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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A
PRE-EFFECTIVE
AMENDMENT NO. 3 TO
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)
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DELAWARE 62-1650470
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
512 SOUTH PETERS STREET 70130
NEW ORLEANS, LOUISIANA (Zip code)
(Address of principal
executive offices)
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(504) 533-6000
(Registrant's telephone number, including area code)
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COPIES OF NOTICES AND OTHER COMMUNICATIONS SHOULD BE SENT TO:
FREDERICK W. BURFORD
PRESIDENT
JCC HOLDING COMPANY
512 SOUTH PETERS STREET
NEW ORLEANS, LOUISIANA 70130
(504) 533-6000
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants' Agent for Service)
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SIDNEY J. NURKIN, ESQ.
ALSTON & BIRD LLP
ONE ATLANTA CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
(404) 881-7000
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Securities to be registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Class A Common Stock, par value $0.01 per
share....................................... The American Stock Exchange
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Securities to be registered pursuant to Section 12(g) of the Act: None
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TABLE OF CONTENTS
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ITEMS 1 AND 3. BUSINESS AND
PROPERTIES...................... 1
THE COMPANY..................... 1
Development Plans............. 1
Recent Reorganization......... 3
The Casino.................... 7
Marketing Strategy............ 8
Description of The Manager.... 9
Competition................... 9
Lease of Rivergate Site....... 11
Environmental Matters......... 11
Employees..................... 12
Title Insurance............... 12
RISK FACTORS.................... 14
Uncertainty Regarding Gaming
Regulation and Future Changes
to the Law................... 14
Political Environment......... 19
Non-Renewal of Minimum Payment
Guaranty..................... 20
Lack of Profitability......... 21
Substantial Leverage and
Potential Inability to Meet
Fixed Charges and Other
Payment Obligations.......... 21
Availability of Working
Capital...................... 22
Completion Guarantees......... 22
Ability to Commence Operations
as Scheduled................. 24
Ability to Develop the
Development Properties....... 25
Conditions to Disbursement
under Bank Loans............. 26
Certain Limitations on
Corporate Control............ 26
Anti-Takeover
Considerations............... 27
Dependence of Values on
Estimates of Future
Performance.................. 27
Lack of Historical Financial
Information for the
Company...................... 28
Limits on Restaurants,
Lodging, Retail Operations
and Entertainment............ 28
Competition................... 28
Limited Remedies for
Additional Land-Based
Casinos...................... 30
Minimal Operating History..... 31
Cross Defaults................ 32
No Prior Market for the Class
A Common Stock............... 32
Common Stock Eligible for
Future Sale.................. 32
Reliance on Single Market..... 33
Uncertainity Regarding Tax
Treatment of the Notes and
the Convertible Junior
Subordinated Debentures...... 33
Taxation...................... 33
Applicability of Public Works
Act.......................... 34
Environmental Matters......... 34
Restrictive Covenants......... 34
Conflicts of Interest......... 35
Repurchase of Class A Common
Stock Relating to Gaming
Matters...................... 35
Certain Bankruptcy
Considerations............... 36
Potential Successor
Liability.................... 36
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Lack of Experienced
Personnel.................... 36
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Amended Open Access Program
and Plans.................... 37
Year 2000 Risks............... 37
Dividend Policy............... 38
MATERIAL AGREEMENTS............. 39
Bank Loans.................... 39
Junior Subordinated Credit
Facility..................... 42
Convertible Junior
Subordinated Debentures...... 42
New Notes and New Contingent
Notes........................ 43
HET Warrant................... 46
Amended GDA................... 46
Amended Ground Lease.......... 48
Amended and Renegotiated
Casino Operating Contract.... 56
Amended Management
Agreement.................... 63
Completion Guarantees......... 68
Amended Completion Loan
Agreement.................... 71
Second Floor Sublease......... 73
Basin Street Casino Lease
Termination Agreement........ 74
Amended and Restated
Construction Lien Indemnity
Agreement.................... 74
HET/JCC Agreement............. 75
Manager Subordination
Agreements................... 78
REGULATION...................... 80
Louisiana Gaming Act.......... 80
State Legislation............. 85
Federal Regulation............ 87
Bank Secrecy Act.............. 87
Zoning and Land Use........... 87
ITEM 2. FINANCIAL INFORMATION..... 88
SELECTED HISTORICAL AND PRO
FORMA CONSOLIDATED FINANCIAL
DATA.......................... 88
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.................... 89
Fresh-Start Reporting......... 90
Development Activities........ 90
Liquidity and Capital
Resources.................... 91
Results of Operations......... 92
Year 2000 Compliance.......... 93
ITEM 4. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................... 94
ITEM 5. DIRECTORS AND EXECUTIVE
OFFICERS........................ 95
ITEM 6. EXECUTIVE COMPENSATION.... 96
1998 Long-Term Incentive
Plan......................... 96
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ITEM 7. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS............ 100
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ITEM 8. LEGAL PROCEEDINGS......... 101
ITEM 9. MARKET PRICE OF AND
DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........... 108
ITEM 10. RECENT SALES OF
UNREGISTERED SECURITIES......... 109
ITEM 11. DESCRIPTION OF
REGISTRANT'S SECURITIES TO BE
REGISTERED...................... 109
Common Stock.................. 109
Redemption Provisions......... 110
Board of Directors............ 111
Committees of the Board....... 114
Dividends..................... 115
Amendments to Certificate and
Bylaws....................... 115
Stockholder Meetings.......... 116
Agreements with Certain
Stockholders................. 116
Potential Effect of Certain
Provisions upon an Attempt to
Acquire Control of JCC
Holding...................... 118
Transfer Agent................ 118
Certain Definitions........... 118
ITEM 12. INDEMNIFICATION OF
DIRECTORS AND OFFICERS.......... 122
ITEM 13. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.............. 122
ITEM 14. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL
DISCLOSURE...................... 182
ITEM 15. FINANCIAL STATEMENTS AND
EXHIBITS........................ 182
INDEX............................. 189
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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 subsidiaries, Jazz Casino Company, L.L.C., a
Louisiana limited liability company ("JCC" and, together with JCC Holding, the
"JCC Entities"), JCC Development Company, L.L.C., a Louisiana limited liability
company ("JCC Development"), CP Development, L.L.C., a Louisiana limited
liability company ("CP Development"), and FP Development, L.L.C., a Louisiana
limited liability company ("FP Development" and, together with JCC Development
and CP Development, the "Development Entities" and, together with the JCC
Entities, the "Company"). JCC Holding was incorporated on August 20, 1996 under
Delaware law. Currently, JCC Holding's principal executive offices are located
at 512 South Peters Street, New Orleans, Louisiana 70130, and its telephone
number is (504) 533-6000.
As discussed below under "Recent Reorganization," a Third Amended Joint Plan
of Reorganization Under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") As Modified Through October 13, 1998 (the "Plan of
Reorganization"), of Harrah's Jazz Company ("HJC"), Harrah's Jazz Finance Corp.
("Finance Corp.") and Harrah's New Orleans Investment Company ("HNOIC") filed
with the United States Bankruptcy Court for the Eastern District of Louisiana
(the "Bankruptcy Court") was confirmed by the Bankruptcy Court on October 13,
1998 and the transactions contemplated thereby were consummated on October 30,
1998 (the "Effective Date"). Under the Plan of Reorganization, the Company is
the successor to the operations of HJC, a general partnership that, prior to the
Effective Date, was comprised of (i) 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"). On the Effective Date, all
of the partnership interests of HJC were transferred to JCC pursuant to the Plan
of Reorganization and, as contemplated by the Plan of Reorganization, HJC is in
the process of being dissolved in accordance with applicable state law. On the
Effective Date, HET, through an indirect wholly-owned subsidiary, acquired
beneficial ownership of the Class B Common Stock (as defined herein) of JCC
Holding and currently is the beneficial owner of 4,302,623 shares of Class B
Common Stock, or 96.6% of all of the issued and outstanding Class B Common
Stock. See "Item 4. Security Ownership of Certain Beneficial Owners and
Management." In addition, pursuant to the Plan of Reorganization, HET, or an
affiliate of HET, has entered into various agreements with the Company,
including (i) a credit agreement pursuant to which HET and a subsidiary of HET
have agreed to provide the Company up to $22.5 million, (ii) agreements pursuant
to which HET and a subsidiary of HET have agreed to guaranty certain of the
Company's obligations under various agreements entered into in connection with
the Plan of Reorganization, and (iii) a management agreement pursuant to which a
subsidiary of HET has agreed to manage and operate the Casino (as defined
herein). See "--Development Plans," "--Recent Reorganization," "--Material
Agreements--Junior Subordinated Credit Facility," "--Amended Management
Agreement," "--HET/JCC Agreement," "--Completion Loan Agreement," "Item 4.
Security Ownership of Certain Beneficial Owners and Management" and "Item 7.
Certain Relationships and Related Transactions."
DEVELOPMENT PLANS
Under the Plan of Reorganization, except for certain real property which
vested in CP Development and FP Development, all of the assets of HJC vested in
JCC on the Effective Date. In connection with the Plan of Reorganization, on the
Effective Date, HJC assigned to JCC in accordance with Louisiana law and the
agreement of the parties thereto an amended and renegotiated casino operating
contract, which gives JCC the right to operate a land-based casino in Orleans
Parish, Louisiana (the "Casino"). In addition, pursuant to the terms of the Plan
of Reorganization, as of the Effective Date, JCC succeeded to HJC's interest in
an approximately 30-year long-term lease, subject to renewals (the "Ground
Lease"), for the site in New Orleans, Louisiana (the "City"), designated by law
for the Casino's development and in a general development agreement relating to
the construction and development of the Casino (the "General Development
Agreement"). On October 29, 1998, the Ground Lease was amended by the Amended
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Ground Lease (as defined herein). The Amended Ground Lease has an initial term
of 30 years, plus the amount of time between April 27, 1993 and the Effective
Date, with three consecutive ten-year renewal options. See "--Material
Agreements--Amended Ground Lease." JCC owns and will operate the Casino after
construction is complete. 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 Casino is scheduled to open and commence operations by October 30, 1999
(the "Opening Date") and is expected to include 100,000 square feet of net
gaming space, a 250-seat buffet, two parking garages, an underground tunnel
between the Casino and the parking garages (the "Poydras Tunnel Area") and
approximately 15,000 square feet of multi-function, special event and
meeting-room space on the first floor of the premises (collectively, the
"Initial Casino Facilities").
Concurrent with construction of the Initial Casino Facilities, approximately
130,000 square feet of multipurpose non-gaming entertainment space on the second
floor of the premises is expected to be 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," and together with the Initial
Casino Facilities, the "Casino Construction"). A group consisting of
representatives of Rivergate Development Corporation (the "RDC"), JCC
Development and JCC will develop a master plan for the initial build-out and
leasing of the second floor for non-gaming uses (the "Master Plan"). The RDC, a
public benefit corporation formed for the purpose of subleasing the site on
which the Casino will be located, is JCC's landlord for the Rivergate site
pursuant to the terms of the Amended Ground Lease (as defined herein). See
"--Material Agreements--Second Floor Sublease--Master Plan." The Master Plan is
intended to establish, among other things, (i) leasing guidelines regarding
rent, termination rights and termination fees, tenant improvements and
concessions, permissible uses and brokerage fees, (ii) an initial capital
improvement budget, and (iii) an initial operating budget for the first year of
second-floor operation. JCC has subleased the second floor to JCC Development
pursuant to the Second Floor Sublease (as defined herein) and JCC Development
intends to manage and lease the second floor development in a manner consistent
with the Master Plan. The term of the Second Floor Sublease will commence upon
the occurrence of substantial completion of the Second Floor Shell Construction.
JCC will be entitled to convert any portion of the second floor in the future to
gaming use, subject to the approval of the Louisiana Gaming Control Board (the
"LGCB") and certain rights of the RDC. See "--Regulation." The LGCB will have
approval rights over the Master Plan based upon the terms of the Louisiana
Economic Development and Gaming Corporation Act and the Louisiana Gaming Control
Act (collectively, the "Gaming Act"). The LGCB will also have the authority to
approve all subleases and uses on the second floor to ensure that such use is
consistent with the Gaming Act and the rules and regulations promulgated
thereunder (the "Rules and Regulations"). Subject to the approval of the Master
Plan by the LGCB, entering into tenant leases and obtaining the necessary
funding, the build-out of non-gaming tenant improvements on the second floor of
the Casino beyond the Second Floor Shell Construction is targeted to be
completed following completion of the Second Floor Shell Construction. The
Second Floor Shell Construction is scheduled to be completed substantially
concurrently with the completion of the Initial Casino Facilities. The Company
has not obtained the funding necessary to complete the build out of non-gaming
tenant improvements on the second floor of the Casino beyond the Second Floor
Shell Construction. See "--Risk Factors--Ability to Develop the Development
Properties."
The completion and opening of the Casino is subject to, among other things,
receipt of the appropriate regulatory approvals, compliance with gaming laws,
rules and regulations, and the completion of certain suitability determinations
by the State with respect to various individuals and entities, including
employees and vendors. The Company has received all of the material State and
City regulatory approvals required to resume construction of the Casino and on
October 30, 1998, instructions to proceed with resuming construction of the
Casino were given to the Casino construction contractors. As such contractors
were required to be prepared to resume construction within 30 days of the
Company's notice, construction of the Casino has resumed. In addition, under the
Amended GDA (as defined herein), the Site Reactivation Date (as defined herein)
has occurred. See "--Material Agreements--Amended GDA." Prior to opening the
Casino, however, the LGCB must still issue certain regulatory approvals relating
to, among other things, all gaming equipment and devices used at the Casino,
surveillance equipment,
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accounting controls and other operational issues to ensure compliance with the
Gaming Act and the Rules and Regulations. In addition, employees of JCC and the
Manager (as defined herein) are required to obtain licenses and permits from the
LGCB and the State Police before commencing operations at the Casino. Also,
prior to opening, 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 the LGCB, may be required to
obtain a license or permit from the LGCB or the State Police in order to conduct
business with JCC. Prior to opening, the Company may also be required to obtain
certain modifications to the City's conditional use approvals and certain
additional building permits may be required to accommodate the final design of
the Casino. See "--Regulation--Louisiana Gaming Act."
Under the Plan of Reorganization, on the Effective Date, title to the real
property owned by HJC at 3 Canal Place in New Orleans, adjacent to the Canal
Place shopping center (the "3CP Property"), vested in CP Development, and title
to the real property owned by HJC on Fulton and Poydras Streets in New Orleans,
adjacent to the Casino parking facilities (the "Fulton Property"), vested in FP
Development. CP Development and FP Development are wholly-owned by JCC Holding.
The Company currently intends that CP Development and FP Development will
develop the properties, possibly with the assistance of a third party developer,
for entertainment uses supportive of the Casino. The Company has not obtained
financing to fund the development of either the 3CP Property or Fulton Property.
The 3CP Property and the Fulton Property are currently undeveloped properties
that do not generate any material revenues for the Company. See "--Risk
Factors--Ability to Develop the Development Properties."
RECENT REORGANIZATION
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 (the
"Casino Operating Contract") with the Louisiana Economic Development and Gaming
Corporation ("LEDGC") to develop and operate the casino at the Rivergate site
and entered into the Ground Lease with the City and the RDC for the Rivergate
site. HJC, the RDC and the City also entered into the General Development
Agreement which governed the design, development and construction of the casino
and certain related facilities and an open access program and open access plans
adopted thereunder regarding hiring goals and programs (collectively, 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 a casino at the Rivergate site (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 for approximately one year in the City's Municipal Auditorium on
a temporary basis until a casino at the Rivergate site was completed.
In January 1995, HJC began construction of a 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 managed by the Manager and 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
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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.
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 discussed 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 ("BTCo"),
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. BTCo 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 BTCo'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, BTCo 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 Finance Corp., its
wholly-owned subsidiary, filed voluntary petitions for relief under the
Bankruptcy Code, ceased operations of the Basin Street Casino and, on or about
the same date, suspended construction of the casino at the Rivergate site. HJC,
Finance Corp., HNOIC and HET (collectively, the "Proponents") filed a plan of
reorganization and related disclosure statement with the Bankruptcy Court on
April 3, 1996. As a result of, among other things, ongoing negotiations with the
City, the State of Louisiana and other parties, the Proponents amended the plan
of reorganization several times during the reorganization process. The Plan of
Reorganization is filed as an exhibit hereto.
The effectiveness of the Plan of Reorganization was conditioned upon, among
other things, the execution and delivery of a modified casino operating contract
and all necessary approvals, if any, from the State of Louisiana (the "State").
Although the LGCB approved a modified casino operating contract on April 29,
1997, the State took the position that the State legislature must also give its
approval, which the State legislature has failed to do. On March 16, 1998 the
State Attorney General issued an opinion that the LGCB has independent authority
(without the necessity of any legislative approval) to renegotiate and execute a
renegotiated casino operating contract. On March 20, 1998, the LGCB approved an
amended and renegotiated Casino Operating Contract among HJC, JCC and the State,
by and through the LGCB (the "Amended and Renegotiated Casino Operating
Contract"), subject to, among other conditions, the condition that the Louisiana
Supreme Court render a final, non-appealable judgment that the LGCB, acting on
its own, is the proper party and has the legal authority to enter into the
Amended and Renegotiated Casino Operating Contract with HJC or JCC on behalf of
the State and the LGCB, without the specific approval of the Governor or the
State legislature. On May 15, 1998, the Louisiana Supreme
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Court issued a decision confirming that the LGCB has the independent authority
to renegotiate and execute the Amended and Renegotiated Casino Operating
Contract without seeking gubernatorial or legislative approval. See "--Risk
Factors--Uncertainty Regarding Gaming Regulation and Future Changes to the Law."
Following a hearing on the adequacy of the disclosure statement held on
September 3, 1998, the disclosure statement was approved, and the Plan of
Reorganization was confirmed by Bankruptcy Court on October 13, 1998. The Plan
of Reorganization and the transactions contemplated thereby, including the
execution of the Amended and Renegotiated Casino Operating Contract, were
consummated on October 30, 1998 and instructions to proceed with resuming
construction of the Casino were given to the Casino construction contractors. As
such contractors were required to be prepared to resume construction within 30
days of the Company's notice, construction of the Casino has resumed. In
addition, under the Amended GDA, the Site Reactivation Date has occurred.
Under the Plan of Reorganization all the assets of HJC, except for the 3CP
Property and Fulton Property, vested in JCC on the Effective Date. Title to the
3CP Property and Fulton Property vested in CP Development and FP Development,
respectively. The Plan of Reorganization provided that, for federal income tax
purposes, the vesting of assets in JCC, CP Development and FP Development was
deemed to have occurred as a deemed exchange of the Old Bonds by the holders of
Old Bonds ("Bondholders") for such assets, and a deemed exchange by the
Bondholders of such assets for the Class A Common Stock (as defined herein), the
New Notes (as defined herein) and the New Contingent Notes (as defined herein).
Pursuant to the Plan of Reorganization, the outstanding capital stock of JCC
Holding as of the Effective Date and as of the date of this Registration
Statement consists 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 and the Unclassified Common Stock (as defined herein), the "Common
Stock"). With certain exceptions, including the election of directors and the
right to separate class voting with respect to certain amendments to JCC
Holding's Restated Certificate of Incorporation and Second Amended and Restated
Bylaws (the "Bylaws"), each share of Common Stock (including, prior to the
Transition Date (as defined herein), each share of Class A Common Stock and
Class B Common Stock) has identical rights and privileges, and ranks equally,
shares ratably and is identical in every respect and as to all matters,
including rights in liquidation, and is entitled to vote upon all matters
submitted to a vote of the common stockholders, is 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 generally vote together as one class on all
matters submitted to a vote of stockholders. See "Item 11. Description of
Registrant's Securities to be Registered." Upon and after the Transition Date,
however, the board of directors will no longer be classified into two classes of
directors with the holders of the Class A Common Stock entitled to elect Class A
Directors (as defined herein) and the holders of the Class B Common Stock
entitled to elect the Class B Directors (as defined herein) but rather will be
elected by the affirmative vote of the holders of a plurality of the shares of
Unclassified Common Stock. See "Item 11. Description of Registrant's Securities
to be Registered--Board of Directors." In addition, upon and after the
Transition Date, the requirement that any amendment to the Restated Certificate
of Incorporation or the Bylaws which affects the rights of holders of the Class
A Common Stock or Class A Directors or which affects the rights of holders of
the Class B Common Stock or Class B Directors be approved by the affirmative
vote of the holders of a majority of the affected class of Common Stock will
terminate. See "Item 11. Description of Registrant's Securities to be
Registered--Amendment to Certificate and Bylaws." Also upon and after the
Transition Date, the conversion feature of the Class B Common Stock will not
apply to the Unclassified Common Stock. See "Item 11. Description of
Registrant's Securities to be Registered--Common Stock."
Prior to the Effective Date, the Company had not issued any shares of Common
Stock. Pursuant to the Plan of Reorganization, on the Effective Date JCC Holding
issued an aggregate of 10 million shares of Common Stock. Harrah's Crescent City
Investment Company, a Nevada corporation, and an indirect wholly-owned
subsidiary of HET ("HCCIC"), acquired shares of Class B Common Stock in
consideration of, among other things, an equity investment (the "New Equity
Investment") of $15 million and the conversion to equity and contribution to JCC
Holding on the Effective Date of $60 million in debtor-in-
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possession financing that had been provided to HJC by HET or its affiliates over
the course of the reorganization. Additionally, on the Effective Date, any claim
of HET or its affiliates to any interest which had accrued on the
debtor-in-possession financing provided to HJC prior to the Effective Date was
cancelled. Also in connection with the Plan of Reorganization, HCCIC received
warrants (the "HET Warrant") entitling it to purchase additional shares of
Unclassified Common Stock such that HCCIC would be entitled to own up to 50.0%
of the then outstanding shares of Common Stock, subject to certain adjustments.
See "--Material Agreements--HET Warrant."
Under certain settlement agreements executed in connection with the Plan of
Reorganization, on the Effective Date, HCCIC transferred from its acquired
shares of Class B Common Stock (i) options to purchase 300,000 shares of Class B
Common Stock to the shareholders of NOLDC, (ii) options to purchase 150,000
shares of Class B Common Stock to First National Bank of Commerce (together with
its successors and assigns, "FNBC"), and (iii) its right to receive 350,000
shares on the Effective Date to the senior secured bondholders of Grand Palais.
Because the senior secured bondholders of Grand Palais are not permitted to own
shares of Class B Common Stock under the Restated Certificate of Incorporation,
the 350,000 shares received by the senior secured bondholders of Grand Palais
were shares of Class A Common Stock. Subsequent to the Effective Date, FNBC
exercised its option and on November 13, 1998, HCCIC transferred 150,000 shares
of its Class B Common Stock to FNBC. Accordingly, HET, through its wholly-owned
subsidiary HCCIC, currently beneficially owns an aggregate of 4,302,623 shares
of Class B Common Stock, or approximately 96.6% and approximately 43.0% of the
issued and outstanding shares of Class B Common Stock and Common Stock,
respectively. Therefore, through HCCIC, HET has the power to elect 100% of the
Class B Directors (as defined herein), constituting half of the full board of
directors. In the event that the options granted by HCCIC to the shareholders of
NOLDC are exercised in full, the Company believes that control of the Company
will not change because, as is required by the Restated Certificate of
Incorporation, prior to the Transition Date, the Harrah's Entities (as defined
herein) are required to own not less than 51% of the outstanding Class B Common
Stock (unless a lesser percentage is approved by the Class A and Class B
Directors), and will therefore continue to have the power to elect the Class B
Directors. See "Item 11. Description of Registrant's Securities to be
Registered--Common Stock."
Also pursuant to the Plan of Reorganization, on the Effective Date (i)
3,710,115 shares of Class A Common Stock which constituted approximately 37.1%
of the Common Stock issued on the Effective Date were distributed on a pro rata
basis to the Bondholders, and (ii) 1,487,262 shares of the Class A Common Stock
constituting approximately 14.9% of the Common Stock issued on the Effective
Date were issued to a disbursing agent for the benefit of Bondholders who
consented to releases as provided in the Plan of Reorganization, which amount
includes HCCIC's transfer to such disbursing agent of its right to receive on
the Effective Date 200,000 shares of Common Stock under the Plan of
Reorganization. Accordingly, upon the Effective Date, the Bondholders received
an aggregate of 5,197,377 shares of Class A Common Stock which constitutes
approximately 52.0% of the issued and outstanding Common Stock and 93.7% of the
issued and outstanding Class A Common Stock. Except as otherwise disclosed in
"Item 4. Security Ownership of Certain Beneficial Owners and Management," the
Company is not aware of any Bondholder who beneficially owns 5% or more of the
Class A Common Stock.
In addition, on the Effective Date the Bondholders received their pro rata
share of (i) $187.5 million in aggregate principal amount of Senior Subordinated
Notes with Contingent Payments due 2009 of JCC (the "New Notes"), and (ii)
Senior Subordinated Contingent Notes due 2009 of JCC (the "New Contingent Notes"
and, together with the New Notes, the "Notes"). See "--Material Agreements--New
Notes and New Contingent Notes."
Also in connection with the Plan of Reorganization, JCC entered into (i) a
$60 million term loan (the "A Term Loan") from a syndicate of lenders led by
BTCo (the "Bank Lenders"), (ii) a $151.5 million term loan from the Bank Lenders
(the "B Term Loan" and, together with the A Term Loan, the "Term Loans"), and
(iii) a credit facility pursuant to which HET has agreed to make available up to
$22.5 million of subordinated indebtedness (the "Junior Subordinated Credit
Facility"). In connection with the Plan of Reorganization, JCC issued to BTCo
and FNBC (the "Participating Banks") and to Salomon Smith Barney Inc.
("Salomon"), Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and BT
Alex. Brown Incorporated approximately $27.3 million aggregate principal amount
of 8% Convertible Junior
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Subordinated Debentures due 2010 of JCC (the "Convertible Junior Subordinated
Debentures"). JCC also has up to $25 million available for working capital
purposes under a working capital line of credit (the "Working Capital Facility"
and, together with the Term Loans, the "Bank Loans"). See "--Material
Agreements--Bank Loans" and "--Convertible Junior Subordinated Debentures." In
addition, the Plan of Reorganization effected amendments to the Ground Lease,
the General Development Agreement and other contracts and plans, including the
Open Access Program and Plans. See "--Material Agreements." The lease among HJC,
the City and the RDC for the Basin Street Casino (the "Basin Street Casino
Lease") was terminated prior to the Effective Date. See "--Material
Agreements--Basin Street Casino Lease Termination Agreement."
Under the terms of JCC Holding's Restated Certificate of Incorporation, on
the Transition Date a number of events will occur, some of which may impact
control of the Company. Prior to the Transition Date, except upon the occurrence
of certain events, and after the requisite gaming regulatory agencies have made
their determinations necessary to allow such directors to serve on the board of
directors, the board of directors of JCC Holding 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, 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." In addition, HET currently owns
approximately 96.6% of the issued and outstanding Class B Common Stock, or
approximately 43.0% of the issued and outstanding Common Stock, and, prior to
the Transition Date, HET has agreed to own not less than 51% of the outstanding
shares of Class B Common Stock (but HET may own such lesser percentage as may be
approved by the Class A Directors and the Class B Directors). See "Item 11.
Description of Registrant's Securities to be Registered--Common Stock."
Consequently, prior to the Transition Date, HET is 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 "-- Description of The Manager" and
"--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, prior to the Transition Date the ability of holders of Class
A Common Stock to influence the day-to-day operations of the Company may be
limited. On the Transition Date, however, HET may no longer be able to exercise
such control over the Company due to the fact that each share of Class A Common
Stock and each share of Class B Common Stock will automatically convert into
shares of Unclassified Common Stock, the classification of the board of
directors will be eliminated and the Gaming Committee will terminate. See "Item
11. Description of Registrant's Securities to be Registered--Common Stock" "--
Board of Directors" and "--Committees of the Board." Nevertheless, upon and
after the Transition Date, the HET Warrant becomes exerciseable and, if
exercised in its entirety, HET and its subsidiaries would own up to 50.0% of the
then outstanding shares of Common Stock, subject to certain adjustments. In
addition, following the Transition Date, the Manager will continue to manage the
operations of the Casino. See "--Material Agreements--HET Warrant" and
"--Amended Management Agreement."
THE CASINO
When HJC filed for bankruptcy in November 1995, construction at the
Rivergate site stopped. At the time construction stopped, the Casino was
approximately 60% complete. The building shell, including the structural steel,
exterior walls and roof was approximately 76% complete, and the building
interior, including the mechanical and electrical systems and interior finishes,
was approximately 35% complete. Construction resumed on March 11, 1996 for the
limited purpose of enclosing the structure, which was completed on or about
September 6, 1996. While construction was suspended, the structure at the
Rivergate site incurred approximately $5.0 million of damage from exposure to
moisture and humidity.
As redesigned pursuant to the Plan of Reorganization, the Casino will
contain five themed areas named The Jazz Court, The Mardi Gras Court, The
Smuggler's Court, The Court of the Mansion and The Court of Good Fortune. The
remaining space will be used for additional gaming activities, a food service
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area, casino support facilities, and multi-function, special event and
meeting-room space. To maintain operational efficiency and a dynamic atmosphere,
the Casino will be designed so that individual gaming areas can be opened or
closed to patrons depending on volume. The second floor of the Casino will be
initially developed for non-gaming uses. Parking for between 400 and 500 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 the Poydras Tunnel Area will be a newly constructed parking
facility which will contain approximately 1,550 parking spaces. Under the Plan
of Reorganization and the Amended and Renegotiated Casino Operating Contract,
the Basin Street Casino will not re-open.
JCC Development intends to sublease and manage the second floor development
in a manner consistent with the Master Plan. JCC may convert any portion of the
second floor in the future to gaming use, subject to approval of the LGCB and
the Amended and Renegotiated Casino Operating Contract. If, however, such
conversion were to reduce the sublease revenue payable to the RDC pursuant to
the Second Floor Sublease, JCC would be required to compensate the RDC for such
reduction. See "--Material Agreements--Second Floor Sublease--Rent."
Prior to the Effective Date, the Proponents reached an agreement with Centex
Landis Construction Co., Inc. ("Centex"), the primary contractor for the Casino,
with respect to full-scale construction of the Casino in accordance with the
modified design for the Casino and the revised opening schedule (the "Centex
Settlement Agreement"). The Centex Settlement Agreement accommodates the
construction schedule currently contemplated by the Plan of Reorganization, the
Amended and Renegotiated Casino Operating Contract and the Amended Ground Lease
(as defined herein).
The Proponents also reached an agreement with Broadmoor, a Louisiana general
partnership and the primary contractor for the Casino's parking facilities, with
respect to construction of the Casino's parking facilities (the "Broadmoor
Settlement Agreement"). The Broadmoor Settlement Agreement provided that if the
Effective Date did not occur by July 31, 1997 (which it did not), Broadmoor
would have the right to have its contract deemed rejected and to pursue its
proof of claim, a right Broadmoor did not exercise. On September 22, 1998, the
Bankruptcy Court approved the terms of an amended settlement agreement with
Broadmoor, and authorized HJC to execute that agreement and authorized HJC to
recommence construction of the Casino's parking facilities. In connection with
the consummation of the Plan of Reorganization, HJC and Broadmoor executed the
amended settlement agreement October 21, 1998.
JCC has approximately 3,000 slot machines in inventory. Up to 1,000 of these
owned machines may not meet customer expectations and could require replacement.
JCC intends to evaluate the extent to which the owned machines will meet
customer expectations upon opening of the Casino, whether such machines will
need to be replaced, and the options available to replace such machines.
The Initial Casino Facilities are scheduled to open and commence operations
by October 30, 1999. The Second Floor Shell Construction is scheduled to be
completed substantially concurrently with the opening of the Initial Casino
Facilities.
Subject to the approval of the LGCB, all games typically available in Las
Vegas casinos except sports betting will be permitted at the Casino. Under
existing law, the Casino will be open 24 hours per day, every day of the 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 Recent Regulation and Interpretation of Gaming Act" and
"--Regulation."
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, under the terms of the Amended Ground
Lease (as defined herein), JCC agreed to pay the City $1 million per year for
the
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purpose of marketing and promoting the Casino as a part of the City's
destination marketing program pursuant to the guidelines therein, the first
installment of which was contributed on the Effective Date. See "--Material
Agreements--Amended Ground Lease--Term, Fees and Impositions."
DESCRIPTION OF THE MANAGER
JCC has engaged 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 at the Rivergate
site. The Manager is responsible for and has authority over, among other things:
hiring, supervising and establishing labor policies with respect to employees
working in the Casino; gaming and entertainment policies and operations
including security and internal control procedures; advertising and public
relations and promotion; Casino-level accounting, budgeting, financial and
treasury functions; maintaining, renovating and improving the Casino; performing
certain system services generally performed at casinos owned or managed by HET
or its affiliates; and performing certain other functions identified by JCC and
agreed to by the Manager.
HET's casino business commenced operations more than 60 years ago and,
through its operating subsidiaries and other affiliates, HET currently operates
casino entertainment facilities in 11 states and Sydney, Australia. 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 or dockside casinos in Joliet, Illinois, Vicksburg and Tunica,
Mississippi, Shreveport, Louisiana, North Kansas City and St. Louis, Missouri,
and East Chicago, Indiana; casinos on Indian lands near Phoenix, Arizona,
Seattle, Washington, Cherokee, North Carolina and Topeka, Kansas; and a
land-based casino in Sydney, Australia. On July 23, 1998, HET announced that it
would withdraw from management of the Indian casino near Seattle, Washington
before the end of 1998. As of July 1, 1998, HET, through its operating
subsidiaries and other affiliates, operated a total of approximately 1,102,000
square feet of casino space, 27,100 slot machines, 1,187 table games, 9,017
hotel rooms or suites, approximately 165,200 square feet of convention space, 76
restaurants, nine showrooms and four cabarets.
COMPETITION
Since the time the land-based Casino project was originally proposed in the
early 1990s, considerable competition has developed which may have an adverse
impact on the Casino's profitability. 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 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. Because of the
large number of casinos competing on both the local and national levels and the
continued development of other gaming markets, the attraction of a land-based
casino in New Orleans has decreased. In addition, negative publicity associated
with the Company's bankruptcy may have an adverse impact on the Casino's ability
to compete.
The Gaming Act prohibits JCC from offering seated restaurant facilities with
table food service for patrons of the Casino. Although the Gaming Act permits
the Casino to offer limited cafeteria style food services for employees and
patrons, no food may be given away or subsidized within the Casino by JCC or any
licensee, and seating may not exceed 250 persons. The LGCB may, by Rule or
Regulation, allow JCC to enter into contracts with local restaurants and vendors
to provide food services at the Casino. JCC is also prohibited from offering
lodging in the Casino, or engaging in any practice or entering into any business
relationship to give any hotel, whether or not affiliated with JCC, any
advantage or preference not available to any similarly situated hotels. Unlike
the Casino, the vast majority of the Casino's competitors operate without
restrictions on lodging, food services, and entertainment due primarily to the
fact that the legislation authorizing casino gaming operations conducted by the
Company's competitors was, unlike the Gaming Act, adopted without such
restrictions. 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, Lodging, Retail Operations and Entertainment"
and "--Competition."
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MISSISSIPPI. JCC will compete on a national, regional and local scale for
visitors with existing gaming facilities in Mississippi. The Mississippi Gulf
Coast has emerged as a major gaming destination. There are currently 11 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. Plans to build additional new dockside casinos in the Mississippi Gulf
Coast have been announced and a substantial number of applications to operate
casinos in Mississippi have been filed with the Mississippi Gaming Commission.
In addition, in early 1999 Mirage Resorts Inc. is scheduled to open Beau Rivage,
an 1,800 room hotel, resort and dockside casino in Biloxi that will be larger
than any hotel in New Orleans. Approximately $600 million is expected to be
spent to develop Beau Rivage and due to its projected size, amenities and
ownership, it is anticipated to provide significant competition to the Casino.
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
Operations and Entertainment."
LOUISIANA. Under Section 240 of the Gaming Act, JCC has the exclusive right
to operate a land-based casino in the City. In authorizing the operation of a
single, official land-based gaming establishment, the Louisiana legislature's
intent was to promote economic development and maintain public confidence in the
integrity of casino gaming operations in a manner that ensures that the owner or
operator of the casino has no incentive to (i) divert or skim revenues, (ii)
engage in illegal activities or to reduce competition from other gaming
entities, or (iii) conduct land-based gaming operations so as to prevent guests
from patronizing local businesses other than the official gaming establishment.
The legislature further determined that by authorizing only a single, official
land-based casino, all persons involved with the proposed casino gaming
operation, including manufacturers, suppliers, and distributors of certain
gaming devices and equipment, could be licensed, regulated, and controlled in
such a manner as to, among other things, protect the public health, safety,
morals, good order, and general welfare of the citizens of the State.
Notwithstanding its exclusive right to operate a land-based Casino in the City,
on a regional and local scale, JCC will still compete with gaming operations in
Louisiana. In Louisiana, 13 riverboats are operating, including one riverboat 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 four dockside casinos in Shreveport/Bossier City in northern Louisiana. One
license to conduct riverboat gaming in the State has not yet been awarded,
however, the award of such license has been deferred pending the results of an
LGCB study on the effects of gaming in Louisiana. 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 only dockside
gaming 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, Chitimacha and Coushatta Indian tribes have
each opened a casino near the towns of Marksville, Charenton and Kinder,
respectively. 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.
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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 in the past.
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, under Louisiana law, certain parishes (including
Orleans Parish) presently permit 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. Louisiana
law, however, limits VDP wagering and jackpots. Other forms of wagering,
including charitable gaming and a state lottery, will provide additional local
competition. Further, in 1997, the State legislature authorized the use of slot
machines at race tracks located in three parishes in the State (but not Orleans
Parish), subject to a 15,000 square foot limitation. The authorization for this
bill was subject to a referendum in each of the parishes where the race tracks
are located to approve such use of slot machines. The voters in two of the three
parishes approved the use of slot machines at the race tracks located in those
parishes. The authorization for this bill remains subject to further legislative
action on the fees and taxes to be imposed on such slot machines. Legislation to
impose such fees and taxes was introduced in the 1998 fiscal session of the
State legislature, but failed to receive legislative approval. Future
consideration of this issue is likely by the State legislature. If slot machines
are ultimately permitted at race tracks in the two parishes that approved such
use of slot machines, the Casino would compete for patrons with slot machines at
such race tracks.
LEASE OF RIVERGATE SITE
JCC entered into an Amended and Restated Lease Agreement, dated October 29,
1998 and effective as of the Effective Date, with the RDC and the City, as
intervenor, regarding the sublease of the Rivergate site and certain related
property (the "Amended Ground Lease"). See "--Material Agreements-- Amended
Ground Lease."
ENVIRONMENTAL MATTERS
Subject to all of its rights and defenses at law and equity, JCC may 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 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 owns and leases 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 contain asbestos. Asbestos abatement costs incurred by HJC in
connection with the construction of the Casino were approximately $3.7 million.
Asbestos abatement costs incurred by HJC in connection with the renovation of
the City's Municipal Auditorium were approximately $590,000. Asbestos and
lead-based paint abatement costs in connection with the Municipal Auditorium
restoration project were approximately $30,000. The Amended Ground Lease
requires JCC to indemnify the RDC and the City for environmental liabilities
with respect to causes of action arising after November 30, 1994, other than
those caused by third parties, and to assume
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responsibility for any environmental cleanup on or under the Casino, regardless
of when the environmental contamination occurred, unless known by various City
departments.
The removal and disposal of polychlorinated biphenyl ("PCB") at the
Rivergate site has been completed. In connection with that removal, HJC incurred
costs of $973,000. By separate indemnity agreements, the City agreed to
indemnify HJC from and against any liability if, as a result of removing PCBs at
the Rivergate site, HJC should be declared to be an owner or guarantor of the
PCBs which were removed. The costs and expenses of the removal were credited to
rents previously due under the Basin Street Casino Lease.
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
As of November 13, 1998, JCC Holding employed 30 people on a full-time basis
and one person on a part-time basis. JCC, through the Manager, will recruit and
train employees to operate the Casino. To the extent permitted by law and
contract, JCC and JCC Development, in their hiring directed toward the opening
of the Casino and as practicable thereafter, will give priority to consideration
of the former employees of the Basin Street Casino in an evaluation of the
candidate qualifications. See "--Risk Factors--Lack of Experienced Personnel,"
"--Amended Open Access Program and Plans," "--Material Agreements--Amended GDA"
and "--Amended Management Agreement." The Casino's executive staff will be
comprised of employees of the Manager and JCC.
TITLE INSURANCE
JCC has obtained a title insurance policy from First American Title
Insurance Company ("First American") for the premises underlying the Casino
leased by JCC pursuant to the Amended Ground Lease and certain related leased
property (the "Casino Premises"). In addition, CP Development has obtained a
title insurance policy covering the 3CP Property and FP Development has obtained
a title insurance policy covering the Fulton Property. With respect to each of
the foregoing, such policies consist of lenders' title insurance policies for
the benefit of HET and Harrah's Operating Company, Inc. ("HOCI") as Minimum
Payment Guarantors (as defined herein), the Bank Lenders and the holders of the
Notes and owners' title insurance policies for the benefit of JCC, CP
Development and FP Development, respectively.
The owners' title insurance policy with respect to the Casino Premises
provides coverage in the amount of $524 million. The lenders' title insurance
policy with respect to the Casino Premises provides coverage equal to (i) $100
million in favor of HET and HOCI the Minimum Payment Guarantors, (ii) the total
amount of indebtedness under the Bank Loans in favor of the Administrative Agent
(as defined herein), and (iii) the aggregate principal amount of the Notes in
favor of the Trustee (as defined herein).
By endorsement, the title policy with respect to the Casino Premises
provides that the computation of loss or damage under such policy 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. Actual loss 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
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recovery for such other title losses under the lenders' title policies with
respect to the Casino Premises cannot be predicted and there can be no assurance
that any recovery as a result of such title loss will not be in an amount
substantially less than (i) $100 million in the case of HET and HOCI as Minimum
Payment guarantors, (ii) the total amount of indebtedness under the Bank Loans
in the case of the Administrative Agent, or (iii) the aggregate principal amount
of the Notes in the case of the Trustee.
The owners' and lenders' title insurance policies with respect to each of
the 3CP Property and the Fulton Property provide coverage equal to $4 million
for the 3CP Property and $14 million for the Fulton Property.
The title insurance policies with respect to each of the Casino Premises,
the 3CP Property and the Fulton Property are reinsured through various title
insurance companies throughout the United States. The ability to successfully
recover under the policies is dependent on the creditworthiness of First
American and its reinsurers at the time of the claim and the existence and
validity of any defenses that First American 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.
In December 1996, HJC and First American reached agreement on the terms of a
settlement agreement providing for the issuance of new blanket owner's and
lender's title insurance policies for the Casino Premises, the 3CP Property and
the Fulton Property (the "First American Settlement Agreement"), the form of
which the Bankruptcy Court subsequently approved on January 21, 1997. Bankruptcy
Court approval of the First American Settlement Agreement was appealed by
Messrs. Harry McCall, Henry McCall and Thomas Tucker to the Civil District Court
for the Parish of Orleans. As of the Effective Date this matter was settled and
the appeal has been dismissed with prejudice. See "Item 8. Legal
Proceedings--McCall Litigation." The effectiveness of the First American
Settlement Agreement resolved certain of the parties' claims against each other,
caused the cancellation of the existing owner's title insurance policy and
provided for the issuance of new title insurance to JCC and its lenders at
reduced "re-issue" rates.
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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. 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," "INTENDS," "EXPECTS," "ESTIMATES," "SCHEDULED,"
"CONTEMPLATED," "LIKELY," "TARGETS," "FORECASTED" AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES
THAT THE EXPECTATIONS IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN
GIVE NO ASSURANCE THAT ANY FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS. 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.
UNCERTAINTY REGARDING GAMING REGULATION AND FUTURE CHANGES TO THE LAW
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 State legislature over the past few years to gaming
related bills dealing with a wide range of subjects that could impact the Casino
project. At various times, bills have been introduced to, among other things,
constitutionally and/or legislatively 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 will not be enacted by the State 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 the Company.
In the spring of 1996, a special session of the State 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. One such law called for a parish-by-parish
referenda during the November 5, 1996 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
the parish. The local option bill purported to provide that in the event voters
in Orleans Parish voted 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." On November 5, 1996, voters in Orleans Parish
elected by approximately a two-to-one margin to permit land-based casino gaming
in that parish. At the same time, voters in Orleans Parish elected to authorize
both riverboat gaming and video poker gaming in Orleans Parish. There can be no
assurance, however, that similar legislation will not be enacted in the future
that could lead to the suspension or cessation of gaming operations at the
Casino. Although voters in Orleans Parish voted to permit land-based casino
gaming in that parish, the law providing for the Local Option Election had a
material adverse effect on HJC even prior to voter action by impairing HJC's
ability to obtain financing for the Plan of Reorganization and by increasing
costs related to the Plan of Reorganization.
The Amended and Renegotiated Casino Operating Contract has been negotiated
based on the current terms of the Gaming Act. There can be no assurance that the
State will not amend or repeal the Gaming Act. Bills and resolutions to repeal
the authorization for a land-based casino or to instruct or urge the LGCB not to
execute the Amended and Restated Casino Operating Contract were introduced in
the State House of Representatives and the State Senate during 1998. Although
none of the bills or resolutions relating to the Casino has been enacted, there
can be no assurance that the State will not subsequently
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enact new legislation that modifies or revokes JCC's right to conduct gaming
activities or otherwise materially adversely affects the Company'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. In 1997,
the State legislature authorized the use of slot machines at race tracks in
three parishes in the State (but not Orleans Parish) subject to a referendum in
each such parish to approve such use of slot machines. Two parishes approved the
use of slot machines at race tracks, but the State legislature's authorization
is subject to further legislative action on fees and taxes. Legislation to
impose such fees and taxes was introduced in the 1998 fiscal session of the
State legislature, but failed to receive legislative approval. Future
consideration of this issue is likely by the State legislature. There can be no
assurance that these authorizations if enacted will not negatively impact JCC
should slot machines ultimately be permitted at these race tracks. See
"--Competition--Other Forms of Legal Wagering."
Additionally, two bills were pre-filed in the State House of Representatives
for consideration during the State legislature's 1999 regular session which
begins March 1999. If passed, the first bill would repeal the Gaming Act in its
entirety and the second would amend the Gaming Act to broaden the food service
restrictions applicable to the Casino and all parts of any connecting structure
or building. See "--Limits on Restaurants, Lodging, Retail Operations and
Entertainment." There can be no assurance that the Company will be successful in
preventing such legislative changes or that the Company will be able to recover
damages as a result thereof. The repeal of the Gaming Act would have a material
adverse effect on the Company, and other legislative changes that affect the
Company's business and operations could have a material adverse effect on the
Company.
UNCERTAINTY REGARDING REGULATION AND INTERPRETATION OF THE GAMING ACT. In
May 1996, a bill was enacted by the State legislature that, among other things,
transferred regulatory authority over the Casino from the LEDGC to the LGCB and
provided that the LGCB would have the assistance of the State Police. See
"--Regulation--Louisiana Gaming Act--LGCB." 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. This law also authorizes the State Police to, among other
things, conduct investigations and audits of gaming license applicants and to
assist the LGCB in determining compliance with gaming laws and regulations. The
Company and the Manager have little operational or other experience with the
LGCB or the State Police and the regulatory framework established by the State
legislature in 1996. JCC has been advised that the LGCB intends to promulgate a
number of its own Rules and Regulations after the Effective Date. 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 the Company. There is also no assurance that the interpretation and
implementation of the Gaming Act and the Rules and Regulations by the 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 the Company.
In addition, state laws generally requiring riverboats to sail in accordance
with their schedules and safety conditions are frequently unenforced. Another
law enacted as a result of the special session of the State legislature in the
spring of 1996, 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 operator of the Casino 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 will 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 operator of the Casino
and the State or any of its
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political subdivisions (including the LGCB), the operator of the Casino must
continue to make all payments to the State and any of its political subdivisions
(including the LGCB) 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." The failure of
the riverboats to sail in accordance with their schedules and/or governmental
inaction which results in the operation of another land-based casino in Orleans
Parish could have a material adverse effect on the Company. The Company's
remedies and the limitations thereon if a riverboat conducts dockside gaming in
material violation of the Riverboat Act or the Gaming Act are also addressed in
the Amended and Renegotiated Casino Operating Contract. See "--Limited Remedies
For Additional Land-Based Casinos" and "--Material Agreements--Amended and
Renegotiated Casino Operating Contract."
The interpretation of certain provisions of the Gaming Act, and the
authority of the LGCB thereunder, has also been the subject of multiple
lawsuits. The Gaming Act provides that the LGCB has the right, but is not
required, to set aside or renegotiate the provisions of a casino operating
contract if the casino operator is voluntarily or involuntarily placed in
bankruptcy, receivership, convservatorship or similar status. A law enacted
during the State legislature's special session in spring in 1996 purports to
authorize the Governor by executive order, subject to legislative approval, or
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.
On March 16, 1998, the State Attorney General issued an opinion that the
LGCB has independent authority (without the necessity of any legislative
approval) to renegotiate and execute a renegotiated casino operating contract.
On March 20, 1998, the LGCB approved the Amended and Renegotiated Casino
Operating Contract, subject to the rendition of a final, non-appealable judgment
of the State Supreme Court that the LGCB, acting on its own, is the proper party
and has the legal authority to enter into the Amended and Renegotiated Casino
Operating Contract with HJC and JCC on behalf of the State and the LGCB, without
the specific approval of the Governor or the State legislature.
On March 18, 1998, two separate petitions were filed seeking a declaratory
judgment and injunctive relief to preclude the LGCB from executing a casino
operating contract without the approval of the State legislature. In a lawsuit
captioned Jordan vs. Louisiana Gaming Control Board and Murphy J. Foster (19th
Judicial District Court, State of Louisiana, Parish of East Baton Rouge)
("Jordan"), the plaintiff, a Louisiana State Senator, sought a declaratory
judgment and injunctive relief seeking, among other things, to preclude the LGCB
from executing a casino operating contract without the approval of the State
legislature. In a lawsuit captioned Bean vs. Louisiana Gaming Control Board and
Rivergate Development Corporation (19th Judicial District Court, State of
Louisiana, Parish of East Baton Rouge) ("Bean"), the plaintiff, also a member of
the State Senate, sought declaratory and injunctive relief seeking, among other
things, to preclude the LGCB from entering into a casino operating contract with
JCC without the approval of the State legislature. HJC and the Bondholders
Committee filed separate petitions of intervention in that litigation.
The two cases were consolidated and HJC intervened in the Bean litigation
and the Bondholders Committee intervened in both the Bean and Jordan
litigations. After a trial, the district court on April 9, 1998, entered
judgment rejecting the plaintiffs' claims and declaring, among other things,
that the LGCB has the independent authority to renegotiate and execute a casino
operating contract without seeking gubernatorial or legislative approval. In
reaching its decision, the district court made a number of written findings of
fact and conclusions of law, including the conclusion that insofar as the
provisions of La. R.S. 27:224(D) and La. R.S. 27:224(E) subject the acts of the
LGCB or the governor to legislative approval or authorize the State legislature
to take executive action, those provisions are unconstitutional as violative of
Article II, Section 2 of the Louisiana Constitution, which establishes the
principle of separation of powers between the branches of government in
Louisiana.
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The consolidated cases were heard by the First Circuit Court of Appeal which
issued a decision on April 22, 1998, affirming in part and reversing in part the
judgment of the district court. The court of appeal affirmed the district
court's determination that the LGCB had the authority independently to
renegotiate the casino operating contract, but reversed what it perceived to be
the district court's conclusion that the State legislature had no right to
participate in the process of renegotiating the casino operating contract of a
casino operator in bankruptcy and concluded the State legislature may set aside
or order the LGCB to renegotiate the provisions of the casino operating contract
of a casino operator in bankruptcy.
The parties filed applications for various writs for review in the Louisiana
Supreme Court, which were subsequently granted and on May 15, 1998 the Louisiana
Supreme Court issued a decision affirming in part and reversing in part the
judgment of the court of appeal. The opinion of the Louisiana Supreme Court
affirmed the court of appeal's determination that the LGCB has the independent
authority to renegotiate and execute the casino operating contract without
seeking gubernatorial or legislative approval, and reversed that portion of the
court of appeal's decision that purported to interpret La. R.S. 27:224(D) to
grant the State legislature the power to set aside or order the LGCB to
renegotiate the provisions of the casino operating contract of a casino operator
in bankruptcy on the basis that such holdings by the court of appeal and the
district court were impermissible advisory opinions. The decision of the
Louisiana Supreme Court has since become final and non-appealable.
Although the consolidated suits were decided favorably for HJC, the suits
adversely affected HJC by delaying HJC's ability to consummate the Plan of
Reorganization and by increasing costs related to the Plan of Reorganization.
There can be no assurance that additional litigation will not be filed
challenging the authority of the LGCB and its actions. Any such litigation could
have a material adverse effect on the Company. Additionally, since the Louisiana
Supreme Court reversed the portion of the Court of Appeal's decision that
purported to interpret La. R.S. 27:224(D) on the basis that such holdings by the
Court of Appeal and the District Court were impermissible advisory opinions, the
State legislature's power to set aside or order the LGCB to renegotiate the
provisions of a casino operating contact of a casino operator in bankruptcy has
not been judicially determined. If the State legislature is determined to have
and/or attempts to exercise such power, it could have a material adverse effect
on the Company.
REGULATORY ENFORCEMENT ACTIONS. The ownership and operation of the Casino
is subject to pervasive regulation by the LGCB and the State Police under the
Gaming Act and 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 Holding or the Manager to comply with the
Gaming Act, the Rules and Regulations or regulatory requirements in the Amended
and Renegotiated Casino Operating Contract could have a material adverse effect
on the Company, including the imposition of fines, the suspension of rights
granted by the Amended and Renegotiated Casino Operating Contract and, under
certain circumstances, the revocation or termination of the Amended and
Renegotiated Casino Operating Contract. See "-- Regulation--Louisiana Gaming
Act" and "--Material Agreements--Amended and Renegotiated Casino Operating
Contract."
SUITABILITY OF JCC AND AFFILIATED PERSONS. JCC is not permitted to operate
the Casino unless and until certain persons required to be found suitable are
found suitable by the LGCB. Such persons include, without limitation, JCC, JCC
Holding, the Manager and certain members, officers and directors of such
companies. See "--Regulation--Louisiana Gaming Act." Although JCC, JCC Holding,
the Manager and the certain officers and directors of JCC Holding, JCC and the
Manager were found suitable after extensive background investigations by the
LGCB (and its investigatory arm, the State Police), prior to appointing
additional officers and directors of JCC, JCC Holding or the Manager, such
persons will be required to be found suitable by the LGCB. There can be no
assurance that future candidates proposed to serve as officers and directors of
JCC, JCC Holding or the Manager will be found suitable on a timely
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basis. Failure to timely receive all required suitability findings could have a
material adverse effect on the Company.
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 and Renegotiated
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 and Renegotiated 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 and
Renegotiated Casino Operating Contract," and "--Regulation--Louisiana Gaming
Act." A finding that JCC or the Manager is unsuitable, and the revocation of the
Amended and Renegotiated Casino Operating Contract would have a material adverse
effect on the Company.
Furthermore, the Gaming Act, the Rules and Regulations, and the Amended and
Renegotiated Casino Operating Contract impose certain suitability requirements
with respect to the holders of Notes and holders of equity in JCC and its
affiliates, including JCC Holding. To the extent that any holder of Notes or
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 Holding will have the right to redeem the Common Stock and JCC will
have the right to redeem the Notes, and prior to such redemption, such holder
will forfeit all benefits of ownership. See "--Repurchase of Class A Common
Stock Relating to Gaming Matters" and "Item 11. Description of Registrant's
Securities to be Registered--Redemption Provisions." 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. See "--Regulation--Louisiana Gaming Act." 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 the LGCB, may be required to obtain a license
or permit from the LGCB or the State Police in order to conduct business with
JCC. See "--Regulation-- Louisiana Gaming Act." There can be no assurance that
such licenses or permits will be obtained by such vendors. The failure of any
such vendors to obtain any required licenses or permits on a timely basis could
have a material adverse effect on the Company.
STATE IMMUNITY FOR BREACH OF CONTRACT. The Amended and Renegotiated Casino
Operating Contract creates certain material rights in JCC with respect to the
Casino. See "--Material Agreements--Amended and Renegotiated Casino Operating
Contract." Under the Amended and Renegotiated Casino Operating Contract, JCC is
entitled to bring an action to compel specific performance or any other remedy
permitted
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or provided by law in the event the LGCB breaches the contract and fails to cure
such breach. See "--Material Agreements--Amended and Renegotiated Casino
Operating Contract--Exclusive Contract." In the spring of 1996, however, a
special session of the State legislature enacted a 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 the LGCB).
See "--Regulation--Louisiana Gaming Act." There can be no assurance that in the
event JCC seeks to enforce its rights under the Amended and Renegotiated Casino
Operating Contact, that a court would allow the suit to proceed. Failure of the
LGCB to comply with the Amended and Renegotiated Casino Operating Contract could
have a material adverse effect on the Company, 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 (the "National
Commission") to study the economic and social impact of gaming and report its
findings to Congress and the President. The National Commission is required by
the enabling legislation to issue a report containing its findings and
conclusions, together with recommendations of the National Commission for
legislation and administrative actions, within two years after the date on which
it held its first meeting, which occurred on June 20, 1997. Any recommendations
which may be made by the National Commission could result in the enactment of
new laws or the adoption of new regulations which could adversely impact the
gaming industry in general and the Company in particular. The Company is unable
at this time to determine what recommendations, if any, the National Commission
will make, or the ultimate disposition of any recommendations the National
Commission may make.
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. There is considerable
opposition to gaming among a segment of the population in Louisiana. 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. Although these lawsuits and claims have all been settled or
dismissed, these lawsuits and claims, as well as contract negotiations with
State and City governmental entities, have significantly delayed development of
the Casino. See "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.
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 create funding shortfalls and/or 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 Company is subject to being adversely affected by all of the foregoing
problems or investigations which directly affect its operations and it is also
subject to being adversely affected by investigations or disputes which may only
tangentially relate to the construction or operation of the Casino but which
cause those who are opposed to the Casino in particular or gaming in general to
increase their opposition. For example, on August 8, 1997, HJC was served with a
subpoena by the Committee on Rules and Administration of the United States
Senate which was investigating the contest of the election of Mary Landrieu to
the United States Senate and the role, if any, that gaming interests may have
played in her election. HJC
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complied with the subpoena and HJC representatives testified before the
Committee during September 1997. Although the Committee has completed its
investigation into the contested election, it has not yet issued a report, and
the Company cannot presently assess the degree to which this investigation had
or may have an impact on the Company.
NON-RENEWAL OF MINIMUM PAYMENT GUARANTY
Under the terms of the Amended and Renegotiated Casino Operating Contract,
JCC is required to obtain a guaranty in favor of the State by and through the
LGCB of the $100 million annual payment due to the State under the Amended and
Renegotiated Casino Operating Contract (the "Minimum Payment Guaranty") to
assure payment of such minimum payment. On the Effective Date, JCC entered into
an agreement (the "HET/JCC Agreement") with HET and its wholly-owned subsidiary,
HOCI, pursuant to which HET and HOCI have provided an initial Minimum Payment
Guaranty, subject to renewal, early termination or expiration in accordance with
the terms of the HET/JCC Agreement (HET and HOCI or any successor or substitute
party providing a Minimum Payment Guaranty are referred to herein as the
"Minimum Payment Guarantors"). See "--Material Agreements--Amended and
Renegotiated Casino Operating Contract" and "--HET/JCC Agreement."
By entering into the HET/JCC Agreement and providing an initial Minimum
Payment Guaranty, HET and HOCI are not obligated to provide a Minimum Payment
Guaranty for each fiscal year of the entire term of the Amended and Renegotiated
Casino Operating Contract, but rather have agreed only to provide it for the
period and on terms and conditions specified in the HET/JCC Agreement. See
"--Material Agreements--HET/JCC Agreement." HET and HOCI have expressly informed
JCC, the State, the LGCB and the City, among others, that they have not agreed
to renew a Minimum Payment Guaranty beyond March 31, 2004, or in any prior year
in which HET's and HOCI's obligation to furnish a Minimum Payment Guaranty does
not renew by the express terms of the HET/JCC Agreement. HET and HOCI have
informed HJC, Finance Corp., HNOIC (collectively, the "Debtors"), JCC, the
State, the LGCB and the City, among others, that any decision HET and HOCI make
concerning whether to renew any Minimum Payment Guaranty or the HET/JCC
Agreement will be made in their sole discretion, and have informed JCC and the
Debtors that such decision will be made acting only in HET's and HOCI's best
interests. Various agreements executed on the Effective Date require JCC
Holding, JCC, the State, LGCB and the City, among others, to acknowledge that
(i) HET and HOCI are not obligated to and have not given any assurances to the
Debtors, JCC, the State, the LGCB or the City, among others, that they will
renew the HET/JCC Agreement beyond March 31, 2004, or renew any Minimum Payment
Guaranty for any earlier COC Fiscal Year (as defined herein) in which HET's and
HOCI's obligation to furnish a Minimum Payment Guaranty does not renew under the
express terms of the HET/JCC Agreement, (ii) HET and HOCI have the right to make
any such renewal decision in their sole discretion, and (iii) HET and HOCI need
not consider the interests of any other parties in making any such renewal
decision, notwithstanding that HET and HOCI are involved in a number of
capacities in respect of JCC and JCC Holding. Upon termination of the HET/JCC
Agreement on March 31, 2004 or at any earlier time pursuant to the terms of the
HET/JCC Agreement, JCC will be required to obtain a substitute guarantor to
provide a Minimum Payment Guaranty or the Casino will be unable to remain open
under the terms of the Amended and Renegotiated Casino Operating Contract. Such
substitute guarantor may or may not be HET and/or HOCI and there can be no
assurance that JCC will be able to locate a substitute guarantor on satisfactory
terms. See "Material Agreements--HET/JCC Agreement." A failure by JCC to cause
to be provided a Minimum Payment Guaranty before the first day of a new COC
Fiscal Year would result in a termination (with no cure period) of the Amended
and Renegotiated Casino Operating Contract. Consequently, JCC's failure to
locate a substitute guarantor on satisfactory terms in accordance with the
Amended and Renegotiated Casino Operating Contract would have a material adverse
effect on the Company.
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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 land based gaming in a market which has never
supported significant land based 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.
Further, even if the Casino's construction is completed in accordance with
the Company's construction schedule and budget, the Company expects that it will
sustain substantial net losses in the first two years of operation of the
Casino. On a pro forma basis assuming that the Plan of Reorganization was
consummated on January 1, 1997, JCC Holding experienced losses of $36.1 million
and $29.8 million for each of the year ended December 31, 1997 and the nine
month period ended September 30, 1998, respectively. There can be no assurance
that JCC will ever be able to operate the Casino in a profitable manner or
generate positive net earnings. See "--Minimal Operating History,"
"--Limitations on Working Capital," "--Limits on Restaurants, Lodging, Retail
Operations and Entertainment," "--Competition" and "--Substantial Leverage and
Potential Inability to Meet Fixed Charge and Other Payment Obligations."
SUBSTANTIAL LEVERAGE AND POTENTIAL INABILITY TO MEET FIXED CHARGES AND OTHER
PAYMENT OBLIGATIONS
Upon the Effective Date of the Plan of Reorganization, JCC's total long-term
indebtedness was approximately $284.8 million and its debt to equity ratio was
2.4 to 1. Through the opening of the Casino, JCC is expected to borrow $22.5
million under the Junior Subordinated Credit Facility and an additional $141.5
million under the Term Loans. In addition, JCC has $25 million of availability
under the Working Capital Facility. Upon the opening of the Casino, JCC's total
long-term indebtedness is expected to be approximately $448.8 million. JCC also
has 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. Upon the opening of the Casino, JCC will have an annual payment obligation
to the LGCB of the greater of $100 million and a percentage of gross gaming
revenues. See "--Material Agreements--Amended and Renegotiated Casino Operating
Contract." In addition, upon the opening of the Initial Casino Facilities, JCC
will have under the Amended Ground Lease an annual minimum payment obligation of
$12.5 million, up to $3.25 million of other general annual payments and certain
one-time payments during the first two years after the Opening Date and also
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."
