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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE RESORT AT SUMMERLIN, LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Nevada 86-0857506
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1160 Town Center Drive
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Suite 200
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Las Vegas, Nevada 89134
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(Address of Principal Executive Office) (Zip Code)
(702) 869-7000
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(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of Class:
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Limited Partnership Interests
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ITEM 1. BUSINESS.
GENERAL
The Resort at Summerlin, Limited Partnership (the "Partnership") is
currently constructing and intends to own and operate the Resort at Summerlin, a
Mediterranean-style luxury hotel, casino and spa complex (the "Resort Casino"),
in Las Vegas, Nevada. The Resort Casino is located approximately nine miles from
the Las Vegas Strip (the "Strip") and approximately a 20 minute drive from
McCarran International Airport. The 54.5-acre Resort Casino site (the "Site") is
located at the gateway to Summerlin, a three-time award-winning, 22,500-acre
land development of Howard Hughes Properties, Limited Partnership ("HHP"). The
Partnership intends to equip the Resort Casino with two five-star hotels with a
total of 461 rooms and 80 suites, a 50,000 square foot gaming facility, a 40,000
square foot state-of-the-art spa and fitness facility, up to eight restaurants
of varied cuisine and an indoor/outdoor buffet, a 60,000 square foot lifestyle
complex, and a 50,000 square foot conference and banquet center. The Partnership
believes that, when completed, the Resort Casino will represent one of a few
five-star resorts with gaming in the United States and a premier "off-Strip"
casino in Las Vegas. Construction of the Resort Casino began in January 1998
with an opening to the general public scheduled for the second quarter of 1999.
The Partnership was formed as a limited partnership in Nevada in August
1996. Its general partner is The Resort at Summerlin, Inc. ("RAS"), a Nevada
corporation formed in August 1996. The executive offices of the Partnership are
located at 1160 Town Center Drive, Suite 200, Las Vegas, Nevada 89134 and its
telephone number is (702) 869-7000.
BUSINESS AND MARKETING STRATEGY
The Partnership's business and the goal of its marketing strategy are to
(i) create the Resort Casino as a premier off-Strip location with geographic
exclusivity, (ii) deliver superior and market-unique resort amenities within the
local off-Strip market, (iii) target middle- to upper-income customers, (iv)
capitalize on its marquee hotel flag and extensive travel network relationship,
(v) carefully manage construction costs and risks with a proven design and build
team, and (vi) leverage management's track record and continuity.
- CREATE A PREMIER OFF-STRIP LOCATION WITH GEOGRAPHIC EXCLUSIVITY. The
Partnership believes that, at the time of its completion, the Resort
Casino will be the only luxury gaming destination of its kind in the
United States with nine golf courses within a five minute drive. The
Resort Casino will be situated at the gateway to Summerlin, and the area
within a 5-mile radius of the Site is projected by the University of
Nevada Reno - Bureau of Business and Economic Research ("BBER") to have a
1999 population base of 235,000 residents. The Site is readily accessible
from most major points in the city including downtown Las Vegas
(approximately eight miles), the Strip (approximately nine miles) and
McCarran International Airport (approximately 15 miles). Accessibility
will be further enhanced by the planned connection of the Las Vegas
beltway to Summerlin Parkway in 2000.
The Tournament Players Club ("TPC") at the Canyons golf course ("TPC
Canyons") is adjacent to the Site. Immediately to the south and east of
the Site is the Angel Park Golf Club which includes two regulation 18-hole
courses and an executive, 12-hole par three course. An additional five
18-hole public and private golf courses and one 27-hole public golf course
are within a five minute drive of the Site. The Resort Casino will offer
panoramic views of the adjoining golf courses as well as of Las Vegas and
the Strip to the east and the Red Rock Canyon National Park to the west.
The Partnership has obtained rights of first offer from HHP (the "Rights
of First Offer") to develop an additional four designated gaming sites in
Summerlin which rights may be assigned to certain affiliates in certain
circumstances. Additionally, Nevada Senate Bill #208, enacted in July
1997, from which the Resort Casino and the additional four gaming sites
subject to the Rights of First Offer are exempt,
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limits the development of casinos near residential neighborhoods, churches
and schools, restricting entry by competitors into the market.
- DELIVER SUPERIOR RESORT AMENITIES. The Resort Casino is designed along
the lines of a Scottsdale- or Palm Springs-type facility with
Mediterranean-style architecture, intimate ambiance and strong focus on
service intended to create a lifestyle experience for its guests and offer
visitors a haven from the pressures of daily life. The Partnership
believes that this atmosphere generally is unavailable in Las Vegas or
other gaming locales in the United States. The Resort Casino's two hotels
will feature 461 standard rooms and 80 suites. The Partnership believes
that, at approximately 564 square feet, the Resort Casino's standard guest
room will be among the most spacious in Las Vegas. The circular design
casino will be situated at the hub of the Resort Casino and will feature
50,000 square feet of gaming space, including 1,270 slot machines, 40
table games, a sports and race betting club and two salons prives for
higher stake slots and table games. For golfers, the Resort Casino will be
able to reserve up to 50.0%, and may in the future contract for the right
to reserve up to 75.0%, of the tee times at TPC Canyons and will benefit
from an additional 165 holes of golf within a five minute drive. The
Resort Casino also will include a 40,000 square foot upscale spa and
fitness facility with state-of-the-art equipment designed to the same
standards as the award-winning Grand Wailea, Hawaii and Golden Door,
California spa resorts. Guests will have various indoor and outdoor dining
options including up to eight restaurants of varied cuisine and a large,
roof-deck buffet. The Resort Casino also will include a technologically
advanced, flexible design business meeting center to cater to executive
retreats and conferences. The Lifestyle Complex, which is designed to
facilitate indoor and outdoor activity and highlighted by terraces,
fountains and pools, will link all the components in the Resort Casino.
The Lifestyle Complex will include gourmet food and wine shops, a cigar
shop, a beauty salon and other boutique outlets selected to encourage
frequent visits by local residents.
- TARGET MIDDLE- TO UPPER-INCOME CUSTOMER SEGMENTS. The Resort Casino will
be specifically tailored to cater to the affluent, higher-end customer.
The Partnership believes that the Resort Casino's hotels and recreational
amenities will appeal to customers from the following principal long-term
markets:
The Captive Summerlin Market. The population within a five-mile radius of
the Site, which encompasses Summerlin and other residential neighborhoods
in metropolitan Las Vegas, is estimated by BBER to be approximately
223,000 in 1998 and projected by BBER to grow to 235,000 by mid-1999.
According to the Nevada State Demographers Office, the population of Clark
County has grown approximately 48.8% since 1990, and the population within
a five-mile radius of the Site is projected by BBER to continue growing at
approximately 5.0% per year. The median household income of approximately
$47,500 for residents in this target market is approximately 21.8% above
the Las Vegas median household income of approximately $39,000 and
approximately 30.3% above the United States national average according to
BBER. The Partnership's goal is to position the Resort Casino as the
Summerlin residents' "country club."
Middle- to Upper-Income Local Market. The Partnership believes this
segment is characterized by a highly profitable, repeat clientele that has
long been under-served by "local" casinos, and expects the Resort Casino
will appeal strongly to the affluent local population, including the
estimated 72.0% of adult Las Vegas residents who game an average of 51.31
times a year and spend an average of $51.44 (in 1995 dollars) per each
visit according to the Las Vegas Convention and Visitors Authority
("LVCVA").
Golfer/Gamer and Resort Vacationer. According to Simmons Market Research
Bureau, approximately 3.4 million golfer/gamers visit Las Vegas at least
once annually and 51.6% of golfer/gamers spend over $1,500 per trip. The
Partnership believes the Resort Casino will represent the only gaming
resort in the United States in close proximity to two TPC and seven other
golf courses. Additionally, the high levels of service and amenities
expected to be provided by the Resort Casino will cater to resort table
players with gaming budgets from $5,000 to $250,000 per visit.
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Local and Out-of-State Conferences and Banquets. The Resort Casino is
expected to have one of the few high-tech business meeting facilities in
Las Vegas catering to small-and mid-size conferences. Designed with the
necessary services and amenities to cater to executive retreats, including
ample parking, the Partnership believes that the Resort Casino will
provide an ideal setting for small-to mid-sized conferences and will have
the capacity to host charity and social events for up to 1,100 people in
dinner seating.
- CAPITALIZE ON MARQUEE HOTEL FLAG AND TRAVEL NETWORK RELATIONSHIP. The
Partnership has entered into an agreement with Regent International, an
affiliate of the Carlson Hospitality group. The Regent International
hotels are a group of luxury hotels concentrated around the Pacific Rim,
with the Resort Casino representing its only property in Las Vegas. As of
January 1999, Regent International's only flagged property in the U.S. is
the Regent Beverly Wilshire-Los Angeles. The Resort Casino will benefit
from Regent's reservation network and Carlson Wagonlit Travel, a national
travel agency with no existing Las Vegas hotel affiliate.
- CAREFULLY MANAGE CONSTRUCTION COSTS AND RISKS WITH PROVEN DESIGN AND
BUILD TEAM. RAS's management has a proven track record of resort and
casino design, construction, development and operation including Sun
International's Carousel in South Africa, and the Prairie Knights and
Speaking Rock casinos in the United States. The Partnership and RAS have
assembled an experienced project team. The Partnership has signed a $156.0
million guaranteed maximum price construction contract, as amended, with
J.A. Jones, a subsidiary of J.A. Jones, Inc., a national general
contractor. J.A. Jones, Inc. is a subsidiary of Philipp Holzmann AG, a
German contracting company, which is an affiliate of Deutsche Bank AG with
several major projects to its credit, including the renovation of the West
and East wings of the White House, the world's tallest buildings the Twin
Towers of Kuala Lumpur and Sun International's Paradise Island Bahamas
Phase II. A completion guaranty covering certain cost overruns has been
provided by J.A. Jones, Inc. The Resort Casino was designed by Paul
Steelman, Ltd. (the "Architect"), a national casino design firm whose
principal, Mr. Steelman, is the beneficial owner of a 4.2% limited
partnership interest in the Partnership. The Architect's projects include
work for, among others, Mirage Resorts, Caesars, Harrah's and Sun
International. For the Resort Casino grounds, the Partnership has
contracted with Lifescapes whose projects include The Mirage, Bellagio,
Treasure Island and Jurassic Park at Universal Studios.
- LEVERAGE MANAGEMENT TEAM TRACK RECORD AND CONTINUITY. The Partnership
expects to leverage the gaming experience and track record of RAS's senior
and middle management. RAS's senior management has a cumulative 75 years
of experience in the gaming and resort industry. Messrs. Brian McMullan
and Jim Fonseca, the President and Chief Executive Officer and Senior Vice
President Gaming Operations of RAS, respectively, have worked together for
over 20 years. Mr. Quinton Boshoff, the Senior Vice President Slot
Operations of RAS, has worked with Messrs. McMullan and Fonesca for over
11 years. Messrs. McMullan, Fonseca and Boshoff each were previously
employed by Sun International, an international casino group, and
participated in designing, building and operating six casinos in South
Africa including Sun International's Carousel. Mr. John Tipton, the Senior
Vice President, Chief Financial Officer and General Counsel of RAS, served
in Colorado Governor Roy Romer's cabinet as Executive Director of the
Colorado Department of Revenue, during which time he successfully drafted
and implemented casino gaming legislation. The Partnership's middle
management includes eleven other gaming and non-gaming professionals with
experience principally in the United States, the United Kingdom and
southern Africa.
THE RESORT CASINO
Hotels
The Resort Casino is designed with two six-story hotels with a combined
541 guest rooms and suites. The Partnership believes it is critical to keep each
hotel small enough to retain the ambiance and service expected of a five-star
operation. A full range of hotel services are anticipated, including business
services, concierge and
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transportation services, 24-hour room service, spa and fitness facilities,
dining and lounge offerings, laundry and valet services, state-of-the-art
telecommunications systems, and luxury guest and bath amenities. Examples of the
hotels' level of service are expected to include: (i) early morning coffee
service in the lobby, available from room service and from an in-room coffee
machine; (ii) bottled mineral water and towels available to joggers; (iii)
pre-registration for VIP and all returning guests; (iv) 24-hour bellman, valet
and reception coverage; (v) a currency exchange board; (vi) multi-lingual
concierge; (vii) bonded, professional babysitting services; (viii) messages
delivered to room and printed on good stock in an envelope; (ix) voice mail; and
(x) one-hour or overnight shoeshine, pressing and laundry.
The Partnership believes that the quality and size of the hotel rooms will
be one of the most attractive features to its guests. The hotel's standard guest
room will be approximately 564 square feet, which the Partnership believes will
make it among the most spacious in Las Vegas. The rooms are designed to offer
resort guests the sense of comfort expected at a five-star resort and will be
furnished with quality bedding, king-size feather pillows, mini-bars, safes,
appropriate night stands and lighting, AM/FM clock radios, three 2-line
telephones, remote control cable television in an enclosed, built-in armoire,
dressers, desk, chair and ottoman, a full-length mirror and artwork. Jogging
maps and high quality publications will be provided. The guest rooms are
expected to have marble and carpet floor coverings and will have synthetic
plaster walls and wood wainscoting. The bathrooms will have a combination of
ceramic tile and marble floors and synthetic plaster walls, with marble and
ceramic tile walls in the separate whirlpool bath and shower stalls. The vanity
will be marble and offer two sinks and a make-up area.
Gaming Operations
Situated at the hub of the Resort Casino, the casino will emphasize
comfort, space and informality, and consist of approximately 50,000 square feet
of gaming space, with 1,270 slot machines, 40 table games and a sports and race
betting club. Two salons prives will offer higher stakes slots and table games
in a more intimate setting. The Partnership believes that with one of the lowest
ratios of gaming positions per square foot in Las Vegas, the casino will provide
a gaming experience generally not available in the local market.
The Partnership believes that few casinos in the Las Vegas market that
cater to Las Vegas residents place a significant emphasis on table games. The
Resort Casino's marketing efforts will emphasize its table game limits and
credit facilities. Maximum bet limits will accommodate many of the local players
who currently patronize the Strip due to the prevailing low maximum bet limits
imposed by the other local casinos. The table operation will be marketed
directly to local players and visitors with table gaming budgets from $5,000 up
to $250,000. The Partnership anticipates that the Resort Casino will extend
credit to any creditworthy customers, irrespective of whether they are residents
or visitors.
