ITEM 1. — BUSINESS

General

        Las Vegas Sands, Inc. (“LVSI”) and its subsidiaries (collectively, the “Company”) own and operate the Venetian Casino Resort (the “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. The Casino Resort includes the only all-suites hotel on the Strip with 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 446,000 net leasable square feet (the “Mall”); and a meeting and conference facility of approximately 500,000 square feet (the “Congress Center”).

        The Casino Resort is physically connected to the approximately 1.15 million square foot 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’s principal stockholder) is one of the largest hotel and meeting complexes in the United States.

        LVSI was incorporated in 1988 under the laws of the State of Nevada. In April 1989, LVSI acquired the Sands Hotel and Casino (the “Sands”) from MGM Grand. LVSI owned and operated the Sands from April 1989 to June 1996 when operations ceased to begin demolition of the Sands and construction of the Casino Resort. Ground breaking for the Casino Resort occurred in April 1997, the entire Casino Resort (excluding the Mall) opened on May 4, 1999, the Mall opened on June 19, 1999 and substantial completion of the entire Casino Resort was achieved on November 12, 1999.

        The Company is constructing an extension to the Casino Resort to add an approximately 1,000-room hotel tower on top of the Casino Resort’s existing parking garage, an approximately 1,000-parking space expansion to the existing parking garage and approximately 150,000 square feet of additional meeting and conference space (the “Phase IA Addition”). The Phase IA Addition is expected to be completed in June 2003. See “–New Developments – Phase IA Addition” and “–Risk Factors – There are Significant Risks Associated with the Company’s Planned Construction Projects, Which Could Adversely Affect its Financial Condition, Results of Operations or Cash Flows.”

        The Government of Macau, People’s Republic of China granted a provisional concession to operate casinos in Macau to Galaxy Casino Company Limited, a joint venture comprised of a subsidiary of the Company and a group of Macau and Hong Kong-based investors. The Company is currently constructing a casino in Macau with an anticipated completion date of February 2004. In addition to the casino the Company is currently constructing, the Company tentatively plans to build a 500-suite hotel, casino and convention center complex, with a Venetian-style theme similar to that of the Company’s Las Vegas property. See “–Risk Factors – There are Significant Risks Associated with the Company’s Planned Construction Projects, Which Could Adversely Affect its Financial Condition, Results of Operations or Cash Flows” and “– The Company May Not Be Able to Raise the Required Funds for the Macau Casino.”

        The Casino Resort was developed on a stand-alone basis as the first phase of a two-phase development. In the second phase of the development, it is contemplated that another similarly sized themed resort (the “Phase II Resort”) will be constructed and developed by a wholly-owned, indirect subsidiary of LVSI (the “Phase II Subsidiary”).

        LVSI is the managing member and owner of 100% of the common equity of Venetian Casino Resort, LLC (“Venetian”). Venetian is the owner and operator of the Hotel and Congress Center, and the owner of the Casino. Under a casino lease (the “Casino Lease”), Venetian leases the Casino to LVSI, which conducts all gaming operations in the Casino Resort. Grand Canal Shops II, LLC, an indirect subsidiary of LVSI (the “New Mall Subsidiary”) owns and operates the Mall. The executive offices of LVSI are located at 3355 Las Vegas Boulevard South, Room 1A, Las Vegas, Nevada 89109 and its telephone number is (702) 414-1000.

        This Annual Report on Form 10-K contains certain forward-looking statements. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Special Note Regarding Forward – Looking Statements.”

The Casino Resort

        The Hotel

        The Hotel presently has 3,036 single and multiple bedroom suites situated in a 35-story, three-winged tower rising above the Casino. The lobby features a 65-foot domed ceiling decorated with Venetian-themed, fresco-style paintings, a main passageway formed by a barrel-vaulted ceiling carried on ornamental columns, and a replica of the unique three dimensional-style marble floors found in Venetian palaces.

        A typical Hotel suite approximates 655 to 735 square feet, consisting of a raised sleeping area and bathroom and a sunken living/working area. The suite’s bi-level configuration creates a multi-function living space in which guests can sleep, work and entertain and includes two queen-size beds or one king-size bed, a writing desk, dual-line speaker phones, a fax machine and a sitting area. Approximately 318 of the suites are of larger size for use by gaming customers.

        The Casino Resort’s average daily room rates were $196 in each of the years ended December 31, 2002 and 2001. Gross room revenues during the year ended December 31, 2002 were $206.7 million, representing an increase of $2.5 million when compared to $204.2 million during 2001. During 2002, the occupancy rate for available guestrooms (including complementaries) in the Hotel was 95.6%.

        The Hotel leases space to eight restaurants to well known restaurateurs, (including Emeril Legasse and Wolf Gang Puck), that are located adjacent to the Casino and five other food outlets located in a Venetian-style market food court located at the casino level of the Hotel. Live entertainment is offered at the 50,000 square foot entertainment complex, “C2K”. In addition, the Hotel provides a variety of amenities for its guests, including a state-of-the-art health spa, operated by Canyon Ranch Management, LLC, with massage and treatment rooms, exercise and fitness areas. The Hotel features an outdoor swimming complex (including three pools, spas, pool bars and cabanas) surrounded by gardens, waterways, fountains and sculptures.

        In addition to the Congress Center, the Hotel includes approximately 63,000 square feet of exhibition hall space that was completed in October 2001, including the Guggenheim/Hermitage Museum, an art museum featuring masterpiece collections from the Guggenheim Museum in New York, the Hermitage in Saint Petersburg, Russia and other museums. Approximately 59,000 square feet of the exhibition hall space housed the Guggenheim “Art of the Motorcycle” exhibit until January 2003. The Company is currently evaluating the future use of this space.

        The Casino

        The Casino has 116,000 square feet of gaming space and is situated adjacent to the Hotel lobby. The Casino floor is accessible from each of the Hotel, the Mall, the Congress Center, the Expo Center and the Strip. The Casino is marketed to attract a broad base of patrons, with a specific focus on frequent premium gaming customers. The Company markets the Casino directly to this gaming market segment using database-marketing techniques, slot clubs and traditional incentives such as reduced room rates and complimentary meals and suites. The Company offers “high roller” gaming customers premium suites and special hotel and casino services.

        The Casino environment is stylized to resemble a Venetian “palazzo,” with architectural and interior design features representative of Venice’s Renaissance era and its adjacent amenities include several “signature” restaurants such as Emeril Lagasse’s Delmonico and Piero Selvaggio’s Valentino. The ceiling in the table games area features fresco-style paintings of Venetian palaces. The gaming facilities include approximately 2,035 slot machines of various denominations, including popular multi-property, linked progressive games. A high-end slot area, with a private lounge, provides slot customers with premium slot products and services. The Casino’s approximately 127 table games (excluding baccarat tables) include the traditional games of blackjack, craps and roulette, Asian games such as “Pai Gow” and “Pai Gow Poker,” and popular progressive table games such as “Caribbean Stud Poker” and “Let It Ride.” In addition, the Casino offers gaming customers an upscale sportsbook room and an upscale gaming salon featuring baccarat, blackjack and roulette tables. The gaming salon is specially designed for premium, “high roller” gaming, with baccarat, blackjack and roulette, direct access to private cash-out windows at the Casino cage and direct access to the Casino’s credit department.

