As filed with the Securities and Exchange Commission on April 29, 1998
Registration No. 333-42147
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 3 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LAS VEGAS SANDS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 7011 04-3010100
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
----------------------
3355 Las Vegas Boulevard South
Room 1A
Las Vegas, Nevada 89109
(702) 733-5499
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
----------------------
VENETIAN CASINO RESORT, LLC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 7011 86-0863398
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
----------------------
3355 Las Vegas Boulevard South
Room 1C
Las Vegas, Nevada 89109
(702) 733-5499
(Name, address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
----------------------
David Friedman, Esq., Secretary
Las Vegas Sands, Inc.
3355 Las Vegas Boulevard South
Room 1A
Las Vegas, Nevada 89109
(702) 733-5499
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
With a copy to:
James L. Purcell, 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 sale to the public: As soon as
practicable after this Registration Statement becomes effective.
----------------------
If the Securities registered on this Form are to be 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 any 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
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 registration statement for the
same offering. [_]______________________
----------------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
Table of Additional Registrants
<TABLE>
<CAPTION>
State or Other Primary Standard Address, Including Zip Code, and
Jurisdiction of Industrial IRS Employer Telephone Number, Including
Incorporation Classification Identification Area Code, of Registrants'
Name or Organization Code Number Number Principal Executive Offices
- ---------------------------- ----------------- ------------------ ---------------- ---------------------------------
<S> <C> <C> <C> <C>
Lido Intermediate Holding
Company, LLC .............. Delaware 7011 88-0377966 3355 Las Vegas Boulevard South
Room 1F
Las Vegas, Nevada 89109
(702) 733-5499
Mall Intermediate Holding
Company, LLC .............. Delaware 7011 88-0377968 3355 Las Vegas Boulevard South
Room 1H
Las Vegas, Nevada 89109
(702) 733-5499
Grand Canal Shops Mall
Construction, LLC ......... Delaware 7011 88-0377973 3355 Las Vegas Boulevard South
Room 1G
Las Vegas, Nevada 89109
(702) 733-5499
</TABLE>
<PAGE>
PROSPECTUS
[VENETIAN LOGO]
Las Vegas Sands, Inc.
Venetian Casino Resort, LLC
Offer to Exchange their 12-1/4% Mortgage Notes
due 2004 and 14-1/4% Senior Subordinated Notes due 2005
which have been registered under the Securities Act
for any and all of their outstanding 12-1/4% Mortgage Notes due 2004
and 14-1/4% Senior Subordinated Notes due 2005.
--------------
This Exchange Offer will expire at 5:00 p.m. New York City time
on 1998, unless extended
--------------
Las Vegas Sands, Inc. ("LVSI" or the "Company") and Venetian Casino Resort,
LLC ("Venetian" and, together with LVSI, the "Issuers"), hereby jointly and
severally offer to exchange up to $425,000,000 aggregate principal amount of
their 12-1/4% Mortgage Notes due 2004 (the "New Mortgage Notes") and $97,500,000
aggregate principal amount of their 14-1/4% Senior Subordinated Notes due 2005
(the "New Senior Subordinated Notes" and together with the New Mortgage Notes,
the "New Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement of which
this Prospectus is part, for a like principal amount of their 12-1/4% Mortgage
Notes due 2004 (the "Existing Mortgage Notes") and 14-1/4% Senior Subordinated
Notes due 2005 (the "Existing Senior Subordinated Notes" and, together with the
Existing Mortgage Notes, the "Existing Notes") outstanding on the date hereof
upon the terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"). The terms of the New Notes are identical in all material respects to
those of the Existing Notes, except for certain transfer restrictions and
registration rights relating to the Existing Notes. The New Notes will be issued
pursuant to, and entitled to the benefits of: (i) the indenture, dated as of
November 14, 1997 (the "Mortgage Notes Indenture"), among LVSI and Venetian, as
issuers, Mall Intermediate Holding Company, LLC ("Mall Intermediate Holdings"),
Grand Canal Shops Mall Construction, LLC (the "Mall Construction Subsidiary")
and Lido Intermediate Holding Company, LLC ("Phase II Intermediate Holdings"
and, together with Mall Intermediate Holdings and Mall Construction Subsidiary,
the "Guarantors"), as Mortgage Note guarantors, and First Trust National
Association, as Mortgage Note trustee (the "Mortgage Note Trustee") and (ii) the
indenture, dated as of November 14, 1997 (the "Senior Subordinated Notes
Indenture" and, together with the Mortgage Notes Indenture, the "Indentures"),
among LVSI and Venetian, as issuers, Mall Intermediate Holdings, the Mall
Construction Subsidiary and Phase II Intermediate Holdings, as Senior
Subordinated Note guarantors and First Union National Bank, as Senior
Subordinated Note trustee (the "Senior Subordinated Note Trustee" and, together
with the Mortgage Note Trustee, the "Trustees") governing the Existing Notes.
The New Mortgage Notes and the Existing Mortgage Notes, the New Senior
Subordinated Notes and the Existing Senior Subordinated Notes and the Existing
Notes and the New Notes are referred to collectively as the "Mortgage Notes,"
the "Senior Subordinated Notes" and the "Notes," respectively. The offering of
the Existing Notes on November 14, 1997 (the "Offering") was part of the
financing that is being used to construct, develop, equip, and open the Venetian
Casino Resort, a Renaissance Venice-themed resort situated on the Las Vegas
Strip (the "Casino Resort").
Interest on the Mortgage Notes will be payable in cash at the rate of
12-1/4% per annum, semiannually on May 15 and November 15 of each year,
commencing May 15, 1998. Interest on the Senior Subordinated Notes will be
payable in cash at the rate of 10% per annum, semiannually on May 15 and
November 15 of each year, commencing May 15, 1998 through November 15, 1999, and
thereafter at the rate of 14-1/4% per annum. The Senior Subordinated Notes were
issued at a discount in order to yield 14-1/4% per annum to maturity and will
accrete to par by the second anniversary of the original date of issuance in the
Offering.
The Notes are redeemable, in whole or in part, at the option of the Issuers
at a redemption price equal to the sum of 100% of their principal amount or
Accreted Value (as defined), as the case may be, and an applicable make-whole
premium, if redeemed prior to November 15, 2001, or at the redemption prices set
forth herein, if redeemed thereafter, plus, in each case, accrued and unpaid
interest and Liquidated Damages (as defined), if any, to the date of redemption.
In addition, at any time prior to November 15, 2000, the Issuers may, at their
option, use the net cash proceeds of any (i) Redemption Triggering Event (as
defined) to redeem up to 35% of the aggregate principal amount of the Mortgage
Notes originally issued at a redemption price equal to 112.25% of the aggregate
principal amount so redeemed and (ii) Public Equity Offering (as defined) to
redeem the Senior Subordinated Notes, in whole or in part, at a redemption price
equal to 114.25% of the Accreted Value of the Senior Subordinated Notes so
redeemed, if prior to the second anniversary of the issuance date, or 114.25% of
the principal thereof, if on or after the second anniversary of the issuance
date, plus, in each case, accrued and unpaid interest and Liquidated Damages, if
any, to the date of redemption.
Upon a Change of Control (as defined), each holder of Notes will have the
right to require the Issuers to repurchase Mortgage Notes or Senior Subordinated
Notes owned by such holder at 101% of the principal amount or Accreted Value, as
the case may be, thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase, subject, in the case of the Senior
Subordinated Notes, to prior repurchase obligations under the Mortgage Notes.
(Continued next page)
--------------
See "Risk Factors" beginning on page 27, for a discussion of certain factors
that should be considered in evaluating an investment in the Notes.
--------------
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL BOARD
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT
MERITS OF THE NOTES OFFERED HEREBY.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus is , 1998.
<PAGE>
(Continued from previous page)
The Mortgage Notes are secured by second priority liens on the Note
Collateral (as defined) (consisting of substantially all of the assets of the
Issuers with certain exceptions) and by third priority liens on the Mall
Collateral (as defined). Upon completion of the Casino Resort, the Mall
Collateral will be transferred to a non-guarantor subsidiary of the Issuers,
will be released by the Mortgage Note Trustee and will not be available as
security for the holders of the Mortgage Notes. The Mortgage Notes are senior
in right of payment to all subordinated indebtedness of the Issuers. The
Mortgage Notes are effectively subordinated to (i) the indebtedness under the
Bank Credit Facility (as defined) (to the extent of the Note Collateral and the
Mall Collateral on which the lenders under the Bank Credit Facility will have a
prior lien) and (ii) the indebtedness under the Mall Construction Loan Facility
(as defined) (to the extent the Mall Collateral on which the Mall Construction
Lender (as defined) will have a prior lien). The Mortgage Notes also are
effectively subordinated to any indebtedness of the Issuers secured by assets
other than the Note Collateral (to the extent of such assets), such as the
Specified FF&E (as defined). Upon completion of the Casino Resort, the Issuers
are expected to have $910.2 million of indebtedness (including accreted
original issue discount on the Senior Subordinated Notes) outstanding
(including $150.0 million outstanding under the Bank Credit Facility, $140.0
million outstanding under the Mall Construction Loan Facility and $97.7 million
outstanding under the FF&E Credit Facility (as defined)). The rights and
remedies of the holders of the Mortgage Notes with respect to the Note
Collateral and the Mall Collateral are limited by the terms of certain
intercreditor agreements among the Issuers and certain of their lenders. See
"Description of Disbursement Agreement" and "Description of Intercreditor
Agreement."
The Senior Subordinated Notes are unsecured obligations of the Issuers,
are subordinated to all existing and future Senior Debt (as defined) of the
Issuers and are senior or pari passu in right of payment to all existing and
future subordinated indebtedness of the Issuers. Upon completion of the Casino
Resort, the Issuers are expected to have $812.7 million of Senior Debt
outstanding (including (i) $150.0 million of indebtedness outstanding under the
Bank Credit Facility, (ii) $425.0 million of indebtedness outstanding under the
Mortgage Notes, (iii) $140.0 million of indebtedness outstanding under the Mall
Construction Loan Facility and (iv) $97.7 million of indebtedness outstanding
under the FF&E Credit Facility).
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuers and the Guarantors contained in a Registration
Rights Agreement, dated as of November 14, 1997 (the "Registration Rights
Agreement"), among the Issuers, the Guarantors and Goldman, Sachs & Co. and
Bear Stearns & Co. Inc., as the initial purchasers of the Existing Notes (the
"Initial Purchasers").
The Issuers will not receive any proceeds from the Exchange Offer. Tenders
of Existing Notes pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date (as defined) of the Exchange Offer. The Issuers
expressly reserve the right to terminate or amend the Exchange Offer upon the
occurrence of any of the events specified under "The Exchange Offer--Conditions
to the Exchange Offer." If any such termination or amendment occurs, the
Issuers will notify the Exchange Agent (as defined) and will either issue a
press release or give oral or written notice to the holders of the Existing
Notes as promptly as practicable. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on , 1998, unless the Issuers, in their sole
discretion, have extended the period of time for which the Exchange Offer is
open.
The Issuers currently do not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active public market for
the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer. See
"The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 180 days from the
date on which the Registration Statement relating to this Prospectus is
declared effective, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
AVAILABLE INFORMATION
Upon the effectiveness of this registration statement, LVSI will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith, will file
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by LVSI with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at Seven World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661 and copies of such material may be
obtained from the Public Reference Section of the Commission, at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
also maintains an Internet Web Site at http://www.sec.gov that contains reports
and other information.
Under the Indentures, LVSI has agreed that, whether or not it is required
to do so by the rules and regulations of the Commission, it will file with the
Commission (unless the Commission will not accept such a filing) (i) reports
containing all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if LVSI were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section and
summarized financial information concerning Venetian, and with respect to the
annual information only, a report thereon by LVSI's independent accountants and
(ii) all reports that would be required to be filed with the Commission on Form
8-K if LVSI were required to file such reports. Notwithstanding the foregoing,
if any issuer that, directly or indirectly, owns more than 50% of the common
equity of LVSI is subject to the periodic reporting and the informational
requirements of the Exchange Act, LVSI will not be required to file the reports
specified in the preceding sentence so long as it provides annual and quarterly
financial statements of LVSI (which will include summarized financial
information concerning Venetian) to the holders of the Notes.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the Issuers and the Guarantors with the
Commission under the Securities Act. As permitted by the rules and regulations
of the Commission, this Prospectus does not contain all of the information
contained in the Registration Statement and the exhibits and schedules thereto
and reference is hereby made to the Registration Statement and the exhibits and
schedules thereto for further information with respect to the Issuers, the
Guarantors and the securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete. The Registration Statement, including the exhibits
thereto, may be inspected and copies thereof can be obtained as described in
the preceding paragraph with respect to periodic reports and other information
filed by LVSI under the Exchange Act.
2
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Liquidity and Capital Resources" and
"Business" and in the Forecasted Financial Statements and elsewhere in this
Prospectus constitute "forward-looking statements." Such forward-looking
statements include the financial forecast provided by the Issuers, the
discussions of the business strategies of the Issuers and expectations
concerning future operations, margins, profitability, liquidity and capital
resources. Although the Issuers believe that the financial forecast and the
expectations in such forward-looking statements are reasonable, they can give no
assurance that any forward-looking statements will prove to be correct. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Issuers to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the risks associated with entering into a new
venture and new construction, competition and other planned construction in Las
Vegas, government regulation related to the casino industry, uncertainty of
casino spending and vacationing in casino resorts in Las Vegas, occupancy rates
and average daily room rates in Las Vegas, demand for all-suites rooms, the
popularity of Las Vegas as a convention and trade show destination, the
completion of infrastructure improvements in Las Vegas, including the on-going
expansion of McCarran International Airport, and general economic and business
conditions which may impact levels of disposable income of consumers and pricing
of hotel rooms. For a further discussion of such factors and others, see "Risk
Factors" and the Forecasted Financial Statements.
3
<PAGE>
PROSPECTUS SUMMARY
The following material is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, references in this Prospectus to the Company mean
Las Vegas Sands, Inc. and its consolidated subsidiaries, references to LVSI
mean Las Vegas Sands, Inc., references to Venetian mean Venetian Casino Resort,
LLC, the owner of the Casino Resort (as defined herein) and references to the
Issuers mean LVSI and Venetian. Venetian is a Nevada limited liability company
whose managing member is LVSI. References in this Prospectus to the Mall
Subsidiary mean Grand Canal Shops Mall, LLC, a Delaware limited liability
company and indirect subsidiary of the Company formed to separately own and
operate the Mall (as defined herein) upon completion of the Casino Resort.
Certain statements in this Prospectus (including this Prospectus Summary)
constitute "forward-looking statements." See "Special Note Regarding
Forward-Looking Statements."
The Issuers and the Venetian Casino Resort
The Company is constructing and will own and operate the Venetian Casino
Resort, a Renaissance Venice-themed resort situated at one of the premier
locations on the Las Vegas Strip (the "Strip"). The Casino Resort is located
across from The Mirage and the Treasure Island Hotel and Casino at the site of
the former Sands Hotel and Casino (the "Sands"). As planned, the Casino Resort
will include the first all-suites hotel on the Strip with approximately 3,036
suites (the "Hotel"); a gaming facility of approximately 116,000 square feet
(the "Casino"); an enclosed retail, dining and entertainment complex of
approximately 500,000 net leasable square feet (the "Mall"); and a meeting and
conference facility of approximately 500,000 square feet (the "Congress
Center"). The Casino Resort will be physically connected to the approximately
1,150,000 square foot existing Sands Expo and Convention Center (the "Expo
Center"), one of the largest facilities in the United States specifically
designed for trade shows and conventions. Management believes that the combined
facilities of the Casino Resort and the Expo Center (which is separately owned
by an affiliate of the Company) will be one of the largest hotel and meeting
complexes in the United States. Ground breaking for the Casino Resort occurred
in April 1997, with an opening to the general public scheduled for April 1999.
Business and Marketing Strategy
The Company's business strategy is to (i) create a "must-see" destination
resort at a premier location at the heart of the Las Vegas Strip, (ii) provide
a differentiated superior all-suites product, (iii) capitalize on the link to
the Expo Center and the Congress Center, (iv) utilize the Casino Resort's
unique assets and facilities to appeal to a higher budget customer mix, (v) use
the Casino Resort's themed facilities and location to generate Casino revenues,
(vi) target premium gaming customers, and (vii) carefully manage construction
costs and risks.
Create a "Must-See" Destination Casino Resort at the Heart of the
Las Vegas Strip
The Casino Resort, with its extensive theming, dining, shopping and
entertainment, is expected to be a "must-see" destination resort located at the
heart of the Strip. The Casino Resort is designed to provide visitors with the
sense of being surrounded by the festivity and splendor of Renaissance Venice's
architecture, music, art and history. The Venetian-themed setting along the
Casino Resort's frontage on the Strip will include waterways, gondolas, and
replicas of Venetian landmarks, such as the Doge's Palace, the Rialto Bridge,
the Ca Doro and the Campanile Tower. The Mall will feature a one-quarter mile
Venetian streetscape, with intimate "piazza"-style settings and a 630 foot
"grand" canal running its length, with gondolas and waterside cafes and crossed
by authentically-styled Venetian bridges.
The Company believes that the Casino Resort's Venetian-theming, and its
central location on the Strip will appeal to business travelers, leisure
travelers and gaming customers and will position the Casino Resort to draw
significant pedestrian traffic from the Strip. The Casino Resort will have 740
feet of frontage on the east side of the Strip and will be 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. Based on information gathered from public
sources, the
4
<PAGE>
Company estimates that on average each day during 1996, approximately 57,000
vehicles passed the site of the Casino Resort, approximately 13,000 persons
watched the pirate show in front of the Treasure Island Hotel and Casino, and
approximately 43,000 persons visited The Forum Shops at Caesars Palace Hotel.
Provide a Differentiated Superior All-Suites Product
The Hotel is expected to offer the only all-suites product with first-class
services and facilities on the Strip. In management's experience, business and
leisure travelers consider suites desirable, superior accommodations. For
business travelers, the Hotel's suites, which will accommodate informal business
meetings and social gatherings, will offer guests a unique, single location in
which to work and entertain in close proximity to the Expo Center and the Strip.
Leisure travelers will appreciate both the Hotel's spacious suites and extensive
facilities. The Company believes that the all-suites format, together with the
Casino Resort's many other unique attributes, will result in a highly
differentiated resort product, and provide a competitive advantage over other
Strip hotel/casino properties and resorts.
The typical Hotel suite will range in size from approximately 655 square
feet to approximately 735 square feet (compared to 360 to 400 square feet on
average for a standard room in competing facilities on the Strip), and will
consist of a sunken living/working area and a raised sleeping area with a marble
bathroom. The suite's living/working area will include a sitting area and a
writing desk and will offer business amenities such as dual-line speaker phones,
a fax machine and dataport access. The bathrooms will be oversized, featuring a
separate bathtub and shower, dual sinks and a phone. In addition, the Hotel will
offer larger suites, including the "Presidential" and penthouse suites, with
exclusive services such as butlers.
Capitalize on the Link to the Expo Center and the Congress Center
The Casino Resort will be the first themed entertainment resort in Las
Vegas designed specifically to accommodate large scale trade shows, conventions,
conferences and meetings. The Expo Center and the Congress Center are expected
to provide recurring, predictable demand for mid-week room nights from business
travelers. During 1997, approximately 1,150,000 visitors attended trade shows
and conventions at the Expo Center. Through an agreement with Venetian, the
owner of the Expo Center has agreed to market the Casino Resort to promoters of
Expo Center trade shows, conventions and other events as the "headquarters
hotel" for such events. The Casino Resort will offer attendees of events at the
Expo Center and the Congress Center the most convenient hotel accommodations in
Las Vegas. The Expo Center already has booked or reserved 37 trade shows,
conventions and business events for the calendar year 1999, covering 131
separate show days. It should be noted that trade show and convention promoters
are under no obligation to select the Casino Resort as the "headquarters hotel"
for their events. See "Risk Factors--Possible Conflicts of Interest." In
addition to being an expected source of room demand for the Hotel, the Expo
Center and the Congress Center are expected to draw pedestrian traffic from
guests of hotels throughout Las Vegas, providing a significant source of traffic
for the Casino and the Mall.
Appeal to a Higher Budget Customer Mix
Management expects 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 weekends. By appealing to customers in these
market segments, the Company expects to reduce its reliance on the lower-budget
tour and travel market. Management believes business travelers typically pay
more for rooms and spend more on entertainment than weekday customers in other
categories, such as tour groups. Management believes that the Casino Resort's
central location adjacent to the Expo Center and on the Strip and its all-suites
hotel product will allow it to compete effectively for higher budget mid-week
trade show, convention and meeting attendees. On both weekdays and weekends, the
all-suites product at the Hotel is expected to appeal to free and independent
leisure travelers and "high-roller" gaming customers, also segments of the
travel market that spend more on rooms and entertainment.
Use the Casino Resort's Themed Facilities and Location to
Generate Casino Revenues
Management believes the Casino will capture gaming revenues from (i) the
foot traffic generated by Expo Center and Congress Center events, (ii) Hotel
guests, (iii) the foot traffic generated by shoppers and diners at the Mall and
the Casino and (iv) visitors attracted to the Casino Resort's unique,
Venetian-themed facilities.
5
<PAGE>
The Casino Resort is planned to include a concentration of some of the
finest restaurants in Las Vegas, brand name and exclusive boutique shopping,
and themed entertainment concepts. Letters of intent have been signed with
several well-known restauranteurs to operate their "signature" restaurants at
the Casino Resort. In addition, the Company has entered into a lease for the
"Billboard Live!" entertainment complex, which is affiliated with Billboard
Magazine. Management believes that the combination of brand name awareness and
extensive theming will generate significant foot traffic for the Casino Resort.
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.
Target Premium Gaming Customers
Management believes that the Casino Resort's all-suites product, themed
atmosphere and amenities will offer gaming customers a unique Las Vegas
experience. The Company intends to market the Casino to frequent premium gaming
customers. In particular, the Company will seek to attract "high roller" gaming
customers by offering premium suites and special hotel services. Because of the
all-suites format in the Hotel, the Casino Resort will be 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 otherwise be offered such suites by the Company's competitors. The
Company believes that the premium gaming customer is a significant market
segment that has been inadequately addressed by the Casino Resort's competitors.
The Casino Resort will be the first all-suites resort on the Strip with
facilities and amenities designed from inception to attract and serve premium
gaming customers.
Carefully Manage Construction Costs and Risks
The Casino Resort is budgeted to cost approximately $1.065 billion to
develop, equip and open (such costs include approximately $70.0 million for
certain heating and air conditioning-related and other equipment (the "HVAC
Equipment") to be owned by a third party, but exclude land acquisition costs).
As of December 31, 1997, approximately $228.1 million of this total budgeted
cost has been expended or incurred. Of the amount expended and incurred,
approximately $95.3 million represents cash contributed to the Company by
Sheldon G. Adelson, the sole stockholder of the Company (the "Sole
Stockholder"), through affiliates of the Company.
As of December 31, 1997, (i) the foundation for the principal structure of
the Casino Resort has been constructed and the superstructure is under
construction and (ii) pursuant to the Construction Management Contract (as
defined herein) and otherwise, trade contracts in excess of $303.7 million for
various components of the project, including excavation, foundations, structural
steel, mechanical and plumbing systems and structural concrete have been entered
into or negotiated. In order to manage its construction risk, the Company has
entered into various agreements designed to protect it against construction
delays and cost overruns, including (i) a guaranteed maximum price construction
contract (the "Construction Management Contract") which protects the Company
against certain cost overruns in the amount of $547.8 million (or approximately
52% of the expected cost of the Casino Resort) with Lehrer McGovern Bovis, Inc.
(the "Construction Manager") for the principal components of the Casino Resort,
(ii) a guaranty of certain of the Construction Manager's obligations by its
parent corporation, The Peninsular and Oriental Steam Navigation Company
("P&O"), and (iii) a liquidated damages insurance policy for costs of certain
construction delays (the "Liquidated Damages Insurance"). The budget for the
Casino Resort contains a Construction Manager's construction budget contingency
and an owner's contingency totaling $66.1 million in the aggregate that can be
used to cover cost overruns. Further, the Sole Stockholder has provided a $25.0
million collateralized completion guaranty (the "Completion Guaranty"). The
Completion Guaranty is not available to fund any increases in costs attributable
to discretionary "scope changes." Any such "scope changes" may only be
implemented if the Issuers demonstrate that they have sufficient available funds
to cover the anticipated increased costs, or if the Sole Stockholder increases
his Completion Guaranty by such amount. To the extent that any cost overruns are
not covered by the Construction Management Agreement or the other protections
described above, such cost overruns could be substantial and have a material
adverse effect on the Company's liquidity and results of operations and its
ability to meet its principal and interest payments on the Notes. See "Risk
Factors--Construction Budget; Construction Management Contract and Guaranties."
6
<PAGE>
To further ensure that there are sufficient funds to construct the Casino
Resort as planned and that such funds are disbursed appropriately, certain
lenders to the Issuers and the Mortgage Note Trustee have entered into a funds
disbursement and administration agreement (the "Disbursement Agreement") to
establish the conditions for and the sequencing of funding construction costs
and procedures for approving construction change orders and amendments to the
construction budget and schedule. The Disbursement Agreement provides that
project costs (other than costs for the HVAC Equipment, furniture, fixtures and
other equipment) will, generally, be funded first from the cash portion of the
Equity Contribution (as defined herein) and the proceeds of the Senior
Subordinated Notes, and thereafter, on a pro rata basis from the proceeds of
the Bank Credit Facility, the Mall Construction Loan Facility and the Mortgage
Notes. However, the HVAC Equipment and the Specified FF&E (as defined herein),
will be funded through the Disbursement Agreement from separate commitments
from the HVAC Provider (as defined herein) and the FF&E Lenders (as defined
herein), respectively, subject to limited exceptions.
A subsidiary of Tishman Corporation ("Tishman"), one of the nation's
leading construction managers and largest hotel developers and owners, acts as
construction consultant (the "Construction Consultant") to certain of the
lenders to the Company and is required to review each request by the Issuers
for the disbursement of funds. Representatives of the Construction Consultant
have worked with the Company since early August 1997 in reviewing construction
plans, schedules and budgets. The disbursement conditions under the
Disbursement Agreement generally provide that funds will be disbursed to the
Issuers only if the Construction Consultant determines that construction is on
schedule and that there are sufficient available funds to complete the Casino
Resort in accordance with the construction drawings and budget. See "Risk
Factors--Construction Budget; Construction Management Contract and Guaranties,"
"--Completion Guaranty," "Description of Disbursement Agreement," "Description
of Intercreditor Agreement" and "Certain Material Agreements."
7
<PAGE>
Sources and Uses of Funds
The estimated sources and uses of funds to construct, develop, equip, and
open the Casino Resort (including the Hotel, the Mall, the Casino and the
Congress Center, but excluding HVAC Equipment, which will be owned by a third
party) are as follows (in millions)(1)(2)(3):
<TABLE>
<CAPTION>
Sources
- -------------------------------------
<S> <C>
Bank Credit Facility (4) ............ $ 150.0
Mall Construction Loan Facility ..... 140.0
FF&E Credit Facility (5) ............ 97.7
Mortgage Notes ...................... 425.0
Senior Subordinated Notes ........... 90.5
Equity Contribution (6) ............. 320.3
---------
Total Sources ...................... $ 1,223.5
=========
Uses
- -------------------------------------
Hotel and Casino .................... $ 486.3
Mall ................................ 123.6
FF&E (4)(7) ......................... 121.1
Land (6)(8) ......................... 225.0
Parking and site work ............... 36.4
Interest, net ....................... 88.4
Pre-opening costs and expenses ...... 34.4
Contingency (9) ..................... 66.1
Financing fees and expenses ......... 42.2
---------
Total Uses ......................... $ 1,223.5
=========
</TABLE>
- --------------
(1) The Company believes that the construction and development budget for the
Casino Resort is reasonable; however, given the risks inherent in the
construction process, it is possible that construction and development costs
for the Casino Resort could be significantly higher. See "Risk
Factors--Risks of New Construction," "--Construction Budget; Construction
Management Contract and Guaranties," "--Completion Guaranty" and "Use of
Proceeds."
(2) The sources and uses table does not include approximately $70.0 million for
the HVAC Equipment, which will be paid for and owned by the HVAC Provider.
See "Certain Material Agreements--Agreements Relating to the Casino
Resort--HVAC Services Agreement and Related Documents."
(3) The Issuers used a portion of the net proceeds from the Offering to repay
$30.1 million of indebtedness plus accrued interest under a construction
loan (the "Construction Loan"). The net proceeds from the Construction Loan
were used to fund the development and construction costs of the Casino
Resort. See "Use of Proceeds" and "Management's Discussion and Analysis of
Liquidity and Capital Resources."
(4) Additional borrowings under the Bank Credit Facility of up to $20.0 million
are available under a revolving loan facility (approximately $15.0 million
of which will be available during the construction period: (i) to fund the
purchase of the Specified FF&E (including deposits thereon), with such
amounts to be repaid from funds drawn under the FF&E Credit Facility (as
defined herein) and (ii) to support letters of credit relating to the
construction of the Casino Resort). See "Description of Certain
Indebtedness--Bank Credit Facility" and "--FF&E Credit Facility."
(5) The availability of funds under the FF&E Credit Facility is subject to
certain conditions including substantial completion of the Casino Resort.
See "Description of Certain Indebtedness--FF&E Credit Facility."
(6) Equity Contribution represents (i) $95.3 million in cash advanced by the
Sole Stockholder or his affiliates to fund construction and development of
the Casino Resort and (ii) $225.0 million representing the appraised value
of the 45 acre site (the "Project Site") upon a portion of which the Casino
Resort will be built (such land had a book value of $93.6 million at
December 31, 1997). See "Appraisals--Land Appraisal" and "Certain
Transactions--Equity Contribution."
(7) Includes $26.9 million of gaming equipment and $94.2 million of other
furniture, fixtures and equipment. See "Description of Certain
Indebtedness--FF&E Credit Facility."
(8) Upon the completion of a subdivision of the Project Site, approximately 14
acres of land included in the Project Site (the "Phase II Land") may be
released from the Note Collateral and transferred to a subsidiary of
Venetian (the "Phase II Subsidiary"). See "Description of Mortgage
Notes--Ranking and Security."
(9) The total contingency consists of $66.1 million, which is currently
allocated as follows: (i) a $26.1 million contingency included in the
Construction Manager's guaranteed maximum price (the "Construction Manager's
Contingency") and (ii) a $40.0 million general project contingency (the
"Owner's Contingency"). In addition, the Sole Stockholder's collateralized
Completion Guaranty is available to cover cost overruns. See "Risk
Factors--Construction Budget; Construction Management Contract and
Guaranties" and "Certain Material Agreements--Agreements Relating to the
Casino Resort--Construction Management Contract."
8
<PAGE>
Financing Transactions and HVAC Agreement
The funding of development and construction costs for the Casino Resort
will be provided by: (i) $425.0 million in gross proceeds from the issuance of
the Mortgage Notes; (ii) $90.5 million in gross proceeds (net of original issue
discount) from the issuance of the Senior Subordinated Notes; (iii) borrowings
of approximately $150.0 million under the secured bank credit facility (the
"Bank Credit Facility"); (iv) borrowings of approximately $140.0 million under
the secured mall construction loan facility (the "Mall Construction Loan
Facility") provided by GMAC Commercial Mortgage Corporation (the "Mall
Construction Lender"); (v) $97.7 million of indebtedness under a credit facility
provided by General Electric Capital Corporation and BancBoston Leasing Inc.
(the "FF&E Lenders") and secured by certain furniture, fixtures and equipment
(the "Specified FF&E") (the "FF&E Credit Facility" and, together with the
financings described in clauses (i), (ii), (iii) and (iv) above, the "Financing
Transactions"); and (vi) the Equity Contribution (as defined herein). The
availability of funds under the FF&E Credit Facility is subject to certain
conditions including reaching a certain level of construction progress on the
Casino Resort. In addition, Atlantic-Pacific Las Vegas, LLC (the "HVAC
Provider") has committed to provide up to $70.0 million for the purchase and
installation of the HVAC Equipment. Pursuant to thermal energy service
agreements with Venetian, Interface (as defined herein) and the Mall
Construction Subsidiary (collectively, the "HVAC Services Agreement"), the HVAC
Provider will own and operate all of the HVAC Equipment and provide heating and
air-conditioning to the Casino Resort and the Expo Center. The HVAC Provider's
obligation to provide the above-described $70.0 million will be secured by
irrevocable, stand-by letters of credit. Rates to be charged under the HVAC
Services Agreement have been set with the expectation that during the initial
ten-year term of the HVAC Services Agreement, the HVAC Provider will recover the
major portion of its investment. See "Certain Material Agreements--Agreements
Relating to the Casino Resort--HVAC Services Agreement and Related Documents."
The Issuers, The Bank of Nova Scotia, as administrative agent under the
Bank Credit Facility (the "Bank Agent"), the Mall Construction Lender, the
Mortgage Note Trustee and The Bank of Nova Scotia, as disbursement agent (the
"Disbursement Agent") have entered into the Disbursement Agreement which
establishes procedures and conditions to the Company's right to obtain funding
to construct the Casino Resort. In addition, the Disbursement Agreement
obligates each of the various lenders to fund its pro-rata share of the
construction costs of the Casino Resort and the HVAC Provider to fund the costs
of the HVAC Equipment, in each case, once the conditions to funding have been
satisfied. The Bank Agent, the Mall Construction Lender, the trustee under the
Senior Subordinated Notes (the "Senior Subordinated Note Trustee") and the
Mortgage Note Trustee have entered into an intercreditor agreement (the
"Intercreditor Agreement") setting forth certain agreements among them. These
agreements relate, among other things, to (i) their claims and interests in the
Note Collateral and the Mall Collateral (as such terms are defined herein) and
other assets of the Issuers, (ii) the ability of the Issuers to incur additional
indebtedness under the Bank Credit Facility or the Mall Construction Loan
Facility, (iii) procedures for waiver of certain funding disbursement
conditions, (iv) limitations on the rights of the Mortgage Note Trustee and the
Senior Subordinated Note Trustee and holders of the Mortgage Notes and the
Senior Subordinated Notes to exercise remedies under certain circumstances and
(v) provisions for the recommencement of disbursements upon curing of defaults
under the Disbursement Agreement. See "Description of Disbursement Agreement"
and "Description of Intercreditor Agreement."
Upon completion of the Casino Resort and satisfaction of certain other
conditions, pursuant to the Sale and Contribution Agreement among Venetian, the
Mall Construction Subsidiary and the Mall Subsidiary (the "Sale and Contribution
Agreement"), the Mall Construction Subsidiary will transfer the Mall and certain
related assets (collectively, the "Mall Collateral") to the Mall Subsidiary.
Upon such transfer, the Mall Collateral will be released by the Mortgage Note
Trustee and the Bank Agent and will not be available as security for the holders
of the Mortgage Notes or the indebtedness under the Bank Credit Facility, and
the indebtedness under the Mall Construction Loan Facility will either be repaid
or assumed by the Mall Subsidiary (with the Issuers and the Guarantors being
released from all obligations under such indebtedness). See "Certain Material
Agreements--Agreements Relating to the Mall--Sale and Contribution Agreement."
9
<PAGE>
To finance the obligations of the Mall Subsidiary under the Sale and
Contribution Agreement, Goldman Sachs Mortgage Company ("GSMC") and an entity
wholly owned by the Sole Stockholder (the "Tranche B Take-out Lender") have
entered into separate commitment agreements with the Mall Subsidiary whereby,
subject to completion of the Casino Resort and certain other conditions, (i)
GSMC has agreed to provide debt financing to the Mall Subsidiary of up to $105.0
million (the "Tranche A Take-out Financing") and (ii) the Tranche B Take-out
Lender has agreed to provide debt financing to the Mall Subsidiary of up to
$35.0 million (the "Tranche B Take-out Financing" and, together with the Tranche
A Take-out Financing, the "Mall Take-out Financings"). The indebtedness under
the Mall Take-out Financings will not be recourse to LVSI or Venetian. See "Risk
Factors--Sole Stockholder" and "Description of Certain Indebtedness--Mall
Take-out Financing Commitments."
Sole Stockholder, Equity Contribution and Ownership
Sheldon G. Adelson, the Sole Stockholder, beneficially owns all of the
capital stock and membership interests of the Issuers and Interface
Group-Nevada, Inc. ("Interface"), the owner of the Expo Center. The Sole
Stockholder has been Chairman and Chief Executive Officer of LVSI since it was
formed in 1988 to own and operate the Sands. In addition to owning and operating
the Sands, the Sole Stockholder has extensive experience in the trade show,
convention and tour and travel businesses.The Sole Stockholder 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. Although
the Company and Interface have agreed to cooperate in the marketing of the
Casino Resort and the Expo Center, the Company has no ownership or financial
interest in Interface or the Expo Center, and the Company does not exercise any
control over the business or management of Interface or the Expo Center. The
Notes represent obligations of the Company and Venetian only and do not
represent obligations of, and are not guaranteed by, Interface, the Sole
Stockholder or any of their affiliates (other than LVSI, Venetian and certain of
their subsidiaries described herein). See "Risk Factors--Possible Conflicts of
Interest" and "--Sole Stockholder."
As support for the development of the Casino Resort, the Sole Stockholder
or his affiliates have provided the following:
(i) $95.3 million in cash to partially fund construction costs and expenses
of the Casino Resort (the "Cash Contribution");
(ii) the 45-acre Project Site (approximately 14 acres of which (the Phase
II Land) may be transferred to the Phase II Subsidiary), which has an
appraised value of $225.0 million (together with the Cash Contribution, the
"Equity Contribution");
(iii) the $25.0 million Completion Guaranty collateralized by cash or cash
equivalents;
(iv) a $35.0 million guaranty of the Mall Construction Loan Facility and a
commitment to provide the Tranche B Take-out Financing (collateralized by
an aggregate of $35.0 million of cash or cash equivalents); and
(v) a $20.0 million unsecured guaranty of the Tranche A Take-out Financing.
See "Risk Factors--Completion Guaranty" and "--Sole Stockholder," "Appraisals,"
"Certain Transactions" and "Description of Certain Indebtedness."
10
<PAGE>
Ownership Structure
Set forth below is an ownership chart for the Issuers and their
subsidiaries following the Offering. For a full description of the Issuers and
their subsidiaries, see "LVSI and Venetian." References to Mall Intermediate
Holdings mean Mall Intermediate Holding Company, LLC; references to Phase II
Intermediate Holdings mean Lido Intermediate Holding Company, LLC; references
to Mall Holdings mean Grand Canal Shops Mall Holding Company, LLC; and
references to Phase II Holdings mean Lido Casino Resort Holding Company, LLC.
----------------------
Sole Stockholder and
Wholly-Owned Entities
----------------------
| | 100%
| ----------------------
| LVSI(1)
Preferred | (Casino Operator)
equity | ----------------------
interest | | Managing Member,
| | 100% common
| | equity interest
| |
--------------------------------------
Venetian(1)
(Owner of the Venetian Resort)
--------------------------------------
/ | \
- ---------------------- ---------------------- ----------------------
Mall Construction Mall Intermediate Phase II Intermediate
Subsidiary(2) Holdings(3) Holdings(3)
(Owner of Mall ---------------------- ----------------------
until completion) Indirectly owned | | Indirectly owned
- ---------------------- through a | | through a
holding company | | holding company
| |
---------------------- ----------------------
Mall Subsidiary
(Owner of Mall after Phase II Subsidiary(4)
Completion)
---------------------- ----------------------
- --------------
(1) LVSI and Venetian are co-obligors of the Notes and the co-obligors of the
indebtedness under the Bank Credit Facility, the Mall Construction Loan
Facility and the FF&E Credit Facility.
(2) The Mall Construction Subsidiary has entered into a long-term agreement
(the "Mall Lease") with Venetian to lease the space that constitutes the
Mall until such space becomes a separate legal and tax parcel, at which
time Venetian will, pursuant to the Mall Lease, transfer fee ownership of
such space to the Mall Construction Subsidiary. The Mall Construction
Subsidiary has guaranteed the indebtedness under the Bank Credit Facility
and the Mortgage Notes on a secured basis and the Senior Subordinated Notes
on an unsecured, subordinated basis. The Mall Construction Subsidiary is a
co-obligor of the Mall Construction Loan Facility. Upon completion of the
Casino Resort, pursuant to the Sale and Contribution Agreement, the Mall
Construction Subsidiary will transfer the Mall Collateral to the Mall
Subsidiary. See "Certain Material Agreements--Agreements Relating to the
Mall--Sale and Contribution Agreement."
(3) Mall Intermediate Holdings and Phase II Intermediate Holdings have
guaranteed the indebtedness under the Bank Credit Facility on a senior
basis and the Notes on a subordinated basis. Mall Intermediate Holdings
also has guaranteed the indebtedness under the Mall Construction Loan
Facility on a senior basis. See "Description of Mortgage Notes--Mortgage
Note Guaranties" and "Description of Senior Subordinated Notes--Senior
Subordinated Note Guaranties."
(4) Upon subdivision of the Project Site, the Phase II Land may be released
from the Note Collateral and transferred to the Phase II Subsidiary.
Although no plans for the Phase II Land have been finalized, it is
currently planned that the Phase II Subsidiary will construct a themed
hotel and casino (the "Phase II Resort") on the Phase II Land that will be
physically connected to the Casino Resort. Under the Indentures, the
Issuers have agreed that they will not commence construction of the Phase
II Resort (other than the parking garage on the Phase II Land) until a
temporary certificate of occupancy has been issued for the Casino Resort.
11
<PAGE>
Summary Consolidated Financial Forecast Information
Set forth below is summary financial forecast information of operations for
the Company for the first twelve months of operations of the Casino Resort. The
information is presented to show both the inclusion and exclusion of operations
of the Mall Subsidiary. See Forecasted Consolidated Financial Statements and the
accompanying Summary of Significant Forecast Assumptions and Accounting Policies
(the "Financial Forecast"). The Financial Forecast was prepared as of June 30,
1997 except for the amount of Mortgage Notes and Senior Subordinated Notes and
the assumed interest rates on such Notes, which were updated as of November 6,
1997. The prospective financial information included in this Prospectus has been
prepared by, and is the responsibility of, the Company's management. Price
Waterhouse LLP has neither examined nor compiled the accompanying prospective
financial information, and accordingly, Price Waterhouse LLP does not express an
opinion or provide any other form of assurance with respect thereto. The Price
Waterhouse LLP report included in this Prospectus relates to the Company's
historical financial information and does not extend to the prospective
financial information and should not be read to do so. Neither the Initial
Purchasers nor any independent expert has reviewed the Financial Forecast. While
such Financial Forecast is presented with numerical specificity, it is based on
the best estimate of the Company described in the Summary of Significant
Assumptions and Accounting Policies in the Financial Forecast of the results it
expects for the Casino Resort given the Company's assumptions (including that
(i) the Casino Resort will open on schedule and be successful, (ii) the Casino
Resort will attract a substantial number of visitors and (iii) the average daily
hotel room rate paid by the visitors at the Casino Resort will be higher than
room rates at other hotel/casinos on the Strip because of room demand from the
trade shows and conventions currently booked at the Expo Center for the first
projected year of operation of the Casino Resort, the Casino Resort's all-suite
format and amenities, its location and its target market). Furthermore, such
estimates are inherently subject to significant business, economic and
competitive uncertainties and contingencies (many of which are beyond the
control of the Company), including future business decisions which are subject
to change. Financial forecasts are necessarily speculative in nature, and it is
usually the case that one or more of the assumptions do not materialize. For
instance, the Financial Forecast assumes higher than average daily room rates of
$167 during the initial year of operations (as compared to an average daily room
rate of $79 for the upper quartile of casinos located on the Las Vegas Strip
with gaming revenues greater than $72.0 million (the "Large Strip Hotels") for
1996 according to the Nevada State Gaming Control Board (the "Nevada Board" or
"NGCB") and average daily room rates at major convention hotels in New York,
Chicago and San Francisco of approximately $160 during the first quarter of 1997
according to "Smith Travel Research"), which may not be achieved. In addition,
the results, performance and achievements of the Casino Resort involve known and
unknown risks, uncertainties and other factors, including the risks associated
with new construction, government regulation relating to the casino industry,
the completion of infrastructure improvements in Las Vegas, including the
ongoing expansion of McCarran International Airport, and general economic and
business conditions which may impact levels of disposable income for consumers
and pricing of hotel rooms. Accordingly, the Financial Forecast is only an
estimate, and actual results can be expected to vary from estimates, and the
variations may be material. The Financial Forecast herein should not be regarded
as a representation by the Company or any other person that the Financial
Forecast will be achieved. Holders of the Notes are cautioned not to place undue
reliance on the Financial Forecast. The Company does not intend to update or
otherwise revise the Financial Forecast to reflect events or circumstances
existing or arising after the date of this Prospectus or to reflect the
occurrence of unanticipated events, except as required by applicable law. This
Summary Consolidated Financial Forecast Information and the information that
follows constitute forward-looking statements. See "Special Note Regarding
Forward-Looking Statements."
12
<PAGE>
Summary Consolidated Financial Forecast Information
<TABLE>
<CAPTION>
For the First Twelve Months
of Operations
-----------------------------------
(includes Mall (excludes Mall
Subsidiary) Subsidiary) (1)
---------------- ----------------
(in millions, except for
certain assumptions)
<S> <C> <C> <C>
Operating Data:
Casino revenues (2) .............................................. $ 280.5 $280.5
Room revenues .................................................... 172.6 172.6
Mall revenues .................................................... 28.2 --
Total net revenues (3) ........................................... 527.8 499.6
Depreciation and amortization .................................... 43.3 37.4
Income from operations ........................................... 181.1 160.8
Interest expense, net ............................................ (97.7) (85.0)
Net income ....................................................... 83.4 75.8
Balance Sheet Data: .................................................
Total assets ..................................................... $1,078.8 $935.9
Total long-term debt ............................................. 782.5 642.5
Preferred interest ............................................... 77.1 77.1
Stockholder's equity ............................................. 117.2 116.7
Other Data:
Ratio of earnings to fixed charges (4) ........................... 1.8x 1.8x
Net cash provided by operating activities ........................ $ 107.5 $ 93.6
Net cash used in investing activities ............................ (8.5) (8.3)
Net cash used in financing activities ............................ (82.6) (79.5)
EBITDA (5) ....................................................... 224.4 198.2
Total debt (6) ................................................... 856.3 716.3
Ratio of EBITDA to interest expense, net (6) ..................... 2.3x 2.3x
Ratio of total debt to EBITDA (6) ................................ 3.8x 3.6x
Certain Assumptions:
Number of slot machines .......................................... 2,500 2,500
Number of table games (excluding four baccarat tables) ........... 114 114
Slot machine win per unit per day (2) ............................ $ 151 $ 151
Table game (excluding baccarat) win per unit per day (2) ......... $ 2,463 $2,463
Number of hotel rooms ............................................ 3,036 3,036
Average daily room rate .......................................... $ 167 $ 167
Occupancy rate ................................................... 93% 93%
</TABLE>
- --------------
(1) Does not include the operations of the Mall Subsidiary. Upon the completion
of the Casino Resort, the Mall Subsidiary is expected to incur indebtedness
under the Mall Take-out Financings. The ability of the Mall Subsidiary to
distribute or otherwise transfer funds to the Company will be limited by,
among other things, the agreements governing such indebtedness.
(2) Amounts include an estimated 3% annual inflation factor for the period
December 1996 through April 1999, which is the estimated construction
period. The Company's estimates of win per unit per day amounts are based
on the State of Nevada Gaming Control Board's gaming figures for casinos
located on the Strip with gaming revenues greater than $72.0 million (upper
quartile of Large Strip Hotels (as defined herein)) for the calendar year
ended December 31, 1996, adjusted for inflation during the construction
period. See "Summary of Significant Forecast Assumptions and Accounting
Policies" in the Financial Forecast.
(3) Net of promotional allowances of $51.0 million. See the Financial Forecast.
(4) The ratio of earnings to fixed charges is determined by dividing (i) net
income plus fixed charges by (ii) fixed charges. Fixed charges consist of
interest expense (including amortization of discount on indebtedness),
amortization of debt expense and that portion of rental expense
representative of interest.
(5) EBITDA represents earnings before interest, taxes, depreciation and
amortization and is presented as income from operations before depreciation
and amortization. EBITDA is presented to enhance the understanding of the
financial performance of the Company and its ability to service its
indebtedness, including the Notes. EBITDA is not intended to represent and
should not be considered an alternative to, or more meaningful than, net
income and income from operations as an indicator of the operating
performance of the Company. EBITDA should not be considered by investors as
an indicator of cash flows from operating activities, investing activities
and financing activities as determined in accordance with generally
accepted accounting principles. Items excluded for EBITDA, such as
depreciation and amortization, are significant components in understanding
and assessing the Company's financial performance. EBITDA measures
presented may not be comparable to similarly titled measures presented by
other issuers.
(6) Ratios computed as of the end of the forecasted first twelve months of
operations.
13
<PAGE>
The Exchange Offer
Securities Offered ................. Up to $425,000,000 aggregate principal
amount of 12-1/4% Mortgage Notes due 2004
and up to $97,500,000 aggregate principal
amount of 14-1/4% Senior Subordinated
Notes due 2005 which have been registered
under the Securities Act. The terms of the
New Notes are identical in all material
respects to those of the Existing Notes,
except for certain transfer restrictions
and registration rights relating to the
Existing Notes.
The Exchange Offer ................. The New Notes are being offered in
exchange for a like principal amount of
Existing Notes. Existing Notes may be
exchanged only in integral multiples of
$1,000. The issuance of the New Notes is
intended to satisfy obligations of the
Issuers under the Registration Rights
Agreement.
Expiration Date;
Withdrawal of Tender .............. The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1998
or such later date and time to which it is
extended by the Issuers. The tender of
Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior
to the Expiration Date. Any Existing Notes
not accepted for exchange for any reason
will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Conditions to the Exchange Offer ... The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Issuers. The Issuers currently
expect that each of the conditions will be
satisfied and that no waivers will be
necessary. See "The Exchange
Offer--Conditions to the Exchange Offer."
Procedures for Tendering
Existing Notes .................... Unless a tender of Existing Notes is
effected pursuant to the procedures for
book-entry transfer as provided herein,
each holder of Existing Notes wishing to
accept the Exchange Offer must complete,
sign and date a Letter of Transmittal, or
a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, or such
facsimile, together with such Existing
Notes and any other required
documentation, to the Exchange Agent at
the address set forth herein. See "The
Exchange Offer--Procedures for Tendering
Existing Notes."
Use of Proceeds .................... There will be no proceeds to the Issuers
from the exchange of Notes pursuant to the
Exchange Offer. See "Use of Proceeds."
Certain Federal Income
Tax Considerations ................ The exchange pursuant to the Exchange
Offer should not be a taxable event for
federal income tax purposes. See "Certain
Federal Income Tax Considerations."
Exchange Agent ..................... U.S. Bank Trust National Association
(formerly known as First Trust National
Association) is serving as the Exchange
Agent in connection with the Exchange
Offer.
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Consequence of Exchanging Existing Notes
Pursuant to the Exchange Offer
Based on certain no action letters issued by the staff of the Commission
to third parties in unrelated transactions, the Issuers believe that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Issuers to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of the holder's business and such holders have
no arrangement or understanding with any person to participate in a
distribution of such New Notes and are not participating in, and do not intend
to participate in, the distribution of such New Notes. By tendering, each
holder will represent to the Issuers in the Letter of Transmittal that, among
other things, the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes whether or not such person is the holder, that neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, that neither the holder nor
any such other person is participating in or intends to participate in the
distribution of such New Notes and that neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Issuers. Each broker-dealer that receives New Notes for its own account in
exchange for Existing Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and complied with. The Issuers have
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer
or sale under the securities or blue sky laws of such jurisdictions as are
necessary to permit the consummation of the Exchange Offer. If a holder of
Existing Notes does not exchange such Existing Notes for New Notes pursuant to
the Exchange Offer, such Existing Notes will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the
Existing Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See "The
Exchange Offer--Consequences of Failure to Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
15
<PAGE>
The Notes
Except as otherwise indicated, the following description relates both to
the Existing Notes and to the New Notes to be issued in exchange for Existing
Notes in connection with the Exchange Offer. The form and terms of the New Notes
are the same as the form and terms of the Existing Notes, except that the New
Notes will have been registered under the Securities Act and therefore will not
bear legends restricting the transfer thereof. For a more complete description
of the Notes, see "Description of Mortgage Notes" and "Description of Senior
Subordinated Notes."
Issuers....................... Las Vegas Sands, Inc. and Venetian Casino
Resort, LLC, jointly and severally.
Mortgage Notes
Issue......................... $425.0 million principal amount of 12-1/4%
Mortgage Notes due November 15, 2004.
Interest Payment Dates........ The Mortgage Notes bear interest at the rate
of 12-1/4% per annum, payable in cash
semi-annually in arrears on May 15 and November
15, commencing May 15, 1998.
Optional Redemption........... On or after November 15, 2001, the Mortgage
Notes will be redeemable at the option of the
Issuers, in whole or in part, at the redemption
prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages (as
defined herein), if any, to the date of
redemption. At any time on or prior to November
15, 2000, the Issuers may, within 60 days of
(i) a Public Equity Offering (as defined
herein) or (ii) the receipt by the Issuers or
any of their Restricted Subsidiaries of Excess
Mall Proceeds (as such terms are defined
herein) (each of the events described in (i)
and (ii) being a "Redemption Triggering
Event"), at their option, use the net cash
proceeds of such Redemption Triggering Event to
redeem up to 35% of the aggregate principal
amount of the Mortgage Notes originally issued
at a redemption price equal to 112.25% of the
aggregate principal amount so redeemed, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption.
Prior to November 15, 2001, the Issuers may,
at their option, redeem the Mortgage Notes, in
whole or in part, at a redemption price equal
to 100% of the principal amount thereof plus
an amount equal to the greater of (i) 12.25%
of the outstanding principal amount of such
Mortgage Notes and (ii) the excess of (a) the
present value of the remaining interest,
premium and principal payments due on such
Mortgage Notes as if such Mortgage Notes were
redeemed on November 15, 2001 computed using a
discount rate equal to the Treasury Rate plus
50 basis points over (b) the outstanding
principal amount of such Mortgage Notes, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption.
The Issuers have the option to redeem the
Mortgage 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 (i) the cost
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<PAGE>
paid by such holder or (ii) 100% of the
aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption.
See "Regulation and Licensing" and
"Description of Mortgage Notes--Optional
Redemption."
Change of Control............. Upon a Change of Control (as defined herein),
each holder of the Mortgage Notes will have the
right, at such holder's option, to require the
Issuers to repurchase such holder's Mortgage
Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase.
There can be no assurance that the Issuers will
have sufficient funds to repurchase the
Mortgage Notes or any other indebtedness
(including indebtedness under the Bank Credit
Facility and the Mall Construction Loan
Facility) upon a Change of Control. See "Risk
Factors--Change of Control" and "Description of
Mortgage Notes-- Repurchase at the Option of
Holders--Change of Control."
Security...................... The Mortgage Notes are secured by second
priority liens on substantially all of the
assets, now owned or hereafter acquired, of the
Company, Venetian or any of the Secured
Mortgage Note Guarantors (as defined herein),
which initially includes all real estate,
improvements and all personal property owned by
the Issuers and any Secured Mortgage Note
Guarantors (with certain exceptions), as well
as a pledge of any intercompany notes held by
either of the Issuers or the Secured Mortgage
Note Guarantors (collectively, the "Note
Collateral") and (until the Casino Resort is
completed) third priority liens on the Mall
Collateral. The Note Collateral does not
include (i) the Specified FF&E, (ii) any assets
which if pledged, hypothecated or given as
collateral security would require the Company
or Venetian to seek approval by the Nevada
Gaming Authorities (as defined herein) of the
pledge, hypothecation or collateralization, or
require the Trustee or a holder or beneficial
holder of the Mortgage 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
the Exchange Offer (as defined herein), (iii)
any stock of or membership interests in any
subsidiaries of the Company, and (iv) certain
other assets to the extent permitted under the
Mortgage Note Indenture. Pending disbursement
of the proceeds of the Mortgage Notes, the
Mortgage Notes are also secured by a first
priority pledge of unexpended funds in the
Mortgage Notes Proceeds Account, which are not
otherwise encumbered. See "Description of
Mortgage Notes--Ranking and Security."
Upon completion of the Casino Resort and the
satisfaction of certain other conditions,
pursuant to the Sale and Contribution
Agreement, the Mall Construction Subsidiary
will transfer the Mall Collateral to the Mall
Subsidiary in
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<PAGE>
exchange for an amount equal to the
outstanding balance on the Mall Construction
Loan Facility (or certain refinancings
thereof). Upon such transfer, the Mall
Collateral will be released from the liens
securing the Mortgage Notes and the
indebtedness under the Bank Credit Facility
and will not be available as security for the
holders of the Mortgage Notes or the
indebtedness under the Bank Credit Facility.
The Note Collateral currently includes the
entire Project Site, approximately 45 acres of
land on the Strip. The site of the Casino
Resort (including the Congress Center and the
Mall) will consist of approximately 31 acres
of the Project Site (the "Venetian Site").
Upon a subdivision of the Project Site, the
Mortgage Note Trustee and the Bank Agent will
release the remaining 14 acres of land (the
Phase II Land) included in the Note Collateral
and Venetian may transfer such land to the
Phase II Subsidiary. Although no plans for the
Phase II Land have been finalized, it is
currently planned that the Phase II Subsidiary
will construct the Phase II Resort on the
Phase II Land. The Phase II Resort is planned
to be physically connected to the Casino
Resort. See "Risk Factors--Possible Conflicts
of Interest," "--Shared Facilities" and
"Certain Material Agreements."
Ranking....................... The Mortgage Notes are senior secured
obligations of the Issuers and are senior in
right of payment to all subordinated unsecured
indebtedness of the Issuers. The Mortgage Notes
are effectively subordinated to the
indebtedness under the Bank Credit Facility and
the Mall Construction Loan, both of which are
secured by prior liens on the Note Collateral
and/or the Mall Collateral, but only to the
extent of such liens. The Mortgage Notes are
also effectively subordinated to any
indebtedness of the Issuers secured by assets
other than the Note Collateral (to the extent
of such assets), such as the Specified FF&E,
and to any indebtedness of any subsidiary of
the Issuers that is not a guarantor of the
Mortgage Notes. Upon completion of the Casino
Resort, the Issuers are expected to have $910.2
million of indebtedness (including accreted
original issue discount on the Senior
Subordinated Notes) outstanding (including
$150.0 million outstanding under the Bank
Credit Facility, $140.0 million outstanding
under the Mall Construction Loan Facility and
$97.7 million outstanding under the FF&E Credit
Facility). Prior to completion, the Indentures
permit the Issuers (i) to incur up to an
aggregate of $20.0 million of additional
indebtedness under the Bank Credit Facility
and/or the Mall Construction Loan Facility plus
(ii) if a default occurs under the Disbursement
Agreement, to incur up to an aggregate of $30.0
million of additional indebtedness under the
Bank Credit Facility and/or the Mall
Construction Loan Facility (in addition to the
additional indebtedness described in the
foregoing clause (i)) on a dollar for dollar
basis with additional equity investments from
the Sole Stockholder. In addition, after
completion, the Indentures permit the Issuers
to incur up
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<PAGE>
to (i) $20.0 million of working capital
secured by prior liens on the Note Collateral
and (ii) $20.0 million of additional
indebtedness secured by prior liens on the
Note Collateral (subject in the case of clause
(ii) to reduction to the extent of any
indebtedness incurred as contemplated in the
prior sentence). Upon the transfer of the Mall
Collateral, the Mall Subsidiary (which is not
a guarantor of the Mortgage Notes) is expected
to incur approximately $140.0 million of
indebtedness under the Mall Take-out
Financings to refinance the Mall Construction
Loan Facility. See "Description of Mortgage
Notes--Ranking and Security," "--Certain
Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified
Stock" and "Description of Intercreditor
Agreement."
Mortgage Note Guaranties...... The Mortgage Notes are fully, unconditionally
and jointly and severally guaranteed on a
senior secured basis (the "Secured Mortgage
Note Guaranties") by the Mall Construction
Subsidiary and any future Restricted Subsidiary
(as defined herein) of the Issuers (the
"Secured Mortgage Note Guarantors"). In
addition, Mall Intermediate Holdings and Phase
II Intermediate Holdings (the "Subordinated
Mortgage Note Guarantors") have fully,
unconditionally and jointly and severally
guaranteed the Mortgage Notes on a subordinated
and unsecured basis (the "Subordinated Mortgage
Note Guaranties"). The Subordinated Mortgage
Note Guaranties are subordinated in right of
payment to all Senior Debt (as defined in the
Mortgage Note Indenture). See "Description of
Mortgage Notes--Mortgage Note Guaranties."
Senior Subordinated Notes
Issue......................... $97.5 million principal amount of 14-1/4%
Senior Subordinated Notes due November 15,
2005.
Interest Payment Dates........ The Senior Subordinated Notes bear interest
at the rate of 10% per annum, payable in cash
semi-annually in arrears on May 15 and November
15, commencing May 15, 1998 through November
15, 1999, and thereafter at a rate of 14-1/4%
per annum. The Senior Subordinated Notes were
sold at a discount to their face amount in the
Offering in order to yield 14-1/4% per annum to
maturity and will accrue to par by the second
anniversary of the original date of issuance in
the Offering. See "Description of Certain
Federal Income Tax Considerations."
Optional Redemption........... On or after November 15, 2001, the Senior
Subordinated Notes will be redeemable at the
option of the Issuers, in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption.
On or prior to November 15, 2000, the Issuers,
within 60 days of any Public Equity Offering,
at their option, may use the net cash proceeds
from such Public Equity Offering to redeem the
Senior Subordinated Notes, in whole or in
part, at a redemption price equal to (i)
114.25% of the Accreted Value
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<PAGE>
(as defined herein) of the Senior Subordinated
Notes so redeemed, if prior to the second
anniversary of the issuance date, or (ii)
114.25% of the principal amount of the Senior
Subordinated Notes so redeemed, if on or after
the second anniversary of the issuance date,
in each case, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of
redemption.
Prior to November 15, 2001, the Issuers may, at
their option, redeem the Senior Subordinated
Notes, in whole or in part, at a redemption
price equal to (a) 100% of the Accreted Value
of the Senior Subordinated Notes so redeemed,
if prior to the second anniversary of the
issuance date, or (b) 100% of the principal
amount of the Senior Subordinated Notes so
redeemed, if on or after the second anniversary
of the issuance date, in each case plus an
amount equal to the greater of (i) (a) 14.25%
of the Accreted Value, if prior to the second
anniversary of the issuance date of such Senior
Subordinated Notes, or (b) 14.25% of the
outstanding principal amount, if on or after
the second anniversary of Issuance Date, of
such Senior Subordinated Notes and (ii) the
excess of (a) the present value of the
remaining interest, premium and principal
payments due on such Senior Subordinated Notes
as if such Senior Subordinated Notes were
redeemed on November 15, 2001, computed using a
discount rate equal to the Treasury Rate plus
50 basis points, over (b) the outstanding
principal amount of such Senior Subordinated
Notes, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
redemption.
The Issuers also have the option to redeem the
Senior Subordinated 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 (i)
the cost paid by such holder, or (ii) (a) 100%
of the Accreted Value of the Senior
Subordinated Notes so redeemed, if prior to
the second anniversary of the issuance date,
or (b) 100% of principal amount of the Senior
Subordinated Notes so redeemed, if on or after
the second anniversary of the issuance date,
in each case plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of
redemption. See "Regulation and Licensing" and
"Description of Senior Subordinated
Notes--Optional Redemption."
Change of Control............. Upon a Change of Control, subject to any
required repurchase of the Mortgage Notes, each
holder of the Senior Subordinated Notes will
have the right, at such holder's option, to
require the Issuers to repurchase such holder's
Senior Subordinated Notes at a purchase price
equal to (i) 101% of the Accreted Value of the
Senior Subordinated Notes so redeemed, if prior
to the second anniversary of the issuance date,
or (ii) 101% of the aggregate principal amount
of the Senior Subordinated Notes so redeemed,
if on or after
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<PAGE>
the second anniversary of the issuance date, in
each case, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
repurchase. There can be no assurance that the
Issuers will have sufficient funds to
repurchase the Senior Subordinated Notes or any
other indebtedness (including indebtedness
under the Bank Credit Facility, the Mortgage
Notes, the Mall Construction Loan Facility, or
any other Senior Debt (as defined herein)) upon
a Change of Control. See "Risk Factors--Change
of Control" and "Description of Senior
Subordinated Notes--Repurchase at the Option of
Holders--Change of Control."
Subordination................. The Senior Subordinated Notes are unsecured
obligations of the Issuers, are subordinated in
right of payment to all existing and future
Senior Debt of the Issuers and are senior or
pari passu in right of payment to all existing
and future subordinated indebtedness of the
Issuers. The Senior Subordinated Notes are also
effectively subordinated to any indebtedness of
any Subsidiary (as defined herein) of the
Issuers that is not a guarantor of the Senior
Subordinated Notes. Upon completion of the
Casino Resort, the Issuers are expected to have
$812.7 million of Senior Debt outstanding
(including (i) $150.0 million outstanding under
the Bank Credit Facility, (ii) $140.0 million
outstanding under the Mall Construction Loan
Facility, (iii) $425.0 million outstanding
under the Mortgage Notes and (iv) $97.7 million
outstanding under the FF&E Credit Facility).
Prior to completion, the Indentures permit the
Issuers (i) to incur up to an aggregate of
$20.0 million of additional indebtedness under
the Bank Credit Facility and/or the Mall
Construction Loan Facility plus (ii) if a
default occurs under the Disbursement
Agreement, to incur up to an aggregate of $30.0
million of additional indebtedness under the
Bank Credit Facility and/or the Mall
Construction Loan Facility (in addition to the
additional indebtedness described in the
foregoing clause (i)) on a dollar for dollar
basis with additional equity investments from
the Sole Stockholder. In addition, after
completion, the Indentures permit the Issuers
to incur up to (i) $20.0 million of additional
Senior Debt as working capital and (ii) $20.0
million of other additional Senior Debt
(subject in the case of clause (ii) to
reduction to the extent of any indebtedness
incurred as contemplated in the prior
sentence). The Mall Subsidiary (which is not a
guarantor of the Senior Subordinated Notes) is
expected to incur approximately $140.0 million
of indebtedness under the Mall Take-out
Financings upon the transfer of the Mall
Collateral to refinance the indebtedness under
the Mall Construction Loan Facility. See
"Description of Senior Subordinated
Notes--Subordination," "--Certain
Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified
Stock" and "Description of Intercreditor
Agreement."
Senior Subordinated
Note Guaranties............... The Senior Subordinated Notes are fully,
unconditionally and jointly and severally
guaranteed (the "Senior Subordinated Note
Guaranties") by Mall Intermediate Holdings,
Phase II
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<PAGE>
Intermediate Holdings, Mall Construction
Subsidiary and any future Restricted
Subsidiaries of the Issuers (the "Senior
Subordinated Note Guarantors"). The Senior
Subordinated Note Guaranties are unsecured
obligations of each such guarantor and are
subordinated in right of payment to all Senior
Debt of the Senior Subordinated Note
Guarantors, including the guaranties by such
guarantors of the indebtedness under the Bank
Credit Facility, the Mall Construction Loan
Facility and the Mortgage Notes. See
"Description of Senior Subordinated
Notes--Senior Subordinated Notes Guaranties."
Original Issue Discount....... For federal income tax purposes, each Senior
Subordinated Note is treated as issued with
"original issue discount." See "Certain Federal
Income Tax Considerations."
Terms Applicable to Both Issues
Certain Covenants............. The Indentures contain certain covenants
that, among other things, limit the ability of
LVSI, Venetian and their Restricted
Subsidiaries to incur additional indebtedness
and 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, sell certain assets of LVSI,
Venetian, or their Restricted Subsidiaries,
issue or sell equity interests of the
Restricted Subsidiaries or enter into certain
mergers and consolidations. Unrestricted
Subsidiaries (as defined herein) of the Issuers
(including the Phase II Subsidiary) are not
subject to the covenants set forth in the
Indentures. In addition, Special Subsidiaries
(as defined herein) of the Issuers (including
the Mall Subsidiary) are not subject to all of
the restrictions set forth in theIndentures
(including limitations on the incurrence of
indebtedness). In addition, under certain
circumstances,LVSI and Venetian are required to
offer to use the Excess Proceeds (as defined
herein) of certain Asset Sales (as defined
herein) and, in the case of the Mortgage Notes
only, Excess Loss Proceeds (as defined herein)
of certain Events of Loss (as defined herein),
as the case may be, to purchase Notes from the
holders thereof at a price equal to 100% of the
principal amount thereof or the Accreted Value
thereof, as the case may be, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of purchase. See "Description of
Mortgage Notes" and "Description of Senior
Subordinated Notes."
Disbursement Agreement........ The Mortgage Note Trustee, the Bank Agent,
the Mall Construction Lender, the HVAC
Provider, the Disbursement Agent, LVSI,
Venetian and the Mall Construction Subsidiary
have entered into the Disbursement Agreement
which establishes conditions to and the
sequencing of funding construction costs and
procedures for approving construction change
orders and amendments to the construction
budget and schedule. A subsidiary of Tishman
acts as the Construction Consultant under the
Disbursement Agreement
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<PAGE>
and is required to approve each request by the
Issuers for the disbursement of funds. See
"Description of Disbursement Agreement."
Intercreditor Agreement....... The Mortgage Note Trustee, the Senior
Subordinated Note Trustee, the Bank Agent, and
the Mall Construction Lender have entered into
the Intercreditor Agreement setting forth
certain agreements among them regarding, among
other things, their claims and interests in the
Note Collateral and the Mall Collateral and
other assets of the Issuers, the ability of the
Issuers to incur additional Indebtedness under
the Bank Credit Facility and the Mall
Construction Loan Facility, and limitations on
the rights of the parties thereto to exercise
remedies under certain circumstances. See
"Description of Intercreditor Agreement."
Additional intercreditor arrangements have been
entered into with the HVAC Provider and will be
entered into with the FF&E Lenders. See
"Certain Material Agreements--Agreements
Relating to the Casino Resort--HVAC Services
Agreement and Related Documents" and
"Description of Certain Indebtedness--FF&E
Credit Facility."
Construction Management Contract
and Guaranties................ The Issuers have entered into the
Construction Management Contract with the
Construction Manager for construction of the
Casino Resort (exclusive of certain furniture,
fixtures and equipment, the fabrication of
certain theming elements and the parking
garage/electrical substation facility) for an
aggregate guaranteed maximum price of
approximately $547.8 million. The Construction
Management Contract provides that if the
aggregate cost of the items covered by the
Construction Management Contract exceeds the
guaranteed maximum price, the Construction
Manager will be liable for such excess. Bovis,
Inc. ("Bovis"), the parent of the Construction
Manager, has entered into a guaranty (the
"Construction Management Contract Guaranty"),
pursuant to which it has agreed, subject to
certain conditions and limitations, to
guarantee the obligations of Construction
Manager under the Construction Management
Contract. P&O, the ultimate parent of the
Construction Manager, has entered into a
guaranty (the "P&O Guaranty"), pursuant to
which it has agreed to guarantee the
obligations of Bovis under the Construction
Management Contract Guaranty. In addition,
under the Construction Management Contract, the
Construction Manager, solely, is liable for
liquidated damages for the first 30 days of any
delay in completing the construction of the
Casino Resort beyond the deadline for
substantial completion set forth in the
Construction Management Contract. For delays in
completion which continue beyond such 30-day
period (and up to the 120th day following the
date completion was supposed to have been
achieved), liquidated damages are not payable
by the Construction Manager, but are payable by
the insurance companies that have provided the
Liquidated Damages
23
<PAGE>
Insurance. For delays that continue beyond the
120th day following the deadline for
completion of construction of the Casino
Resort, the Construction Manager, Bovis and
P&O will be jointly and severally liable for
liquidated damages. The above-described
obligations of the Construction Manager, Bovis
and P&O are subject to certain conditions,
limitations and exceptions. For example, the
Construction Management Contract provides that
the guaranteed maximum price is to be
appropriately increased, and the deadline for
substantial completion is to be appropriately
extended, to reflect "force majeure" events,
deficiencies or changes in the drawings
prepared by the Issuers' architects and
engineers, and Issuer-mandated "scope
changes." See "Risk Factors--Construction
Budget; Construction Management Contract and
Guaranties," "Insurance Requirements,"
"Certain Material Agreements--Agreements
Relating to the Casino Resort--Construction
Management Contract" and "--Liquidated Damages
Insurance."
Completion Guaranty........... Pursuant to the Completion Guaranty, the Sole
Stockholder has guaranteed, subject to certain
conditions and limitations, payment of
construction and development costs in excess of
available funds, up to a maximum of $25.0
million. The Sole Stockholder's obligation to
fund such excess construction and development
costs is collateralized by $25.0 million in
cash or cash equivalents which have been
pledged to the Disbursement Agent. If the
Issuers want to implement a discretionary scope
change or change order, and such scope change
or change order would cause construction and
development costs to exceed available funds,
such scope change or change order cannot be
implemented unless the Sole Stockholder
increases the maximum amount available under
the Completion Guaranty, and pledges to the
Disbursement Agent additional cash or cash
equivalents, in the amount of such excess. The
Completion Guaranty does not provide for the
incurrence by the Sole Stockholder, directly or
indirectly, of any obligation, contingent or
otherwise, for the payment of the principal,
premium and interest on the Notes or any other
indebtedness under the financings described
herein. If the Sole Stockholder provides funds
under the Completion Guaranty, the amount of
such funds will be treated as a junior
subordinated loan from the Sole Stockholder to
the Issuers. See "Risk Factors--Completion
Guaranty" and "Certain Material Agreements--
Agreements Relating to the Casino
Resort--Completion Guaranty."
Requirements by
Gaming Authorities............ The Exchange Offer may not become effective
without the prior approval of the Nevada Gaming
Authorities (as defined herein). The Issuers
have received such approval.
Any beneficial owner of debt securities (such
as the Notes) of a Corporate Licensee (as
defined herein) or a Registered Corporation
(as defined herein) may be required to be
found
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suitable if the relevant Gaming Authorities
(as defined herein) have reason to believe
that such ownership would be inconsistent with
the declared policy of the State of Nevada.
See "Risk Factors--Government Regulation,"
"Regulation and Licensing," "Description of
Mortgage Notes--Optional Redemption" and
"Description of Senior Subordinated
Notes--Optional Redemption."
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Comparison of New Notes With Existing Notes
Freely Transferable........... Generally, the New Notes will be freely
transferable under the Securities Act by
holders thereof other than any holder that is
either an affiliate of the Issuers or a
broker-dealer that purchased the Notes from the
Issuers to resell pursuant to Rule 144A or any
other available exemption. The New Notes
otherwise will be substantially identical in
all material respects (including interest rates
and maturities) to the Existing Notes. See "The
Exchange Offer."
Registration Rights........... The holders of Existing Notes currently are
entitled to certain registration rights
pursuant to the Registration Rights Agreement.
However, upon consummation of the Exchange
Offer, subject to certain exceptions, holders
of Existing Notes who do not exchange their
Existing Notes for New Notes in the Exchange
Offer will no longer be entitled to
registration rights and will not be able to
offer or sell their Existing Notes, unless such
Existing Notes are subsequently registered
under the Securities Act (which, subject to
certain limited exceptions, the Issuers will
have no obligation to do), except pursuant to
an exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. See "Risk
Factors--Adverse Consequences of Failure to
Adhere to Exchange Offer Procedures."
Absence of a Public Market
for the New Notes............. The New Notes are new securities and there is
currently no established market for the New
Notes. Accordingly, there can be no assurances
as to the development or liquidity of any
market for the New Notes. The Issuers do not
intend to apply for listing on a securities
exchange of the New Notes.
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<PAGE>
RISK FACTORS
Set forth below are the principal risk factors involved in an exchange of
or investment in the Notes. Holders of Existing Notes and prospective
purchasers of the New Notes should carefully consider these risk factors as
well as the other information set forth elsewhere in this Prospectus which may
affect a decision to acquire the New Notes. Certain statements in "Risk
Factors" constitute "forward-looking statements." Actual results could differ
materially from those projected in the forward-looking statements as a result
of certain factors and uncertainties set forth below and elsewhere in this
Prospectus. See "Special Note Regarding Forward-Looking Statements."
Substantial Leverage; Ability to Service Debt
Upon completion of the Casino Resort, the Company will have total
indebtedness of approximately $910.2 million (including $7.0 million of
accreted original issue discount on the Senior Subordinated Notes). The Company
may draw up to $20.0 million of revolving indebtedness under the Bank Credit
Facility. In addition to the undrawn amounts under such revolving facility, the
Indentures allow the Issuers (or their subsidiaries) to incur additional
indebtedness under certain circumstances. For example, prior to completion, the
Indentures permit the Issuers (i) to incur up to an aggregate of $20.0 million
of additional indebtedness under the Bank Credit Facility and/or the Mall
Construction Loan Facility plus (ii) if a default occurs under the Disbursement
Agreement, to incur up to an aggregate of $30.0 million of additional
indebtedness under the Bank Credit Facility and/or Mall Construction Loan
Facility (in addition to the additional indebtedness described in the foregoing
clause (i)) on a dollar for dollar basis with additional equity investments
from the Sole Stockholder. In addition, after completion, the Indentures permit
the Issuers to incur up to (i) $20.0 million of working capital secured by
prior liens on the Note Collateral and (ii) $20.0 million of additional
indebtedness secured by prior liens on the Note Collateral (subject in the case
of clause (ii) to reduction to the extent of any indebtedness incurred as
contemplated in the prior sentence). See "Description of Mortgage
Notes--Certain Covenants--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock," and "Description of Senior Subordinated
Notes--Certain Covenants--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock" and "Description of Intercreditor Agreement."
The substantial indebtedness of the Company could limit its ability to respond
to changing business and economic conditions. Insofar as changing business and
economic conditions may affect the financial condition and financing
requirements of the Company, they could pose a significant risk to the holders
of the Notes. Further, there can be no assurance that the Company will have the
right under the agreements governing its then existing debt obligations to
issue such additional debt as may be necessary or desirable or as permitted
under the Mortgage Note Indenture.
The Company has substantial annual fixed debt service along with other
substantial operating expenses (including payments to the HVAC Provider under
the HVAC Services Agreement) and initially is dependent on the proceeds of the
Offering and borrowings under the Bank Credit Facility and the Mall
Construction Loan Facility to meet its obligations. Prior to the opening of the
Casino Resort, which is expected to occur in April 1999, the Company will have
no significant operations. The cash interest payments on the Notes, the Mall
Construction Loan Facility, the Bank Credit Facility and the other indebtedness
and obligations of the Issuers which will be due prior to the estimated
commencement of operations of the Casino Resort have been provided for in the
construction budget for the Casino Resort. In order to manage its construction
risk (and provide cash to make interest payments on the Notes) if the opening
of the Resort is delayed or there are cost overruns, the Company has entered
into various agreements designed to protect it against certain cost overruns,
including (i) the Construction Management Contract, (ii) a guaranty of certain
of the Construction Manager's obligations by P&O, and (iii) the Liquidated
Damages Insurance. The budget for the Casino Resort contains a Construction
Manager's construction budget contingency and an owner's contingency totaling
$66.1 million and the Sole Stockholder has provided the Completion Guaranty,
each of which can be used to cover cost overruns (including cash interest
payments). See "Risk Factors--Construction Budget; Construction Management
Contract and Guaranties."
After the opening of the Casino Resort, the ability of the Issuers to make
interest payments on the Notes and such other indebtedness will depend on their
ability to generate sufficient cash flow from operations. There can be no
assurance that operations will commence by the scheduled opening date
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<PAGE>
or at all or that the Company will be able to generate sufficient cash flow to
meet its expenses, including such debt service requirements. See "--Risk of New
Venture."
The FF&E Lenders have committed to provide the $97.7 million of financing
required to acquire the Specified FF&E. The availability of funds under the
FF&E Credit Facility is subject to certain conditions including reaching a
certain level of construction progress of the Casino Resort. If borrowings
under the FF&E Credit Facility were not available for any reason, the Issuers
could be materially and adversely affected. See "Description of Certain
Indebtedness--FF&E Financing."
The Sale and Contribution Agreement provides for the Mall Collateral to be
transferred to the Mall Subsidiary upon completion of the Casino Resort. The
Mall Subsidiary has obtained commitments for the Mall Take-out Financings to
fund the purchase price under the Sale and Contribution Agreement so as to
permit the Issuers to repay the indebtedness under the Mall Construction Loan
Facility. The consummation of the Tranche A Take-out Financing is subject to
certain conditions, including completion of the Casino Resort and delivery of
legal opinions (including certain substantive non-consolidation opinions).
Subject to the foregoing, the Issuers do not currently know of any condition
which would cause the Mall Take-out Financings not to be completed.
Notwithstanding the foregoing, if the Mall Subsidiary were unable to consummate
the Mall Take-out Financings for any reason, the Issuers could be materially
and adversely affected. In addition, if such financing is not obtained, there
will be an event of default under the Mall Construction Loan Facility. See
"--Operating Restrictions."
Ranking of Mortgage Notes; Effective Subordination
Because (i) the indebtedness under the Bank Credit Facility is secured by
prior liens on the Note Collateral and the Mall Collateral and (ii) the
indebtedness under the Mall Construction Loan Facility is secured by first
priority liens on the Mall Collateral, the Mortgage Notes are effectively
subordinated to (i) the indebtedness under the Bank Credit Facility (to the
extent of the Note Collateral and the Mall Collateral) and (ii) the
indebtedness under the Mall Construction Loan Facility (to the extent of the
Mall Collateral). The Mortgage Notes are effectively subordinated to any
indebtedness of the Issuers secured by assets other than the Note Collateral
(to the extent of such assets), including the FF&E Credit Facility, and to
indebtedness of any subsidiary of the Issuers that is not a guarantor of the
Mortgage Notes. In addition, because the HVAC Equipment is separately owned by
the HVAC Provider, such equipment is not an asset of the Issuers and is not
available to pay any indebtedness of the Issuers (including the Notes).
Upon completion of the Casino Resort, in addition to indebtedness
outstanding as a result of the Offering, the Company is expected to have (i)
$150.0 million of indebtedness outstanding under the Bank Credit Facility, (ii)
$140.0 million of indebtedness outstanding under the Mall Construction Loan
Facility and (iii) $97.7 million of secured indebtedness under the FF&E Credit
Facility. Prior to completion, the Indentures permit the Issuers (i) to incur
up to an aggregate of $20.0 million of additional indebtedness under the Bank
Credit Facility and/or the Mall Construction Loan Facility plus (ii) if a
default occurs under the Disbursement Agreement, to incur up to an aggregate of
$30.0 million of additional indebtedness under the Bank Credit Facility and/or
the Mall Construction Loan Facility (in addition to the additional indebtedness
described in the foregoing clause (i)) on a dollar for dollar basis with
additional equity investments from the Sole Stockholder. In addition, after
completion, the Indentures permit the Issuers to incur up to (i) $20.0 million
of working capital secured by prior liens on the Note Collateral and (ii) $20.0
million of additional indebtedness secured by prior liens on the Note
Collateral (subject in the case of clause (ii) to reduction to the extent of
any indebtedness incurred as contemplated in the prior sentence). The Mall
Subsidiary (which is not a Guarantor) is expected to incur approximately $140.0
million of secured indebtedness under the Mall Take-out Financings upon the
transfer of the Mall Collateral to refinance the indebtedness under the Mall
Construction Loan Facility. The Mortgage Note Indenture permits Special
Subsidiaries (including the Mall Subsidiary) and Unrestricted Subsidiaries
(including the Phase II Subsidiary) to incur debt, without limitation, provided
certain conditions are met. See "Description of Mortgage Notes--Ranking and
Security."
The Subordinated Mortgage Note Guaranties are unsecured obligations of
each of the Subordinated Mortgage Note Guarantors and are subordinated in right
of payment to all Senior Debt of the Subordinated Mortgage Note Guarantors,
including the guaranties by the Subordinated Mortgage Note Guarantors of the
indebtedness under the Bank Credit Facility and, in the case of Mall
Intermediate Holdings, the Mall Construction Loan Facility. By reason of such
subordination, in the event of the insolvency, liquidation,
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<PAGE>
reorganization, dissolution or other winding up of any Subordinated Mortgage
Note Guarantor or upon a default in payment with respect to, or the
acceleration of any Senior Debt of any Subordinated Mortgage Note Guarantor,
the lenders under such Senior Debt must be paid in full before obligations
under the Subordinated Mortgage Note Guaranties may be paid.
Ranking of Senior Subordinated Notes; Subordination to Senior Debt;
Limitations on Remedies
The Senior Subordinated Notes and the Senior Subordinated Note Guaranties
are subordinated in right of payment to all existing and future Senior Debt,
including the principal of (and premium, if any) and interest on and all other
amounts due on or payable in connection with Senior Debt. Upon completion of the
Casino Resort, the Company is expected to have $812.7 million of Senior Debt
outstanding. Prior to completion, the Indentures permit the Issuers to incur
additional Senior Debt up to (i) an aggregate of $20.0 million of additional
indebtedness under the Bank Credit Facility and/or the Mall Construction Loan
Facility plus (ii) if a default occurs under the Disbursement Agreement, an
aggregate of $30.0 million of additional indebtedness under the Bank Credit
Facility and/or the Mall Construction Loan Facility (in addition to the
additional indebtedness described in the foregoing clause (i)) on a dollar for
dollar basis with additional equity investments from the Sole Stockholder. In
addition, after completion, the Indentures permit the Issuers to incur up to (i)
$20.0 million of additional Senior Debt as working capital and (ii) $20.0
million of other additional Senior Debt (subject in the case of clause (ii) to
reduction to the extent of any indebtedness incurred as contemplated in the
prior sentence). In addition, the Issuers are permitted to incur additional
Senior Debt under certain circumstances. See "Description of Senior Subordinated
Notes--Certain Covenants--Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock." By reason of such subordination, in the event of the
insolvency, liquidation, reorganization, dissolution or other winding-up of the
Issuers or any Senior Subordinated Note Guarantor upon a default in payment with
respect to, or the acceleration of, any Senior Debt, the holders of such Senior
Debt must be paid in full before the holders of the Senior Subordinated Notes
and the Senior Subordinated Note Guaranties may be paid. In addition, no payment
may be made upon or in respect of the Senior Subordinated Notes (except (i) in
equity interests in the Issuers or debt securities substantially similar to the
Senior Subordinated Notes or (ii) from the trust described under "Description of
Senior Subordinated Notes--Legal Defeasance and Covenant Defeasance") if a
payment default exists with respect to Senior Debt or any other default occurs
that permits acceleration of Senior Debt and the Senior Subordinated Note
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Senior Debt. Payments on the Senior Subordinated
Notes may resume (i) in the case of a payment default, upon the date on which
such default is cured or waived and (ii) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Senior Debt has been accelerated. See "--Substantial
Leverage; Ability to Service Debt."
In addition, the Senior Subordinated Notes and the Senior Subordinated Note
Guaranties are effectively subordinated to any indebtedness of any Subsidiary of
the Issuers that is not a guarantor of the Senior Subordinated Notes. The Mall
Subsidiary is expected to incur approximately $140.0 million of secured
indebtedness under the Mall Take-out Financings upon transfer of the Mall
Collateral to refinance the indebtedness under the Mall Construction Loan
Facility. The Senior Subordinated Note Indenture permits Special Subsidiaries of
the Issuers (including the Mall Subsidiary) and Unrestricted Subsidiaries
(including the Phase II Subsidiary) to incur debt, without limitation, provided
certain conditions are met. In addition, because the HVAC Equipment is
separately owned by the HVAC Provider, such equipment is not an asset of the
Issuers and is not available to pay any indebtedness of the Issuers (including
the Notes). See "Description of Senior Subordinated Notes--Subordination."
The Issuers and the Mall Construction Subsidiary have granted to the
lenders under the Bank Credit Facility, holders of the Mortgage Notes and Mall
Construction Lender security interests in all, or a portion, of the Note
Collateral and Mall Collateral and will grant other lenders security interests
in other collateral (including the Specified FF&E). In the event of a default
under any such secured indebtedness (whether as a result of the failure to
comply with a payment or other covenant, a cross-default, or otherwise), the
parties granted such security interests will have a prior secured claim on the
Note Collateral, Mall Collateral or other collateral, as the case may be. If
such parties should attempt to foreclose on the Note Collateral, Mall Collateral
or other collateral, as the case may be, the financial condition of the Issuers
and the value of the Senior Subordinated Notes will be materially adversely
affected.
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The Intercreditor Agreement limits the rights of the Senior Subordinated
Note Trustee and the holders of the Senior Subordinated Notes to exercise
remedies under the Senior Subordinated Note Indenture. Under the Intercreditor
Agreement, for a period of up to 45 days following an event of default under
the Disbursement Agreement (which may be extended for an additional 15-day
period by the lenders under the Bank Credit Facility or the Mall Construction
Lender), the Senior Subordinated Note Trustee and the holders of the Senior
Subordinated Notes may not exercise remedies under the Senior Subordinated Note
Indenture. Upon expiration of such standstill period, remedies may be
exercised, except that during the construction of the Casino Resort no judgment
may be enforced by the holders of the Senior Subordinated Notes and the Senior
Subordinated Note Trustee until 240 days after such event of default. The
lenders under the Bank Credit Facility and the Mall Construction Loan Facility,
and the holders of the Mortgage Notes, are permitted to complete foreclosure
and enforce judgments well in advance of such time period. In addition, the
holders of the Senior Subordinated Notes and the Senior Subordinated Note
Trustee will not be entitled to initiate or join as a petitioning creditor in
an involuntary bankruptcy proceeding against the Issuers (or any affiliate of
the Issuers) until 10 days after the expiration of the standstill period. If
the Senior Subordinated Note Trustee and the holders of the Senior Subordinated
Notes are prohibited from exercising remedies, the financial condition of the
Issuers and the value of the Senior Subordinated Notes could be adversely
affected.
Ability of Holders of Mortgage Notes to Realize on Collateral
and Exercise Remedies
The Mortgage Notes are secured by second priority liens on the Note
Collateral and third priority liens on the Mall Collateral. The indebtedness
under the Bank Credit Facility is secured by first priority liens on the Note
Collateral (other than the Mortgage Notes Proceeds Account) and second priority
liens on the Mall Collateral. The indebtedness under the Mall Construction Loan
Facility is secured by first priority liens on the Mall Collateral, and the
Mall Collateral will be released from liens securing the Mortgage Notes upon
completion of the Casino Resort. Upon subdivision of the Project Site, the
Phase II Land may be released from the Note Collateral and transferred to the
Phase II Subsidiary, which is not a guarantor of the Notes. Pending
disbursement of the proceeds of the Mortgage Notes, the Mortgage Notes also
will be secured by a first priority pledge of unexpended funds in the Mortgage
Notes Proceeds Account. The foregoing priorities potentially expose the holders
of Mortgage Notes to certain risks, including the following:
Liquidation Value of Collateral
If an Event of Default occurs with respect to the Mortgage Notes, whether
prior to or after completion of construction of the Casino Resort, there can be
no assurance that the liquidation of the collateral securing the Mortgage
Notes, the Mall Construction Loan Facility and the Bank Credit Facility would
produce proceeds in an amount sufficient to repay borrowings under the Mall
Construction Loan Facility, borrowings under the Bank Credit Facility and the
principal of or accrued and unpaid interest, if any, on the Mortgage Notes.
Further, in any foreclosure sale of the Casino Resort, the purchaser or the
operator of the facility would be subject to certain obligations under the
Cooperation Agreement (including an obligation to pay certain shared expenses
and maintain certain common areas), which also may affect the liquidation value
of the collateral securing the Mortgage Notes. Finally, the ability of the
Mortgage Note Trustee and the holders of the Mortgage Notes to exercise
remedies are subject to limitations under Nevada law. See "Description of the
Mortgage Notes--Events of Default and Remedies."
Risks Associated with Gaming Foreclosures
In 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 Act (as defined herein) and if the Mortgage Note
Trustee acting on behalf of the holders of the Mortgage Notes or the lenders
under the Bank Credit Facility purchases the Casino Resort at a foreclosure
sale and thereafter is unable or chooses not to sell the Casino, the Mortgage
Note Trustee or the lenders unless licensed themselves would be required to
retain an entity who would be required to be licensed under the Nevada Act in
order to conduct gaming operations in the Casino. The holders of the Mortgage
Notes may have to be licensed or found suitable in any event. Because potential
bidders who wish to operate the Casino must satisfy such requirements, the
number of potential bidders in a foreclosure sale could be less than in
foreclosures of other types of facilities, and such requirement may delay the
sale of, and may adversely affect the sales price for, the
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collateral. See "Description of Mortgage Notes-- Ranking and Security" and
"--Events of Default and Remedies."
Certain Risks Associated with Intercreditor Arrangements
The Disbursement Agreement and the Intercreditor Agreement provide the
holders of the Mortgage Notes certain rights with respect to, among other
things, the Note Collateral. However, such agreements also could subject the
Mortgage Noteholders to certain risks. For example, the Intercreditor Agreement
permits the Bank Agent and the Mall Construction Lender (acting without consent
of the holders of the Mortgage Notes) in certain circumstances and subject to
certain limitations to waive conditions to funding under the Disbursement
Agreement. While such waivers may facilitate the completion of the Casino
Resort and benefit of the holders of Mortgage Notes, it also could result in
funding additional amounts from the Mortgage Notes Proceeds Account to the
detriment of the holders of Mortgage Notes. See "--Sole Shareholder" and
"Description of Intercreditor Agreement."
The Intercreditor Agreement establishes interim standstill periods which
must expire prior to exercise of remedies by the Mortgage Note Trustee or the
holders of the Mortgage Notes. While the lenders under the Bank Credit Facility
and the Mall Construction Loan Facility also are subject to standstill periods,
the standstill period applicable to the Bank Agent prior to Completion expires
before that applicable to the Mortgage Note Trustee or the holders of the
Mortgage Notes. Accordingly, in certain circumstances, the lenders under the
Bank Credit Facility will have an opportunity to foreclose their liens on the
Note Collateral and the Mall Collateral prior to a foreclosure of the liens
securing the Mortgage Notes. The FF&E Lenders also are subject to standstill
periods, though such periods expire prior to the earliest date upon which the
holders of the Mortgage Notes are permitted to foreclose under the
Intercreditor Agreement.
If the liens securing the Bank Credit Facility or the Mall Construction
Loan Facility are foreclosed in advance of a foreclosure of the Liens securing
the Mortgage Notes, then liens encumbering the Note Collateral or the Mall
Collateral to secure the Mortgage Notes would terminate. Similarly, if the
liens securing the Specified FF&E are foreclosed, then the Specified FF&E may
be removed or disposed of by the FF&E Lenders. In order to forestall such
foreclosures, the Company, the holders of the Mortgage Notes, the holders of
the Senior Subordinated Notes and/or various other interested persons may be
motivated to commence bankruptcy proceedings involving the Issuers as debtors.
The commencement of such bankruptcy proceedings would expose the holders of the
Mortgage Notes and the Senior Subordinated Notes to certain additional risks.
See "Risk Factors--Certain Bankruptcy Considerations." The Mortgage Note
Trustee has agreed not to challenge the validity, enforceability or priority
over any collateral granted to any lender that is a party to the Disbursement
Agreement. See "Description of Disbursement Agreement" and "Description of
Intercreditor Agreement."
The Disbursement Agreement provides for use of the proceeds of the
Mortgage Notes to cover costs associated with both (i) the Hotel and the Casino
and (ii) the Mall. Such funds shall be disbursed on a pro rata basis with
advances under the Bank Credit Facility and the Mall Construction Loan Facility
irrespective of the subset of collateral (i.e., the Hotel and the Casino or the
Mall) to which they are applied. Costs may be incurred at different rates
during the construction process with respect to these subsets of collateral.
Given the different priorities enjoyed by the holders of the Mortgage Notes in
these two subsets of collateral, there can be no assurance that the pro rata
funding of the costs for these subsets of collateral will not work to the
disadvantage of the holders of the Mortgage Notes.
The Intercreditor Agreement also permits the lenders under the Bank Credit
Facility and the Mall Construction Loan to make certain "protective advances"
under their respective loan facilities in order to protect, preserve, repair
and maintain the Casino Resort and their respective security interests therein.
Any amounts so advanced will be included in the amounts secured by the liens in
favor of an advancing lender with the same priority afforded regular advances
made by such lender in accordance with the Disbursement Agreement. See
"Description of Intercreditor Agreement--Permitted Facility Amendments;
Additional Indebtedness." While the inclusion of such provisions in certain
circumstances could induce these lenders to make protective advances which
otherwise might not be made, and thus facilitate completion of the Casino
Resort to the benefit of the holders of the Mortgage Notes and the Senior
Subordinated Notes, such advances also could increase the aggregate senior
secured claims on the Casino Resort, even beyond the maximum commitments of
such lenders. Such additional debt could increase both (i) the periodic amounts
payable on secured debt by the Company and (ii) the amounts
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secured by claims potentially disadvantaging the holders of the Mortgage Notes
and the holders of the Senior Subordinated Notes.
Following completion of the Casino Resort, the Intercreditor Agreement
permits the holders of Mortgage Notes to foreclose on the Note Collateral prior
to the lenders under the Bank Credit Facility, provided that the purchaser at
the foreclosure sale (including the holders of Mortgage Notes, if applicable)
is required concurrently to pay all obligations under the Bank Credit Facility
in full. There can be no assurance that funds will be available to the holders
of Mortgage Notes at such time to pay the amounts due under the Bank Credit
Facility.
In addition, in the event that the Intercreditor Agent or other secured
parties elect to exercise all rights and to cure any defaults of Venetian, or
to succeed to Venetian's interests under the Collateral Documents, under
certain circumstances such parties will be required to cure defaults, and/or
perform certain obligations, or pay certain amounts owed by Venetian under such
contracts, under the HVAC Services Agreement and related documents. See
"Certain Material Agreements--Agreements Relating to the Casino Resort--HVAC
Services Agreement and Related Documents."