Food and Beverage
Few restaurants are currently available within Summerlin and the
neighboring communities. The Resort Casino will seek to target this market by
offering up to nine separate dining facilities and nine bars and lounges. The
largest dining facility will be a 532-seat indoor/outdoor buffet serving two
meals daily on the second floor of the Casino with panoramic views of the
mountains, golf courses and city lights. The Resort Casino also will have up to
eight other restaurants offering a variety of menus at many price points. The
Partnership will operate three restaurants and has entered into four leases with
operators of restaurants serving steak and seafood, Japanese, Continental and
Italian cuisines.
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Lifestyle Complex
The 60,000 square foot Lifestyle Complex will tie together the Resort
Casino's restaurants, shops and other entertainment areas. The Lifestyle Complex
has been designed to facilitate indoor and outdoor activities with
Mediterranean-themed terraces, fountains and pools, will target middle to upper
income residents and is expected to include:
- Gift Shop - Cigar Bar
- Florist - Clothing Store
- Golf Shop - Jewelry Store
- Ice Cream Parlor/Chocolatier - Optician
- Authentic Irish Pub - Wine Shop
- Art Gallery - Live Entertainment
Executive Office, Conference and Banquet Complex
The Resort Casino will have 50,000 square feet of dedicated conference
room and meeting space, outfitted with audio and visual support equipment. An
on-site business center with a mix of small and large rooms will provide
corporate travelers with access to the latest technology including full service
audio-visual equipment, computer terminals, laser printers, telephones, fax
machines, online market updates and other business services. The office and
conference complex will be designed to support the Resort Casino's strategy of
attracting out-of-state group business (such as corporate retreats and small
conventions) as well as meetings of local residents. The Resort Casino will
provide state-of-the-art audiovisual equipment and a technician who will help
executive conferees produce computer animated audio-visual presentations. The
Partnership's goal is for the conference center to become the local venue of
choice for charity events, company functions and weddings. The proximity to 183
holes of golf is expected to be a key additional element in the Resort Casino's
attractiveness as a center for small meetings.
Recreational Amenities
Golf. The Resort Casino will be associated with the highly rated, 18-hole,
TPC Canyons golf course which currently hosts the Senior PGA Tour's Las Vegas
Senior Classic. As part of a contractual agreement with the TPC Canyons, the
Resort Casino will have the ability to control 50.0% of the available tee times
for the next 99 years. At the Resort Casino's option, this percentage may be
increased to 75.0%.
TPC Canyons is one of 17 TPC clubs and courses nationwide. Home to
numerous PGA Tour and Senior PGA Tour events, the TPC network has a reputation
for providing some of the finest golf facilities in the world. TPC Canyons was
designed by and for PGA professionals in consultation with Raymond Floyd, one of
the world's top professional golfers. TPC Canyons is a stadium course, naturally
incorporated into the desert terrain with a variety of trees, elevation changes,
steep ravines and a canyon lake. With more than 60 tees, wide fairway landing
areas and soft, rolling greens, the course appeals to players of all abilities.
TPC Canyons also has a practice facility, realistic target greens and a complete
short game practice area with bunkers. TPC Canyons also features a large
clubhouse with a full-service grille offering breakfast, lunch and dinner, a
full-service golf shop offering a complete line of apparel, equipment and TPC
specialty items and fully equipped locker facilities.
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To the north of the Resort Casino is the TPC Summerlin championship
course, home to the PGA Tour's annual Las Vegas Invitational and the site of
Tiger Woods' first PGA tour victory. TPC Summerlin is a private club that will
be accessible to the Resort Casino's best customers as guests of the
Partnership. Moreover, for those golfers desiring a variety of course offerings
during their stay in Las Vegas, an additional 48 holes of golf are available at
Angel Park including a lighted 12-hole par three course. Five other public and
private 18-hole courses and one 27-hole public course are located within a five
minute drive of the Site.
In total, guests of the Resort Casino will be in close proximity to 183
golf holes, as follows::
LAS VEGAS GOLF COURSES
(Immediate Areas of the Resort Casino)
COURSE NAME LOCATION HOLES
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TPC Canyons................... Adjoining 18
TPC Summerlin................. Immediately North 18
Angel Park.................... Immediately South and East 36
Angel Park (Executive)........ Immediately South and East 12
Badlands...................... 1/2 Mile South 27
Palm Valley................... Sun City 18
Highland Falls................ Sun City 18
Eagle Crest................... Sun City 18
Canyon Gate Country Club...... 2 Miles South 18
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TOTAL ................. 183
Superior Spa and Fitness Center. The Resort Casino will contain a 40,000
square foot superior spa, salon and fitness center, which the Partnership
believes will be one of the largest and best equipped in Las Vegas. Resort
Casino guests and members will have access to facilities including locker rooms,
showers, steam room, sauna, whirlpool and specialty baths, and a cascading
waterfall shower. The spa is expected to offer a variety of treatments,
including facials (European, Glycolic, Moor Mud, Fango, Teen, Back, and
Summerlin Spa Deluxe, among others), massages from around the world (Swedish,
Shiatsu, Sports, Reiki, etc.), body treatments including mud wraps, seaweed
wraps, aromatherapy oil wraps, body scrubs and polishes, and honey steam wraps,
watsu pool, and traditional Indian Ayurvedic treatments.
The salon will provide hair care services including cuts, conditioning,
coloring, weaves, braids, and bridal services. The salon also will offer
manicures, pedicures, make-up and waxing. The spa's boutique will sell fitness
attire, Resort Casino logo wear, hydrotherapy bath products, massage and
aromatherapy oils, and skin care products.
The fitness center will contain state-of-the-art workout equipment
including Gravitrons, Stairmasters, treadmills, rowing machines and Lifecycles;
an aerobics studio; and a full range of weight training equipment. The fitness
center will be staffed with certified personal fitness trainers and trainers,
aerobics, step, toning, stretch and yoga instructors.
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Gardens and Swimming Pool. The Resort Casino is expected to have an 11,000
square foot outdoor pool and children's pool. The pool area will offer Resort
Casino guests and members lush landscaping in a tropical setting. Food and
drinks as well as towels and other services will be available poolside. Thirteen
pool cabanas will be available on a fee basis for added privacy and a putting
green and lounge will be adjacent to the pool area. Several acres of elaborate
landscaping, water features and walking paths will be incorporated throughout
the Site.
PARKING AND TRANSPORTATION
The Resort Casino will have parking sufficient to accommodate both
out-of-town and local guests. A four-level covered parking structure will
provide parking for approximately 1,000 vehicles and surface parking space for
an additional 1,550 vehicles. Resort Casino guests and visitors will have the
option of either self-parking their vehicles or using a complimentary valet
service. The Resort Casino will provide transportation for VIP guests to and
from the airport and shuttles and limousines to the Strip and popular shows.
FUTURE SITES AND DEVELOPMENT
The Resort at Summerlin is located at the only approved gaming site in the
portion of Summerlin known as Summerlin North. The Partnership has obtained the
Rights of First Offer from HHP for future development on the four approved
gaming sites in Summerlin South and West which rights, in certain circumstances,
may be assigned to an affiliate of Swiss Casinos of America, Inc. ("SCA"), a
corporation which owns 76.6% of the Partnership and all of the outstanding stock
of RAS. Development of Summerlin South began in 1997, and Summerlin West is
anticipated to be developed over the next five to 10 years. The Partnership
believes this geographic exclusivity enhances the Partnership's future prospects
in the Las Vegas market that will give the Resort Casino a sustainable
competitive advantage. Moreover, recently passed legislation will further
restrict the ability of new casinos to enter the Partnership's targeted market.
This legislation prohibits new casino development within 500 feet of a
residential area or within 1,500 feet of a church or school. This legislation
also requires clear and convincing evidence that a proposed casino will not
adversely affect residential areas, schools or churches located within 2,500
feet. Casino sites in master-planned communities that had been previously zoned
and approved for casino development at the time the legislation became law are
exempted from these requirements under Nevada Senate Bill #208. Examples of such
sites are the four additional sites subject to the Right of First Offer in
Summerlin West and Summerlin South as well as Coast Resorts' Sundance casino
site in close proximity to the Site. In addition, Nevada Senate Bill #208
imposed a time certain deadline for receipt of governmental approvals for
certain other proposed casino development in neighborhood areas not otherwise
exempted by terms of the legislation.
CONSTRUCTION SCHEDULE
Construction of the Resort Casino began in January 1998 with a scheduled
completion in the second quarter of 1999.
PROPERTIES
The Partnership acquired the Site at the intersection of Summerlin Parkway
and Rampart Boulevard in Las Vegas, Nevada in August 1996 for approximately
$16.6 million. The Partnership maintains five offices: (i) Corporate Office at
1160 Town Center Drive, Suite 200 Las Vegas, Nevada 89134, (ii) Development
Office at 3330 West Desert Inn Road, Unit 5, Las Vegas, Nevada 89102, (iii)
Operations Office at 3320 W. Sahara Avenue, Suite 300, Las Vegas, Nevada 89102,
(iv) Recruiting Center at 6344 W. Sahara Avenue, Las Vegas, Nevada 89102, and
(v) the Construction Office at 221 N. Rampart Boulevard, Las Vegas, Nevada
89128. With the exception of the Site, all of these properties are leased. The
main telephone number of the Partnership is (702) 869-7000.
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EMPLOYEES
The Partnership anticipates that it will directly employ approximately
1,800 employees in connection with the Resort Casino. The Partnership will be
required to undertake a major recruiting and training program prior to the
opening of the Resort Casino at a time when other major new facilities may be
approaching completion and also recruiting employees. The Partnership believes
that it will be able to attract and retain a sufficient number of qualified
individuals to operate the Resort Casino.
ENVIRONMENTAL MATTERS
The Partnership's operations and properties are subject to a wide variety
of increasingly complex and stringent environmental laws. The Partnership
believes its operations and properties are in compliance in all material
respects with environmental laws. Based upon its experience to date, the
Partnership believes that the future cost of compliance with and liability under
existing environmental laws will not have a material adverse effect on the
financial condition of the Partnership.
PLAN OF OPERATION
As of January 1999, the Resort Casino is under construction and is
expected to open during the second quarter of 1999. The major events leading up
to the opening of the Resort Casino to the public are recruiting, licensing and
completion of construction.
The recruiting effort will begin in February 1999 with the opening of an
off-site recruiting center and telephonic application system. Recruiting, hire
dates and training will be coordinated with the completion of the Resort Casino
construction.
To operate the casino, the Partnership is required to have a nonrestricted
gaming license issued by the Nevada Gaming Commission (the "Commission") after
an investigation by the Nevada Gaming Control Board (the "Board"). The
Partnership is scheduled to appear for licensure before both the Board and the
Commission in March 1999.
The construction of the Resort Casino began in January 1998 and is
scheduled to finish in the second quarter of 1999. J.A. Jones and the
Partnership will coordinate the completion of the construction, installation of
equipment and training of staff. See Footnote 6 to Financial Statements,
"Commitments and Contingencies - Construction Agreement."
Beginning with the planned opening of the Resort Casino in the second
quarter of 1999, the Partnership will operate the Resort Casino with the
business and marketing strategy and facilities as described elsewhere in this
Registration Statement. See "Item 1, Business Business and Marketing Strategy"
and "- The Resort Casino".
LAS VEGAS MARKET AND INDUSTRY
Background Information
Las Vegas is one of the fastest growing cities in the United States. The
current rate of immigration is approximately 4,000 people per month. Clark
County's population has grown from 463,087 in 1980 to approximately 1.1 million
in 1996 and is projected to exceed 2.0 million in 2010, according to the Nevada
State Demographers Office. The Partnership believes that as major new Strip
properties are built and opened over the next several years, the resulting
employment is likely to fuel further population growth in suburban Las Vegas.
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Las Vegas is the oldest and largest gaming market in the United States.
The Las Vegas metro area gaming market is divided into four geographic sectors:
the Downtown, Strip, North Las Vegas and Boulder Strip areas. The Strip is the
location of approximately 40 casinos, including Las Vegas' largest and newest
mega-casinos. The Downtown area includes 18 casinos on and near Fremont Street
in old Las Vegas. This market is comprised largely of local residents and their
guests. North Las Vegas similarly caters to middle-market locals with some
planned upscale local and tourist venues.
New development in Las Vegas is occurring primarily on the Strip. The last
four major casinos to open in the Strip area were the Monte Carlo, Stratosphere,
New York-New York and Bellagio. New casinos scheduled to open in 1999 include
Mandalay Bay, Paris, the new Aladdin and the Venetian. In addition to this
development, existing properties on the Strip are undergoing substantial
renovation and improvement to upgrade facilities and increase hotel and gaming
capacity. Apart from expansions of existing properties, the only new
developments announced in the vicinity of the Site are Cactus Kate's (one block
northwest of the Fiesta) and The Sundance Casino (at the intersection of Rampart
and Alta), both of which are expected to open after 1999.
Las Vegas Occupancy and Visitation Statistics
According to the LVCVA, in 1996 there were a total of 29,636,361 visitors
to Las Vegas, a 2.2% increase over 1995. According to the LVCVA, approximately
44.0% of visitors to Las Vegas currently arrive by air, up from 30.1% in 1970.
The city is served by McCarran International Airport, which has grown
substantially over the last several decades to keep pace with visitor demand
generated by the gaming and lodging market. The airport serves more than 20
scheduled air carriers and 19 charter service airlines.
According to the LVCVA, in 1996, McCarran International Airport hosted an
average of 84,000 passengers daily. In addition, Federal Aviation Authority and
county officials projected that the annual number of passengers could increase
from 30.3 million in 1996 to 38.7 million in 2000. A $500 million expansion
opened in 1998 at McCarran International Airport to handle the increasing volume
of air passengers. The expansion includes capacity for up to 60 new gates,
installation of an automatic transit system (people mover) and expansion of the
baggage claim area, runways and north ticketing lobby. The expansion increased
parking by 87.0%, gates by 53.0%, baggage claim area by 25.0%, ticket counters
by 25.0% and main carrier runway by 15.0%.