        The Mall

        The Mall offers approximately 446,000 net leasable square feet of shopping, dining and entertainment space located on two levels within the Casino Resort’s main structure, between the Casino level and the Hotel tower and in a separate approximately 38,000 square foot retail annex adjacent to the Casino Resort’s main structure and directly accessible from the Strip. The Mall includes eight restaurants, six food court outlets, three specialty shops and 58 retail stores. Visitors and guests can enter the Mall from several different directions, including from the Strip via a moving sidewalk, from the main gaming area of the Casino via escalators, from the Expo Center through the Congress Center, from a cross-over bridge across the Strip and directly from the Hotel.

        The Mall offers an array of quality dining experiences, including upscale restaurants such as Wolfgang Puck’s Postrio, offering international and American regional cuisines. The Mall’s retail offerings include exclusive showcase boutiques, popular brand name mid-priced stores and themed entertainment concepts. Premium branded tenants in the Mall include Mikimoto, Movado, Burberry and Jimmy Choo. The restaurants and stores are set along an approximately one-quarter mile Venetian-themed streetscape and front on the Venetian-themed canal running its length and grouped in “piazza”-style settings. Store and restaurant facades are designed to project the Venetian theme.

        In both 2002 and 2001, the Mall leased approximately 90% of its gross leasable space at an average of approximately $100 per leasable square foot. Additional tenants and increased proceeds from rents raised Mall revenues to $36.5 million in 2002 from $33.5 million in 2001. The average term of a lease in the Mall is 10 years.

        The Expo Center and the Congress Center

        With over 1.15 million gross square feet of exhibit and meeting space, including four exhibit halls and 20 meeting rooms, the separately owned and operated Expo Center is one of the largest trade show and convention facilities in the United States (as measured by net leasable square footage). As part of the Casino Resort, the Company owns and operates the Congress Center, an approximately 500,000 gross square foot meeting and conference facility which links the Expo Center and the rest of the Casino Resort. The Congress Center includes an approximately 85,000 square foot column-free “Venetian Ballroom,” an approximately 13,500 square foot “Palazzo Ballroom”, a meeting complex of 42 individual rooms which can be combined to create three additional ballrooms and an approximately 105,000 square foot exhibition hall. Together, the Expo Center and the Congress Center offer nearly 1.65 million square feet of state-of-the-art exhibition and meeting facilities, which can be configured to provide 108 meeting rooms or accommodate large-scale multi-media events. The Company is also constructing 150,000 square feet of additional meeting and conference facility space to the Casino Resort. See “–New Developments – Phase IA Addition.”

        Management markets 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, thereby generating room-night demand and driving average daily room rates during the weekday 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 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 2002, approximately 933,000 visitors attended trade shows and conventions at the Expo Center during 121 show days. The Expo Center hosted 17 events on the 2002 Trade Show Week 200 list of the largest trade shows in the United States in 2002, including the Spring and Fall Western Shoe Show and JCK Jewelry Show, as well as the Automotive Service Industry Association Week, each of which were multiple-location events.

        The Company has no ownership of or financial interest in the Expo Center or Interface Group-Nevada, Inc. (“Interface”), the owner of the Expo Center, and does not exercise any control over the business or management of the Expo Center or Interface. All of the capital stock of Interface is beneficially owned by Sheldon G. Adelson, the principal stockholder of the Company (the “Principal Stockholder”). See “Item 13 – Certain Relationships and Related Transactions – Possible Conflicts of Interest.”

        Venetian, the New Mall Subsidiary, Interface and Lido Casino Resort, LLC are parties to an Amended and Restated Reciprocal Easement, Use and Operating Agreement (the “Cooperation Agreement”) which, among other things, provides for the integrated operation of all the facilities. Interface, the New Mall Subsidiary and Venetian allocate expenses shared by the Expo Center, the Casino Resort and the Mall. In addition, the Company and Interface jointly market the Hotel and Casino, the Mall, the Congress Center and the Expo Center. 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. The Company will be able to conduct or permit to be conducted at the meeting and conference space that is a part of the Phase IA Addition and the Congress Center, tradeshows and expositions of the type generally held at the Expo Center so long as such space is at most 125,000 square feet and the Company enters into a preferred reservation system agreement with Interface. Trade show and convention promoters are under no obligation to select the Casino Resort as the “headquarters hotel” for their events. See “Item 13 – Certain Relationships and Related Transactions – Cooperation Agreement.”

New Developments

        Phase IA Addition

        During June 2002, the Company re-commenced construction of the Phase IA Addition. Due to the travel disruption to Las Vegas during the fourth quarter of 2001 (following the terrorist attacks of September 11, 2001), the Company had previously suspended construction of the Phase IA Addition. The Company anticipates that the Phase IA Addition construction will be completed in June 2003 with a remaining cost to complete of approximately $149.0 million, and an additional $8.9 million to expand the central HVAC facility (the “HVAC Plant”) to accommodate the Phase IA Addition, as of December 31, 2002. Due to the inherent risks in large construction projects, however, there can be no assurance that the Phase IA Addition will be constructed without any substantial delays or cost increases. See “–Risk Factors – There are Significant Risks Associated with the Company’s Planned Construction Projects, Which Could Adversely Affect its Financial Condition, Results of Operations or Cash Flows.”

Macau Casino Project

        Concession

        On June 26, 2002, the Government of the Macau Special Administrative Region of the People’s Republic of China (“Macau”) granted a provisional concession to operate casinos in Macau to Galaxy Casino Company Limited, a joint venture comprised of a subsidiary of the Company (the “Macau Subsidiary”) and a group of Macau and Hong Kong-based investors. Macau, the former Portuguese colony located near Hong Kong, currently has annual gaming revenues of approximately $2.0 to $2.5 billion and is widely regarded as one of the fastest growing gaming markets in the world. Approximately 10 million visitors arrived in Macau during 2001 (the latest available count), according to the Macau Tourism Board. The following factors are expected to continue to significantly improve Macau’s status as a world-class gaming and resort destination: (i) the increased ease of access from Hong Kong, China and Taiwan and other Asian regional gaming markets (where casinos are currently banned); (ii) significant foreign and domestic investment in new and expanded gaming products; and (iii) the development of Disneyland China and other new resort developments in the region. The Company believes that the Macau opportunity provides an international platform to expand its premier Venetian brand and create increased diversification of, and a new source of significant growth for, its revenue base.

        Galaxy Casino Company Limited was one of three entities to be granted a casino license in Macau. During December 2002, the joint venture participants entered into concession, sub-concession, and related agreements. The sub-concession agreement with the joint venture participants provides that a wholly owned subsidiary of the Company (“Venetian Macau”) will develop and operate casino projects separate from its other joint venture partners. It is expected that the joint venture participants will in turn develop hotel and casino projects separate from the Company.

        Under the terms of Venetian Macau’s agreements with the government of Macau, Venetian Macau has certain financial obligations to the Government of Macau or is obligated to pay for certain costs of developing and constructing the Macau Casino in Macau. Venetian Macau is committed to invest 4.4 billion Macau patacas (approximately $531.7 million at current exchange rates as of December 31, 2002) under its agreement with the government of Macau in various development projects until March 31, 2007.

        The initial term of the Venetian Macau sub-concession agreement is 20 years, beginning on June 27, 2002 and ending on June 26, 2022. The sub-concession agreement can be terminated after the fifteenth year, upon one year’s prior notice and upon fair and reasonable compensation for the balance of the term. Venetian Macau and each of the other parties have the following obligations under the sub-concession agreement:

        Additionally, Venetian Macau is subject to reporting requirements to Macau’s Gambling Inspection and Coordination Bureau on a yearly basis, in particular with respect to the number of gaming tables and electrical or mechanical gaming machines that it intends to operate during the following year. As part of the granting of this concession, Venetian Macau will have to pay a variable premium, subject to change, to Macau based on (i) a fixed yearly payment, and (ii) variable payments based on the number and type of gaming tables used by Venetian Macau. Venetian Macau will also have to pay a special gaming tax of 35% and contribute 4% of gross gaming revenue to Macau.