In addition, the Company's total long-term indebtedness may increase if
fixed interest on the New Notes is paid in kind, if interest on the Convertible
Junior Subordinated Debentures is paid in kind, if payments are made by the
Completion Guarantors (as defined herein) under the Completion Guarantees (as
defined herein), or if the Company obtains financing to fund the build-out of
the non-gaming tenant improvements on the second floor of the Casino beyond the
Second Floor Shell Construction or the development of the 3CP Property or Fulton
Property. See "--Ability to Commence Operations as Scheduled," "--Availability
of Financing For the Development Properties," "--Material Agreements-- New Notes
and New Contingent Notes," "--Convertible Junior Subordinated Debentures" and
"-- Amended Completion Loan Agreement."
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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 Convertible Junior Subordinated Debentures, the Term Loans, the
Junior Subordinated Credit Facility, any additional indebtedness the Company may
incur, 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
HET and HOCI (collectively, the "Completion Guarantors") have agreed to fund
JCC's working capital shortfalls until the Termination of Construction Date (as
defined herein) and have agreed to guarantee that, at such time, JCC will have
available for working capital $5 million of cash and the Working Capital
Facility Maximum Amount (as defined herein) of availability for immediate
drawdown(s) under the Working Capital Facility. See "--Material
Agreements--Completion Guarantees" and "--Amended Completion Loan Agreement."
Upon the Termination of Construction Date, 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 "--Substantial Leverage and
Potential Inability to Meet Fixed Charges and Other Payment Obligations." The
Company estimates that on a pro forma basis assuming that the Plan of
Reorganization was consummated on January 1, 1997, $5.9 million of the Company's
pro forma cash flow from operations for the nine month period ended September
30, 1998 would be dedicated to the cash payment of interest on indebtedness. The
Bank Loans require a portion, or in some instances all, of the cash flow of the
Company from operations in excess of fixed charges and other payment obligations
to be allocated to repayment of the Bank Loans. See "--Material Agreements--Bank
Loans." There can be no assurance that the above 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. The inability to
obtain sufficient working capital would have a material adverse effect on the
Company.
COMPLETION GUARANTEES
Pursuant to separate completion guarantees (the "Completion Guarantees") in
favor of each of (i) the RDC and the City, (ii) the LGCB, (iii) the holders of
the Notes, and (iv) the Bank Lenders (collectively, the "Beneficiaries"), the
Completion Guarantors have agreed to guarantee the Completion Obligations (as
defined herein), the Carry Obligations (as defined herein) and the Preservation
Obligations (as defined herein). See "--Material Agreements--Completion
Guarantees." 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 the Casino or any phase of construction of the Casino, fails in any
other manner to prosecute with diligence and continuity the Completion
Obligations, fails timely to pay any of the Carry Obligations, files or has
filed against it a petition for bankruptcy or similar relief, or is adjudged
bankrupt or insolvent or makes a general assignment for the benefit of
creditors. In addition, the Completion Guarantors' obligations under the
Completion Guarantees are suspended during the pendency of any Force Majeure
events. In general, "Force Majeure" events are defined as: (a) strikes,
lockouts, labor disputes, inability to procure materials (for which there is no
suitable substitute or alternative that can be timely obtained on
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reasonable commercial terms), failure of power; (b) material and adverse changes
in governmental requirements applicable to the construction of the Casino first
effective after the Effective Date and after the submission and approval of the
design of the Casino, and any material and adverse changes after the Effective
Date in the orders of any governmental authority having jurisdiction over a
party, the project area, the Casino Premises or the development (not including
stop work orders due to a building, safety or other code violation); (c)
material and adverse changes in governmental requirements first effective after
the Effective Date; (d) breach by the LGCB of the Amended and Renegotiated
Casino Operating Contract (not caused or created by the Company, the Completion
Guarantors or any affiliate of a Completion Guarantor); (e) acts of God,
tornadoes, hurricanes, floods, sinkholes, fires and other casualties,
landslides, earthquakes, epidemics, quarantine, pestilence, abnormal inclement
weather; (f) 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; and (g) any judgment, directive, ruling or order that substantially
restrains or substantially interferes with completion of Casino Construction. A
suspension for a Force Majeure event may not extend beyond 18 months from the
date JCC knew or should have known of such Force Majeure event, except that if
the items in (b) through (g) above or a national or general strike render
performance impossible during such 18 months, the suspension will continue until
such time as performance is no longer impossible.
The Completion Guarantees terminate upon the occurrence of any of the
following: (i) the termination of the Amended Ground Lease or the Amended GDA
(as defined herein) other than as a result of a breach by JCC or any Completion
Guarantor or the voluntary termination thereof by JCC, (ii) casino gaming
operations are no longer permitted to be conducted at the Casino or are
modified, restricted or limited in a manner that materially diminishes the
benefits afforded to JCC or the gaming activities permitted to be conducted at
the Casino pursuant to the Gaming Act by reason of a change of law or the
enactment of a new law after the Effective Date or by reason of JCC's rights
under the Amended and Renegotiated Casino Operating Contract having been
terminated in any material respect, other than as a result of a breach by JCC or
any Completion Guarantor; provided that, upon the occurrence of any of the
events described in this clause (ii) prior to the Termination of Construction
Date, the Completion Guarantors are nevertheless obligated to complete the
parking area and bus staging area for the Casino plus commercial space at the
street level (collectively, the "Poydras Street Support Facility"), the Poydras
Tunnel Area, exterior site and street work, and certain improvements which may
be required under the Amended Ground Lease; (iii) only as to the Carry
Obligations but not as to the Completion Obligations, a Force Majeure shall have
continued for more than one year from the receipt of a notice from any of the
Beneficiaries to the Completion Guarantors that the Completion Guarantors'
obligation to complete the Casino has taken effect, notwithstanding the
Completion Guarantors' actual and continuous best efforts to remove such Force
Majeure; provided, however, that the Completion Guarantors will remain liable
for all Carry Obligations that actually come due through the expiration of such
one year period to the extent not satisfied by JCC; and, provided further, that
the Completion Guarantors will have used their best efforts to remove such Force
Majeure within such one year period; or (iv) as to the Carry Obligations, as of
and upon the Termination of Construction Date and as to the Completion
Obligations upon the date on which all such payments or satisfactory provisions
for all such payments have been made, all lien periods with respect to the
Casino Construction have expired and no liens or privileges arising from the
furnishing of labor, materials, supplies or equipment for the Casino
Construction affecting or purporting to affect the Casino remain of record in
Orleans Parish. See "--Material Agreements--Completion Guarantees."
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. Nevertheless, if the Completion Guarantors are required to perform
under the Completion Guarantees and such performance is suspended as the result
of a Force Majeure event, such suspension could significantly delay the
completion and opening of the Casino. The failure to complete and open the
Casino on schedule would have a material adverse effect on the Company.
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JCC has also obtained a surety bond (the "Surety Bond") in the amount of
$119 million, representing the remaining hard construction costs of the Casino
Construction as of October 29, 1998, from a surety for the benefit of the
Beneficiaries.
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, 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. Adverse
developments in any of these areas could delay the project or increase its cost,
or both. Since HJC's bankruptcy filing, the Company has materially increased its
estimate of the cost to complete construction of the Casino Construction,
primarily as a result of (i) increases in general construction costs in the
region, (ii) physical deterioration of the partially-completed Casino structure
and parking lot structures, (iii) the need to redesign the Casino's interior due
to the dedication of the second floor of the Casino building to non-gaming uses
and by other changes in the configuration of the Casino contemplated by the
Amended and Renegotiated Casino Operating Contract, and (iv) the need to upgrade
the interior of the Casino in order to compete effectively with casinos in the
Mississippi Gulf Coast.
JCC intends to complete construction of the Casino Construction 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
required). 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 Term Loans, the
Junior Subordinated Credit Facility, the Convertible Junior Subordinated
Debentures 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
"Material Agreements--Completion Guarantees." In addition, 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 date 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 would have a material adverse effect on the Company.
Pursuant to the terms of the Amended and Renegotiated Casino Operating Contract,
beginning on the Casino Opening Date and continuing until the expiration date of
such contract, JCC is required to make payments which will for each 12 month
period beginning April 1 for purposes of the Amended and Renegotiated Casino
Operating Contract (a "COC Fiscal Year") constitute the greater of $100 million
or the sum of certain percentages of revenue from gaming operations of the
Casino (less the amounts paid out as winnings to patrons and credit instruments
or checks which are uncollected) for that COC Fiscal Year. Accordingly, the
amount of the minimum daily payment in a COC Fiscal Year is equal to $100
million divided by 365 days, or approximately $274,000, with an end of year
settlement, if any, of Gross Gaming Revenue Share Payments (as defined herein)
in excess of $100 million. Subject to certain extensions for Force Majeure
events, the Casino is required to be open for business to the general public by
October 30, 1999. If the Opening Date does not occur by October 30, 1999, then
JCC is still required to pay the minimum daily payment to the LGCB as required
under the Amended and Renegotiated Casino Operating Contract, under the same
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terms and conditions as if the Casino were actually open for business to the
general public, unless the failure to open the Casino for business to the
general public by October 30, 1999 is due to a Force Majeure event. The
requirement to pay the minimum daily payment pursuant to the terms of the
Amended and Renegotiated Casino Operating Contract prior to the date that the
Casino actually opens for operation would have a material adverse effect on the
Company. See "--Material Agreements--Amended and Renegotiated Casino Operating
Contract."
CONSTRUCTION OBLIGATIONS, PERMITS AND APPROVALS. An amended General
Development Agreement (the "Amended GDA") entered into among JCC, the RDC and
the City, as intervenor, dated October 29, 1998 and effective upon the Effective
Date, targets 12 months after the Effective Date, subject to extension for Force
Majeure, as the date JCC will complete the Casino Construction and open the
Initial Casino Facilities. Failure to complete the Casino Construction by June
30, 2000 and/or failure to diligently proceed with construction of the Casino
(subject to a 30 day cure period) would each constitute an event of default
under the Amended Ground Lease. See "--Cross Defaults," "--Political
Environment," "--Uncertainty Regarding Gaming Regulations and Future Changes to
the Law," "--Litigation," "--Applicability of Public Works Act," "--Material
Agreements--Amended GDA," "--Amended Ground Lease," and "--Amended and
Renegotiated 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 and
could oblige JCC to make the payments referred to above under the Amended GDA.
Furthermore, there is no assurance that the necessary approvals or permits will
be obtained to permit the construction or occupancy of the Casino. See
"--Political Environment."
ZONING AND LAND USE. The Proponents have obtained certain conditional use
approvals from the City for the Casino and the parking facilities for the
Casino. Certain of such approvals, however, are subject to further review and
additional approvals may be required. Although JCC expects to obtain all
required conditional use approvals for the Casino and its operations, no
assurances can be given 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, absent certain waivers, the Casino does not fit within all
requirements of the City's zoning ordinance (the "Zoning Ordinance"), the
Proponents have requested and received a number of waivers from the City
Council. For instance, in the fall of 1996, after discussions with the City, the
Proponents received waivers from the City Council relating to such matters as
permissible size of retail space, the scope of cafeteria food services,
limitations on live entertainment, permissible signage and required public
artwork. Some uncertainty exists, however, as to the City Council's authority to
grant such waivers in that a third party may successfully challenge the City
Council's authority to grant waivers to a particular City zoning ordinance and
invalidate waivers previously granted by the City. Although the Company is not
currently aware of any such challenges, revocation of such waivers could cause
the Casino to cease operations or limit the ability to operate once opened and
therefore could have a material adverse effect on the Company. 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 could delay or prevent the construction or opening of the Casino or
cause the Casino to cease operations once opened and therefore would have a
material adverse effect on the Company.
ABILITY TO DEVELOP THE DEVELOPMENT PROPERTIES
Subject to, among other things, the approval of the Master Plan, entering
into tenant leases and obtaining the necessary financing, the build-out of the
non-gaming tenant improvements on the second floor of the Casino beyond the
Second Floor Shell Construction (together with the 3CP Property and the Fulton
Property, the "Development Properties") is targeted to be completed following
completion of the
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Second Floor Shell Construction. Subject to, among other things, obtaining the
necessary financing, the 3CP Property and Fulton Property are potentially
available for development for entertainment uses supportive of the Casino. The
Company, however, has not made any plans for disposition or development of such
properties. There can be no assurance that the Company will be able to obtain
the necessary financing and satisfy the other conditions to development of the
Development Properties. The failure to develop the Development Properties could
have a material adverse effect on the Company.
CONDITIONS TO DISBURSEMENT UNDER BANK LOANS
JCC has entered into the Bank Loans to finance development of the Casino and
to provide working capital. The $10 million Tranche A-1 (as defined herein) and
$30 million Tranche A-3 (as defined herein) of the A Term Loan and the $30
million Tranche B-1 (as defined herein) of the B Term Loan were funded on the
Effective Date. The $20 million Tranche A-2 (as defined herein) of the A Term
Loan and the $121.5 million Tranche B-2 (as defined herein) of the B Term Loan
will be funded as required for construction of the Casino. The failure of the
Bank Lenders under Tranche A-2 or Tranche B-2 to disburse funds will not
terminate the Completion Guarantors' obligations under the Completion Guarantees
nor will such failure constitute a Force Majeure thereunder. The Bank Loans
provide that after the Effective Date, prior to each disbursement of funds, the
following conditions, among others, must be met: (i) there exists no default
under the Completion Guarantees or the HET Loan Guaranty (as defined herein) or
under the Bank Loans with respect to payments thereunder or due to the
occurrence of bankruptcy or insolvency events, and (ii) all representations
under the HET Loan Guaranty remain true and correct in all material respects. 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 Loans,
and the inability of JCC to obtain funds under the Bank Loans would have a
material adverse effect on the Company. See "--Material Agreements--Bank Loans."
CERTAIN LIMITATIONS ON CORPORATE CONTROL
Prior to the Transition Date, except upon the occurrence of certain events,
and after the requisite gaming regulatory agencies have made the necessary
suitability determinations, the board of directors of JCC Holding will consist
of six directors, with three directors elected by the holders of Class A Common
Stock and three directors elected by the holders of shares of Class B Common
Stock. 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, 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." HET currently beneficially owns 96.6% of
the issued and outstanding Class B Common Stock and, prior to the Transition
Date, HET has agreed to own not less than 51% of the outstanding shares of Class
B Common Stock (but HET may own such lesser percentage as may be approved by the
Class A Directors and the Class B Directors). See "Item 11. Description of
Registrant's Securities to be Registered--Common Stock." Consequently, HET is
able to elect all of the directors who will exercise day-to-day control over the
Company. Also, upon and after the Transition Date, if the HET Warrant is
exercised in its entirety, HET and its subsidiaries could own up to 50.0% of the
then outstanding shares of Unclassified Common Stock, subject to certain
adjustments. See "--Material Agreements--HET Warrant." 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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ANTI-TAKEOVER CONSIDERATIONS
JCC Holding's Restated Certificate of Incorporation and Bylaws include a
number of provisions that may have the effect of encouraging persons considering
unsolicited tender offers or other unilateral takeover proposals to negotiate
with the board of directors of JCC Holding rather than pursue non-negotiated
takeover attempts. Prior to the Transition Date, these provisions include (i)
classification of the Common Stock into Class A Common Stock and Class B Common
Stock, (ii) limitations on the entities that are permitted to hold shares of
Class B Common Stock, (iii) the requirement that the Harrah's Entities own not
less that 51% of the Class B Common Stock, (iv) classification of the board of
directors where Class A Directors may be elected only by holders of the Class A
Common Stock and the Class B Directors may be elected only by holders of Class B
Common Stock, (v) a staggered board of directors, (vi) majority approval by the
Class A Directors and the Class B Directors of Significant Transactions (as
defined herein), (vii) the increase of the number of Class B Directors upon a
Change of Control (as defined herein), (viii) the requirement that any amendment
to the Restated Certificate of Incorporation or Bylaws which affects the rights
of holders of the Class A Common Stock or Class A Directors or which affects the
rights of holders of the Class B Common Stock or Class B Directors be approved
by the affirmative vote of the holders of a majority of the affected class of
Common Stock, and (ix) the right of the Harrah's Entities to acquire and hold
shares of Class A Common Stock upon a Change of Control. See "Item 11.
Description of Registrant's Securities to be Registered." After the Transition
Date, these provisions include (a) a staggered board of directors and (b)
supermajority stockholder voting requirements to approve an amendment to the
Restated Certificate of Incorporation or an amendment to the Bylaws. See "Item
11. Description of Registrant's Securities to be Registered." In addition,
certain provisions under the Gaming Act and the Rules and Regulations could have
the effect of making it more difficult for a third party to acquire control of
the Company, including the requirement that officers, directors and certain
persons holding an equity interest in JCC Holding be found suitable under the
Gaming Act and Rules and Regulations. The Gaming Act also prohibits the sale,
transfer, assignment, pledge, alienation, disposition, public offering, or
acquisition of securities that results in one person's owning five percent or
more of the total outstanding equity securities issued by JCC without prior
approval of the LGCB. See "--Regulation." HCCIC's right upon and after the
Transition Date to purchase up to 50.0% of the then outstanding shares of Common
Stock under the HET Warrant could also have the effect of making it more
difficult for a third party to acquire control of the Company. See "--Material
Agreements--HET Warrant." In addition, certain of the agreements entered into in
connection with the Plan of Reorganization contain provisions restricting the
ability of the Company to enter into certain change of control transactions. See
"--Material Agreements--New Notes and New Contingent Notes," "--Convertible
Junior Subordinated Debentures" and "--Amended Management Agreement." These
anti-takeover provisions 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, even if such events would be favorable to the
interests of the stockholders of JCC Holding.
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 was 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."
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LACK OF HISTORICAL FINANCIAL INFORMATION FOR THE COMPANY
Prior to the Effective Date, the Company had not (i) conducted any
operations, (ii) generated any revenues or (iii) issued any capital stock.
Accordingly, separate financial statements and other disclosures with respect to
the Company are omitted as such separate financial statements and other
disclosure are not deemed material. On the Effective Date of the Plan of
Reorganization, JCC succeeded to all of the assets of HJC except the 3CP
Property and Fulton Property which vested in CP Development and FP Development,
respectively. Therefore the historical financial statements included herein are
the historical financial statements of HJC. The historical financial statements
of HJC, however, do 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 the dates indicated or at the
beginning of the period indicated or to project the financial position or
results of operations for any future date or period. Due to, among other things,
the application of "Fresh Start" reporting on the Effective Date, the future
financial position and results of operations of the Company is expected to be
materially different from the financial position and results of operations of
HJC. There can be no assurance, however, that the future financial position and
results of operations of the Company will be materially different from the
financial position and results of operations of HJC. See "Item 2. Financial
Information--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Fresh Start Reporting."
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. The
Gaming Act and the Rules and Regulations do not prohibit JCC from serving liquor
and other alcoholic beverages to patrons. 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. In
addition, under the Gaming Act, the Company is generally prohibited from
engaging in the sale of products in the Casino that are not directly related to
gaming. The provisions described above relating to food, lodging and retail
activities also apply to the Company's operations on the second floor of the
Casino. See "--Regulation--Louisiana Gaming Act." See "--Regulation." In
addition to the Gaming Act and the Rules and Regulations described above which
only permit the Company to offer limited cafeteria style food services, the
Company is currently prohibited from offering, under the terms of the Second
Floor Sublease, facilities, the principal business purpose of which is a
restaurant, on the second floor of the Casino. See "--Material
Agreements--Second Floor Sublease." Further, a bill was pre-filed in the State
House of Representatives for consideration during the State legislature's 1999
regular session which would amend the Gaming Act to broaden the food service
restrictions applicable to the Casino to all parts of any connecting structure
or building. 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 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 JCC. Additionally, since
the time the land-based Casino project was
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originally proposed in the early 1990s, considerable competition has developed
which may have an adverse impact upon the Casino's profitability. 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. Because of the large number of casinos competing on
both the local and national levels and the continued development of other gaming
markets, the attraction of a land-based casino in New Orleans has decreased. In
addition, negative publicity associated with the Company's bankruptcy may have
an adverse impact on the Casino's ability to compete. Further, unlike the
Casino, the vast majority of the Casino's competitors operate without
restrictions on lodging, food services, and entertainment. The Company believes
that the ability to provide such amenities is a considerable competitive
advantage for the Casino's competitors. See "Limits on Restaurants, Lodging,
Retail Operations and Entertainment" and "--The Company--Competition."
MISSISSIPPI. JCC will compete for visitors on a national, regional and
local scale with existing gaming facilities in Mississippi. The Mississippi Gulf
Coast has recently emerged as a major gaming destination. There are currently 11
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. Plans to build additional 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.
In addition, in early 1999 Mirage Resorts Inc. is scheduled to open Beau Rivage,
an 1,800 room hotel, resort and dockside casino in Biloxi that will be larger
than any hotel in New Orleans. Approximately $600 million is expected to be
spent to develop Beau Rivage and due to its projected size, amenities and
ownership, is anticipated to provide significant competition to the Casino. 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."
LOUISIANA. On a regional and local scale, JCC will compete with gaming
operations in Louisiana. In Louisiana, thirteen riverboats are operating,
including one riverboat 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 four dockside casinos in
Shreveport/Bossier City in northern Louisiana. One license to conduct riverboat
gaming in the State has not yet been awarded, however, the award of such license
has been deferred pending the results of an LGCB study on the effects of gaming
in Louisiana. 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 only dockside gaming 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, Chitimacha and Coushatta
Indian tribes have each opened a casino near the towns of Marksville, Charenton
and Kinder, respectively. Each casino is located more than 105 miles from New
Orleans.
NATIONAL AND INTERNATIONAL COMPETITION. 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
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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 in the past.
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 OTB parlors. In addition, under
Louisiana law, certain parishes (including Orleans Parish) presently permit
restaurants, taverns, hotels and licensed clubs to operate up to three 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.
Louisiana law, however, limits VDP wagering and jackpots. Other forms of
wagering, including charitable gaming and a state lottery, will provide
additional local competition. Further, in 1997, the State legislature authorized
the use of slot machines at race tracks located in three parishes in the State
(but not Orleans Parish), subject to a 15,000 square foot limitation. The
authorization for this bill was subject to a referendum in each of the parishes
where the race tracks are located to approve such use of slot machines. The
voters in two of the three parishes approved the use of slot machines at the
race tracks located in those parishes. The authorization for this bill remains
subject to further legislative action on the fees and taxes to be imposed on
such slot machines. Legislation to impose such fees and taxes was introduced in
the 1998 fiscal session of the State legislature, but failed to receive
legislative approval. Future consideration of this issue is likely by the State
legislature. If slot machines are ultimately permitted at race tracks in the two
parishes that approved such use of slot machines, the Casino would compete for
patrons with slot machines at such race tracks.
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.
LIMITED REMEDIES FOR 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, the Gaming Act provides that, if at
any time while the Amended and Restated Casino Operating 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 and Renegotiated Casino Operating Contract (but such obligation may
resume pursuant to the terms of the Amended and Renegotiated Casino Operating
Contract). 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. However, state laws generally requiring riverboats to sail in accordance
with their schedules and safety conditions are frequently unenforced.
Under the Amended and Renegotiated Casino Operating Contract, if the State
or the LGCB permits any riverboat to conduct dockside gaming in material
violation of the Riverboat Act or the Gaming Act after notice from JCC and an
opportunity to cure, JCC will be entitled to seek specific performance by the
LGCB and/or the State under the exclusivity provisions of the Amended and
Renegotiated Casino Operating Contract and/or mandamus against the LGCB or any
other appropriate governmental authority
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not to permit such violations. JCC's obligation to pay the Gross Gaming Revenue
Share Payments (as defined herein) will continue during the pendency of any
judicial action through final non-appealable judgment and at all times
thereafter will not relieve JCC of the obligation to pay the Gross Gaming
Revenue Share Payments even if the court finds that the LGCB permitted a
riverboat to conduct dockside gaming. This circumstance could have a material
adverse effect on JCC's operations. The Amended and Renegotiated Casino
Operating Contract further limits the remedies available to JCC in the event
that a Permitted Riverboat (as defined herein) in Orleans Parish violates a
Permitted Amendment (as defined herein) to the Gaming Act. See "--Material
Agreements--Amended and Renegotiated Casino Operating Contract--Exclusive
Contract." The Amended and Renegotiated Casino Operating Contract contemplates a
possible change in the Gaming Act to allow only one Permitted Riverboat on Lake
Pontchartain in Orleans Parish to conduct dockside gaming subject to, among
other things, certain restaurant and hotel limitations on such Permitted
Riverboat. If LGCB allows a violation of the Permitted Amendment to occur by a
Permitted Riverboat, JCC may seek relief in the court by way of specific
performance and/or mandamus but is not relieved of its obligation to pay the
Gross Gaming Revenue Share Payments. See "--Material Agreements--Amended and
Renegotiated Casino Operating Contract."
In addition, a state law enacted in 1996 purports to, among other things,
retroactively amend the Gaming Act: (i) to provide 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 operator of the Casino of the obligation to pay
compensation to the LGCB in accordance with the Amended and Restated Casino
Operating Contract; and (ii) to provide that governmental inaction which results
in the operation of another land-based casino in Orleans Parish will not relieve
the operator of the Casino of the obligation to pay compensation to the LGCB in
accordance with the Amended and Restated Casino Operating Contract. This law
also purports to provide that in the event of litigation between the operator of
the Casino and the LGCB or the State or any of its political subdivisions, the
operator of the Casino must continue to make all payments to the LGCB and to the
State and any of its political subdivisions as required by law and the Amended
and Restated Casino Operating Contract 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 and
Renegotiated Casino Operating Contract, a circumstance that could have a
material adverse effect on JCC's operations. See "--Uncertainty Regarding Gaming
Regulation and Future Changes to the Law--Uncertainty Regarding Regulation and
Interpretation of the Gaming Act" and "--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 constructing or operating a
casino. Although certain of JCC Holding's expected 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.
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CROSS DEFAULTS
Certain events of default under the Amended and Renegotiated Casino
Operating Contract, the Amended Ground Lease, the Amended Management Agreement
(as defined herein), the indentures for the New Notes and New Contingent Notes
(the "Indentures") or the Bank Loans constitute an event of default under
certain of the other of such agreements (subject, in certain circumstances, to
the cure periods set forth in such agreements). For example, a default under the
Amended Management Agreement results in cross defaults under the Amended and
Renegotiated Casino Operating Contract and the Amended Ground Lease, and a
default under the Amended GDA or the revocation or termination of the Amended
and Renegotiated 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.
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 the American Stock Exchange, or to be listed on such other national
securities exchange or quoted on the National Association of Securities Dealers,
Inc. Automated Quotations System as it deems appropriate. There can be no
assurance that JCC Holding will be successful in causing the Class A Common
Stock to be 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, JCC's operating results, competitive factors, prevailing
interest rates and the markets for similar securities which are subject to
various pressures.
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 HCCIC (which request may not be
made until the second anniversary of the opening of the Casino), 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 HCCIC, HET and HET's subsidiaries (provided, however,
that prior to the Transition Date, Harrah's Entities are required to own at
least 51% of the outstanding shares of Class B Common Stock, unless a lesser
percentage is approved by the Class A Directors and the Class B Directors). See
"Item 11. Description of Registrant's Securities to be Registered--Common Stock"
and "--Agreements with Certain Stockholders." 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, their affiliates and FNBC. See "Item
11. Description Registrant's Securities to be Registered--Common Stock." In
addition, the Convertible Junior Subordinated Debentures will be convertible at
the option of the holders, in whole or in part, at any time after October 1,
2002, into Class A Common Stock at a conversion price of $25.00. See "--Material
Agreements--Convertible Junior Subordinated Indentures." 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.
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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 tourism in
New Orleans, 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.
UNCERTAINTY REGARDING TAX TREATMENT OF THE NOTES AND THE CONVERTIBLE JUNIOR
SUBORDINATED DEBENTURES
The Notes and the Convertible Junior Subordinated Debentures have legal and
other economic terms typically associated with indebtedness and are intended to
create a debtor-creditor relationship between JCC and the holders thereof.
Consequently, JCC treats the Notes and the Convertible Junior Subordinated
Debentures 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 series of Notes)
should be classified as equity, rather than debt, for federal income tax
purposes. In addition, it is possible that the IRS may assert that the
Convertible Junior Subordinated Debentures should be classified as equity
because of the debentures' conversion, redemption and other features. Moreover,
even if the Convertible Junior Subordinated Debentures are treated as debt for
federal income tax purposes, amendments made to the Internal Revenue Code of
1986, as amended (the "Code"), in 1997 may prohibit JCC Holding from deducting
interest payments made thereon due to the debentures' conversion and redemption
features. It is unclear whether the debentures will qualify for a transition
rule or "grandfather" exception to these amendments. There can be no assurance
that the IRS will not challenge the characterization of the Notes or the
Convertible Junior Subordinated Debentures as debt or that a court would not
sustain such a challenge. If it were determined that any such instrument
constitutes equity for federal income tax purposes, or if JCC Holding is
prohibited from deducting interest paid on the Convertible Junior Subordinated
Debentures due to the amendments to the Code, such a recharacterization or
treatment, as the case may be, would result in the loss of substantial interest
deductions and other tax benefits for JCC. The loss of such deductions and other
tax benefits could have a material adverse effect on the Company.
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
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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 provides 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 certain 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, which could have a material
adverse effect on the Company.
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 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 Public Works Act and are not subject to its bidding requirements. If the
Public Works Act were to apply to the Casino Contracts, the Public Works Act
would nullify any Casino Contracts which are not made 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 does 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 of that act to the
Casino Contracts will not cause material delays in the construction of the
Casino or otherwise adversely affect the Company.
ENVIRONMENTAL MATTERS
JCC owns and leases 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. In addition to all of its rights under the Bankruptcy Code as
successor to HJC under the Plan of Reorganization, JCC has obtained 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 and Renegotiated Casino Operating
Contract 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 options are subject to
covenants contained in the Indentures, the Bank Loans, 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,
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asset sales, transactions with affiliates, mergers and consolidations. See
"--Material Agreements--New Notes and New Contingent Notes," "--Bank Loans,"
"--Amended Ground Lease," and "--Amended and Renegotiated Casino Operating
Contract."
CONFLICTS OF INTEREST
Under the Amended Management Agreement, the Manager, a wholly-owned
subsidiary of HET, is 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 will 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
will also compete with the Casino on a national basis.
In addition, Colin V. Reed, Executive Vice President and Chief Executive
Officer of HET, is presently a director as well as Chairman of the Board of JCC
Holding. Currently, Frederick W. Burford, formerly a paid consultant to HET, is
the President of JCC Holding, JCC, JCC Development, CP Development and FP
Development. As of the Effective Date of the Plan of Reorganization, Frederick
W. Burford ceased to be a paid consultant to HET. Additionally, L. Camille
Fowler, the Vice President-Finance, Treasurer and Secretary of JCC Holding, JCC,
JCC Development, CP Development and FP Development was also the Director of
Finance, Vice President, Secretary and Treasurer of the Manager. Immediately
after the Effective Date, L. Camille Fowler ceased to serve as the Director of
Finance, Vice President, Secretary and Treasurer of the Manager. See "Item 5.
Directors and Executive Officers." Sometime after the Effective Date, if the
requisite gaming regulatory agencies have made the necessary determinations, one
or two other officers of HET are expected to be Class B Directors of JCC
Holding. As a result of HET's ownership of the Competing Casinos, and the fact
that these HET officers hold or are expected to hold such positions with 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 and
Renegotiated Casino Operating Contract impose certain suitability requirements
with respect to the holding of any securities of JCC Holding and JCC. To the
extent any holder of such securities fails to satisfy such 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 and
Renegotiated Casino Operating Contract." The Restated 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--Redemption
Provisions."
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CERTAIN BANKRUPTCY CONSIDERATIONS
The RDC leases the Rivergate site from the City pursuant to a lease
agreement with the City (the "City Lease") and JCC subleases the site from the
RDC pursuant to the Amended Ground Lease. The commencement of a bankruptcy case
by or against the City or the 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 were terminated as between the City and RDC as a result of such rejection
by the RDC, JCC might lose its rights under the Amended Ground Lease. JCC's loss
of its rights under the Amended Ground Lease would have a material adverse
effect on the Company.
POTENTIAL SUCCESSOR LIABILITY
As the successor to HJC, the Company may be subject to certain liabilities
of HJC not provided for in the Plan of Reorganization. Such liabilities may
arise in a number of circumstances, including those where (i) a creditor of HJC
did not receive proper notice of the pendency of the bankruptcy case relating
the Plan of Reorganization or the deadline for filing claims therein, (ii) the
injury giving rise to, or source of, a creditor's claim did not manifest itself
in time for the creditor to file the creditor's claim, (iii) a creditor did not
timely file the creditor's claim in such bankruptcy case due to excusable
neglect or (iv) the order of confirmation for the Plan of Reorganization was
procured by fraud. Although the Company has no reason to believe that it will
become subject to liabilities of HJC that are not provided for in the Plan of
Reorganization, if the Company should become subject to such liabilities, it
could have a material adverse effect on the Company.
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 not less than 55% of
the employees of JCC and JCC Development live and reside in Orleans Parish
(subject to reduction to comply with applicable law). The minimum percentage of
JCC and JCC Development employees that are required under the Amended Ground
Lease to be Orleans Parish residents will increase by 2% on the anniversary of
the Opening Date until the residency requirement reaches 65% (subject to
reduction to comply with applicable law). JCC has agreed to use its best efforts
to maximize hiring in Orleans Parish with the goal being that 80% of employees
of JCC and JCC Development, in the aggregate, live and reside in Orleans Parish.
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 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."
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AMENDED OPEN ACCESS PROGRAM AND PLANS
The Amended GDA and the Amended Ground Lease obligate JCC to comply with a
revised and updated open access program and amended and restated open access
plans adopted pursuant thereto (collectively, the "Amended Open Access Program
and Plans"). The Amended Open Access Program and Plans were approved and adopted
by the New Orleans City Council on October 15, 1998. The Amended Open Access
Program and Plans are designed to facilitate participation by minorities, women,
and disadvantaged persons and business enterprises in developing, constructing
and operating the Casino and contain 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 and Plans. These penalties
include fines, a default under the Amended Ground Lease under certain
circumstances and the right of the City's Mayor to request a review of 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 and Plans. See "Material Agreements--Amended GDA."
Under the Gaming Act, JCC is required, as nearly as practicable, to employ
minorities in proportions consistent with the population of the State. The
Amended Open Access Program and Plans may establish or require goals for the
employment of minorities at the Casino in a proportion greater than the
proportion of minorities in the State's population. JCC interprets the
provisions of the Gaming Act 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 and Renegotiated Casino Operating
Contract will be applied in a manner which permits compliance with the Amended
Open Access Program and Plans. If such provisions were not applied in such a
manner, there may be a conflict between the Gaming Act, the Amended and
Renegotiated Casino Operating Contract and the Amended Open Access Program and
Plans since the percentage minority population of the State may be less than the
percentage minority hiring goals under the Amended Open Access Program and
Plans. JCC intends to comply with the Amended Open Access Program and Plans
unless they are 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 Amended Open Access Program and Plans, JCC may be in violation of
the Gaming Act and the provisions of the Amended and Renegotiated Casino
Operating Contract. Such a violation could result in a material adverse effect
on the Company.
YEAR 2000 RISKS
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates that have been
stored as two digits rather than four (e.g., "98" for 1998). On January 1, 2000,
any clock or date recording mechanism, including date sensitive software, which
uses only two digits to represent the year may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices or perform similar
tasks.
The Company has not yet fully evaluated its state of readiness with respect
to Year 2000 problems, the costs that may be incurred to address any Year 2000
issues which may arise or the effect on the Company of any Year 2000 issue which
may arise. The Company will not be able to fully evaluate its readiness until
after the completion of a material portion of the construction of the Casino
(specifically, the installation of computer hardware and software in the Casino)
and the negotiation and execution of contracts with significant suppliers.
On the Effective Date, JCC and the Manager entered into a side letter
agreement pursuant to which the Manager agreed to prepare and deliver to the
board of directors of JCC Holding quarterly reports regarding certain Year 2000
issues relating to JCC. It is expected that the slot management system for the
Casino will be licensed from a third party. The Company has no information on
the status of the
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compliance of the slot management or any other system licensed from a third
party or in equipment owned by JCC or otherwise on which the operation of the
Casino may depend, and will not be able to obtain such information until the
relevant contracts are negotiated and executed.
Because the business activities of JCC Holding, JCC Development, CP
Development and FP Development are limited, and because many of the business
activities of JCC Development, CP Development and FP Development likely will not
commence until after January 1, 2000, the Company is not presently aware of the
existence of any material Year 2000 compliance risks with respect to those
entities.
Should the Company and/or its significant suppliers fail to timely identify,
address and correct material Year 2000 issues, such failure could have a
material adverse impact on the Company's ability to operate. In addition, if
corrections made by such suppliers to address Year 2000 issues are incompatible
with the Company's systems, the Year 2000 issue could have a material adverse
impact on the Company's ability to operate. The Company does not currently have
contingency plans designed to minimize the impact of a Year 2000 problem, but
expects to develop plans as it completes construction of a material portion of
the Casino (specifically, the installation of computer hardware and software in
the Casino) and negotiates contracts with significant suppliers. There can be no
assurance, however, that such plans will be successful. The impact on the
Company's operating results of the Company's and/or its significant suppliers'
failure to timely address and correct material Year 2000 issues and of any
contingency plans to be designed to address such issues cannot be determined at
this time.
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 terms of the Bank Loans, for as long as there are amounts outstanding
under the Bank Loans no dividends will be paid. See "--Material Agreements--Bank
Loans." In addition, the terms of the Indentures prohibit payment of cash
dividends unless certain conditions are met, including the condition that no
dividend shall be paid unless JCC has paid the maximum contingent payments with
respect to the New Notes and the New Contingent Notes for certain periods of
time. 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 of JCC
Holding.
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 LOANS
Pursuant to the Credit Agreement dated as of October 29, 1998 (the "Credit
Agreement") among JCC, as borrower, JCC Holding, as guarantor, and the Bank
Lenders, JCC has obtained a construction financing commitment from the Bank
Lenders to provide JCC with $211.5 million under the Term Loans and up to $25
million under the Working Capital Facility. The Term Loans and the Working
Capital Facility are a single combined credit facility.
The A Term Loan is comprised of three tranches, two of which mature in April
2006 and one of which matures in January 2006, and the B Term Loan is comprised
of two tranches, both of which mature in January 2006. The Working Capital
Facility is a $25 million revolving line of credit which terminates in January
2006.
The A Term Loan consists of a $60 million term loan which generally ranks
senior to all existing and future indebtedness of JCC except certain obligations
of JCC under the HET/JCC Agreement. The A Term Loan consists of three tranches:
(i) a $10 million tranche ("Tranche A-1"); (ii) a $20 million tranche ("Tranche
A-2"); and (iii) a $30 million tranche ("Tranche A-3"). The B Term Loan consists
of two tranches: (i) a $30 million tranche ("Tranche B-1"); and (ii) a $121.5
million tranche ("Tranche B-2"). The Working Capital Facility provides JCC with
up to $25 million of availability to meet short-term working capital
requirements, including up to $10 million of availability for letters of credit.
The interest rate on Tranche A-1 and Tranche A-3 loans maintained as
Eurodollar loans is LIBOR plus 1.0%. The interest rate on Tranche A-2 loans
maintained as Eurodollar loans is equal to the sum of (i) LIBOR plus 2.5%, and,
(ii) if applicable, any increase, not to exceed 1.0%, by which the applicable
margin charged under HET's existing senior bank credit facility (the "HET
applicable margin") is above 0.5%. The interest rate on Tranche B-1 loans
maintained as Eurodollar loans is LIBOR plus 2.5%. The interest rate on Tranche
B-2 loans maintained as Eurodollar loans equals (i) to the extent the aggregate
principal amount of such loans so outstanding at any time exceeds $10 million,
the sum of (a) LIBOR plus 2.5% plus, if applicable, (b) any increase, not to
exceed 1.0%, by which the HET applicable margin is above 0.5% and (ii) in the
case of the first $10 million of Tranche B-2 loans maintained as Eurodollar
loans at any time outstanding, the rate will be LIBOR plus the HET applicable
margin then in effect. The interest rate on any loans maintained as base rate
loans is the sum of (i) the applicable base interest rate and (ii) that
percentage (not below 1.0%) which is 1.0% less than the margin for loans of such
tranche maintained as Eurodollar loans. The interest rate on the Working Capital
Facility is (i) so long as the Carry Obligations under the Completion Guarantees
remain guaranteed pursuant to the terms of such Completion Guarantees and in
accordance with the terms thereof (with the first date upon which such Carry
Obligations are no longer so guaranteed being herein called the "Carry
Obligation Termination Date"), the HET applicable margin and (ii) at all times
from and after the Carry Obligation Termination Date, a rate equal to the sum of
(a) LIBOR plus 2.50%, plus, if applicable, (b) any increase, not to exceed 1.0%,
in the HET applicable margin above the HET applicable margin in effect on the
Effective Date. All of the immediately preceding interest rates are per annum.
Notwithstanding the above, default interest rates will apply to past due amounts
under the Bank Loans.
The combined amortization required under Tranche A-1 and Tranche A-2 is
quarterly installments of principal, commencing July 31, 2000, in the amount of
$400,000 per year, with a $27.8 million lump sum payment due at maturity. The
amortization required under Tranche A-3 is quarterly installments of
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principal, commencing July 31, 2000, in the amount of $4 million the first year,
$6 million the second and third years and $7.0 million the fourth and fifth
years, with no lump sum payment due at maturity. The amortization required under
the B Term Loan is quarterly installments of principal, commencing July 31,
2000, in the amount of $6.0 million the first year, $10.0 million the second,
third, fourth and fifth years, and $8.5 million the sixth year, with a $97.0
million lump sum payment due at maturity. The Bank Loans require all excess cash
flow of JCC to first be allocated to repayment of Tranche A-1 and Tranche A-2 on
a pro rata basis. After Tranche A-1 and Tranche A-2 are repaid, mandatory
prepayments resulting from application of excess cash flow and other proceeds
(excluding scheduled amortization and payments pursuant to any voluntary
prepayment, payment guarantees or put agreements) include (i) if any principal
amortization has been deferred (as set forth in the subsequent paragraph), 75%
of excess cash flow and certain additional proceeds will be applied first to
Tranche B-1 and second to Tranche A-3 to the extent of the total of all such
deferred principal amortization, and (ii) thereafter, 50% of excess cash flow
and certain additional proceeds will be applied pro rata to Tranche A-3, Tranche
B-1 and Tranche B-2 until an agreed threshold amount (determined based on
projected cash flow) for the respective fiscal year has been so applied. At such
time as an aggregate amount equal to the agreed threshold amount has been so
applied in any fiscal year, excess cash flow and other mandatory prepayments
will be applied first to Tranche B-1, second to Tranche A-3 and third to Tranche
B-2.
The scheduled quarterly amortization payments under the Term Loans will be
deferred for any of the first six semi-annual interest payment periods if (i)
Fixed Interest (as defined herein) on the New Notes is paid in kind for the
period ending prior to such quarterly amortization date, (ii) the Manager has
deferred Base Fees (as defined herein) for the corresponding interest payment
period, (iii) the Manager has deferred Incentive Fees (as defined herein) for
the corresponding interest payment periods, and (iv) HET and HOCI have deferred
their fees under the HET/JCC Agreement. Starting with the fourth year after the
Effective Date, if Consolidated EBITDA (as defined herein) for JCC does not
exceed $28.5 million for the 12 months ending on the last day of the semi-annual
period ended immediately prior to the most recent semi-annual interest payment
date with respect to the Notes, amortization under the Term Loans will be
deferred.
HET and HOCI have provided a payment guarantee or a "put" agreement with
respect to Tranche A-2, Tranche B-2 and the Working Capital Facility
(collectively, the "HET Loan Guaranty"); provided, however, that any payments by
HET or HOCI under the Completion Guarantees will be made pursuant to the
Completion Guarantees. In exchange for providing the HET Loan Guaranty, BTCo
will pay to HET an annual credit support fee (the "BTCo Credit Support Fee")
equal to 2%, and JCC will pay to HET an annual credit support fee (the "JCC
Credit Support Fee") equal to 0.75%, of the average aggregate principal amount
of loans and/or stated amount of letters of credit outstanding from time to time
under Tranche A-2, Tranche B-2 and the Working Capital Facility (in the case of
Tranche B-2, only to the extent of the aggregate outstanding principal amount
thereof from time to time is in excess of $10 million); provided, however, that
(i) HET will not receive credit support fees based on amounts outstanding, or
stated amounts of letters of credit relating to project costs of the Casino,
under the Working Capital Facility until the Carry Obligations of HET and HOCI
under the Completion Guarantees have terminated, (ii) the BTCo Credit Support
Fee will be payable only to the extent such fee is actually received by BTCo
from JCC as interest under Tranche A-2, Tranche B-2 and the Working Capital
Facility, and so long as HET and HOCI are not in default under the HET Loan
Guaranty, and (iii) the Credit Support Fee amounts are subject to certain
adjustments in the HET applicable margin. To the extent the HET applicable
margin increases up to .75%, the .75% JCC credit support fee is reduced down to
zero. The net effect of JCC's payment of credit support fees combined with the
applicable interest rate for Tranche A-2, Tranche B-2 and the Working Capital
Facility is that JCC will pay in credit support fees and interest (i) in the
case of Eurodollar loans, a sum equal to LIBOR plus 3.50% which can reduce to
3.25% if the HET applicable margin decreases and (ii) in the case of base rate
loans, a sum equal to that applicable to Eurodollar loans, less 2.50% which can
reduce to 2.25% if the HET applicable margin decreases. Also in consideration of
the HET Loan Guaranty, HCCIC received the HET Warrant. See "--HET Warrant."
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The $10 million Tranche A-1, the $30 million Tranche A-3 and the $30 million
Tranche B-1 were fully funded on the Effective Date. The $121.5 million Tranche
B-2 and the $20 million Tranche A-2 will be funded as required for the
construction of the Casino with Tranche B-2 to be drawn prior to Tranche A-2.
The $22.5 million Junior Subordinated Credit Facility will be funded after
Tranche A-2, however any portion of the Junior Subordinated Credit Facility
which is not used for construction related costs will be applied to repay
amounts outstanding under Tranche A-2. If any amount of Tranche B-2 remains
undrawn upon completion of the construction of the Casino, it will be drawn to
pay down Tranche A-1. The failure of the lenders under Tranche A-2 or Tranche
B-2 to disburse funds will not terminate the Completion Guarantors' obligations
under the Completion Guarantees.
The Bank Loans are secured by liens on substantially all of the assets of
each of JCC (excluding the Amended and Renegotiated Casino Operating Contract,
the House Bank (as defined herein) and the Gross Gaming Revenue Share Payments
(as defined herein)), JCC Holding, JCC Development, CP Development and FP
Development in favor of The Bank of New York, as collateral agent (the
"Collateral Agent") for the benefit of the Bank Lenders as well as the holders
of the Notes under the Indentures and HET and HOCI as Minimum Payment
Guarantors, subject to the terms of the Intercreditor Agreement (as defined
herein). Certain of the collateral is subject to release in accordance with the
applicable security documents and the Intercreditor Agreement. Within the Bank
Loans, the A Term Loan and related Senior Permitted Refinancings (as defined
herein) are senior to the Working Capital Facility and the B Term Loan. The B
Term Loan and the Senior Subordinated Permitted Refinancings (as defined herein)
are PARI PASSU with the New Notes and the New Contingent Notes. The "Senior
Permitted Refinancings" include any refinancings of the A Term Loan which do not
increase the principal amount of indebtedness outstanding and available
thereunder (except to the extent (x) accrued and unpaid interest and/or other
amounts owing with respect to the refinanced indebtedness are refinanced and/or
(y) of the fees and expenses incurred in connection with the refinanced
indebtedness) or decrease the weighted-average maturity thereof. The "Senior
Subordinated Permitted Refinancings" include any refinancings of the B Term Loan
and the Working Capital Facility which do not increase the principal amount of
indebtedness outstanding and available thereunder (except to the extent (x)
accrued and unpaid interest and/or other amounts owing with respect to the
refinanced indebtedness are financed and/or (y) of the fees and expenses
incurred in connection with the refinanced indebtedness) or decrease the
weighted-average maturity thereof.
Future drawings under the Bank Loans are subject to the following
conditions, among others, (i) that there exists no default under the Bank Loans
with respect to payments thereunder or certain bankruptcy or insolvency events
or under the Completion Guarantees or the HET Loan Guaranty at the time of each
draw, and (ii) that all representations under the HET Loan Guaranty remain true
and correct in all material respects at the time of each draw.
The Bank Loans contain affirmative covenants with respect to, among other
things, 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.
The obligations of JCC under the Credit Agreement (including obligations
under interest rate protection agreements entered into in connection therewith)
are guaranteed on a senior basis by JCC Holding, JCC Development, CP Development
and FP Development, and will be similarly guaranteed by each future subsidiary
of JCC Holding.
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JUNIOR SUBORDINATED CREDIT FACILITY
On the Effective Date, JCC entered into the Junior Subordinated Credit
Facility pursuant to which HET agreed to make available up to $22.5 million of
subordinated indebtedness to fund project costs to the extent that such costs
exceed amounts available under the Term Loans (excluding Tranche A-1 and Tranche
A-3), the proceeds from the sale of the Convertible Junior Subordinated
Debentures and the Harrah's New Equity Investment. The Junior Subordinated
Credit Facility will be applied to project costs prior to amounts under Tranche
A-1 and Tranche A-3. The Junior Subordinated Credit Facility is unsecured, and
amounts outstanding thereunder will be subordinated in right of payment to
certain obligations of JCC under the HET/JCC Agreement, the Term Loans, the New
Notes, the New Contingent Notes, the Working Capital Facility, Senior Permitted
Refinancings and Senior Subordinated Permitted Refinancings. If on the
termination of construction of the Casino JCC has not borrowed the full $22.5
million under the Junior Subordinated Credit Facility, JCC must borrow the
remaining amount and use the proceeds (i) first to pay any outstanding principal
and interest under Tranche A-1 and (ii) second to pay any outstanding principal
and interest under Tranche A-2.
Amounts owing under the Junior Subordinated Credit Facility will be due and
payable six months following the maturity of the New Notes. Early repayment is
permitted, subject to meeting certain restricted payment tests contained in the
Indentures for the Notes and pursuant to the documents relating to the Bank
Loans. Outstanding principal under the Junior Subordinated Credit Facility bears
annual interest at the rate of 8%. Subject to meeting certain restricted payment
tests contained in the Indentures for the Notes and pursuant to the documents
relating to the Bank Loans, the Junior Subordinated Credit Facility will be
repaid from the cash flow or proceeds of major capital events of JCC available
for distribution by JCC to its member; provided, however, that interest on the
Junior Subordinated Credit Facility will not be paid in cash and will be added
to the outstanding principal amount if certain earnings before interest, taxes,
depreciation and amortization ("EBITDA") tests are not met prior to September
30, 2001, or if JCC pays interest in kind on the New Notes after September 30,
2001. Any portion of the Junior Subordinated Credit Facility not paid at
maturity will bear annual interest at the forgoing rate plus 2%.
CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES
On the Effective Date, the Company issued to the Participating Banks and to
Salomon, DLJ and BT Alex. Brown Incorporated (collectively, the "Underwriters")
$27,287,500 aggregate principal amount of the Convertible Junior Subordinated
Debentures.
The Convertible Junior Subordinated Debentures mature in May 2010, six
months following the scheduled maturity of the New Notes. The Convertible Junior
Subordinated Debentures bear interest at a rate of 8% per annum payable
semi-annually in cash; provided, however, that JCC has the option of paying the
interest on the Convertible Junior Subordinated Debentures, in whole or in part,
in kind rather than in cash (i) at any time on or prior to October 30, 2003, and
(ii) at any time thereafter if the Company did not make contingent payments with
respect to the New Contingent Notes on the immediately preceding interest
payment date for the New Contingent Notes. See "--New Notes and New Contingent
Notes."
The Convertible Junior Subordinated Debentures are unsecured obligations of
JCC, subordinated in right of payment to (i) certain obligations of JCC under
the HET/JCC Agreement and all indebtedness of JCC under or in respect of the
Credit Agreement, the New Notes, the New Contingent Notes and any permitted
refinancing thereof and (ii) all obligations of the Company that are expressly
senior in right of payment to, or PARI PASSU in right of payment with, the
obligations and indebtedness described in clause (i). The Convertible Junior
Subordinated Debentures are convertible at the option of the holders, in whole
or in part, at any time after October 1, 2002, into Common Stock of JCC Holding
at a conversion price of $25.00 per share, subject to dilution and other
appropriate adjustments (the "Conversion Price"). In addition, if the
Convertible Junior Subordinated Debentures are at any time called for
redemption, each holder of Convertible Junior Subordinated Debentures may,
subject to certain limitations, convert such
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holder's Convertible Junior Subordinated Debentures at such time. The
Convertible Junior Subordinated Debentures are redeemable at the option of the
Company (i) at any time at par plus accrued but unpaid interest in cash, or (ii)
at any time during the 12 months prior to October 30, 2010 if the Conversion
Price is greater than the Current Market Price per share on the redemption date,
at par plus accrued but unpaid interest, payable in shares of Common Stock or a
combination of cash and shares of Common Stock. The "Current Market Price" is
defined to generally mean the volume weighted average for the preceding 10
trading days of the last reported sale price (or, if no last reported sales
price is available for any such trading day, the last reported closing bid price
on such trading day) of the Common Stock.
The indenture under which the Convertible Junior Subordinated Debentures are
issued restricts mergers and consolidations involving, and the sale, transfer,
lease or conveyance of all or substantially all of the assets of, JCC and JCC
Holding. The obligations of JCC to the holders of the Convertible Junior
Subordinated Debentures are guaranteed on a subordinated basis by JCC Holding.
Pursuant to the Registration Rights Agreement, dated as of the Effective
Date, by and among JCC, JCC Holding, the Underwriters, BTCo and FNBC, upon the
request of (i) any initial holder of the Convertible Junior Subordinated
Debentures that purchased $5.0 million or greater of such securities or (ii) any
permitted transferee of the Convertible Junior Subordinated Debentures, shares
of Common Stock issued upon the conversion or redemption thereof, or, subject to
certain limitations, any other securities issued or issuable with respect
thereto (collectively "Debenture Registrable Securities"), that, at the time of
request, owns $5.0 million or greater of the Debenture Registrable Securities
(the holders described in clauses (i) and (ii) are referred to as the
"Initiating Holders"), JCC or JCC Holding, as the case may be, will provide
notice of such request to certain other holders of Debenture Registrable
Securities (the "Other Holders") and will use its commercially reasonable
efforts to effect, as soon as reasonably practicable, the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of (x) any Debenture
Registrable Securities held by the Initiating Holder and (y) any Debenture
Registrable Securities requested to be included in such registration by the
Other Holders. However, (a) neither JCC nor JCC Holding is obligated to effect
more than one such registration for any Initiating Holder or more than two such
registrations in the aggregate, (b) no holder may request such a registration
prior to the earlier of 18 months after the Casino opens for business and the
filing by JCC Holding of its third Annual Report on Form 10-K under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (c)
neither JCC nor JCC Holding is obligated to effect such a registration unless
the aggregate Debenture Registrable Securities requested to be included in such
registration would have a gross sales price of at least $5.0 million.
NEW NOTES AND NEW CONTINGENT NOTES
In connection with the Plan of Reorganization, on the Effective Date, JCC
issued (i) $187.5 million aggregate principal amount of New Notes maturing in
2009 pursuant to an indenture, dated as of the Effective Date, by and among JCC,
as obligor, JCC Holding, JCC Development, CP Development and FP Development, as
guarantors, and Norwest Bank Minnesota, National Association, as trustee (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, JCC Development,
CP Development and FP Development, as guarantors, and the Trustee. See "--The
Company--Recent Reorganization."
Fixed interest on the New Notes accrues at a rate of 5.867% per annum,
increasing over the first three years to a rate of 6.214% per annum in the
fourth and fifth years and increasing to 8% per annum after the first five years
("Fixed Interest") and is payable semiannually in arrears on each May 15 and
November 15, beginning May 15, 1999. Interest on the New Notes accrues from the
Effective Date. JCC has the option to pay the first six semi-annual payments of
Fixed Interest on the New Notes in kind rather than in cash; provided, however,
that JCC must pay the first four semi-annual payments of Fixed-Interest in kind
if Tranche A-1 and/or Tranche A-2 is outstanding when such payments are due. JCC
has the option to pay the fifth and sixth semi-annual payments of Fixed Interest
in kind and may be required to do so by the Credit
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Agreement under certain circumstances; provided, however, that JCC may not pay
the fifth and sixth semi-annual payments of Fixed Interest in kind if (i)
Tranches A-1 and A-2 have been fully repaid, (ii) there are no outstanding
drawings under the Working Capital Facility, other than letters of credit as
permitted pursuant to the Credit Agreement, and (iii) JCC has accumulated cash
availability of at least $20 million.
If Consolidated EBITDA for JCC is less than $28.5 million for the 12 month
period ending on the March 31 or September 30, as applicable, immediately
preceding any interest payment date occurring on or after May 15, 2002, Fixed
Interest on the New Notes must be paid in kind. Payments of Fixed Interest not
made in kind are payable in cash.
Contingent payments with respect to the New Notes, to the extent they are
due and owing, are payable on each interest payment date. On interest payment
dates occurring on May 15, JCC is required to pay to the holders of New Notes,
on a PRO RATA basis, contingent payments in an aggregate amount equal to 37.5%
of the Contingent Payment Measurement Amount (as defined below) for the 12 month
period ending on the immediately preceding March 31 in excess of $65 million and
less than $85 million. On interest payment dates occurring on November 15, JCC
is required to pay to the holders of New Notes, on a PRO RATA basis, contingent
payments in an aggregate amount equal to (i) 75% of the Contingent Payment
Measurement Amount for the 12 month period ending on the immediately preceding
September 30 in excess of $65 million and less than $85 million, less (ii) the
aggregate amount, if any, of contingent payments paid on the immediately
preceding May 15. If, on any interest payment date, no contingent payments are
due and payable to holders of New Notes in accordance with the foregoing, no
contingent payments will be accrued or paid on such interest payment date.
No fixed interest is payable in respect of the New Contingent Notes. All
payments in respect of the New Contingent Notes are contingent. Contingent
payments in respect of the New Contingent Notes, to the extent any are due and
owing, are due on each May 15 and November 15. On payment dates occurring on May
15, JCC is required to pay to the holders of New Contingent Notes, on a PRO RATA
basis, contingent payments in an aggregate amount equal to 37.5% of the
Contingent Payment Measurement Amount for the 12 month period ending on the
immediately preceding March 31 in excess of $85 million and less than $109.425
million. On payment dates occurring on November 15, JCC is required to pay to
the holders of New Contingent Notes, on a PRO RATA basis, contingent payments in
an aggregate amount equal to (i) 75% of the Contingent Payment Measurement
Amount for the 12 month period ending on the immediately preceding September 30
in excess of $85 million and less than $109.425 million, less (ii) the aggregate
amount, if any, of contingent payments paid on the immediately preceding May 15.
If, on any payment date, no contingent payments are due and payable to holders
of New Contingent Notes in accordance with the foregoing, no contingent payments
will be accrued or paid on such payment date.
"Contingent Payment Measurement Amount" means, for any period, an amount
equal to (i) the Consolidated EBITDA of JCC for such period, (ii) plus an amount
equal to the cash distributions, if any, from CP Development and FP Development
to JCC Holding during such period, (iii) after the date on which the second
floor of the Casino is open to customers (a) if the JCC Development Adjustment
Amount (as defined below) is a positive number for such period, plus an amount
equal to the JCC Development Adjustment Amount for such period or (b) if the JCC
Development Adjustment Amount is a negative number for such period, less an
amount equal to the absolute value of the JCC Development Adjustment Amount for
such period. If the net working capital of either of CP Development or FP
Development is in excess of $1 million on any March 31 or September 30, as
applicable, then the amount of net working capital in excess of $1 million shall
be deemed to have been distributed by CP Development and/or FP Development, as
applicable, to JCC Holding for the purposes of calculating the Contingent
Payment Measurement Amount. Notwithstanding the foregoing, in no event shall the
proceeds from the sale of assets be included in the calculation of "Contingent
Payment Measurement Amount." "JCC Development Adjustment Amount" shall mean, for
any period, an amount equal to (A) the amount, if any, of the lease payments
received by JCC from JCC Development pursuant to the Second Floor Sublease
during such period, less (B) the amount, if any, of cash transferred (whether in
the form of one or more
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loans or equity contributions or otherwise (except payments for goods and
services)) (collectively, "JCC Advances") by JCC to JCC Development during such
period, plus (C) the amount, if any, of cash transferred by JCC Development to
JCC in respect of JCC Advances during such period. "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) permitted tax distributions to JCC Holding, and if such person is not
treated as a pass through entity for federal income tax purposes, 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 payments,
whether paid or accrued, (v) Incentive Fees (as defined below), whether paid or
accrued, (vi) amortization expense with respect to deferred refinancing fees,
(vii) preopening expenses, (viii) any extraordinary loss reflected in the
calculation of consolidated net income, (ix) other non-cash charges, and (x)
solely for the purposes of calculating contingent payments under the New Notes
and the New Contingent Notes, if any, and the Incentive Fees, if any, the
proceeds, if any, from the exercise of the HET Warrant, and (B) to subtract
therefrom (1) any extraordinary gain reflected in the calculation of
consolidated net income, (2) any restricted payments made by JCC to JCC Holding
for the purpose of complying with reporting obligations, paying professionals
and other administrative expenses, and (3) solely for the purpose of calculating
contingent payments, if any, and Incentive Fees, if any, all revenue received by
the Company pursuant to the Second Floor Sublease.
The New Notes and the New Contingent Notes are secured on an equal and
ratable basis by liens on substantially all of the assets of each of JCC
(excluding the Amended and Renegotiated Casino Operating Contract, the Casino's
bankroll and the Gross Gaming Revenue Share Payments), JCC Holding, JCC
Development, CP Development and FP Development in favor of the Collateral Agent
for the benefit of the holders of the Notes under the Indentures as well as the
Bank Lenders and HET and HOCI as Minimum Payment Guarantors, subject to the
terms of the Intercreditor Agreement. Certain of the collateral is subject to
release in accordance with the applicable security documents, the Intercreditor
Agreement and the Indentures. With the exception of the Term Loans, the Working
Capital Facility, Senior Permitted Refinancings, Senior Subordinated Permitted
Refinancings, and certain special purpose indebtedness, any other indebtedness
for borrowed money of JCC must be subordinated to the Notes. The New Notes
contain provisions such that, in the event of a payment default or bankruptcy,
the holders will be made whole for any accelerated maturity, accrued and unpaid
interest, all Fixed Interest in respect of future periods, and the maximum
contingent payments in respect of future periods, and related costs and
expenses. The New Contingent Notes contain provisions such that, in the event of
payment default or bankruptcy, the holders will be made whole for an amount
equal to the maximum contingent payments for all future periods, and related
costs and expenses. Nevertheless, the amount of future contingent payments under
the Notes is subordinated in right of payment to certain obligations of JCC
under the HET/JCC Agreement, the Bank Loans, the Senior Permitted Refinancings
and the Senior Subordinated Permitted Refinancings.
JCC Holding, JCC Development, CP Development and FP Development have
irrevocably and unconditionally guaranteed to each holder of New Notes the
payment of principal, premium, if any, and interest (including contingent
payments) on the New Notes. JCC Holding, JCC Development, CP Development and FP
Development irrevocably and unconditionally guarantee 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 holder's 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 an event. New Notes and the New
Contingent Notes are not redeemable or subject to mandatory prepayment prior to
maturity, except that New Notes and New Contingent Notes are subject
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to redemption based on gaming regulatory considerations. Each of the Indentures
contains 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.