Las Vegas Gaming Summary
According to the 1995-96 Visitor Profile Study by the LVCVA, the typical
Las Vegas visitor is married, employed, college educated, from the West, 40
years or older, and with a household income of $40,000 or more. According to the
LVCVA the percentage of tourists who game decreased from 92.0% to 87.0% between
1994 and 1996, and gaming tourists are spending somewhat less on gaming as a
percentage of total spending, and more on non-gaming entertainment and lodging,
but total revenues continue to grow. According to the LVCVA the average gaming
budget per visitor per trip has increased from approximately $431 in 1991 to
more than $580 in 1996, the average gaming duration has gone from almost five
hours in 1990 to just over four hours in 1996, and 72.0% of adult Clark County
residents game at least occasionally.
According to BBER in 1996 the Las Vegas metro area had a total population
of 998,758, of whom 70.8% (707,548) were adults and 509,435 were casino gamers.
According to the LVCVA Las Vegas residents who game do so, on average, just over
once per week and 54.0% game at least once a week. The 1995-96 LVCVA study
indicates an average of 51.31 visits per year among locals, up from 48.58 in the
1993-94 study.
According to the 1995-96 LVCVA study, approximately 44.0% of local
residents game at off-Strip casinos.
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11
In terms of gaming spend, the LVCVA arrived at a mean spend per visit of
$51.44 (in 1995 dollars). This estimate is lower than the LVCVA's 1993-94
estimate of $58.23 as residents appear to be visiting casinos more often but
spending less per visit. The increased emphasis on non-gaming amenities also may
have contributed to this trend.
The Golfer/Gamer Market
In 1997, the total United States market for golfer/gamers was estimated to
be approximately 11.8 million and, of the destinations visited, six states
accounted for more than half of the visits, according to Simmons Market Research
Bureau. Nevada had approximately 13.6% of total golfer/gamer visits and 28.0% of
all golfer/gamers have visited Las Vegas during the last 12 months.
The Partnership believes very few of the existing Las Vegas properties
have a competitive product in this segment of the market. Only the Desert Inn
and the Las Vegas Hilton have a golf course adjacent to their properties. In the
future, the proposed development of the Lake Las Vegas complex could create a
significant competitor in the market. However, the Resort Casino will have the
advantage of being first to the market with its product, it will be associated
directly with a TPC course which is host to a nationally televised tournament,
and 183 holes of golf are within a five minute drive of the Site. The Site is
also only about 20 minutes from McCarran International Airport and 15 minutes
from the Strip. From the PGA Tour and Senior PGA Tour events, the Summerlin name
enjoys a degree of recognition in the U.S. among the golfing community which,
the Partnership believes, will benefit the Resort Casino.
At present, those resorts in the southwestern United States which offer a
competitive product for the golfer, but are situated outside Nevada, are unable
to offer the gaming attractions which will be available at the Resort Casino.
Arizona and California have a limited number of casinos on Indian reservations,
but the Partnership believes there are problems with the location of these
casinos and, as of the date of this Registration Statement, in neither state is
it possible to offer the full service gaming product which is available in
Nevada. The Partnership believes that the Resort Casino is in a good position
with regard to its market, a position that the Partnership believes will enable
it to charge premium rates and attract more affluent customers. There can be no
assurance that the Partnership will be successful in doing so. See Item 2,
"Financial Information - Management's Discussion and Analysis of Financial
Condition and Results of Operations - California Proposition 5."
ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The selected historical financial data set forth below as of December 31,
1997 and December 31, 1996, for the year ended December 31, 1997, and for the
period from inception through December 31, 1996, have been derived from the
financial statements of the Partnership included elsewhere herein which have
been audited by Ernst & Young LLP, independent auditors, and should be read in
conjunction with those financial statements (including the notes thereto) and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," all appearing elsewhere in this Registration Statement. The
statement of operations data for the nine months ended September 30, 1998 and
September 30, 1997 and the selected balance sheet data as of September 30, 1998
have been derived from the unaudited financial statements of the Partnership
appearing elsewhere in this Registration Statement which, in the opinion of
management, reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation. Results of operations for
interim periods are not necessarily indicative of future or full year results.
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NINE MONTHS ENDED PERIOD FROM PERIOD FROM
SEPTEMBER 30, YEAR ENDED INCEPTION THROUGH INCEPTION THROUGH
------------------------ DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1997 1997 1996 1998
---- ---- ------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
Statement of Operations Data:
Revenues......................... $ --- $ --- $ --- $ --- $ ---
Cost and Expenses:
General and administrative....... 476,537 345,144 493,885 84,458 1,054,880
Depreciation and amortization.... 1,603,444 --- 113,312 --- 1,716,756
Other Income (Expense):
Interest income.................. 6,491,435 --- 41,255 --- 6,532,690
Interest expense................. (7,755,690) --- (48,346) --- (7,804,036)
Warrant interest expense......... (6,973,778) --- --- --- (6,973,778)
------------ ------------ ------------ ------------ ------------
Net loss........................... $(10,318,014) $ (345,144) ($ 614,288) $ (84,458) $(11,016,760)
============ ============ ============ ============ ============
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1998 1997 1996
---- ---- ----
(UNAUDITED)
Balance Sheet Data:
Cash and cash equivalents...................... $ 69,074,653 $175,487,660 $ ---
Short term investments......................... 41,966,144 --- ---
Preopening expenses............................ 8,895,991 4,838,812 907,534
Construction in progress........................ 82,812,010 3,782,333 526,088
Property and equipment, net..................... 103,327,538 20,871,112 17,154,547
Total assets................................... 248,036,962 226,233,472 18,645,981
Total current liabilities...................... 20,140,068 1,126,303 ---
Long-term debt, net of discount................ 160,265,028 154,131,067 ---
Warrants redeemable for partnership interest... 12,843,343 5,869,565 ---
Total liabilities.............................. 193,248,439 161,126,935 ---
Total partnership interest..................... 54,788,523 65,106,537 18,645,981
Total liabilities and partnership interest..... 248,036,962 226,233,472 18,645,981
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the information contained in the financial
statements, including the notes thereto included in this report.
Forward-Looking Statements
This Registration Statement contains certain "forward-looking statements"
which represent the Partnership's expectations or beliefs, including, but not
limited to, statements concerning industry performance and the Partnership's
operations, performance, financial condition, plans, growth and strategies. Any
statements contained in this Registration Statement that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, including, but not limited to, those relating to
development and construction activities, market fluctuations, gaming, liquor and
other regulatory matters, taxation, dependence on existing management, leverage
and debt service (including sensitivity to fluctuations in interest rates),
domestic or international economic conditions, changes in federal and state laws
or the administration of such laws and
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13
changes in gaming laws or regulations (including the legalization of gaming in
certain jurisdictions). Certain of these risks and uncertainties are beyond the
Partnership's control, and actual results may differ materially depending on a
variety of important factors, including those described in this Registration
Statement.
Development Activities
The Partnership is constructing, and will own and operate, the Resort
Casino, which is expected to include two luxury five-star hotel facilities, a
casino, a spa and fitness center, and a retail, meeting and entertainment
complex in Las Vegas, Nevada. The Resort Casino is expected to commence
operations in the second quarter of 1999. Construction of the Resort Casino
began in January 1998.
Construction projects of this nature entail significant risks, and the
anticipated costs and construction schedule are based upon budgets, conceptual
design documents and schedule estimates. As construction progresses, there is
always a possibility that delay claims and construction change orders may occur.
See Footnote 6 to Financial Statements, "Commitments and Contingencies -
Construction Agreement."
Results of Operations
The Partnership was formed in Nevada in August 1996. The Partnership is in
the development stage and as a result has no significant operating results. The
Partnership's financial results reflected a net loss of $.6 million for the year
ended December 31, 1997 and a net loss of $10.3 million for the nine months
ended September 30, 1998. The general and administrative costs represent the
proportion of expenses incurred that have not been capitalized as preopening
costs. Interest income is from the investment of the remaining proceeds of the
$100.0 million First Mortgage Notes due March 31, 2004 (the "Mortgage Notes"),
the $100.0 million Series B Senior Subordinated PIK Notes due 2007 (the "Senior
Subordinated Notes") and capital contributions. Interest expense consists of the
interest payable on the Mortgage Notes, nominal interest at 13.0% for the Senior
Subordinated Notes, and an accrual of 9.2% to account for the put option feature
of the Note Warrants (as defined in Item 9, "Market Price of and Dividends on
the Registrant's Common Equity and Related Matters"). See Footnote 2 to
Financial Statements, "Warrants." The Partnership capitalized interest of $6.9
million for the nine months ended September 30, 1998.
Preopening Costs
Development costs incurred by the Partnership are currently being
capitalized. These costs include legal fees, personnel, travel, and other costs
related to the development of the Resort Casino. In April 1998, the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants issued Statement of Position 98-5 entitled "Reporting on the Costs
of Start-up Activities" ("SOP 98-5") which requires entities to expense costs of
preopening activities as they are incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998. Accordingly, the Partnership will adopt
the statement in fiscal year 1999. Upon adoption, the Partnership will be
required to report the initial adoption as a cumulative effect of a change of
accounting principle as described in Accounting Principles Board Opinion No. 20,
"Accounting Changes," during the first quarter of its fiscal year 1999 and
expense subsequent preopening costs as incurred. The cumulative effect upon
adoption will result in a one-time charge to income in an amount equal to the
net book value of the Partnership's preopening costs. Under the Partnership's
existing policy, the preopening expenses would have been expensed upon the
opening of the Resort Casino.
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Liquidity and Capital Resources
As of September 30, 1998, approximately $134.1 million of the estimated
total project cost of $276.0 million had been expended or incurred to fund
construction and development of the Resort Casino ($51.4 million as of December
31, 1997). Of the costs incurred, approximately $86.0 million represents land,
construction in progress and furniture, fixtures and equipment ($21.0 million as
of December 31, 1997), and the balance represents related development costs,
financing costs and funds deposited into the Mortgage Notes interest escrow
account.
The remaining construction and development costs for the Resort Casino are
expected to be funded from a combination of (i) the remaining balance of the
$100.0 million gross proceeds from the Mortgage Notes and the $100.0 million
gross proceeds from the Senior Subordinated Notes; (ii) a capital lease facility
for up to approximately $15.0 million; (iii) an operating lease facility for up
to approximately $13.1 million; and (iv) an unsecured credit facility for $5.0
million.
The Mortgage Notes consist of $100.0 million of loans ("Construction
Loans") which may be used to finance construction of the Resort Casino, with the
principal amount of Construction Loans outstanding on the Commencement Date to
convert into term loans (the "Term Loans"). Construction Loans and Term Loans
may not be re-borrowed once repaid. Under the terms of a December 30, 1997
Credit Agreement among the Partnership, RAS and National Westminster Bank PLC
(the "Credit Agreement") and a December 31, 1997 Indenture among the
Partnership, RAS and the United States Trust Company as trustee (the
"Indenture"), the Partnership may obtain additional sources of liquidity, if
necessary, including (i) up to $15.0 million of capital lease financing for
furniture, fixtures and equipment, (ii) up to $5.0 million of unsecured debt,
and (iii) operating lease financing.
On August 6, 1998, the Partnership executed a commitment with a lease
financing company for the credit facilities summarized below. The Partnership
closed the facilities on December 21, 1998.
- Capital lease facility for up to approximately $15.0 million;
- Operating lease facility for up to approximately $13.1 million; and
- Unsecured credit facility for $5.0 million.
The capital lease facility may be used to finance various furniture,
fixtures and equipment acceptable to the leasing company. The term of the
facility is for 48 months at an interest rate of 10.3%. Maximum annual payments,
including principal and interest, will be approximately $4.6 million. Upon
expiration of the term, the Partnership may purchase the equipment for $1.
The operating lease facility may be used to finance new gaming devices,
related systems, vehicles and equipment acceptable to the leasing company. The
term of the facility is 48 months at an imputed interest rate of 10.1%. Maximum
annual payments under the facility will be approximately $3.4 million. Upon
expiration of the term, the Partnership will be granted an option to (i)
purchase all but not less than all of the equipment, by equipment category, at
fair market value as determined by an independent appraiser, (ii) renew the
facility for 12 months, or (iii) return the equipment to the leasing company.
The unsecured credit facility will be available for 12 months beginning
March 1, 1999. The Partnership will be required to give 45 days notice for each
draw, which must be a minimum of $1.0 million and a maximum of $2.0 million. The
Partnership will be required to pay 2.0% of each draw as a credit facility,
legal and syndication fee at the time of closing each draw. Each loan will
include a 2.0% original issue discount and be converted to a 24-month term note
fully amortizing at an interest rate of 13.0%.
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15
A commitment fee totaling $140,500 was paid on execution of the lease
facility commitment on August 6, 1998. Upon closing the transaction on December
21, 1998, the fee was applied to the security deposit of the leases, and
additional fees, rental payments and security deposits totaling $1,395,870 were
paid.
Based on management's most recent review of all project costs, management
expects to utilize all or a portion of the two leasing facilities and the
unsecured credit facility prior to the opening of the Resort Casino.
The funds provided by these sources are expected to be sufficient to
develop, construct and commence operations of the Resort Casino assuming there
are no significant delays, material cost or construction cost overruns.
Based on current cash balances and anticipated expenditures, management
estimates a cash balance upon opening of $31.9 million, consisting of (i) $1.9
million for casino bankroll; (ii) $0.2 million for slot machine coin inventory;
(iii) $12.4 million of Mortgage Notes interest escrow; (iv) $14.3 million of
general contractor retention, deferred general contractor fee and construction
payables; (v) $2.6 million of advance guest deposits; and (vi) $0.5 million of
preopening payables.
Beginning with the anticipated opening of the Resort Casino in the second
quarter of 1999, the Partnership expects to fund its operations, capital
requirements and debt service from (i) operating cash flow; (ii) a forecasted
cash balance upon opening of $31.9 million; (iii) any remaining sale leaseback
financing allowed under the Credit Agreement and the Indenture; and (iv) the
unsecured $5.0 million credit facility. Such financing is subject to certain
conditions, including completion of the Resort Casino. Management believes that
forecasted cash balances, forecasted operating cash flow and additional
borrowings allowed under the Credit Agreement and the Indenture will provide the
Partnership with sufficient resources to meet its existing debt obligations and
foreseeable capital expenditure requirements.