        Macau Casino

        Venetian Macau is currently constructing a casino (“Macau Casino”), with an anticipated completion date of February 2004, and in addition, tentatively plans to build a 500-suite hotel, casino and convention center complex, with a Venetian-style theme similar to that of the Company’s Las Vegas property. The Company currently anticipates that the Macau Casino construction will be completed at a total cost of $210.0 million. Due to inherent risks in large construction projects in a foreign jurisdiction, however, there can be no assurance that the Macau Casino will be constructed without substantial delays or cost increases. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and “–Risk Factors – There are Significant Risks Associated with the Company’s Planned Construction Projects, Which Could Adversely Affect its Financial Condition, Results of Operations or Cash Flows”, “– The Company May Not Be Able to Raise the Required Funds for the Macau Casino” and “–Certain Nevada Gaming Laws Apply to the Company’s Planned Gaming Activities and Associations in Macau and Alderney.”

        During the year ended December 31, 2002, the Company incurred $5.9 million of pre-opening and development expenses and $2.4 million of capital expenditures associated with the development of the Macau Casino Project.

Internet Gaming and Other New Business Ventures

        The Company is actively pursuing the possibility of developing and operating an Internet gaming site and is currently exploring other business opportunities for expansion, including Native American gaming, and the possibility of operating casino resorts in certain foreign jurisdictions. During January 2002, the Company entered into a joint venture agreement to assess the feasibility of developing and operating an Internet gaming site. Management estimates that the Company is committed to contribute approximately $1.0 million, approximately one-third of the required capital, to the joint venture during the next year. After recovery of each partner’s initial capital contribution, the Company will receive 50% to 80% of the net profit of the joint venture, based upon an increasing scale of net profit (if any). The joint venture provides that the agreement will be automatically terminated should the Company fail to obtain any required regulatory approvals from the government of Alderney, the Nevada gaming authorities or any other applicable jurisdiction prior to launching its operations. During March 2003, a subsidiary of the Company received an interactive gaming license and an electronic betting center license from the Alderney Gambling Control Commission. The Company’s Internet and other projects are in developmental or exploratory stages and there can be no assurance that any of these ventures will prove to be attractive opportunities, or that if implemented they will be successful. The Company intends to continue to explore similar new business opportunities.

Business and Marketing Strategy

        The Company’s primary business objective is to provide a premium destination casino resort experience in order to drive superior returns on invested capital and to increase asset value. To achieve this objective, the Company: (i) operates a “must-see” destination resort; (ii) captures premium room rates through a differentiated all-suites product; (iii) drives hotel occupancy, casino use and mall shopping through the link to the Expo Center and the Congress Center; (iv) caters to a higher budget customer mix by offering a unique combination of hospitality and gaming facilities; (v) leverages the Casino Resort’s premium co-branding strategy to drive revenues; and (vi) targets premium gaming customers.

        Operate a "Must-See" Destination Resort

        The Casino Resort, with its extensive theming, dining, shopping and entertainment, is a “must-see” destination located at the heart of the Strip. The Casino Resort is distinctly themed to provide visitors with the sense of being surrounded by the architecture, music, art and history of Renaissance Venice. The Venetian-themed setting along the Casino Resort’s frontage on the Strip includes waterways, gondolas and replicas of Venetian landmarks, such as the Doge’s Palace, the Rialto Bridge, the Ca Doro and the Campanile Tower. The Mall features a one-quarter mile Venetian streetscape, with intimate “piazza”-style settings. A 630-foot canal runs along the Venetian streetscape, with gondolas and waterside cafes and crossed by authentically styled Venetian bridges. Management believes that these attractions generate significant room demand and foot traffic.

        The Casino Resort has approximately 740 feet of frontage on the east side of the Strip and is located next to Harrah’s and across from some of the most visited casino resorts and attractions on the Strip, including The Mirage, the Treasure Island Hotel and Casino and The Forum Shops at Caesars Palace Hotel.

        Capture Premium Room Rates through Differentiated All-Suites Product

        The typical Hotel suite ranges in size from approximately 655 square feet to 735 square feet (compared to approximately 360 to 400 square feet on average for a standard room in competing facilities on the Strip), and consists of a sunken living/working area and a raised sleeping area with a marble bathroom; each area has its own television entertainment center. Each suite living/working area includes a sitting area and a writing desk and offers business amenities such as dual-line speakerphones, a fax machine and dataport access. The bathrooms are oversized, featuring a separate bathtub and shower, dual sinks and a telephone. In addition, the Hotel offers larger suites, including the “Presidential” and penthouse suites.

        The Hotel offers the only all-suites product on the Strip with first-class services, amenities for business travelers, such as in-room fax machines, two phone lines and high-end resort facilities. In 2002, the Hotel was awarded the Exxon Mobil “Four Star Award,” Conde Nast’s “Best 50 Hotels in North America,” AAA’s “Four Diamond Award” and Meetings and Convention Magazine’s Prestigious “Gold Key Award” for meeting hotels in the United States. In management’s experience, business and leisure travelers consider suites desirable, superior accommodations. For business travelers, the Hotel’s suites, which accommodate informal business meetings and social gatherings, offer guests a unique, single location in which to work and entertain in close proximity to the Expo Center and the Strip. Leisure travelers 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, results in a highly differentiated destination resort product, allow for premium pricing on rooms and provide a competitive advantage over other hotel/casino properties on the Strip.

        The Company’s mix of hotel sales is as follows: group and convention room sales are 37.0%; hosted casino customers 12.9%; wholesale 12.2% and free and independent travelers 37.9% of total sales. The Hotel’s average daily room rates were $196 in 2002.

        Drive Hotel Occupancy, Casino Use and Mall Shopping through the Link to the Expo Center and the Congress Center

        The Casino Resort is the first themed entertainment resort in Las Vegas designed specifically to accommodate large-scale trade shows, conventions, conferences and meetings. These trade shows, conventions, conferences and meetings often draw more attendees than the Hotel can accommodate and generate additional non-Hotel traffic. The Expo Center and the Congress Center provide recurring, predictable demand for mid-week room nights from business travelers. The Company’s diverse business model draws convention attendees from all parts of the United States and the world. In connection with 121 show days during 2002, approximately 933,000 visitors attended trade shows and conventions at the Expo Center. The Hotel had a mid-week occupancy rate of 93.8% in 2002 (compared to an 80.9% mid-week average occupancy rate on the Strip), due in large part to the Casino Resort’s trade show and convention business. In 2001, the Hotel’s average daily room rate was approximately $196. Pursuant to the Cooperation Agreement, the owner of the Expo Center markets the Casino Resort to promoters of Expo Center trade show conventions and other events as the “headquarters hotel” for such events. The Casino Resort offers attendees of events at the Expo Center and the Congress Center the most convenient hotel accommodations in Las Vegas.

