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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1996
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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JCC HOLDING COMPANY
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
DELAWARE
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1023 CHERRY ROAD
MEMPHIS, TENNESSEE 38117
(Address of principal executive offices) (Zip code)
</TABLE>
(901) 762-8600
(Registrant's telephone number, including area code)
COPIES OF NOTICES AND OTHER COMMUNICATIONS SHOULD BE SENT TO:
<TABLE>
<S> <C>
MICHAEL N. REGAN JOHN M. NEWELL, ESQ.
SECRETARY LATHAM & WATKINS
JCC HOLDING COMPANY 633 WEST FIFTH STREET, SUITE 4000
1023 CHERRY ROAD LOS ANGELES, CALIFORNIA 90071-2007
MEMPHIS, TENNESSEE 38117 (213) 485-1234
(901) 762-8600
</TABLE>
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- --------------------------------------------------------- ---------------------------------------------------------
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE TO BE COMPLETED BY AMENDMENT
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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<PAGE>
EXPLANATORY NOTE
A JOINT PLAN OF REORGANIZATION, AS AMENDED AND MODIFIED (THE "PLAN OF
REORGANIZATION"), OF HARRAH'S JAZZ COMPANY, HARRAH'S JAZZ FINANCE CORP. AND
HARRAH'S NEW ORLEANS INVESTMENT COMPANY HAS BEEN FILED WITH THE UNITED STATES
BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF LOUISIANA. AS OF THE DATE ON WHICH
THIS FORM 10 REGISTRATION STATEMENT WAS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, THE PLAN OF REORGANIZATION AND THE TRANSACTIONS CONTEMPLATED THEREBY
HAD NOT BECOME EFFECTIVE. THERE CAN BE NO ASSURANCE THAT THE PLAN OF
REORGANIZATION WILL BECOME EFFECTIVE OR AS TO THE TIMING THEREOF.
THIS FORM 10 REGISTRATION STATEMENT HAS BEEN PREPARED ON A PROSPECTIVE BASIS
ON THE ASSUMPTION THAT, AMONG OTHER THINGS, THE PLAN OF REORGANIZATION AND THE
RELATED TRANSACTIONS CONTEMPLATED THEREBY WILL BE CONSUMMATED AS CONTEMPLATED BY
SUCH PLAN OF REORGANIZATION. BECAUSE THERE NECESSARILY CAN BE NO ASSURANCE AS TO
SUCH MATTERS, THE REGISTRANT WILL AMEND THIS FORM 10 REGISTRATION STATEMENT TO
THE EXTENT NECESSARY TO REFLECT ANY MATERIAL CHANGES TO THE INFORMATION
CONTAINED HEREIN THAT MAY RESULT FROM ANY AMENDMENT OF OR CHANGE TO SUCH PLAN OF
REORGANIZATION.
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ITEMS 1 AND 3. BUSINESS AND PROPERTIES.
THE COMPANY
JCC Holding Company ("JCC Holding" or the "Registrant") conducts its
business through its wholly-owned subsidiary, JCC Intermediary Company, a
Delaware corporation ("JCC Intermediary"), and JCC Intermediary's wholly-owned
subsidiary, Jazz Casino Corporation, a Louisiana corporation ("JCC" and,
together with JCC Intermediary and JCC Holding, the "Company"). The principal
asset of JCC Holding is the stock of JCC Intermediary, and the principal asset
of JCC Intermediary is the stock of JCC, which holds substantially all of the
assets of the Company's business. JCC Holding was incorporated on August 20,
1996 under Delaware law. JCC Holding's principal executive offices are located
at 1023 Cherry Road, Memphis, Tennessee 38117, and its telephone number is (901)
762-8600.
DEVELOPMENT PLANS
In connection with the Plan of Reorganization, as amended and modified (the
"Plan of Reorganization"), of Harrah's Jazz Company ("HJC"), JCC expects to
succeed to HJC's interest in a contract, as amended pursuant to the Plan of
Reorganization (the "Amended Casino Operating Contract"), to operate a
land-based casino in Orleans Parish, Louisiana and expects to succeed to HJC's
interest in a long-term lease for the site in New Orleans (the "City")
designated by law for the casino's development. JCC intends to develop, own and
operate the casino. The casino will be located in downtown New Orleans at the
foot of Canal and Poydras Streets on the site of the City's former convention
center (the "Rivergate"). The Rivergate site will be developed in four phases. A
temporary casino will open in two phases, a third phase will consist of the
shell construction of multipurpose non-gaming entertainment space on the second
floor of the premises, and a fourth phase will consist of a permanent casino at
the Rivergate site.
The first phase of the temporary casino ("Temporary Casino -- Phase I") is
scheduled to open, subject to receipt of the appropriate regulatory approvals,
by May 31, 1997 and will include a minimum of 50,000 square feet of net gaming
space, a 250-seat buffet and two parking garages. The second phase of the
temporary casino ("Temporary Casino -- Phase II") is scheduled to open, subject
to receipt of the appropriate regulatory approvals, by September 15, 1997 and
will consist of a minimum of 30,000 square feet of additional net gaming space,
or an aggregate of at least 80,000 square feet of net gaming space, and a
minimum of 15,000 square feet of multi-function, special event, food service and
meeting-room space on the first floor of the premises. Temporary Casino -- Phase
I and the Temporary Casino -- Phase II are referred to collectively herein as
the "Temporary Casino."
The third phase of the development of the Rivergate site will consist of
approximately 150,000 square feet of multipurpose non-gaming entertainment space
on the second floor of the premises constructed to the point at which the shell
of the structure is complete and the space is suitable for tenant build-out
("Second Floor Shell Construction -- Phase III"). A substantial area on the
first floor will necessarily be isolated from gaming operations and dedicated as
a staging and construction area to allow first floor gaming operations to be
conducted efficiently, without disruption and with the necessary security for
casino operations during the construction of Second Floor Shell Construction --
Phase III. The build-out of non-gaming tenant improvements on the second floor
will begin following completion of Second Floor Shell Construction -- Phase III
and continue through and after completion of Permanent Casino -- Phase IV (as
defined herein). Second Floor Shell Construction -- Phase III is scheduled to be
completed by September 15, 1997.
The fourth phase of the development of the Rivergate site is scheduled to be
completed and open, subject to receipt of the appropriate regulatory approvals,
by March 31, 1998 and will consist of up to 50,000 square feet of additional net
gaming space ("Permanent Casino -- Phase IV"). Permanent Casino -- Phase IV will
require JCC to build-out a minimum of 20,000 square feet of additional net
gaming space for an aggregate of not less than 100,000 square feet of net gaming
space on the first floor. In addition, if gaming operations under the Temporary
Casino meet specified financial targets, JCC's board of directors will have the
option to elect to construct, equip and open up to the entire
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50,000 square feet of additional net gaming space (for a total of 130,000 square
feet of net gaming space) as part of Permanent Casino -- Phase IV. As used
herein, "Casino" refers collectively to all four phases of development of the
Rivergate site.
Subject to the receipt of the appropriate regulatory approvals, operations
of the Temporary Casino will cease, and operations of the Casino as a permanent
casino under state law (the "Permanent Casino") will immediately commence upon
the earlier of (i) the date on which net gaming space equals or exceeds 100,000
square feet or (ii) March 31, 1998 (at which time the Amended Casino Operating
Contract will require that the Casino contain at least 100,000 square feet of
net gaming space).
RECENT REORGANIZATION
HJC is a Louisiana general partnership comprised of (i) Harrah's New Orleans
Investment Company ("HNOIC"), an indirect wholly-owned subsidiary of Harrah's
Entertainment, Inc. ("HET"), (ii) New Orleans/Louisiana Development Corporation
("NOLDC") and (iii) Grand Palais Casino, Inc. ("Grand Palais" and, collectively
with HNOIC and NOLDC, the "Partners"). HJC was formed on November 29, 1993 for
the purposes of developing, owning and operating a casino at the Rivergate site.
HJC entered into a contract with the Louisiana Economic Development and Gaming
Corporation (the "Casino Operating Contract") to develop and operate the casino
at the Rivergate site and entered into a lease with the City and the Rivergate
Development Corporation (the "RDC") for the Rivergate site (the "Ground Lease").
HJC, the RDC and the City also entered into a development agreement which
governed the design, development and construction of the casino and related
facilities (the "General Development Agreement") and the Open Access Program and
Plans regarding hiring goals and programs (the "Open Access Program and Plans").
HJC engaged Harrah's New Orleans Management Company (the "Manager"), an indirect
wholly-owned subsidiary of HET, to manage the operations of the casino.
On November 16, 1994, HJC closed a series of transactions to finance
development of the casino (the "Initial Financing"), including (i) a $170
million equity contribution by the Partners which consisted of cash, fixed
assets and project development expenses incurred by the Partners, (ii) the sale
of $435 million of 14 1/4% First Mortgage Notes due 2001 with Contingent
Interest (the "Old Bonds"), and (iii) bank credit facilities providing for loans
of up to $175 million aggregate principal amount (the "Old Bank Credit
Facilities"). In addition, at the time of the Initial Financing, HJC anticipated
that approximately $72 million of cash would be available from cash flow
generated by the operations of a casino (the "Basin Street Casino") to be
operated by HJC in the City's Municipal Auditorium on a temporary basis until
the casino at the Rivergate site was completed.
In January 1995, HJC began construction of the casino at the Rivergate site
and on May 1, 1995, the Basin Street Casino opened with approximately 76,000
square feet of net gaming space, 3,046 slot machines and approximately 85 table
games. The Basin Street Casino was open 24 hours a day, seven days a week,
except for approximately 65 hours from May 9 to May 11, 1995, when HJC was
forced to close the Basin Street Casino because of flooding in the New Orleans
area.
HJC had originally projected that the Basin Street Casino would have gross
gaming revenues of approximately $395 million per year, or an average of
approximately $33 million per month. Instead, gross gaming revenues from the
Basin Street Casino for the months of May, June and July 1995 were $11.2
million, $13.2 million and $14.8 million, respectively, and HJC suffered net
losses of $15.2 million, $14.0 million and $14.2 million, respectively, in those
three months. In an attempt to reduce such losses, in August 1995, HJC reduced
the work force in the Basin Street Casino by approximately 15%. HJC also reduced
the number of its slot machines in the Basin Street Casino from 3,046 to 2,150.
Gross gaming revenues were not adversely affected by these changes. Gross
revenues for August, September and October 1995 were $13.3 million, $12.0
million and $14.4 million, respectively. Operating results did not improve,
however. HJC posted net losses in August, September and October 1995 of $13.5
million, $12.3 million and $12.0 million, respectively.
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By November 1995, all of the Partners' equity contribution and substantially
all of the proceeds from the offering of the Old Bonds had been depleted.
Construction of the casino at the Rivergate site was approximately 60% complete
and, as a result of design modifications and project cost overruns, including
the addition of hard cost contingencies, the approved project budget for the
casino at the Rivergate site and the Basin Street Casino had increased from the
original amount of $815.0 million to $823.5 million; however, the actual cost of
constructing the casino at the Rivergate site as originally designed would
likely have exceeded this amount. In addition, as set forth above, the Basin
Street Casino had suffered significant operating losses in every month of
operation.
During a meeting on November 19, 1995, Bankers Trust Company ("Bankers
Trust"), acting as agent for the lending banks under the Old Bank Credit
Facilities, informed HNOIC, the partner of HJC responsible for financing matters
under HJC's partnership agreement, that the lending banks would not disburse
funds to HJC under the terms of the Old Bank Credit Facilities. Bankers Trust
advised HNOIC that after reviewing certain financial information of HJC,
including HJC's forecasts of reduced gross gaming revenues for the casino at the
Rivergate site, it believed that there was a material adverse change in the
financial prospects of HJC under the Old Bank Credit Facilities. Subsequently,
HNOIC advised Grand Palais and NOLDC of such developments. Faced with an absence
of funding because of Bankers Trust's action, on November 21, 1995, HJC decided
to close the Basin Street Casino and suspend construction of the casino at the
Rivergate site. HJC also decided to file for bankruptcy protection. On November
21, 1995, Bankers Trust declared the Old Bank Credit Facilities in default,
accelerated the maturity of and terminated the bank loans, and withdrew $157
million of the cash on deposit in the banks' cash collateral account at the
collateral agent under the Old Bank Credit Facilities.
On November 22, 1995 (the "Petition Date"), HJC and Harrah's Jazz Finance
Corp. ("Finance Corp."), its wholly-owned subsidiary, filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"), ceased operations of the Basin Street Casino and suspended
construction of the casino at the Rivergate site. HJC, its wholly-owned
subsidiary, Harrah's Jazz Finance Corp. ("Finance Corp."), HNOIC and HET
(collectively, the "Proponents") filed the Plan of Reorganization and related
Disclosure Statement (the "Disclosure Statement") with the Bankruptcy Court for
the Eastern District of Louisiana (the "Bankruptcy Court") on April 3, 1996, and
filed a first amended Plan of Reorganization and Disclosure Statement with the
Bankruptcy Court on June 17, 1996. The Disclosure Statement must be approved by
the Bankruptcy Court and delivered, together with the Plan of Reorganization, to
HJC's creditors and Partners. The Plan of Reorganization will become effective
if (i) the Plan of Reorganization receives the necessary affirmative votes from
HJC's creditors and/or otherwise meets the requirements of Section 1129 of the
Bankruptcy Code, (ii) it is confirmed by the Bankruptcy Court, and (iii) certain
conditions precedent to the effectiveness of the Plan of Reorganization are
satisfied or waived.
Under the Plan of Reorganization, the assets and business of HJC will vest
in JCC upon the date of consummation of the Plan of Reorganization (the
"Effective Date"). The Plan of Reorganization provides that, for federal income
tax purposes, such vesting shall be deemed to have occurred as a deemed exchange
of the Old Bonds by the holders of Old Bonds ("Bondholders") for such assets and
business, and deemed exchanges by the Bondholders of such assets and business
for the Class A Common Stock (as defined below), the New Notes (as defined
below) and the New Contingent Notes (as defined below). Pursuant to the Plan of
Reorganization, the capital stock of JCC Holding will consist of shares of Class
A Common Stock, par value $0.01 per share (the "Class A Common Stock"), and
shares of Class B Common Stock, par value $0.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock").
Pursuant to the Plan of Reorganization, an affiliate of HET (the "Harrah's
Investor") will purchase shares of Class B Common Stock in consideration of an
equity investment (the "New Equity Investment") in an amount equal to the
difference between $75 million and the amount of debtor-in-possession financing
that has been provided to HJC by HET or its affiliates. The Class B Common Stock
issued to the Harrah's Investor on account of the New Equity Investment and
other consideration will be 49.9% of the Common Stock. Under certain settlement
agreements contemplated under the Plan of Reorganization, Harrah's
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Investor will transfer (i) options to purchase a number of shares of Class B
Common Stock to be negotiated to the shareholders of NOLDC, and (ii) a number of
its shares to be negotiated to senior secured bondholders of Grand Palais. Also
pursuant to the Plan of Reorganization, shares of Class A Common Stock which
constitute 37.1% of the Common Stock will be distributed on a pro rata basis to
the Bondholders, and shares of the Class A Common Stock which constitute 13% of
the Common Stock will be issued to a disbursing agent for the benefit of
Bondholders who consent to releases as provided in the Plan of Reorganization.
The Harrah's Investor will contribute a number of its shares equal to 2% of the
Common Stock to a disbursing agent for the benefit of Bondholders who consent to
certain releases as provided in the Plan of Reorganization. In addition, the
Bondholders will receive their pro rata share of (i) $187.5 million in aggregate
principal amount of 8% Senior Subordinated Notes with Contingent Payments due
2006 of JCC (the "New Notes"), and (ii) Senior Subordinated Contingent Notes due
2006 of JCC (the "New Contingent Notes" and, together with the New Notes, the
"Notes"). See "-- Material Agreements -- Indentures."
Also in connection with the Plan of Reorganization, JCC expects to enter
into a $165 million construction credit facility (the "Construction Credit
Facility") and a $10 million working capital credit facility (the "Working
Capital Facility" and, together with the Construction Credit Facility, the "Bank
Credit Facilities"). See "-- Material Agreements -- Bank Credit Facilities." In
addition, the Plan of Reorganization is expected to effect amendments to the
Ground Lease, the General Development Agreement, the lease among HJC, the City
and the RDC for the Basin Street Casino (the "Basin Street Casino Lease"), and
other contracts and plans, including the Open Access Program and Plans. See "--
Material Agreements."
THE CASINO
As redesigned pursuant to the Plan of Reorganization, the Casino will
contain three themed areas named The Jazz Court, The Mardi Gras Court and The
Smuggler's Court. The remaining space will be used for additional gaming
activities, a food service area, casino support facilities, and multi-function,
special event and meeting-room space. The Jazz Court will have a raised domed
ceiling and occupy the center of the Casino. The Casino will be designed so that
individual gaming areas can be opened or closed to patrons depending on volume.
Parking for between 500 and 600 cars and approximately 145,000 square feet of
back-of-house and support areas will be provided underneath the main gaming
floor. Across Poydras Street and connected to the Casino by an underground
tunnel will be a newly constructed parking facility which will contain
approximately 1,550 parking spaces.
Subject to the approval of the Louisiana Gaming Control Board ("LGCB"), the
successor to the Louisiana Economic Development and Gaming Corporation
("LEDGC"), all games typically available in Las Vegas casinos except sports
betting will be permitted at the Casino, which, under existing law, will be open
24 hours per day, 365 days per year and will extend credit, with no loss or
wagering limits. See "-- Risk Factors -- Uncertainty Regarding Gaming Regulation
and Future Changes to the Law -- Uncertainty of New Regulation and
Interpretation of Gaming Act" and "-- Regulation -- New Legislation."
MARKETING STRATEGY
JCC's marketing strategy will be designed to attract primarily a broad
"middle market" of casino patrons. JCC does not intend to seek those casino
patrons who are most interested in discounts, but does expect to have a program
designed to attract both domestic and international premium gaming customers.
JCC expects to use marketing material emphasizing the Casino as a total
entertainment experience as well as New Orleans' unique music, food, history,
architecture and spirit. Additionally, JCC has agreed to pay the City $1 million
per year for the purpose of marketing the Casino as a part of the City's
destination marketing program. See "-- Material Agreements -- Amended Ground
Lease -- Term, Fees and Impositions."
DESCRIPTION OF THE MANAGER
JCC expects to engage the Manager to manage and develop operations of the
Casino. The Manager is an indirect wholly-owned subsidiary of HET and was formed
in May 1993 for the purpose of acting as the manager of the Casino. JCC will
hire and train a staff to operate the Casino and the Manager will assist JCC in
preparing all budgets and plans for its operation.
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HET's casino business commenced operations more than 58 years ago and,
through its operating subsidiaries and other affiliates, HET currently operates
casino entertainment facilities in nine states and New Zealand. Such facilities
include: casino hotels in the five traditional U.S. gaming markets of Reno, Lake
Tahoe, Las Vegas and Laughlin, Nevada and Atlantic City, New Jersey; riverboat
casinos in Joliet, Illinois; dockside casinos in Vicksburg and Tunica,
Mississippi, Shreveport, Louisiana and North Kansas City, Missouri; limited
stakes casinos in Central City and Black Hawk, Colorado; and casinos on two
Indian reservations, one near Phoenix, Arizona and the other north of Seattle,
Washington. As of December 31, 1995, HET, through its operating subsidiaries and
other affiliates, operated a total of approximately 547,200 square feet of
casino space, 15,335 slot machines, 801 table games, 5,736 hotel rooms or
suites, approximately 79,100 square feet of convention space, 56 restaurants, 5
showrooms and 4 cabarets.
COMPETITION
The Company believes that the Casino will face significant competition on a
national and regional scale from gaming operations in Mississippi and, on a
regional and local scale, from gaming operations in the State of Louisiana (the
"State"). The Company believes that the Casino will also compete for patrons on
a national and international scale with large casino hotel facilities in Las
Vegas, Nevada and Atlantic City, New Jersey. Unlike the Casino, the vast
majority of the Casino's competitors operate without restrictions on lodging,
food and beverage services, and entertainment. The Company believes that the
ability to provide such amenities is a considerable competitive advantage for
the Casino's competitors. See "-- Risk Factors -- Limits on Restaurants and
Lodging" and "-- Competition."
MISSISSIPPI. JCC will compete on a national, regional and local scale for
visitors with existing gaming facilities in Mississippi. There are currently 10
dockside casinos operating in the Mississippi Gulf Coast which are within 100
miles of New Orleans, and significant enlargements to many of these facilities
are underway or have been announced. Such enlargements include significant
expansions of hotel space, and additions of retail, convention space and golf
courses. In 1995, the State of Mississippi ranked third, behind only Nevada and
New Jersey, in gaming revenues per state. In particular, the Mississippi Gulf
Coast has recently emerged as a major gaming destination. Plans to build four
new dockside casinos in the Mississippi Gulf Coast have been announced, a
substantial number of applications to operate casinos in Mississippi have been
filed with the Mississippi Gaming Commission and the Company believes that
several additional gaming facilities may open in Mississippi by the end of 1997.
In addition, there have been recent announcements regarding a major gaming
destination on the Mississippi Gulf Coast which will include a golf course,
lodging, entertainment and food and beverage services. The Mississippi enabling
legislation allows dockside gaming and does not limit the number of casinos or
the square feet of gaming space in these facilities. In addition, unlike the
Casino, gaming facilities in Mississippi operate without restrictions on
lodging, food and beverage services, and entertainment, and several of such
facilities have recently expanded to enhance such services. See "-- Risk Factors
- -- Competition" and "-- Limits on Restaurants, Lodging, Retail and
Entertainment."
LOUISIANA. On a regional and local scale, JCC will compete with gaming
operations in Louisiana. In Louisiana, thirteen riverboats are operating,
including two riverboats in Orleans Parish, two other riverboats in the New
Orleans metropolitan area, two riverboats in Baton Rouge, four riverboats in
Lake Charles in western Louisiana and three dockside casinos in
Shreveport/Bossier City in northern Louisiana. An additional riverboat to be
located in Shreveport/Bossier City has been licensed and is expected to commence
operations and one additional riverboat license is available but has not yet
been awarded. The Louisiana Riverboat Economic Development and Gaming Control
Act (the "Riverboat Act") presently does not impose wagering or loss limits and
permits all forms of gaming with the exception of sports betting. Although the
Riverboat Act permits dockside gaming only at the facilities in the Shreveport
area, the Riverboat Act has been administered so as to allow riverboats to
refrain from cruising under certain circumstances. Riverboats that remain moored
under such circumstances are permitted to allow unlimited ingress and egress of
customers. There can be no assurance that the
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Riverboat Act will not be amended to permit unlimited dockside gaming or to
increase the number of permitted riverboats. JCC will also compete with
land-based gaming facilities in central Louisiana on Native American land. The
Tunica-Biloxi and Chitimacha tribes have each opened a casino near the towns of
Marksville and Charenton, respectively, and the Coushatta Indian tribe has
opened a casino near the town of Kinder. Each casino is located more than 105
miles from New Orleans.
NATIONAL AND INTERNATIONAL COMPETITION. JCC will compete for patrons on a
national and international scale with large casino hotel facilities located in
Las Vegas, Nevada and Atlantic City, New Jersey. Several new facilities have
recently opened in Las Vegas and certain existing facilities in Las Vegas and
Atlantic City have undergone major expansions. This construction and expansion
increased the number of hotel rooms and gaming positions in the Las Vegas and
Atlantic City markets and created several attractions which have enhanced the
appeal of those cities as tourist destinations. To a lesser degree, JCC will
also compete for international patrons with casinos in other parts of the world.
OTHER VENUES. Additional regional competition may be generated from
land-based or dockside casino facilities to be located in states which do not
currently allow casino gaming activities including Alabama and Texas. Bills
seeking to legalize gaming were introduced in both of these states. Although
these bills were not enacted, similar bills may be introduced in future
legislative sessions.
OTHER FORMS OF LEGAL WAGERING. JCC will compete for local customers with
other forms of legal wagering, including racetracks and off-track betting
("OTB") parlors. In addition, subject to a parish-by-parish referenda to decide
whether certain types of gaming activities should be allowed to operate in each
parish, Louisiana law presently permits restaurants, taverns, hotels and
licensed clubs to operate up to three video draw poker devices ("VDPs") per
location, qualifying truck stops may operate up to 50 VDPs per location, and
racetracks and OTB parlors may operate an unlimited number of VDPs per location.
VDP wagering and jackpots, however, are limited by law. Other forms of wagering,
including charitable gaming and a state lottery, will provide additional local
competition.
CONSTRUCTION AND DESIGN
The Proponents are currently in negotiations with contractors with respect
to full-scale construction and design of the Casino and expect that, upon the
Effective Date of the Plan of Reorganization, such construction and design will
be resumed in accordance with the modified design for the Casino and the
phased-in opening schedule. The Proponents are also currently in negotiations
with Broadmoor, a Louisiana general partnership, with respect to construction of
the Casino's parking facilities and expect that, upon the Effective Date of the
Plan of Reorganization, Broadmoor will resume construction of such facilities.
LEASE OF RIVERGATE SITE
JCC expects to enter into an amended sublease for the Rivergate site and
certain related property with the RDC and the City (the "Amended Ground Lease").
See "-- Material Agreements -- Amended Ground Lease."
ENVIRONMENTAL MATTERS
JCC will be subject to various federal, state and local laws, ordinances and
regulations that impose liability for the costs of cleaning up, and certain
damages resulting from, sites of past spills, disposals or other releases of
hazardous or toxic substances or wastes (the "Cleanup Laws"), and may be subject
to other laws, ordinances and regulations that govern activities or operations
that may have adverse environmental effects, such as discharges to air and
water, as well as handling and disposal practices for solid and hazardous or
toxic wastes. Pursuant to certain of such Cleanup Laws, current and past owners
and "operators" of real estate (including lessees) may be liable for the costs
of removal or remediation of certain hazardous substances on, in or about such
properties. Removal of such hazardous substances, in turn, may expose JCC to
potential responsibility for contamination at off-site locations. The liability
imposed by such laws is often joint and several, and without regard to
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whether the owner/operator knew of, or was responsible for, the presence of such
hazardous substances. In addition, the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the
owner/operator's ability to borrow using such real estate as collateral.
JCC will own and lease a number of properties, some of which were formerly
owned or leased by companies with operations that involved or may have involved
the use of hazardous substances. Some of the buildings on property owned or
leased by JCC may contain asbestos. The costs of asbestos removal may be
substantial. In addition, to the extent construction in, or demolition of, a
building containing asbestos is necessary, the presence of asbestos may
contribute substantially to construction costs.
The Company does not anticipate that future expenditures for compliance with
environmental laws and regulations will have a material adverse effect on the
Company. No assurances can be given, however, that such matters, or that
compliance with environmental laws and regulations that may be enacted in the
future, will not have a material adverse effect on the Company. See "-- Risk
Factors -- Environmental Matters."
EMPLOYEES
JCC will recruit and train employees to operate the Casino. Upon the opening
of Permanent Casino -- Phase IV, JCC expects to employ approximately 3,000
employees. JCC expects that a portion of the employees from the Basin Street
Casino will be rehired to work in the Casino upon its opening. See "-- Risk
Factors -- Lack of Experienced Personnel," "-- Open Access Program," "--
Material Agreements -- Amended General Development Agreement" and "-- Amended
Management Agreement."
TITLE INSURANCE
JCC intends to obtain title insurance policies to insure against certain
claims made against title to the site for the Casino and related real estate.
Such policies will consist of lenders' title insurance policies for the benefit
of the Bank Lenders (as defined herein) and the holders of the Notes and an
owners' title insurance policy for the benefit of the Company. Such policies
will be acquired before the Effective Date. The owners' policy will provide
coverage in an amount to be determined, but which will be calculated to fairly
represent the value of the insured assets of JCC and the business conducted
therein. The lenders' title insurance policies will provide coverage up to the
total amounts outstanding under the Bank Credit Facilities and Notes,
respectively. By endorsement, the title policies will provide that actual loss
will be measured by the use or uses to which the land and improvements are put
at the time of loss, or, if not then in use, as intended to be used pursuant to
the Amended Ground Lease. The term "actual loss" is not defined in the title
insurance policy. It has been generally construed to mean the diminution in
value of an insured mortgage resulting from an insured title defect, not to
exceed the value of the mortgagor's estate or interest in the land and
improvements. There has been no judicial construction of the endorsement
providing that such loss will be measured by the intended or actual use of the
mortgaged property. Actual loss will be determined either by voluntary agreement
with the title insurer or judicially. Due to uncertainty regarding the method
for valuing any loss and depending upon the nature and extent of an insured
title defect and its effect upon the use of the land and improvements, and
because a significant portion of the funds will not be used for improvements and
changes in the value of the land and improvements, the amount of any recovery
for such other title losses under the lenders' title policies cannot be
predicted and there can be no assurance that any recovery will not be in an
amount substantially less than the principal and interest due and owing to the
holders of the Notes and the Bank Lenders as a result of such title loss. The
title insurance policies will be reinsured through various title insurance
companies in the United States. The ability to successfully recover under the
policies is dependent on the creditworthiness of the title company and its
reinsurers at the time of the claim and any defenses that the title insurers and
its reinsurers may have. There can be no assurance that the title insurers will
be able to fulfill their financial obligations under the title insurance
policies. See "-- Risk Factors -- Title Insurance" and "Item 8. Legal
Proceedings."
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REGISTRATION STATEMENT
BEFORE MAKING AN INVESTMENT IN THE CLASS A COMMON STOCK. THIS REGISTRATION
STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. DISCUSSIONS CONTAINING SUCH
FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "ITEMS 1
AND 3. BUSINESS AND PROPERTIES," "ITEM 2. FINANCIAL INFORMATION," AND "ITEM 13.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA," AS WELL AS WITHIN THE REGISTRATION
STATEMENT GENERALLY. IN ADDITION, WHEN USED IN THIS REGISTRATION STATEMENT, THE
WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER
OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK
FACTORS SET FORTH BELOW AND THE MATTERS SET FORTH IN THE REGISTRATION STATEMENT
GENERALLY. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT
OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT
ANY FUTURE EVENTS OR CIRCUMSTANCES. THE COMPANY CAUTIONS THE READER, HOWEVER,
THAT THIS LIST OF RISK FACTORS MAY NOT BE EXHAUSTIVE.
LACK OF PROFITABILITY
In connection with the Initial Financing, HJC projected that revenues for
the 12 months that the Basin Street Casino was scheduled to operate would be
approximately $395 million, or an average of approximately $33 million per
month, and that revenues for the first 12 months of operations of HJC's casino
at the Rivergate site would be approximately $618 million. The actual results of
the Basin Street Casino proved to be significantly less than HJC's projections
for the Basin Street Casino. Gross revenues for the Basin Street Casino's six
full months of operations averaged approximately $13.2 million per month and,
for those six months, the Basin Street Casino posted significant negative
operating cash flows, and net losses in every month averaging approximately
$13.5 million per month. See "Item 2. Financial Information -- Management's
Discussion and Analysis of Financial Conditions and Results of Operations --
Results of Operations." As evidenced by the results of the Basin Street Casino,
the success of gaming in a market which has never supported significant gaming
operations, such as New Orleans, cannot be accurately predicted. The number of
visitors to a casino in a new gaming jurisdiction and their propensity to wager
cannot be predicted with any degree of certainty. There can be no assurance that
JCC will be able to operate the Casino in a profitable manner or generate
positive net earnings. See "-- Minimal Operating History," "-- Limitations on
Working Capital," "-- Limitations on Lodging and Food and Beverage Services" "--
Competition" and "-- Leverage and Ability to Meet Fixed Charge and Other Payment
Obligations."
LEVERAGE AND ABILITY TO MEET FIXED CHARGE AND OTHER PAYMENT OBLIGATIONS
Upon the Effective Date of the Plan of Reorganization, JCC's total long-term
indebtedness will be approximately $187.5 million. An additional $165 million is
expected to be borrowed under the Construction Credit Facility through the
opening of Permanent Casino -- Phase IV. In addition, JCC will have $10 million
of availability under the Working Capital Facility. JCC will also have payment
obligations to the RDC, a public benefit corporation formed for the purpose of
subleasing the site on which the Casino will be located, and the LGCB, the
successor to the LEDGC. JCC will have annual payment obligations aggregating 25%
of gross gaming revenue to the LGCB during the operation of the Temporary
Casino. Upon the opening of Permanent Casino -- Phase IV, JCC will have an
annual payment obligation to the LGCB of the greater of $100 million and between
19% and 25% of gross gaming revenues. See "-- Material Agreements -- Amended
Casino Operating Contract." In addition, upon the opening of Temporary Casino --
Phase I, JCC will have an annual minimum rent payment obligation of $14.2
million and $1.9 million of other general annual payments under the Amended
Ground Lease. In addition, JCC will be required to make significant payments
into a marketing fund and a capital replacement fund for refurbishments to the
Casino. See "-- Material Agreements -- Amended Ground Lease."
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There is no assurance that the Casino will achieve the level of gaming
activity and operating cash flow necessary to satisfy JCC's obligations under
the Notes, the Bank Credit Facilities and JCC's obligations to the RDC, the LGCB
and the City and its related subdivisions. Future operating results are subject
to significant business, economic, regulatory, political and competitive
uncertainties and contingencies, many of which are outside JCC's control. While
JCC expects that operating cash flow will be sufficient to cover expenses,
including interest costs, JCC may be required to reduce or delay planned capital
expenditures, sell assets, restructure debt or raise additional equity to meet
principal repayment and other obligations in later years. There is no assurance
that any of these alternatives could be effected on satisfactory terms, if at
all, because of, among other things, the special purpose nature of the Casino.
Alternative financings could impair the Casino's competitive position and reduce
its cash flow. See "Item 2. Financial Information -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
AVAILABILITY OF WORKING CAPITAL
The Company expects HET and its wholly-owned subsidiary, Harrah's Operating
Company, Inc. ("HOC" and, together with HET, the "Completion Guarantors"), to
agree to fund JCC's working capital shortfalls until the completion of
Second-Floor Shell Construction -- Phase III and to agree to guarantee that, at
such time, JCC will have available for working capital $5 million of cash and
$10 million of availability under the Working Capital Facility. See "-- Material
Agreements -- Completion Guarantees." Upon the completion of Second-Floor Shell
Construction -- Phase III, the Completion Guarantors' obligation to fund JCC's
working capital shortfalls will cease and JCC's sources of working capital will
be limited to the $5 million of cash, availability under the Working Capital
Facility and any cash flow from operations in excess of its fixed charges and
other payment obligations. See "-- Leverage and Ability to Meet Fixed Charge and
Other Payment Obligations." There can be no assurance that such sources of
working capital will be sufficient for JCC to operate the Casino and, if such
sources are not sufficient, there can be no assurance that JCC will be able to
obtain new sources of working capital on satisfactory terms, if at all.
COMPLETION GUARANTEES
The Company expects that pursuant to completion guarantees (the "Completion
Guarantees") in favor of holders of the Notes, the City/RDC and the State/LGCB,
the Completion Guarantors will agree to complete the Casino and will guarantee
the payment of project costs, pre-opening expenses and cashloads, and working
capital through Second Floor Shell Construction -- Phase III, and construction
costs with respect to Permanent Casino -- Phase IV. See "-- Material Agreements
- -- Completion Guarantees." The Completion Guarantees are subject to a number of
important exceptions and qualifications. The Completion Guarantors' obligations
under the Completion Guarantees are suspended during the pendency of any Force
Majeure events. "Force Majeure" events are defined as: (a) Strikes, lockouts,
labor disputes, inability to procure materials, failure of power; (b) changes in
governmental requirements applicable to the construction of a component or a
phase of the Casino, first effective after the submission and approval of the
design, and the orders of any governmental authority having jurisdiction over a
party, the project area, or the development (not including stop work orders due
to a building or other code violation); (c) changes in governmental requirements
by any governmental authority, first effective after the Effective Date of the
Plan of Reorganization (d) acts of God, tornadoes, hurricanes, floods,
sinkholes, fires and other casualties, landslides, earthquakes, epidemics,
quarantine, pestilence, abnormal inclement weather and extended periods of
rainfall during periods of any material excavation; (e) acts of a public enemy,
acts of war, terrorism, effects of nuclear radiation, blockades, insurrections,
riots, civil disturbances, governmental preemption in connection with a national
emergency, or national or international calamities; (f) any litigation not filed
or fomented by JCC, the Completion Guarantors, or any affiliates of the
Completion Guarantors in which any judgment, directive, ruling or order is
entered that restrains or substantially interferes with substantial completion
of any of the phases; and (g) any other causes beyond the reasonable control of
the party claiming delay and not the fault of the party claiming the delay. The
Completion Guarantees terminate upon the occurrence of any of the following: (i)
the termination of
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the Amended Ground Lease or the Amended GDA (as defined herein) other than as a
result of a breach or default by JCC, (ii) any action by the legislature or any
governmental agency the result of which is that gaming as currently proposed to
be conducted at the Casino is substantially diminished, (iii) JCC's rights under
the Amended Casino Operating Contract shall have been terminated in any material
respect, other than as a result of a breach by JCC, (iv) as to the guarantee of
the project costs but not as to the guarantee of the construction costs, a force
majeure shall have continued for more than one year from the first to occur of a
notice to the Completion Guarantors that the Completion Guarantors' obligation
to complete the Casino has taken effect, notwithstanding the Completion
Guarantors' best efforts to remove such force majeure, or (v) as to each phase,
upon the completion of such phase. See "-- Material Agreements -- Completion
Guarantees." JCC expects to obtain a performance bond from a surety for the
benefit of the Trustee and the holders of the Notes, the City, the RDC and the
LGCB and the State for each phase of construction of the Casino. The Completion
Guarantees are not for the benefit of, and may not be enforced by, holders of
equity of JCC Holding, including holders of Class A Common Stock.
ABILITY TO COMMENCE OPERATIONS AS SCHEDULED
DEVELOPMENT AND CONSTRUCTION. Construction projects, such as the Casino can
entail significant development and construction risks including, but not limited
to, labor disputes, shortages of material and skilled labor, weather
interference, unforeseen engineering problems, environmental problems (including
asbestos, polychlorinated biphenyl ("PCB"), lead and waste removal), geological
problems (including those resulting from construction activities below sea
level), construction, demolition, excavation, zoning or equipment problems and
unanticipated cost increases, any of which could give rise to delays or cost
overruns.
JCC intends to complete construction of the Temporary Casino -- Phase I,
Temporary Casino -- Phase II and Second Floor Shell Construction -- Phase III
utilizing an accelerated construction schedule which includes the use of
multiple shifts, early ordering of materials, fast tracking, and a seven-day
work week (when feasible). An accelerated construction schedule may cause actual
construction costs to exceed budgeted amounts. If the costs of developing,
constructing, equipping and opening the Casino exceed the proceeds from the Bank
Credit Facilities and the New Equity Contribution, JCC could be forced to draw
upon the Completion Guarantees, which are subject to important qualifications
and exceptions in the event certain force majeure or termination events occur.
See "-- Completion Guarantees." Drawings on the Completion Guarantees would have
the effect of increasing the Company's outstanding indebtedness. See "--
Material Agreements -- Completion Guarantees" and "-- Amended Completion Loan
Agreement."
The anticipated costs and opening dates for the Casino are based on budgets,
conceptual design documents and schedule estimates prepared by JCC with the
assistance of contractors. The final amounts would be subject to modification
based upon the occurrence of certain events, such as certain design change
orders and costs associated with certain types of construction delays,
including, in certain cases, force majeure events. There is no assurance that
the Casino will commence operations on schedule or that construction costs for
the Casino will not exceed budgeted amounts. Failure to complete the Casino on
budget or on schedule may have a material adverse effect on the Company.
CONSTRUCTION OBLIGATIONS, PERMITS AND APPROVALS. An amended General
Development Agreement (the "Amended GDA") to be entered into among JCC, the City
and the RDC, and to be effective upon the Effective Date of the Plan of
Reorganization, will require JCC to open Temporary Casino -- Phase I on or
before May 31, 1997, Temporary Casino -- Phase II and Second Floor Shell
Construction -- Phase III on or before September 15, 1997, and Permanent Casino
- -- Phase IV on or before March 31, 1998. Failure to complete the phases of the
Casino within these time frames, subject to Force Majeure or Excusable Delay (as
defined herein), will result in liquidated damages under the Amended GDA. See
"-- Material Agreements -- Amended General Development Agreement." In addition,
a failure to diligently proceed with construction of the Casino would constitute
an event of default under the Amended Ground Lease. See "-- Cross Defaults," "--
Uncertain Political Environment," "-- Uncertainty Regarding Gaming Regulations,"
"-- Litigation," "-- Applicability of Public
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Works Act," "-- Material Agreements -- Amended General Development Agreement,"
"-- Amended Ground Lease," and "-- Amended Casino Operating Contract."
Difficulties in obtaining any of the requisite licenses, permits (including
building permits), allocations and authorizations from regulatory authorities
could increase the cost of, or delay the construction or opening of the Casino
or otherwise affect its design. Furthermore, there is no assurance that the
necessary approvals or permits will be obtained to permit the construction or
occupancy of the Casino. See "-- Uncertain Political Environment."
ZONING AND LAND USE. JCC is required to obtain certain conditional use
approvals from the City for the Casino and the parking facilities for the
Casino. JCC expects to obtain such conditional use approvals for the Casino and
its operations. No assurances can be given, however, that JCC will receive the
required approvals. The failure to obtain required approvals could have a
material adverse effect on the Company. See "-- Uncertain Political
Environment."
Because the Casino does not comply with all requirements of the City's
zoning ordinance (the "Zoning Ordinance"), the Company expects that JCC will
request and receive a number of waivers from the City Council. Some uncertainty
exists, however, as to the City Council's authority to grant such waivers. In
addition, the Zoning Ordinance may be subject to differing interpretations and,
depending upon the interpretation, certain required waivers may not be requested
or granted. Accordingly, no assurances can be given that the Casino will comply
with the Zoning Ordinance in all material respects. Failure to comply with the
Zoning Ordinance may have a material adverse effect on the Company.
CONDITIONS TO DISBURSEMENT UNDER BANK CREDIT FACILITIES
JCC expects to enter into the Bank Credit Facilities to finance development
of the Casino and to provide working capital. The Bank Credit Facilities,
however, will provide that prior to each disbursement of funds, the following
conditions must be met: (i) all representations and warranties made by JCC upon
the closing of the Bank Credit Facilities must be true in all material respects;
(ii) no material adverse change relating to JCC or its subsidiaries may have
occurred since the date of the latest audited financial statements delivered to
the Bank Lenders (as defined herein) prior to the closing of the Bank Credit
Facilities; and (iii) no event of default shall have occurred and be continuing.
If such conditions are unable to be met, JCC would be deprived of its primary
source of construction and working capital financing. There can be no assurance
that such conditions will be able to be met for the duration of the Bank Credit
Facilities, and the inability of JCC to obtain funds under the Bank Credit
Facilities would have a material adverse effect on the Company. See "-- Material
Agreements -- Bank Credit Facilities."
CERTAIN LIMITATIONS ON CORPORATE CONTROL
Prior to the Transition Date (as defined herein), except upon the occurrence
of certain events, the board of directors will consist of six directors, with
three directors elected by the holders of Class A Common Stock ("Class A
Directors") and three directors elected by the holders of shares of Class B
Common Stock ("Class B Directors"). See "Item 11. Description of Registrant's
Securities to be Registered -- Board of Directors." With the exception of
certain significant transactions, the Class B Directors, as members of the
Gaming Committee of the board of directors, will generally supervise the
day-to-day activities of the Company. See "Item 11. Description of Registrant's
Securities to be Registered -- Committees of the Board." Prior to the Transition
Date, HET has agreed to own 51% of the outstanding shares of Class B Common
Stock. Consequently, prior to the Transition Date, HET will be able to elect all
of the directors who will exercise day-to-day control over the Company. In
addition, JCC has engaged the Manager, an indirect wholly-owned subsidiary of
HET, to manage the operations of the Casino. See "-- Material Agreements --
Amended Management Agreement." As a result of HET's ability to elect the Class B
Directors and the engagement of the Manager to operate the Casino, the ability
of holders of Class A Common Stock to influence the day-to-day operations of the
Company may be limited.
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DEPENDENCE OF VALUES ON ESTIMATES OF FUTURE PERFORMANCE
The Company's pro forma unaudited condensed consolidated financial
statements have been prepared in accordance with the requirements of AICPA
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires a determination of
the Company's reorganization value, which is the estimated fair value of the
reorganized entity as a going concern at the time it emerges from bankruptcy.
The Company's estimate of its reorganization value will be based on a number of
assumptions, including the assumptions upon which the Company's estimates of
future operating results are based. The valuation necessarily assumes that the
Company will achieve the estimates of future operating results in all material
respects. If these results are not achieved, the resulting values could be
materially different. See "Item 13. Financial Statements and Supplementary Data
- -- Unaudited Pro Forma Condensed Consolidated Financial Information."
POLITICAL ENVIRONMENT
The development and construction of the Casino has been and will continue to
be, and the operation of the Casino may be, affected by the state and local
political environments, both of which are uncertain. The State and City
governments may have differing political objectives and constituencies, and each
of them has sought to control the process governing the development of the
Casino. In so doing, the State and City governments have, in some instances,
imposed obligations on JCC described herein which may be mutually inconsistent.
Although JCC will seek to comply with all applicable requirements that are
imposed, its inability to comply with inconsistent requirements may have a
material adverse effect on the Company.
The State and City have used, and may in the future use, the additional
governmental approvals required to be obtained by JCC to develop, construct and
open the Casino as an opportunity to request additional funds and other
obligations from JCC and thereby may delay the development and opening of the
Casino. No assurance can be given that the State and the City governments will
not seek to raise additional funds from or impose additional obligations on JCC
or the Casino or that these factors will not have a material adverse effect on
the Company. See "-- Taxation."
The enactment and implementation of gaming legislation in Louisiana and the
development of the Casino have been the subject of lawsuits, claims and delays
brought about by various anti-gaming and preservationist groups and competitors
of the Casino. To date, these lawsuits and claims, as well as contract
negotiations with State and City governmental entities, have significantly
delayed development of the Casino. See "-- Litigation" and "Item 8. Legal
Proceedings." Additional lawsuits and the uncertain political environment may
result in further delays, all of which could have a material adverse effect on
the Company.