The Intercreditor Agreement provides that all lenders must rescind an
acceleration, and resume funding of the Casino Resort's development, if an
event of default under the Disbursement Agreement is cured in accordance with
the terms of the Disbursement Agreement. While such provision could work to the
benefit of the holders of the Notes by maintaining the Issuers' access to
funding sources to complete the Casino Resort, it also could result in
rescission of a default in circumstances disadvantageous to the holders of the
Notes.
Unrestricted and Special Subsidiaries
Unrestricted and Special Subsidiaries (including the Mall Subsidiary and
the Phase II Subsidiary) are not subject to all or certain of the covenants
under the Indentures. Upon completion of the Casino Resort, the Mall Collateral
will be transferred to the Mall Subsidiary, will be released by the Mortgage
Note Trustee and will not be available as security for the holders of the
Mortgage Notes. Additionally, upon subdivision of the Project Site, the Phase
II Land may be released from the Note Collateral and transferred to the Phase
II Subsidiary. Neither the Mall Subsidiary nor the Phase II Subsidiary is a
guarantor of the Notes. The Mall Subsidiary and the Phase II Subsidiary may
incur indebtedness without restriction under the Indentures and are permitted
to incur restrictions on their ability to pay dividends or to make
distributions or loans to the Issuers and their Restricted Subsidiaries. Any
indebtedness incurred by the Mall Subsidiary (including the Tranche A Take-out
Financing) and the Phase II Subsidiary is expected to include material
restrictions on the ability of the Mall Subsidiary and the Phase II Subsidiary,
as the case may be, to pay dividends or to make distributions or loans to the
Issuers and their Restricted Subsidiaries. Accordingly, the Company may not be
able to rely on the cash flow or assets of Unrestricted and Special
Subsidiaries (including the Mall Subsidiary and the Phase II Subsidiary) to pay
its indebtedness (including the Notes).
Risks of Multiple Lenders
Financing for the construction and development of the Casino Resort is
being provided by multiple parties, including the lenders under the Bank Credit
Facility, the holders of the Mortgage Notes and the Senior Subordinated Notes,
the Mall Construction Lender and the FF&E Lenders. In addition, the HVAC
Provider has committed to fund the acquisition, installation and testing of the
HVAC Equipment, which it will own and operate. The Issuers, their various
lenders and the HVAC Provider have entered into various agreements (including
the Disbursement Agreement and the Intercreditor Agreement, or in the case of
each of the FF&E Lenders and the HVAC Provider, an agreement that provides for
arrangements to govern the relationships among them and their obligations and
rights (including rights to exercise certain remedies) in respect of funding
construction and development costs of the Casino Resort). The Disbursement
Agreement provides, for example, that the Construction Consultant will review
disbursement requests and other matters under the Disbursement Agreement in
order to assess compliance or non-compliance with the requirements under the
Disbursement Agreement. Accordingly, the Construction Consultant will be making
judgments from time to time which may bear upon, and perhaps adversely affect,
the interests of the holders of the Mortgage Notes or holders of the Senior
Subordinated Notes. The Disbursement Agreement and the Intercreditor Agreement
also provide that in
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certain circumstances, the Bank Agent and the Mall Construction Lender (without
the consent of the holders of the Mortgage Notes and the holders of Senior
Subordinated Notes), prior to Completion of the Casino Resort, may waive certain
defaults and conditions to funding under the Disbursement Agreement, thereby
permitting (among other things) the Issuers to continue to receive disbursements
under the Disbursement Agreement notwithstanding the occurrence of said defaults
or failures of conditions. The Intercreditor Agreement also permits the lenders
under the Bank Credit Facility and the Mall Construction Lender, in certain
circumstances, to advance further secured indebtedness senior to the Mortgage
Notes without the consent of the holders of Mortgage Notes or the holders of the
Senior Subordinated Notes. Further, the Disbursement Agreement provides that if,
following an event of default under the Disbursement Agreement and/or
acceleration of the Mortgage Notes or the Senior Subordinated Notes, the
defaults and events of default under the Disbursement Agreement are cured prior
to a foreclosure under any of the various mortgage liens, then the defaults and
events of default and/or acceleration shall be rescinded and the Issuers once
again shall be permitted to receive disbursements under the Disbursement
Agreement (including advances under the Bank Credit Facility and the Mall
Construction Loan Facility and distributions from the Mortgage Notes Proceeds
Account). See "Description of Disbursement Agreement" and "Description of
Intercreditor Agreement." While such agreements contain various provisions
governing the relationships among such parties under different circumstances,
such agreements do not, and were not expected to, cover all possible
circumstances that may give rise to disputes among such parties.
There can be no assurance that each lender or the HVAC Provider will
perform its obligations or observe the limitations on the exercise of remedies
as set forth under the agreements described above. Failure of any one or more
of the lenders or the HVAC Provider to fund its obligations under the
Disbursement Agreement, or otherwise to perform under the Disbursement
Agreement, the Intercreditor Agreement or the other pertinent agreements, could
materially and adversely affect the Issuers. In addition, financing by multiple
lenders with security interests in common collateral or collateral that is
interrelated by use or location, and the fact that the HVAC Equipment will be
owned by the HVAC Provider, not the Company, may result in increased complexity
and lack of flexibility in a debt restructuring or other work-out of the
Company.
Operating Restrictions
The terms of the Bank Credit Facility, the Mall Construction Loan
Facility, the Indentures and the other agreements governing the indebtedness of
the Company impose significant operating and financial restrictions on the
Company. Such restrictions significantly limit or prohibit, among other things,
the ability of LVSI, Venetian and their subsidiaries to incur additional
indebtedness, make certain capital expenditures, repay indebtedness prior to
its stated maturity, create liens, sell assets or engage in mergers or
acquisitions. These restrictions, in combination with the leveraged nature of
the Issuers, could limit the ability of the Company to respond to market
conditions or meet extraordinary capital needs or otherwise restrict corporate
activities. There can be no assurances that such restrictions will not
adversely affect the ability of the Company to finance its future operations or
capital needs. See "Description of Mortgage Notes--Certain Covenants,"
"Description of Senior Subordinated Notes--Certain Covenants" and "Description
of Certain Indebtedness."
Change of Control
Upon a Change of Control, each holder of the Notes will have the right, at
such holder's option, to require the Issuers to repurchase the Mortgage Notes
or Senior Subordinated Notes owned by such holder at 101% of the principal
amount or Accreted Value, as the case may be, thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of repurchase, subject, in
the case of the Senior Subordinated Notes, to prior repurchase obligations
under the Mortgage Notes. There can be no assurance that the Issuers will have
sufficient funds to purchase the Notes after a Change of Control or to repay
any other indebtedness (including the indebtedness under the Bank Credit
Facility, the FF&E Credit Facility and the Mall Construction Loan Facility)
that becomes due as a result of such event. See "Description of Mortgage
Notes--Repurchase at the Option of Holders--Change of Control," "Description of
Senior Subordinated Notes--Repurchase at the Option of Holders--Change of
Control," "Description of Certain Indebtedness--Bank Credit Facility" and
"--Mall Construction Loan Facility."
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Certain Bankruptcy Considerations
Creditor's Rights
The right of the Mortgage Note Trustee to repossess and dispose of the
Note Collateral upon the occurrence of an Event of Default under the Mortgage
Note Indenture is likely to be significantly impaired by applicable bankruptcy
law if a bankruptcy case were to be commenced by or against LVSI or Venetian,
whether by a holder of the Notes, the Mall Construction Lender, the lenders
under the Bank Credit Facility or another creditor (including a junior
creditor), prior to such repossession and disposition. Under applicable
bankruptcy law, secured creditors, such as the holders of the Mortgage Notes,
the Mall Construction Lender and the lenders under the Bank 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
under the applicable debt instruments, provided that 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, and may include cash
payments or the granting of additional security at such time and in such amount
as the court may determine. The automatic stay would apply to, among other
things, the holders of the Mortgage Notes' ability to use the funds in the
Mortgage Notes Proceeds Account, which cash collateral the debtor could use if
it provides adequate protection for such use. 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 Mortgage Notes could be
delayed following commencement of a bankruptcy case, whether or when the
Mortgage Note Trustee could repossess or dispose of the collateral or whether
or to what extent, through the requirement of "adequate protection," the
holders of the Mortgage Notes would be compensated for any delay in payment or
loss of value of the collateral.
It cannot be predicted how long and at what cost the holders of the
Mortgage Notes would be deprived of their collateral and prevented from
receiving distributions on their claims in a bankruptcy case of the Company.
Factors that might bear on the recovery by the holders of the Mortgage Notes in
such circumstances, among others, would include: (i) a debtor in a bankruptcy
case does not have the ability to compel performance of a "financial
accommodation," including the various loans contemplated to fund construction
of the Casino Resort; (ii) lenders with liens senior to the liens securing the
Mortgage Notes may seek and perhaps receive relief from the automatic stay to
foreclose their respective liens; and (iii) the cost and delay of developing a
confirmed Chapter 11 plan could adversely affect the present value of revenues.
Contractual Rights
Among other things, contract rights under certain agreements serve as
collateral for the Mortgage Notes, including rights that stem from the
agreements to which Interface is a party) such as the Cooperation Agreement. In
the event a bankruptcy case were to be commenced by or against Interface, it is
possible that all or part of the Cooperation Agreement could be rejected by
Interface or a trustee appointed in the bankruptcy case pursuant to section 365
or section 1123 of the United States Bankruptcy Code (the "Bankruptcy Code")
and thus not be specifically enforceable. Additionally, 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.
Substantive Consolidation
The Notes represent obligations of the Issuers only and do not represent
obligations of, and are not guaranteed by, Interface, the Sole Stockholder, or
any of their affiliates other than LVSI, Venetian and certain of their
subsidiaries. The Issuers believe that if Interface, Interface Holding Company,
Inc. ("Interface Holding") or the Sole Stockholder (each an "Affiliated Party")
becomes a debtor under the Bankruptcy Code, a bankruptcy court, applying
substantive consolidation principles, would not order substantive consolidation
of LVSI and Venetian with any Affiliated Party.
Such belief is based on and subject to a number of assumptions concerning
facts and circumstances, which have been noted, cited or acknowledged by courts
in other cases. The belief relies on the
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assumptions that each of the Issuers observe certain formalities and operating
procedures that are generally recognized requirements for maintaining the
separate identities of legal entities, that the assets and liabilities of the
Issuers can be readily identified as distinct from those of any Affiliated
Party and that the Initial Purchasers of the Notes rely on the separate
existence of the Issuers and their assets, and not the assets of the Affiliated
Parties, in purchasing the Notes. The organizational documents of the Issuers
require the Issuers to conform substantially to the foregoing assumptions.
There is no controlling precedent in this area. Substantive consolidation is an
equitable, fact-based remedy, not prescribed by statute, with respect to which
the court has considerable discretion. In addition, the adequacy of the
formalities and operating procedures referred to above has not been considered
by any court in the context of entities such as the Issuers involved in a
transaction similar to the one described herein. Thus, while the separate legal
existence of the Issuers should effectively preclude, based on the present
state of the case law, (i) a finding that the assets of the Issuers are
property of the bankruptcy estate of any Affiliated Party, and (ii) the
substantive consolidation of the assets and liabilities of each of the Issuers
with those of any Affiliated Party, there can be no assurance that such a
result would not occur. In addition, there can be no assurance that during
litigation of such issues delays would not occur in payments on the Notes, even
if the court ultimately rules as the Company believes or that parties in
interest might determine to settle such issues to avoid the expense and delay
of litigation. If the court concludes that substantive consolidation is
warranted, however, payments on the Notes could be delayed or reduced.
Risk of Foreclosure of Expo Center
The Company's rights under the Cooperation Agreement with respect to,
among other things, the cooperative marketing of the Expo Center and the Casino
Resort are subordinated to the rights of certain lenders whose loan is secured
by the Expo Center. In the event of a foreclosure or similar action with
respect to such loan, the lenders under such loan would not be obligated to
observe the cooperative marketing rights and certain other rights and
restrictions set forth in the Cooperation Agreement, including the restriction
on indebtedness encumbering the Expo Center. The failure of Interface 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 would be an event of default under the Mortgage Note Indenture and
the Senior Subordinated Note Indenture. See "Certain Material Agreements."
Risk of New Venture
Although certain members of the Company's management have experience
developing and operating large scale hotels and casinos, none of these
individuals has developed or operated a project of the anticipated size of the
Casino Resort.
The opening of the Casino Resort by the Company will be contingent upon
the receipt of all regulatory licenses, permits, allocations and
authorizations. The scope of the approvals required to construct and open a
facility are extensive, and the failure to obtain or maintain such approvals
could prevent or delay the completion or opening of all or part of such
facility or otherwise affect the design and features of the Casino Resort. See
"--Government Regulation."
The operations of the Company are subject to significant business,
economic, regulatory and competitive uncertainties and contingencies, many of
which are beyond the control of the Company. No assurances can be given that
the Company will be able to manage the Casino Resort on a profitable basis or
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 or to pay the principal of and interest on the Notes. In addition,
although the Company expects the Casino Resort to benefit from the cooperative
marketing arrangements with Interface, the owner of the Expo Center, there can
be no assurance that attendees of Expo Center events will be guests of the
Hotel or utilize the Casino Resort's other facilities.
The Company will be required to undertake a training program for new
employees prior to the opening of the Casino Resort at a time when other major
new facilities may be approaching completion and also recruiting employees. The
Company does not know whether or to what extent the employees of the Company
will be covered by collective bargaining agreements, as that will be a
determination ultimately made by such employees. See "Business--Employees."
Local 226 of the Hotel Employees and
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Restaurant Employees Union (the "Local") has requested the Company to recognize
it as the bargaining agent for future employees of the Casino Resort. The
Company has declined to do so, believing that the future employees are entitled
to choose their own bargaining agent, if any. In the past, when other hotel/
casino operators have taken a similar position, the Local has engaged in
certain confrontational and obstructive tactics, including contacting potential
customers, tenants and investors, objecting to various administrative approvals
and picketing the opening of the preview site at the Casino Resort. The Local
has engaged in such tactics with respect to the Casino Resort and may continue
to do so. Although the Company believes it will be able to operate despite such
dispute, no assurance can be given that it will be able to do so and that such
failure would not result in a material adverse effect on the Issuers.
As of December 31, 1997, the Company had only entered into two leases for
the Mall, including the 50,000 square foot Billboard Operating Lease (as
defined herein). See "Certain Material Agreements--Agreements Relating to the
Mall--"Billboard Live!" Lease." In connection with the leasing of the Mall and
the retail portions of the Hotel, the Company has, or is currently negotiating,
letters of intent with certain well-known, national retailers and restaurant
operators. There can be no assurance that any such letters of intent will
result in binding agreements between the Company and such retailers and
restaurant operators, as the case may be. Furthermore, there is no assurance
that the Company will obtain the number or quality of tenants for the Mall or
the retail portions of the Hotel that are currently planned. The failure to
obtain sufficient leases or leases of the quality as planned could impair the
competitive position of the Mall and affect its operating performance.
The Company does not intend to offer to fund or construct, at its own
cost, tenant improvements for Mall tenants. The Company is marketing the Mall
to tenants on the basis that tenants will fund or construct, at their own
expense, tenant improvements. There can be no assurance that the Company will
not have to fund or construct, at its cost, tenant improvements in connection
with the leasing of the Mall.
In addition, if the Company is unable to complete the Casino Resort
(including Mall tenant improvements) within its construction budget or, once
operating, unable to generate sufficient cash flow, it could be required to
adopt one or more alternatives, such as obtaining additional financing to the
extent permitted by the Indentures, the Mall Construction Loan Facility and the
Bank Credit Facility, reducing or delaying planned construction or capital
expenditures (to the extent it does not materially affect the opening of the
Casino Resort), restructuring debt or obtaining additional equity capital.
There can be no assurance that any of these alternatives could be effected on
satisfactory terms, and any resort to alternative sources of funds could impair
the competitive position of the Company and reduce its future cash flows. In
addition, under such circumstance, the Sole Stockholder is not obligated to
make any payments or capital contributions to the Issuers or their lenders,
except for the obligations described in "Description of Certain Indebtedness"
and "Certain Material Agreements." See "Management's Discussion and Analysis of
Liquidity and Capital Resources."
Although the scope and design of the Casino Resort has been determined,
and the Company is constructing the Casino Resort in accordance with plans and
specifications which reflect such scope and design, the Company continues to
evaluate the project design in relation to its construction schedule and budget
and the requirements of the Las Vegas travel and gaming market. The
Disbursement Agreement provides the Company with flexibility to change the
plans and specifications, subject to certain limitations designed to preserve
the intended first-class quality for each of the Hotel and Casino and Mall. As
a condition to changes requested by the Company, the Company is required to
demonstrate to the Construction Consultant that sufficient funds are available
(including through certain lending commitments, additional deposits into the
Company's Funds Account or through increases by the Sole Stockholder of the
amounts available under the Completion Guaranty) to cover the anticipated
additional costs attributable to the change in the plans and specifications.
Accordingly, the scope and design of individual components of the Casino Resort
may be modified from the descriptions thereof in this Offering Circular.
Risks of New Construction
Major construction projects (and particularly one of the scope and scale
of the Casino Resort) entail significant risks, including shortages of
materials or skilled labor, unforeseen engineering, environmental and/or
geological problems, work stoppages, weather interference, unanticipated cost
increases and
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unavailability of construction equipment. Construction, equipment or staffing
problems or difficulties in obtaining any of the requisite licenses, permits,
allocations and authorizations from regulatory authorities could increase the
total cost, delay, or prevent the construction or opening of the Casino Resort
or otherwise affect the design and features of the Casino Resort.
In addition, the Company is constructing the Casino Resort utilizing an
accelerated construction schedule which includes the use of multiple shifts,
early ordering of materials, "fast tracking" (i.e., commencement of
construction before all design documents are finalized) and an extended work
week (when feasible). The "fast tracking" may result in certain inefficiencies
which may cause actual construction costs to exceed budgeted amounts. For
example, certain items may need to be modified or replaced after they have been
purchased, constructed or installed in order to conform with the final design
documents.
The anticipated costs and opening dates for the Casino Resort are based on
budgets, conceptual design documents and schedule estimates prepared by the
Company with the assistance of the architects and contractors described herein.
See "Business--Design and Construction Team." Under the terms of the
Construction Management Contract, the Construction Manager is, subject to
certain conditions and limitations (and Bovis and P&O, pursuant to the
Construction Contract Guaranty and the P&O Guaranty, respectively, are, subject
to certain significant conditions and limitations), responsible for all
construction costs covered by the Construction Management Contract that are in
excess of the guaranteed maximum price set forth therein. However, the
Construction Management Contract provides that the guaranteed maximum price
will be appropriately increased upon the occurrence of certain events. If any
of such events occur, the construction costs which must be borne by the Company
may increase. Furthermore, there are certain items outside of the scope of the
work to which the guaranteed maximum price applies, and therefore, the
Construction Manager is not responsible for increases in the cost of such
items. See "--Construction Budget; Construction Management Contract and
Guaranties." It is anticipated that all major subcontractors engaged by the
Construction Manager to perform work and/or supply materials in connection with
the construction of the Casino Resort will post bonds guaranteeing timely
completion of any such subcontractor's work and payment for all of any such
subcontractor's labor and materials. Nevertheless, there is no assurance that
the Casino Resort will commence operations on schedule or that construction
costs for the Casino Resort will not exceed budgeted amounts. In this regard,
it should be noted that the FF&E Credit Facility will not become available
until either eight or three months (at the option of the Company) prior to
completion of the Casino Resort. Failure to complete the Casino Resort on
budget or on schedule may have a material adverse effect on the Company.
Construction Budget; Construction Management Contract and Guaranties
The Casino Resort is budgeted to cost approximately $1.065 billion
(including the cost of the purchase and installation of the HVAC Equipment and
the purchase of the Specified FF&E, but excluding the land costs). The
Construction Management Contract covers approximately $547.8 million of such
budgeted cost. The remaining $517.7 million of budgeted cost includes
owner-managed construction (approximately $69.7 million), certain furniture,
fixtures and equipment, certain so-called "soft" construction costs (which
include fees of architects, attorneys and other professionals), costs of
obtaining required governmental approvals and permits, pre-opening expenses,
construction period interest and other costs that are not so-called "hard"
construction costs. Accordingly, neither the Construction Management Contract's
guaranteed maximum price nor other safeguards against cost overruns (other than
the "owner's contingency" of $40.0 million, the Sole Stockholder's $25.0
million Completion Guaranty and certain bonds and insurance policies) will
provide any safeguards against increased costs relative to such excluded items.
There can be no assurance that the Casino Resort can be completed within the
budgeted costs.
Under the terms of the Construction Management Contract, the Construction
Manager is, subject to certain conditions and limitations, responsible for all
construction costs covered by the Construction Management Contract that are in
excess of the guaranteed maximum price set forth therein. As of the date
hereof, such guaranteed maximum price includes a contingency equal to 5% of all
construction costs covered by the Construction Management Contract, but the
Construction Management Contract provides that on the date (the "Final GMP
Date") when design documents have been finalized and trade contracts for 90% of
the work covered by the Construction Management Contract have been entered
into, such contingency will be reduced from 5% to 3% of the costs covered by
the Construction Management Contract, thereby automatically reducing the
guaranteed maximum price. (When this happens, the
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owner's contingency for the entire Casino Resort construction and development
budget will be increased by an amount equal to the above-described decrease in
the Construction Manager's contingency.) In addition, if, as of the Final GMP
Date, the Construction Manager has entered into trade contracts providing for
amounts to be paid to trade contractors that are less than the aggregate amount
attributed to such trade contracts in the calculation of the guaranteed maximum
price, the Construction Management Contract provides that the guaranteed
maximum price will be appropriately reduced. The Construction Management
Contract also provides that if the work required to be performed thereunder is
performed for an aggregate cost that is less than the final guaranteed maximum
price, the Construction Manager is entitled to receive a bonus payment equal to
50% of the amount saved. In addition, the Construction Manager is entitled to a
per-day early completion bonus which is structured as the "mirror-image" of the
liquidated damages provisions described below.
Notwithstanding the provisions of the Construction Management Contract
described above that are designed to put downward pressure on the guaranteed
maximum price and the actual cost of constructing the Casino Resort and to
properly incentivize the Construction Manager to reduce construction costs and
complete its obligations on schedule, the Construction Management Contract has
various limitations as a result of which construction costs for the Casino
Resort may exceed budgeted amounts without the Construction Manager (or Bovis
or P&O pursuant to the Construction Management Contract Guaranty and P&O
Guaranty, respectively) being liable for such excess. In addition, the
Construction Management Contract provides that the guaranteed maximum price
will be appropriately increased, and the deadline for completion of
construction will be appropriately adjusted, on account of (i) changes in the
design documents prepared by the architect or deficiencies in such documents;
(ii) changes requested by Venetian in the scope of the work to be performed
pursuant to the Construction Management Contract (although, under the terms of
the Disbursement Agreement, Venetian may not request any such change unless it
funds such changes or demonstrates to the Construction Consultant that
necessary funds are available to complete all remaining construction); and
(iii) natural disasters, casualties, changes in legal requirements and other
"force majeure" events beyond the reasonable control of the Construction
Manager. Finally, although the Construction Management Contract provides for
"liquidated damages" penalties to be imposed on the Construction Manager on a
daily basis if all work required by the Construction Management Contract is not
completed by the deadline set forth in the Construction Management Contract,
there is no assurance that construction will be completed on schedule or that
the Issuers will be able to collect the "liquidated damages" penalties in a
timely manner. Failure to complete construction on schedule may have a material
adverse effect on the Company.
The obligations of the Construction Manager under the Construction
Management Contract are guaranteed by Bovis, pursuant to the Construction
Contract Guaranty, and Bovis's obligations under such guaranty are guaranteed
by P&O, pursuant to the P&O Guaranty. However, Bovis's (and ultimately P&O's)
liability for excess construction costs is subject to the same conditions and
limitations on the Construction Manager's liability described above. In
addition, with respect to the Construction Manager's obligation to complete
construction on schedule, (i) for the first 30 days of any delay in such
scheduled completion, the Construction Manager solely (and not Bovis or P&O) is
liable for liquidated damages, (ii) for the 90-day period thereafter, only the
insurers under the Liquidated Damages Insurance procured by the Construction
Manager on behalf of the Company (and not the Construction Manager, Bovis or
P&O), subject to certain conditions and exceptions (including the failure of
the Construction Manager to make "good faith efforts" to prevent or mitigate
any delay), are liable for liquidated damages, and (iii) Bovis and P&O are
liable for liquidated damages only to the extent, if any, that the Construction
Manager misses the required deadline by more than 120 days. A default by either
the Construction Manager under the Construction Management Contract or by Bovis
or P&O under the Construction Contract Guaranty and the P&O Guaranty,
respectively, could result in the Casino Resort not being completed on schedule
and have a material adverse effect on the Issuers. In the event that there are
excess construction costs with respect to which neither the Construction
Manager nor Bovis or P&O is liable pursuant to the Construction Management
Contract, the Construction Contract Guaranty or the P&O Guaranty, respectively,
or if such costs otherwise exceed the other available contingency funds (such
as the "owner's contingency" and the Completion Guaranty), no assurance can be
given that the Sole Stockholder or any of his affiliates will provide the
necessary additional funds and no assurance can be given that the Issuers will
be able to raise the necessary additional funds. See "Certain Material
Agreements--Agreements Relating to the Casino Resort--Construction Management
Contract" and "--Liquidated Damages Insurance."
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The Construction Management Contract does not include, among other things,
the construction of the principal parking garage facility for the Casino Resort
(which includes space for the Casino Resort's electrical substation). The
Company has estimated that the cost to construct this facility is $21.2
million. Since these costs are excluded from the Construction Management
Contract, neither the Construction Manager and P&O, nor the insurance companies
providing the Liquidated Damages Insurance, will be responsible for any cost
overruns or delays in connection with the garage/electrical substation
facility. The Company intends, however, to enter into a design-build contract
with a third party, nationally-recognized contractor for the construction of
the parking garage facility, with such contractor's obligations fully bonded
and insured.
Completion Guaranty
Pursuant to the Completion Guaranty, the Sole Stockholder has guaranteed,
subject to certain conditions and limitations, payment of construction and
development costs in excess of available funds, up to a maximum of $25.0
million. The Completion Guaranty does not provide for the incurrence by the
Sole Stockholder, directly or indirectly, of any obligation, contingent or
otherwise, for the payment of the principal, premium and interest on the Notes
or any other indebtedness under the financings described herein. If
construction and development costs exceed the amount of funds available to the
Issuers for construction of the Casino Resort, including amounts available
under the Completion Guaranty, no assurance can be given that the Sole
Stockholder or any of his affiliates will provide any additional funds and no
assurance can be given that the Company will be able to raise additional funds.
See "Certain Material Agreements--Agreements Relating to the Casino
Resort--Completion Guaranty."
Possible Conflicts of Interest
The planned second phase of the redevelopment of the Project Site is the
Phase II Resort. The Phase II Resort is planned to be constructed on the Phase
II Land. Under the Mortgage Note Indenture, upon the completion of the
subdivision of the Project Site, the Phase II Land may be released from the
Note Collateral, and transferred to the Phase II Subsidiary, a wholly-owned
subsidiary of Venetian. Upon such release and transfer, the Company will have
no direct interest in such released land. Subject to certain conditions, the
Indentures do not restrict the ability of the Phase II Subsidiary to incur
indebtedness or to sell the Phase II Land. There is no guarantee that the Phase
II Resort will be built in the near future, in the manner currently planned, or
at all. In addition, although the Company intends to construct the Phase II
Resort so as to mitigate the impact of such construction on the Casino Resort,
there can be no assurance that such construction will commence as planned, and
therefore, the construction of the Phase II Resort may adversely impact
portions of the Casino Resort. The completion and full operation of the Casino
Resort is not contingent upon the subsequent financing or completion of the
Phase II Resort and the Casino Resort has all necessary facilities to operate
on a stand alone basis. See "--Shared Facilities" and "Certain Material
Agreements." Under the Indentures, the Issuers have agreed that they will not
commence construction of the Phase II Resort (other than the parking garage on
the Phase II Land) until a temporary certificate of occupancy has been issued
for the Casino Resort.
The common ownership of the Casino Resort and the Phase II Resort may
result in potential conflicts of interest. For example, management 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, management may choose to allocate certain business
opportunities to the Phase II Resort rather than to the Casino Resort. Although
common ownership of both the Casino Resort and the Phase II Resort often may
result in economies, efficiencies and joint business opportunities for the two
resorts in the aggregate, the Casino Resort may, in certain circumstances, bear
the greater burden of the expenses that are shared by both resorts. In
addition, inasmuch as there may be a common management for both the Casino
Resort and the Phase II Resort, management's time may be split between
overseeing the operation of each resort, and management, in certain
circumstances, may devote more time to its ownership and operations
responsibilities of the Phase II Resort than those of the Casino Resort.
Finally, because it is expected that the Company will lease and operate the
casino for the Phase II Resort, potential conflicts may arise from the common
operation of the Casino and the Phase II Resort casino, such as the allocation
of management's time. In order to share expenses and provide for efficient
management and operations of the Casino Resort and Phase II Resort and shared
facilities, LVSI, Venetian and the Phase II Subsidiary are expected to enter
into certain cost sharing and easement agreements, such as the Cooperation
Agreement. See "--Shared Facilities" and "Certain Material Agreements."
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The common ultimate ownership, and management, of the Casino Resort and
the Expo Center also may result in potential conflicts of interest. The Expo
Center and the Congress Center are potential competitors in the business
conference and meetings business. As a result, the Casino Resort could engage
in certain businesses which may have an adverse impact on the Expo Center.
However, under the Cooperation Agreement, Venetian has agreed that it 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,
management may engage in marketing practices with respect to the Casino Resort
that are intended to benefit the Expo Center and may have a detrimental effect
on the Casino Resort.
Shared Facilities
Because the Casino Resort and the planned Phase II Resort will share
certain operational facilities (the "Shared Facilities"), the construction of
the Casino Resort will include the construction of the Shared Facilities in
sizes and/or capacities that will be sufficient for the Casino Resort and the
Phase II Resort together. The Shared Facilities may include, among other
things, (i) the loading docks; (ii) utility distributions and substations;
(iii) management information systems; (iv) gaming surveillance facilities; (v)
offices; and (vi) warehouses. The Company will bear the full cost of
constructing the Shared Facilities. However, if the Phase II Resort is
completed, under the Cooperation Agreement, the Phase II Subsidiary will be
obligated to pay its allocated share of the operating expenses (but will not be
obligated to pay any portion of the construction costs) related to the Shared
Facilities (such share to be mutually agreed upon by the Company and the Phase
II Subsidiary prior to commencement of construction of the Phase II Resort).
There can be no assurance that the Phase II Resort will ever be built, or that
it will be built in a configuration that maximizes the value of the Shared
Facilities or that, if built, the Phase II Resort will generate sufficient cash
flow to pay its share of the operating expenses related to the Shared
Facilities.
Mechanics' Liens
Nevada law provides contractors, subcontractors and material 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 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.
Construction of the Casino Resort commenced prior to the recordation of
the deeds of trust (collectively, the "Deed of Trust") that secure the
repayment of the Mortgage Notes. Accordingly, all contractors, subcontractors
and material suppliers providing services or material in connection with the
Casino Resort (including parties providing services or materials near the end
of the construction period and after the issuance of the Mortgage Notes) who
otherwise comply with the applicable requirements of Nevada law will have a
lien on the project senior in priority to the lien of the Deed of Trust.
Nevertheless, the priority of the Deed of Trust is impaired to the extent
that contractors, subcontractors and material providers are not paid in full.
Pursuant to the Disbursement Agreement, the Issuers are subject to certain fund
control procedures intended to assure the proper payment of contractors,
subcontractors and material suppliers. The Issuers (and the Construction
Manager pursuant to the Construction Management Contract) also are required to
obtain lien waivers from such parties in connection with interim and final
payments during the construction period whereby such parties will release their
lien claims to the extent of such payments. In addition, as a condition to the
consummation of the Offering, the Issuers were required to obtain a policy of
title insurance for the benefit of the holders of the Mortgage Notes, the Mall
Construction Lender and the lenders under the Bank Credit Facility insuring the
priority of such lenders and insuring against any loss incurred as a result of
mechanics' liens.
Competition and Planned Construction in Las Vegas
The casino/hotel industry is highly competitive. Hotels located on or near
the Strip ("Strip Hotels") compete with other Strip Hotels and with other
hotels in Las Vegas. The Casino Resort also will compete with a large number of
hotels and motels located in and near Las Vegas. The Mall will compete with
retail malls in or near Las Vegas, including The Fashion Show Mall, The Forum
Shops at Caesars Palace Hotel and retailers in theme-oriented resorts. Many of
the competitors of the Company are subsidiaries or divisions of large public
companies and may have greater financial and other resources than the Company.
40
<PAGE>
According to the Las Vegas Convention and Visitors Authority (the
"LVCVA"), as of July 1, 1997, there were 101,106 hotel and motel rooms in the
Las Vegas area. Competitors of the Casino Resort will include theme-oriented
resorts on the Strip, among which are Caesars Palace Hotel, The Mirage, the
Treasure Island Hotel and Casino, Harrah's, The MGM Grand Hotel and Casino, New
York--New York Hotel and Casino, The Monte Carlo Resort and Casino, Bally's
Casino Resort Las Vegas and Luxor Hotel. In addition, the construction of
several new major resort projects that will compete with the Casino Resort and
the expansion of several existing resorts recently have commenced or have been
announced. These include the Bellagio, Paris Casino Resort and Project Paradise
under construction, expansions at Caesars Palace Hotel, Harrah's and The MGM
Grand Hotel and Casino and the planned expansions of the Hard Rock Hotel and
Casino and the Aladdin Hotel and Casino. These projects and others are expected
to add approximately 19,800 hotel rooms to the Las Vegas inventory by 1999. The
construction and expansion of these properties during the time that the Casino
Resort is being constructed may affect the availability of construction labor
and supplies, resulting in increased costs. Finally, the Casino Resort will
compete with the planned Phase II Resort (which will be separately owned by a
subsidiary of the Company) to the extent the business of the Phase II Resort is
not complimentary to that of the Casino Resort. The future operating results of
the Company could be adversely affected by excess Las Vegas room, gaming,
conference center and trade show capacity.
The Expo Center and Las Vegas generally compete, and the Congress Center
will compete, with convention and trade show facilities located in and around
major cities, including Atlanta, Chicago, New York and Orlando. Within Las
Vegas, the Expo Center competes, and the Congress Center will compete, with the
Las Vegas Convention Center, which is located off the Strip and currently has
1.3 million gross feet of convention and exhibit facilities. An expansion of
300,000 square feet of meeting and exhibition space is planned for the Las
Vegas Convention Center. In addition, The MGM Grand Hotel and Casino has
announced plans to construct new conference and meeting facilities of
approximately 300,000 square feet and several other existing or planned major
Strip hotel/casino properties are intending to expand or construct conference
facilities. The conference and meeting facilities at these hotel/resorts are
expected to be the Congress Center's primary competition. In addition, several
of the planned resort developments on the Strip, such as the Bellagio and Paris
Casino Resort, are expected to include significant conference facilities.
However, because none of these hotel/resorts plans to offer convention and
trade show facilities on the same relative size as the Expo Center
(approximately 1.15 million gross square feet), the Las Vegas Convention Center
is expected to remain the primary competitor of the Expo Center. To the extent
that any of the competitors of the Casino Resort can offer substantial
integrated hotel/casino and convention and trade show or conference and meeting
facilities, the Casino Resort's competitive advantage in attracting convention,
trade show, meeting and conference attendees could be adversely affected.
However, the ability of any such competitor to offer such show facilities equal
to the nearly 1.65 million combined gross square footage of the Expo Center and
the planned Congress Center is limited by any such competitor's location and
available contiguous undeveloped lands.
The hotel/casino operation of the Casino Resort will also compete, to some
extent, with other hotel/ casino facilities in Nevada and in Atlantic City, with
hotel/casino facilities elsewhere in the world and with state lotteries. In
addition, certain states have recently legalized, and others may or are likely
to legalize, casino gaming in specific areas, and passage of the Indian Gaming
Regulatory Act in 1988 has led to rapid increases in Native American gaming
operations. Such proliferation of gaming activities could significantly and
adversely affect the business of the Company. In particular, the legalization of
casino gaming in or near metropolitan areas, such as New York, Los Angeles, San
Francisco and Boston, from which the Company intends to attract customers, could
have a material adverse effect on the business of the Company. See
"Business--Competition."
Government Regulation
The gaming operations and the ownership of securities of the Issuers, are
subject to extensive regulation by the Nevada Gaming Commission (the "Nevada
Commission"), the NGCB and the Clark County Liquor and Gaming Licensing Board
(the "CCLGLB" and, together with the Nevada Commission and the Nevada Board,
the "Nevada Gaming Authorities"). The Nevada Gaming Authorities have broad
authority with respect to licensing and registration of entities and
individuals involved with the Issuers, including the holders of the Notes.
41
<PAGE>
The Company is required to be and is registered as a publicly traded
corporation ("Registered Corporation") with the Nevada Commission. The Company
and Venetian may not consummate the Exchange Offer without the prior approval
of the Nevada Gaming Authorities. The Company and Venetian have received the
approval of the Exchange Offer.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation, such as the Notes, to file an
application, be investigated and be found suitable to own the debt security of
a Registered Corporation. If the Nevada Commission determines that a person is
unsuitable to own such security, then pursuant to the Nevada Gaming Control Act
and the regulations promulgated thereunder (collectively, the "Nevada Act"),
the Registered Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada Commission, it: (i) pays
to the unsuitable person any dividend, interest, or any distribution
whatsoever; (ii) recognizes any voting right by such unsuitable person in
connection with such securities; (iii) pays the unsuitable person remuneration
in any form; or (iv) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation, or similar
transaction.
Each holder of the Notes shall 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 Notes must be found suitable (whether as a result of
a foreclosure of the Casino or for any other reason), and if such holder or
beneficial owner either refuses to file an application or is found unsuitable,
such holder shall, upon request of the Issuers, dispose of such holder's Notes
within 30 days after receipt of such request or such earlier date as may be
ordered by the Nevada Gaming Authorities. The Issuers also will have the right
to call for the redemption of Notes by 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 lessor of (i) the cost paid by such
holder or (ii) 100% of the aggregate principal amount or Accreted Value
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of redemption.
Although the Company currently holds a gaming license issued by the Nevada
Gaming Authorities, the Nevada Gaming Authorities may, among other things,
revoke the gaming license of any corporate entity (a "Corporate Licensee") or
the registration of a Registered Corporation or any entity registered as a
holding company of a Corporate Licensee. In addition, the Nevada Gaming
Authorities may 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 the gaming licenses of the Company were
revoked for any reason, the Nevada Gaming Authorities could require the closing
of the Casino, which would result in a material adverse effect on the business
of the Company and Venetian. The Company and certain of its officers,
directors, shareholders and key employees either have been licensed by, or have
applied for licensing with, the Nevada Gaming Authorities. In addition, prior
to opening, LVSI must apply for and receive a Clark County gaming license and a
Clark County liquor license. Although Venetian intends to apply for a state
gaming license, registration or other finding of suitability, the receipt of
such by Venetian is not required for the completion and operation of the Casino
Resort.
In addition, any future public offering of debt or equity securities by
the Venetian and/or the Company (including the hypothecation of the Company's
or Venetian's assets), if the securities or the proceeds from the sale thereof
are intended to be used by the Company and Venetian 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, requires the prior approval of the Nevada
Commission. See "Regulation and Licensing," "Description of Mortgage
Notes--Optional Redemption" and "Description of Senior Subordinated
Notes--Optional Redemption."
Dependence Upon Key Management and Lack of Experienced Personnel
The ability of the Company to maintain its competitive position is
dependent to a large degree on the services of the Company's senior management
team, including Sheldon G. Adelson, currently LVSI's sole stockholder. Although
certain of the senior managers of the Company have employment agreements with
the Company, there can be no assurance that such individuals will remain with
the Company. The death or loss of the services of any of the senior managers or
an inability to attract and retain additional senior management personnel could
have a material adverse effect on the Issuers. There can be no assurance
42
<PAGE>
that the Company will be able to retain its existing senior management
personnel or to attract additional qualified senior management personnel. See
"Management."
Until construction of the Casino Resort is close to completion, the
Company does not believe that it will require extensive operational management
and, accordingly, has kept and intends to keep its permanent staff at
relatively low levels. The Company will be required to undertake a major
recruiting and training program prior to the opening of the Casino Resort at a
time when other major new facilities may be approaching completion and also
recruiting employees. While the Company believes that it will be able to
attract and retain a sufficient number of qualified individuals to operate the
Casino Resort on acceptable terms, the pool of experienced gaming and other
personnel is limited and competition to recruit and retain gaming and other
personnel is likely to intensify as more casinos are opened. No assurance can
be given that such employees will be available to the Company.
Sole Stockholder
The Sole Stockholder beneficially owns all of the outstanding common
equity of Venetian and LVSI. LVSI acts as the managing member of Venetian.
Except for actions that require the approval of the Special Director (as
defined herein) described in "LVSI and Venetian," the Sole Stockholder will be
able to control the business, policies and affairs of the Company, including
the election of directors and major corporate transactions of LVSI. For a
description of certain relationships among LVSI, Venetian and the Sole
Stockholder, see "LVSI and Venetian," "Certain Transactions" and "Certain
Material Agreements."
Management believes that the Sole Stockholder's common ownership of
Interface and LVSI will provide the Casino Resort with significant competitive
advantages because of management's ability to market the Casino Resort in
conjunction with the Expo Center. Except for the Cooperation Agreement, there
are no agreements for the benefit of the holders of the Notes that restrict the
ability of the Sole Stockholder to incur indebtedness or to transfer or dispose
of his assets. Except as provided under the Cooperation Agreement, there are no
limitations on the ability of Interface to incur debt for the benefit of the
holders of the Notes. As of the date hereof, Interface has $80.0 million of
indebtedness secured by a lien on the Expo Center. In addition, under an
existing credit facility, subject to the satisfaction of certain conditions,
Interface may incur an additional $60.0 million of indebtedness secured by a
lien on the Expo Center. The sale of the Expo Center or Interface by the Sole
Stockholder, either voluntarily or as a result of a foreclosure or bankruptcy
of Interface, could have a material adverse effect on the Company and will
result in an "Event of Default" under the Notes and the Bank Credit Facility.
While the Sole Stockholder has informed the Company that he believes he
will be able to perform his obligations under (i) the Sole Stockholder's $25.0
million Completion Guaranty, (ii) the Sole Stockholder's guarantee of the $35.0
million Tranche B Loan under the Mall Construction Loan Facility, (iii) the
Sole Stockholder's obligations under the Tranche B Take-out Financing and (iv)
the Sole Stockholder's $20.0 million guarantee of the Tranche A Take-out
Financing, the Sole Stockholder's obligation under the $20.0 million guarantee
of the Tranche A Take-out Financing is not collateralized. If Mr. Adelson were
to die or become bankrupt or insolvent, the performance of such collateralized
and non-collateralized obligations could be delayed or adversely affected. In
addition, any successors to Mr. Adelson's assets may be less likely to advance
additional funds to the Company than the Sole Stockholder.
The Indentures and the Intercreditor Agreement do not contain any
prohibition on the ability of the Sole Stockholder or any of his affiliates
from purchasing, refinancing, replacing or otherwise acquiring indebtedness of
the Issuers secured by liens prior to the liens in favor of the holders of the
Mortgage Notes, including indebtedness under the Bank Credit Facility or the
Mall Construction Loan Facility. In addition, the Senior Subordinated Note
Indenture does not limit the ability of the Sole Stockholder or any of his
affiliates from purchasing, refinancing, replacing or otherwise acquiring any
Senior Debt. To the extent the Sole Stockholder acquires interests in such
indebtedness, no assurance can be given that the Sole Stockholder 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 Mortgage Notes and the Senior Subordinated Notes. See "--Ability of
Holders of Mortgage Notes to Realize on Collateral and Exercise Remedies" and
"--Ranking of Senior Subordinated Notes; Subordination to Senior Debt;
Limitations on Remedies."
43
<PAGE>
Financial Forecast
The Financial Forecast was prepared as of June 30, 1997 except for the
amount of Mortgage Notes and Senior Subordinated Notes and the assumed interest
rate on such Notes, which were updated as of November 6, 1997. The prospective
financial information included in this Prospectus has been prepared by, and is
the responsibility of, the Company's management. Price Waterhouse LLP has
neither examined nor compiled the accompanying prospective financial
information, and accordingly, Price Waterhouse LLP does not express an opinion
or provide any other form of assurance with respect thereto. The Price
Waterhouse LLP report included in this Prospectus relates to the Company's
historical financial information and does not extend to the prospective
financial information and should not be read to do so. Neither the Initial
Purchasers nor any independent expert has reviewed the Financial Forecast. While
such Financial Forecast is presented with numerical specificity, it is based on
the best estimate of the Company, described in the Summary of Significant
Assumptions and Accounting Policies in the Financial Forecast, of the results it
expects for the Casino Resort given the Company's assumptions (including that
(i) the Casino Resort will open on schedule and be successful, (ii) that the
Casino Resort will attract a substantial number of visitors and (iii) that the
average daily hotel room rate paid by the visitors at the Casino Resort will be
higher than that paid at other hotel/casinos on the Strip because of room demand
from the trade shows and conventions currently booked at the Expo Center for the
first projected year of operation of the Casino Resort, the Casino Resort's
all-suites format and amenities, its location and its target market).
Furthermore, such estimates are inherently subject to significant business,
economic and competitive uncertainties and contingencies (many of which are
beyond the control of the Company), including future business decisions which
are subject to change. Financial forecasts are necessarily speculative in
nature, and it is usually the case that one or more of the assumptions do not
materialize. For instance, the Financial Forecast assumes higher than average
daily room rates of $167 during the initial year of operations (as compared to
an average daily room rate of $79 for the upper quartile of the Large Strip
Hotels for 1996 according to the NGCB and average daily room rates at major
convention hotels in New York, Chicago and San Francisco of approximately $160
during the first quarter of 1997 according to "Smith Travel Research"), which
may not be achieved. In addition, the results, performance or achievements of
the Casino Resort involve known and unknown risks, uncertainties and other
factors, including the risks associated with new construction, government
regulation relating to the casino industry, the completion of infrastructure
improvements in Las Vegas, including the ongoing expansion of McCarran
International Airport, and general economic and business conditions which may
impact levels of disposable income for consumers and pricing of hotel rooms.
Accordingly, the Financial Forecast is only an estimate, and actual results can
be expected to vary from estimates, and the variations may be material. The
Financial Forecast herein should not be regarded as a representation by the
Company or any other person that the Financial Forecast will be achieved.
Holders of the Notes are cautioned not to place undue reliance on the Financial
Forecast. The Company does not intend to update or otherwise revise the
Financial Forecast to reflect events or circumstances existing or arising after
the date of this Prospectus or to reflect the occurrence of unanticipated
events, except as required by applicable law. The Company's forecasted results
of operations are based on assumptions regarding, among other things, revenues
and expenses, some of which differ from the assumptions used by the Appraiser in
its valuation of the Hotel, the Casino and the Mall. For example, the Appraiser
deducted an assumed management fee of approximately $9.0 million and made
different assumptions regarding certain operating expense line items. Management
believes that such differences are not material to their forecasted results of
operations. See "Appraisals."
Lack of Public Market for the Notes
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. The Issuers currently do not intend to list the New Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system and no active public market for the New Notes is currently
anticipated. There can be no assurance that an active public market for the New
Notes will develop, or if developed, will continue.
Although the Initial Purchasers have acted as market makers with respect
to the Existing Notes and have informed the Issuers that they currently intend
to make a market in the New Notes, they are not obligated to do so and any such
market making may be discontinued at any time without notice. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the New Notes.
44
<PAGE>
Adverse Consequences of Failure to Adhere to Exchange Offer Procedures
Issuance of the New Notes in exchange for Existing Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent
of such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Existing
Notes desiring to tender such Existing Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. Neither the Issuers nor the
Exchange Agent are under any duty to give notification of defects or
irregularities with respect to the tenders of Existing Notes for exchange.
Existing Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate.
Receipt of Restricted Securities Under Certain Circumstances
Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer--Consequences
of Failure to Exchange; Resales of New Notes."
Adverse Effect on Market for Existing Notes
To the extent that Existing Notes are tendered and accepted in the
Exchange Offer, the trading market for the untendered and tendered but
unaccepted Existing Notes could be adversely affected. See "The Exchange
Offer."
45
<PAGE>
LVSI AND VENETIAN
In March 1997, Venetian Casino Resort, LLC was organized as a Delaware
limited liability company and was merged into a Nevada limited liability
company in October 1997. LVSI was incorporated in 1988 under the laws of the
State of Nevada. In April 1989, LVSI acquired the Sands from MGM Grand. LVSI
owned and operated the Sands from April 1989 to June 1996 when hotel operations
ceased. Construction of the Casino Resort commenced in April 1997. LVSI is the
managing member of Venetian. Under the casino lease between LVSI and Venetian
(the "Casino Lease"), LVSI will operate the Casino. The executive offices of
LVSI and Venetian are located at 3355 Las Vegas Boulevard South, Rooms 1A and
1C, respectively, Las Vegas, Nevada 89109 and their phone number is (702)
733-5000.
LVSI has a Board of Directors comprised of two persons. One director is
the Sole Stockholder, who has two votes for all matters 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 the Sole Stockholder has will
be increased so that the Sole Stockholder will have one more vote than the
number of votes of all of the other directors aggregated. The second director
(the "Special Director") is unaffiliated with the Sole Stockholder or any other
affiliate of the Sole Stockholder, has no other position with LVSI or Venetian
and has one vote for all matters before the Board of Directors. To the extent
the Special Director receives compensation, it is paid by LVSI from sources
unrelated to and independent from the Sole Stockholder and its affiliates
(other than the Issuers). The Special Director is required to file an
application for a gaming license with the Nevada Gaming Authorities.
The Amended and Restated Articles of Incorporation of LVSI and the limited
liability company agreement of Venetian provide that, without the express
approval of the Special Director, neither Venetian nor LVSI may (i) file, or
consent to the filing of, a petition for bankruptcy or reorganization, (ii)
engage in certain transactions with affiliates, (iii) merge or consolidate with
any entity or convey or transfer all or substantially all of its properties and
assets to any entity except as contemplated by the Indentures and certain other
debt instruments, (iv) voluntarily terminate the Cooperation Agreement or the
Sale and Contribution Agreement (or any similar replacement agreement), or (v)
amend provisions of LVSI's Amended and Restated Articles of Incorporation and
Venetian's limited liability company agreement if such amendment bears upon the
maintenance of the separate identity of LVSI or Venetian.
LVSI and Venetian will not be dependent on the Sole Stockholder or his
affiliates for, nor is it anticipated that they will receive from the Sole
Stockholder or his affiliates, any funds for, working capital or administrative
expenses, and will be solely responsible for their operating costs. LVSI and
Venetian maintain their own separate bank operating accounts, maintain their
own separate books and records, prepare their own separate financial statements
and retain their own auditors (who may, however, be the firm that also is
engaged by the Sole Stockholder with respect to his affiliates).
In addition, LVSI and Venetian will take the following steps to assure
that they operate separately from the Sole Stockholder and his affiliates: (i)
each of LVSI and Venetian will observe all corporate or limited liability
company formalities regarding its existence and, in the case of LVSI, conduct
regular meetings (at least once annually) of the Board of Directors and
memorialize decisions made and actions taken by the Board of Directors on all
significant transactions; (ii) LVSI and Venetian will take steps to assure that
any of their respective assets are not commingled with those of the Sole
Stockholder or any of his affiliates except to the extent contemplated by, and
only pursuant to the terms of, the Indentures and certain other debt
instruments and, in any event, to assure that their assets are readily
identifiable; and (iii) the Company and Venetian will be able to conduct their
businesses without dependence on the Sole Stockholder or any of his affiliates.
46
<PAGE>
Set forth below is an ownership chart for the Issuers and their
subsidiaries.
----------------------
Sole Stockholder and
Wholly-Owned Entities
----------------------
| | 100%
Non-managing | ----------------------
member, | LVSI(1)
preferred | (Casino Operator)
equity | ----------------------
interest | | Managing Member,
| | 100% common
| | equity interest
| |
--------------------------------------
Venetian(1)(2)
(Owner of the Venetian Resort)
--------------------------------------
/ | \
- ---------------------- ---------------------- ----------------------
Mall Construction Mall Intermediate Phase II Intermediate
Subsidiary(2) Holdings(3) Holdings(3)
- ---------------------- ---------------------- ----------------------
| |
---------------------- ----------------------
Mall Holdings Phase II Holdings
---------------------- ----------------------
| |
---------------------- ----------------------
Mall Subsidiary LLC(4) Phase II Subsidiary(5)
---------------------- ----------------------
- --------------
(1) LVSI and Venetian are co-obligors of the Notes and co-obligors of the
indebtedness under the Bank Credit Facility, the Mall Construction Loan
Facility and the FF&E Credit Facility.
(2) The Mall Construction Subsidiary is a wholly-owned subsidiary of Venetian,
is a co-obligor of the Mall Construction Facility and has guaranteed the
indebtedness under the Bank Credit Facility and the Mortgage Notes on a
secured basis and the Senior Subordinated Notes on an unsecured,
subordinated basis.
(3) Mall Intermediate Holdings and Phase II Intermediate Holdings has
guaranteed the indebtedness under the Bank Credit Facility on a senior
basis and the Notes on a subordinated basis. Mall Intermediate Holdings has
guaranteed the indebtedness under the Mall Construction Loan Facility on a
senior basis. See "Description of Mortgage Notes--Mortgage Note Guaranties"
and "Description of Senior Subordinated Notes--Senior Subordinated Note
Guaranties."
(4) Upon the transfer of the Mall Collateral from the Mall Construction
Subsidiary to the Mall Subsidiary, the Mall Subsidiary is expected to be
owned 99% by Mall Holdings and 1% by a special purpose wholly-owned
subsidiary of the Company (the "Mall Manager"), and Mall Holdings is
expected to be owned 99% by Mall Intermediate Holdings and 1% by Mall
Manager. The Mall Manager will act as the managing member of the Mall
Subsidiary and Mall Holdings. Neither the Mall Subsidiary, the Mall Manager
nor Mall Holdings has guaranteed indebtedness or provided credit support
for any of the indebtedness of the Issuers.
(5) Upon subdivision of the Project Site, the Phase II Land may be released
from the Note Collateral and transferred to the Phase II Subsidiary. Under
the Indentures, the Issuers have agreed that they will not commence
construction of the Phase II Resort (other than the parking garage on the
Phase II Land) until a temporary certificate of occupancy has been issued
for the Casino Resort. The Phase II Subsidiary is a limited liability
company and, upon such transfer, is expected to be owned 99% by Phase II
Holdings and 1% by a special purpose wholly-owned subsidiary of the Company
(the "Phase II Manager"), and Phase II Holdings is expected to be owned 99%
by Phase II Intermediate Holdings and 1% by Phase II Manager. The Phase II
Manager will act as the managing member of the Phase II Subsidiary and
Phase II Holdings. Neither the Phase II Subsidiary nor the Phase II Manager
nor Phase II Holdings has guaranteed or provided credit support for any
indebtedness of the Issuers.
47
<PAGE>
USE OF PROCEEDS
No proceeds will be received by the Issuers from the Exchange Offer.
Use of Proceeds from the Existing Notes
The net proceeds received by the Issuers from the Offering were
approximately $490.0 million (after deduction of the Initial Purchasers'
discounts and estimated offering expenses). The net proceeds from the Offering,
together with the proceeds from the Bank Credit Facility, the Mall Construction
Loan Facility and the FF&E Credit Facility, the contribution provided by the
HVAC Provider and the Equity Contribution will be used to develop, construct,
equip and open the Casino Resort and to repay the Construction Loan. For a
description of the terms of the Construction Loan, see "Certain
Transactions--Transactions Relating to the Venetian." The Casino Resort is
budgeted to cost approximately $1.065 billion to develop, equip and open (such
costs include approximately $70.0 million of costs of acquiring and installing
the HVAC Equipment, which will be owned and operated by the HVAC Provider, but
exclude land acquisition costs). As of December 31, 1997, approximately $228.1
million of this total budgeted cost had been expended or incurred. Of the
amount expended and incurred, approximately $95.3 million represents cash
contributed to the Company by Sheldon G. Adelson, the Sole Stockholder of the
Company, through affiliates of the Company.
Proceeds from the offering of the Mortgage Notes were deposited by the
Issuers into the Mortgage Notes Proceeds Account and will be disbursed by the
Disbursement Agent only after the fulfillment of certain conditions. After
repayment of $30.1 million for the Construction Loan, the remaining proceeds
from the Senior Subordinated Notes were deposited in the Company's Funds
Account (as defined herein). The funds held in the Company's Funds Account will
be used to pay construction and development costs prior to disbursement of
funds from the Mortgage Notes Proceeds Account. The Disbursement Agreement
provides that project costs generally will be funded first from the Equity
Contribution and the proceeds of the Senior Subordinated Notes, and thereafter,
pro rata from the proceeds of the Bank Credit Facility, the Mall Construction
Loan Facility and the Mortgage Notes. However, the HVAC Equipment will be
funded through the Disbursement Agreement pursuant to the separate commitment
from the HVAC Provider, subject to limited exceptions. Pending disbursement,
the funds held in the Mortgage Notes Proceeds Account are invested in cash and
cash equivalent instruments, including bonds and notes, which have been pledged
as additional collateral for the Mortgage Notes. See "Description of
Disbursement Agreement."
The estimated sources and uses of funds to construct, develop, equip and
open the Casino Resort (including the Hotel, the Mall, the Casino and the
Congress Center, but excluding the HVAC Equipment, which will be owned by the
HVAC Provider) are as follows (in millions)(1)(2)(3):
<TABLE>
<CAPTION>
Sources Uses
- ------------------------------------------ -----------------------------------------
<S> <C> <C> <C>
Bank Credit Facility (4) ................. $ 150.0 Hotel and Casino ........................ $ 486.3
Mall Construction Loan Facility .......... 140.0 Mall .................................... 123.6
FF&E Credit Facility (5) ................. 97.7 FF&E (4)(7) ............................. 121.1
Mortgage Notes ........................... 425.0 Land (6)(8) ............................. 225.0
Senior Subordinated Notes ................ 90.5 Parking and site work ................... 36.4
Equity Contribution (6) .................. 320.3 Interest, net ........................... 88.4
--------- Pre-opening costs and expenses .......... 34.4
Contingency (9) ......................... 66.1
Financing fees and expenses ............. 42.2
---------
Total Sources .......................... $ 1,223.5 Total Uses ............................ $ 1,223.5
========= =========
</TABLE>
- --------------
(1) The Company believes that the construction and development budget for the
Casino Resort is reasonable; however, given the risks inherent in the
construction process, it is possible that construction and development
costs for the Casino Resort could be significantly higher. See "Risk
Factors--Risk of New Construction," "--Construction Budget; Construction
Management Contract and Guaranties" and "--Completion Guaranty."
(2) The sources and uses table does not include approximately $70.0 million for
the HVAC Equipment, which will be provided by the HVAC Provider. See
"Certain Material Agreements--Agreements Relating to the Casino
Resort--HVAC Services Agreement and Related Documents."
48
<PAGE>
(3) The Issuers used a portion of the net proceeds from the Offering to repay
$30.1 million of indebtedness plus accrued interest under the Construction
Loan. The net proceeds from the Construction Loan were used to fund the
development and construction costs of the Casino Resort. See "Management's
Discussion and Analysis of Liquidity and Capital Resources."
(4) Additional borrowings under the Bank Credit Facility of up to $20.0 million
are available under a revolving loan facility (approximately $15.0 million
of which will be available during the construction period: (i) to fund the
purchase of the Specified FF&E (including deposits thereon), with such
amounts to be repaid from funds drawn under the FF&E Credit Facility and
(ii) to support letters of credit related to the construction of the Casino
Resort). See "Description of Certain Indebtedness--Bank Credit Facility."
(5) The availability of funds under the FF&E Credit Facility is subject to
certain conditions, including reaching a certain level of construction
progress on the Casino Resort. See "Description of Certain
Indebtedness--FF&E Credit Facility."
(6) Equity Contribution represents (i) $95.3 million in cash advanced by the
Sole Stockholder or his affiliates to fund construction and development
costs and expenses of the Casino Resort and (ii) $225.0 million
representing the appraised value of the Project Site (such land had a book
value of $93.6 million at December 31, 1997). See "Appraisals--Land
Appraisal" and "Certain Transactions--Equity Contribution."
(7) Includes $26.9 million of gaming equipment and $94.2 million of other
furniture, fixtures and equipment. See "Description of Certain
Indebtedness--FF&E Credit Facility."
(8) Upon the completion of a subdivision of the Project Site, the Phase II Land
may be released from the Note Collateral and transferred to the Phase II
Subsidiary. See "Description of Mortgage Notes--Ranking and Security."
(9) The total contingency consists of $66.1 million which is currently
allocable as follows: (i) the $26.1 million Construction Manager's
Contingency and (ii) the $40.0 million Owner's Contingency. In addition,
the Sole Stockholder's collateralized Completion Guaranty also is available
to cover cost overruns. See "Risk Factors--Construction Budget;
Construction Management Contract and Guaranties" and "Certain Material
Agreements--Agreements Relating to the Casino Resort--Construction
Management Contract."
49
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997 and as adjusted to give effect to (i) the borrowing of $150.0
million under the Bank Credit Facility, (ii) the borrowing of $140.0 million
under the Mall Construction Loan Facility and (iii) the borrowing of $97.7
million under the FF&E Credit Facility. This table should be read in
conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus. See "Use of Proceeds," "Description of
Mortgage Notes," "Description of Senior Subordinated Notes" and "Description of
Certain Indebtedness."
<TABLE>
<CAPTION>
As of December 31, 1997
(in millions)
Actual As Adjusted
---------- ------------
<S> <C> <C>
Long-Term Debt:
Bank Credit Facility (1) .................... $ -- $ 150.0
Mall Construction Loan Facility (2) ......... -- 140.0
Mortgage Notes .............................. 425.0 425.0
FF&E Credit Facility (3) .................... -- 97.7
Senior Subordinated Notes ................... 90.5 90.5
------ --------
Total Long-Term Debt ...................... 515.5 903.2
------ --------
Preferred Interest in Venetian (4) ............. 77.1 77.1
------ --------
Stockholder's Equity (5) ....................... 111.3 111.3
------ --------
Total Capitalization ........................... $703.9 $1,091.6
====== ========
</TABLE>
- --------------
(1) The Bank Credit Facility consists of (i) multiple draw term loans of up to
$150.0 million (the "Term Loans") available for a period commencing on the
closing date of the Bank Credit Facility (the "Closing Date") and ending on
the earlier to occur of (a) April 21, 1999, subject to extension under the
Disbursement Agreement (the "Outside Completion Deadline") and (b)
Completion (the "Term Loan Commitment Termination Date") and (ii) revolving
credit facility loans of up to $20.0 million (the "Revolving Loans")
available for a period commencing eight months prior to the opening date
and ending two years from the initial draw on the Revolving Loans, but in
no event later than the second anniversary of the Term Loan Commitment
Termination Date. In addition, up to $15.0 million of borrowings under the
Bank Credit Facility will be available during the construction period: (i)
to fund the purchase of Specified FF&E (including deposits thereon), with
such amounts to be repaid from funds drawn under the FF&E Credit Facility
and (ii) to support letters of credit related to the construction of the
Casino Resort. See "Description of Certain Indebtedness--Bank Credit
Facility."
(2) Upon the completion of the Casino Resort and the satisfaction of certain
other conditions, pursuant to the Sale and Contribution Agreement, the Mall
Construction Subsidiary will transfer the Mall Collateral to the Mall
Subsidiary. Upon such transfer, the indebtedness under the Mall
Construction Loan Facility will either be repaid or assumed by Mall
Subsidiary. See "Certain Material Agreements--Agreements Relating to the
Mall--Sale and Contribution Agreement." GSMC and the Tranche B Take-out
Lender separately have entered into commitment agreements with the Mall
Subsidiary whereby, subject to completion of the Casino Resort and the
satisfaction of certain other conditions, (i) GSMC has agreed to provide
the Tranche A Take-out Financing of up to $105.0 million and (ii) the
Tranche B Take-out Lender has agreed to provide the Tranche B Take-out
Financing of up to $35.0 million. See "Description of Certain
Indebtedness--Mall Take-out Financing Commitments."
(3) The FF&E Credit Facility is a $97.7 million multiple draw facility
available to fund the acquisition and installation of the Specified FF&E.
The availability of such financing is subject to certain conditions,
including reaching a certain level of construction progress on the Casino
Resort. See "Description of Certain Indebtedness--FF&E Credit Facility."
(4) Contributions by the Sole Stockholder (or his affiliates) include $77.1
million of preferred interest in Venetian and $18.2 million of common
equity in the Company. See "Certain Transactions--Preferred Interest."
(5) The principal components of stockholder's equity are land of $93.6 million
and cash of $18.2 million contributed by the Sole Stockholder for
construction funding.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
LIQUIDITY AND CAPITAL RESOURCES
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Forecast and Historical Financial
Statements and the notes thereto and other financial information included
elsewhere in this Prospectus. Certain statements contained in "Management's
Discussion and Analysis of Liquidity and Capital Resources" constitute
forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
Development Activities
The Company is constructing and will own and operate the Casino Resort, a
large-scale Venetian-themed hotel, casino, retail, meeting and entertainment
complex in Las Vegas, Nevada. The Casino Resort is expected to commence
operations in the second quarter of 1999. Formal ground breaking occurred in
April 1997. In June 1997, LVSI transferred the Project Site to Venetian.
Results of Operations
In April 1989, the Company acquired the Sands from MGM Grand Inc. The
Company owned and operated the Sands from April 1989 to June 1996 when
operations ceased. The Company's historical operating results will not be
indicative of future operating results because such information is relevant
only to the Company's ownership and operation of the Sands, which was
demolished in November 1996, and which was a much different and smaller
facility than the planned Casino Resort. In addition, the Sands was operated by
a substantially different management team. See "Annex A--Certain Historical
Financial Information" for certain historical financial information relating to
the Company's historical operations. See the Financial Forecast for information
relating to the first twelve months of operations of the Casino Resort.
Liquidity and Capital Resources
Venetian Casino Resort
As of December 31, 1997, approximately $228.1 million of the total project
cost of $1.065 billion (including approximately $70.0 million of HVAC Equipment
costs, but excluding land acquisition costs) had been expended or incurred to
fund construction and development of the Casino Resort. Of the costs expended
or incurred, approximately $95.3 million represents cash contributed by the
Sole Stockholder and his affiliates to the Company, and the balance represents
proceeds from the Senior Subordinated Notes and year end accruals for
construction payables and contractor retention amounts. The remaining $837.4
million of estimated construction and development costs for the Casino Resort
is expected to be funded from a combination of (i) borrowings of approximately
$150.0 million under the Bank Credit Facility, (ii) gross proceeds from the
offering of the Mortgage Notes of approximately $425.0 million, (iii) remaining
proceeds from the offering of the Senior Subordinated Notes of approximately
$90.5 million (net of original issue discount), (iv) borrowings of
approximately $140.0 million under the Mall Construction Loan Facility and (v)
borrowings under the FF&E Credit Facility of approximately $97.7 million. In
addition, the HVAC Provider will separately contribute up to $70.0 million for
the purchase and installation of the HVAC Equipment, which the HVAC Provider
will own and operate. For more information, see "Use of Proceeds," "Description
of Mortgage Notes," "Description of Senior Subordinated Notes" and "Description
of Certain Indebtedness."
The Bank Credit Facility consists of (i) multiple draw Term Loans of up to
$150.0 million which may be drawn to fund the development and construction of
the Casino Resort, and will be available for a period commencing upon the
Closing Date and ending on the earlier to occur of (a) the Outside Completion
Deadline and (b) Completion, and (ii) Revolving Loans of up to $20.0 million,
which may be drawn to fund certain start-up operational costs of the Casino
Resort, and will be available for a period commencing eight months prior to the
opening date and ending two years from the initial draw on the Revolving Loans
(but in no event later than the second anniversary of the Term Loan Commitment
Termination Date), at which time all Revolving Loans must be repaid. The Term
Loans mature not later than six years from the Closing Date and are subject to
quarterly amortization payments which began on the earlier of (i) 120 days
after the Opening Date, (ii) the Completion Date and (iii) the Outside
Completion Deadline. Amortization during
51
<PAGE>
the first four quarters following the amortization commencement date will be
3.75% of principal per quarter; during the second four quarters, 5% of
principal per quarter; during the third four quarters, 7.5% of principal per
quarter; and during the fourth four quarters, 8.75% of principal per quarter.
Up to $15.0 million under the Revolving Loans will be available prior to such
eight-month period: (i) to fund the purchase of the Specified FF&E (including
deposits thereon), with such amounts to be repaid from funds drawn under the
FF&E Credit Facility and (ii) to support letters of credit related to the
construction of the Casino Resort. All amounts outstanding under the Bank
Credit Facility bear interest, at the option of the Issuers (subject to certain
limitations) as follows: (A) with respect to the period prior to the
Substantial Completion Date, (i) at the Base Rate plus 2.00% per annum; or (ii)
at the reserve adjusted Eurodollar Rate plus 3.00% per annum; (B) with respect
to outstandings under the Bank Credit Facility for the period between the
Substantial Completion Date and ending on the second full fiscal quarter
following the Substantial Completion Date, (i) at the Base Rate plus 1.50%; or
(ii) at the reserve adjusted Eurodollar Rate plus 2.50% per annum; and (C) with
respect to outstandings under the Bank Credit Facility for the period
commencing on the second full fiscal quarter following the Substantial
Completion Date, at the Base Rate or reserve adjusted Eurodollar Rate, as the
case may be, plus the relevant margin based on certain leverage ratios set
forth in the Bank Credit Facility loan agreement. For a description of the
terms of the Bank Credit Facility, see "Description of Certain
Indebtedness--Bank Credit Facility."
The Mall Construction Loan Facility consists of (i) a $105.0 million
tranche (the "Tranche A Loan") and (ii) a $35.0 million tranche (the "Tranche B
Loan"). Borrowings under the Tranche B Loan will be used to fund the
development and construction of the Casino Resort, and were available as of the
closing of the Mall Construction Loan Facility. Borrowings under the Tranche A
Loan will be used to fund the development and construction of the Casino Resort
but will not be drawn until the Tranche B Loan is fully funded. Borrowings
under the Tranche A Loan are available until the earlier to occur of (i)
Completion and (ii) the Outside Completion Deadline. The Mall Construction Loan
Facility matures on May 1, 2000 (unless extended). The interest rate on
indebtedness outstanding under the Mall Construction Loan Facility is 275 basis
points over 30-day LIBOR, provided that effective as of April 10, 1998, if the
Mall Parcel is not a separate legal and tax parcel by July 10, 1998, such
interest rate shall be 375 basis points over 30-day LIBOR until such time, if
any, as the Mall Parcel becomes a separate legal and tax parcel. For a
description of the terms of the Mall Construction Loan Facility, see
"Description of Certain Indebtedness--Mall Construction Loan Facility."
The FF&E Credit Facility consists of a $97.7 million multiple draw,
interim loan prior to completion of the Casino Resort, which converts to a term
loan for a period of 60 months after completion of the Casino Resort. If the
FF&E Credit Facility is not fully funded on the Project Construction Completion
Date (as defined in the Disbursement Agreement), the unused portion of the
commitment under the FF&E Credit Facility may be drawn in whole and placed in a
cash collateral account and used to fund the purchase and installation of
Specified FF&E for a period of 120 days, with any proceeds remaining in such
cash collateral account after such 120-day period being used by the FF&E
Lenders to prepay an equivalent portion of the outstanding borrowings at such
time. Funding will not be available under the FF&E Credit Facility until the
Casino Resort is within eight months of the opening date of the Casino Resort
and is subject to certain pre-funding conditions, including, delivery of
certain customary legal opinions, filing of UCC-1 financing statements and
evidence that the Casino Resort will open within such eight-month period.
Interest on the interim loan, if paid on a current basis, will be due quarterly
in arrears at a floating rate equal to 30-day reserve adjusted LIBOR plus 375
basis points or at the Base Rate (the greater of the Prime Rate or the Federal
Funds Rate plus 50 basis points) plus 100 basis points, whichever the Issuers
elect. Upon the same date as the Project Construction Completion Date but no
later than November 1, 1999 (or January 31, 2000 if certain casualty events
occur after November 1, 1998 and the Casino Resort can be repaired on or before
January 31, 2000)) (the "Basic Loan Commencement Date"), but subject to certain
conditions, the interim loan will convert to a sixty-month term loan with
quarterly amortization payments. Amortization on the FF&E Basic Loan will be 3%
of principal for the first four quarters and 5.5% of principal for the last 16
quarters. Interest on the FF&E Basic Loan is expected to be a floating monthly
rate calculated at the higher of (a) the reserve-adjusted 30-day LIBOR plus 375
basis points or (b) the eurodollar interest rate margin in effect on the Bank
Credit Facility plus 125 basis points. See "Risk Factors--Substantial Leverage;
Ability to Service Debt" and "Description of Certain Indebtedness--FF&E Credit
Facility."
52
<PAGE>
The funds provided by these sources (together with amounts to be provided
by the HVAC Provider) are expected to be sufficient to develop, construct and
commence operations of the Casino Resort, assuming there are no delay costs or
construction cost overruns. If there are any delay costs and construction cost
overruns, the Company expects to use cash received from the following sources
to fund such delay costs and cost overruns (including interest on the Notes):
(i) a Construction Management Contract contingency of approximately $26.1
million, (ii) an Owner's Contingency of approximately $40.0 million, (iii) the
Liquidated Damages Insurance and the proceeds of other (e.g., casualty)
insurance policies, (iv) the Construction Manager, Bovis or P&O, pursuant to
the Construction Management Contract, the Construction Management Contract
Guaranty and the P&O Guaranty, respectively, (v) other third parties, pursuant
to their liability to the Company under their agreements with the Company, and
(vi) the Sole Stockholder, pursuant to his liability under the collateralized
Completion Guaranty of up to $25.0 million. The Completion Guaranty provides
that, subject to certain conditions and limitations, if available funds are not
sufficient to fund all construction and development costs, the Sole Stockholder
is obligated to fund excess costs up to a maximum aggregate amount of $25.0
million. The Sole Stockholder's obligation to fund such excess construction and
development costs is collateralized by $25.0 million of cash or cash
equivalents pledged to the Disbursement Agent. If the Sole Stockholder provides
funds under the Completion Guaranty, the amount of such funds will be treated
as a junior subordinated loan from the Sole Stockholder to Venetian. See "Risk
Factors--Completion Guaranty" and "Certain Material Agreements--Agreements
Relating to the Casino Resort--Completion Guaranty."
Following the completion of the Casino Resort, the Issuers expect to fund
their operations and capital requirements from (i) operating cash flow and (ii)
additional indebtedness of up to $20.0 million of revolving loans under the
Bank Credit Facility. Assuming an opening of the Casino Resort in April 1999,
the aggregate scheduled principal payments due under the Bank Credit Facility
and the FF&E Credit Facility will be zero dollars, $25.7 million, $47.2
million, $62.7 million, $72.1 million and $40.0 million, payable in 1998, 1999,
2000, 2001, 2002 and all years thereafter, respectively. In addition, the
Company expects that the indebtedness under the Mall Construction Loan Facility
will be refinanced upon completion of the Casino Resort. Upon the completion of
the Casino Resort and the satisfaction of certain other conditions, pursuant to
the Sale and Contribution Agreement, the Mall Construction Subsidiary will
transfer the Mall Collateral to the Mall Subsidiary. Upon such transfer, the
Mall Collateral will be released by the Mortgage Note Trustee and the Bank
Agent and will not be available as security for the holders of the Mortgage
Notes or the indebtedness under the Bank Credit Facility, and the indebtedness
under the Mall Construction Loan Facility will either be repaid or assumed by
the Mall Subsidiary (with the Issuers and the Guarantors being released from
all obligations under such indebtedness). See "Certain Material
Agreements--Agreements Relating to the Mall--Sale and Contribution Agreement."
To finance the obligations of the Mall Subsidiary under the Sale and
Contribution Agreement, GSMC and the Tranche B Take-out Lender separately have
entered into commitment agreements with the Mall Subsidiary whereby GSMC and
the Tranche B Take-out Lender have agreed to provide the Mall Take-out
Financings. The consummation of the Tranche A Take-out Financing is subject to
certain conditions, including completion of the Casino Resort and delivery of
legal opinions (including certain substantive non-consolidation opinions). The
Mall Subsidiary is not obligated to draw on the Mall Take-out Financings in
order to fund its obligations under the Sale and Contribution Agreement and may
obtain alternative sources of financing to fund such obligations. Any
indebtedness incurred by the Mall Subsidiary (including the Tranche A Take-out
Financing) is expected to include material restrictions on the ability of the
Mall Subsidiary to pay dividends or to make distributions or loans to the
Issuers and their Restricted Subsidiaries. See "Risk Factors--Substantial
Leverage; Ability to Service Debt," "Description of Certain Indebtedness--Mall
Take-out Financing Commitments" and "Unrestricted and Special Subsidiaries."
Although no additional financing for the Casino Resort is currently
contemplated (other than that described above), the Company will seek, if
necessary and to the extent permitted under the Indentures and the terms of the
Bank Credit Facility and the Mall Construction Loan Facility, additional
financing through additional bank borrowings or debt or equity financings.
There can be no assurance that additional financing, if needed, will be
available to the Company, and, if available, that the financing will be on
terms favorable to the Company, or that the Sole Stockholder or any of his
affiliates will provide any such financing. Finally, there can be no assurance
that new business developments or other unforeseen events will not occur
resulting in the need to raise additional funds.
53
<PAGE>
Phase II Resort
If the Phase II Subsidiary determines to construct the Phase II Resort,
the Phase II Subsidiary will be required to raise substantial debt and/or
equity financings. Currently, there are no commitments to fund any portion of
the construction and development costs of the Phase II Resort. The Phase II
Subsidiary is an Unrestricted Subsidiary for purposes of the Indentures.
Accordingly, the Phase II Subsidiary is not subject to any of the restrictive
covenants of the Indentures (including, without limitation, the covenants with
respect to the limitations on indebtedness and restrictions on the ability to
pay dividends or to make distributions or loans to the Issuers and their
Restricted Subsidiaries). Any indebtedness incurred by the Phase II Subsidiary
is expected to include material restrictions on the ability of the Phase II
Subsidiary to pay dividends or make distributions or loans to the Issuers and
their Restricted Subsidiaries. See "Risk Factors--Unrestricted and Special
Subsidiaries."
However, the Indentures limit the ability of Venetian, LVSI or any of
their Restricted Subsidiaries to guarantee or otherwise become liable for any
indebtedness of the Phase II Subsidiary. The Indentures also restrict the sale
or other disposition by the Issuers and their Restricted Subsidiaries of
Capital Stock (as defined herein) of the Phase II Subsidiary, including the
sale of any such Capital Stock to the Sole Stockholder or any Affiliate of the
Sole Stockholder. In addition, prior to commencement of construction of the
Phase II Resort, Venetian has the right to approve the plans and specifications
for the Phase II Resort. The development, construction and opening of the
Casino Resort is not dependent on the construction and opening of the Phase II
Resort. The development of the Phase II Resort may require obtaining additional
regulatory approvals. Under the Indentures, the Issuers have agreed that they
will not commence construction of the Phase II Resort (other than the parking
garage on the Phase II Land) until a temporary certificate of occupancy has
been issued for the Casino Resort.
Year 2000
The Company has conducted a review of its financial and sales software,
construction job costs software and computer systems in order to identify any
adverse effects of the Year 2000 issue. The Year 2000 issue refers to the
inability of many computer systems to accurately process dates subsequent to
December 31, 1999. Possible Year 2000 problems create risk for a company in
that unforeseen problems in its own computer systems or those of its third
party suppliers could have a material impact on a company's ability to conduct
its business operations. The Company has determined that the internal staff
costs as well as consulting and other expenses to prepare its systems for the
year 2000 will have no material impact on the Company's expenses during 1998
and 1999 and will not have a material impact on its ongoing operating results.
The Company is presently making inquiries to determine whether the Year 2000
issue will have any effect on its suppliers and business partners.
54
<PAGE>
THE EXCHANGE OFFER
General
The Issuers hereby offer, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $425.0 million
aggregate principal amount of New Mortgage Notes and up to $97.5 million
aggregate principal amount of New Senior Subordinated Notes for a like
aggregate principal amount of Existing Mortgage Notes and Existing Senior
Subordinated Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Existing Notes: the total
aggregate principal amount of Existing Mortgage Notes and New Mortgage Notes
will in no event exceed $425.0 million, and the total aggregate principal
amount of Existing Senior Subordinated Notes and New Senior Subordinated Notes
will in no event exceed $97.5 million.
This Prospectus, together with the Letter of Transmittal, is first being
sent on or about , 1998 to all holders of Existing Notes known to
the Issuers. The Issuers' obligation to accept Existing Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
under "--Conditions to the Exchange Offer" below.
Purpose of the Exchange Offer
The Existing Notes were issued by the Issuers on November 14, 1997 in
transactions exempt from the registration requirements of the Securities Act.
Accordingly, the Existing Notes may not be reoffered, resold, or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act is available.
In connection with the issuance and sale of the Existing Notes, the
Issuers and the Guarantors entered into the Registration Rights Agreement,
which requires the Issuers and the Guarantors to (x) file on or before December
29, 1997 (45 days after the date of issuance of the Existing Notes) a
registration statement relating to the Exchange Offer (the "Exchange Offer
Registration Statement") and (y) use their respective best efforts to cause the
Exchange Offer Registration Statement to become effective on or before May 13,
1998 (180 days after the date of issuance of the Existing Notes). The
Registration Rights Agreement requires the Issuers and the Guarantors, under
certain circumstances, to provide a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the Notes by the holders thereof
and to keep such shelf registration statement effective until two years after
the date of original issuance of the Notes or such other period of time as
provided in the Registration Rights Agreement. If (i) the Issuers and the
Guarantors fail to cause the Exchange Offer Registration Statement to become
effective within 180 days of the date of issuance of the Existing Notes, (ii)
the Issuers and the Guarantors are obligated to provide a Shelf Registration
Statement and such Shelf Registration Statement is not filed within 30 days or
declared effective within 90 days (or if later 45 days and 180 days after the
date of issuance of the Existing Notes, respectively), of the date on which the
Issuers and the Guarantors became so obligated, (iii) subject to certain
exceptions, the Issuers and the Guarantors fail to consummate the Exchange
Offer within 30 business days of the effectiveness target date or (iv) the
Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but shall thereafter cease to be effective or usable in
connection with resales of the Transfer Restricted Securities (as defined in
the Registration Rights Agreement), for the periods specified in the
Registration Rights Agreement (each event referred to in clauses (i) through
(iv) above a "Registration Default"), then LVSI and Venetian shall pay to each
holder of Transfer Restricted Securities, with respect to the first 90-day
period following such Registration Default, liquidated damages ("Liquidated
Damages") in an amount equal to 0.25% per annum on the principal amount of
Transfer Restricted Damages held by such holder. The amount of such Liquidated
Damages will increase by an additional 0.25% per annum for each subsequent
90-day period until such Registration Default has been cured, up to a maximum
of 2.0% per annum on the principal amount of the Notes constituting Transfer
Restricted Securities. See "Risk Factors--Government Regulation." The Exchange
Offer is being made by the Issuers and the Guarantors to satisfy their
obligations with respect to the Registration Rights Agreement.
Based on no-action letters issued by the staff of the Commission to third
parties in unrelated transactions, the Issuers believe that the New Notes
issued pursuant to the Exchange Offer may be offered
55
<PAGE>
for resale, resold or otherwise transferred by holders thereof (other than (i)
any such holder that is an "affiliate" of either of the Issuers within the
meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that
purchases Notes from the Issuers to resell pursuant to Rule 144A or any other
available exemption) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement or understanding with any person to participate in the
distribution of such New Notes and are not participating in, and do not intend
to participate in, the distribution of such New Notes. Any holder of Existing
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Thus, any New Notes acquired by such holders will
not be freely transferable except in compliance with the Securities Act. See
"--Consequences of Failure to Exchange; Resale of New Notes."
Expiration Date; Extension; Termination; Amendment
The Exchange Offer will expire at 5:00 P.M., New York City time, on
, 1998 unless the Issuers, in their sole discretion, have extended
the period of time for which the Exchange Offer is open (such date, as it may
be extended, is referred to herein as the "Expiration Date"). The Expiration
Date will be at least 20 business days after the commencement of the Exchange
Offer in accordance with Rule 14e-1(a) under the Exchange Act. The Issuers
expressly reserve the right, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open and thereby delay
acceptance for exchange of any Existing Notes, by giving oral notice (promptly
confirmed in writing) or written notice to the Exchange Agent and by giving
written notice of such extension to the holders thereof no later than 9:00 A.M.
New York City time, on the next business day after the previously scheduled
Expiration Date. During any such extension, all Existing Notes previously
tendered will remain subject to the Exchange Offer unless properly withdrawn.
In addition, the Issuers expressly reserve the right to terminate or amend
the Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "--Conditions to the Exchange Offer." If any such
termination or amendment occurs, the Issuers will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Existing Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 A.M. through 12:00 midnight, New York City time.
Procedures for Tendering Existing Notes
The tender to the Issuers of Existing Notes by a holder thereof as set
forth below and the acceptance thereof by the Issuers will constitute a binding
agreement between the tendering holder and the Issuers upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Existing Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Existing Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth below on
or prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
The method of delivery of Existing Notes, Letters of Transmittal and all
other required documents is at the election and risk of the holders. If such
delivery is by mail, it is recommended that registered mail properly insured,
with return receipt requested, be used. In all cases, sufficient time should be
allowed to insure timely delivery. No Existing Notes or Letters of Transmittal
should be sent to the Issuers.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by a
firm which is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. or by a clearing
agency, an insured credit union, a savings association or a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Existing Notes are registered in
the name of a person other than a signer of the Letter of Transmittal, the
Existing Notes surrendered for exchange must be endorsed by, or be accompanied
by a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Issuers in their sole discretion, duly executed by
the registered holder with the signature thereon guaranteed by an Eligible
Institution.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Existing Notes by
causing DTC to transfer such Existing Notes into the Exchange Agent's account
in accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a Letter of Transmittal need not be transmitted to the
Exchange Agent and manually executed, if delivery of the New Notes is to be
made by book-entry transfer to the account maintained by the Exchange Agent at
DTC; provided, however, that the book-entry transfer procedure must be complied
with prior to 5:00 p.m., New York City time, on the Expiration Date and tenders
of the Existing Notes must be effected in accordance with the procedures
mandated by DTC's Automated Tender Offer Program.
If a holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Existing Note to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the names in which the Existing
Notes are registered and, if possible, the certificate numbers of the Existing
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date the
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Existing Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Issuers may, at their
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) from an Eligible Institution is received by the
Exchange Agent. Issuances of New Notes in exchange for Existing Notes tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) by an Eligible Institution
will be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Issuers in their sole discretion, which determination shall
be final and binding. The Issuers reserve the absolute right to reject any and
all tenders of any particular Existing Notes not properly tendered or to not
accept any particular Existing Notes which acceptance might, in the judgment of
the Issuers or their counsel, be unlawful. The Issuers also reserve
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the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Existing Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Existing Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Existing
Notes either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by the Issuers shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes for exchange must be cured within
such reasonable period of time as the Issuers shall determine. Neither the
Issuers, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Existing Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders appear
on the Existing Notes.
If the Letter of Transmittal or any Existing Notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by the Issuers, proper evidence satisfactory to the Issuers of
their authority to so act must be submitted.
By tendering, each holder will represent to the Issuers and the Guarantors
in the Letter of Transmittal that, among other things, the New Notes acquired
pursuant to the Exchange Offer are being acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the holder, that neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, that neither the holder nor any such other person is
participating in or intends to participate in the distribution of such New
Notes and that neither the holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Issuers and the
Guarantors.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing 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 New Notes. See "Plan of Distribution."
Withdrawal Rights
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter
must be received by the Exchange Agent prior to the Expiration Date at its
address set forth below. Any such notice of withdrawal must (i) specify the
name of the person having tendered the Existing Notes to be withdrawn (the
"Depositor"), (ii) identify the Existing Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Existing Notes),
(iii) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Existing Notes were tendered or as
otherwise described above (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the applicable Trustee
under the applicable Indenture register the transfer of such Existing Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Existing Notes are to be registered, if different from that of
the depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuers
in their sole discretion, which determination will be final and binding on all
parties. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Existing
Notes which have been tendered for exchange and which are properly withdrawn
will be returned to the holder thereof without cost to such holder as soon as
practicable after such withdrawal. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Existing Notes" above at any time on or prior to the Expiration Date.
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Acceptance of Existing Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Issuers will accept, promptly after the Expiration Date, all
Existing Notes properly tendered and will issue the New Notes promptly after
acceptance of the Existing Notes. See "--Conditions to the Exchange Offer"
below. For the purposes of the Exchange Offer, the Issuers shall be deemed to
have accepted properly tendered Existing Notes for exchange when, as and if the
Issuers have given oral and written notice thereof to the Exchange Agent.
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note.
In all cases, issuance of New Notes for Existing Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Existing Notes or a
timely Book-Entry Confirmation of such Existing Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any
tendered Existing Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Existing Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged Existing Notes will be returned without expense to the
tendering holder thereof (or, in case of Existing Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Existing Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration of the Exchange Offer.
Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the Issuers
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Existing Notes and may terminate or amend the Exchange Offer if at any
time before the acceptance of such Existing Notes for exchange or the exchange
of the New Notes for such Existing Notes any of the following events shall
occur:
(i) any injunction, order or decree shall have been issued by any
court or any governmental agency (including any Nevada gaming authority)
that would prohibit, prevent or otherwise materially impair the ability of
the Issuers to proceed with the Exchange Offer, or
(ii) the Exchange Offer shall violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Issuers and may
be asserted by the Issuers regardless of the circumstances giving rise to any
such condition or may be waived by the Issuers in whole or in part at any time
and from time to time in its reasonable judgment. The failure by the Issuers at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time.
In addition, the Issuers will accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of either of the indentures under the Trust Indenture
Act of 1939 (the "Trust Indenture Act"). In any such event the Issuers and the
Guarantors are required to use every reasonable effort to obtain the withdrawal
of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange.
Exchange Agent
U.S. Bank Trust National Association (formerly known as First Trust
National Association) has been appointed as the Exchange Agent for the Exchange
Offer. All executed Letters of Transmittal should be directed to the Exchange
Agent at one of the addresses set forth below. Requests for additional copies
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of this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
U.S. Bank Trust National
Association
180 East 5th Street
St. Paul, MN 55101
Attn: Specialized Finance Department
For information, call
Ph: (612) 244-4512
Fax: (612) 244-1537
DELIVERY OF THE EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION
OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE
A VALID DELIVERY.
Solicitation of Tenders; Fees and Expenses
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Issuers, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection
therewith. The cash expenses to be incurred by the Issuers in connection with
the Exchange Offer will be paid by the Issuers.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Issuers. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Issuers since the respective dates as of
which information is given herein. The Exchange Offer is not being made to (nor
will tenders be accepted from or on behalf of) holders of Existing Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
Transfer Taxes
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith except that holders who
instruct the Issuers to register New Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
Accounting Treatment
The New Notes will be recorded at the carrying value of the Existing Notes
as reflected in the Issuers' accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuers upon the exchange of New Notes for Existing Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term
of the New Notes.
Consequences of Failure to Exchange; Resales of New Notes
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Existing
Notes may not be altered or sold unless
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registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. The Issuers and the Guarantors do not currently anticipate
that they will register the Existing Notes under the Securities Act. However,
in the event that the Issuers and the Guarantors determine that the Exchange
Offer is not available or may not be consummated as soon as practicable after
the last date the Exchange Offer is open: (i) because it would violate
applicable law or the applicable interpretations of the staff of the
Commission, (ii) if the Exchange Offer is not approved by the applicable gaming
authorities in the State of Nevada, or (iii) if any holder of Existing Notes
shall notify the Issuers within 20 business days following the consummation of
the Exchange Offer that (a) such holder was prohibited by law or Commission
policy from participating in the Exchange Offer, (b) such holder may not resell
the Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
holder, or (c) such holder is a broker-dealer and holds Notes acquired directly
from the Issuers or one of their affiliates, then, in each case, the Issuers
and the Guarantors will at their sole expense, (i) use their reasonable best
efforts to cause the Shelf Registration Statement to be filed on or prior to 30
days after the date on which the Issuers and the Guarantors determine that they
are not required to file the Exchange Offer Registration Statement pursuant to
clause (i) or (ii) above or 30 days after the date on which the Issuers receive
the notice specified in clause (iii) above, (ii) use their reasonable best
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act on or prior to 90 days after the Issuers and the
Guarantors became obligated to file such Shelf Registration Statement and (iii)
use their reasonable best efforts to keep effective the Shelf Registration
Statement until the earlier of two years after the Issue Date or such time as
all of the applicable Notes have been sold thereunder. The Issuers will, in the
event that a Shelf Registration Statement is filed, provide to each Holder
copies of the prospectus that is a part of the Shelf Registration Statement,
notify each such Holder when the Shelf Registration for the Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Notes. A Holder that sells such Notes pursuant to the Shelf
Registration Statement will be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreements that are applicable to such a
Holder (including certain indemnification rights and obligations).
Based on certain no-action letters issued by the staff of the Commission
to third parties in unrelated transactions, the Issuers believe that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act or, (ii) any broker-dealer that purchases Notes from the Issuers
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes and are not participating in, and do not intend to participate in, the
distribution of such New Notes. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holders (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction. A broker-dealer who
holds Existing Notes that were acquired for its own account as a result of
market making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of New Notes. Each such broker-dealer that receives New Notes for
its own account in exchange for Existing Notes, where such Existing Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such New Notes. See "Plan
of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Issuers
have agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to
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register or qualify the New Notes for offer or sale under the securities or
blue sky laws of such jurisdictions as are necessary to permit the consummation
of the Exchange Offer.
Participation in the Exchange Offer is voluntary, and holders of Existing
Notes should carefully consider whether to participate. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Issuers and the Guarantors will have fulfilled a covenant contained in the
Registration Rights Agreement. Holders of Existing Notes who do not tender
their Existing Notes in the Exchange Offer will continue to hold such Existing
Notes and will be entitled to all the rights, and limitations applicable
thereto, under the Indentures, except for any such rights under the
Registration Rights Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of this Exchange Offer. See
"Description of Mortgage Notes" and "Description of Senior Subordinated Notes."
All untendered Existing Notes will continue to be subject to the restriction on
transfer set forth in the Indentures. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Existing Notes could be adversely affected.
The Issuers may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuers have no present plan to acquire any Existing
Notes which are not tendered in the Exchange Offer.
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BUSINESS
The Company is constructing and will own and operate the Venetian Casino
Resort, a Renaisssance Venice-themed resort situated at one of the premier
locations on the Strip. The Casino Resort is located across from The Mirage and
the Treasure Island Hotel and Casino at the site of the Sands. As planned, the
Casino Resort will include the first all-suites hotel on the Strip with
approximately 3,036 suites; a gaming facility of approximately 116,000 square
feet; an enclosed retail, dining and entertainment complex of approximately
500,000 net leasable square feet; and a meeting and conference facility of
approximately 500,000 square feet. The Casino Resort will be physically
connected to the approximately 1,150,000 square foot existing Expo Center, one
of the largest facilities in the United States specifically designed for trade
shows and conventions. Management believes that the combined facilities of the
Casino Resort and the Expo Center (which is separately owned by an affiliate of
the Company) will be one of the largest hotel and meeting complexes in the
United States. Ground breaking for the Casino Resort occurred in April 1997,
with an opening to the general public scheduled for April 1999.
The Casino Resort
The Hotel
The Hotel will have approximately 3,036 single and multiple bedroom suites
situated in a 35-story, three-winged tower rising above the Casino. The lobby
will feature 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 will be approximately 655 to 735 square feet
consisting of a raised sleeping area with a bathroom and a sunken
living/working area. The suite's bi-level configuration is intended to create a
multi-function living space in which guests can sleep, work or entertain and
will include two queen-size beds or one king-size bed, a writing desk, dual
line speaker phones, a fax machine and a sitting area. Furthermore,
approximately 318 of the suites will be of larger size allowing for the
possibility of entertaining from 20 to 100 persons in the living area.
The Hotel will lease space to (or operate) approximately six restaurants
that will be located adjacent to the Casino. To date, letters of intent have
been entered into with several well-known restauranteurs for upscale
restaurants. Hotel guests also will have the option of casual dining at a
20,000 square foot cafe, which is expected to be operated by a
nationally-recognized operator of premium casual restaurants, and at a 15,000
square foot Venetian-style market food court, both of which will be located at
the casino level of the Hotel. Live entertainment will be offered at the Mall's
50,000 square foot "Billboard Live!" entertainment complex. Hotel guests will
have access to concierge services and express room service through pantries
that are planned for every other floor of the Hotel tower. In addition, the
Hotel will provide a variety of amenities for its guests, including a
state-of-the-art health spa, with massage and treatment rooms, exercise and
fitness areas and a beauty salon. The Hotel also will feature an outdoor
swimming complex (including five pools, spas, pool bars and cabanas) surrounded
by gardens, waterways, fountains and sculptures. The Hotel has been designed to
accommodate future expansion, including a 1,500 seat showcase theater.
The Casino
The Casino will be approximately 116,000 square feet and will be situated
adjacent to the Hotel lobby. The Casino floor will be accessible from each of
the Hotel, the Mall, the Congress Center, the Expo Center and the Strip. The
Casino will be marketed to attract a broad base of patrons, with a specific
focus on frequent premium gaming customers. The Company will market the Casino
directly to this gaming market segment using database marketing techniques,
slot clubs and traditional incentives, such as reduced room rates and
complementary meals and suites. The Company will offer "high roller" gaming
customers premium suites and special hotel services.
The Casino and its adjacent amenities will be stylized to resemble a
Venetian "palazzo," with architectural and interior design features
representative of Venice's Renaissance era. The ceilings in the table games
area will feature fresco-style paintings of Venetian palaces. The gaming
facilities will include
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approximately 2,500 slot machines of various denominations, including the
popular multi-property, linked progress games. A high-end slot area, with a
private lounge, will provide slot customers with premium slot products and
services. The Casino's approximately 114 table games (excluding baccarat
tables) will feature the traditional games of black jack, 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 will offer gaming customers an upscale sportsbook room, a keno lounge, a
poker room and an upscale baccarat pit. The baccarat pit is specially designed
for premium, "high roller" gaming, with baccarat, black jack and roulette, a
private lounge with butler service, direct access to private cash-out windows
at the Casino cage and direct access to the Casino's credit department.