HET WARRANT
In consideration of, among other things, the HET Loan Guaranty, and pursuant
to the Warrant Agreement between JCC Holding and HCCIC dated October 30, 1998,
HCCIC received the HET Warrant entitling it to purchase additional shares of JCC
Holding Common Stock such that, upon exercise of the HET Warrant in its
entirety, HET and its subsidiaries, including HCCIC, will own in the aggregate
50.0% of the then outstanding shares of Common Stock, subject to certain
adjustments. The number of shares issuable upon exercise of the HET Warrant is
four (4) million, however, the number of shares issuable under the HET Warrant
will be adjusted as necessary by the board of directors in order to preserve the
right of HET and its subsidiaries to own in the aggregate 50.0% of the Common
Stock upon full exercise of the HET Warrant. The HET Warrant is exercisable at
any time after the Transition Date until the sixth anniversary of the Opening
Date, in whole or in part at a price of $15.00 per share of Common Stock. HET
and its subsidiaries are not permitted to exercise the HET Warrant with respect
to that number of shares which would cause HET and its subsidiaries to own more
than 50.0% of the Common Stock until such time as such exercise will not cause
HET and its subsidiaries to own more than 50.0% of the then outstanding shares
of Common Stock. If at any time after the Transition Date the closing bid price
of the Common Stock has exceeded $20.00 per share for 60 consecutive trading
days, JCC Holding's board of directors may elect to give written notice to HCCIC
of an election to redeem 75% of the warrants at $0.05 per warrant unless HCCIC
exercises the warrants within forty-five days after the date of such notice. If
(i) an election to redeem warrants is made by JCC Holding, and (ii) HCCIC
exercises warrants with respect to that number of shares which at the time of
exercise would cause HET and its subsidiaries to own in the aggregate 50.0% of
the then outstanding shares of Common Stock, then none of the then existing
warrants which were called for redemption shall be redeemed.
AMENDED GDA
On October 29, 1998 and effective as of the Effective Date, JCC entered into
the Amended GDA with the RDC and 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"). 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 certain traffic signalization
and intersection improvements 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, incurred on or after the Effective Date, for the services
of the project manager and his or her staff. Project manager and staff
reimbursement amounts vary depending on the status of construction and certain
other timing conditions.
The Amended GDA establishes scheduling parameters for the construction and
completion of the Casino Development and contains the RDC's approval and
acceptance of the commencement and completion schedule set forth therein for the
recommencement and completion of construction. The Amended GDA also provides for
additional schedules, including a working development schedule, a development
schedule and a construction schedule, as the design documents for each component
and phase of the Casino Construction are prepared and approved and as
construction planning evolves, and updated versions thereof as necessary.
JCC is obligated under the Amended GDA to complete the Casino Construction
and open the Casino for business on or before 12 months after the Effective
Date, subject to extension for Force Majeure.
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Failure to complete the Casino Construction by June 30, 2000, subject to
extension for Force Majeure, will be an event of default under the Amended
Ground Lease.
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 applying for and obtaining all necessary
permits, licenses, approvals, consents and other government authorizations
(collectively "Permits"). Provided the RDC has approved the construction
documents for a component or phase of the Casino Development, and provided there
is no outstanding event of default under the Amended Ground Lease, the RDC is
obligated to issue and deliver to JCC a notice to proceed for each component or
phase of the Casino Development within ten days following its approval of the
construction documents for such component or phase of the Casino Development.
Work by JCC on that component or phase of the Casino Development must then
commence within 14 days after JCC's receipt of both the notice to proceed and
the required Permits, but in no event will commencement of work on the Casino
Construction be required sooner than the Site Reactivation Date. For purposes of
the Amended GDA, the "Site Reactivation Date" means the first day after the
execution of the Amended GDA and the occurrence of the Effective Date 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. As the Site Reactivation Date was
required to be no later than November 29, 1998, the Site Reactivation Date has
occurred and construction of the Casino has resumed.
Under the Amended GDA, JCC is obligated to take reasonable precautions to
protect from damage and preserve all adjacent public and private properties from
damage caused by the 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 Amended GDA, JCC must obtain or cause
its general contractors to obtain performance and payment bonds with qualified
corporate sureties for the full value of the contract for the construction of
each component or phase of the Casino Development before commencing construction
of such component or phase of the Casino Development. The initial construction
bonds were executed by HJC and certain qualified corporate sureties in late 1994
(as modified, the "Initial Bonds") and remain in effect, as supplemented by
riders thereto executed by the sureties on October 29, 1998, providing for,
among other things, (i) the acknowledgment and consent of the sureties to
changes in the scope of work bonded thereunder, including, without limitation, a
change in the amount of the bonded obligations, and the succession of JCC to the
rights and obligations of HJC under the Initial Bonds, (ii) the affirmation by
the parties that the Initial Bonds (as so supplemented) remain in full force and
effect and (iii) the addition of JCC as an additional obligee under the Initial
Bonds (as so supplemented).
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
the completion guarantee in favor of the RDC and the City and, in connection
therewith, JCC has caused the Surety Bond to be issued. The amount of the Surety
Bond is $119 million, which amount equals the remaining hard construction costs
of the Casino Construction. Such costs generally comprise the costs and expenses
of developing, designing and constructing the Casino (excluding financing costs,
legal fees and pre-opening and related marketing or advertising expenses) as of
October 29, 1998. Pursuant to the completion guarantee, if JCC fails to complete
the Casino Construction, the Completion Guarantors, subject to a number of
important exceptions and qualifications, are obligated to complete the Casino
Construction. See "--Completion Guarantees."
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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,
under certain circumstances, have any remaining Casino Construction work
completed, repaired or replaced at the expense of JCC.
The Amended GDA and the Amended Ground Lease obligate JCC to comply with the
Amended Open Access Program and Plans. See "--Risk Factors--Amended Open Access
Program and Plans."
AMENDED GROUND LEASE
TERM; RENT AND ADDITIONAL CHARGES. On October 29, 1998 and effective as of
the Effective Date, JCC entered into the Amended Ground Lease for the Rivergate
site with the RDC and the City, as intervenor. The Amended Ground Lease has an
initial term of 30 years plus the amount of time between April 27, 1993 and the
Effective Date, with three consecutive 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.
The RDC and the City have been paid $736,000 per month since January 1, 1997
as pre-opening day rent (the "Pre-Opening Date Rent"). HJC initially deposited
$2,208,000 in escrow to secure this rental obligation through May 31, 1997, all
of which has been paid to the RDC and the City. The Pre-Opening Date Rent has
been paid to the RDC and the City each month thereafter through and including
November 1998. Under the Amended Ground Lease, the Pre-Opening Date Rent
continues to be paid until the Opening Date; provided that if the Opening Date
has not occurred on or prior to November 1, 1999 (unless and to the extent
extended by Force Majeure), the Pre-Opening Date Rent will increase to an amount
equal to the monthly Amended Ground Lease Minimum Payments (as defined herein).
The Amended Ground Lease provides that the minimum of all: (i) Rent (as
defined herein) payments; (ii) Gross Gaming Payments (as defined herein), (iii)
Audubon Payments (as defined herein), (iv) Gross Non-Gaming Payments (as defined
herein) (collectively, the "Amended Ground Lease Minimum Payments"), must equal
$12.5 million per year to be payable in monthly installments.
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 will be increased by $2.5 million; provided,
however, that if the increase would cause the yearly Rent to exceed 3% of gross
gaming revenue 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. The
Rent is payable monthly in advance as part of the Amended Ground Lease Minimum
Payments.
Commencing on the Opening Date, JCC is obligated to make 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, (b) 3.5% of gross gaming revenue for increments of
gross gaming revenue from $350 million to $375 million and (c) 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%. A portion of the Gross
Gaming Payments is payable monthly in advance as part of the Amended Ground
Lease Minimum Payment. In addition, commencing with the month in which gross
gaming revenue for a given fiscal year exceeds $350 million, JCC is obligated to
pay additional Gross Gaming Payments then due for such month and for each month
thereafter.
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JCC will also be obligated to pay additional sums pursuant to the Amended
Ground Lease, including but not limited to: (i) a one-time payment equal to
$875,000 on or before December 31, 1999; (ii) a one-time payment of $875,000 due
during the second year of Casino operations; (iii) an aggregate of $500,000
during the second year after the Opening Date, payable in quarterly
installments; (iv) an annual contribution of $2 million throughout the lease
term, including any extensions, to be allocated by the City Council to the
Orleans Parish School Board (the "School Board Payment"), with the first payment
to be made within six months of opening the Casino and subsequent payments to
occur on each anniversary thereof; (v) an annual contribution of $200,000,
payable monthly as part of the Amended Ground Lease Minimum Payments, to be
allocated to the Audubon Park Commission, for and on behalf of the City (the
"Audubon Payment"); and (vi) an annual payment to the RDC of $1.7 million,
payable in monthly installments as part of the Amended Ground Lease Minimum
Payments, plus 6% of all gross non-gaming revenues in excess of approximately
$28.33 million payable commencing with the month (and for each month thereafter)
in which gross non-gaming revenue exceeds $28.33 million ("Gross Non-Gaming
Payments"). Gross non-gaming revenue includes, among other things, revenue
derived from parking, the sale of food, beverages, services 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 revenue derived from sales (other than sales by JCC
or its affiliates) within the premises covered by the Second Floor Sublease (as
defined herein). Under the Amended Ground Lease, JCC also has waived any right
to credits or offsets against Rent arising prior to October 30, 1998, including
any credit for renovation work at the Basin Street Casino conducted by HJC.
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 has
released and terminated the undrawn letter of credit in the amount of $1.5
million issued by BTCo in favor of the City securing the payment of City
Payments. Such security is no longer required with respect to the City Payments.
The RDC has, at any time during the term of the Amended Ground Lease, a
one-time right, with the prior written consent of the City Council and upon 30
days prior written notice to JCC specifying the 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 20 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 the RDC, the RDC will have no further
right to receive the 4.99% contingent payments described above or any additional
market appreciation payments.
JCC is also required to make: (i) contingent payments to the RDC equal to
4.99% of certain sums dividended or distributed by JCC to the stockholders 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 certain neighborhoods
adjacent to the Casino, $60,000 for the first year of Casino operations to
administer such programs, payable within 30 days after Opening Date. If JCC
fails to pay, when due, any of the payments under the Amended Ground Lease, 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, JCC may be required to pay certain
additional default penalties if any default by JCC results in the termination of
the Amended Ground Lease.
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Pursuant to the Amended Ground Lease, as of the Effective Date JCC
contributed, and on each anniversary thereof JCC will 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, has agreed to 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, with certain exceptions, over the spending
of such $1 million annual contribution. If at the end of the first year after
the execution date of the Amended Ground Lease or the end of any year thereafter
ending on an anniversary of the execution date, JCC fails to designate the
content for any portion of its destination marketing, such portion of the
destination marketing for such year will thereafter not be subject to JCC's
control. The City will cause the entity undertaking the destination marketing
for the City to designate $1 million of such entity's budget on an annual basis,
which budget is presently funded through designated tax revenues, for use in a
destination marketing plan which will include promotion of the Casino. With
respect to such $1 million of marketing expenditure, 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. Failure of
JCC to contribute annually as provided above within 15 days after receipt of
notice of such failure is an event of default under the Amended Ground Lease.
The City has agreed, under the Amended Ground Lease, to take all necessary
actions to move the Joan of Arc statue to a location other than the Rivergate
site promptly after the Effective Date. JCC will make a payment to the City to
assist in the relocation as provided in the City's conditional use ordinance for
the Casino.
GRANT OF SERVITUDE RIGHTS. Under the Amended Ground Lease a portion of the
parking facility premises previously leased by HJC from the RDC under the Ground
Lease has been surrendered to the City and the RDC, but certain access rights
over such portion of the parking facilities surrendered to the City have been
retained. In addition to such access rights, the City and the RDC have granted
JCC certain servitude rights in portions of the employee and bus parking
facility premises pursuant to the Amended Ground Lease. JCC is required to
maintain the servitude areas granted pursuant to the Amended Ground Lease.
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 (subject, in certain circumstances, to cure), among other things: (i)
the failure to make the payments described above; (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 certain
material terms of the Amended Ground Lease, the Second Floor Sublease or the
Amended GDA; (v) the amendment of the Amended Management Agreement in a manner
that materially and adversely affects any interests of the RDC or, under certain
circumstances, the termination thereof; (vi) the hiring of a casino
manager/operator without the approval and prior written consent of the RDC;
(vii) the revocation or termination of the Amended and Renegotiated Casino
Operating Contract; (viii) the failure to comply with a final non-appealable
judgment establishing a violation of the Amended Open Access Program; (ix) the
failure continually to operate the Casino in accordance with the terms of the
Amended Ground Lease; (x) the failure to commence the Casino Construction within
the time periods set forth in the Amended GDA (subject to Force Majeure and
certain cure rights under the completion guarantee for the benefit of the RDC
and the City); and (xi) the failure of the Casino Construction to have been
completed by June 30, 2000 (subject to Force Majeure). Additionally, if the
initial term of the Amended and Renegotiated Casino Operating Contract expires
prior to the expiration of the initial term of the Amended Ground Lease or the
Amended and Renegotiated Casino Operating Contract is not renewed or extended
following due application, then JCC and the RDC each have the right to terminate
the Amended Ground Lease and
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upon such termination the parties thereto will have no further rights or
obligations thereunder. If the 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, and contingent payments (or the MAR Payment,
if applicable) 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 term of the Amended and Renegotiated Casino Operating
Contract is limited, or cannot be extended 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
will have the right to terminate the Amended Ground Lease. In such event, JCC
and the RDC will 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 certain exceptions and that the City and the RDC
bind themselves to maintain JCC in actual possession of the Rivergate site. The
City and the RDC will have no liability, however, if either (i) the laws
permitting the operation of the Casino are repealed or modified or (ii) a court
of competent jurisdiction determines 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 determination 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 which would materially interfere with or prevent the construction and
operation of the Casino; 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
will be (i) limited to JCC's actual damages (specifically excluding
consequential damages, such as loss of future profits), (ii) reduced by
collateral source payments, and (iii) 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, to maintain JCC's actual possession, and to perfect the City's good and
merchantable title. The Amended Ground Lease further provides that if the
Amended Ground Lease is terminated due to the failure of the RDC and the City to
maintain JCC in possession of the leased premises and JCC elects to seek damages
against the RDC or the City, JCC may relinquish the right it would otherwise
have under the Amended Ground Lease 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, possession and use of the leased premises or any improvements
thereon; (ii) the operation or management of the Casino Development; (iii)
noncompliance by JCC with any terms of the Amended Ground Lease, the Amended GDA
or the Second Floor Sublease; or (iv) noncompliance by JCC Development with any
terms of the Second Floor Sublease. 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
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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 November 30, 1994,
other than those caused by third parties, and to assume responsibility for the
cleanup (to the extent not completed) of certain environmental contamination
arising prior to November 30, 1994.
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 will 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 and Renegotiated Casino Operating Contract. See
"--Amended and Renegotiated 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 mortgage
provisions of the Amended Ground Lease. HET and HOCI will also be treated as
suitable lenders as to any loan made by either entity pursuant to the HET/JCC
Agreement, the Amended and Restated Completion Loan documents (as defined
herein), the Amended and Restated Construction Lien Indemnity Obligation
Agreement (as defined herein), the HET Loan Guaranty, the indemnity by HET or
HOCI to the provider of the Surety Bond, and the Junior Subordinated Credit
Facility; provided that such treatment will not allow HET or HOCI to have any
additional or longer cure period than is provided to leasehold mortgagees
pursuant to the Amended Ground Lease. See "--Amended and Renegotiated Casino
Operating Contract--Financing" and "Terms, Fees and Impositions."
LOAN DEFAULT RENT. If as a result of a default by JCC on an obligation owed
to a leasehold mortgagee, the Amended Ground Lease is transferred to a new
tenant, then: (i) the aggregate amount of Rent, Gross Gaming Payments, Gross
Non-Gaming Payments and the Second Floor Sublease rent for each full or partial
fiscal year after such transfer must be at least 80% of the amounts paid with
respect to the same period for the immediately preceding full or corresponding
year (but no less than the Amended Ground Lease Minimum Payments), 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 partial fiscal year.
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, that the RDC has consented to and
approved the terms of the Second Floor Sublease, and space leases in accordance
with such Second Floor Sublease and the Master Plan will not require the prior
written approval or consent of the RDC. See "--Second Floor Sublease--Master
Plan." These restrictions do not apply to leasehold mortgagees under certain
specified circumstances. The Amended Ground Lease provides that either the RDC
or the City Council may, for any reason, refuse to consent or financially
condition any assignment, sale or transfer of JCC's interest in the Amended
Ground Lease, the Second Floor Sublease or the Amended Management Agreement to
any entity (including a subsidiary or affiliate thereof) that has previously
operated a licensed gaming establishment (including a riverboat) within Orleans
Parish.
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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.
Notwithstanding the foregoing, the RDC and the City Council have approved the
Amended Management Agreement and Harrah's New Orleans Management Company as the
Manager.
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 membership interests in 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 will be due in the case of any transfer of Class A Common Stock
or other publicly traded common stock of JCC Holding issued pursuant to the Plan
of Reorganization.
NON-COMPETE PROVISIONS. The Amended Ground Lease prohibits JCC, JCC
Holding, 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.
LIMITATION ON USES OF DEVELOPMENT REVENUES. JCC and JCC Development are
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 for employees and shuttle bus service to and from
the Casino and 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 the Amended Ground Lease; (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; (vi) permit
retail space on the first floor of the Casino in an area not to exceed 5,000
square feet; and (vii) permit tenants of the premises subject to the Second
Floor Sublease to occupy and use such premises for the purposes permitted by the
Second Floor Sublease.
RESIDENCY REQUIREMENTS. The Amended Ground Lease requires that not less
than 55% of the employees of JCC and JCC Development live and reside in Orleans
Parish (subject to reduction to comply with applicable law). The minimum
percentage of JCC and JCC Development employees that are Orleans Parish
residents will increase by 2% on the anniversary of the Opening Date until the
residency requirement reaches 65% (subject to reduction to comply with
applicable law). JCC agrees to use its best efforts to maximize hiring in
Orleans Parish with the goal being that 80% of employees of JCC and JCC
Development, in the aggregate, live and reside in Orleans Parish.
AMENDED MANAGEMENT AGREEMENT. The Amended Ground Lease requires JCC to
implement and abide by the terms of the Amended Management Agreement. 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.
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, subject to applicable cure
periods.
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TRANSITION AND MANAGER SUBORDINATION AGREEMENT. In the event the Amended
Management Agreement is terminated, JCC is required to submit a written plan
providing for the continuous operation of the Casino without material
interruption, including but not limited to provisions for the transition of
control of the development and of the funds in the house bank maintained at the
Casino (the "House Bank") and the capital replacement fund described below. 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 totaling at least $25 million
(subject to annual increases in the Consumer Price Index) during the previous 12
month period. In the event of early termination of the Amended Ground Lease, the
RDC also has the option to lease from JCC owned or leased gaming equipment at
fair market rent and on customary terms.
The Manager, the RDC and the City have entered into a subordination
agreement (the "Manager Subordination Agreement (RDC/City)") providing for the
subordination of fees owing by JCC to the Manager pursuant to the Amended
Management Agreement to the prior payment in full of all Rent and other payments
due the City and the RDC under the Amended Ground Lease. In addition, the
Manager Subordination Agreement (RDC/City) provides that, during the Transition
Period (as defined herein), the Manager will, among other things, undertake to
remove (and, under certain circumstances, replace) certain property and marks
owned by the Manager or its affiliates from the Casino, the improvements or
other property, as the case may be. For purposes of the Manager Subordination
Agreement (RDC/City), the "Transition Period" generally refers to a forty-five
day period beginning on the date on which (i) the RDC or its receiver is placed
in ownership or possession of the Casino or (ii) an event of default has
occurred and not been cured under the Amended Ground Lease as a result of the
termination of the Amended Management Agreement and, with respect to either of
the foregoing, (A) the Manager terminates the Amended Management Agreement or
fails to give proper notice of such termination, (B) the RDC is unable, for any
reason, to use certain marks at the Casino, or (C) the Manager terminates the
use at the Casino of certain proprietary computer systems without replacing such
systems.
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 if such
Major
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Condemnation occurs during the first ten years of the Amended Ground Lease and
thereafter to be paid in accordance with 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.
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 a
capital replacement fund in an aggregate amount equal to $3 million for the
first 12 months following the Opening Date, $4 million for the second 12 months
following the Opening Date, and $5 million for the third 12 months following the
Opening Date. For each successive 12 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, withdrawing from and replenishing the capital
replacement fund, as well as the use of such funds upon the termination of the
Amended Ground Lease. The capital replacement fund referred to above is the same
as that required pursuant to the Amended Management Agreement and the Amended
and Restated Casino Operating Contract and is not meant to duplicate the capital
replacement obligations of JCC under the Amended Management Agreement and the
Amended and Restated Casino Operating Contract. See "--Amended and Renegotiated
Casino Operating Contract--Capital Replacement Fund" and "Amended Management
Agreement--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 or the Manager, employees of the Casino premises will be given the
opportunity to participate in a JCC savings and retirement plan (the "JCC S&RP")
no less favorable than the savings and retirement plan of HET and its affiliates
in effect on the Effective Date (the "Harrah's S&RP"), as thereafter substituted
or amended, or if the Manager or an HET affiliate is no longer the Casino
manager, on terms no less favorable than the savings and retirement plan of the
successor entity, as may be approved by the City and the RDC. Changes or
modifications to the JCC S&RP will not be a default under the Amended Ground
Lease or in any way actionable by the City or RDC as long as such modified JCC
S&RP is no less favorable than the Harrah's S&RP or the savings and retirement
plan of any such approved successor entity, as may be applicable, and is not
discriminatory against JCC's employees.
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. The RDC and the City
acknowledge and agree in the Amended Ground Lease that the Bank Lenders, the
holders of the New Notes, the New Contingent Notes, the Junior Subordinated
Credit Facility and the Convertible Junior Subordinated Debentures have not
received excess proceeds in connection with the transactions contemplated by the
Plan of Reorganization and the 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 the terms of the Amended Open
Access Program and Plans and agrees to use the efforts specified therein and all
due diligence to achieve the goals and objectives and to satisfy the commitments
stated in the Amended Open Access Program and Plans under the penalties stated
therein. JCC has covenanted to require the Manager to comply with the Amended
Open Access Program in all
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hiring, employment and contracting decisions. See "--Amended GDA" and "--Risk
Factors--Open Access Program and Plans."
IMPOSITIONS; AMUSEMENT TAX. JCC is 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 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 (collectively, "Impositions"). The Amended
Ground Lease further requires JCC voluntarily to 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.
The City imposes an amusement tax on certain receipts. The Amended Ground
Lease also provides that JCC will be obligated to collect and remit, and cause
JCC Development 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 AND RENEGOTIATED CASINO OPERATING CONTRACT
Pursuant to the Casino Operating Contract, which commenced on July 15, 1994,
the LEDGC granted HJC the right to conduct gaming operations at the Casino.
Under the Plan of Reorganization, on the Effective Date, all of HJC's right,
title and interest in and to the Casino Operating Contract revested in HJC, and
the Casino Operating Contract was modified by the Amended and Renegotiated
Casino Operating Contract and assigned to JCC in accordance with applicable
State law and the agreement of the parties thereto.
TERM, FEES AND IMPOSITIONS. Pursuant to the Amended and Renegotiated Casino
Operating Contract, JCC has the right to conduct gaming operations at the
Casino, and the Casino is required to be located at the site of the former
Rivergate Convention Center. The Amended and Renegotiated Casino Operating
Contract is revocable in accordance with the terms thereof. The term of the
Amended and Renegotiated Casino Operating Contract is 20 years from July 1994
with one automatic ten year renewal option.
Under the Casino Operating Contract, HJC paid the LEDGC an initial payment
of $125 million (the "Initial Payment") in installments as well as 25% of the
gross gaming revenues from the Basin Street Casino during the period that it
operated. During the operation of the Basin Street Casino, HJC overpaid the
LEDGC approximately $4.8 million and is, therefore, entitled to a credit of this
amount from the LGCB, as successor to the LEDGC. Under the Amended and
Renegotiated Casino Operating Contract, JCC is entitled to an offset of
$4,812,477 against daily payments owed to the LGCB during the second full COC
Fiscal Year to take into account such overpayments by HJC to LEDGC.
Under the Amended and Renegotiated Casino Operating Contract, each fiscal
year of the Casino's operation, JCC is required to pay to the State, by and
through the LGCB, an amount equal to the greater of (i) $100 million or (ii) the
sum of the following percentages of gross gaming revenue from the Casino in a
fiscal year: (A) 18.5% of gross gaming revenue up to and including $600 million;
plus (B) 20% of gross gaming revenue in excess of $600 million up to and
including $700 million; plus (C) 22% of the gross gaming revenue in excess of
$700 million up to and including $800 million; plus (D) 24% of gross gaming
revenue in excess of $800 million up to and including $900; plus 25% of gross
gaming revenue in excess of $900 million (the "Gross Gaming Revenue Share
Payments"). JCC is required to make a daily payment to the LGCB equal to $100
million divided by 365 days, or approximately $274,000, with an end of year
settlement, if any, of Gross Gaming Revenue Share Payments in excess of $100
million. If the Opening Date does not occur by October 30, 1999, then JCC is
still required to pay the minimum daily payment to the LGCB as required under
the Amended and Renegotiated Casino Operating Contract, under the same terms and
conditions as if the Casino were actually open for business to the general
public, unless the failure to open the Casino for business to the general public
by October 30, 1999 is due to a Force Majeure
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event. The requirement to pay the minimum daily payment pursuant to the terms of
the Amended and Renegotiated Casino Operating Contract prior to the date that
the Casino actually opens for operation would have a material adverse effect on
the Company.
Any unpaid portion due to the State in any one COC Fiscal Year (including
any short COC Fiscal Year for the period immediately following opening of the
Casino) in which (x) JCC ceases operations other than for an Excusable Temporary
Cessation of Operations (as defined herein), (y) an event of default occurs
causing termination of the Amended Ground Lease, or (z) an event of default
occurs under the Amended and Renegotiated Casino Operating Contract as a result
of failure to pay Gross Gaming Revenue Share Payments (the "Minimum Payments")
will be guaranteed by a Minimum Payment Guaranty. A failure by JCC to cause to
be provided a Minimum Payment Guaranty before the first day of a new COC Fiscal
Year will result in a termination of the Amended and Renegotiated Casino
Operating Contract with no cure period.
For the partial COC Fiscal Year of operation ending March 31, 2000 HET and
HOCI have provided, and subject to the terms and conditions set forth in the
HET/JCC Agreement, for the four subsequent full COC Fiscal Years, HET and HOCI
have agreed to continue to provide, a Minimum Payment Guaranty. See "--HET/JCC
Agreement." The obligations of JCC, HET and HOCI under the HET/JCC Agreement are
secured by a first priority lien on substantially all the assets of JCC Holding,
JCC, CP Development and FP Development (excluding the Amended and Renegotiated
Casino Operating Contract and the Gross Revenue Share Payments). Pursuant to the
terms of the HET/JCC Agreement, commencing with the COC Fiscal Year beginning
April 1, 2001, JCC may terminate the HET/JCC Agreement by providing notice of
its intent to terminate to HET and HOCI. If JCC elects to terminate the HET/JCC
Agreement for the COC Fiscal Year beginning April 1, 2001, JCC will be required
to pay a termination fee of $1.0 million to HET. For a termination in the COC
Fiscal Years beginning April 1, 2002 and April 1, 2003, no such fee will be
payable. A Minimum Payment Guaranty will guarantee JCC's obligations to pay the
Minimum Payments only for the duration of the COC Fiscal Year during which JCC
(i) abandons operations of the Casino, (ii) fails to make daily payments to the
LGCB, or (iii) files for bankruptcy and ceases casino operations (each a
"Minimum Payment Default"). A Minimum Payment Guaranty will not secure any
obligations during, or otherwise apply to, any subsequent COC Fiscal Year. In
the event a non-renewal condition under the HET/JCC Agreement has occurred or
upon termination of the HET/JCC Agreement on March 31, 2004, JCC is required to
secure a substitute guarantor acceptable to the LGCB to provide a Minimum
Payment Guaranty. Such guarantor may or may not be HET, HOCI or any affiliate
thereof. In the Amended and Renegotiated Casino Operating Contract, the State
and the LGCB have acknowledged that HET and HOCI have no legal obligation or
duty, express or implied, to provide a Minimum Payment Guaranty (i) for any COC
Fiscal Year following a fiscal year in which a Minimum Payment Default occurs or
any other non-renewal condition under the HET/JCC Agreement occurs, (ii) for any
COC Fiscal Year after March 31, 2004, or (iii) if the HET/JCC Agreement has
otherwise terminated pursuant to its terms.
Under the Amended and Renegotiated Casino Operating Contract, the State owns
that portion of the daily collections from gaming operations equal to the amount
of the daily payment. JCC is prohibited from entering into any contract or other
agreement that permits or purports to permit JCC or any other person to claim a
right or interest in or to the Gross Gaming Revenue Share Payments, which
include the daily payments. The daily payments are required to be deposited
directly into a State account by the next business day after collection.
Under the Amended and Renegotiated Casino Operating Contract, subject to
certain regulatory approvals, JCC is permitted to grant to one or more leasehold
mortgagees a security interest in the funds owned by JCC if the instrument
granting the security interest provides that the security instrument does not
extend to the State's ownership interest in the Gross Gaming Revenue Share
Payments, including the daily payments. The leasehold mortgagee is required to
acknowledge that its mortgage does not extend to the State's ownership interests
in the Gross Gaming Revenue Share Payments.
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If JCC fails to pay as and when due any amount due the State under the
Amended and Renegotiated 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 (i) the prime rate of Citibank N.A. or its
successor plus 5% or (ii) 15% per annum.
EXCLUSIVE CONTRACT. The Amended and Renegotiated Casino Operating Contract
is exclusive in Orleans Parish. The Amended and Renegotiated Casino Operating
Contract provides that if another land-based casino is authorized to operate in
Orleans Parish during the term of the Amended and Renegotiated Casino Operating
Contract, JCC is afforded certain specified relief described below, however, JCC
is not relieved of the obligation to pay additional charges or to perform its
non-monetary obligations under the Amended and Renegotiated Casino Operating
Contract, including construction and operation of the Casino.
The Amended and Renegotiated Casino Operating Contract provides that if (i)
there are material violations of particular statutory exclusivity provisions by
(a) a change in State law (adopted by statute, regulation or rule) from that in
effect January 1, 1997 permitting any game or gaming device at another
land-based facility in the Parish of New Orleans (not otherwise legal and
offered for play under existing law at such facility) or permitting riverboats
(other than a Permitted Riverboat) to conduct gaming beyond the scope permitted
by statute in effect January 1, 1997, (b) a failure by the State or an agency or
instrumentality thereof to enforce the State law regarding land-based gaming
(other than riverboat dockside issues), (c) the State or LGCB permitting
riverboats to conduct gaming if the riverboats do not meet the requirements of
La.R.S. 27:44(4) and 27:44(23) (c) and (d), as those statutes are in effect
January 1, 1997, or (d) Indian gaming, and (ii) which material violations
continue after notice from JCC and 60 days opportunity to cure by the LGCB or
the State, and (iii) a court of competent jurisdiction renders a final
non-appealable judgment holding that such material violations did occur and were
not timely cured within 60 days after receipt by the LGCB of notice from JCC,
JCC will be relieved of the obligation to make the Gross Gaming Revenue Share
Payments from the date of such final non-appealable judgment, subject to the
additional cure provisions described below, and JCC will be entitled to an
offset against future obligations to the LGCB and/or the State with respect to
any amounts paid to the LGCB and/or the State during the judicially determined
period of any such violation. During the judicial action referred to above, JCC
is required to continue to pay the Gross Gaming Revenue Share Payments while the
action is pursued to a final non-appealable judgment, with a reservation of all
JCC's legal rights.
With respect to clause (a) of the immediately preceding paragraph, a change
in State law which would cause a violation of the exclusivity provisions of the
Amended and Restated Casino Operating Contract does not include a "Permitted
Amendment." A "Permitted Amendment" is a change in State law authorizing one or
more licensed riverboats to remain dockside and conduct dockside gaming beyond
the scope of permitted by statute as in effect January 1, 1997; provided that,
with respect to Orleans Parish, such authorization must be limited to one
licensed riverboat at any time (a "Permitted Riverboat") which must be located
on Lake Pontchartrain in Orleans Parish, and provided, further, that the (A) the
Permitted Riverboat's gaming area must not exceed 30,000 square feet in the
aggregate; (B) the owner or operator of the Permitted Riverboat may not
participate directly or indirectly in the ownership, construction, operation or
subsidization of any hotel of a size exceeding 399 guest rooms within a distance
of one mile from the berthing area of a Permitted Riverboat; and (C) the
Permitted Riverboat may not maintain or offer for patron or public use on the
vessel and at its terminal, berthing area and any hotel referred to above, more
than 8,000 square feet of restaurant facilities in the aggregate (exclusive of
food preparation and handling areas).
Notwithstanding the terms of any final non-appealable judgment rendered by
the court in any action brought pursuant to the procedures described in the
immediately preceding paragraph, the LGCB and the State will have 24 months from
the date that any such final non-appealable judgment is rendered to cure the
material violation and to file a declaratory judgment action seeking a
declaration from a court of competent jurisdiction confirming that the cure has,
in fact, been made and the date and duration of any one or more periods of cure.
If the LGCB and the State obtain such declaration, the Gross Gaming
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Revenue Share Payments will be paid to the State for all periods during the
course of the litigation that the court determines by final judgment were
periods of "cure."
The Amended and Renegotiated Casino Operating Contract also provides: that
the State covenants that it will not permit riverboats (any vessel meeting the
requirements of La.R.S. 27:44(4) and 27:44(23)(a-e), as those statutes are in
effect on the date of the Amended and Renegotiated Casino Operating Contract) to
conduct illegal dockside gaming (provided that it does not include such gaming
if the riverboat conducts sailing or cruising materially in accordance with the
requirements of La.R.S. 27:65(B)(1) in effect as of January 1, 1997), and (a)
that if there are any material violations of the covenant which continue after
notice from JCC and 60 days opportunity to cure by the LGCB or the State, and
(b) that if a court of competent jurisdiction renders a judgment (subject to
applicable appellate rights) holding that material violations did occur and were
not timely cured within 60 days after receipt by the LGCB of notice from JCC,
JCC will be entitled to seek only (i) specific performance by the LGCB and/or
the State of the obligations contained in the covenant and/or (ii) mandamus
against the LGCB or the appropriate governmental authority. Notwithstanding the
relief from the Gross Gaming Revenue Share Payments set forth in the Gaming Act,
no monetary remedy is authorized under the Amended and Renegotiated Casino
Operating Contract. During the pendency of any such judicial action seeking
specific performance and/or mandamus, through final non-appealable judgment, JCC
will not be relieved of its obligation to pay the Gross Gaming Revenue Share
Payments. The finding of the violation complained of in such action will not at
that time or at any time thereafter relieve JCC of its obligation to pay the
Gross Gaming Revenue Share Payments.
The Amended and Renegotiated Casino Operating Contract provides that JCC
will not initiate any action for judicial relief concerning any exclusivity
violations until the expiration of 18 months after the Opening Date, although
the notice and cure provisions regarding both parties will be in force during
such eighteen month period and subsequent years. In no event will JCC be
restricted during such 18 month period from asserting any exclusivity violations
as a defense or in any other procedural manner required under the circumstances
properly to seek relief as described above in response to any action initiated
by LGCB: (a) to terminate the Amended and Renegotiated Casino Operating
Contract; or (b) to challenge the financial suitability of JCC caused
substantially by the exclusivity violation asserted as a defense thereto. The
Amended and Renegotiated Casino Operating Contract further states that the
provisions described in the preceding sentence are not intended to apply to
routine operational regulatory interactions between the parties.
RULES AND REGULATIONS. Under the Amended and Renegotiated Casino Operating
Contract, JCC acknowledges and consents to the LGCB's rule and regulation making
authority.
CASINO MANAGER. Under the Amended and Renegotiated Casino Operating
Contract, JCC cannot amend the casino management contract between JCC and the
Manager 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 JCC for purposes of the Amended and Renegotiated Casino Operating
Contract.
FINANCIAL STABILITY. Under the Amended and Renegotiated Casino Operating
Contract, JCC must remain financially stable. JCC is deemed to be financially
stable if JCC: (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 12 month period;
and (iv) has made all required payments to the capital replacement fund. If, at
any time, JCC is unable to demonstrate that it is financially stable, JCC will
have a specified time period after notice of a financial stability default from
the LGCB to cure such default. During the existence of a financial stability
default, the LGCB may impose orders or regulatory conditions, necessary to
protect the public interest, including the appointment of a fiscal agent.
SUITABILITY. Under the Amended and Renegotiated Casino Operating Contract,
JCC and the Manager are required to remain "suitable" (as that term is defined
in the Gaming Act), which requires findings
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with respect to certain equity and debt holders as well as certain officers and
directors of JCC, the Manager and their affiliates. See "--Regulation--Louisiana
Gaming Act." The LGCB may terminate the Amended and Renegotiated Casino
Operating Contract if the LGCB determines that JCC or the Manager is not
suitable. If the LGCB determines that JCC or a holder of a debt or equity
interest in JCC or any of their respective affiliates is not suitable, the LGCB
must provide notice of this determination to JCC. If JCC 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 JCC or its affiliates to take immediate good
faith action to cause the unsuitable person to dispose of the person's interest
in JCC or its affiliates and, pending the disposition, JCC 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 JCC or its affiliates; (ii) does not
exercise, directly or indirectly, including through a trustee or nominee, any
right conferred by the securities of JCC or its affiliates; (iii) does not
receive any remuneration from JCC or its affiliates; (iv) does not receive any
economic benefit from JCC or its affiliates; and (v) subject to the disposition
requirements, does not continue in an ownership or economic interest in JCC or
its affiliates or remain as a manager, officer, director, partner, employee,
consultant or agent of JCC or its affiliates. This safe harbor does not apply if
JCC or its affiliates, as the case may be (a) had actual or constructive
knowledge or should have had 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 JCC or its affiliates; or (c)
cannot meet the suitability standards contained in the Gaming Act and the Rules
and Regulations.
Under the Amended and Renegotiated Casino Operating Contract, JCC was
required to advance the LGCB up to $3.5 million to reimburse the LGCB for its
actual personnel costs (to include LGCB, State Police and Attorney General
personnel and contract staff appropriate to the suitability process) that were
incurred in connection with the suitability findings necessary for the execution
of the Amended and Renegotiated Casino Operating Contract and the opening of the
Casino (the "Initial Costs"). HJC paid $500,000 of this amount prior to the
Effective Date and JCC advanced $3 million of this amount on the Effective Date.
Six months after the Effective Date, the LGCB will provide JCC with a full
accounting of amounts spent to date and projections of anticipated additional
Initial Costs. The LGCB also may notify JCC that the Initial Costs have exceeded
the $3.5 million advanced to the LGCB, in which case JCC may be required by the
LGCB and/or State to pay such additional amounts within 15 days of demand. There
can be no assurance that the Initial Costs will not exceed $3.5 million, and in
the event that the Initial Costs do exceed $3.5 million, it is likely that the
LGCB and/or State will require JCC to pay such additional amounts to them.
DAYS AND HOURS OF OPERATION. With certain limited exceptions, the Amended
and Renegotiated Casino Operating Contract requires JCC to operate the Casino 24
hours a day, seven days a week.
TIMETABLES AND OUTSIDE DATES. Under the Amended and Renegotiated Casino
Operating Contract, JCC has a duty to complete the Casino Construction within 12
months of the Effective Date, adjusted for Force Majeure events, but only for
the number of days due to such Force Majeure events and only to the extent that
such Force Majeure events actually delay the completion of the Casino
Construction.
RESTAURANT, LODGING AND RETAIL RESTRICTIONS. The Amended and Renegotiated
Casino Operating Contract incorporates the restrictions in the Gaming Act
prohibiting certain restaurant, lodging and retail operations, subject to the
LGCB's rule making powers with respect to leasing space to third-party
restaurateurs and venders. See "--Risk Factors--Limits on Restaurants, Lodging,
Retail Operations and Entertainment."
CAPITAL REPLACEMENT FUND. The Amended and Renegotiated Casino Operating
Contract obligates JCC to maintain a capital replacement fund. The capital
replacement fund is the same as that required pursuant to the Amended Ground
Lease and Amended Management Agreement and is not meant to duplicate the capital
replacement fund obligations under the Amended Ground Lease and Amended
Management Agreement. See "--Amended Ground Lease--Capital Replacement Fund" and
"Management Agreement--Capital Replacement Fund."
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OTHER COVENANTS AND CONDITIONS. The Amended and Renegotiated Casino
Operating Contract contains a number of other covenants on the part of JCC,
including adherence to nondiscrimination policies and practices; giving
preference 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 Amended Ground
Lease, the Amended GDA and the Amended Management Agreement; limiting
accessibility to the areas of the Casino where gaming occurs by persons under
the age of 21; and maintaining the Casino in a clean, safe and first-class
condition. JCC also cannot amend the Amended Management Agreement without the
LGCB's approval.
DESIGN AND CONSTRUCTION. JCC 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 Amended and Renegotiated Casino Operating
Contract, JCC is required to indemnify the LGCB against all liabilities arising
out of or relating to, among other things: (i) the failure of JCC, the Manager
or a lessee to comply with the terms of the Amended and Renegotiated Casino
Operating Contract; (ii) the construction or remodeling of the Casino or the
performance of any work thereon; (iii) the failure of JCC, the Manager or a
lessee to comply with the terms of the Amended Ground Lease, the Amended GDA,
the Amended Management Agreement or any other agreement affecting the Casino to
which JCC, 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 JCC, the Manager, any
lessee or their respective employees, agents or servants; or (vi) any failure of
JCC, the Manager or a lessee to comply with applicable law. JCC's obligation to
indemnify the LGCB does 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 JCC, the Manager or their respective affiliates, or (d) a breach of the
Amended and Renegotiated Casino Operating Contract by the LGCB. JCC 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 JCC could result in the termination of the Amended and Renegotiated Casino
Operating Contract, subject, under certain circumstances, to the rights of
leasehold mortgagees. Such default includes, among other things: (i) the failure
to pay the installments of the Gross Gaming Revenue Share Payments or any other
payment; (ii) financial instability of JCC; (iii) unsuitability of JCC or the
Manager; (iv) unsuitability of certain other persons required to be found
suitable if JCC does not satisfy the safe harbor requirements; (v) conviction of
JCC of conduct that, in the applicable jurisdiction, is punishable as a felony
or equates to a felony in the State; (vi) adjudication of JCC as being in
default under the Amended Ground Lease, the Amended GDA or the Amended
Management Agreement and, in the LGCB's opinion, the default materially affects
JCC's ability to perform its obligations under the Amended and Renegotiated
Casino Operating Contract; (vii) the Amended and Renegotiated 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) JCC
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 JCC or a material part of its assets;
or if JCC voluntarily liquidates or dissolves; (ix) JCC fails to perform or
comply with any other material obligation in the Amended and Renegotiated Casino
Operating Contract; or (x) other than as a result of certain excusable causes,
JCC
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closes or abandons Casino operations; or (xi) JCC does not cause to be provided
and continuously maintain a Minimum Payment Guaranty. The LGCB is required to
provide notice and an opportunity to cure a default. Subject to the rights of
the leasehold mortgagees, if JCC does not cure a default within the time period
provided in the Amended and Renegotiated Casino Operating Contract, the LGCB may
terminate the Amended and Renegotiated Casino Operating Contract, enforce the
obligation in default and exercise any other right or remedy available to the
LGCB, including the imposition of fines.
The Amended and Renegotiated Casino Operating Contract will be immediately
terminated, with no right to cure, if either (i) JCC, other than as a result of
an Excusable Temporary Cessation of Operations, closes the Casino or ceases
gaming operations and fails to reopen the Casino and resume gaming operations
within seven days, or (ii) JCC fails to post the Minimum Payment Guaranty at
least one day prior to the first day of each COC Fiscal Year (either of (i) or
(ii) above, a "Termination Event").
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 SEC; (vii) a dealer registered pursuant to Section 15 of the
Exchange Act; (viii) a qualified institutional buyer as defined in Rule 144A
under the Securities Act 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, a savings and loan association or other institution as
referenced in Section 3(a)(5)(A) of the Securities Act, 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); (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; (xii) investors purchasing debt securities of
JCC (or a subsidiary of JCC) in a public offering registered pursuant to the
Securities Act 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 JCC's total debt or 50% of a material debt issue) so as not to give
an investor the ability to control JCC or the Manager; and (xiii) HET or HOCI
and their wholly owned subsidiaries with respect to certain loans contemplated
by the Plan of Reorganization. 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 JCC 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.
JCC 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 JCC is not less than 1.25 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 Amended and Renegotiated Casino Operating Contract provides protections
to the leasehold mortgagees, including notice of a default and, unless a
Termination Event occurs, 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 unless a
Termination Event occurs.
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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 Amended and
Renegotiated Casino Operating Contract provides for the effects of termination
of the receivership, which may result in the Amended and Renegotiated Casino
Operating Contract being terminated and the right to operate the Casino being
rebid.
TRANSFER RESTRICTIONS. Under the Amended and Renegotiated Casino Operating
Contract, JCC cannot transfer or encumber the Amended and Renegotiated Casino
Operating Contract, the Amended Management Agreement, the Amended Ground Lease
or the Amended GDA, 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
JCC in violation of the transfer restrictions, the transfer or encumbrance will
not be a default by JCC if JCC complies with the safe harbor requirements and
insulates itself in the manner required by the Amended and Renegotiated Casino
Operating Contract. Notwithstanding the foregoing, the Amended and Renegotiated
Casino Operating Contract provides that the transfer restrictions are not
intended to restrict the transfer of publicly traded securities that are traded
on a national exchange, provided that the LGCB maintains the power to require
the holder of any such securities subsequently to be found suitable. See
"--Regulation--Louisiana Gaming Act."
COMPLETION GUARANTEE. Pursuant to the Amended and Renegotiated Casino
Operating Contract, the Completion Guarantors have provided to the LGCB a
guarantee of the completion of construction of the Casino. See "--Completion
Guarantees."
AMENDED MANAGEMENT AGREEMENT
GENERAL. On October 29, 1998, JCC and the Manager entered into a second
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) hiring, supervising, and establishing labor policies with respect to
employees working in the Casino; (b) gaming and entertainment policies and
operations, including security and internal control procedures; (c) advertising,
marketing and promotions; (d) Casino-level accounting, budgeting, financial and
treasury functions; (e) maintaining, renovating and improving the Casino; (f)
determining the use of certain proprietary and third party licensed computer
services and certain brand services generally offered at casinos owned or
managed by HET and its affiliates; and (g) performing certain other obligations
of JCC requested by JCC in writing and agreed to by the Manager. During the term
of the Amended Management Agreement, JCC is required to fund the cost of
operating the Casino and is responsible for, among other things, (a) approving
budgets presented by the Manager; (b) maintaining JCC's leasehold interest in
the Casino Premises, free from encumbrances other than those set forth as
exceptions in the title policy covering the Casino Premises; (c) developing,
constructing, furnishing and equipping the Casino, including the hiring of a
program manager or any construction consultants, contractors, subcontractors or
architects; (d) obtaining and maintaining all licenses and permits required for
ownership of the Casino and continued operation of all facilities and handling
governmental affairs; (e) matters relating to the development, leasing and
financing of the second floor of the Casino; (f) matters relating to the Amended
Open Access Program and Plans; (g) payment of all indebtedness encumbering the
Casino and matters related to the reorganization; (h) community and public
relations other than advertising, marketing and promotions; (i) establishing and
administering employee
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benefit plans and other employee benefit matters; (j) determining, based on the
Manager's recommendations, what entity shall provide certain administrative
services; (k) assisting the Manager with respect to any matters delegated to the
Manager if requested in writing by the Manager and agreed by JCC; and (l) all
corporate, administrative and other business activities of JCC and any other
matters not expressly delegated to the Manager under the Amended Management
Agreement.
The Manager is required to operate the Casino (at JCC's expense) in
accordance with the operational standards applied at the casino operated by an
affiliate of HET in Atlantic City, New Jersey, as well as in accordance with
applicable law and the applicable provisions of the Amended and Renegotiated
Casino Operating Contract and the Amended Ground Lease. If HET or its affiliates
cease to operate its Atlantic City casino, then the Manager must operate the
Casino in the same manner in which HET operates a casino designated by the
Manager 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 the Manager 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 affiliate of HET and if not, then by
reference to another casino, designated by the Manager, operated by HET or its
affiliates similar in physical character.
TERM. The Amended Management Agreement has an initial term expiring October
29, 2018, and may be extended for four consecutive terms of ten years each,
provided the Manager is not in default under the Amended Management Agreement at
the time any such extension term is to commence. The Amended Management
Agreement will terminate without any further action of JCC or the Manager
immediately upon the occurrence of the termination of the Amended Ground Lease
by the RDC as a result of JCC's failure timely to complete construction of the
Casino.
CAPITAL REPLACEMENT FUND. Under the Amended Management Agreement, the
Manager on behalf of JCC will make monthly deposits into a fund for capital
replacements and improvements totaling $3 million for the first 12 month period
following the Opening Date, $4 million for the second 12 month period following
the Opening Date, $5 million for the third 12 month period following the Opening
Date, and 2% of gross revenues of the Casino for each fiscal month thereafter.
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 the
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. The capital replacement fund referred to above is the same as that
required pursuant to the Amended Ground Lease and Amended and Restated Casino
Operating Contract, and is not meant to duplicate the capital replacement fund
obligations of JCC under the Amended Ground Lease and Amended and Restated
Casino Operating Contract. See "Amended Ground Lease--Capital Replacement Fund"
and "--Amended and Renegotiated Casino Operating Contract-- Capital Replacement
Fund."
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 of the Casino's gross gaming revenues
will be performed by Deloitte & Touche LLP or such other accounting firm as may
be selected by JCC and approved by the Manager. The Manager is also 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 20 days from the date the proposed
annual plan is delivered to
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JCC, the Manager and JCC will conduct an in-depth review of the plan including
comparisons with the prior year's performance. 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 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, any disagreement between JCC and the Manager with respect to the
revised annual plan shall be resolved by arbitration. JCC must establish a bank
account with a minimum balance of $10 million at the time of the Casino's
opening and a "house bank" in the amount of $5 million. Subject to the
requirements of the Gaming Act and the Rules and Regulations, the minimum
balance and the "house bank" may be adjusted jointly by JCC or the Manager at
any time following the opening of the Casino. The Manager has absolute control
of the bank accounts and the "house bank" and all gross revenues of the Casino
will pass through the bank accounts and Casino funds will not be commingled with
any funds of the Manager or any of the Manager's affiliates. The Manager will
provide JCC with copies of bank statements with respect to the Casino's bank
accounts upon receipt and will also provide a reconciliation of such statements
to the books and records relating to Casino operations within 20 days of the
Manager's receipt of such bank statements.
FEES. The Manager is entitled to receive a management fee having two
components. The first component (the "Base Fee") is equal to 3% of gross
revenues of the Casino. The second component (the "Incentive Fee" and, together
with the Base Fee, the "Management Fees") is equal to 7% of Consolidated EBITDA
of JCC above (i) $40 million for the six month period ending on each March 31
after the Opening Date, and (ii) $75 million for the 12 month period ending on
each September 30 after the Opening Date, less the Incentive Fee paid to the
Manager for the six months included in the applicable 12 month period; provided,
however, that the Manager will refund to JCC all fees paid by JCC under clause
(i) hereof if Consolidated EBITDA does not exceed $75 million for the applicable
12 month period, with appropriate proration of such threshold for any partial
year following the Opening Date and preceding the termination of the Amended
Management Agreement, as the case may be. The Base Fee will be payable to the
Manager monthly. The Incentive Fee, if any, will 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 payments, if any, on the Notes. No
Base Fee will be paid, and no Incentive Fee will 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 or the Bank Loans. Any unpaid Base Fees
will be deferred and payable to the Manager at such time as any such default is
cured. 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.
The New Notes provide for six elections by JCC to pay semi-annual Fixed
Interest in kind rather than in cash for the first three years of the New Notes
and requires JCC to pay semi-annual Fixed Interest in kind thereafter if JCC's
Consolidated EBITDA for the prior 12 months has not exceeded $28.5 million.
Under the Amended Management Agreement, if JCC is required to cause Base Fees to
be deferred and/or disgorged as a result of any such election to pay semi-annual
Fixed Interest in kind or is required by the Credit Agreement to defer Base Fees
as a result of a deferral of principal amortization, the Manager agrees to defer
and/or disgorge such Base Fees. The New Notes provide that, on any of the first
six semi-annual interest payment dates, Base Fees payable to the Manager will be
deferred to the extent that the cash saving from paying Fixed Interest in kind
is needed for cash flow deficiencies other than for repayment of Tranche A-1 and
Tranche A-2. With respect to Incentive Fees, the New Notes also provide that if
JCC is required to pay Fixed Interest in kind with respect to the third, fourth,
fifth or sixth semi-annual interest payment periods, because of the terms of the
Term Loans or if JCC elects to pay Fixed
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Interest in kind during such semi-annual interest period, the Incentive Fees
payable to the Manager will be deferred during such corresponding semi-annual
interest period. If Consolidated EBITDA for JCC is less than $28.5 million for
the 12 months ending on the last day of the semi-annual interest period starting
with the fourth year after the Effective Date, the Base Fees and Incentive Fees
will be deferred as set forth above. Any such election or elections by JCC to
pay semi-annual fixed interest in kind must be by written notice from JCC to the
Manager specifying the amount, if any, required to be deferred under the
Indenture and/or Credit Agreement (the "Deferral Amount"). Such Deferral Amount
will first be applied to offset any Base Fees then unpaid and thereafter
accruing during the applicable six month period. To the extent any such Deferral
Amount exceeds the amount of any unpaid and accrued Base Fees for the applicable
six month period, the Manager will repay to JCC the remaining amount of such
Deferral Amount not to exceed the amount of any Base Fees previously paid to the
Manager with respect to any portion of the applicable six month period paid or
accruing prior to JCC's election to pay Fixed Interest in kind. To the extent
the Manager is required to refund to JCC any deferred Management Fees as
described above, HET and HOCI will guarantee the Manager's obligation to make
such refund.
Any deferred Management Fees will bear interest at 8.0%, which will accrue
until such deferred Management Fees are repaid. At such time and to the extent
that JCC's Consolidated EBITDA exceeds $65 million for the preceding 12 month
period, any deferred or refunded Base Fees together with interest thereon will
be payable to the Manager pro rata with any deferred guaranty fees payable to
HET or HOCI pursuant to the HET/JCC Agreement, out of excess cash flow
(remaining after application of the excess cash flow sweep required by the
Credit Agreement) to the extent JCC's Consolidated EBITDA exceeds $65 million.
See "--HET/JCC Agreement" and "--Bank Loans." At such time and to the extent
that JCC's Consolidated EBITDA exceeds $75 million for the preceding 12 month
period, any deferred Incentive Fees together with interest thereon will be
payable to the Manager, after repayment of any deferred Base Fees and such
deferred guaranty fees, out of excess cash flow (remaining after application of
the excess cash flow sweep required by the Credit Agreement) to the extent JCC's
Consolidated EBITDA exceeds $75 million. During the continuance of any uncured
payment default under the New Notes indenture or any default which results in an
acceleration under the New Notes indenture, or during the continuance of any
uncured default under certain provisions of the Amended Management Agreement,
any accrued but unpaid Base Fees or Incentive Fees will be subordinated to
payments pursuant to the New Notes indenture in the following order: (a) Fixed
Interest; (b) principal amounts under the New Notes; (c) Base Fees; (d)
contingent payments with respect to the New Notes; (e) amounts advanced under
the Completion Guarantees; and (f) Incentive Fees. See "--HET/JCC Agreement" and
"--Bank Loans."
INDEMNITY. JCC is required to indemnify and hold the Manager harmless from
any Claims (as defined herein) and must reimburse the Manager for any money
damages to property which the Manager is required or authorized to pay for any
reason. JCC's indemnity excludes any liability not covered by insurance which
results solely from the proven gross negligence or willful misconduct of any of
the "Key Casino Personnel" or certain of HET's corporate officers if and to the
extent that their proven gross negligence or willful misconduct involves
directing the activity in the operation of the Casino or in the Manager's
performance of its obligations under the Amended Management Agreement that
results in a liability and the liability is proximately caused by such
direction. For purposes of the Amended Management Agreement, "Claims" include
any action or actions, cause or causes of action, in law or in equity, suits,
debts, liens, liabilities, claims, demands, damages, punitive damages, losses,
costs or expenses, and reasonable attorneys' fees of any nature whatsoever
(including, without limitation, claims based upon legal fault, negligence,
offense, quasi-offense, contract, quasi-contract, or any other theory) whether
fixed or contingent, and "Key Casino Personnel" include, among others, the
Casino's general manager, vice president of operations, and vice president of
marketing and certain other direct reports to the general manager. The Manager
is required to indemnify and hold JCC harmless from any liability not covered by
insurance which results solely from the gross negligence or willful misconduct
of any of the Key Casino Personnel if and to the extent that their proven gross
negligence or willful misconduct involves directing
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activity in the operation of the Casino or in the Manager's performance of its
obligations under the Amended Management Agreement that results in a liability
proximately caused by the direction.
TERMINATION OF AMENDED MANAGEMENT AGREEMENT. Upon the happening of certain
events, the Manager may declare an event of default by JCC, entitling it to
terminate the Amended Management Agreement and receive the Termination Fee (as
defined herein). 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 timely to reconstruct the Casino following casualty or partial
condemnation at any time the board of directors of JCC Holding does not consist
of Continuing Directors; (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; (iv) passing of title by JCC to the Casino or
any part thereof in lieu of foreclosure or institution of an action to foreclose
any mortgage in the Casino against JCC and which is not dismissed within 30 days
thereafter; or (v) acquisition by 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") of any legal or
beneficial interest in JCC or its affiliates, or any indebtedness of JCC or its
affiliates, that has not been cured within 45 days following notice to JCC by
the Manager of such acquisition. 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 $44 million
adjusted by increases in the Consumer Price Index. Notwithstanding the
foregoing, if any default or event giving rise to a termination by the Manager
results solely from an action or omission of HET, or its affiliates, in its
capacity as a member of JCC, the Manager will not in any such event receive a
Termination Fee in connection with such event of default or resulting
termination.
In addition to the Manager's right to terminate the Amended Management
Agreement as described above, if (i) the Amended Ground Lease or the Amended and
Renegotiated Casino Operating Contract are subject to the imminent risk of
termination, or (ii) any mortgage created pursuant to the Credit Agreement or
any other mortgage securing repayment of indebtedness, the proceeds of which are
used solely to construct, improve, restore or repair the Casino, or to refinance
any indebtedness incurred in connection with such mortgage, is subject to the
imminent risk of foreclosure, JCC shall be entitled to terminate the Amended
Management Agreement by giving 60 days' advanced written notice to the Manager,
without payment of the Termination Fee.
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 from JCC any amounts due or
owing with respect to events occurring prior to or in connection with such
termination, but the Manager will not be entitled to receive a Termination Fee.
In the event the Rivergate site is condemned or the Amended and Renegotiated
Casino Operating Contract is revoked through no fault of JCC, then the Amended
Management Agreement will be terminated and the Manager will receive from JCC
any amounts due or owing, but the Manager will not be entitled to receive a
Termination Fee; provided, however, the Manager will be entitled to seek a
recovery from the condemning or revoking authority for the Manager's economic
loss in respect of the Amended Management Agreement.
If the Manager or any of its affiliates is determined by the LGCB to be
unsuitable to conduct gaming, JCC shall be entitled to terminate the Amended
Management Agreement upon 30 days' prior notice to the Manager. Following the
Transition Date, if a Change of Control (as defined herein) occurs and the board
of directors of JCC Holding does not consist of Continuing Directors (as defined
herein), the Manager will be entitled to terminate the Amended Management
Agreement upon 90 days' written notice to JCC, but will not be entitled to
receive a Termination Fee. "Continuing Directors" means the directors of JCC
Holding on the Effective Date and each other director, if such director's
nomination for election to the
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board of directors of JCC Holding is recommended by a majority of the then
Continuing Directors. In addition, following the Transition Date, if JCC sells,
assigns or transfers any of its direct or indirect legal or beneficial interest
in the Casino, to any person other than a Qualified Purchaser (as defined
herein) approved by the Manager and which assumes and agrees to perform the
obligations of JCC under the Amended Management Agreement, the Manager will be
entitled to terminate the Amended Management Agreement upon the closing of such
sale, assignment or transfer, but will not be entitled to receive a Termination
Fee. "Qualified Purchaser" means any person or entity that is duly licensed or
otherwise authorized to own and operate the Casino and that: (i) is not a
Conflicted Entity (as defined herein), and (ii) would not, if affiliated with
the Manager, in the reasonable judgment of the Manager or any licensing
authority, impair or cause the denial, suspension or revocation of any gaming
registration, permit, license, right or entitlement or alcoholic beverage
registration, permit, license, right or entitlement held or applied for by the
Manager or an affiliate of the Manager. Other than as described herein, JCC has
no right to terminate the Amended Management Agreement in the absence of a
default by the Manager.
NON-COMPETE. Neither the Manager nor JCC nor any affiliate of the Manager
or JCC that is controlled by the Manager's ultimate parent or JCC's ultimate
parent, as the case may be, may develop, own, finance or manage casino or other
gaming operations in Orleans, Plaquemines, St. Charles, St. Tammany, Jefferson
or St. Bernard Parishes, Louisiana, except for the Casino.
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 that is controlled by the Manager's ultimate parent;
(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. The Manager 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 JCC (which
consent may be withheld for any reason). Notwithstanding the foregoing, the
immediately preceding sentence does not restrict, limit or effect in any manner
the sale, assignment or transfer of any legal or beneficial interest in JCC's
ultimate parent.
CONFLICTS WITH AMENDED GROUND LEASE. 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.
COMPLETION GUARANTEES
Pursuant to the Completion Guarantees in favor of the Beneficiaries, the
Completion Guarantors have agreed to guarantee the Completion Obligations, the
Carry Obligations and the Preservation Obligations. The "Completion Obligations"
mean the obligations of JCC to commence and complete the construction of and
timely and fully pay for all costs and expenses of completion when due for the
Casino Construction, to equip the Casino with the required furniture, fixtures
and equipment so that the Casino is ready to open to the public (subject to any
necessary regulatory approvals from the LGCB or any other State regulatory
authorities) as a casino gaming operation in accordance with the terms of the
Amended Ground Lease, the Amended GDA, the Indentures and any applicable
requirement of the LGCB. These obligations include, but are not limited to, (i)
the payment of any and all costs of completing the Casino Construction,
including without limitation all labor, materials, supplies and equipment
related thereto, to be paid and satisfied when due including, without
limitation, all cost overruns not paid by JCC; (ii) the payment, satisfaction or
discharge of liens arising from injuries or damages to persons or property in
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connection with the Casino Construction and all liens, charges and claims, other
than permitted liens, arising from the furnishing of labor, material, supplies
or equipment for the Casino Construction, that are or may be imposed upon or
asserted against the Casino or any portion thereof; and (iii) the defense and
indemnification of the Beneficiaries against all such liens arising from
injuries or damages to persons or property in connection with the Casino
Construction, and all such liens, charges and claims, other than permitted
liens, arising from the furnishing of labor, materials, supplies or equipment
for the Casino Construction.
The "Carry Obligations" mean the full and complete payment and performance
of all obligations of JCC to pay on a timely basis all amounts due from or
incurred by or otherwise payable by JCC to any person, including without
limitation, any rent, liquidated damages or other amounts payable to the City
and the RDC under the Amended Ground Lease or the Amended GDA (including but not
limited to JCC Development's obligation, if any, to pay rent directly to the
City and the RDC under the Second Floor Sublease prior to completion of the
Casino Construction), and all project costs (other than any costs which are
included as a part of the Completion Obligations), including without limitation,
the payment of interest and scheduled principal payments (excluding the
principal of the Notes), taxes (prior to delinquency), amounts owing to the LGCB
under the Amended and Renegotiated Casino Operating Contract, amounts owing to
the City and the RDC under the Amended Ground Lease, assessments, utilities,
insurance, maintenance expenses and amounts arising from injuries or damages to
person or property or amounts due pursuant to contracts or agreements to be
funded, paid and satisfied on or prior to the Termination of Construction Date
(as defined herein); provided that the Completion Guarantors in no event
guarantee payment pursuant to the Completion Guarantees of any Minimum Payment
under the Amended and Renegotiated Casino Operating Contract. The Carry
Obligations include, without limitation, (i) the obligation of JCC upon the
Termination of Construction Date to have available for working capital at least
$5.0 million of cash and the Working Capital Facility Maximum Amount of
availability for immediate drawdown(s) under the Working Capital Facility,
subject to the terms thereof (which may require the Completion Guarantors to
contribute working capital directly to JCC or to pay down the Working Capital
Facility), and (ii) the obligation of JCC to repay the Working Capital Facility
upon an event of default under the Working Capital Facility prior to the
completion of the Casino Construction. The "Working Capital Facility Maximum
Amount" equals $25 million reduced by the amount of funds, if any, not to exceed
$2.0 million, available under any letter of credit sub-facility under the
Working Capital Facility for purposes other than those relating to project costs
of the Casino and a drawing of up to $10.0 million to fund a certain Casino bank
account on or before the Termination of Construction Date.
