term liabilities................. 1,201
Long-term debt.............................. 1,096,875
-------- ----------
1,221,240
-------- ----------
Redeemable Preferred interest held
indirectly by Principal
Stockholder of LVSI......................... 206,108
-------- ----------
Member's equity (deficit)................... (83,959) (147,995)
-------- ----------
$(83,959) $1,279,353
======== ==========
</Table>
- ----------------------------------
(1) Land with a historical cost basis of $29.2 million was transferred from
Venetian, a co-obligor of the Notes, to the Phase II Subsidiary, a
non-guarantor subsidiary, in October 1998 and land with a value of $11.8
million was indirectly contributed by the Principal Stockholder during
December 1999.
F-114
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-----------------------------------------
LIDO MALL VENETIAN OTHER
VENETIAN INTERMEDIATE INTERMEDIATE VENTURE NON- CONSOLIDATING/
CASINO RESORT HOLDING HOLDING DEVELOPMENT GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------------ ----------- ------------ -------------- ---------
Revenues:
Room.................... $ 43,688 $ $ $ $ $ (1,289) $ 42,399
Food and beverage....... 11,731 (26) 11,705
Casino rental revenue
from LVSI............. 11,563 11,563
Retail and other........ 8,071 (347) 7,724
-------- ------ ------ ------- ------- -------- ---------
Total revenues.......... 75,053 (1,662) 73,391
Less promotional
allowance............... (1,662) 1,662
-------- ------ ------ ------- ------- -------- ---------
Net revenues............ 73,391 73,391
-------- ------ ------ ------- ------- -------- ---------
Operating expenses:
Casino..................
Rooms................... 13,535 13,535
Food and beverage....... 8,902 8,902
Retail and other........ 5,717 5,717
Provision for doubtful
accounts.............. 266 266
General and
administrative........ 22,359 1 22,360
Corporate expense....... 996 996
Rental expense.......... 1,235 1,235
Depreciation and
amortization.......... 8,667 8,667
-------- ------ ------ ------- ------- -------- ---------
61,677 1 61,678
-------- ------ ------ ------- ------- -------- ---------
Operating income (loss)... 11,714 (1) 11,713
-------- ------ ------ ------- ------- -------- ---------
Other income (expense):
Interest income......... 192 192
Interest expense, net of
amounts capitalized... (22,146) (22,146)
Interest expense on
indebtedness to
Principal
Stockholder........... (855) (855)
Loss on early retirement
of debt............... (1,383) (1,383)
Income (loss) from
equity investment in
Grand Canal Shop II... (269) (269)
Income (loss) from
equity investment in
consolidated
subsidiaries.......... (1) 1
-------- ------ ------ ------- ------- -------- ---------
Income (loss)........... (12,748) (1) 1 (12,748)
Preferred return on
Redeemable Preferred
Interest held indirectly
by Principal Stockholder
of LVSI................. (5,343) (5,343)
Member's equity (deficit),
beginning of period..... (46,435) 4 4 78,074 (78,082) (46,435)
-------- ------ ------ ------- ------- -------- ---------
Member's equity (deficit),
end of period........... $(64,526) $ 4 $ 4 $ $78,073 $(78,081) $ (64,526)
======== ====== ====== ======= ======= ======== =========
</Table>
F-115
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-----------------------------------------
LIDO MALL VENETIAN OTHER
VENETIAN INTERMEDIATE INTERMEDIATE VENTURE NON- CONSOLIDATING/
CASINO RESORT HOLDING HOLDING DEVELOPMENT GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------------ ----------- ------------ -------------- ---------
Revenues:
Room.................... $ 47,592 $ $ $ $ $ (730) $ 46,862
Food and beverage....... 15,305 (6) 15,299
Casino rental revenues
from LVSI............. 10,632 10,632
Retail and other........ 8,642 (262) 8,380
--------- ------ ------ ------- ------- -------- ---------
Total revenues.......... 82,171 (998) 81,173
Less promotional
allowance............... (998) 998
--------- ------ ------ ------- ------- -------- ---------
Net revenues............ 81,173 81,173
--------- ------ ------ ------- ------- -------- ---------
Operating expenses:
Rooms................... 14,692 14,692
Food and beverage....... 10,397 10,397
Retail and other........ 5,221 5,221
Provision for doubtful
accounts.............. 1,350 1,350
General and
administrative........ 24,360 1 1 24,362
Corporate expense....... 1,225 1,225
Rental expense.......... 1,167 1,167
Pre-opening and
developmental
expense............... (5) 1,031 1,026
Depreciation and
amortization.......... 9,895 9,895
--------- ------ ------ ------- ------- -------- ---------
68,302 1 1 1,031 69,335
--------- ------ ------ ------- ------- -------- ---------
Operating income (loss)... 12,871 (1) (1) (1,031) 11,838
--------- ------ ------ ------- ------- -------- ---------
Other income (expense):
Interest income......... 942 942
Interest expense, net of
amounts capitalized... (28,054) (28,054)
Other expenses.......... 202 202
Loss on early retirement
of debt............... (8,629) (8,629)
Loss from equity
investment in Grand
Canal Shop II......... 2,227 2,227
Income (loss) from
equity investment in
consolidated
subsidiaries.......... (1,033) 1,033
--------- ------ ------ ------- ------- -------- ---------
Net income (loss)......... (21,474) (1) (1) (1,031) 1,033 (21,474)
Preferred return on
Redeemable Preferred
Interest held indirectly
by Principal Stockholder
of LVSI................. (6,003) (6,003)
Capital contributions..... 2,289 272 (2,561)
Member's equity (deficit),
beginning of period..... (120,518) 4 4 82,423 (82,431) (120,518)
--------- ------ ------ ------- ------- -------- ---------
Member's equity (deficit),
end of period........... $(147,995) $ 3 $ 3 $ 1,258 $82,695 $(83,959) $(147,995)
========= ====== ====== ======= ======= ======== =========
</Table>
F-116
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
---------------------------------------------
MALL
LIDO INTERMEDIATE VENETIAN OTHER
VENETIAN INTERMEDIATE HOLDING VENTURE NON-
CASINO RESORT HOLDING COMPANY DEVELOPMENT GUARANTOR
LLC COMPANY LLC LLC LLC SUBSIDIARIES
-------------- -------------- ------------ ------------- ------------
Revenues:
Room........................................ $ 159,702 $ $ $ $
Food and beverage........................... 49,088
Casino rental revenue from LVSI............. 34,410
Retail and other............................ 26,072
--------- -------- -------- -------- -------
Total revenues.............................. 269,272
Less promotional allowance.................... (4,370)
--------- -------- -------- -------- -------
Net revenues................................ 264,902
--------- -------- -------- -------- -------
Operating expenses:
Rooms....................................... 42,972
Food and beverage........................... 30,705
Retail and other............................ 15,288
Provision for doubtful accounts............. 266
General and administrative.................. 66,111 1
Corporate expense........................... 2,892
Rental expense.............................. 4,085
Depreciation and amortization............... 26,721
--------- -------- -------- -------- -------
189,040 1
--------- -------- -------- -------- -------
Operating income (loss)....................... 75,862 (1)
--------- -------- -------- -------- -------
Other income (expense):
Interest income............................. 541
Interest expense, net of amounts
capitalized............................... (68,191)
Interest expense on indebtedness to
Principal Stockholder..................... (3,031)
Loss on early retirement of debt............ (1,383)
Income (loss) from equity investment in
Grand Canal Shop II....................... (1,730)
Income (loss) from equity investment in
consolidated subsidiaries................. (1)
--------- -------- -------- -------- -------
Income (loss)................................. 2,067 (1)
Preferred return on Redeemable Preferred
Interest held indirectly by Principal
Stockholder of LVSI......................... (15,423)
Member's equity (deficit), beginning of
period...................................... (46,415) 4 4 78,074
--------- -------- -------- -------- -------
Member's equity (deficit), end of period...... $ (59,771) $ 4 $ 4 $ $78,073
========= ======== ======== ======== =======
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ---------
Revenues:
Room........................................ $ (3,209) $ 156,493
Food and beverage........................... (475) 48,613
Casino rental revenue from LVSI............. 34,410
Retail and other............................ (686) 25,386
-------- ---------
Total revenues.............................. (4,370) 264,902
Less promotional allowance.................... 4,370
-------- ---------
Net revenues................................ 264,902
-------- ---------
Operating expenses:
Rooms....................................... 42,972
Food and beverage........................... 30,705
Retail and other............................ 15,288
Provision for doubtful accounts............. 266
General and administrative.................. 66,112
Corporate expense........................... 2,892
Rental expense.............................. 4,085
Depreciation and amortization............... 26,721
-------- ---------
189,041
-------- ---------
Operating income (loss)....................... 75,861
-------- ---------
Other income (expense):
Interest income............................. 541
Interest expense, net of amounts
capitalized............................... (68,191)
Interest expense on indebtedness to
Principal Stockholder..................... (3,031)
Loss on early retirement of debt............ (1,383)
Income (loss) from equity investment in
Grand Canal Shop II....................... (1,730)
Income (loss) from equity investment in
consolidated subsidiaries................. 1
-------- ---------
Income (loss)................................. 1 2,067
Preferred return on Redeemable Preferred
Interest held indirectly by Principal
Stockholder of LVSI......................... (15,423)
Member's equity (deficit), beginning of
period...................................... (78,082) (46,415)
-------- ---------
Member's equity (deficit), end of period...... $(78,081) $ (59,771)
======== =========
</Table>
F-117
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
---------------------------------------------
MALL
LIDO INTERMEDIATE VENETIAN OTHER
VENETIAN INTERMEDIATE HOLDING VENTURE NON-
CASINO RESORT HOLDING COMPANY DEVELOPMENT GUARANTOR
LLC COMPANY LLC LLC LLC SUBSIDIARIES
-------------- -------------- ------------ ------------- ------------
Revenues:
Room........................................ $ 156,605 $ $ $ $
Food and beverage........................... 54,838
Casino rental revenues from LVSI............ 33,163
Retail and other............................ 25,613 3,333
--------- -------- -------- -------- -------
Total revenues.............................. 270,219 3,333
Less promotional allowance.................... (2,763)
--------- -------- -------- -------- -------
Net revenues................................ 267,456 3,333
--------- -------- -------- -------- -------
Operating expenses:
Rooms....................................... 43,387
Food and beverage........................... 33,053
Retail and other............................ 14,257
Provision for doubtful accounts............. 4,500
General and administrative.................. 66,729 1 1
Corporate expense........................... 3,111
Rental expense.............................. 6,473
Pre-opening and developmental expense....... 3,097
Depreciation and amortization............... 29,499
--------- -------- -------- -------- -------
201,009 1 1 3,097
--------- -------- -------- -------- -------
Operating income (loss)....................... 66,447 (1) (1) (3,097) 3,333
--------- -------- -------- -------- -------
Other income:
Interest income............................. 1,404
Interest expense, net of amounts
capitalized............................... (75,921) (536)
Interest expense on indebtedness to
Principal Stockholder..................... (1,914)
Other income................................ 565
Loss on early retirement of debt............ (49,865) (507)
Income (loss) from equity investment in
Grand Canal Shop II....................... 2,162
Income (loss) from equity investment in
consolidated subsidiaries................. (809)
--------- -------- -------- -------- -------
Income (loss)................................. (57,931) (1) (1) (3,097) 2,290
Preferred return on Redeemable Preferred
Interest held indirectly by Principal
Stockholder of LVSI....................... (17,330)
Capital contributions....................... 4,355 1,316
Member's equity (deficit), beginning of
period.................................... (72,734) 4 4 79,089
--------- -------- -------- -------- -------
Member's equity (deficit), end of period.... $(147,995) $ 3 $ 3 $ 1,258 $82,695
========= ======== ======== ======== =======
<Caption>
CONSOLIDATING/
ELIMINATING
ENTRIES TOTAL
-------------- ---------
Revenues:
Room........................................ $ (2,016) $ 154,589
Food and beverage........................... (215) 54,623
Casino rental revenues from LVSI............ 33,163
Retail and other............................ (3,865) 25,081
-------- ---------
Total revenues.............................. (6,096) 267,456
Less promotional allowance.................... 2,763
-------- ---------
Net revenues................................ (3,333) 267,456
-------- ---------
Operating expenses:
Rooms....................................... 43,387
Food and beverage........................... 33,053
Retail and other............................ 14,257
Provision for doubtful accounts............. 4,500
General and administrative.................. 66,731
Corporate expense........................... 3,111
Rental expense.............................. (3,333) 3,140
Pre-opening and developmental expense....... 3,097
Depreciation and amortization............... 29,499
-------- ---------
(3,333) 200,775
-------- ---------
Operating income (loss)....................... 66,681
-------- ---------