Although the Company intends to target "high roller" gaming customers, it does
not expect to target the known top 50 to 100 baccarat players in the world in
order to avoid the risks associated with the amounts wagered by these players.
The Mall
The Mall will offer approximately 500,000 net leasable square feet of
shopping, dining and entertainment space located (i) on two levels within the
Casino Resort's main structure, between the Casino level and the Hotel tower,
and (ii) in a separate approximately 28,000 square foot retail annex adjacent
to the Casino Resort's main structure. The Mall is expected to include
approximately seven dining establishments and 55 retail stores. Visitors and
guests can enter the Mall from several different directions, including from the
Strip via a moving sidewalk or by pedestrian bridges, from the main gaming area
of the Casino via escalators, from the Expo Center through the Congress Center,
and directly from the Hotel.
The Mall has been planned to include well-known restaurants and retail
establishments to draw on brand name awareness, all offered at various price
points in order to appeal to a broad market. The success of brand name and
boutique retailers at The Forum Shops at Caesars Palace Hotel and the Fashion
Show Mall on the Strip, and the success of brand name, premium restaurants at
The Forum Shops at Caesars Palace Hotel and existing themed resorts has
demonstrated the demand in Las Vegas for quality shopping and dining.
The Company has planned for an array of quality dining experiences for the
Mall. Letters of intent have been entered into, or are being negotiated, with
several well-known restauranteurs for upscale restaurants that will offer
international and American regional cuisines. The Mall is also expected to
offer themed restaurants, such as the "Billboard Live!" Cafe. The Mall's retail
offerings are expected to include exclusive showcase boutiques, popular brand
name mid-priced stores and themed entertainment concepts. The restaurants and
stores will be set along an approximately one-quarter mile Venetian-themed
streetscape, and will front on the Venetian-themed canal running its length or
will be grouped in "piazza"-style settings. Store and restaurant facades will
be designed to project the Venetian theme, and state-of-the-art lighting will
alternately simulate a day and night sky in an open-air environment beneath the
Mall's vaulted ceiling.
Expo Center and the Congress Center
With over 1.15 million gross square feet of exhibit and meeting space,
including four exhibit halls and 22 meeting rooms, the existing 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, the
Company is constructing and will own and operate the Congress Center, an
approximately 500,000 gross square foot meeting and conference facility which
will link the Expo Center and the rest of the Casino Resort. The Congress
Center, which management expects will open concurrently with the Venetian, will
include an approximately 80,000 square foot column-free "Grand Ballroom," an
approximately 13,500 square foot "Venetian Ballroom" and a meeting complex of
42 individual rooms which can be combined to create three additional ballrooms.
Together, the Expo Center and the Congress Center will offer nearly 1.65
million square feet of state-of-the-art exhibition and meeting facilities,
which can be configured to provide 108 meeting rooms or accommodate large-scale
multi-media events. Management intends to market the Congress Center to
complement the operations of the Expo Center by target marketing the Congress
Center for business conferences and upscale business events typically held
during the mid-week period. The Company believes that the Congress Center also
can be marketed to generate room night demand during the move-in/move-out
phases of Expo Center events. The Company's goal is to draw from attendees and
exhibitors at Expo Center events and from attendees of Congress Center events
to
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<PAGE>
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 1997, approximately 1,150,000 visitors attended the trade shows and
conventions at the Expo Center during 150 show days. The Expo Center hosted 17
events on the 1996 Trade Show Week 200 list of the largest trade shows in the
United States in 1997, including the COMDEX Fall Trade Show, the Spring and
Fall Western Shoe Show and JCK Jewelry Show, as well as the convention of
National Association of Broadcasters, the Automotive Service Industry
Association Week, and the International Consumer Electronics Show, each of
which were multiple location events. In 1998, approximately 16 trade show
events included on the 1996 Trade Show Week 200 list and 145 show days are
scheduled for the Expo Center. For 1999, the Expo Center has already booked or
reserved 37 major trade shows and conventions over the course of 131 show days,
including approximately 16 trade shows of a size that would qualify for the
1996 Trade Show Week 200 list.
It should be noted that the Company has no ownership or financial interest
in the Expo Center or Interface, and does not exercise any control over the
business or management of the Expo Center or Interface. See "Risk Factors--Sole
Stockholder" and "Certain Material Agreements."
The Company and Interface intend to market jointly the Casino Resort and
the Expo Center. The Cooperation Agreement provides that until December 31,
2010, Interface will use commercially reasonable efforts to have the Hotel
designated as the "headquarters hotel" for trade show and convention events at
the Expo Center and the Company 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, the Company has agreed with
Interface that, except under certain circumstances, trade shows of the type
generally held at the Expo Center will not be held in the Congress Center.
Under the Cooperation Agreement, Interface and Venetian will allocate expenses
shared by the Expo Center and the Casino Resort. In addition, Interface has
agreed to limit the amount of secured indebtedness on the Expo Center until
such time as the Notes are repaid in full. It should be noted that trade show
and convention promoters will be under no obligation to select the Casino
Resort as the "headquarters hotel" for their events. See "Risk
Factors--Possible Conflicts of Interest" and "Certain Material Agreements--
Cooperation Agreement."
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Major Trade Show and Convention Events
Booked or Reserved for 1999 at the Expo Center (1)
<TABLE>
<CAPTION>
Estimated
Show Day Number of Days of 1997
Name of Event Pattern Show Days the Week Attendance (2)
- ------------------------------------------------------------------- -------- --------- -------- --------------
<S> <C> <C> <C> <C>
International Winter Consumer Electronic Show (IWCES) (3) ......... 1/7-10 4 Th-Su 95,000*
GiftSource West - Spring .......................................... 1/17-20 4 Su-W 7,500
Night Club and Bar ................................................ 1/19-20 2 T-W 8,000
Aqua '99 .......................................................... 1/19-21 3 T-Th 5,000
World Floor Covering Assn. (Surfaces) (3) ......................... 1/27-29 3 W-F 37,000
Western Shoe Associates - Spring (3) .............................. 2/9-12 4 T-F 43,000
Associated Surplus Dealers/Associated Merchandise Dealers
(ASD/AMD) - Spring (3) ........................................... 2/21-25 5 Su-Th 50,000
Men's Apparel Guild in California (MAGIC) - Spring (3) ............ 3/1-4 4 M-Th 80,000*
Int'l Security Conference ......................................... 3/10-12 3 W-F 12,000
National Archery .................................................. 3/12-14 3 F-Su 5,000
Bedroom Show ...................................................... 3/17-19 3 W-F 5,000
Century 21 ........................................................ 3/17-19 3 W-F 10,000
Amusement Showcase International .................................. 3/18-20 3 Th-S 10,000
ASI Show .......................................................... 3/22-24 3 M-W 15,000
International Gaming Business Expo ................................ 3/29-31 3 T-Th 10,000
Hospitality Design ................................................ 4/8-10 3 Th-S 10,000
National Association of Broadcasters (NAB) (3) .................... 4/19-22 4 M-Th 101,000*
National OTC ...................................................... 5/2-4 3 Su-T 7,000
Las Vegas Merchandise ............................................. 5/16-19 4 Su-W 5,000
International Trucking Show (3) ................................... 5/19-21 3 W-F 31,000
Jeweler's Circular Keystone International Jewelry Show
(JCK) (3) ........................................................ 6/4-8 5 F-T 35,000
GiftSource West - Fall ............................................ 6/13-16 4 Su-W 7,500
National Nutritional Foods ........................................ 6/25-27 3 F-Su 7,500
Furniture & Decorative Expo ....................................... 6/26-28 3 S-M 6,000
Billiard Congress ................................................. 7/15-17 3 Th-S 7,000
Western Shoe Associates - Fall (3) ................................ 8/5-8 4 Th-Su 45,000
Associated Surplus Dealers/Associated Merchandise Dealers
(ASD/AMD) - Fall (3) ............................................. 8/15-19 5 Su-Th 50,000
Men's Apparel Guild in California (MAGIC) - Fall (3) .............. 8/30-9/2 4 M-Th 80,000*
Interbike Show (3) ................................................ 9/10-13 4 F-M 35,000
Western Nursery ................................................... 9/22-23 2 W-Th 10,000
Amusement and Music Operator's Assn. (AMOA) ....................... 9/23-25 3 Th-S 8,500
LV '99 Italian Furniture .......................................... 9/24-27 4 F-M 5,000
True Serve (3) .................................................... 10/4-8 5 M-F 20,000
Package Machinery Manufacturers' Institute (Pack Expo
West) (3) ........................................................ 10/18-20 3 M-W 19,000
Automotive Service Industry Assn. (ASIA) Motor and Equipment
Manufacturers' Assn. (MEMA) Automotive Parts And
Accessories Assn. (APAA) (3) ..................................... 11/2-5 4 T-F 80,000*
Softbank COMDEX '99 (3) ........................................... 11/15-19 5 M-F 220,000*
Aqua 2000 ......................................................... 12/1-3 3 W-F 5,000
Total 131 1,187,000
=== =========
</TABLE>
- --------------
(1) Shows include those contracted and those reserved, some of which are
scheduled to occur prior to the scheduled opening of the Casino Resort. The
Company believes that these shows are representative of the typical major
events at the Expo Center.
(2) Based solely on the number of attendees for the 1997 trade show or
convention events. Certain of the estimates for these shows or conventions
are marked with an asterisk because they were held at multiple locations in
Las Vegas, and not all attendees visited the Expo Center.
(3) A 1996 Trade Show Week 200 show.
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Business and Marketing Strategy
The Company's business strategy is to (i) create a "must-see" destination
resort at a premier location at the heart of the Las Vegas Strip, (ii) provide
a differentiated superior all-suites product, (iii) capitalize on the link to
the Expo Center and the Congress Center, (iv) utilize the Casino Resort's
unique assets and facilities to appeal to a higher budget customer mix, (v) use
the Casino Resort's themed facilities and location to generate Casino revenues,
(vi) target premium gaming customers, and (vii) carefully manage construction
costs and risks.
Create a "Must-See" Destination Casino Resort at the Heart
of the Las Vegas Strip
The Casino Resort, with its extensive theming, dining, shopping and
entertainment, is expected to be a "must-see" destination resort located at the
heart of the Strip. The Casino Resort is designed to provide visitors with the
sense of being surrounded by the festivity and splendor of Renaissance Venice's
architecture, music, art and history. The Venetian-themed setting along the
Casino Resort's frontage on the Strip will include waterways, gondolas, and
replicas of Venetian landmarks, such as the Doge's Palace, the Rialto Bridge,
the Ca Doro and the Campanile Tower. The Mall will feature a one-quarter mile
Venetian streetscape, with intimate "piazza"-style settings and a 630 foot
"grand" canal running its length, with gondolas and water-side cafes and
crossed by authentically-styled Venetian bridges.
The Company believes that the Casino Resort's Venetian-theming, and its
central location on the Strip will appeal to business travelers, leisure
travelers and gaming customers and will position the Casino Resort to draw
significant pedestrian traffic from the Strip. The Casino Resort will have
approximately 740 feet of frontage on the east side of the Strip and will be
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. Based on
information gathered from public sources, the Company estimates that on average
each day during 1996, approximately 57,000 vehicles passed the site of the
Casino Resort, approximately 13,000 persons watched the pirate show in front of
the Treasure Island Hotel and Casino, and approximately 43,000 persons visited
The Forum Shops at Caesars Palace Hotel.
Provide a Differentiated Superior All-Suites Product
The Hotel is expected to offer the only all-suites product with
first-class services and facilities on the Strip. In management's experience,
business and leisure travelers consider suites desirable, superior
accommodations. For business travelers, the Hotel's suites, which will
accommodate informal business meetings and social gatherings, will offer guests
a unique, single location in which to work and entertain in close proximity to
the Expo Center and the Strip. Leisure travelers will appreciate both the
Hotel's spacious suites and extensive facilities. The Company believes that the
all-suites format, together with the Casino Resort's many other unique
attributes, will result in a highly differentiated resort product, and provide
a competitive advantage over other Strip hotel/casino properties and resorts.
The typical Hotel suite will range in size from approximately 655 square
feet to 735 square feet (compared to 360 to 400 square feet on average for a
standard room in competing facilities on the Strip), and will consist of a
sunken living/working area and a raised sleeping area with a marble bathroom.
The suite's living/working area will include a sitting area and a writing desk
and will offer business amenities such as dual-line speaker phones, a fax
machine and dataport access. The bathrooms will be oversized, featuring a
separate bathtub and shower, dual sinks and a phone. In addition, the Hotel
will offer larger suites, including the "Presidential" and penthouse suites,
with exclusive services such as butlers.
Capitalize on the Link to the Expo Center and the Congress Center
The Casino Resort will be the first themed entertainment resort in Las
Vegas designed specifically to accommodate large scale trade shows,
conventions, conferences and meetings. The Expo Center and the Congress Center
are expected to provide recurring, predictable demand for mid-week room nights
from business travelers. During 1997, approximately 1,150,000 visitors attended
trade shows and conventions at the Expo Center. Through an agreement with
Venetian, the owner of the Expo Center has agreed to market the Casino Resort
to promoters of Expo Center trade shows, conventions and other events as the
"headquarters hotel" for such events. The Casino Resort will offer attendees of
events at the Expo Center and the Congress Center the most convenient hotel
accommodations in Las Vegas. The
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Expo Center already has booked or reserved 37 trade shows, conventions and
business events for the calendar year 1999, covering 131 separate show days. It
should be noted that trade show and convention promoters will be under no
obligation to select the Casino Resort as the "headquarters hotel" for their
events. See "Risk Factors--Possible Conflicts of Interest." In addition to
being an expected source of room demand for the Hotel, the Expo Center and the
Congress Center are expected to draw pedestrian traffic from guests of hotels
throughout Las Vegas, providing a significant source of traffic for the Casino
and the Mall.
Appeal to a Higher Budget Customer Mix
Management expects 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 weekends. By appealing to customers in these
market segments, the Company expects to reduce its reliance on the lower-budget
tour and travel market. Management believes that business travelers typically
pay more for rooms and spend more on entertainment than weekday customers in
other categories, such as tour groups. Management believes that the Casino
Resort's central location adjacent to the Expo Center and the Strip and its
all-suites hotel product will 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 is expected to appeal to free
and independent leisure travelers and "high-roller" gaming customers, also
segments of the travel market that spend more on rooms and entertainment.
Use the Casino Resort's Themed Facilities and Location
to Generate Casino Revenues
Management believes the Casino will capture gaming revenues from (i) the
foot traffic generated by Expo Center and Congress Center events, (ii) Hotel
guests, (iii) the foot traffic generated by shoppers and diners at the Mall and
the Casino and (iv) visitors attracted to the Casino Resort's unique, Venetian-
themed facilities. The Casino Resort is planned to include a concentration of
some of the finest restaurants in Las Vegas, brand name and exclusive boutique
shopping, and themed entertainment concepts. Letters of intent have been signed
with several well-known restauranteurs, such as Wolfgang Puck, to operate their
"signature" restaurants at the Casino Resort. In addition, the Company has
entered into a lease for the "Billboard Live!" entertainment complex, which is
affiliated with Billboard Magazine. Management believes that the combination of
brand name awareness and extensive theming will generate significant foot
traffic for the Casino Resort. 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.
Target Premium Gaming Customers
Management believes that the Casino Resort's all-suites product, themed
atmosphere and amenities will offer gaming customers a unique Las Vegas
experience. The Company intends to market the Casino to frequent premium gaming
customers. In particular, the Company will seek to attract "high roller" gaming
customers by offering premium suites and special hotel services. Because of the
all-suites format in the Hotel, the Casino Resort will be 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 otherwise be offered such suites by the Company's competitors. The
Company believes that the premium gaming customer is a significant market
segment that has been inadequately addressed by the Casino Resort's
competitors. The Casino Resort will be the first all-Suites resort on the Strip
with facilities and amenities designed from inception to attract and serve
premium gaming customers.
Carefully Manage Construction Costs and Risks
The Casino Resort is budgeted to cost approximately $1.065 billion to
develop, equip and open (such costs include approximately $70.0 million for the
HVAC Equipment to be owned by a third party, but exclude land acquisition
costs). As of December 31, 1997, approximately $228.1 million of this total
budgeted cost has been expended or incurred. Of the amount expended and
incurred, approximately $95.3 million represents cash contributed to the
Company by the Sole Stockholder, through affiliates of the Company.
As of December 31, 1997, (i) the foundation for the principal structure of
the Casino Resort has been constructed and the superstructure is under
construction and (ii) pursuant to the Construction Management Contract, and
otherwise, trade contracts in excess of $303.7 million for various components
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<PAGE>
of the project, including excavation, foundations, structural steel, mechanical
and plumbing systems and structural concrete have been entered into or
negotiated. In order to manage its construction risk, the Company has entered
into various agreements designed to protect it against construction delays and
cost overruns (including (i) a guaranteed maximum price Construction Management
Contract which protects the Company against certain cost overruns in the amount
of $547.8 million (or approximately 52% of the expected cost of the Casino
Resort) with the Contruction Manager for the principal components of the Casino
Resort, (ii) guaranties of certain of the Construction Manager's obligations
(with certain limited exceptions) by its parent corporation, P&O, and (iii)
Liquidated Damages Insurance for costs of certain construction delays. The
budget for the Casino Resort contains a Construction Manager's construction
budget contingency and an Owner's Contingency totaling $66.1 million in the
aggregate that can be used to cover cost overruns. Further, the Sole Stockholder
has provided a $25.0 million collateralized Completion Guaranty. The Completion
Guaranty is not available to fund any increases in costs attributable to
discretionary "scope changes." Any such "scope changes" may only be implemented
if the Issuers demonstrate that they have sufficient available funds to cover
the anticipated increased costs, or if the Sole Stockholder increases his
Completion Guaranty by such amount. To the extent that any cost overruns are not
covered by the Construction Management Agreement or the other protections
described above, such cost overruns could be substantial and have a material
adverse effect on the Company's liquidity and results of operations and its
ability to meet its principal and interest payments on the Notes. See "Risk
Factors--Construction Budget; Construction Management Contract and Guaranties."
To further ensure that there are sufficient funds to construct the Casino
Resort as planned and that such funds are disbursed appropriately, certain
lenders to the Issuers and the Mortgage Note Trustee have entered into the
Disbursement Agreement to establish the conditions for and the sequencing of
funding construction costs and procedures for approving construction change
orders and amendments to the construction budget and schedule. The Disbursement
Agreement provides that project costs (other than costs for the HVAC Equipment,
furniture, fixtures and other equipment) will, generally, be funded first from
the cash portion of the Equity Contribution and the proceeds of the Senior
Subordinated Notes, and thereafter on a pro rata basis from the proceeds of the
Bank Credit Facility, the Mall Construction Loan Facility and the Mortgage
Notes. However, the HVAC Equipment will be funded through the Disbursement
Agreement from a separate commitment from the HVAC Provider, subject to limited
exceptions.
Under the Disbursement Agreement, a subsidiary of Tishman acts as
Construction Consultant to such lenders and is required to review each request
by the Issuers for the disbursement of funds. The disbursement conditions under
the Disbursement Agreement generally provide that funds will be disbursed to
the Issuers only if it is determined that construction is on schedule and that
there are sufficient available funds to complete the Casino Resort in
accordance with the construction drawings and budget. See "Risk
Factors--Construction Budget; Construction Management Contract and Guaranties,"
"--Completion Guaranty," "Description of Disbursement Agreement," "Description
of Intercreditor Agreement" and "Certain Material Agreements."
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 LVCVA, the number of
visitors traveling to Las Vegas has increased at a steady and significant rate
for the last ten years from 17.2 million visitors in 1988 to 30.5 million
visitors in 1997, a compound annual growth rate of 6.5%. Aggregate expenditures
by Las Vegas visitors increased at a compound annual growth rate of 11.3% from
$8.6 billion (or $531 per visitor) in 1987 to $22.5 billion (or $760 per
visitor) in 1996. In addition, the population of Las Vegas has grown from
approximately 863,000 in 1990 to approximately 1,193,000 in 1997, a compound
growth rate of 4.8%. Management believes that the growth in the Las Vegas
market has been enhanced as a result of a dedicated program by the LVCVA 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.
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Las Vegas Convention Market Trends
[Graph showing Number of Delegates and Number of Conventions]
Number of Conventions
1990 1011
1991 1655
1992 2199
1993 2443
1994 2662
1995 2826
1996 3827
1997 3749
Number of Delegates [millions]
1990 1.74
1991 1.97
1992 1.97
1993 2.44
1994 2.68
1995 2.92
1996 3.31
1997 3.52
Source: LVCVA
Las Vegas as a Trade Show, Convention and Meeting Destination
In 1996, Las Vegas was the most popular trade show destination (with a 25%
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
1988, approximately 1.7 million persons attended trade shows and conventions in
Las Vegas and spent approximately $1.2 billion. In 1997, the number of trade
show and convention attendees had increased to more than 3.5 million and the
amount spent by trade show and convention attendees was approximately $4.4
billion.
Trade shows are held for the purpose of getting sellers and buyers of
products or services together for the purpose of conducting business. Trade
shows differ from conventions in that trade shows typically require substantial
amounts of space for exhibition purposes and circulation. Conventions generally
are group 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, including the concentration of 45,000 hotel rooms located on the
Strip, two convention centers with a total of approximately 3.0 million square
feet of convention and exhibition space, convenient air service from major
cities throughout the United States and other countries and significant
entertainment opportunities. Plans have been announced for the addition of
300,000 square feet of meeting and convention space to the Las Vegas Convention
Center. The expansion of the Las Vegas Convention Center is expected to bring
convention and exhibit space in Las Vegas to over 3.5 million square feet. In
addition, The MGM Grand Hotel and Casino has announced plans to construct
conference and meeting facilities of approximately 300,000 gross square feet.
Management believes that Las Vegas will continue to evolve as the country's
preferred trade show and convention destination.
Expanding Hotel Market
During 1997, Las Vegas was among the most popular vacation destinations in
the United States. Following the opening of The Mirage in 1989, Las Vegas
experienced a period of rapid hotel development with the number of hotel and
motel rooms in Las Vegas increasing by 72% from 61,394 in 1988 to 105,347 in
1997. Other major properties on the Strip opening over this time period include
Excalibur Hotel and Casino, The MGM Grand Hotel and Casino, the Treasure Island
Hotel and Casino, Luxor Hotel, The Monte Carlo Resort and Casino, The
Stratosphere Hotel and Casino and New York-New York Hotel and Casino. In
addition, a number of existing properties on the Strip embarked on expansions,
including Harrah's, Flamingo Hilton Las Vegas and The Las Vegas Hilton. Despite
this significant increase in the supply of hotel rooms in Las Vegas, hotel room
occupancy rates (which exclude motels) exceeded on average 92.1% for the years
1993 to 1997, averaged 93.4% in 1996 and 90.3% in 1997. By the end of 1999, it
is anticipated that, in addition to the Casino Resort, at least another 19,800
hotel rooms will be opened
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on the Strip, including the Bellagio, Paris Casino Resort and Mandalay Bay
Resort under construction, the expansions at Caesars Palace Hotel and Harrah's,
and the planned expansions of Hard Rock Hotel and Casino, Aladdin Hotel and
Casino and The MGM Grand Hotel and Casino. The Company expects 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. In
the event that the increased concentration does not substantially increase
visitor interest, overcapacity at these casino hotels and resorts could lead to
price competition in the form of reduced room rates. Lost revenue from such
reduced room rates could materially impact the Company's ability to service its
debt obligations (including the Notes). See "Risk Factors--Risk of New
Venture."
Las Vegas Hotel Room Inventory and Occupancy Rates
[Graph showing Hotel/Motel Room Inventory and Total Occupancy Percentage]
Hotel/Motel Room Inventory
1990 73,000
1991 76,000
1992 75,500
1993 87,000
1994 89,000
1995 90,000
1996 98,000
1997 105,500
Total Occupancy Percentage(1)
1990 85%
1991 81%
1992 84%
1993 88%
1994 89%
1995 88%
1996 91%
1997 90%
(1) Occupancy is calculated based on the inventory of Las Vegas Hotel rooms, and
does not include motel rooms.
Source: LVCVA
The table below indicates mid-week and weekend occupancy rates for all Las
Vegas hotels and motels. While weekend occupancy rates have remained above 90%
for the past 10 years, mid-week occupancy rates have trended upward from below
80% to near 85%. Management believes that due to the lower mid-week demand
demonstrated by the table, many hotels and motels offer reduced room rates and
rely on lower budget tour groups for occupancy.
Occupancy Rates Mid-Week and Weekend (all Las Vegas Hotels)
[Graph showing Occupancy Rates Mid-Week and Weekend (all Las Vegas Hotels)]
Mid-Week Weekend
1987 78.8% 94.5%
1988 81.4% 93.5%
1989 81.6% 94%
1990 80.9% 93.6%
1991 76% 89.8%
1992 80.4% 92%
1993 87.6% 94.2%
1994 86.5% 94.4%
1995 85.6% 93.5%
1996 88.7% 94.4%
1997 84.1% 91.6%
Source: LVCVA
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Expanding Gaming Market
The expansion of gaming in the United States has been accompanied by an
increasing acceptance of gaming as a form of entertainment. Gaming has
continued to be a strong and growing business in Las Vegas. Since 1988, Las
Vegas gaming revenues have increased at a compound annual rate of 7.2% from
$3.1 billion in 1988 to $6.2 billion in 1997. With the increased popularity and
public acceptance of gaming, Las Vegas has sought to increase its popularity as
an overall vacation resort destination.
The following table sets forth certain information derived from published
reports of the LVCVA and the Nevada State Gaming Control Board concerning Las
Vegas Strip gaming revenues and visitor volume and hotel data for the years
1988 to 1997. As shown in the table, the Las Vegas market has achieved
significant growth in visitor volume and gaming and non-gaming tourist revenues
and favorably absorbed significant additional room capacity despite the
occurrence of a series of adverse economic, regulatory and competitive events
during the past decade, such as the recession of the early 1990s, the expansion
of gaming into new jurisdictions, the modification of existing regulations in
other jurisdictions, and the expansion of Native American gaming.
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Historical Data for Las Vegas Gaming Industry (1)
<TABLE>
<CAPTION>
1988 1989 1990 1991
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Las Vegas visitor volume ......... 17,199,608 18,129,684 20,954,420 21,315,116
Percentage change ................ 6.1% 5.4% 15.6% 1.7%
Total visitor expenditures(2) $10,039,448 $11,912,941 $14,320,746 $14,326,554
Percentage change ................ 16.7% 18.7% 20.2% 0.0%
Las Vegas Strip gaming
revenue(2) ...................... $ 1,944,401 $ 2,070,328 $ 2,583,314 $2,539,995
Percentage change ................ 10.9% 6.4% 24.8% (1.7)%
Las Vegas convention
attendance ...................... 1,702,158 1,508,842 1,742,194 1,794,444
Percentage change ................ 1.5% 11.4% 15.5% 3.0%
Las Vegas hotel occupancy
rate ............................ 89.3% 89.8% 89.1% 85.2%
U.S. hotel occupancy
rate(3) ......................... 63.4% 64.3% 63.5% 61.8%
Las Vegas room supply ............ 61,394 67,391 73,730 76,879
Percentage change ................ 5.0% 9.8% 9.4% 4.3%
<CAPTION>
1992 1993 1994 1995 1996 1997
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Las Vegas visitor volume ......... 21,886,865 23,522,993 28,214,362 29,002,122 29,636,631 30,464,635
Percentage change ................ 2.7% 7.5% 19.9% 2.8% 2.2% 2.8%
Total visitor expenditures(2) $14,686,644 $15,127,267 $19,163,212 20,686,800 22,533,258 N/A
Percentage change ................ 2.5% 3.0% 26.7% 8.0% 8.8%
Las Vegas Strip gaming
revenue(2) ...................... $2,625,274 $ 2,896,630 $ 3,485,307 $ 3,629,036 $ 3,579,673 $ 3,809,395
Percentage change ................ 3.4% 10.3% 20.3% 4.1% (1.4%) 6.4%
Las Vegas convention
attendance ...................... 1,969,435 2,439,734 2,684,171 2,924,879 3,305,507 3,519,424
Percentage change ................ 9.8% 23.9% 10.0% 9.0% 13.0% 6.5%
Las Vegas hotel occupancy
rate ............................ 88.8% 92.6% 92.6% 91.4% 93.4% 90.3%
U.S. hotel occupancy
rate(3) ......................... 62.6% 63.5% 64.7% 65.0% 65.1% 64.5%
Las Vegas room supply ............ 76,523 86,053 88,560 90,046 99,072 105,347
Percentage change ................ (0.5)% 12.5% 2.9% 1.7% 10.0% 6.3%
</TABLE>
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(1) Sources: LVCVA and the Nevada Board for the fiscal years ended December 31.
(2) In thousands.
(3) Source: Smith Travel Research for the years ended December 31.
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Growth of Las Vegas Retail Sector and Non-Gaming Revenue Expenditures
An increasing number of destination resorts are developing non-gaming
entertainment to complement their gaming activities in order to draw additional
visitors. According to the LVCVA, while gaming revenues have increased from
$2.8 billion in 1987 to $5.8 billion in 1996, the percentage of an average
tourist's budget spent on gaming has declined from 32.6% in 1987 to 25.8% in
1996, with non-gaming tourist revenues increasing from $5.8 billion in 1987 to
$16.7 billion in 1996. The newer large themed Las Vegas destination resorts
have been designed to capitalize on this development 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 commenced or completed
several infrastructure improvements to accommodate the increase in travel to
Las Vegas by all modes of transportation. According to the LVCVA, in 1996
visitors to Las Vegas arrived by the following methods of transportation: 44%
by air; 41% by auto; 7% by bus; and 8% by recreational vehicle.
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 which it services. The number of
passengers traveling through McCarran International Airport has increased from
16.2 million in 1988 to 30.3 million in 1997, a compound annual rate of 6.9%. A
$200 million expansion project was completed in 1995, allowing for the
accommodation of up to 30 million travelers annually. Long-term expansion plans
for McCarran International Airport provide for additional runway and related
areas (a new runway was completed in October 1997), three new satellite
concourses, 65 additional gates, improved public transportation roads and other
infrastructure leading from McCarran International Airport to the Strip and
other facilities which would allow McCarran International Airport to handle up
to 60 million Las Vegas visitors annually. To the extent that McCarran
International Airport is not expanded in accordance with its plans, the
occupancy rates and average daily hotel room rates in Las Vegas could be
adversely affected due to the planned construction of new hotel rooms.
Spring Mountain Road Improvements. A new high speed off-ramp is being
constructed from Interstate 15 (the primary vehicular access from Los Angeles)
onto Spring Mountain Road to ease traffic congestion on the Strip. Spring
Mountain Road becomes Sands Avenue and intersects the Strip adjacent to the
Project Site. This major interchange will be located approximately one-half mile
from the Casino Resort and is scheduled to be completed in 1999.
Competition
The casino/hotel industry is highly competitive. Strip hotels compete with
other hotels on the Strip and with other hotels in downtown Las Vegas. The
Casino Resort will compete with a large number of hotels and motels in and near
Las Vegas. Many of the competitors of the Company are subsidiaries or divisions
of large public companies and may have greater financial and other resources
than the Company.
Hotel/Casino Properties
Competitors of the Casino Resort will include themed resorts on the Strip,
such as Caesars Palace Hotel, The Mirage, the Treasure Island Hotel and Casino,
Harrah's, The MGM Grand Hotel and Casino, the New York-New York Hotel and
Casino, The Monte Carlo Resort and Casino, Bally's Casino Resort Las Vegas and
the Excalibur Hotel and Casino. In addition, the construction of several new
major resort projects that will compete with the Casino Resort and the
expansion of several existing resorts recently have commenced or have been
announced. These include the Bellagio, Paris Casino Resort and Mandalay Bay
Resort under construction, expansions at Caesars Palace Hotel and Harrah's and
the planned expansions of Hard Rock Hotel and Casino, Aladdin Hotel and Casino
and The MGM Grand Hotel and Casino. These projects and others are expected to
add approximately 19,800 hotel rooms to the Las Vegas inventory by the end of
1999. Finally, the Casino Resort will compete with the planned Phase II Resort
(which will be separately owned by a subsidiary of the Company) to the extent
its business is not complementary to that of the Casino Resort. The future
operating results of the Company could be adversely affected by excess Las
Vegas room, gaming, conference center and trade show capacity.
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The Company believes that themed resorts are generally more successful at
generating high volume traffic and higher revenues and operating income when
compared with large-scale non-themed properties in Las Vegas. The Company also
believes that recently developed integrated themed resorts have been more
successful than expansions to existing Strip hotels. 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. The Company believes that the existence of other
competitive themed resorts in close proximity to the Casino Resort directly
benefits the Casino Resort. The Casino Resort will be 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. The Company
believes that the Casino Resort will benefit from the significant traffic drawn
to these properties. 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 will provide the Casino Resort a unique
tie-in with one of the premier trade show and convention facilities in the
United States. With these competitive advantages, the Casino Resort will be
positioned to appeal to the mid-week meeting, trade show, convention and
meeting 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 will also compete, to some
extent, with other hotel/ casino facilities in Nevada and in Atlantic City, with
hotel/casino facilities elsewhere in the world and with state lotteries. In
addition, certain states have recently legalized, and others may legalize,
casino gaming in specific areas, and passage of the Indian Gaming Regulatory Act
in 1988 has led to rapid increases in Native American gaming operations. Such
proliferation of gaming venues could significantly and adversely affect the
business of the Company. In particular, the legalization of casino gaming in or
near metropolitan areas, such as New York, Los Angeles, San Francisco and
Boston, from which the Company intends to attract customers, could have a
material adverse effect on the business of the Company. See "Risk
Factors--Competition and Planned Construction in Las Vegas."
Trade Show and Convention Facilities
The Expo Center and Las Vegas generally compete, and the Congress Center
will compete, with trade show and convention facilities located in and around
major cities, including Atlanta, Chicago, New York and Orlando. Within Las
Vegas, the Expo Center competes, and the Congress Center will compete, with the
Las Vegas Convention Center, which is located off the Strip and currently has
1.3 million gross square feet of convention and exhibit facilities. An
expansion of 300,000 square feet of meeting and exhibition space is planned for
the Las Vegas Convention Center for 1998. In addition, The MGM Grand Hotel and
Casino has announced plans to construct new conference and meeting facilities
of approximately 300,000 square feet and several other existing or planned
major Strip hotel/casino properties are intending to expand or construct
conference facilities. The conference and meeting facilities at these
hotel/resorts are expected to be the Congress Center's primary competition.
However, because none of these hotel/resorts plans to offer convention and
trade show facilities on the same relative size as the Expo Center (over 1.15
million gross square feet), the Las Vegas Convention Center is expected to
remain the primary competitor of the Expo Center. To the extent that any of the
competitors of the Casino Resort can offer substantial integrated hotel/casino
and trade show and convention or conference and meeting facilities, the Casino
Resort's competitive advantage in attracting trade show and convention meeting
and conference attendees could be adversely affected. However, the ability of
any such competitor to offer such show facilities equal to the nearly 1.65
million combined gross square footage of the Expo Center and the planned
Congress Center is limited by any such competitor's location and available
contiguous undeveloped land. In addition, trade show and convention centers
book major events three to five years in advance. As a result, any newly
developed trade show and convention facility would experience a significant
vacancy period before events would commit to any such facility. The Company
believes this vacancy period acts as a barrier to entry into the trade show and
convention business by private developers.
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Mall
The Mall will compete with both themed resorts which offer shopping,
dining and entertainment opportunities to their patrons and other retail malls
in or near Las Vegas. The direct competition of the Mall will include The Forum
Shops at Caesars Palace Hotel and other similar themed mall attractions whose
planned construction has been announced, such as the mall to be constructed on
the site of the Aladdin Hotel and Casino. The Forum Shops at Caesars Palace
Hotel has recently undergone an expansion of approximately 250,000 square feet.
The Mall also will compete with The Fashion Show Mall, a more traditional mall,
located near the Casino Resort. The Fashion Show Mall is currently undergoing
or plans to undergo expansions which will almost double such facility's size.
The Mall also will compete with the planned retail, dining and entertainment
mall in the Phase II Resort.
Construction Schedule and Budget
Formal ground-breaking for the Casino Resort occurred in April 1997 with
an opening to the general public scheduled for April 1999. The Casino Resort is
expected to be developed on a stand-alone basis as the first phase of the
planned two phase redevelopment of the site of the Sands. In the planned second
phase of the redevelopment, it is contemplated that the Phase II Subsidiary
will construct and develop the Phase II Resort, which also is planned to be a
themed resort. The completion and full operation of the Casino Resort is not
contingent upon the subsequent financing or completion of the Phase II Resort,
and the Casino Resort has all the attributes and facilities to operate as a
stand-alone resort. See "Risk Factors--Possible Conflicts of Interest" and
"--Shared Facilities."
The Casino Resort (including the HVAC Equipment) is budgeted to cost
approximately $1.065 billion, which includes $637.0 million of construction
costs and $428.0 million of other costs (including furniture, fixtures and
equipment, certain so-called "soft" construction costs (which include fees of
architects, attorneys and other professionals), costs of obtaining required
governmental approvals, pre-opening expenses, construction period interest and
other costs that are not so-called "hard" construction costs, but excluding
land acquisition costs). In order to manage its construction risk, the Company
has entered into various agreements designed to protect it against construction
delays and cost overruns. The Company and the Construction Manager have entered
into the Construction Management Contract pursuant to which the Construction
Manager has agreed to construct the Casino Resort (with certain exceptions, but
including the HVAC Equipment) for a guaranteed maximum price of $547.8 million
(subject to certain conditions and limitations, such as an exclusion from the
guaranteed maximum price of cost overruns due to "scope changes"). The
Construction Management Contract and the guaranteed maximum price does not
include certain construction costs, including $69.7 million of owner managed
construction costs. The Company believes that the construction budget is
reasonable, and the Construction Management Contract contains certain
incentives designed to put downward pressure on the construction budget and
actual construction costs; however, given the risks inherent in the
construction process, it is possible that construction costs could be
significantly higher. If construction costs do exceed the amounts set forth in
the construction budget, potential sources to pay such excess include:
(i) a Construction Management Contract contingency of approximately
$26.1 million;
(ii) the Owner's Contingency of approximately $40.0 million;
(iii) the Liquidated Damages Insurance and proceeds of other (e.g.,
casualty) insurance policies;
(iv) the Construction Manager, Bovis and P&O, pursuant to their
liability to the Company under the Construction Management
Contract, Construction Management Contract Guaranty and P&O
Guaranty, respectively;
(v) other third parties pursuant to their liability to the Company
under their agreements with the Company; and
(vi) the Sole Stockholder, pursuant to his liability under the
collateralized Completion Guaranty of up to $25.0 million.
As of December 31, 1997, (i) pursuant to the Construction Management
Contract, and otherwise, trade contracts in excess of $303.7 million for
various components of the project, including excavation, foundations,
structural steel, mechanical and plumbing systems and structural concrete had
been entered into or negotiated, (ii) the foundation for the principal
structure of the Casino Resort had been constructed and the superstructure is
under construction and (iii) approximately $228.1 million of the total project
cost of $1.065 billion had been expended.
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Advertising and Marketing
The Company has a $9.4 million pre-opening marketing and advertising
budget, including a planned pre-opening marketing campaign targeted at select
core markets such as Southern California. To date, the Company has spent $2.0
million to create the Casino Resort's preview center (the "Preview Center"),
which opened in August 1997 and includes models of the Casino Resort and a full
scale model suite. The Company intends to use the Preview Center to market the
Casino Resort and Expo Center events. The Company will advertise in many types
of media, including television, radio, newspapers, magazines and billboards.
The pre-opening advertising will promote general market awareness of the
Venetian as a unique vacation, business and convention destination for its
first-class hotel, casino, retail stores and restaurants. It is also expected
that Mall tenants, such as "Billboard Live!" will pursue their own general
advertising and promotional activity, which the Company expects to benefit the
Mall. The Company will also actively engage in direct marketing which will be
targeted at specific market segments, such as the meeting, convention and trade
show market and the premium gaming market, and data base marketing which will
focus on high-frequency, high-margin market segments such as the "high-roller"
gaming market.
Design and Construction Team
The Company has assembled what it believes to be a highly qualified team
of specialists to design and construct the Casino Resort.
Lehrer McGovern Bovis, Inc.
The Casino Resort is being constructed by Lehrer McGovern Bovis, Inc., a
leading international construction concern. The Construction Manager is an
indirectly owned subsidiary of Bovis whose ultimate parent company is P&O. The
Construction Manager is primarily engaged in the business of providing
construction management services. The Construction Manager also provides
construction consulting, project and program management, preconstruction,
estimating, design-build and mortgage loan monitoring services. Major market
sectors include commercial, education, transportation, sports and recreation,
healthcare, research and development, correctional, civic and cultural.
Services are performed under contracts whereby the Construction Manager acts as
an agent for an owner supervising the construction activity of trade
subcontractors and others. Projects are also performed under fixed or
guaranteed maximum price arrangements and on certain of these projects, the
Construction Manager may contract directly with trade subcontractors performing
the construction activities.
Bovis
Bovis has worked on a number of hotel and resort projects throughout the
world including the Trump Castle Expansion program and the Atlantic City
Seaside Resort in Atlantic City, the Embassy Suites Hotels in New York, La
Jolla, California and Washington, D.C., the Parc Fifty Five Hotel in San
Francisco, California, the Hyatt Regency Grand Cypress and Universal Studios
Florida Theme Park in Orlando, Florida, the 1996 Summer Olympic Games in
Atlanta, Georgia, the Grand InterContinental Hotel in Yokohoma Japan, The
Langham and Canary Wharf in London, England, and Euro Disney Theme Park in
France.
P&O
P&O is a corporation based in the United Kingdom and is listed on the
London Stock Exchange. P&O is a holding company which through its subsidiaries
provides a variety of services throughout the world. P&O's businesses include
operating cruise ships and ferries, providing container, cargo and bulk
shipping services, home construction and building and managing construction
projects. Under United Kingdom accounting standards (which differ from
generally accepted accounting standards in the United States ("U.S. GAAP"), P&O
reported that it earned a profit of \P250.6 million on revenues of \P7,090.8
million in 1996 and had net operating assets of \P4,726.4 million at December
31, 1996. Under U.S. GAAP, the Construciton Manager reported that it had net
income of $5.7 million on revenues of $703.2 million in 1996 and had total
assets of $248.7 million at December 31, 1996.
Architects
Wimberly Allison Tong & Goo ("WATG") and The Stubbins Associates Design
Group ("TSA") are the principal architects for the Casino Resort. WATG is an
architectural, planning and consultant firm active throughout the world. WATG
specializes in the design and planning of resorts and hotels, and in the
related
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fields of entertainment and leisure design, new town and environmental design,
residential projects from high to low density, mixed-use and retail centers,
office buildings, conference and recreational facilities. WATG has designed and
completed projects in over 65 countries, including The Palace of the Lost City
in South Africa, The Ritz-Carlton Laguna Niguel in California, Hotel Bora Bora
in French Polynesia, Shangri-La Garden Wing in Singapore, Grand Hyatt Bali in
Indonesia, Cheju Shilla Hotel in South Korea, Hyatt Regency Kauai in Hawaii,
Four Seasons Chinzan-so in Tokyo, and Disney's Grand Floridian Beach Resort in
Orlando.
TSA is an international architecture, planning and interior design firm.
TSA's professional services include: feasibility studies, programming and
master planning; architectural, interior and landscape design; and technical
services including construction documentation and construction administration.
Among TSA's completed hotel/casino projects are: the Spa at Bally's Park Place
Hotel and Casino and the interior design for Harrah's Marina Hotel Casino in
Atlantic City. In addition, TSA was the principal architect for the Expo
Center.
Tishman
Tishman Construction Corporation of Nevada, a subsidiary of Tishman, is
providing construction management consulting services on behalf of the various
lenders, including pre-construction consulting project analysis. The
Construction Consultant also has agreed to review, on behalf of the lenders,
contribution plans and the progress of construction. In addition, the
Construction Consultant will review and approve, on behalf of the lenders,
proposed contracts, proposed plan changes, proposed budget changes and
disbursement requests during the course of construction. Tishman is one of the
nation's leading construction companies and is one of the nation's largest
hotel developers and owners. As a developer and owner, Tishman has developed
5,665 rooms around the country in various types of lodging markets including
downtown commercial, convention and resort hotels. In its capacity as owner and
builder of hotels, Tishman has worked with virtually every major hotel
operator/owner including Hilton, Sheraton, Westin, Hyatt, Marriott, Ritz
Carlton, Holiday Inn Crown Plaza, Four Seasons, The Walt Disney Company, Golden
Nugget, Nikko Hotels International, Fairmont and Loews.
Other Consultants
Wilson & Associates, Inc. ("Wilson") and Dougall Designs are designing the
interior of the Casino Resort. Wilson specializes in the interior architectural
design of hotels, restaurants, clubs and casinos and offers a full range of
interior architectural design services from initial space planning and design
through construction documents and construction administration. Wilson has
designed and installed more than 75,000 guest rooms in over 150 hotels
world-wide. Wilson's interior design credits include The MGM Grand Hotel and
Casino, The Mirage Resorts' Beau Rivage and Caesars Palace Hotel in Atlantic
City and Las Vegas.
Dougall Designs ("Dougall") specializes in the interior design of casino
resorts. Dougall's projects in Las Vegas include The Luxor, The Monte Carlo
Resort and Casino, The Forum Shops at Caesars Palace Hotel, Stardust Resort and
Casino and Harrah's.
Martin & Peltyn ("Martin & Peltyn") is providing structural engineering
services in connection with the construction of the Casino Resort. Martin &
Peltyn has provided structural engineering services for over twenty
hotel/casinos in the United States, including the following Las Vegas resorts:
The MGM Grand Hotel and Casino, The Mirage, the Treasure Island Hotel and
Casino, Tropicana Resort and Casino and The Las Vegas Hilton.
Employees
The Company anticipates that it will directly employ approximately 3,800
employees in connection with the Casino Resort. The Company will be required to
undertake a major recruiting and training program prior to the opening of the
Casino Resort at a time when other major new facilities may be approaching
completion and also recruiting employees. The Company believes that it will be
able to attract and retain a sufficient number of qualified individuals to
operate the Casino Resort. The Company does not know whether or to what extent
the Casino Resort's employees will be covered by collective bargaining
agreements, as that determination will ultimately be made by the employees.
Most, but not all major casino resorts situated on the Strip have collective
bargaining contracts covering at least some of the labor force at such sites.
The unions currently on the Strip include the Local, the Operating Engineers
Union and the
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Teamsters Union. Although no assurances can be given, management does not
believe that the representation of its employees by labor unions would have a
material impact upon the Company's results of operations, liquidity or
financial position.
Properties
Venetian currently owns approximately 45 acres of land on or near the
Strip on the site of the former Sands Hotel. Such property includes the site on
which the Casino Resort is being constructed and the site on which the Phase II
Resort is planned to be constructed. As described in "Description of Mortgage
Notes--Ranking and Security," approximately 14 acres of such land may be
released from the collateral securing the Mortgage Notes and transferred to the
Phase II Subsidiary upon completion of the subdivision for the Project Site.
Litigation
The Company and its subsidiaries are parties to various claims and legal
actions arising from the construction of the Casino Resort, in the ordinary
course of their businesses and in the ordinary course of business of the Sands
Hotel and Casino. Although the amount of any liability that could arise with
respect to these claims and actions cannot be accurately predicted, the Company
believes that any such liability will not have a material adverse effect on the
Company.
The Guarantors
Venetian formed the Mall Construction Subsidiary as a Delaware limited
liability company on September 12, 1997. The purpose of the Mall Construction
Subsidiary is to own and construct the Mall. Upon completion of the Casino
Resort, the Mall Construction Subsidiary will transfer the Mall to the Mall
Subsidiary pursuant to the Sale and Contribution Agreement. See "Certain
Material Agreements--Agreements Relating to the Mall--Sale and Contribution
Agreement."
Venetian formed Mall Intermediate Holdings as a Delaware limited liability
company on September 24, 1997. The purpose of Mall Intermediate Holdings is to
own an interest in Mall Holdings, which in turn owns an interest in the Mall
Subsidiary. Currently, Mall Intermediate Holdings owns a 100% membership
interest in Mall Holdings, which in turn owns a 100% membership interest in the
Mall Subsidiary. Upon the transfer of the Mall Collateral from the Mall
Construction Subsidiary to the Mall Subsidiary, the Mall Subsidiary is expected
to be owned 99% by Mall Holdings and 1% by the Mall Manager, and Mall Holdings
is expected to be owned 99% by Mall Intermediate Holdings and 1% by the Mall
Manager. At such time, the Mall Manager will act as the managing member of the
Mall Subsidiary and Mall Holdings. Mall Manager, Mall Holdings and Mall
Subsidiary are direct or indirect 100%-owned subsidiaries of LVSI.
Venetian formed Phase II Intermediate Holdings as a Delaware limited
liability company on September 24, 1997. The purpose of Phase II Intermediate
Holdings is to own an interest in Phase II Holdings, which in turn owns an
interest in Phase II Subsidiary. Currently, Phase II Intermediate Holdings owns
a 100% membership interest in Phase II Holdings, which in turn owns a 100%
membership interest in Phase II Subsidiary. Upon the release of the Phase II
Land from the Note Collateral and its transfer to the Phase II Subsidiary, the
Phase II Subsidiary is expected to be owned 99% by Phase II Holdings and 1% by
the Phase II Manager, and Phase II Holdings is expected to be owned 99% by
Phase II Intermediate Holdings and 1% by Phase II Manager. At such time, the
Phase II Manager will act as the managing member of the Phase II Subsidiary and
Phase II Holdngs. Phase II Manager, Phase II Holdings and Phase II Subsidiary
are direct or indirect 100%-owned subsidiaries of LVSI.
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REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in the State of
Nevada are subject to the Nevada Act and various local regulations. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Authorities.
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: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including 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; (iv) the prevention of
cheating and fraudulent practices; and (v) providing a source of state and
local revenues through taxation and licensing fees. Any change in such laws,
regulations and procedures could have an adverse effect on the Company's gaming
operations or on the operation of the Venetian.
The Company is required to be licensed by the Nevada Gaming Authorities to
operate a casino, and is currently so licensed. The gaming license requires the
periodic payment of fees and taxes and is not transferable. The Company is
required to be, and is currently registered by the Nevada Commission as a
Registered Corporation and as such, is required periodically to submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information that the Nevada Commission may require. No person may become a
stockholder of, or receive any percentage of profits from, the Company without
first obtaining the required licenses and approvals from the Nevada Gaming
Authorities. The Company will operate the Casino pursuant to the Casino Lease,
which will provide for a fixed monthly rental payment. The Company and Venetian
have been granted all the various approvals required to consummate the Exchange
Offer. The Company possesses, has applied for, or will apply for, all state and
local government registrations, approvals, permits and licenses required in
order for the Company to engage in gaming activities at the Casino Resort.
There can be no assurance that the Company will be granted all of such
approvals. Venetian intends to apply for a state gaming license, registration
or other finding of suitability, however the receipt of such by Venetian is not
required in connection with the Exchange Offer. If a gaming license is issued
to Venetian, the Casino Lease may be terminated.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Venetian
to determine whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and certain key
employees of the Company must file applications with the Nevada Gaming
Authorities and may be required to be licensed by the Nevada Gaming
Authorities. The Nevada Gaming 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, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability, or the
gaming licensee by whom the applicant is employed or for whom 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 an officer, director or key
employee unsuitable for licensing or to continue having a relationship with the
Company or Venetian, it would have to sever all relationships with such person.
In addition, the Nevada Commission may require the Company 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.
The Company is required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company must be reported
to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the
registration and gaming licenses it then holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Company and the persons involved could
be subject to
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substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed
by the Nevada Commission to operate the Casino Resort and, 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 the gaming
operations of the Company.
Any beneficial holder of the Company's voting securities, regardless of
the number of shares owned, may be required to file an application, be
investigated, and have their suitability as a beneficial holder of the
Company's voting securities determined if the Nevada Commission has reason to
believe that such ownership would otherwise 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 any such
investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the
Company's voting securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails the
written notice requiring such filing. Under certain circumstances, the
"institutional investor" as defined in the Nevada Act, which acquires more than
10% but not more than 15% of the Company's voting securities, may apply to the
Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall 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 not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities that are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) 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 (iii) such other activities as the Nevada Commission may
determine to be consistent with such 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 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
Commission or the Chairman of the Nevada 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 such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. The Company is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship with the
Company or Venetian it: (i) pays that person any dividend or interest upon
voting securities of the Company; (ii) allows that person to exercise, directly
or indirectly, any voting right conferred through securities held by that
person; (iii) pays remuneration in any form to that person for services
rendered or otherwise; or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for cash at fair
market value. Additionally, the CCLGLB has taken the position that it has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file an application, be
investigated and be found suitable to own the debt security of a Registered
Corporation, such as the Notes. If the Nevada Commission determines that a
person is unsuitable to own such security, then pursuant to the Nevada Act, the
Registered Corporation can be sanctioned, including the loss of its approvals,
if without the prior approval of the Nevada Commission, it: (i) pays to the
unsuitable person any dividend, interest, or any distribution whatsoever; (ii)
recognizes any voting right by such unsuitable person in connection
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with such securities; (iii) pays the unsuitable person remuneration in any
form; or (iv) makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar transaction.
LVSI is required to 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.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
is also required to render maximum assistance in determining the identity of
the beneficial owner. LVSI stock certificates bear a legend indicating that
such securities are subject to the Nevada Act.
LVSI and Venetian may not make a public offering of any securities without
the prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. The hypothecation of the Company's assets in connection with any
public offering will require the prior approval of the Nevada Commission. In
addition, if Venetian receives a gaming license, the hypothecation of its
assets and restrictions on stock in respect of any public offering will require
the approval of the Nevada Commission to remain effective. LVSI and Venetian
have received all the necessary approvals by the Nevada Commission of the
Exchange Offer and the hypothecation of assets. Such approval does not
constitute a finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the prospectus or the
investment merits of the securities offered. Any representation to the contrary
is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by any person whereby he or she obtains control, may not occur without the
prior approval of the Nevada Commission. Entities seeking to acquire control of
a Registered Corporation must satisfy the Nevada Board and the Nevada
Commission concerning a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada 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 Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (1) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated.
The Nevada Act also requires prior approval of a plan of recapitalization
proposed by the Company's board of directors in response to a tender offer made
directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on 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: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax also is paid by the Company 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, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a
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gaming venture outside of Nevada, is required to deposit with the Nevada Board
and, thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are also required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada 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 activities that are harmful to the State of Nevada
or its ability to collect gaming taxes and fees, or employ a person in the
foreign operation who has been denied a license or a finding of suitability in
Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages by the Company on the premises of the
Casino Resort is subject to licensing, control and regulation by the applicable
local authorities. The Company will also be required to apply for and receive a
Clark County gaming license. All licenses are revocable and are not
transferable. The agencies involved have full power to limit, condition,
suspend or revoke any such license, and any such disciplinary action could (and
revocation would) have a material adverse effect upon the operations of the
Company.
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APPRAISALS
Land Appraisal
Landauer Associates, Inc. (the "Appraiser") has prepared and delivered an
appraisal (the "Land Appraisal") of the approximately 45 acre land parcel (the
"Contributed Land") currently owned by Venetian. The Appraiser's personnel are
experienced in appraising Las Vegas resort and gaming properties. The Appraiser
has been providing real estate consulting and valuation services since 1946.
Rodney A. Wycoff and Karen Johnson of the Appraiser have prepared the
appraisals described herein. Mr. Wycoff, CRE, MAI is a Senior Managing Director
and has appraised hotel and resort properties throughout the Southwestern
United States for more than 15 years. Mr. Wycoff previously appraised the Dunes
Hotel and has served as an asset manager for a portfolio that included a number
of large convention hotels. Ms. Johnson, MAI, is a Managing Director and has
extensive experience in resort and hotel consulting as well. Ms. Johnson
recently completed an investment value appraisal of the Bally's assets in Las
Vegas as part of the acquisition of Bally's by Hilton, as well as a market
value appraisal of the land underlying the Wet n' Wild water park on the Strip.
Off the Strip, Ms. Johnson has appraised the land for a proposed casino hotel
and entertainment center in Henderson, Nevada and other parcels in northwest
and southwest Las Vegas. The Land Appraisal has been completed, and was
delivered to the Issuers on October 20, 1997. The Land Appraisal states that as
of October 17, 1997, the "market value" of the Contributed Land (as if vacant)
was $225.0 million or $5.0 million per acre. The Land Appraisal defines "market
value" as the most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimuli. In addition, implicit in this
definition is the consummation of a sale on a specific date and the passing of
title from seller to buyer under conditions whereby: (i) buyer and seller are
typically motivated; (ii) both parties are well informed or well advised and
acting in what they consider their own best interests; (iii) a reasonable time
is allowed for exposure on the open market; (iv) payment is made in terms of
cash in United States dollars or in terms of financial arrangements comparable
thereto; and (v) the price represents the normal consideration for the property
sold unaffected by special or creative financing or sales concessions granted
by anyone associated with the sale. See "Annex B--Letter from the Appraiser"
for more information regarding the Land Appraisal.
The following is a summary of material analyses performed by the Appraiser
in conducting the Land Appraisal and presented to the Company. In preparing its
analysis, the Appraiser used the following methodology: the Appraiser (i)
inspected the property, (ii) interviewed representatives of the Company, (iii)
reviewed and considered the forecast for the project provided by the Company
and made adjustments to such forecast as it deemed necessary based upon its
independent research, (iv) reviewed thoroughly, analyzed and compared to the
subject site recent relevant land sales on or near the Strip, (v) performed a
residual land value analysis on the subject site and (vi) undertook such other
applicable alternative methods of valuation as it deemed necessary.
The Appraiser then performed various analyses of factors that might affect
the market value of the property, including an area and neighborhood analysis,
a site and improvement analysis, and a highest and best use analysis. The
Appraiser then applied and reconciled two relevant valuation methodologies, the
sales comparison technique, which is the most commonly used technique, and the
land residual technique.
For the sales comparison technique, the Appraiser reviewed the available
body of information on consummated sales of large, comparable zoned parcels on
the Strip. The Appraiser considered the fact that most of the well-located
comparable sales pre-dated the opening of the previous wave of mega-casino
resorts and were influenced by concerns regarding the overbuilding that
preceded the opening of The MGM Grand Hotel and Casino, The Luxor and the
Treasure Island Hotel and Casino in 1994. The more current arm's length sales
were situated in less desirable locations. Rates of appreciation appear to be
significant, such that even these require adjustments for appreciation. Because
of the absence of truly comparable sales, the Appraiser relied upon other more
complicated transactions, rejected offers and asking prices for comparable
parcels in addition to the sales of parcels that were not ideally comparable
for one reason or another. The Appraiser then adjusted each comparable sale or
rejected offer or asking price, rejected the extremes of the range and
concluded that current prices for comparable parcels of land
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would range from $5.0 million to $5.8 million per acre. Because of the
magnitude of some of the adjustments, and after taking into account some site
specific development cost issues, the Appraiser selected a value of $5.0
million per acre for the subject property based on the sales comparison
technique. The site development costs issues that affected the comparable sales
included but were not limited to: buy-outs of leasehold interests, costs for
the demolition of existing improvements and environmental mitigation, none of
which were material when expressed as percentage adjustments. For the subject
property, nominal adjustments were made for the perpetual easement benefiting
the Expo Center, specifically regarding parking, and the net present value of
the ongoing immaterial environmental soil mitigation.
For the land residual technique, the Appraiser estimated earnings before
interest, taxes, depreciation and amortization ("EBITDA") for two recently
completed resorts based on published earnings data. EBITDA was also estimated
for a theoretical, somewhat more generic subject property. A capitalization
rate was applied to obtain market values for the developed properties. The
known or assumed hard and soft costs of constructing the projects, were
deducted along with estimates of entrepreneurial profit. The appraisers
concluded that a theoretical resort on the subject site supports a residual
land value equal to $7.9 million per acre.
The Appraiser concluded that the land residual technique supported the
$5.0 million per acre price estimated for the subject property using the sales
comparison technique and is a reasonable economically viable price per acre and
concluded that as of October 17, 1997, the market value for the subject site
was $225.0 million or $5.0 million per acre.
The Appraiser has certified that its employment and compensation in
connection with the Land Appraisal were in no way contingent upon the value
reported in the Land Appraisal and that it has no direct or indirect current or
prospective personal interest or bias in the subject matter of the Land
Appraisal or to the parties involved.
The Land Appraisal necessarily is based upon prevailing physical and
economic conditions and available information as they existed on the date of
the Land Appraisal. Economic projections do not represent forecasting of future
events. Rather, they reflect a method commonly used by investors to gauge the
effect of anticipated trends on investment yields. The information reported in
the Land Appraisal was obtained from sources deemed to be reliable by the
Appraiser and, when feasible, was verified by the Appraiser. The Appraiser
reserves the right, however, to make appropriate revisions to the Land
Appraisal in the event of discovery of additional or more accurate data. In
addition, various subsequent events may significantly alter the conclusions
reported in the Appraisal.
Hotel/Casino Appraisal
In connection with the Bank Credit Facility, the Mortgage Notes and the
Senior Subordinated Notes, the Appraiser has prepared and delivered an
appraisal (the "Hotel/Casino Appraisal") of the Hotel and the Casino, assuming
it is completed and contains a total of 3,036 rooms and 116,000 square feet of
gaming area. The Hotel/Casino Appraisal estimates "market value" of the Hotel
and Casino upon completion (assumed to be April 1, 1999) and upon stabilized
occupancy and average daily rate (assumed to be April 1, 2001). Using an
"income approach" methodology, the Appraisers prepared two ten-year forecasted
cash flows, the "as completed" cash flows commencing on April 1, 1999 and upon
attainment of "as stabilized" cash flows commencing on April 1, 2001. The net
operating income for each year was discounted back to the appropriate date of
value. The value of the reversionary interest for each valuation scenario was
estimated by capitalizing the projected net income after all expenses but
before capital items for the eleventh year and was discounted back to the
applicable valuation date. By combining the stream of income during the holding
period and the net proceeds from the hypothetical sale at the end of the
holding period, the Appraiser concluded that, as of October 17, 1997, the
"market value" of the Hotel and the Casino, together, upon completion and upon
stabilized occupancy would be approximately $1.1 billion (excluding the Mall)
and $1.3 billion (excluding the Mall), respectively. In reaching the foregoing
conclusions, the Appraiser assumed an average daily room rate of $167 (1999
dollars) and an average daily occupancy rate of 93% in its analysis. The
estimated average daily rate was estimated on a segment by segment basis
utilizing: (i) survey responses from show managers for 51 of the 200 largest
trade shows (a 29 percent response rate), (ii) trends in average daily rates
for major
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convention hotels in other key competitive destinations and (iii) current peak
and non-peak pricing at Las Vegas' casino hotels. The weighted average result
of the segment by segment estimates was compared for reasonableness to the
average daily rates currently achieved by better quality casino hotels in Las
Vegas, taking into account their disadvantages with regard to convention and
meeting space, basic guest room size and amenities, and was discounted for the
first two years of operation. Consistent with what the Appraiser understood to
be the casino hotel accounting convention, the casino department's usage of
complimentary rooms was recorded as revenue at the prevailing rate for that
period and reflected as a cost to that department. In deriving the "market
value" of the Hotel and the Casino together, the Appraiser used assumptions
regarding, among other things, revenues and expenses, some of which differ from
the assumptions used by the Appraiser in its valuation of the Hotel, the Casino
and the Mall. For example, the Appraiser deducted an assumed approximately $9.0
million management fee and made different assumptions regarding certain
operating expense line items. Management believes that such differences are not
material to their forecasted results of operations. See "Annex B--Letter from
Appraiser" for more information regarding the Hotel/Casino Appraisal.
The Appraiser has certified that its employment and compensation in
connection with the Hotel/ Casino Appraisal were in no way contingent upon the
value reported in the Hotel/Casino Appraisal and that it has no direct or
indirect current or prospective personal interest or bias in the subject matter
of the Hotel/Casino Appraisal or to the parties involved.
The Hotel/Casino Appraisal necessarily is based upon the prevailing
physical and economic conditions and available information as they existed on
the date of the Hotel/Casino Appraisal. Economic projections do not represent
forecasting of future events. Rather, they reflect a method commonly used by
investors to gauge the effect of anticipated trends on investment yields. The
information reported in the Hotel/Casino Appraisal was obtained from sources
deemed to be reliable by the Appraiser and, when feasible, was verified by the
Appraiser. The Appraiser reserves the right, however, to make appropriate
revisions to the Hotel/Casino Appraisal in the event of discovery of additional
or more accurate data. In addition, various subsequent events may significantly
alter the conclusions reported in the Hotel/Casino Appraisal.
Mall Appraisal
In connection with the Mall Construction Loan Facility, the Appraiser has
prepared and delivered an appraisal (the "Mall Appraisal") of an unanchored
Mall, assuming it is completed and contains a total gross leasable area of
518,000 square feet to be physically situated within the Casino Resort and a
Retail Annex (as defined in the Mall Appraisal) on the Project Site. Mr.
Charles P. Gardener, MAI, and Mr. John R. Forbes, MAI, of the Appraiser assumed
the primary responsibility for the preparation of the retail analysis. The
Appraiser has advised the Company that both Mr. Gardener and Mr. Forbes have
extensive experience in appraising retail and complex property types. The Mall
Appraisal estimates (i) the "market value" of the Mall upon completion (assumed
to be April 1, 1999) and upon stabilized occupancy (assumed to be April 1,
2000) and (ii) the value of the development rights to construct the Mall as
proposed. Using an "income approach" methodology, the Appraisers prepared two
ten-year forecasted cash flows, the "as completed" cash flows commencing on
April 1, 1999 and the "as stabilized" cash flows commencing on April 1, 2000.
The net operating income for each year was discounted back to the appropriate
date of value. The value of the reversionary interest for each valuation
scenario was estimated by capitalizing the projected net operating income
(income after all expenses, but before capital items) for the eleventh year and
was discounted back to the applicable valuation date. By combining the stream
of income during the holding period and the net proceeds from a hypothetical
sale at the end of the holding period, the Appraiser concluded that, as of
October 17, 1997, the "market value" of the Mall upon completion and upon
stabilized occupancy would be approximately $220.0 million and $248.0 million,
respectively. Based on the estimated costs to develop the Mall and a value upon
completion of $220.0 million, the development rights were valued at
approximately $33.0 million.
The Appraiser has certified that its employment and compensation in
connection with the Mall Appraisal were in no way contingent upon the value
reported in the Mall Appraisal and that it has no direct or indirect current or
prospective personal interest or bias in the subject matter of the Mall
Appraisal or to the parties involved.
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The Mall Appraisal necessarily is based upon the prevailing physical and
economic conditions and available information as they existed on the date of
the Mall Appraisal. Economic projections do not represent forecasting of future
events. Rather, they reflect a method commonly used by investors to gauge the
effect of anticipated trends on investment yields. The information reported in
the Mall Appraisal was obtained from sources deemed to be reliable by the
Appraiser and, when feasible, was verified by the Appraiser. The Appraiser
reserves the right, however, to make appropriate revisions to the Mall
Appraisal in the event of discovery of additional or more accurate data. In
addition, various subsequent events may significantly alter the conclusions
reported in the Mall Appraisal. See "Annex B--Letter from Appraiser" for
information regarding the Mall Appraisal.
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MANAGEMENT
The following table sets forth the executive officers and the directors of
the Company. The Company is the managing member of Venetian. Under the limited
liability company agreement of Venetian, the Company 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.
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------- --- ---------------------------------------
<S> <C> <C>
Sheldon G. Adelson ............. 64 Chairman of the Board, Chief Executive
Officer and Director
William J. Raggio .............. 71 Special Director
William P. Weidner ............. 51 President and Chief Operating Officer
Bradley H. Stone ............... 43 Executive Vice President
Robert G. Goldstein ............ 42 Senior Vice President
David Friedman ................. 41 Assistant to Chairman
of the Board and Secretary
Harry D. Miltenberger .......... 54 Vice President--Finance
</TABLE>
Sheldon G. Adelson has been the Chairman of the Board, Chief Executive
Officer and a director of the Company since April 1988 when the Company was
formed to own and operate the former Sands Hotel. 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 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.
William J. Raggio was elected as Special Director of the Company upon
consummation of the Offering in November 1997. Since 1991, Mr. Raggio has been
an attorney and shareholder in the law firm of Vargas & Bartlett and since
1972, has served as an elected member of the Nevada State Senate, holding the
positions of Senate Majority Leader and Chairman of the Finance Committee. Mr.
Raggio is also a member of the Board of Directors of Sierra Health Services and
a member of the Board of Directors and an Executive Vice President of Santa Fe
Gaming Corp. since 1984 and 1987, respectively.
William P. Weidner has been the President and Chief Operating Officer of
the Company 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 Executive Vice President of the Company 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 Senior Vice President of the Company since
December 1995. From 1992 until joining the Company in December 1995, Mr.
Goldstein was the Executive Vice President of Marketing at 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 since
October 1995. Subsequently, Mr. Friedman became both Assistant to the Chairman
of the Company and Secretary of the Company. Mr. Friedman is also an officer of
other companies owned by Mr. Adelson. Prior to joining the Company, Mr.
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Friedman was the Senior Vice President of Development and Legal Affairs for
President Casinos, Inc. from May 1993 to October 1995. He was Vice President
and General Counsel to Resorts International from 1990 to December 1993. Mr.
Friedman also held various positions at Bally's in Atlantic City.
Harry D. Miltenberger is a certified public accountant and has been Vice
President--Finance of the Company since February 1997. From March 1995 until
February 1997 he was Senior Vice President and Chief Financial Officer of SUB,
a banking company; from April 1993 to March 1995 he was a Director of Winco
Product Corp. From February 1988 to December 1994, Mr. Miltenberger was Chief
Financial Officer of SPOA Inc., a real estate development company.
Executive Compensation
The following table sets forth certain information concerning the
compensation for the last completed year of those persons who were, at December
31, 1997, the five highest paid executive officers of LVSI, which is the
managing member of Venetian. In 1996, LVSI had only four paid executive
officers. Sheldon G. Adelson, the Chairman of the Board and Chief Executive
Officer of LVSI, received no compensation in 1996 and 1997. Notwithstanding the
foregoing, in future years, LVSI plans to provide salary, bonus or other
compensation to Mr. Adelson in his capacity as Chairman of the Board and Chief
Executive Officer of LVSI. 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.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation Securities All Other
---------------------- Underlying Compensation
Name and Principal Position Year Salary Bonus Options (1)
- ------------------------------- ------ ----------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
William P. Weidner ............ 1997 $794,915 50,000 -- $ 6,570
President and Chief 1996 772,717 -- -- 26,832
Operating Officer
Bradley H. Stone .............. 1997 510,430 40,000 -- 918
Executive Vice President 1996 493,606 -- -- 20,697
Robert G. Goldstein ........... 1997 384,220 40,000 -- 918
Senior Vice President 1996 369,770 -- -- 15,859
David Friedman ................ 1997 228,654 90,000 -- 816
Assistant to Chairman of the 1996 196,154 -- -- 21,849
Board and Secretary
Harry D. Miltenberger ......... 1997 147,769 30,000 -- 12,307
Vice President-Finance 1996 -- -- -- --
</TABLE>
- --------------
(1) Represents entertainment and other miscellaneous expenses.
Employment Agreements
William P. Weidner, Bradley H. Stone and Robert Goldstein each has an
employment agreement (collectively, the "Employment Agreements") with the
Company continuing through December 31, 2000 (the "Initial Term"). The
agreements originally had a termination date of December 31, 1998, but have
been extended by the Company through December 31, 2000, in accordance with
two-year extension rights of the Company. If the Nevada Gaming Authorities
refuse to grant the officers licenses, the Employment Agreements terminate.
Pursuant to the Employment Agreements, the officers have such powers, duties
and responsibilities as are generally associated with their offices, as may be
modified or assigned by the Chairman of the Board of Directors (or the
President in the case of Mr. Stone and Mr. Goldstein), and subject to the
supervision of the Board of Directors (and the President in the case of Mr.
Stone and Mr. Goldstein). The agreements provide that, during the terms of
their employment, the officers will not engage in any other business or
professional pursuit unless consented to by the Company in writing.
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The terms of the Employment Agreements provide for an annual base salary
for Mr. Weidner, Mr. Stone and Mr. Goldstein of $794,915, $510,430 and
$384,220, respectively. The foregoing salaries are subject to cost-of-living
adjustments, effective January 1, 1999, if no written incentive compensation
plans have been established for the executives prior to January 1, 1999. The
employment agreements also provide for the grant of options to acquire shares
of common stock of the Company representing 2%, 1.5% and 1.0%, respectively, of
the shares issued and outstanding upon the issuance of all shares for which
options have been granted under the Employment Agreements. See "--Las Vegas
Sands, Inc. 1997 Fixed Stock Option Plan." The officers are also entitled to
receive other employee benefits of the Company. The agreements may be
terminated by either the Company or the officer upon proper notice, pursuant to
the terms of the Employment Agreements. Under the agreements, in the event of a
Cause Termination, Breach Termination, Voluntary Termination or Licensing
Termination (each as defined therein), all salary and benefits shall
immediately cease subject to any requirements of law, all unexercised options
shall be canceled and forfeited and all shares of common stock held shall be
redeemed by the Company at a price equal to the lesser of the exercise price of
such shares or the Fair Market Value (as defined therein) on the date of
termination, payable in sixty equal consecutive monthly installments with
interest at the Applicable Federal Rate (as defined therein). In the event of a
Company Breach Termination, Constructive Termination or Involuntary Termination
(each as defined therein), the Company is obliged to pay to the officer
involved his salary for the rest of the term of the Employment Agreement until
the officer becomes gainfully employed elsewhere, in which event the Company is
obliged to pay the difference in the income earned in such other employment and
the salary payable under the agreement with the Company. The amount that the
officer is entitled to receive upon termination will depend upon the amount of
time remaining in the term of such agreement as of the date of the officer's
termination of employment. If a Company Breach Termination, Constructive
Termination or Involuntary Termination occurred with respect to Mr. Weidner,
Mr. Stone and Mr. Goldstein on December 31, 1997, 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, 2000 would
have been $2,318,151, $1,480,818 and $1,109,310, respectively, based on their
salaries of $772,717, $493,606 and $369,770, respectively. Such amounts would
have been subject to mitigation, as described above, if the officer became
gainfully employed elsewhere. In addition, all unexercised options shall be
canceled and forfeited and all shares of the Company held by the officer shall
be redeemed by the Company at a price equal to the greater of the exercise
price for such shares or the Fair Market Value on the date of termination,
payable in 36 equal consecutive monthly installments with interest at the
Applicable Federal Rate. In the case of a Death Termination (as defined
therein), salary shall be paid through the date of death, all unexercised
options shall be automatically cancelled, and all shares of the Company held by
the officer shall be redeemed by the Company for a price payable by the Company
to the officer's estate equal to all sums paid by the officer for the shares
plus the difference between (x) the exercise price paid for the shares and (y)
the Fair Market Value of such shares, payable in 36 equal consecutive monthly
installments with interest at the Applicable Federal Rate. In the case of
Disability Termination, salary, less any applicable disability insurance
payments, shall be continued for a period of six months following the date of
termination and all options and shares shall 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
The Las Vegas Sands, Inc. 1997 Fixed Stock Option Plan (the "Plan")
provides for 75,000 shares of common stock of the Company to be reserved for
issuance by the Company to officers and other key employees or consultants of
the Company or any of its Affiliates or Subsidiaries (each as defined in the
Plan) pursuant to options granted under the Plan. None of the options granted
under the Plan will become effective for any purpose whatsoever until and
unless the grant of such options has been approved by the Nevada Commission.
The purpose of the Plan is to promote the interest of the Company and its
Stockholder by (i) attracting and retaining exceptional officers and other key
employees and consultants to the Company and its Affiliates and Subsidiaries
and (ii) enabling such individuals to participate in the long-term growth and
financial success of the Company. The 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 exercise price therefor, and the conditions
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<PAGE>
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, in the case of certain unusual or
nonrecurring events, whenever the Board of Directors determines that such
adjustments are appropriate in order to prevent dilution or enlargement of
benefits or potential benefits under the Plan. In the event of any Acceleration
Event (as defined in the Plan) any outstanding options then held by the
participants which are unexercisable or otherwise unvested, shall automatically
become fully vested and shall be exercisable pursuant to the applicable award
agreement. The Plan provides that the Sole Stockholder may, at any time, assume
the Plan or certain obligations under the Plan, in which case the Sole
Stockholder will be the administrator of the Plan, the issuer of the Options,
and will have all the rights, powers, and responsibilities granted to the
Company or the Board of Directors under the Plan with respect to such assumed
obligations. The terms of the options are set forth in individual award
agreements between the Company (or the Sole Stockholder) and each participant.
The Board of Directors may amend, alter, suspend, discontinue or terminate
the Plan or any portion thereof at any time, provided that such shall not be
made without Shareholder approval if such approval is necessary to comply with
any tax or regulatory requirement applicable to the plan and provided that any
such amendment, alteration, suspension, discontinuance or termination that
would impair the rights of any holder of an option already granted shall not be
effective without the holder's consent. The Plan expires, and no options may be
granted under the Plan after the year 2007.
Options are intended to be granted under the Plan to Mr. Weidner, Mr.
Stone, Mr. Goldstein, Mr. Friedman and Mr. Miltenberger (the "Optionees") to
acquire shares representing 2%, 1.5%, 1.0%, 0.5% and 0.1%, respectively, of the
common stock of the Company. The Plan allows Mr. Adelson to assume the
obligations under the Plan relating to such options and to enter into award
agreements with the Optionees. The options are expected to be subject to certain
vesting and forfeiture provisions. If the Optionee's employment with the Company
is terminated for any reason, all unvested shares shall be forfeited. The
options expire on the earlier of (i) the eighth anniversary of the date of
grant, (ii) the date three days prior to a Change in Control Acceleration Event
(as defined in the Plan), (iii) the date three days prior to a Public Offering
Acceleration Event (as defined in the Plan) and (iv) the participant's
termination of employment (after receipt of any applicable notice as provided
for in the Plan). Shares issued to the Optionees pursuant to the exercise of an
option and held (and vested) at the time of the Optionee's termination of
employment are subject to redemption by the Company or Mr. Adelson, if he so
issued them, in accordance with the terms of the applicable award agreements of
the Optionees and for Messrs. Weidner, Stone and Goldstein, also consistent with
the terms of the Employment Agreements, as described in "--Employment
Agreements" above.
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OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information as of the date of this
Prospectus with respect to the beneficial ownership of the common stock of LVSI
by (i) each person who, to the knowledge of LVSI, beneficially owns more than
5% of its outstanding common stock, (ii) the directors of LVSI, (iii) all
executive officers named in "Management" and (iv) all executive officers and
directors of LVSI as a group. Venetian currently has two members, the Company
and Interface Group Holding Company, Inc. ("Interface Holding"), which owns all
of the capital stock of Interface. LVSI is the managing member of Venetian and
owns 100% of the common equity interests in Venetian and Interface Holding owns
a non-voting preferred interest in Venetian. See "Certain
Transactions--Preferred Interest."
<TABLE>
<CAPTION>
Shares of
Common
Beneficial Owner(1) Stock Percentage
- ----------------------------------------------------- ---------- ----------
<S> <C> <C>
Sheldon G. Adelson .................................. 925,000 100%
William J. Raggio ................................... 0 0%
William P. Weidner (2) .............................. 0 0%
Bradley H. Stone (2) ................................ 0 0%
Robert G. Goldstein (2) ............................. 0 0%
David Friedman (2) .................................. 0 0%
Harry Miltenberger (2) .............................. 0 0%
All executive officers and the directors of the
Company as a group ................................. 925,000 100%
</TABLE>
- ----------------
(1) The address of each person named below is c/o the Company, 3355 Las Vegas
Boulevard South, Room 1A, Las Vegas, Nevada 89109.
(2) Does not include options to purchase common stock of the Company not
exercisable within 60 days of the date hereof. In connection with the
development of the Casino Resort and pursuant to the terms of each of their
employment agreements or other agreements with the Company, each of Messrs.
Weidner, Stone, Goldstein, Friedman and Miltenberger are to be granted
options to purchase common stock of LVSI representing 2.0%, 1.5%, 1.0%,
0.5% and 0.1%, respectively, of the shares of common stock of LVSI
outstanding after giving effect to the issuance of all shares for which
options have been granted. However, none of such options are effective for
any purpose whatsoever until and unless the grant of such options has been
approved by the Nevada Commission. See "Management--Las Vegas Sands, Inc.
1997 Stock Option Plan."
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<PAGE>
CERTAIN TRANSACTIONS
Equity Contribution
As support for the development of the Casino Resort, the Sole Stockholder
and his affiliates have provided or contributed to the Issuers $95.3 million of
the Cash Contribution and the approximately 45 acre Project Site, which has an
appraised value of $225.0 million. See "Risk Factors--Sole Stockholder,"
"Appraisals" and "Description of Certain Indebtedness."
Preferred Interest
Interface Holding currently holds a Series A Preferred Interest in
Venetian. The Series A Preferred Interest is non-voting, accrues no preferred
return and is not subject to mandatory redemption or redemption at the option
of the holder. At any time, the Series A Preferred Interest may be converted
into a Series B Preferred Interest. The rights of the Series B Preferred
Interest are the same as the Series A Preferred Interest except that the Series
B Preferred Interest will have a preferred return of 12% and upon the 12th
anniversary of the closing of the Offering, to the extent of the positive
capital account of the holders of the Series B Preferred Interest, there must
be a distribution on the Series B Preferred Interests. Until the indebtedness
under the Bank Credit Facility is repaid and cash payments are permitted under
the restricted payment covenants under the Indentures, the preferred return on
the Series B Preferred Interest will accrue and will not be paid in cash.
Subject to the foregoing, distributions with respect to the preferred capital
of the holders of the Series A Preferred Interest and the Series B Preferred
Interest may, at the option of the Company, be made at any time.
Historical Transactions with the Sole Stockholder and his Affiliates
Merger with Nevada Funding Group, Inc.
In December 1995, LVSI completed a merger (the "NFG Merger") with Nevada
Funding Group, Inc. ("NFG") through the contribution of all the outstanding
common stock of NFG to LVSI. At the time of the NFG Merger, the Sole
Stockholder owned all of the outstanding common stock of NFG. NFG was
incorporated in 1992 for the sole purpose of acquiring certain second mortgage
notes of LVSI (the "Second Mortgage Notes") from third parties and had no other
operations. As of the date of the NFG Merger, NFG owned $37.0 million of the
Second Mortgage Notes, which were retired as part of the NFG Merger.
Share Repurchases
As a result of the NFG Merger, LVSI and NFG were merged in December 1995.
Prior to April 1995, 41,175 shares, or 41%, of NFG common stock were held by
three stockholders (other than the Sole Stockholder). In April 1995, NFG
purchased all 41,175 shares for a total price of approximately $13.2 million.
In August 1995, LVSI purchased 34,999, or 41%, shares of its common stock from
the same three stockholders for a total price of $206,000 (at the time of the
purchase LVSI had intercompany debt to affiliates of $161.0 million as of
August 1995). As a result, NFG and LVSI became wholly-owned by the Sole
Stockholder.
Prior Debt Obligations
Interface is currently wholly-owned indirectly by the Sole Stockholder and
prior to May 1995, was majority-owned by the Sole Stockholder. From 1992 to
1994, Interface and NFG acquired 99% of the outstanding balance of Second
Mortgage Notes (or $71.0 million) of the total $72.0 million of Second Mortgage
Notes. From their issuance in 1989, Interface was the sole holder of Third
Mortgage Pay-in-Kind Notes of the Company (the "Third Mortgage Notes"). The
Second Mortgage Notes earned interest at 15% per annum to January 15, 1995, at
which time the interest rate was reduced to the short-term quarterly applicable
federal interest rate as published by the Internal Revenue Service. Beginning
in January 1992, the Third Mortgage Notes earned interest at the short-term
quarterly applicable federal interest rate as published by the Internal Revenue
Service. Interest on the Third Mortgage Notes was payable quarterly with
$250,000 of the interest payable in cash and the remainder payable in
additional Third Mortgage Notes. Interest expense relating to the Second
Mortgage Notes and the Third Mortgage Notes owned by NFG and Interface totaled
$0, $4.1 million and $7.9 million in 1997, 1996 and 1995, respectively. As
described in "--Merger with Nevada Funding Group, Inc." and "--Expo Center," as
a result of the NFG
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<PAGE>
Merger and the sale of the Expo Center, the Second Mortgage Notes and a portion
of the Third Mortgage Notes were retired in 1995 and 1996. The remaining Third
Mortgage Notes were redeemed in December 1996.
Expo Center
Prior to January 1996, LVSI owned the Expo Center land and building and
leased it to Interface. Pursuant to the operating lease agreement, Interface
paid an annual rental of $8 million and was responsible for all taxes,
insurance, and costs to operate and maintain the facility. In 1995, LVSI was
paid $8 million in rent under the operating lease agreement. In January 1996,
Interface acquired from LVSI the Convention Center and related land and
equipment at its carrying value of $66.8 million in exchange for all of the
Second Mortgage Notes and a portion of the Third Mortgage Notes of LVSI held by
Interface. Concurrent with the sale, the operating lease agreement described
above was canceled. In addition, in August 1996, Interface purchased the power
plant and related equipment of the Sands Hotel from LVSI for approximately
$181,000.
Other Transactions
Prior to April 1995, Interface was in the trade show business and sponsored
various COMDEX Trade Shows, including the COMDEX Fall Trade Show in Las Vegas
every year. In the normal course of business, during the show, Interface held
various functions and many of its attendees stayed at the former Sands Hotel.
During the year ended December 31, 1997, LVSI declared and paid liquidating
cash dividends totaling $27,600,000 from capital in excess of par value to its
Sole Stockholder.
In 1995, 1996 and 1997, LVSI received from, and rendered to, Interface and
its affiliates, certain administrative services. However, the value of such
services was not considered material to the Casino Resort's results of
operations. Upon completion of the Offering, any such services are provided
either on an arm's-length basis or at a cost based on the actual costs incurred
to provide such services.
Cooperation Agreement
The Company's business plan calls for the Hotel and Casino, the Mall and
the Expo Center, though separately owned, to be part of an integrally related
project. In order to establish terms for the integrated operation of these
facilities, Venetian (as owner of the Hotel and Casino and the Phase II Land),
the Mall Construction Subsidiary, and Interface have entered into the
Cooperation Agreement. The Cooperation Agreement sets forth agreements among
the parties regarding, among other things, construction of the Casino Resort,
encroachments, easements, operating standards, maintenance requirements,
insurance requirements, casualty and condemnation, joint marketing, the sharing
of certain facilities and costs relating thereto. See "Certain Material
Agreements-Cooperation Agreement."
Administrative Services Agreement
Pursuant to a certain services agreement (the "Services Sharing Agreement")
among LVSI, certain of its subsidiaries and Interface Holdings (collectively,
the "Participants"), the Participants have agreed to share ratably in the costs
of, and under certain circumstances provide to one another, shared services,
including legal services, accounting services, insurance administration,
benefits administration, and such other services as each party may request of
the other. In addition, under the Services Sharing Agreement, the Participants
have agreed to share ratably the costs of any shared office space.
Temporary Lease
On November 1, 1996, LVSI and Interface entered into a lease agreement
whereby LVSI agreed to lease approximately 5,000 square feet in the Expo Center
to be used as its temporary executive offices during the construction of the
Casino Resort. Management believes that the lease agreement, which provides for
monthly rent of $5,000 to be paid by LVSI to Interface, is at least as
favorable as the Company could have obtained from an independent third party.
The initial term of the lease agreement expires on November 1, 1998, and at any
time during the last year of the initial term, LVSI may extend the term for an
additional two-year period.
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<PAGE>
Retirement Plan
All of the employees of Interface are eligible to participate in the Las
Vegas Sands, Inc. 401(k) Retirement Plan sponsored by LVSI. Costs related to
the administration of such plan are shared with LVSI based on the number of
employees of each of Interface and LVSI participating in the plan.
Airplane Expenses
LVSI utilizes a Gulfstream III aircraft, which is operated by an affiliate
of the Sole Stockholder. The aircraft is used primarily for the benefit of
LVSI's executive officers, including the Sole Stockholder. Charge-backs to LVSI
in connection with such use are based on the actual costs to operate the
aircraft allocated in accordance with purpose for which the aircraft is used.
Transactions Relating to the Venetian
An affiliate of Goldman Sachs & Co. acted as the lender under the
Construction Loan, a senior secured construction loan, which matured on the
date of the closing of the Offering, and had an interest rate of LIBOR plus 25
basis points. The Construction Loan was guaranteed by the Sole Stockholder,
which guarantee was collateralized by certain assets of the Sole Stockholder.
As of the closing of the Offering, the outstanding amount of indebtedness under
the Construction Loan was approximately $30.1 million. The Construction Loan
was repaid with the net proceeds from the Offering. See "Use of Proceeds."
For a description of certain agreements entered into by the Sole
Stockholder, Venetian, the Company, their subsidiaries and affiliates in
connection with the construction and operation and financing of the Casino
Resort, see "Description of Certain Indebtedness" and "Certain Material
Agreements."
Possible Conflicts of Interest
The common ownership of the Casino Resort, the Phase II Resort and the
Expo Center may present potential conflicts of interest. See "Risk
Factors--Possible Conflicts of Interest."
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<PAGE>
DESCRIPTION OF MORTGAGE NOTES
General
The Mortgage Notes were issued pursuant to the Mortgage Note Indenture
among the Issuers, the Mortgage Note Guarantors and First Trust National
Association, as trustee (the "Mortgage Note Trustee"), in a private transaction
that was not subject to the registration requirements of the Securities Act.
See "Notice to Investors." The Mortgage Notes are fully, unconditionally and
jointly and severally guaranteed (i) on a senior, secured basis (the "Secured
Mortgage Note Guaranties") by the Mall Construction Subsidiary and any future
Restricted Subsidiary of the Issuers (the "Secured Mortgage Note Guarantors")
and (ii) on a subordinated, unsecured basis (the "Subordinated Mortgage Note
Guaranties" and, together with the Secured Mortgage Note Guaranties, the
"Mortgage Note Guaranties") by Mall Intermediate Holdings and Phase II
Intermediate Holdings (the "Subordinated Mortgage Note Guarantors" and,
together with the Secured Mortgage Note Guarantors, the "Mortgage Note
Guarantors"), with certain exceptions, pursuant to the terms of the Mortgage
Note Indenture. The terms of the Mortgage Notes include those stated in the
Mortgage Note Indenture, the Collateral Documents and those made part of the
Mortgage Note Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Mortgage Notes are subject to all such terms, and
holders of Mortgage Notes are referred to the Mortgage Note Indenture, the
Collateral Documents and the Trust Indenture Act for a statement thereof. The
following summary of the material provisions of the Mortgage Note Indenture and
the Collateral Documents does not purport to be complete and is qualified in
its entirety by reference to the Mortgage Note Indenture and the Collateral
Documents, including the definitions therein of certain terms used below. A
copy of the form of Mortgage Note Indenture and each of the Collateral
Documents is available from the Company 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 Mortgage Note Indenture. A copy of the Mortgage Note Indenture has
been filed with the Commission as an exhibit to the Registration Statement. For
purposes of this "Description of Mortgage Notes," the term "Issuers" refers
only to the Issuers and 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.
Ranking and Security
The Mortgage Notes constitute joint and several obligations of the Issuers
and rank senior in right of payment to all Subordinated Indebtedness of the
Issuers. The Secured Mortgage Note Guaranties rank senior in right of payment
to all Subordinated Indebtedness of the Secured Mortgage Guarantors. The
Subordinated Mortgage Note Guaranties rank senior or pari passu in right of
payment to all subordinated indebtedness of the Subordinated Mortgage Note
Guarantors and rank subordinate in right of payment to all Senior Debt of the
Subordinated Mortgage Note Guarantors. As of the date hereof, (i) the only
outstanding Subordinated Indebtedness are the Senior Subordinated Notes; (ii)
Venetian, Mall Manager and Phase II Manager are the only direct Subsidiaries of
the Company and Mall Intermediate Holdings, Phase II Intermediate Holdings,
Mall Construction Subsidiary, Mall Holdings, Phase II Holdings, Mall Subsidiary
and Phase II Subsidiary are the only direct or indirect Subsidiaries of
Venetian; and (iii) Mall Intermediate Holdings, Phase II Intermediate Holdings
and Mall Construction Subsidiary are Restricted Subsidiaries of the Issuers and
Phase II Manager, Phase II Holdings and Phase II Subsidiary are Unrestricted
Subsidiaries of the Issuers. The Board of Directors of the Company has
designated each of Mall Manager, Mall Holdings and Mall Subsidiary as a Special
Subsidiary.
To the extent permitted by applicable law and subject to any required
approval of any Governmental Instrumentality, the Mortgage Notes are secured by
a Lien on the Note Collateral owned by the Issuers and the Secured Mortgage
Note Guaranties are secured by the Note Collateral owned by the Secured
Mortgage Note Guarantors, in each case whether such Note Collateral is now
owned or hereafter acquired. Such Lien is prior to all other Liens on the Note
Collateral, except for Permitted Liens, which includes the Lien on the Project
Assets securing the Bank Credit Facility and the Lien on the Mall Collateral
securing the Mall Construction Loan Facility and the Bank Credit Facility.
Except for the Lien in favor of the Mortgage Notes on the Mortgage Notes
Proceeds Account, the Liens securing the Bank Credit Facility
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and the Mall Construction Loan Facility are each prior to the Liens securing
the Mortgage Notes and the Secured Mortgage Note Guaranties. Mall Construction
Lender has a first priority Lien on the Mall Collateral, the lenders under the
Bank Credit Facility have a first priority Lien on the Project Assets and a
second priority Lien on the Mall Collateral and the holders of the Mortgage
Notes have a second priority Lien on the Project Assets and a third priority
Lien on the Mall Collateral. Upon Completion and the satisfaction of certain
other conditions, the Mall Collateral will be released from the Lien securing
the Bank Credit Facility and the Mortgage Notes and transferred to the Mall
Subsidiary in connection with the release of the Issuers and the Mall
Construction Subsidiary from further obligations under the Mall Construction
Loan Facility. Upon the creation of the Phase II Land as a separate parcel and
the satisfaction of certain other conditions, the Phase II Land may be
transferred to the Phase II Subsidiary and, upon such transfer, the Phase II
Land will be released from the Liens securing the Bank Credit Facility and the
Mortgage Notes.
The Note Collateral includes substantially all of the assets comprising
the Project, except as described below. In addition to the Note Collateral, the
Mortgage Notes are secured by a first priority pledge of the Mortgage Notes
Proceeds Account. The Note Collateral does not include: (i) the assets of the
Phase II Subsidiary and, after the release thereof, the Mall Collateral; (ii)
certain equipment owned by the HVAC Provider relating to the Project; (iii) the
Specified FF&E; (iv) 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 Mortgage Note Trustee or a holder or beneficial holder of the
Mortgage 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); (v) a pledge of the capital stock of the Company or Venetian or any of
the Issuers' Subsidiaries; and (vi) 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 (b), (c),
(i) or (o) of the definition of "Permitted Liens."
The right of the Mortgage Note 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 Mortgage 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 Mortgage Note 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 Mortgage Note 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 arrangement under which the Holders of the
Mortgage Notes would not share in the profits or losses of gaming operations.
In addition, if the Mortgage Note Trustee acquires and operates the Note
Collateral, the Mortgage Note Trustee and the Holders of the Mortgage 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--Ability to Realize on Collateral and
Exercise Remedies" and "--Certain Bankruptcy Considerations."
Principal, Maturity and Interest
The Mortgage Notes are joint and several secured obligations of the
Issuers, limited in aggregate principal amount to $425.0 million and will
mature on November 15, 2004. The Mortgage Notes bear interest at the rate of
12-1/4% per annum of the principal amount then outstanding from the Issuance
Date to the date of payment of such principal amount. Installments of interest
become due and payable semi-annually in arrears on May 15 and November 15 of
each year, commencing May 15, 1998, to the holders of record at the close of
business on the preceding May 1 or November 1. Additionally, installments of
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<PAGE>
accrued and unpaid interest will become due and payable with respect to any
principal amount of the Mortgage 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 Mortgage Notes.
Interest on the Mortgage Notes is computed on the basis of a 360-day year,
consisting of twelve 30-day months. Each installment of interest is 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
Mortgage Notes are 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 Mortgage Notes at their respective addresses
set forth in the register of holders of Mortgage Notes; provided that all
payments of principal, premium and Liquidated Damages, if any and interest on
the Mortgage Notes the holders of which have given wire transfer instructions
to the Issuers are 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 is the
office of the Mortgage Note Trustee maintained for such purpose. The Mortgage
Notes are issued in registered form, without coupons, and in denominations of
$1,000 and integral multiples thereof.
Mandatory Redemption
The Issuers are not required to make mandatory redemptions or sinking fund
payments prior to maturity with respect to the Mortgage Notes.
Optional Redemption
Except as described below, the Mortgage Notes are not redeemable at the
option of the Issuers prior to November 15, 2001. On or after November 15,
2001, the Mortgage 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' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on November 15 of the years indicated below:
<TABLE>
<CAPTION>
Percentage
of Principal
Year Amount
------------------------------- ------------
<S> <C>
2001 .......................... 106.125%
2002 .......................... 103.063%
2003 and thereafter ........... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to November 15, 2000, the
Issuers may on any one or more occasions redeem up to 35% of the aggregate
principal amount of Mortgage Notes originally issued at a redemption price of
112.25% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the redemption date, with the proceeds
of or the savings recognized from one or more Redemption Triggering Events;
provided that at least 65% of the aggregate principal amount of Mortgage Notes
originally issued remain outstanding immediately after the occurrence of such
redemption; and provided, further, that (i) such redemption shall occur within
60 days of the date of such Redemption Triggering Event and (ii) Mortgage Notes
held by the Issuers and not cancelled will not be deemed to be outstanding for
purposes of calculating the aggregate principal amount of Mortgage Notes
outstanding after the occurrence of such redemption.