UNCERTAINTY REGARDING GAMING REGULATION AND FUTURE CHANGES TO THE LAW
REGULATORY ENFORCEMENT ACTIONS. The ownership and operation of the Casino
is subject to pervasive regulation by LGCB and the State Police under the
Louisiana Economic Development and Gaming Corporation Act (the "Gaming Act") and
the rules and regulations promulgated thereunder from time to time (the "Rules
and Regulations"). The LGCB is empowered to sanction JCC and all persons that
hold permits, licenses or are required to be found suitable for violations of
the Gaming Act and the Rules and Regulations. Failure of JCC and its employees,
JCC Intermediary or JCC Holding or the Manager to comply with the Gaming Act,
the Rules and Regulations or regulatory requirements in the Amended Casino
Operating Contract could have material adverse consequences including the
imposition of fines, the suspension of rights granted by the Amended Casino
Operating Contract and, under certain circumstances, the revocation or
termination of the Amended Casino Operating Contract. See "-- Regulation --
Louisiana Gaming Act" and "-- Material Agreements -- Amended Casino Operating
Contract."
SUITABILITY OF JCC AND AFFILIATED PERSONS. JCC cannot operate the Casino
unless and until certain persons required to be found suitable are found
suitable by LGCB, including, without limitation, JCC, JCC Intermediary, JCC
Holding, the Manager and certain officers and directors of such
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companies. See "-- Regulation -- Louisiana Gaming Act." While HJC, the Manager
and certain of their respective partners, shareholders, officers and directors
were previously found suitable after extensive background investigations by
LEDGC (the regulatory body that previously maintained jurisdiction over the
Casino), LEDGC's successor, LGCB (and its investigatory arm, the Louisiana State
Police), has not issued any suitability findings in connection with the above
stated entities and persons. There can be no assurance that the State Police
will complete its investigations and that LGCB will find all such entities and
persons suitable in a timely fashion or that such findings will be issued.
Failure to timely receive all required suitability findings could have material
adverse consequences for JCC.
JCC, JCC Holding and the Manager and all other persons and entities required
to be found suitable, once found suitable, have an ongoing obligation to
maintain their suitability throughout the term of the Amended Casino Operating
Contract. The failure of such entities and persons to maintain their suitability
could result in a finding of unsuitability of JCC or the Manager and in the
revocation of the Amended Casino Operating Contract. The suitability of JCC and
the Manager may be adversely affected by persons associated with them and their
respective affiliates, over whom JCC and the Manager have no control. See "--
Material Agreements -- Amended Casino Operating Contract," and "-- Regulation --
Louisiana Gaming Act."
Furthermore, the Gaming Act, the Rules and Regulations, and the Amended
Casino Operating Contract impose certain suitability requirements with respect
to the holders of the Notes and holders of equity in JCC and its affiliates,
including JCC Holding. To the extent any holder of the Notes or the Common Stock
is required to be suitable and fails to be so found, such holder may be required
to divest such Notes or Common Stock at substantially below the market-prices
for such securities. To the extent such holder fails to divest, JCC will have
the right to redeem the Notes and prior thereto, such holder will forfeit all
benefits of ownership. Any failure to obtain required qualifications or
approvals may, by virtue of requirements imposed on JCC or JCC Holding, subject
such holders to certain requirements, limitations or prohibitions, including a
requirement that such holders liquidate their Notes or Common Stock at a time or
at a cost that is otherwise unfavorable for such holders. There can be no
assurance that the Gaming Act will not be interpreted, that additional Rules and
Regulations will not be implemented or that new legislation will not be enacted
to impose additional restrictions on, or otherwise prohibit, certain persons
from holding securities of JCC or JCC Holding, including the Common Stock and
the Notes, or cause such holders to liquidate such securities at a time or at a
cost that is otherwise unfavorable for such holders. See "-- Regulation --
Louisiana Gaming Act."
LICENSING AND PERMITTING OF EMPLOYEES AND VENDORS. Under the Gaming Act and
the Rules and Regulations, employees of JCC are required to obtain certain
licenses and permits from the LGCB and the State Police before they may commence
employment at the Casino. Such licensing and permitting requires the submission
of an application, the payment of related fees and appropriate investigation by
the regulatory authorities. There can be no assurances that such licenses or
permits will be obtained. Failure to obtain the licenses and/or permits for
employees of JCC necessary to operate the Casino on a timely basis could have a
material adverse effect on the Company.
Under the Gaming Act and the Rules and Regulations, certain manufacturers,
distributors and suppliers of gaming devices, junkets, goods or services to the
Casino, as well as any person furnishing services or property to JCC in exchange
for payments based on earnings, profits or receipts from gaming operations, and
other persons deemed necessary by LGCB, may be required to obtain a license or
permit from LGCB or the State Police in order to conduct business with JCC.
There can be no assurance that such licenses or permits will be obtained by such
vendors. The failure of any such vendors to timely obtain any required licenses
or permits on a timely basis could have a material adverse effect on the
Company.
UNCERTAINTY OF NEW REGULATION AND INTERPRETATION OF GAMING ACT. In the
Spring of 1996, a bill was enacted by the Louisiana Legislature that, among
other things, dissolved the LEDGC, the regulatory board that had jurisdiction
over the Casino, and created a new board, the LGCB, to oversee
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future regulation of the Casino with the assistance of the State Police. See "--
Regulation -- Louisiana Gaming Act." Although the existing Rules and Regulations
promulgated by LEDGC remain in force and effect at this time, the LGCB is
empowered to repeal such Rules and Regulations and to promulgate its own Rules
and Regulations. JCC and the Manager have little operational or other experience
with LGCB (or the State Police) and the new regulatory framework established by
the State Legislature. There is no assurance that the adoption of new rules and
regulations or the repeal of existing rules and regulations will not impose
obligations, restrictions or costs that could interfere with JCC's casino
operations, cause JCC to violate agreements to which it is a party or that
otherwise have a material adverse effect on JCC. See "-- Regulation -- Louisiana
Gaming Act." There is also no assurance that the interpretation and
implementation of the Gaming Act and the Rules and Regulations by LGCB and the
State Police will not impose obligations, restrictions or costs that could
interfere with JCC's casino operations, that could cause JCC to violate
agreements to which it is a party or that could otherwise have a material
adverse effect on JCC.
UNCERTAINTY OF AND IMPACT OF FUTURE LEGISLATION. Because legalized gaming
is a relatively new industry in the State of Louisiana, there has been
significant attention by the Legislature over the past few years to gaming
related bills dealing with a wide range of subjects that could impact the Casino
project. At one time or another, bills have been introduced to, among other
things, constitutionally repeal all forms of gaming (including the land-based
casino), increase taxes on casinos, limit credit that may be extended by casinos
and limit days and hours of operations. There is no assurance that future
legislation similar to the bills identified above or that otherwise effect
casino operations will not be enacted by the Legislature that would impose
obligations, restrictions or costs that could interfere with JCC's casino
operations, cause JCC to violate agreements to which it is a party or otherwise
have a material adverse effect on JCC.
In the Spring of 1996, a special session of the Legislature was convened to
consider, among other things, certain legislation proposed by the Governor that
impacted the gaming industry and, in certain instances, had material adverse
impacts on HJC. Among other things, the Legislature enacted into law a bill
calling for parish-by-parish referenda during the November 5, 1996 general
election (the "Local Option Election") to decide on an item-by-item basis
whether riverboat gaming, video poker gaming and, in Orleans Parish, the
land-based casino, should be permitted to operate in each parish throughout the
State. The local option bill purports to provide that in the event voters in
Orleans Parish vote not to allow the operation of land-based casino gaming in
that parish, the "operation of land-based casino gaming existing in the parish
shall be discontinued." A condition precedent to the Effective Date of the Plan
or Reorganization is that the Local Option Election shall result in the approval
of the Casino by the electorate in Orleans Parish. However, even assuming that
the vote is in favor of authorizing the land-based casino, there can be no
assurance that similar legislation will not be enacted in the future that could
lead to the suspension or cessation of gaming operations at the Casino.
The Company expects that the Amended Casino Operating Contract will be
negotiated based on the current terms of the Gaming Act. There can be no
assurance, however, that the State will not amend or repeal the Gaming Act or
enact new legislation that modifies or revokes JCC's right to conduct gaming
activities or otherwise materially adversely affect JCC's business and
operations, including legislation increasing competition by authorizing
additional riverboats or other forms of gaming or authorizing dockside gaming or
other land-based casinos in Orleans Parish or elsewhere in the State. There can
be no assurance that the Company will be successful in preventing such
legislative changes or that the Company can recover damages as a result thereof.
STATE IMMUNITY FOR BREACH OF CONTRACT. The Company expects that the Amended
Casino Operating Contract will create certain material rights in JCC with
respect to the Casino. See "-- Material Agreements -- Amended Casino Operating
Contract." Under the Amended Casino Operating Contract, the Company expects that
JCC will be entitled to bring an action to compel specific performance or any
other remedy permitted or provided by law in the event LGCB breaches the
contract and fails to cure such breach. In the Spring of 1996, however, a
special session of the State Legislature enacted a
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bill that purports to amend the Gaming Act to provide the State and all of its
subdivisions (including the LGCB) with immunity from suit and liability for any
action or failure to act on the part of the State or any of its political
subdivisions (including LGCB). See "-- Regulation -- Louisiana Gaming Act."
There can be no assurance that in the event JCC seeks to enforce its rights
under the Amended Casino Operating Contact, that a court would allow the suit to
proceed. Failure of the LGCB to comply with the Amended Casino Operating
Contract could have a material adverse effect on JCC, which effect would be
exacerbated if a court applied the immunity statute and precluded JCC from
seeking recourse in a judicial forum.
POSSIBLE FEDERAL LEGISLATION. In August 1996, the President signed into law
a bill that creates a federal commission to examine the rapid growth of the
gambling industry and its impact on American society. The law creates a
nine-member National Gambling Impact and Policy Commission to study the economic
and social impact of gaming and report its findings to Congress and the
President within two years. The commission could recommend changes in state or
federal gaming policies. The President, House Speaker and Senate Majority Leader
are each authorized to select three of the commission's members. Additional
federal regulation or taxation of the gaming industry could occur as a result of
investigations or hearings by the committee, which could have a material adverse
effect on the Company.
LIMITS ON RESTAURANTS, LODGING, RETAIL OPERATIONS AND ENTERTAINMENT
The Gaming Act and the Rules and Regulations prohibit JCC from directly
offering seated restaurant facilities with table food service for patrons of the
Casino. The Gaming Act and the Rules and Regulations do permit JCC to offer
limited cafeteria style food services for employees and patrons, although no
food may be given away or subsidized within the Casino by JCC or any licensee,
and seating may not exceed 250 persons. The Gaming Act and the Rules and
Regulations also permit JCC, under certain circumstances, to contract with local
restaurant owners to provide food at designated areas within the Casino. JCC is
also prohibited from offering lodging in the Casino, or engaging in any practice
or entering into any business relationships to give any hotel, whether or not
affiliated with JCC, any advantage or preference not available to any similarly
situated hotels. See "-- Regulation -- Louisiana Gaming Act." Neither JCC, the
Manager nor HET has operated a land-based casino of the size of the Casino
without associated hotel and full-service food operations. Unlike the Casino,
the vast majority of the Casino's competitors operate without restrictions on
lodging, food and beverage services, and entertainment, and the Company believes
that the ability to provide such amenities is a considerable competitive
advantage for the Casino's competitors. See "-- The Company -- Competition."
There is no assurance that JCC and the Manager will be able to operate and
manage the Casino on a profitable basis without such amenities.
COMPETITION
The gaming industry is characterized by intense competition among companies
which, in many instances, have greater resources than will JCC. The Company
believes that the Casino will face significant competition on a national,
regional and local scale from gaming operations in Mississippi and, on a
regional and local scale, from gaming operations in Louisiana. The Company
believes that the Casino will also compete for patrons on a national and
international scale with large casino hotel facilities in Las Vegas, Nevada and
Atlantic City, New Jersey. In addition, unlike the Casino, the vast majority of
the Casino's competitors operate without restrictions on lodging, food and
beverage services, and entertainment. The Company believes that the ability to
provide such amenities is a considerable competitive advantage for the Casino's
competitors. See "-- Limitations on Lodging and Food and Beverage Services" and
"-- The Company -- Competition."
JCC will compete for visitors on a national, regional and local scale with
existing gaming facilities in Mississippi. In 1995, the State of Mississippi
ranked third, behind only Nevada and New Jersey, in gaming revenues per state.
In particular, the Mississippi Gulf Coast has recently emerged as a major gaming
destination. There are currently ten dockside casinos operating in the
Mississippi Gulf Coast which are within 100 miles of New Orleans, and
significant enlargements to many of these facilities
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are underway or have been announced. Such enlargements include significant
expansions of hotel space, and additions of retail convention space and golf
courses. Plans to build four new dockside casinos in the Mississippi Gulf Coast
have been announced, a substantial number of applications to operate casinos in
Mississippi have been filed with the Mississippi Gaming Commission and JCC
believes that several additional gaming facilities may open in Mississippi by
the end of 1997. In addition, there have been recent announcements regarding a
major gaming destination on the Mississippi Gulf Coast which will include a golf
course, lodging, entertainment and food and beverage services. The Mississippi
enabling legislation allows dockside gaming and does not limit the number of
casinos or the square feet of gaming space in these facilities. In addition,
unlike the Casino, gaming facilities in Mississippi operate without restrictions
on lodging, food and beverage services, and entertainment, and several of such
facilities have recently expanded to enhance such services. See "-- The Company
- -- Competition."
On a regional and local scale, JCC will compete with gaming operations in
Louisiana. In Louisiana, thirteen riverboats are operating, including two
riverboats in Orleans Parish, two other riverboats in the New Orleans
metropolitan area, two riverboats in Baton Rouge, four riverboats in Lake
Charles in western Louisiana and three dockside casinos in Shreveport/Bossier
City in northern Louisiana. An additional riverboat to be located in
Shreveport/Bossier City has been licensed and is expected to commence operations
and one additional license is available but has not been awarded. The Riverboat
Act does not impose wagering or loss limits and permits all forms of gaming with
the exception of sports betting. Although the Riverboat Act permits dockside
gaming only at the facilities in the Shreveport area, the Riverboat Act has been
administered so as to allow riverboats to refrain from cruising under certain
circumstances. Riverboats that remain moored under such circumstances are
permitted to allow unlimited ingress and egress of customers. There can be no
assurance that the Riverboat Act will not be amended to permit unlimited
dockside gaming or to increase the number of permitted riverboats. JCC will also
compete with land-based gaming facilities in central Louisiana on Native
American land. The Tunica-Biloxi and Chitimacha tribes have each opened a casino
near the towns of Marksville and Charenton, respectively, and the Coushatta
Indian tribe has opened a casino near the town of Kinder. Each casino is located
more than 105 miles from New Orleans.
JCC will also compete nationally with established and proposed casino hotel
operations in Las Vegas, Nevada and Atlantic City, New Jersey. Several new
facilities have opened in Las Vegas and certain existing facilities in Las Vegas
and Atlantic City have undergone major expansions. This construction and
expansion increased the number of hotel rooms and gaming positions in the Las
Vegas and Atlantic City markets and created several attractions which have
enhanced the appeal of those cities as tourist destinations.
JCC may also face competition from operations in states such as Alabama and
Texas where bills were introduced seeking to legalize gaming. Although these
bills were not passed, similar pieces of legislation may be introduced in future
legislative sessions. To a lesser extent, JCC will compete for local customers
with other forms of legal wagering including video poker gaming in non-casino
facilities, charitable gaming, pari-mutual wagering and state lotteries.
In the Company's opinion, its principal competitors will be the gaming
facilities located on the Mississippi Gulf Coast as well as the riverboats
located in Orleans Parish and in the New Orleans metropolitan area, with the
riverboats in other areas of the State and the casinos operated by Indian tribes
affording less significant competition.
REMEDIES REGARDING ADDITIONAL LAND-BASED CASINOS
The Gaming Act presently restricts land-based casino gaming to the Rivergate
site. However, there can be no assurance that the State will not enact
legislation to permit competing land-based casinos at other sites or in parishes
other than Orleans Parish, including other parishes in the New Orleans
metropolitan area, the operation of which could have a material adverse effect
on JCC's operations. As to Orleans Parish, under the Gaming Act, if at any time
while the Casino Operating
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Contract is in effect, a "land-based casino gaming establishment" in addition to
the Casino is authorized to operate in Orleans Parish, JCC would be relieved of
the obligation to remit to the LGCB the compensation required under the
provisions of the Amended Casino Operating Contract. However, the Gaming Act
further provides that, among other things, gaming operations upon riverboats in
accordance with the Riverboat Act shall not constitute the authorization of
additional land-based casino gaming operations which relieves the casino gaming
operator of payment of compensation to the LGCB. In this respect, state laws
generally requiring riverboats to sail in accordance with their schedules and
safety conditions are frequently unenforced.
In addition, the Governor has signed into law a bill which, among other
things, purports to retroactively amend the Gaming Act: (i) to state the conduct
of gaming operations upon riverboats in accordance with the provisions of the
Riverboat Act or otherwise while upon a designated waterway while temporarily at
dockside does not constitute the authorization of additional land-based casino
gaming operations which relieves the operator of the Casino of the obligation to
pay compensation to the LEDGC (and the LGCB as its successor); and (ii) to
provide that governmental inaction which results in the operation of another
land-based casino in Orleans Parish shall not relieve the operator of the Casino
of the obligation to pay compensation to the LEDGC (and the LGCB as its
successor). This bill also purports to provide that in the event of litigation
between the operator of the Casino and either LEDGC (and the LGCB as its
successor) or the State or any of its political subdivisions, the operator of
the Casino must continue to make all payments to LEDGC (and the LGCB as its
successor) and to the State and any of its political subdivisions as required by
law during the pendency of such litigation, and that any failure to make the
required payments will render the operator of the Casino unsuitable. See "--
Regulation -- Louisiana Gaming Act." There is no assurance that JCC will not
face the prospect of competing against dockside riverboat gaming operations in
Orleans Parish without being relieved of its obligation to remit to the LGCB the
compensation required under the Amended Casino Operating Contract, a
circumstance that could have a material adverse effect on JCC's operations. See
"-- The Company -- Competition."
MINIMAL OPERATING HISTORY
Although HJC and the Manager were involved in construction of the Casino and
operated the Basin Street Casino for approximately six months, JCC has no
operating history and has never been involved in construction or operating a
casino. Although certain of the Registrant's board members and certain officers
of the Manager have experience operating casinos, none of these individuals have
operated a land-based casino of the size of the Casino without associated hotel
and full-service food operations. JCC will rely on the Manager to manage the
Casino and will grant it a significant degree of independence in operating
matters, including day-to-day financial control. See "-- Material Agreements --
Amended Management Agreement." There can be no assurance that JCC and the
Manager can operate the Casino on a profitable basis.
CROSS DEFAULTS
An event of default under the Amended Casino Operating Contract, the Amended
Ground Lease, the Amended Management Agreement, the indentures in respect of the
Notes (the "Indentures"), or the Bank Credit Facilities will constitute an event
of default under certain of the other of such agreements. For example, a default
under the Amended Management Agreement results in cross defaults under the
Amended Casino Operating Contract and the Amended Ground Lease, and a default
under the Amended General Development Agreement or the Amended Casino Operating
Contract results in a cross default under the Amended Ground Lease. The
occurrence of an event of default under any of such agreements and the effect of
any resulting cross-defaults would have a material adverse effect on the
Company.
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NO PRIOR MARKET FOR THE CLASS A COMMON STOCK
JCC Holding will use its best efforts to cause the Class A Common Stock to
be listed on a national securities exchange or quoted on the NASDAQ-NMS upon the
Effective Date, but there can be no assurance that JCC Holding will be
successful in causing the Class A Common Stock so listed or quoted.
The shares of Class A Common Stock are an issue of new securities, have no
established trading market and may not be widely distributed. There can be no
assurance that a trading market for the Class A Common Stock will develop. If a
trading market does develop, the prices of the Class A Common Stock may be
volatile and liquidity may be limited. If a market for the Class A Common Stock
does not develop, holders of Class A Common Stock may be unable to resell the
Class A Common Stock for an extended period of time, if at all. Future trading
prices of the Class A Common Stock will depend upon many factors, including,
among other things, prevailing interest rates, JCC's operating results,
competitive factors and the markets for similar securities which are subject to
various pressures, including, but not limited to, fluctuating interest rates.
CLASS A COMMON STOCK ELIGIBLE FOR FUTURE SALE
Pursuant to the Plan of Reorganization, JCC Holding has agreed that, (i)
upon the request of any holder of shares of Class A Common Stock who is
reasonably required by law to register public resales of such shares, JCC
Holding will file with the SEC and cause to become effective as soon as
practicable after the Effective Date a registration statement relating to such
public resales, and (ii) upon the request of HET, JCC Holding will file with the
SEC and cause to become effective as soon as reasonably practicable thereafter a
registration statement relating to all shares of Class B Common Stock held by
HET and its subsidiaries (provided, however, that prior to the Transition Date,
HET and/or its subsidiaries are required to own at least 51% of the outstanding
shares of Class B Common Stock). Such shares of Class B Common Stock convert to
shares of Class A Common Stock if they are transferred to entities other than
former Partners of HJC and their affiliates. See "Item 11. Description
Registrant's Securities to be Registered -- Common Stock." Sales of or offers to
sell a substantial number of shares of Class A Common Stock, or the perception
by investors, investment professionals and securities analysis of the
possibility of such sales, could adversely affect the market for and prevailing
prices with respect to the Class A Common Stock.
RELIANCE ON SINGLE MARKET
Because JCC has no present intention to have operations other than the
Casino and will be dependent upon visitors to New Orleans and New Orleans area
residents, a downturn in the local or regional economy, a decline in the New
Orleans gaming market or an increase in competition could have a material
adverse effect on the Company. In addition, a reduction or cessation of
activities at the Casino due to flooding, severe weather, natural disaster or
otherwise could have a material adverse effect on the Company.
CLASSIFICATION OF NEW NOTES AND NEW CONTINGENT NOTES AS EQUITY RATHER THAN DEBT
The New Notes and New Contingent Notes will have legal and other economic
terms typically associated with indebtedness and have been intended to create a
debtor-creditor relationship between JCC and the holders thereof. Consequently,
JCC intends to treat the New Notes and the New Contingent Notes as debt for
federal income tax purposes, and the discussion herein assumes such treatment.
Nevertheless, the Internal Revenue Service ("IRS") may assert that, because all
payments on the New Contingent Notes (and certain payments on the New Notes) are
contingent upon future positive cash flows being generated by JCC, the New
Contingent Notes (or, possibly, both types of Notes) should be classified as
equity, rather than debt, for federal income tax purposes. There can be no
assurance that the IRS would not so challenge the characterization of the Notes
or that a court would not sustain such a challenge. If it were determined that
either type of Note constitutes equity for federal income tax purposes, such a
recharacterization would result in stated interest and/or contingent payments
being recharacterized as corporate dividends, resulting in the loss of
substantial interest deductions and other tax benefits for JCC. The loss of such
deductions and other tax benefits would have a material adverse effect on the
Company.
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TAXATION
Gaming companies are typically subject to significant taxes and fees, both
of which are subject to increases at any time. Federal and state legislatures
have from time to time considered imposing federal and additional state taxes on
all gaming establishments. Any material increase in taxes, or the imposition of
any additional taxes or fees on JCC, could have a material adverse effect on the
Company.
The City currently imposes a 5% "amusement" tax on the gross receipts
representing admission charges to, among other things, "any game of skill and
chance as well as all mechanical devices operated for pleasure or skill where a
fee is charged for admission or entrance or for the purpose of playing them or
whether there is any charge whatever for them or in connection with them either
directly or indirectly." "Admission" is broadly defined to include "all amounts
paid for admission, season tickets, refreshments, service and merchandise" and
"any charge or fee for the purpose of self-participation in any amusement
activity." The City Attorney opined that, as applied to riverboat gaming,
riverboat cruises are "excursions" subject to the amusement tax and that
admission charges include all activities within the riverboat, including money
spent on wagers. To the Company's knowledge, the City has not levied or
collected the amusement tax on money spent on wagers on riverboats. In addition,
the City Attorney subsequently issued an opinion that the amusement tax may not
legally be levied on gaming revenues derived from the Casino because these
revenues do not constitute taxable "admission." Opinions of the City Attorney
are not binding on the City or any other person. There can be no assurance that
the City will not attempt to levy the tax on the operations of the Casino, and
the Company cannot predict, if this tax were to be so levied, whether it would
be levied on wagers, gaming revenues or some other measure. The Amended Ground
Lease will provide that, in the event a court of competent jurisdiction in a
final non-appealable judgment determines that the amusement tax is applicable to
JCC's receipts (other than from special events), JCC is entitled to set off the
amount of the amusement tax collected and remitted (other than with respect to
special events) against substantially all payments required to be made under the
Amended Ground Lease. However, there can be no assurance that the amount of the
tax, if successfully levied, would not exceed the amount of such offset. If the
amusement tax were to be successfully imposed on wagers at the Casino, JCC could
be unable to make payments on its indebtedness, including the Notes.
LITIGATION
MCCALL LITIGATION. On April 26, 1993, a lawsuit was filed in the Civil
District Court for the Parish of Orleans captioned McCall v. McCall, et al. (the
"McCall Litigation"). Plaintiffs asserted an ownership interest in certain land
underlying the Rivergate site and also sought permanent injunctive relief
prohibiting the use of such land for the Casino. The lawsuit also challenged the
manner in which the RDC was formed and its authority to enter into the Ground
Lease and the Basin Street Casino Lease. HJC intervened in the lawsuit and
aligned itself with the City and the RDC. On February 22, 1994, the Civil
District Court granted the motion for summary judgment filed by the City, the
RDC and HJC, thereby dismissing all claims. On February 23, 1995, the state
appellate court unanimously affirmed the Civil District Court's ruling that the
plaintiffs did not have an ownership interest in any land underlying the
Rivergate site and remanded the case to the Civil District Court to determine
whether the plaintiffs have standing to assert the other claims concerning the
authority of the RDC to enter into the Ground Lease and the Basin Street Casino
Lease. On April 28, 1995, all parties to the litigation applied to the Louisiana
Supreme Court for writs of certiorari. On June 30, 1995, the Louisiana Supreme
Court unanimously denied all writ applications. The property claims in this
litigation have been finally resolved in favor of HJC, the City and the RDC. In
December 1995, the Civil District Court granted the exception of no right of
action submitted by the City and RDC and held that the plaintiffs lack standing
to challenge the constitutionality of the RDC. The plaintiffs filed a devolutive
appeal to the Fourth Circuit Court of Appeals. The appeal has been fully
briefed, and it is set for oral argument on September 10, 1996. The Company
believes that at least some of the claims
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asserted in this case may not be discharged in connection with the Plan of
Reorganization. There can be no assurance that Plaintiffs appeal will be
resolved favorably to JCC and that such resolution will not have a material
adverse effect on the Company.
TUCKER V. CITY OF NEW ORLEANS AND RIVERGATE DEVELOPMENT CORPORATION. On
July 24, 1996, Mr. Tucker filed lawsuit seeking to enjoin alteration of the
Place de France absent the express written approval of the Secretary of
Interior. The City and RDC have been made defendants; HJC is not named, although
the lawsuit could affect the development of the Casino. Mr. Tucker characterized
his claim as one for purported violation of his rights of due process and equal
protection pursuant to 42 U.S.C. Section 1983. The factual allegations of the
complaint are virtually identical to those asserted by Louisiana Landmarks and
rejected in the recent Fifth Circuit decision described above. Mr. Tucker served
as counsel of record for Louisiana Landmarks, and he is both a member and
trustee of the non-profit corporation. The matter has been allotted to Judge
McNamara, the same district judge who handled the Louisiana Landmarks
litigation. Service has not been made as of this date. If the plaintiff is
successful and scheduled alterations to the Place de France in connection with
the development of the Casino are prohibited or otherwise restricted, such
restrictions may alter the flow of pedestrian traffic around the Casino and have
a material adverse effect on the Company.
TITLE INSURANCE
JCC intends to obtain title insurance policies to insure against certain
claims made against title to the site for the Casino and related real estate.
Such policies will consist of lenders' title insurance policies for the benefit
of the Bank Lenders and the holders of the Notes and an owners' title insurance
policy for the benefit of the Company. Such policies will be acquired before the
Effective Date. The owners' policy will provide coverage in an amount to be
determined, but which will be calculated to fairly represent the value of the
insured assets of JCC and the business conducted therein. The lenders' title
insurance policies will provide coverage up to the total amounts outstanding
under the Bank Credit Facilities and Notes, respectively. By endorsement, the
title policies will provide that actual loss will be measured by the use or uses
to which the land and improvements are put at the time of loss, or, if not then
in use, as intended to be used pursuant to the Amended Ground Lease. The term
"actual loss" is not defined in the title insurance policy. It has been
generally construed to mean the diminution in value of an insured mortgage
resulting from an insured title defect, not to exceed the value of the
mortgagor's estate or interest in the land and improvements. There has been no
judicial construction of the endorsement providing that such loss will be
measured by the intended or actual use of the mortgaged property. Actual loss
will be determined either by voluntary agreement with the title insurer or
judicially. Due to uncertainty regarding the method for valuing any loss and
depending upon the nature and extent of an insured title defect and its effect
upon the use of the land and improvements, and because a significant portion of
the funds will not be used for improvements and changes in the value of the land
and improvements, the amount of any recovery for such other title losses under
the lenders' title policies cannot be predicted and there can be no assurance
that any recovery will not be in an amount substantially less than the principal
and interest due and owing to the holders of the Notes and the Bank Lenders as a
result of such title loss. The title insurance policies will be reinsured
through various title insurance companies in the United States. The ability to
successfully recover under the policies is dependent on the creditworthiness of
the title company and its reinsurers at the time of the claim and any defenses
that the title insurers and its reinsurers may have. There can be no assurance
that the title insurers will be able to fulfill their financial obligations
under the title insurance policies. See "-- The Company -- Title Insurance" and
"Item 8. Legal Proceedings."
APPLICABILITY OF PUBLIC WORKS ACT
Certain groups of business owners, including contractors, have claimed that
the State's Public Works Act, which requires competitive bidding on public works
contracts, should apply to HJC's contracts in connection with the construction
of the Casino (the "Casino Contracts"). Although such groups have previously
threatened to litigate their claims, the Company has no knowledge that any such
litigation is pending. The Company believes that the Casino Contracts are not
governed by the
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Public Works Act and are not subject to the bidding requirements thereof. If the
Public Works Act were to apply to the Casino Contracts, the Public Works Act
would nullify the Casino Contracts not in compliance with the bidding
requirements thereof. Such nullification would result in construction delay and
potential damage claims from contractors and may have a material adverse effect
on the Company. Although the State Attorney General has opined that the Public
Works Act did not apply to the Casino Contracts, opinions of the State Attorney
General are not binding on the State or any other person and no assurances can
be given that such contracts are not subject to the Public Works Act or that
litigation concerning the applicability thereof to the Casino Contracts will not
cause material delays in the construction of the Casino or otherwise adversely
affect the Company.
ENVIRONMENTAL MATTERS
JCC expects to own and lease certain properties, some of which were formerly
owned or leased by companies with operations that involved or may have involved
the use of hazardous substances or wastes and which could subject JCC to
liability for the cleanup of such hazardous substances or wastes or may
adversely affect the owner/operator's ability to borrow in the future using the
real estate as collateral. JCC expects to obtain certain indemnifications for
past activities, operations or occurrences at such properties that it believes
will be sufficient to cover the costs of any potential liability related
thereto. At the present time, the Company does not anticipate that such
liability or conditions will have a material adverse effect on the Company.
However, no assurances can be given that such matters will not have a material
adverse effect on the Company. See "-- The Company -- Environmental Matters."
RESTRICTIVE COVENANTS
The Amended Ground Lease and the Amended Casino Operating Contract will
limit the amount of secured indebtedness JCC may incur and from whom such
indebtedness may be obtained without consent. These restrictions could limit
JCC's ability to effect future financings or otherwise restrict JCC's
activities. The Company's operating and financing strategies will be subject to
covenants contained in the Indentures, the Bank Credit Facilities, related
collateral documents, and agreements with the LGCB and the RDC, which covenants
include, among others, restrictions on restricted payments, the granting of
liens, the incurrence of additional indebtedness, the payment of management
fees, subsidiary dividend restrictions, asset sales, transactions with
affiliates, mergers and consolidations. See "-- Material Agreements --
Indentures," "-- Bank Credit Facilities," "-- Amended Ground Lease," and "--
Amended Casino Operating Contract."
CONFLICTS OF INTEREST
The Manager will be exclusively responsible for supervising and managing the
Casino. However, HET has also, through its operating subsidiaries and other
affiliates, developed and currently operates dockside casinos in Vicksburg and
Tunica, Mississippi and Shreveport, Louisiana and HET may develop other casinos
that may compete with the Casino (collectively, the "Competing Casinos"). Due to
the Competing Casinos' proximity to the Casino, they may compete directly with
the Casino for patrons. HET, through its operating subsidiaries, also operates
casinos in the five major Nevada and New Jersey gaming markets and such casinos
may compete with the Casino on a national basis. In addition, Philip G. Satre,
President and Chief Executive Officer of HET, is presently the sole director of
JCC Holding, and Colin V. Reed, Executive Vice President of HET, and Michael N.
Regan, Vice President of HET, are officers of JCC Holding. See "Item 5.
Directors and Executive Officers." As a result of HET ownership of the Competing
Casinos, and the fact that these HET officers hold such positions with JCC
Holding, JCC Holding, a conflict of interest may be deemed to exist by reason of
such persons' access to information and business opportunities possibly useful
to any or all of the Competing Casinos. No specific procedures have been devised
for resolving conflicts of interest confronting, or which may confront the
Company.
REPURCHASE OF CLASS A COMMON STOCK RELATING TO GAMING MATTERS
The Gaming Act, the Rules and Regulations thereunder, and the Amended Casino
Operating Contract impose certain suitability requirements with respect to the
holding of any securities of JCC Holding, JCC Intermediary and JCC. To the
extent any holder of such securities fails to satisfy such
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requirements, such holder may be required to obtain certain qualifications or
approvals from the LGCB to continue to hold such securities. Any failure to
obtain such qualifications or approvals may, by virtue of requirements imposed
on JCC, subject such securityholders to certain requirements, limitations or
prohibitions, including a requirement that such securityholders liquidate their
securities at a time or at a cost that is otherwise unfavorable for such
securityholders. There can be no assurance that the Gaming Act will not be
interpreted, that additional rules and regulations will not be implemented, or
that new legislation will not be enacted to impose additional restrictions on,
or otherwise prohibit, certain persons from holding the Class A Common Stock, or
cause such securityholders to liquidate their Class A Common Stock at a time or
at a cost that is otherwise unfavorable for such securityholders. See "--
Uncertainty Regarding Gaming Regulation and Future Changes to the Law," "--
Regulation -- Louisiana Gaming Act" and "-- Material Agreements -- Amended
Casino Operating Contract." The Certificate of Incorporation of JCC Holding
provides that the shares of Class A Common Stock may, under certain
circumstances, be redeemed by JCC Holding if JCC Holding, or certain affiliates
thereof, believes such action is required to prevent the loss or impairment of a
material gaming license of JCC or such affiliate. See "Item 11. Description of
Registrant's Securities to be Registered -- Gaming Redemption."
CERTAIN BANKRUPTCY CONSIDERATIONS
The RDC leased the Rivergate site from the City pursuant to a lease
agreement with the City (the "City Lease"). JCC expects the RDC to sublease the
site to JCC pursuant to the Amended Ground Lease. The commencement of a
bankruptcy case by or against the City or RDC could adversely affect JCC's
rights under the Amended Ground Lease, if the City and/or the RDC should elect
to "reject" the City Lease and/or the Amended Ground Lease under Section 365(a)
of the Bankruptcy Code. Under Section 365(h) of the Bankruptcy Code, a lessee
may elect either to treat the rejected lease as terminated or to remain in
possession. In the event of the City's bankruptcy, the RDC is obligated under
the Amended Ground Lease to assert a right under Section 365(h) to remain in
possession to protect the Company's rights and the securityholders' interest in
the premises. If the RDC does assert such right, JCC's right to remain in
possession should be unaffected by the City's bankruptcy. Some courts have held
that Section 365(h) does not provide continuing possessory rights to a sublessee
when the lessee-sublessor rejects its master lease with its lessor. Thus, if the
City Lease or the Amended Ground Lease was terminated as between the City and
RDC as a result of such rejection, JCC might lose its rights under the Amended
Ground Lease. On the other hand, if the RDC became a debtor in a bankruptcy case
and was authorized, as sublessor, to reject the subleases, JCC should be able to
exercise its right to remain in possession. This would prevent the RDC from
terminating JCC's interests in the leases in an effort to obtain more favorable
terms from another party.
LACK OF EXPERIENCED PERSONNEL
A shortage of skilled and licensed labor exists in the gaming industry,
which may make it more difficult and expensive to attract and retain qualified
employees. While JCC believes that it will be able to attract and train
qualified individuals to staff the Casino, there is no assurance that it will be
able to do so. In addition, the Gaming Act requires that at least 50% of the
individuals employed at the Casino be Louisiana residents for at least one year
prior to employment. The Amended Ground Lease requires that 55% of the employees
of the Casino, during the first year following the first day on which the Casino
is open for business to the general public (the "Opening Date"), be residents of
Orleans Parish, with 2% annual increases in such minimum required percentage
amount beginning with the first anniversary of the Opening Date and continuing
on each anniversary of the Opening Date thereafter until the minimum required
percentage amount of employees of JCC who shall live and reside in the Parish of
Orleans during their employment by JCC, during any particular quarter reported
by JCC, shall be 65%, and in each year thereafter such minimum required
percentage shall be 65% (in each such case, subject to reduction to comply with
applicable law). JCC agrees to use its best efforts to maximize hiring in the
Parish of Orleans with the goal that 80% of employees of JCC live and reside in
the Parish of Orleans. There is no assurance that JCC will be able to hire
qualified individuals satisfying these criteria. If JCC is able to hire
qualified individuals satisfying these criteria, the cost
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of hiring such individuals could be significantly higher than if JCC was not
required to hire individuals satisfying such criteria. If JCC does not satisfy
these criteria and does not pursue curative actions, it is possible that the
default could result in revocation of the Amended Ground Lease. See "-- Material
Agreements -- Amended Ground Lease -- Residency Requirements" and "-- Risk
Factors -- Cross Defaults."
AMENDED OPEN ACCESS PROGRAM
The Amended GDA and the Amended Ground Lease will obligate JCC to comply
with an Amended Open Access Program (the "Amended Open Access Program") to
facilitate participation by minorities, women, and disadvantaged persons and
business enterprises in developing, constructing and operating the Casino. The
Amended Open Access Program contains various provisions which permit the City's
Mayor and the City Council to impose penalties on JCC if it fails to comply with
the provisions of the Amended Open Access Program or any of the more detailed
open access plans adopted pursuant thereto. These penalties include fines, a
default under the Amended Ground Lease and the right of the City's Mayor to
approve hiring and contracting practices. Imposition of the fines could have a
material adverse effect on the Company. In addition, JCC is required to
indemnify the City and the RDC against certain damage awards arising out of
lawsuits related to the Amended Open Access Program. See "Material Agreements --
Amended General Development Agreement."
Although a final Amended Open Access Plan to establish minority hiring goals
for the operation of the Casino has been presented by JCC to the City and the
RDC, this plan has not yet been approved. Under an Interim Open Access Plan (the
"Interim Open Access Plan"), JCC has established goals for construction of the
Casino, which may result in the employment of minorities in a proportion greater
than the population of the State. Under the Gaming Act, JCC is required, as
nearly as practicable, to employ minorities in proportions consistent with the
population of the State. Although the Amended Casino Operating Contract so
provides and JCC interprets these provisions in a manner that would not prohibit
JCC from employing a workforce with a percentage of minorities in excess of the
percentage of minorities of the population of the State, there can be no
assurance that the Gaming Act or the Amended Casino Operating Contract will be
applied in such a manner. If such provisions were not applied in such a manner,
there may be a conflict between the Gaming Act, the Amended Casino Operating
Contract and the Interim Open Access Plan since the percentage minority
population of the State is materially less than the preliminary percentage
minority hiring goal under the Interim Open Access Plan. JCC intends to comply
with the Interim Open Access Plan unless it is found to be preempted by the
Gaming Act. If the conflict discussed above exists and JCC nevertheless complies
with the minority hiring goal under the Interim Open Access Plan, JCC may be in
violation of the Gaming Act and the provisions of the Amended Casino Operating
Contract. Such a violation could result in a material adverse effect on the
Company.
DIVIDEND POLICY
JCC Holding does not intend to pay cash dividends on the Common Stock,
including the Class A Common Stock, in the foreseeable future. Further, pursuant
to the expected terms of the Bank Credit Facilities agreements, for as long as
there are amounts outstanding under the Bank Credit Facilities no dividends will
be paid. See "-- Material Agreements -- Bank Credit Facilities." In addition,
the terms of the Indentures prohibit payment of cash dividends unless certain
conditions are met. See "-- Material Agreements -- Indentures." The payment of
cash dividends, if any, will be made only from assets legally available for that
purpose, and will depend on JCC Holding's financial condition, results of
operations, current and anticipated capital requirements, restrictions under
then existing debt instruments and other factors deemed relevant by the Board of
Directors.
Certain institutional investors may only invest in dividend-paying equity
securities or may operate under other restrictions which prohibit or limit their
ability to invest in the Class A Common Stock.
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MATERIAL AGREEMENTS
The following discussion summarizes the material terms of certain material
agreements to which the Company is a party, but this summary does not purport to
be complete and is qualified in its entirety by reference to the relevant
agreements, which are filed as exhibits to this Registration Statement. Readers
are urged to obtain and review such agreements.
BANK CREDIT FACILITIES
JCC is seeking to obtain a construction financing commitment from a group of
banks and other financial institutions (collectively, the "Bank Lenders") to
provide JCC with up to $165 million under the Construction Credit Facility and
up to $10 million under the Working Capital Facility. Although the following is
a summary of the expected terms of the Bank Credit Facilities, there can be no
assurance that JCC will be able to enter into the Bank Credit Facilities on the
terms described herein.
The Construction Credit Facility is expected to be a five and one-half year
term loan and the Working Capital Facility is expected to be a $10 million three
year revolving line of credit. There is no assurance, however, that JCC will be
able to obtain the Bank Credit Facilities on these terms.
Until opening of Temporary Casino -- Phase I, the interest rate on the Bank
Credit Facilities is LIBOR plus 100 basis points or a base rate equal to the
higher of the prime rate or the federal funds rates, plus 0.5% (the "Base
Rate"). After the opening of Temporary Casino -- Phase I, and for as long as the
Put Option (as defined below) is in effect, the interest rate on the Bank Credit
Facilities will be LIBOR plus a range of 0.75% to 1.25% or Base Rate. The exact
LIBOR rate will be a function of HET's interest coverage and HET's debt rating.
If the Put Option is not in effect, the interest rate will be Base Rate plus a
range of 0% to 1.25% or LIBOR plus a range of 1.25% to 2.5%. The exact rate will
be a function of JCC's leverage ratio. The amortization required is quarterly
installments of principal, commencing approximately at the opening of Permanent
Casino -- Phase IV, in the amount of $10 million in the first year and $16.0
million each year thereafter, with a $103.0 million lump sum payment due at
maturity. The Bank Credit Facilities require JCC to apply 40% of its quarterly
excess cash flow (cash flow in excess of taxes, interest and mandatory principal
payments and capital expenditures) applied to scheduled amortization and 60% of
its quarterly excess cash flow to the lump sum payment due at the maturity of
the Construction Credit Facility. The commitment fee is 0.375% per annum on the
unused portion of the Bank Credit Facilities.
The Bank Credit Facilities will be secured by a first priority lien in favor
of the Bank Lenders by: (i) a collateral mortgage creating security interests in
JCC's (a) leasehold estate created by the Amended Ground Lease and JCC's
interest in the Casino and related improvements, and (b) JCC's fee simple and
leasehold estates of certain additional real properties located near the Casino,
and improvements thereon; (ii) a security interest in all of JCC's furniture,
fixtures and equipment ("FF&E"), accounts receivable, general intangibles,
inventory and other personal property; and (iii) collateral assignment of all
material agreements, licenses and permits entered into by, or granted to, JCC in
connection with the Casino (excluding the Amended Casino Operating Contract, the
Casino's bankroll, and the LGCB's share of the gaming revenues from the Casino).
In addition, the Bank Credit Facilities will require HET to grant a put option
(the "Put Option") for the benefit of the Bank Lenders exercisable by the Bank
Lenders upon the occurrence of certain defaults or other put events. The Put
Option will be eliminated after the Casino has been operational for two years if
JCC achieves certain interest coverages and collateral loan values.
Drawings under the Bank Credit Facilities are subject to: (i) the truth and
correctness in all material respects of the representations and warranties in
the Bank Credit Facilities at the time of each draw; (ii) no material adverse
change relating to JCC or its subsidiaries having occurred since the date of
latest audited financial statements delivered to the Bank Lenders before the
closing of the Bank Credit Facilities; and (iii) the absence of an event of
default or an event, with which the passage of time or the giving of notice,
would constitute an event of default.
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The Bank Credit Facilities contain affirmative covenants with respect to,
among other things, after the Put Option is no longer in effect, the maintenance
of certain leverage ratios, coverage ratios and levels of tangible net worth,
limitations on indebtedness, changes in JCC's business, the sale of all or
substantially all of JCC's assets, mergers, acquisitions, reorganizations and
recapitalizations, liens, guarantees, the payment of management fees, dividends
and other distribution, investments, debt prepayments, sale-leasebacks, capital
expenditures, lease expenditures and transactions with affiliates, and financial
reporting.
INDENTURES
In connection with the Plan of Reorganization, JCC will issue (i) $187.5
million aggregate principal amount of New Notes pursuant to an indenture, dated
as of the Effective Date, by and among JCC, as obligor, JCC Holding, as
guarantor, and a trustee to be determined (the "Trustee"), and (ii) New
Contingent Notes pursuant to an indenture, dated as of the Effective Date, by
and among JCC, as obligor, JCC Holding, as guarantor, and the Trustee. See "--
The Company -- Recent Reorganization."
Fixed interest on the New Notes accrues at the rate of 8% per annum and is
payable semiannually in arrears on each May 15 and November 15, commencing on
May 15, 1997. JCC has the option, in its sole discretion, to issue secondary
securities in lieu of a cash payment of any or all of the fixed interest due on
the New Notes on either or both of the first two interest payment dates.