Other income:
Interest income............................. 1,404
Interest expense, net of amounts
capitalized............................... (76,457)
Interest expense on indebtedness to
Principal Stockholder..................... (1,914)
Other income................................ 565
Loss on early retirement of debt............ (50,372)
Income (loss) from equity investment in
Grand Canal Shop II....................... 2,162
Income (loss) from equity investment in
consolidated subsidiaries................. 809
-------- ---------
Income (loss)................................. 809 (57,931)
Preferred return on Redeemable Preferred
Interest held indirectly by Principal
Stockholder of LVSI....................... (17,330)
Capital contributions....................... (5,671)
Member's equity (deficit), beginning of
period.................................... (79,097) (72,734)
-------- ---------
Member's equity (deficit), end of period.... $(83,959) $(147,995)
======== =========
</Table>
F-118
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-----------------------------------------
LIDO MALL VENETIAN OTHER
VENETIAN INTERMEDIATE INTERMEDIATE VENTURE NON- CONSOLIDATING/
CASINO RESORT HOLDING HOLDING DEVELOPMENT GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------------ ----------- ------------ -------------- ---------
Net cash provided by
operating activities.... $ 46,799 $ $ $ $ 90 $ $ 46,889
--------- ------ ------ ------ ------ ------ --------
Cash flows from investing
activities:
Increase in restricted
cash.................. (47) (47)
Capital expenditures.... (41,009) (855) (41,864)
--------- ------ ------ ------ ------ ------ --------
Net cash used in investing
activities.............. (41,056) (855) (41,911)
--------- ------ ------ ------ ------ ------ --------
Cash flows from financing
activities:
Repayments on bank
credit facility-
tranche A term loan... (103,125) (103,125)
Repayments on bank
credit facility-
tranche B term loan... (49,750) (49,750)
Repayments on bank
credit facility-
tranche C term loan... (5,750) (5,750)
Proceeds from bank
credit facility-
tranche C term loan... 5,750 5,750
Repayments on bank
credit facility-
term.................. (382) (382)
Proceeds from bank
credit facility-term.. 152,750 152,750
Repayments on bank
credit facility-
revolver.............. (8,000) (8,000)
Proceeds from bank
credit facility-
revolver.............. 48,000 48,000
Repayments on FF&E
credit facility....... (16,121) (16,121)
Proceeds from Phase II
Subsidiary unsecured
bank loan............. 1,092 1,092
Payments of deferred
offering costs........ (4,697) (300) (4,997)
Net decrease in
intercompany
accounts.............. 6,283 6,283
--------- ------ ------ ------ ------ ------ --------
Net cash provided by
financing activities.... 24,958 792 25,750
--------- ------ ------ ------ ------ ------ --------
Increase (decrease) in
cash and cash
equivalents............. 30,701 27 30,728
Cash and cash equivalents
at beginning of
period.................. 4,260 4 4 34 4,302
--------- ------ ------ ------ ------ ------ --------
Cash and cash equivalents
at end of period........ $ 34,961 $ 4 $ 4 $ $ 61 $ $ 35,030
========= ====== ====== ====== ====== ====== ========
</Table>
F-119
<Page>
VENETIAN CASINO RESORT, LLC
(A SUBSIDIARY OF LAS VEGAS SANDS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
GUARANTOR SUBSIDIARIES
-----------------------------------------
LIDO MALL VENETIAN OTHER
VENETIAN INTERMEDIATE INTERMEDIATE VENTURE NON- CONSOLIDATING/
CASINO RESORT HOLDING HOLDING DEVELOPMENT GUARANTOR ELIMINATING
LLC COMPANY LLC COMPANY LLC LLC SUBSIDIARIES ENTRIES TOTAL
------------- ------------ ------------ ----------- ------------ -------------- ---------
Net cash provided by (used
in) operating
activities.............. $ 36,556 $ (1) $ (1) $(3,097) $ 3,129 $ $ 36,586
--------- ------ ------ ------- ------- ------ --------
Cash flows from investing
activities:
Increase in restricted
cash ($153.4 million
for Phase 1A
construction)......... (153,994) (153,994)
Capital expenditures.... (67,138) (1,258) (3,928) (72,324)
Capital contribution to
unconsolidated Grand
Canal Shops II........ (37,864) (37,864)
Dividend from
unconsolidated Grand
Canal Shops II........ 21,590 21,590
--------- ------ ------ ------- ------- ------ --------
Net cash used in investing
activities.............. (237,406) (1,258) (3,928) (242,592)
--------- ------ ------ ------- ------- ------ --------
Cash flows from financing
activities:
Capital contribution to
Lido Casino Resort,
LLC................... (1,316) 1,316
Capital contribution to
Venetian Venture
Development, LLC...... (4,355) 4,355
Repayments on 12 1/4%
mortgage notes........ (425,000) (425,000)
Proceeds from 11%
mortgage notes........ 850,000 850,000
Repayments on senior
subordinated notes.... (97,500) (97,500)
Repayments on completion
guaranty loan......... (31,124) (31,124)
Repayments on senior
secured credit
facility-term B....... (625) (625)
Proceeds from senior
secured credit
facility-term B....... 250,000 250,000
Repayments on bank
credit
facility-term......... (151,986) (151,986)
Repayments on bank
credit
facility-revolver..... (61,000) (61,000)
Proceeds from bank
credit
facility-revolver..... 21,000 21,000
Repayments on FF&E
credit facility....... (53,735) (53,735)
Repayments on Phase II
Subidiary credit
facility.............. (3,933) (3,933)
Repayments on Phase II
Subidiary unsecured
bank loan............. (1,092) (1,092)
Repurchase premiums
incurred in connection
with refinancing
transctions........... (33,478) (33,478)
Payments of deferred
offering costs........ (38,004) (6) (38,010)
Net increase(decrease) in
intercompany accounts... (18,424) 1,508 (16,916)
--------- ------ ------ ------- ------- ------ --------
Net cash provided by (used
in) financing
activities.............. 204,453 4,355 (2,207) 206,601
--------- ------ ------ ------- ------- ------ --------
Increase (decrease) in
cash and cash
equivalents............. 3,603 (1) (1) (3,006) 595
Cash and cash equivalents
at beginning of
period.................. 7,806 4 4 3,105 10,919
--------- ------ ------ ------- ------- ------ --------
Cash and cash equivalents
at end of period........ $ 11,409 $ 3 $ 3 $ $ 99 $ $ 11,514
========= ====== ====== ======= ======= ====== ========
</Table>
F-120
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND MEMBERS OF GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
In our opinion, the accompanying balance sheets and the related statements
of operations, of members' equity and of cash flows present fairly, in all
material respects, the financial position of Grand Canal Shops Mall Subsidiary,
LLC (the "Mall"), at December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Mall'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 of America, 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 our opinion.
As more fully described in Note 2, the Company changed its method of
accounting for lossses on early retirements of debt in connection with its
adoption of Financial Accounting Standards Board Statement No. 145.
PRICEWATERHOUSECOOPERS LLP
Las Vegas, Nevada
February 1, 2002 except for Notes 2 and 9
as to which the date is June 28, 2002
F-121
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2000 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,972 $ 6,650
Restricted cash and investments........................... 1,078 1,118
Accounts receivable, net.................................. 973 1,436
Prepaid expenses.......................................... 317 363
-------- --------
Total current assets........................................ 5,340 9,567
Property and equipment, net................................. 140,185 136,167
Deferred offering costs, net................................ 3,979 1,903
Other assets, net........................................... 3,907 3,745
-------- --------
$153,411 $151,382
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,005 $ 368
Payable to Venetian Casino Resort LLC..................... 526 935
Accrued interest payable.................................. 1,779 872
Other accrued liabilities................................. 1,363 1,647
Long-term debt............................................ -- 105,000
-------- --------
Total current liabilities................................... 4,673 108,822
Long-term debt.............................................. 105,000 --
Long-term subordinated loan payable to Principal
Stockholder............................................... 35,000 35,000
-------- --------
144,673 143,822
Commitments and contingencies
Members' equity............................................. 8,738 7,560
-------- --------
$153,411 $151,382
======== ========
</Table>
The accompanying notes are an integral part of these financial statements.
F-122
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
--------- --------- ---------
Revenues:
Rental income........................................... $ 5,283 $ 14,776 $ 16,084
Overage rent............................................ 614 2,466 2,656
Tenant reimbursements................................... 3,557 9,834 11,417
Other................................................... 390 3,705 4,550
--------- --------- --------
9,844 30,781 34,707
--------- --------- --------
Operating expenses:
Facility operating costs................................ 4,397 11,194 12,230
Provision for doubtful accounts......................... 700 209 132
General and administrative.............................. 512 1,219 1,570
Rental expense.......................................... 1,178 2,157 2,157
Depreciation and amortization........................... 2,401 4,542 4,784
--------- --------- --------
9,188 19,321 20,873
--------- --------- --------
Operating income.......................................... 656 11,460 13,834
Other income (expense)
Interest income......................................... 6 72 129
Interest expense, net of amounts capitalized............ (7,416) (12,589) (10,173)
Interest expense on indebtedness to Principal
Stockholder........................................... (163) (5,213) (4,968)
Loss on early retirement of debt........................ (589) -- --
--------- --------- --------
Net income (loss)......................................... $ (7,506) $ (6,270) $ (1,178)
========= ========= ========
</Table>
The accompanying notes are an integral part of these financial statements.
F-123
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
STATEMENTS OF MEMBER'S EQUITY
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
TOTAL
--------
BALANCE AT DECEMBER 31, 1998................................ $ 11
Proceeds from capital contribution.......................... 22,498
Net loss.................................................... (7,506)
--------
BALANCE AT DECEMBER 31, 1999................................ 15,003
Net loss.................................................... (6,270)
Proceeds from capital contribution.......................... 5
--------
BALANCE AT DECEMBER 31, 2000................................ 8,738
Net loss.................................................... (1,178)
--------
BALANCE AT DECEMBER 31, 2001................................ $ 7,560
========
</Table>
The accompanying notes are an integral part of these financial statements.
F-124
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
----------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (7,506) $(6,270) $(1,178)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 2,401 4,542 4,784
Amortization of debt offering costs and original issue
discount................................................ 2,040 2,011 2,076
Provision for doubtful accounts........................... 700 209 132
Changes in operating assets and liabilities:
Accounts receivable..................................... (4,105) 2,223 (595)
Prepaid expenses........................................ (214) (103) (46)
Other assets............................................ (3,067) (840) 162
Accounts payable and related............................ 1,452 (446) (637)
Payable to Venetian Casino Resort LLC................... 3,908 (159) 409
Accrued interest payable................................ 163 1,616 (907)
Other accrued liabilities............................... 964 399 284
-------- ------- -------
Net cash provided by (used in) operating activities......... (3,264) 3,182 4,484
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash...................... (2,191) 1,112 (40)
Capital expenditures........................................ (53,593) (762) (766)
-------- ------- -------
Net cash used in investing activities....................... (55,784) 350 (806)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contributions from Venetian Casino
Resort LLC................................................ 22,498 5 --
Repayments on mall construction loan facility............... (140,000) -- --
Proceeds from mall construction loan facility............... 37,287 -- --
Proceeds from mall--tranche A take-out loan................. 105,000 -- --
Proceeds from mall--tranche B take-out loan 35,000 -- --
Payments of deferred offering costs......................... (747) (565) --
-------- ------- -------
Net cash provided by financing activities................... 59,038 (560) --
-------- ------- -------
Increase (decrease) in cash and cash equivalents............ (10) 2,972 3,678
Cash and cash equivalents at beginning of period............ 10 -- 2,972
-------- ------- -------
Cash and cash equivalents at end of period.................. $ -- $ 2,972 $ 6,650
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest................................ $ 349 $18,707 $13,972
======== ======= =======
</Table>
The accompanying notes are an integral part of these financial statement
F-125
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS OF COMPANY
Grand Canal Shops Mall Subsidiary, LLC (the "Company" or "Mall") was formed
on December 9, 1999 and owns and operates the retail mall in the Venetian Casino
Resort (the "Casino Resort"). The mall offers approximately 445,000 net leasable
square feet of shopping dining and entertainment space within the Casino Resort.