In addition, at any time prior to November 15, 2001, the Issuers may, at
their option, redeem the Mortgage Notes, in whole or in part, at a redemption
price equal to 100% of the principal amount thereof plus the applicable
Mortgage Note Make-Whole Premium, plus, to the extent not included in the
Mortgage Note Make-Whole Premium, accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption. For purposes of the foregoing,
"Mortgage Note Make-Whole Premium" means, with respect to a Mortgage Note, an
amount equal to the greater of (i) 12.25% of the outstanding principal amount
of such Mortgage Note and (ii) the excess of (a) the present value of the
remaining interest, premium and principal payments due on such Mortgage Note as
if such Mortgage Note were redeemed on
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November 15, 2001, computed using a discount rate equal to the Treasury Rate
plus 50 basis points, over (b) the outstanding principal amount of such
Mortgage Note.
Notwithstanding any other provision hereof, if any Gaming Authority
requires that a holder or beneficial owner of the Mortgage Notes must be
licensed, qualified or found suitable under any applicable gaming laws in order
to maintain any gaming license or franchise of the Company 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, (i) to require such holder or beneficial
owner to dispose of such holder's or beneficial owner's Mortgage 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 (ii) to
call for redemption of the Mortgage Notes of such holder or beneficial owner at
a redemption price equal to the lesser of the principal amount thereof or the
price at which such holder or beneficial owner acquired the Mortgage Notes,
together with, in either case, accrued and unpaid interest and Liquidated
Damages, if any, to the earlier of the date of redemption or, the date of the
finding of unsuitability by such Gaming Authority, which may be less than 30
days following the notice of redemption if so ordered by such 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
Mortgage Notes for redemptions of the Mortgage Notes. Under the Mortgage Note
Indenture, the Issuers are not required to pay or reimburse any holder of the
Mortgage 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
"Regulation and Licensing."
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 Mortgage 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. Within 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 Mortgage Notes properly
tendered pursuant to such Change of Control Offer will be accepted for payment;
(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 Mortgage 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 Mortgage 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 Mortgage Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Mortgage Notes, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Mortgage 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 Mortgage Notes and their election to require the Issuers to
purchase the Mortgage 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 Mortgage Note Indenture), a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of Mortgage Notes tendered for purchase, and a statement that such
holder is withdrawing his tendered Mortgage Notes and his election to have such
Mortgage Notes purchased; and (7) that holders whose Mortgage Notes are being
purchased only in part will be issued new Mortgage Notes equal in principal
amount to the unpurchased portion of the Mortgage Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof.
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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 Mortgage 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 Mortgage 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 Mortgage Notes or portions thereof so tendered and (3) deliver,
or cause to be delivered, to the Mortgage Note Trustee for cancellation the
Mortgage Notes so accepted together with an Officers' Certificate stating that
such Mortgage Notes or portions thereof have been tendered to and purchased by
the Issuers. The paying agent will promptly mail to each holder of Mortgage
Notes the Change of Control Payment for such Mortgage Notes, and the Mortgage
Note Trustee will promptly authenticate and mail to each holder a new Mortgage
Note equal in principal amount to any unpurchased portion of the Mortgage Notes
surrendered, if any, provided, that each such new Mortgage 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 Mortgage 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.
The source of funds for any repurchase of Mortgage 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 Mortgage Notes tendered pursuant to a Change of Control Offer will
be deemed an Event of Default.
The Bank Credit Facility and the Mall Construction Loan Facility contain,
and future agreements relating to any senior debt of the Issuers may contain,
restrictions or prohibitions on the Issuers' ability to repurchase the Mortgage
Notes. In the event that a Change of Control occurs at a time when the Issuers
are prohibited from repurchasing the Mortgage Notes, the Issuers could seek the
consent of their lenders to purchase the Mortgage 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 Mortgage Notes. In such
case, the Issuers' failure to repurchase the Mortgage Notes tendered in the
Change of Control Offer would constitute an Event of Default under the Mortgage
Note Indenture which would in turn constitute an event of default under the
agreements governing the Issuers of the senior debt. See "Description of Other
Indebtedness."
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 Mortgage Notes to
require the Issuers to repurchase such Mortgage 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.
Asset Sales
The Mortgage Note Indenture provides that the Issuers will not, and will
not permit any of their Restricted Subsidiaries to consummate an Asset Sale,
unless (w) no Default or Event of Default exists or is continuing immediately
prior to or after giving effect to such Asset Sale, (x) 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 Mortgage Note Trustee) of the assets sold or otherwise disposed of and (y)
at least 85% 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 Restricted Subsidiary's, as the case may be,
most
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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 Mortgage Notes or any Mortgage Note Guaranty,
which may be assumed only if such liabilities are deemed to be Restricted
Payments in the case of the Issuer or any Restricted Subsidiary), 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 (y) of this
paragraph and for no other purpose.
Within 180 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 (i) to permanently
reduce Indebtedness under the Bank Credit Facility or other Indebtedness that
is not Subordinated Indebtedness, (ii) 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, or (iii) 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 Mortgage Notes. Pending the final application of any such
Net Proceeds, such Issuer or such Restricted Subsidiary may temporarily reduce
Indebtedness under the Bank Credit Facility or another revolving credit
facility, if any, or otherwise invest such Net Proceeds in Cash Equivalents
which shall be pledged to the Mortgage Note Trustee or an agent thereof
(including an agent under the Bank Credit Facility) as security for the holders
of Mortgage 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 (i) such Cash Equivalents shall be pledged to
the Disbursement Agent as security for the Lenders prior to Completion and (ii)
such Cash Equivalents need not be pledged to the Mortgage Note Trustee or an
agent thereof (including an agent under the Bank 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 180 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 the Bank Credit Facility and
the Mall Construction Lender, make an offer to all holders of Mortgage Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Mortgage
Notes, that is an integral multiple of $1,000, that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 101% 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 Mortgage Note Indenture. The Issuers will
commence an Asset Sale Offer with respect to Excess Proceeds within 30 days
after the date that Excess Proceeds exceeds $10.0 million by mailing the notice
required pursuant to the terms of the Mortgage Note Indenture. To the extent
that the aggregate amount of Mortgage 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 or to offer to redeem
Senior Subordinated Notes pursuant to the provisions of the Senior Subordinated
Note Indenture described below under the caption "Description of Senior
Subordinated Notes --Repurchase at the Option of the Holders--Asset Sales." If
the aggregate principal amount of Mortgage Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Mortgage Note Trustee shall select
the Mortgage 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 Mortgage Note
Indenture also requires the Issuers or such Restricted Subsidiary to grant (i)
to the lenders under the Bank Credit Facility a first priority lien and (ii) to
the Mortgage Note Trustee, on behalf of the holders of the Mortgage 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. To the extent that any assets subject to an Asset Sale were
subject to Liens securing the Mall Collateral prior to such Asset Sale, the
Mortgage Note Indenture also requires the Issuers or such Restricted Subsidiary
to grant (i) to the Mall Construction Lender a first priority lien, (ii) to
the lenders under the Bank Credit Facility a second priority lien and (iii) to
the Mortgage Note Trustee, on behalf of the holders
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of the Mortgage Notes, a third priority lien, in each case, on any property or
assets acquired with the Net Proceeds of any such Asset Sale.
Event of Loss
The Mortgage Note Indenture provides that 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 $1.5 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 (X) the rebuilding, repair, replacement or
construction of improvements to the Project, with no concurrent obligation to
make any purchase of any Mortgage Notes; provided that (A) if such Event of
Loss occurs prior to Completion, the Issuers ability to apply such Net Loss
Proceeds to rebuild, repair, replace or construct improvements to the Project
will be subject to the terms of the Disbursement Agreement and (B) if such
Event of Loss occurs on or after Completion, the Issuers deliver to the
Mortgage Note 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 Project 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, (Y)
permanently reduce Indebtedness or commitments under the Bank Credit Facility
or other Indebtedness that is not Subordinated Indebtedness or (Z) 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 Mortgage
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 Indebtedness under the Bank Credit Facility or another revolving credit
facility, if any, or otherwise invest such Net Loss Proceeds in Cash
Equivalents which shall be pledged to the Mortgage Note Trustee or an agent
thereof (including the agent under the Bank Credit Facility) as security for
the holders of Mortgage 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) such Cash Equivalents
shall be pledged to the Disbursement Agent as security for the lenders prior to
Completion and (ii) such Cash Equivalents need not be pledged to the Mortgage
Note Trustee or an agent thereof (including the agent under the Bank Credit
Facility) to the extent that the assets subject to such 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 the Bank
Credit Facility and Mall Construction Lender, make an offer to all holders of
Mortgage Notes (an "Event of Loss Offer") to purchase the maximum principal
amount of Mortgage Notes, that is an integral multiple of $1,000, that may be
purchased out of the Excess Loss Proceeds at an offer price 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 Mortgage Note
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
exceeds $10.0 million by mailing the notice required pursuant to the terms of
the Mortgage Note Indenture. To the extent that the aggregate amount of
Mortgage 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 or to offer to redeem Senior
Subordinated Notes pursuant to the provisions of the Senior Subordinated Note
Indenture described below under the caption "Description of Senior Subordinated
Notes--Repurchase at the Option of the Holders--Asset Sales." If the aggregate
principal amount of Mortgage Notes surrendered by holders thereof exceeds the
amount of Excess Loss Proceeds, the Mortgage Note Trustee shall select the
Mortgage 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 Mortgage Note
Indenture also requires the Issuers or such Restricted Subsidiary to grant (i)
to the lenders under the Bank Credit Facility a first priority lien and (ii) to
the Mortgage Note Trustee, on behalf of the holders of the
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Mortgage 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. If the Event of Loss
occurred prior to Completion, then to the extent that any assets subject to an
Event of Loss were subject to liens securing the Mall Collateral prior to such
Event of Loss, the Mortgage Note Indenture also requires the Issuers or the
applicable Restricted Subsidiary to grant (i) to the Mall Construction Lender a
first priority lien, (ii) to the lenders under the Bank Credit Facility a
second priority lien and (iii) to the Mortgage Note Trustee, on behalf of the
holders of the Mortgage Notes, a third priority Lien, in each case on any
property or assets rebuilt, repaired or constructed with the Net Loss Proceeds
of any such Event of Loss.
Selection and Notice
If less than all of the Mortgage Notes are to be purchased in an Asset
Sale Offer or Event of Loss Offer or redeemed at any time, selection of
Mortgage Notes for purchase or redemption will be made by the Mortgage Note
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Mortgage Notes are listed, or, if the
Mortgage Notes are not so listed, on a pro rata basis, by lot or by such other
method as the Mortgage Note Trustee shall deem fair and appropriate (and in
such manner as complies with applicable legal requirements); provided, that no
Mortgage 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 Mortgage Notes to be purchased or redeemed at
such holder's registered address. Notices of redemption may not be conditional.
If any Mortgage Note is to be purchased or redeemed in part only, any notice of
purchase or redemption that relates to such Mortgage Note shall state the
portion of the principal amount thereof that has been or is to be purchased or
redeemed.
A new Mortgage Note in principal amount equal to the unpurchased or
unredeemed portion of any Mortgage Note purchased or redeemed in part will be
issued in the name of the holder thereof upon cancellation of the original
Mortgage Note. Mortgage 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 or redemption price), interest and
Liquidated Damages, if any, shall cease to accrue on Mortgage Notes or portions
thereof purchased or called for redemption.
Certain Covenants
Gaming Licenses
The Mortgage Note Indenture provides that the Issuers will use their best
efforts to obtain and retain in full force and effect at all times all Gaming
Licenses necessary for the operation of the Project.
Restricted Payments
The Mortgage Note Indenture provides that the Issuers will not, and will
not permit any of their Restricted Subsidiaries to, directly or indirectly: (i)
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 (1) dividends or distributions by the Issuers payable in Equity
Interests (other than Disqualified Stock) of the Issuers (or accretions
thereon); or (2) dividends or distributions paid to the Issuers or a Wholly
Owned Restricted Subsidiary of the Issuers); (ii) 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 of its Restricted Subsidiaries, or any other
Affiliate of the Issuers (other than any such Equity Interests owned by the
Issuers or any Wholly Owned Restricted Subsidiary of the Issuers); (iii) make
any payment on or with respect to or 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 interest
and principal payments with respect to any such Subordinated Indebtedness);
(iv) make any payment in respect of repayment or reimbursement of amounts
advanced under any obligation under the Completion Guaranty; or (v) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (v) above being collectively referred to as "Restricted Payments"),
unless, at the time of such Restricted Payment:
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(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
(ii), (iii), (v), (vi), (vii), (viii), (ix) (but only to the extent necessary
under clause (ix) to pay the fees and expenses of any lenders or agents under
the Tranche A Take-out Commitment), (x), (xiii), (xiv), (xv) and (xvii) of the
next succeeding paragraph and including the other Restricted Payments permitted
by the next paragraph), is less than the sum of (X) 50% of (1) the Consolidated
Net Income of the Company for the period (taken as one accounting period) from
the first day after the Project is Completed 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) less (2) the amount paid or to be paid in
respect of such period pursuant to clause (v) of the next following paragraph
to shareholders or members other than the Issuers, plus (Y) 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 (Z) 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 Special Subsidiary or in respect of any Restricted Investment
(other than dividends or distributions to pay obligations of or with respect to
such Unrestricted Subsidiary or Special Subsidiary such as income taxes) until
the entire amount of the Investment in such Unrestricted Subsidiary or Special
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 or Special
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.
The foregoing provisions do not prohibit (i) 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
Mortgage Note Indenture; (ii) (a) an Investment in Phase II Subsidiary, Phase
II Manager, Phase II Holdings or any Special Subsidiary or (b) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Issuers or any Restricted Subsidiary, in each case, 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)(Y) of
the preceding paragraph; (iii) 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 (other than any
Subordinated Indebtedness issued in respect of the Completion Guaranty) of the
Issuers or such Restricted Subsidiary or Equity Interests of the Issuers (other
than Disqualified Stock); provided, however, that (1) the principal amount of
such Subordinated Indebtedness incurred pursuant to this clause (iii) shall not
exceed the principal amount of the Subordinated Indebtedness so redeemed,
repurchased, retired or otherwise acquired (plus the amount of reasonable
expenses incurred and any premium paid in connection therewith), (2) such
Subordinated Indebtedness shall have a Weighted Average Life to Maturity equal
to or greater than the Weighted Average Life to Maturity of the Subordinated
Indebtedness being redeemed, repurchased,
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retired or otherwise acquired, (3) such Subordinated Indebtedness is subordinate
in right of payment to the Mortgage Notes and any Mortgage Note Guaranty on
terms at least as favorable to the holders of the Mortgage Notes or the Mortgage
Note Guaranties as those contained in the documentation governing the
Subordinated Indebtedness being redeemed, repurchased, retired or otherwise
acquired and (4) the net cash proceeds from the sale of any Equity Interests
issued pursuant to this clause (iii) shall be excluded from clause (c)(Y) of the
preceding paragraph; (iv) any redemption or purchase by the Issuers or any
Restricted Subsidiary of Equity Interests or Subordinated Indebtedness of either
of the Issuers 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; (v) (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 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 non-Wholly
Owned Subsidiaries of either of the Issuers or any Restricted Subsidiary of the
Issuers but only to the extent required to pay any tax liability of such
non-Wholly Owned Subsidiary; (vi) the transfer of the Mall Collateral to the
Mall Subsidiary in accordance with the Sale and Contribution Agreement and the
Disbursement Agreement and the transfer of 1% managing members interests in Mall
Subsidiary and Mall Holdings to Mall Manager; (vii) the transfer of the Phase II
Land to the Phase II Subsidiary and the transfer of 1% managing members
interests in Phase II Subsidiary and Phase II Holdings to Phase II Manager;
(viii) Investments by the Issuers in Supplier Joint Ventures in an amount not to
exceed $10.0 million in the aggregate; (ix) Investments in any Special
Subsidiary in an amount not to exceed $2.0 million in the aggregate (plus
amounts necessary to fund the fees and expenses of the lenders or agents under
the Tranche A Take-out Commitment), excluding for purposes of this clause (ix)
the value of any Restricted Payments under clauses (ii), (vii) or (xiv); (x)
intercompany payments, including without limitation, debt repayments, between or
among the Issuers and their Wholly Owned Restricted Subsidiaries; (xi) 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), in each case, as in effect on the date of the Mortgage Note
Indenture and as approved by the board of directors of the Company under which
such individuals purchase or sell, or are granted the option to purchase or
sell, shares of such common stock (the "Employee Stock Buybacks"); (xii)
following an initial Public Equity Offering, dividends or common stock buybacks
in an aggregate amount in any calendar year not to exceed 6% of the aggregate
Net Proceeds received by either of the Issuers in connection with such initial
Public Equity Offering and any subsequent Public Equity Offering; (xiii)
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; (xiv) cash contributions to a Special Subsidiary
which are funded through a contribution (that does not constitute Disqualified
Stock) by the Sole Stockholder or any of his Affiliates to either of the Issuers
and any related Investment in any Special Subsidiary by either of the Issuers or
any Restricted Subsidiary; provided that the amount of such contributions shall
be excluded from clause (c)(Y) of the proceeding paragraph; (xv) contributions
of cash, real property or other property to the Phase II Subsidiary, Phase II
Holdings or Phase II Manager by the Sole Stockholder or any of his Affiliates
through a contribution (that does not constitute Disqualified Stock) to either
of the Issuers and any related Investment in the Phase II Subsidiary, Phase II
Holdings or Phase II Manager by either of the Issuers or any Restricted
Subsidiary; provided that the amount of such contributions shall be excluded
from clause (c)(Y) of the proceeding paragraph; (xvi) the payment of any Change
of Control Payment (as defined in the Senior Subordinated Note Indenture) and/or
the
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application of the Excess Proceeds (as defined in the Senior Subordinated Note
Indenture) from any Asset Sale Offer (as defined in the Senior Subordinated
Note Indenture), in each case, to redeem or repurchase Senior Subordinated
Notes in accordance with provisions of the Senior Subordinated Note Indenture
described below under the caption "Description of Senior Subordinated Notes
- --Repurchase at the Option of the Holders"; (xvii) on the Final Completion Date
(as defined in the Disbursement Agreement), payments on the Completion Guaranty
Loan from amounts which are returned to the Mall Construction Subsidiary from
funds in the Mall Retainage/Punchlist Account (as defined in the Disbursement
Agreement) in accordance with the Mall Escrow Agreement (as defined in the
Disbursement Agreement); provided that such payments shall not be greater than
all amounts previously deposited into the Mall Retainage/ Punchlist Account
from the Guaranty Deposit Account (as defined in the Disbursement Agreement);
(xviii) the repayment of all or a portion of the Completion Guaranty Loan with
Available Funds to the extent permitted by the terms of the Disbursement
Agreement and the Completion Guaranty or, after Completion, with funds received
by the Company as a result of judgments or settlements of claims under the
Project Documents (including insurance policies and the Construction Management
Contract); and (xix) the repayment of the Substitute Tranche B Loan with the
proceeds of the Permitted Construction Loan Refinancing or the assumption of
the Substitute Tranche B Loan by the Mall Subsidiary; provided, that at the
time of, and after giving effect to, any Restricted Payment permitted under
clauses (ii) (b) (to the extent that any Equity Interests are redeemed, retired
or acquired from the cash proceeds from the sale or issuance of Equity
Interests), (iii) (to the extent that any Subordinated Indebtedness is
defeased, redeemed, retired, repurchased or otherwise acquired from the cash
proceeds from the sale or issuance of other Subordinated Indebtedness or Equity
Interests), (viii), (ix), (xii), and (xviii), no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof.
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.
Special Subsidiary Restricted Payments
The Mortgage Note Indenture provides that a Special Subsidiary will not
and will not permit any of its Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any distribution on account of its Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving such Special Subsidiary or its Subsidiaries)
(other than (1) dividends or distributions paid or made pro rata to all holders
of Equity Interests of such Special Subsidiary or its Subsidiaries; (2)
dividends or distributions by such Special Subsidiary payable in Equity
Interests (other than Disqualified Stock) of such Special Subsidiary (or
accretions thereon); or (3) dividends or distributions paid to such Special
Subsidiary or a Wholly Owned Subsidiary of such Special Subsidiary by a
Subsidiary of such Special Subsidiary); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving any Special Subsidiary or its
Subsidiaries) any Equity Interests of any Special Subsidiary or any Subsidiary
of any Special Subsidiary; or (iii) make any Special Subsidiary Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iii) above being collectively referred to as "Special Subsidiary
Restricted Payments").
The foregoing provisions do not prohibit (i) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of any Special
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale or issuance (other than to the Issuers or any Restricted
Subsidiary of the Issuers) of Equity Interests of such Special Subsidiary and
(ii) the payment to or declaration or payment of any distribution or dividend
to the Issuers and any of their Restricted Subsidiaries or the redemption,
repurchase, retirement or other acquisition of any Equity Interests of any
Special Subsidiary held by the Issuers or any Wholly Owned Restricted
Subsidiary.
For purposes of determining the amount of Special Subsidiary Restricted
Investments outstanding at any time, all Special Subsidiary Restricted
Investments are 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 are made for subsequent changes in fair market value.
In addition, after the transfer of the Mall Collateral to the Mall
Subsidiary, the assets comprising the Mall Collateral may not be sold, leased
or transferred to an Affiliate of the Issuers other than an Issuer, any
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Restricted Subsidiary or any Special Subsidiary that is a Subsidiary of Mall
Intermediate Holdings and in which the Sole Stockholder does not own any Equity
Interests directly or indirectly, except through the Issuers.
Designation of Unrestricted Subsidiary
The Mortgage Note Indenture provides that the Board of Directors of the
Company may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary; provided, that: (i) 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 Board of Directors and, in
the case of Investments in excess of $5.0 million, supported by a fairness
opinion issued by an accounting, appraisal or investment banking firm of
national standing; (ii) 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 Mortgage Note
Indenture, including the provisions described under the covenants entitled
"Restricted Payments" and "Repurchase at the Option of Holders--Asset Sales";
(iii) 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; (iv) at the time of designation, such Subsidiary has no
Indebtedness other than Non-Recourse Indebtedness of such Subsidiary; (v) such
Subsidiary does not own any Equity Interests in a Restricted Subsidiary; and
(vi) 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.
A Subsidiary ceases to be an Unrestricted Subsidiary and becomes a
Restricted Subsidiary if either (i) at any time while it is a Subsidiary of the
Company (1) such Subsidiary acquires any assets from the Company or any
Restricted Subsidiary other than as permitted by the provisions of the Mortgage
Note Indenture, including the provisions described under the covenants entitled
"Restricted Payments" and "Repurchase at the Option of Holders--Asset Sales";
(2) such Subsidiary has any Indebtedness other than Non-Recourse Indebtedness
of such Subsidiary; (3) such Subsidiary owns any Equity Interests in a
Restricted Subsidiary of the Company; or (4) 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 or
(ii) 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, each of Phase II Subsidiary, Phase II Manager and
Phase II Holdings is designated an Unrestricted Subsidiary. Any future
designation by the Board of Directors of the Company shall be evidenced to the
Mortgage Note Trustee by filing with the Mortgage Note 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.
As of the date hereof, the Issuers have no Unrestricted Subsidiaries other
than Phase II Subsidiary, Phase II Holdings and Phase II Manager. Under certain
circumstances, as described above, the Company is able to designate future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries are not
subject to any of the restrictive covenants set forth in the Mortgage Note
Indenture and will not be Mortgage Note Guarantors.
In addition, after the transfer of the Phase II Land to the Phase II
Subsidiary, 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 that is a Subsidiary of Phase II Intermediate Holdings
and in which the Sole Stockholder does not own any Equity Interests, directly
or indirectly.
Designation of Special Subsidiary
The Mortgage Note Indenture provides that the Board of Directors of the
Company may designate any Restricted Subsidiary to be a Special Subsidiary;
provided, that: (i) 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
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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
Board of Directors of the Company and, in the case of Investments in excess of
$5.0 million, supported by a fairness opinion issued by an accounting,
appraisal or investment banking firm of national standing; (ii) since the
Issuance Date, such Special Subsidiary has not acquired any assets from the
Issuers or any Restricted Subsidiary other than as permitted by the provisions
of the Mortgage Note Indenture, including the provisions described under the
covenants entitled "Restricted Payments" and "Repurchase at the Option of
Holders--Asset Sales"; (iii) 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; (iv) at the time of designation, such
Subsidiary has no Indebtedness other than Non-Recourse Indebtedness of such
Subsidiary; (v) such Subsidiary does not own any Equity Interests in a
Restricted Subsidiary; and (vi) 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.
A Subsidiary shall cease to be a Special Subsidiary and shall become a
Restricted Subsidiary if either (i) at any time while it is a Subsidiary of the
Issuers (1) such Subsidiary acquires any assets from the Issuers or any
Restricted Subsidiary other than as permitted by the provisions of the Mortgage
Note Indenture, including the provisions described under the covenants entitled
"Restricted Payments" and "Repurchase at the Option of Holders--Asset Sales";
(2) such Subsidiary has any Indebtedness other than Non-Recourse Indebtedness
of such Subsidiary; (3) such Subsidiary owns any Equity Interests in a
Restricted Subsidiary of the Issuers; or (4) 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 or
(ii) the Issuers designate such Special Subsidiary to be a Restricted
Subsidiary and no Default or Event of Default occurs or is continuing
immediately after such designation.
Any such designation by the Board of Directors shall be evidenced to the
Mortgage Note Trustee by filing with the Mortgage Note Trustee a certified copy
of the resolution 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.
As of the Issuance Date, Mall Subsidiary, Mall Holdings and Mall Manager
were each a Special Subsidiary. Under certain circumstances, as described
above, the Company is able to designate certain Subsidiaries as Special
Subsidiaries. Special Subsidiaries are not subject to all of the restrictive
covenants set forth in the Mortgage Note Indenture and will not be Mortgage
Note Guarantors.
Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock
The Mortgage Note Indenture provides that 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 Issuers and their
Restricted Subsidiaries may incur Indebtedness or issue shares of Disqualified
Stock if (i) the Project is Completed and (ii) 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 do not apply to:
(a) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Indebtedness under the Bank Credit Facility in an aggregate principal amount
not to exceed at any one time $170.0 million, less (i) the aggregate amount of
all principal repayments and mandatory prepayments (other than repayments made
under a revolving loan facility prior to maturity or in connection with a
refinancing permitted under the Mortgage Note Indenture) actually made from
time to time after the date of the Mortgage Note Indenture with respect to such
Indebtedness, and (ii) permanent reductions resulting from the application of
Asset Sale or Event of Loss proceeds;
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(b) the incurrence by the Issuers or any of their Restricted Subsidiaries
of any Existing Indebtedness;
(c) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Indebtedness represented by the Mortgage Notes, the Mortgage Note
Guaranties, the Senior Subordinated Notes, the Senior Subordinated Note
Guaranties 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), (c), this clause (d), (g), (h), (j) or (l); 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), (2)
if the Indebtedness being extended, refinanced, renewed, replaced, substituted
or refunded is subordinate in right of payment to the Mortgage Notes, such
Refinancing Indebtedness shall be subordinate in right and priority of payment
to the Mortgage Notes and any Mortgage Note Guaranty on terms at least as
favorable to the holders of Mortgage Notes and the Mortgage Note Guaranties 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 Mortgage
Note Guarantor and any Wholly Owned Restricted Subsidiary of the Issuers;
provided, however, the obligations to pay principal, interest or other amounts
under such intercompany Indebtedness is subordinated to the payment in full of
the Mortgage Notes and any Mortgage Note Guaranties;
(f) Hedging Obligations that are incurred (1) for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of the Mortgage Note Indenture to be 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 Indebtedness (which may include Capital Lease Obligations or purchase money
obligations), incurred for the purpose of financing all or any part of the
purchase or lease of personal property or equipment, including the Specified
FF&E, used in the business of the Issuers or such Restricted Subsidiary, in an
aggregate principal amount pursuant to this clause (g) (including any
refinancings thereof pursuant to clause (d) above) not to exceed $100.0 million
(plus accrued interest thereon and the amount of reasonable expenses incurred
and premium paid in connection with any refinancing pursuant to clause (d)
above) outstanding at any time;
(h) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Non-Recourse Financing used to finance the purchase or lease of personal or
real property used in the business of the Issuers or such Restricted
Subsidiary; provided, that (i) such Non-Recourse Financing represents at least
75% of the purchase price of such personal or real property; (ii) the
Indebtedness incurred pursuant to this clause (h) (including any refinancings
thereof pursuant to clause (d) above) shall not exceed $50.0 million (plus the
amount of reasonable expenses incurred and premium paid in connection with any
refinancing pursuant to clause (d) above) outstanding at any time; and (iii) no
such Indebtedness may be incurred pursuant to this clause (h) unless the
Project is Completed and the Company shall have generated at least $10.0
million of Consolidated Cash Flow in one fiscal quarter;
(i) 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; 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
(i) at any one time of less than $20.0 million;
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(j) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Subordinated Indebtedness to the Sole Stockholder pursuant to an advance
under the Completion Guaranty in an aggregate amount not to exceed $25.0
million plus accrued interest thereon; provided that such Subordinated
Indebtedness has a Weighted Average Life to Maturity greater than the Senior
Subordinated Notes and is by its terms subordinated to the Mortgage Notes and
the Senior Subordinated Notes;
(k) the incurrence by the Issuers of up to $140.0 million of Indebtedness
represented by the Mall Construction Loan Facility;
(l) the incurrence by the Issuers of Indebtedness represented by the
Substitute Tranche B Loan plus accrued interest thereon; provided that such
Indebtedness has a Weighted Average Life to Maturity greater than the Senior
Subordinated Notes and is by its terms subordinated to the Mortgage Notes;
(m) the incurrence by the Issuers of unsecured Indebtedness (subordinated
in right of payment to the Senior Subordinated Notes) issued in connection with
the Employee Stock Buybacks permitted under clause (xi) of the covenant
described above under the caption "--Restricted Payments";
(n) the incurrence by the Issuers or any Restricted Subsidiary of (A)(i)
at any time prior to Completion, additional Indebtedness under clause (a) or
(k) in an aggregate amount not to exceed $20.0 million, plus (ii) after a
default under the Disbursement Agreement and at any time prior to Completion,
additional Indebtedness under clause (a) or (k) in an aggregate amount not to
exceed $30.0 million (provided that Indebtedness incurred pursuant to this
clause (n)(A)(ii) is matched, dollar for dollar, by additional equity
investments by the Sole Stockholder or an Affiliate of the Sole Stockholder),
in the case of each of clause (A)(i) and (A)(ii), incurred in accordance with
the Intercreditor Agreement and (B) after Completion, additional Indebtedness
in an aggregate amount at any time outstanding not to exceed $25.0 million
(less any amounts incurred pursuant to clause (n)(A) above that remain
outstanding after Completion);
(o) after Completion, the incurrence by the Issuers or any of their
Restricted Subsidiaries of Indebtedness under any Working Capital Facility in
an aggregate amount at any time outstanding not to exceed $20.0 million;
(p) the incurrence by the Issuers of Indebtedness incurred for the purpose
of financing all or any part of the purchase or lease of gaming equipment to be
used in connection with the casino located at the casino resort to be owned by
Phase II Subsidiary or any casino operated pursuant to an Other Phase II
Agreement in an aggregate amount at any time outstanding not to exceed $10.0
million; provided, that upon default under such Indebtedness, the lender under
such Indebtedness may seek recourse or payment against the Issuers only through
the return or sale of the property or equipment so purchased or leased and may
not otherwise assert a valid claim for payment on such Indebtedness against the
Issuers or any other property of the Issuers; and
(q) the guaranty 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.
The Mortgage Note Indenture provides that the Issuers will not permit any
of their Unrestricted Subsidiaries or Special 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 or Special Subsidiary ceases to remain
an Unrestricted Subsidiary or Special Subsidiary, such event shall be deemed to
constitute the incurrence of the Indebtedness in such Subsidiary by a
Restricted Subsidiary. For a discussion of the Issuers' ability to incur
additional Indebtedness, see "Description of Intercreditor Agreement."
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 (q) 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 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 will not be deemed to be an incurrence of Indebtedness
for purposes of this covenant.
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Upon any refinancing or replacement of the Bank Credit Facility with a
lender that does not become party to the Intercreditor Agreement, the Mortgage
Note Trustee shall enter into an intercreditor agreement with such lender with
terms that are no less favorable to the Mortgage Note Trustee or the Holders of
Mortgage Notes than those contained in the Intercreditor Agreement.
Liens
The Mortgage Note Indenture provides that 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
The Mortgage Note Indenture provides that 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 (i) 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; (ii) 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 Mortgage Note Indenture and the
Collateral Documents pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Mortgage Note Trustee under
the Mortgage Notes and the Mortgage Note Indenture; (iii) immediately after
such transaction no Default or Event of Default exists; (iv) such transaction
will not result in the loss or suspension or material impairment of any
material Gaming License; (v) 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 (A) will
have Consolidated Net Worth (immediately after the transaction but prior to any
purchase accounting adjustments resulting from the transaction) equal to or
greater than the Consolidated Net Worth of the Company or Venetian immediately
preceding the transaction and (B) 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 (vi) such transactions
would not require any holder of Mortgage 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 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, the Issuers may consolidate or merge with or wind up into each
other without meeting the requirements set forth in clause (v) above.
Transactions with Affiliates
The Mortgage Note Indenture provides that the Issuers will not, and will
not permit any of their Restricted Subsidiaries or Special 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 guaranty with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(a) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary or Special Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary or Special Subsidiary with an unrelated Person and
(b) the Company delivers to the Mortgage Note Trustee (i) with respect to any
Affiliate Transaction involving aggregate payments in excess of (A) $500,000,
an Officers' Certificate
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certifying that such Affiliate Transaction complies with clause (a) above, or
(B) $1.0 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 (a) above and (ii) with respect to
any Affiliate Transaction that is a loan transaction involving a principal
amount in excess of $10.0 million or any other type of Affiliate Transaction
involving aggregate payments in excess of $10.0 million, an opinion as to the
fairness to the Company or such Restricted Subsidiary or Special Subsidiary
from a financial point of view issued by an Independent Financial Advisor. The
foregoing provisions do not apply to the following: (f) rental payments from
Mall Subsidiary to Venetian under the Billboard Lease, as in effect on the date
of the Mortgage Note Indenture; (g) the lease agreement relating to a
restaurant to be operated by Wolfgang Puck and currently contemplated to be
known as "Oba Chine" restaurant on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary or Special Subsidiary than those
that would have been obtained with an unrelated Person; (h) the Services
Agreement, as in effect on the date of the Mortgage Note Indenture; (i) the
Other Phase II Agreements on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary or Special Subsidiary than those that would
have been obtained with an unrelated Person; (j) purchases of materials or
services from a Joint Venture Supplier by the Issuers or any of their
Restricted Subsidiaries or Special Subsidiaries in the ordinary course of
business on arm's length terms; (k) any employment, indemnification,
noncompetition or confidentiality agreement entered into by either of the
Issuers or any of their Restricted Subsidiaries or Special Subsidiaries with
their employees or directors in the ordinary course of business (other than an
employment agreement with the Sole Stockholder); (l) loans or advances to
employees of the Issuers or their Restricted Subsidiaries or Special
Subsidiaries (i) to fund the exercise price of options granted under employment
agreements or the Issuers' stock option plans or agreements in each case, as in
effect on the date of the Mortgage Note Indenture or (ii) for any other purpose
not to exceed $2.0 million in the aggregate outstanding at any one time under
this clause (ii); (m) the payment of reasonable fees to directors of the
Issuers and their Restricted Subsidiaries and Special Subsidiaries who are not
employees of the Issuers or their Restricted Subsidiaries or Special
Subsidiaries; (n) the grant of 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 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"; (o) transactions
between or among the Issuers and/or any of their Restricted Subsidiaries or
transactions between or among the Special Subsidiaries and/or any Wholly-Owned
Subsidiary of Special Subsidiaries; (p) with respect to the Issuers and any
Restricted Subsidiary, Restricted Payments permitted by the provisions of the
Mortgage Note Indenture described above under the caption "Restricted Payments"
and with respect to any Special Subsidiary, Special Subsidiary Restricted
Payments permitted by the provisions of the Mortgage Note Indenture described
above under the caption "Special Subsidiary Restricted Payments"; (q) purchases
of Equity Interests of the Issuers (other than Disqualified Stock) by any
stockholder or member of the Issuers (or an Affiliate of a stockholder or
member of the Issuers); (r) the Completion Guaranty and related Completion
Guaranty Loan; (s) the transactions contemplated by the Cooperation Agreement,
the Mall Lease, the Sale and Contribution Agreement and the HVAC Services
Agreement, in each case, as in effect on the date of the Mortgage Note
Indenture; (t) the use of the Congress Center 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; (u) the transactions contemplated in "Certain Transactions--Temporary
Lease," "--Retirement Plan" and "--Airplane Expenses"; (v) transactions
relating to the Permitted Construction Loan Refinancing, including the Tranche
B Take-out Commitment and the guaranty by the Sole Stockholder of the loan to
be made under the Tranche A Take-out Commitment; (w) transactions relating to
the guaranty of Tranche B Loan of the Mall Construction Loan Facility by the
Sole Stockholder, including the making of the Substitute Tranche B Loan; (x)
the transfer of the Phase II Parcel to the Phase II Subsidiary and, upon
Completion and in accordance with the Sale and Construction Agreement, the
transfer of the Mall Collateral to the Mall Subsidiary; and (y) the Company or
Venetian may enter into and perform their obligations under a gaming operations
lease or management agreement with Phase II Subsidiary relating to the casino
to be operated in the casino resort owned by the Phase II Subsidiary on terms
substantially similar to those of the Casino Lease except that
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(a) the rent payable to the Phase II Subsidiary under such lease shall be equal
to all revenue derived from such casino minus the sum of (1) the operating
costs related to such casino (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), (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).
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Mortgage Note Indenture provides that 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 Mortgage Notes, the Mortgage Note
Guarantees or any other Indebtedness incurred pursuant to the terms of the
Mortgage Note 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 Mortgage Note Indenture, the Mortgage Notes, the Mall
Construction Loan Facility (and any related security agreements), any Mortgage
Note Guarantees, indebtedness incurred pursuant to clause (g), (h), (j), (l),
(n) or (o) of the covenant described above under the caption "Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock" and the
Collateral Documents, (3) the Senior Subordinated Note Indenture, the Senior
Subordinated Notes and the Senior Subordinated Note Guarantees, (4) 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,
provided that the Consolidated Cash Flow of such Person is not taken into
account in determining whether such acquisition was permitted by the terms of
the Mortgage Note Indenture, (5) 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," (6)
purchase money obligations for property acquired 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 stock by the Issuers or any Restricted Subsidiary, or (9) any
encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (8) 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, refunding, replacement or refinancing.
Line of Business
The Mortgage Note Indenture provides that for so long as any Mortgage
Notes are outstanding, the Issuers shall not, and shall not permit any of their
Restricted Subsidiaries or Special Subsidiaries to, engage in any business or
activity other than, (i) with respect to the Issuers and their Restricted
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Subsidiaries, the Principal Business, and (ii) with respect to any Special
Subsidiary, the Special Subsidiary Principal Business, except, in each case, to
such extent as would not be material to (a) the Issuers and their Subsidiaries
taken as a whole or (b) the Special Subsidiary, respectively.
Restrictions on Leasing and Dedication of Property
The Mortgage Note Indenture provides that 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 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:
(a) the Issuers or any Restricted Subsidiary may enter into a Lease
Transaction with respect to any space on or within the Project with any Person
(other than an Unrestricted Subsidiary), provided that, in the reasonable
opinion of the Issuers, (i) 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 (ii) 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;
(b) the Issuers or any Restricted Subsidiary may enter into a Lease
Transaction with any Unrestricted Subsidiary or Special Subsidiary with respect
to (i) the Mall Space and (ii) the Phase II Land;
(c) the Issuers may enter into Lease Transactions with any Wholly Owned
Restricted Subsidiary of the Issuers, including the lease of the Casino by the
Company from Venetian and the Billboard Lease;
(d) the Issuers or any Restricted Subsidiary may enter into a management
or operating agreement with respect to any Project Asset, including any hotel
(other than any Project Asset or space used for any casino or gaming
operations) with any Person (other than an Unrestricted Subsidiary); provided
that (i) the manager or operator has experience in managing or operating
similar operations 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);
(e) the Issuers may dedicate space for the purpose of constructing (i) a
mass transit system, (ii) a pedestrian bridge over or pedestrian tunnel under
Las Vegas Boulevard and Sands Avenue or similar structures to facilitate
pedestrian or traffic flow, and (iii) a right turn lane or other roadway
dedication at or near the Project; provided that, in each case, such dedication
does not materially impair the use or operations of the Project;
(f) the Mall Management Agreement and any Lease Transaction where the
interest created is a Permitted Lien;
(g) 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; and
(h) Venetian may enter into the HVAC Services Agreement.
Notwithstanding the foregoing, the Mortgage Note Indenture provides that
the Issuers shall not be permitted to enter into any Lease Transaction: (1)
except in the case of clause (h), 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, a Restricted Subsidiary or pursuant
to any Other Phase II Agreements; 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.
The Mortgage Note 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
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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 Mortgage Note Trustee (on
behalf of the holders of the Mortgage Notes), whether by purchase and sale,
foreclosure, or deed in lieu of foreclosure or in any other way, or by a
successor to the Mortgage Note Trustee, including without limitation a
purchaser at a foreclosure sale, then (A) 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 (B) the lessee
in the Lease Transaction shall attorn to and be bound to the Mortgage Note
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 any of the Mortgage Note Indenture Fee Deed of Trust, the
Mortgage Note Indenture Leasehold Deed of Trust or the Mortgage Note Indenture
Mall Parcel Fee Deed of Trust, in each case as certified to the Mortgage Note
Trustee by an Officer of the Company.
Insurance
The Mortgage Note Indenture provides that 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. See "Insurance Requirements."
Limitation on Status as Investment Company
The Mortgage Note Indenture prohibits the Issuers and their Restricted
Subsidiaries from being required to register as an "investment company" (as
that term is defined in the Investment Company Act of 1940, as amended).
Ownership of Unrestricted Subsidiaries and Special Subsidiaries
The Mortgage Note Indenture provides that, at all times from the Issuance
Date until all of the Capital Stock of the Phase II Subsidiary or the Mall
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
(i) at least a majority of the issued and outstanding Capital Stock of Phase II
Subsidiary (which is an Unrestricted Subsidiary) and (ii) at least 80% of the
issued and outstanding Capital Stock of Mall Subsidiary (which is a Special
Subsidiary); provided that the Sole Stockholder or any of his Affiliates (other
than the Issuers or any of their Wholly-Owned Restricted Susidiaries) will not
purchase or otherwise acquire, directly or indirectly, any of the Capital Stock
of the Phase II Subsidiary, Mall Subsidiary or any of their respective
Subsidiaries.
Limitation on Phase II Construction
The Mortgage Note Indenture provides that the Issuers shall not, and shall
not permit any of their Subsidiaries (including Unrestricted Subsidiaries and
Special Subsidiaries), at any time prior to receipt by the Issuers or any such
Subsidiary of a temporary certificate of occupancy from Clark County, Nevada
with respect to the Project (as currently defined) (a) to construct, develop or
improve the Phase II Land or any building on the Phase II Land (including any
excavation or site work and excluding the proposed parking garage on the Phase
II Land), (b) enter into any contract or agreement for such construction,
development or improvement, or for any materials, supplies or labor necessary
in connection with such construction, development or improvement (other than a
contract or agreement that is conditional upon satisfaction of the above
condition), or (c) incur any Indebtedness the proceeds of which are expected to
be used for the construction, development or improvement of the Phase II Land
or any building on the Phase II Land, except (i) any construction, development
or improvement on the Phase II Land or any temporary building on the Phase II
Land in connection with the Project in accordance with the Plans and
Specifications and included in the Project Budget; and (ii) any design,
architectural, engineering or development work not involving actual
construction on the Phase II Land.
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Mortgage Note Guaranties
The Issuers' obligations under the Mortgage Notes, the Mortgage Note
Indenture and the Collateral Documents are unconditionally guaranteed (i) on a
senior, secured basis by the Secured Mortgage Note Guarantors and (ii) on a
subordinated, unsecured basis by the Subordinated Mortgage Note Guarantors,
pursuant to the terms of the Mortgage Note Indenture. The obligations of each
Mortgage Note Guarantor under its Mortgage Note Guaranty is limited to the
extent necessary under any applicable corporate law to ensure it does not
constitute a fraudulent conveyance under applicable law.
Except in the event of a disposition of all or substantially all of the
assets of a Mortgage Note Guarantor by way of merger or consolidation, the
Mortgage Note Indenture provides that no Mortgage Note Guarantor shall
consolidate with or merge with or into (whether or not such Mortgage Note
Guarantor is the surviving Person), another Person, whether or not affiliated
with such Mortgage Note Guarantor, unless (i) subject to the provisions of the
following paragraph and certain other provisions of the Mortgage Note
Indenture, the Person formed by or surviving any such consolidation or merger
(if other than such Mortgage Note Guarantor) assumes all the obligations of
such Mortgage Note Guarantor pursuant to a supplemental indenture and
supplemental Collateral Documents in form reasonably satisfactory to the
Mortgage Note Trustee pursuant to which such Person shall unconditionally
guarantee, on either a senior or subordinated basis (equivalent to the existing
Mortgage Note Guaranty), all of such Mortgage Note Guarantor's obligations
under such Mortgage Note Guaranty, the Mortgage Note Indenture and the
Collateral Documents on the terms set forth in the Mortgage Note Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event
of Default exists; (iii) such transaction will not result in the loss or
suspension or material impairment of any material Gaming License; and (iv) the
Company (A) will have Consolidated Net Worth (immediately after giving effect
to such transaction), equal to or greater than the Consolidated Net Worth of
the Company immediately preceding the transaction and (B) will be permitted by
virtue of its pro forma Fixed Charge Coverage Ratio to incur, immediately after
giving effect to such transaction, 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." Notwithstanding anything herein to the contrary, a Wholly Owned
Restricted Subsidiary of the Issuers that is a Mortgage Note Guarantor may
consolidate or merge with, or sell or otherwise dispose of all or substantially
all of its assets to, one of the Issuers or another Wholly Owned Restricted
Subsidiary of the Issuers that is a Mortgage Note Guarantor.
The Mortgage Note Indenture provides that in the event of (i) a sale or
other disposition of all or substantially all of the assets of any Mortgage
Note Guarantor, by way of merger, consolidation or otherwise, (ii) a Restricted
Subsidiary becoming an Unrestricted Subsidiary or a Special Subsidiary pursuant
to terms of the Mortgage Note Indenture or (iii) a sale or other disposition of
all of the Capital Stock of any Mortgage Note Guarantor that is a Subsidiary,
then such Mortgage Note Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of the Capital
Stock of such Mortgage Note Guarantor or the Restricted Subsidiary becoming an
Unrestricted Subsidiary or a Special Subsidiary pursuant to the terms of the
Mortgage Note Indenture) or the corporation acquiring the property (in the
event of a sale or other disposition of all or substantially all of the assets
of such Mortgage Note Guarantor) shall be released and relieved of any
obligations under its Mortgage Note Guaranty; provided that (i) 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
(ii) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Mortgage Note Indenture. See
"--Repurchase at Option of Holders -- Asset Sales."
The Mortgage Note Indenture provides that if (a) either of the Issuers or
any Restricted Subsidiary transfers or causes to be transferred, in one or a
series of related transactions (other than a transaction or series of related
transactions constituting a Restricted Payment permitted pursuant to the
provisions of the Mortgage Note Indenture described above under the caption
"Restricted Payments"), property or assets having a fair market value exceeding
$1.0 million to any Restricted Subsidiary of the Issuers (other than a Mortgage
Note Guarantor), (b) any Restricted Subsidiary that is not a Mortgage Note
Guarantor shall have a net worth, annual revenues or net income in excess of
$1.0 million (including by reason of acquisition, consolidation or merger) or
shall own any material license, franchise or right used in the operation of any
of the Project Assets of the Project or (c) an Unrestricted Subsidiary or
Special Subsidiary ceases to be an
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Unrestricted Subsidiary or Special Subsidiary, as the case may be, pursuant to
the terms of the Mortgage Note Indenture or is designated by the Board of
Directors to be a Restricted Subsidiary pursuant to the terms of the Mortgage
Note Indenture and, in each case such Restricted Subsidiary shall have a net
worth, annual revenues or net income in excess of $1.0 million (including by
reason of acquisition, consolidation or merger) or shall own any material
license, franchise or right used in the operation of any of the Project Assets
of the Project, the Issuers shall cause such Restricted Subsidiary to (i)
execute and deliver to the Mortgage Note Trustee a supplemental indenture and
supplemental Collateral Documents in form reasonably satisfactory to the
Mortgage Note Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee, on a secured basis, all of the Issuers obligations
under the Mortgage Notes, the Mortgage Note Indenture and the Collateral
Documents on the terms set forth in the Mortgage Note Indenture and (ii)
deliver to the Mortgage Note 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. Such newly created Mortgage Note Guaranty will be
secured by a lien or charge on all Note Collateral of such Restricted
Subsidiary.
The payment of principal of, premium, if any, and interest on the
Subordinated Mortgage Note Guaranties is subordinated in right of payment, as
set forth in the Mortgage Note Indenture, to the prior payment in full of all
Senior Debt of the Subordinated Mortgage Note Guarantors, whether outstanding
on the date of the Mortgage Note Indenture or thereafter incurred.
Upon any distribution to creditors of the Subordinated Mortgage Note
Guarantors in a liquidation or dissolution of the Subordinated Mortgage Note
Guarantors in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Subordinated Mortgage Note Guarantors or their
property, an assignment for the benefit of creditors or any marshalling of the
Subordinated Mortgage Note Guarantors' assets and liabilities, the holders of
Senior Debt of the Subordinated Mortgage Note Guarantors are entitled to
receive payment in full of all Obligations due in respect of such Senior Debt
of the Subordinated Mortgage Note Guarantors (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt of the Subordinated Mortgage Note Guarantors) before the Holders of
Subordinated Mortgage Note Guaranties will be entitled to receive any payment
with respect to the Subordinated Mortgage Note Guaranties, and until all
Obligations with respect to Senior Debt of the Subordinated Mortgage Note
Guarantors are paid in full, any distribution to which the holders of
Subordinated Mortgage Note Guaranties would be entitled shall be made to the
holders of Senior Debt of the Subordinated Mortgage Note Guarantors (except
that Holders of Subordinated Mortgage Note Guaranties may receive Permitted
Junior Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance"). The Subordinated Mortgage Note Guarantors
also may not make any payment upon or in respect of the Subordinated Mortgage
Note Guaranties (except in Permitted Junior Securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on Senior Debt
of the Subordinated Mortgage Note Guarantors occurs and is continuing beyond
any applicable period of grace or (ii) any other default occurs and is
continuing with respect to Senior Debt of the Subordinated Mortgage Note
Guarantors that permits holders of the Senior Debt of the Subordinated Mortgage
Note Guarantors as to which such default relates to accelerate its maturity and
the Mortgage Note Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Subordinated Mortgage Note Guarantors or the holders
of any Senior Debt of the Subordinated Mortgage Note Guarantors; provided,
however, that, except to the extent provided in the second succeeding
paragraph, the foregoing provisions shall not restrict the Issuers from making
payments of principal, premium or interest on or with respect to the Mortgage
Notes (including without limitation, by redemption, repurchase or other
acquisition). Payments on the Subordinated Mortgage Note Guaranties may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Senior Debt of the Subordinated Mortgage
Note Guarantors has been accelerated. No new period of payment blockage may be
commenced unless and until (i) 360 days have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, and interest on the Subordinated Mortgage Note
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Mortgage Note Trustee shall be, or be made, the basis for a
subsequent
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Payment Blockage Notice unless such default shall have been waived for a period
of not less than 180 days.
The Mortgage Note Indenture further requires that the Subordinated
Mortgage Note Guarantors promptly notify holders of Senior Debt of the
Subordinated Mortgage Note Guarantors if payment of the Mortgage Notes is
accelerated because of an Event of Default.
As used in the foregoing, "Senior Debt" of the Subordinated Mortgage Note
Guarantors means (i) the guaranties by the Subordinated Mortgage Note
Guarantors of all Indebtedness outstanding under Bank Credit Facility and all
Hedging Obligations with respect thereto, (ii) the guaranty by Mall
Intermediate Holdings of all Indebtedness outstanding under the Mall
Construction Loan Facility and all Hedging Obligation with respect thereto,
(iii) any other Indebtedness permitted to be incurred by the Subordinated
Mortgage Note Guarantors under the terms of the Mortgage Note Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
Subordinated Mortgage Note Guaranties and (iv) all obligations with respect to
the foregoing. Also, as used in the foregoing, "Permitted Junior Securities"
means Equity Interests in the Subordinated Mortgage Note Guarantors or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt of the Mortgage Note Indenture) to
substantially the same extent as, or to a greater extent than, the Subordinated
Mortgage Note Guaranties are subordinated to Senior Debt of the Subordinated
Mortgage Guarantors pursuant to the Mortgage Note Indenture.
Further Assurances
The Mortgage Note Indenture provides that 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 (i) to carry out more effectively the express purposes of the
Collateral Documents, (ii) 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, (iii) 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 (iv) to
better assure, convey, grant, assign, transfer, preserve, protect and confirm to
the Mortgage Note Trustee any of the rights granted or now or hereafter intended
by the parties thereto to be granted to the Mortgage Note 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
Under the terms of the Mortgage Note Indenture, the Company will file with
the Mortgage Note Trustee and provide holders of Mortgage Notes, within 15 days
after it files them with the 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 Commission may by rule or regulation prescribe) which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the 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
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 Commission, the Mortgage Note Indenture requires
the Company to continue to file with the Commission and provide the Mortgage
Note Trustee and each holder with, without cost to each holder, (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 Commission if the Commission
does not permit such filings. Notwithstanding
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the foregoing, if any Person that, directly or indirectly, owns more than 50%
of the common equity of the Company is subject to the periodic reporting and
the informational requirements of the Exchange Act, the Company will not be
required to file the reports specified in the preceding sentence so long as it
provides annual and quarterly financial statements of the Company (which will
include summarized financial information concerning Venetian) to the holders of
the Mortgage Notes. The Company will in all cases, without cost to each
recipient, provide copies of such information to the holders of the Mortgage
Notes and, if it is not permitted to file such reports with the 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 Mortgage 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 quarterly or annual report, the
Company shall deliver to the Mortgage Note Trustee an Officers' Certificate
stating that each Restricted Payment made in the prior fiscal quarter 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 Mortgage Notes are secured by
a Lien on the Note Collateral owned by the Issuers and each Secured Mortgage
Note Guaranty is secured by the Note Collateral owned by each Secured Mortgage
Note Guarantors, in each case whether such Note Collateral is now owned or
hereafter acquired. Such Lien is prior to all other Liens on the Note
Collateral, except for Permitted Liens which includes the prior Lien on the
Project Assets securing the Bank Credit Facility and the prior Lien on the Mall
Collateral securing the Mall Construction Loan Facility and the Bank Credit
Facility. Except for the Lien in favor of the Mortgage Notes on the Mortgage
Notes Proceeds Account, the Liens securing the Bank Credit Facility and the
Mall Construction Loan Facility will be prior to the Lien securing the Mortgage
Notes. Mall Construction Lender has a first priority Lien on the Mall
Collateral, the lenders under the Bank Credit Facility have a first priority
Lien on the Project Assets and a second priority Lien on the Mall Collateral
and the holders of the Mortgage Notes have a second priority Lien on the
Project Assets and a third priority Lien on the Mall Collateral. Upon
Completion and the satisfaction of certain other conditions, the assets
comprising the Mall Collateral will be released from the Lien securing the Bank
Credit Facility and the Mortgage Notes and transferred to the Mall Subsidiary
in connection with the release of the Issuers and the Mall Construction
Subsidiary from further obligations under the Mall Construction Loan Facility.
Upon the creation of the Phase II Land as a separate parcel, the Phase II Land
may be transferred to the Phase II Subsidiary and upon such transfer the Phase
II Land will be released from the Lien securing the Bank Credit Facility and
the Mortgage Notes. To the extent that any Specified FF&E is purchased
(including providing any deposits) with the proceeds under the revolving loan
facility of the Bank Credit Facility, all indebtedness under the Bank Credit
Facility will be secured by the Note Collateral and such Specified FF&E and the
Mortgage Note Trustee and the holders of the Mortgage Notes will have no
security interest in such Specified FF&E.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Mortgage Note Indenture and the
Collateral Documents, the Issuers and their Subsidiaries are 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 subject
to certain terms, conditions and limitations in the Intercreditor Agreement,
the Mortgage Note 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 Mortgage Note Trustee for
the benefit of the holders of the Mortgage Notes shall be distributed by the
Mortgage Note Trustee in accordance with the provisions of the Mortgage Note
Indenture. See "Description of Intercreditor Agreement."
Under the terms of the Collateral Documents but subject to certain terms,
conditions and limitations set forth in the Intercreditor Agreement, the
Mortgage Note Trustee determines the circumstances and manner in which the Note
Collateral shall be disposed of, including, but not limited to, the
determination
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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 Mortgage Note Indenture, the Note Collateral may be
released from the Lien and security interest created by the Mortgage Note
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 Mortgage Note
Indenture and under any applicable Collateral Document have been met and
specifying (i) the identity of the Note Collateral to be released and (ii) the
provision of the Mortgage Note Indenture which authorizes such release. The
Mortgage Note Trustee shall release (at the sole cost and expense of the
Issuers) (i) 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 or Special 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 Mortgage Note Indenture, including, without limitation, 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 Mortgage
Note Indenture and that no Default or Event of Default has occurred and is
continuing or would occur immediately following such release; (ii) 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"; (iii) all Note
Collateral which may be released with the consent of holders pursuant to the
amendment provisions of the Mortgage Note Indenture; (iv) the Mall Collateral
and the Phase II Land, in accordance with the terms of the Mortgage Note
Indenture and the Collateral Documents; (v) all Note Collateral (except as
provided in the discharge and defeasance provisions of the Mortgage Note
Indenture and, in particular, the funds in the trust fund described in such
provisions) upon discharge or defeasance of this Indenture in accordance with
the discharge and defeasance provisions of the Mortgage Note Indenture; (vi)
all Note Collateral upon the payment in full of all obligations of the Issuers
with respect to the Mortgage Notes and the Mortgage Note Guarantors with
respect the Mortgage Note Guaranties; and (vii) Note Collateral of a Mortgage
Note Guarantor whose Note Guaranty is released pursuant to the terms of the
Mortgage Note Indenture.
Events of Default and Remedies
The Mortgage Note Indenture provides that each of the following
constitutes an Event of Default: (i) default in payment when due and payable,
upon redemption or otherwise, of principal or premium, if any, on the Mortgage
Notes or under any Mortgage Note Guaranty; (ii) default for 30 days or more in
the payment when due of interest on, or Liquidated Damages, if any, with
respect to the Mortgage Notes or under any Mortgage Note Guaranty; (iii)
failure by the Issuers or any Mortgage Note Guarantor to offer to purchase or
to purchase the Mortgage Notes, in each case when required under an offer made
pursuant to the provisions of the Mortgage Note Indenture; (iv) failure by (a)
the Issuers or any Mortgage Note Guarantor to comply with the provisions
described under the captions "Restricted Payments" or limitations on
"Incurrence of Indebtedness and Issuance of Disqualified Stock" or (b) any
Special Subsidiary to comply with the provisions described under the caption
"Special Subsidiary Restricted Payments"; (v) failure by the Issuers or any
Mortgage Note Guarantor for 45 days after receipt of written notice from the
Mortgage Note Trustee to comply with any of its other agreements in the
Mortgage Note Indenture, the Collateral Documents, the Mortgage Notes or the
Mortgage Note Guaranties; 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; (vi) 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, any
of their Restricted Subsidiaries or any Special Subsidiary or the payment of
which is guaranteed by the Issuers, any of their Restricted Subsidiaries or any
Special Subsidiary, whether such Indebtedness or Guaranty now exists or is
created after the Issuance Date, which default (a) in the case of the Issuers
or any of their Restricted
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Subsidiaries only, 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 $10 million or more; (vii) failure by the
Issuers or any of their Restricted Subsidiaries to pay final judgments
aggregating in excess of $10 million, which final judgments remain unpaid,
undischarged and unstayed for a period of more than 60 days; (viii) the
repudiation by the Issuers or any of their Subsidiaries of its obligations
under, or any judgment or decree by a court or governmental agency of competent
jurisdiction declaring the unenforceability of, any Note Guarantee or any of
the Collateral Documents for any reason that, in each case, would materially
and adversely impair the benefits to the Mortgage Note Trustee or the holders
of the Mortgage Notes thereunder; (ix) certain events of bankruptcy or
insolvency with respect to the Issuers, any Special Subsidiary or any Mortgage
Note Guarantor that is a Significant Subsidiary of the Issuers or any group of
Mortgage Note Guarantors that together would constitute a Significant
Subsidiary of the Issuers; (x) after the Project becomes Completed, 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; (xi) the Project is
not Completed by the Outside Completion Deadline and continues to be not
Completed; or (xii) failure by Interface 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 Mortgage Note Trustee or the holders of at least 25% in
principal amount of the then outstanding Mortgage Notes may declare the
principal, premium and Liquidated Damages, if any, interest and any other
monetary obligations on all the Mortgage Notes to be due and payable
immediately. See "Description of Intercreditor Agreement." 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 Mortgage Note
Guarantor that is a Significant Subsidiary, all outstanding Mortgage Notes will
become due and payable without further action or notice. Holders of the
Mortgage Notes may not enforce the Mortgage Note Indenture or the Mortgage
Notes except as provided in the Mortgage Note Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Mortgage Notes may direct the Mortgage Note Trustee in its exercise of any
trust power, including the exercise of any remedy under the Collateral
Documents. The Mortgage Note Trustee may withhold from holders of Mortgage
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
Mortgage Note Trustee shall have no obligation to accelerate the Mortgage Notes
if in the best judgment of the Mortgage Note Trustee acceleration is not in the
best interest of the holders of the Mortgage Notes.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the 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
Mortgage Notes pursuant to the optional redemption provisions of the Mortgage
Note Indenture, an equivalent premium shall also become and be immediately due
and payable to the extent permitted by law.
The holders of a majority in aggregate principal amount of the Mortgage
Notes then outstanding by notice to the Mortgage Note Trustee may on behalf of
the holders of all of the Mortgage Notes waive any existing Default or Event of
Default and its consequences under the Mortgage Note Indenture except a
continuing Default or Event of Default in the payment of interest on, premium
or Liquidated Damages, if any, or the principal of, any Mortgage Note held by a
non-consenting holder.
For a discussion of the effect of the Intercreditor Agreement on the
ability of the Mortgage Note Trustee or the holders of Mortgage Notes to
exercise remedies after an Event of Default, see "Description of Intercreditor
Agreement--Events of Default; Pre-Completion Remedies," and "--Events of
Default; Post-Completion Remedies."
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The Collateral Documents generally provide for the application of the
internal laws of the State of New York, except to the extent that (i) the laws
of Nevada are mandatory or (ii) 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 Mortgage
Note Indenture, the Mortgage Notes and any Mortgage Note Guaranty provide, with
certain exceptions, for the application of 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
Mortgage Notes, the Mortgage Note Indenture, any Mortgage Note Guaranty or the
Collateral Documents.
Due to restrictions upon gaming activities in Nevada, the Mortgage Note
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 Board. Moreover, the gaming industry could become
subject to different or additional regulations during the term of the Mortgage
Notes, which could further adversely affect the practical rights and remedies
that the Mortgage Note 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 Mortgage Note 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.
In addition to the "One Action" Rule, upon default by the Issuers, the
Mortgage Note Trustee will need to consider Nevada foreclosure procedures (the
Mortgage Note Indenture qualifies as a deed of trust under Nevada law). Under
Nevada law, the Mortgage Notes Trustee must first execute a notice of breach
and election to sell the Note Collateral ("Foreclosure Notice") and record such
notice in the county in which the trust property is situated. The Foreclosure
Notice must also be mailed to the address of the trustor and to the person who
holds the title of record, if known, otherwise to the address of the trust
property, and within 10 days of recording and mailing to the trustor the notice
of default, the trustee must mail copies of the notice of each person who has
either (i) filed a request for a copy of the notice; or (ii) holds a record
interest in the property subordinate to the deed of trust (each a "Notice
Party" and collectively, the "Notice Parties"). The Foreclosure Notice must
describe the deficiency in performance, and may contain a notice of intent to
accelerate the entire unpaid balance if the terms of the obligation so permit.
Before a power to sale may be exercised, the trustor, or his successor in
interest, a beneficiary under a subordinate deed of trust or any other person
with a subordinate lien or encumbrance of record (referred to below as "trustor
or interested persons") must, for a period of 35 days, be allowed "to make good
the deficiency in performance or payment...." The 35-day cure period commences
on the first day following the day upon which the Foreclosure Notice is
recorded and mailed to the trustor and to the record owner of the property in
the manner specified above. If the trustor or other interested person cures the
deficiency in performance within the 35-day period, the trustee's power of sale
may not be exercised, and the obligation may not be accelerated. The 35-day
cure period in the statute exists independently of any notice or cure periods
contained in the applicable Mortgage Notes or Mortgage Note Indenture and
related documents. If the notice of breach contains a permitted election to
accelerate and the breach is not cured within the 35-day period, the trustor or
other interested persons can thereafter only prevent the sale by tendering the
entire unpaid balance of the obligation, as well as any costs, fees and
expenses incident
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to the preparation or recordation of the notice and incident to the making good
of the deficiency in performance or payment.
The Foreclosure Notice must also be mailed to each guarantor or surety of
the debt and to each Notice Party 15 days before the later of the expiration of
the 35-day period or any extension of that period by the beneficiary. Failure
to provide such notice would release that guarantor, surety or Notice Party
from liability on the obligation. A guaranty, surety or Notice Party is not
released if the notice of default is rescinded before the sale is advertised.
Upon full satisfaction by the guarantor, surety or Notice Party, other than the
trustor, of the indebtedness secured by a mortgage or lien, the paying party is
entitled to enforce every remedy which the beneficiary has against the trustor,
and is entitled to an assignment from the beneficiary of all of the rights
which the beneficiary then has by way of security for the payment or
performance of the trustor. Such paying party is also entitled to subrogation,
junior only to the secured lender's rights, in the case of partial satisfaction
of the indebtedness. These rights may only be waived by the guarantor, surety
or other obligor after default.
Where it appears that the property subject to the deed of trust is in
danger of being lost, removed, injured, destroyed or subject to waste, or if
the income from the property is in danger of being lost, or if the property may
become insufficient to discharge the secured debt, the trustee or beneficiary
may also apply to the local district court for the appointment of a receiver
for the property after the Foreclosure Notice has been filed.
When three months have elapsed from the day the Foreclosure Notice is
recorded, the trustee must give notice of the time and place of the trustee's
sale, which notice must be given in accordance with the statutory provisions
for execution sales of real property under Nevada law. Additionally, 20 or more
days before the sale, the trustee must mail a copy of the notice of the time
and place of the sale to all Notice Parties. If the power of sale is exercised
in compliance with the Nevada statute, the purchaser is vested with the title
of the trustor, without equity or right of redemption. The proceeds of a
foreclosure sale must be distributed in the following order of priority: (i)
payment of the reasonable expenses of taking possession, maintaining,
protecting and leasing the property, the costs and fees of the foreclosure
sale, including reasonable trustee's fees, applicable taxes and the cost of
title insurance and, to the extent provided in the legally enforceable terms of
the mortgage or lien, any advances, reasonable attorney's fees and other legal
expenses incurred by the foreclosing creditor and the person conducting the
foreclosure sale, (ii) satisfaction of the obligation being enforced by the
foreclosure sale, (iii) satisfaction of obligations secured by any junior
mortgages or liens on the property, in their order of priority and (iv) payment
of the balance of the proceeds, if any, to the debtor or his successor in
interest.
If the proceeds of the foreclosure sale are less than the full debt, the
trustee is entitled to bring an action for a deficiency within six months after
the foreclosure in the case of a single parcel lien or six months after the
last but not more than two years of the first sale in the case of multiple
parcel collateral. In no event is the court permitted to award a deficiency
judgment, exclusive of interest after the date of such sale, in an amount
exceeding the lesser of (i) the difference between the amount for which the
property was actually sold at the trustee's sale and the amount of indebtedness
which was secured by the deed of trust at the time of the sale or (ii) the
amount by which the amount of indebtedness which was secured by the deed of
trust at the time of the trustee's sale exceeded the fair market value of the
property at the time of such sale as determined by an appraisal hearing.
Additionally, equitable limitations exist on a beneficiary's ability to
commence foreclosure based on a non-monetary default under a deed of trust such
as a breach of a covenant of maintenance and repair, a change in the use of the
collateral, a failure to provide financial statements as required or similar
types of non-monetary defaults. A court may require that the trustee show that
the value of the security was impaired, or that the security was thereby
rendered inadequate, prior to allowing the commencement of foreclosure under
such circumstances.
To the extent that the provisions of the Mortgage Notes Indenture and
related documents are governed by Nevada law and vary from the Nevada statutory
foreclosure procedures set forth above, to exercise its remedies and to
effectively realize on the Note Collateral, the Mortgage Note Trustee must abide
by Nevada law. Any provisions of the Mortgage Note Indenture inconsistent with
the foreclosure procedure described above may be unenforceable under Nevada law.
However, the Company does not believe that the unenforceability of any such
provisions will have a material impact on the ability of the holders of the
Mortgage Notes to effectively realize on the Note Collateral. There are no other
material provisions in the Mortgage Note Indenture unenforceable under Nevada
law except as otherwise disclosed in this Prospectus. See "Risk Factors--Certain
Bankruptcy Considerations" and "Regulation and Licensing."
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
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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 issued any definitive
interpretations of the extent of these safe harbors. There is currently no
controlling authority on this matter.
The Mortgage Note Trustee may appoint one or more collateral agents, who
may be delegated any one or more of the duties or rights of the Mortgage Note
Trustee under the Collateral Documents or which are specified in any Collateral
Documents.
The Issuers are required to deliver to the Mortgage Note Trustee annually
a statement regarding compliance with the Mortgage Note Indenture, and the
Issuers are required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Issuers, to deliver to the Mortgage
Note 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 or stockholder of the Issuers
or the Mortgage Note Guarantors, as such, has any liability for any obligations
of the Issuers or the Mortgage Note Guarantors under the Mortgage Notes, any
Mortgage Note Guaranty, the Mortgage Note 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 Mortgage Notes by accepting a
Mortgage Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Mortgage Notes and the
Mortgage Note Guaranties.
Legal Defeasance and Covenant Defeasance
The obligations of the Issuers and the Mortgage Note Guarantors under the
Mortgage Note Indenture will terminate (other than certain obligations) and the
Note Collateral will be released upon payment in full of all of the Mortgage
Notes. The Issuers may, at their option and at any time, elect to have all of
their and any Mortgage Note Guarantor's obligations discharged with respect to
the outstanding Mortgage Notes and any Mortgage Note Guarantees ("Legal
Defeasance") and cure all then existing Events of Default except for (i) the
rights of holders of outstanding Mortgage Notes to receive payments in respect
of the principal of, premium, if any, and interest on such Mortgage Notes when
such payments are due solely out of the trust created pursuant to the Mortgage
Note Indenture, (ii) the Company's, Venetian's and any Mortgage Note
Guarantor's obligations with respect to the Mortgage Notes concerning issuing
temporary Mortgage Notes, registration of Mortgage Notes, mutilated, destroyed,
lost or stolen Mortgage Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Mortgage Note Trustee, and the
Issuers' and any Mortgage Note Guarantor's obligations in connection therewith
and (iv) the Legal Defeasance provisions of the Mortgage Note Indenture. In
addition, the Issuers may, at their option and at any time, elect to have the
obligations of the Issuers and any Mortgage Note Guarantor released with
respect to certain covenants that are described in the Mortgage Note 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 Mortgage 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 Mortgage Notes. In addition,
the Note Collateral will be released upon Covenant Defeasance or Legal
Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuers must irrevocably deposit with the Mortgage Note Trustee, in trust,
for the benefit of the holders of the Mortgage
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Notes, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium and Liquidated Damages, if any, and interest due on the
outstanding Mortgage Notes on the stated maturity date or on the applicable
redemption date, as the case may be, in accordance with the terms of the
Mortgage Notes Indenture; (ii) in the case of Legal Defeasance, the Issuers
shall have delivered to the Mortgage Note Trustee an opinion of tax counsel in
the United States reasonably acceptable to the Mortgage Note 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 Mortgage Note 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 Mortgage
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;
(iii) in the case of Covenant Defeasance, the Issuers shall have delivered to
the Mortgage Note Trustee an opinion of tax counsel in the United States
reasonably acceptable to the Mortgage Note Trustee confirming that the holders
of the outstanding Mortgage 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; (iv) 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; (v) 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 Mortgage Note Indenture) to which the Issuers or any
of their Subsidiaries is a party or by which the Issuers or any of their
Subsidiaries is bound; (vi) the Issuers shall have delivered to the Mortgage
Note Trustee an opinion of counsel to the effect that, as of the date of such
opinion 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 and that the Mortgage Note Trustee has a perfected security interest in
such trust funds for the ratable benefit of the holders; (vii) the Issuers
shall have delivered to the Mortgage Note 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 (viii) the Issuers shall have delivered to the Mortgage Note
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.
Transfer and Exchange
A Holder may transfer or exchange Mortgage Notes in accordance with the
Mortgage Note Indenture. The Registrar and the Mortgage Note 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 Mortgage Note Indenture. The Issuers
are not required to transfer or exchange any Mortgage Note selected for
redemption. Also, the Issuers are not required to transfer or exchange any
Mortgage Note for a period of 15 days before a selection of Mortgage Notes to
be redeemed.
The registered Holder of a Mortgage Note will be treated as the owner of
it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the Mortgage
Note Indenture, the Mortgage Notes, the Mortgage Note Guaranties or the
Collateral Documents may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Mortgage Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Mortgage Notes), and any existing default or compliance with
any provision of the Mortgage Note Indenture, the Mortgage Notes, the Mortgage
Note Guaranties or the Collateral Documents may be waived with the consent of
the holders of a
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majority in principal amount of the then outstanding Mortgage Notes (including
consents obtained in connection with a tender offer or exchange offer for
Mortgage Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Mortgage Notes held by a nonconsenting holder of
Mortgage Notes): (i) reduce the principal amount of Mortgage Notes whose
holders must consent to an amendment, supplement or waiver; (ii) reduce the
principal of or change the fixed maturity of any Mortgage Note or alter or
waive the provisions with respect to the redemption of the Mortgage Notes
(other than provisions relating to the covenants described above under the
caption "Repurchase at the Option of Holders"); (iii) reduce the rate of or
change the time for payment of interest on any Mortgage Note; (iv) waive a
Default or Event of Default in the payment of principal of, premium and
Liquidated Damages, if any, or interest on the Mortgage Notes (except a
rescission of acceleration of the Mortgage Notes by the holders of at least a
majority in aggregate principal amount of the Mortgage Notes and a waiver of
the payment default that resulted from such acceleration); (v) make any
Mortgage Note payable in money other than that stated in the Mortgage Notes;
(vi) make any change in the provisions of the Mortgage Note Indenture relating
to waivers of past Defaults or the rights of holders of Mortgage Notes to
receive payments of principal of or premium and Liquidated Damages, if any, or
interest on the Mortgage Notes; (vii) release all or substantially all of the
Note Collateral from the Lien of the Mortgage Note Indenture or the Collateral
Documents (other than in accordance with the Mortgage Note Indenture and the
Collateral Documents); or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Mortgage Notes, the Issuers, the Mortgage Note Guarantors and the Mortgage Note
Trustee together may amend or supplement the Mortgage Note Indenture, the
Mortgage Notes, the Mortgage Note Guaranties 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 Mortgage Notes in addition to or in place of certificated
Mortgage Notes, to provide for the assumption of the Issuers' obligations to
holders of the Mortgage Notes in the case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the holders
of the Mortgage Notes (including providing for additional Mortgage Note
Guaranties pursuant to the Mortgage Note Indenture or additional collateral),
or that does not adversely affect the legal rights under the Mortgage Note
Indenture or the Collateral Documents of any such holder, to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Mortgage Note Indenture under the Trust Indenture Act or to enter into
additional or supplemental Collateral Documents.
Concerning the Mortgage Note Trustee
The Mortgage Note Indenture contains certain limitations on the rights of
the Mortgage Note 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 Mortgage
Note Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Mortgage Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy, available to the Mortgage
Note Trustee, subject to certain exceptions. The Mortgage Note Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Mortgage Note Trustee will be 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 Mortgage Note Trustee will be under no
obligation to exercise any of its rights or powers under the Mortgage Note
Indenture at the request of any holder of Mortgage Notes, unless such holder
shall have offered to the Mortgage Note Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
Governing Law
The Mortgage Note Indenture and the Mortgage 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
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to the extent that (i) the laws of Nevada are mandatory or (ii) 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 Mortgage Notes or prospective investor may obtain a copy
of the Mortgage Note 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 Mortgage Note
Indenture. Reference is made to the Mortgage Note 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 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 Mortgage
Note Trustee by a nationally recognized tax accounting firm), taking into
account only that member's or S corporation shareholder's share of income and
deductions attributable to its interest in the Issuers.
"Approved Equipment Funding Commitments" means, collectively, (a) the
General Electric Capital Corporation Commitment (as defined in the Disbursement
Agreement) and (b) any replacement of such commitment from an institutional or
other lender reasonably acceptable to the Bank Agent and the Mall Construction
Lender if (i) such commitment is in form and substance reasonably satisfactory
to the Bank Agent and the Mall Construction Lender and does not include any
conditions to funding that are not included in the General Electric Capital
Corporation Commitment and (ii) the lender providing such commitment enters
into intercreditor arrangements substantially similar to the intercreditor
arrangements of General Electric Capital Corporation.
"Asset Sale" means (i) 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 (ii) 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 (a) a disposition of inventory or goods
held in the ordinary course of business, (b) the disposition of all or
substantially all of the assets 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 Mortgage Note Indenture, (c)
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, (d) any
single disposition, or related series of dispositions,
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of assets with an aggregate fair market value of less than $1.0 million, (e)
any Event of Loss, (f) any Lease Transaction or any grant of easement or
Permitted Liens, (g) any dedication permitted pursuant to the covenant
described above under the caption "Certain Covenants--Restrictions on Leasing
and Dedication of Property," (h) the transfer of the Mall Collateral to the
Mall Subsidiary, (i) the transfer of the Phase II Land to the Phase II
Subsidiary, (j) 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,
(k) 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, (l) any sale, conveyance, transfer or other disposition of property
that secures Non-Recourse Financing or any financing permitted by clause (p)
under the caption "Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" that is to or on behalf of the lender of such Non-Recourse
Financing or other financing or (m) any licensing of tradenames or trademarks
in the ordinary course of business by any of the Issuers or their Restricted
Subsidiaries.
"Bank Agent" means The Bank of Nova Scotia, in its capacity as
administrative agent under the Bank Credit Facility and its successors in such
capacity.
"Bank Credit Facility" means that certain Credit Agreement among the
Company and Venetian, as borrowers, the lenders listed therein, Goldman Sachs
Credit Partners L.P., as arranger and syndication agent and The Bank of Nova
Scotia, as administrative agent, and any extension, refinancing, renewal,
replacement, substitution or refund thereof ("Bank Credit Facility
Refinancing"); provided, however that (i) the aggregate amount of such Bank
Credit Facility Refinancing shall not exceed the principal amount of
Indebtedness so extended, refinanced, renewed, replaced, substituted or
refunded (plus the amount of reasonable expenses incurred and any premium paid
in connection therewith) and (ii) such Bank Credit Facility 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.
"Billboard Lease" means that certain Lease Agreement by and between
Venetian and Mall Subsidiary relating to certain space that will be subleased
by "Billboard Live!" 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
corporate stock of such Person, including, without limitation, 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 (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 Corporation ("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 corporations 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
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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 guaranty 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 the Disbursement Agent if prior to Completion or
(subject to the rights of creditors with prior Liens) the Mortgage Note Trustee
if after Completion (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; (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 aquisition 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 the Closing Date 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: (i) 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);
(ii) 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), other than the Sole 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
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Act, or any successor provision) of 50% or more of the total voting power of
the Voting Stock of the Issuers; (iii) after an initial public offering of the
common stock of the Issuers, the consummation of any transaction or series of
transactions the result of which is that any person or group (as defined
above), other than the Sole Stockholder and its Related Parties, (1)
beneficially owns more of the voting power of the Voting Stock of the Issuers
than is beneficially owned, in the aggregate, by the Sole Stockholder and its
Related Parties and (2) beneficially owns more than 20% of the voting power of
the Voting Stock of either of the Issuers; (iv) 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; (v) the adoption of a plan relating
to liquidation or dissolution of either of the Issuers or any Mortgage Note
Guarantor (except liquidation of (a) Venetian into the Company and (b) any
Mortgage Note Guarantor into the Company, Venetian or another Mortgage Note
Guarantor) or (vi) if any Person other than the Sole Stockholder and Related
Parties beneficially owns more than 50% of the voting and non voting common
stock of the Company.
"Code" means, the Internal Revenue Code of 1986, as amended (or any
successor statute thereto).
"Collateral Documents" means, collectively, the Mortgage Notes Indenture
Leasehold Deed of Trust, the Mortgage Notes Indenture Fee Deed of Trust, the
Mortgage Notes Indenture Mall Parcel Fee Deed of Trust, the Disbursement
Agreement, the Completion Guaranty, the Mortgage Notes Indenture Leasehold
Security Agreement, the Mortgage Notes Indenture Fee Security Agreement, the
Mortgage Notes Indenture Environmental Indemnity or any other agreements,
instruments, financing statements or other documents that evidence, set forth
or limit the Lien of the Mortgage Note Trustee in the Note Collateral.
"Common Stock" means the Common Stock, par value $.10 per share, of the
Company.
"Company" means Las Vegas Sands, Inc., a Nevada corporation, or any
successor thereto permitted under the Mortgage Note Indenture.
"Completed" or "Completion" has the meaning given to the term "Mall
Release Date" under the Disbursement Agreement, which term generally means that
(a) the Project has been substantially completed in substantial accordance with
the Plans and Specifications (except for additions and expansions to the Casino
Resort (other than the Mall) not contemplated by the Plans and Specifications
in effect on the Issuance Date, which additions and expansions will be subject
to certain limitations, including the requirement that they do not materially
interfere with the use and operation of any other portion of the Casino Resort)
and is free of Liens (other than Permitted Liens), (b) the furnishings,
fixtures and equipment for the Casino and the Mall have been installed and the
furnishings, fixtures and equipment for at least 2000 suites in the Hotel have
been installed, (c) the scope and costs to complete remaining items have been
quantified, and (d) the Issuers have sufficient available funds, pursuant to
the Disbursement Agreement, to pay for remaining project costs plus a specified
contingency, each as appropriately certified by the Construction Consultant
and/or the Project Architect, all as more particularly set forth in the
Disbursement Agreement.
"Completion Guaranty" means that certain Guaranty executed by the Sole
Stockholder in favor of the Bank Agent (acting on behalf of the lenders under
the Bank Credit Facility), the Mall Construction Lender and the Mortgage Notes
Trustee (acting on behalf of the Mortgage Note holders) as amended, revised or
modified from time to time in accordance with the terms thereof.
"Completion Guaranty Loan" means funds provided by the Sole Stockholder in
satisfaction of his obligations pursuant to the Completion Guaranty which are
treated by the Sole Stockholder and the Issuers as a subordinated loan to the
Issuers pursuant to the Completion Guaranty.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (a) 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 (b) 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 (c)
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 (d) Consolidated Depreciation and Amortization
Expense of such Person for such
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period to the extent such expenses were deducted in computing Consolidated Net
Income, minus (e) non-cash items increasing such Consolidated Net Income for
such period, 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, reserve or amortization of a cash expenditure for a
past, present or future 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 (a) 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), (b) commissions, discounts and other fees
and charges paid or accrued with respect to letters of credit and bankers'
acceptance financing and (c) 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 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 (i) the Net Income for such period of any
Person that is not a 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 or a Wholly Owned Subsidiary thereof in respect of such period,
(ii) the Net Income of any Person acquired in a pooling of interests
transaction shall not be included for any period prior to the date of such
acquisition, (iii) the Net Income for such period of any Restricted Subsidiary
that is not a Mortgage 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 (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, (iv) the cumulative effect of a change
in accounting principles shall be excluded and (v) no effect shall be given to
any minority or preferred interest in Venetian for purposes of computing
Consolidated Net Income.
"Consolidated Net Worth" means, with respect to any Person at any time,
the sum of the following items, as shown on the consolidated balance sheet of
such Person and its Restricted Subsidiaries as of such date (i) the common
equity of such Person and its Restricted Subsidiaries; (ii) (without
duplication), (a) the aggregate liquidation preference of Preferred Stock of
such Person and its Restricted Subsidiaries (other than Disqualified Stock),
and (b) any increase in depreciation and amortization resulting from any
purchase accounting treatment from an acquisition or related financing; (iii)
less any goodwill incurred subsequent to the Issuance Date; and (iv) less any
write up of assets (in excess of fair market value) after the Issuance Date, in
each case on a consolidated basis for such Person and its Restricted
Subsidiaries, determined in accordance with GAAP; provided, that in calculating
Consolidated Net Worth, any gain or loss from any Asset Sale shall be excluded;
provided, however that in computing "Consolidated Net Worth," no adjustment
shall be made for any minority interest in Venetian.
"Construction Consultant" means Tishman Construction Corporation of Nevada
or any other Person designated from time to time by the Bank Agent, the Mall
Construction Lender and the Mortgage Notes Trustee, in their sole discretion
acting pursuant to the Intercreditor Agreement, to serve as the Construction
Consultant under the Disbursement Agreement.
"Construction Management Agreement" means that certain Construction
Management Agreement between the Company and the Construction Manager, dated as
of February 15, 1997, as such agreement may be amended, modified, supplemented,
restated or replaced from time to time.
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"Construction Manager" means Lehrer McGovern Bovis, Inc., a New York
corporation.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on
the Issuance Date, (ii) 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 (iii)
was appointed or elected to such Board of Directors by the Sole Stockholder or
a Related Party.
"Contracts" means, collectively, the contracts entered into, from time to
time, between the Company and any contractor for performance of services or
sales of goods in connection with the design, engineering, installation or
construction of the Project.
"Cooperation Agreement" means that certain Amended and Restated Reciprocal
Easement, Use and Operating Agreement among the Mall Construction Subsidiary,
Venetian and Interface, as amended, revised or modified from time to time in
accordance with its terms thereof.
"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.
"Direct Construction Guaranty" means that certain Guaranty of Performance
and Completion executed by Bovis, Inc., a New York corporation, in favor of the
Company, as assigned by the Company to Venetian by that certain Assignment
Agreement by and among the Company, Venetian and Bovis, Inc., as amended,
revised or modified from time to time in accordance with its terms.
"Disbursement Agent" means The Bank of Nova Scotia, in its capacity as the
disbursement agent under the Disbursement Agreement and its successors in such
capacity.
"Disbursement Agreement" means that certain Funding Agents' Disbursement
and Administration Agreement among the Issuers, Mall Construction Subsidiary,
the Bank Agent, the Mortgage Notes Trustee, the Mall Construction Lender, the
HVAC Provider and the Disbursement Agent as amended, revised or modified from
time to time in accordance with its terms.
"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), 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
November 15, 2004; 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 Mortgage 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 Mortgage Note Indenture,
including the covenant described under "Repurchase at the Option of Holders--
Change of Control," "--Event of Loss" and "--Asset Sales."
"Equity Contribution" means the approximately $320.3 million of proceeds
received by Venetian from the Company, Interface Holding or the Sole
Stockholder (in the form of cash or property).
"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).
"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 a
partnership for federal income tax purposes in connection with determining his
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: (A) any loss, destruction
or damage of such property or asset; (B) any actual
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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 (C) any settlement
in lieu of clause (B) above.
"Excess Mall Proceeds" means the aggregate cash proceeds received by Mall
Subsidiary from borrowings or from debt or equity issuances in excess of the
cash amounts necessary to fund Mall Subsidiary's obligation to purchase certain
assets pursuant to the Sale and Contribution Agreement.
"Existing Indebtedness" means (i) up to $1.5 million in aggregate
principal amount of Indebtedness (other than Capital Lease Obligations) of the
Company or its Restricted Subsidiaries in existence on the Issuance Date, plus
interest accruing thereon, after application of the net proceeds of sale of the
Mortgage Notes on the Issuance Date and (ii) any current or future obligations
under the HVAC Services Agreement as in effect on the Issuance Date.
"Expo Center" means the Sands Expo and Convention Center.
"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 or
redeems any Indebtedness (other than revolving credit borrowings) or issues
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 or
redemption of Preferred Stock, 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 (a) Consolidated Interest Expense of such Person for
such period and (b) all capitalized interest of such Person and its Restricted
Subsidiaries and (c) the product of (i) 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 (ii) 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.
"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
Mortgage Note 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 or Special 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,
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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 its Subsidiaries.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct governing 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 (a) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (b) 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 of 1933, as amended), 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.
"Guaranty" means a guaranty (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), 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, as
contemplated by the existing Letter of Intent between the parties 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 (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"HVAC Provider" means Atlantic-Pacific Las Vegas, LLC, a Delaware limited
liability company.
"HVAC Services Agreement" means, collectively (i) that certain Energy
Services Agreement between Venetian and the HVAC Provider, (ii) that certain
Ground Lease between Venetian and the HVAC Provider, (iii) that certain
Construction Agency Agreement between Venetian and the HVAC Provider and (iv)
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.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iii) 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 (iv) 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, (b) 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
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endorsement of negotiable instruments for collection in the ordinary course of
business) and (c) 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 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. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness with original issue discount,
and (ii) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, (i) qualified to perform the task
for which it has been engaged and (ii) disinterested and independent with
respect to the Company and its Subsidiaries, each Affiliate of the Company, and
the Sole Stockholder and its Related Parties.
"Indirect Construction Guaranty" means that certain Guaranty of
Performance executed by The Peninsular and Oriental Steam Navigation Company, a
corporation organized under the laws of England and Wales, in favor of the
Company, as assigned by the Company to Venetian by that certain Assignment
Agreement by and among the Company, Venetian and The Peninsular and Oriental
Steam Navigation Company as amended, revised, modified or restated from time to
time in accordance with its terms.
"Intercreditor Agreement" means the Intercreditor Agreement, among The
Bank of Nova Scotia, as Bank Agent acting on behalf of the other lenders
pursuant to the Bank Credit Facility, the Mortgage Note Trustee, acting on
behalf of the holders of the Mortgage Notes, the Mall Construction Lender and
the Senior Subordinated Note Trustee, acting on behalf of the holders of the
Senior Subordinated Notes, as amended, revised, modified or restated from time
to time in accordance with its terms.
"Interface" means Interface Group-Nevada, Inc., a Nevada corporation and
wholly owned indirect subsidiary of the Sole Stockholder.
"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 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.
"Issuance Date" means the closing date for the sale and original issuance
of the Mortgage Notes.
"Lenders" means any of the lenders under the Bank Credit Facility, the
Mall Construction Lender and the Mortgage Note holders.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Mall" means that certain enclosed retail, dining and entertainment
complex of approximately 500,000 net leasable square feet more particularly
described in the Plans and Specifications.
"Mall Collateral" means all of the Issuers' and their Subsidiaries' right,
title, and interest in and to (i) prior to the creation of the Mall I Parcel,
the leasehold estate created by the Mall Lease and, thereafter, the Mall I
Parcel; (ii) the leasehold estate created by the Billboard Lease; (iii) the
Mall and any related improvements and equipment thereto; (iv) any reserves
established by the Issuers, any of their Restricted Subsidiaries or any of
their Special Subsidiaries relating to the Mall; and (v) any and all security
agreements and an assignment of leases and rents creating a security interest
in any rents or other income derived from the Mall.
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"Mall Construction Lender" means GMAC Commercial Mortgage Corporation, a
California corporation, and its permitted successors and assigns.
"Mall Construction Loan Agreement" means that certain Credit Agreement
between the Issuers, Mall Construction Subsidiary and Mall Construction Lender,
as amended, revised or modified from time to time in accordance with its terms.
"Mall Construction Loan Facility" means the credit facility described and
made available to the Issuers and Mall Construction Subsidiary pursuant to the
Mall Construction Loan Agreement and any extension, refinancing, renewal,
replacement, substitution or refunding thereof ("Mall Construction Loan
Facility Refinancing"); provided, however that (i) the aggregate amount of
Indebtedness under such Mall Construction Loan Facility Refinancing shall not
exceed the principal amount of Indebtedness so extended, refinanced, renewed,
replaced, substituted or refunded (plus the amount of reasonable expenses
incurred and any premium paid in connection therewith), (ii) such Mall
Construction Loan Facility 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 and (iii) to the extent such Mall Construction Loan
Facility Refinancing Indebtedness is not supported by a guaranty of the Sole
Stockholder on substantially similar terms as the terms of the Sole
Stockholder's guaranty of Tranche B of the Mall Construction Loan Facility,
such Mall Construction Loan Facility Refinancing Indebtedness shall contain a
tranche with a principal amount, relative payment priority and other terms
which are substantially similar to those required to be contained in the
Substitute Tranche B Loan.
"Mall Construction Subsidiary" means Grand Canal Shops Mall Construction,
LLC, a Delaware limited liability company and a wholly owned subsidiary of
Venetian.
"Mall Holdings" means Grand Canal Shops Mall Holding Company, LLC, a
Delaware limited liability company and a subsidiary of Mall Intermediate
Holdings.
"Mall Intermediate Holdings" means Mall Intermediate Holding Company, LLC,
a Delaware limited liability company, and a wholly owned subsidiary of
Venetian.
"Mall I Parcel" means the Mall Space subdivided from the Project Site as a
legally separate parcel and recorded with the applicable Government
Instrumentalities.
"Mall Lease" means the Lease by and between Venetian and Mall Construction
Subsidiary pursuant to which Mall Construction Subsidiary leases from Venetian
the Mall Space, as amended, revised or modified from time to time in accordance
with its terms.
"Mall Management Agreement" means the Mall Management Agreement between
Forest City Enterprises and the Mall Contruction Subsidiary, as amended,
revised or modifed.
"Mall Manager" means Grand Canal Shops Mall MM, Inc., a wholly owned
subsidiary of the Company.
"Mall Space" means that certain space upon which the Mall will be located
as more specifically described in an Annex to the Mortgage Note Indenture.
"Mall Subsidiary" means Grand Canal Shops Mall, LLC, a Delaware limited
liability company.
"Mortgage Note Make-Whole Premium" means, with respect to a Mortgage Note,
an amount equal to the greater of (i) 12.25% of the outstanding principal
amount of such Mortgage Note and (ii) the excess of (a) the present value of
the remaining interest, premium and principal payments due on such Mortgage
Note as if such Mortgage Note were redeemed on November 15, 2001, computed
using a discount rate equal to the Treasury Rate plus 50 basis points, over (b)
the outstanding principal amount of such Mortgage Note.
"Mortgage Notes" means the Company's 12-1/4% Mortgage Notes due November
15, 2004 issued pursuant to the Mortgage Note Indenture.
"Mortgage Notes Indenture Environmental Indemnity" means that
Environmental Indemnity Agreement among the Company, Venetian and the Mortgage
Note Trustee, as amended, modified or revised in accordance with its terms.
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"Mortgage Notes Indenture Fee Deed of Trust" means that certain Deed of
Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing
made by the Company and Venetian, as trustor, to the trustee thereunder, for
the benefit of the Mortgage Note Trustee, as beneficiary, as amended, modified
or revised in accordance with its terms.
"Mortgage Notes Indenture Leasehold Deed of Trust" means that certain Deed
of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing
and made by the Mall Construction Subsidiary, as trustor, to the trustee
thereunder, for the benefit of the Mortgage Note Trustee, as beneficiary, as
amended, modified or revised in accordance with its terms.
"Mortgage Notes Indenture Mall Parcel Fee Deed of Trust" means the deed of
trust in the form of Exhibit V-4 to the Disbursement Agreement to be executed
by Mall Construction Subsidiary for the benefit of the Mortgage Note Trustee in
accordance with the Disbursement Agreement, as amended, modified or revised in
accordance with its terms.
"Mortgage Notes Proceeds Account" means that certain Mortgage Notes
Proceeds Account into which the net proceeds from the sale of the Mortgage
Notes were deposited in accordance with the Disbursement Agreement.
"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, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
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 (iii) excluding any
extraordinary gain (but not loss), together with any related provision for
taxes on such extraordinary gain (but not loss).
"Net Loss Proceeds" means the aggregate cash proceeds received by the
Company 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 the Company
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, 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) (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien (other than the Mortgage 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 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 and 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.
"Non-Recourse Financing" means Indebtedness incurred in connection with
the purchase or lease of personal or real property useful in the Principal
Business or to construct, develop or equip the Mall Space and (i) as to which
the lender upon default may seek recourse or payment against the Company or any
Restricted Subsidiary only through the return or sale of the property or
equipment or the other Specified FF&E so purchased or leased, or in the case of
any Indebtedness with respect to the Mall Space, only through foreclosure upon
the Mall Collateral and (ii) 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.
"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, (a) as to which neither the
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Company nor any of its Restricted Subsidiaries (i) provides credit support
pursuant to any undertaking, agreement or instrument that would constitute
Indebtedness or Disqualified Stock, as the case may be, or (ii) is directly or
indirectly liable, and (b) 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) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness 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 Mortgage Note Guarantor defined as Collateral in
the Collateral Documents, which will initially include (with certain
exceptions) all real estate, improvements and all personal property owned by
the Issuers (including (i) the Project Assets, (ii) the Mall Collateral, until
the transfer and release thereof in accordance with the Sale and Contribution
Agreement and the Disbursement Agreement), as well as a pledge of any
intercompany notes held by either of the Issuers or the Mortgage Note
Guarantors.
"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 Mortgage 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 Mortgage 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 members) or a Mortgage Note Guarantor, as
the case may be, that meets the requirements set forth in the Mortgage Note
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).