Contingent payments with respect to the New Notes are payable on each interest
payment date in an aggregate amount equal to 75% of JCC's Consolidated EBITDA
(as defined herein) in excess of $65 million and less than $85 million,
calculated on an annual basis, for the six-month period ending on the March 31
or September 30 (each a "Semiannual Period") most recently completed prior to
such interest payment date. Contingent payments with respect to the New
Contingent Notes are payable on each interest payment date in an aggregate
amount equal to 75% of JCC's Consolidated EBITDA in excess of $85 million and
less than $101.368 million, calculated on an annual basis, for the Semiannual
Period most recently completed prior to such interest payment date. The
aggregate amount of contingent payments payable in any Semiannual Period will be
reduced pro rata for reductions in the outstanding principal amount of New Notes
or New Contingent Notes prior to the close of business on the record date
immediately preceding such payment of contingent payments. "Consolidated EBITDA"
means, with respect to any person, for any period, the consolidated net income
of such person for such period adjusted (A) to add thereto (to the extent
deducted from net revenues in determining consolidated net income), without
duplication, the sum of (i) income tax expense whether or not payable during
such period) of such person and its consolidated subsidiaries, (ii) consolidated
depreciation and amortization expense, (iii) consolidated fixed charges, (iv)
aggregate contingent interest payments, whether paid or accrued, (v)
amortization expense with respect to deferred refinancing fees, (iv) preopening
expenses, (vii) any extraordinary loss reflected in the calculation of
consolidated net income, and (viii) other non-cash charges, and (B) to subtract
therefrom any extraordinary gain reflected in the calculation of consolidated
net income.
The New Notes and the New Contingent Notes will be secured on an equal and
ratable basis, junior only to a first priority lien in favor of the lenders
under the Bank Credit Facilities, the liens permitted thereunder and any
refinancings thereof which do not increase the principal amount of indebtedness
outstanding and available thereunder or decrease the weighted-average maturity
thereof (collectively, "Senior Indebtedness"), by: (i) a collateral mortgage
creating security interests in JCC's (a) leasehold estate created by the Amended
Ground Lease and JCC's interest in the Casino and related improvements, and (b)
JCC's fee simple and leasehold estates of certain additional real properties
located near the Casino, and improvements thereon; (ii) a security interest in
all of JCC's furniture, fixtures and equipment ("FF&E"), accounts receivable,
general intangibles, inventory and other personal property; and (iii) collateral
assignment of all material agreements, licenses and permits entered into by, or
granted to, JCC in connection with the Casino (excluding the Amended Casino
Operating Contract, the Casino's bankroll, and the LGCB's share of the gaming
revenues from the Casino). Certain of the collateral will be subject to release
in accordance with the applicable
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security documents and the Indentures. The New Notes will be subordinated to the
Senior Indebtedness, rank PARI PASSU with the New Contingent Notes, and rank
senior to all other indebtedness of JCC. The New Contingent Notes will be
subordinated to the Senior Indebtedness, rank PARI PASSU with the New Notes, and
rank senior to all other indebtedness of JCC.
JCC Holding irrevocably and unconditionally guarantees to each holder of New
Notes the payment of principal, premium, if any, and interest on the New Notes.
JCC Holding irrevocably and unconditionally guarantees to each holder of New
Contingent Notes the payment of contingent payments in respect of the New
Contingent Notes.
Upon a change in the manager of the Casino or other similar events, each
holder of the New Notes will have the right, at such holders' option to require
JCC to purchase such holder's New Notes at 101% of the principal amount thereof
plus accrued and unpaid interest. Due to the highly leveraged nature of JCC, JCC
may not have sufficient financing to purchase the New Notes and satisfy other
obligations which may become due upon such a change. The New Notes and the New
Contingent Notes will not be redeemable or subject to mandatory prepayment prior
to maturity.
The Indentures will each contain certain restrictions on, among other
things, restricted payments, liens, incurrence of additional indebtedness,
payment of management fees, subsidiary dividend restrictions, asset sales,
transactions with affiliates, mergers and consolidations.
AMENDED GENERAL DEVELOPMENT AGREEMENT
JCC expects to enter into a General Development Agreement as amended and
restated, to be effective on the Effective Date of the Plan of Reorganization,
with the RDC, and with the City as intervenor. The Amended GDA sets forth the
obligations of the parties and the procedures to be followed relating to the
design, development and construction of the Casino and certain related
facilities (the "Casino Development"). Under the Amended GDA, hard construction
costs for the Casino Development are anticipated to be no less than $207
million. The Amended GDA imposes responsibility on JCC for the location,
identification and condition of all utilities serving the Casino Development and
obligates JCC to provide traffic signalization and intersection improvements in
accordance with the City Department of Public Works approved plans and
specifications as a part of the cost of the project. No other transportation or
roadway improvements will be required of JCC and the RDC. The Amended GDA also
obligates JCC to reimburse the RDC for reasonable fees and expenses of the RDC
commencing on the start of construction of Temporary Casino -- Phase I for the
services of the project manager and his or her staff. Project manager and staff
reimbursement amounts vary depending on the phase and certain other timing
conditions, from $247,788 to monitor Temporary Casino -- Phase I and Temporary
Casino -- Phase II to $5,000 per month to monitor second floor shell
construction -- Phase III to an amount not to exceed $20,708 per month for each
month during which JCC is performing construction of Permanent Casino -- Phase
IV.
The Amended GDA establishes scheduling parameters for the construction and
completion of the Casino Development. The Amended GDA contains the RDC's
approval of the preliminary schedule attached to the Amended GDA for the
recommencement of construction and a recognition by the parties that the
preliminary schedule is subject to developing more specific schedules, including
a working development schedule, a development schedule and a construction
schedule, as the design documents for each component and phase are prepared and
approved and as construction planning evolves, and updated versions thereof as
necessary.
If JCC fails to complete construction within the parameters set forth in the
Amended GDA, JCC will not be required to pay liquidated damages for Temporary
Casino -- Phase I, but will be required to pay as liquidated damages to the RDC
the sum of $2,500 per calendar day for Temporary Casino -- Phase II or Second
Floor Shell Construction -- Phase III, and $5,000 per calendar day for Permanent
Casino -- Phase IV. The liquidated damages for each Phase are cumulative and in
addition to any interim rent, escalated interim rent, or other rent due under
the Amended Ground Lease or the City Agreement.
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The construction and development schedules, JCC's obligation to cause the
completion of any phase or component of the Casino by the completion date
therefore, and any other duty or obligation of JCC under the Amended GDA, shall
be adjusted for "Force Majeure" events and "Excusable Delays", but only for the
number of days due to such causes and only to the extent that such occurrences
actually delay the performance of such duty or obligation.
"Excusable Delay" is defined in the Amended Ground Lease as: any delay of
the Effective Date resulting from any causes which are beyond the reasonable
control of HJC, JCC, HET or any affiliate of HET or any partner of HJC (it being
understood that any cause within the reasonable control of such partner shall be
deemed beyond reasonable control unless it is supported or aided by HET or any
affiliate of HET) ("Excusable Causes"). No causes within the reasonable control
of HJC, JCC, HET or any affiliate of HET or any partner of HJC (to the extent
any cause within the reasonable control of such partner is supported or aided by
HET or any affiliate of HET) (collectively, the "HJC Entities") ("Non-Excusable
Causes") shall be deemed to result in an Excusable Delay.
HJC or, if the Effective Date has occurred, JCC, shall give written notice
to the City of the occurrence of an Excusable Delay on or before the thirtieth
day after the date (the "Knowledge Date") on which HJC, or if the Effective Date
has occurred, JCC, the Manager or any affiliate of the Manager first knew or
should have known of the existence and excusable nature of the Excusable Cause
resulting in such Excusable Delay.
If HJC or, if the Effective Date has occurred, JCC, provides written notice
to the City of an Excusable Delay as set forth above, the City shall have thirty
days within which to provide written notice to HJC, or JCC, as applicable, that
the City disputes the occurrence of the Excusable Delay set forth in the notice
provided by HJC, or JCC, as applicable, to the City, and if the City fails
timely to provide such written notice to HJC, or JCC, as applicable, then the
inception date and duration of the Excusable Delay shall be as set forth in the
notice provided by HJC, or JCC, as applicable, to the City.
For purposes of calculating a period of Excusable Delay caused by a
particular Excusable Cause, the Excusable Delay shall commence on the later of
(i) the date on which the Plan of Reorganization is confirmed, and (ii) the date
on which such Excusable Cause commences, and such Excusable Delay shall end on
the earlier of (i) the Effective Date, and (ii) the date on which such Excusable
Cause terminates; provided, however, that if HJC, or if the Effective Date has
occurred, JCC, has failed to give written notice of the occurrence of such
Excusable Delay on or before the thirtieth day after the Knowledge Date, the
calculation of such Excusable Delay shall exclude the time period beginning on
the thirty-first day after the Knowledge Date and ending on the date on which
HJC, or JCC, as applicable, has given such written notice to the City.
The determination as to whether a particular cause of delay of the Effective
Date constitutes an Excusable Cause or a Non-Excusable Cause and the length of
any such delay shall be determined by the Bankruptcy Court, guided by the above
stated principles and the non-exclusive, illustrative examples of each type of
cause set forth below.
"Excusable Causes" shall include, without limitation: (1) any stay of the
order entered by the Bankruptcy Court confirming the Plan of Reorganization (the
"Confirmation Order") or any injunctive or other order or action by any court
enjoining or otherwise preventing or delaying the substantial consummation of
the Plan of Reorganization including, by way of example, any stay of the
Confirmation Order that is issued pending an appeal from the Confirmation Order;
(2) any injunctive or other order or directive by any administrative agency or
instrumentality of the State including, without limitation, LGCB, and (in
connection with their respective roles and responsibilities regarding
suitability issues, other than legal advice to the LGCB by the State's Attorney
General) the State Police and the State's Attorney General, enjoining or
otherwise preventing or delaying the substantial consummation of the Plan of
Reorganization, except to the extent such order or directive results from any
negligent or wrongful conduct by JCC Holding, JCC Intermediary, JCC, the
Manager, HJC, HET or any affiliate of HET or any partner of HJC (to the extent
such wrongful conduct by such partner is supported or aided by HET or any
affiliate of HET); (3) the enactment of any law or regulation or any
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change in any existing law or regulation after the execution of a certain
agreement with the City or any other legislative, regulatory or administrative
action in respect of such enactment or change by the State or the City or any
agency or instrumentality thereof that (A) prevents or delays the substantial
consummation of the Plan of Reorganization; or (B) in the case of any such
administrative action, is not caused by any negligent or wrongful conduct by JCC
Holding, JCC Intermediary, JCC, the Manager, HJC, HET or any affiliate of HET or
any partner of HJC (to the extent such negligent or wrongful conduct by such
partner is supported or aided by HET or any affiliate of HET); (4) to the extent
the substantial consummation of the Plan of Reorganization is prevented or
delayed, (A) any need or requirement (howsoever arising) for any review of,
approval or consent to, or any other action with respect to, the terms of the
Amended Casino Operating Contract to be taken or given prior to the execution by
LGCB or effectiveness of the Amended Casino Operating Contract by the
Legislature of the State, the Governor, or any other agency or instrumentality
of the State (other than the LGCB) except in such agency's or instrumentality's
respective non-gaming regulatory roles or their respective roles in the
suitability determination process, or (B) after any such review, approval,
consent or other action has been taken, given, or denied, any need for further
action by LGCB as a consequence of such review, approval, or consent or other
action to make the Amended Casino Operating Contract effective; (5) any failure
by any non-debtor party not affiliated with HET or any affiliate of HET to
execute or perform under any Plan of Reorganization document that was agreed to
by such non-debtor party on or before the date on which the Plan of
Reorganization is confirmed that (A) prevents or delays the substantial
consummation of the Plan of Reorganization and (B) is not caused by any wrongful
conduct by JCC Holding, JCC Intermediary, JCC, the Manager, HJC, HET or any
affiliate of HET or any partner of HJC (to extent such wrongful conduct by such
partner is supported or aided by HET or any affiliate of HET); (6) any failure
by the State or City or any agency or instrumentality thereof to give or issue
within a reasonable time any approval, consent, waiver, permit or license or
modification thereof (except any such failure resulting from the failure of JCC
Holding, JCC Intermediary, JCC, the Manager to submit a timely application or
request for any such approval, consent, waiver, permit or license or
modification thereof or to take any action within its reasonable control that is
reasonably required by the State or City or any agency or instrumentality
thereof in order to obtain such approval, consent, waiver, permit or license or
modification thereof), or any failure of the LGCB (or, in connection with their
respective roles and responsibilities regarding suitability issues other than
legal advice to LGCB by the State's Attorney General, the State's Attorney
General or the State Police) to make within a reasonable time any suitability
determination required for the execution by LGCB and effectiveness of the
Amended Casino Operating Contract (except any such failure resulting from any of
the Non-Excusable Causes set forth in clause (1) of the definition of Non-
Excusable Causes below, in each case that (A) prevents or delays the substantial
consummation of the Plan and (B) is not caused by any negligent or wrongful
conduct by JCC Holding, JCC Intermediary, JCC, the Manager, HJC, HET or any
affiliate of HET or any partner of HJC (to the extent such negligent or wrongful
conduct by such partner is supported or aided by HET or any affiliate of HET));
(7) any failure of the SEC to qualify the Indentures and any related documents
on or before the sixtieth day after the date on which the form of the Indentures
and related documents are filed with the Securities and Exchange Commission
("SEC") so long as the Indentures and related documents are filed with the SEC
on or before November 1, 1996; and (8) any failure to satisfy the condition to
the occurrence of the Effective Date.
Notwithstanding anything to the contrary, the term "Excusable Causes" shall
exclude (1) except to the extent such failure is caused by an Excusable Cause of
the type set forth in clause (4) above, any failure to obtain LGCB's approval of
the (a) Amended Casino Operating Contract, or (b) the sale, transfer or
assignment of the original casino operating contract from HJC to any party,
including JCC, (2) any failure to satisfy any of the conditions to the Effective
Date and (3) any cause constituting a Non-Excusable Cause set forth below.
"Non-Excusable Causes" shall include with limitation: (1) (A) the failure of
JCC, JCC Holding, JCC Intermediary or any of their respective officers or
directors, or the Manager to file a completed application for a favorable
suitability determination or
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any other contract, license, approval or permit issued pursuant to the Louisiana
gaming laws (collectively, the "Suitability Determination") (or to pay any fees
and costs required in connection with such application or other amounts due to
LGCB in accordance with its rules and regulations) on or before the later of
October 15, 1996, and the thirtieth day after the date on which the forms for
such Suitability Determination applications are made available to the JCC
Holding, JCC Intermediary, JCC and the Manager; (B) the failure of any other
person or entity (other than JCC Holding, JCC Intermediary, JCC or the Manager)
which is required to be found suitable by LGCB as a condition for the execution
by LGCB or effectiveness of the Amended Casino Operating Contract (such other
persons and entities, collectively, the "Other Entities") to file a completed
application for a favorable Suitability Determination (or to pay any fees and
costs required in connection with such application or other amounts due to LGCB
in accordance with its rules and regulations) on or before the thirtieth day
after the later of (i) the date on which LGCB notifies such Other Entity that
the execution by LGCB or the effectiveness of the Amended Casino Operating
Contract or the Manager's license is conditioned upon a favorable Suitability
Determination with respect to such Other Entity, and (ii) the date on which the
form of Suitability Determination application is made available to such Other
Entity; (C) any withdrawal of any Suitability Determination application filed by
JCC Holding, JCC Intermediary, JCC or the Manager or any Other Entity; (D) any
denial of any Suitability Determination application or any determination of
unsuitability or the suspension or revocation of any necessary permit, license,
approval or contract, including the original casino operating contract, unless
its revocation is coexistent with the issuance and approval of the Amended
Casino Operating Contract, duly made by the LGCB in accordance with its rules
and regulations and any other applicable law with respect to any HJC Entity, JCC
Holding, JCC Intermediary, JCC, the Manager or any Other Entity; (E) the failure
of HJC Entities, JCC Holding, JCC Intermediary, JCC, the Manager, or Other
Entities to comply with any condition of disqualification or limitation,
condition or restriction on any license, contract, permit or approval of the
Louisiana gaming authorities; (F) the failure of HJC Entities, JCC Holding, JCC
Intermediary, JCC, the Manager, or Other Entities to pay any fine assessed by
the Louisiana gaming authorities; and (G) the failure of HJC to keep, maintain,
and store records, or to assist in any audit required under the Louisiana gaming
laws; and (2) the failure of HJC or JCC to pay or cause to be paid any amounts
due in connection with the transactions contemplated by the Plan of
Reorganization.
The Amended GDA also grants certain approval rights to the RDC with respect
to the selection of architects, contractors and other consultants. Under the
Amended GDA, JCC is responsible for obtaining all necessary permits, licenses,
approvals, consents and other government authorizations (collectively
"Permits"). If JCC does not construct the Casino and the Completion Guarantors
fail to cause the Casino to be constructed pursuant to the Completion Guarantee
before termination of the Amended Ground Lease, by default, or otherwise, except
upon default by the RDC or City, JCC shall either restore the demolished
improvements to the condition existing prior to JCC's demolition or pay to RDC
the fair market value of the demolished improvements immediately prior to JCC's
demolition as liquidated damages. Provided the RDC has approved the construction
documents for a component or Phase of the Casino, and provided there is no
outstanding event of default under the Amended Ground Lease, the RDC is
obligated to issue to JCC a notice to proceed for each component or phase of the
Casino within ten days following its approval of the construction documents for
that component or phase of the Casino. Work by JCC on that component or phase of
the Casino must then commence within fourteen days after JCC's receipt of both
the notice to proceed and the required Permits, but in no event shall
commencement of the work for Temporary Casino -- Phase I be required sooner than
thirty days after the "Site Reactivation Date." The "Site Reactivation Date"
means the first day after the Effective Date of the Plan of Reorganization when
personnel and/or equipment first enter the development for the purpose of
preparing the property for construction of the improvements required by the
Amended GDA; provided, however, preliminary or preparatory work will not be
considered site reactivation activities. The Site Reactivation Date shall be no
later than thirty days after the Effective Date of the Plan of Reorganization.
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Under the Amended GDA, JCC is obligated to preserve all adjacent public and
private properties from damage caused by the demolition and new construction, as
well as restore and repair any properties damaged by the work. If JCC fails to
perform the repair or restoration, the RDC may do so and recover the cost and
expense incurred from JCC.
Except as otherwise permitted by the Open Access Program, JCC must obtain
performance and payment bonds with qualified corporate sureties for the full
value of the demolition contract and the contract for the construction of each
component or phase of the Casino before commencing demolition or construction of
the component or phase of the Casino, as the case may be. The bonds are subject
to the RDC's approval.
Subject to certain limitations, JCC is permitted to make minor changes in
the work up to a specified amount without RDC approval. All other changes
require the RDC's prior approval.
The Amended GDA requires JCC to obtain financing as described in the Plan of
Reorganization. The Amended GDA obligates the Completion Guarantors to provide a
completion guarantee in favor of the RDC and the City. Such completion guarantee
contains no financing conditions and is substantially similar to the completion
guarantee issued in favor of the Bondholders.
The Amended GDA will terminate upon the earlier of (i) the last of the final
completion dates of all components and phases of the Casino or (ii) the
termination of the Amended Ground Lease, whether by default or otherwise. If the
Amended GDA is terminated upon termination of the Amended Ground Lease as a
result of the occurrence of an event of default by JCC thereunder, the RDC may
have the work completed, repaired or replaced at the expense of JCC.
The Amended GDA and the Amended Ground Lease obligate JCC to comply with the
Open Access Program. See "-- Risk Factors -- Amended Open Access Program."
AMENDED GROUND LEASE
TERM, FEES AND IMPOSITIONS. JCC expects to enter into an Amended and
Restated Ground Lease for the Rivergate site with the RDC and the City, to be
effective on the Effective Date of the Plan of Reorganization which will have an
initial term of thirty years plus the amount of time between April 27, 1993 and
the Effective Date of the Plan of Reorganization, and three ten-year renewal
options. The Amended Ground Lease entitles JCC to possess the Rivergate site and
obligates JCC to construct, build and operate the Casino, the support
facilities, and the other improvements in accordance with the terms of the
Amended Ground Lease and the Amended GDA. JCC is obligated to pay RDC as
pre-Opening Date rent (the "Pre-Opening Date Rent") the amount of $736,000 per
month on the first day of each month from January 1, 1997 through May 31, 1997,
or, if the Opening Date has not occurred by May 31, 1997, through the earlier of
the Opening Date or the Interim Rent Escalation Date. The "Interim Rent
Escalation Date" shall mean July 1, 1997 as extended by the time of any
Excusable Delay or Force Majeure but in no event later than November 1, 1997. If
the Opening Date has not previously occurred, commencing on the Interim Rent
Escalation Date, in addition to the Pre-Opening Date Rent JCC shall pay RDC the
additional amount required so that the total Pre-Opening Date Rent payable
thereafter shall equal: (i) $27,500 per day for the first month commencing on
the Interim Rent Escalation Date, (ii) $30,000 per day for the second month
following the Interim Rent Escalation Date, (iii) $32,500 per day for the third
month following the Interim Rent Escalation Date, and (iv) the minimum
make-whole payment described in the Amended Ground Lease divided by 365 (such
amount agreed by the parties to be $34,247 per day) commencing the fourth month
following the Interim Rent Escalation Date through the Opening Date; with each
such amount payable in advance on the first day of each month. Notwithstanding
any Excusable Delay or Force Majeure, the $34,247 per day escalated rent shall
commence not later than February 1, 1998, whether or not the Opening Date has
occurred. If the Interim Rent Escalation Date shall occur other than on the
first day of a month, the pro rated portion of any $736,000 per month
Pre-Opening Date Rent previously paid by JCC shall be applied to the Pre-Opening
Date Rent due for the balance of the month and the increased Pre-Opening Date
Rent based on the per day amount for the balance of the month shall be a pro
rated
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amount. JCC may offset against Rent the sum of $33,333.33 each month during the
twelve month period commencing on the Opening Date. JCC is obligated to pay to
the RDC rent ("Rent") of $5 million per year for each of the first five years
after the Opening Date. On the fifth anniversary of the Opening Date and on each
fifth anniversary thereafter during the term of the Amended Ground Lease, the
Rent shall be increased by $2.5 million provided, however, that if the increase
would cause the yearly Rent to exceed 3% of "Gross Gaming Revenue" as defined in
the Amended Ground Lease for the fiscal year immediately preceding the rental
adjustment date, the yearly Rent for the five year period commencing with such
rental adjustment date will be the greater of: (a) the yearly Rent for the
preceding fiscal year; or (b) 3% of Gross Gaming Revenue for the preceding
fiscal year. Commencing on the Opening Date, JCC is obligated to make monthly
gross gaming payments ("Gross Gaming Payments") to the RDC equal to the amount
by which the "Gross Gaming Percentage Amount" exceeds the Rent for that fiscal
year. The "Gross Gaming Percentage Amount" in any fiscal year is determined as
follows: $100,000 plus (a) 3.0% of Gross Gaming Revenues for increments of Gross
Gaming Revenues from $0 to $350 million; 3.5% of Gross Gaming Revenue for
increments of Gross Gaming Revenue from $350 million to $375 million; (b) a
percentage of Gross Gaming Revenue starting at 4.0% for increments of Gross
Gaming Revenue above $375 million and increasing by five-tenths of 1% for each
additional $25 million of Gross Gaming Revenue up a maximum of 8%. The Rent is
payable monthly in advance, commencing on the Opening Date.
JCC is also obligated to pay additional sums pursuant to the Amended Ground
Lease including but not limited to: (i) an annual contribution of $2 million
throughout the lease term, including any extensions, to the City for the benefit
and use of the Orleans Parish School Board, with the first payment to be made
within six months of opening the Casino and subsequent payments to occur on each
anniversary thereof; (ii) an annual contribution of $200,000 to the Audubon Park
Commission, for and on behalf of the City (the "Audubon Payment"); (iii) in each
of the first two years after the opening of the Casino, the sum of $875,000 to
the New Orleans Police Department; and (iv) minimum annual payments ("Gross
Non-Gaming Payments") to the RDC of $1.7 million payable in monthly installments
plus 6% of all gross non-gaming revenues in excess of approximately $28.33
million. Gross non-gaming revenue includes, among other things, revenue from
parking, the sale of food, beverages and merchandise, income from
non-gaming-related tenants, operation of any business or enterprise owned by JCC
or its affiliates and operated on the Casino Development, and income received by
JCC from the use of any trade name of JCC or HET in connection with the Casino
in the greater New Orleans area. Gross non-gaming revenue does not include any
amounts paid by or derived from JCC Development pursuant to the Second Floor
Sublease (as defined herein).
Commencing on the Opening Date, JCC will be required to pay to the City a
payment (the "City Payments") in the amount of $1.25 million for each fiscal
year during the term of the Amended Ground Lease in which JCC receives Gross
Gaming Revenue in the amount of $350 million or more. The City Payments are
payable in monthly installments in the amount of $104,167 each. The City will
release and return undrawn the letter of credit in the amount of $1,500,000
issued by Bankers Trust Company in favor of the City securing the payment of
City Payments. No such security will henceforth be required with respect to the
City Payments. A default in the City Payments will not be an event of default
under the Amended Ground Lease.
RDC shall have a one-time right, upon thirty days prior written notice to
JCC specifying RDC's exercise of its right (the "MAR Exercise Notice") to
receive a payment of additional rent (the "MAR Payment") equal to 4.99% of the
amount, if any (the "Net Market Appreciation"), by which the weighted average
closing trading price of the common stock issued by JCC Holding in connection
with the Plan of Reorganization over the twenty days of trading immediately
prior to delivery of the MAR Exercise Notice times the number of outstanding
shares of such common stock, is greater than $320 million. Upon JCC's payment of
the MAR Payment to RDC, RDC will have no further right to receive the 4.99%
contingent payments described above or any additional market appreciation
payments.
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JCC is also required to make: (i) contingent payments to the RDC equal to
4.99% of certain sums distributed by JCC to the Shareholders of JCC Holding,
(ii) in the event that JCC pays a Termination Fee (as defined herein) to the
Manager, JCC must pay to the RDC an amount equal to 2.5% of such fee; and (iii)
if the City adopts parking programs for neighborhoods adjacent to the Casino,
$60,000 for the first year of Casino operations to administer the programs,
payable within 30 days after opening the Casino. The Amended Ground Lease
provides that the aggregate of all: (i) Rent payments; (ii) Gross Gaming
Payments; (iii) Audubon Payments; (iv) Gross Non-Gaming Payments, on an annual
basis, will be not less than $12.5 million and requires JCC to make an
additional payment to the RDC in the amount of any deficiency. If JCC fails to
pay, when due, certain of the payments described above, JCC could be forced to
pay the outstanding balance plus interest thereon from the due date of the
payment to the delivery date of the payment at a default rate equal to the
greater of: (a) the prime rate quoted by Citibank, N.A., plus 4% per annum; or
(b) 14% per annum. Furthermore, at the election of the RDC, JCC may be required
to pay an additional default penalty if any default by JCC results in the
termination of, or JCC's dispossession under, the Amended Ground Lease.
Commencing on the execution date of the Amended Ground Lease and on each
anniversary of the execution date of the Ground Lease thereafter during the term
of the Amended Ground Lease, JCC shall contribute $1 million to the destination
marketing program of the City for the joint benefit of the City and JCC in order
to promote New Orleans and the Casino as destinations. The City, upon receipt of
such annual contributions, will promptly transfer said funds directly to the
entity or agency that the City is utilizing during that year for the majority of
the tourism marketing conducted by or on behalf of the City. JCC will exercise
control over the spending of said $1 million annual contribution for destination
marketing. The City is required to include marketing of the Casino and New
Orleans in its New Orleans destination marketing with respect to at least $1
million annually (as funded from sources other than JCC) of its marketing
program or the marketing program of any entity undertaking such marketing on
behalf of the City. With respect to such $1 million of marketing, the City will
exercise control over the content of said destination marketing. No person will
be considered a third party beneficiary of the agreement by JCC to contribute $1
million annually to the destination marketing program of the City.
HJC has surrendered to the City a portion of the parking facilities leased
from the railroad and has retained an exclusive servitude over the old City
street area of such portion.
JCC will also be required, commencing on the Opening Date and throughout the
term of the Amended Ground Lease, to pay or cause to be paid, on a timely basis,
any other non-discriminatory tax, duty, charge, fee or payment imposed by any
governmental, quasi-governmental or public authority, utility or entity which
arises in connection with the ownership, use, occupancy or possession of the
Casino Development. The Amended Ground Lease further requires JCC to voluntarily
pay ad valorem taxes to the City in the event that any local and special state
legislation is subsequently enacted which relieves JCC of its obligation to pay
the tax.
DEFAULT; TERMINATION. The occurrence of an event of default by JCC under
the Amended Ground Lease could result in injunctive relief, fines, acceleration
of rent, or termination of the Amended Ground Lease, subject to the rights of
leasehold mortgagees. An event of default under the Amended Ground Lease by JCC
includes, among other things: (i) the failure to make any of the payments
described above (excluding the City Payments); (ii) the making of an assignment
for the benefit of creditors or the filing of a bankruptcy petition; (iii) the
unauthorized sale, assignment, pledge, mortgage or transfer of the Amended
Ground Lease or interest in JCC; (iv) the failure to comply with the material
terms of the Amended Ground Lease, the Amended GDA or the Amended Open Access
Program; (v) the amendment of the Management Agreement in a manner that
materially and adversely affects any interests of the RDC; (vi) the hiring of a
casino manager/operator without the approval and prior written consent of the
RDC; (vii) the denial, revocation or suspension of a gaming license to JCC or
HET or any of their respective affiliates; and (viii) the failure to continually
operate the Casino in accordance with the terms of the Amended Ground Lease, or
the Amended GDA, including, without limitation, if the completion date of
Temporary Casino -- Phase I shall not occur on
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or before October 1, 1997, as extended by the number of days of any Force
Majeure and the number of days of any Excusable Delay. Additionally, if the
initial term of JCC's Amended Casino Operating Contract shall expire prior to
the expiration of the initial term of the Amended Ground Lease or the Amended
Casino Operating Contract shall fail to be renewed or extended following due
application, then JCC and RDC each have the right to terminate the Amended
Ground Lease and upon such termination the parties thereto will have no further
rights or obligations thereunder. If RDC or JCC elects not to terminate the
Amended Ground Lease in such circumstance, JCC is obligated to pay only the
Rent, impositions, school board payments, contingent payments (or the market
appreciation right payment, if applicable), and, if applicable, the make whole
payment, and JCC shall be excused from complying with all obligations of the
Amended Ground Lease which directly or indirectly require operation of the
development for Casino gaming operations until such time as a Casino Operating
Contract is re-acquired by JCC.
CHANGE OF USE. The Amended Ground Lease provides that if: (i) a change of
law or the enactment of a new law causes the prohibition, modification,
restriction, or limitation of gaming operations at the Rivergate site in a
manner which materially diminishes the benefits afforded JCC or the gaming
activities permitted to be conducted at the Casino in the manner contemplated by
current law; or (ii) the Amended Casino Operating Contract cannot be renewed
following its expiration because of statutory restrictions in the Gaming Act,
then JCC and the RDC will renegotiate the terms of the Amended Ground Lease in
order to establish the highest and best use permitted by then-current law or,
alternatively, in the case of (ii), JCC shall have the right to terminate the
Amended Ground Lease. The Amended Ground Lease also provides for binding
arbitration in the event that JCC and the RDC are unable to agree on such a
changed use. JCC and the RDC will also negotiate to establish a new rent and
other additional charges payable under a revised ground lease. If the parties
are unable to agree on the new rent and additional charges, the Amended Ground
Lease imposes an appraisal procedure to resolve the dispute.
LIMITATION OF WARRANTIES BY THE RDC AND THE CITY. In the Amended Ground
Lease, the City and the RDC represent and warrant that the City is the owner of
the Rivergate site subject to, among other things, the McCall Litigation or any
other litigation brought by any party which raises similar issues or
allegations, and that the City and the RDC bind themselves to maintain JCC in
actual possession of the Rivergate site. See "Item 8. Legal Proceedings." The
City and the RDC will have no liability if the following occur (i) the laws
permitting the operations of the Casino are repealed or modified; and (ii) a
declaration by a court of competent jurisdiction that the law permitting the
operation of the Casino is unconstitutional, illegal, or unenforceable.
Additionally, if one or more of the following should occur (a) a declaration
that the Amended Ground Lease is invalid, illegal, void, or unenforceable by a
court of competent jurisdiction; (b) the RDC is unable to grant and convey the
leasehold rights provided for under the Amended Ground Lease; (c) a
determination or declaration that the RDC does not have the right, power, and
authority to enter into the Amended Ground Lease; (d) the RDC does not have
clear title to the Rivergate site; or (e) the RDC is unable to maintain JCC in
actual possession of the Rivergate site and, in any of such events, a final,
non-appealable judgment is rendered on the issue of possession, then the Amended
Ground Lease will terminate and the liability of the City and the RDC to JCC (i)
is limited to JCC's actual damages (specifically excluding consequential
damages, such as loss of future profits), (ii) shall be reduced by collateral
source payments, and (iii) shall be limited to future proceeds received by the
City or the RDC from the sale, lease, or other disposition of the Rivergate site
for 10 years from the date of such occurrence, or such lesser time as remains
under the Amended Ground Lease. The Amended Ground Lease obligates the RDC to
use reasonable best efforts to maintain the validity of the Amended Ground
Lease, JCC's actual possession, and to perfect the City's good and merchantable
title. The Amended Ground Lease further provides that if JCC elects to seek
damages against the RDC or the City, JCC may relinquish the right it would
otherwise have to re-lease the Rivergate site if the City and the RDC regain the
ability to lease such site.
INDEMNIFICATION. JCC is required to indemnify the RDC and the City against
all liabilities arising out of or relating to, among other things: (i) the
ownership of the leased premises or any
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improvements thereon; (ii) the operation or management of the Casino
Development; or (iii) noncompliance by JCC with any terms of the Amended Ground
Lease or the Amended GDA. JCC's obligation to indemnify will not apply: (a) to
liabilities caused by the intentional acts or omissions or the sole negligence
of the RDC or the City, or their respective employees, agents, or contractors;
or (b) where the RDC or the City or their respective employees, agents or
contractors are liable with third parties other than JCC, its employees, agents
or contractors. In addition, JCC has also agreed to indemnify the RDC or the
City for environmental liabilities with respect to causes of action arising
after the possession date, other than those caused by the RDC or the City or its
agents or employees, or by third parties, and to assume responsibility for any
environmental cleanup on or under the Casino Development, unless the
environmental contamination arose prior to the possession date, with certain
exceptions. By separate indemnity agreement, the City has agreed to indemnify
JCC from and against the cost of removing PCB's at the Rivergate site.
LIMITATIONS ON SECURED INDEBTEDNESS. After substantial completion of all
components and all phases of the development as required by the Amended GDA, JCC
may encumber its leasehold interest only after first obtaining the RDC's
consent. The RDC's consent is not required if the lender is a "suitable lender"
and the financing secured by such encumbrance satisfies certain objective
criteria described in the Amended Ground Lease. For purposes of any subsequent
financings, HET and entities controlled by, under common control with, or
controlling HET shall be suitable lenders. Under the Amended Ground Lease, the
meaning of "suitable lender" is substantially similar to the definition of
"suitable lender" in the Amended Casino Operating Contract. See "-- Amended
Casino Operating Contract -- Financing." Any leasehold mortgages to be delivered
in connection with the financing contemplated by the Plan of Reorganization are
required to be consistent with the leasehold mortgages provisions of the Amended
Ground Lease. HET and HOC will each be treated as a suitable lender as to any
loan made pursuant to the Amended and Restated Completion Loan documents and the
Amended and Restated Construction Lien Indemnity Obligation Agreement; provided
that such treatment shall not allow HET or HOC to have any additional or longer
cure period than is provided to leasehold mortgagees pursuant to the Amended
Ground Lease. See "-- Amended Casino Operating Contract -- Financing."
LOAN DEFAULT RENT. If as a result of a event of default, JCC's interest in
the Amended Ground Lease is transferred to a new tenant, then: (i) the aggregate
amount of Rent, Gross Gaming Payments and the Gross Non-Gaming Payments for a
full or partial fiscal year must be at least 80% of the amounts paid with
respect to the same period for the immediately preceding full or corresponding
year, and (ii) all Rent increases must be suspended. These adjustments will no
longer apply as soon as the aggregate amount of the payments for a full or
partial fiscal year exceed 80% of the aggregate amount of the payments made with
respect to the immediately preceding full or corresponding fiscal year.
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RESTRICTIONS ON ASSIGNMENT AND SUBLEASING. The Amended Ground Lease may not
be assigned, sold or transferred, nor may JCC enter into a sublease or any space
lease of any portion of the leased premises, without the prior written consent
of the RDC and the City, which may be conditioned on, among other things, the
proposed assignee's satisfaction of certain qualifications regarding net worth,
gaming experience, and other matters and, in the case of a sublessee,
qualifications regarding the type of business contemplated and the size of space
and term of sublease, provided, however, RDC has approved the terms of the
Second Floor Sublease, and space leases in accordance with such Second Floor
Sublease and the Master Plan (as defined herein) shall not require the prior
written approval or consent of RDC. See "-- Second Floor Sublease -- Master
Plan." These restrictions do not apply to leasehold mortgagees under certain
specified circumstances.
RESTRICTIONS ON MANAGEMENT AND OPERATING CONTRACTS. The Amended Ground
Lease prohibits JCC from entering into any management or operating contract with
any person without the prior written consent of the RDC and the City.
RESTRICTIONS ON EQUITY TRANSFERS. The Amended Ground Lease prohibits
certain types of transfers of equity interests in JCC and certain affiliated
entities without the prior written consent of the RDC; provided, however, that
the RDC is limited to seeking an injunction against transferees' participation
in management. Certain transfers of the voting stock of JCC result in the
obligation of such entity effectuating such transfer to pay RDC 2.5% of the
profit realized by such entity from such transfer; provided that no such
transfer payment shall be due in the case of any transfer of Class A Common
Stock or other publicly traded common stock.
NON-COMPETE PROVISIONS. The Amended Ground Lease prohibits JCC and certain
affiliated entities from operating another land-based casino in the State or
within 200 miles of the Casino Development during the term of the Amended Ground
Lease without the prior written consent of the RDC, subject to certain
exceptions.
LIMITATION ON USES OF DEVELOPMENT REVENUES. JCC is prohibited from using
revenues generated at the Casino Development to subsidize persons or entities
that will compete unfairly with the businesses located in Orleans Parish, such
as restaurants, hotels or other commercial enterprises and is also prohibited
from operating any form of ground transportation, except shuttle buses for both
customers and employees, to the metropolitan New Orleans area. Notwithstanding
the foregoing, JCC is permitted to (i) offer shuttle bus service to and from the
Casino and to and from hotels for its customers except in areas where the
operation of buses is prohibited by City traffic ordinances of general
application in effect as of the execution date of a certain agreement with the
City; (ii) offer food service at the Casino to the extent permitted under State
law in effect as of the execution of a certain agreement with the City; (iii)
permit live entertainment on the first floor of the Casino; (iv) permit exterior
signs on the leased premises in appropriate locations, sizes, numbers and
appearance identifying performers; (v) permit charges for boxing or other
specialty events not normally conducted by businesses in the immediate vicinity
of the Casino, as more particularly agreed to in the conditional use
application, subject to the application of any special event charges in
accordance with the Amended Ground Lease; and (vi) permit retail space on the
first floor of the Casino in an area not to exceed 5,000 square feet.
RESIDENCY REQUIREMENTS. The Amended Ground Lease requires that 55% of the
employees of the Casino during the first year following the Opening Date, be
residents of Orleans Parish, with 2% annual increases in such minimum required
percentage amount beginning with the first anniversary of the Opening Date and
continuing on each anniversary of the Opening Date thereafter until the minimum
required percentage amount of employees of JCC who shall live and reside in the
Parish of Orleans during their employment by JCC, during any particular quarter
reported by JCC, shall be 65%, and in each year thereafter such minimum required
percentage shall be 65% (in each such case, subject to reduction to comply with
applicable law). JCC agrees to use its best efforts to maximize hiring in the
Parish of Orleans with the goal that 80% of employees of JCC live and reside in
the Parish of Orleans.
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AMENDED MANAGEMENT AGREEMENT. The Amended Ground Lease requires JCC to
implement and abide by the terms of the Amended Management Agreement (as defined
herein). Further, JCC may not amend the Amended Management Agreement in a manner
that materially and adversely affects the interest of the RDC without the prior
written consent of the RDC and the New Orleans City Council. JCC must give the
RDC at least six months advance notice of any termination of the Amended
Management Agreement. In connection with any termination of the Amended Ground
Lease due to JCC's default, JCC is required to pay the RDC the sum of $5 million
(subject to annual increases in the Consumer Price Index) to be used to
facilitate the transition of the Casino to a new trade name, service mark, or
other identification, unless the RDC has received Rent and other payments
totalling at least $25 million (subject to annual increases in the Consumer
Price Index) in the previous 12 month period. Amendment of the Amended
Management Agreement in a manner that materially and adversely affects any
interest of the RDC, or the hiring or retaining of a casino manager/operator
without the prior written consent of the RDC constitutes an event of default
under the Amended Ground Lease. In the event of early termination of the Amended
Ground Lease, the RDC has the option to lease from JCC owned or leased gaming
equipment at fair market rent and on customary terms.
LIMITATIONS ON ALTERATIONS TO CASINO DEVELOPMENT. The Amended Ground Lease
prohibits JCC from making any alteration to the Casino Development other than
non-structural alterations without the prior written approval of the RDC and the
City. Approval of the City is not necessary for non-structural alterations
except to the extent required by applicable laws and regulations. Further, the
consent of the RDC is required if the total costs of the non-structural
alterations exceeds $250,000, provided that the RDC may not unreasonably
withhold its consent. JCC is not required to seek the consent of the City or the
RDC to a non-structural alteration costing less than $250,000, but JCC is
required to give the RDC copies of the as built plans and specifications on
completion of the nonstructural alterations if any such plans or specifications
have been prepared for JCC.
PROVISIONS REGARDING CASUALTY LOSS. The Amended Ground Lease requires all
insurance proceeds in excess of $500,000 payable following a casualty loss at
the Casino to be paid to an insurance trustee, who will disburse the funds to
pay for the cost of restoring the Casino, subject to specific procedures and
approvals set forth in the Amended Ground Lease. If the insurance proceeds are
insufficient to pay for the restoration of the Casino, JCC is obligated to
complete the work at its own expense. No destruction of, or damage to, the
Casino or any portion thereof will permit JCC to terminate the Amended Ground
Lease, nor will such circumstances give rise to a rent abatement, except under
certain circumstances during the last five years of the term of the Amended
Ground Lease.
PROVISIONS REGARDING CONDEMNATION. If there is a taking by eminent domain
or condemnation of the entirety of the Casino Development, or of so much thereof
that it would be imprudent or unreasonable to continue Casino operations even
after making all reasonable repairs and restorations (a "Major Condemnation")
the Amended Ground Lease will terminate. Thereupon, no party to the Amended
Ground Lease will have any further claims against the other parties thereto, and
each party to the Amended Ground Lease may seek to recover (unless the City or
its agencies are the condemnor) compensation from the condemning authority,
subject to the right of the leasehold mortgagees to be paid in full for the
first ten years of the Amended Ground Lease and thereafter on a declining scale.
If a Major Condemnation occurs by the City or its agencies, JCC has the right to
receive compensation from the condemning authority subject to the right of
leasehold mortgagees to be paid in full. If any taking or condemnation other
than a Major Condemnation occurs, the Amended Ground Lease will remain in full
force and effect, the Rent and additional charges payable thereunder may be
adjusted, and JCC will be obligated to restore the Casino as early as possible
to its prior condition. The proceeds of any condemnation award will be held by
an escrow agent selected by JCC and the RDC, to be disbursed in the manner set
forth in the Amended Ground Lease. If the amount of the condemnation award or
awards is insufficient to pay for restoring the Casino, JCC is obligated to
complete the restoration work at its own expense.
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CAPITAL REPLACEMENT FUND. The Amended Ground Lease requires JCC to
establish a capital replacement fund. Beginning on the first full calendar month
after the Opening Date of the Casino, JCC is required to fund monthly payments
into the capital replacement fund in an aggregate amount equal to $3 million for
the first twelve months following the Opening Date, $4 million for the second
twelve months following the Opening Date, and $5 million for the third twelve
months following the Opening Date. For each successive twelve month period
thereafter, JCC is required to contribute to the capital replacement fund 2.0%
of Gross Gaming Revenue and Gross Non-Gaming Revenue. The Amended Ground Lease
specifies the purposes for which sums in the capital replacement fund may be
used and sets forth rules for carrying forward, retaining, and replenishing the
capital replacement fund.
SAVINGS AND RETIREMENT PLAN. Subject to restrictions under applicable law
and any changes therein that may from time to time be elected by JCC, JCC
Development (as defined herein) or the Manager, employees of the Casino premises
will be given the opportunity to participate in the savings and retirement plan
or any other successor, substituted or amended plan of HET and its affiliates
(the "Harrah's S&RP"). Changes to the Harrah's S&RP is not a default under the
Amended Ground Lease or in any way actionable by City or RDC as long as any
change or modification to the savings and retirement plans plan(s) are not
discriminatory to employees of the JCC, JCC Development and/or the Manager.
DISPOSITION OF EXCESS PROCEEDS FOLLOWING FORECLOSURE. The Amended Ground
Lease provides that a mortgagee who forecloses upon the Casino Development and
subsequently receives proceeds from the sale of the Casino property in excess of
the unpaid indebtedness plus costs shall pay 50% of such excess proceeds to the
RDC, subject to any rights of JCC to such excess proceeds. RDC and City
acknowledge and agree in the Amended Ground Lease that the holders of the New
Notes and the New Contingent Notes have not received excess proceeds in
connection with the transactions contemplated by the Plan of Reorganization and
RDC is entitled to no additional compensation under the Amended Ground Lease in
connection therewith.
AMENDED OPEN ACCESS PROGRAM. As additional consideration for the Amended
Ground Lease, JCC is obligated to comply with adoption of the Amended Open
Access Program and agrees to use its best efforts and due diligence to achieve
the goals and objectives and to satisfy the commitments stated in the Amended
Open Access Program under the penalties stated therein. JCC covenants to require
the Manager to comply with the Amended Open Access Program in all hiring,
employment and contracting decisions. See "-- Amended General Development
Agreement" and "-- Risk Factors -- Open Access Program."
AMUSEMENT TAX. The City imposes a 5% amusement tax on certain receipts. The
Amended Ground Lease provides that JCC will be obligated to collect and remit to
the City an amusement tax only with respect to certain special events and that
the amusement tax need not be collected or remitted with respect to wagers or
Gross Gaming Revenues. If, however, a court determines in a final non-appealable
judgment that the amusement tax is applicable to JCC's receipts other than
receipts from special events, JCC may set off the amount of the amusement tax
collected against future Rents, future Gross Gaming Payments and future Gross
Non-Gaming Payments. See "-- Risk Factors -- Taxation."