In addition to the Mall, the Casino Resort includes 3,036 suites, casino space
approximating 116,000 square feet and 500,000 square feet of convention space.
The Mall is indirectly owned by Las Vegas Sands, Inc. ("LVSI") through its
subsidiaries Venetian Casino Resort LLC ("Venetian") and Grand Canal Shops Mall
MM Subsidiary, Inc. ("Mall MM"). Mall MM is the managing member of the Mall.
LVSI and Venetian are co-obligors of indebtedness used to construct the
Casino Resort. The Mall is not a guarantor of the indebtedness.
The Casino Resort is physically connected to the approximately 1.15 million
square foot Sands Expo and Convention Center (the "Expo Center"). Interface
Group--Nevada, Inc. ("IGN"), the owner of the Expo Center, is beneficially owned
by the principal stockholder of LVSI. Venetian, the Mall and IGN transact
business with each other and are parties to certain agreements (see Note 6).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires the Mall to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, management evaluates those estimates, including those related to asset
impairment, compensation and related benefits, revenue recognition, allowance
for doubtful accounts, contingencies and litigation. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term investments with
original maturities not in excess of 90 days.
ACCOUNTS RECEIVABLE
Accounts receivable are due within one year and are recorded net of amounts
estimated to be uncollectible.
F-126
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the assets
as follows:
<Table>
Building and improvements....................... 15 to 40 years
Furniture, fixtures and equipment............... 3 to 15 years
Leasehold improvements.......................... term of related lease
</Table>
Maintenance, repairs and renewals that neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on disposition of property and equipment are included
in the statements of operations.
Management reviews assets for possible impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
such assets exceeds their fair value. Impairment losses are recognized when
estimated future undiscounted cash flows expected to result from the use of the
assets and their eventual disposition are less than their carrying amounts.
CAPITALIZED INTEREST
Interest costs associated with major construction projects are capitalized.
Interest is capitalized on amounts expended on the Mall using the
weighted-average cost of the Company's outstanding borrowings. Capitalization of
interest ceases when the project is substantially complete.
DEBT DISCOUNT AND DEFERRED OFFERING COSTS
Debt discount and offering costs are amortized based on the terms of the
related debt instruments using the straight-line method, which approximates the
effective interest method.
REVENUE RECOGNITION
Minimum rental revenues 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. Charges to
tenants for real estate taxes, insurance and other shopping center operating
expenses are recognized as revenues in the period billed which approximates the
period in which the applicable costs are incurred.
INCOME TAXES
The Mall has elected to be taxed as an LLC which is a tax pass-through
entity for federal income tax purposes. Nevada does not levy a corporate income
tax. Accordingly, no provision for federal or state income taxes is included in
the statement of operations.
ADVERTISING COSTS
Costs for advertising are expensed as incurred, which are capitalized and
amortized over the period of the related program. Direct-response advertising
consists primarily of mailing costs associated with the direct-mail programs.
Capitalized advertising costs, included in prepaid
F-127
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expense, were immaterial at December 31, 2000 and 2001. Advertising costs that
were expensed during the year were zero, $0.2 million and $0.7 million in 1999,
2000 and 2001, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of short-term investments and
receivables. The short-term investments are placed with a high credit quality
financial institution, which invests primarily in money market funds.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), entitled "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If specific conditions are met, a derivative may be specifically
designated as a hedge of specific financial exposures. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and, if used in hedging activities, it depends on its effectiveness
as a hedge. SFAS 133 as amended is effective for all fiscal quarters of fiscal
years beginning after December 31, 2000. SFAS 133 should not be applied
retroactively to financial statements of prior periods. The Company adopted
SFAS 133 on January 1, 2001.
The Company has a policy aimed at managing interest rate risk associated
with its current and anticipated future borrowings. This policy enables the
Company to use any combination of interest rate swaps, futures, options, cap and
similar instruments. To the extent the Company employs such financial
instruments pursuant to this policy, and the instruments qualify for hedge
accounting, they are accounted for as hedging instruments. In order to qualify
for hedge accounting, the underlying hedged item must expose the Company to
risks associated with market fluctuations and the financial instrument used must
be designated as a hedge and must reduce the Company's exposure to market
fluctuation throughout the hedge period. If these criteria are not met, a change
in the market value of the financial instrument is recognized as a gain or loss
in the period of change. Otherwise, gains and losses are not recognized except
to the extent that the financial instrument is disposed of prior to maturity.
Net interest paid or received pursuant to the financial instrument is included
as interest expense in the period.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
No. 141 ("SFAS 141"), entitled "Business Combinations" and Statement No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 is effective as
follows: (a) use of the pooling-of-interests method is prohibited for business
combinations initiated after June 30 2001; and (b) the provisions of SFAS 141
also apply to all business combinations accounted for by the purchase method
that are completed after June 30, 2001. There are also transition provision that
apply to business combinations completed before July 1, 2001 that were accounted
for by the purchase method. SFAS 142 is effective for fiscal years beginning
after December 15, 2001 and applies to all goodwill
F-128
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and other intangible assets recognized in an entity's statement of financial
position at that date, regardless of when those assets were initially
recognized.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 143 ("SFAS 143"), "Accounting for Obligations Associated with the Retirement
of Long-Lived Assets." The objectives of SFAS 143 are to establish accounting
standards for the recognition and measurement of an asset retirement obligation
and its associated asset retirement cost. SFAS 143 is effective for fiscal years
beginning after June 15, 2002.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal
years beginning after December 15, 2001 and, generally, is to be applied
prospectively.
In April 2002, the Financial Accounting Standards Board issued statement
No. 145 ("SFAS 145") "Rescission of FASB Statements Nos. 4, 44 and 64 and
Amendment of FASB Statement No. 13." SFAS 145 addresses the presentation for
losses on early retirements of debt in the statement of operations to the extent
they do not meet the requirements for classification as an extraordinary loss,
as defined by APB Opinion No. 30. The Company has adopted SFAS 145 and will no
longer present losses on early retirements of debt as an extraordinary item.
Accordingly, for the year ended December 31, 1999 the loss on early retirement
of debt of $0.6 million has been reclassified to other income (expense) to
conform to this new presentation. The adoption of SFAS 145 had no impact on the
Company's financial condition or cash flows.
The Company is currently evaluating the provisions of SFAS 141, SFAS 142,
SFAS 143 and SFAS 144 and does not anticipate that the effects of these changes
will have an impact the Company's financial position, results of operations or
cash flows.
NOTE 3--RESTRICTED CASH
Restricted cash represents amounts which have been deposited to certain
restricted accounts, which are controlled by the Company, but which are
restricted as to use under the terms of the disbursement agreement for the
Company's indebtedness.
F-129
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment includes costs incurred to construct the Mall and
consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
-----------------------
2000 2001
---------- ----------
Building and improvements.......................... $ 146,215 $ 146,624
Equipment, furniture, fixtures and leasehold
improvements..................................... 494 494
Construction in progress........................... 27 142
---------- ----------
146,736 147,260
Less: accumulated depreciation and amortization.... (6,550) (11,093)
---------- ----------
$ 140,186 $ 136,167
========== ==========
</Table>
During the years ended December 31, 1999, 2000 and 2001, the Company
capitalized interest expense of $5.2 million, zero, and zero, respectively.
NOTE 5--LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
---------------------
2000 2001
--------- ---------
Mall Tranche A Take-out Loan................................ 105,000 105,000
Subordinated Mall Tranche B Take-out Loan from Principal
Stockholder............................................... 35,000 35,000
--------- --------
$ 140,000 $140,000
========= ========
</Table>
MALL TRANCHE A TAKE-OUT LOAN
On December 20, 1999, certain take-out lenders (collectively, the "Tranche A
Take-out Lender") funded a $105.0 million Tranche A take-out loan to the Company
(the "Tranche A Take-out Loan"). The proceeds were used to repay indebtedness
under the mall construction loan facility.
The indebtedness under the Tranche A Take-out Loan is secured by first
priority liens on the assets that comprise the retail mall (the "Mall Assets").
The annual interest rate on the Tranche A Take-out Loan is 350 basis points over
30-day LIBOR and is payable monthly. The average interest rate incurred during
2001 was 7.71%. The Tranche A Take-out Loan was due in full on December 20,
2002.
The Company is required to enter into an interest rate cap agreement to
limit the impact of increases in interest rates on its floating rate debt
derived from the Tranche A Take-out Loan. To meet the requirements of the
Tranche A Take-out Loan, the Company entered into a cap agreement during 2000
(the "Cap Agreement"), which resulted in a premium payment to counterparties
based upon notional principal amounts for a term equal to the term of the
Tranche A Take-out Loan. The interest rate cap provisions of the Cap Agreement
entitle the Company to receive from the
F-130
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LONG-TERM DEBT (CONTINUED)
counterparties the amounts, if any, by which the selected market interest rates
exceed the strike rates stated in such agreement. The net effect on interest
expense of the cap agreements was zero for the year ended December 31, 2001. If
the Company had terminated the Cap Agreement as of December 31, 2001, the
Company would not have had to pay any amounts based on quoted market values from
the various institutions holding the swaps. The notional amount of the Cap
Agreement at December 31, 2001 was $42.3 million.
The Company is also required pursuant to the Tranche A Take-out Loan to
maintain certain funds in escrow for mall management fees, tenant disputes,
tenant allowances and leasing commissions. At each of December 31, 2000 and
2001, $1.1 million was held in escrow for these purposes and classified as
restricted cash in the accompanying financial statements.
MALL TRANCHE B TAKE-OUT LOAN
On December 20, 1999, the Principal Stockholder funded a Tranche B take-out
loan to provide $35.0 million in financing to the New Mall Subsidiary (the
"Tranche B Take-out Loan" and, together with the Tranche A Take-out Loan, the
"Mall Take-out Financing"). The proceeds, along with $105.0 million of proceeds
from the Tranche A Take-out Loan, were used to repay the mall construction loan
facility in full.
The indebtedness under the Tranche B Take-out Loan is secured by second
priority liens on the Mall Assets. The loan bears interest at 14% per annum and
is payable monthly. During 1999, 2000 and 2001, the Company incurred interest
expense of $0.2 million, $5.2 million and $5.0 million, respectively, under this
loan. The initial maturity date of the Tranche B Take-out Loan is December 20,
2004 with a right of extension to December 20, 2007. No principal payments are
due thereunder until maturity.
As further described in Note 9, the Mall Tranche A Take-out Loan and the
Mall Tranche B Take-out Loan were refinanced on June 4, 2002.
NOTE 6--RELATED PARTY TRANSACTIONS
As support for the development and operation of the Casino Resort, the
principal stockholder of LVSI or his affiliates provided the following:
(i) the $35.0 million Tranche B Take-out Loan; and
(ii) a $20.0 million unsecured guaranty of the $105.0 million Tranche A
Take-out Loan.
As further described in Note 9, as of June 4, 2002, in connection with a
refinancing of the Company's indebtedness, the above transactions have been
retired and cancelled, respectively.
The principal stockholder of LVSI is a partner in two entities formed to
operate restaurants in the Mall. The terms and conditions of the leases granted
by the Mall for such restaurants are at amounts which management believes would
be no less favorable than those negotiated with independent third parties.
Postrio Las Vegas LLC and Carnevale Coffee Bar LLC paid the Mall zero,
$0.8 million and $1.1 million for the years ended December 31, 1999, 2000 and
2001, respectively.