"Outside Completion Deadline" means April 21, 1999, as the same may from
time to time be extended pursuant to the Disbursement Agreement.
"Permitted Construction Loan Refinancing" means (i) the incurrence of
indebtedness and/or the issuance of Capital Stock by the Mall Subsidiary the
proceeds of which are used to purchase the Mall Collateral pursuant to the Sale
and Contribution Agreement (including, without limitation, the Tranche A
Take-out Commitment and the Tranche B Take-out Commitment) and/or (ii) the
assumption of the Mall Construction Loan Facility and/or the Substitute Tranche
B Loan (or any permitted refinancing thereof) pursuant to the Sale and
Contribution Agreement.
"Permitted Investments" means (a) any Investments in the Issuers, any
Mortgage Note Guarantor or in any Restricted Subsidiary that is not a Mortgage
Note Guarantor if the Investments in such Restricted Subsidiary that is not a
Mortgage Note Guarantor from the Issuers, any Mortgage Note Guarantor or any of
the other Restricted Subsidiaries aggregate less than $1.0 million; (b) any
Investments in Cash Equivalents; (c) Investments by the Issuers or any
Restricted Subsidiary of the Issuers in a Person, if as a result of such
Investment (i) such Person becomes a Mortgage Note Guarantor or (ii) 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 Mortgage Note Guarantor; (d) any Restricted 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"; (e) any acquisition
of assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Issuers; (f) 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; (g) 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
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that are made in the ordinary course of business; (h) loans or advances to
employees of the Issuers or their Restricted Subsidiaries or Special
Subsidiaries (i) to fund the exercise price of options granted under the
employment agreements and the Issuers' stock option plans or agreements, in
each case, as in effect on the date of the Mortgage Note Indenture or (ii) for
any other purpose not to exceed $2.0 million in the aggregate at any one time
outstanding under this clause (ii); (i) 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; (j) other Investments in any Person (other than in an Affiliate of
the Issuers) having a fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (j)
that are at the time outstanding, not to exceed $5.0 million; (k) 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 and
(l) the initial designation on the Issuance Date of (i) Phase II Subsidiary,
Phase II Holdings and Phase II Manager as Unrestricted Subsidiaries and (ii)
Mall Subsidiary, Mall Holdings and Mall Manager as Special Subsidiaries;
provided that in each case, no more than $1,000 is invested in any such Person
at the time of designation.
"Permitted Liens" means (a) Liens in favor of the Issuers and their Wholly
Owned Restricted Subsidiaries; provided that if such Liens are on any Note
Collateral, that such Liens are either collaterally assigned to the Mortgage
Note Trustee or subordinate to the Lien in favor of the Mortgage Note Trustee
securing the Mortgage Notes or any Mortgage Note Guaranty; (b) 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 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; (c) 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 contemplation
of such acquisition; (d) 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 and which obligations are not expressly prohibited
by the Mortgage Note 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, the Issuers have bonded within a reasonable time
after becoming aware of the existence of such Lien; (e) Liens securing
obligations in respect of the Mortgage Note Indenture, the Mortgage Notes and
any Secured Mortgage Note Guaranty; (f) leases or Liens, to the extent
permitted pursuant to the covenant entitled "Restrictions on Leasing and
Dedication of Property"; (g) (1) Liens for taxes, assessments or governmental
charges or claims or (2) 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, in the case of each of (1) and (2), with respect to amounts
that either (A) are not yet delinquent or (B) are being contested in good faith
by appropriate proceedings as to which appropriate reserves or other provisions
have been made in accordance with GAAP; (h) 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; (i) after Completion, Liens securing Indebtedness in
an aggregate amount not exceeding $25.0 million at any one time securing
purchase money or lease obligations otherwise permitted by the Mortgage Note
Indenture incurred or assumed in connection with the acquisition, purchase or
lease of real or personal property to be used in the Principal Business of the
Issuers or any of their Restricted Subsidiaries within 180 days of such
incurrence or assumption; provided, that such Liens do not extend to any Note
Collateral or to any property or assets of the Issuers or any Restricted
Subsidiary other than the property or assets so purchased or leased and, at the
time of incurrence, the principal amount of such Indebtedness does not exceed
75% of the value of the collateral securing such Indebtedness; (j) a leasehold
mortgage in favor of a party financing the lessee of space within the Project;
provided that (i) the lease affected by such leasehold mortgage is permitted
pursuant to the covenant entitled "Restrictions on Leasing and Dedication of
Property," (ii) neither the Issuers nor any Restricted Subsidiary is liable for
the payment of any principal of, or interest or premium on, such financing and
(iii)
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the affected lease and leasehold mortgage are expressly made subject and
subordinate to the Lien of the Mortgage Notes Indenture Leasehold Deed of Trust
and the Mortgage Notes Indenture Fee Deed of Trust, subject to the provisions
of the last paragraph in the covenant described under the caption "--
Restrictions on Leasing and Dedication of Property"; (k) Liens securing the
Mall Construction Loan Facility and any additional Indebtedness permitted to be
incurred thereunder pursuant to clause (n)(A) of the second paragraph of the
covenant described above under the caption "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock;" (l) Liens created or
contemplated by the Cooperation Agreement and the HVAC Services Agreement; (m)
Liens on real property of the Issuers arising pursuant to that certain Harrah's
Road Way Agreement; (n) Liens created by the Predevelopment Agreement, as in
effect on the date of the Mortgage Note Indenture; (o) Liens (i) to secure
Indebtedness permitted by clauses (g), (h) or (p) of the second paragraph of
the covenant entitled "--Incurrence of Indebtedness and Issuance of Preferred
Stock" and extending only to assets or Specified FF&E acquired in accordance
with such clause and to any proceeds of such assets or Indebtedness and related
collateral accounts in which such proceeds are held, and (ii) to secure
Indebtedness permitted by clause (d) of the second paragraph of the covenant
entitled "--Incurrence of Indebtedness and Issuance of Preferred Stock";
provided that such Liens are not materially greater in extent than the Liens
securing the Indebtedness so refinanced; (p) Liens created by the Other Phase
II Agreements; (q) Liens prior to the Lien securing the Mortgage Notes to
secure all Obligations under the Bank Credit Facility incurred pursuant to
clause (a) of the second paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock" and
any additional Indebtedness permitted to be incurred thereunder pursuant to
clause (n)(A) of the second paragraph of the covenant described above under the
caption "Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock;" (r) until Completion is achieved, Permitted Liens (as defined in the
Disbursement Agreement); (s) Liens incurred in connection with the construction
of a pedestrian bridge over or a pedestrian tunnel under Las Vegas Boulevard
and Sands Avenue; (t) Liens incurred in connection with the traffic study
relating to increased traffic on Las Vegas Boulevard as a result of the
Completion of the Project; (u) 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 the Issuance of
Disqualified Stock"; (v) 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; (w) any
judgment attachment or judgment Lien not constituting an Event of Default; (x)
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;
(y) any Lien created under the Sale and Contribution Agreement and (z) after
Completion, Liens prior to the Lien securing the Mortgage Notes securing (A) up
to an aggregate of $20.0 million of Indebtedness permitted to be incurred
pursuant to clause (n)(B) of the second paragraph of the covenant described
above under the caption "Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock" and (B) up to an aggregate of $20.0 million of
Indebtedness permitted to be incurred pursuant to clause (o) of the second
paragraph of the covenant described above under the caption "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 (except that if all or any
portion of the Completion Guaranty Loan or the Substitute Tranche B Loan is
outstanding and held by the Sole Stockholder or a Related Party and is not
paying current cash interest, then such estimated taxable income shall be
determined without giving effect to any non-cash interest payments on such
loans held by the Sole Stockholder or the Related Parties to the extent such
non-cash interest is deductible)), for the related Estimation Period, as in a
statement filed with the Mortgage Note Trustee, provided; however, that (A)
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 (B) at the time of
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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
Estimation Period that includes a True-up Determination Date, (A) 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 (B) 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.
"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 II Holdings" means Lido Casino Resort Holding Company, LLC, a
Delaware limited liability company and a subsidiary of Phase II Intermediate
Holdings.
"Phase II Intermediate Holdings" means Lido Intermediate Holding Company,
LLC, a Delaware limited liability company, and a Wholly Owned Subsidiary of the
Company.
"Phase II Land" means that portion of the Project Site designated as the
Phase II Land in the Collateral Documents, together with all improvements
thereon and all rights appurtenant thereto.
"Phase II Manager" means Lido Casino Resort MM, Inc., a special purpose
Wholly Owned Subsidiary of the Company.
"Phase II Resort" means the themed hotel and casino currently contemplated
to be constructed on the Phase II Land and which will be physically connected
to the Casino Resort.
"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 plans and specifications for the
construction of the Casino Resort listed in an exhibit to the Disbursement
Agreement, as the same may be modified from time to time in accordance with the
Disbursement Agreement.
"Pre-development Agreement" means the Sands Resort Hotel & Casino
Agreement dated February 18, 1997 by and between Clark County and the Company
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 (including the Mall prior to its
transfer to the Mall Subsidiary) 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 Mortgage
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Note 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.
"Project" means the Venetian-themed hotel, casino, retail, meeting and
entertainment complex, with related heating, ventilation and air conditioning
and power station facilities to be developed at the Project Site, all as more
particularly described in Exhibit T-1 to the Disbursement Agreement.
"Project Architect" means collectively, TSA of Nevada, LLP, and WAT&G,
Inc. 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: (i) the Phase II Land and/or the Mall Collateral and
any improvements thereon after their transfer to the Unrestricted Subsidiary or
Special Subsidiary as permitted by the Mortgage Note Indenture; (ii) 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;
(iii) the equipment owned by the HVAC Provider (unless purchased by Venetian or
Mall Construction Subsidiary after the date hereof); and (iv) any equipment
leased from a third party in the ordinary course of business.
"Project Budget" means the Project Budget as in effect on the Issuance
Date and attached as an exhibit to the Disbursement Agreement, as amended,
revised or modified from time to time in accordance with the terms thereof.
"Project Documents" means the Construction Management Agreement, the
Direct Construction Guaranty, the Indirect Construction Guaranty, the
Contracts, the Approved Equipment Funding Commitments, the Cooperation
Agreement, the HVAC Services Agreement, the Mall Lease, the Sale and
Contribution Agreement, the Treadway Agreement, the operating agreement of each
of Venetian, Mall Intermediate Holdings, Mall Holdings and Mall Subsidiary and
any other document or agreement entered into, relating to the development,
construction, maintenance or operation of the Project (other than the documents
relating to the Tranche A Take-out Commitment and the Tranche B Take-out
Commitment) as the same may be amended from time to time in accordance with the
terms and conditions of the Disbursement Agreement.
"Public Equity Offering" means a bona fide underwritten sale to the public
of common equity of the Company, Venetian or a Person holding more than 50% of
the common equity of the Company pursuant to a registration statement (other
than on Form S-8 or any other form relating to securities issuable under any
benefit plan of the Company) that is declared effective by the SEC and results
in gross aggregate proceeds to the Company or Venetian of at least $20.0
million.
"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 (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).
"Redemption Triggering Event" means (i) a Public Equity Offering; or (ii)
the receipt by the Issuers or any of their Restricted Subsidiaries of Excess
Mall Proceeds.
"Related Parties" means (i) any spouse and any child, stepchild, sibling
or descendant of the Sole Stockholder, (ii) any estate of the Sole Stockholder
or any person under clause (i), (iii) any person who receives a beneficial
interest in the Company or Venetian from any estate under clause (ii) to the
extent of such interest, (iv) 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 (i), (ii) or (iii) to the
extent of such interest, (v) any corporation, trust, or similar entity owned or
controlled by the Sole Stockholder or any person referred to in clause (i),
(ii), (iii) or (iv) or for the benefit of any person referred to in clause (i)
and (vi) the spouse or issue of one or more of the individuals described in
clause (i).
"Repurchase Offer" means an offer made by the Issuers to purchase all or
any portion of a holder's Mortgage Notes pursuant to the covenants described
above under the captions entitled "Repurchase at
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the Option of Holders--Change of Control," "Repurchase at the Option of
Holders--Asset Sales," or "Repurchase at the Option of Holders--Event of Loss."
"Restricted Investment" means (i) an Investment other than a Permitted
Investment or (ii) any sale, conveyance, lease, transfer or other disposition
of assets at less than fair market value to an Unrestricted Subsidiary,
provided that the amount of such Restricted Investment under this clause (ii)
shall be such difference in value.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Issuers that is not then an Unrestricted Subsidiary or a
Special Subsidiary; provided, however, that upon the occurrence of any
Unrestricted Subsidiary or Special Subsidiary ceasing to be an Unrestricted
Subsidiary or Special Subsidiary, such Subsidiary shall be included in the
definition of "Restricted Subsidiary."
"Sale and Contribution Agreement" means that certain Sale and Contribution
Agreement among the Venetian, Mall Construction Subsidiary and Mall Subsidiary,
as such agreement may be amended, modified or renewed from time to time in
accordance with its terms.
"Senior Subordinated Notes" means the $97.5 million in aggregate principal
amount of the Issuers 14-1/4% Senior Subordinated Notes due 2005, and any series
of senior subordinated notes issued in exchange for such Senior Subordinated
Notes pursuant to the Exchange Offer contemplated by the Registration Rights
Agreement.
"Senior Subordinated Note Guarantors" means Phase II Intermediate Holdings,
Mall Intermediate Holdings, Mall Construction Subsidiary and all future
Restricted Subsidiaries of the Issuers.
"Senior Subordinated Note Indenture" means that certain Indenture by and
among the Issuers, the Senior Subordinated Note Guarantors and the Senior
Subordinated Note Trustee, as amended or supplemented from time to time.
"Senior Subordinated Note Trustee" means First Union National Bank, in its
capacity as trustee.
"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 Act, as such Regulation is in effect on the Issuance Date.
"Sole Stockholder" means Sheldon G. Adelson.
"Special Subsidiary" means the Mall Subsidiary, Mall Holdings, Mall Manager
and any other Subsidiary so designated by the Board of Directors of the Company
in accordance with the terms of the Mortgage Note Indenture.
"Special Subsidiary Permitted Investments" means with respect to any
Special Subsidiary (a) any Investments in a Wholly Owned Subsidiary of such
Special Subsidiary engaged in a Special Subsidiary Principal Business; (b) any
Investments in Cash Equivalents; (c) receivables owing to such Special
Subsidiary or any Wholly Owned Subsidiary of such Special 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 Special Subsidiary deems
reasonable under the circumstances; (d) 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; (e) loans or advances to employees made in the ordinary
course of business of the Special Subsidiary; (f) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to Special Subsidiary or a Subsidiary or in satisfaction of
judgments and (g) other Investments in any Person (other than an Affiliate of
the Special Subsidiary) having a fair market value (measured on the date of
each such Investment was made and without giving effect to subsequent changes
in value), when taken together with all other investments made pursuant to this
clause (g) that are at the time outstanding, not to exceed $5.0 million.
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"Special Subsidiary Principal Business" means business limited to the
following: (i) to acquire, hold, own, manage, market and operate a retail,
restaurant and entertainment complex known as the Grand Canal Shops Mall (the
"Property"), located at 3355 Las Vegas Boulevard, South, Las Vegas, Nevada,
(ii) to engage in the retail, restaurant and entertainment business at the
Property and any activity and business incidental, directly related or similar
thereto, and (iii) to engage in any business or activity that is a reasonable
extension, development or expansion thereof or ancillary thereto including any
retail, restaurant, entertainment or other activity or business designed to
promote, market, support, develop, construct or enhance the retail, restaurant
and entertainment business operated by the Mall Subsidiary (including, without
limitation, owning and operating joint ventures to supply materials or services
for the construction or operation of the Property, engaging in transactions
with Affiliates to the extent permitted under the Mortgage Note Indenture, and
incurring Indebtedness, providing guarantees or providing other credit
support). Special Subsidiary Principal Business does not mean any of the
foregoing to the extent engaged in on the Phase II Land.
"Special Subsidiary Restricted Investment" means (i) an Investment by a
Special Subsidiary or a Subsidiary of a Special Subsidiary other than a Special
Subsidiary Permitted Investment or (ii) any Investment by a Special Subsidiary
or a Subsidiary of a Special Subsidiary in the equity of the Issuers or any of
the Issuers' Restricted Subsidiaries.
"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), (h) or (p) of the covenant described
above under the caption "Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock," including (i) each and every item or unit of equipment
acquired with proceeds thereof, (ii) each and every item or unit of equipment
acquired in substitution or replacement thereof, (iii) all parts, components and
other items pertaining to such collateral, (iv) all documents (including without
limitation all warehouse receipts, dock receipts, bills of lading and the like),
(v) all licenses (other than gaming licenses), warranties, guaranties, service
contracts and related rights and interests covering all or any portion of such
collateral, (vi) 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, and (vii) so long as Indebtedness under the Bank Credit Facility is
outstanding, such other collateral reasonably determined by the lenders under
the Bank Credit Facility to be collateral for Indebtedness incurred in
connection with the purchase of Specified FF&E so long as the Lien securing
Indebtedness incurred under the Bank Credit Facility 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 or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness of the Issuers or any
of their Restricted Subsidiaries which is expressly by its terms subordinated
in right of payment to the Mortgage Notes or any Mortgage Note Guaranty.
"Subsidiary" means, with respect to any Person, (i) 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 (ii) any
partnership of which more than 50% of the partnership's capital accounts,
distribution rights or general or limited partnership interests are owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Substitute Tranche B Loan" means amounts drawn upon under the guarantee
of the Sole Stockholder of the Tranche B loan of the Mall Construction Loan
Facility, which amounts, when drawn upon may be treated as a subordinated loan
to the Issuers from the Sole Stockholder.
"Supplier Joint Venture" means any Person that supplies or provides
materials or services to the Issuers or the Construction Manager or any
contractor in the Project and in which the Issuers or one of their Restricted
Subsidiaries have Investments.
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"Tax Amount" means, with respect to a Estimation Period or a taxable year,
as the case may be, an amount equal to (A) the product of (x) 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 (y) the Applicable Tax Percentage reduced by (B) to the
extent not previously taken into account, any income tax benefit attributable
to the Company or Venetian, 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 or any prior taxable year, or portion thereof,
commencing on or after the Issuance Date (including any tax losses or tax
credits), 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 (C)
the deductibility of state and local taxes for federal income tax purposes, and
(D) any difference in the Applicable Tax Percentage resulting from the nature
of taxable income (such as capital gain as opposed to ordinary income).
"Tax Amounts CPA" means a nationally recognized certified public
accounting firm.
"Tranche A Take-out Commitment" means the commitment of Goldman Sachs
Mortgage Company or such other lender suitable to the Issuers, to enter into
and make a loan in an aggregate of up to $105.0 million thereunder under the
Permitted Mall Construction Refinancing or any other commitment to make such a
loan that replaces the commitment of Goldman Sachs Mortgage Company in
accordance with the Tri-Party Agreement.
"Treadway Agreement" means that certain Time and Materials Agreement
between Owner and Contractor, dated as of February 10, 1997, by and between the
Company and Treadway Industries of Phoenix, Inc., an Arizona corporation, as
amended, modified or revised from time to time in accordance with its terms.
"Tranche B Take-out Commitment" means the commitment of the Sole
Stockholder to enter into and fund a loan to Mall Subsidiary in an aggregate of
up to $35.0 million under the Permitted Construction Loan Refinancing or any
other commitment to make such a loan that replaces the commitment of the Sole
Stockholder in accordance with the Tri-Party Agreement.
"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 November 15, 2001; provided,
however, that if the average life of such Mortgage 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 Mortgage 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.
"Tri-Party Agreement" means the agreement between Venetian, the Company,
the Sole Stockholder, the Mall Construction Subsidiary, the Mall Subsidiary,
the Mall Construction Lender and Goldman Sachs Mortgage Company (or any
successor provider of the Tranche A Take-out Commitment), as amended or
replaced from time to time in accordance with its terms.
"True-up Amount" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between (i) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such taxable year, 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 (ii) 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
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amount described in clause (i) above over the amount described in clause (ii)
above shall be referred to as the "True-up Amount due to the Company" or the
"True-up Amount due to Venetian," as the case may be, and the excess, if any,
of the amount described in clause (ii) over the amount described in clause (i)
shall be referred to as the "True-up Amount due to the shareholders or
members."
"True-up Determination Date" means the date on which the Tax Amounts CPA
delivers a statement to the Mortgage Note Trustee indication 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 (i) each of Phase II Holdings, Phase II
Manager and Phase II Subsidiary; and (ii) 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 Mortgage
Note Indenture and any Subsidiary of such entity, so long as it remains an
Unrestricted Subsidiary in accordance with the terms of the Mortgage Note
Indenture.
"Venetian" means, Venetian Casino Resort, LLC, a Nevada limited liability
company.
"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 (a) the
sum of the products obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (y)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) 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 one or
more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means the credit facility pursuant to any
agreement or agreements providing for the making of loans or advances on a
revolving basis, the issuance of letters of credit and/or the creation of
bankers' acceptances to fund the Issuers' or any of their Restricted
Subsidiaries' general corporate requirements and any amendment, supplement,
extension, modification, renewal, replacement or refinancing from time to time,
including any agreement to renew, extend, refinance or replace all or any
portion of such facility.
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DESCRIPTION OF SENIOR SUBORDINATED NOTES
General
The Senior Subordinated Notes were issued pursuant to the Senior
Subordinated Note Indenture among the Issuers, the Senior Subordinated Note
Guarantors and First Union National Bank, as trustee (the "Senior Subordinated
Note Trustee"), in a private transaction that was not subject to the
registration requirements of the Securities Act. See "Notice to Investors." The
Senior Subordinated Notes are fully, unconditionally and jointly and severally
guaranteed (each a "Senior Subordinated Note Guaranty" and, together, the
"Senior Subordinated Note Guaranties"), by each existing Restricted Subsidiary
and any future Restricted Subsidiary of the Issuers (each, a "Senior
Subordinated Note Guarantor" and, together, the "Senior Subordinated Note
Guarantors"), with certain exceptions, pursuant to the terms of the Senior
Subordinated Note Indenture. The terms of the Senior Subordinated Notes include
those stated in the Senior Subordinated Note Indenture and those made part of
the Senior Subordinated Note Indenture by reference to the Trust Indenture Act.
The Senior Subordinated Notes are subject to all such terms, and holders of
Senior Subordinated Notes are referred to the Senior Subordinated Note
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Senior Subordinated Note Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Senior Subordinated Note Indenture, including the definitions therein of
certain terms used below. A copy of the form of Senior Subordinated Note
Indenture is available from the Company 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 Senior Subordinated Note Indenture. A copy of the Senior
Subordinated Note Indenture has been filed with the Commission as an exhibit to
the Registration Statement. For purposes of this "Description of Senior
Subordinated Notes," the term "Issuers" refers only to the Issuers and 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.
The Senior Subordinated Notes are general unsecured obligations of the
Issuers and are subordinated in right of payment to all existing and future
Senior Debt of the Issuers and are senior or pari passu in right of payment to
all existing and future subordinated indebtedness of the Issuers. The Senior
Subordinated Notes also are effectively subordinated to the Indebtedness of any
Subsidiaries of the Issuers that are not Senior Subordinated Note Guarantors.
See "--Subordination." Upon completion of the Casino Resort, the Issuers will
have $812.7 million of Senior Debt outstanding. In addition, under the Senior
Subordinated Note Indenture, the Issuers are permitted to incur additional
Senior Debt under certain circumstances. See "Description of Intercreditor
Agreement." The Mall Subsidiary (which is not a Senior Subordinated Note
Guarantor) may incur up to $140.0 million of Indebtedness under the Mall Take-
out Financings upon the transfer of the Mall Collateral to refinance the
Indebtedness under the Mall Construction Loan Facility. See "--Subordination"
and "--Certain Covenants--Limitations on Incurrence of Indebtedness."
Principal, Maturity and Interest
The Senior Subordinated Notes are joint and several secured obligations of
the Issuers, limited in aggregate principal amount to $97.5 million and will
mature on November 15, 2005. The Senior Subordinated Notes bear interest from
November 14, 1997 at the rate of 10.0% per annum on their principal amount at
maturity through and including November 15, 1999 and after such date until
maturity at a rate of 14-1/4% per annum on their principal amount at maturity.
Installments of interest will become due and payable semi-annually in arrears
on May 15 and November 15 of each year, commencing May 15, 1998, to the holders
of record at the close of business on the preceding May 1 or November 1. The
Senior Subordinated Notes were issued at a discount from their principal amount
at maturity (92.812% of the principal amount at maturity) and will accrue to
par by the second anniversary of the original date of issuance. Additionally,
installments of accrued and unpaid interest will become due and payable with
respect to any principal amount of the Senior Subordinated Notes that matures
(whether at stated maturity, upon acceleration, upon maturity of any repurchase
obligation or otherwise) upon such maturity of such principal amount of the
Senior Subordinated Notes. Interest on the Senior Subordinated Notes is
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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
Senior Subordinated Notes are 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 Senior Subordinated Notes at
their respective addresses set forth in the register of holders of Senior
Subordinated Notes; provided that all payments of principal, premium and
Liquidated Damages, if any and interest on the Senior Subordinated Notes the
holders of which have given wire transfer instructions to the Issuers are
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 is the office of the Senior
Subordinated Note Trustee maintained for such purpose. The Senior Subordinated
Notes are issued in registered form, without coupons, and in denominations of
$1,000 and integral multiples thereof.
Subordination
The payment of principal of, premium, if any, and interest on the Senior
Subordinated Notes is subordinated in right of payment, as set forth in the
Senior Subordinated Note Indenture, to the prior payment in full of all Senior
Debt, whether outstanding on the date of the Senior Subordinated Note Indenture
or thereafter incurred.
Upon any distribution to creditors of the Company or Venetian in a
liquidation or dissolution of the Company or Venetian in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or Venetian or either of their property, an assignment for the benefit
of creditors or any marshalling of the Company's or Venetian's assets and
liabilities, the holders of Senior Debt will be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt, whether or not allowed) before the Holders of Senior
Subordinated Notes will be entitled to receive any payment with respect to the
Senior Subordinated Notes, and until all Obligations with respect to Senior
Debt are paid in full, any distribution to which the Holders of Senior
Subordinated Notes would be entitled shall be made to the holders of Senior
Debt (except that Holders of Senior Subordinated Notes may receive Permitted
Junior Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Issuers also may not make any payment upon or in respect of the Senior
Subordinated Notes (except in Permitted Junior Securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on Designated
Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Senior Subordinated Note
Trustee receives a notice of such default (a "Payment Blockage Notice") from
the Company or the holders of any Designated Senior Debt. Payments on the
Senior Subordinated Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any Designated
Senior Debt has been accelerated. No new period of payment blockage may be
commenced unless and until (i) 360 days have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, and interest on the Senior Subordinated Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Senior Subordinated Note Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
waived for a period of not less than 180 days.
The Senior Subordinated Note Indenture further requires that the Issuers
promptly notify holders of Senior Debt if payment of the Senior Subordinated
Notes is accelerated because of an Event of Default.
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As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Senior Subordinated Notes may
recover less ratably than creditors of the Issuers who are holders of Senior
Debt. See "Risk Factors--Ranking of Senior Subordinated Notes; Subordination to
Senior Debt; Limitations on Remedies."
Mandatory Redemption
The Issuers are not required to make mandatory redemptions or sinking fund
payments prior to maturity with respect to the Senior Subordinated Notes.
Optional Redemption
Except as described below, the Senior Subordinated Notes are not
redeemable at the option of the Issuers prior to November 15, 2001. On or after
November 15, 2001, the Senior Subordinated Notes will be subject to redemption
at the option of the Issuers, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on November 15 of the years
indicated below:
<TABLE>
<CAPTION>
Percentage
of Principal
Year Amount
--------------------------------- ------------
<S> <C>
2001 ............................ 107.125%
2002 ............................ 103.563%
2003 (and thereafter) ........... 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to November 15, 2000, the
Issuers may on any one or more occasions redeem up to 100% of the aggregate
principal amount of Senior Subordinated Notes originally issued at a redemption
price equal to (i) 114.25% of the Accreted Value of the Senior Subordinated
Notes so redeemed (determined at the date of redemption) if prior to the second
anniversary of the issuance date or (ii) 114.25% of the principal amount
thereof if on or after the second anniversary of the issuance date, in each
case, plus accrued and unpaid interest and Liquidated Damages, if any, thereon,
to the redemption date, with the proceeds of one or more Public Equity
Offerings; provided that such redemption shall occur within 60 days of the date
of such Public Equity Offering.
In addition, at any time prior to November 15, 2001, the Issuers may, at
their option, redeem the Senior Subordinated Notes, in whole or in part, at a
redemption price equal to (i) 100% of the Accreted Value of the Senior
Subordinated Notes so redeemed (determined at the date of redemption) if prior
to the second anniversary of the issuance date or (ii) 100% of the principal
amount of the Senior Subordinated Notes so redeemed if on or after the second
anniversary of the issuance date, in each case, plus the Senior Subordinated
Note Make-Whole Premium, plus, to the extent not included in the Senior
Subordinated Note Make-Whole Premium, accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption. For purposes of the
foregoing, "Senior Subordinated Note Make-Whole Premium" means, with respect to
a Senior Subordinated Note, an amount equal to the greater of (i) (a) 14.25% of
the Accreted Value if prior to the second anniversary of the Issuance Date of
such Senior Subordinated Note or (b) 14.25% of the outstanding principal amount
if on or after the second anniversary of the Issuance Date of such Senior
Subordinated Note and (ii) the excess of (a) the present value of the remaining
interest, premium and principal payments due on such Senior Subordinated Note
as if such Senior Subordinated Note were redeemed on November 15, 2001,
computed using a discount rate equal to the Treasury Rate plus 50 basis points,
over (b) the outstanding principal amount of such Senior Subordinated Note.
Notwithstanding any other provision hereof, if any Gaming Authority
requires that a holder or beneficial owner of the Senior Subordinated Notes
must be licensed, qualified or found suitable under any applicable gaming laws
in order to maintain any gaming license or franchise of the Company 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
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or beneficial owner is not so licensed, qualified or found suitable, the
Issuers shall have the right, at their option, (i) to require such holder or
beneficial owner to dispose of such holder's or beneficial owner's Senior
Subordinated 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 (ii) to call for redemption of the Senior Subordinated
Notes of such holder or beneficial owner at a redemption price equal to the
lesser of the principal amount thereof or the price at which such holder or
beneficial owner acquired the Senior Subordinated Notes, together with, in
either case, accrued and unpaid interest and Liquidated Damages, if any, to the
earlier of the date of redemption or, the date of the finding of unsuitability
by such Gaming Authority, which may be less than 30 days following the notice
of redemption if so ordered by such 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 Senior Subordinated
Notes for redemptions of the Senior Subordinated Notes. Under the Senior
Subordinated Note Indenture, the Issuers are not required to pay or reimburse
any holder of the Senior Subordinated 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 "Regulation and Licensing."
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control and subsequent to the
consummation of any required repurchase of the Mortgage Notes pursuant to a
Change of Control Offer under the terms of the Mortgage Note Indenture, the
Issuers will make an offer to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of the Senior Subordinated Notes pursuant to the
offer described below (the "Change of Control Offer") at a price in cash (the
"Change of Control Payment") equal to (i) 101% of the Accreted Value
(determined at the date of redemption) if prior to the second anniversary of
the issuance date or (ii) 101% of the aggregate principal amount thereof, in
each case, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of repurchase. Within 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 Senior Subordinated Notes properly tendered pursuant to such Change of
Control Offer will be accepted for payment; (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 Senior
Subordinated 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 Senior Subordinated Notes accepted for payment pursuant to
the Change of Control Offer will cease to accrue interest and Liquidated
Damages, if any, after the Change of Control Payment Date; (5) holders electing
to have any Senior Subordinated Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Senior Subordinated Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior
Subordinated 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
Senior Subordinated Notes and their election to require the Issuers to purchase
the Senior Subordinated 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 Senior Subordinated Note Indenture), a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount of Senior Subordinated Notes tendered for purchase, and a
statement that such holder is withdrawing his tendered Senior Subordinated
Notes and his election to have such Senior Subordinated Notes purchased; and
(7) that holders whose Senior Subordinated Notes are being purchased only in
part will be issued new Senior Subordinated Notes equal in principal amount to
the unpurchased portion of the Senior Subordinated 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 Senior Subordinated Notes pursuant to a Change of Control
Offer.
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On the Change of Control Payment Date, the Issuers will, to the extent
permitted by law, (1) accept for payment all Senior Subordinated 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 Senior Subordinated Notes or portions thereof
so tendered and (3) deliver, or cause to be delivered, to the Senior
Subordinated Note Trustee for cancellation the Senior Subordinated Notes so
accepted together with an Officers' Certificate stating that such Senior
Subordinated Notes or portions thereof have been tendered to and purchased by
the Issuers. The paying agent will promptly mail to each holder of Senior
Subordinated Notes the Change of Control Payment for such Senior Subordinated
Notes, and the Senior Subordinated Note Trustee will promptly authenticate and
mail to each holder a new Senior Subordinated Note equal in principal amount to
any unpurchased portion of the Senior Subordinated Notes surrendered, if any,
provided, that each such new Senior Subordinated Note will be in a principal
amount of $1,000 or an integral multiple thereof. The 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 Senior Subordinated 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.
The source of funds for any repurchase of Senior Subordinated 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 Senior Subordinated Notes tendered pursuant to a Change of
Control Offer will be deemed an Event of Default.
The Bank Credit Facility, the Mall Construction Loan Facility and the
Mortgage Note Indenture contain, and future agreements relating to the Issuers'
Senior Debt may contain, restrictions or prohibitions on the Issuers' ability
to repurchase the Senior Subordinated Notes. In the event that a Change of
Control occurs at a time when the Issuers are prohibited from repurchasing the
Senior Subordinated Notes, the Issuers could seek the consent of their lenders
to purchase the Senior Subordinated 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 Senior Subordinated Notes. In such case,
the Issuers' failure to repurchase the Senior Subordinated Notes tendered in
the Change of Control Offer would constitute an Event of Default under the
Senior Subordinated Note Indenture which would in turn constitute an event of
default under the agreements governing the Issuers of the Senior Debt. In such
circumstances, the subordination provisions of the Senior Subordinated Note
Indenture would likely restrict payment to the holders of Senior Subordinated
Notes. See "--Subordination" and "Description of Other Indebtedness."
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 Senior
Subordinated Notes to require the Issuers to repurchase such Senior
Subordinated 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.
Asset Sales
The Senior Subordinated Note Indenture provides that the Issuers will not,
and will not permit any of their Restricted Subsidiaries to consummate an Asset
Sale, unless (w) no Default or Event of Default exists or is continuing
immediately prior to or after giving effect to such Asset Sale, (x) 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 Senior Subordinated Note Trustee) of the assets sold or
otherwise disposed of and (y) at least 85% 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 Restricted
Subsidiary's, as the case may
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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 Senior Subordinated Notes or any
Senior Subordinated Note Guaranty, which may be assumed only if such
liabilities are deemed to be Restricted Payments in the case of the Issuer or
any Restricted Subsidiary), that are assumed by the transferee of any such
assets and (B) any notes, securities or other obligations received by the
Company 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 (y) of this paragraph and for no other purpose.
Within the later of (i) 180 days after any Issuer's or any Restricted
Subsidiary's receipt of the Net Proceeds of any Asset Sale and (ii) if
applicable, the consummation of any required repurchase of the Mortgage Notes
pursuant to an Asset Sale Offer under the terms of the Mortgage Note Indenture,
(the "Reinvestment Period"), such Issuer or such Restricted Subsidiary may
apply the Net Proceeds from such Asset Sale (i) to permanently reduce Senior
Debt (including by way of an Asset Offer pursuant to the Mortgage Note
Indenture) or other Indebtedness that is not Subordinated Indebtedness, (ii) 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, or (iii) for working capital
purposes in an amount not to exceed $20.0 million, in each case, with no
concurrent obligation to make an offer to purchase any Senior Subordinated
Notes. Pending the final application of any such Net Proceeds, such Issuer or
such Restricted Subsidiary may temporarily reduce Senior Debt, if any, or
otherwise invest such Net Proceeds in Cash Equivalents. Any Net Proceeds from
the Asset Sale that are not invested or used to repay Indebtedness or as
working capital (including by way of an Asset Sale Offer under the terms of the
Mortgage Note Indenture) within the Reinvestment Period (including by way of an
Asset Sale Offer under the terms of the Mortgage Note Indenture) 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 the Bank Credit Facility and the Mall Construction Lender as well as the
holders of the Mortgage Notes, make an offer to all holders of Senior
Subordinated Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Senior Subordinated Notes, that is an integral multiple of $1,000,
that may be purchased out of the Excess Proceeds at an offer price in cash in
an amount equal to (i) 101% of the Accreted Value (determined at the date of
the redemption) if prior to the second anniversary of the issuance date or (ii)
101% of the aggregate principal amount thereof if on or after the second
anniversary of the issuance date, in each case, 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 Senior
Subordinated Note Indenture. The Issuers will commence an Asset Sale Offer with
respect to Excess Proceeds within 30 days after the date that Excess Proceeds
exceeds $10.0 million by mailing the notice required pursuant to the terms of
the Senior Subordinated Note Indenture. To the extent that the aggregate amount
of Senior Subordinated 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 or to offer to redeem Senior
Subordinated Notes pursuant to the provisions of the Senior Subordinated Note
Indenture described below under the caption "Description of Senior Subordinated
Notes--Repurchase at the Option of the Holders--Asset Sales." If the aggregate
principal amount of Senior Subordinated Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Senior Subordinated Note Trustee
shall select the Senior Subordinated 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.
Selection and Notice
If less than all of the Senior Subordinated Notes are to be purchased in
an Asset Sale Offer or redeemed at any time, selection of Senior Subordinated
Notes for purchase or redemption will be made by the Senior Subordinated Note
Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Senior Subordinated Notes are listed,
or, if the Senior Subordinated Notes are not so listed, on a pro rata basis, by
lot or by such other method as the Senior Subordinated Note Trustee shall deem
fair and appropriate (and in such manner as complies with
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applicable legal requirements); provided, that no Senior Subordinated 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 Senior Subordinated Notes to be purchased or
redeemed at such holder's registered address. Notices of redemption may not be
conditional. If any Senior Subordinated Note is to be purchased or redeemed in
part only, any notice of purchase or redemption that relates to such Senior
Subordinated Note shall state the portion of the principal amount thereof that
has been or is to be purchased or redeemed.
A new Senior Subordinated Note in principal amount equal to the
unpurchased or unredeemed portion of any Senior Subordinated Note purchased or
redeemed in part will be issued in the name of the holder thereof upon
cancellation of the original Senior Subordinated Note. Senior Subordinated
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 or redemption price), interest and Liquidated Damages, if any,
shall cease to accrue on Senior Subordinated Notes or portions thereof
purchased or called for redemption.
Certain Covenants
Gaming Licenses
The Senior Subordinated Note Indenture provides that the Issuers will use
their best efforts to obtain and retain in full force and effect at all times
all Gaming Licenses necessary for the operation of the Project.
Restricted Payments
The Senior Subordinated Note Indenture provides that the Issuers will not,
and will not permit any of their Restricted Subsidiaries to, directly or
indirectly: (i) 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 (1) dividends or distributions by the Issuers payable in
Equity Interests (other than Disqualified Stock) of the Issuers (or accretions
thereon); or (2) dividends or distributions paid to the Issuers or a Wholly
Owned Restricted Subsidiary of the Issuers); (ii) 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 of its Restricted Subsidiaries, or any other
Affiliate of the Issuers (other than any such Equity Interests owned by the
Issuers or any Wholly Owned Restricted Subsidiary of the Issuers); (iii) make
any payment on or with respect to or 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 interest
and principal payments with respect to any such Subordinated Indebtedness);
(iv) make any payment in respect of repayment or reimbursement of amounts
advanced under any obligation under the Completion Guaranty; or (v) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (v) 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
(ii), (iii), (v), (vi), (vii), (viii), (ix) (but only to the extent necessary
under
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clause (ix) to pay the fees and expenses of any lenders or agents under the
Tranche A Take-out Commitment), (x), (xiii), (xiv), (xv) and (xvii) of the next
succeeding paragraph and including the other Restricted Payments permitted by
the next paragraph), is less than the sum of (X) 50% of (1) the Consolidated
Net Income of the Company for the period (taken as one accounting period) from
the first day after the Project is Completed 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) less (2) the amount paid or to be paid in
respect of such period pursuant to clause (v) of the next following paragraph
to shareholders or members other than the Issuers, plus (Y) 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 (Z) 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 Special Subsidiary or in respect of any Restricted Investment
(other than dividends or distributions to pay obligations of or with respect to
such Unrestricted Subsidiary or Special Subsidiary such as income taxes) until
the entire amount of the Investment in such Unrestricted Subsidiary or Special
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 or Special
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.
The foregoing provisions do not prohibit (i) 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 Senior
Subordinated Note Indenture; (ii) (a) an Investment in Phase II Subsidiary,
Phase II Manager, Phase II Direct Holdings or any Special Subsidiary or (b) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Issuers or any Restricted Subsidiary, in each case, 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)(Y) of the preceding paragraph; (iii) 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 (other than
any Subordinated Indebtedness issued in respect of the Completion Guaranty) of
the Issuers or such Restricted Subsidiary or Equity Interests of the Issuers
(other than Disqualified Stock); provided, however, that (1) the principal
amount of such Subordinated Indebtedness incurred pursuant to this clause (iii)
shall not exceed the principal amount of the Subordinated Indebtedness so
redeemed, repurchased, retired or otherwise acquired (plus the amount of
reasonable expenses incurred and any premium paid in connection therewith), (2)
such Subordinated Indebtedness shall have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Subordinated Indebtedness being redeemed, repurchased, retired or otherwise
acquired, (3) such Subordinated Indebtedness is pari passu with or subordinate
in right of payment to the Senior Subordinated Notes and any Senior
Subordinated Note Guaranty on terms at least as favorable to the holders of the
Senior Subordinated Notes or the Senior Subordinated Note Guaranties as those
contained in the documentation governing the Subordinated Indebtedness being
redeemed, repurchased, retired or otherwise acquired and (4) the net cash
proceeds from the sale of any Equity Interests issued pursuant to this clause
(iii) shall be excluded from clause (c)(Y) of the preceding paragraph; (iv) any
redemption or purchase by the Issuers or any Restricted Subsidiary of Equity
Interests or Subordinated Indebtedness of either of the Issuers 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
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applicable Gaming Authority was willing to purchase such Equity Interests or
Subordinated Indebtedness within a time period acceptable to such Gaming
Authority; (v) (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 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 non-Wholly
Owned Subsidiaries of either of the Issuers or any Restricted Subsidiary of the
Issuers but only to the extent required to pay any tax liability of such non-
Wholly Owned Subsidiary; (vi) the transfer of the Mall Collateral to the Mall
Subsidiary in accordance with the Sale and Contribution Agreement and the
Disbursement Agreement and the transfer of 1% managing members interests in
Mall Subsidiary and Mall Holdings to Mall Manager; (vii) the transfer of the
Phase II Land to the Phase II Subsidiary and the transfer of 1% managing
members interests in Phase II Subsidiary and Phase II Holdings to Phase II
Manager; (viii) Investments by the Issuers in Supplier Joint Ventures in an
amount not to exceed $10.0 million in the aggregate; (ix) Investments in any
Special Subsidiary in an amount not to exceed $2.0 million in the aggregate
(plus amounts necessary to fund the fees and expenses of the lenders or agents
under the Tranche A Take-out Commitment), excluding for purposes of this clause
(ix) the value of any Restricted Payments under clauses (ii), (vii) or (xiv);
(x) intercompany payments, including without limitation, debt repayments,
between or among the Issuers and their Wholly Owned Restricted Subsidiaries;
(xi) 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), in each case, as in effect on the
date of the Mortgage Note Indenture and as approved by the board of directors
of the Company under which such individuals purchase or sell, or are granted
the option to purchase or sell, shares of such common stock ("Employee Stock
Buybacks"); (xii) following an initial Public Equity Offering, dividends or
common stock buybacks in an aggregate amount in any calendar year not to exceed
6% of the aggregate Net Proceeds received by either of the Issuers in
connection with such initial Public Equity Offering and any subsequent Public
Equity Offering; (xiii) 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; (xiv) cash contributions to a
Special Subsidiary which are funded through a contribution (that does not
constitute Disqualified Stock) by the Sole Stockholder or any of his Affiliates
to either of the Issuers and any related Investment in any Special Subsidiary
by either of the Issuers or any Restricted Subsidiary; provided that the amount
of such contributions shall be excluded from clause (c)(Y) of the proceeding
paragraph; (xv) contributions of cash, real property or other property to the
Phase II Subsidiary, Phase II Holdings or Phase II Manager by the Sole
Stockholder or any of his Affiliates through a contribution to either of the
Issuers and any related Investment in the Phase II Subsidiary, Phase II
Holdings or Phase II Manager by either of the Issuers or any Restricted
Subsidiary; provided that the amount of such contributions shall be excluded
from clause (c)(Y) of the proceeding paragraph; (xvi) the repayment of all or a
portion of the Completion Guaranty Loan with Available Funds to the extent
permitted by the terms of the Disbursement Agreement and the Completion
Guaranty or, after Completion, with funds received by the Company as a result
of judgments or settlements of claims under the Project Documents (including
insurance policies and the Construction Management Contract); (xvii) on the
Final Completion Date (as defined in the Disbursement Agreement), payments on
the Completion Guaranty Loan from amounts which are returned to the Mall
Construction Subsidiary from funds in the Mall Retainage/Punchlist Account (as
defined in the Disbursement Agreement) in accordance with the Mall Escrow
Agreement (as defined in the Disbursement Agreement); provided that such
payments shall not be greater than all amounts previously deposited into the
Mall Retainage/Punchlist Account from the Guaranty Deposit Account (as defined
in the Disbursement Agreement); and (xviii) the repayment of the Substitute
Tranche B Loan with the process of the Permitted Construction Loan Refinancing
or the assumption of the Substitute Tranche B Loan by the Mall Subsidiary;
provided, that at the time of, and after giving effect to,
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any Restricted Payment permitted under clauses (ii) (b) (to the extent that any
Equity Interests are redeemed, retired or acquired from the cash proceeds from
the sale or issuance of Equity Interests), (iii) (to the extent that any
Subordinated Indebtedness is defeased, redeemed, retired, repurchased or
otherwise acquired from the cash proceeds from the sale or issuance of other
Subordinated Indebtedness or Equity Interests), (viii), (ix), (xii), and (xvi),
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof.
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.
Special Subsidiary Restricted Payments
The Senior Subordinated Note Indenture provides that a Special Subsidiary
will not and will not permit any of its Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of its Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving such Special Subsidiary
or its Subsidiaries) (other than (1) dividends or distributions paid or made
pro rata to all holders of Equity Interests of such Special Subsidiary or its
Subsidiaries; (2) dividends or distributions by such Special Subsidiary payable
in Equity Interests (other than Disqualified Stock) of such Special Subsidiary
(or accretions thereon); or (3) dividends or distributions paid to such Special
Subsidiary or a Wholly Owned Subsidiary of such Special Subsidiary by a
Subsidiary of such Special Subsidiary); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving any Special Subsidiary or its
Subsidiaries) any Equity Interests of any Special Subsidiary or any Subsidiary
of any Special Subsidiary; or (iii) make any Special Subsidiary Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iii) above being collectively referred to as "Special Subsidiary
Restricted Payments").
The foregoing provisions do not prohibit (i) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of any Special
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale or issuance (other than to the Issuers or any Restricted
Subsidiary of the Issuers) of Equity Interests of such Special Subsidiary and
(ii) the payment to or declaration or payment of any distribution or dividend
to the Issuers and any of their Restricted Subsidiaries or the redemption,
repurchase, retirement or other acquisition of any Equity Interests of any
Special Subsidiary held by the Issuers or any Wholly Owned Restricted
Subsidiary.
For purposes of determining the amount of Special Subsidiary Restricted
Investments outstanding at any time, all Special Subsidiary 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.
In addition, after the transfer of the Mall Collateral to the Mall
Subsidiary, the assets comprising the Mall Collateral may not be sold, leased
or transferred to an Affiliate of the Issuers other than an Issuer, any
Restricted Subsidiary or any Special Subsidiary that is a subsidiary of Mall
Intermediate Holdings and in which the Sole Stockholder does not own any Equity
Interests directly or indirectly, except through the Issuers.
Designation of Unrestricted Subsidiary
The Senior Subordinated Note Indenture provides that the Board of
Directors of the Company may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary; provided, that: (i) 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 Board of Directors and, in
the case of Investments in excess of $5.0 million, supported by a fairness
opinion issued by an accounting, appraisal or investment banking firm of
national standing; (ii) since the Issuance Date, such Unrestricted
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Subsidiary has not acquired any assets from either of the Issuers or any
Restricted Subsidiary other than as permitted by the provisions of the Senior
Subordinated Note Indenture, including the provisions described under the
covenants entitled "Restricted Payments" and "Repurchase at the Option of
Holders--Asset Sales"; (iii) 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; (iv) at the time of designation, such
Subsidiary has no Indebtedness other than Non-Recourse Indebtedness of such
Subsidiary; (v) such Subsidiary does not own any Equity Interests in a
Restricted Subsidiary; and (vi) 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.
A Subsidiary shall cease to be an Unrestricted Subsidiary and shall become
a Restricted Subsidiary if either (i) at any time while it is a Subsidiary of
the Company (1) such Subsidiary acquires any assets from the Company or any
Restricted Subsidiary other than as permitted by the provisions of the Senior
Subordinated Note Indenture, including the provisions described under the
covenants entitled "Restricted Payments" and "Repurchase at the Option of
Holders--Asset Sales"; (2) such Subsidiary has any Indebtedness other than
Non-Recourse Indebtedness of such Subsidiary; (3) such Subsidiary owns any
Equity Interests in a Restricted Subsidiary of the Company; or (4) 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 or (ii) 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 Issuance Date, each of Phase II Subsidiary, Phase II Manager and
Phase II Holdings was designated an Unrestriced Subsidiary. Any future
designation by the Board of Directors of the Company shall be evidenced to the
Senior Subordinated Note Trustee by filing with the Senior Subordinated Note
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.
As of the Issuance Date, the Issuers had no Unrestricted Subsidiaries
other than Phase II Subsidiary, Phase II Holdings and Phase II Manager. Under
certain circumstances, as described above, the Company is able to designate
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries are
not subject to any of the restrictive covenants set forth in the Senior
Subordinated Note Indenture and will not be Senior Subordinated Note
Guarantors.
In addition, after the transfer of the Phase II Land to the Phase II
Subsidiary, 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 that is a subsidiary of Phase II Intermediate Holdings
and in which Person the Sole Stockholder does not own any Equity Interests,
directly or indirectly, except through the Issuers.
Designation of Special Subsidiary
The Senior Subordinated Note Indenture provides that the Board of
Directors of the Company may designate any Restricted Subsidiary to be a
Special Subsidiary; provided, that: (i) 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 Board of Directors of the
Company and, in the case of Investments in excess of $5.0 million, supported by
a fairness opinion issued by an accounting, appraisal or investment banking
firm of national standing; (ii) since the Issuance Date, such Special
Subsidiary has not acquired any assets from the Issuers or any Restricted
Subsidiary other than as permitted by the provisions of the Senior Subordinated
Note Indenture, including the provisions described under the covenants entitled
"Restricted Payments" and "Repurchase at the Option of Holders--Asset Sales";
(iii) 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; (iv) at the time of designation, such Subsidiary
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has no Indebtedness other than Non-Recourse Indebtedness of such Subsidiary;
(v) such Subsidiary does not own any Equity Interests in a Restricted
Subsidiary; and (vi) 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.
A Subsidiary shall cease to be a Special Subsidiary and shall become a
Restricted Subsidiary if either (i) at any time while it is a Subsidiary of the
Issuers (1) such Subsidiary acquires any assets from the Issuers or any
Restricted Subsidiary other than as permitted by the provisions of the Senior
Subordinated Note Indenture, including the provisions described under the
covenants entitled "Restricted Payments" and "Repurchase at the Option of
Holders--Asset Sales"; (2) such Subsidiary has any Indebtedness other than
Non-Recourse Indebtedness of such Subsidiary; (3) such Subsidiary owns any
Equity Interests in a Restricted Subsidiary of the Issuers; or (4) 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 or (ii) the Issuers designate such Special
Subsidiary to be a Restricted Subsidiary and no Default or Event of Default
occurs or is continuing immediately after such designation.
Any such designation by the Board of Directors shall be evidenced to the
Senior Subordinated Note Trustee by filing with the Senior Subordinated Note
Trustee a certified copy of the resolution 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.
As of the Issuance Date, Mall Subsidiary, Mall Holdings and Mall Manager
were each a Special Subsidiary. Under certain circumstances, as described
above, the Company is able to designate certain Subsidiaries as Special
Subsidiaries. Special Subsidiaries are not subject to all of the restrictive
covenants set forth in the Senior Subordinated Note Indenture and will not be
Senior Subordinated Note Guarantors.
Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock
The Senior Subordinated Note Indenture provides that 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 Issuers and their
Restricted Subsidiaries may incur Indebtedness or issue shares of Disqualified
Stock if (i) the Project is Completed and (ii) 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 do not apply to:
(a) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Indebtedness under the Bank Credit Facility in an aggregate principal amount
not to exceed at any one time $170.0 million, less (i) the aggregate amount of
all principal repayments and mandatory prepayments (other than repayments made
under a revolving loan facility or prior to maturity in connection with a
refinancing permitted under the Senior Subordinated Note Indenture) actually
made from time to time after the date of the Senior Subordinated Note Indenture
with respect to such Indebtedness, and (ii) permanent reductions resulting from
the application of Asset Sale proceeds;
(b) the incurrence by the Issuers or any of their Restricted Subsidiaries
of any Existing Indebtedness;
(c) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Indebtedness represented by the Mortgage Notes, the Mortgage Note Guaranties,
the Senior Subordinated Notes, the Senior Subordinated Note Guaranties 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,
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refinance, renew, replace, substitute or refund Indebtedness referred to in the
first paragraph of this covenant or in clauses (b), (c), this clause (d), (g),
(h), (j) or (l); 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), (2) if the Indebtedness being extended,
refinanced, renewed, replaced, substituted or refunded is subordinated in right
of payment to the Senior Subordinated Notes Indenture, such Refinancing
Indebtedness shall be subordinate in right and priority of payment to the Senior
Subordinated Notes and any Senior Subordinated Note Guaranty on terms at least
as favorable to the holders of Senior Subordinated Notes and the Senior
Subordinated Note Guaranties 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 Senior
Subordinated Note Guarantor and any Wholly Owned Restricted Subsidiary of the
Issuers; provided, however, the obligations to pay principal, interest or other
amounts under such intercompany Indebtedness is subordinated to the payment in
full of the Senior Subordinated Notes and any Senior Subordinated Note
Guaranties;
(f) Hedging Obligations that are incurred (1) for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of the Senior Subordinated Note Indenture to be
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 Indebtedness (which may include Capital Lease Obligations or purchase money
obligations), incurred for the purpose of financing all or any part of the
purchase or lease of personal property or equipment, including the Specified
FF&E, used in the business of the Issuers or such Restricted Subsidiary, in an
aggregate principal amount pursuant to this clause (g) (including any
refinancings thereof pursuant to clause (d) above) not to exceed $100.0 million
(plus accrued interest thereon and the amount of reasonable expenses incurred
and premium paid in connection with any refinancing pursuant to clause (d)
above) outstanding at any time;
(h) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Non-Recourse Financing used to finance the purchase or lease of personal or
real property used in the business of the Issuers or such Restricted
Subsidiary; provided, that (i) such Non-Recourse Financing represents at least
75% of the purchase price of such personal or real property; (ii) the
Indebtedness incurred pursuant to this clause (h) (including any refinancings
thereof pursuant to clause (d) above) shall not exceed $50.0 million (plus the
amount of reasonable expenses incurred and premium paid in connection with any
refinancing pursuant to clause (d) above) outstanding at any time; and (iii) no
such Indebtedness may be incurred pursuant to this clause (h) unless the
Project is Completed and the Company shall have generated at least $10.0
million of Consolidated Cash Flow in one fiscal quarter;
(i) 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; 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 (i) at any one time
of less than $20.0 million;
(j) the incurrence by the Issuers or any of their Restricted Subsidiaries
of Subordinated Indebtedness thereon to the Sole Stockholder pursuant to an
advance under the Completion Guaranty in an aggregate amount not to exceed $25.0
million plus accrued interest thereon; provided that such Subordinated
Indebtedness has a Weighted Average Life to Maturity greater than the Senior
Subordinated Notes and is by its terms subordinated to the Mortgage Notes and
the Senior Subordinated Notes;
(k) the incurrence by the Issuers of up to $140.0 million of Indebtedness
represented by the Mall Construction Loan Facility;
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(l) the incurrence by the Issuers of Indebtedness represented by the
Substitute Tranche B Loan plus accrued interest thereon; provided that such
Indebtedness has a Weighted Average Life to Maturity greater than the Senior
Subordinated Notes and is by its terms subordinated to the Mortgage Notes;
(m) the incurrence by the Issuers of unsecured Indebtedness (subordinated
in right of payment to the Senior Subordinated Notes) issued in connection with
the Employee Stock Buybacks permitted under clause (xi) of the covenant
described above under the caption "--Restricted Payments";
(n) the incurrence by the Issuers or any Restricted Subsidiary of (A)(i)
at any time prior to Completion, additional Indebtedness under clause (a) or
(k) in an aggregate amount not to exceed $20.0 million, plus (ii) after a
default under the Disbursement Agreement and at any time prior to Completion,
additional Indebtedness under clause (a) or (k) in an aggregate amount not to
exceed $30.0 million (provided that Indebtedness incurred pursuant to this
clause (n)(A)(ii) is matched, dollar for dollar, by additional equity
investments by the Sole Stockholder or an Affiliate of the Sole Stockholder),
in the case of each of clause (A)(i) and (A)(ii), incurred in accordance with
the Intercreditor Agreement and (B) after Completion, additional Indebtedness
in an aggregate amount at any time outstanding not to exceed $25.0 million
(less any amounts incurred pursuant to clause (n)(A) above that remain
outstanding after Completion); and
(o) after Completion, the incurrence by the Issuers or any of their
Restricted Subsidiaries of Indebtedness under any Working Capital Facility in
an aggregate amount at any time outstanding not to exceed $20.0 million;
(p) the incurrence by the Issuers of Indebtedness incurred for the purpose
of financing all or any part of the purchase or lease of gaming equipment to be
used in connection with the casino located at the casino resort to be owned by
Phase II Subsidiary or any casino operated pursuant to an Other Phase II
Agreement in an aggregate amount at any time outstanding not to exceed $10.0
million; provided, that upon default under such Indebtedness, the lender under
such Indebtedness may seek recourse or payment against the Issuers only through
the return or sale of the property or equipment so purchased or leased and may
not otherwise assert a valid claim for payment on such Indebtedness against the
Issuers or any other property of the Issuers; and
(q) the guaranty by the Issuers or a Restricted Subsidiary of Indebtedness
of the Issuers or a Restricted Subsidiary that was permitted to be incurred by
another provision of this covenant.
The Senior Subordinated Note Indenture provides that the Issuers will not
permit any of their Unrestricted Subsidiaries or Special 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 or Special Subsidiary ceases to remain
an Unrestricted Subsidiary or Special Subsidiary, such event shall be deemed to
constitute the incurrence of the Indebtedness in such Subsidiary by a
Restricted Subsidiary. For a discussion of the Issuers' ability to incur
additional Indebtedness, see "Description of Intercreditor Agreement."
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 (q) 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 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 is not deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Upon any refinancing or replacement of the Bank Credit Facility with a
lender that does not become party to the Intercreditor Agreement, the Trustee
shall enter into an intercreditor agreement with such lender with terms that
are no less favorable to the Senior Subordinated Note Trustee or the Holders of
Senior Subordinated Notes than those contained in the Intercreditor Agreement.
Liens
The Senior Subordinated Note Indenture will provide that 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
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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
The Senior Subordinated Note Indenture provides that 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 (i) 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; (ii) 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 Senior Subordinated Note Indenture
pursuant to a supplemental indenture or other documents or instruments in form
reasonably satisfactory to the Senior Subordinated Note Trustee under the
Senior Subordinated Notes and the Senior Subordinated Note Indenture; (iii)
immediately after such transaction no Default or Event of Default exists; (iv)
such transaction will not result in the loss or suspension or material
impairment of any material Gaming License; (v) 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 (A) will have Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments resulting from the
transaction) equal to or greater than the Consolidated Net Worth of the Company
or Venetian immediately preceding the transaction and (B) 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 (vi) such transactions would not require any holder of Senior
Subordinated 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
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, the Issuers may
consolidate or merge with or wind up into each other without meeting the
requirements set forth in clause (v) above.
Transactions with Affiliates
The Senior Subordinated Note Indenture provides that the Issuers will not,
and will not permit any of their Restricted Subsidiaries or Special
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 guaranty with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary or Special
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary or Special Subsidiary with an
unrelated Person and (b) the Company delivers to the Senior Subordinated Note
Trustee (i) with respect to any Affiliate Transaction involving aggregate
payments in excess of (A) $500,000, an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (a) above, or (B) $1.0 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 (a) above and (ii) with respect to any Affiliate Transaction that
is a loan transaction involving a principal amount in excess of $10.0 million
or any other type of Affiliate Transaction involving aggregate payments in
excess of $10.0 million, an opinion as to the fairness to the Company or such
Restricted Subsidiary or Special Subsidiary from a financial point of view
issued by an Independent Financial Advisor. The foregoing provisions do not
apply to the following: (f) rental payments from Mall Subsidiary to Venetian
under the Billboard Lease, as in effect on the date of
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the Senior Subordinated Note Indenture; (g) the lease agreement relating to a
restaurant to be operated by Wolfgang Puck and currently contemplated to be
known as "Oba Chine" restaurant on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary or Special Subsidiary than those
that would have been obtained with an unrelated Person; (h) the Services
Agreement, as in effect on the date of the Senior Subordinated Note Indenture;
(i) the Other Phase II Agreements on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary or Special Subsidiary than those
that would have been obtained with an unrelated Person; (j) purchases of
materials or services from a Joint Venture Supplier by the Issuers or any of
their Restricted Subsidiaries or Special Subsidiaries in the ordinary course of
business on arm's length terms; (k) any employment, indemnification,
noncompetition or confidentiality agreement entered into by either of the
Issuers or any of their Restricted Subsidiaries or Special Subsidiaries with
their employees or directors in the ordinary course of business (other than an
employment agreement with the Sole Stockholder); (l) loans or advances to
employees of the Issuers or their Restricted Subsidiaries or Special
Subsidiaries (i) to fund the exercise price of options granted under employment
agreements or the Issuers' stock option plans or agreements, in each case, as
in effect on the date of the Mortgage Note Indenture or (ii) for any other
purpose not to exceed $2.0 million in the aggregate outstanding at any one
time; (m) the payment of reasonable fees to directors of the Issuers and their
Restricted Subsidiaries and Special Subsidiaries who are not employees of the
Issuers or their Restricted Subsidiaries or Special Subsidiaries; (n) the grant
of 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
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"; (o) transactions between or among the Issuers
and/or any of their Restricted Subsidiaries or transactions between or among
the Special Subsidiaries and/or any Wholly-Owned Subsidiary of Special
Subsidiaries; (p) with respect to the Issuers and any Restricted Subsidiary,
Restricted Payments permitted by the provisions of the Senior Subordinated Note
Indenture described above under the caption "Restricted Payments" and with
respect to any Special Subsidiary, Special Subsidiary Restricted Payments
permitted by the provisions of the Senior Subordinated Note Indenture described
above under the caption "Special Subsidiary Restricted Payments"; (q) purchases
of Equity Interests of the Issuers (other than Disqualified Stock) by any
stockholder or member of the Issuers (or an Affiliate of a stockholder or
member of the Issuers); (r) the Completion Guaranty and related Completion
Guaranty Loan; (s) the transactions contemplated by the Cooperation Agreement,
the Mall Lease, the Sale and Contribution Agreement and the HVAC Services
Agreement, in each case, as in effect on the Issuance Date; (t) the use of the
Congress Center by an Affiliate of the Issuers; 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; (u) the transactions
contemplated in "Certain Transactions--Temporary Lease," "--Retirement Plan"
and "--Airplane Expenses"; (v) transactions relating to the Permitted
Construction Loan Refinancing, including the Tranche B Take-out Commitment and
the guaranty by the Sole Stockholder of the loan to be made under the Tranche A
Take-out Commitment; (w) transactions relating to the guaranty of Tranche B
Loan of the Mall Construction Loan Facility by the Sole Stockholder, including
the making of Substitute Tranche B Loan; (x) the transfer of the Phase II Land
to the Phase II Subsidiary and, upon Completion and in accordance with the Sale
and Construction Agreement, the transfer of the Mall Collateral to the Mall
Subsidiary; and (y) the Company or Venetian may enter into and perform their
obligations under a gaming operations lease or management agreement with Phase
II Subsidiary relating to the casino to be operated in the casino resort owned
by the Phase II Subsidiary on terms substantially similar to those of the
Casino Lease, except that (i) the rent payable to the Phase II Subsidiary under
such lease shall be equal to all revenue derived from such casino minus the sum
of (1) the operating costs related to such casino (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), (ii) 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
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Project in substantially similar manners and (iii) 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).
No Senior Subordinated Debt
Subject to the Indebtedness described in the next sentence, the Senior
Subordinated Note Indenture provides that the Issuers will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Senior Subordinated Notes. The
Intercreditor Agreement provides that up to $30.0 million of additional
Indebtedness that may be junior in right of payment to any Senior Debt and
senior in right of payment to the Senior Subordinated Notes may be incurred by
the Issuers, if among other things, a majority of the outstanding principal
amount of the Senior Subordinated Notes consent to such issuance. See
"Description of Intercreditor Agreement."
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Senior Subordinated Note Indenture provides that 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 Senior Subordinated
Notes, the Senior Subordinated Note Guarantees or any other Indebtedness
incurred pursuant to the terms of the Senior Subordinated Note 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 their 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
Mortgage Note Indenture, the Mortgage Notes, the Mall Construction Loan
Facility (and any related security agreements), any Mortgage Note Guaranties,
indebtedness incurred pursuant to clause (g), (h), (j), (l), (n) or (o) of the
covenant described above under the caption "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" and the Collateral Documents,
(3) the Senior Subordinated Note Indenture, the Senior Subordinated Notes and
the Senior Subordinated Note Guaranties, (4) 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, provided that
the Consolidated Cash Flow of such Person is not taken into account in
determining whether such acquisition was permitted by the terms of the Senior
Subordinated Note Indenture, (5) 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," (6)
purchase money obligations for property acquired 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 stock by the Issuers or any Restricted Subsidiary, or (9) any
encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (8) 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, refunding, replacement or refinancing.
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Line of Business
The Senior Subordinated Note Indenture provides that for so long as any
Senior Subordinated Notes are outstanding, the Issuers shall not, and shall not
permit any of their Restricted Subsidiaries or Special Subsidiaries to, engage
in any business or activity other than, (i) with respect to the Issuers and
their Restricted Subsidiaries, the Principal Business, and (ii) with respect to
any Special Subsidiary, the Special Subsidiary Principal Business, except, in
each case, to such extent as would not be material to (a) the Issuers and their
Subsidiaries taken as a whole or (b) the Special Subsidiary, respectively.
Limitation on Status as Investment Company
The Senior Subordinated Note Indenture prohibits the Issuers and their
Restricted Subsidiaries from being required to register as an "investment
company" (as that term is defined in the Investment Company Act of 1940, as
amended).
Ownership of Unrestricted Subsidiaries and Special Subsidiaries
The Senior Subordinated Note Indenture provides that, at all times from
the Issuance Date until all of the Capital Stock of the Phase II Subsidiary or
the Mall 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
(i) at least a majority of the issued and outstanding Capital Stock of Phase II
Subsidiary (which is an Unrestricted Subsidiary) and (ii) at least 80% of the
issued and outstanding Capital Stock of Mall Subsidiary (which is a Special
Subsidiary); provided that the Sole 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, Mall Subsidiary or any of their respective
Subsidiaries.
Limitation on Phase II Construction
The Senior Subordinated Note Indenture provides that the Issuers shall
not, and shall not permit any of their Subsidiaries (including Unrestricted
Subsidiaries and Special Subsidiaries), at any time prior to receipt by the
Issuers or any such Subsidiary of a temporary certificate of occupancy from
Clark County, Nevada with respect to the Project (as currently defined) (a) to
construct, develop or improve the Phase II Land or any building on the Phase II
Land (including any excavation or site work and excluding the proposed Phase II
parking garage), (b) enter into any contract or agreement for such
construction, development or improvement, or for any materials, supplies or
labor necessary in connection with such construction, development or
improvement (other than a contract or agreement that is conditional upon
satisfaction of the above condition) or (c) incur any Indebtedness the proceeds
of which are expected to be used for the construction, development or
improvement of the Phase II Land or any building on the Phase II Land, except
(i) any construction, development or improvement on the Phase II Land or any
temporary building on the Phase II Land in connection with the Project in
accordance with the Plans and Specifications and included in the Project
Budget; and (ii) any design, architectural, engineering or development work not
involving actual construction on the Phase II Land.
Senior Subordinated Note Guaranties
The Issuers' obligations under the Senior Subordinated Notes and the
Senior Subordinated Note Indenture are jointly, severally and unconditionally
guaranteed by the Senior Subordinated Note Guarantors. The Senior Subordinated
Note Guaranties are subordinated to the prior payment in full of all Senior
Debt of each Senior Subordinated Note Guarantor (including such Senior
Subordinated Note Guarantor's guaranty of the Bank Credit Facility) to the same
extent that the Senior Subordinated Notes are subordinated to Senior Debt of
the Issuers. As of the Issuance Date, each existing Restricted Subsidiary and
any future Restricted Subsidiary was a Senior Subordinated Note Guarantor. The
obligations of each Senior Subordinated Note Guarantor under its Senior
Subordinated Note Guaranty is limited to the extent necessary under any
applicable corporate law to ensure it does not constitute a fraudulent
conveyance under applicable law.
Except in the event of a disposition of all or substantially all of the
assets of a Senior Subordinated Note Guarantor by way of merger or
consolidation, the Senior Subordinated Note Indenture provides that
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no Senior Subordinated Note Guarantor shall consolidate with or merge with or
into (whether or not such Senior Subordinated Note Guarantor is the surviving
Person), another Person, whether or not affiliated with such Senior
Subordinated Note Guarantor, unless (i) subject to the provisions of the
following paragraph and certain other provisions of the Senior Subordinated
Note Indenture, the Person formed by or surviving any such consolidation or
merger (if other than such Senior Subordinated Note Guarantor) assumes all the
obligations of such Senior Subordinated Note Guarantor pursuant to a
supplemental indenture in form reasonably satisfactory to the Senior
Subordinated Note Trustee pursuant to which such Person shall unconditionally
guarantee, on a subordinated basis, all of such Senior Subordinated Note
Guarantor's obligations under such Senior Subordinated Note Guaranty and the
Senior Subordinated Note Indenture; (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists; (iii) such transaction
will not result in the loss or suspension or material impairment of any
material Gaming License; and (iv) the Company (A) will have Consolidated Net
Worth (immediately after giving effect to such transaction), equal to or
greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will be permitted by virtue of its pro forma Fixed
Charge Coverage Ratio to incur, immediately after giving effect to such
transaction, 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." Notwithstanding
anything herein to the contrary, a Wholly Owned Restricted Subsidiary of the
Issuers that is a Senior Subordinated Note Guarantor may consolidate or merge
with, or sell or otherwise dispose of all or substantially all of its assets
to, one of the Issuers or another Wholly Owned Restricted Subsidiary of the
Issuers that is a Senior Subordinated Note Guarantor.
The Senior Subordinated Note Indenture provides that in the event of (i) a
sale or other disposition of all or substantially all of the assets of any
Senior Subordinated Note Guarantor, by way of merger, consolidation or
otherwise, (ii) a Restricted Subsidiary becoming an Unrestricted Subsidiary or
a Special Subsidiary pursuant to terms of the Senior Subordinated Note
Indenture or (iii) a sale or other disposition of all of the Capital Stock of
any Senior Subordinated Note Guarantor that is a Subsidiary, then such Senior
Subordinated Note Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the Capital Stock
of such Senior Subordinated Note Guarantor or the Restricted Subsidiary
becoming an Unrestricted Subsidiary or a Special Subsidiary pursuant to the
terms of the Senior Subordinated Note Indenture) or the corporation acquiring
the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Senior Subordinated Note Guarantor)
shall be released and relieved of any obligations under its Senior Subordinated
Note Guaranty; provided that (i) 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 (ii) the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of the Senior Subordinated Note Indenture. See "--Repurchase at
Option of Holders--Asset Sales."
The Senior Subordinated Note Indenture provides that if (a) either of the
Issuers or any Restricted Subsidiary transfers or causes to be transferred, in
one or a series of related transactions (other than a transaction or series of
related transactions constituting a Restricted Payment permitted pursuant to
the provisions of the Senior Subordinated Note Indenture described above under
the caption "Restricted Payments"), property or assets having a fair market
value exceeding $1.0 million to any Restricted Subsidiary of the Issuers (other
than a Senior Subordinated Note Guarantor), (b) any Restricted Subsidiary that
is not a Senior Subordinated Note Guarantor shall have a net worth, annual
revenues or net income in excess of $1.0 million (including by reason of
acquisition, consolidation or merger) or shall own any material license,
franchise or right used in the operation of any of the Project Assets of the
Project or (c) an Unrestricted Subsidiary or Special Subsidiary ceases to be an
Unrestricted Subsidiary or Special Subsidiary, as the case may be, pursuant to
the terms of the Senior Subordinated Note Indenture or is designated by the
Board of Directors to be a Restricted Subsidiary pursuant to the terms of the
Senior Subordinated Note Indenture and, in each case such Restricted Subsidiary
shall have a net worth, annual revenues or net income in excess of $1.0 million
(including by reason of acquisition, consolidation or merger) or shall own any
material license, franchise or right used in the operation of any of the
Project Assets of the Project, the Issuers shall cause such Restricted
Subsidiary to (i) execute and deliver to the Senior Subordinated Note Trustee a
supplemental indenture in form reasonably satisfactory to the Senior
Subordinated Note Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee,
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on a subordinated basis, all of the Issuers obligations under the Senior
Subordinated Notes and the Senior Subordinated Note Indenture on the terms set
forth in the Senior Subordinated Note Indenture and (ii) deliver to the Senior
Subordinated Note Trustee an opinion of counsel that, subject to customary
assumptions and exclusions, such supplemental indenture has been duly executed
and delivered by such Restricted Subsidiary.
Reports
Under the terms of the Senior Subordinated Note Indenture, the Company
will file with the Senior Subordinated Note Trustee and provide holders of
Senior Subordinated Notes, within 15 days after it files them with the
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
Commission may by rule or regulation prescribe) which the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the 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 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 Commission, the Senior Subordinated Note Indenture requires the Company to
continue to file with the Commission and provide the Senior Subordinated Note
Trustee and each holder with, without cost to each holder, (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 Commission if the Commission
does not permit such filings. Notwithstanding the foregoing, if any Person
that, directly or indirectly, owns more than 50% of the common equity of the
Company is subject to the periodic reporting and the informational requirements
of the Exchange Act, the Company will not be required to file the reports
specified in the preceding sentence so long as it provides annual and quarterly
financial statements of the Company (which will include summarized financial
information concerning Venetian) to the holders of the Senior Subordinated
Notes. The Company will in all cases, without cost to each recipient, provide
copies of such information to the holders of the Senior Subordinated Notes and,
if it is not permitted to file such reports with the 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 Senior Subordinated 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 quarterly or annual report, the
Company shall deliver to the Senior Subordinated Note Trustee an Officers'
Certificate stating that each Restricted Payment made in the prior fiscal
quarter 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.
Events of Default and Remedies
The Senior Subordinated Note Indenture provides that each of the following
constitutes an Event of Default: (i) default in payment when due and payable,
upon redemption or otherwise, of principal or premium, if any, on the Senior
Subordinated Notes or under any Senior Subordinated Note Guaranty; (ii) default
for 30 days or more in the payment when due of interest on, or Liquidated
Damages, if any, with respect to the Senior Subordinated Notes or under any
Senior Subordinated Note Guaranty; (iii) failure by the Issuers or any Senior
Subordinated Note Guarantor to offer to purchase or to purchase the Senior
Subordinated Notes, in each case when required under an offer made pursuant to
the provisions of the Senior Subordinated Note Indenture; (iv) failure by (a)
the Issuers or any Senior Subordinated Note Guarantor to comply with the
provisions described under the captions "Restricted Payments" or limitations on
"Incurrence of Indebtedness and Issuance of Disqualified Stock" or (b) any
Special Subsidiary to comply with the provisions described under the caption
"Special Subsidiary Restricted Payments"; (v)
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failure by the Issuers or any Senior Subordinated Note Guarantor for 45 days
after receipt of written notice from the Senior Subordinated Note Trustee to
comply with any of its other agreements in the Senior Subordinated Note
Indenture, the Senior Subordinated Notes or the Senior Subordinated Note
Guaranties; (vi) 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 any Special Subsidiary or the payment of which is guaranteed by
the Issuers, or any of their Restricted Subsidiaries or any Special Subsidiary,
whether such Indebtedness or guarantee now exists or is created after the
Issuance Date, which default (a) in the case of the Issuers or any of their
Restricted Subsidiaries only, 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 $10 million or
more; (vii) failure by the Issuers, any of their Restricted Subsidiaries to pay
final judgments aggregating in excess of $10 million, which final judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days;
(viii) the repudiation by the Issuers or any of their Subsidiaries of its
obligations under, or any judgment or decree by a court or governmental agency
of competent jurisdiction declaring the unenforceability of, any Senior
Subordinated Note Guarantee for any reason that, in each case, would materially
and adversely impair the benefits to the Senior Subordinated Note Trustee or
the holders of the Senior Subordinated Notes thereunder; (ix) certain events of
bankruptcy or insolvency with respect to the Issuers, any Special Subsidiary or
any Senior Subordinated Note Guarantor that is a Significant Subsidiary of the
Issuers or any group of Senior Subordinated Note Guarantors that together would
constitute a Significant Subsidiary of the Issuers; (x) after the Project
becomes Completed, 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; (xi) the Project is not Completed by the Outside Completion
Deadline and continues to be not Completed; or (xii) failure by Interface 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 Senior Subordinated Note Trustee or the holders of at least 25%
in principal amount of the then outstanding Senior Subordinated Notes may
declare the principal, premium and Liquidated Damages, if any, interest and any
other monetary obligations on all the Senior Subordinated Notes to be due and
payable immediately. See "Description of Intercreditor Agreement."
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
Senior Subordinated Note Guarantor that is a Significant Subsidiary, all
outstanding Senior Subordinated Notes will become due and payable without
further action or notice. Holders of the Senior Subordinated Notes may not
enforce the Senior Subordinated Note Indenture or the Senior Subordinated Notes
except as provided in the Senior Subordinated Note Indenture. Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Senior Subordinated Notes may direct the Senior Subordinated Note
Trustee in its exercise of any trust power. The Senior Subordinated Note
Trustee may withhold from holders of Senior Subordinated 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 Senior Subordinated
Note Trustee shall have no obligation to accelerate the Senior Subordinated
Notes if in the best judgment of the Senior Subordinated Note Trustee
acceleration is not in the best interest of the holders of the Senior
Subordinated Notes.
For a discussion of the effect of the Intercreditor Agreement on the
ability of the Senior Subordinated Note Trustee or the holders of Senior
Subordinated Notes to exercise remedies after an Event of Default, see
"Description of Intercreditor Agreement--Events of Default; Pre-Completion
Remedies" and "--Events of Default; Post-Completion Remedies."
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
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the premium that the Issuers would have had to pay if the Issuers then had
elected to redeem the Senior Subordinated Notes pursuant to the optional
redemption provisions of the Senior Subordinated Note Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law.
The holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding by notice to the Senior Subordinated Note
Trustee may on behalf of the holders of all of the Senior Subordinated Notes
waive any existing Default or Event of Default and its consequences under the
Senior Subordinated Note Indenture except a continuing Default or Event of
Default in the payment of interest on, premium or Liquidated Damages, if any,
or the principal of, any Senior Subordinated Note held by a non-consenting
holder.
The Issuers are required to deliver to the Senior Subordinated Note
Trustee annually a statement regarding compliance with the Senior Subordinated
Note Indenture, and the Issuers are required, within five Business Days, upon
becoming aware of any Default or Event of Default or any default under any
document, instrument or agreement representing Indebtedness of the Issuers, to
deliver to the Senior Subordinated Note 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 or stockholder of the Issuers
or the Senior Subordinated Note Guarantors, as such, has any liability for any
obligations of the Issuers or the Senior Subordinated Note Guarantors under the
Senior Subordinated Notes, any Senior Subordinated Note Guarantee, the Senior
Subordinated Note Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each holder of the Senior
Subordinated Notes by accepting a Senior Subordinated Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Senior Subordinated Notes and the Senior Subordinated Note
Guaranties.
Legal Defeasance and Covenant Defeasance
The obligations of the Issuers and the Senior Subordinated Note Guarantors
under the Senior Subordinated Note Indenture will terminate (other than certain
obligations) upon payment in full of all of the Senior Subordinated Notes. The
Issuers may, at their option and at any time, elect to have all of their and
any Senior Subordinated Note Guarantor's obligations discharged with respect to
the outstanding Senior Subordinated Notes and any Senior Subordinated Note
Guarantees ("Legal Defeasance") and cure all then existing Events of Default
except for (i) the rights of holders of outstanding Senior Subordinated Notes
to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Subordinated Notes when such payments are due solely
out of the trust created pursuant to the Senior Subordinated Note Indenture,
(ii) the Company's, Venetian's and any Senior Subordinated Note Guarantor's
obligations with respect to the Senior Subordinated Notes concerning issuing
temporary Senior Subordinated Notes, registration of Senior Subordinated Notes,
mutilated, destroyed, lost or stolen Senior Subordinated Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Senior Subordinated Note Trustee, and the Issuers' and any Senior Subordinated
Note Guarantor's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Senior Subordinated Note Indenture. In addition,
the Issuers may, at their option and at any time, elect to have the obligations
of the Issuers and any Senior Subordinated Note Guarantor released with respect
to certain covenants that are described in the Senior Subordinated Note
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 Senior Subordinated 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 Senior
Subordinated Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuers must irrevocably deposit with the Senior Subordinated Note Trustee,
in trust, for the benefit of the holders of the Senior Subordinated Notes, cash
in U.S. dollars, non-callable Government Securities, or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm
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of independent public accountants, to pay the Accreted Value thereof
(determined at the date of redemption) if prior to the second anniversary of
the issuance date or the principal amount thereof, premium and Liquidated
Damages, if any, and interest due on the outstanding Senior Subordinated Notes
on the stated maturity date or on the applicable redemption date, as the case
may be, in accordance with the terms of the Senior Subordinated Note Indenture;
(ii) in the case of Legal Defeasance, the Issuers shall have delivered to the
Senior Subordinated Note Trustee an opinion of tax counsel in the United States
reasonably acceptable to the Senior Subordinated Note 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 Senior Subordinated Note 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 Senior
Subordinated 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;
(iii) in the case of Covenant Defeasance, the Issuers shall have delivered to
the Senior Subordinated Note Trustee an opinion of tax counsel in the United
States reasonably acceptable to the Senior Subordinated Note Trustee confirming
that the holders of the outstanding Senior Subordinated 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; (iv) 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; (v) 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 Senior
Subordinated Note Indenture) to which the Issuers or any of their Subsidiaries
is a party or by which the Issuers or any of their Subsidiaries is bound; (vi)
the Issuers shall have delivered to the Senior Subordinated Note Trustee an
opinion of counsel to the effect that, as of the date of such opinion 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 and
that the Senior Subordinated Note Trustee has a perfected security interest in
such trust funds for the ratable benefit of the holders; (vii) the Issuers
shall have delivered to the Senior Subordinated Note 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 (viii) the Issuers shall have delivered to the Senior
Subordinated Note 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.
Transfer and Exchange
A Holder may transfer or exchange Senior Subordinated Notes in accordance
with the Senior Subordinated Note Indenture. The Registrar and the Senior
Subordinated Note 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 Senior
Subordinated Note Indenture. The Issuers are not required to transfer or
exchange any Senior Subordinated Note selected for redemption. Also, the
Issuers are not required to transfer or exchange any Senior Subordinated Note
for a period of 15 days before a selection of Senior Subordinated Notes to be
redeemed.
The registered Holder of a Senior Subordinated Note will be treated as the
owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the Senior
Subordinated Note Indenture, the Senior Subordinated Notes or the Senior
Subordinated Note Guaranties may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the Senior
Subordinated Notes then outstanding (including consents obtained in connection
with a tender offer or
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exchange offer for Senior Subordinated Notes), and any existing default or
compliance with any provision of the Senior Subordinated Note Indenture, the
Senior Subordinated Notes or the Senior Subordinated Note Guaranties may be
waived with the consent of the holders of a majority in principal amount of the
then outstanding Senior Subordinated Notes (including consents obtained in
connection with a tender offer or exchange offer for Senior Subordinated
Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Senior Subordinated Notes held by a nonconsenting
holder of Senior Subordinated Notes): (i) reduce the principal amount of Senior
Subordinated Notes whose holders must consent to an amendment, supplement or
waiver; (ii) reduce the principal of or change the fixed maturity of any Senior
Subordinated Note or alter or waive the provisions with respect to the
redemption of the Senior Subordinated Notes (other than provisions relating to
the covenants described above under the caption "Repurchase at the Option of
Holders"); (iii) reduce the rate of or change the time for payment of interest
on any Senior Subordinated Note; (iv) waive a Default or Event of Default in
the payment of principal of, premium and Liquidated Damages, if any, or
interest on the Senior Subordinated Notes (except a rescission of acceleration
of the Senior Subordinated Notes by the holders of at least a majority in
aggregate principal amount of the Senior Subordinated Notes and a waiver of the
payment default that resulted from such acceleration); (v) make any Senior
Subordinated Note payable in money other than that stated in the Senior
Subordinated Notes; (vi) make any change in the provisions of the Senior
Subordinated Note Indenture relating to waivers of past Defaults or the rights
of holders of Senior Subordinated Notes to receive payments of principal of or
premium and Liquidated Damages, if any, or interest on the Senior Subordinated
Notes; or (vii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Subordinated Notes, the Issuers, the Senior Subordinated Note Guarantors and
the Senior Subordinated Note Trustee together may amend or supplement the
Senior Subordinated Note Indenture, the Senior Subordinated Notes or the Senior
Subordinated Note Guaranties to cure any ambiguity, defect or inconsistency, to
comply with the covenant relating to mergers, consolidations and sales of
assets, to provide for uncertificated Senior Subordinated Notes in addition to
or in place of certificated Senior Subordinated Notes, to provide for the
assumption of the Issuers' obligations to holders of the Senior Subordinated
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the holders of the Senior
Subordinated Notes (including providing for additional Senior Subordinated Note
Guaranties pursuant to the Senior Subordinated Note Indenture, or that does not
adversely affect the legal rights under the Senior Subordinated Note Indenture
of any such holder, to comply with requirements of the Commission in order to
effect or maintain the qualification of the Senior Subordinated Note Indenture
under the Trust Indenture Act.
Concerning the Senior Subordinated Note Trustee
The Senior Subordinated Note Indenture contains certain limitations on the
rights of the Senior Subordinated Note 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 Senior Subordinated Note Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Senior Subordinated Notes have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy, available to the Senior
Subordinated Note Trustee, subject to certain exceptions. The Senior
Subordinated Note Indenture provides that in case an Event of Default shall
occur (which shall not be cured), the Senior Subordinated Note Trustee will be
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
Senior Subordinated Note Trustee will be under no obligation to exercise any of
its rights or powers under the Senior Subordinated Note Indenture at the
request of any holder of Senior Subordinated Notes, unless such holder shall
have offered to the Senior Subordinated Note Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
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Governing Law
The Senior Subordinated Note Indenture and the Senior Subordinated Notes
are 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.
Additional Information
Any holder of the Senior Subordinated Notes or prospective investor may
obtain a copy of the Senior Subordinated Note Indenture, the Registration
Rights Agreement or the Intercreditor Agreement 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 Senior Subordinated
Note Indenture. Reference is made to the Senior Subordinated Note Indenture for
full disclosure of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"Accreted Value" means, as of any date of determination, the sum of (a)
the initial offering price of each Senior Subordinated Note and (b) the portion
of the excess of (i) the principal amount of each Senior Subordinated Note over
(ii) such initial offering price that shall have been amortized through such
date, such amount to be so amortized on a daily basis and compounded
semi-annually on each May 15 and November 15 from the Issuance Date of the
Senior Subordinated Notes through the date of determination (until the second
anniversary of the Issuance Date) to achieve during such period, an annual rate
of return on the principal amount of each Senior Subordinated Note equal to
14-1/4% assuming a current rate of return of 10% per annum on the principal
amount of each such Senior Subordinate Note.
"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 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 Senior
Subordinated Note Trustee by a nationally recognized tax accounting firm),
taking into account only that member's or S corporation shareholder's share of
income and deductions attributable to its interest in the Issuers.
"Approved Equipment Funding Commitments" means, collectively, (a) the
General Electric Capital Corporation Commitment (as defined in the Disbursement
Agreement) and (b) any replacement of such commitment from an institutional or
other lender reasonably acceptable to the Bank Agent and the Mall Construction
Lender if (i) such commitment is in form and substance reasonably satisfactory
to the Bank Agent and the Mall Construction Lender and does not include any
conditions to funding that are not included in the General Electric Capital
Corporation Commitment and (ii) the lender providing such commitment enters
into an intercreditor arrangement substantially similar to the intercreditor
arrangements of General Electric Capital Corporation.
"Asset Sale" means (i) 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 (ii) the
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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 (a) a disposition of inventory or goods held in the
ordinary course of business, (b) the disposition of all or substantially all of
the assets 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 Senior Subordinated Note Indenture, (c) 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, (d) any single
disposition, or related series of dispositions, of assets with an aggregate
fair market value of less than $1.0 million, (e) any Event of Loss (as defined
in the Mortgage Note Indenture, provided, that any additional proceeds
remaining after the application of Net Loss Proceeds (as defined in the
Mortgage Note Indenture) in an Event of Loss Offer (as defined in the Mortgage
Note Indenture) shall be deemed to be Excess Proceeds for purposes of the
covenant described above under the caption "Repurchase at the Option of
Holders--Asset Sale," (f) any Lease Transaction or any grant of easement or
Permitted Liens, (g) any dedication permitted pursuant to the covenant
described above under the caption "Certain Covenants--Restrictions on Leasing
and Dedication of Property," (h) the transfer of the Mall Space to the Mall
Subsidiary, (i) the transfer of the Phase II Land to the Phase II Subsidiary,
(j) 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, (k) 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, (l) any
sale, conveyance, transfer or other disposition of property that secures
Non-Recourse Financing or any financing permitted by clause (p) under the
caption "Certain Covenants--Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock" that is to or on behalf of the lender of such
Non-Recourse Financing or other financing or (m) any licensing of tradenames or
trademarks in the ordinary course of business by any of the Issuers or their
Restricted Subsidiaries.
"Bank Agent" means The Bank of Nova Scotia, in its capacity as agent under
the Bank Credit Facility and its successors in such capacity.
"Bank Credit Facility" means that certain Credit Agreement among the
Company and Venetian, as borrowers, the lenders listed therein, Goldman Sachs
Credit Partners L.P., as arranger and syndication agent and The Bank of Nova
Scotia, as administrative agent, and any extension, refinancing, renewal,
replacement, substitution or refund thereof ("Bank Credit Facility
Refinancing"); provided, however that (i) the aggregate amount of such Bank
Credit Facility Refinancing shall not exceed the principal amount of
Indebtedness so extended, refinanced, renewed, replaced, substituted or
refunded (plus the amount of reasonable expenses incurred and any premium paid
in connection therewith) and (ii) such Bank Credit Facility 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.
"Billboard Lease" means that certain Lease Agreement by and between
Venetian and Mall Subsidiary relating to certain space that will be subleased
by "Billboard Live!," 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
corporate stock of such Person, including, without limitation, 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,
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(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 (which may be represented by
certificates of deposit) issued by banks having general obligations rated (on
the date of acquisition thereof) at least "A" or the equivalent by Standard &
Poor's Corporation ("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 corporations 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 guaranty 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, 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 the Company or any of its secured lenders or their
agents 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; (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 ("PARS") 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
("APS") which are senior securities of leveraged closed end municipal bond
funds and are repriced pursuant to a variety of rate reset periods,
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in each case having a rating (at 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 the Closing Date 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: (i) 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, as
defined in the Mortgage Note Indenture); (ii) 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), other than the Sole
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; (iii) after an initial
public offering of the common stock of the Issuers, the consummation of any
transaction or series of transactions the result of which is that any person or
group (as defined above), other than the Sole Stockholder and its Related
Parties, (1) beneficially owns more of the voting power of the Voting Stock of
the Issuers than is beneficially owned, in the aggregate, by the Sole
Stockholder and its Related Parties and (2) beneficially owns more than 20% of
the voting power of the Voting Stock of either of the Issuers; (iv) 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; (v) the adoption of a
plan relating to liquidation or dissolution of either of the Issuers or any
Senior Subordinated Note Guarantor (except liquidation of (a) Venetian into the
Company and (b) any Senior Subordinated Note Guarantor into the Company,
Venetian or another Senior Subordinated Note Guarantor) or (vi) if any Person
other than the Sole Stockholder and Related Parties beneficially owns more than
50% of the voting and non voting common stock of the Company.
"Code" means, the Internal Revenue Code of 1986, as amended (or any
successor statute thereto).
"Collateral Documents" means, collectively, the Mortgage Notes Indenture
Leasehold Deed of Trust, the Mortgage Notes Indenture Fee Deed of Trust, the
Mortgage Notes Indenture Mall Parcel Fee Deed of Trust, the Disbursement
Agreement, the Completion Guaranty, the Mortgage Notes Indenture Environmental
Indemnity or any other agreements, instruments, financing statements or other
documents that evidence, set forth or limit the Lien of the Mortgage Note
Trustee in the Note Collateral.
"Common Stock" means the Common Stock, par value $.10 per share, of the
Company.
"Company" means Las Vegas Sands, Inc., a Nevada corporation, or any
successor thereto permitted under the Senior Subordinated Note Indenture.
"Completed" or "Completion" has the meaning given to the term "Mall
Release Date" under the Disbursement Agreement, which term generally means that
(a) the Project has been substantially completed in substantial accordance with
the Plans and Specifications (except for additions and expansions to the Casino
Resort (other than the Mall) not contemplated by the Plans and Specifications
in effect on the Issuance Date which additions and expansions will be subject
to certain limitations, including the requirement that they do not materially
interfere with the use and operation of any other portion of the Casino Resort)
and is free of Liens (other than Permitted Liens), (b) the furnishings,
fixtures and equipment for the Casino and the Mall have been installed and the
furnishings, fixtures and equipment for at least 2000 suites in the Hotel have
been installed, (c) the scope and costs to complete remaining items have been
quantified, and (d) the Issuers have sufficient available funds, pursuant to
the Disbursement Agreement, to pay for remaining project costs plus a specified
contingency, each as appropriately certified by the Construction Consultant
and/or the Project Architect, all as more particularly set forth in the
Disbursement Agreement.
"Completion Guaranty" means that certain Guaranty executed by the Sole
Stockholder in favor of the Bank Agent (acting on behalf of the lenders under
the Bank Credit Facility), the Mall Construction Lender
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and the Mortgage Notes Trustee (acting on behalf of the Mortgage Note holders),
as amended, revised or modified from time to time in accordance with the terms
thereof.
"Completion Guaranty Loan" means funds provided by the Sole Stockholder in
satisfaction of his obligations pursuant to the Completion Guaranty, which are
treated by the Sole Stockholder and the Issuers as a subordinated loan to the
Issuers pursuant to the Completion Guaranty.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (a) 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 (b) 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 (c)
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 (d) Consolidated Depreciation and Amortization
Expense of such Person for such period to the extent such expenses were
deducted in computing Consolidated Net Income, minus (e) non-cash items
increasing such Consolidated Net Income for such period, 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, reserve or amortization of a cash expenditure for a
past, present or future 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 (a) 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), (b) commissions, discounts and other fees
and charges paid or accrued with respect to letters of credit and bankers'
acceptance financing and (c) 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 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 (i) the Net Income for such period of any
Person that is not a 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 or a Wholly Owned Subsidiary thereof in respect of such period,
(ii) the Net Income of any Person acquired in a pooling of interests
transaction shall not be included for any period prior to the date of such
acquisition, (iii) the Net Income for such period of any Restricted Subsidiary
that is not a Senior Subordinated 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 (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, (iv) the cumulative effect
of a change in accounting principles shall be excluded and (v) no effect shall
be given to any minority or preferred interest in Venetian for purposes of
computing Consolidated Net Income.
"Consolidated Net Worth" means, with respect to any Person at any time,
the sum of the following items, as shown on the consolidated balance sheet of
such Person and its Restricted Subsidiaries as of such date (i) the common
equity of such Person and its Restricted Subsidiaries; (ii) (without
duplication), (a) the aggregate liquidation preference of Preferred Stock of
such Person and its Restricted Subsidiaries
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(other than Disqualified Stock), and (b) any increase in depreciation and
amortization resulting from any purchase accounting treatment from an
acquisition or related financing; (iii) less any goodwill incurred subsequent
to the Issuance Date; and (iv) less any write up of assets (in excess of fair
market value) after the Issuance Date, in each case on a consolidated basis for
such Person and its Restricted Subsidiaries, determined in accordance with
GAAP; provided, that in calculating Consolidated Net Worth, any gain or loss
from any Asset Sale shall be excluded; provided, however that in computing
"Consolidated Net Worth," no adjustment shall be made for any minority interest
in Venetian.
"Construction Consultant" means Tishman Construction Corporation of Nevada
or any other Person designated from time to time by the Bank Agent, the Mall
Construction Lender and the Senior Subordinated Notes Trustee, in their sole
discretion acting pursuant to the Intercreditor Agreement, to serve as the
Construction Consultant under the Disbursement Agreement.