Although no additional funding for the Resort Casino is currently
contemplated (other than described above), the Partnership may seek, if
necessary, to the extent permitted under terms of the Credit Agreement and the
Indenture, additional financing through additional bank borrowings or debt or
equity financing. There can be no assurance that additional financing, if
needed, will be available to the Partnership and, if available, that the
financing will be on favorable terms. Finally, there can be no assurance that
new business development or other unforeseen events will not occur resulting in
the need to raise additional funds.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, those
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions or engage in similar normal
business activities.
Based on recent assessments, the Partnership believes that its systems
are Year 2000 compliant and will properly utilize dates beyond December 31,
1999. Given that the Partnership is a relatively new entity and significant
systems were not implemented until 1997, management was able to select and
implement systems which had previously been certified as Year 2000 compliant.
The Partnership is in the process of contacting its significant suppliers
and subcontractors that do not share information systems with the Partnership
(external agents) as to their compliance with Year 2000 certification. To
date, the Partnership is not aware of any external agent with a Year 2000 issue
that would materially impact the Partnership's results of operations,
liquidity, or capital resources. However, the Partnership has no means of
ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Partnership. The effect of non-compliance
by external agents is not determinable.
In the event that the Partnership experiences difficulties with its
systems or with significant external agents, the Partnership has contingency
plans for certain critical applications and is working on such plans for others.
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California Proposition 5
On November 3, 1998, the electorate in the State of California approved
Proposition 5, which was proposed by several California Indian Tribes. This
referendum purports to legalize games currently operated by certain tribes in
contravention of California and Federal law and could lead to the expansion of
gaming operations by California Indian tribes, which could have a material
adverse effect on the Partnership. Two legal challenges to Proposition 5 were
filed in California state court challenging the validity of Proposition 5 under
the California constitution. On or about December 3, 1998, the California State
Supreme Court blocked the implementation of Proposition 5 while it considers the
lawsuits raising constitutional challenges. It is anticipated that the
California State Supreme Court could hear the cases in the spring of 1999.
The Partnership remains in the process of evaluating the potential impact
of Proposition 5 on the Partnership. As this process is anticipated to be
ongoing and also materially related to the legal challenges referenced above,
the Partnership cannot predict the impact of Proposition 5 on the Partnership at
this time.
MARKET RISK DISCLOSURE
The Partnership is exposed to market risk in the form of fluctuations in
interest rates and their potential impact upon the Mortgage Notes, which are
variable-rate debt. Of the $100.0 million Mortgage Notes, $50.0 million is
covered under a cap of 11% until March 31, 2000.
ITEM 3. PROPERTIES.
The Partnership owns the Site upon which the Resort Casino is located. The
Site is located at the gateway to the Summerlin master-planned community, a
22,500-acre land development of HHP. When completed, the Resort Casino will
feature two five-star hotels with a total of 461 rooms and 80 suites, a 50,000
square foot gaming facility, a 40,000 square foot spa and fitness facility, up
to eight restaurants of varied cuisine and an indoor/outdoor buffet, a 60,000
square foot lifestyle complex and a 50,000 square foot conference and banquet
center. See Item 1, "Business," for a more detailed description of the Site.
The Partnership acquired the Site at the intersection of Summerlin Parkway
and Rampart Boulevard in Las Vegas, Nevada in August 1996 for approximately
$16.6 million. The Partnership maintains five offices: (i) Corporate Office at
1160 Town Center Drive, Suite 200 Las Vegas, Nevada 89134, (ii) Development
Office at 3330 West Desert Inn Road, Unit 5, Las Vegas, Nevada 89102, (iii)
Operations Office at 3320 W. Sahara Avenue, Suite 300, Las Vegas, Nevada 89102,
(iv) Recruiting Center at 6344 W. Sahara Avenue, Las Vegas, Nevada 89102, and
(v) the Construction Office at 221 N. Rampart Boulevard, Las Vegas, Nevada
89128. With the exception of the Site, all of these properties are leased. The
main telephone number of the Partnership is (702) 869-7000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the Interests in the Partnership by (i) each person who,
to the knowledge of the Partnership, beneficially owns more than 5.0% of the
outstanding Interests in the Partnership and (ii) all executive officers and
directors of RAS as a group as of February 1, 1999.
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BENEFICIAL
OWNERSHIP
BENEFICIAL OWNER(1)(2) PERCENTAGE
- ---------------------- ----------
RAS (3)........................................ 1.0%
SCA (4)........................................ 76.6
Swiss Casinos Holding, AG...................... 16.7
Tivolino Holding AG (5)........................ 80.3
Hans Jecklin (6)............................... 60.2
Christiane Jecklin (7)......................... 20.1
Brian McMullan (8)............................. 4.6
John Tipton (9)................................ 2.3
Jim Fonseca (10) .............................. 3.1
Quinton Boshoff (11)........................... 2.3
Jeff Smith..................................... ---
All executive officers and directors of RAS as
a group (12)................................. 93.3%
- -----------
(1) The address of each person named below is c/o The Resort at Summerlin,
Limited Partnership, 1160 Town Center Drive, Suite 200, Las Vegas, Nevada
89134.
(2) Percentages exclude percentage ownership attributable to the Note Warrants
(as defined in Item 9, "Market Price of and Dividends on the Registrant's
Common Equity and Related Matters").
(3) RAS is a wholly-owned subsidiary of SCA and owns a 1.0% general
partnership Interest in the Partnership.
(4) SCA holds a 75.6% limited partnership Interest and a beneficial 1.0%
general partnership interest in the Partnership through the ownership of
RAS.
(5) Tivolino Holding AG (the "Swiss Parent") is the owner of 8,300 outstanding
shares of SCA, which owns a 75.6% limited partnership Interest and a
beneficial 1.0% general partnership Interest in the Partnership, and all
outstanding shares of Swiss Casinos Holding, AG, an affiliate of SCA
("SCH"), which owns a 16.7% limited partnership Interest in the
Partnership.
(6) Mr. Jecklin is the beneficial owner of 6,225 shares of SCA, which owns a
75.6% limited partnership Interest and a beneficial 1.0% general
partnership Interest in the Partnership, and the beneficial owner of
224,999 shares of SCH, which owns a 16.7% limited partnership Interest in
the Partnership. Excludes 2,075 shares of SCA and 75,000 shares of SCH
owned by Christiane Jecklin, his wife, in which he disclaims beneficial
interest.
(7) Ms. Jecklin is the beneficial owner of 2,075 shares of SCA, which owns a
75.6% limited partnership Interest and a beneficial 1.0% general
partnership Interest in the Partnership, and the beneficial owner of
75,000 shares of SCH, which owns a 16.7% limited partnership interest in
the Partnership. Excludes 6,225 shares of SCA and 224,999 shares of SCH
owned by Hans Jecklin, her husband, in which she disclaims beneficial
interest.
(8) Mr. McMullan owns 600 shares of SCA, which owns a 75.6% limited
partnership Interest and a beneficial 1.0% general partnership Interest in
the Partnership.
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(9) Mr. Tipton owns 300 shares of SCA, which owns a 75.6% limited partnership
Interest and a beneficial 1.0% general partnership Interest in the
Partnership.
(10) Mr. Fonseca owns 400 shares of SCA, which owns a 75.6% limited partnership
Interest and a beneficial 1.0% general partnership Interest in the
Partnership.
(11) Mr. Boshoff owns 300 shares of SCA, which owns a 75.6% limited partnership
Interest and a beneficial 1.0% general partnership Interest in the
Partnership.
(12) Messrs. Jecklin, McMullan, Tipton, Fonseca, Boshoff and Smith are
directors and executive officers of SCA, which owns all of the outstanding
shares of common stock of RAS, and such persons, as a group, beneficially
own 100.0% of SCA's common stock, and, therefore, may be deemed to
beneficially own all the Partnership Interests held by RAS and SCA. In
addition, through certain voting arrangements that expire in 2004, Mr.
Jecklin has the power to vote all the shares of common stock of SCA owned
by the executives, which totals 16.0% of the outstanding stock of SCA. Mr.
Jecklin, through his ownership and control of the Swiss Parent, also has
voting and dispositive power with respect to 83.0% of the outstanding
stock of SCA, all of which is owned by the Swiss Parent. The remaining
1.0% is held by a director of the Swiss Parent. Mr. Jecklin also owns
75.0% of the outstanding stock of SCH, and, therefore, may be deemed to
beneficially own all of the Partnership Interest held by SCH.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND OFFICERS
The current directors and executive officers of RAS, the general partner
of the Partnership, are:
NAME TITLE AGE COUNTRY OF CITIZENSHIP DIRECTOR/OFFICER SINCE
- ---- ----- --- ---------------------- ----------------------
Hans Jecklin........ Chairman of the Board 53 Switzerland 1996
Christiane Jecklin.. Director 53 Switzerland 1996
Brian McMullan...... Director, President 52 United Kingdom 1996
and Chief Executive
Officer
John Tipton......... Director, Senior 52 United States 1996
Vice President,
Chief Financial
Officer and General
Counsel
Jim Fonseca......... Director, Senior 49 United Kingdom 1996
Vice President Gaming
Operations
Quinton Boshoff..... Director, Senior Vice 44 South Africa 1996
President Slot
Operations
Jeff Smith.......... Treasurer, Secretary 33 United States 1996
and Financial
Controller
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Hans Jecklin, the Chairman of the Board of RAS since June 1996, and
husband of Christiane Jecklin, first became involved in the gaming industry in
Zurich, Switzerland in 1968. In 1975, he founded the predecessor to Tivolino
Holding AG in Zurich, whose core business was gaming. Today, the Swiss Parent's
operations include gaming, hotels, restaurants and real estate investment.
Christiane Jecklin, a director of RAS since June 1996, and the wife of
Hans Jecklin, has been involved in the gaming industry and the management of SCA
since its formation in 1989.
Brian McMullan, the President and Chief Executive Officer of RAS and a
director since June 1996, has nearly 30 years of gaming experience, much of that
time in senior management positions for gaming companies in Great Britain and
South Africa. Mr. McMullan entered the gaming industry in Britain in 1968. From
1986 to 1992, Mr. McMullan served as Sun International's Director of Gaming
Operations, where he was responsible for the gaming operations.
John Tipton, Senior Vice President, Chief Financial Officer and General
Counsel of RAS and a director since June 1996, has over 25 years experience in
the private and public sector, including a number of years in private legal
practice during which time he was managing partner of Calkins, Kramer, Grimshaw
& Harring, a Denver law firm. From 1988 to 1992, Mr. Tipton served as Executive
Director of the Colorado Department of Revenue, where he was charged with
drafting and implementing the casino gaming legislation in Colorado. He was also
responsible for managing the Colorado Lottery, the Colorado Division of Gaming
and pari-mutuel racing in Colorado. Mr. Tipton joined SCA in 1993 and is
responsible for regulatory, development and legal matters.
Jim Fonseca, Senior Vice President Gaming Operations of RAS and a director
since June 1996, has over 25 years of gaming experience. Starting in 1972, he
worked for a number of London casinos and has experience in the primary casino
table games. From 1987 to 1992, Mr. Fonseca was Regional Gaming Manager of Sun
International (Bophuthatswana) Ltd.
Quinton Boshoff, the Senior Vice President Slot Operations of RAS and a
director since June 1996, entered the gaming business in southern Africa in
1979. As Regional Slots Manager of Sun International (Bophuthatswana) Ltd., Mr.
Boshoff led a team in marketing, security and operating procedures with respect
to slot development. In 1992 Mr. Boshoff came to the U.S. as a member of the
original team that set up SCA.
Jeff Smith, the Treasurer, Secretary and Financial Controller of RAS
since June 1996, has been involved in the casino and resort industry for
over 10 years. From 1986 to 1991, Mr. Smith was an accountant at Ernst &
Young LLP. Mr. Smith joined SCA in 1991 and has been involved in the
openings of all three U.S. properties.
The Swiss Parent's reputation is as the pioneer of casino games in
Switzerland. Since 1993, the Swiss Parent has established strategic alliances
with "Kursaals" (gaming and entertainment facilities under municipal control)
and, in conjunction with these entities, operates gaming facilities in Locarno,
Bern, Geneva, Thun, Schaffhausen, Rheinfelden, and, in a joint venture with
Casinos Austria, Lugano, Luzern and St. Moritz. In addition to gaming, all of
these operations offer restaurants, bars and entertainment facilities. The Swiss
Parent operates a casino in The Hague, Netherlands as well as 13 "arcades" in
Great Britain.
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following sets forth the annual compensation for services in all
capacities to the Partnership and RAS for the fiscal years ended December 31,
1998 and 1997 of Mr. McMullan, the President and Chief Executive Officer of RAS,
the Partnership's general partner, and Messrs. Tipton, Fonseca, Boshoff and
Smith, the remaining executive officers of RAS.
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ANNUAL COMPENSATION
------------------------------------------------
OTHER ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS COMPENSATION(2) COMPENSATION(3)
- ------------------------------ ---- ------ ----- --------------- ---------------
Brian McMullan............................ 1998 $325,000 $ --- $68,728 $ 55,986
President and Chief Executive Officer 1997 275,000 10,781 71,151 107,167
John Tipton...............................
Senior Vice President, Chief Financial 1998 $275,000 $ --- $57,205 $ 46,509
Officer and General Counsel 1997 225,000 5,391 62,718 97,761
Jim Fonseca...............................
Senior Vice President 1998 $275,000 $ --- $73,030 $ 42,530
Gaming Operations 1997 225,000 5,391 59,347 93,757
Quinton Boshoff........................... 1998 $175,000 $ --- $64,526 $ 32,662
Senior Vice President Slot Operations 1997 150,000 5,391 54,715 82,024
Jeff Smith................................
Treasurer, Secretary and 1998 $150,000 $ --- $ 8,653 $ 17,486
Financial Controller 1997 125,000 --- 5,932 65,936
(1) Executive officers of RAS are compensated by SCR, a wholly-owned
subsidiary of SCA, and neither the Partnership nor RAS pays any
compensation to any of the executive officers. See Item 7, "Certain
Relationships and Related Transactions."