The "Preservation Obligations" include the Completion Guarantors'
obligations, after notices of failure of JCC to fulfill the Completion
Obligations in a timely manner, to pay any of the Carry Obligations or to be the
subject of a voluntary or involuntary bankruptcy proceeding, to take all
necessary steps to maintain insurance coverage and to secure the Casino to
prevent deterioration and unauthorized access. The "Termination of Construction
Date" means the date by which all of the following have occurred: (i) a
temporary certificate of occupancy has been issued for the Initial Casino
Facilities by the building department and other relevant agencies; (ii) all
required permits with respect to the Casino Construction have been received by
JCC; (iii) a notice of completion has been recorded with respect to the Casino
Construction; (iv) an officer's certificate of the Completion Guarantors has
been delivered to the Beneficiaries certifying that the Termination of
Construction Date has occurred; (v) the Casino is equipped with the required
furniture, fixtures and equipment and ready to open for business as a casino
gaming operation; (iv) a certificate has been delivered by the general
contractor and the project architect to the Beneficiaries for the Casino
Construction certifying that the Casino Construction has been substantially
completed in accordance with the plans and specifications therefor and all
applicable building laws, ordinances and regulations; and (vii) the Initial
Casino Facilities have opened for business as a casino gaming operation so long
as any necessary regulatory approvals from the LGCB or any other State
regulatory authorities have been received, or, if such approvals have not been
received, even though timely receipt of any such approvals has been diligently
pursued by or on behalf of JCC in accordance with the
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Rules and Regulations for such approvals, the Initial Casino Facilities are in a
condition to receive customers in the ordinary course of business.
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 timely to commence
or complete the Casino Construction, fails in any other manner to prosecute with
diligence and continuity the Completion Obligations, fails timely to pay any of
the Carry Obligations, or files or has filed against it a petition for
bankruptcy or similar relief. See "--Material Agreements--Amended Completion
Loan Agreement." In addition, the Completion Obligations (but not the Carry
Obligations) under the Completion Guarantees are suspended during the pendency
of any Force Majeure. See "--Risk Factors--Completion Guarantees." 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 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 by JCC; (ii) casino gaming operations are no
longer permitted to be conducted at the Casino or are modified, restricted or
limited in a manner that materially diminishes the benefits afforded to JCC or
the gaming activities permitted to be conducted at the Casino pursuant to the
Gaming Act by reason of a change of law or the enactment of a new law after the
Effective Date or by reason of JCC's rights under the Amended and Renegotiated
Casino Operating Contract having been terminated in any material respect, other
than as a result of a breach by JCC or the Completion Guarantors; provided that,
upon the occurrence of any of the events described in this clause (ii) prior to
the Termination of Construction Date, the Completion Guarantors are nevertheless
obligated to complete the Poydras Street Support Facility, the Poydras Tunnel
Area, exterior site and street work, and certain improvements which may be
required under the Amended Ground Lease; (iii) only as to the Carry Obligations
but not as to the Completion Obligations, a Force Majeure continues for more
than one year from the receipt of a notice from any of the Beneficiaries to the
Completion Guarantors that the Completion Guarantors' obligation to complete the
Casino has taken effect, notwithstanding the Completion Guarantors' actual and
continuous best efforts to remove such Force Majeure; provided, however, that
the Completion Guarantors will remain liable for all Carry Obligations that
actually come due through the expiration of such one year period to the extent
not satisfied by JCC; and, provided further, that the Completion Guarantors used
their best efforts to remove such Force Majeure within such one year period; or
(iv) as to the Carry Obligations, as of and upon the Termination of Construction
Date and as to the Completion Obligations upon the date on which all such
payments or satisfactory provisions for all such payments have been made, all
lien periods with respect to the Casino Construction have expired and no liens
or privileges arising from the furnishing of labor, materials, supplies or
equipment for the Casino Construction affecting or purporting to affect the
Casino remain of record in Orleans Parish. JCC has obtained the Surety Bond for
the benefit of the Beneficiaries for completion of the Casino Construction.
The remedy of specific performance and the remedies described below are not
intended to be exclusive of remedies that Beneficiaries may have against JCC
under any other documents or agreements. If, after notice and opportunity to
cure, the Completion Guarantors fail timely to pay the Carry Obligations (a
"Carry Obligation Default") or if, after notice and an opportunity to cure, the
Completion Guarantors fail to commence and diligently thereafter continue to
perform the Completion Obligations through the date of completion (a "Completion
Obligation Default"), or if, after notice and an opportunity to cure, the
Completion Guarantors fail to perform the Preservation Obligations (a
"Preservation Obligation Default"), then the Beneficiaries, subject to certain
provisions, may elect to require specific performance by the Completion
Guarantors of any or all of the Carry Obligations after a Carry Obligation
Default, the Completion Obligations after a Completion Obligation Default and
the Preservation Obligations after a Preservation Obligation Default. After a
Completion Obligation Default or a Preservation Obligation Default, the
Beneficiaries, at their option, have the right, but have no obligation, to
require the
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surety to perform the Completion Obligations or the Preservation Obligations
pursuant to the Surety Bond. The Beneficiaries' election to require the surety
to perform the Completion Obligations will not release, diminish or extinguish
the liability of JCC or the Completion Guarantors to the extent the surety fails
to perform the Completion Obligations or the Preservation Obligations. The
Completion Guarantors will remain obligated to perform the Carry Obligations
notwithstanding any such election and notwithstanding the surety's performance
of the Completion Obligations or the Preservation Obligations. In addition to
the Beneficiaries' right to require specific performance by the Completion
Guarantors of any and/or all of the Completion Obligations after a Completion
Obligation Default, the Carry Obligations after a Carry Obligation Default or
the Preservation Obligations after a Preservation Obligation Default, and
whether or not the Beneficiaries have called on the surety pursuant to the
surety bond, (i) the Beneficiaries have the right to recover from the Completion
Guarantors all unreimbursed costs and expenses, including but not limited to
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, (ii) after a Carry
Obligation Default, the Completion Guarantors will be liable for the joint
benefit of the Beneficiaries as their interests may appear for any interest or
delinquency costs arising from such Carry Obligation Default; provided that the
Completion Guarantors will not be liable for more than one payment of any such
interest or delinquency costs of JCC regardless of whether multiple demands are
made by any or all of the Beneficiaries; (iii) after a Completion Obligation
Default, the Completion Guarantors will be liable for the joint benefit of the
Beneficiaries as their interests may appear for damages to pay for the costs of
performance of the Completion Obligations arising from such Completion
Obligation Default or otherwise available at law or in equity; and (iv) after a
Preservation Obligation Default, the Completion Guarantors will be liable for
the joint benefit of the Beneficiaries as their interests may appear for damages
to pay for the costs of performance of the Preservation Obligations arising from
such Preservation Obligation Default; provided that in no event will the
Completion Guarantors be liable for duplicate payments in respect of damages nor
for more than one performance of the Preservation Obligations.
On the Effective Date, the Completion Guarantors entered into a completion
guarantee agreement in favor of the RDC and the City (the "RDC Completion
Guarantee"), a completion guarantee agreement in favor of the LGCB and the State
(the "LGCB Completion Guarantee"), a completion guarantee agreement in favor of
the holders of the Notes (the "Notes Completion Guarantee"), and a completion
guarantee agreement in favor of the Bank Lenders (the "Bank Completion
Guarantee"). In the event that any amendment or supplemental agreement with
respect to any of the foregoing completion guarantees provides rights or
remedies to any Beneficiary (the "Favored Beneficiary") under its completion
guarantee agreement that are more favorable in any respect than the rights and
remedies granted to the other Beneficiaries (the "Other Beneficiaries") under
their respective completion guarantee agreements, then the Other Beneficiaries
will be deemed to have available to them, at their option, the benefit of the
more favorable rights and remedies implemented by such amendment or supplemental
agreement and will not under any circumstances be deemed to have agreed to or
become subject to any alterations in the completion guarantee agreement of the
Favored Beneficiary, or any provisions of a supplemental agreement among the
Completion Guarantors and the Favored Beneficiary, that are less favorable than
the rights and remedies granted to the Other Beneficiaries under their
respective completion guarantee agreements.
AMENDED COMPLETION LOAN AGREEMENT
On the Effective Date, JCC and the Completion Guarantors entered into an
amended and restated subordinated completion loan agreement (the "Amended
Completion Loan Agreement"), under which any expenditures made by the Completion
Guarantors under the Completion Guarantees which are not also expenditures under
the Amended and Restated Construction Lien Indemnity Agreement (as defined
herein) are deemed unsecured limited recourse indebtedness (the "Completion
Loans") of JCC due and
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payable six months following the maturity of the New Notes and New Contingent
Notes. The Completion Loans bear annual interest at the rate of 8%. Subject to
meeting certain restricted payment tests contained in the Indentures for the
Notes and pursuant to the Bank Loan documents, 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 member. During any period in which (i) payment of
the Completion Loans is prohibited under the terms of the Bank Loan Documents or
(ii) JCC has paid interest in kind rather than in cash on the New Notes, JCC
will not be permitted to make any payment in respect of the Completion Loans;
provided, however, that interest will continue to accrue on the Completion Loans
at the annual rate of 8.0% during any period in which the Company is not
permitted to make payments and such interest will be added to the principal
amount of the Completion Loans. Any Completion Loan not paid at maturity will
bear annual interest at the foregoing rate plus 2.0%. The Completion Loans are
junior in right of payment to the Bank Loans, the Notes (including principal,
interest and contingent payments due and payable), Senior Permitted
Refinancings, Senior Subordinated Permitted Refinancings and will rank PARI
PASSU with the Junior Subordinated Credit Facility. Repayments are generally
treated as restricted payments under the Indentures and Bank Loan documents.
Payments in excess of those permitted to be paid under the Indentures or Bank
Loan documents will be subordinate to the repayment of the Notes and the Bank
Loans.
At such time that there is a demand, call, notice or requirement for
performance of any Completion Guarantee, the Completion Guarantors will be
entitled to control the disbursement and use 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 and using any such
portion of the Term Loans the Junior Subordinated Credit Facility, or the
proceeds from the Convertible Junior Subordinated Debentures up to the total
amount available thereunder, until all obligations of the Completion Guarantors
in respect of the Completion Guarantees have been fully satisfied (subject to
the obligation to provide certain minimum cash and working capital availability
as described in the Completion Guarantees). The Amended Completion Loan
Agreement also provides that JCC will use all of its available funds, including
all equity contributions made to JCC and amounts received from Term Loans, the
Junior Subordinated Credit Facility and the Convertible Junior Subordinated
Debentures for the construction and development of the Casino.
Under the Amended Completion Loan Agreement, JCC and the Completion
Guarantors agree that (i) separate books and records will be kept for funds
related to operations of the Casino and funds related to construction of the
Casino, and such funds will not be commingled, and (ii) within 45 days following
the completion of construction of the Casino Construction, JCC will have its
accountants audit such books and records and all amounts expended to construct
the Casino. To the extent such audit determines that the amounts in the
aggregate expended for construction were in excess of the costs budgeted for
such construction, the Completion Guarantors will reimburse to JCC any such
excess and such amounts reimbursed will be a Completion Loan.
Pursuant to the Amended Completion Loan Agreement, HET, HOCI, JCC, the RDC
and the City entered into an entry agreement under which the Completion
Guarantors are granted the right to enter and take control of construction of
the Casino, provided that the Completion Guarantors will be liable for actual
damages resulting from their willful misconduct or gross negligence in the
exercise of its entry rights. If the Completion Guarantors exercise their rights
as a result of: (i) any demand, call, notice or requirement for performance
under any Completion Guarantee; or (ii) the Completion Guarantors having
determined 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, the Completion Guarantors' liability will be limited to actual damages
suffered by JCC not to exceed $2.0 million unless such damages arise from the
Completion Guarantors' willful misconduct or gross negligence. 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 and
Renegotiated 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
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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. On October 29, 1998 and effective as of the Effective Date, JCC
entered into a sublease (the "Second Floor Sublease") with JCC Development,
pursuant to which JCC subleases to JCC Development for the term described below
the second floor of the Casino which is available for non-gaming uses.
TERM. The term of the Second Floor Sublease commences upon the occurrence
of substantial completion of the Second Floor Shell Construction and terminates
on the earlier of the date of expiration or the date of termination of the
Amended Ground Lease, unless sooner terminated by its terms.
SUBLEASE AND CONVERSION TO GAMING SPACE. The entire second floor of the
Casino initially is available for non-gaming uses upon the completion of the
Second Floor Shell Construction. 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 will be compensated for such reduction in sublease revenue in accordance
with the terms of the Second Floor Sublease. In the event that such a conversion
of second floor space to gaming use occurs, such space will 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 representatives of JCC, JCC Development
and the RDC is expected to develop the Master Plan for the initial build-out and
leasing of the second floor for non-gaming uses. The Master Plan must be
approved by the RDC, JCC and JCC Development and will, among other things,
establish leasing guidelines regarding rent, termination rights and termination
fees, tenant improvements and concessions, permissible uses, brokerage fees, an
initial capital improvement budget and an initial operating budget for the first
year of operations. JCC and the RDC will sponsor and support at the required
times the necessary steps to gain regulatory and municipal approvals and
conditional use ordinance modifications consistent with the Master Plan. The
Amended Ground Lease prohibits any waiver of or modification to the Second Floor
Sublease or the Master Plan which would have a material adverse effect on the
RDC, the City or the City Council without the prior written consent of the RDC,
the City and the City Council, such consent not to be financially conditioned,
unreasonably withheld or delayed.
SECOND FLOOR BUILD-OUT. The second floor of the Casino is anticipated to be
available for leasing following the opening of the Casino and approval of the
Master Plan. The tenant improvement build-out and development of the non-gaming
uses on the second floor of the Casino is scheduled to begin, subject to
entering into tenant leases, following the approval of the Master Plan. Such
initial non-gaming tenant improvement build-out and development must be
consistent with the Master Plan. The Second Floor Sublease prohibits facilities,
the principal business purpose of which is a restaurant, on the second floor of
the Casino.
MANAGEMENT AND LEASING. JCC Development will manage and lease the second
floor development consistent with the Second Floor Sublease and 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 will be
consistent with the leasing parameters set forth in the Master Plan. JCC
Development will submit to the RDC on or before July 15 of each year a proposed
cash flow and operating budget for the second floor non-gaming development for
the following year.
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RENT. JCC Development will pay directly to the RDC, as assignee of JCC,
rent 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. The remaining 50% of the net operating income will be paid by JCC
Development to JCC as rent under the Second Floor Sublease. Such construction
costs in connection with the development and build-out of the second floor must
be consistent with the Master Plan and will be the incremental costs necessary
to make the second floor suitable for non-gaming tenants and to attract such
tenants, and such costs will be amortized over a cost recovery period of ten
years. If any conversion of any portion of the second floor to gaming use would
result in less sublease revenue to the RDC, JCC will compensate the RDC for such
reduction in the sublease revenue. In the event that such a conversion to gaming
use takes place, such space will be removed from the Second Floor Sublease and
will thereafter be subject to the terms of the Amended Ground Lease that apply
to the first floor of the Casino.
ASSIGNMENT AND MORTGAGE. JCC Development may not assign its obligations
under the Second Floor Sublease without the prior written consent of JCC and the
RDC. In addition, JCC Development is prohibited by the terms of the Second Floor
Sublease from pledging, mortgaging or otherwise encumbering the second floor or
the Second Floor Sublease or its interest therein, other than in connection with
the Bank Loans, the New Notes or the HET/JCC Agreement or in connection with any
financing of the second floor development consented to by the RDC pursuant to
the Second Floor Sublease.
BASIN STREET CASINO LEASE TERMINATION AGREEMENT
On January 15, 1997, HJC entered into a Basin Street Casino Lease
Termination Agreement with the RDC and the City, as intervenor (the "Termination
Agreement"). The LGCB approved the termination of the Basin Street Casino Lease.
Pursuant to the Termination Agreement, the Basin Street Casino Lease
automatically terminated on the date the LGCB approved such termination.
Possession of the Basin Street Casino premises has been transferred to the City.
The RDC and the City, on the one hand, and HJC, on the other hand, have mutually
released all rights and obligations under the Basin Street Casino Lease;
provided that such release does not affect any rights or obligations of the
parties under the Termination Agreement in respect of the Municipal Auditorium
or the restoration work described below, as specifically set forth in the
Termination Agreement. The RDC and the City have no claim for damages as a
result of the termination of the Basin Street Casino Lease.
The Termination Agreement required HJC to restore the Municipal Auditorium
to its previous use. In accordance with the terms of the Termination Agreement,
HJC deposited $3,475,399 into escrow on October 3, 1996 to fund the restoration
work and commenced and substantially performed the restoration work. Pursuant to
an assignment and assumption agreement dated as of September 9, 1997, HJC
assigned, and the City and the RDC assumed, all of HJC's rights regarding
performance of all remaining restoration work under the Termination Agreement,
thus releasing HJC from any obligation under the Termination Agreement to
complete and fund the remaining restoration work at the Municipal Auditorium. In
addition, in connection with such assignment and assumption, certain funds on
deposit in the escrow account were returned to HJC and all remaining rights and
obligations of HJC with respect to the escrow account were assigned and
transferred to the City and the RDC.
AMENDED AND RESTATED CONSTRUCTION LIEN INDEMNITY AGREEMENT
JCC and HOCI entered into an Amended and Restated Construction Lien
Indemnity Obligation Agreement (the "Amended and Restated Construction Lien
Indemnity Agreement") pursuant to which any expenditures made by HOCI under the
construction lien indemnity agreement delivered by HET and HOCI to First
American regarding mechanic's liens claiming priority to the Bank Loans, the New
Notes or
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the New Contingent Notes, 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 Loans will be subordinate to the repayment of the Notes
and the Bank Loans. During any period in which (i) payment of the Indemnity
Obligations is prohibited under the terms of the Bank Loan documents or (ii) JCC
has paid interest in kind rather than in cash on the New Notes, JCC will not be
permitted to make payments in respect of the Indemnity Obligations; provided,
however, that interest will continue to accrue at the annual rate of 8.0% during
any period in which JCC is not permitted to make payments and such interest will
be added to the principal amount of the Indemnity Obligations. HOCI did not and
will not receive a fee for entering into the Amended and Restated Construction
Lien Indemnity Obligation Agreement.
HET/JCC AGREEMENT
On the Effective Date, JCC entered into the HET/JCC Agreement with HET and
HOCI, under which HET and HOCI provided an initial Minimum Payment Guaranty for
the benefit of the LGCB to assure payment of the Minimum Payment, subject to
renewal or early termination in accordance with the terms of the HET/JCC
Agreement. Any drawing on a Minimum Payment Guaranty provided by HET or HOCI
will bear interest at the Tranche A-3 interest rate. See "--Bank Loans."
HET and HOCI have committed to provide a Minimum Payment Guaranty through
the COC Fiscal Year ending March 31, 2004; provided that a Minimum Payment
Guaranty will not renew for any of the COC Fiscal Years beginning April 1, 2000,
2001, 2002 or 2003 if: (i) there has been a JCC bankruptcy or a cessation of
Casino operations; (ii) there are any unpaid guarantee fees (other than fees
deferred as agreed in the HET/JCC Agreement); (iii) there has been a failure to
pay the Minimum Payment; (iv) in the case of the renewal of the Minimum Payment
Guaranty for the COC Fiscal Year beginning April 1, 2000, the project has failed
to generate positive Consolidated EBITDA for the period of operations ending
January 31, 2000, provided, however there will be no Consolidated EBITDA test
for the period of operations ending January 31, 2000 if such period of
operations commenced after August 1, 1999; (v) in the case of the renewal of the
Minimum Payment Guaranty for the COC Fiscal Years beginning April 1, 2001, 2002
and 2003, the project has failed to generate positive Consolidated EBITDA as of
the 12 month period ending November 30 of the prior calendar year in an amount
equal to $15 million as of the 12 month period ending November 30, 2000, $20
million as of the 12 month period ending November 30, 2001, and $25 million as
of the 12 month period ending November 30, 2002; (vi) HET, HOCI or the Manager
or any of HET's affiliates has been determined to be unsuitable; (vii) the
Manager has been removed as manager of the Casino; (viii) the Amended and
Renegotiated Casino Operating Contract has been terminated (ix) JCC has breached
certain covenants in the HET/JCC Agreement; or (x) an Excusable Temporary
Cessation of Operations has occurred and is continuing. For purposes of clauses
(iv) and (v) above Consolidated EBITDA will mean operating income determined
according to generally accepted accounting principles, but will not include any
extraordinary non-cash items such as the write down of assets or pre-opening
expenses.
With respect to clause (iv) of the preceding paragraph regarding the renewal
of the Minimum Payment Guaranty for the COC Fiscal Year beginning April 1, 2000,
if an Excusable Temporary Cessation of Operations occurs, the Minimum Payment
Guaranty will automatically renew if the Casino's failure to generate positive
EBITDA for the period of operations ending January 31, 2000 is solely the result
of an Excusable Temporary Cessation of Operations and but for the Excusable
Temporary Cessation of Operations the applicable EBITDA test would have been
met. To determine whether the Casino would have generated positive EBITDA in the
absence of an Excusable Temporary Cessation of Operations for the period of
operations ending January 31, 2000, it will be assumed that the Casino would
have generated EBITDA for each day of any period of time the Casino was closed
due to an Excusable Temporary Cessation of Operations in an amount equal to the
average daily EBITDA generated during the 30 days
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prior to such period of time the Casino was closed due to an Excusable Temporary
Cessation of Operations.
With respect to clause (v) of the second preceding paragraph regarding the
renewal of the Minimum Payment Guaranty for the COC Fiscal Years beginning April
1, 2001, 2002, and 2003 if an Excusable Temporary Cessation of Operations
occurs, the Minimum Payment Guaranty will automatically renew if the Casino's
failure to generate EBITDA for the 12 month period ending November 30 of the
prior calendar year in an amount equal to $15 million as of the 12 month period
ending November 30, 2000, $20 million as of the 12 month period ending November
30, 2001, and $25 million as of the 12 month period ending November 30, 2002 is
solely the result of an Excusable Temporary Cessation of Operations; provided
that (i) such $15 million, $20 million and $25 million, EBITDA tests,
respectively, will be reduced pro rata for any period of time the Casino was
closed due to an Excusable Temporary Cessation of Operations during the
applicable 12 month period and (ii) the Minimum Payment Guaranty will
automatically expire and not renew if any such reduced EBITDA tests are not met.
An "Excusable Temporary Cessation of Operations" occurs if any of the
following circumstances occurs, to the extent and only for such time that it
causes temporary closure or temporary cessation of operations of the Casino
beyond the reasonable control of JCC, and further provided that the Casino
Operator diligently and in good faith seeks to reopen the Casino and to
recommence Casino operations: (a) strikes, lockouts, inability to procure
materials or failure of power; (b) arbitrary or capricious State, local or
municipal governmental action (but in no event will an Excusable Temporary
Cessation of Operations pursuant to this clause (b) exceed a period of six
months); (c) acts of God, hurricanes, floods, sinkholes, fires and other
casualties, earthquakes, epidemics, or quarantine; (d) acts of a public enemy,
acts of war, terrorism, blockades, insurrections, riots, civil disturbances,
governmental preemption in connection with a national emergency, or national or
international calamities; (e) the entry of a judgment, order or ruling in
litigation not filed by JCC or any affiliates of JCC and which judgment, order
or ruling was not entered substantially as the result of the fault of JCC or any
affiliates of JCC and which judgment, order or ruling restrains or substantially
interferes with operations of the Casino; (f) 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 materially diminished; (g) any other causes
related to or arising out of the causes stated in subsections (a) through (g)
above beyond the reasonable control of JCC (excluding any bankruptcy of JCC or
failure of JCC to obtain financing or to pay its financial obligations as they
come due) and not substantially the result of the fault of JCC; and (h) any
other cause which the LGCB in its sole discretion formally determines to be an
Excusable Temporary Cessation of Operations.
Commencing with the COC Fiscal Year beginning April 1, 2001, upon written
notice 90 days prior to the first day of the respective COC Fiscal Year, JCC may
terminate the HET/JCC Agreement, thereby cancelling the commitment of HET and
HOCI to renew the Minimum Payment Guaranty for the COC Fiscal Year beginning
April 1, 2001 upon payment of a termination fee of $1 million in cash and may
cancel the commitment of HET and HOCI to renew the Minimum Payment Guaranty for
the COC Fiscal Years beginning April 1, 2002 and 2003 without any fee.
Notwithstanding any other provision hereof, JCC is restricted from terminating
the HET/JCC Agreement unless JCC has obtained a replacement guaranty or letter
of credit which meets the requirements of the Amended and Renegotiated Casino
Operating Contract and which does not result in increased cost to JCC (after
giving effect to payment to HET and HOCI of the termination fee, if applicable),
the Amended and Renegotiated Casino Operating Contract no longer requires JCC to
provide a guaranty or letter of credit, or the LGCB waives the requirement that
JCC provide a guaranty or letter of credit.
HET and HOCI, collectively, will receive a $6 million per annum guaranty fee
for the COC Fiscal Years ending March 31, 2000 and 2001 and a $5 million per
annum guaranty fee for the COC Fiscal Years ending March 31, 2002, 2003 and
2004, all payable quarterly. HET and HOCI, collectively, will receive a pro rata
fee based on an annual fee of $6 million for any partial COC Fiscal Year ending
March 31, 1999 or for the COC Fiscal Year ending March 31, 2000 if it is a
partial COC Fiscal Year. HET and HOCI will not
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receive a guaranty fee for any COC Fiscal Year in which a Minimum Payment
Guaranty is not provided and will repay to JCC any guaranty fee previously
advanced to it in respect of such COC Fiscal Year. If Consolidated EBITDA is
less than $28.5 million for the 12 month reporting period ending 45 days prior
to each semi-annual New Note interest payment date beginning with the fourth
year after the Effective Date, the guaranty fee to HET and HOCI will be
deferred, Fixed Interest on the New Notes will be paid in kind, Management Fees
will be deferred and bank principal amortization may be deferred. JCC's
obligation to pay the per annum guaranty fee and any termination fee to HET and
HOCI and to reimburse HET and HOCI for any drawings (including interest thereon)
by the State under any Minimum Payment Guaranty provided by HET and HOCI is
secured by liens on substantially all of the assets of each of JCC (except the
Amended and Renegotiated Casino Operating Contract and the Gross Gaming Revenue
Share Payments), JCC Development, CP Development and FP Development in favor of
the Collateral Agent for the benefit of HET and HOCI as Minimum Payment
Guarantors as well as the Bank Lenders and the holders of the Notes under the
Indentures, subject to the terms of the Intercreditor Agreement. Certain of the
collateral is subject to release in accordance with the applicable security
documents and the Intercreditor Agreement. In addition, JCC executed a security
agreement granting a lien on the House Bank solely with respect to and in favor
of HET and HOCI as Minimum Payment Guarantors to secure such obligations,
subject to certain rights of the RDC in the House Bank under the Amended Ground
Lease. The HET/JCC Agreement contains covenants in favor of the Minimum Payment
Guarantors (i) requiring JCC to maintain insurance, pay taxes and impositions,
repair and maintain the Casino, and keep the lease in effect, and (ii)
restricting indebtedness and liens by JCC and restricting dividends, merger and
asset disposition. Any successor guarantor in respect of the Minimum Payment
Guaranty may be secured by such lien, subject to payment of any unpaid fees or
obligations to HET and HOCI in respect of the HET/ JCC Agreement.
As explained above, by entering into the HET/JCC Agreement and providing a
Minimum Payment Guaranty, HET and HOCI are not obligated to provide a Minimum
Payment Guaranty for the entire term of the Amended and Renegotiated Casino
Operating Contract, but rather are only obligated to provide it for the period
and on terms and conditions specified in the HET/JCC Agreement. HET and HOCI
have expressly informed JCC, the State and the LGCB that they have not agreed to
renew a Minimum Payment Guaranty beyond March 31, 2004, or in any prior year in
which HET's and HOCI's obligation to furnish a Minimum Payment Guaranty does not
renew by the express terms of the HET/JCC Agreement. HET and HOCI have informed
the Debtors, JCC, the State and the LGCB that any decision HET and HOCI make
concerning whether to renew any Minimum Payment Guaranty or the HET/JCC
Agreement will be made in their sole discretion, and have informed JCC and the
Debtors that such decision will be made acting only in HET on HOCI's best
interests. The State and the LGCB, JCC and JCC Holding have acknowledged that
(i) HET and HOCI are not obligated to and have not given any assurances to the
Debtors, JCC, the State or the LGCB that they will renew the HET/JCC Agreement
beyond March 31, 2004, or renew any Minimum Payment Guaranty for any earlier
fiscal year in which HET's and HOCI's obligation to furnish a Minimum Payment
Guaranty does not renew under the express terms of the HET/JCC Agreement, (ii)
HET and HOCI have the right to make any such renewal decision in their sole
discretion, and (iii) HET and HOCI need not consider the interests of any other
parties in making any such renewal decision, notwithstanding that HET and HOCI
are involved in a number of capacities in respect of JCC and JCC Holding. Upon
termination of the HET/JCC Agreement, JCC will be required to secure a
substitute guarantor to provide a Minimum Payment Guaranty or the Casino will be
unable to open under the terms of the Amended and Renegotiated Casino Operating
Contract. Such substitute guarantor may or may not be HET and/or HOCI or an
affiliate thereof and there can be no assurance that JCC will be able to locate
a substitute guarantor on satisfactory terms. A failure by JCC to cause to be
provided a Minimum Payment Guaranty before the first day of a new fiscal year
will result in a termination with no cure period of the Amended and Renegotiated
Casino Operating Contract. See "--Risk Factors--Non-Renewal of Minimum Payment
Guaranty."
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MANAGER SUBORDINATION AGREEMENTS
In addition to the Manager Subordination Agreement (RDC/City), the Manager
has entered into separate subordination agreements (the "Manager Subordination
Agreements") in favor of each of: (i) BTCo, as administrative agent for the Bank
Lenders (the "Administrative Agent"), and (ii) the Trustee under the Indentures
(collectively, the "Subordination Beneficiaries"). See "--Amended Ground
Lease--Amended Management Agreement" for a description of the Manager
Subordination Agreement (RDC/City).
SUBORDINATION. Pursuant to the subordination agreement between the Manager
and the Administrative Agent (the "Bank Lenders Subordination Agreement"),
payment by JCC of the Subordinated Obligations (as defined herein) is
subordinated to the prior payment in full in cash of all Senior Indebtedness (as
defined herein). "Subordinated Obligations" means, without limitation, the
payment of any Management Fees or Termination Fees owing by JCC to the Manager
pursuant to the Amended Management Agreement and the right to receive or collect
any or all: (a) proceeds of condemnation awards, (b) compensation for revocation
of the Amended and Renegotiated Casino Operating Contract, (c) proceeds of JCC's
title insurance, property or hazard insurance, or other insurance proceeds, (d)
fair market value or other proceeds of JCC's assets, (e) damages or compensation
paid by the State, the LGCB, or any other government entity in connection with
prohibition of use for gaming purposes of the Casino, and (f) any and all other
payments and proceeds under the Amended Management Agreement; provided, however,
that the Lenders Subordinated Obligations do not include system fees, travel
fees and accounting fees, certain tax and insurance fees and other similar fees
and reimbursable expenses of the Manager, in each case to the extent that the
foregoing fees and expenses do not constitute compensation to the Manager for
managing the Casino. "Senior Indebtedness" means all obligations of JCC (1)
under the Credit Agreement and certain other credit documents, and (2) in
respect of any interest rate protection agreements with the Bank Lenders.
Pursuant to the subordination agreement between the Manager and the Trustee
under the Indenture for the Notes (the "Notes Subordination Agreement"), payment
by JCC of the Subordinated Obligations is subordinated to the prior payment in
full in cash of all Notes Obligations (as defined herein). "Notes Obligations"
means (a) the principal of, and premium, if any, and interest on the Notes, and
(b) all other obligations and indebtedness of JCC to the holders of the Notes
and/or to the Trustee or the collateral agent under that certain Intercreditor
Agreement entered into pursuant to the Plan of Reorganization between the
Company, JCC, the Bank Lenders and the Administrative Agent (the "Intercreditor
Agreement").
FORECLOSURE. Under the Bank Lenders and Notes Subordination Agreements, as
of the date (the "Succession Date") that (i) a Subordination Beneficiary takes
possession of or acquires a leasehold interest in the Casino, or succeeds to the
interests of JCC under the Amended Management Agreement or (ii) a receiver,
keeper or conservator (collectively, a "Receiver") of the Casino is appointed,
and at any time during a period ending on the date that is 180 days after the
Succession Date (the "Termination Date"), the Subordination Beneficiary will
have the right to terminate the Amended Management Agreement upon at least 120
days' prior written notice (the "Termination Notice") to the Manager and whether
or not any default then exists on the part of the Manager under the Amended
Management Agreement.
In addition to the termination right set forth in the immediately preceding
paragraph, on any date following (i) the Succession Date or (ii) the filing of
any foreclosure proceeding by a Subordination Beneficiary with respect to the
Casino, and at any time thereafter during the pendency of such foreclosure
(whether or not a Termination Date has occurred), such Subordination Beneficiary
will have the right to terminate the Amended Management Agreement by written
notice to the Manager to be effective as of the date of such notice and without
any other action on the part of such Subordination Beneficiary if an event of
default under the Amended Management Agreement has occurred, the applicable cure
periods have expired, and JCC has the right to terminate the Amended Management
Agreement; provided that such
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termination will not be effective for 45 days unless certain conditions are met.
A Subordination Beneficiary will also have the right to terminate the Amended
Management Agreement by written notice to the Manager to be effective as of the
date of such notice (i) if at any time the Manager ceases to be authorized to
manage the Casino under the law and regulations of Louisiana applicable to
land-based gaming, (ii) if a casino management company other than the Manager is
appointed as Receiver, or (iii) if a casino management company other than the
Manager is appointed to manage the Casino as a result of any order, decree,
judgment or ruling of any court of competent jurisdiction; provided that such
termination will not be effective for 45 days unless certain conditions are met.
If at the time of the giving of any Termination Notice or any termination
without notice pursuant to the immediately preceding paragraph, no default
exists on the part of the Manager under the Amended Management Agreement, the
Manager will be entitled to payment from JCC of the Termination Fee; provided
that (i) such payment will be subordinated to the prior payment in full of all
Senior Indebtedness and Notes Obligations, and (ii) non-payment of such
Termination Fee will have no effect on the effectiveness of any termination of
the Amended Management Agreement under the Bank Lenders or Notes Subordination
Agreements.
CURE PERIOD. Under the Bank Lenders and Notes Subordination Agreements, if
the Manager becomes aware of the existence of any event, act or omission by JCC
under the Amended Management Agreement which would give the Manager the right to
terminate the Amended Management Agreement, the Manager is required to give
written notice of such event, act or omission to the Subordination Beneficiaries
within five days after the Manager becomes aware of the existence of such event,
act or omission. Furthermore, the Manager is required to give the Subordination
Beneficiaries at least 45 business days (the "Cure Period") prior written notice
of any proposed termination by the Manager of the Amended Management Agreement,
which notice must specify the basis for the termination and any defaults then
existing pursuant to the Amended Management Agreement. During the Cure Period,
JCC and/or the Subordination Beneficiaries may remedy the defaults specified in
the notice delivered pursuant to the preceding sentence and, if all such
defaults are cured during the Cure Period, the termination will not take effect.
Furthermore, (in the case of any non-monetary defaults) if any such default is
capable of being cured and a Subordination Beneficiary notifies the Manager that
such Subordination Beneficiary is proceeding to remedy the defaults, but that
the remedy will take longer than the Cure Period, the termination will be
delayed for so long as such Subordination Beneficiary is proceeding to cure the
default and such termination will not occur if the defaults are cured. In the
event that a default under the Amended Management Agreement cannot be cured
without obtaining the legal right to possession of the Casino, the Subordination
Beneficiaries will cooperate with JCC and the Manager to the extent reasonably
feasible to enable JCC and the Manager to cure such default and, upon request of
a Subordination Beneficiary, the Manager will cooperate with such Subordination
Beneficiary to the extent reasonably feasible to enable the Subordination
Beneficiaries to cure such default.
TERMINATION. The Bank Lenders Subordination Agreement will terminate on the
first to occur of (i) the termination of the Credit Agreement and satisfaction
of all obligations to the Administrative Agent and the lenders thereunder or
(ii) the termination of the Amended Management Agreement and satisfaction of all
obligations to JCC and the Manager under the Amended Management Agreement and
the obligations of the Manager under the Bank Lenders Subordination Agreement.
The Notes Subordination Agreement will terminate on the first to occur of
(i) the termination of the Indenture and satisfaction of all obligations to the
Note holders thereunder or (ii) the termination of the Amended Management
Agreement and satisfaction of all obligations to JCC and the Manager under the
Amended Management Agreement and all obligations of the Manager under the Notes
Subordination Agreement.
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REGULATION
LOUISIANA GAMING ACT
PERVASIVE GOVERNMENTAL REGULATION. The ownership and operation of the
Casino are subject to pervasive governmental regulation, including regulation by
the LGCB in accordance with the terms of the Gaming Act, the Rules and
Regulations and the Amended and Renegotiated Casino Operating Contract. The LGCB
is empowered to regulate a wide spectrum of gaming and non-gaming related
activities.
The Gaming Act and the Rules and Regulations, all of which are subject to
amendment or revision from time to time, 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
Amended and Renegotiated Casino Operating Contract.
LGCB. The Gaming Act initially established the LEDGC as a special public
purpose corporation to regulate land-based gaming in Louisiana. In May 1996, a
law transferred responsibility for regulation of riverboat gaming and land-based
casino gaming from separate boards, one of which was the LEDGC, and substituted
in their place the LGCB. This single board, consisting of nine voting members
and two EX OFFICIO members, is empowered to regulate most forms of gambling in
the State, including the Casino. This law also authorizes the State Police to,
among other things, conduct investigations and audits of gaming license
applicants and to assist the LGCB in determining compliance with gaming laws and
regulations.
AUTHORITY TO ENTER INTO CASINO OPERATING CONTRACTS. The Gaming Act
authorized the LEDGC (and now the LGCB), 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 usable space, to be located at a facility at the
Rivergate site. The term of the contract under the Gaming Act is not to exceed a
total of 20 years with one ten-year renewal option. The Gaming Act requires the
Gross Gaming Revenue Share Payments as minimum compensation payable to the LGCB
by the casino operator from gaming operations at the land-based casino. For a
discussion of the compensation arrangements in the Amended and Renegotiated
Casino Operating Contract, see "-- Material Agreements--Amended and Renegotiated
Casino Operating Contract--Terms, Fees and Impositions."
Under the Gaming Act, the gaming activities that may be conducted at the
official gaming establishment, subject to the rule-making authority of the LGCB,
include any banking or percentage game that is played with cards, dice or any
electronic, electrical or mechanical device or machine for money, property or
any thing of value, but exclude lottery, bingo, charitable games, raffles,
electronic video bingo, pull tabs, cable television bingo, wagering on dog or
horse races, sports betting or wagering on any type of sports contest or event.
Under the Plan of Reorganization and with certain approvals from the LGCB,
HJC and JCC entered into the Amended and Renegotiated Casino Operating Contract
which provides for alterations of the size and scope of the Casino and a revised
opening schedule for the Casino. See "--Material Agreements-- Amended and
Renegotiated Casino Operating Contract." The Gaming Act provides that the LGCB
has the right but is not required to set aside or renegotiate the provisions of
a casino operating contract if the casino operation is voluntarily or
involuntarily placed in bankruptcy, receivership, conservatorship or similar
status. A law enacted during the State legislature's special session in spring
of 1996, purports to authorize the Governor by executive order, subject to
legislative approval, or 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. On March 16, 1998 the
State Attorney General issued an opinion that the LGCB has
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independent authority (without the necessity of any legislative approval) to
renegotiate and execute a renegotiated casino operating contract. On March 20,
1998, the LGCB approved the Amended and Renegotiated Casino Operating Contract,
subject to, among other conditions, the condition that the Louisiana Supreme
Court render a final, non-appealable judgment that the LGCB, acting on its own,
is the proper party and has the legal authority to enter into the Amended and
Renegotiated Casino Operating Contract with HJC or JCC on behalf of the State
and the LGCB, without the specific approval of the Governor or the State
legislature. On May 15, 1998, the Louisiana Supreme Court issued a decision
confirming that the LGCB has the independent authority to renegotiate and
execute the Amended and Renegotiated Casino Operating Contract without seeking
gubernatorial or legislative approval. On October 20, 1998, the LGCB approved
the Amended and Renegotiated Casino Operating Contract, and such contract was
executed on October 30, 1998. See "Risk Factors--Uncertainty Regarding Gaming
Regulation and Future Changes to the Law--Uncertainty Regarding Regulation and
Interpretation of the Gaming Act."
RULES AND REGULATIONS. Under the Gaming Act, the LGCB has broad
discretionary authority to regulate all aspects of the casino operator's
operations, including the power to adopt administrative rules and regulations
(previously defined herein as Rules and Regulations) as may be necessary to
carry out and implement its powers and duties, the conduct of gaming operations,
and any other matters necessary or desirable for the efficient and effective
operation of casino gaming or public convenience. The Gaming Act gives the LGCB
the power, among other things, to (i) investigate the qualifications of any
proposed gaming operator and each applicant for a license or permit, (ii)
investigate violations of the Gaming Act and any rules and regulations
promulgated thereunder, and any other incidents or transactions which it deems
appropriate, (iii) conduct hearings and proceedings concerning, and reviews and
inspections of, gaming operations and related activities, (iv) inspect and
examine all premises, and all equipment or supplies thereon, where gaming
activities are conducted or gaming devices or equipment are manufactured, sold,
distributed, and summarily seize and remove from such premises and impound any
equipment or supplies for the purpose of examination and inspection, (v) audit
the records of applicants and gaming operators respecting all revenues produced
by any gaming operations, (vi) issue interrogatories and subpoenas, and (vii)
monitor the conduct of all casino operators, licensees, permittees and other
persons having a material involvement directly or indirectly with a casino
operator.
ISSUANCE OF LICENSES AND PERMITS. Under the Gaming Act, the LGCB is
required to issue licenses or permits to certain persons associated with gaming
operations, including: (i) certain employees of the casino operator; (ii)
certain manufacturers, distributors and suppliers of gaming devices; (iii)
certain suppliers of goods or services; (iv) any person who furnishes services
or property to the casino operator under an arrangement pursuant to which the
person receives payments based on earnings, profits or receipts from gaming
operations; and (v) any other persons deemed necessary by the LGCB.
The securing of the requisite licenses and permits under the Gaming Act is a
prerequisite for conducting, operating or performing any activity regulated by
the LGCB or the Gaming Act. The Gaming Act provides that the LGCB has full and
absolute power to deny an application, or to limit, condition, restrict, revoke
or suspend any license, permit or approval, or to fine any person licensed,
permitted or approved for any cause specified in the Gaming Act or rules
promulgated by the LGCB. The Rules and Regulations provide that the LGCB may
take any of the foregoing actions with respect to any person licensed,
permitted, or approved, or any person registered, found suitable, or holding a
contract, for any cause deemed reasonable.
The Gaming Act provides that it is the express intent, desire and policy of
the legislature that no holder of the casino operating contract, applicant for a
license, permit, contract or other thing existing, issued or let as a result of
the Gaming Act shall have any right or action to obtain any license, permit,
contract or the granting of the approval sought except as provided for and
authorized by the Gaming Act. Any license, permit, contract, approval or thing
obtained or issued pursuant to the provisions of the Gaming Act has been
expressly declared by the legislature to be a pure and absolute revocable
privilege
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and not a right, property or otherwise, under the constitutions of the United
States or of the State. The Gaming Act also provides that no holder acquires any
vested right therein or thereunder.
SUITABILITY. 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) the applicant is a person of good character, honesty and
integrity; (ii) the applicant's 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) the applicant 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 Amended and Renegotiated
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 Amended and Renegotiated 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 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. To the extent any holder of the securities of the Company fails to
satisfy such requirement, 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 the
requirements imposed on the Company, subject such security holders to certain
requirements, limitations or prohibitions, including a requirement that such
security holders liquidate their securities at a time or at a cost that is
otherwise unfavorable to such security holders.
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
Amended and Renegotiated 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
Amended and Renegotiated 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
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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.
JCC is not permitted to operate the Casino unless and until certain persons
and entities required to be found suitable are found suitable by the LGCB. Such
persons and entities include, without limitation, JCC Holding, JCC, the Manager
and certain members, officers and directors of such companies and any other
persons having the ability to significantly affect the affairs of thereof. On
October 13, 1998, JCC Holding, JCC, the Manager and certain the officers and
directors of JCC Holding, JCC and the Manager were found suitable after
extensive background investigations by the LGCB (and its investigatory arm, the
State Police). Prior to appointing additional officers and directors of JCC
Holding, JCC or the Manager, such persons will also be required to be found
suitable by the LGCB. JCC Holding, JCC, the Manager and all other persons and
entities required to be found suitable, including those already found suitable,
have an ongoing obligation to maintain their suitability throughout the term of
the Amended and Renegotiated Casino Operating Contract. See "Risk
Factors--Uncertainty Regarding Gaming Regulation and Future Changes to the
Law--Suitability of JCC and Affiliated Persons."
TRANSFERS. The sale, transfer, assignment, or alienation of a casino
operating contract, or an interest therein, in violation of the Gaming Act is
prohibited. The LGCB may approve the sale, transfer, assignment, or any grant
the approval subject to conditions imposed by the LGCB.
Under the Gaming Act, the sale, transfer, assignment, pledge, alienation,
disposition, public offering, or acquisition of securities that results in one
person's owning 5% or more of the total outstanding shares issued by the casino
operator is void as to such person without prior approval of the LGCB. Failure
to obtain prior approval by the LGCB of a person acquiring 5% or more of the
total outstanding shares of a licensee or 5% or more economic interest in the
casino operator is grounds for cancellation of the casino operating contract or
license suspension or revocation. For a discussion of certain transfer
restrictions with respect to certain interests in the casino operator, the
Casino Manager, or certain affiliates, see "Material Agreements--Amended and
Renegotiated Casino Operating Contract--Transfer Restrictions" and
"--Financing."
PRIORITY TO LOUISIANA RESIDENTS AND BUSINESSES; MINORITY EMPLOYMENT The
Gaming Act obligates the casino operator to give preference and priority to
Louisiana residents, laborers, vendors and suppliers, except when not reasonably
possible to do so without added expense, substantial inconvenience or sacrifice
in operational efficiency. The Gaming Act further obligates the casino operator
to give preference and priority to Louisiana residents in considering applicants
for employment and requires that no less than 80% of the persons employed by the
casino operator be Louisiana residents for at least one year immediately prior
to employment. The Gaming Act provides that if any contract or other agreement
to which the casino operator is a party contains a provision or clause
establishing a different percentage or requiring more than 50% of the persons
employed to be residents of any one parish, any such provision or clause shall
be null and void and unenforceable as against public policy.
The Gaming Act requires that the casino operator and/or LGCB adopt written
policies, procedures, and regulations to allow the participation of businesses
owned by minorities in all design, engineering, and construction contracts
and/or projects to the maximum extent practicable. The Rules and Regulations
provide that the casino operator and the casino manager must take the foregoing
actions with respect to all design, engineering, construction, banking and
maintenance contracts and any other projects initiated by the casino operator or
casino manager. The Gaming Act further requires the casino operator, as nearly
as practicable, to employ minorities consistent with the population of the
State. The Rules and Regulations
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extend this obligation to the casino manager as well. The Rules and Regulations
provide that if at any time the LGCB shall conclude that the casino operator or
the casino manager is conducting itself in a manner inconsistent with the
requirements of State law or the Rules and Regulations, the LGCB may take
enforcement action, including fines and the imposition of a plan that the LGCB
determines meets the objectives of the Gaming Act and the Rules and Regulations.
LIMITS ON RESTAURANT, LODGING, RETAIL OPERATIONS. The Gaming Act provides
that the casino operator shall not: (i) offer seated restaurant facilities with
table food service for patrons, but may offer limited cafeteria style food
services for employees and patrons as provided by rule of the LGCB, provided,
however, that no food may be given away or subsidized within the official gaming
establishment by the casino operator or any licensee, and no facility for food
service shall exceed seating for 250 persons (by rule and regulation, LGCB is
empowered to allow the Casino operator to contract with local food preparers to
provide food at the restaurants at the Casino); (ii) offer lodging in the
official gaming establishment, nor engage in any practice or enter into any
business relationships to give any hotel, whether or not affiliated with the
casino operator, any advantage or preference not available to all similarly
situated hotels; (iii) engage in such activities as are prohibited by the casino
operating contract; (iv) engage in the sale of products that are not directly
related to gaming; or (v) cash or accept in exchange for the purchase of tokens,
chips or electronic cards an identifiable employee payroll check. Any contract
between the casino operator and any hotel or lodging facilities must be
submitted to the LGCB for approval prior to entering into the contract.
PUBLIC RECORDS. The Gaming Act provides that all records of the LGCB are
public records and available for public inspection, subject to certain
exceptions, and may, in any event, be made available to other governmental
entities or regulators, under certain circumstances.
CASINO SUPPORT SERVICES CONTRACT. The Gaming Act provides that the LGCB
shall annually enter into a casino support services contract with the City of
New Orleans in order to compensate it for the cost to it for providing support
services resulting from the operation of the official gaming establishment and
the activities therein. The amount of the contract is to be determined by
negotiation and agreement between the LGCB and the City of New Orleans, subject
to approval by the State legislature.
RIGHTS OF HOLDERS OF SECURITY INTERESTS. The Gaming Act authorizes the LGCB
to provide for the protection of the rights of holders of security interests in
both immovable property and movable property used in or related to casino gaming
operations ("Gaming Collateral") and to provide for the continued operation of
the official gaming establishment during the period of time that a lender, as a
holder of a security interest, seeks to enforce its security interest in such
property. In connection therewith, the Gaming Act provides that the holder of a
security interest in Gaming Collateral may receive payments from the owner or
lessee of such property out of the proceeds of casino gaming operations received
by the owner or lessee, and, the holder of the security interest may be exempt
from the licensing requirements of the Gaming Act with respect to such payments
if the transaction(s) giving rise to such payments have been approved in advance
by the LGCB and complies with all rules and regulations of the LGCB and the LGCB
determines the holder to be suitable.
Under the Gaming Act, a holder of a security interest in a gaming device who
asserts the right to ownership or possession of the encumbered property may be
granted a one-time, nonrenewable, provisional contract for a maximum of 90 days
for the sole purpose of acquiring ownership or possession for resale to a
licensed or approved person, all in accordance with rules and regulations to be
promulgated by the LGCB. The Rules and Regulations do not yet include a rule and
regulation on this provision. The license or contract shall not authorize the
holder to operate the gaming device or to utilize the property in gaming
activities.
If the holder of a security interest in immovable property comprising the
official gaming establishment wishes to continue the operation of the official
gaming establishment during and after the filing of a suit to enforce the
security interest, the Gaming Act provides that the holder of the security
interest must name
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the LGCB as a nominal defendant in such suit and request the appointment of a
receiver from among the persons on a list maintained by the LGCB. Upon proof of
the debtor's default under the security instrument and the holder's right to
enforce the security interest, the court shall appoint a person from the LGCB's
list as a receiver of the official gaming establishment. Upon appointment of the
receiver, the Gaming Act requires the receiver to furnish a fidelity bond in
favor of the security interest holder, the owner or lessee of the official
gaming establishment and the LGCB in an amount to be set by the court after
consultation with the LGCB and all parties. The Gaming Act requires the LGCB to
issue to the receiver a one-time, nonrenewable, provisional contract to continue
gaming operations until the receivership is terminated. The receiver is
considered to have all the rights and obligations of the casino operator under
the casino operating contract. The holder of the security interest provoking the
appointment of a receiver under the Gaming Act is required to pay the cost of
the receiver's bond and the cost of operating the official gaming establishment
or gaming operator during the term of receivership to the extent that such costs
exceed available revenues, in accordance with the rules and regulations of the
LGCB. The Gaming Act further provides that the fees of the receiver and the
authority for expenditures of the receiver are to be established by rules and
regulations of the LGCB.
The Gaming Act provides that a receivership must terminate upon: (i) the
sale of the property subject to receivership to a duly approved or authorized
person; (ii) the payment in full of all obligations due to the holder of the
security interest in the property subject to the receivership; (iii) an
agreement for termination of the receivership signed by the holder of the
security interest and the debtor, and approved by the LGCB and the court; or,
(iv) the lapse of five years from the date of the initial appointment of the
receiver. Under the Gaming Act, a receivership may also be terminated by notice
from the holder of the security interest who provoked the receivership addressed
to the court and the LGCB of its intention to withdraw its financial support of
the receivership at a specified time not less than 90 days from the date of the
notice. In the event of such notice, the Gaming Act provides that the holder of
the security interest giving the notice will not be responsible for any costs or
expenses of the receivership after the date specified in the notice; except for
reasonable costs and fees of the receiver in concluding the receivership, and
the costs of a final accounting.
The Gaming Act provides that no rule or regulation and no provision in a
contract executed by the LGCB pursuant to its authority to protect the holders
of security interests in Gaming Collateral shall be the basis for any cause of
action in contract or in tort against the State or the LGCB, its board of
directors or its agents, attorneys or employees.
STATE LEGISLATION
Because legalized gaming is a relatively new industry in the State, there
has been significant attention by the State legislature over the past few years
to gaming related bills dealing with a wide range of subjects that could impact
the Casino project. At various times, bills have been introduced to, among other
things, constitutionally and/or legislatively 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. See "--Risk
Factors--Uncertainty Regarding Gaming Regulation and Future Changes to the Law."
In March 1996, the Governor of the State 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
have affected the formulation of the Plan of Reorganization and the rights to
operate the Casino under the Gaming Act and the Amended and Renegotiated Casino
Operating Contract.
One such law called for 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 the parish. On
November 5, 1996, voters in Orleans Parish elected by approximately a two-to-one
margin to permit land-based casino gaming in that parish. At the same time,
voters in Orleans Parish elected to authorize both riverboat gaming and video
poker gaming in Orleans Parish. See "Risk Factors--
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Uncertainty Regarding Gaming Regulation and Future Changes to the
Law--Uncertainty and Impact of Future Legislation."
Another such law 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 the LGCB). See "--Risk Factors--State
Immunity for Breach of Contract." It also purports to authorize the Governor by
executive order, subject to legislative approval, or 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. See "Risk Factors--Uncertainty Regarding Gaming Regulation and
Future Changes to the Law--Uncertainty Regarding Regulation and Interpretation
of the Gaming Act."
Another 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 operator of the Casino 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 will 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 operator of the Casino
and the State or any of its political subdivisions (including the LGCB), the
operator of the Casino must continue to make all payments to the State and any
of its political subdivisions (including the LGCB) 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 "Risk
Factors--Uncertainty Regarding Gaming Regulation and Future Changes to the
Law--Uncertainty Regarding Regulation and Interpretation of the Gaming Act."
Because the Amended and Renegotiated Casino Operating Contract creates
material rights in JCC with respect to the Casino, it is important that JCC be
clearly entitled to bring an action to compel specific performance or any other
remedy permitted or provided by law in the event the LGCB breaches the contract
and fails to cure such breach. However, because of the legislation described
above, there can be no assurance that in the event JCC seeks to enforce its
rights under the Amended and Renegotiated Casino Operating Contract, a court
would allow the suit to proceed.
In May 1996, a law transferred responsibility for regulation of riverboat
gaming and land-based casino gaming from separate boards, one of which was the
LEDGC, and substituted in their place the LGCB. This single board, consisting of
nine voting members 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 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. This law also authorizes the State
Police to, among other things, conduct investigations and audits of gaming
license applicants and to assist the LGCB in determining compliance with gaming
laws and regulations. JCC has been advised that the LGCB intends to promulgate a
number of its own Rules and Regulations after the Effective Date. See "Risk
Factors--Uncertainty Regarding Gaming Regulation and Future Changes to the
Law--Uncertainty Regarding Regulation and Interpretation of the Gaming Act."
In 1997, the State legislature authorized the use of slot machines at race
tracks in three parishes in the State (but not Orleans Parish) subject to a
referendum in each such parish to approve such use of slot machines. Two
parishes approved the use of slot machines at race tracks, but the State
legislature's authorization is subject to further legislative action on fees and
taxes. Legislation to impose such fees and taxes was introduced in the 1998
fiscal session of the State legislature, but failed to receive legislative
approval. Future consideration of this issue is likely by the State legislature.
Bills and resolutions to repeal the authorization for a land-based casino or
to instruct or urge the LGCB not to execute the Amended and Restated Casino
Operating Contract were introduced in the State
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House of Representatives and the State Senate during 1998 but were not enacted.
Additionally, two bills were pre-filed in the State House of Representatives for
consideration during the State legislature's 1999 regular session which begins
March 1999. If passed, the first bill would repeal the Gaming Act in its
entirety and the second would amend the Gaming Act to broaden the food service
restrictions applicable to the Casino and all parts of any connecting structure
or building. See "--Risk Factors--Uncertainty Regarding Gaming Regulation and
Future Changes to the Law--Uncertainty of and Impact of Future Legislation" and
- --Limits on Restaurants, Lodging, Retail Operations and Entertainment."
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 Commission to study
the economic and social impact of gaming and report its findings to Congress and
the President. The National Commission is required by the enabling legislation
to issue a report containing its findings and conclusions, together with
recommendations of the National Commission for legislation and administrative
actions, within two years after the date on which it held its first meeting,
which occurred on June 20, 1997. Any recommendations which may be made by the
National Commission could result in the enactment of new laws or the adoption of
new regulations which could adversely impact the gaming industry in general and
the Company in particular. The Company is unable at this time to determine what
recommendations, if any, the National Commission will make, or the ultimate
disposition of any recommendations the National Commission may make.
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
The Proponents have obtained certain conditional use approvals from the City
for the Casino and the parking facilities for the Casino. Certain of such
approvals, however, are subject to further review and additional approvals may
be required. Although JCC expects to obtain all required conditional use
approvals for the Casino and its operations, no assurances can be given that JCC
will receive the required approvals.
Because, absent certain waivers, the Casino does not fit within all
requirements of the City's Zoning Ordinance, the Proponents have requested and
received a number of waivers from the City Council. For instance, in the fall of
1996, after discussions with the City, the Proponents received waivers from the
City Council relating to such matters as permissable size of retail space, the
scope of cafeteria services, limitations on live entertainment, permissible
signage and required public artwork. Some uncertainty exists, however, as to the
City Council's authority to grant such waivers in that a third party may
challenge the City Council's authority to grant waivers to a particular City
zoning ordinance and invalidate waivers previously granted by the City. Although
the Company is not currently aware of any such challenges, revocation of such
waivers could cause the Company to cease operations or limit its ability to
operate once opened and therefore could have a material adverse effect on the
Company. 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 could delay or prevent the
construction or opening of the Casino or cause the Casino to cease operations
once opened and therefore would have a material adverse effect on the Company.
See "--Risk Factors--Ability to Commence Operations as Scheduled--Zoning and
Land Use."
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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, 1997. The pro forma consolidated balance sheet data is
based on the September 30, 1998 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL HISTORICAL
------------------------------------------------------- PRO FORMA --------------------
1993(A) 1994 1995 1996 1997 1997 1997 1998
----------- --------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues.................... $ 50 $ 91 $ 95,257 $ 1,661 $ 1,679 $ 1,679 $ 60 $ 81
Net loss.................... (6,302) (29,201) (301,560) (20,900) (21,244) (36,817) (14,419) (17,585)
Loss per share.............. N/A N/A N/A N/A N/A $ (3.68) N/A N/A
BALANCE SHEET
Total assets................ 87 665,391 364,480 359,469 354,417 354,414 359,418
Long-term debt.............. -- 510,000 -- -- -- -- --
Liabilities subject to
compromise................ -- -- 519,360 523,483 523,468 523,476 523,468
<CAPTION>
<S> <C>
PRO FORMA
1998
-----------
<S> <C>
RESULTS OF OPERATIONS
Revenues.................... $ 81
Net loss.................... (29,767)
Loss per share.............. $ (2.98)
BALANCE SHEET
Total assets................ 331,000
Long-term debt.............. 185,025
Liabilities subject to
compromise................ --
</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.
88
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In connection with the Plan of Reorganization, on the Effective Date, except
for the 3CP Property and the Fulton Property (which properties are not needed
for development and operation of the Casino), all the assets of HJC vested in
JCC. Title to the 3CP Property and the Fulton Property vested in CP Development
and FP Development, respectively. JCC, JCC Development, CP Development and FP
Development are wholly-owned by JCC Holding. In addition, all of HJC's rights in
the Casino Operating Contract to operate a land-based casino in Orleans Parish,
Louisiana revested in HJC on the Effective Date, which Casino Operating Contract
was then modified by the Amended and Renegotiated Casino Operating Contract and
assigned to JCC in accordance with applicable State law and the agreement of the
parties thereto. On the Effective Date, the Company also succeeded to HJC's
interest in the Ground Lease for the site in the City designated by law for the
Casino's development.
Pursuant to the Plan of Reorganization, on account of the New Equity
Investment and the conversion to equity and contribution to JCC Holding on the
Effective Date of $60 million in debtor-in-possession financing that had been
provided to HJC by HET or its affiliates over the course of the reorganization,
HCCIC acquired 100% of the Class B Common Stock issued on the Effective Date. In
connection with the Plan of Reorganization, HCCIC also received the HET Warrant
entitling it to purchase additional shares of Common Stock such that, upon
exercise of the HET Warrant in its entirety, HET and its subsidiaries, including
HCCIC would own 50.0% of the then outstanding shares of Common Stock, subject to
certain adjustments. See "Items 1 and 3. Business and Properties--Material
Agreements--HET Warrant." Under certain settlement agreements executed in
connection with the Plan of Reorganization, HCCIC transfered from its
distribution (i) options to purchase 300,000 shares of Class B Common Stock to
the shareholders of NOLDC, (ii) options to purchase 150,000 shares of Class B
Common Stock to FNBC and (iii) its right to receive 350,000 shares on the
Effective Date to senior secured bondholders of Grand Palais. Because the senior
secured bondholders of Grand Palais are not permitted to own shares of Class B
Common Stock under the Restated Certificate of Incorporation, the 350,000 shares
received by the senior secured bondholders of Grand Palais were shares of Class
A Common Stock. Subsequent to the Effective Date, FNBC exercised its option and
on November 13, 1998, HCCIC transferred 150,000 shares of its Class B Common
Stock to FNBC. Accordingly, HET, through its wholly-owned subsidiary HCCIC,
currently beneficially owns an aggregate of 4,302,623 shares of Class B Common
Stock, or approximately 96.6% and approximately 43.0% of all the issued and
outstanding shares of Class B Common Stock and Common Stock, respectively.
Also pursuant to the Plan of Reorganization, on the Effective Date, (i)
3,710,115 shares of Class A Common Stock which constituted approximately 37.1%
of the Common Stock issued on the Effective Date were distributed on a pro rata
basis to the Bondholders, and (ii) 1,487,262 shares of the Class A Common Stock
which constituted approximately 14.9% of the Common Stock issued on the
Effective Date were issued to a disbursing agent for the benefit of Bondholders
who consented to releases as provided in the Plan of Reorganization, which
amount includes HCCIC's transfer to such disbursing agent of its right to
receive on the Effective Date 200,000 shares of Common Stock under the Plan of
Reorganization. In addition, on the Effective Date, the Bondholders received
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--New Notes and New Contingent Notes."
Also in connection with the Plan of Reorganization, JCC entered into the $60
million A Term Loan, the $151.5 million B Term Loan, the $25 million Working
Capital Facility and the $22.5 million Junior Subordinated Credit Facility. See
"Items 1 and 3. Business and Properties--Material Agreements--Bank Loans" and
"--Junior Subordinated Credit Facility." JCC also issued to the Participating
Banks and the Underwriters approximately $27.3 million aggregate principal
amount of the Convertible Junior Subordinated Debentures. See "Items 1 and 3.
Business and Properties--Material Agreements--Convertible Junior Subordinated
Debentures." In addition, under the terms of the Plan of Reorganization certain
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<PAGE>
amendments to the Ground Lease, the General Development Agreement, and other
contracts and plans, including the Open Access Program, were made.