"Construction Management Agreement" means that certain Construction
Management Agreement between the Company and the Construction Manager, dated as
of February 15, 1997, as such agreement may be amended, modified, supplemented,
restated or replaced from time to time.
"Construction Manager" means Lehrer McGovern Bovis, Inc., a New York
corporation.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on
the Issuance Date, (ii) 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 (iii)
was appointed or elected to such Board of Directors by the Sole Stockholder or
a Related Party.
"Contracts" means, collectively, the contracts entered into, from time to
time, between the Company and any contractor for performance of services or
sale of goods in connection with the design, engineering, installation or
construction of the Project.
"Cooperation Agreement" means that certain Amended and Restated Reciprocal
Easement, Use and Operating Agreement among the Mall Construction Subsidiary,
Venetian and Interface, as amended, revised or modified from time to time in
accordance with its terms.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Bank Credit Facility and (ii) any other Senior Debt permitted under the Senior
Subordinated Note Indenture, the principal amount of which is $20.0 million or
more and that has been designated by the Issuers as "Designated Senior Debt";
provided, however, that the FF&E Financing does not constitute Designated
Senior Debt.
"Direct Construction Guaranty" means that certain Guaranty of Performance
and Completion executed by Bovis, Inc., a New York corporation, in favor of the
Company, as assigned by the Company to Venetian by that certain Assignment
Agreement by and among the Company, Venetian and Bovis, Inc., as amended,
revised or modified from time to time in accordance with its terms.
"Disbursement Agent" means The Bank of Nova Scotia, in its capacity as the
disbursement agent under the Disbursement Agreement and its successors in such
capacity.
"Disbursement Agreement" means that certain Funding Agents' Disbursement
and Administration Agreement among the Issuers, Mall Construction Subsidiary,
the Bank Agent, the Mortgage Notes Trustee, the Mall Construction Lender, the
HVAC Provider and the Disbursement Agent, as amended, revised or modified from
time to time in accordance with its terms.
"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), 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
November 15, 2005; provided, however, that any Capital Stock which would not
constitute Disqualified Stock but for provisions thereof giving holders
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thereof the right to require the Issuers to repurchase or redeem such Capital
Stock upon the occurrence of a Change of Control, or an Asset Sale occurring
prior to the final maturity of the Senior Subordinated 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 Senior Subordinated Note
Indenture, including the covenant described under "Repurchase at the Option of
Holders--Change of Control" and "--Asset Sales."
"Equity Contribution" means the approximately $320.3 million of proceeds
received by Venetian from the Company, Interface Holding or the Sole
Stockholder (in the form of cash or property).
"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).
"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 a
partnership for federal income tax purposes in connection with determining his
estimated federal income tax liability for such period.
"Existing Indebtedness" means (i) up to $1.5 million in aggregate
principal amount of Indebtedness (other than Capital Lease Obligations) of the
Company or its Restricted Subsidiaries in existence on the Issuance Date, plus
interest accruing thereon, after application of the net proceeds of sale of the
Senior Subordinated Notes on the Issuance Date and (ii) any current or future
obligations under the HVAC Services Agreement as in effect on the Issuance
Date.
"Expo Center" means the Sands Expo and Convention Center.
"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 or
redeems any Indebtedness (other than revolving credit borrowings) or issues
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 or
redemption of Preferred Stock, 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 (a) Consolidated Interest Expense of such Person for
such period and (b) all capitalized interest of such Person and its Restricted
Subsidiaries and (c) the product of (i) 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 (ii) 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.
"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
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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 Senior Subordinated Note
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 or Special 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 its Subsidiaries.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct governing 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 (a) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (b) 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 of 1933, as amended), 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.
"Guaranty" means a guaranty (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), 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, modified or restated, as contemplated by
the existing letter of intent between the parties with respect to the sharing
of the common road 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 (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"HVAC Provider" means Atlantic-Pacific Las Vegas, LLC, a Delaware limited
liability company.
"HVAC Services Agreement" means, collectively (i) that certain Energy
Services Agreement between Venetian and the HVAC Provider (ii) that certain
Ground Lease between Venetian and the HVAC Provider, (iii) that certain
Construction Agency Agreement between Venetian and the HVAC Provider and (iv)
that certain Energy Services Agreement between the Mall Subsidiary and the HVAC
Provider, in each case, as amended, revised or modified from time to time in
accordance with its terms.
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"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iii) 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 (iv) 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, (b) 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 (c) 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 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. The amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, (i) qualified to perform the task
for which it has been engaged and (ii) disinterested and independent with
respect to the Company and its Subsidiaries, each Affiliate of the Company, and
the Sole Stockholder and its Related Parties.
"Indirect Construction Guaranty" means that certain Guaranty of
Performance executed by The Peninsular and Oriental Steam Navigation Company, a
corporation organized under the laws of England and Wales, in favor of the
Company, as assigned by the Company to Venetian by that certain Assignment
Agreement by and among the Company, Venetian and The Peninsular and Oriental
Steam Navigation Company, as amended, revised or modified from time to time in
accordance with its terms.
"Interface" means Interface Group-Nevada, Inc., a Nevada corporation and
wholly owned indirect subsidiary of the Sole Stockholder.
"Interface Holding" means Interface Group Holding Company, Inc., a Nevada
corporation and a wholly owned direct Subsidiary of the Sole Stockholder.
"Intercreditor Agreement" means the Intercreditor Agreement, among The
Bank of Nova Scotia, as Bank Agent acting on behalf of the lenders pursuant to
the Bank Credit Facility, the Mortgage Note Trustee, acting on behalf of the
holders of the Mortgage Notes, the Mall Construction Lender and the Senior
Subordinated Note Trustee, acting on behalf of the holders of the Senior
Subordinated Notes, as amended, revised, modified or restated from time to time
in accordance with its terms.
"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 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.
"Issuance Date" means the closing date for the sale and original issuance
of the Senior Subordinated Notes.
"Lenders" means any of the lenders under the Bank Credit Facility, the
Interim Mall Lender and the Senior Subordinated Note holders.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
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"Mall" means that certain enclosed retail, dining and entertainment
complex of approximately 500,000 net leasable square feet more particularly
described in the Plans and Specifications.
"Mall Collateral" means all of the Issuers' and their Subsidiaries' right,
title, and interest in and to (i) prior to creation of the Mall I Parcel, the
leasehold estate created by the Mall Lease and, thereafter, the Mall I Parcel;
(ii) the leasehold estate created by the Billboard Lease; (iii) the Mall and
any related improvements and equipment thereto; (iv) any reserves established
by the Issuers, any of their Restricted Subsidiaries or any of their Special
Subsidiaries relating to the Mall and (v) any and all security agreements and
an assignment of leases and rents creating a security interest in any rents or
other income derived from the Mall.
"Mall Construction Lender" means GMAC Commercial Mortgage Corporation, a
California corporation, and its permitted successors and assigns.
"Mall Construction Loan Agreement" means that certain Credit Agreement
between the Issuers, Mall Construction Subsidiary and Mall Construction Lender,
as amended, revised or modified from time to time in accordance with its terms.
"Mall Construction Loan Facility" means the credit facility described and
made available to the Issuers and Mall Construction Subsidiary pursuant to the
Mall Construction Loan Agreement and any extension, refinancing, renewal,
replacement, substitution or refunding thereof ("Mall Construction Loan
Facility Refinancing"); provided, however that (i) the aggregate amount of
Indebtedness under such Mall Construction Loan Facility Refinancing shall not
exceed the principal amount of Indebtedness so extended, refinanced, renewed,
replaced, substituted or refunded (plus the amount of reasonable expenses
incurred and any premium paid in connection therewith), (ii) such Mall
Construction Loan Facility Refinancing Indebtedness shall have a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
Maturity of the Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded and (iii) to the extent such Mall Construction Loan
Facility Refinancing Indebtedness is not supported by a guaranty of the Sole
Stockholder on substantially similar terms as the terms of the Sole
Stockholder's guaranty of Tranche B of the Mall Construction Loan Facility,
such Mall Construction Loan Facility Refinancing Indebtedness shall contain a
tranche with a principal amount, relative payment priority and other terms
which are substantially similar to those required to be contained in the
Substitute Tranche B Loan.
"Mall Construction Subsidiary" means Grand Canal Shops Mall Construction,
LLC, a Delaware limited liability company, and a wholly owned subsidiary of
Venetian.
"Mall Holdings" means Grand Canal Shops Mall Holding Company, LLC, a
Delaware limited liability company and a subsidiary of Mall Intermediate
Holdings.
"Mall Intermediate Holdings" means Mall Intermediate Holding Company, LLC,
a Delaware limited liability company, and a wholly owned subsidiary of
Venetian.
"Mall I Parcel" means the phase I mall space sudivided from the Project
Site as a legally separate parcel and recorded with the applicable Government
Instrumentalities.
"Mall Lease" means the Lease by and between Venetian and Mall Construction
Subsidiary pursuant to which Mall Construction Subsidiary leases from Venetian
the Mall Space, as amended, revised or modified from time to time in accordance
with its terms.
"Mall Management Agreement" means the Mall Management Agreement between
Forest City Enterprises and the Mall Construction Subsidiary, as amended,
revised or modified.
"Mall Manager" means Grand Canal Shops Mall MM, Inc., wholly owned
subsidiary of the Company.
"Mall Space" means that certain space referred to as the "Mall" in and on
the Project as more specifically described in an Annex to the Senior
Subordinated Note Indenture.
"Mall Subsidiary" means Grand Canal Shops Mall, LLC, a Delaware limited
liability company.
"Mortgage Notes" means the Company's 12-1/4% Mortgage Notes due November
15, 2004 issued pursuant to the Mortgage Note Indenture.
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"Mortgage Notes Indenture Environmental Indemnity" means that
Environmental Indemnity Agreement among the Company, Venetian and the Mortgage
Note Trustee, as amended, modified or revised in accordance with its terms.
"Mortgage Notes Indenture Fee Deed of Trust" means that certain Deed of
Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing
made by the Company and Venetian, as trustor, to the trustee thereunder for the
benefit of the Mortgage Note Trustee, as beneficiary, as amended, modified or
revised in accordance with its terms.
"Mortgage Notes Indenture Leasehold Deed of Trust" means that certain Deed
of Trust, Assignment of Rents and Leases, Security Agreement and Fixture
Filing, dated as of November 14, 1997 and made by the Mall Construction
Subsidiary, as trustor, to the trustee thereunder for the benefit of the
Mortgage Note Trustee, as beneficiary, as amended, modified or revised in
accordance with its terms.
"Mortgage Notes Indenture Mall Parcel Fee Deed of Trust" means the deed of
trust in the form of Exhibit V-4 to the Disbursement Agreement executed by Mall
Construction Subsidiary for the benefit of the Mortgage Note Trustee in
accordance with the Disbursement Agreement, as amended, modified or revised in
accordance with its terms.
"Mortgage Notes Proceeds Account" means that certain Mortgage Notes
Proceeds Account into which the net proceeds from the sale of the Mortgage
Notes were deposited in accordance with the Disbursement Agreement.
"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, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
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 (iii) excluding any
extraordinary gain (but not loss), together with any related provision for
taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
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, 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) (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien (other than the Senior
Subordinated 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 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 and 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.
"Non-Recourse Financing" means Indebtedness incurred in connection with
the purchase or lease of personal or real property useful in the Principal
Business or to construct, develop or equip the Mall Space and (i) as to which
the lender upon default may seek recourse or payment against the Company or any
Restricted Subsidiary only through the return or sale of the property or
equipment or the other Specified FF&E so purchased or leased, or in the case of
any Indebtedness with respect to the Mall Space, only through foreclosure upon
the Mall Collateral and (ii) 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.
"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, (a) as to which neither the Company nor any of its Restricted
Subsidiaries (i) provides credit support pursuant to any undertaking, agreement
or instrument that would constitute Indebtedness or Disqualified Stock, as the
case may be,
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or (ii) is directly or indirectly liable, and (b) 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) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness 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 Mortgage Note Guarantor defined as Collateral in
the Collateral Documents, which will initially include (with certain
exceptions) all real estate, improvements and all personal property owned by
the Issuers (including (i) the Project Assets, (ii) the Mall Collateral, until
the transfer and release thereof in accordance with the Sale and Contribution
Agreement and the Disbursement Agreement), as well as a pledge of any
intercompany notes held by either of the Issuers or the Senior Subordinated
Note Guarantors.
"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 Senior Subordinated 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 Senior
Subordinated 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
members) or a Senior Subordinated Note Guarantor, as the case may be, that
meets the requirements set forth in the Senior Subordinated Note Indenture.
"Outside Completion Deadline" means April 21, 1999, as the same may from
time to time be extended pursuant to the Disbursement Agreement.
"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).
"Permitted Construction Loan Refinancing" means (i) the incurrence of
indebtedness and/or the issuance of Capital Stock by the Mall Subsidiary the
proceeds of which are used to purchase the Mall Collateral pursuant to the Sale
and Contribution Agreement (including, without limitation, the Tranche A
Take-out Commitment and the Tranche B Take-out Commitment) and/or (ii) the
assumption of the Mall Construction Loan Facility and/or the Substitute Tranche
B Loan (or any permitted refinancing thereof) pursuant to the Sale and
Contribution Agreement.
"Permitted Investments" means (a) any Investments in the Issuers, any
Senior Subordinated Note Guarantor or in any Restricted Subsidiary that is not
a Senior Subordinated Note Guarantor if the Investments in such Restricted
Subsidiary that is not a Senior Subordinated Note Guarantor from the Issuers,
any Senior Subordinated Note Guarantor or any of the other Restricted
Subsidiaries aggregate less than $1.0 million; (b) any Investments in Cash
Equivalents; (c) Investments by the Issuers or any Restricted Subsidiary of the
Issuers in a Person, if as a result of such Investment (i) such Person becomes
a Senior Subordinated Note Guarantor or (ii) 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 Senior
Subordinated Note Guarantor; (d) any Restricted 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"; (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Issuers; (f) 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; (g) 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; (h) loans or advances to employees of the Issuers or their Restricted
Subsidiaries or Special Subsidiaries
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(i) to fund the exercise price of options granted under employment agreements
and the Issuers' stock option plans or agreements, in each case, as in effect
on the date of the Senior Subordinated Note Indenture or (ii) for any other
purpose not to exceed $2.0 million in the aggregate at any one time outstanding
under this clause (ii); (i) 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; (j)
other Investments in any Person (other than in an Affiliate of the Issuers)
having a fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (j) that are at the
time outstanding, not to exceed $5.0 million; (k) 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 and (l) the
initial designation on the Issuance Date of (i) Phase II Subsidiary, Phase II
Holdings and Phase II Manager as Unrestricted Subsidiaries and (ii) Mall
Subsidiary, Mall Holdings and Mall Manager as Special Subsidiaries; provided,
that, in each case, no more than $1,000 is invested any such Person at the time
of designation.
"Permitted Junior Securities" means Equity Interests in the Company or
Venetian or debt securities that are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Senior Subordinated Notes are
subordinated to Senior Debt pursuant to Article 10 of the Senior Subordinated
Note Indenture.
"Permitted Liens" means (a) Liens in favor of the Issuers and their Wholly
Owned Restricted Subsidiaries; provided that if such Liens are on any Note
Collateral, that such Liens are either collaterally assigned to the Mortgage
Note Trustee or subordinate to the Lien in favor of the Mortgage Note Trustee
securing the Mortgage Notes or any Mortgage Note Guaranty; (b) 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 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; (c) 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 contemplation
of such acquisition; (d) 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 and which obligations are not expressly prohibited
by the Senior Subordinated Note 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, the Issuers have bonded within a reasonable time
after becoming aware of the existence of such Lien; (e) Liens securing
obligations in respect of the Mortgage Note Indenture, the Mortgage Notes and
any Secured Mortgage Note Guaranty; (f) Permitted Encumbrances, as such term is
defined in the Disbursement Agreement, and leases or other Liens, to the extent
permitted pursuant to the covenant entitled "Description of Mortgage Notes--
Restrictions on Leasing and Dedication of Property"; (g) (1) Liens for taxes,
assessments or governmental charges or claims or (2) 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, in the case of each
of (1) and (2), with respect to amounts that either (A) are not yet delinquent
or (B) are being contested in good faith by appropriate proceedings as to which
appropriate reserves or other provisions have been made in accordance with
GAAP; (h) 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; (i) after
Completion, Liens securing Indebtedness in an aggregate amount not exceeding
$25.0 million at any one time securing purchase money or lease obligations
otherwise permitted by the Mortgage Note Indenture incurred or assumed in
connection with the acquisition, purchase or lease of real or personal property
to be used in the Principal Business of the Issuers or any of its Restricted
Subsidiaries within 180 days of such incurrence or assumption; provided, that
such Liens do not extend to any Note Collateral or to any property or assets of
the Issuers or any Restricted Subsidiary other than the property or assets so
purchased or leased and, at the time of incurrence, the principal amount of
such Indebtedness does not exceed 75% of the value
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of the collateral securing such Indebtedness; (j) a leasehold mortgage in favor
of a party financing the lessee of space within the Project; provided that
neither the Issuers nor any Restricted Subsidiary is liable for the payment of
any principal of, or interest or premium on, such financing; (k) Liens securing
the Mall Construction Loan Facility and any additional Indebtedness permitted
to be incurred thereunder pursuant to clause (n)(A) of the second paragraph of
the convenant described above under the caption "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock;" (l) Liens created by the
Cooperation Agreement and the HVAC Services Agreement; (m) Liens on real
property of the Issuers arising pursuant to that certain Harrah's Road Way
Agreement; (n) Liens created by the Predevelopment Agreement, as in effect on
the date of the Mortgage Note Indenture; (o) Liens (i) to secure Indebtedness
permitted by clauses (g), (h) or (p) of the second paragraph of the covenant
entitled "--Incurrence of Indebtedness and Issuance of Preferred Stock" and
extending only to assets or Specified FF&E acquired in accordance with such
clauses and to any proceeds of such assets or Indebtedness and related
collateral accounts in which such proceeds are held, and (ii) to secure
Indebtedness permitted by clause (d) of the second paragraph of the covenant
entitled "--Incurrence of Indebtedness and Issuance of Preferred Stock";
provided, that such Liens are not materially greater in extent than the Liens
securing the Indebtedness so refinanced; (p) Liens created by the Other Phase
II Agreements; (q) Liens to secure all Obligations under the Bank Credit
Facility incurred pursuant to clause (a) of the second paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock" and any additional Indebtedness permitted to be
incurred thereunder pursuant to clause (n)(A) of the second paragraph of the
convenant described above under the caption "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock;" (r) until Completion is
achieved, Permitted Liens (as defined in the Disbursement Agreement); (s) Liens
incurred in connection with the construction of a pedestrian bridge over or a
pedestrian tunnel under Las Vegas Boulevard and Sands Avenue; (t) Liens
incurred in connection with the traffic study relating to increased traffic on
Las Vegas Boulevard as a result of the Completion of the Project; (u) 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 the Issuance of Disqualified Stock"; (v) 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; (w) any judgment attachment or judgment Lien
not constituting an Event of Default; (x) 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; (y) any Lien created under the Sale
and Contribution Agreement and (z) after Completion, Liens securing (A) up to
an aggregate of $20.0 million of Indebtedness permitted to be incurred pursuant
to clause (n)(B) of the second paragraph of the covenant described above under
the caption "Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" and (B) up to an aggregate of $20.0 million of Indebtedness
permitted to be incurred pursuant to clause (o) of the second paragraph of the
covenant described above under the caption "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) (except that if all or any
portion of the Completion Guaranty Loan or the Substitute Tranche B Loan is
outstanding and held by the Sole Stockholder or a Related Party and is not
paying current cash interest, then such estimated taxable income shall be
determined without giving effect to any non-cash interest payments on such
loans held by the Sole Stockholder or a Related Party to the extent such
non-cash interest is deductible), for the related Estimation Period, as in a
statement filed with the Senior Subordinated Note Trustee; provided, however,
that (A) 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 (B) 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
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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 Estimation Period that includes a
True-up Determination Date, (A) 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 (B) 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.
"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 II Holdings" means Lido Casino Resort Holding Company, LLC, a
Delaware limited liability company and a subsidiary of Phase II Intermediate
Holdings.
"Phase II Intermediate Holdings" means Lido Intermediate Holding Company,
LLC, a Delaware limited liability company, and a Wholly Owned Subsidiary of the
Company.
"Phase II Land" means that portion of the Project Site designated as the
Phase II Land in the Collateral Documents, together with all improvements
thereon and all rights appurtenant thereto.
"Phase II Manager" means Lido Casino Resort MM, Inc., a special purpose
Wholly Owned Subsidiary of the Company.
"Phase II Resort" means the themed hotel and casino currently contemplated
to be constructed on the Phase II Land and which will be physically connected
to the Casino Resort.
"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 plans and specifications for the
construction of the Casino Resort listed in an exhibit to the Disbursement
Agreement, as the same may be modified from time to time in accordance with the
Disbursement Agreement.
"Pre-development Agreement" means the Sands Resort Hotel & Casino
Agreement dated February 18, 1997 by and between Clark County and the Company,
as amended, restated and modified from time to time.
"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 (including the Mall prior to its
transfer to the Mall Subsidiary) 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 Senior Subordinated Note Indenture) owning and operating joint ventures to
supply materials or services for the
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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.
"Project" means the Venetian-themed hotel, casino, retail, meeting and
entertainment complex, with related heating, ventilation and air conditioning
and power station facilities to be developed at the Project Site, all as more
particularly described in Exhibit T-1 to the Disbursement Agreement.
"Project Architect" means collectively, TSA of Nevada, LLP, and WAT&G,
Inc. 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: (i) the Phase II Land and/or the Mall Collateral and
any improvements thereon after their transfer to the Unrestricted Subsidiary or
Special Subsidiary as permitted by the Senior Subordinated Note Indenture; (ii)
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; (iii) the HVAC Equipment owned by the HVAC provider (unless purchased
by Venetian or the Mall Construction Subsidiary after the date hereof); and
(iv) any equipment leased from a third party in the ordinary course of
business.
"Project Budget" means the Project Budget as in effect on the Issuance
Date and attached as an exhibit to the Disbursement Agreement, as amended,
revised or modified from time to time in accordance with the terms thereof.
"Project Documents" means the Construction Management Agreement, the
Direct Construction Guaranty, the Indirect Construction Guaranty, the
Contracts, the Approved Equipment Funding Commitments, the Cooperation
Agreement, the HVAC Services Agreement, the Mall Lease, the Sale and
Contribution Agreement, the Treadway Agreement, the operating agreement of each
of Venetian, Mall Intermediate Holdings, Mall Holdings and Mall Subsidiary and
any other document or agreement entered into, relating to the development,
construction, maintenance or operation of the Project (other than the documents
relating to the Tranche A Take-out Commitment and the Tranche B Take-out
Commitment) as the same may be amended from time to time in accordance with the
terms and conditions of the Disbursement Agreement.
"Public Equity Offering" means a bona fide underwritten sale to the public
of common equity of the Company, Venetian or a Person holding more than 50% of
the common equity of the Company pursuant to a registration statement (other
than on Form S-8 or any other form relating to securities issuable under any
benefit plan of the Company) that is declared effective by the SEC and results
in gross aggregate proceeds to the Company or Venetian of at least $20.0
million.
"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 (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).
"Related Parties" means (i) any spouse and any child, stepchild, sibling
or descendant of the Sole Stockholder, (ii) any estate of the Sole Stockholder
or any person under clause (i), (iii) any person who receives a beneficial
interest in the Company or Venetian from any estate under clause (ii) to the
extent of such interest, (iv) 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 (i), (ii) or (iii) to the
extent of such interest, (v) any corporation, trust, or similar entity owned or
controlled by the Sole Stockholder or any person referred to in clause (i),
(ii), (iii) or (iv) or for the benefit of any person referred to in clause (i)
and (vi) the spouse or issue of one or more of the individuals described in
clause (i).
"Repurchase Offer" means an offer made by the Issuers to purchase all or
any portion of a holder's Senior Subordinated Notes pursuant to the covenants
described above under the captions entitled "Repurchase at the Option of
Holders--Change of Control" or "Repurchase at the Option of Holders--Asset
Sales."
"Restricted Investment" means (i) an Investment other than a Permitted
Investment or (ii) any sale, conveyance, lease, transfer or other disposition
of assets at less than fair market value to an Unrestricted
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Subsidiary, provided that the amount of such Restricted Investment under this
clause (ii) shall be such difference in value.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Issuers that is not then an Unrestricted Subsidiary or a
Special Subsidiary; provided, however, that upon the occurrence of any
Unrestricted Subsidiary or Special Subsidiary ceasing to be an Unrestricted
Subsidiary or Special Subsidiary, such Subsidiary shall be included in the
definition of "Restricted Subsidiary."
"Sale and Contribution Agreement" means that certain Sale and Contribution
Agreement among the Venetian, Mall Construction Subsidiary and Mall Subsidiary,
as such agreement may be amended, modified or renewed from time to time in
accordance with its terms.
"Senior Debt" means (i) all Indebtedness outstanding under Bank Credit
Facility and all Hedging Obligations with respect thereto, (ii) Indebtedness
represented by the Mortgage Notes and the Mortgage Note Guaranties, (iii) any
other Indebtedness permitted to be incurred by the Issuers under the terms of
the Senior Subordinated Note Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Senior Subordinated Notes and (iv) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
federal, state, local or other taxes owed or owing by the Company or Venetian,
(x) any Indebtedness of the Company or Venetian to any of their Subsidiaries or
other Affiliates, (y) any trade payables or (z) any Indebtedness that is
incurred in violation of the Senior Subordinated Note Indenture.
"Senior Subordinated Note Make-Whole Premium" means, with respect to a
Senior Subordinated Note, an amount equal to the greater of (i) (a) 14.25% of
the Accreted Value if prior to the second anniversary of the Issuance Date of
such Senior Subordinated Note or (b) 14.25% of the outstanding principal amount
of such Senior Subordinated Note, if on or after the second anniversary of the
Issuance Date of such Senior Subordinated Note and (ii) the excess of (a) the
present value of the remaining interest, premium and principal payments due on
such Senior Subordinated Note as if such Senior Subordinated Note were redeemed
on November 15, 2001, computed using a discount rate equal to the Treasury Rate
plus 50 basis points, over (b) the outstanding principal amount of such Senior
Subordinated Note.
"Senior Subordinated Notes" means the $97.5 million in aggregate principal
amount of the Issuers 14-1/4% Senior Subordinated Notes due 2005, and any series
of senior subordinated notes issued in exchange for such Senior Subordinated
Notes pursuant to the Exchange Offer contemplated by the Registration Rights
Agreement.
"Services Agreement" means that Amended and Restated Services Agreement by
and among the Company, Interface, Interface Holdings and the parties thereto
stated on the signature page, 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 Act, as such Regulation is in effect on the
Issuance Date.
"Sole Stockholder" means Sheldon G. Adelson.
"Special Subsidiary" means the Mall Subsidiary, Mall Holdings, Mall
Manager and any other Subsidiary so designated by the Board of Directors of the
Company in accordance with the terms of the Senior Subordinated Note Indenture.
"Special Subsidiary Permitted Investments" means with respect to any
Special Subsidiary (a) any Investments in a Wholly Owned Subsidiary of such
Special Subsidiary engaged in a Special Subsidiary Principal Business; (b) any
Investments in Cash Equivalents; (c) receivables owing to such Special
Subsidiary or any Wholly Owned Subsidiary of such Special 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 Special Subsidiary deems
reasonable under the circumstances; (d) 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
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purposes and that are made in the ordinary course of business; (e) loans or
advances to employees made in the ordinary course of business of the Special
Subsidiary; (f) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to Special
Subsidiary or a Subsidiary or in satisfaction of judgments and (g) other
Investments in any Person (other than an Affiliate of the Special Subsidiary)
having a fair market value (measured on the date of each such Investment was
made and without giving effect to subsequent changes in value), when taken
together with all other investments made pursuant to this clause (g) that are
at the time outstanding, not to exceed $5.0 million.
"Special Subsidiary Principal Business" means business limited to the
following: (i) to acquire, hold, own, manage, market and operate a retail,
restaurant and entertainment complex known as the Grand Canal Shops Mall (the
"Property"), located at 3355 Las Vegas Boulevard, South, Las Vegas, Nevada,
(ii) to engage in the retail, restaurant and entertainment business at the
Property and any activity and business incidental, directly related or similar
thereto, and (iii) to engage in any business or activity that is a reasonable
extension, development or expansion thereof or ancillary thereto including any
retail, restaurant, entertainment or other activity or business designed to
promote, market, support, develop, construct or enhance the retail, restaurant
and entertainment business operated by Mall Subsidiary (including, without
limitation, owning and operating joint ventures to supply materials or services
for the construction or operation of the Property, engaging in transactions
with Affiliates to the extent permitted under the Senior Subordinated Note
Indenture, and incurring Indebtedness, providing guarantees or providing other
credit support). Special Subsidiary Principal Business does not mean any of the
foregoing to the extent engaged in on the Phase II Land.
"Special Subsidiary Restricted Investment" means (i) an Investment by a
Special Subsidiary or a Subsidiary of a Special Subsidiary other than a Special
Subsidiary Permitted Investment or (ii) any Investment by a Special Subsidiary
or a Subsidiary of a Special Subsidiary in the equity of the Issuers or any of
the Issuers' Restricted Subsidiaries.
"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), (h) or (p) of the covenant described
above under the caption "Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock," including (i) each and every item or unit of equipment
acquired with proceeds thereof, (ii) each and every item or unit of equipment
acquired in substitution or replacement thereof, (iii) all parts, components
and other items pertaining to such collateral, (iv) all documents (including,
without limitation, all warehouse receipts, dock receipts, bills of lading and
the like), (v) all licenses (other than gaming licenses), warranties,
guaranties, service contracts and related rights and interests covering all or
any portion of such collateral, (vi) 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, and (vii) so long as Indebtedness under the
Bank Credit Facility is outstanding, such other collateral reasonably
determined by the lenders under the Bank Credit Facility to be collateral for
Indebtedness incurred in connection with the purchase of Specified FF&E so long
as the Lien securing Indebtedness incurred under the Bank Credit Facility 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 or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness of the Issuers or any
of their Restricted Subsidiaries which is expressly by its terms subordinated
in right of payment to the Senior Subordinated Notes or any Senior Subordinated
Note Guaranty.
"Subsidiary" means, with respect to any Person, (i) 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 (ii) any
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partnership of which more than 50% of the partnership's capital accounts,
distribution rights or general or limited partnership interests are owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Substitute Tranche B Loan" means amounts drawn upon under the guarantee
of the Sole Stockholder of the Tranche B loan of the Mall Construction Loan
Facility, which amounts, when drawn upon may be treated as a loan to the
Issuers from the Sole Stockholder.
"Supplier Joint Venture" means any Person that supplies or provides
materials or services to the Issuers or the Construction Manager or any
contractor in the Project and in which the Issuers or one of their Restricted
Subsidiaries have Investments.
"Tax Amount" means, with respect to a Estimation Period or a taxable year,
as the case may be, an amount equal to (A) the product of (x) 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 (y) the Applicable Tax Percentage reduced by (B) to the
extent not previously taken into account, any income tax benefit attributable
to the Company or Venetian, 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 or any prior taxable year, or portion thereof,
commencing on or after the Issuance Date (including any tax losses or tax
credits), 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 (C)
the deductibility of state and local taxes for federal income tax purposes, and
(D) any difference in the Applicable Tax Percentage resulting from the nature
of taxable income (such as capital gain as opposed to ordinary income).
"Tax Amounts CPA" means a nationally recognized certified public
accounting firm.
"Tranche A Take-out Commitment" means the commitment of Goldman Sachs
Mortgage Company or such other lender suitable to the Issuers, to enter into
and make a loan in an aggregate of up to $105.0 million thereunder under the
Permitted Mall Construction Refinancing or any other commitment to make such a
loan that replaces the commitment of Goldman Sachs Mortgage Company in
accordance with the Tri-Party Agreement.
"Tranche B Take-out Commitment" means the commitment of the Sole
Stockholder to enter into and fund a loan to Mall Subsidiary in an aggregate of
up to $35.0 million under the Permitted Mall Construction Refinancing or any
other commitment to make such a loan that replaces the commitment of the Sole
Stockholder in accordance with the Tri-Party Agreement.
"Tri-Party Agreement" means the agreement between Venetian, the Company,
the Sole Stockholder, the Mall Construction Subsidiary, the Mall Subsidiary,
the Mall Construction Lender and Goldman Sachs Mortgage Company (or any
successor provider of the Tranche A Take-out Commitment), as amended or
replaced from time to time in accordance with its terms.
"Treadway Agreement" means that certain Time and Materials Agreement
between Owner and Contractor, dated as of February 10, 1997, by and between the
Company and Treadway Industries of Phoenix, Inc., an Arizona corporation, as
amended, modified or revised from time to time in accordance with its terms.
"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 November 15, 2001; provided,
however, that if the average life of such Senior Subordinated 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 Senior Subordinated 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.
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"True-up Amount" means, in respect of a particular taxable year, an amount
determined by the Tax Amounts CPA equal to the difference between (i) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such taxable year, 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 (ii) 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 (i) above over the amount described in clause (ii)
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 (ii) over the amount described in clause (i)
shall be referred to as the "True-up Amount due to the shareholders members."
"True-up Determination Date" means the date on which the Tax Amounts CPA
delivers a statement to the Senior Subordinated Note Trustee indication 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 (i) each of Phase II Holdings, Phase II
Manager and Phase II Subsidiary; and (ii) 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 Senior
Subordinated Note Indenture and any Subsidiary of such entity, so long as it
remains an Unrestricted Subsidiary in accordance with the terms of the Senior
Subordinated Note Indenture.
"Venetian" means, Venetian Casino Resort, LLC, a Nevada limited liability
company.
"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 operation 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 (a) the
sum of the products obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (y)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) 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 one or
more Wholly Owned Subsidiaries of such Person.
"Working Capital Facility" means the credit facility pursuant to any
agreement or agreements providing for the making of loans or advances on a
revolving basis, the issuance of letters of credit and/or the creation of
bankers' acceptances to fund the Issuers' or any of their Restricted
Subsidiaries' general corporate requirements and any amendment, supplement,
extension, modification, renewal, replacement or refinancing from time to time,
including any agreement to renew, extend, refinance or replace all or any
portion of such facility.
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BOOK-ENTRY, DELIVERY AND FORM
General
Except as set forth below, the New Notes will be issued in the form of one
or more registered notes in global form without interest coupons, in
denominations of $1,000 and integral multiples thereof (each a "Global Note").
Notes will not be issued in bearer form. The Global Notes will be deposited
upon issuance with the Mortgage Note Trustee or the Senior Subordinated Note
Trustee, as applicable, as custodian for The Depository Trust Company ("DTC"),
in New York, New York, and registered in the name of DTC or its nominee, in
each case for credit to an account of a direct or indirect participant in DTC
as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
In addition, transfer of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time. Beneficial interests
in the Global Notes may not be exchanged for Notes in certificated form except
in the limited circumstances described below. See "Exchanges of Book-Entry
Notes for Certificated Notes."
Exchanges of Book-Entry Notes for Certificated Notes
A beneficial interest in a Global Note may not be exchanged for a Note in
certificated form unless (i) DTC (x) notifies the Issuers that it is unwilling
or unable to continue as Depository for the Global Note or (y) has ceased to be
a clearing agency registered under the Exchange Act, and in either case the
Issuers thereupon fail to appoint a successor Depository, (ii) the Issuers, at
their option, notify the Mortgage Note Trustee or Senior Subordinated Note
Trustee, as applicable, in writing that they elect to cause the issuance of the
Notes in certificated form or (iii) there shall have occurred and be continuing
an event of default or any event which after notice or lapse of time or both
would be an event of default with respect to the Notes. In all cases,
certificated Notes delivered in exchange for any Global Note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depository (in accordance with
its customary procedures). Any certificated Note issued in exchange for an
interest in a Global Note will bear the legend restricting transfers that is
borne by such Global Note. Any such exchange will be effected through the DTC
Deposit/Withdraw at Custodian ("DWAC") System and an appropriate adjustment
will be made in the records of the Security Registrar to reflect a decrease in
the principal amount of the relevant Global Note.
Certain Book-Entry Procedures for Global Notes
The descriptions of the operations and procedures of DTC that follow are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. The Issuers take no responsibility for
these operations and procedures and urges investors to contact the system of
their participants directly to discuss these matters.
DTC has advised the Issuers as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised the Issuers that its current practice, upon the issuance
of the Global Note, is to credit, on its internal system, the respective
principal amount of the individual beneficial interest represented by such
Global Notes to the accounts with DTC of the participants through which such
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interests are to be held. Ownership of beneficial interests in the Global Notes
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominees (with respect to interests
of participants) and the records of participants and indirect participants
(with respect to interests of persons other than participants).
As long as DTC, or its nominee, is the registered Holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner and
Holder of the Mortgage Notes or Senior Subordinated Notes, as applicable,
represented by such Global Note for all purposes under the Mortgage Note
Indenture and the Mortgage Notes or the Senior Subordinated Note Indenture and
the Senior Subordinated Notes, as applicable. Except in the limited
circumstances described above under "--Exchanges of Book-Entry Notes for
Certificated Notes," owners of beneficial interests in a Global Note will not
be entitled to have any portions of such Global Note registered in their names,
will not receive or be entitled to receive physical delivery of Notes in
definitive form and will not be considered the owners or Holders of the Global
Note (or any Notes represented thereby) under the applicable indenture or
Notes.
Investors may hold their interests in the Global Note directly through
DTC, if they are participants in such system, or indirectly through
organizations which are participants in such system. The depositories, in turn,
will hold such interests in the Global Note in customers' securities accounts
in the depositories' names on the books of DTC. All interests in a Global Note
will be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such persons may
be limited to that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a Global Note to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest and Liquidated
Damages, if any, on Global Notes will be made to DTC or its nominee as the
registered owner thereof. Neither the Company, Venetian, the Mortgage Note
Trustee, the Senior Subordinated Note Trustee nor any of their respective
agents will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Issuers expect that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note representing any Notes held
by it or its nominee, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Note for such Notes as shown on the records of DTC or its
nominee. The Issuers also expect that payments by participants to owners of
beneficial interests in such Global Note held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in "street name."
Such payments will be the responsibility of such participants. None of the
Company, Venetian or the Mortgage Note Trustee or the Senior Subordinated Note
Trustee will be liable for any delay by DTC or any of its participants in
identifying the beneficial owners of the Notes, and the Issuers and the
Mortgage Note Trustee and the Senior Subordinated Note Trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its
nominee as the registered owner of such Notes for all purposes.
Interests in the Global Notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of Mortgage Notes or Senior Subordinated Notes only at the
direction of one or more participants to show accounts with DTC interests in
the Global Notes are credited and only in respect of such portion of the
aggregate principal amount of the Notes as to which such participant or
participants has or have given such direction.
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However, if there is an Event of Default under the Mortgage Notes or the Senior
Subordinated Notes (each as defined above), DTC reserves the right to exchange
the Global Notes for legended Notes in certificated form, and to distribute
such Notes to its participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Notes among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
None of the Company, Venetian, the Mortgage Note Trustee, the Senior
Subordinated Note Trustee, nor any of their respective agents will have any
responsibility for the performance by DTC, or their participants or indirect
participants, of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Notes.
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DESCRIPTION OF DISBURSEMENT AGREEMENT
The Issuers, the Mall Construction Subsidiary, the Mortgage Note Trustee,
The Bank of Nova Scotia, as the Bank Agent, the Mall Construction Lender, The
Bank of Nova Scotia, as the Disbursement Agent, and the HVAC Provider have
entered into the Disbursement Agreement. The following summary of the material
provisions of the Disbursement Agreement does not purport to be complete and is
qualified in its entirety by reference to the Disbursement Agreement, including
the definitions therein of certain terms used below. Capitalized terms that are
used but not otherwise defined in this Prospectus have the meanings assigned to
them in the Disbursement Agreement. For purposes of this "Description of
Disbursement Agreement," and the term "Company" refers to Las Vegas Sands,
Inc., Venetian Casino Resort, LLC and the Mall Construction Subsidiary,
collectively, and not to any of their respective subsidiaries. Although the
FF&E Lenders will not be parties to the Disbursement Agreement, the funding
conditions with respect to the FF&E Credit Facility are substantially similar
to those set forth in the Disbursement Agreement; provided, however, that the
FF&E Credit Facility include additional funding conditions to the effect that
the FF&E Lenders are not obligated to advance funds under the FF&E Credit
Facility: (a) until the Company can demonstrate that the Casino Resort will be
opened within the succeeding 8 months; and (b) if the Expo Center is closed for
30 consecutive days unless closure results from a casualty and the Company is
able to demonstrate that the resulting damage can be repaired by November 1,
1999 (or by January 31, 2000 with respect to casualty events occurring after
November 1, 1998). See "Description of Certain Indebtedness--FF&E Credit
Facility." A copy of the Disbursement Agreement has been filed with the
Commission as an exhibit to the Registration Statement.
General
The Disbursement Agreement sets forth the material obligations of the
Company to construct and complete the Casino Resort and establishes a line item
budget for the Casino Resort and a schedule for construction of the Casino
Resort. The Disbursement Agreement also establishes the conditions to, and the
relative sequencing of, the making of disbursements from the cash portion of
the Equity Contribution, the proceeds from the Offering, the Bank Credit
Facility, the Mall Construction Loan Facility and the funding commitment of the
HVAC Provider, and establishes the obligations of the Mortgage Note Trustee,
the Bank Agent, the Mall Construction Lender and the HVAC Provider to make
disbursements under their respective funding commitments upon satisfaction of
such conditions. The Disbursement Agreement further sets forth (i) the
mechanics for allocating disbursement requests among the funding sources, (ii)
the mechanics for approving change orders and amendments to the Project Budget
and schedule during the construction period, (iii) certain representations,
warranties, covenants and events of default that are common to the various
credit facilities, (iv) the conditions for release of the Phase II Land and the
Mall Collateral from the lien of the Collateral Documents, and (v) the
conditions to the exercise of the Disbursement Agent's right to draw on the
irrevocable, stand-by letters of credit furnished by the HVAC Provider if the
HVAC Provider does not comply with its funding obligations set forth in the
Disbursement Agreement.
The Disbursement Agreement provides that the Company is only permitted to
use the proceeds of the Offering, the Bank Credit Facility, the Mall
Construction Loan Facility and the cash portion of the Equity Contribution to
pay for Project Costs related to the Casino Resort, excluding the HVAC
Equipment and the Specified FF&E; provided, however, that (a) after the funding
commitment of the HVAC Provider has been fully utilized, the Company will be
permitted to use proceeds of the Offering, the Bank Credit Facility, the Mall
Construction Loan Facility and all cash equity contributions to pay costs
related to the HVAC Equipment if the Company can demonstrate that it has
sufficient funds (net of a specified amount of contingency reserves but
including certain lending commitments and amounts available under the
Completion Guaranty) available to complete the Casino Resort, and (b) the
Company will be permitted to use proceeds of the Offering, the Bank Credit
Facility, the Mall Construction Loan Facility and all cash equity contributions
to pay costs related to the Specified FF&E if the items of Specified FF&E that
will be acquired with such proceeds will not be subject to a lien in favor of
any Person other than the Bank Agent, the Mall Construction Lender and the
Mortgage Note Trustee and if the Company can demonstrate that it has sufficient
funds (net of a specified amount of contingency reserves but including certain
lending commitments and amounts available under the Completion Guaranty)
available to complete the Casino Resort.
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Funding Order
The Disbursement Agreement sets forth the sequencing order in which funds
from the various sources will be made available to the Company.
All disbursement requests permitted to be made from the proceeds of the
Offering, the Bank Credit Facility, the Mall Construction Loan Facility and
cash equity contributions shall be funded in the following sequence: (i) first,
from the cash equity contributions and certain other cash amounts received by
the Company and on deposit from time to time in the Company's Funds Account
(including the proceeds of the Senior Subordinated Notes), until exhausted,
(ii) then, pro rata from proceeds of the Mortgage Notes, the Bank Credit
Facility, and the Mall Construction Loan Facility. The Disbursement Agreement
also provides that the Company is only permitted to use proceeds of the funding
commitment of the HVAC Provider to pay for Project Costs related to the HVAC
Equipment.
Construction of the Casino Resort commenced in April 1997, and the Company
has incurred significant costs in connection with the Casino Resort prior to
the Offering. Pursuant to the Disbursement Agreement, the Construction
Consultant confirmed that such costs were incurred within the parameters set
forth in the approved Project Budget.
Accounts
In order to implement the funding of disbursements, the Disbursement
Agreement calls for the establishment of certain accounts, each of which is or
shall be, pursuant to a Control Account Agreement, subject to a security
interest in favor of the lenders under the Bank Credit Facility and the Mall
Construction Loan Facility and the Mortgage Note Holders (provided that (i) the
Mortgage Notes Proceeds Account is subject to a security interest in favor of
the Mortgage Note Holders only and (ii) the Mall Construction Proceeds Account
shall be owned by the Mall Subsidiary and pledged to the Mall Subsidiary's
lenders). Such accounts include the following:
Company's Funds Account
The net proceeds of the Senior Subordinated Notes and the cash portion of
the Equity Contribution and all other contributions required to be made by or
on behalf of the Company (except to the extent used to (i) pay Project Costs
incurred prior to the Issuance Date and (ii) repay the Construction Loan),
including contributions made pursuant to the Completion Guaranty, were
deposited into the Company's Funds Account. Subject to certain exceptions,
there shall also be deposited into the Company's Funds Account all amounts
received by the Company in respect of casualty and liquidated damages insurance
policies, liquidated or other damages under the Construction Management
Contract, the Construction Management Contract Guaranty, the P&O Guaranty and
certain other contracts, in each case, prior to final completion of the Casino
Resort. Amounts on deposit in the Company's Funds Account are or shall be held
in escrow and invested in cash or Cash Equivalents by the Disbursement Agent
until transferred, from time to time on each disbursement date, to the
Disbursement Account for the payment of Project Costs. Investment income from
amounts on deposit in the Company's Funds Account shall be deposited therein.
Mortgage Notes Proceeds Account
The net proceeds of the Mortgage Notes were deposited into the Mortgage
Notes Proceeds Account. Amounts on deposit in the Mortgage Notes Proceeds
Account are held in escrow and invested in cash or cash equivalents by the
Disbursement Agent until (i) transferred, from time to time on each
disbursement date, to the Disbursement Account for the payment of Project
Costs; and (ii) upon the occurrence of certain events, to repurchase a portion
of the Mortgage Notes. Investment income from amounts on deposit in the
Mortgage Notes Proceeds Account shall be deposited therein.
Disbursement Account
It is anticipated that all disbursements for major Project Costs will be
made from the Disbursement Account. On each disbursement date, each of the Bank
Agent, Mall Construction Lender and the HVAC Provider will deposit in the
Disbursement Account its facility's portion of the requested disbursement. Upon
confirming that such deposits have been made, the Disbursement Agent will
transfer from the Company's Funds Account and the Mortgage Notes Proceeds
Account the portions of the disbursement to be funded therefrom. Amounts in the
Disbursement Account will be transferred to the Cash Management Account
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and/or applied to pay Project Costs by disbursement to the Construction Manager
and other Persons providing goods or services to the Project.
Cash Management Account
The Cash Management Account is designed as an administrative convenience
that permits the Company to fund various Project Costs between dates on which
funds for major expenditures are released from the Disbursement Account. The
Cash Management Account is funded from time to time from the Disbursement
Account, using the proceeds of the disbursements. The Company is permitted to
withdraw funds from the Cash Management Account to pay Project Costs, from time
to time, during the periods between disbursement dates. The balance in the Cash
Management Account, which will not be allowed to exceed $6,500,000, will be
replenished only upon delivery by the Company of certificates, invoices and
other items demonstrating that all previous withdrawals from the Cash
Management Account have been applied to pay for Project Costs in accordance
with the Project Budget.
Pre-Completion Revenues Account
Until final completion of the Casino Resort, the Company is required to
deposit all revenues from operation of the Casino Resort in the Pre-Completion
Revenues Account. Amounts from time to time on deposit in the Pre-Completion
Revenues Account may be used by the Company to pay expenses related to the
operation of the Casino Resort or any portion thereof, including, after opening
of the Casino Resort, interest and other debt service. Amounts on deposit in
the Pre-Completion Revenues Account, to the extent in excess of amounts used
for operating expenses and a specified reserve, may, at the option of the
Company, be transferred to the Disbursement Account for the payment of Project
Costs. Any amounts so transferred shall (i) reduce the Bank Credit Facility's
pro rata portion of the Company's disbursement request and (ii) reduce the
total amount of the funding commitment under the Bank Credit Facility at a rate
of 75 cents for every $1.00 transferred to the Disbursement Account. At final
completion of the Casino Resort (or such earlier date as may be required by the
Bank Cedit Facility), any amounts on deposit in the Pre-Completion Revenues
Account shall be used to pay any principal that would have become payable on
the Bank Credit Facility had amortization of such facility commenced upon
opening of the Casino Resort. Any further amounts in the Pre-Completion
Revenues Account shall be released to the Company.
Mall Construction Proceeds Account
On the Mall Release Date, the Mall Construction Lender shall fund the
remaining unutilized commitment under the Mall Construction Facility into the
Mall Construction Proceeds Account. The Mall Construction Proceeds Account will
then be transferred to the Mall Subsidiary under the Sale and Contribution
Agreement and thereafter become subject to an escrow agreement. Pursuant to
such escrow agreement, the Mall Subsidiary will agree to disburse funds from
the Mall Construction Proceeds Account in order to fund any remaining
construction costs of the Casino Resort.
Funding Conditions
The Disbursement Agreement authorizes disbursement requests only upon the
satisfaction of various conditions precedent. These conditions include, among
others: (i) delivery by the Company 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, as amended from time to time in accordance
with the Disbursement Agreement, (c) the expectation that the Casino Resort
will achieve Completion by the Outside Completion Deadline, (d) the accuracy of
the Project Budget, as amended from time to time in accordance with the
Disbursement Agreement, (e) the sufficiency of remaining funds (net of a
specified amount of contingency reserves, but including certain lending
commitments and amounts available under the Completion Guaranty or under
certain financing commitments) to complete the Casino Resort, and (f)
compliance with line item budget allocations (as such allocations may be
amended from time to time in accordance with the Disbursement Agreement),
taking into account allocations for contingencies; (ii) delivery by the
Construction Manager, the Construction Consultant and the Project Architect of
certificates corroborating various matters set forth in the Company's
disbursement request and certificate; (iii) absence of a Default or Event of
Default under the Disbursement Agreement; (iv) each Operative Document being in
full force and effect; (v) the representations and warranties of the Company
and, to the Company's knowledge, the other parties to the Project Documents,
being true and correct in all material respects as if made on such date (except
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those that relate to a different date) unless the failure of the foregoing to
be the case would not have a material adverse effect; (vi) all of the Security
Documents being in full force and effect and all action having been taken as is
required to perfect and accord the appropriate priority to the security
interests granted under such Security Documents; (vii) receipt by the Company
of the governmental approvals required to be in effect at such time; (viii)
delivery by the Company to the Disbursement Agent of the acknowledgments of
payment and lien releases required under the Disbursement Agreement; (ix)
procurement of all required title insurance policies, commitments and
endorsements insuring that the Project continues to be subject only to
Permitted Liens; (x) the absence of pending or threatened material litigation;
(xi) procurement of all insurance policies required under the Disbursement
Agreement; and (xii) all additional Company equity (including amounts required
to be funded pursuant to the Completion Guaranty) required to have been funded
at such time having been funded. Pursuant to the Intercreditor Agreement and
subject to certain limitations, the Bank Agent and the Mall Construction
Lender, acting jointly, have the right (without obtaining the Morgage Note
Holders' or the HVAC Provider's consent) to waive certain conditions precedent
to funding. See "Risk Factors--Sole Stockholder" and "Description of
Intercreditor Agreement."
Construction Budget and Schedule
The Disbursement Agreement contains provisions generally designed to
assure that amendments to the budget and the Plans and Specifications can be
implemented only pursuant to guidelines administered by the Construction
Consultant and the Disbursement Agent. For example, the Disbursement Agreement
provides that the Company may amend the Project Budget to reallocate amounts
among the different Line Item Categories only upon the satisfaction of certain
conditions set forth therein. Such conditions generally include delivery by the
Company of a certificate describing the proposed amendment, identifying with
particularity the availability of funds to pay for any increased Line Item
Categories and certifying as to, among other things: (i) the reasonableness of
the Project Budget after giving effect to the proposed amendment; (ii)
substantial conformity with the Plans and Specifications, as amended from time
to time in accordance with the Disbursement Agreement; (iii) the expectation
that the Casino Resort will achieve Completion by the Outside Completion
Deadline; and (iv) the sufficiency of remaining funds (net of a specified
amount of contingency reserves, but including certain lending commitments and
amounts available under the Completion Guaranty) to complete the Casino Resort.
The conditions to amendment of the Project Budget also include the delivery by
the Construction Consultant of certificates corroborating certain matters set
forth in the Company's certificate. Increases to any Line Item Category will
only be permitted to the extent of (i) Realized Savings in a different Line
Item Category, (ii) allocation of previously "unallocated contingency," subject
to a specified minimum balance required, from time to time, to be maintained in
the "unallocated contingency" line item, (iii) additional Casino Resort
revenues on deposit in the Pre-Completion Revenues Account, less certain
specified deductions, (iv) additional Company equity and other amounts, to the
extent deposited in the Company's Funds Account or (v) an increase in the
amount available under the Completion Guaranty to the extent collateral in the
amount of such increase is pledged to the Disbursement Agent. The Company may
reallocate amounts among line items within the same Line Item Category so long
as after giving effect to such reallocation the amounts set forth for each line
item are sufficient, in the judgment of the Company and the Construction
Consultant, to complete the work covered thereby. The Company may, from time to
time, amend the Project Schedule to extend the Outside Completion Deadline, but
not beyond the second anniversary of the Issuance Date, by delivering to the
Disbursement Agent a certificate describing the amendment and complying with
the conditions set forth above with respect to the changes in the Project
Budget that will result from the extension of the Outside Completion Deadline.
If a casualty or Force Majeure Event occurs, the Company will be permitted to
extend the Outside Completion Deadline beyond the second anniversary of the
Issuance Date (but in no event beyond the third anniversary of such date) if
the Company certifies and the Construction Consultant confirms that such
extension is necessary to overcome delays caused by the casualty or Force
Majeure Event and the Company satisfies certain other conditions.
Covenants
The Disbursement Agreement contains various affirmative covenants that the
Company is obligated to comply with. Such covenants include the following: (i)
to use the proceeds of equity contributions, the Offering, the Bank Credit
Facility, the Mall Construction Loan Facility and the funding commitment of the
HVAC Provider only to pay Project Costs in accordance with the Project Budget
and the Disbursement Agreement; (ii) to repay all indebtedness in accordance
with its terms; (iii) to maintain its existence and
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engage only in the business permitted by the Disbursement Agreement; (iv) to
construct the Casino Resort diligently and substantially in accordance with the
Plans and Specifications (as the same may be amended from time to time in
accordance with the Disbursement Agreement); (v) to construct, maintain and
operate the Casino Resort in accordance in all material respects with all
applicable laws and procure, maintain and comply with all required governmental
approvals in all material respects; (vi) to permit the Mortgage Note Trustee to
inspect the Casino Resort and to examine the Company's books and records; (vii)
to provide the Mortgage Note Trustee with (a) annual audited and quarterly
unaudited consolidated financial statements of the Company and certain other
parties and (b) certain construction progress reports and other reports,
certificates and notices with respect to the Casino Resort; (viii) to cause to
be deposited into the Company's Funds Account all additional required equity as
and when required; (ix) to indemnify the Mortgage Note Trustee against claims,
expenses, obligations and liabilities incurred or asserted against it in
connection with its participation in the transactions contemplated, subject to
certain exceptions; (x) to maintain and preserve the liens of the Security
Documents and the priority thereof; and (xi) to maintain and comply with the
required insurance policies. See "Insurance Requirements."
The Disbursement Agreement also requires the Company to comply with
various negative covenants. These covenants prohibit the Company from, among
other things: (i) amending, terminating or waiving any right under (a) the
Financing Agreements, the Construction Management Contract Guaranty, the P&O
Guaranty, the Cooperation Agreement, the Mall Lease, the Master Lease for the
Additional Billboard Space, the Casino Lease, the Sale and Contribution
Agreement, the HVAC Services Agreement and certain other documents without
(subject to certain "safe harbor" exceptions) obtaining (A) the consent of the
Bank Agent and the Mall Construction Lender and (B) the consent of the Mortgage
Note Trustee or confirmation from the Rating Agencies that such amendment,
termination or waiver will not cause a rating agency downgrade of the Mortgage
Notes, (b) certain other Project Documents or any governmental approvals if
such amendment, termination or waiver could reasonably be expected to result in
a Material Adverse Effect or (c) the Construction Management Contract or
certain other contracts, unless the Company provides the certifications and
complies with the procedures set forth in the Disbursement Agreement; (ii)
entering into new Material Project Documents unless the Company provides the
certifications and complies with the procedures set forth in the Disbursement
Agreement; (iii) implementing any change in the Plans and Specifications or any
change order under the Construction Management Contract or other contracts,
without obtaining the consents and/or confirmation described in clauses
(i)(a)(A) and (i)(a)(B) above if such change or change order (a) requires an
amendment to the Project Budget, unless the Company complies with the
procedures for amending the Project Budget, (b) will cause the plans and
specifications to no longer comply with certain parameters, (c) could
reasonably delay Completion beyond the Outside Completion Deadline, (d) is not
permitted by a Project Document, or (e) could reasonably be expected to
adversely affect the Company's compliance with legal requirements and
governmental approvals; (iv) amending the Project Budget or the project
schedule except in accordance with the procedures set forth in the Disbursement
Agreement; or (v) releasing any hazardous substance in violation of any legal
requirement or governmental approval if it could reasonably be expected to have
a Material Adverse Effect.
Release of Phase II Land
The Disbursement Agreement sets forth the conditions upon which the Bank
Agent and the Mortgage Note Trustee will release their respective liens on the
Phase II Land. Such conditions include the creation of the Phase II Land as a
separate legal parcel, delivery of legal opinions to the same effect and the
issuance of title insurance endorsements ensuring the priority of the Bank
Agent's and the Mortgage Note Trustee's liens on the remaining portions of the
Note Collateral.
Transfer of Mall and Final Disbursements
The Disbursement Agreement provides that upon substantial completion of
the Casino Resort (i) the Mall will be transferred from the Mall Construction
Subsidiary to the Mall Subsidiary, (ii) the Bank Agent and the Mortgage Note
Trustee will release their respective liens on the Mall Collateral, (iii) the
Issuers will be released from all further obligations under the Mall
Construction Loan Facility and any Substitute Tranche B Loan and (iv) the final
advance will be made under the Mall Construction Loan Facility in an amount
equal to the
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remaining unutilized commitment under such facility and be deposited in the
Mall Construction Proceeds Account. Such proceeds shall be released to the
Company for the payment of retainage amounts and other Project Costs upon
satisfaction of certain specified conditions precedent.
Events of Default and Remedies
The Disbursement Agreement provides that each of the following constitutes
an Event of Default thereunder: (i) the occurrence of certain "events of
default" under the other Financing Agreements; (ii) the failure, from time to
time, of remaining funds (net of a specified amount of contingency reserves,
but including amounts available under lending commitments and the Completion
Guaranty) to be sufficient to complete the Casino Resort on or before the
Outside Completion Deadline, if such failure has not been remedied within 30
days; (iii) the failure of any representation or warranty made in any Operative
Document by the Company, the Sole Stockholder, or an affiliate of any of them
to have been correct when made or deemed made in any material respect, if such
failure could reasonably be expected to result in a material adverse effect and
if such failure has not been remedied within 30 days after notice thereof; (vi)
default by the Company in its compliance with any affirmative or negative
covenant contained in the Disbursement Agreement, subject to certain cure
periods not to exceed 90 days; (vii) default by the Company or any other party
thereto of any Project Document the effect of which reasonably could be
expected to have a Material Adverse Effect, subject to reasonable cure and
substitution rights by the Company; (viii) failure of any of the Security
Documents to be in full force and effect or to provide the secured parties
thereunder the security interest intended to be granted therein; (ix) any of
the Cooperation Agreement, the HVAC Services Agreement, the Construction
Management Contract Guaranty or the P&O Guaranty shall have terminated or
otherwise become invalid or illegal; (x) any of the other Project Documents
shall have terminated or otherwise become invalid or illegal, subject to
reasonable cure and substitution rights by the Company; (xi) the Company
ceasing to own the Project Site, the Improvements or certain easements, subject
to certain permitted exceptions; (xii) the Company abandoning the Casino Resort
or selling or disposing of its interest therein; (xiii) any governmental
approvals necessary for the ownership, construction, maintenance, financing or
operation of the Project being modified, revoked or cancelled and the effect of
such modification, revocation or cancellation is reasonably likely to have a
Material Adverse Effect; or (xiv) failure to achieve the Completion Date on or
before the Outside Completion Deadline.
The exercise of remedies relating to a Disbursement Agreement Event of
Default is subject to the Intercreditor Agreement. Pursuant to the
Intercreditor Agreement, the exercise of any such remedies is subject to
significant restrictions on actions. See "Description of Intercreditor
Agreement." Subject to such restrictions on their exercise, the remedies under
the Disbursement Agreement include: (i) termination of the Commitments and the
obligations to make any further disbursements; (ii) declaration of any and all
amounts outstanding under the Financing Transactions to be immediately due and
payable, provided that upon an Event of Default relating to the bankruptcy or
insolvency of the Company, all such amounts shall automatically become due and
payable; (iii) taking possession of the Casino Resort and completing its
construction and/or operating and maintaining the Casino Resort; (iv) setting
off and applying all monies on deposit in any account with the Disbursement
Agent to the satisfaction of all amounts outstanding under the Financing
Transactions, subject to certain priorities; (v) subject to certain
limitations, exercising the Company's rights under the various Project
Documents; and (vi) exercising any and all rights and remedies available under
the Financing Transactions. The Disbursement Agreement will terminate on or
about the date on which Completion occurs.
Pursuant to the Intercreditor Agreement and subject to certain
limitations, the Bank Agent and the Mall Construction Lender, acting jointly,
have the right (without obtaining the Mortgage Note Holders' or the HVAC
Provider's consent) to waive certain defaults and funding conditions under the
Disbursement Agreement. See "Risk Factors--Sole Stockholder" and "Description
of Intercreditor Agreement."
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DESCRIPTION OF INTERCREDITOR AGREEMENT
The Bank Agent, the Mall Construction Lender, the Mortgage Note Trustee
and the Senior Subordinated Note Trustee have entered into the Intercreditor
Agreement setting forth certain agreements among them regarding, among other
things, the priority of their claims and interests in the Note Collateral, the
Mall Collateral and other assets of the Issuers, 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. A
copy of the Intercreditor Agreement is available upon request to the Company. A
copy of the Intercreditor Agreement has been filed with the Commission as an
exhibit to the Registration Statement.
Although the FF&E Lenders and the HVAC Provider are not parties to the
Intercreditor Agreement, they have entered into other arrangements with the
lenders under the Bank Credit Facility, the Mall Construction Lender and the
Mortgage Note Trustee concerning exercise of remedies and other intercreditor
issues. See "Description of Certain Indebtedness--FF&E Credit Facility" and
"Certain Material Agreements--Agreements Relating to the Casino Resort--HVAC
Services Agreement and Related Documents."
Permitted Facility Amendments; Additional Indebtedness
The Intercreditor Agreement provides that the lenders under the Bank
Credit Facility and the Mall Construction Lender may amend their respective
facilities with the Issuers without the consent of the holders of the Mortgage
Notes or the Senior Subordinated Notes so long as such amendment does not: (i)
increase the maximum principal amount of Indebtedness under such facility by
more than the amounts permitted under the Indentures (which permit an
additional $20.0 million in the aggregate to be incurred prior to Mall Release
Date and $40.0 million in the aggregate to be incurred after Mall Release Date
under such facilities); (ii) except as permitted in the Disbursement Agreement,
reduce the unfunded commitment thereunder prior to Completion; (iii) reduce the
weighted average life to maturity of the existing indebtedness under the Bank
Credit Facility after giving effect to such amendment; and (iv) certain other
conditions are met.
The Intercreditor Agreement also provides that, upon the occurrence of a
potential event of default or event of default under the Disbursement
Agreement:
(i) the lenders under the Bank Credit Facility and the Mall Construction
Loan Facility may, without obtaining the consent of the Mortgage Notes or the
Senior Subordinated Notes, increase the amounts of their respective credit
facilities and/or advance additional loans to the Issuers secured with the same
priority as the original commitments so long as: (a) the aggregate maximum
amount of any such additional Indebtedness does not exceed $30.0 million; (b)
such additional Indebtedness is matched, dollar for dollar, by additional
equity investments in the Issuers; (c) all such additional Indebtedness will be
used to pay project costs and reasonable fees, costs and expenses incurred in
connection with such additional Indebtedness; (d) the applicable margin under
the additional Indebtedness will not exceed 7.0% per annum for base rate loans
and 8.0% per annum for Eurodollar rate loans; and (e) for any such additional
Indebtedness advanced by the lenders under the Bank Credit Facility, no
principal payments may be made prior to the later of (i) three years from the
Issuance Date and (ii) one year from the date of Completion; and
(ii) with the consent of a majority in principal amount of the holders of
the Mortgage Notes and the Senior Subordinated Notes, the Issuers will have the
right to issue additional secured indebtedness without the consent of the
lenders under the Bank Credit Facility or the Mall Construction Lender so long
as the incurrence of such Indebtedness complies with the following conditions:
(a) the maximum principal amount of any additional Indebtedness thereunder does
not exceed $50.0 million ("Additional Capital Proceeds"); (b) such additional
Indebtedness is matched, dollar for dollar, by additional equity investments in
the Issuers; (c) all such additional Indebtedness will be used to pay project
costs and reasonable fees, costs and expenses incurred in connection with such
additional Indebtedness; (d) such Indebtedness may
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be secured by Liens on the Note Collateral (but not the Mortgage Notes Proceeds
Account) so long as such Liens are subordinate to the liens in favor of the
lenders under the Bank Credit Facility and the Mall Construction Lender and are
subordinate or pari passu to liens in favor of the Mortgage Note Trustee and
the holders of the Mortgage Notes; (e) no cash payments of principal or
interest on any such indebtedness will be permitted until the first to occur of
the Mall Release Date and the date the Mall Construction Loan Facility has been
repaid in full and after such date no such cash payments of principal will be
permitted unless the Bank Credit Facility has been repaid in full; (f) the
maturity date for such additional Indebtedness will be at least six months
after the maturity date for the Bank Credit Facility; and (g) the holders of
any such additional Indebtedness will become parties to the Intercreditor
Agreement.
With respect to any Indebtedness advanced by the Mall Construction Lender
under the Intercreditor Agreement, it shall be a condition to the incurrence of
such Indebtedness that: (i) no principal payments may be made until at least
the maturity date of the Mall Construction Loan Facility; and (ii) Mall
Construction Lender shall confirm that Venetian and LVSI shall be released from
such additional indebtedness at Completion.
The Intercreditor Agreement also provides that the lenders under the Bank
Credit Facility, the Mall Construction Lender and the holders of the Mortgage
Notes have the right to make additional "protective" advances under their
respective loan facilities in order to protect, preserve, repair and maintain
the Casino Resort and their respective security interests therein. For example,
the Intercreditor Agreement provides that these lenders may make such advances
under their loan facilities (i) to pay delinquent taxes or insurance premiums,
(ii) to pay claims that otherwise might have lien priority over the liens of
the advancing lender, (iii) to pay Project Costs accruing or payable at any
time when disbursements are not permitted under the Disbursement Agreement, and
(iv) to pay amounts necessary to preserve the continued availability of thermal
energy services under the HVAC Service Agreements and the continued
availability of undisbursed funds under the FF&E Credit Facility. Any amounts
so advanced will be secured by the lien granted to secure the loan provided by
the advancing lender. In the event such advances are made at a time when the
other lenders and/or the HVAC Provider are not permitting disbursements under
the Disbursement Agreement because of the existence of an event of default
thereunder, and if such event of default is later cured, then the lender
providing such advances shall receive credit against the disbursements next due
from such lender until such time as the aggregate advances from the Mortgage
Notes Proceeds Account, the Bank Credit Facility and the Mall Construction Loan
once again are brought back into pro rata balance. The Intercreditor Agreement
further provides that 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 the Disbursement Agreement.
Waiver of Defaults
The Intercreditor Agreement provides that, prior to Completion and subject
to certain limitations, the lenders under the Bank Credit Facility and the Mall
Construction Loan Facility, acting jointly, may waive (i) any Events of Default
under the Disbursement Agreement that arise from acts or events which would not
independently constitute defaults or events of default under the Mortgage Notes
Indenture or (ii) failure by the Issuers to satisfy any conditions precedent to
obtaining disbursements under the Disbursement Agreement; provided, however,
that without the consent of the Mortgage Note holders, the lenders under the
Bank Credit Facility and the Mall Construction Loan Facility may not waive an
Event of Default resulting from, or a condition relating to, implementation of
scope changes that, pursuant to the Disbursement Agreement, require either
approval of a majority of the holders of the Mortgage Notes or confirmation
that the ratings for the Mortgage Notes will not be downgraded. See "Risk
Factors--Sole Stockholder" and "Description of Disbursement
Agreement--Covenants."
Events of Default; Pre-Completion Remedies
Upon the occurrence of an uncured and unwaived Event of Default under the
Disbursement Agreement, each party to the Intercreditor Agreement may declare
an event of default under its respective financing agreements and accelerate
all obligations due thereunder; provided, however, that, unless the lenders
otherwise agree, no party shall be entitled to exercise remedies against the
Issuers or with respect to the collateral until the expiration of the
Standstill Period (a period of 45 days following the occurrence of the Event of
Default), except that: (i) the Mortgage Notes may be paid regularly scheduled
interest
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payments out of the Mortgage Notes Proceeds Account, and (ii) the lenders under
the Bank Credit Facility or the Mall Construction Loan Facility may direct the
Disbursement Agent with respect to the enforcement of certain rights of the
lenders under the construction and other project contracts. See "Risk
Factors--Sole Stockholder." The Standstill Period may be extended by the
lenders under the Bank Credit Facility or by the Mall Construction Lender for
an additional 15-day period.
Upon expiration of the Standstill Period, each party to the Intercreditor
Agreement may exercise remedies against the Issuers, or with respect to the
Collateral, except that no party will be entitled to complete a foreclosure
against the Collateral or enforce a judgment against the Issuers earlier than
(i) for the lenders under the Bank Credit Facility, 180 days after the Event of
Default, (ii) for the Mall Construction Lender, 210 days after the Event of
Default, (iii) for the Mortgage Notes, 195 days after the Event of Default,
(iv) for the Additional Capital Proceeds, 210 days after the Event of Default
and (v) for the Senior Subordinated Notes, 240 days after the Event of Default.
Such dates will be tolled and/or extended for any period of time for which an
injunction and/or a bankruptcy stay is in effect. No party to the Intercreditor
Agreement is entitled to initiate or join as a petitioning creditor in an
involuntary proceeding in bankruptcy against the Issuers (or against any of
their Affiliates) until 10 days after the expiration of the Standstill Period.
Events of Default; Post-Completion Remedies
After the Completion of the Casino Resort, each party will be entitled to
accelerate its indebtedness and exercise remedies against the Issuers or with
respect to the Collateral, in accordance with the terms of its credit facility,
subject to the following conditions: (i) each party to the Intercreditor
Agreement will be subject to a 45-day Standstill Period; (ii) the Standstill
Period may be extended by the lenders under the Bank Credit Facility for an
additional 15-day period; (iii) each party to the Intercreditor Agreement will
not be entitled to initiate or join as a petitioning creditor in an involuntary
proceeding against the Issuers (or against any Affiliate of the Issuers) until
10 days after the expiration of the Standstill Period; and (iv) upon expiration
of the Standstill Period, each creditor party to the Intercreditor Agreement
shall be entitled to exercise remedies against the Issuers or, with respect to
the Collateral, provided that: (a) if the lenders under the Bank Credit
Facility accelerate the indebtedness under the Bank Credit Facility, then such
lenders will provide the Mortgage Note Indenture Trustee with notice of such
acceleration and at least 10 days' the Banks' intent to file the notice of
default, and (b) concurrently with any foreclosure by the Mortgage Noteholders,
the Mortgage Noteholders (or other purchaser in a foreclosure sale) must repay
in full all amounts outstanding under the Bank Credit Facility.
Funding Obligations; Reinstatement
The Disbursement Agreement provides for continued funding following a
default under the Disbursement Agreement in certain further limited
circumstances so as to protect against deterioration of the construction of the
project. More specifically, upon the occurrence of an uncured and unwaived
Event of Default or if the Issuers fail to satisfy a condition precedent to
disbursement under the Disbursement Agreement which has not been waived, no
lender will be required to advance any additional amounts under its financing
agreements unless and until all such defaults are cured; provided, however,
that, upon the consent of the lenders under the Bank Credit Facility and the
Mall Construction Facility acting jointly the lenders will be obligated to
advance funds for the following purposes: (i) to make advances which, subject
to certain exceptions, may not exceed $25 million in the aggregate to repair,
maintain, preserve and protect the Casino Resort, in each case, as certified to
be reasonably necessary by the Construction Consultant or to maintain in effect
the funding commitment of the FF&E Lenders; and (ii) if the Event of Default or
the failure by the Issuers to satisfy the condition to disbursement relating to
having sufficient funds available to complete the Casino Resort is cured or
waived, then the lenders will be required to make payments in respect of work
completed or materials purchased on or prior to the date on which the
Disbursement Agent determined that such default occurred or such condition was
not satisfied.
The Intercreditor Agreement further provides that notwithstanding the
occurrence of an event of default under the Disbursement Agreement and/or
acceleration of any indebtedness under the Bank Credit Facility, the Mall
Construction Loan or the Mortgage Notes, if prior to the completion of the
first permitted foreclosure by any lender with respect to all or any portion of
its collateral, all such defaults are
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cured or waived and all conditions set forth in the Disbursement Agreement are
satisfied or waived, then each lender will be required to reinstate its
commitment to make advances under its financing agreements in accordance with
the Disbursement Agreement.
Collateral; Priority of Liens
The Intercreditor Agreement provides that the liens and security interests
held by each lender in their respective collateral are held with the priority
specified therein, notwithstanding (i) the availability of any other collateral
to any lender, (ii) the actual date and time of execution, delivery, recording,
filing and perfection of any of the Security Documents, and (iii) the fact that
any lien or security interest created 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 has agreed that the
obligations due and outstanding under each credit facility shall 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.
After the closing of the Offering and the Financing Transactions, Venetian
granted the Mall Construction Lender a first lien on its fee ownership of the
Mall Parcel. Because the Mall Parcel is not yet a separate legal and tax
parcel, this lien (the "Mall Fee Lien") was recorded in the real estate and
county records against the entire Project Site, and is a recorded lien on the
Note Collateral. The Intercreditor Agreement therefore provides that the Mall
Fee Lien is initially subordinate to the liens of the Bank Credit Facility and
the Mortgage Notes on the Note Collateral. Upon the recordation of the
subdivision of the Project Site and creation of the Mall Parcel as a separate
legal and tax parcel, ownership of the Mall Parcel (subject to the Mall Fee
Lien) will, pursuant to the Mall Lease, be transferred to the Mall Construction
Subsidiary, at which point the Mall Fee Lien shall become part of the Mall
Construction Lender's first lien on all of the Mall Collateral (and the Mall
Lease shall terminate). In order to further clarify such first lien priority,
the Intercreditor Agreement provides that at such time as the subdivision of
the Project Site occurs, the liens on the Mall Collateral held by the Mortgage
Notes and the Bank Credit Facility will become subordinate to the Mall Fee
Lien. Upon the transfer by Mall Construction Subsidiary of the Mall to Mall
Subsidiary, the Mall Construction Lender shall cease to be a party to the
Intercreditor Agreement.
Each of the Bank Agent and the Mall Construction Lender have agreed that
without the consent of the other that it will not assign or transfer all or any
portion of its credit facility except to an eligible assignee under the Bank
Credit Facility. The holders of the Mortgage Notes and the Subordinated Notes
may each assign or transfer their respective interests in such Notes in
accordance with the provisions of the Mortgage Notes Indenture and the
Subordinated Notes Indenture, as applicable. An eligible assignee or the holder
of any refinancing indebtedness as the case may be, will be bound by the terms
and provisions of the Intercreditor Agreement and will continue to apply all
such obligations to the holders thereof, notwithstanding such transfer,
assignment or refinancing.
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INSURANCE REQUIREMENTS
The insurance requirements for the Casino Resort are set forth in the
Cooperation Agreement and bind the Issuers and the other owners of the
properties that comprise the Casino Resort and the Expo Center, and, subject to
certain exceptions, such owners' successors and assigns. See "Certain Material
Agreements--Cooperation Agreement." The following summary of the material
provisions of the insurance requirements does not purport to be complete and is
qualified in its entirety by reference to the Cooperation Agreement. A copy of
the Cooperation Agreement has been filed with the Commission as an exhibit to
the Registration Statement.
The Issuers believe that the insurance requirements set forth in the
Cooperation Agreement provide commercially appropriate protections against
insurable risks that could arise in connection with the construction and
operation of the Casino Resort and the operation of the Expo Center. These
insurance requirements are summarized below.
Liability Insurance
The Cooperation Agreement provides that each of Venetian and Interface
shall maintain the following types of insurance coverages, to the extent
obtainable on commercially reasonable terms: (i) Commercial general liability
insurance, with primary coverage limits of no less than $1.0 million per
occurrence and a $2.0 million aggregate limit; (ii) Automobile liability
insurance, with limits of no less than $1.0 million per accident; (iii)
Statutory workers compensation insurance and employers' liability or stop gap
liability with a limit of not less than $1.0 million; (iv) Umbrella Excess
Liability Insurance of not less than $100.0 million per occurrence and in the
aggregate; and (v) such additional insurance as an insurance trustee appointed
under the Cooperation Agreement (the "Insurance Trustee") may reasonably
request. The insurance for the Casino Resort will be purchased under blanket
policies for (i) the Hotel and Casino, (ii) the Mall, and (iii) the Expo
Center.
Property Damage Insurance for Expo Center
Interface shall maintain: (i) "All risk" business insurance on a
replacement value basis on improvements and equipment constituting the Expo
Center, subject to an annual limit of $50.0 million for flood and earthquake,
including contingent liability from the operation of building laws, demolition
costs and increased cost of construction endorsements; (ii) business
interruption insurance; (iii) to the extent not covered by the "all risk"
business insurance policy, comprehensive boiler and machinery insurance
(without exclusion for explosion), in amounts not less than the replacement
value of eligible components for coverage; and (iv) such additional insurance
as the senior mortgagee on the Expo Center may reasonably request. The senior
mortgagee on the Expo Center shall be the first loss payee for all insurance
described in this paragraph. Until such time as the existing mortgage liens
encumbering the Expo Center have been released, however, the insurance for the
Expo Center described in this paragraph must be purchased under policies
separate from those for the Hotel, the Casino and the Mall, unless otherwise
agreed by the senior existing mortgagee of the Expo Center to the extent
required under its presently existing loan documents.
Property Damage Insurance for Casino Resort--Construction Period
Until Completion of the Casino Resort, Venetian shall maintain: (i) from
the closing date of the Offering until such time as permanent coverage is
placed as set forth below, builder's risk insurance on an "all risk" basis,
with flood and earthquake on an "agreed amount" basis and providing full
replacement value coverage, subject to an annual limit of $50.0 million for
flood and earthquake, but in no event in an amount less than the limit
necessary to satisfy other contract requirements; (ii) full replacement value
ocean cargo coverage for equipment valued in excess of $500,000; (iii) delay in
opening insurance, on an "all risk" basis including machinery breakdown
coverage, with limits of insurance equivalent to 12 months projected revenues
less non-continuing expenses and a waiting period not in excess of 30 days, and
(iv) contingent business interruption insurance with respect to revenue effects
on the Casino Resort of a loss event at the Expo Center (including such a loss
event occurring prior to Completion). The Disbursement Agent shall be the first
loss payee for the foregoing insurance described in this paragraph. Venetian
has purchased an insurance program for itself and the major contractors and
subcontractors for the construction project.
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Property Damage Insurance for Casino Resort--Following Completion
From and after the date of Completion of the Casino Resort, Venetian shall
maintain the following insurance coverage: (i) "all risk" property insurance
with flood and earthquake coverage on an "agreed amount" basis providing full
replacement value coverage subject to an annual limit of $50.0 million for
flood and earthquake, but in no event in an amount less than the limit
necessary to satisfy other contract requirements; (ii) business interruption
insurance on an "all risk" basis, including boiler and machinery, in an amount
necessary to satisfy policy coinsurance conditions, but with no more than a 30
day waiting period and with appropriate limits; and (iii) contingent business
interruption insurance, or equivalent coverage with respect to the HVAC
Equipment and the Expo Center with appropriate limits.
After Completion of the Casino Resort (and with the consent of the
Insurance Trustee and the existing mortgagees on the Expo Center), the
insurance described in this paragraph may be procured under single blanket
policies for the Casino Resort and the Expo Center.
Insurance by Mall Tenants
Additionally, the Cooperation Agreement requires that Venetian and the
Mall Subsidiary require that all major tenants leasing space from Venetian or
the Mall Subsidiary procure and maintain pursuant to the terms of their leases
certain insurance coverages including without limitation (i) full replacement
cost coverage for improvements and personal property, (ii) business
interruption insurance, (iii) $5.0 million commercial general liability
insurance (or in such lesser amount as may be agreed to by a commercially
reasonable owner), and (iv) statutory workers compensation insurance.
General Requirements
All insurance must be obtained from insurance companies rated "A-" or
better, with a minimum size rating of "VIII" by Best's Insurance Guide and Key
Ratings. Each policy shall waive subrogation against the Insurance Trustee, or
the collateral agent under the existing senior mortgage on the Expo Center, any
Mortgagee, with an insurable interest, Venetian, the Mall Subsidiary and
Interface, and shall provide for at least 30 days notice of cancellation. The
owners of the Hotel and Casino, the Mall and the Expo Center also must deliver
annual certificates stating that their respective insurance policies comply
with the provisions of the Cooperation Agreement. Effective three years from
the date of the closing of the Offering, the owners of the Hotel and Casino,
the Mall and the Expo Center also must engage an independent insurance
consultant to review the insurance requirements of the Casino Resort, the Mall
and the Expo Center and to prepare a report setting out its recommendations
relating to insurance coverage for the next three years. The insurance
consultant's report shall be submitted to the Insurance Trustee, and upon
approval by the Insurance Trustee shall, to the extent the recommendations
differ from the requirements set forth in the Cooperation Agreement, amend and
supersede the applicable provisions of the Cooperation Agreement.
Force Majeure
Although the Company has not obtained insurance to cover all potential
events of force majeure that can delay completion, it has obtained various
coverages and entered into certain agreements that individually protect against
certain force majeure type events. For example, as described above, the Company
has obtained earthquake and flood insurance. In addition, the Company has
entered into certain agreements with trade unions representing key construction
trades pursuant to which such unions have agreed not to strike during
construction of the Casino Resort. There can be no assurance, however, that the
insurance package arranged for the Casino Resort and the Expo Center will be
adequate to cover all risks that the owners may encounter during the
construction period or operations.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following discussion summarizes the material terms of certain material
agreements to which LVSI and Venetian are parties, but this summary does not
purport to be complete and is qualified in its entirety by reference to the
relevant agreements described herein. Capitalized terms used but not otherwise
defined herein shall have the meaning ascribed to such terms in the agreement
being described (unless otherwise indicated). Copies of such documents have
been filed with the Commission as exhibits to the Registration Statement.
Bank Credit Facility
The Issuers have entered into the Bank Credit Agreement with a syndicate
of lenders, The Bank of Nova Scotia, as administrative agent, and Goldman Sachs
Credit Partners L.P., as arranger and as syndication agent. The Bank Credit
Facility consists of (i) the Term Loans (multiple draw term loans of up to
$150.0 million) available for the period commencing upon the Closing Date and
ending on the earlier to occur of (a) the Outside Completion Deadline and (b)
Completion and (ii) the Revolving Loans (revolving credit loans of up to $20.0
million) available for a period commencing eight months prior to the Opening
Date and ending either two years from the initial draw on the Revolving Loans
(but in no event later than the second anniversary of the Term Loan Commitment
Termination Date). During the construction period, up to $15 million of the
Revolving Loans will be available (i) to fund purchases of the Specified FF&E
(including deposits) and (ii) to support letters of credit related to the
construction of the Casino Resort. Any amounts borrowed to purchase the
Specified FF&E will be repaid from the proceeds of the loans under the FF&E
Credit Facility. Under the Bank Credit Facility, the aggregate principal amount
of the Revolving Loans may be increased to an amount not in excess of $40.0
million to the extent one or more of the Lenders (or an eligible assignee who
desires to become a lender) in their sole discretion, elect to increase their
commitments with respect to such Revolving Loans in excess of their
proportionate share of the initial $20.0 million commitment (or, in the case of
an eligible assignee, such eligible assignee commits to fund such excess). The
proceeds of the Bank Credit Facility will be utilized for similar purposes as
the proceeds of the Notes and will be drawn on a pro rata basis with proceeds
of the Notes and the Mall Construction Facility. See "Use of Proceeds."
The Term Loans mature not later than six years from the Closing Date and
are subject to quarterly amortization payments which begin on the earlier of
(i) 120 days after the Opening Date, (ii) the Completion Date and (iii) the
Outside Completion Deadline. Amortization during the first four quarters
following the amortization commencement date will be 3.75% of principal per
quarter; during the second four quarters, 5% of principal per quarter; during
the third four quarters, 7.5% of principal per quarter; and during the fourth
four quarters, 8.75% of principal per quarter. Notwithstanding the foregoing,
all revenues received from the operation of any portion of the Casino Resort
prior to completion, will be deposited in the Pre-Completion Revenues Account.
See "Description of Disbursement Agreement--Accounts--Pre-Completion Revenues
Account." Amounts on deposit in the Pre-Completion Revenues Account, to the
extent in excess of amounts used for operating expenses and debt service and a
specified reserve, may, at the option of the Company, be transferred to the
Disbursement Account for the payment of project costs or retained in such
account until released in accordance with the Disbursement Agreement. Any
amounts so transferred shall (a) reduce the Bank Credit Facility's pro rata
portion of the Company's disbursement request and (b) reduce the total amount
of the funding commitment under the Bank Credit Facility at a rate of 75 cents
for every $1.00 transferred to the Disbursement Account. Upon final completion
of the Casino Resort (or, under certain circumstances, an earlier date), any
amounts on deposit in the Pre-Completion Revenues Account will be used to pay
any principal that would have become payable on the Bank Credit Facility had
amortization of such facility commenced upon opening of the Casino Resort and
any remaining amounts in such account will be distributed to the Issuers. In no
event will the maturity of the Term Loans extend beyond the sixth anniversary
of the Closing Date.
Indebtedness under the Revolving Loans matures two years from the initial
draw on the Revolving Loans (or if earlier the second anniversary of the Term
Loan Commitment Termination Date); provided, however, that, in the event one or
more of the lenders (or eligible assignee) elects to extend the maturity date
of their portion of the Revolving Loans to a later date, the maturity date of
the Revolving Loans portion of the Bank Credit Facility as it relates to any
such Lender's (or eligible assignee's) portion may be so extended.
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Interest and Fees
All amounts outstanding under the Bank Credit Facility bear interest, at
the option of the Issuers (subject to certain limitations) as follows: (A) with
respect to the period prior to the Substantial Completion Date, (i) at the Base
Rate plus 2.00% per annum; or (ii) at the reserve adjusted Eurodollar Rate plus
3.00% per annum; (B) with respect to outstandings under the Bank Credit
Facility for the period between the Substantial Completion Date and ending on
the second full fiscal quarter following the Substantial Completion Date, (i)
at the Base Rate plus 1.50%; or (ii) at the reserve adjusted Eurodollar Rate
plus 2.50% per annum; and (C) with respect to outstandings under the Bank
Credit Facility for the period commencing on the second full fiscal quarter
following the Substantial Completion Date, at the Base Rate or reserve adjusted
Eurodollar Rate, as the case may be, plus the relevant margin based on certain
leverage ratios set forth in the Bank Credit Facility loan agreement. For
instance, if the range of Leverage Ratios is from 2.5x to 4.0x, then the range
for the relevant margin will be 0.25% to 1.5% for Base Rate loans and 1.25% to
2.5% for Eurodollar loans. The leverage ratio of the Company is generally
defined as the ratio of total debt to the earnings before interest, taxes,
depreciation and amortization of the Company for the last twelve months.
Within 60 days of the closing of the Bank Credit Facility, the Issuers
will obtain interest rate protection through interest rate swaps, caps or other
similar arrangements against increases in the interest rates with respect to an
aggregate nominal amount equal to not less than 50% of the aggregate principal
amount of Term Loans outstanding from time to time, such interest rate
protection to limit the interest rate on such principal amount to no more than
9% per annum.
Commitment fees equal to 0.50% per annum times the daily average unused
portion of the commitment under the Bank Credit Facility shall accrue and will
be payable quarterly in arrears.
Security
The obligations of the Issuers and the Mall Construction Subsidiary under
the Bank Credit Facility and the guaranty of Mall Construction Subsidiary are
secured by first priority liens on the Note Collateral (other than the Mortgage
Notes Proceeds Account) and by second priority liens on the Mall Collateral.
Upon the subdivision of the Project Site and satisfaction of certain other
conditions precedent, the Phase II Land shall be released from the security
interest of the Lenders, provided such land is transferred to a wholly-owned
indirect subsidiary of the Company. In addition, the Mall Collateral shall be
released from the security interest of the Bank Lenders, provided the Mall is
transferred to the Mall Subsidiary pursuant the Sale and Contribution Agreement
and certain other conditions are met.
Guarantees
The indebtedness under the Bank Credit Facility is guaranteed on a senior
basis by Mall Construction Subsidiary, Mall Intermediate Holdings and Phase II
Intermediate Holdings and all other Subsidiaries of LVSI and Venetian (other
than the subsidiaries which are Special Subsidiaries or Unrestricted
Subsidiaries on the Issuance Date).
Termination
The Issuers are required to make mandatory prepayments from certain
available cash flow and proceeds including (a) proceeds received by the Issuers
and certain subsidiaries as a result of (i) asset sales, (ii) equity offerings
by the Issuers and certain subsidiaries, (iii) debt offerings by the Issuers
and certain subsidiaries (other than those contemplated by the Bank Loan
Facility, including the Offering), (iv) debt offerings and equity offerings of
the Mall Subsidiary (to the extent not allocated to refinancing existing debt
or to use in the business of the Mall and only if such proceeds are actually
distributed to the Issuers or any subsidiary by the Mall Subsidiary) and (v)
pension plan reversions, (b) certain cost savings from the construction budget,
(c) excess cash flow and (d) excess insurance or condemnation proceeds. The
indebtedness under the Bank Credit Facility may be prepaid at any time.
Covenants
The Bank Credit Facility contains additional negative, affirmative and
financial covenants, including, without limitation, the following: (i)
restrictions on the ability of the Issuers and certain of their subsidiaries to
incur additional indebtedness; (ii) restrictions on the ability of the Issuers
and certain of their subsidiaries
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to make certain restricted payments (collectively "Bank Restricted Payments");
(iii) restrictions on the ability of LVSI and Venetian to engage in mergers,
acquisitions, joint venturers or partnerships for acquisitions; (iv)
prohibitions on the grant of negative pledges to any person; (v) minimum fixed
charge coverage; (vi) minimum EBITDA; (vii) total debt to EBITDA; (viii) EBITDA
to fixed charges; (ix) maximum capital expenditures; (x) minimum net worth;
(xi) prohibitions on liens; (xii) prohibitions on restrictions on distributions
by subsidiaries; and (xiii) prohibitions on contingent obligations. With
respect to the covenants relating to EBITDA, the Sole Stockholder has the right
to cure any deficiencies in EBITDA by contributing cash in the amount of the
deficiency up to $15.0 million per quarter, subject to limitation on the
exercise of such right to not more than two consecutive quarters. After two
consecutive quarters of cash contributions by the Sole Stockholder to cure the
deficiencies in EBITDA, the Sole Stockholder may not make any additional
contributions to cure any such deficiencies unless the Company is in compliance
with its financial covenants in any four-quarter period, without giving effect
to any previous cash contributions.
The Bank Credit Facility requires the Issuers to provide the Bank Lenders
with financial and certain other information.
Conditions to Availability of Funds
Advances of Term Loans under the Bank Credit Facility are available for
the purposes permitted under the Disbursement Agreement and are subject to the
satisfaction or waiver of all the conditions to disbursement set forth in the
Disbursement Agreement. See "Description of Disbursement Agreement." Advances
of Revolving Loans under the Bank Credit Facility are available for working
capital purposes and are subject to various conditions set forth in the Bank
Credit Facility.
Events of Default
Prior to Completion, "Events of Default" includes all events of default
under the Disbursement Agreement, the failure to make payments when due,
defaults under other agreements relating to, or instruments of, indebtedness,
loss of material licenses or permits (including gaming licenses), loss of
material contracts, breaches of representations and warranties, bankruptcy,
ERISA, impairment of security interests, cross acceleration to indebtedness of
the Mall Subsidiary, the Sole Stockholder makes certain prohibited investments
in the Phase II Subsidiary and the Mall Subsidiary, invalidity of guarantees,
default under material agreements and change of control (the Sole Stockholder
or certain related parties cease to beneficially own and control directly or
indirectly at least 70% of the issued and outstanding shares of capital stock
of LVSI (with certain exceptions) entitled to vote for the election of members
of the board of directors of LVSI or LVSI ceases to own 100% of the equity of
Venetian or LVSI and Venetian ceases to own 100% of the equity of each of their
subsidiaries (other than Mall Subsidiary, Phase II Subsidiary and any preferred
equity in Venetian held by Interface Holding or other affiliates of the Sole
Stockholder), or Mall Holdings ceases to own not less than 80% of the equity
securities in the Mall Subsidiary or Phase II Holding ceases to own at least
51% of the equity in the Phase II Subsidiary or the sole managing member of
Mall Intermediate Holdings, Phase II Intermediate Holdings, Mall Holdings, Mall
Subsidiary, Phase II Holdings and Phase II Subsidiary ceases to be LVSI,
Venetian or a wholly-owned subsidiary of LVSI or Venetian). After Completion,
"Events of Default" will not include defaults or events of default under the
Disbursement Agreement.
Mall Construction Loan Facility
LVSI, Venetian and the Mall Construction Subsidiary have entered into the
Mall Construction Loan Credit Agreement with the Mall Construction Lender. The
Mall Construction Loan Facility consists of two tranches: (i) the Tranche A
Loan in the amount of up to $105.0 million, and (ii) the Tranche B Loan in the
amount of up to $35.0 million. Borrowings under the Tranche B Loan were
available as of the Issuance Date. Borrowings under the Tranche A Loan were
available as of the Issuance Date, but will not be drawn until the full funding
of the Tranche B Loan. Borrowings under the Tranche B Loan will then be
available until the earlier of (a) the Mall Release Date and (b) the Outside
Completion Deadline. All indebtedness outstanding under the Mall Construction
Loan Facility matures on May 1, 2000, provided that the Issuers shall have the
option to extend the maturity of the Mall Construction Loan Facility until
November 14, 2000 if, as of May 14, 2000 (i) the Mall Take-out Financing
commitments are in full force and effect, (ii) fully executed leases are in
place, at the time of exercise of such option, yielding net rental income
sufficient to provide a 1.25x debt service coverage ratio on the Tranche A
Loan, based on the then current 30-day
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LIBOR rate plus 350 basis points and a 25-year amortization period and (iii)
certain other conditions are met. Borrowings under the Mall Construction Loan
Facility are funded pro-rata with the proceeds of the Bank Credit Facility and
Mortgage Notes. Upon Completion of the Casino Resort and the satisfaction of
certain other conditions (but not leasing conditions), (i) the indebtedness
under the Mall Construction Loan Facility will be either repaid and/or assumed
by the Mall Subsidiary in accordance with the Sale and Contribution Agreement
and (ii) the Mall Construction Lender will release the Issuers, Mall
Construction Subsidiary and Mall Intermediate Holdings from all liability under
the indebtedness under the Mall Construction Loan Facility.
Interest and Fees
The annual interest rate on indebtedness outstanding under the Mall
Construction Loan Facility is 275 basis points over 30-day LIBOR, provided that
effective as of April 10, 1998, if the Mall Parcel is not a separate legal and
tax parcel by July 10, 1998, such interest rate shall be 375 basis points over
30-day LIBOR until such time, if any, as the Mall Parcel becomes a separate
legal and tax parcel. In the event the term of the maturity is extended as
described above, a fee of $375,000 will be payable to Mall Construction Lender.
Security
The indebtedness under the Mall Construction Loan Facility was secured at
closing by a first priority lien on all of the Issuers' and their Subsidiaries'
right, title and interest in and to (i) the Mall, including the Mall Parcel and
all improvements and equipment located thereat or used in connection therewith;
(ii) any reserves established by the Issuers, any of their Restricted
Subsidiaries or any of their Special Subsidiaries relating to the Mall; and
(iii) all rents and other income derived from the Mall. With respect to the
lien described in clause (i) of the preceding sentence, at closing Venetian
granted the Mall Construction Lender a junior lien on its fee ownership of the
Mall Parcel (the "Mall Fee Lien"), and the Mall Construction Subsidiary granted
the Mall Construction Lender a first lien on its leasehold estate under the
Mall Lease. Because the Mall Parcel was not, as of the closing of the Offering,
a separate legal parcel, the Mall Fee Lien was recorded in the real estate and
county records against the entire Project Site, and so is a recorded lien on
the Note Collateral. The Intercreditor Agreement therefore provides that the
Mall Fee Lien is initially subordinate to the liens of the Bank Credit Facility
and the Mortgage Notes on the Note Collateral. When the Mall Parcel becomes a
separate legal and tax parcel, the Mall Lease (and, therefore, the
above-described lien on the leasehold estate created by the Mall Lease) will
terminate, and ownership of the Mall Parcel will (subject to the Mall Fee
Lien), (i) if prior to Completion, be transferred to Mall Construction
Subsidiary and (ii) if after Completion, be transferred to the Mall Subsidiary.