        Cater to a Higher-Budget Customer Mix by Offering a Unique Combination of Hospitality and Gaming Facilities

        Management markets the Casino Resort to attract higher-budget business travelers and free and independent travelers, resulting in a higher-budget customer mix both on weekdays and on weekends. By appealing to customers in these upscale market segments, the Company has reduced 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 at the heart of the Strip adjacent to the Expo Center, and its all-suites hotel product all combine to allow it to compete effectively for the higher-budget mid-week trade show, convention and meeting attendees. On both weekdays and weekends, the all-suites product at the Hotel appeals to free and independent leisure travelers and “high-roller” gaming customers, also segments of the travel market who spend more on rooms and entertainment.

        Leverage the Casino Resort's Premium Co-Branding Strategy to Drive Revenues

        The Company expects to build upon awareness of the Venetian brand by continuing to attract a unique collection of “signature” restaurant concepts and premier global retail brands to the Casino Resort. This strategy allows the Company to focus on its core competency of providing first-class hotel and meeting facilities while attracting additional guests and foot traffic because of its own brand name and its concentration of other premier brands. The Casino Resort has been designed such 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. The Company seeks to maximize guest spending from the Casino Resort’s target markets by offering a concentration of fine restaurants, exclusive boutiques, the Canyon Ranch health spa and the 50,000 square foot entertainment complex, “C2K”. Several well-known restaurateurs operate “signature” restaurants on the premises, such as Emeril Lagasse’s Delmonico and Wolfgang Puck’s Postrio. The Mall includes premium branded retailers such as Mikimoto and Burberry and nationally recognized retailers such as Banana Republic, Kenneth Cole and Brookstone. In addition, the Casino Resort includes the Guggenheim Hermitage Museum, which houses various art exhibits in conjunction with the Guggenheim Museum in New York and the Hermitage Museum in St. Petersburg, Russia. The co-branding strategy enhances the Casino Resort’s appeal to the higher budget room guests. The Company believes that the Casino Resort’s premier location on the Strip, its extensive theming as well as its established and growing concentration of “signature” restaurant concepts and premier global retail brands have been an effective strategy for driving revenues and the awareness of the Venetian brand. The Company expects to build upon the Venetian’s brand awareness to provide continued revenue growth opportunities from retail and restaurants to drive Hotel room rates and Casino patronage.

        Target Premium Gaming Customers

        Management believes that the Casino Resort’s all-suites product, themed atmosphere and high-end amenities, including premium restaurants and shops, offer gaming customers a unique Las Vegas experience. The Company actively markets the Casino to frequent premium gaming customers. In particular, the Company seeks 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 is able to offer many gaming customers complimentary suites (considered premium accommodations in Las Vegas) during high occupancy periods, such as weekends and holidays, when they would not be offered such suites by the Company’s competitors. The Casino Resort is the only all-suites resort on the Strip with facilities and amenities designed to attract premium gaming customers. The premium gaming customers generally require the issuance of casino credit and in some instances pre-arranged discounts of losses.

The Las Vegas Market

        Las Vegas is one of the fastest-growing and largest entertainment markets in the country. Las Vegas hotel occupancy rates are among the highest of any major market in the United States. According to the Las Vegas Convention and Visitors Authority (the “LVCVA”), the number of visitors traveling to Las Vegas has increased at a steady and significant rate for the last ten years from 21.9 million visitors in 1992 to 35.1 million visitors in 2002, a compound annual growth rate of 4.8%. In addition, the population of Las Vegas has grown from approximately 850,000 in 1992 to approximately 1,550,000 in 2002, a compound annual growth rate of 6.2%. Management believes that the growth in the Las Vegas market has been enhanced by a dedicated program of the LVCVA and major Las Vegas hotels to promote Las Vegas as an exciting vacation and convention site, the increased capacity of McCarran International Airport and the introduction of large, themed destination resorts in Las Vegas.

        Although visitation, demand and expectations may be impacted by international and domestic events and other factors and conditions, the Company expects hotel occupancy rates in Las Vegas to remain high as a result of the sustained growth in the number of visitors traveling to Las Vegas and the lack of new construction in Las Vegas, other than Le Reve, an approximately 2,500 room resort to be built on the site of the former Desert Inn, one block north of the Casino Resort on the corner of Las Vegas Boulevard and Sands Avenue, and anticipated to open in April 2005.

        Las Vegas as a Trade Show, Convention and Meeting Destination

        In 2002, according to the LVCVA, 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 1992, approximately 2.0 million persons attended trade shows and conventions in Las Vegas and spent approximately $1.7 billion. In 2002, the number of trade show and convention attendees had increased to 5.1 million and the amount spent by trade show and convention attendees was approximately $5.9 billion.

        Trade shows are held for the purpose of getting sellers and buyers of products or services together in order to conduct business. Trade shows differ from conventions in that trade shows typically require substantial amounts of space for exhibition purposes and participant circulation. Conventions generally are gatherings of companies or groups that require less space for breakout meetings and general meetings of the overall group. Las Vegas offers trade shows and conventions a unique infrastructure for handling the world’s largest shows, including the concentration of 48,000 hotel rooms located on the Strip, three convention centers (the Expo Center, Mandalay Bay Convention Center, and the Las Vegas Convention Center (the “LVCC”)) with a total of approximately 6.9 million square feet of convention and exhibition space, convenient air service from major cities throughout the United States and other countries, and significant entertainment attractions. In addition to the Expo Center, Mandalay Bay Convention Center, and the LVCC, the MGM Grand Hotel and Casino has a conference and meeting facility of approximately 300,000 gross square feet, and the Mirage has a 100,000 gross square feet of meeting space. Mandalay Bay opened its approximately 1.8 million square foot convention center during January 2003. Management believes that Las Vegas will continue to evolve as the country’s preferred trade show and convention destination.

        Expanding Hotel Market

        During 2002, Las Vegas was among the most popular vacation destinations in the United States. Las Vegas has experienced a period of rapid hotel development with the number of hotel and motel rooms in Las Vegas increasing by 65% over the last 10 years, from 76,923 in 1992 to 126,787 in 2002. 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.

        Growth of Las Vegas Retail Sector and Non-Gaming Revenue Expenditures

        In order to draw additional visitors, an increasing number of destination resorts are developing non-gaming entertainment to complement their gaming activities. According to the LVCVA, while gaming revenues have increased from $4.4 billion in 1992 to $7.6 billion in 2002 (a compound annual growth rate of 5.6%), non-gaming tourist revenues increased from $10.2 billion to $23.8 billion over the same period (a compound annual growth rate of 8.8%). The newer, large themed Las Vegas destination resorts have been designed to capitalize on this growth by providing better quality hotel rooms at higher rates and by providing expanded shopping, dining and entertainment opportunities to their patrons in addition to gaming.

        Infrastructure Improvements

        Clark County and metropolitan Las Vegas have completed several infrastructure improvements to accommodate the increase in travel to Las Vegas by all modes of transportation. According to the LVCVA, in 2002 visitors to Las Vegas arrived by the following methods of transportation: 45% by air; 40% by auto; 8% by recreational vehicle; and 7% by bus.

        McCarran International Airport Expansion

        During the past five years, the facilities of McCarran International Airport have been expanded to accommodate the increased number of airlines and passengers that it services. The number of passengers traveling through McCarran International Airport has increased from 20.9 million in 1992 to 35.0 million in 2002. Long-term expansion plans for McCarran International Airport provide for additional runway and related areas (a new runway was completed in October 1997 and a new terminal and additional gates were completed in 1998).