The Venetian leases certain retail outlets within the Mall from the Company.
Total rental income, overage rents and tenant reimbursements earned by the
Company from the Venetian in relation to
F-131
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--RELATED PARTY TRANSACTIONS (CONTINUED)
these outlets for the years ended December 31, 1999, 2000 and 2001 were
approximately $0.2 million, $0.9 million and $1.2 million, respectively.
The Mall, the Venetian and IGN are parties to an Amended and Restated
Reciprocal Easement, Use and Operating Agreement (the "Cooperation Agreement")
which, among other things, provides for the integrated operation of all the
facilities and addresses, encroachments, joint marketing and the sharing of
certain facilities and costs related thereto.
NOTE 7--COMMITMENTS AND CONTINGENCIES
ENERGY SERVICES AGREEMENTS AND OPERATING LEASE AGREEMENTS
During 1997, Venetian and the Company entered into separate energy service
agreements with a heating and air conditioning ("HVAC") provider (the "HVAC
Provider"). Under the terms of the energy services agreement and other separate
energy services agreements, HVAC energy and services will be purchased by
Venetian, the Company, its mall tenants and IGN over initial terms expiring in
2009 with an option to collectively extend the terms of their agreements for two
consecutive five-year periods.
Pursuant to the Venetian's construction management contract (as more fully
defined under "Litigation" below), the HVAC plant was constructed by the
Construction Manager on land owned by the Venetian and leased to the HVAC
Provider. The HVAC equipment is owned by the HVAC Provider, which paid all costs
("HVAC Costs") in connection with the purchase and installation of the HVAC
equipment. The total HVAC Costs were $70.0 million.
The charges payable under the separate energy services agreements include a
fixed component applied to the HVAC Costs paid by the HVAC Provider,
reimbursement of operational and related costs and a management fee.
As of December 31, 2001, Venetian and the Company were obligated under the
energy services agreements to make future minimum payments as follows (in
thousands):
<Table>
<Caption>
YEARS ENDING DECEMBER 31,
- -------------------------
2002........................................................ $ 7,657
2003........................................................ 7,657
2004........................................................ 7,657
2005........................................................ 7,657
2006........................................................ 7,657
Thereafter.................................................. 19,142
-------
Total minimum payments...................................... $57,427
=======
</Table>
Expenses incurred under the energy services agreements were $4.3 million,
$7.0 million and $6.2 million for the years ended December 31, 1999, 2000 and
2001, respectively. The Company is responsible for 19% of energy services rental
payments and these amounts exclude payments by IGN.
F-132
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
LVSI and Venetian are party to litigation matters and claims related to its
operations and construction of the Casino Resort that could have a material
adverse effect on the financial position, results of operations or cash flows of
LVSI or Venetian to the extent such litigation is not covered by the Insurance
Policy.
The construction of the principal components of the Casino Resort was
undertaken by the Construction Manager pursuant to a construction management
agreement and certain amendments thereto (as so amended, the "Construction
Management Contract"). The Construction Management Contract established a final
guaranteed maximum price (the "Final GMP") of $645.0 million, so that, subject
to certain exceptions (including an exception for cost overruns due to "scope
changes"), the Construction Manager was responsible for any costs of the work
covered by the Construction Management Contract in excess of the Final GMP. The
obligations of the Construction Manager under the Construction Management
Contract are guaranteed by Bovis, Inc. ("Bovis" and such guaranty, the "Bovis
Guaranty"), the Construction Manager's direct parent at the time the
Construction Management Contract was entered into. Bovis' obligations under the
Bovis Guaranty are guaranteed by The Peninsular and Oriental Steam Navigation
Company ("P&O"), a British public company and the Construction Manager's
ultimate parent at the time the Construction Management Contract was entered
into (such guaranty, the "P&O Guaranty").
On July 30, 1999, Venetian filed a complaint against the Construction
Manager and Bovis in United States District Court for the District of Nevada.
The action alleges breach of contract by the Construction Manager of its
obligations under the Construction Management Contract and a breach of contract
by Bovis of its obligations under the Bovis Guaranty, including failure to fully
pay trade contractors and vendors and failure to meet the April 21, 1999
guaranteed completion date. The Venetian amended this complaint on November 23,
1999 to add P&O as an additional defendant. The suit is intended to ask the
courts, among other remedies, to require the Construction Manager and its
guarantors to pay its contractors, to compensate Venetian for the Construction
Manager's failure to perform its duties under the Construction Management
Contract and to pay Venetian the agreed upon liquidated damages penalty for
failure to meet the guaranteed substantial completion date. Venetian seeks total
damages in excess of $100.0 million. The Construction Manager subsequently filed
motions to dismiss Venetian's complaint on various grounds, which the Venetian
opposed. The Construction Manager's principal motions to date have either been
denied by the court or voluntarily withdrawn.
In response to Venetian's breach of contract claims against the Construction
Manager, Bovis and P&O, the Construction Manager filed a complaint on August 3,
1999 against Venetian in the District Court of Clark County, Nevada. The action
alleges a breach of contract and QUANTUM MERUIT claims under the Construction
Management Contract and also alleges that Venetian defrauded the Construction
Manager in connection with the construction of the Casino Resort. The
Construction Manager seeks damages, attorney's fees and costs and punitive
damages. In the lawsuit, the Construction Manager claims that it is owed
approximately $90.0 million from Venetian and its affiliates. This complaint was
subsequently amended by the Construction Manager, which also filed an additional
complaint against the Venetian relating to work done and funds advanced with
respect to the contemplated development of the Phase II Resort. Based upon its
preliminary review of the complaints, the fact that the Construction Manager has
not provided Venetian with
F-133
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
reasonable documentation to support such claims, and the Venetian's belief that
the Construction Manager has materially breached its agreements with the
Venetian, the Venetian believes that the Construction Manager's claims are
without merit and intends to vigorously defend itself and pursue its claims
against the Construction Manager in any litigation.
In connection with these disputes, as of December 31, 1999 the Construction
Manager and its subcontractors filed mechanics liens against the Casino Resort
for $145.6 million and $182.2 million, respectively. The Venetian believes that
a major reason these lien amounts exceed the Construction Manager's claims of
$90.0 million is based upon a duplication of liens through the inclusion of
lower-tier claims by subcontractors in the liens of higher-tier contractors,
including the lien of the Construction Manager. As of December 31, 1999, the
Venetian had purchased surety bonds for virtually all of the claims underlying
these liens (other than approximately $15.0 million of claims with respect to
which the Construction Manager purchased bonds). As a result, there can be no
foreclosure of the Casino Resort in connection with the claims of the
Construction Manager and its subcontractors. However, the Venetian will be
required to pay or immediately reimburse the bonding company if and to the
extent that the underlying claims are judicially determined to be valid. If such
claims are not settled, it is likely to take a significant amount of time for
their validity to be judicially determined.
The Venetian believes that these claims are, in general, unsubstantiated,
without merit, overstated and/or duplicative. The Construction Manager itself
has publicly acknowledged that at least some of the claims of its subcontractors
are without merit. In addition, the Venetian believes that pursuant to the
Construction Management Contract and the Final GMP, the Construction Manager is
responsible for payment of any subcontractors' claims to the extent they are
determined to be valid. The Venetian may also have a variety of other defenses
to the liens that have been filed, including, for example, the fact that the
Construction Manager and its subcontractors previously waived or released their
rights to file liens against the Casino Resort. The Venetian intends to
vigorously defend itself in any lien proceedings.
On August 9, 1999, the Venetian notified the insurance companies providing
coverage under its liquidated damages insurance policy (the "LD Policy") that it
has a claim under the LD Policy. The LD Policy provides insurance coverage for
the failure of the Construction Manager to achieve substantial completion of the
portions of the Casino Resort covered by the Construction Management Contract
within 30 days of the April 21, 1999 deadline, with a maximum liability under
the LD Policy of approximately $24.1 million and with coverage being provided,
on a per-day basis, for days 31-120 of the delay in the achievement of
substantial completion. Because Venetian believes that substantial completion
was not achieved until November 12, 1999, the Venetian's claim under the LD
Policy is likely to be for the above-described maximum liability of
$24.1 million. The Venetian expects the LD Policy insurers to assert many of the
same claims and defenses that the Construction Manager has asserted or will
assert in the above-described litigations. Liability under the LD Policy may
ultimately be determined by binding arbitration.
In June 2000, the Venetian purchased an insurance policy (the "Insurance
Policy") for loss coverage in connection with all litigation relating to the
construction of the Casino Resort (the "Construction Litigation"). Under the
Insurance Policy, the Venetian will self-insure the first $45.0 million and the
insurer will insure up to the next $80.0 million of any possible covered losses.
The Insurance Policy provides coverage for any amounts determined in the
Construction Litigation
F-134
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
to be owed to the Construction Manager or its subcontractors relating to claimed
delays, inefficiencies, disruptions, lack of productivity/unauthorized overtime
or schedule impact, allegedly caused by the Venetian during construction of the
Casino Resort, as well as any defense costs. The insurance is in addition to,
and does not affect, any scope change guarantees provided by the Principal
Stockholder pursuant to the Completion Guaranty.
All of the pending litigation described above is in preliminary stages and
it is not yet possible to determine a range of loss or its ultimate outcome. If
any litigation or other lien proceedings concerning the claims of the
Construction Manager or its subcontractors were decided adversely to the
Venetian, such litigation or other lien proceedings could have a material
adverse effect on the financial position, results of operations or cash flows of
LVSI or Venetian to the extent such litigation or lien proceedings are not
covered by the Insurance Policy.
NOTE 8--MINIMUM LEASE INCOME
The Company has entered into a number of operating leases in relation to the
Mall and various retail and food and beverage outlets in the Casino Resort,
which range in length from 5 to 20 years. The future minimum lease income under
these leases consisted of the following at December 31, 2001 (in thousands):
<Table>
2002........................................................ $ 16,673
2003........................................................ 16,605
2004........................................................ 16,045
2005........................................................ 14,233
2006........................................................ 13,944
Thereafter.................................................. 58,471
--------
Total....................................................... $135,971
========
</Table>
Most of the leases include provisions for reimbursements of other charges
including real estate taxes, utilities and other operating costs. Total
reimbursements amounted to $3.6 million, $9.8 million and $11.4 in 1999, 2000
and 2001, respectively.
The Company has entered into an agreement with Forest City Enterprises (the
"Mall Manager"), a subsidiary of Forest City Ratner Enterprises, a leading
developer and manager of retail and commercial real estate developments, whereby
the Mall Manager manages the Mall and supervises and assists in the creation of
an advertising and promotional program and a marketing plan for the Mall. The
Mall Manager is also responsible for, among other things, preparation of a
detailed plan for the routine operation of the Mall, collection and deposit
procedures for rents and other tenant charges, supervision of maintenance and
repairs and, on an annual basis, preparation of a detailed budget (including any
anticipated extraordinary expenses and capital expenditures) for the Mall. The
term of the management contract is five years from June 19, 1999, the date the
Mall opened to the public. The Mall Manager receives a management fee of 2% of
all gross rents received from the operation of the Mall; provided that the Mall
Manager will receive a minimum fee of $450,000 per year. For the years ended
December 31, 1999, 2000 and 2001, management fees paid to the Mall Manager were
$240,000, $450,000 and $450,000, respectively. Beginning in June 2002, the
minimum management fee will increase to $600,000 per year.
F-135
<Page>
GRAND CANAL SHOPS MALL SUBSIDIARY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SUBSEQUENT EVENTS
On June 4, 2002, the Company entered into an agreement (the "Secured Mall
Facility") with certain lenders to provide for a $105.0 million loan
(subsequently increased to $120.0 million on June 28, 2002). The initial
$105.0 million of proceeds from the Secured Mall Facility, along with the
proceeds of a $37.9 million investment in the Company by Venetian, were used to
repay the Mall Take-out Financing upon the consummation of the Refinancing
Transactions. The additional $15.0 million of proceeds (net of financing costs)
were distributed to Venetian to be used for general corporate purposes. The
indebtedness under the Secured Mall Facility is secured by a first priority lien
on the assets that comprise the retail mall (the "Mall Assets").