At this point, the Mall Fee Lien will be a first priority lien on the Mall
Parcel.
Covenants and Events of Default
Except for covenants related to the Mall Collateral, the covenants in the
Mall Construction Loan Facility are similar to those in the Bank Credit
Agreement (except that there are no financial covenants). In addition, the
events of default under the Mall Construction Loan Facility are generally
similar to those in the Bank Credit Facility.
Guaranties
The indebtedness under the Mall Construction Loan Facility is guaranteed
by Mall Intermediate Holdings on a senior basis.
Conditions to Availability of Funds
Advances under the Mall Construction Loan Facility to the Company and/or
the Construction Manager are subject to the satisfaction or waiver of all of
the conditions to disbursement set forth in the Disbursement Agreement. See
"Description of the Disbursement Agreement." In addition, advances under the
Mall Construction Loan Facility are conditioned upon the execution and delivery
of the commitments relating to the Mall Take-out Financings.
Sole Stockholder Guaranty of Mall Construction Loan Facility
The Sole Stockholder has guaranteed up to $35.0 million of indebtedness
outstanding under Tranche B of the Mall Construction Loan Facility. The Sole
Stockholder's obligations under such guaranty are collateralized by a cash
collateral account. If any amounts are drawn on the guaranty of Tranche B of
the
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Mall Construction Loan Facility, the Sole Stockholder will have the right to
elect to treat such amounts as a subordinated loan (the "Substitute Tranche B
Loan") from the Sole Stockholder to Venetian and the Mall Construction
Subsidiary. The Substitute Tranche B Loan will be subordinated in right of
payment to indebtedness under the Bank Credit Facility, the Mall Construction
Loan Facility and the Mortgage Notes. If the Sole Stockholder makes this
election: (i) the interest rate will not exceed that which was applicable to
Tranche B of the Mall Construction Loan; (ii) there will be no scheduled
principal amortization for the Substitute Tranche B Loan and the Substitute
Tranche B Loan will mature on the same date as the Senior Subordinated Notes;
(iii) irrespective of the stated interest payment schedules, no payments will
be permitted on the Substitute Tranche B Loan unless all payments then due on
any debt secured by the Mall Collateral on a senior basis at that time have
been paid in full, and any cash payments that are due but that are prohibited
will accrue; (iv) the Substitute Tranche B Loan will, until completion and
transfer of the Mall to the Mall Subsidiary, be pari passu in right of payment
with the Senior Subordinated Notes; (v) the Substitute Tranche B Loan provides
that Venetian and the Mall Construction Subsidiary will be released from
further liability with respect to the Substitute Tranche B Loan upon
satisfaction of the conditions to the release of the Mall Collateral and the
Substitute Tranche B Loan will be assumed by the Mall Subsidiary; and (vi) the
loan documents will contain certain subordination provisions (such as no right
to object to modifications of debt secured on a senior basis by the Mall
Collateral, and no right to exercise remedies without consent from the senior
lenders and the holders of the Senior Subordinated Notes).
FF&E Credit Facility
The FF&E Credit Facility is a $97.7 million multiple draw facility
available to fund the acquisition and installation of the Specified FF&E. The
Specified FF&E will be divided into two groups of assets: (i) the furniture,
certain fixtures, and equipment (approximately $90.7 million) and (ii) an
electrical substation (approximately $7.0 million). The FF&E Credit Facility
will be secured by a first priority lien on the Specified FF&E. The FF&E Credit
Facility consists of a multiple draw interim loan prior to completion of the
Casino Resort (the "FF&E Interim Loan") and a term loan for a period of 60
months after completion of the Casino Resort (the "FF&E Term Loan"). If the
FF&E Credit Facility is not fully funded on the Project Construction Completion
Date, the unused portion of the commitment under the FF&E Credit Facility may
be drawn in whole and placed in a cash collateral account and used to fund the
purchase and installation of Specified FF&E for a period of 120 days, with any
proceeds remaining in such cash collateral account after such 120-day period
being used by the FF&E Lenders to prepay an equivalent portion of the
outstanding borrowings at such time. Borrowings under the FF&E Credit Facility
may be made commencing (a) eight months prior to the anticipated opening date,
if the Issuers elect to pay Interim Loan interest on a current basis or (b)
three months prior to the anticipated construction completion date, if the
Issuers elect to accrue Interim Loan interest (the "Interim Loan Commencement
Date"). A portion of the initial draw down is expected to be used to repay
amounts drawn under the Bank Credit Facility or other funds subject to the
Disbursement Agreement that were used for the purchase, construction and
installation of the Specified FF&E prior to the Interim Loan Commencement Date.
Upon the satisfaction of certain conditions, the FF&E Lenders have agreed to
certify to the Disbursement Agent and the Bank Agent that any Specified FF&E
acquired prior to the Interim Loan Commencement Date is eligible collateral
under the FF&E Credit Facility.
Interest and Amortization
Interest on the FF&E Interim Loan, if paid on a current basis, will be due
quarterly in arrears at a floating rate equal to 30-day reserve adjusted LIBOR
plus 375 basis points or at the Base Rate (the greater of the Prime Rate or the
Federal Funds Rate plus 50 basis points) plus 100 basis points, whichever the
Issuers elect. Subject to certain circumstances, the Issuers may elect to
accrue FF&E Interim Loan interest, and such interest will accrue based on the
foregoing rates.
Upon the same date as the Basic Loan Commencement Date, but subject to
certain conditions, the FF&E Interim Loan converts to the FF&E Basic Loan, a
sixty-month term loan with quarterly amortization payments. Amortization on the
FF&E Basic Loan will be 3% of principal for the first four quarters and 5.5% of
principal for the last 16 quarters. The Issuers are required to make mandatory
prepayments of principal in the event of certain asset sales and casualty
events (subject to permitted reinvestments and equipment replacement
purchases). Subject to certain limited exceptions, the FF&E Credit Facility may
not be repaid prior to the first anniversary of the Basic Loan Commencement
Date. Thereafter, the Issuers may prepay
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such indebtedness subject to a penalty fee of 1.5% (if the loan is terminated
between the first and second anniversaries of the Basic Loan Commencement Date)
and 1.0% (if the loan is terminated between the second and fourth anniversaries
of the Basic Loan Commencement Date).
Interest on the FF&E Basic Loan is a floating monthly rate calculated at
the higher of (a) the reserve-adjusted 30-day LIBOR plus 375 basis points or
(b) the eurodollar interest rate margin in effect on the Bank Credit Facility
plus 125 basis points.
Conditions to Availability of Funds
Advances under the FF&E Credit Facility are subject to certain conditions,
including the following: (i) no event of default exists and is continuing under
any of the Financing Agreements or under any Material Contract or under any
other agreement of the Issuers involving obligations aggregating or projected
to aggregate $5.0 million or more (provided, that the condition with respect to
any Material Contract or other agreement equalling or exceeding the $5.0
million threshold will be deemed satisfied if the defaulting party is other
than the Issuers or an affiliate thereof and such Material Contract or other
agreement has been replaced with a similar agreement with a replacement party),
(ii) (a) in the case of interim loans, the Project Construction Completion Date
will be anticipated to occur within the next succeeding eight months, and (b)
in the case of the basic loan, the Project Construction Completion Date will
have occurred, (iii) the Expo Center will not have been closed for a period of
more than 30 consecutive days from the commitment date to the date of the
advance (subject to certain exceptions for casualty events if the Expo Center
is capable of being restored within a specified time period), (iv) there shall
not be any material pending or threatened litigation relating to the Casino
Resort which would result in any material adverse change in the economic
prospects of the Casino Resort or in the financial condition or operations of
the Issuers and their subsidiaries, taken as a whole and there shall not be any
material pending or threatened litigation relating to the Equipment Loan
Facility, (v) there shall be no default or event of default under the FF&E
Credit Facility, (vi) other conditions for advances similar to those contained
in the Disbursement Agreement, (vii) filing of customary financing statements,
(viii) delivery of a customary legal opinions, and (ix) execution of an
agreement among the Company, the FF&E Lenders and the Construction Consultant
pursuant to which the Construction Consultant will provide project monitoring
services to the FF&E Lenders.
Covenants and Events of Default
Except for covenants related to the Specified FF&E, the covenants in the
FF&E Credit Facility are similar to those in the Bank Credit Agreement
(including financial covenants such as minimum net worth, minimum EBITDA,
minimum fixed charge ratio, leverage ratio and restrictions on capital
expenditures). In addition, the events of default under the FF&E Credit
Facility are generally similar to those in the Bank Credit Facility.
Exercise of Remedies
The FF&E Lenders have entered into an intercreditor agreement with the
Bank Agent, the Mortgage Note Trustee, the Mall Construction Lender and General
Electric Capital Corporation as part of the FF&E Credit Facility (the "FF&E
Intercreditor Arrangement"). Under the FF&E Intercreditor Arrangement, the FF&E
Lenders have agreed that following an event of default during the period prior
to the Interim Loan Funding Commencement Date (the "Pre-funding Period") that
they will refrain from exercising certain remedies against their collateral for
a period of up to 120 days. Following the occurrence of an event of default
under the FF&E Credit Facility during the period from the Interim Loan
Commencement Date until the Basic Loan Commencement Date (the "Funding
Period"), the FF&E Lenders have agreed to refrain from exercising certain
remedies against their collateral for a period of up to 180 days so long as (i)
the event of default in question is susceptible of cure, (ii) all overdue
interest, fees and payments under the FF&E Credit Facility are brought current
and all interest, fees and payments under the FF&E Credit Facility are paid
currently on a monthly basis and (iii) in order to extend the standstill period
beyond the 120th day after the event of default, the only uncured event of
default at such time must be the failure to comply with "in-balance"
requirement of the FF&E Credit Facility and the FF&E Lenders further must
receive a written proposal demonstrating that a cure of such default on or
before the end of the 180-day standstill period will occur. The FF&E Lenders
have agreed to recommence advancing funds under the FF&E Credit Facility if the
event of default is cured during the standstill period and the indebtedness
under the FF&E Credit Facility has not been accelerated. Finally, during the
period following the Basic Loan
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Commencement Date (the "Basic Loan Period"), the FF&E Lenders have agreed to a
standstill period of 30 days. No more than two standstill periods may be
commenced during the Funding Period and only one standstill period may be
commenced in either the Pre-funding Period or the Basic Loan Period. The
standstill periods will terminate under certain circumstances including if any
collateral is the subject of any material damage, loss, removal, deterioration
or disposition. Furthermore, such standstill periods will not apply if the
event of default involves a bankruptcy or insolvency proceeding. Finally, the
FF&E Lenders are not obligated to continue the standstill period if the Casino
Resort does not open by November 1, 1999 or if completion is not likely to
occur by November 1, 1999 (subject to extension to January 31, 2000 if a
certain casualty event occurs and certain conditions are met).
Mall Take-out Financing Commitments
Upon the completion of the Casino Resort and the satisfaction of certain
other conditions (but not any leasing condition), pursuant to the Sale and
Contribution Agreement, the Mall Construction Subsidiary will transfer the Mall
Collateral to the Mall Subsidiary. Following such transfer, all indebtedness
under the Mall Construction Loan Facility will be repaid and the Mall
Collateral will not be available as security for the holders of the Mortgage
Notes or the indebtedness under the Bank Credit Facility. The cash proceeds
received by the Mall Construction Subsidiary as a result of such transaction,
if any, must be used to repay the indebtedness under the Mall Construction Loan
Facility. See "Certain Material Agreements--Sale and Contribution Agreement."
GSMC and the Tranche B Take-out Lender separately have agreed to provide Mall
Take-out Financings to provide funds to the Mall Subsidiary to meet its
obligations under the Sale and Contribution Agreement.
GSMC has committed to provide the Tranche A Take-out Financing in an
amount of up to $105.0 million to the Mall Subsidiary subject to completion of
the Casino Resort and certain other conditions. The indebtedness under the
Tranche A Take-out Financing will be secured by a first lien on the Mall
Collateral and will bear interest at a floating rate equal to LIBOR plus 3.5%;
provided that if, as of the consummation of the Tranche A Take-out Financing,
the Mall Parcel is not a separate legal and tax parcel, such indebtedness shall
bear interest at a floating rate equal to LIBOR plus 5.0% until such time, if
any, that the Mall Parcel is a separate legal and tax parcel. The Tranche A
Take-out Financing will include certain customary covenants including
limitations on indebtedness, restricted payments and liens. In the event that
the Debt Service Coverage Ratio (as defined in the Tranche A Take-out Financing
agreements) is less than 1.25 for a period of six consecutive months, all rents
shall be payable into a cash collateral account and may not be distributed to
the Company or any of its subsidiaries without the consent of GSMC. The
indebtedness under the Tranche A Take-out Financing must be repaid within three
years and is prepayable (without penalty) at any time. The Sole Stockholder has
agreed to guarantee, on an unsecured basis, $20.0 million of indebtedness under
the Tranche A Take-out Financing. The Mall Subsidiary and the Sole Stockholder
have agreed to pay GSMC a non-refundable commitment fee payable in two
installments, the first of which was paid on the date of the Offering, and the
second of which is due on the first anniversary of the date of the Offering.
The proceeds from the Tranche A Take-out Financing will be used to partially
finance the purchase price under the Sale and Contribution Agreement, which, in
turn, will be used to partially repay the indebtedness outstanding under the
Mall Construction Loan Facility.
GSMC's commitment to provide the Tranche A Take-out Financing expires
November 1, 2000.
In addition to certain escrows in respect of tenant improvement costs,
leasing commissions, real estate taxes and insurance premiums which must be
funded as a condition to the funding of the Tranche A Take-out Financing, the
Mall Subsidiary will be required to fund an operating expense shortfall reserve
if a certain financial test is not satisfied.
The Tranche B Take-out Lender is providing the Tranche B Take-out
Financing to the Mall Subsidiary. The Tranche B Take-out Lender's total
commitment is $35.0 million and is unsecured, provided that to the extent the
Mall Construction Lender has not drawn on the Sole Stockholder's $35.0 million
collateralized guaranty of the Mall Construction Loan Facility, such
collateralized guaranty shall secure the Tranche B Take-out Lender's
commitment. The terms of the Tranche B Take-out Financing are generally the
same as the terms of the Tranche A Take-out Financing, except that the Tranche
B Take-out Financing (i) will be subordinated to the Tranche A Take-out
Financing and will be secured by a second mortgage on the Mall Collateral, (ii)
will not permit cash interest payments unless no event of default exists under
the Tranche A Take-out Financing
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and all payments on the Tranche A Take-out Financing have been paid when due
(and all operating expenses have been paid and all reserves required under the
Tranche A Take-out Financing have been funded), and (iii) will have an initial
term of five years (which term Mall Subsidiary will be entitled to extend). If
any interest payments on the Tranche B Take-out Financing are not paid, then
such interest will accrue. The Tranche B Take-out Financing documents will
provide that the holder thereof may not take enforcement action under such
documents without GSMC's consent until 90 days after the Tranche A Financing
has been paid in full.
Notwithstanding any of the foregoing, if the Mall Construction Lender
increases the principal amount of its loan above $140.0 million (but not in
excess of $170.0 million) in accordance with the terms of the Intercreditor
Agreement, then such loan increase shall remain outstanding after the Mall
Collateral is transferred to the Mall Subsidiary and shall be assumed by the
Mall Subsidiary (the "Mezzanine Loan"). The Mezzanine Loan will be subordinate
to the Tranche A Take-out Financing and superior to the Tranche B Take-out
Financing and will be secured by a second mortgage on the Mall Collateral. If
the Mezzanine Loan is made, then (X) the Tranche B Take-out Financing will be
secured by a third mortgage on the Mall Collateral and (Y) until the aggregate
principal amount of the Tranche A Take-out Financing, the Mezzanine Loan and
the Tranche B Take-out Financing is $140.0 million, the Mall Subsidiary will be
required to use all revenue from the Mall Collateral (after the payment of
operating and capital expenses, interest on the Tranche A Take-out Financing,
certain distributions to pay income taxes and the funding of certain reserves)
to prepay principal of the Tranche A Take-out Financing.
LVSI, Venetian, the Mall Subsidiary, the Mall Construction Subsidiary and
the Sole Stockholder (the "Borrower Parties") have entered into the Tri-Party
Agreement with GSMC and the Mall Construction Lender. Under the Tri-Party
Agreement, GSMC (i) covenants, for the benefit of the Mall Construction Lender,
to perform its obligations under its commitment to provide the Tranche A
Take-out Funding and (ii) pre-approves, for the benefit of the Mall Subsidiary
and the Mall Construction Lender certain of the conditions to the funding of
the Tranche A Take-out Financing. Also, all parties to the Tri-Party Agreement
have agreed that, in the event Mall Construction Lender, or its designee,
obtains title to the Mall, by foreclosure or otherwise, Mall Construction
Lender, or its designee, as the case may be, upon notice to GSMC, may assume
the Mall Subsidiary's rights under the Tranche A Take-out Financing commitment.
The Tri-Party Agreement permits the Mall Subsidiary to terminate GSMC's
commitment to provide the Tranche A Take-out Financing, so long as (i) such
commitment is replaced with a commitment from an institutional or other lender
reasonably satisfactory to the Mall Construction Lender that does not terminate
earlier than the termination date of GSMC's commitment and does not contain any
conditions not contained in GSMC's commitment, and (ii) such replacement
Tranche A Take-out Lender executes and delivers an agreement substantially
similar to the Tri-Party Agreement.
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CERTAIN MATERIAL AGREEMENTS
The following discussion summarizes the material terms of certain material
agreements to which one or more of the parties constituting the Company is a
party, but this summary does not purport to be complete and is qualified in its
entirety by reference to the relevant agreements described herein. Copies of
such agreements in preliminary or executed form are available upon request to
the Company. Capitalized terms used but not otherwise defined shall have the
meaning ascribed to such terms in the agreement being described (unless
otherwise indicated).
Agreements Relating to the Casino Resort
Construction Management Contract
The Company and the Construction Manager have entered into the
Construction Management Contract for the construction (but not the design) of
the Casino Resort (exclusive of certain demolition work, certain furniture,
fixtures and equipment, the fabrication of certain theming elements, the
parking garage/electrical substation facility and certain other items, the
aggregate cost of which is described in "Risk Factors--Construction Management
Contract and Guaranties") for a guaranteed maximum price (the "GMP"). To the
extent actual costs incurred or expended in connection with the construction of
the items covered by the Construction Management Contract exceed the GMP, then,
subject to certain limitations and exceptions, the Construction Manager is
liable for such excess. As of the Issuance Date, the GMP (the "Initial GMP"),
is approximately $547.8 million, including a 5% contingency amount. After (i)
the completion by the Company's architects and engineers, and approval by the
Company, of the final design documents that set forth in detail the plans and
specifications for the Casino Resort and (ii) the execution of trade contracts
for 90% (by dollar amount) of the trade contracts portion of the GMP, a final
GMP ("Final GMP") will be calculated by adjusting the Initial GMP to take into
account (among other things): (a) certain "scope changes" or other changes
implemented at the request of the Company; (b) the amount by which the actual
aggregate amount of the signed trade contracts is less than the amount
allocated to such contracts in the Initial GMP; and (iii) a reduction in the
contingency amount from 5% to 3%. The GMP does not include the construction
management fee to be paid to the Construction Manager or the fee payable to the
Construction Manager's ultimate parent, P&O, for the P&O Guaranty. The GMP is
to be appropriately increased to reflect (a) deficiencies or changes in the
drawings prepared by the Company's architects and engineers, and (b)
Company-mandated "scope changes" and "change orders."
The Company will pay the Construction Manager a construction management
fee of 1-1/2% of the Final GMP (the "CM Fee") payable in monthly installments
commencing May, 1997. In addition, upon final completion of the Casino Resort,
if the total construction costs covered by the Construction Management Contract
fall below the Final GMP, the savings will be allocated 50% to the Company and
50% to the Construction Manager. The Company has paid P&O a $6.5 million fee
for the P&O Guaranty.
Unless otherwise specified by the Company and approved by the Construction
Manager, such approval not to be unreasonably withheld, all trade contractors
have been or will be selected after a bidding process that includes at least
three bidders from a list of bidders approved by the Company. The Construction
Manager will submit to the Company the various bids received from prospective
trade contractors, all pertinent information available to Construction Manager
with respect to such bids and prospective trade contractors, and Construction
Manager's recommendation of the prospective trade contractor for the contract.
The Company will select each trade contractor based on this information. If the
Company does not select the party recommended by Construction Manager, the GMP
will be increased by the amount, if any, by which the trade contract amount
proposed by the trade contractor selected by the Company exceeds the trade
contract amount proposed by the party recommended by the Construction Manager.
The Construction Management Contract provides that the Construction
Manager will not be responsible for the consequences of any of the following
events, but only to the extent (a) such events do not arise out of the
negligence or wilful misconduct of the Construction Manager or any breach by
the Construction Manager of the Construction Management Contract, and (b) such
events are beyond the Construction Manager's reasonable control: Acts of God
(such as tornado, flood, hurricane, etc.); fires and other casualties;
Company's, architect's and agencies' (and their respective agents' and
employees'
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(other than trade contractors' and subcontractors')) acts, omissions to act, or
failures to act timely; strikes, lockouts or other labor disturbances (except
to the extent taking place at the Casino Resort site only); riots,
insurrections, and civil commotions; embargoes; shortage or unavailability of
materials, supplies, labor, equipment and systems that first arise after the
date hereof, but only to the extent caused by another act, event or condition
covered by this sentence; sabotage; vandalism; the requirements of laws,
statutes, regulations and other legal requirements enacted after the date of
the Construction Management Contract (unless the Construction Manager should,
in the exercise of due diligence and prudent judgment, have anticipated such
enactment); orders or judgments; and any other similar types of events. (The
Company has obtained insurance coverage for certain of the events described in
the preceding sentence. See "Insurance Requirements.")
The Construction Manager will be responsible for achieving "Substantial
Completion" (the stage in the progress of the development of the Casino Resort
when it is sufficiently complete, including the receipt of necessary permits,
licenses and approvals, so that all aspects of the Casino Resort can be open to
the general public) by April 1999 (the "Required Completion Date"). If
Substantial Completion is achieved prior to the Required Completion Date, the
Construction Manager will be entitled to a per-day early completion bonus as
described below. If Substantial Completion is not achieved by the Required
Completion Date, the Construction Manager will be liable for liquidated damages
as described below. The Required Completion Date may be extended if: (i)
certain "force majeure" events as described in the preceding paragraph occur
(with respect to some of which the Company has obtained insurance coverage--See
"Insurance Requirements"); (ii) the Company implements certain specified "scope
changes"; and/or (iii) the design documents prepared by the architect are
changed or are deficient. For the first 30 days of any delay in achieving
Substantial Completion beyond the Required Completion Date, liquidated damages
("Liquidated Damages") are assessed as follows: (i) for the first seven days of
such 30 day period, 1/7th of 11.11% of the "Monthly Amount" (CM Fee minus $1.4
million); for each of days 8 through 14 of such delay, 1/7th of 16.67% of the
Monthly Amount; for each of days 15 through 21 of any such delay, 1/7th of
22.22% of the Monthly Amount; and for each of days 22 through 30 of such delay,
1/9th of 50% of the Monthly Amount. Liquidated Damages Insurance has been
procured to cover Liquidated Damages for days 31 through 120 of a delay in
achieving Substantial Completion beyond the Required Completion Date. Under the
Liquidated Damages Insurance, the Company will receive, for the period
commencing the 31st day through the 60th day, approximately $300,000 per day,
and for the period commencing the 61st day through the 120th day, $250,000 per
day. The Company will pay all premiums and other costs in connection with the
Liquidated Damages Insurance. No liquidated damages are payable by the
Construction Manager for days 31 through 120 of a delay in achieving
Substantial Completion beyond the Required Completion Date. After the 120th day
of any delay in achieving Substantial Completion beyond the Required Completion
Date, the Construction Manager is (and Bovis and P&O pursuant to their
guaranties are) liable for liquidated damages at a per-day rate of 3.33% of the
Monthly Amount. The per-day completion bonus amounts are "mirror images" of the
per-day liquidated damages amounts payable by the Construction Manager.
All disputes between the Company and the Construction Manager as to
whether Construction Manager is entitled to an increase in the GMP (and if so,
what the amount of such increase will be), and/or whether Construction Manager
is entitled to an extension of the Required Completion Date, are to be resolved
by an "Independent Expert" jointly selected by both parties.
The Company will pay for and maintain property and "wrap-up" liability
insurance upon the entire Casino Resort. Such insurance includes (a) all risk
property insurance; (b) on-site workers compensation and employers liability
insurance; (c) commercial general liability insurance; and (d) umbrella and
excess liability insurance. The Construction Manager will arrange and pay for
automobile liability insurance, and offsite workers compensation insurance.
After the Casino Resort is completed, the Construction Manager will issue in
writing to the Company a general warranty. The general warranty will (i) be for
12 months from the date Substantial Completion of the Casino Resort is
achieved, (ii) provide that where defects occur, Construction Manager will
assume responsibility for all repairs to or replacements of work covered by the
Construction Management Contract made necessary by such defects, and for all
expenses incurred in repairing and replacing other components of the Casino
Resort that were not part of the work covered by the Construction Management
Contract, but were affected by such defects and (iii) be in form and substance
reasonably satisfactory to the Company.
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The Construction Manager's direct parent company, Bovis and ultimate
parent company, P&O, respectively, have executed and delivered to the Company
the Construction Management Contract Guaranty and the P&O Guaranty,
respectively, which guarantee the obligations of the Construction Manager under
the Construction Management Contract, including the Construction Manager's
obligations with respect to liquidated damages and the GMP, provided that such
guaranties only cover liquidated damages beginning with day 121 of any delay in
achieving Substantial Completion beyond the Completion Date. See "Risk
Factors--Construction Budget; Construction Management Contract and Guaranties."
Liquidated Damages Insurance
The Construction Manager has obtained on behalf of the Company (and at the
Company's expense) the Liquidated Damages Insurance. The Liquidated Damages
Insurance covers the above-described Liquidated Damages assessed under the
Construction Management Contract, provided that the Liquidated Damages
Insurance does not cover Liquidated Damages with respect to the first 30 days
of any delay in achieving Substantial Completion by the Required Completion
Date. Commencing with the 31st day of any such delay, and continuing until the
60th day thereof, the Company will receive under the Liquidated Damages
Insurance approximately $300,000 per day until Substantial Completion is
achieved. Commencing with the 61st day of any such delay, and continuing until
the 120th day thereof, the Company will receive under the Liquidated Damages
Insurance approximately $250,000 per day until Substantial Completion is
achieved. The Liquidated Damages Insurance does not cover penalties assessed
after the 120th day of any such delay. Additionally, the Liquidated Damages
Insurance contains various exceptions. For example, the Liquidated Damages
Insurance does not cover delays caused by (i) certain events of "force majeure"
(with respect to some of which the Company will have other insurance coverage.
See "Insurance Requirements"), (ii) any failure by the Construction Manager to
make "good faith efforts" to timely achieve Substantial Completion and to avoid
or mitigate any delay when an event likely to cause a delay occurs (which
failure is a breach by Construction Manager under the Construction Management
Contract with respect to which Construction Manager, Bovis and P&O, pursuant to
the Construction Management Contract, Construction Management Contract Guaranty
and the P&O Guaranty, respectively, are jointly and severally liable for
damages) and (iii) the "insolvency and/or financial default" of Construction
Manager, the Company, any trade contractor or any other person or entity. See
"Risk Factors--Construction Budget; Construction Management Contract and
Guaranties" and "--Construction Management Contract."
Completion Guaranty
Pursuant to the Completion Guaranty, the Sole Stockholder has guaranteed,
subject to certain conditions and limitations, payment of construction and
development costs in excess of available funds, up to a maximum of $25.0
million. The Sole Stockholder's obligation to fund such excess construction and
development costs is collateralized by $25.0 million in cash or cash
equivalents pledged to the Disbursement Agent. If the Issuers want to implement
a scope change or change order, and such scope change or change order would
cause construction and development costs to exceed available funds, such scope
change or change order cannot be implemented unless the Sole Stockholder
increases the maximum amount available under the Completion Guaranty, and
pledges to the Disbursement Agent additional cash or cash equivalents, in the
amount of such excess. The Completion Guaranty does not provide for the
incurrence by the Sole Stockholder, directly or indirectly, of any obligation,
contingent or otherwise, for the payment of the principal, premium and interest
on the Notes, or any other indebtedness under the financings described herein.
If the Sole Stockholder provides funds under the Completion Guaranty, the
amount of such funds, up to a maximum of $25.0 million, will be treated as a
loan from the Sole Stockholder to the Issuers that is subordinated in right of
payment to the indebtedness under the Bank Credit Facility, the Mall
Construction Loan Facility, the FF&E Credit Facility, the Mortgage Notes and
the Senior Subordinated Notes. Although interest may accrue on such loan, no
cash payments with respect to such loan may be made until all senior
indebtedness (including the Senior Subordinated Notes) is repaid, except for
payments made from certain construction-related recoveries. See "Risk Factors--
Completion Guaranty" and "--Sole Stockholder."
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HVAC Services Agreement and Related Documents
The HVAC Provider is a Delaware limited liability company whose members
are comprised of (a) Atlantic Thermal Systems, Inc., an indirect subsidiary of
Atlantic Energy, Inc., a utility holding company and (b) an indirect subsidiary
of Pacific Enterprises, a utility holding company.
Thermal energy (i.e., heating and air conditioning) will be provided to
the Casino Resort and the Expo Center by the HVAC Provider, using the HVAC
Plant and the HVAC Equipment. In addition, the HVAC Provider also will provide
other energy-related services. Pursuant to the Construction Management
Contract, the HVAC Plant is being constructed by the Construction Manager on
land owned by Venetian, which land and HVAC Plant has been leased to the HVAC
Provider for a nominal annual rent. The HVAC Equipment is and will be owned by
the HVAC Provider, and the HVAC Provider has been granted appropriate easements
and other rights so as to be able to use the HVAC Plant and the HVAC Equipment
to supply thermal energy to the Casino Resort and Expo Center (and,
potentially, other buildings), so long as such easements do not materially
interfere with the operations of the Casino Resort and Expo Center. The HVAC
Provider will pay all costs ("HVAC Costs") in connection with the purchase and
installaton of the HVAC Equipment, up to $70 million. Venetian is acting as the
HVAC Provider's agent to cause such purchase and installation to be
accomplished, and is responsible for any costs in connection therewith in
excess of $70.0 million. The HVAC Provider has entered into separate service
contracts with (i) Venetian; (ii) Interface; and (iii) the Mall Construction
Subsidiary, and will enter into separate service contracts with each Mall
tenant, for the provision of heat and cooling requirements at agreed-to rates.
The charges payable by all users will include a fixed component derived using a
fixed annual interest rate of 8.5% (subject to adjustment based on the change
in the rate on 10-year Treasury Constant Maturities from January 23, 1997 until
the service commencement date) applied to the HVAC Costs paid by the HVAC
Provider to recover a portion of the fair value of the HVAC Equipment over the
initial term of the service contracts and leave an agreed-upon residual value
(the "Fixed Rate Portion"). In addition, the users will reimburse the HVAC
Provider for the annual cost of operating and maintaining the HVAC Equipment
providing certain other energy related services (such reimbursement to include
an agreed upon margin to compensate the HVAC Provider for operating and
maintaining the HVAC Equipment). Each user will be allocated a portion of the
total agreed-to charges through its service contract, which portion shall
include paying 100% of the cost of services in connection with the HVAC
Equipment relating solely to such user. Each user will not be liable for the
obligations of the other users; provided, however, that the Mall Subsidiary
will be liable for the obligations of each Mall tenant. In the event of any
substantial capital improvements to the HVAC Equipment, the costs of such
improvements will be spread over the lesser of (i) the useful life of such
improvements and (ii) the remaining term of the HVAC Service Agreements, and
will include reimbursement to the HVAC Provider for use of its money at a
market rate. The HVAC Service Agreements have an initial term of ten years, and
provide that upon expiration of such term users will have the right, but not
the obligation, 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 set forth in the service contracts.
The rights of the Company under its agreements with the HVAC Provider
under its HVAC Service Agreement and related documents are collaterally
assigned to the Disbursement Agent as security for Venetian's obligations under
the Financing Transactions. The HVAC Provider has consented to this collateral
assignment pursuant to a Consent and Agreement executed by the HVAC Provider in
favor of the Disbursement Agent. Under the HVAC Consent and Agreement, the HVAC
Provider has agreed (i) to continue advancing funds under the Disbursement
Agreement so long as the lenders party to the Intercreditor Agreement are
advancing funds under the Disbursement Agreement and certain funding conditions
relating solely to the HVAC Equipment and set forth in the Disbursement
Agreement are either satisfied or waived by the HVAC Provider, (ii) to
acknowledge that a security interest has been granted to Disbursement Agent by
the Company in its rights under the the Company's agreements with the HVAC
Provider, (iii) subject to certain requirements, to recognize the Disbursement
Agent or the other secured parties' rights to "step in" to the Company's rights
under these agreements within specified time periods, and to forbear from
exercising termination and certain other rights during such time periods, (iv)
not to cancel or terminate these agreements or to consent to or accept any
cancellation, termination or suspension of these agreements, without the
written notice to Disbursement Agent and first providing the Disbursement Agent
an opportunity to cure any default or breach by the Company, (v) subject to
certain
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conditions, to consent to the transfer of the Company's interest under these
agreements to any of the secured parties or any of them or a purchaser or
grantee at a foreclosure sale and to any purchases in lieu of foreclosure, and
(vi) 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
parties a new contract which shall be on the same terms and conditions as the
original service contracts. Under the HVAC Consent and Agreement, the
Disbursement Agent will acknowledge the HVAC Provider's ownership of the HVAC
Equipment.
Cooperation Agreement
The Company's business plan calls for the Hotel and Casino, the Mall and
the Expo Center, though separately owned, to be part of an integrally related
project. In order to establish terms for the integrated operation of these
facilities, Venetian (as owner of the Hotel and Casino and the Phase II Land),
the Mall Construction Subsidiary, and Interface have entered into the
Cooperation Agreement. The Cooperation Agreement sets forth agreements among
the parties regarding, among other things, construction of the Casino Resort,
encroachments, easements, operating standards, maintenance requirements,
insurance requirements, casualty and condemnation, joint marketing, the sharing
of certain facilities and costs relating thereto. The obligations set forth in
the Cooperation Agreement bind the respective properties (including (i) the
Expo Center, (ii) the Hotel and Casino, (iii) the Mall and (iv) the Phase II
Land) with priority over the liens securing the Bank Credit Facility and the
Mortgage Notes and the liens encumbering the Mall to secure the Mall
Construction Loan and the Mall Take-out Financings. Conversely, certain of the
obligations under the Cooperation Agreement are not senior to the previously
recorded mortgages encumbering the Expo Center. Accordingly, the obligations
under the Cooperation Agreement "run with the land" in the event of transfers
of the respective properties (other than a transfer by foreclosure of the
existing mortgages encumbering the Expo Center).
Construction
The Cooperation Agreement sets forth covenants to effect and facilitate
construction of the Casino Resort. The Mall will be constructed within or upon
the areas that will constitute the Mall Parcel and the Retail Annex Parcel,
neither of which is yet a separate subdivided parcel. The Cooperation Agreement
contains cross encroachment provisions which will permit the Mall to encroach,
to a limited extent, on other portions of the Casino Resort, and which will
permit other portions of the Casino Resort to encroach, to a limited extent, on
the Mall Parcel.
Operating Covenants
The Cooperation Agreement also contains certain covenants respecting the
operation of the Expo Center and, once the Casino Resort is completed, the
Casino Resort. For example, under the Cooperation Agreement, Venetian covenants
to operate continuously and to use the Hotel and the Casino exclusively in
accordance with standards of first-class Las Vegas Boulevard-style hotels and
casinos, the Mall Subsidiary covenants to operate and to use the Mall
exclusively in accordance with standards of first-class retail and restaurant
complexes, and Interface covenants 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 neither
Venetian nor the Mall Subsidiary will (and will not permit any other person to)
own, operate, lease, license or manage any building or other facility on, in
the case of Venetian, the Venetian Site or the Phase II Land, and in the case
of the Mall Subsidiary, on the Mall Parcel and the Retail Annex Parcel, if such
building or other facility provides space for or to shows or expositions of the
type generally held at the Expo Center. Additionally, with respect to the joint
marketing of the Casino Resort and the Expo Center, the Cooperation Agreement
provides that until December 31, 2010 Interface (upon request from the owner of
the Hotel and Casino) will use commercially reasonable efforts to have the
Hotel designated as the "headquarters hotel" for trade show and convention
events at the Expo Center, and the owner of the Hotel and Casino will use
commercially reasonable efforts to promote the use and occupancy of the Expo
Center. It should be noted that trade show and convention promoters will be
under no obligation to designate the Hotel as the "headquarters hotel" for
their events.
Further, Interface has agreed under the Cooperation Agreement that, until
such time as the indebtedness under the Mortgage Notes and Senior Subordinated
Notes have been paid in full, the owner of the Expo Center shall not incur
additional debt secured by the Expo Center if such additional debt will
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cause the aggregate Indebtedness secured by the Expo Center to exceed the
greater of (a) 85% of the then fair market value of the Expo Center or (b) to
the extent that the same may be incurred under the existing loans secured by
the Expo Center, $140.0 million plus any additional amounts permitted to be
advanced thereunder for equipment leases or equipment financings. In addition,
the Cooperation Agreement provides that, except in connection with the sale by
the Sole Stockholder of all of his right, title and interest in and to the
Project, (i) Interface will not sell, transfer or otherwise dispose of its
interest in the Expo Center and (ii) no transfer of the Sole Stockholder's
interest in Interface or the Expo Center, other than a Permitted Transfer (as
defined in the Senior Loan Agreement), will occur.
Maintenance and Repair
Additional operational provisions in the Cooperation Agreement include the
requirement that Venetian maintain, repair, and restore (a) the Hotel, the
Casino and the Congress Center, and (b) certain common areas and common
facilities in the Casino Resort which are to be shared with the Mall and
Interface. Venetian, the Mall Subsidiary and Interface will each pay its
proportionate share of the cost of maintenance of all shared common areas and
common facilities in the Casino Resort. Such proportionate share of each such
party will initially be determined by an Independent Expert selected by such
parties and their mortgage lenders, and may be adjusted from time to time as
agreed to by such parties; provided that if any of such parties' mortgage
lenders does not believe any such adjustment is equitable, an Independent
Expert selected by such parties and their mortgage lenders shall determine the
appropriate adjustment, if any. The Cooperation Agreement further provides that
the Mall Subsidiary will maintain, repair and restore the Mall and all common
areas and common facilities located entirely within the Mall, and that
Interface will maintain, repair and restore the Expo Center and all common
areas and common facilities located entirely within the Expo Center.
Insurance
The Cooperation Agreement also requires each of (a) the owners of the
Casino Resort (including both the Hotel and Casino and the Mall) and (b) the
owner of the Expo Center, to maintain certain minimum types and levels of
insurance, including property damage, general liability and delay in opening or
business interruption insurance.
The Cooperation Agreement establishes an insurance trustee to assist in
the implementation of the insurance requirements. See "Insurance Requirements"
for a description of the insurance required under the Cooperation Agreement.
The Cooperation Agreement provides that in the event of a casualty prior
to Completion of the Casino Resort, then the casualty proceeds will be applied
in accordance with the Disbursement Agreement. The Disbursement Agreement
generally provides that the Company may use such proceeds to restore the
affected property so long as the conditions to disbursements set forth in the
Disbursement Agreement are satisfied. See "Disbursement Agreement."
The Cooperation Agreement further provides that in the event of a casualty
affecting all or part of the Casino Resort or the Mall after Completion, 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 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--Ability of Holders of Mortgage Notes to Realize on
Collateral and Exercise Remedies."
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In the event of a casualty affecting all or part of the Expo Center, the
senior existing mortgage encumbering the Expo Center requires that all
insurance proceeds be paid to the collateral agent under said mortgage who
shall then pay all proceeds under $3.0 million to Interface to be used to
restore the property.
In the event of a condemnation of a part of the Casino Resort, a part of
the Mall 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.
Parking
The Cooperation Agreement also addresses issues relating to the use of
parking facilities to be constructed by Venetian, the use of parking facilities
planned in connection with the Phase II Resort, and easements for, among other
things, access. Under the Cooperation Agreement, Venetian will furnish
temporary parking spaces to Interface for users of the Expo Center for a
monthly fee of $12,500 until the completion of the parking garage planned to be
built in connection with the Casino Resort. From and after the completion of
such parking garage, Venetian, the Mall Subsidiary and Interface may use the
parkingspaces on a "first come, first served" basis, so long as each property
retains use of sufficient spaces to comply with applicable laws to conduct its
business (such minimum protections referred to herein as the "Minimum Parking
Standards"). The Casino Resort Parking Garage will be owned, maintained and
operated by Venetian, with the operating costs allocated among Venetian, the
Mall Subsidiary, and Interface. The Cooperation Agreement also provides that
after the completion of the parking garage planned to be built in connection
with the Phase II Resort (if and when the same is constructed), each of
Venetian, the Mall Subsidiary, Interface and the Phase II Subsidiary shall have
the right to use the Phase II Resort parking garage, with the operating costs
allocated among Venetian, the Mall Subsidiary, Interface and the Phase II
Subsidiary. Under the Cooperation Agreement, Venetian, the Mall Subsidiary,
Interface and the Phase II Subsidiary grant to each other non-exclusive
easements and rights to use the roadways and walkways on their respective
properties for vehicular and pedestrian access to the parking garages.
Utility Easements
Venetian, the Mall Subsidiary, Interface and the Phase II Subsidiary also
have granted to each other under the Cooperation Agreement all appropriate and
necessary easement rights with respect to utility lines servicing the Casino
Resort, the Phase II Resort and the Expo Center.
Relations Between Venetian and the Phase II Resort
With respect to the future development of the Phase II Resort, the
Cooperation Agreement provides that, prior to the commencement of construction
of the Phase II Resort, Venetian may approve the plans and specifications for
the Phase II Resort, subject to the rights of the lenders pursuant to the Mall
Construction Loan Facility and the Tranche A Take-out Financing to approve any
construction or operation of a restaurant or retail complex located in the
Phase II Resort and connected to the Mall. Additionally, Venetian and the Phase
II Subsidiary will agree in good faith, and upon commercially reasonable terms,
on: (i) appropriate mutual operating covenants for the Hotel and the Casino and
the Phase II Resort other than the Phase II Mall, (ii) joint marketing and
advertising of the Hotel and the Casino and the Phase II Resort other than the
Phase II Mall, (iii) certain shared casino operations at the Hotel and the
Casino and the Phase II Resort other than the Phase II Mall, (iv) the sharing
of customer information with respect to the Hotel and the Casino and the Phase
II Resort other than the Phase II Mall, (v) the joint purchasing of insurance
for the Hotel and the Casino and the Phase II Resort other than the Phase II
Mall, (vi) shared security operations for the Hotel and the Casino and the
Phase II Resort other than the Phase II Mall and (vii) any other matters that
would be of mutual benefit in owning and operating the Hotel and the Casino and
the Phase II Resort other than the Phase II Mall.
Coordinated Relations with HVAC Provider
Although the owners of the Hotel and Casino, the Mall, the Expo Center and
the Phase II Land each have separate HVAC Services Agreements with the HVAC
Provider, the Cooperation Agreement also provides mechanisms for these parties
to deal with the HVAC Provider in a coordinated manner. In particular, the
Cooperation Agreement sets forth the conditions to the owner of the Phase II
Land receiving thermal energy services from the HVAC Plant, including the
requirement that the owner of the Phase II Land pay 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
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with respect to the termination or extension of the HVAC Services Agreements.
In general, these provisions permit a property owner that is not receiving
adequate HVAC services to replace the HVAC Provider, so long as the property
owner (i) arranges for an experienced substitute utility operator to take over
operation of the HVAC Plant, and (ii) 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
The Cooperation Agreement provides that wherever any property owner has a
consent or approval right or otherwise has discretion to act or refrain from
acting thereunder, such consent or approval shall only be granted and such
action shall be taken or not taken, only where a Commercially Reasonable Owner
(as defined in the Cooperation Agreement) would do so and the same would not be
likely to have a Material Adverse Effect (as defined in the Cooperation
Agreement) on the property owned by the property owner. The Cooperation
Agreement also provides for the appointment by the parties of an "Independent
Expert" to resolve certain disputes between the parties, as well as for
expedited arbitration with respect to any other disputes.
Agreements Relating to the Mall
Sale and Contribution Agreement
Venetian, the Mall Construction Subsidiary and the Mall Subsidiary have
entered into a Sale and Contribution Agreement whereby the Mall Construction
Subsidiary agreed to sell and the Mall Subsidiary agreed to purchase, among
other things, (i) all of its right, title and interest (whether in fee or in
leasehold) in and to the property and improvements that constitute the Mall in
their "as is" condition on the date of Completion, (ii) monies deposited in
certain reserve accounts relating to the Mall, (iii) all right, title and
interest of the Mall Construction Subsidiary in and to the Master Billboard
Lease and (iv) all right, title and interest of the Mall Construction
Subsidiary (a) as landlord under Mall Tenant Leases, (b) under the Cooperation
Agreement, (c) in and to all other easements, fixtures and improvements
appurtenant thereto, (d) under the Energy Services Agreement, dated as of June
1, 1997 with the HVAC Provider and any other Mall Intangible Property Rights,
and (e) in and to all Mall Personal Property (collectively, the "Mall Assets").
In connection with the sale of the Mall, the Mall Construction Subsidiary also
will transfer to the Mall Subsidiary the proceeds of the final draw under the
Mall Construction Loan (and, under certain circumstances, a specified amount
under the Completion Guaranty) (the "Mall Retainage/Punchlist Amount").
As consideration for such transfers, the Mall Subsidiary shall, among
other things, repay or assume in full the outstanding balance of the Mall
Construction Loan (or certain refinancings thereof), including the amount of
the final draw thereunder.
The Sale and Contribution Agreement further provides that the Mall
Retainage/Punchlist Amount will be deposited into a segregated account governed
by an escrow agreement between the Mall Subsidiary and the Mall Construction
Subsidiary. The escrow agreement will provide that funds on deposit in the
account will be released to the Mall Construction Subsidiary, subject to
satisfaction of the conditions set forth in the Disbursement Agreement, for
application to the payment of retainage amounts owed to contractors, costs of
completing punchlist items and other remaining costs to complete the Casino
Resort. In the event that the Mall Construction Subsidiary fails to achieve
final completion of the Casino Resort within 18 months after the closing of the
sale of the Mall, the Mall Subsidiary will be permitted to withdraw funds from
the account and use them to complete the Mall punchlist items and pay other
unpaid project costs. Upon final completion of the Casino Resort, any amount
remaining in the escrow account shall be released to the Mall Construction
Subsidiary.
Mall Lease
Venetian, as landlord, and the Mall Construction Subsidiary, as tenant,
have entered into the Mall Lease pursuant to which Venetian will lease to the
Mall Construction Subsidiary (i) the space within the principal structure of
the Casino Resort located immediately above the Casino and immediately below
the Hotel Tower (the "Principal Mall Parcel"), together with (ii) certain land
(the "Retail Annex Parcel") (the Principal Mall Parcel and the Retail Annex
Parcel together constitute the Mall Parcel, and (i) and (ii) together with all
improvements thereon will comprise the Mall) for a nominal annual rent. The
Mall Lease
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automatically expires upon the 99th anniversary of the commencement date of the
Mall Lease. The tenant under the Mall Lease will own all improvements to be
made to the Mall Parcel during the term of the Mall Lease. The Mall Lease will
provide that fee title in and to the Mall Parcel automatically will vest in the
Mall Construction Subsidiary when and if the Mall Parcel becomes a separate
legal and tax parcel, and the Mall Lease thereupon shall terminate.
"Billboard Live!" Lease
Mall Construction Subsidiary, as landlord, and B.L. International of
Nevada, Inc. ("BLINI"), as tenant, are parties to a lease for a 50,000 square
foot "Billboard Live!" themed entertainment complex (the "Billboard Operating
Lease"). The leased space will include areas adjacent to the casino floor (the
"Additional Billboard Space") and within the Mall. The initial term of the
Billboard Lease is 20 years from the date of the opening of the Casino Resort
and BLINI has two five-year renewal options. The rent under the Billboard Lease
is comprised of an annual minimum rent component and percentage rent component.
In addition, BLINI will pay a pro-rata share of Mall common area cost charges.
The Billboard Lease also provides that Venetian may elect to terminate the
Billboard Lease without compensation to BLINI, in the event that, subsequent to
the initial 12-month period following the lease commencement date, BLINI's
average monthly gross income fails to meet certain thresholds during a period
consisting of three consecutive months. The Mall Construction Subsidiary may at
any time assign or transfer all or part of its interest as landlord in and to
the Billboard Lease, without notice or obtaining any approval from BLINI.
Venetian, as landlord, and the Mall Construction Subsidiary, as tenant,
have entered into a lease (the "Master Billboard Lease") for the Additional
Billboard Space pursuant to which Venetian will lease to the Mall Construction
Subsidiary the Additional Billboard Space for the term of the Billboard
Operating Lease.
Mall Management Contract
The Mall Subsidiary has entered into an agreement with Forest City
Enterprises ("Forest City"), a subsidiary of Forest City Ratner Enterprises, a
leading developer and manager of retail and commercial real estate
developments, whereby Forest City Enterprises will manage the Mall and
supervise and assist in the creation of an advertising and promotional program
and a marketing plan for the Mall. Forest City will also be 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 the date the Mall opens for business to the public. Forest City will
receive a management fee of 2% of all gross rents received from the operation
of the Mall; provided, that Forest City will receive a minimum fee of $450,000
per year. Forest City is not affiliated with the Sole Stockholder or any of his
affiliates.
Mall Leasing Contract
LVSI has engaged the San Francisco and Los Angeles offices of Blatteis
Realty Co. ("BRC") as its retail leasing consultant (the "BRC Contract"). BRC
is a national real estate brokerage organization specializing in the leasing
and sales of high profile retail properties and representation of a select
portfolio of retailers and restaurants. Recent retail leasing transactions that
BRC has been involved with (at locations other than the Casino Resort) have
included the following tenants: Emporio Armani, Giorgio Armani, Jose Eber,
Prada, Salvatore Ferragamo, Barnes & Noble Superstore, The Pottery Barn, the
Disney Store, Williams-Sonoma, Planet Hollywood and Cafe Med. BRC will assist
with planning, marketing and leasing of the Mall. BRC also will advise the
Company and its architects, designers, consultants and other agents with
respect to the Mall's tenant mix and the conceptual layout of tenant space. The
term of the BRC Contract is for a period of 18 months from December 1, 1996,
and may be terminated by either party at any time on 60 days' prior written
notice to the other party. BRC, which is not affiliated with the Sole
Stockholder or any of his affiliates, receives a monthly consulting fee of
$10,000 plus a refundable monthly sum of $10,000 as an advance against, and
credited to the payment of, lease brokerage commissions. Leasing commissions
payable to BRC are calculated on the basis of $8.00 per leased square foot or
$4.00 per leased square foot, depending upon the location of the applicable
leased space within the Mall.
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Agreements Relating to the Lido Casino Resort
If the Phase II Resort is constructed, the following agreements may be
entered into by the Phase II Subsidiary and its subsidiaries, on one hand, and
the Company, Venetian and the Mall Subsidiary, on the other hand:
Casino Lease
If the Phase II Resort is constructed, in order to avoid the need for a
separate gaming license for the Phase II Subsidiary, LVSI or Venetian may
operate the casino for the Phase II Resort pursuant to a lease (the "Phase II
Casino Lease"). The Phase II Lease will have terms substantially similar to the
Casino Lease except that (i) the rent payable under such lease shall be equal
to all revenue derived from such casino minus the sum of (a) the operating
costs related to such casino (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 (b) 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), (ii)
the Company or Venetian, as the case may be, may agree that they shall operate
the casino in the Phase II Resort and the Casino in substantially similar
manners and (iii) 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).
Phase II HVAC Services Agreement
The Cooperation Agreement permits the owner of the Phase II Land to enter
into an HVAC Services Agreement to receive HVAC services from the HVAC Plant.
Any such agreement would have to be on terms satisfactory to the HVAC Provider.
See "Certain Material Agreements--Cooperation Agreement."
Phase II Mall Arrangments
The Cooperation Agreement and the Mall Take-out Financings further
condition development of retail and restaurant improvements upon the Phase II
Land upon the execution of appropriate reciprocal easement arrangements. See
"Certain Material Agreements--Cooperation Agreement" and "Description of
Certain Indebtedness--Mall Take-out Financing Commitments."
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material federal income tax
considerations of an exchange of Existing Notes for New Notes, and resulting
from beneficial ownership of the Notes and is based upon laws, regulations,
rulings and decisions currently in effect, all of which are subject to change.
The discussion does not purport to deal with all aspects of federal taxation
that may be relevant to particular investors in light of their personal
investment circumstances, nor does it discuss federal tax laws applicable to
special classes of taxpayers (for example, life insurance companies, tax-exempt
organizations, financial institutions, and, except to the extent indicated
under "Non-U.S. Holders," below, foreign corporations, non-resident alien
individuals and other persons not subject to U.S. federal income tax on their
worldwide income). In addition, the description does not consider the effect of
any foreign, state, local or other tax laws that may be applicable to a
particular investor. The description assumes that investors will (except as
otherwise indicated) be initial purchasers that hold the Notes as capital
assets within the meaning of Section 1221 of the Code. Prospective investors
are strongly urged to consult their own tax advisors regarding the tax
consequences of purchasing, holding and disposing of the Notes.
Taxation of Holders on Exchange
An exchange of Existing Notes for New Notes should not be a taxable event
to holders of Existing Notes and holders should not recognize any taxable gain
or loss or any interest income as a result of such an exchange. Accordingly, a
holder would have the same adjusted basis and holding period in the New Notes
as it had in the Existing Notes immediately before the exchange. Further, the
tax consequences of ownership and disposition of any New Notes should be the
same as the tax consequences of ownership and disposition of Existing Notes.
U.S. Holders
The following summary generally describes certain United States federal
income tax consequences of beneficial ownership, purchase, holding and
disposition of Notes by a person who or which is (i) a citizen or resident of
the United States, (ii) a corporation created or organized under the laws of
the United States or any State thereof (including the District of Columbia),
(iii) a trust subject to the control of a United States person and the primary
supervision of a United States court, or (iv) a person otherwise subject to
United States Federal income taxation on its worldwide income (a "U.S.
Holder"). U.S. Holders should consult their own tax advisors concerning the
application of the following rules to their particular situations, as well as
the tax consequences to them under the laws of any other taxing jurisdiction.
Sale or Redemption
A holder generally will recognize gain or loss on the sale or redemption
of the Notes equal to the difference between the amount realized from such sale
or redemption (other than amounts attributable to accrued interest or original
issue discount ("OID") (within the meaning of Section 1273(a) of the Code)
which would be taxable as interest) and his adjusted basis for such Notes. A
U.S. Holder's adjusted tax basis in a Note will generally be its purchase
price, increased by the amount of any OID, de minimis OID, or market discount
included in the U.S. Holder's income with respect to the Note, and reduced by
the amount of any payments that are not qualified stated interest payments and
any amortizable bond premium applied to reduce interest on the Note. Except as
discussed below under "Market Discount" and "Amortizable Bond Premium," such
gain or loss generally will be capital gain or loss. For U.S. Holders other
than individuals, capital gain or loss will be long-term capital gain or loss
if the holding period for the Notes is more than one year. Certain changes to
the Code, enacted recently as part of the Taxpayer Relief Act of 1997, will
apply to U.S. Holders who are individuals. In general, the maximum tax rate for
such holders on long-term capital gains will be 20% (or, for holders in the 15%
regular tax bracket, will be 10%) for most capital assets (including the Notes)
held for more than 18 months. For individual holders holding Notes for more
than one year but not more than 18 months, the maximum tax rate on capital gain
("mid-term capital gain") will be 28%. Capital gain or loss will be short-term
if the Note is held for one year or less.
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Stated Interest and Original Issue Discount
Mortgage Notes
Because the stated redemption price at maturity of the Mortgage Notes will
not exceed their issue price by more than 1/4 of 1% of their stated redemption
price at maturity multiplied by the number of full years until maturity, such
Mortgage Notes will not be considered issued with OID for federal income tax
purposes. A holder of Mortgage Notes will be required to report as ordinary
income for federal income tax purposes stated interest earned on the Mortgage
Notes as it is received or accrued, in accordance with the holder's method of
accounting for tax purposes.
Senior Subordinated Notes
A holder of a Senior Subordinated Note is required (absent to the election
described below to treat all interest on the Senior Subordinated Note as OID)
to report as income for federal income tax purposes the portion of the stated
interest on the Senior Subordinated Note that constitutes "qualified stated
interest" in accordance with the holder's method of accounting for tax
purposes. "Qualified stated interest" on a Senior Subordinated Note is the
stated interest that is unconditionally payable at least annually at a single
fixed rate (i.e., the lower rate applicable to interest payments during the
first two years after issuance).
The Senior Subordinated Notes are treated as issued with OID. A holder of
a Senior Subordinated Note is also required to include OID on the Senior
Subordinated Note in gross income for federal income tax purposes as it
accrues, regardless of such holder's regular method of accounting for federal
income tax purposes. U.S. Holders will be required to include OID in income as
ordinary interest before they have received cash interest payments to which
such income is attributable. In general, OID on a Senior Subordinated Note will
equal the excess of (i) its "stated redemption price at maturity" over (ii) its
"issue price." The "stated redemption price at maturity" of a Senior
Subordinated Note will be equal to the sum of all payments to be made on the
Senior Subordinated Note other than qualified stated interest payments (that is
the sum of all amounts payable on the Note other than interest at the lower
rate applicable during the first two years after issuance). The "issue price"
of the Senior Subordinated Notes will be the first price at which a substantial
amount of the Senior Subordinated Notes is sold (excluding sales to bond
houses, brokers or similar persons acting in the capacity of underwriter,
placement agent or wholesaler).
A United States holder of the Senior Subordinated Notes must include such
OID in income on an economic accrual basis (using the constant yield method of
accrual described in Section 1272(a) of the Code) and the Treasury Regulations
promulgated thereunder. The amount of OID allocable to an accrual period will
equal the product of the "adjusted issue price" at the beginning of the accrual
period and the yield on the Senior Subordinated Note, less the amount of any
payments of qualified stated interest allocable to such accrual period. The
"adjusted issue price" of a Senior Subordinated Note will be its original issue
price, increased by the amount of OID previously includable in the gross income
of any holder with respect to such Note (without regard to any amortization of
bond purchase or acquisition premium, as discussed below), and decreased by the
amount of any payment previously made on the Senior Subordinated Note other
than a payment of qualified stated interest. The method by which OID is
calculated causes U.S. Holders of Notes issued with OID, such as the Senior
Subordinated Notes, to have to include in income increasingly greater amount of
OID over the period that they hold the Notes, and without regard to whether
they have received interest payments (or increased interest payments) that
correspond to their income inclusions.
A U.S. Holder of a Senior Subordinated Note, subject to certain
limitations, may elect to include in gross income for federal income tax
purposes all interest that accrues on the Senior Subordinated Note by using the
constant yield method described above. For purposes of the election, interest
includes all stated and unstated interest, acquisition discount, OID, market
discount and de minimis market discount, as adjusted by any amortizable bond
premium or acquisition premium. In applying the constant yield method to a Note
with respect to which an election is made, the issue price of the Note will
equal the electing U.S. Holder's adjusted basis in the Note immediately after
its acquisition, the issue date of the Note will be the date of its
acquisition, and no payments on the Note will be treated as payments of
qualified stated interest. This election is generally applicable only to the
Note with respect to which it is made and will not be revocable without the
consent of the Internal Revenue Service. If the election is made with respect
to a Note with amortizable bond premium, the Holder will be deemed to have
elected to apply
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amortizable bond premium against interest with respect to all debt instruments
with amortizable bond premium held by the electing Holder as of, or acquired
after, the beginning of the taxable year in which the Note is acquired. Such an
election, if made in respect of a market discount bond, will constitute an
election to include market discount in income currently on all market discount
bonds held by such United States holder. See the discussion below under "Market
Discount."
The Company and Venetian are required to provide information returns
stating the amount of OID accrued on Senior Subordinated Notes held of record
by persons other than corporations and other exempt holders.
U.S. Holders that acquire Senior Subordinated Notes after their original
issuance will be required to determine for themselves whether, by reason of the
rules described below, they are eligible to report a reduced amount of OID for
federal income tax purposes.
Market Discount
Upon a transfer, the Notes may be subject to the market discount
provisions of the Code. Market discount is the excess, if any, of an
instrument's adjusted issue price over its basis in the hands of the acquiror
immediately after their acquisition. However, market discount will not be
considered to exist if, at the time of acquisition, the discount is less than
1/4 of 1% of the obligation's adjusted issue price multiplied by the number of
complete years remaining to maturity.
When the acquiror disposes of a market discount obligation or recognizes
gain on the maturity of a market discount obligation, the lesser of the gain or
the accrued market discount will be taxable to him as ordinary income (and will
generally be treated as interest). Accrued market discount at such time is the
total market discount multiplied by a fraction, the numerator of which is the
number of days the acquiror held the obligation and the denominator of which is
the number of days from the date he acquired the obligation until its maturity
date. As an alternative to this ratable method, the acquiror may elect to
compute the accrued market discount based upon a constant yield to maturity
basis. Such election would apply only to the Note for which the election is
made. If the acquiror makes a gift of the obligation, he must recognize any
accrued market discount income as if he had sold the obligation for its fair
market value.
An acquiror of a market discount obligation who does not elect to include
such market discount in income on a current basis generally will be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry the obligation until
the maturity or earlier disposition of the obligation in a taxable transaction.
The Notes may be redeemed, in whole or in part, before maturity. If some
or all of the Notes are redeemed, each holder of the Notes acquired at a market
discount would be required to treat the principal payment as ordinary interest
income to the extent of any accrued market discount on such Notes.
A U.S. Holder of a debt instrument acquired at a market discount may elect
to include the market discount in income as the discount accrues. The current
inclusion election, once made, applies to all market discount obligations
acquired during or after the taxable year in which the election is made and may
not be revoked without the consent of the Internal Revenue Service. If a U.S.
Holder of Notes elects to include market discount in income in accordance with
the preceding sentence, the foregoing rules with respect to the recognition of
ordinary income on sales or certain other dispositions of such Notes and the
deferral of interest deduction on indebtedness related to such Notes would not
apply.
U.S. Holders should consult their own tax advisors regarding the
application of the market discount rules and the advisability of making the
elections described above.
Acquisition Premium and Amortizable Bond Premium
If a subsequent holder's tax basis in a Senior Subordinated Note (i)
exceeds the adjusted issue price of such note, and (ii) is less than or equal
to the stated redemption price at maturity (reduced by any payments made on the
Senior Subordinated Note other than payments of qualified stated interest),
such excess will be considered "acquisition premium." Such a holder is
permitted to reduce the amount of OID required to be included in gross income
by an amount equal to the OID otherwise includable multiplied by a fraction,
the numerator of which is the amount of acquisition premium and the denominator
of which
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is the excess of the sum of all amounts payable on the Notes after the purchase
date (other than qualified stated interest payments) of over the adjusted issue
price. Alternatively, a U.S. holder may elect to amortize acquisition premium
on a constant yield basis, treating the U.S. Holder's purchase price as the
Note's issue price. If the holder's tax basis in the Senior Subordinated Note
immediately after such holder's acquisition of the Senior Subordinated Note
were to exceed its stated redemption price at maturity (reduced as described
above), such holder would not be required to include any OID in income.
If a subsequent holder's tax basis in a Mortgage Note or a Senior
Subordinated Note exceeds the stated redemption price at maturity (reduced as
described above in the case of a Senior Subordinated Note) such excess would be
treated as "amortizable bond premium." The holder may elect to amortize such
excess over the period from the acquisition date of the Note to the maturity
date and to reduce the amount of interest included in income in respect of the
Note by such amount. Such amortizable bond premium may be offset against income
on the related security based on the holder's yield to maturity determined by
using the holder's tax basis in the Note and compounding at the close of each
accrual period. A holder who elects to amortize bond premium must reduce its
adjusted basis in the Note by the amount of such allowable amortization. An
election to amortize bond premium would apply to amortizable bond premium on
all taxable bonds held at or acquired at the beginning of the holder's taxable
year as to which the election is made, and may be revoked only with the consent
of the IRS.
Non-U.S. Holders
Subject to the discussion of information reporting and backup withholding
below, payments of interest (including OID on the Senior Subordinated Notes) to
or on behalf of any beneficial owner who is not a U.S. Holder (a "Non-U.S.
Holder") and who is not engaged in a trade or business within the United States
to which interest on the Notes is effectively connected, will not be subject to
United States federal income or withholding tax, provided that (i) such
beneficial owner is not a bank for United States federal income tax purposes,
(ii) such beneficial owner does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the Company
entitled to vote, (iii) such beneficial owner is not a controlled foreign
corporation for United States income tax purposes (generally, a foreign
corporation controlled by United States shareholders) that is related to the
Company through stock ownership, and (iv) certain certification requirements
are met. A Non-U.S. Holder that is not exempt from tax under these rules
generally will be subject to United States federal income tax withholding at a
rate of 30% (or lower applicable treaty rate) on interest payments and, in the
case of the Senior Subordinated Notes, on payments attributable to OID.
Withholding attributable to OID, where required, is made at the time interest
on the Senior Subordinated Note is paid or, to the extent such OID was not
previously taxed, at the time the Senior Subordinated Note is sold, exchanged
or retired.
If the interest and OID is effectively connected with the conduct of a
trade or business in the United States of such Non-U.S. Holder, the interest
and OID will be subject to the United States federal income tax on net income
that applies to United States persons generally (and with respect to corporate
holders under certain circumstances, the branch profits tax).
Any capital gain realized upon a sale, exchange or retirement of a Note by
or on behalf of a Non-U.S. Holder generally will not be subject to United
States federal withholding or income tax, unless (i) such gain is effectively
connected with a United States trade or business of such Non-U.S. Holder or
(ii) in the case of an individual, such Non-U.S. Holder is present in the
United States for 183 days or more during the taxable year of the sale,
exchange or retirement and other requirements are met, or (iii) the Holder is
subject to tax pursuant to provisions of the Code applicable to certain United
States expatriates. Recently published final Treasury Regulations (the "Final
Withholding Regulations") make a number of important changes to the procedures
for income tax withholding and certification of eligibility for the portfolio
interest exemption or for a reduced rate of income tax withholding based on an
applicable income tax treaty. In general, the Final Withholding Regulations do
not significantly alter substantive withholding requirements, but unify
certification procedures and clarify reliance standards. The Final Withholding
Regulations are scheduled to be effective for payments made on or after January
1, 1999, subject to certain transition rules. Initial Non-U.S. Holders will be
required to submit certification complying with the temporary Treasury
Regulations described above upon purchase of the Notes. Certification that
complies with the procedures in the Final Withholding Regulations, where
required, must be provided not later than
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the earlier of (i) the date after January 1, 1999 on which such Holder's
certification is no longer accurate or has expired, and (ii) December 31, 1999,
by initial Non-U.S. Holders that remain Holders on such date, unless such
Non-U.S. Holders receive payments on the Notes through a qualified intermediary
(as defined in the Final Withholding Regulations) that has certified on such
Non-U.S. Holders' behalf. Non-U.S. Holders claiming under an income tax treaty
(and not relying on the portfolio interest exemption) should be aware that they
may be required to obtain taxpayer identifying numbers ("TINs") and to certify
their eligibility under the applicable treaty's limitations on benefits article
in order to comply with the Final Withholding Regulations' certification
requirements. THE FINAL WITHHOLDING REGULATIONS ARE QUITE COMPLEX. NON-U.S.
HOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
POTENTIAL APPLICATION OF THE FINAL WITHHOLDING REGULATIONS TO PAYMENTS ON THE
NOTES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Non-U.S. Holders should consult their own tax advisers regarding the
application of United States income tax laws and any income tax treaties and
the Final Withholding Regulations to their particular situations.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal, interest and OID paid on the Notes and proceeds of a
sale of a Note made to U.S. Holders other than certain exempt recipients (such
as corporations). In the event that a U.S. Holder of the Notes fails to supply
its correct taxpayer identification number in the manner required by applicable
law or underreports its tax liability, such Holder may be subject to "backup
withholding" at the rate of 31% of the "reportable payments," which include
interest (including OID) and, under certain circumstances, principal payments.
Under current Treasury Regulations, information reporting and backup
withholding will not apply to payments by the Company or Venetian or any
middleman to a Non-U.S. Holder of a Note, provided that the Holder (and, in
certain cases the custodian, nominee or other agent of such Holder) meets
certain certification requirements as to the status of the Holder as a Non-U.S.
Holder for United States federal income tax purposes (provided that such payor
does not have actual knowledge that the Holder is a United States person or
that the conditions of any other exemption are not in fact satisfied).
Backup withholding is not an additional tax; any amounts so withheld may
be credited against the United States federal income tax liability of the
Holder.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY OR MAY
NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S PARTICULAR SITUATION. EACH
INVESTOR SHOULD CONSULT HIS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
HIM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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ERISA CONSIDERATIONS
Sections 406 and 407 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the Code prohibit certain
employee benefit plans, individual retirement accounts, individual retirement
annuities, and employee annuity plans ("Plans") from engaging in certain
transactions with persons who, with respect to such Plan, are "parties in
interest" under ERISA or "disqualified persons" under the Code. A prohibited
transaction, in addition to imposing potential personal liability upon
fiduciaries of the Plans, may also generate excise taxes under the Code upon a
"party in interest" (as defined in ERISA) or "disqualified persons" (as defined
in the Code) with respect to the Plan, and other liabilities under ERISA for
such persons. Possible violations of the prohibited transaction rules occur if
the Notes are purchased with the assets of any Plan the Company or any of its
affiliates is a party in interest or disqualified person with respect to such
Plan, unless such acquisition is subject to a statutory or administrative
exemption.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Any fiduciary of a Plan considering the purchase of the Notes
should consult its legal advisors regarding the consequences of such purchases
under ERISA and the Code. Specifically, before authorizing an investment in the
Notes, any such fiduciary should, after considering the Plan's particular
circumstances, determine whether the investment of such Plan's assets in the
Notes is appropriate under the fiduciary standards of ERISA or other applicable
law including standards with respect to prudence, diversification and
delegation of control and the prohibited transaction provisions of ERISA and
the Code. If the Plan is not subject to ERISA, the fiduciary should consult its
legal advisors regarding the consequences of any state law or Code
considerations.
PLAN OF DISTRIBUTION
Based on certain no action letters issued by the staff of the Commission
to third parties in unrelated transactions, the Issuers believe that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of either of the Issuers within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Issuers
to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any
other available exemption) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of the holder's business and such
holders have no arrangement or understanding with any person to participate in
a distribution of such New Notes and are not participating in, and do not
intend to participate in, the distribution of such New Notes. In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the
New Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdiction or an exemption from registration or
qualification is available and complied with. The Issuers have agreed, pursuant
to the Registration Rights Agreement and subject to certain specified
limitations therein, to register to qualify the New Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as are necessary to
permit the consummation of the Exchange Offer.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New 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 New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Issuers and the Guarantors have agreed that,
for a period of 180 days after the Expiration Date, they will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Issuers and the Guarantors will not receive any proceeds from any sale
of New Notes by broker-dealers. New 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 New 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
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who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such New Notes. Any broker-dealer
that resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commission 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 closing of the Exchange Offer the
Issuers and the Guarantors will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Issuers and the Guarantors 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 Existing Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF THE NOTES
Certain legal matters in connection with the validity of the Notes will be
passed upon for the Issuers by Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York. Certain legal matters with respect to Nevada law will be passed
upon for the Issuers by Lionel Sawyer & Collins, Las Vegas, Nevada.
INDEPENDENT ACCOUNTANTS
The historical financial statements of Las Vegas Sands, Inc. as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
APPRAISERS
The Land Appraisal, the Hotel/Casino Appraisal and the Mall Appraisal,
each dated as of October 17, 1997, were prepared by Landauer Associates, Inc.
and are included herein in reliance upon the authority of such firm as expert
in real property valuations.
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LAS VEGAS SANDS, INC.
INDEX TO FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Introduction to Forecasted Consolidated Financial Statements ........... P-2
Forecasted Consolidated Statement of Income ............................ P-3
Forecasted Consolidated Balance Sheets ................................. P-4
Forecasted Consolidated Statement of Cash Flows ........................ P-5
Summary of Significant Forecast Assumptions and Accounting Policies .... P-6
Supplemental Forecasted Casino Revenues Data ........................... P-14
Summary Consolidated Financial Forecast Information .................... P-15
</TABLE>
P-1
<PAGE>
LAS VEGAS SANDS, INC.
INTRODUCTION TO FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
The following is the consolidated financial forecast of operations for Las
Vegas Sands, Inc. ("LVSI") and its subsidiaries (the "Company"), including
Venetian Casino Resort, LLC ("Venetian") and Grand Canal Shops, LLC (the "Mall
Subsidiary") for the first twelve months of operations of the Venetian Casino
Resort (the "Casino Resort") which the Company expects will be the twelve
months ending March 31, 2000 (the "Financial Forecast"). The Financial Forecast
was prepared as of June 30, 1997 except for the amount of Mortgage Notes and
Subordinated Notes and the assumed interest rates for such Notes, which were
updated as of November 6, 1997. The financial forecast is presented in
accordance with guidelines established by the American Institute of Certified
Public Accountants. The prospective financial information included in this
Prospectus has been prepared by, and is the responsibility of, the Company's
management. Price Waterhouse LLP has neither examined nor compiled the
accompanying prospective financial information, and accordingly, Price
Waterhouse LLP does not express an opinion or any other form of assurance with
respect thereto. The Price Waterhouse LLP report included in this document
relates to the Company's historical financial information, and it does not
extend to the prospective financial information and should not be read to do
so. Neither the Initial Purchasers nor any independent expert has reviewed the
Financial Forecast. While such Financial Forecast is presented with numerical
specificity, it is based on the best estimate of the Company, described in the
Summary of Significant Assumptions and Accounting Policies below, of the result
it expects for the Casino Resort given the Company's assumptions (including
that (i) the Casino Resort will open as scheduled and will be successful, (ii)
the Casino Resort will attract a substantial number of visitors, and (iii) the
average daily room rate paid by visitors to the Casino Resort will be higher
than room rates at other hotel/casinos on the Strip because of room demand from
trade shows and conventions currently booked at the Convention Center for the
first projected year of operation of the Casino Resort, the Casino Resort's
all-suite format and amenities, its location and its target market.
Furthermore, such estimates are inherently subject to significant business,
economic and competitive uncertanties and contingencies (many of which are
beyond the control of the Company), including future business decisions which
are subject to change. Financial forecasts are necessarily speculative in
nature, and it is usually the case that one or more of the assumptions do not
materialize. For instance, the Financial Forecasts assume higher than average
daily room rates of $167 during the initial year of operations (as compared to
an average daily room rate of $79 for the upper quartile casinos located on the
Las Vegas Strip with gaming revenue greater than $72.0 million (the "Large
Strip Hotels") for 1996 according to the Nevada State Gaming Control Board (the
"NGCB") and average daily room rates at major convention hotels in New York,
Chicago and San Francisco of approximately $160 during the first quarter of
1997 according to "Smith Travel Research"), which may not be achieved. In
addition, the results, performance and achievements of the Casino Resort
involve known and unknown risks, uncertainties and other factors, including the
risks associated with new construction, government regulation of the casino
industry, the completion of infrastructure improvements in Las Vegas, including
the ongoing expansion of McCarran International Airport, and general economic
and business conditions which may impact levels of disposable income for
consumers and pricing of hotel rooms. Accordingly, the Financial Forecast is
only an estimate, actual results can be expected to vary from estimates, and
the variations may be material. The Financial Forecast herein should not be
regarded as a representation by the Company or any other person (including the
Initial Purchasers) that the Financial Forecast will be achieved. Holders of
the Notes are cautioned not to place undue reliance on the Financial Forecast.
The Company does not intend to update or otherwise revise the Financial
Forecast to reflect events or circumstances existing or arising after the date
of this Prospectus or to reflect the occurrence of unanticipated events, except
as required by applicable law. This Introduction to Forecasted Consolidated
Financial Statements and the information that follows constitute
forward-looking statements. The Company's forecasted results of operations are
based on assumptions regarding, among other things, revenues and expenses, some
of which differ from the assumptions used by the Appraiser in its valuation of
the Hotel, the Casino and the Mall. See "Appraisals" and "Special Note
Regarding Forward-Looking Statements."
P-2
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED STATEMENT OF INCOME
(In millions)
<TABLE>
<CAPTION>
Twelve Months Ending
March 31, 2000
---------------------
<S> <C>
Revenues:
Casino ................................ $ 280.5
Rooms ................................. 172.6
Food and beverage ..................... 66.2
Retail and other ...................... 31.3
Mall .................................. 28.2
--------
578.8
Less: promotional allowances .......... ( 51.0)
--------
Net revenues ........................ $ 527.8
--------
Costs and Expenses:
Casino ................................ $ 126.9
Rooms ................................. 46.6
Food and beverage ..................... 42.9
Retail and other ...................... 11.0
Mall .................................. 2.0
Depreciation and amortization ......... 43.3
General and administrative ............ 66.1
Advertising and promotion ............. 7.9
--------
346.7
--------
Operating income ....................... 181.1
Interest expense, net ................. ( 97.7)
--------
Net income ............................. $ 83.4
========
</TABLE>
See accompanying Summary of Significant Forecast Assumptions
and Accounting Policies
P-3
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
March 31, March 31,
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ............................... $ 5.0 $ 21.4
Restricted cash (a) ..................................... 61.7 --
Accounts receivable, net ................................ -- 30.0
Other ................................................... 11.3 11.3
--------- ---------
Total current assets .................................. $ 78.0 $ 62.7
Property, equipment and other, net ....................... 1,050.9 1,016.1
--------- ---------
Total assets .......................................... $ 1,128.9 $ 1,078.8
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued expenses ................... $ 18.3 $ 28.2
Construction accounts payable (a) ....................... 85.2 --
Current portion of long term debt ....................... 49.2 73.8
--------- ---------
Total current liabilities ............................. $ 152.7 $ 102.0
Long-term debt, less current portion ..................... 831.9 782.5
--------- ---------
Total liabilities ..................................... $ 984.6 $ 884.5
Preferred interest in Venetian ........................... 77.1 77.1
Stockholder's equity ..................................... 67.2 117.2
--------- ---------
Total liabilities, preferred interest and stockholder's
equity .............................................. $ 1,128.9 $ 1,078.8
========= =========
</TABLE>
- ------------
(a) Estimated remaining proceeds from offering of the Mortgage Notes and the
Senior Subordinated Notes available at opening along with undrawn amounts
under the Bank Credit Facility of $23.5 million will be used to pay
construction accounts payable.
See accompanying Summary of Significant Forecast Assumptions
and Accounting Policies
P-4
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Twelve Months Ending
March 31, 2000
---------------------
<S> <C>
Cash flows from operating activities:
Net income ............................................ $ 83.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash interest expense ........................... .9
Depreciation and amortization ....................... 43.3
Changes in working capital accounts ................. (20.1)
-------
Net cash provided by operating activities .............. 107.5
-------
Cash flows from investing activities:
Capital expenditures .................................. ( 8.5)
-------
Net cash used in investing activities .................. ( 8.5)
-------
Cash flows from financing activities:
Proceeds from long-term debt .......................... 85.2
Payment of construction accounts payables ............. (85.2)
Principal payments on long term debt .................. (49.2)
Payment of Dividends .................................. (33.4)
-------
Net cash used in financing activities .................. (82.6)
Increase in cash and cash equivalents .................. 16.4
Cash and cash equivalents, beginning of period ......... 5.0
-------
Cash and cash equivalents, end of period ............... $ 21.4
=======
</TABLE>
See accompanying Summary of Significant Forecast Assumptions
and Accounting Policies
P-5
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES
For the Twelve Months Ending March 31, 2000
Introduction
The forecasted consolidated balance sheets as of March 31, 1999 and March
31, 2000 and the related forecasted consolidated statements of income and of
cash flows for the twelve months ending March 31, 2000 and this accompanying
Summary of Significant Forecast Assumptions and Accounting Policies of the
Company represent management's best estimate as of June 30, 1997 (the date of
the Financial Forecast, except for the Mortgage Notes and the Senior
Subordinated Notes and the assumed interest rates on such notes, which were
updated as of November 6, 1997) of the most probable financial condition,
results of operations, and cash flows of the Company for the first twelve
months of operations ending March 31, 2000 based upon an estimated opening date
for the Casino Resort on April 1, 1999. For purposes of this Financial
Forecast, an opening date of April 1, 1999 is assumed whereas the construction
management agreement provides for an April 21, 1999 completion date. The
Company's actual financial statements are anticipated to be presented on a
calendar year basis. This Financial Forecast includes the operating results of
LVSI, Venetian and the Mall Subsidiary. 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 membership interest in Venetian is owned by Interface Group Holding
Company, Inc., which is wholly owned by LVSI's sole stockholder. The Financial
Forecast reflects management's judgment based on present circumstances of the
most likely set of conditions and management's most likely course of action, to
the extent such conditions or actions are anticipated to affect the results
described in the Financial Forecast.
The assumptions described herein are those that management believes are
significant to the Financial Forecast or are the key factors upon which the
results shown in the Financial Forecast depend. As such, not all assumptions
used in the preparation of these statements have been set forth herein. The
Financial Forecast was prepared by management in good faith and is based upon a
variety of estimates and assumptions, which, though considered reasonable by
management, may not be achieved and are inherently subject to significant
business, economic, regulatory and competitive uncertainties and contingencies,
including possible competitive responses, many of which are not within the
control of the Company and are not possible to assess accurately, and upon
assumptions with respect to future business decisions which are subject to
change. Therefore, the actual results achieved during the forecast period will
vary from those set forth in the Financial Forecast, and the variations may be
material.
The Financial Forecast assumes, among other things, that (i) Venetian will
operate 3,036 all-suite hotel rooms, (ii) the Company will operate a casino of
approximately 116,000 square feet including approximately 2,500 slot machines
and 114 table games (excluding baccarat), (iii) the Casino Resort will be able
to commence operations on April 1, 1999, (iv) the Mall Subsidiary will commence
operations on April 1, 1999 and lease approximately 430,000 of the total
available 500,000 square feet of retail and restaurant space, (v) the Company
will not be adversely involved with any major legal proceedings which could
affect its revenues or expenses, (vi) there will be no change in generally
accepted accounting principles that may have a material effect on the financial
results of the Company and, (vii) the Company will maintain its license to
operate the Casino. If such assumptions are not met, the actual results will
vary from those set forth in the Financial Forecast, and variations may be
material.
The Financial Forecast was prepared as of June 30, 1997, except for the
Mortgage Notes and the Senior Subordinated Notes and the assumed interest rates
on such notes, which were updated as of November 6, 1997. The Financial
Forecast should not be regarded as a representation by the Company or any other
person (including the Initial Purchasers) that the Financial Forecast will be
achieved. Prospective investors in the Notes are cautioned not to place undue
reliance on the Financial Forecast. The Company does not intend to update or
otherwise revise the Financial Forecast to reflect events or circumstances
existing or arising after the date hereof or to reflect the occurrence of
unanticipated events, except as required by applicable law. See "Risk
Factors--Financial Forecast."
P-6
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
The Financial Forecast should be read in conjunction with the information
contained in the Prospectus in which the Financial Forecast is included,
including, particularly, but not without limitation, "Risk Factors," "LVSI and
Venetian," "Description of Mortgage Notes," "Description of Certain
Indebtedness" and "Description of Senior Subordinated Notes."
Estimated Project Cost and Financing Assumptions
Formal ground-breaking for the Casino Resort occurred in April 1997. For
the purpose of this Financial Forecast, the opening of the Casino Resort is
anticipated to occur at the beginning of the second quarter of 1999. The
Financial Forecast presents the forecasted results for the first twelve months
of operations ending March 31, 2000. The construction management agreement
described below provides for a scheduled completion date of April 1999.
Project Costs
The following is a summary of the forecasted development, construction,
design, financing and opening costs of the Casino Resort (including the Hotel,
the Mall, the Casino and the Congress Center but excluding $70.0 million of
HVAC Equipment owned by a third party and land acquisition costs) (in
millions):
<TABLE>
<S> <C>
Hotel/Casino ........................... $ 491.1
Mall ................................... 123.6
FF&E ................................... 121.1
Parking and Site Work .................. 36.4
Interest, net .......................... 88.4
Pre-opening costs and expenses ......... 34.4
Contingency ............................ 61.3
Financing fees and expenses ............ 42.2
--------
Total .................................. $ 998.5
========
</TABLE>
Including the $70 million of HVAC Equipment owned by a third party, the
Casino Resort is budgeted to cost approximately $1.065 billion.
Major construction projects such as the Casino Resort entail significant
risks, including but not limited to, possible unanticipated shortages of
materials or skilled labor, unforeseen engineering, environmental and/or
geographical problems, work stoppages, weather interference, unanticipated cost
increases, mechanics liens and regulatory or entitlement delays, any of which
would delay the project and/or increase its costs. Management believes that the
budgeted construction cost is reasonable. The Company has entered into a
construction management agreement with Lehrer McGovern Bovis, Inc. (the
"Construction Manager") which provides for a guaranteed maximum price (subject
to certain limitations) for certain construction costs of approximately $547.8
million and a completion date of April 1999. In addition, the Construction
Manager's parent company, Bovis, Inc. ("Bovis") has agreed to guarantee the
obligation of the Construction Manager, subject to certain exceptions and
Bovis's parent, P&O, has agreed to guarantee Bovis's obligations, subject to
certain exceptions. The Company has also obtained liquidated damage insurance
that integrates the timing of damages with the above guarantees.
In addition to the land contributions by the Company described below, the
Financial Forecast assumes that the Casino Resort is financed with $150.0
million of indebtedness under the Bank Credit Facility, $97.7 million of
indebtedness under the FF&E Credit Facility, $425.0 million in Mortgage Notes,
$90.5 million (net of original issue discount) in Senior Subordinated Notes,
$140.0 million of indebtedness under the Mall Construction Loan Facility and
$95.3 million in cash equity contributions for a total of $998.5 million. It is
also assumed that prior to the opening of the Casino Resort, the Mall
Collateral will be transferred to the Mall Subsidiary pursuant to the Sale and
Contribution Agreement. To fund its obligations under the Sale and
P-7
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
Contribution Agreement, it is assumed that the Mall Subsidiary will borrow up
to $140.0 million under the Mall Take-out Financings. It also is assumed that
no conversion of the Series A Preferred Interest into Series B Preferred
Interest in Venetian will occur. See "Certain Transactions--Preferred
Interest."
Operating Assumptions
General
The Financial Forecast assumes that the Las Vegas market will continue to
experience increased gaming revenues and visitor volume. Gaming revenues for
the Las Vegas market have increased at a compound annual rate of 8.4% from $2.8
billion in 1987 to $5.8 billion in 1996. Over the same period, the number of
visitors traveling to Las Vegas grew at a 7.0% compound annual rate from 16.2
million visitors in 1987 to 29.6 million visitors in 1996, and, according to
the Las Vegas Convention and Visitors Authority ("LVCVA"), is expected to grow
at greater than 8% in 1997. Expenditures by visitors to Las Vegas grew at a
compound annual rate over the past nine years of 11.3% to $22.5 billion in
1996. Although Las Vegas has increased its room inventory from approximately
58,000 rooms to 99,000 rooms for a compound annual increase of 6.0% from 1987
to 1996, the Las Vegas hotel occupancy rate increased to 93.4% for 1996 from
87.0% in 1987. In addition to tourists, the attendance at Las Vegas conventions
and trade shows has increased at a compound annual rate of 7.6% from 1.7
million in 1987 to 3.3 million in 1996. Las Vegas was host to 3,827 conventions
in 1996 compared to 556 in 1987. The non-gaming convention revenues increased
at a compound rate of 14.2% over the past nine years generating over $3.9
billion in 1996 compared to $1.2 billion in 1987. There is no assurance that
these Las Vegas market statistics will increase at the same rates (or that they
will not decrease) in the future.
Management believes that the Casino Resort's all-suites room configuration
of an average size of approximately 655 to 735 square feet will enable it to
capture a significant portion of the Las Vegas tourist and convention and trade
show visitor market. Management also believes that the Casino Resort's
affiliation with the Sands Expo and Convention Center (the "Expo Center") will
attract a significant portion of the room nights generated by convention and
trade show attendees at the Expo Center. The Expo Center is owned by an
affiliated company that operates an existing approximately 1,150,000 square
foot convention and trade show facility located adjacent to the Casino Resort.
Although at least an additional 19,800 rooms are expected to be
constructed by other casino operators in Las Vegas by 1999 according to the
LVCVA, management believes that these properties will further enhance the
appeal of Las Vegas as a vacation destination and increase the number of
visitors to the area and their average length of stay. The Financial Forecast
assumes (but no assurances can be given) that the Company's results during the
period of the Financial Forecast will not be materially adversely affected by
these new projects.
Casino Revenues
The Company has drawn upon the combined experience of its management to
prepare the forecast of casino revenues. Management has utilized, where
available, information from certain other Las Vegas Strip hotel/casinos and
published information from the NGCB.
In developing the Financial Forecast, the Company has obtained published
data for other Las Vegas gaming properties (the "Premier Strip Hotels") located
on the Strip which management believes are comparable. The Company also has
obtained the NGCB published results of the Large Strip Hotels for the calendar
year ended December 31, 1996 (the "Gaming Revenue Analysis").
The Company's forecasted casino revenues are based upon the 1996 operating
performance of Large Strip Hotels and management's experience in operating
hotel and gaming operations. The accompanying schedule of Supplemental
Forecasted Casino Revenues Data summarizes management's
P-8
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
forecasted casino revenues for the first year of operation of the Company. Such
schedule sets forth the Company's forecasted revenues contributed by specific
table games, slot machines and other casino games.
As shown in the accompanying schedule, the Company forecasts that its
table games (excluding baccarat) and other casino games (such as keno, race and
sports book and poker) will generate revenues approximately equal to the
comparable amounts for the upper quartile of the Large Strip Hotels, as
adjusted for an estimated 3% annual inflation factor for the period December
1996 through April 1999, which is the construction period (win per unit per day
amounts are based on the NGCB's gaming figures for the year ended December 31,
1996, with inflation assumed for the two and one-quarter year period until the
opening of the Casino Resort). Management believes that its table games and
other casino games revenues forecast (which excludes baccarat) is reasonable
for the following reasons: (1) the largest hotels and casinos included in the
Large Strip Hotels category have generated revenue amounts significantly in
excess of the upper quartile figures according to their public filings; (2)
management believes that the facilities and special features of the Resort will
enable it to attract significant visitor volume and generate significant casino
revenues; and (3) the Casino revenues will be complemented by the convention
center and trade show attendance at the adjacent Expo Center.
Conversely, while the Casino Resort will have "state of the art" baccarat
facilities and 3,036 all-suite guest rooms, the Company's forecasted baccarat
revenues of $30.7 million is significantly below the upper quartile figure of
the Large Strip Hotels. The Company's forecasted baccarat revenues is based
upon an overall Large Strip Hotels average of $7.2 million win per unit in 1996
and an estimated 3% annual inflation factor during the two and one quarter year
construction period, while the upper quartile figure for Large Strip Hotels was
$9.7 million per unit in 1996. Management intends to pursue the baccarat
market, but the Company does not presently intend to adopt an aggressive credit
policy in order to increase its baccarat revenues. The Company believes its
forecast of baccarat revenues reflects a conservative operational approach
aimed at reducing the credit risks associated with baccarat.
The Company's forecast of slot machine revenues assumes that its average
daily win is $151 per machine. The Company's forecast is based upon the upper
quartile of the Large Strip Hotels average daily win per unit, and an estimated
3% annual inflation factor during the two and one quarter year construction
period. Management believes that this figure is reasonable given that several
of the largest hotels in the Large Strip Hotel category have been generating
average slot machine win significantly in excess of the upper quartile figure
according to their 1996 annual report to shareholders.
Hotel Revenues
The average daily room rate of $167 and hotel occupancy rate of 93% for
the Casino Resort's hotel were obtained from the Landauer Associates, Inc.
Appraisal of the Proposed Venetian Casino and Grand Canal Shops, finalized in
October 1997, set forth in the "Appraisals" section of this Prospectus. This
compares to an average daily room rate during 1996 of $79 and occupancy rates
of 94.8% for upper quartile Large Strip Hotels (according to the NGCB). The
Mirage and the Treasure Island Hotel and Casino adjacent to the Casino Resort,
have reported that standard room average daily rates increased 12% during 1996,
according to their 1996 annual report to stockholders. Average daily room rates
at major convention hotels in New York, Chicago, and San Francisco were
approximately $160 during the first quarter of 1997 according to "Smith Travel
Research."
P-9
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
In preparing its forecast of room revenues for the hotel, management also
analyzed future contractual bookings of major trade shows and conventions to be
held at the Expo Center. The Expo Center drew nearly 900,000 attendees and
generated approximately 2,150,000 room nights in 1996 based upon average
occupancy of 1.8 persons per room and average stay of 4.3 nights in Las Vegas
as reported by the LVCVA. In addition, average daily room rates during high
demand periods, trade show and convention periods and comparable daily room
rates for Premier Center Strip properties and other major convention cities
were analyzed. The Company estimates that approximately 48% of its total
occupied room nights and 60% of its weekday occupied room nights will be
generated from attendees at trade shows and conventions at the Expo Center and
city wide convention and trade shows held at the Las Vegas Convention Center.
Room rates at the Hotel are forecasted to be higher than Strip averages because
of anticipated higher mid-week convention and trade show room demand and lower
wholesale tour and travel room demand. Weekend rates are forecasted at
comparable rates of certain Premier Strip Hotels. Management believes the
forecasted average room rate to be reasonable given the all-suites nature of
the guest rooms, the quality of the Casino Resort's facilities, the amenities
offered, proximity to the Expo Center, and the Casino Resort's location on the
Strip adjacent to other Premier Strip Hotels which enjoy significantly higher
rates than the average in the Gaming Abstract.
Food and Beverage Revenues
The Casino Resort's forecast of food and beverage revenues is based upon
an analysis of comparable amounts for Premier Strip Hotels. The forecasted food
revenues include only sales for banquet and room service food facilities.
Banquet revenues are estimated based upon the estimated meetings and
conventions in the Casino Resort's conference and ballroom conferencing center.
Room service revenues are based upon the average sales per occupied room night
of comparable Premier Strip Hotels. All other food outlets will be leased and
operated by independent restaurant operators within the hotel and retail mall
area.
Mall Subsidiary Revenues
The Mall will be developed as a premier retail and restaurant mall
integrated into the Casino Resort. The Mall will contain approximately 500,000
square feet of leasable space. It is anticipated that the Mall will accommodate
approximately 55 retail stores and seven dining establishments. The retail
tenants are expected to include nationally recognized apparel shops and other
specialty retail shops. The restaurant tenants are expected to include
nationally known restaurant operators.
Revenues will include retail mall lease income derived from retail and
restaurant tenants. The retail mall rents are based upon the Mall containing
approximately 500,000 net leasable square feet and achieving average effective
rents of $66 per square foot and a vacancy factor of 20% of retail space during
the first year of Mall operations. These assumptions were developed by
examining comparable data for similar retail malls (The Forum Shops at Caesar's
Palace and the Fashion Show Mall), located on the Las Vegas Strip near the
Resort. The Financial Forecast assumes that nearly all Mall Subsidiary
operating expenses will be passed through to tenants in the form of common area
maintenance charges and that the Company will minimize tenant allowances to
build out the leased space. The Mall Subsidiary has entered into a management
contract with Forest City Enterprises to operate the Mall.
P-10
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
Retail and Other Revenues
Retail and other revenues for the Casino Resort include retail income
derived from retail and restaurant tenants located within the Casino Resort
(but outside of the Mall) and other items such as telephone revenue, spa
facilities, photography, and pool services revenues. Management's forecast for
other revenues is based upon retail and Premier Strip Hotels experience in
operating similar facilities. Lease revenues are forecasted at similar rents
per square foot of recently opened Premier Strip Hotels as reported by
restaurant operators.
Operating Expenses
In preparing its operating expense forecast for the Casino Resort, the
Company drew upon management's experience in operating other gaming resort
facilities to prepare a detailed cost estimate for the Casino Resort.
Management performed a detailed review of the staffing requirements for each of
the proposed operating departments of the Company, as well as for the general
and administrative functions associated with the operation of the Company.
Other operating expenses, including those allocated to casino, hotel, and food
and beverage operations have been forecasted based upon management's experience
in operating other gaming facilities and such expenses are comparable to other
Larger Strip Hotels. Promotional allowances have been forecasted at
approximately 18% of casino revenues. This promotional allowance is higher than
certain Premier Strip Hotels promotional allowances of approximately 15% for
1996 as published in the Gaming Abstract because of the Casino Resort's
forecasted higher average daily room rates.
Operating expenses for the Mall Subsidiary were estimated based upon a
review of similar malls and a management contract with Forest City Enterprises
to operate the Mall Subsidiary.
Pre-opening costs in the amount of $34.4 million will be expensed as
incurred during the construction period of the Casino Resort.
Interest Expense
Interest expense includes forecasted interest expense associated with the
$150.0 million of indebtedness under the Bank Credit Facility, $425.0 million
of Mortgage Notes, $140.0 million of indebtedness under the Mall Take-out
Financings, $97.7 million of FF&E Credit Facility and $90.5 million of Senior
Subordinated Notes (net of original issue discount) at rates of 8.25%, 12.25%,
9.25%, 9.50% and 14.25% respectively, applied to projected average balances
throughout the first year of operations. The $140.0 million of indebtedness
under the Mall Construction Loan Facility are assumed to be refinanced with
$140.0 million of indebtedness (under the Mall Take-out Financings) with
interest at 9.25% at the opening of the Mall Subsidiary. Interest income, shown
net of interest expense in the accompanying statement of income, is computed
using a 5.25% short term interest rate applied to forecasted average available
cash balances. The assumed blended interest rate for the indebtedness is
approximately 11.1%. The following table shows the calculation of such blended
rate.