AMENDED CASINO OPERATING CONTRACT
The Company expects that, in connection with the Plan of Reorganization, the
LGCB and JCC will enter into an Amended Casino Operating Contract which will
address the new opening dates and phased-in opening schedule for the Casino, the
modified size and design of the Casino, the payments due to the LGCB pursuant to
such contract, and other financial and operational considerations. Although the
Proponents of the Plan of Reorganization are currently negotiating with the
State and the LGCB regarding such changes, no agreements have been reached. The
following is a summary of the original Casino Operating Contract.
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TERM, FEES AND IMPOSITIONS. Pursuant to the Casino Operating Contract, HJC
has the right to conduct gaming operations at the Casino. Under the Casino
Operating Contract, the Casino is required to be located at the site of the
former Rivergate Convention Center. The Casino Operating Contract provides that
it is revocable in accordance with the terms thereof. The term of the Casino
Operating Contract is 20 years from July 1994 with one 10 year renewal option.
Under the Casino Operating Contract, HJC paid the LEDGC an initial payment
of $125 million (the "Initial Payment") in installments. In addition to the
Initial Payment, under the Casino Operating Contract, JCC is required to pay to
the LEDGC the "Gross Revenue Share Payments." The Gross Revenue Share Payments
from the Temporary Casino are equal to 25% of the gross gaming revenue from the
Temporary Casino. The Gross Revenue Share Payments from the Casino are equal to
the greater of (i) $100 million and (ii) the sum of the following percentages of
the gross gaming revenue in each year from the Casino:
(i) 19% of gross gaming revenue up to and including $600 million; plus
(ii) 20% of gross gaming revenue in excess of $600 million up to and
including $700 million; plus
(iii) 22% of gross gaming revenue in excess of $700 million up to and
including $800 million; plus
(iv) 24% of gross gaming revenue in excess of $800 million up to and
including $900 million; plus
(v) 25% of gross gaming revenue in excess of $900 million.
The Gross Revenue Share Payments are paid on a fixed daily basis with a monthly
reconciliation in accordance with the formula above. The amount of the daily
payment for the Temporary Casino is $271,260. The amount of the daily payment
for the Casino is $273,972 through the end of its first full year of operation.
Thereafter, the daily payment is 1/365 of the greater of $100 million or the
actual amount of the Gross Revenue Share Payments for the previous year.
Under the Casino Operating Contract, the LGCB shall own that portion of the
daily collections from gaming operations equal to the amount of the daily
payment. HJC is prohibited from entering into any contract or other agreement
that permits or purports to permit HJC or any other person to claim rights or
interest in or to the Gross Revenue Share Payments, including the daily
payments. The daily payments are required to be deposited directly into an LGCB
account by the next business day after collection without any portion thereof
having been deposited in any other account.
Under the Casino Operating Contract, HJC is permitted to grant to one or
more leasehold mortgagees a security interest in the funds owned by HJC if the
instrument granting the security interest clearly states that the security
instrument does not extend to the LGCB's ownership interest in the Gross Revenue
Share Payments, including the daily payments. The leasehold mortgagee is
required to acknowledge that its leasehold mortgage does not extend to the
LGCB's ownership interests in the Gross Revenue Share Payments.
If HJC fails to pay as and when due any amount due the LGCB under the Casino
Operating Contract, in addition to other consequences of default, the amount
past due bears interest at a default interest rate equal to the greater of the
prime rate of Citibank N.A. or its successor plus 5% or 15% per annum.
EXCLUSIVE CONTRACT. The Casino Operating Contract is exclusive in Orleans
Parish. The Casino Operating Contract provides that if another land-based casino
is authorized to operate in Orleans Parish during the term of the Casino
Operating Contract, HJC is relieved of the obligation to pay the Gross Revenue
Share Payments. HJC is not relieved of the obligation to pay additional charges
or to perform its non-monetary obligations under the Casino Operating Contract,
including construction and operation of the Casino.
The Casino Operating Contract acknowledges a dispute about the effect of
dockside riverboat gaming operations on HJC's payment obligations under the
Casino Operating Contract. The State's
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position is that dockside riverboat gaming does not constitute additional
land-based casino gaming operations and therefore would not relieve HJC of
payment of the Gross Revenue Share Payments. HJC's position is that dockside
riverboat gaming is additional land-based casino gaming operations and therefore
would relieve HJC of the obligation to make Gross Revenue Share Payments. The
Casino Operating Contract acknowledges the expectation that this issue will be
resolved by the legislature. In order to provide sufficient time for the
legislature to act, HJC agreed to a moratorium of up to one year in which HJC
would not contest its obligation to pay the Gross Revenue Share Payments as a
result of dockside riverboat gaming. After the expiration of the moratorium, HJC
may exercise its rights or remedies, if any, otherwise available as a result of
dockside riverboat gaming, except HJC cannot seek the return of funds paid to
the LEDGC during the moratorium period. If the legislature fails to address the
dockside issue during the moratorium period, HJC must continue to make Gross
Revenue Share Payments until the earliest to occur of: (i) the expiration of two
years after December 15, 1994, if a court has entered an interim order or
judgment (other than a final judgment) relieving HJC of its obligation to pay
all or part of the Gross Revenue Share Payments; (ii) after the expiration of
two years from December 15, 1994, the rendition by a court of an interim order
or judgment (other than a final judgment) relieving HJC of its obligation to pay
all or part of the Gross Revenue Share Payments; (iii) the rendition of a final
judgment by a court adjudicating that dockside riverboat gaming is land-based
casino gaming or otherwise relieving HJC from its obligation to make Gross
Revenue Share Payments; or (iv) the effective date of an enactment of the
legislature addressing the dockside issue. HJC may not to seek return of funds
paid during the period HJC is obligated to make Gross Revenue Share Payment
pursuant to the foregoing provisions of the Casino Operating Contract.
RULES AND REGULATIONS. Under the Casino Operating Contract, HJC
acknowledged and consented to the LEDGC's rule and regulation making authority.
JCC is obligated to comply with current and future rules and regulations. The
rules and regulations and the Casino Operating Contract are intended to be
complementary. The Casino Operating Contract provides, however, that future
rules and regulations may supersede certain provisions of the Casino Operating
Contract but that certain other provisions of the Casino Operating Contract
cannot be superseded by rule or regulation, including the term, compensation,
exclusivity, timetables, events of default, remedies and lender protection
provisions. The Casino Operating Contract provides that if there is a conflict
between the Casino Operating Contract and such rules and regulations, the Casino
Operating Contract will prevail unless a superseding rule or regulation is
contemplated by the Casino Operating Contract and the LEDGC expressly declares
that the rule or regulation is intended to supersede the Casino Operating
Contract.
CASINO MANAGER. Under Casino Operating Contract, HJC cannot amend the
Management Agreement or enter into a new casino management contract without the
LGCB's approval. The acts and omissions of the Manager are deemed to be the acts
and omissions of HJC for purposes of the Casino Operating Contract.
FINANCIAL STABILITY. Under the Casino Operating Contract, HJC must remain
financially stable. HJC is deemed to be financially stable if HJC: (i) maintains
an adequate casino bankroll; (ii) has the ability to satisfy its operating
expenses; (iii) has the ability to pay its debts that will mature or otherwise
become due and payable during the next twelve-month period; (iv) has made all
required payments to the capital replacement fund; and (v) maintains extra
liquidity in the form of cash, cash equivalents or a letter of credit in the
amount of $5 million, which amount may be adjusted by the LGCB to take into
account changes in the consumer price index. During the existence of a financial
stability default, the LGCB may impose orders or regulatory conditions,
including the appointment of a fiscal agent.
SUITABILITY. Under the Casino Operating Contract, HJC and the Manager are
required to remain "suitable" as that term is defined in the Gaming Act. The
LGCB may terminate the Casino Operating Contract if the LGCB determines that HJC
or the Manager is not suitable. If the LGCB determines that HJC or a holder of a
debt or equity interest in HJC or any of their respective affiliates is not
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suitable, the LGCB must provide notice of this determination to HJC. If HJC
pursues certain remedial actions designed to insulate itself from the unsuitable
person, it may protect itself against regulatory action if certain requirements
are met. The safe harbor requirements obligate HJC or its affiliates to take
immediate good faith action to cause the unsuitable person to dispose of the
person's interest in HJC or its affiliates and, pending the disposition, HJC or
its affiliates, as the case may be, must ensure that the unsuitable person: (i)
does not receive dividends or interest on the securities of HJC or its
affiliates; (ii) does not exercise, directly or indirectly, including through a
trustee or nominee, any right conferred by the securities of HJC or its
affiliates; (iii) does not receive any remuneration from HJC or its affiliates;
(iv) does not receive any economic benefit from HJC or its affiliates; and (v)
subject to the disposition requirements, does not continue in an ownership or
economic interest in HJC or its affiliates or remain as a manager, officer,
director, partner, employee, consultant or agent of HJC or its affiliates. This
safe harbor does not apply if HJC or its affiliates, as the case may be (a) had
actual or constructive knowledge of the facts that are the basis of the
regulatory action and failed to take appropriate action; (b) is so tainted by
the unsuitable person to affect the suitability of HJC or its affiliates; or (c)
cannot meet the suitability standards contained in the Gaming Act and the rules
and regulations.
DAYS AND HOURS OF OPERATION. With certain limited exceptions, the Casino
Operating Contract requires HJC to operate the Casino 24 hours a day, seven days
a week.
TIMETABLES AND OUTSIDE DATES. Under the Casino Operating Contract, HJC is
required to satisfy a number of obligations by the deadlines stated therein. The
outside dates will be extended by the number of days HJC is prevented or delayed
from satisfying a particular obligation as a result of force majeure. Force
majeure (for purposes of the Casino Operating Contract only) includes only the
following events, provided HJC has not caused or contributed thereto: (a) an act
of God, including flood, hurricane, earthquake and lightning, excluding
excessive rain not resulting in a flood; (b) a lawsuit that enjoins or restrains
HJC from performing an obligation under the Casino Operating Contract; (c) war,
riot or insurrection; or (d) fire or other casualty.
RESTAURANT, LODGING AND RETAIL RESTRICTIONS. The Casino Operating Contract
incorporates the restrictions in the Gaming Act prohibiting certain restaurant,
lodging and retail operations.
CAPITAL REPLACEMENT FUND AND SINKING FUND. The Casino Operating Contract
obligates HJC to maintain a capital replacement fund and a sinking fund. The
capital replacement and sinking funds are the same as those required pursuant to
the Ground Lease and is not meant to duplicate the capital replacement and
sinking fund obligations under the Ground Lease.
OTHER COVENANTS AND CONDITIONS. The Casino Operating Contract contains a
number of other covenants on the part of JCC, including adherence to
nondiscrimination policies and practices; giving preference and priority to
Louisiana residents in obtaining goods and services; employment of minorities at
least consistent with the minority population of the State; production of
documentation on the holders of notes or indentures or other evidences of
indebtedness; performance of obligations under the Ground Lease, the General
Development Agreement and the Management Agreement; limiting accessibility to
the Casino by persons under the age of 21; and maintaining the Casino in a
clean, safe and first-class condition. HJC also cannot amend the Ground Lease,
the Management Agreement, or the General Development Agreement without the
LEDGC's approval.
DESIGN AND CONSTRUCTION. HJC is required to obtain prior approval from the
LGCB of any material change to the design development documents or the
construction documents with respect to the Casino and for any subsequent
alterations that would constitute a material change.
INDEMNIFICATION. Under the Casino Operating Contract, HJC is required to
indemnify the LGCB against all liabilities arising out of or relating to, among
other things: (i) the failure of HJC, the Manager or a lessee to comply with the
terms of the Casino Operating Contract; (ii) the construction, demolition or
remodeling of the Casino or the performance of any work or alteration; (iii) the
failure of JCC, the Manager or a lessee to comply with the terms of the Ground
Lease, the General Development
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Agreement, the Management Agreement or any other agreement affecting the Casino
to which HJC, the Manager or a lessee is a party; (iv) any personal injury,
death or property damage suffered or alleged to have been suffered in, on or
about the Casino; (v) any act, omission or other negligence of HJC, the Manager,
any lessee or their respective employees, agents or servants; or (vi) any
failure of HJC, the Manager or a lessee to comply with applicable law. HJC's
obligation to indemnify the LGCB will not apply with respect to claims that are
based upon: (a) the sole negligence or intentional fault of the LGCB; (b) a
finding of unsuitability that has been adjudicated by a proper court to have
been arbitrary and capricious; (c) the joint or solitary fault of the LGCB, the
State or any person for whom either is vicariously liable with a third party or
parties other than HJC, the Manager or their respective affiliates, or (d) a
breach of the Casino Operating Contract by the LGCB. HJC is required to
indemnify the State in the event a judgment is rendered against the State as a
result of the actions of JCC or its agents.
DEFAULT; TERMINATION. The occurrence of a default of a material obligation
by HJC could result in the termination of the Casino Operating Contract, subject
to the rights of leasehold mortgagees. Such default includes, among other
things: (i) the failure to pay the installments of the Gross Revenue Share
Payments or any other payment; (ii) financial instability of HJC; (iii)
unsuitability of HJC or the Manager; (iv) unsuitability of certain other persons
required to be found suitable if HJC does not satisfy the safe harbor
requirements; (v) conviction of HJC of conduct that, in the applicable
jurisdiction, is punishable as a felony or equates to a felony in the State;
(vi) adjudication of HJC as being in default under the Ground Lease, the General
Development Agreement or the Management Agreement and, in the LGCB's opinion,
the default materially affects HJC's ability to perform its obligations under
the Casino Operating Contract; (vii) the Casino Operating Contract, or any right
created thereby, is taken, seized or attached and the execution, seizure or
attachment is not released within five days; (viii) HJC makes a general
assignment for the benefit of creditors; admits in writing its insolvency or
inability to pay its debts; is adjudged to be insolvent; files a petition or
other request for relief seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief; files an answer or
other pleading admitting or not contesting the material allegations of, or
stipulating to the relief sought in, a petition filed against it in any such
proceeding; seeks or consents or acquiesces in the appointment of a trustee,
administrator or liquidator for HJC or a material part of its assets; or if HJC
voluntarily liquidates or dissolves; or (ix) HJC fails to perform or comply with
any other material obligation in the Casino Operating Contract. The LGCB is
required to provide notice and an opportunity to cure a default. Subject to the
rights of the leasehold mortgagees, if HJC does not cure a default within the
time period provided in the Casino Operating Contract, the LGCB may terminate
the Casino Operating Contract, enforce the obligation in default and exercise
any other right or remedy available to the LGCB, including the imposition of
fines.
FINANCING. All financing must be approved by the LGCB and is required to be
obtained from suitable lenders. The following lenders are presumed to be
suitable: (i) an insurance company regulated by any state of the United States;
(ii) an investment company registered under the Investment Company Act of 1940;
(iii) a plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political subdivisions, for
the benefit of its employees; (iv) a trust fund the trustee of which is a bank
or trust company and the participants of which are exclusively plans of the type
identified in clause (iii) above; (v) an investment adviser registered under the
Investment Adviser's Act of 1940; (vi) a real estate investment trust registered
under the Investment Adviser's Act of 1940; (vi) a real estate investment trust
registered with the United States Securities and Exchange Commission; (vii) a
dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;
(viii) a qualified institutional buyer as defined in Rule 144A under the
Securities Act of 1933 and any entity, all of the equity owners of which are
qualified institutional buyers, acting for their own accounts or the accounts of
other qualified institutional buyers; (ix) a bank as defined in Section 3(a)(2)
of the Securities Act of 1933, a savings and loan association or other
institution as referenced in Section 3(a)(5)(A) of the Securities Act of 1933,
or any foreign bank or savings and loan association or equivalent institution or
an investment fund that participates in a bank syndication (and any purchaser
that takes an assignment interest in the bank syndication);
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(x) any business development company as defined in Section 2(a)(48) of the
Investment Company Act of 1940; (xi) any business development company as defined
in Section 202(a)(22) of the Investment Adviser's Act of 1940; and (xii)
investors purchasing debt securities of HJC (or a subsidiary of HJC) in a public
offering registered pursuant to the Securities Act of 1933 or through a private
placement, and any investor purchasing such debt securities in a subsequent
sale, provided, however, that such debt securities are widely held and freely
traded (and the investor holds no more than 20% of HJC's total debt or 50% of a
material debt issue) so as not to give an investor the ability to control HJC or
the Manager. The LGCB may at any time determine that the presumption of
suitability no longer exists for a lender if either (a) the lender exercises
control or intends to exercise control over HJC or the Manager, or (b) the LGCB
receives information indicating that the lender may not meet the suitability
requirements. If the presumption of suitability no longer exists, the lender is
required to demonstrate its suitability in accordance with the terms of the
Gaming Act.
HJC is not required to obtain the LGCB's approval for financings if the
lenders are suitable and: (i) the principal amount of the new debt does not
exceed the sum of the debt refinanced, capital improvements funded from proceeds
of the additional financing and transaction costs related to the financing; (ii)
the pre-tax cash flow of HJC is not less than 1.75 times the amount of annual
interest payable with respect to the debt incurred in the financing; or (iii)
the financing is permitted by the LGCB's rules and regulations.
The Casino Operating Contract provides protections to the leasehold
mortgagees, including notice of a default and 45 business days within which to
cure the default after the expiration of the casino operator's cure period. The
leasehold mortgagees also have the right to seek the appointment of a receiver.
Upon the appointment of a receiver and the posting of a bond by the receiver,
the receiver is issued a one time, nonrenewable provisional contract by the LGCB
to continue operation of the Casino until the receivership is terminated. The
leasehold mortgagee provoking the appointment of a receiver is required to pay
the cost of the receiver's bond and the cost of operating the Casino during the
term of the receivership to the extent that costs exceed available revenues. If
the leasehold mortgagee that provoked the receivership provides notice of its
intent to withdraw financial support of the receivership, upon 90 days notice,
the leasehold mortgagee will not be responsible for any costs or expenses of the
receivership after the date specified in its notice. The Casino Operating
Contract provides for the effects of termination of the receivership, which may
result in the Casino Operating Contract being terminated and the right to
operate the Casino being rebid.
TRANSFER RESTRICTIONS. Under the Casino Operating Contract, HJC cannot
transfer or encumber the Casino Operating Contract, the Management Agreement,
the Ground Lease or the General Development Agreement, or any interest therein,
without the approval of the LGCB. The LGCB may in all cases impose conditions to
its approval. The LGCB is required to give notice and an opportunity to cure a
violation of the transfer restrictions. With respect to a transfer or
encumbrance by someone other than HJC in violation of the transfer restrictions,
the transfer or encumbrance will not be a default by HJC if HJC complies with
the safe harbor requirements and insulates itself in the manner required by the
Casino Operating Contract. Additionally, under the Gaming Act, partners of HJC
cannot transfer or encumber an equity interest in HJC without the approval of
the LGCB.
COMPLETION GUARANTEE. Pursuant to the Casino Operating Contract, the
Completion Guarantors must provide to the LGCB a guarantee of the completion of
construction of the Casino, subject to the terms of such completion guarantee.
AMENDED MANAGEMENT AGREEMENT
GENERAL. JCC and the Manager expect to enter into an amended and restated
management agreement (the "Amended Management Agreement") granting the Manager
the sole and exclusive right to manage and operate the Casino. The Manager is
responsible for and has authority over, among other things: (a) gaming and
entertainment operations including security and internal control procedures; (b)
public relations and promotion; (c) all accounting, budgeting, financial and
treasury functions at the Casino; (d) retaining certain contractors; and (e)
performing certain other obligations
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of JCC identified by JCC. During the term of the Amended Management Agreement,
JCC is required to fund the cost of operating the Casino and is responsible for
constructing, equipping and furnishing the Casino, maintaining JCC's leasehold
estate and obtaining and maintaining licenses and permits to conduct business.
The Manager is required to operate the Casino in accordance with the
operational practices applied at Harrah's Atlantic City Casino. If HET ceases to
operate its Atlantic City Casino, then the Manager must operate the Casino in
the same manner in which HET operates casinos with similar operations and market
characteristics. The Casino's physical plant will be gauged based on its
condition following completion as described by the plans and specifications
together with any capital improvements required by HET for all casinos of
similar market characteristics or in the absence of such similar casinos, then
HET's Atlantic City Casino, if managed by HET or any HET affliate and if not,
then by reference to such other casino both operated and designated by HET as
similar in physical character as practical.
TERM. The Amended Management Agreement has an initial term expiring twenty
years after the date of the Amended Management Agreement and may be extended for
four consecutive terms of ten years each. If JCC fails to complete Temporary
Casino -- Phase II on or before September 15, 1997, the Manager may terminate
the Amended Management Agreement without recourse to JCC.
CAPITAL REPLACEMENT RESERVE. Under the Amended Management Agreement, the
Manager on behalf of JCC shall deposit a reserve for capital replacements and
improvements of $3.0 million for the first twelve month period following
completion of Temporary Casino -- Phase I, $4 million for the second twelve
month period following completion of Temporary Casino -- Phase I, $5 million for
the third twelve month period following completion of Temporary Casino -- Phase
I, and 2% of gross revenues of the Casino for each fiscal month thereafter.
Following the fifth anniversary of the opening of the Casino, JCC shall have no
obligation to make a contribution to the reserve fund to the extent such
contribution would cause the reserve fund to exceed the lesser of (A) the sum of
JCC's contribution to the reserve fund in the two years that immediately precede
the date such contribution is to be made, and (B) the balance of the reserve
fund at the end of the fiscal year that immediately precedes the date such
contribution is to be made plus the estimated contribution to the reserve fund
in the ensuing fiscal year less the estimate of the capital replacements and
capital improvements budget for the ensuing fiscal year. Any expenditures for
capital replacements or improvements which have been budgeted in an annual plan
may be paid from the reserve fund. Upon expiration or termination of the Amended
Management Agreement, all amounts then held in a reserve fund will be
distributed to JCC after compliance with JCC's obligations under the Amended
Ground Lease which must be satisfied from the reserve fund and after payment of
any amounts owed to the Manager under the Amended Management Agreement.
BOOKS AND RECORDS; BUDGET. The Manager is responsible for maintaining the
books and records of the Casino. A certified audit will be performed within 90
days after the end of each fiscal year and upon termination or expiration of the
Amended Management Agreement. The audit will be performed by one of three firms
to be selected by the Manager: KPMG Peat Marwick, Deloitte & Touche, or Arthur
Andersen LLP. The Manager will also be responsible for preparing an annual plan
for JCC's review and approval. The annual plan will consist of a statement of
the estimated income and expenses for the coming fiscal year, including
estimates as to gross revenues, operating costs and capital replacements; a
business and marketing plan for the upcoming fiscal year; and a projection of
the minimum balance which must remain in the bank account in the "house bank" as
of the end of each month to assure sufficient monies for working capital
purposes, the "house bank" and other expenditures authorized under the annual
plan. Within twenty days from the date the proposed annual plan is delivered to
JCC, the Manager and JCC will conduct an in-depth review of the plan including
comparisons with the prior year's plan. The Amended Management Agreement
requires the Manager and JCC to resolve all disputes regarding the proposed
budget through arbitration. The Amended Management Agreement also grants the
Manager the discretion to reallocate part or all of the amount budgeted with
respect to any line item to another line item in the same department and to
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make expenditures not authorized under the applicable annual plan under certain
circumstances. The Manager may, from time to time during the fiscal year, submit
a revised annual plan to JCC for approval. If the revised annual plan is not
approved, the Manager may submit the revised annual plan to arbitration. JCC
must establish a bank account with a minimum balance of $2 million at the time
of the Casino's opening and a "house bank" in the amount of $10.8 million. This
minimum balance at the house bank may be increased by the Manager during the
first year following opening to reflect needs revealed by the experience of
actual Casino operations and again at the time of each annual plan. The Manager
has absolute control of the bank accounts and all gross revenues of the Casino
passed through the bank accounts.
FEES. The Manager is entitled to receive a management fee (the "Management
Fee") having two components. The first component (the "Base Fee") shall equal 3%
of gross revenues of the Casino. The second component (the "Incentive Fee")
shall equal 7% of Consolidated EBITDA in excess of $75 million per annum, with
appropriate proration of such threshold for any partial year following the
Opening Date of Temporary Casino -- Phase I and preceding the termination of the
Amended Management Agreement, as the case may be. The Base Fee shall be payable
to the Manager monthly. The Incentive Fee, if any, shall be payable to the
Manager at six month intervals on the next business
day following actual cash payment of all accrued fixed interest and contingent
interest, if any, on the Notes pursuant to the Plan of Reorganization. In
addition, the Manager is entitled to receive a travel fee equal to $100,000 per
year, subject to adjustment by the consumer price index, and a "marketing
contribution" equal to 0.4% of the Casino's net revenues which may be used for
advertising services, special promotions, public relations and other marketing
services. HET's affiliates may pool this marketing contribution with
contributions made by other participating casinos owned or managed by HET's
affiliates. No base management fee shall be paid, and no incentive management
fee shall be accrued or paid, during or with respect to any period in which JCC
is in default with respect to interest or principal payments under the Notes.
Any unpaid base management fees shall be deferred and payable to the Manager out
of first available funds following payment of amounts due and payable under the
Notes.
INDEMNITY. JCC is required to indemnify and hold the Manager harmless from
any liability for injury and must reimburse the Manager for any money damages to
property which the Manager is required or authorized to pay for any reason.
Excluded from JCC's indemnity is any liability not covered by insurance which
results solely from the proven willful misconduct of, or willful, wanton or
reckless disregard of injury certain to occur as a result of acts by, any "Key
Casino Personnel" if and to the extent that their willful misconduct or willful
wanton or reckless disregard involves directing the activity at the Casino that
results in a liability and the liability is proximately caused by such
direction. "Key Casino Personnel" include, among others, the Casino's general
manager, vice president of operations, and vice president of marketing and
certain of HET's corporate officers. The Manager is required to indemnify and
hold JCC harmless from any liability not covered by insurance which results
solely from the proven willful misconduct of, or willful, wanton or reckless
disregard of injury certain to occur as a result of, actions by any of the Key
Casino Personnel if and to the extent that their willful misconduct or willful,
wanton or reckless disregard involves directing activity at the Casino that
results in a liability proximately caused by the direction.
TERMINATION OF AMENDED MANAGEMENT AGREEMENT. In the event the Rivergate
site is destroyed or substantially destroyed by casualty, or title to the
Rivergate site becomes impaired, and the cost of restoring or curing the title
impairment exceeds the insurance proceeds, JCC and the Manager may terminate the
Amended Management Agreement. Upon such termination, the Manager will be
entitled to receive a "termination fee," as described below. In the event the
Rivergate site is condemned or the Amended Casino Operating Contract is revoked
through no fault of JCC, then the Amended Management Agreement will be
terminated and the Manager will receive a termination fee. If the Manager or any
of its affiliates is determined by the LGCB to be unsuitable to conduct gaming,
JCC
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shall be entitled to terminate the Amended Management Agreement upon 60 days'
prior notice and payment of the termination fee. Other than as described herein,
JCC has no right to terminate the Amended Management Agreement in the absence of
a default by the Manager.
In addition, upon the happening of certain events, the Manager is entitled
to declare an event of default by JCC, entitling it to terminate the Amended
Management Agreement and receive the termination fee. These events include: (i)
a breach of the Amended Management Agreement by JCC which is not cured within
the agreed cure period; (ii) failure by JCC to reconstruct the Casino following
casualty or partial condemnation; (iii) dissolution or bankruptcy of JCC or the
Manager or any person directly or indirectly controlling them or a general
assignment for the benefit of its creditors; or (iv) if JCC passes title to the
Casino or any part thereof in lieu of foreclosure or if an action to foreclose
any mortgage in the Casino is instituted against JCC and is not dismissed within
thirty days thereafter; or (v) if any person or entity that would, if associated
with JCC, any of JCC's affiliates or the Manager, impair or cause the denial,
suspension or revocation of any gaming or alcoholic beverage registration,
permit, license, right or entitlement held by or applied for by JCC, the Manager
or their respective affiliates (a"Non-Qualified Person") acquires any legal or
beneficial interest in JCC or its affiliates, or any indebtedness of JCC or its
affiliates, and such Non-Qualified Person owns such interest for more than 30
days. The termination fee payable to the Manager is equal to three times the
average amount of annual management fees earned in the 24 fiscal months
preceding termination, but, until the end of the third full fiscal year
following the opening of the Casino, not less than $72 million adjusted by
increases in the Consumer Price Index. If the event entitling the Manager to the
termination fee is triggered by a decision of JCC not to rebuild the Casino
following condemnation, revocation of the Amended Casino Operating Contract,
failure of title or termination of the Amended Ground Lease, in each case
through no fault of JCC, then the termination fee is equal to 10% of the net
proceeds of condemnation or casualty which, for this purpose, means a total of:
(a) the entire award made by a condemning authority; (b) all compensation,
however described, through revocation of the Amended Casino Operating Contract;
(c) the entire title insurance or property insurance proceeds paid by an insurer
to JCC; and (d) the fair market value of JCC's remaining assets, in each case
less JCC's remaining liabilities. If the event of default entitling the Manager
to receive the termination fee involves a monetary default and an affiliate of
the Manager is an owner in JCC at the time of default, then, under certain
circumstances, the Manager is not entitled to collect the termination fee if the
Manager terminates the Amended Management Agreement for the resulting event of
default. If the Manager, or the Manager affiliate that is an owner in JCC, is
determined to be unsuitable to conduct gaming operations at the Casino, JCC may
terminate the Amended Management Agreement and, until the third anniversary of
the opening of the Casino, by paying to the Manager the termination fee subject
to the limitation of applicable law.
NON-COMPETE. JCC and the Manager agree that neither of them may develop,
own, finance or manage casino or other gaming operations in Orleans,
Plaquemines, St. Charles, St. Tammany, Jefferson or St. Bernard Parishes,
Louisiana.
SUCCESSORS AND ASSIGNS. The Manager is not required to seek JCC's consent
to the following, none of which would constitute an event of default under the
Amended Management Agreement: (i) any assignment by the Manager of its
obligations, rights or interests under the Amended Management Agreement to an
affiliate of the Manager; (ii) any transfer of all or substantially all of the
Manager's and its affiliates' gaming business; (iii) any corporate
reorganization of the Manager and its affiliates; or (iv) any transfer of
publicly-held stock in the Manager or any of its affiliates. In the event of
such an assignment, the Manager may be released from its obligations under the
Amended Management Agreement, and the Amended Management Agreement contains no
provisions that prohibit assignment to a financially unstable entity. JCC may
not in any manner, voluntary or involuntarily, directly or indirectly, partition
(or seek the partition of), sell, assign or transfer any of its legal or
beneficial interest in the Casino or the Amended Management Agreement without
prior written consent of the Manager (which consent may be withheld for any
reason).
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MISCELLANEOUS. If there is a conflict between the terms of the Amended
Management Agreement and the terms of the Amended Ground Lease, the terms of the
Amended Ground Lease will control.
LICENSING AGREEMENT
The Company expects JCC to enter into a licensing agreement with the
subsidiary of HET which owns the mark "Harrah's" pusuant to which JCC will
obtain a license to use "Harrah's" in the name of the Casino and on its signage
and advertising.
COMPLETION GUARANTEES
The Company expects that pursuant to Completion Guarantees in favor of the
holders of the Notes, the City/RDC, and the State/LGCB (the "Beneficiaries"),
the Completion Guarantors will agree to complete the Casino, will guarantee the
payment of project costs, preopening expenses and cashloads, and working capital
through Second Floor Shell Construction -- Phase III, and will guarantee
construction costs with respect to Permanent Casino -- Phase IV to the extent
that the funds necessary to pay such costs are not available from operations and
exceed the difference between $165 million and the amount of indebtedness
outstanding under the Construction Credit Facility. In addition, the Company
expects that the Completion Guarantors will agree to ensure that, upon the
completion of Second Floor Shell Construction -- Phase III, JCC has $5.0 million
of cash and $10 million of availability under the Working Capital Facility. The
Completion Guarantees are not for the benefit of, and are not enforceable by,
the holders of equity interests in JCC Holding, including holders of Class A
Common Stock.
The Completion Guarantees are subject to a number of important exceptions
and qualifications. The Completion Guarantors' obligation to complete the Casino
does not take effect until and unless JCC fails or neglects to complete any
phase of the Casino, fails in any other manner to prosecute with diligence and
continuity the completion obligations, fails timely to pay any of the project
costs, or files for bankruptcy. See "-- Material Agreements -- Amended
Completion Loan Agreement." In addition, the Completion Guarantors' obligations
under the Completion Guarantee are suspended during the pendency of any Force
Majeure event. See "-- Risk Factors -- Completion Guarantees."
The Completion Guarantees terminate upon the occurrence of any of the
following: (i) the termination of the Amended Ground Lease or the Amended GDA
other than as a result of a breach or default by JCC, (ii) any action by the
legislature or any governmental agency the result of which is that gaming as
currently proposed to be conducted at the Casino is substantially diminished,
(iii) JCC's rights under the Amended Casino Operating Contract shall have been
terminated in any material respect, other than as a result of a breach by JCC,
(iv) as to the guarantee of the project costs but not as to the guarantee of the
construction costs, a Force Majeure shall have continued for more than one year
from the first to occur of a notice from the Beneficiaries to Completion
Guarantors that the Completion Guarantors' obligation to complete the Casino has
taken effect, notwithstanding Completion Guarantors' best efforts to remove such
Force Majeure, or (v) as to each phase, upon the completion of such phase. JCC
expects to obtain a performance bond from a surety for the benefit of the
Beneficiaries for each phase of construction of the Casino. See "-- Material
Agreements -- Amended Completion Loan Agreement."
The remedy of specific performance and the enforcement costs remedy are the
sole and exclusive remedies against the Completion Guarantors under the
Completion Guarantees. Such remedies are not intended to be the exclusive
remedies that Beneficiaries may have against JCC under other documents or
agreements. If the Completion Guarantors fail to timely pay the project costs or
diligently perform the construction obligations, then the Beneficiaries may
elect to require specific performance by the Completion Guarantors of either or
both of the project obligations and the construction obligations. If the
Completion Guarantors, after thirty days notice and opportunity to cure, fail to
commence performing the project obligations and diligently thereafter continue
to perform the construction obligations through to completion, the
Beneficiaries, at their option, have the right, but have no obligation, to
require the surety to perform the construction obligations pursuant to the
performance bond. The Beneficiaries have the right to recover from Completion
Guarantors all
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unreimbursed costs and expenses, including attorneys' fees, incurred by the
Beneficiaries in protecting, preserving, enforcing or defending their interests
both as against JCC and as against the Completion Guarantors under the
Completion Guarantees.
AMENDED COMPLETION LOAN AGREEMENT
JCC and the Completion Guarantors expect to enter into an amended completion
loan agreement (the "Amended Completion Loan Agreement"), under which any
expenditures made by the Completion Guarantors under the Completion Guarantees
are deemed unsecured limited recourse indebtedness (the "Completion Loans") of
JCC due and payable six months following the maturity of the New Notes and New
Contingent Notes. The Completion Loans will bear annual interest at the rate of
8%. The Completion Loans will be repaid from the cash flow or proceeds of major
capital events of JCC available for distribution by JCC to its shareholders.
Subject to meeting certain "Restricted Payment" tests contained in the
Indentures for the Notes and pursuant to the Construction Credit Facility, early
repayment of the Completion Loans is permitted. The Amended Completion Loan
Agreement provides that the Completion Guarantors may be required to fund
negative cash flow of the Casino on a monthly basis from the opening of
Temporary Casino -- Phase I until such time that Temporary Casino -- Phase II is
open and Second Floor Shell Construction -- Phase III has been completed (the
"Completion Date") pursuant to the Completion Guarantees, but, any such advances
to cover negative cash flow may be repaid to the Completion Guarantors from
positive cash flow of the Casino in subsequent months prior to the Completion
Date. Any Completion Loan not paid at maturity will bear annual interest at the
foregoing rate plus 4.0%. The Completion Loans will be subordinate to the
repayment of the Notes and repayments generally are treated as restricted
payments under the Indentures. Payments in excess of those permitted to be paid
under the Indentures will be subordinate to the repayment of the Notes.
At such time that there is a demand, call, notice or requirement for
performance of any Completion Guarantee, the Completion Guarantors shall be
entitled to take control of, and apply toward the cost to complete the Casino,
all available funds of JCC without any further action or consent by JCC,
including, without limitation, drawing any such portion of the Construction
Credit Facilities and receiving from the Manager any operating income from the
Casino otherwise available to JCC or its shareholders, until such time that all
obligations of the Completion Guarantors with respect to the Completion
Guarantees have been fully satisfied.
Under the Amended Completion Loan Agreement, HOC is granted the right to
enter and take control of construction of the Casino, provided that HOC will be
liable for actual damages resulting from its wilful misconduct in the exercise
of its entry rights unless HOC exercises its rights as a result of: (i) any
demand, call, notice or requirement for performance under any Completion Loan;
or (ii) HOC determines in good faith that the cost of completing the Casino will
materially exceed the project budget for the Casino or delay the timely
completion of the Casino. In the case of either (i) or (ii) above, HOC's
liability will be limited to actual damages suffered by JCC not to exceed $2.0
million. A good faith determination may be based on, among other things: (a) the
occurrence of certain delays in the construction schedule; (b) certain project
cost overruns; (c) defaults on any Completion Loan; or (d) default under the
Amended Casino Operating Contract, Amended GDA or the Amended Ground Lease.
Following the occurrence of any such circumstance, the Completion Guarantors
have the right to act in the place of JCC in respect of the construction
contracts, architects, agreements, payment and performance bonds and the plans
and specifications relating to the Casino.
The Completion Loan Agreement imposes certain covenants, representations,
warranties and events of default on JCC.
SECOND FLOOR SUBLEASE
GENERAL. JCC expects to enter into a sublease (the "Second Floor Sublease")
with JCC Development Corporation, a wholly-owned subsidiary of JCC ("JCC
Development"), under which JCC has subleased to JCC Development the portion of
the second floor of the Casino available for non-gaming uses.
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SUBLEASE. The entire second floor of the Casino initially is available for
non-gaming uses upon the completion of Second Floor Shell Construction -- Phase
III. JCC may convert any portion of the second floor space in the future to a
gaming use subject to approval of the LGCB; provided that if such conversion
would result in less sublease revenue to the RDC, the RDC shall be made whole by
JCC for such reduction in sublease revenue. For purposes of such determinations,
the revenues from the second floor non-gaming space shall be the actual rental,
if any, received for the prior two years attributable to such space and the
revenues projected to be received from space to be converted to gaming uses
shall be equal to the number of square feet of such space to be converted to
gaming uses multiplied by the average revenue per square foot for the prior two
years for all other gaming space in the Casino. In the event that such a
conversion of second floor space to gaming use occurs, such space shall be
removed from the Second Floor Sublease and thereafter be subject to the terms of
the Amended Ground Lease as applied to the first floor.
MASTER PLAN. A group composed of two representatives of RDC and two
representatives of HJC is expected to developed a master plan for the initial
build out and leasing of the second floor for non-gaming uses (the "Master
Plan"). The Master Plan will be approved by RDC, JCC and JCC Development on or
before December 31, 1996 and shall establish leasing guidelines regarding rent,
tenant improvements and concessions, permissible uses, brokerage fees and an
initial capital improvement budget. JCC and the RDC shall sponsor and support at
the required times the necessary steps to gain regulatory approvals and
conditional use ordinance modifications consistent with the Master Plan. The
Amended Ground Lease permits the Master Plan to be amended with the RDC's
approval, such approval not to be financially conditioned, unreasonably withheld
or delayed.
BUILD OUT. The second floor of the Casino is anticipated to be ready for
leasing by September 15, 1997. The tenant improvement build out and development
of the non-gaming uses on the second floor of the Casino will begin following
completion of Second Floor Shell Construction -- Phase III and continue through
and after completion of Permanent Casino -- Phase IV. Such initial non-gaming
tenant improvement build out and development must be consistent with the Master
Plan.
MANAGEMENT AND LEASING. JCC Development shall manage and lease the second
floor development consistent with the Master Plan. JCC Development may hire a
leasing agent and project manager for the second floor non-gaming leasing and
operations. The leasing of the second floor shall be consistent with the leasing
parameters set forth in the Master Plan. JCC Development shall submit to the RDC
on or before July 15 of each year a cash flow and operating budget for the
second floor non-gaming development for the following year.
RENTAL. JCC Development will pay directly to the RDC rental in respect of
the second floor equal to 50% of the net operating income from the second floor
development, which shall be net of all costs of development, construction,
leasing, operating and managing the second floor non-gaming project to the
extent such costs are not inconsistent with the Master Plan, including the
guidelines established in the Master Plan. The remaining net operating income
shall be paid by JCC Development to JCC as sublease rental. Such construction
costs shall be consistent with the Master Plan and shall be the incremental
costs necessary to make the second floor suitable for non-gaming tenants and to
attract such tenants, and such costs shall be amortized over a cost recovery
period of ten years.
BASIN STREET CASINO LEASE
Pursuant to an agreement with the City, the parties expect to obtain an
order approving the execution and performance of a Basin Street Casino Lease
Termination Agreement with the RDC and the City, as intervenor (the "Termination
Agreement"). Upon the effective date of the Termination Agreement, and whether
or not the Effective Date of the Plan of Reorganization occurs, the RDC and
City, on the one hand, and HJC, on the other hand, will mutually release all
rights and obligations under the Basin Street Casino Lease; provided that such
release will not affect any rights or obligations of the parties under the a
certain agreement with the City in respect of the Municipal Auditorium or the
restoration work. RDC and City will have no claim for damages as a result of
such termination. Upon execution of the Termination Agreement and transfer of
possession of the Basin
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Street Casino premises to RDC, the RDC will thereafter be responsible for all
obligations, rights and other incidents of ownership of the Basin Street Casino
premises. Pursuant to the Termination Agreement, the Basin Street Casino Lease
will automatically terminate on the date of execution of the Termination
Agreement or as soon as thereafter as the LGCB shall have approved the
termination of the Basin Street Casino Lease, with no further action required by
the RDC, JCC or the City.
In addition, the Termination Agreement requires JCC to restore the Municipal
Auditorium to its previous use whether or not the Effective Date occurs.
Previously, HJC had performed certain restoration work pursuant to the Basin
Street Casino Lease. The RDC, City and HJC expect to negotiate and agree upon
the exact scope and plans and specifications of the restoration work called for
by the Basin Street Casino Lease. HJC will solicit bids for a fixed price or
guaranteed maximum price construction contract(s) together with a performance
bond with the City as an additional insured or beneficiary to complete the
restoration work. HJC will retain a project manager designated by the City to
supervise the restoration work and HJC shall pay all fees and expenses of such
project manager not to exceed $5,000 per month through the completion of the
restoration work. On or before October 1, 1996, HJC will deposit $1.5 million
into an escrow to fund the restoration work, with such escrow to be released
upon the satisfaction of certain terms and conditions.
AMENDED INDEMNITY AGREEMENT
JCC and HOC expect to enter the Amended Construction Lien Indemnity
Obligation Agreement, pursuant to which any expenditures made by HOC under an
amended indemnity agreement in favor of the title insurers (the "Amended
Indemnity Agreement") will be deemed unsecured limited recourse indebtedness
("Indemnity Obligations") of JCC due and payable on demand. The Indemnity
Obligations will bear interest at the rate of 8%. The repayment of the Indemnity
Obligations will generally be treated as a restricted payment under the
Indentures and payments in excess of those permitted to be paid under the
Indentures or the Bank Credit Facilities will be subordinate to the repayment of
the Bank Credit Facilities.
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REGULATION
LOUISIANA GAMING ACT
NEW LEGISLATION. In March 1996, the Governor of the State of Louisiana
called a special session of the State legislature to consider a number of
topics, including topics relating to the Casino. Several laws were enacted as a
result of the special session which may impact JCC's rights under the Gaming Act
and the Amended Casino Operating Contract.
One such law calls for the Local Option Election during the November 5, 1996
election to decide, on an item-by-item basis, whether riverboat gaming, video
poker gaming, and in Orleans Parish, the land-based casino, should be permitted
to operate in their parish. The law purports to provide that in the event voters
in Orleans Parish vote not to allow the operation of land-based casino gaming in
that parish, the "operation of land-based casino gaming existing in the parish
shall be discontinued." The Company believes that the law has already had a
material adverse effect on the Company even prior to voter action because it has
impaired the Company's ability to obtain financing for the Plan of
Reorganization at least until the Local Option Election, and by increasing the
costs related to the Plan of Reorganization. See "-- Risk Factors -- Uncertainty
Regarding Gaming Regulation and Future Changes to the Law."
Another such law purports to affect certain rights of the casino operator
under the Casino Operating Contract. This law purports to provide (i) the State
and all its political subdivisions (including the LGCB) with retroactive
immunity from liability and from suit for any action or failure to act on the
part of the State, or any political subdivision of the State (including the
LEDGC), and (ii) authority to the Governor by executive order, subject to
legislative approval, or to the State legislature by act or resolution, to set
aside or order renegotiation or revocation of a casino operating contract when
the casino operator is either voluntarily or involuntarily placed in bankruptcy,
receivership, conservatorship, or some similar status.
Another such law, among other things, purports to retroactively amend the
Gaming Act: (i) to state that the conduct of gaming operations upon riverboats
in accordance with the provisions of the Riverboat Act or otherwise while upon a
designated waterway while temporarily at dockside does not constitute the
authorization of additional land-based casino gaming operations which relieves
the casino gaming operator of the obligation to pay compensation to the LGCB;
and (ii) to provide that governmental inaction which results in the operation of
another land-based casino in Orleans Parish shall not relieve the operator of
the Casino of the obligation to pay compensation to the LGCB. This law also
purports to provide that in the event of litigation between the casino gaming
operator and either LEDGC or the State or any of its political subdivisions, the
casino gaming operator must continue to make all payments to the LGCB and to the
State and any of its political subdivisions as required by law during the
pendency of such litigation, and that any failure to make the required payments
will render the casino gaming operator unsuitable.
In addition, on May 1, 1996, the Governor signed into law a bill which
dissolves the separate boards that had governed riverboat gaming and land-based
casino gaming, including the LEDGC, and substitutes in their place the LGCB.
This single board consisting of nine voting members (five of which have been
appointed) and two EX OFFICIO members is empowered to regulate most forms of
gambling in the State, including the land-based casino. Although the existing
rules and regulations promulgated by the LEDGC remain in force and effect at
this time, the LGCB has been empowered to repeal any such rules and regulations
and promulgate its own rules and regulations. This law also authorizes the
Louisiana State Police to, among other things, conduct investigations and audits
of gaming license applicants and to assist the LGCB in determining compliance
with the gaming laws and regulations. Given the lack of experience of JCC and
the Manager in dealing with the LGCB and the new regulatory framework
established by the State legislature, the Company is unable at this time to
determine what effect, if any, this legislative change will have on the
likelihood that the Company will be successful in negotiating with the LGCB with
respect to the Amended Casino Operating Contract and the impact of future rules
and regulations on the Company.