The amounts outstanding under the Secured Mall Facility bear interest at the
adjusted one month Eurodollar rate plus 1.875% per annum interest is paid
monthly and there is no scheduled principal amortization. The Secured Mall
Facility is due in full on June 28, 2005 and provides for two one-year
extensions at the option of the Company, subject to certain criteria. The
Secured Mall Facility contains affirmative, negative and financial covenants
including net operating income performance standards.
In connection with a refinancing of the outstanding indebtedness of LVSI and
Venetian and the Mall (the "Refinancing Transaction") a reorganization of the
structure of LVSI occurred (the "Reorganization"), whereby, among other things,
Grand Canal Shops II, LLC was created (the "New Mall Subsidiary") to operate the
retail mall. The New Mall Subsidiary is also indirectly owned by LVSI through
its subsidiaries Venetian and Mall MM as was Grand Canal Shops Mall Subsidiary,
LLC. Due to the common control and continuation of ownership by Mall MM and the
Venetian of the mall and New Mall Subsidiary, the transfer of the retail mall
operations and related assets to the New Mall Subsidiary will be accounted for
as a reorganization of entities under common control. Accordingly, the financial
statements will be presented as if the Reorganization occurred at the beginning
of the earliest period presented and include all the accounts of both entities
involved on a historical cost basis, in a manner similar to a pooling of
interests.
F-136
<Page>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAS VEGAS SANDS, INC.
VENETIAN CASINO RESORT, LLC
EXCHANGE OFFER FOR ITS $850,000,000
11% MORTGAGE NOTES DUE 2010
-----------------------
PROSPECTUS
, 2002
---------------------------
No person has been authorized to give any information or to make any
representation other than those contained in this prospectus, and, if given or
made, any information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
these securities in any circumstances in which this offer or solicitation is
unlawful. Neither the delivery of this prospectus nor any sale made under this
prospectus shall, under any circumstances, create any implication that there has
been no change in the affairs of Las Vegas Sands, Inc. or Venetian Casino
Resort, LLC since the date of this prospectus.
Until , 2002, broker-dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the broker-dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of Las Vegas Sands, Inc. and Venetian Marketing, Inc. is a Nevada
corporation. Section 78.751 of Chapter 78 of the Nevada Revised statutes
(referenced as the Nevada General Corporation Law, or the "NGCL") empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. No
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent that
the court in which such action or suit was brought or other court of competent
jurisdiction determines that in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
LVSI's Articles of Incorporation, as amended, provide in Article Eight that
the Corporation shall indemnify its directors and officers to the fullest extent
permitted by the laws of the State of Nevada for damages for breaches of
fiduciary duties. The provision does not eliminate liability for acts or
omissions involving intentional misconduct, fraud, a knowing violation of the
law, or the payment of dividends in violation of the Nevada Revised Statutes
("N.R.S.") 78.300.
Venetian Marketing, Inc.'s Articles of Incorporation provide in Article Five
that no director or officer shall have any personal liability to Venetian
Marketing, Inc. or its stockholders for damages of fiduciary duty as a director
or officer. The provision does not limit liability for acts or omissions
involving intentional misconduct, fraud, a knowing violation of the law or the
payment of dividends in violation of N.R.S. 78.300.
Each of Venetian Casino Resort, LLC, Venetian Venture Development, LLC and
Venetian Operating Company, LLC is a Nevada limited liability company. Chapter
86 of the Nevada Revised statutes (referenced as the Nevada Limited Liability
Company Act, or the "Act") provides that a limited liability company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of the company, by reason of the fact that the person is or was performing
services for the company (an "Indemnitee") against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by it in connection with the action, suit or proceeding if
he acted in good faith and in a manner which it reasonably believed to be in or
not opposed to the best interest of the company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe its conduct
was unlawful. The Act further provides that all the expenses of such Indemnitee
incurred in defending any threatened, pending or completed civil, criminal,
administrative or investigative action, suit or proceeding (including attorney's
fees, judgments, fines and amounts paid in settlement), may be paid by the
company as they are incurred and in advance
II-1
<Page>
of the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by the Indemnitee to repay the amount if it is ultimately determined
by a court of competent jurisdiction that it is not entitled to be indemnified
by the company (subject to the above provision(s)). Indemnification may not be
made for any claim, issue or matter as to which the Indemnitee has been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the company or for amounts paid in settlement to the company,
unless and only to the extent that the court in which the action or suit was
brought or other court of competent jurisdiction determines upon application
that in view of all the circumstances of the case, it is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Venetian's limited liability company agreement, as amended, provides that
Venetian shall indemnify any member, any affiliate of the member or any
shareholders, partners, members, employees, representatives or agents of the
member or their respective affiliates, any officer or any employee or agent of
Venetian (each a "Covered Person") who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
brought by or against Venetian or otherwise, whether civil, criminal,
administrative or investigative, including, without limitation, an action by or
in the right of Venetian to procure a judgment in its favor, by reason of the
fact that such Covered Person is or was the member, officer, employee or agent
of Venetian, or that such Covered Person is or was serving at the request of
Venetian as a partner, member, director, officer, trustee, employee or agent of
another person, against all expenses, including attorneys' fees and
disbursements, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such Covered Person in connection with such action, suit
or proceeding. Notwithstanding the foregoing, no indemnification shall be
provided to or on behalf of any Covered Person if a judgment or other final
adjudication adverse to such Covered Person establishes that his or her acts
constituted intentional misconduct or gross negligence.
Each of the limited liability company agreements of Venetian Venture
Development, LLC and Venetian Operating Company, LLC (each a "Nevada Guarantor")
provides that the manager and officers and member of the Nevada Guarantor shall
not be liable for the Nevada Guarantor's liabilities debts or obligations. The
failure by the Nevada Guarantor to observe any formalities or requirements
relating to the exercise of its powers or the management of its business shall
not be grounds for imposing liability on any member, manager or officer.
Additionally, the Nevada Guarantor shall indemnify the member, manager or
officers for all costs, losses, liabilities and damages paid in connection with
the Nevada Guarantor's business, to the fullest extent provided by Nevada law.
Each of Mall Intermediate Holding Company, LLC, Lido Intermediate Holding
Company, LLC, Grand Canal Shops Mall Construction, LLC and Venetian Casino
Resort Athens, LLC (each, a "Delaware Guarantor" together, the "Delaware
Guarantors") is a Delaware limited liability company. Section 18-108 of the
Delaware Limited Liability Company Act grants a Delaware limited liability
company the power, subject to such standards and restrictions, if any, as are
set forth in its limited liability company agreement to indemnify and hold
harmless any member or manager or other person from and against any and all
claims and demands whatsoever. Section 7.3 of each of the Delaware Guarantors'
limited liability company agreements, each, as amended, provides that such
Delaware Guarantor shall indemnify any member, any affiliate of the member or
any shareholders, partners, members, employees, representatives or agents of the
member or their respective affiliates, any officer or any employee or agent of
the Delaware Guarantor (each a "Guarantor Covered Person") who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding brought by or against the Delaware Guarantor or
otherwise, whether civil, criminal, administrative or investigative, including,
without limitation, an action by or in the right of the Delaware Guarantor to
procure a judgment in its favor, by reason of the fact that such Guarantor
Covered Person is or was the member, officer, employee or agent of
II-2
<Page>
the Guarantor, or that such Guarantor Covered Person is or was serving at the
request of the Guarantor as a partner, member, director, officer, trustee,
employee or agent of another person, against all expenses, including attorneys'
fees and disbursements, judgments, fines and amounts paid in settlement actually
and reasonably incurred by such Guarantor Covered Person in connection with such
action, suit or proceeding. Notwithstanding the foregoing, no indemnification
shall be provided to or on behalf of any Guarantor Covered Person if a judgment
or other final adjudication adverse to such Guarantor Covered Person establishes
that his or her acts constituted intentional misconduct or gross negligence.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the registrants pursuant to the foregoing
provisions, the Issuers and the Delaware Guarantors have been informed that in
the opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Pursuant to Section 8 of the registration rights agreement relating to LVSI
and Venetian's 11% Mortgage Notes due 2010 the holders of such securities have
agreed to indemnify the directors, officers and controlling persons of the
registrant against certain liabilities, costs and expenses that may be incurred
in connection with the registration of such securities, to the extent that such
liabilities, costs and expenses that may be incurred in connection with the
registration of such securities to the extent that such liabilities, costs and
expenses arise from an omission or untrue statement contained in information
provided to the registrant by the holders of such securities.
The Purchase Agreement, dated as of May 22, 2002, among the Issuers, the
Guarantors, Goldman, Sachs & Co. and Scotia Capital (USA) Inc. (the "Initial
Purchasers"), contains provisions by which the Initial Purchasers agree to
indemnify the Issuers and the Guarantors (including their officers, directors,
employees, agents and controlling persons) against certain liabilities.
The Issuers maintain a Directors' and Officers' Liability and Reimbursement
Insurance Policy designed to reimburse the Issuers for any payments made by them
pursuant to the foregoing indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of Las Vegas
Sands, Inc. (incorporated by reference from Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
3.2 Amended and Restated By-laws of Las Vegas Sands, Inc.
(incorporated by reference from Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002).
3.3 Amended and Restated Limited Liability Company Agreement of
Venetian Casino Resort, LLC.(1)
3.4 Limited Liability Company Agreement of Mall Intermediate
Holding Company, LLC (incorporated by reference from
Exhibit 3.6 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
3.5 First Amendment to Limited Liability Company Agreement of
Mall Intermediate Holding Company, LLC.(1)
</Table>
II-3
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.6 Limited Liability Company Agreement of Grand Canal Shops
Mall Construction, LLC (incorporated by reference from
Exhibit 3.7 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
3.7 First Amendment to Limited Liability Company Agreement of
Grand Canal Shops Mall Construction, LLC.(1)
3.8 Limited Liability Company Agreement of Lido Intermediate
Holding Company, LLC (incorporated by reference from
Exhibit 3.5 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
3.9 First Amendment to Limited Liability Company Agreement of
Lido Intermediate Holding Company, LLC.(1)
3.10 Limited Liability Company Agreement of Venetian Casino
Resort Athens, LLC.(1)
3.11 Operating Agreement of Venetian Operating Company, LLC.(1)
3.12 Articles of Incorporation of Venetian Marketing, Inc.(1)
3.13 By-laws of Venetian Marketing, Inc.(1)
3.14 Operating Agreement of Venetian Venture Development, LLC.(1)
4.1 Indenture, dated as of June 4, 2002, by and among Las Vegas
Sands, Inc. and Venetian Casino Resort, LLC, as issuers,
Mall Intermediate Holding Company, LLC, Grand Canal Shops
Mall Construction, LLC, Lido Intermediate Holding Company,
LLC, Venetian Casino Resort Athens, LLC, Venetian Venture
Development, LLC, Venetian Operating Company, LLC and
Venetian Marketing, Inc., as Subsidiary Guarantors and U.S.
Bank National Association, as trustee (incorporated by
reference from Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2002).
4.2 Registration Rights Agreement, dated as of June 4, 2002, by
and among Las Vegas Sands, Inc., Venetian Casino Resort,
LLC, the Subsidiary Guarantors named therein, Goldman, Sachs
& Co. and Scotia Capital (USA) Inc. (incorporated by
reference from Exhibit 4.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2002).
4.3 Security Agreement, dated as of June 4, 2002, by and among
Las Vegas Sands, Inc., Venetian Casino Resort, LLC, the
Subsidiary Guarantors and The Bank of Nova Scotia, as
Intercreditor Agent (incorporated by reference from
Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002).
4.4 Deed of Trust, Leasehold Deed of Trust, Assignment of Rents
and Leases, Security Agreement and Fixture Filing, dated as
of June 4, 2002, made by Venetian Casino Resort, LLC and Las
Vegas Sands, Inc., jointly and severally as trustor, to
First American Title Insurance Company, as trustee, for the
benefit of U.S. Bank National Association in its capacity as
Mortgage Note Indenture Trustee, as beneficiary
(incorporated by reference from Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002).