Competition

        The casino/hotel industry is highly competitive. Strip hotels compete with other hotels on the Strip and with other hotels in downtown Las Vegas. The Casino Resort also competes with a large number of hotels and motels near Las Vegas. Many of the Company’s competitors 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 include themed resorts on the Strip, such as The Bellagio, Mandalay Bay and Paris. In November 2002, Steve Wynn began construction of the Le Reve. Le Reve is a 2,500 hotel-room resort and casino being constructed on the site of the former Desert Inn located on Sands Avenue across from the site of the anticipated Phase II Resort, with an expected completion date of April 2005. During 2002, Mandalay Bay and Bellagio each announced the planned construction of 1,000 hotel room additions. Management is not aware of any other new significant developments of casino properties in Las Vegas in the near future. The Casino Resort may also compete with the Phase II Resort, to the extent its business is not complementary to that of the Casino Resort.

        The Company believes that themed resorts are generally more successful at generating higher traffic volumes and higher revenues and operating income than the large-scale non-themed properties in Las Vegas. Themed resorts compete on the basis of the quality of theming, as well as on more traditional bases, such as quality of rooms, pricing and location. Themed resorts tend to be clustered on the Strip, creating a critical mass of entertainment experiences which generate significant traffic for the themed resorts as a group, thereby capturing a larger portion of the Las Vegas hotel and gaming market than non-themed properties. The Company believes that the existence of other themed resorts in close proximity to the Casino Resort directly benefits the Casino Resort. The Casino Resort is part of a cluster of themed properties, which includes The Mirage, the Treasure Island Hotel and Casino, The Bellagio and The Forum Shops at Caesars Palace Hotel, and may in the future also include Le Reve and the Phase II Resort.

        In addition to the advantages of being a centrally-located, themed resort, the Cooperation Agreement and the Casino Resort’s direct connection with the Expo Center provide the Casino Resort with a unique tie-in to one of the premier trade show and convention facilities in the United States. With these competitive advantages, the Casino Resort is positioned to appeal to the mid-week meeting, trade show and convention market composed of customers who pay higher average room rates and have higher average travel budgets than other categories of weekday customers, such as tour groups.

        The hotel-casino operation of the Casino Resort also competes, to some extent, with other hotel-casino facilities in Nevada and in Atlantic City, hotel/casino and other resort facilities elsewhere in the country and the world, Internet gaming web sites and state lotteries. In addition, certain states have legalized, and others may legalize, casino gaming in specific areas. The passage of the Indian Gaming Regulatory Act in 1988, for example, has led to rapid increases in Native American gaming operations. Such proliferation of gaming venues could significantly and adversely affect the business of the Company. In particular, the legalization of casino gaming in or near major metropolitan areas, such as New York, Los Angeles, San Francisco and Boston, from which the Company attracts customers, could have a material adverse effect on the business of the Company. In October 2001, the New York legislature approved a bill for expanded casino gaming on Native American reservations in that state. The expansion of gaming in New York could also have a material adverse effect on the business of the Company.

        Trade Show and Convention Facilities

        The Expo Center, the Congress Center and Las Vegas generally compete with trade show and convention facilities located in and around major U.S. cities, including Atlanta, Chicago, New York and Orlando. Within Las Vegas, the Expo Center and the Congress Center compete with the LVCC, which is located off the Strip and currently has 3.2 million gross square feet of convention and exhibit facilities, including over 1.0 million square feet of new meeting and exhibition space that was added in 2001 (the “LVCC Expansion”). In addition to the LVCC competition, Mandalay Bay opened an approximately 1.8 million square foot convention center during January 2003. The MGM Grand Hotel and Casino has a conference and meeting facility of approximately 300,000 square feet and the Mirage has a 100,000 gross square feet of meeting space. The conference and meeting facilities at these hotel/resorts are the Congress Center’s primary competition. The Company expects that the LVCC and the Mandalay Bay Convention Center will be the primary competitors of the Expo Center. To the extent that any of the competitors of the Casino Resort can offer a hotel/casino experience that is integrated with substantial trade show and convention, conference and meeting facilities, the Casino Resort’s competitive advantage in attracting trade show and convention meeting and conference attendees could be adversely affected. Other cities such as Boston, Orlando and Pittsburgh are also in the process of developing, or have announced plans to develop, convention centers and other meeting, trade and exhibition facilities. The Company’s competitors discussed above could in the long term materially adversely affect the Company.

        Mall

        The Mall competes with both themed resorts, which offer shopping, dining and entertainment opportunities to their patrons, and other retail malls in or near Las Vegas. The Mall’s direct competition includes The Forum Shops at Caesars Palace and The Desert Passage Shops at the Aladdin. Park Place Entertainment Corp. recently announced an approximately a 200,000 square-foot expansion of The Forum Shops at Caesars Palace. The Mall also competes with The Fashion Show Mall, a more traditional mall located near the Casino Resort, which is currently undergoing an expansion that will almost double its size. In the future, the Mall may also compete with the planned retail, dining and entertainment facilities in the Phase II Resort. Mandalay Resort Group had also announced, but has since suspended, the development of a retail center near its new Mandalay Bay Resort.

        Macau

        In Macau, the Company expects to compete with the other two parties granted casino licenses, which are a group led by Steve Wynn and a group led by Stanley Ho, who, at that time, held Macau’s only existing casino license. The Company also expects to compete with its partners in the Galaxy Casino Company Limited joint venture.

Advertising and Marketing

        The Company advertises in many types of media, including television, radio, newspapers, magazines and billboards, to promote general market awareness of the Casino Resort as a unique vacation, business and convention destination due to its first-class hotel, casino, retail stores and restaurants. The Mall tenants also pursue their own general advertising and promotional activity, which benefits the Mall. The Company actively engages in direct marketing which is targeted at specific market segments, such as the meeting, convention and trade show market and the premium gaming market, and database marketing which focuses on high-frequency, high-margin market segments such as the “high-roller” gaming market. The Company uses a preview center featuring a full-scale model suite in the Expo Center to market Casino Resort and Expo Center events.

Agreements Relating to the Casino Resort

        As of December 31, 1999, construction of the Casino Resort and the Mall was complete and virtually all construction costs had been paid. The Company is currently involved in various lawsuits, has asserted various claims against various parties, and has had various claims asserted against it by various parties, in connection with the construction of the Casino Resort. The Company is vigorously pursuing these claims and vigorously defending itself in all relevant legal proceedings. See “Item 3 – Legal Proceedings.”

        Cooperation Agreement

        The Company’s business plan calls for each of the Casino Resort, the Mall, the Expo Center and if built, the Phase II Resort, though separately owned, to be integrally-related components of one facility. In establishing the terms for the integrated operation of these components, the Cooperation Agreement sets forth agreements regarding, among other things, encroachments, easements, operating standards, maintenance requirements, insurance requirements, casualty and condemnation, joint marketing, the construction of the Phase II Resort, and the sharing of some facilities and related costs. Subject to applicable law, the Cooperation Agreement binds all current and future owners of the Expo Center, the Casino Resort, the Mall and the Phase II Resort (and the land on which the Phase II Resort is expected to be built), and has priority over the liens securing the Company’s new credit facility and the Company’s 11% mortgage notes due 2010 (the “Mortgage Notes”) and any liens securing any indebtedness of the Mall, the Expo Center or Phase II Resort. Accordingly, subject to applicable law, the obligations in the Cooperation Agreement will “run with the land” if any of the components change hands.