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EXISTING REGULATION. The ownership and operation of the Casino are subject
to pervasive governmental regulation, including regulation by the LGCB (as
successor to the LEDGC) in accordance with the terms of the Gaming Act, the
Rules and Regulations, and the Casino Operating Contract. The LGCB is empowered
to regulate a wide spectrum of gaming and non-gaming related activities.
The Gaming Act authorized the LEDGC (the LGCB's predecessor), among other
things, to enter into a casino operating contract with a casino operator for the
conduct of casino gaming operations at a single land-based gaming establishment,
having at least 100,000 square feet of useable space, to be located at a
facility at the Rivergate site. The term of the contract is not to exceed a
total of twenty years with one ten-year renewal option. As the LEDGC's
successor, the LGCB is authorized under the Gaming Act to permit the casino
operator to conduct temporary gaming operations in Orleans Parish at a location
designated by the casino operator and approved by the LGCB. The compensation
payable to the LGCB from temporary gaming operations is an amount not less than
25% of gross gaming revenues with the net proceeds therefrom, after deducting
operating expenses, to be utilized to perform obligations of the casino operator
under the casino operating contract. Under the Plan of Reorganization, temporary
gaming operations would take place at the Temporary Casino until it is deemed to
be the Permanent Casino. The minimum compensation payable to the LGCB from
gaming operations at the Permanent Casino is 18% of gross revenues, or $100
million annually, whichever is greater.
The Gaming Act and the Rules and Regulations establish significant
regulatory requirements with respect to gaming activities and the casino
operator, including, without limitation, requirements with respect to minimum
accounting and financial practices, standards for gaming devices and
surveillance, licensure requirements for vendors and employees, standards for
credit extension and collection, and permissible food services. Failure to
comply with the Gaming Act and the Rules and Regulations could result in
disciplinary action, including fines and suspension or revocation of a license
or suitability. Certain regulatory violations could also constitute an event of
default under the Casino Operating Contract.
Under the Gaming Act, no person is eligible to receive a license or enter
into a contract to conduct casino gaming operations unless, among other things,
the LGCB is satisfied the applicant is suitable. The Gaming Act and the Rules
and Regulations also require suitability findings for, among others, the casino
manager, anyone with a direct ownership interest or the ability to control the
casino operator or casino manager (as well as their intermediary and holding
companies), certain officers and directors of such companies, and certain
employees of the casino operator. Suitability requires a demonstration by each
applicant, by clear and convincing evidence, that, among other things, (i) he is
a person of good character, honesty and integrity; (ii) his prior activities,
criminal record, if any, reputation, habits and associations do not pose a
threat to the public interest of the State or the regulation and control of
casino gaming or create or enhance the dangers of unsuitable, unfair or illegal
practices, methods and activities in the conduct of gaming or the carrying on of
the business and financial arrangements incidental thereto; and (iii) he is
capable of and is likely to conduct the activities for which a license or
contract is sought. In addition, to be found suitable for purposes of the Casino
Operating Contract, the casino operator must demonstrate by clear and convincing
evidence that: (i) it has or guarantees acquisition of adequate business
competence and experience in the operation of casino gaming operations; (ii) the
proposed financing is adequate for the proposed operation and is from suitable
sources; and (iii) it has or is capable of and guarantees the obtaining of a
bond or satisfactory financial guarantee of sufficient amount, as determined by
the LGCB, to guarantee successful completion of and compliance with the Casino
Operating Contract or such other projects that are regulated by the LGCB.
Under the Gaming Act and Rules and Regulations, the LGCB can also require
that the holder of debt securities issued by the casino operator or its
affiliated companies and the holders of equity interests in holding companies of
the casino operator be found suitable. Any person holding or controlling a five
percent or more equity interest in a non-publicly traded, direct or indirect,
holding company of the casino operator or casino manager or ten percent or more
equity interest in a publicly
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traded direct or indirect holding company of the casino operator or casino
manager, is presumed to have the ability to control the casino operator or
casino manager, as the case may be, requiring a finding of suitability, unless,
among other things: (i) the presumption is rebutted by clear and convincing
evidence; or (ii) the holder is one of several specified passive institutional
investors holding a stated minimum amount of assets and, upon request, such
institution files a certification stating that it does not have an intention to
influence the affairs of the casino operator or casino manager.
Under the Gaming Act and Rules and Regulations, the LGCB has the authority
to deny, revoke, suspend, limit, condition, or restrict any finding of
suitability. Under the Rules and Regulations, the LGCB also has the authority to
take further action on the grounds that the person found suitable is associated
with, or controls, or is controlled by, or is under common control with, an
unsuitable or disqualified person. Under the Rules and Regulations and the
Casino Operating Contract, if at any time the LGCB finds that any person
required to be and remain suitable has failed to demonstrate suitability, the
LGCB may, consistent with the Gaming Act and the Casino Operating Contract, take
any action that the LGCB deems necessary to protect the public interest. Under
the Rules and Regulations, however, if a person associated with the casino
operator or an affiliate, intermediary, or holding company thereof has failed to
be found or remain suitable, the LGCB shall not declare the casino operator or
its affiliate, intermediary, or holding company, as the case may be, unsuitable
as a result if such companies comply with the conditional licensing provisions,
take immediate good faith action and comply with any order of the LGCB to cause
such person to dispose of its interest, and, before such disposition, ensure
that the disqualified person does not receive any ownership benefits. The above
safe harbor protections do not apply if: (i) the casino manager has failed to
remain suitable, (ii) the casino operator is engaged in a relationship with the
unsuitable person and had actual or constructive knowledge of the wrongdoing
causing the LGCB's action, (iii) the casino operator is so tainted by such
person that it affects the suitability of the casino operator under the
standards of the Gaming Act, or (iv) the casino operator cannot meet the
suitability standard contained in the Gaming Act and the Rules and Regulations.
On July 15, 1994, the LEDGC entered into the Casino Operating Contract with
HJC, which sets forth the general parameters of, among other things, the
location and design and construction requirements of the Basin Street Casino and
the Casino, the agreed upon compensation requirements due to the LEDGC from
gaming operations, the requirements for financing the Casino, and other
contractual and regulatory requirements. In connection with the execution of the
Casino Operating Contract, the LEDGC found HJC, HNOIC and certain related
intermediary and holding companies and certain of their officers and directors
to be suitable. In addition, at the time of the issuance of the Old Bonds, the
LEDGC issued certain orders concerning the suitability of the holders thereof.
Since the filing of the Chapter 11 Cases, neither the LEDGC nor the LGCB has
informed HJC or any other person required to be found suitable that it is taking
action to revoke any finding of suitability in accordance with the Gaming Act or
Rules and Regulations, nor has the LEDGC or the LGCB given any notice of default
under the Casino Operating Contract.
Under the Gaming Act, the LGCB has the right to set aside or renegotiate the
provisions of the Casino Operating Contract if the casino operator is
voluntarily or involuntarily placed in bankruptcy, receivership, conservatorship
or similar status. HJC believes that certain provisions of this statute are
unenforceable pursuant to Sections 365(3)(1) and 525 of the Bankruptcy Code.
Nevertheless, the LGCB maintains the right to renegotiate the Casino Operating
Contract in connection with the Plan of Reorganization. In addition, House Bill
No. 9 purports to provide authority to the Governor, subject to legislative
approval, or to the State legislature, to set aside or order renegotiation or
revocation of the Casino Operating Contract when the casino operator is placed
in bankruptcy.
Under the Plan of Reorganization and subject to certain aproval's from LGCB,
the Casino Operating Contract requirements would be amended in certain respects,
including the location of temporary gaming operations and the size and scope of
the Casino. See "-- Material Agreements -- Amended Casino Operating Contract."
Temporary gaming operations will occur at the Rivergate site as construction
progresses on the permanent Casino facility. See "-- The Company -- Development
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Plans." In addition, in connection with the Plan of Reorganization, certain
rulings, approvals and findings of suitability will be required, including,
findings of suitability with respect to any directors of JCC Holding, JCC
Intermediary and JCC and any persons having the ability to significantly affect
the affairs thereof, and certain other approvals relating to the Bank Credit
Facilities, the modified design of the Casino and the new phased-in opening
schedule.
FEDERAL REGULATION
In August 1996, the President signed into law a bill that creates a federal
commission to examine the rapid growth of the gambling industry and its impact
on American society. The law creates a nine-member National Gambling Impact and
Policy Commission to study the economic and social impact of gaming and report
its findings to Congress and the President within two years. The commission
could recommend changes in state or federal gaming policies. The President,
House Speaker and Senate Majority Leader would each select three of the
commission's members. Additional federal regulation or taxation of the gaming
industry could occur as a result of investigations or hearings by the committee,
which could have a material adverse effect on the Company.
BANK SECRECY ACT
Similar to banks and other financial institutions, casinos are required to
monitor and report currency receipts and disbursements in excess of a certain
limit to the United States Department of the Treasury. Under amendments recently
adopted by the Treasury, casinos must obtain and document customer
identification data for all currency transactions above $10,000. These
requirements impose record keeping requirements on the Company which may
increase its overall cost of operations.
ZONING AND LAND USE
JCC is required to obtain conditional use approvals from the City for the
Casino and the parking facilities for the Casino. JCC expects to obtain such
conditional use approvals for the Casino and its operations. No assurances can
be given, however, that JCC will receive the required approvals.
Because the Casino does not comply with all requirements of the City's
Zoning Ordinance, the Company expects that JCC will request and receive a number
of waivers from the City Council. Some uncertainty exists, however, as to the
City Council's authority to grant such waivers. In addition, the Zoning
Ordinance may be subject to differing interpretations and, depending upon the
interpretation, certain required waivers may not be requested or granted.
Accordingly, no assurances can be given that the Casino will comply with the
Zoning Ordinance in all material respects. Failure to comply with the Zoning
Ordinance may have a material adverse effect on the Company. See "-- Risk
Factors -- Ability to Commence Operations as Scheduled -- Zoning and Land Use."
53
<PAGE>
ITEM 2. FINANCIAL INFORMATION.
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for HJC has
been derived from the historical financial information of HJC. The selected
unaudited pro forma consolidated financial data for JCC Holding illustrate the
estimated effects of the proposed Plan of Reorganization. The pro forma
consolidated results of operations are based on the HJC historical statement of
operations for the applicable period and assume the Plan of Reorganization was
consummated on January 1, 1995. The pro forma consolidated balance sheet data is
based on the June 30, 1996, balance sheet of HJC and assumes the Plan of
Reorganization was consummated on that date. The unaudited pro forma
consolidated financial data do not purport to represent the Company's results of
operations or financial position had the Company's reorganization been effective
for any periods indicated and do not purport to project the Company's results of
operations and financial position for any future periods. The selected
historical and pro forma consolidated financial data should be read in
conjunction with the related notes, HJC's historical consolidated financial
statements and related notes, the Unaudited Pro Forma Condensed Consolidated
Financial Information and related notes, and other information contained
elsewhere in the Registration Statement, including information set forth herein
under "-- Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ---------------------------------
HISTORICAL HISTORICAL
(IN THOUSANDS, EXCEPT PER SHARE ------------------------------- PRO FORMA -------------------- PRO FORMA
DATA) 1993(A) 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues........................ $ 50 $ 291 $ 95,257 $ 95,257 $ 25,540 $ 46 $ 46
Net loss........................ (6,302) (29,201) (301,560) (101,882) (56,336) (5,972) (13,538)
Loss per share.................. N/A N/A N/A (10.19) N/A N/A (1.35)
BALANCE SHEET
Total assets.................... 87 665,391 364,480 631,771 359,949 368,025
Long-term debt.................. -- 510,000 -- 510,000 -- 113,864
</TABLE>
- ------------------------
(a) Includes operations for the period of November 29, 1993 (date of inception
of HJC) through December 31, 1993. HJC's financial statements for this
period include significant amounts for transactions incurred by its partners
prior to November 29, 1993.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In connection with the Plan of Reorganization, upon the Effective Date, the
assets and business of HJC will vest in JCC, an indirect wholly-owned subsidiary
of JCC Holding. JCC Holding, through its subsidiaries, expects to succeed to
HJC's interest in the Casino Operating Contract to operate a land-based casino
in Orleans Parish, Louisiana, and HJC's interest in a long-term lease for the
site in the City designated by law for the casino's development.
Pursuant to the Plan of Reorganization, Harrah's Investor will purchase
shares of Class B Common Stock in consideration of the New Equity Investment.
The Class B Common Stock issued to the Harrah's Investor on account of the New
Equity Investment and other consideration will be 49.9% of the Common Stock.
Under certain settlement agreements contemplated under the Plan of
Reorganization, Harrah's Investor will transfer (i) options to purchase a number
of shares of Class B Common Stock to be negotiated to the shareholders of NOLDC,
and (ii) a number of its shares to be negotiated to senior secured bondholders
of Grand Palais. Also pursuant to the Plan of Reorganization, shares of Class A
Common Stock which constitute 37.1% of the Common Stock will be distributed on a
pro rata basis to the Bondholders, and shares of the Class A Common Stock which
constitute 13% of the Common Stock will be issued to a disbursing agent for the
benefit of Bondholders who consent to releases as provided in the Plan of
Reorganization. The Harrah's Investor will contribute a number of its shares
equal to 2% of the Common Stock to a disbursing agent for the benefit of
Bondholders who consent to certain releases as provided in the Plan of
Reorganization. In addition, the Bondholders will receive their pro rata share
of (i) $187.5 million in aggregate principal amount of the New Notes, and (ii)
the New Contingent Notes. See "Items 1 and 3. Business and Properties --
Material Agreements -- Indentures."
Also in connection with the Plan of Reorganization, JCC expects to enter
into the Bank Credit Facilities, consisting of the $165 million Construction
Credit Facility and the $10 million Working Capital Facility. See "Items 1 and
3. Business and Properties -- Material Agreements -- Bank Credit Facilities." In
addition, the Plan of Reorganization is expected to effect amendments to the
Ground Lease, the General Development Agreement, the Basin Street Casino Lease,
and other contracts and plans, including the Open Access Program and Plans. See
"Items 1 and 3. Business and Properties -- Material Agreements."
FRESH-START REPORTING
On the Effective Date of the Plan of Reorganization, the Company, among
other things, will restructure its capitalization in accordance with the Plan of
Reorganization and the transactions contemplated thereby. Additionally, the
application of "fresh start" reporting as of the Effective Date will include
adjustments to certain noncurrent assets that will result in substantially lower
depreciation and amortization expense in the future related to such assets. See
"Item 13. Financial Statements and Supplementary Data -- Unaudited Pro Forma
Condensed Consolidated Financial Information." As a result, the financial
condition and results of operations of the Company after giving effect to the
Plan of Reorganization and the transactions contemplated thereby will not be
comparable to the financial condition and results of operations of the Company
as of any dates and for any periods prior to the Effective Date.
As a result of the complexity of the transactions occurring in connection
with the implementation of the Plan of Reorganization, the recording of all
transactions related to the Company's emergence from chapter 11 may not be
complete as of the Effective Date. The Unaudited Pro Forma Condensed
Consolidated Financial Information is based on the assumptions and preliminary
estimates described in the notes thereto. The actual consolidated financial
information as of the Effective Date may vary. See "Item 13. Financial
Statements and Supplementary Data -- Unaudited Pro Forma Condensed Consolidated
Financial Information."
55
<PAGE>
DEVELOPMENT ACTIVITIES
As redesigned pursuant to the Plan of Reorganization, the Casino will
contain three themed areas named The Jazz Court, The Mardi Gras Court and The
Smuggler's Court. The remaining space will be used for additional gaming
activities, a food service area, casino support facilities, and multi-function,
special event and meeting-room space. The Jazz Court will have a raised domed
ceiling and occupy the center of the Casino. The Casino will be designed so that
individual gaming areas can be opened or closed to patrons depending on volume.
Parking for between 500 and 600 cars and approximately 145,000 square feet of
back-of-house and support areas will be provided underneath the main gaming
floor. Across Poydras Street and connected to the Casino by an underground
tunnel will be a newly constructed parking facility which will contain
approximately 1,550 parking spaces.
The Casino will be developed in four phases. The Temporary Casino is
scheduled to open in two phases, Second Floor Shell Construction -- Phase III is
scheduled to consist of the shell construction of multipurpose non-gaming
entertainment space on the second floor of the premises, and Permanent Casino --
Phase IV will consist of a permanent casino at the Rivergate site. Upon the
opening of Permanent Casino -- Phase IV, the Casino is expected to encompass at
least 100,000 square feet of net gaming space. See "Items 1 and 3. Business and
Properties -- The Company -- Development Plans."
LIQUIDITY AND CAPITAL RESOURCES
The $240 million necessary to complete the development and construction of
the Casino will be funded from a combination of the $75 million New Equity
Investment from Harrah's Investor and the $165 million Construction Credit
Facility. Funds provided by a combination of these sources are expected to be
sufficient to develop and commence operations of the Casino up through the
opening of the Permanent Casino -- Phase IV, assuming no delays or construction
cost overruns. In addition, the Completion Guarantors have entered into the
Completion Guarantees with respect to the completion of the Casino and the
payment of project costs owing prior to such completion. See "Items 1 and 3
Business and Properties -- Material Agreements -- Completion Guarantees."
Until the opening of Temporary Casino -- Phase I, JCC expects to fund its
working capital needs, as presently contemplated, from the New Equity Investment
and the $165 million Construction Credit Facility. After the opening of
Temporary Casino -- Phase I, JCC expects that its working capital needs will be
funded by a combination of operating cash flows and the Working Capital
Facility. To the extent working capital from such sources is not sufficient, the
Completion Guarantors have agreed, pursuant to the Completion Guarantees, to
provide JCC with working capital through the completion of Second Floor Shell
Construction -- Phase III. In addition, the Completion Guarantors have agreed to
ensure that, upon the completion of Second Floor Shell Construction -- Phase
III, JCC will have $5.0 million in cash and $10 million of availability under
the Working Capital Facility. See "Items 1 and 3. Business and Properties --
Material Agreements -- Completion Guarantees." In addition, JCC intends to
establish initial working capital reserves to provide for reasonably anticipated
short-term liquidity needs. After the completion of Second Floor Shell
Construction -- Phase III, although no additional financing is currently
contemplated, JCC will seek, if necessary, additional financing through bank
borrowings, or debt or equity financings. There can be no assurance that
additional financing, if needed will be available to JCC, or that, if available,
the financing will be on terms favorable to the Company. There is no assurance
that JCC's estimate of its reasonably anticipated liquidity needs is accurate or
that new business developments or other unforeseen events will not occur
resulting in the need to raise additional funds.
RESULTS OF OPERATIONS
On May 1, 1995, HJC opened the Basin Street Casino in the New Orleans
Municipal Auditorium. The Basin Street Casino, when first opened, had
approximately 76,000 square feet of gaming space with 3,046 slot machines and
approximately 85 table games. The Basin Street Casino was open 24-hours a day,
seven days a week, except for approximately 65 hours from May 9 to May 11, 1995,
when HJC was forced to close the Basin Street Casino due to a flood in the New
Orleans area.
56
<PAGE>
HJC had originally projected that the Basin Street Casino would have gross
gaming revenues of approximately $395 million per year, which would result in an
average of approximately $33 million a month. Instead, gross gaming revenues
from the Basin Street Casino for the months of May, June and July, 1995 were
$11.2 million, $13.2 million and $14.8 million, respectively, and HJC suffered
net losses of $15.2 million, $14.0 million and $14.2 million in those three
months. In an attempt to reduce such losses, in August 1995 HJC reduced the
workforce in the Basin Street Casino by approximately 15% and reduced the Basin
Street Casino's gaming space from 76,000 to 62,000 square feet. HJC also reduced
the number of its slot machines in the Basin Street Casino from 3,046 to 2,150.
Gross gaming revenues were not adversely affected by these changes. Gross
revenues for August, September and October 1995 were $13.3 million, $12.0
million and $14.4 million, respectively. Operating results did not improve,
however. HJC posted net losses in August, September and October 1995 of $13.5
million, $12.3 million and $12.0 million, respectively.
The Company believes that the Basin Street Casino's results were principally
impacted by the location of the Basin Street Casino (which is outside the
traditional area of entertainment activity and tourist visitation in New
Orleans), the competition from the established Mississippi Gulf Coast gaming
marketplace and a slower than usual summer tourist season in New Orleans. The
Company also believes that the Basin Street Casino's gaming revenues were
adversely affected by the availability of dockside riverboat gaming in
Louisiana. The Company believes that such riverboats, when permitted to remain
moored to their docks and allow continuous ingress and egress of customers,
provide enhanced and direct competition with the Basin Street Casino as
land-based casinos.
On November 22, 1995, HJC and Finance Corp., its wholly-owned subsidiary,
filed for reorganization under Chapter 11 of the Bankruptcy Code, ceased
operation of the Basin Street Casino and suspended construction of the casino at
the Rivergate site. Since the Petition Date, HJC's activities have consisted of
administering the bankruptcy case, preparing the Plan of Reorganization and
related Disclosure Statement, negotiating with interested parties with respect
to the Plan of Reorganization, and related issues. HJC's primary source of
operating funds has been debtor-in-possession financing provided by HET and its
affiliates and its largest expenses have been general and administrative
expenses and reorganization costs.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of JCC Holding's Class A Common Stock and Class B Common Stock as of
the Effective Date of the Plan of Reorganization by each person believed by JCC
Holding to own beneficially more than 5% of the outstanding shares of either
Class A Common Stock or Class B Common Stock, the only classes of voting
securities. Unless noted otherwise, the holders listed below have sole voting
power and dispositive power over the shares beneficially held by them. On the
Effective Date of the Plan of Reorganization, JCC Holding will issue 10 million
shares of Common Stock. JCC Holding expects that approximately 5,210,000 of such
shares will be shares of Class A Common Stock and approximately 4,790,000 of
such shares will be shares of Class B Common Stock.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
----------------------------------------- ------------------------------------
AMOUNT AND AMOUNT AND
NATURE OF PERCENTAGE NATURE OF PERCENTAGE
NAME AND ADDRESS BENEFICIAL OF CLASS A BENEFICIAL OF CLASS B
OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK OWNERSHIP COMMON STOCK
- ------------------------------------ ---------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Harrah's Investor................... -- -- (2) (2)
</TABLE>
- ------------------------
(1) The Company believes that certain holders of Old Bonds may own beneficially
more than 5% of the outstanding shares of Class A Common Stock upon
Consummation of the Plan of Reorganization. The required information with
respect to such holders, if any, will be completed by amendment after the
solicitation of acceptances for the Plan of Reorganization.
(2) Upon the Effective Date of the Plan of Reorganization, Harrah's Investor
will own beneficially more than 5% of the outstanding shares of Class B
Common Stock. The exact number of shares
57
<PAGE>
owned by Harrah's Investor upon the Effective Date, however, will depend
upon ongoing negotiations with Grand Palais and NOLDC. See "Items 1 and 3.
The Company -- Recent Reorganization."
The directors and executive officers of JCC Holding do not beneficially own
any shares of Common Stock of JCC Holding.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth certain information with respect to the
current executive officers and directors of JCC Holding.
<TABLE>
<CAPTION>
POSITIONS AND OFFICERS HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Philip G. Satre (46)...................... Director of JCC Holding, JCC Intermediary and JCC since August 1996.
He is also a director, President and Chief Executive Officer of HET.
He is a member of the Executive Committee of HJC and a director and
President of Finance Corp., both of which filed petitions under
Chapter 11 of the Bankruptcy Code in November 1995. He is a director
and President of HNOIC which filed a petition under Chapter 11 of
the Bankruptcy Code in December 1995. He is also Chairman and Chief
Executive Officer of the Manager.
Colin V. Reed (48)........................ President of JCC Holding, JCC Intermediary and JCC since August 1996.
He is also Executive Vice President of HET. He is also a director of
Sodak Gaming, Inc. He is a member of the Executive Committee of HJC
and a director and Senior Vice President of Finance Corp., both of
which filed petitions under Chapter 11 of the Bankruptcy Code in
November 1995. He is a director and Senior Vice President of HNOIC
which filed a petition under Chapter 11 of the Bankruptcy Code in
December 1995. He is also Senior Vice President of the Manager.
Michael N. Regan (48)..................... Secretary and Treasurer of JCC Holding, JCC Intermediary and JCC
since August 1996. He is also Vice President and Controller of HET.
He is Senior Vice President and Treasurer of the Manager and Vice
President and Treasurer of HNOIC.
</TABLE>
In connection with the Plan of Reorganization, JCC expects that the
composition of its board of directors will be modified upon the occurrence of
the Effective Date of the Plan of Reorganization. See "Item 11. Description of
Registrant's Securities to be Registered -- Board of Directors." The individuals
who will serve on such modified board, however, have not yet been determined. In
addition, the individuals who will serve as executive officers of JCC Holding
upon the Effective Date of the Plan of Reorganization have not yet been
determined. This Registration Statement will be amended to reflect any such
modifications when the individuals who will serve as executive officers and
directors upon the Effective Date have been determined.
ITEM 6. EXECUTIVE COMPENSATION
JCC Holding is a newly incorporated entity. The named executive officers and
the director of JCC Holding have earned no compensation from JCC Holding and
have been granted no stock options, stock appreciation rights or any other form
of remuneration. JCC does not intend to provide any such remuneration to its
named executive officers and directors prior to the Effective Date. Compensation
arrangements for executive officers and directors after the Effective Date are
in the process of being negotiated in connection with the Plan of Reorganization
and such arrangements will be described in an amendment to this Registration
Statement.
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<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company expects JCC and the Manager to enter into the Amended Management
Agreement. See "Items 1 and 3. Business and Properties -- Material Agreements --
Amended Management Agreement." The Manager is an indirect wholly-owned
subsidiary of HET and Harrah's Investor, an indirect wholly-owned subsidiary of
HET, will, upon the Effective Date of the Plan of Reorganization, own a number
of shares of Class B Common Stock such that Harrah's Investor will own a
majority of the Class B Common Stock and more than 5% of all outstanding shares
of Common Stock. See "Item 4. Security Ownership of Certain Beneficial Owners
and Management." Accordingly, Harrah's Investor will be able to elect all of the
Class B Directors, which will, prior to the Transition Date, generally supervise
the day-to-day activities of the Company. See "Item 11. Description of
Registrant's Securities to be Registered -- Board of Directors." In addition,
JCC Holding's sole director, Philip G. Satre, is also the President and Chief
Executive Officer of HET, the Manager's indirect parent, and Chairman and Chief
Executive Officer of the Manager. Colin V. Reed, President of JCC Holding, is
also Executive Vice President of HET and Senior Vice President of the Manager.
Michael N. Regan, Secretary and Treasurer of JCC Holding, is also Vice President
and Controller of HET, Senior Vice President and Treasurer of the Manager and
Vice President and Treasurer of HNOIC. See "Item 5. Directors and Executive
Officers."
ITEM 8. LEGAL PROCEEDINGS
MCCALL LITIGATION. On April 26, 1993, a lawsuit was filed in the Civil
District Court for the Parish of Orleans captioned McCall v. McCall, et al. (the
"McCall Litigation"). Plaintiffs asserted an ownership interest in certain land
underlying the Rivergate site and also sought permanent injunctive relief
prohibiting the use of such land for the Casino. The lawsuit also challenged the
manner in which the RDC was formed and its authority to enter into the Ground
Lease and the Basin Street Casino Lease. HJC intervened in the lawsuit and
aligned itself with the City and the RDC. On February 22, 1994, the Civil
District Court granted the motion for summary judgment filed by the City, the
RDC and HJC, thereby dismissing all claims. On February 23, 1995, the state
appellate court unanimously affirmed the Civil District Court's ruling that the
plaintiffs did not have an ownership interest in any land underlying the
Rivergate site and remanded the case to the Civil District Court to determine
whether the plaintiffs have standing to assert the other claims concerning the
authority of the RDC to enter into the Ground Lease and the Basin Street Casino
Lease. On April 28, 1995, all parties to the litigation applied to the Louisiana
Supreme Court for writs of certiorari. On June 30, 1995, the Louisiana Supreme
Court unanimously denied all writ applications. The property claims in this
litigation have been finally resolved in favor of HJC, the City and the RDC. In
December 1995, the Civil District Court granted the exception of no right of
action submitted by the City and RDC and held that the plaintiffs lack standing
to challenge the constitutionality of the RDC. The plaintiffs filed a devolutive
appeal to the Fourth Circuit Court of Appeals. The appeal has been fully
briefed, and it is set for oral argument on September 10, 1996. The Company
believes that at least some of the claims in this case may not be discharged in
connection with the Plan of Reorganization.
In addition, on April 6, 1994, Harry McCall, one of the claimants in the
McCall Litigation, filed a motion in Civil District Court to enforce an
agreement Mr. McCall claims to have entered into with HJC to settle the McCall
Litigation, asserting that he was entitled to receive settlement proceeds based
upon that agreement. HJC does not believe that a binding settlement agreement
was reached with that claimant. On July 8, 1994, the Civil District Court ruled
that Mr. McCall's motion was procedurally defective. The plaintiff failed to
cure the deficiency, and on September 12, 1994, the district court in New
Orleans dismissed Mr. McCall's motion to enforce the alleged agreement. A notice
of appeal was filed by Mr. McCall and on October 12, 1995, the Fourth Circuit
Court of Appeals for the State of Louisiana reversed the district court's
ruling, which would allow Mr. McCall to pursue his claim. As a result of HJC's
bankruptcy case, the motion to enforce settlement has been stayed with respect
to HJC. Henry McCall and Harry McCall did file a proof of claim in HJC's
bankruptcy case demanding payment of $2 million they claim to be due in
connection with the settlement agreement. HJC filed an objection seeking to
disallow that claim in its entirety; hearing on that objection was
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<PAGE>
scheduled for May 28, 1996. Shortly before the hearing, Henry McCall and Harry
McCall filed an adversary proceeding against HJC styled HENRY GEORGE MCCALL AND
HARRY MCCALL, JR. V. HARRAH'S JAZZ COMPANY. In substance, the McCalls' adversary
complaint restated the allegations of the motion to enforce settlement
previously filed in Civil District. The Bankruptcy Court ordered that HJC's
objection to the McCall's proof of claim be consolidated with the adversary
proceeding for purposes of discovery and trial. Discovery is ongoing at this
time, and trial is scheduled to commence on September 16, 1996. To the extent
that the McCalls have a claim against HJC under the purported settlement
agreement, the Company expects that this claim will be afforded treatment to
which it is entitled under the Plan of Reorganization and discharged upon the
Effective Date of the Plan of Reorganization.
TUCKER LITIGATION. A lawsuit captioned Tucker v. City of New Orleans was
filed on October 5, 1994 against the City (the "Tucker Litigation") in the Civil
District Court for the Parish of Orleans by a resident of the Parish challenging
the validity of three casino-related ordinances adopted by the City Council on
September 23, 1994 which authorized, among other things, amendments to the
Ground Lease. The lawsuit also challenges the constitutionality of a clarifying
amendment to the Gaming Act. The clarifying amendment addresses a provision of
the Ground Lease which requires at least 80% of the persons employed by the
Casino to be residents of Orleans Parish ("Residency Requirement"). The effects
of the ordinances and the amendment to the Gaming Act were, among other things,
(i) to clarify the intent of the Gaming Act that a provision of a contract (to
which the gaming operator is a party) that requires more than 50% of the persons
employed to be residents of any one parish is void, but that the contract as an
entirety is not be void under the Gaming Act, and (ii) to reduce the Residency
Requirement in the Ground Lease if necessary to comply with applicable law. In
the event that the plaintiff ultimately prevails, it is possible that the Ground
Lease could be declared void. On November 18, 1994, the City filed preliminary
exceptions contending that the plaintiff had failed to name indispensable and
necessary parties as defendants. On March 13, 1995 and August 17, 1995, the
plaintiff filed supplemental amended petitions. On September 22, 1995, the City
requested that the plaintiff consider its prior filed exceptions as applicable.
The plaintiff did not object in its supplemental petition.
Mr. Tucker filed a proof of claim in HJC's bankruptcy case in which he
demanded unliquidated amounts which may be owed to him by HJC with respect to
the Tucker litigation. HJC filed an objection to the proof of claim, and on
August 13, 1996 Mr. Tucker consented to disallowance of this claim. While it is
impossible to predict accurately the outcome of the litigation at such an early
stage in the proceeding, the Company believes that the City has defenses to the
suit, including that all necessary procedures in connection with adoption of the
ordinances were complied with and that the clarifying amendments are
constitutional.
LANDMARKS LITIGATION (JOAN OF ARC). On December 6, 1994, a lawsuit
captioned LOUISIANA LANDMARKS SOCIETY, INC. V. CITY OF NEW ORLEANS, RIVERGATE
DEVELOPMENT CORPORATION, AND HARRAH'S JAZZ COMPANY was filed against the City,
the RDC and HJC seeking to prevent, among other things, HJC from moving the Joan
of Arc statue or using any part of the Place de France without the approval of
the Secretary of the United States Department of the Interior. The Place de
France is located adjacent to the Casino. The original design plans for the
Casino contemplated locating the main access areas for the Casino in the area
currently in use as the Place de France. The plaintiff alleged that the Place de
France was developed with federal funds for historic purposes and that therefore
the statue cannot be relocated and the Place de France cannot be converted to
another use without the approval of the Secretary of the Interior. The plaintiff
also alleged a pendent state law claim that the Place de France had been
dedicated as a park by the City and that the conversion of the Place de France
to another use requires the approval of the State legislature. On January 27,
1995, the United States District Court for the Eastern District of Louisiana
issued an order permanently restraining the City, the RDC and HJC from removing
the Joan of Arc statue or using any part of the Place de France without the
approval of the Secretary of the Interior. The City, the RDC and HJC filed
notices of appeal. On June 7, 1996, the Fifth Circuit Court of Appeals reversed
the district court's ruling and
60
<PAGE>
vacated the permanent injunction, holding that the statutory scheme does not
afford an implied right of action to the plaintiff. On July 12, 1996, the Fifth
Circuit denied the plaintiffs' petition for rehearing.
Louisiana Landmarks Society, Inc. filed a claim in HJC's bankruptcy case in
which it demanded unliquidated amounts which may be owed to it as a result of
the Louisiana Landmarks litigation. HJC filed an objection to the proof of
claim, and on August 13, 1996 Louisiana Landmarks Society, Inc. consented to
disallowance of this claim.
TUCKER V. CITY OF NEW ORLEANS AND RIVERGATE DEVELOPMENT CORPORATION. On
July 24, 1996, Mr. Tucker filed lawsuit seeking to enjoin alteration of the
Place de France absent the express written approval of the Secretary of
Interior. The City and RDC have been made defendants; HJC is not named, although
the lawsuit could affect the development of the HJC Casino. Mr. Tucker
characterized his claim as one for purported violation of his rights of due
process and equal protection pursuant to 42 U.S.C. Section 1983. The factual
allegations of the complaint are virtually identical to those asserted by
Louisiana Landmarks and rejected in the recent Fifth Circuit decision described
above. Mr. Tucker served as counsel of record for Louisiana Landmarks, and he is
both a member and trustee of the non-profit corporation. The matter has been
allotted to Judge McNamara, the same district judge who handled the Louisiana
Landmarks litigation. Service has not been made as of this date. The Company is
not a party to this case.
There is no other material litigation or arbitration pending which affects
the Company which will not be resolved by the Plan of Reorganization.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
JCC Holding does not intend to pay cash dividends on the Common Stock,
including the Class A Common Stock, in the foreseeable future. Further, pursuant
to the expected terms of the Bank Credit Facilities agreements, for as long as
there are amounts outstanding under the Bank Credit Facilities, no dividends
will be paid. See "-- Material Agreements -- Bank Credit Facilities." In
addition, the terms of the Indentures prohibit payment of cash dividends unless
certain conditions are met. See "-- Material Agreements -- Indentures." The
payment of cash dividends, if any, will be made only from assets legally
available for that purpose, and will depend on JCC Holding's financial
condition, results of operations, current and anticipated capital requirements,
restrictions under then existing debt instruments and other factors deemed
relevant by the board of directors. See "Items 1 and 3. Business and Properties
- -- Risk Factors -- Dividend Policy."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant to the Plan of Reorganization, JCC Holding intends to issue shares
of Common Stock, New Notes and New Contingent Notes in the amounts and on the
terms summarized under "Item 11. -- Description of Registrant's Securities to be
Registered," and "Items 1. and 3. Business and Properties -- Material Agreements
- -- Indentures," and " -- Recent Reorganization," without registration under the
Securities Act, or state or local law, in reliance on the exemptions provided
for in Section 1145 of Title 11 of the Bankruptcy Code and Section 4(2) of the
Securities Act of 1933, as amended. JCC Holding has not issued any other
securities within the past three years.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The following brief description of JCC Holding's capital stock and related
corporate governance matters does not purport to be complete and is subject in
all respects to applicable Delaware law and to the provisions of JCC Holding's
Certificate of Incorporation, Bylaws, and agreements with certain shareholders
referred to below, copies of which have been filed as exhibits to this
Registration Statement.
The authorized capital stock of JCC Holding is expected to consist of (i)
prior to the Transition Date (as defined herein), 10,000,000 shares of Common
Stock, par value $0.01 per share, consisting of shares of Class A Common Stock
and shares of Class B Common Stock, and (ii) after the Transition Date,
10,000,000 shares of unclassified Common Stock, par value $0.01 per share.
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COMMON STOCK
JCC Holding expects to issue 10,000,000 shares of Common Stock on the
Effective Date of the Plan of Reorganization. The Common Stock is expected to
consist of shares of Class A Common Stock and shares of Class B Common Stock.
With certain exceptions, including the election of directors, each share of
Common Stock (including, prior to the Transition Date, each share of Class A
Common Stock and Class B Common Stock) shall have identical rights and
privileges, and shall rank equally, share ratably and be identical in every
respect and as to all matters, including rights in liquidation, and shall be
entitled to vote upon all matters submitted to a vote of the common
stockholders, shall be entitled to one vote for each share of Common Stock held,
and, except as otherwise required by law, the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders. Shares of Class B Common Stock are held by the former Partners of
HJC and their affiliates ("HJC Partners and Affiliates") and shares of Class A
Common Stock are held by entities other than HJC Partners and Affiliates. Shares
of Class B Common Stock convert to shares of Class A Common Stock if an HJC
Partner or Affiliate transfers such shares to a party other than an HJC Partner
or Affiliate, and, subject to certain exceptions upon a Change of Control,
shares of Class A Common Stock convert to shares of Class B Common Stock if an
entity that is not an HJC Partner or Affiliate transfers such shares to an HJC
Partner or Affiliate. Shares of Class A Common Stock and Class B Common Stock
are freely transferable except that, prior to the Transition Date, HET has
agreed to own at least 51% of the outstanding shares of Class B Common Stock. On
the Transition Date, shares of Class A Common Stock and Class B Common Stock
will convert into unclassified shares of Common Stock. With certain important
exceptions summarized below, holders of the Common Stock are entitled to one
vote per share on all matters to be voted upon by the stockholders of JCC
Holding.
REDEMPTION PROVISIONS
Outstanding shares of Common Stock are subject to redemption by JCC Holding,
by action of the board of directors, if, in the judgment of the board of
directors or on an affiliates' board of directors, any holder of Common Stock is
determined by any gaming regulatory agency to be unsuitable, has an application
for a license or permit rejected, or has a previously issued license or permit
rescinded, suspended, revoked or not renewed, as the case may be, whether or not
any of the foregoing is final and nonappealable, or if such action otherwise
should be taken, pursuant to Section 151(b) of the Delaware General Corporation
Law or any other applicable provision of law, to the extent necessary to avoid
any regulatory sanctions against, or to prevent the loss of or secure the
reinstatement of any license, franchise or entitlement from any governmental
agency held by, JCC Holding, any Affiliate of JCC Holding (including, but not
limited to, HET and its Affiliates) or any entity in which JCC Holding or such
Affiliate is an owner, which license, franchise or entitlement is (i)
conditioned upon some or all of the holders of JCC Holding's stock of any class
or series possessing prescribed qualifications, or (ii) needed to allow the
conduct of any portion of the business of JCC Holding or any such Affiliate or
other entity. The terms and conditions of such redemption shall be as follows:
(1) the redemption price of the shares to be redeemed shall be equal to the Fair
Market Value of such shares (excluding any dividends thereon not entitled to be
received) or such other redemption price as required by any applicable law,
regulation, rule or resolution or order of a gaming regulatory agency; (2) the
redemption price of such shares may be paid in cash, Redemption Securities or
any combination thereof; (3) if less than all the shares held by Disqualified
Holders are to be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the board of directors, which may include
selection first of the most recently purchased shares thereof, selection by lot
or selection in any other manner determined by the board of directors; (4) at
least 30 days' written notice of the Redemption Date shall be given to the
record holders of the shares selected to be redeemed (unless waived in writing
by any such holder), provided that the Redemption Date may be the date on which
written notice shall be given to record holders if the cash or Redemption
Securities necessary to effect the redemption shall have been deposited in trust
for the benefit of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their shares to be redeemed;
(5) from and after the Redemption Date or such earlier date as mandated by any
applicable
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law, regulation, rule or resolution or order of a gaming regulatory agency, any
and all rights of whatever nature, which may be held by the owners of shares
selected for redemption (including without limitation any rights to vote or
participate in dividends declared on stock of the same class or series as such
shares), shall cease and terminate and they shall thenceforth be entitled only
to receive the cash or Redemption Securities payable upon redemption; and (6)
such other terms and conditions as the board of directors shall determine.
BOARD OF DIRECTORS
PRIOR TO THE TRANSITION DATE. Prior to the Transition Date, the following
provisions shall be in effect: the board of directors shall be divided into two
classes, designated "Class A Directors" and "Class B Directors." Except as set
forth below, the number of directors shall be six, and the directors shall
consist of three Class A Directors and three Class B Directors. Class A
Directors shall be elected by the affirmative vote of a plurality the shares of
Class A Common Stock, and Class B Directors shall be elected by the affirmative
vote of a plurality of the shares of Class B Common Stock. The board of
directors shall also be divided into three groups, designated Group I, Group II
and Group III. Except as described below, each group shall consist of one Class
A Director and one Class B Director. Upon the Effective Date, directors in Group
I shall be elected for a one-year term, directors in Group II shall be elected
for a two-year term, and directors in Group III shall be elected for a
three-year term. At each succeeding annual meeting of stockholders, successors
to the group of directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of directors increases due to the
occurrence of an Extraordinary Flip Event or a Change of Control, such
additional director(s) shall be members of the group whose term is next to
expire. A director shall generally hold office until such director's term
expires or until his successor shall be elected and qualified, subject, however,
to prior death, resignation, retirement, disqualification or removal from
office.
Notwithstanding the foregoing, upon the occurrence of an Extraordinary Flip
Event, the number of Class A Directors shall increase by one (the "Additional
Class A Director") and the number of Class B Directors shall remain the same.
The Additional Class A Director shall be elected by a majority of Class A
Directors in office when the Extraordinary Flip Event giving rise to such
Additional Class A Director occurs. If a Cure Event occurs, the term of the
Additional Class A Director shall immediately expire, and the number of Class A
Directors shall be reduced by one. Notwithstanding the foregoing, upon the
occurrence of a Change of Control, the number of Class B Directors shall
increase by one (the "Additional Class B Director") and the number of Class A
Directors shall remain the same; provided, however, that the number of Class B
Directors shall not be increased to include the Additional Class B Director if,
upon the occurrence of a Change of Control, an Extraordinary Flip Event has
occurred and no corresponding Cure Event has occurred; and provided, further,
however, that the term of office of the Additional Class B Director shall
immediately expire if an Extraordinary Flip Event occurs after the Change of
Control, or the percentage of the outstanding shares of Class A Common Stock
owned by the Conflicted Entity whose acquisition of shares of Class A Common
Stock effected the Change of Control is reduced such that such Conflicted Entity
owns less than 20% of the outstanding shares of Class A Common Stock.
Any vacancy on the Board of Directors of a Class A Director position may
only be filled by a majority of Class A Directors then in office (or, if only
one Class A Director is then in office, by such Class A Director). Any vacancy
on the Board of Directors of a Class B Director position may only be filled by a
majority of Class B Directors then in office (or, if only one Class B Director
is then in office, by such Class B Director). If there are no directors of one
class then in office, the holders of shares of such class shall elect directors
to fill such vacancies in a special meeting of stockholders called for such
purpose.
At all meetings of the Board of Directors, a majority of the entire Board of
Directors shall be required to constitute a quorum for the transaction of
business. Except as provided in the following sentence, no action shall be taken
by the Board of Directors on behalf of JCC Holding unless (i) such action is
authorized by the affirmative vote of a majority of the directors then in
office, and (ii) such
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action is authorized by at least one Class B Director; provided, however, that
if an Extraordinary Flip Event has occurred and no related Cure Event has
occurred, clause (ii) shall be deemed to have been satisfied. Notwithstanding
the previous sentence, no Significant Transaction shall be authorized unless
such Significant Transaction (x) is authorized by the affirmative vote of a
majority of the directors then in office, (y) is authorized by the affirmative
vote of a majority of the Class A Directors and (z) is authorized by the
affirmative vote of a majority of the Class B Directors; provided, however, that
if an Extraordinary Flip Event has occurred and no related Cure Event has
occurred, (A) clause (z) shall be deemed to have been satisfied, and (B) no
action of the Board of Directors shall affect the holders of the Class A Common
Stock and the holders of the Class B Common Stock disproportionately.
Any Class A Director may be removed from the Board of Directors, with or
without cause, at any regular meeting or at any special meeting of stockholders
by the affirmative vote of the holders of a majority of shares of Class A Common
Stock present in person or represented by proxy at such meeting. Any Class B
Director may be removed from the Board of Directors, with or without cause, at
any regular meeting or at any special meeting of stockholders by the affirmative
vote of the holders of a majority of shares of Class B Common Stock present in
person or represented by proxy at such meeting. In the event that any director
of JCC Holding is found unsuitable by the LGCB or any other gaming regulatory
agency with proper jurisdiction over such director, the term of such director
shall immediately expire and no remuneration of any kind shall be paid to such
director.
AFTER THE TRANSITION DATE. Upon the Transition Date and thereafter, the
above provisions regarding the Board of Directors shall terminate and the
following provisions shall be in effect: The board of directors shall consist of
not less than three or more than seventeen directors, the exact number of
directors to be determined from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors. The board of
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
of the total number of directors constituting the entire board of directors. At
the first annual meeting of stockholders following the Transition Date, Class I
directors shall be elected for a one-year term, Class II directors for a
two-year term and Class III directors for a three-year term. At each succeeding
annual meeting of stockholders, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may be filled by a majority of the Board of Directors then
in office, provided that a quorum is present, and any other vacancy occurring in
the Board of Directors may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his predecessor.