Also in connection with the Plan of Reorganization, JCC entered into the
HET/JCC Agreement with HET and HOCI, pursuant to which HET and HOCI have agreed
to provide a guaranty of the $100 million annual payment due to the State under
the Amended and Renegotiated Casino Operating Contract for the benefit of the
LGCB to assure payment of such minimum payment until March 31, 2004, subject to
renewal or early termination in accordance with the terms of the HET/JCC
Agreement. See "Items 1 and 3. Business and Properties--Material
Agreements--HET/JCC Agreement."
FRESH-START REPORTING
On the Effective Date, the Company, among other things, restructured 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 included adjustments, which aggregated
approximately $100 million, 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 that occurred in
connection with the implementation of the Plan of Reorganization, the recording
of all transactions related to the Company's emergence from Chapter 11 have not
been completed as of the date of this Registration Statement. 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."
DEVELOPMENT ACTIVITIES
As redesigned pursuant to the Plan of Reorganization, the Casino will
contain five themed areas named The Jazz Court, The Mardi Gras Court, The
Smuggler's Court, The Court of the Mansion and The Court of Good Fortune. 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 400 and 500 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 the Poydras Tunnel Area will be a
newly constructed parking facility which will contain approximately 1,550
parking spaces.
The Initial Casino Facilities are scheduled to open and commence operations
by October 30, 1999 and will include 100,000 square feet of net gaming space, a
250-seat buffet, two parking garages, the Poydras Tunnel Area and approximately
15,000 square feet of multi-function, special event, food service and
meeting-room space on the first floor of the premises. The Second Floor Shell
Construction, scheduled to be completed substantially concurrently with the
opening of the Initial Casino Facilities, will consist of approximately 130,000
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. See "Items 1 and 3.
Business and Properties--The Company--Development Plans," and "--The Casino." On
October 30, 1998, instructions to proceed with resuming construction of the
Casino were given to the Casino construction contractors. As such contractors
were required to be prepared to resume construction within 30 days of the
Company's notice, construction of the Casino has
90
<PAGE>
resumed. In addition, under the Amended GDA, the Site Reactivation Date has
occurred. See "Items 1 and 3. Business and Properties--Material
Agreements--Amended GDA."
LIQUIDITY AND CAPITAL RESOURCES
The Company estimates that from the date HJC filed for bankruptcy, the hard
costs of completing construction of the Casino will be approximately $140.7
million. This amount includes approximately $18.4 million for construction work
at the Casino, and $4.2 million for restoration of the Municipal Auditorium,
which already have been expended and paid. The total construction and other
costs required to complete and open the Initial Casino Facilities and the Second
Floor Shell Construction are estimated to be approximately $335.0 million. This
amount includes, among other things, hard costs of completing construction of
the Casino, gaming equipment and supplies, initial working capital,
reorganization costs, payments to unsecured creditors and cure payments in
connection with the assumption of certain contracts. The above estimate of total
construction and other costs does not include costs associated with the
build-out of non-gaming tenant improvements on the second floor of the Casino
and the development of the 3CP Property and Fulton Property. See "Items 1 and 3.
Business and Properties--Risk Factors-- Ability to Develop the Development
Properties."
The funds necessary to complete the development and construction of the
Casino (including the installation of certain gaming equipment and other
furniture, fixtures and equipment, but excluding the build-out of the non-gaming
improvements on the second floor of the Casino beyond the Second Floor Shell
Construction and the development of the 3CP Property and Fulton Property) are
expected to be funded from a combination of the $75 million New Equity
Investment from HCCIC, the $211.5 million Term Loans, the $22.5 million Junior
Subordinated Credit Facility and the issuance of approximately $27.3 million
aggregate principal amount of Convertible Junior Subordinated Debentures. In
addition, the Company has $25 million of availability under the Working Capital
Facility to meet short-term working capital requirements. Funds provided by a
combination of these sources are expected to be sufficient to satisfy the
Company's financial obligations during the next 12 months, including developing
and commencing operations at the Casino up through the opening of the Initial
Casino Facilities and completing the Second Floor Shell Construction, 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." The Company has not obtained financing to fund the build-out of the
non-gaming improvements on the second floor of the Casino beyond the Second
Floor Shell Construction and the development of the 3CP Property and Fulton
Property and there can be no assurance the Company will obtain such financing.
See "Items 1 and 3. Risk Factors--Ability to Develop the Development
Properties." The Company expects that the capital expenditures necessary to
operate the Casino after the Opening Date will be funded by the capital
replacement fund JCC is required to establish pursuant to the Amended Ground
Lease, the Amended Management Agreement and the Amended and Renegotiated Casino
Operating Contract. See "Items 1 and 3. Business and Properties-- Amended Ground
Lease--Capital Replacement Fund," "--Amended Management Agreement--Capital
Replacement Fund" and "--Amended and Renegotiated Casino Operating
Contract--Capital Replacement Fund." JCC will be required to fund monthly
payments into the capital replacement fund in an aggregate amount equal to $3
million for the first 12 months following the Opening Date, $4 million for the
second 12 months following the Opening Date, $5 million for the third 12 months
following the Opening Date, and 2% of the gross revenues of the Casino for each
fiscal month thereafter. The Company expects, but there can be no assurance
that, the capital replacement fund will be adequate to meet capital expenditures
after the Opening Date.
Until the opening of the Initial Casino Facilities, the Company expects to
fund its working capital needs, as presently contemplated, from the New Equity
Investment, the $211.5 million Term Loans, the $22.5 million Junior Subordinated
Credit Facility and the issuance of approximately $27.3 million aggregate
principal amount of Convertible Junior Subordinated Debentures. After the
opening of the Initial
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<PAGE>
Casino Facilities, JCC expects that its working capital needs will be funded by
a combination of the Working Capital Facility and any operating cash flows
remaining after application of the excess cash flow sweep required by the Credit
Agreement for the Bank Loans. See "Items 1 and 3. Business and
Properties--Material Agreements--Bank Loans." In addition, the Completion
Guarantors have agreed to ensure that, upon the completion of the Casino
Construction, JCC will have $5.0 million in cash and the Working Capital
Facility Maximum Amount of availability for immediate drawdown(s) 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. 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.
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, unlike the Rivergate
site, 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. Competition from the established Mississippi Gulf Coast
gaming marketplace and the availability of dockside riverboat gaming in
Louisiana are material known trends or uncertainties which could have an impact
upon the performance of the Casino. See "Items 1 and 3. Business and
Properties--Risk Factors--Competition" and "--Limited Remedies for Additional
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.
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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.
On October 30, 1998, the Plan of Reorganization and the transactions
contemplated thereby were consummated. Simultaneously with the consummation of
the Plan of Reorganization, all of the assets of HJC, except for the 3CP
Property and the Fulton Property, vested in JCC. Also on the Effective Date,
title to the 3CP Property and the Fulton Property vested in CP Development and
FP Development, respectively.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates that have been
stored as two digits rather than four (e.g., "98" for 1998). On January 1, 2000,
any clock or date recording mechanism, including date sensitive software, which
uses only two digits to represent the year may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices or perform similar
tasks.
The Company has not yet fully evaluated its state of readiness with respect
to Year 2000 problems, the costs that may be incurred to address any Year 2000
issues which may arise or the effect on the Company of any Year 2000 issues
which may arise. The Company will not be able to fully evaluate its readiness
until after the completion of a material portion of the construction of the
Casino (specifically, the installation of computer hardware and software in the
Casino) and the negotiation and execution of contracts with significant
suppliers.
On the Effective Date, JCC and the Manager entered into a side letter
agreement pursuant to which the Manager agreed to prepare and deliver to the
board of directors of JCC Holding quarterly reports regarding certain Year 2000
issues relating to JCC. It is expected that the slot management system for the
Casino will be licensed from a third party. The Company has no information on
the status of the compliance of the slot management system or any other system
licensed from a third party or in equipment owned by JCC or otherwise on which
the operation of the Casino may depend, and will not be able to obtain such
information until the relevant contracts are negotiated and executed.
Because the business activities of JCC Holding, and three of its
subsidiaries, JCC Development, CP Development and FP Development, are limited,
and because many of the business activities of JCC Development, CP Development
and FP Development likely will not commence until after January 1, 2000, the
Company is not presently aware of the existence of any material Year 2000
compliance risks with respect to those entities.
Should the Company and/or its significant suppliers fail to timely address
and correct material Year 2000 issues, such failure could have a material
adverse impact on the Company's ability to operate. In addition, if corrections
made by such suppliers to address Year 2000 issues are incompatible with the
Company's systems, the Year 2000 issue could have a material adverse impact on
the Company's ability to operate. The Company does not currently have
contingency plans designed to minimize the impact of a Year 2000 problem, but
expects to develop plans as it completes construction of the Casino
(specifically, the installation of computer hardware and software in the Casino)
and negotiates contracts with significant suppliers. The impact on the Company's
operating results of the Company's and/or its significant suppliers' failure to
timely address and correct material Year 2000 issues and of any contingency
plans to be designed to address such issues cannot be determined at this time.
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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
November 13, 1998 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 which are currently issued
and outstanding. Unless noted otherwise, the holders listed below have sole
voting power and dispositive power over the shares beneficially held by them. As
of November 13, 1998, there were a total of 5,547,377 shares of Class A Common
Stock and 4,452,623 shares of Class B Common Stock outstanding.
<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 COMMON STOCK OWNERSHIP COMMON STOCK
- --------------------------------------- ------------------- -------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, TN 38117.................... -- -- 4,302,623(1) 96.6%(1)
Merrill Lynch Asset
Management, L.P.
Fund Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, NJ 08536................. 1,040,736(2) 18.8%(2) -- --
Contrarian Capital
Management, LLC
Contrarian Capital
Advisors, LLC
411 West Putnam Avenue,
Suite 225
Greenwich, CT 06830.................. 664,118(3) 12.0%(3) -- --
</TABLE>
- ------------------------
(1) Shares are held of record by HET's wholly-owned subsidiary, HCCIC. The above
number and percentage does not include shares issuable upon exercise of the
HET Warrant. See "Item 1 and 3, Material Accounts--HET Warrant."
(2) Merrill Lynch Asset Management, L.P. ("MLAM") and its affiliate, Fund Asset
Management, L.P. ("FAM"), are investment advisers registered under Section
203 of the Investment Advisors Act of 1940. The general partner of each of
MLAM and FAM is Princeton Services, Inc. MLAM and FAM act as investment
advisors for certain investment companies registered under the Investment
Company Act of 1940. The MLAM and FAM advised investment companies hold in
the aggregate 1,040,736 shares of Class A Common Stock. One such investment
company, Merrill Lynch Corporate Bond Fund, Inc.--High Income Portfolio
holds 730,758 shares of Class A Common Stock, or 13.2% of the issued and
outstanding shares of Class A Common Stock. The information presented is
based solely on information provided to JCC Holding by MLAM and FAM.
(3) Contrarian Capital Management, L.L.C. ("CCM") and Contrarian Capital
Advisors, L.L.C. ("CCA"), registered investment advisors that are under
common control, are deemed to be the beneficial owners within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended, of 664,118
shares of Class A Common Stock. Of such shares, 492,852 shares, or 8.9% of
the issued and outstanding shares of Class A Common Stock, are held by
various investment entities managed by CCM and investment management clients
of CCM and 171,266 of such shares, or 3.1% of the issued and outstanding
shares of Class A Common Stock, are held by investment management clients of
CCA. Shares include an estimated number of shares of Class A Common Stock to
which CCM and CCA are entitled as Bondholders or transferees of Bondholders
who consented to certain releases as provided in the Plan of Reorganization.
The information presented is based solely on information provided to JCC
Holding by CCM and CCA.
The directors and executive officers of JCC Holding do not beneficially own
any shares of Common Stock of JCC Holding.
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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 OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Colin V. Reed (51)..................... Class B Director of JCC Holding. Chairman of the Board of JCC Holding
since April 1998. He is also Executive Vice President and Chief
Financial Officer 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. He served as Chief Executive Officer and
President of JCC Holding from August 1996 to April 1998. He served as
President of JCC and JCC Development Corporation from May 1997 to March
1998.
Seth E. Lemler (40).................... Class A Director of JCC Holding. Mr. Lemler has served as a Managing
Director in the Investment Banking Department of Ladenburg Thalmann &
Co. Inc. since May 1996. Prior to joining Ladenburg Thalmann & Co. Inc.,
Mr. Lemler served as a consultant at New Valley Corporation from January
1996 until May 1996 and from 1987 to 1996 Mr. Lemler was a senior
manager in the Reorganization Advisory Services Consulting Group of
Deloitte Touche LLP.
Frederick W. Burford (48).............. President of JCC Holding and JCC since April 1998 and President of JCC
Development, CP Development and FP Development since September 1998.
Secretary and Treasurer of JCC Holding from December 1997 until
September 1998. Mr. Burford was a consultant to HET from 1997 until
October 1998 and served as Vice President of JCC Holding from December
1997 to April 1998. From 1991 until 1997 Mr. Burford served as a
director and the Executive Vice President and Chief Financial Officer of
TPI Enterprises, Inc., a restaurant holding company, from 1990 to 1991
Mr. Burford served as the Vice President, Controller and Treasurer of
The Promus Companies, Inc., a gaming and hotel holding company, and from
1977 until 1990 Mr. Burford held various positions with the Holiday
Corporation, a gaming and hotel holding company, including most
recently, Vice President and Treasurer.
L. Camille Fowler (43)................. Vice President-Finance, Treasurer and Secretary of JCC Holding, JCC, JCC
Development, CP Development and FP Development since September 1998. Ms.
Fowler has also served as Director of Finance of the Manager from April
1996 to November 1998, Vice President and Secretary of the Manager from
January 1998 to November 1998, and Treasurer of the Manager from
February 1998 to November 1998. From October 1993 until April 1996, Ms.
Fowler served as the Director of Financial Reporting of the Manager.
</TABLE>
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ITEM 6. EXECUTIVE COMPENSATION.
During the last three fiscal years, the current named executive officers and
directors of JCC Holding earned no compensation from JCC Holding and were
granted no stock options, stock appreciation rights or any other form of
remuneration. Frederick W. Burford, the President of the Company, was paid
$229,047 by HOCI for his services as a consultant to HET from March 1998 through
September 1998. On the Effective Date, JCC reimbursed HOCI for the amounts paid
to Mr. Burford for such services as the services were rendered in connection
with consummating the transactions contemplated by the Plan of Reorganization.
Colin V. Reed, a member of the Executive Committee of HJC, has not received any
compensation from HJC during the last three fiscal years. Compensation
arrangements for certain executive officers and directors are expected to be
negotiated and such arrangements, when finalized, will be described either in an
amendment to this Registration Statement or, in the event such arrangements are
not finalized prior to the effectiveness of this Registration Statement, JCC
Holdings' next filing with the Securities and Exchange Commission under the
Exchange Act when such a description is appropriate or required.
1998 LONG-TERM INCENTIVE PLAN
On October 29, 1998, the board of directors adopted the JCC Holding 1998
Long-Term Incentive Plan (the "LTIP"), subject to approval of the LTIP by the
stockholders at the first annual meeting thereof. JCC Holding has reserved for
issuance upon the grant or exercise of awards pursuant to the LTIP 750,000
shares of the authorized but unissued shares of Class A Common Stock, and after
the Transition Date, the Unclassified Common Stock. The LTIP was effective as of
October 29, 1998, the date of its adoption by the Board.
A summary of the LTIP is set forth below. The summary is qualified in its
entirety by reference to the full text of the LTIP, which is filed as an exhibit
to this Registration Statement.
GENERAL
The purpose of the LTIP is to promote the success, and enhance the value, of
JCC Holding by linking the personal interests of employees, officers,
consultants and directors to those of the stockholders, and by providing such
employees, officer, consultants and directors with an incentive for outstanding
performance. As of November 13, 1998, there were approximately 31 persons
eligible to participate in the LTIP.
The LTIP authorizes the granting of awards ("Awards") to employees,
officers, consultants and directors of JCC Holding or its subsidiaries in the
following forms: (i) options to purchase shares of Class A Common Stock or,
after the Transition Date, the Unclassified Common Stock, as the case may be
("Options"), which may be incentive stock options or non-qualified, (ii) stock
appreciation rights ("SARs"); (iii) performance units ("Performance Units");
(iv) restricted stock ("Restricted Stock"); (v) dividend equivalents ("Dividend
Equivalents"); (vi) other stock-based awards; or (vii) any other right or
interest relating to Class A Common Stock or, after the Transition Date,
Unclassified Common Stock, as the case may be, or cash. To the extent necessary
to preserve the employee benefits plan exemption under applicable state blue sky
laws, no non-employee director or consultant of the Company will be eligible to
receive Awards under the LTIP until such time, if any, as the Class A Common
Stock or, after the Transition Date, Unclassified Common Stock, as the case may
be, shall be traded on a national securities exchange or on the Nasdaq National
Market.
Pursuant to Section 162(m) of the Code, the Company may not deduct
compensation in excess of $1 million paid to the President and the four next
most highly compensated executive officers of JCC Holding. The deduction limits
of Code Section 162(m) and the regulations thereunder do not apply to JCC
Holding until such time, if any, as any class of the JCC Holding's common equity
securities is registered under Section 12 of the Securities Act of 1934. Upon
becoming a publicly held corporation, the deduction
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limits of Code Section 162(m) and the regulations thereunder will not apply to
compensation payable under the LTIP until the expiration of the reliance period
described in Treasury Regulation 1.162-27(f) or any successor regulation. The
LTIP is designed to comply with Code Section 162(m) so that the grant of Options
and SARs under the LTIP, and other Awards, such as Performance Units, that are
conditioned on the performance goals described in Section 13.13 of the LTIP,
will be excluded from the calculation of annual compensation for purposes of
Code Section 162(m) and will be fully deductible by JCC Holding. The board of
directors has approved the LTIP for submission to the stockholders at the first
annual meeting in order to permit the grant of Awards thereunder to constitute
deductible performance-based compensation for purposes of Code Section 162(m).
ADMINISTRATION
The LTIP will be administered by the Compensation Committee of the board of
directors of JCC Holding (the "Committee"), or at the discretion of the board of
directors from time to time, by the board of directors. The Committee has the
power, authority and discretion to designate participants; determine the type or
types of Awards to be granted to each participant and the number, terms and
conditions thereof, establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the LTIP; and make all other
decisions and determinations that may be required under, or as the Committee
deems necessary or advisable to administer, the LTIP. During any time that the
board is acting as administrator of the LTIP, it shall have all the powers of
the Committee thereunder.
AWARDS
Stock Options. The Committee is authorized to grant Options, which may be
incentive stock options ("ISOs") or nonqualified stock options ("NSOs"), to
participants. All Options will be evidenced by a written Award Agreement between
JCC Holding and the participant, which will include such provisions as may be
specified by the Committee. The terms of any ISO must meet the requirements of
Section 422 of the Code, including stockholder approval requirements.
Stock Appreciation Rights. The Committee may grant SARs to participants.
Upon the exercise of a SAR, the participant has the right to receive the excess,
if any, of: the fair market value of one share of Class A Common Stock or, after
the Transition Date, Unclassified Common Stock, as the case may be, on the date
of exercise, over the grant price of the SAR as determined by the Committee,
which will not be less than the fair market value of one share of Class A Common
Stock or, after the transition Date, Unclassified Common Stock, as the case may
be, on the date of grant. All awards of SARs will be evidenced by an Award
Agreement, reflecting the terms, methods of exercise, methods of settlement,
form of consideration payable in settlement, and any other terms and conditions
of the SAR, as determined by the Committee at the time of grant.
Performance Units. The Committee may grant Performance Units to
participants on such terms and conditions as may be selected by the Committee.
The Committee will have the complete discretion to determine the number of
Performance Units granted to each participant and to set performance goals and
other terms or conditions to payment of the Performance Units in its discretion
which, depending on the extent to which they are met, will determine the number
and value of Performance Units that will be paid to the participant.
Restricted Stock Awards. The Committee may make awards of Restricted Stock
to participants, which will be subject to such restrictions on transferability
and other restrictions as the Committee may impose (including, without
limitation, limitations on the right to vote Restricted Stock or the right to
receive dividends, if any, on the Restricted Stock.)
Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to participants subject to such terms and conditions as may be
selected by the Committee. Dividend Equivalents entitle the participant to
receive payments equal to dividends with respect to all or a portion of the
number of
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shares of Class A Common Stock or, after the Transition Date, Unclassified
Common Stock, as the case may be, subject to an Option Award or SAR Award, as
determined by the Committee. The Committee may provide that Dividend Equivalents
be paid or distributed when accrued or be deemed to have been reinvested in
additional shares of Class A Common Stock or, after the Transition Date,
Unclassified Common Stock as the case may be, or otherwise reinvested.
Other Stock-Based Awards. The Committee may, subject to limitations under
applicable law, grant to participants such other Awards that are payable in,
valued in whole or in part by reference to, or otherwise based on or related to
shares of Class A Common Stock or, after the Transition Date, Unclassified
Common Stock, as the case may be, as deemed by the Committee to be consistent
with the purposes of the LTIP, including without limitation shares of Class A
Common Stock or, after the Transition Date, Unclassified Common Stock, as the
case may be, awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Class A Common Stock, or, after the
Transition Date, Unclassified Common Stock, as the case may be, and Awards
valued by reference to book value of shares of Class A Common Stock, or after
the Transition Date, Unclassified Common Stock, as the case may be, or the value
of securities of or the performance of specified patents or subsidiaries of JCC
Holding. The Committee will determine the terms and conditions of any such
Awards.
Performance Goals. The Committee may determine that any Award will be
determined solely on the basis of (a) the achievement by JCC Holding or a parent
or subsidiary of a specified target return, or target growth in return, on
equity or assets, (b) JCC Holding's, parent's or subsidiary's stock price, (c)
the achievement by an individual or a business unit of JCC Holding, parent or
subsidiary of a specified target, or target growth in, revenues, net income or
earnings per share, (d) the achievement of objectively determinable goals with
respect to service or product delivery, service or product quality, customer
satisfaction, meeting budgets and/or retention of employees or (e) any
combination of the goals set forth in (a) through (d) above. Furthermore, the
Committee reserves the right for any reason to reduce (but not increase) any
such Award, notwithstanding the achievement of a specified goal. If an Award is
made on such basis, the Committee must establish goals prior to the beginning of
the period for which such performance goal relates (or such later date as may be
permitted under Code Section 162(m)). Any payment of an Award granted with
performance goals will be conditioned on the written certification of the
Committee in each case that the performance goals and any other material
conditions were satisfied.
Limitations on Transfer; Beneficiaries. No Award will be assignable or
transferable by a participant other than by will or the laws of descent and
distribution or, except in the case of an ISO, pursuant to a qualified domestic
relations order; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i) does
not cause any Option intended to be an incentive stock option to fail to be
described in Code Section 422(b), and (ii) is otherwise appropriate and
desirable, taking into account any factors deemed relevant, including without
limitation, any state or federal tax or securities laws or regulations
applicable to transferable Awards. A participant may, in the manner determined
by the Committee, designate a beneficiary to exercise the rights of the
participant and to receive any distribution with respect to any Award upon the
participant's death.
Acceleration Upon Certain Events. Upon the participant's death or
disability, all outstanding Options, SARs, and other Awards in the nature of
rights that may be exercised will become fully exercisable and all restrictions
on outstanding Awards will lapse. Any Options or SARs will thereafter continue
or lapse in accordance with the other provisions of the LTIP and the Award
Agreement. In the event of a Change in Control of JCC Holding (as defined in the
LTIP), all outstanding Options, SARs, and other Awards in the nature of rights
that may be exercised will become fully vested and all restrictions on all
outstanding Awards will lapse; provided, however that such acceleration will not
occur if, in the opinion of JCC Holding's accountants, such acceleration would
preclude the use of "pooling of interest" accounting treatment for a Change in
Control transaction that would otherwise qualify for such accounting treatment
and is contingent upon qualifying for such accounting treatment. Regardless of
whether an event
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described above shall have occurred, the Committee may in its sole discretion
declare all outstanding Options, SARs, and other Awards in the nature of rights
that may be exercised to become fully vested, and/ or all restrictions on all
outstanding Awards to lapse, in each case as of such date as the Committee may,
in its sole discretion, declare. The Committee may discriminate among
participants or among Awards in exercising such discretion.
TERMINATION AND AMENDMENT
The board of directors or the Committee may, at any time and from time to
time, terminate, amend or modify the LTIP without stockholder approval;
provided, however, that the Committee may condition any amendment on the
approval of stockholders of JCC Holding if such approval is necessary or deemed
advisable with respect to tax, securities or other applicable laws, policies or
regulations. No termination, amendment, or modification of the LTIP may
adversely affect any Award previously granted under the LTIP, without the
written consent of the participant.
CERTAIN FEDERAL INCOME TAX EFFECTS
Nonqualified Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either JCC Holding or the
participant upon the grant of a non-discounted NSO. However, the participant
will realize ordinary income on the exercise of the NSO in an amount equal to
the excess of the fair market value of the Class A Common Stock, or, after the
Transition Date, Unclassified Common Stock, as the case may be, acquired upon
the exercise of such option over the exercise price, and JCC Holding will
receive a corresponding deduction (subject to Code Section 162(m) limitations).
The gain if any, realized upon the subsequent disposition by the participant of
the Class A Common Stock or, after the Transition Date, Unclassified Common
Stock, as the case may be, will constitute short-term or long-term capital gain,
depending on the participant's holding period.
Incentive Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either JCC Holding or the
participant upon the grant of an ISO or the exercise thereof by the participant.
If the participant holds the shares of Class A Common Stock or, after the
Transition Date, Unclassified Common Stock, as the case may be, for the greater
of two years after the date the Option was granted or one year after the
aquisition of such shares of Class A Common Stock or, after the Transition Date,
Unclassified Common Stock, as the case may be (the "required holding period"),
the difference between the aggregate option price and the amount realized upon
disposition of the shares of Class A Common Stock or, after the Transition Date,
Unclassified Common Stock, as the case may be, will constitute mid- or long-term
capital gain or loss, and JCC Holding will not be entitled to a federal income
tax deduction. If the shares of Class A Common Stock or, after the Transition
Date, Unclassified Common Stock, as the case may be, are disposed of in a sale,
exchange or other "disqualifying disposition" during the required holding
period, the participant will realize taxable ordinary income in an amount equal
to the excess of the fair market value of the Class A Common Stock or, after the
Transition Date, Unclassified Common Stock, as the case may be, purchased at the
time of exercise over the aggregate option price, and JCC Holding will be
entitled to a federal income tax deduction equal to such amount (subject to Code
Section 162(m) limitations).
SARs. Under present federal income tax regulations, a participant receiving
a SAR will not recognize income, and JCC Holding will not be allowed a tax
deduction, at the time the Award is granted. When a participant exercises the
SAR, the amount of cash and the fair market value of any shares of Class A
Common Stock or, after the Transition date, Unclassified Common Stock, as the
case may be, received will be ordinary income to the participant and will be
allowed as a deduction for federal income tax purposes to JCC Holding (subject
to Code Section 162(m) limitations).
Restricted Stock. Under present federal income tax regulations, and unless
the participant makes an election to accelerate recognition of the income to the
date of grant, a participant receiving a Restricted
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Stock Award will not recognize income, and JCC Holding will not be allowed a tax
deduction, at the time the Award is granted. When the restrictions lapse, the
participant will recognize ordinary income equal to the fair market value of the
Class A Common Stock or, after the Transition Date, Unclassified Common Stock,
as the case may be, and JCC Holding will be entitled to a corresponding tax
deduction at that time (subject to Code Section 162(m) limitations).
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of November 13, 1998, no awards had been granted or approved for grant
under the LTIP. Any Awards under the LTIP will be made at the discretion of the
Committee or the Board, as the case may be. Consequently, it is not presently
possible to determine, with respect to (i) the executive officers of JCC
Holding, (ii) all current executive officers as a group, (iii) all non-executive
directors, as a group, or (iv) all eligible participants, including all current
officers who are not executive officers, as a group, either the benefits or
amounts that will be received by such persons or groups pursuant to the LTIP or
the benefits or amounts that would have been received by such persons or groups
under the LTIP if it had been in effect during the last fiscal year.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of November 13, 1998 HET, through HCCIC, an indirect wholly-owned
subsidiary of HET, owned 4,302,623 shares of Class B Common Stock, or
approximately 96.6% of all of the issued and outstanding shares of Class B
Common Stock and approximately 43.0% of all of the issued and outstanding shares
of Common Stock. See "Item 4. Security Ownership of Certain Beneficial Owners
and Management." Accordingly, HET, through HCCIC, is able to elect all of the
Class B Directors, which, prior to the Transition Date, generally supervises the
day-to-day activities of the Company. See "Item 11. Description of Registrant's
Securities to be Registered--Board of Directors." Further, HCCIC was granted the
HET Warrant entitling it, upon and after the Transition Date, to purchase
additional shares of JCC Holding Common Stock such that, upon exercise of the
HET Warrant in its entirety, HET and its subsidaries will own in the aggregate
50.0% of the then outstanding shares of Common Stock. See "Items 1 and 3.
Business and Properties--Material Agreements--HET Warrant." JCC and the Manager,
an indirect wholly-owned subsidiary of HET, have entered into the Amended
Management Agreement. See "Items 1 and 3. Business and Properties--Material
Agreements--Amended Management Agreement." In addition, JCC entered into the
HET/JCC Agreement with HET and HOCI under which HET and HOCI have agreed to
provide a Minimum Payment Guaranty for the benefit of the LGCB to assure payment
of the Minimum Payment, subject to renewal or early termination in accordance
with the terms of the HET/JCC Agreement. See "Items 1 and 3. Business and
Properties--Material Agreements--HET/JCC Agreement." HET and HOCI have also
provided the HET Loan Guaranty with respect to Tranche A-2, Tranche B-2 and the
Working Capital Facility pursuant to which JCC has agreed to pay the JCC Credit
Support Fee. See "Items 1 and 3. Business and Properties--Material
Agreements--Bank Loans." In addition, pursuant to the Completion Guaranty, HET
and HOCI have agreed to, among other things, (i) fund JCC's working capital
shortfalls until the Termination of Construction Date and (ii) to guarantee
that, at such time, JCC will have available for working capital $5 million of
cash and the Working Capital Facility Maximum Amount of availability for
immediate drawdown(s) under the Working Capital Facility. HET and HOCI have also
agreed to guarantee the Completion Obligations and the Preservation Obligations
and any expenditures thereunder must be repaid by JCC pursuant to the Amended
Completion Loan Agreement. See "Items 1 and 3. Business and Properties--Material
Agreements--Completion Guarantees" and "-- Completion Loan Agreement." JCC and
HOCI also entered into the Amended and Restated Construction Lien Indemnity
Agreement pursuant to which any expenditures made by HOCI under the construction
lien indemnity agreement delivered by HET and HOCI to First American regarding
mechanic's liens claiming priority to the Bank Loans, the New Notes or the New
Contingent Notes, will be deemed Indemnity Obligations of JCC due and payable on
demand. See "Items 1 and 3. Business and Properties--Material
Agreements--Amended and Restated Construction Lien Indemnity Agreement." In
addition, HET and
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HOCI have agreed to provide up to $22.5 million under the Junior Subordinated
Credit Facility. See "Items 1 and 3. Business and Properties--Material
Agreements--Junior Subordinated Credit Facility."
On the Effective Date, JCC reimbursed HET and HOCI a total of $3,696,474 for
pre-Effective Date expenses incurred by HET, the Manager and HOCI on behalf of
JCC. Such expenses included over $3 million in legal fees and insurance premiums
relating to JCC, approximately $311,000 in consulting and relocation expenses
incurred by senior management of the Manager and approximately $289,000 in wages
paid to certain individuals involved in the reorganization process, such as the
current President of the Company. See "Item 6. Executive Compensation." Prior to
the opening of the Casino, the Manager or an affiliate of the Manager may agree
to provide certain services to the Company including, among other things,
payroll and bookkeeping services.
Currently, the Chairman of the Board, Colin V. Reed, is also Executive Vice
President and Chief Financial Officer of HET and Senior Vice President of the
Manager. Colin V. Reed is expected to continue to serve as JCC Holding's Class B
Director while also serving as Executive Vice President and Chief Financial
Officer of HET and Senior Vice President of the Manager. Frederick W. Burford,
the President of JCC Holding, JCC, JCC Development, CP Development and FP
Development was a paid consultant to HET. Effective upon consummation of the
Plan of Reorganization, Frederick W. Burford ceased serving as a paid consultant
to HET. In addition, L. Camille Fowler, the Vice President-Finance, Treasurer
and Secretary of JCC Holding, JCC, JCC Development, CP Development and FP
Development was, until and through the Effective Date, the Director of Finance,
Vice President, Secretary and Treasurer of the Manager. Immediately after the
Effective Date, L. Camille Fowler ceased serving as the Director of Finance,
Vice President, Secretary and Treasurer of the Manager. See "Item 5. Directors
and Executive Officers." The Company anticipates that if the requisite gaming
regulatory agencies have made the necessary suitability determinations, one or
two other officers of HET will be Class B Directors of JCC Holding. As a result
of HET's ownership of the Competing Casinos, and the fact that these HET
officers hold or are expected to hold such positions with 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. See "Items
1 and 3. Business and Properties--Risk Factors--Conflicts of Interest."
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. Harry McCall, one of the
claimants in the McCall Litigation, then filed a notice of appeal. On October
10, 1996, the Fourth Circuit Court of Appeals for the State of Louisiana voted
2-1 to reverse the trial court's dismissal for lack of standing. Under the
Louisiana Constitution, this
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non-unanimous decision required that the appeal be heard before a five-judge
panel of the same court. That panel also reversed the Civil District Court's
dismissal for lack of standing with respect to the cause of action challenging
the constitutionality of the RDC. The City, the RDC and HJC applied for a writ
of certiorari with the Louisiana Supreme Court, which was denied without
comment.
In addition, on April 6, 1994, Harry McCall, one of the claimants in the
McCall Litigation, filed a motion in Civil District Court for the Parish of
Orleans 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, allowing Mr. McCall to pursue his claim.
On March 12, 1996, Harry and Henry McCall filed a proof of claim against HJC
in the amount of $2.0 million which appeared to be based upon the purported
settlement that was the subject of the April 1994 motion in Civil District
Court. They also filed an adversary proceeding in the Bankruptcy Court in late
May of 1996 seeking to enforce the purported settlement agreement. HJC filed an
objection to the McCalls' claim on May 2, 1996. The Bankruptcy Court ordered
that HJC's objection to the proof of claim and the adversary proceeding be
consolidated for purposes of trial and discovery. At a hearing on September 16,
1996, the Bankruptcy Court ruled that Thomas Tucker, attorney for the McCalls,
could not be both a witness and attorney in the matter. The trial was adjourned
to give Mr. Tucker time to decide which role he would take. On September 26,
1996, the McCalls filed a motion seeking an interlocutory appeal on this
decision of the Bankruptcy Court. At that time, the Bankruptcy Court stayed the
underlying action pending a decision on the appeal. On October 16, 1996, the
District Court denied the motion for an interlocutory appeal. The McCalls'
motion for reconsidering of the decision was also denied. Subsequently, Mr.
Tucker elected to be a witness.
On April 18, 1997, HJC, Finance Corp. and Thomas Tucker, Harry McCall, Henry
McCall and Susan LaFaye (an attorney who claims an interest in proceeds of the
McCall Litigation) (the "McCall Claimants") reached an agreement to settle
various litigation and other legal claims, demands and causes of action (the
"McCall Settlement Agreement"). The McCall Settlement Agreement was executed on
October 28, 1998. Under the McCall Settlement Agreement, the McCall Litigation
was dismissed with prejudice.
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. There has been no activity in this case since
that time.
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Mr. Tucker and the law firm of Tucker & West filed proofs of claims against
the estates of HJC and HNOIC for amounts which they allege were owed to them
with respect to the Tucker Litigation and other litigation, including the McCall
Litigation. HJC and HNOIC filed objections to these proofs of claims.
Subsequently, on August 13, 1996, these claimants consented to disallowance of
these claims.
Under the McCall Settlement Agreement, the Tucker Litigation was dismissed
with prejudice.
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 (the "Landmarks Litigation")
was filed against the City, the RDC and HJC in the United States District Court
for the Eastern District of Louisiana 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 United
States 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 United
States Court of Appeals for the Fifth Circuit reversed the decision of the
district court, vacated the permanent injunction entered by the district court,
rendered a judgment of dismissal against the plaintiff for failure to state a
cause of action on the grounds that there is no implied right of action under
the applicable federal statute, and dismissed the plaintiff's cross-appeal
regarding the scope of the injunction as moot. On July 12, 1996, the Fifth
Circuit denied the plaintiffs' petition for rehearing.
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.
Because of this litigation, HJC had to redesign the southern part of the Casino
at substantial cost so as to allow the Place de France to remain adjacent to the
Casino subject to certain alterations. As a result of the modification, the
expected size of the Casino was decreased by approximately 2,400 square feet.
The City has requested the written approval of the United States Secretary
of the Interior to remove the Joan of Arc statue from the Place de France. The
Secretary's approval has not yet been received and may not be forthcoming. If
the Secretary's approval is received and the Joan of Arc statue is removed, the
Company may decide to make further modifications to the entrance to the Casino.
Louisiana Landmarks Society, Inc., James Logan and the law firm of Tucker
and West filed proofs of claims against the estates of HJC and HNOIC for amounts
they alleged were owed to them as a result of the Landmarks Litigation. HJC and
HNOIC filed objections to these claims. On August 13, 1996 Louisiana Landmarks
Society, Inc. and the others consented to disallowance of their claims. As
stated above, on June 7, 1996 the Landmarks Litigation was dismissed with
prejudice.
TUCKER V. CITY OF NEW ORLEANS AND RIVERGATE DEVELOPMENT CORPORATION. On
July 24, 1996, Mr. Tucker filed a lawsuit captioned Tucker v. City of New
Orleans and Rivergate Development Corporation against the City and RDC in the
United States District Court for the Eastern District of Louisiana 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 previously
asserted in the Landmarks Litigation and rejected in the recent
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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. On October 14, 1996, Tucker filed an amended complaint naming First
American Title Insurance Company as an additional defendant. Upon information
and belief, all the defendants were thereafter served with the complaint. HJC
sought and received permission to intervene in the action on January 21, 1997.
Under the McCall Settlement Agreement, this suit was dismissed with
prejudice.
WARN ACT LITIGATION. On December 13, 1995 a lawsuit captioned Russell M.
Swody, et al. v. Harrah's New Orleans Management Company and Harrah's
Entertainment, Inc. ("Swody"), was filed against the Manager and HET in the
Civil District Court for the Parish of Orleans and subsequently amended. Swody
is a class action under the WARN Act and seeks damages for the alleged failure
to give timely notice to workers laid off at the time of HJC's bankruptcy.
Plaintiffs seek unspecified damages, as well as costs of legal proceedings, for
themselves and all members of the class. An answer was filed denying all of
plaintiff's allegations. HET and the Manager answered numerous document requests
and interrogatories. After a hearing, the Civil District Court certified the
class on April 22, 1996.
Early in 1996, Swody was consolidated with Susan N. Poirier, Darlene A.
Moss, et al. v. Harrah's Entertainment, Inc., Harrah's New Orleans Management
Company, and Harrah's Operating Company ("Poirier") which was filed in the Civil
District Court for the Parish of Orleans on January 17, 1996, and subsequently
amended. The Poirier class was certified with Swody on April 22, 1996, and the
consolidated Poirier and Swody cases were set for trial on May 5, 1997.
Similar complaints were filed by Ms. Poirier in the Bankruptcy Court in the
bankruptcy cases of HJC, HNOIC and Finance Corp. The Poirier adversary
proceedings purport to be class actions asserting claims under the WARN Act and
ERISA. On or about February 23, 1996, HJC and HNOIC each filed a motion in its
respective adversary proceeding to dismiss the Poirier litigation. A hearing on
such motions to dismiss was held on March 19, 1996. Later, Finance Corp. also
filed a similar motion. The Bankruptcy Court granted the motions to dismiss with
respect to each of HJC, HNOIC and Finance Corp. on or about June 28, 1996.
Proofs of claims on behalf of individual, alleged, terminated employees and
purportedly on behalf of all alleged former employees, were filed in the Chapter
11 cases. The plaintiffs in the litigation (the "WARN Act Claimants") moved to
certify three classes on whose behalf the plaintiffs sought to act as a class
representatives for purposes of the proofs of claims. The Bankruptcy Court
denied the motions by Memorandum Opinion and Order dated October 10, 1996.
However, in order to facilitate a proposed settlement reached with the WARN Act
Claimants (discussed below), the WARN Act Claimants filed motions to reconsider
that ruling. On December 10, 1996, the Bankruptcy Court certified classes for
settlement purposes only.
The WARN Act Claimants contend that HJC, Finance Corp. and HNOIC and the
defendants in the Swody and Poirier cases operated as a single business
enterprise with respect to operations in New Orleans and contend that, under
this alleged arrangement, HJC may be liable to the claimants under the WARN Act
along with the defendants in Swody and Poirier. The Company believes that such
claims have no merit. However, in order to avoid the expense, delay and risks
associated with additional litigation, HJC, Finance Corp., HNOIC and the WARN
Act Claimants agreed to compromise and settle all of the WARN Act Claimants'
claims on the terms summarized below.
Under the settlement, JCC agreed pay to those individuals laid off on or
about November 22, 1995 the sum of $2,265,000, which amount includes the fees
and cost of the Warn Act Claimants' attorneys and certain taxes attributable to
the WARN Act settlement. The amounts paid to these individual WARN Act Claimants
is based upon instructions from the WARN Act Claimants' attorneys. The
individual awards are based upon information obtained through the payroll
records for the time period of October 1 thorough November 22, 1995. In addition
to this monetary settlement, the individuals laid off on or about
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November 22, 1995 will be offered preferential re-employment to their former
positions or, if their former positions no longer exist or are not presently
available, to substantial equivalent portions to the extent that such jobs are
or become available. "Preferential re-employment" means that they will be
offered employ-
ment before employment is offered to any person who was not laid off on or about
November 22, 1995. WARN Act Claimants who were laid off in August of 1995 will
not receive a monetary award, but have been placed on a secondary preferential
re-hire list. The claimants will be offered re-employment after those employees
laid off on or about November 22, 1995 and employees laid off by the Flamingo
Casino. They will remain on the secondary preferential re-hire list for one year
following the date of the opening of the Casino. A final hearing on the
settlement took place on February 3, 1997, at which time the Bankruptcy Court
approved the settlement and dismissed the litigation, subject to the occurrence
of the Effective Date. This settlement was consummated on the Effective Date.
SAPIR LITIGATION. On June 6, 1997, Eddie L. Sapir, a member of the city
counsel of New Orleans, and the Eddie L. Sapir Inter Vivos Trust filed a civil
action captioned Eddie L. Sapir and The Eddie L. Sapir Inter Vivos Trust versus
Grand Palais Enterprises, Inc., in the Civil District Court for the Parish of
Orleans. In that action, plaintiffs allege, among other things, that one of
HJC's three general partners, Grand Palais, through its principal Christopher B.
Hemmeter ("Hemmeter") and its former counsel Cezar M. Froelich ("Froelich"), has
negotiated or is negotiating a compromise with HET and others which improperly
benefits Hemmeter and Froelich to the detriment of the creditors and
shareholders of Grand Palais. Plaintiff sought and obtained an ex parte
temporary restraining order prohibiting the disposition of any property of Grand
Palais, including prohibition of Grand Palais' execution of the releases and
other agreements among Grand Palais, HET and others described in the Plan of
Reorganization. Plaintiffs also moved for the ex parte appointment of a
temporary receiver for Grand Palais, among others, which was granted by the
District Court.
On June 18, 1997, Grand Palais filed a notice of removal of the litigation
to the Bankruptcy Court. On July 1, 1997, plaintiffs filed a motion in the
Bankruptcy Court to remand the litigation to District Court. On July 2, 1997,
the Bankruptcy Court granted HJC leave to intervene in the litigation and
continued plaintiff's motion to remand the litigation to District Court. The
Bankruptcy Court's order also included provisions by which one of the plaintiffs
and/or the receiver could participate in HJC's weekly "steering committee"
conferences and present objections to the Bankruptcy Court with respect to any
significant decision requiring the approval of HJC's general partners.
Thereafter, plaintiffs filed a motion to reconsider the Bankruptcy Court's order
permitting HJC to intervene in the litigation. On October 6, 1997, the
Bankruptcy Court remanded the litigation to District Court. On that date, the
Bankruptcy Court also reconsidered its order permitting HJC to intervene in the
litigation and rescinded without prejudice its order permitting HJC to
intervene. The parties reached a definitive settlement agreement on the
Effective Date and the litigation has been dismissed without prejudice.
On November 21, 1997, Eddie L. Sapir and the Eddie L. Sapir Inter Vivos
Trust filed a civil action captioned Eddie L. Sapir and the Eddie L. Sapir Inter
Vivos Trust v. Banker's Trust Company, Cezar M. Froelich, ABC Insurance Company,
First National Bank of Commerce, Harrah's Entertainment Incorporated, Shefsky &
Froelich, Ltd., DEF Insurance Company, GHI Insurance Company, JKL Insurance
Company, The Boatmen's National Bank of St. Louis, Merrill Lynch Senior High
Income Fund, Merrill Lynch Senior High Income II Fund, Merrill Lynch Senior
Strategic Fund, Prime Income Trust, and Van Kampen Meritt Prime Rate Income
Trust, No. 97-3913, in the Civil District Court for the Parish of Orleans. In
that action, plaintiffs alleged, among other things, that defendants committed
breaches of contract and fiduciary duty with respect to actions taken in
connection with the Chapter 11 cases. Plaintiffs have never served the suit on
any defendant, no answers were filed by any defendant and no discovery was
taken. HET removed the case to the United States District Court for the Eastern
District of Louisiana. The Sapir Litigation has been dismissed without
prejudice.
HNOIC/NOLDC LITIGATION. On September 26, 1995, HNOIC brought a lawsuit
against NOLDC in the United States District Court for the Eastern District of
Louisiana seeking a declaratory judgment that
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(i) HNOIC was a 52.93% owner of HJC, (ii) the 1994 option agreement with NOLDC
had expired, and (iii) NOLDC was not a "material partner" of HJC.
On September 28, 1995, NOLDC brought a lawsuit against, among other parties,
HNOIC and HJC in the Civil District Court for the Parish of Orleans seeking (i)
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,
(ii) a rescission of the fourth amendment to HJC's partnership agreement
(governing, among other matters the dilution of the NOLDC interest in HJC and
NOLDC's status as a material partner of HJC), (iii) restoration of NOLDC to a
full 33.3% ownership in HJC, and (iv) unspecified damages against all defendants
except HJC.
On September 29, 1995, NOLDC obtained a temporary restraining order from the
Civil District Court for the Parish of Orleans, directing HNOIC 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. On October 6, 1995, NOLDC sought to obtain
an extension of its temporary restraining order from the 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 NOLDC's bankruptcy, no discovery on the
merits had been taken.
Pursuant to the terms of a settlement agreement between the NOLDC
Shareholders, HET, HOCI and the Manager, all of the litigation described above
among NOLDC, HNOIC and HJC has been dismissed with prejudice.
BONDHOLDERS CLASS ACTION. Beginning on November 28, 1995, eight separate
class action suits were filed against HET and various of its corporate
affiliates, officers and directors in the United States District Court for the
Eastern District of Louisiana. They were Ben F. D'Angelo, Trustee for Ben F.
D'Angelo Revocable Trust v. Harrah's Entertainment Corp., Michael D. Rose,
Philip G. Satre and Ron Lenczycki; Max Fenster v. Harrah's Entertainment, Inc.,
Harrah's New Orleans Investment Company, Grand Palais Casino, Inc., Philip G.
Satre, Colin V. Reed, Michael N. Regan, Christopher B. Hemmeter, Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Brothers, Inc, and BT
Securities Corp.; Goldie Rosenbloom v. Harrah's Entertainment Corp., Michael D.
Rose, Philip G. Satre and Ron Lenczycki; Barry Ross v. Harrah's New Orleans
Investment Company, Philip G. Satre, Colin V. Reed, Lawrence L. Fowler, Michael
N. Regan, Cezar M. Froelich, Ulric Haynes, Jr., Wendell Gauthier, T. George
Solomon, Jr., Duplain W. Rhodes, III, Harrah's Entertainment, Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, and BT
Securities Corp.; Louis Silverman v. Harrah's Entertainment, Inc., Harrah's New
Orleans Investment Company, Grand Palais Casino, Inc., Philip G. Satre, Colin V.
Reed, Michael N. Regan, Christopher B. Hemmeter, and Donaldson, Lufkin &
Jenrette Securities Corporation; Florence Kessler v. Philip G. Satre, Colin V.
Reed, Charles A. Ledsinger, Jr., Michael N. Regan, Lawrence L. Fowler,
Christopher B. Hemmeter, Cezar M. Froelich, Ulric Haynes, Jr., Wendell H.
Gauthier, T. George Solomon, Jr., Duplain W. Rhodes, III, Donaldson, Lufkin &
Jenrette Securities Corporation, Salomon Brothers Inc, and BT Securities
Corporation; Warren Zeiller and Judith M. R. Zeiller v. Harrah's Entertainment
Corp., Michael D. Rose, Philip G. Satre, and Ron Lenczycki; and Charles Zwerving
and Helene Zwerving v. Harrah's Entertainment Corp., Philip G. Satre, Colin V.
Reed, Christopher B. Hemmeter, and Donaldson, Lufkin & Jenrette Securities
Corporation. Pursuant to a District Court order of January 26, 1996, plaintiffs,
on May 24, 1996, filed a consolidated complaint entitled In re Harrah's
Entertainment, Inc. Securities Litigation (the "Bondholders Class Action").
The plaintiffs in the Bondholders Class Action (who purport to represent all
persons, other than defendants and their affiliates, who purchased Old Bonds
between November 9, 1994 and November 21, 1995) characterized their complaint as
alleging violations of Sections 11 and 12(2) of the Securities Act, 15 U.S.C.
SectionSection 77k and 77l(2); Section 10(b) of the Exchange Act, 15 U.S.C.
Section 78j(b); and Rule 10b-5 promulgated thereunder by the Securities and
Exchange Commission, 17 C.F.R. Section 240.10b-5. The complaint asserted that
the registration statement and prospectus filed in connection with the offering
of the
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Old Bonds contained untrue statements of material fact and omitted to state
material facts necessary in order to make the statements made therein not
misleading. The complaint also alleged that the defendants engaged in a scheme
to defraud plaintiffs and the alleged class by knowingly or recklessly releasing
false and misleading information that was designed to and did (i) deceive the
investing public, including plaintiffs and other members of the alleged class,
regarding HJC's financial condition and future business prospects, (ii)
artificially inflate the market price of the Old Bonds during the relevant
period, and (iii) cause plaintiffs and other alleged class members to purchase
or otherwise acquire the Old Bonds at inflated prices.
Certain of the individuals named as defendants in the Bondholders Class
Action are officers and directors of the Debtors or of other entities and have
claimed or may claim defense, indemnification and/ or contribution rights
against the Debtors.
Proofs of claim, purportedly on behalf of the plaintiffs in the Bondholders
Class Action, were filed in the Chapter 11 cases. Such proofs of claim assert
claims based upon damages caused by alleged violations of federal securities
laws in connection with the purchase and sale of the Old Bonds. The Debtors have
objected to such proofs of claim. Under the Plan of Reorganization, any of such
claims which were allowed, to the extent that they were allowed, fell within the
classes of penalty claims under the Plan of Reorganization and received no
distributions on account of such claims.
Plaintiffs in the Bondholders Class Action filed motions in the Chapter 11
cases seeking the appointment of an examiner. A hearing on the motions was held
on November 6, 1996. On November 20, 1996, the Bankruptcy Court denied the
motion to appoint an examiner. In denying the motion, the Bankruptcy Court found
that the request for an examiner was both untimely and for an improper purpose.
HJC supported the settlement of the Bondholders Class Action negotiated
between counsel for the class and the defendants named in the litigation, whose
basic terms are as follows:
(1) in accordance with the Plan of Reorganization, HCCIC, HET and/or any
affiliates of HET as holders of Common Stock issued under the Plan of
Reorganization contributed 200,000 shares of Class A Common Stock to a pool
(the "Release Pool"), which was distributed as set forth in the Plan of
Reorganization to those members of the settlement class who were current
Bondholders;
(2) the sum of $3.8 million in cash was contributed by the defendants
and/or their insurance carriers toward the settlement, which funds will be
distributed as determined by plaintiffs' counsel and approved by the
District Court to members of the settlement class who do not provide
releases to HJC in exchange for a distribution from the Release Pool, as
well as for the payment of costs and fees;
(3) plaintiffs provided releases to the defendants, agreed to dismiss
the Bondholders Class Action with prejudice, and supported the Plan of
Reorganization.
The parties to the Bondholders Class Action entered into a stipulation
effectuating the basic terms of the settlement on April 16, 1997. On June 26,
1997, the District Court conducted a fairness hearing to determine whether to
approve the proposed settlement. No member of the settlement class opted out of
the settlement. On July 31, 1997, the District Court approved the settlement,
which was consummated with respect to HJC on the Effective Date.
FILING OF CERTAIN LAWSUITS BY DEBTORS AND NOLDC. In view of the fact that
certain two-year statutes of limitations under Sections 108 and 546 of the
Bankruptcy Code and applicable state law were to expire on November 22, 1997,
HJC filed certain complaints against multiple defendants on or before such date
to preserve the Debtors' claims. All of such claims were settled and released
pursuant to the Plan of Reorganization.
HJC and Finance Corp. sought and obtained an order directing them to abandon
and not pursue recovery of charitable donations and small preferences. As a
result of said order, HJC was not required to pursue the recovery or avoidance
of charitable donations and small preferences (under $5,000). However, HJC
preserved for the estate in the event the Plan of Reorganization was not
consummated avoidance
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actions of $5,000 and more. In connection with the Plan of Reorganization, all
of such claims were settled or released and dismissed.
NOLDC, which is the subject of its own Chapter 11 case, in order to preserve
its right to do so before the lapsing of statutes of limitations, filed a
lawsuit, captioned New Orleans Louisiana Development Corporation v. Bankers
Trust Company, First National Bank of Commerce, Inc., Harrah's Entertainment,
Harrah's New Orleans Investment Company, Harrah's New Orleans Management Company
and Harrah's Operating Company, Inc., No. 97-1176, in the Bankruptcy Court,
alleging breach of fiduciary duty and other causes of action. NOLDC, however,
states in its complaint that it is "actively pursuing confirmation and
consummation of a plan of reorganization" and upon occurrence of these events
"expects to waive, release or otherwise resolve" these claims. In connection
with the Plan of Reorganization, this lawsuit brought by NOLDC has been
dismissed with prejudice.
There is no other material litigation or arbitration pending which affects
the Company which has not been resolved by the Plan of Reorganization.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER
MATTERS.
The shares of Class A Common Stock are an issue of new securities, have no
established trading market and may not be widely distributed. As of the date
hereof, there are approximately 800 record holders of the Company's Common
Stock. On or around the Effective Date of the Plan of Reorganization, JCC
Holding issued (i) 10 million shares of Common Stock, (ii) the HET Warrant
entitling HCCIC to purchase additional shares of Common Stock such that HCCIC
would be entitled to own up to 50.0% of the then outstanding shares of Common
Stock, subject to certain adjustments, and (iii) the Convertible Junior
Subordinated Debentures, which will be convertible at the option of the holders,
in whole or in part, at any time after October 1, 2002, into shares of Common
Stock at a conversion price of $25.00.
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 HCCIC (which request may not be
made until the second anniversary of the opening of the Casino), 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 HCCIC, HET and HET's 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, unless a
lesser percentage is approved by the Class A Directors and the Class B
Directors). See "Item 11. Description of Registrant's Securities to be
Registered--Common Stock" and "--Agreements with Certain Stockholders." In
addition, upon the request of any Initiating Holder of the Debenture Registrable
Securities, JCC or JCC Holding, as the case may be, will provide notice of such
request to the Other Holders and will use its commercially reasonable efforts to
effect, as soon as reasonably practicable, the registration under the Securities
Act of (x) any Debenture Registrable Securities held by the Initiating Holders
and (y) any Debenture Registrable Securities requested to be included in such
registration by the Other Holders. However, (a) neither JCC nor JCC Holding is
obligated to effect more than one such registration for any Initiating Holder or
more than two such registrations in the aggregate, (b) no holder may request
such a registration prior to the earlier of 18 months after the Casino opens for
business and the filing by JCC Holding of its third Annual Report on Form 10-K,
under the Exchange Act and (c) neither JCC nor JCC Holding is obligated to
effect such a registration unless the aggregate Debenture Registrable Securities
requested to be included in such registration would have a gross sales price of
at least $5.0 million. See "Items 1 and 3. Business and Properties--Material
Agreements--Convertible Junior Subordinated Debentures" and "Item 11.
Description of Registrant's Securities to be Registered--Agreements with Certain
Stockholders."
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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 terms of the Bank Loan agreements, for as long as there are amounts
outstanding under the Bank Loans, no dividends will be paid. See "Items 1 and 3.
Business and Properties--Material Agreements--Bank Loans." In addition, the
terms of the Indentures prohibit payment of cash dividends unless certain
conditions are met, including the condition that no dividend will be paid unless
JCC has paid the maximum contingent payments with respect to the New Notes and
the New Contingent Notes for four consecutive Semiannual Periods. See "Items 1
and 3. Business and Properties--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.
Prior to the Effective Date, JCC Holding had not issued any securities
within the past three years. Pursuant to the Plan of Reorganization, on the
Effective Date, (i) JCC Holding issued an aggregate of 10,000,000 shares of
Common Stock, the HET Warrant, guarantees with respect to the New Notes, the New
Contingent Notes and the Convertible Junior Subordinated Debentures, and
guarantees of JCC Development's, CP Development's and FP Development's
guarantees with respect to the New Notes and the New Contingent Notes, (ii) JCC
issued the New Notes, the New Contingent Notes and the Convertible Junior
Subordinated Debentures, and (iii) each of JCC Development, CP Development and
FP Development issued guarantees with respect to the New Notes and the New
Contingent Notes to the persons, in each case, 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," "--Convertible Junior Subordinated Debentures," "--HET Warrant" 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.
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
Restated Certificate of Incorporation, Bylaws, and agreements with certain
stockholders referred to below, copies of which have been filed as exhibits to
this Registration Statement.
The authorized capital stock of JCC Holding consists of 20,000,000 shares of
Class A Common Stock, par value $0.01 per share, 20,000,000 shares of Class B
Common Stock, par value $0.01 per share, and 40,000,000 shares of unclassified
Common Stock, par value $0.01 per share (the "Unclassified Common Stock"). Prior
to the Transition Date, JCC Holding does not have the power to issue any shares
of Unclassified Common Stock. Upon and after the Transition Date, the
Corporation does not have the power to issue any shares of Class A Common Stock
or Class B Common Stock.
COMMON STOCK
On the Effective Date, JCC Holding issued 10,000,000 shares of Common Stock.
The Common Stock consists 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) has identical rights and
privileges, and ranks equally, shares ratably and is identical in every respect
and as to all matters, including rights in liquidation, and is entitled to vote
upon all matters submitted to a vote of the common stockholders, is entitled to
one vote for each share of Common Stock held, and, except as otherwise
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required by law, the holders of shares of Common Stock vote together as one
class on all matters submitted to a vote of stockholders. Shares of Class B
Common Stock may be held only by (i) HET and any direct or indirect wholly-owned
subsidiaries of HET (collectively, "Harrah's Entities"), (ii) Grand Palais and
any Controlled Affiliate of Grand Palais, (iii) shareholders of Grand Palais who
receive shares of Class B Common Stock in connection with the Plan of
Reorganization ("Grand Palais Shareholders"), (iv) any spouse, immediate family
member, or other relative who has the same principal residence of any Grand
Palais Shareholder (collectively, "Grand Palais Family Members"), (v) any trust
in which any Grand Palais Shareholder or any Grand Palais Family Member has a
beneficial interest, (vi) any Controlled Affiliate of Grand Palais Shareholders
or Grand Palais Family Members, (vii) shareholders of NOLDC ("NOLDC
Shareholders"), including, without limitation, all NOLDC Shareholders as of the
Effective Date, (viii) any spouse, immediate family member, or other relative
who has the same principal residence of any NOLDC Shareholder (collectively,
"NOLDC Family Members"), (ix) any trust in which any NOLDC Shareholder or any
NOLDC Family Member has a beneficial interest, (x) any Controlled Affiliate of
NOLDC Shareholders or NOLDC Family Members, and (xi) FNBC (the entities and
persons referred to in clauses (i) through (xi) referred to herein as "Class B
Entities"). Shares of Class A Common Stock are held by entities other than Class
B Entities. Shares of Class B Common Stock convert to shares of Class A Common
Stock if a Class B Entity transfers such shares to another entity other than
another Class B Entity, 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 a Class B Entity transfers such shares to a Class
B Entity. Any shares of Class A Common Stock transferred from any entity to a
Class B Entity (subject to certain exceptions upon a Change of Control) and any
shares of Class B Common Stock transferred from a Class B Entity to an entity
other than another Class B Entity, will not be entitled to vote upon any matters
submitted to a vote of the holders of Common Stock of JCC Holding until at such
time as the Class B Entity involved with such transfer has complied with certain
notice requirements required by the Restated Certificate of Incorporation.
Shares of Class A Common Stock and Class B Common Stock are freely transferable.
Notwithstanding the preceding sentence, prior to the Transition Date, the
Harrah's Entities will at all times own at least 51% of the issued and
outstanding shares of Class B Common Stock; provided, however, that the Harrah's
Entities may own such lesser percentage of the issued and outstanding shares of
Class B Common Stock as shall be approved by a majority of Class A Directors
then in office and a majority of Class B Directors then in office. On the
Transition Date, each share of Class A Common Stock and each share of Class B
Common Stock will automatically convert into and become one share of
Unclassified 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 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. Outstanding shares of Common
Stock held by a person or entity are also subject to redemption by JCC Holding,
by action of the board of directors, if such holder of Common Stock is
designated a Non-Qualified Person in a written notice from the Manager to JCC
pursuant to the
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Amended Management Agreement. The terms and conditions of such redemption shall
be as follows: (1) the redemption price of the shares to be redeemed will 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 or Non-Qualified Persons are to be redeemed, the shares to
be redeemed will be selected in such manner as will 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 20 days' written notice of the Redemption
Date will 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 will be given to record holders if the
cash or Redemption Securities necessary to effect the redemption has 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 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), will cease and terminate and they will
thenceforth be entitled only to receive the cash or Redemption Securities
payable upon redemption; and (6) such additional terms and conditions as the
board of directors shall determine.
BOARD OF DIRECTORS
PRIOR TO THE TRANSITION DATE. Until the Transition Date, the following
provisions are in effect: except as set forth below, the total number of
authorized directors is six, and, as described below, the directors will consist
of three Class A Directors elected by the affirmative vote of a plurality of the
issued and outstanding shares of Class A Common Stock, and three Class B
Directors elected by the affirmative vote of a plurality of the issued and
outstanding shares of Class B Common Stock. The board of directors is 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. The initial directors in Group I have been selected for a term
expiring on the date of the annual meeting of stockholders occurring in 1999.
Subject to the provisions of the immediately following paragraph, directors in
Group II will be elected for a term expiring on the date of the annual meeting
of stockholders occurring in 2000 and directors in Group III will be elected for
a term expiring on the date of the annual meeting of stockholders occurring in
2001. At each succeeding annual meeting of stockholders, successors to the group
of directors whose term expires at that annual meeting will 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)
will be members of the group whose term is next to expire. A director generally
holds office until such director's term expires or until his successor is
elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
There are currently two directors consisting of one Class A Director and one
Class B Director who collectively comprise Group I. See "Item 5. Directors and
Executive Officers." The total number of authorized directors will increase by
two, for a total of four, with such directors comprising Group II, only at such
time as (i) a second Class A Director has been elected by a majority of the
Class A Directors then in office (or, if only one Class A Director is then in
office, by such Class A Director), (ii) a second Class B Director has been
elected by a majority of the Class B Directors then in office (or, if only one
Class B Director is then in office, by such Class B Director), and (iii) the
requisite gaming regulatory agencies have made the determinations necessary to
allow both of such directors to serve on the board of directors. The total
number of authorized directors will again increase by two, for a total of six,
with such directors comprising Group III, only at such time as (i) a third Class
A Director has been elected by a majority of the Class A Directors then in
office (or, if only one Class A Director is then in office, by such Class A
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Director), (ii) a third Class B Director has been elected by a majority of the
Class B Directors then in office (or, if only one Class B Director is then in
office, by such Class B Director), and (iii) the requisite gaming regulatory
agencies have made the determinations necessary to allow both of such directors
to serve on the board of directors.