4.5 Intercreditor Agreement, dated as of June 4, 2002, by and
among The Bank of Nova Scotia, as Bank Agent and
Intercreditor Agent, and U.S. Bank National Association, as
Mortgage Notes Indenture Trustee (incorporated by reference
from Exhibit 4.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
</Table>
II-4
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.6 Unsecured Indemnity Agreement, dated as of June 4, 2002, by
and among Las Vegas Sands, Inc. and Venetian Casino Resort,
LLC, to and for the benefit of U.S. Bank National
Association, and the Indemnified Parties defined therein
(incorporated by reference from Exhibit 4.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002).
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding legality of the securities being registered.(1)
5.2 Opinion of Lionel Sawyer & Collins regarding the legality of
the securities being registered.(1)
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to
certain tax matters.(1)
10.1 Bank Credit Agreement, dated as of June 4, 2002, by and
among Las Vegas Sands, Inc., Venetian Casino Resort, LLC,
the Subsidiary Guarantors, the lenders party thereto,
Goldman Sachs Credit Partners, L.P., as joint lead arranger,
joint bookrunner and syndication agent, and The Bank of Nova
Scotia, as joint lead arranger, joint bookrunner and
administrative agent (the "Bank Agreement") (incorporated by
reference from Exhibit 99.1 to the Company's report on
Form 8-K, dated as of June 18, 2002).
10.2 Deed of Trust, Assignment of Rents and Leases and Security
Agreement, dated as of June 4, 2002, made by Venetian Casino
Resort, LLC and Las Vegas Sands, Inc., jointly and severally
as trustor, to First American Title Insurance Company, as
trustee, for the benefit of The Bank of Nova Scotia (as
administrative agent), as beneficiary (incorporated by
reference from Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002).
10.3 Subsidiary Guaranty, dated as of June 4, 2002, by the
Subsidiary Guarantors for the benefit of The Bank of Nova
Scotia, as Administrative Agent (incorporated by reference
from Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.4 Disbursement Account Agreement, dated as of June 4, 2002, by
and among Las Vegas Sands, Inc., Venetian Casino Resort, LLC
and The Bank of Nova Scotia, as secured party and securities
intermediary (incorporated by reference from Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
10.5 Environmental Indemnity Agreement, dated as of June 4, 2002,
by and among Las Vegas Sands, Inc. and Venetian Casino
Resort, LLC, to and for the benefit of The Bank of Nova
Scotia, as Administrative Agent for itself and for the other
lenders under the Bank Agreement (incorporated by reference
from Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.6 Loan Agreement, dated as of June 4, 2002, by and between
Archon Financial, L.P., as lender, and Grand Canal Shops II,
LLC (incorporated by reference from Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
10.7 Amendment No. 1 to Loan Agreement, dated June 28, 2002, by
and between Goldman Sachs Mortgage Company (as successor in
interest to Archon Financial, L.P.), as lender, and Grand
Canal Shops II, LLC, as borrower (incorporated by reference
from Exhibit 10.7 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
</Table>
II-5
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.8 Indemnity Agreement, dated as of August 25, 2000, by and
among Las Vegas Sands, Inc., Venetian Casino Resort, LLC,
Grand Canal Shops Mall Subsidiary, LLC, Grand Canal Shops
Mall Construction, LLC, Grand Canal Shops Mall, LLC,
Interface Group Holding Company, and American Insurance
Companies (of which American Home Assurance Company is a
member company) (incorporated by reference from
Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002).
10.9 Energy Services Agreement, dated as of November 14, 1997, by
and between Atlantic Pacific Las Vegas, LLC and Venetian
Casino Resort, LLC (incorporated by reference from
Exhibit 10.3 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.10 Energy Services Agreement Amendment No. 1, dated as of July
1, 1999, by and between Atlantic Pacific Las Vegas, LLC and
Venetian Casino Resort, LLC (incorporated by reference from
Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.11 Energy Services Agreement, dated as of November 14, 1997, by
and between Atlantic Pacific Las Vegas, LLC and Grand Canal
Shops Mall Construction, LLC (incorporated by reference from
Exhibit 10.4 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.12 Energy Services Agreement Amendment No. 1, dated as of July
1, 1999, by and between Atlantic Pacific Las Vegas, LLC and
Grand Canal Shops Mall Construction, LLC (incorporated by
reference from Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999).
10.13 Ground Lease, dated November 14, 1997, between Venetian
Casino Resort, LLC and Atlantic Pacific Las Vegas, LLC
(incorporated by reference from Exhibit 10.10 to the
Company's Registration Statement on Form S-4 (File
No. 333-42147)).
10.14 Construction Management Agreement, dated as of February 15,
1997, between Las Vegas Sands, Inc., as owner, and Lehrer
McGovern Bovis, Inc (incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.15 Assignment, Assumption and Amendment of Construction
Management Agreement, dated as of November 14, 1997, by and
among Las Vegas Sands, Inc., Venetian Casino Resort, LLC and
Lehrer McGovern Bovis, Inc. (incorporated by reference from
Exhibit 10.6 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.16 Guaranteed Maximum Price Amendment to Construction
Management Agreement, dated as of June 17, 1998 (effective
September 9, 1998), between Lehrer McGovern Bovis, Inc. and
Venetian Casino Resort, LLC (incorporated by reference from
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
10.17 Guaranty of Performance, dated as of August 19, 1997, by
Peninsular and Steam Navigation Company in favor of Las
Vegas Sands, Inc., as assigned by Las Vegas Sands, Inc. to
Venetian Casino Resort, LLC by that certain Assignment,
Assumption and Amendment of Contracts (incorporated by
reference from Exhibit 10.24 to the Company's Registration
Statement on Form S-4 (File No. 333-42147)).
</Table>
II-6
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.18 Guaranty of Performance and Completion, dated as of August
19, 1997, by Bovis, Inc., in favor of Las Vegas Sands, Inc.
(incorporated by reference from Exhibit 10.25 to the
Company's Registration Statement on Form S-4 (File
No. 333-42147)).
10.19 Management Agreement, dated as of July 24, 1997, by and
between Grand Canal Shops Mall II, LLC and Forrest City
Commercial Management (incorporated by reference from
Exhibit 10.22 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.20 Primary Liquidated Damages Insurance Agreement, dated as of
August 4, 1997, by and between the Construction Manager and
C.J. Coleman Companies, Ltd. (incorporated by reference from
Exhibit 10.23 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.21 Amended and Restated Reciprocal Easement, Use and Operating
Agreement, dated as of November 14, 1997, by and among
Interface Group-Nevada, Inc., Grand Canal Shops Mall
Construction, LLC and Venetian Casino Resort, LLC
(incorporated by reference from Exhibit 10.8 to the
Company's Registration Statement on Form S-4 (File
No. 333-42147)).
10.22 First Amendment to Amended and Restated Reciprocal Easement,
Use and Operating Agreement, dated as of December 20, 1999,
by and among Interface Group-Nevada, Inc., Grand Canal Shops
Mall Subsidiary, LLC, Lido Casino Resort, LLC and Venetian
Casino Resort, LLC (incorporated by reference from
Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999).
10.23 Second Amendment to Amended and Restated Reciprocal
Easement, Use and Operating Agreement, dated as of June 4,
2002, by and among Interface Group-Nevada, Inc., Grand Canal
Shops II, LLC, Lido Casino Resort, LLC and Venetian Casino
Resort, LLC (incorporated by reference from Exhibit 10.9 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
10.24 Casino Lease, dated as of November 14, 1997, by and between
Las Vegas Sands, Inc. and Venetian Casino Resort, LLC
(incorporated by reference from Exhibit 10.14 to the
Company's Registration Statement on Form S-4 (File
No. 333-42147)).
10.25 Amended and Restated Services Agreement, dated as of
November 14, 1997, by and among LVSI, Venetian Casino
Resort, LLC, Interface Group Holding Company, Inc.,
Interface Group-Nevada, Inc., Lido Casino Resort MM, Inc.,
Grand Canal Shops Mall MM Subsidiary, Inc. and certain
subsidiaries of Venetian Casino Resort, LLC named therein
(incorporated by reference from Exhibit 10.15 to the
Company's Registration Statement on Form S-4 (File
No. 333-42147)).
10.26 Construction Agency Agreement, dated as of November 14,
1997, by and between Venetian Casino Resort, LLC and
Atlantic Pacific Las Vegas, LLC (incorporated by reference
from Exhibit 10.21 to the Company's Registration Statement
on Form S-4 (File No. 333-42147)).
10.27 Sands Resort Hotel and Casino Agreement, dated as of
February 18, 1997, by and between Clark County and Las Vegas
Sands, Inc. (incorporated by reference from Exhibit 10.27 to
the Company's Registration Statement on Form S-4 (File
No. 333-42147)).
10.28 Amended and Restated Las Vegas Sands, Inc. 1997 Fixed Stock
Option Plan (the "Stock Option Plan") (incorporated by
reference from Exhibit 10.10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002).
</Table>
II-7
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.29 First Amendment to the Stock Option Plan, dated June 4, 2002
(incorporated by reference from Exhibit 10.11 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
10.30 Assumption Agreement, dated as of January 2, 2002, by
Sheldon G. Adelson with respect to the Stock Option Plan
(incorporated by reference from Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.31 Stockholders' Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands, Inc., Sheldon G. Adelson, William P.
Weidner, Bradley H. Stone, Robert G. Goldstein and David
Friedman (incorporated by reference from Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.32 Amended and Restated Employment Agreement, dated as of
January 1, 2002, by and between Las Vegas Sands, Inc. and
William P. Weidner (incorporated by reference from
Exhibit 10.12 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.33 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands, Inc., Sheldon G. Adelson and William
P. Weidner (incorporated by reference from Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.34 Amended and Restated Employment Agreement, dated as of
January 1, 2002, by and between Las Vegas Sands, Inc. and
Bradley H. Stone (incorporated by reference from
Exhibit 10.13 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.35 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands Inc., Sheldon G. Adelson and Bradley
H. Stone (incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.36 Amended and Restated Employment Agreement, dated as of
January 1, 2002, by and between Las Vegas Sands, Inc. and
Robert G. Goldstein (incorporated by reference from
Exhibit 10.14 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.37 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands Inc., Sheldon G. Adelson and Robert G.
Goldstein (incorporated by reference from Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.38 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands, Inc., Sheldon G. Adelson and David
Friedman (incorporated by reference from Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.39 Catastrophic Equity Protection Insurance Agreement, dated as
of June 28, 2000, by and among American Home Assurance
Company, Las Vegas Sands, Inc. and Venetian Casino Resort,
LLC (incorporated by reference from Exhibit 10.15 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
12.1 Statement of Computation of Ratios of Earnings to Fixed
Charges.(2)
21.1 Subsidiaries of Las Vegas Sands, Inc.(1)
</Table>
II-8
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
23.1 Consent of PricewaterhouseCoopers LLP.(2)
23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in Exhibits 5.1 and 8.1 to this Registration
Statement).
23.3 Consent of Lionel Sawyer & Collins (included in Exhibit 5.2
to this Registration Statement).
24.1 Powers of Attorney (included on signature pages).
25.1 Form T-1 Statement of Eligibility of U.S. Bank National
Association to act as trustee under the Indenture.(1)
99.1 Form of Letter of Transmittal.(1)
99.2 Form of Notice of Guaranteed Delivery.(1)
</Table>
- ------------------------
(1) Previously filed.
(2) Filed herewith.
(b) Financial Statement Schedules
<Table>
<Caption>
SCHEDULE NUMBER DESCRIPTION OF SCHEDULE
- --------------- -----------------------
Schedule II.................................. Valuation and Qualifying Accounts of Las
Vegas Sands, Inc.