Directors shall be elected at annual meetings of stockholders by the
affirmative vote of the holders of a plurality of the shares of Common Stock
present in person or represented by proxy at such meeting and entitled to vote
on the election of directors. Directors may be removed only for cause, and only
by the affirmative vote of holders of a majority of the shares of Common Stock
entitled to vote at an election of directors.
NOMINATION OF DIRECTORS. Nominations of persons for election to the board
of directors at the annual meeting may be made at such meeting by or at the
direction of the board of directors, by any
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committee or persons appointed by the board of directors or by any stockholder
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth below. Such nominations by any stockholder shall
be made pursuant to timely notice in writing to the Secretary of JCC Holding. To
be timely, a stockholder's notice shall be delivered to or mailed and received
at the principal executive offices of JCC Holding not less than sixty days nor
more than ninety days prior the meeting; provided, however, that in the event
that less than seventy days notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder, to be
timely, must be received no later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (a)
the name, age, business address and residence address of the person, (b) the
principal occupation or employment of the person, (c) the class and number of
shares of capital stock of JCC Holding which are beneficially owned by the
person, and (d) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
the Rules and Regulations of the Securities and Exchange Commission under
Section 14 of the Securities Exchange Act of 1934, as amended; and (ii) as to
the stockholder giving the notice (a) the name and record address of the
stockholder and (b) the class and number of shares of capital stock of JCC
Holding which are beneficially owned by the stockholder. JCC Holding may require
any proposed nominee to furnish such other information as may reasonably be
required by JCC Holding to determine the eligibility of such proposed nominee to
serve as a director. No person shall be eligible for election as a director of
JCC Holding unless nominated in accordance with the procedures set forth above.
COMMITTEES OF THE BOARD
Prior to the Transition Date, the Certificate of Incorporation provides that
the following committees of the board shall exist: Audit Committee, the Gaming
Committee, the Compensation Committee, the Class A Director Nomination
Committee, the Class B Director Nomination Committee, the Class A Subsidiary
Stock Voting Committee, and the Class B Subsidiary Stock Voting Committee. The
Audit Committee will consist of the Class A Directors and will be empowered to
undertake and complete an audit or investigation, at any time, into the business
affairs of JCC Holding or a subsidiary, including JCC and JCC Intermediary. The
Gaming Committee will supervise the day-to-day activities of JCC Holding and,
except with respect to Significant Transactions, shall have and may exercise, in
such manner as it shall deem to be in the best interests of JCC Holding, all of
the powers of the board of directors in the management or direction of the
business and affairs of JCC Holding, not inconsistent, however, with such
specific direction as to the conduct of the business and affairs as shall have
been given by the board of directors. The Gaming Committee will consist of the
Class B Directors; provided, however, that upon the occurrence of a Flip Event,
Class B Directors will be removed from the Gaming Committee and replaced on the
Gaming Committee by the Class A Directors. The Compensation Committee will
consist of the Class A Directors and will be empowered to act on behalf of JCC
Holding with respect to all matters regarding the compensation of officers and
directors of JCC Holding. The nominating committees will consist of the
directors of each class their purpose shall be to select the person(s) to stand
for election as director nominee(s) at any meeting of stockholders. The
subsidiary stock voting committees will consist of all of directors of each
class and shall be entitled to exercise any and all rights and powers incident
to the ownership of the Class A Common Stock, or Class B Common Stock, as
applicable, of JCC Intermediary, including attending and voting at any meeting
of the holders of the common stock of JCC Intermediary on any matter on which
holders of such stock are eligible to vote, and the members of the subsidiary
stock voting committees shall vote for themselves as directors of JCC
Intermediary.
DIVIDENDS
Prior to the Transition Date, subject to the rights of the holders of
preferred stock, if any, holders of Common Stock shall be entitled to receive
such dividends and other distributions in cash, property or shares of capital
stock as may be declared thereon by the board of directors from time to time;
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provided, however, that no dividend or distribution, including without
limitation, dividends or distributions of cash, shares of capital stock of JCC
Holding, other securities, or any other property, may be declared or paid on the
outstanding shares of either the Class A Common Stock or the Class B Common
Stock unless an identical per share dividend or distribution is simultaneously
declared and paid on all of the outstanding shares of Common Stock; provided,
further, however, that a dividend of shares of Common Stock may be declared and
paid in Class A Common Stock to holders of Class A Common Stock and in Class B
Common Stock to holders of Class B Common Stock if the number of shares paid per
share to holders of Class A Common Stock and to holders of Class B Common Stock
shall be the same. Under no circumstance shall a dividend of shares be declared
and paid in Class A Common Stock to anyone other than holders of Class A Common
Stock, and under no circumstance shall a dividend of shares be declared and paid
in Class B Common Stock to anyone other than holders of Class B Common Stock. If
JCC Holding shall in any manner subdivide, combine or reclassify the outstanding
shares of Class A Common Stock or Class B Common Stock, the outstanding shares
of the other such class of common stock shall be subdivided, combined or
reclassified proportionally in the same manner and on the same basis as the
outstanding shares of Class A Common Stock or Class B Common Stock, as the case
may be, have been subdivided, combined or reclassified. Upon and after the
Transition Date, subject to the rights of the holders of preferred stock, if
any, and subject to any other provisions of the Certificate of Incorporation,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, property or shares of capital stock of JCC Holding as may
be declared thereon by the board of directors from time to time.
AMENDMENTS TO CERTIFICATE AND BYLAWS
Stockholders may not make, adopt, alter, amend, change or repeal the Bylaws
except upon the affirmative vote of at least 75% of the votes entitled to be
cast by the holders of Common Stock, voting together as a single class;
provided, however, that prior to the Transition Date, in addition to such vote,
any amendment to the Bylaws which in any way affects the rights of holders of
Class A Common Stock or Class A Directors shall also require the affirmative
vote of the holders of a majority of the shares of Class A Common Stock, and any
amendment to the Bylaws which in any way affects the rights of holders of Class
B Common Stock or Class B Directors shall also require the affirmative vote of
the holders of a majority of the shares of Class B Common Stock. Prior to the
Transition Date, the board of directors shall not have the power to make, adopt,
alter, amend, change or repeal the Bylaws. Upon and after the Transition Date,
the board of directors is expressly authorized to make, adopt, alter, amend,
change or repeal the Bylaws.
STOCKHOLDER MEETINGS
The annual meeting of stockholders shall be held each year, on such date and
at such time as may be fixed by the board of directors and stated in the notice
of the meeting, for the purpose of electing directors and for the transaction of
only such other business as is properly brought before such meeting in
accordance with these Bylaws. Special meetings of the stockholders, for any
purpose or purposes, may be called at any time, but only by a majority of the
entire board of directors or by either the Chairman or the President. No
stockholder action may be taken except at an annual or special meeting of
stockholders of JCC Holding and stockholders may not take any action by written
consent in lieu of a meeting.
To be properly brought before the annual meeting, business must be either
(i) specified in the notice of annual meeting (or any supplement or amendment
thereto) given by or at the direction of the board of directors, (ii) otherwise
brought before the annual meeting by or at the direction of the board of
directors, or (iii) otherwise properly brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of JCC Holding not less than sixty days nor more
than ninety days prior to the meeting; provided, however, that in the event that
less than seventy days notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by a stockholder,
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to be timely, must be received no later than the close of business on the tenth
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. A
stockholder's notice to the Secretary shall set forth (a) as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, and (ii) any material
interest of the stockholder in such business, and (b) as to the stockholder
giving the notice (i) the name and record address of the stockholder and (ii)
the class, series and number of shares of capital stock of JCC Holding which are
beneficially owned by the stockholder. Notwithstanding anything in the Bylaws to
the contrary, no business shall be conducted at the annual meeting except in
accordance with these procedures.
AGREEMENTS WITH CERTAIN SHAREHOLDERS
REGISTRATION AND LISTING OF CLASS A COMMON STOCK. Pursuant to the Plan of
Reorganization, JCC Holding must use its best efforts to cause the Class A
Common Stock to be listed on a national securities exchange or quoted on
NASDAQ-NMS upon the Effective Date. In addition, to the extent that it is
reasonably determined that the registration of public resales by any holder of
Old Bonds of any securities received by such holder under the Plan of
Reorganization is required by law, JCC Holding will file a registration
statement (the "33 Act Registration Statement") with respect to such resales
promptly after the Effective Date. If such 33 Act Registration Statement is not
effective within 120 days after it is filed, then JCC Holding shall pay to the
holders of such securities an amount equal to $.05 per week for each $1,000 of
securities to be registered, which amount shall increase by $.05 every 45 days
to a maximum of $.30 per week.
REGISTRATION OF CLASS B COMMON STOCK. On the Effective Date, the Company
and Harrah's Investor shall enter into a Registration Rights Agreement (the
"Class B Registration Rights Agreement") containing such terms and conditions as
are customary under the circumstances, including the following: (i) upon the
request of Harrah's Investor, the Company shall promptly file with the
Securities and Exchange Commission and cause to become effective as soon as
reasonably practicable thereafter a registration statement on the appropriate
form (the "Class B Registration Statement") relating to all shares of Class B
Common Stock held by Harrah's Investor; and (ii) the Company shall cause such
Class B Registration Statement to be continually effective, subject to customary
exceptions, through the third anniversary of the date on which the Class B
Registration Statement first becomes effective.
POTENTIAL EFFECT OF CERTAIN PROVISIONS UPON AN ATTEMPT TO ACQUIRE CONTROL OF JCC
HOLDING
Certain of the foregoing provisions of the Articles and Bylaws may
discourage or make more difficult the acquisition of control of JCC Holding by
means of a tender offer, open market purchase, proxy fight or otherwise,
including certain types of coercive takeover practices and inadequate takeover
bids. These provisions are intended to encourage persons seeking to acquire
control of JCC Holding first to negotiate with JCC Holding. JCC Holding believes
the foregoing measures provide benefits by enhancing JCC Holding's potential
ability to negotiate with the proponent of any unfriendly or unsolicited
proposal to take over or restructure JCC Holding and outweigh the disadvantages
of discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
TRANSFER AGENT
The transfer agent for the Common Stock is .
CERTAIN DEFINITIONS
"AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
"CHANGE OF CONTROL" shall mean the acquisition of at least 20% of the
outstanding shares of Class A Common Stock by a Conflicted Entity.
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"CLOSING PRICE" on any day means the reported closing sales price or, in
case no such sale takes place, the closing bid price on the principal United
States securities exchange registered under the Securities Exchange Act of 1934
on which such security is listed, or, if such security is not listed on any such
exchange, the highest closing sales price or bid quotation for such security on
the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use, or if no such prices or quotations are available, the fair
market value on the day in question as determined by the Board of Directors in
good faith.
"CONFLICTED ENTITY" shall mean an entity (including any Controlled
Affiliates of such entity and any entity of which such entity is a Controlled
Affiliate) which (i) controls or operates, or, as of the Consummation Date, is
licensed or qualified to control or operate in any of the states of Illinois,
Indiana, Louisiana, Mississippi, Missouri, Nevada or New Jersey, a casino or
casino hotel facility, or (ii) has been, within the five years prior to the
Consummation Date, involved in litigation with HET which HET has disclosed in an
Annual Report on Form 10-K, or which HET would be required to disclose in its
next Annual Report on Form 10-K.
"CONTROLLED AFFILIATE" with respect to any Person shall mean (i) a
corporation a majority of whose capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, such Person and one or more of such Person's Controlled
Affiliates or by one or more of such Person's Controlled Affiliates, or (ii) any
other entity (other than a corporation) in which such Person, one or more of
such Person's Controlled Affiliates, or such Person and one or more of such
Person's Controlled Affiliates, (a) directly or indirectly, at the date of
determination thereof, owns at least majority ownership interest in such entity,
and (b) possesses the power to direct the management and policies of such
entity.
"CURE EVENT" shall mean, with respect to a corresponding Flip Event (except
for Flip Events occurring pursuant to clause (h) under the definition of Flip
Event), that (A) all of the parties to the contract(s) under which a default or
event of default has occurred, and which default or event of default has given
rise to a Flip Event, have consented in writing that the default or event of
default giving rise to such Flip Event has been waived or cured, and (B) the
President of JCC Holding has provided to the Board of Directors written notice
that the written consent(s) referred to in clause (A) have been received.
"DISQUALIFIED HOLDER" shall mean any holder of shares of stock of JCC
Holding of any class (or classes) or series who, either individually or when
taken together with any other holders of shares of stock of JCC Holding of any
class (or classes) or series, in the judgment of the Board of Directors, is
determined by any gaming regulatory agency to be unsuitable, or has an
application for a license or permit rejected, or has a previously issued license
or permit rescinded, suspended, revoked or not renewed, as the case may be,
whether or not any of the foregoing is final and nonappealable, or whose holding
of such stock, either individually or when taken together with the holding of
shares of stock of JCC Holding of any class (or classes) or series by any other
holders, may result, in the judgment of the Board of Directors, in any
regulatory sanctions against, or the loss of or the failure to secure the
reinstatement of any license, franchise or entitlement from any governmental
agency held by, JCC Holding, any Affiliate of JCC Holding or any entity in which
JCC Holding or such Affiliate is an owner.
"EXTRAORDINARY FLIP EVENT" shall mean a Flip Event caused by an intentional
or willful action or failure to act by the Class B Directors, HET, the casino
manager or a Controlled Affiliate of HET.
"FAIR MARKET VALUE" of a share of JCC Holding's stock of any class or series
shall mean the average Closing Price for such share for each of the 45 most
recent days of which shares of stock of such class or series shall have been
traded preceding the day on which notice of redemption shall be given; provided,
however, that if shares of stock of such class or series are not traded on any
securities exchange or in the over-the-counter market, Fair Market Value shall
be determined by the Board of Directors in good faith; and provided further,
however, that Fair Market Value as to any stockholder who purchased any stock of
the class (or classes) or series subject to redemption within 120 days of a
Redemption Date need not (unless otherwise determined by the Board of Directors)
exceed the purchase price paid by him for any stock of such class (or classes)
or series of JCC Holding.
68
<PAGE>
"FLIP EVENT" shall mean any of the following: (a) an event of default has
occurred under the Bank Credit Facilities; (b) an event of default has occurred
under the Notes or the Contingent Notes; (c) an event of default has occurred
under the Casino Lease; (d) an event of default has occurred under the Amended
Casino Operating Contract; (e) an event of default has occurred under the
Amended Management Agreement and HET or the Manager is the defaulting party in
respect of such event of default; (f) HET or an Affiliate of HET has not
fulfilled its obligations under any of the Completion Guarantees; (g) JCC
Holding is in violation of the Certificate of Incorporation or these Bylaws such
that the rights of holders of Class A Common Stock or Class A Directors are
affected disproportionately in comparison with holders of Class B Common Stock
or Class B Directors, as applicable; or (h) HET, the Manager, any Controlled
Affiliate of either, or any entity of which HET or the Manager is a Controlled
Affiliate makes a general assignment for the benefit of creditors; admits in
writing its inability to pay its debts as they become due; files a petition in
bankruptcy; is adjudged bankrupt or insolvent; files a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law or
regulation; files an answer admitting or not contesting the material allegations
of a petition filed against it in any such proceeding; seeks or consents to or
acquiesces in the appointment of a trustee or liquidator of such entity or a
material part of its properties; or voluntarily liquidates or dissolves;
provided, however, that the actions described in clause (h) of this definition
with respect to a Controlled Affiliate of HET shall only constitute a "Flip
Event" if such action is reasonably likely to have an adverse effect on JCC
Holding, JCC Intermediary, JCC, the Casino, or the suitability of any director
or officer of JCC Holding, JCC Intermediary or JCC or any other employee thereof
required to be found suitable under any Louisiana gaming law, regulation, rule,
or order of a gaming regulatory agency.
"MINIMUM MARKET VALUE" shall mean, for each trading day, the sum of (i) the
Closing Price of a share of Class A Common Stock multiplied by the number of
such shares issued and outstanding, plus (ii) the Closing Price per $1,000 of
Notes and Contingent Notes, divided by $1,000, and multiplied by the aggregate
principal amount of such notes outstanding.
"PERSON" shall mean both natural persons and legal entities, unless
otherwise specified.
"QUALIFIED PERSON" shall mean any natural person found suitable by the LGCB
to serve as a director of JCC Holding, or, if such a finding is not required,
any natural person that otherwise meets all the requirements of the LGCB.
"REDEMPTION DATE" shall mean the date fixed by the Board of Directors for
the redemption of any shares of stock of JCC Holding.
"REDEMPTION SECURITIES" shall mean any debt or equity securities of JCC
Holding, any Subsidiary or any other corporation, or any combination thereof,
having such terms and conditions as shall be approved by the Board of Directors
and which, together with any cash to be paid as part of the redemption price, in
the opinion of any nationally recognized investment banking firm selected by the
Board of Directors (which may be a firm which provides other investment banking,
brokerage or other services to JCC Holding), has a value, at the time notice of
redemption is given, at least equal to the Fair Market Value of the shares to be
redeemed (assuming, in the case of Redemption Securities to be publicly traded,
such Redemption Securities were fully distributed and subject only to normal
trading activity), or such other redemption price as required by any applicable
law, regulation, rule or resolution or order of a gaming regulatory agency.
"SIGNIFICANT TRANSACTIONS" shall mean: (i) any amendment of the Certificate
of Incorporation or the Bylaws, (ii) any merger, consolidation or sale of all or
substantially all of JCC Holding's business or assets, (iii) any transaction
with HET or its Affiliates (including any series of related transactions)
involving consideration to either party in excess of $5 million (including any
decisions regarding the exercise, waiver or modification of rights or
obligations under the Amended Management Agreement), (iv) any declaration of
dividends, (v) any amendment of the Amended Casino Operating Contract, the
Amended Ground Lease, or the Amended GDA, (vi) any voluntary filing for
protection under Title 11 of the United States Code or any similar federal or
state law for the relief of debtors, (vii) any
69
<PAGE>
incurrence of, or assumption of liability for, indebtedness for borrowed money,
other than indebtedness incurred pursuant to the Plan of Reorganization, the
amendment of the terms of any indebtedness for borrowed money or any
modification, consent or waiver thereunder, (viii) any issuance of securities,
(ix) any repurchase of securities of JCC Holding, JCC Intermediary or JCC, (x)
any change in the independent auditors, and (xi) the approval of JCC's annual
operating plan and annual capital budget.
"SUBSIDIARY" shall mean any corporation more than 50% of whose outstanding
stock entitled to vote generally in the election of directors is owned by JCC
Holding, by one or more Subsidiaries or by JCC Holding and one or more
Subsidiaries.
"TRANSFER" shall mean any type of transfer of shares of Class A Common Stock
or Class B Common Stock prior to the Transition Date, whether by sale, exchange,
gift, operation of law, pledge, or otherwise or any transfer of the power to
vote such shares by proxy or by transferring any proxy, and shares of Class B
Common Stock shall refer to either (i) such shares of Class B Common Stock so
transferred, (ii) the power to vote such shares so transferred or (iii) shares
of Class B Common Stock for which the power to vote was so transferred as the
case may be.
"TRANSITION DATE" shall mean the date upon which the latest of the following
events occur: (i) , 1999 [the third anniversary of the consummation
of the Plan of Reorganization], (ii) the end of two consecutive 12-month periods
in each of which the contingent payments under the Notes and the Contingent
Notes equals or exceeds $15 million, (iii) the date on which the Casino contains
at least 100,000 square feet of net gaming space which is open to customers of
the Casino, and (iv) the end of a period consisting of 30 consecutive trading
days during which the average daily closing Minimum Market Value equals or
exceeds $435 million [less any amounts collected for the benefit of the holders
of the Notes and Contingent Notes by the litigation trust] ; provided, however,
that if the requirements of clauses (i),(ii), and (iii) above have not been
satisfied by , 2001 [the fifth anniversary of the consummation of the
Plan of Reorganization], the provision described in clause (iv) above shall be
deemed to have been satisfied.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware empowers JCC Holding
to indemnify, subject to the standards set forth therein, any person who is a
party in any action in connection with any action, suit or proceeding brought or
threatened by reason of the fact that the person was a director, officer,
employee or agent of such company, or is or was serving as such with respect to
another entity at the request of such company. The General Corporation Law of
Delaware also provides that JCC Holding may purchase insurance on behalf of any
such director, officer, employee or agent.
Article VI of the Certificate of Incorporation of JCC Holding provides for
indemnification of the officers and directors of JCC Holding to the full extent
permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law enables a Delaware
corporation to provide in its certificate of incorporation for the elimination
or limitation of the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any such provision cannot eliminate or limit director's liability (1) for any
breach of the director's duty of loyalty to the corporation or its stockholders;
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (3) under Section 174 of the Delaware
General Corporation Law (which imposes liability on directors for unlawful
payment of dividends or unlawful stock purchase or redemption); or (4) for any
transaction from which the director derived an improper personal benefit.
Article VI of the Certificate of Incorporation of JCC Holding eliminates the
liability of a director of JCC Holding to JCC Holding or its stockholders for
monetary damages for breach of fiduciary duty as a director to the full extent
permitted by the Delaware General Corporation Law.
70
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company expects that upon the Effective Date of the Plan of
Reorganization, JCC will succeed to the assets and business of HJC. Accordingly
the following historical financial statements include Audited Financial
Information and Unaudited Interim Condensed Consolidated Financial Information
for HJC. For financial statements relating to JCC Holding, see "-- Unaudited Pro
Forma Condensed Consolidated Financial Information."
AUDITED FINANCIAL INFORMATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harrah's Jazz Company:
We have audited the accompanying consolidated balance sheets of Harrah's
Jazz Company (a Louisiana general partnership) and subsidiary (see Note 1) as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, partners' capital and cash flows for each of the two years then
ended and for the period from November 29, 1993 (date of inception) through
December 31, 1993. These financial statements are the responsibility of HJC'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 audits 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 Harrah's Jazz Company and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the two years then ended and for the period
from November 29, 1993 (date of inception) through December 31, 1993, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that HJC
will continue as a going concern. HJC has experienced significant losses and has
a net capital deficiency of $170,063,000 at December 31, 1995. In addition, as
described in Note 1 to the financial statements, HJC filed a voluntary petition
for relief under Chapter 11 of the U.S. Bankruptcy Code on November 22, 1995,
and suspended its principal business operations on that date. As discussed in
Note 2, HJC has commenced negotiations with the State of Louisiana, the City of
New Orleans, and its numerous creditors to attempt to develop a confirmable plan
of reorganization. The outcome of the bankruptcy proceedings is uncertain. These
matters, among others, raise substantial doubt about HJC's ability to continue
as a going concern. Management's plans in regard to these matters, including its
efforts to develop and file a plan of reorganization that will be acceptable to
the Court, the State of Louisiana, the City of New Orleans and HJC's creditors,
are also described in Note 2. In the event a plan of reorganization is
developed, filed and accepted, continuation of the business thereafter is
dependent on HJC's ability to achieve successful future operations. The
financial statements do not include any additional adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should HJC be unable to
continue as a going concern.
Arthur Andersen LLP
New Orleans, Louisiana,
March 27, 1996 (except with respect
to the matters discussed in Note 10,
as to which the date is April 3, 1996)
71
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
(NOTES 1 AND 2)
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents............................................................ $ 22,956 $ 144,129
Investments in Marketable Securities (Notes 3 and 4)................................. -- 305,541
Other................................................................................ 2,026 4,625
------------ -----------
Total current assets............................................................... 24,982 454,295
------------ -----------
Land, buildings and equipment
Property held for development........................................................ 13,200 18,309
Construction in progress............................................................. 145,148 49,130
Furniture, fixtures and equipment, net of accumulated depreciation of $5,490 and
$236................................................................................ 26,581 2,169
------------ -----------
184,929 69,608
Deferred operating contract cost (Notes 3 and 9)....................................... 122,222 5,000
Lease prepayments (Notes 3 and 8)...................................................... 30,263 30,263
Leasehold costs (Note 3)............................................................... -- 64,537
Deferred financing costs (Note 3)...................................................... -- 33,159
Organization costs (Note 3)............................................................ -- 8,529
Other.................................................................................. 2,084 --
------------ -----------
$ 364,480 $ 665,391
------------ -----------
------------ -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities not subject to compromise
Accounts payable..................................................................... $ 550 $ 2,868
Accrued expenses..................................................................... 14,633 19,974
Due to manager (Note 5).............................................................. -- 1,052
------------ -----------
Total liabilities not subject to compromise........................................ 15,183 23,894
Liabilities subject to compromise (Note 6)............................................. 519,360 --
Long-term debt (Notes 6 and 7)......................................................... -- 510,000
Commitments and contingencies (Notes 5, 8 and 9)....................................... 167,000 167,000
Partners' capital (Notes 1 and 5)
Partners' capital contributions......................................................
Accumulated deficit.................................................................. (337,063) (35,503)
------------ -----------
Total partners' capital (deficit).................................................. (170,063) 131,497
------------ -----------
$ 364,480 $ 665,391
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
72
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 29, 1993 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1993 AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ---------
<S> <C> <C> <C>
REVENUES
Casino.................................................................... $ 92,028 $ -- $ --
Food and beverage......................................................... 4,860 -- --
Other..................................................................... 2,241 291 50
Less: Promotional allowances.............................................. (3,872) -- --
------------ ---------- ---------
Net revenues............................................................ 95,257 291 50
OPERATING EXPENSES
Casino.................................................................... 72,847 -- --
Food and beverage......................................................... 2,270 -- --
General and administrative................................................ 35,206 -- --
Management and consulting................................................. 7,647 -- --
Depreciation.............................................................. 44,978 227 9
Asset valuation provision (Note 3)........................................ 69,579 -- --
Preopening expenses (Note 3).............................................. 15,017 23,955 6,208
Other..................................................................... 124 -- --
------------ ---------- ---------
Total operating expenses................................................ 247,668 24,182 6,217
------------ ---------- ---------
Income (Loss) from operations........................................... (152,411) (23,891) (6,167)
------------ ---------- ---------
REORGANIZATION COSTS (Note 3)............................................... (102,554) -- --
------------ ---------- ---------
OTHER INCOME (EXPENSE)
Interest expense, net of capitalized interest (Note 1).................... (61,601) (8,809) (135)
Interest income........................................................... 15,006 3,499 --
------------ ---------- ---------
Total other income (expense)............................................ (46,595) (5,310) (135)
------------ ---------- ---------
NET LOSS.................................................................... $ (301,560) $ (29,201) $ (6,302)
------------ ---------- ---------
------------ ---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
73
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE PERIOD FROM NOVEMBER 29, 1993 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1993 AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
PARTNERS' CONTRIBUTIONS TOTAL
CAPITAL DUE FROM ACCUMULATED PARTNERS'
CONTRIBUTIONS PARTNERS DEFICIT CAPITAL
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital contributions......................... $ 70,000 $ -- $ -- $ 70,000
Contributions due from partners......................... -- (67,768) -- (67,768)
Net loss during development stage....................... -- -- (6,302) (6,302)
------------- ------------- ------------ ------------
Balance -- December 31, 1993............................ 70,000 (67,768) (6,302) (4,070)
Partners capital contributions.......................... 100,000 67,768 -- 167,768
Financing advisory fee (Note 5)......................... (3,000) -- -- (3,000)
Net loss during development stage....................... -- -- (29,201) (29,201)
------------- ------------- ------------ ------------
Balance -- December 31, 1994............................ 167,000 -- (35,503) 131,497
Net loss................................................ -- -- (301,560) (301,560)
------------- ------------- ------------ ------------
Balance -- December 31, 1995............................ $ 167,000 $ -- $ (337,063) $ (170,063)
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
74
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 29, 1993 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1993 AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.................................................................. $ (301,560) $ (29,201) $ (6,302)
Adjustments to reconcile net loss to net cash used in operations
Asset valuation provision............................................... 69,579 -- --
Reorganization costs.................................................... 102,554 -- --
Provision for uncollectible accounts.................................... 1,041 -- --
Depreciation............................................................ 44,978 227 9
Amortization of deferred financing costs................................ 6,083 -- --
Preopening expenses paid by partners.................................... -- 5,104 2,420
Increase in other current assets........................................ (19,186) (4,281) (344)
Increase in accounts payable and accrued expenses....................... 2,649 21,945 897
Increase in accounts payable and accrued expense prior to Petition
Date................................................................... 60,467 -- --
----------- ----------- ----------
Cash flows used in operating activities................................. (33,395) (6,206) (3,320)
----------- ----------- ----------
Cash flows from investing activities
Net maturities (purchases) of marketable securities....................... 305,541 (305,541)
Purchase of land, buildings and equipment................................. (192,320) (16,655) (1,054)
Payments for leasehold costs and other assets............................. (125,999) (70,042) --
----------- ----------- ----------
Cash flows used in investing activities................................. (12,778) (392,238) (1,054)
----------- ----------- ----------
Cash flows from financing activities
Partners' contributions in cash........................................... -- 105,240 2,232
Advances from (repayments to) manager..................................... -- (1,093) 2,145
Deferred financing costs.................................................. -- (16,983) --
Proceeds received from borrowings, net of underwriting fees............... 70,000 500,863 --
Payment of financial advisory fee......................................... -- (3,000) --
Debt retirements.......................................................... (145,000) (42,457) --
----------- ----------- ----------
Cash flows provided by (used in) financing activities................... (75,000) 542,570 4,377
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents........................ (121,173) 144,126 3
Cash and cash equivalents, beginning of period.............................. 144,129 3 --
----------- ----------- ----------
Cash and cash equivalents, end of period.................................... $ 22,956 $ 144,129 $ 3
----------- ----------- ----------
----------- ----------- ----------
Supplemental disclosure of non-cash transactions
Assets acquired and expenses incurred by the partners and related debt
assumed
Land, buildings and equipment........................................... $ -- $ 1,734 $ 46,842
Leasehold costs and other assets........................................ -- 604 38,635
Preopening expenses..................................................... -- 5,104 2,420
----------- ----------- ----------
-- 7,442 87,897
Debt assumed, including accrued interest of $752.......................... -- -- (66,123)
----------- ----------- ----------
Net partner reimbursables, contributed to capital....................... $ -- $ 7,442 $ 21,774
----------- ----------- ----------
----------- ----------- ----------
Supplemental disclosure of cash paid for interest expense, net of amounts
capitalized................................................................ $ 61,508 $ 2,067 $ --
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
75
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. -- ORGANIZATION, BANKRUPTCY AND BASIS OF PRESENTATION
Harrah's Jazz Company (together with its subsidiary, "HJC" or the "Debtor")
is a Louisiana general partnership that was formed on November 29, 1993 for the
purposes of developing, owning and operating the exclusive land-based casino
entertainment facility ("Casino") in New Orleans, Louisiana, on the site of the
former Rivergate Convention Center. HJC operated a temporary casino in the
Municipal Auditorium ("Basin Street Casino" and together with the Casino,
"Gaming Facilities") from May 1, 1995 to November 22, 1995.
HJC has three general partners: Harrah's New Orleans Investment Company
("Harrah's Investment"), an indirect wholly-owned subsidiary of Harrah's
Entertainment, Inc. ("HET"); New Orleans/Louisiana Development Corporation
("NOLDC") and Grand Palais Casino, Inc. ("GPCI") (collectively, "Partners"). The
Partners completed the capitalization of HJC on November 16, 1994, which, based
on amounts contributed by each Partner, resulted in the following ownership
interests through November 20, 1995: Harrah's Investment, 52.94%; GPCI, 33.33%;
and NOLDC, 13.73%.
NOLDC had the right to purchase a 14.6% ownership interest from Harrah's
Investment at any time until 120 days after the opening of the Basin Street
Casino, which right was extended to September 28, 1995. In addition, as long as
the ownership interest of Harrah's Investment was greater than 50%, Harrah's
Investment had a put option to transfer 2.93% of its ownership interest to each
of NOLDC or GPCI. On November 20, and 21, 1995, Harrah's Investment exercised
its put option and assigned a 2.93% ownership interest to each of NOLDC and GPCI
for nominal consideration. As a result, ownership interests as of December 31,
1995, were: Harrah's Investment, 47.07%; GPCI, 36.27%; and NOLDC 16.66%. In
September, 1995, Harrah's Investment and NOLDC instituted legal proceedings
against each other (and, in the case of NOLDC, against HJC) relating to NOLDC's
ownership interest in HJC, its option to purchase a 14.6% ownership interest
from Harrah's Investment and its Material Partner status. For more information
regarding this dispute, see Note 9.
Harrah's Jazz Finance Corp. ("Finance Corp."), a wholly-owned subsidiary of
HJC, was incorporated on December 17, 1993, for the sole purpose of issuing the
debt discussed in Note 7 as co-obligor with HJC. The proceeds from such debt
were received directly by HJC. Finance Corp. has not had and is not expected to
have any operations.
HJC was in the development stage until May 1, 1995, when its principal
operations commenced. Development stage activities consisted of construction,
organization activities related to arranging construction and financing
contracts, and negotiating various other agreements to develop the Gaming
Facilities.
The accompanying financial statements have been prepared on the basis that
the provisions of the amended and restated Partnership Agreement had been in
effect as of November 29, 1993 (date of inception). Accordingly, the financial
statements reflect assets acquired and expenses incurred by the Partners,
whether prior or subsequent to formation of HJC, as well as related debt of the
Partners HJC had assumed. As a result, the financial statements include
significant amounts for transactions consummated prior to November 29, 1993 (see
Note 5).
PETITION FOR RELIEF UNDER CHAPTER 11
On November 22, 1995 (the "Petition Date"), Harrah's Jazz Company and
subsidiary filed petitions for relief under Chapter 11 of the Federal Bankruptcy
laws in the United States Bankruptcy Court for the District of Delaware. On
November 30, 1995, the bankruptcy was transferred with the consent of HJC to the
United States Bankruptcy Court for the Eastern District of Louisiana (the
"Court").
76
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. -- ORGANIZATION, BANKRUPTCY AND BASIS OF PRESENTATION (CONTINUED)
Under Chapter 11, certain claims against the Debtor in existence prior to
the filing of the petitions for relief under the Federal Bankruptcy laws are
stayed while the Debtor attempts to reorganize. These claims are reflected in
the December 31, 1995, consolidated balance sheet as "liabilities subject to
compromise." Additional claims (liabilities subject to compromise) may arise
subsequent to the filing date resulting from rejection of executory contracts,
including leases, and from the determination by the Court (or agreed to by
parties in interest) of allowed claims for contingencies and other disputed
amounts. Claims secured against the Debtor's assets ("secured claims") also are
stayed, although the holders of such claims have the right to move the Court for
relief from the stay. Secured claims are collateralized primarily by
substantially all of the Debtor's assets.
The Debtor received approval from the Court to pay or otherwise honor
certain of its prepetition obligations, primarily utilities. The Debtor has
determined that there is insufficient collateral to cover the principal and
interest portion of scheduled payments on its prepetition debt obligations.
Therefore, the Debtor discontinued accruing interest on these obligations as of
November 22, 1995. For 1995, contractual interest on those obligations amounts
to $68.2 million, which is $6.6 million in excess of reported interest expense.
NOTE 2. -- STATUS OF REORGANIZATION PLANS AND RELATED RISKS
The Bankruptcy Code gives the debtor-in-possession the exclusive right to
file a reorganization plan within 120 days after the bankruptcy filing. The
Bankruptcy Code also provides that if a plan of reorganization filed by HJC has
not been accepted by creditors impaired under the plan within 180 days after the
Petition Date, other parties may file a plan of reorganization. An international
company involved in gaming has notified the Court and other interested parties
of its intent to file a competing plan of reorganization. HJC has been granted
by the Court an extension of the exclusivity period to April 4, 1996 to file a
plan of reorganization. In addition, the Court has extended HJC's time to assume
or reject executory contracts, including leases and construction contracts,
until the time provided for in Company's plan of reorganization to be confirmed
in HJC's bankruptcy case.
Management of HJC has commenced negotiations with the City of New Orleans,
the State of Louisiana, the bondholders' committee and the unsecured creditors'
committee to attempt to find a mutually agreeable plan of reorganization. There
can be no assurance that these negotiations will be successful, that any plan of
reorganization will be able to be filed, or consummated. Management of HJC is
diligently working toward a consensual plan of reorganization that would permit
it to complete construction of the Casino, on a reduced scale which management
believes is better adapted to the market than the casino as originally planned
and then operate the reconfigured casino at that site. However, the negotiations
are far from being complete, and any number of things could cause them to fail.
On March 4, 1996, HJC entered into an agreement with the City of New
Orleans, subject to a plan of reorganization being approved by June 30, 1996,
whereby HJC agreed to pay $10.6 million to the City of New Orleans to fulfill
HJC's obligations under the Basin Street Casino lease.
The Governor of the State of Louisiana called a special legislative session,
which began March 24, 1996 and is expected to end April 19, 1996. Among many
other things, the legislature is to consider (1) amendments to the state
constitution (that require a two-thirds vote of the legislature in order to be
submitted to the voters) that would (a) prohibit gaming, with certain
exceptions, or (b) prohibit gaming, with certain exceptions, unless approved on
a local option basis within six months, and (2) legislation to authorize and
require a local option election in 1996 as to whether each form of gaming, with
certain exceptions, currently conducted and authorized as lawful shall continue
to be lawful, subject to the expiration of existing state permits and licenses.
77
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. -- STATUS OF REORGANIZATION PLANS AND RELATED RISKS (CONTINUED)
The accompanying financial statements have been prepared assuming that HJC
will continue as a going concern. HJC has experienced significant losses and has
a net capital deficiency of $170,063,000 at December 31, 1995. The outcome of
the bankruptcy proceedings is uncertain. These matters, among others, raise
substantial doubt about HJC's ability to continue as a going concern.
Even if HJC is successful in developing a plan of reorganization that is
filed with and approved by the Court, the State of Louisiana, the City of New
Orleans and HJC's creditors, HJC has identified certain factors that may impact
the development of the Casino or HJC's ability to achieve successful future
operations:
a. The size of the gaming market in New Orleans, is uncertain. The success
of a land-based casino in this market, including the number of visitors
to the casino and their propensity to wager cannot be accurately
predicted. No accurate prediction can be made as well concerning the
impact of HJC's bankruptcy on the Casino's business. For these and other
reasons, there is no assurance that HJC will be able to operate even a
reorganized Casino in a successful manner;
b. The Governor of the State of Louisiana and various legislative leaders
have expressed their support for legislation which would provide for a
public referendum on gaming (including the Casino). The nature and scope
of any such referendum and any effect it could have on HJC is uncertain
but could have a material adverse effect;
c. There is a risk that the actual costs to complete construction of the
Casino will exceed cost estimates and that the construction will not be
completed on schedule;
d. Although the Casino is the only land-based casino currently permitted by
law in Orleans Parish, Louisiana, no assurance can be given that the City
of New Orleans or the State of Louisiana will not amend or enact
legislation permitting other land-based casinos in the New Orleans
metropolitan area. Such legislative changes could have a material adverse
effect on HJC's future operations. In addition, dockside riverboat gaming
could have a material adverse effect on HJC's future operations;
e. HJC, its owners, certain key employees and affiliates must undergo
extensive investigation and review by state and local authorities to
obtain and maintain the necessary permits and licenses required to own
and operate the Casino. While there is no assurance that all the
requisite permits and licenses will be obtained, HJC has no reason to
believe that it will be unable to do so; and
f. There are a number of conflicting provisions and inconsistencies among
various city and state laws and agreements which govern the operation of
the Casino. While management believes these matters will be resolved
satisfactorily, an unfavorable resolution could have a material adverse
effect on HJC's future operations.
NOTE 3. -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PERVASIVENESS OF ESTIMATES -- CERTAIN SIGNIFICANT ESTIMATES
Financial statements prepared in accordance with generally accepted
accounting principles require the use of management estimates. The most
significant estimates with regard to these financial statements are related to
the future recoverability, assuming a going concern, of buildings and equipment,
property held for development, deferred operating contract cost, and lease
prepayments, as discussed below. Realization of buildings and equipment,
deferred operating contract costs and lease prepayments is dependent upon HJC
successfully developing a plan of reorganization which is
78
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
filed with and confirmed by the Court and HJC's ability to achieve successful
future operations, as discussed in Note 2 above. The amount of buildings and
equipment, deferred operating contract costs and lease prepayments considered
realizable could be significantly reduced, if in HJC's judgment or a change in
circumstances, the likelihood of confirming a plan of reorganization and
achieving successful future operations becomes remote.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows and consolidated
balance sheets, cash and cash equivalents include amounts in bank accounts,
funds invested with banks in interest-bearing accounts, United States Government
securities, certificates of deposit, money market funds, commercial paper and
similar highly liquid investments with original maturities of three months or
less. All cash is collateral for the Notes pursuant to the Indenture (see Note
7); however, the Court has authorized HJC to use such funds to pay approved post
Petition Date costs.
INVESTMENTS IN MARKETABLE SECURITIES
HJC invested in commercial paper, repurchase agreements, Eurodollar deposits
and government obligations with maturities not to exceed six months. These
investments are carried at market value, which was the same as cost at December
31, 1994.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS
HJC records bad debt expense when the collection of casino or other
receivables becomes doubtful. During 1995, HJC recorded bad debt expense and an
allowance for doubtful accounts of $1 million, which was reduced by write-offs
of $0.3 million.
LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment are stated at cost. Improvements and
extraordinary repairs that extend the life of the asset are capitalized.
Maintenance and repairs are expensed as incurred.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets or related lease terms, whichever is shorter, as
follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 30 years
Furniture, fixtures and equipment........................... 3 - 15 years
</TABLE>
See discussion below under Reorganization Costs and Impairment of Asset
Carrying Values.
HJC has property held for future development which has been valued at the
lower of cost or estimated fair value, net of a valuation allowance of $5.1
million provided in 1995. The amount HJC will ultimately realize from the
property could differ materially from the estimated fair value.
CAPITALIZED INTEREST
Interest is capitalized on internally constructed assets at HJC's overall
weighted average rate of interest. Interest was also capitalized on deferred
operating contract costs, through the opening of the Basin Street Casino, as
these costs represent an integral part of the Casino. Interest of $8.6 million,
$7.8 million and $6.0 million was capitalized during 1995, 1994 and 1993,
respectively. All previously capitalized interest, except that related to the
Casino, has been expensed as reorganization costs in 1995.
79
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
DEFERRED OPERATING CONTRACT COST
Deferred operating contract cost consists of payments to the State of
Louisiana (see Note 9) required by the casino operating contract, and is being
amortized over the life of the contract.
LEASE PREPAYMENTS
Lease prepayments include non-refundable initial payments required under
HJC's leases (see Note 8) and will be amortized on a straight-line basis over
the life of the related lease. See discussion below under Reorganization Costs
and Impairment of Asset Carrying Values.
LEASEHOLD COSTS
Leasehold costs include direct costs related to acquiring the ground lease
for the Casino site and executing the lease agreements for both the Casino and
the Basin Street Casino sites. Leasehold costs were being amortized on a
straight-line basis over the life of the related lease. See discussion below
under Reorganization Costs and Impairment of Asset Carrying Values.
DEFERRED FINANCING COSTS
Direct costs related to HJC's debt financings were deferred and were being
amortized ratably over the life of the related debt. See discussion below under
Reorganization Costs and Impairment of Asset Carrying Values.
ORGANIZATION COSTS
Organization costs include the direct costs associated with the formation of
HJC and its subsidiary, which were being amortized over 60 months. See
discussion below under Reorganization Costs and Impairment of Asset Carrying
Values.
PREOPENING COSTS
Costs incurred prior to the opening of the Basin Street Casino primarily
related to the training and development of employees were deferred and were
being amortized over a period not to exceed 12 months from the date the Basin
Street Casino opened. Such costs totaled approximately $1 million as of December
31, 1994 (included in other current assets on the accompanying consolidated
balance sheet) and were expensed during 1995. All other operating costs incurred
prior to opening were expensed as incurred.
REORGANIZATION COSTS AND IMPAIRMENT OF ASSET CARRYING VALUES
Reorganization costs are segregated from normal operations in the December
31, 1995 consolidated statement of operations and reflect the costs incurred
associated with the reorganization of HJC.
HJC continually evaluates whether events and circumstances have occurred
that indicate that certain assets may not be recoverable. When factors indicate
that long-lived assets should be evaluated for impairment, HJC uses an estimate
of undiscounted net cash flow over the remaining life of the related lease or
contract, as applicable, in determining whether the assets are recoverable. Due
to the filing of the bankruptcy petition, HJC evaluated all long-lived assets in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for Long-Lived Assets and Long-Lived Assets to be
Disposed Of." In addition, the recoverability of all current
80
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets was assessed in light of the filing of the bankruptcy petition. Based on
management's evaluations, the following asset writedowns/reserves and
reorganization costs/reserves, respectively, were recorded in the accompanying
Consolidated Statement of Operations for the year ended December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
ASSET
WRITEDOWNS/ REORGANIZATION
RESERVES COSTS/RESERVES
----------- --------------
<S> <C> <C>
Leasehold costs.................................................. $ 64,471 $ --
Deferred financing costs......................................... -- 27,062
Leasehold improvements........................................... -- 19,388
Capitalized interest............................................. -- 17,404
Lease exit costs -- Basin Street Casino (Note 8)................. -- 12,321
Organizational costs............................................. -- 8,999
Receivables and prepayments...................................... -- 14,813
Property held for development.................................... 5,108 --
Other current assets............................................. -- 2,354
----------- --------------
69,579 102,341
Other reorganization costs -- professional fees.................. -- 213
----------- --------------
$ 69,579 $ 102,554
----------- --------------
----------- --------------
</TABLE>
The $17.2 million related to receivables and prepayments, and other current
assets, which are included in other current assets in the accompanying balance
sheet, and the $5.1 million related to property held for development, are
valuation allowances to reduce these accounts to an estimated net realizable
value.
Realization of buildings and equipment, deferred operating contract costs
and lease prepayments is dependent upon HJC successfully developing a plan of
reorganization which is filed with and confirmed by the Court and HJC's ability
to achieve successful future operations, as discussed in Note 2 above. The
amount of buildings and equipment, deferred operating contract costs and lease
prepayments considered realizable could be significantly reduced, if in HJC's
judgment or because of a change in circumstances, the likelihood of confirming a
plan of reorganization and achieving successful future operations becomes
remote.
INCOME TAXES
No provision is made in the accounts of HJC for federal and state income
taxes, as such taxes are the responsibility of the individual partners. HJC's
tax returns and amounts of its allocable revenues and expenses are subject to
examination by federal and state taxing authorities. If such examinations occur
and result in changes, the portion of HJC's income or loss reported by the
individual partners would also change.