Notwithstanding the foregoing, upon the occurrence of an Extraordinary Flip
Event, the authorized number of Class A Directors will increase by one (the
"Additional Class A Director") and the authorized number of Class B Directors
shall remain the same. The Additional Class A Director will 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 will immediately expire, and the
authorized number of Class A Directors will be reduced by one. Notwithstanding
the foregoing, upon the occurrence of a Change of Control, the authorized number
of Class B Directors will increase by one (the "Additional Class B Director")
and the authorized number of Class A Directors will remain the same; provided,
however, that the number of Class B Directors will not be increased to include
the Additional Class B Director if, prior to or 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 will immediately expire and the number of Class
B Directors will be reduced by one 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. The Additional Class B Director will be elected by a majority of Class B
Directors then in office when the change of control giving rise to such
Additional Class B Director occurs.
Any vacancy or newly created directorship 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 or newly created directorship 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 a majority of the shares of the class of Common Stock
that elected such class of directors will have the right to elect directors to
fill such vacancies or newly created directorships 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 will be required to constitute a quorum for the transaction of
business. Except as provided in the following sentence or as otherwise provided
by law, 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, (ii) such action is authorized by at
least one Class B Director, and (iii) such action is authorized by at least one
Class A Director; provided, however, that if an Extraordinary Flip Event has
occurred and no related Cure Event has occurred, clause (ii) will not be
applicable. 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 then
in office 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) except with respect to any
amendment to the Certificate of Incorporation or Bylaws of JCC Holding, clause
(z) shall not be applicable, 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 without the separate approval of such action by
a majority of the Class A Directors then in office and a majority of the Class B
Directors then in office.
Any Class A Director may be removed from the board of directors, without
cause, by the affirmative vote of the holders of a majority of the outstanding
shares of Class A Common Stock. Any Class B Director may be removed from the
board of directors, without cause, by the affirmative vote of the holders of a
majority of the outstanding shares of Class B Common Stock. In the event that
any director of JCC
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Holding is found unsuitable by the LGCB or any other gaming regulatory agency
with proper jurisdiction over such director, such director will no longer be
deemed to be a Qualified Person, and such director shall immediately be no
longer eligible to serve on the board of directors, the term of such director
shall automatically terminate and no further remuneration of any kind will be
paid to such director.
AFTER THE TRANSITION DATE. Upon the Transition Date and thereafter, the
above provisions regarding the board of directors will terminate and will no
longer be applicable, and the following provisions shall be in effect: as soon
as practicable after the Transition Date, the board of directors will call a
special meeting of stockholders to elect new directors. All directors in office
on the Transition Date, except an Additional Class A Director or Additional
Class B Director then in office, if any, will continue to hold office until such
special meeting is held and their successors are duly elected. The board of
directors will consist of not less than three or more than 17 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 board of directors. The
board of directors will be divided into three classes, designated Class I, Class
II and Class III. Each class will 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 the terms of all Class A Directors and Class B Directors will expire, and
new directors will be elected as follows: Class I directors will 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
will be elected for a three-year term. If the number of directors is changed,
any increase or decrease will 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 will hold office for a term that will 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 will hold
office until the annual meeting for the year in which his term expires and until
his successor will be elected and will 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 will be filled only 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 will only 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 will have the same remaining term as that of his
predecessor.
Directors will 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 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 holders of a majority of the
shares of Common Stock entitled to vote at an election of directors. 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, such
director will no longer be deemed to be a Qualified Person, and such director
shall immediately be no longer eligible to serve on the board of directors, the
term of such director shall automatically terminate and no further remuneration
of any kind will be paid to such director.
NOMINATION OF DIRECTORS. Nominations of persons for election to the board
of directors at the annual meeting may be made in the notice for such meeting by
the board of directors or at such meeting by or at the direction of the board of
directors, by any 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; provided, however, that
prior to the Transition Date, holders of shares of Class A Common Stock may only
nominate persons for election as Class A Directors, and holders of shares of
Class B Common Stock may only nominate persons for election of Class B
Directors. Such
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nominations by any stockholder must be made pursuant to timely notice in writing
to the Secretary of JCC Holding. 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 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that less than 70 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 must 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 SEC 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, (b) the class and number of
shares of capital stock of JCC Holding which are beneficially owned by the
stockholder and (c) whether the stockholder intends or is part of a group which
intends to solicit proxies from other stockholders in support of any person whom
the stockholder proposes to nominate for election or reelection as a director.
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 will 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 Restated 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 and the
Capital Committee. The Audit Committee consists of the Class A Directors and is
empowered to undertake and complete an audit or investigation, at any time, into
the business affairs of JCC Holding or a subsidiary, including JCC. The Gaming
Committee will supervise the day-to-day activities of JCC Holding and, except
with respect to Significant Transactions, has 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 consists of the Class B Directors;
provided, however, that upon the occurrence of a Flip Event, the 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 and its subsidiaries. The nominating committees consist of the
directors of each class and their purpose is to select the person(s) to stand
for election as director nominee(s) at any meeting of stockholders. The Capital
Committee consists of one Class A Director and one Class B Director. After the
date on which the Completion Guarantees have been terminated, the Capital
Committee will be empowered to act on behalf of JCC Holding with respect to all
changes to the capital budgets of JCC Holding and JCC between $250,000 and $2
million. Prior to the Transition Date, upon the affirmative vote of the majority
of the Class A Directors then in office and the affirmative vote of a majority
of the Class B Directors then in office JCC Holding has the power to form or
maintain committees of the board of directors other than those described above.
Pursuant to such authority, the board of directors has adopted a Counsel
Retention Committee to approve the selection of legal counsel by JCC Holding or
its subsidiaries in connection with any matter, matters, transaction or
transactions with Affiliates of JCC Holding which have not previously been
approved by the Company prior to or concurrently with the Effective Date and
otherwise to consider issues relating to the retention
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of legal counsel as the Counsel Retention Committee deems appropriate. The
Counsel Retention Committee consists of one Class A Director and one Class B
Director.
DIVIDENDS
Prior to the Transition Date, holders of Common Stock will 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; 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
is the same. Under no circumstance will 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 will 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 in any manner subdivides, combines or reclassifies the outstanding
shares of Class A Common Stock or Class B Common Stock, the outstanding shares
of the other such class of common stock must 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 any other provisions of the Restated Certificate of
Incorporation, holders of Common Stock will 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
Prior to the Transition Date, stockholders may not make, adopt, alter,
amend, change or repeal the Bylaws except upon the affirmative vote of a
majority of the votes entitled to be cast by the holders of outstanding shares
of Common Stock, voting together as a single class; provided, however, that in
addition to such vote, any amendment to the Bylaws which in any way adversely
affects the rights of holders of Class A Common Stock or Class A Directors will
also require the affirmative vote of the holders of a majority of the
outstanding shares of Class A Common Stock, and any amendment to the Bylaws
which in any way adversely affects the rights of holders of Class B Common Stock
or Class B Directors will also require the affirmative vote of the holders of a
majority of the outstanding shares of Class B Common Stock. Upon and after the
Transition Date, stockholders may not make, adopt, alter, amend, change or
repeal the Bylaws except upon the affirmative vote of not less than 75% of the
votes entitled to be cast by the holders of outstanding shares of Common Stock,
voting together as a single class. Prior to the Transition Date, the board of
directors is authorized to make, adopt, alter, amend, change or repeal the
Bylaws only if such action is approved as a Significant Transaction pursuant to
the Restated Certificate of Incorporation. Upon and after the Transition Date,
upon the affirmative vote of a majority of the board of directors then in
office, the board of directors is expressly authorized to make, adopt, alter,
amend, change or repeal the Bylaws.
The Restated Certificate of Incorporation may not be altered, amended,
changed or repealed in any respect, and no provision inconsistent with any
provision of the Restated Certificate of Incorporation or imposing cumulative
voting in the election of directors may be added to the Restated Certificate of
Incorporation, unless such action is approved (a) prior to the Transition Date,
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock or (b) on and after the Transition Date, by the affirmative vote
of the holders of not less than 75% of the outstanding shares of Common Stock.
Prior to the Transition Date, in addition to the requirements of subsection (a)
of the immediately
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preceding sentence, any amendment to the Restated Certificate of Incorporation
which in any way affects the rights of holders of Class A Common Stock or Class
A Directors will also require the affirmative vote of the holders of a majority
of the outstanding shares of Class A Common Stock, and any amendment to the
Certificate of Incorporation which in any way affects the rights of holders of
Class B Common Stock or Class B Directors will also require the affirmative vote
of the holders of a majority of the outstanding shares of Class B Common Stock.
STOCKHOLDER MEETINGS
The annual meeting of stockholders will 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 the Bylaws. Special meetings of the stockholders, for any
purpose or purposes, may be called by either the Chairman or the President and
(i) prior to the Transition Date, by the affirmative vote of a majority of the
Class A Directors then in office or the affirmative vote of a majority of the
Class B Directors then in office, and (ii) upon and after the Transition Date,
by a majority of the entire board of directors. At any meeting of the
stockholders at which the holders of Common Stock are entitled to vote, no
action may be taken unless a quorum of the holders of a majority of shares of
Common Stock is present, except a vote to adjourn such meeting; provided,
however, that prior to the Transition Date, a quorum will consist of a majority
of the holders of shares of Class A Common Stock and a majority of the holders
of shares of Class B Common Stock. Except as provided by law, the presence, in
person or by proxy, of the holders of a majority of the issued and outstanding
shares of Common Stock entitled to vote at such meeting will constitute a quorum
of the holders of shares of Common Stock, and the presence, in person or by
proxy, of the holders of a majority of the issued and outstanding shares of each
class of Common Stock entitled to vote at such meeting will constitute a quorum
of such class.
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 60 days nor more than
120 days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that less than 70 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a 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 annual meeting was mailed or such public disclosure
was made, whichever first occurs. A stockholder's notice to the Secretary of JCC
Holding 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, (ii) the class, series and number of shares
of capital stock of JCC Holding which are beneficially owned by the stockholder,
and (iii) whether the stockholder intends or is part of a group which intends to
solicit proxies from other stockholders in support of any matter the stockholder
proposes to bring before the annual meeting. Notwithstanding anything in the
Bylaws of JCC Holding to the contrary, no business shall be conducted at the
annual meeting except in accordance with these procedures.
AGREEMENTS WITH CERTAIN STOCKHOLDERS
REGISTRATION AND LISTING OF CLASS A COMMON STOCK. Pursuant to the Plan of
Reorganization, JCC Holding was required to use its best efforts to cause the
Class A Common Stock to be listed on a national
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securities exchange or quoted on the National Association of Securities Dealers,
Inc. Automated Quotations System upon the Effective Date. In addition, if this
Registration Statement is not declared effective by the SEC by a date which is
30 days after the receipt of any comments on this Registration Statement from
the SEC, the Company is required to pay to the Bondholders an amount equal to
$.05 per week for each $1,000 of Class A Common Stock (based on the greater of
(x) the market value of such Class A Common Stock at such time and (y) $15.00
per share) to be registered, which amount shall increase by $.05 every 45 days
to a maximum of $.30 per week. 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, the Company is required to 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 the Company will 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 will increase by $.05 every 45 days to a maximum of
$.30 per week. For purposes of calculating the amount, if any, owed to holders
of shares of Class A Common Stock, the value of a share of Class A Common Stock
will be deemed to be the greater of (i) the market price of a share of Class A
Common Stock and (ii) $15 per share.
In addition, pursuant to the Registration Rights Agreement, dated as of the
Effective Date, by and among JCC, JCC Holding, the Underwriters, BTCo and FNBC,
upon the request of any Initiating Holder, JCC or JCC Holding, as the case may
be, will provide notice of such request to the Other Holders and will use its
commercially reasonable efforts to effect, as soon as reasonably practicable,
the registration under the Securities Act of (x) any Debenture Registrable
Securities held by the Initiating Holder and (y) any Debenture Registrable
Securities requested to be included in such registration by the Other Holders.
However, (a) neither JCC nor JCC Holding is obligated to effect more than one
such registration for any Initiating Holder or more than two such registrations
in the aggregate, (b) no holder may request such a registration prior to the
earlier of 18 months after the Casino opens for business and the filing by JCC
Holding of its third Annual Report on Form 10-K under the Exchange Act and (c)
neither JCC nor JCC Holding is obligated to effect such a registration unless
the aggregate Debenture Registrable Securities requested to be included in such
registration would have a gross sales price of at least $5.0 million. See "Items
1 and 3. Business and Properties--Material Agreements--Convertible Junior
Subordinated Debentures."
REGISTRATION OF CLASS B COMMON STOCK. On the Effective Date, JCC Holding
and HCCIC entered 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 HCCIC, which request may not be made prior to the second anniversary of the
opening of the Casino, the Company will promptly file with the SEC 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 HCCIC including any
shares of Class B Common Stock obtained by HCCIC pursuant to exercise of the HET
Warrant; 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.
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POTENTIAL EFFECT OF CERTAIN PROVISIONS UPON AN ATTEMPT TO ACQUIRE CONTROL OF JCC
HOLDING
Certain of the foregoing provisions of the Restated Certificate of
Incorporation 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 Norwest Bank Minnesota, National
Association.
CERTAIN DEFINITIONS
"AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2 under
the Exchange Act, as amended (the term "registrant" in said Rule 12b-2 meaning,
in this case, JCC Holding).
"CHANGE OF CONTROL" shall mean the acquisition of at least 20% of the
outstanding shares of Class A Common Stock by a Conflicted Entity.
"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 Exchange Act 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 other
system then in use, or if no such prices or quotations are available for such
day, then the highest closing sales price or bid quotation for the most recent
day within the 10 prior business days for which such a price or quotation is
available, or if no such prices or quotations are available within 10 business
days prior to such day, the fair market value on the day in question as
determined, prior to the Transition Date, upon the affirmative vote of a
majority of the Class A Directors then in office and the affirmative vote of a
majority of the Class B Directors then in office and, on and after the
Transition Date, 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 Effective 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
Effective Date, involved in litigation with HET which HET has disclosed in an
Annual Report on Form 10-K on or prior to the Effective Date, or which HET would
be required to disclose in its next Annual Report on Form 10-K following the
Effective Date.
"CONTROLLED AFFILIATE" with respect to any Person shall mean (i) a
corporation (a) 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, by such Person and one or more of such
Person's Controlled Affiliates or by one or more of such Person's Controlled
Affiliates, or (b) 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 possesses the power to direct the management and policies of such
corporation, (ii) a partnership in which such Person is a general partner and in
which such Person possesses the power to direct the management and policies of
such partnership, or (iii) any other entity (other than a corporation or
partnership) 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
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<PAGE>
a 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, (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, and
(C) the board of directors has in good faith accepted such notice.
"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.
"EXCLUDED TRANSACTIONS" shall mean any transaction or transactions (i)
authorized by the affirmative vote of a majority of the Class A Directors then
in office and the affirmative vote of a majority of the Class B Directors then
in office, or (ii) pursuant to or in connection with agreements or plans
(including, without limitation, any business plans, operating plans, financing
plans or marketing plans) (a) approved by the Bankruptcy Court in connection
with the Plan of Reorganization, (b) entered into by JCC Holding prior to, on,
or substantially concurrently with, the Effective Date, or (c) authorized by the
affirmative vote of a majority of the Class A Directors then in office and the
affirmative vote of a majority of the Class B Directors then in office.
"EXTRAORDINARY FLIP EVENT" shall mean a Flip Event (including a Flip Event
resulting from Manager bankruptcy events, but excluding a Flip Event resulting
from HET bankruptcy events) which occurs as a result of a willful action or
failure to act by the Class B Directors, HET, the Manager or a Controlled
Affiliate of HET as determined in a Speedy Arbitration.
"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.
"FLIP EVENT" shall mean any of the following: (a) (i) an event of default
has occurred under the Bank Loans that is uncured or unwaived, or (ii) an event
of default has occurred that is uncured or unwaived under any other financing
agreement pursuant to which JCC Holding, the Development Entities or JCC is a
borrower and under which the aggregate amount outstanding exceeds $2.5 million,
and in each case such default by JCC Holding or JCC is caused by HET, HOCI or
Manager related events; (b) an event of default has occurred under the New Notes
or the New Contingent Notes and such default by JCC Holding or JCC is caused by
HET, HOCI or Manager related events; (c) an event of default in respect of
payments
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<PAGE>
due and owing by JCC under the Amended Ground Lease, or any other material event
of default under the Amended Ground Lease in response to which any other party
to the Amended Ground Lease would be entitled to terminate, rescind, or
otherwise deprive JCC of the benefits of, the Amended Ground Lease and such
default by JCC Holding or JCC is caused by HET, HOCI or Manager related events;
(d) an event of default in respect of payments due and owing by JCC under the
Casino Operating Contract, or any other material event of default under the
Casino Operating Contract in response to which any other party to the Casino
Operating Contract would be entitled to terminate, rescind, or otherwise deprive
JCC of the benefits of, the Casino Operating Contract and such default by JCC
Holding or JCC is caused by HET, HOCI or Manager related events; (e) a material
event of default has occurred under the Amended Management Agreement and HET or
the Manager is the defaulting party and in response to which event of default
any party to the Amended Management Agreement would be entitled to terminate or
rescind the Amended Management Agreement; (f) HET or an Affiliate of HET has not
fulfilled its obligations, or is in default, under any of the Completion
Guarantees or under any material agreement relating to the Casino between HET or
any such affiliate and the City or State or any agency or instrumentality of the
foregoing; (g) JCC Holding is in violation of its certificate of incorporation
or bylaws in any material respect and such default by JCC Holding or JCC is
caused by HET, HOCI or Manager related events; or (h) HET, HOCI, 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
voluntary petition in bankruptcy; is adjudged bankrupt or insolvent; files a
voluntary 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 has or is reasonably likely to have an
adverse effect on JCC Holding, JCC, the Casino, or the suitability of any
director or officer of JCC Holding 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; or (i) the LGCB, or any successor thereto, makes
a determination in accordance with the laws of the State and the Rules and
Regulations that HET is unsuitable to own an equity interest in JCC Holding.
"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 aggregate
number of such shares issued to holders of Old Bonds on the Effective Date in
connection with the Plan of Reorganization, plus (ii) the Closing Price per
$1,000 of New Notes and New 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
(or any other gaming regulatory agency with proper jurisdiction) 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 (or any other
gaming regulatory agency with proper jurisdiction).
"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
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<PAGE>
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 Restated
Certificate of Incorporation or the Bylaws of JCC Holding or the corporate
governance or organizational documents of any subsidiary of JCC Holding or the
organization of any new Subsidiary; (ii) any merger, consolidation, lease or
sale of a material portion of the Company's or any Subsidiaries' business or
assets; (iii) any transaction or transactions, except Excluded Transactions,
during a single fiscal year with HET or its Affiliates which in the aggregate
involve consideration to either party in excess of a threshold to be determined
by the board of directors (including, without limitation, any decisions
regarding the exercise, waiver or modification of rights or obligations, or the
determination of fees with respect to project development services, under the
Amended Management Agreement); (iv) any declaration of dividends; (v) any
amendment of the Amended and Restated Casino Operating Contract, the Amended
Ground Lease, the Amended GDA or any other material contract between JCC Holding
and the State or City or any agency or instrumentality of the foregoing; (vi)
any voluntary filing for protection under Title 11 of the United States Code or
any other present or future federal or state law, statute or regulation for the
relief of debtors, any general assignment for the benefit of creditors, any
admission in writing of JCC Holding's inability to pay its debts as they become
due, any filing of an answer admitting or not contesting the material
allegations of a petition filed against it in any bankruptcy or any similar
proceedings, any seeking, consenting to or acquiescence in the appointment of a
trustee or liquidator for JCC Holding or a material portion of its properties,
or any voluntary liquidation or dissolution; (vii) any 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,
determination, consent or waiver thereunder; (viii) any issuance of securities
of the Company other than issuances pursuant to the Plan of Reorganization; (ix)
any repurchase of securities of the Company; (x) any change in the independent
auditors; (xi) the approval of JCC's annual operating plan and annual capital
budget; and (xii) any change to the Minimum Balance (as defined in the Amended
Management Agreement) pursuant to Section 8.03(a) of the Amended Management
Agreement; (xii) any lease of real property rights of the Company or any of its
Subsidiaries which involves consideration to the Company or any of its
Subsidiaries in excess of a threshold to be determined by the board of
directors; (xiv) the termination of that certain lease between the Alabama Great
Southern Railroad Company, as lessor, and JCC as lessee, or the release by the
Company or any of its Subsidiaries of a material portion of the property
thereunder; (xv) the termination of that certain Franchise Agreement between the
City and JCC by the Company, or any of its Subsidiaries, and (xvi) any interest
rate protection agreements (including, without limitation, interest rate hedges,
swaps, caps, floors or collars) to be entered into by the Company or any
Subsidiary.
"SPEEDY ARBITRATION" shall mean an arbitration conducted pursuant to
"Expedited Procedures" that shall take place in New York, New York and be
administered by the New York City office of the American Arbitration Association
or any successor thereto (the "AAA") in accordance with its Commercial
Arbitration Rules in effect at the time the arbitration is initiated
(collectively, the "Rules"). In accordance with the Rules, "Expedited
Procedures" shall be utilized with respect to all matters for determination in
the arbitration. As soon as a demand for arbitration is made, the AAA will
appoint a single arbitrator from the National Panel of Commercial Arbitrators
without submission of lists of proposed arbitrators and the arbitrator will
render a full, complete, conclusive and binding resolution of the dispute (which
will be immediate, final, non-appealable, and not subject to reconsideration)
and give written notice of the decision to the board of directors of JCC
Holding.
"SUBSIDIARY" shall mean (i) 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 or (ii) any limited liability company (including the
Development Entities), partnership, joint venture or other entity or
organization of which JCC Holding or any of its
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subsidiaries is the sole member or of which JCC Holding and its subsidiaries
collectively hold more than 50% of the membership interests.
"TRANSFER" shall mean any type of transfer of shares of Class A Common Stock
or Class B Common Stock prior to the Transition Date, including, without
limitation, transfers by sale, exchange, gift, merger, operation of law, pledge,
devise, testamentary disposition or interspousal disposition pursuant to a
domestic relations proceeding or any transfer of the power to vote such shares
by proxy or by transferring any proxy.
"TRANSITION DATE" shall mean the date upon which the earliest of the
following events occur: (i) the third anniversary of the date the Casino is open
to customers, (ii) the end of two consecutive 12-month periods in each of which
the contingent payments under the New Notes and the New Contingent Notes equals
or exceeds $15 million, (iii) 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 (as adjusted by the board of directors in good faith to
account for purchases of Common Stock by JCC Holding or issuance of additional
Common Stock by JCC Holding).
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 Restated Certificate of Incorporation of JCC Holding
provides for indemnification of the directors, officers, employees or agents 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 Restated 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Prior to the Effective Date, the Company has not (i) conducted any
operations, (ii) generated any revenues or (iii) issued any capital stock.
Accordingly, separate financial statements and other disclosures with respect to
the Company are omitted as such separate financial statements and other
disclosure are not deemed material. On the Effective Date, JCC succeeded to all
the assets of HJC except the 3CP Property and Fulton Property which vested in CP
Development and FP Development, respectively. Therefore, 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."
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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 as of December 31,
1997 and 1996, and the related consolidated statements of operations, partners'
capital and cash flows for each of the three years ended in the period December
31, 1997. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Harrah's Jazz Company and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, 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 $212,207,000 at December 31, 1997. 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, on January 29, 1998, the Bankruptcy Court confirmed HJC's Third Amended
Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, as
Modified through January 29, 1998 (the "Modified Plan"). The outcome of the
bankruptcy proceedings is uncertain. The Modified Plan (either in its current
form or as modified by subsequent amendments proposed by HJC) will not become
effective unless the validity of the action of the Louisiana Gaming Control
Board ("LGCB") in approving the Amended and Renegotiated Operating Contract is
upheld by the Louisiana courts in time to permit the Modified Plan to be
successfully consummated. In addition, the City Council of the City of New
Orleans must execute and deliver the amended Canal Street Casino Lease and
certain other agreements. Further, there are other conditions precedent to the
occurrence of the Effective Date of the Modified Plan, which are beyond the
control of HJC. These matters, among others, raise substantial doubt about HJC's
ability to continue as a going concern. In the event the approval of the Amended
and Renegotiated Operating Contract by the LGCB is upheld by the Louisiana
courts, the City Council approves the amended Street Casino Lease and certain
other agreements, and all other conditions precedent to the occurrence of the
Effective Date of the Modified Plan are satisfied, continuation of the business
thereafter is dependent on the Casino's ability to achieve successful future
operations. The financial statements do not include any additional adjustments
relating to the adoption of fresh-start accounting (see Note 3) or 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, 1998
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (includes restricted cash of $3,335 and $9,195 Note 4)...... $ 3,755 $ 10,114
Other................................................................................. 561 769
----------- -----------
Total current assets.............................................................. 4,316 10,883
----------- -----------
Land, buildings and equipment
Property held for development......................................................... 13,200 13,200
Construction in progress.............................................................. 157,475 155,350
Furniture, fixtures and equipment, net of accumulated depreciation of $6,598 and
$6,033.............................................................................. 24,857 25,467
----------- -----------
195,532 194,017
Deferred assets, net of amortization
Deferred operating contract costs (Notes 3 and 9)..................................... 122,222 122,222
Lease prepayments (Notes 3 and 8)..................................................... 30,263 30,263
Other................................................................................. 2,084 2,084
----------- -----------
$ 354,417 $ 359,469
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities not subject to compromise
Accounts payable...................................................................... $ 1,170 $ 1,266
Accrued expenses...................................................................... 9,756 8,501
Debtor-in-possession loans (Note 7)................................................... 32,230 17,182
----------- -----------
Total liabilities not subject to compromise....................................... 43,156 26,949
Liabilities subject to compromise (Note 6).............................................. 523,468 523,483
Commitments and contingencies (Notes 5, 8 and 9)
Partners' deficit (Notes 1 and 5)
Partners' capital contributions....................................................... 167,000 167,000
Accumulated deficit................................................................... (379,207) (357,963)
----------- -----------
Total partners' deficit........................................................... (212,207) (190,963)
----------- -----------
$ 354,417 $ 359,469
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
REVENUES:
Casino..................................................................... $ -- $ -- $ 92,028
Food and beverage.......................................................... -- -- 4,860
Other...................................................................... 1,679 1,661 2,241
Less: Promotional allowances................................................. -- -- (3,872)
---------- ---------- -----------
Net revenues........................................................... 1,679 1,661 95,257
OPERATING EXPENSES:
Direct
Casino................................................................... -- -- 72,847
Food and beverage........................................................ -- -- 2,270
General and administrative................................................. 14,703 17,459 35,206
Management and consulting.................................................. -- -- 7,647
Depreciation............................................................... 610 612 44,978
Asset valuation provision (Note 3)......................................... -- -- 69,579
Preopening expenses (Note 3)............................................... -- -- 15,017
Other...................................................................... -- -- 124
---------- ---------- -----------
Total operating expenses............................................... 15,313 18,071 247,668
---------- ---------- -----------
Loss from operations................................................... (13,634) (16,410) (152,411)
---------- ---------- -----------
REORGANIZATION ITEMS:
Costs and expenses (Note 3)................................................ (6,569) (8,117) (102,554)
Recovery of accounts receivable............................................ 683 3,832 --
Interest income............................................................ 251 416 --
---------- ---------- -----------
Total reorganization items............................................. (5,635) (3,869) (102,554)
---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest (Notes 3 and 7).............. (1,975) (621) (61,601)
Interest income............................................................ -- -- 15,006
---------- ---------- -----------
Total other income (expense)........................................... (1,975) (621) (46,595)
---------- ---------- -----------
NET LOSS..................................................................... $ (21,244) $ (20,900) $ (301,560)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
PARTNERS' CONTRIBUTIONS TOTAL PARTNERS'
CAPITAL DUE FROM ACCUMULATED CAPITAL
CONTRIBUTIONS PARTNERS DEFICIT (DEFICIT)
------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
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)
Net loss............................................. -- -- (20,900) (20,900)
------------- ------------- ------------ ---------------
Balance--December 31, 1996........................... 167,000 -- (357,963) (190,963)
Net loss............................................. -- -- (21,244) (21,244)
------------- ------------- ------------ ---------------
Balance--December 31, 1997........................... $ 167,000 -- $ (379,207) $ (212,207)
------------- ------------- ------------ ---------------
------------- ------------- ------------ ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
126
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss................................................................... $ (21,244) $ (20,900) $ (301,560)
Adjustments to reconcile net loss to net cash used in operations
Asset valuation provision................................................ -- -- 69,579
Reorganization costs/reserves............................................ -- -- 102,554
Provision for uncollectible accounts..................................... -- -- 1,041
Depreciation............................................................. 610 612 44,978
Amortization of deferred financing costs................................. -- -- 6,083
Decrease (Increase) in other current assets.............................. 208 1,423 (19,186)
Increase (Decrease) in accounts payable and accrued expenses............. 1,159 (5,146) 2,649
(Decrease) Increase in accounts payable and accrued expenses prior to
Petition Date.......................................................... (15) 4,123 60,467
Other.................................................................... (10) (253) --
---------- ---------- -----------
Cash flows used in operating activities................................ (19,292) (20,393) (33,395)
---------- ---------- -----------
Cash flows from investing activities
Net maturities of marketable securities.................................... -- -- 305,514
Purchase of land, buildings and equipment.................................. (2,125) (9,631) (192,320)
Proceeds from sale of property............................................. 10 -- --
Payments for leasehold costs and other assets.............................. -- -- (125,999)
---------- ---------- -----------
Cash flows used in investing activities................................ (2,115) (9,631) (12,778)
---------- ---------- -----------
Cash flows from financing activities
Proceeds received from Debtor-in-Possession borrowings..................... 15,048 17,182 --
Proceeds received from borrowings, net of underwriting fees................ -- -- 70,000
Debt retirements........................................................... -- -- (145,000)
---------- ---------- -----------
Cash flows provided by (used in) financing activities.................. 15,048 17,182 (75,000)
---------- ---------- -----------
Net decrease in cash and cash equivalents.................................... (6,359) (12,842) (121,173)
Cash and cash equivalents, beginning of period............................... 10,114 22,956 144,129
---------- ---------- -----------
Cash and cash equivalents, end of period..................................... $ 3,755 $ 10,114 $ 22,956
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
127
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, BANKRUPTCY AND BASIS OF PRESENTATION
ORGANIZATION
Harrah's Jazz Company (together with its subsidiary, "HJC") 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 (the "Casino") in New Orleans, Louisiana, on the site of the former
Rivergate Convention Center. HJC operated a temporary casino in the Municipal
Auditorium (the "Basin Street Casino" and, together with the 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. These agreements included (i) the lease between HJC and the
Rivergate Development Corporation (the "RDC") and the City of New Orleans (the
"City"), as Intervenor, with respect to the site of the Casino (the "Canal
Street Casino Lease"); (ii) the lease between HJC and the RDC and the City, as
Intervenor, with respect to the Basin Street Casino (the "Basin Street Casino
Lease"); (iii) the Casino Operating Contract between HJC and the Louisiana
Economic Development and Gaming Corporation ("LEDGC"), a special public purpose
corporation established to regulate land-based gaming in Louisiana (the "Casino
Operating Contract"); and (iv) the General Development Agreement between HJC,
the RDC, and the City, as Intervenor (the "GDA").
PETITION FOR RELIEF UNDER CHAPTER 11
On November 22, 1995 (the "Petition Date"), HJC (which is sometimes referred
to herein as the "Debtor") and its subsidiary Harrah's Jazz Finance Corp.
("Finance Corp.") (sometimes referred to collectively herein as the "Debtors")
filed petitions for relief under Chapter 11 of Title 11 of the United States
Code ("Chapter 11"). The case is currently pending in the United States
Bankruptcy Court for the Eastern District of Louisiana (the "Bankruptcy Court"
or the "Court").
Under Chapter 11, the prosecution of certain claims against the Debtor in
existence prior to the Petition Date is stayed under federal bankruptcy law
while the Debtor attempts to reorganize. These claims are reflected in the
December 31, 1997 and December 31, 1996 consolidated balance sheets as
"liabilities subject to compromise." Additional claims (also included in the
account "liabilities subject to compromise") may arise subsequent to the filing
date from rejection of executory contracts, including leases, and from the
determination by the Court (or agreement by the parties in interest) with
respect to allowed claims for contingencies and other disputed amounts. The
prosecution of claims secured by the Debtors' assets also is 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
Debtors' assets.
On February 28, 1997, the Debtors filed their Third Amended Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code (the "Original Plan") and
their Third Amended Joint Disclosure Statement Pursuant to Section 1125 of the
Bankruptcy Code (the "Original Disclosure Statement"), both dated as of February
26, 1997. The Original Plan was voted upon by all affected parties entitled to
vote and, as modified in connection with the hearing on confirmation of the
Original Plan, was confirmed by the Bankruptcy Court on April 28, 1997. The
Original Plan as so modified and confirmed is referred to herein as the
"Original Confirmed Plan." The commencement of implementation (or
"consummation") of the
128
<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)
Original Confirmed Plan, however, was conditioned upon (among other things) the
execution and delivery of a casino operating contract (the "April 29, 1997
Casino Operating Contract") between Jazz Casino Corporation, a newly formed
company which was to succeed to HJC's rights to develop the Casino ("JCC Co."),
and the Louisiana Gaming Control Board ("LGCB") and all necessary approvals, if
any, from the LGCB. The LGCB approved the April 29, 1997 Casino Operating
Contract on April 29, 1997, but conditioned its approval upon the further
approval of the legislature of the State of Louisiana ("State"). The State
legislature failed to give its approval of the April 29, 1997 Casino Operating
Contract during its regular session, which adjourned on June 23, 1997.
Following negotiations with various parties in interest in the
reorganization, the Debtors prepared a new set of modifications to the Original
Confirmed Plan (the Original Confirmed Plan, as so modified and confirmed by the
Bankruptcy Court on January 29, 1998, is referred to herein as the "Modified
Plan"). The Modified Plan contemplates consummation of a plan of reorganization
with the consent and agreement of the State and the LGCB. Significant
differences between the Original Confirmed Plan and the Modified Plan include
(i) provisions that Harrah's Entertainment, Inc. ("HET") and Harrah's Operating
Company, Inc. ("HOCI") will supply the Minimum Payment Guaranty required by the
Amended and Renegotiated Casino Operating Contract (as defined below) for the
fiscal years ending March 31, 1999 and March 31, 2000, which guaranty will be
renewable (subject to certain non-renewal conditions) through the fiscal year
ending March 31, 2004 pursuant to a guaranty agreement (the "HET/JCC
Agreement"), in consideration for which HET and HOCI will receive annual
payments from Jazz Casino Company, L.L.C., a newly-formed Louisiana limited
liability company which is to succeed to HJC's interests pursuant to the
Modified Plan ("JCC"), as well as a first priority lien on substantially all
property of JCC, (ii) modifications to the terms of the Senior Subordinated
Notes with Contingent Interest to be issued by JCC under the Modified Plan (the
"New Bonds") to the holders of HJC's 14 1/4% First Mortgage Notes with
Contingent Payments due 2001 (the "Old Bonds"), and (iii) modifications to the
credit facilities to be provided to JCC. The Bankruptcy Court confirmed the
Modified Plan on January 29, 1998.
The Debtors also have negotiated further amendments to the Casino Operating
Contract (as so modified, the "December 9, 1997 Casino Operating Contract"). The
LGCB conditionally approved the December 9, 1997 Casino Operating Contract on
December 9, 1997, but conditioned its approval of the December 9, 1997 Casino
Operating Contract upon the further approval of the State legislature. The
Governor indicated that he would call a special session of the state legislature
commencing in the latter part of March 1998 which would consider, among other
things, approval of the December 9, 1997 Casino Operating Contract. However,
after receiving an opinion from the State Attorney General that the LGCB has
independent authority (without the necessity of any legislative approval) to
renegotiate and execute a renegotiated casino operating contract, the Governor
did not include approval of the December 9, 1997 Casino Operating Contract on
the call for the special session. Instead, on March 20, 1998, the LGCB approved
the Amended and Renegotiated Casino Operating Contract, subject to a suspensive
condition of the rendition of a final, non-appealable judgment of the State
Supreme Court that the LGCB, acting on its own, is the proper party and has the
legal authority to enter into the Amended and Renegotiated Casino Operating
Contract with HJC and JCC on behalf of the State and the LGCB, without the
specific approval of the State Governor or the State legislature. As described
in Note 9 below, two State senators have filed lawsuits challenging the LGCB's
authority to enter into the Amended and Renegotiated Casino Operating Contract,
and those lawsuits are now pending.
129
<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)
There are significant differences between the April 29, 1997 Casino
Operating Contract conditionally approved by the LGCB on April 29, 1997 but not
approved by the State legislature, and the Amended and Renegotiated Casino
Operating Contract conditionally approved by the LGCB on March 20, 1998. These
include: (i) a requirement that for each fiscal year JCC will provide a guaranty
by a third party of JCC's annual minimum payment obligation of $100 million to
the LGCB (the "Minimum Payment Guaranty") pursuant to the Amended and
Renegotiated Casino Operating Contract, and a failure to do so will result, at
the option of the LGCB, in termination of the Amended and Renegotiated Casino
Operating Contract and closure of the Casino; (ii) a provision expressly stating
that the LGCB is authorized to license or permit any business which seeks to
make use of the non-gaming space to be made available on the second floor of the
Casino to ensure, among other things, that any desired use of the non-gaming
space is allowed by the State's gaming law and the regulations adopted pursuant
to it, as well as to make clear that the operator of the Casino may not lease
space to any business that would target persons under the age of 21 to come to
the non-gaming space; (iii) a provision precluding the operator of the Casino
from directly offering its own restaurant facilities in the non-gaming space on
the second floor; (iv) a provision that makes all documents submitted to the
LGCB subject to the public records laws of the State, subject only to the
statutory and other exemptions established under the law; and (v) a requirement
that all unsecured creditors be paid their allowed claims in accordance with the
Modified Plan.
Throughout most of the period in which HJC has been in reorganization, it
has been able to continue in existence because of loans (the "DIP Financing")
from Harrah's Entertainment or one of its affiliates (the "DIP Lender"). On
November 4, 1997, HET announced that the DIP Lender would continue to provide
debtor in possession financing to HJC, subject to the occurrence of certain
specified "milestones" related to the progress of HJC's Chapter 11 case.
Under the terms of the latest order approving DIP Financing entered on
February 27, 1998 (the "Seventh DIP Loan Order"), HJC is authorized to borrow
from the DIP Lender (in addition to the $35.5 million for which the Debtor was
authorized and qualified to borrow under the terms of the previous orders
approving DIP Financing: (1) up to an additional $1.5 million (for a cumulative
total of up to $37.0 million) on or after February 1, 1998, provided, that on or
prior to such date: (a) the Governor had publicly committed to the legislature's
consideration of the Amended and Renegotiated Casino Operating Contract during a
Note 1. Organization, Bankruptcy and Basis of Presentation special legislative
session to commence in March, 1998 and (b) the Modified Plan had been confirmed;
(2) up to an additional $1.5 million (for a cumulative total of up to $38.5
million) on or after March 1, 1998, provided, that on or prior to such date: (a)
the State had commenced and was actively pursuing the process required under the
Amended and Renegotiated Casino Operating Contract and State law of determining
the suitability of various persons proposed to be associated with the Casino to
serve in their respective capacities (the "Suitability Process"), and (b) a vote
by the City Council on the amended Canal Street Casino Lease, the amended GDA,
and related documents to be entered into pursuant to the Modified Plan had been
scheduled; and (3) up to an additional $1.5 million (for a cumulative total of
up to $40 million) on or after April 1, 1998, provided, that on or prior to such
date: (a) the State is continuing active pursuit of the Suitability Process; (b)
the State legislature has begun its session for purposes of considering the
Amended and Renegotiated Casino Operating Contract; and (c) the City Council has
approved and adopted the amended Canal Street Casino Lease, the amended GDA, and
related documents to be entered into pursuant to the Modified Plan.
130
<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 the Seventh DIP Loan Order, if any financing milestone set forth
therein is not timely achieved but the DIP Lender in its sole discretion
determines that such financing milestone may be achieved in the following 30
days, the DIP Lender in any month (and again in any subsequent months) may elect
to continue to provide funding under the terms of the Seventh DIP Loan Order, up
to the increased cumulative totals authorized as of February 1, March 1 or April
1, 1998, and any unachieved financing milestone shall thereupon become a
financing milestone required to be achieved as a condition to further funding.
HJC expects that on March 30, 1998, the DIP Lender will elect to waive the
financing milestones requiring legislative consideration of the December 9, 1997
Casino Operating Contract and City Council approval of the amended Casino Canal
Street Casino Lease and the amended GDA on or prior to April 1, 1998. There is
no assurance that the April 30, 1998 maturity date or any later maturity date
under the DIP Loans will be waived or that additional DIP Financing will be
available. In the event that the State Legislature disapproves the December 9,
1997 Casino Operating Contract, all debtor-in-possession financing shall
immediately terminate, and no unfunded portion (if any) of the existing DIP Loan
shall thereafter be requested or borrowed by HJC for any purpose. For additional
information regarding these matters, see Items 1 and 2. "Business and
Properties--Chapter 11 Proceedings--Debtor-in-Possession Financing" in HJC's
Annual Report on Form 10-K for the year ended December 31, 1997.
As of March 27, 1998, HJC had borrowed $36.3 million from the DIP Lender.
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
"Exclusive Filing Period") and, if a plan is filed during the Exclusive Filing
Period, the first 180 days of the case within which to obtain acceptance of a
plan (the "Exclusive Solicitation Period"). Thus, the Exclusive Filing Period
for HJC and Finance Corp. was originally scheduled to expire on March 21, 1996.
However, prior to that date, HJC and Finance Corp. sought extensions of (i) the
Exclusive Filing Period through April 3, 1996, the date by which HJC had agreed
with the City and the RDC under the March 6 Agreement to file a plan of
reorganization, and (ii) the Exclusive Solicitation Period through June 30,
1996. At a hearing held on March 19, 1996, the Bankruptcy Court extended the
Exclusive Filing Period and the Exclusive Solicitation Period for HJC and
Finance Corp. through April 4, 1996 and June 30, 1996, respectively. By
subsequent orders of the Bankruptcy Court, HJC's and Finance Corp.'s Exclusive
Solicitation Period was extended through April 30, 1997. Prior to that date, the
Bankruptcy Court confirmed the Original Confirmed Plan.
On October 6, 1997, the United States Trustee filed a motion to convert the
debtors' Chapter 11 cases to cases under Chapter 7 of the bankruptcy Code, or
alternatively to dismiss the Chapter 11 cases. That motion was presented to the
Bankruptcy Court on November 5, 1997. On that date, after HJC informed the
Bankruptcy Court that an agreement in principle had been reached involving a
number of interested parties and that HJC would be filing the Modified Plan and
Modified Disclosure Statement shortly, and with the agreement and consent of the
United States Trustee, the Bankruptcy Court continued the hearing on the United
States Trustee's motion until December 10, 1997, and by subsequent order has
further continued the hearing on the United States Trustee's motion until May 5,
1998.
On January 29, 1998, the Bankruptcy Court confirmed the Modified Plan. Under
the Modified Plan, on the effective date of the Modified Plan (the "Effective
Date") HJC shall assume the Casino Operating Contract and enter into the Amended
and Renegotiated Casino Operating Contract, which will thereafter
131
<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)
be assigned to JCC. Further, on the Effective Date, the assets and business of
HJC will vest in JCC, which will succeed to HJC's right to operate a land-based
casino in Orleans Parish, Louisiana and to HJC's interest in a long-term lease
for the site in the City designated by law for the Casino's development. JCC is
a wholly-owned subsidiary of JCC Holding Company, a newly formed Delaware
corporation ("JCC Holding"). JCC will complete construction of the Casino. Under
the Plan, the Old Bonds (See Note 7) would be canceled. An indirect, wholly
owned subsidiary of HET (the "Harrah's Investor") would receive 49.9% of the
equity in JCC Holding in exchange for an additional equity investment by the
Harrah's Investor, the holders of the Old Bonds (the "Bondholders") would
receive, on a PRO RATA basis, 37.1% of the equity in JCC Holding, and the
Bondholders who have executed certain releases under the Plan would receive the
remaining 13.0% of the equity in JCC Holding. Under the Modified Plan, the
Harrah's Investor would also contribute 2.0% of the equity in JCC Holding to
Bondholders who have executed certain releases under the Plan. In addition,
Bondholders would receive (i) the New Bonds, which will pay fixed interest
semi-annually at a rate of 5.867% per annum increasing over the first three
years to a rate of 6.214% per annum in the third through fifth years, and
increasing to 8% per annum after the first five years, and contingent payments
based on EBITDA of JCC, and (ii) a PRO RATA share of Senior Subordinated
Contingent Notes due 2007 of JCC. Up to six semi-annual fixed interest payments
on the New Bonds may be made in additional New Bonds in a principal amount equal
to the interest payment rather than in cash and, if JCC's earnings do not exceed
certain minimum levels, additional semi-annual fixed interest payments on the
New Bonds may be made in kind rather than in cash. The Modified Plan provides
also that HET and HOCI will supply the Minimum Payment Guaranty required by the
Amended and Renegotiated Casino Operating Contract for JCC's fiscal years ending
March 31, 1999 and March 31, 2000, and that the Harrah's Investor will receive
warrants entitling it to purchase enough additional shares of common stock of
JCC Holding so that, upon exercise of all of the warrants, Harrah's Investor
would own 50.0% of the common stock of JCC Holding, subject to certain
adjustments.
On March 26, 1998, HJC filed a Motion to Modify Debtors' Confirmed Plan and
to Authorize HJC's Execution of the Amended and Renegotiated Casino Operating
Contract, in which HJC seeks court approval of further modifications to the
Modified Plan to take into account the LGCB's conditional approval of the
Amended and Renegotiated Casino Operating Contract, the execution of the Amended
and Renegotiated Casino Operating Contract by HJC (as opposed to execution of
the December 9, 1997 Casino Operating Contract by JCC), and HJC's assignment of
the Amended and Renegotiated Casino Operating Contract to JCC on the Effective
Date in accordance with state law and with the agreement of the parties. The
motion is set to be heard by the Bankruptcy Court on April 6, 1998.
HJC has identified certain factors that may impact the ability of HJC to
consummate the Modified Plan, the development of the Casino or HJC's (or its
successor's) ability to achieve successful future operations:
a. On December 9, 1997, the LGCB, among other things, unanimously
approved the December 9, 1997 Casino Operating Contract for submission to
the Governor of the State with the request that he submit the December 9,
1997 Casino Operating Contract to the State legislature for its approval.
The Governor indicated that he would call a special session of the state
legislature commencing in the latter part of March 1998 which would
consider, among other things, approval of the December 9, 1997 Casino
Operating Contract. However, after receiving an opinion from the State
Attorney General that the LGCB has independent authority (without the
necessity of any legislative
132
<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)
approval) to renegotiate and execute a renegotiated casino operating
contract, the Governor did not include approval of the December 9, 1997
Casino Operating Contract on the call for the special session. Instead, on
March 20, 1998, the LGCB approved the Amended and Renegotiated Casino
Operating Contract, subject to a suspensive condition of the rendition of a
final, non-appealable judgment of the State Supreme Court that the LGCB,
acting on its own, is the proper party and has the legal authority to enter
into the Amended and Renegotiated Casino Operating Contract with HJC and JCC
on behalf of the State and the LGCB, without the specific approval of the
State Governor or the State legislature. As described in Note 9 below, two
State Senators have filed lawsuits challenging the LGCB's authority to enter
into the Amended and Renegotiated Casino Operating Contract, and those
lawsuits are now pending.
b. HJC anticipates, prior to the Effective Date, that it will submit to
the City Council further revisions of the amended Canal Street Casino Lease
and the amended GDA and certain of the exhibits thereto with respect to the
revised construction schedule. There can be no assurance that the City
Council will approve these amended agreements.
c. 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 even a reorganized Casino will be able to be
operated in a successful manner.
d. 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.
e. 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 (or its successor's) future operations.
f. The Casino cannot be operated unless and until certain persons
required to be found suitable are found suitable by LGCB, including, without
limitation, the Casino operator and certain affiliates, the Manager (as
defined herein) and certain officers and directors of such companies. 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 LGCB (and its investigatory arm, the
State Police) has not issued any suitability findings in connection with the
above stated entities and persons (as contemplated by the Modified Plan).
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.
g. The Casino will have substantial leverage and be committed to make
substantial payments to the City of New Orleans and the LGCB. There is no
assurance that the Casino will achieve the level of gaming activity and
operating cash flow necessary to meet these obligations. Future operating
results are subject to significant business, economic, regulatory,
political, and competitive uncertainties and contingencies, many of which
are outside of the Casino's control.
133
<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)
h. 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 of
governing the development of the Casino. In so doing, the State and City
governments have, in some instances, imposed obligations on the operation of
the Casino or its operator 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 Casino.
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 $212,207,000 at December 31, 1997. The outcome of
the bankruptcy proceedings is uncertain. The Modified Plan will not become
effective unless the validity of the action of the LGCB in approving the Amended
and Renegotiated Operating Contract is upheld by the Louisiana Courts in time to
permit the Modified Plan to be successfully consummated. In addition, the City
Council of the City of New Orleans must execute and deliver the amended Canal
Street Casino Lease and certain other agreements. Further, there are other
conditions precedent to the occurrence of the effective date of the Modified
Plan, which are beyond the control of HJC. These matters, among others, raise
substantial doubt about HJC's ability to continue as a going concern.
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 costs, and lease
prepayments, as discussed below. Realization of buildings and equipment,
deferred operating contract costs and lease prepayments is dependent upon
consummation of the Modified Plan 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 highly liquid investments with
original maturities of three months or less. All cash is collateral for the Old
Bonds pursuant to the Indenture (see Notes 4 and 7); however, the Court has
authorized HJC to use such funds to pay approved post Petition Date costs.
134
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $300,000.
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. No interest was
capitalized during 1996 and 1997. Interest of $8.6 million was capitalized in
1995, based upon HJC's overall average rate of interest of 14.25%.
OTHER ASSETS
DEFERRED OPERATING CONTRACT COST
Deferred operating contract cost consists of payments to the LEDGC (see Note
9) required by the Casino Operating Contract, and will be amortized over the
30-year life of the contract. The 30-year life is comprised of the 20-year
initial term plus the 10-year extension provided for in 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.
REORGANIZATION COSTS AND IMPAIRMENT OF ASSET CARRYING VALUES
Reorganization costs are segregated from normal operations in the
accompanying consolidated statements of operations and reflect the costs
incurred associated with the reorganization of HJC.
135
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reorganization costs and expenses consisted primarily of professional fees
for the years ended December 31, 1997 and 1996.
HJC periodically 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, during 1995 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." Also in 1995, the recoverability of all
current 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, as adjusted for subsequent recoveries (see below), 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. During 1997 and 1996,
$683,000 and $3.8 million, respectively, of these accounts were recovered.
During 1997 and 1996, management's evaluation of events and circumstances
led to the conclusion that no further writedowns or reserves were necessary
under SFAS No. 121.
Realization of buildings and equipment, deferred operating contract costs
and lease prepayments is dependent upon consummation of the Modified Plan 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. In addition, the application of fresh-start accounting by HJC
136
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or its successor as of the Effective Date will include downward adjustments,
which may aggregate approximately $100 million, to certain non-current assets.
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. RESTRICTED CASH
ESCROWED AMOUNTS
In connection with some of the agreements entered into in the course of
HJC's bankruptcy proceeding, HJC has been required to establish escrow accounts,
pursuant to escrow agreements, at Hibernia National Bank, escrow agent. A
description of each escrow account is set forth below.
HARRAH'S JAZZ COMPANY/CITY OF NEW ORLEANS/HIBERNIA NATIONAL BANK RESTORATION
ESCROW
Funds in the approximate amount of $3.5 million were set aside in this
escrow account to complete the restoration of the Municipal Auditorium as
required in the Basin Street Casino Lease Termination Agreement ("Basin Street
Termination Agreement") among the City, the RDC and HJC, dated January 15, 1997.
On September 9, 1997, HJC, City and RDC entered into an agreement whereby
responsibility for the restoration work was assigned to the City and the RDC,
and the escrow agreement was terminated. Note 4. Restricted Cash Interest earned
on the escrow account in the amount of $118,000 was transferred to HJC. The
principal balance then remaining in the account, $174,000, was transferred to
the City.
HARRAH'S JAZZ COMPANY/CENTEX LANDIS CONSTRUCTION COMPANY, INC./HIBERNIA NATIONAL
BANK ESCROW
This escrow account was established pursuant to the Close In Agreement
between HJC and Centex Landis Construction Company, Inc. ("Centex"), dated March
5, 1996, to contain retainage payments for Centex, the contractor for the
close-in work. Funds representing retainage earned were deposited weekly during
the close in. Escrowed funds have been distributed to Centex when a written
request for disbursement has been accepted by HJC. As of December 31, 1997, HJC
continued to hold in retainage approximately $117,000 relating to a dispute
regarding the close in work on the Casino.
RIVERGATE DEVELOPMENT CORPORATION/HARRAH'S JAZZ COMPANY/CITY OF NEW
ORLEANS/HARRAH'S OPERATING COMPANY/HIBERNIA NATIONAL BANK ESCROW
Pursuant to an agreement 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" (the "City Agreement"), this escrow account was established to satisfy
HJC's rent payment obligations to the City. Funds deposited in this escrow
account are to be used exclusively for payment of HJC's rent obligations under
the City Agreement. Under the City Agreement, HJC was
137
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RESTRICTED CASH (CONTINUED)
obligated to pay the RDC rent of $736,000 per month commencing on January 1,
1997 through June 30, 1997. HJC deposited $2,208,000 in escrow to secure this
rental obligation and paid rent each month from the escrow account. As of
December 31, 1997, $149,000 remained in the escrow account representing interest
earned on these funds.
OTHER AMOUNTS HELD AS SECURITY
In addition to the amounts held in the escrow accounts described above, $3.1
million in cash is being held as security for expenses and possible claims of
the trustee and former trustee under the Indenture dated as of November 15, 1994
(the "Indenture"), between the Debtors and First National Bank of Commerce, as
trustee ("FNBC"). Approximately $3.0 million is being held by Norwest Bank
Minnesota, N.A. ("Norwest") as successor trustee to FNBC, and $104,000 is being
held by FNBC.
Pursuant to a settlement agreement between FNBC and HJC (the "FNBC
Settlement Agreement"), which is reflected in the Modified Plan and would take
effect on the Effective Date, all of FNBC's claims or other rights to indemnity
and/or reimbursement (and all liens securing the same) under the Indenture, the
agreements pursuant to which HJC's Old Bonds were issued (the "Old Bond
Documents") and the agreements pursuant to which HJC's bank financing was
secured (the "Old Bank Credit Documents") would be canceled and extinguished,
subject to certain exceptions. JCC, which is to succeed to HJC's rights and
obligations relating to the Casino under the Modified Plan, would assume, on an
unsecured basis, HJC's obligation under the Old Bond Documents and/or the Old
Bank Credit Documents to indemnify FNBC for attorneys' fees or other costs
incurred in connection with certain claims against FNBC.
JCC would also assume any other indemnity obligation of HJC under the Old
Bond Documents and the Old Bank Credit Documents as an in rem obligation limited
in recourse to, and secured solely by, $100,000 plus interest (the "FNBC Cash
Collateral") accruing from the Effective Date. As security for such
indemnification obligations, FNBC is authorized to retain the FNBC Cash
Collateral until the later of the first anniversary of the Effective Date or the
resolution of any litigation filed against FNBC within one year after the
Effective Date. Thereafter, the remaining balance of the FNBC Cash Collateral
would be released to JCC.
The amount held by Norwest, less amounts dedicated to payment of
professional fees, would be returned to JCC on the Effective Date.
138
<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 Grand Palais on November 16, 1994..... 33.3
Net assets and expenses paid by the Partners on behalf of the
Company........................................................... 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 believe 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 Grand Palais Casino, Inc. ("Grand Palais"), 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). The Modified Plan contemplates that
certain of these agreements will be amended and assumed, or rejected.
MANAGEMENT AGREEMENT
The operations of the Casino were to be managed by Harrah's New Orleans
Management Company ("Harrah's Management" or "Manager"), an affiliate of
Harrah's New Orleans Investment Company ("HNOIC"), pursuant to a management
agreement executed on March 15, 1994. The management agreement expires 20 years
after the 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
was to receive a base management fee equal to 4% of Basin Street Casino gross
revenues. For managing the Casino, Harrah's Management was 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
was 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 pursuant to a management agreement executed on March 15,
1994 for management fees related to 1995 operations.
139
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. TRANSACTIONS WITH PARTNERS (CONTINUED)
At December 31, 1997 and 1996, Due to Manager consisted of non-interest
bearing current payables for payroll and other similar costs and management
fees. At December 31, 1997 and 1996, the Due to Manager balance for these pre
Petition Date costs was $29.5 million and is classified as a liability subject
to compromise (Note 6).
CONSULTING AGREEMENTS
Pursuant to consulting agreements dated March 15, 1994, NOLDC and Grand
Palais Management Company, L.L.C., an affiliate of Grand Palais, each received
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.) $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 HOCI $12.2 million upon the opening of the
Casino pursuant to a completion guarantee agreement whereby HOCI 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
HET and HOCI, among others, which alleged that HET and HOCI have failed to
perform their obligations under the completion guarantees. Pursuant to the
settlement agreement between the City and HJC (Note 8), all discovery and
pending litigation between the City and HJC or any of its partners, including
this lawsuit against HET, has been stayed. On January 23, 1996, the LEDGC also
filed a lawsuit to compel HET and HOCI either to complete construction of the
Casino or pay damages. No discovery has been taken. An answer and a cross-claim
have been filed in this litigation.
DEBTOR-IN-POSSESSION FINANCING
See Note 7.
OTHER TRANSACTIONS
During 1995, HJC sold computer equipment to HET for $495,000, which
approximated the equipment's carrying value on the date of sale. At December 31,
1997 and 1996, a receivable from HET in the amount of $495,000 is included in
other current assets on the accompanying balance sheet.
140
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 consummated (see Note 2). As of December 31, 1997 and
1996, HJC's books and records reflected unsecured and undersecured liabilities
subject to settlement under Chapter 11 proceedings as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First Mortgage Notes.................................................. $ 435,000 $ 435,000
Construction Accounts Payable......................................... 37,039 37,039
Due to Manager........................................................ 29,513 29,513
Consulting fees payable to related parties............................ 2,128 2,128
Harrah's Entertainment, Inc., and affiliates.......................... 2,281 2,281
WARN Act Settlement................................................... 2,265 2,265
Others, individually less than $1,000,000............................. 15,242 15,257
---------- ----------
$ 523,468 $ 523,483
---------- ----------
---------- ----------
</TABLE>
The full amount of the Old Bonds (First Mortgage Notes) has 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 outcomes
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 the Court.
NOTE 7. DEBT
On November 16, 1994, HJC issued $435 million of Old Bonds 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, due
2001, which are secured by substantially all assets of HJC.
The Old Bonds 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
Old Bonds may elect to require HJC and Finance Corp. to repurchase all or any
part of such holder's Old Bonds 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 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 Old Bonds were issued pursuant to the Indenture which provides that an
event of default occurs when HJC 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 Old Bonds
will be immediately due and payable on all outstanding Old Bonds without any
declaration or other act on the part of the Indenture Trustee or the holders of
the Old Bonds. In accordance with the provisions
141
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEBT (CONTINUED)
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. For 1997,
1996 and 1995, contractual interest on those obligations amounted to $62.0
million, $62.0 million and $68.2 million, respectively, which is $62.0 million,
$62.0 million and $6.6 million, respectively, in excess of reported interest
expense in those years.
Based on market quotes of its publicly traded first mortgage notes, the fair
value of HJC's long-term debt was approximately $134.9 million at December 31,
1997.
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. 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, although
not available to HJC, under the Bank Credit Facilities. The bank credit facility
was accelerated and terminated by the bank lenders on November 21, 1995 and all
amounts outstanding at that date were recovered by the group of banks.
Accordingly, no amounts were outstanding under the Bank Credit Facilities at
December 31, 1997 or 1996.
As discussed in Note 1, HJC has obtained DIP Financing. Under the terms of
the Seventh DIP Loan Order, the DIP Lender agreed to extend the maturity of all
DIP Loans to the earlier of: (i) April 30, 1998, or such later date to which the
DIP Lender consents; (ii) the Effective Date of the Modified Plan; (iii) the
date on which the Modified Plan is revoked or is otherwise no longer in full
force and effect; (iv) the dismissal of HJC's Chapter 11 case; (v) the
conversion of HJC's Chapter 11 case to a case under Chapter 7 of the Bankruptcy
Code; (vi) the appointment of a trustee for HJC; (vii) any stay, reversal,
modification or other amendment in any respect (except to the extent acceptable
to the DIP Lender) or termination or expiration of the Seventh DIP Loan Order or
the Confirmation Order (as defined herein); (viii) any of the Milestone Dates if
one or more of the Financing Milestones (each as defined in the final order
approving the Seventh DIP Loan) required to be achieved on or before such date,
after giving effect to any extension, has not been achieved to the satisfaction
of the DIP Lender in its sole discretion; or (ix) the State legislature's
disapproval of the December 9, 1997 Casino Operating Contract. HJC expects that
on March 30, 1998, the DIP Lender will elect to waive the financing milestones
requiring legislative consideration of the December 9, 1997 Casino Operating
Contract and City Council approval of the amended Canal Street Casino Lease and
the amended GDA on or prior to April 1, 1998. There is no assurance that the
April 30, 1998 maturity date under the DIP Loans will be waived or that
additional DIP Financing will be available.
Interest on all existing DIP Loans is accruing at the rate of 8% per annum,
payable upon maturity. As "adequate protection" for the existing DIP Loans, the
DIP Lender has been granted (i) administrative priority status for all of the
existing DIP Loans, with priority equivalent in priority to a claim under
Section 364(c)(1) of the Bankruptcy Code, and in a priority over all other costs
and expenses of administration of the kinds specified in Sections 105, 326,
503(b), 507(a) or 507(b) of the Bankruptcy Code; and (ii) a first priority,
non-avoidable, valid, enforceable and automatically perfected lien and security
interest on and in all of HJC's assets, subject only to (a) all non-avoidable,
valid, enforceable and perfected liens and security interests in HJC's property
(other than personal property, certain parcels of real estate and cash and cash
142
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEBT (CONTINUED)
equivalents) that existed on the Petition Date other than the prepetition and
postpetition liens and security interest in favor of the Bondholders, the
Indenture Trustee, the predecessor Indenture Trustee, the prepetition bank
lenders or their collateral agent, predecessor collateral agent or
administrative agent on any of HJC's property, (b) any and all non-avoidable,
valid, enforceable and perfected liens, security interests and/or rights of
setoff in favor of the Indenture Trustee and the predecessor Indenture Trustee
on $1.5 million previously deposited with them (subject to reduction for fees
and expenses of the predecessor indenture trustee), (c) any and all postpetition
liens and security interests in favor of any or all of the Bondholders and the
Indenture Trustee on any causes of action of HJC against any "insiders" (as
defined in Section 101(31) of the Bankruptcy Code) arising under Sections
544(b), 547, 548, 550 or 553 of the Bankruptcy Code, (d) certain, specified
allowed administrative expense claims for the fees, expenses and costs of
professionals retained by HJC and the Committees, and (e) any existing or future
rights of setoff, compensation and/or recoupment in favor of the City, the RDC,
the State and/or the LEDGC. The Seventh DIP Loan Order further provides that no
claims or liens of the DIP Lender shall have priority over any amounts paid
prior to the maturity of the existing DIP Loans to third parties pursuant to any
budget approved by the DIP Lender.
HJC will require additional funds prior to the Effective Date, and HJC
presently has no source of funding other than the DIP Lender. There can be no
assurance that the DIP Lender (or any other lender) will be willing to lend
additional amounts to HJC. At December 31, 1997 and 1996, HJC had no long-term
post Petition Date debt.
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 one year.
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.
The aggregate contractual future minimum rental commitments, excluding
contingent rentals as of December 31, 1997, were as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ 9,567
1999.............................................................. 16,092
2000.............................................................. 15,191
2001.............................................................. 15,154
2002.............................................................. 15,116
Thereafter........................................................ 364,932
---------
$ 436,052
---------
---------
</TABLE>
143
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. LEASES (CONTINUED)
THE CASINO SITE
On March 15, 1994, HJC entered into a lease with the RDC and the City for
the Rivergate site on which the Casino was being constructed, all pursuant to an
assignment, dated as of March 15, 1994, from Grand Palais. The initial term,
from March 15, 1994, is 30 years, with three ten-year renewal options.