Schedule II.................................. Valuation and Qualifying Accounts of Venetian
Casino Resort, LLC
</Table>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act of 1934 (and where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement 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.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrants
pursuant to the foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the
II-9
<Page>
payment by the registrants of expenses incurred or paid by a director, officer
or controlling person of the registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. 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
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-10
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
LAS VEGAS SANDS, INC
*
------------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and
Chief Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
*
------------------------------------------- Chairman of the Board, November 15, 2002
Sheldon G. Adelson Chief Executive Officer
*
------------------------------------------- Director November 15, 2002
Robert F. List
/s/ HARRY D. MILTENBERGER Vice President Finance
------------------------------------------- (Principal Financial and November 15, 2002
Harry D. Miltenberger Accounting Officer)
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
--------------------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-Fact
</Table>
II-11
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
VENETIAN CASINO RESORT, LLC
By: Las Vegas Sands, Inc.,
its managing member
*
------------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and Chief
Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board,
* Chief Executive Officer
------------------------------------------- and Director of Las November 15, 2002
Sheldon G. Adelson Vegas Sands, Inc.
*
------------------------------------------- Director of Las Vegas November 15, 2002
Robert F. List Sands, Inc.
Vice President Finance
/s/ HARRY D. MILTENBERGER (Principal Financial
------------------------------------------- and Accounting Officer) November 15, 2002
Harry D. Miltenberger of Las Vegas Sands,
Inc.
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
--------------------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-Fact
</Table>
II-12
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
MALL INTERMEDIATE HOLDING COMPANY,
LLC
By: Venetian Casino Resort, LLC,
its sole member
By: Las Vegas Sands, Inc.,
its managing member
*
------------------------------------------------
Name: Sheldon G. Adelson
Title:
Chairman of the Board and Chief Executive
Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board,
* Chief Executive Officer
------------------------------------------- and Director of Las November 15, 2002
Sheldon G. Adelson Vegas Sands, Inc.
*
------------------------------------------- Director of Las Vegas November 15, 2002
Robert F. List Sands, Inc.
Vice President Finance
/s/ HARRY D. MILTENBERGER (Principal Financial and
------------------------------------------- Accounting Officer) of November 15, 2002
Harry D. Miltenberger Las Vegas Sands, Inc.
</Table>
<Table>
/s/ HARRY D. MITTENBERGER
-------------------------------------
Name: Harry D. Mittenberger
By: Title: Attorney-in-Fact
</Table>
II-13
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
VENETIAN VENTURE DEVELOPMENT, LLC
By: Venetian Casino Resort, LLC,
its sole member
By: Las Vegas Sands, Inc.,
its managing member
*
------------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and Chief
Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board,
* Chief Executive Officer
------------------------------------------- and Director of Las November 15, 2002
Sheldon G. Adelson Vegas Sands, Inc.
*
------------------------------------------- Director of Las Vegas November 15, 2002
Robert F. List Sands, Inc.
Vice President Finance
/s/ HARRY D. MILTENBERGER (Principal Financial and
------------------------------------------- Accounting Officer) of November 15, 2002
Harry D. Miltenberger Las Vegas Sands, Inc.
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
--------------------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-Fact
</Table>
II-14
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
VENETIAN OPERATING COMPANY, LLC
By: Venetian Casino Resort, LLC,
its sole member
By: Las Vegas Sands, Inc.,
its managing member
</Table>
<Table>
*
---------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and Chief
Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board, Chief
--------------------------------- Executive Officer and Director of November 15, 2002
Sheldon G. Adelson Las Vegas Sands, Inc.
Director of Las Vegas Sands, Inc. November 15, 2002
*
---------------------------------
Robert F. List
/s/ HARRY D. MILTENBERGER Vice President Finance (Principal
--------------------------------- Financial and Accounting Officer) November 15, 2002
Harry D. Miltenberger of Las Vegas Sands, Inc.
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
--------------------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-Fact
</Table>
II-15
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
GRAND CANAL SHOPS
MALL CONSTRUCTION, LLC
By: Venetian Casino Resort, LLC,
its sole member
By: Las Vegas Sands, Inc.,
its managing member
*
-------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and Chief
Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
Chairman of the Board,
* Chief Executive Officer
------------------------------------------- and Director of Las November 15, 2002
Sheldon G. Adelson Vegas Sands, Inc.
*
------------------------------------------- Director of Las Vegas November 15, 2002
Robert F. List Sands, Inc.
Vice President Finance
/s/ HARRY D. MILTENBERGER (Principal Financial and
------------------------------------------- Accounting Officer) of November 15, 2002
Harry D. Miltenberger Las Vegas Sands, Inc.
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
----------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-fact
</Table>
II-16
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
LIDO INTERMEDIATE HOLDING COMPANY, LLC
By: Venetian Casino Resort, LLC,
its sole member
By: Las Vegas Sands, Inc.,
its managing member
</Table>
<Table>
*
---------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and Chief
Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board,
* Chief Executive Officer
------------------------------------------- and Director of Las November 15, 2002
Sheldon G. Adelson Vegas Sands, Inc.
*
------------------------------------------- Director of Las Vegas November 15, 2002
Robert F. List Sands, Inc.
Vice President Finance
/s/ HARRY D. MILTENBERGER (Principal Financial and
------------------------------------------- Accounting Officer) of November 15, 2002
Harry D. Miltenberger Las Vegas Sands, Inc.
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
--------------------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-Fact
</Table>
II-17
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
VENETIAN MARKETING, INC.
*
------------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and Chief
Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
*
--------------------------------- Chairman of the Board, Treasurer November 15, 2002
Sheldon G. Adelson and Director
*
--------------------------------- Director November 15, 2002
William P. Weidner
/s/ HARRY D. MILTENBERGER
--------------------------------- Chief Financial Officer (Principal November 15, 2002
Harry D. Miltenberger Financial and Accounting Officer)
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
----------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-Fact
</Table>
II-18
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Las Vegas,
Nevada, on November 15, 2002.
<Table>
VENETIAN CASINO RESORT ATHENS, LLC
By: Las Vegas Sands, Inc.,
its sole member
</Table>
<Table>
*
---------------------------------------------
Name: Sheldon G. Adelson
Title: Chairman of the Board and Chief
Executive Officer
</Table>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board, Chief
- ---------------------------------- Executive Officer and Director of November 15, 2002
Sheldon G. Adelson Las Vegas Sands, Inc.
Director of Las Vegas Sands, Inc. November 15, 2002
*
- ----------------------------------
Robert F. List
/s/ HARRY D. MILTENBERGER Vice President Finance (Principal
- ---------------------------------- Financial and Accounting Officer) November 15, 2002
Harry D. Miltenberger of Las Vegas Sands, Inc.
</Table>
<Table>
*By: /s/ HARRY D. MILTENBERGER
----------------------------
Name: Harry D. Miltenberger
Title: Attorney-in-Fact
</Table>
II-19
<Page>
INDEX TO FINANCIAL STATEMENTS SCHEDULES
<Table>
Report of Independent Accountants on Financial Statements
Schedule of Las Vegas Sands, Inc.......................... S-2
Schedule II--Valuation and Qualifying Accounts of Las Vegas
Sands, Inc................................................ S-3
Report of Independent Accountants on Financial Statements
Schedule of Venetian Casino Resort, LLC................... S-4
Schedule II--Valuation and Qualifying Accounts of Venetian
Casino Resort, LLC........................................ S-5
</Table>
S-1
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULE
To the Board of Directors of Las Vegas Sands, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 1, 2002 appearing in this Registration Statement on Form S-4 of
Las Vegas Sands, Inc. also included an audit of the accompanying financial
statement schedule. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 1, 2002
S-2
<Page>
LAS VEGAS SANDS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<Table>
<Caption>
ADDITIONS DEDUCTIONS
---------- -----------
BALANCE AT CHARGES TO ACCOUNTS BALANCE
BEGINNING COSTS AND CHARGED OFF AT END
DESCRIPTION OF PERIOD EXPENSES (RECOVERED) OF PERIOD
- ------------------------------------------------- ---------- ---------- ----------- ---------
Allowance for doubtful accounts and discounts:
Year ended December 31:
1999......................................... $ -- 13,655 (6,758) $ 6,897
======= ======= ======== =======
2000......................................... $ 6,897 19,252 (3,236) $22,913
======= ======= ======== =======
2001......................................... $22,913 20,198 (19,118) $23,993
======= ======= ======== =======
</Table>
S-3
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULE
To the Board of Directors of Venetian Casino Resort, LLC
Our audits of the consolidated financial statements referred to in our report
dated February 1, 2002 appearing in this Registration Statement on Form S-4 of
Venetian Casino Resort, LLC also included an audit of the accompanying financial
statement schedule. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Las Vegas, Nevada
February 1, 2002
S-4
<Page>
VENETIAN CASINO RESORT, LLC
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<Table>
<Caption>
ADDITIONS DEDUCTIONS
---------- -----------
BALANCE AT CHARGES TO ACCOUNTS BALANCE
BEGINNING COSTS AND CHARGED OFF AT END
DESCRIPTION OF PERIOD EXPENSES (RECOVERED) OF PERIOD
- ------------------------------------------------- ---------- ---------- ----------- ---------
Allowance for doubtful accounts and discounts:
Year ended December 31:
1999......................................... $ -- 730 (210) $ 520
====== ===== ====== ======
2000......................................... $ 520 1,300 (502) $1,318
====== ===== ====== ======
2001......................................... $1,318 1,866 (1,018) $2,166
====== ===== ====== ======
</Table>
S-5
<Page>
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of Las Vegas
Sands, Inc. (incorporated by reference from Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
3.2 Amended and Restated By-laws of Las Vegas Sands, Inc.
(incorporated by reference from Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002).
3.3 Amended and Restated Limited Liability Company Agreement of
Venetian Casino Resort, LLC.(1)
3.4 Limited Liability Company Agreement of Mall Intermediate
Holding Company, LLC (incorporated by reference from Exhibit
3.6 to the Company's Registration Statement on Form S-4
(File No. 333-42147)).
3.5 First Amendment to Limited Liability Company Agreement of
Mall Intermediate Holding Company, LLC.(1)
3.6 Limited Liability Company Agreement of Grand Canal Shops
Mall Construction, LLC (incorporated by reference from
Exhibit 3.7 to the Company's Registration Statement on Form
S-4 (File No. 333-42147)).
3.7 First Amendment to Limited Liability Company Agreement of
Grand Canal Shops Mall Construction, LLC.(1)
3.8 Limited Liability Company Agreement of Lido Intermediate
Holding Company, LLC (incorporated by reference from Exhibit
3.5 to the Company's Registration Statement on Form S-4
(File No. 333-42147)).
3.9 First Amendment to Limited Liability Company Agreement of
Lido Intermediate Holding Company, LLC.(1)
3.10 Limited Liability Company Agreement of Venetian Casino
Resort Athens, LLC.(1)
3.11 Operating Agreement of Venetian Operating Company, LLC.(1)
3.12 Articles of Incorporation of Venetian Marketing, Inc.(1)
3.13 By-laws of Venetian Marketing, Inc.(1)
3.14 Operating Agreement of Venetian Venture Development, LLC.(1)
4.1 Indenture, dated as of June 4, 2002, by and among Las Vegas
Sands, Inc. and Venetian Casino Resort, LLC, as issuers,
Mall Intermediate Holding Company, LLC, Grand Canal Shops
Mall Construction, LLC, Lido Intermediate Holding Company,
LLC, Venetian Casino Resort Athens, LLC, Venetian Venture
Development, LLC, Venetian Operating Company, LLC and
Venetian Marketing, Inc. (as "Subsidiary Guarantors") and
U.S. Bank National Association, as trustee (incorporated by
reference from Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2002).
4.2 Registration Rights Agreement, dated as of June 4, 2002, by
and among Las Vegas Sands, Inc., Venetian Casino Resort,
LLC, the Subsidiary Guarantors named therein, Goldman, Sachs
& Co. and Scotia Capital (USA) Inc. (incorporated by
reference from Exhibit 4.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2002).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
4.3 Security Agreement, dated as of June 4, 2002, by and among
Las Vegas Sands, Inc., Venetian Casino Resort, LLC, the
Subsidiary Guarantors and The Bank of Nova Scotia, as
Intercreditor Agent (incorporated by reference from Exhibit
4.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002).