NOTE 4. -- INVESTMENTS IN MARKETABLE SECURITIES
At December 31, 1995 and 1994, HJC held $0 and $305.5 million, respectively,
in investments in current marketable securities. These securities are reflected
at market, which is the same as cost, at December 31, 1994 and had maturities of
six months or less.
During 1994 and 1995, proceeds from the sales and calls of securities
available for sale were zero, therefore resulting in no gross realized gains or
gross realized losses.
81
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. -- TRANSACTIONS WITH PARTNERS
PARTNERS' CAPITAL
The Partners contributed total capital of $170 million prior to the closing
of the debt financing discussed in Note 7. The capital contributions consisted
of (in millions):
<TABLE>
<S> <C>
Cash............................................................... $ 107.5
Partnership debt satisfied by GPCI on November 16, 1994............ 33.3
Net assets and expenses paid by the Partners on behalf of HJC...... 29.2
---------
$ 170.0
---------
---------
</TABLE>
Cash contributions to capital included $5.3 million the Partners paid
directly to third parties for amounts incurred by HJC.
The Partnership Agreement provides that certain assets acquired, net of
related debt, and expenses incurred by the Partners on behalf of HJC would be
contributed capital. The principle followed in determining the net value of such
assets and expenses was on the Partners' original cost, except for the ground
lease for the Casino site which was acquired at a price negotiated among the
Partners. The Partners believed that such price represented the fair market
value of the ground lease.
Included in the amounts incurred are $4.2 million of legal fees to the law
firm of a member of HJC's Executive Committee, who is also a director of an
affiliate of GPCI and $500,000 of legal fees to the law firm of a member of
HJC's Executive Committee, who is also a shareholder of NOLDC.
The agreements discussed in the remainder of this Note are executory
contracts (see discussion in Note 2).
MANAGEMENT AGREEMENT
The operations of the Casino will be managed by Harrah's New Orleans
Management Company ("Harrah's Management" or "Manager"), an affiliate of
Harrah's Investment, pursuant to a management agreement executed on March 15,
1994. The management agreement expires 20 years after opening of the Basin
Street Casino, but may be renewed four times in ten-year increments at the
option of Harrah's Management. Harrah's Management is to receive a base
management fee equal to 4% of Basin Street Casino gross revenues. For managing
the Casino, Harrah's Management is to receive a base management fee equal to 3%
of annual gross revenues up to $750 million; 4% of annual gross revenues in
excess of $750 million up to $1 billion; and 5% of annual gross revenues in
excess of $1 billion. In addition, Harrah's Management is entitled to receive an
incentive fee equal to 7% of the Casino's Net Operating Revenue, as defined, in
excess of $75 million, as well as other system fees and contributions, including
a marketing fund contribution of 0.4% of the Basin Street Casino and Casino
revenues. As of the Petition Date, HJC had paid Harrah's Management $1.7 million
and an additional $2.1 million was owed Harrah's Management for management fees
related to 1995 operations.
Harrah's Management funded ongoing project costs in excess of Partner cash
contributions prior to November 16, 1994. Upon the issuance of first mortgage
notes as discussed in Note 7, the advances, including interest from Harrah's
Management of $20.3 million were reimbursed from proceeds of the debt financing.
Interest accrued on these advances at prime plus 4%. At December 31, 1995 and
1994, Due to Manager consisted of non-interest bearing current payables for
payroll and other similar costs. At December 31, 1995, the Due to Manager
balance for these costs is $25.5 million and is classified as a liability
subject to compromise (Note 6).
82
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. -- TRANSACTIONS WITH PARTNERS (CONTINUED)
CONSULTING AGREEMENTS
Pursuant to consulting agreements dated March 15, 1994, NOLDC and Grand
Palais Management Company, L.L.C., an affiliate of GPCI, each receive an annual
consulting fee from HJC equal to 2% of gross revenues of the Basin Street Casino
and 1% of gross revenues of the Casino. As of the Petition Date, HJC had paid
$848,000 to each entity and an additional $1,064,000 was owed to each entity for
consulting fees related to 1995 operations.
OTHER AGREEMENTS
On November 16, 1994, HJC paid Embassy Suites, Inc. (which was subsequently
renamed Harrah's Operating Company, Inc., "HOC"), an affiliate of Harrah's
Investment, $3 million for services related to the arrangement of financing for
the development and construction of the Gaming Facilities and $500,000 for
indemnifying the title insurers for certain construction liens which might have
arisen prior to recording of the mortgages granted the lenders in connection
with the financing completed on November 16, 1994. HJC was also obligated to pay
HOC $12.2 million upon the opening of the Casino pursuant to a completion
guarantee agreement whereby HOC was to provide loans to HJC if additional funds
were necessary to complete the development of the Gaming Facilities, subject to
certain important exceptions and limitations. Since the filing of HJC's Chapter
11 proceeding, HET has stated that the failure of HJC to obtain all funds under
the bank credit agreement and the acceleration of the maturity of the bank loans
terminated HET's obligations under the completion guarantees. On December 29,
1995, the City filed a lawsuit against the Completion Guarantors, among others,
which alleged that the Completion Guarantors have failed to perform their
obligations under the First Mortgage Notes completion guarantees. On January 23,
1996, LEDGC also filed a lawsuit to compel the Completion Guarantors either to
complete construction of the Rivergate Casino or pay damages. No discovery has
been taken in this lawsuit by LEDGC and no answer has been filed.
NOTE 6. -- LIABILITIES SUBJECT TO COMPROMISE
Payment or other disposition of the secured and unsecured liabilities of HJC
existing as of the date of the bankruptcy proceedings is deferred until a plan
of reorganization has been approved by the requisite number of HJC's creditors
and confirmed by the Bankruptcy Court (see Note 2). As of December 31, 1995,
HJC's books and records reflected unsecured and undersecured liabilities subject
to settlement under Chapter 11 proceedings as follows (in thousands):
<TABLE>
<S> <C>
First Mortgage Notes............................................. $ 435,000
Construction Accounts Payable.................................... 36,398
Due to Manager................................................... 27,620
Consulting fees payable to related parties....................... 2,128
Harrah's Entertainment, Inc., and affiliates..................... 2,281
Others, individually less than $1,000,000........................ 15,933
---------
$ 519,360
---------
---------
</TABLE>
The full amount of the First Mortgage Notes have been included in
Liabilities Subject to Compromise since they are an undersecured liability and
the ultimate value of the security is dependent upon future events, the outcome
of which are uncertain at this time.
As part of the bankruptcy process, creditors are allowed to file proofs of
claim with the Court specifying their position on amounts owed to them.
Creditors often include estimates of penalties, interest and damages in proofs
of claim. These amounts are subject to upward or downward adjustments and
approval by the debtors and Court.
83
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. -- DEBT
On November 16, 1994, the Company issued $435 million of First Mortgage
Notes due 2001 (the "Notes") bearing interest at a rate of 14.25% per annum,
plus contingent interest equal to 7.25% of HJC's consolidated earnings before
interest, taxes, depreciation and amortization, which Notes are secured by
substantially all assets of HJC.
The Notes are redeemable, in whole or in part, any time on or after November
15, 1999, initially at 114.00% of the principal amount thereof for one year and
then declining to 107.25% until maturity on November 15, 2001. In addition, upon
the occurrence of a change in control, as defined, holders of the Notes may
elect to require HJC to repurchase all or any part of such holder's Notes at a
purchase price equal to 101% of the principal amount thereof, together with
accrued interest to the purchase date.
There are no sinking fund requirements under the Notes Indenture; however,
as discussed in Note 8, HJC's lease agreement for the Casino site calls for
sinking fund payments or debt retirements commencing two years following the
issuance of secured debt.
The Notes were issued pursuant to the Indenture which provides that an event
of default occurs when Harrah's Jazz Company or Finance Corp. files a voluntary
bankruptcy petition under Chapter 11, and that if such an event of default
occurs, all of the principal of, premium applicable to, and accrued interest on,
the Notes will be immediately due and payable on all outstanding Notes without
any declaration or other act on the part of the Indenture Trustee or the holders
of the Notes. In accordance with the provisions of the Bankruptcy Code, payment
on HJC's pre-petition debt has been suspended and reclassified as "Liabilities
Subject to Compromise." HJC believes that all of its secured creditors are
undersecured; therefore, HJC stopped accruing interest on unsecured and
undersecured debt as of November 22, 1995.
Additionally, HJC entered into a credit agreement with a group of banks
which provided Bank Credit Facilities aggregating $175 million (the "Bank Credit
Facilities"). At December 31, 1994, $75 million was outstanding under one of the
term loan commitments with interest at 9.625% through March 21, 1995, and such
funds were being held in the bank's cash collateral account. On November 19,
1995, representatives of HJC's bank syndicate informed HJC that the bank
syndicate would not disburse funds to HJC under the terms of the bank credit
facility. As of November 20, 1995, $145 million was outstanding under the Bank
Credit Facilities and had been deposited in the bank's cash collateral account,
but was not available to HJC. The bank credit facility was accelerated and
terminated by the bank lenders on November 21, 1995, and $157 million of cash on
deposit in the bank's cash collateral account was taken back by the group of
banks. Accordingly, no amounts were outstanding under the Bank Credit Facilities
at December 31, 1995.
At December 31, 1995, HJC has no long-term post Petition Date debt. On March
5, 1996, the Court issued an interim order granting HJC's motion, permitting the
Company to borrow on an unsecured basis $2.5 million in principal amount from
HET or one of its affiliates and to pay interest of 8% per annum on the
financing. The financing has been granted an administrative priority status, on
an equal basis with the holders of the Notes. The Court has set March 28, 1996
as the date for the final hearing of HJC's motion for the financing. HJC has
used the $2.5 million to pay a like amount to the City of New Orleans in partial
settlement of HJC's obligations under the Basin Street Casino lease (see Note
2).
Based on market quotes of its publicly traded first mortgage notes, the fair
value of HJC's long-term debt was approximately $125 million at December 31,
1995.
84
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. -- LEASES
HJC leases both real estate and equipment for use in its business through
operating leases. In addition to minimum rentals, certain leases provide for
contingent rents based on percentages of revenue and certain payments to
Partners out of Cash Flow, as defined. Rent payments with escalation provisions
are amortized so as to achieve level rent expense, except for the impact of
contingent rentals, over the life of the lease. Real estate operating leases
range from 21 months to 30 years with options for extensions up to an additional
30 years. The average remaining term for non-real estate leases extends
approximately two years.
HJC's operating leases, including HJC's property leases, are executory
contracts. Under the Bankruptcy Code, a company in reorganization can choose to
accept or reject executory contracts. With minor exceptions, management of HJC
has not determined which leases HJC will accept or reject.
The aggregate contractual future minimum rental commitments, excluding
contingent rentals as of December 31, 1995, were as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................. $ 3,108
1997............................................................. 17,549
1998............................................................. 17,430
1999............................................................. 17,386
2000............................................................. 17,381
Thereafter....................................................... 381,513
---------
$ 454,367
---------
---------
</TABLE>
THE CASINO SITE
On March 15, 1994, HJC entered into a lease with Rivergate Development
Corporation ("RDC") and the City of New Orleans for the Rivergate site on which
the Casino was being constructed, all pursuant to an assignment, dated as of
March 15, 1994, from GPCI. The initial term, from March 15, 1994, is 30 years,
with three ten-year renewal options.
As of December 31, 1994, the required lease prepayment of $30 million and
mobilization payment of $8.75 million had been paid. Annual payments after
opening are subject to a minimum annual aggregate amount of approximately $15.4
million subject to escalation beginning in 2001, and 4.99% of certain payments
to Partners out of cash flows and proceeds of major capital events, as defined.
The lease also requires sinking fund payments or debt retirements of the
lesser of 2% of the original principal amount of HJC's secured debt or 25% of
net income, escalating to 20% of such original principal amount in each of the
two years ending one year prior to maturity, commencing two years following the
issuance of secured debt. In addition, maintenance of a capital replacement fund
to be funded by a percentage of gross gaming and non-gaming revenues of 1.5% the
first year, 1.75% the second year and 2.0% each succeeding year is required.
Costs of capital replacements may be paid from this fund. Amounts in excess of
$25 million, adjusted upwards by the Consumer Price Index ("CPI"), may be
withdrawn by HJC. Upon termination of the lease, the balance of the funds will
be available to restore the facilities.
THE BASIN STREET CASINO SITE
On March 15, 1994, HJC entered into a lease with the RDC and the City of New
Orleans for use of the Municipal Auditorium as the Basin Street Casino site
during the development of the Casino. The initial term, commencing March 15,
1994, is two years with nine two-year extension options, except that the lease
will terminate on the date the Casino opens to the general public.
85
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. -- LEASES (CONTINUED)
Annual rent and other payments due under the lease after opening were
subject to a minimum annual aggregate amount of approximately $3.4 million and
4.99% of certain payments to Partners out of cash flow and proceeds of major
capital events, as defined. Rent payments were due equal to 6% of gross
non-gaming revenues, and the amount by which 5% of gross gaming revenues for
each fiscal year exceeds the base rent of $200,000 per month.
Upon the opening of the Casino, the Basin Street Casino was to be closed and
the premises restored to its previous use as a civic auditorium. Further,
additional improvements or replacements are to be made at a cost not to exceed
$1.2 million plus annual CPI increases.
On March 4, 1996, HJC entered into an agreement with the City of New Orleans
with respect to the Basin Street Casino, subject to a plan of reorganization
being approved by June 30, 1996, whereby HJC agreed to pay $10.6 million to the
City of New Orleans of which approximately $1 million is payable to the Orleans
Parish School Board, to fulfill HJC's obligations under the Basin Street Casino
Lease. The agreement provides that the Basin Street Casino is not required to be
reopened by HJC; therefore, all future costs related to the Basin Street Casino
Lease, including costs to restore the building for use as a municipal
auditorium, of approximately $1.7 million has been expensed as reorganization
costs in 1995. HJC and the City have also agreed, as part of the settlement
agreement, to negotiate a series of issues under the Casino Lease, the Basin
Street Casino Lease and the General Development Agreement.
NOTE 9. -- COMMITMENTS AND CONTINGENCIES
OPERATING CONTRACT
HJC has entered into a Casino Operating Contract with the Louisiana Economic
Development and Gaming Corporation ("LEDGC") to operate the Gaming Facilities
for 20 years, with a 10-year extension option. The Casino Operating Contract
requires the Company to pay a total of $125 million in installments to the
LEDGC, with payments due at various times prior to the opening of the Basin
Street Casino ($5 million was paid as of December 31, 1994 - Deferred Operating
Contract Costs), and the remaining balance due within ten days after
commencement of Basin Street Casino operations (which was paid during 1995),
plus annual compensation, as follows:
Basin Street Casino -- During the period of the Basin Street Casino's
operation, HJC paid the LEDGC payments equal to 25% of the Gross Gaming Revenue,
as defined.
The Casino -- After the Casino opens, HJC is required to pay the LEDGC
payments in daily installments, calculated on an annualized basis, equal to the
greater of $100 million and a percentage of Gross Gaming Revenues, as defined,
as set forth below:
- 19% of the first $600 million; plus
- 20% of the next $100 million; plus
- 22% of the next $100 million; plus
- 24% of the next $100 million; plus
- 25% of the amount over $900 million.
The Casino Operating Contract also requires HJC to pay the LEDGC $11,364 per
month during the construction of the Gaming Facilities and to comply with
various covenants and conditions, including completing construction by specified
dates.
86
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Casino Operating Contract specifies the circumstances under which LEDGC
may revoke the contract. The Casino Operating Contract provides that, subject to
the rights of leasehold mortgagees, the occurrence of a default of a material
obligation by HJC could result in the termination of the contract. Such defaults
under the Casino Operating Contract include, among other things: (i) HJC's
failure to pay the LEDGC payments or any other payment, (ii) financial
instability of HJC, (iii) unsuitability of HJC, (iv) adjudication of HJC as
being in default under certain leases and agreements if, in LEDGC's opinion, the
default materially affects HJC's ability to perform its obligations under the
Casino Operating Contract, (v) HJC's filing of a petition or other request for
relief seeking any reorganization, liquidation, dissolution or similar relief,
or (vi) HJC's failure to perform or comply with any other material obligation in
the Casino Operating Contract. In the event of a default, LEDGC is required to
provide notice to HJC of the default and to provide HJC with an opportunity to
cure the default. If HJC does not cure the default within the time period
provided in the Casino Operating Contract, LEDGC is permitted to terminate the
Casino Operating Contract, enforce the obligation in default and exercise any
other right or remedy available to LEDGC, including the imposition of fines.
LEDGC has not notified HJC of any defaults under the Casino Operating Contract.
HJC believes that some of the default provisions in the Casino Operating
Contract may be unenforceable pursuant to the Bankruptcy Code, so long as HJC
cures all other defaults. There is however, no assurance that HJC can prevent a
revocation of the Casino Operating Contract by LEDGC or the Louisiana State
legislature or recover the damages as a result of the revocation. Revocation of
the Casino Operating Contract would have a material adverse effect on HJC.
GENERAL DEVELOPMENT AGREEMENT
The General Development Agreement ("GDA") entered into with the RDC requires
HJC to pay up to $2 million for transportation and roadway improvements to
mitigate the impact of the Casino development on the city's traffic and
transportation network. HJC is also obligated to reimburse the RDC for certain
costs incurred during the construction of the Gaming Facilities, not to exceed
an aggregate amount of $1.6 million. As of the Petition Date, HJC had paid $3.4
million related to these obligations.
The GDA also requires HJC to form a special purpose corporation to interface
with new and existing businesses owned and controlled by minorities, women and
disadvantaged persons. HJC is required to capitalize this corporation with
$500,000 and underwrite its operations at a minimum of $250,000 per year for
five years. HJC must also contribute an additional $500,000 per year for five
years to similar public efforts, in accordance with standards to be established
by HJC. As of the Petition Date, HJC had paid $883,000 towards this obligation.
As part of HJC's settlement agreement with the City of New Orleans (see Note 8),
HJC will not have to make any additional payments with respect to this
obligation.
OTHER CITY AGREEMENTS
On October 5, 1994, HJC and the City of New Orleans (the "City") entered
into an agreement obligating HJC to pay the City $4 million shortly after
closing the debt financing discussed in Note 7, which was paid on November 28,
1994, and make an annual payment of $1.25 million for each year during the term
of the Casino lease in which HJC receives gross gaming revenues in an amount of
$400 million or more. HJC has delivered to the City a $1.5 million irrevocable
letter of credit to secure these payments.
CONSTRUCTION CONTRACTS
On December 8, 1995, with the agreement of HJC, the Court ordered HJC to:
(i) make approximately $250,000 in immediate repairs to the streets and
sidewalks by the Casino construction site;
87
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
(ii) spend an estimated $1.3 million on construction at the Casino site; and
(iii) pay up to $100,000 of additional expenditures requested by the City of New
Orleans. On February 23, 1996, the Court authorized HJC to enter into an
agreement for a lump sum price of $8.5 million with one of its primary
construction contractors to complete repairs to the streets and sidewalks by the
Rivergate Casino construction site, and order HJC to resume construction on the
Rivergate Casino to prevent, among other things, water infiltration into the
Casino. The repair work commenced on March 8, 1996.
The Court has extended HJC's time to assume or reject executory contracts,
including construction contracts, until the time provided for in HJC's plan of
reorganization to be confirmed in HJC's bankruptcy case.
LITIGATION
On April 26, 1993, a lawsuit was filed in the Civil District Court for the
Parish of Orleans captioned HENRY GEORGE MCCALL VS. HARRY MCCALL, JR., ET AL.
Plaintiffs asserted an ownership interest in certain land underlying the
Rivergate site and also sought permanent injunctive relief prohibiting the use
of such land for the Casino. The lawsuit also challenged the manner in which the
RDC was formed and its authority to enter into the ground lease and the Basin
Street Casino Lease. On February 22, 1994, the Civil District Court granted
defendant's motion for summary judgment, thereby dismissing all claims. On
February 23, 1995, the state appellate court unanimously affirmed the Civil
District Court's ruling that the plaintiffs did not have an ownership interest
in any land underlying the Rivergate site and remanded the case to the Civil
District Court to determine whether the plaintiffs have standing to assert the
other claims concerning the authority of RDC to enter into the Rivergate Casino
Lease and the Basin Street Casino Lease. The property claims in this litigation
have been finally resolved in favor of HJC, the City and RDC.
In December, 1995, the Civil District Court granted the exception of no
right of action submitted by the City of New Orleans and the RDC and held that
the McCalls lack standing to challenge the constitutionality of the RDC. The
McCalls filed a devolutive appeal to the Fourth Circuit. HJC was not a movant on
the exception, did not participate in the hearing and, presumably, would not
participate in the appellate process.
On February 22, 1996, the record was lodged with the Fourth Circuit, and the
McCalls were granted through March 18, 1996 in which to file their original
brief. The McCalls then filed pleadings with the Fourth Circuit suggesting that
HJC's Chapter 11 case somehow stayed the appeal and that the appeal could not
proceed unless and until the Court entered an appropriate modification of the
stay. In response to those pleadings, the Fourth Circuit has now entered an
order providing that the McCalls' brief be filed "within fourteen days after the
Bankruptcy Court issues a written ruling on the application to modify stay as it
pertains to this appeal."
In addition, on April 6, 1994, Harry McCall, one of the claimants in the
McCall Litigation, filed a motion in Civil District Court to enforce an
agreement Mr. McCall claims to have entered into with HJC to settle the McCall
Litigation, asserting that he was entitled to receive settlement proceeds based
upon that agreement. HJC does not believe that a binding settlement agreement
was reached with that claimant. On July 8, 1994, the Civil District Court ruled
that Mr. McCall's motion was procedurally defective. The plaintiff failed to
cure the deficiency, and on September 12, 1994; the district court in New
Orleans dismissed Mr. McCall's motion to enforce the alleged agreement. A notice
of appeal was filed by Mr. McCall and on October 12, 1995, the Fourth Circuit
Court of Appeals for the State of Louisiana reversed the district court's
ruling, which would allow Mr. McCall to pursue his claim. As a result of HJC's
bankruptcy case, this litigation currently is stayed with respect to HJC.
88
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
However, a motion has been filed by Mr. McCall to lift the automatic stay to
permit the McCall Litigation to proceed. A hearing on Mr. McCall's motion to
lift the stay has been set for April 2, 1996. HJC filed objections to Mr.
McCall's motion on March 25, 1996.
On October 5, 1994, a lawsuit was filed in the Civil District Court for the
Parish of Orleans captioned TUCKER V. CITY OF NEW ORLEANS. Plaintiff (who is
also the plaintiff's attorney in the McCall litigation) challenged the validity
of three casino-related ordinances adopted by the City Council on September 23,
1994 which authorized, among other things, amendments to the Ground Lease. The
lawsuit also challenged the constitutionality of a clarifying amendment to the
Gaming Act. In the event the plaintiff ultimately prevails, it is possible that
the Rivergate Casino Lease could be declared void. The City has filed
preliminary exceptions contending that the plaintiff has failed to name
indispensable and necessary parties as defendants. The exceptions and
preliminary challenges to the plaintiff's lawsuit were filed on November 18,
1994. On March 13, 1995 and August 17, 1995, the plaintiff filed supplemental
amended petitions. On September 22, 1995, the City requested the plaintiff to
consider its prior filed exceptions as applicable. The plaintiff did not object
in its supplemental petition. Since then, this lawsuit has remained dormant in
the Civil District Court for the Parish of Orleans.
On December 6, 1994, a lawsuit captioned LOUISIANA LANDMARKS SOCIETY, INC.
V. CITY OF NEW ORLEANS, RIVERGATE DEVELOPMENT CORPORATION AND HARRAH'S JAZZ
COMPANY was filed seeking to prevent, among others, HJC from moving the Joan of
Arc statue or converting any part of the Joan of Arc Plaza without the approval
of the Secretary of the Interior. The original design plans for the Casino
contemplated locating the main access areas for the Casino in the area currently
in use as the Plaza. The plaintiff alleged that the Joan of Arc Plaza was
developed with federal funds for historic purposes and, therefore, the statue
cannot be converted to another use without the approval of the Secretary of the
Interior. The plaintiff also alleged a pendant state law claim that the Plaza
had been dedicated as a park by the City of New Orleans and that the Plaza's
conversion to another use requires the approval of the Louisiana state
legislature. On January 27, 1995, the United States District Court for the
Eastern District of Louisiana issued an order permanently restraining the City,
the RDC and HJC from removing the Joan of Arc statue or using any part of the
Place de France without the approval of the Secretary of the Interior. The City,
the RDC and HJC filed notices of appeal. On February 7, 1996, the United States
Court of Appeals of the Fifth Circuit heard oral arguments on the appeal briefs
filed by all the parties to the lawsuit. The United States Court of Appeals of
the Fifth Circuit has not rendered a decision.
In addition to appealing the permanent restraining order of the United
States District Court for the Eastern District of Louisiana, HJC has also
proposed the use of a modified design for the Rivergate Casino, which would
allow for the completion of construction either with the statue present or with
the statue removed. The modified design has been completed, but in order to
implement the modified design, HJC must obtain the approval of certain state and
local governmental agencies, including the City Planning Commission and the City
Council.
On September 26, 1995, a lawsuit captioned HARRAH'S NEW ORLEANS INVESTMENT
COMPANY VS. NEW ORLEANS/LOUISIANA DEVELOPMENT CORPORATION was filed in the U.S.
District Court for the Eastern District of Louisiana seeking a declaratory
judgment that (1) Harrah's Investment was a 52.93% owner of HJC, (2) the 1994
option agreement with NOLDC had expired, and (3) NOLDC was not a "material
partner" of HJC.
On September 28, 1995, NOLDC brought a lawsuit against, among other parties,
Harrah's Investment and HJC in the Civil District Court for the Parish of
Orleans seeking (1) a temporary
89
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
restraining order enjoining the expiration of the 1994 option agreement and
removal of NOLDC from its status as a material partner of HJC; (2) a rescission
of the fourth amendment to HJC's Partnership Agreement (governing, among other
matters NOLDC's dilution of interest in HJC and status as a material partner of
HJC), (3) restoration of NOLDC to a full 33.3% ownership in HJC, and (4)
unspecified damages against all defendants except HJC.
On September 29, 1995, NOLDC obtained a temporary restraining order from the
Louisiana Civil District Court, directing Harrah's Investment and HJC to treat
NOLDC as a material partner until a hearing on an injunction could be had on
October 9, 1995. On October 5, 1995, the defendants removed NOLDC's state court
complaint to the U.S. District Court for the Eastern District of Louisiana. On
October 6, 1995, NOLDC sought to obtain an extension of its temporary
restraining order from the U.S. District Court. NOLDC's request was denied, and
no date for any further hearing was set. Following the filing of bankruptcy by
NOLDC, the litigation was placed on inactive status by the court. At the time of
the filing of the bankruptcy, no discovery on the merits had been taken.
On February 15, 1996, a class action lawsuit captioned SUSAN N. POIRIER,
ET.AL. V. HARRAH'S JAZZ COMPANY (IN RE HARRAH'S JAZZ COMPANY) (the "Poirier
Litigation") was filed against HJC, Harrah's Investment and Harrah's Operating
in the Bankruptcy Court for the Eastern District of Louisiana in the bankruptcy
cases of the Company, Harrah's Investment and Finance Corp. (Adversary
Proceeding Nos. 96-1015, 96-1014 and 96-1013). The plaintiffs in the lawsuit
alleged violations of the Worker Adjustment and Retraining Notification Act
("WARN Act") and seeks damages for the alleged failure to timely notify workers
terminated by Harrah's Management at the time of HJC's bankruptcy. The lawsuit
also alleged violations under the Employee Retirement Income Security Act of
1974 ("ERISA") and seeks ERISA severance pay benefits allegedly due to the
plaintiffs. Plaintiffs seek, in addition to damages and costs of litigation, a
declaration by the Court that the WARN Act damages incurred within 90 days of
HJC's bankruptcy petition are third priority claims and that severance payments
due are fourth priority claims. HJC filed a motion to dismiss plaintiff's
complaint on March 19, 1996. No class has been certified and HJC intends to
vigorously defend these actions.
The enactment and implementation of gaming legislation in Louisiana and the
development of the Gaming Facilities has been the subject of lawsuits, claims
and delays brought about by various parties. Additional lawsuits and the
uncertain political environment may result in further delays, all of which could
have a material adverse effect on HJC.
As a result of the bankruptcy filing, all legal proceedings with respect to
pre-petition claims against HJC were automatically stayed pursuant to Section
362 of the Bankruptcy Code. Liability, if any, will be determined by the Court
and considered in the plan of reorganization.
NOTE 10. -- SUBSEQUENT EVENTS
HET or one of its affiliates have agreed to fund up to an additional $10
million (in addition to the $2.5 million loan discussed in Note 7) in
debtor-in-possession financing to fund (i) certain of the payments under the
settlement agreement with the City of New Orleans, and (ii) certain costs
associated with resumed construction of the Rivergate Casino. The terms of the
second loan include: (i) the granting of security in the form of first priority
liens and security interests on all of HJC's assets, subject only to
non-avoidable, valid, enforceable and perfected liens and security interests
which existed as of the Petition Date in favor of any third party other than the
holders of the Notes and the indenture trustee and collateral agent for the
holders of the Notes; (ii) the granting of administrative priority status; (iii)
interest at a rate of 8% per annum; and (iv) maturity upon June 30, 1996 (unless
the lender consents to a later date) or the effective date of a plan of
reorganization supported
90
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. -- SUBSEQUENT EVENTS (CONTINUED)
by the lender. In addition, the post Petition Date indebtedness will mature upon
the date of confirmation of any plan of reorganization not supported by the
lender, the date on which the bondholders' committee or any member thereof
supports or agrees to support any plan of reorganization not supported by the
lender, or certain other events (including the conversion of HJC's case to a
Chapter 7 liquidation case or the dismissal of HJC's case). HJC filed a motion
for approval of the second debtor-in-possession loan on April 1, 1996.
HJC filed a plan of reorganization with the Bankruptcy Court on April 3,
1996 (the "Plan"). Under the Plan, the assets and business of HJC would vest in
Jazz Casino Corporation, a newly formed Delaware corporation ("JCC"), on the
effective date of the Plan. JCC will complete construction of the Rivergate
Casino. Under the Plan, the Notes would be cancelled, the holders of the Notes
would receive 50.1% of the equity in JCC's indirect parent and the existing
partners of HJC would receive the remaining 49.9% of the equity in JCC Holding.
Under the Plan, the holders of the Notes who have executed certain releases
under the Plan may receive up to 2% of the JCC Holding's common stock. In
addition, holders of the Notes would receive (i) $187.5 million in aggregate
principal amount 8% Senior Subordinated Notes due 2006 with contingent payments
of JCC, and (ii) a pro rata share of Senior Subordinated Contingent Notes due
2006 of JCC.
In addition, under the Plan, a temporary casino will open in two phases at
the Rivergate site followed by the opening of a permanent casino at such site.
The first phase of the temporary casino (the "Phase One") is scheduled to open
on or about January 1, 1997 and will include approximately 56,000 square feet of
net gaming space. The second phase of the temporary casino (the "Phase Two") is
scheduled to open in the second quarter of 1997 and will add approximately
42,000 square feet of net gaming space, and approximately 15,000 square feet of
multi-function, special event, food service and meeting-room space. The Phase
One and the Phase Two are, collectively, the "Temporary Rivergate Casino."
Operations at the Temporary Rivergate Casino will cease and operations at the
Rivergate site will immediately be deemed to be permanent ("Permanent Rivergate
Casino") under state law upon the earlier of (i) the date on which net gaming
space exceeds 100,000 square feet and (ii) the second anniversary of the opening
of Phase One, but only after receipt of the appropriate regulatory approvals.
Under the Plan, the Basin Street Casino will not re-open.
The Plan is subject to amendment, and such amendments may be material. There
can be no assurance that the Plan, as proposed or as it may be amended, will be
approved, or if approved that the conditions to consummation of the Plan will be
met.
NOTE 11. -- EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT ACCOUNTANTS
(UNAUDITED)
HJC has been granted by the Court an extension of the exclusivity period to
August 30, 1996 to solicit acceptances to its plan of reorganization (See Note
2). HJC intends to request a further extension of the exclusivity period.
HJC has had a series of negotiations with the City and Rivergate Development
Corporation (the "RDC"), a public benefit corporation formed for the purpose of
subleasing the sites on which the Basin Street Casino and the Rivergate Casino
were to be located, to implement the provisions of the March 4 agreement (See
Note 2). HJC has presented a proposed agreement to the City and the RDC,
entitled "An Agreement Regarding Modifications and Related Agreements in Respect
of Amended and Restated Canal Street Casino Lease, Termination of Basin Street
Casino Lease, Amended and Restated General Development Agreement, the
Conditional Use Ordinances and other Regulatory Matters," to the City and the
RDC for their review (the "Proposed City Agreement"). HJC believes the Proposed
City Agreement will be acceptable to the City and the RDC. The Proposed City
Agreement amends and modifies the Rivergate Lease, the Basin Street Casino
Lease, and the General
91
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. -- EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT ACCOUNTANTS
(UNAUDITED) (CONTINUED)
Development Agreement, and also provides for several additional agreements.
These amendments and additional agreements include (i) modification of the rent
and other payments payable under the Rivergate Lease, (ii) permission for HJC to
develop the second floor of the Casino for non-gaming purposes, and (iii)
agreement by the City to adopt certain conditional use ordinances to permit the
Rivergate Casino to offer food, entertainment, shuttle bus service, and certain
other amenities previously not permitted. The Proposed City Agreement must be
approved by the Mayor and the New Orleans City Council, which is expected to
consider the Proposed City Agreement in September, 1996. The Proposed City
Agreement will be considered by the Bankruptcy Court on August 26, 1996, and if
City and the Bankruptcy Court approves the agreement, HJC will amend the Plan to
reflect the terms of the City Agreement.
In the special session convened in the spring of 1996 (see Note 2), the
Louisiana legislature enacted House Bill No. 7, which provides for a
parish-by-parish referenda during the November 5, 1996 election to decide, on an
item-by-item basis, whether riverboat gaming, video poker gaming and, in Orleans
Parish, the land-based casino should be permitted to operate in such parish.
House Bill No. 7 provides that in the event voters in Orleans Parish vote not to
allow the operation of land-based casino gaming in that parish, "the operation
of land-based casino gaming existing in the parish shall be discontinued." HJC
believes that House Bill No. 7 has had a material adverse effect on HJC even
prior to voter action by impairing HJC's ability to develop and implement a plan
of reorganization.
The Court subsequently entered several interim financing orders pursuant to
which the Court approved additional debtor-in-possession financing from Harrah's
Entertainment or one of its affiliates in the aggregate amount (inclusive of the
$2.5 million referred to in Note 7 above) of up to $13.8 million to fund certain
operating expenses of HJC. Interest on all of these loans is 8% per annum.
92
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements of
HJC and subsidiary, have been prepared in accordance with the instructions to
Form 10, and therefore do not include all information and notes necessary for
complete financial statements prepared in conformity with generally accepted
accounting principles. The results for the periods indicated are unaudited, but
reflect all adjustments (consisting only of normal recurring adjustments) which
management considers necessary for a fair presentation of operating results.
Results of operations for interim periods are not necessarily indicative of a
full year of operations. These consolidated financial statements and related
notes should be read in conjunction with the financial statements and related
notes included in "-- Audited Financial Information."
Separate financial statements and other disclosures with respect to HJC's
subsidiary, Harrah's Jazz Finance Corp., are omitted as such separate financial
statements and other disclosures are not deemed material.
93
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current assets
Cash and cash equivalents........................................................... $ 11,053 $ 22,956
Other............................................................................... 1,777 2,026
------------ ------------
Total current assets............................................................ 12,830 24,982
------------ ------------
Land, buildings and equipment
Property held for development....................................................... 13,200 13,200
Construction in progress............................................................ 153,286 145,148
Furniture, fixtures and equipment, net of accumulated depreciation of $6,008 and
$5,490............................................................................. 26,064 26,581
------------ ------------
192,550 184,929
Deferred assets, net of amortization
Deferred operating contract costs................................................... 122,222 122,222
Lease prepayments................................................................... 30,263 30,263
Other............................................................................... 2,084 2,084
------------ ------------
$ 359,949 $ 364,480
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable.................................................................... $ 442 $ 550
Accrued expenses.................................................................... 9,468 14,633
Debtor-in-possession loans.......................................................... 7,095 --
------------ ------------
Total liabilities not subject to compromise..................................... 17,005 15,183
------------ ------------
Liabilities subject to compromise..................................................... 518,979 519,360
------------ ------------
Commitments and contingencies
Partners' Capital
Partners' capital contributions..................................................... 167,000 167,000
Accumulated deficit................................................................. (343,035) (337,063)
------------ ------------
Total partners' capital (deficit)............................................... (176,035) (170,063)
------------ ------------
$ 359,949 $ 364,480
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
94
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
--------------------- ---------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
--------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues
Casino.......................................................... $ -- $ 24,389 $ -- $ 24,389
Food and beverage............................................... -- 1,733 -- 1,733
Retail and parking.............................................. -- 400 -- 400
Other........................................................... 30 224 46 264
Less: casino promotional allowances............................. -- (1,246) -- (1,246)
--------- ---------- --------- ----------
Total revenues.............................................. 30 25,500 46 25,540
--------- ---------- --------- ----------
Operating expenses
Direct
Casino........................................................ -- 18,830 -- 18,830
Food and beverage............................................. -- 959 -- 959
Retail and parking............................................ -- 94 -- 94
Depreciation and amortization................................... 258 12,464 517 12,592
General and administrative...................................... 1,726 9,729 3,476 9,729
Reorganization costs............................................ 1,448 2,135 2,209 2,135
Preopening costs................................................ -- 7,063 -- 15,168
--------- ---------- --------- ----------
Total operating expenses.................................... 3,432 51,274 6,202 59,507
--------- ---------- --------- ----------
Operating loss.................................................... (3,402) (25,774) (6,156) (33,967)
--------- ---------- --------- ----------
Other income (expenses)
Interest expense, net of interest capitalized................... (110) (16,905) (125) (33,172)
Interest and other income....................................... 123 4,284 309 10,803
--------- ---------- --------- ----------
Total other income (expenses)............................... 13 (12,621) 184 (22,369)
--------- ---------- --------- ----------
Net loss.......................................................... $ (3,389) $ (38,395) $ (5,972) $ (56,336)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
95
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1996 1995
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities and development stage operations
Net loss............................................................................... $ (5,972) $ (56,336)
Adjustments to reconcile net loss to net cash used in operating activities and
development stage operations
Depreciation and amortization........................................................ 517 15,976
Decrease (increase) in other current assets.......................................... 249 (9,559)
(Decrease) increase in accounts payable and accrued expenses......................... (5,273) 21,704
Decrease in accounts payable and accrued expenses prior to Petition Date............. (381) --
Other................................................................................ -- 76
---------- -----------
Cash flows used in operating activities and development stage operations........... (10,860) (28,139)
---------- -----------
Cash flows from investing activities
Net purchases, sales and maturities of marketable securities........................... -- 281,131
Additions to land, buildings and equipment and leasehold improvements.................. (8,138) (106,849)
Payment of deferred operating contract costs........................................... -- (120,000)
Payments for leasehold costs and other assets.......................................... -- (4,928)
---------- -----------
Cash flows provided by (used in) investing activities.............................. (8,138) 49,354
---------- -----------
Cash flows from financing activities
Advances from Manager.............................................................. -- 1,012
Proceeds received from borrowings.................................................. 7,095 --
---------- -----------
Cash flows provided by financing activities........................................ 7,095 1,012
---------- -----------
Net (decrease) increase in cash and cash equivalents..................................... (11,903) 22,227
Cash and cash equivalents, beginning of period........................................... 22,956 144,129
---------- -----------
Cash and cash equivalents, end of period................................................. $ 11,053 $ 166,356
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
96
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION, BANKRUPTCY AND BASIS OF PRESENTATION
Harrah's Jazz Company ("HJC") is a Louisiana general partnership formed on
November 29, 1993 for the purposes of developing, owning and operating the
exclusive land-based casino entertainment facility (the "Rivergate Casino") in
New Orleans, Louisiana, on the site of the former Rivergate Convention Center.
HJC operated a temporary casino in the New Orleans Municipal Auditorium (the
"Basin Street Casino" and together with the Rivergate Casino, the "Gaming
Facilities") from May 1, 1995 to November 22, 1995.
HJC was in the development stage until May 1, 1995, when it commenced
operation of the Basin Street Casino. Development stage activities consisted of
construction, organizational activities related to arranging construction and
financing contracts, and negotiating various other agreements to develop the
Gaming Facilities.
On November 22, 1995 (the "Petition Date"), HJC and its subsidiary, Harrah's
Jazz Finance Corp. ("Finance Corp."), filed petitions for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. On November 30, 1995, HJC's bankruptcy case was
transferred with the consent of HJC to the United States Bankruptcy Court for
the Eastern District of Louisiana (the "Bankruptcy Court").
NOTE 2 -- LIABILITIES SUBJECT TO COMPROMISE
Payment or other disposition of the secured and unsecured liabilities of HJC
existing as of the Petition Date is deferred until a plan of reorganization has
been approved by the requisite number of HJC's creditors and confirmed by the
Bankruptcy Court. As of June 30, 1996, HJC's books and records reflected
unsecured and undersecured liabilities subject to settlement in the Chapter 11
proceedings as follows (in thousands):
<TABLE>
<S> <C>
First Mortgage Notes............................................. $ 435,000
Construction Accounts Payable.................................... 36,398
Due to Manager................................................... 29,651
Consulting fees payable to related parties....................... 2,128
Harrah's Entertainment, Inc., and affiliates..................... 2,281
Others, individually less than $1,000............................ 13,521
---------
$ 518,979
---------
---------
</TABLE>
The full amount of the First Mortgage Notes (the "Bonds") has been included
in Liabilities Subject to Compromise since the Bonds are an undersecured
liability and the ultimate value of the security is dependent upon future
events, the outcomes of which are uncertain at this time.
NOTE 3 -- DEBT
As part of the bankruptcy process, creditors are allowed to file proofs of
claim with the Bankruptcy Court specifying their position on amounts owed to
them. Creditors often include estimates of penalties, interest and damages in
proofs of claim. These amounts are subject to upward or downward adjustments and
approval by the debtors and the Bankruptcy Court.
On April 9, 1996, the Bankruptcy Court issued a final order permitting HJC
to borrow $2.5 million in principal amount from Harrah's Entertainment, Inc.
("Harrah's Entertainment") or one of its affiliates and to pay interest of 8%
per annum on the borrowings. The financing was granted a secured and
administrative priority status. HJC has used the $2.5 million to pay a like
amount to the City of New Orleans (the "City") in partial settlement of HJC's
obligations under the lease for the Basin Street Casino (the "Basin Street
Casino Lease"). HJC borrowed an additional $4.4 million on
97
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- DEBT (CONTINUED)
April 11, 1996 from Harrah's Entertainment on a secured, administrative priority
basis. HJC used these monies to fund an escrow account for the City in partial
settlement of HJC's obligations under the Basin Street Casino Lease.
The Bankruptcy Court subsequently entered several interim financing orders
pursuant to which the Court approved additional debtor-in-possession financing
from Harrah's Entertainment or one of its affiliates in the aggregate amount
(inclusive of the $2.5 million and the $4.4 million referred to above) of up to
$13.8 million to fund certain operating expenses of HJC. Interest on all of
these loans is 8% per annum. The principal and accrued interest on such loans is
due on the earlier of November 15, 1996, or the effective date of any confirmed
plan of reorganization. As of July 31, 1996, the aggregate amount of HJC's
post-petition borrowings was $9.9 million.
NOTE 4 -- LEASES
On March 4, 1996, HJC entered into an agreement with the City (the "March 4
Agreement") with respect to the Basin Street Casino Lease, whereby HJC agreed to
pay $10.6 million to the City (of which approximately $1 million is payable to
the Orleans Parish School Board) to fulfill HJC's obligations under the Basin
Street Casino Lease. As of June 30, 1996, HJC had paid $5.6 million towards this
obligation. Subsequent to June 30, 1996, HJC paid another $268,000 towards this
obligation, leaving a balance due of $4.8 million of which $4.4 million is in an
escrow for the City.
HJC has had a series of negotiations with the City and Rivergate Development
Corporation, a public benefit corporation formed for the purpose of subleasing
the sites on which the Basin Street Casino and the Rivergate Casino were to be
located (the "RDC"), to implement the provisions of the March 4 Agreement. HJC
has presented a proposed agreement to the City and the RDC, entitled "An
Agreement Regarding Modifications and Related Agreements in Respect of Amended
and Restated Canal Street Casino Lease, Termination of Basin Street Casino
Lease, Amended and Restated General Development Agreement, the Conditional Use
Ordinances and other Regulatory Matters," to the City and the RDC for their
review (the "Proposed City Agreement"). HJC believes the Proposed City Agreement
will be acceptable to the City and the RDC. The Proposed City Agreement amends
and modifies the Rivergate Lease, the Basin Street Casino Lease, and the General
Development Agreement, and also provides for several additional agreements.
These amendments and additional agreements include (i) modification of the rent
and other payments payable under the Rivergate Lease, (ii) permission for HJC to
develop the second floor of the Casino for non-gaming purposes, and (iii)
agreement by the City to adopt certain conditional use ordinances to permit the
Rivergate Casino to offer food, entertainment, shuttle bus service, and certain
other amenities previously not permitted. The Proposed City Agreement is
discussed more fully in Item 2. The Proposed City Agreement must be approved by
the Mayor and the New Orleans City Council, which is expected to consider the
Proposed City Agreement in September, 1996. The Proposed City Agreement will be
considered by the Bankruptcy Court on August 26, 1996, and if City and the
Bankruptcy Court approves the agreement, HJC will amend the Plan to reflect the
terms of the City Agreement.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
NEW AND PENDING LEGISLATION.
In a special session convened in the spring of 1996, the Louisiana
legislature enacted several laws which have had, or could have, a material
impact on HJC. One of these laws, House Bill No. 7, calls for parish-by-parish
referenda during the November 5, 1996 election to decide, on an item-by-item
basis, whether riverboat gaming, video poker gaming, and in Orleans Parish, the
land-based casino, should be permitted to operate in their parish. House Bill
No. 7 contains no savings clause for the Casino Operating Contract because it
provides that in the event voters in Orleans Parish vote not to allow the
98
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
conduct of land-based casino gaming operations in that parish, the "operation of
land-based casino gaming existing in the parish shall be discontinued". HJC
believes that House Bill No. 7 has had a material adverse effect on HJC even
prior to voter action, by impairing HJC's ability to develop and implement a
plan of reorganization.