        Operating Covenants

        The Cooperation Agreement regulates certain aspects of the operation of the Expo Center, the Mall and the Casino Resort. For example, Under the Cooperation Agreement, the Company is obligated to operate the Casino Resort continuously and to use it exclusively in accordance with standards of first-class Las Vegas Boulevard style hotels, casinos and retail and restaurant complexes. In turn, the New Mall Subsidiary is obligated to operate the Mall exclusively in accordance with standards of first-class restaurant and retail complexes, and Interface is obligated to operate and to use the Expo Center exclusively in accordance with standards of first-class convention, trade show and exposition centers. The Cooperation Agreement also provides that the Company will not and the New Mall Subsidiary will not (and will not permit any other person to) own, operate, lease, license or manage any building or other facility, at or in the Casino Resort, Phase II Resort, the Mall or the land on which the Casino Resort, the Phase II Resort or the Mall sits, that provides space for shows or expositions of the type generally held at the Expo Center. The Company will be able to conduct or permit to be conducted at the meeting and conference space that is a part of the Phase IA Addition, and at the Phase II Resort, tradeshows or expositions of the type generally held at the Expo Center so long as such space is at most 125,000 square feet, and the Company enters into preferred reservation system agreements with Interface that will govern the booking of exposition and tradeshows in the Phase IA Addition meeting space and in the Phase II Resort, and agreements for Interface to provide audio-visual, telecommunications, electrical, janitorial and other related services to group customers of the Phase IA Addition meeting space or the Phase II Resort. See “Item 13 – Certain Relationships and Related Transactions – Preferred Reservation System Agreement” and “–Meeting Services Agreement.”

        Additionally, until December 31, 2010, Interface, upon the Company’s request, will use commercially reasonable efforts to have the Casino Resort designated as the “headquarters hotel” for trade show and convention events at the Expo Center. In turn, the Company will use commercially reasonable efforts to promote the use and occupancy of the Expo Center.

        Further, Interface agreed under the Cooperation Agreement that, until such time as the indebtedness under the Mortgage Notes has been paid in full, Interface will not incur additional debt secured by the Expo Center if such additional debt will cause the aggregate indebtedness secured by the Expo Center to exceed the greater of 85% of the then fair market value of the Expo Center or $140.0 million plus any additional amounts permitted to be advanced for equipment leases or equipment financings under the terms of the mortgages encumbering the Expo Center in 1997.

        In addition, subject to certain exceptions, until December 31, 2010, Interface will not voluntarily dispose of its interest in the Expo Center and interest in Interface, except to a buyer of the Casino Resort.

        Maintenance and Repair

        Venetian must maintain the Casino Resort as well as some common areas and common facilities that are to be shared with the Mall and the Expo Center. The cost of maintenance of all shared common areas and common facilities is to be shared by the Company, the New Mall Subsidiary and Interface. The New Mall Subsidiary must maintain, repair and restore the Mall and all common areas and common facilities located in the Mall, and Interface must maintain, repair and restore the Expo Center and all common areas and common facilities located in the Expo Center.

        Insurance

        The owners of the Casino Resort, the owner of the Mall and the owner of the Expo Center must also maintain minimum types and levels of insurance, including property damage, general liability and business interruption insurance.

        The Cooperation Agreement establishes an insurance trustee to assist in the implementation of the insurance requirements.

        The Cooperation Agreement provides that in the event of a casualty affecting all or part of the Casino Resort, the Expo Center or the Mall, then (a) all insurance proceeds above $1.5 million shall be paid to an insurance trustee to be disbursed in accordance with the provisions of the cooperation agreement and (b) the owners of the affected properties will (subject to certain conditions in the case of the Expo Center) agree to permit such proceeds to be used to restore such property as nearly as reasonably possible to its condition immediately preceding the casualty; provided, however, that no mortgagee of a damaged property shall be required to permit such application of the resulting insurance proceeds unless within 90 days after the casualty (a) the mortgagee receives an opinion from an independent expert to the effect the damaged property may be completed within one year after the delivery of the opinion and (b) the mortgagee receives evidence that the insurance proceeds (together with any other funds committed by the owner) are sufficient to cover the anticipated costs of the restoration (including scheduled debt service payments through the anticipated date of completion of the restorations). If the owner of the affected property is unable to satisfy the foregoing conditions, then the owner’s equitable share of the insurance proceeds shall be applied in accordance with the provisions of its mortgage(s).

        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.

        The Cooperation Agreement also requires that insurance proceeds payable in connection with a casualty that is the result of a terrorist act be allocated equitably among the Casino Resort, the Mall and the Expo Center in accordance with the damages suffered by each so long as (a) proceeds in an amount not to exceed the lesser of (i) $105 million, (ii) the cost of restoring the Mall and the rental income lost by the Mall as a result of the terrorist act (and covered by such insurance), and (iii) the total amount of such insurance proceeds, are paid first to the mortgagee of the Mall, and (b) proceeds in an amount not to exceed the lesser of (i) $137 million, (ii) the cost of restoring the Expo Center and the income lost by the Expo Center as a result of the terrorist act (and covered by such insurance, and (iii) the total amount of such insurance proceeds, are paid second to the mortgagee of the Expo Center. The mortgagee of the Mall also has the benefit of $15 million of terrorism coverage that is solely for the benefit of the Mall property.

        Parking

        The Cooperation Agreement also addresses issues relating to the use of the Casino Resort’s parking facilities, the use of parking facilities planned in connection with the Phase II Resort and easements for access. The Casino Resort, the Mall and the Expo Center may use the parking spaces in the Casino Resort’s parking garage on a “first come, first served” basis, as long as each property retains use of sufficient spaces to comply with minimum parking standards. This means that each property uses sufficient spaces to comply with applicable laws to conduct its business. The Casino Resort’s parking garage is owned, maintained, and operated by the Company, with the operating costs allocated among the Company, the Mall and Interface. After the completion of the parking garage planned to be built in connection with the Phase II Resort, the Casino Resort, the Mall and the Expo Center will have the right to use the Phase II Resort parking garage, with the operating costs allocated among each facility. All property owners have granted each other non-exclusive easements and rights to use the roadways and walkways on their properties for vehicular and pedestrian access to the parking garages.

        Utility Easements

        All property owners have also granted each other all appropriate and necessary easement rights to utility lines servicing the Casino Resort, the Phase II Resort and the Expo Center.

        Relations between the Casino Resort and the Phase II Resort

        The Company must approve the plans and specifications (such approval not to be unreasonably withheld) for all portions of the Phase II Resort that will connect with or adjoin the Casino Resort prior to the commencement of construction of the Phase II Resort. The owner of the Phase II Resort must use commercially reasonable efforts to minimize such construction’s interference with the operation of the Casino Resort.

        Additionally, prior to construction of the Phase II Resort, there must be agreement on:

        Coordinated Relations with HVAC Provider

        As discussed under “–HVAC Services Agreement and Related Documents,” the owners of the Casino Resort, the Mall, the Expo Center and the Phase II Resort have or will have separate services agreements with Sempra Energy Solutions (the “HVAC Provider”), the provider of thermal energy.

        The Cooperation Agreement provides mechanisms for these parties to deal with the HVAC Provider in a coordinated manner. In particular, the cooperation agreement establishes conditions for the owner of the Phase II Resort receiving thermal energy services from the HVAC Plant. These conditions include the payment by the owner of the Phase II Resort of all incremental costs attributable to such services and any additional capital improvements required for such services.