(2) Each perquisite or other personal benefit exceeding 25.0% of the total
perquisites and other personal benefits for each named executive officer
is:
TAXES FOR LIFE
INSURANCE
NAME PREMIUMS AND
- ---- YEAR CAR ALLOWANCE CAR ALLOWANCE OTHER
---- --------------- ------------- -----
Brian McMullan ................. 1998 $32,860 $27,000 $8,868
1997 38,164 29,030 ---
John Tipton .................... 1998 $26,261 $27,000 $3,944
1997 30,499 29,030 ---
Jim Fonseca .................... 1998 $30,454 $37,000 $5,576
1997 27,244 29,030 ---
Quinton Boshoff ................ 1998 $23,582 $37,000 $3,944
1997 19,243 29,030 ---
Jeff Smith 1998 $5,509 --- $3,144
1997 5,157 --- ---
19
21
(3) Items included in "All Other Compensation" are:
ONE-TIME EXECUTIVE LIFE
MOVING INSURANCE 401(k)
NAME YEAR ALLOWANCE PREMIUMS CONTRIBUTIONS
- ---- ---- --------- -------- -------------
Brian McMullan ................. 1998 $ --- $47,186 $ 8,800
1997 50,000 46,867 10,300
Jim Tipton ..................... 1998 $ --- $37,709 $ 8,800
1997 50,000 37,461 10,300
Jim Fonseca .................... 1998 $ --- $33,730 $ 8,800
1997 50,000 33,457 10,300
Quinton Boshoff ................ 1998 $ --- $23,862 $8,800
1997 50,000 23,631 8,393
Jeff Smith ..................... 1998 $ --- $9,202 $8,284
1997 50,000 9,061 6,875
COMPENSATION OF DIRECTORS
RAS does not pay any fees or other compensation (other than
reimbursement of expenses incurred to attend meetings) to directors for their
services in that capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither the Partnership, RAS, SCA or Seven Circle Resorts, Inc.
("SCR"), a wholly-owned subsidiary of SCA, has a compensation committee or
other committee of the board of directors which performs a similar function.
Each of the executive officers' compensation, which is paid by SCR was
determined by Messrs. Jecklin, McMullan and Tipton. Each of the directors of
RAS is a director of SCR. See Item 7, "Certain Relationships and Related
Transactions."
EMPLOYMENT AGREEMENTS AND EQUITY ARRANGEMENTS
There are no employment agreements between either the Partnership
and RAS and any of the directors or executive officers of RAS or senior
operating management of the Partnership or RAS. Messrs. McMullan, Tipton,
Fonseca and Boshoff, however, are employees of SCR, a wholly-owned subsidiary
of SCA, and each has an employment agreement which may be terminated by the
employee or SCR with 90 days prior written notice. As employees of SCR, each of
Messrs. McMullan, Tipton, Fonseca and Boshoff currently are engaged, and in the
future will engage, in the development and management of SCR's other businesses
and properties. They will devote only as much of their time to the business of
the Partnership as they, in their judgment, deem to be reasonably required,
which will be less than their full time. These officers may experience
conflicts of interest in allocating management time, services and functions
among the Partnership and the various other business activities of SCR. See
Item 7, "Certain Relationships and Related Transactions."
20
22
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MANAGEMENT FEES
Pursuant to the terms of the Agreement of Limited Partnership of
the Partnership (the "Partnership Agreement"), RAS is entitled to 3.0% of
monthly net revenues of the Partnership and 6.0% of the monthly EBITDA with the
net revenue fee deducted each calendar month, as compensation for management of
the Partnership. The maximum amount of compensation payable to RAS, however,
shall not exceed 10.0% of the Partnership's total net revenue. Distribution of
these fees shall be made on a quarterly basis, subject to the terms of the
Indenture and the Credit Agreement. Such compensation shall be subordinated to
the Senior Subordinated Notes and the Mortgage Notes.
Substantial management and general and administrative services,
including the services of Messrs. McMullan, Tipton, Fonseca, Boshoff and Smith,
certain members of additional senior management, certain clerical and
administrative employees, and certain other general and administrative support
including office space, will be provided to the Partnership by SCA either
directly or through SCR, its wholly-owned subsidiary. All executive officers of
the Partnership will be compensated by SCR and neither the Partnership nor RAS
will pay any compensation to any of the Partnership's executive officers. In
consideration of the foregoing, in 1998 the Partnership paid to SCR a fee of
approximately $2.0 million plus 65.0% (approximately $200,000) of SCR's
overhead. The fee is subject to negotiation annually between the Partnership
and SCR. The current fee was not, and any future fee will not be, the result of
arms-length negotiation between the Partnership and SCR.
OPTION AND RIGHT OF FIRST OFFER
Prior to December 31, 1997, the Partnership assigned its option rights
on a 22.5-acre parcel (the "Option Parcel") adjacent to the Resort Casino to SCA
through a preferential distribution subject to the approval of HHP. The right
to purchase the Option Parcel was originally purchased by the Partnership for
$1.2 million. It is anticipated that a new entity will be established for any
development of the Option Parcel. Any interest retained by SCA in the Option
Parcel development and any other economic benefit from the Option Parcel will be
shared by the partners based upon their Partnership Interests.
The Partnership currently holds the Rights of First Offer with
respect to four other potential gaming sites in Summerlin. If the Partnership
is given a notice to exercise its Rights of First Offer, and it elects to
exercise such right, it must first attempt to develop and finance such site
under the terms of the Indenture and Credit Agreement. If, however, the
financing of such site is restricted under the Indenture and Credit Agreement,
the Partnership will be permitted to assign such rights to an affiliate of SCA
in exchange for an equity interest in such affiliate provided, however, that
SCA owns at least 85.0% of such affiliate. The determination of the value of
the Rights of First Offer that may be assigned to the affiliate of SCA will be
determined by the general partner of the Partnership, currently RAS, a
wholly-owned subsidiary of SCA. RAS currently holds a 1.0% interest in the
Partnership as the general partner. SCA also owns a limited partnership
Interest that represents 75.6% of the Partnership's total Interests, excluding
the Note Warrants.
ARCHITECT'S LIMITED PARTNERSHIP INTEREST
Christiana L. P., an entity controlled by Mr. Steelman, the
principal of the Architect, owns a 4.2% limited partnership Interest in the
Partnership. The Partnership entered into the December 29, 1997 American
Institute of Architects "Standard Form of Agreement between Owner and Architect
where the Construction Manager is NOT a Constructor - Construction Manager -
Advisor Edition" between the Partnership and the Architect (the "Architect
Agreement") prior to December 31, 1997, pursuant to which the Architect shall
be paid compensation of approximately $2.4 million and any reimbursable
expenses. The Architect Agreement also provides for
21
23
additional expenditures of up to approximately $2.3 million primarily for third
party engineering, landscaping and other consulting fees.
CERTAIN BUSINESS RELATIONSHIPS
Mr. Jecklin, the Chairman of the Board of RAS, is the Chairman of
the Board of SCA and the Swiss Parent. Additionally, Messrs. McMullan, Tipton,
Fonseca, Boshoff and Smith, the executive officers of RAS, also serve as
executive officers of SCA.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not presently involved in any material legal
proceedings, nor, to its knowledge, are any material claims threatened against
the Company or its properties other than claims arising in the ordinary course
of business.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED MATTERS.
The Interests do not have an established trading market. The
Partnership does not intend to list the Interests on any national securities
exchange or seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. The Partnership does not
intend to make a market in the Interests, nor is it obligated to do so.
On December 31, 1997, the Partnership and RAS issued 100,000 units
consisting of $1,000 principal amount of Series A 13% Senior Subordinated PIK
Notes Due 2007 ("Series A Senior Subordinated Notes"), all of which were later
exchanged for the Senior Subordinated Notes, and a warrant to purchase one
share of common stock (a "Corporate Warrant") in RAS Warrant Co. ("Warrant
Co."), which may be exchanged for a warrant to purchase one limited partnership
Interest representing 0.00008% of the total partnership interest in the
Partnership (an "L.P. Warrant," and collectively with the Corporate Warrants,
the "Note Warrants") at the purchaser's election. Warrant Co. is a wholly-owned
subsidiary of SCA. Each L.P. Warrant entitles the holder to acquire through
December 15, 2007, one Interest representing 0.00008% of the total partnership
interest in the Partnership at a price per L.P. Warrant of $0.01, subject to
the provisions of the partnership agreement and adjustments from time to time
upon the occurrence of certain changes in the terms of the partnership
interests, distributions, and certain issuances of options or convertible
securities. Holders of L.P. Warrants do not by virtue of being such holders
have any rights as limited partners of the Partnership. As of September 30,
1998, there were 100,000 outstanding L.P. Warrants, all of which were held by
Warrant Co.
Distributions of available cash, if any, and allocation of net income
or loss are as set forth in the Agreement of Limited Partnership, as amended,
of the Partnership (the "Partnership Agreement"). See Item 11, "Description of
Registrant's Securities to be Registered."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On December 31, 1997, the Partnership and RAS issued 100,000 units, in
the original principal amount of $100.0 million, consisting of $1,000 principal
amount of Series A Senior Subordinated Notes and a Corporate Warrant which may
be exchanged for an L.P. Warrant, at the purchaser's election, in accordance
with Rule 144A promulgated under the Securities Act of 1933 ("Rule 144A"). The
Partnership and RAS subsequently filed a Form S-4 Registration Statement with
the Securities and Exchange Commission seeking to exchange the Series A Senior
Subordinated Notes for the Senior Subordinated Notes. On June 29, 1998, the
Securities and Exchange
22
24
Commission declared the Form S-4 Registration Statement of the Partnership and
RAS effective, and the Partnership and RAS initiated an exchange offer to the
holders of the outstanding Series A Senior Subordinated Notes, enabling each
holder to exchange Series A Senior Subordinated Notes for the Senior
Subordinated Notes. The exchange offer expired on July 29, 1998, at which time
all Series A Senior Subordinated Notes were exchanged.
On December 31, 1997, the Partnership and RAS also issued, as joint
and several obligors, $100.0 million of Mortgage Notes, of which $60.0 million
was drawn at closing, in a private placement pursuant to Rule 144A. The initial
purchaser of the Series A Senior Subordinated Notes and the Mortgage Notes was
NatWest Capital Markets Limited. The remaining $40.0 million was drawn on
December 31, 1998.
In December 1998, the Partnership issued 235,542 partnership Interests
to SCH, an affiliate of SCA, for an aggregate purchase price of $8.5 million.
SCH currently holds 17.0% of the outstanding partnership Interests of the
Partnership. The Interests were issued pursuant to an exemption from
registration provided by Regulation D promulgated under Section 4(2) of the
Securities Act. The Partnership did not utilize a placement agent in the
placement of the Interests offered.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Partnership intends to register its limited partnership Interests.
The Interests do not have dividend, conversion or redemption rights or sinking
fund provisions. Pursuant to the terms of the Partnership Agreement, holders of
Interests are entitled to vote in certain instances, including the transfer of
Interests and the sale or disposition of the Resort Casino. Unless otherwise
agreed by the partners or restricted by the Credit Agreement or the Indenture,
the Partnership is required to distribute the cash flow of the Partnership
quarterly to the partners in accordance with their percentage holdings of
Interests. In the event of dissolution, the property and assets of the
Partnership shall not be distributed to the partners unless the partners owning
at least 75.0% of the outstanding Interests (including the general partner
interest) approve such distribution. An Interest may not be transferred by a
partner if the transfer will cause the termination of the Partnership for
federal income tax purposes or cause the Partnership to be taxed other than as
a partnership. Any transfer of an Interest requires the consent of the general
partner, currently RAS. The Partnership Agreement requires the Partnership to
have no more than 100 partners at any time.
The Partnership's net income and net loss for each fiscal year shall
be allocated among the partners in accordance with their partnership interests.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted under the Nevada General Corporation Law, the Partnership
Agreement and the Bylaws of RAS eliminate the personal liability and provide
for the indemnification of the partners, officers, directors, employees, agents
or affiliates of the Partnership or RAS for any damages, actions, suits or
proceedings provided that such person acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Partnership or RAS, as applicable, and, with respect to any criminal action,
had no reasonable cause to believe his conduct was unlawful.
The Bylaws of RAS also provide for indemnification of officers and
directors of RAS and persons who serve at the request of RAS as a director,
officer, employee, agent or trustee of another corporation, partnership, joint
venture, trust or other enterprise, to the full extent allowed by Nevada law.
The Nevada General Corporation Law authorizes indemnification of officers,
directors and persons serving other entities in certain capacities at the
request of the corporation, subject to certain conditions and limitations set
forth therein, against all expenses and liabilities incurred by or imposed upon
them as a result of actions, suits and proceedings brought against them in such
capacity if they acted in good faith, in a manner they reasonably believed to
be in, or not opposed to, the best
23
25
interests of the corporation, and, with respect to any criminal action, they
had reasonable cause to believe the conduct was lawful.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to the Financial Statements on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. See page F-1 for an Index to the Financial
Statements.
(b) Exhibits.
Exhibit No.