As of December 31, 1995, 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, was two years with nine two-year extension options, except that the lease
was to terminate on the date the Casino opened to the general public.
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 were to be made at a cost not to exceed
$1.2 million plus annual CPI increases.
HJC has entered into the Basin Street Termination Agreement. Under the Basin
Street Termination Agreement, the RDC and the City, on the one hand, and HJC, on
the other, mutually released all rights and obligations under the Basin Street
Casino Lease, except that the release does not affect any rights or obligations
of the parties under the City Agreement in respect of the Municipal Auditorium
or the restoration work as set forth therein. The RDC and the City will have no
claim for damages as a result of such termination. Pursuant to the Basin Street
Termination Agreement, the Basin Street Casino Lease automatically terminated on
February 20, 1997, the date on which the LGCB approved the termination of the
Basin Street Casino Lease, with no further action required by the RDC, JCC or
the City.
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HJC is involved in various inquiries and administrative proceedings arising
in the normal course of business. While any proceeding has an element of
uncertainty, HJC believes that the final outcome of these matters will not have
a material adverse effect upon HJC's consolidated financial position or its
results of operations.
See Items 1 and 2 "Business and Properties" in HJC's Annual Report on Form
10-K for the year ended December 31, 1997 for a discussion of anticipated
modifications to the agreements discussed in the balance of this note as a
result of the Modified Plan.
OPERATING CONTRACT
HJC has entered into the Casino Operating Contract with the LEDGC to operate
the Gaming Facilities for 20 years, with a 10-year extension option. The Casino
Operating Contract requires HJC 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, with the final payment 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.
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 continued 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
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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. Neither LEDGC nor LGCB have provided notice to 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 the LGCB or the Louisiana State legislature or recover
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 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.
OPEN ACCESS PROGRAM AND PLANS
The Open Access Program 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.
OTHER CITY AGREEMENTS
On October 5, 1994, HJC and 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
The Court has extended HJC's time to assume or reject executory contracts,
including construction contracts, until the time provided for in the Modified
Plan. HJC has entered into agreements with certain of its major contractors,
including Centex, pursuant to which such contractors have agreed to modify the
terms of their executory contracts with HJC.
LITIGATION
DECLARATORY JUDGMENT ACTIONS. On March 18, 1998, two separate petitions
were filed seeking a declaratory judgment and injunctive relief in the wake of
the Attorney General's opinion to the effect that
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the LGCB could execute the Amended and Renegotiated Casino Operating Contract
without further action by the State legislature. In JORDAN VS. LOUISIANA GAMING
CONTROL BOARD AND MURPHY J. FOSTER, Case No. 448192 (19th Judicial District
Court, State of Louisiana, Parish of East Baton Rouge), the plaintiff, a
Louisiana State Senator, sought a declaratory judgment and injunctive relief to
preclude the LGCB from executing a casino operating contract without the
approval of the State legislature. Joseph B. Boucree, Sr., former president of
the LEDGC, has filed a petition of intervention in the JORDAN litigation,
alleging that the LEDGC (rather than LGCB) retains the power to renegotiate
HJC's Casino Operating Contract, and that the LGCB's actions in approving the
Amended and Renegotiated Casino Operating Contract are invalid.
In BEAN VS. LOUISIANA GAMING CONTROL BOARD AND RIVERGATE DEVELOPMENT
CORPORATION, No. 448218 (19th Judicial District Court, State of Louisiana,
Parish of East Baton Rouge), the plaintiff, also a member of the Louisiana State
Senate, sought declaratory and injunctive relief precluding the LGCB from
entering into a casino operating contract with JCC without the approval of the
Louisiana legislature. HJC and the Bondholders Committee filed separate
petitions of intervention in that litigation. On March 25, 1998, the plaintiff
in JORDAN filed a petition of intervention and motion for consolidation of BEAN
with JORDAN. On March 25, 1998, the Court hearing the BEAN litigation entered
orders (1) directing that applications to the Louisiana Supreme Court for
supervisory writs be filed in the Louisiana Supreme Court on or before March 26,
1998, and (2) staying all proceedings in BEAN pending action by the Louisiana
Supreme Court on such writ applications. On March 25, 1998, HJC filed an
application for supervisory writs in the Louisiana Supreme Court, which has been
assigned Case No. 98CD0787. On that same date, Senator Bean, the LGCB and the
RDC filed a joint application for supervisory writs in the Louisiana Supreme
Court, which has been assigned Case No. 98CD0786. On March 27, 1998, Supreme
Court entered an order denying all writ petitions to the extent they sought an
immediate hearing before the Louisiana Supreme Court prior to a decision on the
merits by the 19th Judicial District Court, and directed that the BEAN
litigation be consolidated with the JORDAN litigation. The Supreme Court also
directed that the judge hearing the JORDAN litigation render judgment on the
merits no later than Friday, April 3, 1998, and reserved for further
consideration the applicants' requests that the intermediate court of appeals be
bypassed until after judgment is rendered by the 19th Judicial District Court.
On March 27, 1998, the judge hearing the Jordan litigation directed that all
parties in the consolidated litigation file pre-trial briefs no later than noon
on Sunday, March 29, 1998, and scheduled a trial to commence on Monday, March
30, 1998.
There can be no assurance that the validity of the action of the LGCB in
approving the Amended and Renegotiated Casino Operating Contract will be upheld
by the Louisiana courts or that the Louisiana courts will rule upon these
challenges in time to permit the Proposed Modified Plan to be successfully
consummated. In the event that the courts fail to uphold the validity of the
execution of the Amended and Renegotiated Casino Operating Contract by the State
in a timely fashion, the Proposed Modified Plan cannot be consummated, and HJC's
Chapter 11 case likely would be converted to a liquidation case under Chapter 7
of the Bankruptcy Code.
WARN ACT LITIGATION. RUSSELL M. SWODY, ET AL. V. HARRAH'S NEW ORLEANS
MANAGEMENT COMPANY AND HARRAH'S ENTERTAINMENT, INC., Civil No. 95-4118, was
filed against HET on December 13, 1995 in the District Court and subsequently
amended. Swody is a class action under the WARN Act and ERISA and seeks damages,
INTER ALIA, for the alleged failure to timely notify workers laid off by HJC.
Plaintiffs seek
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unspecified damages, as well as costs of legal proceedings, for themselves and
all members of the class. After a hearing, the District Court certified the
class on April 22, 1996.
Early in 1996, SWODY was consolidated with SUSAN N. POIRIER, DARLENE A.
MOSS, ET AL. V. HARRAH'S ENTERTAINMENT, INC., HARRAH'S NEW ORLEANS MANAGEMENT
COMPANY, and Harrah's Operating Company, Civil No. 96-0215, which was filed in
the United States District Court for the Eastern District of Louisiana on
January 17, 1996, and subsequently amended. The POIRIER class was certified with
Swody on April 22, 1996, and the consolidated POIRIER and SWODY cases were set
for trial on May 5, 1997.
Similar complaints were filed by Ms. Poirier in the Bankruptcy Court in HJC,
HNOIC and Finance Corp. bankruptcy cases (Adversary Nos. 96-1015, 96-1014, and
96-1013). The POIRIER adversary proceedings purported to be class actions,
asserting claims under the WARN Act, as well as ERISA. On or about February 23,
1996, HJC and HNOIC each filed a motion in its respective adversary proceeding
to dismiss the POIRIER adversary proceeding on procedural grounds. A hearing on
such motions to dismiss was held on March 19, 1996. Later, Finance Corp. also
filed a similar motion. The Bankruptcy Court granted the motions to dismiss with
respect to each of the Debtors on or about June 28, 1996.
Proofs of claims, on behalf of individual, alleged, terminated employees and
purportedly on behalf of all alleged former employees, were filed in HJC's
Chapter 11 case. The plaintiffs in the litigation (the "WARN Act Claimants")
moved to certify three classes on whose behalf the plaintiffs seek to act as
class representatives for purposes of the proofs of claims. The Bankruptcy Court
heard arguments on such motions on July 11, 1996, and denied the motions by
Memorandum Opinion and Order dated October 10, 1996. However, in order to
facilitate a proposed settlement reached by the Debtors and the WARN Act
Claimants (discussed below), the WARN Act Claimants filed motions to reconsider
that ruling. On December 10, 1996, the Bankruptcy Court certified classes for
settlement purposes only.
The WARN Act Claimants contend that the Debtors and the defendants in the
District Court cases operated as a single business enterprise with respect to
operations in New Orleans and contend that, under this alleged arrangement, HJC
may be liable to the claimants under the WARN Act along with the defendants in
the District Court cases.
In order to avoid the expense, delay and risks associated with additional
litigation, the Debtors and the WARN Act Claimants agreed to compromise and
settle all of the WARN Act Claimants' claims on the terms summarized below,
which settlement is reflected in the Modified Plan. Under the settlement, JCC
will pay to those individuals laid off on or about November 22, 1995 the sum of
$2,265,000, which amount includes the fees and costs of the WARN Act Claimants'
attorneys and certain taxes attributable to the WARN Act settlement. The amounts
paid to these individual WARN Act Claimants will be based upon instructions from
the WARN Act Claimants' attorneys. The individual awards will be based upon
information obtained through the payroll records for the time period of October
1 through November 22, 1995. In addition to this monetary settlement, the
individuals laid off on or about November 22, 1995 will be offered preferential
re-employment to their former positions or, if their former positions no longer
exist or are not presently available, to substantially equivalent positions to
the extent that such jobs are or become available. "Preferential re-employment"
means that they will be offered employment before employment is offered to any
person who was not laid off on or about November 22, 1995. WARN Act Claimants
who were laid off in August of 1995 will not receive a monetary award, but will
be placed on a secondary preferential re-hire list. These claimants will be
offered re-employment after those employees
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laid off on or about November 22, 1995 and employees laid off by the Flamingo
Casino. They will remain on the preferential re-hire list for one year following
the date of the opening of the Casino. A motion seeking approval of this
compromise and settlement was filed and the Bankruptcy Court preliminarily
approved the settlement on December 10, 1996. A final hearing on the settlement
took place on February 3, 1997, at which time the Bankruptcy Court approved the
settlement subject to the occurrence of the Effective Date. This settlement is
contingent upon consummation of the Modified Plan.
The WARN Act Claimants also filed a motion requesting that the Bankruptcy
Court order HJC to amend its schedules of creditors to include all alleged,
former employees and to extend the deadline for such alleged, former employees
to file proofs of claims. As part of the settlement described above, the WARN
Act Claimants have withdrawn such motion.
MCCALL LITIGATION. On April 26, 1993, a lawsuit was filed in the Civil
District Court for the Parish of Orleans (the "Civil District Court") 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 Canal Street 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 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 plaintiffs had standing to assert the other
claims concerning the authority of the RDC to enter into the Canal Street 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 resolved in favor
of, the City and the RDC. On December 5, 1995, the Civil District Court
dismissed the cause of action challenging the constitutionality of the RDC for
lack of standing. Harry McCall then filed a notice of appeal.
On March 12, 1996, Harry McCall, one of the claimants in the McCall
Litigation, filed a motion in the Bankruptcy Court seeking relief from the
automatic stay in bankruptcy to pursue this appeal. A hearing on Mr. McCall's
motion for relief from the stay was held on April 2, 1996, following which the
Bankruptcy Court modified the automatic stay to permit the McCall Litigation to
proceed. On April 18, 1996, HJC, the City and the RDC filed a joint motion
asking the Bankruptcy Court to amend and restate its order granting Mr. McCall's
motion for relief from the automatic stay. A hearing on the joint motion was
held on May 13, 1996, and the Bankruptcy Court granted the joint motion.
Specifically, the Bankruptcy Court amended the order granting relief from the
stay to clarify that the automatic stay did not apply, and had never applied, to
the McCall Litigation or any appeal taken therefrom. On October 10, 1996, the
Fourth Circuit Court of Appeals for the State of Louisiana voted 2-1 to reverse
the trial court's dismissal for lack of standing. Under the Louisiana
Constitution, this non-unanimous decision required that the appeal be heard
before a five-judge panel of the same court. Oral argument before the five-judge
panel took place on October 29, 1996 and that panel also reversed the trial
court's dismissal for lack of standing with respect to the cause of action
challenging the constitutionality of the RDC. The City, the RDC and HJC each
applied for a writ of certiorari with the Louisiana Supreme Court, which was
denied without comment.
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In addition, on April 6, 1994, Harry McCall filed a motion in Civil District
Court to enforce a purported settlement agreement of the McCall Litigation
entered into with HJC, asserting that he was entitled to receive settlement
proceeds based upon a settlement agreement. HJC does not believe that a binding
settlement agreement was reached with Mr. McCall. On July 8, 1994, the Civil
District Court ruled that Mr. McCall's motion was procedurally defective. He
subsequently failed to cure the deficiency and, on September 12, 1994, the court
dismissed Mr. McCall's motion to enforce the settlement. Mr. McCall filed a
notice of appeal and, on October 12, 1995, the Fourth Circuit Court of Appeals
for the State of Louisiana reversed the district court's ruling, allowing Mr.
McCall to pursue his claim.
On March 12, 1996, Harry and Henry McCall filed a proof of claim against HJC
in the amount of $2,000,000 which appeared to be based upon the purported
settlement that was the subject of the April 1994 motion in Civil District
Court. They also filed an adversary proceeding in the Bankruptcy Court in May,
1996 seeking to enforce the purported settlement agreement. HJC filed an
objection to the McCalls' proof of claim on May 2, 1996. The Bankruptcy Court
ordered that HJC's objection to the proof of claim and the adversary proceeding
be consolidated for purposes of trial and discovery. At a hearing on September
16, 1996, the Bankruptcy Court ruled that Thomas Tucker, attorney for the
McCalls, could not be both a witness and attorney in the matter. The trial was
adjourned to give Mr. Tucker time to decide which role he would take. On
September 26, 1996, the McCalls filed a motion seeking an interlocutory appeal
on this decision of the Bankruptcy Court. At that time, the Bankruptcy Court
stayed the underlying action pending a decision on the appeal. On October 16,
1996, the District Court denied the motion for an interlocutory appeal. The
McCalls' motion for reconsideration of the decision was also denied.
Subsequently, Mr. Tucker elected to be a witness.
On April 18, 1997, the Debtors and Thomas Tucker, Harry McCall, Henry McCall
and Susan LaFaye (an attorney who claims an interest in proceeds of the McCall
Litigation) (the "McCall Claimants") reached a tentative agreement to settle
various litigation and other legal claims, demands and causes of action (the
"McCall Settlement Agreement"). The McCall Settlement Agreement contemplates,
among other things, that:
(i) The McCall Claimants and the law firm of Tucker & West will withdraw
and dismiss with prejudice any and all proofs of claim and other demands for
payment filed by any one or more of them in the Chapter 11 Cases, including
any adversary proceedings, and also will release any and all claims,
demands, suits and causes of action of any type they have against HJC and
other persons identified in the McCall Settlement Agreement.
(ii) The McCall Claimants will file in HJC's case an amended proof of
claim in which they will jointly assert against HJC an unsecured claim in
the amount of $145,500, which HJC will recognize as a valid and enforceable
general, unsecured claim against HJC.
(iii) On the later of (a) the Effective Date or (b) the date on which a
court of competent jurisdiction enters judgments dismissing all of the
litigation described in (iv) below with prejudice, HJC will deliver payment
of the amended claim to an escrow agent designated in the McCall Settlement
Agreement. Thereafter, the escrow agent will distribute to Ms. LaFaye the
sum of $9,500, and will distribute to the other McCall Claimants, as their
interests may appear, the sum of $87,985. The balance, or $48,015, will be
held in escrow, and will be disbursed together with any accrued
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interest on the earlier of (a) the first anniversary of the Effective Date
or (b) the date of commencement of gaming at the Casino. If, however, prior
to the date of commencement of gaming at the Casino, HJC advises the escrow
agent that there has been a default under the McCall Settlement Agreement,
there will be no distribution from escrow until the escrow agent receives an
appropriate order or judgment from the Bankruptcy Court authorizing
distribution and identifying the recipients.
(iv) The McCall Claimants will dismiss with prejudice their adversary
proceeding in HJC's bankruptcy proceeding and all the actions they have
filed relating to HJC and the Casino.
(v) The McCall Claimants and Tucker & West will not, individually or
collectively, take any action, whether directly or acting through any other
person or entity, to oppose the conducting of casino gaming operations
including, but not limited to (a) filing of any suits, actions or other
proceedings against HJC and its successors, (b) seeking to retard, delay or
deny the issuance to HJC and its successors of any licenses, orders, grants
or other awards by any governmental entity or (c) assisting any other person
with respect to the foregoing.
The parties to the McCall Settlement Agreement are currently engaged in the
preparation of a definitive agreement to resolve their disputes, which will then
be executed and submitted to the Bankruptcy Court for its approval. The McCall
Settlement Agreement contemplates that Harry McCall will dismiss the McCall
Litigation with prejudice on the Effective Date.
TUCKER LITIGATION (CITY). 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 Canal Street Casino Lease. The lawsuit also challenges the
constitutionality of a clarifying amendment to the Louisiana Gaming Act. The
clarifying amendment addresses a provision of the Canal Street Casino Lease
which requires at least 80% of the persons employed by the Casino to be
residents of Orleans Parish. The effects of the ordinances and the amendment to
the Louisiana Gaming Act were, among other things, (i) to clarify the intent of
the Louisiana 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 would
not be void under the Louisiana Gaming Act, and (ii) to reduce the residency
requirement in the Canal Street Casino Lease if necessary to comply with
applicable law. 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
the plaintiff consider its prior filed exceptions as applicable. There has been
no activity in the case since that time.
Mr. Tucker and the law firm of Tucker & West filed proofs of claims against
the estates of HJC and HNOIC for amounts which they allege were owed to them
with respect to the Tucker Litigation and other litigations, including the
McCall Litigation. HJC and HNOIC filed objections to these proofs of claims.
Subsequently, on August 13, 1996, the claimants consented to disallowance of
these claims.
The McCall Settlement Agreement contemplates that the Tucker Litigation will
be dismissed with prejudice as of the Effective Date.
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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 (the "Landmarks Litigation")
was filed 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 could not be relocated and that the Place de France could not 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 would require 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 United States Secretary of the
Interior. The City, the RDC and HJC filed notices of appeal. The plaintiff filed
a cross-appeal regarding the scope of the injunction. Oral argument on the
appeal took place on February 7, 1996 after HJC sought, and received, relief
from the automatic stay to proceed with the appeal. On June 7, 1996, the United
States Court of Appeals for the Fifth Circuit reversed the decision of the
District Court, vacated the permanent injunction entered by the District Court,
rendered a judgment of dismissal against the plaintiff for failure to state a
cause of action on the grounds that there is no implied private right of action
under the applicable federal statute, and dismissed the plaintiff's cross-appeal
regarding the scope of the injunction as moot. On July 12, 1996, the Fifth
Circuit denied plaintiff's petition for rehearing.
Because of this litigation, HJC had to redesign the southern part of the
Casino, at substantial cost. As a result of the modification, the size of the
Casino was decreased by approximately 2,400 square feet.
The City has requested the written approval of the United States Secretary
of the Interior to remove the Joan of Arc statue from the Place de France. Such
approval has not yet been received and may not be forthcoming. If such approval
is received and the Joan of Arc statue is removed, HJC may decide to make
further modifications to the entrance to the Casino.
Louisiana Landmarks Society, Inc., James Logan and the law firm of Tucker &
West filed proofs of claims against the estates of HJC and HNOIC for amounts
they alleged were owed to them as a result of the Landmarks Litigation. HJC and
HNOIC filed objections to these proofs of claims. On August 13, 1996, Louisiana
Landmarks Society, Inc. and the other claimants consented to disallowance of
their claims.
TUCKER LITIGATION (JOAN OF ARC). On July 24, 1996, Thomas Tucker filed
another lawsuit entitled, TUCKER V. CITY OF NEW ORLEANS AND RIVERGATE
DEVELOPMENT CORPORATION, seeking to enjoin alteration of the Place de France
absent the express written approval of the United States Secretary of the
Interior. HJC has not been named as a defendant. The lawsuit, however, could
affect the development of the Casino. Mr. Tucker has characterized his claim as
one based upon section 1983 of title 42 of the United States Code for purported
violations of his rights of due process and equal protection. The factual
allegations of the complaint are virtually identical to those asserted in the
Landmarks Litigation. Mr. Tucker served as counsel of record for the plaintiff
in the Landmarks Litigation, and he is both a member and trustee of that
plaintiff. On October 14, 1996, Tucker filed an amended complaint naming First
American Title Insurance Company as an additional defendant. Upon information
and belief, all the defendants were thereafter
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served with the complaint. HJC sought and received permission to intervene in
the action on January 21, 1997.
The McCall Settlement Agreement contemplates that this suit will be
dismissed with prejudice on the Effective Date.
HNOIC/NOLDC LITIGATION. On September 26, 1995, HNOIC brought a lawsuit
against New Orleans/Louisiana Development Corp. ("NOLDC") in the District Court
seeking a declaratory judgment that (i) HNOIC was a 52.93% owner of HJC, (ii)
the 1994 option agreement with NOLDC had expired, and (iii) 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,
HNOIC and HJC in the Civil District Court for the Parish of Orleans seeking (i)
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,
(ii) a rescission of the fourth amendment to HJC's partnership agreement
(governing, among other matters the dilution of the NOLDC interest in HJC and
NOLDC's status as a material partner of HJC), (iii) restoration of NOLDC to a
full 33.3% ownership in HJC, and (iv) unspecified damages against all defendants
except HJC. This lawsuit was filed as Civil Action No. 95-14653.
On September 29, 1995, NOLDC obtained a temporary restraining order from the
Louisiana Civil District Court, directing HNOIC 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 District Court, 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 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 NOLDC's bankruptcy, no discovery on the merits had been taken.
It is contemplated that, pursuant to the NOLDC Shareholders/HET Settlement
Agreement (as defined in the Modified Plan), all of the litigation among NOLDC,
HNOIC and HJC will be dismissed on the Effective Date.
SAPIR LITIGATION. On June 6, 1997, Eddie L. Sapir and the Eddie L. Sapir
Inter Vivos Trust filed a civil action captioned EDDIE L. SAPIR AND THE EDDIE L.
SAPIR INTER VIVOS TRUST VERSUS GRAND PALAIS ENTERPRISES, INC., in the Civil
District Court. In that action, plaintiffs allege, among other things, that one
of HJC's three general partners, Grand Palais, through its principal Christopher
B. Hemmeter ("Hemmeter") and its former counsel Cezar M. Froelich ("Froelich"),
has negotiated or is negotiating a compromise with HET and others which
improperly benefits Hemmeter and Froelich to the detriment of the creditors and
shareholders of Grand Palais. Plaintiffs sought and obtained an EX PARTE
temporary restraining order prohibiting the disposition of any property of Grand
Palais, including prohibition of Grand Palais's execution of the releases and
other agreements among Grand Palais, HET and others contemplated under the
Modified Plan. Plaintiffs also moved for the EX PARTE appointment of a temporary
receiver for Grand Palais, among others, which was granted by the Civil District
Court.
On June 18, 1997, Grand Palais filed a notice of removal of the litigation
to the Bankruptcy Court. On July 1, 1997, plaintiffs filed a motion in the
Bankruptcy Court to remand the litigation to Civil District Court. On July 2,
1997, the Bankruptcy Court granted HJC leave to intervene in the litigation and
153
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(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
continued plaintiff's motion to remand the litigation to Civil District Court.
The Bankruptcy Court's order also included provisions by which one of the
plaintiffs and/or the receiver could participate in HJC's weekly "steering
committee" conferences and present objections to the Bankruptcy Court with
respect to any significant decision requiring the approval of HJC's general
partners. Thereafter, plaintiffs filed a motion to reconsider the Court's order
permitting HJC to intervene in the litigation. On October 6, 1997, the
Bankruptcy Court remanded the litigation to Civil District Court. On that date,
the Bankruptcy Court also reconsidered its order permitting HJC to intervene in
the litigation and rescinded without prejudice its order permitting HJC to
intervene.
On November 21, 1997, Eddie L. Sapir and the Eddie L. Sapir Inter Vivos
Trust filed a civil action captioned EDDIE L. SAPIR AND THE EDDIE L. SAPIR INTER
VIVOS TRUST V. BANKER'S TRUST COMPANY, CEZAR M. FROELICH, ABC INSURANCE COMPANY,
FIRST NATIONAL BANK OF COMMERCE, HARRAH'S ENTERTAINMENT INCORPORATED, SHEFSKY &
FROELICH, LTD., DEF INSURANCE COMPANY, GHI INSURANCE COMPANY, JKL INSURANCE
COMPANY, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, MERRILL LYNCH SENIOR HIGH
INCOME FUND, MERRILL LYNCH SENIOR HIGH INCOME II FUND, MERRILL LYNCH SENIOR
STRATEGIC FUND, PRIME INCOME TRUST, AND VAN KAMPEN MERITT PRIME RATE INCOME
TRUST, No. 97-20643, in the Civil District Court. In that action, the plaintiffs
allege, among other things, that defendants committed breaches of contract and
fiduciary duty with respect to actions taken in connection with the Chapter 11
Cases.
As a result of the litigation described above, it is unclear who has the
authority to take certain actions on behalf of Grand Palais and the impact the
litigation might have on HJC's reorganization efforts. In addition, subsequent
to commencement of this litigation, Hemmeter filed a voluntary petition for
relief under Chapter 7 of the Bankruptcy Code, and a Chapter 7 trustee has been
appointed in that bankruptcy case. There can be no assurance that the litigation
between plaintiffs and Grand Palais or Hemmeter's Chapter 7 filing will not
materially impair the Debtor's ability to consummate the Modified Plan, or that
the litigation will be resolved on terms that will permit consummation of the
Modified Plan.
BONDHOLDERS CLASS ACTION. Beginning on November 28, 1995, eight separate
class action suits were filed against HET and various of its corporate
affiliates, officers and directors in the United States District Court for the
Eastern District of Louisiana. They were BEN F. D'ANGELO, TRUSTEE FOR BEN F.
D'ANGELO REVOCABLE TRUST V. HARRAH'S ENTERTAINMENT CORP., MICHAEL D. ROSE,
PHILIP G. SATRE AND RON LENCZYCKI; MAX FENSTER V. HARRAH'S ENTERTAINMENT, INC.,
HARRAH'S NEW ORLEANS INVESTMENT COMPANY, GRAND PALAIS CASINO, INC., PHILIP G.
SATRE, COLIN V. REED, MICHAEL N. REGAN, CHRISTOPHER B. HEMMETER, DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, SALOMON BROTHERS, INC, AND BT
SECURITIES CORP.; GOLDIE ROSENBLOOM V. HARRAH'S ENTERTAINMENT CORP., MICHAEL D.
ROSE, PHILIP G. SATRE AND RON LENCZYCKI; BARRY ROSS V. HARRAH'S NEW ORLEANS
INVESTMENT COMPANY, PHILIP G. SATRE, COLIN V. REED, LAWRENCE L. FOWLER, MICHAEL
N. REGAN, CEZAR M. FROELICH, ULRIC HAYNES, JR., WENDELL GAUTHIER, T. GEORGE
SOLOMON, JR., DUPLAIN W. RHODES, III, HARRAH'S ENTERTAINMENT, INC., DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, SALOMON BROTHERS INC, AND BT
SECURITIES CORP.; LOUIS SILVERMAN V. HARRAH'S ENTERTAINMENT, INC., HARRAH'S NEW
ORLEANS INVESTMENT COMPANY, GRAND PALAIS CASINO, INC., PHILIP G. SATRE, COLIN V.
REED, MICHAEL N. REGAN, CHRISTOPHER B. HEMMETER, AND DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION; FLORENCE KESSLER V. PHILIP G. SATRE, COLIN V.
REED, CHARLES A. LEDSINGER, JR., MICHAEL N. REGAN, LAWRENCE L. FOWLER,
CHRISTOPHER B. HEMMETER, CEZAR M. FROELICH, ULRIC HAYNES, JR., WENDELL H.
GAUTHIER, T. GEORGE SOLOMON, JR., DUPLAIN W. RHODES, III, DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION, SALOMON BROTHERS INC, AND BT SECURITIES
CORPORATION; WARREN ZEILLER AND JUDITH M. R. ZEILLER V. HARRAH'S ENTERTAINMENT
CORP., MICHAEL D. ROSE, PHILIP G. SATRE, AND RON
154
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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)
LENCZYCKI; AND CHARLES ZWERVING AND HELENE ZWERVING V. HARRAH'S ENTERTAINMENT
CORP., PHILIP G. SATRE, COLIN V. REED, CHRISTOPHER B. HEMMETER, AND DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION. Pursuant to a District Court order of
January 26, 1996, plaintiffs, on May 24, 1996, filed a consolidated complaint in
the action numbered 95-3925, entitled IN RE HARRAH'S ENTERTAINMENT, INC.
SECURITIES LITIGATION (the "Bondholders Class Action").
The plaintiffs in the Bondholders Class Action (who purport to represent all
persons, other than defendants and their affiliates, who purchased Old Bonds
between November 9, 1994 and November 21, 1995) have characterized their
complaint as alleging violations of Sections 11 and 12(2) of the Securities Act
of 1933, 15 U.S.C. SectionSection 77k and 77l(2); Section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. Section 78j(b); and Rule 10b-5
promulgated thereunder by the Securities and Exchange Commission, 17 C.F.R.
Section 240.10b-5. The complaint asserts that the registration statement and
prospectus filed in connection with the offering of the Old Bonds contained
untrue statements of material fact and omitted to state material facts necessary
in order to make the statements made therein not misleading. The complaint also
alleges that the defendants engaged in a scheme to defraud plaintiffs and the
alleged class by knowingly or recklessly releasing false and misleading
information that was designed to and did (i) deceive the investing public,
including plaintiffs and other members of the alleged class, regarding HJC's
financial condition and future business prospects, (ii) artificially inflate the
market price of the Old Bonds during the relevant period, and (iii) cause
plaintiffs and other alleged class members to purchase or otherwise acquire the
Old Bonds at inflated prices.
Certain of the individuals named as defendants in the Bondholders Class
Action are officers and directors of the Debtors or of other entities and have
claimed or may claim defense, indemnification and/ or contribution rights
against the Debtors.
Proofs of claim, purportedly on behalf of the plaintiffs in the Bondholders
Class Action, have been filed in the Chapter 11 cases. Such proofs of claim
assert claims based upon damages caused by alleged violations of federal
securities laws in connection with the purchase and sale of the Old Bonds. The
Debtors have objected to such proofs of claim. Under the Modified Plan, if any
of such claims are allowed, then to the extent that they are allowed, they will
fall within the classes of Penalty Claims under the Modified Plan and will
receive no distributions on account of such claims.
Plaintiffs in the Bondholders Class Action filed motions in the Chapter 11
cases seeking the appointment of an examiner. A hearing on the motions was held
on November 6, 1996. On November 20, 1996, the Bankruptcy Court denied the
motion to appoint an examiner. In denying the motion, the Bankruptcy Court found
that the request for an examiner was both untimely and for an improper purpose.
HJC has supported the settlement of the Bondholders Class Action negotiated
between counsel for the class and the defendants named in the litigation, whose
basic terms are as follows:
(1) in accordance with the Modified Plan, Harrah's Investor will
contribute 200,000 shares of Class A New Common Stock to the Release Pool
(as defined in the Modified Plan) to be distributed as set forth in the
Modified Plan to those members of the settlement class who are current
Bondholders;
(2) the sum of $3.8 million in cash will be contributed by the
defendants and/or their insurance carriers toward the settlement, which
funds will be distributed as determined by plaintiffs' counsel and
155
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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)
approved by the District Court to members of the settlement class who do not
provide releases to HJC in exchange for a distribution from the Release
Pool, as well as for the payment of costs and fees;
(3) plaintiffs will provide releases to the defendants, dismiss the
Bondholders Class Action with prejudice, and support the Modified Plan.
The parties to the Bondholders Class Action entered into a stipulation
effectuating the basic terms of the settlement on April 16, 1997. On June 26,
1997, the District Court conducted a fairness hearing to determine whether to
approve the proposed settlement. No member of the settlement class opted out of
the settlement. On July 31, 1997, the District Court approved the settlement,
which is contingent on the occurrence of the Effective Date of the Original
Confirmed Plan or the effective date of a plan of reorganization supported by
HET in the Chapter 11 Cases (which would include the Modified Plan).
STATUS OF LITIGATION IF NO REORGANIZATION
The settlement agreements described above are contingent on the occurrence
of the Effective Date of the Modified Plan. If the required contingency is not
satisfied, the claimants may proceed with their claims against HJC and/or its
affiliates.
OTHER CONTINGENCIES
The enactment and implementation of gaming legislation in Louisiana and the
development of the Gaming Facilities have 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 or JCC as its successor and operator of
the Casino. For additional information regarding these matters, see Items 1 and
2. "Business and Properties--Risk Factors" in HJC's Annual Report on Form 10-K
for the year ended December 31, 1997.
156
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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.
157
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (includes restricted cash of $3,793 and $3,335,
respectively)................................................................... $ 5,121 $ 3,755
Other............................................................................. 560 561
------------- ------------
Total current assets.......................................................... 5,681 4,316
------------- ------------
Land, buildings and equipment
Property held for development..................................................... 13,200 13,200
Construction in progress.......................................................... 161,496 157,475
Furniture, fixtures and equipment, net of accumulated depreciation of $7,029 and
$6,598, respectively............................................................ 24,472 24,857
------------- ------------
Total land, buildings and equipment........................................... 199,168 195,532
------------- ------------
Deferred assets, net of amortization
Deferred operating contract costs................................................. 122,222 122,222
Lease prepayments................................................................. 30,263 30,263
Other............................................................................. 2,084 2,084
------------- ------------
$ 359,418 $ 354,417
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities not subject to compromise
Accounts payable.................................................................. $ 1,855 $ 1,170
Accrued expenses.................................................................. 15,553 9,756
Debtor-in-possession loans........................................................ 48,334 32,230
------------- ------------
Total liabilities not subject to compromise................................... 65,742 43,156
------------- ------------
Liabilities subject to compromise................................................... 523,468 523,468
------------- ------------
Commitments and contingencies
Partners' deficit
Partners' capital contributions................................................... 167,000 167,000
Accumulated deficit............................................................... (396,792) (379,207)
------------- ------------
Total partners' deficit....................................................... (229,792) (212,207)
------------- ------------
$ 359,418 $ 354,417
------------- ------------
------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
158
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
MISCELLANEOUS REVENUES............................. $ 31 $ 28 $ 81 $ 60
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Depreciation and amortization.................... 138 153 431 459
General and administrative....................... 3,092 3,896 11,010 10,628
------------- ------------- ------------- -------------
Total operating expenses....................... 3,230 4,049 11,441 11,087
------------- ------------- ------------- -------------
Loss from operations........................... (3,200) (4,021) (11,360) (11,027)
------------- ------------- ------------- -------------
REORGANIZATION ITEMS:
Costs and expenses............................... (1,479) (1,705) (4,016) (2,718)
Recovery of accounts receivable.................. -- 2 2 482
Interest income.................................. 36 139 112 206
------------- ------------- ------------- -------------
Total reorganization items..................... (1,443) (1,564) (3,902) (2,030)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense................................. (886) (544) (2,323) (1,362)
------------- ------------- ------------- -------------
NET LOSS........................................... $ (5,528) $ (6,129) $ (17,585) $ (14,419)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
159
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net loss.......................................................................... $ (17,585) $ (14,419)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization................................................... 431 459
Decrease in other current assets................................................ 1 208
Increase (decrease) in accounts payable and accrued expenses.................... 6,482 (3,271)
Decrease in accounts payable and accrued expenses prior to Petition Date........ -- (15)
------------- -------------
Cash flows used in operating activities......................................... (10,672) (17,038)
------------- -------------
Cash flows from investing activities
Purchase of land, buildings and equipment......................................... (4,066) (1,960)
------------- -------------
Cash flows from financing activities
Proceeds received from Debtor-in-Possession borrowings............................ 16,104 12,650
------------- -------------
Increase (decrease) in cash and cash equivalents.................................... 1,366 (6,348)
Cash and cash equivalents, beginning of period...................................... 3,755 10,114
------------- -------------
Cash and cash equivalents, end of period............................................ $ 5,121 $ 3,766
------------- -------------
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
160
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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"), a Louisiana
general partnership consisting of Harrah's New Orleans Investment Company
("HNOIC"), a subsidiary of Harrah's Entertainment, Inc. ("HET"), New
Orleans/Louisiana Development Corporation ("NOLDC"), and Grand Palais Casino,
Inc. ("Grand Palais"), was formed on November 29, 1993 for the purposes of
developing, owning and operating the exclusive land-based casino entertainment
facility (the "Casino") in New Orleans, Louisiana, on the site of the former
Rivergate Convention Center. HJC operated a temporary casino in the Municipal
Auditorium (the "Basin Street Casino" and, together with the 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 and
operate the Gaming Facilities. These agreements included (i) the lease between
HJC and the Rivergate Development Corporation (the "RDC") and the City of New
Orleans (the "City"), as Intervenor, with respect to the site of the Casino (the
"Canal Street Casino Lease"); (ii) the lease between HJC, the RDC and the City,
as Intervenor, with respect to the Basin Street Casino (the "Basin Street Casino
Lease"); (iii) the casino operating contract between HJC and the Louisiana
Economic Development and Gaming Corporation ("LEDGC"), a special public purpose
corporation established to regulate land-based gaming in Louisiana (the "Casino
Operating Contract"); (iv) a general development agreement between HJC, the RDC,
and the City, as Intervenor (the "General Development Agreement") and (v) a
management agreement between HJC and Harrah's New Orleans Management Company
(the "Manager").
On November 22, 1995 (the "Petition Date"), HJC (which is sometimes referred
to herein as the "Debtor") and its subsidiary Finance Corp. (sometimes referred
to collectively herein as the "Debtors") filed petitions for relief under
Chapter 11 of Title 11 of the United States Code ("Chapter 11"). As of September
30, 1998, the case was pending in the United States Bankruptcy Court for the
Eastern District of Louisiana (the "Bankruptcy Court").
On February 28, 1997, the Debtors and HNOIC, together with HET (the
"Proponents"), filed their Third Amended Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code dated as of February 26, 1997. That plan, as
voted upon by all affected parties entitled to vote and as modified in
connection with the hearing on confirmation, was confirmed by the Bankruptcy
Court on April 28, 1997, and as so modified and confirmed is referred to herein
as the "Original Plan."
Implementation of the Original Plan was conditioned upon (among other
things) the execution and delivery of a casino operating contract (the "April
29, 1997 Casino Operating Contract") by Jazz Casino Company, L.L.C. ("JCC"), a
newly formed company which was to succeed to HJC's rights to develop the Casino,
and the Louisiana Gaming Control Board (the "LGCB") and all necessary approvals,
if any, from the LGCB and the State of Louisiana (the "State"). The LGCB
approved the April 29, 1997 Casino Operating Contract, but conditioned its
execution of the April 29, 1997 Casino Operating Contract upon the further
approval of the State legislature. The State legislature failed to give its
approval of the April 29, 1997 Casino Operating Contract during its 1997 regular
session, which adjourned on June 23, 1997.
In light of the State legislature's adjournment without action on the April
29, 1997 Casino Operating Contract, on June 26, 1997, the Proponents sought
Bankruptcy Court approval to modify the Original Plan to provide, among other
things, for the assumption of HJC's existing Casino Operating Contract without
161
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION, BANKRUPTCY AND BASIS OF PRESENTATION (CONTINUED)
any amendments requiring the approval of the LGCB or the State. The State and
the LGCB vigorously opposed these proposed modifications.
Following negotiations with various parties in interest in the
reorganization, including the official committee of bondholders appointed in
HJC's Chapter 11 case (the "Bondholders Committee") and Bankers Trust Company ("
Bankers Trust"), HJC's primary lender, the Proponents prepared a new set of
modifications to the Original Plan (The Original Plan, as so modified and
confirmed by the Bankruptcy Court on January 29, 1998, is referred to herein as
the "Modified Plan.") For a discussion of the significant differences between
the Original Plan and the Modified Plan, see Items 1 and 2. "Business and
Properties--Plan of Reorganization--Modified Plan of Reorganization--Summary of
the Modified Plan" in HJC's Annual Report on Form 10-K for the year ended
December 31, 1997. The Modified Plan was filed as an exhibit to HJC's Annual
Report on Form 10-K for the year ended December 31, 1997.
The Modified Plan abandoned the changes to the Original Plan initially
proposed by the Proponents following the State legislature's adjournment in June
1997, and instead provided, among other things, for further amendments to the
Casino Operating Contract (as so modified, the "December 9, 1997 Casino
Operating Contract") and a guarantee of certain of the amounts due thereunder.
The LGCB conditionally approved the December 9, 1997 Casino Operating Contract,
but conditioned its execution of the December 9, 1997 Casino Operating Contract
upon the further approval of the State legislature. For a discussion of the
significant differences between the April 29, 1997 Casino Operating Contract and
the December 9, 1997 Casino Operating Contract, see Items 1 and 2. "Business and
Properties--Overview of Business-- Contract Rights--Amended and Renegotiated
Casino Operating Contract" in HJC's Annual Report on Form 10-K for the year
ended December 31, 1997.
The governor indicated that he would call a special session of the State
legislature commencing in March 1998 to consider, among other things, approval
of the December 9, 1997 Casino Operating Contract. However, after receiving an
opinion from the State attorney general that the LGCB has independent authority
(without the necessity of any legislative approval) to renegotiate and execute a
renegotiated casino operating contract, the governor did not include
consideration of the December 9, 1997 Casino Operating Contract in the call for
the 1998 special session. Instead, on March 20, 1998, the LGCB approved an
amended Casino Operating Contract between HJC and the LGCB (the "Amended and
Renegotiated Casino Operating Contract"), subject to a number of conditions,
including that the Louisiana Supreme Court render a final, non-appealable
judgment that the LGCB, acting on its own, is the proper party and has the legal
authority to enter into the Amended and Renegotiated Casino Operating Contract,
without the specific approval of the governor or the State legislature.
The right of the LGCB to execute the Amended and Renegotiated Casino
Operating Contract without the approval of the governor or the legislature of
the State was then challenged in court. On May 15, 1998, the Louisiana Supreme
Court rendered a final decision holding that the LGCB is in fact the proper
party and has the legal authority to enter into the Amended and Renegotiated
Casino Operating Contract, without the approval of the governor or the State
legislature. The decision of the Louisiana Supreme Court has since become final
and non-appealable. For more information on this litigation, see Note 6.
"Commitments and Contingencies--Litigation--Declaratory Judgment Actions."
As a result of, among other things, the LGCB's conditional approval of the
Amended and Renegotiated Casino Operating Contract, on March 26, 1998, the
Proponents filed with the Bankruptcy Court a
162
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION, BANKRUPTCY AND BASIS OF PRESENTATION (CONTINUED)
motion to approve further modifications to the Modified Plan, which
modifications were approved by the Bankruptcy Court on April 6, 1998 is (the
Modified Plan, as so modified and confirmed by the Bankruptcy Court on April 6,
1998 is referred to herein as the "April 1998 Plan"). The April 1998 Plan was
filed as an exhibit to HJC's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
In connection with preparations for consummation of the April 1998 Plan, a
review of the partially-constructed Casino and adjoining parking lot structure
was conducted to determine (i) what redesign of the Casino interior will be
necessitated by the dedication of the second floor of the Casino building to
non-gaming uses and by the other changes in the configuration of the Casino
contemplated by the Amended and Renegotiated Casino Operating Contract, (ii)
whether to upgrade the Casino design and gaming equipment to meet more intense
competition from other gaming facilities such as those located on the
Mississippi Gulf Coast, (iii) the extent to which the Casino structure and
adjoining parking facilities have deteriorated during the three year
reorganization process, and (iv) the extent to which increased costs resulting
from proposed modifications and additions might be offset by changes to the
Casino design. In addition, HJC obtained estimates for the costs of the various
modifications to the Casino project under consideration, and also determined
what costs were occasioned by the delay in the reorganization process resulting
from the developments described above.
Upon determining what modifications and additions to the Casino project were
reasonably necessary to its success, what other changes to the Casino design
should be made to partially offset the increased costs occasioned by such
modifications and the delay in the reorganization process, and after
negotiations with the Bondholders Committee and Bankers Trust, HJC revised its
budget for completion and operation of the Casino. HJC's revised budget for
completion of the Casino project included, among its elements, $25 million in
additional new financing and the cancellation of all accrued interest on the
debtor-in-possession loan. For these and other reasons, HJC proposed to modify
the April 1998 Plan, which modifications were incorporated in HJC's proposed
Third Amended Joint Plan of Reorganization, As Modified Through August 12, 1998.
A copy of this proposed plan was filed as an exhibit to HJC's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998, and also was filed with the
Bankruptcy Court on August 13, 1998. At the same time, forms of a summary
disclosure statement and a full disclosure statement were filed with the
Bankruptcy Court pursuant to Sections 1125 and 1127 of the Bankruptcy Code. On
September 3, 1998, the Bankruptcy Court approved a summary disclosure statement
and a full disclosure statement dated as of September 3, 1998, and authorized
and directed the Debtor to distribute a proposed Third Amended Joint Plan of
Reorganization, As Modified Through September 3, 1998 (which contained certain
modifications to the plan dated as of August 12, 1998) and the summary
disclosure statement and to all creditors entitled to vote on that plan.
On October 13, 1998, the Bankruptcy Court confirmed the Third Amended Joint
Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as Modified
Through October 13, 1998 ("Plan") proposed by the Debtors, HNOIC and HET. On
October 30, 1998 (the "Effective Date"), the Plan was consummated. Under the
Plan, all of the Debtor's assets have been transferred to JCC, the Debtor's
successor under the Plan, except for certain interests in real property not
necessary to develop the Casino, which were transferred under the Plan to JCC's
affiliates CP Development, L.L.C. and FP Development, L.L.C. Claims of creditors
are treated in accordance with Plan, and all claims not otherwise treated under
the Plan have been discharged as to the Debtor.
163
<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)
Although the Debtor's case is currently still pending before the Bankruptcy
Court, on the Effective Date of the Plan the Debtor ceased its business
operations, the Debtor's three general partners transferred their interests in
the Debtor to JCC, and JCC commenced the process of terminating the Debtor's
existence in accordance with applicable state law. In addition, upon the
Effective Date, HJC's reporting obligations under the Securities Exchange Act of
1934, as amended, terminated and HJC filed with the Securities and Exchange
Commission a Form 15, Certification and Notice of Termination of Registration
under Section 12(g) of the Securities Exchange Act of 1934 or Suspension of Duty
to File Reports Under Sections 13 and 15(d) of the Securities Exchange Act of
1934. The Basin Street Casino Lease was terminated prior to the Effective Date,
and the Casino Operating Contract, as amended, revested in the Debtor on the
Effective Date and was assigned to JCC in accordance with applicable state law
and the agreement of the parties. Each of the Debtor's other agreements
identified in the second paragraph of this Note 1 has been modified with the
consent of the parties thereto and assigned to JCC in accordance with the
provisions of the Plan.
NOTE 2. RESTRICTED CASH
ESCROWED AMOUNTS
In connection with some of the agreements entered into in the course of
HJC's bankruptcy proceeding, HJC has been required to establish escrow accounts,
pursuant to escrow agreements, at Hibernia National Bank, as escrow agent. A
description of each currently funded escrow account is set forth below.
HARRAH'S JAZZ COMPANY/CENTEX LANDIS CONSTRUCTION CO., INC./HIBERNIA NATIONAL
BANK ESCROW
This escrow account was established pursuant to the Close-In Agreement
between HJC and Centex Landis Construction Co. Inc. ("Centex"), dated March 5,
1996, to contain retainage payments for Centex, the contractor for the close-in
work. Funds representing retainage earned were deposited weekly during the
close-in. Escrowed funds have been distributed to Centex when a written request
for disbursement has been accepted by HJC. As of September 30, 1998, HJC held in
retainage approximately $472,000 in the escrow account.
RIVERGATE DEVELOPMENT CORPORATION/HARRAH'S JAZZ COMPANY/CITY OF NEW
ORLEANS/HARRAH'S OPERATING COMPANY/HIBERNIA NATIONAL BANK ESCROW
As contemplated under an agreement 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" (the "City Agreement"), this escrow account was established
to satisfy HJC's rent payment obligations to the City. Funds deposited in this
escrow account are to be used exclusively for payment of HJC's rent obligations
under the City Agreement. Under the City Agreement, HJC was obligated to pay the
RDC rent of $736,000 per month commencing on January 1, 1997 through June 30,
1997. HJC deposited $2,208,000 in escrow to secure this rental obligation, and
paid rent each month from the escrow account until the principal amount
deposited into escrow ($2,208,000) was depleted. As of September 30, 1998,
approximately $151,000 was held in this escrow account. On the Effective Date,
the City executed a letter of direction directing payment of the balance
remaining in this
164
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. RESTRICTED CASH (CONTINUED)
escrow account (representing accrued interest) to HET, as was provided for in
the documents establishing and funding the escrow account, and this escrow
account was closed.
OTHER AMOUNTS HELD AS SECURITY
In addition to the amounts held in the escrow accounts described above,
approximately $3.1 million in cash had been held as security for expenses and
possible claims of the trustee and former trustee under the Indenture dated as
of November 15, 1994 (the "Indenture"), between the Debtors and First National
Bank of Commerce, as trustee ("FNBC"). As of September 30, 1998, approximately
$3 million was being held by Norwest Bank Minnesota, N.A. ("Norwest") as
successor trustee to FNBC, and approximately $111,000 was being held by FNBC.
Pursuant to a settlement agreement between FNBC and HJC (the "FNBC
Settlement Agreement"), which was incorporated into the Plan and became
effective on the Effective Date, all of FNBC's claims or other rights to
indemnity and/or reimbursement (and all liens securing the same) under the
Indenture, the agreements pursuant to which HJC's Old Bonds were issued (the
"Old Bond Documents") and the agreements pursuant to which HJC's bank financing
was secured (the "Old Bank Credit Documents") were canceled and extinguished,
subject to certain exceptions. JCC assumed, on an unsecured basis, HJC's
obligation under the Old Bond Documents and/or the Old Bank Credit Documents to
indemnify FNBC for attorneys' fees or other costs incurred in connection with
certain claims against FNBC. JCC also assumed any other indemnity obligation of
HJC's under the Old Bond Documents and the Old Bank Credit Documents as an IN
REM obligation limited in recourse to, and secured solely by, $100,000 plus
interest accruing from the Effective Date (the "FNBC Cash Collateral"). As
security for such indemnification obligations, FNBC is authorized to retain the
FNBC Cash Collateral until the later of the first anniversary of the Effective
Date or the resolution of any litigation filed against FNBC within one year
after the Effective Date. Thereafter, the remaining balance of the FNBC Cash
Collateral will be released to JCC.
On the Effective Date, and in accordance with the Plan, all amounts held by
Norwest (less amounts dedicated to payment of professional fees), and all but
$100,000 of the amount being held by FNBC, were turned over to JCC.
NOTE 3. LIABILITIES SUBJECT TO COMPROMISE
As of September 30, 1998, HJC's books and records continued to reflect
unsecured and undersecured liabilities subject to compromise in the Chapter 11
proceedings as follows (in thousands):
<TABLE>
<S> <C>
First Mortgage Notes.............................................. $ 435,000
Construction Accounts Payable..................................... 37,039
Due to Manager.................................................... 29,513
Consulting fees payable to related parties........................ 2,128
WARN Act Settlement............................................... 2,265
Harrah's Entertainment, Inc., and affiliates (other than
Manager)........................................................ 2,281
Others, individually less than $1,000,000......................... 15,242
---------
$ 523,468
---------
---------
</TABLE>
165
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LIABILITIES SUBJECT TO COMPROMISE (CONTINUED)
All of these liabilities have been treated under the Plan, and all claims
related to these liabilities have been discharged and are now barred as to HJC.
JCC is responsible under the Plan for payment of claims in accordance with the
provisions of the Plan, and certain of claims have been compromised, reduced or
canceled in accordance with the provisions of the Plan. In addition, certain
claims asserted by creditors have not yet been liquidated by the Bankruptcy
Court.
NOTE 4. DEBT
As of September 30, 1998, HJC had borrowed an aggregate of $48.3 million in
debtor-in-possession loans ("DIP Financing") from HET or one of its affiliates
(the "DIP Lender"). Pursuant to the most recent order approving HJC's DIP
Financing entered by the Bankruptcy Court on August 25, 1998, HJC was authorized
to borrow up to $60 million to fund its reorganization efforts. All of these
borrowings were granted secured and administrative priority status. The DIP
Lender agreed to extend the maturity date of the DIP Financing until October 31,
1998. As of the Effective Date, HJC had borrowed an aggregate of $60 million,
which was the maximum amount HJC had been authorized to borrow by the Bankruptcy
Court. On the Effective Date, in accordance with the Plan, the then-outstanding
principal amount of DIP Financing ($60 million) was converted to equity and
contributed to JCC, and all outstanding accrued interest on the DIP Financing
was cancelled.
NOTE 5. LEASES
HJC entered into the City Agreement with the RDC, which agreement was
declared effective by the Bankruptcy Court on September 12, 1996. The City
Agreement provided for the amendment of the Canal Street Casino Lease and the
General Development Agreement, and for the termination of the Basin Street
Casino Lease, and also amended or provided for several additional agreements,
all as of the Effective Date. These amendments and additional agreements
included (i) modification of the rent and other amounts payable under the Canal
Street Casino Lease, (ii) permission for an affiliate of JCC to develop the
second floor of the Casino for non-gaming purposes, and (iii) adoption by the
City of certain conditional use ordinances to permit the Casino, within defined
limits, to offer food, entertainment, shuttle bus service, and certain other
amenities previously not permitted. The amendments to the Canal Street Casino
Lease (as amended, the "Amended Canal Street Casino Lease") have been approved
by the City Council, and the Mayor has executed the Amended Canal Street Casino
Lease. Pursuant to the Plan, the Amended Canal Street Casino Lease has been
assigned to JCC in accordance with the Plan.
NOTE 6. COMMITMENTS AND CONTINGENCIES
LITIGATION
DECLARATORY JUDGMENT ACTIONS. On March 18, 1998, two separate petitions were
filed seeking declaratory judgments and injunctive relief in the wake of the
State attorney general's opinion to the effect that the LGCB could execute the
Amended and Renegotiated Casino Operating Contract without further action by the
State legislature. In JORDAN V. LOUISIANA GAMING CONTROL BOARD AND MURPHY J.
FOSTER, Case No. 448192 (19th Judicial District Court, State of Louisiana,
Parish of East Baton Rouge), the plaintiff, a State senator, sought a
declaratory judgment and injunctive relief to preclude the LGCB from executing a
casino operating contract without the approval of the State legislature. Joseph
B. Boucree, Sr., former president of the LEDGC, filed a petition of intervention
in the JORDAN litigation, alleging that the LEDGC (rather
166
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
than the LGCB) retains the power to renegotiate HJC's Casino Operating Contract,
and that the LGCB's actions in approving the Amended and Renegotiated Casino
Operating Contract are invalid. That petition for intervention was denied on
March 30, 1998, and Mr. Boucree was not permitted to intervene in the JORDAN
litigation.
In BEAN V. LOUISIANA GAMING CONTROL BOARD AND RIVERGATE DEVELOPMENT
CORPORATION, case No. 448218 (19th Judicial District Court, State of Louisiana,
Parish of East Baton Rouge), the plaintiff, also a member of the State senate,
sought declaratory and injunctive relief precluding the LGCB from entering into
a casino operating contract with JCC without the approval of the State
legislature. HJC and the Bondholders Committee filed separate petitions for
intervention in that litigation. On March 25, 1998, plaintiff in JORDAN filed a
petition for intervention and motion for consolidation of BEAN with JORDAN. On
March 25, 1998, the district court hearing the BEAN litigation entered orders
(1) directing that applications for supervisory writs be filed in the Louisiana
Supreme Court on or before March 26, 1998, and (2) staying all proceedings in
BEAN pending action by the Louisiana Supreme Court on such writ applications. On
March 25, 1998, HJC, Senator Bean, the LGCB and the RDC filed applications for
supervisory writs in the Louisiana Supreme Court. On March 27, 1998, the Supreme
Court entered an order denying all writ petitions to the extent they sought an
immediate hearing before the Louisiana Supreme Court prior to a decision on the
merits by the district court, and directed that the BEAN litigation be
consolidated with the JORDAN litigation. The Louisiana Supreme Court also
directed that the judge hearing the JORDAN litigation render judgment on the
merits no later than Friday, April 3, 1998, and reserved for further
consideration the applicants' requests that the intermediate court of appeal be
bypassed until after judgment was rendered by the district court.
On March 30, 1998, a trial was held in the consolidated BEAN and JORDAN
cases, and on April 9, 1998, the district court entered judgment rejecting the
plaintiffs' claims and declaring the rights of the parties as follows: (1)
pursuant to La. R.S. 27:210B and 27:245A, the LGCB has independent authority to
negotiate and execute the Amended and Renegotiated Casino Operating Contract,
without the approval of the State legislature or the governor; (2) pursuant to
La. R.S. 27:31 and effective May 1, 1996, the LGCB assumed all powers, duties,
functions, responsibilities and obligations of the LEDGC; (3) the provisions of
La. R.S. 27:245A have not been impliedly repealed by the enactment of La. R.S.
27:224D and E; (4) the State legislature is neither required nor authorized to
approve the Amended and Renegotiated Casino Operating Contract, either prior or
subsequent to its execution and implementation; (5) authority to execute a
casino operating contract has specifically been delegated to the LGCB) and the
governor has no authority to execute a casino operating contract independently;
and (6) the Amended and Renegotiated Casino Operating Contract approved by the
LGCB on March 20, 1998 is not a new contract within the meaning of La. R.S.
27:224E. In reaching its decision, the district court also made a number of
written findings of fact and conclusions of law, including the conclusion that
insofar as the provisions of La. R.S. 27:224D and E subject the acts of the LGCB
or the governor to legislative approval or authorize the State legislature to
take executive action, those provisions violate Article II, Section 2 of the
Louisiana Constitution, which establishes the principle of separation of powers
between the branches of government.
Thereafter, Senator Bean, HJC and the Bondholders Committee filed
supplemental writ applications in the Louisiana Supreme Court requesting that it
directly hear their appeals. On April 9, 1998, the Louisiana Supreme Court
denied the applicants' request to bypass the intermediate court of appeal, but
ordered that the court of appeal hear the matter EN BANC within five days of the
filing of the petition for appeal and that it decide the appeal within ten days
thereafter. On April 22, 1998, the First Circuit Court
167
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
of Appeal, sitting EN BANC, issued a decision affirming in part and reversing in
part the judgment of the district court. The opinion of the court of appeal
affirmed the district court's determination (1) that La. R.S. 27:31 transferred
the power and authority of LEDGC to the LGCB; (2) that La. R.S. 27:245A was not
impliedly repealed by La. R.S. 27:224D and E; (3) that La. R.S. 27:224D and La.
R.S. 27:245A can be read together harmoniously; (4) that the Amended and
Renegotiated Casino Operating Contract approved by the LGCB on March 20, 1998 is
a renegotiated contract; and (5) that the LGCB had the authority independently
to renegotiate the Casino Operating Contract. The opinion reversed what it
perceived to be the district court's conclusion that the legislature had no
"right to participate in the process" of renegotiating the casino operating
contract of a casino operator in bankruptcy, and concluded that the legislature
may set aside or order that the LGCB renegotiate the provisions of the casino
operating contract of a casino operator in bankruptcy. The court of appeal
reserved to the Louisiana Supreme Court any ruling on the constitutionality of
La. R.S. 27:224D and La. R.S.27:224E. There were a number of opinions, both
concurring and dissenting, in addition to the opinion of the majority of the
members of the court of appeal.
The parties filed applications for various writs of review in the Louisiana
Supreme Court, which were subsequently granted, and on May 15, 1998 the
Louisiana Supreme Court issued a decision affirming in part and reversing in
part the judgment of the court of appeal, a copy of which is attached to HJC's
Current Report on Form 8-K filed on May 19, 1998. The opinion of the Louisiana
Supreme Court affirmed the court of appeal's determination that the LGCB has the
independent authority to renegotiate and execute the Casino Operating Contract
without seeking gubernatorial or legislative approval, and reversed the portion
of the court of appeal's decision that purported to interpret the State
legislature's power under L.a. R.S. 27:224D to set aside or order the LGCB to
renegotiate the provisions of the casino operating contract of a casino operator
in bankruptcy on the basis that such holdings by the court of appeal and the
district court were impermissible advisory opinions because the State
legislature had not purported to take any such actions. The decision of the
Louisiana Supreme Court has since become final and non-appealable.
It is always possible that there may be other challenges to the completion
and operation of the Casino which could delay or prevent the completion and
operation of the Casino.
WARN ACT LITIGATION. RUSSELL M. SWODY, ET AL. V. HARRAH'S NEW ORLEANS
MANAGEMENT COMPANY AND HARRAH'S ENTERTAINMENT, INC., Civil Action No. 95-4118,
was filed against HET on December 13, 1995, in the United States District Court
for the Eastern District of Louisiana (the "Federal District Court") and
subsequently amended. Swody was a class action under the Worker Adjustment and
Retraining Notification Act. Early in 1996, SWODY is consolidated with SUSAN N.
POIRIER, DARLENE A. MOSS, ET AL. V. HARRAH'S ENTERTAINMENT, INC., HARRAH'S NEW
ORLEANS MANAGEMENT COMPANY, AND HARRAH'S OPERATING COMPANY, Civil Action No.
96-0215, which was filed in the Federal District Court on January 17, 1996, and
subsequently amended. Similar complaints were filed by Ms. Poirier in the
Bankruptcy Court in HJC, HNOIC and Finance Corp. bankruptcy cases (Adversary
Nos. 96-1015, 96-1014 and 96-1013). In addition, proofs of claims, on behalf of
individual, alleged, terminated employees and purportedly on behalf of all
alleged former employees, were filed in the Bankruptcy Court in HJC's Chapter 11
case.
This litigation and a compromise resolving this litigation are more fully
described in HJC's 1997 Annual Report on Form 10-K, Item 3 "Legal Proceedings."
On the Effective Date, the compromise
168
<PAGE>
HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
resolving this litigation became effective, and all claims against HJC related
to this litigation have been treated under the Plan and are now discharged as to
HJC.
MCCALL LITIGATION. On April 26, 1993, a lawsuit was filed in the Civil
District Court for the Parish of Orleans (the "Civil District Court") captioned
MCCALL V. MCCALL, ET AL. That litigation and a compromise resolving it are more
fully described in HJC's 1997 Annual Report on Form 10-K, Item 3. "Legal
Proceedings." On the Effective Date, the compromise resolving this litigation
became effective, and all claims against HJC related to this litigation have
been treated under the Plan and are now discharged as to HJC. In addition, this
litigation has been dismissed with prejudice.
TUCKER LITIGATION (CITY). On October 5, 1994, a lawsuit captioned TUCKER V.
CITY OF NEW ORLEANS was filed by Thomas Tucker against the City in the Civil
District Court. In addition, Mr. Tucker and the law firm of Tucker & West filed
proofs of claims in HJC's Chapter 11 case for amounts which they allege were
owed to them with respect to this and other litigation. This litigation and a
compromise resolving it are more fully described in HJC's 1997 Annual Report on
Form 10-K, Item 3. "Legal Proceedings." On the Effective Date, the compromise
resolving this litigation became effective, and all claims against HJC related
to this litigation have been treated under the Plan and are now discharged as to
HJC. In addition, this litigation has been dismissed with prejudice.
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 in Federal District
Court. This litigation and a compromise resolving it are more fully described in
HJC's 1997 Annual Report on Form 10-K, Item 3. "Legal Proceedings." On the
Effective Date, the compromise resolving this litigation became effective, and
all claims against HJC related to this litigation have been treated under the
Plan and are now discharged as to HJC. In addition, this litigation has been
dismissed with prejudice.
TUCKER LITIGATION (JOAN OF ARC). On July 24, 1996, Thomas Tucker filed
another lawsuit entitled TUCKER V. CITY OF NEW ORLEANS AND RIVERGATE DEVELOPMENT
CORPORATION in Federal District Court, seeking to enjoin alteration of the Place
de France and the relocation of the statue of St. Joan of Arc absent the express
written approval of the United States Secretary of the Interior. This litigation
and a compromise resolving it are more fully described in HJC's 1997 Annual
Report on Form 10-K, Item 3. "Legal Proceedings." On the Effective Date, the
compromise resolving this litigation became effective, and all claims against
HJC related to this litigation have been treated under the Plan and are now
discharged as to HJC. In addition, this litigation has been dismissed with
prejudice.