P-11
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
<TABLE>
<CAPTION>
Average Assumed Interest
Debt Category Balance Rate Expense
<S> <C> <C> <C>
Bank Credit Facility ......................... $ 125.0 8.25% $ 10.3
Mall Credit Facility ......................... 140.0 9.25% 13.0
FF&E Credit Facility ......................... 92.0 9.50% 8.7
Mortgage Notes ............................... 425.0 12.25% 52.1
Senior Subordinated Notes .................... 97.5 14.25% 13.9
-------- ------
Accretion of Original Issue Discount on Senior
Subordinated Notes .......................... 0.8
------
Total interest expense ....................... 98.8
Less: Projected interest income .............. (1.1)
------
Total ........................................ $ 879.5 $ 97.7
Blended interest rate ........................ 11.1%
</TABLE>
General and Administrative Expenses
General and administrative expenses are forecasted at similar amounts to
other comparable Large Strip Hotels except utilities which have been adjusted
to reflect an energy service agreement for the Casino Resort's HVAC Equipment
which the HVAC Provider has committed to provide up to $70.0 million for its
purchase and installation. The HVAC Provider will provide heating and cooling
service to the entire Casino Resort, including the Mall Subsidiary and the Expo
Center. Annual fixed operating costs allocated to LVSI and Venetian for these
services is forecasted to be $7.6 million and are included in general and
administrative expenses. Operating costs allocated to the Mall Subsidiary are
anticipated to be included in the tenants' common area maintenance charges.
P-12
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
Minimum future fixed payments under the HVAC Equipment energy service
agreement for LVSI and Venetian for each of the five years commencing April 1,
1999 and in the aggregate are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Year 1 $ 7.6
Year 2 7.6
Year 3 7.6
Year 4 7.6
Year 5 7.6
Subsequent to year 5 38.0
------
Total minimum future payments $ 76.0
======
</TABLE>
Income Taxes
LVSI is a subchapter S corporation for federal income tax purposes.
Venetian and the Mall Subsidiary are limited liability companies for federal
income tax purposes. As pass through tax entities, income taxes are not taxed
at LVSI, Venetian and the Mall Subsidiary levels, but passed through to the
shareholders or members of such entities and taxed at the shareholder or member
level. The State of Nevada does not levy a corporate income tax.
The Company plans to distribute monies to its shareholders or members
sufficient to satisfy their tax obligations. Since taxes will be payable at the
individual level and since all individuals are residents of Nevada (which has
no state income tax) the forecasted tax distributions of $33.4 million have
been made at the highest effective individual federal income tax rate of
approximately 40%. An underlying assumption is that there are no significant
differences in the determination of book and taxable pass through income.
Cash Flow Items
Based on management's experience in operating hotel and gaming facilities
and analysis of other hotel and gaming operations, management forecasts that
net working capital requirements for the twelve months ending March 31, 2000
will be funded by a revolving credit facility of the Bank Credit Facility in
the amount of $20.0 million, and cash flow generated from operations during the
period.
The Company's forecasted depreciation and amortization expense includes
$7.3 million in amortization expense for the Company's $42.2 million in
financing and transaction costs, which are being amortized on a straight-line
basis over the life of the indebtedness under the Bank Credit Facility, the
FF&E Credit Facility, the Mall Take-out Financings, the Mortgage Notes and the
Senior Subordinated Notes of three to eight years (except in the case of the
Mall Take-out Financings, for which the amortization period is 3 years). The
Financial Forecast also includes $1.8 million of amortization expense of the
Company's $17.8 million of tenant allowances and lease acquisition costs.
The Company's forecasted depreciation and amortization expenses are
provided for on a straight-line basis over the estimated useful life of its
assets. The estimated useful lives of its assets are:
<TABLE>
<S> <C>
Building .................................. 40 years
Furniture, fixtures and equipment ......... 7 years
</TABLE>
The Company forecasts that it will incur $8.5 million of capital
expenditures during the twelve months ending March 31, 2000, relating to the
betterment and replacement of existing capital assets and additions to capital
assets.
P-13
<PAGE>
LAS VEGAS SANDS, INC.
FORECASTED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
AND ACCOUNTING POLICIES--(Continued)
For the Twelve Months Ending March 31, 2000
Summary of Significant Accounting Policies
The Financial Forecast has been prepared on the basis of generally
accepted accounting principles, which are the same as those presently used and
that are expected to be used in the preparation of the financial statements of
the Company for all periods subsequent to the opening of the Casino Resort. See
"Notes to Financial Statements" at Annex A for a description of historical
Significant Accounting Policies.
P-14
<PAGE>
LAS VEGAS SANDS, INC.
SUPPLEMENTAL FORECASTED CASINO REVENUES DATA
(Dollars in thousands except per unit data)
<TABLE>
<CAPTION>
1996 Win Year Ending
Estimated Win Per Per Unit March 31, 2000
Number Unit "Upper" Forecast
Of Units Forecast(1)(2) Quartile(3) Revenues
--------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Twenty-One ....................... 72 $ 622.6 $ 582.5 $ 44,829
Craps ............................ 12 1,966.7 1,840.0 23,600
Roulette.......................... 10 932.8 872.7 9,328
Pai Gow .......................... 2 2,578.5 2,412.4 5,157
Pai Gow Poker .................... 3 922.3 862.9 2,767
Mini-baccarat .................... 5 2,031.5 1,900.6 10,158
Big 6 ............................ 2 451.4 422.3 903
Caribbean Stud ................... 4 812.3 760.0 3,249
Let It Ride ...................... 4 619.8 579.9 2,480
-- --------
Subtotal table games ............ 114 102,471
Baccarat ......................... 4 7,671.3 9,666.3 30,685
--- --------
Total table games (4) ............ 118 $133,156
Slot Machines
25 cents ......................... 1200 36.1 33.8 $ 43,349
50 cents ......................... 200 47.9 44.8 9,579
1 dollar ......................... 950 72.3 67.6 68,615
5 dollar ......................... 100 99.7 93.3 9,973
25 dollar ........................ 22 110.3 103.2 2,426
Megabucks ........................ 28 139.0 130.0 3,891
---- --------
Total slot machines (4) .......... 2500 $137,833
Other games
Keno ............................ 1 1,314.8 1,230.1 $ 1,315
Poker and pan ................... 9 200.8 187.9 1,808
Race book ....................... 1 4,058.8 3,797.3 4,059
Sports book ..................... 1 2,329.0 2,185.6 2,329
---- --------
Total other games ................ 12 $ 9,511
--------
Total casino revenue (4) ......... $280,500
========
</TABLE>
- --------------
(1) Represents annual win per unit. See "Summary of Significant Forecast
Assumptions and Accounting Policies--Casino Revenue."
(2) Inflated 3% per year for two and one quarter years during estimated
construction period.
(3) Source: Nevada State Gaming Control Board.
(4) Certain amounts do not agree because of rounding.
See accompanying Summary of Significant Forecast Assumptions
and Accounting Policies
P-15
<PAGE>
LAS VEGAS SANDS, INC.
SUMMARY CONSOLIDATED FINANCIAL FORECAST INFORMATION
<TABLE>
<CAPTION>
For the first
Twelve Months of Operations
-------------------------------------------------------
Adjustment to
(includes Mall reflect removal (excludes Mall
Subsidiary) (1) of Mall Subsidiary Subsidiary) (2)
----------------- -------------------- ----------------
(in millions, except for certain
assumptions)
<S> <C> <C> <C>
Operating Data:
Casino revenues (3) ..................................... $ 280.5 $ 280.5
Room revenues ........................................... 172.6 172.6
Mall revenues ........................................... 28.2 $ (28.2) --
Total net revenues (4) .................................. 527.8 (28.2) 499.6
Depreciation and amortization ........................... 43.3 (5.9) 37.4
Income from operations .................................. 181.1 (20.3) 160.8
Interest expense, net ................................... (97.7) 12.7 (85.0)
Net income .............................................. 83.4 (7.6) 75.8
Balance Sheet Data:
Total assets ............................................ $1,078.8 $(142.9) $ 935.9
Total long-term debt .................................... 782.5 (140.0) 642.5
Preferred interest ...................................... 77.1 77.1
Stockholder's equity .................................... 117.2 (0.5) 116.7
Other Data:
Ratio of earnings to fixed charges (5) .................. 1.8x 1.8x
Net cash provided by operating activities ............... $ 107.5 $ (13.9) $ 93.6
Net cash used in investing activities ................... (8.5) 0.2 (8.3)
Net cash used in financing activities ................... (82.6) 3.1 (79.5)
EBITDA (6) (7) .......................................... 224.4 (26.2) 198.2
Total debt (8) .......................................... 856.3 (140.0) 716.3
Ratio of EBITDA to interest expense, net (8) ............ 2.3x 2.3x
Ratio of total debt to EBITDA (8) ....................... 3.8x 3.6x
Certain Assumptions:
Number of slot machines ................................. 2,500 2,500
Number of table games (excluding four baccarat tables) 114 114
Slot machine win per unit per day (3) ................... $ 151 $ 151
Table games (excluding baccarat) win per unit per day (3) $ 2,463 $ 2,463
Number of hotel rooms ................................... 3,036 3,036
Average daily room rate ................................. $ 167 $ 167
Occupancy rate .......................................... 93% 93%
</TABLE>
- --------------
(1) Includes the operations of the Mall Subsidiary.
(2) Does not include the operations of the Mall Subsidiary. Upon the completion
of the Casino Resort, the Mall Subsidiary is expected to incur
indebtedness under the Mall Take-out Financings. The ability of the Mall
Subsidiary to distribute or otherwise transfer funds to the Company will
be limited by, among other things, the agreements governing such
indebtedness.
(3) Amounts include an estimated 3% annual inflation factor for the period
December 1996 through April 1999, which is the estimated construction
period. The Company's estimates of win per unit per day amounts are based
on the NGCB's gaming figures for casinos located on the Strip with gaming
revenues greater than $72.0 million (upper quartile of Large Strip Hotels)
for the calendar year ended December 31, 1996, adjusted for inflation
during the construction period.
(4) Net of promotional allowances of $51.0 million.
(5) The ratio of earnings to fixed charges is determined by dividing (i) net
income plus fixed charges by (ii) fixed charges. Fixed charges consist of
interest expense (including amortization of discount on indebtedness),
amortization of debt expense and that portion of rental expense
representative of interest.
P-16
<PAGE>
LAS VEGAS SANDS, INC.
SUMMARY CONSOLIDATED FINANCIAL FORECAST INFORMATION
(6) EBITDA represents earnings before interest, taxes, depreciation and
amortization and is presented as income from operations before
depreciation and amortization. EBITDA is presented to enhance the
understanding of the financial performance of the Company and its ability
to service its indebtedness, including the Notes. EBITDA is not intended
to represent and should not be considered an alternative to, or more
meaningful than, net income and income from operations as an indicator of
the operating performance of the Company. EBITDA should not be considered
by investors as an indicator of cash flows from operating activities,
investing activities and financing activities as determined in accordance
with generally accepted accounting principles. Items excluded for EBITDA,
such as depreciation and amortization, are significant components in
understanding and assessing the Company's financial performance. EBITDA
meaures presented may not be comparable to similarly titled measures
presented by other issuers.
(7) EBITDA forecasted by the Appraiser (as defined herein) determined in
connection with establishing the "market value" of the Casino Resort is
different from that forecasted by the Company included above.
(8) Ratios computed as of the end of the forecasted first twelve months of
operations.
See accompanying Summary of Significant Forecast Assumptions
and Accounting Policies
P-17
<PAGE>
ANNEX A
CERTAIN HISTORICAL FINANCIAL INFORMATION
Because the historical results of the Company relate solely to the
operation of the Sands Hotel, which was closed in June 1996, the Company
believes that the financial information included in this Annex A will not
represent the future operation of the Casino Resort and that actual results of
the Casino Resort will differ materially.
A-1
<PAGE>
HISTORICAL SELECTED FINANCIAL INFORMATION (1)
The historical selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Historical Financial Statements and Notes
thereto included elsewhere in this Annex A. The statement of operations data
for the years ended December 31, 1997, 1996 and 1995, and the balance sheet
data at December 31, 1997 and 1996 are derived from, and are qualified by
reference to, the audited historical financial statements included elsewhere in
this Annex A. The statement of operations data for the years ended December 31,
1994 and 1993 and the balance sheet data at December 31, 1995, 1994 and 1993
are derived from the Company's audited historical financial statements that do
not appear herein. The historical results are not necessarily indicative of the
results of operations to be expected in the future.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------
1997 1996(1) 1995(2) 1994(2) 1993(2)
--------------- --------------- -------------- -------------- ---------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data
Gross revenues ................................. $ 895 $ 44,044 $95,469 $ 93,182 $ 83,652
Promotional allowances ......................... -- (3,483) (7,046) (6,779) (6,781)
-------- -------- ------- -------- --------
Net revenues ................................... 895 40,561 88,423 86,403 76,871
Operating expenses ............................. (1,727) 99,890 84,449 82,712 80,321
-------- -------- ------- -------- --------
Operating income (loss) ........................ 2,622 (59,329) 3,974 3,691 (3,450)
Interest income (expense), net ................. (3,142) (3,666) (7,352) (10,190) (10,679)
-------- -------- ------- -------- --------
Loss before extraordinary item (3) ............. (520) (62,995) (3,378) (6,499) (14,129)
Extraordinary item (3) ......................... -- -- -- -- 633
-------- -------- ------- -------- --------
Net loss ....................................... $ (520) $(62,995) $(3,378) $ (6,499) $(13,496)
======== ======== ======= ======== ========
Per Share Data
Loss before extraordinary item ................. $ (0.56) $ (68.10) $ (2.54) $ (4.13) $ (8.99)
Extraordinary item ............................. -- -- -- -- .40
-------- -------- ------- -------- --------
Basic and diluted loss per share ............... $ (0.56) $ (68.10) $ (2.54) $ (4.13) $ (8.59)
======== ======== ======= ======== ========
Other Data
Capital expenditures ........................... $130,827 $ 18,829 $ 1,661 $ 25,412 $ 7,349
Ratio of earnings to fixed charges (4) ......... (5) (5) (5) (5) (5)
</TABLE>
<TABLE>
<CAPTION>
As at December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets ................. $ 747,767 $ 114,109 $ 178,099 $ 187,774 $ 161,519
Long-term debt ............... 515,612 -- 120,066 115,639 81,375
Stockholders' equity ......... 111,347 106,335 45,989 53,755 15,364
</TABLE>
A-2
<PAGE>
- ----------------
(1) Results of operations include a charge for the write-down of property and
equipment of $45,042 resulting from a revaluation of the Company's assets
as of June 30, 1996, the date the Company approved a quasi-reorganization.
(2) Financial data has been restated to reflect the December 1995 merger of
LVSI and NFG (the "NFG Merger").
(3) Extraordinary item represents gain on extinguishment of debt related to
merger of NFG referred to above.
(4) The ratio of earnings to fixed charges is determined by dividing (i)
operating income by (ii) fixed charges. Fixed charges consist of total
interest expense.
(5) In the years ended December 31, 1997, 1996, 1995, 1994 and 1993, earnings
were insufficient to cover fixed charges by $520, $62,995, $3,378, $6,499
and $14,129 respectively.
A-3
<PAGE>
HISTORICAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Historical Results of Operations
On June 30, 1996, the Company suspended operations and closed the existing
Sands Hotel to begin construction of the Casino Resort. The Company's operating
income since June 30, 1996 consists primarily of interest and rental income.
The Company's operating expenses since June 30, 1996 primarily consist of
employee-related costs, legal and accounting fees and other miscellaneous
expenses associated with the winding down and closing of the Sands Hotel. Other
expenses consist of non- capitalized interest expense associated with the
financing of the Company's development of the Casino Resort. Accordingly, the
historical results will not be indicative of future operating results.
Year Ended December 31, 1997 compared to the Year Ended December 31, 1996
Operating Revenues. Overall revenues were impacted by the closure of the
Sands Hotel in June 1996. Operating revenues during 1996, including casino
revenue of $23.1 million, room revenues of $8.5 million and food and beverage
revenue of $9.7 million all declined to $0 during the year ended December 31,
1997. Other revenue declined from $ 2.8 million to $0.9 million.
Operating Expenses. Overall operating expenses decreased to $(1.7) million
from $99.9 million, a decrease of $101.6 million. Declines in casino, rooms,
food and beverage and other expenses were directly attributable to no
operations during 1997 as a result of the June 1996 closure of the Sands Hotel.
The credit amount reflected in selling general and administrative expenses of
$1.8 million during 1997 results from a reevaluation of the accrued closing
costs associated with the closing of the Sands Hotel. This amount compares to
$18.8 million during 1996. The write down of property and equipment of $45.0
million during 1996 was related to the quasi-reorganization described below.
Interest Income (Expense). Interest income increased to $ 3.4 million
during 1997 from $ 0.5 million during 1996 as a result of investing proceeds
received from the Offering. The increase in interest expense to $ 6.6 million
during 1997 from $0 during 1996 represents the non-capitalized interest expense
resulting from the sale of the Notes in the principal amount of $522.5 million
on November 14, 1997 to fund the construction of the Casino Resort.
Year Ended December 31, 1996 compared to the Year Ended December 31, 1995
Revenues. Overall revenues were impacted by the closure of the Sands Hotel
in June 1996. Casino revenues declined to $23.1 million from $44.8 million, a
decrease of $21.7 million or 48%; room revenues declined to $8.5 million from
$15.8 million, a decrease of $7.3 million or 46%; and food and beverage
revenues declined to $9.7 million from $18.8 million, a decrease of $9.1
million or 48%. Other income declined to $2.8 million from $8.1 million, a
decrease of $5.3 million or 65%, primarily attributable to a loss realized on
the disposal of property and equipment auctioned after the closing of the Sands
Hotel. Rental revenue declined to zero from $8.0 million due to the acquisition
by Interface of the Sands Expo and Convention Center (the "Expo Center")
building and related land and equipment in January 1996. Prior to 1996, the
Company leased the Expo Center to Interface for an annual rental of $8.0
million.
Operating Expenses. Overall operating expenses increased to $99.9 million
from $84.4 million, an increase of $15.5 million or 18%. Declines in casino,
room, food and beverage, depreciation and amortization, and other operating
expenses of $14.7 million, $3.2 million, $6.4 million, $5.0 million and $2.2
million, respectively, were directly attributable to only six months of
operations as a result of the June 1996 closing of the Sands Hotel. These
declines were more than offset by an increase in selling, general and
administrative expenses of $1.9 million due primarily to severance and other
costs associated with the closing, and a charge for the write-down of property
and equipment of $45.0 million related to the quasi-reorganization described
below.
Interest Income (Expense). Interest income was consistent with the prior
year. Interest expense to related party declined to $4.1 million from $7.9
million, a decrease of $3.8 million or 48%. The decrease in interest expense to
related party was due to the acquisition and subsequent retirement during 1996
by the Company of all the remaining outstanding amounts of certain mortgage
notes of LVSI acquired in
A-4
<PAGE>
the NFG Merger (the "Second Mortgage Notes") and Third Mortgage Pay-In-Kind
Notes of the Company (the "Third Mortgage PIK Notes").
Liquidity and Capital Resources
Prior to the June 30, 1996 closing of the Sands Hotel, the Company
utilized operating cash flow and additional stockholder contributions to fund
working capital requirements and capital expenditures. No significant capital
expenditures were incurred during 1996 related to the Sands Hotel.
In December 1995, the Company completed a merger with NFG through the
contribution of all the outstanding common stock of NFG to the Company. At the
date of the merger, equity of NFG totaled $27.9 million. As of the merger date,
NFG owned $37.0 million of the Company's Second Mortgage Notes purchased from
third parties during 1994. The Second Mortgage Notes bore interest at 15% per
annum to January 15, 1995, at which time the interest rate was reduced to the
short-term quarterly applicable federal interest rate as published by the
Internal Revenue Service. The Second Mortgage Notes were retired as part of the
merger. Historical interest charges related to those notes totaling $2.3
million in 1995 have been eliminated on the assumption that the notes were
retired when repurchased by NFG.
In April 1995, NFG purchased and retired 41,175 shares of its common stock
from three stockholders. The total price paid for these shares was $13.2
million, which has been recorded as a reduction to capital in excess of par
value. In August 1995, the Company purchased 647,469 shares of its common stock
from the identical three stockholders for $0.2 million. Shares repurchased by
the Company have been retired and restored to authorized and unissued common
stock. Subsequent to these repurchases, both the Company and NFG were owned by
a single stockholder.
Through 1995, the Company leased the Expo Center to Interface. Pursuant to
the operating lease agreement, Interface paid an annual rental of $8.0 million
and was responsible for all taxes, insurance, and costs to operate and maintain
the facility. During 1996, Interface acquired from the Company the Expo Center
at its carrying value of $66.8 million, in exchange for all of the Second
Mortgage Notes and a portion of the Third Mortgage Notes of the Company held by
Interface. In connection with the transaction, the Company subsequently retired
the Second and Third Mortgage Notes received and the above lease was canceled.
In connection with the 1996 acquisition by Interface of the Expo Center, the
Company retired $33.2 million of Second Mortgage Notes and $32.3 million of
Third Mortgage Notes and wrote-off remaining capitalized financing costs of
$1.6 million which are included in amortization expense. The remaining $59.5
million of Third Mortgage Notes were retired in 1996 by the Company upon
contribution by the stockholder of all the remaining notes held by Interface.
In connection with the closing of the Sands, the Company's sole director
and 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 was eliminated
against the cost basis of the remaining property, and the accumulated deficit
of $155.0 million as of June 30, 1996, was transferred to capital in excess of
par value.
Development at the Casino Resort
In response to increasing competition and rapid market changes, management
decided to strategically redirect the Company's business, and on June 30, 1996,
the Company closed the Sands Hotel and subsequently demolished the facility to
make way for a planned Venetian-themed hotel-casino resort.
A-5
<PAGE>
Construction of the Casino Resort commenced during April 1997.
On December 31, 1997 and December 31, 1996, the Company held cash and cash
equivalents of $0.9 million. Cash provided by (used in) in operating activities
was $3.9 million for 1997 and $(2.6) million for 1996, respectively. Restricted
cash and investments of $426.9 million represents the remaining proceeds, net
of offering and financing costs and capital expenditures, from the sale of
mortgage and subordinated notes to finance the Casino Resort.
The Company utilized operating cash flow, proceeds from preferred interest
in Venetian of $77.1 million and proceeds from the sale of $97.5 million of the
Senior Subordinated Notes during 1997 and additional stockholder contributions
of $11 .1 million in 1996 to fund capital expenditures of $130.8 million and
$18.8 million for 1997 and 1996, respectively. Capital expenditures were used
primarily to fund development related costs of the Casino Resort. The cost of
the Casino Resort is currently estimated at approximately $1.0 billion
(exclusive of the HVAC equipment costs and land costs). For description of the
financing for the construction of the Casino Resort, see "Management's
Discussion and Analysis of Liquidity and Capital Resources."
A-6
<PAGE>
LAS VEGAS SANDS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants ..................................................... A-8
Consolidated Balance Sheets at December 31, 1997 and 1996 ............................. A-9
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1997 .................................................................... A-10
Consolidated Statements of Stockholder's Equity for each of the three years in the
period ended December 31, 1997 ....................................................... A-11
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1997 .................................................................... A-12
Notes to Financial Statements ......................................................... A-13
</TABLE>
A-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Director and Stockholder of Las Vegas Sands, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholder's equity and of
cash flows present fairly, in all material respects, the financial position of
Las Vegas Sands, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
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
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 3 to the financial statements, the Company approved a
quasi-reorganization effective June 30, 1996.
PRICE WATERHOUSE LLP
Los Angeles, California
March 24, 1998
A-8
<PAGE>
LAS VEGAS SANDS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 857 $ 879
Restricted cash and investments ........................ 341,725
Other current assets ................................... 213 362
-------- --------
Total current assets .............................. 342,795 1,241
Property and equipment .................................... 279,770 111,233
Restricted investments .................................... 85,186
Deferred offering costs, net .............................. 38,618
Other assets............................................... 1,398 1,635
-------- --------
$747,767 $114,109
======== ========
LIABILITIES AND STOCKHOLDER'SEQUITY
Current liabilities:
Accounts payable ....................................... $ 1,701 $ 77
Construction payables .................................. 25,547 2,617
Other accrued liabilities .............................. 16,507 5,080
-------- --------
Total current liabilities ......................... 43,755 7,774
Long-term debt ............................................ 515,612
-------- --------
559,367 7,774
-------- --------
Preferred Interest in Venetian Casino Resort, LLC, a wholly
owned subsidiary .......................................... 77,053
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $.10 par value, 3,000,000 shares
authorized, 925,000 issued and outstanding ............ 92 92
Capital in excess of par value ......................... 112,977 107,445
Accumulated deficit since June 30, 1996 ................ (1,722) (1,202)
-------- --------
111,347 106,335
-------- --------
$747,767 $114,109
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
A-9
<PAGE>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Casino ............................................... $ -- $ 23,058 $ 44,840
Rooms ................................................ 8,500 15,765
Food and beverage .................................... 9,713 18,772
Rental income from related party ..................... 8,000
Other ................................................ 895 2,773 8,092
-------- --------- --------
895 44,044 95,469
Less--promotional allowances .......................... (3,483) (7,046)
-------- --------- --------
Net revenues ......................................... 895 40,561 88,423
Operating expenses:
Casino ............................................... 15,235 29,925
Rooms ................................................ 3,531 6,767
Food and beverage .................................... 8,136 14,487
Other operating ...................................... 4,377 6,581
Selling, general and administrative .................. (1,827) 18,752 16,863
Depreciation and amortization ........................ 100 4,817 9,826
Write-down of property and equipment ................. 45,042
-------- --------- --------
Total operating expenses ............................. (1,727) 99,890 84,449
Operating income (loss) ............................... 2,622 (59,329) 3,974
Other income (expense):
Interest income ...................................... 3,439 450 518
Interest expense, net of amounts capitalized ......... (6,581)
Interest expense to related party .................... (4,116) (7,870)
-------- --------- --------
Net loss .............................................. $ (520) $ (62,995) $ (3,378)
======== ========= ========
Basic and diluted loss per share ...................... $ (0.56) $ (68.10) $ (2.54)
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
A-10
<PAGE>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------
Capital in
Number Excess of Accumulated
Shares Amount Par Value Deficit Total
------------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ............. 1,572,469 $ 157 $ 143,452 $ (89,854) $ 53,755
Capital Contributions ................... 11,142 11,142
Distributions ........................... (2,148) (2,148)
Net loss ................................ (3,378) (3,378)
Purchase of NFG shares from
Minority stockholders ................. (13,176) (13,176)
Purchase of LVSI shares from
Minority stockholders ................. (647,469) (65) (141) (206)
--------- ----- ---------- --------- ---------
Balance at December 31, 1995 ............. 925,000 92 139,129 (93,232) 45,989
Capital contributions ................... 71,601 71,601
Net loss for the six months ended
June 30, 1996 ......................... (61,793) (61,793)
Elimination of deficit through quasi-
reorganization at June 30, 1996 ....... (155,025) 155,025
Adjustment to assets through
quasi-reorganization .................. 51,740 51,740
Net loss for the six months ended
December 31, 1996 ..................... (1,202) (1,202)
--------- ----- ---------- --------- ---------
Balance at December 31, 1996 ............. 925,000 92 107,445 (1,202) 106,335
Capital contributions ................... 33,132 33,132
Dividends ............................... (27,600) (27,600)
Net loss ................................ (520) (520)
--------- ----- ---------- --------- ---------
Balance at December 31, 1997 ............. 925,000 $ 92 $ 112,977 $ (1,722) $ 111,347
========= ===== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
A-11
<PAGE>
LAS VEGAS SANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $ (520) $ (62,995) $ (3,378)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................... 100 4,817 9,826
Non-cash interest expense due to related party ................... 3,087 4,427
Loss (gain) on disposal of assets ................................ 2,906 (43)
Write-down of property and equipment ............................. 45,042
Change in assets and liabilities:
Other current assets ............................................ (642) 6,354 (65)
Other assets .................................................... 137 3,275 816
Accounts payable ................................................ (77) (1,306) (540)
Other accrued liabilities ....................................... 4,861 (3,780) (5,678)
---------- --------- ---------
Net cash provided by (used in) operating activities ............... 3,859 (2,600) 5,365
---------- --------- ---------
Cash flows from investing activities:
Increase in restricted cash and investments ....................... (426,120)
Construction of Casino Resort ..................................... (130,827) (18,829) (1,661)
Proceeds from the sale of fixed assets ............................ 1,766
---------- --------- ---------
Net cash used in investing activities: ............................ (556,947) (17,063) (1,661)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from capital contributions ............................... 25,500 11,134 11,142
Proceeds from preferred interest in Venetian ...................... 77,053
Proceeds from mortgage notes ...................................... 425,000
Proceeds from senior subordinated notes ........................... 90,500
Payments of deferred offering costs ............................... (37,387)
Payment of dividends .............................................. (27,600)
Purchase of NFG common stock ...................................... (13,176)
Purchase of LVSI common stock ..................................... (206)
Distributions to stockholders ..................................... (2,148)
Payments of notes payable and capital lease obligation ............ (118)
---------- --------- ---------
Net cash provided by (used in) financing activities ............... 553,066 11,134 (4,506)
---------- --------- ---------
Net (decrease) in cash and cash equivalents ........................ (22) (8,529) (802)
Cash and cash equivalents at beginning of year ..................... 879 9,408 10,210
---------- --------- ---------
Cash and cash equivalents at end of year ........................... $ 857 $ 879 $ 9,408
========== ========= =========
The following supplemental disclosures are provided for the
consolidated statement of cash flows:
Cash payments for interest, net of amounts capitalized ............. $ 357 $ -- $ --
========== ========= =========
Interest paid to related parties during the year ................... $ -- $ -- $ 3,261
========== ========= =========
Retirement of notes through stockholder contribution ............... $ -- $ 59,454
========== =========
Acquisition of Expo Center by IGN
Property and equipment sold ....................................... $ -- $ (66,775) $ --
---------- --------- ---------
Reduction of notes ................................................ 65,500
Reduction of other related party liabilities ...................... 2,288
---------- --------- ---------
Increase of capital in excess of par value ........................ $ -- $ 1,013 $ --
========== ========= =========
Contribution of land by Sole Stockholder ........................... $ 7,632 $ -- $ --
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
A-12
<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. Effective 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 to make way for a planned two
phase hotel-casino resort. The first phase of the hotel casino resort (the
"Casino Resort") will include approximately 3,036 suites, casino space
approximating 116,000 square feet, approximately 500,000 square feet of
convention space, and approximately 500,000 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 as of December 31, 1997 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"), 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, Lido Casino Resort Holding Company, LLC, Grand Canal Shops Mall MM, Inc.
and Lido Casino Resort MM, Inc. (collectively, the "Company"). The December 31,
1996 and 1995 periods include only the accounts of LVSI. 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 sole stockholder (the "Sole Stockholder")(Note 8).
Mall Intermediate, Mall Construction 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 Mall Subsidiary is an indirect wholly owned subsidiary of Mall
Intermediate and was formed on March 20, 1997 to own and operate the retail
mall in the Casino Resort.
Construction of the Casino Resort commenced in April 1997 and completion
is scheduled for the second quarter of 1999. The Company expects to expend
approximately $868.0 million (excluding estimated capitalized interest and
financing costs of approximately $131.0 million) to complete construction and
open the Casino Resort.
The Company has transacted business with a number of related parties
including Interface Group-Nevada, Inc. ("IGN") and Nevada Funding Group, Inc.
("NFG"). The nature of such transactions and the amounts involved are disclosed
on the face of the financial statements and in the notes thereto.
In addition to its gaming operations, the Company also owned and leased
the Sands Expo and Convention Center (the "Expo Center") prior to January 1996.
As discussed in Note 10, the Expo Center was acquired by IGN in January 1996.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
original maturities not in excess of 90 days.
Property and Equipment
Property and equipment are generally stated at cost or, in the case of
assets under capital lease, at the present value of future minimum lease
payments, calculated as of the date of inception. Owned assets
A-13
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
prior to June 30, 1996 were depreciated using the straight-line method over
estimated useful lives ranging from three to thirty years. Subsequent to the
closing of the Sands, depreciable property and equipment consist of equipment,
furniture and fixtures which are being depreciated using the straight-line
method over their estimated useful life of five years. 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.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," management reviews assets for possible impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Under SFAS No. 121, an
impairment loss would be recognized when estimated future 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.
Preopening Costs
Preopening costs, representing primarily direct personnel and other costs
incurred prior to the opening of the Casino Resort are expensed as incurred. No
such costs have been incurred as of December 31, 1997.
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. During the year ended December 31, 1997, $0.1
million and $0.5 million of debt discount and offering costs, respectively,
have been included in construction in progress.
Per Share Data
Basic and diluted loss per share are calculated based upon the weighted
average number of shares outstanding. The weighted average number of shares
outstanding used in the computation of loss per share of common stock was
925,000 in 1997 and 1996 and 1,329,661 in 1995.
Casino Revenue and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of accommodations, food and beverage,
and other services furnished to hotel-casino guests without charge is included
in gross revenues and deducted as promotional allowances. The estimated cost of
providing such promotional allowances has been classified primarily as casino
costs and expenses as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1996 1995
------ -------- ---------
<S> <C> <C> <C>
Rooms ..................... $-- $ 592 $ 931
Food and Beverage ......... 2,348 4,717
Other ..................... 38 126
--- ------ ------
$-- $2,978 $5,774
=== ====== ======
</TABLE>
A-14
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
LVSI has elected to be taxed as an S Corporation and its wholly owned
subsidiaries are limited liability companies, 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.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of restricted investments.
These restricted investments are placed with a high credit quality financial
institution which invests primarily in U.S. Government backed repurchase
agreements. At December 31, 1997, the Company had no significant concentrations
of credit risk.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 to make way for a new hotel-casino resort (Note 1). As a result,
approximately 1,400 employee positions were eliminated. The severance and
related closing costs of $6.7 million are included in selling, general and
administrative expense for 1996. In December 1997, the Company reevaluated its
accrued closing costs and determined the remaining liability to be
approximately $0.9 million. As a result, the Company credited the remaining
unutilized closing costs 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 sole 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
was eliminated against the cost basis of the remaining property, 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 AND INVESTMENTS
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
A-15
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4--RESTRICTED CASH AND INVESTMENTS (Continued)
controlled by the Company but which are also restricted as to use under the
terms of the Disbursement Agreement. At December 31, 1997, $1.7 million of
restricted cash was included in restricted cash and investments.
At December 31, 1997, all of the Company's investments were classified as
held-to-maturity, which consists of securities that management has the ability
and intent to hold to maturity. These investments are carried at cost plus
accrued interest, which approximates fair value. There were no sales or
transfers of securities classified as held-to-maturity during 1997. Scheduled
maturities of securities classified as held-to-maturity at December 31, 1997
are summarized as follows (in thousands):
<TABLE>
<S> <C>
1998 $340,027
1999 85,186
--------
$425,213
========
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment includes costs incurred to construct the Casino
Resort and consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Land and land improvements ................ $ 93,634 $ 87,523
Equipment, furniture and fixtures ......... 422 422
Construction in progress .................. 185,714 23,288
-------- --------
$279,770 $111,233
======== ========
</TABLE>
The Casino Resort serves as collateral for various financing facilities
(Note 7).
Construction in progress at December 31, 1997 and 1996 consists of
payments for construction of the Casino Resort including capitalized interest
of $2.2 million and $0 at December 31, 1997 and 1996, respectively.
NOTE 6--OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
---------- ---------
<S> <C> <C>
Accrued closing costs .......... $ 924 $3,658
Accrued interest ............... 7,809
Construction retention ......... 6,594
Other accruals ................. 1,180 1,422
------- ------
$16,507 $5,080
======= ======
</TABLE>
Accrued closing costs consist primarily of accrued medical costs for severed
employees and legal costs as a result of the closing of the Sands (Note 3).
A-16
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
----------- ---------
<S> <C> <C>
12-1/4% Mortgage Notes, due November 15, 2004 ........ $425,000 $ --
14-1/4% Senior Subordinated Notes, due November 15,
2005 (Net of unamortized discount of $6,888) ......... 90,612 --
-------- -----
Total long-term debt .................................. $515,612 $ --
======== =====
</TABLE>
In connection with the financing for the Casino Resort, the Company
entered into a series of transactions during 1997 to provide for the
development and construction of the Casino Resort:
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.
The Mortgage Notes are secured by second priority liens on the Note
Collateral (defined as real estate improvements and personal property with
certain exceptions) and third priority liens on the Mall Collateral (defined as
improvements to the retail mall space). Pending disbursement of the proceeds of
the Mortgage Notes, the Mortgage Notes also will be secured by a first priority
pledge of the proceeds in the Mortgage Notes Proceeds Account (as defined in
the Disbursement Agreement). The Senior Subordinated Notes are unsecured. As of
December 31, 1997, no proceeds from the Mortgage Notes and $80.9 million of the
proceeds from the Senior Subordinated Notes had been expended. The Notes are
redeemable at the option of LVSI and Venetian at prices ranging from 100% to
106.125% during specified years as set forth in the Notes and the indentures
pursuant to which the Notes were issued (the "Indentures"). Upon a change in
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 (or
with respect to the Senior Subordinated Notes, prior to November 15, 1999, the
original issue price plus accrued original issue discount) plus accrued
interest and other amounts which are then due, if any. The Notes are not
subject to a sinking fund requirement.
The Company is committed under a registration rights agreement to use its
reasonable best efforts to effect a registered exchange offer for the Notes or
subject to certain conditions, to provide a shelf registration for the 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 Notes would accrue until such defaults are
cured.
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 will accrue to
par by the second anniversary date of the issuance.
Bank Credit Facility
In November 1997, LVSI, Venetian and a syndicate of lenders entered into a
bank credit facility (the "Bank Credit Facility"). The Bank Credit Facility
provides up to $150 million in multiple draw term loans to the Company for
construction and development of the Casino Resort. The term loans mature not
later than the sixth anniversary of the closing date and are subject to
quarterly amortization payments which, subject to certain exceptions, begin at
the end of either the first or second fiscal quarter following the earlier of
(i) two years after the closing date or (ii) the date completion of the Casino
Resort occurs.
A-17
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--LONG-TERM DEBT (Continued)
The indebtedness under the Bank Credit Facility is secured by first
priority liens on the Note Collateral (other than the Mortgage Notes Proceeds
Account) and second priority liens on the Mall Collateral. As of December 31,
1997, no amounts had been drawn under the Bank Credit Facility.
Up to $20.0 million of additional credit in the form of revolving loans
under the Bank Credit Facility is available generally for working capital
beginning six months prior to the completion date. The revolving loan will
mature on the second anniversary of the initial draw. During the construction
of the Casino Resort, up to $15.0 million of the revolving loans will be
available to fund purchases of certain furniture, fixtures and equipment (the
"Specified FF&E") (including deposits) and provide letters of credit for
construction activities. Any amounts borrowed to purchase the Specified FF&E
are expected to be repaid from the proceeds of a $97.7 million credit facility
secured by the Specified FF&E (the "FF&E Credit Facility").
Funds borrowed under the Bank Credit Facility bear interest through
Project Completion (as defined in the Bank Credit Facility) at (i) a base rate
plus 2% per annum or (ii) a reserve adjusted eurodollar rate plus 3% per annum.
Upon completion and for six months thereafter, the interest rate will be at (i)
a base rate plus 1-1/2% or (ii) a reserve adjusted eurodollar rate plus 2-1/2%
per annum. From six months after completion, the interest rate will be at a
base rate or a reserve adjusted eurodollar rate plus a margin based on certain
leverage ratios set forth in the Bank Credit Facility. In January 1998, LVSI
and Venetian purchased a eurodollar interest rate cap of up to $75.0 million
based on a percentage of the borrowings outstanding under the Bank Credit
Facility to limit the interest on the eurodollar component of the loans under
the Bank Credit Facility to 9%.
Under the terms of the Bank Credit Facility, a commitment fee equal to
0.50% per annum times the daily average unused portion under the Bank Credit
Facility is payable quarterly in arrears.
Mall Construction Loan Facility
In November 1997, LVSI, Venetian, Mall Construction and a major non-bank
lender entered into a mall construction loan facility to provide up to $140.0
million in financing for the retail mall in the Casino Resort (the "Mall
Construction Loan Facility"). The credit facility consists of two loan
tranches: a Tranche A loan in the amount up to $105.0 million and a Tranche B
loan in the amount up to $35.0 million. All indebtedness under the Mall
Construction Loan Facility matures on May 1, 2000 with an option of the Company
to extend the maturity of such indebtedness to November 14, 2000 based on
certain conditions and upon payment of a $0.4 million extension fee.
The indebtedness under the Mall Construction Loan Facility is secured by
first priority liens on the Mall Collateral. Upon completion of the Casino
Resort, the retail mall is expected to be transferred to the Mall Subsidiary
and the indebtedness under the Mall Construction Loan Facility either will be
repaid with the proceeds of borrowings by the Mall Subsidiary or will be
assumed by the Mall Subsidiary. As of December 31, 1997, no amounts had been
drawn under the Mall Construction Loan Facility.
The annual interest rate on the facility is 275 basis points over 30-day
LIBOR, with a retroactive increase in the interest rate to 375 basis points
over 30-day LIBOR to April 10, 1998 if the retail mall does not become a
separate legal and tax parcel prior to July 10, 1998. The increase in the
interest rate will cease on the date on which the retail mall becomes a
separate legal and tax parcel.
The Company has obtained commitments to refinance the Mall Construction
Loan Facility upon the completion of the retail mall under specified
conditions. The availability of such commitments are subject to certain
conditions, including the delivery of certain legal opinions.
FF&E Financing
In December 1997, the FF&E Credit Facility 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.
A-18
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--LONG-TERM DEBT (Continued)
The financing provides for an interim loan during construction and a 60-month
basic term loan after completion of the Casino Resort. Funds are generally
available either three months prior to the anticipated project construction
completion date if the Company elects to accrue interim loan interest or eight
months prior to completion should the Company elect to pay interest currently.
In the initial and subsequent draws, the FF&E Lenders will reimburse the
Company for any amounts spent by the Company for Specified FF&E prior to the
initial draw.
Under the terms of the FF&E Credit Facility, a commitment fee equal to
0.50% per annum times the daily average unused portion under the FF&E Credit
Facility is payable monthly in arrears.
Interest on the interim loan is at a floating rate equal to the 30-day
reserve adjusted LIBOR plus 375 basis points or at a base rate (the greater of
the prime rate or the federal funds rate plus 50 basis points) plus 100 basis
points. If the Company elects to pay interest on the interim loan currently,
interest is due quarterly in arrears.
Interest on the basic term loan is a floating monthly rate calculated at
the higher of (a) the reserve adjusted 30-day LIBOR plus 375 basis points or
(b) the eurodollar interest rate margin in effect on the Bank Credit Facility
plus 125 basis points. Amortization on the FF&E basic loan will be 3% of the
principal for the first four quarters following the opening of the Casino
Resort and 5.5% of the principal for the next 16 quarters.
As of December 31, 1997, no amounts had been drawn under the FF&E Credit
Facility.
The debt instruments described above contain certain covenants and
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.
Additionally the Company is a party to intercreditor arrangements,
including certain intercreditor agreements and the Disbursement Agreement. The
intercreditor agreements set forth the lenders interests and claims in the
Company's assets as collateral for borrowings. The Disbursement Agreement
establishes conditions to and the sequencing of funding construction costs and
procedures for approving construction change orders and amendments to the
construction budget and schedule.
As support for the development of the Casino Resort, the Sole Stockholder
or his affiliates have provided the following:
(i) a $25.0 million construction completion guaranty collateralized by
cash or cash equivalents. Such construction completion guaranty may
be increased under certain circumstances for scope changes (as
defined in the Disbursement Agreement) to the Casino Resort;
(ii) a $35.0 million guarantee of the Mall Construction Loan Facility and
a commitment to provide $35.0 million to refinance a portion of the
Mall Construction Loan Facility, collateralized by cash or cash
equivalents; and
(iii) a $20.0 million unsecured guaranty of the take-out financing for the
Mall Construction Loan Facility of $105.0 million.
Scheduled maturities of long-term debt outstanding at December 31, 1997
are summarized as follows: $0 in each of the years 1998 through 2002 and $515.6
million thereafter.
A-19
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--LONG-TERM DEBT (Continued)
Construction Loan Payable
In 1997, interim construction financing of up to $45.0 million was
available. The interest rate was based on the eurodollar rate and averaged 5.9%
during 1997. Approximately $30.1 million was borrowed during 1997 and repaid
upon the closing of the offering of the Notes and other project financings in
November 1997.
NOTE 8--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. The Series A Preferred Interest is non-voting, accrues
no preferred return and is not subject to mandatory redemption or redemption at
the option of the holder. The Series A Preferred Interest may, at any time, be
converted into a Series B preferred interest in Venetian (the "Series B
Preferred Interest"). The rights of the Series B Preferred Interest are the same
as the Series A Preferred Interest except that the Series B Preferred Interest
will accrue a preferred return of 12% and commencing in November 2009,
distributions must be made to the extent of the positive capital account of the
holder. Subject to the restrictions in the debt instruments of the Company,
distributions on both the Series A Preferred Interest and Series B Preferred
Interest may be made at any time at the option of the Company. As of December
31, 1997, there were no distributions of preferred interest or preferred return
paid or accrued.
NOTE 9--STOCKHOLDER'S 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. All references to share and per share data
herein have been adjusted retroactively to give effect to the change in shares
outstanding.
Share Repurchases
In December 1995, LVSI completed a merger with NFG, accounted for at
historical cost in a manner similar to a pooling of interests, through the
contribution of all of the outstanding common stock of NFG to the Company. In
April 1995, NFG purchased and retired 41,175 shares of its common stock from
three stockholders. The total price paid for these shares was $13.2 million,
which has been recorded as a reduction to capital in excess of par value. In
August 1995, LVSI purchased 647,469 shares of its common stock from the
identical three stockholders for $206,000. Shares repurchased by LVSI have been
retired and restored to authorized and unissued common stock. Subsequent to
these repurchases, both LVSI and NFG were owned by the Sole Stockholder.
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.
Upon approval of the plan by the Nevada Gaming Commission, options are
intended to be granted to fulfill commitments under long-term employment
agreements with certain key executives. As part of the employment agreements,
the Company committed to grant each executive options to purchase shares
A-20
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9--STOCKHOLDER'S EQUITY (Continued)
of the Company's common stock at an exercise price to be determined by a
formula involving the value of LVSI's land and certain capital contributions.
If fully exercised, shares acquired under such options would represent
approximately 5% of the Company's then-outstanding stock.
Dividends
During the year ended December 31, 1997, LVSI declared and paid
liquidating cash dividends totaling $27.6 million from capital in excess of par
value, to its Sole Stockholder.
NOTE 10--RELATED PARTY TRANSACTIONS
Prior year's financial statements include significant transactions and
balances involving affiliates of the Company. Interest expense relating to the
Second Mortgage Notes and the Third Mortgage PIK Notes totaling $4.1 million
and $7.9 million in 1996 and 1995, respectively, was paid or was payable to
IGN. In addition, through 1995, the Company leased the 1,150,000 square foot
Expo Center to IGN. Pursuant to the operating lease agreement, IGN paid an
annual rental of $8.0 million and was responsible for all taxes, insurance, and
costs to operate and maintain the facility. During 1996, IGN acquired from the
Company the Expo Center building and related land and equipment at its carrying
value of $66.8 million in exchange for all of the Second Mortgage Notes and a
portion of the Third Mortgage PIK Notes of the Company held by IGN totaling
$65.5 million. In connection with the transaction, the above lease was
canceled, and the Company subsequently retired the Second and Third Mortgage
Notes received including $59.5 million of Third Mortgage Notes previously held
by IGN and contributed by the Sole Stockholder.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Construction Costs
Ground breaking for the Casino Resort occurred in April 1997. The
redevelopment of the site of the Sands is expected to be completed in two
phases (with the first phase being construction of the Casino Resort), subject
to receipt of appropriate regulatory approvals, permits and licenses. There can
be no assurance, however, as to when, or if, such construction will be
completed due to risks and uncertainties inherent in the development process.
The cost of the Casino Resort is currently estimated at approximately $1
billion. In connection with the construction of the Casino Resort, the Company
has signed a construction management agreement (the "Construction Management
Agreement") with a major construction management firm (the "Construction
Manager"). Such agreement provides for a maximum guaranteed price for certain
construction costs currently set at $547.8 million and a guaranteed completion
period of 24 months from the effective starting date of construction. As of
December 31, 1997, the Company was committed to approximately $300 million for
capital expenditures relating to the Casino Resort.
Development costs are funded first from the proceeds of the Senior
Subordinated Notes and then pro rata among the proceeds of the Mortgage Notes
and draws on the Bank Credit Facility and the Mall Construction Loan Facility
(Note 7). Upon subdivision of the site of the Sands, the land for the second
phase of the redevelopment of the site of the Sands may be released from the
Note Collateral and transferred to the Phase II Subsidiary, which is not a
guarantor of the Notes or any other indebtedness of LVSI or Venetian.
Energy Services Agreement
During 1997, the Company entered into an energy services agreement with a
heating and air conditioning ("HVAC") provider. Under the terms of the energy
services agreement and other separate energy services agreements, HVAC energy
and services will be purchased by the Company, the Mall Subsidiary, its mall
tenants and IGN over initial terms of 10 years with an option to collectively
extend the terms of their agreements for two consecutive five year periods.
A-21
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11--COMMITMENTS AND CONTINGENCIES (Continued)
Pursuant to the Construction Management Agreement, the HVAC plant is being
constructed by the Construction Manager on land owned by the Company and leased
to the HVAC provider. The HVAC equipment is and will be owned by the HVAC
provider, which will pay all costs ("HVAC Costs") in connection with the
purchase and installation of the HVAC equipment, up to $70.0 million. As of
December 31, 1997, HVAC Costs totaled $8.4 million.
The charges payable under the separate energy services agreements will
include a fixed component applied to the HVAC Costs paid by the HVAC provider
and reimbursement of operational and related costs.
Litigation
The Company is party to litigation matters and claims related to its
operations. The financial statements include provisions for estimated losses
related thereto. Management, based upon advice from legal counsel, does not
expect that the final resolution of these matters will have a material impact
on the financial position and results of operations of the Company.
NOTE 12--SUMMARIZED FINANCIAL INFORMATION
Venetian, Mall Intermediate, Mall Construction, and Lido Intermediate
(collectively, the "Subsidiary Guarantors") are wholly owned subsidiaries of
LVSI. 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. The Subsidiary Guarantors have jointly
and severally guaranteed (or are co-obligors of) such debt on a full and
unconditional basis (other than indebtedness under the Mall Construction Loan
Facility which is guaranteed only by Mall Intermediate and Mall Construction).
No other subsidiary of LVSI is an obligor or guarantor of any of the Casino
Resort financing. No summarized financial information is presented for any
non-guarantor subsidiaries of the Company, as they had no assets or results of
operations from inception through December 31, 1997. Separate financial
statements and other disclosures concerning each of Venetian and the Subsidiary
Guarantors are not presented because management believes that they are not
material to investors. Summarized financial information of LVSI, Venetian and
the Subsidiary Guarantors on a combined basis as of and for the year ended
December 31, 1997 is as follows (in thousands):
A-22
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 12--SUMMARIZED FINANCIAL INFORMATION (Continued)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Venetian
and the Consolidating/
Las Vegas Subsidiary Eliminating
Sands, Inc. Guarantors Entries Total
----------- ---------- -------------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents ............... $ 142 $ 715 $ -- $ 857
Restricted cash and investments ......... 341,725 341,725
Amounts due from Venetian ............... 894 (894)
Other current assets .................... 118 95 213
-------- -------- ---------- --------
Total current assets ................... 1,154 342,535 (894) 342,795
-------- -------- ---------- --------
Property and equipment, net ............. 279,770 279,770
Restricted investments .................. 85,186 85,186
Investment in Venetian .................. 114,132 (114,132)
Deferred offering costs, net ............ 38,618 38,618
Other assets ............................ 1,358 40 1,398
-------- -------- ---------- --------
$116,644 $746,149 $ (115,026) $747,767
======== ======== ========== ========
Accounts payable ........................ $ -- $ 1,701 $ -- $ 1,701
Construction payables ................... 25,547 25,547
Amounts due to LVSI ..................... 894 (894)
Other accrued liabilities ............... 2,045 14,462 16,507
-------- -------- ---------- --------
Total current liabilities .............. 2,045 42,604 (894) 43,755
Long-term debt .......................... 515,612 515,612
-------- -------- ---------- --------
2,045 558,216 (894) 559,367
-------- -------- ---------- --------
Preferred interest in Venetian .......... 77,053 77,053
-------- -------- ---------- --------
Stockholder's equity .................... 114,599 110,880 (114,132) 111,347
-------- -------- ---------- --------
$116,644 $746,149 $ (115,026) $747,767
======== ======== ========== ========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Venetian
and the Consolidating/
Las Vegas Subsidiary Eliminating
Sands, Inc. Guarantors Entries Total
----------- ---------- -------------- --------
<S> <C> <C> <C> <C>
Revenues ................................ $ 895 $ -- $-- $ 895
Operating expenses ...................... (1,727) (1,727)
-------- -------- --- --------
Operating income ........................ 2,622 2,622
Other income (expense): .................
Interest income ........................ 110 3,329 3,439
Interest expense ....................... (6,581) (6,581)
-------- -------- --- --------
Net income (loss) ....................... $ 2,732 $ (3,252) $-- $ (520)
======== ======== === ========
</TABLE>
A-23
<PAGE>
LAS VEGAS SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 12--SUMMARIZED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Venetian
and the Consolidating/
Las Vegas Subsidiary Eliminating
Sands, Inc. Guarantors Entries Total
----------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities ........................................... $ (838) $ 4,697 $-- $ 3,859
--------- -------- --- ---------
Cash flows from investing activities:
Increase in restricted cash and investments .......... (426,120) (426,120)
Purchases of property and equipment, net ............. (25,399) (105,428) (130,827)
--------- -------- ---------
Net cash used in investing activities ................. (25,399) (531,548) -- (556,947)
--------- -------- --- ---------
Cash flows from financing activities:
Proceeds from capital contributions .................. 25,500 25,500
Proceeds from preferred interest in Venetian ......... 77,053 77,053
Proceeds from mortgage notes ......................... 425,000 425,000
Proceeds from senior subordinated notes .............. 90,500 90,500
Proceeds (payments) of intercompany
dividends ............................................ 27,600 (27,600)
Payments of deferred offering costs .................. (37,387) (37,387)
Payments of dividends ................................ (27,600) (27,600)
--------- -------- --- ---------
Net cash provided by financing activities ............. 25,500 527,566 -- 553,066
--------- -------- --- ---------
Increase in cash and cash equivalents ................. (737) 715 (22)
Cash and cash equivalents at beginning of
period ............................................... 879 879
--------- -------- --- ---------
Cash and cash equivalents at end of period ............ $ 142 $ 715 $-- $ 857
========= ======== === =========
</TABLE>
A-24
<PAGE>
[LANDAUER ASSOCIATES, INC. LETTERHEAD]
ANNEX B
December 12, 1997
To: Las Vegas Sands, Inc.
3355 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Venetian Casino Resort LLC
3355 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Re: Sands Vacant Land/Casino Resort Appraisals
Ladies and Gentlemen:
At your request, this letter will serve to confirm that Landauer Associates
Inc. has prepared two full narrative appraisal reports, both dated October 17,
1997 (the "Appraisal Reports") which respectively estimate the market value of
1) the approximately 45 acre site formerly occupied by the Sands Hotel and
underlying the Casino Resort and 2) the Casino Resort (including the Hotel, the
Casino and, separately, the Mall). (The Casino Resort and the Mall are to be
separately demised.) Values for all components in both reports were estimated
based on economic conditions prevailing on October 17, 1997.
Our appraisal assignment was to estimate the market value of the fee simple
interest in the land as if vacant, assuming its highest and best use, in this
case for redevelopment as a casino hotel and retail/entertainment project, in
each case, and the market value on a "completed" and "stabilized occupancy"
basis, of the Casino Resort, including the Hotel, the Casino and the Mall
consistent with recent development activity elsewhere along the Strip.
In the process of preparing our Appraisal Reports, we inspected the property;
interviewed representatives of Las Vegas Sands, Inc. and Venetian Casino
Resort, LLC; reviewed and considered the projections for the project provided
by Las Vegas Sands, Inc. and made adjustments to such projections as we deemed
necessary based upon our independent research. We reviewed, thoroughly analyzed
and compared to the subject site recent relevant land sales on or near the
Strip in Las Vegas; and performed a residual land value analysis on the subject
site. We reviewed available improved sale data, but, due to the lack of
comparable casino hotel or mall sales, were not able to reach a value estimate
for either improved component based upon the Sales Comparison Approach. We
reviewed income and expense data for comparable casino hotels, comparable
convention hotels and comparable malls. After taking into account current local
supply and demand conditions, we forecasted income and expense for the Casino
Hotel and the Mall and performed a discounted cash flow analysis for each.
As specified in the Appraisal Reports, the value opinions reported below are
qualified by certain assumptions, limiting conditions, certifications, and
definitions which are set forth in the reports. Please note that this letter is
provided as a supplement to our Appraisal Reports which are available for your
review under separate cover.
B-1
<PAGE>
[LANDAUER ASSOCIATES, INC. LETTERHEAD]
Las Vegas Sands, Inc.
Venetian Casino Resort, LLC
December 12, 1997
Page 2
The property was inspected by and the report was prepared by Rodney A. Wycoff,
CRE, MAI and Karen L. Johnson, MAI with the assistance of other memebers of
Landauer's professional staff.
As result of our analysis, and as set forth in our appraisal report dated
October 17, 1997, we estimate (i) that the market value of the approximately 45
acres of land formerly occupied by the Sands Hotel and underlying Venetian
Casino Resort, as of October 17, 1997, was $225.0 million, (ii) the market
value of the Hotel and Casino components of the Venetian Casino Resort on an
"as completed" basis which is estimated to be April 1, 1999 will be $1.1
billion and the market value of the Hotel and Casino "as stabilized," which is
anticipated to be April 1, 2001, will be $1.3 billion, based on conditions
prevailing as of October 17, 1997, and (iii) the market value of the Mall upon
completion, which is anticipated to be April 1, 1999, will be approximately
$220.0 million and upon stabilization, which is anticipated to be April 1, 2000
will be $248.0 million, based on economic conditions prevailing as of Ocotber
17, 1997. In reaching the conclusions set forth in the foregoing clause (ii),
we derived an average room rate of $167 (1999 dollars) and an average occupancy
rate of 93% for the Venetian Casino Resort.
We hereby affirm that between the date of the Appraisal Reports and the date
hereof, nothing has come to the attention of the undersigned which would
invalidate or render incorrect any of the assumptions, estimates or conclusions
included in the Appraisal Reports.
We understand that this letter and the Appraisal Reports will be used, and
consent to their use, (a) in connection with borrowings being made from banks
and/or other institutional lenders in connection with the development of the
property and (b) in connection with a public offering or private placement of
securities. We further understand that the offering materials used in
connection with such financings will contain: 1) a reference to our firm and to
the valuation we derived for the property; 2) summary information regarding
such valuation; and 3) this letter. Copies of our Appraisal Reports will be
made available to banks for the purpose of evaluating and participating in the
Bank Credit Facility.
We have reviewed the descriptions of our Appraisal Reports contained in the
accompanying Prospectus under the captioned section "Appraisals," and hereby
confirm that the statements therein fairly represent our Appraisal Reports.
We hereby consent to the inclusion of such description, and to the references
to Landauer Associates, Inc. and to copies of the Appraisal Reports, in the
Prospectus referred in the foregoing paragraph. Furthermore, we hereby consent
to being named as experts in such Prospectus.
This letter summarizes our opinions of value. The reader is directed to our
fully documented narrative reports, which contain the text, exhibits, and
addenda, which is available under separate cover.
Sincerely,
LANDAUER ASSOCIATES, INC.
/s/ Rodney A. Wycoff, MAI, CRE
Rodney A. Wycoff, MAI, CRE
Senior Managing Director
B-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Issuers. 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, nor does it constitute
an offer to sell, or the solicitation of an offer to buy, to any person in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Issuers since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information ......................... 2
Special Note Regarding Forward-
Looking Statements ......................... 3
Prospectus Summary ............................ 4
Risk Factors .................................. 27
LVSI and Venetian ............................. 46
Use of Proceeds ............................... 48
Capitalization ................................ 50
Management's Discussion and Analysis of
Liquidity and Capital Resources ............ 51
The Exchange Offer ............................ 55
Business ...................................... 63
Regulation and Licensing ...................... 80
Appraisals .................................... 84
Management .................................... 88
Ownership of Capital Stock .................... 92
Certain Transactions .......................... 93
Description of Mortgage Notes ................. 96
Description of Senior Subordinated Notes ...... 147
Book-Entry, Delivery and Form ................. 191
Description of Disbursement Agreement ......... 194
Description of Intercreditor Agreement ........ 200
Insurance Requirements ........................ 204
Description of Certain Indebtedness ........... 206
Certain Material Agreements ................... 214
Certain Federal Income Tax Considerations 224
ERISA Considerations .......................... 229
Plan of Distribution .......................... 229
Validity of the Notes ......................... 230
Independent Accountants ....................... 230
Appraisers .................................... 230
Index to Forecasted Consolidated Financial
Statements ................................. P-1
Annex A--Certain Historical Financial
Information ................................ A-1
Annex B--Letter From the Appraiser ............ B-1
</TABLE>
---------------------------------
Prospectus
---------------------------------
Las Vegas Sands, Inc.
Venetian Casino Resort, LLC
$425,000,000
12-1/4% Mortgage Notes
due 2004
$97,500,000
14-1/4% Senior Subordinated Notes
due 2005
---------------------------------
[THE VENETIAN LOGO]
---------------------------------
Offer to Exchange $425,000,000 of their 12-1/4% Mortgage Notes due 2004 and
$97,500,000 of their 14-1/4% Senior Subordinated Notes which have been
registered under the Securities Act for $425,000,000 of their outstanding
12-1/4% Mortgage Notes due 2004 and $97,500,000 of their outstanding 14-1/4%
Senior Subordinated Notes due 2005.
, 1998
Until , 1998 (90 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Las Vegas Sands, Inc. ("LVSI") 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, provides 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 N.R.S. 78.300.
Venetian Casino Resort, LLC ("Venetian" and, together with LVSI, the
"Issuers"), 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 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 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
II-1
<PAGE>
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 Mall Intermediate Holding Company, LLC ("Mall Intermediate
Holdings"), Lido Intermediate Holding Company, LLC ("Phase II Intermediate
Holdings") and Grand Canal Shops Mall Construction, LLC ("Mall Construction
Subsidiary" and, together with Mall Intermediate Holdings and Phase II
Intermediate Holdings, the "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 Guarantors' limited liability company
agreements provides that such 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 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 Guarantor or otherwise, whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the 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 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 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 12-1/4% Mortgage Notes due 2004 and 14-1/4% Senior
Subordinated Notes due 2005, 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 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. The Purchase
Agreement, dated as of November 6, 1997, among the Issuers, the Guarantors,
Goldman, Sachs & Co. and Bear, Stearns & Co. 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.
II-2
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ------------- -----------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of LVSI.*
3.2 Certificate of Amendment of Amended and Restated Articles of Incorporation of
LVSI.*
3.3 Amended and Restated By-laws of LVSI.*
3.4 Amended and Restated Limited Liability Company Agreement of Venetian.*
3.5 Limited Liability Company Agreement of Phase II Intermediate Holdings.*
3.6 Limited Liability Company Agreement of Mall Intermediate Holdings.*
3.7 Limited Liability Company Agreement of Mall Construction Subsidiary.*
4.1 Indenture, dated as of November 14, 1997, among the Issuers, as issuers, the
Guarantors, as Mortgage Note guarantors, and First Trust National Association ("First
Trust"), as Mortgage Note trustee.*
4.2 Indenture, dated as of November 14, 1997, among the Issuers, as issuers, the
Guarantors, as Senior Subordinated Note guarantors, and First Union National Bank
("First Union"), as Senior Subordinated Note trustee.*
4.3 Registration Rights Agreement, dated as of November 14, 1997, among the Issuers,
the Guarantors, and the Initial Purchasers.*
4.4 Funding Agents' Disbursement and Administration Agreement, dated as of November
14, 1997, among LVSI, Venetian, Mall Construction Subsidiary, jointly and severally,
The Bank of Nova Scotia ("Scotiabank"), as the Bank Agent, First Trust, as the
Mortgage Note trustee, Atlantic-Pacific Las Vegas, LLC ("Atlantic-Pacific"), as the
HVAC Provider, and Scotiabank, as the Disbursement Agent.*
4.5 Company Security Agreement, dated as of November 14, 1997, by and among LVSI,
Venetian, Mall Construction Subsidiary and Scotiabank, as the Intercreditor Agent.*
4.6 Mall Construction Subsidiary Security Agreement, dated as of November 14, 1997,
between Mall Construction Subsidiary and Scotiabank, as the Intercreditor Agent.*
4.7 Deed of Trust, Assignment of Rents and Leases and Security Agreement made by
Venetian and LVSI, jointly and severally as trustor, to Lawyers Title of Nevada, Inc.
("Lawyer's Title"), as trustee, for the benefit of First Trust, in its capacity as the
Mortgage Note trustee, as Beneficiary.*
4.8 Leasehold Deed of Trust, Assignment of Rents and Leases and Security Agreement
made by Mall Construction Subsidiary, as trustor, to Lawyer's Title, as trustee, for the
benefit of First Trust, in its capacity as the Mortgage Note trustee, as Beneficiary.*
4.9 Disbursement Collateral Account Agreement, dated as of November 14, 1997, by and
among LVSI, Venetian, Mall Construction Subsidiary and Scotiabank, as
Disbursement Agent and as Securities Intermediary.*
4.10 Mortgage Notes Proceeds Collateral Account Agreement, dated as of November 14,
1997, by and among LVSI, Venetian and Scotiabank, as Disbursement Agent.*
4.11 Mortgage Notes Proceeds Account Third-Party Account Agreement, dated as of
November 14, 1997, by and among LVSI, Venetian, Scotiabank, as Disbursement
Agent, and Goldman, Sachs & Co., as Securities Intermediary.*
4.12 Intercreditor Agreement, dated as of November 14, 1997, among Scotiabank, as
Bank Agent and Intercreditor Agent, First Trust, as Mortgate Note trustee, GMAC
Commercial Mortgage Corporation ("GMAC"), as Interim Mall Lender, First Union, as
Senior Subordinated Note trustee.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ------------- -------------------------------------------------------------------------------------
<S> <C>
4.13 Completion Guaranty, dated as of November 14, 1997, made by Sheldon G. Adelson,
in favor of Scotiabank, as the Bank Agent acting on behalf of the Bank Lenders,
GMAC, as the Interim Mall Lender, and First Trust, as the Mortgage Note trustee.*
4.14 Completion Guaranty Collateral Account Agreement, dated as of November 14, 1997,
by and between Sheldon G. Adelson, as Pledgor, and Scotiabank, as Disbursement
Agent.*
4.15 Completion Guaranty Third-Party Account Agreement, dated as of November 14,
1997, by and among Sheldon G. Adelson, Scotiabank, as Disbursement Agent, and
Goldman, Sachs & Co., as Securities Intermediary.*
4.16 Unsecured Indemnity Agreement, dated as of November 14, 1997, by LVSI, Venetian
and Mall Construction Subsidiary, to and for the benefit of First Trust.*
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, regarding legality of the
securities being registered.
5.2 Opinion of Lionel Sawyer & Collins, regarding legality of the securities being
registered.
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, regarding certain tax matters.*
10.1 Bank Credit Agreement, dated as of November 14, 1997, among LVSI, Venetian, the
lender parties thereto, Goldman Sachs Credit Partners, L.P. ("GSCP"), as arranger
and syndication agent, and Scotiabank, as administrative agent.*
10.2 Credit Agreement, dated as of November 14, 1997, among LVSI, Venetian, Mall
Construction Subsidiary and GMAC.*
10.3 Energy Services Agreement, dated as of November 14, 1997, by and between
Atlantic-Pacific and Venetian.*
10.4 Energy Services Agreement, dated as of November 14, 1997, by and between
Atlantic-Pacific and Mall Construction Subsidiary.*
10.5 Construction Management Agreement, dated as of February 15,1997, between LVSI,
as owner, and Lehrer McGovern Bovis, Inc., as construction manager.*
10.6 Assignment, Assumption and Amendment of Construction Management Agreement,
dated as of Novembr 14, 1997, by and between LVSI, Venetian and Lehrer
McGovern Bovis, Inc.*
10.7 Agreement, effective as of January 1, 1996, between Venetian, as owner, and the
architect, a collaboration between the firms of TSA of Nevada, LLP and WAT&G, Inc.,
Nevada.*
10.8 Amended and Restated Reciprocal Easement, Use and Operating Agreement, dated
as of November 14, 1997, among Interface Group-Nevada, Inc., Mall Construction
Subsidiary and Venetian.*
10.9 Sale and Contribution Agreement, dated as of November 14, 1997, among Venetian,
Grand Canal Shops Mall, LLC ("Mall Subsidiary") and Mall Construction Subsidiary.*
10.10 Indenture of Lease, dated as of November 14, 1997, by and between Venetian, as
landlord, and Mall Construction Subsidiary, as tenant.*
10.11 Commitment Letter, dated as of November 14, 1997, among LVSI, Mall Subsidiary
and Goldman Sachs Mortgage Company ("GSMC").*
10.12 Commitment Letter, dated as of November 14, 1997, between Mall Subsidiary and
Sheldon G. Adelson.*
10.13 Tri-Party Agreement, dated as of November 14, 1997, among LVSI, Venetian, Mall
Subsidiary, Mall Construction Subsidiary, Sheldon G. Adelson, GSMC and GMAC.*
10.14 Casino Lease, dated as of November 14, 1997, by and between LVSI and Venetian.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ------------- --------------------------------------------------------------------------------------
<S> <C>
10.15 Amended and Restated Services Agreement, dated as of November 14, 1997, by
and between Venetian, Interface Group Holding Company, Inc., Interface Group-
Nevada, Inc., Lido Casino Resort MM, Inc., Grand Canal Shops Mall MM, Inc. and
certain subsidiaries of Venetian named therein.*
10.16 Completion Guaranty Loan Subordinated Note, dated as of November 14, 1997,
made by Venetian in favor of Sheldon G. Adelson.*
10.17 Substitute Tranche B Loan Subordinated Note, dated as of November 14, 1997,
made by Venetian and Mall Construction Subsidiary in favor of Sheldon G. Adelson.*
10.18 Intercreditor Agreement, dated as of November 14, 1997, by and among Scotiabank,
as the Administrative Agent, First Trust, as Mortgage Note trustee, GMAC, as the
Interim Mall Lender, First Union, as Subordinated Note trustee, LVSI, Venetian, Mall
Construction Subsidiary and Sheldon G. Adelson.*
10.19 Unsecured Indemnity Agreement, dated as of November 14, 1997, by LVSI, Venetian
and Mall Construction Subsidiary, to and for the benefit of Scotiabank, as
Administrative Agent under the Bank Credit Agreement.*
10.20 Unsecured Indemnity Agreement, dated as of November 14, 1997, by LVSI, Venetian
and Mall Construction Subsidiary, to and for the benefit of GMAC.*
10.21 Construction Agency Agreement, dated as of November 14, 1997, by and between
Venetian and Atlantic-Pacific.*
10.22 Management Agreement, dated as of April 23, 1997, by and between LVSI and
Forest City Commercial Management, Inc., as assigned by LVSI to Mall Construction
Subsidiary, by that certain Assignment and Assumption of Contracts.*
10.23 Primary Liquidated Damages Insurance Agreement, dated August 4, 1997, by and
between Lehrer McGovern Bovis, Inc. and C.J. Coleman & Companies, Ltd.*
10.24 Guaranty of Performance, dated as of August 19, 1997, by the Peninsular and
Oriental Steam Navigation Company in favor of LVSI, as assigned by LVSI to
Venetian by that certain Assignment, Assumption and Amendment of Contracts.*
10.25 Guaranty of Performance and Completion, dated as of August 19, 1997, by Bovis,
Inc., LVSI, Venetian and Mall Construction Subsidiary, for the benefit of Scotiabank,
as the Intercreditor Agent.*
10.26 Consulting and Lease Brokerage Agreement between Blatteis Realty Co. and LVSI,
dated as of January 23, 1997.*
10.27 Sands Resort Hotel and Casino Agreement, dated February 18, 1997, by and
between Clark County and LVSI, and all amendments thereto.*
10.28 Las Vegas Sands, Inc. 1997 Fixed Stock Option Plan.*
10.29 Employment Agreement, dated as of November 1, 1995, between LVSI and William
P. Weidner.*
10.30 Employment Agreement, dated as of November 1, 1995, between LVSI and Bradley
H. Stone.*
10.31 Employment Agreement, dated as of November 1, 1995, between LVSI and Robert
G. Goldstein.*
10.32 First Amendment to Credit Agreement, dated as of January 30, 1998, by and among
LVSI, Venetian, the lender parties thereto, GSCP, as arranger and syndication agent,
and Scotiabank, as administrative agent.*
10.33 Term Loan and Security Agreement, dated as of December 22, 1997, among LVSI
and Venetian, as Borrowers, the lender parties thereto, BancBoston Leasing, Inc., as
co-agent, and General Electric Capital Corporation ("GECC"), as admistrative agent.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ------------- ---------------------------------------------------------------------------------------
<S> <C>
10.34 Intercreditor Agreement, dated as of December 22, 1997, by and among Scotiabank,
as Bank Agent, First Trust, as Mortgage Note trustee, GMAC and GECC.*
12.1 Statement regarding computation of ratios of earnings to fixed charges.*
21.1 Subsidiaries of the Issuers and Guarantors.*
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in their opinions, filed
as Exhibits 5.1 and 8.1).
23.2 Consent of Lionel Sawyer & Collins (included in their opinion filed as Exhibit 5.2).
23.3 Consent of Price Waterhouse LLP.
23.4 Consent of Landauer Associates, Inc. ("Landauer") (included in Annex B to the
Prospectus).
24.1 Powers of Attorney.*
25.1 Statement of eligibility and qualification of First Trust National Association.*
25.2 Statement of eligibility and qualification of First Union National Bank.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.*
99.4 Form of Securities Dealers, Commercial Banks, Trust Companies and Other
Nominees Letter.*
99.5 Form of Client Letter.*
99.6 Land Appraisal, dated as of October 17, 1997, prepared by Landauer.*
99.7 Hotel/Casino and Mall Appraisal, dated as of October 17, 1997, prepared by
Landauer.*
</TABLE>
- ----------------
*|Previously filed
II-6
<PAGE>
Item 22. Undertakings
That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officers or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrants hereby undertake:
(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;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of Form S-4,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of this Registration Statement through the date of reponding to the
request.
(5) To supply by means of a post-effective amendment all information
concerning a transction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it
became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Las Vegas, Nevada, on the 29th day
of April, 1998.
LAS VEGAS SANDS, INC.
By: /s/ Sheldon G. Adelson
----------------------
Sheldon G. Adelson,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------ ---------------
<S> <C> <C>
/s/ Sheldon G. Adelson Chairman of the Board, Chief April 29, 1998
- ------------------------- Executive Officer and Director
Sheldon G. Adelson
* Special Director April 29, 1998
- -------------------------
William J. Raggio
* Vice President--Finance (principal April 29, 1998
- ------------------------- financial and accounting officer)
Harry D. Miltenberger
</TABLE>
*By: /s/ David Friedman
------------------
David Friedman,
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Las Vegas, Nevada, on the 29th day
of April, 1998.
VENETIAN CASINO RESORT, LLC
By: Las Vegas Sands, Inc.,
its managing member
By: /s/ Sheldon G. Adelson
-----------------------
Sheldon G. Adelson,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ Sheldon G. Adelson Chairman of the Board, Chief Executive April 29, 1998
- ------------------------- Officer and Director of managing
Sheldon G. Adelson member of Registrant
* Special Director of managing member April 29, 1998
- ------------------------- of Registrant
William J. Raggio
* Vice President--Finance of managing April 29, 1998
- ------------------------- member of Registrant (principal
Harry D. Miltenberger financial and accounting officer)
</TABLE>
*By: /s/ David Friedman
------------------
David Friedman,
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Las Vegas, Nevada, on the 29th day
of April, 1998.
LIDO INTERMEDIATE HOLDING
COMPANY, LLC
By: Venetian Casino Resort, LLC, its
sole member
By: Las Vegas Sands, Inc.,
its managing member
By: /s/ Sheldon G. Adelson
-----------------------
Sheldon G. Adelson,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ Sheldon G. Adelson Chairman of the Board, Chief Executive April 29, 1998
- ------------------------- Officer and Director of managing
Sheldon G. Adelson member of Registrant's sole member
* Special Director of managing member April 29, 1998
- ------------------------- of Registrant's sole member
William J. Raggio
* Vice President--Finance of managing April 29, 1998
- ------------------------- member of Registrant's sole member
Harry D. Miltenberger (principal financial and accounting
officer)
</TABLE>
*By: /s/ David Friedman
------------------
David Friedman,
Attorney-in-fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Las Vegas, Nevada, on the 29th day
of April, 1998.
MALL INTERMEDIATE HOLDING
COMPANY, LLC
By: Venetian Casino Resort, LLC, its
sole member
By: Las Vegas Sands, Inc.,
its managing member
By: /s/ Sheldon G. Adelson
-----------------------
Sheldon G. Adelson,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ Sheldon G. Adelson Chairman of the Board, Chief Executive April 29, 1998
- ------------------------- Officer and Director of managing
Sheldon G. Adelson member of Registrant's sole member
* Special Director of managing member April 29, 1998
- ------------------------- of Registrant's sole member
William J. Raggio
* Vice President--Finance of managing April 29, 1998
- ------------------------- member of Registrant's sole member
Harry D. Miltenberger (principal financial and accounting
officer)
</TABLE>
*By: /s/ David Friedman
------------------
David Friedman,
Attorney-in-fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Las Vegas, Nevada, on the 29th day
of April, 1998.
GRAND CANAL SHOPS MALL
CONSTRUCTION, LLC
By: Venetian Casino Resort, LLC, its
sole member
By: Las Vegas Sands, Inc.,
its managing member
By: /s/ Sheldon G. Adelson
-----------------------
Sheldon G. Adelson,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ Sheldon G. Adelson Chairman of the Board, Chief Executive April 29, 1998
- ------------------------- Officer and Director of managing
Sheldon G. Adelson member of Registrant's sole member
* Special Director of managing member April 29, 1998
- ------------------------- of Registrant's sole member
William J. Raggio
* Vice President--Finance of managing April 29, 1998
- ------------------------- member of Registrant's sole member
Harry D. Miltenberger (principal financial and accounting
officer)
</TABLE>
*By: /s/ David Friedman
------------------
David Friedman,
Attorney-in-fact
II-12
(212) 373-3000
(212) 757-3990
April 29, 1998
Las Vegas Sands, Inc.
Venetian Casino Resort, LLC
Lido Intermediate Holding Company, LLC
Mall Intermediate Holding Company, LLC
Grand Canal Shops Mall Construction, LLC
3355 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Registration Statement on Form S-4 (File No. 333-42147)
-------------------------------------------------------
Ladies and Gentlemen:
In connection with the referenced Registration Statement on
Form S-4 (the "Registration Statement") filed by Las Vegas Sands, Inc., a Nevada
corporation ("LVSI"), Venetian Casino Resort, LLC, a Nevada limited liability
company ("Venetian" and, together with LVSI, the "Issuers"), Lido Intermediate
Holding Company, LLC, a Delaware limited liability company ("Phase II
Intermediate Holdings"), Mall Intermediate Holding Company, LLC, a Delaware
<PAGE>
2
limited liability company ("Mall Intermediate Holdings"), and Grand Canal Shops
Mall Construction, LLC, a Delaware limited liability company (the "Mall
Construction Subsidiary" and, together with Phase II Intermediate Holdings and
Mall Intermediate Holdings, the "Guarantors"), with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations under the Act, we have been requested to
render our opinion as to the legality of the securities being registered. The
Registration Statement relates to the registration under the Act of the Issuers'
12-1/4% Mortgage Notes due 2004 (the "New Mortgage Notes") and 14-1/4% Senior
Subordinated Notes due 2005 (the "New Senior Subordinated Notes" and, together
with the New Mortgage Notes, the "New Notes") and the guarantees of each of the
New Notes by the Guarantors (the "Guarantees"). The New Notes are to be offered
in exchange for the Issuers' outstanding 12-1/4% Mortgage Notes due 2004 (the
"Existing Mortgage Notes") and 14-1/4% Senior Subordinated Notes due 2005 (the
"Existing Senior Subordinated Notes" and, together with the Existing Mortgage
Notes, the "Existing Notes"). The New Mortgage Notes will be issued by the
Issuers under the terms of the Indenture (the "Mortgage Notes Indenture"), dated
as of November 14, 1997, among LVSI and Venetian, as issuers, the Guarantors, as
Mortgage Note guarantors, and First Trust National Association, as Mortgage Note
trustee (the "Mortgage Note Trustee"), and the New Senior Subordinated Notes
will be issued by the Issuers under the terms of the Indenture (the "Senior
Subordinated Notes Indenture" and, together with the Mortgage Notes Indenture,
the "Indentures"), dated as of November 14, 1997, among LVSI and Venetian, as
<PAGE>
3
issuers, the Guarantors, as Senior Subordinated Note Guarantors, and First Union
National Bank, as Senior Subordinated Note trustee (the "Senior Subordinated
Note Trustee" and, together with the Mortgage Note Trustee, the "Trustees").
Capitalized terms used and not otherwise defined in this letter have the
respective meanings given them in the Registration Statement.
In connection with this opinion, we have examined originals,
conformed copies or photocopies, certified or otherwise identified to our
satisfaction, of the following documents (collectively, the "Documents"):
(i) the Registration Statement (including its exhibits);
(ii) the Mortgage Notes Indenture included as Exhibit 4.1 to the
Registration Statement;
(iii) the Senior Subordinated Notes Indenture included as Exhibit
4.2 to the Registration Statement;
(iv) the proposed form of the New Mortgage Notes included as Exhibit
A-1 to the Mortgage Notes Indenture (including the Guarantees set forth in
them);
(v) the proposed form of the New Senior Subordinated Notes included
as Exhibit A-1 to the Senior Subordinated Notes Indenture (including the
Guarantees set forth in them); and
(vi) the Registration Rights Agreement, dated as of November 14,
1997, among the Issuers, the Guarantors, Goldman, Sachs & Co. and Bear, Stearns
& Co., Inc. (the "Registration Rights Agreement").
<PAGE>
4
In addition, we have examined: (i) those limited liability company records of
each of the Guarantors as we have considered appropriate, including the
operating agreements of each of the Guarantors, each dated as of November 14,
1997 and each certified as in effect on the date hereof; and (ii) those other
certificates, agreements and documents as we deemed relevant and necessary as a
basis for the opinions expressed below.
In our examination of the documents and in rendering the opinions
set forth below, we have assumed, without independent investigation, (i) the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to the original documents of all documents
submitted to us as certified, photostatic, reproduced or conformed copies of
validly existing agreements or other documents, the authenticity of all the
latter documents and the legal capacity of all individuals who have executed any
of the documents which we examined, (ii) that LVSI, as managing member of
Venetian, and Venetian, as the sole member of each Guarantor, have taken all
necessary corporate or limited liability company action, on the part of LVSI and
Venetian, to authorize the Documents and the transactions provided for in them
and to which any Guarantor is a party and that each Document has been duly
authorized, executed and delivered by LVSI and Venetian, (iii) that the
execution and delivery by the parties of each Document and the consummation by
each party of the transactions contemplated thereby do not violate or result in
a breach of or default under the party's certificate or articles of
incorporation, by-laws, operating agreements or other organizational documents,
as the case may be, or any applicable
<PAGE>
5
Nevada state or local law or regulation or any laws relating to gaming that are
applicable to the Issuers or any laws of any jurisdiction applicable to the
Trustees, (iv) that the New Notes will be issued as described in the
Registration Statement, (v) that the Indentures were duly authorized, executed
and delivered by the parties to them (other than the Guarantors), (vi) that the
New Notes will be in substantially the forms attached to the Indentures and that
any information omitted from any such forms will be properly added and (vii)
that the New Notes will be duly authorized, executed and delivered by the
Issuers. With regard to assumptions (ii), (iii), (v) and (vii), we refer you to
the opinion of Lionel, Sawyer & Collins, special counsel to the Issuers, filed
as Exhibit 5.2 to the Registration Statement. We have relied upon the factual
matters contained in the representations and warranties of the Issuers and the
Guarantors made in the Documents and upon certificates of public officials and
officers of the Issuers and the Guarantors.
Based on the foregoing, and subject to the assumptions, exceptions
and qualifications set forth in this letter, we are of the opinion that:
<PAGE>
6
1. When duly issued, authenticated and delivered in accordance
with the terms of the Mortgage Notes Indenture and the Registration Rights
Agreement, the New Mortgage Notes will be legal, valid and binding obligations
of each of the Issuers enforceable against each Issuer in accordance with
their terms.
2. When duly issued, authenticated and delivered in accordance
with the terms of the Senior Subordinated Notes Indenture and the Registration
Rights Agreement, the New Senior Subordinated Notes will be legal, valid and
binding obligations of each of the Issuers enforceable against each Issuer
in accordance with their terms.
3. When duly issued, authenticated and delivered in accordance
with the terms of the Mortgage Notes Indenture and the Registration Rights
Agreement, the Guarantees to be endorsed on the New Mortgage Notes will be
legal, valid and binding obligations of each of the Guarantors enforceable
against each Guarantor in accordance with their terms.
4. When duly issued, authenticated and delivered in accordance
with the terms of the Senior Subordinated Notes Indenture and the Registration
Rights Agreement, the Guarantees to be endorsed on the New Senior Subordinated
Notes will be legal, valid and binding obligations of each of the Guarantors
enforceable against each Guarantor in accordance with their terms.
The foregoing opinions are subject to the following assumptions and
qualifications:
<PAGE>
7
(a) the enforceability of the Indentures, the New Notes and the
Guarantees may be (i) subject to bankruptcy, insolvency, fraudulent conveyance
or transfer, reorganization, moratorium and other similar laws affecting
creditors' rights generally and (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity),
including principles of commercial reasonableness or conscionability and an
implied covenant of good faith and fair dealing.
(b) We express no opinion as to: any provision (remedial or
otherwise) of any Documents that is stated to be governed by any law other than
the laws of the State of New York (including without limitation the provisions
of the Notes and the Indentures which are stated to be governed by the law of
the State of Nevada).
Our opinion is limited to matters of New York law and Delaware
A limited liability company law. Please be advised that no member of this firm
is admitted to practice in the State of Delaware. In particular, we express no
opinion as to (i) the laws of the State of Nevada and (ii) any gaming or other
laws relating specifically to the particular business to be conducted by the
Issuers and the Guarantors. Our opinion is rendered only with respect to the
laws, and the rules, regulations and orders under them, which are currently in
effect.
<PAGE>
8
We hereby consent to the use of our name in the Registration
Statement and in the prospectus contained in the Registration Statement as it
appears in the caption "Validity of the Notes" and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do not
admit that we come within the category of persons whose consent is required by
the Act or by the rules and regulations promulgated under the Act.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
Page 1
April 29, 1998
Las Vegas Sands, Inc.
Venetian Casino Resort, LLC
Lido Intermediate Holding Company, LLC
Mall Intermediate Holding Company, LLC
Grand Canal Shops Mall Construction, LLC
3355 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Re: Registration Statement on Form S-4 (File No. 333-42147)
Ladies and Gentlemen:
In connection with the above-referenced Registration Statement on Form S-4
(the "Registration Statement") filed by Las Vegas Sands, Inc., a Nevada
corporation ("LVSI"), Venetian Casino Resort, LLC, a Nevada limited liability
company ("Venetian" and, together with LVSI, the "Issuers"), Lido Intermediate
Holding Company, LLC, a Delaware limited liability company ("Phase II
Intermediate Holdings"), Mall Intermediate Holding Company, LLC, a Delaware
limited liability company ("Mall Intermediate Holdings") and Grand Canal Shops
Mall Construction, LLC, a Delaware limited liability company (the "Mall
Construction Subsidiary" and, together with Phase II Intermediate Holdings and
Mall Intermediate Holdings, the "Guarantors"), with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations promulgated thereunder, we have been
requested to render our opinion as to the following matters. The Registration
Statement relates to the registration under the Act of the Issuers' 12-1/4%
Mortgage Notes due 2004 (the "New Mortgage Notes") and 14-1/4% Senior
Subordinated Notes due 2005 (the "New Senior Subordinated Notes" and, together
with the New Mortgage
<PAGE>
Page 2
Notes, the "New Notes") and the guarantees of each of the New Notes by the
Guarantors (the "Guarantees"). The New Notes are to be offered in exchange for
the Issuers' outstanding 12-1/4% Mortgage Notes due 2004 (the "Existing Mortgage
Notes") and 14-1/4% Senior Subordinated Notes due 2005 (the "Existing Senior
Subordinated Notes" and, together with the Existing Mortgage Notes, the
"Existing Notes"). The New Mortgage Notes will be issued by the Issuers pursuant
to the terms of the Indenture (the "Mortgage Notes Indenture"), dated as of
November 14, 1997, among LVSI and Venetian, as Issuers, the Guarantors, as
Mortgage Note guarantors, and First Trust National Association, as Mortgage Note
trustee (the "Mortgage Note Trustee"), and the New Senior Subordinated Notes
will be issued by the Issuers pursuant to the terms of the Indenture (the
"Senior Subordinated Notes Indenture" and, together with the Mortgage Notes
Indenture, the "Indentures"), dated as of November 14, 1997, among LVSI and
Venetian, as Issuers, the Guarantors, as Senior Subordinated Note Guarantors,
and First Union National Bank, as Senior Subordinated Note trustee (the "Senior
Subordinated Note Trustee" and, together with the Mortgage Note Trustee, the
"Trustees"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings ascribed thereto in the Registration
Statement.
In connection with this opinion, we have examined originals, conformed
copies or photocopies, certified or otherwise identified to our satisfaction, of
the following documents (collectively, the "Documents"):
(i) the Registration Statement;
(ii) the Mortgage Notes Indenture included as Exhibit 4.1 to the
Registration Statement;
(iii) the Senior Subordinated Notes Indenture included as
Exhibit 4.2 to the Registration Statement;
(iv) the proposed form of the New Mortgage Notes included as
Exhibit A-1 to the Mortgage Notes Indenture (including the Guarantees set forth
therein); and
(v) the proposed form of the New Senior Subordinated Notes
included as Exhibit A-1 to the Senior Subordinated Notes Indenture (including
the Guarantees set forth therein).
In addition, we have examined: (i) such limited liability company and
corporate records of each of the Issuers as we have considered appropriate, and
each certified as in effect on the date hereof; and (ii) such other
certificates, agreements and documents as we deemed relevant and necessary as a
basis for the opinions hereinafter expressed.
<PAGE>
Page 3
In our examination of the aforesaid documents and in rendering the
opinions set forth below, we have assumed, without independent investigation,
(i) the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to the original documents of all
documents submitted to us as certified, photostatic, reproduced or conformed
copies of validly existing agreements or other documents, the authenticity of
all such latter documents and the legal capacity of all individuals who have
executed any of the documents which we examined, (ii) that the New Notes will be
issued as described in the Registration Statement, (iii) that the Mortgage Notes
Indenture represents a valid and binding obligation of the Mortgage Note
Trustee, (iv) that the Senior Subordinated Notes Indenture represents a valid
and binding obligation of the Senior Subordinated Note Trustee, (v) that the New
Notes will be in substantially the forms attached to the Indentures and that any
information omitted from any such forms will be properly added, (vi) that the
execution, delivery and performance of each of the Mortgage Notes Indenture and
the Senior Subordinated Notes Indenture is within the power of the Guarantors,
such documents have been duly authorized, executed and delivered by the
Guarantors and will not violate or result in a breach of any term or provision
of any agreement, judgment, decree or administrative order to which the
Guarantors are subject, (vii) that each of the provisions of each of the
Documents which is to be governed by the laws of the State of New York
represents, or will represent, as applicable, a legal, valid and binding
obligation of each of the Issuers and the Guarantors, as the case may be,
enforceable against each such Issuer and Guarantor in accordance with its terms,
and (viii) the following contacts between the State of New York and the
transactions contemplated by the Indentures and related documents: (a)
substantial negotiations relating to such transactions have taken place in the
State of New York, (b) the closing of the initial transactions evidenced by the
Indentures occurred, and the exchange of the New Notes for the Existing Notes
will occur in the State of New York, (c) the Indentures were executed in the
State of New York, (d) the Issuers' financial advisor has its offices in the
State of New York, and (e) many of the holders of the Existing Notes are located
in the State of New York. We have relied upon the factual matters contained in
the representations and warranties of the Issuers and the Guarantors made in
such documents and upon certificates of public officials and officers of the
Issuers and the Guarantors.
In addition, we have assumed that (i) the Nevada Gaming Commission will
have, prior to the exchange of the New Notes for the Existing Notes, registered
LVSI as a publicly traded corporation, approved the exchange of the New Notes
for the Existing Notes, and either approved the restrictions on LVSI's stock and
the pledge of assets contemplated by the Indentures or determined that such
approval is not necessary; and (ii) filings complying with any and all state
securities or Blue Sky laws in connection with the exchange of the New Notes for
the Existing Notes will occur concurrently with the exchange of the New Notes
for the Existing Notes contemplated by the Registration Statement and the
Indentures and within the time period prescribed by such regulations and/or
laws.
Based on the foregoing, and subject to the assumptions, exceptions and
qualifications set forth herein, we are of the opinion that:
1. The execution, delivery and performance of each Document entered into
by LVSI, for itself and in its capacity as managing member of Venetian, and
Venetian, for itself and in its capacity as the sole member of each Guarantor,
has been duly authorized by all necessary corporate or limited liability company
action.
2. The execution and delivery by the Issuers of each Document to which
they are a party and the consummation by each Issuer of the transactions
contemplated thereby do not violate or result in a breach of or default under
such party's articles of incorporation, by-laws, or operating agreements, as the
case may be,
<PAGE>
Page 4
or any applicable Nevada state or local law or regulation or any laws relating
to gaming that are applicable to the Issuers.
3. The Indentures have been duly and validly authorized, executed and
delivered by the Issuers.
4. Upon completion of the exchange contemplated by the Registration
Statement and the Indentures, the New Notes will be duly authorized, executed
and delivered by the Issuers.
5. To the extent governed by Nevada law, each of the provisions of the
Mortgage Notes Indenture which is to be governed by the laws of the State of
Nevada represents a legal, valid and binding obligation of each of the Issuers
and each of the Guarantors enforceable against each such Issuer and Guarantor in
accordance with its terms, except that certain provisions of the
above-referenced document may not be enforceable in whole or in part under the
laws of the State of Nevada, but the inclusion of such provisions does not
affect the validity of such document and such document contains adequate
provisions for enforcing payment of the monetary obligations of the Issuers
under the New Mortgage Notes and for the practical realization of the rights and
benefits afforded thereby, provided such enforcement is conducted in accordance
with the procedures established by the laws of the State of Nevada.
6. To the extent governed by Nevada law, each of the provisions of
the Senior Subordinated Notes Indenture which is to be governed by the laws of
the State of Nevada represents a legal, valid and binding obligation of each of
the Issuers and each of the Guarantors enforceable against each such Issuer and
Guarantor in accordance with its terms.
7. Upon completion of the exchange contemplated by the Registration
Statement and the Indentures and to the extent governed by Nevada law, each of
the provisions of the New Mortgage Notes which is to be governed by the laws of
the State of Nevada will represent a legal, valid and binding obligation of each
of the Issuers enforceable against each such Issuer in accordance with its
terms, except that certain provisions of the above-referenced documents may not
be enforceable in whole or in part under the laws of the State of Nevada, but
the inclusion of such provisions does not affect the validity of such documents
and such documents contain adequate provisions for enforcing payment of the
monetary obligations of the Issuers under the
<PAGE>
Page 5
New Mortgage Notes and for the practical realization of the rights and benefits
afforded thereby, provided such enforcement is conducted in accordance with the
procedures established by the laws of the State of Nevada.
8. Upon completion of the exchange contemplated by the Registration
Statement and the Indentures and to the extent governed by Nevada law, each of
the provisions of the New Senior Subordinated Notes which is to be governed by
the laws of the State of Nevada will represent a legal, valid and binding
obligation of each of the Issuers enforceable against each such Issuer in
accordance with its terms.
The foregoing opinions are subject to the following assumptions and
qualifications:
a. The enforceability of the Indentures and the New Notes is subject to
(i) bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization,
moratorium and other similar laws affecting the rights of creditors generally,
(ii) compliance with Nevada gaming laws, and (iii) general principles of equity
(regardless of whether such enforcement is considered in a proceeding at law or
in equity).
b. Nothing herein shall be deemed an opinion as to the effect of a finding
by the Nevada Gaming Commission or the Nevada Gaming Control Board that any
third party to the Documents is unsuitable.
c. Nothing herein shall be deemed an opinion as to the laws of any
jurisdiction other than the State of Nevada.
<PAGE>
Page 6
This Opinion Letter is intended for the use of the addressees in
connection with the registration of the New Notes. We hereby consent to the use
of our name in the Registration Statement and in the prospectus contained in the
Registration Statement as it appears in the caption "Validity of the Notes" and
to the use of this opinion as an exhibit to the Registration Statement. In
giving this consent, we do not hereby admit that we are in a category of persons
whose consent is required pursuant to Section 7 of the Act or the rules and
regulations of the SEC promulgated thereunder.
Very truly yours,
/s/ Lionel Sawyer & Collins
LIONEL SAWYER & COLLINS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to Registration Statement on Form S-4 of Las Vegas Sands, Inc.
and Venetian Casino Resort, LLC of our report dated March 24, 1998 relating to
the historical financial statements of Las Vegas Sands, Inc. which appears in
such Prospectus. We also consent to the reference to us under the heading
"Independent Accountants" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Los Angeles, California
April 29, 1998