- -----------
2.1 December 22, 1997 Purchase Agreement.*
3.1 Certificate of Limited Partnership of The Resort at Summerlin, Limited
Partnership.*
3.2 Agreement of Limited Partnership, as amended, of The Resort at
Summerlin, Limited Partnership.*
3.3 Articles of Incorporation of The Resort At Summerlin, Inc.*
3.4 Bylaws of The Resort at Summerlin, Inc.*
4.1 December 31, 1997 Indenture*
4.2 December 30, 1997 Exchange and Registration Rights Agreement.*
4.3 December 30, 1997 Registration Rights and Limited Partners' Agreement.*
4.4 December 30, 1997 Warrant Agreement for L.P. Warrants.*
4.5 December 30, 1997 Warrant Agreement for Corporate Warrants.*
4.6 Disbursement Agreement dated December 31, 1997.*
4.7 Subordinated Notes Proceeds Accounts Agreement dated December 31, 1997.*
4.8 Mortgage Notes Proceeds Account Agreement dated December 31, 1997.*
24
26
4.9 Interest Escrow Account Agreement dated December 31, 1997.*
4.10 Partnership Funds Account Agreement dated December 31, 1997.*
4.11 December 31, 1997 Global Note.*
4.12 Form of L.P. Warrants.*
4.13 Form of Corporate Warrants.*
10.1 December 22, 1997 Construction Contract.*
10.2 December 16, 1997 License Agreement between RAS and Regent Hotels
Worldwide, Inc.*
10.3 December 29, 1997 Architect Agreement between RAS and Paul Steelman, Ltd.*
10.4 August 15, 1996 Development Declaration and Option to Repurchase between
RAS and Howard Hughes Properties, Limited Partnership.*
10.5 August 15, 1996 Royalty Agreement between RAS and Howard Hughes Properties,
Limited Partnership.*
10.6 December 22, 1997 Guaranty of Completion of J.A. Jones, Inc.*
10.7 December 31, 1997 Credit Agreement.*
10.8 December 30, 1997 Subordinated Notes Proceeds Agreement.*
10.9 Golf Course Agreement.*
10.10 January 13, 1998 Construction Management Contract.*
10.11 December 22, 1998 Settlement Agreement among J.A. Jones Construction, The
Resort at Summerlin, Inc. and The Resort at Summerlin, Limited Partnership.*
23.1 Consent of Ernst & Young LLP. **
27.1 Financial Data Schedule.**
- -------------------------------------
* Filed previously.
** Filed herewith.
(c) Reports on Form 8-K.
On January 5, 1998, the Partnership and RAS filed a Form 8-K with the
Securities and Exchange Commission regarding the settlement of certain
items with J.A. Jones. See Footnote 6 to Financial Statements,
"Commitments and Contingencies - Construction Agreement."
25
27
FORWARD-LOOKING STATEMENTS
This Registration Statement contains certain "forward-looking statements" which
represent the Partnership's expectations or beliefs, including, but not limited
to, statements concerning industry performance and the Partnership's
operations, performance, financial condition, plans, growth and strategies. Any
statements contained in this Registration Statement which are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, words such as "may," "will,"
"expect," "anticipate," intent," "could," estimate" or continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the
Partnership's control, and actual results may differ materially depending on a
variety of important factors many of which are beyond the control of the
Partnership.
26
28
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
THE RESORT AT SUMMERLIN, LIMITED
PARTNERSHIP
By: The Resort at Summerlin, Inc., a Nevada corporation,
Its General Partner
Date: February 2, 1999 By: /s/ Brian McMullan
----------- ------------------------------------------------
Brian McMullan
Its: President and Chief Executive Officer
(Principal Executive Officer)
Date: February 2, 1999 By: /s/ John J. Tipton
----------- ------------------------------------------------
John J. Tipton
Sr. Vice President, Chief Financial Officer and
General Counsel (Principal Financial Officer)
27
29
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian McMullan and John Tipton, and each
of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments to this Registration Statement, including post-effective
amendments, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents of any of them, or any substitute or
substitutes, lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Brian McMullan President/ Chief Executive Officer/ Director February 2, 1999
- ----------------------------- (Principal Executive Officer and Member of the
Brian McMullan Board of Directors of The Resort at Summerlin,
Inc., the general partner of The Resort at
Summerlin, Limited Partnership)
/s/ John Tipton Senior Vice President/ Chief Financial February 2, 1999
- ----------------------------- Officer/General Counsel/Director
John Tipton (Principal Financial Officer and Member of the
Board of Directors of The Resort at Summerlin,
Inc., the general partner of The Resort at
Summerlin, Limited Partnership)
28
30
/s/ Jeff Smith Treasurer, Secretary and Financial Controller February 2, 1999
- ----------------------------- (Principal Accounting Officer of The Resort at
Jeff Smith Summerlin, Inc., the general partner of The
Resort at Summerlin, Limited Partnership)
/s/ Hans Jecklin Chairman of the Board of Directors of The February 2, 1999
- ----------------------------- Resort at Summerlin, Inc., the general partner
Hans Jecklin of The Resort at Summerlin, Limited Partnership
/s/ Christiane Jecklin Member of the Board of Directors of The Resort February 2, 1999
- ----------------------------- at Summerlin, Inc., the general partner of The
Christiane Jecklin Resort at Summerlin, Limited Partnership
/s/ Jim Fonseca Member of the Board of Directors of The Resort February 2, 1999
- ----------------------------- at Summerlin, Inc., the general partner of The
Jim Fonseca Resort at Summerlin, Limited Partnership
/s/ Quinton Boshoff Member of the Board of Directors of The Resort February 2, 1999
- ----------------------------- at Summerlin, Inc., the general partner of The
Quinton Boshoff Resort at Summerlin, Limited Partnership
29
31
THE RESORT AT SUMMERLIN, LIMITED PARTNERSHIP
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997, THE PERIOD FROM
INCEPTION THROUGH DECEMBER 31, 1996,
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
AND THE PERIOD FROM INCEPTION THROUGH SEPTEMBER 30, 1998 (UNAUDITED)
TABLE OF CONTENTS
Report of Independent Auditors ......................................F-2
Audited Financial Statements
Balance Sheets ...............................................F-3
Statements of Operations ......................................F-4
Statements of Partnership Interests ...........................F-6
Statements of Cash Flows ......................................F-7
Notes to Financial Statements .......................................F-9
F-1
32
Report of Independent Auditors
Partners
The Resort at Summerlin, Limited Partnership
We have audited the accompanying balance sheets for The Resort at Summerlin,
Limited Partnership (a development stage company) as of December 31, 1997 and
1996, and the related statements of operations, partnership interests, and cash
flows for the year ended December 31, 1997, and the period from inception
through December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1997 and 1996, and the results of its operations and its cash flows for the year
ended December 31, 1997, and the period from inception through December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young
Denver, Colorado
March 5, 1998
F-2
33
The Resort at Summerlin, Limited Partnership
Balance Sheets
(a development stage company)
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ----------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ................................ $69,074,653 $175,487,660 $ -
Investments .............................................. 41,966,144 - -
Interest receivable ...................................... 267,079 24,167 -
Restricted investments.................................... 3,150,000 - -
Prepaid leasing costs .................................... 140,500 - -
----------- ----------- ----------
Total current assets 114,598,376 175,511,827 -
Property and equipment:
Land ..................................................... 16,628,459 16,628,459 16,628,459
Land improvements ........................................ 425,000 - -
Deposits ................................................. 2,223,164 - -
Construction in progress ................................. 82,812,010 3,782,333 526,088
Furniture, fixtures and equipment......................... 1,558,289 573,000 -
----------- ---------- ----------
103,646,922 20,983,792 17,154,547
Accumulated depreciation ................................ (319,384) (112,680) -
----------- ---------- ----------
103,327,538 20,871,112 17,154,547
Restricted investments...................................... 9,250,000 12,400,000 -
Debt issuance costs......................................... 11,806,724 12,561,721 -
Licensing costs............................................. 158,333 50,000 -
Preopening costs............................................ 8,895,991 4,838,812 907,534
Option fee.................................................. - - 583,900
------------ ------------ -----------
Total assets................................................ $248,036,962 $226,233,472 $18,645,981
============ ============ ===========
LIABILITIES
Current liabilities:
Accounts payable ........................................ $ 106,026 $ 158,471 $ -
Construction and preopening payables..................... 14,514,486 619,373 -
Related party payable.................................... 38,561 348,459 -
Interest payable......................................... 5,480,995 - -
--------- ---------- ----------
Total current liabilities................................... 20,140,068 1,126,303 -
Long-term debt, net of discount............................. 160,265,028 154,131,067 -
Warrants redeemable for partnership interests............... 12,843,343 5,869,565 -
---------- --------- ----------
Total liabilities........................................... 193,248,439 161,126,935 -
PARTNERSHIP INTERESTS
General partner interest.................................... 675,000 675,000 500,000
Limited partners' interests................................. 65,130,283 65,130,283 18,230,439
Deficit accumulated during development stage................ (11,016,760) (698,746) (84,458)
------------ --------- --------
Total partnership interests................................. 54,788,523 65,106,537 18,645,981
---------- ---------- ----------
Total liabilities and partnership interests................ $248,036,962 $226,233,472 $18,645,981
============ ============ ===========
See accompanying notes.
F-3
34
The Resort at Summerlin, Limited Partnership
Statements of Operations
(a development stage company)
NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30, INCEPTION THROUGH
1998 1997 SEPTEMBER 30, 1998
------------- ------------ ------------------
(Unaudited) (Unaudited)
Revenue .................................... $ - $ - $ -
Costs and expenses:
General and administrative............... 476,537 345,144 1,054,880
Depreciation and amortization ........... 1,603,444 - 1,716,756
---------- --------- ----------
2,079,981 345,144 2,771,636
Other income (expense):
Interest income.......................... 6,491,435 - 6,532,690
Warrant interest expense ................ (6,973,778) - (6,973,778)
Interest expense ........................ (7,755,690) - (7,804,036)
---------- --------- ----------
(8,238,033) - (8,245,124)
---------- --------- ----------
Net loss ................................. $(10,318,014) $(345,144) $(11,016,760)
============ ========= ============
See accompanying notes.
F-4
35
The Resort at Summerlin, Limited Partnership
Statements of Operations
(a development stage company)
PERIOD FROM
YEAR ENDED INCEPTION THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
Revenues ................................................... $ - $ -
Costs and expenses:
General and administrative .............................. 493,885 84,458
Depreciation and amortization............................ 113,312 -
---------- ----------
607,197 84,458
Other income (expense):
Interest income.......................................... 41,255 -
Interest expense......................................... (48,346) -
---------- ----------
(7,091) -
---------- ----------
Net loss ................................................. $(614,288) $ (84,458)
========== ==========
See accompanying notes.
F-5
36
The Resort at Summerlin, Limited Partnership
Statements of Partnership Interests
(a development stage company)
DEFICIT
ACCUMULATED
GENERAL LIMITED DURING TOTAL
PARTNER PARTNERS' DEVELOPMENT PARTNERSHIP
INTEREST INTERESTS STAGE INTERESTS
-------- --------- ------------- -------------
Balance at August 15, 1996 (inception) $ - $ - $ - $ -
Capital contributions by partners.................. 500,000 18,230,439 - 18,730,439
Net loss........................................... - - (84,458) (84,458)
------- ---------- -------- --------
Balance at December 31, 1996 500,000 18,230,439 (84,458) 18,645,981
Capital contributions by partners ................. 175,000 48,081,046 - 48,256,046
Distribution of non-cash asset..................... - (1,181,202) - (1,181,202)
Net loss.......................................... - - (614,288) (614,288)
------- ---------- --------- ----------
Balance at December 31, 1997.......................... 675,000 65,130,283 (698,746) 65,106,537
Net loss (unaudited)............................... - - (10,318,014) (10,318,014)
-------- ----------- ------------- ------------
Balance at September 30, 1998 (unaudited)............. $675,000 $65,130,283 $(11,016,760) $54,788,523
======== =========== ============= ============
See accompanying notes.
F-6
37
The Resort at Summerlin, Limited Partnership
Statements of Cash Flows
(a development stage company)
NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30, INCEPTION THROUGH
1998 1997 SEPTEMBER 30, 1998
-------- -------- ------------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss...................................................... $(10,318,014) $ (345,144) $(11,016,760)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization........................... 1,620,984 - 1,716,756
Non-cash interest expense for warrant put options....... 6,973,778 - 6,973,778
Interest capitalized to construction in progress........ (6,945,359) - (6,952,291)
Interest paid by issuance of
Senior Subordinated Notes............................. 5,955,000 - 5,955,000
Changes in operating assets and liabilities:
Interest receivable................................... (242,912) - (267,079)
Prepaid expenses...................................... (140,500) - (140,500)
Interest payable...................................... 5,425,717 - 5,480,995
------------- ------------- -------------
Net cash provided by (used in) operating activities........... 2,328,694 (345,144) 1,749,899
INVESTING ACTIVITIES
Acquisition of property and equipment......................... (75,717,771) (732,015) (96,694,631)
Preopening costs.............................................. (4,057,179) - (6,245,555)
Increase (decrease) in construction
and preopening payables.................................... 13,588,048 (2,912,976) 14,676,613
Purchase of investments....................................... (41,966,144) - (41,966,144)
Investment in licensing costs................................. (108,333) - (158,333)
Investment in option fee...................................... - (597,312) (1,181,212)
------------- ------------- -------------
Net cash used in investing activities......................... (108,261,379) (4,242,303) (131,569,262)
FINANCING ACTIVITIES
Capital contribution from General Partner..................... - - 675,000
Capital contributions from limited partners................... - 4,855,457 63,661,059
Issuance of First Mortgage Notes.............................. - - 60,000,000
Issuance of Senior Subordinated Notes......................... - - 100,000,000
Debt issuance costs........................................... (480,322) (104,490) (13,042,043)
Increase in restricted assets................................. - - (12,400,000)
------------- ------------- -------------
Net cash provided by (used in) financing activities........... (480,322) 4,750,967 198,894,016
------------- ------------- -------------
Net change in cash and cash equivalents....................... (106,413,007) 163,520 69,074,653
Cash and cash equivalents at beginning of period.............. 175,487,660 - -
------------- ------------- -------------
Cash and cash equivalents at end of period.................... $ 69,074,653 $ 163,520 $ 69,074,653
============= ============= =============
SUPPLEMENTAL INFORMATION
Preopening costs incurred and paid by SCA on
behalf of The Resort at Summerlin, L.P..................... $ - $ 1,720,439 $ 2,650,436
Distribution of non-cash asset................................ - - 1,181,202
See accompanying notes.