Another law which could impact HJC is House Bill No. 9, which provides (i)
the State and all its political subdivisions with immunity from liability and
from suit for any action or failure to act on the part of the State, or any
political subdivision of the State, or of The Louisiana Economic Development and
Gaming Corporation ("LEDGC"), a special public purpose corporation established
to regulate gaming in Louisiana, and (ii) authority to the Governor by executive
order, subject to legislative approval either by vote or by mail ballot, or to
the State legislature by act or resolution, to set aside or order renegotiation
or revocation of a casino operating contract when the casino operator is either
voluntarily or involuntarily placed in bankruptcy, receivership,
conservatorship, or some similar status. Another is House Bill No. 37, which
amended the Louisiana Economic Development and Gaming Corporation Act (the
"Gaming Act") to state that the conduct of gaming operations upon riverboats in
accordance with the provisions of the Gaming Act or otherwise while upon a
designated waterway while temporarily at dockside does not constitute the
authorization of additional land-based casino gaming operations which relieves
the casino gaming operator of payment of compensation to LEDGC. House Bill No.
37 further provides that in the event of litigation between the casino gaming
operator and either LEDGC or the State or any of its political subdivisions, the
casino gaming operator must continue to make all payments to LEDGC and to the
State and any of its political subdivisions as required by law during the
pendency of such litigation, and that any failure to make the required payments
will render the casino gaming operator unsuitable.
In addition, on May 1, 1996, the Governor signed into law House Bill No. 8,
which dissolved the separate boards that had governed riverboat gaming and
land-based casino gaming, including LEDGC, and substituted in their place the
Louisiana Gaming Control Board (the "LGCB"). Although the existing rules and
regulations promulgated by LEDGC will remain in force and effect, the LGCB has
been empowered to promulgate its own rules and regulations. Given its lack of
experience in dealing with the LGCB, HJC is unable at this time to determine the
likelihood that it will be successful in negotiating with the LGCB with respect
to the Rivergate Casino and the Casino Operating Contract.
During the last Fiscal session of the State Legislature held in April, 1996,
a bill was filed with the House which proposes to add a 1% franchise tax on the
net gaming proceeds of the land-based casino in addition to existing
compensation arrangements provided under the Casino Operating Contract. This
bill was not acted upon during the Fiscal session.
The Governor has stated that he may have plans for another special session
at which gaming issues could be addressed. To date, no such session has been
scheduled. There can be no assurance that actions similar to those taken by the
State legislature during the special session called by the Governor, or
different kinds of actions, will not be taken in any future special sessions
called by the Governor.
LITIGATION
On November 22, 1995, HJC and Finance Corp., filed voluntary petitions under
Chapter 11 in the United States Bankruptcy Court for the District of Delaware.
On November 30, 1995, both bankruptcy cases were transferred with the consent of
HJC and Finance Corp. to the Eastern District of Louisiana and the bankruptcy
cases were assigned as Case Nos. 95-14545 (the Company) and 95-14544 (Finance
Corp.). In connection with the Chapter 11 case, HJC is subject to Bankruptcy
99
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Court jurisdiction and is continually involved in various proceedings before the
Bankruptcy Court. Except where a relief from stay has been granted, litigation
against HJC has been stayed as a result of its Chapter 11 bankruptcy case. The
following, however, is a brief description of certain lawsuits that have been
filed against HJC which HJC considers to be of particular importance.
SUSAN N. POIRIER, ET AL. V. HARRAH'S JAZZ COMPANY (IN RE HARRAH'S JAZZ
COMPANY). On or about January 17, 1996, a class action adversary proceeding
captioned SUSAN N. POIRIER, ET AL. V. HARRAH'S JAZZ COMPANY (IN RE HARRAH'S JAZZ
COMPANY) (the "Poirier Litigation") was filed against HJC in its bankruptcy case
by a group of individuals claiming to be former employees of HJC who were laid
off within 90 days of August 18, 1995 and/or were discharged within 90 days of
November 22, 1995 (the "Affected Employees"). These individuals also have filed
individual and class proof of claim in HJC's bankruptcy case, purportedly on
behalf of all alleged former employees of HJC who were discharged on or before
the Petition Date.
These individuals are asserting claims against HJC under the WARN Act and
under ERISA. They claim that HJC employed the Affected Employees, and that HJC
failed to give the Affected Employees adequate notice of their terminations or
lay-offs. They also claim that the Affected Employees are entitled to payment of
severance pay under ERISA. These individuals claim damages under the WARN Act
and ERISA on behalf of themselves and all other Affected Employees.
HJC filed a motion to dismiss the WARN Act and ERISA adversary proceeding on
procedural grounds. On June 27, 1996, the Bankruptcy Court entered an order
dismissing the adversary proceeding against HJC. The plaintiffs also have filed
a motion to certify four classes on whose behalf the plaintiffs seek to act as
class representatives. The Bankruptcy Court heard arguments on such motion on
July 11, 1996, and has taken the motions under consideration. To date, HJC has
not filed an objection to the proofs of claim filed by the plaintiffs, but it
does intend to contest those claims.
HENRY GEORGE MCCALL VS. HARRY MCCALL, JR., ET AL. On April 26, 1993, a
lawsuit was filed in the Civil District Court for the Parish of Orleans
captioned HENRY GEORGE MCCALL VS. HARRY MCCALL, JR., ET AL. (the "McCall
Litigation"). Plaintiffs asserted an ownership interest in certain land
underlying the Rivergate site and also sought permanent injunctive relief
prohibiting the use of such land for the Rivergate Casino. The lawsuit also
challenged the manner in which the RDC was formed and its authority to enter
into the Rivergate Casino Lease and the Basin Street Casino Lease. HJC
intervened in the lawsuit and aligned itself with the City and the RDC. On
February 22, 1994, the Civil District Court granted the motion for summary
judgment filed by the City, the RDC and HJC, thereby dismissing all claims. On
February 23, 1995, the state appellate court unanimously affirmed the Civil
District Court's ruling that the plaintiffs did not have an ownership interest
in any land underlying the Rivergate site and remanded the case to the Civil
District Court to determine whether the plaintiffs have standing to assert the
other claims concerning the authority of the RDC to enter into the Rivergate
Casino Lease and the Basin Street Casino Lease. On April 28, 1995, all parties
to the litigation applied to the Louisiana Supreme Court for writs of
certiorari. On June 30, 1995, the Louisiana Supreme Court unanimously denied all
writ applications. The property claims in this litigation have been finally
resolved in favor of HJC, the City and the RDC. In December 1995, the Civil
District Court granted the exception of no right of action submitted by the City
and RDC and held that the plaintiffs lack standing to challenge the
constitutionality of the RDC. The plaintiffs filed a devolutive appeal to the
Fourth Circuit Court of Appeals. The appeal has been fully briefed, and it is
set for oral argument on September 10, 1996.
In addition, on April 6, 1994, Harry McCall, one of the claimants in the
McCall Litigation, filed a motion in Civil District Court to enforce an
agreement Mr. McCall claims to have entered into with
100
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
HJC to settle the McCall Litigation, asserting that he was entitled to receive
settlement proceeds based upon that agreement. HJC does not believe that a
binding settlement agreement was reached with that claimant. On July 8, 1994,
the Civil District Court ruled that Mr. McCall's motion was procedurally
defective. The plaintiff failed to cure the deficiency, and on September 12,
1994, the district court in New Orleans dismissed Mr. McCall's motion to enforce
the alleged agreement. A notice of appeal was filed by Mr. McCall and on October
12, 1995, the Fourth Circuit Court of Appeals for the State of Louisiana
reversed the district court's ruling, which would allow Mr. McCall to pursue his
claim. As a result of HJC's bankruptcy case, the motion to enforce settlement
has been stayed with respect to HJC. Henry McCall and Harry McCall did file a
proof of claim in HJC's bankruptcy case demanding payment of $2,000,000 they
claim to be due in connection with the settlement agreement. HJC filed an
objection seeking to disallow that claim in its entirety; hearing on that
objection was scheduled for May 28, 1996. Shortly before the hearing, Henry
McCall and Harry McCall filed an adversary proceeding against HJC styled HENRY
GEORGE MCCALL AND HARRY MCCALL, JR. V. HARRAH'S JAZZ COMPANY. In substance, the
McCalls' adversary complaint restated the allegations of the motion to enforce
settlement previously filed in Civil District. The Bankruptcy Court ordered that
HJC's objection to the McCall's proof of claim be consolidated with the
adversary proceeding for purposes of discovery and trial. Discovery is ongoing
at this time, and trial is scheduled to commence on September 16, 1996.
TUCKER V. CITY OF NEW ORLEANS. A lawsuit captioned TUCKER V. CITY OF NEW
ORLEANS was filed on October 5, 1994 against the City (the "Tucker Litigation")
in the Civil District Court for the Parish of Orleans by a resident of the
Parish challenging the validity of three casino-related ordinances adopted by
the City Council on September 23, 1994 which authorized, among other things,
amendments to the Rivergate Casino Lease. The lawsuit also challenges the
constitutionality of a clarifying amendment to the Gaming Act. The clarifying
amendment addresses a provision of the Rivergate Casino Lease which requires at
least 80% of the persons employed by the Rivergate Casino to be residents of
Orleans Parish ("Residency Requirement"). The effect of the ordinances and the
amendment to the Gaming Act was, among other things, (i) to clarify the intent
of the Gaming Act that a provision of a contract to which the gaming operator is
a party that requires more than 50% of the persons employed be the residents of
any one parish is void, but that the contract as an entirety is not void under
the Gaming Act, and (ii) to reduce the Residency Requirement in the Rivergate
Casino Lease if necessary to comply with applicable law. In the event that the
plaintiff ultimately prevails, it is possible that the Rivergate Casino Lease
could be declared void. On November 18, 1994, the City filed preliminary
exceptions contending that the plaintiff has failed to name indispensable and
necessary parties as defendants. On March 13, 1995 and August 17, 1995, the
plaintiff filed supplemental amended petitions. On September 22, 1995, the City
requested the plaintiff to consider its prior filed exceptions as applicable.
The plaintiff did not object in its supplemental petition. There has been no
activity in this case since that time.
Mr. Tucker filed a proof of claim in HJC's bankruptcy case in which he
demanded unliquidated amounts which may be owed to him by HJC with respect to
the Tucker litigation. HJC filed an objection to the proof of claim, and on
August 13, 1996 Mr. Tucker consented to disallowance of this claim.
LOUISIANA LANDMARKS SOCIETY, INC. V. CITY OF NEW ORLEANS, RIVERGATE
DEVELOPMENT CORPORATION, AND HARRAH'S JAZZ COMPANY. On December 6, 1994, a
lawsuit captioned LOUISIANA LANDMARKS SOCIETY, INC. V. CITY OF NEW ORLEANS,
RIVERGATE DEVELOPMENT CORPORATION, AND HARRAH'S JAZZ COMPANY was filed against
the above-named defendants seeking to prevent, among other things, HJC from
moving the Joan of Arc statue or using any part of the Place de France without
the approval of the
101
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Secretary of the United States Department of the Interior. The Place de France
is located adjacent to the Rivergate Casino. The original design plans for the
Rivergate Casino contemplated locating the main access areas for the Rivergate
Casino in the area currently in use as the Place de France. The plaintiff
alleged that the Place de France was developed with federal funds for historic
purposes and that therefore the statute cannot be relocated and the Place de
France cannot be converted to another use without the approval of the Secretary
of the Interior. The plaintiff also alleged a pendant state law claim that the
Place de France had been dedicated as a park by the City and that the conversion
of the Place de France to another use requires the approval of the State
legislature. On January 27, 1995, the United States District Court for the
Eastern District of Louisiana issued an order permanently restraining the City,
the RDC and HJC from removing the Joan of Arc statue or using any part of the
Place de France without the approval of the Secretary of the Interior. The City,
the RDC and HJC filed notices of appeal. On June 7, 1996, the Fifth Circuit
Court of Appeals reversed the district court's ruling and vacated the permanent
injunction, holding that the statutory scheme does not afford an implied right
of action to the plaintiff. On July 12, 1996, the Fifth Circuit denied the
plaintiffs' petition for rehearing.
Louisiana Landmarks Society, Inc. filed a claim in HJC's bankruptcy case in
which it demanded unliquidated amounts which may be owed to it as a result of
the Louisiana Landmarks litigation. HJC filed an objection to the proof of
claim, and on August 13, 1996 Louisiana Landmarks Society, Inc. consented to
disallowance of this claim.
TUCKER V. CITY OF NEW ORLEANS AND RIVERGATE DEVELOPMENT CORPORATION. On
July 24, 1996, Mr. Tucker filed yet another lawsuit seeking to enjoin alteration
of the Place de France absent the express written approval of the Secretary of
Interior. The City and RDC have been made defendants; HJC is not named, although
the lawsuit could affect the development of the Rivergate Casino. Mr. Tucker
characterized his claim as one for purported violation of his rights of due
process and equal protection pursuant to 42 U.S.C. Section 1983. The factual
allegations of the complaint are virtually identical to those asserted by
Louisiana Landmarks and rejected in the recent Fifth Circuit decision described
above. Mr. Tucker served as counsel of record for Louisiana Landmarks, and he is
both a member and trustee of the non-profit corporation. The matter has been
allotted to Judge McNamara, the same district judge who handled the LOUISIANA
LANDMARKS litigation. Service has not been made as of this date.
HARRAH'S NEW ORLEANS INVESTMENT, INC. VS. NEW ORLEANS/LOUISIANA DEVELOPMENT
CORPORATION AND NEW ORLEANS/LOUISIANA DEVELOPMENT CORPORATION VS. HARRAH'S NEW
ORLEANS INVESTMENT, INC., ET. AL. On September 26, 1995, Harrah's Investment
brought a lawsuit against New Orleans/Louisiana Development Corporation, one of
the partners of HJC ("NOLDC") in the United States District Court for the
Eastern District of Louisiana seeking a declaratory judgment that (1) Harrah's
Investment was a 52.93% owner of the HJC, (2) the 1994 option agreement with
NOLDC had expired, and (3) NOLDC was not a "material partner" of HJC. This
lawsuit is pending as Civil Action No. 95-3165.
On September 28, 1995, NOLDC brought a lawsuit against, among other parties,
Harrah's Investment and HJC in the Civil District Court for the Parish of
Orleans seeking (1) a temporary restraining order enjoining the expiration of
the 1994 option agreement and removal of NOLDC from its status as a material
partner of HJC, (2) a rescission of the fourth amendment to HJC's Partnership
Agreement (governing, among other matters NOLDC's dilution of interest in HJC
and status as a material partner of HJC), (3) restoration of NOLDC to a full
33.3% ownership in HJC, and (4) unspecified damages against all defendants
except HJC. The lawsuit was filed as Civil Action No. 95-14653.
102
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
On September 29, 1995, NOLDC obtained a temporary restraining order from the
Louisiana Civil District court, directing Harrah's Investment and HJC to treat
NOLDC as a material partner until a hearing on an injunction could be held on
October 9, 1995. On October 5, 1995, the defendants removed NOLDC's state court
complaint to the United States District Court for the Eastern District of
Louisiana, where it is now pending as Civil Action No. 95-3272. On October 6,
1995, NOLDC sought to obtain an extension of its temporary restraining order
from the United States District Court. NOLDC's request was denied, and no date
for any further hearing was set. Following the filing of bankruptcy by NOLDC,
the litigation was placed on inactive status by the court. At the time of the
filing of the bankruptcy, no discovery on the merits had been taken.
103
<PAGE>
JCC HOLDING COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Financial Information of the
Company has been prepared giving effect in the consummation of the Plan of
Reorganization, including the costs thereto (collectively, the "Pro Forma
Adjustments"), in accordance with AICPA Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7").
The Company will account for the restructuring using the principles of "fresh
start" reporting as required by SOP 90-7. Accordingly, all assets and
liabilities will be restated to reflect their reorganization value
("Reorganization Value"), which approximates fair value at the date of
reorganization. The Reorganization Value of the Company plus liabilities
excluding debt is the value assigned to total assets. For purposes of the
accompanying pro forma financial information, the Reorganization Value of the
Company is presumed to be equal to the carrying value of the Company's assets;
however, the Company anticipates retaining a financial advisor to estimate the
Reorganization Value of the Company utilizing discounted cash flow or other
methodologies in accordance with SOP 90-7 once a plan of reorganization is
confirmed by the Bankruptcy Court. Any portion of the Reorganization Value in
excess of identifiable assets of the Company will be reported as reorganization
value in excess of identifiable assets and will be amortized in accordance with
Accounting Principles Board Opinion 17, "Intangible Assets." In accordance with
SOP 90-7, specific identifiable assets and liabilities will be adjusted to fair
market value. For purposes of the Pro Forma Unaudited Consolidated Financial
Information presented herein, the fair value of specific identifiable assets and
liabilities other than debt is assumed to be the historical book value of those
assets and liabilities. The Company is in the process of obtaining an appraisal
of certain assets to assist in determining their value. The fair value of
long-term debt is based on the negotiated fair values adjusted to present values
using a discount rate of 16%. The difference between the revalued assets and the
revalued liabilities has been recorded as stockholders' equity with accumulated
deficit restated to zero.
The unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1996, was prepared as if the Pro Forma Adjustments had occurred on June 30,
1996. The unaudited Pro Forma Condensed Consolidated Statement of Operations for
the six months ended June 30, 1996, and the unaudited Pro Forma Condensed
Consolidated Statement of Operations for the year ended December 31, 1995, were
prepared as if the Pro Forma Adjustments had occurred January 1, 1995. The Pro
Forma Adjustments are based upon available information and upon certain
assumptions that the Company's management believes are reasonable in the
circumstances.
No changes in revenues or expenses have been made to reflect the results of
any modifications to operations that might have been made had the Plan of
Reorganization been confirmed on the assumed effective dates of the confirmation
of the Plan of Reorganization for presenting pro forma results. The Pro Forma
Condensed Consolidated Financial Data of the Company does not purport to
represent what the financial position or results of operations of the Company
would have been if the Plan of Reorganization had in fact been consummated on
such date or at the beginning of the period indicated or to project the
financial position or results of operations for any future date or period.
104
<PAGE>
JCC HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HJC ADJUSTMENTS JCC HOLDING
HISTORICAL (NOTE 2) PRO FORMA
------------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................... $ 11,053 $ 67,905(c) $ 17,129
(59,829)(e)
(2,000)(f)
Other........................................... 1,777 1,777
------------- ---------------- -------------
12,830 6,076 18,906
Land, buildings and equipment..................... 192,550 -- 192,550
Deferred operating contract costs................. 122,222 -- 122,222
Lease prepayments................................. 30,263 -- 30,263
Other............................................. 2,084 2,000(f) 4,084
------------- ---------------- -------------
$ 359,949 $ 8,076 $ 368,025
------------- ---------------- -------------
------------- ---------------- -------------
LIABILITIES AND EQUITY
Liabilities not subject to compromise
Accounts payable................................ $ 442 $ 49,919(b) $ --
(50,361)(e) --
Debtor-in-possession loans...................... 7,095 (7,095)(c) --
Accrued expenses................................ 9,468 (9,468)(e) --
------------- ---------------- -------------
17,005 (17,005) --
------------- ---------------- -------------
Liabilities subject to compromise................. 518,979 (518,979)(b) --
------------- ---------------- -------------
Long-term debt
Bank Credit Facilities
Construction Credit Facility.................. -- --
Working Capital Facility...................... -- --
8% Senior Subordinated Notes with
Contingent Payments due 2006................... -- 187,500(b) 187,500
Discount on 8% Notes.......................... -- (73,636)(b) (73,636)
Senior Subordinated Contingent Notes due 2006... -- --
------------- ---------------- -------------
Long-term debt.............................. -- 113,864 113,864
------------- ---------------- -------------
Partners' capital
Capital contributions........................... 167,000 (167,000)(a) --
Accumulated deficit............................. (343,035) 167,000(a) --
279,895(b)
(103,860)(d)
------------- ---------------- -------------
Total partners' capital....................... (176,035) 176,035 --
------------- ---------------- -------------
Stockholders' equity
Common stock
Class A....................................... -- 75,301(b) 75,301
Class B....................................... -- 75,000(c) 75,000
Additional paid-in capital...................... -- 103,860(d) 103,860
Retained earnings............................... -- -- --
------------- ---------------- -------------
Total stockholders' equity.................. -- 254,161 254,161
------------- ---------------- -------------
$ 359,949 $ 8,076 $ 368,025
------------- ---------------- -------------
------------- ---------------- -------------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
105
<PAGE>
JCC HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HJC ADJUSTMENTS JCC HOLDING
HISTORICAL (NOTE 3) PRO FORMA
----------- -------------- ------------
<S> <C> <C> <C>
Total revenues.................................... $ 46 -- $ 46
----------- -------------- ------------
Operating expenses
Depreciation and amortization................... 517 -- 517
General and administrative...................... 3,476 -- 3,476
Reorganization costs............................ 2,209 (2,209)(a) --
----------- -------------- ------------
Total operating expenses.................... 6,202 (2,209) 3,993
----------- -------------- ------------
Operating loss.................................... (6,156) 2,209 (3,947)
----------- -------------- ------------
Other income (expenses)
Interest expense................................ (125) 125(b) (9,900)
(8,100)(c)
(1,600)(d)
(200)(e)
Interest and other income....................... 309 -- 309
----------- -------------- ------------
Total other income (expenses)................. 184 (9,775) (9,591)
----------- -------------- ------------
Loss before income taxes.......................... (5,972) (7,566) (13,538)
Income tax benefit................................ -- (f) --
----------- -------------- ------------
Net Loss.......................................... (5,972) (7,566) (13,538)
----------- -------------- ------------
----------- -------------- ------------
Loss Per Common Share............................. N/A $ (1.35)
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
106
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
NOTE 1. PRESENTATION
The following notes set forth the explanations and assumptions used in
preparing the unaudited Pro Forma Condensed Consolidated Financial Statements.
JCC Holding is the successor to HJC, prior owner of the Casino and owner and
operator of the Basin Street Temporary Casino. Upon the Effective Date of the
Plan of Reorganization, the assets and business of HJC will vest in JCC.
For purposes of the accompanying pro forma financial information, the
Reorganization Value of the Company is presumed to be equal to the carrying
value of the Company's assets; however, the Company anticipates retaining a
financial advisor to estimate the Reorganization Value of the Company utilizing
discounted cash flow or other methodologies in accordance with SOP 90-7 once a
plan of reorganization is confirmed by the Bankruptcy Court. Any portion of the
Reorganization Value in excess of identifiable assets of the Company will be
reported as reorganization value in excess of identifiable assets and will be
amortized in accordance with Accounting Principles Board Opinion No. 17,
"Intangible Assets."
Loss per common share was calculated using 10,000,000 shares of common
stock, which represents the number of shares expected to be issued in connection
with the Plan of Reorganization.
NOTE 2. BALANCE SHEET PRO FORMA ADJUSTMENTS
(a) Records the offset of the partners' capital contributions balance against
the accumulated deficit on the books of HJC.
(b) Records the discharge of HJC's liabilities and debt upon the Effective Date
of the Plan of Reorganization, including the exchange of HJC's $435 million
of 14 1/4% First Mortgage Notes due 2001 for the following equity and debt
securities to be issued by JCC Holding and its subsidiaries:
1) Class A Common Stock of JCC Holding, representing a 50.1% ownership
interest in JCC Holding at an estimated fair value of $75.3 million,
2) $187.5 million of 8% Senior Subordinated Notes with Contingent Payments
due 2006 issued by JCC, discounted to net present value at a 16% discount
rate, and
3) Senior Subordinated Contingent Notes due 2006 issued by JCC.
The gain arising from the discharge of this debt of $279.9 million is
recorded as a reduction of HJC's accumulated deficit.
The stated interest rate on the New Notes is considered by the Company to be
lower than prevailing interest rates for debt with similar terms and credit
ratings. The New Notes were valued based on discounting concepts to
approximate their fair value. No value was assigned the New Contingent Notes
as their fair value is estimated to be nominal.
(c) Records the purchase for $75 million of a 49.9% equity interest in JCC
Holding by the HJC Entities. A portion of the $75 million contribution is
funded through the conversion to equity of debtor-in-possession loans
previously extended to HJC by the HJC Entities.
(d) Records the reduction of net partners' capital balance to zero in
recognition of the vesting of the assets and business of HJC in JCC under
the Plan of Reorganization. The Plan of Reorganization provides that, for
federal income tax purposes, such vesting shall be deemed to have occurred
as a deemed exchange by the Bondholders of the Old Bonds for such assets and
business and deemed
107
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 (CONTINUED)
NOTE 2. BALANCE SHEET PRO FORMA ADJUSTMENTS (CONTINUED)
exchanges by the Bondholders of such assets and business for the Class A
Common Stock, the New Notes and the New Contingent Notes. Also records the
creation of paid-in capital on the books of the Company arising from JCC's
assumption of the assets and business of HJC.
(e) Records the payment of certain HJC liabilities pursuant to the terms of the
Plan of Reorganization.
(f) Records the payment with available cash of the estimated deferred finance
charges expected to be incurred at the inception of the Bank Credit
Facilities.
NOTE 3. STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS
(a) To reverse expenses recorded during the period related to the bankruptcy
filing and reorganization of HJC.
(b) To reverse the interest expense incurred during the period in connection
with debtor-in-possession financing obtained by HJC.
(c) To record interest expense on the 8% Senior Subordinated Notes with
Contingent Payments due 2006.
(d) To record as interest expense the amortization of the discount on the 8%
Senior Subordinated Notes with Contingent Payments due 2006.
(e) To record as interest expense the amortization of estimated deferred finance
charges.
(f) As a result of its structure as a partnership, no provisions for federal or
state income taxes were made on the books of HJC, as such taxes were the
responsibility of the individual partners. JCC Holding will be a corporation
subject to the income taxes. However, no provision or benefit is provided
for such taxes due to the incurrence of a pro forma net loss for the period
and the uncertainty of the ability to utilize the net operating loss
carryforward in future periods.
108
<PAGE>
JCC HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HJC ADJUSTEMENTS JCC HOLDING
HISTORICAL (NOTE 2) PRO FORMA
------------ ---------------- ------------
<S> <C> <C> <C>
Revenues
Casino.................................................. $ 92,028 $ -- $ 92,028
Food and beverage....................................... 4,860 -- 4,860
Other................................................... 2,241 -- 2,241
Less: casino promotional allowances..................... (3,872) -- (3,872)
------------ ---------------- ------------
Total revenues...................................... 95,257 -- 95,257
------------ ---------------- ------------
Operating expenses
Direct
Casino................................................ 72,847 72,847
Food and beverage..................................... 2,270 2,270
General and administrative............................ 35,206 35,206
Management and consulting............................... 7,647 7,647
Depreciation............................................ 44,978 44,978
Asset valuation provision............................... 69,579 (69,579)(a) --
Preopening expenses..................................... 15,017 15,017
Other................................................... 124 124
------------ ---------------- ------------
Total operating expenses............................ 247,668 (69,579) 178,089
------------ ---------------- ------------
Operating loss............................................ (152,411) 69,579 (82,832)
------------ ---------------- ------------
Reorganization costs...................................... (102,554) 102,554(a) --
------------ ---------------- ------------
Other income (expenses)
Interest expense........................................ (61,601) 61,601(b) (19,050)
(15,300)(c)
(3,350)(d)
(400)(e)
Interest and other income............................... 15,006 (15,006)(b) --
------------ ---------------- ------------
Total other income (expenses)....................... (46,595) 27,545 (19,050)
------------ ---------------- ------------
Loss before income taxes.................................. (301,560) 199,678 (101,882)
Income tax benefit........................................ -- (f) --
------------ ---------------- ------------
Net loss.................................................. (301,560) 199,678 (101,882)
------------ ---------------- ------------
------------ ---------------- ------------
Loss per common share..................................... N/A $ (10.19)
------------
------------
</TABLE>
See accompanying notes to pro forma condensed consolidated statement of
operations
for the year ended December 31, 1995.
109
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE 1. PRESENTATION
The following notes set forth the explanations and assumptions used in
preparing the unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1995.
JCC Holding is the successor to HJC, prior owner of the Casino and owner and
operator of the Basino Street Temporary Casino. Upon the Effective Date of the
Plan of Reorganization, the assets and business of the HJC vested in JCC.
For purposes of the accompanying pro forma financial information, the
Reorganization Value of the Company is presumed to be equal to the carrying
value of the Company's assets; however, the Company anticipates retaining a
financial advisor to estimate the Reorganization Value of the Company utilizing
discounted cash flow or other methodologies in accordance with SOP 90-7 once a
plan of reorganization is confirmed by the Bankruptcy Court. Any portion of the
Reorganization Value in excess of identifiable assets of the Company will be
reported as reorganization value in excess of identifiable assets and will be
amortized in accordance with Accounting Principles Board Opinion No. 17,
"Intangible Assets."
Loss per common share was calculated using 10,000,000 shares of common
stock, the number of shares expected to be issued in connection with the Plan of
Reorganization.
NOTE 2. PRO FORMA ADJUSTMENTS
(a) To reverse expenses recorded during the period related to the bankruptcy
filing and reorganization of HJC.
(b) To reverse the interest expense on HJC's 14 1/4% First Mortgage Notes due
2001, and the recorded interest income earned on the excess funds from this
debt issue invested in cash equivalents.
(c) To record interest expense on the 8% Senior Subordinated Notes with
Contingent Payments due 2006.
(d) To record as interest expense the amortization of the discount on the 8%
Senior Subordinated Notes with Contingent Payments due 2006.
(e) To record as interest expense the amortization of estimated deferred finance
charges.
(f) As a result of its structure as a partnership, no provisions for federal or
state income taxes were made on the books of HJC, as such taxes were the
responsibility of the individual partners. JCC Holding will be a corporation
subject to the income taxes. However, no provision or benefit is provided
for such taxes due to the incurrence of a pro forma net loss for the period
and the uncertainty of the ability to utilize the net operating loss
carryforward in future periods.
110
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets, As of December 31, 1995 and 1994
Consolidated Statements of Operations For the Period From November 29,
1993 (Date of Inception) Through December 31, 1993 and the Years Ended
December 31, 1994 and 1995
Consolidated Statements of Partners' Capital For the Period From November
29, 1993 (Date of Inception) Through December 31, 1993 and the Years
Ended December 31, 1994 and 1995
Consolidated Statements of Cash Flows For the Period From November 29,
1993 (Date of Inception) Through December 31, 1993 and For the Years
Ended December 31, 1994 and 1995
Notes to Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996 and December
31, 1995
Condensed Consolidated Statements of Operations for the Second Quarter
Ended June 30, 1996 and June 30, 1995 and the Six Months Ended June 30,
1996 and June 30, 1995
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and June 30, 1995
Notes to Condensed Consolidated Financial Statements
Pro Forma Condensed Consolidated Balance Sheet As of June 30, 1996
Pro Forma Condensed Consolidated Statement of Operations For the Six
Months Ended June 30, 1996
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
As of June 30, 1996
Pro Forma Condensed Consolidated Statement of Operations For the Year
Ended December 31, 1995
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations For the Year Ended December 31, 1995
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------
<C> <C> <S> <C>
*2.1 -- Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as amended and
modified, of Harrah's Jazz Company, Harrah's Jazz Finance Corp. and Harrah's New
Orleans Investment Company
3.1 -- Certificate of Incorporation of JCC Holding Company
*3.2 -- Form of Amended and Restated Certificate of Incorporation of JCC Holding Company
3.3 -- Bylaws of JCC Holding Company
*3.4 -- Form of Amended and Restated Bylaws of JCC Holding Company
*4.1 -- Form of Indenture, dated as of , 1996, among Jazz Casino Corporation, JCC
Holding Company and , as Trustee, with respect to the 8% Senior Subordinated
Notes with Contingent Payments due 2006
*4.2 -- Form of Indenture, dated as of , 1996, among Jazz Casino Corporation, JCC
Holding Company and , as Trustee, with respect to the the Senior Subordinated
Contingent Notes
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------
<C> <C> <S> <C>
*4.3 -- Form of Notes Completion Guarantee among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc. and , as Trustee, dated , 1996
*10.01 -- Form of Amended and Restated Lease Agreement between the Rivergate Development
Corporation, as Landlord, and Jazz Casino Corporation, as Tenant, and City of New
Orleans, as Intervenor, dated , 1996
*10.02 -- Form of Amended and Restated General Development Agreement between Jazz Casino
Corporation, Rivergate Development Corporation and City of New Orleans, as
Intervenor, dated , 1996
*10.03 -- Form of Basin Street Casino Lease Termination Agreement between the City of New
Orleans, the Rivergate Development Corporation and Harrah's Jazz Company, dated
, 1996
*10.04 -- Form of Amended and Restated Casino Operating Contract between the Louisiana Gaming
Control Board and Jazz Casino Corporation, dated , 1996
*10.05 -- Form of Second Amended and Restated Management Agreement between Harrah's New Orleans
Management Company and Jazz Casino Corporation, dated , 1996
*10.06 -- Form of Second Floor Non-Gaming Sublease between Jazz Casino Corporation, as
Sublessor, and JCC Development Corporation, as Sublessee, dated , 1996
*10.07 -- Form of City/RDC Completion Guarantee among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., the Rivergate Development Corporation and the City of New
Orleans, dated , 1996
*10.08 -- Form of State/LGCB Completion Guarantee among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., the State of Louisiana and the Louisiana Gaming Control
Board, dated , 1996
*10.09 -- Form of Owner's Policy issued , 1996 by to Harrah's Jazz
Company
*10.10 -- Form of Lender's Title Insurance Commitment issued , 1996 by
*10.11 -- Form of Amended and Restated Completion Loan Agreement among Jazz Casino Corporation,
Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc., dated
, 1996
*10.12 -- Form of Amended and Restated Construction Lien Indemnity Obligation Agreement between
Jazz Casino Corporation and Harrah's Operating Company, Inc., dated, ,
1996
*21.01 -- List of Subsidiaries of JCC Holding Company
27.01 -- Financial Data Schedule(1)
99.01 -- Opinion of New Orleans City Attorney regarding Home Rule Charter(2)
99.02 -- Opinion of New Orleans City Attorney regarding Amusement Tax(2)
</TABLE>
- ------------------------
* To be filed by amendment.
(1) Not required pursuant to Item 601(c)(1)(ii) of Regulation S-K.
(2) Incorporated by reference to Amendment No. 4 to the Registration Statement
on Form S-1 of Harrah's Jazz Company and Harrah's Jazz Finance Corp., filed
on October 12, 1994 (Registration No. 33-73370).
112
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Act of 1934, as
amended, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
JCC HOLDING COMPANY
By: MICHAEL N. REGAN
-----------------------------------
Title: SECRETARY AND TREASURER
---------------------------------
Date: August 23, 1996
113
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --------- -------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
*2.1 -- Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as amended and
modified, of Harrah's Jazz Company, Harrah's Jazz Finance Corp. and Harrah's New
Orleans Investment Company
3.1 -- Certificate of Incorporation of JCC Holding Company
*3.2 -- Form of Amended and Restated Certificate of Incorporation of JCC Holding Company
3.3 -- Bylaws of JCC Holding Company
*3.4 -- Form of Amended and Restated Bylaws of JCC Holding Company
*4.1 -- Form of Indenture, dated as of , 1996, among Jazz Casino Corporation, JCC
Holding Company and , as Trustee, with respect to the 8% Senior Subordinated
Notes with Contingent Payments due 2006
*4.2 -- Form of Indenture, dated as of , 1996, among Jazz Casino Corporation, JCC
Holding Company and , as Trustee, with respect to the the Senior Subordinated
Contingent Notes
*4.3 -- Form of Notes Completion Guarantee among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc. and , as Trustee, dated , 1996
*10.01 -- Form of Amended and Restated Lease Agreement between the Rivergate Development
Corporation, as Landlord, and Jazz Casino Corporation, as Tenant, and City of New
Orleans, as Intervenor, dated , 1996
*10.02 -- Form of Amended and Restated General Development Agreement between Jazz Casino
Corporation, Rivergate Development Corporation and City of New Orleans, as
Intervenor, dated , 1996
*10.03 -- Form of Basin Street Casino Lease Termination Agreement between the City of New
Orleans, the Rivergate Development Corporation and Harrah's Jazz Company, dated
, 1996
*10.04 -- Form of Amended and Restated Casino Operating Contract between the Louisiana Gaming
Control Board and Jazz Casino Corporation, dated , 1996
*10.05 -- Form of Second Amended and Restated Management Agreement between Harrah's New Orleans
Management Company and Jazz Casino Corporation, dated , 1996
*10.06 -- Form of Second Floor Non-Gaming Sublease between Jazz Casino Corporation, as
Sublessor, and JCC Development Corporation, as Sublessee, dated , 1996
*10.07 -- Form of City/RDC Completion Guarantee among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., the Rivergate Development Corporation and the City of New
Orleans, dated , 1996
*10.08 -- Form of State/LGCB Completion Guarantee among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., the State of Louisiana and the Louisiana Gaming Control
Board, dated , 1996
*10.09 -- Form of Owner's Policy issued , 1996 by to Harrah's Jazz
Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --------- -------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
*10.10 -- Form of Lender's Title Insurance Commitment issued , 1996 by
*10.11 -- Form of Amended and Restated Completion Loan Agreement among Jazz Casino Corporation,
Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc., dated
, 1996
*10.12 -- Form of Amended and Restated Construction Lien Indemnity Obligation Agreement between
Jazz Casino Corporation and Harrah's Operating Company, Inc., dated, ,
1996
*21.01 -- List of Subsidiaries of JCC Holding Company
27.01 -- Financial Data Schedule(1)
99.01 -- Opinion of New Orleans City Attorney regarding Home Rule Charter(2)
99.02 -- Opinion of New Orleans City Attorney regarding Amusement Tax(2)
</TABLE>
- ------------------------
* To be filed by amendment.
(1) Not required pursuant to Item 601(c)(1)(ii) of Regulation S-K.
(2) Incorporated by reference to Amendment No. 4 to the Registration Statement
on Form S-1 of Harrah's Jazz Company and Harrah's Jazz Finance Corp., filed
on October 12, 1994 (Registration No. 33-73370).
<PAGE>
CERTIFICATE OF INCORPORATION
OF
JCC HOLDING COMPANY
1. The name of the corporation is:
JCC HOLDING COMPANY
2. The address of its registered office in the State of Delaware is
The Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is one thousand (1,000), all of which shall be Common
Stock; and the par value of each share shall be one cent ($.01).
5. The name and mailing address of the incorporator is:
Ilona F. Bush
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly
<PAGE>
authorized to adopt, amend or repeal the bylaws of the corporation.
7. Election of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
8. No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, herein declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 20th day of August, 1996.
ILONA F. BUSH
----------------------------------
Ilona F. Bush
Incorporator
2
<PAGE>
BYLAWS
OF
JCC HOLDING COMPANY
<PAGE>
BYLAWS
OF
JCC HOLDING COMPANY
TABLE OF CONTENTS
PAGE
----
ARTICLE I OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. REGISTERED OFFICES . . . . . . . . . . . . . . . . . . . 1
Section 2. OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . 1
Section 1. PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . 1
Section 2. ANNUAL MEETING OF STOCKHOLDERS . . . . . . . . . . . . . 1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. . . . . . 2
Section 4. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . 3
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . 4
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST . . . . . 4
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING. . . . . . . . . . . . . . . . . . . . 5
ARTICLE III DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. THE NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . 6
Section 2. VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4. PLACE OF DIRECTORS' MEETINGS . . . . . . . . . . . . . . 7
Section 5. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . 8
Section 6. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . 8
Section 7. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . 8
i
<PAGE>
PAGE
----
Section 8. ACTION WITHOUT MEETING . . . . . . . . . . . . . . . . . 9
Section 9. TELEPHONIC MEETINGS. . . . . . . . . . . . . . . . . . . 9
Section 10. COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . 9
Section 11. MINUTES OF COMMITTEE MEETINGS. . . . . . . . . . . . . . 10
Section 12. COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . 10
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . 11
Section 3. SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . 12
Section 4. COMPENSATION OF OFFICERS . . . . . . . . . . . . . . . . 12
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. . . . . . . . . . 12
Section 6. CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . 12
Section 7. PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8. VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . 13
Section 9. SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 10. ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . 14
Section 11. TREASURER. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 12. ASSISTANT TREASURER. . . . . . . . . . . . . . . . . . . 15
ARTICLE V INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . 15
ARTICLE VI INDEMNIFICATION OF EMPLOYEES AND AGENTS. . . . . . . . . 20
ARTICLE VII CERTIFICATES OF STOCK. . . . . . . . . . . . . . . . . . 21
Section 1. CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . 21
Section 2. SIGNATURES ON CERTIFICATES . . . . . . . . . . . . . . . 21
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES . . . 21
Section 4. LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . 22
Section 5. TRANSFERS OF STOCK . . . . . . . . . . . . . . . . . . . 23
Section 6. FIXED RECORD DATE. . . . . . . . . . . . . . . . . . . . 23
Section 7. REGISTERED STOCKHOLDERS. . . . . . . . . . . . . . . . . 24
ii
<PAGE>
PAGE
----
ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . 24
Section 1. DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. . . . . . . . . 24
Section 3. CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . 25
Section 5. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . 25
Section 6. MANNER OF GIVING NOTICE. . . . . . . . . . . . . . . . . 25
Section 7. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . 25
Section 8. ANNUAL STATEMENT . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . 26
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS . . . . . . . . . 26
iii
<PAGE>
BYLAWS
OF
JCC HOLDING COMPANY
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICES. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
at any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
<PAGE>
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority
of the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, in all
matters other than the election of directors, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any
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question brought before such meeting, unless the question is one upon which by
express provision of the statutes, or the Certificate of Incorporation, or these
Bylaws, a different vote is required in which case such express provision shall
govern and control the decision of such question. Directors shall be elected by
a plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors.
Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power, registered in
his name on the books of the corporation on the record date set by the Board of
Directors as provided in Article VII, Section 6 hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or the Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning a
majority in amount of
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the entire capital stock of the corporation issued and outstanding, and entitled
to vote. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS. Whenever stockholders
are required or permitted to take any action at a meeting, a written notice of
the meeting shall be given which notice shall state the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The
officer who has charge of the stock ledger of the corporation shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city
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where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise provided in the Certificate of Incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by delivery to its registered office
in Delaware, its principal place of business, or to an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 9 to the corporation, written consents signed by a sufficient
number of holders to take action are delivered to the corporation by delivery to
its
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registered office in Delaware, its principal place of business or to an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. THE NUMBER OF DIRECTORS. The number of directors which
shall constitute the whole Board shall be one (1). The directors need not be
stockholders. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified;
provided, however, that unless otherwise restricted by the Certificate of
Incorporation or by law, any director or the entire Board of Directors may be
removed, either with or without cause, from the Board of Directors at any
meeting of stockholders by a majority of the stock represented and entitled to
vote thereat.
Section 2. VACANCIES. Vacancies on the Board of Directors by reason
of death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although
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less than a quorum, or by a sole remaining director. The directors so chosen
shall hold office until the next annual election of directors and until their
successors are duly elected and shall qualify, unless sooner displaced. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. POWERS. The property and business of the corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 4. PLACE OF DIRECTORS' MEETINGS. The directors may hold
their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.
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Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President on forty-eight hours' notice to each
director, either personally or by mail or by telegram; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two directors unless the Board consists of only one
director; in which case special meetings shall be called by the President or
Secretary in like manner or on like notice on the written request of the sole
director.
Section 7. QUORUM. At all meetings of the Board of Directors a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. If only one director is authorized, such sole director shall
constitute a quorum.
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Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
Section 10. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another
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member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
Section 11. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a
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stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors or a President, or both, and a Secretary. The corporation may also
have at the discretion of the Board of Directors such other officers as are
desired, including a Vice-Chairman of the Board of Directors, a Chief Executive
Officer, a Treasurer, one or more Vice Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 hereof. In the event
there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President, or other similar or dissimilar
title. At the time of the election of officers, the directors may by resolution
determine the order of their rank. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these Bylaws otherwise
provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.
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Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers
and agents of the corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of
the corporation shall hold office until their successors are chosen and qualify
in their stead. Any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at all meetings of the Board
of Directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
these Bylaws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article IV.
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Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to
time may be prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like
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duties for the standing committees when required by the Board of Directors. He
shall give, or cause to be given, notice of all meetings of the stockholders and
of the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or these Bylaws. He shall keep in safe
custody the seal of the corporation, and when authorized by the Board, affix the
same to any instrument requiring it, and when so affixed it shall be attested by
his signature or by the signature of an Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 11. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors, at its
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regular meetings, or when the Board of Directors so requires, an account of all
his transactions as Treasurer and of the financial condition of the
corporation. If required by the Board of Directors, he shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 12. ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The corporation shall indemnify to the maximum extent permitted
by law any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the
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corporation) by reason of the fact that he is or was a director or officer of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify to the maximum extent permitted
by law any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred
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by him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no such
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the corporation shall
be successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs (a) and (b), or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standard of
conduct set forth in paragraphs (a) and (b). Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by
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independent legal counsel in a written opinion, or (3) by the stockholders. The
corporation, acting through its Board of Directors or otherwise, shall cause
such determination to be made if so requested by any person who is indemnifiable
under this Article V.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article V.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) The Board of Directors may authorize, by a vote of a majority of
a quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise against any liability
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asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article V.
(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers so that any
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article V with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the
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interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The corporation shall be required to indemnify a person in
connection with an action, suit or proceeding (or part thereof) initiated by
such person only if the action, suit or proceeding (or part thereof) was
authorized by the Board of Directors of the corporation.
ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may indemnify every person who was or is a party or is
or was threatened to be made a party to any action, suit, or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was an employee or agent of the corporation or, while an employee or agent
of the corporation, is or was serving at the request of the corporation as an
employee or agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
counsel fees), judgments, fines and
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amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, to the extent permitted by applicable law.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman or Vice Chairman of the Board of Directors, or the
President or a Vice President, and by the Secretary or an Assistant Secretary,
or the Treasurer or an Assistant Treasurer of the corporation, certifying the
number of shares represented by the certificate owned by such stockholder in the
corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If
the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or
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rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, provided that, except as otherwise provided in section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or
the transfer agent of the corporation, of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting. In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date which shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors.
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Section 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before payment
of any dividend there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
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Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions
of the statutes or of the Certificate of Incorporation or of these Bylaws,
notice is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram.
Section 7. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to
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said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
Section 8. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These Bylaws may
be altered, amended or repealed or new Bylaws may be adopted by the stockholders
or by the Board of Directors, when such power is conferred upon the Board of
Directors by the Certificate of Incorporation, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal Bylaws is conferred
upon the Board of Directors by the Certificate of Incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of JCC Holding
Company, a Delaware corporation; and
(2) That the foregoing bylaws constitute the bylaws of said
corporation as duly adopted by the written consent of the Incorporator of said
corporation as of August 20, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of this
20th day of August, 1996.
Michael N. Regan
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Michael N. Regan, Secretary
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