4.4 Deed of Trust, Leasehold Deed of Trust, Assignment of Rents
and Leases, Security Agreement and Fixture Filing, dated as
of June 4, 2002, made by Venetian Casino Resort, LLC and Las
Vegas Sands, Inc., jointly and severally as trustor, to
First American Title Insurance Company, as trustee, for the
benefit of U.S. Bank National Association in its capacity as
Mortgage Note Indenture Trustee, as beneficiary
(incorporated by reference from Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2002).
4.5 Intercreditor Agreement, dated as of June 4, 2002, by and
among The Bank of Nova Scotia, as Bank Agent and
Intercreditor Agent, and U.S. Bank National Association, as
Mortgage Notes Indenture Trustee (incorporated by reference
from Exhibit 4.5 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002).
4.6 Unsecured Indemnity Agreement, dated as of June 4, 2002, by
and among Las Vegas Sands, Inc. and Venetian Casino Resort,
LLC, to and for the benefit of U.S. Bank National
Association, and the Indemnified Parties defined therein
(incorporated by reference from Exhibit 4.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002).
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding legality of the securities being registered.(1)
5.2 Opinion of Lionel Sawyer & Collins regarding the legality of
the securities being registered.(1)
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to
certain tax matters.(1)
10.1 Bank Credit Agreement, dated as of June 4, 2002, by and
among Las Vegas Sands, Inc., Venetian Casino Resort, LLC,
the Subsidiary Guarantors, the lenders party thereto,
Goldman Sachs Credit Partners, L.P., as joint lead arranger,
joint bookrunner and syndication agent, and The Bank of Nova
Scotia, as joint lead arranger, joint bookrunner and
administrative agent (the "Bank Agreement") (incorporated by
reference from Exhibit 99.1 to the Company's report on Form
8-K, dated as of June 18, 2002).
10.2 Deed of Trust, Assignment of Rents and Leases and Security
Agreement, dated as of June 4, 2002, made by Venetian Casino
Resort, LLC and Las Vegas Sands, Inc., jointly and severally
as trustor, to First American Title Insurance Company, as
trustee, for the benefit of The Bank of Nova Scotia (as
administrative agent), as beneficiary (incorporated by
reference from Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002).
10.3 Subsidiary Guaranty, dated as of June 4, 2002, by the
Subsidiary Guarantors for the benefit of The Bank of Nova
Scotia, as Administrative Agent (incorporated by reference
from Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002).
10.4 Disbursement Account Agreement, dated as of June 4, 2002, by
and among Las Vegas Sands, Inc., Venetian Casino Resort, LLC
and The Bank of Nova Scotia, as secured party and securities
intermediary (incorporated by reference from Exhibit 10.4 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
10.5 Environmental Indemnity Agreement, dated as of June 4, 2002,
by and among Las Vegas Sands, Inc. and Venetian Casino
Resort, LLC, to and for the benefit of The Bank of Nova
Scotia, as Administrative Agent for itself and for the other
lenders under the Bank Agreement (incorporated by reference
from Exhibit 10.5 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002).
10.6 Loan Agreement, dated as of June 4, 2002, by and between
Archon Financial, L.P., as lender, and Grand Canal Shops II,
LLC (incorporated by reference from Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
10.7 Amendment No. 1 to Loan Agreement, dated June 28, 2002, by
and between Goldman Sachs Mortgage Company (as successor in
interest to Archon Financial, L.P.), as lender, and Grand
Canal Shops II, LLC, as borrower (incorporated by reference
from Exhibit 10.7 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002).
10.8 Indemnity Agreement, dated as of August 25, 2000, by and
among Las Vegas Sands, Inc., Venetian Casino Resort, LLC,
Grand Canal Shops Mall Subsidiary, LLC, Grand Canal Shops
Mall Construction, LLC, Grand Canal Shops Mall, LLC,
Interface Group Holding Company, and American Insurance
Companies (of which American Home Assurance Company is a
member company) (incorporated by reference from Exhibit 10.8
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002).
10.9 Energy Services Agreement, dated as of November 14, 1997, by
and between Atlantic Pacific Las Vegas, LLC and Venetian
Casino Resort, LLC (incorporated by reference from Exhibit
10.3 to the Company's Registration Statement on Form S-4
(File No. 333-42147)).
10.10 Energy Services Agreement Amendment No. 1, dated as of July
1, 1999, by and between Atlantic Pacific Las Vegas, LLC and
Venetian Casino Resort, LLC (incorporated by reference from
Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.11 Energy Services Agreement, dated as of November 14, 1997, by
and between Atlantic Pacific Las Vegas, LLC and Grand Canal
Shops Mall Construction, LLC (incorporated by reference from
Exhibit 10.4 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.12 Energy Services Agreement Amendment No. 1, dated as of July
1, 1999, by and between Atlantic Pacific Las Vegas, LLC and
Grand Canal Shops Mall Construction, LLC (incorporated by
reference from Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999).
10.13 Ground Lease, dated November 14, 1997, between Venetian
Casino Resort, LLC and Atlantic Pacific Las Vegas, LLC
(incorporated by reference from Exhibit 10.10 to the
Company's Registration Statement on Form S-4 (File No.
333-42147)).
10.14 Construction Management Agreement, dated as of February 15,
1997, between Las Vegas Sands, Inc., as owner, and Lehrer
McGovern Bovis, Inc (incorporated by reference from Exhibit
10.5 to the Company's Registration Statement on Form S-4
(File No. 333-42147)).
10.15 Assignment, Assumption and Amendment of Construction
Management Agreement, dated as of November 14, 1997, by and
among Las Vegas Sands, Inc., Venetian Casino Resort, LLC and
Lehrer McGovern Bovis, Inc. (incorporated by reference from
Exhibit 10.6to the Company's Registration Statement on Form
S-4 (File No. 333-42147)).
10.16 Guaranteed Maximum Price Amendment to Construction
Management Agreement, dated as of June 17, 1998 (effective
September 9, 1998), between Lehrer McGovern Bovis, Inc.
</Table>
<Page>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
and Venetian Casino Resort, LLC (incorporated by reference
from Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
10.17 Guaranty of Performance, dated as of August 19, 1997, by
Peninsular and Steam Navigation Company in favor of Las
Vegas Sands, Inc., as assigned by Las Vegas Sands, Inc. to
Venetian Casino Resort, LLC by that certain Assignment,
Assumption and Amendment of Contracts (incorporated by
reference from Exhibit 10.24 to the Company's Registration
Statement on Form S-4 (File No. 333-42147)).
10.18 Guaranty of Performance and Completion, dated as of August
19, 1997, by Bovis, Inc., in favor of Las Vegas Sands, Inc.
(incorporated by reference from Exhibit 10.25 to the
Company's Registration Statement on Form S-4 (File No.
333-42147)).
10.19 Management Agreement, dated as of July 24, 1997, by and
between Grand Canal Shops Mall II, LLC and Forrest City
Commercial Management (incorporated by reference from
Exhibit 10.22 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.20 Primary Liquidated Damages Insurance Agreement, dated as of
August 4, 1997, by and between the Construction Manager and
C.J. Coleman Companies, Ltd. (incorporated by reference from
Exhibit 10.23 to the Company's Registration Statement on
Form S-4 (File No. 333-42147)).
10.21 Amended and Restated Reciprocal Easement, Use and Operating
Agreement, dated as of November 14, 1997, by and among
Interface Group-Nevada, Inc., Grand Canal Shops Mall
Construction, LLC and Venetian Casino Resort, LLC
(incorporated by reference from Exhibit 10.8 to the
Company's Registration Statement on Form S-4 (File No.
333-42147)).
10.22 First Amendment to Amended and Restated Reciprocal Easement,
Use and Operating Agreement, dated as of December 20, 1999,
by and among Interface Group-Nevada, Inc., Grand Canal Shops
Mall Subsidiary, LLC, Lido Casino Resort, LLC and Venetian
Casino Resort, LLC (incorporated by reference from Exhibit
10.16 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999).
10.23 Second Amendment to Amended and Restated Reciprocal
Easement, Use and Operating Agreement, dated as of June 4,
2002, by and among Interface Group-Nevada, Inc., Grand Canal
Shops II, LLC, Lido Casino Resort, LLC and Venetian Casino
Resort, LLC (incorporated by reference from Exhibit 10.9 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
10.24 Casino Lease, dated as of November 14, 1997, by and between
Las Vegas Sands, Inc. and Venetian Casino Resort, LLC
(incorporated by reference from Exhibit 10.14 to the
Company's Registration Statement on Form S-4 (File No.
333-42147)).
10.25 Amended and Restated Services Agreement, dated as of
November 14, 1997, by and among LVSI, Venetian Casino
Resort, LLC, Interface Group Holding Company, Inc.,
Interface Group-Nevada, Inc., Lido Casino Resort MM, Inc.,
Grand Canal Shops Mall MM Subsidiary, Inc. and certain
subsidiaries of Venetian Casino Resort, LLC named therein
(incorporated by reference from Exhibit 10.15 to the
Company's Registration Statement on Form S-4 (File No.
333-42147)).
10.26 Construction Agency Agreement, dated as of November 14,
1997, by and between Venetian Casino Resort, LLC and
Atlantic Pacific Las Vegas, LLC (incorporated by reference
from Exhibit 10.21 to the Company's Registration Statement
on Form S-4 (File No. 333-42147)).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
10.27 Sands Resort Hotel and Casino Agreement, dated as of
February 18, 1997, by and between Clark County and Las Vegas
Sands, Inc. (incorporated by reference from Exhibit 10.27 to
the Company's Registration Statement on Form S-4 (File
No. 333-42147)).
10.28 Amended and Restated Las Vegas Sands, Inc. 1997 Fixed Stock
Option Plan (the "Stock Option Plan") (incorporated by
reference from Exhibit 10.10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002).
10.29 First Amendment to the Stock Option Plan, dated June 4, 2002
(incorporated by reference from Exhibit 10.11 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
10.30 Assumption Agreement, dated as of January 2, 2002, by
Sheldon G. Adelson with respect to the Stock Option Plan
(incorporated by reference from Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.31 Stockholders' Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands, Inc., Sheldon G. Adelson, William P.
Weidner, Bradley H. Stone, Robert G. Goldstein and David
Friedman (incorporated by reference from Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.32 Amended and Restated Employment Agreement, dated as of
January 1, 2002, by and between Las Vegas Sands, Inc. and
William P. Weidner (incorporated by reference from
Exhibit 10.12 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.33 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands, Inc., Sheldon G. Adelson and William
P. Weidner (incorporated by reference from Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.34 Amended and Restated Employment Agreement, dated as of
January 1, 2002, by and between Las Vegas Sands, Inc. and
Bradley H. Stone (incorporated by reference from
Exhibit 10.13 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.35 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands Inc., Sheldon G. Adelson and Bradley
H. Stone (incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.36 Amended and Restated Employment Agreement, dated as of
January 1, 2002, by and between Las Vegas Sands, Inc. and
Robert G. Goldstein (incorporated by reference from
Exhibit 10.14 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002).
10.37 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands Inc., Sheldon G. Adelson and Robert G.
Goldstein (incorporated by reference from Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.38 Stock Option Agreement, dated as of January 2, 2002, by and
among Las Vegas Sands, Inc., Sheldon G. Adelson and David
Friedman (incorporated by reference from Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------
10.39 Catastrophic Equity Protection Insurance Agreement, dated as
of June 28, 2000, by and among American Home Assurance
Company, Las Vegas Sands, Inc. and Venetian Casino Resort,
LLC (incorporated by reference from Exhibit 10.15 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).
12.1 Statement of Computation of Ratios of Earnings to Fixed
Charges.(2)
21.1 Subsidiaries of Las Vegas Sands, Inc.(1)
23.1 Consent of PricewaterhouseCoopers LLP.(2)
23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in Exhibits 5.1 and 8.1 to this Registration
Statement).
23.3 Consent of Lionel Sawyer & Collins (included in Exhibit 5.2
to this Registration Statement).
24.1 Powers of Attorney (included on signature pages).
25.1 Form T-1 Statement of Eligibility of U.S. Bank National
Association to act as trustee under the Indenture.(1)
99.1 Form of Letter of Transmittal.(1)
99.2 Form of Notice of Guaranteed Delivery.(1)
</Table>
- ------------------------
(1) Previously filed.
(2) Filed herewith.