F-7
38
The Resort at Summerlin, Limited Partnership
Statements of Cash Flows
(a development stage company)
PERIOD FROM
YEAR ENDED INCEPTION THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
OPERATING ACTIVITIES
Net loss......................................................... $ (614,288) $ (84,458)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................................... 113,312 -
Changes in operating assets and liabilities:
Interest receivable...................................... (24,167) -
------------ -------
Net cash used in operating activities............................ (525,143) (84,458)
INVESTING ACTIVITIES
Acquisition of property and equipment............................ (3,829,245) (17,154,547)
Preopening costs................................................. (1,637,360) (551,016)
Increase in construction and preopening payables................. 701,313 -
Investment in licensing costs.................................... (50,000) -
Investment in option fee......................................... (597,312) (583,900)
------------ -----------
Net cash used in investing activities............................ (5,412,604) (18,289,463)
FINANCING ACTIVITIES
Capital contribution from General Partner........................ 175,000 500,000
Capital contributions from limited partners...................... 45,787,128 17,873,921
Issuance of First Mortgage Notes................................. 60,000,000 -
Issuance of Senior Subordinated Notes............................ 100,000,000 -
Debt issuance costs.............................................. (12,136,721) -
Increase in restricted assets.................................... (12,400,000) -
------------ ----------
Net cash provided by financing activities........................ 181,425,407 18,373,921
Net change in cash and cash equivalents.......................... 175,487,660 -
Cash and cash equivalents at beginning of period................. - -
------------ ------------
Cash and cash equivalents at end of period....................... $175,487,660 $ -
============ ============
SUPPLEMENTAL INFORMATION
Preopening costs incurred and paid by SCA on
behalf of The Resort at Summerlin, L.P........................ $ 2,293,918 $356,618
Distribution of non-cash asset................................... 1,181,202 -
Accrued debt issuance costs...................................... 425,000 -
See accompanying notes.
F-8
39
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements
(a development stage company)
(Information as of September 30, 1998 and 1997 and for the nine months
then ended are unaudited)
September 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Resort at Summerlin, Limited Partnership (the "Partnership") is majority
owned by Swiss Casinos of America, Inc., formerly known as Seven Circle Gaming
Corporation ("SCA"). It was formed on August 15, 1996 for the purpose of
acquiring land and developing a casino resort in the Summerlin master planned
community in Las Vegas, Nevada ("Summerlin"). The Resort at Summerlin, Inc.
("RAS Inc.") is a wholly owned subsidiary of SCA and serves as general partner
of the Partnership. Swiss Casinos Holding AG ("SCH") owns 83% of SCA and is a
limited partner in the Partnership. The ownership percentages in the Partnership
of RAS Inc., SCA, SCH, and unaffiliated investors are 1.00%, 75.58%, 17.00% and
6.42%, respectively. The Partnership allocates earnings and losses to the
partners in accordance with these percentages.
The Partnership purchased 54.5 acres of land located in Summerlin on which it is
developing and plans to operate a resort facility (the "Resort"), to include a
casino, hotel, conference center, spa, restaurants, and retail center. The land
is zoned for gaming, and the Las Vegas City Council has granted the special use
permit required to develop the proposed facility.
The Partnership is a development stage company as it is devoting substantially
all of its efforts to develop the Resort. The Partnership has no current source
of income and does not anticipate any material amounts until such time as the
Resort is operational. The Resort is expected to open for business in the second
quarter of 1999.
BASIS OF PRESENTATION
The accompanying unaudited financial statements as of September 30, 1998, for
the nine months ended September 30, 1998 and 1997, and for the period from
inception through September 30, 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation have been included. Results for
the interim periods are not necessarily indicative of the results to be expected
for a full year.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid debt instruments with a maturity of three
months or less when purchased. Cash equivalents are carried at cost which
approximates fair value.
F-9
40
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRICTED INVESTMENTS
Restricted investments consist of funds held in escrow for future payment of
interest incurred on the First Mortgage Notes (see Note 3) during the first five
quarters following the opening of the Resort. Use of the escrow funds for each
interest payment is subject to various financial tests. Any unused funds at the
end of the five quarter period must be applied to the outstanding principal
balance on the notes. As of December 31, 1997, all escrow funds were held in a
cash equivalent fund. During 1998, this cash was used to purchase a short term
investment. See Note 2.
CONSTRUCTION IN PROGRESS
Expenditures incurred for the design and construction of the Resort have been
capitalized as construction in progress. These amounts are expected to be
reclassified to buildings upon completion of the facility and will be
depreciated over the useful life of the asset.
DEPOSITS
Deposits represent amounts paid to equipment vendors prior to receipt of the
related equipment. The amounts will be reclassified to the appropriate fixed
asset account upon receipt of the equipment.
DEPRECIATION
Property and equipment are stated at cost and are depreciated on a straight-line
basis over the following estimated useful lives:
Buildings................................. 30 years
Furniture, fixtures and equipment......... 3-7 years
SHORT-TERM INVESTMENTS HELD TO MATURITY
Management determines the appropriate classification of debt securities at the
time of purchase. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
The amortized cost of debt securities classified as held-to-maturity is adjusted
for amortization of premiums and accretion of discounts to maturity, or in the
case of mortgage-backed securities, over the estimated life of the security.
Such amortization is included in interest income from investments. Interest and
dividends are included in interest income from investments. Realized gains and
losses, and declines in value judged to be other-than-temporary are included in
net securities gains (losses). The cost of securities sold is based on the
specific identification method.
DEBT DISCOUNT AND ISSUANCE COSTS
Debt discount and issuance costs are capitalized and amortized to expense based
on the terms of the related debt agreements using the effective interest method
or a method which approximates the effective interest method.
F-10
41
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREOPENING COSTS
Development costs incurred by the Partnership are currently being capitalized.
These costs include legal fees, incremental personnel costs, travel, and other
costs related to the development of the Resort. In April 1998, the American
Institute of Certified Public Accountants issued Statement of Position 98-5
entitled Reporting on the Costs of Start-up Activities ("SOP 98-5") which
requires entities to expense costs of preopening activities as they are
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998. Accordingly, the Partnership will adopt the statement in fiscal year 1999.
Upon adoption, the Partnership is required to report the initial adoption as a
cumulative effect of a change in accounting principle as described in Accounting
Principles Board Opinion No. 20, Accounting Changes, during the first quarter of
its fiscal year 1999 and expense subsequent preopening costs as incurred. The
cumulative effect upon adoption will result in a one-time charge to income in an
amount equal to the net book value of the Partnership's preopening costs. Under
the Partnership's existing policy, the preopening expenses would have been
expensed upon the opening of the Resort, which is currently expected to be
during the second quarter of 1999.
LICENSING COSTS
The Partnership capitalizes certain license costs required for the operation of
the casino, hotel and restaurants. These costs will be amortized over the term
of the license (15 years for the hotel license), commencing with the opening of
the Resort.
EXPENDITURES INCURRED BY SCA
Prior to 1998, SCA incurred various expenditures on behalf of the Partnership
which are reflected as contributed capital on the books of the Partnership.
These amounts primarily relate to salaries and personnel costs of employees who
have devoted a portion of their time to the development of the Resort. During
the nine months ended September 30, 1998 and 1997 and the years ended 1997 and
1996, these expenditures were $0, $1,720,439, $2,293,918 and $356,518,
respectively. In accordance with the accounting policies noted above, the
Partnership capitalized a portion of these costs as preopening costs and
expensed amounts relating to general and administrative activities.
CAPITALIZATION OF INTEREST
The Partnership capitalizes interest costs on amounts expended on capital
projects based upon the weighted average interest costs of borrowings
outstanding during the period of construction. During the nine months ended
September 30, 1998 and the year ended December 31, 1997, the Partnership
capitalized interest costs of $6,945,359 and $6,932, respectively, as
construction in progress.
INCOME TAXES
The Partnership is a limited partnership. Accordingly, no provision for federal
or state income taxes was recorded because any taxable income or loss is
included in the income tax returns of the partners.
F-11
42
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1997 audited financial statements have been reclassified
to conform with the 1998 presentation. These reclassifications had no effect on
the Partnership's results of operations.
FINANCIAL INSTRUMENTS
The Partnership's financial instruments consist of cash, investments, accounts
payable, accrued expenses, long-term debt and warrants redeemable for
partnership interests. The carrying value of cash, accounts payable and accrued
expenses approximate fair value. The carrying value of investments approximates
the fair value due to the short term maturities of those instruments. The
Partnership believes the fair values and the carrying value of the long-term
debt and warrants would not be materially different due to the instruments'
interest rates approximating market rates for similar projects at September 30,
1998 and December 31, 1997.
2. INVESTMENTS
As of September 30, 1998, all of the Partnership's investments and restricted
investments were classified as held-to-maturity. These securities consist of
U.S. governmental agency mortgage backed securities with contractual maturities
of six to nine months. Carrying values of the investments approximate their fair
values and gross unrealized gains and losses were not material.
3. LONG-TERM DEBT
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
Long-term debt is comprised of the following:
First Mortgage Notes due 2004 ........................ $ 60,000,000 $ 60,000,000
Senior Subordinated Pay-in-Kind Notes due 2007........ 105,955,000 100,000,000
Original issue discount............................ (5,689,972) (5,868,933)
----------- -----------
100,265,028 94,131,067
Total long-term debt.................................. $160,265,028 $154,131,067
============ ============
F-12
43
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
3. LONG-TERM DEBT (CONTINUED)
On December 31, 1997, the Partnership and RAS Inc. (the "Note Issuers") issued,
as joint and several co-obligors, $100.0 million of First Mortgage Notes due
March 31, 2004 (the "Mortgage Notes") of which $60.0 million was drawn at
closing and $100.0 million of Senior Subordinated Notes due 2007 (the "Senior
Subordinated Notes"). The Partnership borrowed the remaining $40.0 million of
the Mortgage Notes on December 31, 1998. The Mortgage Notes Credit Agreement
(the "Credit Agreement") and the Senior Subordinated Notes Indenture (the
"Indenture") contain various covenants and restrictions as more fully described
below.
MORTGAGE NOTES
Prior to the Resort opening for business, at the option of the Partnership,
interest on the Mortgage Notes will accrue at the London Interbank Offered Rate
("LIBOR") for one or three month periods plus 4% or at the Base Rate (higher of
Federal Reserve prime rate or federal funds rate plus one half of 1%) plus 3%.
The interest rate was established at 11.5% on December 31, 1997, and
subsequently adjusted to 9.7% in January 1998 and 9.0% in December 1998.
Interest is payable on the last business day of each calendar quarter for Base
Rate tranches and at the end of the applicable interest period but no less
frequently than quarterly for LIBOR tranches. Subsequent to the opening of the
Resort, the percentage above LIBOR or the base rate reference rates will
decrease based on the debt ratios of the Partnership.
The Mortgage Notes are secured by a first perfected security interest in all
assets comprising the Resort, including all real and personal property, all
intangibles and all furniture, fixtures and equipment, together with title
insurance. In addition, $12.4 million was deposited in an interest escrow
account for the benefit of the Mortgage Note holders, which will support the
interest payment obligations during the five fiscal quarters following the
opening of the Resort (the "Commencement Date"). This amount has been reflected
as restricted investments on the accompanying balance sheet.
Scheduled maturities of the Mortgage Notes are as follows (in millions):
1998 $ -
1999 -
2000 12.5
2001 14.5
2002 19.0
Thereafter 54.0
------------
$100.0
============
An amount equal to 75% of the first $15.0 million of excess cash flow, as
defined in the Credit Agreement, and 25% of the excess cash flow above $15.0
million is due annually in addition to the above amounts.
The Credit Agreement contains certain covenants including those restricting
additional indebtedness, liens, change of business, sale and purchase of assets,
mergers and consolidations, investments thereafter with affiliates and financial
covenants. At September 30, 1998, management believes the Note Issuers are in
compliance with all covenants.
F-13
44
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
3. LONG-TERM DEBT (CONTINUED)
SENIOR SUBORDINATED NOTES
The Note Issuers issued 100,000 units consisting of $1,000 principal amount of
13% Senior Subordinated Notes due December 15, 2007 and an L.P. Warrant, which
can be exchanged for a Corporate Warrant at the purchaser's election. The
Partnership issued the L.P. Warrants and RAS Warrant Co. ("Warrant Co.") issued
the Corporate Warrants (both warrants collectively referred to as the "Note
Warrants"). Warrant Co. is a wholly-owned subsidiary of SCA and at September 30,
1998 and December 31, 1997, Warrant Co. had one share of common stock
outstanding from a total of 100,001 authorized shares (see "Warrants" below).
The Senior Subordinated Notes are unsecured and subordinated in right of payment
to all existing and future senior indebtedness of the Note Issuers, including
the Mortgage Notes.
Interest at the rate of 13% per annum of the principal is payable semiannually
beginning in June 1998. The interest is payable either in cash or in additional
Senior Subordinated Notes at the option of the Partnership through June 1999,
and thereafter is payable in cash. In addition to the 13% coupon rate on the
Senior Subordinated Notes, the Partnership accrues additional interest expense
of 9.2% for a total of 22.2% (see "Warrants" below).
On or after December 15, 2002, the Senior Subordinated Notes may be redeemed at
the Partnership's option in whole or in part at face value plus accrued and
unpaid interest at the time of redemption. In addition, at any time prior to
December 15, 2000, the Partnership may redeem up to 35% of the aggregate
principal with the cash proceeds received from one or more public equity
offerings at a redemption price equal to 113% of the principal amount, provided
that at least $65.0 million of the original principal amount remains outstanding
immediately after the redemption.
If the Nevada Gaming Commission (the "Commission") or the Nevada State Gaming
Control Board (the "Board") (each a "Nevada Gaming Authority" or together the
"Nevada Gaming Authorities") requires that a holder or beneficial holder of the
Senior Subordinated Notes must be licensed, qualified or found suitable, and if
the holder fails to apply or is not licensed, the Partnership has the option to
redeem such Senior Subordinated Notes, at a redemption price as defined in the
Indenture.
The restrictive covenants relating to the Senior Subordinated Notes will limit
the incurrence of additional indebtedness, the payment of dividends on and the
redemption of certain subordinated obligations, investments, sale of assets and
subsidiary stock, transactions with affiliates and consolidations, mergers and
transfers of all or substantially all the assets of the Partnership. At
September 30, 1998, management believes the Note Issuers are in compliance with
all covenants.
WARRANTS
Each L.P. Warrant will entitle the holder to acquire prior to December 15, 2007,
one L.P. Partnership Interest representing 0.00008% of the total partnership
interest in the Partnership at a price per L.P. Warrant of $0.01, subject to the
provisions of the partnership agreement and adjustments from time to time upon
the occurrence of certain changes in the terms of the partnership interests,
distributions, and certain issuances of options or convertible securities.