        The Cooperation Agreement also provides mechanisms for the owners of the various properties to make decisions regarding the termination or extension of the HVAC services agreements. In general, these provisions permit a property owner that is not receiving adequate HVAC services to replace the HVAC Provider, as long as the property owner:

        Consents, Approvals and Disputes

        If any property owner has a consent or approval right or has discretion to act or refrain from acting, consent or approval will only be granted and action will be taken or not taken only if a commercially reasonable owner would do so and such consent, approval, action or inaction would not have a material adverse effect on the property owned by such property owner. The Cooperation Agreement provides for the appointment of an independent expert to resolve some disputes between the parties, as well as for expedited arbitration for other disputes.

        HVAC Services Agreement and Related Documents

        Sempra Energy Solutions, successor to Atlantic Pacific Las Vegas, LLC, is a California company and is beneficially owned by Sempra Energy, a utility holding company.

        Thermal energy (i.e., heating and air conditioning) is provided to the Casino Resort and the Expo Center by the HVAC Provider using certain heating and air conditioning-related and other equipment (the “HVAC Equipment”). In addition, the HVAC Provider provides the Company with other energy-related services. The central HVAC Plant is located on land owned by the Company, which land and HVAC Plant have been leased to the HVAC Provider for a nominal annual rent. The HVAC Equipment is 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 the Expo Center (and, potentially, other buildings), so long as such easements do not materially interfere with the operations of the Casino Resort and the Expo Center. The HVAC Provider paid all costs (“HVAC Costs”) in connection with the purchase and installation of the HVAC Equipment, which costs totaled $70 million. The HVAC Provider has entered into separate service contracts (collectively, the “HVAC Service Agreements”) with: (i) Venetian; (ii) Interface; and (iii) the predecessor to the New Mall Subsidiary, for the provision of heat and cooling requirements at agreed-to rates. The charges payable by all users include a fixed component that enables the HVAC Provider to recover 85% of the HVAC Costs over the initial term of the service contracts, with interest at a fixed annual rate of 7.1%. In addition, the users reimburse the HVAC Provider for the annual cost of operating and maintaining the HVAC Equipment and providing certain other energy related services, and pay the HVAC Provider a management fee of $500,000 per year. Each user is allocated a portion of the total agreed-to charges and fees through its service contract, which portion includes paying 100% of the cost of services in connection with the HVAC Equipment relating solely to such user. Each user is not liable for the obligations of the other users; provided, however, that the New Mall Subsidiary is liable for the obligations of each Mall tenant. The HVAC Service Agreements expire in 2009, at which time the 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 HVAC Service Agreements.

        The Company’s rights under the HVAC Service Agreements and related documents were collaterally assigned to The Bank of Nova Scotia, as agent for the lenders under the Company’s senior secured credit facility entered into on June 4, 2002 (the “Senior Secured Credit Facility”) and the holders of the Mortgage Notes as security for its obligations under the Senior Secured Credit Facility and the Mortgage Notes, and the Mall’s rights under the HVAC Services Agreement and related documents were collaterally assigned to Archon Financial, L.P. as lender under the secured mall facility that the Company is a party to (the “Secured Mall Facility”). The HVAC Provider has consented to the Company’s collateral assignment pursuant to a consent and agreement agreed to by the HVAC Provider. Under the HVAC consent and agreement, the HVAC Provider has agreed: (i) to acknowledge that the Company has granted a security interest in its agreements with the HVAC Provider; (ii) under certain conditions, to recognize the Company’s secured lenders’ rights to “step in” to the Company’s rights under these agreements, and to keep from exercising termination and other rights for a time; (iii) not to terminate these agreements or to consent to any termination or suspension of these agreements without written notice to The Bank of Nova Scotia, as agent for the lenders, and providing the Company’s secured lenders an opportunity to correct any default or breach that the Company commits; (iv) under certain conditions, to consent to the transfer of the Company’s interest to any of the secured lenders or a purchaser or grantee at a foreclosure sale and to any purchasers in lieu of foreclosure; and (v) that in the event one or more of the service contracts is rejected in any bankruptcy or insolvency proceedings, to execute and deliver to the secured lenders a new contract that is on the same terms and conditions as the original HVAC Service Agreements.

        Mall Management Contract

        The predecessor to the New 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 manages the Mall and supervises and assists in the creation of an advertising and promotional program and a marketing plan for the Mall. Forest City is also responsible for, among other things, preparation of a detailed plan for the routine operation of the Mall, collection and deposit procedures for rents and other tenant charges, supervision of maintenance and repairs and, on an annual basis, preparation of a detailed budget (including any anticipated nonrecurring expenses and capital expenditures) for the Mall. The term of the management contract is five years from June 19, 1999, the date the Mall opened to the public. Forest City currently receives a management fee of 2% of all gross rents received from the operation of the Mall, provided that Forest City receives a minimum fee of $600,000 per year. Forest City is not affiliated with the Principal Stockholder or any of his affiliates.

Agreements Related to the Macau Casino Construction

        The Company has entered into preliminary contracts in Macau for architectural and engineering services and for site work to construct the Macau Casino. The Company plans to enter into other contracts during 2003 to complete construction of the Macau Casino by February 2004. The Company expects to enter into a construction management agreement during 2003 to facilitate construction of the Macau Casino.

Agreements Relating to the Phase II Resort

        The Casino Resort was developed on a stand-alone basis as the first phase of a planned two-phase development. In the second phase of the development, it is contemplated that the Phase II Subsidiary will construct and develop the Phase II Resort, which also is planned to be a themed resort. In the event that the Phase II Resort is not constructed, the Casino Resort has all the attributes and facilities to continue to operate as a stand-alone resort. See “Item 13 – Certain Relationships and Related Transactions – Possible Conflicts of Interest.”

        Phase II Resort

        The Company has not yet set a date to begin construction of the Phase II Resort. If the Company determines to construct the Phase II Resort, it will be required to raise substantial debt and/or equity financings. Currently, the Company has no commitments to fund the hard construction costs of the Phase II Resort. In addition, the development of the Phase II Resort may require obtaining additional regulatory approvals. The Company’s debt instruments limit its ability to guarantee or otherwise become liable for any indebtedness of the Phase II Subsidiary. These debt instruments also restrict the Company’s and its subsidiaries’ ability to sell or otherwise dispose of the capital stock of the Phase II Subsidiary, including a sale to the Principal Stockholder or to any of his affiliates. In addition, the indenture governing the Mortgage Notes (the “Indenture”) allows the Company to make investments of up to $20.0 million for the development of the Phase II Resort and to incur up to $20.0 million of additional debt to fund such investment.

        Phase II 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 Casino Lease may have terms substantially similar to the Casino Lease. The Company or Venetian, as the case may be, may agree to operate the casino in the Phase II Resort and the Casino in a substantially similar manner, and the Company or Venetian, as the case may be, may agree to have common gaming and surveillance operations in such casinos (based on pro rata allocations of operating costs).

        Phase II HVAC Services Agreement

        The Cooperation Agreement permits the owner of the land on which the Phase II Resort will be built (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 “Item 13 – Certain Relationships and Related Transactions – Cooperation Agreement.”

Regulation and Licensing

        State of Nevada

        The ownership and operation of casino gaming facilities in the State of Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the “Nevada Act”) and various local regulations. The Company’s gaming operations are also subject to the licensing and regulatory control of the Nevada Gaming Commission (the “Nevada Commission”), the Nevada Gaming Control Board (the “NGCB”) and the Clark County Liquor and Gaming Licensing Board (the “CCLGLB” and, together with the Nevada Commission and the NGCB, 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) the establishment of 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 Casino Resort.