HNOIC/NOLDC LITIGATION. On September 26, 1995, HNOIC brought a lawsuit
against NOLDC in the Federal District Court seeking a declaratory judgment that
(i) HNOIC was a 52.93% owner of HJC, (ii) the 1994 option agreement with NOLDC
had expired, and (iii) NOLDC was not a "material partner" of HJC. This lawsuit
was pending as Civil Action No. 95-3165. On September 28, 1995, NOLDC brought a
lawsuit against, among other parties, HNOIC and HJC in the Civil District Court
seeking (i) 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, (ii) a rescission of the fourth amendment to HJC's partnership agreement
(governing, among other matters, the dilution of the NOLDC interest in HJC and
NOLDC's status as a material partner of HJC), (iii) restoration of NOLDC to a
full 33.3% ownership in HJC, and (iv) unspecified damages against all defendants
except HJC. On October 5, 1995, the defendants removed
169
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HARRAH'S JAZZ COMPANY AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
NOLDC's Civil District Court action to the Federal District Court, where it was
pending as Civil Action No. 95-3272.
This litigation is more fully described in HJC's 1997 Annual Report on Form
10-K, Item 3. "Legal Proceedings." On the Effective Date, a compromise resolving
this litigation became effective, and all claims against HJC related to this
litigation have been treated under the Plan and are now discharged as to HJC. In
addition, this litigation has been dismissed.
SAPIR LITIGATION. On June 6, 1997, Eddie L. Sapir and the Eddie L. Sapir
Inter Vivos Trust filed a civil action captioned EDDIE L. SAPIR AND THE EDDIE L.
SAPIR INTER VIVOS TRUST V. GRAND PALAIS ENTERPRISES, INC., in the Civil District
Court. On November 21, 1997, Eddie L. Sapir and the Eddie L. Sapir Inter Vivos
Trust filed a civil action captioned EDDIE L. SAPIR AND THE EDDIE L. SAPIR INTER
VIVOS TRUST V. BANKER'S TRUST COMPANY, CEZAR M. FROELICH, ABC INSURANCE COMPANY,
FIRST NATIONAL BANK OF COMMERCE, HARRAH'S ENTERTAINMENT INCORPORATED, SHEFSKY &
FROELICH, LTD., DEF INSURANCE COMPANY, GHI INSURANCE COMPANY, JKL INSURANCE
COMPANY, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, MERRILL LYNCH SENIOR HIGH
INCOME FUND, MERRILL LYNCH SENIOR HIGH INCOME II FUND, MERRILL LYNCH SENIOR
STRATEGIC FUND, PRIME INCOME TRUST, AND VAN KAMPEN MERIT PRIME RATE INCOME
TRUST, No. 97-20643, in the Civil District Court. In addition, Christopher
Hemmeter, the Chairman of Grand Palais, filed a voluntary petition for relief
under Chapter 7 of the Bankruptcy Code, and a Chapter 7 trustee has been
appointed in that bankruptcy case.
This litigation and its relevance to HJC is more fully described in HJC 1997
Annual Report on Form 10-K, Item 3. "Legal Proceedings." On the Effective Date,
a compromise resolving this litigation became effective and the litigation has
been dismissed without prejudice.
BONDHOLDERS CLASS ACTION. Beginning on November 28, 1995, eight separate
class action suits were filed against HET and various of its corporate
affiliates, officers and directors. Pursuant to a Federal District Court order
of January 26, 1996, plaintiffs filed a consolidated complaint in the Federal
District Court entitled IN RE HARRAH'S ENTERTAINMENT, INC. SECURITIES LITIGATION
(the "Bondholders Class Action"). Proofs of claim, purportedly on behalf of the
plaintiffs in the Bondholders Class Action, were filed in Bankruptcy Court in
HJC's Chapter 11 case.
This litigation and a compromise resolving this litigation are more fully
described in HJC's 1997 Annual Report on Form 10-K, Item 3, "Legal Proceedings."
All claims against HJC related to this litigation were treated under the Plan
and, as of the Effective Date, are now discharged as to HJC.
OTHER CONTINGENCIES
The enactment and implementation of gaming legislation in Louisiana and the
development of the Gaming Facilities have 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 JCC as HJC's successor and operator of the
Casino. For additional information regarding the uncertain political
environment, see Part II, Items 1 and 2, "Business and Properties--Risk Factors"
in HJC's 1997 Annual Report on Form 10-K.
170
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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 to the consummation of the Plan of
Reorganization, including the costs thereto (collectively, the "Pro Forma
Adjustments"), to AICPA Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"). Pursuant to
SOP 90-7, the total reorganization value of the reorganized Company's assets was
determined using several factors and by reliance on various valuation methods,
including discounting cash flow, as well as by analyzing market cash flow
multiples applied to the Company's pro forma cash flows. The factors considered
by the Company included: (i) forecasted cash flow results which gave effect to
the estimated impact of the restructuring; (ii) the discounted residual value at
the end of the forecast period; (iii) competition and general economic
considerations; and (iv) future potential profitability. Based on this analysis,
the Company, after consultation with an independent firm specializing in
reorganizations, established the Company's reorganization value as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Reorganization value as of opening based upon independent appraisal........... $ 495,000
Debt to be borrowed post bankruptcy but prior to opening...................... (164,000)
--------------
Reorganization value.......................................................... $ 331,000
--------------
--------------
</TABLE>
Such value is subject to potential further changes. The Company is not presently
aware of any matters which would cause the final reorganization value to differ
significantly from the amounts presented; however these numbers are estimates
and have not yet been subjected to audit. Under the principles of "fresh start"
accounting, the Company's total net assets were recorded at this assumed
reorganization value, which was then allocated to identifiable tangible assets
on the basis of their estimated fair value. In accordance with "fresh start"
accounting, the difference between the assumed reorganization value and the
aggregate fair value of the identifiable tangible assets resulted in a reduction
in the value assigned to intangible deferred operating contract costs and
prepaid lease costs. The Company adopted fresh-start reporting because holders
of existing voting shares immediately before filing and confirmation of the Plan
of Reorganization received less than 50% of the voting shares of the emerging
entity and its reorganization value is less than the postpetition liabilities
and allowed claims, as shown below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Postpetition current liabilities.............................................. $ 65,742
Liabilities deferred pursuant to Chapter 11 proceeding........................ 523,468
--------------
Total postpetition liabilities and allowed claims............................. 589,210
Reorganization value.......................................................... 331,000
--------------
Excess of liabilities over reorganization value............................... $ 258,210
--------------
--------------
</TABLE>
The unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1998 was prepared as if the Pro Forma Adjustments had occurred on September
30, 1998. The unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 1998, and the unaudited Pro Forma
Condensed Consolidated Statement of Operations for the year ended December 31,
1997, were prepared as if the Pro Forma Adjustments had occurred January 1,
1997. 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.
171
<PAGE>
JCC HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA JCC
HJC ADJUSTMENTS HOLDING
HISTORICAL (NOTE 2) PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................... $ 5,121 $ 26,666(c) $ 57,133
(71,954)(e)
97,300(f)
Other................................................................... 560 -- 560
----------- ----------- -----------
Total current assets................................................ 5,681 52,012 57,693
Land, buildings and equipment............................................. 199,168 (8,964)(g) 190,204
Deferred operating contract costs......................................... 122,222 (57,282)(g) 64,940
Lease prepayments......................................................... 30,263 (14,184)(g) 16,079
Other..................................................................... 2,084 -- 2,084
----------- ----------- -----------
$ 359,418 $ (28,418) $ 331,000
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND EQUITY
Liabilities not subject to compromise
Accounts payable........................................................ $ 1,855 $ 54,546(b) $ --
(56,401)(e) --
Debtor-in-possession loans.............................................. 48,334 (48,334)(c) --
Accrued expenses........................................................ 15,553 (15,553)(e) --
----------- ----------- -----------
65,742 (65,742) --
----------- ----------- -----------
Liabilities subject to compromise......................................... 523,468 (523,468)(b) --
----------- ----------- -----------
Deferred tax liability.................................................... -- 37,900(h) 37,900
Long-term debt
Senior Subordinated Notes with Contingent Payments due 2009............. -- 187,500(b) 187,500
Discount on Notes..................................................... -- (99,775)(b) (99,775)
Senior Subordinated Contingent Notes due 2009........................... -- --
A Term Loan............................................................. -- 40,000(f) 40,000
B Term Loan............................................................. -- 30,000(f) 30,000
Convertible Junior Subordinated Debentures.............................. -- 27,300(f) 27,300
----------- ----------- -----------
Total long-term debt................................................ -- 185,025 185,025
----------- ----------- -----------
Partners' capital/stockholders' equity
Partners' capital contributions......................................... 167,000 (167,000)(a) --
Accumulated deficit..................................................... (396,792) 167,000(a) --
305,896(b) --
-- (76,104)(d) --
----------- ----------- -----------
Total partners' capital............................................. (229,792) 229,792 --
----------- ----------- -----------
Common stock
Class A............................................................... -- 75,301(b) 75,301
Class B............................................................... -- 75,000(c) 75,000
Paid-in capital......................................................... -- 76,104(d) (42,226)
-- (80,430)(g) --
(37,900)(h)
----------- ----------- -----------
Total stockholders' equity.......................................... -- 108,075 108,075
----------- ----------- -----------
$ 359,418 $ (28,418) $ 331,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
172
<PAGE>
JCC HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA JCC
HJC ADJUSTMENTS HOLDING
HISTORICAL (NOTE 3) PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Total revenues............................................................................... $ 81 $ -- $ 81
---------- ----------- ---------
Operating expenses
Depreciation and amortization.............................................................. 431 -- 431
General and administrative................................................................. 11,010 -- 11,010
Reorganization costs....................................................................... 4,016 (4,016)(a) --
---------- ----------- ---------
Total operating expenses............................................................... 15,457 (4,016) 11,441
---------- ----------- ---------
Operating loss............................................................................... (15,376) 4,016 (11,360)
---------- ----------- ---------
Other income (expenses)
Interest expense........................................................................... (2,323) 2,323(b) (18,519)
(12,606)(c)
(5,913)(d)
Interest and other income.................................................................. 112 -- 112
---------- ----------- ---------
Total other income (expenses).......................................................... (2,211) (16,196) (18,407)
---------- ----------- ---------
Loss before income taxes..................................................................... (17,587) (12,180) (29,767)
Income tax benefit........................................................................... -- -- (e) --
---------- ----------- ---------
Net loss..................................................................................... $ (17,587) $(12,180) $(29,767)
---------- ----------- ---------
---------- ----------- ---------
Loss per common share........................................................................ N/A $ (2.98)
---------- ---------
---------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
173
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998
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, the prior owner of the Casino and the
owner and operator of the Basin Street Temporary Casino. Upon the Effective Date
of the Plan of Reorganization, except for certain property which will vest in CP
Development and FP Development, all of the assets of HJC will vest in JCC.
For purposes of the accompanying pro forma financial information, pursuant
to SOP 90-7, the total reorganization value of the reorganized Company's assets
was determined using several factors and by reliance on various valuation
methods, including discounting cash flow, as well as by analyzing market cash
flow multiples applied to the Company's pro forma cash flows. The factors
considered by the Company included: (i) forecasted cash flow results which gave
effect to the estimated impact of the restructuring; (ii) the discounted
residual value at the end of the forecast period; (iii) competition and general
economic considerations; and (iv) future potential profitability. Based on this
analysis, the Company, after consultation with an independent firm specializing
in reorganizations, established the Company's reorganization value. Under the
principles of "fresh start" accounting, the Company's total net assets were
recorded at this assumed reorganization value, which was then allocated to
identifiable tangible assets on the basis of their estimated fair value. In
accordance with "fresh start" accounting, the difference between the assumed
reorganization value and the aggregate fair value of the identifiable tangible
assets resulted in a reduction in the value assigned to intangible deferred
operating contract costs and prepaid lease costs.
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 New Notes issued by JCC, discounted to net present
value at a 16% discount rate, and
3) New Contingent Notes.
This transaction also records as accounts payable those liabilities subject
to compromise which will be settled in cash on the Effective Date.
The gain arising from the discharge of this debt of $305.9 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. The Company also assumed for purposes of calculating fair
value that the first six interest payments required under the New Notes would be
paid in
174
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
AS OF SEPTEMBER 30, 1998
NOTE 2. BALANCE SHEET PRO FORMA ADJUSTMENTS (CONTINUED)
kind rather than in cash. No value was assigned the New Contingent Notes as
their fair value is estimated to be nominal.
The following table reflects the effect on the pro forma balance sheet and
results of operations of a 1% fluctuation in the 16% discount rate used in
calculating the net present value of the New Notes: (in thousands)
<TABLE>
<CAPTION>
DISCOUNT RATE DISCOUNT ON 8% NOTES PAID IN CAPITAL INTEREST EXPENSE
- ------------- -------------------- --------------- ----------------
<S> <C> <C> <C>
15% $ 92,775 $(49,226) $14,742
16% $ 99,775 $(42,226) $14,597
17% $106,200 $(35,801) $14,408
</TABLE>
The Notes and the Convertible Junior Subordinated Debentures 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 Notes and the Convertible Junior
Subordinated Debentures as debt for federal income tax purposes, and the
discussion herein assumes such treatment. The IRS may assert that the New Notes,
the New Contingent Notes and the Convertible Junior Subordinated Debentures
should be classified as equity rather than debt for federal income tax purposes.
If it were determined that either the Notes or the Convertible Junior
Subordinated Debentures constitutes equity for federal income tax purposes, or
if JCC Holding is prohibited from deducting interest paid on the Convertible
Junior Subordinated Debentures due to certain recent amendments to the Internal
Revenue Code of 1986, as amended, such a recharacterization or treatment, as the
case may be, would result in the loss of substantial interest deductions and
other tax benefits for JCC. The Company believes that the New Notes are properly
classified as debt for federal income tax purposes and that the
recharacterization of the New Contingent Notes and/or the Convertible Junior
Subordinated Debentures as equity for federal income tax purposes would not
impact the pro forma balance sheet or the pro forma statement of operations.
(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 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 of HJC.
(e) Records the payment of certain HJC liabilities pursuant to the terms of
the Plan of Reorganization.
(f) Records the funding of loans anticipated to be incurred on the Effective
Date as follows: $40 million of the A Term Loan; $30 million of the B Term Loan;
and $27.3 million of Convertible Junior Subordinated Debentures.
(g) To record the adjustments to state assets and liabilities at fair value
and adjust for the difference between the assumed reorganization value and fair
value of the identifiable tangible assets by reducing the value assigned to
intangible deferred operating contract costs and lease prepayments.
175
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
AS OF SEPTEMBER 30, 1998
NOTE 2. BALANCE SHEET PRO FORMA ADJUSTMENTS (CONTINUED)
(h) To record the temporary tax difference created under Financial
Accounting Standard No. 109, due to the basis difference in the discount on the
New Notes for book and tax purposes.
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 and related amortization on the New Notes as
follows:
<TABLE>
<CAPTION>
BEGINNING EFFECTIVE CASH TOTAL END OF
OF PERIOD INTEREST AMORTIZATION INTEREST INTEREST PERIOD
FISCAL YEAR CARRYING VALUE 16% OF DISCOUNT PAID EXPENSE CARRYING VALUE
----------- -------------- --------- ------------ -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
1997
Semi-Annual 1.................................. $ 87,725 $7,018 $ 7,018 $ -- $ 7,018 $ 94,743
Semi-Annual 2.................................. 94,743 7,579 7,579 -- 7,579 102,322
---------
1997 Sub Total............................... 14,597
---------
---------
1998
Semi-Annual 3.................................. 102,322 8,186 8,186 -- 8,186 110,508
Semi-Annual 4.................................. 110,508 8,841 8,841 -- 8,841 119,349
---------
1998 Sub Total............................... 17,027
---------
Nine Month Sub Total......................... 12,606
---------
---------
1999
Semi-Annual 5.................................. 119,349 9,548 9,548 -- 9,548 128,897
Semi-Annual 6.................................. 128,897 10,312 10,312 -- 10,312 139,209
2000
Semi-Annual 7.................................. 139,209 11,137 4,386 6,751 11,137 143,595
Semi-Annual 8.................................. 143,595 11,488 4,735 6,751 11,486 148,330
2001
Semi-Annual 9.................................. 148,330 11,866 5,115 6,751 11,866 153,445
Semi-Annual 10................................. 153,445 12,276 5,525 6,751 12,276 158,970
</TABLE>
This calculation does not include any contingent interest expense, nor do
the financials include the pro forma effect on interest expense, net loss and
related per share amounts.
The Notes and the Convertible Junior Subordinated Debentures 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 Notes and the Convertible Junior
Subordinated Debentures as debt for federal income tax purposes, and the
discussion herein assumes such treatment. The IRS may assert that the New Notes,
the New Contingent Notes and the Convertible Junior Subordinated Debentures
should be classified as equity rather than debt for federal income tax purposes.
If it were determined that either the Notes or the Convertible Junior
Subordinated
176
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
AS OF SEPTEMBER 30, 1998
NOTE 3. STATEMENT OF OPERATIONS PRO FORMA ADJUSTMENTS (CONTINUED)
Debentures constitutes equity for federal income tax purposes, or if JCC Holding
is prohibited from deducting interest paid on the Convertible Junior
Subordinated Debentures due to certain recent amendments to the Internal Revenue
Code of 1986, as amended, such a recharacterization or treatment, as the case
may be, would result in the loss of substantial interest deductions and other
tax benefits for JCC. The Company believes that the New Notes are properly
classified as debt for federal income tax purposes and that the
recharacterization of the New Contingent Notes and/or the Convertible Junior
Subordinated Debentures as equity for federal income tax purposes would not
impact the pro forma balance sheet or the pro forma statement of operations.
(d) To record interest expense on the loans anticipated to be funded on the
Effective Date. This interest is calculated based on approximately $70 million
in term loans at rates ranging between 7.5% and 9.0%, and approximately $27.3
million in Convertible Junior Subordinated Debentures at an 8% rate.
(e) 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 carry forward in
future periods.
177
<PAGE>
JCC HOLDING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA JCC
HJC ADJUSTMENTS HOLDING
HISTORICAL (NOTE 2) PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
Total revenues............................................................ $ 1,679 $ -- $ 1,679
---------- ----------- -----------
Operating expenses
Depreciation and amortization........................................... 610 -- 610
General and administrative.............................................. 14,703 -- 14,703
Reorganization costs.................................................... 5,886 (5,886)(a) --
---------- ----------- -----------
Total operating expenses............................................ 21,199 (5,886) 15,313
---------- ----------- -----------
Operating loss............................................................ (19,520) 5,886 (13,634)
---------- ----------- -----------
Other income (expenses)
Interest expense........................................................ (1,975) 1,975(b) (22,481)
(14,597)(c)
(7,884)(d)
Interest and other income............................................... 251 (251)(b) --
---------- ----------- -----------
Total other income (expenses)....................................... (1,724) (20,757) (22,481)
---------- ----------- -----------
Loss before income taxes.................................................. (21,244) (14,871) (36,115)
Income tax benefit........................................................ -- -- (e) --
---------- ----------- -----------
Net loss.................................................................. $ (21,244) $ (14,871) $ (36,115)
---------- ----------- -----------
---------- ----------- -----------
Loss per common share..................................................... N/A $ (3.61)
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997.
178
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
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, 1997.
JCC Holding is the successor to HJC, the prior owner of the Casino and the
owner and operator of the Basino Street Temporary Casino. Upon the Effective
Date of the Plan of Reorganization, except for certain property which will vest
in CP Development and FP Development, all of the assets of HJC will vest in JCC.
For purposes of the accompanying pro forma financial information, pursuant
to SOP 90-7, the total reorganization value of the reorganized Company's assets
was determined using several factors and by reliance on various valuation
methods, including discounting cash flow, as well as by analyzing market cash
flow multiples applied to the Company's pro forma cash flows. The factors
considered by the Company included: (i) forecasted cash flow results which gave
effect to the estimated impact of the restructuring; (ii) the discounted
residual value at the end of the forecast period; (iii) competition and general
economic considerations; and (iv) future potential profitability. Based on this
analysis, the Company, after consultation with an independent firm specializing
in reorganizations, established the Company's reorganization value. Under the
principles of "fresh start" accounting, the Company's total net assets were
recorded at this assumed reorganization value, which was then allocated to
identifiable tangible assets on the basis of their estimated fair value. In
accordance with "fresh start" accounting, the difference between the assumed
reorganization value and the aggregate fair value of the identifiable tangible
assets resulted in a reduction in the value assigned to intangible deferred
Operating Contract Costs and prepaid lease costs.
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.
179
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
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 incurred during the period in connection
with debtor-in-possession financing obtained by HJC, and the recorded interest
income earned on some required escrow accounts.
(c) To record interest expense and related amortization on the New Notes as
follows:
<TABLE>
<CAPTION>
BEGINNING EFFECTIVE CASH TOTAL END OF
OF PERIOD INTEREST AMORTIZATION INTEREST INTEREST PERIOD
FISCAL YEAR CARRYING VALUE 16% OF DISCOUNT PAID EXPENSE CARRYING VALUE
----------- -------------- --------- ------------ -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
1997
Semi-Annual 1.................................. $ 87,725 $7,018 $ 7,018 $ -- $ 7,018 $ 94,743
Semi-Annual 2.................................. 94,743 7,579 7,579 -- 7,579 102,322
---------
1997 Sub Total............................... 14,597
---------
---------
1998
Semi-Annual 3.................................. 102,322 8,186 8,186 -- 8,186 110,508
Semi-Annual 4.................................. 110,508 8,841 8,841 -- 8,841 119,349
---------
1998 Sub Total............................... 17,027
---------
Nine Month Sub Total......................... 12,606
---------
---------
1999
Semi-Annual 5.................................. 119,349 9,548 9,548 -- 9,548 128,897
Semi-Annual 6.................................. 128,897 10,312 10,312 -- 10,312 139,209
2000
Semi-Annual 7.................................. 139,209 11,137 4,386 6,751 11,137 143,595
Semi-Annual 8.................................. 143,595 11,488 4,735 6,751 11,486 148,330
2001
Semi-Annual 9.................................. 148,330 11,866 5,115 6,751 11,866 153,445
Semi-Annual 10................................. 153,445 12,276 5,525 6,751 12,276 158,970
</TABLE>
This calculation does not include any contingent interest expense, nor do
the financials include the pro forma effect on interest expense, net loss and
related per share amounts.
The Notes and the Convertible Junior Subordinated Debentures 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 Notes and the Convertible Junior
Subordinated Debentures as debt for federal income tax purposes, and the
discussion herein assumes such treatment. The IRS may assert that the New Notes,
the New Contingent Notes, and the Convertible Junior Subordinated Debentures
should be classified as equity rather than debt for federal income tax purposes.
If it were determined that either the Notes or the Convertible Junior
Subordinated Debentures constitutes equity for federal income tax purposes, or
if JCC Holding is prohibited from deducting interest paid on the Convertible
Junior Subordinated Debentures due to certain recent amendments to the Internal
Revenue Code of 1986, as amended, such a recharacterization or treatement,
180
<PAGE>
JCC HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 2. PRO FORMA ADJUSTMENTS (CONTINUED)
as the case may be, would result in the loss of substantial interest deductions
and other tax benefits for JCC. The Company believes that the New Notes are
properly classified as debt for federal income tax purposes and that the
recharacterization of the New Contingent Notes and/or the Convertible Junior
Subordinated Debentures as equity for federal income tax purposes would not
impact the pro forma balance sheet or the pro forma statement of operations.
(d) To record interest expense on the loans anticipated to be funded on the
Effective Date. This interest is calculated based on approximately $70 million
in term loans at rates ranging between 7.5% and 9.0%, and approximately $27.3
million in Convertible Junior Subordinated Debentures at an 8% rate.
(e) 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 carry forward in
future periods.
181
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF HJC
Report of Independent Public Accountants
Consolidated Balance Sheets, As of December 31, 1997 and 1996
Consolidated Statements of Operations For the Years Ended December 31,
1995, 1996 and 1997
Consolidated Statements of Partners' Capital (Deficit) For the Years
Ended December 31, 1995,
1996 and 1997
Consolidated Statements of Cash Flows For the Years Ended December 31,
1995, 1996 and 1997
Notes to Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998 and December
31, 1997
Condensed Consolidated Statements of Operations for the Third Quarter Ended
September 30,
1998 and September 30, 1997 and the Nine Months Ended September 30, 1998
and September 30,
1997
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998
and September 30, 1997
Notes to Condensed Consolidated Financial Statements
FINANCIAL STATEMENTS OF JCC HOLDING
Pro Forma Condensed Consolidated Balance Sheet As of September 30, 1998
Pro Forma Condensed Consolidated Statement of Operations For the Nine Months
Ended Septem-
ber 30, 1998
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements As
of September 30,
1998
Pro Forma Condensed Consolidated Statement of Operations For the Year Ended
December 31, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year
Ended December 31, 1997
182
<PAGE>
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
2.01 -- Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code of Harrah's Jazz Company,
Harrah's Jazz Finance Corp. and Harrah's New Orleans Investment Company (collectively "Debtors"),
dated April 3, 1996(1)
2.02 -- First Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated June 17,
1996(2)
2.03 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated February 26,
1997(3)
2.04 -- Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as Modified and
Confirmed, dated as of February 26, 1997(4)
2.05 -- Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as Modified Pre-
and Post-Confirmation, dated as of July 24, 1997(5)
2.06 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as Modified
Through November 14, 1997, dated November 14, 1997(6)
2.07 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as Modified
Through January 29, 1998, dated January 29, 1998(3)
2.08 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as Modified
Through April 6, 1998(7)
2.09 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as Modified
Through August 12, 1998(8)
+2.10 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as Modified
Through September 3, 1998
2.11 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as Modified
Through October 13, 1998(9)
+3.01 -- Certificate of Incorporation of JCC Holding Company
+3.02 -- Restated Certificate of Incorporation of JCC Holding Company
+3.03 -- Bylaws of JCC Holding Company
+3.04 -- Amended and Restated Bylaws of JCC Holding Company
+3.05 -- Second Amended and Restated Bylaws of JCC Holding Company
4.01 -- Indenture, dated as of October 30, 1998, among Jazz Casino Company, L.L.C., as Issuer, JCC Holding
Company, JCC Development Company, L.L.C., CP Development, L.L.C. and FP Development L.L.C., as
Guarantors and Norwest Bank Minnesota, National Association, as Trustee, with respect to the Senior
Subordinated Notes due 2009 with Contingent Payments(9)
4.02 -- Indenture, dated as of October 30, 1998, among Jazz Casino Company, L.L.C., as Issuer, JCC Holding
Company, JCC Development Company, L.L.C., CP Development, L.L.C. and FP Development L.L.C., as
Guarantors, and Norwest Bank Minnesota, National Association, as Trustee, with respect to the Senior
Subordinated Contingent Notes due 2009(10)
</TABLE>
183
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
+4.03 -- Notes Completion Guarantee among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and
Norwest Bank Minnesota, National Association, as Trustee, dated October 30, 1998
+4.04 -- Indenture, dated as of October 30, 1998, among Jazz Casino Company, L.L.C., as Issuer, JCC Holding
Company, as Guarantor, and Norwest Bank Minnesota, National Association, as Trustee, with respect to
the 8% Convertible Junior Subordinated Debentures due 2010
+4.05 -- Registration Rights Agreement among Jazz Casino Company, L.L.C., JCC Holding Company, Salomon Smith
Barney, Inc., Donaldson, Lufkin & Jenrette Inc., BT Alex. Brown Incorporated, Bankers Trust Company
and First National Bank of Commerce, dated as of October 30, 1998
+4.06 -- Registration Rights Agreement between JCC Holding Company and Harrah's Crescent City Investment
Company, dated as of October 30, 1998
+4.07 -- Warrant Agreement between JCC Holding Company and Harrah's Crescent City Investment Company, dated as
of October 30, 1998
+4.08 -- Subordinated Loan Agreement among Jazz Casino Company, L.L.C., Harrah's Operating Company, Inc. and
Harrah's Entertainment, Inc., dated as of October 30, 1998
+4.09 -- Intercreditor Agreement among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., Bankers
Trust Company, as Administrative Agent, and Norwest Bank Minnesota, National Association, as Trustee,
and The Bank of New York, as Collateral Agent, acknowledged and agreed to by JCC Holding Company,
Jazz Casino Company, L.L.C., CP Development, L.L.C., FP Development, L.L.C. and JCC Development
Company, L.L.C., dated as of October 29, 1998
+4.10 -- Credit Agreement among JCC Holding Company, Jazz Casino Company, L.L.C., the Banks party hereto from
time to time, and Bankers Trust Company, as Administrative Agent, dated as of October 29, 1998
+10.01 -- Amended and Restated Lease Agreement among Rivergate Development Corporation, as Landlord, and Jazz
Casino Company, L.L.C., as Tenant, and the City of New Orleans, as Intervenor, dated October 29, 1998
+10.02 -- Amended and Restated General Development Agreement among Rivergate Development Corporation, Jazz
Casino Company, L.L.C. and the City of New Orleans, as Intervenor, dated October 29, 1998
10.03 -- Basin Street Casino Lease Termination Agreement among the City of New Orleans, the Rivergate
Development Corporation and Harrah's Jazz Company, dated January 15, 1997(3)
10.04 -- Casino Operating Contract between the Louisiana Economic Development and Gaming Corporation and
Harrah's Jazz Company, dated March 14, 1994(11)
+10.05 -- Amended and Renegotiated Casino Operating Contract among the State of Louisiana by and through the
Louisiana Gaming Control Board, Harrah's Jazz Company, Jazz Casino Company, L.L.C., and Harrah's New
Orleans Management Company and JCC Holding Company, as Intervenors effective as of October 30, 1998
+10.06 -- Second Amended and Restated Management Agreement between Harrah's New Orleans Management Company and
Jazz Casino Company, L.L.C., acknowledged and consented to by Rivergate Development Corporation, as
Landlord, dated as of October 29, 1998
</TABLE>
184
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
+10.07 -- Second Floor Non-Gaming Sublease between Jazz Casino Company, L.L.C., as Sublessor, and JCC
Development Company, L.L.C., as Sublessee, dated October 29, 1998
+10.08 -- 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 as of October 29, 1998
+10.09 -- LGCB Completion Guarantee among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.,
accepted and agreed to by the Louisiana Gaming Control Board, dated as of October 30, 1998
+10.10 -- Amended and Restated Subordinated Completion Loan Agreement among Jazz Casino Company, L.L.C.,
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., and as to the provisions of Sections
2(C)iii and (iv) only, agreed and accepted by Bankers Trust Company as Administrative Agent for
Lenders, dated October 30, 1998
+10.11 -- Amended and Restated Construction Lien Indemnity Obligation Agreement between Jazz Casino Company,
L.L.C. and Harrah's Operating Company, Inc., dated October 30, 1998
+10.12 -- Bank Completion Guarantee among Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc.,
accepted and agreed to by Bankers Trust Company, as Administrative Agent, dated October 29, 1998
+10.13 -- Completion Guarantor Subordination Agreement (Senior Subordinated Notes) among Harrah's
Entertainment, Inc., Harrah's Operating Company, Inc. and Norwest Bank Minnesota, N.A., as Trustee,
acknowledged and agreed to by Jazz Casino Company, L.L.C., dated as of October 30, 1998
+10.14 -- Manager Subordination Agreement (Landlord) among Harrah's New Orleans Management Company, the City of
New Orleans and Rivergate Development Corporation, dated as of October 29, 1998
+10.15 -- Manager Subordination Agreement (Lenders) between Harrah's New Orleans Management Company and Bankers
Trust Company, as Administrative Agent, acknowledged and agreed to by Jazz Casino Company, L.L.C. and
The Bank of New York, dated as of October 29, 1998
+10.16 -- Manager Subordination Agreement (Senior Subordinated Notes) between Harrah's New Orleans Management
Company and Norwest Bank Minnesota, National Association, as Trustee, acknowledged and agreed to by
Jazz Casino Company, L.L.C., and The Bank of New York, dated as of October 29, 1998
+10.17 -- HET Subordinated Lender Subordination Agreement (Lenders) among Harrah's Entertainment, Inc.,
Harrah's Operating Company, Inc. and Bankers Trust Company, as Administrative Agent, acknowledged and
agreed to by Jazz Casino Company, L.L.C., dated as of October 29, 1998
+10.18 -- Management Fee Reimbursement Agreement Guarantee among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., Jazz Casino Company, L.L.C., and Harrah's New Orleans Management Company,
dated October 29, 1998
</TABLE>
185
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
+10.19 -- Performance Bond among Jazz Casino Company, L.L.C. as Principal, and Reliance Insurance Company and
United States Fidelity and Guaranty Company, as Sureties, for the benefit of each of the City of New
Orleans, Rivergate Development Corporation, the Louisiana Gaming Control Board, Norwest Bank,
Minnesota, N.A., and Bankers Trust Company (collectively, the "Obligees"), dated October 29, 1998
+10.20 -- Form of JCC Holding Company 1998 Long-Term Incentive Plan
+10.21 -- Completion Guarantor Subordination Agreement (Lenders) among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc. and Bankers Trust Company, as Administrative Agent, acknowledged and agreed
to by Jazz Casino Company, L.L.C., dated as of October 29, 1998
+10.22 -- Completion Guarantor Subordination Agreement (Convertible Junior Subordinated Debentures) among
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and Norwest Bank Minnesota, N.A., as
Trustee, acknowledged and agreed to by Jazz Casino Company, L.L.C., dated as of October 30, 1998
+10.23 -- HET Subordinated Lender Subordination Agreement (Senior Subordinated Notes) among Harrah's
Entertainment, Inc., Harrah's Operating Company, Inc. and Norwest Bank Minnesota, N.A., as Trustee,
acknowledged and agreed to by Jazz Casino Company, L.L.C., dated as of October 30, 1998
+10.24 -- HET Subordinated Lender Subordination Agreement (Convertible Junior Subordinated Debentures) among
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and Norwest Bank Minnesota, N.A., as
Trustee, acknowledged and agreed to by Jazz Casino Company, L.L.C., dated as of October 29, 1998
+10.25 -- Credit Enhancement Fee Agreement between Jazz Casino Company, L.L.C. and Harrah's Operating Company,
Inc., dated October 29, 1998
+10.26 -- HET/JCC Agreement between Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and Jazz
Casino Company, L.L.C., dated October 30, 1998
+10.27 -- Guaranty and Loan Purchase Agreement by Harrah's Entertainment, Inc. and Harrah's Operating Company,
Inc., acknowledged and agreed to by Bankers Trust Company as Administrative Agent, dated as of
October 29, 1998
+10.28 -- Act of Mortgage and Collateral Assignment by Jazz Casino Company L.L.C., in favor of The Bank of New
York, as Collateral Agent, for the present and future holders of the Secured Indebtedness, dated
October 29, 1998, effective as of October 30, 1998
+10.29 -- Act of Mortgage and Collateral Assignment by CP Development, L.L.C., in favor of The Bank of New
York, as Collateral Agent, for the present and future holders of the Secured Obligations, dated
October 29, 1998, effective as of October 30, 1998
+10.30 -- Act of Mortgage and Collateral Assignment by FP Development, L.L.C., in favor of The Bank of New
York, as Collateral Agent, for the present and future holders of the Secured Obligations, dated
October 29, 1998, effective as of October 30, 1998
+10.31 -- Act of Mortgage and Collateral Assignment by JCC Development Company, L.L.C., in favor of The Bank of
New York, as Collateral Agent, for the present and future holders of the Secured Obligations, dated
October 29, 1998, effective as of October 30, 1998
</TABLE>
186
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
+10.32 -- Credit Enhancement Fee Agreement (Bank Credit Agreement) by and among Bankers Trust Company, as
Administrative Agent for Morgan Stanley Prime Income Trust and Van Kampen American Capital Prime Rate
Income Trust, Harrah's Operating Company, Inc. and Harrah's Entertainment, Inc., dated October 29,
1998
+10.33 -- Security Agreement, dated as of October 29, 1998, among JCC Holding Company, Jazz Casino Company,
L.L.C., CP Development, L.L.C., FP Development, L.L.C., and JCC Development Company., L.L.C (each, an
'Assignor" and, together with any other entity that becomes a party, the 'Assignors"), The Bank of
New York, as Collateral Agent for the benefit of Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc. and the Secured Creditors.
+10.34 -- Pledge Agreement, dated as of October 29, 1998, among JCC Holding Company, Jazz Casino Company,
L.L.C., CP Development, L.L.C., FP Development, L.L.C., and JCC Development Company., L.L.C. (each a
'Pledgor" and collectively, the 'Pledgors"), The Bank of New York Harrah's Entertainment, Inc.,
Harrah's Operating Company, Inc. and the Secured Creditors.
+10.35 -- Subsidiaries Guaranty, dated as of October 29, 1998, among CP Development, L.L.C., FP Development,
L.L.C. and JCC Development Company, L.L.C. (each a 'Guarantor" and, together with any other entity
that becomes a party, the 'Guarantors"), and Bankers Trust Company, as Administrative Agent, for the
benefit of the Creditors.
+10.36 -- Assignment of Contracts and Ancillary Rights, dated as of October 30, 1998, among Jazz Casino
Company, L.L.C., Harrah's Operating Company, Inc. and Harrah's Entertainment, Inc.
+10.37 -- Amended and Restated Open Access Plans of Jazz Casino Company, L.L.C., Submitted to the Council of
the City of New Orleans on October 15, 1998.
+10.38 -- Open Access Program
+21.01 -- List of Subsidiaries of JCC Holding Company
+27.01 -- Financial Data Schedule
99.01 -- Opinion of New Orleans City Attorney regarding Home Rule Charter(12)
99.02 -- Opinion of New Orleans City Attorney regarding Amusement Tax(12)
99.03 -- Opinion of Richard P. Ieyoub, Louisiana State Attorney General, regarding the Powers of the Louisiana
Gaming Control Board(3)
99.04 -- JORDAN VS. LOUISIANA GAMING CONTROL BOARD and MURPHY J. FOSTER AND BEAN VS. LOUISIANA GAMING CONTROL
BOARD AND RIVERGATE DEVELOPMENT CORPORATION, Nos. 98-C-1122, 98-C-1133 and 98-C-1134, (La. S. Ct.,
May 15, 1998)(13)
</TABLE>
- ------------------------
+ Previously filed.
(1) Incorporated by reference to Harrah's Jazz Company Annual Report on Form
10-K for the year ended December 31, 1995, File No. 33-73370.
(2) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, filed August 14, 1996, File No.
33-73370.
187
<PAGE>
(3) Incorporated by reference to Harrah's Jazz Company Annual Report on Form
10-K for the year ended December 31, 1997, File No. 33-73370.
(4) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended March 30, 1997, filed May 15, 1997, File No.
33-73370.
(5) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, filed August 14, 1997, File No.
33-73370.
(6) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, filed November 14, 1997, File
No. 33-73370.
(7) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, filed May 15, 1998, File No.
33-73370.
(8) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed August 14, 1998, File No.
33-73370.
(9) Incorporated by reference to the Post Effective Amendment No. 1 to the Form
T-3 of the Jazz Casino Company, L.L.C., filed November 10, 1998, File No.
022-22289.
(10) Incorporated by reference to the Post Effective Amendment No. 1 to the Form
T-3 of the Jazz Casino Company, L.L.C., filed November 10, 1998, File No.
022-22291.
(11) Incorporated by reference to Amendment No. 3 to the Registration Statement
on Form S-1 of Harrah's Jazz Company and Harrah's Jazz Finance Corp., filed
August 4, 1994, File No. 33-73370.
(12) 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
October 12, 1994, File No. 33-73370.
(13) Incorporated by reference to Harrah's Jazz Company Current Report on Form
8-K, filed May 19, 1998, File No. 33-73370.
188
<PAGE>
INDEX
The following is an index of certain defined terms which are used in this
Registration Statement on Form 10. The following index does not include those
defined terms which are set forth in the financial statements included in this
Registration Statement:
<TABLE>
<S> <C>
33 Act Registration Statement.......... 117
3CP Property........................... 3
AAA.................................... 121
A Term Loan............................ 6
Additional Class A Director............ 112
Additional Class B Director............ 112
Administrative Agent................... 78
Admission.............................. 33
Affiliate.............................. 118
Amended and Renegotiated Casino
Operating Contract................... 4
Amended and Restated Construction Lien
Indemnity Agreement.................. 74
Amended Completion Loan Agreement...... 71
Amended GDA............................ 25
Amended Ground Lease................... 11
Amended Ground Lease Minimum
Payments............................. 48
Amended Management Agreement........... 63
Amended Open Access Program and Plans.. 37
Audubon Payment........................ 49
Awards................................. 96
B Term Loan............................ 6
Bank Completion Guarantee.............. 71
Bank Lenders........................... 6
Bank Lenders Subordination Agreement... 78
Bank Loans............................. 7
Bankruptcy Code........................ 1
Bankruptcy Court....................... 1
Base Fee............................... 65
Basin Street Casino.................... 3
Basin Street Casino Lease.............. 7
Bean................................... 16
Beneficiaries.......................... 22
Bondholders............................ 5
Bondholders Class Action............... 106
Broadmoor Settlement Agreement......... 8
BTCo................................... 4
BTCo Credit Support Fee................ 40
Bylaws................................. 5
Carry Obligation Default............... 70
Carry Obligation Termination Date...... 39
Carry Obligations...................... 69
Casino................................. 1
Casino Construction.................... 2
Casino Contracts....................... 34
Casino Development..................... 46
Casino Operating Contract.............. 3
Casino Premises........................ 12
CCA.................................... 94
CCM.................................... 94
Centex................................. 8
Centex Settlement Agreement............ 8
Change of Control...................... 118
City................................... 1
City Lease............................. 36
City Payments.......................... 49
Claims................................. 66
Class A Common Stock................... 5
Class A Directors...................... 7
Class B Common Stock................... 5
Class B Directors...................... 7
Class B Entities....................... 110
Class B Registration Rights
Agreement............................ 117
Class B Registration Statement......... 117
Cleanup Laws........................... 11
Closing Price.......................... 118
COC Fiscal Year........................ 24
Code................................... 33
Collateral Agent....................... 41
Committee.............................. 97
Common Stock........................... 5
Company................................ 1
Competing Casinos...................... 35
Completion Guarantees.................. 22
Completion Guarantors.................. 22
Completion Loans....................... 71
Completion Obligation Default.......... 70
Completion Obligations................. 68
Conflicted Entity...................... 118
Consolidated EBITDA.................... 45
Contingent Payment Measurement Amount.. 44
Continuing Directors................... 67
Controlled Affiliate................... 118
Conversion Price....................... 42
Convertible Junior Subordinated
Debentures........................... 7
CP Development......................... 1
Credit Agreement....................... 39
Cure Event............................. 119
Cure Period............................ 79
Current Market Price................... 43
</TABLE>
189
<PAGE>
<TABLE>
<S> <C>
Debenture Registrable Securities....... 45
Debtors................................ 20
Deferral Amount........................ 66
Development Entities................... 1
Development Properties................. 25
Disqualified Holder.................... 119
Dividend Equivalent.................... 96
DLJ.................................... 6
EBITDA................................. 42
Effective Date......................... 1
Exchange Act........................... 43
Excluded Transactions.................. 119
Excusable Temporary Cessation of
Operations........................... 76
Expedited Procedures................... 121
Extraordinary Flip Event............... 119
Fair Market Value...................... 119
FAM.................................... 94
Favored Beneficiary.................... 71
Finance Corp........................... 1
First American......................... 12
First American Settlement Agreement.... 12
Fixed Interest......................... 43
Flip Event............................. 119
FNBC................................... 6
Force Majeure.......................... 22
FP Development......................... 1
Froelich............................... 105
Fulton Property........................ 3
Gaming Act............................. 2
Gaming Collateral...................... 84
General Development Agreement.......... 1
Grand Palais........................... 1
Grand Palais Family Members............ 110
Grand Palais Shareholders.............. 110
Gross Gaming Payments.................. 48
Gross Gaming Percentage Amount......... 48
Gross Gaming Revenue Share Payments.... 56
Gross Non-Gaming Payments.............. 49
Ground Lease........................... 1
Harrah's Entities...................... 110
Harrah's S&RP.......................... 55
HCCIC.................................. 5
Hemmeter............................... 105
HET.................................... 1
HET applicable rate.................... 39
HET Loan Guaranty...................... 40
HET Warrant............................ 6
HET/JCC Agreement...................... 20
HJC.................................... 1
HNOIC.................................. 1
HOCI................................... 12
House Bank............................. 54
Impositions............................ 56
Incentive Fee.......................... 65
Indemnity Obligations.................. 75
Indentures............................. 32
Initial Bonds.......................... 47
Initial Casino Facilities.............. 2
Initial Costs.......................... 60
Initial Financing...................... 3
Initial Payment........................ 56
Initiating Holders..................... 43
Intercreditor Agreement................ 78
IRS.................................... 33
ISOs................................... 97
JCC.................................... 1
JCC Advances........................... 45
JCC Credit Support Fee................. 40
JCC Development........................ 1
JCC Development Adjustment Amount...... 44
JCC Entities........................... 1
JCC Holding............................ 1
JCC S&RP............................... 55
Jordan................................. 16
Junior Subordinated Credit Facility.... 6
Key Casino Personnel................... 66
Landmarks Litigation................... 103
LEDGC.................................. 3
LGCB................................... 2
LGCB Completion Guarantee.............. 71
Local Option Election.................. 14
LTIP................................... 96
Major Condemnation..................... 54
Management Fees........................ 65
Manager................................ 3
Manager Subordination Agreement (RDC/
City)................................ 54
Manager Subordination Agreements....... 78
MAR Exercise Notice.................... 49
MAR Payment............................ 49
Master Plan............................ 2
McCall Claimants....................... 102
McCall Litigation...................... 101
McCall Settlement Agreement............ 102
Minimum Market Value................... 120
Minimum Payment Default................ 57
Minimum Payment Guarantors............. 20
Minimum Payment Guaranty............... 20
Minimum Payments....................... 57
MLAM................................... 94
National Commission.................... 19
</TABLE>
190
<PAGE>
<TABLE>
<S> <C>
Net Market Appreciation................ 49
New Contingent Notes................... 6
New Equity Investment.................. 5
New Notes.............................. 6
NOLDC.................................. 1
NOLDC Family Members................... 110
NOLDC Shareholders..................... 110
Non-Qualified Person................... 67
Notes.................................. 6
Notes Completion Guarantee............. 71
Notes Obligations...................... 78
Notes Subordination Agreement.......... 78
NSOs................................... 97
Old Bank Credit Facilities............. 3
Old Bonds.............................. 3
Open Access Program and Plans.......... 3
Opening Date........................... 2
Options................................ 96
OTB.................................... 11
Other Beneficiaries.................... 71
Other Holders.......................... 43
Participating Banks.................... 6
Partners............................... 1
PCB.................................... 12
Required holding period................ 99
Permits................................ 47
Permitted Amendment.................... 58
Permitted Riverboat.................... 58
Person................................. 119
Petition Date.......................... 4
Plan of Reorganization................. 1
Poirier................................ 104
Poydras Street Support Facility........ 23
Poydras Tunnel Area.................... 2
Pre-Opening Date Rent.................. 48
Preferential re-employment............. 104
Preservation Obligation Default........ 70
Preservation Obligations............... 69
Proponents............................. 4
Qualified Person....................... 120
Qualified Purchaser.................... 68
RDC.................................... 2
RDC Completion Guarantee............... 71
Receiver............................... 78
Redemption Date........................ 120
Redemption Securities.................. 120
Registrant............................. 1
Release Pool........................... 107
Rent................................... 48
Performance Units...................... 96
Residency Requirement.................. 102
Restricted Stock....................... 96
Riverboat Act.......................... 10
Rivergate.............................. 1
Rules.................................. 121
Rules and Regulations.................. 2
Salomon................................ 6
SARs................................... 96
School Board Payment................... 49
Second Floor Shell Construction........ 2
Second Floor Sublease.................. 73
Securities Act......................... 43
Senior Indebtedness.................... 78
Senior Permitted Refinancings.......... 41
Senior Subordinated Permitted
Refinancings......................... 41
Significant Transactions............... 120
Site Reactivation Date................. 47
SOP 90-7............................... 27
Speedy Arbitration..................... 121
State.................................. 4
Subordinated Obligations............... 78
Subordination Beneficiaries............ 78
Subsidiary............................. 122
Succession Date........................ 78
Surety Bond............................ 24
Swody.................................. 104
Term Loans............................. 6
Termination Agreement.................. 74
Termination Date....................... 78
Termination Event...................... 62
Termination Fee........................ 67
Termination Notice..................... 78
Termination of Construction Date....... 69
Tranche A-1............................ 39
Tranche A-2............................ 39
Tranche A-3............................ 39
Tranche B-1............................ 39
Tranche B-2............................ 39
Transfer............................... 122
Transition Date........................ 122
Transition Period...................... 54
Trustee................................ 43
Tucker Litigation...................... 102
Unclassified Common Stock.............. 109
Underwriters........................... 42
VDPs................................... 11
WARN Act Claimants..................... 104
Working Capital Facility............... 7
Working Capital Facility Maximum
Amount............................... 69
Zoning Ordinance....................... 25
</TABLE>
191
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange 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.
<TABLE>
<S> <C> <C>
JCC HOLDING COMPANY
By: /s/ FREDERICK W. BURFORD
----------------------------------------
Title: President
-------------------------------------
</TABLE>
Date December 3, 1998
192
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
2.01 -- Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code of Harrah's Jazz
Company, Harrah's Jazz Finance Corp. and Harrah's New Orleans Investment Company
(collectively "Debtors"), dated April 3, 1996(1)
2.02 -- First Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated
June 17, 1996(2)
2.03 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated
February 26, 1997(3)
2.04 -- Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as
Modified and Confirmed, dated as of February 26, 1997(4)
2.05 -- Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as
Modified Pre- and Post-Confirmation, dated as of July 24, 1997(5)
2.06 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as
Modified Through November 14, 1997, dated November 14, 1997(6)
2.07 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as
Modified Through January 29, 1998, dated January 29, 1998(3)
2.08 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as
Modified Through April 6, 1998(7)
2.09 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as
Modified Through August 12, 1998(8)
+2.10 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as
Modified Through September 3, 1998
2.11 -- Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as
Modified Through October 13, 1998(9)
+3.01 -- Certificate of Incorporation of JCC Holding Company
+3.02 -- Restated Certificate of Incorporation of JCC Holding Company
+3.03 -- Bylaws of JCC Holding Company
+3.04 -- Amended and Restated Bylaws of JCC Holding Company
+3.05 -- Second Amended and Restated Bylaws of JCC Holding Company
4.01 -- Indenture, dated as of October 30, 1998, among Jazz Casino Company, L.L.C., as Issuer,
JCC Holding Company, JCC Development Company, L.L.C., CP Development, L.L.C. and FP
Development L.L.C., as Guarantors and Norwest Bank Minnesota, National Association, as
Trustee, with respect to the Senior Subordinated Notes due 2009 with Contingent
Payments(9)
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4.02 -- Indenture, dated as of October 30, 1998, among Jazz Casino Company, L.L.C., as Issuer,
JCC Holding Company, JCC Development Company, L.L.C., CP Development, L.L.C. and FP
Development L.L.C., as Guarantors, and Norwest Bank Minnesota, National Association, as
Trustee, with respect to the Senior Subordinated Contingent Notes due 2009(10)
+4.03 -- Notes Completion Guarantee among Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc. and Norwest Bank Minnesota, National Association, as Trustee, dated
October 30, 1998
+4.04 -- Indenture, dated as of October 30, 1998, among Jazz Casino Company, L.L.C., as Issuer,
JCC Holding Company, as Guarantor, and Norwest Bank Minnesota, National Association, as
Trustee, with respect to the 8% Convertible Junior Subordinated Debentures due 2010
+4.05 -- Registration Rights Agreement among Jazz Casino Company, L.L.C., JCC Holding Company,
Salomon Smith Barney, Inc., Donaldson, Lufkin & Jenrette Inc., BT Alex. Brown
Incorporated, Bankers Trust Company and First National Bank of Commerce, dated as of
October 30, 1998
+4.06 -- Registration Rights Agreement between JCC Holding Company and Harrah's Crescent City
Investment Company, dated as of October 30, 1998
+4.07 -- Warrant Agreement between JCC Holding Company and Harrah's Crescent City Investment
Company, dated as of October 30, 1998
+4.08 -- Subordinated Loan Agreement among Jazz Casino Company, L.L.C., Harrah's Operating
Company, Inc. and Harrah's Entertainment, Inc., dated as of October 30, 1998
+4.09 -- Intercreditor Agreement among Harrah's Entertainment, Inc., Harrah's Operating Company,
Inc., Bankers Trust Company, as Administrative Agent, and Norwest Bank Minnesota,
National Association, as Trustee, and The Bank of New York, as Collateral Agent,
acknowledged and agreed to by JCC Holding Company, Jazz Casino Company, L.L.C., CP
Development, L.L.C., FP Development, L.L.C. and JCC Development Company, L.L.C., dated
as of October 29, 1998
+4.10 -- Credit Agreement among JCC Holding Company, Jazz Casino Company, L.L.C., the Banks party
hereto from time to time, and Bankers Trust Company, as Administrative Agent, dated as
of October 29, 1998
+10.01 -- Amended and Restated Lease Agreement among Rivergate Development Corporation, as
Landlord, Jazz Casino Company, L.L.C., as Tenant, and the City of New Orleans, as
Intervenor, dated October 29, 1998
+10.02 -- Amended and Restated General Development Agreement among Rivergate Development
Corporation, Jazz Casino Company, L.L.C. and the City of New Orleans, as Intervenor,
dated October 29, 1998
10.03 -- Basin Street Casino Lease Termination Agreement among the City of New Orleans, the
Rivergate Development Corporation and Harrah's Jazz Company, dated January 15, 1997(3)
10.04 -- Casino Operating Contract between the Louisiana Economic Development and Gaming
Corporation and Harrah's Jazz Company, dated March 14, 1994(11)
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+10.05 -- Amended and Renegotiated Casino Operating Contract among the State of Louisiana by and
through the Louisiana Gaming Control Board, Harrah's Jazz Company, Jazz Casino Company,
L.L.C., and Harrah's New Orleans Management Company and JCC Holding Company, as
Intervenors, effective as of October 30, 1998
+10.06 -- Second Amended and Restated Management Agreement between Harrah's New Orleans Management
Company and Jazz Casino Company, L.L.C., acknowledged and consented to by Rivergate
Development Corporation, as Landlord, dated as of October 29, 1998
+10.07 -- Second Floor Non-Gaming Sublease between Jazz Casino Company, L.L.C., as Sublessor, and
JCC Development Company, L.L.C., as Sublessee, dated October 29, 1998
+10.08 -- 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
as of October 29, 1998
+10.09 -- LGCB Completion Guarantee among Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc., accepted and agreed to by the Louisiana Gaming Control Board, dated as of
October 30, 1998
+10.10 -- Amended and Restated Subordinated Completion Loan Agreement among Jazz Casino Company,
L.L.C., Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., and as to the
provisions of Sections 2(C)iii and (iv) only, agreed and accepted by Bankers Trust
Company as Administrative Agent for Lenders, dated October 30, 1998
+10.11 -- Amended and Restated Construction Lien Indemnity Obligation Agreement between Jazz
Casino Company, L.L.C. and Harrah's Operating Company, Inc., dated October 30, 1998
+10.12 -- Bank Completion Guarantee among Harrah's Entertainment, Inc. and Harrah's Operating
Company, Inc. accepted and agreed to by Bankers Trust Company, as Administrative Agent,
dated October 29, 1998
+10.13 -- Completion Guarantor Subordination Agreement (Senior Subordinated Notes) among Harrah's
Entertainment, Inc., Harrah's Operating Company, Inc. and Norwest Bank Minnesota, N.A.,
as Trustee, acknowledged and agreed to by Jazz Casino Company, L.L.C., dated as of
October 30, 1998
+10.14 -- Manager Subordination Agreement (Landlord) among Harrah's New Orleans Management
Company, the City of New Orleans and Rivergate Development Corporation, dated as of
October 29, 1998
+10.15 -- Manager Subordination Agreement (Lenders) between Harrah's New Orleans Management
Company and Bankers Trust Company, as Administrative Agent, acknowledged and agreed to
by Jazz Casino Company, L.L.C. and The Bank of New York, dated as of October 29, 1998
+10.16 -- Manager Subordination Agreement (Senior Subordinated Notes) between Harrah's New Orleans
Management Company and Norwest Bank Minnesota, National Association, as Trustee,
acknowledged and agreed to by Jazz Casino Company, L.L.C., and The Bank of New York,
dated as of October 29, 1998
</TABLE>
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+10.17 -- HET Subordinated Lender Subordination Agreement (Lenders) among Harrah's Entertainment,
Inc., Harrah's Operating Company, Inc. and Bankers Trust Company, as Administrative
Agent, acknowledged and agreed to by Jazz Casino Company, L.L.C., dated as of October
29, 1998
+10.18 -- Management Fee Reimbursement Agreement Guarantee among Harrah's Entertainment, Inc.,
Harrah's Operating Company, Inc., Jazz Casino Company, L.L.C., and Harrah's New Orleans
Management Company, dated October 29, 1998
+10.19 -- Performance Bond among Jazz Casino Company, L.L.C. as Principal, and Reliance Insurance
Company and United States Fidelity and Guaranty Company, as Sureties, for the benefit of
each of the City of New Orleans, Rivergate Development Corporation, the Louisiana Gaming
Control Board, Norwest Bank, Minnesota, N.A., and Bankers Trust Company (collectively,
the "Obligees"), dated October 29, 1998
+10.20 -- Form of JCC Holding Company 1998 Long-Term Incentive Plan
+10.21 -- Completion Guarantor Subordination Agreement (Lenders) among Harrah's Entertainment,
Inc., Harrah's Operating Company, Inc. and Bankers Trust Company, as Administrative
Agent, acknowledged and agreed to by Jazz Casino Company, L.L.C., dated as of October
29, 1998
+10.22 -- Completion Guarantor Subordination Agreement (Convertible Junior Subordinated
Debentures) among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and
Norwest Bank Minnesota, N.A., as Trustee, acknowledged and agreed to by Jazz Casino
Company, L.L.C., dated as of October 30, 1998
+10.23 -- HET Subordinated Lender Subordination Agreement (Senior Subordinated Notes) among
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and Norwest Bank
Minnesota, N.A., as Trustee, acknowledged and agreed to by Jazz Casino Company, L.L.C.,
dated as of October 30, 1998
+10.24 -- HET Subordinated Lender Subordination Agreement (Convertible Junior Subordinated
Debentures) among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and
Norwest Bank Minnesota, N.A., as Trustee, acknowledged and agreed to by Jazz Casino
Company, L.L.C., dated as of October 29, 1998
+10.25 -- Credit Enhancement Fee Agreement between Jazz Casino Company, L.L.C. and Harrah's
Operating Company, Inc., dated October 29, 1998
+10.26 -- HET/JCC Agreement between Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.
and Jazz Casino Company, L.L.C., dated October 30, 1998
+10.27 -- Guaranty and Loan Purchase Agreement by Harrah's Entertainment, Inc. and Harrah's
Operating Company, Inc., acknowledged and agreed to by Bankers Trust Company as
Administrative Agent, dated as of October 29, 1998
+10.28 -- Act of Mortgage and Collateral Assignment by Jazz Casino Company L.L.C., in favor of The
Bank of New York, as Collateral Agent, for the present and future holders of the Secured
Indebtedness, dated October 29, 1998, effective as of October 30, 1998
</TABLE>
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+10.29 -- Act of Mortgage and Collateral Assignment by CP Development, L.L.C., in favor of The
Bank of New York, as Collateral Agent, for the present and future holders of the Secured
Obligations, dated October 29, 1998, effective as of October 30, 1998
+10.30 -- Act of Mortgage and Collateral Assignment by FP Development, L.L.C., in favor of The
Bank of New York, as Collateral Agent, for the present and future holders of the Secured
Obligations, dated October 29, 1998, effective as of October 30, 1998
+10.31 -- Act of Mortgage and Collateral Assignment by JCC Development Company, L.L.C., in favor
of The Bank of New York, as Collateral Agent, for the present and future holders of the
Secured Obligations, dated October 29, 1998, effective as of October 30, 1998
+10.32 -- Credit Enhancement Fee Agreement (Bank Credit Agreement) by and among Bankers Trust
Company, as Administrative Agent for Morgan Stanley Prime Income Trust and Van Kampen
American Capital Prime Rate Income Trust, Harrah's Operating Company, Inc. and Harrah's
Entertainment, Inc., dated October 29, 1998
+10.33 -- Security Agreement, dated as of October 29, 1998, among JCC Holding Company, Jazz Casino
Company, L.L.C., CP Development, L.L.C., FP Development, L.L.C., and JCC Development
Company., L.L.C (each, an 'Assignor" and, together with any other entity that becomes a
party, the 'Assignors"), The Bank of New York, as Collateral Agent for the benefit of
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and the Secured Creditors
+10.34 -- Pledge Agreement, dated as of October 29, 1998, among JCC Holding Company, Jazz Casino
Company, L.L.C., CP Development, L.L.C., FP Development, L.L.C., and JCC Development
Company., L.L.C. (each a 'Pledgor" and collectively, the 'Pledgors"), The Bank of New
York Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and the Secured
Creditors
+10.35 -- Subsidiaries Guaranty, dated as of October 29, 1998, among CP Development, L.L.C., FP
Development, L.L.C. and JCC Development Company, L.L.C. (each a "Guarantor" and,
together with any other entity that becomes a party, the "Guarantors"), and Bankers
Trust Company, as Administrative Agent, for the benefit of the Creditors
+10.36 -- Assignment of Contracts and Ancillary Rights, dated as of October 30, 1998, among Jazz
Casino Company, L.L.C., Harrah's Operating Company, Inc. and Harrah's Entertainment,
Inc.
+10.37 -- Amended and Restated Open Access Plans of Jazz Casino Company, L.L.C. Submitted to the
Council of the City of New Orleans on October 15, 1998.
+10.38 -- Open Access Program
+21.01 -- List of Subsidiaries of JCC Holding Company
+27.01 -- Financial Data Schedule
99.01 -- Opinion of New Orleans City Attorney regarding Home Rule Charter(12)
99.02 -- Opinion of New Orleans City Attorney regarding Amusement Tax(12)
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99.03 -- Opinion of Richard P. Ieyoub, Louisiana State Attorney General, regarding the Powers of
the Louisiana Gaming Control Board(3)
99.04 -- JORDAN VS. LOUISIANA GAMING CONTROL BOARD and MURPHY J. FOSTER AND BEAN VS. LOUISIANA
GAMING CONTROL BOARD AND RIVERGATE DEVELOPMENT CORPORATION, Nos. 98-C-1122, 98-C-1133
and 98-C-1134, (La. S. Ct., May 15, 1998)(13)
</TABLE>
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+ Previously filed.
(1) Incorporated by reference to Harrah's Jazz Company Annual Report on Form
10-K for the year ended December 31, 1995, File No. 33-73370.
(2) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, filed August 14, 1996, File No.
33-73370.
(3) Incorporated by reference to Harrah's Jazz Company Annual Report on Form
10-K for the year ended December 31, 1997, File No. 33-73370.
(4) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended March 30, 1997, filed May 15, 1997, File No.
33-73370.
(5) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, filed August 14, 1997, File No.
33-73370.
(6) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, filed November 14, 1997, File
No. 33-73370.
(7) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, filed May 15, 1998, File No.
33-73370.
(8) Incorporated by reference to Harrah's Jazz Company Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed August 14, 1998, File No.
33-73370.
(9) Incorporated by reference to the Post Effective Amendment No. 1 to the Form
T-3 of the Jazz Casino Company, L.L.C., filed November 10, 1998, File No.
022-22289.
(10) Incorporated by reference to the Post Effective Amendment No. 1 to the Form
T-3 of the Jazz Casino Company, L.L.C., filed November 10, 1998, File No.
022-22291.
(11) Incorporated by reference to Amendment No. 3 to the Registration Statement
on Form S-1 of Harrah's Jazz Company and Harrah's Jazz Finance Corp., filed
August 4, 1994, File No. 33-73370.
(12) 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
October 12, 1994, File No. 33-73370.
(13) Incorporated by reference to Harrah's Jazz Company Current Report on Form
8-K, filed May 19, 1998, File No. 33-73370.