F-14
45
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
3. LONG-TERM DEBT (CONTINUED)
Holders of L.P. Warrants will not by virtue of being such holders have any
rights as limited partners of the Partnership.
Each Corporate Warrant will entitle the holder to acquire, prior to December 15,
2007, one share of common stock of Warrant Co. at a price of $0.01 per share,
subject to certain adjustments from time to time upon the occurrence of certain
changes in the Common Stock of Warrant Co. Upon the exercise of a Corporate
Warrant, Warrant Co. will exercise an L.P. Warrant in the Partnership entitling
it to the ownership percentage in the Partnership discussed above. Holders of
Corporate Warrants will not, by virtue of being such holders, have any rights as
stockholders of Warrant Co. At September 30, 1998, all warrants outstanding were
Corporate Warrants.
In the event that any existing limited partner proposes to sell or otherwise
transfer at least 15% of the total L.P. Partnership Interests, the holders of
the Note Warrants and L.P. Partnership interests shall have the right to require
such existing limited partner to cause the proposed purchaser to purchase, on
the same terms and conditions, a percentage of the number of Note Warrants and
the L.P. Partnership interests owned by each such holder.
In the event that any existing limited partner proposes to sell or transfer any
L.P. Partnership Interests aggregating 51% or more of the total L.P. Partnership
Interests, the existing Limited Partner shall have the right to require the
holders of the Note Warrants and L.P. Partnership interests to sell on the same
terms and conditions from each of them a percentage of the number of Note
Warrants and L.P. Partnership Interests owned by each such holder.
If the Partnership has not completed an initial public equity offering of at
least $50.0 million of gross proceeds with respect to the L.P. Partnership
Interests on or before December 31, 2005, each holder of the Note Warrants will
have, for a 30-day period beginning on April 15, 2006, or if the Mortgage Notes
are prepaid prior to their maturity date, beginning on April 15, 2003, the
one-time right to require the Partnership to purchase the Note Warrants at the
takeout price, described below. The Partnership will have a one-time right, for
a 30-day period beginning on October 15, 2006, or if the Mortgage Notes are
prepaid prior to their maturity date, beginning on October 15, 2003, to purchase
the Note Warrants on a pro rata basis, for a purchase price equal to the takeout
price. The takeout price is defined as the greater of:
- the value of the Note Warrants as determined by a formula based on
eight times earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the fiscal year ending December 31, 2005,
or if the Mortgage Notes are prepaid, for the fiscal year ending
December 31, 2003; or
- the value of the Note Warrants as determined by a formula based on
eight times the average EBITDA for each of the fiscal years ending
December 31, 2003, 2004, and 2005, or if the Mortgage Notes are
prepaid, December 31, 2001, 2002, and 2003; or
- an amount necessary to cause the Senior Subordinated Notes and the Note
Warrants to create a bond equivalent internal rate of return of 20%
from the issue date to the date of purchase.
The Partnership records interest expense at a total rate of 22.2% to account for
the put option. Interest in excess of the stated Senior Subordinated Notes will
be credited to warrant liability and either be settled in the terms above or
upon the exercise of the warrants.
F-15
46
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
3. LONG-TERM DEBT (CONTINUED)
Pursuant to the Nevada Gaming Control Act, the Partnership may not issue an L.P.
Partnership Warrant Interest to Warrant Co. or any other holder of a partnership
warrant without the prior approval, licensing and registration, as applicable,
of Warrant Co. or such other holder as a limited partner in the Partnership by
the Nevada Gaming Authorities.
4. LEASE FINANCING AND UNSECURED DEBT
Under the terms of the Credit Agreement and the Indenture, the Partnership may
obtain additional sources of liquidity, if necessary, including (i) up to $15.0
million of capital lease financing for furniture, fixtures and equipment, (ii)
up to $5.0 million of unsecured debt and (iii) operating lease financing.
On August 6, 1998, the Partnership executed a commitment with a lease financing
company for the credit facilities summarized below. The Partnership closed on
the facilities on December 21, 1998:
- capital lease facility for up to approximately $15.0 million;
- operating lease facility for up to approximately $13.1 million; and
- unsecured credit facility for $5.0 million.
The capital lease facility may be used to finance various furniture, fixtures
and equipment acceptable to the leasing company. The term of the facility will
be 48 months at an anticipated interest rate of 10.3%. Maximum annual payments,
including principal and interest, will be approximately $4.6 million. Upon
expiration of the term, the Partnership may purchase the equipment for $1.
The operating lease facility may be used to lease new gaming devices, related
systems, vehicles and equipment acceptable to the leasing company. The term of
the facility will be 48 months at an anticipated imputed interest rate of 10.1%.
Maximum annual payments under the facility will be approximately $3.4 million.
Upon expiration of the term, the Partnership will be granted an option to (i)
purchase all but not less than all of the equipment, by equipment category, at
fair market value as determined by an independent appraiser, (ii) renew the
facility for 12 months or (iii) return the equipment to the leasing company.
The unsecured credit facility will be available for 12 months beginning March 1,
1999. The Partnership will be required to give 45 days notice for each draw,
which must be a minimum of $1.0 million and a maximum of $2.0 million. The
Partnership will be required to pay 2.0% of each draw as a credit facility,
legal and syndication fee at the time of closing each draw. Each loan will
include a 2.0% original issue discount and be converted to a 24-month term note
fully amortizing at an interest rate of 13.0%.
A commitment fee totaling $140,500 was paid on execution of the lease facility
commitment on August 6, 1998. Upon closing the transaction on December 21, 1998,
the fee was applied to the security deposit of the leases, and additional fees,
rental payments and security deposits totaling $1,395,870 were paid.
F-16
47
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
5. LAND PURCHASE AND OPTION AGREEMENT
On May 22, 1996, Seven Circle Resorts, Inc. ("SCR"), an affiliated company,
executed a Purchase and Option Agreement (the "Purchase Agreement") to purchase
approximately 54.5 acres of property ("Sale Parcel") and to secure an option to
acquire approximately 22 additional acres of property ("Option Parcel") in Las
Vegas, Nevada, to construct and operate a resort hotel and casino. SCR assigned
the Purchase Agreement to the Partnership on August 15, 1996.
LAND PURCHASE AGREEMENT
On August 15, 1996, the Partnership closed on the purchase of the Sale Parcel
for $16,620,000. On January 7, 1998, the Partnership commenced grading and
construction on the site, having substantially complied with all conditions
outlined in the Purchase Agreement.
OPTION AGREEMENT
On August 15, 1996, the Partnership executed an option agreement ("Option
Agreement"), paying $583,900 for the right to purchase the Option Parcel. The
Option Agreement is valid until August 15, 2000.
The option purchase price is $5,839,000, plus an increase each anniversary date
equal to inflation for the previous year. On the subsequent anniversary dates of
the Option Agreement, the Partnership will be required to pay an additional
option fee equal to 10% of the purchase price then in effect.
The amount of each option fee that exceeds the original option fee of $583,900
will be credited towards the option purchase price at closing. the Partnership
can allow the option to lapse by failing to make an annual option fee payment.
On August 8, 1997, the Partnership paid and capitalized the second option fee of
$597,312.
On December 27, 1997, the Partnership assigned the Option Agreement to SCA
through a preferential distribution. A new company will be established to
develop the option parcel. Any carried interest held by SCA in the Option Parcel
development company and any other economic benefit derived from the Option
Parcel will be shared by the Partners based on their ownership interests in the
Partnership as of the date of the assignment.
6. COMMITMENTS AND CONTINGENCIES
LICENSING
As a condition of the Purchase Agreement, the Partnership, or an affiliate, was
required to obtain a Nevada gaming license prior to the commencement of
construction of the facility (see "Land Purchase Agreement" above). Seven Circle
Resorts of Nevada, Inc. ("SCRN"), an affiliated company, was formed for this
purpose.
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48
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Effective September 5, 1997, the Board granted a distributor's gaming license to
SCRN. The receipt of this gaming license indicates the Board and the Commission
have found SCRN and its key principals suitable. In order to operate a casino,
the Partnership will have to obtain a nonrestricted gaming license, for which it
applied in June 1998. In addition to findings of suitability, the receipt of
a nonrestricted gaming license requires the review by the Board and the
Commission of several aspects of the proposed casino, including the source of
funds, location, internal controls, surveillance systems and operating
procedures. The Board and Commission may act upon the suitability and/or license
certain key executives and other investors in the nonrestricted gaming
operations. Because of the common ownership and control shared by SCRN and the
Partnership, management believes the granting of SCRN's distributor's license
has increased the likelihood that the Partnership's nonrestricted license
application will be approved.
In the event the Partnership does not obtain a nonrestricted gaming license due
to the ownership by one or more of the minority partners, the other partners
have the right to purchase the noncomplying partner's ownership interest,
thereby enabling receipt of the gaming license.
CONSTRUCTION AGREEMENT
The Partnership executed a construction contract for the Resort on the basis of
the cost of work plus the fee payable to the general contractor, with a
guaranteed maximum price of $133 million.
On December 22, 1998, RAS Inc. and the Partnership executed a Settlement
Agreement (the "Settlement Agreement") with J.A. Jones Construction ("Jones")
concerning a dispute which has arisen with respect to the cost and timing of the
completion of the Resort Casino being developed by the Note Issuers. Pursuant to
the Settlement Agreement, the Partnership will execute change orders and pay to
Jones an additional $23.0 million (inclusive of $3.0 million previously budgeted
for the completion of the second hotel at the Resort) for the completion of the
Resort (the "Settlement Amount"), as set forth in the construction contract and
including additional work as set forth in the change orders and the Settlement
Agreement. In consideration of the execution of the change orders and the
additional payments by the Partnership, the Note Issuers will not be responsible
for any additional project costs necessary to accomplish substantial completion
of the Resort on or before April 30, 1999 except as otherwise expressly set
forth in the Settlement Agreement. Jones will be solely responsible, and
indemnify the Note Issuers, for all costs of substantial completion except as
otherwise expressly provided in the Settlement Agreement. If substantial
completion of the Resort has not occurred on or before April 30, 1999, all delay
and other penalties provided for in the construction contract shall commence as
of April 30, 1999 and Jones shall not be entitled to any amounts for general
conditions or any other payments of a similar nature from that date unless
certain savings specified in the construction contract are achieved. In the
Settlement Agreement, Jones has represented that it has reviewed all of the
construction documents and determined that the Resort, including the second
hotel, can be constructed "in a fashion and of a functionality, quality and
level of aesthetics reasonably inferable from the architects' design to create a
five-star rated property" and that Jones does not know of any reason that the
Resort cannot be constructed as described in the Settlement Agreement or
substantially completed or on before April 30, 1999 for the amount set forth in
the construction contract as modified by the Settlement Agreement.
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49
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition to the payment of the Settlement Amount, the Settlement Agreement
provides that depending upon Jones' profit under the construction contract as
determined pursuant to accounting methodology set forth therein, Jones may be
entitled to a bonus of up to $1.0 million provided that the Resort is
substantially completed on or before April 30, 1999 and Jones meets interim
construction progress milestones. The Settlement Agreement provides that under
no circumstances shall the bonus exceed $1.0 million; no bonus shall be paid if
the project is not substantially completed on or before April 30, 1999; and that
the maximum potential bonus shall be subject to a $200,000 reduction for each of
the progress milestones which are not met by Jones. In conjunction with the
execution of the Settlement Agreement, the Partnership has received an
additional $8.5 million equity contribution from SCH, an affiliate of SCA, in
exchange for a 17.0% partnership interest in the Partnership. SCA and SCH now
own an aggregate 93.6% partnership interest in the Partnership.
The Note Issuers believe that the terms of the Settlement Agreement are
consistent and in compliance with all applicable contractual covenants and
obligations to which the Note Issuers are bound including, but not limited to,
pursuant to the Credit Agreement and the Indenture with respect to the Senior
Subordinated Notes.
ROYALTY AGREEMENT
The Partnership is subject to a royalty agreement under which it will pay a
royalty fee of $1 million in each of the first five years commencing at the
earlier of the opening of the hotel and casino operations or 18 months following
commencement of construction. The royalty agreement and a related golf course
agreement will enable the Partnership to use the Summerlin name and will provide
the Partnership with up to 50% of the tee times on the adjacent Tournament
Players Club at the Canyons golf course. The royalty fee will increase on each
fifth anniversary thereafter by an amount equal to 15% of the annual amount paid
in the preceding five-year period. The Partnership has the right to secure up to
75% of the tee times by paying an additional $125,000 per year.
HOTEL FRANCHISE LICENSE AGREEMENT
On December 16, 1997, the Partnership entered into a hotel franchise license
agreement. The agreement gives the Partnership the right to operate under the
name of the franchisor, and to use its trade name, trademarks and systems in
connection with nongaming operations.
The term of the license is for 15 years. The Partnership has the right to
terminate the agreement effective December 31, 2005 or December 31, 2010 if the
franchisor has not met certain numbers of hotels or guest rooms under contract.
The franchisor will provide access to its central reservation system in order to
facilitate worldwide reservations at the hotel, in addition to providing
marketing services. The franchisor will provide training to the employees with
respect to the reservation and property management system.
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50
The Resort at Summerlin, Limited Partnership
Notes to Financial Statements (continued)
(a development stage company)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Partnership will pay the following fees:
- fixed fee, currently $200 per room per annum;
- variable fee of 3% of gross room revenue derived from reservations made
through the central reservation system;
- continuing fee of 1.75% of the hotel's gross revenues, as defined;
- a marketing fee of 1.5% of the hotel's gross revenues, as defined; and
- certain incidental program costs.
FUTURE DEVELOPMENTS
The Partnership has negotiated the right of first offer with the master
developer of Summerlin to develop an additional four designated gaming sites in
Summerlin. In the event that the Partnership cannot finance the development of a
gaming site under the Credit Agreement or the Indenture, the Partnership has the
ability to assign the rights to SCA or an affiliate.
MANAGEMENT FEES
Under the terms of the Partnership's limited partnership agreement, the
Partnership is to pay RAS Inc. a monthly fee equal to 3% of monthly net revenues
and 6% of EBITDA as compensation for management services provided to the
Partnership. This fee cannot exceed 10% of net revenues in any given month and
may be restricted by certain covenants in the Credit Agreement and the
Indenture.
F-20