        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 was registered by the Nevada Commission as a publicly-traded corporation (“Registered Corporation”) and as such, must periodically submit detailed financial and operating reports to the Nevada Gaming Authorities and furnish any other information that the Nevada Gaming Authorities may require. No person may become a stockholder of, or receive any percentage of profits from, the Company without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company operates the Casino pursuant to the Casino Lease between LVSI and Venetian, which provides for a fixed monthly rental payment. The Company possesses 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.

        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 and 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; 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 have an inappropriate relationship with the Company, the Company 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 periodic 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 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, an “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 only for investment purposes. An institutional investor shall not be deemed to hold voting securities only for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investment 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 only for investment purposes. Activities that are not deemed to be inconsistent with holding voting securities only for investment purposes 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.

        Under a provision of the Nevada Act, under certain circumstances, an “institutional investor” as defined in the Nevada Act, which intends to acquire not more than 15% of any class of nonvoting securities of a privately-held corporation, limited partnership or limited liability company that is also a registered holder or intermediary company of the holder of a gaming license, may apply to the Nevada Commission for a waiver of the usual prior licensing or finding of suitability requirements if such institutional investor holds such nonvoting securities only for investment purposes. An institutional investor shall not be deemed to hold nonvoting securities only for investment purposes unless the nonvoting securities were acquired and are held in the ordinary course of business as an institutional investor, do not give the institutional investor management authority, and do not, directly or indirectly, allow the institutional investor to vote for the election or appointment of members of the board of directors, a general partner or manager, cause any change in the articles of organization, operating agreement, other organic document, management, polices or operations, or cause any other action that the Nevada Commission finds to be inconsistent with holding nonvoting securities only for investment purposes. Activities that are not deemed to be inconsistent with holding nonvoting securities only for investment purposes include: (i) nominating any candidate for election or appointment to the entity’s board of directors or equivalent in connection with a debt restructuring; (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 the entity’s management, polices 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 nonvoting securities who must be licensed or found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of 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 to be unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found to be 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, 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 holding 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 such Registered Corporation. 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 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.

        Neither LVSI nor Venetian may 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 and restrictions on stock in connection with any public offering also require the prior approval of the Nevada Commission. In addition, the hypothecation of Venetian’s assets and restrictions on stock in respect of any public offering require the approval of the Nevada Commission to remain effective.

        Changes in control of the Company through a merger, consolidation, stock or asset acquisition, management or consulting agreement, or any act or conduct by any person whereby he or she obtains control, shall not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the NGCB 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: (i) 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 upon the type of gaming or activity involved, are payable to the State of Nevada and to Clark County, Nevada. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. Also, a casino entertainment tax is paid by the Company to the extent that 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 under common control with such persons (collectively, “Licensees”), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the NGCB, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of any investigation by the NGCB into 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 any foreign jurisdiction pertaining to such foreign gaming operation, fail to conduct such 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 such 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 has obtained Clark County gaming and liquor licenses. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such licenses, and any such disciplinary action could (and revocation of such licenses would) have a material adverse effect upon the operations of the Company.

        Macau

        The Company is also subject to licensing and control in other jurisdictions. The Company is constructing a casino in Macau. Venetian Macau is subject to laws, regulations and controls as implemented and administered by the government of Macau. In addition, Venetian Macau is subject to reporting requirements to Macau’s Gambling Inspection and Coordination Bureau on a yearly basis, in particular with respect to the number of gaming tables and electrical or mechanical gaming machines that it intends to operate during the following year.

        Alderney

        During March 2003, a subsidiary of the Company received an interactive gaming license and an electronic betting center license from the Alderney Gambling Control Commission, and is subject to the laws, regulations and controls as implemented and administered by the Government of Alderney.

Employees

        The Company directly employs approximately 4,000 employees in connection with the Casino Resort. The Casino Resort’s employees are not covered by collective bargaining agreements. Most, but not all, major casino resorts situated on the Strip have collective bargaining contracts covering at least some of the labor force at such sites. The unions currently on the Strip include the Local 226 of the Hotel Employees and Restaurant Employees International Union (the “Local”), the Operating Engineers Union and the Teamsters Union. Although no assurances can be given, if employees decide to be represented by labor unions, management does not believe that such representation would have a material impact upon the Company’s results of operations, cash flows or financial position.

        The Local has requested the Company to recognize it as the bargaining agent for employees of the Casino Resort. The Company has declined to do so, believing that current and future employees are entitled to select their own bargaining agent, if any. In the past, when other hotel-casino operators have taken a similar position, 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 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 or that the failure to do so would not result in a material adverse effect on the Company’s results of operations, cash flows or financial position.

Risk Factors

        The following risk factors should be read carefully in connection with evaluating the Company and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect the Company, its operating results, its financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Special Note Regarding Forward – Looking Statements.”

        The Company's Substantial Debt Could Impair its Financial Condition

        The Company is highly leveraged and has substantial debt service obligations. As of December 31, 2002, the Company had approximately $1.219 billion of indebtedness outstanding. In addition, there was approximately $75.0 million available for borrowing by Venetian under the $75.0 million senior secured revolving facility (the “Revolving Facility”) of the Senior Secured Credit Facility. The availability under the Revolving Facility may be reduced, eventually to $25.0 million, in the event that borrowings are made under the credit agreement recently entered into by one of the Company’s Macau subsidiaries. The Company’s Macau subsidiaries may also incur substantial indebtedness to construct various projects in Macau. See “Item 8 – Financial Statements and Supplementary Data – Notes to Financial Statements – Note 8 – Long-Term Debt.”

        This substantial indebtedness could have important consequences to the Company. For example, it could:

        The Terms of the Company's Debt Instruments May Restrict the Company's Current and Future Operations, Particularly its Ability to Respond to Changes or to Take Some Actions

        The Senior Secured Credit Facility contains, and any future refinancing of this facility likely would contain, a number of restrictive covenants that impose significant operating and financial restrictions on the Company. The credit facility includes covenants restricting, among other things, the Company’s ability to:

        The Indenture also contains numerous covenants including, among other things, restrictions on the Company’s ability and that of its restricted subsidiaries to:

        The Senior Secured Credit Facility also includes financial covenants, including requirements that the Company satisfy:

        In addition, the Company’s other debt and future debt or other contracts could contain financial or other covenants more restrictive than those applicable to the above instruments.

        The Company’s Business is Subject to Significant Contingencies Beyond its Control, Including the Aftermath of Terrorist Acts, Which May Significantly and Adversely Affect its Financial Condition, Results Of Operations or Cash Flows

        The Company’s operations are subject to significant business, economic and regulatory uncertainties and contingencies, many of which are beyond its control. On September 11, 2001, acts of terrorism occurred in New York City, Pennsylvania and Washington D.C. As a result of these terrorist acts, domestic and international travel was severely disrupted. As approximately 48% of the Company’s customers use air travel to come to Las Vegas, these terrorist acts and travel disruptions decreased customer visitation to the Casino Resort. In addition, the war with Iraq could have a similar effect on domestic and international travel. Management cannot predict the extent to which any further terrorist act, outbreak of hostilities or escalation of war, could have a material adverse effect on the economy in general and on the hotel/casino business in particular or could further disrupt air travel, which would adversely affect the Company’s financial condition, results of operations or cash flows. There can be no assurance that the Company will continue to manage the Casino Resort on a profitable basis or that it will be able to attract a sufficient number of guests, gaming customers and other visitors to the Casino Resort to make its various operations profitable independently or as a whole.

        The Company Faces Significant Competition Which Could Materially Adversely Affect its FinancialCondition, Results of Operations or Cash Flows